First Trust Exchange-Traded Fund III

Annual Report

July 31, 2022

Shareholder Letter	2
Fund Performance Overview
First Trust Horizon Managed Volatility Domestic ETF (HUSV)	3
First Trust Horizon Managed Volatility Developed International ETF (HDMV)	5
First Trust Horizon Managed Volatility Small/Mid ETF (HSMV)	7
Notes to Fund Performance Overview	9
Portfolio Commentary	10
Understanding Your Fund Expenses	15
Portfolio of Investments
First Trust Horizon Managed Volatility Domestic ETF (HUSV)	16
First Trust Horizon Managed Volatility Developed International ETF (HDMV)	18
First Trust Horizon Managed Volatility Small/Mid ETF (HSMV)	22
Statements of Assets and Liabilities	26
Statements of Operations	27
Statements of Changes in Net Assets	28
Financial Highlights	30
Notes to Financial Statements	33
Report of Independent Registered Public Accounting Firm	40
Additional Information	41
Board of Trustees and Officers	48
Privacy Policy	50

Caution Regarding Forward-Looking Statements

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

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

Performance and Risk Disclosure

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

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

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

How to Read This Report

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

By reading the portfolio commentary by the portfolio management team of each Fund, you may obtain an understanding of how the market environment affected each Fund’s performance. The statistical information that follows may help you understand each Fund’s performance compared to that of a relevant market benchmark.

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

Page 1

First Trust Exchange-Traded Fund III

Annual Letter from the Chairman and CEO

July 31, 2022

Dear Shareholders,

First Trust is pleased to provide you with the annual report for the Managed Volatility Funds of First Trust Exchange-Traded Fund III (the “Funds”), which contains detailed information about the Funds for the 12-month period ended July 31, 2022.

When it comes to investing one’s capital, it is natural to want to find some analyst, economist, or other pundit who claims to know exactly where the securities markets are headed at any given time. You can find them if you search hard enough, but watch your step. Relying on someone else’s crystal ball predictions, even if they have been fortunate enough to have made a celebrated market call or two in the past, is a fool’s errand, in my opinion. It is tough to reproduce such success. I am, as I have been for my entire career in the financial services industry, an advocate for individual investors seeking out professional assistance to help them meet their goals. If anything, the endless amounts of information flowing through the financial media via the internet and cable channels these days is likely making things more confusing for the average investor looking to get ahead. While some individuals may be adept at sifting through the noise to find those timely nuggets of information that can potentially move the markets, most are not, and one’s financial future is too important to gamble on meme stocks and black swans, in my opinion.

Having said all that, for those investors who do want to steer their own ship, there are now a plethora of packaged products available to meet almost any need or strategy, such as mutual funds, unit investment trusts and exchange-traded funds. With respect to equities, investors can choose from portfolios featuring style investing (growth and value), sectors, subsectors (i.e., Semiconductors are a subsector of the Technology sector), long/short strategies, dividend strategies and many more. There are products out there for both bullish and bearish investors. Again, for those individuals that are not savvy when it comes to investing, know that financial representatives have more of these, and other tools, at their disposal than ever before.

The markets have moved up and down in dramatic fashion in 2022. The stock market, as measured by the S&P 500^® Index, declined in price by 20.80% from the close on March 23, 2022 through June 16, 2022, only to reverse course and rise by 17.41% from the close on June 16, 2022 through August 16, 2022, according to data from Bloomberg. So much for the adage “the trend is your friend.” The action in the bond market has been just as frantic. In the U.S. Treasury market, the yield on the 10-Year Treasury Note (“T-Note”) rose 114 basis points (“bps”) from the close on March 31, 2022 through June 14, 2022, only to reverse course and drop by 90 bps from the close on June 14, 2022 through August 1, 2022, according to data from Bloomberg. Suffice it to say that yield swings of this magnitude are not all that common. What is driving these divergent trading patterns? Robust inflation. The Consumer Price Index stood at 8.5% year-over-year in July 2022. A level not seen since the early 1980s. In the hopes of reducing it, the Federal Reserve (the “Fed”) is in the process of hiking interest rates and, in September, is expected to reduce the size of its balance sheet to the tune of $95 billion per month. The concern in the markets is whether or not the Fed’s tightening of monetary policy will push the U.S. economy into a serious recession. Some economists and others in the financial media believe the U.S. is already in a recession. We expect this battle (fight inflation at the expense of economic growth) to continue to play out over the coming months. Keep an eye on the 10-Year T-Note. If the yield rises moving forward, expect the stock and bond markets to struggle and vice versa. If you have not already, I encourage you to forge an investment plan and stay the course!

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

Sincerely,

James A. Bowen

Chairman of the Board of Trustees

Chief Executive Officer of First Trust Advisors L.P.

Page 2

First Trust Horizon Managed Volatility Domestic ETF (HUSV)

The investment objective of First Trust Horizon Managed Volatility Domestic ETF (the “Fund”) is to provide capital appreciation. Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its net assets (including investment borrowings) in common stocks of domestic companies listed and traded on U.S. national securities exchanges that Horizon Investments, LLC (“Horizon” or the “Sub-Advisor”) believes exhibit low future expected volatility. The goal of this strategy is to capture upside price movements in rising markets and reduce downside risk when markets decline. To implement this strategy, the Sub-Advisor employs volatility forecasting models to forecast future expected volatility. The strategy is largely quantitative and rules-based, but also includes multiple parameters over which the Sub-Advisor may exercise discretion (including, but not limited to, the number of holdings and the weightings of particular holdings) in connection with its active management of the Fund. Shares of the Fund are listed and trade on the NYSE Arca, Inc. under the ticker symbol “HUSV.” The first day of secondary market trading in shares of the Fund was August 25, 2016.

Performance
		Average Annual Total Returns			Cumulative Total Returns
	1 Year Ended 7/31/22	5 Years Ended 7/31/22	Inception (8/24/16) to 7/31/22		5 Years Ended 7/31/22	Inception (8/24/16) to 7/31/22
Fund Performance
NAV	1.82%	10.11%	10.46%		61.88%	80.51%
Market Price	1.82%	10.09%	10.46%		61.73%	80.51%
Index Performance
S&P 500® Index	-4.64%	12.83%	13.46%		82.85%	111.56%

(See Notes to Fund Performance Overview on page 9.)

Page 3

First Trust Horizon Managed Volatility Domestic ETF (HUSV) (Continued)

Sector Allocation	% of Total Investments
Consumer Staples	16.4%
Information Technology	15.1
Utilities	15.1
Health Care	13.9
Industrials	12.4
Financials	11.7
Real Estate	5.4
Consumer Discretionary	4.8
Materials	2.8
Communication Services	1.4
Energy	1.0
Total	100.0%

Top Ten Holdings	% of Total Investments
Jack Henry & Associates, Inc.	2.9%
Automatic Data Processing, Inc.	2.9
McDonald’s Corp.	2.7
PepsiCo, Inc.	2.5
Teledyne Technologies, Inc.	2.5
Hershey (The) Co.	2.5
International Business Machines Corp.	2.5
Coca-Cola (The) Co.	2.5
Johnson & Johnson	2.5
Paychex, Inc.	2.4
Total	25.9%

Page 4

First Trust Horizon Managed Volatility Developed International ETF (HDMV)

The investment objective of First Trust Horizon Managed Volatility Developed International ETF (the “Fund”) is to provide capital appreciation. Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its net assets (including investment borrowings) in common stocks and depositary receipts of developed market companies listed and traded on non-U.S. exchanges that Horizon Investments, LLC (“Horizon” or the “Sub-Advisor”) believes exhibit low future expected volatility. The term “developed market companies” means those companies (i) whose securities are traded principally on a stock exchange in a developed market country, (ii) with a primary business office in a developed market country, or (iii) that have at least 50% of their assets in, or derive at least 50% of their revenues or profits from, a developed market country. The Sub-Advisor considers Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States to be developed market countries. However, this list may change in response to market and geopolitical events. Under normal market conditions, the Fund will invest in at least three countries and at least 40% of its net assets in countries other than the United States. Shares of the Fund are listed and trade on the NYSE Arca, Inc. under the ticker symbol  “HDMV.” The first day of secondary market trading in shares of the Fund was August 25, 2016.

