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
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First Trust High Income Long/Short Fund
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(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(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
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(Name and address of agent for service)
registrant's telephone number, including area code: 630-765-8000
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Date of fiscal year end: October 31
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Date of reporting period: April 30, 2015
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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, 100 F Street, NE,
Washington, DC 20549. The OMB has reviewed this collection of information under
the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The Report to Shareholders is attached herewith.
FIRST TRUST
First Trust
High Income
Long/Short Fund
(FSD)
Semi-Annual Report
For the Six Months Ended
April 30, 2015
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TABLE OF CONTENTS
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First Trust High Income Long/Short Fund (FSD)
Semi-Annual Report
April 30, 2015
Shareholder Letter.......................................................... 1
At a Glance................................................................. 2
Portfolio Commentary........................................................ 3
Portfolio of Investments.................................................... 5
Statement of Assets and Liabilities......................................... 17
Statement of Operations..................................................... 18
Statements of Changes in Net Assets......................................... 19
Statement of Cash Flows..................................................... 20
Financial Highlights........................................................ 21
Notes to Financial Statements............................................... 22
Additional Information...................................................... 30
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
shares may therefore be less than what you paid for them. Accordingly, you can
lose money by investing in the Fund. See "Risk Considerations" in the Additional
Information section of this report for a discussion of certain other risks of
investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
http://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.
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 relevant market
benchmarks.
It is important to keep in mind that the opinions expressed by personnel of
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.
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SHAREHOLDER LETTER
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First Trust High Income Long/Short Fund (FSD)
Semi-Annual Letter from the Chairman and CEO
April 30, 2015
Dear Shareholders:
Thank you for your investment in First Trust High Income Long/Short Fund.
First Trust Advisors L.P. ("First Trust") is pleased to provide you with the
semi-annual report which contains detailed information about your investment for
the six months ended April 30, 2015, including a market overview and a
performance analysis for the period. We encourage you to read this report and
discuss it with your financial advisor.
U.S. markets, fueled by accelerating growth and an accommodating Federal
Reserve, enjoyed a prosperous year in 2014. However, for the six months covered
by this report, some economic and global factors, including the continued
conflict in the Middle East and a sharp decline in oil prices, created
volatility in the U.S. and global markets. Another factor that has impacted
markets is the fact that many economists are predicting the Federal Reserve will
begin to raise interest rates this year.
As I have written previously, First Trust believes investors should maintain
perspective about the markets and have realistic expectations about their
investments. Markets will always go up and down, but we believe that having a
long-term investment horizon and being invested in quality products can help you
reach your goals.
Thank you for giving First Trust the opportunity to be a part of your investment
plan. We value the relationship and will continue to focus on our disciplined
investment approach and long-term perspective to help investors reach their
financial goals.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 1
First Trust High Income Long/Short Fund (FSD)
"AT A GLANCE"
April 30, 2015 (Unaudited)
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FUND STATISTICS
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Symbol on NYSE FSD
Common Share Price $16.55
Common Share Net Asset Value ("NAV") $18.73
Premium (Discount) to NAV (11.64)%
Net Assets Applicable to Common Shares $675,353,795
Current Monthly Distribution per Common Share (1) $0.1065
Current Annualized Distribution per Common Share $1.2780
Current Distribution Rate on Closing Common Share Price (2) 7.72%
Current Distribution Rate on NAV (2) 6.82%
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COMMON SHARE PRICE & NAV (WEEKLY CLOSING PRICE)
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Common Share Price NAV
4/14 18.02 19.96
17.92 19.88
18.00 19.89
18.04 19.97
18.02 19.98
5/14 18.14 20.05
17.90 20.06
18.03 20.10
18.10 20.16
6/14 18.12 20.16
17.90 20.09
17.96 20.04
17.87 19.95
7/14 17.89 19.97
17.29 19.56
17.28 19.63
17.59 19.85
17.56 19.94
8/14 17.65 19.95
17.50 19.77
17.26 19.67
17.23 19.74
9/14 16.97 19.43
16.93 19.41
16.93 19.17
16.90 19.24
17.25 19.41
10/14 17.19 19.47
17.01 19.30
16.86 19.26
16.66 19.18
11/14 16.79 19.15
16.39 18.88
15.65 18.35
16.13 18.61
12/14 16.19 18.72
16.03 18.64
16.18 18.62
16.09 18.43
16.22 18.50
1/15 16.14 18.51
16.14 18.64
16.37 18.72
16.35 18.79
2/15 16.60 18.90
16.28 18.73
16.26 18.61
16.39 18.60
3/15 16.35 18.65
16.34 18.59
16.46 18.73
16.53 18.72
16.66 18.76
4/15 16.55 18.73
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PERFORMANCE
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Average Annual Total Return
6 Months Ended 1 Year Ended Inception (9/27/10)
4/30/15 4/30/15 to 4/30/15
FUND PERFORMANCE (3)
NAV 0.04% 1.25% 7.77%
Market Value 0.12% -0.92% 3.85%
INDEX PERFORMANCE
BofA Merrill Lynch US High Yield Constrained Index 1.52% 2.58% 8.07%
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% OF LONG-TERM
INDUSTRY CLASSIFICATION INVESTMENTS
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Basic Industry 13.9%
Energy 10.1
Healthcare 10.0
Automotive 8.7
Capital Goods 8.3
Telecommunications 6.8
Banking 6.3
Insurance 6.2
Leisure 5.1
Technology & Electronics 4.7
Transportation 4.7
Financial Services 4.3
Consumer Goods 2.9
Media 2.7
Services 1.8
Utility 1.2
Commercial Mortgage-Backed Securities 1.1
Collateralized Mortgage Obligations 0.5
Retail 0.5
Asset-Backed Securities 0.2
Real Estate 0.0*
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Total 100.0%
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% OF TOTAL
COUNTRY EXPOSURE INVESTMENTS
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United States 79.0%
Luxembourg 6.9
Canada 3.4
Netherlands 1.9
Jersey 1.3
United Kingdom 1.2
Liberia 0.9
Cayman Islands 0.8
Germany 0.7
Finland 0.6
France 0.6
Ireland 0.6
Georgia 0.5
India 0.4
Brazil 0.4
Bermuda 0.4
Sweden 0.4
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Total 100.0%
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% OF LONG-TERM
ASSET CLASSIFICATION INVESTMENTS
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Corporate Bonds and Notes 65.3%
Foreign Corporate Bonds and Notes 17.2
Capital Preferred Securities 10.8
Senior Floating-Rate Loan Interests 2.9
Mortgage-Backed Securities 1.6
Common Stocks 1.1
Foreign Sovereign Bonds and Notes 0.5
Warrants 0.4
Asset-Backed Securities 0.2
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Total 100.0%
======
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% OF LONG
FIXED-INCOME
CREDIT QUALITY (4) INVESTMENTS
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BBB- and above 14.3%
BB 45.7
B 29.2
CCC+ and below 10.3
NR 0.5
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Total 100.0%
======
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* Amount is less than 0.1%.
(1) Most recent distribution paid or declared through 4/30/2015. Subject to
change in the future.
(2) Distribution rates are calculated by annualizing the most recent
distribution paid or declared through the report date and then dividing by
Common Share price or NAV, as applicable, as of 4/30/2015. 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 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
less than one year. Past performance is not indicative of future results.
(4) The credit quality and ratings information presented above reflect the
ratings assigned by one or more nationally recognized statistical rating
organizations (NRSROs), including Standard & Poor's Ratings Group, a
division of The McGraw-Hill Companies, Inc., 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 ratings are 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.
Page 2
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PORTFOLIO COMMENTARY
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FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
SEMI-ANNUAL REPORT
APRIL 30, 2015 (UNAUDITED)
SUB-ADVISOR
MacKay Shields LLC is a registered investment adviser founded in 1938, and is
Sub-Advisor to First Trust High Income Long/Short Fund (the "Fund"). The Fund
trades under the ticker symbol FSD on the New York Stock Exchange. As of April
30, 2015, MacKay Shields had approximately $93 billion in assets under
management.
PORTFOLIO MANAGEMENT TEAM
DAN ROBERTS, PHD - EXECUTIVE MANAGING DIRECTOR, HEAD OF GLOBAL FIXED INCOME
DIVISION AND ITS CHIEF INVESTMENT OFFICER
LOUIS N. COHEN, CFA - SENIOR MANAGING DIRECTOR, GLOBAL FIXED INCOME DIVISION
MICHAEL KIMBLE, CFA - SENIOR MANAGING DIRECTOR, GLOBAL FIXED INCOME DIVISION
TAYLOR WAGENSEIL - SENIOR MANAGING DIRECTOR, GLOBAL FIXED INCOME DIVISION
MARKET RECAP
This report covers the Fund for the six-month period ending April 30, 2015.
Looking back to the start of the period as the year 2014 closed, investment
appetite for risky assets was in a weakened state resulting from the rapid
decline in commodity prices. West Texas Intermediate crude oil (WTI), which
started the period at $80.54, collapsed over 30% to $53.27 as of year-end and
further deteriorated through the first quarter of 2015 to $47.60. Thankfully,
this downward trend changed in April with a rebound in the price of oil as well
as other commodities, including copper and iron ore, which improved investor
sentiment. International equities, as measured by the MSCI EAFE Index, were the
best performers, returning 7.06% for the recent six-month period. U.S. equities,
represented by the Russell 2000 and the S&P 500 indices, gained 4.65% and 4.40%
respectively. The 10-year U.S. Treasury, as published by BofA Merrill Lynch,
benefitted from the flight to quality and increased by 3.59%. U.S.
investment-grade corporate bonds, although not as robust, rose 2.35%, according
to Barclays. US High Yield, as measured by the BofA Merrill Lynch US High Yield
Constrained Index, posted a modest return of 1.52%.
During the period, the markets continued to focus on a possible rate hike by the
Federal Reserve (the "Fed"). The Fed removed the word "patience" from its
language in March, but added "gradual" to its April statement. Such comments
coupled with the modest slackening in the domestic macro environment, prompted
the U.S. Treasury market to price in a longer glide path for Fed tightening,
thus stretching some forecasts from a June rate hike to one later in 2015.
Nevertheless, the glide path remains highly data-dependent. Evidently, the
stronger dollar did crimp U.S.-based multi-nationals' quarterly profits, and the
American consumer appears to be saving much of their windfall from lower prices
at the pump by paying down debt. Despite solid employment and wage data in the
U.S., the recent GDP print of -0.7% confirms slower domestic growth due to, in
part, another very cold winter. The situation may prove to be similar to the
growth swoon early last year, which was followed by significant pent-up demand
and a jump in GDP in 2Q 2014.
In Europe, we continue to see signs of a pick-up in credit demand from the
private sector (i.e., growth in bank lending) that has been noticeably absent in
recent years. While the partial rebound in the euro during the period has been
largely, but not completely, associated with "position squaring", the currency
remains well below its high and is a source of stimulus for continental
exporters. Furthermore, the lower level of oil prices should contribute to GDP
given Europe's status as a net importer of oil, in our opinion. The question of
Greece's solvency remains at the forefront; however, we believe a negative
outcome in its negotiations with the troika (representatives from the
International Monetary Fund, European Union and European Central Bank) does not
appear to present any systemic risk. Nevertheless, the potential for volatility
is high should "Grexit" become a reality, in our opinion. Finally, China remains
a global growth variable as that nation switches from over-investment in
infrastructure -- and the subsequent demand for many commodities -- to a more
balanced, consumption-oriented economy.
