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
-----------
First Trust Series Fund
-------------------------------------------------------------
(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
-------------------------------------------------------------
(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
-------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (630) 765-8000
----------------
Date of fiscal year end: October 31
------------
Date of reporting period: April 30, 2016
------------------
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
-----------------------------------------
Semi-Annual Report
For the Six Months Ended
April 30, 2016
STONEBRIDGE
Advisors LLC
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
SEMI-ANNUAL REPORT
APRIL 30, 2016
Shareholder Letter .......................................................... 1
At a Glance ................................................................. 2
Portfolio Management ........................................................ 4
Understanding Your Fund Expenses ............................................ 5
Portfolio of Investments .................................................... 6
Statement of Assets and Liabilities ......................................... 11
Statement of Operations ..................................................... 12
Statements of Changes in Net Assets ......................................... 13
Financial Highlights ........................................................ 14
Notes to Financial Statements ............................................... 19
Additional Information ...................................................... 25
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 Additional
Information section of this report 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.
The Advisor may also periodically provide additional information on Fund
performance on the Fund's webpage at http://www.ftportfolios.com.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment in
the Fund. It includes details about the Fund and presents data and analysis that
provide insight into the Fund's performance and investment approach.
The statistical information that follows may help you understand the Fund's
performance compared to that of relevant market benchmarks.
It is important to keep in mind that the opinions expressed by 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 material 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 PREFERRED SECURITIES AND INCOME FUND
SEMI-ANNUAL REPORT
APRIL 30, 2016
Dear Shareholders:
Thank you for your investment in First Trust Preferred Securities and Income
Fund (the "Fund").
First Trust Advisors L.P. ("First Trust") is pleased to provide you with the
semi-annual report which contains detailed information about your investment for
the six months ended April 30, 2016. Additionally, First Trust compiled the
Fund's financial statements for you to review. We encourage you to read this
report and discuss it with your financial advisor.
While markets were up and down during 2015, we believe there are three important
things to remember. First, the U.S. economy grew, despite the massive decline in
oil prices. Second, the tapering that began in 2014 by the Federal Reserve (the
"Fed") did not stop growth in the U.S. economy. Finally, the long-anticipated
rate hike by the Fed in December had little effect on the money supply, and the
stock market was not shocked by the hike. Early in 2016, many investors were
concerned that the volatility we saw in the market in 2015 would continue, and
it did. From December 31, 2015 through February 11, 2016, the S&P 500(R) Index
declined by 10.27%. Since then, the market has made a steady comeback, and as of
April 30, 2016, the S&P 500(R) Index was up 13.39%.
First Trust believes that having a long-term investment horizon and being
invested in quality products can help you reach your goals, despite how the
market behaves. We have always maintained perspective about the markets and
believe investors should as well. We will continue to strive to provide quality
investments each and every day, which has been one of the hallmarks of our firm
since its inception 25 years ago.
Thank you for giving First Trust the opportunity to be a part of your investment
plan. We value our relationship with you and will continue to focus on helping
investors like you reach your financial goals.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 1
FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
"AT A GLANCE"
AS OF APRIL 30, 2016 (UNAUDITED)
-----------------------------------------------------------
FUND STATISTICS
-----------------------------------------------------------
FIRST TRUST PREFERRED SECURITIES NET ASSET
AND INCOME FUND VALUE (NAV)
-----------------------------------------------------------
Class A (FPEAX) $20.89
Class C (FPECX) $20.93
Class F (FPEFX) $21.07
Class I (FPEIX) $20.97
Class R3 (FPERX) $20.87
-----------------------------------------------------------
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS INVESTMENTS
-----------------------------------------------------------
Farm Credit Bank Of Texas, Series 1 3.0%
Liberty Mutual Group, Inc. 3.0
Aquarius & Investments Plc For Swiss
Reinsurance Co., Ltd. 2.8
Zions Bancorporation, Series J 2.6
Land O'Lakes Capital Trust I 2.4
Partnerre Ltd., Series E 2.4
General Electric Co., Series D 2.2
Friends Life Holdings PLC 2.2
Enel SpA 2.1
CoBank ACB, Series F 2.1
-------
Total 24.8%
=======
-----------------------------------------------------------
% OF TOTAL
SECTOR ALLOCATION INVESTMENTS
-----------------------------------------------------------
Financials 82.0%
Consumer Staples 5.4
Utilities 4.9
Telecommunication Services 4.6
Industrials 2.6
Information Technology 0.5
-------
Total 100.0%
=======
-----------------------------------------------------------
% OF TOTAL
CREDIT QUALITY(1) INVESTMENTS
-----------------------------------------------------------
AA- 2.3%
A 2.8
A- 2.2
BBB+ 16.6
BBB 17.1
BBB- 17.0
BB+ 18.6
BB 5.8
BB- 9.2
B+ 3.3
B 0.8
NR 4.3
-------
Total 100.0%
=======
------------------------------------------------------------------------------------------------------------------------
CLASS CLASS CLASS CLASS CLASS
DIVIDEND DISTRIBUTIONS A SHARES C SHARES F SHARES I SHARES R3 SHARES
------------------------------------------------------------------------------------------------------------------------
Current Monthly Distribution per Share(2) $0.0957 $0.0827 $0.0974 $0.1000 $0.0914
Current Distribution Rate on NAV(3) 5.50% 4.74% 5.55% 5.72% 5.26%
(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 rating is used. Sub-investment grade ratings are
those rated BB+/Ba1 or lower. Investment grade ratings are those rated
BBB-/Baa3 or higher. The credit ratings shown relate to the
creditworthiness of the issuer of the underlying securities in the Fund
and not the Fund or its shares. Credit ratings are subject to change.
(2) Most recent distribution paid or declared through 4/30/2016. 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 4/30/2016. Subject to change in the future.
NR Not Rated
Page 2
FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
"AT A GLANCE" (CONTINUED)
AS OF APRIL 30, 2016 (UNAUDITED)
-----------------------------------------------------------
PERFORMANCE OF A $10,000 INVESTMENT
-----------------------------------------------------------
This chart compares your Fund's Class I performance to that
of the BofA Merrill Lynch Fixed Rate Preferred Securities
Index, the BofA Merrill Lynch U.S. Capital Securities Index
and the Blended Index(a) from 1/11/2011 through 4/30/2016.
First Trust Preferred BofA Merrill Lynch BofA Merrill Lynch
Securities and Income Fixed Rate Preferred U.S. Capital Securities Blended
Fund - Class I Shares Securities Index ("POP1") Index ("C0CS") Index (a)
1/11/11 $10,000 $10,000 $10,000 $10,000
4/30/11 10,393 10,454 10,484 10,469
10/31/11 10,521 10,521 10,138 10,330
4/30/12 11,475 11,142 10,861 11,002
10/31/12 12,398 11,847 11,958 11,903
4/30/13 12,931 12,288 12,651 12,470
10/31/13 11,894 11,553 12,711 12,132
4/30/14 12,715 12,485 13,445 12,965
10/31/14 13,163 12,992 13,899 13,446
4/30/15 13,693 13,573 14,391 13,987
10/31/15 13,862 13,965 14,123 14,056
4/30/16 14,101 14,480 14,365 14,436
(a) The Blended Index Return is a 50/50 split between the BofA Merrill Lynch
Fixed Rate Preferred Securities Index and BofA Merrill Lynch U.S. Capital
Securities Index.
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE AS OF APRIL 30, 2016
------------------------------------------------------------------------------------------------------------------------------------
A SHARES C SHARES F SHARES I SHARES R3 SHARES BLENDED P0P1* C0CS*
Inception Inception Inception Inception Inception INDEX* BofA Merrill BofA Merrill
2/25/2011 2/25/2011 3/2/2011 1/11/2011 3/2/2011 Lynch Fixed Lynch U.S.
Rate Preferred Capital
Securities Index Securities Index
------------------------------------------------------------------------------------------------------------------------------------
W/MAX
1.00%
W/MAX CONTINGENT
W/O 4.50% W/O DEFERRED W/O W/O W/O W/O W/O W/O
AVERAGE ANNUAL SALES SALES SALES SALES SALES SALES SALES SALES SALES SALES
TOTAL RETURNS CHARGES CHARGE CHARGES CHARGE CHARGES CHARGES CHARGES CHARGES CHARGES CHARGES
6 Months 1.63% -2.95% 1.25% 0.26% 1.67% 1.75% 1.41% 2.70% 3.69% 1.71%
1 Year 2.79% -1.84% 2.01% 1.04% 2.91% 3.03% 2.43% 3.21% 6.69% -0.19%
Since Inception 6.28% 5.34% 5.51% 5.51% 6.45% 6.70% 5.89% 7.17% 7.24% 7.07%
30-Day SEC Yield(1) 5.15% 4.67% 5.51% 5.66% 5.15% N/A N/A N/A
------------------------------------------------------------------------------------------------------------------------------------
* Since inception return is based on the Class I Shares inception date.
Performance figures assume reinvestment of all 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 and
Sub-Advisor. An index is a statistical composite that tracks a specific
financial market or sector. Unlike the Fund, these 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. 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, the combined Rule 12b-1 distribution and service fees for
Class R3 Shares 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
reimbursement of Fund expenses, which has the effect of lowering the
Fund's expense ratio and generating a higher yield.
Page 3
--------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
--------------------------------------------------------------------------------
FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
SEMI-ANNUAL REPORT
APRIL 30, 2016 (UNAUDITED)
SUB-ADVISOR
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 securities and North American equity
income securities.
PORTFOLIO MANAGEMENT TEAM
SCOTT T. FLEMING - PRESIDENT AND CHIEF INVESTMENT OFFICER OF STONEBRIDGE
ADVISORS LLC
ROBERT WOLF - SENIOR VICE PRESIDENT AND SENIOR PORTFOLIO MANAGER
DANIELLE SALTERS, CFA - PORTFOLIO MANAGER AND CREDIT ANALYST
Page 4
FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
UNDERSTANDING YOUR FUND EXPENSES
APRIL 30, 2016 (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, if any, and other Fund expenses. This Example is intended to help you
understand your ongoing costs (in U.S. dollars) of investing in the Fund and to
compare these costs with the ongoing costs of investing in other 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 April 30, 2016.
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 11/1/2015 - VALUE VALUE 11/1/2015 - EXPENSE
11/1/2015 4/30/2016 4/30/2016 (a) 11/1/2015 4/30/2016 4/30/2016 (a) RATIOS (b)
-----------------------------------------------------------------------------------------------------------------
Class A $ 1,000.00 $1,016.30 $ 7.12 $1,000.00 $1,017.85 $ 7.07 1.41%
Class C 1,000.00 1,012.50 10.86 1,000.00 1,014.12 10.82 2.16
Class F 1,000.00 1,016.70 6.67 1,000.00 1,018.35 6.57 1.31
Class I 1,000.00 1,017.50 5.87 1,000.00 1,019.10 5.82 1.16
Class R3 1,000.00 1,014.10 8.36 1,000.00 1,016.61 8.32 1.66
(a) Expenses are equal to the annualized expense ratios, multiplied by the
average account value over the period November 1, 2015 through April 30,
2016, multiplied by 182/366 (to reflect the six-month period).
(b) These expense ratios reflect expense caps. Ratios reflect excise tax of
0.01% which is not included in the expense cap.
Page 5
FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 2016 (UNAUDITED)
STATED STATED
SHARES DESCRIPTION RATE MATURITY VALUE
------------- ----------------------------------------------- --------- ------------ --------------
$25 PAR PREFERRED SECURITIES - 23.4%
BANKS - 7.4%
26,185 Bank of America Corp., Series W................ 6.63% (a) $ 701,535
10,484 Barclays Bank PLC, Series 4.................... 7.75% (a) 274,995
9,274 Barclays Bank PLC, Series 5.................... 8.13% (a) 244,648
48,495 Citigroup Capital XIII (b)..................... 7.01% 10/30/40 1,268,144
40,000 Citigroup, Inc., Series J (c).................. 7.13% (a) 1,118,400
75,480 Citigroup, Inc., Series K (c).................. 6.88% (a) 2,082,493
5,321 First Niagara Financial Group, Inc.,
Series B (c)................................ 8.63% (a) 142,443
117,664 GMAC Capital Trust I, Series 2 (b)............. 6.41% 02/15/40 2,949,837
9,373 JPMorgan Chase & Co., Series BB................ 6.15% (a) 245,010
3,800 Royal Bank of Scotland Group PLC, Series R..... 6.13% (a) 93,556
25,000 Royal Bank of Scotland Group PLC, Series S..... 6.60% (a) 628,250
20,586 Royal Bank of Scotland Group PLC, Series T..... 7.25% (a) 519,179
5,461 Synovus Financial Corp., Series C (c).......... 7.88% (a) 155,366
51,970 Wintrust Financial Corp., Series D (c)......... 6.50% (a) 1,441,648
17,293 Zions Bancorporation, Series F................. 7.90% (a) 466,911
--------------
12,332,415
--------------
CAPITAL MARKETS - 1.5%
36,948 BGC Partners, Inc.............................. 8.13% 06/15/42 975,427
14,458 Morgan Stanley, Series E (c)................... 7.13% (a) 415,668
40,000 State Street Corp., Series G (c)............... 5.35% (a) 1,051,600
--------------
2,442,695
--------------
CONSUMER FINANCE - 0.8%
49,747 Ally Financial, Inc., Series A (c)............. 8.50% (a) 1,242,680
--------------
DIVERSIFIED FINANCIAL SERVICES - 2.6%
19,407 KKR Financial Holdings LLC, Series A........... 7.38% (a) 507,493
48,080 RBS Capital Funding Trust V, Series E.......... 5.90% (a) 1,173,152
60,000 RBS Capital Funding Trust VI, Series F......... 6.25% (a) 1,474,800
49,807 RBS Capital Funding Trust VII, Series G........ 6.08% (a) 1,222,762
--------------
4,378,207
--------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.8%
15,000 Qwest Corp..................................... 7.38% 06/01/51 383,400
39,800 Qwest Corp..................................... 7.50% 09/15/51 1,023,258
--------------
1,406,658
--------------
ELECTRIC UTILITIES - 0.4%
23,100 SCE Trust V, Series K (c)...................... 5.45% (a) 624,162
--------------
FOOD PRODUCTS - 1.1%
23,569 CHS, Inc., Series 1............................ 7.88% (a) 664,410
40,000 CHS, Inc., Series 2 (c)........................ 7.10% (a) 1,109,600
--------------
1,774,010
--------------
INSURANCE - 4.7%
40,000 Aspen Insurance Holdings Ltd. (c).............. 5.95% (a) 1,066,000
2,917 National General Holdings Corp................. 7.63% 09/15/55 71,700
16,212 Partnerre Ltd., Series D....................... 6.50% (a) 413,081
150,000 Partnerre Ltd., Series E....................... 7.25% (a) 3,916,500
80,877 Reinsurance Group of America, Inc. (c)......... 6.20% 09/15/42 2,373,740
--------------
7,841,021
--------------
Page 6 See Notes to Financial Statements
FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2016 (UNAUDITED)
STATED STATED
SHARES DESCRIPTION RATE MATURITY VALUE
------------- ----------------------------------------------- --------- ------------ --------------
$25 PAR PREFERRED SECURITIES (CONTINUED)
INTERNET SOFTWARE & SERVICES - 0.5%
32,787 eBay, Inc...................................... 6.00% 02/01/56 $ 842,626
--------------
REAL ESTATE INVESTMENT TRUSTS - 3.1%
37,375 American Homes 4 Rent, Series A (d)............ 5.00% (a) 988,943
63,999 American Homes 4 Rent, Series B (d)............ 5.00% (a) 1,717,733
41,400 EPR Properties, Series F....................... 6.63% (a) 1,094,202
52,600 VEREIT, Inc., Series F......................... 6.70% (a) 1,353,398
--------------
5,154,276
--------------
WIRELESS TELECOMMUNICATION SERVICES - 0.5%
33,066 United States Cellular Corp.................... 7.25% 12/01/64 843,183
--------------
TOTAL $25 PAR PREFERRED SECURITIES........................................ 38,881,933
(Cost $38,027,700) --------------
$100 PAR PREFERRED SECURITIES - 4.4%
BANKS - 3.9%
32,500 CoBank ACB, Series F (c)....................... 6.25% (a) 3,345,469
27,000 CoBank ACB, Series G........................... 6.13% (a) 2,554,875
5,500 Farm Credit Bank Of Texas (c) (e).............. 6.75% (a) 593,484
--------------
6,493,828
--------------
CONSUMER FINANCE - 0.5%
20,000 SLM Corp., Series B (b)........................ 2.33% (a) 880,000
--------------
TOTAL $100 PAR PREFERRED SECURITIES....................................... 7,373,828
(Cost $7,184,925) --------------
$1,000 PAR PREFERRED SECURITIES - 6.4%
BANKS - 3.3%
500 AgStar Financial Services ACA (c) (f).......... 6.75% (a) 556,219
4,000 Farm Credit Bank Of Texas, Series 1 (e)........ 10.00% (a) 4,925,000
--------------
5,481,219
--------------
DIVERSIFIED FINANCIAL SERVICES - 0.2%
300 Pitney Bowes International Holdings, Inc.,
Series F (f)................................ 6.13% (a) 304,594
--------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.8%
2,500 Centaur Funding Corp. (f)...................... 9.08% 04/21/20 2,984,375
--------------
INSURANCE - 0.2%
490 XLIT Ltd., Series D (b)........................ 3.75% (a) 395,062
--------------
REAL ESTATE INVESTMENT TRUSTS - 0.9%
1,261 Sovereign Real Estate Investment Trust (f)..... 12.00% (a) 1,543,149
--------------
TOTAL $1,000 PAR PREFERRED SECURITIES..................................... 10,708,399
(Cost $11,021,612) --------------
See Notes to Financial Statements Page 7
FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2016 (UNAUDITED)
PAR STATED STATED
AMOUNT DESCRIPTION RATE MATURITY VALUE
------------- ----------------------------------------------- --------- ------------ --------------
CAPITAL PREFERRED SECURITIES - 63.4%
BANKS - 27.8%
$ 3,000,000 Banco Bilbao Vizcaya Argentina SA (c) (h)...... 9.00% (a) $ 3,110,610
3,000,000 Bank Of America Corp., Series DD (c)........... 6.30% (a) 3,150,000
1,500,000 Bank Of America Corp., Series Z (c)............ 6.50% (a) 1,580,625
750,000 Barclays PLC (c) (h)........................... 8.25% (a) 754,535
2,500,000 BNP Paribas SA (c) (g) (h)..................... 7.63% (a) 2,562,500
1,000,000 Citigroup, Inc., Series E (c).................. 8.40% (a) 1,097,500
1,500,000 Citigroup, Inc., Series R (c).................. 6.13% (a) 1,526,250
1,000,000 Citigroup, Inc., Series T (c).................. 6.25% (a) 1,030,000
500,000 Citizens Financial Group, Inc. (c) (g)......... 5.50% (a) 478,750
2,500,000 CoBank ACB, Series I (c)....................... 6.25% (a) 2,581,250
1,000,000 Commerzbank AG................................. 8.13% 09/19/23 1,177,600
753,000 Cooperatieve Rabobank UA (c)................... 11.00% (a) 920,542
1,000,000 Cooperatieve Rabobank UA (c) (g)............... 11.00% (a) 1,222,500
2,000,000 Credit Agricole S.A. (c) (g) (h)............... 8.13% (a) 2,071,886
2,000,000 Credit Agricole S.A. (c)....................... 8.38% (a) 2,275,000
2,000,000 Dresdner Funding Trust I....................... 8.15% 06/30/31 2,329,838
2,500,000 Fuerstenberg Capital International Sarl & Cie
SECS (c).................................... 10.25% (a) 2,531,032
1,500,000 Intesa Sanpaolo SpA (c) (g) (h)................ 7.70% (a) 1,389,375
500,000 KeyCorp Capital II (e)......................... 6.88% 03/17/29 560,707
1,000,000 Lloyds Bank PLC (c) (g)........................ 12.00% (a) 1,323,750
500,000 Lloyds Banking Group PLC (c) (h)............... 7.50% (a) 497,000
1,600,000 Macquarie Bank Ltd. London (c) (h)............. 10.25% 06/20/57 1,710,498
1,298,000 Natixis SA (c)................................. 10.00% (a) 1,433,797
500,000 NIBC Bank N.V.................................. 7.63% (a) 501,339
1,000,000 Royal Bank Of Scotland Group PLC (c) (h)....... 8.00% (a) 960,937
3,000,000 Wells Fargo & Co., Series K (c)................ 7.98% (a) 3,123,750
4,000,000 Zions Bancorporation, Series J (c)............. 7.20% (a) 4,250,000
--------------
46,151,571
--------------
CAPITAL MARKETS - 1.9%
87,000 Charles Schwab Corp. (c)....................... 7.00% (a) 99,724
1,000,000 Credit Suisse Group AG (c) (g) (h)............. 7.50% (a) 996,582
1,041,000 Deutsche Bank Capital Trust IV (c) (e)......... 4.59% (a) 1,042,561
1,000,000 UBS Group AG (c) (h)........................... 7.13% (a) 1,018,120
--------------
3,156,987
--------------
DIVERSIFIED FINANCIAL SERVICES - 0.3%
665,000 Glen Meadow Pass-Through Trust (c) (g)......... 6.51% 02/12/67 488,775
--------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.6%
1,000,000 Koninklijke KPN N.V. (c)....................... 7.00% 03/28/73 1,071,100
--------------
ELECTRIC UTILITIES - 4.1%
3,000,000 Enel SpA (c) (g)............................... 8.75% 09/24/73 3,468,750
1,500,000 PPL Capital Funding, Inc., Series A (c)........ 6.70% 03/30/67 1,160,843
2,000,000 Southern California Edison Co., Series E (c)... 6.25% (a) 2,194,000
--------------
6,823,593
--------------
FOOD PRODUCTS - 4.3%
3,620,000 Land O'Lakes Capital Trust I (g)............... 7.45% 03/15/28 3,918,650
3,000,000 Land O'Lakes, Inc. (f)......................... 8.00% (a) 3,101,250
--------------
7,019,900
--------------
INDEPENDENT POWER AND RENEWABLE ELECTRICITY
PRODUCERS - 0.7%
1,075,000 AES Gener S.A. (c)............................. 8.38% 12/18/73 1,123,375
--------------
Page 8 See Notes to Financial Statements
FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2016 (UNAUDITED)
PAR STATED STATED
AMOUNT DESCRIPTION RATE MATURITY VALUE
------------- ----------------------------------------------- --------- ------------ --------------
CAPITAL PREFERRED SECURITIES (CONTINUED)
INDUSTRIAL CONGLOMERATES - 2.2%
$ 3,500,000 General Electric Co., Series D (c)............. 5.00% (a) $ 3,640,000
--------------
INSURANCE - 21.5%
1,000,000 AG Insurance S.A./N.V. (c)..................... 6.75% (a) 1,074,145
4,200,000 Aquarius & Investments Plc For Swiss
Reinsurance Co., Ltd. (c)................... 8.25% (a) 4,589,739
2,215,000 Assured Guaranty Municipal Holdings,
Inc. (c) (g)................................ 6.40% 12/15/66 1,528,350
2,000,000 Aviva PLC...................................... 8.25% (a) 2,161,242
2,500,000 Catlin Insurance Co., Ltd. (c) (g)............. 7.25% (a) 1,757,500
1,000,000 CNP Assurances (c)............................. 6.88% (a) 1,090,292
2,500,000 CNP Assurances (c)............................. 7.50% (a) 2,753,302
3,300,000 Friends Life Holdings PLC (c).................. 7.88% (a) 3,630,056
1,634,000 Hartford Financial Services Group, Inc. (c).... 8.13% 06/15/38 1,768,805
2,500,000 La Mondiale SAM (c)............................ 7.63% (a) 2,689,238
3,285,000 Liberty Mutual Group, Inc. (c)................. 10.75% 06/15/58 4,804,312
1,587,000 Metlife Capital Trust X (c) (g)................ 9.25% 04/08/38 2,170,223
1,250,000 Metlife, Inc. (c).............................. 10.75% 08/01/39 1,909,375
500,000 QBE Capital Funding III Ltd. (c)............... 7.25% 05/24/41 549,995
2,500,000 QBE Insurance Group Ltd. (c)................... 6.75% 12/02/44 2,693,750
500,000 Sirius International Group Ltd. (c) (f)........ 7.51% (a) 492,500
--------------
35,662,824
--------------
TOTAL CAPITAL PREFERRED SECURITIES........................................ 105,138,125
(Cost $106,463,926) --------------
TOTAL INVESTMENTS - 97.6%................................................. $ 162,102,285
(Cost $162,698,163) (i)
NET OTHER ASSETS AND LIABILITIES - 2.4%................................... 3,949,014
--------------
NET ASSETS - 100.0%....................................................... $ 166,051,299
==============
(a) Perpetual maturity.
(b) Floating rate security. The interest rate shown reflects the rate in
effect at April 30, 2016.
(c) Fixed-to-floating or fixed-to-variable rate security. The interest rate
shown reflects the fixed rate in effect at April 30, 2016. At a
predetermined date, the fixed rate will change to a floating rate or a
variable rate.
(d) Step-up security. A security where the coupon increases or steps up at a
predetermined date. Interest rate shown reflects the rate in effect at
April 30, 2016.
(e) Pursuant to procedures adopted by the First Trust Series Fund's (the
"Trust") Board of Trustees, this security has been determined to be
illiquid by Stonebridge Advisors LLC, the Fund's sub-advisor (the
"Sub-Advisor").
(f) 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 (the "1933 Act"), and may be resold in
transactions exempt from registration, normally to qualified institutional
buyers (see Note 2C - Restricted Securities in the Notes to Financial
Statements).
(g) This security, sold within the terms of a private placement memorandum, is
exempt from registration upon resale under Rule 144A under the 1933 Act,
and may be resold in transactions exempt from registration, normally to
qualified institutional buyers. Pursuant to procedures adopted by the
Trust's Board of Trustees, this security has been determined to be liquid
by the Sub-Advisor. Although market instability can result in periods of
increased overall market illiquidity, liquidity for each security is
determined based on security specific factors and assumptions, which
require subjective judgment. At April 30, 2016, securities noted as such
amounted to $23,377,591 or 14.1% of net assets.
(h) This security is a contingent convertible capital security. At April 30,
2016, securities noted as such amounted to $15,072,043 or 9.1% of managed
assets. Of these securities, 100.0% originated in foreign markets.
(i) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of April 30, 2016, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $2,875,591 and the aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over value was $3,471,469.
See Notes to Financial Statements Page 9
FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2016 (UNAUDITED)
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of April 30,
2016 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
INVESTMENTS 4/30/2016 PRICES INPUTS INPUTS
--------------------------------------------------- ------------- ------------- ------------- -------------
$25 Par Preferred Securities*...................... $ 38,881,933 $ 38,881,933 $ -- $ --
$100 Par Preferred Securities:
Consumer Finance................................ 880,000 880,000 -- --
Other Industry Categories*...................... 6,493,828 -- 6,493,828 --
------------- ------------- ------------- -------------
Total $100 Par Preferred Securities................ 7,373,828 880,000 6,493,828 --
$1,000 Par Preferred Securities*................... 10,708,399 -- 10,708,399 --
Capital Preferred Securities*...................... 105,138,125 -- 105,138,125 --
------------- ------------- ------------- -------------
Total Investments.................................. $ 162,102,285 $ 39,761,933 $ 122,340,352 $ --
============= ============= ============= =============
* 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 April 30, 2016.
Page 10 See Notes to Financial Statements
FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2016 (UNAUDITED)
ASSETS:
Investments, at value
(Cost $162,698,163)............................................................................. $162,102,285
Cash............................................................................................... 4,058,279
Receivables:
Interest........................................................................................ 2,011,579
Fund shares sold................................................................................ 523,339
Dividends....................................................................................... 151,812
Investment securities sold...................................................................... 42,367
Prepaid expenses................................................................................... 27,735
------------
Total Assets.................................................................................... 168,917,396
------------
LIABILITIES:
Payables:
Investment securities purchased................................................................. 1,658,310
Fund shares repurchased......................................................................... 839,692
Investment advisory fees........................................................................ 91,839
Distributions payable........................................................................... 88,920
12b-1 distribution and service fees............................................................. 44,840
Transfer agent fees............................................................................. 39,128
Legal fees...................................................................................... 22,673
Audit and tax fees.............................................................................. 20,558
Printing fees................................................................................... 20,480
Administrative fees............................................................................. 11,808
Commitment fees................................................................................. 9,355
Custodian fees.................................................................................. 6,942
Trustees' fees and expenses..................................................................... 6,111
Registration fees............................................................................... 1,212
Financial reporting fees........................................................................ 745
Other liabilities.................................................................................. 3,484
------------
Total Liabilities............................................................................... 2,866,097
------------
NET ASSETS......................................................................................... $166,051,299
============
NET ASSETS CONSIST OF:
Paid-in capital.................................................................................... $179,371,153
Par value ($0.01 per share with an unlimited number of shares authorized).......................... 79,280
Accumulated net investment income (loss)........................................................... 371,483
Accumulated net realized gain (loss) on investments................................................ (13,174,739)
Net unrealized appreciation (depreciation) on investments.......................................... (595,878)
------------
NET ASSETS......................................................................................... $166,051,299
============
MAXIMUM OFFERING PRICE PER SHARE:
CLASS A SHARES:
Net asset value and redemption price per share (Based on net assets of $29,900,082 and
1,431,157 shares of beneficial interest issued and outstanding)............................... $ 20.89
Maximum sales charge (4.50% of offering price).................................................. 0.98
------------
Maximum offering price to public................................................................ $ 21.87
============
CLASS C SHARES:
Net asset value and redemption price per share (Based on net assets of $46,928,850 and
2,241,862 shares of beneficial interest issued and outstanding).............................. $ 20.93
============
CLASS F SHARES:
Net asset value and redemption price per share (Based on net assets of $3,426,096 and 162,637
shares of beneficial interest issued and outstanding)......................................... $ 21.07
============
CLASS I SHARES:
Net asset value and redemption price per share (Based on net assets of $85,500,964 and
4,078,233 shares of beneficial interest issued and outstanding)............................... $ 20.97
============
CLASS R3 SHARES:
Net asset value and redemption price per share (Based on net assets of $295,307 and 14,152
shares of beneficial interest issued and outstanding)......................................... $ 20.87
============
See Notes to Financial Statements Page 11
FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 2016 (UNAUDITED)
INVESTMENT INCOME:
Interest .......................................................................................... $ 3,859,174
Dividends (net of foreign withholding tax of $456)................................................. 2,081,633
Other.............................................................................................. 1,776
------------
Total investment income......................................................................... 5,942,583
------------
EXPENSES:
Investment advisory fees........................................................................... 658,198
12b-1 distribution and/or service fees:............................................................
