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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-22442
First Trust High Income Long/Short Fund
(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
(Name and address of agent for service)
Registrant’s telephone number, including
area code: 630-765-8000
Date of fiscal year end: October 31
Date of reporting period: October 31, 2023
Form N-CSR is to be used by management investment
companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required
to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use
the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information
specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection
of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”)
control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing
the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this
collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1. Reports to Stockholders.
(a) The
Report to Shareholders is attached herewith.
First
Trust
High
Income Long/Short Fund (FSD)
Annual
Report
For
the Year Ended
October
31, 2023
First
Trust High Income Long/Short Fund (FSD)
Annual
Report
October
31, 2023
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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 MacKay Shields LLC (“MacKay” 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 First Trust High Income Long/Short Fund (the “Fund”) to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. When evaluating the information included in this report, you are
cautioned not to place undue reliance on these forward-looking statements, which reflect the judgment of the Advisor and/or Sub-Advisor
and their respective representatives only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking
statements to reflect events and circumstances that arise after the date hereof.
Performance
and Risk Disclosure
There
is no assurance that the Fund will achieve its investment objectives. The Fund is subject to market risk, which is the possibility that
the market values of securities owned by the Fund will decline and that the value of the Fund’s shares may therefore be less than
what you paid for them. Accordingly, you can lose money by investing in the Fund. See “Principal Risks” in the Investment
Objectives, Policies, Risks and Effects of Leverage section of this report for a discussion of certain other risks of investing in the
Fund.
Performance
data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than
the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com
or speak with your financial advisor. Investment returns, net asset value and common share price will fluctuate and Fund shares, when
sold, may be worth more or less than their original cost.
The
Advisor may also periodically provide additional information on Fund performance on the Fund’s web page at www.ftportfolios.com.
How
to Read This Report
This
report contains information that may help you evaluate your investment in the Fund. It includes details about the Fund and presents data
and analysis that provide insight into the Fund’s performance and investment approach.
By
reading the portfolio commentary by the portfolio management team of the Fund, you may obtain an understanding of how the market environment
affected the Fund’s performance. The statistical information that follows may help you understand the Fund’s performance compared
to that of a relevant market benchmark.
It
is important to keep in mind that the opinions expressed by personnel of First Trust and MacKay are just that: informed opinions. They
should not be considered to be promises or advice. The opinions, like the statistics, cover the period through the date on the cover of
this report. The material risks of investing in the Fund are spelled out in the prospectus, the statement of additional information, this
report and other Fund regulatory filings.
First
Trust High Income Long/Short Fund (FSD)
Annual
Letter from the Chairman and CEO
October
31, 2023
Dear
Shareholders,
First
Trust is pleased to provide you with the annual report for the First Trust High Income Long/Short Fund (the “Fund”), which
contains detailed information about the Fund for the twelve months ended October 31, 2023.
The
Bureau of Economic Analysis recently announced that U.S. real gross domestic product (“GDP”) grew by a staggering 4.9% in
the third quarter of 2023 and is now up 2.9% on a year-over-year basis from where it stood in the third quarter of 2022. The most recent
quarter’s GDP data represents the fastest growth rate for any quarter since 2014. Consumer spending, which rose by 4.0% over the
period, was responsible for 2.7 percentage points of the total increase in GDP. Whether the consumer can keep up this pace of spending
remains to be seen, especially given recent news that excess savings from the pandemic-era stimulus have likely been depleted. From a
global perspective, the International Monetary Fund (“IMF”) notes that progress in fighting inflation has led to lower economic
growth. In their October 2023 publication of the World Economic Outlook, the IMF projected that the growth in world economic output is
expected to slow from 3.5% in 2022 to 2.9% in 2024. The economic growth in advanced economies is projected to plummet from 2.6% in 2022
to 1.4% in 2024.
In
the notes to their September 2023 meeting, the Federal Open Market Committee revealed that they may need to keep interest rates “higher
for longer” as they continue to battle stubbornly high inflation. As many investors are likely aware, a higher Federal Funds target
rate can have deep implications for consumers, such as driving up the cost of borrowing for homes, automobiles, and other large purchases.
The American consumer has yet to feel the full weight of those burdens, in my opinion. That said, the data reveals a different story among
corporate America. S&P Global Market Intelligence reported that a total of 516 U.S. corporations filed for bankruptcy protection on
a year-to-date basis through September 30, 2023, up from a total of 263 corporate bankruptcy filings over the same period last year. Higher
interest rates and Treasury bond yields have also sapped demand for commercial property loans. Data from Trepp, LLC, a leading provider
of data and analytics to the commercial real estate and banking markets, revealed that just $28.2 billion of loans converted into commercial
mortgage-backed securities have been issued in 2023, the lowest figure since 2011.
The
financial markets battled a myriad of headwinds over the past year, from geopolitical uncertainty resulting from war (the conflicts between
Israel and Hamas and Russia and Ukraine), to slowing global economic growth and sticky inflation. Brian Wesbury, Chief Economist at First
Trust, notes that a U.S. economic recession is likely to begin at some point early next year. While calls for a recession may concern
some investors, the following may offer solace. Data from Bloomberg reveals that the S&P 500®
Index has posted positive total returns over the 3-year period following every recession since 1948.
Thank
you for giving First Trust the opportunity to play a role in your financial future. We value our relationship with you and will report
on the Fund again in six months.
Sincerely,
James
A. Bowen
Chairman
of the Board of Trustees
Chief
Executive Officer of First Trust Advisors L.P.
First
Trust High Income Long/Short Fund (FSD)
“AT
A GLANCE”
As
of October 31, 2023 (Unaudited)
| Fund
Statistics |
|
| Symbol
on New York Stock Exchange |
FSD
|
| Common
Share Price |
$10.48
|
| Common
Share Net Asset Value (“NAV”) |
$11.95
|
| Premium
(Discount) to NAV |
(12.30)%
|
| Net
Assets Applicable to Common Shares |
$397,672,822
|
| Current
Monthly Distribution per Common Share(1) |
$0.1050
|
| Current
Annualized Distribution per Common Share |
$1.2600
|
| Current
Distribution Rate on Common Share Price(2) |
12.02%
|
| Current
Distribution Rate on NAV(2) |
10.54%
|
Common
Share Price & NAV (weekly closing price)
| Performance
|
|
|
|
|
|
|
|
Average
Annual Total Returns |
|
|
1
Year Ended
10/31/23 |
5
Years Ended
10/31/23 |
10
Years Ended
10/31/23 |
Inception
(9/27/10)
to 10/31/23 |
| Fund
Performance(3) |
|
|
|
|
| NAV(4)
|
5.73%
|
3.04%
|
3.86%
|
5.13%
|
| Market
Value |
5.89%
|
3.94%
|
3.62%
|
3.72%
|
| Index
Performance |
|
|
|
|
| ICE
BofA US High Yield Constrained Index |
5.81%
|
2.86%
|
3.77%
|
5.13%
|
| (1)
|
Most
recent distribution paid through October 31, 2023. Subject to change in the future. |
| (2)
|
Distribution
rates are calculated by annualizing the most recent distribution paid through the report date and then dividing by Common Share Price
or NAV, as applicable, as of October 31, 2023. Subject to change in the future. |
| (3)
|
Total
return is based on the combination of reinvested dividend, capital gain, and return of capital distributions, if any, at prices obtained
by the Dividend Reinvestment Plan and changes in NAV per share for NAV returns and changes in Common Share Price for market value returns.
Total returns do not reflect sales load and are not annualized for periods of less than one year. Past performance is not indicative of
future results. |
| (4)
|
On
January 3, 2023, the fair value methodology used to value the senior loan investments held by the Fund was changed. Prior to that date,
the senior loans were valued using the bid side price provided by a pricing service. After such date, the senior loans were valued using
the midpoint between the bid and ask price provided by a pricing service. The change in the Fund’s fair value methodology on January
3, 2023, resulted in a one-time increase in the Fund’s net asset value of approximately $0.005 per share on that date, which represented
a positive impact on the Fund’s performance of 0.04%. Without the change to the pricing methodology, the performance of the
Fund on a NAV basis would have been 5.64%, 3.02%, 3.85%, and 5.12% in the one-year, five-year, ten-year and since inception periods
ended October 31, 2023, respectively. |
First
Trust High Income Long/Short Fund (FSD)
“AT
A GLANCE” (Continued)
As
of October 31, 2023 (Unaudited)
| Credit
Quality(5) |
%
of Total
Fixed-Income
Investments(6) |
| BBB-
and above |
16.0%
|
| BB
|
51.3
|
| B
|
27.6
|
| CCC+
and below |
5.1
|
| NR
|
0.0*
|
| Total
|
100.0%
|
| *
|
Amount
is less than 0.1%. |
| Industry
Classification |
%
of
Long-Term
Investments(6) |
| Energy
|
14.4%
|
| Services
|
9.9
|
| Media
|
8.5
|
| Basic
Industry |
7.7
|
| Capital
Goods |
7.5
|
| Leisure
|
5.7
|
| Consumer
Goods |
5.1
|
| Retail
|
5.0
|
| Automotive
|
4.9
|
| Telecommunications
|
4.9
|
| Healthcare
|
4.8
|
| Utility
|
4.6
|
| Technology
& Electronics |
3.8
|
| Real
Estate |
3.5
|
| Financial
Services |
3.3
|
| Banking
|
2.8
|
| Transportation
|
2.7
|
| Commercial
Mortgage-Backed Securities |
0.4
|
| Government
Guaranteed |
0.4
|
| Insurance
|
0.1
|
| Collateralized
Mortgage Obligations |
0.0*
|
| Total
|
100.0%
|
| *
|
Amount
is less than 0.1%. |
| Asset
Classification |
%
of
Long-Term
Investments(6) |
| Corporate
Bonds and Notes |
74.5%
|
| Foreign
Corporate Bonds and Notes |
17.6
|
| Capital
Preferred Securities |
5.4
|
| Senior
Floating-Rate Loan Interests |
2.0
|
| Mortgage-Backed
Securities |
0.4
|
| Equity
|
0.1
|
| Total
|
100.0%
|
| Country
Exposure |
%
of
Long-Term
Investments(6) |
| United
States |
81.9%
|
| Canada
|
5.4
|
| United
Kingdom |
2.4
|
| Bermuda
|
2.3
|
| Multinational
|
1.8
|
| Netherlands
|
1.4
|
| Luxembourg
|
1.0
|
| France
|
0.9
|
| Finland
|
0.6
|
| Panama
|
0.6
|
| Mexico
|
0.5
|
| Cayman
Islands |
0.5
|
| Ireland
|
0.3
|
| Australia
|
0.3
|
| Italy
|
0.1
|
| Total
|
100.0%
|
| Fund
Allocation |
%
of Net Assets |
| Corporate
Bonds and Notes |
98.7%
|
| Foreign
Corporate Bonds and Notes |
23.3
|
| Capital
Preferred Securities |
7.2
|
| Senior
Floating-Rate Loan Interests |
2.7
|
| Mortgage-Backed
Securities |
0.5
|
| Common
Stocks |
0.1
|
| Rights
|
0.0*
|
| U.S.
Government Bonds Sold Short |
(13.0)
|
| Corporate
Bonds Sold Short |
(1.0)
|
| Outstanding
Loan |
(36.1)
|
| Net
Other Assets and Liabilities(7) |
17.6
|
| Total
|
100.0%
|
| *
|
Amount
is less than 0.1%. |
| (5)
|
The
credit quality and ratings information presented above reflect the ratings assigned by one or more nationally recognized statistical rating
organizations (NRSROs), including S&P Global Ratings, Moody’s Investors Service, Inc., Fitch Ratings or a comparably rated NRSRO.
For situations in which a security is rated by more than one NRSRO and the ratings are not equivalent, the highest rating is used. Sub-investment
grade ratings are those rated BB+/Ba1 or lower. Investment grade ratings are those rated BBB-/Baa3 or higher. The credit ratings shown
relate to the creditworthiness of the issuers of the underlying securities in the Fund, and not to the Fund or its shares. Credit ratings
are subject to change. |
| (6)
|
Percentages
are based on long positions only. Short positions are excluded. |
| (7)
|
Includes
forward foreign currency contracts. |
Portfolio
Commentary
First
Trust High Income Long/Short Fund (FSD)
Annual
Report
October
31, 2023 (Unaudited)
Proposed
Reorganization
The
Fund will call a special meeting of shareholders to consider reorganizing the Fund into abrdn Income Credit Strategies Fund (“ACP”),
which is managed by abrdn Investments Limited and sub-advised by abrdn Inc. More information on the proposed transaction, including the
risks and considerations associated with the proposed transaction will be contained in registration statement/proxy materials. This note
is not intended to solicit a proxy from any shareholder of the Fund and is not intended to, and shall not, constitute an offer to purchase
or sell shares of the Fund or ACP.
Advisor
First
Trust Advisors L.P. (“First Trust” or the “Advisor”) serves as the investment advisor to the First Trust High
Income Long/Short Fund (the “Fund”). First Trust is responsible for the ongoing monitoring of the Fund’s investment
portfolio, managing the Fund’s business affairs and providing certain administrative services necessary for the management of the
Fund.
Sub-Advisor
MacKay
Shields LLC, Sub-Advisor to the Fund, was founded in 1938 and became a registered investment advisor in 1969. As of October 31, 2023,
MacKay had approximately $127.1 billion in assets under management.
FSD
Portfolio Management Team
Cameron
White, CFA – Director, Head of Fundamental Research
Matthew
Jacob – Managing Director, Global Credit
Shu-Yang
Tan, CFA – Managing Director, Global Credit
On
August 29, 2023, Eric Gold relinquished his responsibilities as a portfolio manager of the Fund. On September 1, 2023, Cameron White joined
the portfolio management team overseeing the Fund.
Market
Recap
This
report covers the Fund for the year ended October 31, 2023.
While
mixed sentiments resonated, investors were mostly rewarded by credit markets during the 12-month period ended October 31, 2023, albeit
with a fair amount of volatility. Lower quality segments outperformed while higher quality bonds, with their interest rate sensitivity,
lagged given the upward movement in Treasury yields. Performance across the market was largely driven by expectations around the U.S.
Federal Reserve’s (the “Fed”) monetary stance. Optimism around a possible slowdown in the Fed’s tightening policy
initially pushed markets higher at the start of 2023, but enthusiasm faded in the months that followed as the reality of a “higher
for longer” interest rate environment became more apparent. New geopolitical pressures emerged recently in October 2023 with the
official start of the Middle Eastern conflict between Israel and Hamas, dampening the appetite for risk.
During
the period, tightening of monetary policy continued with the Fed raising interest rates six times to a range of 5.25% to 5.50%. Since
March 2022, the Fed increased interest rates eleven times. With inflation moderating during the period (3.7% based on September 2023 Consumer
Price Index), investors seeking signals of an end to restrictive policy and future rate cuts were disappointed for much of the period.
On the contrary, the Fed’s comments in 2023 have been more hawkish than anticipated, with Fed Chairman Jerome Powell recently re-affirming
in a speech at the Economic Club of New York on October 19th the Fed’s “resolute” commitment to a 2% inflation target,
a further indication of a “higher for longer” rate environment. This sparked sharp bouts of volatility, with the yield on
the 10-Year U.S. Treasury reaching 5% in October 2023, a high not seen since 2007. The third quarter gross domestic product (“GDP”)
growth coming in at 4.9% confirmed the continued expansion of the U.S. economy in the midst of restrictive policy.
Beyond
concerns around monetary policy, a few headwinds presented during the period, demonstrating resiliencies in credit markets. The swift
response by government officials and regulatory agencies in both the U.S. and Europe to address the troubled institutions during the banking
crisis in March quickly reinstituted a sense of confidence within the Banking sector. Further along, markets were challenged by the threat
of a U.S. government shutdown on two occasions. With the U.S. Republican and Democratic parties at odds, it was unclear if Congress would
reach a consensus on fiscal spending by the noted deadlines. At the last hour, the shutdowns were averted with legislation passed extending
funding through mid-November. Outside of the government, with over 400,000 members employed by the three large automakers (Ford Motor
Company, General Motors Company (“GM”) and Stellantis N.V.), the United Automotive Workers union initiated a nationwide strike
in September 2023. The strike concluded after six weeks and 45,000 employees on the picket line following a tentative agreement with GM.
The last of the deals were reached with Ford Motor Company and Stellantis N.V.
Outside
of the U.S., the European Central Bank (“ECB”) also continued their monetary tightening program, increasing interest rates
in 2023 and at a more aggressive pace at times. Inflation in Europe has moderated from double digits in 2022 down to 2.9% (as of October),
as evidenced by lower prices for energy, food and services. In their recent meeting, the ECB held short-term interest rates steady at
4% and indicated a possible end to their tightening policy. Turning to China, the country has continued to grapple with a
Portfolio
Commentary (Continued)
First
Trust High Income Long/Short Fund (FSD)
Annual
Report
October
31, 2023 (Unaudited)
significant
post-COVID-19 economic slowdown. Given weak demand, China’s manufacturing Purchasing Managers’ Index (“PMI”) contracted
to 49.50 as of October 2023 and non-manufacturing PMI also fell to 50.60, the weakest reading since December 2022. China continues to
struggle with a fragile real estate market, weak consumer spending and high youth unemployment, with geopolitical tensions also potentially
weighing on investment in the country.
Increased
concerns around a persistent higher rate environment moved yields substantially higher across a still inverted Treasury curve. The yield
on the 2-Year U.S. Treasury rose 56 bps to close October 2023 at 5.07%. The yield of the 10-Year U.S. Treasury increased 78 bps to 4.88%.
Within
commodities, oil prices as measured by WTI Crude, declined 6.37% over the period to end the period at $81.02. In recent months oil prices
have rebounded, benefitting from tightening global supply and increased demand.
Performance
Summary
Within
the backdrop noted above, U.S. high yield gained 5.82%, according to ICE Data Services, over the twelve-month period ended October 31,
2023, while spreads tightened 21 bps to close the period at 442 bps over Treasuries.
Looking
at performance by quality, all high-yield (“HY”) rating segments gained over the year. Lower quality bonds outperformed their
higher quality counterparts given the strong appetite for risk in 2023. Distressed and CCC-rated bonds rose 8.29% and 8.35%, respectively.
B-rated bonds also outperformed the broad high yield market, up 6.26%. With their rate sensitivity, BBs underperformed with a return of
4.76%. Within industries, most HY sectors were up over the year. Leisure was the top performing sector, while Media lagged delivering
a negative return.
Turning
to market technicals, according to JP Morgan, investors redeemed $21.8 billion from the HY market year-to-date. On the supply side, $146.1
billion in new issuance came into the HY market this year, which exceeds the poor issuance in 2022 ($106 billion) but significantly trailed
the robust issuance in 2021 ($480 billion). Finally, default activity substantially picked up, with $52.9 billion in HY bond and loan
defaults this year. The 12-month trailing high yield default rate (par-weighted), including distressed exchanges, is now 2.6%.
Past
performance is no guarantee of future results.
Source: ICE Data
US
HY, ICE BofA U.S. High Yield Index
BB,
ICE BofA BB U.S. High Yield Index2
B,
ICE BofA Single-B U.S. High Yield Index3
CCC
and Lower, ICE BofA CCC & Lower U.S. High Yield Index4
Distressed, ICE BofA U.S. Distressed High Yield Index5
It
is not possible to invest directly in an index. Please see footnotes and Important Disclosures for information related to comparisons
to an index, index descriptions and ICE BofA credit ratings disclosure. Past performance is not indicative
of future results.
Portfolio
Commentary (Continued)
First
Trust High Income Long/Short Fund (FSD)
Annual
Report
October
31, 2023 (Unaudited)
Performance
Analysis
|
|
|
Average
Annual Total Returns |
|
|
1
Year Ended
10/31/23 |
5
Years Ended
10/31/23 |
10
Years Ended
10/31/23 |
Inception
(9/27/10)
to 10/31/23 |
| Fund Performance*
|
|
|
|
|
| NAV**
|
5.73%
|
3.04%
|
3.86%
|
5.13%
|
| Market
Value |
5.89%
|
3.94%
|
3.62%
|
3.72%
|
| Index
Performance |
|
|
|
|
| ICE
BofA US High Yield Constrained Index |
5.81%
|
2.86%
|
3.77%
|
5.13%
|
| *
|
Total
return is based on the combination of reinvested dividend, capital gain and return of capital distributions, if any, at prices obtained
by the Dividend Reinvestment Plan and changes in NAV per share for NAV returns and changes in Common Share Price for market value returns.
Total returns do not reflect sales load and are not annualized for periods of less than one year. Past performance is not indicative of
future results. |
| **
|
On
January 3, 2023, the fair value methodology used to value the senior loan investments held by the Fund was changed. Prior to that date,
the senior loans were valued using the bid side price provided by a pricing service. After such date, the senior loans were valued using
the midpoint between the bid and ask price provided by a pricing service. The change in the Fund’s fair value methodology on January
3, 2023, resulted in a one-time increase in the Fund’s net asset value of approximately $0.005 per share on that date, which represented
a positive impact on the Fund’s performance of 0.04%. Without the change to the pricing methodology, the performance of the Fund
on a NAV basis would have been 5.64%, 3.02%, 3.85%, and 5.12% in the one-year, five-year, ten-year and since inception periods ended October
31, 2023, respectively. |
Portfolio
Commentary (Continued)
First
Trust High Income Long/Short Fund (FSD)
Annual
Report
October
31, 2023 (Unaudited)
Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on
Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market
or sector. Unlike the Fund, the index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred
by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance.
Turning
to the Fund, the Fund provided a total return* of 5.73% on a net asset value basis and 5.89% on a market price basis for the 12-month
period ended October 31, 2023, compared to the ICE BofA US High Yield Constrained Index6
which gained by 5.81%. Given the rally in high yield, the additional high yield exposure, funded through proceeds from leverage within
the Fund (reflected in U.S. Treasury short positions7), was the
largest contributor to performance. These positions are expressed at the front end of the curve8,
and are used to reduce the portfolio’s exposure to interest rate risk, while at the same time purchasing additional high yield securities
to lever up the portfolio9. Within industries, issue selection
in Transportation and Capital Goods added, along with overall positioning in Leisure, while issue selection in Services and Insurance
detracted. Additionally, the underweight to distressed bonds and lower quality credits with challenged capital structures (defined as
bonds with an option-adjusted spread greater than 700) weighed on results given the rally in the distressed segment during the period.
We continue to maintain our late cycle view, which is reflected in our “up in quality” positioning, with expectations for
further spread widening. Foreign currency forward contracts are used in the Fund to hedge any non-dollar currency exposure. The impact
of the forward contracts to performance over the year was minimal.
The
Fund has a practice of seeking to maintain a relatively stable monthly distribution, which may be changed at any time. The practice has
no impact on the Fund’s investment strategy and may reduce the Fund’s NAV. However, the Advisor believes the practice helps
maintain the Fund’s competitiveness and may benefit the Fund’s market price and premium/discount to the Fund’s NAV.
The monthly distribution rate began and ended the period at $0.105 per share. At the $0.105 per share monthly distribution rate, the annualized
distribution rate at October 31, 2023 was 10.54% at NAV and 12.02% at market price. For the twelve-month period ended October 31, 2023,
50.17% of the distributions were characterized as ordinary income and 49.83% of the distributions were characterized as return of capital.
The final determination of the source and tax status of all 2023 distributions will be made after the end of 2023 and will be provided
on Form 1099-DIV. The foregoing is not to be construed as tax advice. Please consult your tax advisor for further information regarding
tax matters.
Outlook
Investors
in October 2023 were focused to a large degree on the further run-up in long-term government yields, in our view. This occurred against
a backdrop of rising Treasury issuance and strong economic activity, punctuated by the nearly five percent growth rate indicated in the
third quarter GDP release. The rise in yields saw the 10-Year Treasury temporarily breach five percent late in the month, contributing
to an overall tightening of financial conditions that included a stronger dollar, wider credit spreads and lower equity prices. This shift
in financial conditions was significant enough that the Fed decided to leave its rate policy on hold for a second straight meeting, even
as policy-makers signaled a continued focus on inflation risks.
The
decision to refrain from increasing the policy rate, along with Chairman Powell’s dovish post-meeting comments, has led investors
to more fully price in the end of the hiking cycle and additional rate cuts next year, in our opinion. Ironically, this repricing has
had the impact of significantly easing financial conditions, reversing some of the rationale for keeping policy on hold. Treasury’s
announcement of smaller-than-expected long-term debt auctions also contributed to the easing in financial conditions.
Despite
the strong GDP print and building market expectations for a Fed pivot and a soft landing, we maintain growth is set to slow and recession
risks remain elevated. We believe the policy stance will likely remain quite restrictive, and sources of economic
Portfolio
Commentary (Continued)
First
Trust High Income Long/Short Fund (FSD)
Annual
Report
October
31, 2023 (Unaudited)
resilience
that supported growth this year are already beginning to fade. Households and nonfinancial corporates have run through a large portion
of their liquid assets built up during the pandemic period. In addition, although most homeowners have locked in low mortgage rates, interest
rates on credit cards, auto loans and other consumer loans have risen considerably. This has had the effect of taking total household
interest payments as a percent of income up to levels last seen just before the 2007 recession. The stress on the household sector will
likely increase further, in our view, with growing signs of the labor market softening. As for the corporate sector, high yield issuers
face a significant maturity wall over the next two years, while the commercial sector more broadly is experiencing a rise in bankruptcy
filings to levels last seen in late 2020. And finally, across a broad range of loan types, banks on net continue to tighten lending standards.
None of this is to suggest that a recession is imminent or unavoidable, but with monetary policy set to remain restrictive well into next
year, we believe risks of one remain significant.
Portfolio
Commentary (Continued)
First
Trust High Income Long/Short Fund (FSD)
Annual
Report
October
31, 2023 (Unaudited)
Fund
Notes:
1ICE
BofA U.S. High Yield Index.
2The
ICE BofA BB U.S. High Yield Index (H0A1) is a subset of ICE BofA U.S. High Yield Index including all securities rated BB1 through BB3,
inclusive
3ICE
BofA Single-B U.S. High Yield Index (H0A2) is a subset of ICE BofA U.S. High Yield Index including all securities rated B1 through B3,
inclusive
4ICE
BofA CCC & Lower U.S. High Yield Index (H0A3) is a subset of ICE BofA U.S. High Yield Index including all securities rated CCC1 or
lower.
5ICE
BofA U.S. Distressed High Yield Index (H0DI) is a subset of ICE BofA U.S. High Yield Index including all securities with an option-adjusted
spread greater than or equal to 1,000 basis points.
6ICE
BofA U.S. High Yield Constrained Index tracks the performance of US dollar denominated below investment grade corporate debt publicly
issued in the US domestic market but caps issuer exposure at 2%.
7Short,
or short position, is a directional trading or investment strategy where the investor sells shares of borrowed securities in the open
market. The expectation is that the price of the securities will decrease over time.
8Front
end of the yield curve is the short end of the yield curve; generally considered to be bond maturities within two years.
9Lever
up is to use leverage. Leverage is a technique where a fund’s manager borrows assets at one rate and invests the proceeds from the
borrowed assets at another rate, seeking to increase yield and total return. Use of leverage can result in additional risk and cost, and
can magnify the effect of any losses
IMPORTANT
DISCLOSURE:
General
Disclosure
Availability
of this document and products and services provided by MacKay Shields LLC and MacKay Shields Europe Investment Management Limited (collectively,
“MacKay Shields”) may be limited by applicable laws and regulations in certain jurisdictions and this document is provided
only for persons to whom this document and the products and services of MacKay Shields may otherwise lawfully be issued or made available.
None of the products and services provided by MacKay Shields are offered to any person in any jurisdiction where such offering would be
contrary to local law or regulation. This document is provided for information purposes only. It does not constitute investment advice
and should not be construed as an offer to buy securities. The contents of this document have not been reviewed by any regulatory authority
in any jurisdiction.
This
material contains the opinions of certain professionals at MacKay Shields LLC and are subject to change without notice. This material
is distributed for informational purposes only. Forecasts, estimates, and opinions contained herein should not be considered as investment
advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained
from sources believed to be reliable, but not guaranteed. Any forward-looking statements speak only as of the date they are made and MacKay
Shields assumes no duty and does not undertake to update forward-looking statements. No part of this document may be reproduced in any
form, or referred to in any other publication, without express written permission of MacKay Shields LLC. ©2023,
MacKay Shields LLC. All Rights Reserved.
Comparisons
to an Index
Comparisons
to a financial index are provided for illustrative purposes only. Comparisons to an index are subject to limitations because portfolio
holdings, volatility and other portfolio characteristics may differ materially from the index. Unlike an index, portfolios are actively
managed and may also include derivatives or other financial instruments. There is no guarantee that any of the securities in the index
are contained in a managed portfolio. The performance of the index may assume reinvestment of dividends or follow other index-specific
methodologies and criteria, but does not reflect the impact of fees, applicable taxes or trading costs which, unlike an index, may reduce
the returns of a managed portfolio. Investors cannot invest in an index. Because of these differences, the performance of an index should
not be relied upon as an accurate measure of comparison.
Credit
Rating Disclosure
ICE
BofA utilizes its own composite scale, similar to those of Moody’s, S&P and Fitch, when publishing a composite rating on an
index constituent (e.g., BBB3, BBB2, BBB1). Index constituent composite ratings are the simple averages of numerical equivalent values
of the ratings from Moody’s, S&P and Fitch. If only two of the designated agencies rate a bond, the composite rating is based
on an average of the two. Likewise, if only one of the designated agencies rates a bond, the composite rating is based on that one rating.
Source
Information
ICE
Data Indices, LLC (“ICE Data”), is used with permission. ICE®
is a registered trademark of ICE Data or its affiliates and BofA®
is a registered trademark of Bank of America Corporation licensed by Bank of America Corporation and its affiliates (“BofA”)
and may not be used without BofA’s prior written approval. ICE data, its affiliates and their respective third party suppliers disclaim
any and all warranties and representations, express and/or implied, including any warranties of merchantability or fitness for a particular
purpose or use, including the indices, index data and any data included in, related to, or derived therefrom. Neither ICE Data, its affiliates
nor their respective third party suppliers shall be subject to any damages or liability with respect to the adequacy, accuracy, timeliness
or completeness of the indices or the index data or any component thereof, and the indices and index data and all components thereof are
provided on an “as is” basis and your use is at your own risk. Ice data, its affiliates and their respective third party suppliers
do not sponsor, endorse, or recommend MacKay Shields LLC, or any of its products or services.
Past
performance is not indicative of future results.
First
Trust High Income Long/Short Fund (FSD)
Portfolio
of Investments
October
31, 2023
Principal
Value |
|
Description
|
|
Stated
Coupon |
|
Stated
Maturity |
|
Value
|
| CORPORATE
BONDS AND NOTES – 98.7% |
|
|
|
Automotive –
4.7% |
|
|
|
|
|
|
| $2,300,000
|
|
Dana, Inc. (a)
|
|
4.50%
|
|
02/15/32
|
|
$1,803,740
|
| 1,185,000
|
|
Energizer Holdings, Inc. (b)
|
|
4.38%
|
|
03/31/29
|
|
968,699
|
| 1,260,000
|
|
Ford Motor Credit Co., LLC
|
|
6.95%
|
|
03/06/26
|
|
1,263,492
|
| 1,000,000
|
|
Ford Motor Credit Co., LLC
|
|
4.95%
|
|
05/28/27
|
|
938,971
|
| 2,205,000
|
|
Ford Motor Credit Co., LLC (a)
|
|
4.13%
|
|
08/17/27
|
|
2,004,274
|
| 5,000,000
|
|
Ford Motor Credit Co., LLC (a)
|
|
5.11%
|
|
05/03/29
|
|
4,555,484
|
| 4,405,000
|
|
Ford Motor Credit Co., LLC (a)
|
|
7.35%
|
|
03/06/30
|
|
4,429,016
|
| 1,950,000
|
|
Gates Global LLC/Gates Corp. (a) (b)
|
|
6.25%
|
|
01/15/26
|
|
1,911,770
|
| 1,135,000
|
|
Thor Industries, Inc. (b)
|
|
4.00%
|
|
10/15/29
|
|
916,285
|
|
|
|
|
|
18,791,731
|
|
|
|
Banking –
0.2% |
|
|
|
|
|
|
| 335,000
|
|
Fifth Third Bancorp (c)
|
|
4.77%
|
|
07/28/30
|
|
297,023
|
| 500,000
|
|
Fifth Third Bank N.A.
|
|
3.85%
|
|
03/15/26
|
|
460,782
|
|
|
|
|
|
757,805
|
|
|
|
Basic
Industry – 7.8% |
|
|
|
|
|
|
| 1,175,000
|
|
Arsenal AIC Parent LLC (b)
|
|
8.00%
|
|
10/01/30
|
|
1,161,781
|
| 2,395,000
|
|
Artera Services LLC (a) (b)
|
|
9.03%
|
|
12/04/25
|
|
2,159,380
|
| 770,000
|
|
Brundage-Bone Concrete Pumping Holdings, Inc. (a) (b)
|
|
6.00%
|
|
02/01/26
|
|
728,828
|
| 1,450,000
|
|
Camelot Return Merger Sub, Inc. (a) (b)
|
|
8.75%
|
|
08/01/28
|
|
1,355,373
|
| 320,000
|
|
Carpenter Technology Corp.
|
|
6.38%
|
|
07/15/28
|
|
304,770
|
| 1,276,000
|
|
Carpenter Technology Corp. (a)
|
|
7.63%
|
|
03/15/30
|
|
1,261,383
|
| 458,000
|
|
Compass Minerals International, Inc. (b)
|
|
6.75%
|
|
12/01/27
|
|
431,848
|
| 1,537,000
|
|
Dycom Industries, Inc. (b)
|
|
4.50%
|
|
04/15/29
|
|
1,328,091
|
| 1,498,000
|
|
Foundation Building Materials, Inc. (b)
|
|
6.00%
|
|
03/01/29
|
|
1,237,056
|
| 1,209,000
|
|
Great Lakes Dredge & Dock Corp. (b)
|
|
5.25%
|
|
06/01/29
|
|
989,367
|
| 2,385,000
|
|
Innophos Holdings, Inc. (a) (b)
|
|
9.38%
|
|
02/15/28
|
|
2,251,976
|
| 2,445,000
|
|
JELD-WEN, Inc. (a) (b)
|
|
4.88%
|
|
12/15/27
|
|
2,075,006
|
| 800,000
|
|
MIWD Holdco II LLC/MIWD Finance Corp. (b)
|
|
5.50%
|
|
02/01/30
|
|
635,768
|
| 1,125,000
|
|
Novelis Corp. (a) (b)
|
|
3.25%
|
|
11/15/26
|
|
1,002,692
|
| 885,000
|
|
Novelis Corp. (b)
|
|
3.88%
|
|
08/15/31
|
|
692,579
|
| 1,635,000
|
|
Rain Carbon, Inc. (a) (b)
|
|
12.25%
|
|
09/01/29
|
|
1,665,656
|
| 1,200,000
|
|
SCIH Salt Holdings, Inc. (b)
|
|
4.88%
|
|
05/01/28
|
|
1,037,535
|
| 1,065,000
|
|
SCIH Salt Holdings, Inc. (b)
|
|
6.63%
|
|
05/01/29
|
|
893,823
|
| 1,145,000
|
|
Standard Industries, Inc. (a) (b)
|
|
4.38%
|
|
07/15/30
|
|
936,590
|
| 1,214,000
|
|
TMS International Corp. (b)
|
|
6.25%
|
|
04/15/29
|
|
959,057
|
| 1,390,000
|
|
TopBuild Corp. (a) (b)
|
|
4.13%
|
|
02/15/32
|
|
1,101,471
|
| 3,765,000
|
|
TRI Pointe Group, Inc./TRI Pointe Homes, Inc. (a)
|
|
5.88%
|
|
06/15/24
|
|
3,731,065
|
| 2,307,000
|
|
Valvoline, Inc. (b)
|
|
3.63%
|
|
06/15/31
|
|
1,756,631
|
| 1,500,000
|
|
WR Grace Holdings LLC (b)
|
|
5.63%
|
|
08/15/29
|
|
1,163,940
|
|
|
|
|
|
30,861,666
|
|
|
|
Capital
Goods – 5.2% |
|
|
|
|
|
|
| 1,065,000
|
|
Amsted Industries, Inc. (a) (b)
|
|
5.63%
|
|
07/01/27
|
|
981,340
|
| 2,300,000
|
|
Ball Corp. (a)
|
|
2.88%
|
|
08/15/30
|
|
1,796,535
|
| 1,589,000
|
|
Berry Global, Inc. (a) (b)
|
|
4.50%
|
|
02/15/26
|
|
1,498,624
|
| 580,000
|
|
Chart Industries, Inc. (b)
|
|
7.50%
|
|
01/01/30
|
|
570,277
|
| 936,000
|
|
Crown Americas LLC
|
|
5.25%
|
|
04/01/30
|
|
847,005
|
| 1,470,000
|
|
EnerSys (a) (b)
|
|
4.38%
|
|
12/15/27
|
|
1,303,578
|
| 1,500,000
|
|
GrafTech Finance, Inc. (b)
|
|
4.63%
|
|
12/15/28
|
|
1,101,030
|
| 985,000
|
|
Graphic Packaging International LLC (a) (b)
|
|
3.75%
|
|
02/01/30
|
|
806,731
|
| 450,000
|
|
Mauser Packaging Solutions Holding Co. (b)
|
|
9.25%
|
|
04/15/27
|
|
375,259
|
| 3,000,000
|
|
Owens-Brockway Glass Container, Inc. (a) (b)
|
|
7.25%
|
|
05/15/31
|
|
2,748,750
|
| 1,600,000
|
|
TK Elevator US Newco, Inc. (a) (b)
|
|
5.25%
|
|
07/15/27
|
|
1,458,332
|
Page
10
See
Notes to Financial Statements
First
Trust High Income Long/Short Fund (FSD)
Portfolio
of Investments (Continued)
October
31, 2023
Principal
Value |
|
Description
|
|
Stated
Coupon |
|
Stated
Maturity |
|
Value
|
| CORPORATE
BONDS AND NOTES (Continued) |
|
|
|
Capital
Goods (Continued) |
|
|
|
|
|
|
| $1,085,000
|
|
TransDigm, Inc. (a) (b)
|
|
6.25%
|
|
03/15/26
|
|
$1,061,027
|
| 2,000,000
|
|
TransDigm, Inc. (a) (b)
|
|
6.75%
|
|
08/15/28
|
|
1,944,467
|
| 1,902,000
|
|
TransDigm, Inc. (b)
|
|
6.88%
|
|
12/15/30
|
|
1,838,340
|
| 2,515,000
|
|
TriMas Corp. (a) (b)
|
|
4.13%
|
|
04/15/29
|
|
2,092,045
|
|
|
|
|
|
20,423,340
|
|
|
|
Consumer
Goods – 6.1% |
|
|
|
|
|
|
| 370,000
|
|
Acushnet Co. (b)
|
|
7.38%
|
|
10/15/28
|
|
371,031
|
| 1,370,000
|
|
CD&R Smokey Buyer, Inc. (a) (b)
|
|
6.75%
|
|
07/15/25
|
|
1,310,665
|
| 505,000
|
|
Coty, Inc./HFC Prestige Products, Inc./HFC Prestige International US LLC (b)
|
|
6.63%
|
|
07/15/30
|
|
481,713
|
| 3,545,000
|
|
Darling Ingredients, Inc. (a) (b)
|
|
5.25%
|
|
04/15/27
|
|
3,376,488
|
| 665,000
|
|
Darling Ingredients, Inc. (b)
|
|
6.00%
|
|
06/15/30
|
|
624,534
|
| 2,120,000
|
|
Edgewell Personal Care Co. (a) (b)
|
|
5.50%
|
|
06/01/28
|
|
1,937,044
|
| 1,605,000
|
|
Kronos Acquisition Holdings, Inc./KIK Custom Products, Inc. (a) (b)
|
|
5.00%
|
|
12/31/26
|
|
1,453,475
|
| 3,149,000
|
|
Kronos Acquisition Holdings, Inc./KIK Custom Products, Inc. (a) (b)
|
|
7.00%
|
|
12/31/27
|
|
2,680,355
|
| 602,000
|
|
Lamb Weston Holdings, Inc. (b)
|
|
4.88%
|
|
05/15/28
|
|
556,471
|
| 1,585,000
|
|
Mattel, Inc. (a) (b)
|
|
5.88%
|
|
12/15/27
|
|
1,520,815
|
| 940,000
|
|
Newell Brands, Inc.
