UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED MANAGEMENT
INVESTMENT COMPANY
Investment Company Act file number 811-22442
-----------
First Trust High Income Long/Short Fund
-------------------------------------------------------------
(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
-------------------------------------------------------------
(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
-------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 630-765-8000
--------------
Date of fiscal year end: October 31
------------
Date of reporting period: January 31, 2016
------------------
Form N-Q is to be used by management investment companies, other than small
business investment companies registered on Form N-5 (ss.ss. 239.24 and 274.5 of
this chapter), to file reports with the Commission, not later than 60 days after
the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under
the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may use
the information provided on Form N-Q in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-Q, and
the Commission will make this information public. A registrant is not required
to respond to the collection of information contained in Form N-Q 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 the
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. SCHEDULE OF INVESTMENTS. The Schedule of Investments is attached
herewith.
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS
JANUARY 31, 2016 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ----------------------------------------------------- -------------- -------------- ---------------
CORPORATE BONDS AND NOTES - 73.7%
AUTOMOTIVE - 5.5%
$ 4,725,000 Dana Holding Corp. .................................. 5.50% 12/15/24 $ 4,267,266
1,376,000 Ford Motor Co. ...................................... 9.22% 09/15/21 1,714,909
220,000 Ford Motor Co. ...................................... 8.90% 01/15/32 276,755
2,000,000 Ford Motor Co. (a)................................... 7.75% 06/15/43 2,294,626
2,480,000 Ford Motor Co. ...................................... 9.98% 02/15/47 3,516,814
3,635,000 Gates Global LLC/Gates Global Co. (b)................ 6.00% 07/15/22 2,698,987
1,400,000 Goodyear Tire & Rubber (The) Co. .................... 6.50% 03/01/21 1,475,250
4,396,000 Goodyear Tire & Rubber (The) Co. (a)................. 7.00% 05/15/22 4,712,512
4,720,000 MPG Holdco I, Inc. (a)............................... 7.38% 10/15/22 4,569,574
3,472,000 Navistar International Corp. (a)..................... 8.25% 11/01/21 2,178,680
3,705,000 ZF North America Capital, Inc. (b)................... 4.75% 04/29/25 3,487,331
---------------
31,192,704
---------------
BANKING - 1.2%
5,335,000 Ally Financial, Inc. (a)............................. 8.00% 11/01/31 6,021,881
612,000 Ally Financial, Inc. ................................ 8.00% 11/01/31 696,915
---------------
6,718,796
---------------
BASIC INDUSTRY - 9.3%
850,000 AK Steel Corp. ...................................... 7.63% 05/15/20 327,250
650,000 AK Steel Corp. ...................................... 7.63% 10/01/21 242,125
4,500,000 AK Steel Corp. ...................................... 8.38% 04/01/22 1,507,500
2,584,000 Aleris International, Inc. .......................... 7.63% 02/15/18 2,261,000
1,804,000 Aleris International, Inc. .......................... 7.88% 11/01/20 1,398,100
3,405,000 Associated Materials LLC/AMH New Finance, Inc. ...... 9.13% 11/01/17 2,528,212
1,425,000 Axalta Coating Systems US Holdings, Inc./Axalta
Coating Systems Dutch Holding B B.V. (b).......... 7.38% 05/01/21 1,498,915
4,000,000 Beazer Homes USA, Inc. (a)........................... 8.13% 06/15/16 4,060,000
5,500,000 CalAtlantic Group, Inc. ............................. 8.38% 05/15/18 6,091,250
2,470,000 Hexion, Inc. ........................................ 8.88% 02/01/18 1,691,950
1,873,000 K Hovnanian Enterprises, Inc. (b).................... 7.00% 01/15/19 1,206,961
3,150,000 K Hovnanian Enterprises, Inc. (b).................... 7.25% 10/15/20 2,543,625
3,479,000 KB Home (a).......................................... 7.50% 09/15/22 3,312,008
3,730,000 Meritage Homes Corp. ................................ 6.00% 06/01/25 3,655,400
1,840,000 Momentive Performance Escrow Claim (c) (d) (e) (f)... N/A N/A 2
1,840,000 Momentive Performance Materials, Inc. (c)............ 4.69% 04/24/22 961,400
1,780,000 PulteGroup, Inc. (a)................................. 7.63% 10/15/17 1,904,600
4,570,000 PulteGroup, Inc. .................................... 7.88% 06/15/32 5,164,100
2,375,000 Shea Homes L.P./ Shea Homes Funding Corp. (b)........ 6.13% 04/01/25 2,385,973
4,465,000 TRI Pointe Group, Inc./ TRI Pointe Homes, Inc. (a)... 5.88% 06/15/24 4,353,375
4,000,000 United States Steel Corp. ........................... 7.38% 04/01/20 1,920,000
4,000,000 USG Corp. (b)........................................ 5.88% 11/01/21 4,140,000
