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
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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: July 31, 2014
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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
JULY 31, 2014 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ----------------------------------------- -------------- -------------- ---------------
CORPORATE BONDS AND NOTES - 74.3%
AUTOMOTIVE - 4.0%
$ 334,000 Chrysler Group LLC/Chrysler Group
Co-Issuer, Inc. ...................... 8.00% 06/15/19 $ 357,380
4,367,000 Chrysler Group LLC/Chrysler Group
Co-Issuer, Inc. (a)................... 8.25% 06/15/21 4,825,535
2,376,000 Ford Motor Co. (a)....................... 9.22% 09/15/21 3,176,073
553,000 Ford Motor Co. (a)....................... 8.90% 01/15/32 783,586
2,000,000 Ford Motor Co. (a)....................... 7.75% 06/15/43 2,602,246
2,480,000 Ford Motor Co. (a)....................... 9.98% 02/15/47 3,880,915
1,400,000 Goodyear Tire & Rubber (The) Co. ........ 6.50% 03/01/21 1,487,500
5,396,000 Goodyear Tire & Rubber (The) Co. (a)..... 7.00% 05/15/22 5,881,640
21,432 Motors Liquidation Co. GUC Trust
(Transferable) (b).................... N/A N/A 516,511
4,872,000 Navistar International Corp. (a)......... 8.25% 11/01/21 5,048,610
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28,559,996
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BANKING - 1.5%
740,000 Ally Financial, Inc. (a)................. 8.00% 11/01/31 921,300
2,285,000 Ally Financial, Inc. (a)................. 8.00% 11/01/31 2,861,963
5,610,000 Bank of America Corp. ................... 7.63% 06/01/19 6,873,428
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10,656,691
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BASIC INDUSTRY - 9.1%
4,500,000 AK Steel Corp. .......................... 8.38% 04/01/22 4,758,750
3,095,000 Aleris International, Inc. (a)........... 7.63% 02/15/18 3,191,719
2,160,000 Aleris International, Inc. (a)........... 7.88% 11/01/20 2,230,200
2,965,000 Alpha Natural Resources, Inc. (a)........ 6.00% 06/01/19 2,016,200
1,360,000 Alpha Natural Resources, Inc. (c)........ 7.50% 08/01/20 1,258,000
1,255,000 Arch Coal, Inc. ......................... 7.00% 06/15/19 865,950
1,428,000 Arch Coal, Inc. ......................... 7.25% 10/01/20 956,760
1,125,000 Arch Coal, Inc. ......................... 7.25% 06/15/21 736,875
4,405,000 Associated Materials LLC/AMH New
Finance, Inc. (a)..................... 9.13% 11/01/17 4,399,494
1,500,000 Axalta Coating Systems US Holdings,
Inc./Axalta Coating Systems Dutch
Holding B B.V. (c).................... 7.38% 05/01/21 1,601,250
4,000,000 Cemex Finance LLC (c).................... 6.00% 04/01/24 4,010,000
6,500,000 Hexion U.S. Finance Corp./Hexion Nova
Scotia Finance ULC (a)................ 8.88% 02/01/18 6,724,250
8,655,000 Huntsman International LLC (a)........... 8.63% 03/15/21 9,455,587
1,950,000 Momentive Performance Materials, Inc. ... 10.00% 10/15/20 2,025,562
5,150,000 Texas Industries, Inc. .................. 9.25% 08/15/20 5,858,125
4,000,000 United States Steel Corp. (a)............ 7.38% 04/01/20 4,415,000
1,878,000 USG Corp. (c)............................ 8.38% 10/15/18 1,966,266
4,000,000 USG Corp. (c)............................ 5.88% 11/01/21 4,125,000
4,465,000 Weyerhaeuser Real Estate Co. (c)......... 5.88% 06/15/24 4,548,719
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65,143,707
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CAPITAL GOODS - 6.5%
3,595,000 Ball Corp. .............................. 4.00% 11/15/23 3,334,362
See Notes to Quarterly Portfolio of Investments
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 2014 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ----------------------------------------- -------------- -------------- ---------------
CORPORATE BONDS AND NOTES (CONTINUED)
CAPITAL GOODS (CONTINUED)
$ 2,000,000 Ducommun, Inc. (a)....................... 9.75% 07/15/18 $ 2,215,000
7,335,000 Gates Global LLC/Gates Global Co. (c).... 6.00% 07/15/22 7,188,300
5,000,000 Manitowoc Co., Inc. (a).................. 8.50% 11/01/20 5,500,000
2,871,000 Mcron Finance Sub LLC/ Mcron Finance
Corp. (c)............................. 8.38% 05/15/19 3,150,923
2,945,000 Milacron LLC/Mcron Finance Corp. (c)..... 7.75% 02/15/21 3,187,962
2,565,000 Mueller Water Products, Inc. (a)......... 7.38% 06/01/17 2,609,888
