UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-21727
First Trust Mortgage Income Fund
(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
(Name and address of agent for service)
Registrant’s telephone number, including area code: 630-765-8000
Date of fiscal year end: October 31
Date of reporting period: October 31, 2021
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1. Reports to Stockholders.
(a) The Report to Shareholders is attached herewith.
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Fund Statistics | |
Symbol on New York Stock Exchange | FMY |
Common Share Price | $13.70 |
Common Share Net Asset Value (“NAV”) | $13.92 |
Premium (Discount) to NAV | (1.58)% |
Net Assets Applicable to Common Shares | $58,646,841 |
Current Distribution per Common Share(1) | $0.0550 |
Current Annualized Distribution per Common Share | $0.6600 |
Current Distribution Rate on Common Share Price(2) | 4.82% |
Current Distribution Rate on NAV(2) | 4.74% |
Performance | ||||
Average Annual Total Returns | ||||
1 Year Ended 10/31/21 | 5 Years Ended 10/31/21 | 10 Years Ended 10/31/21 | Inception (5/25/05) to 10/31/21 | |
Fund Performance(3) | ||||
NAV | 1.51% | 3.20% | 3.73% | 5.11% |
Market Value | 7.74% | 5.03% | 3.29% | 4.71% |
Index Performance | ||||
Bloomberg U.S. Mortgage Backed Securities (MBS) Index | -0.58% | 2.18% | 2.39% | 3.75% |
Portfolio Characteristics | |
Weighted Average Effective Duration | 2.7 Years |
Weighted Average Effective Maturity | 5.4 Years |
(1) | Most recent distribution paid or declared through October 31, 2021. Subject to change in the future. |
(2) | Distribution rates are calculated by annualizing the most recent distribution paid or declared through the report date and then dividing by Common Share Price or NAV, as applicable, as of October 31, 2021. Subject to change in the future. |
(3) | 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. Past performance is not indicative of future results. |
Fund Allocation | % of Net Assets |
U.S. Government Agency Mortgage-Backed Securities | 46.2% |
Mortgage-Backed Securities | 44.9 |
Asset-Backed Securities | 3.8 |
Net Other Assets and Liabilities(4) | 5.1 |
Total | 100.0% |
Credit Quality(5) | % of Total Fixed-Income Investments |
AAA | 5.6% |
AA+ | 4.3 |
AA | 1.7 |
AA- | 0.9 |
A+ | 1.5 |
A | 0.2 |
BBB+ | 0.3 |
BBB | 0.6 |
BBB- | 1.9 |
BB+ | 0.3 |
BB | 0.7 |
BB- | 1.7 |
B | 1.9 |
B- | 0.2 |
CCC | 0.0* |
CCC- | 0.1 |
CC | 4.4 |
Not Rated | 28.8 |
Government | 38.7 |
Cash & Cash Equivalents | 6.2 |
Total | 100.0% |
* | Amount is less than 0.05%. |
(4) | Includes variation margin on futures. |
(5) | The credit quality and ratings information presented above reflect the ratings assigned by one or more nationally recognized statistical rating organizations (NRSROs), including Standard & Poor’s Ratings Group, a division of the McGraw Hill Companies, Inc., Moody’s Investors Service, Inc., Fitch Ratings or a comparably rated NRSRO. For situations in which a security is rated by more than one NRSRO and the ratings are not equivalent, the highest rating is used. Sub-investment grade ratings are those rated BB+/Ba1 or lower. Investment grade ratings are those rated BBB-/Baa3 or higher. The credit ratings shown relate to the creditworthiness of the issuers of the underlying securities in the Fund, and not to the Fund or its shares. U.S. Treasury, U.S. Agency and U.S. Agency mortgage-backed securities appear under “Government.” Credit ratings are subject to change. |
Average Annual Total Returns | ||||
1 Year Ended 10/31/21 | 5 Years Ended 10/31/21 | 10 Years Ended 10/31/21 | Inception (5/25/05) to 10/31/21 | |
Fund Performance* | ||||
NAV | 1.51% | 3.20% | 3.73% | 5.11% |
Market Value | 7.74% | 5.03% | 3.29% | 4.71% |
Index Performance | ||||
Bloomberg U.S. Mortgage Backed Securities (MBS) Index | -0.58% | 2.18% | 2.39% | 3.75% |
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 index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance.
