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 811-22452
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First Trust Series Fund
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(Exact name of registrant as specified in charter)

120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Address of principal executive offices) (Zip code)

W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400

Wheaton, IL 60187
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(Name and address of agent for service)

Registrant's telephone number, including area code: (630) 765-8000
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Date of fiscal year end: October 31
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Date of reporting period: October 31, 2012
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 100 F Street, NE,
Washington, DC 20549. The OMB has reviewed this collection of information under
the clearance requirements of 44 U.S.C. ss. 3507.

ITEM 1. REPORTS TO STOCKHOLDERS.

The Report to Shareholders is attached herewith.

FIRST TRUST

First Trust Preferred
Securities and Income Fund

Annual Report
For the Year Ended October 31, 2012

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TABLE OF CONTENTS
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FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
ANNUAL REPORT
OCTOBER 31, 2012

Shareholder Letter........................................................... 1
At A Glance.................................................................. 2
Portfolio Commentary......................................................... 4
Understanding Your Fund Expenses............................................. 6
Portfolio of Investments..................................................... 7
Statement of Assets and Liabilities.......................................... 12
Statement of Operations...................................................... 13
Statements of Changes in Net Assets.......................................... 14
Financial Highlights......................................................... 15
Notes to Financial Statements................................................ 20
Report of Independent Registered Public Accounting Firm...................... 26
Additional Information....................................................... 27
Board of Trustees and Officers............................................... 30
Privacy Policy............................................................... 32

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and/or Stonebridge Advisors LLC ("Stonebridge" or the
"Sub-Advisor") and their respective representatives, taking into account the
information currently available to them. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For example,
forward-looking statements include the use of words such as "anticipate,"
"estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or
other words that convey uncertainty of future events or outcomes.

Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
First Trust Preferred Securities and Income Fund (the "Fund") to be materially
different from any future results, performance or achievements expressed or
implied by the forward-looking statements. When evaluating the information
included in this report, you are cautioned not to place undue reliance on these
forward-looking statements, which reflect the judgment of the Advisor and/or
Sub-Advisor and their respective representatives only as of the date hereof. We
undertake no obligation to publicly revise or update these forward-looking
statements to reflect events and circumstances that arise after the date hereof.

PERFORMANCE AND RISK DISCLOSURE

There is no assurance that the Fund will achieve its investment objective. The
Fund is subject to market risk, which is the possibility that the market values
of securities owned by the Fund will decline and that the value of Fund shares
may therefore be less than what you paid for them. Accordingly, you can lose
money by investing in the Fund. See "Risk Considerations" in the Notes to
Financial Statements for a discussion of certain other risks of investing in the
Fund.

Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
http://www.ftportfolios.com or speak with your financial advisor. Investment
returns and net asset value will fluctuate and Fund shares, when sold, may be
worth more or less than their original cost.

HOW TO READ THIS REPORT

This report contains information that may help you evaluate your investment. It
includes details about the Fund and presents data and analysis that provide
insight into the Fund's performance and investment approach.

By reading the portfolio commentary by the portfolio management team of the
Fund, you may obtain an understanding of how the market environment affected the
Fund's performance. The statistical information that follows may help you
understand the Fund's performance compared to that of relevant market
benchmarks.

It is important to keep in mind that the opinions expressed by personnel of
Stonebridge are just that: informed opinions. They should not be considered to
be promises or advice. The opinions, like the statistics, cover the period
through the date on the cover of this report. The risks of investing in the Fund
are spelled out in the prospectus, the statement of additional information, this
report and other Fund regulatory filings.

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SHAREHOLDER LETTER
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FIRST TRUST PREFERRED SECURITIES AND INCOME FUND ANNUAL
LETTER FROM THE CHAIRMAN AND CEO

OCTOBER 31, 2012

Dear Shareholders:

I am pleased to present you with the annual report for your investment in First
Trust Preferred Securities and Income Fund (the "Fund").

The report you hold contains detailed information about your investment; a
portfolio commentary from the Fund's management team that provides a recap of
the period; a performance analysis and a market and Fund outlook. Additionally,
you will find the Fund's financial statements for the period this report covers.
I encourage you to read this document and discuss it with your financial
advisor. A successful investor is also typically a knowledgeable one, as we have
found to be the case at First Trust.

First Trust remains committed to being a long-term investor and investment
manager and to bringing you quality financial solutions regardless of market ups
and downs. We have always believed, as I have written previously, that there are
two ways to attain success in reaching your financial goals: staying invested in
quality products and having a long-term investment horizon. We are committed to
this approach in the products we manage or supervise or offer to investors.

As you know, First Trust offers a variety of products that we believe could fit
many financial plans to help investors seeking long-term investment success. We
encourage you to talk to your advisor about the other investments First Trust
offers that might also fit your financial goals and to discuss those goals with
your advisor regularly so that he or she can help keep you on track.

First Trust will continue to make available up-to-date information about your
investments so you and your financial advisor are current on any First Trust
investments you own. We value our relationship with you, and thank you for the
opportunity to assist you in achieving your financial goals. I look forward to
the New Year and to the next edition of your Fund's report.

Sincerely,

/s/ James A. Bowen

James A. Bowen
Chairman of the Board of Trustees of First Trust Preferred Securities and Income
Fund and Chief Executive Officer of First Trust Advisors L.P.

Page 1

FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
"AT A GLANCE"
AS OF OCTOBER 31, 2012 (UNAUDITED)

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FUND STATISTICS
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FIRST TRUST PREFERRED NET ASSET
SECURITIES AND INCOME FUND VALUE (NAV)
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Class A (FPEAX) $22.42
Class C (FPECX) $22.45
Class F (FPEFX) $22.59
Class I (FPEIX) $22.47
Class R3 (FPERX) $22.41
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% OF TOTAL
TOP TEN HOLDINGS INVESTMENTS
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SCE Trust I 3.1%
Wachovia Capital Trust III 2.8
NextEra Energy Capital Holdings, Inc., Series H 2.2
Endurance Specialty Holdings Ltd., Series B 2.1
Senior Housing Properties Trust 2.1
Vornado Realty Trust, Series K 2.0
DTE Energy Co. 2.0
Bank of New York Mellon Corp. 2.0
JPMorgan Chase & Co., Series 0 1.9
State Street Corp., Series C 1.8
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Total 22.0%
=======

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% OF TOTAL
SECTOR ALLOCATION INVESTMENTS
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Financials 83.4%
Utilities 10.9
Telecommunication Services 3.2
Industrials 1.8
Energy 0.7
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Total 100.0%
=======

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% OF TOTAL
CREDIT QUALITY (1) INVESTMENTS
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AA- 1.2%
A+ 0.2
A 2.6
A- 8.8
BBB+ 19.9
BBB 32.5
BBB- 21.6
BB+ 8.7
BB 3.5
NR 1.0
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Total 100.0%
=======

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CLASS CLASS CLASS CLASS CLASS
DIVIDEND DISTRIBUTIONS A SHARES C SHARES F SHARES I SHARES R3 SHARES

Current Monthly Distribution per Share (2) $0.0929 $0.0789 $0.0947 $0.0975 $0.0882
Current Distribution Rate on NAV (3) 4.97% 4.22% 5.03% 5.21% 4.72%
----------------------------------------------------------------------------------------------------------------------

(1) The credit quality and ratings information presented above reflects the
ratings assigned by one or more nationally recognized statistical rating
organizations (NRSROs), including Standard & Poor's Ratings Group, a
division of the McGraw Hill Companies, Inc., Moody's Investors Service,
Inc., Fitch Ratings or a comparably rated NRSRO. For situations in which a
security is rated by more than one NRSRO and the ratings are not
equivalent, the highest ratings are used. See the prospectus or summary
prospectus for more complete descriptions of ratings and rating
organizations. Sub-investment grade ratings are those rated BB+/Ba1 or
lower. Investment grade ratings are those rated BBB-/Baa3 or higher.

(2) Most recent distribution paid or declared through 10/31/2012. Subject to
change in the future.

(3) Distribution rates are calculated by annualizing the most recent
distribution paid or declared through the report date and then dividing by
NAV as of 10/31/2012. Subject to change in the future.

Page 2

FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
"AT A GLANCE" (CONTINUED)
AS OF OCTOBER 31, 2012 (UNAUDITED)

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PERFORMANCE OF A $10,000 INVESTMENT
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This chart compares your Fund's Class I performance to that
of the Merrill Lynch Fixed Rate Preferred Stock Index from
1/11/2011 through 10/31/2012.

First Trust Preferred Securities Merrill Lynch Fixed Rate
and Income Fund - Class I Shares Preferred Stock Index ("POP1")
1/11/2011 $10,000 $10,000
4/30/2011 10,393 10,454
10/31/11 10,521 10,521
4/30/2012 11,475 11,155
10/31/2012 12,398 11,861

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PERFORMANCE AS OF OCTOBER 31, 2012
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A SHARES C SHARES F SHARES I SHARES R3 SHARES POP1*
Inception Inception Inception Inception Inception
2/25/2011 2/25/2011 3/2/2011 1/11/2011 3/2/2011
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W/MAX
1.00%
W/MAX CONTINGENT
W/O 4.50% W/O DEFERRED W/O W/O W/O W/O
CUMULATIVE SALES SALES SALES SALES SALES SALES SALES SALES
TOTAL RETURNS CHARGES CHARGE CHARGES CHARGE CHARGES CHARGES CHARGES CHARGES

1 Year 17.60% 12.30% 16.70% 15.70% 18.47% 17.84% 17.19% 12.60%
Since Inception 12.35% 9.32% 11.61% 11.61% 12.78% 12.64% 11.77% 9.84%

30-Day SEC Yield(1) 2.03% 1.37% 2.17% 2.38% 1.88% N/A
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* Since inception return is based on the Class I shares inception date.

Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that the shareholder would pay on Fund
distributions or the redemption of Fund shares. The total returns would have
been lower if certain fees had not been waived and expenses reimbursed by the
Advisor. An index is a statistical composite that tracks a specific financial
market or sector. Unlike the Fund, the index does not actually hold a portfolio
of securities and therefore does not incur the expenses incurred by the Fund.
These expenses negatively impact the performance of the Fund. The Fund's past
performance does not predict future performance.

Performance of share classes will vary due to differences in sales charges and
expenses. Total return with sales charges includes payment of the maximum sales
charge of 4.50% for Class A Shares, a contingent deferred sales charge ("CDSC")
of 1.00% for Class C Shares in year one and 12b-1 service fees of 0.25% per year
of average daily net assets for Class A Shares and combined Rule 12b-1
distribution and service fees of 1.00% per year of average daily net assets for
Class C Shares. Class F, Class I and Class R3 Shares do not have a front-end
sales charge or a CDSC; therefore, performance is at net asset value. The Rule
12b-1 service fees are 0.15% of average daily net assets for Class F Shares and
combined Rule 12b-1 distribution and service fees are 0.50% of average daily net
assets for Class R3 Shares, while Class I shares do not have these fees. Prior
to December 15, 2011, Class R3 Shares combined Rule 12b-1 distribution and
service fees were 0.75% of average daily net assets.

(1) 30-day SEC yield is calculated by dividing the net investment income per
share earned during the most recent 30-day period by the maximum offering
price per share on the last day of the period. The reported SEC yields are
subsidized. The subsidized yields reflect the fee waiver and/or a
reimbursement of Fund expenses, which has the effect of lowering the
Fund's expense ratio and generating a higher yield.

Page 3

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PORTFOLIO COMMENTARY
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FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
ANNUAL REPORT
OCTOBER 31, 2012

SUB-ADVISOR

STONEBRIDGE ADVISORS LLC
Stonebridge Advisors LLC ("Stonebridge" or the "Sub-Advisor") is the Sub-Advisor
to First Trust Preferred Securities and Income Fund (the "Fund") and is a
registered investment advisor based in Wilton, Connecticut. Stonebridge
specializes in the management of preferred and hybrid securities and North
American equity income securities.

PORTFOLIO MANAGEMENT TEAM

SCOTT T. FLEMING, PRESIDENT AND CIO OF STONEBRIDGE ADVISORS LLC
Prior to founding Stonebridge in 2004, Mr. Fleming co-founded Spectrum Asset
Management, Inc., an investment advisor that specializes in preferred securities
asset management for institutional clients and mutual funds. During his 13-year
tenure there, he served as Chairman of the Board of Directors, Chief Financial
Officer and Chief Investment Officer. Under his leadership, Spectrum grew to be
one of the largest preferred securities managers in the country.

As Chief Investment Officer at Spectrum, Mr. Fleming established and implemented
custom investment strategies for the firm's clients. In this capacity, he was
instrumental in growing assets under management to over $2 billion by
consistently outperforming stated benchmarks by solid margins. Mr. Fleming
previously served as Vice President and Portfolio Manager for DBL Preferred
Management, Inc. in New York City. There he managed over $300 million of
institutional assets with a strategy specializing in preferred securities. Mr.
Fleming received a BS in Accounting from Bentley College in Waltham, MA and his
MBA in Finance from Babson College in Wellesley, MA.

ALLEN SHEPARD, PHD, VICE PRESIDENT, SENIOR RISK ANALYST AND PORTFOLIO ANALYTICS
Dr. Shepard joined Stonebridge in 2004 and developed proprietary hedging models
for use in managing preferred and fixed-income securities. Prior to joining
Stonebridge, Dr. Shepard held positions as a Gibbs Instructor in the Mathematics
Department at Yale University and as an Assistant Professor of Mathematics at
Allegheny College.

Dr. Shepard brings a strong academic background to Stonebridge's analytical
team. He received a BA in Mathematics from Hampshire College in 1980 and a PhD
in Mathematics from Brown University in 1985, specializing in the field of
algebraic topology. His subsequent research has been in mathematical economics.
Dr. Shepard collaborated extensively with leading economists to create a new
mathematical framework for modeling the substitution effect in the Consumer
Price Index. In addition, Dr. Shepard partnered with economic colleagues to
develop models of modern manufacturing paradigms. In order to expand his
background in applied mathematical disciplines, Dr. Shepard returned to graduate
school during 1995-1997, first in the Economics Department at MIT and then in
the PhD program in Economics at Boston University.

ROBERT WOLF, VICE PRESIDENT, PORTFOLIO MANAGER AND SENIOR CREDIT ANALYST
Mr. Wolf brings 13 years of fixed-income experience to Stonebridge. His primary
focus is in analyzing both investment-grade and non investment-grade securities,
where he has developed a rigorous approach to credit and industry analysis.
Prior to joining Stonebridge, Mr. Wolf was a high yield fixed-income research
analyst at Lehman Brothers. In this role, his responsibilities included detailed
credit analysis across multiple sectors, relative value analysis, and developing
trade recommendations for Lehman's High-Yield proprietary trading effort.

Mr. Wolf previously worked for Lehman Brothers Commercial Mortgage-Backed
Securities (CMBS) trading desk as a credit analyst where he provided in-depth
analysis of CMBS transactions and the underlying Commercial Real Estate. Mr.
Wolf received his BS degree in Chemistry from Villanova University in 1999 and
his MBA in Finance from the New York University Stern School of Business in
2004.

DANIELLE SALTERS, CFA, CREDIT ANALYST
Ms. Salters has five years of investment management experience of which four
years have been focused on fixed income. Previous functions have included
fundamental credit research, relative value analysis and trading. Prior to
beginning at Stonebridge in February 2012, Ms. Salters was Portfolio Analyst at
a boutique asset manager where she focused on high-yield credit analysis and
portfolio analytics for a hedge fund and institutional client.

Previously, Ms. Salters was employed by UBS Financial Services, Inc., where she
worked in Taxable Fixed Income Sales and, later, served as the Fixed Income
Specialist to a Portfolio Manager. Ms. Salters received a B.A. in economics from
Duke University in 2007 and is a CFA Charterholder.

Page 4

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PORTFOLIO COMMENTARY
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COMMENTARY

MARKET RECAP
The Fund continues to benefit from a strong preferred and hybrid securities
market, active management and asset growth. The strong market was created by a
combination of investors recognizing the value in preferred and hybrid
securities yields, a low interest rate environment and net redemptions by
issuers of the preferred securities during the twelve-month period ending
October 31, 2012. We believe this heavy demand and reduced supply will continue
to create a favorable market environment.

Although the market did see a number of securities called during the period,
there were also an unusually high amount of new issues brought during the
period. Many of the new issues have been offered at yields that are attractive
relative to the secondary preferred securities market. This has led to an active
trading environment and helped to boost Fund outperformance of its benchmark.

Asset growth has also helped with performance because the Fund asset size is now
large enough to consider institutional securities for inclusion, thus increasing
the universe of securities and enhancing the ability to diversify the Fund's
portfolio.

PERFORMANCE ANALYSIS
During the year ended October 31, 2012, the Fund's total returns for the
different classes of shares were as follows: Class A +17.60%, Class C +16.70%,
Class F +18.47%, Class I +17.84% and Class R 17.19%. Issuers within the
financial services sector performed the best during the period as Capital
Markets (+24%), Diversified Financial Services (+23%), Insurance (+21%),
Commercial Banks (+20%) and REITs (+18%) led the way.

The Fund's overweight in Capital Markets, Insurance and REITs was instrumental
in helping to more than offset an underweight in both Commercial Banks and
Diversified Financial Services, allowing for a comfortable outperformance of the
Fund's benchmark, the Bank of America Merrill Lynch Fixed Rate Preferred Stock
Index or P0P1, which showed a total return during the period of 12.60%. In
addition to those overweights, the security selection within all 5 sectors
discussed above created better returns than those of the Fund's benchmark.

MARKET AND FUND OUTLOOK
Preferred securities continue to look attractive when compared to other
fixed-income securities as both higher yields and low correlations attract
investors to the market. The greatest immediate concerns are in the form of the
"fiscal cliff," as clouds of uncertainty may weigh on the overall markets while
political posturing creates volatility throughout most markets.

Other risks currently on our radar are the European sovereign debt crisis and
the risk of rising long-term interest rates. We have established a big
underweight in European Banks in particular, as the Fund's weighting is 9.6%
compared to the Fund's benchmark weighting of 22.3%. We are comfortable with our
current weighting but will monitor the news in Europe and not hesitate to act if
warranted.

The Federal Reserve Bank has indicated it will keep short-term rates tied to the
economy indefinitely, indicating an extended period of low rates on the short
end of the curve, however there is the risk that the long end of the curve could
rise as early as next year. If we experience upward movement on the long end of
the curve, the relative attractive spread of preferreds and hybrids to
treasuries may result in initial spread compression as the economy and credit
conditions improve. Nonetheless, when rising rates become a near-term concern,
we have a strategy in place to reduce the Fund's duration.

Page 5

FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
UNDERSTANDING YOUR FUND EXPENSES
OCTOBER 31, 2012 (UNAUDITED)

As a shareholder of the First Trust Preferred Securities and Income Fund, you
incur two types of costs: (1) transaction costs, including sales charges (loads)
on purchases of Class A Shares and contingent deferred sales charges on the
lesser of purchase price or redemption proceeds of Class C Shares; and (2)
ongoing costs, including management fees; distribution and/or service (12b-1)
fees; and other Fund expenses. This Example is intended to help you understand
your ongoing costs (in U.S. dollars) of investing in the Fund and to compare
these costs with the ongoing costs of investing in other mutual 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 October 31, 2012.

ACTUAL EXPENSES

The first three columns of the table below provide information about actual
account values and actual expenses. You may use the information in these
columns, 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 third column under the heading entitled "Expenses
Paid During Period" to estimate the expenses you paid on your account during the
period.

HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES

The next three columns of the table below provide 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 cost 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 sales
charges (loads) or contingent deferred sales charges. Therefore, the
hypothetical section of 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.

---------------------------------------------------------------------------------------------------------------------
HYPOTHETICAL
ACTUAL EXPENSES (5% RETURN BEFORE EXPENSES)
--------------------------------------------- ------------------------------------------
ENDING EXPENSES PAID BEGINNING ENDING EXPENSES PAID
BEGINNING ACCOUNT DURING PERIOD ACCOUNT ACCOUNT DURING PERIOD ANNUALIZED
ACCOUNT VALUE VALUE 5/01/2012- VALUE VALUE 5/01/2012 EXPENSE
5/01/2012 10/31/2012 10/31/2012 (a) 5/01/2012 10/31/2012 10/31/1012 (a) RATIOS (b)
--------------------------------------------------------------------------------------------------------

Class A $ 1,000.00 $ 1,080.30 $ 7.32 $ 1,000.00 $ 1,018.10 $ 7.10 1.40%
Class C 1,000.00 1,075.70 11.22 1,000.00 1,014.33 10.89 2.15
Class F 1,000.00 1,080.20 6.80 1,000.00 1,018.60 6.60 1.30
Class I 1,000.00 1,080.40 6.01 1,000.00 1,019.36 5.84 1.15
Class R3 1,000.00 1,077.00 8.61 1,000.00 1,016.84 8.36 1.65
---------------------------------------------------------------------------------------------------------------------

(a) Expenses are equal to the annualized expense ratios, multiplied by the
average account value over the period (May 1, 2012 through October 31,
2012), multiplied by 184/366 (to reflect the six-month period).

