The registrant's annual report transmitted to shareholders pursuant to Rule
30e-1 under the Investment Company Act of 1940 is as follows:
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and its representatives, taking into account the
information currently available to them. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For example,
forward-looking statements include the use of words such as "anticipate,"
"estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or
other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the First Trust Global Tactical Commodity Strategy Fund (the "Fund") to be
materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. When evaluating the
information included in this report, you are cautioned not to place undue
reliance on these forward-looking statements, which reflect the judgment of the
Advisor and its representatives only as of the date hereof. We undertake no
obligation to publicly revise or update these forward-looking statements to
reflect events and circumstances that arise after the date hereof.
There is no assurance that the Fund will achieve its investment objective. The
Fund is subject to market risk, which is the possibility that the market values
of securities owned by the Fund will decline and that the value of the Fund
shares may therefore be less than what you paid for them. Accordingly, you can
lose money investing in the Fund. See "Risk Considerations" in the Additional
Information section of this report for a discussion of other risks of investing
in the Fund.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
http://www.ftportfolios.com or speak with your financial advisor. Investment
returns, net asset value and share price will fluctuate and Fund shares, when
sold, may be worth more or less than their original cost.
This report contains information that may help you evaluate your investment. It
includes details about the Fund's portfolio and presents data and analysis that
provide insight into the Fund's performance and investment approach.
The statistical information that follows may help you understand the Fund's
performance compared to that of relevant market benchmarks.
It is important to keep in mind that the opinions expressed by personnel of the
Advisor are just that: informed opinions. They should not be considered to be
promises or advice. The opinions, like the statistics, cover the period through
the date on the cover of this report. The risks of investing in the Fund are
spelled out in its prospectus, statement of additional information, this report
and other Fund regulatory filings.
I am pleased to present you with the first annual report for your investment in
First Trust Global Tactical Commodity Strategy Fund (the "Fund").
As a shareholder, twice a year you will receive a detailed report about your
investment, including a portfolio commentary from the Fund's management team,
performance analysis and a market and Fund outlook. Additionally, First Trust
Advisors L.P. ("First Trust") compiles the Fund's financial statements for you
to review. These reports are intended to keep you up-to-date on your investment,
and I encourage you to read this document and discuss it with your financial
advisor.
As you are probably aware, the Fund is new, having just launched in October. The
fourth quarter of 2013 was a positive one for the markets, and we believed it
was a good time to launch an investment with this type of strategy. First Trust
believes that staying invested in quality products and having a long-term
horizon can help investors as they work toward their financial goals.
First Trust continues to offer a variety of products that we believe could fit
the financial plans for many investors seeking long-term investment success.
Your advisor can tell you about the other investments First Trust offers that
might fit your financial goals. We encourage you to discuss those goals with
your advisor regularly so that he or she can help keep you on track and help you
choose investments that match your goals.
First Trust will continue to make available up-to-date information about your
investments so you and your financial advisor are current on any First Trust
investments you own. We value our relationship with you, and thank you for the
opportunity to assist you in achieving your financial goals.
First Trust Global Tactical Commodity Strategy Fund's (the "Fund") investment
objective is to seek to provide total return by providing investors with
commodity exposure while seeking a relatively stable risk profile. The Fund is
an actively managed exchange-traded fund ("ETF") that seeks to achieve
attractive risk-adjusted return by investing in commodity futures contracts and
exchange-traded commodity linked instruments (collectively, "Commodities
Instruments") through a wholly-owned subsidiary of the Fund organized under the
laws of the Cayman Islands (the "Subsidiary"). The Fund expects to gain exposure
to these investments exclusively by investing in the Subsidiary. The Subsidiary
is advised by First Trust Advisors L.P., the Fund's advisor.
The Fund's investment in the Subsidiary is intended to provide the Fund with
exposure to commodity markets within the limits of current federal income tax
laws applicable to investment companies such as the Fund, which limit the
ability of investment companies to invest directly in Commodities Instruments.
The Subsidiary has the same investment objective as the Fund, but unlike the
Fund, it may invest without limitation in Commodities Instruments. Except as
otherwise noted, references to the Fund's investments include the Fund's
indirect investments through the Subsidiary. The Fund may invest up to 25% of
its total assets in the Subsidiary.
The Subsidiary seeks to make investments generally in Commodities Instruments
while managing volatility. Investment weightings of the underlying Commodities
Instruments held by the Subsidiary are rebalanced in an attempt to stabilize
risk levels. The dynamic weighting process is designed to result in a
disciplined, systematic investment process, which is keyed off of the advisor's
volatility forecasting process. The Subsidiary may have both long and short
positions in Commodities Instruments. However, for a given Commodity Instrument
the Subsidiary will provide a net long exposure.
The remainder of the Fund's assets will primarily be invested in: (1) short-term
investment grade fixed income securities that include U.S. government and agency
securities, sovereign debt obligations of non-U.S. countries, and repurchase
agreements; (2) money market instruments; (3) ETFs and other investment
companies registered under the Investment Company Act of 1940, as amended (the
"1940 Act"); and (4) cash and other cash equivalents. The Fund uses such
instruments as investments and to collateralize the Subsidiary's Commodities
Instruments exposure on a day-to-day basis.
Total returns for the period since inception are calculated from the inception
date of the Fund.
The Fund's per share net asset value ("NAV") is the value of one share of the
Fund and is computed by dividing the value of all assets of the Fund (including
accrued interest and dividends), less all liabilities (including accrued
expenses and dividends declared but unpaid), by the total number of outstanding
shares. The price used to calculate market return ("Market Price") is determined
by using the midpoint between the highest bid and the lowest offer on the stock
exchange on which shares of the Fund are listed for trading as of the time that
the Fund's NAV is calculated. Since shares of the Fund did not trade in the
secondary market until after its inception, for the period from inception to the
first day of secondary market trading in shares of the Fund, the NAV of the Fund
is used as a proxy for the secondary market trading price to calculate market
returns. NAV and market returns assume that any dividend distributions have been
reinvested in the Fund at NAV and Market Price, respectively.
An index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, index returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, index returns would be
lower. The total returns presented reflect the reinvestment of dividends on
securities in the index. The returns presented do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future performance.
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the index does not actually hold a portfolio of securities and
therefore does not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period October 23, 2013
(commencement of trading) through December 31, 2013. Shareholders may pay more
than NAV when they buy Fund shares and receive less than NAV when they sell
those shares because shares are bought and sold at current market price. Data
presented represents past performance and cannot be used to predict future
results.
First Trust Advisors L.P. ("First Trust"), 120 East Liberty Drive, Wheaton,
Illinois 60187, is the investment advisor, commodity pool operator and commodity
trading advisor to the First Trust Global Tactical Commodity Strategy Fund (the
"Fund" or "FTGC"). In this capacity, First Trust is responsible for the
selection and ongoing monitoring of the investments in the Fund's portfolio and
certain other services necessary for the management of the portfolio. First
Trust serves as advisor or sub-advisor for 15 mutual fund portfolios, eight
exchange-traded funds consisting of 79 series and 14 closed-end funds and is
also the portfolio supervisor of certain unit investment trusts sponsored by
First Trust Portfolios L.P. ("FTP"), 120 East Liberty Drive, Wheaton, Illinois
60187. There is no one individual primarily responsible for portfolio management
decisions for the Fund. Investments are made under the direction of the
Investment Committee with daily decisions being primarily made by John Gambla
and Rob A. Guttschow. The Investment Committee consists of John Gambla, Rob A.
Guttschow, Daniel J. Lindquist, Jon C. Erickson, David G. McGarel, Roger F.
Testin, Todd Larson and Timothy S. Henry.
The Fund is an actively managed exchange-traded fund. The Fund's primary
investment objective is to seek total return by providing investors with
commodity exposure while seeking a relatively stable risk profile. For
performance measurement, the Fund is benchmarked versus the unmanaged Dow
Jones-UBS Commodity Total Return Index (the "Benchmark"). This commentary
discusses the 12-month market performance ended December 31, 2013, and the Fund
performance for the period October 22, 2013 to December 31, 2013.
The economic recovery in the United States, after pausing in the 4th Quarter of
2012, appeared to gain steadily during 2013. Responding to the improving
economic outlook, stock markets rallied strongly throughout the year with the
S&P 500 gaining 32.39% on a total return basis.
