FIRST TRUST
First Trust Exchange-Traded Fund IV
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First Trust Long Duration Opportunities ETF (LGOV)
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Annual Report
For the Year Ended
October 31, 2022
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TABLE OF CONTENTS
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FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
ANNUAL REPORT
OCTOBER 31, 2022
Shareholder Letter........................................................... 1
Fund Performance Overview.................................................... 2
Portfolio Commentary......................................................... 5
Understanding Your Fund Expenses............................................. 7
Portfolio of Investments..................................................... 8
Statement of Assets and Liabilities.......................................... 11
Statement of Operations...................................................... 12
Statements of Changes in Net Assets.......................................... 13
Financial Highlights......................................................... 14
Notes to Financial Statements................................................ 15
Report of Independent Registered Public Accounting Firm...................... 25
Additional Information....................................................... 26
Board of Trustees and Officers............................................... 33
Privacy Policy............................................................... 35
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and its representatives, taking into account the
information currently available to them. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For example,
forward-looking statements include the use of words such as "anticipate,"
"estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or
other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the series of First Trust Exchange-Traded Fund IV (the "Trust") described in
this report (First Trust Long Duration Opportunities ETF; hereinafter referred
to as the "Fund") to be materially different from any future results,
performance or achievements expressed or implied by the forward-looking
statements. When evaluating the information included in this report, you are
cautioned not to place undue reliance on these forward-looking statements, which
reflect the judgment of the Advisor and its representatives only as of the date
hereof. We undertake no obligation to publicly revise or update these
forward-looking statements to reflect events and circumstances that arise after
the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that the Fund will achieve its investment 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 investing in the Fund. See "Risk Considerations" in the Additional
Information section of this report for a discussion of certain other risks of
investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
www.ftportfolios.com or speak with your financial advisor. Investment returns,
net asset value and share price will fluctuate and Fund shares, when sold, may
be worth more or less than their original cost.
The Advisor may also periodically provide additional information on Fund
performance on the Fund's webpage at www.ftportfolios.com.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment in
the Fund. It includes details about the Fund and presents data and analysis that
provide insight into the Fund's performance and investment approach.
By reading the portfolio commentary from the portfolio management team of the
Fund, you may obtain an understanding of how the market environment affected the
Fund's performance. The statistical information that follows may help you
understand the Fund's performance compared to that of a relevant market
benchmark.
It is important to keep in mind that the opinions expressed by personnel of the
Advisor are just that: informed opinions. They should not be considered to be
promises or advice. The opinions, like the statistics, cover the period through
the date on the cover of this report. The material risks of investing in the
Fund are spelled out in the prospectus, the statement of additional information,
and other Fund regulatory filings.
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SHAREHOLDER LETTER
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FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
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
Long Duration Opportunities 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
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FUND PERFORMANCE OVERVIEW (UNAUDITED)
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FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
The First Trust Long Duration Opportunities ETF's (the "Fund") primary
investment objective is to generate current income with a focus on preservation
of capital. Under normal market conditions, the Fund will invest at least 80% of
its net assets (including investment borrowings) in a portfolio of
investment-grade debt securities issued or guaranteed by the U.S. government,
its agencies or government-sponsored entities, including publicly-issued U.S.
Treasury securities and mortgage-related securities. The Fund may also invest in
exchange-traded funds ("ETFs") that principally invest in such securities. The
Fund may purchase mortgage-related securities in "to-be-announced" transactions
("TBA Transactions"), including mortgage dollar rolls.
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PERFORMANCE
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AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year Ended Inception (1/22/19) Inception (1/22/19)
10/31/22 to 10/31/22 to 10/31/22
FUND PERFORMANCE
NAV -21.37% -1.24% -4.60%
Market Price -21.37% -1.24% -4.60%
INDEX PERFORMANCE
ICE BofA 5+ Year US Treasury Index -22.65% -2.06% -7.55%
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Total returns for the periods since inception are calculated from the inception
date of the Fund. "Average Annual Total Returns" represent the average annual
change in value of an investment over the period indicated. "Cumulative Total
Returns" represent the total change in value of an investment over the periods
indicated.
The Fund's per share net asset value ("NAV") is the value of one share of the
Fund and is computed by dividing the value of all assets of the Fund (including
accrued interest and dividends), less all liabilities (including accrued
expenses and dividends declared but unpaid), by the total number of outstanding
shares. The price used to calculate market return ("Market Price") is determined
by using the midpoint 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 index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The total returns presented reflect the reinvestment of dividends on
securities in the index. The returns presented do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future performance.
Page 2
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FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
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FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
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% OF
FUND ALLOCATION NET ASSETS
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U.S. Government Agency Mortgage-Backed
Securities 49.3%
U.S. Government Bonds and Notes 8.3
U.S. Treasury Bills 5.4
Money Market Funds 41.0
Call Options Purchased 0.8
Put Options Purchased 0.2
Call Options Written (0.1)
Net Other Assets and Liabilities(1) (4.9)
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Total 100.0%
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% OF TOTAL LONG
FIXED-INCOME
INVESTMENTS, CASH
CREDIT QUALITY(2) & CASH EQUIVALENTS
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Government and Agency 55.3%
Cash & Cash Equivalents 44.7
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Total 100.0%
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% OF LONG-TERM
TOP TEN HOLDINGS INVESTMENTS(3)
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Government National Mortgage Association,
Series 2010-61, Class KE, 5.00%, 05/16/40 12.4%
Federal National Mortgage Association,
Series 2005-74, Class NZ, 6.00%, 09/25/35 9.7
Federal National Mortgage Association, Pool
TBA, 4.00%, 12/15/52 9.2
Federal Home Loan Mortgage Corporation
Multifamily Structured Pass Through
Certificates, Series 2018-K159, Class A3,
3.95%, 11/25/33 8.7
Federal Home Loan Mortgage Corporation
Multifamily Structured Pass Through
Certificates, Series 2021-K1522, Class A2,
2.36%, 10/25/36 7.0
Federal Home Loan Mortgage Corporation
Multifamily Structured Pass Through
Certificates, Series 2021-K1521, Class A2,
2.18%, 08/25/36 6.8
U.S. Treasury Bond, 1.13%, 05/15/40 5.7
U.S. Treasury Bond, 1.13%, 08/15/40 5.6
Federal Home Loan Mortgage Corporation
Multifamily Structured Pass Through
Certificates, Series 2018-K157, Class A3,
3.99%, 08/25/33 5.0
Federal Home Loan Mortgage Corporation
Multifamily Structured Pass Through
Certificates, Series 2020-K120, Class
XAM, IO, 1.21%, 10/25/30 5.0
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Total 75.1%
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WEIGHTED AVERAGE EFFECTIVE NET DURATION
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October 31, 2022 10.35 Years
High - March 31, 2022 10.73 Years
Low - November 30, 2021 9.55 Years
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(1) Includes variation margin on futures.
(2) The ratings are by S&P Global Ratings. A credit rating is an assessment
provided by a nationally recognized statistical rating organization
(NRSRO), of the creditworthiness of an issuer with respect to debt
obligations. Ratings are measured highest to lowest on a scale that
generally ranges from AAA to D for long-term ratings and A-1+ to C for
short-term ratings. Investment grade is defined as those issuers that have
a long-term credit rating of BBB- or higher or a short-term credit rating
of A-3 or higher. The credit ratings shown relate to the credit worthiness
of the issuers of the underlying securities in the Fund, and not to the
Fund or its shares. U.S. Treasury and U.S. Agency mortgage-backed
securities appear under "Government and Agency". Credit ratings are
subject to change.
(3) Percentages are based on the long positions only. Money market funds are
excluded.
Page 3
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FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
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FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
JANUARY 22, 2019 - OCTOBER 31, 2022
First Trust Long Duration ICE BofA 5+ Year
Opportunities ETF US Treasury Index
1/22/19 $10,000 $10,000
4/30/19 10,425 10,273
10/31/19 11,408 11,321
4/30/20 12,436 12,839
10/31/20 12,259 12,536
4/30/21 11,760 11,593
10/31/21 12,133 11,951
4/30/22 10,797 10,448
10/31/22 9,540 9,245
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the index does
not actually hold a portfolio of securities and therefore does not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
Performance in securitized product investment strategies can be impacted from
the benefits of purchasing odd lot positions. The impact of these investments
can be particularly meaningful when funds have limited assets under management
and may not be a sustainable source of performance as a fund grows in size.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
Information showing the number of days the market price of the Fund's shares was
greater (at a premium) and less (at a discount) than the Fund's net asset value
for the most recently completed year, and the most recently completed calendar
quarters since that year (or life of the Fund, if shorter) is available at
https://www.ftportfolios.com/Retail/etf/home.aspx.