---------------
53,153,746
---------------
See Notes to Portfolio of Investments
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JANUARY 31, 2016 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ----------------------------------------------------- -------------- -------------- ---------------
CORPORATE BONDS AND NOTES (CONTINUED)
CAPITAL GOODS - 7.7%
$ 3,595,000 Ball Corp. .......................................... 4.00% 11/15/23 $ 3,469,175
4,000,000 Crown Americas LLC/Crown Americas Capital
Corp IV (a)....................................... 4.50% 01/15/23 3,980,000
5,445,000 KLX, Inc. (b)........................................ 5.88% 12/01/22 5,117,755
2,595,000 Milacron LLC/Mcron Finance Corp. (b)................. 7.75% 02/15/21 2,309,550
1,575,000 Orbital ATK, Inc. (b)................................ 5.50% 10/01/23 1,606,500
7,500,000 Reynolds Group Issuer, Inc. ......................... 8.50% 05/15/18 7,246,875
2,085,000 Reynolds Group Issuer, Inc. (a)...................... 9.88% 08/15/19 2,040,694
1,775,000 Reynolds Group Issuer, Inc. ......................... 8.25% 02/15/21 1,664,063
4,375,000 Sealed Air Corp. (b)................................. 5.50% 09/15/25 4,473,437
4,050,000 Terex Corp. (a)...................................... 6.00% 05/15/21 3,665,250
4,540,000 TransDigm, Inc. (a).................................. 6.00% 07/15/22 4,471,900
1,000,000 TransDigm, Inc. ..................................... 6.50% 07/15/24 982,500
4,000,000 Triumph Group, Inc. ................................. 4.88% 04/01/21 3,200,000
---------------
44,227,699
---------------
CONSUMER GOODS - 2.1%
2,567,000 Kraft Heinz Foods Co. (b)............................ 4.88% 02/15/25 2,748,723
2,325,000 Pilgrim's Pride Corp. (b)............................ 5.75% 03/15/25 2,243,625
2,240,000 Smithfield Foods, Inc. .............................. 6.63% 08/15/22 2,363,200
4,585,000 Spectrum Brands, Inc. (b)............................ 5.75% 07/15/25 4,722,550
---------------
12,078,098
---------------
ENERGY - 4.4%
455,000 Basic Energy Services, Inc. ......................... 7.75% 02/15/19 123,305
4,540,000 Basic Energy Services, Inc. ......................... 7.75% 10/15/22 1,203,100
3,460,000 Berry Petroleum Co., LLC ............................ 6.75% 11/01/20 778,500
1,426,000 California Resources Corp. (b)....................... 8.00% 12/15/22 570,400
532,000 California Resources Corp. .......................... 6.00% 11/15/24 102,410
3,735,000 Chesapeake Energy Corp. ............................. 5.38% 06/15/21 989,775
2,940,000 CITGO Petroleum Corp. (b)............................ 6.25% 08/15/22 2,829,750
3,170,000 Crestwood Midstream Partners L.P./Crestwood
Midstream Finance Corp. (b)....................... 6.25% 04/01/23 1,941,625
3,000,000 Ferrellgas L.P./Ferrellgas Finance Corp. ............ 6.50% 05/01/21 2,381,250
1,000,000 Hornbeck Offshore Services, Inc. .................... 5.88% 04/01/20 605,000
3,960,000 Hornbeck Offshore Services, Inc. (a)................. 5.00% 03/01/21 2,257,200
3,660,000 Linn Energy LLC/Linn Energy Finance Corp. ........... 8.63% 04/15/20 567,300
3,715,000 Linn Energy LLC/Linn Energy Finance Corp. ........... 6.50% 09/15/21 436,587
3,535,000 PHI, Inc. (a)........................................ 5.25% 03/15/19 2,872,187
1,235,000 Suburban Propane Partners L.P./Suburban Energy
Finance Corp. .................................... 5.75% 03/01/25 1,037,400
1,900,000 Sunoco L.P./Sunoco Finance Corp. (b)................. 5.50% 08/01/20 1,783,625
1,855,000 Sunoco L.P./Sunoco Finance Corp. (b)................. 6.38% 04/01/23 1,720,513
4,325,000 Whiting Petroleum Corp. ............................. 5.75% 03/15/21 2,735,562
---------------
24,935,489
---------------
See Notes to Portfolio of Investments
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JANUARY 31, 2016 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ----------------------------------------------------- -------------- -------------- ---------------
CORPORATE BONDS AND NOTES (CONTINUED)
FINANCIAL SERVICES - 4.3%
$ 6,155,000 Icahn Enterprises L.P./Icahn Enterprises Finance
Corp. ............................................ 6.00% 08/01/20 $ 5,800,472
1,190,000 Icahn Enterprises L.P./Icahn Enterprises Finance
Corp. ............................................ 5.88% 02/01/22 1,068,025
7,595,000 Navient Corp. ....................................... 8.00% 03/25/20 7,500,062
3,850,000 OneMain Financial Holdings, Inc. (b)................. 7.25% 12/15/21 3,821,125
2,395,000 Springleaf Finance Corp. ............................ 6.00% 06/01/20 2,194,419
4,555,000 Springleaf Finance Corp. ............................ 7.75% 10/01/21 4,298,781
---------------
24,682,884
---------------
HEALTHCARE - 8.6%
5,074,000 Alere, Inc. (a)...................................... 7.25% 07/01/18 5,264,275