Performance
		Average Annual Total Returns			Cumulative Total Returns
	1 Year Ended 7/31/22	5 Years Ended 7/31/22	Inception (8/24/16) to 7/31/22		5 Years Ended 7/31/22	Inception (8/24/16) to 7/31/22
Fund Performance
NAV	-8.50%	0.01%	2.04%		0.03%	12.71%
Market Price	-8.67%	-0.08%	2.02%		-0.39%	12.60%
Index Performance
MSCI EAFE Index	-14.32%	2.61%	4.80%		13.78%	32.10%

(See Notes to Fund Performance Overview on page 9.)

Page 5

First Trust Horizon Managed Volatility Developed International ETF (HDMV) (Continued)

Sector Allocation	% of Total Investments
Financials	17.3%
Real Estate	15.1
Industrials	14.6
Communication Services	13.2
Consumer Staples	12.6
Utilities	11.9
Health Care	5.8
Consumer Discretionary	4.9
Information Technology	2.9
Materials	1.4
Energy	0.3
Total	100.0%

Top Ten Holdings	% of Total Investments
Ascendas Real Estate Investment Trust	2.2%
Singapore Technologies Engineering Ltd.	2.0
UOL Group Ltd.	2.0
MTR Corp., Ltd.	2.0
McDonald’s Holdings Co., Japan Ltd.	1.9
Power Assets Holdings Ltd.	1.9
Swisscom AG	1.8
CLP Holdings, Ltd.	1.8
Link REIT	1.7
Singapore Exchange Ltd.	1.7
Total	19.0%

Page 6

First Trust Horizon Managed Volatility Small/Mid ETF (HSMV)

The investment objective of First Trust Horizon Managed Volatility Small/Mid ETF (the “Fund”) is to seek to provide investors with capital appreciation. Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its net assets (including investment borrowings) in small- and/or mid-capitalization common stocks listed and traded on U.S. national securities exchanges that Horizon Investments, LLC (“Horizon” or the “Sub-Advisor”) believes exhibit low future expected volatility. The goal of this strategy is to capture upside price movements in rising markets and reduce downside risk when markets decline. To implement this strategy, the Sub-Advisor employs volatility forecasting models to forecast future expected volatility. The strategy is largely quantitative and rules-based, but also includes multiple parameters over which the Sub-Advisor may exercise discretion (including, but not limited to, the number of holdings and the weightings of particular holdings) in connection with its active management of the Fund. Shares of the Fund are listed and trade on the NYSE Arca, Inc. under the ticker symbol “HSMV.” The first day of secondary market trading in shares of the Fund was April 7, 2020.

Performance
		Average Annual Total Returns	Cumulative Total Returns
	1 Year Ended 7/31/22	Inception (4/6/20) to 7/31/22	Inception (4/6/20) to 7/31/22
Fund Performance
NAV	-2.11%	20.93%	55.33%
Market Price	-2.11%	20.91%	55.28%
Index Performance
S&P 1000® Index	-5.86%	29.66%	82.58%

(See Notes to Fund Performance Overview on page 9.)

Page 7

First Trust Horizon Managed Volatility Small/Mid ETF (HSMV) (Continued)

Sector Allocation	% of Total Investments
Industrials	21.6%
Financials	18.6
Real Estate	16.7
Utilities	9.6
Information Technology	8.2
Health Care	6.3
Consumer Discretionary	6.2
Consumer Staples	5.9
Materials	5.6
Communication Services	1.3
Total	100.0%

Top Ten Holdings	% of Total Investments
Hubbell, Inc.	0.7%
Encore Capital Group, Inc.	0.7
UniFirst Corp.	0.7
Sonoco Products Co.	0.7
California Water Service Group	0.7
Essential Utilities, Inc.	0.7
Medical Properties Trust, Inc.	0.7
American States Water Co.	0.6
RPM International, Inc.	0.6
Woodward, Inc.	0.6
Total	6.7%

Page 8

Total returns for the periods since inception are calculated from the inception date of each Fund. “Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated.

Each Fund’s per share net asset value (“NAV”) is the value of one share of the Fund and is computed by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of outstanding shares. The price used to calculate market return (“Market Price”) is determined by using the midpoint of the national best bid and offer price (“NBBO”) as of the time that the Fund’s NAV is calculated. Under SEC rules, the NBBO consists of the highest displayed buy and lowest sell prices among the various exchanges trading the Fund at the time the Fund’s NAV is calculated. Prior to January 1, 2019, the price used was the midpoint between the highest bid and the lowest offer on the stock exchange on which shares of the Fund were listed for trading as of the time that the Fund’s NAV was calculated. Since shares of each Fund did not trade in the secondary market until after the Fund’s inception, for the period from inception to the first day of secondary market trading in shares of the Fund, the NAV of each Fund is used as a proxy for the secondary market trading price to calculate market returns. NAV and market returns assume that all distributions have been reinvested in each Fund at NAV and Market Price, respectively.

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

Page 9

Portfolio Commentary

First Trust Exchange-Traded Fund III

Annual Report

July 31, 2022 (Unaudited)

Advisor

First Trust Advisors L.P. (“First Trust” or the “Advisor”) serves as the investment advisor to the First Trust Horizon Managed Volatility Domestic ETF (“HUSV”), the First Trust Horizon Managed Volatility Developed International ETF (“HDMV”), and the First Trust Horizon Managed Volatility Small/Mid ETF (“HSMV”) (each a “Fund” and collectively, the “Funds”). First Trust is responsible for the ongoing monitoring of each Fund’s investment portfolio, managing each Fund’s business affairs and providing certain administrative services necessary for the management of each Fund.

Sub-Advisor

Horizon Investments, LLC (“Horizon” or the “Sub-Advisor”) serves as the investment sub-advisor to the Funds.

Portfolio Management Team

The following persons serve as portfolio managers of the Funds:

Michael Dickson, PhD, Head of Research and Product Development and Portfolio Manager of Horizon

Scott Ladner, Chief Investment Officer and Portfolio Manager of Horizon

Steven Clark, PhD, Portfolio Manager of Horizon

The portfolio managers are primarily and jointly responsible for the day-to-day management of the Funds. Each portfolio manager has served as part of the portfolio management team of the Funds since each Fund’s inception.

Commentary 

First Trust Horizon Managed Volatility Domestic ETF (“HUSV” or the “Fund”)

Market Recap

For the 12-month period ended July 31, 2022, the S&P 500^® Index fell 4.64%. During the period, low volatility as a factor led the S&P 500^® Index, as the S&P 500^® Low Volatility Index returned 4.50%.

During the same period, the S&P 500^® Index experienced a moderate decline as macroeconomic and geopolitical risks weighed on sentiment and, to some extent, on corporate earnings and profitability. Labor market imbalances, unresolved supply chain stressors, and the prosecution of Russia’s war in Ukraine all coalesced to first persist and then increase inflationary dynamics. Despite the maintenance of accommodative fiscal and monetary policy at the onset of the 12-month period ended July 31, 2022, these inflationary dynamics proved the transitory characterization inaccurate, at least in the short term.

In November 2021, the Federal Reserve (“Fed”) announced that it was dropping the “transitory” characterization of inflation, signaling that it would soon pivot in a more hawkish direction by increasing short term interest rates and adjusting quantitative easing to tighten financial conditions, and hopefully, curb inflation. It took the financial markets some time to process the implications of the Fed’s hawkish pivot, with equities broadly rallying into calendar year end and surging to all-time highs in the first week of January 2022.

Shortly after reaching all-time highs, the S&P 500^® Index rapidly sold off as market participants began repricing risk assets in accordance with this new, much more hawkish, Fed stance. From the start of the calendar year through April 2022, the U.S. 2-Year yield increased by nearly 200 basis points (“bps”) as the markets digested the expected interest rate hikes that began in March 2022. In just a few weeks, the S&P 500^® Index found itself nearly 10% off all-time high levels, bottoming nearly 24% off highs by mid-June 2022. These surging short term interest rate expectations necessitated a rerating of valuation multiples.