* | 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. |
Principal Value | Description | Stated Coupon | Stated Maturity | Value | ||||
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES – 46.2% | ||||||||
Collateralized Mortgage Obligations – 30.7% | ||||||||
Federal Home Loan Mortgage Corp. | ||||||||
$4,183 | Series 1394, Class ID, Cost of Funds 11th District of San Fransisco x -4.67 + 44.56%, Capped at 9.57% (a) | 9.57% | 10/15/22 | $4,329 | ||||
7,429 | Series 2303, Class SW, IO, Cost of Funds 11th District of San Fransisco x -15.87 + 121.11%, Capped at 10.00% (a) | 10.00% | 03/01/24 | 639 | ||||
46,166 | Series 2334, Class QS, 1 Mo. LIBOR x -3.5 + 28.18% (a) | 27.86% | 07/15/31 | 66,619 | ||||
184,005 | Series 2439, Class XI, IO, if 1 Mo. LIBOR x -1 + 7.74% is less than 7.50%, then 6.50%, otherwise 0.00% (a) | 6.50% | 03/01/32 | 30,680 | ||||
368,131 | Series 2807, Class SB, IO, 1 Mo. LIBOR x -1 + 7.45% (a) | 7.36% | 11/15/33 | 63,710 | ||||
854,799 | Series 2975, Class SJ, IO, 1 Mo. LIBOR x -1 + 6.65% (a) | 6.56% | 05/15/35 | 155,514 | ||||
211,802 | Series 3012, Class GK, 1 Mo. LIBOR x -4.5 + 24.75% (a) | 24.34% | 06/15/35 | 350,747 | ||||
13,874 | Series 3195, Class SX, 1 Mo. LIBOR x -6.5 + 46.15% (a) | 45.56% | 07/15/36 | 44,926 | ||||
87,595 | Series 3410, Class HC | 5.50% | 02/01/38 | 101,539 | ||||
43,490 | Series 3451, Class SB, IO, 1 Mo. LIBOR x -1 + 6.03% (a) | 5.94% | 05/15/38 | 6,532 | ||||
302,358 | Series 3471, Class SD, IO, 1 Mo. LIBOR x -1 + 6.08% (a) | 5.99% | 12/15/36 | 51,674 | ||||
250,000 | Series 3797, Class KB | 4.50% | 01/01/41 | 294,999 | ||||
110,904 | Series 3985, Class GI, IO | 3.00% | 10/01/26 | 1,639 | ||||
25,048 | Series 4021, Class IP, IO | 3.00% | 03/01/27 | 1,258 | ||||
402,263 | Series 4057, Class YI, IO | 3.00% | 06/01/27 | 21,611 | ||||
759,570 | Series 4082, Class PI, IO | 3.00% | 06/01/27 | 39,814 | ||||
3,764,543 | Series 4142, Class IO, IO | 3.00% | 12/01/27 | 201,375 | ||||
422,312 | Series 4206, Class IA, IO | 3.00% | 03/01/33 | 40,940 | ||||
461,314 | Series 4258, Class CO | (b) | 06/01/43 | 398,766 | ||||
3,108,212 | Series 4459, Class EI, IO | 6.00% | 06/01/36 | 395,699 | ||||
342,353 | Series 4615, Class GT, 1 Mo. LIBOR x -4 + 16.00%, Capped at 4.00% (a) | 4.00% | 10/15/42 | 326,180 | ||||
1,660,444 | Series 4619, Class IB, IO | 4.00% | 12/01/47 | 52,009 | ||||
5,141,477 | Series 4938, Class IB, IO | 4.00% | 07/01/49 | 613,454 | ||||
Federal Home Loan Mortgage Corp. STACR REMIC Trust | ||||||||
1,000,000 | Series 2020-DNA2, Class B2, 1 Mo. LIBOR + 4.80% (c) (d) | 4.89% | 02/25/50 | 1,009,220 | ||||
1,000,000 | Series 2021-DNA5, Class B1, 30 Day SOFR + 3.05% (c) (d) | 3.10% | 01/25/34 | 1,012,886 | ||||
Federal Home Loan Mortgage Corp. STACR Trust | ||||||||
775,000 | Series 2018-HQA2, Class B1, 1 Mo. LIBOR + 4.25% (c) (d) | 4.34% | 10/25/48 | 811,716 | ||||
1,000,000 | Series 2019-HQA3, Class B2, 1 Mo. LIBOR + 7.50% (c) (d) | 7.59% | 09/25/49 | 1,039,253 | ||||
Federal Home Loan Mortgage Corp. Structured Pass-Through Certificates | ||||||||
46,926 | Series T-56, Class APO | (b) | 05/01/43 | 46,625 | ||||
Federal Home Loan Mortgage Corp., STRIPS | ||||||||
46,863 | Series 177, IO | 7.00% | 07/01/26 | 5,015 | ||||
679,923 | Series 243, Class 2, IO | 5.00% | 11/01/35 | 105,045 | ||||
2,637,490 | Series 303, Class C17, IO | 3.50% | 01/01/43 | 384,361 | ||||
1,001,438 | Series 324, Class C21, IO | 6.00% | 06/01/39 | 233,921 | ||||
Federal National Mortgage Association | ||||||||
42,297 | Series 1996-46, Class ZA | 7.50% | 11/01/26 | 46,427 | ||||
102,457 | Series 1997-85, Class M, IO | 6.50% | 12/01/27 | 4,734 | ||||
30,091 | Series 2002-80, Class IO, IO | 6.00% | 09/01/32 | 2,718 | ||||
61,423 | Series 2003-15, Class MS, IO, 1 Mo. LIBOR x -1 + 8.00% (a) | 7.91% | 03/25/33 | 11,755 | ||||
84,555 | Series 2003-44, Class IU, IO | 7.00% | 06/01/33 | 16,255 | ||||
462,267 | Series 2003-62, Class PO | (b) | 07/01/33 | 432,411 | ||||
361,622 | Series 2004-49, Class SN, IO, 1 Mo. LIBOR x -1 + 7.10% (a) | 7.01% | 07/25/34 | 58,790 | ||||
11,770 | Series 2004-74, Class SW, 1 Mo. LIBOR x -2 + 15.50% (a) | 15.33% | 11/25/31 | 14,872 | ||||
273,214 | Series 2005-122, Class SN, 1 Mo. LIBOR x -4 + 28.60% (a) | 28.24% | 01/25/36 | 427,154 | ||||
37,827 | Series 2005-59 Class SU, 1 Mo. LIBOR x -5 + 25.50% (a) | 25.05% | 06/25/35 | 58,424 | ||||