Class A......................................................................................... 35,381
Class C......................................................................................... 228,850
Class F......................................................................................... 3,071
Class R3........................................................................................ 789
Transfer agent fees................................................................................ 87,890
Registration fees.................................................................................. 52,234
Administrative fees................................................................................ 34,967
Expenses previously waived or reimbursed........................................................... 32,553
Legal fees......................................................................................... 28,095
Printing fees...................................................................................... 20,431
Excise tax expense................................................................................. 17,335
Audit and tax fees................................................................................. 16,509
Custodian fees..................................................................................... 16,155
Commitment fees.................................................................................... 11,969
Trustees' fees and expenses........................................................................ 9,076
Financial reporting fees........................................................................... 4,599
Listing expense.................................................................................... 1,247
Other.............................................................................................. 3,233
------------
Total expenses.................................................................................. 1,262,582
Fees waived or expenses reimbursed by the investment advisor.................................... (30,978)
------------
Net expenses....................................................................................... 1,231,604
------------
NET INVESTMENT INCOME (LOSS)....................................................................... 4,710,979
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments............................................................ (2,535,862)
Net change in unrealized appreciation (depreciation)............................................... 54,985
------------
NET REALIZED AND UNREALIZED GAIN (LOSS)............................................................ (2,480,877)
------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.................................... $ 2,230,102
============
Page 12 See Notes to Financial Statements
FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE
SIX MONTHS
ENDED FOR THE
4/30/2016 YEAR ENDED
(UNAUDITED) 10/31/2015
------------- -------------
OPERATIONS:
Net investment income (loss)...................................................... $ 4,710,979 $ 8,701,285
Net realized gain (loss).......................................................... (2,535,862) 372,486
Net change in unrealized appreciation (depreciation).............................. 54,985 (1,448,520)
------------- -------------
Net increase (decrease) in net assets resulting from operations................... 2,230,102 7,625,251
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A Shares.................................................................... (784,197) (1,690,247)
Class C Shares.................................................................... (1,094,104) (2,016,097)
Class F Shares.................................................................... (114,737) (152,397)
Class I Shares.................................................................... (2,484,518) (4,338,486)
Class R3 Shares................................................................... (8,340) (19,214)
------------- -------------
(4,485,896) (8,216,441)
------------- -------------
CAPITAL TRANSACTIONS:
Proceeds from shares sold ........................................................ 40,559,915 56,294,234
Proceeds from shares reinvested................................................... 3,961,298 7,209,207
Cost of shares redeemed........................................................... (39,162,490) (52,197,485)
------------- -------------
Net increase (decrease) in net assets resulting from capital transactions......... 5,358,723 11,305,956
------------- -------------
Total increase (decrease) in net assets........................................... 3,102,929 10,714,766
NET ASSETS:
Beginning of period............................................................... 162,948,370 152,233,604
------------- -------------
End of period..................................................................... $ 166,051,299 $ 162,948,370
============= =============
Accumulated net investment income (loss) at end of period......................... $ 371,483 $ 146,400
============= =============
See Notes to Financial Statements Page 13
FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX MONTHS FOR THE PERIOD
ENDED YEAR ENDED OCTOBER 31, 2/25/2011 (a)
4/30/2016 -------------------------------------------------------- THROUGH
CLASS A SHARES (UNAUDITED) 2015 2014 2013 2012 10/31/2011
----------- ----------- ----------- ----------- ----------- ------------
Net asset value, beginning of period..... $ 21.13 $ 21.20 $ 20.27 $ 22.42 $ 20.10 $ 20.26
------- ------- ------- ------- ------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)............. 0.60 (b) 1.18 (b) 1.14 (b) 0.98 (b) 0.89 (b) 0.79
Net realized and unrealized gain (loss).. (0.27) (0.13) 0.91 (1.91) 2.55 (0.11)
------- ------- ------- ------- ------- --------
Total from investment operations......... 0.33 1.05 2.05 (0.93) 3.44 0.68
------- ------- ------- ------- ------- --------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income.................... (0.57) (1.12) (1.09) (0.98) (1.12) (0.84)
Net realized gain........................ -- -- -- (0.09) (0.00) (c) --
Return of capital........................ -- -- (0.03) (0.15) -- --
------- ------- ------- ------- ------- --------
Total distributions...................... (0.57) (1.12) (1.12) (1.22) (1.12) (0.84)
------- ------- ------- ------- ------- --------
Net asset value, end of period........... $ 20.89 $ 21.13 $ 21.20 $ 20.27 $ 22.42 $ 20.10
======= ======= ======= ======= ======= ========
TOTAL RETURN (d)......................... 1.63% 5.05% 10.35% (4.36)% 17.60% 3.45%
======= ======= ======= ======= ======= ========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)..... $29,900 $28,585 $32,874 $90,286 $83,717 $ 6,932
Ratio of total expenses to average net
assets................................ 1.51% (e)(f) 1.50% (e) 1.40% 1.44% 1.83% 6.68% (f)
Ratio of net expenses to average net
assets................................ 1.41% (e)(f) 1.41% (e) 1.40% 1.40% 1.40% 1.40% (f)
Ratio of net investment income (loss) to
average net assets.................... 5.82% (f) 5.55% 5.47% 4.52% 4.13% 4.68% (f)
Portfolio turnover rate.................. 43% 123% 170% 60% 60% 88%
(a) Class A 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 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) For the six months ended April 30, 2016 and the year ended October 31,
2015, ratios reflect excise tax of 0.01% and 0.01%, respectively, which
are not included in the expense cap.
(f) Annualized.
Page 14 See Notes to Financial Statements
FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX MONTHS FOR THE PERIOD
ENDED YEAR ENDED OCTOBER 31, 2/25/2011 (a)
4/30/2016 -------------------------------------------------------- THROUGH
CLASS C SHARES (UNAUDITED) 2015 2014 2013 2012 10/31/2011
----------- ----------- ----------- ----------- ----------- ------------
Net asset value, beginning of period..... $ 21.17 $ 21.24 $ 20.30 $ 22.45 $ 20.13 $ 20.26
------- ------- ------- ------- ------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)............. 0.53 (b) 1.02 (b) 0.99 (b) 0.83 (b) 0.73 (b) 0.69
Net realized and unrealized gain (loss).. (0.27) (0.13) 0.91 (1.93) 2.55 (0.08)
------- ------- ------- ------- ------- --------
Total from investment operations......... 0.26 0.89 1.90 (1.10) 3.28 0.61
------- ------- ------- ------- ------- --------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income.................... (0.50) (0.96) (0.94) (0.84) (0.96) (0.74)
Net realized gain........................ -- -- -- (0.08) (0.00) (c) --
Return of capital........................ -- -- (0.02) (0.13) -- --
------- ------- ------- ------- ------- --------
Total distributions...................... (0.50) (0.96) (0.96) (1.05) (0.96) (0.74)
------- ------- ------- ------- ------- --------
Net asset value, end of period........... $ 20.93 $ 21.17 $ 21.24 $ 20.30 $ 22.45 $ 20.13
======= ======= ======= ======= ======= ========
TOTAL RETURN (d)......................... 1.25% 4.26% 9.56% (5.03)% 16.70% 3.08%
======= ======= ======= ======= ======= ========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)..... $46,929 $45,093 $45,248 $55,376 $36,681 $ 2,720
Ratio of total expenses to average net
assets................................ 2.16% (e)(f) 2.16% (e) 2.18% 2.17% 2.66% 8.03% (f)
Ratio of net expenses to average net
assets................................ 2.16% (e)(f) 2.16% (e) 2.15% 2.15% 2.15% 2.15% (f)
Ratio of net investment income (loss) to
average net assets.................... 5.07% (f) 4.79% 4.75% 3.81% 3.36% 4.10% (f)
Portfolio turnover rate.................. 43% 123% 170% 60% 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
returns 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) For the six months ended April 30, 2016 and the year ended October 31,
2015, ratios reflect excise tax of 0.01% and 0.01%, respectively, which
are not included in the expense cap.
(f) Annualized.
See Notes to Financial Statements Page 15
FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX MONTHS FOR THE PERIOD
ENDED YEAR ENDED OCTOBER 31, 3/2/2011 (a)
4/30/2016 -------------------------------------------------------- THROUGH
CLASS F SHARES (UNAUDITED) 2015 2014 2013 2012 10/31/2011
----------- ----------- ----------- ----------- ----------- ------------
Net asset value, beginning of period..... $ 21.31 $ 21.37 $ 20.42 $ 22.59 $ 20.12 $ 20.25
------- ------- ------- ------- ------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)............. 0.60 (b) 1.23 (b) 1.18 (b) 1.02 (b) 0.89 (b) 0.70
Net realized and unrealized gain (loss).. (0.26) (0.15) 0.91 (1.95) 2.72 (0.07)
------- ------- ------- ------- ------- --------
Total from investment operations......... 0.34 1.08 2.09 (0.93) 3.61 0.63
------- ------- ------- ------- ------- --------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income.................... (0.58) (1.14) (1.11) (1.01) (1.14) (0.76)
Net realized gain........................ -- -- -- (0.08) (0.00) (c) --
Return of capital........................ -- -- (0.03) (0.15) -- --
------- ------- ------- ------- ------- --------
Total distributions...................... (0.58) (1.14) (1.14) (1.24) (1.14) (0.76)
------- ------- ------- ------- ------- --------
Net asset value, end of period........... $ 21.07 $ 21.31 $ 21.37 $ 20.42 $ 22.59 $ 20.12
======= ======= ======= ======= ======= ========
TOTAL RETURN (d)......................... 1.67% 5.16% 10.48% (4.32)% 18.47% 3.17%
======= ======= ======= ======= ======= ========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)..... $ 3,426 $ 2,501 $ 2,617 $ 3,735 $ 4,012 $ 1
Ratio of total expenses to average net
assets................................ 1.70% (e)(f) 1.92% 1.81% 1.58% 3.71% 233.60% (f)
Ratio of net expenses to average net
assets................................ 1.31% (e)(f) 1.30% 1.30% 1.30% 1.30% 1.30% (f)
Ratio of net investment income (loss) to
average net assets.................... 5.82% (f) 5.70% 5.64% 4.63% 4.09% 5.21% (f)
Portfolio turnover rate.................. 43% 123% 170% 60% 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) For the six months ended April 30, 2016, ratios reflect excise tax of
0.01%, which is not included in the expense cap.
(f) Annualized.
Page 16 See Notes to Financial Statements
FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX MONTHS FOR THE PERIOD
ENDED YEAR ENDED OCTOBER 31, 1/11/2011 (a)
4/30/2016 -------------------------------------------------------- THROUGH
CLASS I SHARES (UNAUDITED) 2015 2014 2013 2012 10/31/2011
----------- ----------- ----------- ----------- ----------- ------------
Net asset value, beginning of period..... $ 21.21 $ 21.27 $ 20.33 $ 22.47 $ 20.15 $ 20.00
------- ------- ------- ------- ------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)............. 0.63 (b) 1.23 (b) 1.20 (b) 1.04 (b) 0.92 (b) 0.82
Net realized and unrealized gain (loss).. (0.27) (0.12) 0.91 (1.91) 2.57 0.21
------- ------- ------- ------- ------- --------
Total from investment operations......... 0.36 1.11 2.11 (0.87) 3.49 1.03
------- ------- ------- ------- ------- --------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income.................... (0.60) (1.17) (1.14) (1.03) (1.17) (0.88)
Net realized gain........................ -- -- -- (0.09) (0.00) (c) --
Return of capital........................ -- -- (0.03) (0.15) -- --
------- ------- ------- ------- ------- --------
Total distributions...................... (0.60) (1.17) (1.17) (1.27) (1.17) (0.88)
------- ------- ------- ------- ------- --------
Net asset value, end of period........... $ 20.97 $ 21.21 $ 21.27 $ 20.33 $ 22.47 $ 20.15
======= ======= ======= ======= ======= ========
TOTAL RETURN (d)......................... 1.75% 5.35% 10.65% (4.06)% 17.84% 5.21%
======= ======= ======= ======= ======= ========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)..... $85,501 $86,412 $71,094 $58,700 $45,432 $ 439
Ratio of total expenses to average net
assets................................ 1.16% (e)(f) 1.16% (e) 1.15% 1.23% 1.46% 22.09% (f)
Ratio of net expenses to average net
assets................................ 1.16% (e)(f) 1.16% (e) 1.15% 1.15% 1.15% 1.15% (f)
Ratio of net investment income (loss) to
average net assets.................... 6.06% (f) 5.80% 5.74% 4.79% 4.20% 5.12% (f)
Portfolio turnover rate.................. 43% 123% 170% 60% 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 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.
(e) For the six months ended April 30, 2016 and the year ended October 31,
2015, ratios reflect excise tax of 0.01% and 0.01%, respectively, which
are not included in the expense cap.
(f) Annualized.
See Notes to Financial Statements Page 17
FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX MONTHS FOR THE PERIOD
ENDED YEAR ENDED OCTOBER 31, 3/2/2011 (a)
4/30/2016 -------------------------------------------------------- THROUGH
CLASS R3 SHARES (UNAUDITED) 2015 2014 2013 2012 10/31/2011
----------- ----------- ----------- ----------- ----------- ------------
Net asset value, beginning of period..... $ 21.13 $ 21.20 $ 20.26 $ 22.41 $ 20.11 $ 20.25
------- ------- ------- ------- ------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)............. 0.57 (b) 1.13 (b) 1.09 (b) 0.93 (b) 0.80 (b) 0.61
Net realized and unrealized gain (loss).. (0.28) (0.14) 0.92 (1.92) 2.56 (0.07)
------- ------- ------- ------- ------- --------
Total from investment operations......... 0.29 0.99 2.01 (0.99) 3.36 0.54
------- ------- ------- ------- ------- --------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income.................... (0.55) (1.06) (1.04) (0.92) (1.06) (0.68)
Net realized gain........................ -- -- -- (0.10) (0.00) (c) --
Return of capital........................ -- -- (0.03) (0.14) -- --
------- ------- ------- ------- ------- --------
Total distributions...................... (0.55) (1.06) (1.07) (1.16) (1.06) (0.68)
------- ------- ------- ------- ------- --------
Net asset value, end of period........... $ 20.87 $ 21.13 $ 21.20 $ 20.26 $ 22.41 $ 20.11
======= ======= ======= ======= ======= ========
TOTAL RETURN (d)......................... 1.41% 4.79% 10.14% (4.61)% 17.19% 2.74%
======= ======= ======= ======= ======= ========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)..... $ 295 $ 357 $ 401 $ 478 $ 615 $ 1
Ratio of total expenses to average net
assets................................ 7.59% (e)(f) 6.56% (e) 5.74% 4.87% 11.51% 301.79% (f)
Ratio of net expenses to average net
assets................................ 1.66% (e)(f) 1.66% (e) 1.65% 1.65% 1.65% 1.90% (f)
Ratio of net investment income (loss) to
average net assets.................... 5.54% (f) 5.30% 5.25% 4.25% 3.66% 4.62% (f)
Portfolio turnover rate.................. 43% 123% 170% 60% 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) For the six months ended April 30, 2016 and the year ended October 31,
2015, ratios reflect excise tax of 0.01% and 0.01%, respectively, which
are not included in the expense cap.
(f) Annualized.
Page 18 See Notes to Financial Statements
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
APRIL 30, 2016 (UNAUDITED)
1. ORGANIZATION
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 diversified, open-end management
investment company with the Securities and Exchange Commission 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 Fund, which is an investment company within the scope of Financial
Accounting Standards Board ("FASB") Accounting Standards Update 2013-08, follows
accounting and reporting guidance under FASB Accounting Standards Codification
Topic 946, "Financial Services-Investment Companies." 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 at market value or, in the absence of
market value with respect to any portfolio securities, at fair value. Market
value prices represent last sale or official closing prices from a national or
foreign exchange (i.e., a regulated market) and are primarily obtained from
third-party pricing services. Fair value prices represent any prices not
considered market value prices and are either obtained from a third-party
pricing service, or are determined by the Pricing Committee of the Trust's
investment advisor, First Trust Advisors L.P. ("First Trust" or the "Advisor"),
in accordance with valuation procedures adopted by the Trust's Board of
Trustees, and in accordance with provisions of the 1940 Act. Investments valued
by the Advisor's Pricing Committee, if any, are footnoted as such in the
footnotes to the Portfolio of Investments. The Fund's investments are valued as
follows:
Preferred stocks and other equity securities listed on any national or
foreign exchange (excluding the Nasdaq Stock Market LLC ("Nasdaq") and the
London Stock Exchange Alternative Investment Market ("AIM")), are valued
at the last sale price on the exchange on which they are principally
traded or, for Nasdaq and AIM securities, the official closing price.
Securities traded on more than one securities exchange are valued at the
last sale price or official closing price, as applicable, at the close of
the securities exchange representing the principal market for such
securities.
Bonds, notes and other debt securities are fair 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.
Page 19
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
APRIL 30, 2016 (UNAUDITED)
Securities traded in an over-the-counter market are fair valued at the
mean of their most recent bid and asked price, if available, and otherwise
at their closing bid price.
Fixed income and other debt securities having a remaining maturity of 60
days or less when purchased are fair valued at cost adjusted for
amortization of premiums and accretion of discounts (amortized cost),
provided the Advisor's Pricing Committee has determined that the use of
amortized cost is an appropriate reflection of fair value given market and
issuer-specific conditions existing at the time of the determination.
Factors that may be considered in determining the appropriateness of the
use of amortized cost include, but are not limited to, the following:
1) the credit conditions in the relevant market and changes thereto;
2) the liquidity conditions in the relevant market and changes thereto;
3) the interest rate conditions in the relevant market and changes
thereto (such as significant changes in interest rates);
4) issuer-specific conditions (such as significant credit
deterioration); and
5) any other market-based data the Advisor's Pricing Committee
considers relevant. In this regard, the Advisor's Pricing Committee
may use last-obtained market-based data to assist it when valuing
portfolio securities using amortized cost.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Trust's Board of Trustees or its
delegate, the Advisor's Pricing Committee, at fair value. These securities
generally include, but are not limited to, restricted securities (securities
which may not be publicly sold without registration under the Securities Act of
1933, as amended (the "1933 Act")) for which a pricing service is unable to
provide a market price; securities whose trading has been formally suspended; a
security whose market or fair value price is not available from a
pre-established pricing source; a security with respect to which an event has
occurred that is likely to materially affect the value of the security after the
market has closed but before the calculation of the Fund's NAV or make it
difficult or impossible to obtain a reliable market quotation; and a security
whose price, as provided by the pricing service, does not reflect the security's
fair value. As a general principle, the current fair value of a security would
appear to be the amount which the owner might reasonably expect to receive for
the security upon its current sale. When fair value prices are used, generally
they will differ from market quotations or official closing prices on the
applicable exchanges. A variety of factors may be considered in determining the
fair value of such securities, including, but not limited to, the following:
1) the 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.
Page 20
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
APRIL 30, 2016 (UNAUDITED)
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
The inputs or methodologies used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of April 30, 2016, 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 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.
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. RESTRICTED SECURITIES
The Fund invests in restricted securities, which are securities that may not be
offered for public sale without first being registered under the 1933 Act. Prior
to registration, restricted securities may only be resold in transactions exempt
from registration under Rule 144A under the 1933 Act, normally to qualified
institutional buyers. As of April 30, 2016, the Fund held restricted securities
as shown in the following table that Stonebridge Advisors LLC ("Stonebridge" or
the "Sub-Advisor") has deemed illiquid pursuant to procedures adopted by the
Trust's Board of Trustees. 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. The Fund does not have the right to demand that such securities be
registered. These securities are valued according to the valuation procedures as
stated in the Portfolio Valuation note (Note 2A) and are not expressed as a
discount to the carrying value of a comparable unrestricted security. There are
no unrestricted securities with the same maturity date and yield for these
issuers.
ACQUISITION SHARES/ CURRENT CARRYING % OF
SECURITY DATE PAR AMOUNT PRICE COST VALUE NET ASSETS
----------------------------------------------------------------------------------------------------------------------
AgStar Financial Services ACA, 6.75% 7/31/15 500 $1,112.438 $ 526,250 $ 556,219 0.33%
Centaur Funding Corp., 9.08%, 4/21/20 7/17/14-1/9/15 2,500 1,193.750 3,128,350 2,984,375 1.80
Land O'Lakes, Inc., 8.00% 7/9/15 $3,000,000 1.034 3,000,000 3,101,250 1.87
Pitney Bowes International Holdings,
Inc., Series F, 6.13% 4/7/15 300 1,015.313 315,375 304,594 0.18
Sirius International Group Ltd, 7.51% 5/19/15 $ 500,000 0.985 525,000 492,500 0.30
Sovereign Real Estate Investment
Trust, 12.00% 2/5/15-3/22/16 1,261 1,223.75 1,657,803 1,543,149 0.93
---------------------------------------
$ 9,152,778 $ 8,982,087 5.41%
---------------------------------------
D. 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.
Page 21
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
APRIL 30, 2016 (UNAUDITED)
The tax character of distributions paid during the fiscal year ended October 31,
2015 was as follows:
Distributions paid from:
Ordinary income............................. $ 8,216,441
Capital gain................................ --
Return of capital........................... --
As of October 31, 2015, the distributable earnings and net assets on a tax basis
were as follows:
Undistributed ordinary income............... $ 308,049
Undistributed capital gains................. --
------------
Total undistributed earnings................ 308,049
Accumulated capital and other losses........ (10,564,396)
Net unrealized appreciation (depreciation).. (886,993)
------------
Total accumulated earnings (losses)......... (11,143,340)
Other....................................... --
Paid-in capital............................. 174,091,710
------------
Net assets.................................. $162,948,370
============
E. 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 and state income taxes. However, due to the
timing and amount of distributions, the Fund may be subject to an excise tax of
4% of the amount by which approximately 98% of the Fund's taxable income exceeds
the distributions from such taxable income for the calendar year.
The 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, 2015, for
federal income tax purposes, the Fund had a capital loss carryforward of
$10,564,396 available, to the extent provided by regulations, to offset future
capital gains.
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, 2013,
2014 and 2015 remain open to federal and state audit. As of April 30, 2016,
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.
F. 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 (12b-1) fees and incremental transfer agency costs
which are unique to each class of shares.
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 supervising the selection and 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, 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, 2017 and then will not
exceed 1.50% from March 1, 2017 to February 28, 2026 (the "Expense Cap
Termination Date"). Expenses borne and fees waived by First Trust and
Stonebridge are subject to recovery on a share class level by First Trust and
Page 22
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
APRIL 30, 2016 (UNAUDITED)
Stonebridge 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 its Expense Cap in place at the
time the expense was borne or the fee was waived by First Trust and Stonebridge.
Class C and Class I amounts are included as "Expenses previously waived or
reimbursed" on the Statement of Operations. The advisory fee waivers and expense
reimbursement for the six months ended April 30, 2016 and the expenses borne by
First Trust and Stonebridge subject to recovery for the periods indicated were
as follows:
EXPENSES SUBJECT TO RECOVERY
-----------------------------------------------------------------------------------------
SIX MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED
ADVISORY EXPENSE OCTOBER 31, OCTOBER 31, OCTOBER 31, APRIL 30,
FEE WAIVER REIMBURSEMENT 2013 2014 2015 2016 TOTAL
------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 30,978 $ -- $ 62,830 $ 50,893 $ 67,919 $ 30,978 $ 212,620
During the period ended April 30, 2016, First Trust recovered $32,553 of fees
that were previously waived.
Brown Brothers Harriman & Co. ("BBH") serves as the Fund's administrator, fund
accountant and custodian in accordance with certain fee arrangements. As
administrator and fund accountant, BBH is responsible for providing certain
administrative and accounting services to the Fund, including maintaining the
Fund's books of account, records of the Fund's securities transactions, and
certain other books and records. As custodian, BBH is responsible for custody of
the Fund's assets.
BNY Mellon Investment Servicing (US) Inc. ("BNYM IS") serves as the Fund's
transfer agent in accordance with certain fee arrangements. As transfer agent,
BNYM IS is responsible for maintaining shareholder records for the Fund. BNYM IS
is a subsidiary of The Bank of New York Mellon Corporation, a financial holding
company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer that is allocated equally among each fund in the First Trust Fund
Complex. Prior to January 1, 2016, the fixed annual retainer was allocated pro
rata based on each fund's net assets. Each Independent Trustee is also paid an
annual per fund fee that varies based on whether the fund is a closed-end or
other actively managed fund, or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee are paid
annual fees to serve in such capacities, with such compensation allocated pro
rata among each fund in the First Trust Fund Complex based on net assets.
Trustees are reimbursed for travel and out-of-pocket expenses in connection with
all meetings. The Lead Independent Trustee and Committee Chairmen rotate every
three years. The officers and "Interested" Trustee receive no compensation from
the Trust for acting in such capacities.
4. CAPITAL SHARE TRANSACTIONS
Capital transactions were as follows:
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2016 OCTOBER 31, 2015
SHARES VALUE SHARES VALUE
---------- ------------- ---------- -------------
Sales:
Class A 248,190 $ 5,168,069 465,300 $ 9,878,142
Class C 276,135 5,780,501 281,791 5,999,358
Class F 239,742 5,082,749 146,344 3,141,137
Class I 1,170,716 24,511,096 1,750,444 37,275,597
Class R3 843 17,500 -- --
---------- ------------- ---------- -------------
Total Sales: 1,935,626 $ 40,559,915 2,643,879 $ 56,294,234
========== ============= ========== =============
Dividend Reinvestment:
Class A 25,036 $ 521,766 52,174 $ 1,108,173
Class C 46,337 967,553 82,508 1,754,763
Class F 4,351 91,193 4,515 96,604
Class I 113,820 2,380,760 199,494 4,249,667
Class R3 1 26 -- --
---------- ------------- ---------- -------------
Total Dividend Reinvestment: 189,545 $ 3,961,298 338,691 $ 7,209,207
========== ============= ========== =============
Page 23
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
APRIL 30, 2016 (UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2016 OCTOBER 31, 2015
SHARES VALUE SHARES VALUE
---------- ------------- ---------- -------------
Redemptions:
Class A (194,795) $ (4,064,367) (715,203) $ (15,165,198)
Class C (210,578) (4,391,209) (364,533) (7,754,300)
Class F (198,820) (4,163,893) (155,982) (3,333,308)
Class I (1,281,254) (26,467,967) (1,216,841) (25,901,934)
Class R3 (3,603) (75,054) (2,012) (42,745)
---------- ------------- ---------- -------------
Total Redemptions: (1,889,050) $ (39,162,490) (2,454,571) $ (52,197,485)
========== ============= ========== =============
5. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, other than short-term
investments, for the six months ended April 30, 2016, were $73,246,127 and
$69,520,908, respectively.
6. BORROWINGS
The Trust on behalf of the Fund, along with First Trust Exchange-Traded Fund III
and First Trust Exchange-Traded Fund IV entered into a $140 million Credit
Agreement with The Bank of Nova Scotia ("Scotia") as administrative agent for a
group of lenders. Scotia charges a commitment fee of 0.25% of the daily amount
of the excess of the commitment amount over the outstanding principal balance of
the loans. Prior to March 9, 2016, the commitment amount was $80,000,000 and the
commitment fee was 0.15%. First Trust allocates the commitment fee amongst the
funds that have access to the credit line. To the extent that the Fund accesses
the credit line, there would also be an interest fee charged.
The Fund did not have any borrowings outstanding during the six months ended
April 30, 2016.
7. 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. 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.
8. 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.
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 were
no subsequent events requiring recognition of disclosures in the financial
statements that have not already been disclosed.
Page 24
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
APRIL 30, 2016 (UNAUDITED)
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies and information on how the Fund voted proxies relating to
portfolio 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 ("SEC") website at http://www.sec.gov.
PORTFOLIO HOLDINGS
The Trust files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Form N-Qs
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.
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. 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.
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. Preferred
securities are also subject to credit risk, interest rate risk and income risk.
CONCENTRATION RISK: A fund concentrated in a single industry or sector is likely
to present more risks than a fund that is broadly diversified over several
industries or sectors. Compared to the broad market, an individual industry or
sector may be more strongly affected by changes in the economic climate, broad
market shifts, moves in a particular dominant stock, or regulatory changes.
CONVERTIBLE SECURITIES/CONTINGENT CONVERTIBLE SECURITIES RISK: The market value
of convertible securities tends to decline as interest rates increase and,
conversely, tends to increase as interest rates decline. In addition, because of
the conversion feature, the market value of convertible securities tends to vary
with fluctuations in the market value of the underlying common stock.