Page 4
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PORTFOLIO COMMENTARY
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FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
ANNUAL REPORT
OCTOBER 31, 2022 (UNAUDITED)
ADVISOR
First Trust Advisors L.P. ("First Trust" or the "Advisor") is the investment
advisor to the First Trust Long Duration Opportunities ETF (the "Fund" or
"LGOV"). First Trust is responsible for the selection and ongoing monitoring of
the securities in the Fund's portfolio and certain other services necessary for
the management of the portfolio.
PORTFOLIO MANAGEMENT TEAM
JAMES SNYDER - SENIOR VICE PRESIDENT AND SENIOR PORTFOLIO MANAGER
JEREMIAH CHARLES - SENIOR VICE PRESIDENT AND SENIOR PORTFOLIO MANAGER
The portfolio managers are primarily and jointly responsible for the day-to-day
management of the Fund. Each portfolio manager has served as part of the
portfolio management team of the Fund since 2019.
COMMENTARY
The Fund's primary investment objective is to generate current income with a
focus on preservation of capital. Under normal market conditions, the Fund will
invest at least 80% of its net assets (including investment borrowings) in a
portfolio of investment-grade debt securities issued or guaranteed by the U.S.
government, its agencies or government-sponsored entities, including
publicly-issued U.S. Treasury securities and mortgage-related securities.
MARKET RECAP
The 12-month period ended October 31, 2022 began with markets coming under
pressure as measures of inflation began to accelerate upward, and market
participants questioning whether inflation was truly transitory, as so
proclaimed by the Federal Reserve (the "Fed"). In a continuation of the yield
curve repricing following the September 2021 Federal Open Market Committee
meeting, bond yields once again resumed their march higher as the calendar year
flipped into 2022, as fears of the COVID-19 variant, Omicron, were pushed aside,
broader economic data remained strong, and incoming inflation data was rapidly
deteriorating. Finally, the Fed relented and abandoned its transitory language,
began to pivot and signaled very hawkish monetary policy to come. This hawkish
pivot included guidance on not only an aggressive path of future interest rate
hikes, but also signaled the use of the balance sheet to finally conclude new
purchases of U.S. Treasuries and Agency mortgage-backed securities ("MBS") and
subsequently, to let the securities mature and roll off via Quantitative
Tightening. Unfortunately for the Fed and the broader U.S. economy, inflationary
readings continued to push higher and the Fed was forced, albeit, in our
opinion, clearly too late in its action, to act very aggressively. This started
in June 2022 with the first 75 basis point ("bps") hike in nearly 30 years and
was followed by successive 75 bps hikes at the Fed's July and September 2022
meetings. This abrupt monetary policy change kicked off rather sharp moves
higher in interest rates, volatility, and risk asset pricing, with each coming
under duress throughout the 2022 calendar year. Over the course of the 12-month
period ended October 31, 2022, 2-Year Treasury yields rose +399 bps, the 5-Year
Treasury yield rose +305 bps, and the 10-Year yield rose +243 bps. These
dramatic interest rate increases caused measures of volatility to spike, with
the Merrill Lynch Option Volatility Estimate Index increasing to levels not seen
since the Great Financial Crisis of 2008-09. With upward pressure in rates and
sustained interest rate volatility, overall risk asset pricing and market
liquidity have come under significant pressure. Over the period, securitized
spreads have widened with the Agency mortgage basis closing at +175 bps on
October 31, 2022, which is +111 bps wider and the Government Option-Adjusted
Spread on Agency MBS widening 45 bps to close the period at 49 bps, with a
period high of 64 bps.
PERFORMANCE ANALYSIS
For the 12-month period ended October 31, 2022, the Fund returned -21.37%, net
of fees, on a net asset value ("NAV") basis.
For the same period, the ICE BofA 5+ Year US Treasury Index (the "Index")
returned -22.65%.
During the same period, the Fund outperformed the Index by 1.28% net of fees, on
a NAV basis. Given the 2020-2021 historic ascent of home price appreciation and
correspondingly, measures of inflation, the Fund elected to strategically run a
lower overall effective duration. We remained mindful of the perceived logical
response the Fed would be forced to counteract such purchasing power
destruction, and as such maintained this very defensive posture on interest
rates throughout the year. To help maintain this lower duration, the Fund
utilizes derivatives, predominantly in treasury futures and options. The Fund
uses these in both long and short positions, to manage both its overall interest
rate exposure, and its key rate or duration exposure by maturity point along the
yield curve. Additionally, the Fund uses long treasury futures to gain exposure
to the U.S. government interest rates market. Since the Fund uses futures in
Page 5
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PORTFOLIO COMMENTARY (CONTINUED)
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FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
ANNUAL REPORT
OCTOBER 31, 2022 (UNAUDITED)
such a way, and interest rates are higher on the year, the use of futures has
contributed to the negative total return of the Fund over the 12-month period
ended October 31, 2022. However, active management of duration, curve and
volatility exposures using these instruments has contributed to the relative
outperformance versus the benchmark. Given the positively convex attributes of
Agency commercial mortgage-backed securities, and the team's favorable view on
multifamily fundamentals, the Fund maintained a significant allocation to the
sector. Additionally, the team has also looked to improve liquidity, and as
such, reduced its Agency collateralized mortgage obligation holdings, and
reallocated to U.S. Treasury and Treasury futures positions, alongside an
increase in using the Agency MBS TBA Dollar Roll market. We felt that this was a
prudent reallocation of risk to improve liquidity. Combined, these strategies
helped to drive the relative outperformance, where the Fund outperformed the
Index by over 125 bps, net of fees, on a NAV basis calendar year-to-date.
MARKET OUTLOOK
As expected, on the back of a massive increase in M2 money supply, limited
housing inventory coupled with historically low rates, ongoing supply chain
delays and labor market shortages, inflationary pressure built to levels not
seen in 40 years. We remain mindful of both how hard it can be to tame inflation
once set in, and the impacts this can have on term premium pricing along the
U.S. yield curve. And while we believe that it won't be a straight line, we
expect yields across the curve will continue to move higher, albeit at a much
slower pace than experienced earlier this year. We believe the Fed may be forced
to hike interest rates higher than the market expects, and as such believe that
the curve inversion will continue to persist, although we do not expect
significantly deeper inversion. Inflation remains high, however we believe the
aggressive rate hikes implemented over the last several months have just begun
to work their way through the broader economy, and already, it appears the
housing market is beginning to cool off as month over month home price
appreciation has turned negative. Currently, we do not believe the Fed will be
an outright seller of its MBS holdings for long as measures of volatility and
illiquidity remain this elevated. We do anticipate that heightened levels of
rate volatility will remain over the shorter term, however, to expect measures
of rate volatility and spread pricing to simply return to post-GFC/pre-COVID-19
levels in the near term and perhaps even intermediate term, would be
unrealistic, in our view. Heavy handed Fed intervention appears to be over; for
as long as inflation persists, the Fed appears committed to the fight. Despite
the moderately bearish tone on rates, spreads are quite wide, and we believe
opportunities abound, as we are now very positive on generic Agency MBS spread
valuations.
We remain committed to finding value across the various sectors of the mortgage
market, but also along the term spectrum of the U.S. yield curve. Given the
massive increase in rates this year, we have begun to increase the interest rate
sensitivity in the Fund as duration risks appear to be more balanced than
earlier in the year, and should yields continue to climb, we will likely
continue to extend duration. We remain committed to actively managing the
convexity component in the portfolio; meaning we do not want to extend in
duration as rates rise, and conversely, we do not want to shorten or lose
duration into a rally. From an asset allocation perspective, we plan to take
advantage of very wide spreads in select securitized opportunities that the
managers find to be attractively priced, mindful of overall market and Fund
liquidity constraints. In our view, this approach would provide higher current
income, total return, and spread protection for shareholders. We believe this
strategy can be very effective with proper security selection, particularly when
combined with appropriate yield curve management. We plan to continue to
maintain a tradeable portfolio as that is critical to being able to act should
opportunities arise.
Page 6
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
UNDERSTANDING YOUR FUND EXPENSES
OCTOBER 31, 2022 (UNAUDITED)
As a shareholder of First Trust Long Duration Opportunities ETF (the "Fund"),
you incur two types of costs: (1) transaction costs; and (2) ongoing costs,
including management fees, distribution and/or service (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.