Page 3
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PORTFOLIO COMMENTARY (CONTINUED)
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FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
SEMI-ANNUAL REPORT
APRIL 30, 2015 (UNAUDITED)
PERFORMANCE ANALYSIS
The Fund underperformed its benchmark, the BofA Merrill Lynch US High Yield
Constrained Index(1), on a total gross return(2) and net asset value ("NAV")
basis for the six-month period ending April 30, 2015. The Fund returned 0.04% on
an NAV basis, compared with the benchmark, which gained 1.52%.
We continued to maintain a beta above the market and we elected not to employ
any meaningful changes with respect to industry weightings. The sectors we
continued to favor included gaming (a subsector within the services industry),
airlines, autos and energy. As we noted above, markets, including high yield,
experienced a high degree of volatility for the period, attributable largely to
the precipitous decline in oil prices. It is important to note that our
investments in energy are not predicated on the direction of oil prices.
Consistent with our investment process of avoiding uncompensated risk, we
declined to participate in the lower quality exploration & production new issues
(specifically, credits rated B-/B3 or below) during the reporting period.
Instead, we focused on the better quality companies with conservative balance
sheets in terms of leverage, liquidity and limited near-term debt maturities.
Consequently, we believe the majority of our investments have the financial and
operational flexibility to manage through the near-term volatility in the energy
sector. Within the energy sector, we are underweight exploration & production.
The top performing names during the period included automobile companies, GM and
Ford, as well as healthcare companies, HCA and Valeant Pharmaceuticals. The
laggards included energy companies, Samson Investments and Swift Energy, along
with Virgolino, a troubled emerging markets sugar producer. Alpha Natural and AK
Steel were also among the bottom performers.
The Fund continued to sell short U.S. Treasury bonds and interest rate futures.
Both positions are used to reduce the portfolio's exposure to interest rate
risk, while at the same time purchase additional high yield securities that
would otherwise be unavailable on an unlevered basis. The performance impact
from shorting Treasury bonds as well as the reinvestment of the proceeds into
high-yield bonds, combined with the cost of borrowing, detracted from results
during the period. The impact from shorting Treasury futures was just about
flat.
OUTLOOK
Our market outlook has not changed. The markets remain sensitive to economic
activity and its impact on the timing of potential Fed tightening. We are less
concerned with the precise timing of a rate hike, and recent volatility has not
deterred us from maintaining a constructive outlook on both domestic growth and
valuations within the credit markets. Given our outlook, we are still more
concerned about keeping up in a market rally than we are that the cycle has
reached a turning point. Accordingly, we will maintain our base case outlook for
domestic growth while emphasizing credit risk over interest rate risk.
-----------------------------
(1) The BofA Merrill Lynch US High Yield Constrained Index tracks the
performance of U.S. dollar denominated below investment grade corporate
debt publicly issued in the U.S. domestic market but caps issuer exposure
at 2%. The Index is unmanaged and an investor cannot invest directly in an
index.
(2) Total return is based on the combination of reinvested dividends, capital
gain and return of capital distributions, if any, at prices obtained by
the Dividend Reinvestment Plan and changes in NAV 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
less than one year. Past performance is not indicative of future results.
This material contains the opinions of the Global Fixed Income team of MacKay
Shields LLC but not necessarily those of MacKay Shields LLC. The opinions
expressed herein are subject to change without notice. Forecasts, estimates, and
certain information contained herein are based upon proprietary research and
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.
Page 4
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS
APRIL 30, 2015 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
------------- -------------------------------------------------------------- -------- -------- --------------
CORPORATE BONDS AND NOTES - 74.8%
AUTOMOTIVE - 6.7%
$ 3,300,000 Dana Holding Corp............................................. 5.50% 12/15/24 $ 3,407,250
334,000 FCA US LLC/CG Co-Issuer, Inc.................................. 8.00% 06/15/19 350,299
4,367,000 FCA US LLC/CG Co-Issuer, Inc. (a)............................. 8.25% 06/15/21 4,830,994
2,376,000 Ford Motor Co. (a)............................................ 9.22% 09/15/21 3,150,954
553,000 Ford Motor Co. (a)............................................ 8.90% 01/15/32 793,091
2,000,000 Ford Motor Co. (a)............................................ 7.75% 06/15/43 2,533,902
2,480,000 Ford Motor Co. (a)............................................ 9.98% 02/15/47 3,929,079
7,335,000 Gates Global LLC/Gates Global Co. (a) (b)..................... 6.00% 07/15/22 6,876,562
1,400,000 Goodyear Tire & Rubber (The) Co............................... 6.50% 03/01/21 1,488,200
5,396,000 Goodyear Tire & Rubber (The) Co. (a).......................... 7.00% 05/15/22 5,928,855
21,432 Motors Liquidation Co. GUC Trust (Transferable) (c)........... N/A N/A 428,640
4,570,000 MPG Holdco I, Inc. (b)........................................ 7.38% 10/15/22 4,889,900
4,872,000 Navistar International Corp. (a).............................. 8.25% 11/01/21 4,835,460
1,705,000 ZF North America Capital, Inc. (b)............................ 4.75% 04/29/25 1,717,787
--------------
45,160,973
--------------
BASIC INDUSTRY - 11.1%
4,500,000 AK Steel Corp. (a)............................................ 8.38% 04/01/22 3,892,500
3,095,000 Aleris International, Inc. (a)................................ 7.63% 02/15/18 3,211,063
2,160,000 Aleris International, Inc. (a)................................ 7.88% 11/01/20 2,241,518
966,000 Alpha Natural Resources, Inc. (b)............................. 7.50% 08/01/20 357,420
1,360,000 Alpha Natural Resources, Inc. (b)............................. 7.50% 08/01/20 503,200
1,255,000 Arch Coal, Inc................................................ 7.00% 06/15/19 282,375
1,428,000 Arch Coal, Inc................................................ 7.25% 10/01/20 503,370
1,125,000 Arch Coal, Inc................................................ 7.25% 06/15/21 250,313
4,405,000 Associated Materials LLC/AMH New Finance, Inc. (a)............ 9.13% 11/01/17 3,766,275
1,500,000 Axalta Coating Systems US Holdings, Inc./Axalta
Coating Systems Dutch Holding B B.V. (b)................... 7.38% 05/01/21 1,635,000
6,500,000 Beazer Homes USA, Inc. (a).................................... 8.13% 06/15/16 6,906,250
4,000,000 Cemex Finance LLC (b)......................................... 6.00% 04/01/24 4,112,400
1,820,000 Cliffs Natural Resources, Inc. (b)............................ 8.25% 03/31/20 1,792,700
4,410,000 Hexion, Inc. (a).............................................. 8.88% 02/01/18 3,941,437
3,426,000 Huntsman International LLC (a)................................ 8.63% 03/15/21 3,648,690
1,873,000 K Hovnanian Enterprises, Inc. (b)............................. 7.00% 01/15/19 1,798,080
4,160,000 K Hovnanian Enterprises, Inc. (b)............................. 7.25% 10/15/20 4,378,400
3,479,000 KB Home....................................................... 7.50% 09/15/22 3,652,950
1,840,000 Momentive Performance Escrow Claim (d) (e) (f) (g)............ N/A N/A 2
1,840,000 Momentive Performance Materials, Inc. (d)..................... 4.69% 04/24/22 1,564,000
1,780,000 PulteGroup, Inc. (a).......................................... 7.63% 10/15/17 1,993,600
4,570,000 PulteGroup, Inc. (a).......................................... 7.88% 06/15/32 5,346,900
5,500,000 Standard Pacific Corp. (a).................................... 8.38% 05/15/18 6,345,625
4,465,000 TRI Pointe Holdings, Inc. (b)................................. 5.88% 06/15/24 4,420,350
4,000,000 United States Steel Corp...................................... 7.38% 04/01/20 4,200,000
4,000,000 USG Corp. (b)................................................. 5.88% 11/01/21 4,310,000
--------------
75,054,418
--------------
See Notes to Financial Statements Page 5
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2015 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
------------- -------------------------------------------------------------- -------- -------- --------------
CORPORATE BONDS AND NOTES (CONTINUED)
CAPITAL GOODS - 7.5%
$ 3,595,000 Ball Corp. (a)................................................ 4.00% 11/15/23 $ 3,541,075
4,000,000 Crown Americas LlC/Crown Americas Capital Corp IV (a)......... 4.50% 01/15/23 4,040,000
2,000,000 Ducommun, Inc. (a)............................................ 9.75% 07/15/18 2,130,000
4,045,000 KLX, Inc. (b)................................................. 5.88% 12/01/22 4,090,506
5,000,000 Manitowoc (The) Co., Inc. (a)................................. 8.50% 11/01/20 5,375,000
2,871,000 Mcron Finance Sub LLC/ Mcron Finance Corp. (b)................ 8.38% 05/15/19 3,054,026
2,595,000 Milacron LLC/Mcron Finance Corp. (b).......................... 7.75% 02/15/21 2,711,775
7,500,000 Reynolds Group Issuer, Inc.................................... 8.50% 05/15/18 7,696,875
2,085,000 Reynolds Group Issuer, Inc. (a)............................... 9.88% 08/15/19 2,225,738
1,775,000 Reynolds Group Issuer, Inc.................................... 8.25% 02/15/21 1,897,031
4,050,000 Terex Corp.................................................... 6.00% 05/15/21 4,131,000
4,540,000 TransDigm, Inc. (a)........................................... 6.00% 07/15/22 4,591,075
1,000,000 TransDigm, Inc................................................ 6.50% 07/15/24 1,019,850
4,000,000 Triumph Group, Inc............................................ 4.88% 04/01/21 3,980,000
--------------
50,483,951
--------------
CONSUMER GOODS - 1.4%
4,245,000 HJ Heinz Co. (b).............................................. 4.88% 02/15/25 4,646,152
2,325,000 Pilgrim's Pride Corp. (b)..................................... 5.75% 03/15/25 2,388,938
2,240,000 Smithfield Foods, Inc......................................... 6.63% 08/15/22 2,422,000
--------------
9,457,090
--------------
ENERGY - 8.5%
1,280,000 Basic Energy Services, Inc.................................... 7.75% 02/15/19 1,100,800
4,540,000 Basic Energy Services, Inc. (a)............................... 7.75% 10/15/22 3,700,100
3,974,000 Berry Petroleum Co., LLC (a).................................. 6.75% 11/01/20 3,338,160
2,990,000 California Resources Corp. (b)................................ 6.00% 11/15/24 2,825,550
720,000 Chesapeake Energy Corp. (a)................................... 6.63% 08/15/20 745,200
6,600,000 Chesapeake Energy Corp. (a)................................... 5.38% 06/15/21 6,369,000
2,040,000 CITGO Petroleum Corp. (b)..................................... 6.25% 08/15/22 2,004,300
3,310,000 Crestwood Midstream Partners L.P./Crestwood
Midstream Finance Corp. (b)................................ 6.25% 04/01/23 3,475,500
4,135,000 EP Energy LLC/Everest Acquisition Finance, Inc. (a)........... 9.38% 05/01/20 4,445,125
3,000,000 Ferrellgas L.P./Ferrellgas Finance Corp. (a).................. 6.50% 05/01/21 3,060,000
800,000 Frontier Oil Corp. (a)........................................ 6.88% 11/15/18 832,000
1,000,000 Hornbeck Offshore Services, Inc............................... 5.88% 04/01/20 910,000
3,960,000 Hornbeck Offshore Services, Inc. (a).......................... 5.00% 03/01/21 3,316,500
