First Trust Intermediate Duration
Preferred & Income Fund (FPF)
Annual Letter from the Chairman and
CEO
October 31, 2022
Dear Shareholders,
First Trust is pleased
to provide you with the annual report for the First Trust Intermediate Duration Preferred & Income Fund (the “Fund”), which contains detailed information about the Fund for the twelve months ended
October 31, 2022.
As I’m writing
this letter in mid-November, it strikes me that things appear to be a little more chaotic in the current climate than normal. One of the things that may have contributed to the chaotic nature of the news flow of late
was the November mid-term election. For the most part, except for a few seats in Congress, the election is behind us. We learned there would be no “red wave” (Republicans gaining a strong majority in
Congress) but likely gridlock ahead. Gridlock has been good for stock market investors in the past few decades, particularly when there’s been a Democratic president and the Republicans have control of at least
one house of Congress, according to Brian Wesbury, Chief Economist at First Trust.
The Federal Reserve (the
“Fed”) has kept its promise to aggressively hike interest rates to combat robust inflation. As of November 13, 2022, the Fed has increased the Federal Funds target rate (upper bound) six times, from 0.25%
to 4.00%. The Fed’s actions have some investors and pundits looking for evidence linking the interest rate hikes to a downturn in the economy. In short, the hope is that a pullback in economic activity might
deter the Fed from executing further interest rate hikes. Fed Chairman Jerome Powell, however, recently said that the terminal rate (the ultimate rate the Fed is targeting) will likely need to be higher than
previously estimated in order to curb stubbornly high inflation. The Consumer Price Index (“CPI”) is a commonly used measure of inflation. The CPI stood at 7.7% on a trailing 12-month basis as of October
31, 2022, according to the U.S. Bureau of Labor Statistics. That is down from its recent high of 9.1% in June 2022. Prior to this year, the last time the CPI was higher than 7.0% was over 40 years ago. While monetary
policy is an ongoing process subject to change, the Fed does appear to be steadfast in its mission to bring the rate of inflation back to its preferred level of 2.0%, and that will take some time, in my opinion. Stay
tuned!
Equity and fixed income
markets have contended with numerous headwinds this year, such as the war between Russia and Ukraine. Since setting its all-time high of 4,796.56 on January 3, 2022, the S&P 500® Index has been in a bear market (a price decline of 20% or more from the most recent high) for the better part of 310 days. Suffice it to say,
we are all looking forward to the end of this bear market. With respect to corrections and bear markets, the silver lining is that the S&P 500® Index has never failed to fully recover the losses sustained in any previous downturn. Where might we see demand for stocks moving forward? One
such source could be stock buybacks. As of the last week of October 2022, U.S. companies had announced stock buybacks totaling $1 trillion so far this year, according to Birinyi Associates. The fixed income market has
not been immune to selling pressure either. Year-to-date through November 10, 2022, yields on the 10-Year Treasury Note increased by 258 basis points. As you may be aware, bond yields and bond prices are inversely
related, particularly with respect to investment-grade bonds. As yields rise, prices fall and vice versa. As noted above, the Fed has more work to do, so bond investors should not be surprised to see interest rates
and bond yields trend at least a bit higher in the months ahead.
Thank you for giving
First Trust the opportunity to play a role in your financial future. We value our relationship with you and will report on the Fund again in six months.
Sincerely,
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust
Advisors L.P.
Portfolio Commentary (Continued)
First Trust Intermediate
Duration Preferred & Income Fund (FPF)
Annual Report
October 31, 2022
(Unaudited)
Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of 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.
For the 12-month period
October 31, 2022, the net asset value and market price total return for the Fund were -20.30% and -30.77%, respectively. This compares to a total return of -16.71% for the Fund’s benchmark (the
“Benchmark”), a 30/30/30/10 blend of P0P4, CIPS, CDLR and HIPS, respectively. The Fund underperformed the Benchmark during the period, primarily due to its leverage. Another slight detractor from the
Fund’s relative performance during the period was its security selection within the Utilities sector. Aside from leverage and utilities positioning, the Fund largely outperformed versus the Benchmark. The
Fund’s defensive positioning in regard to rising interest rates, its security selection within CoCos, and its security selection within IG securities all positively contributed to relative performance. The Fund
also benefited from its security selection within pipelines and $25 par exchange-traded holdings.
The Fund began
repositioning for potentially higher interest rates as early as the fourth quarter of 2020, which paid off on a relative basis during the fiscal year 2022. Short duration (<3 year) securities significantly
outperformed during the period while long duration securities (5+ years) significantly underperformed. The Fund benefited from its significant underweight to longer duration securities and overweight to short duration
securities, including floaters, which are not held in the Benchmark. The Fund benefited relative to the Benchmark across every duration segment of the curve.
Another area of
outperformance for the Fund was its security selection within non-US bank CoCos, including its security selection within European banks. The Fund also benefitted from its underweight allocation to emerging market
banks, which the Fund is comfortable maintaining going forward. Russian bank CoCos, which were not held by the Fund, suffered complete losses during the period.
Within non-IG securities,
the Fund benefited from its security selection, particularly within the pipeline sector. The Fund’s pipeline holdings outperformed the Benchmark’s by over 6% for the period. The Fund continues to maintain
an overweight allocation to this sector given its favorable outlook.
The Fund also benefited
from its underweight to $25 par fixed rate exchange-traded securities, which underperformed during the period, as well as in its security selection within exchange-traded variable rate securities. The Fund’s
modest underweight to $25 par variable rate securities was a detractor to relative performance during the period.
| *
| Total return is based on the combination of reinvested dividend, capital gain, and return of capital distributions, if any, at prices obtained by the Dividend Reinvestment Plan and changes in NAV per
share for NAV returns and changes in Common Share Price for market value returns. Total returns do not reflect sales load and are not annualized for periods of less than one year.
|
| **
| The Blended Index consists of a 30/30/30/10 blend of the ICE BofA Core Plus Fixed Rate Preferred Securities Index, the ICE BofA US Investment Grade Institutional Capital Securities Index, the ICE USD
Contingent Capital Index and the ICE BofA US High Yield Institutional Capital Securities Index. The Blended Index is intended to reflect the proportional market cap of each segment of the preferred and hybrid
securities market. The Prior Blended Index consists of a 50/50 blend of the ICE BofA Fixed Rate Preferred Securities Index and the ICE BofA U.S. Capital Securities Index. The Blended Index was added to reflect the
diverse allocation of institutional preferred and hybrid securities in the Fund’s portfolio. The Blended Index and Prior Blended Index returns are calculated by using the monthly returns of the indices listed
above during each period shown. At the beginning of each month the indices are rebalanced to a 30/30/30/10 and 50-50 ratio respectively to account for divergence from that ratio that occurred during the course of each
month. The monthly returns are then compounded for each period shown above, giving the performance for the Blended Index for each period shown above. Since the ICE USD Contingent Capital Index had an inception date of
December 31, 2013, the performance of the Blended Index is not available for all of the periods disclosed.
|
Portfolio Commentary (Continued)
First Trust Intermediate
Duration Preferred & Income Fund (FPF)
Annual Report
October 31, 2022
(Unaudited)
Finally, the Fund added
to its relative performance through the new issuance markets. Given the volatility and ETF outflows during the period, the Fund was very selective within this market segment.
The Fund cut its dividend
in September 2022 due to large increases in front-end rates and reduced leverage, which decreased future income projections for the Fund. We will continue to monitor the income for the Fund going forward. The Fund
ended the 12-month period ended October 31, 2022 with net leverage of 32.84%, which includes a regulatory leverage of 28.58%.
The Fund has a practice
of seeking to maintain a relatively stable monthly distribution, which may be changed at any time. The practice has no impact on the Fund’s investment strategy and may reduce the Fund’s NAV. However, the
Advisor believes the practice helps maintain the Fund’s competitiveness and may benefit the Fund’s market price and premium/discount to the Fund’s NAV. The monthly distribution rate began the period
at $0.1275 per share and ended the period at $0.1125 per share. At the $0.1125 per share monthly distribution rate, the annualized distribution rate at October 31, 2022 was 7.31% at NAV and 8.24% at market price. For
the twelve-month period ended October 31, 2022, 93.26% of the distributions were characterized as ordinary income and 6.74% of the distributions were characterized as return of capital. The final determination of the
source and tax status of all 2022 distributions will be made after the end of 2022 and will be provided on Form 1099-DIV. The foregoing is not to be construed as tax advice. Please consult your tax advisor for further
information regarding tax matters.
Market and Fund Outlook
As we look ahead, we
believe the risk reward balance has improved in regard to interest rate risk, creating opportunities in the preferred and hybrid securities market. Our base case for the next twelve months is for the market to perform
positively with some capital appreciation in addition to income. We believe risks from inflationary pressures, rising rates and geopolitical conflicts are elevated, but are largely priced into the market. In our view,
valuation metrics for preferred securities are at attractive levels with high yields relative to other fixed income asset classes coupled with market prices trading at historically deep discounts to par. We especially
favor select longer duration variable rate securities and securities trading at deep discounts. We believe in a “pull to par” effect for many of the deeply discounted securities that have a high likelihood
of trading closer to par as they approach their first call dates. The primary driver of this “pull to par” effect are variable rate securities with high resets that project much higher coupons after their
first call dates.