7,500,000 Reynolds Group Issuer, Inc. (a).......... 8.50% 05/15/18 7,790,625
2,085,000 Reynolds Group Issuer, Inc. (a).......... 9.88% 08/15/19 2,257,013
4,050,000 Terex Corp. (a).......................... 6.00% 05/15/21 4,262,625
4,540,000 TransDigm, Inc. (c)...................... 6.00% 07/15/22 4,568,375
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46,065,073
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CONSUMER NON-CYCLICAL - 0.8%
3,295,000 JBS USA LLC/JBS USA Finance, Inc. (c).... 5.88% 07/15/24 3,262,050
2,240,000 Smithfield Foods, Inc. (a)............... 6.63% 08/15/22 2,430,400
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5,692,450
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ENERGY - 10.8%
1,150,000 Atlas Pipeline Partners L.P./Atlas
Pipeline Finance Corp. ............... 4.75% 11/15/21 1,092,500
2,535,000 Atlas Pipeline Partners L.P./Atlas
Pipeline Finance Corp. (a)............ 5.88% 08/01/23 2,503,313
1,280,000 Basic Energy Services, Inc. ............. 7.75% 02/15/19 1,347,200
3,540,000 Basic Energy Services, Inc. (a).......... 7.75% 10/15/22 3,849,750
3,974,000 Berry Petroleum Co., LLC (a)............. 6.75% 11/01/20 4,113,090
600,000 Chesapeake Energy Corp. (a).............. 7.25% 12/15/18 684,000
1,970,000 Chesapeake Energy Corp. (a).............. 6.63% 08/15/20 2,205,169
6,600,000 Chesapeake Energy Corp. (a).............. 5.38% 06/15/21 6,810,375
600,000 Chesapeake Energy Corp. ................. 4.88% 04/15/22 601,500
2,040,000 CITGO Petroleum Corp. (c)................ 6.25% 08/15/22 2,106,300
4,135,000 EP Energy LLC/Everest Acquisition
Finance, Inc. (a)..................... 9.38% 05/01/20 4,600,187
3,000,000 Ferrellgas L.P./Ferrellgas Finance
Corp. (a)............................. 6.50% 05/01/21 3,112,500
800,000 Frontier Oil Corp. (a)................... 6.88% 11/15/18 840,000
1,000,000 Hornbeck Offshore Services, Inc. ........ 5.88% 04/01/20 1,015,000
3,960,000 Hornbeck Offshore Services, Inc. (a)..... 5.00% 03/01/21 3,900,600
5,510,000 Kinder Morgan, Inc. (c).................. 5.00% 02/15/21 5,613,312
2,636,000 Linn Energy LLC/Linn Energy Finance
Corp. ................................ 6.25% 11/01/19 2,688,720
4,240,000 Linn Energy LLC/Linn Energy Finance
Corp. ................................ 8.63% 04/15/20 4,499,700
3,535,000 PHI, Inc. (c)............................ 5.25% 03/15/19 3,561,513
3,884,000 Plains Exploration & Production Co. ..... 6.50% 11/15/20 4,330,660
3,998,000 Samson Investment Co. (c)................ 10.75% 02/15/20 4,067,965
3,695,000 Swift Energy Co. ........................ 8.88% 01/15/20 3,879,750
3,425,000 Targa Resources Partners L.P./Targa
Resources Partners Finance (a)........ 7.88% 10/15/18 3,604,812
See Notes to Quarterly Portfolio of Investments
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 2014 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ----------------------------------------- -------------- -------------- ---------------
CORPORATE BONDS AND NOTES (CONTINUED)
ENERGY (CONTINUED)
$ 5,800,000 Whiting Petroleum Corp. (a).............. 5.75% 03/15/21 $ 6,351,000
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77,378,916
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FINANCIAL SERVICES - 5.2%
8,000,000 CIT Group, Inc. (a)...................... 4.25% 08/15/17 8,260,000
4,845,000 CIT Group, Inc. (a)...................... 3.88% 02/19/19 4,832,888
6,155,000 Icahn Enterprises L.P./Icahn Enterprises
Finance Corp. (a)..................... 6.00% 08/01/20 6,447,362
1,190,000 Icahn Enterprises L.P./Icahn Enterprises
Finance Corp. ........................ 5.88% 02/01/22 1,219,006
8,000,000 Navient LLC (a).......................... 8.00% 03/25/20 9,060,000
2,395,000 Springleaf Finance Corp. (a)............. 6.00% 06/01/20 2,442,900
4,555,000 Springleaf Finance Corp. (a)............. 7.75% 10/01/21 5,124,375
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37,386,531
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HEALTHCARE - 6.1%
5,074,000 Alere, Inc. ............................. 7.25% 07/01/18 5,454,550
665,000 Alere, Inc. ............................. 6.50% 06/15/20 683,288
2,725,000 CHS/Community Health Systems, Inc. (c)... 5.13% 08/01/21 2,759,063
5,360,000 CHS/Community Health Systems, Inc. (c)... 6.88% 02/01/22 5,507,400
2,500,000 DaVita Healthcare Partners, Inc. (a)..... 5.75% 08/15/22 2,646,875
5,600,000 HCA Holdings, Inc. (a)................... 7.75% 05/15/21 6,055,000