|
|
6.38%
|
|
09/15/27
|
|
883,261
|
| 1,000,000
|
|
Performance Food Group, Inc. (b)
|
|
4.25%
|
|
08/01/29
|
|
844,826
|
| 625,000
|
|
Post Holdings, Inc. (a) (b)
|
|
5.75%
|
|
03/01/27
|
|
596,398
|
| 3,510,000
|
|
Post Holdings, Inc. (a) (b)
|
|
4.63%
|
|
04/15/30
|
|
2,943,989
|
| 3,300,000
|
|
Primo Water Holdings, Inc. (a) (b)
|
|
4.38%
|
|
04/30/29
|
|
2,788,203
|
| 1,100,000
|
|
Simmons Foods, Inc./Simmons Prepared Foods, Inc./Simmons Pet Food, Inc./Simmons Feed (b)
|
|
4.63%
|
|
03/01/29
|
|
894,778
|
| 740,000
|
|
Triton Water Holdings, Inc. (b)
|
|
6.25%
|
|
04/01/29
|
|
610,537
|
| 378,000
|
|
US Foods, Inc. (b)
|
|
6.88%
|
|
09/15/28
|
|
369,916
|
|
|
|
|
|
24,244,499
|
|
|
|
Energy –
17.8% |
|
|
|
|
|
|
| 1,200,000
|
|
Aethon United BR, L.P./Aethon United Finance Corp. (a) (b)
|
|
8.25%
|
|
02/15/26
|
|
1,193,004
|
| 710,000
|
|
Ascent Resources Utica Holdings LLC/ARU Finance Corp. (a) (b)
|
|
7.00%
|
|
11/01/26
|
|
686,299
|
| 970,000
|
|
Ascent Resources Utica Holdings LLC/ARU Finance Corp. (a) (b)
|
|
8.25%
|
|
12/31/28
|
|
964,110
|
| 2,624,000
|
|
Ascent Resources Utica Holdings LLC/ARU Finance Corp. (a) (b)
|
|
5.88%
|
|
06/30/29
|
|
2,320,746
|
| 640,000
|
|
Callon Petroleum Co. (a)
|
|
6.38%
|
|
07/01/26
|
|
625,631
|
| 1,310,000
|
|
Callon Petroleum Co. (a) (b)
|
|
7.50%
|
|
06/15/30
|
|
1,270,240
|
| 1,100,000
|
|
CNX Midstream Partners, L.P. (a) (b)
|
|
4.75%
|
|
04/15/30
|
|
907,536
|
| 192,000
|
|
CNX Resources Corp. (b)
|
|
7.25%
|
|
03/14/27
|
|
189,137
|
| 822,000
|
|
CNX Resources Corp. (b)
|
|
6.00%
|
|
01/15/29
|
|
754,548
|
| 2,050,000
|
|
Comstock Resources, Inc. (a) (b)
|
|
6.75%
|
|
03/01/29
|
|
1,867,350
|
| 1,025,000
|
|
CrownRock, L.P./CrownRock Finance, Inc. (a) (b)
|
|
5.00%
|
|
05/01/29
|
|
967,703
|
| 695,000
|
|
DCP Midstream Operating, L.P. (a)
|
|
3.25%
|
|
02/15/32
|
|
547,230
|
| 2,650,000
|
|
Delek Logistics Partners, L.P./Delek Logistics Finance Corp. (a) (b)
|
|
7.13%
|
|
06/01/28
|
|
2,414,176
|
| 1,200,000
|
|
DT Midstream, Inc. (a) (b)
|
|
4.13%
|
|
06/15/29
|
|
1,032,917
|
| 5,140,000
|
|
Endeavor Energy Resources, L.P./EER Finance, Inc. (a) (b)
|
|
5.75%
|
|
01/30/28
|
|
4,935,942
|
| 1,900,000
|
|
EnLink Midstream LLC (a) (b)
|
|
5.63%
|
|
01/15/28
|
|
1,793,401
|
| 2,335,000
|
|
EnLink Midstream LLC (a)
|
|
5.38%
|
|
06/01/29
|
|
2,138,531
|
| 150,000
|
|
EnLink Midstream LLC (b)
|
|
6.50%
|
|
09/01/30
|
|
144,115
|
| 1,825,000
|
|
EQM Midstream Partners, L.P. (a) (b)
|
|
6.50%
|
|
07/01/27
|
|
1,775,678
|
| 1,700,000
|
|
EQM Midstream Partners, L.P. (a)
|
|
5.50%
|
|
07/15/28
|
|
1,588,194
|
| 132,000
|
|
EQM Midstream Partners, L.P. (b)
|
|
7.50%
|
|
06/01/30
|
|
129,649
|
| 3,620,000
|
|
EQM Midstream Partners, L.P. (a) (b)
|
|
4.75%
|
|
01/15/31
|
|
3,052,031
|
See
Notes to Financial Statements
Page
11
First
Trust High Income Long/Short Fund (FSD)
Portfolio
of Investments (Continued)
October
31, 2023
Principal
Value |
|
Description
|
|
Stated
Coupon |
|
Stated
Maturity |
|
Value
|
| CORPORATE
BONDS AND NOTES (Continued) |
|
|
|
Energy (Continued)
|
|
|
|
|
|
|
| $791,000
|
|
Hess Midstream Operations, L.P. (b)
|
|
5.63%
|
|
02/15/26
|
|
$766,807
|
| 1,040,000
|
|
Hess Midstream Operations, L.P. (a) (b)
|
|
4.25%
|
|
02/15/30
|
|
890,880
|
| 1,845,000
|
|
Hilcorp Energy I, L.P./Hilcorp Finance Co. (a) (b)
|
|
5.75%
|
|
02/01/29
|
|
1,663,028
|
| 1,320,000
|
|
Hilcorp Energy I, L.P./Hilcorp Finance Co. (a) (b)
|
|
6.00%
|
|
02/01/31
|
|
1,161,235
|
| 1,145,000
|
|
Holly Energy Partners, L.P./Holly Energy Finance Corp. (a) (b)
|
|
6.38%
|
|
04/15/27
|
|
1,109,640
|
| 1,177,000
|
|
Howard Midstream Energy Partners LLC (a) (b)
|
|
8.88%
|
|
07/15/28
|
|
1,184,247
|
| 1,050,000
|
|
Matador Resources Co. (b)
|
|
6.88%
|
|
04/15/28
|
|
1,030,064
|
| 3,278,000
|
|
Moss Creek Resources Holdings, Inc. (a) (b)
|
|
7.50%
|
|
01/15/26
|
|
3,133,722
|
| 1,130,000
|
|
Nabors Industries, Inc. (b)
|
|
7.38%
|
|
05/15/27
|
|
1,051,481
|
| 314,000
|
|
Noble Finance II LLC (b)
|
|
8.00%
|
|
04/15/30
|
|
314,139
|
| 1,250,000
|
|
PBF Holding Co., LLC/PBF Finance Corp.
|
|
6.00%
|
|
02/15/28
|
|
1,150,609
|
| 1,340,000
|
|
PBF Holding Co., LLC/PBF Finance Corp. (b)
|
|
7.88%
|
|
09/15/30
|
|
1,294,539
|
| 2,626,000
|
|
Permian Resources Operating LLC (a) (b)
|
|
6.88%
|
|
04/01/27
|
|
2,585,835
|
| 1,195,000
|
|
Sitio Royalties Operating Partnership, L.P./Sitio Finance Corp. (b)
|
|
7.88%
|
|
11/01/28
|
|
1,179,961
|
| 1,913,000
|
|
SM Energy Co. (a)
|
|
5.63%
|
|
06/01/25
|
|
1,863,985
|
| 1,470,000
|
|
SM Energy Co.
|
|
6.50%
|
|
07/15/28
|
|
1,416,624
|
| 730,000
|
|
Southwestern Energy Co.
|
|
8.38%
|
|
09/15/28
|
|
754,444
|
| 3,265,000
|
|
Southwestern Energy Co. (a)
|
|
5.38%
|
|
03/15/30
|
|
2,998,028
|
| 1,700,000
|
|
Southwestern Energy Co. (a)
|
|
4.75%
|
|
02/01/32
|
|
1,463,628
|
| 1,720,000
|
|
Venture Global Calcasieu Pass LLC (a) (b)
|
|
3.88%
|
|
08/15/29
|
|
1,432,860
|
| 1,875,000
|
|
Venture Global Calcasieu Pass LLC (b)
|
|
6.25%
|
|
01/15/30
|
|
1,770,577
|
| 745,000
|
|
Venture Global Calcasieu Pass LLC (b)
|
|
4.13%
|
|
08/15/31
|
|
599,749
|
| 905,000
|
|
Venture Global Calcasieu Pass LLC (a) (b)
|
|
3.88%
|
|
11/01/33
|
|
684,830
|
| 1,298,000
|
|
Venture Global LNG, Inc. (b)
|
|
9.50%
|
|
02/01/29
|
|
1,319,501
|
| 1,935,000
|
|
Venture Global LNG, Inc. (a) (b)
|
|
8.38%
|
|
06/01/31
|
|
1,847,925
|
| 1,575,000
|
|
Vital Energy, Inc. (a)
|
|
9.50%
|
|
01/15/25
|
|
1,583,851
|
| 833,000
|
|
Vital Energy, Inc.
|
|
10.13%
|
|
01/15/28
|
|
835,937
|
| 1,785,000
|
|
Vital Energy, Inc. (a) (b)
|
|
7.75%
|
|
07/31/29
|
|
1,618,114
|
| 909,000
|
|
Western Midstream Operating, L.P.
|
|
4.50%
|
|
03/01/28
|
|
840,318
|
|
|
|
|
|
70,844,726
|
|
|
|
Financial
Services – 3.0% |
|
|
|
|
|
|
| 325,000
|
|
Antares Holdings, L.P. (b)
|
|
7.95%
|
|
08/11/28
|
|
318,139
|
| 1,150,000
|
|
Fortress Transportation and Infrastructure Investors LLC (b)
|
|
6.50%
|
|
10/01/25
|
|
1,139,788
|
| 1,174,000
|
|
Freedom Mortgage Corp. (b)
|
|
12.00%
|
|
10/01/28
|
|
1,178,976
|
| 600,000
|
|
GTCR W-2 Merger Sub LLC (b)
|
|
7.50%
|
|
01/15/31
|
|
592,950
|
| 2,100,000
|
|
Icahn Enterprises, L.P./Icahn Enterprises Finance Corp. (a)
|
|
5.25%
|
|
05/15/27
|
|
1,799,752
|
| 1,395,000
|
|
LPL Holdings, Inc. (a) (b)
|
|
4.63%
|
|
11/15/27
|
|
1,277,049
|
| 1,330,000
|
|
MSCI, Inc. (b)
|
|
3.88%
|
|
02/15/31
|
|
1,099,088
|
| 1,293,000
|
|
OneMain Finance Corp. (a)
|
|
6.13%
|
|
03/15/24
|
|
1,290,798
|
| 209,000
|
|
OneMain Finance Corp.
|
|
6.88%
|
|
03/15/25
|
|
206,424
|
| 610,000
|
|
OneMain Finance Corp.
|
|
3.50%
|
|
01/15/27
|
|
515,987
|
| 425,000
|
|
OneMain Finance Corp.
|
|
9.00%
|
|
01/15/29
|
|
414,011
|
| 1,225,000
|
|
PennyMac Financial Services, Inc. (b)
|
|
5.38%
|
|
10/15/25
|
|
1,167,995
|
| 1,240,000
|
|
Rocket Mortgage LLC/Rocket Mortgage Co-Issuer, Inc. (b)
|
|
3.63%
|
|
03/01/29
|
|
1,009,364
|
|
|
|
|
|
12,010,321
|
|
|
|
Healthcare –
6.1% |
|
|
|
|
|
|
| 3,065,000
|
|
Avantor Funding, Inc. (a) (b)
|
|
3.88%
|
|
11/01/29
|
|
2,567,800
|
| 1,200,000
|
|
Carriage Services, Inc. (a) (b)
|
|
4.25%
|
|
05/15/29
|
|
982,770
|
| 1,300,000
|
|
Catalent Pharma Solutions, Inc. (a) (b)
|
|
3.13%
|
|
02/15/29
|
|
1,023,477
|
| 1,365,000
|
|
Catalent Pharma Solutions, Inc. (a) (b)
|
|
3.50%
|
|
04/01/30
|
|
1,072,849
|
| 1,710,000
|
|
Centene Corp.
|
|
4.63%
|
|
12/15/29
|
|
1,528,981
|
| 985,000
|
|
CHS/Community Health Systems, Inc. (b)
|
|
6.00%
|
|
01/15/29
|
|
747,192
|
| 2,250,000
|
|
CHS/Community Health Systems, Inc. (a) (b)
|
|
5.25%
|
|
05/15/30
|
|
1,599,950
|
Page
12
See
Notes to Financial Statements
First
Trust High Income Long/Short Fund (FSD)
Portfolio
of Investments (Continued)
October
31, 2023
Principal
Value |
|
Description
|
|
Stated
Coupon |
|
Stated
Maturity |
|
Value
|
| CORPORATE
BONDS AND NOTES (Continued) |
|
|
|
Healthcare (Continued)
|
|
|
|
|
|
|
| $1,250,000
|
|
Elanco Animal Health, Inc. (a) (d)
|
|
6.65%
|
|
08/28/28
|
|
$1,196,875
|
| 1,405,000
|
|
Encompass Health Corp. (a)
|
|
4.50%
|
|
02/01/28
|
|
1,268,104
|
| 1,680,000
|
|
HCA, Inc. (a)
|
|
5.25%
|
|
06/15/49
|
|
1,292,453
|
| 885,000
|
|
PRA Health Sciences, Inc. (b)
|
|
2.88%
|
|
07/15/26
|
|
809,965
|
| 1,325,000
|
|
Prestige Brands, Inc. (a) (b)
|
|
5.13%
|
|
01/15/28
|
|
1,222,968
|
| 990,000
|
|
Prestige Brands, Inc. (b)
|
|
3.75%
|
|
04/01/31
|
|
787,298
|
| 4,750,000
|
|
Service Corp International (a)
|
|
7.50%
|
|
04/01/27
|
|
4,793,040
|
| 643,000
|
|
Star Parent, Inc. (b)
|
|
9.00%
|
|
10/01/30
|
|
638,907
|
| 1,730,000
|
|
Teleflex, Inc. (a) (b)
|
|
4.25%
|
|
06/01/28
|
|
1,528,569
|
| 175,000
|
|
Tenet Healthcare Corp.
|
|
4.38%
|
|
01/15/30
|
|
148,185
|
| 778,000
|
|
Tenet Healthcare Corp.
|
|
6.13%
|
|
06/15/30
|
|
721,027
|
| 486,000
|
|
Tenet Healthcare Corp. (b)
|
|
6.75%
|
|
05/15/31
|
|
462,129
|
|
|
|
|
|
24,392,539
|
|
|
|
Insurance –
0.1% |
|
|
|
|
|
|
| 505,000
|
|
NMI Holdings, Inc. (b)
|
|
7.38%
|
|
06/01/25
|
|
506,207
|
|
|
|
Leisure –
3.9% |
|
|
|
|
|
|
| 1,730,000
|
|
Affinity Interactive (a) (b)
|
|
6.88%
|
|
12/15/27
|
|
1,411,595
|
| 1,290,000
|
|
Boyd Gaming Corp.
|
|
4.75%
|
|
12/01/27
|
|
1,176,312
|
| 1,470,000
|
|
CDI Escrow Issuer, Inc. (a) (b)
|
|
5.75%
|
|
04/01/30
|
|
1,314,834
|
| 1,200,000
|
|
Everi Holdings, Inc. (a) (b)
|
|
5.00%
|
|
07/15/29
|
|
1,009,398
|
| 1,800,000
|
|
Hilton Domestic Operating Co., Inc. (a)
|
|
4.88%
|
|
01/15/30
|
|
1,617,607
|
| 1,725,000
|
|
Hilton Domestic Operating Co., Inc. (a) (b)
|
|
4.00%
|
|
05/01/31
|
|
1,430,450
|
| 2,700,000
|
|
Light & Wonder International, Inc. (a) (b)
|
|
7.00%
|
|
05/15/28
|
|
2,634,494
|
| 840,000
|
|
Light & Wonder International, Inc. (b)
|
|
7.50%
|
|
09/01/31
|
|
821,145
|
| 524,000
|
|
Penn Entertainment, Inc. (b)
|
|
4.13%
|
|
07/01/29
|
|
407,596
|
| 765,000
|
|
Scientific Games Holdings, L.P./Scientific Games US FinCo, Inc. (b)
|
|
6.63%
|
|
03/01/30
|
|
658,600
|
| 1,550,000
|
|
Station Casinos LLC (b)
|
|
4.50%
|
|
02/15/28
|
|
1,340,116
|
| 325,000
|
|
Station Casinos LLC (b)
|
|
4.63%
|
|
12/01/31
|
|
256,981
|
| 1,485,000
|
|
Wynn Resorts Finance LLC/Wynn Resorts Capital Corp. (b)
|
|
5.13%
|
|
10/01/29
|
|
1,267,886
|
|
|
|
|
|
15,347,014
|
|
|
|
Media –
10.6% |
|
|
|
|
|
|
| 1,710,000
|
|
Arches Buyer, Inc. (a) (b)
|
|
4.25%
|
|
06/01/28
|
|
1,418,152
|
| 2,300,000
|
|
Arches Buyer, Inc. (a) (b)
|
|
6.13%
|
|
12/01/28
|
|
1,860,045
|
| 6,100,000
|
|
CCO Holdings LLC/CCO Holdings Capital Corp. (a) (b)
|
|
5.13%
|
|
05/01/27
|
|
5,621,801
|
| 2,380,000
|
|
CCO Holdings LLC/CCO Holdings Capital Corp. (a) (b)
|
|
5.38%
|
|
06/01/29
|
|
2,086,402
|
| 1,605,000
|
|
CCO Holdings LLC/CCO Holdings Capital Corp. (a) (b)
|
|
6.38%
|
|
09/01/29
|
|
1,470,434
|
| 3,330,000
|
|
CCO Holdings LLC/CCO Holdings Capital Corp. (a) (b)
|
|
4.75%
|
|
03/01/30
|
|
2,751,755
|
| 3,500,000
|
|
CSC Holdings LLC (a)
|
|
5.25%
|
|
06/01/24
|
|
3,275,678
|
| 2,325,000
|
|
CSC Holdings LLC (a) (b)
|
|
5.50%
|
|
04/15/27
|
|
1,946,166
|
| 1,800,000
|
|
CSC Holdings LLC (a) (b)
|
|
5.38%
|
|
02/01/28
|
|
1,435,096
|
| 1,300,000
|
|
CSC Holdings LLC (b)
|
|
11.25%
|
|
05/15/28
|
|
1,241,422
|
| 1,350,000
|
|
CSC Holdings LLC (b)
|
|
5.75%
|
|
01/15/30
|
|
708,412
|
| 2,230,000
|
|
CSC Holdings LLC (a) (b)
|
|
4.63%
|
|
12/01/30
|
|
1,132,476
|
| 2,655,000
|
|
Directv Financing LLC/Directv Financing Co-Obligor, Inc. (a) (b)
|
|
5.88%
|
|
08/15/27
|
|
2,328,886
|
| 1,140,000
|
|
DISH DBS Corp. (a) (b)
|
|
5.25%
|
|
12/01/26
|
|
921,719
|
| 1,273,000
|
|
DISH DBS Corp.
|
|
7.38%
|
|
07/01/28
|
|
720,229
|
| 475,000
|
|
DISH DBS Corp. (b)
|
|
5.75%
|
|
12/01/28
|
|
345,859
|
| 725,000
|
|
DISH Network Corp. (b)
|
|
11.75%
|
|
11/15/27
|
|
718,758
|
| 1,255,000
|
|
iHeartCommunications, Inc. (a) (b)
|
|
5.25%
|
|
08/15/27
|
|
920,922
|
| 1,250,000
|
|
iHeartCommunications, Inc. (a) (b)
|
|
4.75%
|
|
01/15/28
|
|
885,708
|
| 2,185,000
|
|
Lamar Media Corp. (a)
|
|
4.00%
|
|
02/15/30
|
|
1,851,077
|
See
Notes to Financial Statements
Page
13
First
Trust High Income Long/Short Fund (FSD)
Portfolio
of Investments (Continued)
October
31, 2023
Principal
Value |
|
Description
|
|
Stated
Coupon |
|
Stated
Maturity |
|
Value
|
| CORPORATE
BONDS AND NOTES (Continued) |
|
|
|
Media (Continued)
|
|
|
|
|
|
|
| $900,000
|
|
Match Group Holdings II LLC (b)
|
|
3.63%
|
|
10/01/31
|
|
$691,551
|
| 945,000
|
|
News Corp. (b)
|
|
3.88%
|
|
05/15/29
|
|
809,908
|
| 1,480,000
|
|
News Corp. (a) (b)
|
|
5.13%
|
|
02/15/32
|
|
1,279,349
|
| 920,000
|
|
Nexstar Media, Inc. (b)
|
|
5.63%
|
|
07/15/27
|
|
828,644
|
| 1,175,000
|
|
Sirius XM Radio, Inc. (b)
|
|
4.13%
|
|
07/01/30
|
|
934,125
|
| 410,000
|
|
TEGNA, Inc.
|
|
4.63%
|
|
03/15/28
|
|
355,163
|
| 655,000
|
|
TripAdvisor, Inc. (b)
|
|
7.00%
|
|
07/15/25
|
|
649,086
|
| 880,000
|
|
Univision Communications, Inc. (b)
|
|
4.50%
|
|
05/01/29
|
|
700,483
|
| 1,045,000
|
|
Warnermedia Holdings, Inc.
|
|
3.76%
|
|
03/15/27
|
|
962,287
|
| 1,490,000
|
|
WMG Acquisition Corp. (b)
|
|
3.75%
|
|
12/01/29
|
|
1,252,360
|
| 171,000
|
|
WMG Acquisition Corp. (b)
|
|
3.88%
|
|
07/15/30
|
|
142,311
|
|
|
|
|
|
42,246,264
|
|
|
|
Real
Estate – 4.6% |
|
|
|
|
|
|
| 479,000
|
|
Iron Mountain, Inc. (b)
|
|
4.88%
|
|
09/15/29
|
|
417,813
|
| 3,701,000
|
|
Iron Mountain, Inc. (a) (b)
|
|
5.25%
|
|
07/15/30
|
|
3,218,179
|
| 825,000
|
|
Iron Mountain, Inc. (b)
|
|
4.50%
|
|
02/15/31
|
|
675,731
|
| 700,000
|
|
Park Intermediate Holdings LLC/PK Domestic Property LLC/PK Finance Co-Issuer (b)
|
|
5.88%
|
|
10/01/28
|
|
631,155
|
| 2,650,000
|
|
Park Intermediate Holdings LLC/PK Domestic Property LLC/PK Finance Co-Issuer (a) (b)
|
|
4.88%
|
|
05/15/29
|
|
2,213,915
|
| 1,237,000
|
|
RHP Hotel Properties, L.P./RHP Finance Corp. (a) (b)
|
|
7.25%
|
|
07/15/28
|
|
1,200,322
|
| 1,500,000
|
|
SBA Communications Corp.
|
|
3.88%
|
|
02/15/27
|
|
1,367,325
|
| 1,840,000
|
|
SBA Communications Corp. (a)
|
|
3.13%
|
|
02/01/29
|
|
1,523,168
|
| 1,934,000
|
|
Service Properties Trust (a)
|
|
7.50%
|
|
09/15/25
|
|
1,881,097
|
| 2,040,000
|
|
Uniti Group, L.P./Uniti Group Finance, Inc./CSL Capital LLC (b)
|
|
10.50%
|
|
02/15/28
|
|
1,965,956
|
| 2,295,000
|
|
VICI Properties, L.P./VICI Note Co., Inc. (b)
|
|
5.63%
|
|
05/01/24
|
|
2,281,457
|
| 925,000
|
|
XHR, L.P. (b)
|
|
4.88%
|
|
06/01/29
|
|
783,562
|
|
|
|
|
|
18,159,680
|
|
|
|
Retail –
5.5% |
|
|
|
|
|
|
| 1,555,000
|
|
Albertsons Cos, Inc./Safeway, Inc./New Albertsons, L.P./Albertsons LLC (a) (b)
|
|
6.50%
|
|
02/15/28
|
|
1,528,336
|
| 3,490,000
|
|
Albertsons Cos, Inc./Safeway, Inc./New Albertsons, L.P./Albertsons LLC (a) (b)
|
|
3.50%
|
|
03/15/29
|
|
2,979,399
|
| 2,150,000
|
|
Arko Corp. (a) (b)
|
|
5.13%
|
|
11/15/29
|
|
1,745,542
|
| 1,430,000
|
|
Asbury Automotive Group, Inc. (a)
|
|
4.50%
|
|
03/01/28
|
|
1,268,760
|
| 817,000
|
|
Bath & Body Works, Inc. (b)
|
|
9.38%
|
|
07/01/25
|
|
842,223
|
| 1,900,000
|
|
Bath & Body Works, Inc. (a)
|
|
7.50%
|
|
06/15/29
|
|
1,857,844
|
| 555,000
|
|
Group 1 Automotive, Inc. (b)
|
|
4.00%
|
|
08/15/28
|
|
478,309
|
| 700,000
|
|
LCM Investments Holdings II LLC (b)
|
|
4.88%
|
|
05/01/29
|
|
587,354
|
| 805,000
|
|
LCM Investments Holdings II LLC (b)
|
|
8.25%
|
|
08/01/31
|
|
766,522
|
| 870,000
|
|
Lithia Motors, Inc. (b)
|
|
3.88%
|
|
06/01/29
|
|
720,704
|
| 865,000
|
|
Macy’s Retail Holdings LLC (b)
|
|
6.13%
|
|
03/15/32
|
|
715,355
|
| 620,000
|
|
Michaels Cos (The), Inc. (b)
|
|
7.88%
|
|
05/01/29
|
|
346,366
|
| 1,475,000
|
|
Nordstrom, Inc. (a)
|
|
4.38%
|
|
04/01/30
|
|
1,146,665
|
| 675,000
|
|
QVC, Inc.
|
|
4.38%
|
|
09/01/28
|
|
342,650
|
| 2,795,000
|
|
Sonic Automotive, Inc. (a) (b)
|
|
4.63%
|
|
11/15/29
|
|
2,330,456
|
| 825,000
|
|
Sonic Automotive, Inc. (b)
|
|
4.88%
|
|
11/15/31
|
|
658,034
|
| 1,415,000
|
|
Victoria’s Secret & Co. (b)
|
|
4.63%
|
|
07/15/29
|
|
1,041,888
|
| 1,135,000
|
|
Yum! Brands, Inc. (b)
|
|
4.75%
|
|
01/15/30
|
|
1,011,688
|
| 1,650,000
|
|
Yum! Brands, Inc.
|
|
5.38%
|
|
04/01/32
|
|
1,485,007
|
|
|
|
|
|
21,853,102
|
Page
14
See
Notes to Financial Statements
First
Trust High Income Long/Short Fund (FSD)
Portfolio
of Investments (Continued)
October
31, 2023
Principal
Value |
|
Description
|
|
Stated
Coupon |
|
Stated
Maturity |
|
Value
|
| CORPORATE
BONDS AND NOTES (Continued) |
|
|
|
Services –
9.5% |
|
|
|
|
|
|
| $3,225,000
|
|
Allied Universal Holdco LLC/Allied Universal Finance Corp. (a) (b)
|
|
6.63%
|
|
07/15/26
|
|
$3,022,872
|
| 1,985,000
|
|
Allied Universal Holdco LLC/Allied Universal Finance Corp. (a) (b)
|
|
9.75%
|
|
07/15/27
|
|
1,726,486
|
| 685,000
|
|
Allied Universal Holdco LLC/Allied Universal Finance Corp. (b)
|
|
6.00%
|
|
06/01/29
|
|
495,683
|
| 1,075,000
|
|
Aramark Services, Inc. (a) (b)
|
|
5.00%
|
|
02/01/28
|
|
986,983
|
| 390,000
|
|
Avis Budget Car Rental LLC/Avis Budget Finance, Inc. (b)
|
|
5.38%
|
|
03/01/29
|
|
334,432
|
| 625,000
|
|
Clarivate Science Holdings Corp. (a) (b)
|
|
3.88%
|
|
07/01/28
|
|
537,399
|
| 1,520,000
|
|
Clean Harbors, Inc. (a) (b)
|
|
4.88%
|
|
07/15/27
|
|
1,418,602
|
| 2,175,000
|
|
Covanta Holding Corp. (a) (b)
|
|
4.88%
|
|
12/01/29
|
|
1,699,849
|
| 965,000
|
|
Covanta Holding Corp.
|
|
5.00%
|
|
09/01/30
|
|
748,538
|
| 950,000
|
|
GYP Holdings III Corp. (a) (b)
|
|
4.63%
|
|
05/01/29
|
|
779,893
|
| 3,045,000
|
|
H&E Equipment Services, Inc. (a) (b)
|
|
3.88%
|
|
12/15/28
|
|
2,582,542
|
| 3,605,000
|
|
Herc Holdings, Inc. (a) (b)
|
|
5.50%
|
|
07/15/27
|
|
3,392,543
|
| 750,000
|
|
Hertz (The) Corp. (b)
|
|
4.63%
|
|
12/01/26
|
|
628,934
|
| 1,450,000
|
|
Imola Merger Corp. (a) (b)
|
|
4.75%
|
|
05/15/29
|
|
1,265,354
|
| 1,445,000
|
|
NESCO Holdings II, Inc. (a) (b)
|
|
5.50%
|
|
04/15/29
|
|
1,240,511
|
| 1,915,000
|
|
Prime Security Services Borrower LLC/Prime Finance, Inc. (a) (b)
|
|
3.38%
|
|
08/31/27
|
|
1,685,605
|
| 1,800,000
|
|
Sotheby’s (a) (b)
|
|
7.38%
|
|
10/15/27
|
|
1,609,462
|
| 2,065,000
|
|
Sotheby’s/Bidfair Holdings, Inc. (a) (b)
|
|
5.88%
|
|
06/01/29
|
|
1,648,748
|
| 1,683,000
|
|
Uber Technologies, Inc. (b)
|
|
4.50%
|
|
08/15/29
|
|
1,487,452
|
| 2,165,000
|
|
United Rentals North America, Inc. (a)
|
|
3.75%
|
|
01/15/32
|
|
1,724,364
|
| 3,065,000
|
|
WASH Multifamily Acquisition, Inc. (a) (b)
|
|
5.75%
|
|
04/15/26
|
|
2,837,914
|
| 2,500,000
|
|
Waste Pro USA, Inc. (a) (b)
|
|
5.50%
|
|
02/15/26
|
|
2,300,575
|
| 880,000
|
|
WESCO Distribution, Inc. (b)
|
|
7.13%
|
|
06/15/25
|
|
880,347
|
| 1,045,000
|
|
WESCO Distribution, Inc. (b)
|
|
7.25%
|
|
06/15/28
|
|
1,039,482
|
| 225,000
|
|
White Cap Buyer LLC (b)
|
|
6.88%
|
|
10/15/28
|
|
196,590
|
| 1,725,000
|
|
Williams Scotsman, Inc. (b)
|
|
4.63%
|
|
08/15/28
|
|
1,534,336
|
|
|
|
|
|
37,805,496
|
|
|
|
Technology
& Electronics – 4.3% |
|
|
|
|
|
|
| 1,370,000
|
|
Central Parent LLC/CDK Global II LLC/CDK Financing Co., Inc. (a) (b)
|
|
8.00%
|
|
06/15/29
|
|
1,354,584
|
| 1,760,000
|
|
Central Parent, Inc./CDK Global, Inc. (a) (b)
|
|
7.25%
|
|
06/15/29
|
|
1,692,641
|
| 850,000
|
|
Cloud Software Group, Inc. (b)
|
|
6.50%
|
|
03/31/29
|
|
747,072
|
| 490,000
|
|
CommScope Technologies LLC (b)
|
|
6.00%
|
|
06/15/25
|
|
294,737
|
| 385,000
|
|
CommScope, Inc. (b)
|
|
6.00%
|
|
03/01/26
|
|
323,912
|
| 820,000
|
|
CommScope, Inc. (a) (b)
|
|
8.25%
|
|
03/01/27
|
|
341,715
|
| 2,450,000
|
|
CommScope, Inc. (a) (b)
|
|
4.75%
|
|
09/01/29
|
|
1,675,629
|
| 1,235,000
|
|
Dell International LLC/EMC Corp. (a)
|
|
8.35%
|
|
07/15/46
|
|
1,380,748
|
| 1,900,000
|
|
Entegris, Inc. (a) (b)
|
|
4.38%
|
|
04/15/28
|
|
1,697,327
|
| 1,425,000
|
|
Go Daddy Operating Co. LLC/GD Finance Co., Inc. (b)
|
|
3.50%
|
|
03/01/29
|
|
1,197,599
|
| 934,000
|
|
NCR Voyix Corp. (b)
|
|
5.13%
|
|
04/15/29
|
|
804,166
|
| 349,000
|
|
Newfold Digital Holdings Group, Inc. (b)
|
|
6.00%
|
|
02/15/29
|
|
229,657
|
| 779,000
|
|
Presidio Holdings, Inc. (b)
|
|
8.25%
|
|
02/01/28
|
|
737,946
|
| 580,000
|
|
PTC, Inc. (b)
|
|
3.63%
|
|
02/15/25
|
|
559,728
|
| 355,000
|
|
PTC, Inc. (b)
|
|
4.00%
|
|
02/15/28
|
|
315,170
|
| 690,000
|
|
SS&C Technologies, Inc. (b)
|
|
5.50%
|
|
09/30/27
|
|
648,098
|
| 1,250,000
|
|
Twilio, Inc.