In addition, we believe
the high quality credit fundamentals and sector concentrations in highly regulated industries could help to insulate the asset class in a recessionary environment and against current geopolitical risks. U.S. and
European banks are well capitalized and entering the new fiscal year from a position of strength in the face of economic headwinds, while other major sectors like Insurance, Utilities, and Equity Real Estate
Investment Trusts, offer lower sensitivity to inflation, in our opinion.
We foresee the
risk-reward dynamic progressively improving as we approach 2023 and believe that the preferred and hybrid securities market is set up to outperform longer term. As active fund managers, we have the advantage of
repositioning the portfolio as market conditions change. As a result, we believe the Fund is positioned for outperformance over the next twelve months due to an overweight in discounted securities that we think have
the greatest upside potential, defensive credit exposure and capacity to take advantage of market dislocations as they arise.
Notes to Financial Statements (Continued)
First Trust Intermediate
Duration Preferred & Income Fund (FPF)
October 31, 2022
| •
| 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 October
31, 2022, is included with the Fund’s Portfolio of Investments.
In December 2020, the SEC
adopted Rule 2a-5 under the 1940 Act, establishing requirements to determine fair value in good faith for purposes of the 1940 Act. The rule permits fund boards to designate a fund’s investment adviser to
perform fair value determinations, subject to board oversight and certain other conditions. The rule also defines when market quotations are “readily available” for purposes of the 1940 Act and requires a
fund to fair value a portfolio investment when a market quotation is not readily available. The SEC also adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping requirements associated with fair
value determinations. The compliance date for Rule 2a-5 and Rule 31a-4 was September 8, 2022.
Effective September 8,
2022 and pursuant to the requirements of Rule 2a-5, the Fund’s Board of Trustees designated the Advisor as its valuation designee to perform fair value determinations and approved new Advisor Valuation
Procedures for the Fund.
B. Reverse
Repurchase Agreements
Reverse repurchase
agreements were utilized as leverage for the Fund. A reverse repurchase agreement, although structured as a sale and repurchase obligation, acts as financing under which Fund assets are pledged as collateral to secure
a short-term loan. Generally, the other party to the agreement makes the loan in an amount equal to a percentage of the market value of the pledged collateral. At the maturity of the reverse repurchase agreement, the
loan will be repaid and the collateral will correspondingly be received back by the Fund. While used as collateral, the assets continue to pay principal and interest which are for the benefit of the Fund.
Information for the year
ended October 31, 2022:
Maximum amount
outstanding during the period . . . . . . . . . . . . . . . . . . . . $100,000,000
Average amount
outstanding during the period* . . . . . . . . . . . . . . . . . . . . . $100,000,000
* The average amount
outstanding during the period was calculated by adding the borrowings at the end of each day and dividing the sum by the number of days in the year ended October 31, 2022. There was $100,000,000 outstanding at October
31, 2022, which approximates fair value.
During the year ended
October 31, 2022, the interest rates ranged from 0.73% to 4.45% with a weighted average interest rate of 1.88%, on borrowings by the Fund under reverse repurchase agreements, which had interest expense that aggregated
$1,910,114. The rate as of October 31, 2022 was 4.45%.
C. 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 on
the accrual basis. Amortization of premiums and the accretion of discounts are recorded using the effective interest method.
The United
Kingdom’s Financial Conduct Authority (the “FCA”), which regulates the London Interbank Offered Rates (“LIBOR”), announced on March 5, 2021 that it intended to phase-out all LIBOR
reference rates, beginning December 31, 2021. Since that announcement, the FCA has ceased publication of all non-USD LIBOR reference rates and the 1-week and 2-month USD LIBOR reference rates as of December 31, 2021.
The remaining USD LIBOR settings will cease to be published or no longer be representative immediately after June 30, 2023. The International Swaps and Derivatives Association, Inc. (“ISDA”) confirmed that
the FCA’s March 5, 2021 announcement of its intention to cease providing LIBOR reference rates, constituted an index cessation event under the Interbank Offered Rates (“IBOR”) Fallbacks Supplement
and the ISDA 2020 IBOR Fallbacks Protocol for all 35 LIBOR settings and confirmed that the spread adjustment to be used in ISDA fallbacks was fixed as of the date of the announcement.
In the United States, the
Alternative Reference Rates Committee (the “ARRC”), a group of market participants convened by the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York in cooperation
with other federal and state government agencies, has since 2014 undertaken efforts to identify U.S. dollar reference interest rates as alternatives to LIBOR and to facilitate the mitigation of LIBOR-related risks. In
June 2017, the ARRC identified the Secured Overnight Financing Rate (“SOFR”), a broad measure of the cost of cash overnight borrowing collateralized by U.S. Treasury securities, as the preferred
alternative for U.S. dollar LIBOR. The Federal Reserve Bank of New York began daily publishing of SOFR in April 2018. There is no assurance that any alternative reference rate, including SOFR, will be similar to or
produce the same value or economic equivalence as LIBOR or that instruments using an alternative rate will have the same volume or liquidity.
Notes to Financial Statements (Continued)
First Trust Intermediate
Duration Preferred & Income Fund (FPF)
October 31, 2022
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, 2022, for federal income tax purposes, the Fund had $61,989,983 of capital loss carryforwards 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 2019, 2020, 2021,
and 2022 remain open to federal and state audit. As of October 31, 2022, 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.
As of October 31, 2022,
the aggregate cost, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation/(depreciation) on investments (including short positions and derivatives, if any) for federal income
tax purposes were as follows:
| Tax Cost
|
| Gross
Unrealized
Appreciation
|
| Gross
Unrealized
(Depreciation)
|
| Net Unrealized
Appreciation
(Depreciation)
|
| $1,892,458,751
|
| $6,696,302
|
| $(246,099,156)
|
| $(239,402,854)
|
H. Expenses
The Fund will pay all
expenses directly related to its operations.
3. Investment
Advisory Fee, Affiliated Transactions and Other Fee Arrangements
First Trust, the
investment advisor to the Fund, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for the ongoing monitoring of the Fund’s investment portfolio, managing the Fund’s business affairs and
providing certain administrative services necessary for the management of the Fund. For these services, First Trust is entitled to a monthly fee calculated at an annual rate of 0.85% of the Fund’s Managed Assets
(the average daily total asset value of the Fund minus the sum of the Fund’s liabilities other than the principal amount of borrowings or reverse repurchase agreements, if any). First Trust also provides fund
reporting services to the Fund for a flat annual fee in the amount of $9,250.
Stonebridge, a
majority-owned 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 0.425% of the Fund’s Managed Assets that is paid by First Trust out of its investment advisory fee.
First Trust Capital
Partners, LLC, an affiliate of First Trust, owns a 51% ownership interest in Stonebridge.
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.
Computershare, Inc.
(“Computershare”) serves as the Fund’s transfer agent in accordance with certain fee arrangements. As transfer agent, Computershare is responsible for maintaining shareholder records for the Fund.
Each Trustee who is not
an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund
Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, a target outcome fund or an index fund.
Additionally, the Lead
Independent Trustee and the Chairs of the Audit Committee, Nominating and Governance Committee and Valuation Committee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among
each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in
Notes to Financial Statements (Continued)
First Trust Intermediate
Duration Preferred & Income Fund (FPF)
October 31, 2022
connection with all meetings. The Lead
Independent Trustee and Committee Chairs rotate every three years. The officers and “Interested” Trustee receive no compensation from the Fund for acting in such capacities.
4. Purchases and
Sales of Securities
For the fiscal year ended
October 31, 2022, the cost of purchases and proceeds from sales of investments, excluding short term investments were $486,671,495 and $602,374,686, respectively.
5. Borrowings
The Fund entered into a
credit agreement with The Bank of Nova Scotia that has a maximum commitment amount of $725,000,000. The borrowing rate under the facility is equal to the 1-month LIBOR plus 75 basis points. In addition, under the
facility, the Fund pays a commitment fee of 0.15% on the undrawn amount of such facility on any date that the loan balance is less than 50% of the total commitment amount. The average amount outstanding between
November 1, 2021 and October 31, 2022, was $514,110,959 with a weighted average interest rate of 1.91%. As of October 31, 2022, the Fund had outstanding borrowings of $449,600,000, which approximates fair value, under
this committed facility agreement. The borrowings are categorized as Level 2 within the fair value hierarchy. The high and low annual interest rates for the fiscal year ended October 31, 2022, were 4.55% and 0.83%,
respectively. The interest rate at October 31, 2022, was 4.55%.
6. 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.
7. 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.
Additional Information
First Trust Intermediate
Duration Preferred & Income Fund (FPF)
October 31, 2022
(Unaudited)
Dividend Reinvestment
Plan
If your Common Shares are
registered directly with the Fund or if you hold your Common Shares with a brokerage firm that participates in the Fund’s Dividend Reinvestment Plan (the “Plan”), unless you elect, by written notice
to the Fund, to receive cash distributions, all dividends, including any capital gain distributions, on your Common Shares will be automatically reinvested by Computershare Trust Company N.A. (the “Plan
Agent”), in additional Common Shares under the Plan. If you elect to receive cash distributions, you will receive all distributions in cash paid by check mailed directly to you by the Plan Agent, as the dividend
paying agent.