3,660,000 Linn Energy LLC/Linn Energy Finance Corp...................... 8.63% 04/15/20 3,351,169
3,715,000 Linn Energy LLC/Linn Energy Finance Corp...................... 6.50% 09/15/21 3,046,300
3,535,000 PHI, Inc...................................................... 5.25% 03/15/19 3,428,950
3,998,000 Samson Investment Co.......................................... 9.75% 02/15/20 504,748
1,235,000 Suburban Propane Partners L.P./Suburban
Energy Finance Corp........................................ 5.75% 03/01/25 1,284,400
1,855,000 Sunoco L.P./Sunoco Finance Corp. (b).......................... 6.38% 04/01/23 1,938,475
3,695,000 Swift Energy Co............................................... 8.88% 01/15/20 1,755,125
5,800,000 Whiting Petroleum Corp........................................ 5.75% 03/15/21 5,912,404
--------------
57,343,806
--------------
Page 6 See Notes to Financial Statements
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2015 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
------------- -------------------------------------------------------------- -------- -------- --------------
CORPORATE BONDS AND NOTES (CONTINUED)
FINANCIAL SERVICES - 4.9%
$ 612,000 Ally Financial, Inc........................................... 8.00% 11/01/31 $ 804,398
3,285,000 Ally Financial, Inc. (a)...................................... 8.00% 11/01/31 4,134,994
6,155,000 Icahn Enterprises L.P./Icahn Enterprises Finance Corp. (a).... 6.00% 08/01/20 6,494,756
1,190,000 Icahn Enterprises L.P./Icahn Enterprises Finance Corp......... 5.88% 02/01/22 1,234,506
8,000,000 Navient Corp.................................................. 8.00% 03/25/20 8,929,920
3,850,000 OneMain Financial Holdings, Inc. (b).......................... 7.25% 12/15/21 4,085,620
2,395,000 Springleaf Finance Corp....................................... 6.00% 06/01/20 2,460,862
4,555,000 Springleaf Finance Corp....................................... 7.75% 10/01/21 5,033,275
--------------
33,178,331
--------------
HEALTHCARE - 7.8%
5,074,000 Alere, Inc. (a)............................................... 7.25% 07/01/18 5,410,152
665,000 Alere, Inc.................................................... 6.50% 06/15/20 696,588
2,725,000 CHS/Community Health Systems, Inc. (a)........................ 5.13% 08/01/21 2,834,000
5,360,000 CHS/Community Health Systems, Inc............................. 6.88% 02/01/22 5,715,100
2,500,000 DaVita Healthcare Partners, Inc. (a).......................... 5.75% 08/15/22 2,665,625
3,900,000 Endo Finance LLC/Endo Ltd./Endo Finco, Inc. (b)............... 6.00% 02/01/25 4,019,438
5,600,000 HCA Holdings, Inc. (a)........................................ 7.75% 05/15/21 5,978,000
10,850,000 HCA, Inc. (a)................................................. 5.00% 03/15/24 11,557,420
2,115,000 Kinetic Concepts, Inc./KCI USA, Inc........................... 10.50% 11/01/18 2,281,556
6,814,000 MPH Acquisition Holdings LLC (b).............................. 6.63% 04/01/22 7,171,803
4,235,000 Tenet Healthcare Corp. (a).................................... 8.13% 04/01/22 4,632,031
--------------
52,961,713
--------------
LEISURE - 4.8%
1,673,000 Caesars Entertainment Operating Co., Inc. (h) (i)............. 9.00% 02/15/20 1,292,393
2,600,000 Caesars Entertainment Resort Properties LLC/Caesars
Entertainment Resort Properties............................ 8.00% 10/01/20 2,613,000
225,000 Isle of Capri Casinos, Inc.................................... 5.88% 03/15/21 233,438
1,090,000 Isle of Capri Casinos, Inc. (b)............................... 5.88% 03/15/21 1,130,875
9,175,000 MGM Resorts International..................................... 6.75% 10/01/20 9,920,469
2,760,000 Mohegan Tribal Gaming Authority (a)........................... 9.75% 09/01/21 2,960,100
4,127,000 Pinnacle Entertainment, Inc................................... 7.75% 04/01/22 4,591,287
2,765,000 Scientific Games International, Inc. (b)...................... 7.00% 01/01/22 2,896,337
3,475,000 Scientific Games International, Inc. (b)...................... 10.00% 12/01/22 3,240,437
3,400,000 Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp. (b)........... 5.50% 03/01/25 3,429,750
--------------
32,308,086
--------------
MEDIA - 3.0%
7,245,000 CCO Holdings LLC/CCO Holdings Capital Corp.................... 5.75% 01/15/24 7,353,675
456,000 Clear Channel Worldwide Holdings, Inc......................... 7.63% 03/15/20 477,660
2,785,000 Clear Channel Worldwide Holdings, Inc. (a).................... 7.63% 03/15/20 2,938,175
541,000 Clear Channel Worldwide Holdings, Inc......................... 6.50% 11/15/22 574,812
559,000 iHeartCommunications, Inc. (a)................................ 5.50% 12/15/16 540,833
8,405,000 iHeartCommunications, Inc. (a)................................ 9.00% 03/01/21 8,089,812
495,000 IHeartcommunications, Inc. (b)................................ 10.63% 03/15/23 504,900
--------------
20,479,867
--------------
See Notes to Financial Statements Page 7
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2015 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
------------- -------------------------------------------------------------- -------- -------- --------------
CORPORATE BONDS AND NOTES (CONTINUED)
RETAIL - 0.6%
$ 3,845,000 Family Tree Escrow LLC (b).................................... 5.75% 03/01/23 $ 4,056,475
--------------
SERVICES - 2.0%
1,095,000 Ashtead Capital, Inc. (b)..................................... 6.50% 07/15/22 1,177,815
900,000 Avis Budget Car Rental LLC/Avis Budget Finance, Inc. (b)...... 5.13% 06/01/22 911,250
4,915,000 Avis Budget Car Rental LLC/Avis Budget Finance, Inc. (a)...... 5.50% 04/01/23 5,036,351
1,067,000 Iron Mountain, Inc. (a)....................................... 8.38% 08/15/21 1,115,015
375,000 United Rentals North America, Inc............................. 7.38% 05/15/20 406,234
367,000 United Rentals North America, Inc............................. 7.63% 04/15/22 406,453
3,097,000 United Rentals North America, Inc............................. 6.13% 06/15/23 3,261,915
1,400,000 United Rentals North America, Inc............................. 5.50% 07/15/25 1,423,520
--------------
13,738,553
--------------
TECHNOLOGY & ELECTRONICS - 5.4%
3,780,000 CommScope, Inc. (b)........................................... 5.00% 06/15/21 3,798,900
9,050,000 First Data Corp. (b).......................................... 8.88% 08/15/20 9,593,000
2,621,000 First Data Corp............................................... 10.63% 06/15/21 2,987,127
2,950,000 Freescale Semiconductor, Inc. (b)............................. 5.00% 05/15/21 3,149,125
5,540,000 NCR Corp. (a)................................................. 6.38% 12/15/23 5,858,550
6,460,000 SunGard Data Systems, Inc..................................... 6.63% 11/01/19 6,758,775
3,885,000 Zebra Technologies Corp. (b).................................. 7.25% 10/15/22 4,205,513
--------------
36,350,990
--------------
TELECOMMUNICATIONS - 6.2%
1,550,000 Frontier Communications Corp.................................. 6.25% 09/15/21 1,542,250
2,500,000 Frontier Communications Corp. (a)............................. 9.00% 08/15/31 2,643,750
2,411,000 Hughes Satellite Systems Corp. (a)............................ 7.63% 06/15/21 2,697,306
5,450,000 Sprint Capital Corp........................................... 6.88% 11/15/28 4,945,875
7,660,000 Sprint Capital Corp. (a)...................................... 8.75% 03/15/32 7,870,650
4,000,000 Sprint Communications, Inc.................................... 9.25% 04/15/22 4,480,000
1,700,000 T-Mobile USA, Inc............................................. 6.54% 04/28/20 1,799,790
2,750,000 T-Mobile USA, Inc............................................. 6.13% 01/15/22 2,846,250
7,900,000 T-Mobile USA, Inc............................................. 6.00% 03/01/23 8,070,245
1,000,000 T-Mobile USA, Inc............................................. 6.38% 03/01/25 1,029,490
2,428,000 ViaSat, Inc................................................... 6.88% 06/15/20 2,593,857
1,500,000 Windstream Services LLC....................................... 6.38% 08/01/23 1,329,375
--------------
41,848,838
--------------
TRANSPORTATION - 3.5%
3,400,000 American Airlines Group, Inc. (b)............................. 4.63% 03/01/20 3,361,750
3,364,573 Continental Airlines 2003-ERJ1 Pass Through Trust............. 7.88% 07/02/18 3,553,663
1,967,012 Continental Airlines 2005-ERJ1 Pass Through Trust............. 9.80% 04/01/21 2,207,971
1,406,337 Delta Air Lines 2009-1 Series B Pass Through Trust............ 9.75% 12/17/16 1,561,034
2,155,550 Northwest Airlines 2001-1 Class B Pass Through Trust.......... 7.69% 04/01/17 2,360,327
1,572,042 UAL 2009-2B Pass Through Trust (b)............................ 12.00% 01/15/16 1,678,155
6,194,667 US Airways 2000-3C Pass Through Trust......................... 8.39% 03/01/22 6,969,000
2,000,000 US Airways Group, Inc......................................... 6.13% 06/01/18 2,108,750
--------------
23,800,650
--------------
Page 8 See Notes to Financial Statements
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2015 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
------------- -------------------------------------------------------------- -------- -------- --------------
CORPORATE BONDS AND NOTES (CONTINUED)
UTILITY - 1.4%
$ 6,660,000 Calpine Corp.................................................. 5.75% 01/15/25 $ 6,718,608
2,455,000 NRG Energy, Inc. (a).......................................... 8.25% 09/01/20 2,602,300
--------------
9,320,908
--------------
TOTAL CORPORATE BONDS AND NOTES...................................................... 505,544,649
(Cost $503,140,320) --------------
PRINCIPAL
VALUE
(LOCAL STATED STATED VALUE
CURRENCY) DESCRIPTION RATE MATURITY (U.S. DOLLARS)
------------- -------------------------------------------------------------- -------- -------- --------------
FOREIGN CORPORATE BONDS AND NOTES - 19.7%
AUTOMOTIVE - 0.6%
4,120,000 Schaeffler Finance B.V. (USD) (b)............................. 4.75% 05/15/21 4,233,300
--------------
BANKING - 1.6%
1,670,000 Banco do Brasil S.A. (USD) (b)................................ 5.88% 01/26/22 1,690,374
1,830,000 Banco do Brasil S.A. (USD) (b)................................ 5.88% 01/19/23 1,861,476
4,350,000 Industrial Senior Trust (USD) (b)............................. 5.50% 11/01/22 4,308,675
3,700,000 Sberbank of Russia Via SB Capital S.A. (USD).................. 5.13% 10/29/22 3,089,500
--------------
10,950,025
--------------
BASIC INDUSTRY - 4.9%
2,648,000 ArcelorMittal (USD) (a)....................................... 7.00% 02/25/22 2,889,630
10,362,000 ArcelorMittal (USD)........................................... 7.75% 10/15/39 10,750,575
505,000 ArcelorMittal (USD)........................................... 7.50% 03/01/41 518,888
6,450,000 Novelis, Inc. (USD) (a)....................................... 8.75% 12/15/20 6,917,625
3,700,000 Severstal OAO Via Steel Capital S.A. (USD) (b)................ 5.90% 10/17/22 3,501,680
4,200,000 Stora Enso OYJ (USD) (b)...................................... 7.25% 04/15/36 4,767,000
3,470,000 Vedanta Resources PLC (USD) (b)............................... 8.25% 06/07/21 3,467,831
--------------
32,813,229
--------------
CAPITAL GOODS - 1.9%
3,000,000 Albea Beauty Holdings S.A. (USD) (b).......................... 8.38% 11/01/19 3,255,000
3,000,000 Ardagh Packaging Finance PLC (EUR)............................ 9.25% 10/15/20 3,612,774
900,000 Ardagh Packaging Finance PLC/Ardagh
Holdings USA, Inc. (USD) (b)............................... 6.00% 06/30/21 918,000
2,480,000 Bombardier, Inc. (USD) (b).................................... 6.00% 10/15/22 2,343,600
3,000,000 Bombardier, Inc. (USD) (b).................................... 6.13% 01/15/23 2,882,100
--------------
13,011,474
--------------
CONSUMER GOODS - 0.9%
5,900,000 Minerva Luxembourg S.A. (USD) (b)............................. 7.75% 01/31/23 5,900,000
--------------