|
|
3.63%
|
|
03/15/29
|
|
1,040,490
|
| 2,320,000
|
|
Viavi Solutions, Inc. (a) (b)
|
|
3.75%
|
|
10/01/29
|
|
1,808,459
|
|
|
|
|
|
16,849,678
|
|
|
|
Telecommunications –
3.2% |
|
|
|
|
|
|
| 1,200,000
|
|
Cable One, Inc. (a) (b)
|
|
4.00%
|
|
11/15/30
|
|
894,750
|
See
Notes to Financial Statements
Page
15
First
Trust High Income Long/Short Fund (FSD)
Portfolio
of Investments (Continued)
October
31, 2023
Principal
Value |
|
Description
|
|
Stated
Coupon |
|
Stated
Maturity |
|
Value
|
| CORPORATE
BONDS AND NOTES (Continued) |
|
|
|
Telecommunications (Continued)
|
|
|
|
|
|
|
| $2,200,000
|
|
Charter Communications Operating LLC/Charter Communications Operating Capital (a)
|
|
2.80%
|
|
04/01/31
|
|
$1,683,187
|
| 655,000
|
|
Cogent Communications Group, Inc. (a) (b)
|
|
3.50%
|
|
05/01/26
|
|
593,592
|
| 1,035,000
|
|
Cogent Communications Group, Inc. (b)
|
|
7.00%
|
|
06/15/27
|
|
978,939
|
| 1,765,000
|
|
Level 3 Financing, Inc. (a) (b)
|
|
3.63%
|
|
01/15/29
|
|
903,459
|
| 900,000
|
|
Level 3 Financing, Inc. (a) (b)
|
|
3.75%
|
|
07/15/29
|
|
458,641
|
| 3,685,000
|
|
Sprint LLC (a)
|
|
7.63%
|
|
03/01/26
|
|
3,787,289
|
| 1,350,000
|
|
T-Mobile USA, Inc. (a)
|
|
3.88%
|
|
04/15/30
|
|
1,175,872
|
| 2,500,000
|
|
T-Mobile USA, Inc. (a)
|
|
5.05%
|
|
07/15/33
|
|
2,260,184
|
|
|
|
|
|
12,735,913
|
|
|
|
Transportation –
2.1% |
|
|
|
|
|
|
| 555,000
|
|
Allegiant Travel Co. (b)
|
|
7.25%
|
|
08/15/27
|
|
502,844
|
| 1,540,000
|
|
American Airlines, Inc. (a) (b)
|
|
11.75%
|
|
07/15/25
|
|
1,633,569
|
| 714,000
|
|
First Student Bidco, Inc./First Transit Parent, Inc. (b)
|
|
4.00%
|
|
07/31/29
|
|
575,598
|
| 591,323
|
|
JetBlue 2020-1 Class B Pass Through Trust
|
|
7.75%
|
|
11/15/28
|
|
593,835
|
| 2,013,750
|
|
Mileage Plus Holdings LLC/Mileage Plus Intellectual Property Assets Ltd. (a) (b)
|
|
6.50%
|
|
06/20/27
|
|
1,990,889
|
| 685,000
|
|
United Airlines, Inc. (b)
|
|
4.38%
|
|
04/15/26
|
|
636,097
|
| 895,000
|
|
United Airlines, Inc. (a) (b)
|
|
4.63%
|
|
04/15/29
|
|
756,815
|
| 39,766
|
|
US Airways 2000-3C Pass Through Trust (e) (f)
|
|
8.39%
|
|
09/01/23
|
|
39,766
|
| 1,210,000
|
|
XPO, Inc. (b)
|
|
6.25%
|
|
06/01/28
|
|
1,161,522
|
| 525,000
|
|
XPO, Inc. (b)
|
|
7.13%
|
|
06/01/31
|
|
512,030
|
|
|
|
|
|
8,402,965
|
|
|
|
Utility –
4.0% |
|
|
|
|
|
|
| 775,000
|
|
AmeriGas Partners, L.P./AmeriGas Finance Corp. (b)
|
|
9.38%
|
|
06/01/28
|
|
766,608
|
| 470,000
|
|
Calpine Corp. (b)
|
|
5.13%
|
|
03/15/28
|
|
421,065
|
| 2,900,000
|
|
Calpine Corp. (a) (b)
|
|
4.63%
|
|
02/01/29
|
|
2,451,769
|
| 2,205,000
|
|
Calpine Corp. (a) (b)
|
|
3.75%
|
|
03/01/31
|
|
1,759,546
|
| 470,000
|
|
Clearway Energy Operating LLC (b)
|
|
3.75%
|
|
02/15/31
|
|
367,027
|
| 1,690,000
|
|
Clearway Energy Operating LLC (a) (b)
|
|
3.75%
|
|
01/15/32
|
|
1,282,077
|
| 2,600,000
|
|
Ferrellgas, L.P./Ferrellgas Finance Corp. (a) (b)
|
|
5.88%
|
|
04/01/29
|
|
2,296,694
|
| 1,355,000
|
|
FirstEnergy Corp. (a) (d)
|
|
4.15%
|
|
07/15/27
|
|
1,255,308
|
| 1,140,000
|
|
NextEra Energy Operating Partners, L.P. (b)
|
|
4.50%
|
|
09/15/27
|
|
1,021,844
|
| 2,515,000
|
|
PG&E Corp. (a)
|
|
5.00%
|
|
07/01/28
|
|
2,280,816
|
| 1,060,000
|
|
Vistra Operations Co. LLC (b)
|
|
5.63%
|
|
02/15/27
|
|
998,449
|
| 1,310,000
|
|
Vistra Operations Co. LLC (b)
|
|
4.38%
|
|
05/01/29
|
|
1,114,168
|
|
|
|
|
|
16,015,371
|
|
|
|
Total Corporate Bonds and Notes
|
|
392,248,317
|
|
|
|
(Cost
$434,474,945) |
|
|
|
|
|
|
| FOREIGN
CORPORATE BONDS AND NOTES (g) – 23.3% |
|
|
|
Automotive –
0.6% |
|
|
|
|
|
|
| 918,000
|
|
Clarios Global, L.P. (b)
|
|
6.75%
|
|
05/15/25
|
|
911,595
|
| 607,000
|
|
Clarios Global, L.P./Clarios US Finance Co. (b)
|
|
6.25%
|
|
05/15/26
|
|
594,024
|
| 1,099,000
|
|
Clarios Global, L.P./Clarios US Finance Co. (b)
|
|
8.50%
|
|
05/15/27
|
|
1,084,108
|
|
|
|
|
|
2,589,727
|
|
|
|
Banking –
0.9% |
|
|
|
|
|
|
| 2,930,000
|
|
Barclays PLC (a) (c)
|
|
7.33%
|
|
11/02/26
|
|
2,964,707
|
| 500,000
|
|
Intesa Sanpaolo S.p.A. (b)
|
|
5.02%
|
|
06/26/24
|
|
490,067
|
|
|
|
|
|
3,454,774
|
Page
16
See
Notes to Financial Statements
First
Trust High Income Long/Short Fund (FSD)
Portfolio
of Investments (Continued)
October
31, 2023
Principal
Value |
|
Description
|
|
Stated
Coupon |
|
Stated
Maturity |
|
Value
|
| FOREIGN
CORPORATE BONDS AND NOTES (g) (Continued) |
|
|
|
Basic
Industry – 2.5% |
|
|
|
|
|
|
| 1,350,000
|
|
Ahlstrom Holding 3 Oy (b)
|
|
4.88%
|
|
02/04/28
|
|
$1,109,363
|
| 2,800,000
|
|
INEOS Finance PLC (a) (b)
|
|
6.75%
|
|
05/15/28
|
|
2,617,832
|
| 1,900,000
|
|
James Hardie International Finance DAC (a) (b)
|
|
5.00%
|
|
01/15/28
|
|
1,755,774
|
| 1,750,000
|
|
Mineral Resources Ltd. (b)
|
|
9.25%
|
|
10/01/28
|
|
1,752,187
|
| 475,000
|
|
Nobian Finance B.V. (EUR) (h)
|
|
3.63%
|
|
07/15/26
|
|
452,189
|
| 2,250,000
|
|
SNF Group SACA (a) (b)
|
|
3.38%
|
|
03/15/30
|
|
1,803,631
|
| 755,000
|
|
Trinseo Materials Operating SCA/Trinseo Materials Finance, Inc. (b)
|
|
5.13%
|
|
04/01/29
|
|
318,570
|
|
|
|
|
|
9,809,546
|
|
|
|
Capital
Goods – 3.6% |
|
|
|
|
|
|
| 725,000
|
|
Ardagh Packaging Finance PLC/Ardagh Holdings USA, Inc. (a) (b)
|
|
5.25%
|
|
08/15/27
|
|
528,227
|
| 814,000
|
|
Bombardier, Inc. (b)
|
|
7.88%
|
|
04/15/27
|
|
784,165
|
| 2,125,000
|
|
Bombardier, Inc. (b)
|
|
6.00%
|
|
02/15/28
|
|
1,882,492
|
| 4,329,000
|
|
Bombardier, Inc. (a) (b)
|
|
7.50%
|
|
02/01/29
|
|
4,014,288
|
| 2,240,000
|
|
Canpack S.A./Canpack US LLC (a) (b)
|
|
3.13%
|
|
11/01/25
|
|
2,056,029
|
| 450,000
|
|
Canpack S.A./Canpack US LLC (b)
|
|
3.88%
|
|
11/15/29
|
|
353,844
|
| 1,880,000
|
|
Cascades, Inc./Cascades USA, Inc. (a) (b)
|
|
5.38%
|
|
01/15/28
|
|
1,701,234
|
| 875,000
|
|
OI European Group B.V. (b)
|
|
4.75%
|
|
02/15/30
|
|
745,692
|
| 2,200,000
|
|
Stora Enso OYJ (a) (b)
|
|
7.25%
|
|
04/15/36
|
|
2,204,853
|
|
|
|
|
|
14,270,824
|
|
|
|
Consumer
Goods – 0.7% |
|
|
|
|
|
|
| 1,000,000
|
|
JBS USA LUX S.A./JBS USA Food Co./JBS USA Finance, Inc.
|
|
5.50%
|
|
01/15/30
|
|
914,499
|
| 2,500,000
|
|
Minerva Luxembourg S.A. (a) (b)
|
|
4.38%
|
|
03/18/31
|
|
1,941,372
|
|
|
|
|
|
2,855,871
|
|
|
|
Energy –
1.3% |
|
|
|
|
|
|
| 1,775,000
|
|
Baytex Energy Corp. (a) (b)
|
|
8.50%
|
|
04/30/30
|
|
1,759,703
|
| 600,000
|
|
Borr IHC Ltd./Borr Finance LLC (b)
|
|
10.00%
|
|
11/15/28
|
|
598,647
|
| 160,000
|
|
Diamond Foreign Asset Co./ Diamond Finance LLC (b)
|
|
8.50%
|
|
10/01/30
|
|
156,101
|
| 650,000
|
|
Transocean Titan Financing Ltd. (b)
|
|
8.38%
|
|
02/01/28
|
|
653,276
|
| 628,900
|
|
Transocean, Inc. (b)
|
|
8.75%
|
|
02/15/30
|
|
627,579
|
| 1,257,000
|
|
Valaris Ltd. (b)
|
|
8.38%
|
|
04/30/30
|
|
1,234,556
|
|
|
|
|
|
5,029,862
|
|
|
|
Government
Guaranteed – 0.5% |
|
|
|
|
|
|
| 2,250,000
|
|
Petroleos Mexicanos (a)
|
|
6.50%
|
|
03/13/27
|
|
1,986,673
|
|
|
|
Healthcare –
0.2% |
|
|
|
|
|
|
| 475,000
|
|
Bausch Health Cos., Inc. (b)
|
|
5.50%
|
|
11/01/25
|
|
410,058
|
| 501,000
|
|
Bausch Health Cos., Inc. (b)
|
|
9.00%
|
|
12/15/25
|
|
435,097
|
|
|
|
|
|
845,155
|
|
|
|
Leisure –
3.7% |
|
|
|
|
|
|
| 725,000
|
|
Carnival Corp. (b)
|
|
5.75%
|
|
03/01/27
|
|
647,814
|
| 3,135,000
|
|
Carnival Corp. (a) (b)
|
|
6.00%
|
|
05/01/29
|
|
2,651,008
|
| 700,000
|
|
Melco Resorts Finance Ltd. (b)
|
|
5.75%
|
|
07/21/28
|
|
594,739
|
| 1,624,000
|
|
NCL Corp Ltd. (a) (b)
|
|
5.88%
|
|
03/15/26
|
|
1,458,985
|
| 2,220,000
|
|
NCL Corp Ltd. (a) (b)
|
|
5.88%
|
|
02/15/27
|
|
2,045,673
|
| 845,000
|
|
NCL Corp Ltd. (b)
|
|
8.38%
|
|
02/01/28
|
|
837,829
|
| 765,000
|
|
NCL Corp Ltd. (b)
|
|
7.75%
|
|
02/15/29
|
|
668,285
|
| 2,566,000
|
|
NCL Finance Ltd. (a) (b)
|
|
6.13%
|
|
03/15/28
|
|
2,147,952
|
| 859,000
|
|
Viking Cruises Ltd. (b)
|
|
5.88%
|
|
09/15/27
|
|
774,651
|
See
Notes to Financial Statements
Page
17
First
Trust High Income Long/Short Fund (FSD)
Portfolio
of Investments (Continued)
October
31, 2023
Principal
Value |
|
Description
|
|
Stated
Coupon |
|
Stated
Maturity |
|
Value
|
| FOREIGN
CORPORATE BONDS AND NOTES (g) (Continued) |
|
|
|
Leisure (Continued)
|
|
|
|
|
|
|
| 2,180,000
|
|
Viking Cruises Ltd. (a) (b)
|
|
9.13%
|
|
07/15/31
|
|
$2,143,812
|
| 845,000
|
|
VOC Escrow Ltd. (b)
|
|
5.00%
|
|
02/15/28
|
|
759,978
|
|
|
|
|
|
14,730,726
|
|
|
|
Media –
0.6% |
|
|
|
|
|
|
| 2,770,000
|
|
UPC Holding, B.V. (a) (b)
|
|
5.50%
|
|
01/15/28
|
|
2,419,332
|
|
|
|
Retail –
0.9% |
|
|
|
|
|
|
| 1,000,000
|
|
1011778 BC ULC/New Red Finance, Inc. (b)
|
|
3.50%
|
|
02/15/29
|
|
856,110
|
| 3,375,000
|
|
1011778 BC ULC/New Red Finance, Inc. (a) (b)
|
|
4.00%
|
|
10/15/30
|
|
2,767,423
|
|
|
|
|
|
3,623,533
|
|
|
|
Services –
2.4% |
|
|
|
|
|
|
| 2,330,000
|
|
Garda World Security Corp. (a) (b)
|
|
4.63%
|
|
02/15/27
|
|
2,080,585
|
| 3,410,000
|
|
Garda World Security Corp. (a) (b)
|
|
9.50%
|
|
11/01/27
|
|
3,101,915
|
| 2,765,000
|
|
GFL Environmental, Inc. (a) (b)
|
|
4.00%
|
|
08/01/28
|
|
2,382,487
|
| 1,650,000
|
|
GFL Environmental, Inc. (a) (b)
|
|
3.50%
|
|
09/01/28
|
|
1,414,695
|
| 655,000
|
|
GFL Environmental, Inc. (a) (b)
|
|
4.75%
|
|
06/15/29
|
|
574,050
|
|
|
|
|
|
9,553,732
|
|
|
|
Technology
& Electronics – 0.6% |
|
|
|
|
|
|
| 1,760,000
|
|
Open Text Corp. (a) (b)
|
|
3.88%
|
|
12/01/29
|
|
1,441,503
|
| 206,000
|
|
Seagate HDD Cayman
|
|
4.13%
|
|
01/15/31
|
|
164,023
|
| 165,000
|
|
Seagate HDD Cayman (b)
|
|
8.50%
|
|
07/15/31
|
|
168,092
|
| 725,000
|
|
Sensata Technologies B.V. (b)
|
|
4.00%
|
|
04/15/29
|
|
617,140
|
| 244,000
|
|
Sensata Technologies B.V. (b)
|
|
5.88%
|
|
09/01/30
|
|
223,135
|
|
|
|
|
|
2,613,893
|
|
|
|
Telecommunications –
3.3% |
|
|
|
|
|
|
| 1,175,000
|
|
Altice Financing S.A. (b)
|
|
5.75%
|
|
08/15/29
|
|
909,918
|
| 630,000
|
|
Altice France Holding S.A. (b)
|
|
10.50%
|
|
05/15/27
|
|
343,268
|
| 1,635,000
|
|
Altice France S.A. (a) (b)
|
|
5.13%
|
|
07/15/29
|
|
1,120,541
|
| 2,000,000
|
|
Iliad Holding S.A.S. (a) (b)
|
|
6.50%
|
|
10/15/26
|
|
1,870,703
|
| 1,340,000
|
|
Telecom Italia Capital S.A.
|
|
7.72%
|
|
06/04/38
|
|
1,184,399
|
| 1,100,000
|
|
Total Play Telecomunicaciones S.A. de C.V. (b)
|
|
6.38%
|
|
09/20/28
|
|
527,614
|
| 4,000,000
|
|
Virgin Media Finance PLC (EUR) (h)
|
|
3.75%
|
|
07/15/30
|
|
3,441,470
|
| 1,000,000
|
|
Vmed O2 UK Financing I PLC (GBP) (b)
|
|
4.50%
|
|
07/15/31
|
|
951,149
|
| 870,000
|
|
VZ Secured Financing B.V. (a) (b)
|
|
5.00%
|
|
01/15/32
|
|
660,704
|
| 2,700,000
|
|
Ziggo Bond Co. B.V. (a) (b)
|
|
5.13%
|
|
02/28/30
|
|
1,969,878
|
|
|
|
|
|
12,979,644
|
|
|
|
Transportation –
1.5% |
|
|
|
|
|
|
| 850,000
|
|
Air Canada (a) (b)
|
|
3.88%
|
|
08/15/26
|
|
774,220
|
| 2,595,000
|
|
Air Canada 2020-1 Class C Pass Through Trust (a) (b)
|
|
10.50%
|
|
07/15/26
|
|
2,766,919
|
| 1,745,833
|
|
American Airlines, Inc./AAdvantage Loyalty IP Ltd. (a) (b)
|
|
5.50%
|
|
04/20/26
|
|
1,699,453
|
| 575,000
|
|
Stena International S.A. (EUR) (b)
|
|
7.25%
|
|
02/15/28
|
|
624,378
|
|
|
|
|
|
5,864,970
|
|
|
|
Total Foreign Corporate Bonds and Notes
|
|
92,628,262
|
|
|
|
(Cost
$101,749,848) |
|
|
|
|
|
|
Par
Amount |
|
Description
|
|
Stated
Rate |
|
Stated
Maturity |
|
Value
|
| CAPITAL
PREFERRED SECURITIES (i) – 7.2% |
|
|
|
Automotive –
1.2% |
|
|
|
|
|
|
| 5,935,000
|
|
General Motors Financial Co., Inc., Series A (c)
|
|
5.75%
|
|
(j)
|
|
4,641,448
|
Page
18
See
Notes to Financial Statements
First
Trust High Income Long/Short Fund (FSD)
Portfolio
of Investments (Continued)
October
31, 2023
Par
Amount |
|
Description
|
|
Stated
Rate |
|
Stated
Maturity |
|
Value
|
| CAPITAL
PREFERRED SECURITIES (i) (Continued) |
|
|
|
Banking –
2.7% |
|
|
|
|
|
|
| 3,000,000
|
|
Barclays Bank PLC, 3 Mo. EUR LIBOR + 0.71% (EUR) (h) (k)
|
|
4.56%
|
|
(j)
|
|
$2,832,574
|
| 4,475,000
|
|
Citigroup, Inc., Series M (c)
|
|
6.30%
|
|
(j)
|
|
4,356,252
|
| 3,935,000
|
|
Citigroup, Inc., Series V (a) (c)
|
|
4.70%
|
|
(j)
|
|
3,528,317
|
|
|
|
|
|
10,717,143
|
|
|
|
Financial
Services – 1.4% |
|
|
|
|
|
|
| 3,175,000
|
|
American AgCredit Corp., Series QIB (a) (b) (c)
|
|
5.25%
|
|
(j)
|
|
2,921,000
|
| 3,210,000
|
|
Textron Financial Corp., 3 Mo. SOFR + CSA + 1.74% (a) (b) (k)
|
|
7.36%
|
|
02/15/42
|
|
2,510,615
|
|
|
|
|
|
5,431,615
|
|
|
|
Utility –
1.9% |
|
|
|
|
|
|
| 1,695,000
|
|
Edison International, Series B (c)
|
|
5.00%
|
|
(j)
|
|
1,512,723
|
| 6,595,000
|
|
Vistra Corp. (a) (b) (c)
|
|
8.00%
|
|
(j)
|
|
6,273,394
|
|
|
|
|
|
7,786,117
|
|
|
|
Total Capital Preferred Securities
|
|
28,576,323
|
|
|
|
(Cost
$31,711,633) |
|
|
|
|
|
|
Principal
Value |
|
Description
|
|
Rate
(l) |
|
Stated
Maturity (m) |
|
Value
|
| SENIOR
FLOATING-RATE LOAN INTERESTS – 2.7% |
|
|
|
Capital
Goods – 1.2% |
|
|
|
|
|
|
| $2,625,000
|
|
ADS Tactical, Inc., Initial Term Loan, 1 Mo. CME Term SOFR + 5.75%, 1.00% Floor
|
|
11.07%
|
|
03/19/26
|
|
2,573,589
|
| 750,000
|
|
Dexko Global, Inc., 2023 Incremental Term Loan (First Lien), 1 Mo. CME Term SOFR + 4.25%, 0.00% Floor
|
|
9.64%
|
|
10/04/28
|
|
726,251
|
| 1,252,294
|
|
Emerald Debt Merger Sub LLC, Initial Term Loan B, 1 Mo. CME Term SOFR + 3.00%, 0.00% Floor
|
|
8.32%
|
|
05/31/30
|
|
1,251,117
|
|
|
|
|
|
4,550,957
|
|
|
|
Retail –
0.2% |
|
|
|
|
|
|
| 1,065,917
|
|
Michaels Cos (The), Inc., Term Loan B, 3 Mo. CME Term SOFR + 4.25%, 0.75% Floor
|
|
9.90%
|
|
04/15/28
|
|
893,297
|
|
|
|
Services –
1.2% |
|
|
|
|
|
|
| 1,000,000
|
|
Allied Universal Holdco LLC, Amendment No. 3 Term Loan, 1 Mo. CME Term SOFR + 4.75%, 0.50% Floor
|
|
10.07%
|
|
05/11/28
|
|
972,505
|
| 5,800,000
|
|
TruGreen, L.P., Initial Term Loan (Second Lien), 3 Mo. CME Term SOFR + 8.50%, 0.75% Floor
|
|
13.88%
|
|
11/02/28
|
|
3,837,686
|
|
|
|
|
|
4,810,191
|
|
|
|
Technology
& Electronics – 0.1% |
|
|
|
|
|
|
| 600,000
|
|
Dcert Buyer, Inc., Initial Term Loan, 3 Mo. CME Term SOFR + 7.00%, 0.00% Floor
|
|
12.32%
|
|
02/16/29
|
|
541,002
|
|
|
|
Total Senior Floating-Rate Loan Interests
|
|
10,795,447
|
|
|
|
(Cost
$12,855,164) |
|
|
|
|
|
|
Principal
Value |
|
Description
|
|
Stated
Coupon |
|
Stated
Maturity |
|
Value
|
| MORTGAGE-BACKED
SECURITIES – 0.5% |
|
|
|
Collateralized
Mortgage Obligations – 0.0% |
|
|
|
|
|
|
|
|
|
Washington
Mutual Alternative Mortgage Pass-Through
Certificates |
|
|
|
|
|
|
| 10,381
|
|
Series 2007-5, Class A11, (1 Mo. CME Term SOFR + CSA) x -6 + 39.48% (n)
|
|
6.85%
|
|
06/25/37
|
|
8,996
|
See
Notes to Financial Statements
Page
19
First
Trust High Income Long/Short Fund (FSD)
Portfolio
of Investments (Continued)
October
31, 2023
Principal
Value |
|
Description
|
|
Stated
Coupon |
|
Stated
Maturity |
|
Value
|
| MORTGAGE-BACKED
SECURITIES (Continued) |
|
|
|
Commercial
Mortgage-Backed Securities – 0.5% |
|
|
|
|
|
|
|
|
|
Securitized
Asset Backed Receivables LLC Trust |
|
|
|
|
|
|
| $6,251,655
|
|
Series 2006-FR4, Class A2A, 1 Mo. CME Term SOFR + CSA + 0.16% (k)
|
|
5.60%
|
|
08/25/36
|
|
$1,986,895
|
|
|
|
Total Mortgage-Backed Securities
|
|
1,995,891
|
|
|
|
(Cost
$5,016,061) |
|
|
|
|
|
|
| Shares
|
|
Description
|
|
Value
|
| COMMON
STOCKS – 0.1% |
| |
|
Energy –
0.0% |
|
|
| 7
|
|
Thunderbird Resources Equity, Inc. (e) (f) (o) (p)
|
|
25,850
|
|
|
|
Utility –
0.1% |
|
|
| 13,918
|
|
Vistra Corp.
|
|
455,397
|
|
|
|
Total Common Stocks
|
|
481,247
|
| |
|
(Cost
$950,348) |
|
|
| RIGHTS –
0.0% |
| |
|
Utility –
0.0% |
|
|
| 13,918
|
|
Vistra Corp., no expiration date (o) (p)
|
|
17,906
|
| |
|
(Cost
$22,917) |
|
|
|
|
|
Total Investments – 132.5%
|
|
526,743,393
|
|
|
|
(Cost
$586,780,916) |
|
|
|
|
|
|
Principal
Value |
|
Description
|
|
Stated
Coupon |
|
Stated
Maturity |
|
Value
|
| U.S.
GOVERNMENT BONDS SOLD SHORT – (13.0)% |
| $(24,000,000)
|
|
United States Treasury Note
|
|
2.88%
|
|
05/31/25
|
|
(23,166,562)
|
| (30,000,000)
|
|
United States Treasury Note
|
|
3.50%
|
|
04/30/28
|
|
(28,391,016)
|
|
|
|
Total U.S. Government Bonds Sold Short
|
|
(51,557,578)
|
|
|
|
(Proceeds
$54,465,000) |
|
|
|
|
|
|
| CORPORATE
BONDS SOLD SHORT – (1.0)% |
|
|
|
Energy –
(0.3)% |
|
|
|
|
|
|
| (1,600,000)
|
|
Halliburton Co.
|
|
2.92%
|
|
03/01/30
|
|
(1,343,058)
|
|
|
|
Technology
& Electronics – (0.7)% |
|
|
|
|
|
|
| (2,930,000)
|
|
Amkor Technology, Inc. (b)
|
|
6.63%
|
|
09/15/27
|
|
(2,854,866)
|
|
|
|
Total Corporate Bonds Sold Short
|
|
(4,197,924)
|
|
|
|
(Proceeds
$4,479,457) |
|
|
|
|
|
|
|
|
|
Total Investments Sold Short – (14.0)%
|
|
(55,755,502)
|
|
|
|
(Proceeds
$58,944,457) |
|
|
|
|
|
|
| |
Outstanding Loan – (36.1)%
|
|
(143,654,762)
|
|
|
Net Other Assets and Liabilities – 17.6%
|
|
70,339,693
|
|
|
Net Assets – 100.0%
|
|
$397,672,822
|
Page
20
See
Notes to Financial Statements
First
Trust High Income Long/Short Fund (FSD)
Portfolio
of Investments (Continued)
October
31, 2023
| Forward
Foreign Currency Contracts |
Settlement
Date |
|
Counterparty
|
|
Amount
Purchased |
|
Amount
Sold |
|
Purchase
Value as of
10/31/2023 |
|
Sale
Value as of
10/31/2023 |
|
Unrealized
Appreciation/
(Depreciation) |
| 02/01/24
|
|
JPM
|
|
USD
|
7,393,088
|
|
EUR
|
6,939,000
|
|
$ 7,393,088
|
|
$ 7,374,565
|
|
$ 18,523
|
| 02/01/24
|
|
JPM
|
|
USD
|
952,671
|
|
GBP
|
784,000
|
|
952,671
|
|
953,626
|
|
(955)
|
|
Net Unrealized Appreciation / (Depreciation)
|
|
$17,568
|
See
Note 2D – Forward Foreign Currency Contracts in the Notes to Financial Statements.
| (a)
|
This
security or a portion of this security is segregated as collateral for investments sold short and borrowings in the margin account (see
Note 2F - Short Sales in the Notes to Financial Statements). At October 31, 2023, the segregated value of these securities amounts to
$345,911,546. |
| (b)
|
This
security, sold within the terms of a private placement memorandum, is exempt from registration upon resale under Rule 144A of the Securities
Act of 1933, as amended (the “1933 Act”), and may be resold in transactions exempt from registration, normally to qualified
institutional buyers. Pursuant to procedures adopted by the Fund Board of Trustees, this security has been determined to be liquid by
MacKay Shields LLC, the Fund’s sub-advisor (the “Sub-Advisor”). Although market instability can result in periods of
increased overall market illiquidity, liquidity for each security is determined based on security specific factors and assumptions, which
require subjective judgment. At October 31, 2023, securities noted as such amounted to $389,112,914 of total investments and $(2,854,866)
of total investments sold short, or 97.8% and (0.7)% of net assets, respectively. |
| (c)
|
Fixed-to-floating
or fixed-to-variable rate security. The interest rate shown reflects the fixed rate in effect at October 31, 2023. At a predetermined
date, the fixed rate will change to a floating rate or a variable rate. |
| (d)
|
Multi-Step
Coupon Bond - Coupon steps up or down at a predetermined date. The interest rate shown reflects the rate in effect at October 31, 2023.
|
| (e)
|
This
security is fair valued by the Advisor’s Pricing Committee in accordance with procedures approved by the Fund’s Board of Trustees,
and in accordance with the provisions of the Investment Company Act of 1940 and rules thereunder, as amended. At October 31, 2023, securities
noted as such are valued at $65,616 or 0.0% of net assets. |
| (f)
|
This
security’s value was determined using significant unobservable inputs (see Note 2A – Portfolio Valuation in the Notes to Financial
Statements). |
| (g)
|
Principal
Value is in U.S. dollars unless otherwise indicated in the security description. |
| (h)
|
This
security may be resold to qualified foreign investors and foreign institutional buyers under Regulation S of the 1933 Act. |
| (i)
|
Securities
are issued in U.S. dollars unless otherwise indicated in the security description. |
| (j)
|
Perpetual
maturity. |
| (k)
|
Floating
or variable rate security. |
| (l)
|
Senior
Floating-Rate Loan Interests (“Senior Loans”) in which the Fund invests pay interest at rates which are periodically predetermined
by reference to a base lending rate plus a premium. These base lending rates are generally (i) the lending rate offered by one or more
major European banks, such as the LIBOR, (ii) the SOFR obtained from the U.S. Department of the Treasury’s Office of Financial Research
or another major financial institution, (iii) the prime rate offered by one or more United States banks or (iv) the certificate of deposit
rate. Certain Senior Loans are subject to a LIBOR or SOFR floor that establishes a minimum LIBOR or SOFR rate. |
| (m)
|
Senior
Loans generally are subject to mandatory and/or optional prepayment. As a result, the actual remaining maturity of Senior Loans may be
substantially less than the stated maturities shown. |
| (n)
|
Inverse
floating rate security. |
| (o)
|
Pursuant
to procedures adopted by the Fund’s Board of Trustees, this security has been determined to be illiquid by the Sub-Advisor. |
| (p)
|
Non-income
producing security. |
| Abbreviations
throughout the Portfolio of Investments: |
| CME
|
–
Chicago Mercantile Exchange |
| CSA
|
–
Credit Spread Adjustment |
| EUR
|
–
Euro |
| GBP
|
–
British Pound Sterling |
| JPM
|
–
JPMorgan Chase |
| LIBOR
|
–
London Interbank Offered Rate |
| SOFR
|
–
Secured Overnight Financing Rate |
| USD
|
–
United States Dollar |
See
Notes to Financial Statements
Page
21
First
Trust High Income Long/Short Fund (FSD)
Portfolio
of Investments (Continued)
October
31, 2023
Valuation
Inputs
A
summary of the inputs used to value the Fund’s investments as of October 31, 2023 is as follows (see Note 2A - Portfolio Valuation
in the Notes to Financial Statements):
| ASSETS
TABLE |
|
|
Total
Value at
10/31/2023 |
Level
1
Quoted
Prices |
Level
2
Significant
Observable
Inputs |
Level
3
Significant
Unobservable
Inputs |
| Corporate
Bonds and Notes: |
|
|
|
|
|
Transportation
|
$ 8,402,965
|
$ —
|
$ 8,363,199
|
$ 39,766
|
|
Other Industry Categories*
|
383,845,352
|
—
|
383,845,352
|
—
|
|
Foreign Corporate Bonds and Notes*
|
92,628,262
|
—
|
92,628,262
|
—
|
|
Capital Preferred Securities*
|
28,576,323
|
—
|
28,576,323
|
—
|
|
Senior Floating-Rate Loan Interests*
|
10,795,447
|
—
|
10,795,447
|
—
|
|
Mortgage-Backed Securities
|
1,995,891
|
—
|
1,995,891
|
—
|
| Common
Stocks: |
|
|
|
|
|
Energy
|
25,850
|
—
|
—
|
25,850
|
|
Utility
|
455,397
|
455,397
|
—
|
—
|
|
Rights*
|
17,906
|
—
|
17,906
|
—
|
|
Total Investments
|
526,743,393
|
455,397
|
526,222,380
|
65,616
|
|
Forward Foreign Currency Contracts
|
18,523
|
—
|
18,523
|
—
|
|
Total
|
$ 526,761,916
|
$ 455,397
|
$ 526,240,903
|
$ 65,616
|
|
|
| LIABILITIES
TABLE |
|
|
Total
Value at
10/31/2023 |
Level
1
Quoted
Prices |
Level
2
Significant
Observable
Inputs |
Level
3
Significant
Unobservable
Inputs |
|
U.S. Government Bonds Sold Short
|
$ (51,557,578)
|
$ —
|
$ (51,557,578)
|
$ —
|
|
Corporate Bonds Sold Short*
|
(4,197,924)
|
—
|
(4,197,924)
|
—
|
|
Total Investments
|
(55,755,502)
|
—
|
(55,755,502)
|
—
|
|
Forward Foreign Currency Contracts
|
(955)
|
—
|
(955)
|
—
|
|
Total
|
$ (55,756,457)
|
$—
|
$ (55,756,457)
|
$—
|
| *
|
See
Portfolio of Investments for industry breakout. |
Level
3 investments are fair valued by the Advisor’s Pricing Committee and are footnoted in the Portfolio of Investments. All Level
3 values are based on unobservable inputs.