79,802 | Series 2005-6, Class SE, IO, 1 Mo. LIBOR x -1 + 6.70% (a) | 6.61% | 02/25/35 | 14,059 | ||||
38,614 | Series 2007-100, Class SM, IO, 1 Mo. LIBOR x -1 + 6.45% (a) | 6.36% | 10/25/37 | 7,560 |
Principal Value | Description | Stated Coupon | Stated Maturity | Value | ||||
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Continued) | ||||||||
Collateralized Mortgage Obligations (Continued) | ||||||||
Federal National Mortgage Association (Continued) | ||||||||
$216,304 | Series 2007-37, Class SB, IO, 1 Mo. LIBOR x -1 + 6.75% (a) | 6.66% | 05/25/37 | $41,470 | ||||
294,177 | Series 2008-17, Class BE | 5.50% | 10/01/37 | 357,122 | ||||
938,332 | Series 2010-103, Class ID, IO | 5.00% | 09/01/40 | 181,147 | ||||
457,025 | Series 2010-59, Class EI, IO | 6.00% | 06/01/40 | 87,368 | ||||
55,816 | Series 2010-99, Class SG, 1 Mo. LIBOR x -5 + 25.00% (a) | 24.59% | 09/01/40 | 89,668 | ||||
930,418 | Series 2011-81, Class PI, IO | 3.50% | 08/01/26 | 46,339 | ||||
77,327 | Series 2012-111, Class B | 7.00% | 10/01/42 | 92,234 | ||||
529,745 | Series 2012-112, Class BI, IO | 3.00% | 09/01/31 | 14,780 | ||||
1,841,212 | Series 2012-125, Class MI, IO | 3.50% | 11/01/42 | 265,401 | ||||
28,902 | Series 2012-74, Class OA | (b) | 03/01/42 | 27,373 | ||||
14,451 | Series 2012-75, Class AO | (b) | 03/01/42 | 13,677 | ||||
748,714 | Series 2013-130, Class GS, IO, 1 Mo. LIBOR x -1 + 6.25% (a) | 6.16% | 09/25/33 | 88,875 | ||||
21,603 | Series 2013-132, Class SW, 1 Mo. LIBOR x -2.67 + 10.67% (a) | 10.45% | 01/01/44 | 26,456 | ||||
934,721 | Series 2013-32, Class IG, IO | 3.50% | 04/01/33 | 102,699 | ||||
286,871 | Series 2013-51, Class PI, IO | 3.00% | 11/01/32 | 25,427 | ||||
1,974,004 | Series 2015-20, Class ES, IO, 1 Mo. LIBOR x -1 + 6.15% (a) | 6.06% | 04/25/45 | 341,325 | ||||
205,956 | Series 2015-76, Class BI, IO | 4.00% | 10/01/39 | 14,405 | ||||
1,117,991 | Series 2015-97, Class AI, IO | 4.00% | 09/01/41 | 44,726 | ||||
168,142 | Series 2016-74, Class LI, IO | 3.50% | 09/01/46 | 50,813 | ||||
3,832,639 | Series 2017-109, Class SJ, IO, 1 Mo. LIBOR x -1+ 6.20% (a) | 6.11% | 01/25/48 | 674,039 | ||||
1,824,870 | Series 5112, Class ID, IO | 7.00% | 01/01/30 | 245,588 | ||||
Federal National Mortgage Association, STRIPS | ||||||||
31,272 | Series 305, Class 12, IO (e) | 6.50% | 12/01/29 | 3,842 | ||||
43,308 | Series 355, Class 18, IO | 7.50% | 11/01/33 | 8,244 | ||||
1,463,106 | Series 387, Class 10, IO | 6.00% | 04/01/38 | 297,226 | ||||
624,375 | Series 406, Class 6, IO (e) | 4.00% | 01/01/41 | 73,634 | ||||
581,067 | Series 413, Class 173, IO (e) | 4.50% | 07/01/42 | 96,315 | ||||
Government National Mortgage Association | ||||||||
291,838 | Series 2004-95, Class QZ | 4.50% | 11/01/34 | 315,353 | ||||
162,874 | Series 2005-33, Class AY | 5.50% | 04/01/35 | 179,620 | ||||
59,597 | Series 2005-68, Class DP, 1 Mo. LIBOR x -2.41 + 16.43% (a) | 16.23% | 06/17/35 | 72,644 | ||||
218,780 | Series 2005-68, Class KI, IO, 1 Mo. LIBOR x -1 + 6.30% (a) | 6.21% | 09/20/35 | 41,420 | ||||
33,627 | Series 2006-28, Class VS, 1 Mo. LIBOR x -13 + 87.10% (a) | 85.99% | 06/20/36 | 94,230 | ||||
53,874 | Series 2007-50, Class AI, IO, 1 Mo. LIBOR x -1 + 6.78% (a) | 6.69% | 08/20/37 | 210 | ||||
182,602 | Series 2007-68, Class PI, IO, 1 Mo. LIBOR x -1 + 6.65% (a) | 6.56% | 11/20/37 | 22,997 | ||||
100,000 | Series 2008-2, Class HB | 5.50% | 01/01/38 | 113,707 | ||||
304,000 | Series 2008-32, Class JD | 5.50% | 04/01/38 | 354,115 | ||||
161,601 | Series 2008-73, Class SK, IO, 1 Mo. LIBOR x -1 + 6.74% (a) | 6.65% | 08/20/38 | 24,410 | ||||
122,594 | Series 2009-12, Class IE, IO | 5.50% | 03/01/39 | 14,001 | ||||
146,123 | Series 2009-79, Class PZ | 6.00% | 09/01/39 | 177,735 | ||||
3,194,726 | Series 2010-57, Class TI, IO | 5.00% | 05/01/40 | 652,381 | ||||
307,846 | Series 2013-104, Class YS, IO, 1 Mo. LIBOR x -1 + 6.15% (a) | 6.06% | 07/16/43 | 50,641 | ||||
135,062 | Series 2014-41, Class ST, 1 Mo. LIBOR x -2.67 + 11.47% (a) | 11.24% | 11/20/42 | 136,733 | ||||
4,988,022 | Series 2015-158, Class KS, IO, 1 Mo. LIBOR x -1 + 6.25% (a) | 6.16% | 11/20/45 | 910,016 | ||||
74,031 | Series 2016-139, Class MZ | 1.50% | 07/01/45 | 64,689 | ||||
152,189 | Series 2017-4, Class CZ | 3.00% | 01/01/47 | 160,240 | ||||
120,597 | Series 2017-H18, Class DZ (e) | 4.61% | 09/01/67 | 146,368 | ||||
14,276,516 | Series 2020-13, Class BT, IO, 1 Mo. LIBOR x -1 + 6.20%, Capped at 0.50% (a) | 0.50% | 11/20/45 | 287,935 | ||||