If you decide to
participate in the Plan, the number of Common Shares you will receive will be determined as follows:
| (1)
| If Common Shares are trading at or above net asset value (“NAV”) at the time of valuation, the Fund will issue new shares at a price equal to the greater of (i) NAV per Common Share on that
date or (ii) 95% of the market price on that date.
|
| (2)
| If Common Shares are trading below NAV at the time of valuation, the Plan Agent will receive the dividend or distribution in cash and will purchase Common Shares in the open market,
on the NYSE or elsewhere, for the participants’ accounts. It is possible that the market price for the Common Shares may increase before the Plan Agent has completed its purchases. Therefore, the average
purchase price per share paid by the Plan Agent may exceed the market price at the time of valuation, resulting in the purchase of fewer shares than if the dividend or distribution had been paid in Common Shares
issued by the Fund. The Plan Agent will use all dividends and distributions received in cash to purchase Common Shares in the open market within 30 days of the valuation date except where temporary curtailment or
suspension of purchases is necessary to comply with federal securities laws. Interest will not be paid on any uninvested cash payments.
|
You may elect to opt-out
of or withdraw from the Plan at any time by giving written notice to the Plan Agent, or by telephone at (866) 340-1104, in accordance with such reasonable requirements as the Plan Agent and the Fund may agree upon. If
you withdraw or the Plan is terminated, you will receive a certificate for each whole share in your account under the Plan, and you will receive a cash payment for any fraction of a share in your account. If you wish,
the Plan Agent will sell your shares and send you the proceeds, minus brokerage commissions.
The Plan Agent maintains
all Common Shareholders’ accounts in the Plan and gives written confirmation of all transactions in the accounts, including information you may need for tax records. Common Shares in your account will be held by
the Plan Agent in non-certificated form. The Plan Agent will forward to each participant any proxy solicitation material and will vote any shares so held only in accordance with proxies returned to the Fund. Any proxy
you receive will include all Common Shares you have received under the Plan.
There is no brokerage
charge for reinvestment of your dividends or distributions in Common Shares. However, all participants will pay a pro rata share of brokerage commissions incurred by the Plan Agent when it makes open market
purchases.
Automatically reinvesting
dividends and distributions does not mean that you do not have to pay income taxes due upon receiving dividends and distributions. Capital gains and income are realized although cash is not received by you. Consult
your financial advisor for more information.
If you hold your Common
Shares with a brokerage firm that does not participate in the Plan, you will not be able to participate in the Plan and any dividend reinvestment may be effected on different terms than those described above.
The Fund reserves the
right to amend or terminate the Plan if in the judgment of the Board of Trustees the change is warranted. There is no direct service charge to participants in the Plan; however, the Fund reserves the right to amend
the Plan to include a service charge payable by the participants. Additional information about the Plan may be obtained by writing Computershare, Inc., P.O. Box 505000, Louisville, KY 40233-5000.
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 investments during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on the Fund’s website at www.ftportfolios.com; and (3) on the Securities and Exchange Commission’s (“SEC”) website at www.sec.gov.
Portfolio Holdings
The Fund files portfolio
holdings information for each month in a fiscal quarter within 60 days after the end of the relevant fiscal quarter on Form N-PORT. Portfolio holdings information for the third month of each fiscal quarter will be
publicly available on the
Additional Information (Continued)
First Trust Intermediate
Duration Preferred & Income Fund (FPF)
October 31, 2022
(Unaudited)
expense ratio of the Fund as compared to
expense ratios of the funds in the Fund’s Expense Group and Expense Universe; performance information for the Fund, including comparisons of the Fund’s performance to that of one or more relevant benchmark
indexes and to that of a performance group of funds and a broad performance universe of funds (the “Performance Universe”), each assembled by Broadridge; the nature of expenses incurred in providing
services to the Fund and the potential for the Advisor and the Sub-Advisor to realize economies of scale, if any; profitability and other financial data for the Advisor; financial data for the Sub-Advisor; any
indirect benefits to the Advisor and its affiliate, First Trust Capital Partners, LLC (“FTCP”), and the Sub-Advisor; and information on the Advisor’s and the Sub-Advisor’s compliance programs.
The Board reviewed initial materials with the Advisor at the meeting held on April 18, 2022, prior to which the Independent Trustees and their counsel met separately to discuss the information provided by the Advisor
and the Sub-Advisor. Following the April meeting, counsel to the Independent Trustees, on behalf of the Independent Trustees, requested certain clarifications and supplements to the materials provided, and the
information provided in response to those requests was considered at an executive session of the Independent Trustees and their counsel held prior to the June 12–13, 2022 meeting, as well as at the June meeting.
The Board applied its business judgment to determine whether the arrangements between the Fund and the Advisor and among the Fund, the Advisor and the Sub-Advisor continue to be reasonable business arrangements from
the Fund’s perspective. The Board determined that, given the totality of the information provided with respect to the Agreements, the Board had received sufficient information to renew the Agreements. The Board
considered that shareholders chose to invest or remain invested in the Fund knowing that the Advisor and the Sub-Advisor manage the Fund.
In reviewing the
Agreements, the Board considered the nature, extent and quality of the services provided by the Advisor and the Sub-Advisor under the Agreements. With respect to the Advisory Agreement, the Board considered that the
Advisor is responsible for the overall management and administration of the Fund and reviewed all of the services provided by the Advisor to the Fund, including the oversight of the Sub-Advisor, as well as the
background and experience of the persons responsible for such services. The Board noted that the Advisor oversees the Sub-Advisor’s day-to-day management of the Fund’s investments, including portfolio risk
monitoring and performance review. In reviewing the services provided, the Board noted the compliance program that had been developed by the Advisor and considered that it includes a robust program for monitoring the
Advisor’s, the Sub-Advisor’s and the Fund’s compliance with the 1940 Act, as well as the Fund’s compliance with its investment objectives, policies and restrictions. The Board also considered a
report from the Advisor with respect to its risk management functions related to the operation of the Fund. Finally, as part of the Board’s consideration of the Advisor’s services, the Advisor, in its
written materials and at the April 18, 2022 meeting, described to the Board the scope of its ongoing investment in additional personnel and infrastructure to maintain and improve the quality of services provided to
the Fund and the other funds in the First Trust Fund Complex. With respect to the Sub-Advisory Agreement, in addition to the written materials provided by the Sub-Advisor, at the June 12–13, 2022 meeting, the
Board also received a presentation from representatives of the Sub-Advisor, who discussed the services that the Sub-Advisor provides to the Fund, including the Sub-Advisor’s day-to-day management of the
Fund’s investments. In considering the Sub-Advisor’s management of the Fund, the Board noted the background and experience of the Sub-Advisor’s portfolio management team. In light of the information
presented and the considerations made, the Board concluded that the nature, extent and quality of the services provided to the Fund by the Advisor and the Sub-Advisor under the Agreements have been and are expected to
remain satisfactory and that the Sub-Advisor, under the oversight of the Advisor, has managed the Fund consistent with its investment objectives, policies and restrictions.
The Board considered the
advisory and sub-advisory fee rates payable under the Agreements for the services provided. The Board noted that the sub-advisory fee is paid by the Advisor from its advisory fee. The Board received and reviewed
information showing the fee rates and expense ratios of the peer funds in the Expense Group, as well as advisory and unitary fee rates charged by the Advisor and the Sub-Advisor to other fund and non-fund clients, as
applicable. With respect to the Expense Group, the Board, at the April 18, 2022 meeting, discussed with Broadridge its methodology for assembling peer groups and discussed with the Advisor limitations in creating a
relevant peer group for the Fund, including that (i) the Fund is unique in its composition, which makes assembling peers with similar strategies and asset mix difficult; and (ii) not all peer funds employ an
advisor/sub-advisor management structure. The Board took these limitations into account in considering the peer data, and noted that the contractual advisory fee rate payable by the Fund, based on average managed
assets, was above the median contractual advisory fee of the peer funds in the Expense Group. With respect to fees charged to other clients, the Board considered differences between the Fund and other clients that
limited their comparability. In considering the advisory fee rate overall, the Board also considered the Advisor’s statement that it seeks to meet investor needs through innovative and value-added investment
solutions and the Advisor’s demonstrated long-term commitment to the Fund and the other funds in the First Trust Fund Complex.
The Board considered
performance information for the Fund. The Board noted the process it has established for monitoring the Fund’s performance and portfolio risk on an ongoing basis, which includes quarterly performance reporting
from the Advisor and Sub-Advisor for the Fund. The Board determined that this process continues to be effective for reviewing the Fund’s performance. The Board received and reviewed information comparing the
Fund’s performance for periods ended December 31, 2021 to the performance of the funds in the Performance Universe and to that of a blended benchmark index. In reviewing the Fund’s performance as compared
to the performance of the Performance Universe, the Board took into account the limitations described above with respect to creating a relevant peer group for the Fund. Based on the information provided on net asset
value performance, the Board noted that the Fund
Additional Information (Continued)
First Trust Intermediate
Duration Preferred & Income Fund (FPF)
October 31, 2022
(Unaudited)
underperformed the Performance Universe
median for the one- and three-year periods ended December 31, 2021 and performed at the Performance Universe median for the five-year period ended December 31, 2021. The Board also noted that the Fund outperformed the
blended benchmark index for the one-, three- and five-year periods ended December 31, 2021. In addition, the Board considered information provided by the Advisor on the impact of leverage on the Fund’s returns.
The Board also received information on the Fund’s annual distribution rate as of December 31, 2021 and the Fund’s average trading discount for various periods and comparable information for a peer
group.
