UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-22709
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First Trust Exchange-Traded Fund V
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(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Name and address of agent for service)
Registrant's telephone number, including area code: (630) 765-8000
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Date of fiscal year end: December 31
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Date of reporting period: June 30, 2018
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORT TO STOCKHOLDERS.
The registrant's semi-annual report transmitted to shareholders pursuant to Rule
30e-1 under the Investment Company Act of 1940 is as follows:
FIRST TRUST
First Trust Exchange-Traded Fund V
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First Trust Morningstar Managed Futures Strategy
Fund (FMF)
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Semi-Annual Report
For the Six Months Ended
June 30, 2018
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TABLE OF CONTENTS
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FIRST TRUST MORNINGSTAR MANAGED FUTURES STRATEGY FUND (FMF)
SEMI-ANNUAL REPORT
JUNE 30, 2018
Shareholder Letter........................................................... 1
Fund Performance Overview.................................................... 2
Portfolio Management......................................................... 4
Understanding Your Fund Expenses............................................. 5
Consolidated Portfolio of Investments........................................ 6
Consolidated Statement of Assets and Liabilities............................. 8
Consolidated Statement of Operations......................................... 9
Consolidated Statements of Changes in Net Assets............................. 10
Consolidated Financial Highlights............................................ 11
Notes to Consolidated Financial Statements................................... 12
Additional Information....................................................... 18
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and 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
First Trust Morningstar Managed Futures 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.
PERFORMANCE AND RISK DISCLOSURE
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 investments 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
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.
The Advisor may also periodically provide additional information on Fund
performance on the Fund's webpage at www.ftportfolios.com.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment in
the Fund. It includes details about the Fund and presents data and analysis that
provide insight into the Fund's performance and investment approach.
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 material risks of investing in the
Fund are spelled out in its prospectus, statement of additional information, and
other Fund regulatory filings.
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SHAREHOLDER LETTER
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FIRST TRUST MORNINGSTAR MANAGED FUTURES STRATEGY FUND (FMF)
SEMI-ANNUAL LETTER FROM THE CHAIRMAN AND CEO
JUNE 30, 2018
Dear Shareholders:
First Trust is pleased to provide you with the semi-annual report for the First
Trust Morningstar Managed Futures Strategy Fund, which contains detailed
information about your investment for the six months ended June 30, 2018. We
encourage you to read this report carefully and discuss it with your financial
advisor.
As 2018 began, there was much enthusiasm for the "Tax Cuts and Jobs Act of 2017"
tax reform bill, which President Trump had signed into law on December 22, 2017,
and the potential increase in take-home pay for many Americans, as well as the
reduction in the federal corporate tax rate from 35% to 21% that the new tax
package would bring. Early in the new year, many investors were watching the
Federal Reserve (the "Fed") and its signaled intent to continue raising interest
rates at a gradual pace (it had raised rates three times in 2017). Based on
strong job growth and the economic outlook in the U.S., the Fed did, in fact,
raise interest rates this year, on March 21 and June 13. Additionally, they
indicated at their June 2018 meeting that two additional rate hikes are expected
before year-end.
For the entire first quarter of 2018, increased market volatility was the norm
for U.S. markets. The Dow Jones Industrial Average ("DJIA") was off to a strong
start in January continuing its very strong performance displayed throughout
2017. However, February was a different story. Early in the month, the DJIA
plunged 567 points and sank into "correction" territory (defined as a drop of
10% from the index's high) and in just two weeks during February, was down more
than 3,200 points. However, as February came to a close, the DJIA was back on
track and up from the lows experienced earlier in the month.
For the second quarter of 2018, market volatility continued. Increasing trade
tensions have had an impact on markets around the world and could continue to do
so in the future. The talk from President Trump on tariffs and trade agreements
gave many investors pause about the U.S. stock market and its long-standing
economic growth and what the future might hold. The DJIA closed out both April
and May slightly down but ended June slightly up. Despite this volatility, we
continue to believe that the combination of low interest rates, low inflation
and strong corporate earnings still point to a positive economic environment and
further growth, though we understand that past performance can never guarantee
future performance.
Globally, markets underperformed moderately in the first half of 2018, as the
MSCI AC World Index, which captures 23 developed markets and 24 emerging
markets, ended the six-month period down just slightly. Analysts believe
European companies are set up for growing earnings and credit upswings, which
seems to bode well for global market performance. In addition, we believe the
longer-term drivers of positive demographics, lower debt levels and improving
productivity may lead to a multi-year cyclical upswing in emerging market
economic fundamentals.
We continue to believe that one should invest for the long term and be prepared
for market movements, which can happen at any time. You can do this by keeping
current on your portfolio and investing goals and by speaking regularly with
your investment professional. As we've said before, markets go up and they also
go down, but savvy investors are prepared for either through careful attention
to investment goals. Thank you for giving First Trust the opportunity to be a
part of your financial plan. We value our relationship with you and will report
on your investment again in six months.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 1
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FUND PERFORMANCE OVERVIEW (UNAUDITED)
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FIRST TRUST MORNINGSTAR MANAGED FUTURES STRATEGY FUND (FMF)
First Trust Morningstar Managed Futures Strategy Fund's (the "Fund") investment
objective is to seek to provide investors with positive returns. The Fund is an
actively managed exchange-traded fund ("ETF") that seeks to achieve positive
returns that are not directly correlated to broad market equity or fixed income
returns. The Fund uses as a benchmark, the Morningstar(R) Diversified Futures
Index(SM) (the "Benchmark"), which is developed, maintained and sponsored by
Morningstar, Inc. ("Morningstar"). The Fund seeks to exceed the performance of
the Benchmark by actively selecting investments for the Fund with varying
maturities from the underlying components of the Benchmark. The Fund is not an
"index tracking" ETF and is not required to invest in all of the components of
the Benchmark. However, the Fund will generally seek to hold similar instruments
to those included in the Benchmark and seek exposure to commodities, currencies
and equity indices included in the Benchmark.
The Fund is not sponsored, endorsed, sold or promoted by Morningstar.
Morningstar's only relationship to the Fund is the licensing of certain service
marks and service names of Morningstar and of the Benchmark, which is
determined, composed and calculated by Morningstar without regard to the Fund's
advisor or the Fund. The Fund is not obligated to invest in the same instruments
included in the Benchmark. There can be no assurance that the Fund's performance
will exceed the performance of the Benchmark at any time.
Under normal market conditions, the Fund, through a wholly-owned subsidiary of
the Fund organized under the laws of the Cayman Islands (the "Subsidiary"),
invests in a portfolio of exchange-listed commodity futures, currency futures
and equity index futures (collectively, "Futures Instruments").
The Fund does not invest directly in Futures Instruments. The Fund gains
exposure to these investments exclusively by investing in the Subsidiary. The
Subsidiary is advised by First Trust Advisors L.P., the Fund's advisor.