See Notes to Financial Statements Page 9
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2015 (UNAUDITED)
PRINCIPAL
VALUE
(LOCAL STATED STATED VALUE
CURRENCY) DESCRIPTION RATE MATURITY (U.S. DOLLARS)
------------- -------------------------------------------------------------- -------- -------- --------------
FOREIGN CORPORATE BONDS AND NOTES (CONTINUED)
ENERGY - 2.6%
1,500,000 CGG S.A. (USD)................................................ 6.50% 06/01/21 $ 1,222,500
7,056,000 CHC Helicopter S.A. (USD)..................................... 9.25% 10/15/20 6,193,757
1,650,000 Gazprom OAO Via Gaz Capital S.A. (EUR)........................ 3.60% 02/26/21 1,727,647
1,500,000 Gazprom OAO Via Gaz Capital S.A. (USD) (b).................... 8.63% 04/28/34 1,713,750
970,000 Petrobras Global Finance BV (USD)............................. 6.25% 03/17/24 966,217
2,120,000 Petrobras Global Finance BV (USD)............................. 7.25% 03/17/44 2,092,970
1,700,000 Precision Drilling Corp. (USD)................................ 6.63% 11/15/20 1,721,250
1,750,000 Precision Drilling Corp. (USD)................................ 6.50% 12/15/21 1,719,375
--------------
17,357,466
--------------
HEALTHCARE - 2.7%
6,650,000 Mallinckrodt International Finance S.A./ Mallinckrodt
CB LLC (USD) (b)........................................... 5.75% 08/01/22 6,891,063
6,550,000 Valeant Pharmaceuticals International, Inc. (USD) (b)......... 7.50% 07/15/21 7,131,312
2,300,000 Valeant Pharmaceuticals International, Inc. (USD) (b)......... 5.88% 05/15/23 2,366,125
2,045,000 Valeant Pharmaceuticals International, Inc. (USD) (b)......... 6.13% 04/15/25 2,115,297
--------------
18,503,797
--------------
INSURANCE - 0.5%
3,500,000 Oil Insurance Ltd. (USD) (b).................................. 3.26% (j) 3,045,000
--------------
LEISURE - 1.0%
,755,000 Royal Caribbean Cruises Ltd. (USD)............................ 7.50% 10/15/27 6,834,062
--------------
MEDIA - 0.3%
2,145,000 UPCB Finance IV Ltd. (USD) (b)................................ 5.38% 01/15/25 2,190,581
--------------
TELECOMMUNICATIONS - 1.3%
5,859,000 Intelsat Luxembourg S.A. (USD)................................ 7.75% 06/01/21 5,404,927
2,160,000 Intelsat Luxembourg S.A. (USD)................................ 8.13% 06/01/23 1,987,870
880,000 Telecom Italia Capital S.A. (USD)............................. 7.20% 07/18/36 1,012,000
--------------
8,404,797
--------------
TRANSPORTATION - 1.4%
5,250,000 Hapag-Lloyd AG (USD) (b)...................................... 9.75% 10/15/17 5,512,500
3,000,000 Stena AB (USD) (b)............................................ 7.00% 02/01/24 2,895,000
1,930,000 Ukraine Railways via Shortline PLC (USD) (b).................. 9.50% 05/21/18 1,138,688
--------------
9,546,188
--------------
TOTAL FOREIGN CORPORATE BONDS AND NOTES.............................................. 132,789,919
(Cost $133,404,302) --------------
Page 10 See Notes to Financial Statements
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2015 (UNAUDITED)
PAR
AMOUNT
(LOCAL STATED STATED VALUE
CURRENCY) DESCRIPTION RATE MATURITY (U.S. DOLLARS)
------------- -------------------------------------------------------------- -------- -------- --------------
CAPITAL PREFERRED SECURITIES - 12.4%
BANKING - 5.6%
1,400,000 Barclays PLC (EUR) (k)........................................ 6.50% (j) $ 1,601,822
5,500,000 Citigroup, Inc., Series M (USD) (a) (k)....................... 6.30% (j) 5,578,650
3,250,000 Dresdner Funding Trust I (USD) (b)............................ 8.15% 06/30/31 4,082,812
5,325,000 HBOS Capital Funding L.P. (GBP) (k)........................... 6.46% (j) 8,838,762
700,000 HSBC Bank Capital Funding Sterling 1 L.P. (GBP) (k)........... 5.84% (j) 1,227,608
3,600,000 HSBC Holdings PLC (USD) (a) (k)............................... 6.38% (j) 3,726,900
3,400,000 ICICI Bank Ltd. (USD) (k)..................................... 6.38% 04/30/22 3,561,500
3,250,000 Mellon Capital III (GBP) (k).................................. 6.37% 09/05/66 5,225,682
4,095,000 Wells Fargo & Co. (USD) (a) (k)............................... 5.90% (j) 4,299,750
--------------
38,143,486
--------------
CAPITAL GOODS - 0.1%
700,000 Textron Financial Corp. (USD) (b) (k)......................... 6.00% 02/15/67 633,500
--------------
INSURANCE - 6.7%
4,600,000 American International Group, Inc. (USD) (a) (k).............. 8.18% 05/15/58 6,394,000
5,000,000 Chubb (The) Corp. (USD) (a) (k)............................... 6.38% 03/29/67 5,325,000
3,500,000 CNP Assurances (EUR) (k)...................................... 5.25% (j) 3,419,082
11,000,000 Glen Meadow Pass Through Trust (USD) (b) (k).................. 6.51% 02/12/67 10,340,000
5,000,000 ING Groep N.V. (GBP) (k)...................................... 5.14% (j) 7,828,449
6,500,000 Liberty Mutual Group, Inc. (USD) (b) (k)...................... 7.00% 03/15/37 6,735,625
3,500,000 Lincoln National Corp. (USD) (a) (k).......................... 7.00% 05/17/66 3,368,750
1,800,000 Lincoln National Corp. (USD) (a) (k).......................... 6.05% 04/20/67 1,728,000
--------------
45,138,906
--------------
TOTAL CAPITAL PREFERRED SECURITIES................................................... 83,915,892
(Cost $78,075,970) --------------
PRINCIPAL STATED STATED
VALUE DESCRIPTION RATE (l) MATURITY (m) VALUE
------------- -------------------------------------------------------------- -------- ------------ --------------
SENIOR FLOATING-RATE LOAN INTERESTS - 3.3%
AUTOMOTIVE - 0.9%
$ 4,405,650 Allison Transmission, Inc. Term Loan B3....................... 3.50% 08/23/19 4,428,780
1,743,750 Navistar, Inc. Term Loan B.................................... 5.75% 08/17/17 1,751,387
--------------
6,180,167
--------------
CONSUMER GOODS - 1.0%
6,732,000 Aramark Corp. F Term Loan..................................... 3.25% 02/24/21 6,732,000
--------------
HEALTHCARE - 0.9%
6,262,675 Ortho-Clinical Term Loan B3................................... 4.75% 06/30/21 6,240,756
--------------
REAL ESTATE - 0.0%
182,351 Realogy Synthetic Letter of Credit............................ 4.43% 10/10/16 180,527
--------------
TRANSPORTATION - 0.5%
2,970,000 US Airway Group Term Loan B1.................................. 3.50% 05/23/19 2,970,743
--------------
TOTAL SENIOR FLOATING-RATE LOAN INTERESTS............................................ 22,304,193
(Cost $22,195,727) --------------
See Notes to Financial Statements Page 11
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2015 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
------------- -------------------------------------------------------------- -------- -------- --------------
MORTGAGE-BACKED SECURITIES - 1.9%
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.6%
Morgan Stanley Mortgage Loan Trust
$ 820,940 Series 2007-6XS, Class 2A1S (n)............................ 0.29% 02/25/47 $ 789,178
Specialty Underwriting & Residential Finance Trust
1,565,860 Series 2006-BC4, Class A2B (n)............................. 0.29% 09/25/37 785,422
Wells Fargo Mortgage Backed Securities Trust
2,815,148 Series 2006-AR7 Trust, Class 2A4 (n)....................... 2.71% 05/25/36 2,676,395
--------------
4,250,995
--------------
COMMERCIAL MORTGAGE-BACKED SECURITIES - 1.3%
Ace Securities Corp. Home Equity Loan Trust
2,852,331 Series 2007-HE2, Class A2A (n)............................. 0.30% 12/25/36 1,740,258
Carrington Mortgage Loan Trust
1,418,769 Series 2006-NC4, Class A5 (n).............................. 0.24% 10/25/36 1,299,033
HSI Asset Securitization Corp. Trust
498,204 Series 2007-NC1, Class A1 (n).............................. 0.28% 04/25/37 491,707
Morgan Stanley ABS Capital I, Inc. Trust
696,308 Series 2006-HE6, Class A2B (n)............................. 0.28% 09/25/36 395,297
Securitized Asset Backed Receivables LLC Trust
8,926,539 Series 2006-FR4, Class A2A (n)............................. 0.26% 08/25/36 3,955,251
Soundview Home Loan Trust
913,361 Series 2006-EQ2, Class A2 (n).............................. 0.29% 01/25/37 633,999
--------------
8,515,545
--------------
TOTAL MORTGAGE-BACKED SECURITIES..................................................... 12,766,540
(Cost $15,044,611) --------------
ASSET-BACKED SECURITIES - 0.2%
Keycorp Student Loan Trust
1,608,953 Series 2000-A, Class A2 (n)................................... 0.58% 05/25/29 1,562,766
--------------
TOTAL ASSET-BACKED SECURITIES........................................................ 1,562,766
(Cost $1,468,007) --------------
PRINCIPAL
VALUE
(LOCAL STATED STATED VALUE
CURRENCY) DESCRIPTION RATE MATURITY (U.S. DOLLARS)
------------- -------------------------------------------------------------- -------- -------- --------------
FOREIGN SOVEREIGN BONDS AND NOTES - 0.6%
ENERGY - 0.6%
3,750,000 Georgian Oil and Gas Corp. JSC (USD) (b)...................... 6.88% 05/16/17 3,806,250
--------------
TOTAL FOREIGN SOVEREIGN BONDS AND NOTES.............................................. 3,806,250
(Cost $3,734,714) --------------
Page 12 See Notes to Financial Statements
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2015 (UNAUDITED)
SHARES DESCRIPTION VALUE
------------- ------------------------------------------------------------------------------------- --------------
COMMON STOCKS - 1.3%
AUTOMOTIVE - 1.3%
448,000 Ford Motor Co........................................................................ $ 7,078,400
42,560 General Motors Co.................................................................... 1,492,154
--------------
TOTAL COMMON STOCKS.................................................................. 8,570,554
(Cost $8,641,784) --------------
WARRANTS - 0.4%
AUTOMOTIVE - 0.4%
83,999 General Motors Co., expiring 07/10/16 (g)............................................ 2,151,215
48,926 General Motors Co., expiring 07/10/19 (g)............................................ 849,355
--------------
TOTAL WARRANTS....................................................................... 3,000,570
(Cost $3,321,425) --------------
SHORT-TERM INVESTMENTS - 3.2%
21,439,596 Dreyfus Government Cash Management - Institutional Shares............................ 21,439,596
--------------
TOTAL SHORT-TERM INVESTMENTS......................................................... 21,439,596
(Cost $21,439,596) --------------
TOTAL INVESTMENTS - 117.8%........................................................... 795,700,929
(Cost $790,466,456) (o)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
------------- -------------------------------------------------------------- -------- -------- --------------
U.S. GOVERNMENT BONDS SOLD SHORT - (17.8%)
$(119,200,000) United States Treasury Note................................... 0.88% 02/28/17 (119,917,107)
--------------
TOTAL U.S. GOVERNMENT BONDS SOLD SHORT............................................... (119,917,107)
(Proceeds $119,676,766) --------------
CORPORATE BONDS SOLD SHORT - (1.6%)
CONSUMER GOODS - (0.8%)
(5,350,000) ACCO Brands Corp.............................................. 6.75% 04/30/20 (5,657,625)
--------------
ENERGY - (0.8%)
(5,360,000) Rice Energy, Inc.............................................. 6.25% 05/01/22 (5,413,600)
--------------
TOTAL CORPORATE BONDS SOLD SHORT..................................................... (11,071,225)
(Proceeds $10,871,700) --------------
TOTAL INVESTMENTS SOLD SHORT - (19.4%)............................................... (130,988,332)
(Proceeds $130,548,466)
OUTSTANDING LOAN - (0.1%)............................................................ (521,540)
NET OTHER ASSETS AND LIABILITIES - 1.7%.............................................. 11,162,738
--------------
NET ASSETS - 100.0%.................................................................. $ 675,353,795
==============
See Notes to Financial Statements Page 13
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2015 (UNAUDITED)
(a) This security or a portion of this security is segregated as collateral
for investments sold short.