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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)
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FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
Actual $1,000.00 $ 883.60 0.65% $3.09
Hypothetical (5% return before expenses) $1,000.00 $1,021.93 0.65% $3.31
(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 7
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2022
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------------------- ------------ ------------ ----------------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES -- 49.3%
COLLATERALIZED MORTGAGE OBLIGATIONS -- 12.9%
Federal National Mortgage Association
$ 942,978 Series 2005-74, Class NZ..................................... 6.00% 09/25/35 $ 1,013,158
Government National Mortgage Association
1,292,000 Series 2010-61, Class KE..................................... 5.00% 05/16/40 1,300,599
411,671 Series 2015-168, Class GI, IO................................ 5.50% 02/16/33 26,289
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2,340,046
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COMMERCIAL MORTGAGE-BACKED SECURITIES -- 31.1%
Federal Home Loan Mortgage Corporation Multifamily Structured
Pass Through Certificates
7,420,851 Series 2014-K036, Class X1, IO (a)........................... 0.69% 10/25/23 36,609
570,000 Series 2018-K157, Class A3................................... 3.99% 08/25/33 524,356
1,000,000 Series 2018-K159, Class A3................................... 3.95% 11/25/33 911,944
1,936,000 Series 2019-K095, Class XAM, IO (a).......................... 1.24% 06/25/29 131,494
6,850,000 Series 2020-K120, Class XAM, IO (a).......................... 1.21% 10/25/30 522,632
1,991,492 Series 2020-K1515, Class X1, IO (a).......................... 1.51% 02/25/35 236,489
2,634,646 Series 2020-K1516, Class X1, IO (a).......................... 1.51% 05/25/35 325,757
3,425,783 Series 2020-K1517, Class X1, IO (a).......................... 1.33% 07/25/35 360,037
1,000,000 Series 2021-K1521, Class A2.................................. 2.18% 08/25/36 716,026
1,000,000 Series 2021-K1522, Class A2.................................. 2.36% 10/25/36 729,105
Government National Mortgage Association
872,938 Series 2020-159, Class Z (b)................................. 2.50% 10/16/62 457,429
482,857 Series 2020-197, Class Z (a)................................. 2.25% 10/16/62 227,691
209,433 Series 2021-4, Class Z (a)................................... 2.00% 09/16/62 87,348
900,924 Series 2021-28, Class Z (a).................................. 2.00% 10/16/62 401,028
----------------
5,667,945
----------------
PASS-THROUGH SECURITIES -- 5.3%
Federal National Mortgage Association
1,000,000 Pool TBA..................................................... 5.00% 12/15/52 962,617
----------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES..................................... 8,970,608
(Cost $11,298,464) ----------------
U.S. GOVERNMENT BONDS AND NOTES -- 8.3%
1,000,000 U.S. Treasury Bond.............................................. 1.13% 05/15/40 594,492
500,000 U.S. Treasury Bond.............................................. 1.75% 08/15/41 325,254
1,000,000 U.S. Treasury Bond.............................................. 1.13% 08/15/40 589,570
----------------
TOTAL U.S. GOVERNMENT BONDS AND NOTES....................................................... 1,509,316
(Cost $1,917,075) ----------------
U.S. TREASURY BILLS -- 5.4%
1,000,000 U.S. Treasury Bill.............................................. (c) 03/16/23 984,194
(Cost $986,182) ----------------
SHARES DESCRIPTION VALUE
---------------- -------------------------------------------------------------------------------------------- ----------------
MONEY MARKET FUNDS -- 41.0%
7,466,268 Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio - Institutional Class -
2.85% (d)................................................................................ 7,466,268
(Cost $7,466,268) ----------------
TOTAL INVESTMENTS -- 104.0%................................................................. 18,930,386
(Cost $21,667,989) ----------------
Page 8 See Notes to Financial Statements
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
NUMBER OF NOTIONAL EXERCISE EXPIRATION
CONTRACTS DESCRIPTION AMOUNT PRICE DATE VALUE
---------------- -------------------------------------------------- ------------ ------------ ------------ ----------------
PURCHASED OPTIONS -- 1.0%
CALL OPTIONS PURCHASED -- 0.8%
20 U.S. 5-Year Treasury Futures Call................. $ 2,136,406 $ 107.00 01/27/23 $ 23,750
15 U.S. Treasury Long Bond Futures Call.............. 1,802,813 121.00 12/23/22 38,203
5 U.S. Treasury Long Bond Futures Call.............. 600,938 119.00 01/27/23 21,328
10 U.S. Treasury Long Bond Futures Call.............. 1,201,875 119.00 02/24/23 47,813
5 U.S. Treasury Long Bond Futures Call.............. 600,938 121.00 02/24/23 18,906
----------------
TOTAL CALL OPTIONS PURCHASED................................................................ 150,000
(Cost $148,893) ----------------
PUT OPTIONS PURCHASED -- 0.2%
10 U.S. 5-Year Treasury Futures Put.................. 1,068,203 107.50 02/24/23 18,203
10 U.S. 10-Year Treasury Futures Put................. 1,108,750 110.50 01/27/23 17,344
----------------
TOTAL PUT OPTIONS PURCHASED................................................................. 35,547
(Cost $31,067) ----------------
TOTAL PURCHASED OPTIONS..................................................................... 185,547
(Cost $179,960) ----------------
CALL OPTIONS WRITTEN -- (0.1)%
(5) U.S. Treasury Long Bond Futures Call.............. (600,938) 124.00 01/27/23 (10,469)
(Premiums received $15,612) ----------------
NET OTHER ASSETS AND LIABILITIES -- (4.9)%.................................................. (891,840)
----------------
NET ASSETS -- 100.0%........................................................................ $ 18,213,624
================
FUTURES CONTRACTS AT OCTOBER 31, 2022 (See Note 2D - Futures Contracts in the
Notes to Financial Statements):
UNREALIZED
APPRECIATION
NUMBER OF EXPIRATION NOTIONAL (DEPRECIATION)/
FUTURES CONTRACTS POSITION CONTRACTS DATE VALUE VALUE
------------------------------------------------------- ----------- ----------- ----------- -------------- ----------------
U.S. Treasury Long Bond Futures Long 18 Dec-2022 $ 2,169,000 $ 2,579
Ultra 10-Year U.S. Treasury Notes Long 5 Dec-2022 579,922 (247)
Ultra U.S. Treasury Bond Futures Long 12 Dec-2022 1,531,875 (13,251)
-------------- ----------------
$ 4,280,797 $ (10,919)
============== ================
-----------------------------
(a) Collateral Strip Rate security. Coupon is based on the weighted net
interest rate of the investment's underlying collateral. The interest rate
resets periodically.
(b) Weighted Average Coupon security. Coupon is based on the blended interest
rate of the underlying holdings, which may have different coupons. The
coupon may change in any period.
(c) Zero coupon security.
(d) Rate shown reflects yield as of October 31, 2022.
IO - Interest-Only Security - Principal amount shown represents par value on
which interest payments are based.
TBA - To-Be-Announced Security
See Notes to Financial Statements Page 9
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2022
-----------------------------
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):
ASSETS TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
10/31/2022 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
U.S. Government Agency Mortgage-Backed Securities..... $ 8,970,608 $ -- $ 8,970,608 $ --
U.S. Government Bonds and Notes....................... 1,509,316 -- 1,509,316 --
U.S. Treasury Bills................................... 984,194 -- 984,194 --
Money Market Funds.................................... 7,466,268 7,466,268 -- --
--------------- --------------- --------------- ---------------
Total Investments..................................... 18,930,386 7,466,268 11,464,118 --
Call Options Purchased................................ 150,000 150,000 -- --
Put Options Purchased................................. 35,547 35,547 -- --
Futures Contracts*.................................... 2,579 2,579 -- --
--------------- --------------- --------------- ---------------
Total................................................. $ 19,118,512 $ 7,654,394 $ 11,464,118 $ --
=============== =============== =============== ===============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
10/31/2022 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
Call Options Written.................................. $ (10,469) $ (10,469) $ -- $ --
Futures Contracts*.................................... (13,498) (13,498) -- --
--------------- --------------- --------------- ---------------
Total................................................. $ (23,967) $ (23,967) $ -- $ --
=============== =============== =============== ===============
* Includes cumulative appreciation/depreciation on futures contracts as reported
in the Futures Contracts table. Only the current day's variation margin is
presented on the Statements of Assets and Liabilities.