Contingent convertible securities ("CoCos") provide for mandatory conversion
into common stock of the issuer under certain circumstances. Since the common
stock of the issuer may not pay a dividend, investors in these instruments could
experience a reduced income rate, potentially to zero; and conversion would
deepen the subordination of the investor, hence worsening standing in a
bankruptcy. In addition, some such instruments have a set stock conversion rate
that would cause a reduction in value of the security if the price of the stock
is below the conversion price on the conversion date. CoCos may be considered to
be high yield securities (a.k.a. "junk" bonds) and, to the extent a CoCo held by
the Fund undergoes a write down, the Fund may lose some or all of its original
investment in the CoCo. Performance of a CoCo issuer may, in general, be
correlated with the performance of other CoCo issuers. As a result, negative
information regarding one CoCo issuer may cause a decline in value of other CoCo
issuers. Subordinate securities such as CoCos are more likely to experience
credit loss than non-subordinate securities of the same issuer - even if the
CoCos do not convert to equity securities. Any losses incurred by subordinate
securities, such as CoCos, are likely to be proportionately greater than
non-subordinate securities and any recovery of principal and interest of
subordinate securities may take more time. As a result, any perceived decline in
credit worthiness of a CoCo issuer is likely to have a greater impact on the
CoCo, as a subordinate security.
CREDIT RISK: Credit risk is the risk that an issuer of a security may be unable
or unwilling to make dividend, interest and principal payments when due and the
related risk that the value of a security may decline because of concerns about
the issuer's ability or willingness to make such payments. In addition, parties
to other financial contracts with the Fund could default on their obligations.
CURRENCY RISK: Although the Fund's net asset value is determined on the basis of
U.S. dollars, because the Fund invests in foreign securities, you may lose money
if the local currency of a foreign market depreciates against the U.S. dollar,
even if the local currency value of the Fund's holdings goes up.
Page 25
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST PREFERRED SECURITIES AND INCOME FUND
APRIL 30, 2016 (UNAUDITED)
DEPOSITARY RECEIPTS RISK: Depositary receipts may be less liquid than the
underlying shares in their primary trading market. Any distributions paid to the
holders of depositary receipts are usually subject to a fee charged by the
depositary. Holders of depositary receipts may have limited voting rights, and
investment restrictions in certain countries may adversely impact the value of
depositary receipts because such restrictions may limit the ability to convert
equity shares into depositary receipts and vice versa. Such restrictions may
cause equity shares of the underlying issuer to trade at a discount or premium
to the market price of the depositary receipts.
FINANCIAL COMPANY RISK: The Fund invests in the securities of financial
companies, which may include banks, thrifts, brokerage firms, broker-dealers,
investment banks, finance companies, REITs and companies involved in the
insurance industry. Banks, thrifts and their holding companies are especially
subject to the adverse effects of economic recession; 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.
HIGH YIELD SECURITIES RISK. High yield securities, or "junk bonds," are subject
to greater market fluctuations and risk of loss than securities with higher
investment ratings. These securities are issued by companies that may have
limited operating history, narrowly focused operations, and/or other impediments
to the timely payment of periodic interest and principal at maturity. If the
economy slows down or dips into recession, the issuers of high yield securities
may not have sufficient resources to continue making timely payment of periodic
interest and principal at maturity. The market for high yield securities is
smaller and less liquid than that for investment grade securities. High yield
securities are generally not listed on a national securities exchange but trade
in the over-the-counter markets. Due to the smaller, less liquid market for high
yield securities, the bid-offer spread on such securities is generally greater
than it is for investment grade securities and the purchase or sale of such
securities may take longer to complete.
ILLIQUID SECURITIES RISK: Illiquid securities involve the risk that the
securities will not be able to be sold at the time desired by the Fund or at
prices approximately the value at which the Fund is carrying the securities on
its books.
INCOME RISK: If interest rates fall, the income from the Fund's portfolio will
decline as the Fund invests the proceeds from new share sales, or from matured
or called debt securities, at interest rates that are below the portfolio's
current earnings rate.
NON-DIVERSIFICATION RISK: The Fund is classified as "non-diversified" under the
1940 Act. As a result, the Fund is only limited as to the percentage of its
assets which may be invested in the securities of any one issuer by the
diversification requirements imposed by the Code. The Fund may invest a
relatively high percentage of its assets in a limited number of issuers. As a
result, the Fund may be more susceptible to a single adverse economic or
regulatory occurrence affecting one or more of these issuers, experience
increased volatility and be highly concentrated in certain issuers.
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. Fund shareholders indirectly pay REIT
fees and expenses.
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.
Page 26
This Page Left Blank Intentionally.
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
Stonebridge Advisors, LLC
10 Westport Road
Suite C101
Wilton, CT 06897
ADMINISTRATOR,
FUND ACCOUNTANT &
CUSTODIAN
Brown Brothers Harriman & Co.
50 Post Office Square
Boston, MA 02110
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
-----------------------------------------
Semi-Annual Report
For the Six Months Ended
April 30, 2016
CONFLUENCE INVESTMENT MANAGEMENT
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
SEMI-ANNUAL REPORT
APRIL 30, 2016
Shareholder Letter .......................................................... 1
At a Glance ................................................................. 2
Portfolio Management ........................................................ 4
Understanding Your Fund Expenses ............................................ 5
Portfolio of Investments .................................................... 6
Statement of Assets and Liabilities ......................................... 8
Statement of Operations ..................................................... 9
Statements of Changes in Net Assets ......................................... 10
Financial Highlights ........................................................ 11
Notes to Financial Statements ............................................... 14
Additional Information ...................................................... 19
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
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 Additional
Information section of this report 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.
The Advisor may also periodically provide additional information on Fund
performance on the Fund's web page at http://www.ftportfolios.com.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment in
the Fund. It includes details about the Fund and presents data and analysis that
provide insight into the Fund's performance and investment approach.
The statistical information that follows may help you understand the Fund's
performance compared to that of relevant market benchmarks.
It is important to keep in mind that the opinions expressed by personnel of
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 material 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
SEMI-ANNUAL LETTER FROM THE CHAIRMAN AND CEO
APRIL 30, 2016
Dear Shareholders:
Thank you for your investment in First Trust/Confluence Small Cap Value Fund
(the "Fund").
First Trust Advisors L.P. ("First Trust") is pleased to provide you with the
semi-annual report which contains detailed information about your investment for
the six months ended April 30, 2016. Additionally, First Trust compiled the
Fund's financial statements for you to review. We encourage you to read this
report and discuss it with your financial advisor.
While markets were up and down during 2015, we believe there are three important
things to remember: First, the U.S. economy grew, despite the massive decline in
oil prices, and second, the tapering that began in 2014 by the Federal Reserve
(the "Fed") did not stop growth in the U.S. economy. Finally, the
long-anticipated rate hike by the Fed in December had little effect on the money
supply, and the stock market was not shocked by the hike. Early in 2016, many
investors were concerned that the volatility we saw in the market in 2015 would
continue, and it did. From December 31, 2015 through February 11, 2016, the S&P
500(R) Index declined by 10.27%. Since then, the market has made a steady
comeback, and as of April 30, 2016, the S&P 500(R) Index was up 13.39%.
First Trust believes that having a long-term investment horizon and being
invested in quality products can help you reach your goals, despite how the
market behaves. We have always maintained perspective about the markets and
believe investors should as well. We will continue to strive to provide quality
investments each and every day, which has been one of the hallmarks of our firm
since its inception 25 years ago.
Thank you for giving First Trust the opportunity to be a part of your investment
plan. We value our relationship with you and will continue to focus on helping
investors like you reach your financial goals.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 1
FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
"AT A GLANCE"
AS OF APRIL 30, 2016 (UNAUDITED)
-----------------------------------------------------------
FUND STATISTICS
-----------------------------------------------------------
NET ASSET
FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND VALUE (NAV)
-----------------------------------------------------------
Class A (FOVAX) $26.69
Class C (FOVCX) $24.69
Class I (FOVIX) $27.21
-----------------------------------------------------------
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS INVESTMENTS
-----------------------------------------------------------
VCA, Inc. 4.6%
Morningstar, Inc. 4.0
Potbelly Corp. 4.0
MTS Systems Corp. 3.9
National Interstate Corp. 3.8
Mueller Industries, Inc. 3.8
RE/MAX Holdings, Inc., Class A 3.8
Natus Medical, Inc. 3.7
Rayonier, Inc. 3.7
Snyder's-Lance, Inc. 3.7
-----------------------------------------------------------
Total 39.0%
=======
-----------------------------------------------------------
% OF TOTAL
SECTOR ALLOCATION INVESTMENTS
-----------------------------------------------------------
Industrials 35.1%
Financials 24.4
Health Care 21.6
Consumer Discretionary 11.4
Information Technology 3.9
Consumer Staples 3.6
-----------------------------------------------------------
Total 100.0%
=======
Page 2
FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
"AT A GLANCE" (CONTINUED)
AS OF APRIL 30, 2016 (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 4/30/2016.
First Trust/Confluence
Small Cap Value Fund - Russell 2000(R) Russell 2000(R)
Class I Shares Value Index ("R2000V") Index ("R2000")
1/11/11 $10,000 $10,000 $10,000
4/30/11 10,730 10,966 10,716
10/31/11 9,790 9,457 9,261
4/30/12 10,554 10,499 10,323
10/31/12 10,951 10,599 10,601
4/30/13 12,260 12,309 12,307
10/31/13 13,892 14,023 14,389
4/30/14 14,285 14,720 14,832
10/31/14 15,214 15,129 15,548
4/30/15 15,626 15,439 16,271
10/31/15 15,403 14,693 15,601
4/30/16 15,847 14,866 15,305
----------------------------------------------------------------------------------------------------------------------
PERFORMANCE AS OF APRIL 30, 2016
----------------------------------------------------------------------------------------------------------------------
A SHARES C SHARES I SHARES
Inception 2/24/2011 Inception 3/2/2011 Inception 1/11/2011 R2000V* R2000*
----------------------------------------------------------------------------------------------------------------------
W/MAX
1.00%
W/MAX CONTINGENT
W/O 5.50% W/O DEFERRED W/O W/O W/O
SALES SALES SALES SALES SALES SALES SALES
AVERAGE ANNUAL CHARGES CHARGE CHARGES CHARGE CHARGES CHARGES CHARGES
TOTAL RETURNS
6 Months 2.86% -2.80% 2.38% 1.38% 2.88% 1.18% -1.90%
1 Year 1.59% -4.00% 0.41% -0.58% 1.41% -3.71% -5.94%
5 Years 7.67% 6.46% 6.72% 6.72% 8.11% 6.77% 6.98%
Since Inception 8.73% 7.55% 7.12% 7.12% 9.07% 7.77% 8.36%
----------------------------------------------------------------------------------------------------------------------
* Since inception return is based on the Class I Shares inception date.
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption 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 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 I Shares do not have a front-end sales charge
or a CDSC, nor do they pay distribution or service fees.
Page 3
--------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
--------------------------------------------------------------------------------
FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
SEMI-ANNUAL REPORT
APRIL 30, 2016
SUB-ADVISOR
Confluence Investment Management LLC, a registered investment advisor
("Confluence" or the "Sub-Advisor"), located in St. Louis, Missouri, serves as
the sub-advisor to First Trust/Confluence Small Cap Value Fund (the "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
DANIEL WINTER, CFA - SENIOR VICE PRESIDENT AND PORTFOLIO MANAGER
CHRIS STEIN - VICE PRESIDENT AND PORTFOLIO MANAGER
THOMAS DUGAN, CFA - ASSOCIATE VICE PRESIDENT AND PORTFOLIO MANAGER
Page 4
FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
UNDERSTANDING YOUR FUND EXPENSES
AS OF APRIL 30, 2016 (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 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 April 30, 2016.
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 11/01/2015 - VALUE VALUE 11/01/2015 - EXPENSE
11/01/2015 4/30/2016 4/30/2016 (a) 11/01/2015 4/30/2016 4/30/2016 (a) RATIOS (b)
-----------------------------------------------------------------------------------------------------
Class A $ 1,000.00 $ 1,028.60 $ 8.12 $ 1,000.00 $ 1,016.86 $ 8.07 1.61%
Class C 1,000.00 1,023.80 11.88 1,000.00 1,013.13 11.81 2.36
Class I 1,000.00 1,028.80 6.86 1,000.00 1,018.10 6.82 1.36
(a) Expenses are equal to the annualized expense ratios as indicated in the
table, multiplied by the average account value over the period (November
1, 2015 through April 30, 2016), multiplied by 182/366 (to reflect the
six-month period).
(b) These expense ratios reflect expense caps.
Page 5
FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 2016 (UNAUDITED)
SHARES DESCRIPTION VALUE
------------- ---------------------------------------------------------------------------- --------------
COMMON STOCKS - 78.6%
AIR FREIGHT & LOGISTICS - 2.9%
3,535 Forward Air Corp............................................................ $ 161,125
--------------
BANKS - 2.9%
3,225 Bank of Marin Bancorp....................................................... 158,090
--------------
DIVERSIFIED FINANCIAL SERVICES - 3.3%
2,224 Morningstar, Inc............................................................ 185,037
--------------
ELECTRICAL EQUIPMENT - 5.5%
4,170 Franklin Electric Co., Inc.................................................. 131,730
9,087 Thermon Group Holdings, Inc. (a)............................................ 170,291
--------------
302,021
--------------
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS - 3.3%
3,273 MTS Systems Corp............................................................ 184,008
--------------
FOOD PRODUCTS - 3.1%
5,341 Snyder's-Lance, Inc......................................................... 170,752
--------------
HEALTH CARE EQUIPMENT & SUPPLIES - 8.6%
4,315 Haemonetics Corp. (a)....................................................... 139,936
5,764 Halyard Health, Inc. (a).................................................... 162,314
5,469 Natus Medical, Inc. (a)..................................................... 174,297
--------------
476,547
--------------
HEALTH CARE PROVIDERS & SERVICES - 6.9%
3,892 Patterson Cos., Inc......................................................... 168,718
3,395 VCA, Inc. (a)............................................................... 213,783
--------------
382,501
--------------
HOTELS, RESTAURANTS & LEISURE - 3.3%
12,953 Potbelly Corp. (a).......................................................... 184,580
--------------
INDUSTRIAL CONGLOMERATES - 2.8%
9,505 Raven Industries, Inc....................................................... 152,935
--------------
INSURANCE - 8.7%
4,820 Brown & Brown, Inc.......................................................... 169,230
5,752 National Interstate Corp.................................................... 177,104
10,645 OneBeacon Insurance Group Ltd............................................... 131,998
--------------
478,332
--------------
LIFE SCIENCES TOOLS & SERVICES - 2.7%
1,627 Bio-Techne Corp............................................................. 151,604
--------------
MACHINERY - 10.3%
2,060 Graco, Inc.................................................................. 161,484
3,186 John Bean Technologies Corp................................................. 166,118
5,554 Mueller Industries, Inc..................................................... 175,284
907 RBC Bearings, Inc. (a)...................................................... 66,483
--------------
569,369
--------------
PROFESSIONAL SERVICES - 5.3%
5,181 Advisory Board (The) Co. (a)................................................ 163,927
2,618 Exponent, Inc............................................................... 130,481
--------------
294,408
--------------
Page 6 See Notes to Financial Statements
FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2016 (UNAUDITED)
SHARES DESCRIPTION VALUE
------------- ---------------------------------------------------------------------------- --------------
COMMON STOCKS (CONTINUED)
REAL ESTATE MANAGEMENT & DEVELOPMENT - 3.2%
4,763 RE/MAX Holdings, Inc., Class A.............................................. $ 175,278
--------------
ROAD & RAIL - 2.9%
2,406 Landstar System, Inc........................................................ 157,713
--------------
TEXTILES, APPAREL & LUXURY GOODS - 2.9%
3,393 Culp, Inc................................................................... 89,032
2,702 Tumi Holdings, Inc. (a)..................................................... 72,090
--------------
161,122
--------------
TOTAL COMMON STOCKS......................................................... 4,345,422
--------------
(Cost $3,886,544)
REAL ESTATE INVESTMENT TRUSTS - 5.9%
9,150 Gladstone Commercial Corp................................................... 153,994
6,988 Rayonier, Inc............................................................... 172,464
--------------
TOTAL REAL ESTATE INVESTMENT TRUSTS......................................... 326,458
--------------
(Cost $324,666)
TOTAL INVESTMENTS - 84.5%................................................... 4,671,880
(Cost $4,211,210) (b)
NET OTHER ASSETS AND LIABILITIES - 15.5%.................................... 857,752
--------------
NET ASSETS - 100.0%......................................................... $ 5,529,632
==============
-----------------------------
(a) Non-income producing security.
(b) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of April 30, 2016, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $658,263 and the aggregate gross
unrealized depreciation for all securities in which there was an excess of
tax cost over value was $197,593.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of April 30,
2016 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
4/30/2016 PRICES INPUTS INPUTS
------------- ------------- ------------- -------------
Common Stocks*..................................... $ 4,345,422 $ 4,345,422 $ -- $ --
Real Estate Investment Trusts...................... 326,458 326,458 -- --
------------- ------------- ------------- -------------
Total Investments.................................. $ 4,671,880 $ 4,671,880 $ -- $ --
============= ============= ============= =============
* 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 April 30, 2016.
See Notes to Financial Statements Page 7
FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2016 (UNAUDITED)
ASSETS:
Investments, at value
(Cost $4,211,210)........................................................................... $ 4,671,880
Cash........................................................................................... 740,148
Prepaid expenses............................................................................... 17,102
Receivables:
Fund shares sold............................................................................ 150,178
From investment advisor..................................................................... 19,325
Dividends................................................................................... 1,824
------------
Total Assets................................................................................ 5,600,457
------------
LIABILITIES:
Payables:
Audit and tax fees.......................................................................... 19,958
Transfer agent fees......................................................................... 11,346
Printing fees............................................................................... 9,542
Administrative fees......................................................................... 8,750
Commitment fees............................................................................. 6,225
Trustees' fees and expenses................................................................. 5,932
Legal fees.................................................................................. 4,632
12b-1 distribution and service fees......................................................... 2,350
Financial reporting fees.................................................................... 745
Custodian fees.............................................................................. 733
Fund shares repurchased..................................................................... 330
Other liabilities.............................................................................. 282
------------
Total Liabilities........................................................................... 70,825
------------
NET ASSETS..................................................................................... $ 5,529,632
============
NET ASSETS CONSIST OF:
Paid-in capital................................................................................ $ 4,952,049
Par value...................................................................................... 2,138
Accumulated net investment income (loss)....................................................... (6,757)
Accumulated net realized gain (loss) on investments............................................ 121,532
Net unrealized appreciation (depreciation) on investments...................................... 460,670
------------
NET ASSETS..................................................................................... $ 5,529,632
============
MAXIMUM OFFERING PRICE PER SHARE:
CLASS A SHARES:
Net asset value and redemption price per share (Based on net assets of $1,706,816 and
63,946 shares of beneficial interest issued and outstanding)................................ $ 26.69
Maximum sales charge (5.50% of offering price)................................................. 1.55
------------
Maximum offering price to public............................................................... $ 28.24
============
CLASS C SHARES:
Net asset value and redemption price per share (Based on net assets of $2,490,863 and
100,903 shares of beneficial interest issued and outstanding)............................... $ 24.69
============
CLASS I SHARES:
Net asset value and redemption price per share (Based on net assets of $1,331,953 and
48,949 shares of beneficial interest issued and outstanding)................................ $ 27.21
============
Page 8 See Notes to Financial Statements
FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 2016 (UNAUDITED)
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $142)............................................. $ 41,046
Interest....................................................................................... 324
------------
Total investment income..................................................................... 41,370
------------
EXPENSES:
Transfer agent fees............................................................................ 31,140
Registration fees.............................................................................. 28,888
Investment advisory fees....................................................................... 23,714
Administrative fees............................................................................ 21,875
Audit and tax fees............................................................................. 16,309
12b-1 distribution and/or service fees:
Class A..................................................................................... 2,006
Class C..................................................................................... 11,335
Trustees' fees and expenses.................................................................... 8,608
Printing fees.................................................................................. 8,194
Commitment fees................................................................................ 7,956
Financial reporting fees....................................................................... 4,599
Legal fees..................................................................................... 2,983
Custodian fees................................................................................. 1,084
Listing expense................................................................................ 748
Excise tax expense............................................................................. 335
Other.......................................................................................... 1,094
------------
Total expenses.............................................................................. 170,868
Fees waived and expenses reimbursed by the investment advisor............................... (125,181)
------------
Net expenses................................................................................... 45,687
------------
NET INVESTMENT INCOME (LOSS)................................................................... (4,317)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments..................................................... 121,947
Net change in unrealized appreciation (depreciation) on investments......................... 11,124
------------
NET REALIZED AND UNREALIZED GAIN (LOSS)........................................................ 133,071
------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................ $ 128,754
============
See Notes to Financial Statements Page 9
FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR
4/30/2016 ENDED
(UNAUDITED) 10/31/2015
------------ ------------
OPERATIONS:
Net investment income (loss)................................................... $ (4,317) $ (7,166)
Net realized gain (loss)....................................................... 121,947 90,481
Net change in unrealized appreciation (depreciation)........................... 11,124 (43,891)
------------ ------------
Net increase (decrease) in net assets resulting from operations................ 128,754 39,424
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAIN:
Class A Shares................................................................. (24,569) (80,157)
Class C Shares................................................................. (35,974) (153,521)
Class I Shares................................................................. (11,326) (40,367)
Class R3 Shares................................................................ -- (102)
------------ ------------
Total distributions to shareholders............................................ (71,869) (274,147)
------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from shares sold...................................................... 1,453,355 1,949,851
Proceeds from shares reinvested................................................ 63,092 239,525
Cost of shares redeemed........................................................ (516,563) (1,196,598)
------------ ------------
Net increase (decrease) in net assets resulting from capital transactions...... 999,884 992,778
------------ ------------
Total increase (decrease) in net assets........................................ 1,056,769 758,055
NET ASSETS:
Beginning of period............................................................ 4,472,863 3,714,808
------------ ------------
End of period.................................................................. $ 5,529,632 $ 4,472,863
============ ============
Accumulated net investment income (loss) at end of period...................... $ (6,757) $ (2,440)
============ ============
Page 10 See Notes to Financial Statements
FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31, PERIOD
4/30/2016 -------------------------------------------------------- ENDED
CLASS A SHARES (UNAUDITED) 2015 2014 2013 2012 10/31/2011 (d)
----------- ----------- ----------- ----------- ----------- ------------
Net asset value, beginning of period..... $ 26.34 $ 28.03 $ 26.77 $ 21.58 $ 19.54 $ 20.10
------- ------- ------- ------- ------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (a)......... 0.02 0.04 0.00 (e) 0.10 0.23 0.03
Net realized and unrealized gain (loss).. 0.71 0.31 2.39 5.46 1.85 (0.59)
------- ------- ------- ------- ------- --------
Total from investment operations......... 0.73 0.35 2.39 5.56 2.08 (0.56)
------- ------- ------- ------- ------- --------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income.................... -- -- -- (0.27) (0.04) --
Net realized gain........................ (0.38) (2.04) (1.13) (0.10) -- --
------- ------- ------- ------- ------- --------
Total distributions...................... (0.38) (2.04) (1.13) (0.37) (0.04) --
------- ------- ------- ------- ------- --------
Net asset value, end of period........... $ 26.69 $ 26.34 $ 28.03 $ 26.77 $ 21.58 $ 19.54
======= ======= ======= ======= ======= ========
TOTAL RETURN (b)......................... 2.86% 1.22% 9.23% 26.16% 10.61% (2.79)%
======= ======= ======= ======= ======= ========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)..... $ 1,707 $ 1,413 $ 1,144 $ 1,288 $ 651 $ 218
Ratio of total expenses to average net
assets................................ 6.87% (c) 7.61% 8.65% 11.29% 23.94% 60.42%(c)
Ratio of net expenses to average net
assets................................ 1.61% (c)(g) 1.60% 1.60% 1.60% 1.60% 1.60%(c)
Ratio of net investment income (loss) to
average net assets.................... 0.14% (c) 0.16% 0.00% (f) 0.42% 1.10% 0.26%(c)
Portfolio turnover rate.................. 14% 17% 39% 31% 11% 21%
(a) Per share amounts have been calculated using the average shares method.
(b) 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 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.
(c) Annualized.
(d) Class A Shares commenced operations on February 24, 2011.
(e) Amount is less than $0.01.
(f) Amount is less than 0.01%.
(g) Includes excise tax. If this excise tax expense was not included, the net
expense ratio would have been 1.60%.
See Notes to Financial Statements Page 11
FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31, PERIOD
4/30/2016 -------------------------------------------------------- ENDED
CLASS C SHARES (UNAUDITED) 2015 2014 2013 2012 10/31/2011 (d)
----------- ----------- ----------- ----------- ----------- ------------
Net asset value, beginning of period..... $ 24.51 $ 26.44 $ 25.51 $ 20.59 $ 18.81 $ 20.10
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (a)......... (0.07) (0.14) (0.19) (0.10) 0.05 (0.07)
Net realized and unrealized gain (loss).. 0.63 0.25 2.25 5.23 1.73 (1.22)
------- ------- ------- ------- ------- -------
Total from investment operations......... 0.56 0.11 2.06 5.13 1.78 (1.29)
------- ------- ------- ------- ------- -------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income.................... -- -- -- (0.11) -- --
Net realized gain........................ (0.38) (2.04) (1.13) (0.10) -- --
------- ------- ------- ------- ------- -------
Total distributions...................... (0.38) (2.04) (1.13) (0.21) -- --
------- ------- ------- ------- ------- -------
Net asset value, end of period........... $ 24.69 $ 24.51 $ 26.44 $ 25.51 $ 20.59 $ 18.81
======= ======= ======= ======= ======= =======
TOTAL RETURN (b)......................... 2.38% 0.33% 8.36% 25.11% 9.46% (6.42)%
======= ======= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)..... $ 2,491 $ 2,247 $ 1,977 $ 1,956 $ 615 $ 8
Ratio of total expenses to average net
assets................................ 7.32% (c) 7.93% 8.81% 10.45% 26.69% 98.09%(c)
Ratio of net expenses to average net
assets................................ 2.36% (c)(e) 2.35% 2.35% 2.35% 2.35% 2.35%(c)
Ratio of net investment income (loss) to
average net assets.................... (0.62)% (c) (0.57)% (0.73)% (0.43)% 0.25% (0.54)%(c)
Portfolio turnover rate.................. 14% 17% 39% 31% 11% 21%
(a) Per share amounts have been calculated using the average shares method.
(b) 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.
(c) Annualized.
(d) Class C Shares commenced operations on March 2, 2011.
(e) Includes excise tax. If this excise tax expense was not included, the net
expense ratio would have been 2.35%.
Page 12 See Notes to Financial Statements
FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31, PERIOD
4/30/2016 -------------------------------------------------------- ENDED
CLASS I SHARES (UNAUDITED) 2015 2014 2013 2012 10/31/2011 (d)
----------- ----------- ----------- ----------- ----------- ------------
Net asset value, beginning of period..... $ 26.84 $ 28.52 $ 27.15 $ 21.81 $ 19.58 $ 20.00
------- ------- ------- ------- ------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (a)......... 0.04 0.10 0.08 0.16 0.26 0.07
Net realized and unrealized gain (loss).. 0.71 0.26 2.42 5.60 2.05 (0.49)
------- ------- ------- ------- ------- --------
Total from investment operations......... 0.75 0.36 2.50 5.76 2.31 (0.42)
------- ------- ------- ------- ------- --------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income.................... -- -- -- (0.32) (0.08) --
Net realized gains....................... (0.38) (2.04) (1.13) (0.10) -- --
------- ------- ------- ------- ------- --------
Total distributions...................... (0.38) (2.04) (1.13) (0.42) (0.08) --
------- ------- ------- ------- ------- --------
Net asset value, end of period........... $ 27.21 $ 26.84 $ 28.52 $ 27.15 $ 21.81 $ 19.58
======= ======= ======= ======= ======= ========
TOTAL RETURN (b)......................... 2.88% 1.23% 9.51% 26.85% 11.85% (2.10)%
======= ======= ======= ======= ======= ========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)..... $ 1,332 $ 813 $ 592 $ 276 $ 141 $ 164
Ratio of total expenses to average net
assets................................ 7.51% (c) 8.46% 11.05% 17.52% 41.80% 103.62%(c)
Ratio of net expenses to average net
assets................................ 1.36% (c)(e) 1.35% 1.35% 1.35% 1.35% 1.35%(c)
Ratio of net investment income (loss) to
average net assets.................... 0.35% (c) 0.38% 0.28% 0.66% 1.28% 0.43%(c)
Portfolio turnover rate.................. 14% 17% 39% 31% 11% 21%
(a) Per share amounts have been calculated using the average shares method.
(b) 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 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.
(c) Annualized.
(d) Class I Shares were initially seeded on December 16, 2010 and commenced
operations on January 11, 2011.
(e) Includes excise tax. If this excise tax expense was not included, the net
expense ratio would have been 1.35%.
See Notes to Financial Statements Page 13
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
APRIL 30, 2016 (UNAUDITED)
1. ORGANIZATION
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
three classes of shares: Class A, Class C and Class I. 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
The Fund, which is an investment company within the scope of Financial
Accounting Standards Board ("FASB") Accounting Standards Update 2013-08, follows
accounting and reporting guidance under FASB Accounting Standards Codification
Topic 946, "Financial Services-Investment Companies." 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") 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.