(b) These expense ratios reflect expense caps.

Page 6

FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2012

STATED STATED
SHARES DESCRIPTION RATE MATURITY VALUE
---------------- ---------------------------------------------- ---------- ------------ --------------
$25 PAR PREFERRED SECURITIES - 80.8%

CAPITAL MARKETS - 12.6%
30,500 Affiliated Managers Group, Inc. .............. 6.38% 08/15/42 $ 781,715
65,967 Apollo Investment Corp. ...................... 6.63% 10/15/42 1,651,240
15,624 Ares Capital Corp. ........................... 7.75% 10/15/40 421,223
128,167 Bank of New York Mellon Corp. ................ 5.20% (a) 3,224,682
43,147 Charles Schwab Corp., Series B ............... 6.00% (a) 1,137,786
81,000 Deutsche Bank Capital Funding Trust VIII ..... 6.38% (a) 2,012,850
66,810 Goldman Sachs Group, Inc. .................... 5.95% (a) 1,673,591
28,238 Goldman Sachs Group, Inc. .................... 6.13% 11/01/60 747,178
17,700 Goldman Sachs Group, Inc. .................... 6.50% 11/01/61 480,378
104,341 Morgan Stanley Capital Trust III ............. 6.25% 03/01/33 2,604,351
80,787 Morgan Stanley, Series A (b).................. 4.00% (a) 1,618,164
59,462 Raymond James Financial, Inc. ................ 6.90% 03/15/42 1,661,368
115,946 State Street Corp., Series C ................. 5.25% (a) 2,994,885
14,784 Stifel Financial Corp. ....................... 6.70% 01/15/22 395,176
--------------
21,404,587
--------------
COMMERCIAL BANKS - 9.4%
50,000 Banco Santander S.A., Series 6 (b)............ 4.00% (a) 852,000
98,253 Barclays Bank PLC, Series 2 .................. 6.63% (a) 2,474,993
84,000 BB&T Corp., Series E ......................... 5.63% (a) 2,146,200
36,311 First Republic Bank, Series A ................ 6.70% (a) 986,933
59,188 First Republic Bank, Series B ................ 6.20% (a) 1,533,561
36,000 HSBC USA, Inc., Series F (b).................. 3.50% (a) 803,520
20,000 Lloyds Banking Group PLC ..................... 7.75% 07/15/50 554,600
60,000 PNC Financial Services Group, Inc., Series P
(c) 6.13% (a) 1,680,000
64,685 PNC Financial Services Group, Inc., Series Q . 5.38% (a) 1,626,181
60,000 Regions Financial Corp., Series A ............ 6.38% (a) 1,491,000
19,134 Santander Finance Preferred SA, Series 10..... 10.50% (a) 521,402
21,075 US Bancorp, Series F (c)...................... 6.50% (a) 623,188
11,600 US Bancorp, Series G (c)...................... 6.00% (a) 332,920
15,000 Wells Fargo & Co. ............................ 5.20% (a) 383,850
--------------
16,010,348
--------------
CONSUMER FINANCE - 2.2%
67,000 Capital One Financial Corp., Series B ........ 6.00% (a) 1,682,370
50,000 Discover Financial Services, Series B ........ 6.50% (a) 1,272,500
31,096 HSBC Finance Corp., Series B ................. 6.36% (a) 785,796
--------------
3,740,666
--------------
DIVERSIFIED FINANCIAL SERVICES - 8.0%
67,000 Allied Capital Corp. ......................... 6.88% 04/15/47 1,675,000
34,493 Bank of America Corp., Series 5 (b)........... 4.00% (a) 761,261
31,100 Citigroup Capital IX ......................... 6.00% 02/14/33 780,921
60,000 Citigroup Capital XV ......................... 6.50% 09/15/66 1,513,200
65,193 Countrywide Capital V ........................ 7.00% 11/01/36 1,634,388
66,000 ING Groep N.V. ............................... 6.38% (a) 1,616,340
6,200 ING Groep N.V. ............................... 7.20% (a) 156,426
7,741 ING Groep N.V. ............................... 7.38% (a) 195,305

See Notes to Financial Statements Page 7

FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
OCTOBER 31, 2012

STATED STATED
SHARES DESCRIPTION RATE MATURITY VALUE
---------------- ---------------------------------------------- ---------- ------------ --------------
$25 PAR PREFERRED SECURITIES - (CONTINUED)

DIVERSIFIED FINANCIAL SERVICES - (CONTINUED)
124,600 JPMorgan Chase & Co., Series 0 ............... 5.50% (a) $ 3,127,460
75,057 KKR Financial Holdings LLC ................... 8.38% 11/15/41 2,176,653
--------------
13,636,954
--------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.8%
48,105 Qwest Corp. .................................. 7.50% 09/15/51 1,319,039
65,000 Qwest Corp. .................................. 7.00% 07/01/52 1,715,350
--------------
3,034,389
--------------
ELECTRIC UTILITIES - 6.7%
97,000 Entergy Louisiana LLC ........................ 5.25% 07/01/52 2,577,290
7,583 NextEra Energy Capital Holdings, Inc.,
Series G 5.70% 03/01/72 201,632
134,200 NextEra Energy Capital Holdings, Inc.,
Series H 5.63% 06/15/72 3,554,958
193,000 SCE Trust I .................................. 5.63% (a) 5,041,160
--------------
11,375,040
--------------
INSURANCE - 17.6%
98,000 AEGON N.V. ................................... 6.50% (a) 2,457,840
33,000 AEGON N.V., Series 1 (b)...................... 4.00% (a) 790,350
63,750 Aflac, Inc. .................................. 5.50% 09/15/52 1,630,725
10,385 Allianz SE ................................... 8.38% (a) 269,037
60,914 American Financial Group, Inc. ............... 6.38% 06/12/42 1,598,383
74,000 American International Group, Inc., Series A4
(c) 6.45% 06/15/77 1,863,320
78,209 Arch Capital Group Ltd., Series C ............ 6.75% (a) 2,106,168
27,000 Aspen Insurance Holdings Ltd. ................ 7.25% (a) 723,600
25,945 Aspen Insurance Holdings Ltd. (c)............. 7.40% (a) 689,359
42,092 Assured Guaranty Municipal Holdings, Inc. .... 6.25% 11/01/2102 1,057,351
25,220 Assured Guaranty Municipal Holdings, Inc. .... 5.60% 07/15/2103 625,456
72,500 Aviva PLC .................................... 8.25% 12/01/41 2,024,200
57,400 Axis Capital Holdings Ltd., Series C ......... 6.88% (a) 1,541,190
124,180 Endurance Specialty Holdings Ltd., Series B .. 7.50% (a) 3,397,565
82,000 MetLife, Inc., Series A (b)................... 4.00% (a) 2,059,840
21,789 PartnerRe Ltd., Series E ..................... 7.25% (a) 607,042
42,292 Protective Life Corp. ........................ 6.25% 05/15/42 1,102,975
62,780 Protective Life Corp. ........................ 6.00% 09/01/42 1,620,980
31,000 RenaissanceRe Holdings Ltd., Series C ........ 6.08% (a) 782,440
115,374 Torchmark Corp. .............................. 5.88% 12/15/52 2,993,955
--------------
29,941,776
--------------
MACHINERY - 1.1%
72,800 Stanley Black & Decker, Inc. ................. 5.75% 07/25/52 1,925,560
--------------
MULTI-UTILITIES - 2.9%
55,000 DTE Energy Co. ............................... 6.50% 12/01/61 1,566,400
127,100 DTE Energy Co. ............................... 5.25% 12/01/62 3,238,508
6,575 SCANA Corp. .................................. 7.70% 01/30/65 179,826
--------------
4,984,734
--------------

Page 8 See Notes to Financial Statements

FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
OCTOBER 31, 2012

STATED STATED
SHARES DESCRIPTION RATE MATURITY VALUE
---------------- --------------------------------------------- ---------- ------------ --------------
$25 PAR PREFERRED SECURITIES - (CONTINUED)

REAL ESTATE INVESTMENT TRUSTS - 17.2%
82,000 CommonWealth REIT ............................ 5.75% 08/01/42 $ 2,014,740
49,944 CommonWealth REIT, Series E .................. 7.25% (a) 1,315,026
23,193 Digital Realty Trust, Inc., Series E ......... 7.00% (a) 637,807
46,834 Digital Realty Trust, Inc., Series F ......... 6.63% (a) 1,242,038
26,500 Health Care REIT, Inc., Series J ............. 6.50% (a) 721,595
50,988 Hospitality Properties Trust, Series D ....... 7.13% (a) 1,391,463
35,000 Kimco Realty Corp., Series I ................. 6.00% (a) 900,900
84,000 Kimco Realty Corp., Series J ................. 5.50% (a) 2,093,280
68,440 National Retail Properties, Inc., Series D ... 6.63% (a) 1,793,812
106,298 PS Business Parks, Inc., Series T ............ 6.00% (a) 2,753,118
64,000 PS Business Parks, Inc., Series U ............ 5.75% (a) 1,600,640
40,227 Public Storage, Series U ..................... 5.63% (a) 1,049,522
96,324 Public Storage, Series V ..................... 5.38% (a) 2,460,115
41,000 Regency Centers Corp., Series 6 .............. 6.63% (a) 1,107,000
136,705 Senior Housing Properties Trust .............. 5.63% 08/01/42 3,358,842
60,400 Taubman Centers, Inc., Series J .............. 6.50% (a) 1,558,320
130,000 Vornado Realty Trust, Series K ............... 5.70% (a) 3,309,800
2,466 Weingarten Realty Investors, Series D ........ 6.75% (a) 62,562
--------------
29,370,580
--------------
WIRELESS TELECOMMUNICATION SERVICES - 1.3%
37,434 Telephone & Data Systems, Inc. ............... 6.88% 11/15/59 1,038,794
44,442 US Cellular Corp. ............................ 6.95% 05/15/60 1,235,932
--------------
2,274,726
--------------
TOTAL $25 PAR PREFERRED SECURITIES ........................................ 137,699,360
(Cost $133,196,820) --------------

$100 PAR PREFERRED SECURITIES - 0.4%

COMMERCIAL BANKS - 0.2%
2,500 CoBank ACB (c) (d)............................ 6.25% (a) 264,531
--------------
ELECTRIC UTILITIES - 0.2%
4,000 Southern California Edison Co. (c)............ 4.32% (a) 402,375
--------------
TOTAL $100 PAR PREFERRED SECURITIES ....................................... 666,906
(Cost $646,751) --------------

PRINCIPAL STATED STATED
VALUE DESCRIPTION RATE MATURITY VALUE
---------------- ---------------------------------------------- ---------- ------------ --------------
CAPITAL PREFERRED SECURITIES - 14.4%

CAPITAL MARKETS - 2.1%
$ 1,500,000 Charles Schwab Corp. (c)...................... 7.00% (a) 1,719,645
2,350,000 Goldman Sachs Capital II (c).................. 4.00% 06/01/43 1,857,440
--------------
3,577,085
--------------

See Notes to Financial Statements Page 9

FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
OCTOBER 31, 2012

COMMERCIAL BANKS - 6.0%
$ 1,000,000 Banco Santander S.A., Series 11 (c)........... 10.50% (a) $ 1,050,000
350,000 National Capital Trust II (c) (d)............. 5.49% (a) 353,668
2,380,000 Northgroup Preferred Capital Corp. (c) (d).... 6.38% (a) 2,454,780
2,000 US Bancorp, Series A (b)...................... 3.50% (a) 1,779,500
4,561,000 Wachovia Capital Trust III (c)................ 5.57% (a) 4,526,792
--------------
10,164,740
--------------
DIVERSIFIED FINANCIAL SERVICES - 1.4%
500,000 Citigroup, Inc. (c)........................... 5.95% (a) 515,313
1,750,000 General Electric Capital Corp., Series B (c).. 6.25% (a) 1,907,552
--------------
2,422,865
--------------
ELECTRIC UTILITIES - 0.6%
1,000,000 PECO Energy Capital Trust IV ................. 5.75% 06/15/33 958,725
--------------
INDUSTRIAL CONGLOMERATES - 0.6%
1,000,000 Hutchison Whampoa International 12 Ltd. (c) (d) 6.00% (a) 1,042,500
--------------
INSURANCE - 2.8%
1,000,000 Allstate Corp. (c)............................ 6.50% 05/15/57 1,075,000
1,000,000 Assured Guaranty Municipal Holdings, Inc.
(c) (d) 6.40% 12/15/66 770,000
500,000 MetLife, Inc. ................................ 6.40% 12/15/36 543,513
1,000,000 QBE Capital Funding III Ltd. (c) (d).......... 7.25% 05/24/41 1,045,000
1,403,000 Reinsurance Group of America, Inc. (c)........ 6.75% 12/15/65 1,419,484
--------------
4,852,997
--------------
OIL, GAS & CONSUMABLE FUELS - 0.6%
1,000,000 BG Energy Capital PLC (c)..................... 6.50% 11/30/72 1,089,400
--------------
THRIFTS & MORTGAGE FINANCE - 0.3%
500,000 Abbey National Capital Trust I (c)............ 8.96% (a) 551,250
--------------
TOTAL CAPITAL PREFERRED SECURITIES ........................................ 24,659,562
--------------
(Cost $23,579,210)

TOTAL INVESTMENTS - 95.6% ................................................. 163,025,828
(Cost $157,422,781) (e)
NET OTHER ASSETS AND LIABILITIES - 4.4% ................................... 7,431,021
--------------
NET ASSETS - 100.0% ....................................................... $ 170,456,849
--------------

(a) Perpetual maturity.

(b) Floating rate security. The interest rate shown reflects the rate in
effect at October 31, 2012.

(c) Fixed-to-floating rate security. The interest rate shown reflects the
fixed rate in effect at October 31, 2012. At a predetermined date, the
fixed rate will change to a floating rate.

(d) This security, sold within the terms of a private placement memorandum, is
exempt from registration upon resale under Rule 144A under the Securities
Act of 1933, as amended, and may be resold in transactions exempt from
registration, normally to qualified institutional buyers. Pursuant to
procedures adopted by the Fund's Board of Trustees, this security has been
determined to be liquid by Stonebridge Advisors LLC, the Fund's
sub-advisor. Although market instability can result in periods of
increased overall market illiquidity, liquidity for each security is
determined based on security specific factors and assumptions, which
require subjective judgment. At October 31, 2012, securities noted as such
amounted to $5,930,479 or 3.48% of net assets.

(e) Aggregate cost for federal income tax purposes is $157,463,019. As of
October 31, 2012, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$5,579,350 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$16,541.

Page 10 See Notes to Financial Statements

FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
OCTOBER 31, 2012

-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of October 31,
2012 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):

LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
10/31/2012 PRICES INPUTS INPUTS
------------ ------------ ----------- ------------
$25 Par Preferred Securities*................. $137,699,360 $137,699,360 $ -- $ --
$100 Par Preferred Securities*................ 666,906 402,375 264,531 --
Capital Preferred Securities*................. 24,659,562 1,779,500 22,880,062 --
------------ ------------ ----------- ------------
Total Investments............................. $163,025,828 $139,881,235 $23,144,593 $ --
============ ============ =========== ============

* See the Portfolio of Investments for industry breakout.

All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at October 31, 2012.

See Notes to Financial Statements Page 11

FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2012

ASSETS:

Investments, at value
(Cost $157,422,781)......................................................................... $163,025,828
Cash........................................................................................... 7,560,630
Prepaid expenses............................................................................... 25,605
Receivables:
Investment securities sold.................................................................. 802,973
Fund shares sold............................................................................ 771,050
Interest.................................................................................... 349,102
Dividends................................................................................... 323,959
Other assets................................................................................... 3,749
------------
Total Assets................................................................................ 172,862,896
------------

LIABILITIES:
Payables:
Investment securities purchased............................................................. 1,917,529
Distributions payable....................................................................... 205,239
Investment advisory fees.................................................................... 58,314
12b-1 distribution and service fees......................................................... 46,901
Shares repurchased.......................................................................... 45,099
Transfer agent fees......................................................................... 40,995
Audit and tax fees.......................................................................... 33,912
Registration fees........................................................................... 21,784
Custodian fees.............................................................................. 9,854
Printing fees............................................................................... 9,241
Administrative fees......................................................................... 7,621
Legal fees.................................................................................. 4,977
Trustees' fees and expenses................................................................. 3,027
Financial reporting fees.................................................................... 1,541
Listing fees................................................................................ 13
------------
Total Liabilities........................................................................ 2,406,047
------------
NET ASSETS..................................................................................... $170,456,849
============

NET ASSETS CONSIST OF:
Paid-in capital................................................................................ $164,129,317
Par value ($0.01 per share with an unlimited number of shares authorized)...................... 75,954
Accumulated net investment income (loss)....................................................... (220,798)
Accumulated net realized gain (loss) on investments............................................ 869,329
Net unrealized appreciation (depreciation) on investments...................................... 5,603,047
------------
NET ASSETS..................................................................................... $170,456,849
============
MAXIMUM OFFERING PRICE PER SHARE:
CLASS A SHARES:
Net asset value and redemption price per share (Based on net assets of $83,716,625 and
3,734,669 shares of beneficial interest issued and outstanding).......................... $ 22.42
Maximum sales charge (4.50% of offering price).............................................. 1.06
------------
Maximum offering price to public............................................................ $ 23.48
============
CLASS C SHARES:
Net asset value and redemption price per share (Based on net assets of $36,681,023 and
1,633,852 shares of beneficial interest issued and outstanding).......................... $ 22.45
============
CLASS F SHARES:
Net asset value and redemption price per share (Based on net assets of $4,012,157 and
177,604 shares of beneficial interest issued and outstanding)............................ $ 22.59
============
CLASS I SHARES:
Net asset value and redemption price per share (Based on net assets of $45,431,637 and
2,021,819 shares of beneficial interest issued and outstanding).......................... $ 22.47
============
Class R3 Shares:
Net asset value and redemption price per share (Based on net assets of $615,407 and
27,465 shares of beneficial interest issued and outstanding)............................. $ 22.41
============

Page 12 See Notes to Financial Statements

FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2012

INVESTMENT INCOME:

Dividends...................................................................................... $ 3,099,801
Interest....................................................................................... 358,037
------------
Total investment income..................................................................... 3,457,838
------------

EXPENSES:
Investment advisory fees....................................................................... 503,757
Transfer agent fees............................................................................ 258,327
12b-1 distribution and/or service fees:
Class A..................................................................................... 90,487
Class C..................................................................................... 143,433
Class F..................................................................................... 1,808
Class R3.................................................................................... 1,337
Registration fees.............................................................................. 81,849
Administrative fees............................................................................ 51,638
Audit and tax fees............................................................................. 33,600
Printing fees.................................................................................. 31,513
Custodian fees................................................................................. 24,215
Legal fees..................................................................................... 23,941
Trustees' fees and expenses.................................................................... 18,768
Financial reporting fees....................................................................... 9,266
Listing expense................................................................................ 2,468
Other.......................................................................................... 5,215
------------
Total expenses.............................................................................. 1,281,622
Less fees waived or expenses reimbursed by the investment advisor........................... (320,165)
------------
Net expenses................................................................................... 961,457
------------
NET INVESTMENT INCOME (LOSS)................................................................... 2,496,381
------------

NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments..................................................... 1,352,953
Net change in unrealized appreciation (depreciation) on investments......................... 5,556,277
------------
NET REALIZED AND UNREALIZED GAIN (LOSS)........................................................ 6,909,230
------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................... $ 9,405,611
============

See Notes to Financial Statements Page 13

FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS

YEAR PERIOD
ENDED ENDED
10/31/2012 10/31/2011 (a)
------------ --------------

OPERATIONS:
Net investment income (loss)....................................................... $ 2,496,381 $ 140,776
Net realized gain (loss)........................................................... 1,352,953 (38,431)
Net change in unrealized appreciation (depreciation)............................... 5,556,277 46,770
------------ ------------
Net increase (decrease) in net assets resulting from operations.................... 9,405,611 149,115
------------ ------------

DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A Shares..................................................................... (1,855,501) (100,162)
Class C Shares..................................................................... (627,182) (50,477)
Class F Shares..................................................................... (62,233) (38)
Class I Shares..................................................................... (576,586) (16,198)
Class R3 Shares.................................................................... (12,915) (34)
------------ ------------
(3,134,417) (166,909)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAIN:
Class A Shares..................................................................... (1,206) --
Class C Shares..................................................................... (531) --
Class F Shares..................................................................... (19) --
Class I Shares..................................................................... (66) --
Class R3 Shares.................................................................... (0) (b) --
------------ ------------
(1,822) --
------------ ------------
Total distributions to shareholders................................................ (3,136,239) (166,909)
------------ ------------

CAPITAL TRANSACTIONS:
Proceeds from shares sold ......................................................... 162,840,845 10,658,436
Proceeds from shares reinvested.................................................... 2,192,407 69,466
Cost of shares redeemed............................................................ (10,938,691) (617,192)
------------ ------------
Net increase (decrease) in net assets resulting from capital transactions.......... 154,094,561 10,110,710
------------ ------------
Total increase (decrease) in net assets............................................ 160,363,933 10,092,916

NET ASSETS:
Beginning of period................................................................ 10,092,916 --
------------ ------------
End of period...................................................................... $170,456,849 $ 10,092,916
------------ ------------
Accumulated net investment income (loss) at end of period.......................... $ (220,798) $ (27,081)
============ ============

-----------------------

(a) The Fund was seeded on December 16, 2010 and commenced operations on
January 11, 2011.