On the basis of all the
information provided on the fees, expenses and performance of the Fund and the ongoing oversight by the Board, the Board concluded that the advisory and sub-advisory fees continue to be reasonable and appropriate in
light of the nature, extent and quality of the services provided by the Advisor and the Sub-Advisor to the Fund under the Agreements.
The Board considered
information and discussed with the Advisor whether there were any economies of scale in connection with providing advisory services to the Fund and noted the Advisor’s statement that it believes that its
expenses relating to providing advisory services to the Funds will likely increase during the next twelve months as the Advisor continues to build infrastructure and add new staff. The Board determined that due to the
Fund’s closed-end structure, the potential for realization of economies of scale as Fund assets grow was not a material factor to be considered. The Board considered the revenues and allocated costs (including
the allocation methodology) of the Advisor in serving as investment advisor to the Fund for the twelve months ended December 31, 2021 and the estimated profitability level for the Fund calculated by the Advisor based
on such data, as well as complex-wide and product-line profitability data, for the same period. The Board noted the inherent limitations in the profitability analysis and concluded that, based on the information
provided, the Advisor’s profitability level for the Fund was not unreasonable. In addition, the Board considered indirect benefits described by the Advisor that may be realized from its relationship with the
Fund. The Board considered the ownership interest of FTCP in the Sub-Advisor and potential indirect benefits to the Advisor from such ownership interest. The Board noted that in addition to the advisory fees paid by
the Fund, the Advisor is compensated for fund reporting services pursuant to a separate Fund Reporting Services Agreement. The Board concluded that the character and amount of potential indirect benefits to the
Advisor were not unreasonable.
The Board considered the
Sub-Advisor’s expenses in providing sub-advisory services to the Fund and noted the Sub-Advisor’s hiring of additional personnel and the Sub-Advisor’s statement that it would add resources as needed
if it experiences enough asset growth. The Board did not review the profitability of the Sub-Advisor with respect to the Fund. The Board noted that the Advisor pays the Sub-Advisor from its advisory fee and its
understanding that the Fund’s sub-advisory fee rate was the product of an arm’s length negotiation. The Board concluded that the profitability analysis for the Advisor was more relevant. The Board
considered indirect benefits that may be realized by the Sub-Advisor from its relationship with the Fund, including potential indirect benefits to the Sub-Advisor from the ownership interest of FTCP in the
Sub-Advisor. The Board noted the Sub-Advisor’s statements that its relationship with the Advisor has helped it build relationships with Wall Street firms that have preferred and hybrid securities trading desks,
which may lead to access to those firms’ research reports and analysts, but that the Sub-Advisor does not utilize soft-dollar arrangements. The Board concluded that the character and amount of potential indirect
benefits to the Sub-Advisor were not unreasonable.
Based on all of the
information considered and the conclusions reached, the Board, including the Independent Trustees, unanimously determined that the terms of the Agreements continue to be fair and reasonable and that the continuation
of the Agreements is in the best interests of the Fund. No single factor was determinative in the Board’s analysis.
Investment Objectives, Policies, Risks and Effects of Leverage
First Trust Intermediate
Duration Preferred & Income Fund (FPF)
October 31, 2022
(Unaudited)
Changes Occurring During
the Prior Fiscal Year
The following information
is a summary of certain changes during the most recent fiscal year ended October 31, 2022. This information may not reflect all of the changes that have occurred since you purchased shares of the Fund.
During the Fund’s
most recent fiscal year, there were no material changes to the Fund’s investment objectives or policies that have not been approved by shareholders or in the principal risk factors associated with an investment
in the Fund.
Investment Objectives
The Fund’s primary
investment objective is to seek a high level of current income. The Fund has a secondary objective of capital appreciation.
Principal Investment
Policies
In pursuit of its
investment objectives, under normal market conditions:
| •
| The Fund invests at least 80% of its managed assets in a portfolio of preferred and other income-producing securities issued by U.S. and non-U.S. companies. These securities include traditional
preferred securities, hybrid preferred securities and debt securities, floating rate and fixed-to-floating rate preferred securities, debt securities, convertible securities and contingent convertible securities.
|
| •
| The Fund also invests at least 25% of its managed assets in the group of industries that are part of the financials sector as classified under the Global Industry Classification Standards, developed by
MSCI, Inc. and S&P Dow Jones Indices.
|
| •
| The Fund seeks to invest in a portfolio of securities that has an average weighted investment grade credit quality.
|
| •
| The Fund may invest up to 20% of its managed assets in common stocks, which represent residual ownership interest in issuers and include rights or warrants to purchase common stocks. The Fund may invest
in common stocks of companies of any market capitalization.
|
| •
| The Fund may invest up to 20% of its managed assets in debt securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities or by a non-U.S. Government or its agencies or
instrumentalities. The Fund may invest up to 20% of its managed assets in municipal securities, which include debt obligations of states, territories or possessions of the United States and the District of Columbia
and their political subdivisions, agencies and instrumentalities.
|
| •
| The Fund may invest up to 25% of its managed assets in securities that, at the time of investment, are illiquid. The Fund also may invest, without limit, in restricted securities.
|
| •
| The Fund seeks to maintain a weighted average effective duration of between three and eight years, excluding the effects of leverage. However, under certain market conditions, the
Fund’s duration may be longer than eight years or shorter than three years.
|
To the extent the Fund
enters into derivatives transactions, it will do so pursuant to Rule 18f-4 under the 1940 Act. Rule 18f-4 requires the Fund to implement certain policies and procedures designed to manage its derivatives risks,
dependent upon the Fund’s level of exposure to derivative instruments.
The Fund may utilize
leverage through the issuance preferred shares of beneficial interest and/or through borrowings and/or the issuance of notes. The Fund is also permitted to use other portfolio techniques, including the use of reverse
repurchase agreements, that have the economic effect of leverage. The Fund’s effective leverage varies from time to time, based upon market conditions and variations in the value of the portfolio’s
holdings, but will not exceed 40% of the Fund’s managed assets.
Fundamental Investment
Policies
The Fund, as a
fundamental policy, may not:
1. Issue senior
securities, as defined in the Investment Company Act of 1940, as amended, other than (i) preferred shares which immediately after issuance will have asset coverage of at least 200%, (ii) indebtedness which immediately
after issuance will have asset coverage of at least 300%, or (iii) the borrowings permitted by investment restriction (2) set forth below;
2. Borrow money, except
as permitted by the Investment Company Act of 1940, as amended, the rules thereunder and interpretations thereof or pursuant to a Securities and Exchange Commission (“SEC”) exemptive order;
3. Act as underwriter of
another issuer’s securities, except to the extent that the Fund may be deemed to be an underwriter within the meaning of the Securities Act of 1933, as amended, in connection with the purchase and sale of
portfolio securities;
Investment Objectives, Policies, Risks and Effects of Leverage (Continued)
First Trust Intermediate
Duration Preferred & Income Fund (FPF)
October 31, 2022
(Unaudited)
4. Purchase or sell real
estate, but this shall not prevent the Fund from investing in securities of companies that deal in real estate or are engaged in the real estate business, including real estate investment trusts, and securities
secured by real estate or interests therein and the Fund may hold and sell real estate or mortgages on real estate acquired through default, liquidation, or other distributions of an interest in real estate as a
result of the Fund’s ownership of such securities;
5. Purchase or sell
physical commodities unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the Fund from purchasing or selling options, futures contracts, derivative instruments or
from investing in securities or other instruments backed by physical commodities);
6. Make loans of funds or
other assets, other than by entering into repurchase agreements, lending portfolio securities and through the purchase of securities in accordance with its investment objectives, policies and limitations; or
7. Concentrate (invest
25% or more of total assets) the Fund’s investments in any particular industry, except that the Fund will concentrate its assets in the group of industries that are part of the financials sector; provided,
however, that such limitation shall not apply to obligations issued or guaranteed by the United States government or by its agencies or instrumentalities.
The Fund does not
currently intend to apply for exemptive relief from the Securities and Exchange Commission with respect to fundamental investment policy number two listed above.
The Fund may incur
borrowings and/or issue series of notes or other senior securities in an amount up to 33-1/3% of its total assets (including the amount borrowed) less all liabilities other than borrowings.
The Fund’s
investment objectives are considered fundamental and may not be changed without the approval of the holders of a “majority of the outstanding voting securities” of the Fund, which includes common shares of
beneficial interest and preferred shares of beneficial interest (“Preferred Shares”), if any, voting together as a single class, and the holders of the outstanding Preferred Shares, if any, voting as a
single class. The remainder of the Fund’s investment policies other than the Fund’s fundamental investment restrictions listed above, including its investment strategy, are considered non-fundamental and
may be changed by the Board of Trustees of the Fund without the approval of the holders of a “majority of the outstanding voting securities,” provided that the holders of the voting securities of the Fund
receive at least 60 days prior written notice of any change. When used with respect to particular shares of the Fund, a “majority of the outstanding voting securities” means (i) 67% or more of the shares
present at a meeting, if the holders of more than 50% of the shares are present or represented by proxy, or (ii) more than 50% of the shares, whichever is less.