As measured by the price to earnings ratio, most of the sell-off in both January 2022 and through the market bottom was driven by multiple compression. From peak to trough over this same period, twelve-month blended forward price to earnings fell by roughly 6 points, or 27%. Although macroeconomic conditions deteriorated, the U.S. consumer remained resilient, supporting corporate revenues and earnings. This broad market pullback that hit companies with lower quality fundamentals the hardest, also provided a boost to the more defensive posture of lower volatility stocks, contributing to their strong relative return over the period.

The investment objective of the Fund is to provide capital appreciation. Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its net assets (including investment borrowings) in common stocks of domestic companies listed and traded on U.S. national securities exchanges that Horizon believes exhibit low future expected volatility. The goal of this strategy is to capture upside price movements in rising markets and reduce downside risk when markets decline. To implement this strategy, Horizon employs volatility forecasting models to forecast future expected volatility. The strategy is largely quantitative

Page 10

Portfolio Commentary (Continued)

First Trust Exchange-Traded Fund III

Annual Report

July 31, 2022 (Unaudited)

and rules-based, but also includes multiple parameters over which Horizon may exercise discretion (including, but not limited to, the number of holdings and the weightings of particular holdings) in connection with its active management of the Fund.

Performance Analysis

On a net asset value (“NAV”) basis for the 12-month period ended July 31, 2022, the Fund provided a total return of 1.82%, including the reinvestment of dividends. The S&P 500^® Index returned -4.64% and the S&P 500^® Low Volatility Index returned 4.50% over this same time period.

Stocks selected within the Utilities, Consumer Staples, and Industrials sectors contributed the most to the Fund’s return, whereas stocks selected within Information Technology, Communication Services, and Materials sectors detracted the most from the Fund’s return.

Single stock positions in Jack Henry & Associates Inc., The Hershey Co., and Automatic Data Processing, Inc. contributed the most to the Fund’s return for the same period. Single stock positions in VeriSign, Inc., Cisco Systems, Inc, and Cognizant Technology Solutions detracted the most from the Fund’s return for the same period.

During the 12-month period ended July 31, 2022, the Fund realized lower volatility than the S&P 500^® Index and had volatility in line with the S&P 500^® Low Volatility Index. As a part of the Fund’s portfolio allocation process, Horizon overweights or underweights common stocks of domestic companies based on future expected volatility. An overweight allocation indicates that Horizon expects those stocks to be relatively low risk, while an underweight allocation indicates that Horizon expects those stocks to be relatively high risk. Due to the long-term defensive tilt of the strategy, it is expected that the Fund will underperform in strong positive markets and outperform in strong negative markets. For the same period, this was the case and these tilts contributed largely to the relative performance for the period.

Market and Fund Outlook

At the end of the 12-month period ended July 31, 2022, Horizon believes that overall corporate and economic fundamental conditions have deteriorated and that risks to financial markets and the global economy skew towards the downside. Additionally, as the Fed has clearly indicated their policy path is sensitive to each new economic data point, we believe this set up supports periods of elevated volatility. Despite this, we do believe that there are some paths for either rapid or moderately paced normalization in economic conditions, most all of which are dependent on inflation rolling over.

During time periods of persistent volatility, Horizon believes it is important to continue to be responsive to current market conditions when picking stocks to create a portfolio of expected lower volatility stocks. The Fund continues to use a quantitative and rules-based investment process to mitigate volatility through enhanced security selection of targeted exposure to stocks that Horizon estimates will have forecasted future low volatility. Horizon also continues to use active management approach when managing the Fund that provides the flexibility to limit sector concentration and business risk, without being limited to static rebalance requirements.

First Trust Horizon Managed Volatility Developed International ETF (“HDMV” or the “Fund”)

Market Recap

For the 12-month period ended July 31, 2022, the MSCI EAFE Index fell 14.32%. During the same period, low volatility outperformed the broad MSCI EAFE Index as the MSCI EAFE Minimum Volatility Index fell 13.06%.

During the period, the MSCI EAFE Index experienced a moderate decline as macroeconomic and geopolitical risks weighed on sentiment and, to some extent, on corporate earnings and profitability. Labor market imbalances, unresolved supply chain stressors, and the prosecution of Russia’s war in Ukraine all coalesced to first persist and then increase inflationary dynamics. Despite the maintenance of accommodative fiscal and monetary policy at the onset of the fiscal year, these inflationary dynamics proved the transitory characterization inaccurate, at least in the short term.

In November 2021, the Fed announced that it was dropping the “transitory” characterization of inflation, signaling that it would soon pivot in a more hawkish direction by increasing short term interest rates and adjusting quantitative easing to tighten financial conditions, and hopefully, curb inflation. It took the financial markets some time to process the implications of the Fed’s hawkish pivot, with global equities broadly rallying into calendar year-end and nearing all-time highs in the first week of January 2022.

Shortly after nearing all-time highs, the MSCI EAFE Index rapidly sold off as market participants began repricing risk assets in accordance with this new, much more hawkish, stance by central banks. To highlight this we reference the Fed as the U.S. Central Bank

Page 11

Portfolio Commentary (Continued)

First Trust Exchange-Traded Fund III

Annual Report

July 31, 2022 (Unaudited)

policy is relevant internationally due to the U.S. Dollar’s preeminent position in global financial markets. From the start of the calendar year through April 2022, the U.S. 2-Year yield increased by nearly 200 bps as the markets digested the expected interest rate hikes that began in March 2022. As Russia’s war in Ukraine exacerbated risks in international markets, by mid-March 2022, the MSCI EAFE Index found itself nearly 16% off all-time high levels, bottoming nearly 24% off highs by mid-June 2022. These surging short term interest rate expectations necessitated a rerating of valuation multiples.

As measured by the price to earnings ratio, most of the sell-off in both January 2022 and through the market bottom was driven by multiple compression. From peak to trough over this same period, twelve-month blended forward price to earnings for the MSCI EAFE Index fell by roughly 4 points, or 28%. As macroeconomic conditions deteriorated Internationally more acutely than the U.S. due to the risks of Russia’s war in Ukraine, this setup provided a boost to the more defensive posture of lower volatility stocks, contributing to their strong relative return over the period.

The investment objective of the Fund is to provide capital appreciation. Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its net assets (including investment borrowings) in common stocks and depositary receipts of developed market companies listed and traded on non-U.S. exchanges that Horizon believes exhibit low future expected volatility. The goal of this strategy is to capture upside price movements in rising markets and reduce downside risk when markets decline. To implement this strategy, in selecting securities for the Fund from a portfolio of eligible securities, Horizon employs volatility forecasting models to forecast future expected volatility. The strategy is largely quantitative and rules-based, but also includes multiple parameters over which Horizon may exercise discretion (including, but not limited to, the number of holdings and the weightings of particular holdings) in connection with its active management of the Fund.

Performance Analysis

On a NAV basis for the 12-month period ended July 31, 2022, the Fund provided a total return of -8.50%, including the reinvestment of dividends. During the same period, low volatility outperformed the broad MSCI EAFE Index of -14.32% as the MSCI EAFE Minimum Volatility Index fell 13.06%. The Fund substantially outperformed both the MSCI EAFE and MSCI EAFE Minimum Volatility Indices.

For countries with an average allocation greater than 1%, stocks selected within United Kingdom, Australia, and Switzerland detracted the least from the Fund’s return, whereas stocks selected within Germany, Sweden, and the Netherlands detracted the most from the Fund’s return during the same period.

Single stock positions in Hongkong Land Holdings Ltd., AusNet Services Ltd., and United Overseas Bank Ltd. contributed the most to the Fund’s return for the same period. Single stock positions in Hong Kong & China Gas Co., Ltd., McDonald’s Holdings Co., Japan Ltd., and CLP Holdings, Ltd. detracted the most from the Fund’s return for the same period.

During the same period, the Fund realized lower volatility than the MSCI EAFE Index. As a part of the Fund’s portfolio allocation process, Horizon overweights or underweights common stocks and depositary receipts of large and mid-cap securities across developed markets based on future expected volatility. An overweight allocation indicates that Horizon expects those stocks to be relatively low risk, while an underweight allocation indicates that Horizon expects those stocks to be relatively high risk. Due to the long-term defensive tilt of the strategy, it is expected that the Fund will underperform in strong positive markets and outperform in strong negative markets. For the 12-month period ended July 31, 2022, this was the case and these tilts contributed largely to the relative performance for the period.