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PERFORMANCE
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AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
Inception Inception
6 Months Ended 1 Year Ended (8/1/13) (8/1/13)
6/30/18 6/30/18 to 6/30/18 to 6/30/18
FUND PERFORMANCE
NAV 1.79% 7.13% 0.00% -0.02%
Market Price 1.82% 6.46% -0.02% -0.07%
INDEX PERFORMANCE
Morningstar(R) Diversified Futures Index(SM) 2.37% 8.56% 1.17% 5.90%
ICE BofAML 3-Month U.S. Treasury Bill Index 0.81% 1.36% 0.43% 2.12%
S&P 500(R) Index 2.65% 14.37% 12.25% 76.39%
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Total returns for the period since inception are calculated from the inception
date of the Fund. "Average annual total returns" represent the average annual
change in value of an investment over the period indicated. "Cumulative total
returns" represent the total change in value of an investment over the period
indicated.
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 all 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 indices do not actually hold a portfolio of
securities and therefore do 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 indices. 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.
Page 2
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FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
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FIRST TRUST MORNINGSTAR MANAGED FUTURES STRATEGY FUND (FMF) (CONTINUED)
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
AUGUST 1, 2013 - JUNE 30, 2018
First Trust
Morningstar Managed Morningstar(R) ICE BofAML
Futures Strategy Diversified Futures 3-Month U.S. Treasury S&P 500(R)
Fund (FMF) Index(SM) Bill Index Index
8/1/13 $10,000 $10,000 $10,000 $10,000
12/31/13 10,387 10,352 10,001 10,929
6/30/14 10,231 10,277 10,003 11,709
12/31/14 10,127 10,236 10,004 12,425
6/30/15 10,289 10,417 10,005 12,578
12/31/15 10,076 10,298 10,010 12,597
6/30/16 9,840 10,155 10,024 13,080
12/31/16 9,644 10,009 10,043 14,104
6/30/17 9,332 9,754 10,073 15,421
12/31/17 9,821 10,345 10,129 17,183
6/30/18 9,998 10,590 10,211 17,638
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of investments and therefore do 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.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV THROUGH JUNE 30, 2018
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 August 2, 2013 (commencement
of trading) through June 30, 2018. 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.
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NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
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FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
8/2/13 - 12/31/13 46 0 1 1
1/1/14 - 12/31/14 67 16 28 40
1/1/15 - 12/31/15 27 13 39 1
1/1/16 - 12/31/16 54 1 0 1
1/1/17 - 12/31/17 126 93 6 4
1/1/18 - 6/30/18 55 0 0 0
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NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
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FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
8/2/13 - 12/31/13 55 2 0 0
1/1/14 - 12/31/14 66 33 0 2
1/1/15 - 12/31/15 58 94 17 3
1/1/16 - 12/31/16 37 116 43 0
1/1/17 - 12/31/17 22 0 0 0
1/1/18 - 6/30/18 68 0 2 0
Page 3
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PORTFOLIO MANAGEMENT
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FIRST TRUST MORNINGSTAR MANAGED FUTURES STRATEGY FUND (FMF)
SEMI-ANNUAL REPORT
JUNE 30, 2018 (UNAUDITED)
ADVISOR
First Trust Advisors L.P. ("First Trust") is the investment advisor, commodity
pool operator and commodity trading advisor to the First Trust Morningstar
Managed Futures Strategy Fund (the "Fund" or "FMF"). 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.
PORTFOLIO MANAGEMENT TEAM
JOHN GAMBLA - CFA, FRM, PRM, SENIOR PORTFOLIO MANAGER
ROB A. GUTTSCHOW - CFA, SENIOR PORTFOLIO MANAGER
Page 4
FIRST TRUST MORNINGSTAR MANAGED FUTURES STRATEGY FUND (FMF)
UNDERSTANDING YOUR FUND EXPENSES
JUNE 30, 2018 (UNAUDITED)
As a shareholder of First Trust Morningstar Managed Futures 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, if any, 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 and held through the six-month period ended June 30, 2018.
ACTUAL EXPENSES
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 Six-Month
Period" to estimate the expenses you paid on your account during this six-month
period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
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.
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ANNUALIZED
EXPENSE RATIO EXPENSES PAID
BEGINNING ENDING BASED ON THE DURING THE
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH
JANUARY 1, 2018 JUNE 30, 2018 PERIOD PERIOD (a)
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FIRST TRUST MORNINGSTAR MANAGED FUTURES STRATEGY FUND (FMF)
Actual $1,000.00 $1,017.90 0.95% $4.75
Hypothetical (5% return before expenses) $1,000.00 $1,020.08 0.95% $4.76
(a) Expenses are equal to the annualized expense ratio as indicated in the
table multiplied by the average account value over the period (January 1,
2018 through June 30, 2018), multiplied by 181/365 (to reflect the
six-month period).
Page 5
FIRST TRUST MORNINGSTAR MANAGED FUTURES STRATEGY FUND (FMF)
CONSOLIDATED PORTFOLIO OF INVESTMENTS
JUNE 30, 2018 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
------------- ----------------------------------------------------------------- ------------- ------------- -------------
TREASURY BILLS - 81.6%
$ 3,000,000 U.S. Treasury Bill (a)........................................... (b) 7/19/2018 $ 2,997,546
1,000,000 U.S. Treasury Bill (a)........................................... (b) 8/9/2018 998,081
1,000,000 U.S. Treasury Bill (a)........................................... (b) 8/23/2018 997,373
1,500,000 U.S. Treasury Bill (a)........................................... (b) 9/20/2018 1,493,767
1,000,000 U.S. Treasury Bill (a)........................................... (b) 10/11/2018 994,603
500,000 U.S. Treasury Bill (a)........................................... (b) 11/1/2018 496,670
2,000,000 U.S. Treasury Bill (a)........................................... (b) 12/6/2018 1,982,337
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TOTAL INVESTMENTS - 81.6% ..................................................................... 9,960,377
(Cost $9,959,410) (c)
NET OTHER ASSETS AND LIABILITIES - 18.4% ...................................................... 2,240,560
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NET ASSETS - 100.0% ........................................................................... $ 12,200,937
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The following futures contracts of the Fund's wholly-owned subsidiary were open
at June 30, 2018 (See Note 2B - Futures Contracts in the Notes to Consolidated
Financial Statements):
UNREALIZED
APPRECIATION
NUMBER NOTIONAL EXPIRATION (DEPRECIATION)/
OF CONTRACTS VALUE DATE VALUE
------------------------------------------------------------------------------------------------------------------------
FUTURES CONTRACTS LONG:
------------------------------------------------------------------------------------------------------------------------
Brent Crude Oil Futures 4 $ 316,920 Jul-18 $ 17,950
Brent Crude Oil Futures 6 473,160 Aug-18 73,024
CAC 40(R) 10 Euro Index Futures 3 186,206 Sep-18 (3,976)
Copper Futures 3 222,450 Sep-18 (11,848)
Cotton No. 2 Futures 3 125,880 Dec-18 (9,383)
DAX MINI Index Futures 4 287,477 Sep-18 (9,868)
FTSE 100 Index Futures 2 200,642 Sep-18 (132)
Gasoline RBOB Futures 2 180,701 Jul-18 20,331
Gasoline RBOB Futures 1 89,548 Aug-18 10,626
Gasoline RBOB Futures 2 167,252 Oct-18 4,510
Low Sulphur Gasoil "G" Futures 3 202,725 Jul-18 19,324
Low Sulphur Gasoil "G" Futures 7 473,725 Aug-18 6,979
NIKKEI 225 (OSE) Futures 2 402,655 Sep-18 (181)
NY Harbor ULSD Futures 1 92,807 Jul-18 1,811
NY Harbor ULSD Futures 4 372,322 Aug-18 16,628
S&P 500 E-mini Futures 11 1,496,825 Sep-18 (29,947)
S&P TSX 60 IX Futures 1 146,549 Sep-18 1,590
Soybean Meal Futures 2 66,180 Sep-18 (5,379)
Soybean Meal Futures 2 65,980 Dec-18 (5,330)
SPI 200 Index Futures 1 113,746 Sep-18 2,942
Wheat Futures 5 125,313 Sep-18 (3,062)
WTI Crude Futures 5 370,750 Jul-18 55,414
WTI Crude Futures 3 212,760 Sep-18 26,015
WTI Crude Futures 3 210,480 Oct-18 6,238
----------- ---------------
$ 6,603,053 $ 184,276