Page 10 See Notes to Financial Statements
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2022
ASSETS:
Investments, at value.................................................. $ 18,930,386
Options contracts purchased, at value ................................. 185,547
Cash segregated as collateral for open futures and written
options contracts................................................... 36,374
Receivables:
Interest............................................................ 59,444
Dividends........................................................... 16,615
--------------
Total Assets........................................................ 19,228,366
--------------
LIABILITIES:
Options contracts written, at value.................................... 10,469
Payables:
Investment securities purchased..................................... 962,253
Variation margin.................................................... 31,776
Investment advisory fees............................................ 10,244
--------------
Total Liabilities................................................... 1,014,742
--------------
NET ASSETS............................................................. $ 18,213,624
==============
NET ASSETS CONSIST OF:
Paid-in capital........................................................ $ 25,253,857
Par value.............................................................. 8,500
Accumulated distributable earnings (loss).............................. (7,048,733)
--------------
NET ASSETS............................................................. $ 18,213,624
==============
NET ASSET VALUE, per share............................................. $ 21.43
==============
Number of shares outstanding (unlimited number of shares authorized,
par value $0.01 per share).......................................... 850,002
==============
Investments, at cost................................................... $ 21,667,989
==============
Premiums paid on options contracts purchased........................... $ 179,960
==============
Premiums received on options contracts written......................... $ 15,612
==============
See Notes to Financial Statements Page 11
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2022
INVESTMENT INCOME:
Interest............................................................... $ 647,213
Dividends.............................................................. 93,179
--------------
Total investment income............................................. 740,392
--------------
EXPENSES:
Investment advisory fees............................................... 196,922
--------------
Total expenses...................................................... 196,922
--------------
NET INVESTMENT INCOME (LOSS)........................................... 543,470
--------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments......................................................... (2,342,910)
Futures contracts................................................... (1,722,463)
Purchased options contracts......................................... (19,487)
Written options contracts........................................... 2,831
--------------
Net realized gain (loss)............................................... (4,082,029)
--------------
Net change in unrealized appreciation (depreciation) on:
Investments......................................................... (2,863,747)
Futures contracts................................................... (48,569)
Purchased options contracts......................................... (1,068)
Written options contracts........................................... 9,383
--------------
Net change in unrealized appreciation (depreciation)................... (2,904,001)
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)................................ (6,986,030)
--------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS..................................................... $ (6,442,560)
==============
Page 12 See Notes to Financial Statements
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
10/31/2022 10/31/2021
-------------- ---------------
OPERATIONS:
Net investment income (loss)........................................... $ 543,470 $ 545,413
Net realized gain (loss)............................................... (4,082,029) (323,347)
Net change in unrealized appreciation (depreciation)................... (2,904,001) (611,405)
-------------- ---------------
Net increase (decrease) in net assets resulting from operations........ (6,442,560) (389,339)
-------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment operations.................................................. (459,443) (1,088,250)
Return of capital...................................................... (36,043) (45,452)
-------------- ---------------
Total distributions to shareholders.................................... (495,486) (1,133,702)
-------------- ---------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold.............................................. 7,339,085 18,673,006
Cost of shares redeemed................................................ (15,438,060) (5,624,256)
-------------- ---------------
Net increase (decrease) in net assets resulting from
shareholder transactions............................................ (8,098,975) 13,048,750
-------------- ---------------
Total increase (decrease) in net assets................................ (15,037,021) 11,525,709
NET ASSETS:
Beginning of period.................................................... 33,250,645 21,724,936
-------------- ---------------
End of period.......................................................... $ 18,213,624 $ 33,250,645
============== ===============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period................................ 1,200,002 750,002
Shares sold............................................................ 300,000 650,000
Shares redeemed........................................................ (650,000) (200,000)
-------------- ---------------
Shares outstanding, end of period...................................... 850,002 1,200,002
============== ===============
See Notes to Financial Statements Page 13
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED OCTOBER 31,
------------------------------------------------ PERIOD ENDED
2022 2021 2020 10/31/2019 (a)
-------------- -------------- -------------- --------------
Net asset value, beginning of period $ 27.71 $ 28.97 $ 28.04 $ 25.00
---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.49 0.47 0.82 0.55
Net realized and unrealized gain (loss) (6.36) (0.77) 1.24 2.95
---------- ---------- ---------- ----------
Total from investment operations (5.87) (0.30) 2.06 3.50
---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.38) (0.47) (1.13) (0.46)
Net realized gains -- (0.45) -- --
Return of capital (0.03) (0.04) -- --
---------- ---------- ---------- ----------
Total distributions (0.41) (0.96) (1.13) (0.46)
---------- ---------- ---------- ----------
Net asset value, end of period $ 21.43 $ 27.71 $ 28.97 $ 28.04
========== ========== ========== ==========
TOTAL RETURN (b) (21.37)% (1.02)% 7.46% 14.08%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 18,214 $ 33,251 $ 21,725 $ 11,215
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets (c) 0.65% 0.69%(d) 0.69%(d) 0.65% (e)
Ratio of net investment income (loss) to
average net assets 1.79% 1.61% 1.89% 2.64% (e)
Portfolio turnover rate (f) (g) 98% 142% 174% 152%
(a) Inception date is January 22, 2019, which is consistent with the
commencement of investment operations and is the date the initial creation
units were established.
(b) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The 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) The Fund indirectly bears its proportionate share of fees and expenses
incurred by the underlying funds in which the Fund invests. The ratio does
not include these indirect fees and expenses.
(d) Includes excise tax. If this excise tax expense was not included, the
expense ratio would have been 0.65%.
(e) Annualized.
(f) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
(g) The portfolio turnover rate not including mortgage dollar rolls was 69%,
69%, 118% and 104% for the periods ended October 31, 2022, October 31,
2021, October 31, 2020 and October 31, 2019, respectively.
Page 14 See Notes to Financial Statements
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
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 Long Duration Opportunities ETF (the "Fund"),
which trades under the ticker "LGOV" on the NYSE Arca, Inc. ("NYSE Arca"). 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 generate current income with a focus on preservation
of capital. The Fund seeks to achieve its investment objective by investing,
under normal market conditions, at least 80% of its net assets (including
investment borrowings) in a portfolio of investment-grade debt securities issued
or guaranteed by the U.S. government, its agencies or government-sponsored
entities, including publicly-issued U.S. Treasury securities and
mortgage-related securities. The Fund may also invest in ETFs that principally
invest in such securities. The Fund's investments in mortgage-related securities
may include investments in fixed or adjustable-rate securities structured as
"pass-through" securities and collateralized mortgage obligations, including
residential and commercial mortgage-backed securities, stripped mortgage-backed
securities and real estate mortgage investment conduits. The Fund will invest in
mortgage-related securities issued or guaranteed by the U.S. government, its
agencies (such as Ginnie Mae), and U.S. government-sponsored entities (such as
Fannie Mae and Freddie Mac). The Fund may purchase government-sponsored
mortgage-related securities in "to-be-announced" transactions ("TBA
Transactions"), including mortgage dollar rolls. The Fund intends to enter into
mortgage dollar rolls only with high quality securities dealers and banks, as
determined by the Fund's portfolio managers. In addition to its investment in
securities issued or guaranteed by the U.S. government, its agencies and
government-sponsored entities, the Fund may invest up to 20% of its net assets
in other types of debt securities, including privately-issued, non-agency
sponsored asset-backed and mortgage-related securities, futures contracts,
options, swap agreements, cash and cash equivalents, and ETFs that invest
principally in fixed income securities. Further, the Fund may enter into short
sales as part of its overall portfolio management strategy, or to offset a
potential decline in the value of a security; however, the Fund does not expect,
under normal market conditions, to engage in short sales with respect to more
than 30% of the value of its net assets. Although the Fund intends to invest
primarily in investment grade securities, the Fund may invest up to 20% of its
net assets in securities of any credit quality, including securities that are
below investment grade, which are also known as high yield securities, or
commonly referred to as "junk" bonds, or unrated securities that have not been
judged by the portfolio managers to be of comparable quality to rated investment
grade securities. In the case of a split rating between one or more of the
nationally recognized statistical rating organizations, the Fund will consider
the highest rating. The Fund targets a weighted average effective duration of
eight or more years.