Principal Risks
The Fund is a closed-end
management investment company designed primarily as a long-term investment and not as a trading vehicle. The Fund is not intended to be a complete investment program and, due to the uncertainty inherent in all
investments, there can be no assurance that the Fund will achieve its investment objectives. The following discussion summarizes the principal risks associated with investing in the Fund, which includes the risk that
you could lose some or all of your investment in the Fund. The Fund is subject to the informational requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940 and, in accordance
therewith, files reports, proxy statements and other information that is available for review.
Contingent Capital
Securities Risk. CoCos provide for mandatory conversion into common stock of the issuer under certain circumstances, which may limit the potential for income and capital appreciation and, under certain
circumstances, may result in complete loss of the value of the investment. 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 of principal, the Fund may lose some or all of its original investment in the CoCo. 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 creditworthiness of a CoCo issuer is likely to have a greater
impact on the CoCo, as a subordinate security.
Credit Agency Risk. Credit ratings are determined by credit rating agencies and are only the opinions of such entities. Ratings assigned by a rating agency are not absolute standards of credit quality and do
not evaluate market risk or the liquidity of securities. Any shortcomings or inefficiencies in credit rating agencies’ processes for determining credit ratings may adversely affect the credit ratings of
securities held by the Fund or such credit rating agency’s ability to evaluate credit risk and, as a result, may adversely affect those securities’ perceived or actual credit risk.
Investment Objectives, Policies, Risks and Effects of Leverage (Continued)
First Trust Intermediate
Duration Preferred & Income Fund (FPF)
October 31, 2022
(Unaudited)
Credit and Below-Investment
Grade Securities Risk. Credit risk is the risk that the issuer or other obligated party of a debt security in the Fund’s portfolio will fail to pay dividends or interest and/or repay principal when due.
Below-investment grade instruments are commonly referred to as high-yield securities or “junk” bonds and are considered speculative with respect to the issuer’s capacity to pay dividends or interest
and repay principal and are susceptible to default or decline in market value due to adverse economic and business developments. High-yield securities are often unsecured and subordinated to other creditors of the
issuer. The market values for high-yield securities tend to be very volatile, and these securities are generally less liquid than investment grade securities. For these reasons, an investment in the Fund is subject to
the following specific risks: (i) increased price sensitivity to changing interest rates and to a deteriorating economic environment; (ii) greater risk of loss due to default or declining credit quality; (iii) adverse
company specific events more likely to render the issuer unable to make dividend, interest and/or principal payments; (iv) negative perception of the high-yield market which may depress the price and liquidity of
high-yield securities; (v) volatility; and (vi) liquidity.
Cyber Security Risk. The Fund is susceptible to potential operational risks through breaches in cyber security. A breach in cyber security refers to both intentional and unintentional events that may cause the
Fund to lose proprietary information, suffer data corruption or lose operational capacity. Such events could cause the Fund to incur regulatory penalties, reputational damage, additional compliance costs associated
with corrective measures and/or financial loss. Cyber security breaches may involve unauthorized access to the Fund’s digital information systems through “hacking” or malicious software coding, but
may also result from outside attacks such as denial-of-service attacks through efforts to make network services unavailable to intended users. In addition, cyber security breaches of the Fund’s third-party
service providers, such as its administrator, transfer agent, custodian, or Sub-Advisor, as applicable, or issuers in which the Fund invests, can also subject the Fund to many of the same risks associated with direct
cyber security breaches. The Fund has established risk management systems designed to reduce the risks associated with cyber security. However, there is no guarantee that such efforts will succeed, especially because
the Fund does not directly control the cyber security systems of issuers or third party service providers. Substantial costs may be incurred by the Fund in order to resolve or prevent cyber incidents in the
future.
Illiquid and Restricted
Securities Risk. The Fund may invest in securities that are restricted and/or illiquid securities. Restricted securities are securities that cannot be offered for public resale unless registered under the
applicable securities laws or that have a contractual restriction that prohibits or limits their resale. Restricted securities may be illiquid as they generally are not listed on an exchange and may have no active
trading market. Investments in restricted securities could have the effect of increasing the amount of the Fund’s assets invested in illiquid securities if qualified institutional buyers are unwilling to
purchase these securities. Illiquid and restricted securities may be difficult to dispose of at a fair price at the times when the Fund believes it is desirable to do so. The market price of illiquid and restricted
securities generally is more volatile than that of more liquid securities, which may adversely affect the price that the Fund pays for or recovers upon the sale of such securities. Illiquid and restricted securities
are also more difficult to value, especially in challenging markets.
Inflation Risk. The Fund invests in securities that are subject to inflation risk. Inflation risk is the risk that the value of assets or income from investments will be less in the future as inflation
decreases the value of money. As inflation increases, the present value of the Fund’s assets and distributions may decline. This risk is more prevalent with respect to debt securities. Inflation creates
uncertainty over the future real value (after inflation) of an investment. Inflation rates may change frequently and drastically as a result of various factors, including unexpected shifts in the domestic or global
economy, and the Fund’s investments may not keep pace with inflation, which may result in losses to Fund investors.
Interest Rate and Duration
Risk. Interest rate risk is the risk that securities will decline in value because of changes in market interest rates. For fixed rate securities, when market interest rates rise, the market
value of such securities generally will fall. Investments in fixed rate securities with long-term maturities may experience significant price declines if long-term interest rates increase. During periods of rising
interest rates, the average life of certain types of securities may be extended because of slower than expected prepayments. This may lock in a below-market yield, increase the security’s duration and further
reduce the value of the security. Fixed rate securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than securities with shorter durations. The
duration of a security will be expected to change over time with changes in market factors and time to maturity. Although the Fund seeks to maintain a duration, under normal market circumstances, excluding the effects
of leverage, of between three and eight years, if the effect of the Fund’s use of leverage was included in calculating duration, it could result in a longer duration for the Fund.
The interest rates
payable on floating rate securities are not fixed and may fluctuate based upon changes in market rates. As short-term interest rates decline, interest payable on floating rate securities typically decreases.
Alternatively, during periods of rising interest rates, interest payable on floating rate securities typically increases. Changes in interest rates on floating rate securities may lag behind changes in market rates or
may have limits on the maximum increases in interest rates. The value of floating rate securities may decline if their interest rates do not rise as much, or as quickly, as interest rates in general.
Investment Objectives, Policies, Risks and Effects of Leverage (Continued)
First Trust Intermediate
Duration Preferred & Income Fund (FPF)
October 31, 2022
(Unaudited)
Many financial
instruments use or may use a floating rate based upon the LIBOR. The United Kingdom’s Financial Conduct Authority (the “FCA”), which regulates LIBOR, intends to cease making LIBOR available as a
reference rate over a phase-out period that began in early 2022. However, subsequent announcements by the FCA, the LIBOR administrators, and other regulators indicate that it is possible that the most widely used
LIBOR rates may continue until mid-2023. While some instruments tied to LIBOR may include a replacement rate, not all instruments have such fallback provisions and the effectiveness of such replacement rates remains
uncertain. The unavailability or replacement of LIBOR may affect the value, liquidity or return on certain Fund investments and may result in costs incurred in connection with closing out positions and entering into
new trades. In the United States, it is anticipated that in many instances the Secured Overnight Financing Rate (“SOFR”) will replace LIBOR as the reference rate for many floating rate instruments. There
is no assurance that the composition or characteristics of SOFR, or any alternative reference rate, will be similar to or produce the same value or economic equivalence as LIBOR or that instruments using an
alternative rate will have the same volume or liquidity. As a result, the transition process might lead to increased volatility and reduced liquidity in markets that currently rely on LIBOR to determine interest rates;
a reduction in the value of some LIBOR-based investments; increased difficulty in borrowing or refinancing and diminished effectiveness of any applicable hedging strategies against instruments whose terms currently
include LIBOR; and/ or costs incurred in connection with temporary borrowings and closing out positions and entering into new agreements. Any potential effects of the transition away from LIBOR on the Fund or on
certain instruments in which the Fund invests can be difficult to ascertain, and they may vary depending on a variety of factors. Any such effects on the transition away from LIBOR, as well as other unforeseen
effects, could result in losses to the Fund.
Interest Rate Swaps
Risk. If short-term interest rates are lower than the Fund’s fixed rate of payment on an interest rate swap, the swap will reduce common share net earnings. In addition, a default by the
counterparty to a swap transaction could also negatively impact the performance of the common shares.
Leverage Risk. The use of leverage by the Fund can magnify the effect of any losses. If the income and gains from the securities and investments purchased with leverage proceeds do not cover the cost of
leverage, the return to the common shares will be less than if leverage had not been used. Leverage involves risks and special considerations for common shareholders including: (i) the likelihood of greater volatility
of net asset value and market price of the common shares than a comparable portfolio without leverage; (ii) the risk that fluctuations in interest rates on borrowings will reduce the return to the common shareholders
or will result in fluctuations in the dividends paid on the common shares; (iii) in a declining market, the use of leverage is likely to cause a greater decline in the net asset value of the common shares than if the
Fund were not leveraged, which may result in a greater decline in the market price of the common shares; and (iv) when the Fund uses certain types of leverage, the investment advisory fee payable to the Advisor and by
the Advisor to the Sub-Advisor will be higher than if the Fund did not use leverage.
Management Risk and
Reliance on Key Personnel. The implementation of the Fund’s investment strategy depends upon the continued contributions of certain key employees of the Advisor and Sub-Advisor, some of whom have unique
talents and experience and would be difficult to replace. The loss or interruption of the services of a key member of the portfolio management team could have a negative impact on the Fund.