(b) Amount is less than $1.

Page 14 See Notes to Financial Statements

FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

YEAR PERIOD
ENDED ENDED
CLASS A SHARES 10/31/2012 10/31/2011 (a)
-------------- --------------

Net asset value, beginning of period ...... $ 20.10 $ 20.26
-------------- --------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .............. 0.89 (b) 0.79
Net realized and unrealized gain (loss) ... 2.55 (0.11)
-------------- --------------
Total from investment operations .......... 3.44 0.68
-------------- --------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income ..................... (1.12) (0.84)
Net realized gain ......................... (0.00) (c) --
Return of capital ......................... -- --
-------------- --------------
Total distributions ....................... (1.12) (0.84)
-------------- --------------
Net asset value, end of period ............ $ 22.42 $ 20.10
============== ==============
TOTAL RETURN (d) .......................... 17.60% 3.45%

RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ...... $ 83,717 $ 6,932
Ratio of total expenses to average net
assets ................................. 1.83% 6.68% (e)
Ratio of net expenses to average net
assets ................................. 1.40% 1.40% (e)
Ratio of net investment income (loss) to
average net assets ..................... 4.13% 4.68% (e)
Portfolio turnover rate.................... 60% 88%

(a) Class A Shares commenced operations on February 25, 2011.
(b) Based on average shares outstanding.
(c) Amount is less tan $0.01.
(d) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge of 4.50% or contingent
deferred sales charge (CDSC). On purchases of $1 million or more, a CDSC
of 1% may be imposed on certain redemptions made within twelve months of
purchase. If the sales charges were included, total returns would be
lower. These returns include Rule 12b-1 service fees of 0.25% and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares. The total returns would
have been lower if certain fees had not been waived and expenses
reimbursed by the investment advisor. Total return is calculated for the
time period presented and is not annualized for periods less than one
year.
(e) Annualized.

See Notes to Financial Statements Page 15

FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

YEAR PERIOD
ENDED ENDED
CLASS C SHARES 10/31/2012 10/31/2011 (a)
-------------- --------------

Net asset value, beginning of period ...... $ 20.13 $ 20.26
-------------- --------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .............. 0.73 (b) 0.69
Net realized and unrealized gain (loss) ... 2.55 (0.08)
-------------- --------------
Total from investment operations .......... 3.28 0.61
-------------- --------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income ..................... (0.96) (0.74)
Net realized gain ......................... (0.00) (c) --
Return of capital ......................... -- --
-------------- --------------
Total distributions ....................... (0.96) (0.74)
-------------- --------------
Net asset value, end of period ............ $ 22.45 $ 20.13
============== ==============
TOTAL RETURN (d) .......................... 16.70% 3.08%

RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ...... $ 36,681 $ 2,720
Ratio of total expenses to average net
assets ................................. 2.66% 8.03% (e)
Ratio of net expenses to average net
assets ................................. 2.15% 2.15% (e)
Ratio of net investment income (loss) to
average net assets ..................... 3.36% 4.10% (e)
Portfolio turnover rate ................... 60% 88%

(a) Class C Shares commenced operations on February 25, 2011.
(b) Based on average shares outstanding.
(c) Amount is less than $0.01.
(d) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum CDSC of 1%, charged on certain redemptions
made within one year of purchase. If the sales charge was included, total
return would be lower. These returns include combined Rule 12b-1
distribution and service fees of 1% and do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption
of Fund shares. The total returns would have been lower if certain fees had
not been waived and expenses reimbursed by the investment advisor. Total
return is calculated for the time period presented and is not annualized
for periods less than one year.
(e) Annualized.

Page 16 See Notes to Financial Statements

FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

YEAR PERIOD
ENDED ENDED
CLASS F SHARES 10/31/2012 10/31/2011 (a)
-------------- --------------

Net asset value, beginning of period ...... $ 20.12 $ 20.25
-------------- --------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) ........... 0.89 (b) 0.70
Net realized and unrealized gain (loss) ... 2.72 (0.07)
-------------- --------------
Total from investment operations .......... 3.61 0.63
-------------- --------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income ..................... (1.14) (0.76)
Net realized gain ......................... (0.00) (c) --
Return of capital ......................... -- --
-------------- --------------
Total distributions ....................... (1.14) (0.76)
-------------- --------------
Net asset value, end of period ............ $ 22.59 $ 20.12
============== ==============
TOTAL RETURN (d) .......................... 18.47% 3.17%

RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ...... $ 4,012 $ 1
Ratio of total expenses to average net
assets ................................. 3.71% 233.60% (e)
Ratio of net expenses to average net
assets ................................. 1.30% 1.30% (e)
Ratio of net investment income (loss) to
average net assets ..................... 4.09% 5.21% (e)
Portfolio turnover rate ................... 60% 88%

(a) Class F Shares were initially seeded and commenced operations on March 2,
2011.
(b) Based on average shares outstanding.
(c) Amount is less than $0.01.
(d) Assumes reinvestment of all distributions for the period. These returns
include Rule 12b-1 service fees of 0.15% and do not reflect the deduction
of taxes that a shareholder would pay on Fund distributions or the
redemption of Fund shares. The total returns would have been lower if
certain fees had not been waived and expenses reimbursed by the investment
advisor. Total return is calculated for the time period presented and is
not annualized for periods less than one year.
(e) Annualized.

See Notes to Financial Statements Page 17

FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

YEAR PERIOD
ENDED ENDED
CLASS I SHARES 10/31/2012 10/31/2011 (a)
-------------- --------------

Net asset value, beginning of period ...... $ 20.15 $ 20.00
-------------- --------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .............. 0.92 (b) 0.82
Net realized and unrealized gain (loss) ... 2.57 0.21
-------------- --------------
Total from investment operations .......... 3.49 1.03
-------------- --------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income ..................... (1.17) (0.88)
Net realized gain ......................... (0.00) (c) --
Return of capital ......................... -- --
-------------- --------------
Total distributions ....................... (1.17) (0.88)
-------------- --------------
Net asset value, end of period ............ $ 22.47 $ 20.15
============== ==============
TOTAL RETURN (d) ....................... 17.84% 5.21%

RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ...... $ 45,432 $ 439
Ratio of total expenses to average net
assets ................................. 1.46% 22.09% (e)
Ratio of net expenses to average net
assets ................................. 1.15% 1.15% (e)
Ratio of net investment income (loss) to
average net assets ..................... 4.20% 5.12% (e)
Portfolio turnover rate ................... 60% 88%

(a) Class I Shares were initially seeded on December 16, 2010 and commenced
operations on January 11, 2011.
(b) Based on average shares outstanding.
(c) Amount is less than $0.01.
(d) Assumes reinvestment of all distributions for the period. These returns do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares. The total returns would
have been lower if certain fees had not been waived and expenses
reimbursed by the investment advisor. Total return is calculated for the
time period presented and is not annualized for periods less than one
year.
(e) Annualized.

Page 18 See Notes to Financial Statements

FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

YEAR PERIOD
ENDED ENDED
CLASS R3 SHARES 10/31/2012 10/31/2011 (a)
-------------- --------------

Net asset value, beginning of period ...... $ 20.11 $ 20.25
-------------- --------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .............. 0.80 (b) 0.61
Net realized and unrealized gain (loss) ... 2.56 (0.07)
-------------- --------------
Total from investment operations .......... 3.36 0.54
-------------- --------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income ..................... (1.06) (0.68)
Net realized gain ......................... (0.00) (c) --
Return of capital ......................... -- --
-------------- --------------
Total distributions ....................... (1.06) (0.68)
-------------- --------------
Net asset value, end of period ............ $ 22.41 $ 20.11
============== ==============
TOTAL RETURN (d) .......................... 17.19% 2.74%

RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ...... $ 615 $ 1
Ratio of total expenses to average net
assets ................................. 11.51% 301.79% (e)
Ratio of net expenses to average net
assets ................................. 1.65% 1.90% (e)
Ratio of net investment income (loss) to
average net assets ..................... 3.66% 4.62% (e)
Portfolio turnover rate ................... 60% 88%

(a) Class R3 Shares were initially seeded and commenced operations on March 2,
2011.
(b) Based on average shares outstanding.
(c) Amount is less than $0.01.
(d) Assumes reinvestment of all distributions for the period. These returns
include combined Rule 12b-1 distribution and service fees of 0.50%
effective December 15, 2011, and 0.75 prior to December 15, 2011, and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares. The total returns would
have been lower if certain fees had not been waived and expenses
reimbursed by the investment advisor. Total return is calculated for the
time period presented and is not annualized for periods less than one
year.
(e) Annualized.

See Notes to Financial Statements Page 19

--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
OCTOBER 31, 2012

1. FUND DESCRIPTION

First Trust Preferred Securities and Income Fund (the "Fund") is a series of
First Trust Series Fund (the "Trust"), a Massachusetts business trust, organized
on July 9, 2010, and is registered as a non-diversified, open-end management
investment company with the Securities and Exchange Commission ("SEC") under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Fund offers
five classes of shares: Class A, Class C, Class F, Class I and Class R3. Each
class represents an interest in the same portfolio of investments but with a
different combination of sales charges, distribution and service (12b-1) fees,
eligibility requirements and other features.

The Fund's investment objective is to seek to provide current income and total
return. The Fund seeks to achieve its objective by investing, under normal
market conditions, at least 80% of its net assets (including investment
borrowings, if any) in preferred securities and other securities with similar
economic characteristics. There can be no assurance that the Fund will achieve
its investment objective. The Fund may not be appropriate for all investors.

2. SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America ("U.S. GAAP") requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.

A. PORTFOLIO VALUATION:

The net asset value ("NAV") for each class of shares of the Fund is determined
daily as of the close of trading on the New York Stock Exchange ("NYSE"),
normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. If
the NYSE closes early on a valuation day, the NAV is determined as of that time.
Domestic debt securities and foreign securities are priced using data reflecting
the earlier closing at the principal markets for those securities. The NAV for
each class is calculated by dividing the value of the Fund's total assets
attributable to such class (including accrued interest and dividends), less all
liabilities attributable to such class (including accrued expenses, dividends
declared but unpaid and any borrowings of the Fund), by the total number of
shares of the class outstanding. Differences in NAV of each class of the Fund's
shares are generally expected to be due to the daily expense accruals of the
specified distribution and service (12b-1) fees and transfer agency costs
applicable to such class of shares and the resulting differential in the
dividends that may be paid on each class of shares.

The Fund's investments are valued daily in accordance with valuation procedures
adopted by the Trust's Board of Trustees, and in accordance with provisions of
the 1940 Act. The Fund's securities will be valued as follows:

Preferred stocks and other equity securities listed on any national or
foreign exchange (excluding the NASDAQ(R) National Market LLC ("NASDAQ")
and the London Stock Exchange Alternative Investment Market ("AIM")), are
valued at the last sale price on the exchange on which they are
principally traded or, for NASDAQ and AIM securities, the official closing
price. Securities traded on one or more than one securities exchange are
valued at the last sales price or official closing price, as applicable,
at the close of the securities exchange representing the principal market
for such securities.

Bonds, notes and other debt securities are valued on the basis of
valuations provided by dealers who make markets in such securities or by
an independent pricing service approved by the Trust's Board of Trustees,
which may use the following valuation inputs when available:

1) benchmark yields;
2) reported trades;
3) broker/dealer quotes;
4) issuer spreads;
5) benchmark securities;
6) bids and offers; and
7) reference data including market research publications.

Securities traded in the over-the-counter market are valued at their
closing bid prices.

Short-term investments that mature in less than 60 days when purchased are
valued at amortized cost.

Page 20

--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------

FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
OCTOBER 31, 2012

affect the Fund's NAV, First Trust will use a fair value method to value the
Fund's securities. The use of fair value pricing is governed by valuation
procedures adopted by the Trust's Board of Trustees, and in accordance with the
provisions of the 1940 Act. As a general principle, the fair value of a security
is the amount which the Fund might reasonably expect to receive for the security
upon its current sale. In light of the judgment involved in fair valuations,
there can be no assurance that a fair value assigned to a particular security
will be the amount which the Fund might be able to receive upon its current
sale. Fair valuation of a security will be based on the consideration of all
available information, including, but not limited to, the following:

1) the type of security;
2) the size of the holding;
3) the initial cost of the security;
4) transactions in comparable securities;
5) price quotes from dealers and/or pricing services;
6) relationships among various securities;
7) information obtained by contacting the issuer, analysts, or the
appropriate stock exchange;
8) an analysis of the issuer's financial statements; and
9) the existence of merger proposals or tender offers that might
affect the value of the security.

If the securities in question are foreign securities, the following additional
information may be considered:

1) the value of similar foreign securities traded on other foreign
markets;
2) ADR trading of similar securities;
3) closed-end fund trading of similar securities;
4) foreign currency exchange activity;
5) the trading prices of financial products that are tied to baskets
of foreign securities;
6) factors relating to the event that precipitated the pricing
problem;
7) whether the event is likely to recur; and 8) whether the effects
of the event are isolated or whether they affect entire markets,
countries or regions.

The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:

o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.

o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:

o Quoted prices for similar investments in active markets.

o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.

o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).

o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.

o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.

The inputs or methodology used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of October 31, 2012, is
included with the Fund's Portfolio of Investments.

B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME:

Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income, if any, is
recorded daily on the accrual basis, including the amortization of premiums and
accretion of discounts. Income is allocated on a pro rata basis to each class of
shares.

Page 21

FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
OCTOBER 31, 2012

The Fund may hold the securities of real estate investment trusts ("REITs").
Distributions from such investments may include income, capital gains and return
of capital. The actual character of amounts received during the year is not
known until after the REITs' fiscal year end. The Fund records the character of
distributions received from the REITs during the year based on estimates
available. The characterization of distributions received by the Fund may be
subsequently revised based on information received from the REITs after their
tax reporting periods conclude.

C. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:

The Fund will declare daily and pay monthly distributions of all or a portion of
its net income to holders of each class of shares. Distributions of any net
capital gains earned by the Fund will be distributed at least annually.
Distributions will automatically be reinvested into additional Fund shares
unless cash distributions are elected by the shareholder.

Distributions from net investment income and realized capital gains are
determined in accordance with income tax regulations, which may differ from U.S.
GAAP. Certain capital accounts in the 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.
Permanent differences incurred during the year ended October 31, 2012, resulting
in book and tax accounting differences, have been reclassified at year end to
reflect an increase in accumulated net investment income (loss) of $444,319 and
a decrease in accumulated net realized gain (loss) on investments of $444,319.
Net assets were not affected by these reclassifications.

The tax character of distributions paid during the fiscal periods ended October
31, 2012 and 2011 was as follows:

2012 2011
Distributions paid from:
Ordinary income ............................. $ 3,136,239 $ 166,909
Capital gain................................. -- --
Return of capital............................ -- --

As of October 31, 2012, the distributable earnings and net assets on a tax basis
were as follows:

Undistributed ordinary income................ $ 790,754
Undistributed capital gains.................. 103,254
------------
Total undistributed earnings................. 894,008
Accumulated capital and other losses......... --
Net unrealized appreciation (depreciation)... 5,562,809
------------
Total accumulated earnings (losses).......... 6,456,817
Other........................................ (205,239)
Paid-in capital.............................. 164,205,271
------------
Net assets................................... $170,456,849
============

D. 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, which includes distributing substantially all of its net
investment income and net realized gains to shareholders. Accordingly, no
provision has been made for federal or state income taxes. However, due to the
timing and amount of distributions, the Fund may be subject to an excise tax of
4% of the amount by which approximately 98% of the Fund's taxable income exceeds
the distributions from such taxable income for the calendar year.

The Fund intends to utilize provisions of the federal income tax laws, which
allow it to carry a realized capital loss forward indefinitely following the
year of the loss and offset such loss against any future realized capital gains.
The Fund is subject to certain limitations under U.S. tax rules on the use of
capital loss carryforwards and net unrealized built-in losses. These limitations
apply when there has been a 50% change in ownership. At October 31, 2012, the
Fund had no non-expiring capital loss carryforwards for federal income tax
purposes.

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 2012 and 2011
remain open to federal and state audit. As of October 31, 2012, management has
evaluated the application of these standards to the Fund, and has determined
that no provision for income tax is required in the Fund's financial statements
for uncertain tax positions.

E. EXPENSES:

The Fund pays all expenses directly related to its operations. Expenses of the
Fund are allocated on a pro rata basis to each class of shares, except for
distribution and service fees and incremental transfer agency costs which are
unique to each class of shares.

Page 22

FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
OCTOBER 31, 2012

F. ACCOUNTING PRONOUNCEMENT:

In May 2011, the Financial Accounting Standards Board ("FASB") issued ASU
2011-04, "Amendments to Achieve Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and IFRSs," modifying Topic 820, "Fair Value
Measurements and Disclosures." At the same time, the International Accounting
Standards Board ("IASB") issued International Financial Reporting Standard
("IFRS") 13, "Fair Value Measurement." The objective of the FASB and IASB is
convergence of their guidance on fair value measurements and disclosures.
Specifically, the ASU requires reporting entities to disclose (i) the amounts of
any transfers between Level 1 and Level 2, and the reasons for the transfers,
(ii) for Level 3 fair value measurements, quantitative information about
significant unobservable inputs used, (iii) a description of the valuation
processes used by the reporting entity, and (iv) a narrative description of the
sensitivity of the fair value measurement to changes in unobservable inputs if a
change in those inputs might result in a significantly higher or lower fair
value measurement. The effective date of the ASU is for interim and annual
periods beginning after December 15, 2011. Management is currently evaluating
the impact of the updated standard on the Fund's financial statements, if any.

3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS

First Trust, the investment advisor to the Fund, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the ongoing monitoring of the Fund's investment
portfolio, managing the Fund's business affairs and providing certain
administrative services necessary for the management of the Fund. For these
services, First Trust is entitled to a monthly fee calculated at an annual rate
of 0.80% of the Fund's 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.

Stonebridge Advisors LLC ("Stonebridge" or the "Sub-Advisor"), an affiliate of
First Trust, serves as the Fund's sub-advisor and manages the Fund's portfolio
subject to First Trust's supervision. The Sub-Advisor receives a monthly
portfolio management fee calculated at an annual rate of 0.40% of average daily
net assets that is paid by First Trust out of its investment advisory fee.