665,000 Alere, Inc. ......................................... 6.50% 06/15/20 651,700
8,005,000 CHS/Community Health Systems, Inc. (a)............... 6.88% 02/01/22 7,284,550
2,500,000 DaVita HealthCare Partners, Inc. .................... 5.75% 08/15/22 2,596,875
3,775,000 DaVita HealthCare Partners, Inc. .................... 5.00% 05/01/25 3,723,094
1,500,000 HCA, Inc. ........................................... 5.88% 05/01/23 1,571,250
10,850,000 HCA, Inc. (a)........................................ 5.00% 03/15/24 11,012,750
4,585,000 Hologic, Inc. (b).................................... 5.25% 07/15/22 4,762,669
2,115,000 Kinetic Concepts, Inc./KCI USA, Inc. (a)............. 10.50% 11/01/18 2,062,125
6,814,000 MPH Acquisition Holdings LLC (b)..................... 6.63% 04/01/22 6,839,552
3,195,000 Tenet Healthcare Corp. .............................. 8.13% 04/01/22 3,218,962
---------------
48,987,802
---------------
LEISURE - 4.7%
1,475,000 Isle of Capri Casinos, Inc. ......................... 5.88% 03/15/21 1,515,563
9,175,000 MGM Resorts International (a)........................ 6.75% 10/01/20 9,587,875
2,760,000 Mohegan Tribal Gaming Authority ..................... 9.75% 09/01/21 2,725,500
4,127,000 Pinnacle Entertainment, Inc. ........................ 7.75% 04/01/22 4,519,065
2,765,000 Scientific Games International, Inc. (b)............. 7.00% 01/01/22 2,612,925
2,175,000 Scientific Games International, Inc. ................ 10.00% 12/01/22 1,522,500
4,975,000 Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp. (b).. 5.50% 03/01/25 4,381,109
---------------
26,864,537
---------------
MEDIA - 4.5%
7,245,000 CCO Holdings LLC/CCO Holdings Capital Corp. ......... 5.75% 01/15/24 7,471,406
770,000 CCOH Safari LLC (b).................................. 5.75% 02/15/26 767,590
2,730,000 Clear Channel Worldwide Holdings, Inc., Series B .... 7.63% 03/15/20 2,262,488
541,000 Clear Channel Worldwide Holdings, Inc., Series B .... 6.50% 11/15/22 503,130
6,430,000 Dish DBS Corp. ...................................... 6.75% 06/01/21 6,574,675
559,000 iHeartCommunications, Inc. .......................... 5.50% 12/15/16 539,435
7,540,000 iHeartCommunications, Inc. .......................... 9.00% 03/01/21 4,929,275
2,515,000 Lamar Media Corp. (b)................................ 5.75% 02/01/26 2,596,737
---------------
25,644,736
---------------
See Notes to Portfolio of Investments
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JANUARY 31, 2016 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ----------------------------------------------------- -------------- -------------- ---------------
CORPORATE BONDS AND NOTES (CONTINUED)
RETAIL - 0.7%
$ 3,845,000 Dollar Tree, Inc. (b)................................ 5.75% 03/01/23 $ 4,070,894
---------------
SERVICES - 3.5%
1,095,000 Ashtead Capital, Inc. (b)............................ 6.50% 07/15/22 1,122,375
900,000 Avis Budget Car Rental LLC/Avis Budget Finance,
Inc. (b).......................................... 5.13% 06/01/22 853,335
4,415,000 Avis Budget Car Rental LLC/Avis Budget Finance,
Inc. ............................................. 5.50% 04/01/23 4,210,806
4,607,000 Iron Mountain, Inc. (b).............................. 6.00% 10/01/20 4,917,972
4,250,000 Iron Mountain, Inc. ................................. 5.75% 08/15/24 4,212,813
375,000 United Rentals North America, Inc. .................. 7.38% 05/15/20 387,188
367,000 United Rentals North America, Inc. .................. 7.63% 04/15/22 379,386
3,097,000 United Rentals North America, Inc. .................. 6.13% 06/15/23 2,996,348
1,400,000 United Rentals North America, Inc. .................. 5.50% 07/15/25 1,254,750
---------------
20,334,973
---------------
TECHNOLOGY & ELECTRONICS - 4.8%
3,780,000 CommScope, Inc. (b).................................. 5.00% 06/15/21 3,652,425
4,808,000 First Data Corp. (b)................................. 7.00% 12/01/23 4,856,080
2,950,000 Freescale Semiconductor, Inc. (b).................... 5.00% 05/15/21 3,023,750
3,385,000 MSCI, Inc. (b)....................................... 5.75% 08/15/25 3,588,100
3,900,000 NCR Corp. ........................................... 6.38% 12/15/23 3,873,168
2,900,000 Qorvo, Inc. (b)...................................... 7.00% 12/01/25 2,885,500
5,160,000 Zebra Technologies Corp. (a)......................... 7.25% 10/15/22 5,379,300
---------------
27,258,323
---------------
TELECOMMUNICATIONS - 7.3%
2,025,000 Equinix, Inc. (a).................................... 5.88% 01/15/26 2,100,937
1,550,000 Frontier Communications Corp. ....................... 6.25% 09/15/21 1,313,625
5,700,000 Frontier Communications Corp. (b).................... 11.00% 09/15/25 5,514,750
2,500,000 Frontier Communications Corp. (a).................... 9.00% 08/15/31 2,000,000
2,411,000 Hughes Satellite Systems Corp. (a)................... 7.63% 06/15/21 2,606,894