Market Discount from Net
Asset Value. Shares of closed-end investment companies such as the Fund frequently trade at a discount from their net asset value. The Fund cannot predict whether its common shares will trade at,
below or above net asset value.
Market Risk. Securities held by the Fund, as well as shares of the Fund itself, are subject to market fluctuations caused by factors such as general economic conditions, political events, regulatory or
market developments, changes in interest rates and perceived trends in securities prices. Shares of the Fund could decline in value or underperform other investments as a result of the risk of loss associated with
these market fluctuations. In addition, local, regional or global events such as war, acts of terrorism, spread of infectious diseases or other public health issues, recessions, or other events could have a
significant negative impact on the Fund and its investments. For example, the coronavirus (COVID-19) global pandemic and the aggressive responses taken by many governments, including closing borders, restricting
international and domestic travel, and the imposition of prolonged quarantines or similar restrictions, had negative impacts, and in many cases severe impacts, on markets worldwide. While the development of vaccines
has slowed the spread of the virus and allowed for the resumption of reasonably normal business activity in the United States, many countries continue to impose lockdown measures in an attempt to slow the spread.
Additionally, there is no guarantee that vaccines will be effective against emerging variants of the disease. Also, in February 2022, Russia invaded Ukraine which has caused and could continue to cause significant
market disruptions and volatility across markets globally, including the United States. The hostilities and sanctions resulting from those hostilities could have a significant impact on certain Fund investments as
well as Fund performance. As the global pandemic and conflict in Ukraine have illustrated, such events may affect certain geographic regions, countries, sectors and industries more significantly than others. These
events also may adversely affect the prices and liquidity of the Fund’s portfolio securities or other instruments and could result in disruptions in the trading markets. Any of such circumstances could have
a
Investment Objectives, Policies, Risks and Effects of Leverage (Continued)
First Trust Intermediate
Duration Preferred & Income Fund (FPF)
October 31, 2022
(Unaudited)
materially negative impact on the value
of the Fund’s shares and result in increased market volatility. During any such events, the Fund’s shares may trade at increased premiums or discounts to their net asset value and the bid/ask spread on the
Fund’s shares may widen.
Non-U.S. Securities
Risk. Investing in securities of non-U.S. issuers, which are generally denominated in non-U.S. currencies, may involve certain risks not typically associated with investing in securities of
U.S. issuers. These risks include: (i) there may be less publicly available information about non-U.S. issuers or markets due to less rigorous disclosure or accounting standards or regulatory practices; (ii) non-U.S.
markets may be smaller, less liquid and more volatile than the U.S. market; (iii) potential adverse effects of fluctuations in currency exchange rates or controls on the value of the Fund’s investments; (iv) the
economies of non-U.S. countries may grow at slower rates than expected or may experience a downturn or recession; (v) the impact of economic, political, social or diplomatic events; (vi) certain non-U.S. countries may
impose restrictions on the ability of non-U.S. issuers to make payments of principal and interest to investors located in the United States due to blockage of non-U.S. currency exchanges or otherwise; and (vii)
withholding and other non-U.S. taxes may decrease the Fund’s return. Foreign companies are generally not subject to the same accounting, auditing and financial reporting standards as are U.S. companies. In
addition, there may be difficulty in obtaining or enforcing a court judgment abroad. These risks may be more pronounced to the extent that the Fund invests a significant amount of its assets in companies located in
one region or in emerging markets.
Operational Risk. The Fund is subject to risks arising from various operational factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service
providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund relies on third-parties for a range of services, including custody. Any delay or failure
relating to engaging or maintaining such service providers may affect the Fund’s ability to meet its investment objective. Although the Fund and the Fund’s investment advisor seek to reduce these
operational risks through controls and procedures, there is no way to completely protect against such risks.
Potential Conflicts on
Interest Risk. First Trust, Stonebridge and the portfolio managers have interests which may conflict with the interests of the Fund. In particular, First Trust and Stonebridge currently manage and may
in the future manage and/or advise other investment funds or accounts with the same or substantially similar investment objective and strategies as the Fund. In addition, while the Fund is using leverage, the amount
of the fees paid to First Trust (and by First Trust to Stonebridge) for investment advisory and management services are higher than if the Fund did not use leverage because the fees paid are calculated based on
managed assets. Therefore, First Trust and Stonebridge have a financial incentive to leverage the Fund.
Preferred/Hybrid Preferred
and Debt Securities Risk. An investment in preferred/hybrid preferred and debt securities is subject to certain risks, including:
| •
| Issuer Risk. The value of these securities may decline for a number of reasons which directly relate to the issuer, such as management performance, leverage and reduced demand for the issuer’s
goods and services.
|
| •
| Interest Rate Risk. Interest rate risk is the risk that fixed rate securities will decline in value because of changes in market interest rates. When market interest rates rise, the market value of fixed rate
securities generally will fall. Market value generally falls further for fixed rate securities with longer duration. During periods of rising interest rates, the average life of certain types of securities may be
extended because of slower than expected prepayments. This may lock in a below-market yield, increase the security’s duration and further reduce the value of the security. Investments in fixed rate securities
with long-term maturities may experience significant price declines if long-term interest rates increase.
|
| •
| Floating Rate and Fixed-to-Floating Rate Risk. The market value of floating rate and fixed-to-floating rate securities may fall in a declining interest rate environment and may also fall in a rising interest rate environment if there
is a lag between the rise in interest rates and the interest rate reset. Securities with a floating or variable interest rate component can be less sensitive to interest rate changes than securities with fixed
interest rates. A secondary risk associated with declining interest rates is the risk that income earned by the Fund on floating rate and fixed-to-floating rate securities may decline due to lower coupon payments on
floating rate securities.
|
| •
| Prepayment Risk. Prepayment risk is the risk that the issuer of a debt security will repay principal prior to the scheduled maturity date. During periods of declining interest rates, the issuer of a
security may exercise its option to prepay principal earlier than scheduled, forcing the Fund to reinvest the proceeds from such prepayment in lower yielding securities, which may result in a decline in the
Fund’s income and distributions to common shareholders.
|
| •
| Reinvestment Risk. Reinvestment risk is the risk that income from the Fund’s portfolio will decline if the Fund invests the proceeds from matured, traded or called securities at market interest rates
that are below the Fund portfolio’s current earnings rate.
|
| •
| Subordination Risk. 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 liquidation
payments, and therefore will be subject to greater credit risk than those debt instruments.
|
Investment Objectives, Policies, Risks and Effects of Leverage (Continued)
First Trust Intermediate
Duration Preferred & Income Fund (FPF)
October 31, 2022
(Unaudited)
In addition, preferred
and hybrid preferred securities are subject to certain other risks, including deferral and omission risk, limited voting rights risk and special redemption rights risk.
Reverse Repurchase
Agreements Risk. The Fund’s use of reverse repurchase agreements may involve leverage risk. There is also the risk that the market value of the securities acquired with the proceeds of the reverse
repurchase agreement may decline below the price of the securities that the Fund has sold but remains obligated to repurchase. In addition, there is a risk that the market value of the securities retained by the Fund
may decline. Reverse repurchase agreements also involve the risk that the purchaser fails to return the securities as agreed upon, files for bankruptcy or becomes insolvent. The Fund may be restricted from taking
normal portfolio actions during such time, could be subject to loss to the extent that the proceeds of the agreement are less than the value of securities subject to the agreement and may experience adverse tax
consequences.
Risks of Concentration in
the Financials Sector. Because the Fund invests 25% or more of its managed assets in the financials sector, it will be more susceptible to adverse economic or regulatory occurrences affecting this sector, such
as changes in interest rates, loan concentration and competition. The Fund may emphasize its investments in certain industries such as the banking and insurance industries and therefore may make the Fund more
economically vulnerable in the event of a downturn in those industries. Additionally, banking and insurance institutions are subject to substantial regulations (and could be subject to further regulations in the
future) that could adversely affect their ability to operate.
Trust Preferred Securities
Risk. The risks associated with trust preferred securities typically include the financial condition of the financial institution that creates the trust, as the trust typically has no business
operations other than holding the subordinated debt issued by the financial institution and issuing the trust preferred securities and common stock backed by the subordinated debt. If a financial institution is
financially unsound and defaults on interest payments to the trust, the trust will not be able to make payments to holders of the trust preferred securities such as the Fund. The issuer of trust preferred securities
is generally able to defer or skip payments for up to five years without being in default and certain enhanced trust preferred securities may have longer interest payment deferral periods.
Valuation Risk. Unlike publicly traded common stock which trades on national exchanges, there is no central place or exchange for certain preferred securities and debt securities trading. Preferred
securities and debt securities generally trade on an “over-the- counter” market which may be anywhere in the world where the buyer and seller can settle on a price. Due to the lack of centralized
information and trading, the valuation of certain preferred securities and debt securities may carry more risk than that of common stock. Uncertainties in the conditions of the financial market, unreliable reference
data, lack of transparency and inconsistency of valuation models and processes may lead to inaccurate asset pricing.
Effects of Leverage
The aggregate principal
amount of borrowings under the credit agreement (the “Credit Agreement”) with The Bank of Nova Scotia and the Fund’s use of reverse repurchase agreements represented 32.84% of the Managed Assets as
of October 31, 2022. Asset coverage with respect to the borrowings under the Credit Agreement and the Fund’s reverse repurchase agreements was 304.49% as of October 31, 2022, and the Fund had $275,400,000 of
unutilized funds available for borrowing under the Credit Agreement as of that date. As of October 31, 2022, the maximum commitment amount under the credit agreement was $725,000,000. As of October 31, 2022, the
approximate average annual interest and fee rate payable on such borrowings and reverse repurchase agreements was 4.53%.