Bonds suffered during the year as market participants attempted to anticipate
how and when the Federal Reserve would scale back and/or cease its quantitative
easing program. By December 31, 2013, 10-year Treasury yields had risen by 126
basis points (1.26%), finishing the year at 3.03%. The overall bond market as
measured by the Barclays Aggregate had a slightly better year than treasuries as
corporate spread tightening offset some of the rise in treasury yields. The
Barclays Aggregate Total Return for the year was -2.0% versus the 10-year
Treasury total return of -7.75% (Ryan Labs 10 Year Index).
Commodity markets continued to perform poorly with the Benchmark declining by
9.52% during the year, after falling 1.05% in 2012 and 13.32% in 2011. As
markets were anticipating the Federal Reserve tightening process (or at least
less easing) in the 2nd quarter, commodities sold off in response, perhaps in
the belief that the prospects for higher than anticipated inflation were
diminishing and thus the need for inflation related hedges was lower. Of
particular note was the massive two day decline in gold on April 12 and April
15. During those two days, spot gold fell 13.6% as measured by the Bloomberg
spot gold price. For the year, spot gold was down 28.3%, gold's worst yearly
performance since 1981. The only sub-index of the Benchmark to post a positive
return for the calendar year was the energy sub-index, returning 5.13%. The
other sub-indices were negative with precious metals down 30.8%, livestock down
3.54%, industrial metals down 13.68%, and agriculture commodities down 14.3%.
The Fund's inception date was October 22, 2013. On a net asset value ("NAV")
basis, the Fund's performance from inception through December 31, 2013 was
-0.70%, which compares to the Benchmark's return of -1.83% and the S&P 500(R)
Index return of 5.79% over the same period. As of December 31, 2013, the Fund's
NAV was $29.78, below the original NAV of $29.99. The Fund had no distributions
in the calendar year 2013.
During the performance period, the Fund held allocations in 13 different
commodities. The Fund's average sector allocation was 36% energy, 4% industrial
metals, 12% precious metals, 48% agricultural/livestock. The energy allocation
increased during the quarter, moving from an original allocation of 29.2% to a
final allocation of 40.4%. The increasing allocation to energy came almost
equally from the industrial metals and agricultural/livestock sectors.
Relative to the Benchmark, the Fund generally purchased futures contracts of
longer maturity for each commodity in an attempt to maximize the Fund's expected
total return based upon the shape of the relevant futures curve. The best
performing commodities for the Fund were Natural Gas and Soymeal while the worst
performing commodities for the Fund were Silver and Cotton.
Today, we believe the Fund is well positioned to achieve its investment
objective of seeking total return and a relatively stable risk profile while
providing investors with commodity exposure. We believe that the Fund is
currently broadly diversified across commodity futures and commodity sectors and
that the portfolio construction process is working well to help identify risk.
Additionally, we believe that commodities are and will continue to be a valuable
component of any well diversified portfolio. It is our opinion that because
commodities are typically not highly correlated with traditional asset classes,
they can potentially decrease portfolio volatility, enhance overall return, and
provide meaningful diversification to an asset allocation strategy.
As a shareholder of First Trust Global Tactical Commodity Strategy Fund (the
"Fund"), you incur two types of costs: (1) transaction costs; and (2) ongoing
costs, including management fees, distribution and/or service fees and other
Fund expenses. This Example is intended to help you understand your ongoing
costs (in U.S. dollars) of investing in the Fund and to compare these costs with
the ongoing costs of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period (or since inception) and held through the six-month (or shorter) period
ended December 31, 2013.
The first line in the following table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Period"
to estimate the expenses you paid on your account during this period.
The second line in the following table provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as brokerage
commissions. Therefore, the second line in the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
(b) Actual expenses are equal to the annualized expense ratio as indicated in
the table, multiplied by the average account value over the period
(October 22, 2013 through December 31, 2013), multiplied by 71/365.
Hypothetical expenses are assumed for the most recent half-year period.
(a) All or a portion of this security serves as collateral for open futures
contracts.
(c) Aggregate cost for federal income tax purposes is $199,974. As of December
31, 2013, the aggregate gross unrealized appreciation for all securities
in which there was an excess of value over tax cost was $2 and the
aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over value was $0.
The following futures contracts of the Fund's wholly-owned subsidiary were open
at December 31, 2013 (See Note 2B - Futures Contracts in the Notes to
Consolidated Financial Statements):
FIRST TRUST GLOBAL TACTICAL COMMODITY STRATEGY FUND (FTGC)
CONSOLIDATED PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
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 December 31, 2013.
Page 8 See Notes to Consolidated Financial Statements
FIRST TRUST GLOBAL TACTICAL COMMODITY STRATEGY FUND (FTGC)
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2013
ASSETS:
Investments, at value................................................... $ 199,976
Cash.................................................................... 2,927,178
Variation margin receivable............................................. 75,472
--------------
Total Assets......................................................... 3,202,626
--------------
LIABILITIES:
Payables:
Due to broker........................................................ 63,044
Variation margin..................................................... 60,302
Investment advisory fees............................................. 2,499
--------------
Total Liabilities.................................................... 125,845
--------------
NET ASSETS.............................................................. $ 3,076,781
==============
NET ASSETS CONSIST OF:
Paid-in capital......................................................... $ 3,041,475
Par value............................................................... 1,033
Accumulated net investment income (loss)................................ 19,101
Accumulated net realized gain (loss) on investments and futures......... --
Net unrealized appreciation (depreciation) on investments and futures... 15,172
--------------
NET ASSETS.............................................................. $ 3,076,781
==============
NET ASSET VALUE, per share.............................................. $ 29.78
==============
Number of shares outstanding (unlimited number of shares
authorized, par value $0.01 per share)............................... 103,334
==============
Investments, at cost.................................................... $ 199,974
==============
|
See Notes to Consolidated Financial Statements Page 9
FIRST TRUST GLOBAL TACTICAL COMMODITY STRATEGY FUND (FTGC)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD OCTOBER 22, 2013 (a) THROUGH DECEMBER 31, 2013
INVESTMENT INCOME:
Interest................................................................ $ 179
--------------
Total investment income.............................................. 179
--------------
EXPENSES:
Investment advisory fees................................................ 5,564
--------------
Total expenses....................................................... 5,564
--------------
NET INVESTMENT INCOME (LOSS)............................................ (5,385)
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on futures..................................... (33,026)
--------------
Net change in unrealized appreciation (depreciation) on:
Investments.......................................................... 2
Futures.............................................................. 15,170
--------------
Net change in unrealized appreciation (depreciation).................... 15,172
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)................................. (17,854)
--------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS...................................................... $ (23,239)
==============
|
(a) Inception date is consistent with the commencement of investment
operations. First Trust Portfolios L.P. seeded the Fund on September 9,
2013 in order to provide initial capital required by SEC rules.
Page 10 See Notes to Consolidated Financial Statements
FIRST TRUST GLOBAL TACTICAL COMMODITY STRATEGY FUND (FTGC)
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD OCTOBER 22, 2013 (a) THROUGH DECEMBER 31, 2013
OPERATIONS:
Net investment income (loss)........................................ $ (5,385)
Net realized gain (loss)............................................ (33,026)
Net change in unrealized appreciation (depreciation)................ 15,172
--------------
Net increase (decrease) in net assets resulting from operations..... (23,239)
--------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold........................................... 3,100,020
Cost of shares redeemed............................................. --
--------------
Net increase (decrease) in net assets resulting from shareholder
transactions..................................................... 3,100,020
--------------
Total increase (decrease) in net assets............................. 3,076,781
NET ASSETS:
Beginning of period................................................. --
--------------
End of period....................................................... $ 3,076,781
==============
Accumulated net investment income (loss) at end of period........... $ 19,101
==============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period............................. --
Shares sold......................................................... 103,334
--------------
Shares outstanding, end of period................................... 103,334
==============
|
(a) Inception date is consistent with the commencement of investment operations.
First Trust Portfolios L.P. seeded the Fund on September 9, 2013 in order to
provide initial capital required by SEC rules.