4,526,932 | Series 2020-146, Class CI, IO | 2.50% | 10/01/50 | 625,692 | ||||
5,970,968 | Series 2021-23, Class BI, IO | 2.00% | 02/01/51 | 684,275 | ||||
3,672,685 | Series 2021-69, Class IX, IO | 3.00% | 04/01/51 | 554,289 | ||||
18,001,748 |
Principal Value | Description | Stated Coupon | Stated Maturity | Value | ||||
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Continued) | ||||||||
Commercial Mortgage-Backed Securities – 14.0% | ||||||||
Federal Home Loan Mortgage Corp. Multifamily Structured Pass-Through Certificates | ||||||||
$4,000,000 | Series K110, Class X3, IO (f) | 3.40% | 06/01/48 | $979,512 | ||||
3,330,000 | Series K112, Class X3, IO (f) | 3.00% | 07/01/48 | 732,933 | ||||
4,605,411 | Series K115, Class X3, IO (f) | 2.96% | 09/01/48 | 995,781 | ||||
4,326,216 | Series K118, Class X3, IO (f) | 2.69% | 10/25/48 | 870,123 | ||||
1,900,000 | Series K122, Class X3, IO (f) | 2.63% | 01/01/49 | 378,740 | ||||
3,343,856 | Series K128, Class X3, IO (f) | 2.79% | 04/01/31 | 721,431 | ||||
3,000,000 | Series K-1520, Class X3, IO (f) | 3.09% | 04/01/39 | 990,621 | ||||
1,831,144 | Series K739, Class X3, IO (f) | 2.85% | 11/25/48 | 265,464 | ||||
Federal National Mortgage Association, ACES | ||||||||
13,100,000 | Series 2019-M29, Class X4, IO | 0.70% | 03/01/29 | 518,187 | ||||
Freddie Mac Multiclass Certificates | ||||||||
6,303,362 | Series 2021-P011, Class X1, IO (f) | 1.85% | 09/01/45 | 994,988 | ||||
FREMF Mortgage Trust | ||||||||
252,010,105 | Series 2013-K27, Class X2B, IO (c) | 0.10% | 01/01/46 | 255,337 | ||||
Government National Mortgage Association | ||||||||
2,788,044 | Series 2016-11, Class IO (e) | 0.85% | 01/01/56 | 129,898 | ||||
6,142,878 | Series 2016-166, Class IO (e) | 0.96% | 04/01/58 | 336,630 | ||||
8,169,645 | ||||||||
Pass-through Security – 1.5% | ||||||||
Federal Home Loan Mortgage Corp. | ||||||||
379,106 | Pool K36017 | 5.00% | 09/01/47 | 411,520 | ||||
Federal National Mortgage Association | ||||||||
448,207 | Pool AB5688 | 3.50% | 07/01/37 | 481,272 | ||||
892,792 | ||||||||
Total U.S. Government Agency Mortgage-Backed Securities | 27,064,185 | |||||||
(Cost $27,892,004) | ||||||||
MORTGAGE-BACKED SECURITIES – 44.9% | ||||||||
Collateralized Mortgage Obligations – 32.4% | ||||||||
ACE Securities Corp. Home Equity Loan Trust | ||||||||
735,679 | Series 2006-ASAP6, Class A2D, 1 Mo. LIBOR + 0.44% (d) | 0.53% | 12/25/36 | 360,004 | ||||
Banc of America Mortgage Trust | ||||||||
46,097 | Series 2002-L, Class 1A1 (f) | 3.08% | 12/01/32 | 40,842 | ||||
Chase Mortgage Finance Trust | ||||||||
56,301 | Series 2007-A1, Class 1A3 (f) | 2.36% | 02/01/37 | 57,329 | ||||
Citigroup Mortgage Loan Trust | ||||||||
106,851 | Series 2005-6, Class A1, US Treasury Yield Curve Rate T Note Constant Maturity 1 Year + 2.10% (d) | 2.19% | 09/01/35 | 112,578 | ||||
20,916 | Series 2009-10, Class 1A1 (c) (f) | 2.51% | 09/01/33 | 21,170 | ||||
222,942 | Series 2012-7, Class 10A2 (c) (f) | 2.24% | 09/01/36 | 204,917 | ||||
Connecticut Avenue Securities Trust | ||||||||
1,000,000 | Series 2019-RO2, Class 1B1, 1 Mo. LIBOR + 4.15% (c) (d) | 4.24% | 08/25/31 | 1,028,136 | ||||
1,000,000 | Series 2021-R01, Class 1B2, 30 Day Avg. SOFR + 6.00% (c) (d) (g) | 6.05% | 10/25/41 | 996,255 | ||||
Countrywide Home Loan Mortgage Pass-Through Trust | ||||||||
161,700 | Series 2003-46, Class 2A1 (f) | 2.66% | 01/01/34 | 163,164 | ||||
163,108 | Series 2006-21, Class A8 | 5.75% | 02/01/37 | 113,307 | ||||
271,607 | Series 2006-HYB5, Class 3A1A (f) | 2.67% | 09/01/36 | 259,846 |
Principal Value | Description | Stated Coupon | Stated Maturity | Value | ||||
MORTGAGE-BACKED SECURITIES (Continued) | ||||||||
Collateralized Mortgage Obligations (Continued) | ||||||||
Credit Suisse Commercial Mortgage Securities Corp. Pass-Through Certificates | ||||||||
$1,000,000 | Series 2020-UNFI, Class A, 1 Mo. LIBOR + 0.50%, 4.25% minimum (c) (d) | 4.17% | 12/06/22 | $1,005,105 | ||||
Credit Suisse First Boston Mortgage Securities Corp. | ||||||||
319,862 | Series 2004-AR2, Class 1A1 (f) | 2.95% | 03/01/34 | 338,358 | ||||
Credit Suisse Mortgage Trust | ||||||||
324,724 | Series 2017-FHA1, Class A1 (c) | 3.25% | 04/01/47 | 338,109 | ||||
Deutsche ALT-A Securities, Inc., Mortgage Loan Trust | ||||||||
2,734 | Series 2003-3, Class 3A1 | 5.00% | 10/25/33 | 2,732 | ||||