----------- ---------------
Page 6 See Notes to Consolidated Financial Statements
FIRST TRUST MORNINGSTAR MANAGED FUTURES STRATEGY FUND (FMF)
CONSOLIDATED PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2018 (UNAUDITED)
UNREALIZED
APPRECIATION
NUMBER NOTIONAL EXPIRATION (DEPRECIATION)/
OF CONTRACTS VALUE DATE VALUE
------------------------------------------------------------------------------------------------------------------------
FUTURES CONTRACTS SHORT:
------------------------------------------------------------------------------------------------------------------------
Australian Dollar Currency Futures 2 $ (147,960) Sep-18 $ 4,140
British Pound Currency Futures 6 (496,350) Sep-18 3,788
Canadian Dollar Currency Futures 2 (152,320) Sep-18 2,610
Coffee "C" Futures 4 (172,650) Sep-18 6,394
Corn Futures 14 (251,650) Sep-18 7,875
Euro FX Currency Futures 10 (1,467,063) Sep-18 15,437
FTSE MIB Index Futures 1 (125,936) Sep-18 2,902
Gold 100 Oz. Futures 4 (501,800) Aug-18 9,600
IBEX 35 Index Futures 1 (112,130) Jul-18 2,104
Japanese Yen Currency Futures 4 (453,375) Sep-18 1,575
Lean Hogs Futures 3 (91,740) Aug-18 (2,250)
Live Cattle Futures 5 (213,450) Aug-18 (12,510)
Silver Futures 2 (161,980) Sep-18 2,010
Soybean Futures 9 (396,000) Nov-18 12,325
Soybean Oil Futures 7 (124,908) Dec-18 2,556
Sugar #11 (World) Futures 15 (205,800) Sep-18 694
Swiss Franc Currency Futures 1 (126,938) Sep-18 1,025
----------- ---------------
$(5,202,050) $ 60,275
----------- ---------------
Total $ 1,401,003 $ 244,551
=========== ===============
-----------------------------
(a) All or a portion of this security serves as collateral for open futures
contracts.
(b) Zero coupon bond.
(c) Aggregate cost for financial reporting purposes approximates the aggregate
cost for federal income tax purposes. As of June 30, 2018, the aggregate
gross unrealized appreciation for all investments in which there was an
excess of value over tax cost was $339,384 and the aggregate gross
unrealized depreciation for all investments in which there was an excess
of tax cost over value was $93,866. The net unrealized appreciation was
$245,518. The amounts presented are inclusive of derivative contracts.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of June 30, 2018
is as follows (see Note 2A - Portfolio Valuation in the Notes to Consolidated
Financial Statements):
ASSETS TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
6/30/2018 PRICES INPUTS INPUTS
------------ ------------ ------------ ------------
Treasury Bills....................................... $ 9,960,377 $ -- $ 9,960,377 $ --
Futures Contracts.................................... 338,417 338,417 -- --
------------ ------------ ------------ ------------
Total................................................ $ 10,298,794 $ 338,417 $ 9,960,377 $ --
============ ============ ============ ============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
6/30/2018 PRICES INPUTS INPUTS
------------ ------------ ------------ ------------
Futures Contracts.................................... $ (93,866) $ (93,866) $ -- $ --
============ ============ ============ ============
All transfers in and out of the Levels during the period are assumed to occur on
the last day of the period at their current value. There were no transfers
between Levels at June 30, 2018.
See Notes to Consolidated Financial Statements Page 7
FIRST TRUST MORNINGSTAR MANAGED FUTURES STRATEGY FUND (FMF)
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2018 (UNAUDITED)
ASSETS:
Investments at value
(Cost $9,959,410)................................................... $ 9,960,377
Cash................................................................... 1,926,064
Foreign currency segregated as collateral for open futures contracts... 101,616
Variation margin receivable............................................ 338,417
--------------
Total Assets........................................................ 12,326,474
--------------
LIABILITIES:
Payables:
Variation margin.................................................... 93,866
Due to broker....................................................... 22,260
Investment advisory fees............................................ 9,411
--------------
Total Liabilities................................................... 125,537
--------------
NET ASSETS............................................................. $ 12,200,937
==============
NET ASSETS CONSIST OF:
Paid-in capital........................................................ $ 11,736,887
Par value.............................................................. 2,520
Accumulated net investment income (loss)............................... 49,049
Accumulated net realized gain (loss) on futures contracts and
foreign currency transactions....................................... 168,250
Net unrealized appreciation (depreciation) on futures contracts and
foreign currency translation........................................ 244,231
--------------
NET ASSETS............................................................. $ 12,200,937
==============
NET ASSET VALUE, per share............................................. $ 48.42
==============
Number of shares outstanding (unlimited number of shares
authorized, par value $0.01 per share).............................. 252,000
==============
Foreign Currency, at proceeds.......................................... $ 102,935
==============
Page 8 See Notes to Consolidated Financial Statements
FIRST TRUST MORNINGSTAR MANAGED FUTURES STRATEGY FUND (FMF)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2018 (UNAUDITED)
INVESTMENT INCOME:
Interest............................................................... $ 77,842
--------------
Total investment income............................................. 77,842
--------------
EXPENSES:
Investment advisory fees............................................... 56,748
--------------
Total expenses...................................................... 56,748
--------------
NET INVESTMENT INCOME (LOSS)........................................... 21,094
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Futures............................................................. 156,311
Foreign currency transactions ...................................... 11,939
--------------
Net realized gain (loss)............................................... 168,250
--------------
Net change in unrealized appreciation (depreciation) on:
Futures............................................................. 32,117
Investments......................................................... 967
Foreign currency translation........................................ (11,408)
--------------
Net change in unrealized appreciation (depreciation)................... 21,676
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)................................ 189,926
--------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS..................................................... $ 211,020
==============
See Notes to Consolidated Financial Statements Page 9
FIRST TRUST MORNINGSTAR MANAGED FUTURES STRATEGY FUND (FMF)
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR
6/30/2018 ENDED
(UNAUDITED) 12/31/2017
-------------- --------------
OPERATIONS:
Net investment income (loss)......................................................... $ 21,094 $ (32,649)
Net realized gain (loss)............................................................. 168,250 168,358
Net change in unrealized appreciation (depreciation)................................. 21,676 149,226
-------------- --------------
Net increase (decrease) in net assets resulting from operations...................... 211,020 284,935
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................................................................ (5,922) (97,952)
-------------- --------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold............................................................ -- 2,296,897
Cost of shares redeemed.............................................................. -- --
-------------- --------------
Net increase (decrease) in net assets resulting from shareholder transactions........ -- 2,296,897
-------------- --------------
Total increase (decrease) in net assets.............................................. 205,098 2,483,880
NET ASSETS:
Beginning of period.................................................................. 11,995,839 9,511,959