See Notes to Consolidated Financial Statements Page 11
FIRST TRUST GLOBAL TACTICAL COMMODITY STRATEGY FUND (FTGC)
CONSOLIDATED FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
FOR THE PERIOD
10/22/2013 (a)
THROUGH
12/31/2013
--------------
Net asset value, beginning of period $ 29.99
----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.05)
Net realized and unrealized gain (loss) (0.16)
----------
Total from investment operations (0.21)
----------
Net asset value, end of period $ 29.78
==========
TOTAL RETURN (b) (0.70)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 3,077
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.95% (c)
Ratio of net investment income (loss) to average net assets (0.92)% (c)
Portfolio turnover rate (d) 0.00%
|
(a) Inception date is consistent with the commencement of investment
operations. First Trust Portfolios L.P. seeded the Fund on September 9,
2013 in order to provide initial capital required by SEC rules.
(b) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The return presented does not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year.
(c) Annualized.
(d) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions,
derivatives and in-kind transactions.
Page 12 See Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST TRUST GLOBAL TACTICAL COMMODITY STRATEGY FUND (FTGC)
DECEMBER 31, 2013
1. ORGANIZATION
First Trust Exchange-Traded Fund VII (the "Trust") is a non-diversified open-end
management investment company organized as a Massachusetts business trust on
November 6, 2012, and is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940, as amended (the "1940 Act").
The Trust currently offers shares of one fund, the First Trust Global Tactical
Commodity Strategy Fund (the "Fund"), which trades under the ticker FTGC on the
NASDAQ(R) Stock Market LLC ("NASDAQ"), and commenced operations on October 22,
2013. Unlike conventional mutual funds, the Fund issues and redeems shares on a
continuous basis, at net asset value ("NAV"), only in large specified blocks
consisting of 50,000 shares called a "Creation Unit." Creation Units are issued
and redeemed for securities in which the Fund invests or for cash or, in certain
circumstances, both. Except when aggregated in Creation Units, the shares are
not redeemable securities of the Fund.
The Fund is an actively managed exchange-traded fund. The investment objective
of the Fund is to seek to provide total return by providing investors with
commodity exposure while seeking a relatively stable risk profile. Under normal
market conditions, the Fund, through a wholly-owned subsidiary of the Fund, FT
Cayman Subsidiary II (the "Subsidiary"), organized under the laws of the Cayman
Islands, invests in a portfolio of commodity futures contracts and
exchange-traded commodity linked instruments (collectively, "Commodities
Instruments"). The Fund will not invest directly in Commodities Instruments. The
Fund seeks to gain exposure to these investments exclusively by investing in the
Subsidiary. The Fund's investment in the Subsidiary may not exceed 25% of the
Fund's total assets at the end of each fiscal quarter. There can be no assurance
that the Fund will achieve its investment objective. The Fund may not be
appropriate for all investors.
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements include the accounts on a consolidated basis of the
Subsidiary. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of the consolidated
financial statements. The preparation of the consolidated financial statements
in accordance with accounting principles generally accepted in the United States
of America ("U.S. GAAP") requires management to make estimates and assumptions
that affect the reported amounts and disclosures in the consolidated financial
statements. Actual results could differ from those estimates.
A. PORTFOLIO VALUATION
The Fund's NAV is determined daily as of the close of regular trading on the New
York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time, on each day the
NYSE is open for trading. The NAV is calculated by dividing the value of all
assets of the Fund (including accrued interest and dividends), less all
liabilities (including accrued expenses and dividends declared but unpaid), by
the total number of 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 Trust'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 will be valued as follows:
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 the
last bid and asked prices, if available, and otherwise at the closing bid
price.
U.S. Treasuries are valued on the basis of valuations provided by an
independent pricing service approved by the Trust's Board of Trustees.
Short-term investments that mature in less than 60 days when purchased are
valued at amortized cost.
If the Fund's investments are not able to be priced by their pre-established
pricing methods, such investments may be valued by the Board of Trustees or its
delegate at fair value. A variety of factors may be considered in determining
the fair value of such investments.
Valuing the Fund's holdings using fair value pricing will result in using prices
for those holdings that may differ from current market valuations. The
Subsidiary's holdings will be valued in the same manner as the Fund's holdings.
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:
Page 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FIRST TRUST GLOBAL TACTICAL COMMODITY STRATEGY FUND (FTGC)
DECEMBER 31, 2013
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 December 31, 2013, is
included with the Fund's Consolidated Portfolio of Investments.
B. FUTURES CONTRACTS
The Fund, through the Subsidiary, may purchase and sell exchange-traded
commodity contracts. When the Fund purchases a listed futures contract, it
agrees to purchase a specified reference asset (e.g., commodity) at a specified
future date. When the Fund sells or shorts a listed futures contract, it agrees
to sell a specified reference asset (e.g., commodity) at a specified future
date. The price at which the purchase and sale will take place is fixed when the
Fund enters into the contract. The exchange clearing corporation is the ultimate
counterparty for all exchange-listed contracts, so credit risk is limited to the
creditworthiness of the exchange's clearing corporation. Margin deposits are
posted as collateral with the clearing broker and, in turn, with the exchange
clearing corporation.
Exchange-listed commodity futures contracts are generally based upon commodities
within the six principal commodity groups: energy, industrial metals,
agriculture, precious metals, foods and fibers, and livestock. The price of a
commodity futures contract will reflect the storage costs of purchasing the
physical commodity. These storage costs include the time value of money invested
in the physical commodity plus the actual costs of storing the commodity less
any benefits from ownership of the physical commodity that are not obtained by
the holder of a futures contract (this is sometimes referred to as the
"convenience yield"). To the extent that these storage costs change for an
underlying commodity while the Fund is in a long position on that commodity, the
value of the futures contract may change proportionately.
Upon entering into a futures contract, the Subsidiary 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
contracts are marked-to-market daily with the change in value recognized as a
component of "Net change in unrealized appreciation (depreciation) on futures"
on the Consolidated Statement of Operations. This daily fluctuation in value of
the contracts is also known as variation margin and is included as "Variation
margin" payable and/or receivable on the Consolidated Statement of Assets and
Liabilities.
When the Subsidiary purchases or sells a futures contract, the Subsidiary is
required to "cover" its position in order to limit the risk associated with the
use of leverage and other related risks. To cover its position, the Subsidiary
segregates assets consisting of cash or liquid securities that, when added to
any amounts deposited with a futures commission merchant as margin, are equal to
the market value of the futures contract or otherwise "cover" its position in a
manner consistent with the 1940 Act or the 1940 Act Rules and SEC
interpretations thereunder. As the Subsidiary continues to engage in the
described securities trading practices and properly segregates assets, the
segregated assets will function as a practical limit on the amount of leverage
which the Subsidiary may undertake and on the potential increase in the
speculative character of the Subsidiary's outstanding portfolio securities.
Additionally, such segregated assets generally ensure the availability of
adequate funds to meet the obligations of the Subsidiary arising from such
investment activities.
For the period ended December 31, 2013, the Fund recorded a change in unrealized
gain of $15,170 on the futures contracts, which is included in the "Net change
in unrealized appreciation (depreciation) on futures" on the Consolidated
Statement of Operations. For the period ended December 31, 2013, the Fund
recorded a realized loss on futures contracts of $33,026, which is included in
"Net realized gain (loss) on futures" on the Consolidated Statement of
Operations.
During the period ended December 31, 2013, the amount of notional values of
futures contracts opened and closed were $3,994,365 and $962,408, respectively.
Page 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FIRST TRUST GLOBAL TACTICAL COMMODITY STRATEGY FUND (FTGC)
DECEMBER 31, 2013
C. CASH
The Fund segregates assets consisting of cash and other short-term securities to
comply with SEC guidance with respect to coverage of futures positions by
registered investment companies. The cash on the books is held at Brown Brothers
Harriman & Co. ("BBH") to cover the full notional value of the futures
contracts.
D. INVESTMENTS TRANSACTIONS AND INVESTMENT INCOME
Investments transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Interest income, if any, is recorded on the accrual basis. Amortization of
premiums and the accretion of discounts are recorded using the effective
interest method.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income, if any, are declared and paid quarterly by
the Fund. The Fund distributes its net realized capital gains, if any, to
shareholders at least annually.