DSLA Mortgage Loan Trust | ||||||||
354,042 | Series 2004-AR3, Class 2A2A, 1 Mo. LIBOR + 0.74% (d) | 0.82% | 07/19/44 | 345,671 | ||||
GSR Mortgage Loan Trust | ||||||||
3,600 | Series 2003-10, Class 1A12 (f) | 2.39% | 10/01/33 | 3,646 | ||||
148,092 | Series 2005-AR1, Class 4A1 (f) | 2.75% | 01/01/35 | 147,113 | ||||
Harborview Mortgage Loan Trust | ||||||||
230,169 | Series 2004-6, Class 3A1 (f) | 3.02% | 08/01/34 | 232,171 | ||||
Home Equity Asset Trust | ||||||||
3,502 | Series 2005-3, Class M4, 1 Mo. LIBOR + 0.96% (d) | 1.05% | 08/25/35 | 3,507 | ||||
IXIS Real Estate Capital Trust | ||||||||
1,025,733 | Series 2007-HE1, Class A3, 1 Mo. LIBOR + 0.16% (d) | 0.25% | 05/25/37 | 354,279 | ||||
JP Morgan Mortgage Trust | ||||||||
534,008 | Series 2005-ALT1, Class 4A1 (f) | 2.33% | 10/01/35 | 473,492 | ||||
299,030 | Series 2006-A2, Class 4A1 (f) | 2.23% | 08/01/34 | 316,002 | ||||
73,960 | Series 2006-A2, Class 5A3 (f) | 2.31% | 11/01/33 | 75,100 | ||||
44,224 | Series 2014-2, Class 1A1 (c) | 3.00% | 06/01/29 | 44,936 | ||||
MASTR Adjustable Rate Mortgages Trust | ||||||||
21,568 | Series 2004-13, Class 3A7B, US Treasury Yield Curve Rate T Note Constant Maturity 1 Year + 2.00% (d) | 2.09% | 11/01/34 | 21,681 | ||||
MASTR Alternative Loan Trust | ||||||||
3,565,245 | Series 2006-2, Class 2A3, 1 Mo. LIBOR + 0.35% (d) | 0.44% | 03/25/36 | 260,116 | ||||
MASTR Asset Backed Securities Trust | ||||||||
652,156 | Series 2006-HE5, Class A3, 1 Mo. LIBOR + 0.16% (d) | 0.25% | 11/25/36 | 478,211 | ||||
1,108,264 | Series 2006-NC2, Class A3, 1 Mo. LIBOR + 0.22% (d) | 0.31% | 08/25/36 | 570,978 | ||||
505,870 | Series 2006-NC2, Class A5, 1 Mo. LIBOR + 0.48% (d) | 0.57% | 08/25/36 | 268,691 | ||||
MASTR Asset Securitization Trust | ||||||||
11,719 | Series 2003-11, Class 5A2 | 5.25% | 12/01/23 | 11,703 | ||||
33,682 | Series 2003-11, Class 6A16 | 5.25% | 12/01/33 | 34,811 | ||||
Mellon Residential Funding Corp. Mortgage Pass-Through Trust | ||||||||
145,540 | Series 2001-TBC1, Class A1, 1 Mo. LIBOR + 0.70% (d) | 0.79% | 11/15/31 | 149,032 | ||||
142,200 | Series 2002-TBC2, Class A, 1 Mo. LIBOR + 0.86% (d) | 0.95% | 08/15/32 | 138,423 | ||||
Meritage Mortgage Loan Trust | ||||||||
2,468 | Series 2004-2, Class M3, 1 Mo. LIBOR + 0.98% (d) | 1.06% | 01/25/35 | 2,826 | ||||
MortgageIT Trust | ||||||||
93,173 | Series 2005-2, Class 2A, 1 Mo. LIBOR + 1.65% (d) | 1.73% | 05/01/35 | 93,922 | ||||
New Residential Mortgage Loan Trust | ||||||||
276,786 | Series 2014-2A, Class A2 (c) | 3.75% | 05/01/54 | 290,757 | ||||
Nomura Asset Acceptance Corporation Alternative Loan Trust | ||||||||
485,464 | Series 2004-AR4, Class M1, 1 Mo. LIBOR + 1.10% (d) | 1.19% | 12/25/34 | 488,100 | ||||
Pretium Mortgage Credit Partners I LLC | ||||||||
1,000,000 | Series 2021-NPL2, Class A2 (c) (h) | 3.84% | 06/27/60 | 993,177 | ||||
PRKCM Trust | ||||||||
1,000,000 | Series 2021-AFC1, Class B2 (c) | 3.95% | 08/01/56 | 944,963 | ||||
Residential Accredit Loans, Inc. | ||||||||
91,193 | Series 2006-QO1, Class 2A1, 1 Mo. LIBOR + 0.54% (d) | 0.63% | 02/25/46 | 64,515 |
Principal Value | Description | Stated Coupon | Stated Maturity | Value | ||||
MORTGAGE-BACKED SECURITIES (Continued) | ||||||||
Collateralized Mortgage Obligations (Continued) | ||||||||
Residential Accredit Loans, Inc. (Continued) | ||||||||
$886,129 | Series 2006-QS6, Class 1AV, IO (f) | 0.76% | 06/01/36 | $20,279 | ||||
Residential Asset Securitization Trust | ||||||||
23,740 | Series 2004-A3, Class A7 | 5.25% | 06/01/34 | 25,098 | ||||
Roc Mortgage Trust | ||||||||
1,000,000 | Series 2021-RTL1, Class M (c) | 5.68% | 08/25/26 | 995,067 | ||||
Saxon Asset Securities Trust | ||||||||
663,962 | Series 2007-2, Class A2D, 1 Mo. LIBOR + 0.30% (d) | 0.39% | 05/25/47 | 588,261 | ||||
Structured Adjustable Rate Mortgage Loan Trust | ||||||||
156,632 | Series 2004-2, Class 4A2 (f) | 2.62% | 03/01/34 | 158,854 | ||||
Structured Asset Securities Corp. Mortgage Pass-Through Certificates | ||||||||
20,334 | Series 2001-SB1, Class A2 | 3.38% | 08/01/31 | 20,137 | ||||
Thornburg Mortgage Securities Trust | ||||||||
138,335 | Series 2003-4, Class A1, 1 Mo. LIBOR + 0.64% (d) | 0.73% | 09/25/43 | 141,749 | ||||
VCAT LLC | ||||||||
1,000,000 | Series 2021-NPL5, Class A2 (c) (h) | 3.84% | 08/25/51 | 991,182 | ||||
1,000,000 | Series 2021-NPL6, Class A2 (c) (h) | 3.97% | 09/25/51 | 993,736 | ||||
Vendee Mortgage Trust | ||||||||