(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, and may be resold in transactions exempt from
registration, normally to qualified institutional buyers. Pursuant to
procedures adopted by the Fund's 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 April 30, 2015, securities noted as such
amounted to $222,064,703 or 32.88% of net assets.
(c) The Fund previously held non-transferable trust units that were originally
issued to facilitate distribution of General Motors common stock and
warrants pursuant to the General Motors Bankruptcy Plan of Reorganization.
The non-transferable trust units existed only for the purpose of receiving
residual cash, if any, from the General Motors Bankruptcy. These units
were received in exchange for the previously owned General Motors 8.375%
Corporate Notes that were scheduled to mature on July 15, 2033. On June
12, 2012, the holders of these units received new transferable General
Motors Unsecured Claim (GUC) Trust Units, which were created to hold and
administer the common stock and warrants of General Motors Company to be
contributed to the GUC Trust under the General Motors Bankruptcy Plan of
Reorganization.
(d) On October 24, 2014, Momentive Performance Materials, Inc. completed a
Bankruptcy Plan of Reorganization. As part of the Bankruptcy Plan of
Reorganization, the holders of Momentive Performance Materials, Inc.
Senior Secured Lien Notes ("Senior Secured Lien Notes") scheduled to
mature on October 15, 2020, received new Momentive Performance Materials,
Inc. Second Priority Senior Secured Notes maturing on April 24, 2022, in
an exchange for the existing Senior Secured Lien Notes, and received an
escrow claim, Momentive Performance Escrow Claim. The escrow claim
represents a claim on any cash that remains in a Fee Reserve account. It
is unknown if any remaining cash held in the Fee Reserve account will be
available after future legal and financial costs are paid.
(e) This security is fair valued by the Advisor's Pricing Committee in
accordance with procedures adopted by the Fund's Board of Trustees, and in
accordance with the provisions of the Investment Company Act of 1940, as
amended. At April 30, 2015, securities noted as such are valued at $2 or
0.00% of net assets.
(f) Pursuant to procedures adopted by the Fund's Board of Trustees, this
security has been determined to be illiquid by the Fund's Sub-Advisor.
(g) Non-income producing security.
(h) This issuer has filed for protection in federal bankruptcy court.
(i) This issuer is in default and interest is not being accrued.
(j) Perpetual maturity.
(k) Fixed-to-floating or fixed-to-variable rate security. The interest rate
shown reflects the fixed rate in effect at April 30, 2015. At a
predetermined date, the fixed rate will change to a floating rate or a
variable rate.
(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 London Inter-Bank Offered Rate ("LIBOR"), (ii) the
prime rate offered by one or more United States banks or (iii) the
certificate of deposit rate. Certain Senior Loans are subject to a LIBOR
floor that establishes a minimum LIBOR rate. The interest rate shown
reflects the rate in effect at April 30, 2015. When a range of rates is
disclosed, the Fund holds more than one contract within the same tranche
at varying rates.
(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) Floating rate security. The interest rate shown reflects the rate in
effect at April 30, 2015.
(o) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of April 30, 2015, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $32,715,569 and the aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over value was $27,481,096.
Currency Abbreviations:
EUR Euro
GBP British Pound Sterling
USD United States Dollar
Page 14 See Notes to Financial Statements
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2015 (UNAUDITED)
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of April 30,
2015 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
ASSETS TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
INVESTMENTS 4/30/2015 PRICES INPUTS INPUTS
-------------------------------------------- ---------------- ---------------- ---------------- ----------------
Corporate Bonds and Notes:
Automotive............................... $ 45,160,973 $ 428,640 $ 44,732,333 $ --
Basic Industry........................... 75,054,418 -- 75,054,416 2
Other Industry Categories*............... 385,329,258 -- 385,329,258 --
Foreign Corporate Bonds and Notes*.......... 132,789,919 -- 132,789,919 --
Capital Preferred Securities*............... 83,915,892 -- 83,915,892 --
Senior Floating-Rate Loan Interests*........ 22,304,193 -- 22,304,193 --
Mortgage-Backed Securities:
Collateralized Mortgage Obligations...... 4,250,995 -- 4,250,995 --
Commercial Mortgage-Backed Securities.... 8,515,545 -- 8,515,545 --
Asset-Backed Securities..................... 1,562,766 -- 1,562,766 --
Foreign Sovereign Bonds and Notes*.......... 3,806,250 -- 3,806,250 --
Common Stocks*.............................. 8,570,554 8,570,554 -- --
Warrants*................................... 3,000,570 3,000,570 -- --
Short-Term Investments...................... 21,439,596 21,439,596 -- --
---------------- ---------------- ---------------- ----------------
Total Investments........................... 795,700,929 33,439,360 762,261,567 2
---------------- ---------------- ---------------- ----------------
Other Financial Instruments:
Forward Foreign Currency Contracts**........ 148,753 -- 148,753 --
---------------- ---------------- ---------------- ----------------
Total....................................... $ 795,849,682 $ 3 3,439,360 $ 762,410,320 $ 2
================ ================ ================ ================
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
4/30/2015 PRICES INPUTS INPUTS
---------------- ---------------- ---------------- ----------------
U.S. Government Bonds Sold Short............ $ (119,917,107) $ -- $ (119,917,107) $ --
Corporate Bonds Sold Short*................. (11,071,225) -- (11,071,225) --
Forward Foreign Currency Contracts**........ (80,814) -- (80,814) --
Futures Contracts........................... (98,608) -- (98,608) --
Credit Default Swap***...................... (298,420) -- (298,420) --
---------------- ---------------- ---------------- ----------------
Total....................................... $ (131,466,174) $ -- $ (131,466,174) $ --
================ ================ ================ ================
* See the Portfolio of Investments for industry breakout.
** See the Forward Foreign Currency Contracts table for contract and currency
detail.
*** See the Credit Default Swap Contracts Outstanding for contract
detail.
See Notes to Financial Statements Page 15
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2015 (UNAUDITED)
The following table presents the activity of the Fund's investments measured at
fair value on a recurring basis using significant unobservable inputs (Level 3)
for the period presented.
BEGINNING BALANCE AT OCTOBER 31, 2014
Corporate Bonds and Notes.............. $ 2
Net Realized Gain (Loss).................... --
Net Change in Unrealized Appreciation/
Depreciation........................... --
Purchases................................... --
Sales....................................... --
Transfers In................................ --
Transfers Out............................... --
ENDING BALANCE AT APRIL 30, 2015
Corporate Bonds and Notes.............. 2
----------------
Total Level 3 holdings...................... $ 2
================
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at April 30, 2015.
FORWARD FOREIGN CURRENCY CONTRACTS: (see Note 2D - Forward Foreign Currency
Contracts in the Notes to Financial Statements):
FORWARD FOREIGN CURRENCY CONTRACTS
--------------------------------------------------
PURCHASE SALE UNREALIZED
SETTLEMENT AMOUNT AMOUNT VALUE AS OF VALUE AS OF APPRECIATION/
DATE COUNTERPARTY PURCHASED + SOLD + APRIL 30, 2015 APRIL 30, 2015 (DEPRECIATION)
---------- ------------ -------------- -------------- ---------------- ---------------- --------------
07/16/15 JPM USD 10,456,950 EUR 9,375,000 $ 10,456,950 $ 10,537,764 $ (80,814)
07/16/15 JPM USD 23,485,176 GBP 15,211,000 23,485,176 23,336,423 148,753
--------------
Net Unrealized Appreciation (Depreciation)....................................................... $ 67,939
==============
+ Please see Portfolio of Investments for currency descriptions.
Counterparty Abbreviations:
JPM JPMorgan Chase
OPEN FUTURES CONTRACTS AT APRIL 30, 2015 (see Note 2F - Futures Contracts in the
Notes to Financial Statements):
UNREALIZED
NUMBER OF EXPIRATION NOTIONAL APPRECIATION/
SHORT FUTURES CONTRACTS CONTRACTS MONTH VALUE (DEPRECIATION)
----------------------------------------------------------------------------------------------
U.S. Treasury 2-Year Notes 94 June-2015 $20,512,563 $ (98,608)
CREDIT DEFAULT SWAP CONTRACTS OUTSTANDING
BUY/SELL NOTIONAL PAY/RECEIVE EXPIRATION
REFERENCE ENTITY PROTECTION COUNTERPARTY AMOUNT FIXED RATE DATE VALUE
---------------------- ---------- -------------- ---------- ------------ ---------- ----------
Markit iTRAXX Buy Morgan Stanley $6,000,000 5.00% 6/20/20 $(298,420)
Europe Crossover Index & Co., Inc.