4,070,000 Level 3 Financing, Inc. (b).......................... 5.38% 01/15/24 4,120,875
220,000 Level 3 Financing, Inc. ............................. 5.38% 05/01/25 222,200
3,145,000 Sprint Capital Corp. ................................ 6.88% 11/15/28 2,087,494
7,660,000 Sprint Capital Corp. ................................ 8.75% 03/15/32 5,438,600
3,070,000 Sprint Communications, Inc. ......................... 9.25% 04/15/22 2,962,550
1,700,000 T-Mobile USA, Inc. (a)............................... 6.54% 04/28/20 1,759,500
7,900,000 T-Mobile USA, Inc. (a)............................... 6.00% 03/01/23 7,982,950
2,428,000 ViaSat, Inc. ........................................ 6.88% 06/15/20 2,558,505
1,500,000 Windstream Services LLC ............................. 6.38% 08/01/23 1,091,250
---------------
41,760,130
---------------
TRANSPORTATION - 4.2%
3,400,000 American Airlines Group, Inc. (b).................... 4.63% 03/01/20 3,251,250
2,280,698 Continental Airlines 2003-ERJ1 Pass Through Trust ... 7.88% 07/02/18 2,386,180
1,744,509 Continental Airlines 2005-ERJ1 Pass Through Trust ... 9.80% 04/01/21 1,881,889
See Notes to Portfolio of Investments
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JANUARY 31, 2016 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ----------------------------------------------------- -------------- -------------- ---------------
CORPORATE BONDS AND NOTES (CONTINUED)
TRANSPORTATION (CONTINUED)
$ 1,260,609 Delta Air Lines 2009-1 Series B Pass Through
Trust ............................................ 9.75% 12/17/16 $ 1,331,519
2,073,592 Northwest Airlines 2001-1 Class B Pass Through
Trust ............................................ 7.69% 04/01/17 2,159,128
6,194,667 US Airways 2000-3C Pass Through Trust ............... 8.39% 03/01/22 6,697,984
2,000,000 US Airways Group, Inc. .............................. 6.13% 06/01/18 2,050,000
4,675,000 XPO Logistics, Inc. (b).............................. 6.50% 06/15/22 4,201,656
---------------
23,959,606
---------------
UTILITY - 0.9%
5,660,000 Calpine Corp. (a).................................... 5.75% 01/15/25 5,108,150
---------------
TOTAL CORPORATE BONDS AND NOTES...................................................... 420,978,567
(Cost $469,466,928) ---------------
PRINCIPAL
VALUE
(LOCAL STATED STATED VALUE
CURRENCY) DESCRIPTION COUPON MATURITY (US DOLLARS)
---------------- ----------------------------------------------------- -------------- -------------- ---------------
FOREIGN CORPORATE BONDS AND NOTES - 15.5%
AUTOMOTIVE - 1.0%
5,545,000 Schaeffler Finance B.V. (USD) (b).................... 4.75% 05/15/21 5,572,725
---------------
BASIC INDUSTRY - 3.6%
2,648,000 ArcelorMittal (USD) (a).............................. 7.25% 02/25/22 2,164,740
8,362,000 ArcelorMittal (USD) ................................. 8.00% 10/15/39 5,937,020
3,300,000 MMC Norilsk Nickel OJSC via MMC Finance Ltd.
(USD) (b)......................................... 6.63% 10/14/22 3,366,825
5,148,000 Novelis, Inc. (USD) ................................. 8.75% 12/15/20 4,704,757
4,200,000 Stora Enso OYJ (USD) (b)............................. 7.25% 04/15/36 4,326,000
---------------
20,499,342
---------------
CAPITAL GOODS - 1.6%
3,000,000 Albea Beauty Holdings S.A. (USD) (b)................. 8.38% 11/01/19 3,142,500
3,000,000 Ardagh Packaging Finance PLC (EUR) .................. 9.25% 10/15/20 3,376,629
900,000 Ardagh Packaging Finance PLC/Ardagh Holdings USA,
Inc. (USD) (b).................................... 6.00% 06/30/21 816,750
2,480,000 Bombardier, Inc. (USD) (b)........................... 6.00% 10/15/22 1,711,200
490,000 Bombardier, Inc. (USD) (b)........................... 6.13% 01/15/23 338,100
---------------
9,385,179
---------------
CONSUMER GOODS - 0.3%
1,900,000 Minerva Luxembourg S.A. (USD) (b).................... 7.75% 01/31/23 1,781,250
---------------
ENERGY - 1.2%
1,500,000 CGG S.A. (USD) ...................................... 6.50% 06/01/21 578,100
5,256,000 CHC Helicopter S.A. (USD) ........................... 9.25% 10/15/20 2,338,920
970,000 Petrobras Global Finance BV (USD) ................... 6.25% 03/17/24 704,220
2,120,000 Petrobras Global Finance BV (USD) ................... 7.25% 03/17/44 1,399,200
900,000 Precision Drilling Corp. (USD) ...................... 6.63% 11/15/20 625,500
See Notes to Portfolio of Investments
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JANUARY 31, 2016 (UNAUDITED)
PRINCIPAL
VALUE
(LOCAL STATED STATED VALUE
CURRENCY) DESCRIPTION COUPON MATURITY (US DOLLARS)
---------------- ----------------------------------------------------- -------------- -------------- ---------------
FOREIGN CORPORATE BONDS AND NOTES (CONTINUED)
ENERGY (CONTINUED)
1,735,000 Precision Drilling Corp. (USD) ...................... 6.50% 12/15/21 $ 1,136,425
---------------
6,782,365
---------------
HEALTHCARE - 1.7%
2,625,000 Endo Ltd./Endo Finance LLC/Endo Finco, Inc.