The Fund's investments are valued daily at market value or, in the absence of
market value with respect to any portfolio securities, at fair value. Market
value prices represent last sale or official closing prices from a national or
foreign exchange (i.e., a regulated market) and are primarily obtained from
third-party pricing services. Fair value prices represent any prices not
considered market value prices and are either obtained from a third-party
pricing service or are determined by the Pricing Committee of the Trust's
investment advisor, First Trust Advisors L.P. ("First Trust" or the "Advisor"),
in accordance with valuation procedures adopted by the Trust's Board of
Trustees, and in accordance with provisions of the 1940 Act. Investments valued
by the Advisor's Pricing Committee, if any, are footnoted as such in the
footnotes to the Portfolio of Investments. The Fund's investments are valued as
follows:
Common stocks, real estate investment trusts ("REITs") and other
securities listed on any national or foreign exchange (excluding The
Nasdaq Stock Market LLC ("Nasdaq") and the London Stock Exchange
Alternative Investment Market ("AIM")) are valued at the last sale price
on the exchange on which they are principally traded or, for Nasdaq and
AIM securities, the official closing price. Securities traded on more than
one securities exchange are valued at the last sale price or official
closing price, as applicable, at the close of the securities exchange
representing the principal market for such securities.
Securities traded in an over-the-counter market are fair valued at the
mean of their most recent bid and asked price, if available, and otherwise
at their closing bid price.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Trust's Board of Trustees or its
delegate, the Advisor's Pricing Committee, at fair value. These securities
generally include, but are not limited to, restricted securities (securities
which may not be publicly sold without registration under the Securities Act of
1933, as amended) for which a pricing service is unable to provide a market
price; securities whose trading has been formally suspended; a security whose
market or fair value price is not available from a pre-established pricing
source; a security with respect to which an event has occurred that is likely to
materially affect the value of the security after the market has closed but
before the calculation of the Fund's NAV or make it difficult or impossible to
obtain a reliable market quotation; and a security whose price, as provided by
the pricing service, does not reflect the security's fair value. As a general
principle, the current fair value of a security would appear to be the amount
Page 14
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
APRIL 30, 2016 (UNAUDITED)
which the owner might reasonably expect to receive for the security upon its
current sale. When fair value prices are used, generally they will differ from
market quotations or official closing prices on the applicable exchanges. A
variety of factors may be considered in determining the fair value of such
securities, including, but not limited to, the following:
1) the 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.
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
The inputs or methodologies used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of April 30, 2016, 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
the accretion of discounts. Income is allocated on a pro rata basis to each
class of shares.
The Fund may hold shares of business development companies ("BDCs"). The tax
character of distributions received from these securities may vary when reported
by the issuer after its tax reporting period concludes.
The Fund may hold the securities of 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.
Page 15
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
APRIL 30, 2016 (UNAUDITED)
The tax character of distributions paid during the fiscal year ended October 31,
2015 was as follows:
Distributions paid from:
Ordinary income............................. $ 95,195
Capital gain................................ 178,952
Return of capital........................... --
As of October 31, 2015, the distributable earnings and net assets on a tax basis
were as follows:
Undistributed ordinary income............... $ --
Undistributed capital gains................. 71,454
------------
Total undistributed earnings................ 71,454
Accumulated capital and other losses........ (2,440)
Net unrealized appreciation (depreciation).. 449,546
------------
Total accumulated earnings (losses)......... 518,560
Other....................................... --
Paid-in capital............................. 3,954,303
------------
Net assets.................................. $ 4,472,863
============
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 and state income taxes. However, due to the
timing and amount of distributions, the Fund may be subject to an excise tax of
4% of the amount by which approximately 98% of the Fund's taxable income exceeds
the distributions from such taxable income for the calendar year.
The 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, 2015, the
Fund had no non-expiring capital loss carryforwards for federal income tax
purposes.
Certain losses realized during the current fiscal year may be deferred and
treated as occurring on the first day of the following fiscal year for federal
income tax purposes. For the fiscal year ended October 31, 2015, the Fund
incurred and elected to defer $2,440 in net ordinary losses.
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, 2013,
2014 and 2015 remain open to federal and state audit. As of April 30, 2016,
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.
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
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, 2017 and then will not exceed 1.70% from March 1, 2017 to February
28, 2026 (the "Expense Cap Termination Date"). Expenses borne and fees waived by
Page 16
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
APRIL 30, 2016 (UNAUDITED)
First Trust and Confluence are subject to recovery by First Trust and Confluence
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 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 six
months ended April 30, 2016, and the expenses borne by First Trust and
Confluence subject to recovery were as follows:
EXPENSES SUBJECT TO RECOVERY
------------------------------------------------------------------------------------------
ADVISORY FEE EXPENSE YEAR ENDED YEAR ENDED YEAR ENDED SIX MONTHS ENDED
WAIVER REIMBURSEMENT OCTOBER 31, 2013 OCTOBER 31, 2014 OCTOBER 31, 2015 APRIL 30, 2016 TOTAL
------------ ------------- ---------------- ---------------- ---------------- ----------------- -------------
$ 23,714 $ 101,467 $ 58,911 $ 283,909 $ 267,934 $ 125,181 $ 735,935
Brown Brothers Harriman & Co. ("BBH") serves as the Fund's administrator, fund
accountant and custodian in accordance with certain fee arrangements. As
administrator and fund accountant, BBH is responsible for providing certain
administrative and accounting services to the Fund, including maintaining the
Fund's books of account, records of the Fund's securities transactions, and
certain other books and records. As custodian, BBH is responsible for custody of
the Fund's assets.
BNY Mellon Investment Servicing (US) Inc. ("BNYM IS") serves as the Fund's
transfer agent in accordance with certain fee arrangements. As transfer agent,
BNYM IS is responsible for maintaining shareholder records for the Fund.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer that is allocated equally among each fund in the First Trust Fund
Complex. Prior to January 1, 2016, the fixed annual retainer was allocated pro
rata based on each fund's net assets. Each Independent Trustee is also paid an
annual per fund fee that varies based on whether the fund is a closed-end or
other actively managed fund, or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee are paid
annual fees to serve in such capacities, with such compensation allocated pro
rata among each fund in the First Trust Fund Complex based on net assets.
Trustees are reimbursed for travel and out-of-pocket expenses in connection with
all meetings. The Lead Independent Trustee and Committee Chairmen rotate every
three years. The officers and "Interested" Trustee receive no compensation from
the Trust for acting in such capacities.
4. CAPITAL SHARE TRANSACTIONS
Capital transactions were as follows:
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2016 OCTOBER 31, 2015
SHARES VALUE SHARES VALUES
---------- ------------- ---------- -------------
Sales:
Class A 25,006 $ 649,535 46,377 $ 1,205,524
Class C 11,474 271,036 14,150 356,344
Class I 20,156 532,784 14,064 387,983
Class R3* -- -- -- --
---------- ------------- ---------- -------------
Total Sales: 56,636 $ 1,453,355 74,591 $ 1,949,851
========== ============= ========== =============
Dividend Reinvestment:
Class A 710 $ 18,081 2,231 $ 59,057
Class C 1,446 34,167 5,746 142,694
Class I 418 10,844 1,400 37,774
Class R3* -- -- -- --
---------- ------------- ---------- -------------
Total Dividend Reinvestment: 2,574 $ 63,092 9,377 $ 239,525
========== ============= ========== =============
Redemptions:
Class A (15,423) $ (380,986) (35,778) $ (957,963)
Class C (3,689) (84,951) (2,998) (75,107)
Class I (1,912) (50,626) (5,946) (162,207)
Class R3* -- -- (50) (1,321)
---------- ------------- ---------- -------------
Total Redemptions: (21,024) $ (516,563) (44,772) $ (1,196,598)
========== ============= ========== =============
* Effective March 20, 2015, all outstanding Class R3 Shares were redeemed and no
Class R3 Shares are currently available for purchase.
Page 17
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
APRIL 30, 2016 (UNAUDITED)
5. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of investments, excluding short-term
investments, for the six months ended April 30, 2016, were $1,046,091 and
$610,447, respectively.
6. BORROWINGS
The Trust, First Trust Exchange-Traded Fund III and First Trust Exchange-Traded
Fund IV have an $140 million Credit Agreement with The Bank of Nova Scotia
("Scotia") as administrative agent for a group of lenders. Scotia charges a
commitment fee of 0.25% of the daily amount of exess of the commitment amount
over the outstanding principal balance of the loans. Prior to March 9, 2016, the
commitment was $80 million and the commitment fee was 0.15%. First Trust
allocates the commitment fee amongst the funds that have access to the credit
line. To the extent that the Fund accesses the credit line, there would also be
an interest fee charged. The Fund did not have any borrowings outstanding during
the six months ended April 30, 2016.
7. DISTRIBUTION AND SERVICE PLANS
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% and 1.00% of
their average daily net assets each year for Class A and Class C, 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. 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. Class I shares have no 12b-1 fees.
8. 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.
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
were no subsequent events requiring recognition or disclosure in the financial
statements that have not already been disclosed.
Page 18
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
APRIL 30, 2016 (UNAUDITED)
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies and information on how the Fund voted proxies relating to
portfolio 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 ("SEC") website at http://www.sec.gov.
PORTFOLIO HOLDINGS
The Trust files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Form N-Q's
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.
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.
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 held by the Fund may employ the use of leverage their
portfolios 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.
CONCENTRATION RISK. A fund concentrated in a single industry or sector is likely
to present more risks than a fund that is broadly diversified over several
industries or sectors. Compared to the broad market, an individual industry or
sector may be more strongly affected by changes in the economic climate, broad
market shifts, moves in a particular dominant stock, or regulatory changes.
EQUITY SECURITIES RISK. Because the Fund invests in equity securities, the value
of Fund shares will fluctuate with changes in the value of these equity
securities. Equity securities prices fluctuate for several reasons, including
changes in investors' perceptions of the financial condition of an issuer or the
general condition of the relevant stock market, such as the current market
volatility, or when political or economic events affecting the issuers occur. In
addition, common stock prices may be particularly sensitive to rising interest
rates, as the cost of capital rises and borrowing costs increase.
FINANCIAL COMPANIES RISK. 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.
INDUSTRIALS AND PRODUCER DURABLES COMPANIES RISK. The Fund invests in the
securities of industrials and producer durables companies, which convert
unfinished goods into finished durables used to manufacture other goods or
provide services. These companies produce electrical equipment and components,
industrial products, manufactured housing and telecommunications equipment.
General risks of these companies include the general state of the economy,
intense competition, consolidation, domestic and international politics, excess
capacity and consumer demand and spending trends. In addition, they may also be
significantly affected by overall capital spending levels, economic cycles,
technical obsolescence, delays in modernization, labor relations, government
regulations and e-commerce initiatives.
INVESTMENT COMPANIES RISK. If the Fund invests in investment companies, Fund
shareholders bear both their proportionate share of Fund expenses and,
indirectly, the expenses of the investment companies. Also, the investment
companies are subject to the risks of the underlying securities that they hold.
In addition, the Fund will incur brokerage costs when purchasing and selling
shares of ETFs and closed-end investment companies. Closed-end investment
companies may be leveraged, in which case the value and/or yield of their shares
will tend to be more volatile than shares of unleveraged funds. In addition, for
index-based ETFs, the performance of an ETF may diverge from the performance of
such index (commonly known as tracking error). Moreover, shares of closed-end
investment companies and ETFs may be sold at a discount from their net asset
value.
MARKET CAPITALIZATION RISK. The Fund normally invests at least 80% of its assets
in Small-Cap Companies. Because the market capitalization is measured at the
time of its initial purchase, the Fund will not be forced to sell a stock
because the stock has exceeded or fallen below the market capitalization range.
Because of market movement, there can be no assurance that the securities held
by the Fund will stay within the given market capitalization range. As a result,
the Fund may be exposed to additional risk or investors may not be given the
opportunity to invest fully in a certain market capitalization range.
Page 19
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST/CONFLUENCE SMALL CAP VALUE FUND
APRIL 30, 2016 (UNAUDITED)
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
securities prices. Shares of the Fund could decline in value or underperform
other investments.
REAL ESTATE INVESTMENT 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.
REIT INVESTMENT RISK. Because the Fund invests in REITs, 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 operating
expenses; and other economic, political or regulatory occurrences affecting
companies in the real estate industry. In addition to risks related to
investments in real estate generally, investing in REITs involves certain other
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 purchasers, 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. REITs are also subject to the risk that the real estate market may
experience an economic downturn generally, which may have a material effect on
the real estate in which the REITs invest and their underlying portfolio
securities.
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 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
Small-Cap Companies may be less liquid than those of larger companies.
SMALL FUND RISK. The Fund currently has fewer assets than larger funds, and like
other relatively smaller funds, large inflows and outflows may impact the Fund's
market exposure for limited periods of time. This impact may be positive or
negative, depending on the direction of market movement during the period
affected.
VALUE INVESTING RISK. The Fund focuses its investments on securities that the
portfolio managers believe 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.
Page 20
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
20 Allen Avenue, Suite 300
Saint Louis, MO 63119
ADMINISTRATOR,
FUND ACCOUNTANT &
CUSTODIAN
Brown Brothers Harriman & Co.
50 Post Office Square
Boston, MA 02110
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 Short Duration
High Income Fund
-----------------------------------------
Semi-Annual Report
For the Six Months Ended April 30, 2016
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FIRST TRUST SHORT DURATION HIGH INCOME FUND
SEMI-ANNUAL REPORT
APRIL 30, 2016
Shareholder Letter........................................................... 1
At a Glance.................................................................. 2
Portfolio Management......................................................... 4
Understanding Your Fund Expenses............................................. 5
Portfolio of Investments..................................................... 6
Statement of Assets and Liabilities.......................................... 20
Statement of Operations...................................................... 21
Statements of Changes in Net Assets.......................................... 22
Financial Highlights......................................................... 23
Notes to Financial Statements................................................ 26
Additional Information....................................................... 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 its representatives, taking into account the
information currently available to them. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For example,
forward-looking statements include the use of words such as "anticipate,"
"estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or
other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
First Trust Short Duration High 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 its
representatives only as of the date hereof. We undertake no obligation to
publicly revise or update these forward-looking statements to reflect events and
circumstances that arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that the Fund will achieve its investment objectives. 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 Additional
Information section of this report 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 in
the Fund. It includes details about the Fund and presents data and analysis that
provide insight into 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
First Trust are just that: informed opinions. They should not be considered to
be promises or advice. The opinions, like the statistics, cover the period
through the date on the cover of this report. The material risks of investing in
the Fund are spelled out in the prospectus, the statement of additional
information, this report and other Fund regulatory filings.
--------------------------------------------------------------------------------
SHAREHOLDER LETTER
--------------------------------------------------------------------------------
FIRST TRUST SHORT DURATION HIGH INCOME FUND SEMI-ANNUAL
LETTER FROM THE CHAIRMAN AND CEO
APRIL 30, 2016
Dear Shareholders:
Thank you for your investment in First Trust Short Duration High Income Fund
(the "Fund").
First Trust Advisors L.P. ("First Trust") is pleased to provide you with the
semi-annual report which contains detailed information about your investment for
the six months ended April 30, 2016. Additionally, First Trust compiled the
Fund's financial statements for you to review. We encourage you to read this
report and discuss it with your financial advisor.
While markets were up and down during 2015, we believe there are three important
things to remember. First, the U.S. economy grew, despite the massive decline in
oil prices, and second, the tapering that began in 2014 by the Federal Reserve
(the "Fed") did not stop growth in the U.S. economy. Finally, the
long-anticipated rate hike by the Fed in December had little effect on the money
supply, and the stock market was not shocked by the hike. Early in 2016, many
investors were concerned that the volatility we saw in the market in 2015 would
continue, and it did. From December 31, 2015 through February 11, 2016, the S&P
500(R) Index declined by 10.27%. Since then, the market has made a steady
comeback, and as of April 30, 2016, the S&P 500(R) Index was up 13.39%.
First Trust believes that having a long-term investment horizon and being
invested in quality products can help you reach your goals, despite how the
market behaves. We have always maintained perspective about the markets and
believe investors should as well. We will continue to strive to provide quality
investments each and every day, which has been one of the hallmarks of our firm
since its inception 25 years ago.
Thank you for giving First Trust the opportunity to be a part of your investment
plan. We value our relationship with you and will continue to focus on helping
investors like you reach your financial goals.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 1
FIRST TRUST SHORT DURATION HIGH INCOME FUND
"AT A GLANCE"
AS OF APRIL 30, 2016 (UNAUDITED)
-----------------------------------------------------------
FUND STATISTICS
-----------------------------------------------------------
FIRST TRUST SHORT DURATION HIGH NET ASSET
INCOME FUND VALUE (NAV)
-----------------------------------------------------------
Class A (FDHAX) $19.73
Class C (FDHCX) $19.72
Class I (FDHIX) $19.74
-----------------------------------------------------------
-----------------------------------------------------------
% OF TOTAL
CREDIT QUALITY(1) INVESTMENTS
-----------------------------------------------------------
BBB 2.5%
BBB- 1.6
BB+ 2.3
BB 7.0
BB- 19.1
B+ 16.9
B 23.9
B- 13.8
CCC+ 8.2
CCC 2.5
CCC- 0.1
CC 0.4
D 0.1
NR 0.5
Private 1.1
-------
Total 100.0%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN ISSUERS INVESTMENTS
-----------------------------------------------------------
Tenet Healthcare Corp. 2.5%
Valeant Pharmaceuticals International, Inc. 2.3
New HB Acquisition LLC 2.1
Albertsons LLC 2.1
BJ's Wholesale Club, Inc. 2.0
Charter Communications Operating LLC 2.0
Portillo's Holdings LLC 1.9
Caesars Growth Partners LLC 1.9
Amaya Holdings B.V. 1.9
Avago Technologies Cayman Ltd. 1.8
-------
Total 20.5%
=======
-----------------------------------------------------------
% OF TOTAL
INDUSTRY CLASSIFICATION INVESTMENTS
-----------------------------------------------------------
Health Care Providers & Services 12.3%
Media 11.6
Hotels, Restaurants & Leisure 11.3
Pharmaceuticals 8.5
Food Products 5.2
Life Sciences Tools & Services 4.7
Food & Staples Retailing 4.2
Software 3.9
Specialty Retail 3.6
Semiconductors & Semiconductor Equipment 3.4
Health Care Equipment & Supplies 3.4
Diversified Telecommunication Services 2.5
Commercial Services & Supplies 2.5
Diversified Consumer Services 2.1
Aerospace & Defense 2.0
Professional Services 1.9
Insurance 1.9
Real Estate Management & Development 1.8
Wireless Telecommunication Services 1.7
Building Products 1.5
Containers & Packaging 1.3
Oil, Gas & Consumable Fuels 0.8
Beverages 0.8
Independent Power and Renewable Electricity
Producers 0.7
Consumer Finance 0.7
Technology Hardware, Storage & Peripherals 0.6
Auto Components 0.6
Real Estate Investment Trusts 0.6
Diversified Business Services 0.6
Electronic Equipment & Instruments 0.5
Health Care Technology 0.5
Road & Rail 0.5
Capital Markets 0.4
Automobiles 0.3
Chemicals 0.3
Diversified Financial Services 0.3
IT Services 0.2
Electric Utilities 0.2
Trading Companies & Distributors 0.1
Machinery 0.0*
-------
Total 100.0%
=======
--------------------------------------------------------------------------------
CLASS CLASS CLASS
DIVIDEND DISTRIBUTIONS A SHARES C SHARES I SHARES
--------------------------------------------------------------------------------
Current Monthly Distribution per Share (2) $0.0759 $0.0638 $0.0800
Current Distribution Rate on NAV (3) 4.62% 3.88% 4.86%
* Amount represents less than 0.1%.
(1) The ratings are by Standard & Poor's. A credit rating is an assessment
provided by a nationally recognized statistical rating organization
(NRSRO) of the creditworthiness of an issuer with respect to its debt
obligations. Ratings are measured on a scale that generally ranges from
AAA (highest) to D (lowest). Investment grade is defined as those issuers
that have a long-term credit rating of BBB- or higher. "NR" indicates the
issue is not rated. The credit ratings shown relate to the
creditworthiness of the issuers of the underlying securities in the Fund,
and not the Fund or its shares. Credit ratings are subject to change.
(2) Most recent distribution paid or declared through 4/30/2016. 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 4/30/2016. Subject to change in the future.
Page 2
FIRST TRUST SHORT DURATION HIGH INCOME FUND
"AT A GLANCE" (CONTINUED)
AS OF APRIL 30, 2016 (UNAUDITED)
-----------------------------------------------------------
PERFORMANCE OF A $10,000 INVESTMENT
-----------------------------------------------------------
This chart compares your Fund's Class I performance to that
of the BofA Merrill Lynch US High Yield Constrained Index,
the S&P/LSTA Leveraged Loan Index and the Blended Index(a)
from 11/1/2012 through 4/30/2016.
First Trust Short BofA
Duration High Merrill Lynch U.S. S&P/LSTA
Income Fund - Blended High Yield Leveraged Loan
Class I Shares Benchmark (a) Constrained Index ("HUC0") Index ("SPBDAL")
1/11/12 $10,000 $10,000 $10,000 $10,000
4/30/13 10,613 10,548 10,713 10,384
10/31/13 10,811 10,705 10,869 10,542
4/30/14 11,037 11,082 11,386 10,783
10/31/14 11,178 11,198 11,504 10,896
4/30/15 11,460 11,411 11,679 11,144
10/31/15 11,282 11,112 11,270 10,947
4/30/16 11,511 11,326 11,524 11,120
(a) The Blended Index return is a 50/50 split between the BofA Merrill Lynch
US High Yield Constrained Index and the S&P/LSTA Leveraged Loan Index
returns.
------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE AS OF APRIL 30, 2016
------------------------------------------------------------------------------------------------------------------------------
A SHARES C SHARES I SHARES BLENDED
Inception 11/1/2012 Inception 11/1/2012 Inception 11/1/2012 INDEX* HUC0* SPBDAL*
------------------------------------------------------------------------------------------------------------------------------
W/MAX
1.00%
W/MAX CONTINGENT
W/O 3.50% W/O DEFERRED W/O W/O W/O W/O
AVERAGE ANNUAL TOTAL SALES SALES SALES SALES SALES SALES SALES SALES
RETURNS CHARGES CHARGE CHARGES CHARGE CHARGES CHARGES CHARGES CHARGES
6 Months 1.90% -1.67% 1.53% 0.53% 2.03% 1.93% 2.25% 1.58%
1 Year 0.15% -3.38% -0.65% -1.61% 0.40% -0.74% -1.33% -0.22%
Since Inception 3.84% 2.79% 3.06% 3.06% 4.10% 3.63% 4.15% 3.09%
30-Day SEC Yield(1) 4.29% 3.70% 4.70% N/A N/A N/A
* Since inception return is based on inception date of the Fund.
Performance figures assume reinvestment of all 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 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. Total returns with sales charges include payment of the maximum sales
charge of 3.50% 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 I Shares do not have a front-end sales charge or a CDSC,
nor do they pay distribution or service fees.
(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 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
--------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
--------------------------------------------------------------------------------
FIRST TRUST SHORT DURATION HIGH INCOME FUND
SEMI-ANNUAL REPORT
APRIL 30, 2016 (UNAUDITED)
INVESTMENT MANAGER
The First Trust Leveraged Finance Team is comprised of twelve experienced
investment professionals specializing in below investment grade securities. The
team is comprised of portfolio management, research, trading and operations. As
of April 30, 2016, the First Trust Leveraged Finance Team managed or supervised
approximately $2.16 billion in senior secured bank loans and high-yield bonds.
These assets are managed across various strategies, including a closed-end fund,
an open-end fund, four exchange-traded funds, one UCITS fund and a series of
unit investment trusts on behalf of retail and institutional clients.
PORTFOLIO MANAGEMENT TEAM
WILLIAM HOUSEY, CFA - SENIOR VICE PRESIDENT, SENIOR PORTFOLIO MANAGER
SCOTT D. FRIES, CFA - SENIOR VICE PRESIDENT, PORTFOLIO MANAGER
PETER FASONE, CFA - VICE PRESIDENT, PORTFOLIO MANAGER
Page 4
FIRST TRUST SHORT DURATION HIGH INCOME FUND
UNDERSTANDING YOUR FUND EXPENSES
APRIL 30, 2016 (UNAUDITED)
As a shareholder of the First Trust Short Duration High 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 April 30, 2016.
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)
--------------------------------------------- ---------------------------------------------
BEGINNING ENDING EXPENSES PAID BEGINNING ENDING EXPENSES PAID
ACCOUNT ACCOUNT DURING PERIOD ACCOUNT ACCOUNT DURING PERIOD ANNUALIZED
VALUE VALUE 11/1/2015 - VALUE VALUE 11/1/2015 - EXPENSE
11/1/2015 4/30/2016 4/30/2016 (a) 11/1/2015 4/30/2016 4/30/2016 (a) RATIOS (b)
-----------------------------------------------------------------------------------------------------------
Class A $ 1,000.00 $ 1,019.00 $ 6.53 $ 1,000.00 $ 1,018.40 $ 6.52 1.30%
Class C 1,000.00 1,015.30 10.27 1,000.00 1,014,67 10.27 2.05
Class I 1,000.00 1,020,30 5.27 1,000.00 1,019.64 5.27 1.05
(a) Expenses are equal to the annualized expense ratios as indicated in the
table, multiplied by the average account value over the period (November
1, 2015 through April 30, 2016), multiplied by 182/366 (to reflect the
six-month period).
(b) These expense ratios reflect expense caps.