2. SIGNIFICANT ACCOUNTING POLICIES
The Fund is considered an investment company and follows accounting and
reporting guidance under Financial Accounting Standards Board Accounting
Standards Codification Topic 946, "Financial Services-Investment Companies." The
following is a summary of significant accounting policies consistently followed
by the Fund in the preparation of the financial statements. The preparation of
the financial statements in accordance with accounting principles generally
accepted in the United States of America ("U.S. GAAP") requires management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those estimates.
A. PORTFOLIO VALUATION
The Fund's NAV is determined daily as of the close of regular trading on the New
York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time, on each day the
NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV
is determined as of that time. Domestic debt securities and foreign securities
are priced using data reflecting the earlier closing of the principal markets
for those securities. The Fund's NAV is calculated by dividing the value of all
assets of the Fund (including accrued interest and dividends), less all
liabilities (including accrued expenses and dividends declared but unpaid), by
the total number of shares outstanding.
The Fund's investments are valued daily at market value or, in the absence of
market value with respect to any portfolio securities, at fair value. Market
value prices represent 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 Pricing
Committee of the Fund's investment advisor, First Trust Advisors L.P. ("First
Page 15
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2022
Trust" or the "Advisor"), 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. The
Fund's investments are valued as follows:
U.S. government securities, mortgage-backed securities, asset-backed
securities and other debt securities are fair valued on the basis of
valuations provided by 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.
Pricing services generally value fixed-income securities assuming orderly
transactions of an institutional round lot size, but a Fund may hold or
transact in such securities in smaller, odd lot sizes. Odd lots may trade
at lower prices than institutional round lots.
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.
Common stocks and other equity securities listed on any national or
foreign exchange (excluding The Nasdaq Stock Market LLC ("Nasdaq") and the
London Stock Exchange Alternative Investment Market ("AIM")) are valued at
the last sale price on the exchange on which they are principally traded
or, for Nasdaq and AIM securities, the official closing price. Securities
traded on more than one securities exchange are valued at the last sale
price or official closing price, as applicable, at the close of the
securities exchange representing the primary exchange for such securities.
Shares of open-end funds are valued based on NAV per share.
Exchange-traded futures contracts are valued at the closing price in the
market where such contracts are principally traded. If no closing price is
available, exchange-traded futures contracts are valued at the mean of
their most recent bid and asked price, if available, and otherwise at
their closing bid price.
Exchange-traded options contracts are valued at the closing price in the
market where such contracts are principally traded. If no closing price is
available, exchange-traded options contracts are 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
Page 16
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2022
service, does not reflect the security's fair value. As a general principle, the
current fair value of a security would appear to be the amount which the owner
might reasonably expect to receive for the security upon its current sale. When
fair value prices are used, generally they will differ from market quotations or
official closing prices on the applicable exchanges. A variety of factors may be
considered in determining the fair value of such securities, including, but not
limited to, the following:
1) the 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, or the financial
condition of the country of issue;
6) the credit quality and cash flow of the issuer, or country of
issue, based on the Pricing Committee's, sub-adviser'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 prospects for the issuer's industry, and multiples (of
earnings and/or cash flows) being paid for similar businesses
in that industry (for corporate debt only); and
13) other relevant factors.
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
The inputs or methodologies used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of October 31, 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.
Page 17
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FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2022
The United Kingdom's Financial Conduct Authority (the "FCA"), which regulates
the London Interbank Offered Rates ("LIBOR") announced on March 5, 2021 that it
intended to phase-out all LIBOR reference rates, beginning December 31, 2021.
Since that announcement, the FCA has ceased publication of all non-USD LIBOR
reference rates and the 1-week and 2-month USD LIBOR reference rates as of
December 31, 2021. The remaining USD LIBOR settings will cease to be published
or no longer be representative immediately after June 30, 2023. The
International Swaps and Derivatives Association, Inc. ("ISDA") confirmed that
the FCA's March 5, 2021 announcement of its intention to cease providing LIBOR
reference rates, constituted an index cessation event under the Interbank
Offered Rates ("IBOR") Fallbacks Supplement and the ISDA 2020 IBOR Fallbacks
Protocol for all 35 LIBOR settings and confirmed that the spread adjustment to
be used in ISDA fallbacks was fixed as of the date of the announcement.
In the United States, the Alternative Reference Rates Committee (the "ARRC"), a
group of market participants convened by the Board of Governors of the Federal
Reserve System and the Federal Reserve Bank of New York in cooperation with
other federal and state government agencies, has since 2014 undertaken efforts
to identify U.S. dollar reference interest rates as alternatives to LIBOR and to
facilitate the mitigation of LIBOR-related risks. In June 2017, the ARRC
identified the Secured Overnight Financing Rate ("SOFR"), a broad measure of the
cost of cash overnight borrowing collateralized by U.S. Treasury securities, as
the preferred alternative for U.S. dollar LIBOR. The Federal Reserve Bank of New
York began daily publishing of SOFR in April 2018. There is no assurance that
any alternative reference rate, including 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.
At this time, it is not possible to predict the full impact of the elimination
of LIBOR and the establishment of an alternative reference rate on the Fund or
its investments.
The Fund invests in interest-only securities. For these securities, if there is
a change in the estimated cash flows, based on an evaluation of current
information, then the estimated yield is adjusted. Additionally, if the
evaluation of current information indicates a permanent impairment of the
security, the cost basis of the security is written down and a loss is
recognized. Debt obligations may be placed on non-accrual status and the related
interest income may be reduced by ceasing current accruals and writing off
interest receivables when the collection of all or a portion of interest has
become doubtful based on consistently applied procedures. A debt obligation is
removed from non-accrual status when the issuer resumes interest payments or
when collectability of interest is reasonably assured.
Securities purchased or sold on a when-issued, delayed-delivery or forward
purchase commitment basis may have extended settlement periods. The value of the
security so purchased is subject to market fluctuations during this period. The
Fund maintains liquid assets with a current value at least equal to the amount
of its when-issued, delayed-delivery or forward purchase commitments until
payment is made. At October 31, 2022, the Fund had no when-issued,
delayed-delivery securities, or forward purchase commitments.
C. SHORT SALES
Short sales are utilized to manage interest rate and spread risk, and are
transactions in which securities or other instruments (such as options,
forwards, futures or other derivative contracts) are sold that are not currently
owned in the Fund's portfolio. When the Fund engages in a short sale, the Fund
must borrow the security sold short and deliver the security to the
counterparty. Short selling allows the Fund to profit from a decline in a market
price to the extent such decline exceeds the transaction costs and the costs of
borrowing the securities. The Fund is charged a fee or premium to borrow the
securities sold short and is obligated to repay the lenders of the securities.
Any dividends or interest that accrues on the securities during the period of
the loan are due to the lenders. A gain, limited to the price at which the
security was sold short, or a loss, unlimited in size, will be recognized upon
the termination of the short sale; which is effected by the Fund purchasing the
security sold short and delivering the security to the lender. Any such gain or
loss may be offset, completely or in part, by the change in the value of the
long portion of the Fund's portfolio. The Fund is subject to the risk it may be
unable to reacquire a security to terminate a short position except at a price
substantially in excess of the last quoted price. Also, there is the risk that
the counterparty to a short sale may fail to honor its contractual terms,
causing a loss to the Fund.
D. FUTURES CONTRACTS
The Fund may purchase or sell (i.e., is long or short) exchange-listed futures
contracts to hedge against changes in interest rates (interest rate risk).
Futures contracts are agreements between the Fund and a counterparty to buy or
sell a specific quantity of an underlying instrument at a specified price and at
a specified date. Depending on the terms of the contract, futures contracts are
settled either through physical delivery of the underlying instrument on the
settlement date or by payment of a cash settlement amount on the settlement
date. Open futures contracts can also be closed out prior to settlement by
entering into an offsetting transaction in a matching futures contract. If the
Fund is not able to enter into an offsetting transaction, the Fund will continue
Page 18
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FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2022
to be required to maintain margin deposits on the futures contract. When the
contract is closed or expires, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed or expired. This gain or loss is included in
"Net realized gain (loss) on futures contracts" on the Statement of Operations.
Upon entering into a futures contract, the Fund must deposit funds, called
margin, with its custodian in the name of the clearing broker equal to a
specified percentage of the current value of the contract. Open futures
contracts are marked-to-market daily with the change in value recognized as a
component of "Net change in unrealized appreciation (depreciation) on futures
contracts" on the Statement of Operations. Pursuant to the contract, the Fund
agrees to receive from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are known as
variation margin and are included in "Variation margin" receivable or payable on
the Statement of Assets and Liabilities. If market conditions change
unexpectedly, the Fund may not achieve the anticipated benefits of the futures
contract and may realize a loss. The use of futures contracts involves the risk
of imperfect correlation in movements in the price of the futures contracts,
interest rates and the underlying instruments.
