First Trust Short Duration High Income Fund – as of December 31, 2015

First Trust Portfolios

Description

AS OF 12/31/15 FIRST TRUST SHORT DURATION HIGH INCOME FUND PORTFOLIO INFORMATION INDUSTRY BREAKDOWN TOP 10 INDUSTRIES n Hotels, Restaurants & Leisure n Health Care Providers & Services n Media n Pharmaceuticals n Food Products n Diversified Telecommunication Services n Life Sciences Tools & Services n Food & Staples Retailing n Health Care Equipment & Supplies n Software PORTFOLIO BREAKDOWN Senior Loans High-Yield Bonds Percentage of assets with LIBOR floors TOP TEN ISSUERS New HB Acquisition LLC Tenet Healthcare Corp. Charter Communications Operating LLC Level 3 Financing, Inc. Valeant Pharmaceuticals International, Inc. Caesars Growth Partners LLC Albertsons LLC Portillo Restaurant Group BJ's Wholesale Club, Inc. Amaya Gaming Group CREDIT RATINGS BBB BBBBB+ BB BBB+ B BCCC+ CCC CCCCC NR Privately rated securities PERCENT 11.96% 11.35% 10.21% 7.68% 5.61% 5.32% 4.94% 4.00% 3.95% 3.51% PERCENT 58.43% 41.57% 56.06% PERCENT 2.54% 2.32% 2.25% 2.24% 2.17% 2.06% 2.04% 2.00% 1.96% 1.79% PERCENT 1.97% 0.77% 2.39% 7.00% 15.07% 19.83% 24.42% 15.07% 10.78% 1.01% 0.06% 0.21% 0.35% 1.07% Independent credit ratings agencies use a rating system to help investors determine the risk associated with an issuing company’s ability to meet its obligations (interest and principal repayment) on a loan. The ratings begin at AAA for the highest rating, with C or D being the lowest rating. The credit worthiness ratings shown above relate to the issuers of the underlying securities in the Fund, and not to the Fund or its shares. Ratings shown above are subject to change. Industry allocation and holdings are subject to change and companies referenced in this fact sheet may not be currently held. Information is current as of the creation of this sheet.

Portfolio holdings are subject to risks. Market value information used in calculating the percentages is based upon trade date plus one recording of transactions, which can differ from regulatory financial reports (Forms N-CSR and N-Q) that are based on trade date recording of security transactions. INVESTMENT ADVISOR PORTFOLIO MANAGERS First Trust Advisors L.P. is the Investment Advisor to the The following persons serve as portfolio managers of the Fund: Fund and has been serving broker/dealers, individuals, and • William Housey, CFA; Senior Vice President institutional investors from its Chicago-area headquarters • Scott D. Fries, CFA; Senior Vice President since 1991. • Peter Fasone, CFA; Vice President • Experienced asset manager/supervisor Each portfolio manager has managed the Fund since • Provider of innovative financial solutions inception. • Long-term strategic investor nationally recognized for its fundamental and quantitative strategies The credit quality and ratings information presented reflects the ratings assigned by one or more nationally recognized statistical rating organizations (NRSROs), including Standard & Poor’s Rating Group, a division of the McGraw Hill Companies, Inc., Moody’s Investors Service, Inc.

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 lowest available rating is used. Sub-investment grade ratings are those rated BB+/Ba1 or lower.

Investment-grade ratings are those rated BBB-/Baa3 or higher. See the prospectus or summary prospectus for more complete descriptions of ratings and rating organizations. You should consider the Fund’s investment objectives, risks, and charges and expenses carefully before investing. Contact First Trust Portfolios L.P. at 1-800-621-1675 or visit www.ftportfolios.com to obtain a prospectus or summary prospectus which contains this and other information about the Fund.

The prospectus or summary prospectus should be read carefully before investing. WHAT ARE THE RISKS? You could lose money by investing in the Fund. A mutual fund’s share price and investment return will vary with market conditions, and the principal value of an investment when you sell your shares may be more or less than the original cost. BANK LOANS RISK. An investment in bank loans subjects the exchange but trade in the over-the-counter markets.

Due to the Fund to credit risk, which is heightened for bank loans in which smaller, less liquid market for high yield securities, the bid-offer spread the Fund invests because companies that issue such loans tend to on such securities is generally greater than it is for investment grade be highly leveraged and thus are more susceptible to the risks of securities and the purchase or sale of such securities may take longer to interest deferral, default and/or bankruptcy. Senior floating rate complete. loans, in which the Fund may invest, are usually rated below ILLIQUID SECURITIES RISK. Illiquid securities involve the risk that the investment grade but may also be unrated.

As a result, the risks securities will not be able to be sold at the time desired by the Fund or associated with these senior floating rate loans are similar to the at prices approximately the value at which the Fund is carrying the risks of high yield fixed income instruments. An economic securities on its books. downturn would generally lead to a higher non-payment rate, INCOME RISK. If interest rates fall, the income from the Fund’s and a senior floating rate loans may lose significant market value portfolio will likely decline if the Fund holds floating rate debt that will before a default occurs.

Moreover, any specific collateral used to adjust lower with falling interest rates. For loans, interest rates typically secure a senior floating rate loans may decline in value or become reset periodically. illiquid, which would adversely affect the senior floating rate INTEREST RATE RISK. Interest rate risk is the risk that the value of the loan’s value.