Page 5
FIRST TRUST SHORT DURATION HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 2016 (UNAUDITED)
PRINCIPAL STATED
VALUE DESCRIPTION RATE (a) MATURITY (b) VALUE
------------- --------------------------------------------------- ---------- -------------- --------------
SENIOR FLOATING-RATE LOAN INTERESTS - 58.2%
AEROSPACE & DEFENSE - 0.3%
$ 179,964 DynCorp International, Inc., Term Loan............. 6.25% 07/07/16 $ 173,665
245,973 Transdigm, Inc., Term Loan C....................... 3.75% 02/28/20 245,543
--------------
419,208
--------------
ALTERNATIVE CARRIERS - 0.1%
103,567 Level 3 Financing, Inc., Tranche B-II 2022 Term
Loan............................................ 3.50% 05/31/22 103,586
--------------
APPAREL RETAIL - 0.2%
340,765 Neiman Marcus Group (The), Inc., Other Term
Loan............................................ 4.25% 10/25/20 324,258
--------------
APPLICATION SOFTWARE - 0.8%
198,500 Epicor Software Corp., Term B Loan................. 4.75% 06/01/22 190,312
714,359 Informatica Corp. (Italic Merger Sub., Inc.),
Dollar Term Loan................................ 4.50% 08/05/22 701,858
359,390 Mitchell International, Inc., Initial Term Loan.... 4.50% 10/13/20 356,992
227,072 Triple Point Technologies, Inc., Term Loan B....... 5.25% 07/10/20 159,405
--------------
1,408,567
--------------
ASSET MANAGEMENT & CUSTODY BANKS - 0.4%
121,875 Guggenheim Partners Investment Management
Holdings LLC, Initial Term Loan................. 4.25% 07/22/20 122,180
478,269 Hamilton Lane Advisors LLC, Initial Term Loan...... 4.25% 07/08/22 477,073
--------------
599,253
--------------
AUTO PARTS & EQUIPMENT - 0.3%
66,527 Affinia Group, Inc., Tranche B-2 Term Loan......... 5.25% 04/27/20 66,444
397,339 Tower Automotive Holdings USA LLC, Initial Term
Loan (2014)..................................... 4.00% 04/23/20 396,345
--------------
462,789
--------------
AUTOMOTIVE RETAIL - 0.1%
230,233 KAR Auction Services, Inc., Tranche B-3 Term
Loan............................................ 4.25% 03/15/23 231,096
--------------
BROADCASTING - 2.0%
1,700,000 Clear Channel Communications, Inc. (iHeart
Communications, Inc.), Tranche E Term Loan...... 7.94% 07/30/19 1,263,661
46,192 Cumulus Media Holdings, Inc., Term Loan............ 4.25% 12/23/20 31,392
166,250 Gray Television, Inc., Term Loan C................. 4.25% 06/13/21 166,790
362,375 Media General, Inc., Term Loan B................... 4.00% 07/31/20 362,150
484,719 Univision Communications, Inc., 2013 Incremental
Term Loan....................................... 4.00% 03/01/20 483,304
1,000,000 Univision Communications, Inc., Replacement
First-Lien Term Loan............................ 4.00% 03/01/20 998,390
--------------
3,305,687
--------------
BUILDING PRODUCTS - 0.7%
700,000 Quikrete Holdings, Inc., Initial Loan
(First Lien).................................... 4.00% 09/28/20 698,908
500,000 Quikrete Holdings, Inc., Initial Loan
(Second Lien)................................... 7.00% 03/26/21 498,750
--------------
1,197,658
--------------
Page 6 See Notes to Financial Statements
FIRST TRUST SHORT DURATION HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2016 (UNAUDITED)
PRINCIPAL STATED
VALUE DESCRIPTION RATE (a) MATURITY (b) VALUE
------------- --------------------------------------------------- ---------- -------------- --------------
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
CABLE & SATELLITE - 1.2%
$ 311,594 Charter Communications Operating LLC, Bridge
Loan - Unsecured 1yr (c) (d).................... 3.75% 05/21/16 $ 309,647
1,750,000 Neptune Finco Corp., Initial Term Loan............. 5.00% 10/09/22 1,755,477
--------------
2,065,124
--------------
CASINOS & GAMING - 4.4%
196,875 Amaya Holdings B.V., 2nd Lien TL................... 8.00% 07/31/22 194,414
2,887,035 Amaya Holdings B.V., Initial Term B Loan
(First Lien).................................... 5.00% 08/01/21 2,758,938
2,788,717 Caesars Growth Partners LLC, Term B Loan
(First Lien).................................... 6.25% 05/08/21 2,481,958
754,755 CityCenter Holdings LLC, Term B Loan............... 4.25% 10/16/20 756,265
254,068 ROC Finance LLC, Funded Term B Loan................ 5.00% 06/20/19 240,940
1,023,018 Station Casinos, Inc., B Term Loan................. 4.25% 03/02/20 1,024,297
--------------
7,456,812
--------------
COAL & CONSUMABLE FUELS - 0.1%
388,451 Arch Coal, Inc., Term Loan (e) (f)................. 6.25% 05/16/18 162,178
--------------
COMPUTER HARDWARE - 0.6%
1,000,398 Dell, Inc., Term B-2 Loan.......................... 4.00% 04/29/20 1,000,038
--------------
CONSUMER FINANCE - 0.6%
165,491 Altisource Solutions S.A.R.L., Term B Loan......... 4.50% 12/09/20 144,184
1,034,226 Walter Investment Management Corp., Tranche B
Term Loan....................................... 4.75% 12/18/20 905,920
--------------
1,050,104
--------------
DATA PROCESSING & OUTSOURCED SERVICES - 0.2%
437,060 Sungard Availability Services Capital, Inc., Term
Loan B.......................................... 6.00% 03/29/19 390,076
--------------
DIVERSIFIED CHEMICALS - 0.1%
197,999 Ineos US Finance LLC, 2022 Dollar Term Loan........ 4.50% 03/31/22 196,639
--------------
DIVERSIFIED SUPPORT SERVICES - 0.9%
500,000 Brickman Group Ltd LLC (The), Initial Term Loan
(First Lien).................................... 4.00% 12/18/20 496,460
952,607 SMG Holdings, Inc., Term Loan B.................... 4.50% 02/27/20 938,318
--------------
1,434,778
--------------
EDUCATION SERVICES - 0.1%
123,438 Bright Horizons Family Solutions, Inc., Term B-1
Loan............................................ 4.25% 01/30/20 123,670
--------------
ELECTRIC UTILITIES - 0.2%
100,000 TXU (Texas Competitive Electric Holdings Co. LLC),
2014 Term Loan (Non-Extending) (e) (f).......... 4.91% 10/10/14 33,325
750,000 TXU (Texas Competitive Electric Holdings Co. LLC),
2017 Term Loan (Extending) (e) (f).............. 4.91% 10/10/17 253,598
--------------
286,923
--------------
See Notes to Financial Statements Page 7
FIRST TRUST SHORT DURATION HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2016 (UNAUDITED)
PRINCIPAL STATED
VALUE DESCRIPTION RATE (a) MATURITY (b) VALUE
------------- --------------------------------------------------- ---------- -------------- --------------
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.5%
$ 166,250 Linxens LLC (Lully Finance LLC), Initial Term B-1
Loan (First Lien)............................... 5.00% 10/17/22 $ 165,834
666,477 Zebra Technologies Corp., Term Loan B.............. 4.75% 10/27/21 671,223
--------------
837,057
--------------
ENVIRONMENTAL & FACILITIES SERVICES - 1.1%
148,125 PSSI (Packers Holdings LLC), Term B Loan........... 5.00% 12/02/21 147,940
936,740 ServiceMaster Co., Initial Term Loan............... 4.25% 07/01/21 939,672
782,000 WTG Holdings III Corp. (EWT Holdings III Corp.),
Term Loan (First Lien).......................... 4.75% 01/15/21 766,360
--------------
1,853,972
--------------
FOOD RETAIL - 1.7%
2,842,025 Albertsons LLC, Term B-4 Loan...................... 5.50% 08/25/21 2,850,097
--------------
HEALTH CARE EQUIPMENT - 0.7%
655,050 DJO Finance LLC (ReAble Therapeutics Finance
LLC), Initial Term Loan......................... 4.25% 06/08/20 636,217
535,301 Kinetic Concepts, Inc., Dollar Term E-1 Loan....... 4.50% 05/04/18 534,857
--------------
1,171,074
--------------
HEALTH CARE FACILITIES - 0.9%
204,310 Acadia Healthcare Co., Inc., Tranche B Term Loan... 4.25% 02/11/22 205,673
124,688 Acadia Healthcare Company, Inc., Tranche B-2
Term Loan....................................... 4.50% 02/16/23 125,505
372,188 Concentra, Inc. (MJ Acquisition Corp.), Term
Loan B.......................................... 4.00%-5.25% 05/15/22 368,466
131,658 Kindred Healthcare, Inc., New Term Loan............ 4.25% 04/09/21 131,329
731,651 Select Medical Corporation, Term Loan FTerm
Loan F Term Loan F.............................. 6.00% 02/28/21 733,481
--------------
1,564,454
--------------
HEALTH CARE SERVICES - 4.1%
593,506 21st Century Oncology, Inc., Tranche B Term Loan... 6.50% 04/30/22 525,253
496,250 Air Medical Group Holdings, Inc., Initial Term
Loan............................................ 4.25% 04/28/22 489,015
734,790 CareCore National LLC, Term Loan................... 5.50% 03/05/21 680,599
148,443 CHG Healthcare Services, Inc, Term Loan
(First Lien).................................... 4.25% 11/19/19 148,397
990,000 Curo Health Services Holdings, Inc., Term B Loan
(First Lien).................................... 6.50% 02/07/22 984,228
249,375 Envision Healthcare Corp. (Emergency Medical
Services Corp.), Tranche B-2 Term Loan.......... 4.50% 10/28/22 249,864
1,313,951 Healogics, Inc. (CDRH Parent, Inc.), Initial Term
Loan (First Lien)............................... 5.25% 07/01/21 1,230,738
373,423 Heartland Dental Care LLC, Term B-1 Loan
(First Lien).................................... 5.50% 12/21/18 368,991
790,000 Surgery Centers Holdings, Inc., Initial Term Loan
(First Lien).................................... 5.25% 11/03/20 791,485
330,000 Surgical Care Affiliates LLC, Initial Term Loan.... 4.25% 03/17/22 329,036
357,724 Team Health, Inc., Term Loan B..................... 4.50% 11/23/22 359,960
748,125 U.S. Renal Care, Inc., Term Loan B................. 5.25% 11/17/22 748,596
--------------
6,906,162
--------------
Page 8 See Notes to Financial Statements
FIRST TRUST SHORT DURATION HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2016 (UNAUDITED)
PRINCIPAL STATED
VALUE DESCRIPTION RATE (a) MATURITY (b) VALUE
------------- --------------------------------------------------- ---------- -------------- --------------
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
HEALTH CARE SUPPLIES - 0.1%
$ 185,753 ConvaTec, Inc., TLB................................ 4.25% 06/30/20 $ 185,578
--------------
HEALTH CARE TECHNOLOGY - 0.5%
589,500 Connolly Holdings, Inc. (Cotiviti Corp.), Term
Loan B.......................................... 4.50% 05/14/21 587,779
247,546 Healthport Technologies LLC (CT Technologies
Intermediate Holdings, Inc.), Initial Term Loan. 5.25% 12/01/21 245,585
--------------
833,364
--------------
HOMEFURNISHING RETAIL - 1.3%
2,107,381 Serta Simmons Holdings LLC, Term Loan B............ 4.25% 10/01/19 2,111,005
--------------
HYPERMARKETS & SUPER CENTERS - 1.9%
479,949 BJ's Wholesale Club, Inc., 2013 (November)
Replacement Loan (Second Lien).................. 8.50% 03/26/20 463,953
2,798,061 BJ's Wholesale Club, Inc., New 2013 (November)
Replacement Loan (First Lien)................... 4.50% 09/26/19 2,766,582
--------------
3,230,535
--------------
INSURANCE BROKERS - 1.5%
332,211 Amwins Group LLC, TLB.............................. 5.25% 09/06/19 332,766
1,105,198 Confie Seguros Holding II Co., Term B Loan
(First Lien).................................... 5.75% 11/09/18 1,086,774
1,051,173 HUB International Ltd., Initial Term Loan (New).... 4.00% 10/02/20 1,038,474
97,134 USI, Inc. (Compass Investors, Inc.), Initial Term
Loan............................................ 4.25% 12/27/19 95,860
--------------
2,553,874
--------------
INTEGRATED TELECOMMUNICATION SERVICES - 1.1%
1,472,412 Numericable U.S. LLC (Altice France S.A.), USD
TLB-6........................................... 4.75% 02/10/23 1,472,942
413,946 Numericable U.S. LLC (Altice France S.A.), USD
TLB-7........................................... 5.00% 01/31/24 415,411
--------------
1,888,353
--------------
LEISURE FACILITIES - 1.3%
1,024,541 ClubCorp Club Operations, Inc., Term Loan B........ 4.25% 12/08/22 1,024,029
534,423 Life Time Fitness, Inc., Closing Date Term Loan.... 4.25% 06/10/22 531,083
640,308 Planet Fitness Holdings LLC, Term Loan............. 4.75% 03/31/21 641,909
--------------
2,197,021
--------------
LIFE SCIENCES TOOLS & SERVICES - 3.1%
632,035 Immucor, Inc., Term B-2 Loan....................... 5.00% 08/19/18 600,433
2,350,317 InVentiv Health, Inc., Term B-4 Loan............... 7.75% 05/15/18 2,351,798
269,744 Millennium Health, LLC (New Millennium Holdco.),
Closing Date Term Loan (g)...................... 7.50% 12/21/20 200,959
1,064,375 Ortho-Clinical Diagnostics, Inc. (Crimson Merger
Sub, Inc.), Initial Term Loan................... 4.75% 06/30/21 1,006,782
70,078 Pharmaceutical Product Development, Inc.,
Incremental Term Loan........................... 4.25% 08/18/22 69,917
645,125 Pharmaceutical Product Development, Inc., Initial
Term Loan....................................... 4.25% 08/18/22 643,648
See Notes to Financial Statements Page 9
FIRST TRUST SHORT DURATION HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2016 (UNAUDITED)
PRINCIPAL STATED
VALUE DESCRIPTION RATE (a) MATURITY (b) VALUE
------------- --------------------------------------------------- ---------- -------------- --------------
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
LIFE SCIENCES TOOLS & SERVICES (CONTINUED)
$ 398,000 Sterigenics International (STHI Intermediate Holding
Corp.), Initial Term Loan....................... 4.25% 05/16/22 $ 397,005
--------------
5,270,542
--------------
METAL & GLASS CONTAINERS - 0.6%
343,548 Anchor Glass Container Corp., Term B Loan.......... 4.25% 07/01/22 344,194
606,397 Berlin Packaging LLC, Initial Term Loan
(First Lien).................................... 4.5% 10/01/21 606,549
--------------
950,743
--------------
MOVIES & ENTERTAINMENT - 1.6%
395,000 Creative Artists Agency LLC (CAA Holdings LLC),
Incremental Term Loan........................... 5.50% 12/17/21 394,340
2,053,227 Formula One (Delta 2 Lux S.A.R.L.), Facility B3
(USD)........................................... 4.75% 07/30/21 2,015,099
244,665 WME IMG Worldwide, Inc., Term Loan (First
Lien)........................................... 5.25% 05/06/21 244,115
--------------
2,653,554
--------------
OIL & GAS EXPLORATION & PRODUCTION - 0.1%
400,000 American Energy Marcellus Holdings LLC, Initial
Loan (First Lien)............................... 5.25% 08/04/20 106,400
472,222 American Energy Marcellus Holdings LLC, Initial
Loan (Second Lien).............................. 8.50% 08/04/21 56,667
--------------
163,067
--------------
PACKAGED FOODS & MEATS - 3.0%
226,928 B&G Foods, Inc., Tranche B Term Loan............... 4.00% 11/02/22 228,062
1,174,033 Ferrara Candy Co. (Candy Intermediate Holdings,
Inc.), Initial Term Loan........................ 7.50% 06/18/18 1,176,968
2,344,110 New HB Acquisition LLC, Term B Loan (First
Lien)........................................... 4.50% 08/03/22 2,350,955
1,058,377 New HB Acquisition LLC, Term B Loan (Second
Lien)........................................... 8.50% 08/03/23 1,037,209
299,250 Pinnacle Foods Finance LLC, Tranche I Term Loan.... 3.75% 01/13/23 300,543
--------------
5,093,737
--------------
PHARMACEUTICALS - 4.7%
330,206 Akorn, Inc., Loan.................................. 6.00% 04/16/21 330,618
142,187 AMAG Pharmaceuticals, Inc., Initial Term Loan...... 4.75% 08/17/21 141,121
1,280,698 Amneal Pharmaceuticals LLC, Term Loan B............ 4.50% 11/01/19 1,276,958
1,310,003 Catalent Pharma Solutions, Inc., Dollar Term
Loan............................................ 4.25% 05/20/21 1,315,532
914,375 Concordia Healthcare Corp., Initial Dollar Term
Loan............................................ 5.25% 10/21/21 904,317
249,375 Endo Pharmaceuticals Holdings, Inc., 2015
Incremental Term B Loan......................... 3.75% 06/27/22 248,440
495,293 Horizon Pharma, Inc., Term Loan B.................. 4.50% 04/30/21 479,195
589,500 Patheon, Inc. (JLL/Delta Dutch Newco B.V.), Initial
Dollar Term Loan................................ 4.25% 03/11/21 582,868
2,764,318 Valeant Pharmaceuticals International, Inc.,
Series F-1 Tranche B Term Loan.................. 4.00% 04/01/22 2,692,446
--------------
7,971,495
--------------
Page 10 See Notes to Financial Statements
FIRST TRUST SHORT DURATION HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2016 (UNAUDITED)
PRINCIPAL STATED
VALUE DESCRIPTION RATE (a) MATURITY (b) VALUE
------------- --------------------------------------------------- ---------- -------------- --------------
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
PROPERTY & CASUALTY INSURANCE - 0.6%
$ 570,167 Cunningham Lindsey U.S., Inc., Initial Term Loan
(First Lien).................................... 5.00% 12/10/19 $ 406,244
600,000 Sedgwick Claims Management Services, Inc., Initial
Loan (Second Lien).............................. 6.75% 02/28/22 570,000
--------------
976,244
--------------
REAL ESTATE SERVICES - 0.8%
1,290,250 DTZ Worldwide Ltd., 2015-1 Additional Term
Loan............................................ 4.25% 11/04/21 1,286,482
--------------
RESEARCH & CONSULTING SERVICES - 1.8%
1,507,127 Acosta, Inc., Term Loan B.......................... 4.25% 09/26/21 1,490,171
1,134,060 Advantage Sales & Marketing, Inc., Initial Term
Loan (First Lien)............................... 4.25% 07/23/21 1,123,434
402,431 Information Resources, Inc., Term Loan............. 4.75% 09/30/20 402,431
--------------
3,016,036
--------------
RESTAURANTS - 2.1%
50,000 Focus Brands, Inc., Term Loan (Second Lien)........ 10.25% 08/21/18 49,937
1,000,000 Portillo's Holdings LLC, Second Lien Term Loan..... 8.00% 08/15/22 955,000
2,113,725 Portillo's Holdings LLC, Term B Loan (First
Lien)........................................... 4.75% 08/02/21 2,062,637
422,143 Red Lobster Management LLC, Initial Term Loan
(First Lien).................................... 6.25% 07/28/21 420,560
--------------
3,488,134
--------------
RETAIL REITS - 0.1%
200,000 Capital Automotive LLC, Term Loan (Second
Lien)........................................... 6.00% 04/30/20 200,500
--------------
SEMICONDUCTORS - 3.2%
2,900,000 Avago Technologies Cayman Ltd., Term B-1 Dollar
Loan............................................ 4.25% 11/11/22 2,900,522
400,000 Micron Technology, Inc., Term Loan B............... 04/15/22 401,376
1,246,875 NXP B.V., Tranche B Loan........................... 3.75% 12/07/20 1,249,992
900,000 Western Digital, Term Loan B....................... 6.25% 03/16/23 878,247
--------------
5,430,137
--------------
SOFT DRINKS - 0.8%
1,340,956 Kuerig Green Mountain, Inc. (Maple Holdings
Acquisition Corp,), Term Loan B................. 5.25% 02/15/23 1,344,590
--------------
SPECIALIZED CONSUMER SERVICES - 1.6%
1,203,574 Asurion LLC, Incremental Tranche B-1 Term Loan..... 5.00% 05/24/19 1,199,061
895,950 Asurion LLC, Incremental Tranche B-4 Term Loan..... 5.00% 08/04/22 889,392
602,941 Asurion LLC, Term Loan (Second Lien)............... 8.50% 03/03/21 577,961
--------------
2,666,414
--------------
SPECIALIZED FINANCE - 0.8%
398,000 AlixPartners LLP, Initial Term Loan................ 4.50% 07/15/22 399,492
893,803 Duff & Phelps Corp., Initial Term Loan............. 4.75% 04/23/20 888,217
--------------
1,287,709
--------------
See Notes to Financial Statements Page 11
FIRST TRUST SHORT DURATION HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2016 (UNAUDITED)
PRINCIPAL STATED
VALUE DESCRIPTION RATE (a) MATURITY (b) VALUE
------------- --------------------------------------------------- ---------- -------------- --------------
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
SPECIALTY CHEMICALS - 0.1%
$ 109,722 Platform Specialty Products Corp. (fka: Macdermid,
Inc.), Tranche B-2 Term Loan.................... 5.50% 06/07/20 $ 107,688
99,250 Trinseo Materials Operating S.C.A., Term Loan B.... 4.25% 10/13/21 99,084
--------------
206,772
--------------
SPECIALTY STORES - 1.3%
248,736 Party City Holdings, Inc., Term Loan............... 4.25% 08/06/22 247,597
1,000,662 PetSmart, Inc., Tranche B-1 Loan................... 4.25% 03/11/22 997,289
491,393 Toys "R" US-Delaware, Inc., Term B-2 Loan.......... 5.25% 05/25/18 432,426
505,515 Toys "R" US-Delaware, Inc., Term B4 Loan........... 9.75% 04/25/20 427,792
--------------
2,105,104
--------------
SYSTEMS SOFTWARE - 1.8%
176,788 Applied Systems, Inc., Initial Term Loan (First
Lien)........................................... 4.25% 01/25/21 176,050
218,154 Applied Systems, Inc., Initial Term Loan (Second
Lien)........................................... 7.50% 01/24/22 213,700
99,500 Blue Coat Systems, Inc., Initial Term Loan......... 4.50% 05/20/22 98,878
2,230,635 BMC Software Finance, Inc., Initial US Term Loan... 5.00% 09/10/20 1,915,558
703,125 Compuware Corp., Term Loan B....................... 6.25% 12/31/19 684,373
--------------
3,088,559
--------------
TRUCKING - 0.1%
142,369 SIRVA Worldwide, Inc., Loan (c).................... 7.50% 03/27/19 134,539
--------------
TOTAL SENIOR FLOATING-RATE LOAN INTERESTS........................................ 97,735,348
(Cost $101,170,644) --------------
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
------------- --------------------------------------------------- ---------- -------------- --------------
CORPORATE BONDS AND NOTES - 29.3%
AEROSPACE & DEFENSE - 0.9%
100,000 Aerojet Rocketdyne Holdings, Inc................... 7.13% 03/15/21 105,518
1,500,000 Digitalglobe, Inc. (h)............................. 5.25% 02/01/21 1,363,125
--------------
1,468,643
--------------
AGRICULTURAL PRODUCTS - 0.3%
455,000 Darling Ingredients, Inc........................... 5.38% 01/15/22 476,612
68,000 Pinnacle Operating Corp. (c) (i)................... 9.00% 11/15/20 58,140
--------------
534,752
--------------
ALTERNATIVE CARRIERS - 0.4%
600,000 Level 3 Communications, Inc........................ 5.75% 12/01/22 618,306
--------------
APPLICATION SOFTWARE - 0.5%
1,000,000 Infor (US), Inc.................................... 6.50% 05/15/22 928,010
--------------
AUTO PARTS & EQUIPMENT - 0.3%
250,000 American Axle & Manufacturing, Inc................. 6.25% 03/15/21 260,938
250,000 MPG Holdco I, Inc.................................. 7.38% 10/15/22 251,250
--------------
512,188
--------------
Page 12 See Notes to Financial Statements
FIRST TRUST SHORT DURATION HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2016 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
------------- --------------------------------------------------- ---------- -------------- --------------
CORPORATE BONDS AND NOTES (CONTINUED)
BROADCASTING - 2.9%
$ 1,000,000 Gray Television, Inc............................... 7.50% 10/01/20 $ 1,052,500
375,000 LIN Television Corp................................ 5.88% 11/15/22 384,375
188,000 Nexstar Broadcasting, Inc.......................... 6.88% 11/15/20 197,870
100,000 Nexstar Broadcasting, Inc. (h)..................... 6.13% 02/15/22 100,750
215,000 Sinclair Television Group, Inc. (h)................ 5.88% 03/15/26 223,062
250,000 Sinclair Television Group, Inc..................... 6.38% 11/01/21 265,625
500,000 Sinclair Television Group, Inc..................... 6.13% 10/01/22 536,250
1,000,000 Sinclair Television Group, Inc. (h)................ 5.63% 08/01/24 1,031,250
1,000,000 Univision Communications, Inc. (h)................. 6.75% 09/15/22 1,065,000
--------------
4,856,682
--------------
BUILDING PRODUCTS - 0.1%
125,000 American Builders & Contractors Supply Co.,
Inc. (h)........................................ 5.63% 04/15/21 130,000
--------------
CABLE & SATELLITE - 2.8%
972,000 Altice US Finance I Corp. (h)...................... 5.50% 05/15/26 984,150
2,500,000 CCO Holdings LLC/CCO Holdings Capital Corp......... 5.75% 01/15/24 2,628,125
200,000 CCO Holdings LLC/CCO Holdings Capital Corp. (h).... 5.88% 04/01/24 210,000
1,000,000 Cequel Communications Holdings I LLC/Cequel
Capital Corp. (h)............................... 5.13% 12/15/21 947,500
--------------
4,769,775
--------------
CASINOS & GAMING - 2.0%
550,000 Caesars Growth Properties Holdings LLC/Caesars
Growth Properties Finance, Inc.................. 9.38% 05/01/22 481,250
100,000 GLP Capital L.P./GLP Financing II, Inc............. 5.38% 04/15/26 104,500
50,000 MGM Resorts International.......................... 8.63% 02/01/19 57,125
1,850,000 MGM Resorts International.......................... 7.75% 03/15/22 2,074,313
600,000 Station Casinos LLC................................ 7.50% 03/01/21 635,888
--------------
3,353,076
--------------
COMPUTER & ELECTRONICS RETAIL - 0.1%
100,000 Energizer Holdings, Inc. (h)....................... 5.50% 06/15/25 100,261
--------------
CONSTRUCTION MACHINERY & HEAVY TRUCKS - 0.0%
50,000 Oshkosh Corp....................................... 5.38% 03/01/22 51,813
--------------
DIVERSIFIED REAL ESTATE ACTIVITIES - 0.9%
500,000 Meritage Homes Corp................................ 7.00% 04/01/22 538,750
1,000,000 TRI Pointe Group, Inc./TRI Pointe Homes, Inc....... 5.88% 06/15/24 1,010,000
--------------
1,548,750
--------------
FOOD RETAIL - 0.3%
500,000 Albertson's Holdings LLC (h)....................... 7.75% 10/15/22 536,715
--------------
HEALTH CARE EQUIPMENT - 2.4%
2,050,000 DJO Finco, Inc./DJO Finance LLC/DJO Finance
Corp. (h)....................................... 8.13% 06/15/21 1,804,000
300,000 Hill-Rom Holdings, Inc. (h)........................ 5.75% 09/01/23 312,375
400,000 Kinetic Concepts, Inc./KCI USA, Inc................ 10.50% 11/01/18 406,260
1,500,000 Kinetic Concepts, Inc./KCI USA, Inc................ 12.50% 11/01/19 1,443,750
--------------
3,966,385
--------------
See Notes to Financial Statements Page 13
FIRST TRUST SHORT DURATION HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2016 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
------------- --------------------------------------------------- ---------- -------------- --------------
CORPORATE BONDS AND NOTES (CONTINUED)
HEALTH CARE FACILITIES - 5.8%
$ 1,100,000 CHS/Community Health Systems, Inc.................. 6.88% 02/01/22 $ 1,001,000
620,000 HCA, Inc........................................... 5.38% 02/01/25 634,725
600,000 HealthSouth Corp................................... 5.75% 11/01/24 622,500
1,250,000 Kindred Healthcare, Inc............................ 8.00% 01/15/20 1,251,250
500,000 Kindred Healthcare, Inc............................ 6.38% 04/15/22 459,375
250,000 LifePoint Health, Inc.............................. 5.50% 12/01/21 260,625
1,500,000 Select Medical Corp................................ 6.38% 06/01/21 1,430,625
500,000 Tenet Healthcare Corp.............................. 6.75% 02/01/20 505,000
500,000 Tenet Healthcare Corp.............................. 8.13% 04/01/22 521,250
3,000,000 Tenet Healthcare Corp.............................. 6.75% 06/15/23 2,973,750
--------------
9,660,100
--------------
HEALTH CARE SERVICES - 0.7%
600,000 AmSurg Corp........................................ 5.63% 07/15/22 618,000
510,000 Surgical Care Affiliates LLC (h)................... 6.00% 04/01/23 517,650
--------------
1,135,650
--------------
HOTELS, RESORTS & CRUISE LINES - 0.5%
850,000 Felcor Lodging L.P................................. 6.00% 06/01/25 881,875
--------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS - 0.7%
650,000 NRG Energy, Inc.................................... 7.88% 05/15/21 678,990
500,000 NRG Energy, Inc.................................... 6.25% 07/15/22 492,660
--------------
1,171,650
--------------
INTEGRATED TELECOMMUNICATION SERVICES - 0.4%
125,000 Frontier Communications Corp. (h).................. 8.88% 09/15/20 132,812
110,000 Frontier Communications Corp....................... 6.25% 09/15/21 102,850
500,000 Frontier Communications Corp....................... 8.75% 04/15/22 496,250
--------------
731,912
--------------
LIFE SCIENCES TOOLS & SERVICES - 1.3%
1,500,000 Crimson Merger Sub, Inc. (h)....................... 6.63% 05/15/22 1,260,000
900,000 Jaguar Holding Co. II/Pharmaceutical Product
Development LLC (h)............................. 6.38% 08/01/23 937,350
--------------
2,197,350
--------------
MANAGED HEALTH CARE - 0.1%
100,000 Centene Corp. (h).................................. 5.63% 02/15/21 105,500
100,000 Centene Corp. (h).................................. 6.13% 02/15/24 105,750
--------------
211,250
--------------
METAL & GLASS CONTAINERS - 0.1%
100,000 Owens-Brockway Glass Container, Inc. (h)........... 5.88% 08/15/23 107,688
--------------
MOVIES & ENTERTAINMENT - 0.1%
125,000 Cinemark USA, Inc.................................. 4.88% 06/01/23 124,701
--------------
OIL & GAS EXPLORATION & PRODUCTION - 0.1%
125,000 Sanchez Energy Corp................................ 6.13% 01/15/23 94,063
--------------
OIL & GAS REFINING & MARKETING - 0.1%
250,000 CITGO Petroleum Corp. (h).......................... 6.25% 08/15/22 245,000
--------------
Page 14 See Notes to Financial Statements
FIRST TRUST SHORT DURATION HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2016 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
------------- --------------------------------------------------- ---------- -------------- --------------
CORPORATE BONDS AND NOTES (CONTINUED)
OIL & GAS STORAGE & TRANSPORTATION - 0.4%
$ 575,000 Crestwood Midstream Partners L.P./Crestwood
Midstream Finance Corp.......................... 6.13% 03/01/22 $ 527,562
188,000 Summit Midstream Holdings LLC/Summit
Midstream Finance Corp.......................... 5.50% 08/15/22 153,220
--------------
680,782
--------------
PACKAGED FOODS & MEATS - 1.5%
692,000 JBS USA LLC/JBS USA Finance, Inc. (h).............. 5.88% 07/15/24 647,020
500,000 JBS USA LLC/JBS USA Finance, Inc. (h).............. 5.75% 06/15/25 462,500
150,000 Pilgrim's Pride Corp. (h).......................... 5.75% 03/15/25 153,375
1,000,000 Post Holdings, Inc................................. 7.38% 02/15/22 1,057,500
225,000 TreeHouse Foods, Inc. (h).......................... 6.00% 02/15/24 240,469
--------------
2,560,864
--------------
RESEARCH & CONSULTING SERVICES - 0.1%
125,000 Nielsen Finance LLC/Nielsen Finance Co. (h)........ 5.00% 04/15/22 127,969
--------------
SPECIALIZED REITS - 0.5%
500,000 Geo Group, (The) Inc............................... 5.88% 01/15/22 512,500
250,000 Geo Group, (The) Inc............................... 5.88% 10/15/24 256,250
--------------
768,750
--------------
SPECIALTY STORES - 0.5%
675,000 Argos Merger Sub, Inc. (h)......................... 7.13% 03/15/23 691,875
125,000 Dollar Tree, Inc. (h).............................. 5.75% 03/01/23 134,100
--------------
825,975
--------------
SYSTEMS SOFTWARE - 0.4%
375,000 BMC Software Finance, Inc. (h)..................... 8.13% 07/15/21 279,375
500,000 BMC Software, Inc.................................. 7.25% 06/01/18 447,500
--------------
726,875
--------------
TRADING COMPANIES & DISTRIBUTORS - 0.1%
209,000 BlueLine Rental Finance Corp. (h).................. 7.00% 02/01/19 184,443
--------------
TRUCKING - 0.4%
600,000 Avis Budget Car Rental LLC/Avis Budget Finance,
Inc. (h)........................................ 5.13% 06/01/22 571,875
125,000 Avis Budget Car Rental LLC/Avis Budget Finance,
Inc............................................. 5.50% 04/01/23 119,944
--------------
691,819
--------------
WIRELESS TELECOMMUNICATION SERVICES - 1.6%
500,000 Sprint Communications, Inc......................... 7.00% 08/15/20 417,500
1,350,000 Sprint Corp........................................ 7.25% 09/15/21 1,096,875
750,000 T-Mobile USA, Inc.................................. 6.73% 04/28/22 792,187
200,000 T-Mobile USA, Inc.................................. 6.00% 03/01/23 210,750
200,000 T-Mobile USA, Inc.................................. 6.63% 04/01/23 214,500
--------------
2,731,812
--------------
TOTAL CORPORATE BONDS AND NOTES.................................................. 49,235,884
(Cost $50,671,331) --------------
See Notes to Financial Statements Page 15
FIRST TRUST SHORT DURATION HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2016 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
------------- --------------------------------------------------- ---------- -------------- --------------
FOREIGN CORPORATE BONDS AND NOTES - 6.9%
AEROSPACE & DEFENSE - 0.8%
$ 583,000 Bombardier, Inc. (h)............................... 5.50% 09/15/18 $ 577,170
750,000 Bombardier, Inc. (h)............................... 7.75% 03/15/20 744,375
--------------
1,321,545
--------------
ALTERNATIVE CARRIERS - 0.3%
1,750,000 Intelsat Luxembourg S.A............................ 7.75% 06/01/21 586,250
--------------
AUTOMOBILE MANUFACTURERS - 0.3%
500,000 Fiat Chrysler Automobiles N.V...................... 5.25% 04/15/23 507,520
--------------
BUILDING PRODUCTS - 0.6%
1,020,000 Cemex S.A.B de C.V. (h)............................ 7.25% 01/15/21 1,091,400
--------------
CABLE & SATELLITE - 0.3%
500,000 Virgin Media Finance PLC (h)....................... 6.00% 10/15/24 511,875
--------------
CASINOS & GAMING - 0.3%
250,000 MCE Finance Ltd. (h)............................... 5.00% 02/15/21 242,139
310,000 Wynn Macau Ltd. (h)................................ 5.25% 10/15/21 298,375
--------------
540,514
--------------
METAL & GLASS CONTAINERS - 0.6%
62,000 Ardagh Packaging Finance PLC/Ardagh Holdings
USA, Inc. (h)................................... 6.25% 01/31/19 63,705
114,706 Ardagh Packaging Finance PLC/Ardagh Holdings
USA, Inc. (h)................................... 7.00% 11/15/20 108,971
750,000 Ardagh Packaging Finance PLC/Ardagh Holdings
USA, Inc. (h)................................... 6.75% 01/31/21 755,625
--------------
928,301
--------------
PHARMACEUTICALS - 3.3%
928,000 Capsugel S.A. (h) (j).............................. 7.00% 05/15/19 934,960
1,420,000 Endo Ltd./Endo Finance LLC/Endo Finco, Inc. (h).... 6.00% 07/15/23 1,400,475
915,000 Endo Ltd./Endo Finance LLC/Endo Finco, Inc. (h).... 6.00% 02/01/25 878,400
1,000,000 Mallinckrodt International Finance S.A./Mallinckrodt
CB LLC (h)...................................... 5.75% 08/01/22 948,750
250,000 Mallinckrodt International Finance S.A./Mallinckrodt
CB LLC (h)...................................... 5.63% 10/15/23 235,625
250,000 Mallinckrodt International Finance S.A./Mallinckrodt
CB LLC (h)...................................... 5.50% 04/15/25 226,875
1,000,000 Valeant Pharmaceuticals International, Inc. (h).... 5.38% 03/15/20 890,625
--------------
5,515,710
--------------
SECURITY & ALARM SERVICES - 0.4%
750,000 Garda World Security Corp. (h)..................... 7.25% 11/15/21 609,375
--------------
TOTAL FOREIGN CORPORATE BONDS AND NOTES.......................................... 11,612,490
(Cost $13,200,712) --------------
Page 16 See Notes to Financial Statements
FIRST TRUST SHORT DURATION HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2016 (UNAUDITED)
SHARES DESCRIPTION VALUE
------------- --------------------------------------------------------------------------------- --------------
COMMON STOCKS - 0.1%
LIFE SCIENCES TOOLS & SERVICES - 0.1%
7,900 New Millennium Holdco, Inc. (g) (k).............................................. $ 60,565
(Cost $39,500) --------------
RIGHTS - 0.0%
LIFE SCIENCES TOOLS & SERVICES - 0.0%
1 New Millennium Holdco, Inc., Corporate Claim Trust (c) (d) (g) (k)............... 0
1 New Millennium Holdco, Inc., Lender Claim Trust (c) (d) (g) (k).................. 0
--------------
TOTAL RIGHTS..................................................................... 0
(Cost $0) --------------
TOTAL INVESTMENTS - 94.5%........................................................ 158,644,287
(Cost $165,082,187) (l)
NET OTHER ASSETS AND LIABILITIES - 5.5%.......................................... 9,240,521
--------------
NET ASSETS - 100.0%.............................................................. $ 167,884,808
==============
-----------------------------
(a) Senior Floating-Rate Loan Interests ("Senior Loans") in which the Fund
invests pay interest at rates which are periodically predetermined by
reference to a base lending rate plus a premium. These base lending rates
are generally (i) the lending rate offered by one or more major European
banks, such as the London Inter-Bank Offered Rate ("LIBOR"), (ii) the
prime rate offered by one or more United States banks or (iii) the
certificate of deposit rate. Certain Senior Loans are subject to a LIBOR
floor that establishes a minimum LIBOR rate. The interest rate shown
reflects the rate in effect at April 30, 2016. When a range of rates is
disclosed, the Fund holds more than one contract within the same tranche
at varying rates.