Page
22
See
Notes to Financial Statements
First
Trust High Income Long/Short Fund (FSD)
Statement
of Assets and Liabilities
October
31, 2023
| ASSETS:
|
|
|
Investments, at value
|
$ 526,743,393
|
|
Cash
|
59,854,853
|
|
Foreign currency
|
212
|
|
Unrealized appreciation on forward foreign currency contracts
|
18,523
|
|
Due from broker
|
440,536
|
| Receivables:
|
|
|
Interest
|
8,781,716
|
|
Investment securities sold
|
3,925,201
|
|
Margin interest rebate
|
92,042
|
|
Prepaid expenses
|
12,178
|
|
Total Assets
|
599,868,654
|
| LIABILITIES:
|
|
|
Borrowings
|
143,654,762
|
|
Investments sold short, at value (proceeds $58,944,457)
|
55,755,502
|
|
Unrealized depreciation on forward foreign currency contracts
|
955
|
| Payables:
|
|
|
Investment securities purchased
|
1,518,654
|
|
Margin interest expense
|
402,656
|
|
Investment advisory fees
|
338,181
|
|
Interest expense on investments sold short
|
327,077
|
|
Audit and tax fees
|
69,068
|
|
Legal fees
|
45,908
|
|
Shareholder reporting fees
|
38,766
|
|
Administrative fees
|
36,244
|
|
Transfer agent fees
|
3,355
|
|
Custodian fees
|
1,804
|
|
Trustees’ fees and expenses
|
911
|
|
Financial reporting fees
|
771
|
|
Other liabilities
|
1,218
|
|
Total Liabilities
|
202,195,832
|
|
NET ASSETS
|
$397,672,822
|
| NET
ASSETS consist of: |
|
|
Paid-in capital
|
$ 584,184,477
|
|
Par value
|
332,910
|
|
Accumulated distributable earnings (loss)
|
(186,844,565)
|
|
NET ASSETS
|
$397,672,822
|
|
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share)
|
$11.95
|
|
Number of Common Shares outstanding (unlimited number of Common Shares has been authorized)
|
33,291,015
|
|
Investments, at cost
|
$586,780,916
|
|
Foreign currency, at cost (proceeds)
|
$212
|
See
Notes to Financial Statements
Page
23
First
Trust High Income Long/Short Fund (FSD)
Statement
of Operations
For
the Year Ended October 31, 2023
| INVESTMENT
INCOME: |
|
|
Interest
|
$ 36,307,144
|
|
Margin interest rebate
|
2,511,475
|
|
Dividends
|
2,650
|
|
Other
|
5,858
|
|
Total investment income
|
38,827,127
|
| EXPENSES:
|
|
|
Margin interest expense
|
11,198,499
|
|
Investment advisory fees
|
4,177,092
|
|
Interest expense on investments sold short
|
1,653,702
|
|
Administrative fees
|
242,110
|
|
Shareholder reporting fees
|
139,888
|
|
Legal fees
|
76,859
|
|
Audit and tax fees
|
69,596
|
|
Listing expense
|
40,599
|
|
Transfer agent fees
|
19,660
|
|
Trustees’ fees and expenses
|
18,946
|
|
Financial reporting fees
|
9,250
|
|
Custodian fees
|
2,931
|
|
Other
|
25,667
|
|
Total expenses
|
17,674,799
|
|
NET INVESTMENT INCOME (LOSS)
|
21,152,328
|
| NET
REALIZED AND UNREALIZED GAIN (LOSS): |
|
| Net
realized gain (loss) on: |
|
|
Investments
|
(11,783,368)
|
|
Forward foreign currency contracts
|
(22,374)
|
|
Foreign currency transactions
|
56
|
|
Investments sold short
|
(1,145,906)
|
|
Net realized gain (loss)
|
(12,951,592)
|
| Net
change in unrealized appreciation (depreciation) on: |
|
|
Investments
|
8,353,032
|
|
Forward foreign currency contracts
|
(55,107)
|
|
Foreign currency translation
|
1,997
|
|
Investments sold short
|
2,605,808
|
|
Net change in unrealized appreciation (depreciation)
|
10,905,730
|
|
NET REALIZED AND UNREALIZED GAIN (LOSS)
|
(2,045,862)
|
|
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
|
$ 19,106,466
|
Page
24
See
Notes to Financial Statements
First
Trust High Income Long/Short Fund (FSD)
Statements
of Changes in Net Assets
|
|
Year
Ended
10/31/2023 |
|
Year
Ended
10/31/2022 |
| OPERATIONS:
|
|
|
|
|
Net investment income (loss)
|
$ 21,152,328
|
|
$ 25,447,874
|
|
Net realized gain (loss)
|
(12,951,592)
|
|
(16,108,257)
|
|
Net change in unrealized appreciation (depreciation)
|
10,905,730
|
|
(87,694,884)
|
|
Net increase (decrease) in net assets resulting from operations
|
19,106,466
|
|
(78,355,267)
|
| DISTRIBUTIONS
TO SHAREHOLDERS FROM: |
|
|
|
|
Investment operations
|
(21,057,244)
|
|
(26,519,418)
|
|
Return of capital
|
(20,916,340)
|
|
(15,651,193)
|
|
Total distributions to shareholders
|
(41,973,584)
|
|
(42,170,611)
|
| CAPITAL
TRANSACTIONS: |
|
|
|
|
Repurchase of Common Shares *
|
(1,433,499)
|
|
(549,030)
|
|
Net increase (decrease) in net assets resulting from capital transactions
|
(1,433,499)
|
|
(549,030)
|
|
Total increase (decrease) in net assets
|
(24,300,617)
|
|
(121,074,908)
|
| NET
ASSETS: |
|
|
|
|
Beginning of period
|
421,973,439
|
|
543,048,347
|
|
End of period
|
$ 397,672,822
|
|
$ 421,973,439
|
| CAPITAL
TRANSACTIONS were as follows: |
|
|
|
|
Common Shares at beginning of period
|
33,419,132
|
|
33,470,143
|
|
Common Shares repurchased *
|
(128,117)
|
|
(51,011)
|
|
Common Shares at end of period
|
33,291,015
|
|
33,419,132
|
| *
|
On
September 15, 2015, the Fund commenced a share repurchase program. For the year ended October 31, 2023, the Fund repurchased 128,117 of
its shares at a weighted-average discount of 12.32% from net asset value per share. For the year ended October 31, 2022, the Fund repurchased
51,011 of its shares at a weighted-average discount of 12.68% from net asset value per share. The Fund’s share repurchase program
ended on March 15, 2023. |
See
Notes to Financial Statements
Page
25
First
Trust High Income Long/Short Fund (FSD)
Statement
of Cash Flows
For
the Year Ended October 31, 2023
| Cash
flows from operating activities: |
|
|
|
Net increase (decrease) in net assets resulting from operations
|
$19,106,466
|
|
| Adjustments
to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by operating activities: |
|
|
|
Purchases of investments
|
(190,858,592)
|
|
|
Borrowed investments sold short
|
30,356,250
|
|
|
Sales, maturities and paydown of investments
|
186,060,407
|
|
|
Borrowed investments purchased
|
(29,591,016)
|
|
|
Net amortization/accretion of premiums/discounts on investments
|
(884,098)
|
|
|
Net realized gain/loss on investments
|
11,783,368
|
|
|
Net realized gain/loss on investments sold short
|
1,145,906
|
|
|
Net change in unrealized appreciation/depreciation on investments
|
(8,353,032)
|
|
|
Net change in unrealized appreciation/depreciation on forward foreign currency contracts
|
55,107
|
|
|
Net change in unrealized appreciation/depreciation on investments sold short
|
(2,605,808)
|
|
| Changes
in assets and liabilities: |
|
|
|
Increase in interest receivable
|
(211,565)
|
|
|
Increase in margin interest rebate receivable
|
(42,671)
|
|
|
Increase in due from broker
|
(335,751)
|
|
|
Decrease in prepaid expenses
|
2,546
|
|
|
Decrease in interest payable on investments sold short
|
(33,561)
|
|
|
Decrease in investment advisory fees payable
|
(14,238)
|
|
|
Decrease in audit and tax fees payable
|
(7,588)
|
|
|
Increase in legal fees payable
|
45,539
|
|
|
Increase in shareholder reporting fees payable
|
5,960
|
|
|
Increase in administrative fees payable
|
1,888
|
|
|
Increase in custodian fees payable
|
418
|
|
|
Increase in transfer agent fees payable
|
243
|
|
|
Decrease in trustees’ fees and expenses payable
|
(641)
|
|
|
Increase in margin interest expense payable
|
149,054
|
|
|
Increase in other liabilities payable
|
658
|
|
|
Cash provided by operating activities
|
|
$15,775,249
|
| Cash
flows from financing activities: |
|
|
|
Repurchase of Common Shares
|
(1,433,499)
|
|
|
Distributions to Common Shareholders from investment operations
|
(21,057,244)
|
|
|
Distributions to Common Shareholders from return of capital
|
(20,916,340)
|
|
|
Net proceeds from borrowing
|
922,069
|
|
|
Cash used in financing activities
|
|
(42,485,014)
|
|
Decrease in cash and foreign currency (a)
|
|
(26,709,765)
|
|
Cash and foreign currency at beginning of period
|
|
86,564,830
|
|
Cash and foreign currency at end of period
|
|
$59,855,065
|
| Supplemental
disclosure of cash flow information: |
|
|
|
Cash paid during the period for interest and fees
|
|
$12,736,708
|
| (a)
|
Includes
net change in unrealized appreciation (depreciation) on foreign currency of $1,997. |
Page
26
See
Notes to Financial Statements
First
Trust High Income Long/Short Fund (FSD)
Financial
Highlights
For
a Common Share outstanding throughout each period
|
|
Year
Ended October 31, |
| 2023
|
|
2022
|
|
2021
|
|
2020
|
|
2019
|
|
Net asset value, beginning of period
|
$ 12.63
|
|
$ 16.22
|
|
$ 15.66
|
|
$ 16.94
|
|
$ 16.57
|
| Income
from investment operations: |
|
|
|
|
|
|
|
|
|
|
Net investment income (loss)
|
0.64 (a)
|
|
0.76
|
|
0.94
|
|
0.92
|
|
0.93
|
|
Net realized and unrealized gain (loss)
|
(0.07)
|
|
(3.09)
|
|
0.93
|
|
(0.92)
|
|
0.68
|
|
Total from investment operations
|
0.57
|
|
(2.33)
|
|
1.87
|
|
—
|
|
1.61
|
| Distributions
paid to shareholders from: |
|
|
|
|
|
|
|
|
|
|
Net investment income
|
(0.63)
|
|
(0.79)
|
|
(0.95)
|
|
(0.92)
|
|
(0.92)
|
|
Return of capital
|
(0.63)
|
|
(0.47)
|
|
(0.37)
|
|
(0.40)
|
|
(0.36)
|
|
Total distributions paid to Common Shareholders
|
(1.26)
|
|
(1.26)
|
|
(1.32)
|
|
(1.32)
|
|
(1.28)
|
|
Common Share repurchases
|
0.01
|
|
0.00 (b)
|
|
0.01
|
|
0.04
|
|
0.04
|
|
Net asset value, end of period
|
$11.95
|
|
$12.63
|
|
$16.22
|
|
$15.66
|
|
$16.94
|
|
Market value, end of period
|
$10.48
|
|
$11.06
|
|
$16.05
|
|
$13.49
|
|
$15.49
|
|
Total return based on net asset value (c)
|
5.73%
|
|
(14.11)%
|
|
12.88%
|
|
1.53%
|
|
11.58%
|
|
Total return based on market value (c)
|
5.89%
|
|
(23.99)%
|
|
29.67%
|
|
(4.35)%
|
|
21.54%
|
| Ratios
to average net assets/supplemental data: |
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (in 000’s)
|
$ 397,673
|
|
$ 421,973
|
|
$ 543,048
|
|
$ 526,815
|
|
$ 582,502
|
|
Ratio of total expenses to average net assets
|
4.23%
|
|
2.22%
|
|
1.84%
|
|
2.13%
|
|
2.53%
|
|
Ratio of total expenses to average net assets excluding interest expense
|
1.15%
|
|
1.13%
|
|
1.19%
|
|
1.22%
|
|
1.16%
|
|
Ratio of net investment income (loss) to average net assets
|
5.06%
|
|
5.34%
|
|
5.74%
|
|
5.80%
|
|
5.55%
|
|
Portfolio turnover rate
|
35%
|
|
32%
|
|
43%
|
|
63%
|
|
33%
|
| (a)
|
Based
on average shares outstanding. |
| (b)
|
Amount
is less than $0.01. |
| (c)
|
Total
return is based on the combination of reinvested dividend, capital gain and return of capital distributions, if any, at prices obtained
by the Dividend Reinvestment Plan, and changes in net asset value per share for net asset value returns and changes in Common Share Price
for market value returns. Total returns do not reflect sales load and are not annualized for periods of less than one year. Past performance
is not indicative of future results. |
See
Notes to Financial Statements
Page
27
Notes
to Financial Statements
First
Trust High Income Long/Short Fund (FSD)
October
31, 2023
1. Organization
First
Trust High Income Long/Short Fund (the “Fund”) is a diversified, closed-end management investment company organized as a Massachusetts
business trust on June 18, 2010, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940,
as amended (the “1940 Act”). The Fund trades under the ticker symbol “FSD” on the New York Stock Exchange (“NYSE”).
The
Fund’s primary investment objective is to provide current income. The Fund’s secondary objective is capital appreciation.
The Fund seeks to achieve its investment objectives by investing, under normal market conditions, a majority of its assets in a diversified
portfolio of U.S. and foreign (including emerging markets) high-yield corporate fixed-income securities of varying maturities that are
rated below-investment grade at the time of purchase. For purposes of this strategy, “corporate fixed-income securities” include
corporate bonds, debentures, notes, commercial paper and other similar types of corporate debt instruments, including instruments issued
by corporations with direct or indirect government ownership, as well as asset-backed securities, preferred shares, senior floating-rate
loan participations, commitments and assignments (“Senior Loans”)(1),
payment-in-kind securities, zero-coupon bonds, bank certificates of deposit, fixed time deposits, bankers’ acceptances and derivative
instruments that provide the same or similar economic impact as a physical investment in the above securities. Below-investment grade
fixed-income securities are commonly referred to as “high-yield” or “junk” bonds and are considered speculative
with respect to the issuer’s capacity to pay interest and repay principal. As part of its investment strategy, the Fund intends
to maintain both long and short positions in securities under normal market conditions. The Fund will take long positions in securities
that MacKay Shields LLC (“MacKay” or the “Sub-Advisor”) believes offer the potential for attractive returns and
that it considers in the aggregate to have the potential to outperform the Fund’s benchmark, the ICE BofA US High Yield Constrained
Index (the “Index”). The Fund will take short positions in securities that the Sub-Advisor believes in the aggregate will
underperform the Index. The Fund’s long positions, either directly or through derivatives, may total up to 130% of the Fund’s
Managed Assets. The Fund’s short positions, either directly or through derivatives, may total up to 30% of the Fund’s Managed
Assets. “Managed Assets” means the average daily gross asset value of the Fund (which includes the principal amount of any
borrowings), minus the sum of the Fund’s liabilities. There can be no assurance that the Fund will achieve its investment objectives.
The Fund may not be appropriate for all investors.
2. Significant
Accounting Policies
The
Fund is considered an investment company and follows accounting and reporting guidance under Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification Topic 946, “Financial Services-Investment Companies.” The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of the financial statements. The preparation of the financial
statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires
management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results
could differ from those estimates.
A. Portfolio
Valuation
The
net asset value (“NAV”) of the Common Shares of the Fund is determined daily as of the close of regular trading on the NYSE,
normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV is determined
as of that time. Domestic debt securities and foreign securities are priced using data reflecting the earlier closing of the principal
markets for those securities. The Fund’s NAV per Common Share is calculated by dividing the value of all assets of the Fund (including
accrued interest and dividends), less all liabilities (including accrued expenses, dividends declared but unpaid and any borrowings of
the Fund), by the total number of Common Shares outstanding.
The
Fund’s investments are valued daily at market value or, in the absence of market value with respect to any portfolio securities,
at fair value. Market value prices represent readily available market quotations such as last sale or official closing prices from a national
or foreign exchange (i.e., a regulated market) and are primarily obtained from third-party pricing services. Fair value prices represent
any prices not considered market value prices and are either obtained from a third-party pricing service or are determined by the Pricing
Committee of the Fund’s investment advisor, First Trust Advisors L.P. (“First Trust” or the “Advisor”),
in accordance with valuation procedures approved by the Fund’s Board of Trustees, and in accordance with provisions of the 1940
Act and rules thereunder. Investments valued by the Advisor’s Pricing Committee, if any, are footnoted as such in the footnotes
to the Portfolio of Investments. The Fund’s investments are valued as follows:
Corporate
bonds, notes, capital preferred securities, U.S. government securities, mortgage-backed securities, asset-backed securities and other
debt securities are fair valued on the basis of valuations provided by a third-party pricing service approved by the Advisor’s Pricing
Committee, which may use the following valuation inputs when available:
| (1)
|
The
terms “security” and “securities” used throughout the Notes to Financial Statements include Senior Loans. |
Notes
to Financial Statements (Continued)
First
Trust High Income Long/Short Fund (FSD)
October
31, 2023
| 2)
|
reported
trades; |
| 3)
|
broker/dealer
quotes; |
| 4)
|
issuer
spreads; |
| 5)
|
benchmark
securities; |
| 6)
|
bids
and offers; and |
| 7)
|
reference
data including market research publications. |
Common
stocks and other equity securities listed on any national or foreign exchange (excluding Nasdaq, Inc. (“Nasdaq”) and the London
Stock Exchange Alternative Investment Market (“AIM”)) are valued at the last sale price on the exchange on which they are
principally traded or, for Nasdaq and AIM securities, the official closing price. Securities traded on more than one securities exchange
are valued at the last sale price or official closing price, as applicable, at the close of the securities exchange representing the primary
exchange for such securities.
Equity
securities traded in an over-the-counter market are valued at the close price or the last trade price.
The
Senior Loans held in the Fund are not listed on any securities exchange or board of trade. Senior Loans are typically bought and sold
by institutional investors in individually negotiated private transactions that function in many respects like an over-the-counter secondary
market, although typically no formal market-makers exist. This market, while having grown substantially since its inception, generally
has fewer trades and less liquidity than the secondary market for other types of securities. Some Senior Loans have few or no trades,
or trade infrequently, and information regarding a specific Senior Loan may not be widely available or may be incomplete. Accordingly,
determinations of the market value of Senior Loans may be based on infrequent and dated information. Because there is less reliable, objective
data available, elements of judgment may play a greater role in valuation of Senior Loans than for other types of securities. Typically,
Senior Loans are fair valued using information provided by a third-party pricing service. The third-party pricing service primarily uses
over-the-counter pricing from dealer runs and broker quotes from indicative sheets to value the Senior Loans.
Forward
foreign currency contracts are valued at the current day’s interpolated foreign exchange rate, as calculated using the current day’s
spot rate, and the thirty, sixty, ninety, and one-hundred eighty day forward rates provided by a third-party pricing service.
Fixed
income and other debt securities having a remaining maturity of sixty days or less when purchased are fair valued at cost adjusted for
amortization of premiums and accretion of discounts (amortized cost), provided the Advisor’s Pricing Committee has determined that
the use of amortized cost is an appropriate reflection of fair value given market and issuer-specific conditions existing at the time
of the determination. Factors that may be considered in determining the appropriateness of the use of amortized cost include, but are
not limited to, the following:
| 1)
|
the
credit conditions in the relevant market and changes thereto; |
| 2)
|
the
liquidity conditions in the relevant market and changes thereto; |
| 3)
|
the
interest rate conditions in the relevant market and changes thereto (such as significant changes in interest rates); |
| 4)
|
issuer-specific
conditions (such as significant credit deterioration); and |
| 5)
|
any
other market-based data the Advisor’s Pricing Committee considers relevant. In this regard, the Advisor’s Pricing Committee
may use last-obtained market-based data to assist it when valuing portfolio securities using amortized cost. |
Certain
securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Advisor’s Pricing
Committee at fair value. These securities generally include, but are not limited to, restricted securities (securities which may not be
publicly sold without registration under the Securities Act of 1933, as amended (the “1933 Act”)) for which a third-party
pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security whose market or
fair value price is not available from a pre-established pricing source; a security with respect to which an event has occurred that is
likely to materially affect the value of the security after the market has closed but before the calculation of the Fund’s NAV or
make it difficult or impossible to obtain a reliable market quotation; and a security whose price, as provided by the third-party pricing
service, does not reflect the security’s fair value. As a general principle, the current fair value of a security would appear to
be the amount which the owner might reasonably expect to receive for the security upon its current sale. When fair value prices are used,
generally they will differ from market quotations or official closing prices on the applicable exchanges. A variety of factors may be
considered in determining the fair value of such securities, including, but not limited to, the following:
| 1)
|
the
most recent price provided by a pricing service; |
| 2)
|
available
market prices for the fixed-income security; |
| 3)
|
the
fundamental business data relating to the borrower/issuer; |
Notes
to Financial Statements (Continued)
First
Trust High Income Long/Short Fund (FSD)
October
31, 2023
| 4)
|
an
evaluation of the forces which influence the market in which these securities are purchased and sold; |
| 5)
|
the
type, size and cost of the security; |
| 6)
|
the
financial statements of the borrower/issuer, or the financial condition of the country of issue; |
| 7)
|
the
credit quality and cash flow of the borrower/issuer, or country of issue, based on the Pricing Committee’s, sub-advisor’s
or portfolio manager’s analysis, as applicable, or external analysis; |
| 8)
|
the
information as to any transactions in or offers for the security; |
| 9)
|
the
price and extent of public trading in similar securities (or equity securities) of the borrower/issuer, or comparable companies; |
| 10)
|
the
coupon payments; |
| 11)
|
the
quality, value and salability of collateral, if any, securing the security; |
| 12)
|
the
business prospects of the borrower/issuer, including any ability to obtain money or resources from a parent or affiliate and an assessment
of the borrower’s/issuer’s management; |
| 13)
|
the
prospects for the borrower’s/issuer’s industry, and multiples (of earnings and/or cash flows) being paid for similar businesses
in that industry; |
| 14)
|
the
borrower’s/issuer’s competitive position within the industry; |
| 15)
|
the
borrower’s/issuer’s ability to access additional liquidity through public and/or private markets; and |
| 16)
|
other
relevant factors. |
The
Fund is subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide
a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the
fair value hierarchy are as follows:
| •
|
Level
1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions
for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
| •
|
Level
2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following: |
| o
|
Quoted
prices for similar investments in active markets. |
| o
|
Quoted
prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions
for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in
which little information is released publicly. |
| o
|
Inputs
other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted
intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates). |
| o
|
Inputs
that are derived principally from or corroborated by observable market data by correlation or other means. |
| •
|
Level
3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the
assumptions that market participants would use in pricing the investment. |
The
inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those
investments. A summary of the inputs used to value the Fund’s investments as of October 31, 2023, is included with the Fund’s
Portfolio of Investments.
B. Securities
Transactions and Investment Income
Securities
transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified
cost basis. Dividend income is recorded on the ex-dividend date. Interest income is recorded daily on the accrual basis. Amortization
of premiums and accretion of discounts are recorded using the effective interest method.
The
United Kingdom’s Financial Conduct Authority (the “FCA”), which regulates the London Interbank Offered Rates (“LIBOR”),
ceased making LIBOR available as a reference rate over a phase-out period that began December 31, 2021. The overnight and 12-month USD
LIBOR settings permanently ceased as of June 30, 2023. The FCA announced that the 1-, 3- and 6-month USD LIBOR settings will continue
to be published using a synthetic methodology to serve as a fallback for non-U.S. contracts until September 2024. In response to the discontinuation
of LIBOR, investors have added fallback provisions to existing contracts for investments whose value is tied to LIBOR, with most fallback
provisions requiring the adoption of the Secured Overnight Financing Rate (“SOFR”) as a replacement rate. There is no assurance
that any alternative reference rate, including SOFR, will be similar to or produce the same value or economic equivalence as LIBOR or
that instruments using an alternative rate will have the same volume or
Notes
to Financial Statements (Continued)
First
Trust High Income Long/Short Fund (FSD)
October
31, 2023
liquidity.
At this time, it is not possible to predict the full impact of the elimination of LIBOR and the establishment of an alternative reference
rate on the Fund or its investments.
Securities
purchased or sold on a when-issued, delayed-delivery or forward purchase commitment basis may have extended settlement periods. The value
of the security so purchased is subject to market fluctuations during this period. The Fund maintains liquid assets with a current value
at least equal to the amount of its when-issued, delayed-delivery or forward purchase commitments until payment is made. At October 31,
2023, the Fund had no when-issued, delayed-delivery or forward purchase commitments.
C. Unfunded
Loan Commitments
The
Fund may enter into certain credit agreements, all or a portion of which may be unfunded. The Fund is obligated to fund these loan commitments
at the borrower’s discretion. The Fund had no unfunded loan commitments as of October 31, 2023.
D. Forward
Foreign Currency Contracts
The
Fund is subject to foreign currency risk in the normal course of pursuing its investment objectives. Forward foreign currency contracts
are agreements between two parties (“Counterparties”) to exchange one currency for another at a future date and at a specified
price. The Fund uses forward foreign currency contracts to facilitate transactions in foreign securities and to manage the Fund’s
foreign currency exposure. These contracts are valued daily, and the Fund’s net equity therein, representing unrealized gain or
loss on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into the contracts
and the forward rates at the reporting date, is included in “Unrealized appreciation on forward foreign currency contracts”
and “Unrealized depreciation on forward foreign currency contracts” on the Statement of Assets and Liabilities. The change
in unrealized appreciation (depreciation) is included in “Net change in unrealized appreciation (depreciation) on forward foreign
currency contracts” on the Statement of Operations. When the forward contract is closed, the Fund records a realized gain or loss
equal to the difference between the proceeds from (or the cost of) the closing transaction and the Fund’s basis in the contract.
This realized gain or loss is included in “Net realized gain (loss) on forward foreign currency contracts” on the Statement
of Operations. Risks arise from the possible inability of Counterparties to meet the terms of their contracts and from movement in currency,
securities values and interest rates. Due to the risks, the Fund could incur losses in excess of the net unrealized value shown on the
Forward Foreign Currency Contracts table in the Portfolio of Investments. In the event of default by the Counterparty, the Fund will provide
notice to the Counterparty of the Fund’s intent to convert the currency held by the Fund into the currency that the Counterparty
agreed to exchange with the Fund. If a Counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties,
the Fund may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding. The Fund may
obtain only limited recovery or may obtain no recovery in such circumstances.
E. Foreign
Currency
The
books and records of the Fund are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities are translated
into U.S. dollars at the exchange rates prevailing at the end of the period. Purchases and sales of investments and items of income and
expense are translated on the respective dates of such transactions. Unrealized gains and losses on assets and liabilities, other than
investments in securities, which result from changes in foreign currency exchange rates have been included in “Net change in unrealized
appreciation (depreciation) on foreign currency translation” on the Statement of Operations. Unrealized gains and losses on investments
in securities which result from changes in foreign exchange rates are included with fluctuations arising from changes in market price
and are shown in “Net change in unrealized appreciation (depreciation) on investments” on the Statement of Operations. Net
realized foreign currency gains and losses include the effect of changes in exchange rates between trade date and settlement date on investment
security transactions, foreign currency transactions and interest and dividends received and are shown in “Net realized gain (loss)
on foreign currency transactions” on the Statement of Operations. The portion of foreign currency gains and losses related to fluctuation
in exchange rates between the initial purchase settlement date and subsequent sale trade date is included in “Net realized gain
(loss) on investments” on the Statement of Operations.
F. Short
Sales
Short
sales are utilized for investment and risk management purposes and are transactions in which securities or other instruments (such as
options, forwards, futures or other derivative contracts) are sold by the Fund, but are not currently owned in the Fund’s portfolio.
When the Fund engages in a short sale, the Fund must borrow the security sold short and deliver the security to the counterparty. Short
selling allows the Fund to profit from a decline in a market price to the extent such decline exceeds the transaction costs and the costs
of borrowing the securities. The Fund will pay a fee or premium to borrow the securities sold short and is obligated to repay the lenders
of the securities. Any dividends or interest that accrues on the securities during the period of the loan are due to the lenders. A gain,
limited to the price at which the security was sold short, or a loss, unlimited in size, will be recognized upon the termination of the
short sale; which is affected by the Fund purchasing the security sold short and delivering the security to the lender. Any such gain
or loss may be offset, completely or in part, by the change in the value of the long portion of the Fund’s portfolio. The Fund is
subject to the risk that it may be unable to reacquire a security to terminate a short position except at a price substantially in
Notes
to Financial Statements (Continued)
First
Trust High Income Long/Short Fund (FSD)
October
31, 2023
excess
of the last quoted price. Also, there is the risk that the counterparty to a short sale may fail to honor its contractual terms, causing
a loss to the Fund.
The
Fund has established an account with Pershing, LLC for the purpose of purchasing or borrowing securities on margin. At October 31, 2023,
the Fund had $143,654,762 in borrowings, which approximates fair value, as shown in “Borrowings” on the Statement of Assets
and Liabilities. The borrowings are categorized as Level 2 within the fair value hierarchy. At October 31, 2023, the Fund had $55,755,502
of investments sold short as shown in “Investments sold short, at value” on the Statement of Assets and Liabilities. The Fund
is charged interest on debit margin balances at a rate equal to the Overnight Bank Funding Rate plus 75 basis points. With regard to securities
held short, the Fund is credited a rebate equal to the market value of its short positions at a rate equal to the Overnight Bank Funding
Rate less 35 basis points. This rebate rate applies to easy to borrow securities. Securities that are hard to borrow may earn a rebate
that is less than the foregoing or may be subject to a premium charge on a security by security basis. The different rebate rate is determined
at the time of a short sale request. At October 31, 2023, the Fund had a debit margin balance of $198,911,652 with an interest rate of
6.07%. For the fiscal year ended October 31, 2023, the Fund had margin interest rebate of $2,511,475 and margin interest expense of $11,198,499,
as shown on the Statement of Operations. For the fiscal year ended October 31, 2023, the average margin balance and interest rate were
$199,831,981 and 5.53%, respectively.
G. Dividends
and Distributions to Shareholders
Level
dividend distributions are declared and paid monthly to Common Shareholders after the payment of interest and/or dividends in connection
with leverage. The level dividend rate may be modified by the Board of Trustees from time to time. If, for any monthly distribution, net
investment company taxable income, if any (which term includes net short-term capital gain), is less than the amount of the distribution,
the difference will generally be a tax-free return of capital distributed from the Fund’s assets. Distributions of any net long-term
capital gains earned by the Fund are distributed at least annually. Distributions will automatically be reinvested into additional Common
Shares pursuant to the Fund’s Dividend Reinvestment Plan unless cash distributions are elected by the shareholder.
Distributions
from net investment income and realized capital gains are determined in accordance with federal income tax regulations, which may differ
from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect
their tax character. These permanent differences are primarily due to the varying treatment of income and gain/loss on portfolio securities
held by the Fund and have no impact on net assets or NAV per share. Temporary differences, which arise from recognizing certain items
of income, expense and gain/loss in different periods for financial statement and tax purposes, will reverse at some point in the future.
Permanent differences incurred during the fiscal year ended October 31, 2023, resulting in book and tax accounting differences, have been
reclassified at year end to reflect an increase in accumulated net investment income (loss) of $98,730, a decrease in accumulated net
realized gain (loss) of $91,340, and a decrease to paid-in capital of $7,390. Accumulated distributable earnings (loss) consists of accumulated
net investment income (loss), accumulated net realized gain (loss) on investments, and unrealized appreciation (depreciation) on investments.
Net assets were not affected by this reclassification.
The
tax character of distributions paid by the Fund during the fiscal years ended October 31, 2023 and 2022, was as follows:
| Distributions
paid from: |
2023
|
2022
|
|
Ordinary income
|
$21,057,244
|
$26,519,418
|
|
Capital gains
|
—
|
—
|
|
Return of capital
|
20,916,340
|
15,651,193
|
As
of October 31, 2023, the components of distributable earnings and net assets on a tax basis were as follows:
|
Undistributed ordinary income
|
$—
|
|
Undistributed capital gains
|
—
|
|
Total undistributed earnings
|
—
|
|
Accumulated capital and other losses
|
(118,101,692)
|
|
Net unrealized appreciation (depreciation)
|
(57,210,775)
|
|
Total accumulated earnings (losses)
|
(175,312,467)
|
|
Other
|
(11,532,098)
|
|
Paid-in capital
|
584,517,387
|
|
Total net assets
|
$397,672,822
|
Notes
to Financial Statements (Continued)
First
Trust High Income Long/Short Fund (FSD)
October
31, 2023
H. Income
and Other Taxes
The
Fund intends to continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal
Revenue Code of 1986, as amended, which includes distributing substantially all of its net investment income and net realized gains to
shareholders. Accordingly, no provision has been made for federal and state income taxes. However, due to the timing and amount of distributions,
the Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of the Fund’s taxable income exceeds the
distributions from such taxable income for the calendar year.
The
Fund intends to utilize provisions of the federal income tax laws, which allow it to carry a realized capital loss forward indefinitely
following the year of the loss and offset such loss against any future realized capital gains. The Fund is subject to certain limitations
under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has
been a 50% change in ownership. At October 31, 2023, the Fund had non-expiring capital loss carryforwards available for federal income
tax purposes of $118,101,692.
Of
these losses, $27,151,412 is subject to loss limitation resulting from reorganization activity. This limitation generally reduces the
utilization of these losses to a maximum of $2,219,032 per year.
Certain
losses realized during the current fiscal year may be deferred and treated as occurring on the first day of the following fiscal year
for federal income tax purposes. For the fiscal year ended October 31, 2023, the Fund did not incur any net late year ordinary losses.
The
Fund is subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of
a tax position taken or expected to be taken in a tax return. Taxable years ended 2020, 2021, 2022, and 2023 remain open to federal and
state audit. As of October 31, 2023, management has evaluated the application of these standards to the Fund and has determined that no
provision for income tax is required in the Fund’s financial statements for uncertain tax positions.
As
of October 31, 2023, 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) |
| $528,214,695
|
|
$4,635,338
|
|
$(61,844,574)
|
|
$(57,209,236)
|
I. Expenses
The
Fund will pay all expenses directly related to its operations.
3. Investment
Advisory Fee, Affiliated Transactions and Other Fee Arrangements
First
Trust, the investment advisor to the Fund, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general
partner, The Charger Corporation. The Charger Corporation is an Illinois corporation controlled by James A. Bowen, Chief Executive Officer
of First Trust. First Trust is responsible for the ongoing monitoring of the Fund’s investment portfolio, managing the Fund’s
business affairs and providing certain administrative services necessary for the management of the Fund. For these services, First Trust
is entitled to a monthly fee calculated at an annual rate of 1.00% of the Fund’s Managed Assets. First Trust also provides fund
reporting services to the Fund for a flat annual fee in the amount of $9,250.
MacKay
serves as the Fund’s sub-advisor and manages the Fund’s portfolio subject to First Trust’s supervision. The Sub-Advisor
receives a portfolio management fee at an annual rate of 0.50% of Managed Assets that is paid by First Trust from its investment advisory
fee.
Computershare,
Inc. (“Computershare”) serves as the Fund’s transfer agent in accordance with certain fee arrangements. As transfer
agent, Computershare is responsible for maintaining shareholder records for the Fund.
The
Bank of New York Mellon (“BNYM”) serves as the Fund’s administrator, fund accountant, and custodian in accordance with
certain fee arrangements. As administrator and fund accountant, BNYM is responsible for providing certain administrative and accounting
services to the Fund, including maintaining the Fund’s books of account, records of the Fund’s securities transactions, and
certain other books and records. As custodian, BNYM is responsible for custody of the Fund’s assets. BNYM is a subsidiary of The
Bank of New York Mellon Corporation, a financial holding company.
Notes
to Financial Statements (Continued)
First
Trust High Income Long/Short Fund (FSD)
October
31, 2023
Each
Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”)
is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund Complex. Each Independent Trustee is
also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, a target outcome
fund or an index fund.
Additionally,
the Lead Independent Trustee and the Chairs of the Audit Committee, Nominating and Governance Committee and Valuation Committee are paid
annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based
on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Lead Independent
Trustee and Committee Chairs rotate every three years. The officers and “Interested” Trustee receive no compensation from
the Fund for acting in such capacities.
4. Purchases
and Sales of Securities
The
cost of purchases and proceeds from sales of investments, excluding short-term investments and investments sold short, for the year ended
October 31, 2023, were $186,403,805 and $183,692,246, respectively. The cost of purchases to cover short sales of U.S. Government securities
and the proceeds of short sales of U.S. Government securities were $29,591,016 and $30,356,250, respectively.
5. Derivative
Transactions
The
following table presents the types of derivatives held by the Fund at October 31, 2023, the primary underlying risk exposure and the location
of these instruments as presented on the Statement of Assets and Liabilities.
|
|
|
|
|
Asset
Derivatives |
|
Liability
Derivatives |
Derivative
Instrument |
|
Risk
Exposure |
|
Statement
of Assets and
Liabilities Location |
|
Value
|
|
Statement
of Assets and
Liabilities Location |
|
Value
|
Forward
foreign
currency
contracts |
|
Currency
Risk |
|
Unrealized
appreciation
on forward foreign
currency contracts |
|
$ 18,523
|
|
Unrealized
depreciation
on forward foreign
currency contracts |
|
$ 955
|
The
following table presents the amount of net realized gain (loss) and change in net unrealized appreciation (depreciation) recognized for
the fiscal year ended October 31, 2023, on derivative instruments, as well as the primary underlying risk exposure associated with each
instrument.
| Statement
of Operations Location |
|
| Currency
Risk Exposure |
|
| Net
realized gain (loss) on forward foreign currency contracts |
$(22,374)
|
| Net
change in unrealized appreciation (depreciation) on forward foreign currency contracts |
(55,107)
|
During
the fiscal year ended October 31, 2023, the notional values of forward foreign currency contracts opened and closed were $145,631,682
and $117,327,314, respectively.
The
Fund does not have the right to offset financial assets and liabilities related to forward foreign currency contracts on the Statement
of Assets and Liabilities.
6. Indemnification
The
Fund has a variety of indemnification obligations under contracts with its service providers. The Fund’s maximum exposure under
these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of
loss to be remote.
7. Subsequent
Events
Management
has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued and has determined
that there were no subsequent events requiring recognition or disclosure in the financial statements that have not already been disclosed.
Report
of Independent Registered Public Accounting Firm
To
the Shareholders and the Board of Trustees of First Trust High Income Long/Short Fund:
Opinion
on the Financial Statements and Financial Highlights
We
have audited the accompanying statement of assets and liabilities of First Trust High Income Long/Short Fund (the “Fund”),
including the portfolio of investments, as of October 31, 2023, the related statements of operations and cash flows for the year then
ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of
the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present
fairly, in all material respects, the financial position of the Fund as of October 31, 2023, and the results of its operations and its
cash flows for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended in conformity with accounting principles generally accepted in the United
States of America.
Basis
for Opinion
These
financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express
an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to
error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose
of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no
such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating
the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2023, by correspondence
with the custodian, agent banks and brokers; when replies were not received from agent banks and brokers, we performed other auditing
procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/
Deloitte & Touche, LLP
Chicago,
Illinois
December
21, 2023
We
have served as the auditor of one or more First Trust investment companies since 2001.
Additional
Information
First
Trust High Income Long/Short Fund (FSD)
October
31, 2023 (Unaudited)
Dividend
Reinvestment Plan
If
your Common Shares are registered directly with the Fund or if you hold your Common Shares with a brokerage firm that participates in
the Fund’s Dividend Reinvestment Plan (the “Plan”), unless you elect, by written notice to the Fund, to receive cash
distributions, all dividends, including any capital gain distributions, on your Common Shares will be automatically reinvested by Computershare
Trust Company N.A. (the “Plan Agent”), in additional Common Shares under the Plan. If you elect to receive cash distributions,
you will receive all distributions in cash paid by check mailed directly to you by the Plan Agent, as the dividend paying agent.
If
you decide to participate in the Plan, the number of Common Shares you will receive will be determined as follows:
| (1)
|
If
Common Shares are trading at or above net asset value (“NAV”) at the time of valuation, the Fund will issue new shares at
a price equal to the greater of (i) NAV per Common Share on that date or (ii) 95% of the market price on that date. |
| (2)
|
If
Common Shares are trading below NAV at the time of valuation, the Plan Agent will receive the dividend or distribution in cash and will
purchase Common Shares in the open market, on the NYSE or elsewhere, for the participants’ accounts. It is possible that the market
price for the Common Shares may increase before the Plan Agent has completed its purchases. Therefore, the average purchase price per
share paid by the Plan Agent may exceed the market price at the time of valuation, resulting in the purchase of fewer shares than if the
dividend or distribution had been paid in Common Shares issued by the Fund. The Plan Agent will use all dividends and distributions received
in cash to purchase Common Shares in the open market within 30 days of the valuation date except where temporary curtailment or suspension
of purchases is necessary to comply with federal securities laws. Interest will not be paid on any uninvested cash payments. |
You
may elect to opt-out of or withdraw from the Plan at any time by giving written notice to the Plan Agent, or by telephone at (866) 340-1104,
in accordance with such reasonable requirements as the Plan Agent and the Fund may agree upon. If you withdraw or the Plan is terminated,
you will receive a certificate for each whole share in your account under the Plan, and you will receive a cash payment for any fraction
of a share in your account. If you wish, the Plan Agent will sell your shares and send you the proceeds, minus brokerage commissions.
The
Plan Agent maintains all Common Shareholders’ accounts in the Plan and gives written confirmation of all transactions in the accounts,
including information you may need for tax records. Common Shares in your account will be held by the Plan Agent in non-certificated form.
The Plan Agent will forward to each participant any proxy solicitation material and will vote any shares so held only in accordance with
proxies returned to the Fund. Any proxy you receive will include all Common Shares you have received under the Plan.
There
is no brokerage charge for reinvestment of your dividends or distributions in Common Shares. However, all participants will pay a pro
rata share of brokerage commissions incurred by the Plan Agent when it makes open market purchases.
Automatically
reinvesting dividends and distributions does not mean that you do not have to pay income taxes due upon receiving dividends and distributions.