10,850,000 HCA, Inc. (a)............................ 5.00% 03/15/24 10,795,750
3,150,000 Kinetic Concepts, Inc./KCI USA, Inc. .... 10.50% 11/01/18 3,496,500
4,185,000 MPH Acquisition Holdings LLC (c)......... 6.63% 04/01/22 4,300,087
1,735,000 Tenet Healthcare Corp. (a)............... 8.13% 04/01/22 1,943,200
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43,641,713
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MEDIA - 2.8%
3,895,000 CCO Holdings LLC/CCO Holdings Capital
Corp. (a)............................. 5.75% 01/15/24 3,885,263
559,000 Clear Channel Communications, Inc. (a)... 5.50% 12/15/16 549,916
10,905,000 Clear Channel Communications, Inc. (a)... 9.00% 03/01/21 11,313,937
456,000 Clear Channel Worldwide Holdings,
Inc. ................................. 7.63% 03/15/20 478,800
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% 11/15/22 570,755
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19,736,846
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SERVICES - 16.4%
1,095,000 Ashtead Capital, Inc. (c)................ 6.50% 07/15/22 1,168,913
900,000 Avis Budget Car Rental LLC/Avis Budget
Finance, Inc. (c)..................... 5.13% 06/01/22 875,250
4,915,000 Avis Budget Car Rental LLC/Avis Budget
Finance, Inc. ........................ 5.50% 04/01/23 4,939,575
6,500,000 Beazer Homes USA, Inc. (a)............... 8.13% 06/15/16 7,085,000
849,000 Caesars Entertainment Operating Co.,
Inc. ................................. 9.00% 02/15/20 711,038
7,783,000 Caesars Entertainment Operating Co.,
Inc. (a).............................. 9.00% 02/15/20 6,479,347
See Notes to Quarterly Portfolio of Investments
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 2014 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ----------------------------------------- -------------- -------------- ---------------
CORPORATE BONDS AND NOTES (CONTINUED)
SERVICES (CONTINUED)
$ 2,600,000 Caesars Entertainment Resort
Properties, LLC (c)................... 8.00% 10/01/20 $ 2,678,000
3,714,732 Continental Airlines 2003-ERJ1 Pass
Through Trust ........................ 7.88% 07/02/18 4,002,624
2,173,613 Continental Airlines 2005-ERJ1 Pass
Through Trust ........................ 9.80% 04/01/21 2,499,655
1,467,086 Delta Air Lines 2009-1 Series B Pass
Through Trust ........................ 9.75% 12/17/16 1,663,309
8,000,000 Hertz (The) Corp. ....................... 7.50% 10/15/18 8,340,000
4,125,000 Iron Mountain, Inc. (a).................. 8.38% 08/15/21 4,290,000
3,500,000 Isle of Capri Casinos, Inc. (a).......... 7.75% 03/15/19 3,692,500
1,913,000 K Hovnanian Enterprises, Inc. (c)........ 7.00% 01/15/19 1,928,543
4,160,000 K Hovnanian Enterprises, Inc. (c)........ 7.25% 10/15/20 4,399,200
3,479,000 KB Home ................................. 7.50% 09/15/22 3,818,202
9,175,000 MGM Resorts International ............... 6.75% 10/01/20 9,954,875
2,380,000 Mohegan Tribal Gaming Authority ......... 9.75% 09/01/21 2,582,300
2,315,550 Northwest Airlines 2001-1 Class B Pass
Through Trust ........................ 7.69% 04/01/17 2,564,471
4,127,000 Pinnacle Entertainment, Inc. ............ 7.75% 04/01/22 4,441,684
1,780,000 Pulte Group, Inc. (a).................... 7.63% 10/15/17 2,051,450
4,570,000 Pulte Group, Inc. (a).................... 7.88% 06/15/32 5,164,100
3,319,000 Shea Homes L.P./Shea Homes Funding
Corp. ................................ 8.63% 05/15/19 3,543,032
5,500,000 Standard Pacific Corp. (a)............... 8.38% 05/15/18 6,338,750
1,900,785 UAL 2009-2B Pass Through Trust (c)....... 12.00% 01/15/16 2,114,623
375,000 United Rentals North America, Inc. ...... 7.38% 05/15/20 404,063
5,619,000 United Rentals North America, Inc. (a)... 8.38% 09/15/20 6,082,567
367,000 United Rentals North America, Inc. ...... 7.63% 04/15/22 406,453
3,097,000 United Rentals North America, Inc. (a)... 6.13% 06/15/23 3,218,944
6,453,460 US Airways 2000-3C Pass Through Trust ... 8.39% 03/01/22 7,292,410
2,000,000 US Airways Group, Inc. .................. 6.13% 06/01/18 2,110,000
---------------
116,840,878
---------------
TECHNOLOGY & ELECTRONICS - 4.6%
3,780,000 CommScope, Inc. (c)...................... 5.00% 06/15/21 3,761,100
9,050,000 First Data Corp. (c)..................... 8.88% 08/15/20 9,909,750
2,621,000 First Data Corp. ........................ 10.63% 06/15/21 2,989,578
2,950,000 Freescale Semiconductor, Inc. (c)........ 5.00% 05/15/21 2,950,000
6,000,000 NCR Corp. ............................... 6.38% 12/15/23 6,390,000