(b) Senior Loans generally are subject to mandatory and/or optional
prepayment. As a result, the actual remaining maturity of Senior Loans may
be substantially less than the stated maturities shown.
(c) Pursuant to procedures adopted by First Trust Series Fund's (the "Trust")
Board of Trustees, this security has been determined to be illiquid by
First Trust Advisors L.P. ("First Trust" or the "Advisor"), the Fund's
advisor.
(d) This security is fair valued by the Advisor's Pricing Committee in
accordance with procedures adopted by the Trust's Board of Trustees and in
accordance with the provisions of the Investment Company Act of 1940, as
amended. At April 30, 2016, securities noted as such are valued at
$309,647 or 0.2% of net assets.
(e) This borrower has filed for protection in federal bankruptcy court.
(f) This issuer is in default but interest is still being accrued by the Fund
and paid by the issuer.
(g) On December 21, 2015, Millennium Health, LLC completed a Bankruptcy Plan
of Reorganization. As part of the Bankruptcy Plan of Reorganization, the
holders of Millennium Laboratories LLC, Tranche B Term Loan received a
portion of a new term loan and a pro rata share of the newly issued common
equity shares in New Millennium Holdco, Inc., the new company. Each lender
was also issued a beneficial interest in the Corporate Claim Trust
entitling it, as holder of such beneficial interest, to receive Corporate
Claim Trust Distributions when and if net cash proceeds from the pursuit
of Retained Corporate Causes of Action are available to make such a
distribution. In addition, each lender was issued a beneficial interest in
the Lender Claim Trust entitling it, as holder of such beneficial
interest, to receive Lender Claim Trust Distributions when and if net cash
proceeds from the pursuit of Retained Lender Causes of Action are
available to make such a distribution.
(h) 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 (the "1933 Act"), and may be resold in
transactions exempt from registration, normally to qualified institutional
buyers. Pursuant to procedures adopted by the Trust's Board of Trustees,
this security has been determined to be liquid by First Trust. 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 April 30, 2016, securities noted as such amounted to
$26,231,659 or 15.6% of net assets.
See Notes to Financial Statements Page 17
FIRST TRUST SHORT DURATION HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2016 (UNAUDITED)
(i) This security, sold within the terms of a private placement memorandum, is
exempt from registration upon resale under Rule 144A under the 1933 Act,
and may be resold in transactions exempt from registration, normally to
qualified institutional buyers (see Note 2D - Restricted Securities in the
Notes to Financial Statements).
(j) These notes are Senior Payment-in-Kind ("PIK") Toggle Notes whereby the
issuer may, at its option, elect to pay interest on the notes (1) entirely
in cash or (2) entirely in PIK interest. Interest paid in cash will accrue
at the rate of 7.00% per annum ("Cash Interest Rate") and PIK interest
will accrue on the notes at a rate per annum equal to the Cash Interest
Rate plus 75 basis points. For the six months ended April 30, 2016, this
security paid all of its interest in cash.
(k) Non-income producing security.
(l) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of April 30, 2016, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $1,295,922 and the aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over value was $7,733,822.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of April 30,
2016 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
ASSETS TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
4/30/2016 PRICES INPUTS INPUTS
------------- ------------- ------------- -------------
Senior Floating-Rate Loan Interests
Cable & Satellite............................... $ 2,065,124 $ -- $ 1,755,477 $ 309,647
Trucking........................................ 134,539 -- -- 134,539
Other Industry Categories*...................... 95,535,685 95,535,685 --
Corporate Bonds and Notes
Agricultural Products........................... 534,752 -- 476,612 58,140
Other Corporate Bonds and Notes*................ 48,701,132 -- 48,701,132 --
Foreign Corporate Bonds and Notes*................. 11,612,490 -- 11,612,490 --
Common Stocks*..................................... 60,565 -- 60,565 --
Rights*............................................ -- -- -- --**
------------- ------------- ------------- -------------
Total Investments.................................. $ 158,644,287 $ -- $ 158,141,961 $ 502,326
============= ============= ============= =============
* See Portfolio of Investments for industry breakout. Industry categories
are only shown separately if they include holdings in two or more levels
or have holdings in only Level 3.
** Investment is valued at $0.
There were no transfers between Level 1 and Level 2 at April 30, 2016.
All transfers in and out of Level 3 during the period are assumed to be
transferred on the last day of the period at their current value. As of April
30, 2016, the Fund transferred Senior Floating-Rate Loan Interests valued at
$134,539 from Level 2 to Level 3 of the fair value hierarchy. The Senior
Floating-Rate Loan Interests that transferred from Level 2 to Level 3 did so
primarily as a result of a change in the information obtained from an
independent third-party pricing service relating to the market activity of
individual Senior Floating-Rate Loan Interests and a lack of trading activity in
certain Senior Floating-Rate Loan Interests. As of April 30, 2016, the Fund
transferred Senior Floating-Rate Loan Interests valued at $406,244 from Level 3
to Level 2 of the fair value hierarchy. The Senior Floating-Rate Loan Interests
that transferred from Level 3 to Level 2 did so primarily as a result of a
change in information obtained from an independent third-party pricing service
relating to the market activity of individual Senior Floating-Rate Loan
Interests.
As of April 30, 2016, the Fund transferred Corporate Bonds and Notes valued at
$58,140 from Level 2 to Level 3 of the fair value hierarchy. The Corporate Bonds
and Notes that transferred from Level 2 to Level 3 did so primarily as a result
of a change in information obtained from an independent third-party pricing
service relating to the market activity of individual Corporate Bonds and Notes
and a lack of trading activity in certain Corporate Bonds and Notes.
Page 18 See Notes to Financial Statements
FIRST TRUST SHORT DURATION HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2016 (UNAUDITED)
Level 3 Senior Floating-Rate Loan Interests are fair valued by the Advisor's
Pricing Committee. Level 3 Senior Floating-Rate Loan Interests are valued based
on either third party pricing service prices obtained from dealer runs and
indicative sheets from brokers or are valued using broker quotes. The values are
based on unobservable and non-quantitative inputs. The Trust's Board of Trustees
has adopted valuation procedures that are utilized by the Advisor's Pricing
Committee to oversee day-to-day valuation of the Fund's investments. The
Advisor's Pricing Committee, through the Fund's fund accounting agent, monitors
daily pricing via tolerance checks and stale and unchanged price reviews. The
Advisor's Pricing Committee also reviews monthly back testing of pricing service
prices by comparing sales prices of the Fund investments to prior day pricing
service prices. Additionally, the Advisor's Pricing Committee reviews periodic
information from the Fund's third party pricing service that compares secondary
market trade prices to their daily valuations.
The following table presents the activity of the Fund's investments measured at
fair value on a recurring basis using significant unobservable inputs (Level 3)
for the period presented.
BEGINNING BALANCE AT OCTOBER 31, 2015
Senior Floating-Rate Loan Interests $ 997,297
Corporate Bonds and Notes --
Rights --
Net Realized Gain (Loss)
Senior Floating-Rate Loan Interests 45
Net Change in Unrealized Appreciation/Depreciation
Senior Floating-Rate Loan Interests (24,820)
Purchases --
Rights --**
Sales
Senior Floating-Rate Loan Interests (256,631)
Transfers In
Senior Floating-Rate Loan Interests 134,539
Corporate Bonds and Notes 58,140
Transfers Out
Senior Floating-Rate Loan Interests (406,244)
-------------
Ending Balance at April 30, 2016
Senior Floating-Rate Loan Interests 444,186
Corporate Bonds and Notes 58,140
Rights --**
-------------
Total Level 3 holdings $ 502,326
=============
** Investment is valued at $0.
There was no net change in unrealized appreciation (depreciation) from Level 3
investments held as of April 30, 2016.
See Notes to Financial Statements Page 19
FIRST TRUST SHORT DURATION HIGH INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2016 (UNAUDITED)
ASSETS:
Investments, at value
(Cost $165,082,187)......................................................................... $158,644,287
Cash........................................................................................... 14,509,804
Receivables:
Investment securities sold.................................................................. 1,764,489
Interest.................................................................................... 1,609,340
Fund shares sold............................................................................ 387,156
------------
Total Assets................................................................................ 176,915,076
------------
LIABILITIES:
Payables:
Investment securities purchased............................................................. 8,292,633
Common Shares repurchased................................................................... 361,164
Investment advisory fees.................................................................... 125,846
Distributions payable....................................................................... 86,645
Audit and tax fees.......................................................................... 30,975
Transfer agent fees......................................................................... 30,150
12b-1 distributions and service fees........................................................ 29,265
Administrative fees......................................................................... 21,495
Registration fees........................................................................... 20,339
Printing fees............................................................................... 10,873
Custodian fees.............................................................................. 9,178
Commitment fees............................................................................. 6,123
Interest and fees on loan................................................................... 2,641
Financial reporting fees.................................................................... 771
Other liabilities.............................................................................. 2,170
------------
9,030,268
------------
NET ASSETS..................................................................................... $167,884,808
============
NET ASSETS CONSIST OF:
Paid-in capital................................................................................ $175,869,147
Par value...................................................................................... 85,071
Accumulated net investment income (loss)....................................................... 774,542
Accumulated net realized gain (loss) on investments............................................ (2,406,052)
Net unrealized appreciation (depreciation) on investments...................................... (6,437,900)
------------
NET ASSETS..................................................................................... $167,884,808
============
MAXIMUM OFFERING PRICE PER SHARE:
CLASS A SHARES:
Net asset value and redemption price per share (Based on net assets of $47,891,023 and
2,427,827 shares of beneficial interest issued and outstanding).......................... $ 19.73
Maximum sales charge (3.50% of offering price).............................................. 0.72
============
Maximum offering price to public............................................................ $ 20.45
============
CLASS C SHARES:
Net asset value and redemption price per share (Based on net assets of $24,119,076 and
1,223,236 shares of beneficial interest issued and outstanding).......................... $ 19.72
============
CLASS I SHARES:
Net asset value and redemption price per share (Based on net assets of $95,874,709 and
4,856,024 shares of beneficial interest issued and outstanding).......................... $ 19.74
============
Page 20 See Notes to Financial Statements
FIRST TRUST SHORT DURATION HIGH INCOME FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 2016 (UNAUDITED)
INVESTMENT INCOME:
Interest....................................................................................... $ 4,951,121
Other.......................................................................................... 10,330
------------
Total investment income..................................................................... 4,961,451
------------
EXPENSES:
Investment advisory fees....................................................................... 540,820
12b-1 distribution and service fees
Class A..................................................................................... 60,528
Class C..................................................................................... 118,508
Transfer agent fees............................................................................ 72,968
Administrative fees............................................................................ 67,089
Registration fees.............................................................................. 33,085
Audit and tax fees............................................................................. 29,926
Legal fees..................................................................................... 25,948
Printing fees.................................................................................. 20,205
Custodian fees................................................................................. 17,937
Commitment fees................................................................................ 17,078
Trustees' fees and expenses.................................................................... 9,128
Financial reporting fees....................................................................... 4,625
Excise tax expense............................................................................. 40,800
Other.......................................................................................... 7,187
------------
Total expenses.............................................................................. 1,065,832
Fees waived or expenses reimbursed by the investment advisor................................ (13,953)
------------
Net expenses................................................................................... 1,051,879
------------
NET INVESTMENT INCOME (LOSS)................................................................... 3,909,572
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments..................................................... (2,197,325)
Net change in unrealized appreciation (depreciation) on investments......................... 677,205
------------
NET REALIZED AND UNREALIZED GAIN (LOSS)........................................................ (1,520,120)
------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................ $ 2,389,452
============
See Notes to Financial Statements Page 21
FIRST TRUST SHORT DURATION HIGH INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR
4/30/2016 ENDED
(UNAUDITED) 10/31/2015
------------- -------------
OPERATIONS:
Net investment income (loss)................................................... $ 3,909,572 $ 7,504,095
Net realized gain (loss)....................................................... (2,197,325) (166,375)
Net change in unrealized appreciation (depreciation)........................... 677,205 (6,525,815)
------------- -------------
Net increase (decrease) in net assets resulting from operations................ 2,389,452 811,905
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A Shares................................................................. (1,141,158) (1,790,616)
Class C Shares................................................................. (473,161) (789,673)
Class I Shares................................................................. (2,336,108) (4,083,110)
------------- -------------
(3,950,427) (6,663,399)
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAIN:
Class A Shares................................................................. -- (98,912)
Class C Shares................................................................. -- (50,651)
Class I Shares................................................................. -- (200,327)
------------- -------------
-- (349,890)
------------- -------------
Total distributions to shareholders............................................ (3,950,427) (7,013,289)
------------- -------------
CAPITAL TRANSACTIONS:
Proceeds from Shares sold...................................................... 39,018,968 85,496,905
Proceeds from Shares reinvested................................................ 3,405,115 6,034,789
Cost of Shares redeemed........................................................ (55,278,844) (83,897,426)
------------- -------------
Net increase (decrease) in net assets resulting from capital transactions...... (12,854,761) 7,634,268
------------- -------------
Total increase (decrease) in net assets........................................ (14,415,736) 1,432,884
NET ASSETS:
Beginning of period............................................................ 182,300,544 180,867,660
------------- -------------
End of period.................................................................. $ 167,884,808 $ 182,300,544
============= =============
Accumulated net investment income (loss) at end of period...................... $ 774,542 $ 815,397
============= =============
Page 22 See Notes to Financial Statements
FIRST TRUST SHORT DURATION HIGH INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31, FOR THE PERIOD
4/30/2016 ---------------------------- ENDED
CLASS A SHARES (UNAUDITED) 2015 2014 10/31/2013 (a)
------------ ------------ ------------ --------------
Net asset value, beginning of period.......... $ 19.83 $ 20.54 $ 20.68 $ 20.00
-------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (b).............. 0.45 0.90 0.76 0.65
Net realized and unrealized gain (loss)....... (0.10) (0.77) (0.12) 0.90
-------- -------- -------- --------
Total from investment operations.............. 0.35 0.13 0.64 1.55
-------- -------- -------- --------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income......................... (0.45) (0.80) (0.78) (0.70)
Net realized gain............................. -- (0.04) -- --
Return of capital............................. -- -- -- (0.17)
-------- -------- -------- --------
Total from distributions...................... (0.45) (0.84) (0.78) (0.87)
-------- -------- -------- --------
Net asset value, end of period................ $ 19.73 $ 19.83 $ 20.54 $ 20.68
======== ======== ======== ========
TOTAL RETURN (c).............................. 1.90% 0.63% 3.14% 7.87% (d)
======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's).......... $ 47,891 $ 53,433 $ 53,304 $ 44,819
Ratio of total expenses to average net
assets..................................... 1.32% (e) 1.26% 1.38% 1.54% (e)
Ratio of net expenses to average net
assets..................................... 1.30% (e)(f) 1.25% 1.25% 1.25% (e)
Ratio of net investment income (loss) to
average net assets......................... 4.65% (e) 4.43% 3.68% 3.20% (e)
Portfolio turnover rate....................... 19% 58% 109% 89%
(a) Class A Shares were initially seeded and commenced operations on November
1, 2012.
(b) Per share amounts have been calculated using the average shares method.
(c) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge of 3.50% 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.
(d) The Fund received a payment from First Trust Advisors L.P. (the "Advisor")
in the amount of $1,079 in connection with a trade error. The payment from
the Advisor represented less than $0.01 per share and had no effect on the
total return of the Class A Shares.
(e) Annualized.
(f) Includes excise tax. If this excise tax expense was not included, the net
expense ratio would have been 1.25%.
See Notes to Financial Statements Page 23
FIRST TRUST SHORT DURATION HIGH INCOME FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31, FOR THE PERIOD
4/30/2016 ---------------------------- ENDED
CLASS C SHARES (UNAUDITED) 2015 2014 10/31/2013 (a)
------------ ------------ ------------ --------------
Net asset value, beginning of period.......... $ 19.81 $ 20.52 $ 20.66 $ 20.00
-------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (b).............. 0.38 0.75 0.60 0.50
Net realized and unrealized gain (loss)....... (0.09) (0.77) (0.11) 0.89
-------- -------- -------- --------
Total from investment operations.............. 0.29 (0.02) 0.49 1.39
-------- -------- -------- --------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income......................... (0.38) (0.65) (0.63) (0.59)
Net realized gain............................. -- (0.04) -- --
Return of capital............................. -- -- -- (0.14)
-------- -------- -------- --------
Total from distributions...................... (0.38) (0.69) (0.63) (0.73)
-------- -------- -------- --------
Net asset value, end of period................ $ 19.72 $ 19.81 $ 20.52 $ 20.66
======== ======== ======== ========
TOTAL RETURN (c).............................. 1.53% (0.12)% 2.38% 7.04% (d)
======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's).......... $ 24,119 $ 25,213 $ 24,531 $ 13,522
Ratio of total expenses to average net
assets..................................... 2.07% (e) 2.01% 2.13% 2.29% (e)
Ratio of net expenses to average net
assets..................................... 2.05% (e)(f) 2.00% 2.00% 2.00% (e)
Ratio of net investment income (loss) to
average net assets......................... 3.92% (e) 3.68% 2.93% 2.45% (e)
Portfolio turnover rate....................... 19% 58% 109% 89%
(a) Class C Shares were initially seeded and commenced operations on November
1, 2012.
(b) Per share amounts have been calculated using the average shares 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 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.
(d) The Fund received a payment from First Trust Advisors L.P. (the "Advisor")
in the amount of $1,079 in connection with a trade error. The payment from
the Advisor represented less than $0.01 per share and had no effect on the
total return of the Class C Shares.
(e) Annualized.
(f) Includes excise tax. If this excise tax expense was not included, the net
expense ratio would have been 2.00%.
Page 24 See Notes to Financial Statements
FIRST TRUST SHORT DURATION HIGH INCOME FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31, FOR THE PERIOD
4/30/2016 ---------------------------- ENDED
CLASS I SHARES (UNAUDITED) 2015 2014 10/31/2013 (a)
------------ ------------ ------------ --------------
Net asset value, beginning of period.......... $ 19.83 $ 20.54 $ 20.68 $ 20.00
-------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (b).............. 0.47 0.95 0.81 0.70
Net realized and unrealized gain (loss)....... (0.08) (0.77) (0.12) 0.90
-------- -------- -------- --------
Total from investment operations.............. 0.39 0.18 0.69 1.60
-------- -------- -------- --------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income......................... (0.48) (0.85) (0.83) (0.74)
Net realized gain............................. -- (0.04) -- --
Return of capital............................. -- -- -- (0.18)
-------- -------- -------- --------
Total from distributions...................... (0.48) (0.89) (0.83) (0.92)
-------- -------- -------- --------
Net asset value, end of period................ $ 19.74 $ 19.83 $ 20.54 $ 20.68
======== ======== ======== ========
TOTAL RETURN (c).............................. 2.03% 0.88% 3.40% 8.11% (d)
======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's).......... $ 95,875 $103,655 $103,033 $ 43,395
Ratio of total expenses to average net
assets..................................... 1.07% (e) 1.01% 1.13% 1.29% (e)
Ratio of net expenses to average net
assets...................................... 1.05% (e) (f) 1.00% 1.00% 1.00% (e)
Ratio of net investment income (loss) to
average net assets......................... 4.91% (e) 4.68% 3.93% 3.45% (e)
Portfolio turnover rate....................... 19% 58% 109% 89%
(a) Class I Shares were initially seeded and commenced operations on November
1, 2012.
(b) Per share amounts have been calculated using the average shares method.
(c) 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.
(d) The Fund received a payment from First Trust Advisors L.P. (the "Advisor")
in the amount of $1,079 in connection with a trade error. The payment from
the Advisor represented less than $0.01 per share and had no effect on the
total return of the Class I Shares.
(e) Annualized.
(f) Includes excise tax. If this excise tax expense was not included, the net
expense ratio would have been 1.00%.
See Notes to Financial Statements Page 25
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST SHORT DURATION HIGH INCOME FUND
APRIL 30, 2016 (UNAUDITED)
1. ORGANIZATION
First Trust Short Duration High Income 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 under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Fund offers
three classes of shares: Class A, Class C and Class I. 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 primary investment objective is to seek to provide a high level of
current income. As a secondary objective, the Fund seeks capital appreciation.
The Fund seeks to achieve its investment objectives by investing, under normal
market conditions, at least 80% of its net assets (plus the amount of any
borrowing for investment purposes) in high-yield debt securities and bank loans
that are rated below-investment grade or unrated. High-yield debt securities are
below-investment grade debt securities, commonly known as "junk bonds." For
purposes of determining whether a security is below-investment grade, the lowest
available rating is used. There can be no assurance that the Fund will achieve
its investment objectives. The Fund may not be appropriate for all investors.
2. SIGNIFICANT ACCOUNTING POLICIES
The Fund, which is an investment company within the scope of Financial
Accounting Standards Board ("FASB") Accounting Standards Update 2013-08, follows
accounting and reporting guidance under FASB Accounting Standards Codification
Topic 946, "Financial Services-Investment Companies." 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 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. Domestic debt securities and foreign securities are priced using
data reflecting the earlier closing of 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, if any, 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 at market value or, in the absence of
market value with respect to any portfolio securities, at fair value. Market
value prices represent last sale or official closing prices from a national or
foreign exchange (i.e., a regulated market) and are primarily obtained from
third-party pricing services. Fair value prices represent any prices not
considered market value prices and are either obtained from a third-party
pricing service or are determined by the Pricing Committee of the Trust's
investment advisor, First Trust Advisors L.P. ("First Trust" or the "Advisor"),
in accordance with valuation procedures adopted by the Trust's Board of
Trustees, and in accordance with provisions of the 1940 Act. Investments valued
by the Advisor's Pricing Committee, if any, are footnoted as such in the
footnotes to the Portfolio of Investments. The Fund's investments are valued as
follows:
The Senior Floating-Rate Loan Interests ("Senior Loans")(1) in which the
Fund invests are not listed on any securities exchange or board of trade.
Senior Loans are typically bought and sold by institutional investors in
individually negotiated private transactions that function in many
respects like an over-the-counter secondary market, although typically no
formal market makers exist. This market, while having grown substantially
since its inception, generally has fewer trades and less liquidity than
the secondary market for other types of securities. Some Senior Loans have
few or no trades, or trade infrequently, and information regarding a
specific Senior Loan may not be widely available or may be incomplete.
Accordingly, determinations of the market value of Senior Loans may be
based on infrequent and dated information. Because there is less reliable,
objective data available, elements of judgment may play a greater role in
valuation of Senior Loans than for other types of securities. Typically,
Senior Loans are fair valued using information provided by a third-party
pricing service. The third-party pricing service primarily uses
over-the-counter pricing from dealer runs and broker quotes from
indicative sheets to value the Senior Loans.
-----------------------------
(1) The terms "security" and "securities" used throughout the Notes to
Financial Statements include Senior Loans.
Page 26
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SHORT DURATION HIGH INCOME FUND
APRIL 30, 2016 (UNAUDITED)
Common stocks and other equity securities listed on any national or
foreign exchange (excluding The Nasdaq 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.
Fixed income and other debt securities having a remaining maturity of 60
days or less when purchased are fair valued at cost adjusted for
amortization of premiums and accretion of discounts (amortized cost),
provided the Advisor's Pricing Committee has determined that the use of
amortized cost is an appropriate reflection of fair value given market and
issuer-specific conditions existing at the time of the determination.
Factors that may be considered in determining the appropriateness of the
use of amortized cost include, but are not limited to, the following:
1) the credit conditions in the relevant market and changes thereto;
2) the liquidity conditions in the relevant market and changes thereto;
3) the interest rate conditions in the relevant market and changes
thereto (such as significant changes in interest rates);
4) issuer-specific conditions (such as significant credit
deterioration); and
5) any other market-based data the Advisor's Pricing Committee
considers relevant. In this regard, the Advisor's Pricing Committee
may use last-obtained market-based data to assist it when valuing
portfolio securities using amortized cost.