-------------- --------------
End of period........................................................................ $ 12,200,937 $ 11,995,839
============== ==============
Accumulated net investment income (loss) at end of period............................ $ 49,049 $ 33,877
============== ==============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period.............................................. 252,000 202,000
Shares sold.......................................................................... -- 50,000
Shares redeemed...................................................................... -- --
-------------- --------------
Shares outstanding, end of period.................................................... 252,000 252,000
============== ==============
Page 10 See Notes to Consolidated Financial Statements
FIRST TRUST MORNINGSTAR MANAGED FUTURES STRATEGY FUND (FMF)
CONSOLIDATED FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31, PERIOD
6/30/2018 -------------------------------------------------------- ENDED
(UNAUDITED) 2017 2016 2015 2014 12/31/2013 (a)
----------- ----------- ----------- ----------- ----------- --------------
Net asset value, beginning of period.... $ 47.60 $ 47.09 $ 49.22 $ 49.47 $ 50.73 $ 50.00
--------- --------- --------- --------- --------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)............ 0.08 (0.12) (0.36) (0.49) (0.55) (0.19)
Net realized and unrealized gain
(loss)............................... 0.76 1.02 (1.77) 0.24 (0.71) 2.13
--------- --------- --------- --------- --------- --------
Total from investment operations........ 0.84 0.90 (2.13) (0.25) (1.26) 1.94
--------- --------- --------- --------- --------- --------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income................... (0.02) (0.39) -- -- -- --
Net realized gain....................... -- -- -- -- -- (1.21)
--------- --------- --------- --------- --------- --------
Total distributions..................... (0.02) (0.39) -- -- -- (1.21)
--------- --------- --------- --------- --------- --------
Net asset value, end of period.......... $ 48.42 $ 47.60 $ 47.09 $ 49.22 $ 49.47 $ 50.73
========= ========= ========= ========= ========= ========
TOTAL RETURN (b)........................ 1.79% 1.91% (4.33)% (0.51)% (2.50)% 3.87%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's).... $ 12,201 $ 11,996 $ 9,512 $ 12,403 $ 12,465 $ 5,174
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets............................... 0.95% (c) 0.95% 1.02% (d) 1.00% (d) 0.95% 0.95% (c)
Ratio of total expenses to average net
assets excluding interest expense.... 0.95% (c) 0.95% 0.95% 0.95% 0.95% 0.95% (c)
Ratio of net investment income (loss) to
average net assets................... 0.35% (c) (0.31)% (0.87)% (0.97)% (0.94)% (0.92)% (c)
Portfolio turnover rate (e)............. 0% 0% 0% 0% 0% 0%
(a) Inception date is August 1, 2013, which is consistent with the
commencement of investment operations and is the date the initial creation
unit was established. First Trust Portfolios L.P. seeded the Fund on June
12, 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
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. 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. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year.
(c) Annualized.
(d) Ratios reflect interest expenses of 0.07% and 0.05% for the periods ended
December 31, 2016 and December 31, 2015, respectively, paid on futures
margin accounts which are not covered under the annual unitary management
fee.
(e) 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.
See Notes to Consolidated Financial Statements Page 11
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST MORNINGSTAR MANAGED FUTURES STRATEGY FUND (FMF)
JUNE 30, 2018 (UNAUDITED)
1. ORGANIZATION
First Trust Exchange-Traded Fund V (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust on April 10,
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 consists of one fund, the First Trust Morningstar Managed
Futures Strategy Fund (the "Fund"), a non-diversified series of the Trust, which
trades under the ticker FMF on the NYSE Arca, Inc. and commenced operations on
August 1, 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." The
Fund's Creation Units are generally issued and redeemed for cash, and in certain
circumstances, in-kind for securities in which the Fund invests. 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 investors with positive returns. Under normal
market conditions, the Fund, through a wholly-owned subsidiary of the Fund, FT
Cayman Subsidiary (the "Subsidiary"), organized under the laws of the Cayman
Islands, invests in a portfolio of exchange-listed commodity futures, currency
futures and equity index futures (collectively, "Futures Instruments"). The Fund
will not invest directly in Futures 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.
2. SIGNIFICANT ACCOUNTING POLICIES
The Fund is considered an investment company and follows accounting and
reporting guidance under Financial Accounting Standards Board Accounting
Standards Codification Topic 946, "Financial Services-Investment Companies." The
consolidated financial statements include the accounts on a consolidated basis
of the Subsidiary. All intercompany accounts and transactions have been
eliminated in consolidation. 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 Fund's 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. Market
value prices represent last sale or official closing prices from a national or
foreign exchange (i.e., a regulated market) and are primarily obtained from
third-party pricing services. Fair value prices represent any prices not
considered market value prices and are either obtained from a third-party
pricing service or are determined by the Pricing Committee of the Fund's
investment advisor, First Trust Advisors L.P. ("First Trust" or the "Advisor"),
in accordance with valuation procedures adopted by the Trust's Board of
Trustees, and in accordance with provisions of the 1940 Act. Investments valued
by the Advisor's Pricing Committee, if any, are footnoted as such in the
footnotes to the Consolidated Portfolio of Investments. The Fund's investments
are 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 fair valued at the mean
of their most recent bid and asked price, if available, and otherwise at
their closing bid price.
U.S. Treasuries are valued on the basis of valuations provided by a
third-party pricing service approved by the Trust's Board of Trustees.
If the Fund's investments are not able to be priced by their pre-established
pricing methods, such investments may be valued by the Trust's Board of Trustees
or its delegate, the Advisor's Pricing Committee, 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.
Page 12
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MORNINGSTAR MANAGED FUTURES STRATEGY FUND (FMF)
JUNE 30, 2018 (UNAUDITED)
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
The inputs or methodologies used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of June 30, 2018, is
included with the Fund's Consolidated Portfolio of Investments.
B. FUTURES CONTRACTS
The Fund, through the Subsidiary, may purchase and sell exchange-listed
commodity, currency and equity index futures contracts. When the Subsidiary
purchases a listed futures contract, it agrees to purchase a specified reference
asset (e.g., commodity, currency or equity index) at a specified future date.
When the Subsidiary sells or shorts a listed futures contract, it agrees to sell
a specified reference asset (e.g., commodity, currency or equity index) at a
specified future date. The price at which the purchase and sale will take place
is fixed when the Subsidiary 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. Open futures contracts can
be closed out prior to settlement by entering into an offsetting transaction in
a matching futures contract. If the Subsidiary is not able to enter into an
offsetting transaction, the Subsidiary will continue to be required to maintain
margin deposits on the futures contract. When the contract is closed or expires,
the Subsidiary records a realized gain or loss equal to the difference between
the value of the contract at the time it was opened and the value at the time it
was closed or expired. This gain or loss is included in "Net realized gain
(loss) on futures" on the Consolidated Statement of Operations.