Page 16 See Notes to Financial Statements
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2015 (UNAUDITED)
ASSETS:
Investments, at value
(Cost $790,466,456)........................................................................... $ 795,700,929
Cash............................................................................................... 80,523
Foreign currency (Cost $38,144).................................................................... 39,273
Restricted cash.................................................................................... 573,859
Unrealized appreciation on forward foreign currency contracts...................................... 148,753
Receivables:
Interest...................................................................................... 12,515,625
Investment securities sold.................................................................... 1,342,871
Due from broker............................................................................... 277,588
Dividends..................................................................................... 67,200
Variation margin.............................................................................. 7,344
Prepaid expenses................................................................................... 32,102
Other assets....................................................................................... 4,594
--------------
Total Assets.................................................................................. 810,790,661
--------------
LIABILITIES:
Investments sold short, at value (proceeds $130,548,466)........................................... 130,988,332
Borrowings......................................................................................... 521,540
Swap contracts, at value (Cost $706,426)........................................................... 298,420
Unrealized depreciation on forward foreign currency contracts...................................... 80,814
Payables:
Investment securities purchased............................................................... 2,380,276
Investment advisory fees...................................................................... 554,210
Interest on investments sold short............................................................ 344,209
Administrative fees........................................................................... 150,851
Custodian fees................................................................................ 47,930
Audit and tax fees............................................................................ 31,948
Legal fees.................................................................................... 16,784
Printing fees................................................................................. 10,175
Transfer agent fees........................................................................... 6,265
Trustees' fees and expenses................................................................... 3,261
Financial reporting fees...................................................................... 771
Other liabilities.................................................................................. 1,080
--------------
Total Liabilities............................................................................. 135,436,866
--------------
NET ASSETS......................................................................................... $ 675,353,795
==============
NET ASSETS CONSIST OF:
Paid-in capital.................................................................................... $ 684,571,906
Par value.......................................................................................... 360,561
Accumulated net investment income (loss)........................................................... 1,589,274
Accumulated net realized gain (loss) on investments, forward foreign currency
contracts, swap contracts, foreign currency transactions, futures and investments sold short..... (15,867,568)
Net unrealized appreciation (depreciation) on investments, forward foreign
currency contracts, swap contracts, foreign currency translation, futures and investments
sold short....................................................................................... 4,699,622
--------------
NET ASSETS......................................................................................... $ 675,353,795
==============
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share)............................... $ 18.73
==============
Number of Common Shares outstanding (unlimited number of Common Shares has been authorized)........ 36,056,159
==============
See Notes to Financial Statements Page 17
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 2015 (UNAUDITED)
INVESTMENT INCOME:
Interest........................................................................................... $ 26,399,669
Dividends.......................................................................................... 175,489
Other.............................................................................................. 331,742
--------------
Total investment income....................................................................... 26,906,900
--------------
EXPENSES:
Investment advisory fees........................................................................... 3,352,522
Interest expense on investments sold short......................................................... 1,009,131
Margin interest expense............................................................................ 712,817
Short sale fees.................................................................................... 343,292
Administrative fees................................................................................ 258,674
Printing fees...................................................................................... 68,398
Custodian fees..................................................................................... 54,186
Audit and tax fees................................................................................. 28,338
Legal fees......................................................................................... 13,329
Trustees' fees and expenses........................................................................ 13,142
Transfer agent fees................................................................................ 13,042
Financial reporting fees........................................................................... 4,625
Other.............................................................................................. 170,622
--------------
Total expenses................................................................................ 6,042,118
--------------
NET INVESTMENT INCOME (LOSS)....................................................................... 20,864,782
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments................................................................................... (2,929,840)
Forward foreign currency contracts............................................................ 2,437,582
Swap contracts................................................................................ (252,925)
Foreign currency transactions................................................................. (182,512)
Futures....................................................................................... (173,215)
Short sales................................................................................... (869,259)
--------------
Net realized gain (loss).......................................................................... (1,970,169)
--------------
Net change in unrealized appreciation (depreciation) on:
Investments................................................................................... (20,103,788)
Forward foreign currency contracts............................................................ (1,847,988)
Swap contracts................................................................................ (51,100)
Foreign currency translation.................................................................. 52,960
Futures....................................................................................... 11,430
Short positions............................................................................... (517,060)
--------------
Net change in unrealized appreciation (depreciation)............................................... (22,455,546)
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)............................................................ (24,425,715)
--------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................... $ (3,560,933)
==============
Page 18 See Notes to Financial Statements
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR
4/30/2015 ENDED
(UNAUDITED) 10/31/2014
-------------- --------------
OPERATIONS:
Net investment income (loss)..................................................... $ 20,864,782 $ 46,988,275
Net realized gain (loss)......................................................... (1,970,169) 15,851,890
Net change in unrealized appreciation (depreciation)............................. (22,455,546) (21,278,797)
-------------- --------------
Net increase (decrease) in net assets resulting from operations.................. (3,560,933) 41,561,368
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................................ (23,039,886) (47,413,849)
-------------- --------------
Total distributions to shareholders.............................................. (23,039,886) (47,413,849)
-------------- --------------
Total increase (decrease) in net assets.......................................... (26,600,819) (5,852,481)
NET ASSETS:
Beginning of period.............................................................. 701,954,614 707,807,095
-------------- --------------
End of period.................................................................... $ 675,353,795 $ 701,954,614
============== ==============
Accumulated net investment income (loss) at end of period........................ $ 1,589,274 $ 3,764,378
============== ==============
CAPITAL TRANSACTIONS WERE AS FOLLOWS:
Common Shares at beginning of period............................................. 36,056,159 36,056,159
-------------- --------------
Common Shares at end of period................................................... 36,056,159 36,056,159
============== ==============
See Notes to Financial Statements Page 19
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED APRIL 30, 2015 (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) in net assets resulting from operations.................. $ (3,560,933)
Adjustments to reconcile net increase (decrease) in net assets resulting
from operations to net cash provided by operating activities:
Purchases of investments.................................................... (227,934,300)
Borrowed investments sold short............................................. 14,731,101
Sales, maturities and paydowns of investments............................... 251,440,048
Borrowed investments purchased.............................................. (29,588,096)
Net amortization/accretion of premiums/discounts on investments............. (23,966)
Net realized gain/loss on investments....................................... 2,929,840
Net realized gain/loss on credit default swaps.............................. 252,925
Net realized gain/loss on investments sold short............................ 869,259
Net change in unrealized appreciation/depreciation on
forward foreign currency contracts....................................... 1,847,988
Net change in unrealized appreciation/depreciation on investments sold short. 517,060
Net change in unrealized appreciation/depreciation on investments........... 20,103,788
Net change in unrealized appreciation/depreciation on swap contracts........ 51,100
Restricted cash for futures contracts....................................... (518,059)
CHANGES IN ASSETS AND LIABILITIES:
Decrease in due from broker................................................. 89,217
Decrease in interest receivable............................................. 1,959,161
Increase in dividends receivable............................................ (10,443)
Decrease in variation margin receivable..................................... 3,906
Increase in prepaid expenses................................................ (16,307)
Increase in other assets.................................................... (4,594)
Decrease in interest payable on investments sold short...................... (126,070)
Decrease in investment advisory fees payable................................ (36,609)
Decrease in audit and tax fees payable...................................... (25,252)
Increase in legal fees payable.............................................. 2,291
Decrease in printing fees payable........................................... (24,833)
Increase in administrative fees payable..................................... 87,998
Increase in custodian fees payable.......................................... 20,189
Increase in transfer agent fees payable..................................... 1,404
Increase in Trustees' fees and expenses payable............................. 631
Increase in other liabilities payable....................................... 195
--------------
CASH PROVIDED BY OPERATING ACTIVITIES............................................ $ 33,038,639
--------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to Common Shareholders from net investment income............. (23,039,886)
Net proceeds from borrowing................................................. (10,097,619)
--------------
CASH USED IN FINANCING ACTIVITIES................................................ (33,137,505)
--------------
Decrease in cash and foreign currency (a)........................................ (98,866)
Cash and foreign currency at beginning of period................................. 218,662
--------------
CASH AND FOREIGN CURRENCY AT END OF PERIOD....................................... $ 119,796
==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest and fees................................ $ 1,848,018
==============
-----------------------------
(a) Includes net change in unrealized appreciation (depreciation) on foreign
currency of $52,960.
Page 20 See Notes to Financial Statements
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
FINANCIAL HIGHLIGHTS
FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR PERIOD
4/30/2015 ENDED ENDED ENDED ENDED ENDED
(UNAUDITED) 10/31/2014 10/31/2013 10/31/2012 10/31/2011 10/31/2010 (a)
------------ ------------ ------------ ------------ ------------ --------------
Net asset value, beginning of period.... $ 19.47 $ 19.63 $ 19.05 $ 17.82 $ 19.57 $ 19.10 (b)
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)............ 0.58 1.31 1.35 1.41 1.48 0.08
Net realized and unrealized gain
(loss)............................... (0.68) (0.15) 0.64 1.42 (1.72) 0.42
-------- -------- -------- -------- -------- --------
Total from investment operations........ (0.10) 1.16 1.99 2.83 (0.24) 0.50
-------- -------- -------- -------- -------- --------
Common Shares offering costs charged to
paid-in capital...................... -- -- -- -- -- (0.03)
-------- -------- -------- -------- -------- --------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income................... (0.64) (1.32) (1.33) (1.44) (1.47) --
Net realized gain....................... -- -- -- (0.16) -- --
Return of capital....................... -- -- (0.08) -- -- --
-------- -------- -------- -------- -------- --------
Total from distributions to
Common Shareholders.................. (0.64) (1.32) (1.41) (1.60) (1.47) --
-------- -------- -------- -------- -------- --------
Capital charge resulting from issuance
of Common Shares related to over
allotment............................ -- -- -- -- (0.04) --
-------- -------- -------- -------- -------- --------
Net asset value, end of period.......... $ 18.73 $ 19.47 $ 19.63 $ 19.05 $ 17.82 $ 19.57
======== ======== ======== ======== ======== ========
Market value, end of period............. $ 16.55 $ 17.19 $ 17.62 $ 18.78 $ 16.63 $ 20.01
======== ======== ======== ======== ======== ========
TOTAL RETURN BASED ON NET ASSET
VALUE (c)............................ 0.04% 6.86% 11.32% 17.09% (1.27)% 2.46%
======== ======== ======== ======== ======== ========
TOTAL RETURN BASED ON MARKET
VALUE (c)............................ 0.12% 5.12% 1.36% 23.69% (9.89)% 0.05%
======== ======== ======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's).... $675,354 $701,955 $707,807 $686,715 $642,414 $662,604
Ratio of total expenses to average net
assets............................... 1.80% (d) 1.75% 1.72% 1.88% 2.09% 1.46% (d)
Ratio of total expenses to average net
assets excluding interest expense.... 1.29% (d) 1.26% 1.27% 1.32% 1.29% 1.33% (d)
Ratio of net investment income (loss)
to average net assets................ 6.22% (d) 6.59% 6.93% 7.83% 7.78% 4.98% (d)
Portfolio turnover rate................. 11% 28% 28% 24% 18% 0%
-----------------------------
(a) Initial seed date was August 20, 2010. The Fund commenced operations on
September 27, 2010.
(b) Beginning net asset value is net of sales load of $0.90 per share from the
initial offering.
(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 less than one year. Past performance is not
indicative of future results.
(d) Annualized.
See Notes to Financial Statements Page 21
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
APRIL 30, 2015 (UNAUDITED)
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 BofA Merrill Lynch 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 following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of 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 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 last sale or official closing prices from a national or
foreign exchange (i.e., a regulated market) and are primarily obtained from
third-party pricing services. Fair value prices represent any prices not
considered market value prices and are either obtained from a third-party
pricing service, or are determined by the Pricing Committee of the Fund's
investment advisor, First Trust Advisors L.P. ("First Trust" or the "Advisor"),
in accordance with valuation procedures adopted by the Fund's Board of Trustees,
and in accordance with provisions of the 1940 Act. Investments valued by the
Advisor's Pricing Committee, if any, are footnoted as such in the footnotes to
the Portfolio of Investments. The Fund's investments are valued as follows:
Corporate bonds, notes, U.S. government securities, mortgage-backed
securities, asset-backed securities and other debt securities are valued
on the basis of valuations provided by dealers who make markets in such
securities or by an independent pricing service approved by the Fund's
Board of Trustees, which may use the following valuation inputs when
available:
1) benchmark yields;
2) reported trades;
3) broker/dealer quotes;
4) issuer spreads;
-----------------------------
(1) The terms "security" and "securities" used throughout the Notes to
Financial Statements include Senior Loans.