First Trust and Stonebridge have agreed to waive fees and/or pay Fund expenses
to the extent necessary to prevent the annual operating expenses of the Fund
(excluding 12b-1 distribution and service fees, interest expenses, taxes, fees
incurred in acquiring and disposing of portfolio securities and extraordinary
expenses) from exceeding 1.15% of average daily net assets of any class of
Shares of the Fund (the "Expense Cap") until February 28, 2013 and then will not
exceed 1.50% from March 1, 2013 to February 28, 2022 (the "Expense Cap
Termination Date"). Expenses borne and fees waived by First Trust and
Stonebridge are subject to recovery by First Trust and Stonebridge up to three
years from the date the fee or expense was incurred, but no reimbursement
payment will be made by the Fund at any time if it would result in the Fund's
expenses exceeding its Expense Cap in place at the time the expense was borne or
the fee was waived by First Trust and Stonebridge. These amounts would be
included in "Expenses previously waived or reimbursed" on the Statement of
Operations. The advisory fee waivers and expense reimbursement for the year
ended October 31, 2012 and the expenses borne by First Trust and Stonebridge
subject to recovery for the periods indicated were as follows:

EXPENSES SUBJECT TO RECOVERY
--------------------------------------------------------------

ADVISORY FEE EXPENSE PERIOD ENDED YEAR ENDED
WAIVER REIMBURSEMENTS OCTOBER 31, 2011 OCTOBER 31, 2012 TOTAL
------------------ ------------------ ------------------ ------------------ ------------------
$ 320,165 $ -- $ 219,802 $ 320,165 $ 539,967

Brown Brothers Harriman & Co. serves as the Fund's custodian, administrator, and
fund accountant in accordance with certain fee arrangements.

BNY Mellon Investment Servicing (US) Inc. serves as the Fund's Transfer Agent in
accordance with certain fee arrangements.

Effective January 23, 2012, James A. Bowen resigned from his position as the
President and Chief Executive Officer of the Trust. He continues as a Trustee,
the Chairman of the Board of Trustees and a member of the Executive Committee.
The Board elected Mark R. Bradley to serve as the President and Chief Executive
Officer of the Trust and James M. Dykas to serve as the Treasurer, Chief
Financial Officer and Chief Accounting Officer of the Trust.

Effective January 1, 2012, each Trustee who is not an officer or employee of
First Trust, any sub-advisor or any of their affiliates ("Independent Trustees")
is paid a fixed annual retainer of $125,000 per year and an annual per fund fee
of $4,000 for each closed-end fund or other actively managed fund and $1,000 for
each index fund in the First Trust Fund Complex. The fixed annual retainer is
allocated pro rata among each fund in the First Trust Fund Complex based on net
assets. Prior to January 1, 2012, each Independent Trustee received an annual
retainer of $10,000 per trust for the first 14 trusts of the First Trust Fund
Complex and an annual retainer of $7,500 per trust for each additional trust in
the First Trust Fund Complex. The annual retainer was allocated equally among
each of the trusts.

Page 23

FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
OCTOBER 31, 2012

Additionally, the Lead Independent Trustee is paid $15,000 annually, the
Chairman of the Audit Committee is paid $10,000 annually, and each of the
Chairmen of the Nominating and Governance Committee and the Valuation Committee
is paid $5,000 annually to serve in such capacities, with such compensation
allocated pro rata among each fund in the First Trust Fund Complex based on net
assets. Prior to January 1, 2012, the annual amounts paid were $10,000, $5,000
and $2,500, respectively. Trustees are reimbursed for travel and out-of-pocket
expenses in connection with all meetings. The Lead Independent Trustee and each
Committee Chairman will serve two-year terms until December 31, 2013 before
rotating to serve as Chairman of another Committee or as Lead Independent
Trustee. After December 31, 2013, the Lead Independent Trustee and Committee
Chairman will rotate every three years. The officers and "Interested" Trustee
receive no compensation from the funds for acting in such capacities.

4. CAPITAL SHARE TRANSACTIONS

Capital transactions were as follows:

YEAR ENDED PERIOD ENDED
OCTOBER 31, 2012 OCTOBER 31, 2011

SHARES VALUE SHARES VALUE
--------------------------- ---------------------------

Sales:
Class A 3,662,445 $ 78,869,660 374,024 $ 7,520,110
Class C 1,508,203 32,727,231 133,744 2,701,780
Class F 187,052 4,091,877 49 1,000
Class I 2,114,019 46,568,361 21,557 434,546
Class R3 27,416 583,716 49 1,000
--------------------------- ---------------------------
Total Sales: 7,499,135 $ 162,840,845 529,423 $ 10,658,436
=========================== ===========================

Dividend Reinvestment:
Class A 57,516 $ 1,249,277 1,544 $ 31,039
Class C 20,318 441,847 1,696 34,222
Class F 1,325 29,423 -- --
Class I 21,260 471,860 208 4,205
Class R3 -- -- -- --
--------------------------- ---------------------------
Total Dividend Reinvestment: 100,419 $ 2,192,407 3,448 $ 69,466
=========================== ===========================

Redemptions:
Class A (330,167) $ (7,059,899) (30,693) $ (611,476)
Class C (29,817) (649,623) (292) (5,716)
Class F (10,822) (236,497) -- --
Class I (135,225) (2,992,672) -- --
Class R3 -- -- -- --
--------------------------- ---------------------------
Total Redemptions: (506,031) $ (10,938,691) (30,985) $ (617,192)
=========================== ===========================

5. PURCHASES AND SALES OF SECURITIES

Cost of purchases and proceeds from sales of securities, other than short-term
investments, for the year ended October 31, 2012, were $183,988,687 and
$37,553,137, respectively.

6. DISTRIBUTION AND SERVICE 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 share
classes of the Fund are authorized to pay an amount up to 0.25%, 1.00%, 0.15%
and 0.50% of their average daily net assets each year for Class A, Class C,
Class F and Class R3, respectively, to reimburse and compensate 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 Fund shares or
the provision of investor services. Prior to December 15, 2011, the total
distribution and service (12b-1) fees for Class R3 Shares were 0.75% of the
average daily net assets of the Class R3 Shares. FTP may also use this amount to
compensate securities dealers or other persons for providing distribution
assistance, including broker-dealer and shareholder support and educational and
promotional services.

7. INDEMNIFICATION

The Fund has a variety of indemnification obligations under contracts with its
service providers. The Fund's maximum exposure under these arrangements is
unknown. However, the Fund has not had prior claims or losses pursuant to these
contracts and expects the risk of loss to be remote.

Page 24

FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
OCTOBER 31, 2012

8. RISK CONSIDERATIONS

Risks are inherent in all investing. The following summarizes some of the risks
that should be considered for the Fund. For additional information about the
risks associated with investing in the Fund, please see the Fund's prospectus
and statement of additional information, as well as other Fund regulatory
filings.

MARKET RISK: Market risk is the risk that a particular security owned by the
Fund or shares of the Fund in general may fall in value. Shares are subject to
market fluctuations caused by such factors as economic, political, regulatory or
market developments, changes in interest rates and perceived trends in stock
prices. Overall stock values could decline generally or could underperform other
investments. Companies with smaller market capitalizations are generally subject
to additional market risk.

ECONOMIC CONDITIONS RISK: Adverse changes in economic conditions are more likely
to lead to a weakened capacity of a high-yield issuer to make principal payments
and interest payments than an investment grade issuer. An economic downturn
could severely affect the ability of highly leveraged issuers to service their
debt obligations or to repay their obligations upon maturity. Under adverse
market or economic conditions, the secondary market for high-yield securities
could contract further, independent of any specific adverse changes in the
condition of a particular issuer and these securities may become illiquid. As a
result, the Sub-Advisor could find it more difficult to sell these securities or
may be able to sell the securities only at prices lower than if such securities
were widely traded.

INTEREST RATE RISK: If interest rates rise, the prices of fixed-rate preferred
securities and other fixed-rate debt securities held by the Fund will fall.

PREFERRED SECURITIES RISK: Preferred securities combine some of the
characteristics of both common stocks and bonds. Preferred securities are
typically subordinated to bonds and other debt instruments in a company's
capital structure, in terms of priority to corporate income, and therefore will
be subject to greater credit risk than those debt instruments.

FINANCIAL SERVICE SECTOR RISK: The Fund's assets are primarily invested in
securities issued by companies in the financial services sector, which includes
banks and thrifts, financial services and insurance companies and investment
firms. Financial companies are especially subject to the adverse effects of
economic recession; currency exchange rates; government regulation; decreases in
the availability of capital; volatile interest rates; portfolio concentrations
in geographic markets and in commercial and residential real estate loans; and
competition from new entrants in their fields of business.

REIT RISK: Investing in REITs involves risks related to their structure and
focus, which include, but are not limited to, dependency upon management skills,
limited diversification, the risks of locating and managing financing for
projects, heavy cash flow dependency, possible default by borrowers, the costs
and potential losses of self-liquidation of one or more holdings, the risk of a
possible lack of mortgage funds and associated interest rate risks,
overbuilding, property vacancies, increases in property taxes and operating
expenses, changes in zoning laws, losses due to environmental damages, changes
in neighborhood values and appeal to purchases, the possibility of failing to
maintain exemptions from registration under the 1940 Act and, in many cases,
relatively small market capitalization, which may result in less market
liquidity and greater price volatility.

NON U.S. SECURITIES RISK: The Fund may invest in securities of non U.S. issuers.
Such 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.

9. SUBSEQUENT EVENTS

Management has evaluated the impact of all subsequent events to the Fund through
the date the financial statements were issued and has determined that there was
the following subsequent event:

On December 20, 2012, the Fund declared a distribution of short-term capital
gains of $0.0885 per share and long-term capital gain of $0.0116 per share to
holders of each class of shares on record on December 21, 2012, payable December
21, 2012.

Page 25

--------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------

TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FIRST TRUST PREFERRED SECURITIES
AND INCOME FUND:

We have audited the accompanying statements of assets and liabilities of First
Trust Preferred Securities and Income Fund (the "Fund"), a series of the First
Trust Series Fund (the "Trust"), including the portfolio of investments, as of
October 31, 2012, and the related statement of operations for the year then
ended and the statements of changes in net assets and the financial highlights
for each of the periods presented. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
The Trust is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Trust's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of October 31, 2012 by correspondence with the Fund's
custodian and brokers; where replies were not received, we performed other
auditing procedures. We believe that our audits provide a reasonable basis for
our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of First
Trust Preferred Securities and Income Fund as of October 31, 2012, the results
of its operations for the year then ended, and the changes in its net assets and
the financial highlights for the each of the periods presented, in conformity
with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

Chicago, Illinois
December 24, 2012

Page 26

--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------

FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
OCTOBER 31, 2012

PROXY VOTING POLICIES AND PROCEDURES

A description of the policies and procedures that the Fund uses to determine how
to vote proxies and information on how the Fund voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Fund's website located at http://www.ftportfolios.com; and (3) on the
Securities and Exchange Commission's website at http://www.sec.gov.

PORTFOLIO HOLDINGS

The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q
are available (1) by calling (800) 988-5891; (2) on the Fund's website located
at http://www.ftportfolios.com; (3) on the SEC's website at http://www.sec.gov;
and (4) for review and copying at the SEC's Public Reference Room ("PRR") in
Washington, DC. Information regarding the operation of the PRR may be obtained
by calling (800) SEC-0330.

TAX INFORMATION

The Fund hereby designates as qualified dividend income 19.64% of its ordinary
income distributions (including short-term capital gains, if applicable) for the
period ended October 31, 2012. 17.53% of the ordinary income (including
short-term capital gain, if applicable) distributions made by the Fund during
the period ended October 31, 2012, qualify for corporate dividends received
deduction available to corporate shareholders.

ADVISORY AND SUB-ADVISORY AGREEMENTS

BOARD CONSIDERATIONS REGARDING APPROVAL OF CONTINUATION OF INVESTMENT MANAGEMENT
AGREEMENT AND SUB-ADVISORY AGREEMENT

The Board of Trustees of the First Trust Series Fund (the "Trust"), including
the Independent Trustees, approved the continuation of the Investment Management
Agreement (the "Advisory Agreement") between the Trust, on behalf of the First
Trust Preferred Securities and Income Fund (the "Fund"), and First Trust
Advisors L.P. (the "Advisor" or "First Trust") and the Investment Sub-Advisory
Agreement (the "Sub-Advisory Agreement" and together with the Advisory
Agreement, the "Agreements") among the Trust, on behalf of the Fund, the Advisor
and Stonebridge Advisors LLC (the "Sub-Advisor"), at a meeting held on June
10-11, 2012. The Board determined that the continuation of the Agreements is in
the best interests of the Fund in light of the services, expenses and such other
matters as the Board considered to be relevant in the exercise of its reasonable
business judgment.

To reach this determination, the Board considered its duties under the
Investment Company Act of 1940, as amended (the "1940 Act"), as well as under
the general principles of state law in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
on such agreements. To assist the Board in its evaluation of the Agreements, the
Independent Trustees received a separate report from each of the Advisor and the
Sub-Advisor in advance of the Board meeting responding to a request for
information from counsel to the Independent Trustees. The reports, among other
things, outlined the services provided by the Advisor and the Sub-Advisor
(including the relevant personnel responsible for these services and their
experience); the advisory and sub-advisory fees for the Fund as compared to fees
charged to other clients of the Advisor and the Sub-Advisor and as compared to
fees charged by investment advisors and sub-advisors to comparable funds;
expenses of the Fund as compared to expense ratios of comparable funds; 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 and the
Sub-Advisor; any fall-out benefits to the Advisor and the Sub-Advisor; and
information on the Advisor's and the Sub-Advisor's compliance programs.
Following receipt of this information, counsel to the Independent Trustees posed
follow-up questions, and the Independent Trustees and their counsel then met
separately to discuss the information provided by the Advisor and the
Sub-Advisor, including the supplemental responses. The Board applied its
business judgment to determine whether the arrangements between the Trust and
the Advisor and among the Trust, the Advisor and the Sub-Advisor are reasonable
business arrangements from the Fund's perspective as well as from the
perspective of shareholders. The Board considered that shareholders chose to
invest or remain invested in the Fund knowing that the Advisor and the
Sub-Advisor manage the Fund. The Board considered that the Fund launched in
January 2011.

In reviewing the Agreements, the Board considered the nature, extent and quality
of services provided by the Advisor and the Sub-Advisor under the Agreements.
The Board considered the Advisor's statements regarding the incremental benefits
associated with the Fund's advisor/sub-advisor management structure. With
respect to the Advisory Agreement, the Board considered that the Advisor is
responsible for the overall management and administration of the Fund and
reviewed the services provided by the Advisor to the Fund, including the
oversight of the Sub-Advisor. The Board noted the compliance program that had
been developed by the Advisor and considered that it includes a robust program
for monitoring the Sub-Advisor's compliance with the 1940 Act and the Fund's
investment objective and policies. With respect to the Sub-Advisory Agreement,
the Board received a presentation from a representative of the Sub-Advisor
discussing the services that the Sub-Advisor provides to the Fund and how the
Sub-Advisor manages the Fund's investments. In light of the

Page 27

--------------------------------------------------------------------------------
ADDITIONAL INFORMATION - (CONTINUED)
--------------------------------------------------------------------------------

FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
OCTOBER 31, 2012

information presented and the considerations made, the Board concluded that the
nature, extent and quality of services provided to the Fund by the Advisor and
the Sub-Advisor under the Agreements have been and are expected to remain
satisfactory and that the Sub-Advisor, under the oversight of the Advisor, has
managed the Fund consistent with its investment objective and policies.

The Board considered the advisory and sub-advisory fees paid under the
Agreements. The Board considered the advisory fees charged by the Advisor to
similar funds and other non-fund clients, noting that the Advisor does not
provide advisory services to other funds with investment objectives and policies
similar to the Fund's, but does provide services to certain separately managed
accounts with investment objectives and policies similar to the Fund's. The
Board noted that the Advisor charges a lower advisory fee rate to the separately
managed accounts, as well as the Advisor's statement that the nature of the
services provided to the separately managed accounts is not comparable to those
provided to the Fund. The Board considered the sub-advisory fee and how it
relates to the Fund's overall advisory fee structure and noted that the
sub-advisory fee is paid by the Advisor from its advisory fee. The Board also
considered information provided by the Sub-Advisor as to the fees it charges to
other similar clients, noting that the sub-advisory fee rate is equal to or
slightly higher than the fee rates charged by the Sub-Advisor to other similar
clients, but that the other clients do not invest in institutional securities,
which requires that additional resources be allocated to the Fund by the
Sub-Advisor. In addition, the Board received data prepared by Lipper Inc.
("Lipper"), an independent source, showing the advisory fees and expense ratios
of the Fund as compared to the advisory fees and expense ratios of a peer group
selected by Lipper. The Board also received advisory fee and expense ratio data
for a peer group of funds compiled by Morningstar Associates, LLC
("Morningstar"), an independent source. The Board noted that the Lipper and
Morningstar peer groups included only two overlapping peer funds. The Board
discussed with representatives of the Advisor the limitations in creating a
relevant peer group for the Fund, including that (i) many of the peer funds are
larger than the Fund, which causes the Fund's fixed expenses to be higher on a
percentage basis as compared to the larger peer funds and (ii) most peer funds
do not employ an advisor/sub-advisor management structure. The Board took these
limitations into account in considering the peer data. In reviewing the peer
data, the Board noted that the Fund's contractual advisory fee was above the
median of both the Lipper and Morningstar peer groups. The Board considered that
the Advisor and Sub-Advisor agreed to waive fees and/or pay Fund expenses
through June 30, 2013 to the extent necessary to prevent the annual operating
expenses of the Fund (excluding interest, taxes, brokerage commissions and other
expenses connected with the execution of portfolio transactions, service fees
and distribution fees pursuant to the Rule 12b-1 plan, if any, and extraordinary
expenses) from exceeding 1.15% of a class' average daily net assets. The Board
noted that expenses borne or fees waived by the Advisor and Sub-Advisor are
subject to reimbursement by the Fund for up to three years from the date the fee
was waived or expense was incurred, but no reimbursement payment would be made
by the Fund if it would result in the Fund exceeding an expense ratio equal to
the expense cap in place at the time the expenses were borne or fees were waived
by the Advisor and Sub-Advisor.

The Board also considered performance information for the Fund, noting that the
performance information included the Fund's quarterly performance report, which
is part of the process that the Board has established for monitoring the Fund's
performance and portfolio risk on an ongoing basis. The Board determined that
this process continues to be effective for reviewing the Fund's performance. In
addition to the Board's ongoing review of performance, the Board also received
data prepared by Lipper comparing the Fund's performance for the one-year and
since inception periods ended March 31, 2012 to the Lipper peer group, as well
as to a larger Lipper peer universe and to a benchmark. The Morningstar
information provided to the Board also included a comparison of the Fund's
performance to the performance of the Morningstar peer group, as well as the
performance of the Fund's Morningstar category. In reviewing the Fund's
performance as compared to the performance of the Lipper peer group, Lipper peer
universe, Morningstar peer group and Morningstar category, the Board took into
account the limitations described above with respect to creating a relevant peer
group for the Fund. Based on the information presented, the Board noted that the
Fund's performance was above the median of its Lipper peer group, Lipper peer
universe, Morningstar peer group and Morningstar category for the one-year
period ended March 31, 2012, and that the Fund was the best performing fund in
the Lipper peer group and Lipper peer universe over that same period.

On the basis of all the information provided on the fees, expenses and
performance of the Fund, the Board concluded that the advisory and sub-advisory
fees were reasonable and appropriate in light of the nature, extent and quality
of services provided by the Advisor and Sub-Advisor under the Agreements.

The Board noted that the Advisor has continued to invest in personnel and
infrastructure and considered whether fee levels reflect any economies of scale
for the benefit of shareholders. The Board noted the Advisor's statement that
economies of scale in providing services to the Fund are not available at
current asset levels. The Board also considered the costs of the services
provided and profits realized by the Advisor from serving as investment advisor
to the Fund for the period from the Fund's inception in January 2011 through
December 31, 2011, as set forth in the materials provided to the Board. The
Board noted the inherent limitations in the profitability analysis, and
considered that the Advisor estimated that it provided services to the Fund at a
loss in 2011. In addition, the Board considered fall-out benefits described by
the Advisor that may be realized from its relationship with the Fund. The Board
noted that in addition to the advisory fees paid by the Fund, First Trust's
affiliate, First Trust Portfolios L.P., is compensated for services provided to
the Fund through 12b-1 fees and that First Trust also is compensated for
providing fund reporting services to the Fund. The Board considered First Trust
Portfolios' ownership interest in the Sub-Advisor and potential fall-out
benefits to the Advisor from such ownership interest.

The Board considered the Sub-Advisor's estimated costs in providing services to
the Fund. The Board noted that the sub-advisory fee rate was negotiated at arm's
length between the Advisor and the Sub-Advisor. The Board also reviewed
information provided by the Sub-Advisor as to the profitability of the
Sub-Advisory Agreement to the Sub-Advisor. The Board noted the inherent
limitations in the profitability analysis and concluded that the profitability
analysis for the Advisor was more relevant, but noted that the Sub-Advisor

Page 28

--------------------------------------------------------------------------------
ADDITIONAL INFORMATION - (CONTINUED)
--------------------------------------------------------------------------------

FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
OCTOBER 31, 2012

estimated that it managed the Fund at a loss in 2011. The Board considered the
fall-out benefits realized by Sub-Advisor from its relationship with the Fund,
including potential fall-out benefits to the Sub-Advisor from the ownership
interest of First Trust Portfolios in the Sub-Advisor. The Board noted that the
Sub-Advisor does not maintain any soft-dollar arrangements.