1. EXCHANGE-LISTED COMMODITY FUTURES CONTRACTS -- 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.
2. INDEX FUTURES CONTRACTS -- An index futures contract is a bilateral
agreement pursuant to which two parties agree to take or make
delivery of an amount of cash equal to a specified dollar amount
multiplied by the difference between the index value at the close of
trading of the contract and the price at which the futures contract
was originally struck. No physical delivery of the securities
comprising the index is made. Instead, settlement in cash must occur
upon the termination of the contract, with the settlement being the
difference between the contract price and the actual level of the
index at the expiration of the contract.
3. CURRENCY FUTURES CONTRACTS -- Currency futures contracts are
transferable futures contracts that specify a price at which a
currency can be bought or sold at a future date. Currency futures
contracts allow investors to hedge against foreign currency exchange
risk. Because currency futures contracts are marked-to-market daily,
investors can exit their obligation to buy or sell the currency
prior to the contract's delivery date by closing out the position.
With currency futures contracts, the price is determined when the
contract is signed, just as it is in the foreign currency exchange
market, and the currency pair is exchanged on the delivery date,
which is usually sometime in the distant future.
Page 13
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MORNINGSTAR MANAGED FUTURES STRATEGY FUND (FMF)
JUNE 30, 2018 (UNAUDITED)
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 contract 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 collateralize its position in order to limit the risk associated
with the use of leverage and other related risks. To collateralize 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 unrealized depreciation of the futures contract or
otherwise collateralize 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
investments. Additionally, such segregated assets generally ensure the
availability of adequate funds to meet the obligations of the Subsidiary arising
from such investment activities.
C. INVESTMENT TRANSACTIONS AND INVESTMENT INCOME
Investment transactions are recorded as of the trade date. Realized gains and
losses from investment transactions are recorded on the identified cost basis.
Interest income, if any, is recorded on the accrual basis. Amortization of
premiums and accretion of discounts are recorded using the effective interest
method.
D. CASH AND FOREIGN CURRENCY
The Fund holds assets equal to or greater than the full notional exposure of the
futures contracts. These assets may consist of cash and other short-term
securities to comply with SEC guidance with respect to coverage of futures
contracts by registered investment companies. The Fund also has restricted
foreign currency held for margin requirements. At June 30, 2018, the Fund had
restricted cash held of $79,356, which is included in "Foreign currency
segregated as collateral for open futures contracts" on the Consolidated
Statement of Assets and Liabilities. The books and records of the Fund are
maintained in U.S. dollars. Foreign currencies, futures contracts and other
assets and liabilities are translated into U.S. dollars at the exchange rates
prevailing at the end of the period.
Purchases and sales of futures contracts and items of income and expense are
translated on the respective dates of such transactions. Unrealized gains and
losses on assets and liabilities which result from changes in foreign currency
exchange rates have been included in "Net change in unrealized appreciation
(depreciation) on foreign currency translation" on the Consolidated Statement of
Operations. Unrealized gains and losses on futures contracts which result from
changes in foreign exchange rates are included with fluctuations arising from
changes in market price and are shown in "Net change in unrealized appreciation
(depreciation) on futures" on the Consolidated Statement of Operations. Net
realized foreign currency gains and losses include the effect of changes in
exchange rates between trade date and settlement date on foreign currency
transactions and interest and dividends received as shown in "Net realized gain
(loss) on foreign currency transactions." The portion of foreign currency gains
and losses related to fluctuation in exchange rates between the initial purchase
trade date and subsequent sale trade date is included in "Net realized gain
(loss) on futures" on the Consolidated Statement of Operations.
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 federal 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 financial statement and tax purposes, will
reverse at some time in the future.
Page 14
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MORNINGSTAR MANAGED FUTURES STRATEGY FUND (FMF)
JUNE 30, 2018 (UNAUDITED)
The tax character of distributions paid during the fiscal year ended December
31, 2017 was as follows:
Distributions paid from:
Ordinary income................................. $ 97,952
As of December 31, 2017, 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)
----------------- ----------------- -----------------
$ 5,906 $ 108,362 $ 114,193
F. INCOME TAXES
The Fund intends to continue to qualify as a regulated investment company by
complying with the requirements under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), which includes distributing substantially all
of its net investment income and net realized gains to shareholders.
Accordingly, no provision has been made for federal and state income taxes.
However, due to the timing and amount of distributions, the Fund may be subject
to an excise tax of 4% of the amount by which approximately 98% of the Fund's
taxable income exceeds the distributions from such taxable income for the
calendar year.
The Subsidiary is classified as a controlled foreign corporation under
Subchapter N of the 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 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.
At December 31, 2017, the Fund had no capital loss carryforwards outstanding for
federal income tax purposes. 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.
The Fund is subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. Taxable years ended 2014, 2015,
2016 and 2017 remain open to federal and state audit. As of June 30, 2018,
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.
G. EXPENSES
Expenses of the Fund, other than the investment advisory fee and other excluded
expenses, are paid by First Trust (See Note 3).
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 and the Subsidiary's portfolios, managing the Fund's business
affairs and providing certain administrative services necessary for the
management of the Fund.
Pursuant to the Investment Management Agreement between the Trust and the
Advisor, 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 Subsidiary does not pay First Trust a separate management fee.
Page 15
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MORNINGSTAR MANAGED FUTURES STRATEGY FUND (FMF)
JUNE 30, 2018 (UNAUDITED)
The Trust has multiple service agreements with Brown Brothers Harriman & Co.
("BBH"). Under the service agreements, BBH performs custodial, fund accounting,
certain administrative services, and transfer agency services for the Fund. As
custodian, BBH is responsible for custody of the Fund's assets. As fund
accountant and administrator, BBH is responsible for maintaining the books and
records of the Fund's investments and cash. As transfer agent, BBH is
responsible for maintaining shareholder records for the Fund.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer that is allocated equally among each fund in the First Trust Fund
Complex. Each Independent Trustee is also paid an annual per fund fee that
varies based on whether the fund is a closed-end or other actively managed fund,
or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee are paid
annual fees to serve in such capacities, with such compensation allocated pro
rata among each fund in the First Trust Fund Complex based on net assets.
Independent Trustees are reimbursed for travel and out-of-pocket expenses in
connection with all meetings. The Lead Independent Trustee and Committee
Chairmen rotate every three years. The officers and "Interested" Trustee receive
no compensation from the Trust for acting in such capacities.
4. PURCHASES AND SALES OF INVESTMENTS
For the six months ended June 30, 2018, the cost of purchases and proceeds from
sales of investment securities for the Fund, excluding short-term investments,
derivatives, and in-kind transactions, were $0 and $0, respectively.
For the six months ended June 30, 2018, the Fund did not have any in-kind
purchases or sales.
5. DERIVATIVE TRANSACTIONS
The following table presents the types of derivatives held by the Subsidiary at
June 30, 2018, the primary underlying risk exposure and the location of these
instruments as presented on the Consolidated Statement of Assets and
Liabilities.