Capital gains and income are realized although cash is not received by you. Consult your financial advisor for more information.
If
you hold your Common Shares with a brokerage firm that does not participate in the Plan, you will not be able to participate in the Plan
and any dividend reinvestment may be effected on different terms than those described above.
The
Fund reserves the right to amend or terminate the Plan if in the judgment of the Board of Trustees the change is warranted. There is no
direct service charge to participants in the Plan; however, the Fund reserves the right to amend the Plan to include a service charge
payable by the participants. Additional information about the Plan may be obtained by writing Computershare, Inc., P.O. Box 43006, Providence,
RI 02940-3006.
Proxy
Voting Policies and Procedures
A
description of the policies and procedures that the Fund uses to determine how to vote proxies and information on how the Fund voted proxies
relating to portfolio investments during the most recent 12-month period ended June 30 is available (1) without charge, upon request,
by calling (800) 988-5891; (2) on the Fund’s website at www.ftportfolios.com;
and (3) on the Securities and Exchange Commission’s (“SEC”) website at www.sec.gov.
Portfolio
Holdings
The
Fund files portfolio holdings information for each month in a fiscal quarter within 60 days after the end of the relevant fiscal quarter
on Form N-PORT. Portfolio holdings information for the third month of each fiscal quarter will be publicly available on the
Additional
Information (Continued)
First
Trust High Income Long/Short Fund (FSD)
October
31, 2023 (Unaudited)
SEC’s
website at www.sec.gov. The Fund’s complete schedule of portfolio
holdings for the second and fourth quarters of each fiscal year is included in the semi-annual and annual reports to shareholders, respectively,
and is filed with the SEC on Form N-CSR. The semi-annual and annual report for the Fund is available to investors within 60 days after
the period to which it relates. The Fund’s Forms N-PORT and Forms N-CSR are available on the SEC’s website listed above.
Federal
Tax Information
Of
the ordinary income (including short-term capital gain) distributions made by the Fund during the year ended October 31, 2023, none qualify
for the corporate dividends received deduction available to corporate shareholders or as qualified dividend income.
Distributions
paid to foreign shareholders during the Fund’s fiscal year ended October 31, 2023, that were properly designated by the Fund as
“interest-related dividends” or “short-term capital gain dividends,” may not be subject to federal income tax
provided that the income was earned directly by such foreign shareholders.
NYSE
Certification Information
In
accordance with Section 303A-12 of the New York Stock Exchange (“NYSE”) Listed Company Manual, the Fund’s President
has certified to the NYSE that, as of April 18, 2023, he was not aware of any violation by the Fund of NYSE corporate governance listing
standards. In addition, the Fund’s reports to the SEC on Form N-CSR contain certifications by the Fund’s principal executive
officer and principal financial officer that relate to the Fund’s public disclosure in such reports and are required by Rule 30a-2
under the 1940 Act.
Submission
of Matters to a Vote of Shareholders
The
Fund held its Annual Meeting of Shareholders (the “Annual Meeting”) on April 17, 2023. At the Annual Meeting, Denise M. Keefe
and Robert F. Keith were elected by the Common Shareholders of First Trust High Income Long/Short Fund as Class I Trustees for a three-year
term expiring at the Fund’s annual meeting of shareholders in 2026. The number of votes cast in favor of Ms. Keefe was 26,182,080
and the number of votes withheld was 1,589,281. The number of votes cast in favor of Mr. Keith was 26,180,028 and the number of
votes withheld was 1,591,333. Richard E. Erickson, Thomas R. Kadlec, James A. Bowen, Niel B. Nielson, and Bronwyn Wright are the other
current and continuing Trustees.
Amended
and Restated By-Laws
On
June 22, 2023, the Board of Trustees of the Fund amended and restated the existing Amended and Restated By-Laws (and as so amended and
restated, the “By-Laws”), effective immediately. The By-Laws were revised to rescind Article XII and its accompanying control
share provisions, along with other conforming amendments.
The
foregoing description is qualified in its entirety by reference to the full text of the By-Laws, a copy of which can be found in the Current
Report on Form 8-K filed by the Fund with the Securities and Exchange Commission on June 23, 2023, which is available at www.sec.gov,
and may also be obtained by writing to the Secretary of the Fund at the Fund’s principal executive office.
Board
of Trustees
Effective
September 10, 2023, Bronwyn Wright was appointed as a Trustee of the Fund. Ms. Wright has acted as an independent director to a
number of Irish collective investment funds since 2009. Ms. Wright is a former Managing Director of Citibank Europe plc and Head of Securities
and Fund Services for Citi Ireland. In these positions, she was responsible for the management and strategic direction of Citi Ireland’s
securities and fund services business which included funds, custody, security finance/lending and global agency and trust. She also had
responsibility for leading, managing and growing the Trustee, Custodian and Depositary business in Ireland, the United Kingdom, Luxembourg,
Jersey and Cayman.
Advisory
and Sub-Advisory Agreements
Board
Considerations Regarding Approval of the Continuation of the Investment Management and Investment Sub-Advisory Agreements
The
Board of Trustees of First Trust High Income Long/Short Fund (the “Fund”), including the Independent Trustees, unanimously
approved the continuation of the Investment Management Agreement (the “Advisory Agreement”) between the Fund and First Trust
Advisors L.P. (the “Advisor”) and the Investment Sub-Advisory Agreement (the “Sub-Advisory Agreement” and together
with the Advisory Agreement, the “Agreements”) among the Fund, the Advisor and MacKay Shields LLC (the “Sub-Advisor”).
The Board approved the continuation of the Agreements for a one-year period ending June 30, 2024 at a meeting held on June 4–5,
2023. The
Additional
Information (Continued)
First
Trust High Income Long/Short Fund (FSD)
October
31, 2023 (Unaudited)
Board
determined that the continuation of the Agreements is in the best interests of the Fund in light of the nature, extent and quality of
the services provided and such other matters as the Board considered to be relevant in the exercise of its business judgment.
To
reach this determination, the Board considered its duties under the Investment Company Act of 1940, as amended (the “1940 Act”),
as well as under the general principles of state law, in reviewing and approving advisory contracts; the requirements of the 1940 Act
in such matters; the fiduciary duty of investment advisors with respect to advisory agreements and compensation; the standards used by
courts in determining whether investment company boards have fulfilled their duties; and the factors to be considered by the Board in
voting on such agreements. At meetings held on April 17, 2023 and June 4–5, 2023, the Board, including the Independent Trustees,
reviewed materials provided by the Advisor and the Sub-Advisor responding to requests for information from counsel to the Independent
Trustees, submitted on behalf of the Independent Trustees, that, among other things, outlined: the services provided by the Advisor and
the Sub-Advisor to the Fund (including the relevant personnel responsible for these services and their experience); the advisory fee rate
payable by the Fund and the sub-advisory fee rate as compared to fees charged to a peer group of funds (the “Expense Group”)
and a broad peer universe of funds (the “Expense Universe”), each assembled by Broadridge Financial Solutions, Inc. (“Broadridge”),
an independent source, and as compared to fees charged to other clients of the Advisor and the Sub-Advisor; the expense ratio of the Fund
as compared to expense ratios of the funds in the Fund’s Expense Group and Expense Universe; performance information for the Fund,
including comparisons of the Fund’s performance to that of one or more relevant benchmark indexes and to that of a performance group
of funds and a broad performance universe of funds (the “Performance Universe”), each assembled by Broadridge; the nature
of expenses incurred in providing services to the Fund and the potential for the Advisor and the Sub-Advisor to realize economies of scale,
if any; profitability and other financial data for the Advisor; financial data for the Sub-Advisor; any indirect benefits to the Advisor
and the Sub-Advisor; and information on the Advisor’s and the Sub-Advisor’s compliance programs. The Board reviewed
initial materials with the Advisor at the meeting held on April 17, 2023, prior to which the Independent Trustees and their counsel met
separately to discuss the information provided by the Advisor and the Sub-Advisor. Following the April meeting, counsel to the Independent
Trustees, on behalf of the Independent Trustees, requested certain clarifications and supplements to the materials provided, and the information
provided in response to those requests was considered at an executive session of the Independent Trustees and their counsel held prior
to the June 4–5, 2023 meeting, as well as at the June meeting. The Board applied its business judgment to determine whether
the arrangements between the Fund and the Advisor and among the Fund, the Advisor and the Sub-Advisor continue to be reasonable business
arrangements from the Fund’s perspective. The Board determined that, given the totality of the information provided with respect
to the Agreements, the Board had received sufficient information to renew the Agreements. The Board considered that shareholders
chose to invest or remain invested in the Fund knowing that the Advisor and the Sub-Advisor manage the Fund.
In
reviewing the Agreements, the Board considered the nature, extent and quality of the services provided by the Advisor and the Sub-Advisor
under the Agreements. With respect to the Advisory Agreement, the Board considered that the Advisor is responsible for the overall
management and administration of the Fund and reviewed all of the services provided by the Advisor to the Fund, including the oversight
of the Sub-Advisor, as well as the background and experience of the persons responsible for such services. The Board noted that
the Advisor oversees the Sub-Advisor’s day-to-day management of the Fund’s investments, including portfolio risk monitoring
and performance review. In reviewing the services provided, the Board noted the compliance program that had been developed by the
Advisor and considered that it includes a robust program for monitoring the Advisor’s, the Sub-Advisor’s and the Fund’s
compliance with the 1940 Act, as well as the Fund’s compliance with its investment objectives, policies and restrictions.
The Board also considered a report from the Advisor with respect to its risk management functions related to the operation of the Fund.
Finally, as part of the Board’s consideration of the Advisor’s services, the Advisor, in its written materials and at the
April 17, 2023 meeting, described to the Board the scope of its ongoing investment in additional personnel and infrastructure to maintain
and improve the quality of services provided to the Fund and the other funds in the First Trust Fund Complex. With respect to the
Sub-Advisory Agreement, the Board reviewed the materials provided by the Sub-Advisor and considered the services that the Sub-Advisor
provides to the Fund, including the Sub-Advisor’s day-to-day management of the Fund’s investments. In considering the
Sub-Advisor’s management of the Fund, the Board noted the background and experience of the Sub-Advisor’s portfolio management
team, including the Board’s prior meetings with members of the portfolio management team. In light of the information presented
and the considerations made, the Board concluded that the nature, extent and quality of the services provided to the Fund by the Advisor
and the Sub-Advisor under the Agreements have been and are expected to remain satisfactory and that the Sub-Advisor, under the oversight
of the Advisor, has managed the Fund consistent with its investment objectives, policies and restrictions.
The
Board considered the advisory and sub-advisory fee rates payable under the Agreements for the services provided. The Board noted
that the sub-advisory fee is paid by the Advisor from its advisory fee. The Board received and reviewed information showing the
fee rates and expense ratios of the peer funds in the Expense Group, as well as advisory and unitary fee rates charged by the Advisor
and the Sub-Advisor to other fund and non-fund clients, as applicable. With respect to the Expense Group, the Board, at the April
17, 2023 meeting, discussed with Broadridge its methodology for assembling peer groups and discussed with the Advisor limitations in creating
a relevant peer group for the Fund, including that (i) not all peer funds employ an advisor/sub-advisor management structure; and (ii) the
Fund is unique in its composition, which makes assembling peers with similar strategies and asset
Additional
Information (Continued)
First
Trust High Income Long/Short Fund (FSD)
October
31, 2023 (Unaudited)
mix
difficult. The Board took these limitations into account in considering the peer data. Based on the information provided,
the Board noted that the contractual advisory fee rate payable by the Fund, based on average net assets, was above the median contractual
advisory fee of the peer funds in the Expense Group. With respect to fees charged to other clients, the Board considered differences
between the Fund and other clients that limited their comparability. In considering the advisory fee rate overall, the Board also
considered the Advisor’s statement that it seeks to meet investor needs through innovative and value-added investment solutions
and the Advisor’s demonstrated long-term commitment to the Fund and the other funds in the First Trust Fund Complex.
The
Board considered performance information for the Fund. The Board noted the process it has established for monitoring the Fund’s
performance and portfolio risk on an ongoing basis, which includes quarterly performance reporting from the Advisor and the Sub-Advisor
for the Fund. The Board determined that this process continues to be effective for reviewing the Fund’s performance.
The Board received and reviewed information comparing the Fund’s performance for periods ended December 31, 2022 to the performance
of the funds in the Performance Universe and to that of a benchmark index. In reviewing the Fund’s performance as compared
to the performance of the Performance Universe, the Board took into account the limitations described above with respect to creating a
relevant peer group for the Fund. Based on the information provided on net asset value performance, the Board noted that the Fund
underperformed the Performance Universe median and the benchmark index for the one-, three-, five- and ten-year periods ended December
31, 2022. In addition, the Board considered information provided by the Advisor on the impact of leverage on the Fund’s returns.
The Board also received information on the Fund’s annual distribution rate as of December 31, 2022 and the Fund’s average
trading discount for various periods and comparable information for a peer group.
On
the basis of all the information provided on the fees, expenses and performance of the Fund and the ongoing oversight by the Board, the
Board concluded that the advisory and sub-advisory fees continue to be reasonable and appropriate in light of the nature, extent and quality
of the services provided by the Advisor and the Sub-Advisor to the Fund under the Agreements.
The
Board considered information and discussed with the Advisor whether there were any economies of scale in connection with providing advisory
services to the Fund at current asset levels and whether the Fund may benefit from any economies of scale. The Board noted the Advisor’s
statement that it believes that its expenses relating to providing advisory services to the Fund will increase during the next twelve
months as the Advisor continues to build infrastructure and add new staff. The Board concluded that due to the Fund’s closed-end
structure, the potential for realization of economies of scale as Fund assets grow was not a material factor to be considered. The
Board considered the revenues and allocated costs (including the allocation methodology) of the Advisor in serving as investment advisor
to the Fund for the twelve months ended December 31, 2022 and the estimated profitability level for the Fund calculated by the Advisor
based on such data, as well as complex-wide and product-line profitability data, for the same period. The Board noted the inherent
limitations in the profitability analysis and concluded that, based on the information provided, the Advisor’s profitability level
for the Fund was not unreasonable. In addition, the Board considered indirect benefits described by the Advisor that may be realized
from its relationship with the Fund, including the Advisor’s compensation for fund reporting services pursuant to a separate Fund
Reporting Services Agreement. The Board concluded that the character and amount of potential indirect benefits to the Advisor were
not unreasonable.
The
Board noted the Sub-Advisor’s expenses in providing investment services to the Fund and considered the Sub-Advisor’s statement
that it expects that existing expenses incurred by the Sub-Advisor relating to providing services to the Fund would remain approximately
the same over the next twelve months. The Board noted that the Advisor pays the Sub-Advisor from its advisory fee and its understanding
that the Fund’s sub-advisory fee rate was the product of an arm’s length negotiation. The Board did not review the profitability
of the Sub-Advisor with respect to the Fund. The Board concluded that the profitability analysis for the Advisor was more relevant.
The Board considered indirect benefits that may be realized by the Sub-Advisor from its relationship with the Fund, noting that the Sub-Advisor
did not identify any material indirect benefits. The Board concluded that the character and amount of potential indirect benefits
to the Sub-Advisor were not unreasonable.
Based
on all of the information considered and the conclusions reached, the Board, including the Independent Trustees, unanimously determined
that the terms of the Agreements continue to be fair and reasonable and that the continuation of the Agreements is in the best interests
of the Fund. No single factor was determinative in the Board’s analysis.
Investment
Objectives, Policies, Risks and Effects of Leverage
First
Trust High Income Long/Short Fund (FSD)
October
31, 2023 (Unaudited)
Changes
Occurring During the Prior Fiscal Year
The
following information is a summary of certain changes during the most recent fiscal year ended October 31, 2023. This information may
not reflect all of the changes that have occurred since you purchased shares of the Fund.
During
the Fund’s most recent fiscal year, there were no material changes to the Fund’s investment objectives or policies that have
not been approved by shareholders or in the principal risk factors associated with an investment in the Fund.
Investment
Objectives
The
Fund’s primary investment objective is to provide current income. The Fund’s secondary objective is capital appreciation.
Principal
Investment Policies
In
pursuit of its investment objectives, under normal market conditions:
| •
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The
Fund invests primarily in a diversified portfolio of U.S. and foreign (including emerging markets) high-yield corporate fixed-income securities
of varying maturities that are rated below-investment grade at the time of purchase. Such securities include corporate bonds; debentures;
notes; commercial paper; other types of corporate debt instruments, including instruments issued by corporations with direct or indirect
government ownership; asset-backed securities; preferred shares; loan participations and assignments; payment-in-kind securities; zero-coupon
bonds; bank certificates of deposit; fixed time deposits; banker’s acceptances; and derivative instruments that provide the same
or similar economic impact as a physical investment in any of the above referenced securities. |
| •
|
The
Fund will generally limit its investment in securities rated below “B-” by Standard & Poor’s Ratings Group, a division
of the McGraw Hill Companies, Inc., or Fitch Ratings, below “B3” by Moody’s Investors Service, Inc., comparably rated
by another nationally recognized statistical rating organization or, if unrated, determined by the investment team to be of comparable
quality at the time of purchase to no more than 5% above the approximate aggregate weighting of such securities in the index which the
Fund tracks. |
| •
|
The
Fund maintains both long and short positions in securities. The Fund’s long positions, either directly or indirectly, may total
up to 130% of the Fund’s managed assets. The Fund’s short positions, either directly or through derivatives, may total up
to 30% of the Fund’s managed assets. |
| •
|
The
Fund’s use of derivatives, other than for hedging purposes, will not exceed 30% of the Fund’s managed assets. The Fund’s
principal investments in derivative instruments may include investments in credit default swaps, structured notes, special purpose vehicles,
futures transactions, options and options on futures as well as certain currency and interest rate instruments such as foreign currency
forward contracts, currency exchange transactions on a spot (i.e., cash) basis, put and call options on foreign currencies and interest
rate swaps. |
| •
|
The
Fund’s investments may be denominated in U.S. dollars or in foreign currencies. In order to minimize the impact of currency fluctuations,
the Sub-Advisor may at times hedge certain or all of the Fund’s investments denominated in foreign currencies into U.S. dollars.
|
| •
|
The
Fund may also invest up to 5% of its managed assets in common stock, including those of foreign issuers; invest up to 20% of its managed
assets in securities that, at the time of investment, are illiquid; invest without limit in securities that are unregistered or are held
by control persons of the issuer; and invest without limit in securities that are subject to contractual restrictions on their resale.
|
| •
|
To
the extent the Fund enters into derivatives transactions, it will do so pursuant to Rule 18f-4 under the 1940 Act. Rule 18f-4 requires
the Fund to implement certain policies and procedures designed to manage its derivatives risks, dependent upon the Fund’s level
of exposure to derivative instruments. |
Fundamental
Investment Policies
The
Fund, as a fundamental policy, may not:
1.
With respect to 75% of its total assets, purchase any securities if, as a result (i) more than 5% of the Fund’s total assets would
then be invested in securities of any single issuer, or (ii) the Fund would hold more than 10% of the outstanding voting securities of
any single issuer; provided, that Government securities (as defined in the 1940 Act) securities issued by other investment companies and
cash items (including receivables) shall not be counted for purposes of this limitation.
2.
Purchase or sell real estate or commodities except as permitted by (i) the 1940 Act and the rules and regulations thereunder, or other
successor law governing the regulation of registered investment companies, or interpretations or modifications thereof by the SEC, SEC
staff or other authority of competent jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority
of competent jurisdiction.
Investment
Objectives, Policies, Risks and Effects of Leverage (Continued)
First
Trust High Income Long/Short Fund (FSD)
October
31, 2023 (Unaudited)
3.
Borrow money except as permitted by (i) the 1940 Act and the rules and regulations thereunder, or other successor law governing the regulation
of registered investment companies, or interpretations or modifications thereof by the SEC, SEC staff or other authority of competent
jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority of competent jurisdiction.
4.
Issue senior securities except as permitted by (i) the 1940 Act and the rules and regulations thereunder, or other successor law governing
the regulation of registered investment companies, or interpretations or modifications thereof by the SEC, SEC staff or other authority
of competent jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority of competent jurisdiction.
5.
Underwrite the securities of other issuers except (a) to the extent that the Fund may be deemed to be an underwriter within the meaning
of the Securities Act of 1933, as amended, in connection with the purchase and sale of portfolio securities; and (b) as permitted by (i)
the 1940 Act and the rules and regulations thereunder, or other successor law governing the regulation of registered investment companies,
or interpretations or modifications thereof by the SEC, SEC staff or other authority of competent jurisdiction, or (ii) exemptive or other
relief or permission from the SEC, SEC staff or other authority of competent jurisdiction.
6.
Make loans except as permitted by (i) the 1940 Act and the rules and regulations thereunder, or other successor law governing the regulation
of registered investment companies, or interpretations or modifications thereof by the SEC, SEC staff or other authority of competent
jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority of competent jurisdiction.
7.
Purchase the securities of any issuer if, as a result of such purchase, the Fund’s investments would be concentrated in any particular
industry except as permitted by (i) the 1940 Act and the rules and regulations thereunder, or other successor law governing the regulation
of registered investment companies, or interpretations or modifications thereof by the SEC, SEC staff or other authority of competent
jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority of competent jurisdiction.
Except
as noted above, the foregoing fundamental investment policies, together with the investment objectives of the Fund, cannot be changed
without approval by holders of a majority of the outstanding voting securities of the Fund, as defined in the 1940 Act, which includes
common shares of beneficial interest and preferred shares of beneficial interest (“Preferred Shares”), if any, voting together
as a single class, and of the holders of the outstanding Preferred Shares voting as a single class. Under the 1940 Act, a “majority
of the outstanding voting securities” means the vote of: (i) 67% or more of the Fund’s shares present at a meeting, if the
holders of more than 50% of the Fund’s shares are present or represented by proxy, or (ii) more than 50% of the Fund’s shares,
whichever is less.
The
foregoing restrictions and limitations will apply only at the time of purchase of securities, and the percentage limitations will not
be considered violated unless an excess or deficiency occurs or exists immediately after and as a result of an acquisition of securities,
unless otherwise indicated.
Principal
Risks
The
Fund is a closed-end management investment company designed primarily as a long-term investment and not as a trading vehicle. The Fund
is not intended to be a complete investment program and, due to the uncertainty inherent in all investments, there can be no assurance
that the Fund will achieve its investment objectives. The following discussion summarizes the principal risks associated with investing
in the Fund, which includes the risk that you could lose some or all of your investment in the Fund. The Fund is subject to the informational
requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940 and, in accordance therewith, files reports,
proxy statements and other information that is available for review. The order of the below risk factors does not indicate the significance
of any particular risk factor.
Credit
Agency Risk. Credit ratings are determined by credit rating agencies and are only the opinions of such
entities. Ratings assigned by a rating agency are not absolute standards of credit quality and do not evaluate market risk or the liquidity
of securities. Any shortcomings or inefficiencies in credit rating agencies’ processes for determining credit ratings may adversely
affect the credit ratings of securities held by the Fund or such credit rating agency’s ability to evaluate creditworthiness and,
as a result, may adversely affect those securities’ perceived or actual credit risk.
Credit
and Below-Investment Grade Securities Risk. Credit risk is the risk that the issuer or other obligated
party of a debt security in the Fund’s portfolio will fail to pay dividends and/or interest or repay principal when due. Below-investment
grade instruments including instruments that are not rated but judged to be of comparable quality, are commonly referred to as high-yield
securities or “junk” bonds and are considered speculative with respect to the issuer’s capacity to pay dividends or
interest and repay principal and are susceptible to default or decline in market value due to adverse economic and business developments.
High-yield securities are
Investment
Objectives, Policies, Risks and Effects of Leverage (Continued)
First
Trust High Income Long/Short Fund (FSD)
October
31, 2023 (Unaudited)
often
unsecured and subordinated to other creditors of the issuer. The market values for high-yield securities tend to be very volatile, and
these securities are generally less liquid than investment grade securities. For these reasons, an investment in the Fund is subject to
the following specific risks: (i) increased price sensitivity to changing interest rates and to a deteriorating economic environment;
(ii) greater risk of loss due to default or declining credit quality; (iii) adverse company specific events more likely to render the
issuer unable to make dividend, interest and/or principal payments; (iv) negative perception of the high-yield market which may depress
the price and liquidity of high-yield securities; (v) volatility; and (vi) liquidity.
Currency
Risk. The value of securities denominated or quoted in foreign currencies may be adversely affected
by fluctuations in the relative currency exchange rates and by exchange control regulations. The Fund’s investment performance may
be negatively affected by a devaluation of a currency in which the Fund’s investments are denominated or quoted. Further, the Fund’s
investment performance may be significantly affected, either positively or negatively, by currency exchange rates because the U.S. dollar
value of securities denominated or quoted in another currency will increase or decrease in response to changes in the value of such currency
in relation to the U.S. dollar.
Current
Market Conditions Risk. Current market conditions risk is the risk that a particular investment, or
shares of the Fund in general, may fall in value due to current market conditions. As a means to fight inflation, which remains at elevated
levels, the Federal Reserve and certain foreign central banks have raised interest rates and expect to continue to do so, and the Federal
Reserve has announced that it intends to reverse previously implemented quantitative easing. U.S. regulators have proposed several changes
to market and issuer regulations which would directly impact the Fund, and any regulatory changes could adversely impact the Fund’s
ability to achieve its investment strategies or make certain investments. Recent and potential future bank failures could result in disruption
to the broader banking industry or markets generally and reduce confidence in financial institutions and the economy as a whole, which
may also heighten market volatility and reduce liquidity. The ongoing adversarial political climate in the United States, as well as political
and diplomatic events both domestic and abroad, have and may continue to have an adverse impact the U.S. regulatory landscape, markets
and investor behavior, which could have a negative impact on the Fund’s investments and operations. Other unexpected political,
regulatory and diplomatic events within the U.S. and abroad may affect investor and consumer confidence and may adversely impact financial
markets and the broader economy. For example, in February 2022, Russia invaded Ukraine which has caused and could continue to cause significant
market disruptions and volatility within the markets in Russia, Europe, and the United States. The hostilities and sanctions resulting
from those hostilities have and could continue to have a significant impact on certain Fund investments as well as Fund performance and
liquidity. The economies of the United States and its trading partners, as well as the financial markets generally, may be adversely impacted
by trade disputes and other matters. For example, the United States has imposed trade barriers and restrictions on China. In addition,
the Chinese government is engaged in a longstanding dispute with Taiwan, continually threatening an invasion. If the political climate
between the United States and China does not improve or continues to deteriorate, if China were to attempt invading Taiwan, or if other
geopolitical conflicts develop or worsen, economies, markets and individual securities may be adversely affected, and the value of the
Fund’s assets may go down. The COVID-19 global pandemic, or any future public health crisis, and the ensuing policies enacted by
governments and central banks have caused and may continue to cause significant volatility and uncertainty in global financial markets,
negatively impacting global growth prospects. While vaccines have been developed, there is no guarantee that vaccines will be effective
against emerging future variants of the disease. As this global pandemic illustrated, such events may affect certain geographic regions,
countries, sectors and industries more significantly than others. Advancements in technology may also adversely impact markets and the
overall performance of the Fund. For instance, the economy may be significantly impacted by the advanced development and increased regulation
of artificial intelligence. These events, and any other future events, may adversely affect the prices and liquidity of the Fund’s
portfolio investments and could result in disruptions in the trading markets.
Cyber
Security Risk. The Fund is susceptible to potential operational risks through breaches in cyber security.
A breach in cyber security refers to both intentional and unintentional events that may cause the Fund to lose proprietary information,
suffer data corruption or lose operational capacity. Such events could cause the Fund to incur regulatory penalties, reputational damage,
additional compliance costs associated with corrective measures and/or financial loss. Cyber security breaches may involve unauthorized
access to the Fund’s digital information systems through “hacking” or malicious software coding, but may also result
from outside attacks such as denial-of-service attacks through efforts to make network services unavailable to intended users. In addition,
cyber security breaches of the Fund’s third-party service providers, such as its administrator, transfer agent, custodian, or Sub-Advisor,
as applicable, or issuers in which the Fund invests, can also subject the Fund to many of the same risks associated with direct cyber
security breaches. The Fund has established risk management systems designed to reduce the risks associated with cyber security. However,
there is no guarantee that such efforts will succeed, especially because the Fund does not directly control the cyber security systems
of issuers or third party service providers. Substantial costs may be incurred by the Fund in order to resolve or prevent cyber incidents
in the future.
Distressed
Securities Risk. Distressed securities frequently do not produce income while they are outstanding.
The Fund may be required to incur certain extraordinary expenses in order to protect and recover its investment. The Fund also will be
subject to
Investment
Objectives, Policies, Risks and Effects of Leverage (Continued)
First
Trust High Income Long/Short Fund (FSD)
October
31, 2023 (Unaudited)
significant
uncertainty as to when and in what manner and for what value the obligations evidenced by the distressed securities will eventually be
satisfied. Distressed securities might be repaid only after lengthy workout, bankruptcy or similar proceedings, during which the issuer
may not make any interest or other payments. Because there typically is substantial uncertainty regarding the outcome of such proceedings,
there is a high risk of loss, including loss of the entire investment.
Fixed-Income
Securities Risk. An investment in fixed-income securities is subject to certain risks, including:
| •
|
Issuer
Risk. The value of fixed-income securities may decline for a number of reasons which directly relate
to the issuer, such as management performance, leverage and reduced demand for the issuer’s goods and services. In addition, an
issuer of fixed-income securities may default on its obligation to pay interest and repay principal. |
| •
|
Prepayment
Risk. Prepayment risk is the risk that the issuer of a debt security will repay principal prior to the
scheduled maturity date. During periods of declining interest rates, the issuer of a security may exercise its option to prepay principal
earlier than scheduled, forcing the Fund to reinvest the proceeds from such prepayment in lower yielding securities, which may result
in a decline in the Fund’s income and distributions to common shareholders. |
| •
|
Reinvestment
Risk. Reinvestment risk is the risk that income from the Fund’s portfolio will decline if the Fund
invests the proceeds from matured, traded or called bonds at market interest rates that are below the Fund portfolio’s current earnings
rate. |
Forward
Foreign Currency Exchange Contracts Risk. Forward foreign currency exchange contracts involve certain
risks, including the risk of failure of the counterparty to perform its obligations under the contract and the risk that the use of forward
contracts may not serve as a complete hedge because of an imperfect correlation between movements in the prices of the contracts and the
prices of the currencies hedged. While forward foreign currency exchange contracts may limit the risk of loss due to a decline in the
value of the hedged currencies, they also may limit any potential gain that might result should the value of the currencies increase.
In addition, because forward currency exchange contracts are privately negotiated transactions, there can be no assurance that the Fund
will have flexibility to roll-over a forward currency exchange contract upon its expiration if it desires to do so. Hedging against a
decline in the value of a currency does not eliminate fluctuations in the value of a portfolio security traded in that currency or prevent
a loss if the value of the security declines. Moreover, it may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency at a price above the devaluation level it anticipates.
The cost to the Fund of engaging in currency exchange transactions varies with such factors as the currency involved, the length of the
contract period and prevailing market conditions.
Illiquid
and Restricted Securities Risk. The Fund may invest in securities that are restricted and/or illiquid.
Restricted securities are securities that cannot be offered for public resale unless registered under the applicable securities laws or
that have a contractual restriction that prohibits or limits their resale. Restricted securities may be illiquid as they generally are
not listed on an exchange and may have no active trading market. Investments in restricted securities could have the effect of increasing
the amount of the Fund’s assets invested in illiquid securities if qualified institutional buyers are unwilling to purchase these
securities. Illiquid and restricted securities may be difficult to dispose of at a fair price at the times when the Fund believes it is
desirable to do so. The market price of illiquid and restricted securities generally is more volatile than that of more liquid securities,
which may adversely affect the price that the Fund pays for or recovers upon the sale of such securities. Illiquid and restricted securities
are also more difficult to value, especially in challenging markets.
Inflation
Risk. The Fund invests in securities that are subject to inflation risk. Inflation risk is the risk
that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. As inflation
increases, the present value of the Fund’s assets and distributions may decline. This risk is more prevalent with respect
to debt securities. Inflation creates uncertainty over the future real value (after inflation) of an investment. Inflation rates may change
frequently and drastically as a result of various factors, including unexpected shifts in the domestic or global economy, and the Fund’s
investments may not keep pace with inflation, which may result in losses to Fund investors.
Interest
Rate Risk. Interest rate risk is the risk that securities will decline in value because of changes in
market interest rates. For fixed rate securities, when market interest rates rise, the market value of such securities generally
will fall. Investments in fixed rate securities with long-term maturities may experience significant price declines if long-term
interest rates increase. During periods of rising interest rates, the average life of certain types of securities may be extended
because of slower than expected prepayments. This may lock in a below-market yield, increase the security’s duration and further
reduce the value of the security. Fixed rate securities with longer durations tend to be more sensitive to changes in interest rates,
usually making them more volatile than securities with shorter durations. The duration of a security will be expected to change
over time with changes in market factors and time to maturity.
The
interest rates payable on floating rate securities are not fixed and may fluctuate based upon changes in market rates. As short-term
interest rates decline, interest payable on floating rate securities typically decreases. Alternatively, during periods of rising
interest rates, interest payable on floating rate securities typically increases. Changes in interest rates on floating rate securities
may lag behind
Investment
Objectives, Policies, Risks and Effects of Leverage (Continued)
First
Trust High Income Long/Short Fund (FSD)
October
31, 2023 (Unaudited)
changes
in market rates or may have limits on the maximum increases in interest rates. The value of floating rate securities may decline
if their interest rates do not rise as much, or as quickly, as interest rates in general.
Many
financial instruments use or may use a floating rate based upon the LIBOR. The United Kingdom’s Financial Conduct Authority (the
“FCA”), which regulates LIBOR, has ceased making LIBOR available as a reference rate over a phase-out period that began December
31, 2022. There is no assurance that any alternative reference rate, including the Secured Overnight Financing Rate (“SOFR”)
will be similar to or produce the same value or economic equivalence as LIBOR or that instruments using an alternative rate will have
the same volume or liquidity. The unavailability or replacement of LIBOR may affect the value, liquidity or return on certain Fund investments
and may result in costs incurred in connection with closing out positions and entering into new trades. Any potential effects of the transition
away from LIBOR on the Fund or on certain instruments in which the Fund invests can be difficult to ascertain, and they may vary depending
on a variety of factors, and they could result in losses to the Fund.
Leverage
Risk. The use of leverage by the Fund can magnify the effect of any losses. If the income and gains
from the securities and investments purchased with leverage proceeds do not cover the cost of leverage, the return to the common shares
will be less than if leverage had not been used. Leverage involves risks and special considerations for common shareholders including:
(i) the likelihood of greater volatility of net asset value and market price of the common shares than a comparable portfolio without
leverage; (ii) the risk that fluctuations in interest rates on borrowings will reduce the return to the common shareholders or will result
in fluctuations in the dividends paid on the common shares; (iii) in a declining market, the use of leverage is likely to cause a greater
decline in the net asset value of the common shares than if the Fund were not leveraged, which may result in a greater decline in the
market price of the common shares; and (iv) when the Fund uses certain types of leverage, the investment advisory fee payable to the Advisor
and by the Advisor to the Sub-Advisor will be higher than if the Fund did not use leverage.
Management
Risk and Reliance on Key Personnel. The implementation of the Fund’s investment strategy depends
upon the continued contributions of certain key employees of the Advisor and Sub-Advisor, some of whom have unique talents and experience
and would be difficult to replace. The loss or interruption of the services of a key member of the portfolio management team could have
a negative impact on the Fund.
Market
Discount from Net Asset Value. Shares of closed-end investment companies such as the Fund frequently
trade at a discount from their net asset value. The Fund cannot predict whether its common shares will trade at, below or above net asset
value.
Market
Risk. Investments held by the Fund, as well as shares of the Fund itself, are subject to market
fluctuations caused by real or perceived economic conditions, political events, regulatory factors or market developments, changes in
interest rates and perceived trends in securities prices. Shares of the Fund could decline in value or underperform other investments
as a result of the risk of loss associated with these market fluctuations. In addition, local, regional or global events such as war,
acts of terrorism, market manipulation, government defaults, government shutdowns, regulatory actions, political changes, diplomatic developments,
the imposition of sanctions and other similar measures, spread of infectious diseases or other public health issues, recessions, or other
events could have a significant negative impact on the Fund and its investments. Any of such circumstances could have a materially negative
impact on the value of the Fund’s shares, the liquidity of an investment, and result in increased market volatility. During any
such events, the Fund’s shares may trade at increased premiums or discounts to their net asset value, the bid/ask spread on the
Fund’s shares may widen and the returns on investment may fluctuate.
Non-U.S.
Securities Risk. Investing in securities of non-U.S. issuers, which are generally denominated in non-U.S.
currencies, may involve certain risks not typically associated with investing in securities of U.S. issuers. These risks include: (i)
there may be less publicly available information about non-U.S. issuers or markets due to less rigorous disclosure or accounting standards
or regulatory practices; (ii) non-U.S. markets may be smaller, less liquid and more volatile than the U.S. market; (iii) potential adverse
effects of fluctuations in currency exchange rates or controls on the value of the Fund’s investments; (iv) the economies of non-U.S.
countries may grow at slower rates than expected or may experience a downturn or recession; (v) the impact of economic, political, social
or diplomatic events; (vi) certain non-U.S. countries may impose restrictions on the ability of non-U.S. issuers to make payments of principal
and interest to investors located in the United States due to blockage of non-U.S. currency exchanges or otherwise; and (vii) withholding
and other non-U.S. taxes may decrease the Fund’s return. Foreign companies are generally not subject to the same accounting, auditing
and financial reporting standards as are U.S. companies. In addition, there may be difficulty in obtaining or enforcing a court judgment
abroad, including in the event the issuer of a non-U.S. security defaults or enters bankruptcy, administration or other proceedings. These
risks may be more pronounced to the extent that the Fund invests a significant amount of its assets in companies located in one region
or in emerging markets.