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 Fund. No single factor was
determinative in the Board's analysis.

Page 29

--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------

FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
OCTOBER 31, 2012 (UNAUDITED)

The Trust's statement of additional information includes additional information
about the Trustees and is available, without charge, upon request, by calling
(800) 988-5891.

NUMBER OF
PORTFOLIOS IN
TERM OF OFFICE THE FIRST TRUST OTHER
NAME, ADDRESS, AND YEAR FIRST FUND COMPLEX TRUSTEESHIPS OR
DATE OF BIRTH AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DIRECTORSHIPS
POSITION WITH THE TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE

------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------

Richard E. Erickson, Trustee o Indefinite Term Physician; President, Wheaton Orthopedics; 96 None
c/o First Trust Advisors L.P. Co-Owner and Co-Director (January 1996
120 East Liberty Drive, o Since Trust to May 2007), Sports Med Center for
Suite 400 Inception Fitness; Limited Partner, Gundersen Real
Wheaton, IL 60187 Estate Limited Partnership; Member,
D.O.B.: 04/51 Sportsmed LLC

Thomas R. Kadlec, Trustee o Indefinite Term President (March 2010 to Present), Senior 96 Director of ADM
c/o First Trust Advisors L.P. Vice President and Chief Financial Officer Investor Services,
120 East Liberty Drive, o Since Trust (May 2007 to March 2010), Vice President Inc. and ADM
Suite 400 Inception and Chief Financial Officer (1990 to May Investor Services
Wheaton, IL 60187 2007), ADM Investor Services, Inc. (Futures International
D.O.B.: 11/57 Commission Merchant)

Robert F. Keith, Trustee o Indefinite Term President (2003 to Present), Hibs 96 Director of
c/o First Trust Advisors L.P. Enterprises (Financial and Management Trust Company
120 East Liberty Drive, o Since Trust Consulting) of Illinois
Suite 400 Inception
Wheaton, IL 60187
D.O.B.: 11/56

Niel B. Nielson, Trustee o Indefinite Term President and Chief Executive Officer (June 96 Director of
c/o First Trust Advisors L.P. 2012 to Present), Dew Learning LLC Covenant
120 East Liberty Drive, o Since Trust (Educational Products and Services); President Transport Inc.
Suite 400 Inception (June 2002 to June 2012), Covenant College
Wheaton, IL 60187
D.O.B.: 03/54

------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer (December 2010 96 None
Chairman of the Board to Present), President (until December
120 East Liberty Drive, o Since Trust 2010), First Trust Advisors L.P. and First
Suite 400 Inception Trust Portfolios L.P.; Chairman of the
Wheaton, IL 60187 Board of Directors, BondWave LLC
D.O.B.: 09/55 (Software Development Company/
Investment Advisor) and Stonebridge
Advisors LLC (Investment Advisor)

(1) Mr. Bowen is deemed an "interested person" of the Trust due to his
position as Chief Executive Officer of First Trust Advisors L.P.,
investment advisor of the Trust.

Page 30

--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS - (CONTINUED)
--------------------------------------------------------------------------------

FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
OCTOBER 31, 2012 (UNAUDITED)

NAME, ADDRESS POSITION AND OFFICES TERM OF OFFICE AND PRINCIPAL OCCUPATIONS
AND DATE OF BIRTH WITH TRUST LENGTH OF SERVICE DURING PAST 5 YEARS

------------------------------------------------------------------------------------------------------------------------------------
OFFICERS WHO ARE NOT TRUSTEES(2)
------------------------------------------------------------------------------------------------------------------------------------

Mark R. Bradley President and Chief o Indefinite Term Chief Operating Officer (December 2010 to Present)
120 E. Liberty Drive, Executive Officer and Chief Financial Officer, First Trust Advisors
Suite 400 o Since January 2012 L.P. and First Trust Portfolios L.P.; Chief Financial
Wheaton, IL 60187 Officer, BondWave LLC (Software Development
D.O.B.: 11/57 Company/Investment Advisor) and Stonebridge
Advisors LLC (Investment Advisor)

James M. Dykas Treasurer, Chief Financial o Indefinite Term Controller (January 2011 to Present), Senior Vice
120 E. Liberty Drive, Officer and Chief President (April 2007 to January 2011), Vice
Suite 400 Accounting Officer o Since January 2012 President (January 2005 to April 2007), First Trust
Wheaton, IL 60187 Advisors L.P. and First Trust Portfolios L.P.
D.O.B.: 01/66

W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P., First
120 E. Liberty Drive, Legal Officer Trust Portfolios L.P.; Secretary, BondWave LLC
Suite 400 o Since Trust Inception (Software Development Company/Investment
Wheaton, IL 60187 Advisor) and Stonebridge Advisors LLC
D.O.B.: 05/60 (Investment Advisor)

Daniel J. Lindquist Vice President o Indefinite Term Senior Vice President (September 2005 to
120 E. Liberty Drive, Present), Vice President (April 2004 to September
Suite 400 o Since Trust Inception 2005), First Trust Advisors L.P. and First Trust
Wheaton, IL 60187 Portfolios L.P.
D.O.B.: 02/70

Kristi A. Maher Assistant Secretary and o Indefinite Term Deputy General Counsel (May 2007 to Present)
120 E. Liberty Drive, Chief Compliance Officer
Suite 400 o Since Trust Inception
Wheaton, IL 60187
D.O.B.: 12/66

(2) The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.

Page 31

--------------------------------------------------------------------------------
PRIVACY POLICY
--------------------------------------------------------------------------------

FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
OCTOBER 31, 2012 (UNAUDITED)

First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.

SOURCES OF INFORMATION

We collect nonpublic personal information about you from the following sources:

o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews, applications,
agreements or other forms;

o Information about your transactions with us, our affiliates or others;

o Information we receive from your inquiries by mail, e-mail or telephone;
and

o Information we collect on our website through the use of "cookies". For
example, we may identify the pages on our website that your browser
requests or visits.

INFORMATION COLLECTED

The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.

DISCLOSURE OF INFORMATION

We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:

o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your personal
information as described above to unaffiliated financial service
providers and other companies that perform administrative or other
services on our behalf, such as transfer agents, custodians and trustees,
or that assist us in the distribution of investor materials such as
trustees, banks, financial representatives, proxy services, solicitors
and printers.

o We may release information we have about you if you direct us to do so,
if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).

In addition, in order to alert you to our other financial products and services,
we may share your personal information with affiliates of the Fund.

PRIVACY ONLINE

We allow third-party companies, including AddThis, to collect certain anonymous
information when you visit our website. These companies may use non-personally
identifiable information during your visits to this and other websites in order
to provide advertisements about goods and services likely to be of greater
interest to you. These companies typically use a cookie, third party web beacon
or pixel tags, to collect this information. To learn more about this behavioral
advertising practice, you can visit www.networkadvertising.org.

CONFIDENTIALITY AND SECURITY

With regard to our internal security procedures, we restrict access to your
nonpublic personal information to those individuals who need to know that
information to provide products or services to you. We maintain physical,
electronic and procedural safeguards to protect your nonpublic personal
information.

POLICY UPDATES AND INQUIRIES

As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).

Page 32

FIRST TRUST

INVESTMENT ADVISOR
First Trust Advisors L.P.
120 E. Liberty Drive, Suite 400
Wheaton, IL 60187

INVESTMENT SUB-ADVISOR
Stonebridge Advisors, LLC
187 Danbury Road
Wilton, CT 06897

ADMINISTRATOR,
FUND ACCOUNTANT &
CUSTODIAN
Brown Brothers Harriman & Co.
50 Milk Street
Boston, MA 02109

TRANSFER AGENT
BNY Mellon Investment Servicing (US) Inc.
301 Bellevue Parkway
Wilmington, DE 19809

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]

FIRST TRUST

First Trust/Confluence
Small Cap Value Fund

Annual Report
For the Year Ended October 31, 2012

--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------

FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
ANNUAL REPORT
OCTOBER 31, 2012

Shareholder Letter........................................................... 1
At A Glance.................................................................. 2
Portfolio Commentary......................................................... 4
Understanding Your Fund Expenses............................................. 7
Portfolio of Investments..................................................... 8
Statement of Assets and Liabilities.......................................... 10
Statement of Operations...................................................... 11
Statements of Changes in Net Assets.......................................... 12
Financial Highlights......................................................... 13
Notes to Financial Statements................................................ 17
Report of Independent Registered Public Accounting Firm...................... 23
Additional Information....................................................... 24
Board of Trustees and Officers............................................... 25
Privacy Policy............................................................... 27

Caution Regarding Forward-Looking Statements

This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and/or Confluence Investment Management LLC
("Confluence" or the "Sub-Advisor") and their respective representatives, taking
into account the information currently available to them. Forward-looking
statements include all statements that do not relate solely to current or
historical fact. For example, forward-looking statements include the use of
words such as "anticipate," "estimate," "intend," "expect," "believe," "plan,"
"may," "should," "would" or other words that convey uncertainty of future events
or outcomes.

Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
First Trust/Confluence Small Cap Value Fund (the "Fund") to be materially
different from any future results, performance or achievements expressed or
implied by the forward-looking statements. When evaluating the information
included in this report, you are cautioned not to place undue reliance on these
forward-looking statements, which reflect the judgment of the Advisor and/or
Sub-Advisor and their respective representatives only as of the date hereof. We
undertake no obligation to publicly revise or update these forward-looking
statements to reflect events and circumstances that arise after the date hereof.

Performance and Risk Disclosure

How to Read This Report

It is important to keep in mind that the opinions expressed by personnel of
Confluence are just that: informed opinions. They should not be considered to be
promises or advice. The opinions, like the statistics, cover the period through
the date on the cover of this report. The risks of investing in the Fund are
spelled out in the prospectus, the statement of additional information, this
report and other Fund regulatory filings.

--------------------------------------------------------------------------------
SHAREHOLDER LETTER
--------------------------------------------------------------------------------

FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
OCTOBER 31, 2012

Dear Shareholders:

I am pleased to present you with the annual report for your investment in First
Trust/Confluence Small Cap Value Fund (the "Fund").

Sincerely,

/s/ James A. Bowen

James A. Bowen
Chairman of the Board of Trustees of First Trust/Confluence Small Cap Value Fund
and Chief Executive Officer of First Trust Advisors L.P.

Page 1

First Trust/Confluence Small Cap Value Fund
"AT A GLANCE"
As of October 31, 2012 (Unaudited)

-----------------------------------------------------------
FUND STATISTICS
-----------------------------------------------------------
NET ASSET
FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND VALUE (NAV)
-----------------------------------------------------------
Class A (FOVAX) $21.58
Class C (FOVCX) $20.59
Class I (FOVIX) $21.81
Class R3 (FOVRX) $21.04
-----------------------------------------------------------

-----------------------------------------------------------
% OF TOTAL
SECTOR ALLOCATION INVESTMENTS
-----------------------------------------------------------
Industrials 37.3%
Financials 24.0
Health Care 14.5
Consumer Discretionary 8.8
Information Technology 6.5
Consumer Staples 3.0
Energy 3.0
Materials 2.9
-----------------------------------------------------------
Total 100.0%
=======

-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS INVESTMENTS
-----------------------------------------------------------
Generac Holdings, Inc. 4.2%
Landstar System, Inc. 3.7
Ritchie Bros Auctioneers, Inc. 3.6
Hittite Microwave Corp. 3.4
Simpson Manufacturing Co., Inc. 3.4
West Pharmaceutical Services, Inc. 3.3
Gladstone Commercial Corp. 3.2
Techne Corp. 3.2
Rayonier, Inc. 3.2
EnPro Industries, Inc. 3.2
-----------------------------------------------------------
Total 34.4%
=======

Page 2

FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
"AT A GLANCE" - (CONTINUED)
As of October 31, 2012 (Unaudited)

-----------------------------------------------------------
PERFORMANCE OF A $10,000 INVESTMENT
-----------------------------------------------------------
This chart compares your Fund's Class I performance to that
of the Russell 2000(R) Value Index and the Russell 2000(R)
Index from 1/11/2011 through 10/31/2012.

First Trust/Confluence Small Cap Russell 2000(R) Russell 2000(R)
Value Fund - Class I Shares Value Index Index
1/11/2011 $10,000 $10,000 $10,000
4/30/2011 10,730 10,716 10,966
10/31/2011 9,790 9,261 9,457
4/30/2012 10,554 10,323 10,499
10/31/2012 10,951 10,601 10,599

------------------------------------------------------------------------------------------------------------------------------------
Performance as of October 31, 2012
------------------------------------------------------------------------------------------------------------------------------------
A SHARES C SHARES I SHARES R3 SHARES
Inception Inception Inception Inception
2/24/2011 3/2/2011 1/11/2011 3/2/2011 R2000V* R2000*
------------------------------------------------------------------------------------------------------------------------------------

w/max
1.00%
w/max contingent
w/o 5.50% w/o deferred w/o w/o w/o w/o
sales sales sales sales sales sales sales sales
Avergae Annual charges charge charges charge charges charges charges charges
Total Returns
1 Year 10.61% 4.52% 9.46% 8.46% 11.85% 10.56% 14.47% 12.08%
Since Inception 4.40% 0.95% 1.45% 1.45% 5.15% 2.78% 3.05% 3.06%
------------------------------------------------------------------------------------------------------------------------------------

*Since inception return is based on the Class I shares inception date.

Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares. The total returns would have
been lower if certain fees had not been waived and expenses reimbursed by the
Advisor. 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. The Fund's past
performance does not predict future performance.

Performance of share classes will vary due to differences in sales charges and
expenses. Average annual total return with sales charges includes payment of the
maximum sales charge of 5.50% for Class A Shares, a contingent deferred sales
charge ("CDSC") of 1.00% for Class C Shares in year one and 12b-1 service fees
of 0.25% per year of the Fund's average daily net assets for Class A Shares and
combined Rule 12b-1 distribution and service fees of 1.00% per year of the
Fund's average daily net assets for Class C Shares. Class I and Class R3 Shares
do not have a front-end sales charge or a CDSC; therefore, performance is at net
asset value. The combined Rule 12b-1 distribution and service fees are 0.50% per
year of the Fund's average daily net assets for Class R3 Shares, while Class I
Shares do not have these fees. Prior to December 15, 2011, Class R3 Shares
combined Rule 12b-1 distribution and service fees were 0.75% per year of average
daily net assets.

Page 3

--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY
--------------------------------------------------------------------------------

FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
ANNUAL REPORT
OCTOBER 31, 2012

SUB-ADVISOR

Confluence Investment Management LLC, a registered investment advisor
("Confluence" or "Sub-Advisor") located in Saint Louis, Missouri, serves as the
Sub-Advisor to First Trust/Confluence Small Cap Value Fund. The investment
professionals at Confluence have over 80 years of aggregate portfolio management
experience. Confluence professionals have invested in a wide range of specialty
finance and other financial company securities during various market cycles,
working to provide attractive risk-adjusted returns to clients.

PORTFOLIO MANAGEMENT TEAM

MARK KELLER, CFA
CHIEF EXECUTIVE OFFICER AND CHIEF INVESTMENT OFFICER
As Chief Investment Officer, Mr. Keller oversees all of Confluence's investment
strategies and investment operations and has more than 30 years of investment
experience, with a focus on value-oriented equity analysis and management. Prior
to joining Confluence, Mr. Keller was a Senior Vice President of A.G. Edwards &
Sons, Inc. and of Gallatin Asset Management, Inc., and was a member of the Board
of Directors of both companies. From 1994 to May 2008, he was the Chief
Investment Officer of Gallatin Asset Management, and its predecessor
organization, A.G. Edwards Asset Management, the investment management arm of
A.G. Edwards, Inc. Mr. Keller and his team were responsible for the management
of over $10 billion of assets across various equity, asset allocation and
fixed-income strategies. Mr. Keller received a Bachelor of Arts from Wheaton
College (Illinois) and is a CFA charterholder.

DAVID MIYAZAKI, CFA
SENIOR VICE PRESIDENT AND PORTFOLIO MANAGER
Mr. Miyazaki performs market research and is actively involved in portfolio
management activities. Prior to joining Confluence in May 2008, Mr. Miyazaki
served as a Portfolio Manager and Analyst with Gallatin Asset Management, the
investment management arm of A.G. Edwards, Inc. He joined A.G. Edwards in 1999.
Mr. Miyazaki was responsible for separately managed accounts invested in
individual stocks with a value discipline and co-managed the A.G. Edwards'
ETF-based asset allocation program. In addition to portfolio management, Mr.
Miyazaki served as a member of the A.G. Edwards Investment Strategy Committee.
As a strategist, he was responsible for the firm's quantitative asset allocation
models, including its Cyclical Asset Allocation program.

Mr. Miyazaki has nearly 20 years of financial experience, starting in the
industry in 1992. He received a Bachelor of Business Administration Degree from
Texas Christian University and is a CFA charterholder.

DANIEL WINTER, CFA
SENIOR VICE PRESIDENT AND PORTFOLIO MANAGER
Mr. Winter performs market research and chairs the firm's equity portfolio
management committee. Prior to joining Confluence in May 2008, Mr. Winter served
as a Portfolio Manager and Analyst with Gallatin Asset Management, the
investment management arm of A.G. Edwards, Inc. While at Gallatin, he chaired
the portfolio management team responsible for the firm's six value-oriented
equity strategies. His responsibilities also included directing the strategy
implementation and trading execution for the equity portfolios.

Mr. Winter also served as a portfolio manager for the Cyclical Growth ETF
Portfolio and the Cyclical Growth and Income ETF Portfolio which were offered
through variable annuities. He was also a member of the firm's Allocation
Advisor Committee which oversaw the A.G. Edwards exchange-traded fund focused
strategies. Prior to joining the firm's Asset Management division in 1994, Mr.
Winter served as a portfolio manager for A.G. Edwards Trust Company. Mr. Winter
earned a Bachelor of Arts Degree in business management from Eckerd College and
a Master's of Business Administration from Saint Louis University and is a CFA
charterholder.

CHRIS STEIN
VICE PRESIDENT AND PORTFOLIO MANAGER
Mr. Stein performs market research, executes trades and is actively involved in
portfolio management activities. Mr. Stein joined Confluence in August 2008.
Previously, he had served as a Portfolio Manager and Analyst with Gallatin Asset
Management, the investment management arm of A.G. Edwards, Inc. Mr. Stein was
part of the portfolio management team responsible for Gallatin's Large Cap
Value, Small Cap Value, Equity Income, Value Opportunities and All Cap Global
separately managed accounts. Additionally, Mr. Stein assisted the A.G. Edwards
Trust Company in constructing and managing individual stock portfolios.

Prior to joining the Asset Management division in 2001, Mr. Stein was an
associate analyst covering the media and entertainment sector for A.G. Edwards'
securities research. Mr. Stein earned a Bachelor of Science Degree in Accounting
and a Bachelor of Science Degree in Finance from the University of Dayton, and
he also received a Master's of Business Administration from Saint Louis
University.

Page 4

--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY (CONTINUED)
--------------------------------------------------------------------------------

COMMENTARY

MARKET RECAP
The Russell 2000 and Russell 2000 Value Indices were up 12.08% and 14.47%,
respectively, for the Fund's 2012 fiscal year, which runs 11/1/11 thru
10/31/2012. While it was a good year for investors, the second half of the
Fund's fiscal year proved to be a lot more challenging relative to the first
half, with the Russell 2000 and Russell 2000 Value Indices posting returns of
..94% and 2.69%, respectively. This compares to the first half of the fiscal year
when small-capitalization indices posted positive returns of 11.02% and 11.47%
for the Russell 2000 and Russell 2000 Value Indices, respectively. The dichotomy
of 2012 was very similar to the prior fiscal year as investors switched from an
optimistic outlook for a continued economic recovery to a more skeptical tone.
While the uncertainty of the elections may garner some blame, the reality is
that the economy continues to grow below trend as consumers are either too
concerned with the outlook to spend freely or are still repairing their personal
finances via debt reduction. The Federal Reserve is clearly attuned to these
concerns as it announced its latest round of monetary stimulus, termed
Quantitative Easing (QE3), late in the fiscal year, which is aimed directly at
reducing interest rates for mortgages by acquiring mortgage-backed securities.
This is against the backdrop of a slowing China and the sovereign debt issues
still facing Europe. Hence, the U.S. may be growing very slowly but it is better
than most of the other major economies of the world. Given the continued
stimulus and relative growth prospects, investor sentiment was largely positive
as evidenced by the strong gains during the fiscal year.