(USD) (b)......................................... 6.00% 02/01/25 2,605,627
605,000 Mallinckrodt International Finance S.A./
Mallinckrodt CB LLC (USD) (b)..................... 5.75% 08/01/22 580,800
5,650,000 Valeant Pharmaceuticals International, Inc.
(USD) (b)......................................... 7.50% 07/15/21 5,632,344
715,000 Valeant Pharmaceuticals International, Inc.
(USD) (b)......................................... 5.88% 05/15/23 643,500
---------------
9,462,271
---------------
INSURANCE - 0.6%
3,500,000 Oil Insurance Ltd. (USD) (b) (g)..................... 3.59% (h) 3,115,000
---------------
LEISURE - 1.1%
5,755,000 Royal Caribbean Cruises Ltd. (USD) .................. 7.50% 10/15/27 6,445,600
---------------
MEDIA - 2.2%
6,280,000 Altice Luxembourg S.A. (USD) (b)..................... 7.75% 05/15/22 5,887,500
2,500,000 Unitymedia Hessen GmbH & Co. KG / Unitymedia NRW
GmbH (EUR) (b).................................... 4.63% 02/15/26 2,721,777
4,345,000 UPCB Finance IV Ltd. (USD) (b)....................... 5.38% 01/15/25 4,192,925
---------------
12,802,202
---------------
TECHNOLOGY & ELECTRONICS - 0.6%
3,585,000 Sensata Technologies UK Financing Co., PLC
(USD) (b)......................................... 6.25% 02/15/26 3,665,663
---------------
TELECOMMUNICATIONS - 0.8%
5,859,000 Intelsat Luxembourg S.A. (USD) ...................... 7.75% 06/01/21 2,577,960
2,160,000 Intelsat Luxembourg S.A. (USD) ...................... 8.13% 06/01/23 901,800
880,000 Telecom Italia Capital S.A. (USD) ................... 7.20% 07/18/36 862,400
---------------
4,342,160
---------------
TRANSPORTATION - 0.8%
2,850,000 Hapag-Lloyd AG (USD) (b)............................. 9.75% 10/15/17 2,907,000
1,970,000 Stena AB (USD) (b)................................... 7.00% 02/01/24 1,507,050
---------------
4,414,050
---------------
TOTAL FOREIGN CORPORATE BONDS AND NOTES.............................................. 88,267,807
(Cost $104,818,790) ---------------
See Notes to Portfolio of Investments
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JANUARY 31, 2016 (UNAUDITED)
PAR
AMOUNT
(LOCAL STATED STATED VALUE
CURRENCY) DESCRIPTION RATE MATURITY (US DOLLARS)
---------------- ----------------------------------------------------- -------------- -------------- ---------------
CAPITAL PREFERRED SECURITIES - 11.8%
BANKING - 5.9%
1,400,000 Barclays PLC (EUR) (i)............................... 6.50% (h) $ 1,467,651
4,525,000 Capital One Financial Corp., Series E (USD) (i)...... 5.55% (h) 4,510,859
6,700,000 Citigroup, Inc., Series M (USD) (i).................. 6.30% (h) 6,507,375
3,250,000 Dresdner Funding Trust I (USD) (b)................... 8.15% 06/30/31 3,908,125
5,325,000 HBOS Capital Funding L.P. (GBP) (i).................. 6.46% (h) 7,976,498
700,000 HSBC Bank Capital Funding Sterling 1 L.P. (GBP) (i).. 5.84% (h) 1,069,749
3,000,000 Mellon Capital III (GBP) (i)......................... 6.37% 09/05/66 4,316,743
4,095,000 Wells Fargo & Co., Series S (USD) (i)................ 5.90% (h) 4,141,069
---------------
33,898,069
---------------
CAPITAL GOODS - 0.5%
3,760,000 Textron Financial Corp. (USD) (b) (i)................ 6.00% 02/15/67 2,679,000
---------------
FINANCIAL SERVICES - 0.5%
2,100,000 American International Group, Inc. (USD) (a) (i)..... 8.18% 05/15/58 2,737,875
---------------
INSURANCE - 4.9%
1,800,000 Aviva PLC (GBP) (i).................................. 6.13% 11/14/36 2,672,231
3,175,000 Chubb (The) Corp. (USD) (i).......................... 6.38% 04/15/37 2,981,325
3,500,000 CNP Assurances (EUR) (i)............................. 5.25% (h) 3,146,971
11,000,000 Glen Meadow Pass-Through Trust (USD) (b) (i)......... 6.51% 02/12/67 8,497,500
5,000,000 ING Groep N.V. (GBP) (i)............................. 5.14% (h) 7,138,066
3,500,000 Lincoln National Corp. (USD) (a) (i)................. 7.00% 05/17/66 2,616,250
1,800,000 Lincoln National Corp. (USD) (i)..................... 6.05% 04/20/67 1,312,875
---------------
28,365,218
---------------
TOTAL CAPITAL PREFERRED SECURITIES................................................... 67,680,162
(Cost $70,347,790) ---------------
PRINCIPAL STATED
VALUE DESCRIPTION RATE (j) MATURITY (k) VALUE
---------------- ----------------------------------------------------- -------------- -------------- ---------------
SENIOR FLOATING-RATE LOAN INTERESTS - 3.2%
AUTOMOTIVE - 1.0%
$ 4,372,189 Allison Transmission, Inc. Term Loan B3.............. 3.50% 08/23/19 4,351,815
1,743,750 Navistar, Inc. Term Loan B .......................... 6.50% 08/06/20 1,529,060
---------------
5,880,875
---------------
CONSUMER GOODS - 1.2%
6,681,000 Aramark Corp. F Term Loan ........................... 3.25% 02/24/21 6,630,892
---------------
HEALTHCARE - 1.0%