Distributions in cash may be reinvested automatically in additional whole shares
only if the broker through whom the shares were purchased makes such option
available. Such shares will generally be reinvested by the broker based upon the
market price of those shares and investors may be subject to customary brokerage
commissions charged by the broker.
Distributions from net investment income and realized capital gains are
determined in accordance with income tax regulations, which may differ from U.S.
GAAP. Certain capital accounts in the consolidated financial statements are
periodically adjusted for permanent differences in order to reflect their tax
character. These permanent differences are primarily due to the varying
treatment of income and gain/loss on portfolio securities held by the Fund and
have no impact on net assets or NAV per share. Temporary differences, which
arise from recognizing certain items of income, expense and gain/loss in
different periods for consolidated financial statement and tax purposes, will
reverse at some time in the future.
The tax character of distributions paid by the Fund during the period ended
December 31, 2013 was as follows:
Distributions Distributions Distributions
paid from paid from paid from
Ordinary Capital Return of
Income Gains Capital
--------------- --------------- ---------------
$ -- $ -- $ --
|
As of December 31, 2013, the components of distributable earnings on a tax basis
for the Fund were as follows:
Accumulated Net
Undistributed Capital and Unrealized
Ordinary Other Appreciation
Income Gains (Depreciation)
--------------- --------------- ---------------
$ -- $ -- $ 34,769
|
F. INCOME TAXES
The Fund intends to qualify as a regulated investment company by complying with
the requirements under Subchapter M of the Internal Revenue Code of 1986, as
amended, which includes distributing substantially all of its net investment
income and net realized gains to shareholders. Accordingly, no provision has
been made for federal or state income taxes. However, due to the timing and
amount of distributions, the Fund may be subject to an excise tax of 4% of the
amount by which approximately 98% of the Fund's taxable income exceeds the
distributions from such taxable income for the calendar year.
The Subsidiary is classified as a controlled foreign corporation under
Subchapter N of the Internal Revenue Code. Therefore, the Fund is required to
increase its taxable income by its share of the Subsidiary's income, whether or
not such earnings are distributed by the Subsidiary to the Fund. Net investment
losses of the Subsidiary cannot be deducted by the Fund in the current period
nor carried forward to offset taxable income in future periods.
The Fund is subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. The taxable year ended 2013
remains open to federal and state audit. As of December 31, 2013, management has
evaluated the application of these standards to the Fund and has determined that
no provision for income tax is required in the Fund's consolidated financial
statements for uncertain tax positions.
Page 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FIRST TRUST GLOBAL TACTICAL COMMODITY STRATEGY FUND (FTGC)
DECEMBER 31, 2013
The Fund intends to utilize provisions of the federal income tax laws, which
allow it to carry a realized capital loss forward indefinitely following the
year of the loss and offset such loss against any future realized capital gains.
The Fund is subject to certain limitations under U.S. tax rules on the use of
capital loss carryforwards and net unrealized built-in losses. These limitations
apply when there has been a 50% change in ownership. At December 31, 2013, the
Fund had no capital loss carryforwards outstanding for federal income tax
purposes.
In order to present paid-in capital, accumulated net investment income (loss)
and accumulated net realized gain (loss) on investments on the Consolidated
Statement of Assets and Liabilities that more closely represent their tax
character, certain adjustments have been made to paid-in capital, accumulated
net investment income (loss) and accumulated net realized gain (loss) on
investments. These adjustments are primarily due to the difference between book
and tax treatment of net investment income from the Subsidiary. The results of
operations and net assets were not affected by these adjustments. For the fiscal
period ended December 31, 2013, the adjustments for the Fund were as follows:
Accumulated
Accumulated Net Realized
Net Investment Gain (Loss) Paid-in
Income (Loss) on Investments Capital
--------------- --------------- ---------------
$ 24,486 $ 33,026 $ (57,512)
|
G. EXPENSES
Expenses, other than the investment advisory fee and other excluded expenses,
are paid by First Trust Advisors L.P. ("First Trust" or the "Advisor") (See Note
3).
H. OFFSETTING ON THE STATEMENT OF ASSETS AND LIABILITIES
In December 2011, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update No. 2011-11 "Disclosures about Offsetting Assets and
Liabilities" ("ASU 2011-11"). This disclosure requirement is intended to help
investors and other financial statement users better assess the effect or
potential effect of offsetting arrangements on a fund's financial position. ASU
2011-11 requires entities to disclose both gross and net information about both
instruments and transactions eligible for offset on the Statement of Assets and
Liabilities, and disclose instruments and transactions subject to master netting
or similar agreements. In addition, in January 2013, FASB issued Accounting
Standards Update No. 2013-1 "Clarifying the Scope of Offsetting Assets and
Liabilities" ("ASU 2013-1"), specifying exactly which transactions are subject
to offsetting disclosures. The scope of the disclosure requirements is limited
to derivative instruments, repurchase agreements and reverse repurchase
agreements, and securities borrowing and securities lending transactions. ASU
2011-11 and ASU 2013-1 are effective for financial statements with fiscal years
beginning on or after January 1, 2013, and interim periods within those fiscal
years.
The Fund adopted the disclosure requirement on netting for the current reporting
period. However, the Fund is not subject to a master netting or similar
agreement and does not offset financial assets and financial liabilities for
financial reporting purposes.
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Fund, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the selection and ongoing monitoring of the investments
in the Fund's portfolio, managing the Fund's business affairs and providing
certain administrative services necessary for the management of the Fund.
Pursuant to the Investment Management Agreement, First Trust manages the
investment of the Fund's assets and is responsible for the Fund's expenses,
including the cost of transfer agency, custody, fund administration, legal,
audit and other services, but excluding fee payments under the Investment
Management Agreement, interest, taxes, brokerage commissions and other expenses
connected with the execution of portfolio transactions, distribution and service
fees pursuant to a 12b-1 plan, if any, and extraordinary expenses. The Fund has
agreed to pay First Trust an annual unitary management fee equal to 0.95% of its
average daily net assets. First Trust also provides fund reporting services to
the Fund for a flat annual fee in the amount of $9,250, which is covered under
the annual unitary management fee.
The Trust has multiple service agreements with BBH. Under the servicing
agreements, BBH performs custodial, fund accounting, certain administrative
services, and transfer agency services for the Trust. As custodian, BBH is
responsible for custody of the Trust's assets. As fund accountant and
administrator, BBH is responsible for maintaining the books and records of the
Trust's investments and cash. As transfer agent, BBH is responsible for
maintaining shareholder records for the Trust.
Page 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FIRST TRUST GLOBAL TACTICAL COMMODITY STRATEGY FUND (FTGC)
DECEMBER 31, 2013
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer of $125,000 per year and an annual per fund fee of $4,000 for each
closed-end fund or other actively managed fund and $1,000 for each index fund in
the First Trust Fund Complex. The fixed annual retainer is allocated pro rata
among each fund in the First Trust Fund Complex based on net assets.
Additionally, the Lead Independent Trustee is paid $15,000 annually, the
Chairman of the Audit Committee is paid $10,000 annually, and each of the
Chairmen of the Nominating and Governance Committee and the Valuation Committee
is paid $5,000 annually to serve in such capacities, with such compensation
allocated pro rata among each fund in the First Trust Fund Complex based on net
assets. Trustees are reimbursed for travel and out-of-pocket expenses in
connection with all meetings. The Lead Independent Trustee and each Committee
Chairman served two-year terms until December 31, 2013, before rotating to serve
as chairman of another committee or as Lead Independent Trustee. After December
31, 2013, the Lead Independent Trustee and Committee Chairmen will rotate every
three years. The officers and the "Interested" Trustee receive no compensation
from the Trust for acting in such capacities.
4. PURCHASES AND SALES OF INVESTMENTS
For the period ended December 31, 2013, the cost of purchases and proceeds from
sales of investment securities, excluding short-term investments, derivatives
and in-kind transactions, were $0 and $0, respectively.
For the period ended December 31, 2013, the Fund had did not have any in-kind
purchases or sales.