PERFORMANCE ANALYSIS
The Fund's Class I Shares were up 11.85% during the fiscal year ended October
31, 2012, and performed in-line with the Russell 2000, which was up 12.08%, but
lagged the Russell 2000 Value Index, which was up 14.47%. The Fund had strong
relative performance in the Producer Durables and Technology sectors but lagged
in Consumer Discretionary, Financial Services, Health Care and Materials &
Processing. The limited exposure to the Energy sector aided relative performance
while the cash position negatively impacted relative performance (see the
contribution table below).

PORTFOLIO ATTRIBUTION
10/31/11-10/31/12
--------------------------------------------------------------------------------------------------------------------------
RUSSELL 2000(R) VALUE RUSSELL 2000(R) FUND CONTRIBUTION
----------------------- --------------------- -------------------- ----------------------------

Sector Wgt Rtn Wgt Rtn Wgt Rtn Rsl2V Rsl2V Rsl2V
Consumer Discretionary 13.3 25.8 15.4 22.8 9.9 8.3 3.4 3.5 3.2
Consumer Staples 2.8 12.4 3.6 10.2 2.6 (5.2) 0.3 0.4 (0.0)
Energy 5.2 (9.4) 6.2 (10.1) 0.2 (2.7) (0.2) (0.6) (0.1)
Financial Services 36.5 22.5 21.9 21.2 24.5 14.7 7.9 4.4 3.6
Health Care 4.8 12.0 12.4 13.7 15.6 7.2 0.6 1.7 1.0
Materials & Processing 5.1 19.8 4.7 16.5 2.9 (9.3) 1.0 0.8 (0.1)
Producer Durables 13.8 10.8 15.2 10.9 32.2 20.7 1.4 1.7 4.1
Technology 11.0 (5.2) 16.5 0.4 5.2 12.2 (0.5) 0.1 0.6
Utilities 7.4 11.3 4.1 10.2 0.0 0.0 0.8 0.4 0.0
Cash 0.0 0.0 0.0 0.0 6.9 0.0 0.0 0.0 0.0
--------------------------------------------------------------------------------------------------------------------------

Sources: Bloomberg and Confluence Investment Management

The strength in the Producer Durables sector was driven by the performance of
Generac Holdings (GNRC). Generac is a manufacturer of portable and stand-by
generators that has been reporting solid demand which led management to pay a
one-time dividend of $6.00 in June. Generac is more recently benefiting from
investor sentiment. The need that came from the effects of "Superstorm Sandy"
added to demand for Generac's products.

As we have stated in the past, our investment approach is focused on
understanding and valuing individual businesses with the emphasis of owning
great businesses at bargain prices. This is a fundamental approach that views
risk as the probability of a permanent loss of capital as opposed to tracking
error of a benchmark. Businesses that exhibit the attributes of great businesses
(substantial competitive advantages - pricing power, free cash flow generation,
high returns on invested capital) are often difficult to find in
commodity-oriented or highly-regulated businesses in which pricing is contingent
on factors outside management's control. This will often result in over/under
weighting certain areas of the market that either offer more attractive
valuations or have superior underlying attributes. Subsequently, performance in
any given time frame will be impacted by the market's perception of the value of
these individual businesses.

As long-term oriented investors, the underlying businesses in which the Fund
invests will ultimately dictate its success and should be the focus of our
updates. During the second half of the fiscal year the Fund added Franklin
Electric (FELE), Deckers Outdoor (DECK), and C&J Energy Services (CJES) while
selling shares of PF Chang's China Bistro (PFCB). PF Chang's China Bistro was
sold as the company had agreed to be taken private at a solid premium to the
original entry point as our thesis that the concept was indeed intact and that
the shares should be afforded a higher multiple was proven. The Fund added
Franklin Electric, a design and manufacturing leader of submersible motors. It
is one of only two companies producing UL rated explosion-proof motors. Franklin
dominates the installations at U.S. filling stations and roughly half of the
water well and filling station installations globally. FELE is a business we
have long admired given its dominance in electric motors, a critical component
in the overall cost of pump installation. We finally felt the risk/reward ratio
was properly aligned following the company's decision approximately seven years
ago to become a more complete process and control company as opposed to simply a
component supplier.

Page 5

--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY (CONTINUED)
--------------------------------------------------------------------------------

Deckers Outdoor (DECK) was also recently added to the portfolio. Deckers is a
wholesaler of footwear under the UGG, Teva, and Sanuk brands. The shares had
traded down substantially following a difficult selling season last winter (UGG
is very seasonal, with 75-80% of sales in one quarter) due to an abnormally warm
winter and the rise in the cost of sheep skin, the primary input for UGG. We
view the current issues as transitory and not indicative of brand fatigue (UGG
sales increased last holiday season) and view the shares as extremely
inexpensive. The shares retreated shortly after purchase as investors remain
cautious going into the key holiday season. We remain optimistic that DECK will
be able to navigate the environment and reward shareholders given its discounted
valuation.

Lastly, we added C&J Energy Services (CJES), which operates in the domestic
oilfield services industry and specializes in hydraulic fracturing and, to a
lesser extent, coiled tubing and wire line services. The shares have dropped
considerably relative to the large-caps over the last year. With the precipitous
drop in natural gas prices, there has been a big shift in exploration and
production activity from natural gas to more liquids-rich basins. C&J is a well
run services business that is trading at a discount and should benefit from the
increased drilling and hydraulic fracturing occurring in the U.S.

MARKET AND FUND OUTLOOK
As we stated in the Fund's previous annual report, "the economy continues to
recover from the deep recession of 2008-09, but the rate of growth has been
below long-term trend lines. This makes for an economy that is more susceptible
to falling back into a recession due to exogenous events, such as a slowdown in
China or European debt issues spreading to the United States. While the European
Union is trying desperately to contain the damage of any one country's debt
issues from impacting the rest of Europe, most proposals will undoubtedly take
some wind out of the sail of economic growth in Europe." The same holds true
today. The impact of the excess debt (leverage) that preceded the recession will
take time to repair and will continue to have an impact on GDP growth going
forward.

Going forward, we continue to expect the economy to generate slow growth within
a low inflation environment. Excess production capacity and high unemployment
will continue to restrain inflationary pressures. This should allow interest
rates to stay low as well. For the most part, the individual businesses we
follow remain focused on controlling costs and maintaining higher levels of
capital than in the pre-recessionary period. This has enhanced margins and
earnings as businesses focus more on technology and process improvements to grow
and less on hiring. Overall, business valuations remain reasonable and we remain
focused on finding great businesses at bargain prices.

Page 6

FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
UNDERSTANDING YOUR FUND EXPENSES
OCTOBER 31, 2012 (UNAUDITED)

As a shareholder of the First Trust/Confluence Small Cap Value Fund, you incur
two types of costs: (1) transaction costs, including sales charges (loads) on
purchases of Class A Shares and contingent deferred sales charges on the lesser
of purchase price or redemption proceeds of Class C Shares; and (2) ongoing
costs, including management fees; distribution and/or service (12b-1) fees; and
other Fund expenses. This Example is intended to help you understand your
ongoing costs (in U.S. dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual 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 October 31, 2012.

ACTUAL EXPENSES

HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES

---------------------------------------------------------------------------------------------------------------------
HYPOTHETICAL
ACTUAL EXPENSES (5% RETURN BEFORE EXPENSES)
--------------------------------------------- ------------------------------------------
ENDING EXPENSES PAID BEGINNING ENDING EXPENSES PAID
BEGINNING ACCOUNT DURING PERIOD ACCOUNT ACCOUNT DURING PERIOD ANNUALIZED
ACCOUNT VALUE VALUE 5/01/2012- VALUE VALUE 5/01/2012- EXPENSE
5/01/2012 10/31/2012 10/31/2012 (a) 5/01/2012 10/31/2012 10/31/1012 (a) Ratios (b)
---------------------------------------------------------------------------------------------------------------------

Class A $ 1,000.00 $ 1,034.50 $ 8.18 $ 1,000.00 $ 1,017.09 $ 8.11 1.60%
Class C 1,000.00 1,033.60 12.01 1,000.00 1,013.32 11.89 2.35
Class I 1,000.00 1,037.60 6.91 1,000.00 1,018.35 6.85 1.35
Class R3 1,000.00 1,034.90 9.46 1,000.00 1,015.84 9.37 1.85

(a) Expenses are equal to the annualized expense ratio multiplied by the average
account value over the period (May 1, 2012 through October 31, 2012),
multiplied by 184/366 (to reflect the six-month period).

(b) These expense ratios reflect expense caps.

Page 7

FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2012

SHARES DESCRIPTION VALUE
---------------- ---------------------------------------------- --------------

COMMON STOCKS - 93.5%

AEROSPACE & DEFENSE - 2.8%
815 Cubic Corp. .................................. $ 39,772
--------------
BUILDING PRODUCTS - 3.1%
1,450 Simpson Manufacturing Co., Inc. .............. 44,167
--------------
CAPITAL MARKETS - 8.0%
315 Affiliated Managers Group, Inc. (a)........... 39,847
2,585 MVC Capital, Inc. ............................ 31,951
3,735 PennantPark Investment Corp. ................. 41,085
--------------
112,883
--------------
CHEMICALS - 2.7%
900 Scotts Miracle-Gro (The) Co., Class A ........ 38,529
--------------
COMMERCIAL SERVICES & SUPPLIES - 6.2%
1,470 HNI Corp. .................................... 40,454
2,100 Ritchie Bros Auctioneers, Inc. ............... 47,229
--------------
87,683
--------------
ELECTRICAL EQUIPMENT - 6.8%
695 Franklin Electric Co., Inc. .................. 40,268
1,615 Generac Holdings, Inc. ....................... 54,910
--------------
95,178
--------------
ENERGY EQUIPMENT & SERVICES - 2.8%
2,000 C&J Energy Services, Inc. (a)................. 38,760
--------------
FOOD PRODUCTS - 2.8%
870 Sanderson Farms, Inc. ........................ 39,402
--------------
HEALTH CARE EQUIPMENT & SUPPLIES - 5.8%
475 Haemonetics Corp. (a)......................... 38,808
800 West Pharmaceutical Services, Inc. ........... 43,096
--------------
81,904
--------------
HEALTH CARE PROVIDERS & SERVICES - 4.7%
1,065 Patterson Cos., Inc. ......................... 35,571
1,555 VCA Antech, Inc. (a).......................... 30,447
--------------
66,018
--------------
INSURANCE - 5.5%
1,520 Brown & Brown, Inc. .......................... 38,836
568 RLI Corp. .................................... 38,726
--------------
77,562
--------------
LIFE SCIENCES TOOLS & SERVICES - 3.0%
630 Techne Corp. ................................. 42,437
--------------
MACHINERY - 10.1%
2,740 Douglas Dynamics, Inc. ....................... 41,621
1,140 EnPro Industries, Inc. (a).................... 41,678
775 Graco, Inc. .................................. 37,246

Page 8 See Notes to Financial Statements

FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
OCTOBER 31, 2012

SHARES DESCRIPTION VALUE
---------------- ---------------------------------------------- --------------

COMMON STOCKS - (CONTINUED)

MACHINERY - (Continued)
477 Mueller Industries, Inc. ..................... $ 20,893
--------------
141,438
--------------
MEDIA - 5.4%
845 John Wiley & Sons, Inc., Class A ............. 36,656
635 Morningstar, Inc. ............................ 39,992
--------------
76,648
--------------
OFFICE ELECTRONICS - 2.9%
1,143 Zebra Technologies Corp., Class A (a)......... 41,068
--------------
REAL ESTATE INVESTMENT TRUSTS (REITS) - 9.0%
3,605 Franklin Street Properties Corp. ............. 41,133
2,320 Gladstone Commercial Corp. ................... 42,757
860 Rayonier, Inc. ............................... 42,149
--------------
126,039
--------------
ROAD & RAIL - 5.9%
2,495 Heartland Express, Inc. ...................... 34,805
955 Landstar System, Inc. ........................ 48,371
--------------
83,176
--------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 3.2%
790 Hittite Microwave Corp. (a)................... 44,746
--------------
TEXTILES, APPAREL & LUXURY GOODS - 2.8%
1,350 Deckers Outdoor Corp. (a)..................... 38,651
--------------

Total Investments 93.5% ................... 1,316,061
(Cost $1,251,934) (b)

Net Other Assets and Liabilities 6.5% ...... 92,013
--------------
Net Assets 100.0% .......................... $ 1,408,074
==============

-----------------------------
(a) Non-income producing security.

(b) Aggregate cost for federal income tax purposes is $1,251,934. As of
October 31, 2012, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$109,841 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$45,714.

VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of October 31,
2012 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):

* See the Portfolio of Investments for industry breakout.

All transfers in and out of the Levels during the period are assumed to be on
the last day of the period at their current value. There were no transfers
between Levels at October 31, 2012.

See Notes to Financial Statements Page 9

FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2012

ASSETS:

Investments, at value
(Cost $1,251,934)........................................................................... $ 1,316,061
Cash........................................................................................... 99,631
Prepaid expenses............................................................................... 13,890
Receivables:
From investment advisor..................................................................... 46,283
Dividends................................................................................... 973
Fund shares sold............................................................................ 141
------------
Total Assets.............................................................................. 1,476,979
------------
LIABILITIES:
Payables:
Audit and tax fees.......................................................................... 33,515
Transfer agent fees......................................................................... 9,719
Administrative fees......................................................................... 8,750
Legal fees.................................................................................. 4,338
Printing fees............................................................................... 4,235
Investment securities purchased............................................................. 4,121
Financial reporting fees.................................................................... 1,541
Trustees' fees and expenses................................................................. 1,405
12b-1 distribution and service fees......................................................... 605
Custodian fees.............................................................................. 275
Registration fees........................................................................... 166
Listing fees................................................................................ 10
Other liabilities........................................................................... 225
------------
Total Liabilities......................................................................... 68,905
------------
NET ASSETS..................................................................................... $ 1,408,074
============
NET ASSETS consist of:
Paid-in capital................................................................................ $ 1,328,648
Par value ($0.01 per share with an unlimited number of shares authorized)...................... 666
Accumulated net investment income (loss)....................................................... 7,460
Accumulated net realized gain (loss) on investments............................................ 7,173
Net unrealized appreciation (depreciation) on investments...................................... 64,127
------------
NET ASSETS..................................................................................... $ 1,408,074
============
Maximum Offering Price Per Share:
(Net assets are rounded to the nearest whole dollar and shares are rounded to the nearest
full share)
CLASS A SHARES:
Net asset value and redemption price per share (Based on net assets of $651,105 and
30,178 shares of beneficial interest issued and outstanding)............................. $ 21.58
Maximum sales charge (5.50% of offering price).............................................. 1.26
------------
Maximum offering price to public............................................................... $ 22.84
============
CLASS C SHARES:
Net asset value and redemption price per share (Based on net assets of $614,974 and
29,866 shares of beneficial interest issued and outstanding)............................. $ 20.59
============
CLASS I SHARES:
Net asset value and redemption price per share (Based on net assets of $140,948 and
6,461 shares of beneficial interest issued and outstanding).............................. $ 21.81
============
CLASS R3 SHARES:
Net asset value and redemption price per share (Based on net assets of $1,047 and
50 shares of beneficial interest issued and outstanding)................................. $ 21.04
============

Page 10 See Notes to Financial Statements

FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2012

INVESTMENT INCOME:

Dividends (net of foreign withholding tax of $79).............................................. $ 25,997
Interest....................................................................................... 34
------------
Total investment income..................................................................... 26,031
------------
EXPENSES:
Transfer agent fees............................................................................ 105,405
Administrative fees............................................................................ 52,387
Audit and tax fees............................................................................. 32,400
Registration fees.............................................................................. 25,389
Legal fees..................................................................................... 20,464
Trustees' fees and expenses.................................................................... 12,952
Printing fees.................................................................................. 12,369
Investment advisory fees....................................................................... 9,803
Financial reporting fees....................................................................... 9,266
Listing expense................................................................................ 2,038
Custodian fees................................................................................. 1,499
12b-1 distribution and service fees:
Class A..................................................................................... 1,295
Class C..................................................................................... 3,455
Class R3.................................................................................... 5
Other.......................................................................................... 3,211
------------
Total expenses.............................................................................. 291,938
Less fees waived and expenses reimbursed by the investment advisor.......................... (273,946)
------------
Net expenses................................................................................ 17,992
------------
NET INVESTMENT INCOME (LOSS)................................................................... 8,039
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments..................................................... 19,673
Net change in unrealized appreciation (depreciation) on investments......................... 68,817
------------
NET REALIZED AND UNREALIZED GAIN (LOSS)........................................................ 88,490
------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................ $ 96,529
============

See Notes to Financial Statements Page 11

FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
STATEMENT OF CHANGES IN NET ASSETS

YEAR PERIOD
ENDED ENDED
10/31/2012 10/31/2011 (a)
------------ --------------

OPERATIONS:
Net investment income (loss)....................................................... $ 8,039 $ 684
Net realized gain (loss)........................................................... 19,673 (12,500)
Net change in unrealized appreciation (depreciation)............................... 68,817 (4,690)
------------ ------------
Net increase (decrease) in net assets resulting from operations.................... 96,529 (16,506)
------------ ------------

DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A Shares................................................................... (605) --
Class C Shares................................................................... -- --
Class F Shares................................................................... (3) --
Class I Shares................................................................... (655) --
Class R3 Shares.................................................................. -- --
------------ ------------
Total distributions to shareholders................................................ (1,263) --
------------ ------------

CAPITAL TRANSACTIONS:
Proceeds from shares sold.......................................................... 1,086,129 427,900
Proceeds from shares reinvested.................................................... 587 --
Cost of shares redeemed............................................................ (165,408) (19,894)
------------ ------------
Net increase (decrease) in net assets resulting from capital transactions.......... 921,308 408,006
------------ ------------
Total increase (decrease) in net assets............................................ 1,016,574 391,500

NET ASSETS:
Beginning of period................................................................ 391,500 --
------------ ------------
End of period...................................................................... $ 1,408,074 $ 391,500
============ ============
Accumulated net investment income (loss) at end of period.......................... $ 7,460 $ 684
============ ============

-----------------------------
(a) The Fund was initially seeded on December 16, 2010 and commenced operations
on January 11, 2011.

Page 12 See Notes to Financial Statements

FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

YEAR PERIOD
ENDED ENDED
CLASS A SHARES 10/31/2012 10/31/2011 (a)
-------------- --------------

Net asset value, beginning of period .......... $ 19.54 $ 20.10
-------------- --------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (b) .............. 0.23 0.03
Net realized and unrealized gain (loss) ....... 1.85 (0.59)
-------------- --------------
Total from investment operations .............. 2.08 (0.56)
-------------- --------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income ......................... (0.04) --
-------------- --------------
Total distributions ........................... (0.04) --
-------------- --------------
Net asset value, end of period ................ $ 21.58 $ 19.54
============== ==============
TOTAL RETURN (c) .............................. 10.61% (2.79)%
============== ==============

RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) .......... $ 651 $ 218
Ratio of total expenses to average net
assets ..................................... 23.94% 60.42% (d)
Ratio of net expenses to average net
assets ..................................... 1.60% 1.60% (d)
Ratio of net investment income (loss) to
average net assets ......................... 1.10% 0.26% (d)
Portfolio turnover rate ....................... 11% 21%

(a) Class A Shares commenced operations on February 24, 2011.

(b) Per share amounts have been calculated using the average share method.

(c) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge of 5.50% or contingent
deferred sales charge (CDSC). On purchases of $1 million or more, a CDSC
of 1% may be imposed on certain redemptions made within twelve months of
purchase. If the sales charges were included, total returns would be
lower. These returns include Rule 12b-1 service fees of 0.25% and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares. The total return would
have been lower if certain fees had not been waived and expenses
reimbursed by the investment advisor. Total return is calculated for the
time period presented and is not annualized for periods less than one
year.

(d) Annualized.