6,460,000 SunGard Data Systems, Inc. (a)........... 6.63% 11/01/19 6,653,800
---------------
32,654,228
---------------
TELECOMMUNICATIONS - 5.3%
2,500,000 Frontier Communications Corp. (a)........ 9.00% 08/15/31 2,675,000
2,411,000 Hughes Satellite Systems Corp. (a)....... 7.63% 06/15/21 2,736,485
3,500,000 MetroPCS Wireless, Inc. (a).............. 7.88% 09/01/18 3,652,250
3,450,000 Sprint Capital Corp. (a)................. 6.88% 11/15/28 3,381,000
7,660,000 Sprint Capital Corp. (a)................. 8.75% 03/15/32 8,540,900
6,000,000 Sprint Communications, Inc. (a).......... 9.25% 04/15/22 7,200,000
See Notes to Quarterly Portfolio of Investments
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 2014 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ----------------------------------------- -------------- -------------- ---------------
CORPORATE BONDS AND NOTES (CONTINUED)
TELECOMMUNICATIONS (CONTINUED)
$ 1,240,000 Sprint Communications, Inc. (a).......... 6.00% 11/15/22 $ 1,227,600
1,700,000 T-Mobile USA, Inc. (a)................... 6.54% 04/28/20 1,782,875
2,750,000 T-Mobile USA, Inc. (a)................... 6.13% 01/15/22 2,839,375
2,428,000 ViaSat, Inc. ............................ 6.88% 06/15/20 2,622,240
1,500,000 Windstream Corp. ........................ 6.38% 08/01/23 1,486,875
---------------
38,144,600
---------------
UTILITY - 1.2%
5,740,000 Calpine Corp. ........................... 5.75% 01/15/25 5,618,025
2,455,000 NRG Energy, Inc. (a)..................... 8.25% 09/01/20 2,651,400
---------------
8,269,425
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TOTAL CORPORATE BONDS AND NOTES.......................................... 530,171,054
(Cost $508,320,193) ---------------
PAR
AMOUNT
(LOCAL STATED STATED VALUE
CURRENCY) DESCRIPTION RATE MATURITY (US DOLLARS)
---------------- ----------------------------------------- -------------- -------------- ---------------
CAPITAL PREFERRED SECURITIES - 21.8%
BANKING - 9.2%
6,500,000 ABN AMRO Bank N.V. (EUR) (d)............. 4.31% (e) 8,899,638
2,975,000 Ageas Hybrid Financing S.A. (EUR) (d).... 5.13% (e) 4,023,500
1,400,000 Barclays PLC (EUR) (d)................... 6.50% (e) 1,892,475
5,500,000 Citigroup, Inc., Series M (USD) (a) (d).. 6.30% (e) 5,545,381
6,750,000 Deutsche Postbank Funding Trust IV
(EUR) (d)............................. 5.98% (e) 9,720,072
3,250,000 Dresdner Funding Trust I (USD) (c)....... 8.15% 06/30/31 3,908,125
5,325,000 HBOS Capital Funding L.P. (GBP) (d)...... 6.46% (e) 9,644,263
3,890,000 ICICI Bank Ltd. (USD) (d)................ 6.38% 04/30/22 4,084,500
3,250,000 Mellon Capital III (GBP) (d)............. 6.37% 09/05/66 5,816,211
3,000,000 National Westminster Bank PLC (GBP) (d).. 5.98% (e) 5,004,136
2,250,000 UT2 Funding PLC (EUR) ................... 5.32% 06/30/16 3,106,630
4,095,000 Wells Fargo & Co. (USD) (a) (d).......... 5.90% (e) 4,287,465
---------------
65,932,396
---------------
CAPITAL GOODS - 0.1%
700,000 Textron Financial Corp. (USD) (c) (d).... 6.00% 02/15/67 637,000
---------------
FINANCIAL SERVICES - 2.2%
10,500,000 GE Capital Trust IV (EUR) (d)............ 4.63% 09/15/66 14,744,387
410,000 General Electric Capital Corp.
(EUR) (d)............................. 5.50% 09/15/67 595,674
---------------
15,340,061
---------------
INSURANCE - 10.3%
2,450,000 American International Group, Inc.
(EUR) (d)............................. 8.00% 05/22/38 3,986,466
3,050,000 American International Group, Inc.
(GBP) (d)............................. 8.63% 05/22/38 6,085,221
See Notes to Quarterly Portfolio of Investments
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 2014 (UNAUDITED)
PAR
AMOUNT
(LOCAL STATED STATED VALUE
CURRENCY) DESCRIPTION RATE MATURITY (US DOLLARS)
---------------- ----------------------------------------- -------------- -------------- ---------------
CAPITAL PREFERRED SECURITIES (CONTINUED)
INSURANCE (CONTINUED)
1,800,000 American International Group, Inc.
(EUR) (d)............................. 4.88% 03/15/67 $ 2,524,170
10,950,000 American International Group, Inc.
(GBP) (d)............................. 5.75% 03/15/67 19,300,088
5,000,000 Chubb Corp. (USD) (a) (d)................ 6.38% 03/29/67 5,537,500
3,500,000 CNP Assurances (EUR) (d)................. 5.25% (e) 4,288,297
11,000,000 Glen Meadow Pass Through Trust
(USD) (c) (d)......................... 6.51% 02/12/67 10,917,500
5,000,000 ING Groep N.V. (GBP) (d)................. 5.14% (e) 8,560,550
6,500,000 Liberty Mutual Group, Inc.