6,215,350 Ortho-Clinical Term Loan B3 ......................... 4.75% 06/30/21 5,447,754
---------------
See Notes to Portfolio of Investments
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JANUARY 31, 2016 (UNAUDITED)
PRINCIPAL STATED
VALUE DESCRIPTION RATE (j) MATURITY (k) VALUE
---------------- ----------------------------------------------------- -------------- -------------- ---------------
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
REAL ESTATE - 0.0%
$ 180,973 Realogy Synthetic Letter of Credit .................. 4.44% 10/10/16 $ 178,258
---------------
TOTAL SENIOR FLOATING-RATE LOAN INTERESTS............................................ 18,137,779
(Cost $19,093,233) ---------------
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ----------------------------------------------------- -------------- -------------- ---------------
MORTGAGE-BACKED SECURITIES - 1.9%
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.6%
Morgan Stanley Mortgage Loan Trust
604,503 Series 2007-6XS, Class 2A1S (g)................... 0.54% 02/25/47 581,483
Specialty Underwriting & Residential Finance Trust
1,490,448 Series 2006-BC4, Class A2B (g).................... 0.54% 09/25/37 643,599
Wells Fargo Mortgage Backed Securities
2,446,031 Series 2006-AR7 Trust, Class 2A4 (g).............. 2.73% 05/25/36 2,330,808
---------------
3,555,890
---------------
COMMERCIAL MORTGAGE-BACKED SECURITIES - 1.3%
Ace Securities Corp. Home Equity Loan Trust Series
2,687,811 2007-HE2, Class A2A (g)........................... l0.55% 12/25/36 1,602,580
Carrington Mortgage Loan Trust
1,082,326 Series 2006-NC4, Class A5 (g)..................... 0.49% 10/25/36 1,032,781
HSI Asset Securitization Corp. Trust
60,463 Series 2007-NC1, Class A1 (g)..................... 0.53% 04/25/37 59,067
Morgan Stanley ABS Capital I, Inc. Trust
673,057 Series 2006-HE6, Class A2B (g).................... 0.53% 09/25/36 296,684
Securitized Asset Backed Receivables LLC Trust
8,691,062 Series 2006-FR4, Class A2A (g).................... 0.51% 08/25/36 3,583,985
Soundview Home Loan Trust
853,682 Series 2006-EQ2, Class A2 (g)..................... 0.54% 01/25/37 573,125
---------------
7,148,222
---------------
TOTAL MORTGAGE-BACKED SECURITIES..................................................... 10,704,112
(Cost $13,696,405) ---------------
ASSET-BACKED SECURITIES - 0.2%
Keycorp Student Loan Trust
1,284,901 Series 2000-A, Class A2 (g)....................... 0.71% 05/25/29 1,239,361
(Cost $1,181,731) ---------------
SHARES DESCRIPTION VALUE
---------------- ------------------------------------------------------------------------------------- ---------------
SHORT-TERM INVESTMENT - 3.0%
16,993,693 Dreyfus Government Cash Management - Institutional Shares............................ 16,993,693
(Cost $16,993,693) ---------------
TOTAL INVESTMENTS - 109.3% 624,001,481
(Cost $695,598,570) (l) ---------------
See Notes to Portfolio of Investments
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JANUARY 31, 2016 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ----------------------------------------------------- -------------- -------------- ---------------
U.S. GOVERNMENT BONDS SOLD SHORT - (7.5%)
$ (42,700,000) United States Treasury Note ......................... 0.88% 02/28/17 $ (42,796,758)
(Proceeds $43,070,300) ---------------
CORPORATE BONDS SOLD SHORT - (3.1%)
CONSUMER GOODS - (1.0%)
(5,350,000) ACCO Brands Corp. ................................... 6.75% 04/30/20 (5,530,563)
---------------
ENERGY - (2.1%)
(2,400,000) Noble Energy, Inc.................................... 4.15% 12/15/21 (2,172,338)
(2,100,000) Noble Energy, Inc.................................... 3.90% 11/15/24 (1,769,716)
(5,360,000) Rice Energy, Inc. ................................... 6.25% 05/01/22 (4,087,000)
(6,550,000) Southwestern Energy Co. ............................. 4.95% 01/23/25 (4,069,188)
---------------
(12,098,242)
---------------
TOTAL CORPORATE BONDS SOLD SHORT..................................................... (17,628,805)
(Proceeds $21,020,856) ---------------
TOTAL INVESTMENTS SOLD SHORT - (10.6%)............................................... (60,425,563)
(Proceeds $64,091,156)
OUTSTANDING LOAN - (1.2)%............................................................ (6,579,451)
NET OTHER ASSETS AND LIABILITIES - 2.5%.............................................. 14,101,956
---------------
NET ASSETS - 100.0%.................................................................. $ 571,098,423
===============
-----------------------------
(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, 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 January 31, 2016, securities noted as such amounted to
$191,469,675 or 33.5% of net assets.