ASSET DERIVATIVES LIABILITY DERIVATIVES
-------------------------------------------- --------------------------------------------
CONSOLIDATED CONSOLIDATED
DERIVATIVES STATEMENT OF ASSETS AND STATEMENT OF ASSETS AND
INSTRUMENT RISK EXPOSURE LIABILITIES LOCATION VALUE LIABILITIES LOCATION VALUE
-------------- ---------------- ------------------------------ ----------- ------------------------------ -----------
Futures Commodity Risk Variation Margin Receivable $ 300,304 Variation Margin Payable $ 49,762
Futures Equity Risk Variation Margin Receivable 9,538 Variation Margin Payable 44,104
Futures Currency Risk Variation Margin Receivable 28,575 Variation Margin Payable --
The following table presents the amount of net realized gain (loss) and change
in net unrealized appreciation (depreciation) recognized for the six months
ended June 30, 2018, on derivative instruments, as well as the primary
underlying risk exposure associated with each instrument.
CONSOLIDATED STATEMENT OF OPERATIONS LOCATION COMMODITY RISK EQUITY RISK CURRENCY RISK
-----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on futures $ 288,892 $ (26,796) $ (105,785)
Net change in unrealized appreciation (depreciation) on futures 70,621 (45,657) 7,153
During the six months ended June 30, 2018, the amounts of notional values of
futures contracts opened and closed were as follows:
Notional Amount*
------------------------------
Total Commodity Risk $ 38,669,277
Futures contracts Opened $ 19,255,338
Futures contracts Closed 19,413,939
Total Equity Risk 18,627,992
Futures contracts Opened 9,326,243
Futures contracts Closed 9,301,749
Total Currency Risk 19,048,679
Futures contracts Opened 9,779,346
Futures contracts Closed 9,269,333
*Amounts based on activity levels during the period.
The Fund does not have the right to offset financial assets and financial
liabilities related to futures contracts on the Consolidated Statement of Assets
and Liabilities.
Page 16
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FIRST TRUST MORNINGSTAR MANAGED FUTURES STRATEGY FUND (FMF)
JUNE 30, 2018 (UNAUDITED)
6. CREATIONS, REDEMPTIONS AND TRANSACTION FEES
Shares are created and redeemed by the Fund only in Creation Unit size
aggregations of 50,000 shares in transactions with broker-dealers or large
institutional investors that have entered into a participation agreement (an
"Authorized Participant"). In order to purchase Creation Units of the Fund, an
Authorized Participant must deposit (i) a designated portfolio of 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
Aggregation) and the market value of the Deposit 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 Authorized Participant 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 Authorized Participant 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 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 is currently $500. 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.
Authorized Participants 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.
7. 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 April 30, 2020.
8. INDEMNIFICATION
The Trust, on behalf of the Fund, 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.
9. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events to the Fund through
the date the consolidated financial statements were issued, and has determined
that there were no subsequent events requiring recognition or disclosure in the
consolidated financial statements that have not already been disclosed.
Page 17
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ADDITIONAL INFORMATION
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FIRST TRUST MORNINGSTAR MANAGED FUTURES STRATEGY FUND (FMF)
JUNE 30, 2018 (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 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Fund's website at www.ftportfolios.com; and (3) on the Securities and
Exchange Commission's ("SEC") website at www.sec.gov.
PORTFOLIO HOLDINGS
The 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 Form N-Qs
are available (1) by calling (800) 988-5891; (2) on the Fund's website at
www.ftportfolios.com; (3) on the SEC's website at 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.
RISK CONSIDERATIONS
RISKS ARE INHERENT IN ALL INVESTING. CERTAIN GENERAL RISKS THAT MAY BE
APPLICABLE TO SOME OR ALL OF THE FUNDS ARE IDENTIFIED BELOW, BUT NOT ALL OF THE
MATERIAL RISKS RELEVANT TO EACH FUND ARE INCLUDED IN THIS REPORT. THE MATERIAL
RISKS OF INVESTING IN EACH FUND ARE SPELLED OUT IN ITS PROSPECTUS, STATEMENT OF
ADDITIONAL INFORMATION AND OTHER REGULATORY FILINGS. BEFORE INVESTING, YOU
SHOULD CONSIDER EACH FUND'S INVESTMENT OBJECTIVE, RISKS, CHARGES AND EXPENSES,
AND READ EACH FUND'S PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION
CAREFULLY. YOU CAN DOWNLOAD EACH FUND'S PROSPECTUS AT 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 EACH FUND.
CONCENTRATION RISK. To the extent that a Fund is able to invest a large
percentage of its assets in a single asset class or the securities of issuers
within the same country, state, region, industry or sector, an adverse economic,
business or political development may affect the value of the Fund's investments
more than if the Fund were more broadly diversified. A Fund that tracks an index
will be concentrated to the extent the Fund's corresponding index is
concentrated. A concentration makes a Fund more susceptible to any single
occurrence and may subject the Fund to greater market risk than a fund that is
not concentrated.
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.
CYBER SECURITY RISK. The Funds are susceptible to potential operational risks
through breaches in cyber security. A breach in cyber security refers to both
intentional and unintentional events that may cause a Fund to lose proprietary
information, suffer data corruption or lose operational capacity. Such events
could cause a Fund to incur regulatory penalties, reputational damage,
additional compliance costs associated with corrective measures and/or financial
loss. In addition, cyber security breaches of a Fund's third-party service
providers, such as its administrator, transfer agent, custodian, or sub-advisor,
as applicable, or issuers in which the Fund invests, can also subject a Fund to
many of the same risks associated with direct cyber security breaches.
DERIVATIVES RISK. To the extent a Fund uses derivative instruments such as
futures contracts, options contracts and swaps, the Fund may experience losses
because of adverse movements in the price or value of the underlying asset,
index or rate, which may be magnified by certain features of the derivative.
These risks are heightened when a Fund's portfolio managers use derivatives to
enhance the Fund's return or as a substitute for a position or security, rather
than solely to hedge (or offset) the risk of a position or security held by the
Fund.
EQUITY SECURITIES RISK. To the extent a Fund invests in equity securities, the
value of the Fund's shares will fluctuate with changes in the value of the
equity securities. Equity securities prices fluctuate for several reasons,
including changes in investors' perceptions of the financial condition of an
issuer or the general condition of the relevant stock market, such as market
volatility, or when political or economic events affecting the issuers occur. In
addition, common stock prices may be particularly sensitive to rising interest
rates, as the cost of capital rises and borrowing costs increase. Equity
securities may decline significantly in price over short or extended periods of
time, and such declines may occur in the equity market as a whole, or they may
occur in only a particular country, company, industry or sector of the market.
ETF RISK. The shares of an ETF trade like common stock and represent an interest
in 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. Shares of an ETF trade on an exchange at market prices
rather than net asset value, which may cause the shares to trade at a price
greater than net asset value (premium) or less than net asset value (discount).
In times of market stress, decisions by market makers to reduce or step away
Page 18
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST MORNINGSTAR MANAGED FUTURES STRATEGY FUND (FMF)
JUNE 30, 2018 (UNAUDITED)
from their role of providing a market for an ETF's shares, or decisions by an
ETF's authorized participants that they are unable or unwilling to proceed with
creation and/or redemption orders of an ETF's shares, could result in shares of
the ETF trading at a discount to net asset value and in greater than normal
intraday bid-ask spreads.