Corporate bonds, corporate notes and other debt securities are fair 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 an over-the-counter market are fair valued at the
mean of their most recent bid and asked price, if available, and otherwise
at their closing bid price.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Trust's Board of Trustees or its
delegate, the Advisor's Pricing Committee, at fair value. These securities
generally include, but are not limited to, restricted securities (securities
which may not be publicly sold without registration under the Securities Act of
1933, as amended) for which a pricing service is unable to provide a market
price; securities whose trading has been formally suspended; a security whose
market or fair value price is not available from a pre-established pricing
source; a security with respect to which an event has occurred that is likely to
materially affect the value of the security after the market has closed but
before the calculation of the Fund's NAV or make it difficult or impossible to
obtain a reliable market quotation; and a security whose price, as provided by
the pricing service, does not reflect the security's fair value. As a general
principle, the current fair value of a security would appear to be the amount
which the owner might reasonably expect to receive for the security upon its
current sale. When fair value prices are used, generally they will differ from
market quotations or official closing prices on the applicable exchanges. A
variety of factors may be considered in determining the fair value of such
securities, including, but not limited to, the following:
1) the fundamental business data relating to the borrower/issuer;
2) an evaluation of the forces which influence the market in which
these securities are purchased and sold;
3) the type, size and cost of a security;
4) the financial statements of the borrower/issuer;
5) the credit quality and cash flow of the borrower/issuer, based on
the Advisor's or external analysis;
6) the information as to any transactions in or offers for the
security;
7) the price and extent of public trading in similar securities (or
equity securities) of the issuer/borrower, or comparable companies;
8) the coupon payments;
9) the quality, value and salability of collateral, if any, securing
the security;
10) the business prospects of the borrower/issuer, including any ability
to obtain money or resources from a parent or affiliate and an
assessment of the borrower's/issuer's management;
11) the prospects for the borrower's/issuer's industry, and multiples
(of earnings and/or cash flows) being paid for similar businesses in
that industry;
12) borrower's/issuer's competitive position within the industry;
13) borrower's/issuer's ability to access additional liquidity through
public and/or private markets; and
14) other relevant factors.
Page 27
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SHORT DURATION HIGH INCOME FUND
APRIL 30, 2016 (UNAUDITED)
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
The inputs or methodologies used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of April 30, 2016, 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 is recorded
daily on the accrual basis. Market premiums and discounts are amortized over the
expected life of each respective borrowing. Amortization of premiums and the
accretion of discounts are recorded using the effective interest method.
Securities purchased or sold on a when-issued, delayed-delivery or forward
purchase commitment basis may have extended settlement periods. The value of the
security so purchased is subject to market fluctuations during this period. Due
to the nature of the Senior Loan market, the actual settlement date may not be
certain at the time of the purchase or sale for some of the Senior Loans.
Interest income on such Senior Loans is not accrued until settlement date. The
Fund maintains liquid assets with a current value at least equal to the amount
of its when-issued, delayed-delivery or forward purchase commitments. The Fund
did not have any when-issued, delayed-delivery or forward purchase commitments
as of April 30, 2016.
C. UNFUNDED LOAN COMMITMENTS
The Fund may enter into certain credit agreements, all or a portion of which may
be unfunded. The Fund is obligated to fund these loan commitments at the
borrower's discretion. The Fund did not have any unfunded delayed draw loan
commitments as of April 30, 2016.
D. RESTRICTED SECURITIES
The Fund invests in restricted securities, which are securities that may not be
offered for public sale without first being registered under the 1933 Act. Prior
to registration, restricted securities may only be resold in transactions exempt
from registration under Rule 144A under the 1933 Act, normally to qualified
institutional buyers. As of April 30, 2016, the Fund held restricted securities
as shown in the following table that First Trust has deemed illiquid pursuant to
procedures adopted by the Fund's Board of Trustees. 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. The Fund does not have the right to demand
that such securities be registered. These securities are valued according to the
valuation procedures as stated in the Portfolio Valuation note (Note 2A) and are
not expressed as a discount to the carrying value of a comparable unrestricted
security. There are no unrestricted securities with the same maturity dates and
yields for these issuers.
ACQUISITION PRINCIPAL CARRYING % OF NET
SECURITY DATE VALUE PRICE COST VALUE ASSETS
---------------------------------------------------------------------------------------------------------------------
Pinnacle Operating Corp., 11/15/20 9/13/2013 $ 68,000 $ 85.50 $ 68,000 $ 58,140 0.03%
Page 28
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SHORT DURATION HIGH INCOME FUND
APRIL 30, 2016 (UNAUDITED)
E. 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 net asset value 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.
The tax character of distributions paid during the fiscal year ended October 31,
2015, was as follows:
Distributions paid from:
Ordinary income................................. $ 6,915,557
Capital gain.................................... 97,732
Return of capital............................... --
As of October 31, 2015, the distributable earnings and net assets on a tax basis
were as follows:
Undistributed ordinary income................... $ 1,167,264
Undistributed capital gains..................... --
-------------
Total undistributed earnings.................... 1,167,264
Accumulated capital and other losses............ (208,644)
Net unrealized appreciation (depreciation)...... (7,467,055)
-------------
Total accumulated earnings (losses)............. (6,508,435)
Other........................................... --
Paid-in capital................................. 188,808,979
-------------
Net assets...................................... $ 182,300,544
=============
F. INCOME TAXES
The Fund intends to continue to qualify as a regulated investment company by
complying with the requirements under Subchapter M of the Internal Revenue Code
of 1986, as amended, which includes distributing substantially all of its net
investment income and net realized gains to shareholders. Accordingly, no
provision has been made for federal and state income taxes. However, due to the
timing and amount of distributions, the Fund may be subject to an excise tax of
4% of the amount by which approximately 98% of the Fund's taxable income exceeds
the distributions from such taxable income for the calendar year.
The 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, 2015, the
Fund had non-expiring capital loss carryforwards of $224,736 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 2013, 2014
and 2015 remain open to federal and state audit. As of April 30, 2016,
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.
G. 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.
Page 29
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SHORT DURATION HIGH INCOME FUND
APRIL 30, 2016 (UNAUDITED)
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
investment management services, First Trust is entitled to a monthly fee
calculated at an annual rate of 0.65% 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.
First Trust has 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 1.00% of average daily net assets of any class of shares of the Fund
(the "Expense Cap") until February 28, 2017, and then will not exceed 1.35% from
March 1, 2017, through February 28, 2026 (the "Expense Cap Termination Date").
Expenses borne and fees waived by First Trust are subject to recovery by First
Trust 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. 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 six
months ended April 30, 2016, and the expenses borne by First Trust subject to
recovery were as follows:
EXPENSES SUBJECT TO RECOVERY
------------------------------------------------------------------------------------------
SIX MONTHS
ADVISORY FEE EXPENSE PERIOD ENDED YEAR ENDED YEAR ENDED ENDED
WAIVER REIMBURSEMENTS OCTOBER 31, 2013 OCTOBER 31, 2014 OCTOBER 31, 2015 APRIL 30, 2016 TOTAL
------------ -------------- ---------------- ---------------- ---------------- -------------- --------------
$13,953 $ -- $81,569 $188,551 $11,894 $13,953 $295,967
BNY Mellon Investment Servicing (US) Inc. ("BNYM IS") serves as the Fund's
administrator, fund accountant and transfer agent in accordance with certain fee
arrangements. As administrator and fund accountant, BNYM IS is responsible for
providing certain administrative and accounting services to the Fund, including
maintaining the Fund's books of account, records of the Fund's securities
transactions, and certain other books and records. As transfer agent, BNYM IS is
responsible for maintaining shareholder records for the Fund. The Bank of New
York Mellon ("BNYM") serves as the Fund's custodian in accordance with certain
fee arrangements. As custodian, BNYM is responsible for custody of the Fund's
assets. BNYM IS and BNYM are subsidiaries of The Bank of New York Mellon
Corporation, a financial holding company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer that is allocated equally among each fund in the First Trust Fund
Complex based on net assets. Prior to January 1, 2016, the fixed annual retainer
was allocated pro rata based on each fund's net assets. Each Independent Trustee
is also paid an annual per fund fee that varies based on whether the fund is a
closed-end or other actively managed fund, or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee are paid
annual fees to serve in such capacities, with such compensation allocated pro
rata among each fund in the First Trust Fund Complex based on net assets.
Trustees are reimbursed for travel and out-of-pocket expenses in connection with
all meetings. The Lead Independent Trustee and Committee Chairmen rotate every
three years. The officers and "Interested" Trustee receive no compensation from
the Trust for acting in such capacities.
Page 30
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SHORT DURATION HIGH INCOME FUND
APRIL 30, 2016 (UNAUDITED)
4. CAPITAL SHARE TRANSACTIONS
Capital transactions were as follows:
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2016 OCTOBER 31, 2015
SHARES VALUE SHARES VALUE
---------- ------------- ---------- -------------
Sales:
Class A 639,657 $ 12,324,487 1,258,674 $ 25,202,422
Class C 152,521 2,935,068 348,495 7,101,059
Class I 1,234,495 23,759,413 2,616,387 53,193,424
---------- ------------- ---------- -------------
Total Sales: 2,026,673 $ 39,018,968 4,223,556 $ 85,496,905
========== ============= ========== =============
Dividend Reinvestment:
Class A 49,525 $ 954,865 76,276 $ 1,547,654
Class C 21,048 405,526 35,343 716,170
Class I 106,040 2,044,724 185,889 3,770,965
---------- ------------- ---------- -------------
Total Dividend Reinvestment: 176,613 $ 3,405,115 297,508 $ 6,034,789
========== ============= ========== =============
Redemptions:
Class A (955,681) $ (18,204,719) (1,235,840) $ (25,035,811)
Class C (222,757) (4,288,383) (306,658) (6,230,308)
Class I (1,711,152) (32,785,742) (2,591,742) (52,631,307)
---------- ------------- ---------- -------------
Total Redemptions: (2,889,590) $ (55,278,844) (4,134,240) $ (83,897,426)
========== ============= ========== =============
5. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of investments, excluding short-term
investments, for the year ended April 30, 2016, were $29,515,867 and
$40,093,641, respectively.
6. BORROWINGS
The Trust, on behalf of the Fund, along with First Trust Variable Insurance
Trust and First Trust Exchange-Traded Fund IV, has a $135 million Credit
Agreement (the "BNYM Line of Credit") with BNYM to be a liquidity backstop
during periods of high redemption volume. A commitment fee of 0.15% of the daily
amount of the excess of the commitment amount over the outstanding principal
balance of the loans will be charged by BNYM, which First Trust allocates
amongst the funds that have access to the BNYM Line of Credit. These fees are
reflected on the Statement of Operations in the Commitment fees line item. To
the extent that the Fund accesses the BNYM Line of Credit, there would also be
an interest fee charged. As of April 30, 2016, the Fund did not have any
outstanding borrowings under the Line of Credit.
7. 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% and 1.00% of
their average daily net assets each year for Class A and Class C, 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. 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. Class I shares have no 12b-1
fees.
8. 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.
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
were no subsequent events requiring recognition or disclosure in the financial
statements that have not already been disclosed.
Page 31
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST SHORT DURATION HIGH INCOME FUND
APRIL 30, 2016 (UNAUDITED)
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 ("SEC") website at http://www.sec.gov.
PORTFOLIO HOLDINGS
The Trust files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Trust's Forms N-Q
are available (1) by calling (800) 988-5891; (2) on the Fund's website located
at http://www.ftportfolios.com; (3) on the SEC's website at http://www.sec.gov;
and (4) for review and copying at the SEC's Public Reference Room ("PRR") in
Washington, DC. Information regarding the operation of the PRR may be obtained
by calling (800) SEC-0330.
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.
BANK LOANS RISK: An investment in bank loans subjects the Fund to credit risk,
which is heightened for loans in which the Fund invests because companies that
issue such loans tend to be highly leveraged and thus are more susceptible to
the risks of interest deferral, default and/or bankruptcy. Senior floating rate
loans, in which the Fund invests, are usually rated below-investment grade but
may also be unrated. As a result, the risks associated with these loans are
similar to the risks of below-investment grade fixed income instruments. An
economic downturn would generally lead to a higher non-payment rate, and a
senior floating rate loan may lose significant market value before a default
occurs. Moreover, any specific collateral used to secure a senior floating rate
loan may decline in value or become illiquid, which would adversely affect the
loan's value. Unlike the securities markets, there is no central clearinghouse
for loan trades, and the loan market has not established enforceable settlement
standards or remedies for failure to settle. Therefore, portfolio transactions
in loans may have uncertain settlement time periods. Senior floating rate loans
are subject to a number of risks described elsewhere in this Prospectus,
including liquidity risk and the risk of investing in below-investment grade
fixed income instruments.
CONVERTIBLE BONDS RISK: The market values of convertible bonds tend to decline
as interest rates increase and, conversely, to increase as interest rates
decline. A convertible bond's market value also tends to reflect the market
price of the common stock of the issuing company.
CREDIT RISK: Credit risk is the risk that an issuer of a security may be unable
or unwilling to make dividend, interest and principal payments when due and the
related risk that the value of a security may decline because of concerns about
the issuer's ability or willingness to make such payments. Credit risk may be
heightened for the Fund because it invests a substantial portion of its net
assets in high-yield or "junk" debt; such securities, while generally offering
higher yields than investment grade debt with similar maturities, involve
greater risks, including the possibility of dividend or interest deferral,
default or bankruptcy, and are regarded as predominantly speculative with
respect to the issuer's capacity to pay dividends or interest and repay
principal. Credit risk is heightened for loans in which the Fund invests because
companies that issue such loans tend to be highly leveraged and thus are more
susceptible to the risks of interest deferral, default and/or bankruptcy.
CURRENCY RISK: Because the Fund's net asset value ("NAV") is determined on the
basis of U.S. dollars and the Fund invests in foreign securities, you may lose
money if the local currency of a foreign market depreciates against the U.S.
dollar, even if the local currency value of the Fund's holdings goes up.
HIGH-YIELD SECURITIES RISK: High-yield securities, or "junk bonds," are subject
to greater market fluctuations and risk of loss than securities with higher
investment ratings. These securities are issued by companies that may have
limited operating history, narrowly focused operations, and/or other impediments
to the timely payment of periodic interest and principal at maturity. If the
economy slows down or dips into recession, the issuers of high-yield securities
may not have sufficient resources to continue making timely payment of periodic
interest and principal at maturity. The market for high-yield securities is
smaller and less liquid than that for investment grade securities. High-yield
securities are generally not listed on a national securities exchange but trade
in the over-the-counter markets. Due to the smaller, less liquid market for
high-yield securities, the bid-offer spread on such securities is generally
greater than it is for investment grade securities and the purchase or sale of
such securities may take longer to complete.
INCOME RISK: If interest rates fall, the income from the Fund's portfolio may
decline as the Fund generally holds floating rate debt that will adjust lower
with falling interest rates. For loans, interest rates typically reset every 30
to 90 days.
Page 32
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SHORT DURATION HIGH INCOME FUND
APRIL 30, 2016 (UNAUDITED)
INTEREST RATE RISK: Interest rate risk is the risk that the value of the debt
securities held by the Fund will decline because of rising market interest
rates. Interest rate risk is generally lower for shorter term investments and
higher for longer term investments. Duration is a common measure of interest
rate risk, which measures a bond's expected life on a present value basis,
taking into account the bond's yield, interest payments and final maturity.
Duration is a reasonably accurate measure of a bond's price sensitivity to
changes in interest rates. The longer the duration of a bond, the greater the
bond's price sensitivity is to changes in interest rates.
LIQUIDITY RISK: The Fund invests a substantial portion of its assets in
lower-quality debt issued by companies that are highly leveraged. Lower-quality
debt tends to be less liquid than higher-quality debt. Moreover, smaller debt
issues tend to be less liquid than larger debt issues. If the economy
experiences a sudden downturn, or if the debt markets for such companies become
distressed, the Fund may have particular difficulty selling its assets in
sufficient amounts, at reasonable prices and in a sufficiently timely manner to
raise the cash necessary to meet any potentially heavy redemption requests by
Fund shareholders.
MANAGEMENT RISK: The Fund is subject to management risk because it is an
actively managed portfolio. In managing the Fund's investment portfolio, the
Advisor will apply investment techniques and risk analyses that may not have the
desired result. There can be no guarantee that the Fund will meet its investment
objectives.
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.
NEW FUND RISK: The Fund currently has less assets than larger funds, and like
other relatively small funds, large inflows and outflows may impact the Fund's
market exposure for limited periods of time. This impact may be positive or
negative, depending on the direction of market movement during the period
affected.
NON-U.S. SECURITIES RISK: Non-U.S. securities are subject to higher volatility
than securities of domestic issuers due to possible adverse political, social or
economic developments; restrictions on foreign investment or exchange of
securities; lack of liquidity; currency exchange rates; excessive taxation;
government seizure of assets; different legal or accounting standards; and less
government supervision and regulation of exchanges in foreign countries.
PREPAYMENT RISK: Loans and other fixed income investments are subject to
prepayment risk. The degree to which borrowers prepay loans, whether as a
contractual requirement or at their election, may be affected by general
business conditions, the financial condition of the borrower and competitive
conditions among loan investors, among others. As such, prepayments cannot be
predicted with accuracy. Upon a prepayment, either in part or in full, the
actual outstanding debt on which the Fund derives interest income will be
reduced. The Fund may not be able to reinvest the proceeds received on terms as
favorable as the prepaid loan.
Page 33
This Page Left Blank Intentionally.
This Page Left Blank Intentionally.
This Page Left Blank Intentionally.
FIRST TRUST
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 E. Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR,
FUND ACCOUNTANT, &
TRANSFER AGENT
BNY Mellon Investment Servicing (US) Inc.
301 Bellevue Parkway
Wilmington, DE 19809
CUSTODIAN
The Bank of New York Mellon
101 Barclay Street, 20th Floor
New York, NY 10286
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 AQA(R) Equity Fund
-----------------------------------------
Semi-Annual Report
For the Period November 10, 2015
(Commencement of Operations)
through April 30, 2016
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FIRST TRUST AQA(R) EQUITY FUND
SEMI-ANNUAL REPORT
APRIL 30, 2016
Shareholder Letter........................................................... 1
At a Glance.................................................................. 2
Portfolio Management......................................................... 4
Understanding Your Fund Expenses............................................. 5
Portfolio of Investments..................................................... 6
Statement of Assets and Liabilities.......................................... 9
Statement of Operations...................................................... 10
Statement of Changes in Net Assets........................................... 11
Financial Highlights......................................................... 12
Notes to Financial Statements................................................ 15
Additional Information....................................................... 19
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 J.J.B. Hilliard, W.L. Lyons, LLC ("Hilliard
Lyons" 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 AQA(R) Equity 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 Additional
Information section of this report 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.
The Advisor may also periodically provide additional information on Fund
performance on the Fund's webpage at http://www.ftportfolios.com.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment in
the Fund. It includes details about the Fund and presents data and analysis that
provide insight into the Fund's performance and investment approach.
The statistical information that follows may help you understand the Fund's
performance compared to that of relevant market benchmarks.
It is important to keep in mind that the opinions expressed by personnel of
Hilliard Lyons are just that: informed opinions. They should not be considered
to be promises or advice. The opinions, like the statistics, cover the period
through the date on the cover of this report. The material risks of investing in
the Fund are spelled out in the prospectus, the statement of additional
information, this report and other Fund regulatory filings.
--------------------------------------------------------------------------------
SHAREHOLDER LETTER
--------------------------------------------------------------------------------
FIRST TRUST AQA(R) EQUITY FUND
SEMI-ANNUAL LETTER FROM THE CHAIRMAN AND CEO
APRIL 30, 2016
Dear Shareholders:
Thank you for your investment in First Trust AQA(R) Equity Fund (the "Fund").
First Trust Advisors L.P. ("First Trust") is pleased to provide you with the
semi-annual report which contains detailed information about your investment
since the Fund's inception date of November 10, 2015. Additionally, First Trust
compiled the Fund's financial statements for you to review. We encourage you to
read this report and discuss it with your financial advisor.
While markets were up and down during 2015, we believe there are three important
things to remember. First, the U.S. economy grew, despite the massive decline in
oil prices, and second, the tapering that began in 2014 by the Federal Reserve
(the "Fed") did not stop growth in the U.S. economy. Finally, the
long-anticipated rate hike by the Fed in December had little effect on the money
supply, and the stock market was not shocked by the hike. Early in 2016, many
investors were concerned that the volatility we saw in the market in 2015 would
continue, and it did. From December 31, 2015 through February 11, 2016, the S&P
500(R) Index declined by 10.27%. Since then, the market has made a steady
comeback, and as of April 30, 2016, the S&P 500(R) Index was up 13.39%.
First Trust believes that having a long-term investment horizon and being
invested in quality products can help you reach your goals, despite how the
market behaves. We have always maintained perspective about the markets and
believe investors should as well. We will continue to strive to provide quality
investments each and every day, which has been one of the hallmarks of our firm
since its inception 25 years ago.
Thank you for giving First Trust the opportunity to be a part of your investment
plan. We value our relationship with you and will continue to focus on helping
investors like you reach your financial goals.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 1
FIRST TRUST AQA(R) EQUITY FUND
"AT A GLANCE"
AS OF APRIL 30, 2016 (UNAUDITED)
-----------------------------------------------------------
FUND STATISTICS
-----------------------------------------------------------
NET ASSET
FIRST TRUST AQA(R) EQUITY FUND VALUE (NAV)
-----------------------------------------------------------
Class A (AQAAX) $20.03
Class C (AQACX) $19.97
Class I (AQAIX) $19.88
-----------------------------------------------------------
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS INVESTMENTS
-----------------------------------------------------------
Constellation Brands, Inc., Class A 3.7%
ABIOMED, Inc. 3.4
Sonic Corp. 3.3
MSCI, Inc. 3.2
Monolithic Power Systems, Inc. 2.9
Skyworks Solutions, Inc. 2.8
Ingram Micro, Inc., Class A 2.8
Dollar General Corp. 2.6
SYNNEX Corp. 2.5
Anika Therapeutics, Inc. 2.5
-------
Total 29.7%
=======
-----------------------------------------------------------
% OF TOTAL
SECTOR ALLOCATION INVESTMENTS
-----------------------------------------------------------
Consumer Discretionary 29.6%
Industrials 20.2
Information Technology 17.5
Health Care 10.0
Financials 7.5
Consumer Staples 6.1
Energy 6.0
Materials 3.1
-------
Total 100.0%
=======
Page 2
FIRST TRUST AQA(R) EQUITY FUND
"AT A GLANCE" (CONTINUED)
AS OF APRIL 30, 2016 (UNAUDITED)
-----------------------------------------------------------
PERFORMANCE OF A $10,000 INVESTMENT
-----------------------------------------------------------
This chart compares your Fund's Class I performance to that
of the Russell 3000(R) Value Index and the Russell 3000(R)
Index from 11/10/2015 through 4/30/2016.
First Trust AQA(R)
Equity Fund - Russell 3000(R) Russell 3000(R)
Class I Shares Value Index Index
11/10/15 $10,000 $10,000 $10,000
4/30/16 9,940 10,119 9,964
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE AS OF APRIL 30, 2016
------------------------------------------------------------------------------------------------------------------------------------
A SHARES C SHARES I SHARES RUSSELL 3000(R) RUSSELL 3000(R)
Inception 11/10/2015 Inception 11/10/2015 Inception 11/10/2015 VALUE INDEX* INDEX*
------------------------------------------------------------------------------------------------------------------------------------
W/MAX
1.00%
W/MAX CONTINGENT
W/O 5.50% W/O DEFERRED W/O W/O W/O
SALES SALES SALES SALES SALES SALES SALES
CUMULATIVE TOTAL RETURNS CHARGES CHARGE CHARGES CHARGE CHARGES CHARGES CHARGES
Since Inception 0.15% -5.36% -0.15% -1.15% -0.60% 1.19% -0.35%
------------------------------------------------------------------------------------------------------------------------------------
* Since inception return is based on the Class I Shares inception date.
Performance figures assume reinvestment of all 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, these 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. 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 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 I Shares do not have a front-end sales charge or a CDSC,
nor do they pay distribution or service fees.
Page 3
--------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
--------------------------------------------------------------------------------
FIRST TRUST AQA(R) EQUITY FUND
SEMI-ANNUAL REPORT
APRIL 30, 2016
SUB-ADVISOR
J.J.B. Hilliard, W.L. Lyons, LLC ("Hilliard Lyons" or the "Sub-Advisor") is the
sub-advisor to the First Trust AQA(R) Equity Fund (the "Fund") and is a
registered investment adviser located in Louisville, Kentucky. Hilliard Lyons
manages the Fund using its proprietary quantitative methodology called the
Automated Quantitative Analysis ("AQA(R)") program.
PORTFOLIO MANAGEMENT TEAM
ALAN MOREL - SENIOR VICE PRESIDENT, SENIOR PORTFOLIO MANAGER OF HILLIARD LYONS
CORY GERKIN - PORTFOLIO MANAGER OF HILLIARD LYONS
Page 4
FIRST TRUST AQA(R) EQUITY FUND
UNDERSTANDING YOUR FUND EXPENSES
APRIL 30, 2016 (UNAUDITED)
As a shareholder of the First Trust AQA(R) Equity 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, if any, and other
Fund expenses. This Example is intended to help you understand your ongoing
costs 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 (or since inception) and held through the period ended April 30, 2016.
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)
--------------------------------------------- -----------------------------------------
BEGINNING ENDING EXPENSES PAID BEGINNING ENDING EXPENSES PAID
ACCOUNT ACCOUNT DURING PERIOD ACCOUNT ACCOUNT DURING PERIOD ANNUALIZED
VALUE VALUE 11/10/2015 - VALUE VALUE 11/1/2015 - EXPENSE
11/10/2015 (a) 4/30/2016 4/30/2016 (b) 11/1/2015 4/30/2016 4/30/2016 (b) RATIOS (c)
-------------------------------------------------------------------------------------------------------
Class A $ 1,000.00 $ 1,001.50 $ 7.57 $ 1,000.00 $ 1,016.91 $ 8.02 1.60%
Class C 1,000.00 998.50 11.10 1,000.00 1,013.18 11.76 2.35
Class I 1,000.00 994.00 6.36 1,000.00 1,018.15 6.77 1.35
(a) Inception date.
(b) Actual expenses are equal to the annualized expense ratios, multiplied by
the average account value over the period, multiplied by 173/366 (to
reflect the actual period November 10, 2015 through April 30, 2016).
Hypothetical expenses are assumed for the most recent half-year period.
(c) These expense ratios reflect expense caps.
Page 5
FIRST TRUST AQA(R) EQUITY FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 2016 (UNAUDITED)
SHARES DESCRIPTION VALUE
------------- ---------------------------------------------------------------------------- --------------
COMMON STOCKS - 90.6%
AIRLINES - 3.7%
7,272 Delta Air Lines, Inc........................................................ $ 303,024
8,679 Southwest Airlines Co....................................................... 387,170
--------------
690,194
--------------
AUTO COMPONENTS - 1.6%
22,796 Dana Holding Corp........................................................... 294,752
--------------
AUTOMOBILES - 2.1%
17,871 Winnebago Industries, Inc................................................... 386,728
--------------
BEVERAGES - 3.4%
4,041 Constellation Brands, Inc., Class A......................................... 630,639
--------------
BIOTECHNOLOGY - 1.8%
3,777 Gilead Sciences, Inc........................................................ 333,169
--------------
BUILDING PRODUCTS - 2.1%
8,385 Trex Co., Inc. (a).......................................................... 397,868
--------------
CHEMICALS - 1.7%
19,496 Calgon Carbon Corp.......................................................... 319,539
--------------
COMMERCIAL SERVICES & SUPPLIES - 2.0%
9,670 Tyco International Plc...................................................... 372,488
--------------
CONSUMER FINANCE - 2.1%
8,446 First Cash Financial Services, Inc.......................................... 386,236
--------------
DIVERSIFIED CONSUMER SERVICES - 1.6%
5,562 Capella Education Co........................................................ 307,634
--------------
DIVERSIFIED FINANCIAL SERVICES - 4.8%
1,439 Intercontinental Exchange, Inc.............................................. 345,403
7,232 MSCI, Inc................................................................... 549,198
--------------
894,601
--------------
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS - 6.8%
10,096 Cognex Corp................................................................. 358,711
13,594 Ingram Micro, Inc., Class A................................................. 475,110
5,239 SYNNEX Corp................................................................. 432,584
--------------
1,266,405
--------------
ENERGY EQUIPMENT & SERVICES - 3.4%
13,703 Atwood Oceanics, Inc........................................................ 132,371
16,241 Superior Energy Services, Inc............................................... 273,823
24,509 Tesco Corp.................................................................. 231,855
--------------
638,049
--------------
FOOD PRODUCTS - 2.2%
8,009 Cal-Maine Foods, Inc........................................................ 406,537
--------------
HEALTH CARE EQUIPMENT & SUPPLIES - 7.2%
7,770 Abaxis, Inc................................................................. 352,136
5,956 ABIOMED, Inc. (a)........................................................... 578,566
9,313 Anika Therapeutics, Inc. (a)................................................ 425,232
--------------
1,355,934
--------------
HOTELS, RESTAURANTS & LEISURE - 4.9%
5,398 Jack in the Box, Inc........................................................ 364,635
16,372 Sonic Corp.................................................................. 562,706
--------------
927,341
--------------
Page 6 See Notes to Financial Statements
FIRST TRUST AQA(R) EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2016 (UNAUDITED)
SHARES DESCRIPTION VALUE
------------- ---------------------------------------------------------------------------- --------------
COMMON STOCKS (CONTINUED)
HOUSEHOLD DURABLES - 4.0%
28,371 KB Home..................................................................... $ 384,995
19,654 PulteGroup, Inc............................................................. 361,437
--------------
746,432
--------------
LEISURE PRODUCTS - 0.8%
8,978 Arctic Cat, Inc............................................................. 149,304
--------------
MACHINERY - 7.1%
5,225 Graco, Inc.................................................................. 409,588
6,050 Lincoln Electric Holdings, Inc.............................................. 379,153
10,420 Terex Corp.................................................................. 248,934
14,957 Trinity Industries, Inc..................................................... 291,811
--------------
1,329,486
--------------
MEDIA - 4.0%
6,949 CBS Corp., Class B.......................................................... 388,519
12,039 Twenty-First Century Fox, Inc., Class A..................................... 364,300
--------------
752,819
--------------
MULTILINE RETAIL - 4.3%
8,051 Big Lots, Inc............................................................... 369,219
5,332 Dollar General Corp......................................................... 436,744
--------------
805,963
--------------
OIL, GAS & CONSUMABLE FUELS - 2.0%
6,331 Valero Energy Corp.......................................................... 372,706
--------------
PAPER & FOREST PRODUCTS - 1.1%
13,412 Kapstone Paper and Packaging Corp........................................... 213,117
--------------
PROFESSIONAL SERVICES - 1.7%
11,876 Korn/Ferry International.................................................... 322,315
--------------
ROAD & RAIL - 1.7%
11,067 Saia, Inc. (a).............................................................. 320,058
--------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 9.0%
5,399 LAM Research Corp........................................................... 412,484
7,833 Monolithic Power Systems, Inc............................................... 488,936
7,168 Skyworks Solutions, Inc..................................................... 478,966
16,696 Teradyne, Inc............................................................... 315,721
--------------
1,696,107
--------------
SPECIALTY RETAIL - 3.5%
7,947 Bed Bath & Beyond, Inc...................................................... 375,257
6,808 Outerwall, Inc.............................................................. 281,239
--------------
656,496
--------------
TOTAL INVESTMENTS - 90.6%................................................... 16,972,917
(Cost $16,130,650) (b)
NET OTHER ASSETS AND LIABILITIES - 9.4%..................................... 1,757,380
--------------
NET ASSETS - 100.0%......................................................... $ 18,730,297
==============
See Notes to Financial Statements Page 7
FIRST TRUST AQA(R) EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2016 (UNAUDITED)
-----------------------------
(a) Non-income producing security.