48,791,481 | Series 2010-1, Class DI, IO (f) | 0.29% | 04/01/40 | 438,245 | ||||
VOLT CI LLC | ||||||||
1,000,000 | Series 2021-NP10, Class A2 (c) (h) | 4.83% | 05/25/51 | 995,314 | ||||
Wachovia Mortgage Loan Trust, LLC | ||||||||
50,059 | Series 2006-A, Class 3A1 (f) | 3.00% | 05/01/36 | 49,028 | ||||
WaMu Mortgage Pass-Through Certificates | ||||||||
112,738 | Series 2003-AR5, Class A7 (f) | 2.58% | 06/01/33 | 115,502 | ||||
179,312 | Series 2004-AR1, Class A (f) | 2.43% | 03/01/34 | 185,818 | ||||
201,027 | Series 2004-AR10, Class A1B, 1 Mo. LIBOR + 0.84% (d) | 0.93% | 07/25/44 | 202,550 | ||||
196,850 | Series 2004-AR13, Class A1A, 1 Mo. LIBOR + 0.72% (d) | 0.81% | 11/25/34 | 194,621 | ||||
26,491 | Series 2004-AR3, Class A2 (f) | 2.58% | 06/01/34 | 27,376 | ||||
240,770 | Series 2005-AR1, Class A1A, 1 Mo. LIBOR + 0.64% (d) | 0.73% | 01/25/45 | 241,703 | ||||
333,413 | Series 2005-AR6, Class 2A1A, 1 Mo. LIBOR + 0.46% (d) | 0.55% | 04/25/45 | 331,264 | ||||
120,144 | Series 2005-AR9, Class A1A, 1 Mo. LIBOR + 0.64% (d) | 0.73% | 07/25/45 | 121,171 | ||||
Washington Mutual Alternative Mortgage Pass-Through Certificates | ||||||||
13,415 | Series 2007-5, Class A11, 1 Mo. LIBOR x -6 + 39.48% (a) | 38.94% | 06/25/37 | 25,003 | ||||
WinWater Mortgage Loan Trust | ||||||||
274,449 | Series 2015-3, Class B1 (c) (f) | 3.86% | 03/01/45 | 286,318 | ||||
18,997,951 | ||||||||
Commercial Mortgage-Backed Securities – 12.5% | ||||||||
Benchmark Mortgage Trust | ||||||||
1,000,000 | Series 2020-IG2. Class UBRD (c) (f) (g) | 3.51% | 09/01/48 | 1,006,797 | ||||
Citigroup Commercial Mortgage Trust | ||||||||
4,434,236 | Series 2015-GC29, Class XA (f) | 1.03% | 04/01/48 | 136,497 | ||||
9,470,566 | Series 2016-GC37, Class XA (f) | 1.69% | 04/01/49 | 576,591 | ||||
5,792,587 | Series 2016-P4, Class XA (f) | 1.90% | 07/01/49 | 420,839 | ||||
COMM Mortgage Trust | ||||||||
523,841 | Series 2013-LC13, Class XA (f) | 1.00% | 08/01/46 | 7,821 | ||||
23,430,759 | Series 2013-LC6, Class XA (f) | 1.28% | 01/01/46 | 217,634 | ||||
122,774,000 | Series 2014-UBS6, Class XB (c) (f) | 0.04% | 12/01/47 | 232,829 | ||||
3,829,000 | Series 2015-CCRE26, Class XD (c) (f) | 1.23% | 10/01/48 | 169,247 | ||||
16,558,667 | Series 2015-LC21, Class XA (f) | 0.68% | 07/01/48 | 340,252 | ||||
Credit Suisse Mortgage Capital Certificates | ||||||||
1,000,000 | Series 2021-980M, Class G (c) (f) | 3.54% | 07/15/31 | 857,268 |
Principal Value | Description | Stated Coupon | Stated Maturity | Value | ||||
MORTGAGE-BACKED SECURITIES (Continued) | ||||||||
Commercial Mortgage-Backed Securities (Continued) | ||||||||
GS Mortgage Securities Corp Trust | ||||||||
$1,000,000 | Series 2018-3PCK, Class C, 1 Mo. LIBOR + 3.25% (c) (d) (g) | 3.34% | 09/15/31 | $977,813 | ||||
Hudsons Bay Simon JV Trust | ||||||||
510,000 | Series 2015-HBFL, Class DFL, 1 Mo. LIBOR + 3.90% (c) (d) | 3.98% | 08/05/34 | 388,441 | ||||
JP Morgan Chase Commercial Mortgage Securities Trust | ||||||||
3,314,837 | Series 2016-JP4, Class XA (f) | 0.67% | 12/01/49 | 76,410 | ||||
MBRT | ||||||||
1,000,000 | Series 2019-MBR, Class H1, 1 Mo. LIBOR + 4.00% (c) (d) | 4.09% | 11/15/36 | 995,512 | ||||
Morgan Stanley Bank of America Merrill Lynch Trust | ||||||||
24,960,333 | Series 2014-C16, Class XA (f) | 0.98% | 06/01/47 | 466,446 | ||||
2,024,429 | Series 2014-C19, Class XA (f) | 0.97% | 12/01/47 | 49,107 | ||||
5,632,500 | Series 2014-C19, Class XE (c) (f) | 1.18% | 12/01/47 | 194,499 | ||||
496,982 | Series 2016-C31, Class XA (f) | 1.32% | 11/01/49 | 24,055 | ||||
Morgan Stanley Capital I Trust | ||||||||
2,180,000 | Series 2016-UBS9, Class XD (c) (f) (g) | 1.61% | 03/01/49 | 140,261 | ||||
Wells Fargo Commercial Mortgage Trust | ||||||||
1,395,400 | Series 2015-C26, Class XA (f) | 1.20% | 02/01/48 | 46,470 | ||||
7,324,789 | ||||||||
Total Mortgage-Backed Securities | 26,322,740 | |||||||
(Cost $27,782,044) | ||||||||
ASSET-BACKED SECURITIES – 3.8% | ||||||||
AMSR Trust | ||||||||
750,000 | Series 2019-SFR1, Class I (c) | 8.98% | 01/19/39 | 838,995 | ||||
CoreVest American Finance Trust | ||||||||
10,000,000 | Series 2021-3, Class XA (c) (f) (g) | 2.54% | 10/01/54 | 1,000,000 | ||||
Green Tree Financial Corp. | ||||||||
3,981 | Series 1998-4, Class A7 | 6.87% | 04/01/30 | 3,997 | ||||
Mid-State Capital Corp. Trust | ||||||||
164,242 | Series 2004-1, Class M1 | 6.50% | 08/01/37 | 172,821 | ||||