Page 22
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
APRIL 30, 2015 (UNAUDITED)
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 The NASDAQ(R) Stock Market LLC ("NASDAQ") and
the London Stock Exchange Alternative Investment Market ("AIM")) are
valued at the last sale price on the exchange on which they are
principally traded or, for NASDAQ and AIM securities, the official closing
price. Securities traded on more than one securities exchange are valued
at the last sale price or official closing price, as applicable, at the
close of the securities exchange representing the principal market for
such securities.
Securities traded in an over-the-counter market are fair valued at the
mean of their most recent bid and asked price, if available, and otherwise
at their closing bid price.
Credit default swaps, if any, are fair valued using a pricing service or,
if the pricing service does not provide a value, by quotes provided by the
selling dealer or financial institution.
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.
Exchange-traded futures contracts are valued at the closing price in the
market where such contracts are principally traded. If no closing price is
available, exchange-traded futures contracts are fair valued at the mean
of their most recent bid and asked price, if available, and otherwise at
their closing bid price.
Forward foreign currency contracts are fair 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 an independent pricing service.
Fixed income and other debt securities having a remaining maturity of 60
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 Fund's Board of Trustees or its
delegate, the Advisor's Pricing Committee, at fair value. These securities
generally include, but are not limited to, restricted securities (securities
which may not be publicly sold without registration under the Securities Act of
1933, as amended) for which a 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 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
Page 23
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
APRIL 30, 2015 (UNAUDITED)
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 fundamental business data relating to the issuer;
2) an evaluation of the forces which influence the market in
which these securities are purchased and sold;
3) the type, size and cost of a security;
4) the financial statements of the issuer;
5) the credit quality and cash flow of the issuer, based on the
Sub-Advisor's or external analysis;
6) the information as to any transactions in or offers for the
security;
7) the price and extent of public trading in similar securities
(or equity securities) of the issuer/borrower, or comparable
companies;
8) the coupon payments;
9) the quality, value and salability of collateral, if any,
securing the security;
10) the business prospects of the issuer, including any ability to
obtain money or resources from a parent or affiliate and an
assessment of the issuer's management;
11) the prospects for the issuer's industry, and multiples (of
earnings and/or cash flows) being paid for similar businesses
in that industry; and
12) other relevant factors.
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets
for identical investments. An active market is a market in
which transactions for the investment occur with sufficient
frequency and volume to provide pricing information on an
ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either
directly or indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in
markets that are non-active. A non-active market is a
market where there are few transactions for the
investment, the prices are not current, or price
quotations vary substantially either over time or among
market makers, or in which little information is
released publicly.
o Inputs other than quoted prices that are observable for
the investment (for example, interest rates and yield
curves observable at commonly quoted intervals,
volatilities, prepayment speeds, loss severities, credit
risks, and default rates)
o Inputs that are derived principally from or corroborated
by observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions
about the assumptions that market participants would use in
pricing the investment.
The inputs or methodologies used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of April 30, 2015, 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.
Interest income is recorded daily on the accrual basis. Amortization of premiums
and accretion of discounts are recorded using the effective interest method.
Securities purchased 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 April 30, 2015, 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 did not have any unfunded delayed draw loan
commitments as of April 30, 2015.
Page 24
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
APRIL 30, 2015 (UNAUDITED)
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/(depreciation) on forward foreign
currency contracts" on the Statement of Assets and Liabilities. 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 and 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. 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. FUTURES CONTRACTS:
The Fund purchases or sells (i.e., is long or short) futures contracts to hedge
against changes in interest rates (interest rate risk). Futures contracts are
agreements between the Fund and a counterparty to buy or sell a specific
quantity of an underlying instrument at a specified price and at a specified
date. Depending on the terms of the contract, futures contracts are settled
either through physical delivery of the underlying instrument on the settlement
date or by payment of a cash settlement amount on the settlement date. Open
futures contracts can also be closed out prior to settlement by entering into an
offsetting transaction in a matching futures contract. If the Fund is not able
to enter into an offsetting transaction, the Fund will continue to be required
to maintain margin deposits on the futures contract. When the contract is closed
or expires, the Fund records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value at the
time it was closed or expired. This gain or loss is included in "Net realized
gain (loss) on futures" on the Statement of Operations.
Upon entering into a futures contract, the Fund must deposit funds, called
margin, with its custodian in the name of the clearing broker equal to a
specified percentage of the current value of the contract. Open futures contacts
are marked to market daily with the change in value recognized as a component of
"Net change in unrealized appreciation (depreciation) on futures" on the
Statement of Operations. Pursuant to the contract, the Fund agrees to receive
from or pay to the broker an amount of cash equal to the daily fluctuation in
value of the contract. Such receipts or payments are known as variation margin
and are included in "Variation margin payable or receivable" on the Statement of
Assets and Liabilities.
If market conditions change unexpectedly, the Fund may not achieve the
anticipated benefits of the futures contracts and may realize a loss. The use of
futures contracts involves the risk of imperfect correlation in movements in the
price of the futures contracts, interest rates and the underlying instruments.
Restricted cash in the amount of $573,859, as shown on the Statement of Assets
and Liabilities, is associated with collateral at the broker as of April 30,
2015.
Page 25
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
APRIL 30, 2015 (UNAUDITED)
G. 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 that are not currently
owned in the Fund's portfolio. When the Fund engages in a short sale, the Fund
must borrow the security sold short and deliver the security to the
counterparty. Short selling allows the Fund to profit from a decline in a market
price to the extent such decline exceeds the transaction costs and the costs of
borrowing the securities. The Fund 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 effected by the Fund purchasing the
security sold short in the market or otherwise 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 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 ("Pershing") for the
purpose of purchasing or borrowing securities on margin. At April 30, 2015, the
Fund had $521,540 in borrowings associated with investments sold short and
$130,988,332 of investments sold short as shown on the Statement of Assets and
Liabilities. Interest is charged on these balances at a rate equal to the
Federal Funds rate plus 75 basis points and is charged on payable credit margin
balances at a rate equal to the Federal Funds rate less 40 basis points. At
April 30, 2015, the Fund had a debit margin balance with an interest rate of
0.80%. For the six months ended April 30, 2015, margin interest expense was
$712,817, as shown on the Statement of Operations. For the six months ended
April 30, 2015, the average margin balance and interest rate were $162,899,284
and 0.87%, respectively.
H. CREDIT DEFAULT SWAPS:
The Fund may enter into credit default swap contracts ("CDS") for investment
purposes or to manage credit risk. A CDS is an agreement between two parties
("Counterparties") to exchange the credit risk of an issuer. A buyer of a CDS is
said to buy protection by paying a fixed payment over the life of the agreement
and in some situations an upfront payment to the seller of the CDS. If a defined
credit event occurs (such as payment default or bankruptcy), the Fund as a
protection buyer would cease paying its fixed payment, the Fund would deliver
eligible bonds issued by the reference entity to the seller, and the seller
would pay the full notional value, or the "par value," of the referenced
obligation to the Fund. A seller of a CDS is said to sell protection and thus
would receive a fixed payment over the life of the agreement and an upfront
payment, if applicable. If a credit event occurs, the Fund as a protection
seller would cease to receive the fixed payment stream, the Fund would pay the
buyer "par value" or the full notional value of the referenced obligation, and
the Fund would receive the eligible bonds issued by the reference entity. In
turn, these bonds may be sold in order to realize a recovery value.
Alternatively, the seller of the CDS and its counterparty may agree to net the
notional amount and the market value of the bonds and make a cash payment equal
to the difference to the buyer of protection. If no credit event occurs, the
Fund receives the fixed payment over the life of the agreement. As the seller,
the Fund would effectively add leverage to its portfolio because, in addition to
its total net assets, the Fund would be subject to investment exposure on the
notional amount of the CDS. In connection with these agreements, cash and
securities may be identified as collateral in accordance with the terms of the
respective swap agreements to provide assets of value and recourse in the event
of default under the swap agreement or bankruptcy/insolvency of a party to the
swap agreement. In the event of a default by the Counterparty, the Fund will
seek withdrawal of this collateral and may incur certain costs exercising its
right with respect to the collateral. 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.
Credit default swap contracts are marked to market daily based upon quotations
from brokers, market makers or an independent pricing service and the change in
value, if any, is recorded as unrealized appreciation (depreciation). For a
credit default swap contract sold by the Fund, payment of the agreed upon amount
made by the Fund in the event of default of the referenced debt obligation is
recorded as the cost of the referenced debt obligation purchased/received.
I. 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.
Page 26
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
APRIL 30, 2015 (UNAUDITED)
Distributions from income and capital gains are determined in accordance with
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. The character of
distributions for tax reporting purposes will depend on the Fund's investment
experience during the remainder of its fiscal year.
The tax character of distributions paid during the fiscal year ended October 31,
2014 was as follows:
Distributions paid from:
Ordinary income....................................... $ 47,413,849
Capital gain.......................................... --
Return of capital..................................... --
As of October 31, 2014, the distributable earnings and net assets on a tax basis
were as follows:
Undistributed ordinary income......................... $ 4,471,712
Undistributed capital gains........................... --
------------
Total undistributed earnings.......................... 4,471,712
Accumulated capital and other losses.................. (14,007,437)
Net unrealized appreciation (depreciation)............ 26,557,872
------------
Total accumulated earnings (losses)................... 17,022,147
Other................................................. --
Paid-in capital....................................... 684,932,467
------------
Net assets............................................ $701,954,614
============
J. 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 or 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.
Under the Regulated Investment Company Modernization Act of 2010 (the "Act"),
net capital losses arising in taxable years after December 22, 2010, may be
carried forward indefinitely, and their character is retained as short-term
and/or long-term losses. Previously, net capital losses were carried forward
eight years and treated as short-term losses. As a transition rule, the Act
requires that post-enactment net capital losses be used before pre-enactment net
capital losses. At October 31, 2014, the Fund had no pre-enactment net capital
losses for federal income tax purposes. At October 31, 2014 the Fund had
post-enactment net capital losses for federal income tax purposes of $14,007,437
to be carried forward indefinitely.
The Fund is subject to certain limitations under the 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. During the
taxable year ended October 31, 2014, the Fund utilized post-enactment capital
loss carryforwards in the amount of $14,616,655.
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 ending 2011, 2012,
2013 and 2014 remain open to federal and state audit. As of April 30, 2015,
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.
K. EXPENSES:
The Fund will pay all expenses directly related to its operations.
Page 27
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
APRIL 30, 2015 (UNAUDITED)
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
investment management 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.
BNY Mellon Investment Servicing (US) Inc. ("BNYM IS") serves as the Fund's
administrator, fund accountant and transfer agent in accordance with certain fee
arrangements. As administrator and fund accountant, BNYM IS 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 transfer agent, BNYM IS is
responsible for maintaining shareholder records for the Fund. The Bank of New
York Mellon ("BNYM") serves as the Fund's custodian in accordance with certain
fee arrangements. As custodian, BNYM is responsible for custody of the Fund's
assets.
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 pro rata among each fund in the First Trust Fund
Complex based on net assets. 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, or is an index fund.
Additionally, The Lead Independent Trustee and the Chairmen 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.