5. CREATIONS, REDEMPTIONS AND TRANSACTION FEES
Shares are created and redeemed by the Fund only in Creation Unit size
aggregations of 50,000 shares. In order to purchase Creation Units of the Fund,
an investor must deposit (i) a designated portfolio of equity securities
determined by First Trust (the "Deposit Securities") and generally make or
receive a cash payment referred to as the "Cash Component," which is an amount
equal to the difference between the NAV of the Fund shares (per Creation Unit
aggregations) and the market value of the Deposited Securities, and/or (ii) cash
in lieu of all or a portion of the Deposit Securities. If the Cash Component is
a positive number (i.e., the NAV per Creation Unit Aggregation exceeds the
Deposit Amount), the creator will deliver the Cash Component. If the Cash
Component is a negative number (i.e., the NAV per Creation Unit Aggregation is
less than the Deposit Amount), the creator will receive the Cash Component.
Purchasers of Creation Units must pay to BBH, as transfer agent, a creation fee
(the "Creation Transaction Fee") regardless of the number of Creation Units
purchased in the transaction. The Creation Transaction Fee may vary and is based
on the composition of the securities included in the Fund's portfolio and the
countries in which the transactions are settled. The Creation Transaction Fee
may increase or decrease as the Fund's portfolio is adjusted to conform to
changes in the composition of the securities included in the Fund's portfolio
and the countries in which the transaction settled. The price for each Creation
Unit will equal the daily NAV per share times the number of shares in a Creation
Unit plus the fees described above and, if applicable, any operational
processing and brokerage costs, transfer fees or stamp taxes. When the Fund
permits an Authorized Participant to substitute cash or a different security in
lieu of depositing one or more of the requisite Deposit Securities, the
Authorized Participant may also be assessed an amount to cover the cost of
purchasing the Deposit Securities and/or disposing of the substituted
securities, including operational processing and brokerage costs, transfer fees,
stamp taxes, and part or all of the spread between the expected bid and offer
side of the market related to such Deposit Securities and/or substitute
securities.
Parties redeeming Creation Units must pay to BBH, as transfer agent, a
redemption transaction fee (the "Redemption Transaction Fee"), regardless of the
number of Creation Units redeemed in the transaction. The Redemption Transaction
Fee may vary and is based on the composition of the securities included in the
Fund's portfolio and the countries in which the transactions are settled. The
Redemption Transaction Fee is currently $500. The Fund reserves the right to
effect redemptions in cash. An Authorized Participant may request cash
redemption in lieu of securities; however, the Fund may, in its discretion,
reject any such request.
6. DISTRIBUTION PLAN
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Fund is
authorized to pay an amount up to 0.25% of its average daily net assets each
year to reimburse First Trust Portfolios L.P. ("FTP"), the distributor of the
Fund, for amounts expended to finance activities primarily intended to result in
the sale of Creation Units or the provision of investor services. FTP may also
use this amount to compensate securities dealers or other persons that are
Authorized Participants for providing distribution assistance, including
broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Fund, and pursuant to a contractual
arrangement, no 12b-1 fees will be paid any time before October 22, 2014.
Page 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FIRST TRUST GLOBAL TACTICAL COMMODITY STRATEGY FUND (FTGC)
DECEMBER 31, 2013
7. INDEMNIFICATION
The Trust, on behalf of the Funds, has a variety of indemnification obligations
under contracts with its service providers. The Trust's maximum exposure under
these arrangements is unknown. However, the Trust has not had prior claims or
losses pursuant to these contracts and expects the risk of loss to be remote.
8. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events on the Fund through
the date the consolidated financial statements were issued, and has determined
there were no subsequent events requiring recognition or disclosure in the
consolidated financial statements that have not already been disclosed.
Page 18
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FIRST TRUST EXCHANGE-TRADED FUND
VII:
We have audited the accompanying consolidated statement of assets and
liabilities of First Trust Global Tactical Commodity Strategy Fund and
Subsidiary, a series of the First Trust Exchange-Traded Fund VII (the "Fund"),
including the consolidated portfolio of investments, as of December 31, 2013,
and the related consolidated statements of operations and changes in net assets
and the consolidated financial highlights for the period October 22, 2013
(commencement of operations) through December 31, 2013. These consolidated
financial statements and consolidated financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of December 31, 2013 by correspondence with the Fund's
custodian and broker. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements and consolidated financial
highlights referred to above present fairly, in all material respects, the
financial position of First Trust Global Tactical Commodity Strategy Fund as of
December 31, 2013, and the results of its operations, changes in its net assets,
and the financial highlights for the period October 22, 2013 (commencement of
operations) through December 31, 2013, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 26, 2014
|
Page 19
ADDITIONAL INFORMATION
FIRST TRUST GLOBAL TACTICAL COMMODITY STRATEGY FUND (FTGC)
DECEMBER 31, 2013 (UNAUDITED)
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies and information on how the Fund voted proxies relating to
portfolio investments during the most recent 12-month period ended June 30 will
be available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Fund's website located at http://www.ftportfolios.com; and (3) on the
Securities and Exchange Commission's ("SEC") website located at
http://www.sec.gov.
PORTFOLIO HOLDINGS
The Trust files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Trust's Forms N-Q
are available (1) by calling (800) 988-5891; (2) on the Fund's website located
at http://www.ftportfolios.com; (3) on the SEC's website at http://www.sec.gov;
and (4) for review and copying at the SEC's Public Reference Room ("PRR") in
Washington, DC. Information regarding the operation of the PRR may be obtained
by calling (800) SEC-0330.
FEDERAL TAX INFORMATION
For the taxable year ended December 31, 2013, the following percentages of the
ordinary income (including short-term capital gain) distributions made by the
Fund qualify for the dividends received deduction available to corporations and
is hereby designated as qualified dividend income:
Dividends Received Deduction Qualified Dividend Income
---------------------------- ----------------------------
0.00% 0.00%
|
RISK CONSIDERATIONS
RISKS ARE INHERENT IN ALL INVESTING. YOU SHOULD CONSIDER THE FUND'S INVESTMENT
OBJECTIVE, RISKS, CHARGES AND EXPENSES CAREFULLY BEFORE INVESTING. YOU CAN
DOWNLOAD THE FUND'S PROSPECTUS AT HTTP://WWW.FTPORTFOLIOS.COM OR CONTACT FIRST
TRUST PORTFOLIOS L.P. AT (800) 621-1675 TO REQUEST A PROSPECTUS, WHICH CONTAINS
THIS AND OTHER INFORMATION ABOUT THE FUND. FOR ADDITIONAL INFORMATION ABOUT THE
RISKS ASSOCIATED WITH INVESTING IN THE FUND, PLEASE SEE THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION, AS WELL AS OTHER REGULATORY FILINGS. READ THESE
DOCUMENTS CAREFULLY BEFORE YOU INVEST. FIRST TRUST PORTFOLIOS L.P. IS THE
DISTRIBUTOR OF THE FIRST TRUST EXCHANGE-TRADED FUND VII.
The following summarizes some of the risks that should be considered for the
Fund.
CASH TRANSACTIONS RISK. Unlike most ETFs, the Fund currently intends to effect
most creations and redemptions, in whole or in part, for cash, rather than in
kind, because of the nature of the Fund's underlying investments. As a result,
an investment in the Fund may be less tax efficient than an investment in a more
conventional ETF.
CLEARING BROKER RISK. The failure or bankruptcy of the Fund's and the
Subsidiary's clearing broker could result in a substantial loss of Fund assets.
Under current Commodity Futures Trading Commission ("CFTC") regulations, a
clearing broker maintains customers' assets in a bulk segregated account. If a
clearing broker fails to do so, or is unable to satisfy a substantial deficit in
a customer account, its other customers may be subject to risk of loss of their
funds in the event of that clearing broker's bankruptcy. In that event, the
clearing broker's customers, such as the Fund and the Subsidiary, are entitled
to recover, even in respect of property specifically traceable to them, only a
proportional share of all property available for distribution to all of that
clearing broker's customers.
COMMODITY RISK. The value of Commodities Instruments typically is based upon the
price movements of a physical commodity or an economic variable linked to such
price movements. The prices of Commodities Instruments may fluctuate quickly and
dramatically and may not correlate to price movements in other asset classes. An
active trading market may not exist for certain commodities. Each of these
factors and events could have a significant negative impact on the Fund.