222,097 | Series 2005-1, Class A | 5.75% | 01/01/40 | 235,275 | ||||
Total Asset-Backed Securities | 2,251,088 | |||||||
(Cost $2,231,558) |
Total Investments – 94.9% | 55,638,013 | ||
(Cost $57,905,606) (i) | |||
Net Other Assets and Liabilities – 5.1% | 3,008,828 | ||
Net Assets – 100.0% | $58,646,841 |
Futures Contracts | Position | Number of Contracts | Expiration Date | Notional Value | Unrealized Appreciation (Depreciation)/ Value | |||||
Ultra 10-Year U.S. Treasury Note Futures | Short | 1 | Dec 2021 | $ (145,031) | $531 | |||||
Ultra U.S. Treasury Bond Futures | Short | 1 | Dec 2021 | (196,407) | 94 | |||||
$(341,438) | $625 |
(a) | Inverse floating rate security. |
(b) | Zero coupon security. |
(c) | This security, sold within the terms of a private placement memorandum, is exempt from registration upon resale under Rule 144A under the Securities Act of 1933, as amended, and may be resold in transactions exempt from registration, normally to qualified institutional buyers. Pursuant to procedures adopted by the Fund’s Board of Trustees, this security has been determined to be liquid by First Trust Advisors L.P. (the “Advisor”). Although market instability can result in periods of increased overall market illiquidity, liquidity for each security is determined based on security specific factors and assumptions, which require subjective judgment. At October 31, 2021, securities noted as such amounted to $21,059,216 or 35.9% of net assets. |
(d) | Floating or variable rate security. |
(e) | Weighted Average Coupon security. Coupon is based on the blended interest rate of the underlying holdings, which may have different coupons. The coupon may change in any period. |
(f) | Collateral Strip Rate security. Coupon is based on the weighted net interest rate of the investment’s underlying collateral. The interest rate resets periodically. |
(g) | This security is fair valued by the Advisor’s Pricing Committee in accordance with procedures adopted by the Fund’s Board of Trustees, and in accordance with the provisions of the Investment Company Act of 1940, as amended. At October 31, 2021, securities noted as such are valued at $4,121,126 or 7.0% of net assets. |
(h) | Step-up security. A security where the coupon increases or steps up at a predetermined date. Interest rate shown reflects the rate in effect at October 31, 2021. |
(i) | Aggregate cost for federal income tax purposes was $60,085,018. As of October 31, 2021, the aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost was $1,351,091 and the aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value was $5,797,471. The net unrealized depreciation was $4,446,380. The amounts presented are inclusive of derivative contracts. |
ACES | Alternative Credit Enhancement Securities |
IO | Interest-Only Security - Principal amount shown represents par value on which interest payments are based. |
LIBOR | London Interbank Offered Rate |
SOFR | Secured Overnight Financing Rate |
STRIPS | Separate Trading of Registered Interest and Principal of Securities |
Total Value at 10/31/2021 | Level 1 Quoted Prices | Level 2 Significant Observable Inputs | Level 3 Significant Unobservable Inputs | |
U.S. Government Agency Mortgage-Backed Securities | $ 27,064,185 | $ — | $ 27,064,185 | $ — |
Mortgage-Backed Securities | 26,322,740 | — | 26,322,740 | — |
Asset-Backed Securities | 2,251,088 | — | 2,251,088 | — |
Total Investments | 55,638,013 | — | 55,638,013 | — |
Futures Contracts | 625 | 625 | — | — |
Total | $ 55,638,638 | $ 625 | $ 55,638,013 | $— |
ASSETS: | |
Investments, at value (Cost $57,905,606) | $ 55,638,013 |
Cash | 3,671,563 |
Restricted Cash | 3,299 |
Receivables: | |
Interest | 489,853 |
Variation margin | 625 |
Prepaid expenses | 5,375 |
Total Assets | 59,808,728 |
LIABILITIES: | |
Payables: | |
Investment securities purchased | 1,006,894 |
Audit and tax fees | 73,879 |
Investment advisory fees | 42,524 |
Administrative fees | 18,056 |
Shareholder reporting fees | 6,411 |
Transfer agent fees | 5,633 |
Custodian fees | 3,903 |
Legal fees | 2,567 |
Trustees’ fees and expenses | 1,249 |
Financial reporting fees | 771 |
Total Liabilities | 1,161,887 |
NET ASSETS | $58,646,841 |
NET ASSETS consist of: | |
Paid-in capital | $ 64,666,396 |
Par value | 42,131 |
Accumulated distributable earnings (loss) | (6,061,686) |
NET ASSETS | $58,646,841 |