FIXED INCOME SECURITIES RISK. To the extent a Fund invests in fixed income
securities, the Fund will be subject to credit risk, income risk, interest rate
risk, liquidity risk and prepayment risk. Income risk is the risk that income
from a Fund's fixed income investments could decline during periods of falling
interest rates. Interest rate risk is the risk that the value of a Fund's fixed
income securities will decline because of rising interest rates. Liquidity risk
is the risk that a security cannot be purchased or sold at the time desired, or
cannot be purchased or sold without adversely affecting the price. Prepayment
risk is the risk that the securities will be redeemed or prepaid by the issuer,
resulting in lower interest payments received by the Fund. In addition to these
risks, high yield securities, or "junk" bonds, are subject to greater market
fluctuations and risk of loss than securities with higher ratings, and the
market for high yield securities is generally smaller and less liquid than that
for investment grade securities.
FUND OF FUND RISK. To the extent a Fund invests in the securities of other
investment vehicles, the Fund will incur additional fees and expenses that would
not be present in a direct investment in those investment vehicles. Furthermore,
the Fund's investment performance and risks are directly related to the
investment performance and risks of the investment vehicles in which the Fund
invests.
INDEX CONSTITUENT RISK. Certain Funds may be a constituent of one or more
indices. As a result, such a Fund may be included in one or more index-tracking
exchange-traded funds or mutual funds. Being a component security of such a
vehicle could greatly affect the trading activity involving a Fund, the size of
the Fund and the market volatility of the Fund. Inclusion in an index could
significantly increase demand for the Fund and removal from an index could
result in outsized selling activity in a relatively short period of time. As a
result, a Fund's net asset value could be negatively impacted and the Fund's
market price may be significantly below its net asset value during certain
periods.
MANAGEMENT RISK. To the extent that a Fund is actively managed, it is subject to
management risk. In managing an actively-managed Fund's investment portfolio,
the Fund's portfolio managers will apply investment techniques and risk analyses
that may not have the desired result. There can be no guarantee that a Fund will
meet its investment objective.
MARKET RISK. Securities held by a Fund, as well as shares of a Fund itself, are
subject to market fluctuations caused by factors such as general economic
conditions, political events, regulatory or market developments, changes in
interest rates and perceived trends in securities prices. Shares of a Fund could
decline in value or underperform other investments as a result of the risk of
loss associated with these market fluctuations.
NON-U.S. SECURITIES RISK. To the extent a Fund invests in non-U.S. securities,
it is subject to additional risks not associated with securities of domestic
issuers. Non-U.S. securities are subject to higher volatility than securities of
domestic issuers due to: possible adverse political, social or economic
developments; restrictions on foreign investment or exchange of securities; lack
of liquidity; currency exchange rates; excessive taxation; government seizure of
assets; different legal or accounting standards; and less government supervision
and regulation of exchanges in foreign countries. Investments in non-U.S.
securities may involve higher costs than investments in U.S. securities,
including higher transaction and custody costs, as well as additional taxes
imposed by non-U.S. governments. These risks may be heightened for securities of
companies located, or with significant operations, in emerging market countries.
PASSIVE INVESTMENT RISK. To the extent a Fund seeks to track an index, the Fund
will invest in the securities included in, or representative of, the index
regardless of their investment merit. A Fund generally will not attempt to take
defensive positions in declining markets.
Page 19
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MORNINGSTAR MANAGED FUTURES STRATEGY FUND (FMF)
JUNE 30, 2018 (UNAUDITED)
ADVISORY AGREEMENT
BOARD CONSIDERATIONS REGARDING APPROVAL OF CONTINUATION OF INVESTMENT MANAGEMENT
AGREEMENT
The Board of Trustees (the "Board") of First Trust Exchange-Traded Fund V (the
"Trust"), including the Independent Trustees, unanimously approved the
continuation of the Investment Management Agreement (the "Fund Agreement") with
First Trust Advisors L.P. (the "Advisor") on behalf of the First Trust
Morningstar Managed Futures Strategy Fund (the "Fund"). The Board approved the
continuation of the Agreement for a one-year period ending June 30, 2019 at a
meeting held on June 11, 2018. Because the Fund invests in commodity, equity and
currency futures contracts through a wholly-owned subsidiary of the Fund (the
"Subsidiary"), the Board, including the Independent Trustees, also approved the
continuation of an Investment Management Agreement (the "Subsidiary Agreement"
and together with the Fund Agreement, the "Agreements") with the Advisor for the
Subsidiary, also for a one-year period. The Board determined that the
continuation of the Agreements is in the best interests of the Fund in light of
the nature, extent and quality of the services provided and such other matters
as the Board considered to be relevant in the exercise of its 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. At meetings held on April 23, 2018 and June 11, 2018, the
Board, including the Independent Trustees, reviewed materials provided by the
Advisor responding to requests for information from counsel to the Independent
Trustees that, among other things, outlined the services provided by the Advisor
to the Fund and the Subsidiary (including the relevant personnel responsible for
these services and their experience); the unitary fee rate payable by the Fund
as compared to fees charged to a peer group of funds (which were either mutual
funds or exchange-traded funds ("ETFs")) compiled by Management Practice, Inc.
("MPI"), an independent source (the "Peer Group"), and as compared to fees
charged to other clients of the Advisor, including other ETFs managed by the
Advisor; expenses of the Fund as compared to expense ratios of the funds in the
Peer Group; performance information for the Fund; the nature of expenses
incurred in providing services to the Fund and the potential for economies of
scale, if any; financial data on the Advisor; any fall-out benefits to the
Advisor and its affiliate, First Trust Portfolios L.P. ("FTP"); and information
on the Advisor's compliance program. The Board reviewed initial materials with
the Advisor at the meeting held on April 23, 2018, prior to which the
Independent Trustees and their counsel met separately to discuss the information
provided by the Advisor. Following the April meeting, independent legal counsel
on behalf of the Independent Trustees requested certain clarifications and
supplements to the materials provided, and the information provided in response
to those requests was considered at an executive session of the Independent
Trustees and independent legal counsel held prior to the June 11, 2018 meeting,
as well as at the meeting held that day. The Board applied its business judgment
to determine whether the arrangements between the Trust and the Advisor and
between the Advisor and the Subsidiary continue to be reasonable business
arrangements from the Fund's perspective. The Board determined that, given the
totality of the information provided with respect to the Agreements, the Board
had received sufficient information to renew the Agreements. The Board
considered that shareholders chose to invest or remain invested in the Fund
knowing that the Advisor manages the Fund and knowing the Fund's unitary fee.