COUNTERPARTY RISK. The Fund bears the risk that the counterparty to a commodity,
derivative or other contract with a third party may default on its obligations
or otherwise fail to honor its obligations. If a counterparty defaults on its
payment obligations the Fund will lose money and the value of an investment in
Fund shares may decrease. In addition, the Fund may engage in such investment
transactions with a limited number of counterparties.
CREDIT RISK. Credit risk is the risk that an issuer of a security will be unable
or unwilling to make dividend, interest and/or principal payments when due and
the related risk that the value of a security may decline because of concerns
about the issuer's ability to make such payments.
Page 20
ADDITIONAL INFORMATION (CONTINUED)
FIRST TRUST GLOBAL TACTICAL COMMODITY STRATEGY FUND (FTGC)
DECEMBER 31, 2013 (UNAUDITED)
ETF RISK. An ETF trades like common stock and represents a portfolio of
securities. The risks of owning an ETF generally reflect the risks of owning the
underlying securities, although lack of liquidity in an ETF could result in it
being more volatile and ETFs have management fees that increase their costs.
FOREIGN COMMODITY MARKETS RISK. The Fund, through the Subsidiary, will engage in
trading on commodity markets outside the United States on behalf of the Fund.
Trading on such markets is not regulated by any United States government agency
and may involve certain risks not applicable to trading on United States
exchanges. The Fund may not have the same access to certain trades as do various
other participants in foreign markets. Furthermore, as the Fund will determine
its net assets in United States dollars, with respect to trading in foreign
markets the Fund will be subject to the risk of fluctuations in the exchange
rate between the local currency and dollars as well as the possibility of
exchange controls. Certain futures contracts traded on foreign exchanges are
treated differently for federal income tax purposes than are domestic contracts.
FUTURES RISK. The Fund invests in futures through the Subsidiary. All futures
and futures-related products are highly volatile. Price movements are influenced
by, among other things, changing supply and demand relationships; climate;
government agricultural, trade, fiscal, monetary and exchange control programs
and policies; national and international political and economic events; crop
diseases; the purchasing and marketing programs of different nations; and
changes in interest rates. In addition, governments from time to time intervene,
directly and by regulation, in certain markets, particularly those in
currencies.
GAP RISK. The Fund is subject to the risk that a commodity price will change
from one level to another with no trading in between. Usually such movements
occur when there are adverse news announcements, which can cause a commodity
price to drop substantially from the previous day's closing price.
INCOME RISK. Income from the Fund's fixed income investments could decline
during periods of falling interest rates.
INTEREST RATE RISK. Interest rate risk is the risk that the value of the
securities in the Fund will decline because of rising market interest rates.
Interest rate risk is generally lower for shorter term investments and higher
for longer term investments.
INVESTMENT COMPANIES RISK. The Fund may invest in securities of other investment
companies, including ETFs. As a shareholder in other investment companies, the
Fund will bear its ratable share of that investment company's expenses, and
would remain subject to payment of the Fund's advisory and administrative fees
with respect to assets so invested. In addition, the Fund will incur brokerage
costs when purchasing and selling shares of ETFs or other exchange-traded
investment companies.
ISSUER SPECIFIC RISK. Issuer specific events, including changes in the financial
condition of an issuer, can have a negative impact on the value of the Fund.
LIQUIDITY RISK. The Fund invests in Commodities Instruments, which may be less
liquid than other types of investments. The illiquidity of Commodities
Instruments could have a negative effect on the Fund's ability to achieve its
investment objective and may result in losses to Fund shareholders.
MANAGEMENT RISK. The Fund is subject to management risk because it is an
actively managed portfolio. The Advisor will apply investment techniques and
risk analyses in making investment decisions for the Fund, but there can be no
guarantee that the Fund will meet its investment objective.
MARKET RISK. The trading prices of commodities futures, fixed income securities
and other instruments fluctuate in response to a variety of factors. The Fund's
net asset value and market price may fluctuate significantly in response to
these factors. As a result, an investor could lose money over short or long
periods of time
NEW FUND RISK. The Fund currently has fewer assets than larger funds, and like
other relatively new funds, large inflows and outflows may impact the Fund's
market exposure for limited periods of time. This impact may be positive or
negative, depending on the direction of market movement during the period
affected.
NON-DIVERSIFICATION RISK. The Fund is classified as "non-diversified" under the
1940 Act. As a result, the Fund is only limited as to the percentage of its
assets that may be invested in the securities of any one issuer by the
diversification requirements imposed by the Internal Revenue Code of 1986, as
amended (the "Code"). The Fund may invest a relatively high percentage of its
assets in a limited number of issuers. As a result, the Fund may be more
susceptible to a single adverse economic or regulatory occurrence affecting one
or more of these issuers, experience increased volatility and be highly
concentrated in certain issuers.
NON-U.S. INVESTMENT RISK. The Fund may invest in commodity futures contracts
traded on non-U.S. exchanges or enter into OTC derivative contracts with
non-U.S. counterparties. Transactions on non-U.S. exchanges or with non-U.S.
counterparties present risks because they may not subject to the same degree of
regulation as their U.S. counterparts.
Page 21
ADDITIONAL INFORMATION (CONTINUED)
FIRST TRUST GLOBAL TACTICAL COMMODITY STRATEGY FUND (FTGC)
DECEMBER 31, 2013 (UNAUDITED)
PORTFOLIO TURNOVER RISK. The Fund's strategy may frequently involve buying and
selling portfolio securities to rebalance the Fund's exposure to various market
sectors. Higher portfolio turnover may result in the Fund paying higher levels
of transaction costs and generating greater tax liabilities for shareholders.
Portfolio turnover risk may cause the Fund's performance to be less than you
expect.
REGULATORY RISK. The CFTC has adopted amendments to CFTC Rule 4.5, which subject
the Fund and the Subsidiary to regulation by the CFTC and may impose additional
disclosure, reporting and recordkeeping rules on the Fund and the Subsidiary.
Compliance with these additional rules may increase Fund expenses. In addition,
certain exchanges may limit the maximum net long or net short speculative
positions that a party may hold or control in any particular futures or options
contracts, and it is possible that other regulatory authorities may adopt
similar limits. Position limits are currently the subject of disputes being
resolved in the U.S. court system. The Fund's investment decisions may need to
be modified, and commodity contract positions held by the Fund may have to be
liquidated at disadvantageous times or prices, to avoid exceeding any applicable
position limits, potentially subjecting the Fund to substantial losses. The
regulation of commodity transactions in the United States is a rapidly changing
area of law and is subject to ongoing modification by government,
self-regulatory and judicial action. The effect of any future regulatory change
on the Fund is impossible to predict, but could be substantial and adverse to
the Fund.
REPURCHASE AGREEMENT RISK. The Fund's investment in repurchase agreements may be
subject to market and credit risk with respect to the collateral securing the
repurchase agreements. Investments in repurchase agreements also may be subject
to the risk that the market value of the underlying obligations may decline
prior to the expiration of the repurchase agreement term.
SHORT SALES RISK. The Fund may engage in "short sale" transactions. The Fund
will lose value if the security or instrument that is the subject of a short
sale increases in value. The Fund also may enter into a short derivative
position through a futures contract. If the price of the security or derivative
that is the subject of a short sale increases, then the Fund will incur a loss
equal to the increase in price from the time that the short sale was entered
into plus any premiums and interest paid to a third party in connection with the
short sale. Therefore, short sales involve the risk that losses may be
exaggerated, potentially losing more money than the actual cost of the
investment. Also, there is the risk that the third party to the short sale may
fail to honor its contract terms, causing a loss to the Fund.
SUBSIDIARY INVESTMENT RISK. Changes in the laws of the United States and/or the
Cayman Islands, under which the Fund and the Subsidiary are organized,
respectively, could result in the inability of the Fund to operate as intended
and could negatively affect the Fund and its shareholders. The Subsidiary is not
registered under the 1940 Act and is not subject to all the investor protections
of the 1940 Act. Thus, the Fund, as an investor in the Subsidiary, will not have
all the protections offered to investors in registered investment companies.