Market and Fund Outlook

At the end of the 12-month period ended July 31, 2022, Horizon believes that overall corporate and economic fundamental conditions have deteriorated and that risks to financial markets and the global economy skew towards the downside. Additionally, we believe there are several unresolved factors that support periods of elevated volatility internationally. These include the uncertain path of global central banks, Russia’s war in Ukraine, and China’s policies related to COVID-19. Despite this, we do believe that there are some paths for either rapid or moderately paced normalization in economic conditions, most of which are dependent on inflation rolling over and the resolution of these risk factors.

During time periods of persistent volatility, Horizon believes it is important to continue to be more responsive to current market conditions when picking stocks to create a portfolio of expected lower volatility stocks when exposed to these risk factors. The Fund continues to use a quantitative and rules-based investment process to mitigate volatility through enhanced security selection of targeted exposure to stocks that Horizon estimates will have forecasted future low volatility. Horizon also continues to use active management

Page 12

Portfolio Commentary (Continued)

First Trust Exchange-Traded Fund III

Annual Report

July 31, 2022 (Unaudited)

approach when managing the Fund that provides the flexibility to limit sector and country concentration and business risk, without being limited to static rebalance requirements.

First Trust Horizon Managed Volatility Small/Mid ETF (“HSMV” or the “Fund”)

Market Recap

For the 12-month period ended July 31, 2022, the S&P 1000^® Index fell 5.86%. During the same period, low volatility as a factor led the S&P 1000^® Total Return Index, as the S&P 400^® Low Volatility Index gained 2.19%.

During the same period, the S&P 1000^® Index experienced a moderate decline as macroeconomic and geopolitical risks weighed on sentiment and, to some extent, on corporate earnings and profitability. Labor market imbalances, unresolved supply chain stressors, and the prosecution of Russia’s war in Ukraine all coalesced to first persist and then increase inflationary dynamics. Despite the maintenance of accommodative fiscal and monetary policy at the onset of the fiscal year, these inflationary dynamics proved the transitory characterization inaccurate, at least in the short term.

In November 2021, the Fed announced that it was dropping the “transitory” characterization of inflation, signaling that it would soon pivot in a more hawkish direction by increasing short term interest rates and adjusting quantitative easing to tighten financial conditions, and hopefully, curb inflation. It took the financial markets some time to process the implications of the Fed’s hawkish pivot, with equities broadly rallying into calendar year-end and nearing all-time highs in the first week of January 2022.

Shortly after nearing all-time highs, the S&P 1000^® Index rapidly sold off as market participants began repricing risk assets in accordance with this new, much more hawkish, Fed stance. From the start of the calendar year through April 2022, the U.S. 2-Year yield increased by nearly 200 bps as the markets digested the expected interest rate hikes that began in March 2022. In just a few weeks, the S&P 1000^® Index found itself nearly 10% off all-time high levels, bottoming nearly 24% off highs by mid-June 2022. These surging short term interest rate expectations necessitated a rerating of valuation multiples.

As measured by the price to earnings ratio, most of the sell-off in both January 2022 and through the market bottom was driven by multiple compression. From peak to trough over this same period, twelve-month blended forward price to earnings of the S&P 1000^® Index fell by roughly 6 points, or 36%. Although macroeconomic conditions deteriorated, the U.S. consumer remained resilient, supporting corporate revenues and earnings. This broad market pullback that hit companies with lower quality fundamentals the hardest, also provided a boost to the more defensive posture of lower volatility stocks, contributing to their strong relative return over the period.

The investment objective of the Fund is to provide capital appreciation. Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its net assets (including investment borrowings) in small- and/or mid-capitalization common stocks of domestic companies listed and traded on U.S. national securities exchanges that Horizon believes exhibit low future expected volatility. The goal of this strategy is to capture upside price movements in rising markets and reduce downside risk when markets decline. To implement this strategy, Horizon employs volatility forecasting models to forecast future expected volatility. The strategy is largely quantitative and rules-based, but also includes multiple parameters over which Horizon may exercise discretion (including, but not limited to, the number of holdings and the weightings of particular holdings) in connection with its active management of the Fund.

Performance Analysis

On a NAV basis for the 12-month period ended July 31, 2022, the Fund provided a total return of -2.11%, including the reinvestment of dividends. The S&P 1000^® Index fell 5.86%. During the same period, low volatility as a factor led the S&P 1000^® Index, as the S&P 400^® Low Volatility Index gained 2.19%.

Stocks selected within the Consumer Staples, Financials, and Utilities sectors contributed the most to the Fund’s return, while stocks selected within the Health Care, Industrials, and Information Technology sectors detracted the most from the Fund’s return for the same period.

Single stock positions in Murphy USA, Inc., H&R Block, Inc., and Carlisle Cos., Inc. contributed the most to the Fund’s return for the same period. Single stock positions in Masimo Corp., Helen of Troy, Ltd., and Stericycle, Inc. detracted the most from the Fund’s return since inception.

Since the Fund’s inception on April 6, 2020, the Fund realized lower volatility than the S&P 1000^® Index and higher volatility than the S&P 400^® Low Volatility Index. As a part of the Fund’s portfolio allocation process, Horizon overweights or underweights common

Page 13

Portfolio Commentary (Continued)

First Trust Exchange-Traded Fund III

Annual Report

July 31, 2022 (Unaudited)

stocks of small and mid-cap domestic companies based on future expected volatility. An overweight allocation indicates that Horizon expects those stocks to be relatively low risk, while an underweight allocation indicates that Horizon expects those stocks to be relatively high risk. Due to the long-term defensive tilt of the strategy, it is expected that the Fund will underperform in strong positive markets and outperform in strong negative markets. For the fiscal year this was the case and these tilts contributed largely to the relative performance for the period.

Market and Fund Outlook

At the end of the 12-month period ended July 31, 2022, Horizon believes that overall corporate and economic fundamental conditions have deteriorated and that risks to financial markets and the global economy skew towards the downside. Additionally, as the Fed has clearly indicated their policy path is sensitive to each new economic data point, we believe this set up supports periods of elevated volatility. Despite this, we do believe that there are some paths for either rapid or moderately paced normalization in economic conditions, most all of which are dependent on inflation rolling over.

During time periods of persistent volatility, Horizon believes it is important to continue to be responsive to current market conditions when picking stocks to create a portfolio of expected lower volatility stocks. The Fund continues to use a quantitative and rules-based investment process to mitigate volatility through enhanced security selection of targeted exposure to stocks that Horizon estimates will have forecasted future low volatility. Horizon also continues to use active management approach when managing the Fund that provides the flexibility to limit sector concentration and business risk, without being limited to static rebalance requirements.

Page 14

First Trust Exchange-Traded Fund III

Understanding Your Fund Expenses

July 31, 2022 (Unaudited)

As a shareholder of First Trust Horizon Managed Volatility Domestic ETF, First Trust Horizon Managed Volatility Developed International ETF or First Trust Horizon Managed Volatility Small/Mid ETF (each a “Fund” and collectively, the “Funds”), you incur two types of costs: (1) transaction costs; and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, if any, and other Fund expenses. This Example is intended to help you understand your ongoing costs (in U.S. dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other funds.

The Example is based on an investment of $1,000 invested at the beginning of the period and held through the six-month period ended July 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 each Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not each Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Funds and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as brokerage commissions. Therefore, the second line in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Beginning Account Value February 1, 2022	Ending Account Value July 31, 2022	Annualized Expense Ratio Based on the Six-Month Period	Expenses Paid During the Six-Month Period (a)
First Trust Horizon Managed Volatility Domestic ETF (HUSV)
Actual	$1,000.00	$981.90	0.70%	$3.44
Hypothetical (5% return before expenses)	$1,000.00	$1,021.32	0.70%	$3.51
First Trust Horizon Managed Volatility Developed International ETF (HDMV)
Actual	$1,000.00	$934.60	0.80%	$3.84
Hypothetical (5% return before expenses)	$1,000.00	$1,020.83	0.80%	$4.01
First Trust Horizon Managed Volatility Small/Mid ETF (HSMV)
Actual	$1,000.00	$987.90	0.80%	$3.94
Hypothetical (5% return before expenses)	$1,000.00	$1,020.83	0.80%	$4.01

    

(a)	Expenses are equal to the annualized expense ratios as indicated in the table multiplied by the average account value over the period (February 1, 2022 through July 31, 2022), multiplied by 181/365 (to reflect the six-month period).