(USD) (c) (d)......................... 7.00% 03/15/37 6,922,500
3,500,000 Lincoln National Corp. (USD) (a) (d)..... 7.00% 05/17/66 3,611,562
1,800,000 Lincoln National Corp. (USD) (a) (d)..... 6.05% 04/20/67 1,827,000
---------------
73,560,854
---------------
TOTAL CAPITAL PREFERRED SECURITIES....................................... 155,470,311
(Cost $130,666,100) ---------------
PRINCIPAL
VALUE
(LOCAL STATED STATED VALUE
CURRENCY) DESCRIPTION COUPON MATURITY (US DOLLARS)
---------------- ----------------------------------------- -------------- -------------- ---------------
FOREIGN CORPORATE BONDS AND NOTES - 21.2%
AUTOMOTIVE - 0.6%
4,120,000 Schaeffler Finance B.V. (USD) (c)........ 4.75% 05/15/21 4,202,400
---------------
BANKING - 3.3%
3,500,000 Banco do Brasil S.A. (USD) (c)........... 5.88% 01/19/23 3,578,750
2,200,000 Barclays Bank PLC (GBP) ................. 10.00% 05/21/21 4,885,967
2,000,000 Belfius Financing Co. (GBP) (f).......... 1.23% 02/09/17 3,237,325
4,350,000 Industrial Senior Trust (USD) (c)........ 5.50% 11/01/22 4,306,500
3,000,000 Royal Bank of Scotland N.V. (EUR) (f).... 4.70% 06/10/19 4,218,399
3,700,000 Sberbank of Russia Via SB Capital
S.A. (USD) ........................... 5.13% 10/29/22 3,297,625
---------------
23,524,566
---------------
BASIC INDUSTRY - 4.8%
3,868,000 APERAM (USD) (c)......................... 7.38% 04/01/16 3,967,117
2,648,000 ArcelorMittal (USD) (a).................. 6.75% 02/25/22 2,879,700
3,972,000 ArcelorMittal (USD) (a).................. 7.50% 10/15/39 4,155,705
505,000 ArcelorMittal (USD) ..................... 7.25% 03/01/41 517,625
6,450,000 Novelis, Inc. (USD) (a).................. 8.75% 12/15/20 6,998,250
3,700,000 Severstal OAO Via Steel Capital S.A.
(USD) (c)............................. 5.90% 10/17/22 3,612,125
4,200,000 Stora Enso OYJ (USD) (c)................. 7.25% 04/15/36 4,326,000
6,785,000 Vedanta Resources PLC (USD) (c).......... 8.25% 06/07/21 7,713,697
---------------
34,170,219
---------------
See Notes to Quarterly Portfolio of Investments
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 2014 (UNAUDITED)
PRINCIPAL
VALUE
(LOCAL STATED STATED VALUE
CURRENCY) DESCRIPTION COUPON MATURITY (US DOLLARS)
---------------- ----------------------------------------- -------------- -------------- ---------------
FOREIGN CORPORATE BONDS AND NOTES (CONTINUED)
CAPITAL GOODS - 1.9%
3,000,000 Albea Beauty Holdings S.A. (USD) (c)..... 8.38% 11/01/19 $ 3,247,500
3,000,000 Ardagh Packaging Finance PLC (EUR) ...... 9.25% 10/15/20 4,388,725
900,000 Ardagh Packaging Finance PLC/Ardagh
Holdings USA, Inc. (USD) (c).......... 6.00% 06/30/21 861,750
2,480,000 Bombardier, Inc. (USD) (c)............... 6.00% 10/15/22 2,433,500
2,775,000 Bombardier, Inc. (USD) (c)............... 6.13% 01/15/23 2,747,250
---------------
13,678,725
---------------
CONSUMER NON-CYCLICAL - 2.3%
6,000,000 JBS Finance II Ltd. (USD) (c)............ 8.25% 01/29/18 6,390,000
5,900,000 Minerva Luxembourg S.A. (USD) (c)........ 7.75% 01/31/23 6,335,125
1,420,000 Virgolino de Oliveira Finance S.A.
(USD) (c)............................. 10.88% 01/13/20 1,412,900
3,000,000 Virgolino de Oliveira Finance S.A.