TAX RISK. The Fund intends to treat any income it may derive from Commodities
Instruments (other than derivatives described in Revenue Rulings 2006 1 and 2006
31) received by the Subsidiary as "qualifying income" under the provisions of
the Internal Revenue Code of 1986, as amended, applicable to "regulated
investment companies" ("RICs"), based on a tax opinion received from special
counsel which was based, in part, on numerous private letter rulings ("PLRs")
provided to third parties not associated with the Fund or its affiliates (which
only those parties may rely on as precedent). Shareholders and potential
investors should be aware, however, that, in July 2011, the Internal Revenue
Service ("IRS") suspended the issuance of such PLRs pending its re-examination
of the policies underlying them, which was still ongoing at the date of this
prospectus. If, at the end of that re-examination, the IRS changes its position
with respect to the conclusions reached in those PLRs, then the Fund may be
required to restructure its investments to satisfy the qualifying income
requirement or might cease to qualify as a RIC.
If the Fund did not qualify as a RIC for any taxable year and certain relief
provisions were not available, the Fund's taxable income would be subject to tax
at the Fund level and to a further tax at the shareholder level when such income
is distributed. In such event, in order to re-qualify for taxation as a RIC, the
Fund might be required to recognize unrealized gains, pay substantial taxes and
interest and make certain distributions. This would cause investors to incur
higher tax liabilities than they otherwise would have incurred and would have a
negative impact on Fund returns. In such event, the Fund's Board of Trustees may
determine to reorganize or close the Fund or materially change the Fund's
investment objective and strategies.
In the event that the Fund fails to qualify as a RIC, the Fund will promptly
notify shareholders of the implications of that failure.
The Fund may invest a portion of its assets in equity repurchase agreements.
Recent changes in the law have the potential of changing the character and
source of such instruments potentially subjecting them to unexpected U.S.
taxation. Depending upon the terms of the contracts, the Fund may be required to
indemnify the counterparty for such increased tax.
Page 22
ADDITIONAL INFORMATION (CONTINUED)
FIRST TRUST GLOBAL TACTICAL COMMODITY STRATEGY FUND (FTGC)
DECEMBER 31, 2013 (UNAUDITED)
U.S. GOVERNMENT AND AGENCY SECURITIES RISK. The Fund may invest in U.S.
government obligations. U.S. government obligations include U.S. Treasury
obligations and securities issued or guaranteed by various agencies of the U.S.
government or by various instrumentalities which have been established or
sponsored by the U.S. government. U.S. Treasury obligations are backed by the
"full faith and credit" of the U.S. government. Securities issued or guaranteed
by federal agencies and U.S. government sponsored instrumentalities may or may
not be backed by the full faith and credit of the U.S. government.
VOLATILITY RISK. Frequent or significant short-term price movements could
adversely impact the performance of the Fund. In addition, the net asset value
of the Fund over short-term periods may be more volatile than other investments
options because of the Fund's significant use of financial instruments that have
a leveraging effect. For example, because of the low margin deposits required,
futures trading involves an extremely high degree of leverage and as a result, a
relatively small price movement in a Commodities Instrument may result in
immediate and substantial losses to the Fund.
WHIPSAW MARKETS RISK. The Fund may be subject to the forces of the "whipsaw"
markets (as opposed to choppy or stable markets), in which significant price
movements develop but then repeatedly reverse, could cause substantial losses to
the Fund.
ADVISORY AGREEMENTS
BOARD CONSIDERATIONS REGARDING APPROVAL OF INVESTMENT MANAGEMENT AGREEMENT
The Board of Trustees of the First Trust Exchange-Traded Fund VII (the "Trust"),
including the Independent Trustees, unanimously approved the Investment
Management Agreement (the "Fund Agreement") with First Trust Advisors L.P.
("First Trust") for First Trust Global Tactical Commodity Strategy Fund (the
"Fund"), a series of the Trust, for an initial two year term at a meeting held
on April 30, 2013. Because the Fund will seek to achieve its investment
objective by investing in commodity futures contracts and exchange-traded
commodity linked instruments through a wholly-owned subsidiary of the Fund, the
Board of Trustees, including the Independent Trustees, also approved an
Investment Management Agreement (the "Subsidiary Agreement" and together with
the Fund Agreement, the "Agreements") with First Trust for the wholly-owned
subsidiary (the "Subsidiary"), also for an initial two year term. The Board of
Trustees determined that the Agreements are in the best interests of the Fund in
light of the extent and quality of services expected to be provided and such
other matters as the Board considered to be relevant in the exercise of its
reasonable business judgment.
To reach this determination, the Board considered its duties under the
Investment Company Act of 1940, as amended (the "1940 Act"), as well as under
the general principles of state law in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
on such agreements. To assist the Board in its evaluation of the Agreements, the
Independent Trustees received a report in advance of the Board meeting that,
among other things, outlined the services to be provided by First Trust to the
Fund and the Subsidiary (including the relevant personnel responsible for these
services and their experience); the proposed unitary fee structure for the Fund
as compared to fees charged by advisors to other relevant exchange-traded
products, including exchange-traded funds ("ETFs") and exchange-traded commodity
pools, and as compared to fees charged to other ETFs managed by First Trust; the
estimated expenses to be incurred in providing services to the Fund and the
potential for economies of scale, if any; financial data on First Trust; fall
out benefits to First Trust and First Trust Portfolios L.P.; and a summary of
First Trust's compliance program. The Independent Trustees also met separately
with their independent legal counsel to discuss the information provided by
First Trust. The Board applied its business judgment to determine whether the
arrangement between the Trust and First Trust is a reasonable business
arrangement from the Fund's perspective as well as from the perspective of
shareholders.
In evaluating whether to approve the Agreements, the Board considered the
nature, extent and quality of services to be provided by First Trust under the
Agreements. The Board noted that the Fund is the initial series of the Trust and
considered the efforts expended by First Trust in organizing the Trust and the
Subsidiary and making arrangements for other services to be provided to the Fund
and the Subsidiary. The Board considered that First Trust employees provide
management services to other ETFs and to other investment companies in the First
Trust fund complex with diligence and care. The Board considered that, unlike
most other ETFs to which First Trust currently provides management services, the
Fund is not designed to track the performance of an index, and investment
decisions will be the primary responsibility of First Trust. At the meeting, the
Trustees received a presentation from two of the proposed portfolio managers for
the Fund and were able to ask questions about the proposed investment strategies
for the Fund, including the investment in commodities-related derivatives
through the Subsidiary. The Board also considered the compliance program that
had been developed by First Trust and the skills of its employees who would be
working with the Fund and the Subsidiary. Since the Fund had yet to commence
investment operations, the Board could not consider the investment performance
of the Fund. In light of the information presented and the considerations made,
the Board concluded that the nature, extent and quality of services to be
provided to the Fund and the Subsidiary by First Trust under the Agreements are
expected to be satisfactory.
Page 23
ADDITIONAL INFORMATION (CONTINUED)
FIRST TRUST GLOBAL TACTICAL COMMODITY STRATEGY FUND (FTGC)
DECEMBER 31, 2013 (UNAUDITED)
The Board reviewed information regarding the proposed unitary fee structure for
the Fund. The Board noted that under the unitary fee arrangement, the Fund would
pay First Trust pursuant to the terms of the Fund Agreement a fee equal to an
annual rate of 0.95% of its average daily net assets and that First Trust would
be responsible for the Fund's expenses, including the cost of transfer agency,
custody, fund administration, legal, audit and other services, but excluding
interest, taxes, brokerage commissions and other expenses connected with the
execution of portfolio transactions, service fees and distribution fees pursuant
to a Rule 12b-1 plan, if any, and extraordinary expenses. The Board noted that
First Trust would receive no compensation under the Subsidiary Agreement. The
Board reviewed information provided by First Trust and Lipper Inc. ("Lipper"),
an independent source, for the Fund on the advisory fees and expense ratios of
other relevant exchange-traded products. The Board noted the limitations on the
comparability of the exchange-traded products in each of the First Trust and
Lipper peer groups with the Fund, noting that except for an ETF included in the
First Trust peer group, all of the other comparable exchange-traded products
were exchange-traded commodity pools. The Board noted that the Fund's total
expense ratio under its proposed unitary fee was below the median of the Lipper
peer group. The Board also considered information provided by First Trust on the
advisory fees and expense ratios of all other actively managed ETFs brought to
market through March 2013, noting there are differences in investment strategies
between the Fund and most of these actively managed ETFs, and that the expense
ratio (excluding acquired fund fees and expenses) of the most similar actively
managed ETF was the same as the unitary fee for the Fund. The Board considered
the total expense ratios (after fee waivers or expense reimbursements, if
applicable) of other First Trust ETFs, including First Trust ETFs that pay a
unitary fee and First Trust ETFs that are actively managed, noting that First
Trust does not provide advisory services to any ETFs that have investment
strategies similar to the Fund's. In light of the information considered and the
nature, extent and quality of services expected to be provided under the
Agreements, the Board determined that the proposed unitary fee for the Fund was
fair and reasonable.