Page 15

First Trust Horizon Managed Volatility Domestic ETF (HUSV)

Portfolio of Investments

July 31, 2022

First Trust Horizon Managed Volatility Domestic ETF (HUSV)

Portfolio of Investments (Continued)

July 31, 2022

---

First Trust Horizon Managed Volatility Developed International ETF (HDMV)

Portfolio of Investments

July 31, 2022

First Trust Horizon Managed Volatility Developed International ETF (HDMV)

Portfolio of Investments (Continued)

July 31, 2022

First Trust Horizon Managed Volatility Developed International ETF (HDMV)

Portfolio of Investments (Continued)

July 31, 2022

First Trust Horizon Managed Volatility Developed International ETF (HDMV)

Portfolio of Investments (Continued)

July 31, 2022

Currency Exposure Diversification	% of Total Investments
Japanese Yen	26.1%
Euro	18.6
Singapore Dollar	17.5
Hong Kong Dollar	12.2
Swiss Franc	8.2
Australian Dollar	6.8
British Pound Sterling	6.3
Swedish Krona	1.5
Norwegian Krone	1.0
Danish Krone	0.7
New Zealand Dollar	0.6
United States Dollar	0.5
Total	100.0%

Valuation Inputs

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

	Total Value at 7/31/2022	Level 1 Quoted Prices	Level 2 Significant Observable Inputs	Level 3 Significant Unobservable Inputs
Common Stocks:
Israel	$ 222,162	$ 222,162	$ —	$ —
Other Country Categories*	41,527,404	—	41,527,404	—
Real Estate Investment Trusts*	3,597,710	—	3,597,710	—
Rights*	3,126	3,126	—	—
Total Investments	$ 45,350,402	$ 225,288	$ 45,125,114	$—

    

*	See Portfolio of Investments for country breakout.

See Notes to Financial Statements

Page 21

First Trust Horizon Managed Volatility Small/Mid ETF (HSMV)

Portfolio of Investments

July 31, 2022

First Trust Horizon Managed Volatility Small/Mid ETF (HSMV)

Portfolio of Investments (Continued)

July 31, 2022

First Trust Horizon Managed Volatility Small/Mid ETF (HSMV)

Portfolio of Investments (Continued)

July 31, 2022

First Trust Horizon Managed Volatility Small/Mid ETF (HSMV)

Portfolio of Investments (Continued)

July 31, 2022

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First Trust Exchange-Traded Fund III

Statements of Assets and Liabilities

July 31, 2022

	First Trust Horizon Managed Volatility Domestic ETF (HUSV)		First Trust Horizon Managed Volatility Developed International ETF (HDMV)		First Trust Horizon Managed Volatility Small/Mid ETF (HSMV)
ASSETS:
Investments, at value	$ 99,400,093		$ 45,350,402		$ 15,944,887
Cash	215,976		75,501		125,285
Foreign currency	—		111		—
Receivables:
Dividends	104,574		94,927		8,230
Dividend reclaims	—		267,071		164
Miscellaneous	—		25		—
Total Assets	99,720,643		45,788,037		16,078,566
LIABILITIES:
Investment advisory fees payable	56,062		31,134		10,320
Total Liabilities	56,062		31,134		10,320
NET ASSETS	$99,664,581		$45,756,903		$16,068,246
NET ASSETS consist of:
Paid-in capital	$ 137,005,330		$ 76,440,817		$ 16,792,800
Par value	30,000		16,000		5,000
Accumulated distributable earnings (loss)	(37,370,749)		(30,699,914)		(729,554)
NET ASSETS	$99,664,581		$45,756,903		$16,068,246
NET ASSET VALUE, per share	$33.22		$28.60		$32.14
Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share)	3,000,002		1,600,002		500,002
Investments, at cost	$95,268,512		$47,772,481		$15,864,052
Foreign currency, at cost (proceeds)	$—		$110		$—

Page 26

See Notes to Financial Statements

First Trust Exchange-Traded Fund III

Statements of Operations

For the Year Ended July 31, 2022

		First Trust Horizon Managed Volatility Domestic ETF (HUSV)		First Trust Horizon Managed Volatility Developed International ETF (HDMV)		First Trust Horizon Managed Volatility Small/Mid ETF (HSMV)
INVESTMENT INCOME:
Dividends		$ 2,593,066		$ 2,645,804		$ 290,083
Interest		447		472		—
Foreign withholding tax		—		(226,876)		—
Other		25		151		173
Total investment income		2,593,538		2,419,551		290,256
EXPENSES:
Investment advisory fees		839,917		582,056		123,009
Total expenses		839,917		582,056		123,009
NET INVESTMENT INCOME (LOSS)		1,753,621		1,837,495		167,247
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments		6,447,419		(406,851)		(556,599)
In-kind redemptions		4,272,542		(120,093)		923,509
Foreign currency transactions		—		(44,623)		—
Net realized gain (loss)		10,719,961		(571,567)		366,910
Net change in unrealized appreciation (depreciation) on:
Investments		(10,221,164)		(8,114,955)		(864,174)
Foreign currency translation		—		(26,656)		—
Net change in unrealized appreciation (depreciation)		(10,221,164)		(8,141,611)		(864,174)
NET REALIZED AND UNREALIZED GAIN (LOSS)		498,797		(8,713,178)		(497,264)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		$ 2,252,418		$(6,875,683)		$(330,017)

See Notes to Financial Statements

Page 27

First Trust Exchange-Traded Fund III

Statements of Changes in Net Assets

	First Trust Horizon Managed Volatility Domestic ETF (HUSV)				First Trust Horizon Managed Volatility Developed International ETF (HDMV)
	Year Ended 7/31/2022		Year Ended 7/31/2021		Year Ended 7/31/2022		Year Ended 7/31/2021
OPERATIONS:
Net investment income (loss)	$ 1,753,621		$ 2,290,770		$ 1,837,495		$ 2,610,309
Net realized gain (loss)	10,719,961		32,204,187		(571,567)		10,415,785
Net increase from payment by the advisor	—		—		—		6,254
Net change in unrealized appreciation (depreciation)	(10,221,164)		(4,733,783)		(8,141,611)		3,610,545
Net increase (decrease) in net assets resulting from operations	2,252,418		29,761,174		(6,875,683)		16,642,893
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment operations	(1,660,766)		(2,308,451)		(1,931,942)		(2,737,667)
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold	20,067,842		127,467,991		1,508,580		—
Cost of shares redeemed	(41,752,654)		(248,985,087)		(33,905,829)		(50,656,967)
Net increase (decrease) in net assets resulting from shareholder transactions	(21,684,812)		(121,517,096)		(32,397,249)		(50,656,967)
Total increase (decrease) in net assets	(21,093,160)		(94,064,373)		(41,204,874)		(36,751,741)
NET ASSETS:
Beginning of period	120,757,741		214,822,114		86,961,777		123,713,518
End of period	$99,664,581		$120,757,741		$45,756,903		$86,961,777
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period	3,650,002		7,900,002		2,700,002		4,400,002
Shares sold	600,000		4,600,000		50,000		—
Shares redeemed	(1,250,000)		(8,850,000)		(1,150,000)		(1,700,000)
Shares outstanding, end of period	3,000,002		3,650,002		1,600,002		2,700,002

Page 28

See Notes to Financial Statements

First Trust Horizon Managed Volatility Small/Mid ETF (HSMV)
Year Ended 7/31/2022		Year Ended 7/31/2021
$ 167,247		$ 155,806
366,910		4,216,877
—		—
(864,174)		(131,960)
(330,017)		4,240,723
(133,705)		(160,236)
6,741,624		23,515,729
(5,115,847)		(32,712,721)
1,625,777		(9,196,992)
1,162,055		(5,116,505)
14,906,191		20,022,696
$16,068,246		$14,906,191
450,002		800,002
200,000		800,000
(150,000)		(1,150,000)
500,002		450,002

See Notes to Financial Statements

Page 29

First Trust Exchange-Traded Fund III

Financial Highlights

For a share outstanding throughout each period

First Trust Horizon Managed Volatility Domestic ETF (HUSV)  

	Year Ended July 31,
	2022		2021		2020		2019		2018
Net asset value, beginning of period	$ 33.08		$ 27.19		$ 26.71		$ 23.49		$ 22.03
Income from investment operations:
Net investment income (loss)	0.51		0.46		0.37		0.37		0.30
Net realized and unrealized gain (loss)	0.10		5.87		0.52		3.17		1.46
Total from investment operations	0.61		6.33		0.89		3.54		1.76
Distributions paid to shareholders from:
Net investment income	(0.47)		(0.44)		(0.41)		(0.32)		(0.30)
Net asset value, end of period	$33.22		$33.08		$27.19		$26.71		$23.49
Total return (a)	1.82%		23.48%		3.41%		15.24%		8.04%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000’s)	$ 99,665		$ 120,758		$ 214,822		$ 224,389		$ 133,888
Ratio of total expenses to average net assets	0.70%		0.70%		0.70%		0.70%		0.70%
Ratio of net investment income (loss) to average net assets	1.46%		1.42%		1.39%		1.58%		1.37%
Portfolio turnover rate (b)	76%		152%		211%		147%		157%

    

(a)

Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year.