See Notes to Financial Statements Page 13

FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

YEAR PERIOD
ENDED ENDED
CLASS C SHARES 10/31/2012 10/31/2011 (a)
-------------- --------------

Net asset value, beginning of period .......... $ 18.81 $ 20.10
-------------- --------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (b)............... 0.05 (0.07)
Net realized and unrealized gain (loss) ....... 1.73 (1.22)
-------------- --------------
Total from investment operations .............. 1.78 (1.29)
-------------- --------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income ......................... -- --
-------------- --------------
Net asset value, end of period ................ $ 20.59 $ 18.81
============== ==============
TOTAL RETURN (c)............................... 9.46% (6.42)%
============== ==============

RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) .......... $ 615 $ 8
Ratio of total expenses to average net
assets ..................................... 26.69% 98.09% (d)
Ratio of net expenses to average net assets ... 2.35% 2.35% (d)
Ratio of net investment income (loss) to
average net assets ......................... 0.25% (0.54)% (d)
Portfolio turnover rate ....................... 11% 21%

(a) Class C Shares commenced operations on March 2, 2011.

(b) Per share amounts have been calculated using the average share method.

(c) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum CDSC of 1%, charged on certain redemptions
made within one year of purchase. If the sales charge was included, total
return would be lower. These returns include combined Rule 12b-1
distribution fees and service fees of 1% and do not reflect the deduction
of taxes that a shareholder would pay on Fund distributions or the
redemption of Fund shares. The total return would have been lower if
certain fees had not been waived and expenses reimbursed by the investment
advisor. Total return is calculated for the time period presented and is
not annualized for periods less than one year.

(d) Annualized.

Page 14 See Notes to Financial Statements

FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

YEAR PERIOD
ENDED ENDED
CLASS I SHARES 10/31/2012 10/31/2011 (a)
-------------- --------------

Net asset value, beginning of period .......... $ 19.58 $ 20.00
-------------- --------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (b)............... 0.26 (0.07)
Net realized and unrealized gain (loss) ....... 2.05 (0.49)
-------------- --------------
Total from investment operations .............. 2.31 (0.42)
-------------- --------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income ......................... (0.08) --
-------------- --------------
Total distributions ........................... (0.08) --
-------------- --------------
Net asset value, end of period ................ $ 21.81 $ 19.58
============== ==============
TOTAL RETURN (c)............................... 11.85% (2.10)%
============== ==============

RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) .......... $ 141 $ 164
Ratio of total expenses to average net
assets ..................................... 41.80% 103.62% (d)
Ratio of net expenses to average net assets ... 1.35% 1.35% (d)
Ratio of net investment income (loss) to
average net assets ......................... 1.28% 0.43% (d)
Portfolio turnover rate ....................... 11% 21%

(a) Class I Shares were initially seeded on December 16, 2010 and commenced
operations on January 11, 2011.

(b) Per share amounts have been calculated using the average share method.

(c) Assumes reinvestment of all distributions for the period. This return does
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares. The total return would
have been lower if certain fees had not been waived and expenses
reimbursed by the investment advisor. Total return is calculated for the
time period presented and is not annualized for periods less than one
year.

(d) Annualized.

See Notes to Financial Statements Page 15

FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

YEAR PERIOD
ENDED ENDED
CLASS R3 SHARES 10/31/2012 10/31/2011 (a)
-------------- --------------

Net asset value, beginning of period .......... $ 19.03 $ 20.10
-------------- --------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (b)............... 0.15 (0.04)
Net realized and unrealized gain (loss) ....... 1.86 (1.03)
-------------- --------------
Total from investment operations .............. 2.01 (1.07)
-------------- --------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income ......................... -- --
-------------- --------------
Net asset value, end of period ................ $ 21.04 $ 19.03
============== ==============

TOTAL RETURN (c)............................... 10.56% (5.32)%
============== ==============

Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) .......... $ 1 $ 1
Ratio of total expenses to average net
assets ..................................... 2,717.44% 297.34% (d)
Ratio of net expenses to average net assets ... 1.88% 2.10% (d)
Ratio of net investment income (loss) to
average net assets ......................... 0.75% (0.32)% (d)
Portfolio turnover rate ....................... 11% 21%

(a) Class R3 Shares were initially seeded and commenced operations on March 2,
2011.

(b) Per share amounts have been calculated using the average share method.

(c) Assumes reinvestment of all distributions for the period. These returns
include combined Rule 12b-1 distribution fees and service fees of 0.50%
effective December 15, 2011 and 0.75% prior to December 15, 2011 and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares. The total return would
have been lower if certain fees had not been waived and expenses
reimbursed by the investment advisor. Total return is calculated for the
time period presented and is not annualized for periods less than one
year.

(d) Annualized.

Page 16 See Notes to Financial Statements

--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
OCTOBER 31, 2011

1. FUND DESCRIPTION

First Trust/Confluence Small Cap Value Fund (the "Fund") is a series of the
First Trust Series Fund (the "Trust"), a Massachusetts business trust organized
on July 9, 2010, and is registered as a diversified open-end management
investment company with the Securities and Exchange Commission ("SEC") under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Fund offers
four classes of shares: Class A, Class C, Class I and Class R3. Each class
represents an interest in the same portfolio of investments but with a different
combination of sales charges, distribution and service (12b-1) fees, eligibility
requirements and other features.

The Fund's investment objective is to seek to provide long-term capital
appreciation. The Fund seeks to achieve its investment objective by investing,
under normal market conditions, at least 80% of its net assets (including
investment borrowings, if any) in equity securities of U.S. listed companies
with small market capitalizations at the time of investment that Confluence
Investment Management LLC ("Confluence" or the "Sub-Advisor") believes have
produced solid returns over extended periods of time. There can be no assurance
that the Fund will achieve its investment objective. The Fund may not be
appropriate for all investors.

2. SIGNIFICANT ACCOUNTING POLICIES

A. PORTFOLIO VALUATION:

The net asset value ("NAV") of each class of shares of the Fund 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. If the NYSE closes early on a valuation day, the NAV is determined as
of that time. The NAV for each class is calculated by dividing the value of the
Fund's total assets attributable to such class (including accrued interest and
dividends), less all liabilities attributable to such class, (including accrued
expenses, dividends declared but unpaid and any borrowings of the Fund), by the
total number of shares of the class outstanding. Differences in NAV of each
class of the Fund's shares are generally expected to be due to the daily expense
accruals of the specified distribution and service (12b-1) fees and transfer
agency costs applicable to such class of shares and the resulting differential
in the dividends that may be paid on each class of shares.

Common stocks and other equity securities listed on any national or
foreign exchange (excluding the NASDAQ(R) Stock Market LLC ("NASDAQ") and
the London Stock Exchange Alternative Investment Market ("AIM")) are
valued at the last price on the exchange on which they are principally
traded or, for NASDAQ and AIM securities, the official closing price.
Securities traded on more than one securities exchange are valued at the
last sale price or official closing price, as applicable, at the close of
the securities exchange representing the principal market for such
securities.

Securities traded in the over-the-counter market are valued at their
closing bid prices.

Short-term investments that mature in less than 60 days when purchased are
valued at amortized cost.

All market quotations used in valuing the Fund's securities will be obtained
from a third party pricing service. If no quotation is received from a pricing
service, attempts will be made to obtain one or more broker quotes for the
security. In the event the pricing service does not provide a valuation, broker
quotations are not readily available, or the valuations received are deemed
unreliable, the Trust's Board of Trustees has designated First Trust Advisors
L.P. ("First Trust") to use a fair value method to value the Fund's securities.
Additionally, if events occur after the close of the principal markets for
certain securities that could materially affect the Fund's NAV, First Trust will
use a fair value method to value the Fund's securities. The use of fair value
pricing is governed by valuation procedures adopted by the Fund's Board of
Trustees, and in accordance with the provisions of the 1940 Act. As a general
principle, the fair value of a security is the amount which the Fund might
reasonably expect to receive for the security upon its current sale. In light of
the judgment involved in fair valuations, there can be no assurance that a fair
value assigned to a particular security will be the amount which the Fund might
be able to receive upon its current sale. Fair valuation of common stocks and
other equity securities will be based on the consideration of all available
information, including, but not limited, to the following:

Page 17

FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
OCTOBER 31, 2012

1) the type of security;

2) the size of the holding;

3) the initial cost of the security;

4) transactions in comparable securities;

5) price quotes from dealers and/or pricing services;

6) relationships among various securities;

7) information obtained by contacting the issuer, analysts, or the
appropriate stock exchange;

8) an analysis of the issuer's financial statements; and

9) the existence of merger proposals or tender offers that might affect
the value of the security.

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 Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.

B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME:

Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income, if any, is
recorded daily on the accrual basis, including the amortization of premiums and
the accretion of discounts. Income is allocated on a pro rata basis to each
class of shares.

The Fund may hold the securities of real estate investment trusts ("REITs").
Distributions from such investments may be comprised of return of capital,
capital gains and income. The actual character of amounts received during the
year is not known until after the REIT's fiscal year end. The Fund records the
character of distributions received from REITs during the year based on
estimates available. The characterization of distributions received by the Fund
may be subsequently revised based on information received from the REITs after
their tax reporting periods conclude.

C. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:

The Fund will distribute to holders of its shares semi-annual dividends of all
or a portion of its net income. Distributions of any net capital gains earned by
the Fund will be distributed at least annually. Distributions will automatically
be reinvested into additional Fund shares unless cash distributions are elected
by the shareholder.

Distributions from net investment income and realized capital gains are
determined in accordance with income tax regulations, which may differ from U.S
GAAP. Certain capital accounts in the financial statements are periodically
adjusted for permanent differences in order to reflect their tax character.
These permanent differences are primarily due to the varying treatment of income
and gain/loss on portfolio securities held by the Fund and have no impact on net
assets or NAV per share. Temporary differences, which arise from recognizing
certain items of income, expense and gain/loss in different periods for
financial statement and tax purposes, will reverse at some point in the future.
There were no permanent differences incurred during the year ended October 31,
2012.

Page 18

FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
OCTOBER 31, 2012

The tax character of distributions paid during the fiscal periods ended October
31, 2012 and 2011 was as follows:

Distributions paid from: 2012 2011
Ordinary income.............................. $ 1,263 --
Capital gain................................. -- --
Return of capital............................ -- --

As of October 31, 2012, the distributable earnings and net assets on a tax basis
were as follows:

Undistributed ordinary income................ $ 9,068
Undistributed capital gains.................. 5,565
------------
Total undistributed earnings................. 14,633
Accumulated capital and other losses......... --
Net unrealized appreciation (depreciation)... 64,127
------------
Total accumulated earnings (losses).......... 78,760
Other........................................ --
Paid-in capital.............................. 1,329,314
------------
Net assets................................... $ 1,408,074
============

D. INCOME TAXES:

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 2011 and 2012
remain open to federal and state audit. As of October 31, 2012, management has
evaluated the application of these standards to the Fund, and has determined
that no provision for income tax is required in the Fund's financial statements
for uncertain tax positions.

E. EXPENSES:

The Fund will pay all expenses directly related to its operations. Expenses of
the Fund are allocated on a pro rata basis to each class of shares, except for
distribution and service (12b-1) fees and incremental transfer agency costs
which are unique to each class of shares.

F. ACCOUNTING PRONOUNCEMENT:

3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS

Page 19

FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
OCTOBER 31, 2012

Fund's business affairs and providing certain administrative services necessary
for the management of the Fund. For these investment management services, First
Trust is entitled to a monthly fee calculated at an annual rate of 1.00% of the
Fund's 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.

Confluence serves as the Fund's sub-advisor and manages the Fund's portfolio
subject to First Trust's supervision. The Sub-Advisor receives a portfolio
management fee at an annual rate of 0.50% of the Fund's average daily net assets
that is paid by First Trust from its investment advisory fee.

First Trust and Confluence have agreed to waive fees and/or pay Fund expenses to
the extent necessary to prevent the annual operating expenses of the Fund
(excluding 12b-1 distribution and service fees, interest expenses, taxes,
acquired Fund fees and expenses, fees incurred in acquiring and disposing of
portfolio securities and extraordinary expenses) from exceeding 1.35% of average
daily net assets of any class of shares of the Fund (the "Expense Cap") until
February 28, 2013 and then will not exceed 1.70% from March 1, 2013 to February
28, 2022 (the "Expense Cap Termination Date"). Expenses borne and fees waived by
First Trust and Confluence are subject to recovery by First Trust and Confluence
up to three years from the date the fee was waived or expense was incurred, but
no reimbursement payment will be made by the Fund at any time if it would result
in the Fund's expenses exceeding the Expense Cap in place at the time the
expense was borne or the fee was waived by First Trust and Confluence. These
amounts would be included in "Expenses previously waived or reimbursed" on the
Statement of Operations. The advisory fee waivers and expense reimbursement for
the year ended October 31, 2012 and the expenses borne by First Trust and
Confluence subject to recovery for the periods indicated were as follows:

EXPENSES SUBJECT TO RECOVERY
--------------------------------------------------------------

Brown Brothers Harriman & Co. serves as the Fund's custodian, administrator, and
fund accountant in accordance with certain fee arrangements.

BNY Mellon Investment Servicing (US) Inc. serves as the Fund's Transfer Agent in
accordance with certain fee arrangements.

Effective January 23, 2012, James A. Bowen resigned from his position as the
President and Chief Executive Officer of the Trust. He will continue as a
Trustee, the Chairman of the Board of Trustees and a member of the Executive
Committee. The Board elected Mark R. Bradley to serve as the President and Chief
Executive Officer of the Trust and James M. Dykas to serve as the Treasurer,
Chief Financial Officer and Chief Accounting Officer of the Trust.

Additionally, the Lead Independent Trustee is paid $15,000 annually, the
Chairman of the Audit Committee is paid $10,000 annually, and each of the
Chairmen of the Nominating and Governance Committee and the Valuation Committee
is paid $5,000 annually to serve in such capacities, with such compensation
allocated pro rata among each fund in the First Trust Fund Complex based on net
assets. Prior to January 1, 2012, the annual amounts paid were $10,000, $5,000
and $2,500, respectively. Trustees are reimbursed for travel and out-of-pocket
expenses in connection with all meetings. The Lead Independent Trustee and each
Committee chairman will serve two-year terms until December 31, 2013 before
rotating to serve as chairman of another committee or as Lead Independent
Trustee. After December 31, 2013, the Lead Independent Trustee and Committee
chairmen will rotate every three years. The officers and "Interested" Trustee
receive no compensation from the funds for acting in such capacities.

4. CAPITAL SHARE TRANSACTIONS

Capital transactions were as follows:

YEAR ENDED PERIOD ENDED
OCTOBER 31, 2012 OCTOBER 31, 2011

SHARES VALUE SHARES VALUE
--------------------------- ---------------------------

Sales:
Class A 22,827 $ 462,559 11,735 $ 237,121
Class C 29,845 577,127 399 8,006
Class F* -- -- 532 11,000
Class I 2,182 46,369 8,402 170,773
Class R3 4 74 50 1,000
--------------------------- ---------------------------
Total Sales: 54,858 $ 1,086,129 121,118 $ 427,900
=========================== ===========================

Page 20

FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
OCTOBER 31, 2012

YEAR ENDED PERIOD ENDED
OCTOBER 31, 2012 OCTOBER 31, 2011

SHARES VALUE SHARES VALUE
--------------------------- ---------------------------

Dividend Reinvestment:
Class A 22 $ 417 -- --
Class C -- -- -- --
Class F* -- -- -- --
Class I 9 170 -- --
Class R3 -- -- -- --
--------------------------- ---------------------------
Total Dividend Reinvestment: 31 $ 587 -- $ --
=========================== ===========================

Redemptions:
Class A (3,817) $ (78,652) (589) $ (10,710)
Class C (378) (7,559) -- --
Class F* (50) (755) (482) (9,184)
Class I (4,132) (78,369) -- --
Class R3 (4) (73) -- --
--------------------------- ---------------------------
Total Sales: (8,381) $ (165,408) (1,071) $ (19,894)
=========================== ===========================

* Effective December 15, 2011, all Class F shares were liquidated and the
class was terminated.

5. PURCHASES AND SALES

Cost of purchases and proceeds from sales of investments, excluding short-term
investments, for the year ended October 31, 2012, were $989,041 and $99,820,
respectively.

6. DISTRIBUTION AND SERVICE 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 share
classes of the Fund are authorized to pay an amount up to 0.25%, 1.00% and 0.50%
of their average daily net assets each year for Class A, Class C and Class R3,
respectively, 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 Fund shares or the provision of investor services. Prior
to December 15, 2011, Class R3 paid 12b-1 distribution and service fees of 0.75%
of its average daily net assets. FTP may also use this amount to compensate
securities dealers or other persons for providing distribution assistance,
including broker-dealer and shareholder support and educational and promotional
services.

7. INDEMNIFICATION

8. RISK CONSIDERATIONS

Risks are inherent in all investing. The following summarizes some, but not all,
of the risks that should be considered for the Fund. For additional information
about the risks associated with investing in the Fund, please see the Fund's
prospectus and statement of additional information, as well as other Fund
regulatory filings.

Market Risk: Market risk is the risk that a particular security owned by the
Fund or shares of the Fund in general may fall in value. Securities are subject
to market fluctuations caused by such factors as economic, political, regulatory
or market developments, changes in interest rates and perceived trends in stock
prices. Overall stock values could decline generally or could underperform other
investments. Companies with smaller market capitalizations are generally subject
to additional market risk.

Small Cap Risk: The Fund invests in Small-Cap Companies. Such companies may be
more vulnerable to adverse general market or economic developments, and their
securities may be less liquid and may experience greater price volatility than
larger, more established companies as a result of several factors, including
limited trading volumes, products or financial resources, management
inexperience and dependence on a few key people, and less publicly available
information. Accordingly, such companies are generally subject to greater market
risk than larger, more established companies. The market movements of equity
securities issued by issuers with smaller

Page 21

FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
OCTOBER 31, 2012

capitalizations may be more abrupt or erratic than the market movements of
equity securities of larger, more established companies or the stock market in
general. Historically, smaller capitalization companies have sometimes gone
through extended periods when they did not perform as well as larger companies.
In addition, equity securities of smaller capitalization companies may be less
liquid than those of larger companies.

Value Investing Risk: The Fund focuses its investments on securities that the
portfolio manager believes are undervalued or inexpensive relative to other
investments. These types of securities may present risks in addition to the
general risks associated with investing in them. These securities generally are
selected on the basis of an issuer's business and economic fundamentals or the
securities' current and projected credit profiles, relative to current market
price. Such securities are subject to the risk of misestimating certain
fundamental factors. Disciplined adherence to a "value" investment mandate
during periods in which that style is "out of favor" can result in significant
underperformance relative to overall market indices and other managed investment
vehicles that pursue growth style investments and/or flexible style mandates.

Real Estate Investing Risk: The Fund invests in companies in the real estate
industry, including REITs. Therefore, the Fund is subject to the risks
associated with investing in real estate, which may include, but are not limited
to, fluctuations in the value of underlying properties; defaults by borrowers or
tenants; market saturation; changes in general and local economic conditions;
decreases in market rates for rents; increases in competition, property taxes,
capital expenditures or operating expenses; and other economic, political or
regulatory occurrences affecting companies in the real estate industry.

REITs are subject to risks related to their structure and focus, which include,
but are not limited to, dependency upon management skills, limited
diversification, the risks of locating and managing financing for projects,
heavy cash flow dependency, possible default by borrowers, the costs and
potential losses of self-liquidation of one or more holdings, the risk of a
possible lack of mortgage funds and associated interest rate risks,
overbuilding, property vacancies, increases in property taxes and operating
expenses, changes in zoning laws, losses due to environmental damages, changes
in neighborhood values and appeal to purchases, the possibility of failing to
maintain exemptions from registration under the 1940 Act, and, in many cases,
relatively small market capitalization, which may result in less market
liquidity and greater price volatility.

BDC Risk: The Fund may invest in BDCs which may carry risks similar to those of
a private equity or venture capital fund. BDCs are not redeemable at the option
of the shareholder and they may trade in the market at a discount to their net
asset value. The BDCs included in the Fund may employ the use of leverage in its
portfolio through borrowings or the issuance of preferred stock. While leverage
often serves to increase the yield of a BDC, this leverage also subjects a BDC
to increased risks, including the likelihood of increased volatility and the
possibility that a BDC's common share income will fall if the dividend rate of
the preferred shares or the interest rate on any borrowings rises.

9. SUBSEQUENT EVENTS

Management has evaluated the impact of all subsequent events to the Fund through
the date the financial statements were issued, and has determined that there was
the following subsequent event:

On December 20, 2012, the Fund declared dividends per share of $0.3225, $0.2667,
$0.2138 and $0.1098 in Class I, Class A, Class R3 and Class C, respectively, and
short-term and long-term capital gains of $0.0216 and $0.0747 per share,
respectively, to holders of each class of shares of record on December 21, 2012,
payable December 21, 2012.