Assuming that the
Fund’s leverage costs remain as described above (at an assumed average annual cost of 4.53%), the annual return that the Fund’s portfolio must experience (net of expenses) in order to cover its leverage
costs would be 1.49%
The following table is
furnished in response to requirements of the SEC. It is designed to illustrate the effect of leverage on Common Share total return, assuming investment portfolio total returns (comprised of income and changes in the
value of securities held in the Fund’s portfolio) of -10%, -5%, 0%, 5% and 10%. These assumed investment portfolio returns are hypothetical figures and are not necessarily indicative of the investment portfolio
returns experienced or expected to be experienced by the Fund.
The table further assumes
leverage representing 32.84% of the Fund’s Managed Assets, net of expenses, and an annual leverage interest and fee rate of 4.53%.
Assumed Portfolio Total Return (Net of Expenses)
| -10%
| -5%
| 0%
| 5%
| 10%
|
Common Share Total Return
| -17.11%
| -9.66%
| -2.22%
| 5.23%
| 12.67%
|
Common Share total return
is composed of two elements: the Common Share dividends paid by the Fund (the amount of which is largely determined by the net investment income of the Fund after paying dividends or interest on its leverage) and
gains or losses on the value of the securities the Fund owns. As required by SEC rules, the table above assumes that the Fund is more likely to suffer
Privacy Policy
First Trust Intermediate
Duration Preferred & Income Fund (FPF)
October 31, 2022
(Unaudited)
Privacy Policy
First Trust values our
relationship with you and considers your privacy an important priority in maintaining that relationship. We are committed to protecting the security and confidentiality of your personal information.
Sources of Information
We collect nonpublic
personal information about you from the following sources:
| •
| Information we receive from you and your broker-dealer, investment professional or financial representative through interviews, applications, agreements or other forms;
|
| •
| Information about your transactions with us, our affiliates or others;
|
| •
| Information we receive from your inquiries by mail, e-mail or telephone; and
|
| •
| Information we collect on our website through the use of “cookies.” For example, we may identify the pages on our website that your browser requests or visits.
|
Information Collected
The type of data we
collect may include your name, address, social security number, age, financial status, assets, income, tax information, retirement and estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal information.
Disclosure of
Information
We do not disclose any
nonpublic personal information about our customers or former customers to anyone, except as permitted by law. In addition to using this information to verify your identity (as required under law), the permitted uses
may also include the disclosure of such information to unaffiliated companies for the following reasons:
| •
| In order to provide you with products and services and to effect transactions that you request or authorize, we may disclose your personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or other services on our behalf, such as transfer agents, custodians and trustees, or that assist us in the distribution of investor materials such as
trustees, banks, financial representatives, proxy services, solicitors and printers.
|
| •
| We may release information we have about you if you direct us to do so, if we are compelled by law to do so, or in other legally limited circumstances (for example to protect your
account from fraud).
|
In addition, in order to
alert you to our other financial products and services, we may share your personal information within First Trust.
Use of Website
Analytics
We currently use third
party analytics tools, Google Analytics and AddThis, to gather information for purposes of improving First Trust’s website and marketing our products and services to you. These tools employ cookies, which are
small pieces of text stored in a file by your web browser and sent to websites that you visit, to collect information, track website usage and viewing trends such as the number of hits, pages visited, videos and PDFs
viewed and the length of user sessions in order to evaluate website performance and enhance navigation of the website. We may also collect other anonymous information, which is generally limited to technical and
web navigation information such as the IP address of your device, internet browser type and operating system for purposes of analyzing the data to make First Trust’s website better and more useful to our users.
The information collected does not include any personal identifiable information such as your name, address, phone number or email address unless you provide that information through the website for us to
contact you in order to answer your questions or respond to your requests. To find out how to opt-out of these services click on: Google Analytics and AddThis.
Confidentiality and
Security
With regard to our
internal security procedures, First Trust restricts access to your nonpublic personal information to those First Trust employees who need to know that information to provide products or services to you. We maintain
physical, electronic and procedural safeguards to protect your nonpublic personal information.
Policy Updates and
Inquiries
As required by federal
law, we will notify you of our privacy policy annually. We reserve the right to modify this policy at any time, however, if we do change it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at 1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust Advisors).
March 2022
Item 4. Principal Accountant Fees and Services.
| (a) | Audit Fees (Registrant) -- The aggregate
fees billed for the last fiscal year for professional services rendered by the principal accountant for the audit of the registrant’s
annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings
or engagements for those fiscal years were $28,000 for the fiscal year ended October 31, 2021 and $30,000 for the fiscal year ended
October 31, 2022. |
| (b) | Audit-Related Fees (Registrant) -- The
aggregate fees billed in the last fiscal year for assurance and related services by the principal accountant that are reasonably related
to the performance of the audit of the registrant’s financial statements and are not reported under paragraph (a) of this
Item were $0 for the fiscal year ended October 31, 2021 and $0 for the fiscal year ended October 31, 2022.
|
Audit-Related
Fees (Investment Advisor) -- The aggregate fees billed in the last fiscal year for assurance and related services by the principal
accountant that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported
under paragraph (a) of this Item were $0 for the fiscal year ended October 31, 2021 and $0 for the fiscal year ended October 31,
2022.
Audit-Related
Fees (Investment Sub-Advisor) -- The aggregate fees billed in the last fiscal year for assurance and related services by the principal
accountant that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported
under paragraph (a) of this Item were $0 for the fiscal year ended October 31, 2021 and $0 for the fiscal year ended October 31,
2022.
| (c) | Tax Fees (Registrant) -- The aggregate
fees billed in the last fiscal year for professional services rendered by the principal accountant for tax compliance, tax advice, and
tax planning were $14,273 for the fiscal year ended October 31, 2021 and $14,000 for the fiscal year ended October 31, 2022. These
fees were for tax consultation and/or tax return preparation and professional services for PFIC (Passive Foreign Investment Company) Identification
Services. |
Tax
Fees (Investment Advisor) -- The aggregate fees billed in the last fiscal year for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning were $0 for the fiscal year ended October 31, 2021 and $0 for the fiscal
year ended October 31, 2022.
Tax
Fees (Investment Sub-Advisor) -- The aggregate fees billed in the last fiscal year for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning were $0 for the fiscal year ended October 31, 2021 and $0 for the fiscal
year ended October 31, 2022.
| (d) | All Other Fees (Registrant) -- The aggregate
fees billed in the last fiscal year for products and services provided by the principal accountant to the registrant, other than the services
reported in paragraphs (a) through (c) of this Item were $0 for the fiscal year ended October 31, 2021 and $0 for the fiscal year
ended October 31, 2022. |
All
Other Fees (Investment Advisor) The aggregate fees billed in the last fiscal year for products and services provided by the principal
accountant to the registrant, other than the services reported in paragraphs (a) through (c) of this Item were $0 for the fiscal
year ended October 31, 2021 and $0 for the fiscal year ended October 31, 2022.
All
Other Fees (Investment Sub-Advisor) The aggregate fees billed in the last fiscal year for products and services provided by the principal
accountant to the registrant, other than the services reported in paragraphs (a) through (c) of this Item were $0 for the fiscal
year ended October 31, 2021 and $0 for the fiscal year ended October 31, 2022.
| (e)(1) | | Disclose the audit committee’s pre-approval policies and procedures described in paragraph
(c)(7) of Rule 2-01 of Regulation S-X. |
Pursuant to its charter
and its Audit and Non-Audit Services Pre-Approval Policy, the Audit Committee (the “Committee”) is responsible for
the pre-approval of all audit services and permitted non-audit services (including the fees and terms thereof) to be performed for the
registrant by its independent auditors. The Chairman of the Committee is authorized to give such pre-approvals on behalf of the Committee
up to $25,000 and report any such pre-approval to the full Committee.