Operational
Risk. The Fund is subject to risks arising from various operational factors, including, but not limited
to, human error, processing and communication errors, errors of the Fund’s service providers, counterparties or other third-parties,
failed or inadequate processes and technology or systems failures. The Fund relies on third-parties for a range of services, including
custody. Any delay or failure relating to engaging or maintaining such service providers may affect the Fund’s ability to meet its
investment objective.
Investment
Objectives, Policies, Risks and Effects of Leverage (Continued)
First
Trust High Income Long/Short Fund (FSD)
October
31, 2023 (Unaudited)
Although
the Fund and the Advisor seek to reduce these operational risks through controls and procedures, there is no way to completely protect
against such risks.
Potential
Conflicts of Interest Risk. First Trust, MacKay and the portfolio managers have interests which may
conflict with the interests of the Fund. In particular, First Trust and MacKay currently manage and may in the future manage and/or advise
other investment funds or accounts with the same or substantially similar investment objective and strategies as the Fund. In addition,
while the Fund is using certain types of leverage, the amount of the fees paid to First Trust (and by First Trust to MacKay) for investment
advisory and management services are higher than if the Fund did not use leverage because the fees paid are calculated based on managed
assets. Therefore, First Trust and MacKay could have a financial incentive to leverage the Fund.
Preferred
Securities Risk. Preferred securities combine some of the characteristics of both common stocks and
bonds. Preferred securities are typically subordinated to bonds and other debt securities in a company’s capital structure in terms
of priority to corporate income, subjecting them to greater credit risk than those debt securities. Generally, holders of preferred securities
have no voting rights with respect to the issuing company unless preferred dividends have been in arrears for a specified number of periods,
at which time the preferred security holders may obtain limited rights. In certain circumstances, an issuer of preferred securities may
defer payment on the securities and, in some cases, redeem the securities prior to a specified date. Preferred securities may also be
substantially less liquid than other securities, including common stock.
Reorganization
Risk. The Board of Trustees of the Fund has approved the reorganization of the Fund into ACP.
If approved by shareholders, the transaction is anticipated to be consummated during 2024, subject to the satisfaction of applicable regulatory
requirements and approvals and customary closing conditions. There is no assurance when or whether such approvals, or any other
approvals required for the transaction, will be obtained. Under the terms of the proposed transaction, shareholders of the Fund
would receive shares of ACP, which will have its own investment strategies, and thereafter cease to be a shareholder of the Fund.
More information on the proposed transaction, including the risks and considerations associated with the transaction as well as the risks
of investing in ACP, will be contained in registration statement/proxy materials that will shortly be finalized. Shareholders should
refer to such registration statement/proxy materials when they become available.
Short
Selling Risk. The Fund engages in short selling. Short sales are transactions in which the Fund
sells a security that it does not own but can borrow in the market and allows the Fund to profit from a decline in the market price (to
the extent such decline exceeds the transaction costs and the costs of borrowing the securities). If a security sold short increases in
price, the Fund may have to cover its short position at a higher price than the short sale price, resulting in a loss. Because losses
on short sales arise from increases in the value of the security sold short, such losses are theoretically unlimited. It is possible that
the Fund’s long securities positions will decline in value at the same time that the value of its short securities positions increase,
thereby increasing potential losses to the Fund. In addition, the Fund’s short selling strategies will limit its ability to fully
benefit from increases in the fixed-income markets.
The
Fund may not be able to borrow a security that it needs to deliver or it may not be able to close out a short position at an acceptable
price and may have to sell related long positions before it had intended to do so. Thus, the Fund may not be able to successfully implement
its short sale strategy due to limited availability of desired securities or for other reasons. Also, there is the risk that the counterparty
to a short sale may fail to honor its contractual terms, causing a loss to the Fund. Further, when the Fund is selling a security short,
it must maintain a segregated account of cash or high-grade securities equal to the margin requirement. As a result, the Fund may
maintain high levels of cash or other liquid assets, which may limit the Fund’s ability to pursue other opportunities.
U.S.
Government Securities Risk. U.S. government securities are subject to interest rate risk but generally
do not involve the credit risks associated with investments in other types of debt securities. As a result, the yields available from
U.S. government securities are generally lower than the yields available from other debt securities. U.S. government securities are guaranteed
only as to the timely payment of interest and the payment of principal when held to maturity.
Valuation
Risk. Unlike publicly traded common stock which trades on national exchanges, there is no central place
or exchange for fixed-income securities trading. Fixed-income securities generally trade on an “over-the-counter” market which
may be anywhere in the world where the buyer and seller can settle on a price. Due to the lack of centralized information and trading,
the valuation of fixed-income securities may carry more risk than that of common stock. Uncertainties in the conditions of the financial
market, unreliable reference data, lack of transparency and inconsistency of valuation models and processes may lead to inaccurate asset
pricing.
| NOT
FDIC INSURED |
NOT
BANK GUARANTEED |
MAY
LOSE VALUE |
Investment
Objectives, Policies, Risks and Effects of Leverage (Continued)
First
Trust High Income Long/Short Fund (FSD)
October
31, 2023 (Unaudited)
Effects
of Leverage
The
aggregate principal amount of borrowings under the brokerage account with Pershing, LLC (the “Pershing Account”) represented
approximately 26.54% of Managed Assets as of October 31, 2023. Asset coverage with respect to the borrowings under the Pershing Account
was 376.83% as of October 31, 2023. As of October 31, 2023, the approximate annual interest and fee rate was 6.07%.
Assuming
that the Fund’s leverage costs remain as described above (at an assumed average annual cost of 6.07%), the annual return that the
Fund’s portfolio must experience (net of expenses) in order to cover its leverage costs would be 1.61%.
The
following table is furnished in response to requirements of the SEC. It is designed to illustrate the effect of leverage on Common Share
total return, assuming investment portfolio total returns (comprised of income and changes in the value of securities held in the Fund’s
portfolio) of (10%), (5%), 0%, 5% and 10%. These assumed investment portfolio returns are hypothetical figures and are not necessarily
indicative of the investment portfolio returns experienced or expected to be experienced by the Fund.
The
table further assumes leverage representing 26.54% of the Fund’s Managed Assets, net of expenses, and an annual leverage interest
and fee rate of 6.07%.
|
Assumed Portfolio Total Return (Net of Expenses)
|
-10%
|
-5%
|
0%
|
5%
|
10%
|
|
Common Share Total Return
|
-15.81%
|
-9.00%
|
-2.19%
|
4.61%
|
11.42%
|
Common
Share total return is composed of two elements: the Common Share dividends paid by the Fund (the amount of which is largely determined
by the net investment income of the Fund after paying dividends or interest on its leverage) and gains or losses on the value of the securities
the Fund owns. As required by SEC rules, the table above assumes that the Fund is more likely to suffer capital losses than to enjoy capital
appreciation. For example, to assume a total return of 0% the Fund must assume that the distributions it receives on its investments are
entirely offset by losses in the value of those securities.
Board
of Trustees and Officers
First
Trust High Income Long/Short Fund (FSD)
October
31, 2023 (Unaudited)
The
following tables identify the Trustees and Officers of the Fund. Unless otherwise indicated, the address of all persons is 120 East Liberty
Drive, Suite 400, Wheaton, IL 60187.
| Name,
Year of Birth and Position with the Fund |
Term
of Office and Year First Elected or Appointed(1) |
Principal
Occupations
During Past 5 Years |
Number
of Portfolios in the First Trust Fund Complex Overseen by Trustee |
Other
Trusteeships or Directorships Held by Trustee During Past 5 Years |
| INDEPENDENT
TRUSTEES |
Richard
E. Erickson, Trustee
(1951) |
• Three Year Term
• Since Fund Inception |
Retired;
Physician, Edward-Elmhurst Medical Group (2021 to September 2023); Physician and Officer, Wheaton Orthopedics (1990 to 2021) |
254
|
None
|
Thomas
R. Kadlec, Trustee
(1957) |
• Three Year Term
• Since Fund Inception |
Retired;
President, ADM Investor Services, Inc. (Futures Commission Merchant) (2010 to July 2022) |
254
|
Director,
National Futures Association and ADMIS Singapore Ltd.; Formerly, Director of ADM Investor Services, Inc., ADM Investor Services International,
ADMIS Hong Kong Ltd., and Futures Industry Association |
Denise
M. Keefe, Trustee
(1964) |
• Three Year Term
• Since 2021 |
Executive
Vice President, Advocate Aurora Health and President, Advocate Aurora Continuing Health Division (Integrated Healthcare System) |
254
|
Director
and Board Chair of Advocate Home Health Services, Advocate Home Care Products and Advocate Hospice; Director and Board Chair of Aurora
At Home (since 2018); Director of Advocate Physician Partners Accountable Care Organization; Director of RML Long Term Acute Care Hospitals;
Director of Senior Helpers (since 2021); and Director of MobileHelp (since 2022) |
Robert
F. Keith, Trustee
(1956) |
• Three Year Term
• Since Fund Inception |
President,
Hibs Enterprises (Financial and Management Consulting) |
254
|
Formerly,
Director of Trust Company of Illinois |
Niel
B. Nielson, Trustee
(1954) |
• Three Year Term
• Since Fund Inception |
Senior
Advisor (2018 to Present), Managing Director and Chief Operating Officer (2015 to 2018), Pelita Harapan Educational Foundation (Educational
Products and Services) |
254
|
None
|
| (1)
|
Currently,
Denise M. Keefe and Robert F. Keith, as Class I Trustees, are serving as trustees until the Fund’s 2026 annual meeting of shareholders.
Richard E. Erickson and Thomas R. Kadlec, as Class II Trustees, are serving as trustees until the Fund’s 2024 annual meeting of
shareholders. James A. Bowen, Niel B. Nielson, and Bronwyn Wright, as Class III Trustees, are serving as trustees until the Fund’s
2025 annual meeting of shareholders. |
Board
of Trustees and Officers (Continued)
First
Trust High Income Long/Short Fund (FSD)
October
31, 2023 (Unaudited)
| Name,
Year of Birth and Position with the Fund |
Term
of Office and Year First Elected or Appointed(1) |
Principal
Occupations
During Past 5 Years |
Number
of Portfolios in the First Trust Fund Complex Overseen by Trustee |
Other
Trusteeships or Directorships Held by Trustee During Past 5 Years |
Bronwyn
Wright, Trustee
(1971) |
• Three Year Term
• Since 2023 |
Independent
Director to a number of Irish collective investment funds (2009 to Present); Various roles at international affiliates of Citibank (1994
to 2009), including Managing Director, Citibank Europe plc and Head of Securities and Fund Services, Citi Ireland (2007 to 2009) |
229
|
None
|
| INTERESTED
TRUSTEE |
James
A. Bowen(2), Trustee and
Chairman of the Board
(1955)
|
• Three Year Term
• Since Fund Inception |
Chief
Executive Officer, First Trust Advisors L.P. and First Trust Portfolios L.P.; Chairman of the Board of Directors, BondWave LLC (Software
Development Company) and Stonebridge Advisors LLC (Investment Advisor) |
254
|
None
|
| Name
and Year of Birth |
Position
and Offices with Fund |
Term
of Office and Length of Service |
Principal
Occupations
During Past 5 Years |
| OFFICERS(3)
|
James
M. Dykas
(1966) |
President
and Chief Executive Officer |
• Indefinite
Term
• Since 2016 |
Managing
Director and Chief Financial Officer, First Trust Advisors L.P. and First Trust Portfolios L.P.; Chief Financial Officer, BondWave LLC
(Software Development Company) and Stonebridge Advisors LLC (Investment Advisor) |
Derek
D. Maltbie
(1972) |
Treasurer,
Chief Financial Officer and Chief Accounting Officer |
• Indefinite
Term
• Since 2023 |
Senior
Vice President, First Trust Advisors L.P. and First Trust Portfolios L.P., July 2021 to Present. Previously, Vice President, First Trust
Advisors L.P. and First Trust Portfolios L.P., 2014 to 2021. |
W.
Scott Jardine
(1960) |
Secretary
and Chief Legal Officer |
• Indefinite
Term
• Since Fund Inception |
General
Counsel, First Trust Advisors L.P. and First Trust Portfolios L.P.; Secretary and General Counsel, BondWave LLC; Secretary, Stonebridge
Advisors LLC |
Daniel
J. Lindquist
(1970) |
Vice
President |
• Indefinite
Term
• Since Fund Inception |
Managing
Director, First Trust Advisors L.P. and First Trust Portfolios L.P. |
Kristi
A. Maher
(1966) |
Chief
Compliance Officer and Assistant Secretary |
• Indefinite Term
• Chief Compliance Officer Since January 2011
• Assistant Secretary Since Fund Inception |
Deputy
General Counsel, First Trust Advisors L.P. and First Trust Portfolios L.P. |
| (2)
|
Mr.
Bowen is deemed an “interested person” of the Fund due to his position as CEO of First Trust Advisors L.P., investment advisor
of the Fund. |
| (3)
|
The
term “officer” means the president, vice president, secretary, treasurer, controller or any other officer who performs a policy
making function. |
Privacy
Policy
First
Trust High Income Long/Short Fund (FSD)
October
31, 2023 (Unaudited)
Privacy
Policy
First
Trust values our relationship with you and considers your privacy an important priority in maintaining that relationship. We are committed
to protecting the security and confidentiality of your personal information.
Sources
of Information
We
collect nonpublic personal information about you from the following sources:
| •
|
Information
we receive from you and your broker-dealer, investment professional or financial representative through interviews, applications, agreements
or other forms; |
| •
|
Information
about your transactions with us, our affiliates or others; |
| •
|
Information
we receive from your inquiries by mail, e-mail or telephone; and |
| •
|
Information
we collect on our website through the use of “cookies.” For example, we may identify the pages on our website that your browser
requests or visits. |
Information
Collected
The
type of data we collect may include your name, address, social security number, age, financial status, assets, income, tax information,
retirement and estate plan information, transaction history, account balance, payment history, investment objectives, marital status,
family relationships and other personal information.
Disclosure
of Information
We
do not disclose any nonpublic personal information about our customers or former customers to anyone, except as permitted by law. In addition
to using this information to verify your identity (as required under law), the permitted uses may also include the disclosure of such
information to unaffiliated companies for the following reasons:
| •
|
In
order to provide you with products and services and to effect transactions that you request or authorize, we may disclose your personal
information as described above to unaffiliated financial service providers and other companies that perform administrative or other services
on our behalf, such as transfer agents, custodians and trustees, or that assist us in the distribution of investor materials such as trustees,
banks, financial representatives, proxy services, solicitors and printers. |
| •
|
We
may release information we have about you if you direct us to do so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud). |
In
addition, in order to alert you to our other financial products and services, we may share your personal information within First Trust.
Use
of Website Analytics
We
currently use third party analytics tools, Google Analytics and AddThis, to gather information for purposes of improving First Trust’s
website and marketing our products and services to you. These tools employ cookies, which are small pieces of text stored in a file by
your web browser and sent to websites that you visit, to collect information, track website usage and viewing trends such as the number
of hits, pages visited, videos and PDFs viewed and the length of user sessions in order to evaluate website performance and enhance navigation
of the website. We may also collect other anonymous information, which is generally limited to technical and web navigation information
such as the IP address of your device, internet browser type and operating system for purposes of analyzing the data to make First Trust’s
website better and more useful to our users. The information collected does not include any personal identifiable information such
as your name, address, phone number or email address unless you provide that information through the website for us to contact you in
order to answer your questions or respond to your requests. To find out how to opt-out of these services click on: Google
Analytics and AddThis.
Confidentiality
and Security
With
regard to our internal security procedures, First Trust restricts access to your nonpublic personal information to those First Trust employees
who need to know that information to provide products or services to you. We maintain physical, electronic and procedural safeguards to
protect your nonpublic personal information.
Policy
Updates and Inquiries
As
required by federal law, we will notify you of our privacy policy annually. We reserve the right to modify this policy at any time, however,
if we do change it, we will tell you promptly. For questions about our policy, or for additional copies of this notice, please go to www.ftportfolios.com,
or contact us at 1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust Advisors).
March
2023
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INVESTMENT
ADVISOR
First
Trust Advisors L.P.
120
East Liberty Drive, Suite 400
Wheaton,
IL 60187
INVESTMENT
SUB-ADVISOR
MacKay
Shields LLC
1345
Avenue of the Americas
43rd
Floor
New
York, NY 10105
TRANSFER
AGENT
Computershare,
Inc.
P.O.
Box 43006
Providence,
RI 02940
ADMINISTRATOR,
FUND ACCOUNTANT,
AND CUSTODIAN
The
Bank of New York Mellon
240
Greenwich Street
New
York, NY 10286
INDEPENDENT
REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte
& Touche LLP
111
South Wacker Drive
Chicago,
IL 60606
LEGAL
COUNSEL
Chapman
and Cutler LLP
320
South Canal Street
Chicago,
IL 60606
(b) Not applicable.
Item 2. Code of Ethics.
| (a) | The registrant, as of the end of the period covered by this report, has adopted a code of ethics that
applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller,
or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. |
| (c) | There have been no amendments, during the period covered by this report, to a provision of the code of
ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller,
or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and
that relates to any element of the code of ethics description. |
| (d) | The registrant has not granted any waivers, including an implicit waiver, from a provision of the code
of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer
or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third
party, that relates to one or more of the items set forth in paragraph (b) of this item’s instructions. |
| (f) | A copy of the code of ethics that applies to the registrant’s principal executive officer, principal
financial officer, principal accounting officer or controller is filed as an exhibit pursuant to Item 13(a)(1). |
Item 3. Audit Committee Financial Expert.
As of the end of the period covered by the report,
the registrant’s board of trustees has determined that Thomas R. Kadlec, Robert F. Keith and Bronwyn Wright are qualified to serve
as audit committee financial experts serving on its audit committee and that each of them is “independent,” as defined by
Item 3 of Form N-CSR.
Item 4. Principal Accountant Fees and Services.
(a) Audit
Fees (Registrant) — The aggregate fees billed for each of the last two fiscal years for professional services rendered
by the principal accountant for the audit of the registrant's annual financial statements or services that are normally provided by the
accountant in connection with statutory and regulatory filings or engagements for those fiscal years were $54,000 for the fiscal year
ended October 31, 2022 and $54,000 for the fiscal year ended October 31, 2023.
(b) Audit-Related Fees (Registrant)
— The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant
that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph
(a) of this Item were $0 for the fiscal year ended October 31, 2022 and $0 for the fiscal year ended October 31, 2023.
Audit-Related
Fees (Investment Advisor) — The aggregate fees billed in each of the last two fiscal years for assurance and related
services by the principal accountant that are reasonably related to the performance of the audit of the registrant's financial statements
and are not reported under paragraph (a) of this Item were $0 for the fiscal year ended October 31, 2022 and $0 for the fiscal year ended
October 31, 2023.
(c) Tax Fees (Registrant)
— The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant
for tax compliance, tax advice, and tax planning were $16,250 for the fiscal year ended October 31, 2022 and $21,000 for the fiscal year
ended October 31, 2023. These fees were for consultation and/or tax return preparation.
Tax Fees (Investment
Advisor) — The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning were $0 for the fiscal year ended October 31, 2022 and $0 for the fiscal year
ended October 31, 2023.
(d) All Other Fees (Registrant)
— The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant
to the registrant, other than the services reported in paragraphs (a) through (c) of this Item were $0 for the fiscal year ended October
31, 2022 and $0 for the fiscal year ended October 31, 2023.
All Other Fees
(Investment Advisor) — The aggregate fees billed in each of the last two fiscal years for products and services provided
by the principal accountant to the registrant, other than the services reported in paragraphs (a) through (c) of this Item were $0 for
the fiscal year ended October 31, 2022 and $0 for the fiscal year ended October 31, 2023.
| (e)(1) | Disclose the audit committee’s pre-approval policies and procedures described in paragraph (c)(7)
of Rule 2-01 of Regulation S-X. |
Pursuant to its charter
and its Audit and Non-Audit Services Pre-Approval Policy, the Audit Committee (the “Committee”) is responsible for
the pre-approval of all audit services and permitted non-audit services (including the fees and terms thereof) to be performed for the
registrant by its independent auditors. The Chairman of the Committee authorized to give such pre-approvals on behalf of the Committee
up to $25,000 and report any such pre-approval to the full Committee.
The Committee is also
responsible for the pre-approval of the independent auditor’s engagements for non-audit services with the registrant’s advisor
(not including a sub-advisor whose role is primarily portfolio management and is sub-contracted or overseen by another investment advisor)
and any entity controlling, controlled by or under common control with the investment advisor that provides ongoing services to the registrant,
if the engagement relates directly to the operations and financial reporting of the registrant, subject to the de minimis exceptions
for non-audit services described in Rule 2-01 of Regulation S-X. If the independent auditor has provided non-audit services to the registrant’s
advisor (other than any sub-advisor whose role is primarily portfolio management and is sub-contracted with or overseen by another investment
advisor) and any entity controlling, controlled by or under common control with the investment advisor that provides ongoing services
to the registrant that were not pre-approved pursuant to the de minimis exception, the Committee will consider whether the provision
of such non-audit services is compatible with the auditor’s independence.
| (e)(2) | The percentage of services described in each of paragraphs (b) through (d) for the registrant and the
registrant’s investment advisor of this Item that were approved by the audit committee pursuant to the pre-approval exceptions included
in paragraph (c)(7)(i)(c) or paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X are as follows: |
| |
Registrant: |
Advisor and Distributor: |
| |
|
|
| |
(b) 0% |
(b) 0% |
| |
|
|
| |
(c) 0% |
(c) 0% |
| |
|
|
| |
(d) 0% |
(d) 0% |
| (f) | The percentage of hours expended on the principal accountant’s engagement to audit the registrant’s
financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s
full-time, permanent employees was less than fifty percent. |
| (g) | The aggregate non-audit fees billed by the registrant's accountant for services rendered to the registrant,
and rendered to the registrant's investment advisor (not including any sub-advisor whose role is primarily portfolio management and is
subcontracted with or overseen by another investment advisor), and any entity controlling, controlled by, or under common control with
the advisor that provides ongoing services to the registrant for the registrant’s fiscal year ended October 31, 2022 were $16,250
for the registrant and $0 for the registrant’s investment advisor and for the registrant’s fiscal year ended October 31, 2023
were $21,000 for the registrant and $44,000 for the registrant’s investment advisor. |
| (h) | The registrant’s audit committee of its Board of Trustees has determined that the provision of non-audit
services that were rendered to the registrant’s investment advisor (not including any sub-advisor whose role is primarily portfolio
management and is subcontracted with or overseen by another investment advisor), and any entity controlling, controlled by, or under common
control with the investment advisor that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence. |
Item 5. Audit Committee of Listed Registrants.
| (a) | The registrant has a separately designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities
Exchange Act of 1934 consisting of all the independent directors of the registrant. The audit committee of the registrant is comprised
of: Richard E. Erickson, Thomas R. Kadlec, Denise M. Keefe, Robert F. Keith, Niel B. Nielson and Bronwyn Wright. |
Item 6. Investments.
| (a) | Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report
to shareholders filed under Item 1 of this form. |
Item 7. Disclosure of Proxy Voting
Policies and Procedures for Closed-End Management Investment Companies.
A description of the policies and procedures used to vote proxies on behalf of the Fund is attached as an exhibit.
Item 8. Portfolio Managers of Closed-End Management Investment
Companies.
(a)(1) Identification of Portfolio Manager(s) or Management
Team Members and Description of Role of Portfolio Manager(s) or Management Team Members.
Information provided
as of November 15, 2023
MacKay Shields LLC (“MacKay Shields” or
the “Sub-Advisor”) was founded in 1938 and became a registered investment advisor in 1969 and serves as the sub-advisor to
the registrant.
Cameron White, Senior Managing Director, Head of
Global Credit Group
Mr. White joined MacKay Shields in 2019. Before joining
the Global Credit team, Mr. White served as a Senior Credit Analyst at Apex Credit Partners LLC. Mr. White is currently the head of the
Global Credit Group and Portfolio Manager.
Matthew Jacob, Managing Director, Global Credit
Group
Mr. Jacob joined MacKay Shields and the Global Fixed
Income Division in 2011 as a portfolio analyst and was promoted to Portfolio Manager in 2017. Mr. Jacob is currently a member of the Global
Credit Group.
Shu-Yang Tan, Managing Director, Global Credit
Group
Mr. Tan joined MacKay Shields and the Global Fixed
Income Division in 2010 as a portfolio analyst and was promoted to Portfolio Manager in 2017. Mr. Tan is currently a member of the Global
Credit Group.
On August 29, 2023, Eric Gold relinquished his responsibilities
as a portfolio manager of the Fund. On September 1, 2023, Cameron White joined the portfolio management team overseeing the Fund.
MacKay Shields utilizes a team approach in all aspects
of investment management and decision-making. No one portfolio manager is singularly responsible for any particular account. Investment
decisions are carried across all portfolios with similar guidelines. While portfolio managers conduct their own industry-specific research,
all information is continually shared with the other members of the investment team. Additionally, portfolio managers will cross-train
to gain familiarity with other industries.
| (a)(2) | Other Accounts Managed by Portfolio Managers or Management Team Member and Potential Conflicts of Interest |
Information provided
as of October 31, 2023.
| Name of Portfolio Manager or Team Member* |
Type of Accounts* |
Total # of Accounts Managed |
Total Assets |
# of Accounts Managed for which Advisory Fee is Based on Performance |
Total Assets for which Advisory Fee is Based on Performance |
| 1. Matt Jacob |
Registered Investment Companies: |
3 |
$1,421,080,270 |
0 |
$0 |
| |
Other Pooled Investment Vehicles: |
16 |
$7,032,235,280 |
1 |
$199,490,609 |
| |
Other Accounts: |
22 |
$3,044,503,127 |
0 |
$0 |
| 2. Shu-Yang Tan |
Registered Investment Companies: |
5 |
$2,189,893,126 |
0 |
$0 |
| |
Other Pooled Investment Vehicles: |
25 |
$8,791,683,947 |
1 |
$199,490,609 |
|
|
Other Accounts: |
104 |
$16,934,566,934 |
1 |
$579,926,452 |
| 3. Cameron White |
Registered Investment Companies: |
1 |
$82,548,442 |
0 |
$0 |
| |
Other Pooled Investment Vehicles: |
16 |
$7,032,235,280 |
1 |
$199,490,609 |
| |
Other Accounts: |
21 |
$3,044,503,127 |
0 |
$0
|
*The Global Credit Group utilizes a team
approach in all aspects of investment management and decision-making. No one portfolio manager is singularly responsible for any particular
account. Information provided are assets and number of accounts managed by the team.
Potential Conflicts of Interests
The Global Credit team that manages the Fund provides
portfolio management services for other MacKay Shields accounts, including: mutual funds; institutional managed accounts; private commingled
funds; and hedge funds. Managing accounts that have a performance-based fee at the same time that we manage accounts that only have an
asset-based fee is commonly referred to as "side-by-side management." Except for distinctions based on investment objectives,
investment guidelines and cash flow, all accounts are treated the same, regardless of fee structure. This creates a conflict of interest
by giving us an incentive to favor those accounts for which we receive a performance-based fee because we will receive a higher fee if
their performance exceeds the applicable benchmark.
MacKay Shields' Trade Allocation Policy provides
that: (1) no client will be favored over any other client;(2) trades should be pre-allocated, subject to certain exceptions, and allocations
should be in writing; and (3) the firm's Compliance Department conducts periodic reviews of client account performance as a function of
allocation to assure that no account or group of accounts is being preferred systematically in the allocation process. As a general practice,
when creating an order, the portfolio manager will utilize the firm's trade order management systems in selecting the participating client
accounts prior to entering an aggregated order.
When determining which accounts will participate in
a trade, the portfolio managers will consider various objective criteria which may include but are not limited to: client cash limitations,
actual and anticipated or potential account inflows and outflows, duration and/or average maturity, credit ratings and anticipated credit
ratings, account size, deal size, trade lots, processing costs, existing exposure to an issuer or industry type, other concentration limits,
and specific investment objectives, investment guidelines and anticipated guidelines changes, borrowing capacity, and other practical
limitations. If the aggregated order is filled in its entirety, it will be allocated among clients in accordance with the target allocation;
if the order is partially filled, it will be allocated pro rata based on the allocation methodology recorded in the trade order management
system unless that would be impractical. Additionally, the policy contains a procedure for limited offerings, which provides that in a
limited offering, the allocations may be pro-rata based on size of the order or account size and within a strategy pro-rata based on account
size.
We allocate securities among client accounts based
on the factors described above and usually do so before executing the trade. When it is impractical or not feasible to allocate prior
to the execution of the trade, we will allocate the trade after the trade is executed but in no event later than the end of the day, in
a fair and equitable manner among all the participating accounts, based on the above factors. In those situations, in which there is a
limited supply of a security, it is our general policy to make a pro rata allocation based on the original amounts targeted for the accounts.
However, if in our portfolio managers' judgment or as a result of factors such as investment guideline constraints (e.g., duration limits),
minimum trading lots for specific securities, account strategy, or low cash levels, the amount that would then be allocated to an account
would not be suitable or be too small to properly manage, that account may be excluded from the pro rata allocation. We cannot assure
that in every instance an investment will be allocated on a pro rata basis, and differences may occur due to the factors mentioned above.
(a)(3) Compensation Structure of Portfolio Manager(s) or Management
Team Members
Information provided
as of October 31, 2023.
MacKay Shields establishes salaries at competitive
levels, verified through industry surveys, to attract and maintain the best professional talent. Incentives are paid annually to the firm’s
employees based upon an individual’s performance and the profitability of the firm, and in some instances may be fixed and guaranteed
for a period of time. Incentive bonuses (both cash and deferred) are an integral portion of total compensation at MacKay Shields and vary
based upon an individual’s role, responsibility and performance. A significant percentage of the compensation program for the Fund’s
portfolio managers is incentive based.
MacKay Shields has a phantom equity program
and awards are an integral component of the firm’s compensation structure. Awards vest and pay out after several years. Thus, eligible
professionals share in the results and success of the firm.
The compensation received by portfolio managers
is generally based on both quantitative and qualitative factors. The quantitative factors may include: (i) investment performance; (ii)
assets under management; (iii) revenues and profitability; and (iv) industry benchmarks. The qualitative factors may include, among others,
leadership, adherence to the firm’s policies and procedures, and contribution to the firm’s goals and objectives.
The compensation received by portfolio managers
is generally based on both quantitative and qualitative factors. The quantitative factors may include: (i) investment performance; (ii)
assets under management; (iii) revenues and profitability; and (iv) industry benchmarks. The qualitative factors may include, among others,
leadership, adherence to the firm’s policies and procedures, and contribution to the firm’s goals and objectives. To the extent
that an increase in the size of a Fund or another account managed by a portfolio manager has a positive impact on revenues/profitability,
a portfolio manager’s compensation may also increase. There is no difference between the method used in determining portfolio managers’
compensation with respect to a Fund and other accounts they manage. We do not believe the compensation structure provides an incentive
for an employee who provides services to the Fund to take undue risks in managing the assets of the Fund.
MacKay Shields maintains an employee benefit
program, including health and non-health insurance, and a 401(k) defined contribution plan for all of its employees regardless of their
job title, responsibilities or seniority.
MacKay Shields has performance-based fee arrangements
with “eligible clients” (as that term is defined under Rule 205-3 of the Advisers Act). In these cases, a portion of these
performance-based fees may be included in the incentive program described above.
Variable or incentive compensation, both cash
bonus and deferred awards, are a significant component of total compensation for portfolio managers at MacKay Shields. Incentive compensation
received by portfolio managers is generally based on both quantitative and qualitative factors. This approach instills a strong sense
of commitment towards the overall success of the firm. Deferred awards are provided to attract, retain, motivate and reward key personnel.
As such, MacKay Shields maintains a phantom equity plan and awards vest and pay out after several years. Thus, eligible employees share
in the results and success of the firm with the receipt of an award from the phantom equity plan. Receipt of an award from the phantom
equity plan is conditioned upon execution of an Executive Employment Agreements with MacKay, which include provisions relating to fixed
and variable compensation. The Executive Employment Agreements are renewable for one-year terms and can be terminated on 60 days’
prior written notice. There is also a provision for termination by MacKay for cause, as defined in the Agreements. The Agreements contain
restrictions regarding non-solicitation of clients and non-hiring of employees following termination of the portfolio managers’
employment. None of the portfolio managers is subject to a non-compete agreement that could potentially affect the portfolio manager’s
ability to manage the Fund.
(a)(4) Disclosure of Securities Ownership
Information provided
as of October 31, 2023.
| Name |
Dollar Range of Fund Shares Beneficially Owned |
|
Shu-Yang Tan |
$50,001-$100,000 |
|
Matt Jacob |
None |
|
Cameron White |
None |
Item 9. Purchases of Equity Securities
by Closed-End Management Investment Company and Affiliated Purchasers.
REGISTRANT PURCHASES OF EQUITY SECURITIES
| Period |
(a) Total Number of Shares (or Units) Purchased |
(b) Average Price Paid per Share (or Unit) |
(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs |
(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs |
|
Month #1
(11/01/2022-11/30/2022) |
0 |
- |
2,989,956 |
1,622,496 |
| Month #2 (12/01/2022-12/31/2022) |
128,117 |
11.19 |
3,118,073 |
1,494,379 |
| Month #3 (1/01/2023-1/31/2023) |
0 |
- |
3,118,073 |
1,494,379 |
|
Month #4
(2/01/2023-2/28/2023) |
0 |
- |
3,118,073 |
1,494,379 |
|
Month #5
(3/01/2023-3/31/2023) |
0 |
- |
3,118,073 |
1,494,379 |
| Month #6 (4/01/2023-4/30/2023) |
- |
- |
- |
- |
|
Month #7
(5/01/2023-5/31/2023) |
- |
- |
- |
- |
|
Month #8
(6/01/2023-6/30/2023) |
- |
- |
- |
- |
|
Month #9
(7/01/2023-7/31/2023) |
- |
- |
- |
- |
|
Month #10
(8/01/2023-8/31/2023) |
- |
- |
- |
- |
|
Month #11
(9/01/2023-9/30/2023) |
- |
- |
- |
- |
|
Month #12
(10/01/2023-10/31/2023) |
- |
- |
- |
- |
| Total |
128,117 |
$11.19 |
3,118,073 |
1,494,379 |
On September 15, 2015, the Fund commenced a
share repurchase program. For the year ended October 31, 2023, the Fund repurchased 128,117 of its shares at a weighted-average discount
of 12.32% from net asset value per share. For the year ended October 31, 2022, the Fund repurchased 51,011 of its shares at a weighted-average
discount of 12.68% from net asset value per share. The Fund’s share repurchase program ended on March 15, 2023.
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures
by which the shareholders may recommend nominees to the registrant’s board of directors, where those changes were implemented after
the registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as required
by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)), or this Item.
Item 11. Controls and Procedures.
| (a) | The registrant’s principal executive and principal financial officers, or persons performing similar
functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment
Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the
filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures
required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act
of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)). |
| (b) | There were no changes in the registrant’s internal control over financial reporting (as defined
in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the period covered by this report that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
Item 12. Disclosure of Securities Lending Activities for
Closed-End Management Investment Companies.
Item 13. Exhibits.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
| (registrant) |
|
First Trust High Income Long/Short Fund |
| By (Signature and Title)* |
|
/s/ James M. Dykas |
| |
|
James M. Dykas, President and Chief Executive Officer
(principal executive
officer)
|
Pursuant
to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By (Signature and Title)* |
|
/s/ James M. Dykas |
| |
|
James M. Dykas, President and Chief Executive Officer
(principal executive
officer)
|
| By (Signature and Title)* |
|
/s/ Derek D. Maltbie |
| |
|
Derek D. Maltbie, Treasurer, Chief Financial Officer
and Chief Accounting Officer
(principal financial officer)
|
* Print the name and title of each signing officer under
his or her signature.
SENIOR FINANCIAL OFFICER
CODE OF CONDUCT
I. Introduction
This code of conduct is being
adopted by the investment companies advised by First Trust Advisors L.P., from time to time, (the "FUNDS"). The reputation and
integrity of the Funds are valuable assets that are vital to the Funds' success. Each officer of the Funds, and officers and employees
of the investment adviser to the Funds who work on Fund matters, including each of the Funds' senior financial officers ("SFOS"),
is responsible for conducting each Fund's business in a manner that demonstrates a commitment to the highest standards of integrity.
SFOs include the Principal Executive Officer (who is the President), the Controller (who is the principal accounting officer),
and the Treasurer (who is the principal financial officer), and any person who performs a similar function.
The Funds, First Trust Advisors
L.P. and First Trust Portfolios have adopted Codes of Ethics under Rule 17j-1 under the Investment Company Act of 1940 (the "RULE
17J-1 CODE"). These Codes of Ethics are designed to prevent certain conflicts of interest that may arise when officers, employees,
or directors of the Funds and the foregoing entities know about present or future Fund transactions and/or have the power to influence
those transactions, and engage in transactions with respect to those same securities in their personal account(s) or otherwise
take advantage of their position and knowledge with respect to those securities. In an effort to prevent these conflicts and in
accordance with Rule 17j-1, the Funds adopted their Rule 17j-1 Code to prohibit transactions and conduct that create conflicts
of interest, and to establish compliance procedures.
The Sarbanes-Oxley Act of
2002 was designed to address corporate malfeasance and to help assure investors that the companies in which they invest are accurately
and completely disclosing financial information. Under Section 406 of the Act, all public companies (including the Funds) must
either have a code of ethics for their SFOs, or disclose why they do not. The Act was intended to prevent future situations (such
as occurred in well-reported situations involving such companies as Enron and WorldCom) where a company creates an environment
in which employees are afraid to express their opinions or to question unethical and potentially illegal business practices.
The Funds have chosen to
adopt a senior financial officer Code of Conduct to encourage their SFOs, and other Fund officers and employees of First Trust
Advisors or First Trust Portfolios to act ethically and to question potentially unethical or illegal practices, and to strive
to ensure that the Funds' financial disclosures are complete, accurate, and understandable.