(USD) (c)............................. 11.75% 02/09/22 2,310,000
---------------
16,448,025
---------------
ENERGY - 1.8%
1,500,000 CGG S.A. (USD) .......................... 6.50% 06/01/21 1,432,500
7,056,000 CHC Helicopter S.A. (USD) ............... 9.25% 10/15/20 7,604,251
1,700,000 Precision Drilling Corp. (USD) .......... 6.63% 11/15/20 1,785,000
1,750,000 Precision Drilling Corp. (USD) .......... 6.50% 12/15/21 1,868,125
---------------
12,689,876
---------------
HEALTHCARE - 1.6%
4,540,000 Mallinckrodt International Finance S.A./
Mallinckrodt CB LLC (c)............... 5.75% 08/01/22 4,568,375
6,550,000 Valeant Pharmaceuticals International,
Inc. (USD) (c)........................ 7.50% 07/15/21 7,098,563
---------------
11,666,938
---------------
INSURANCE - 0.8%
1,650,000 Aviva PLC (EUR) (d)...................... 6.88% 05/22/38 2,582,268
3,500,000 Oil Insurance Ltd. (USD) (c) (f)......... 3.22% (e) 3,255,000
---------------
5,837,268
---------------
SERVICES - 2.5%
5,250,000 Hapag-Lloyd AG (USD) (c)................. 9.75% 10/15/17 5,617,500
5,755,000 Royal Caribbean Cruises Ltd. (USD) (a)... 7.50% 10/15/27 6,603,862
5,930,000 Ukraine Railways Via Shortline PLC
(USD) (c)............................. 9.50% 05/21/18 5,160,286
---------------
17,381,648
---------------
TELECOMMUNICATIONS - 1.6%
5,859,000 Intelsat Luxembourg S.A. (USD) .......... 7.75% 06/01/21 6,012,799
2,160,000 Intelsat Luxembourg S.A. (USD) .......... 8.13% 06/01/23 2,254,500
See Notes to Quarterly Portfolio of Investments
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 2014 (UNAUDITED)
PRINCIPAL
VALUE
(LOCAL STATED STATED VALUE
CURRENCY) DESCRIPTION COUPON MATURITY (US DOLLARS)
---------------- ----------------------------------------- -------------- -------------- ---------------
FOREIGN CORPORATE BONDS AND NOTES (CONTINUED)
TELECOMMUNICATIONS (CONTINUED)
2,408,000 Unify Germany Holdings B.V. (EUR) ....... 10.75% 11/15/15 $ 3,256,991
---------------
11,524,290
---------------
TOTAL FOREIGN CORPORATE BONDS AND NOTES.................................. 151,123,955
(Cost $143,810,144) ---------------
PRINCIPAL STATED
VALUE DESCRIPTION RATE (g) MATURITY (h) VALUE
---------------- ----------------------------------------- -------------- -------------- ---------------
SENIOR FLOATING-RATE LOAN INTERESTS - 3.9%
AUTOMOTIVE - 0.9%
$ 4,439,111 Allison Transmission, Inc. Term Loan B3.. 3.75% 08/23/19 4,423,574
1,743,750 Navistar, Inc. Term Loan B .............. 5.75% 08/17/17 1,753,916
---------------
6,177,490
---------------
ENERGY - 0.8%
5,835,262 Meg Energy Term Loan .................... 3.75% 03/31/20 5,828,727
---------------
HEALTHCARE - 0.9%
6,310,000 Ortho-Clinical Term Loan B3 ............. 4.75% 06/30/21 6,294,225
---------------
REAL ESTATE - 0.0%
279,902 Realogy Synthetic Letter of Credit ...... 4.26% 10/10/16 279,379
---------------
SERVICES - 1.3%
6,800,000 Aramark Corp. F Term Loan ............... 3.25% 02/24/21 6,724,928
2,970,000 US Airway Group Term Loan ............... 3.50% 05/23/19 2,953,308
---------------
9,678,236
---------------
TOTAL SENIOR FLOATING-RATE LOAN INTERESTS................................ 28,258,057
(Cost $28,269,821) ---------------
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ----------------------------------------- -------------- -------------- ---------------
ASSET-BACKED SECURITIES - 1.6%
2,997,662 Ace Securities Corp. Home Equity Loan
Trust Series 2007-HE2, Class A2A (f).. l0.27% 12/25/36 1,757,286
1,734,222 Carrington Mortgage Loan Trust Series
2006-NC4, Class A5 (f) ............... 0.21% 10/25/36 1,547,610
948,478 HSI Asset Securitization Corp. Trust
Series 2007-NC1, Class A1 (f) ........ 0.25% 04/25/37 865,092
1,942,139 Keycorp Student Loan Trust Series 2000-A,
Class A2 (f) ......................... 0.55% 05/25/29 1,886,900
717,665 Morgan Stanley ABS Capital I, Inc. Trust
Series 2006-HE6, Class A2B (f) ....... 0.25% 09/25/36 409,479
9,332,615 Securitized Asset Backed Receivables LLC
Trust Series 2006-FR4, Class A2A (f).. 0.23% 08/25/36 4,304,547
See Notes to Quarterly Portfolio of Investments
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 2014 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ----------------------------------------- -------------- -------------- ---------------
ASSET-BACKED SECURITIES (CONTINUED)
$ 974,057 Soundview Home Loan Trust
Series 2006-EQ2, Class A2 (f)......... 0.26% 01/25/37 $ 667,027
---------------
TOTAL ASSET-BACKED SECURITIES............................................ 11,437,941
(Cost $13,231,395) ---------------
MORTGAGE-BACKED SECURITIES - 0.6%
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.6%
1,080,043 Morgan Stanley Mortgage Loan Trust
Series 2007-6XS, Class 2A1S (f)....... 0.26% 02/25/47 1,023,801
1,642,702 Specialty Underwriting & Residential
Finance Trust Series 2006-BC4, Class
A2B (f)............................... 0.26% 09/25/37 697,799
3,080,040 Wells Fargo Mortgage Backed Securities
Trust Series 2006-AR7 Trsut Class
2A4 (f)............................... 2.61% 05/25/36 2,887,081
---------------
TOTAL MORTGAGE-BACKED SECURITIES......................................... 4,608,681
(Cost $5,002,948) ---------------
PRINCIPAL
VALUE
(LOCAL STATED STATED VALUE
CURRENCY) DESCRIPTION COUPON MATURITY (US DOLLARS)
---------------- ----------------------------------------- -------------- -------------- ---------------
FOREIGN SOVEREIGN BONDS AND NOTES - 0.6%
ENERGY - 0.6%
3,750,000 Georgian Oil and Gas Corp. JSC
(USD) (c)............................. 6.88% 05/16/17 3,997,875
---------------
TOTAL FOREIGN SOVEREIGN BONDS AND NOTES.................................. 3,997,875
(Cost $3,729,636) ---------------
SHARES DESCRIPTION VALUE
---------------- ------------------------------------------------------------------------- ---------------
COMMON STOCKS - 2.0%
AUTOMOTIVE - 1.5%
448,000 Ford Motor Co............................................................ 7,624,960
84,412 General Motors Co........................................................ 2,854,814
---------------
10,479,774
---------------
BANKING - 0.5%
75,700 Citigroup, Inc........................................................... 3,702,487
---------------
TOTAL COMMON STOCKS...................................................... 14,182,261
(Cost $13,968,453) ---------------
See Notes to Quarterly Portfolio of Investments