The Committee is also
responsible for the pre-approval of the independent auditor’s engagements for non-audit services with the registrant’s advisor
(not including a sub-advisor whose role is primarily portfolio management and is sub-contracted or overseen by another investment advisor)
and any entity controlling, controlled by or under common control with the investment advisor that provides ongoing services to the registrant,
if the engagement relates directly to the operations and financial reporting of the registrant, subject to the de minimis exceptions
for non-audit services described in Rule 2-01 of Regulation S-X. If the independent auditor has provided non-audit services to the
registrant’s advisor (other than any sub-advisor whose role is primarily portfolio management and is sub-contracted with or overseen
by another investment advisor) and any entity controlling, controlled by or under common control with the investment advisor that provides
ongoing services to the registrant that were not pre-approved pursuant to its policies, the Committee will consider whether the provision
of such non-audit services is compatible with the auditor’s independence.
| (e)(2) | | The percentage of services described in each of paragraphs (b) through (d) for the registrant
and the registrant’s investment advisor of this Item that were approved by the audit committee pursuant to the pre-approval exceptions
included in paragraph (c)(7)(i)(c) or paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X are as follows: |
(b) 0%
(c) 0%
(d) 0%
| (f) | The percentage of hours expended on the principal accountant’s engagement to audit the registrant’s
financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s
full-time, permanent employees was less than fifty percent. |
| (g) | The aggregate non-audit fees billed by the registrant’s
accountant for services rendered to the registrant, and rendered to the registrant’s investment advisor (not including any sub-advisor
whose role is primarily portfolio management and is subcontracted with or overseen by another investment advisor), and any entity controlling,
controlled by, or under common control with the advisor that provides ongoing services to the registrant for the fiscal year ended
October 31, 2021 were $14,273 for the registrant, $16,500 for the registrant’s investment advisor and $4,000 for the registrant’s
investment sub-advisor and for the registrant’s fiscal year ended October 31, 2022 were $14,000 for the registrant, $0 for the registrant’s
investment advisor and $0 for the registrant’s investment sub-advisor.
|
| (h) | The registrant’s audit committee of the board of directors has considered whether the provision
of non-audit services that were rendered to the registrant’s investment advisor (not including any sub-advisor whose role is primarily
portfolio management and is subcontracted with or overseen by another investment advisor), and any entity controlling, controlled by,
or under common control with the investment advisor that provides ongoing services to the registrant that were not pre-approved pursuant
to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence. |
Item 7. Disclosure of Proxy
Voting Policies and Procedures for Closed-End Management Investment Companies.
The Proxy Voting Policies are attached herewith.
Item 8. Portfolio Managers of Closed-End Management Investment
Companies.
(a)(1) Identification of Portfolio Managers or Management Team
Members and Description of Role of Portfolio Managers or Management Team Members
Information provided as of January 6,
2023
Stonebridge Advisors LLC is a registered investment advisor based
in Wilton, Connecticut. Stonebridge specializes in the management of preferred and hybrid securities.
Scott T. Fleming, President and CEO of Stonebridge Advisors LLC
Mr. Fleming leads the Investment Team at Stonebridge
and oversees and takes lead role over Investment Team decisions. Prior to founding Stonebridge, Mr. Fleming co-founded Spectrum Asset
Management, Inc., an investment advisor that specializes in preferred securities asset management for institutional clients and mutual
funds. During his 13-year tenure there, he served as Chairman of the Board of Directors, Chief Financial Officer and Chief Investment
Officer. Under his leadership, Spectrum grew to be the largest preferred securities manager in the country. As Chief Investment Officer
at Spectrum, Mr. Fleming established and implemented custom investment strategies for the firm’s clients. In this capacity he was
instrumental in growing assets under management to over $2 billion by consistently outperforming stated benchmarks by solid margins. Mr.
Fleming previously served as Vice President, Portfolio Manager for DBL Preferred Management, Inc. in New York City. There he managed over
$300 million of institutional assets with a strategy specializing in preferred securities. Mr. Fleming received a BS in Accounting from
Bentley College in Waltham, MA and his MBA in Finance from Babson College in Wellesley, MA.
Robert Wolf, CIO and Executive Vice President
Mr. Wolf is a member of the firm’s Investment
Committee and oversees investment strategies and portfolio management activities across funds and separately managed accounts. He analyzes
both investment grade and non-investment grade securities and makes security recommendations. Mr. Wolf brings 17 years of fixed-income
experience to Stonebridge in both portfolio management and credit research. Prior to joining Stonebridge in 2006, Mr. Wolf was a high-yield
fixed-income research analyst at Lehman Brothers. In this role, his responsibilities included detailed credit analysis across multiple
sectors, relative value analysis, and developing trade recommendations for Lehman’s High-Yield proprietary trading effort. Mr. Wolf
previously worked for Lehman Brothers Commercial Mortgage-Backed Securities (CMBS) trading desk as a credit analyst where he provided
in-depth analysis of CMBS transactions and the underlying Commercial Real Estate. Mr. Wolf received his B.S. degree in Chemistry from
Villanova University in 1999 and his MBA in Finance from the New York University Stern School of Business in 2004.
Eric Weaver, Chief Strategist and Executive Vice President
Mr. Weaver is a senior member of Stonebridge
Advisors LLC’s Investment Committee and oversees the investment strategy across all fund products and separately managed accounts.
In addition, Mr. Weaver leads the development of proprietary portfolio management, security selection, trading, and operational tools.
Mr. Weaver has thirteen years of investment management experience in portfolio management, trading, risks analysis, and research. Mr.
Weaver joined Stonebridge Advisors LLC in 2013. Prior to joining Stonebridge in 2013, Mr. Weaver worked at a private proprietary trading
firm as a senior derivatives trader, with OTC and electronic trading experience on the NASDAQ OMX PHLX and CBOE options exchanges. In
this role, Mr. Weaver focused on trading, portfolio and risk management, and pricing complex derivatives in a large and diverse portfolio
of equities, options, and futures. Mr. Weaver received a B.A. degree in Economics and Mathematics and an MS degree in Economics from Lehigh
University in Bethlehem, PA.
Angelo Graci, CFA, Executive Vice President and
Head of Credit Research
Mr. Graci is a senior member of the Investment
Committee and manages a team of analysts that oversees all of Stonebridge’s portfolio investments. Mr. Graci has over 25 years
of credit and equity research experience with a focus on financials. His extensive knowledge of global banking, insurance, non-bank
finance and REITs brings an impressive level of analytical depth to the Stonebridge research team.
Prior to joining Stonebridge in 2018, Mr. Graci
was a global financials credit strategist at Stifel Financial, with a particular focus on hybrid/preferred strategy. At Stifel,
he incorporated a multi-asset and cross-currency approach to analyzing global financials, which encompassed global banking systems (developed
and emerging markets), insurance, non-bank finance and REITs. Before Stifel, he was a senior analyst at Caxton Associates,
responsible for financial sector credit and equity analysis and portfolio management. Prior roles included global financials and
hybrid strategy at Citadel Securities and credit analysis and trading at Merrill Lynch. Mr. Graci received a BS in Finance
from SUNY Albany and an MBA in Finance from New York University. He holds the CFA® designation awarded by CFA Institute.
| (a)(2) | Other Accounts Managed by Portfolio Managers or Management Team Member and Potential Conflicts of Interest |
Information provided as of October 31,
2022.
Name of Portfolio Manager
or Team Member |
Type of Accounts* |
Total
# of Accounts
Managed |
Total Assets |
# of Accounts Managed for which Advisory Fee is Based on
Performance |
Total
Assets for which Advisory Fee is Based on
Performance |
| 1. Scott T. Fleming |
Registered Investment Companies |
4 |
$6,903.71 |
0 |
0 |
| |
Other Pooled Investment Vehicles |
0 |
$0 |
0 |
$0 |
| |
Other Accounts |
8,483 |
$2,857.37 |
0 |
$0 |
| 2. Robert Wolf |
Registered Investment Companies |
4 |
$6,903.71 |
0 |
$0 |
| |
Other Pooled Investment Vehicles |
0 |
$0 |
0 |
$0 |
| |
Other Accounts |
8,483 |
$2,857.37 |
0 |
$0 |
| 3. Eric Weaver |
Registered Investment Companies: |
4 |
$6,903.71 |
0 |
$0 |
| |
Other Pooled Investment Vehicles |
0 |
$0 |
0 |
$0 |
| |
Other Accounts: |
8,483 |
$2,857.37 |
0 |
$0 |
| 4. Angelo Graci** |
Registered Investment Companies: |
4 |
$6,903.71 |
0 |
$0 |
| |
Other Pooled Investment Vehicles |
0 |
$0 |
0 |
$0 |
| |
Other
Accounts: |
0 |
$0 |
0 |
$0 |
*Information excludes the registrant
Portfolio Manager Potential Conflicts
of Interests
Stonebridge Advisors LLC (“Stonebridge”)
avoids material conflicts that may arise from side-by-side management of the CEF and other account strategies, including other FT funds
and Separately Managed Accounts by policies and procedures that are designed to ensure that each client is treated fairly. Stonebridge’s
investment team considers every investment opportunity for each of our portfolios based on the portfolio or fund guidelines, restrictions
and compliance rules. Trades are pre-allocated to those client portfolios for which the trade is suitable, given the portfolio’s
goals and guidelines. Partial fills are governed by allocation rules that are designed to treat each client fairly.
(a)(3) Compensation Structure of Portfolio Managers or Management
Team Members
Portfolio Manager Compensation
Information provided as of October 31, 2022.
Stonebridge employees receive an annual salary,
mid- and year-end bonuses based on company performance, medical benefits and a 401(k) plan.
Compensation consists of base salaries
with upside potential in the form of mid-year and year-end performance bonuses. These bonuses are based on a number of factors: profitability
of the firm, employee value to the firm success, investment performance and servicing of clients, employee ability to fit into the team,
employee commitment, work ethic and effectiveness in carrying out assigned duties, employee dedication above and beyond expectations.
(a)(4) Disclosure of Securities Ownership
Information provided as of October 31, 2022.
| Name |
Dollar Range of Fund Shares Beneficially Owned |
| Scott T. Fleming |
$500,001-1,000,000 |
| Robert Wolf |
$10,001-$50,000 |
| Eric Weaver |
$10,001-50,000 |
| Angelo Graci |
$100,001-500,000 |
Item 9. Purchases of Equity
Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to
the procedures by which the shareholders may recommend nominees to the registrant’s board of directors, where those changes were
implemented after the registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17
CFR 229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)), or this Item.