II. Purposes of This Code of Conduct
The purposes of this Code
are:
A. To promote honest and
ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional
relationships;
B. To promote full, fair,
accurate, timely, and understandable disclosure in reports and documents that the Funds file with, or submits to, the SEC and
in other public communications the Funds make;
C. To promote compliance
with applicable governmental laws, rules and regulations;
D. To encourage the prompt
internal reporting to an appropriate person of violations of the Code; and
E. To establish accountability
for adherence to the Code.
III. Questions About This Code
The Funds' Boards of Trustees
have designated W. Scott Jardine or other appropriate officer designated by the President of the respective Funds to be the Compliance
Coordinator for the implementation and administration of the Code.
IV. Handling of Financial Information
The Funds have adopted guidelines
under which its SFOs perform their duties. However, the Funds expect that all officers or employees of the adviser or distributor
who participate in the preparation of any part of any Fund's financial statements follow these guidelines with respect to each
Fund:
A. Act with honesty and
integrity and avoid violations of this Code, including actual or apparent conflicts of interest with the Fund in personal and
professional relationships.
B. Disclose to the Fund's
Compliance Coordinator any material transaction or relationship that reasonably could be expected to give rise to any violations
of the Code, including actual or apparent conflicts of interest with the Fund. You should disclose these transactions or relationships
whether you are involved or have only observed the transaction or relationship. If it is not possible to disclose the matter to
the Compliance Coordinator, it should be disclosed to the Fund's Principal Financial Officer or Principal Executive Officer.
C. Provide information
to the Fund's other officers and appropriate employees of service providers (adviser, administrator, outside auditor, outside
counsel, custodian, etc.) that is accurate, complete, objective, relevant, timely, and understandable.
D. Endeavor to ensure
full, fair, timely, accurate, and understandable disclosure in the Fund's periodic reports.
E. Comply with the federal
securities laws and other applicable laws and rules, such as the Internal Revenue Code.
F. Act in good faith,
responsibly, and with due care, competence and diligence, without misrepresenting material facts or allowing your independent
judgment to be subordinated.
G. Respect the confidentiality
of information acquired in the course of your work except when you have Fund approval to disclose it or where disclosure is otherwise
legally mandated. You may not use confidential information acquired in the course of your work for personal advantage.
H. Share and maintain
skills important and relevant to the Fund's needs.
I. Proactively promote
ethical behavior among peers in your work environment.
J. Responsibly use and
control all assets and resources employed or entrusted to you.
K. Record or participate
in the recording of entries in the Fund's books and records that are accurate to the best of your knowledge.
V. Waivers of This Code
SFOs and other parties subject
to this Code may request a waiver of a provision of this Code (or certain provisions of the Fund's Rule 17j-1 Code) by submitting
their request in writing to the Compliance Coordinator for appropriate review. An executive officer of the Fund or the Audit Committee
will decide whether to grant a waiver. All waivers of this Code must be disclosed to the Fund's shareholders to the extent required
by SEC rules. A good faith interpretation of the provisions of this Code, however, shall not constitute a waiver.
VI. Annual Certification
Each SFO will be asked to
certify on an annual basis that he/she is in full compliance with the Code and any related policy statements.
VII. Reporting Suspected Violations
A. SFOs or other officers
of the Funds or employees of the First Trust group who work on Fund matters who observe, learn of, or, in good faith, suspect
a violation of the Code MUST immediately report the violation to the Compliance Coordinator, another member of the Funds' or First
Trust's senior management, or to the Audit Committee of the Fund Board. An example of a possible Code violation is the preparation
and filing of financial disclosure that omits material facts, or that is accurate but is written in a way that obscures its meaning.
B. Because service providers
such as an administrator, outside accounting firm, and custodian provide much of the work relating to the Funds' financial statements,
you should be alert for actions by service providers that may be illegal, or that could be viewed as dishonest or unethical conduct.
You should report these actions to the Compliance Coordinator even if you know, or think, that the service provider has its own
code of ethics for its SFOs or employees.
C. SFOs or other officers
or employees who report violations or suspected violations in good faith will not be subject to retaliation of any kind. Reported
violations will be investigated and addressed promptly and will be treated confidentially to the extent possible.
VIII. Violations of The Code
A. Dishonest, unethical or
illegal conduct will constitute a violation of this Code, regardless of whether this Code specifically refers to that particular
conduct. A violation of this Code may result in disciplinary action, up to and including termination of employment. A variety
of laws apply to the Funds and their operations, including the Securities Act of 1933, the Investment Company Act of 1940, state
laws relating to duties owed by Fund directors and officers, and criminal laws. The federal securities laws generally prohibit
the Funds from making material misstatements in its prospectus and other documents filed with the SEC, or from omitting to state
a material fact. These material misstatements and omissions include financial statements that are misleading or omit materials
facts.
B. Examples of criminal violations
of the law include stealing, embezzling, misapplying corporate or bank funds, making a payment for an expressed purpose on a Fund's
behalf to an individual who intends to use it for a different purpose; or making payments, whether corporate or personal, of cash
or other items of value that are intended to influence the judgment or actions of political candidates, government officials or
businesses in connection with any of the Funds' activities. The Funds must and will report all suspected criminal violations to
the appropriate authorities for possible prosecution, and will investigate, address and report, as appropriate, non-criminal violations.
Amended: June 1, 2009
Certification Pursuant to Rule 30a-2(a) under
the 1940 Act and Section 302
of the Sarbanes-Oxley Act
I, James M. Dykas, certify that:
| 1. | I have reviewed this report on Form N-CSR of First Trust High Income Long/Short Fund; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the
financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this
report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial
reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to
the filing date of this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors
and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and
report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting. |
| Date: |
|
January 8,
2024 |
|
/s/ James M. Dykas |
|
| |
|
|
|
James M. Dykas, President and Chief Executive Officer
(principal executive officer) |
|
Certification Pursuant to Rule 30a-2(a) under
the 1940 Act and Section 302
of the Sarbanes-Oxley Act
I, Derek D. Maltbie, certify that:
| 1. | I have reviewed this report on Form N-CSR of First Trust High Income Long/Short Fund; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the
financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this
report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial
reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to
the filing date of this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors
and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and
report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting. |
| Date: |
|
January 8,
2024 |
|
/s/ Derek D. Maltbie |
|
| |
|
|
|
Derek D. Maltbie, Treasurer, Chief Financial Officer
and
Chief Accounting Officer
(principal financial officer) |
|
Certification Pursuant to Rule 30a-2(b) under the
1940 Act and Section 906
of the Sarbanes-Oxley Act
I, James M. Dykas, President and Chief Executive Officer
of First Trust High Income Long/Short Fund (the “Registrant”), certify that:
| 1. | The Form N-CSR of the Registrant (the “Report”) fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Registrant. |
| Date: |
|
January 8,
2024 |
|
/s/ James M. Dykas |
|
| |
|
|
|
James M. Dykas, President and Chief Executive Officer
(principal executive officer) |
|
I, Derek D. Maltbie, Treasurer, Chief Financial Officer
and Chief Accounting Officer of First Trust High Income Long/Short Fund (the “Registrant”), certify that:
| 1. | The Form N-CSR of the Registrant (the “Report”) fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Registrant. |
| Date: |
|
January 8,
2024 |
|
/s/ Derek D. Maltbie |
|
| |
|
|
|
Derek D. Maltbie, Treasurer, Chief Financial Officer
and
Chief Accounting Officer
(principal financial officer) |
|
MacKay Shields LLC
Proxy Voting Policies and Procedures
January 2023
MacKay Shields LLC (“MacKay
Shields” or the “Firm”), has adopted these “Proxy Voting Policy and Procedures” (the “Policy”)
to ensure the Firm’s compliance with Rule 206(4)- 6 under the Investment Advisers Act of 1940, as amended (the “Advisers Act”)
and other applicable fiduciary obligations. The Policy applies to proxies relating to securities held by clients of MacKay Shields who
have delegated the responsibility of voting proxies to the Firm. The Policy is designed to assist Firm employees in meeting their specific
responsibilities in this area and to reasonably ensure that proxies are voted in the best interests of the Firm’s clients.
2.1
It is the policy of MacKay Shields that where the Firm has voting authority, all proxies are
to be voted in the best interest of the client without regard to the interests of MacKay Shields or other related parties. Specifically,
MacKay Shields shall not subordinate the interests of clients to unrelated objectives, including MacKay Shields’ interests. MacKay
Shields shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in
a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. For purposes
of the Policy, the “best interests of clients” shall mean, unless otherwise specified by the client, the clients’ best
economic interests over the long term as determined by MacKay Shields – that is, the common interest that all MacKay Shields clients
share in seeing the value of a common investment increase over time. It is further the policy of the Firm that complete and accurate disclosure
concerning its proxy voting policies and procedures and proxy voting records as required by the Advisers Act, be made available to its
clients.
2.2
When proxies with respect to securities held by clients of MacKay Shields have not been received
by MacKay Shields or its proxy voting service provider, MacKay Shields will make reasonable efforts to obtain missing proxies. MacKay
Shields is not responsible for voting proxies it or its proxy voting service provider does not receive.
2.3
MacKay Shields may choose not to vote proxies when it believes that it is appropriate. This may
occur, without limitation, under the following circumstances:
| • | If the effect on the client’s economic interests or the value of
the portfolio holding is indeterminable or insignificant; |
| • | If the cost of voting the proxy outweighs the possible benefit to the client; or |
| • | If a jurisdiction imposes share blocking restrictions which prevent the
Firm from trading shares. |
| 3. | Use of Third Party Proxy Voting Service Provider |
To discharge its responsibility,
MacKay Shields has examined third-party services that assist in the researching and voting of proxies and the development of voting guidelines.
After such review, the Firm has selected Institutional Shareholder Services, Inc., (“ISS”), to research voting proposals,
analyze the financial implications of voting proposals and vote proxies. MacKay Shields utilizes the research and analytical services,
operational implementation, administration, record-keeping and reporting services provided by ISS.
| 4. | Proxy Voting Guidelines |
4.1
To the extent that a client has authorized Mackay Shields to vote proxies on its behalf, and
except as set forth Sections 6 & 7 of this Policy or at otherwise directed by a client in writing, MacKay has determined to adopt
the following proxy voting guidelines:
4.1.a
Proxies for non-union clients will generally be voted in accordance with the voting recommendations
contained in the applicable ISS non-union domestic or global proxy voting guidelines, as in effect from time to time (“Non-Union
Guidelines”). Refer to Exhibit A for the current U.S. Summary Proxy Voting Guidelines.
4.1.b
Proxies for union or Taft-Hartley clients will generally be voted in accordance with the voting
recommendations contained in the applicable ISS Taft- Hartley domestic or international proxy voting guidelines, as in effect from time
to time (“Union Guidelines”). A summary of the current Taft-Hartley U.S. Voting Guidelines and Taft-Hartley International
Voting Guidelines are attached as Exhibit B.
4.1.c
Notwithstanding Section 4.1.a of this Policy, proxies for non-union clients whose investment
strategy directs MacKay Shields to invest primarily in assets that satisfy Environmental, Social and Governance (“ESG”) criteria,
as determined by MacKay Shields, in its discretion, will be voted in accordance with the voting recommendations contained in the applicable
ISS Sustainability U.S. or International proxy voting guidelines, as in effect from time to time (“Sustainability Guidelines”).
Refer to Exhibit C for the current U.S. and International Sustainability Proxy Voting Guidelines.
4.2
For purposes of the Policy, the Non-Union Guidelines, Union Guidelines, and Sustainability Guidelines
are collectively referred to as the “Standard Guidelines.”
4.3
A client may choose to use proxy voting guidelines different from the Standard Guidelines (“Custom
Guidelines”). Any Custom Guidelines must be furnished by the client to MacKay Shields in writing and MacKay Shields will general
vote proxies for any such client in accordance with the applicable Custom Guidelines.
4.4
In the event the Standard Guidelines or any client’s Custom Guidelines do not address how
a proxy should be voted or state that the vote is to be determined on a “case-
by-case” basis, the proxy will
be voted in accordance with ISS recommendations, subject to Section 6. In the event that ISS has not made a recommendation, MacKay Shields
will follow the procedure set forth in Section 7.
4.5
For clients using the Standard Guidelines, the Firm will instruct ISS to cast votes in accordance
with the Standard Guidelines. For clients using Custom Guidelines, the Firm will provide ISS with a copy of such Custom Guidelines and
will instruct ISS to cast votes in accordance with such Custom Guidelines. ISS will cast votes in accordance with the Standard Guidelines
or Custom Guidelines, as the case may be, unless instructed otherwise by MacKay Shields as set forth in Sections 6 and 7. Upon receipt
of a specific request from a client pursuant to Section 4.6, the Firm will instruct ISS to cast such client’s proxy in accordance
with such request.
4.6
Notwithstanding the foregoing, MacKay Shields will vote a proxy with respect to a particular
security held by a client in accordance with such client’s specific request even if it is in a manner inconsistent with the Standard
Guidelines or the client’s Custom Guidelines, as the case may be. Any such specific requests must be furnished to MacKay Shields
by the client in writing and must be received by MacKay on a timely basis for instructing ISS how to cast the vote.
4.7
In an effort to avoid possible conflicts of interest, MacKay Shields has determined to generally
vote proxies based on the Standard Guidelines or a client’s Custom Guidelines, as the case may be. For the avoidance of doubt, however,
it is recognized that the Firm’s portfolio management teams have the ultimate responsibility determining how to vote proxies in
the best interest of a client voting.
| 5. | Client Account Set-up and Review |
5.1
Initially, MacKay Shields must verify whether the client has duly authorized MacKay Shields to
vote proxies on its behalf, or if the client has retained the responsibility of voting proxies. The Marketing and Client Services departments,
in conjunction with the Legal and/or Compliance Department, will have primary responsibility for making that determination. MacKay’s
Compliance Department will be responsible for ensuring that a record of each client’s proxy voting status and, to the extent applicable,
the type of proxy voting guidelines in maintained. In its sole discretion, the Firm may decline to accept authority to vote a client’s
proxies. Any such refusal shall be in writing.
5.2
In most cases, the delegation of voting authority to MacKay Shields, and the Firm’s use
of a third-party proxy voting service provider shall be memorialized in the client’s investment management agreement.
5.3
MacKay Shields shall notify ISS of new client accounts using such form as ISS shall specify from
time to time. Designated personnel within the Firm will be responsible for ensuring that each new client’s account for which the
Firm has proxy voting authority is established on the appropriate systems and that each such account is properly coded for voting under
the appropriate Non-Union Guidelines, Union Guidelines or Custom Guidelines, as the case may be.
A portfolio manager may propose
that a particular proxy vote be cast in a manner different from the Standard Guidelines or an ISS voting recommendation, or may propose
an abstention from voting, if they believe that to do so, based on all facts and circumstances, is in the best interest of the Firm’s
clients as a whole. Any portfolio manager who proposes to override the Standard Guidelines or an ISS voting recommendation on a particular
vote or to abstain from voting must complete a Proxy Vote Override/Decision Form, which is set forth in Schedule D.
| 7. | Referral of Voting Decision by ISS to MacKay Shields |
7.1
In the event that the Standard Guidelines or a client’s Custom Guidelines do not address
how a proxy should be voted on a specific proposal for an issuer and ISS has not made a recommendation as to how such proxy should be
voted, ISS will so advise MacKay Shields. In that event, the Legal and/or Compliance Departments will request that the appropriate portfolio
manager makes a voting recommendation and complete a Proxy Vote Override/Decision Form.
7.2
In the event that the Standard Guidelines or a client’s Custom Guidelines require a “case-by-case”
determination on a particular proxy vote and ISS has not made a recommendation as to how such proxy should be voted, ISS will so advise
MacKay Shields. In that event, the Legal and/or Compliance Departments will request that the appropriate portfolio manager make a voting
recommendation and complete a Proxy Vote Override/Decision Form.
7.3
In the event that ISS determines that a conflict of interest exists as a result of which ISS
is precluded from making a recommendation as to how a proxy should be voted on a specific proposal for an issuer, ISS will so advise MacKay
Shields. In that event, the Legal and/or Compliance Departments will request that the appropriate portfolio manager make a voting recommendation
and complete a Proxy Vote Override/Decision Form.
8.1
The Firm’s portfolio managers may make proxy voting decisions in connection with (i) overriding
the Standard Guidelines or an ISS voting recommendation pursuant to Section 6, or (ii) deciding on a vote pursuant to Section 7. In such
event, the portfolio managers have an affirmative duty to disclose to the Legal and/or Compliance Departments any potential conflict of
interest known to them that exists between the Firm and the client on whose behalf the proxy is to be voted (“Conflict”).
8.2.
By way of example, Conflicts may exist in situations where the Firm is called to vote on a proxy
involving an issuer or proponent of a proxy proposal regarding the issuer where MacKay Shields or an affiliated person of the Firm also:
| • | Manages the issuer’s or proponent’s pension plan; |
| • | Administers the issuer’s or proponent’s employee benefit plan; |
| • | Provided brokerage, underwriting, insurance or banking services to the
issuer or proponent; or |
| • | Manages money for an employee group. |
Additional Conflicts may exist, among others, if an executive
of the Firm or its control affiliates is a close relative of, or has a personal or business relationship with:
| • | An executive of the issuer or proponent; |
| • | A director of the issuer or proponent; |
| • | A person who is a candidate to be a director of the issuer; |
| • | A participant in the proxy contest; or |
| • | A proponent of a proxy proposal. |
8.3
Whether a relationship creates a Conflict will depend on the facts and circumstances. Even if
these parties do not attempt to influence the Firm with respect to voting, the value of the relationship to MacKay Shields or an affiliate
can create a Conflict.
8.4
After a Proxy Vote Override/Decision Form is completed pursuant to Sections 6 or 7, such Form,
which elicits information as to whether a potential Conflict exists, must be submitted to the Legal and/or Compliance Departments for
review. If the Firm’s General Counsel (“GC”), Chief Compliance Officer (“CCO”) or their designee determines
that there is no potential Conflict, the GC, CCO or their designee, may instruct ISS to vote the proxy issue as set forth in the completed
Form.
8.5
If the GC, CCO or their designee determines that there exists or may exist a Conflict, he or
she will refer the issue to the Compliance Committee for consideration by convening (in person or via telephone) an emergency meeting
of the Compliance Committee. For purposes of this Policy, a majority vote of those members present shall resolve any Conflict. The Compliance
Committee will consider the facts and circumstances of the pending proxy vote and the potential or actual Conflict and make a determination
as to how to vote the proxy – i.e., whether to permit or deny the recommendation of the portfolio manager, or whether to take other
action, such as delegating the proxy vote to an independent third party or obtaining voting instructions from clients.
8.6
In considering the proxy vote and potential Conflict, the Compliance Committee may review the
following factors, including but not limited to:
| • | The percentage of outstanding securities of the issuer held on behalf
of clients by the Firm. |
| • | The nature of the relationship of the issuer or proponent with the Firm,
its affiliates or its executive officers. |
| • | Whether there has been any attempt to directly or indirectly influence
the portfolio manager’s decision. |
| • | Whether the direction (for or against) of the proposed vote would appear
to benefit the Firm or a related party. |
| • | Whether an objective decision to vote in a certain way will still create
a strong appearance of a Conflict. |
MacKay Shields may not abstain from voting any such proxy for
the purpose of avoiding Conflict.
If MacKay Shields portfolio managers
or their designees become aware of an upcoming shareholder meeting where there is an important vote to be taken, or become aware of a
request for consent of security holders on a material matter affecting the investment, MacKay Shields will consider whether to request
that clients call back securities loans, if applicable. In determining whether to request that clients call back securities loans, the
relevant portfolio manager(s) shall consider whether the benefit to the client in voting the matter or giving or withholding consent outweighs
the benefit to the client in keeping the security on loan. There may be instances when MacKay Shields may not be aware of the upcoming
shareholder meeting or request for consent with sufficient time in advance to make such a request, or when MacKay Shields’ request
that a client call back a securities loan in sufficient time to vote or give or withhold consent may not be successful.
Upon request, MacKay Shields shall
report annually (or more frequently if specifically requested) to its clients on proxy votes cast on their behalf. MacKay Shields will
provide any client who makes a written or verbal request with a copy of a report disclosing how MacKay Shields voted securities held in
that client’s portfolio. The report will generally contain the following information:
| • | The name of the issuer of the security; |
| • | The security’s exchange ticker symbol; |
| • | The security’s CUSIP number; |
| • | The shareholder meeting date; |
| • | A brief identification of the matter voted on; |
| • | Whether the matter was proposed by the issuer or by a security holder; |
| • | Whether MacKay Shields cast its vote on the matter on behalf of the client; |
| • | How MacKay Shields voted on behalf of the client; and |
| • | Whether MacKay Shields voted for or against management on behalf of the client. |
Either MacKay Shields or ISS as indicated below will maintain
the following records:
| • | A copy of the Policy and MacKay’s Standard Guidelines and Custom Guidelines; |
| • | A copy of each proxy statement received by MacKay
Shields or forwarded to ISS by the client’s custodian regarding client securities; |
| • | A record of each vote cast by MacKay Shields on behalf of a client; |
| • | A copy of all documents created by MacKay Shields
that were material to making a decision on the proxy voting (or abstaining from voting) of client securities or that memorialize the basis
for that decision including the resolution of any Conflict, a copy of all guideline override requests and all supporting documents; and |
| • | A copy of each written request by a client for information
on how MacKay Shields voted proxies on behalf of the client, as well as a copy of any written response by MacKay Shields to any request
by a client for information on how MacKay Shields voted proxies on behalf of the client; records of oral requests for information or oral
responses will not be kept. |
Such records must be maintained for at least eight years,
the first two years in an appropriate office of MacKay Shields.
| 12. | Review of Voting and Guidelines |
As part of its periodic reviews,
MacKay Shields’ Compliance Department will conduct an annual review of the prior year’s proxy voting as well as the guidelines
established for proxy voting. Documentation shall be maintained of this review and a report setting forth the results of the review will
be presented annually to the Compliance Committee. In addition, MacKay Shields’ Compliance Department maintains a list of non-voting
accounts.
| 13. | How to Request Information On How the Firm Voted Proxies |
Clients may, at anytime, request
and receive information from MacKay Shields as to how the Firm voted proxies for securities held in their account. Any such proxy information
request should be in writing to:
MacKay Shields LLC
1345 Avenue of the Americas New York, NY 10105
43rd Floor
Attention: Head of Client Services
Exhibits:
Exhibit A - 2023 U.S. Summary Proxy
Voting Guidelines (Standard Guidelines for non-union clients). Effective for Meetings on or after February 1, 2023
Exhibit B
(Part I and II) - 2023 U.S. Taft-Hartley Proxy Voting Guidelines and 2023 International Taft-Hartley Proxy Voting Guidelines (Standard
Guidelines for union clients (Taft-Hartley) (US and International))
Exhibit C (Part
I and II) - 2023 U.S. Sustainability Proxy Voting Guidelines and 2023 International Sustainability Proxy Voting Guidelines (Standard Guidelines
for ESG investment objective mandates)
Schedule D- Proxy Vote Override/Decision Form
Access to the ISS Voting Guidelines mentioned above and other
ISS Voting Guidelines are available at https://www.issgovernance.com/policy-gateway/voting-policies/
v3.23.4
N-2
|
12 Months Ended |
|
Oct. 31, 2023
$ / shares
shares
|
|---|
| Cover [Abstract] |
|
| Entity Central Index Key |
0001494530
|
| Amendment Flag |
false
|
| Entity Inv Company Type |
N-2
|
| Document Type |
N-CSR
|
| Entity Registrant Name |
First Trust High Income Long/Short Fund
|
| General Description of Registrant [Abstract] |
|
| Investment Objectives and Practices [Text Block] |
Investment
Objectives
The
Fund’s primary investment objective is to provide current income. The Fund’s secondary objective is capital appreciation.
Principal
Investment Policies
In
pursuit of its investment objectives, under normal market conditions:
| •
|
The
Fund invests primarily in a diversified portfolio of U.S. and foreign (including emerging markets) high-yield corporate fixed-income securities
of varying maturities that are rated below-investment grade at the time of purchase. Such securities include corporate bonds; debentures;
notes; commercial paper; other types of corporate debt instruments, including instruments issued by corporations with direct or indirect
government ownership; asset-backed securities; preferred shares; loan participations and assignments; payment-in-kind securities; zero-coupon
bonds; bank certificates of deposit; fixed time deposits; banker’s acceptances; and derivative instruments that provide the same
or similar economic impact as a physical investment in any of the above referenced securities. |
| •
|
The
Fund will generally limit its investment in securities rated below “B-” by Standard & Poor’s Ratings Group, a division
of the McGraw Hill Companies, Inc., or Fitch Ratings, below “B3” by Moody’s Investors Service, Inc., comparably rated
by another nationally recognized statistical rating organization or, if unrated, determined by the investment team to be of comparable
quality at the time of purchase to no more than 5% above the approximate aggregate weighting of such securities in the index which the
Fund tracks. |
| •
|
The
Fund maintains both long and short positions in securities. The Fund’s long positions, either directly or indirectly, may total
up to 130% of the Fund’s managed assets. The Fund’s short positions, either directly or through derivatives, may total up
to 30% of the Fund’s managed assets. |
| •
|
The
Fund’s use of derivatives, other than for hedging purposes, will not exceed 30% of the Fund’s managed assets. The Fund’s
principal investments in derivative instruments may include investments in credit default swaps, structured notes, special purpose vehicles,
futures transactions, options and options on futures as well as certain currency and interest rate instruments such as foreign currency
forward contracts, currency exchange transactions on a spot (i.e., cash) basis, put and call options on foreign currencies and interest
rate swaps. |
| •
|
The
Fund’s investments may be denominated in U.S. dollars or in foreign currencies. In order to minimize the impact of currency fluctuations,
the Sub-Advisor may at times hedge certain or all of the Fund’s investments denominated in foreign currencies into U.S. dollars.
|
| •
|
The
Fund may also invest up to 5% of its managed assets in common stock, including those of foreign issuers; invest up to 20% of its managed
assets in securities that, at the time of investment, are illiquid; invest without limit in securities that are unregistered or are held
by control persons of the issuer; and invest without limit in securities that are subject to contractual restrictions on their resale.
|
| •
|
To
the extent the Fund enters into derivatives transactions, it will do so pursuant to Rule 18f-4 under the 1940 Act. Rule 18f-4 requires
the Fund to implement certain policies and procedures designed to manage its derivatives risks, dependent upon the Fund’s level
of exposure to derivative instruments. |
Fundamental
Investment Policies
The
Fund, as a fundamental policy, may not:
1.
With respect to 75% of its total assets, purchase any securities if, as a result (i) more than 5% of the Fund’s total assets would
then be invested in securities of any single issuer, or (ii) the Fund would hold more than 10% of the outstanding voting securities of
any single issuer; provided, that Government securities (as defined in the 1940 Act) securities issued by other investment companies and
cash items (including receivables) shall not be counted for purposes of this limitation.
2.
Purchase or sell real estate or commodities except as permitted by (i) the 1940 Act and the rules and regulations thereunder, or other
successor law governing the regulation of registered investment companies, or interpretations or modifications thereof by the SEC, SEC
staff or other authority of competent jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority
of competent jurisdiction.
3.
Borrow money except as permitted by (i) the 1940 Act and the rules and regulations thereunder, or other successor law governing the regulation
of registered investment companies, or interpretations or modifications thereof by the SEC, SEC staff or other authority of competent
jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority of competent jurisdiction.
4.
Issue senior securities except as permitted by (i) the 1940 Act and the rules and regulations thereunder, or other successor law governing
the regulation of registered investment companies, or interpretations or modifications thereof by the SEC, SEC staff or other authority
of competent jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority of competent jurisdiction.
5.
Underwrite the securities of other issuers except (a) to the extent that the Fund may be deemed to be an underwriter within the meaning
of the Securities Act of 1933, as amended, in connection with the purchase and sale of portfolio securities; and (b) as permitted by (i)
the 1940 Act and the rules and regulations thereunder, or other successor law governing the regulation of registered investment companies,
or interpretations or modifications thereof by the SEC, SEC staff or other authority of competent jurisdiction, or (ii) exemptive or other
relief or permission from the SEC, SEC staff or other authority of competent jurisdiction.
6.
Make loans except as permitted by (i) the 1940 Act and the rules and regulations thereunder, or other successor law governing the regulation
of registered investment companies, or interpretations or modifications thereof by the SEC, SEC staff or other authority of competent
jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority of competent jurisdiction.
7.
Purchase the securities of any issuer if, as a result of such purchase, the Fund’s investments would be concentrated in any particular
industry except as permitted by (i) the 1940 Act and the rules and regulations thereunder, or other successor law governing the regulation
of registered investment companies, or interpretations or modifications thereof by the SEC, SEC staff or other authority of competent
jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority of competent jurisdiction.
Except
as noted above, the foregoing fundamental investment policies, together with the investment objectives of the Fund, cannot be changed
without approval by holders of a majority of the outstanding voting securities of the Fund, as defined in the 1940 Act, which includes
common shares of beneficial interest and preferred shares of beneficial interest (“Preferred Shares”), if any, voting together
as a single class, and of the holders of the outstanding Preferred Shares voting as a single class. Under the 1940 Act, a “majority
of the outstanding voting securities” means the vote of: (i) 67% or more of the Fund’s shares present at a meeting, if the
holders of more than 50% of the Fund’s shares are present or represented by proxy, or (ii) more than 50% of the Fund’s shares,
whichever is less.
The
foregoing restrictions and limitations will apply only at the time of purchase of securities, and the percentage limitations will not
be considered violated unless an excess or deficiency occurs or exists immediately after and as a result of an acquisition of securities,
unless otherwise indicated.
|
| Risk Factors [Table Text Block] |
Principal
Risks
The
Fund is a closed-end management investment company designed primarily as a long-term investment and not as a trading vehicle. The Fund
is not intended to be a complete investment program and, due to the uncertainty inherent in all investments, there can be no assurance
that the Fund will achieve its investment objectives. The following discussion summarizes the principal risks associated with investing
in the Fund, which includes the risk that you could lose some or all of your investment in the Fund. The Fund is subject to the informational
requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940 and, in accordance therewith, files reports,
proxy statements and other information that is available for review. The order of the below risk factors does not indicate the significance
of any particular risk factor.
Credit
Agency Risk. Credit ratings are determined by credit rating agencies and are only the opinions of such
entities. Ratings assigned by a rating agency are not absolute standards of credit quality and do not evaluate market risk or the liquidity
of securities. Any shortcomings or inefficiencies in credit rating agencies’ processes for determining credit ratings may adversely
affect the credit ratings of securities held by the Fund or such credit rating agency’s ability to evaluate creditworthiness and,
as a result, may adversely affect those securities’ perceived or actual credit risk.
Credit
and Below-Investment Grade Securities Risk. Credit risk is the risk that the issuer or other obligated
party of a debt security in the Fund’s portfolio will fail to pay dividends and/or interest or repay principal when due. Below-investment
grade instruments including instruments that are not rated but judged to be of comparable quality, are commonly referred to as high-yield
securities or “junk” bonds and are considered speculative with respect to the issuer’s capacity to pay dividends or
interest and repay principal and are susceptible to default or decline in market value due to adverse economic and business developments.
High-yield securities are
often
unsecured and subordinated to other creditors of the issuer. The market values for high-yield securities tend to be very volatile, and
these securities are generally less liquid than investment grade securities. For these reasons, an investment in the Fund is subject to
the following specific risks: (i) increased price sensitivity to changing interest rates and to a deteriorating economic environment;
(ii) greater risk of loss due to default or declining credit quality; (iii) adverse company specific events more likely to render the
issuer unable to make dividend, interest and/or principal payments; (iv) negative perception of the high-yield market which may depress
the price and liquidity of high-yield securities; (v) volatility; and (vi) liquidity.
Currency
Risk. The value of securities denominated or quoted in foreign currencies may be adversely affected
by fluctuations in the relative currency exchange rates and by exchange control regulations. The Fund’s investment performance may
be negatively affected by a devaluation of a currency in which the Fund’s investments are denominated or quoted. Further, the Fund’s
investment performance may be significantly affected, either positively or negatively, by currency exchange rates because the U.S. dollar
value of securities denominated or quoted in another currency will increase or decrease in response to changes in the value of such currency
in relation to the U.S. dollar.
Current
Market Conditions Risk. Current market conditions risk is the risk that a particular investment, or
shares of the Fund in general, may fall in value due to current market conditions. As a means to fight inflation, which remains at elevated
levels, the Federal Reserve and certain foreign central banks have raised interest rates and expect to continue to do so, and the Federal
Reserve has announced that it intends to reverse previously implemented quantitative easing. U.S. regulators have proposed several changes
to market and issuer regulations which would directly impact the Fund, and any regulatory changes could adversely impact the Fund’s
ability to achieve its investment strategies or make certain investments. Recent and potential future bank failures could result in disruption
to the broader banking industry or markets generally and reduce confidence in financial institutions and the economy as a whole, which
may also heighten market volatility and reduce liquidity. The ongoing adversarial political climate in the United States, as well as political
and diplomatic events both domestic and abroad, have and may continue to have an adverse impact the U.S. regulatory landscape, markets
and investor behavior, which could have a negative impact on the Fund’s investments and operations. Other unexpected political,
regulatory and diplomatic events within the U.S. and abroad may affect investor and consumer confidence and may adversely impact financial
markets and the broader economy. For example, in February 2022, Russia invaded Ukraine which has caused and could continue to cause significant
market disruptions and volatility within the markets in Russia, Europe, and the United States. The hostilities and sanctions resulting
from those hostilities have and could continue to have a significant impact on certain Fund investments as well as Fund performance and
liquidity. The economies of the United States and its trading partners, as well as the financial markets generally, may be adversely impacted
by trade disputes and other matters. For example, the United States has imposed trade barriers and restrictions on China. In addition,
the Chinese government is engaged in a longstanding dispute with Taiwan, continually threatening an invasion. If the political climate
between the United States and China does not improve or continues to deteriorate, if China were to attempt invading Taiwan, or if other
geopolitical conflicts develop or worsen, economies, markets and individual securities may be adversely affected, and the value of the
Fund’s assets may go down. The COVID-19 global pandemic, or any future public health crisis, and the ensuing policies enacted by
governments and central banks have caused and may continue to cause significant volatility and uncertainty in global financial markets,
negatively impacting global growth prospects. While vaccines have been developed, there is no guarantee that vaccines will be effective
against emerging future variants of the disease. As this global pandemic illustrated, such events may affect certain geographic regions,
countries, sectors and industries more significantly than others. Advancements in technology may also adversely impact markets and the
overall performance of the Fund. For instance, the economy may be significantly impacted by the advanced development and increased regulation
of artificial intelligence. These events, and any other future events, may adversely affect the prices and liquidity of the Fund’s
portfolio investments and could result in disruptions in the trading markets.
Cyber
Security Risk. The Fund is susceptible to potential operational risks through breaches in cyber security.
A breach in cyber security refers to both intentional and unintentional events that may cause the Fund to lose proprietary information,
suffer data corruption or lose operational capacity. Such events could cause the Fund to incur regulatory penalties, reputational damage,
additional compliance costs associated with corrective measures and/or financial loss. Cyber security breaches may involve unauthorized
access to the Fund’s digital information systems through “hacking” or malicious software coding, but may also result
from outside attacks such as denial-of-service attacks through efforts to make network services unavailable to intended users. In addition,
cyber security breaches of the Fund’s third-party service providers, such as its administrator, transfer agent, custodian, or Sub-Advisor,
as applicable, or issuers in which the Fund invests, can also subject the Fund to many of the same risks associated with direct cyber
security breaches. The Fund has established risk management systems designed to reduce the risks associated with cyber security. However,
there is no guarantee that such efforts will succeed, especially because the Fund does not directly control the cyber security systems
of issuers or third party service providers. Substantial costs may be incurred by the Fund in order to resolve or prevent cyber incidents
in the future.
Distressed
Securities Risk. Distressed securities frequently do not produce income while they are outstanding.
The Fund may be required to incur certain extraordinary expenses in order to protect and recover its investment. The Fund also will be
subject to
significant
uncertainty as to when and in what manner and for what value the obligations evidenced by the distressed securities will eventually be
satisfied. Distressed securities might be repaid only after lengthy workout, bankruptcy or similar proceedings, during which the issuer
may not make any interest or other payments. Because there typically is substantial uncertainty regarding the outcome of such proceedings,
there is a high risk of loss, including loss of the entire investment.
Fixed-Income
Securities Risk. An investment in fixed-income securities is subject to certain risks, including:
| •
|
Issuer
Risk. The value of fixed-income securities may decline for a number of reasons which directly relate
to the issuer, such as management performance, leverage and reduced demand for the issuer’s goods and services. In addition, an
issuer of fixed-income securities may default on its obligation to pay interest and repay principal. |
| •
|
Prepayment
Risk. Prepayment risk is the risk that the issuer of a debt security will repay principal prior to the
scheduled maturity date. During periods of declining interest rates, the issuer of a security may exercise its option to prepay principal
earlier than scheduled, forcing the Fund to reinvest the proceeds from such prepayment in lower yielding securities, which may result
in a decline in the Fund’s income and distributions to common shareholders. |
| •
|
Reinvestment
Risk. Reinvestment risk is the risk that income from the Fund’s portfolio will decline if the Fund
invests the proceeds from matured, traded or called bonds at market interest rates that are below the Fund portfolio’s current earnings
rate. |
Forward
Foreign Currency Exchange Contracts Risk. Forward foreign currency exchange contracts involve certain
risks, including the risk of failure of the counterparty to perform its obligations under the contract and the risk that the use of forward
contracts may not serve as a complete hedge because of an imperfect correlation between movements in the prices of the contracts and the
prices of the currencies hedged. While forward foreign currency exchange contracts may limit the risk of loss due to a decline in the
value of the hedged currencies, they also may limit any potential gain that might result should the value of the currencies increase.