Trustees are reimbursed for travel and out-of-pocket expenses in connection with
all meetings. The Lead Independent Trustee and Committee Chairmen 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
Cost of purchases and proceeds from sales of investments, excluding short-term
investments, for the six months ended April 30, 2015, were $91,634,815 and
$143,385,916, respectively.
5. DERIVATIVES TRANSACTIONS
The following table presents the types of derivatives held by the Fund at April
30, 2015, the primary underlying risk exposure and the location of these
instruments as presented on the Statement of Assets and Liabilities.
ASSET DERIVATIVES LIABILITY DERIVATIVES
---------------------------------------- ----------------------------------------
DERIVATIVE RISK STATEMENT OF ASSETS AND STATEMENT OF ASSETS AND
INSTRUMENT EXPOSURE LIABILITIES LOCATION FAIR VALUE LIABILITIES LOCATION FAIR VALUE
------------------ ------------------ --------------------------- ---------- --------------------------- ----------
Futures Interest Rate Risk Variation margin receivable $ 7,344 Variation margin payable $ --
Forward foreign Currency Risk Unrealized appreciation Unrealized depreciation
currency contracts on forward foreign on forward foreign
currency contracts 148,753 currency contracts 80,814
Credit default
swaps Credit Risk Swap contracts -- Swap contracts 298,420
Page 28
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
APRIL 30, 2015 (UNAUDITED)
The following table presents the amount of net realized gain (loss) and change
in net unrealized appreciation (depreciation) recognized for the six months
ended April 30, 2015, on derivative instruments, as well as the primary
underlying risk exposure associated with each instrument.
STATEMENT OF OPERATIONS LOCATION INTEREST RATE RISK CURRENCY RISK CREDIT RISK
------------------------------------------- ------------------ ------------- -----------
Net realized gain (loss) on futures $ (173,215) $ -- $ --
Net realized gain (loss) on forward foreign
currency contracts -- 2,437,582 --
Net unrealized gain (loss) on
swap contracts -- -- (252,925)
Net change in unrealized appreciation
(depreciation) on futures 11,430 -- --
Net change in unrealized appreciation
(depreciation) on forward foreign
currency contracts -- (1,847,988) --
Net change in unrealized appreciation
(depreciation) on swap contracts -- -- (51,100)
The average volume of credit default swap contracts was $6,000,000 for the six
months ended April 30, 2015.
During the six months ended April 30, 2015, the amount of notional values of
forward foreign currency contracts opened and closed were $348,855,550 and
$405,235,163, respectively.
During the six months ended April 30, 2015, the amount of notional values of
futures contracts opened and closed were $59,910,063 and $78,808,712,
respectively.
The Fund does not have the right to offset financial assets and financial
liabilities related to forward foreign currency contracts, futures contracts and
swap 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 EVENT
Management has evaluated the impact of all subsequent events to the Fund through
the date the financial statements were issued, and has determined that there was
the following subsequent event:
On May 20, 2015, the Fund declared a distribution of $0.1065 per share to Common
Shareholders of record on June 3, 2015, payable June 15, 2015.
Page 29
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ADDITIONAL INFORMATION
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FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
APRIL 30, 2015 (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 BNY
Mellon Investment Servicing (US) Inc. (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 BNY Mellon Investment
Servicing (US) Inc., 301 Bellevue Parkway, Wilmington, Delaware 19809.
--------------------------------------------------------------------------------
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 located at http://www.ftportfolios.com; and (3) on the
Securities and Exchange Commission's ("SEC") website located at
http://www.sec.gov.
Page 30
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
APRIL 30, 2015 (UNAUDITED)
PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q
are available (1) by calling (800) 988-5891; (2) on the Fund's website located
at http://www.ftportfolios.com; (3) on the SEC's website at http://www.sec.gov;
and (4) for review and copying at the SEC's Public Reference Room ("PRR") in
Washington, DC. Information regarding the operation of the PRR may be obtained
by calling (800) SEC-0330.
SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
The Joint Annual Meeting of Shareholders of the Common Shares of Macquarie/First
Trust Global Infrastructure/Utilities Dividend & Income Fund, First Trust Energy
Income and Growth Fund, First Trust Enhanced Equity Income Fund, First
Trust/Aberdeen Global Opportunity Income Fund, First Trust Mortgage Income Fund,
First Trust Strategic High Income Fund II, First Trust/Aberdeen Emerging
Opportunity Fund, First Trust Specialty Finance and Financial Opportunities
Fund, First Trust Dividend and Income Fund, First Trust High Income Long/Short
Fund, First Trust Energy Infrastructure Fund, First Trust MLP and Energy Income
Fund, First Trust Intermediate Duration Preferred & Income Fund and First Trust
New Opportunities MLP & Energy Fund was held on April 20, 2015 (the "Annual
Meeting"). At the Annual Meeting, Richard E. Erickson and Thomas R. Kadlec were
elected by the Common Shareholders of the First Trust High Income Long/Short
Fund as Class II Trustees for a three-year term expiring at the Fund's annual
meeting of shareholders in 2018. The number of votes cast in favor of Mr.
Erickson was 31,308,535, the number of votes against was 1,142,882 and the
number of broker non-votes was 3,604,742. The number of votes cast in favor of
Mr. Kadlec was 31,322,678, the number of votes against was 1,128,739 and the
number of broker non-votes was 3,604,742. James A. Bowen , Robert F. Keith and
Niel B. Nielson are the other current and continuing Trustees.
RISK CONSIDERATIONS
Risks are inherent in all investing. The following summarizes some, but not all,
of the risks that should be considered for the Fund. For additional information
about the risks associated with investing in the Fund, please see the Fund's
prospectus and statement of additional information, as well as other Fund
regulatory filings.
INVESTMENT AND MARKET RISK: An investment in the Fund's Common Shares is subject
to investment risk, including the possible loss of the entire principal
invested. An investment in Common Shares represents an indirect investment in
the securities owned by the Fund. The value of these securities, like other
market investments, may move up or down, sometimes rapidly and unpredictably.
Common Shares at any point in time may be worth less than the original
investment, even after taking into account the reinvestment of Fund dividends
and distributions. Security prices can fluctuate for several reasons including
the general condition of the securities markets, or when political or economic
events affecting the issuers occur. When the Advisor or Sub-Advisor determines
that it is temporarily unable to follow the Fund's investment strategy or that
it is impractical to do so (such as when a market disruption event has occurred
and trading in the securities is extremely limited or absent), the Fund may take
temporary defensive positions.
BELOW-INVESTMENT GRADE SECURITIES RISK: The Fund invests in below-investment
grade securities. The market values for high-yield securities tend to be very
volatile, and these securities are less liquid than investment grade debt
securities. For these reasons, an investment in the Fund is subject to the
following specific risks: (a) increased price sensitivity to changing interest
rates and to a deteriorating economic environment; (b) greater risk of loss due
to default or declining credit quality; (c) adverse issuer specific events are
more likely to render the issuer unable to make interest and/or principal
payments; and (d) a negative perception of the high-yield market may depress the
price and liquidity of high-yield securities.
DISTRESSED SECURITIES RISK: The Fund may invest in securities issued by
companies in a bankruptcy reorganization proceeding, subject to some other form
of a public or private debt restructuring or otherwise in default or in
significant risk of default in the payment of interest or repayment of principal
or trading at prices substantially below other below-investment grade debt
securities of companies in similar industries. 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. Therefore, to the extent the Sub-Advisor seeks capital appreciation
through investment in distressed securities, the ability to achieve current
income may be diminished.
ECONOMIC CONDITIONS RISK: Adverse changes in economic conditions are more likely
to lead to a weakened capacity of a high-yield issuer to make principal payments
and interest payments than an investment grade issuer. An economic downturn
could severely affect the ability of highly leveraged issuers to service their
debt obligations or to repay their obligations upon maturity. Under adverse
market or economic conditions, the secondary market for high-yield securities
could contract further, independent of any specific adverse changes in the
condition of a particular issuer and these securities may become illiquid. As a
result, the Sub-Advisor could find it more difficult to sell these securities or
may be able to sell the securities only at prices lower than if such securities
were widely traded.
Page 31
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
APRIL 30, 2015 (UNAUDITED)
FIXED-INCOME SECURITIES RISK: Debt securities, including high-yield securities,
are subject to certain risks, including: (i) issuer risk, which is the risk that
the value of fixed-income securities may decline for a number of reasons which
directly relate to the issuer, such as management performance, financial
leverage and reduced demand for the issuer's goods and services or, in the case
of asset-backed issuers, a decline in the value and/or cash flows of the
underlying assets; (ii) reinvestment risk, which is the risk that income from
the Fund's portfolio will decline if the proceeds from matured, traded or called
bonds are reinvested at market interest rates that are below the portfolio's
current earnings rate; (iii) prepayment risk, which is the risk that during
periods of declining interest rates, the issuer of a security may exercise its
option to prepay principal earlier than scheduled, forcing the reinvestment in
lower yielding securities; and (iv) credit risk, which is the risk that a
security in the Fund's portfolio will decline in price or the issuer fails to
make interest payments when due because the issuer of the security experiences a
decline in its financial status.
INTEREST RATE RISK: The Fund's portfolio is also subject to interest rate risk.
Interest rate risk is the risk that fixed-income securities will decline in
value because of changes in market interest rates. Investments in debt
securities with long-term maturities may experience significant price declines
if long-term interest rates increase.
SHORT SELLING RISK: Short selling allows the Fund to profit from a decline in
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. The Fund may have substantial short positions
and must borrow those securities to make delivery to the buyer. 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. Because losses on short sales arise from increases in the
value of the security sold short, such losses are theoretically unlimited. The
use of short sales in combination with long positions in the Fund's portfolio in
an attempt to improve performance or reduce overall portfolio risk may not be
successful and may result in greater losses or lower positive returns than if
the Fund held only long positions. 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.
By investing the proceeds received from selling securities short, the Fund could
be deemed to be employing a form of leverage, which creates special risks. The
use of leverage may increase the Fund's exposure to long securities positions
and make any change in the Fund's NAV greater than it would be without the use
of leverage. This could result in increased volatility of returns. There is no
guarantee that any leveraging strategy the Fund employs will be successful
during any period in which it is employed.
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. While certain of
the Fund's non-U.S. dollar-denominated securities may be hedged into U.S.
dollars, hedging may not alleviate all currency risks.
Page 32
FIRST TRUST
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 E. Liberty Drive, Suite 400
Wheaton, IL 60187
INVESTMENT SUB-ADVISOR
MacKay Shields LLC
1345 Avenue of the Americas
43rd floor
New York, NY 10105
ADMINISTRATOR,
FUND ACCOUNTANT &
TRANSFER AGENT
BNY Mellon Investment Servicing (US) Inc.
301 Bellevue Parkway
Wilmington, DE 19809
CUSTODIAN
The Bank of New York Mellon
101 Barclay Street, 20th Floor
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
[BLANK BACK COVER]
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
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.
(b) Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
There has been no change, as of the date of this filing, in any of the
portfolios managers identified in response to paragraph (a)(1) of this Item in
the Registrant's most recently filed annual report on Form N-CSR.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
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 registrant's second fiscal quarter
of 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. EXHIBITS.
(1)(a) Not applicable.
(2)(a) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section
302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(3)(a) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section
906 of the Sarbanes- Oxley Act of 2002 are attached hereto.
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/ Mark R. Bradley
----------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)
Date: June 22, 2015
----------------
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/ Mark R. Bradley
----------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)
Date: June 22, 2015
----------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: June 22, 2015
----------------
* Print the name and title of each signing officer under his or her signature.