In reviewing the Agreements, the Board considered the nature, extent and quality
of the services provided by the Advisor under the Agreements. The Board
considered that the Advisor is responsible for the overall management and
administration of the Trust, the Fund and the Subsidiary, and reviewed all of
the services provided by the Advisor to the Fund and the Subsidiary, as well as
the background and experience of the persons responsible for such services. The
Board noted that the Fund is an actively-managed ETF and noted that the
Advisor's Alternatives Investment Team is responsible for the day-to-day
management of the Fund's and the Subsidiary's investments. The Board considered
the background and experience of the members of the Alternatives Investment Team
and noted the Board's prior meetings with members of the Team. The Board
considered the Advisor's statement that it applies the same oversight model
internally with its Alternatives Investment Team as it uses for overseeing
external sub-advisors, including portfolio risk monitoring and performance
review. In reviewing the services provided, the Board noted the compliance
program that had been developed by the Advisor and considered that it includes a
robust program for monitoring the Advisor's and the Fund's compliance with the
1940 Act, as well as the Fund's compliance with its investment objective,
policies and restrictions. The Board also considered a report from the Advisor
with respect to its risk management functions related to the operation of the
Fund. Finally, as part of the Board's consideration of the Advisor's services,
the Advisor, in its written materials and at the April 23, 2018 meeting,
described to the Board the scope of its ongoing investment in additional
infrastructure and personnel to maintain and improve the quality of services
provided to the Fund and the other funds in the First Trust Fund Complex. In
light of the information presented and the considerations made, the Board
concluded that the nature, extent and quality of the services provided to the
Trust, the Fund and the Subsidiary by the Advisor under the Agreements have been
and are expected to remain satisfactory and that the Advisor has managed the
Fund consistent with the Fund's investment objective, policies and restrictions.
Page 20
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MORNINGSTAR MANAGED FUTURES STRATEGY FUND (FMF)
JUNE 30, 2018 (UNAUDITED)
The Board considered the unitary fee rate payable by the Fund under the Fund
Agreement for the services provided. The Board considered that as part of the
unitary fee the Advisor is responsible for the Fund's expenses, including the
cost of transfer agency, custody, fund administration, legal, audit and other
services and license fees (if any), but excluding interest, taxes, brokerage
commissions and other expenses connected with the execution of portfolio
transactions, distribution and service fees pursuant to a Rule 12b-1 plan, if
any, and extraordinary expenses. The Board noted that the Advisor receives no
compensation under the Subsidiary Agreement and pays the expenses of the
Subsidiary. The Board received and reviewed information showing the unitary fee
rates and expense ratios of the peer funds in the Peer Group, as well as
advisory and unitary fee rates charged by the Advisor to other fund (including
ETFs) and non-fund clients, as applicable. Because the Fund's Peer Group
included peer funds that pay a unitary fee and because the Fund pays a unitary
fee, the Board determined that expense ratios were the most relevant comparative
data point. Based on the information provided, the Board noted that the unitary
fee for the Fund was at the median total (net) expense ratio of the peer funds
in the Peer Group. With respect to the Peer Group, the Board noted its prior
discussions with the Advisor and MPI regarding the assembly of the Peer Group
and, at the April 23, 2018 meeting, discussed with the Advisor limitations in
creating peer groups for actively-managed ETFs, including the limited number of
actively-managed ETFs following a managed futures strategy and that two of the
four peer funds were open-end mutual funds, and different business models that
may affect the pricing of services among ETF sponsors. The Board took these
limitations and differences into account in considering the peer data. With
respect to fees charged to other non-ETF clients, the Board considered
differences between the Fund and other non-ETF clients that limited their
comparability. In considering the unitary fee rate overall, the Board also
considered the Advisor's statement that it seeks to meet investor needs through
innovative and value-added investment solutions and the Advisor's description of
its long-term commitment to the Fund.
The Board considered performance information for the Fund. The Board noted the
process it has established for monitoring the Fund's performance and portfolio
risk on an ongoing basis, which includes quarterly performance reporting from
the Advisor for the Fund. The Board determined that this process continues to be
effective for reviewing the Fund's performance. The Board received and reviewed
information comparing the Fund's performance for periods ended December 31, 2017
to the performance of the peer funds in the Peer Group and to that of three
benchmark indexes. Based on the information provided, the Board noted that the
Fund outperformed the ICE BofAML 3-month U.S. Treasury Bill Index for the
one-year period ended December 31, 2017 but underperformed the Peer Group
average, the S&P 500 Index and the Morningstar Diversified Futures Index for the
one-and three-year periods ended December 31, 2017 and the ICE BofAML 3-month
U.S. Treasury Bill Index for the three-year period ended December 31, 2017. The
Board noted information provided by the Advisor on reasons for the Fund's
underperformance.
On the basis of all the information provided on the unitary fee and performance
of the Fund and the ongoing oversight by the Board, the Board concluded that the
unitary fee for the Fund continues to be reasonable and appropriate in light of
the nature, extent and quality of the services provided by the Advisor to the
Fund under the Agreements.
The Board considered information and discussed with the Advisor whether there
were any economies of scale in connection with providing advisory services to
the Fund and noted the Advisor's statement that it believes its expenses will
likely increase over the next twelve months as the Advisor continues to make
investments in infrastructure and personnel. The Board noted that any reduction
in fixed costs associated with the management of the Fund would benefit the
Advisor, but that the unitary fee structure provides a level of certainty in
expenses for the Fund. The Board considered the revenues and allocated costs
(including the allocation methodology) of the Advisor in serving as investment
advisor to the Fund for the twelve months ended December 31, 2017 and the
estimated profitability level for the Fund calculated by the Advisor based on
such data, as well as complex-wide and product-line profitability data for the
same period. The Board noted the inherent limitations in the profitability
analysis and concluded that, based on the information provided, the Advisor's
profitability level for the Fund was not unreasonable. In addition, the Board
considered fall-out benefits described by the Advisor that may be realized from
its relationship with the Fund. The Board considered that the Advisor had
identified as a fall-out benefit to the Advisor and FTP their exposure to
investors and brokers who, absent their exposure to the Fund, may have had no
dealings with the Advisor or FTP, and noted that the Advisor does not utilize
soft dollars in connection with its management of the Fund's portfolio. The
Board also considered the Advisor's compensation for fund reporting services
provided to the Fund pursuant to a separate Fund Reporting Services Agreement,
which is paid from the unitary fee. The Board concluded that the character and
amount of potential fall-out benefits to the Advisor were not unreasonable.
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, unanimously determined that the terms
of the Agreements continue to be fair and reasonable and that the continuation
of the Agreements is in the best interests of the Trust and the Fund. No single
factor was determinative in the Board's analysis.
Page 21
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FIRST TRUST
First Trust Exchange-Traded Fund V
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 E. 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]
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEMS 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. INVESTMENTS.
(a) Schedule of Investments in securities of unaffiliated issuers as of the
close of the reporting period is included as part of the report to
shareholders filed under Item 1 of this form.
(b) Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of directors, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)),
or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers, or
persons performing similar functions, have concluded that the registrant's
disclosure controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR
270.30a-3 (c))) are effective, as of a date within 90 days of the filing
date of the report that includes the disclosure required by this
paragraph, based on their evaluation of these controls and procedures
required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and
Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as
amended (17 CFR 240.13a-15(b) or 240.15d-15 (b)).
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR
270.30a-3(d)) that occurred during the registrant's last fiscal quarter of
the period covered by this report that have materially affected, or are
reasonably likely to materially affect, the registrant's internal control
over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section
302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not Applicable
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section
906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) First Trust Exchange-Traded Fund V
------------------------------------------------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, President and
Chief Executive Officer
(principal executive officer)
Date: September 5, 2018
-------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, President and
Chief Executive Officer
(principal executive officer)
Date: September 5, 2018
-------------------
By (Signature and Title)* /s/ Donald P. Swade
----------------------------------------
Donald P. Swade, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: September 5, 2018
-------------------
* Print the name and title of each signing officer under his or her signature.