In addition, because forward currency exchange contracts are privately negotiated transactions, there can be no assurance that the Fund
will have flexibility to roll-over a forward currency exchange contract upon its expiration if it desires to do so. Hedging against a
decline in the value of a currency does not eliminate fluctuations in the value of a portfolio security traded in that currency or prevent
a loss if the value of the security declines. Moreover, it may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency at a price above the devaluation level it anticipates.
The cost to the Fund of engaging in currency exchange transactions varies with such factors as the currency involved, the length of the
contract period and prevailing market conditions.
Illiquid
and Restricted Securities Risk. The Fund may invest in securities that are restricted and/or illiquid.
Restricted securities are securities that cannot be offered for public resale unless registered under the applicable securities laws or
that have a contractual restriction that prohibits or limits their resale. Restricted securities may be illiquid as they generally are
not listed on an exchange and may have no active trading market. Investments in restricted securities could have the effect of increasing
the amount of the Fund’s assets invested in illiquid securities if qualified institutional buyers are unwilling to purchase these
securities. Illiquid and restricted securities may be difficult to dispose of at a fair price at the times when the Fund believes it is
desirable to do so. The market price of illiquid and restricted securities generally is more volatile than that of more liquid securities,
which may adversely affect the price that the Fund pays for or recovers upon the sale of such securities. Illiquid and restricted securities
are also more difficult to value, especially in challenging markets.
Inflation
Risk. The Fund invests in securities that are subject to inflation risk. Inflation risk is the risk
that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. As inflation
increases, the present value of the Fund’s assets and distributions may decline. This risk is more prevalent with respect
to debt securities. Inflation creates uncertainty over the future real value (after inflation) of an investment. Inflation rates may change
frequently and drastically as a result of various factors, including unexpected shifts in the domestic or global economy, and the Fund’s
investments may not keep pace with inflation, which may result in losses to Fund investors.
Interest
Rate Risk. Interest rate risk is the risk that securities will decline in value because of changes in
market interest rates. For fixed rate securities, when market interest rates rise, the market value of such securities generally
will fall. Investments in fixed rate securities with long-term maturities may experience significant price declines if long-term
interest rates increase. During periods of rising interest rates, the average life of certain types of securities may be extended
because of slower than expected prepayments. This may lock in a below-market yield, increase the security’s duration and further
reduce the value of the security. Fixed rate securities with longer durations tend to be more sensitive to changes in interest rates,
usually making them more volatile than securities with shorter durations. The duration of a security will be expected to change
over time with changes in market factors and time to maturity.
The
interest rates payable on floating rate securities are not fixed and may fluctuate based upon changes in market rates. As short-term
interest rates decline, interest payable on floating rate securities typically decreases. Alternatively, during periods of rising
interest rates, interest payable on floating rate securities typically increases. Changes in interest rates on floating rate securities
may lag behind
changes
in market rates or may have limits on the maximum increases in interest rates. The value of floating rate securities may decline
if their interest rates do not rise as much, or as quickly, as interest rates in general.
Many
financial instruments use or may use a floating rate based upon the LIBOR. The United Kingdom’s Financial Conduct Authority (the
“FCA”), which regulates LIBOR, has ceased making LIBOR available as a reference rate over a phase-out period that began December
31, 2022. There is no assurance that any alternative reference rate, including the Secured Overnight Financing Rate (“SOFR”)
will be similar to or produce the same value or economic equivalence as LIBOR or that instruments using an alternative rate will have
the same volume or liquidity. The unavailability or replacement of LIBOR may affect the value, liquidity or return on certain Fund investments
and may result in costs incurred in connection with closing out positions and entering into new trades. Any potential effects of the transition
away from LIBOR on the Fund or on certain instruments in which the Fund invests can be difficult to ascertain, and they may vary depending
on a variety of factors, and they could result in losses to the Fund.
Leverage
Risk. The use of leverage by the Fund can magnify the effect of any losses. If the income and gains
from the securities and investments purchased with leverage proceeds do not cover the cost of leverage, the return to the common shares
will be less than if leverage had not been used. Leverage involves risks and special considerations for common shareholders including:
(i) the likelihood of greater volatility of net asset value and market price of the common shares than a comparable portfolio without
leverage; (ii) the risk that fluctuations in interest rates on borrowings will reduce the return to the common shareholders or will result
in fluctuations in the dividends paid on the common shares; (iii) in a declining market, the use of leverage is likely to cause a greater
decline in the net asset value of the common shares than if the Fund were not leveraged, which may result in a greater decline in the
market price of the common shares; and (iv) when the Fund uses certain types of leverage, the investment advisory fee payable to the Advisor
and by the Advisor to the Sub-Advisor will be higher than if the Fund did not use leverage.
Management
Risk and Reliance on Key Personnel. The implementation of the Fund’s investment strategy depends
upon the continued contributions of certain key employees of the Advisor and Sub-Advisor, some of whom have unique talents and experience
and would be difficult to replace. The loss or interruption of the services of a key member of the portfolio management team could have
a negative impact on the Fund.
Market
Discount from Net Asset Value. Shares of closed-end investment companies such as the Fund frequently
trade at a discount from their net asset value. The Fund cannot predict whether its common shares will trade at, below or above net asset
value.
Market
Risk. Investments held by the Fund, as well as shares of the Fund itself, are subject to market
fluctuations caused by real or perceived economic conditions, political events, regulatory factors or market developments, changes in
interest rates and perceived trends in securities prices. Shares of the Fund could decline in value or underperform other investments
as a result of the risk of loss associated with these market fluctuations. In addition, local, regional or global events such as war,
acts of terrorism, market manipulation, government defaults, government shutdowns, regulatory actions, political changes, diplomatic developments,
the imposition of sanctions and other similar measures, spread of infectious diseases or other public health issues, recessions, or other
events could have a significant negative impact on the Fund and its investments. Any of such circumstances could have a materially negative
impact on the value of the Fund’s shares, the liquidity of an investment, and result in increased market volatility. During any
such events, the Fund’s shares may trade at increased premiums or discounts to their net asset value, the bid/ask spread on the
Fund’s shares may widen and the returns on investment may fluctuate.
Non-U.S.
Securities Risk. Investing in securities of non-U.S. issuers, which are generally denominated in non-U.S.
currencies, may involve certain risks not typically associated with investing in securities of U.S. issuers. These risks include: (i)
there may be less publicly available information about non-U.S. issuers or markets due to less rigorous disclosure or accounting standards
or regulatory practices; (ii) non-U.S. markets may be smaller, less liquid and more volatile than the U.S. market; (iii) potential adverse
effects of fluctuations in currency exchange rates or controls on the value of the Fund’s investments; (iv) the economies of non-U.S.
countries may grow at slower rates than expected or may experience a downturn or recession; (v) the impact of economic, political, social
or diplomatic events; (vi) certain non-U.S. countries may impose restrictions on the ability of non-U.S. issuers to make payments of principal
and interest to investors located in the United States due to blockage of non-U.S. currency exchanges or otherwise; and (vii) withholding
and other non-U.S. taxes may decrease the Fund’s return. Foreign companies are generally not subject to the same accounting, auditing
and financial reporting standards as are U.S. companies. In addition, there may be difficulty in obtaining or enforcing a court judgment
abroad, including in the event the issuer of a non-U.S. security defaults or enters bankruptcy, administration or other proceedings. These
risks may be more pronounced to the extent that the Fund invests a significant amount of its assets in companies located in one region
or in emerging markets.
Operational
Risk. The Fund is subject to risks arising from various operational factors, including, but not limited
to, human error, processing and communication errors, errors of the Fund’s service providers, counterparties or other third-parties,
failed or inadequate processes and technology or systems failures. The Fund relies on third-parties for a range of services, including
custody. Any delay or failure relating to engaging or maintaining such service providers may affect the Fund’s ability to meet its
investment objective.
Although
the Fund and the Advisor seek to reduce these operational risks through controls and procedures, there is no way to completely protect
against such risks.
Potential
Conflicts of Interest Risk. First Trust, MacKay and the portfolio managers have interests which may
conflict with the interests of the Fund. In particular, First Trust and MacKay currently manage and may in the future manage and/or advise
other investment funds or accounts with the same or substantially similar investment objective and strategies as the Fund. In addition,
while the Fund is using certain types of leverage, the amount of the fees paid to First Trust (and by First Trust to MacKay) for investment
advisory and management services are higher than if the Fund did not use leverage because the fees paid are calculated based on managed
assets. Therefore, First Trust and MacKay could have a financial incentive to leverage the Fund.
Preferred
Securities Risk. Preferred securities combine some of the characteristics of both common stocks and
bonds. Preferred securities are typically subordinated to bonds and other debt securities in a company’s capital structure in terms
of priority to corporate income, subjecting them to greater credit risk than those debt securities. Generally, holders of preferred securities
have no voting rights with respect to the issuing company unless preferred dividends have been in arrears for a specified number of periods,
at which time the preferred security holders may obtain limited rights. In certain circumstances, an issuer of preferred securities may
defer payment on the securities and, in some cases, redeem the securities prior to a specified date. Preferred securities may also be
substantially less liquid than other securities, including common stock.
Reorganization
Risk. The Board of Trustees of the Fund has approved the reorganization of the Fund into ACP.
If approved by shareholders, the transaction is anticipated to be consummated during 2024, subject to the satisfaction of applicable regulatory
requirements and approvals and customary closing conditions. There is no assurance when or whether such approvals, or any other
approvals required for the transaction, will be obtained. Under the terms of the proposed transaction, shareholders of the Fund
would receive shares of ACP, which will have its own investment strategies, and thereafter cease to be a shareholder of the Fund.
More information on the proposed transaction, including the risks and considerations associated with the transaction as well as the risks
of investing in ACP, will be contained in registration statement/proxy materials that will shortly be finalized. Shareholders should
refer to such registration statement/proxy materials when they become available.
Short
Selling Risk. The Fund engages in short selling. Short sales are transactions in which the Fund
sells a security that it does not own but can borrow in the market and allows the Fund to profit from a decline in the market price (to
the extent such decline exceeds the transaction costs and the costs of borrowing the securities). If a security sold short increases in
price, the Fund may have to cover its short position at a higher price than the short sale price, resulting in a loss. Because losses
on short sales arise from increases in the value of the security sold short, such losses are theoretically unlimited. It is possible that
the Fund’s long securities positions will decline in value at the same time that the value of its short securities positions increase,
thereby increasing potential losses to the Fund. In addition, the Fund’s short selling strategies will limit its ability to fully
benefit from increases in the fixed-income markets.
The
Fund may not be able to borrow a security that it needs to deliver or it may not be able to close out a short position at an acceptable
price and may have to sell related long positions before it had intended to do so. Thus, the Fund may not be able to successfully implement
its short sale strategy due to limited availability of desired securities or for other reasons. Also, there is the risk that the counterparty
to a short sale may fail to honor its contractual terms, causing a loss to the Fund. Further, when the Fund is selling a security short,
it must maintain a segregated account of cash or high-grade securities equal to the margin requirement. As a result, the Fund may
maintain high levels of cash or other liquid assets, which may limit the Fund’s ability to pursue other opportunities.
U.S.
Government Securities Risk. U.S. government securities are subject to interest rate risk but generally
do not involve the credit risks associated with investments in other types of debt securities. As a result, the yields available from
U.S. government securities are generally lower than the yields available from other debt securities. U.S. government securities are guaranteed
only as to the timely payment of interest and the payment of principal when held to maturity.
Valuation
Risk. Unlike publicly traded common stock which trades on national exchanges, there is no central place
or exchange for fixed-income securities trading. Fixed-income securities generally trade on an “over-the-counter” market which
may be anywhere in the world where the buyer and seller can settle on a price. Due to the lack of centralized information and trading,
the valuation of fixed-income securities may carry more risk than that of common stock. Uncertainties in the conditions of the financial
market, unreliable reference data, lack of transparency and inconsistency of valuation models and processes may lead to inaccurate asset
pricing.
|
| Effects of Leverage [Text Block] |
Effects
of Leverage
The
aggregate principal amount of borrowings under the brokerage account with Pershing, LLC (the “Pershing Account”) represented
approximately 26.54% of Managed Assets as of October 31, 2023. Asset coverage with respect to the borrowings under the Pershing Account
was 376.83% as of October 31, 2023. As of October 31, 2023, the approximate annual interest and fee rate was 6.07%.
Assuming
that the Fund’s leverage costs remain as described above (at an assumed average annual cost of 6.07%), the annual return that the
Fund’s portfolio must experience (net of expenses) in order to cover its leverage costs would be 1.61%.
The
following table is furnished in response to requirements of the SEC. It is designed to illustrate the effect of leverage on Common Share
total return, assuming investment portfolio total returns (comprised of income and changes in the value of securities held in the Fund’s
portfolio) of (10%), (5%), 0%, 5% and 10%. These assumed investment portfolio returns are hypothetical figures and are not necessarily
indicative of the investment portfolio returns experienced or expected to be experienced by the Fund.
The
table further assumes leverage representing 26.54% of the Fund’s Managed Assets, net of expenses, and an annual leverage interest
and fee rate of 6.07%.
|
Assumed Portfolio Total Return (Net of Expenses)
|
-10%
|
-5%
|
0%
|
5%
|
10%
|
|
Common Share Total Return
|
-15.81%
|
-9.00%
|
-2.19%
|
4.61%
|
11.42%
|
Common
Share total return is composed of two elements: the Common Share dividends paid by the Fund (the amount of which is largely determined
by the net investment income of the Fund after paying dividends or interest on its leverage) and gains or losses on the value of the securities
the Fund owns. As required by SEC rules, the table above assumes that the Fund is more likely to suffer capital losses than to enjoy capital
appreciation. For example, to assume a total return of 0% the Fund must assume that the distributions it receives on its investments are
entirely offset by losses in the value of those securities.
|
| Annual Interest Rate [Percent] |
6.07%
|
| Annual Coverage Return Rate [Percent] |
1.61%
|
| Effects of Leverage [Table Text Block] |
|
Assumed Portfolio Total Return (Net of Expenses)
|
-10%
|
-5%
|
0%
|
5%
|
10%
|
|
Common Share Total Return
|
-15.81%
|
-9.00%
|
-2.19%
|
4.61%
|
11.42%
|
|
| Return at Minus Ten [Percent] |
(15.81%)
|
| Return at Minus Five [Percent] |
(9.00%)
|
| Return at Zero [Percent] |
(2.19%)
|
| Return at Plus Five [Percent] |
4.61%
|
| Return at Plus Ten [Percent] |
11.42%
|
| Effects of Leverage, Purpose [Text Block] |
The
following table is furnished in response to requirements of the SEC. It is designed to illustrate the effect of leverage on Common Share
total return, assuming investment portfolio total returns (comprised of income and changes in the value of securities held in the Fund’s
portfolio) of (10%), (5%), 0%, 5% and 10%. These assumed investment portfolio returns are hypothetical figures and are not necessarily
indicative of the investment portfolio returns experienced or expected to be experienced by the Fund.
The
table further assumes leverage representing 26.54% of the Fund’s Managed Assets, net of expenses, and an annual leverage interest
and fee rate of 6.07%.
|
| Share Price |
$ 10.48
|
| NAV Per Share |
$ 11.95
|
| Capital Stock, Long-Term Debt, and Other Securities [Abstract] |
|
| Outstanding Security, Title [Text Block] |
Common Shares outstanding (unlimited number of Common Shares has been authorized)
|
| Outstanding Security, Held [Shares] | shares |
33,291,015
|
| Credit Agency Risk [Member] |
|
| General Description of Registrant [Abstract] |
|
| Risk [Text Block] |
Credit
Agency Risk. Credit ratings are determined by credit rating agencies and are only the opinions of such
entities. Ratings assigned by a rating agency are not absolute standards of credit quality and do not evaluate market risk or the liquidity
of securities. Any shortcomings or inefficiencies in credit rating agencies’ processes for determining credit ratings may adversely
affect the credit ratings of securities held by the Fund or such credit rating agency’s ability to evaluate creditworthiness and,
as a result, may adversely affect those securities’ perceived or actual credit risk.
|
| Credit And Below Investment Grade Securities Risk [Member] |
|
| General Description of Registrant [Abstract] |
|
| Risk [Text Block] |
Credit
and Below-Investment Grade Securities Risk. Credit risk is the risk that the issuer or other obligated
party of a debt security in the Fund’s portfolio will fail to pay dividends and/or interest or repay principal when due. Below-investment
grade instruments including instruments that are not rated but judged to be of comparable quality, are commonly referred to as high-yield
securities or “junk” bonds and are considered speculative with respect to the issuer’s capacity to pay dividends or
interest and repay principal and are susceptible to default or decline in market value due to adverse economic and business developments.
High-yield securities are
often
unsecured and subordinated to other creditors of the issuer. The market values for high-yield securities tend to be very volatile, and
these securities are generally less liquid than investment grade securities. For these reasons, an investment in the Fund is subject to
the following specific risks: (i) increased price sensitivity to changing interest rates and to a deteriorating economic environment;
(ii) greater risk of loss due to default or declining credit quality; (iii) adverse company specific events more likely to render the
issuer unable to make dividend, interest and/or principal payments; (iv) negative perception of the high-yield market which may depress
the price and liquidity of high-yield securities; (v) volatility; and (vi) liquidity.
|
| Currency Risk [Member] |
|
| General Description of Registrant [Abstract] |
|
| Risk [Text Block] |
Currency
Risk. The value of securities denominated or quoted in foreign currencies may be adversely affected
by fluctuations in the relative currency exchange rates and by exchange control regulations. The Fund’s investment performance may
be negatively affected by a devaluation of a currency in which the Fund’s investments are denominated or quoted. Further, the Fund’s
investment performance may be significantly affected, either positively or negatively, by currency exchange rates because the U.S. dollar
value of securities denominated or quoted in another currency will increase or decrease in response to changes in the value of such currency
in relation to the U.S. dollar.
|
| Current Market Conditions Risk [Member] |
|
| General Description of Registrant [Abstract] |
|
| Risk [Text Block] |
Current
Market Conditions Risk. Current market conditions risk is the risk that a particular investment, or
shares of the Fund in general, may fall in value due to current market conditions. As a means to fight inflation, which remains at elevated
levels, the Federal Reserve and certain foreign central banks have raised interest rates and expect to continue to do so, and the Federal
Reserve has announced that it intends to reverse previously implemented quantitative easing. U.S. regulators have proposed several changes
to market and issuer regulations which would directly impact the Fund, and any regulatory changes could adversely impact the Fund’s
ability to achieve its investment strategies or make certain investments. Recent and potential future bank failures could result in disruption
to the broader banking industry or markets generally and reduce confidence in financial institutions and the economy as a whole, which
may also heighten market volatility and reduce liquidity. The ongoing adversarial political climate in the United States, as well as political
and diplomatic events both domestic and abroad, have and may continue to have an adverse impact the U.S. regulatory landscape, markets
and investor behavior, which could have a negative impact on the Fund’s investments and operations. Other unexpected political,
regulatory and diplomatic events within the U.S. and abroad may affect investor and consumer confidence and may adversely impact financial
markets and the broader economy. For example, in February 2022, Russia invaded Ukraine which has caused and could continue to cause significant
market disruptions and volatility within the markets in Russia, Europe, and the United States. The hostilities and sanctions resulting
from those hostilities have and could continue to have a significant impact on certain Fund investments as well as Fund performance and
liquidity. The economies of the United States and its trading partners, as well as the financial markets generally, may be adversely impacted
by trade disputes and other matters. For example, the United States has imposed trade barriers and restrictions on China. In addition,
the Chinese government is engaged in a longstanding dispute with Taiwan, continually threatening an invasion. If the political climate
between the United States and China does not improve or continues to deteriorate, if China were to attempt invading Taiwan, or if other
geopolitical conflicts develop or worsen, economies, markets and individual securities may be adversely affected, and the value of the
Fund’s assets may go down. The COVID-19 global pandemic, or any future public health crisis, and the ensuing policies enacted by
governments and central banks have caused and may continue to cause significant volatility and uncertainty in global financial markets,
negatively impacting global growth prospects. While vaccines have been developed, there is no guarantee that vaccines will be effective
against emerging future variants of the disease. As this global pandemic illustrated, such events may affect certain geographic regions,
countries, sectors and industries more significantly than others. Advancements in technology may also adversely impact markets and the
overall performance of the Fund. For instance, the economy may be significantly impacted by the advanced development and increased regulation
of artificial intelligence. These events, and any other future events, may adversely affect the prices and liquidity of the Fund’s
portfolio investments and could result in disruptions in the trading markets.
|
| Cyber Security Risk [Member] |
|
| General Description of Registrant [Abstract] |
|
| Risk [Text Block] |
Cyber
Security Risk. The Fund is susceptible to potential operational risks through breaches in cyber security.
A breach in cyber security refers to both intentional and unintentional events that may cause the Fund to lose proprietary information,
suffer data corruption or lose operational capacity. Such events could cause the Fund to incur regulatory penalties, reputational damage,
additional compliance costs associated with corrective measures and/or financial loss. Cyber security breaches may involve unauthorized
access to the Fund’s digital information systems through “hacking” or malicious software coding, but may also result
from outside attacks such as denial-of-service attacks through efforts to make network services unavailable to intended users. In addition,
cyber security breaches of the Fund’s third-party service providers, such as its administrator, transfer agent, custodian, or Sub-Advisor,
as applicable, or issuers in which the Fund invests, can also subject the Fund to many of the same risks associated with direct cyber
security breaches. The Fund has established risk management systems designed to reduce the risks associated with cyber security. However,
there is no guarantee that such efforts will succeed, especially because the Fund does not directly control the cyber security systems
of issuers or third party service providers. Substantial costs may be incurred by the Fund in order to resolve or prevent cyber incidents
in the future.
|
| Distressed Securities Risk [Member] |
|
| General Description of Registrant [Abstract] |
|
| Risk [Text Block] |
Distressed
Securities Risk. Distressed securities frequently do not produce income while they are outstanding.
The Fund may be required to incur certain extraordinary expenses in order to protect and recover its investment. The Fund also will be
subject to
significant
uncertainty as to when and in what manner and for what value the obligations evidenced by the distressed securities will eventually be
satisfied. Distressed securities might be repaid only after lengthy workout, bankruptcy or similar proceedings, during which the issuer
may not make any interest or other payments. Because there typically is substantial uncertainty regarding the outcome of such proceedings,
there is a high risk of loss, including loss of the entire investment.
|
| Fixed Income Securities Risk [Member] |
|
| General Description of Registrant [Abstract] |
|
| Risk [Text Block] |
Fixed-Income
Securities Risk. An investment in fixed-income securities is subject to certain risks, including:
| •
|
Issuer
Risk. The value of fixed-income securities may decline for a number of reasons which directly relate
to the issuer, such as management performance, leverage and reduced demand for the issuer’s goods and services. In addition, an
issuer of fixed-income securities may default on its obligation to pay interest and repay principal. |
| •
|
Prepayment
Risk. Prepayment risk is the risk that the issuer of a debt security will repay principal prior to the
scheduled maturity date. During periods of declining interest rates, the issuer of a security may exercise its option to prepay principal
earlier than scheduled, forcing the Fund to reinvest the proceeds from such prepayment in lower yielding securities, which may result
in a decline in the Fund’s income and distributions to common shareholders. |
| •
|
Reinvestment
Risk. Reinvestment risk is the risk that income from the Fund’s portfolio will decline if the Fund
invests the proceeds from matured, traded or called bonds at market interest rates that are below the Fund portfolio’s current earnings
rate. |
|
| Forward Foreign Currency Exchange Risk [Member] |
|
| General Description of Registrant [Abstract] |
|
| Risk [Text Block] |
Forward
Foreign Currency Exchange Contracts Risk. Forward foreign currency exchange contracts involve certain
risks, including the risk of failure of the counterparty to perform its obligations under the contract and the risk that the use of forward
contracts may not serve as a complete hedge because of an imperfect correlation between movements in the prices of the contracts and the
prices of the currencies hedged. While forward foreign currency exchange contracts may limit the risk of loss due to a decline in the
value of the hedged currencies, they also may limit any potential gain that might result should the value of the currencies increase.
In addition, because forward currency exchange contracts are privately negotiated transactions, there can be no assurance that the Fund
will have flexibility to roll-over a forward currency exchange contract upon its expiration if it desires to do so. Hedging against a
decline in the value of a currency does not eliminate fluctuations in the value of a portfolio security traded in that currency or prevent
a loss if the value of the security declines. Moreover, it may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency at a price above the devaluation level it anticipates.
The cost to the Fund of engaging in currency exchange transactions varies with such factors as the currency involved, the length of the
contract period and prevailing market conditions.
|
| Illiquid And Restricted Securities Risk [Member] |
|
| General Description of Registrant [Abstract] |
|
| Risk [Text Block] |
Illiquid
and Restricted Securities Risk. The Fund may invest in securities that are restricted and/or illiquid.
Restricted securities are securities that cannot be offered for public resale unless registered under the applicable securities laws or
that have a contractual restriction that prohibits or limits their resale. Restricted securities may be illiquid as they generally are
not listed on an exchange and may have no active trading market. Investments in restricted securities could have the effect of increasing
the amount of the Fund’s assets invested in illiquid securities if qualified institutional buyers are unwilling to purchase these
securities. Illiquid and restricted securities may be difficult to dispose of at a fair price at the times when the Fund believes it is
desirable to do so. The market price of illiquid and restricted securities generally is more volatile than that of more liquid securities,
which may adversely affect the price that the Fund pays for or recovers upon the sale of such securities. Illiquid and restricted securities
are also more difficult to value, especially in challenging markets.
|
| Inflation Risk [Member] |
|
| General Description of Registrant [Abstract] |
|
| Risk [Text Block] |
Inflation
Risk. The Fund invests in securities that are subject to inflation risk. Inflation risk is the risk
that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. As inflation
increases, the present value of the Fund’s assets and distributions may decline. This risk is more prevalent with respect
to debt securities. Inflation creates uncertainty over the future real value (after inflation) of an investment. Inflation rates may change
frequently and drastically as a result of various factors, including unexpected shifts in the domestic or global economy, and the Fund’s
investments may not keep pace with inflation, which may result in losses to Fund investors.
|
| Interest Rates Risk [Member] |
|
| General Description of Registrant [Abstract] |
|
| Risk [Text Block] |
Interest
Rate Risk. Interest rate risk is the risk that securities will decline in value because of changes in
market interest rates. For fixed rate securities, when market interest rates rise, the market value of such securities generally
will fall. Investments in fixed rate securities with long-term maturities may experience significant price declines if long-term
interest rates increase. During periods of rising interest rates, the average life of certain types of securities may be extended
because of slower than expected prepayments. This may lock in a below-market yield, increase the security’s duration and further
reduce the value of the security. Fixed rate securities with longer durations tend to be more sensitive to changes in interest rates,
usually making them more volatile than securities with shorter durations. The duration of a security will be expected to change
over time with changes in market factors and time to maturity.
The
interest rates payable on floating rate securities are not fixed and may fluctuate based upon changes in market rates. As short-term
interest rates decline, interest payable on floating rate securities typically decreases. Alternatively, during periods of rising
interest rates, interest payable on floating rate securities typically increases. Changes in interest rates on floating rate securities
may lag behind
changes
in market rates or may have limits on the maximum increases in interest rates. The value of floating rate securities may decline
if their interest rates do not rise as much, or as quickly, as interest rates in general.
Many
financial instruments use or may use a floating rate based upon the LIBOR. The United Kingdom’s Financial Conduct Authority (the
“FCA”), which regulates LIBOR, has ceased making LIBOR available as a reference rate over a phase-out period that began December
31, 2022. There is no assurance that any alternative reference rate, including the Secured Overnight Financing Rate (“SOFR”)
will be similar to or produce the same value or economic equivalence as LIBOR or that instruments using an alternative rate will have
the same volume or liquidity. The unavailability or replacement of LIBOR may affect the value, liquidity or return on certain Fund investments
and may result in costs incurred in connection with closing out positions and entering into new trades. Any potential effects of the transition
away from LIBOR on the Fund or on certain instruments in which the Fund invests can be difficult to ascertain, and they may vary depending
on a variety of factors, and they could result in losses to the Fund.
|
| Leverage Risk [Member] |
|
| General Description of Registrant [Abstract] |
|
| Risk [Text Block] |
Leverage
Risk. The use of leverage by the Fund can magnify the effect of any losses. If the income and gains
from the securities and investments purchased with leverage proceeds do not cover the cost of leverage, the return to the common shares
will be less than if leverage had not been used. Leverage involves risks and special considerations for common shareholders including:
(i) the likelihood of greater volatility of net asset value and market price of the common shares than a comparable portfolio without
leverage; (ii) the risk that fluctuations in interest rates on borrowings will reduce the return to the common shareholders or will result
in fluctuations in the dividends paid on the common shares; (iii) in a declining market, the use of leverage is likely to cause a greater
decline in the net asset value of the common shares than if the Fund were not leveraged, which may result in a greater decline in the
market price of the common shares; and (iv) when the Fund uses certain types of leverage, the investment advisory fee payable to the Advisor
and by the Advisor to the Sub-Advisor will be higher than if the Fund did not use leverage.
|
| Management Risk And Reliance On Key Personnel [Member] |
|
| General Description of Registrant [Abstract] |
|
| Risk [Text Block] |
Management
Risk and Reliance on Key Personnel. The implementation of the Fund’s investment strategy depends
upon the continued contributions of certain key employees of the Advisor and Sub-Advisor, some of whom have unique talents and experience
and would be difficult to replace. The loss or interruption of the services of a key member of the portfolio management team could have
a negative impact on the Fund.
|
| Market Discount From Net Asset Value [Member] |
|
| General Description of Registrant [Abstract] |
|
| Risk [Text Block] |
Market
Discount from Net Asset Value. Shares of closed-end investment companies such as the Fund frequently
trade at a discount from their net asset value. The Fund cannot predict whether its common shares will trade at, below or above net asset
value.
|
| Market Risk [Member] |
|
| General Description of Registrant [Abstract] |
|
| Risk [Text Block] |
Market
Risk. Investments held by the Fund, as well as shares of the Fund itself, are subject to market
fluctuations caused by real or perceived economic conditions, political events, regulatory factors or market developments, changes in
interest rates and perceived trends in securities prices. Shares of the Fund could decline in value or underperform other investments
as a result of the risk of loss associated with these market fluctuations. In addition, local, regional or global events such as war,
acts of terrorism, market manipulation, government defaults, government shutdowns, regulatory actions, political changes, diplomatic developments,
the imposition of sanctions and other similar measures, spread of infectious diseases or other public health issues, recessions, or other
events could have a significant negative impact on the Fund and its investments. Any of such circumstances could have a materially negative
impact on the value of the Fund’s shares, the liquidity of an investment, and result in increased market volatility. During any
such events, the Fund’s shares may trade at increased premiums or discounts to their net asset value, the bid/ask spread on the
Fund’s shares may widen and the returns on investment may fluctuate.
|
| Non U S Securities Risk [Member] |
|
| General Description of Registrant [Abstract] |
|
| Risk [Text Block] |
Non-U.S.
Securities Risk. Investing in securities of non-U.S. issuers, which are generally denominated in non-U.S.
currencies, may involve certain risks not typically associated with investing in securities of U.S. issuers. These risks include: (i)
there may be less publicly available information about non-U.S. issuers or markets due to less rigorous disclosure or accounting standards
or regulatory practices; (ii) non-U.S. markets may be smaller, less liquid and more volatile than the U.S. market; (iii) potential adverse
effects of fluctuations in currency exchange rates or controls on the value of the Fund’s investments; (iv) the economies of non-U.S.
countries may grow at slower rates than expected or may experience a downturn or recession; (v) the impact of economic, political, social
or diplomatic events; (vi) certain non-U.S. countries may impose restrictions on the ability of non-U.S. issuers to make payments of principal
and interest to investors located in the United States due to blockage of non-U.S. currency exchanges or otherwise; and (vii) withholding
and other non-U.S. taxes may decrease the Fund’s return. Foreign companies are generally not subject to the same accounting, auditing
and financial reporting standards as are U.S. companies. In addition, there may be difficulty in obtaining or enforcing a court judgment
abroad, including in the event the issuer of a non-U.S. security defaults or enters bankruptcy, administration or other proceedings. These
risks may be more pronounced to the extent that the Fund invests a significant amount of its assets in companies located in one region
or in emerging markets.
|
| Operational Risk [Member] |
|
| General Description of Registrant [Abstract] |
|
| Risk [Text Block] |
Operational
Risk. The Fund is subject to risks arising from various operational factors, including, but not limited
to, human error, processing and communication errors, errors of the Fund’s service providers, counterparties or other third-parties,
failed or inadequate processes and technology or systems failures. The Fund relies on third-parties for a range of services, including
custody. Any delay or failure relating to engaging or maintaining such service providers may affect the Fund’s ability to meet its
investment objective.
Although
the Fund and the Advisor seek to reduce these operational risks through controls and procedures, there is no way to completely protect
against such risks.
|
| Potential Conflict Of Interest Risk [Member] |
|
| General Description of Registrant [Abstract] |
|
| Risk [Text Block] |
Potential
Conflicts of Interest Risk. First Trust, MacKay and the portfolio managers have interests which may
conflict with the interests of the Fund. In particular, First Trust and MacKay currently manage and may in the future manage and/or advise
other investment funds or accounts with the same or substantially similar investment objective and strategies as the Fund. In addition,
while the Fund is using certain types of leverage, the amount of the fees paid to First Trust (and by First Trust to MacKay) for investment
advisory and management services are higher than if the Fund did not use leverage because the fees paid are calculated based on managed
assets. Therefore, First Trust and MacKay could have a financial incentive to leverage the Fund.
|
| Preferred Securities Risk [Member] |
|
| General Description of Registrant [Abstract] |
|
| Risk [Text Block] |
Preferred
Securities Risk. Preferred securities combine some of the characteristics of both common stocks and
bonds. Preferred securities are typically subordinated to bonds and other debt securities in a company’s capital structure in terms
of priority to corporate income, subjecting them to greater credit risk than those debt securities. Generally, holders of preferred securities
have no voting rights with respect to the issuing company unless preferred dividends have been in arrears for a specified number of periods,
at which time the preferred security holders may obtain limited rights. In certain circumstances, an issuer of preferred securities may
defer payment on the securities and, in some cases, redeem the securities prior to a specified date. Preferred securities may also be
substantially less liquid than other securities, including common stock.
|
| Reorganization Risk [Member] |
|
| General Description of Registrant [Abstract] |
|
| Risk [Text Block] |
Reorganization
Risk. The Board of Trustees of the Fund has approved the reorganization of the Fund into ACP.
If approved by shareholders, the transaction is anticipated to be consummated during 2024, subject to the satisfaction of applicable regulatory
requirements and approvals and customary closing conditions. There is no assurance when or whether such approvals, or any other
approvals required for the transaction, will be obtained. Under the terms of the proposed transaction, shareholders of the Fund
would receive shares of ACP, which will have its own investment strategies, and thereafter cease to be a shareholder of the Fund.
More information on the proposed transaction, including the risks and considerations associated with the transaction as well as the risks
of investing in ACP, will be contained in registration statement/proxy materials that will shortly be finalized. Shareholders should
refer to such registration statement/proxy materials when they become available.
|
| Short Selling Risk [Member] |
|
| General Description of Registrant [Abstract] |
|
| Risk [Text Block] |
Short
Selling Risk. The Fund engages in short selling. Short sales are transactions in which the Fund
sells a security that it does not own but can borrow in the market and allows the Fund to profit from a decline in the market price (to
the extent such decline exceeds the transaction costs and the costs of borrowing the securities). If a security sold short increases in
price, the Fund may have to cover its short position at a higher price than the short sale price, resulting in a loss. Because losses
on short sales arise from increases in the value of the security sold short, such losses are theoretically unlimited. It is possible that
the Fund’s long securities positions will decline in value at the same time that the value of its short securities positions increase,
thereby increasing potential losses to the Fund. In addition, the Fund’s short selling strategies will limit its ability to fully
benefit from increases in the fixed-income markets.
The
Fund may not be able to borrow a security that it needs to deliver or it may not be able to close out a short position at an acceptable
price and may have to sell related long positions before it had intended to do so. Thus, the Fund may not be able to successfully implement
its short sale strategy due to limited availability of desired securities or for other reasons. Also, there is the risk that the counterparty
to a short sale may fail to honor its contractual terms, causing a loss to the Fund. Further, when the Fund is selling a security short,
it must maintain a segregated account of cash or high-grade securities equal to the margin requirement. As a result, the Fund may
maintain high levels of cash or other liquid assets, which may limit the Fund’s ability to pursue other opportunities.
|
| U S Government Securities Risk [Member] |
|
| General Description of Registrant [Abstract] |
|
| Risk [Text Block] |
U.S.
Government Securities Risk. U.S. government securities are subject to interest rate risk but generally
do not involve the credit risks associated with investments in other types of debt securities. As a result, the yields available from
U.S. government securities are generally lower than the yields available from other debt securities. U.S. government securities are guaranteed
only as to the timely payment of interest and the payment of principal when held to maturity.
|
| Valuation Risk [Member] |
|
| General Description of Registrant [Abstract] |
|
| Risk [Text Block] |
Valuation
Risk. Unlike publicly traded common stock which trades on national exchanges, there is no central place
or exchange for fixed-income securities trading. Fixed-income securities generally trade on an “over-the-counter” market which
may be anywhere in the world where the buyer and seller can settle on a price. Due to the lack of centralized information and trading,
the valuation of fixed-income securities may carry more risk than that of common stock. Uncertainties in the conditions of the financial
market, unreliable reference data, lack of transparency and inconsistency of valuation models and processes may lead to inaccurate asset
pricing.
|
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First Trust High Income ... (NYSE:FSD)
Historical Stock Chart
From Apr 2024 to May 2024
First Trust High Income ... (NYSE:FSD)
Historical Stock Chart
From May 2023 to May 2024