Unlike the securities markets, there is no central debt securities in the Fund will decline because of rising market interest clearinghouse for loan trades, and the loan market has not rates. Interest rate risk is generally lower for shorter term investments established enforceable settlement standards or remedies for and higher for longer term investments. Duration is a common measure failure to settle.

Therefore, portfolio transactions in senior floating of interest rate risk, which measures a debt security’s expected life on a rate loans may have uncertain settlement time periods. Senior present value basis, taking into account the debt security’s yield, floating rate loans are subject to a number of risks, including interest payments and final maturity. Duration is a reasonably accurate liquidity risk and the risk of investing in below investment grade measure of a debt security’s price sensitivity to changes in interest fixed income instruments.

Furthermore, increases in interest rates rates. The longer the duration of a debt security, the greater the debt may result in greater volatility of senior floating rate loans and security’s price sensitivity is to changes in interest rates. average duration may fluctuate with fluctuations in interest rates. LIQUIDITY RISK.

The Fund invests a substantial portion of its assets in CALL RISK. If an issuer calls higher-yielding securities held by the lower-quality debt issued by companies that are highly leveraged. Fund, performance could be adversely impacted. Lower-quality debt tends to be less liquid than higher-quality debt. CONVERTIBLE BONDS RISK. The market values of convertible Moreover, smaller debt issues tend to be less liquid than larger debt bonds tend to decline as interest rates increase and, conversely, to issues.

If the economy experiences a sudden downturn, or if the debt increase as interest rates decline. A convertible bond’s market markets for such companies become distressed, the Fund may have value also tends to reflect the market price of the common stock particular difficulty selling its assets in sufficient amounts, at of the issuing company. reasonable prices and in a sufficiently timely manner to raise the cash CREDIT RISK. Credit risk is the risk that an issuer of a security may necessary to meet any potentially heavy redemption requests by Fund be unable or unwilling to make dividend, interest and principal shareholders. payments when due and the related risk that the value of a MARKET RISK.

Market risk is the risk that a particular security owned security may decline because of concerns about the issuer’s ability by the Fund or shares of the Fund in general may fall in value. Securities or willingness to make such payments. Credit risk may be are subject to market fluctuations caused by such factors as economic, heightened for the Fund because it invests a political, regulatory or market developments, changes in interest rates substantial portion of its net assets in high yield or “junk” debt; and perceived trends in securities prices.

Shares of the Fund could such securities, while generally offering higher yields than decline in value or underperform other investments. investment grade debt with similar maturities, involve greater NON-U.S. SECURITIES RISK. Non-U.S.

securities are subject to higher risks, including the possibility of dividend or interest deferral, volatility than securities of domestic issuers due to possible adverse default or bankruptcy, and are regarded as predominantly political, social or economic developments; restrictions on foreign speculative with respect to the issuer’s capacity to pay dividends investment or exchange of securities; lack of liquidity; currency or interest and repay principal. Credit risk is heightened for loans exchange rates; excessive taxation; government seizure of assets; in which the Fund invests because companies that issue such different legal or accounting standards; and less government loans tend to be highly leveraged and thus are more susceptible to supervision and regulation of exchanges in foreign countries. the risks of interest deferral, default and/or bankruptcy. OTHER DEBT SECURITIES RISK. Secured loans that are not first lien CURRENCY RISK.

Because the Fund’s net asset value is loans that are unsecured and debt securities are subject to many of the determined on the basis of U.S. dollars and the Fund invests in same risks that affect senior floating rate loans; however they are often non- U.S. dollar-denominated securities, you may lose money unsecured and/or lower in the issuer’s capital structure than senior if the local currency of a foreign market depreciates against the floating rate loans, and thus may be exposed to greater risk of default U.S.

dollar, even if the local currency value of the Fund’s and lower recoveries in the event of a default. This risk can be further holdings goes up. The Fund may hedge certain of its non-U.S.

heightened in the case of below investment grade instruments. dollar holdings. Additionally, most fixed income securities are fixed rate and thus are HIGH YIELD SECURITIES RISK. High yield securities, or “junk generally more susceptible than floating rate loans to price volatility bonds,” are subject to greater market fluctuations and risk of loss related to changes in prevailing interest rates. than securities with higher investment ratings. These securities PREPAYMENT RISK.

Loans and other fixed income investments are are issued by companies that may have limited operating history, subject to prepayment risk. The degree to which borrowers prepay narrowly focused operations, and/or other impediments to the loans, whether as a contractual requirement or at their election, may be timely payment of periodic interest and principal at maturity. If affected by general business conditions, the financial condition of the the economy slows down or dips into recession, the issuers of high borrower and competitive conditions among loan investors, among yield securities may not have sufficient resources to continue others.

As such, prepayments cannot be predicted with accuracy. Upon making timely payment of periodic interest and principal at a prepayment, either in part or in full, the actual outstanding debt on maturity. The market for high yield securities is smaller and less which the Fund derives interest income will be reduced.

The Fund may liquid than that for investment grade securities. High yield not be able to reinvest the proceeds received on terms as favorable as securities are generally not listed on a national securities the prepaid loan. First Trust Portfolios L.P. • 120 E.

Liberty Drive • Wheaton, IL 60187 • 800-621-1675 • www.ftportfolios.com • MEMBER: SIPC & FINRA MFSDHIFS0116 .