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 2014 (UNAUDITED)
SHARES DESCRIPTION VALUE
---------------- ------------------------------------------------------------------------- ---------------
WARRANTS - 0.4%
AUTOMOTIVE - 0.4%
81,728 General Motors Co., expiring 07/10/16 (i)................................ $ 2,006,422
46,655 General Motors Co., expiring 07/10/19 (i)................................ 788,470
---------------
TOTAL WARRANTS........................................................... 2,794,892
(Cost $3,294,518) ---------------
SHORT-TERM INVESTMENTS - 0.2%
1,662,240 Dreyfus Government Cash Management - Institutional Shares................ 1,662,240
---------------
TOTAL SHORT-TERM INVESTMENTS............................................. 1,662,240
(Cost $1,662,240) ---------------
TOTAL INVESTMENTS - 126.6%............................................... 903,707,267
(Cost $851,955,448) (j)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ----------------------------------------- -------------- -------------- ---------------
U.S. GOVERNMENT BONDS SOLD SHORT - (20.5%)
$ (119,200,000) United States Treasury Note ............. 0.88% 02/28/17 (119,269,851)
(27,500,000) United States Treasury Note ............. 2.00% 02/15/22 (26,924,205)
---------------
TOTAL U.S. GOVERNMENT BONDS SOLD SHORT................................... (146,194,056)
(Proceeds $147,297,957) ---------------
CORPORATE BONDS SOLD SHORT - (1.5%)
CONSUMER NON-CYCLICAL - (0.8%)
(5,350,000) ACCO Brands Corp. ....................... 6.75% 04/30/20 (5,590,750)
---------------
ENERGY - (0.7%)
(5,360,000) Rice Energy, Inc. (c).................... 6.25% 05/01/22 (5,333,200)
---------------
TOTAL CORPORATE BONDS SOLD SHORT......................................... (10,923,950)
(Proceeds $10,871,700) ---------------
TOTAL INVESTMENTS SOLD SHORT - (22.0%)................................... (157,118,006)
(Proceeds $158,169,657)
BORROWINGS - (5.0%)...................................................... (35,742,096)
NET OTHER ASSETS AND LIABILITIES - 0.4%.................................. 2,867,355
---------------
NET ASSETS - 100.0%...................................................... $ 713,714,520
===============
See Notes to Quarterly Portfolio of Investments
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 2014 (UNAUDITED)
(a) This security or a portion of this security is segregated as collateral
for investments sold short.
(b) 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.
(c) 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.
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 July 31, 2014, securities noted as such amounted to
$206,095,202 of total investments and $(5,333,200) of corporate bonds sold
short, or 28.88% and (0.75%) of net assets, respectively.
(d) Fixed-to-floating or fixed-to-variable rate security. The interest rate
shown reflects the fixed rate in effect at July 31, 2014. At a
predetermined date, the fixed rate will change to a floating rate or a
variable rate.
(e) Perpetual maturity.
(f) Floating rate security. The interest rate shown reflects the rate in
effect at July 31, 2014.
(g) 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 July 31, 2014. When a range of rates is
disclosed the Fund holds more than one contract within the same tranche at
varying rates.
(h) 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.
(i) Non-income producing security.
(j) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of July 31, 2014, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $62,110,426 and the aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over value was $10,358,607.
Currency Abbreviations:
EUR Euro
GBP British Pound Sterling
USD United States Dollar
See Notes to Quarterly Portfolio of Investments
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 2014 (UNAUDITED)
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of July 31, 2014
is as follows (see Note 2A - Portfolio Valuation in the Notes to Quarterly
Portfolio of Investments):
ASSETS TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
INVESTMENTS 7/31/2014 PRICES INPUTS INPUTS
---------------------------------------------- --------------- ------------- --------------- --------------
Corporate Bonds and Notes:
Automotive................................. $ 516,511 $ 516,511 $ -- $ --
Other Industry Categories*................. 529,654,543 -- 529,654,543 --
Capital Preferred Securities*................. 155,470,311 -- 155,470,311 --
Foreign Corporate Bonds and Notes*............ 151,123,955 -- 151,123,955 --
Senior Floating-Rate Loan Interests*.......... 28,258,057 -- 28,258,057 --
Asset-Backed Securities....................... 11,437,941 -- 11,437,941 --
Mortgage-Backed Securities.................... 4,608,681 -- 4,608,681 --
Foreign Sovereign Bonds and Notes*............ 3,997,875 -- 3,997,875 --
Common Stocks*................................ 14,182,261 14,182,261 -- --
Warrants*..................................... 2,794,892 2,794,892 -- --
Short-Term Investments........................ 1,662,240 1,662,240 -- --
--------------- ------------- --------------- --------------
Total Investments............................. $ 903,707,267 $ 19,155,904 $ 884,551,363 $ --
--------------- ------------- --------------- --------------
Other Financial Instruments:
Forward Foreign Currency Contracts**.......... 1,953,390 -- 1,953,390 --
Futures Contracts............................. 50,238 50,238 -- --
--------------- ------------- --------------- --------------
Total......................................... $ 905,710,895 $ 19,206,142 $ 886,504,753 $ --
=============== ============= =============== ==============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
7/31/2014 PRICES INPUTS INPUTS
--------------- ------------- --------------- --------------
U.S. Government Bonds Sold Short.............. $ (146,194,056) $ -- $ (146,194,056) $ --
Corporate Bonds Sold Short*................... (10,923,950) -- (10,923,950) --
--------------- ------------- --------------- --------------
Total......................................... $ (157,118,006) $ -- $ (157,118,006) $ --
=============== ============= =============== ==============
* See the Portfolio of Investments for industry breakout. ** See the Schedule of
Forward Foreign Currency Contracts for contract and currency detail.