(c) 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.
(d) 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 January 31, 2016, securities noted as such are valued at $2 or
0.0% of net assets.
(e) 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.
(f) Non-income producing security.
(g) Floating rate security. The interest rate shown reflects the rate in
effect at January 31, 2016.
See Notes to Portfolio of Investments
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JANUARY 31, 2016 (UNAUDITED)
(h) Perpetual maturity.
(i) Fixed-to-floating or fixed-to-variable rate security. The interest rate
shown reflects the fixed rate in effect at January 31, 2016. At a
predetermined date, the fixed rate will change to a floating rate or a
variable rate.
(j) 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 January 31, 2016. When a range of rates is
disclosed, the Fund holds more than one contract within the same tranche
at varying rates.
(k) 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.
(l) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of January 31, 2016,
the aggregate gross unrealized appreciation for all securities in which
there was an excess of value over tax cost was $10,347,900 and the
aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over value was $81,944,989.
Currency Abbreviations:
EUR Euro
GBP British Pound Sterling
USD United States Dollar
See Notes to Portfolio of Investments
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JANUARY 31, 2016 (UNAUDITED)
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of January 31,
2016 is as follows (see Note 2A - Portfolio Valuation in the Notes to Portfolio
of Investments):
ASSETS TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
1/31/2016 PRICES INPUTS INPUTS
--------------- ------------- --------------- --------------
Corporate Bonds and Notes:
Basic Industry............................. $ 53,153,746 $ -- $ 53,153,744 $ 2
Other Industry Categories*................. 367,824,821 -- 367,824,821 --
Foreign Corporate Bonds and Notes*............ 88,267,807 -- 88,267,807 --
Capital Preferred Securities*................. 67,680,162 -- 67,680,162 --
Senior Floating-Rate Loan Interests*.......... 18,137,779 -- 18,137,779 --
Mortgage-Backed Securities:
Collateralized Mortgage Obligations........ 3,555,890 -- 3,555,890 --
Commercial Mortgage-Backed Securities...... 7,148,222 -- 7,148,222 --
Asset-Backed Securities....................... 1,239,361 -- 1,239,361 --
Short-Term Investment......................... 16,993,693 16,993,693 -- --
--------------- ------------- --------------- --------------
Total Investments............................. 624,001,481 16,993,693 607,007,786 2
Forward Foreign Currency Contracts**.......... 1,617,005 -- 1,617,005 --
--------------- ------------- --------------- --------------
Total......................................... $ 625,618,486 $ 16,993,693 $ 608,624,791 $ 2
=============== ============= =============== ==============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
1/31/2016 PRICES INPUTS INPUTS
--------------- ------------- --------------- --------------
U.S. Government Bonds Sold Short.............. $ (42,796,758) $ -- $ (42,796,758) $ --
Corporate Bonds Sold Short*................... (17,628,805) -- (17,628,805) --
Forward Foreign Currency Contracts**.......... (91,556) -- (91,556) --
Credit Default Swap***........................ (1,101,691) -- (1,101,691) --
--------------- ------------- --------------- --------------
Total......................................... $ (61,618,810) $ -- $ (61,618,810) $ --
=============== ============= =============== ==============
* 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 table for contract
detail.
See Notes to Portfolio of Investments
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JANUARY 31, 2016 (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, 2015
Corporate Bonds and Notes $ 2
Net Realized Gain (Loss) --
Net Change in Unrealized Appreciation/Depreciation --
Purchases --
Sales --
Transfers In --
Transfers Out --
ENDING BALANCE AT JANUARY 31, 2016
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 January 31, 2016.
There was no net change in unrealized appreciation (depreciation) from Level 3
investments held as of January 31, 2016.