Page 22

To the Board of Trustees and Shareholders of First Trust/Confluence Small Cap
Value Fund:

We have audited the accompanying statements of assets and liabilities of First
Trust/Confluence Small Cap Value Fund (the "Fund"), a series of the First Trust
Series Fund (the "Trust"), including the portfolio of investments, as of October
31, 2012, and the related statement of operations for the year then ended and
the statements of changes in net assets and the financial highlights for each of
the periods presented. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of First
Trust/Confluence Small Cap Value Fund as of October 31, 2012, the results of its
operations for the year then ended, and the changes in its net assets and the
financial highlights for the each of the periods presented, in conformity with
accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

Chicago, Illinois
December 24, 2012

Page 23

--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------

FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
OCTOBER 31, 2012 (UNAUDITED)

PROXY VOTING POLICIES AND PROCEDURES

PORTFOLIO HOLDINGS

TAX INFORMATION

The Fund hereby designates as qualified dividend income 100% of its ordinary
income distributions (including short-term capital gains, if applicable) for the
period ended October 31, 2012. 100% of the ordinary income (including short-term
capital gain, if applicable) distributions made by the Fund during the period
ended October 31, 2012, qualify for corporate dividends received deduction
available to corporate shareholders.

ADVISORY AND SUB-ADVISORY AGREEMENTS

BOARD CONSIDERATIONS REGARDING APPROVAL OF CONTINUATION OF INVESTMENT MANAGEMENT
AGREEMENT AND SUB-ADVISORY AGREEMENT

The Board of Trustees of the First Trust Series Fund (the "Trust"), including
the Independent Trustees, approved the continuation of the Investment Management
Agreement (the "Advisory Agreement") between the Trust, on behalf of the First
Trust/Confluence Small Cap Value Fund (the "Fund"), and First Trust Advisors
L.P. (the "Advisor" or "First Trust") and the Investment Sub-Advisory Agreement
(the "Sub-Advisory Agreement" and together with the Advisory Agreement, the
"Agreements") among the Trust, on behalf of the Fund, the Advisor and Confluence
Investment Management LLC (the "Sub-Advisor"), at a meeting held on June 10-11,
2012. The Board determined that the continuation of the Agreements is in the
best interests of the Fund in light of the services, expenses and such other
matters as the Board considered to be relevant in the exercise of its reasonable
business judgment.

Page 24

--------------------------------------------------------------------------------
ADDITIONAL INFORMATION - (CONTINUED)
--------------------------------------------------------------------------------

FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
OCTOBER 31, 2012 (UNAUDITED)

includes a robust program for monitoring the Sub-Advisor's compliance with the
1940 Act and the Fund's investment objective and policies. With respect to the
Sub-Advisory Agreement, the Board reviewed the materials provided by the
Sub-Advisor and considered the services that the Sub-Advisor provides to the
Fund, including the Sub-Advisor's day-to-day management of the Fund's
investments. In light of the information presented and the considerations made,
the Board concluded that the nature, extent and quality of services provided to
the Fund by the Advisor and the Sub-Advisor under the Agreements have been and
are expected to remain satisfactory and that the Sub-Advisor, under the
oversight of the Advisor, has managed the Fund consistent with its investment
objective and policies.

The Board considered the advisory and sub-advisory fees paid under the
Agreements. The Board considered the advisory fees charged by the Advisor to
similar funds and other non-fund clients, noting that the Advisor does not
provide advisory services to other funds with investment objectives and policies
similar to the Fund's, but does provide services to certain separately managed
accounts with investment objectives and policies similar to the Fund's. The
Board noted that the Advisor charges a lower advisory fee rate to the separately
managed accounts, as well as the Advisor's statement that the nature of the
services provided to the separately managed accounts is not comparable to those
provided to the Fund. The Board considered the sub-advisory fee and how it
relates to the Fund's overall advisory fee structure and noted that the
sub-advisory fee is paid by the Advisor from its advisory fee. The Board also
considered information provided by the Sub-Advisor as to the fees it charges to
other clients, noting that the Sub-Advisor does not charge a lower fee to any
other client for which it provides comparable services. In addition, the Board
received data prepared by Lipper Inc. ("Lipper"), an independent source, showing
the advisory fees and expense ratios of the Fund as compared to the advisory
fees and expense ratios of a peer group selected by Lipper. The Board also
received advisory fee and expense ratio data for a peer group of funds compiled
by Morningstar Associates, LLC ("Morningstar"), an independent source. The Board
noted that the Lipper and Morningstar peer groups included five overlapping peer
funds. The Board discussed with representatives of the Advisor the limitations
in creating a relevant peer group for the Fund, including that (i) many of the
peer funds are larger than the Fund, which causes the Fund's fixed expenses to
be higher on a percentage basis as compared to the larger peer funds and (ii)
most peer funds do not employ an advisor/sub-advisor management structure. The
Board took these limitations into account in considering the peer data. In
reviewing the peer data, the Board noted that the Fund's contractual advisory
fee was below the median of the Lipper peer group but above the median of the
Morningstar peer group. The Board considered that the Advisor and Sub-Advisor
agreed to waive fees and/or pay Fund expenses through June 30, 2013 to the
extent necessary to prevent the annual operating expenses of the Fund (excluding
interest, taxes, brokerage commissions and other expenses connected with the
execution of portfolio transactions, service fees and distribution fees pursuant
to the Rule 12b-1 plan, if any, and extraordinary expenses) from exceeding 1.35%
of a class' average daily net assets. The Board noted that expenses borne or
fees waived by the Advisor and Sub-Advisor are subject to reimbursement by the
Fund for up to three years from the date the fee was waived or expense was
incurred, but no reimbursement payment would be made by the Fund if it would
result in the Fund exceeding an expense ratio equal to the expense cap in place
at the time the expenses were borne or fees were waived by the Advisor and
Sub-Advisor.

The Board also considered performance information for the Fund, noting that the
performance information included the Fund's quarterly performance report, which
is part of the process that the Board has established for monitoring the Fund's
performance and portfolio risk on an ongoing basis. The Board determined that
this process continues to be effective for reviewing the Fund's performance. In
addition to the Board's ongoing review of performance, the Board also received
data prepared by Lipper comparing the Fund's performance for the one-year and
since inception periods ended March 31, 2012 to the Lipper peer group, as well
as to a larger Lipper peer universe and to two benchmarks. The Morningstar
information provided to the Board also included a comparison of the Fund's
performance to the performance of the Morningstar peer group, as well as the
performance of the Fund's Morningstar category. In reviewing the Fund's
performance as compared to the performance of the Lipper peer group, Lipper peer
universe, Morningstar peer group and Morningstar category, the Board took into
account the limitations described above with respect to creating a relevant peer
group for the Fund. Based on the information presented, the Board noted that the
Fund's performance was below the median of the Lipper peer group and Morningstar
peer group for the one-year period ended March 31, 2012, but above the median of
the Lipper peer universe and Morningstar category over that same period.

Page 25

--------------------------------------------------------------------------------
ADDITIONAL INFORMATION - (CONTINUED)
--------------------------------------------------------------------------------

FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
OCTOBER 31, 2012 (UNAUDITED)

The Board noted the Sub-Advisor did not identify any economies of scale in
providing services to the Fund at current asset levels. The Board considered
that the sub-advisory fee rate was negotiated at arm's length between the
Advisor and the Sub-Advisor, an unaffiliated third party. The Board considered
the Sub-Advisor's statement that it had negative net fees in sub-advising the
Fund in 2011 as a result of fee waivers and expense reimbursements. The Board
considered fall-out benefits realized by the Sub-Advisor from its relationship
with the Fund, including the Sub-Advisor's statement that it benefits from
greater exposure to small cap value companies. The Board noted that the
Sub-Advisor does not maintain any soft-dollar arrangements.

Page 26

--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------

FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
OCTOBER 31, 2012 (UNAUDITED)

The Trust's statement of additional information includes additional information
about the Trustees and is available, without charge, upon request, by calling
(800) 988-5891.

NUMBER OF
PORTFOLIOS IN
THE FIRST TRUST OTHER
NAME, ADDRESS, TERM OF OFFICE FUND COMPLEX TRUSTEESHIPS OR
DATE OF BIRTH AND AND LENGTH OF PRINCIPAL OCCUPATIONS OVERSEEN BY DIRECTORSHIPS
POSITION WITH THE TRUST SERVICE DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE

Thomas R. Kadlec, Trustee o Indefinite Term President (March 2010 to Present), Senior 96 Director of ADM
c/o First Trust Advisors L.P. Vice President and Chief Financial Officer Investor Services,
120 East Liberty Drive, o Since Trust (May 2007 to March 2010), Vice President Inc. and ADM
Suite 400 Inception and Chief Financial Officer (1990 to May Investor Services,
Wheaton, IL 60187 2007), ADM Investor Services, Inc. (Futures International
D.O.B.: 11/57 Commission Merchant)

James A. Bowen(1), Trustee and o Indefinite Term Chief Executive Officer (December 2010 96 None
Chairman of the Board to Present), President, (until December
120 East Liberty Drive, o Since Trust 2010), First Trust Advisors L.P. and First
Suite 400 Inception Trust Portfolios L.P.; Chairman of the
Wheaton, IL 60187 Board of Directors, BondWave LLC
D.O.B.: 09/55 (Software Development Company/
Investment Advisor) and Stonebridge
Advisors LLC (Investment Advisor)

(1) Mr. Bowen is deemed an "interested person" of the Trust due to his
position as Chief Executive Officer of First Trust Advisors L.P.,
investment advisor of the Trust.

Page 27

FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
OCTOBER 31, 2012 (UNAUDITED)

NAME, ADDRESS POSITION AND OFFICES TERM OF OFFICE AND PRINCIPAL OCCUPATIONS
AND DATE OF BIRTH WITH TRUST LENGTH OF SERVICE DURING PAST 5 YEARS

Mark R. Bradley President and Chief o Indefinite Term Chief Operating Officer (December 2010 to Present)
120 East Liberty Drive, Executive Officer and Chief Financial Officer, First Trust Advisors
Suite 400 o Since January 2012 L.P. and First Trust Portfolios L.P.; Chief Financial
Wheaton, IL 60187 Officer, BondWave LLC (Software Development
D.O.B.: 11/57 Company/Investment Advisor) and Stonebridge
Advisors LLC (Investment Advisor)

James M. Dykas Treasurer, Chief Financial o Indefinite Term Controller (January 2011 to Present), Senior Vice
120 East Liberty Drive, Officer and Chief President (April 2007 to January 2011), Vice
Suite 400 Accounting Officer o Since January 2012 President (January 2005 to April 2007), First Trust
Wheaton, IL 60187 Advisors L.P. and First Trust Portfolios L.P.
D.O.B.: 01/66

W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P., First
120 East Liberty Drive, Legal Officer Trust Portfolios L.P. and BondWave LLC
Suite 400 o Since Trust Inception (Software Development Company/Investment
Wheaton, IL 60187 Advisor): Secretary of Stonebridge Advisors LLC
D.O.B.: 05/60 (Investment Advisor)

Daniel J. Lindquist Vice President o Indefinite Term Senior Vice President (September 2005 to
120 East Liberty Drive, Present), First Trust Advisors L.P. and
Suite 400 o Since Trust Inception First Trust Portfolios L.P.
Wheaton, IL 60187
D.O.B.: 02/70

Kristi A. Maher Assistant Secretary and o Indefinite Term Deputy General Counsel (May 2007 to Present)
120 East Liberty Drive, Chief Compliance Officer
Suite 400 o Since Trust Inception
Wheaton, IL 60187
D.O.B.: 12/66

(2) The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.

Page 28

--------------------------------------------------------------------------------
PRIVACY POLICY
--------------------------------------------------------------------------------

FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
OCTOBER 31, 2012 (UNAUDITED)

First Trust values our relationship with you and considers your privacy an
important priority in maintaining our relationship. We are committed to
protecting the security and confidentiality of your personal information.

SOURCES OF INFORMATION

We collect nonpublic personal information about you from the following sources:

o Information we receive from you or your broker-dealer, investment advisor
or financial representative through interviews, applications, agreements
or other forms;

o Information about your transactions with us, our affiliates or others;

o Information we receive from your inquiries by mail, e-mail or telephone;
and

o Information we collect on our website through the use of "cookies". For
example, we may identify the pages on our website that your browser
requests or visits.

INFORMATION COLLECTED

DISCLOSURE OF INFORMATION

We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required by law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:

In addition, in order to alert you to our other financial products and services,
we may share your personal information within First Trust.

PRIVACY ONLINE

We allow third-party companies, including AddThis (a social media sharing
service), to collect certain anonymous information when you visit our website.
These companies may use non-personally identifiable information during your
visits to this and other websites in order to provide advertisements about goods
and services likely to be of greater interest to you. These companies typically
use a cookie, third party web beacon or pixel tags, to collect this information.
To learn more about this behavioral advertising practice, you can visit
www.networkadvertising.org.

CONFIDENTIALITY AND SECURITY

With regard to our internal security procedures, First Trust restricts access to
your nonpublic personal information to those First Trust employees who need to
know that information to provide products or services to you. We maintain
physical, electronic and procedural safeguards to protect your nonpublic
personal information.

POLICY UPDATES AND INQUIRIES

As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at (800)
621-1675 (First Trust Portfolios) or (800) 222-6822 (First Trust Advisors).

Page 29

This Page Left Blank Intentionally.

FIRST TRUST

INVESTMENT ADVISOR
First Trust Advisors L.P.
120 E. Liberty Drive, Suite 400
Wheaton, IL 60187

INVESTMENT SUB-ADVISOR
Confluence Investment Management LLC
349 Marshall Avenue, Suite 302
Saint Louis, MO 63119

ADMINISTRATOR,
FUND ACCOUNTANT &
CUSTODIAN
Brown Brothers Harriman & Co.
50 Milk Street
Boston, MA 02109

TRANSFER AGENT
BNY Mellon Investment Servicing (US) Inc.
301 Bellevue Parkway
Wilmington, DE 19809

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.

(a) The registrant, as of the end of the period covered by this report, has
adopted a code of ethics that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant or
a third party.

(c) There have been no amendments, during the period covered by this report,
to a provision of the code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by the
registrant or a third party, and that relates to any element of the code
of ethics description.

(d) The registrant has not granted any waivers, including an implicit waiver,
from a provision of the code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by the
registrant or a third party, that relates to one or more of the items set
forth in paragraph (b) of this item's instructions.

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.

As of the end of the period covered by the report, the Registrant's Board of
Trustees has determined that Thomas R. Kadlec and Robert F. Keith are qualified
to serve as audit committee financial experts serving on its audit committee and
that each of them is "independent," as defined by Item 3 of Form N-CSR.

ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

(a) Audit Fees (Registrant) -- The aggregate fees billed for professional
services rendered by the principal accountant for the audit of the registrant's
annual financial statements or services that are normally provided by the
accountant in connection with statutory and regulatory filings or engagements
were $54,000 for 2011 and $56,000 for 2012.

Audit Fees (Investment Advisor and Distributor) -- The aggregate fees
billed for professional services rendered by the principal accountant for the
audit of the registrant's annual financial statements or services that are
normally provided by the accountant in connection with statutory and regulatory
filings or engagements were $0 for 2011 and $0 for 2012.

(b) Audit-Related Fees (Registrant) -- The aggregate fees billed in each
of the last two fiscal years for assurance and related services by the principal
accountant that are reasonably related to the performance of the audit of the
registrant's financial statements and are not reported under paragraph (a) of
this Item were $0 for 2011 and $0 for 2012.

Audit-Related Fees (Investment Adviser and Distributor) -- The aggregate
fees billed for assurance and related services by the principal accountant that
are reasonably related to the performance of the audit of the registrant's
financial statements and are not reported under paragraph (a) of this Item were
$17,000 for the Investment Adviser and $0 for the Distributor for 2011 and $0
for the Investment Adviser and $0 for the Distributor 2012.

(c) Tax Fees (Registrant) -- The aggregate fees billed for professional
services rendered by the principal accountant for tax compliance, tax advice,
and tax planning to the registrant were $0 for 2011 and $0 for 2012.

Tax Fees (Investment Adviser and Distributor) -- The aggregate fees billed
for professional services rendered by the principal accountant for tax
compliance, tax advice, and tax planning to the registrant's adviser and
distributor were $0 for the Investment Adviser and $0 for the Distributor for
2011 and $0 for the Investment Adviser and $0 for the Distributor 2012.

(d) All Other Fees (Registrant) -- The aggregate fees billed for products
and services provided by the principal accountant to the registrant, other than
the services reported in paragraphs (a) through (c) of this Item were $0 for
2011 and $0 for 2012.

All Other Fees (Investment Adviser and Distributor) -- The aggregate fees
billed for products and services provided by the principal accountant to the
registrant's investment adviser and distributor, other than the services
reported in paragraphs (a) through (c) of this Item were $0 for the Investment
Adviser and $0 for the Distributor for 2011 and $0 for the Investment Adviser
and $0 for the Distributor for 2012.

(e)(1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c) (7) of Rule 2-01 of Regulation S-X.

Pursuant to its charter and its Audit and Non-Audit Services Pre-Approval
Policy, the Audit Committee (the "Committee") is responsible for the
pre-approval of all audit services and permitted non-audit services (including
the fees and terms thereof) to be performed for the registrant by its
independent auditors. The Chairman of the Committee is authorized to give such
pre-approvals on behalf of the Committee up to $25,000 and report any such
pre-approval to the full Committee.

The Committee is also responsible for the pre-approval of the independent
auditor's engagements for non-audit services with the registrant's adviser (not
including a sub-adviser whose role is primarily portfolio management and is
sub-contracted or overseen by another investment adviser) and any entity
controlling, controlled by or under common control with the investment adviser
that provides ongoing services to the registrant, if the engagement relates
directly to the operations and financial reporting of the registrant, subject to
the de minimis exceptions for non-audit services described in Rule 2-01 of
Regulation S-X. If the independent auditor has provided non-audit services to
the registrant's adviser (other than any sub-adviser whose role is primarily
portfolio management and is sub-contracted with or overseen by another
investment adviser) and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
registrant that were not pre-approved pursuant to its policies, the Committee
will consider whether the provision of such non-audit services is compatible
with the auditor's independence.

(e)(2) The percentage of services described in each of paragraphs (b)
through (d) for the registrant and the registrant's investment adviser and
distributor of this Item that were approved by the audit committee pursuant to
the pre-approval exceptions included in paragraph (c)(7)(i)(C) or
paragraph(C)(7)(ii) of Rule 2-01 of Regulation S-X are as follows:

Registrant: Adviser and Distributor:
----------- ------------------------
(b) 0% (b) 0%
(c) 0% (c) 0%
(d) 0% (d) 0%

(f) The percentage of hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the most recent
fiscal year that were attributed to work performed by persons other than the
principal accountant's full-time, permanent employees was less than fifty
percent.

(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, and rendered to the registrant's investment
adviser (not including any sub-adviser whose role is primarily portfolio
management and is subcontracted with or overseen by another investment adviser),
and any entity controlling, controlled by, or under common control with the
adviser that provides ongoing services to the registrant were $0 for the
registrant, $3,720 for the registrant's investment adviser, $4,000 for the
registrant's sub-advisor and $31,883 for the registrant's distributor for 2011
and were $0 for the registrant, $6,600 for the registrant's investment adviser,
$2,800 for the registrant's sub-advisor and $92,315 for the registrant's
distributor for 2012.

(h) The registrant's audit committee of its Board of Trustees has
determined that the provision of non-audit services that were rendered to the
registrant's investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by, or under common
control with the investment adviser that provides ongoing services to the
registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal accountant's
independence.

ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.

(a) The Registrant has a separately designated audit committee consisting of
all the independent directors of the Registrant. The members of the audit
committee are: Thomas R. Kadlec, Niel B. Nielson, Richard E. Erickson and
Robert F. Keith.

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 period covered by this report that
has materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting.

ITEM 12. EXHIBITS.

(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 Series Fund
-----------------------------------------------------

By (Signature and Title)* /s/ Mark R. Bradley
------------------------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)

Date December 24, 2012
-----------------------

Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

By (Signature and Title)* /s/ Mark R. Bradley
------------------------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)

Date December 24, 2012
-----------------------

By (Signature and Title)* /s/ James M. Dykas
------------------------------------------------------
James M. Dykas, Treasurer, Chief Financial Officer
and Chief Accounting Officer
(principal financial officer)

Date December 24, 2012
-----------------------

* Print the name and title of each signing officer under his or her signature.