E. OPTIONS CONTRACTS
In the normal course of pursuing its investment objective, the Fund may invest
up to 20% of its net assets in derivative instruments in connection with hedging
strategies. The Fund may invest in exchange-listed options on U.S. Treasury
securities, exchange-listed options on U.S. Treasury futures contracts and
exchange-listed U.S. Treasury futures contracts. The Fund uses derivative
instruments primarily to hedge interest rate risk and actively manage interest
rate exposure. The primary risk exposure is interest rate risk.
The Fund may purchase (buy) or write (sell) put and call options on futures
contracts and enter into closing transactions with respect to such options to
terminate an existing position. A futures option gives the holder the right, in
return for the premium paid, to assume a long position (call) or short position
(put) in a futures contract at a specified exercise price prior to the
expiration of the option. Upon exercise of a call option, the holder acquires a
long position in the futures contract and the writer is assigned the opposite
short position. In the case of a put option, the opposite is true. Prior to
exercise or expiration, a futures option contract may be closed out by an
offsetting purchase or sale of a futures option of the same series. When the
Fund writes (sells) an option, an amount equal to the premium received by the
Fund is included in "Options contracts written, at value" on the Statement of
Assets and Liabilities. When the Fund purchases (buys) an option, the premium
paid represents the cost of the option, which is included in "Premiums paid on
options contracts purchased" on the Statement of Assets and Liabilities. Options
are marked-to-market daily and their value is affected by changes in the value
of the underlying security, changes in interest rates, changes in the actual or
perceived volatility of the securities markets and the underlying securities,
and the remaining time to the option's expiration. The value of options may also
be adversely affected if the market for the options becomes less liquid or the
trading volume diminishes.
The Fund uses options on futures contracts in connection with hedging
strategies. Generally, these strategies are applied under the same market and
market sector conditions in which the Fund uses put and call options on
securities. The purchase of put options on futures contracts is analogous to the
purchase of puts on securities so as to hedge the Fund's securities holdings
against the risk of declining market prices. The writing of a call option or the
purchasing of a put option on a futures contract constitutes a partial hedge
against declining prices of securities which are deliverable upon exercise of
the futures contract. If the price at expiration of a written call option is
below the exercise price, the Fund will retain the full amount of the option
premium which provides a partial hedge against any decline that may have
occurred in the Fund's holdings of securities. If the price when the option is
exercised is above the exercise price, however, the Fund will incur a loss,
which may be offset, in whole or in part, by the increase in the value of the
securities held by the Fund that were being hedged. Writing a put option or
purchasing a call option on a futures contract serves as a partial hedge against
an increase in the value of the securities the Fund intends to acquire. Realized
gains and losses on written options are included in "Net realized gain (loss) on
written options contracts" on the Statement of Operations. Realized gains and
losses on purchased options are included in "Net realized gain (loss) on
purchased options contracts" on the Statement of Operations.
The Fund is required to deposit and maintain margin with respect to put and call
options on futures contracts written by it. Such margin deposits will vary
depending on the nature of the underlying futures contract (and the related
initial margin requirements), the current market value of the option and other
futures positions held by the Fund. The Fund will pledge in a segregated account
at the Fund's custodian, liquid assets, such as cash, U.S. government securities
or other high-grade liquid debt obligations equal in value to the amount due on
the underlying obligation. Such segregated assets will be marked-to-market
daily, and additional assets will be pledged in the segregated account whenever
the total value of the pledged assets falls below the amount due on the
underlying obligation.
The risks associated with the use of options on future contracts include the
risk that the Fund may close out its position as a writer of an option only if a
liquid secondary market exists for such options, which cannot be assured. The
Fund's successful use of options on futures contracts depends on the Advisor's
ability to correctly predict the movement in prices on futures contracts and the
underlying instruments, which may prove to be incorrect. In addition, there may
be imperfect correlation between the instruments being hedged and the futures
contract subject to option.
Page 19
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2022
F. INTEREST-ONLY SECURITIES
An interest-only security ("IO Security") is the interest-only portion of a
mortgage-backed security that receives some or all of the interest portion of
the underlying mortgage-backed security and little or no principal. A reference
principal value called a notional value is used to calculate the amount of
interest due to the IO Security. IO Securities are sold at a deep discount to
their notional principal amount. Generally speaking, when interest rates are
falling and prepayment rates are increasing, the value of an IO Security will
fall. Conversely, when interest rates are rising and prepayment rates are
decreasing, generally the value of an IO Security will rise. These securities,
if any, are identified on the Portfolio of Investments.
G. PRINCIPAL-ONLY SECURITIES
A principal-only security ("PO Security") is the principal-only portion of a
mortgage-backed security that does not receive any interest, is priced at a deep
discount to its redemption value and ultimately receives the redemption value.
Generally speaking, when interest rates are falling and prepayment rates are
increasing, the value of a PO Security will rise. Conversely, when interest
rates are rising and prepayment rates are decreasing, generally the value of a
PO Security will fall. These securities, if any, are identified on the Portfolio
of Investments.
H. STRIPPED MORTGAGE-BACKED SECURITIES
Stripped mortgage-backed securities are created by segregating the cash flows
from underlying mortgage loans or mortgage securities to create two or more new
securities, each with a specified percentage of the underlying security's
principal or interest payments. Mortgage-backed securities may be partially
stripped so that each investor class receives some interest and some principal.
When securities are completely stripped, however, all of the interest is
distributed to holders of one type of security known as an IO Security and all
of the principal is distributed to holders of another type of security known as
a PO Security. These securities, if any, are identified on the Portfolio of
Investments.
I. MORTGAGE DOLLAR ROLLS AND TBA TRANSACTIONS
The Fund may invest, without limitation, in mortgage dollar rolls. The Fund
intends to enter into mortgage dollar rolls only with high quality securities
dealers and banks, as determined by the Fund's investment advisor. In a mortgage
dollar roll, the Fund will sell (or buy) mortgage-backed securities for delivery
on a specified date and simultaneously contract to repurchase (or sell)
substantially similar (same type, coupon and maturity) securities on a future
date. Mortgage dollar rolls are recorded as separate purchases and sales in the
Fund. The Fund may also invest in TBA Transactions. A TBA Transaction is a
method of trading mortgage-backed securities. TBA Transactions generally are
conducted in accordance with widely-accepted guidelines which establish commonly
observed terms and conditions for execution, settlement and delivery. In a TBA
Transaction, the buyer and the seller agree on general trade parameters such as
agency, settlement date, par amount and price.
J. DIVIDENDS AND DISTRIBUTION TO SHAREHOLDERS
Dividends from net investment income, if any, are declared and paid monthly by
the Fund, or as the Board of Trustees may determine from time to time.
Distributions of net realized gains earned by the Fund, if any, are distributed
at least annually. The Fund may also designate a portion of the amount paid to
redeeming shareholders as a distribution for tax purposes.
Distributions in cash may be reinvested automatically in additional whole shares
only if the broker through whom the shares were purchased makes such option
available. Such shares will generally be reinvested by the broker based upon the
market price of those shares and investors may be subject to customary brokerage
commissions charged by the broker.
Distributions from net investment income and realized capital gains are
determined in accordance with federal income tax regulations, which may differ
from U.S. GAAP. Certain capital accounts in the financial statements are
periodically adjusted for permanent differences in order to reflect their tax
character. These permanent differences are primarily due to the varying
treatment of income and gain/loss on portfolio securities held by the Fund and
have no impact on net assets or NAV per share. Temporary differences, which
arise from recognizing certain items of income, expense and gain/loss in
different periods for financial statement and tax purposes, will reverse at some
time in the future.
The tax character of distributions paid during the fiscal years ended October
31, 2022 and 2021 was as follows:
Distributions paid from: 2022 2021
Ordinary income................................. $ 459,443 $ 1,088,250
Capital gains................................... -- --
Return of capital............................... 36,043 45,452
Page 20
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FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2022
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)....... (4,265,975)
Net unrealized appreciation (depreciation)...... (2,782,758)
K. 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 $4,265,975.
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. 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)
Income (Loss) on Investments Paid-in Capital
-------------- -------------- ---------------
$ (173,358) $ 173,358 $ --
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)
-------------- -------------- --------------- ---------------
$ 21,702,225 $ 48,425 $ (2,831,183) $ (2,782,758)
L. EXPENSES
Expenses, other than the investment advisory fee and other excluded expenses,
are paid by the Advisor (see Note 3).