The Board noted that the proposed unitary fee for the Fund was not structured to
pass the benefits of any economies of scale on to shareholders as the Fund's
assets grow. The Trustees noted that any reduction in fixed costs associated
with the management of the Fund would benefit First Trust, but that a unitary
fee structure provides certainty in expenses for the Fund. The Board noted that
First Trust has continued to invest in personnel and infrastructure for the
First Trust fund complex. The Board took the costs to be borne by First Trust in
connection with its services to be performed for the Fund under the Fund
Agreement into consideration and noted that First Trust was unable to estimate
the profitability of the Fund Agreement to First Trust. The Board considered
fall-out benefits described by First Trust that may be realized from its
relationship with the Fund, including First Trust's compensation for fund
reporting services pursuant to a separate Fund Reporting Services Agreement. The
Board also noted that First Trust would not utilize soft dollars in connection
with its management of the Fund's portfolio.
Based on all the information considered and the conclusions reached, the Board,
including the Independent Trustees, unanimously determined that the terms of the
Agreements are fair and reasonable and that the approval of the Agreements is in
the best interests of the Fund. No single factor was determinative in the
Board's analysis.
Page 24
BOARD OF TRUSTEES AND OFFICERS
FIRST TRUST GLOBAL TACTICAL COMMODITY STRATEGY FUND (FTGC)
DECEMBER 31, 2013 (UNAUDITED)
The Trust's statement of additional information includes additional information
about the Trustees and is available, without charge, upon request, by calling
(800) 988-5891.
NUMBER OF OTHER
PORTFOLIOS IN TRUSTEESHIPS OR
TERM OF OFFICE THE FIRST TRUST DIRECTORSHIPS
NAME, ADDRESS, AND YEAR FIRST FUND COMPLEX HELD BY TRUSTEE
DATE OF BIRTH AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
Richard E. Erickson, Trustee o Indefinite Term Physician; President, Wheaton Orthopedics; 105 None
c/o First Trust Advisors L.P. Limited Partner, Gundersen Real Estate
120 East Liberty Drive, o Since Inception Limited Partnership; Member, Sportsmed LLC
Suite 400
Wheaton, IL 60187
D.O.B.: 04/51
Thomas R. Kadlec, Trustee o Indefinite Term President (March 2010 to Present), Senior 105 Director of ADM
c/o First Trust Advisors L.P. Vice President and Chief Financial Officer Investor Services,
120 East Liberty Drive, o Since Inception (May 2007 to March 2010), ADM Investor Inc. and ADM
Suite 400 Services, Inc. (Futures Commission Investor Services
Wheaton, IL 60187 Merchant) International
D.O.B.: 11/57
Robert F. Keith, Trustee o Indefinite Term President (2003 to Present), Hibs 105 Director of Trust
c/o First Trust Advisors L.P. Enterprises (Financial and Management Company of
120 East Liberty Drive, o Since Inception Consulting) Illinois
Suite 400
Wheaton, IL 60187
D.O.B.: 11/56
Niel B. Nielson, Trustee o Indefinite Term President and Chief Executive Officer (June 105 Director of
c/o First Trust Advisors L.P. 2012 to Present), Dew Learning LLC Covenant
120 East Liberty Drive, o Since Inception (Educational Products and Services); President Transport Inc.
Suite 400 (June 2002 to June 2012), Covenant College
Wheaton, IL 60187
D.O.B.: 03/54
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer (December 2010 to 105 None
Chairman of the Board Present), President (until December 2010),
120 East Liberty Drive, o Since Inception First Trust Advisors L.P. and First Trust
Suite 400 Portfolios L.P.; Chairman of the Board of
Wheaton, IL 60187 Directors, BondWave LLC (Software
D.O.B.: 09/55 Development Company/Investment Advisor
and Stonebridge Advisors LLC (Investment
Advisor)
|
(1) Mr. Bowen is deemed an "interested person" of the Trust due to his
position as Chief Executive Officer of First Trust Advisors L.P.,
investment advisor of the Trust.
Page 25
BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
FIRST TRUST GLOBAL TACTICAL COMMODITY STRATEGY FUND (FTGC)
DECEMBER 31, 2013 (UNAUDITED)
POSITION AND TERM OF OFFICE
NAME, ADDRESS OFFICES AND LENGTH OF PRINCIPAL OCCUPATIONS
AND DATE OF BIRTH WITH TRUST SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(2)
------------------------------------------------------------------------------------------------------------------------------------
Mark R. Bradley President and Chief o Indefinite Term Chief Operating Officer (December 2010 to Present)
120 E. Liberty Drive, Executive Officer and Chief Financial Officer, First Trust Advisors
Suite 400 o Since Inception L.P. and First Trust Portfolios L.P.; Chief Financial
Wheaton, IL 60187 Officer, BondWave LLC (Software Development
D.O.B.: 11/57 Company/Investment Advisor) and Stonebridge
Advisors LLC (Investment Advisor)
James M. Dykas Treasurer, Chief Financial o Indefinite Term Controller (January 2011 to Present), Senior Vice
120 E. Liberty Drive, Officer and Chief President (April 2007 to Present), First Trust
Suite 400 Accounting Officer o Since Inception Advisors L.P. and First Trust Portfolios L.P.
Wheaton, IL 60187
D.O.B.: 01/66
W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P. and First
120 E. Liberty Drive, Legal Officer Trust Portfolios L.P.; Secretary and General Counsel,
Suite 400 o Since Inception BondWave LLC (Software Development
Wheaton, IL 60187 Company/Investment Advisor); Secretary of
D.O.B.: 05/60 Stonebridge Advisors LLC (Investment Advisor)
Daniel J. Lindquist Vice President o Indefinite Term Managing Director (July 2012 to Present), Senior
120 E. Liberty Drive, Vice President (September 2005 to July 2012),
Suite 400 o Since Inception First Trust Advisors L.P. and First Trust Portfolios
Wheaton, IL 60187 L.P.
D.O.B.: 02/70
Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust Advisors
120 E. Liberty Drive, and Assistant Secretary L.P. and First Trust Portfolios L.P.
Suite 400 o Since Inception
Wheaton, IL 60187
D.O.B.: 12/66
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
120 E. Liberty Drive, and First Trust Portfolios L.P.
Suite 400 o Since Inception
Wheaton, IL 60187
D.O.B.: 06/66
Stan Ueland Vice President o Indefinite Term Senior Vice President (September 2012 to Present),
120 E. Liberty Drive, Vice President (August 2005 to September 2012),
Suite 400 o Since Inception First Trust Advisors L.P. and First Trust Portfolios
Wheaton, IL 60187 L.P.
D.O.B.: 11/70
|
(2) The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.
Page 26
PRIVACY POLICY
FIRST TRUST GLOBAL TACTICAL COMMODITY STRATEGY FUND (FTGC)
DECEMBER 31, 2013 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies".
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives, proxy
services, solicitors and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information with affiliates of the Fund.
PRIVACY ONLINE
We allow third-party companies, including AddThis (a social media sharing
service), to collect certain anonymous information when you visit our website.
These companies may use non-personally identifiable information during your
visits to this and other websites in order to provide advertisements about goods
and services likely to be of greater interest to you. These companies typically
use a cookie, third party web beacon or pixel tags, to collect this information.
To learn more about this behavioral advertising practice, you can visit
www.networkadvertising.org.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, we restrict access to your
nonpublic personal information to those individuals who need to know that
information to provide products or services to you. We maintain physical,
electronic and procedural safeguards to protect your nonpublic personal
information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
Page 27
This page intentionally left blank.
FIRST TRUST
First Trust Exchange-Traded Fund VII
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
Brown Brothers Harriman & Co.
50 Post Office Square
Boston, MA 02110
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
[BLANK BACK COVER]