(b) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of April 30, 2016, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $1,182,113 and the aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over value was $339,846.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as
of April 30, 2016 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
4/30/2016 PRICES INPUTS INPUTS
------------- ------------- ------------- -------------
Common Stocks*.................................. $ 16,972,917 $ 16,972,917 $ -- $ --
============= ============= ============= =============
* 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 April 30, 2016.
Page 8 See Notes to Financial Statements
FIRST TRUST AQA(R) EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2016 (UNAUDITED)
ASSETS:
Investments, at value
(Cost $16,130,650).......................................................................... $ 16,972,917
Cash........................................................................................... 1,548,073
Prepaid expenses............................................................................... 1,343
Receivables:
Fund shares sold............................................................................ 369,415
Dividends................................................................................... 6,606
Dividend reclaims........................................................................... 370
Interest.................................................................................... 124
------------
Total Assets................................................................................ 18,898,848
------------
LIABILITIES:
Payables:
Due to investment advisor................................................................... 27,844
Registration fees........................................................................... 27,835
Legal fees.................................................................................. 23,144
Printing fees............................................................................... 17,106
Transfer agent fees......................................................................... 15,846
Custodian fees.............................................................................. 14,553
Audit and tax fees.......................................................................... 13,530
12b-1 distribution and service fees......................................................... 8,237
Administrative fees......................................................................... 6,630
Fund Shares repurchased..................................................................... 5,317
Trustees' fees and expenses................................................................. 5,036
Financial reporting fees.................................................................... 614
Other liabilities.............................................................................. 2,859
------------
Total Liabilities........................................................................... 168,551
------------
NET ASSETS..................................................................................... $ 18,730,297
============
NET ASSETS CONSIST OF:
Paid-in capital............................................................................... $ 17,983,410
Par value..................................................................................... 9,372
Accumulated net investment income (loss)...................................................... (29,148)
Accumulated net realized gain (loss) on investments........................................... (75,604)
Net unrealized appreciation (depreciation) on investments..................................... 842,267
------------
NET ASSETS.................................................................................... $ 18,730,297
============
MAXIMUM OFFERING PRICE PER SHARE:
CLASS A SHARES:
Net asset value and redemption price per share (Based on net assets of $7,649,240 and
381,939 shares of beneficial interest issued and outstanding)........................... $ 20.03
Maximum sales charge (5.50% of offering price)............................................. 1.17
------------
Maximum offering price to public........................................................... $ 21.20
============
CLASS C SHARES:
Net asset value and redemption price per share (Based on net assets of $8,962,520 and
448,749 shares of beneficial interest issued and outstanding)........................... $ 19.97
============
CLASS I SHARES:
Net asset value and redemption price per share (Based on net assets of $2,118,537 and
106,558 shares of beneficial interest issued and outstanding)........................... $ 19.88
============
See Notes to Financial Statements Page 9
FIRST TRUST AQA(R) EQUITY FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED APRIL 30, 2016 (A) (UNAUDITED)
INVESTMENT INCOME:
Dividends..................................................................................... $ 57,132
Interest...................................................................................... 699
Other......................................................................................... 12
------------
Total investment income.................................................................... 57,843
------------
EXPENSES:
Investment advisory fees...................................................................... 45,424
Registration fees............................................................................. 37,417
12b-1 distribution and/or service fees:
Class A.................................................................................... 4,514
Class C.................................................................................... 21,137
Legal fees.................................................................................... 23,246
Transfer agent fees........................................................................... 17,870
Printing fees................................................................................. 17,859
Custodian fees................................................................................ 14,553
Audit and tax fees............................................................................ 13,530
Trustees' fees and expenses................................................................... 9,042
Administrative fees........................................................................... 6,630
Financial reporting fees...................................................................... 4,469
Listing expense............................................................................... 707
Other......................................................................................... 4,462
------------
Total expenses............................................................................. 220,860
Fees waived and expenses reimbursed by the investment advisor.............................. (133,869)
------------
Net expenses.................................................................................. 86,991
------------
NET INVESTMENT INCOME (LOSS).................................................................. (29,148)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments.................................................... (75,604)
Net change in unrealized appreciation (depreciation) on investments........................ 842,267
------------
NET REALIZED AND UNREALIZED GAIN (LOSS)....................................................... 766,663
------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................... $ 737,515
============
(a) The Fund was initially seeded on November 9, 2015 and commenced operations
on November 10, 2015.
Page 10 See Notes to Financial Statements
FIRST TRUST AQA(R) EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
PERIOD
ENDED
4/30/2016 (a)
(UNAUDITED)
-------------
OPERATIONS:
Net investment income (loss)................................................... $ (29,148)
Net realized gain (loss)....................................................... (75,604)
Net change in unrealized appreciation (depreciation)........................... 842,267
-------------
Net increase (decrease) in net assets resulting from operations................ 737,515
-------------
CAPITAL TRANSACTIONS:
Proceeds from shares sold ..................................................... 18,239,701
Redemptions of shares.......................................................... (246,919)
-------------
Net increase (decrease) in net assets resulting from capital transactions...... 17,992,782
-------------
Total increase (decrease) in net assets........................................ 18,730,297
NET ASSETS:
Beginning of period............................................................ --
-------------
End of period.................................................................. $ 18,730,297
=============
Accumulated net investment income (loss) at end of period...................... $ (29,148)
=============
(a) The Fund was initially seeded on November 9, 2015 and commenced operations
on November 10, 2015.
See Notes to Financial Statements Page 11
FIRST TRUST AQA(R) EQUITY FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
PERIOD
ENDED
4/30/2016 (a)
CLASS A SHARES (UNAUDITED)
------------
Net asset value, beginning of period .......... $ 20.00
----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (b)............... (0.03)
Net realized and unrealized gain (loss) ....... 0.06
----------
Total from investment operations............... 0.03
----------
Net asset value, end of period ................ $ 20.03
==========
TOTAL RETURN (c)............................... 0.15%
==========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) .......... $ 7,649
Ratio of total expenses to average net
assets ..................................... 4.38% (d)
Ratio of net expenses to average net assets ... 1.60% (d)
Ratio of net investment income (loss) to
average net assets ......................... (0.33)% (d)
Portfolio turnover rate ....................... 22%
(a) Class A Shares were initially seeded on November 9, 2015 and commenced
operations on November 10, 2015.
(b) Per share amount has been calculated using the average shares 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. This return includes Rule 12b-1 service fees of 0.25% and 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.
Page 12 See Notes to Financial Statements
FIRST TRUST AQA(R) EQUITY FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
PERIOD
ENDED
4/30/2016 (a)
CLASS C SHARES (UNAUDITED)
------------
Net asset value, beginning of period .......... $ 20.00
----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (b)............... (0.10)
Net realized and unrealized gain (loss) ....... 0.07
----------
Total from investment operations............... (0.03)
----------
Net asset value, end of period ................ $ 19.97
==========
TOTAL RETURN (c)............................... (0.15)%
==========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) .......... $ 8,962
Ratio of total expenses to average net
assets ..................................... 5.29% (d)
Ratio of net expenses to average net assets ... 2.35% (d)
Ratio of net investment income (loss) to
average net assets ......................... (1.08)% (d)
Portfolio turnover rate ....................... 22%
(a) Class C Shares were initially seeded on November 9, 2015 and commenced
operations on November 10, 2015.
(b) Per share amount has been calculated using the average shares 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. This return includes combined Rule 12b-1
distribution and service fees of 1% and 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 13
FIRST TRUST AQA(R) EQUITY FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
PERIOD
ENDED
4/30/2016 (a)
CLASS I SHARES (UNAUDITED)
------------
Net asset value, beginning of period .......... $ 20.00
----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (b)............... (0.00) (e)
Net realized and unrealized gain (loss) ....... (0.12)
----------
Total from investment operations............... (0.12)
----------
Net asset value, end of period ................ $ 19.88
==========
TOTAL RETURN (c)............................... (0.60)%
==========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) .......... $ 2,119
Ratio of total expenses to average net
assets ..................................... 4,81% (d)
Ratio of net expenses to average net assets ... 1.35% (d)
Ratio of net investment income (loss) to
average net assets ......................... (0.05)% (d)
Portfolio turnover rate ....................... 22%
(a) Class I Shares were initially seeded on November 9, 2015 and commenced
operations on November 10, 2015.
(b) Per share amount has been calculated using the average shares 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.
(e) Amount is less than $0.01.
Page 14 See Notes to Financial Statements
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST AQA(R) EQUITY FUND
APRIL 30, 2016 (UNAUDITED)
1. ORGANIZATION
First Trust AQA(R) Equity 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 under the Investment Company Act of
1940, as amended (the "1940 Act"). The Fund offers three classes of shares:
Class A, Class C and Class I. 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 capital appreciation. Under normal
market conditions, the Fund invests at least 80% of its net assets (including
investment borrowings, if any) in equity securities (specifically, common
stocks) of U.S. companies. First Trust Advisors L.P. ("First Trust" or the
"Advisor") typically selects common stocks for investment by the Fund using
information produced by a proprietary quantitative methodology developed by the
Fund's sub-advisor called the Automated Quantitative Analysis ("AQA(R)")
program. In general, the stocks chosen for investment by the Fund are those
considered by AQA(R) to be the most undervalued at the time the portfolio was
selected based on a set of pre-determined proprietary screens and evaluations.
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 Fund, which is an investment company within the scope of Financial
Accounting Standards Board ("FASB") Accounting Standards Update 2013-08, follows
accounting and reporting guidance under FASB Accounting Standards Codification
Topic 946, "Financial Services-Investment Companies." The following is a summary
of significant accounting policies consistently followed by the Fund in the
preparation of the financial statements. The preparation of the 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") 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.
The Fund's investments are valued daily at market value or, in the absence of
market value with respect to any portfolio securities, at fair value. Market
value prices represent last sale or official closing prices from a national or
foreign exchange (i.e., a regulated market) and are primarily obtained from
third-party pricing services. Fair value prices represent any prices not
considered market value prices and are either obtained from a third-party
pricing service or are determined by the Pricing Committee of the Trust's
investment advisor, First Trust, in accordance with valuation procedures adopted
by the Trust's Board of Trustees, and in accordance with provisions of the 1940
Act. Investments valued by the Advisor's Pricing Committee, if any, are
footnoted as such in the footnotes to the Portfolio of Investments. The Fund's
investments are valued as follows:
Common stocks and other securities listed on any national or foreign
exchange (excluding The Nasdaq Stock Market LLC ("Nasdaq") and the London
Stock Exchange Alternative Investment Market ("AIM")) are valued at the
last sale price on the exchange on which they are principally traded or,
for Nasdaq and AIM securities, the official closing price. Securities
traded on more than one securities exchange are valued at the last sale
price or official closing price, as applicable, at the close of the
securities exchange representing the principal market for such securities.
Securities traded in an over-the-counter market are fair valued at the
mean of their most recent bid and asked price, if available, and otherwise
at their closing bid price.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Trust's Board of Trustees or its
delegate, the Advisor's Pricing Committee, at fair value. These securities
generally include, but are not limited to, restricted securities (securities
which may not be publicly sold without registration under the Securities Act of
1933, as amended) for which a pricing service is unable to provide a market
price; securities whose trading has been formally suspended; a security whose
market or fair value price is not available from a pre-established pricing
source; a security with respect to which an event has occurred that is likely to
materially affect the value of the security after the market has closed but
before the calculation of the Fund's NAV or make it difficult or impossible to
obtain a reliable market quotation; and a security whose price, as provided by
the pricing service, does not reflect the security's fair value. As a general
principle, the current fair value of a security would appear to be the amount
Page 15
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST AQA(R) EQUITY FUND
APRIL 30, 2016 (UNAUDITED)
which the owner might reasonably expect to receive for the security upon its
current sale. When fair value prices are used, generally they will differ from
market quotations or official closing prices on the applicable exchanges. A
variety of factors may be considered in determining the fair value of such
securities, including, but not limited to, the following:
1) the 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.
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
The inputs or methodologies used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of April 30, 2016, 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
the accretion of discounts. Income is allocated on a pro rata basis to each
class of shares.
C. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
The Fund will distribute to holders of its shares 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.
D. INCOME TAXES
The Fund intends to qualify as a regulated investment company by complying with
the requirements under Subchapter M of the Internal Revenue Code of 1986, as
amended, which includes distributing substantially all of its net investment
income and net realized gains to shareholders. Accordingly, no provision has
been made for federal and state income taxes. However, due to the timing and
amount of distributions, the Fund may be subject to an excise tax of 4% of the
amount by which approximately 98% of the Fund's taxable income exceeds the
distributions from such taxable income for the calendar year.
Page 16
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST AQA(R) EQUITY FUND
APRIL 30, 2016 (UNAUDITED)
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.
Certain losses realized during the current fiscal year may be deferred and
treated as occuring on the first day of the following fiscal year 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. As of April 30, 2016, 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.
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
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.
J.J.B. Hilliard, W.L. Lyons, LLC ("Hilliard Lyons" or the "Sub-Advisor") 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 Hilliard Lyons 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
November 9, 2016. Expenses borne and fees waived by First Trust and Hilliard
Lyons are subject to recovery by First Trust and Hilliard Lyons 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 the Expense Cap in place at the time the expense was borne or
the fee was waived by First Trust and Hilliard Lyons. 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 period
ended April 30, 2016 and the expenses borne by First Trust and Hilliard Lyons
subject to recovery were as follows:
EXPENSES SUBJECT TO
ADVISORY FEE WAIVER EXPENSE REIMBURSEMENT RECOVERY
----------------------- ----------------------- -----------------------
$ 45,424 $ 88,445 $ 133,869
Brown Brothers Harriman & Co. ("BBH") serves as the Fund's administrator, fund
accountant and custodian in accordance with certain fee arrangements. As
administrator and fund accountant, BBH is responsible for providing certain
administrative and accounting services to the Fund, including maintaining the
Fund's books of account, records of the Fund's securities transactions, and
certain other books and records. As custodian, BBH is responsible for custody of
the Fund's assets.
BNY Mellon Investment Servicing (US) Inc. ("BNYM IS") serves as the Fund's
transfer agent in accordance with certain fee arrangements. As transfer agent,
BNYM IS is responsible for maintaining shareholder records for the Fund.
At a meeting held on December 7, 2015, the Board of Trustees accepted Mr. Mark
Bradley's resignation from his position as the President and Chief Executive
Officer of the Trust, effective December 31, 2015. At the same meeting, the
Board of Trustees elected Mr. James Dykas, formerly Chief Financial Officer and
Treasurer of the Trust, to serve as the President and Chief Executive Officer,
and Mr. Donald Swade, formerly an Assistant Treasurer of the Trust, to serve as
the Treasurer, Chief Financial Officer and Chief Accounting Officer of the
Trust.
Page 17
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST AQA(R) EQUITY FUND
APRIL 30, 2016 (UNAUDITED)
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer that is allocated equally among each fund in the First Trust Fund
Complex. Prior to January 1, 2016, the fixed annual retainer was allocated pro
rata based on each fund's net assets. Each Independent Trustee is also paid an
annual per fund fee that varies based on whether the fund is a closed-end or
other actively managed fund, or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee are paid
annual fees to serve in such capacities, with such compensation allocated pro
rata among each fund in the First Trust Fund Complex based on net assets.
Trustees are reimbursed for travel and out-of-pocket expenses in connection with
all meetings. The Lead Independent Trustee and Committee Chairmen rotate every
three years. The officers and "Interested" Trustee receive no compensation from
the Trust for acting in such capacities.
4. CAPITAL SHARE TRANSACTIONS
For the period ended April 30, 2016, transactions were as follows:
SHARES VALUE
---------- -------------
Sales:
Class A 388,507 $ 7,435,444
Class C 453,245 8,722,366
Class I 108,526 2,081,891
---------- -------------
Total Sales: 950,278 $ 18,239,701
========== =============
Dividend Reinvestment:
Class A -- $ --
Class C -- --
Class I -- --
---------- -------------
Total Dividend Reinvestment: -- $ --
========== =============
Redemptions:
Class A (6,568) $ (117,880)
Class C (4,496) (90,875)
Class I (1,968) (38,164)
---------- -------------
Total Redemptions: (13,032) $ (246,919)
========== =============
5. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of investments, excluding short-term
investments, for the period ended April 30, 2016, were $18,082,196 and
$1,875,942, respectively.
6. DISTRIBUTION AND SERVICE PLANS
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% and 1.00% of
their average daily net assets each year for Class A and Class C, 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. 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. Class I shares have no 12b-1 fees.
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.
8. 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
were no subsequent events requiring recognition or disclosure in the financial
statements that have not already been disclosed.
Page 18
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST AQA(R) EQUITY FUND
APRIL 30, 2016 (UNAUDITED)
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies and information on how the Fund voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30 will
be available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Fund's website located at http://www.ftportfolios.com; and (3) on the
Securities and Exchange Commission's ("SEC") website at http://www.sec.gov.
PORTFOLIO HOLDINGS
The Trust files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Form N-Qs
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.
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.
EQUITY SECURITIES RISK. Because the Fund invests in equity securities, the value
of the Fund's shares will fluctuate with changes in the value of these equity
securities. Equity securities prices fluctuate for several reasons, including
changes in investors' perceptions of the financial condition of an issuer or the
general condition of the relevant stock market, such as market volatility, or
when political or economic events affecting the issuers occur. In addition,
common stock prices may be particularly sensitive to rising interest rates, as
the cost of capital rises and borrowing costs increase.
LIQUIDITY RISK. The Fund invests in equity securities that may have limited
liquidity despite being listed on a securities exchange. Equity securities that
are less liquid or that trade less can be more difficult or more costly to buy,
or to sell, compared to other more liquid or active investments. This liquidity
risk is a factor of the trading volume of a particular security, as well as the
size and liquidity of the market for such security. The prices at which the
equity securities are held in the Fund will be adversely affected if trading
markets for the equity securities are limited or absent.
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
securities prices. Shares of the Fund could decline in value or underperform
other investments.
MODEL RISK. The Fund relies heavily on a proprietary quantitative model that
uses information and data supplied by third parties. When the model and data
prove to be incorrect or incomplete, any decisions made in reliance thereon
expose the Fund to potential risks.
NEW FUND RISK. The Fund currently has fewer assets than larger funds, and like
other relatively new funds, large inflows and outflows may impact the Fund's
market exposure for limited periods of time. This impact may be positive or
negative, depending on the direction of market movement during the period
affected. Also, during the initial invest-up period, the Fund may depart from
its principal investment strategies and invest a larger amount or all of its
assets in cash equivalents or it may hold cash.
SMALLER COMPANIES RISK. The Fund invests in small and/or mid capitalization
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 less publicly available
information. Accordingly, such companies are generally subject to greater market
risk than larger, more established companies.
VALUE INVESTING RISK. The Fund focuses its investments on securities that the
proprietary quantitative model on which the Fund is based considers to be
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 are selected on the basis of an issuer's
business and economic fundamentals or a security's current credit profile,
relative to current market practice. Disciplined adherence to a "value"
investment mandate during period 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.
Page 19
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST AQA(R) EQUITY FUND
APRIL 30, 2016 (UNAUDITED)
ADVISORY AND SUB-ADVISORY AGREEMENTS
BOARD CONSIDERATIONS REGARDING APPROVAL OF INVESTMENT MANAGEMENT AGREEMENT AND
INVESTMENT SUB-ADVISORY AGREEMENT
The Board of Trustees of First Trust Series Fund (the "Trust"), including the
Independent Trustees, unanimously approved the Investment Management Agreement
(the "Advisory Agreement") with First Trust Advisors L.P. ("First Trust" or the
"Advisor") on behalf of First Trust AQA(R) Equity Fund (the "Fund") 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 J.J.B. Hilliard, W.L. Lyons, LLC (the "Sub-Advisor"), for
an initial two-year term at a meeting held on September 14, 2015. The Board of
Trustees determined that the Agreements are in the best interests of the Fund in
light of the extent and quality of services expected to be provided and such
other matters as the Board considered to be relevant in the exercise of its
reasonable business judgment.
To reach this determination, the Board considered its duties under the
Investment Company Act of 1940, as amended (the "1940 Act"), as well as under
the general principles of state law in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
on such agreements. To assist the Board in its evaluation of the Agreements, the
Independent Trustees received a separate report from each of the Advisor and the
Sub-Advisor in advance of the Board meeting responding to a request for
information provided on behalf of the Independent Trustees that, among other
things, outlined the services to be provided by the Advisor and the Sub-Advisor
to the Fund (including the relevant personnel responsible for these services and
their experience); the proposed advisory and sub-advisory fees for the Fund as
compared to fees charged by advisors to other comparable funds, and as compared
to fees charged to other clients of the Advisor and the Sub-Advisor; the
estimated expenses to be incurred in providing services to the Fund as compared
to expense ratios of comparable funds and the potential for economies of scale,
if any; financial data on the Advisor and the Sub-Advisor; fall out benefits to
First Trust and its affiliate, First Trust Portfolios L.P. ("FTP"), and the
Sub-Advisor; and a summary of the Advisor's and Sub-Advisor's compliance
programs. The Independent Trustees also met separately with their independent
legal counsel to discuss the information provided by the Advisor and the
Sub-Advisor. The Board applied its business judgment to determine whether the
arrangements between the Trust and First Trust 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.
In evaluating whether to approve the Agreements for the Fund, the Board
considered the nature, extent and quality of services to be provided by the
Advisor and the Sub-Advisor under the Agreements and considered that the
Advisor's employees provide management services to other investment companies in
the First Trust fund complex with diligence and care. With respect to the
Advisory Agreement, the Board considered that First Trust will be responsible
for the overall management and administration of the Fund and reviewed the
services to be provided by First Trust to the Fund, including the oversight of
the Sub-Advisor. The Board considered the compliance program that had been
developed by First Trust 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. It also considered the efforts expended by
First Trust in organizing the Trust and in arranging for other entities to
provide services to the Fund. With respect to the Sub-Advisory Agreement, the
Board noted the background and experience of the Sub-Advisor's portfolio
management team and the Sub-Advisor's investment style. At the meeting, the
Trustees received a presentation from the CEO of the Sub-Advisor and one of the
portfolio managers, and were able to ask questions about the Sub-Advisor and the
Sub-Advisor's proposed investment strategies for the Fund. Since the Fund had
yet to commence investment operations, the Board could not consider the
historical investment performance of the Fund, but did consider the performance
of a seed account in the AQA(R) style managed by the Sub-Advisor as well as
information regarding ten unit investment trusts sponsored by FTP for which the
Sub-Advisor serves as supervisor. In light of the information presented and the
considerations made, the Board concluded that the nature, extent and quality of
services to be provided to the Fund by the Advisor and the Sub-Advisor under the
Agreements are expected to be satisfactory.
The Board reviewed information regarding the proposed advisory fee for the Fund.
The Board noted that under the Advisory Agreement, the Fund would pay First
Trust an advisory fee equal to an annual rate of 1.00% of its average daily net
assets. The Board also noted that, from the advisory fee, First Trust would pay
the Sub-Advisor a sub-advisory fee equal to an annual rate of 0.50% of the
average daily net assets of the Fund. The Board considered that the Advisor
contractually agreed to waive fees and/or reimburse Fund expenses to the extent
necessary to prevent the total annual operating expenses of the Fund (excluding
taxes, interest, all brokerage commissions, other normal charges incidental to
the purchase and sale of portfolio securities, distribution and service fees
payable pursuant to a Rule 12b 1 plan, if any, and extraordinary expenses) from
exceeding 1.35% of a class' average daily net assets for a two-year period
beginning upon the effectiveness of the Fund's registration statement. The Board
noted that fees waived or expenses borne by First Trust are proposed to be
subject to reimbursement by the Fund for up to three years from the date the
fees were 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 fees were waived or the expenses
were borne by First Trust. The Board also considered that the Sub-Advisor agreed
to waive its sub-advisory fee and reimburse the Advisor for one-half of any
expenses borne by the Advisor in accordance with the terms of the Advisor's
Page 20
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST AQA(R) EQUITY FUND
APRIL 30, 2016 (UNAUDITED)
Expense Reimbursement, Fee Waiver and Recovery Agreement for the Fund and that
the Sub-Advisor may seek restitution from the Advisor for one-half of the
portion of the reimbursed amount recovered by the Advisor in accordance with the
terms of the Expense Reimbursement, Fee Waiver and Recovery Agreement. The Board
reviewed information provided by Management Practice, Inc. ("MPI"), an
independent source, as well as by First Trust, for the Fund on the advisory fees
and expense ratios of other comparable funds. The Board noted that the Fund's
proposed advisory fee and estimated expense ratio (for Class A shares) were
above the median advisory fee and expense ratio of its MPI peer group, and were
within the range of most funds included in First Trust's peer group. The Board
also noted that only two of the five other funds in the MPI peer group were
sub-advised. The Board compared the Fund's advisory fee and expense ratio (with
the expense cap) to the advisory fees and expense ratios (including expense
caps) of other First Trust mutual funds, and to the advisory fees charged by
First Trust to other advisory clients. The Board noted that the Advisor provides
similar investment advisory services to First Trust/Confluence Small Cap Value
Fund for the same advisory fee rate, and that First Trust pays the sub-advisor
of that mutual fund the same sub-advisory fee rate it would pay to the
Sub-Advisor. In light of the information considered and the nature, extent and
quality of services expected to be provided to the Fund under the Agreements,
the Board determined that the proposed advisory and sub-advisory fees for the
Fund were fair and reasonable.
The Board noted that the proposed advisory fee for the Fund was not structured
to pass the benefits of any economies of scale on to shareholders as the Fund's
assets grow. The Board noted that First Trust has continued to invest in
personnel and infrastructure for the First Trust fund complex. The Board took
the costs to be borne by First Trust in connection with its services to be
performed for the Fund under the Advisory Agreement into consideration and noted
that First Trust was unable to estimate the profitability of the Advisory
Agreement to First Trust. The Board also considered that the Sub-Advisor was
unable to estimate the profitability of the Sub-Advisory Agreement to the
Sub-Advisor and that the Sub-Advisor would be paid by the Advisor from its
advisory fee. The Board considered fall-out benefits described by the Advisor
that may be realized from its and FTP's relationship with the Fund. The Board
noted that in addition to the advisory fees to be paid by the Fund, FTP would be
compensated for services provided to the Fund through 12b-1 fees and that the
Advisor would be compensated for providing fund reporting services to the Fund
pursuant to a Fund Reporting Services Agreement. The Board considered fall-out
benefits described by the Sub-Advisor and noted that the Sub-Advisor would not
utilize soft dollars in connection with its management of the Fund's portfolio.
Based on all the information considered and the conclusions reached, the Board,
including the Independent Trustees, unanimously determined that the terms of the
Agreements are fair and reasonable and that the approval of the Agreements is in
the best interests of the Fund. No single factor was determinative in the
Board's analysis.
Page 21
This Page Left Blank Intentionally.
This Page Left Blank Intentionally.
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
J.J.B. Hilliard, W.L. Lyons, LLC
500 West Jefferson Street
Louisville, KY 40202.
ADMINISTRATOR,
FUND ACCOUNTANT &
CUSTODIAN
Brown Brothers Harriman & Co.
50 Post Office Square
Boston, MA 02110
TRANSFER AGENT
BNY Mellon Investment Servicing (US) Inc.
301 Bellevue Parkway
Wilmington, DE 19810
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
[BLANK BACK COVER]
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. INVESTMENTS.
(a) Schedule of Investments in securities of unaffiliated issuers as of the
close of the reporting period is included as part of the report to
shareholders filed under Item 1 of this form.
(b) Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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) Not applicable.
(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/ James M. Dykas
----------------------------------------
James M. Dykas, President and
Chief Executive Officer
(principal executive officer)
Date: June 20, 2016
-----------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, President and
Chief Executive Officer
(principal executive officer)
Date: June 20, 2016
-----------------
By (Signature and Title)* /s/ Donald P. Swade
----------------------------------------
Donald P. Swade, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: June 20, 2016
-----------------
* Print the name and title of each signing officer under his or her signature.