Page 21
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FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2022
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Fund, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the selection and ongoing monitoring of the securities
in the Fund's portfolio, managing the Fund's business affairs and providing
certain administrative services necessary for the management of the Fund.
Pursuant to the Investment Management Agreement between the Trust and the
Advisor, First Trust manages the investment of the Fund's assets and is
responsible for the Fund's expenses, including the cost of transfer agency,
custody, fund administration, legal, audit and other services, but excluding fee
payments under the Investment Management Agreement, interest, taxes, pro rata
share of fees and expenses attributable to investments in other investment
companies ("acquired fund fees and expenses"), brokerage commissions and other
expenses connected with the execution of portfolio transactions, distribution
and service fees payable pursuant to a Rule 12b-1 plan, if any, and
extraordinary expenses. The Fund has agreed to pay First Trust an annual unitary
management fee equal to 0.65% of its average daily net assets.
The Trust has multiple service agreements with The Bank of New York Mellon
("BNYM"). Under the service agreements, BNYM performs custodial, fund
accounting, certain administrative services, and transfer agency services for
the Fund. As custodian, BNYM is responsible for custody of the Fund's assets. As
fund accountant and administrator, BNYM is responsible for maintaining the books
and records of the Fund's securities and cash. As transfer agent, BNYM is
responsible for maintaining shareholder records for the Fund. BNYM is a
subsidiary of The Bank of New York Mellon Corporation, a financial holding
company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer that is allocated equally among each fund in the First Trust Fund
Complex. Each Independent Trustee is also paid an annual per fund fee that
varies based on whether the fund is a closed-end or other actively managed fund,
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, for the fiscal year ended October
31, 2022, were $18,101,630 and $0, respectively. The proceeds from sales and
paydowns of U.S. Government securities and non-U.S. Government securities,
excluding short-term investments, for the fiscal year ended October 31, 2022,
were $27,082,614 and $0, respectively. The cost of purchases to cover
investments sold short and the proceeds of investments sold short were
$1,020,703 and $1,020,703, respectively.
For the fiscal year ended October 31, 2022, the Fund had no in-kind
transactions.
5. DERIVATIVE TRANSACTIONS
The following table presents the types of derivatives held by the Fund at
October 31, 2022, the primary underlying risk exposure and the location of these
instruments as presented on the Statement of Assets and Liabilities.
ASSET DERIVATIVES LIABILITY DERIVATIVES
---------------------------------------- --------------------------------------
DERIVATIVE RISK STATEMENT OF ASSETS AND STATEMENT OF ASSETS AND
INSTRUMENTS EXPOSURE LIABILITIES LOCATION VALUE LIABILITIES LOCATION VALUE
----------- --------- ---------------------------- ---------- -------------------------- ----------
Futures Interest Unrealized appreciation Unrealized depreciation
rate risk on futures contracts* $ 2,579 on futures contracts* $ 13,498
Options Interest Options contracts Options contracts
rate risk purchased, at value 185,547 written, at value 10,469
* Includes cumulative appreciation/depreciation on futures contracts as reported
in the Portfolio of Investments. Only the current day's variation margin is
presented on the Statement of Assets and Liabilities.
Page 22
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2022
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.
STATEMENT OF OPERATIONS LOCATION INTEREST RATE RISK
--------------------------------------------------------------------------------
Net realized gain (loss) on:
Futures contracts $ (1,722,463)
Purchased options contracts (19,487)
Written options contracts 2,831
Net change in unrealized appreciation (depreciation) on:
Futures contracts (48,569)
Purchased options contracts (1,068)
Written options contracts 9,383
For the fiscal year ended October 31, 2022, the notional value of futures
contracts opened and closed were $617,596,971 and $621,355,002, respectively.
During the fiscal year ended October 31, 2022, the premiums for purchased
options contracts opened were $3,132,372 and the premiums for purchased options
contracts closed, exercised and expired were $2,974,398.
During the fiscal year ended October 31, 2022, the premiums for written options
contracts opened were $550,078 and the premiums for written options contracts
closed, exercised and expired were $538,648.
The Fund does not have the right to offset financial assets and financial
liabilities related to futures and options contracts on the Statement of Assets
and Liabilities.
6. CREATIONS, REDEMPTIONS AND TRANSACTION FEES
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
Page 23
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FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2022
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. OTHER MATTERS
By operation of law, the Fund now operates as a diversified open-end management
investment company as defined in Section 5(b) of the 1940 Act.
10. 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.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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TO THE SHAREHOLDERS AND THE BOARD OF TRUSTEES OF FIRST TRUST EXCHANGE-TRADED
FUND IV:
OPINION ON THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS
We have audited the accompanying statement of assets and liabilities of First
Trust Long Duration Opportunities ETF (the "Fund"), a series of the First Trust
Exchange-Traded Fund IV, including the portfolio of investments, as of October
31, 2022, the related statement of operations for the year then ended, the
changes in net assets for each of the two years in the period then ended, the
financial highlights for the years ended 2022, 2021, and 2020 and for the period
from January 22, 2019 (commencement of operations) through October 31, 2019, and
the related notes. In our opinion, the financial statements and financial
highlights present fairly, in all material respects, the financial position of
the Fund as of October 31, 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 ended, and the financial highlights for the years ended 2022, 2021, and
2020, and for the period from January 22, 2019 (commencement of operations)
through October 31, 2019, in conformity with accounting principles generally
accepted in the United States of America.
BASIS FOR OPINION
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on the Fund's
financial statements and financial highlights based on our audit. We are a
public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to
the Fund in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement, whether due to error or fraud. The Fund is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. As part of our audit we are required to obtain
an understanding of internal control over financial reporting but not for the
purpose of expressing an opinion on the effectiveness of the Fund's internal
control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material
misstatement of the financial statements and financial highlights, whether due
to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the financial statements and financial highlights. Our audit
also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of October 31, 2022, by correspondence with
the custodian and brokers; when replies were not received from and brokers, we
performed other auditing procedures. We believe that our audit provides 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.
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ADDITIONAL INFORMATION
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FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
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.
FEDERAL TAX INFORMATION
Distributions paid to foreign shareholders during the Fund's fiscal year ended
October 31, 2022 that were properly designated by the Fund as "interest-related
dividends" or "short-term capital gain dividends," may not be subject to federal
income tax provided that the income was earned directly by such foreign
shareholders.
Of the ordinary income (including short-term capital gain) distributions made by
the Fund during the fiscal year ended October 31, 2022, none qualify for the
corporate dividends received deduction available to corporate shareholders or as
qualified dividend income.
RISK CONSIDERATIONS
RISKS ARE INHERENT IN ALL INVESTING. CERTAIN GENERAL RISKS THAT MAY BE
APPLICABLE TO A FUND ARE IDENTIFIED BELOW, BUT NOT ALL OF THE MATERIAL RISKS
RELEVANT TO EACH FUND ARE INCLUDED IN THIS REPORT AND NOT ALL OF THE RISKS BELOW
APPLY TO EACH FUND. THE MATERIAL RISKS OF INVESTING IN EACH FUND ARE SPELLED OUT
IN ITS PROSPECTUS, STATEMENT OF ADDITIONAL INFORMATION AND OTHER REGULATORY
FILINGS. BEFORE INVESTING, YOU SHOULD CONSIDER EACH FUND'S INVESTMENT OBJECTIVE,
RISKS, CHARGES AND EXPENSES, AND READ EACH FUND'S PROSPECTUS AND STATEMENT OF
ADDITIONAL INFORMATION CAREFULLY. YOU CAN DOWNLOAD EACH FUND'S PROSPECTUS AT
WWW.FTPORTFOLIOS.COM OR CONTACT FIRST TRUST PORTFOLIOS L.P. AT (800) 621-1675 TO
REQUEST A PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION ABOUT EACH FUND.
CONCENTRATION RISK. To the extent that a fund is able to invest a significant
percentage of its assets in a single asset class or the securities of issuers
within the same country, state, region, industry or sector, an adverse economic,
business or political development may affect the value of the fund's investments
more than if the fund were more broadly diversified. A fund that tracks an index
will be concentrated to the extent the fund's corresponding index is
concentrated. A concentration makes a fund more susceptible to any single
occurrence and may subject the fund to greater market risk than a fund that is
more broadly diversified.