(b)

Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions.

Page 30

See Notes to Financial Statements

First Trust Exchange-Traded Fund III

Financial Highlights (Continued)

For a share outstanding throughout each period

First Trust Horizon Managed Volatility Developed International ETF (HDMV)  

	Year Ended July 31,
	2022		2021		2020		2019		2018
Net asset value, beginning of period	$ 32.21		$ 28.12		$ 32.92		$ 33.72		$ 33.05
Income from investment operations:
Net investment income (loss)	0.90		0.89		0.65		0.86		0.91
Net realized and unrealized gain (loss)	(3.62)		4.13		(4.61)		(0.79)		0.87
Total from investment operations	(2.72)		5.02		(3.96)		0.07		1.78
Distributions paid to shareholders from:
Net investment income	(0.89)		(0.93)		(0.84)		(0.87)		(1.11)
Net asset value, end of period	$28.60		$32.21		$28.12		$32.92		$33.72
Total return (a)	(8.50)%		18.01% (b)		(12.37)%		0.21%		5.48%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000’s)	$ 45,757		$ 86,962		$ 123,714		$ 128,394		$ 59,010
Ratio of total expenses to average net assets	0.80%		0.80%		0.80%		0.80%		0.80%
Ratio of net investment income (loss) to average net assets	2.53%		2.68%		2.08%		2.74%		2.73%
Portfolio turnover rate (c)	65%		127%		196%		99%		133%

    

(a)	Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year.
(b)	The Fund received a reimbursement from the advisor in the amount of $6,254, which represents less than $0.01 per share. Since the advisor reimbursed the Fund, there was no effect on the Fund’s total return.
(c)	Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions.

See Notes to Financial Statements

Page 31

First Trust Exchange-Traded Fund III

Financial Highlights (Continued)

For a share outstanding throughout each period

First Trust Horizon Managed Volatility Small/Mid ETF (HSMV)  

	Year Ended July 31,				Period Ended 7/31/2020 (a)
	2022		2021
Net asset value, beginning of period	$ 33.12		$ 25.03		$ 21.10
Income from investment operations:
Net investment income (loss)	0.36		0.29		0.02
Net realized and unrealized gain (loss)	(1.05)		8.09		3.92
Total from investment operations	(0.69)		8.38		3.94
Distributions paid to shareholders from:
Net investment income	(0.29)		(0.29)		(0.01)
Net realized gain	—		(0.00) (b)		—
Total distributions	(0.29)		(0.29)		(0.01)
Net asset value, end of period	$32.14		$33.12		$25.03
Total return (c)	(2.11)%		33.72%		18.67%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000’s)	$ 16,068		$ 14,906		$ 20,023
Ratio of total expenses to average net assets	0.80%		0.80%		0.80% (d)
Ratio of net investment income (loss) to average net assets	1.09%		1.02%		0.60% (d)
Portfolio turnover rate (e)	71%		118%		5%

    

(a)	Inception date is April 6, 2020, which is consistent with the commencement of investment operations and is the date the initial creation units were established.
(b)	Amount represents less than $0.01 per share.
(c)	Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year.
(d)	Annualized.
(e)	Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions.

Page 32

See Notes to Financial Statements

Notes to Financial Statements

First Trust Exchange-Traded Fund III

July 31, 2022

1. Organization

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

The Trust currently consists of seventeen funds that are offering shares. This report covers the following funds (each a “Fund” and collectively, the “Funds”). The shares of each Fund are listed and traded on the NYSE Arca, Inc.

First Trust Horizon Managed Volatility Domestic ETF – (ticker “HUSV”)

First Trust Horizon Managed Volatility Developed International ETF – (ticker “HDMV”)

First Trust Horizon Managed Volatility Small/Mid ETF – (ticker “HSMV”)

HUSV and HDMV are diversified series of the Trust. HSMV is a non-diversified series of the Trust.

Each Fund represents a separate series of shares of beneficial interest in the Trust. Unlike conventional mutual funds, each Fund issues and redeems shares on a continuous basis, at net asset value (“NAV”), only in large blocks of shares known as “Creation Units.”

Each Fund is an actively managed exchange-traded fund. The investment objective of each Fund is to provide capital appreciation.

Under normal market conditions, HUSV seeks to achieve its investment objective by investing at least 80% of its net assets (including investment borrowings) in common stocks of domestic companies listed and traded on U.S. national securities exchanges that Horizon Investments, LLC (“Horizon” or the “Sub-Advisor”) believes exhibit low future expected volatility.

Under normal market conditions, HDMV seeks to achieve its investment objective by investing at least 80% of its net assets (including investment borrowings) in common stocks and depositary receipts of developed market companies listed and traded on non-U.S. exchanges that Horizon believes exhibit low future expected volatility.

Under normal market conditions, HSMV seeks to achieve its investment objective by investing at least 80% of its net assets (including investment borrowings) in small- and/or mid-capitalization common stocks listed and traded on U.S. national securities exchanges that Horizon believes exhibit low future expected volatility.

There can be no assurance that a Fund will achieve its investment objective. The Funds may not be appropriate for all investors.

2. Significant Accounting Policies

The Funds are each considered an investment company and follow 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 Funds in the preparation of the financial statements. The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.

A. Portfolio Valuation

Each Fund’s NAV is determined daily as of the close of regular trading on the New York Stock Exchange (“NYSE”), normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV is determined as of that time. Foreign securities are priced using data reflecting the earlier closing of the principal markets for those securities. Each Fund’s NAV is calculated by dividing the value of all assets of each Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of shares outstanding.

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

Common stocks, real estate investment trusts (“REITs”) 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

Page 33

Notes to Financial Statements (Continued)

First Trust Exchange-Traded Fund III

July 31, 2022

official closing price. Securities traded on more than one securities exchange are valued at the last sale price or official closing price, as applicable, at the close of the securities exchange representing the principal market for such securities.

Securities trading on foreign exchanges or over-the-counter markets that close prior to the NYSE close may be valued using a systematic fair valuation model provided by a third-party pricing service. If these foreign securities meet certain criteria in relation to the valuation model, their valuation is systematically adjusted to reflect the impact of movement in the U.S. market after the close of the foreign markets.

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

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

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

If the securities in question are foreign securities, the following additional information may be considered:

1)	the value of similar foreign securities traded on other foreign markets;
2)	ADR trading of similar securities;
3)	closed-end fund or exchange-traded fund trading of similar securities;
4)	foreign currency exchange activity;
5)	the trading prices of financial products that are tied to baskets of foreign securities;
6)	factors relating to the event that precipitated the pricing problem;
7)	whether the event is likely to recur; and
8)	whether the effects of the event are isolated or whether they affect entire markets, countries or regions.

Because foreign markets may be open on different days than the days during which investors may transact in the shares of a Fund, the value of the Fund’s securities may change on the days when investors are not able to transact in the shares of the Fund. The value of securities denominated in foreign currencies is converted into U.S. dollars using exchange rates determined daily as of the close of regular trading on the NYSE.

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

•	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.