FORWARD FOREIGN CURRENCY CONTRACTS (see Note 2D - Forward Foreign Currency
Contracts in the Notes to Portfolio of Investments):
FORWARD FOREIGN CURRENCY CONTRACTS
------------------------------------------------------------
PURCHASE SALE UNREALIZED
SETTLEMENT AMOUNT AMOUNT VALUE AS OF VALUE AS OF APPRECIATION/
DATE COUNTERPARTY PURCHASED + SOLD + JANUARY 31, 2016 JANUARY 31, 2016 (DEPRECIATION)
---------- -------------- -------------------- -------------------- ---------------- ---------------- --------------
02/18/16 JPM USD 10,911,978 EUR 10,153,000 $ 10,911,978 $ 11,003,534 $ (91,556)
02/18/16 JPM USD 25,253,803 GBP 16,588,000 25,253,803 23,636,798 1,617,005
------------
Net Unrealized Appreciation (Depreciation).................................................................. $ 1,525,449
============
+ Please see Portfolio of Investments for currency descriptions.
CREDIT DEFAULT SWAP CONTRACTS OUTSTANDING
BUY/SELL NOTIONAL PAY/RECEIVE EXPIRATION
REFERENCE ENTITY PROTECTION COUNTERPARTY AMOUNT FIXED RATE DATE VALUE
--------------------- ---------- -------------------------- ----------- ------------- ---------- -----------
Markit iTRAXX Europe
Crossover Index Buy Morgan Stanley & Co., Inc. $18,000,000 5.00% 12/20/20 $(1,101,691)
See Notes to Portfolio of Investments
NOTES TO PORTFOLIO OF INVESTMENTS
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
JANUARY 31, 2016 (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, which is an investment company within the scope of Financial
Accounting Standards Board ("FASB") Accounting Standards Update 2013-08, follows
accounting and reporting guidance under FASB Accounting Standards Codification
Topic 946, "Financial Services-Investment Companies."
2. VALUATION AND INVESTMENT PRACTICES
A. PORTFOLIO VALUATION
The net asset value ("NAV") of the Common Shares of the Fund is determined
daily, as of the close of regular trading on the NYSE, normally 4:00 p.m.
Eastern time, on each day the NYSE is open for trading. If the NYSE closes early
on a valuation day, the NAV is determined as of that time. Domestic debt
securities and foreign securities are priced using data reflecting the earlier
closing of the principal markets for those securities. The Fund's NAV per Common
Share is calculated by dividing the value of all assets of the Fund (including
accrued interest and dividends), less all liabilities (including accrued
expenses, dividends declared but unpaid and any borrowings of the Fund), by the
total number of Common Shares outstanding.
The Fund's investments are valued daily at market value or, in the absence of
market value with respect to any portfolio securities, at fair value. Market
value prices represent 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;
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 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 floating-rate loan interests ("Senior Loans")1 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
NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED)
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
JANUARY 31, 2016 (UNAUDITED)
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 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 borrower/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 borrower/issuer;
5) the credit quality and cash flow of the borrower/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 borrower/issuer, including any ability
to obtain money or resources from a parent or affiliate and an
assessment of the borrower's/issuer's management;
11) the prospects for the borrower's/issuer's industry, and multiples
(of earnings and/or cash flows) being paid for similar businesses in
that industry;
12) the borrower's/issuer's competitive position within the industry;
13) the borrower's/issuer's ability to access additional liquidity
through public and/or private markets; and
14) 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.
NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED)
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
JANUARY 31, 2016 (UNAUDITED)
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 January 31, 2016, is
included with the Fund's Portfolio of Investments.
B. SECURITIES TRANSACTIONS
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
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 January 31, 2016.
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 on the Forward Foreign Currency Contracts table in the Portfolio of
Investments. 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. 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. Swap agreements may
be privately negotiated in the OTC market as a bilateral contract or centrally
cleared.
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
NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED)
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
JANUARY 31, 2016 (UNAUDITED)
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.
Upon entering into a centrally cleared swap, the Fund is required to deposit
initial margin with the broker in the form of cash or securities in an amount
that varies depending on the size and risk profile of the particular swap.
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 reference debt obligation purchased/received.
F. 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.
G. 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.
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. 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.
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.
The Fund did not hold any futures contracts as of Janury 31, 2016.
H. 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 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 January 31, 2016,
the Fund had $6,579,451 in borrowings associated with investments sold short and
$60,425,563 of investments sold short as shown on the Portfolio of Investments.
NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED)
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
JANUARY 31, 2016 (UNAUDITED)
3. DERIVATIVE TRANSACTIONS
For the fiscal year-to-date period (November 1, 2015 to January 31, 2016), the
the notional values of forward foreign currency contracts opened and closed were
$66,927,012 and $67,351,034, respectively.
For the fiscal year-to-date period (November 1, 2015 to January 31, 2016), there
were no futures contracts opened and closed.
The average volume of credit default swap contracts was $18,000,000 for the
fiscal year-to-date period (November 1, 2015 to January 31, 2016).
ITEM 2. 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 last fiscal quarter
that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
ITEM 3. EXHIBITS.
Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 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/ James M. Dykas
----------------------------------------
James M. Dykas, President and
Chief Executive Officer
(principal executive officer)
Date: March 22, 2016
-----------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, President and
Chief Executive Officer
(principal executive officer)
Date: March 22, 2016
-----------------
By (Signature and Title)* /s/ Donald P. Swade
----------------------------------------
Donald P. Swade, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: March 22, 2016
-----------------
* Print the name and title of each signing officer under his or her signature.