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 July 31, 2014.
OPEN FUTURES CONTRACTS AT JULY 31, 2014 (see Note 2F - Futures Contracts in the
Notes to Quarterly Portfolio of Investments):
UNREALIZED
NUMBER OF EXPIRATION APPRECIATION/
SHORT FUTURES CONTRACTS CONTRACTS MONTH NOTIONAL VALUE (DEPRECIATION)
---------------------------------------------- --------------- -------------- --------------- ---------------
U.S. Treasury 2-Year Notes 180 September-2014 $ 39,546,175 $ 50,238
See Notes to Quarterly Portfolio of Investments
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 2014 (UNAUDITED)
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS (see Note 2D - Forward Foreign
Currency Contracts in the Notes to Quarterly Portfolio of Investments):
FORWARD FOREIGN CURRENCY CONTRACTS
---------------------------------------------------------
PURCHASE SALE UNREALIZED
SETTLEMENT AMOUNT AMOUNT VALUE AS OF VALUE AS OF APPRECIATION/
DATE COUNTERPARTY PURCHASED + SOLD + JULY 31, 2014 JULY 31, 2014 (DEPRECIATION)
---------- -------------- -------------------- ------------------ ---------------- ---------------- --------------
09/18/14 JPM USD 70,351,137 EUR 51,740,000 $ 70,351,137 $ 69,293,638 $ 1,057,499
09/18/14 JPM USD 64,177,452 GBP 37,498,000 64,177,452 63,281,561 895,891
-----------
Net Unrealized Appreciation (Depreciation).............................................................. $ 1,953,390
===========
+ Please see Portfolio of Investments for currency descriptions.
Counterparty Abbreviations:
JPM JPMorgan Chase
See Notes to Quarterly Portfolio of Investments
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
JULY 31, 2014 (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").
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 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 in
accordance with valuation procedures adopted by the Fund's Board of Trustees and
in accordance with provisions of the 1940 Act. Market quotations and prices used
to value the Fund's investments are primarily obtained from third party pricing
services. 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 valued at the mean of
their most recent bid and asked price, if available, and otherwise at
their closing bid price.
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 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 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 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.
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS (CONTINUED)
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
JULY 31, 2014 (UNAUDITED)
Debt securities having a remaining maturity of sixty days or less when
purchased are valued at cost adjusted for amortization of premiums and
accretion of discounts.
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 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 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. The use of fair value prices by the Fund
generally results in prices used by the Fund that may differ from current market
quotations or official closing prices on the applicable exchange. 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 methodology 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 July 31, 2014, 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.
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS (CONTINUED)
FIRST TRUST HIGH INCOME LONG/SHORT FUND (FSD)
JULY 31, 2014 (UNAUDITED)
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 July 31, 2014.
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 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 Schedule of Forward
Foreign Currency Contracts. 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 Schedule
of Forward Foreign Currency Contracts.
For the fiscal year to date period (November 1, 2013 to July 31, 2014), the
amount of notional values of forward foreign currency contracts opened and
closed were $1,255,413,032 and $(1,257,169,313), respectively.
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.
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.
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.
During the fiscal year to date period (November 1, 2013 to July 31, 2014), the
amount of notional values of futures contracts opened and closed were
$118,748,784 and $(118,686,827), respectively.
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 a short sale is engaged in, the security
sold short must be borrowed and delivered 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 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. Any such
gain or loss may be offset, completely or in part, by the change in the value of
the long portion of the Fund's portfolio. The Fund is subject to the risk it may
be unable to reacquire a security to terminate a short position except at a
price substantially in excess of the last quoted price. Also, there is the risk
that the counterparty to a short sale may fail to honor its contractual terms,
causing a loss to the Fund.
The Fund has established an account with Pershing, LLC ("Pershing") for the
purpose of purchasing securities on margin. At July 31, 2014, the Fund owed
Pershing $35,742,096 for securities purchased on margin (reflected as Borrowings
in the Portfolio of Investments).
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/ Mark R. Bradley
----------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)
Date: September 19, 2013
---------------------
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: September 19, 2013
---------------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: September 19, 2013
---------------------
* Print the name and title of each signing officer under his or her signature.