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Notes to Financial Statements (Continued)

First Trust Exchange-Traded Fund III

July 31, 2022

•	Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following:

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

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

The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value each Fund’s investments as of July 31, 2022, is included with each 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 is 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, if any, is recorded daily on the accrual basis.

Withholding taxes and tax reclaims on foreign dividends have been provided for in accordance with each Fund’s understanding of the applicable country’s tax rules and rates.

Distributions received from a Fund’s investments in REITs may be comprised of return of capital, capital gains, and income. The actual character of the amounts received during the year are not known until after the REITs’ fiscal year end. A Fund records the character of distributions received from the REITs during the year based on estimates available. The characterization of distributions received by a Fund may be subsequently revised based on information received from the REITs after their tax reporting periods conclude.

C. Foreign Currency

The books and records of the Funds are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities are translated into U.S. dollars at the exchange rates prevailing at the end of the period. Purchases and sales of investments and items of income and expense are translated on the respective dates of such transactions. Unrealized gains and losses on assets and liabilities, other than investments in securities, which result from changes in foreign currency exchange rates have been included in “Net change in unrealized appreciation (depreciation) on foreign currency translation” on the Statements of Operations. Unrealized gains and losses on investments in securities which result from changes in foreign exchange rates are included with fluctuations arising from changes in market price and are included in “Net change in unrealized appreciation (depreciation) on investments” on the Statements of Operations. Net realized foreign currency gains and losses include the effect of changes in exchange rates between trade date and settlement date on investment security transactions, foreign currency transactions and interest and dividends received and are included in “Net realized gain (loss) on foreign currency transactions” on the Statements of Operations. The portion of foreign currency gains and losses related to fluctuations in exchange rates between the initial purchase settlement date and subsequent sale trade date is included in “Net realized gain (loss) on investments” on the Statements of Operations.

D. Dividends and Distributions to Shareholders

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

Page 35

Notes to Financial Statements (Continued)

First Trust Exchange-Traded Fund III

July 31, 2022

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 Funds and have no impact on net assets or NAV per share. Temporary differences, which arise from recognizing certain items of income, expense and gain/loss in different periods for financial statement and tax purposes, will reverse at some time in the future.

The tax character of distributions paid by each Fund during the fiscal year ended July 31, 2022, was as follows:

	Distributions paid from Ordinary Income		Distributions paid from Capital Gains		Distributions paid from Return of Capital
First Trust Horizon Managed Volatility Domestic ETF	$ 1,660,766		$ —		$ —
First Trust Horizon Managed Volatility Developed International ETF	1,931,942		—		—
First Trust Horizon Managed Volatility Small/Mid ETF	133,705		—		—

The tax character of distributions paid by each Fund during the fiscal year ended July 31, 2021, was as follows:

	Distributions paid from Ordinary Income		Distributions paid from Capital Gains		Distributions paid from Return of Capital
First Trust Horizon Managed Volatility Domestic ETF	$ 2,308,451		$ —		$ —
First Trust Horizon Managed Volatility Developed International ETF	2,737,667		—		—
First Trust Horizon Managed Volatility Small/Mid ETF	160,081		155		—

As of July 31, 2022, the components of distributable earnings on a tax basis for each Fund were as follows:

	Undistributed Ordinary Income		Accumulated Capital and Other Gain (Loss)		Net Unrealized Appreciation (Depreciation)
First Trust Horizon Managed Volatility Domestic ETF	$ 255,958		$ (41,741,623)		$ 4,114,916
First Trust Horizon Managed Volatility Developed International ETF	290,248		(28,457,956)		(2,532,206)
First Trust Horizon Managed Volatility Small/Mid ETF	38,219		(729,173)		(38,600)

E. Income Taxes

Each 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, each Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of each Fund’s taxable income exceeds the distributions from such taxable income for the calendar year.

The Funds are subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. For HUSV and HDMV, taxable years ended 2019, 2020, 2021, and 2022 remain open to federal and state audit. For HSMV, the taxable years ended 2020, 2021, and 2022 remain open to federal and state audit. As of July 31, 2022, management has evaluated the application of these standards to the Funds and has determined that no provision for income tax is required in the Funds’ financial statements for uncertain tax positions.

The Funds intend to utilize provisions of the federal income tax laws, which allow them 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 Funds are subject to certain limitations under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. At July 31, 2022, for federal income tax purposes, the Funds had a capital loss carryforward available that is shown in the following table, to the extent provided by regulations, to offset future capital gains.

Page 36

Notes to Financial Statements (Continued)

First Trust Exchange-Traded Fund III

July 31, 2022

	Non-Expiring Capital Loss Carryforward
First Trust Horizon Managed Volatility Domestic ETF	$ 41,741,623
First Trust Horizon Managed Volatility Developed International ETF	28,457,956
First Trust Horizon Managed Volatility Small/Mid ETF	729,173

In order to present paid-in capital and accumulated distributable earnings (loss) (which consists of accumulated net investment income (loss), accumulated net realized gain (loss) on investments and net unrealized appreciation (depreciation) on investments) on the Statements of Assets and Liabilities that more closely represent their tax character, certain adjustments have been made to paid-in capital, accumulated net investment income (loss) and accumulated net realized gain (loss) on investments. These adjustments are primarily due to the difference between book and tax treatments of income and gains on various investment securities held by the Funds and in-kind transactions. The results of operations and net assets were not affected by these adjustments. For the fiscal year ended July 31, 2022, the adjustments for each Fund were as follows:

	Accumulated Net Investment Income (Loss)		Accumulated Net Realized Gain (Loss) on Investments		Paid-in Capital
First Trust Horizon Managed Volatility Domestic ETF	$ —		$ (4,099,610)		$ 4,099,610
First Trust Horizon Managed Volatility Developed International ETF	70,823		314,928		(385,751)
First Trust Horizon Managed Volatility Small/Mid ETF	671		(911,043)		910,372

As of July 31, 2022, the aggregate cost, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation/(depreciation) on investments (including short positions and derivatives, if any) for federal income tax purposes were as follows:

	Tax Cost		Gross Unrealized Appreciation		Gross Unrealized (Depreciation)		Net Unrealized Appreciation (Depreciation)
First Trust Horizon Managed Volatility Domestic ETF	$ 95,285,177		$ 7,434,999		$ (3,320,083)		$ 4,114,916
First Trust Horizon Managed Volatility Developed International ETF	47,868,811		1,524,323		(4,042,732)		(2,518,409)
First Trust Horizon Managed Volatility Small/Mid ETF	15,983,487		940,245		(978,845)		(38,600)

F. Expenses

Expenses, other than the investment advisory fee and other excluded expenses, are paid by the Advisor (See Note 3).

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

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

HUSV has agreed to pay First Trust an annual unitary management fee of 0.70% of its average daily net assets. HDMV and HSMV have agreed to pay First Trust an annual unitary management fee of 0.80% of their average daily net assets. Pursuant to the Investment Management Agreement between First Trust and the Trust, First Trust manages the investment of the Funds’ assets and is responsible for the expenses of each Fund, including the cost of transfer agency, sub-advisory, custody, fund administration, legal, audit and other services, but excluding fee payments under the Investment Management Agreement, interest, taxes, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution and service fees payable pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses, which are paid by each respective Fund. First Trust also provides fund reporting services to each Fund for a flat annual fee in the amount of $9,250, which is covered under the annual unitary management fee.

Page 37

Notes to Financial Statements (Continued)

First Trust Exchange-Traded Fund III

July 31, 2022

During the fiscal year ended July 31, 2021, HDMV received a payment from the Advisor of $6,254 in connection with a trade error.

Horizon serves as the Funds’ sub-advisor and manages each Fund’s portfolio subject to First Trust’s supervision. The Sub-Advisor receives a sub-advisory fee from First Trust equal to 50% of any remaining monthly unitary management fee paid to the Advisor after the average Fund’s expenses accrued during the most recent twelve months are subtracted from the unitary management fee for that month.