CREDIT RISK. Credit risk is the risk that an issuer of a security will be unable
or unwilling to make dividend, interest and/or principal payments when due and
the related risk that the value of a security may decline because of concerns
about the issuer's ability to make such payments.
CYBER SECURITY RISK. The funds are susceptible to potential operational risks
through breaches in cyber security. A breach in cyber security refers to both
intentional and unintentional events that may cause a fund to lose proprietary
information, suffer data corruption or lose operational capacity. Such events
could cause a fund to incur regulatory penalties, reputational damage,
additional compliance costs associated with corrective measures and/or financial
loss. In addition, cyber security breaches of a fund's third-party service
providers, such as its administrator, transfer agent, custodian, or sub-advisor,
as applicable, or issuers in which the fund invests, can also subject a fund to
many of the same risks associated with direct cyber security breaches.
DEFINED OUTCOME FUNDS RISK. To the extent a fund's investment strategy is
designed to deliver returns tied to the price performance of an underlying ETF,
an investor may not realize the returns the fund seeks to achieve if that
investor does not hold shares for the entire target outcome period. In the event
an investor purchases shares after the first day of the target outcome period or
sells shares prior to the end of the target outcome period, the buffer that the
fund seeks to provide against a decline in the value of the underlying ETF may
not be available, the enhanced returns that the fund seeks to provide (if any)
may not be available and the investor may not participate in a gain in the
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FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2022 (UNAUDITED)
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,
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.
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FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2022 (UNAUDITED)
INVESTMENT COMPANIES RISK. To the extent a fund invests in the securities of
other investment vehicles, the fund will incur additional fees and expenses that
would not be present in a direct investment in those investment vehicles.
Furthermore, the fund's investment performance and risks are directly related to
the investment performance and risks of the investment vehicles in which the
fund invests.
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 the Fund's portfolio securities or
other instruments and could result in disruptions in the trading markets. Any of
such circumstances could have a materially negative impact on the value of the
Fund's shares and result in increased market volatility. During any such events,
the Fund's shares may trade at increased premiums or discounts to their net
asset value and the bid/ask spread on the 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.
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2022 (UNAUDITED)
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 Long Duration Opportunities 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
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.
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FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2022 (UNAUDITED)
In reviewing the Agreement, the Board considered the nature, extent and quality
of the services provided by the Advisor under the Agreement. The Board
considered that the Advisor is responsible for the overall management and
administration of the Trust and the Fund and reviewed all of the services
provided by the Advisor to the Fund, as well as the background and experience of
the persons responsible for such services. The Board noted that the Fund is an
actively-managed ETF and noted that the Advisor's Securitized Products Group 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 Securitized
Products Group and noted the Board's prior meetings with members of the Group.
The Board considered the Advisor's statement that it applies the same oversight
model internally with its Securitized Products Group as it uses for overseeing
external sub-advisors, including portfolio risk monitoring and performance
review. In reviewing the services provided, the Board noted the compliance
program that had been developed by the Advisor and considered that it includes a
robust program for monitoring the Advisor's and the Fund's compliance with the
1940 Act, as well as the Fund's compliance with its investment objective,
policies and restrictions. The Board also considered a report from the Advisor
with respect to its risk management functions related to the operation of the
Fund. Finally, as part of the Board's consideration of the Advisor's services,
the Advisor, in its written materials and at the April 18, 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
its investment objective, policies and restrictions.
The Board considered the unitary fee rate payable by the Fund under the
Agreement for the services provided. The Board considered that as part of the
unitary fee the Advisor is responsible for the Fund's expenses, including the
cost of transfer agency, custody, fund administration, legal, audit and other
services and license fees, if any, but excluding the fee payment under the
Agreement and interest, taxes, 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 received and reviewed
information showing the fee rates and expense ratios of the peer funds in the
Expense Group, as well as advisory and unitary fee rates charged by the Advisor
to other fund (including ETFs) and non-fund clients, as applicable. Because the
Fund pays a unitary fee, the Board determined that expense ratios were the most
relevant comparative data point. Based on the information provided, the Board
noted that the unitary fee rate for the Fund was above the median total (net)
expense ratio of the peer funds in the Expense Group. With respect to the
Expense Group, the Board, at the April 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, including
that all peer funds in the Expense Group were open-end mutual funds, and
different business models that may affect the pricing of services among ETF
sponsors. The Board took these limitations and differences into account in
considering the peer data. With respect to fees charged to other non-ETF
clients, the Board considered differences between the Fund and other non-ETF
clients that limited their comparability. In considering the unitary fee rate
overall, the Board also considered the Advisor's statement that it seeks to meet
investor needs through innovative and value-added investment solutions and the
Advisor's demonstrated long-term commitment to the Fund and the other funds in
the First Trust Fund Complex.
The Board considered performance information for the Fund. The Board noted the
process it has established for monitoring the Fund's performance and portfolio
risk on an ongoing basis, which includes quarterly performance reporting from
the Advisor for the Fund. The Board determined that this process continues to be
effective for reviewing the Fund's performance. The Board received and reviewed
information comparing the Fund's performance for the one-year period ended
December 31, 2021 to the performance of the funds in the Performance Universe
and to that of a benchmark index. Based on the information provided, the Board
noted that the Fund underperformed the Performance Universe median for the
one-year period ended December 31, 2021 and outperformed the benchmark index for
the one-year period ended December 31, 2021.
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
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FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2022 (UNAUDITED)
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. 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.
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 Long Duration
Opportunities 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.
REMUNERATION
First Trust Advisors L.P. ("First Trust") is authorised and regulated by the
U.S. Securities and Exchange Commission and is entitled to market shares of
certain funds it manages, including First Trust Long Duration Opportunities ETF
(the "Fund"), in certain member states in the European Economic Area in
accordance with the cooperation arrangements in Article 42 of the Alternative
Investment Fund Managers Directive (the "Directive"). First Trust is required
under the Directive to make disclosures in respect of remuneration. The
following disclosures are made in line with First Trust's interpretation of
currently available regulatory guidance on remuneration disclosures.
During the year ended December 31, 2021, the amount of remuneration paid (or to
be paid) by First Trust Advisors L.P. in respect of the Fund is $35,517. This
figure is comprised of $1,853 paid (or to be paid) in fixed compensation and
$33,664 paid (or to be paid) in variable compensation. There were a total of 26
beneficiaries of the remuneration described above. Those amounts include $9,477
paid (or to be paid) to senior management of First Trust Advisors L.P. and
$26,040 paid (or to be paid) to other employees whose professional activities
have a material impact on the risk profiles of First Trust Advisors L.P. or the
Fund (collectively, "Code Staff").
Page 31
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
OCTOBER 31, 2022 (UNAUDITED)
Code Staff included in the aggregated figures disclosed above are rewarded in
line with First Trust's remuneration policy (the "Remuneration Policy") which is
determined and implemented by First Trust's senior management. The Remuneration
Policy reflects First Trust's ethos of good governance and encapsulates the
following principal objectives:
i. to provide a clear link between remuneration and performance of
First Trust and to avoid rewarding for failure;
ii. to promote sound and effective risk management consistent with the
risk profiles of the funds managed by First Trust; and
iii. to remunerate staff in line with the business strategy, objectives,
values and interests of First Trust and the funds managed by First
Trust in a manner that avoids conflicts of interest.
First Trust assesses various risk factors which it is exposed to when
considering and implementing remuneration for Code Staff and considers whether
any potential award to such person(s) would give rise to a conflict of interest.
First Trust does not reward failure, or consider the taking of risk or failure
to take risk in its remuneration of Code Staff.
First Trust assesses performance for the purposes of determining payments in
respect of performance-related remuneration of Code Staff by reference to a
broad range of measures including (i) individual performance (using financial
and non-financial criteria), and (ii) the overall performance of First Trust.
Remuneration is not based upon the performance of the Fund.
The elements of remuneration are balanced between fixed and variable and the
senior management sets fixed salaries at a level sufficient to ensure that
variable remuneration incentivises and rewards strong individual performance but
does not encourage excessive risk taking.
No individual is involved in setting his or her own remuneration
Page 32
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
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 33
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
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 34
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PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST LONG DURATION OPPORTUNITIES ETF (LGOV)
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
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FIRST TRUST
First Trust Exchange-Traded Fund IV
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
320 South Canal Street
Chicago, IL 60606
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