ACP Horizon Holdings, L.P., an entity affiliated with Altamont Capital Partners, a private investment firm located in Palo Alto, California, acquired a majority ownership interest in Horizon (the “Transaction”), which closed in November 2021 (the “Closing”). The Closing operated as an “assignment” (as defined in the 1940 Act) of each Fund’s applicable existing investment sub-advisory agreement with Horizon (each a “Current Sub-Advisory Agreement” and collectively, the “Current Sub-Advisory Agreements”), which resulted in the automatic termination of the Current Sub-Advisory Agreements in accordance with their respective terms. The Board previously approved a new investment sub-advisory agreement (the “New Sub-Advisory Agreement”) among the Trust, on behalf of each Fund, First Trust and Horizon. The shareholders of HSMV, HUSV, and HDMV voted to approve the New Sub-Advisory Agreement on December 6, 2021, March 31, 2022, and April 11, 2022, respectively.

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

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

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

4. Purchases and Sales of Securities

For the fiscal year ended July 31, 2022, the cost of purchases and proceeds from sales of investment securities for each Fund, excluding short-term investments and in-kind transactions, were as follows:

	Purchases		Sales
First Trust Horizon Managed Volatility Domestic ETF	$ 91,486,401		$ 91,275,273
First Trust Horizon Managed Volatility Developed International ETF	46,173,814		46,262,093
First Trust Horizon Managed Volatility Small/Mid ETF	11,063,594		10,910,442

For the fiscal year ended July 31, 2022, the cost of in-kind purchases and proceeds from in-kind sales for each Fund were as follows:

	Purchases		Sales
First Trust Horizon Managed Volatility Domestic ETF	$ 20,011,777		$ 41,630,281
First Trust Horizon Managed Volatility Developed International ETF	1,337,212		33,667,643
First Trust Horizon Managed Volatility Small/Mid ETF	6,726,058		5,118,890

5. Creations, Redemptions and Transaction Fees

Each 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 a 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, a 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 a Fund’s shares deposits with the Fund the “basket”

Page 38

Notes to Financial Statements (Continued)

First Trust Exchange-Traded Fund III

July 31, 2022

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 a 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 a Fund’s shares and underlying securities provides arbitrage opportunities that are designed to help keep the market price of a Fund’s shares at or close to the NAV per share of the Fund.

Each 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 a 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.

Each 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 a Fund times the number of shares in a Creation Unit, minus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the redemption basket. Investors who use the services of a broker or other such intermediary in addition to an Authorized Participant to effect a redemption of a Creation Unit may also be assessed an amount to cover the cost of such services. The redemption fee charged by a Fund will comply with Rule 22c-2 of the 1940 Act which limits redemption fees to no more than 2% of the value of the shares redeemed.

6. Distribution Plan

The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, each 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 Funds, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or to provide investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services.

No 12b-1 fees are currently paid by the Funds, and pursuant to a contractual arrangement, no 12b-1 fees will be paid any time before November 30, 2023.

7. Indemnification

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

8. Subsequent Events

Management has evaluated the impact of all subsequent events to the Funds through the date the financial statements were issued and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements that have not already been disclosed.

Page 39

To the Shareholders and the Board of Trustees of First Trust Exchange-Traded Fund III:

We have audited the accompanying statements of assets and liabilities of First Trust Horizon Managed Volatility Domestic ETF, First Trust Horizon Managed Volatility Developed International ETF, and First Trust Horizon Managed Volatility Small/Mid ETF (the “Funds”), each a series of the First Trust Exchange-Traded Fund III, including the portfolios of investments, as of July 31, 2022, the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for the periods indicated in the table below, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of each of the Funds as of July 31, 2022, and the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for the periods listed in the table below in conformity with accounting principles generally accepted in the United States of America.

Individual Funds Included in the Trust	Financial Highlights
First Trust Horizon Managed Volatility Domestic ETF (HUSV)	For the years ended July 31, 2022, 2021, 2020, 2019, and 2018
First Trust Horizon Managed Volatility Developed International ETF (HDMV)	For the years ended July 31, 2022, 2021, 2020, 2019, and 2018
First Trust Horizon Managed Volatility Small/Mid ETF (HSMV)	For the years ended July 31, 2022 and 2021, and for the period from April 6, 2020 (commencement of operations) through July 31, 2020

Basis for Opinion

These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Funds are not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of July 31, 2022, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

Chicago, Illinois

September 22, 2022

We have served as the auditor of one or more First Trust investment companies since 2001.

Page 40

Additional Information

First Trust Exchange-Traded Fund III

July 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 each Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available (1) without charge, upon request, by calling (800) 988-5891; (2) on each Fund’s website at www.ftportfolios.com; and (3) on the Securities and Exchange Commission’s (“SEC”) website at www.sec.gov.

Portfolio Holdings

Each Fund files portfolio holdings information for each month in a fiscal quarter within 60 days after the end of the relevant fiscal quarter on Form N-PORT. Portfolio holdings information for the third month of each fiscal quarter will be publicly available on the SEC’s website at www.sec.gov. Each Fund’s complete schedule of portfolio holdings for the second and fourth quarters of each fiscal year is included in the semi-annual and annual reports to shareholders, respectively, and is filed with the SEC on Form N-CSR. The semi-annual and annual report for each Fund is available to investors within 60 days after the period to which it relates. Each Fund’s Forms N-PORT and Forms N-CSR are available on the SEC’s website listed above.

Federal Tax Information

For the taxable year ended July 31, 2022, the following percentages of income dividend paid by the Funds qualify for the dividends received deduction available to corporations :  

	Dividends Received Deduction
First Trust Horizon Managed Volatility Domestic ETF	100.00%
First Trust Horizon Managed Volatility Developed International ETF	0.00%
First Trust Horizon Managed Volatility Small/Mid ETF	100.00%

For the taxable year ended July 31, 2022, the following percentages of income dividend paid by the Funds are hereby designated as qualified dividend income:

	Qualified Dividend Income
First Trust Horizon Managed Volatility Domestic ETF	100.00%
First Trust Horizon Managed Volatility Developed International ETF	94.16%
First Trust Horizon Managed Volatility Small/Mid ETF	100.00%

A portion of the ordinary dividends (including short-term capital gains) that HUSV and HSMV paid to shareholders during the taxable year ended July 31, 2022, may be eligible for the Qualified Business Income (QBI) Deduction under the Internal Revenue Code of 1986, as amended (the “Code”), section 199A for the aggregate dividends the Funds received from the Underlying Real Estate Investment Trusts (REITs) they invest in.

The following Fund met the requirements of Section 853 of the Code and elects to pass through to its shareholders credit for foreign taxes paid. For the taxable year ended July 31, 2022, the total amounts of income received by the Fund from sources within foreign countries and possessions of the United States and of taxes paid to such countries are as follows:

	Gross Foreign Income				Foreign Taxes Paid
	Amount		Per Share		Amount		Per Share
First Trust Horizon Managed Volatility Developed International ETF	$ 2,645,797		$ 1.65		$ 219,588		$ 0.14

The foreign taxes paid will be reported to shareholders on Form 1099-DIV which will be sent to shareholders shortly after the calendar year end. Gross foreign income and foreign taxes paid will be posted on the Fund’s website and disclosed in the tax letter.

Submission of Matters to a Vote of Shareholders

HUSV held its Special Meeting of Shareholders (the “Special Meeting”) on March 31, 2022. At the Special Meeting, the shareholders approved a new Investment Sub-Advisory Agreement for HUSV. The number of shares voted in favor of the new Investment Sub-Advisory Agreement for HUSV was 1,616,609 and the number of shares voted against was 22,917 and the number of abstentions was 223,503.

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Additional Information (Continued)

First Trust Exchange-Traded Fund III

July 31, 2022 (Unaudited)

HDMV held its Special Meeting of Shareholders (the “Special Meeting”) on April 11, 2022. At the Special Meeting, the shareholders approved a new Investment Sub-Advisory Agreement for HDMV. The number of shares voted in favor of the new Investment Sub-Advisory Agreement for HDMV was 1,179,316 and the number of shares voted against was 17,358 and the number of abstentions was 156,759.

HSMV held its Special Meeting of Shareholders (the “Special Meeting”) on December 6, 2021. At the Special Meeting, the shareholders approved a new Investment Sub-Advisory Agreement for HSMV. The number of shares voted in favor of the new Investment Sub-Advisory Agreement for HSMV was 226,322 and the number of shares voted against was 2,596 and the number of abstentions was 3,954.

Risk Considerations