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share) | $13.92 |
Number of Common Shares outstanding (unlimited number of Common Shares has been authorized) | 4,213,115 |
INVESTMENT INCOME: | ||
Interest | $ 1,697,449 | |
Other | 946,075 | |
Total investment income | 2,643,524 | |
EXPENSES: | ||
Investment advisory fees | 509,095 | |
Audit and tax fees | 68,160 | |
Administrative fees | 67,432 | |
Transfer agent fees | 34,535 | |
Shareholder reporting fees | 24,985 | |
Listing expense | 24,864 | |
Trustees’ fees and expenses | 14,973 | |
Financial reporting fees | 9,250 | |
Legal fees | 7,025 | |
Custodian fees | 1,695 | |
Other | 20,457 | |
Total expenses | 782,471 | |
NET INVESTMENT INCOME (LOSS) | 1,861,053 | |
NET REALIZED AND UNREALIZED GAIN (LOSS): | ||
Net realized gain (loss) on: | ||
Investments | (171,905) | |
Futures contracts | 142,801 | |
Net realized gain (loss) | (29,104) | |
Net change in unrealized appreciation (depreciation) on: | ||
Investments | (1,027,335) | |
Futures contracts | (2,000) | |
Net change in unrealized appreciation (depreciation) | (1,029,335) | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | (1,058,439) | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ 802,614 |
Year Ended 10/31/2021 | Year Ended 10/31/2020 | ||
OPERATIONS: | |||
Net investment income (loss) | $ 1,861,053 | $ 1,868,860 | |
Net realized gain (loss) | (29,104) | (154,999) | |
Net change in unrealized appreciation (depreciation) | (1,029,335) | (634,287) | |
Net increase (decrease) in net assets resulting from operations | 802,614 | 1,079,574 | |
DISTRIBUTIONS TO SHAREHOLDERS FROM: | |||
Investment operations | (1,462,301) | (2,663,075) | |
Return of capital | (1,571,142) | (370,368) | |
Total distributions to shareholders | (3,033,443) | (3,033,443) | |
Total increase (decrease) in net assets | (2,230,829) | (1,953,869) | |
NET ASSETS: | |||
Beginning of period | 60,877,670 | 62,831,539 | |
End of period | $ 58,646,841 | $ 60,877,670 | |
COMMON SHARES: | |||
Common Shares at end of period | 4,213,115 | 4,213,115 |
Year Ended October 31, | |||||||||
2021 | 2020 | 2019 | 2018 | 2017 | |||||
Net asset value, beginning of period | $ 14.45 | $ 14.91 | $ 14.96 | $ 15.47 | $ 15.53 | ||||
Income from investment operations: | |||||||||
Net investment income (loss) | 0.44 | 0.44 | 0.34 | 0.45 | 0.18 | ||||
Net realized and unrealized gain (loss) | (0.25) | (0.18) | 0.33 | (0.21) | 0.54 | ||||
Total from investment operations | 0.19 | 0.26 | 0.67 | 0.24 | 0.72 | ||||
Distributions paid to shareholders from: | |||||||||
Net investment income | (0.35) | (0.63) | (0.50) | (0.42) | (0.46) | ||||
Return of capital | (0.37) | (0.09) | (0.22) | (0.33) | (0.32) | ||||
Total distributions paid to Common Shareholders | (0.72) | (0.72) | (0.72) | (0.75) | (0.78) | ||||
Net asset value, end of period | $13.92 | $14.45 | $14.91 | $14.96 | $15.47 | ||||
Market value, end of period | $13.70 | $13.40 | $13.99 | $13.01 | $14.39 | ||||
Total return based on net asset value (a) | 1.51% | 2.12% | 5.08% | 2.13% | 5.25% | ||||
Total return based on market value (a) | 7.74% | 0.93% | 13.37% | (4.52)% | 8.60% | ||||
Ratios to average net assets/supplemental data: | |||||||||
Net assets, end of period (in 000’s) | $ 58,647 | $ 60,878 | $ 62,832 | $ 63,047 | $ 65,196 | ||||
Ratio of total expenses to average net assets | 1.31% | 1.33% | 1.33% | 1.59% | 1.25% | ||||
Ratio of net investment income (loss) to average net assets | 3.11% | 3.03% | 2.29% | 2.95% | 1.12% | ||||
Portfolio turnover rate | 67% | 28% | 69% | 30% | 27% |
(a) | 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 net asset value per share for net asset value 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. Past performance is not indicative of future results. |
1) | benchmark yields; |
2) | reported trades; |
3) | broker/dealer quotes; |
4) | issuer spreads; |
5) | benchmark securities; |
6) | bids and offers; and |
7) | reference data including market research publications. |
1) | the credit conditions in the relevant market and changes thereto; |
2) | the liquidity conditions in the relevant market and changes thereto; |
3) | the interest rate conditions in the relevant market and changes thereto (such as significant changes in interest rates); |
4) | issuer-specific conditions (such as significant credit deterioration); and |
5) | any other market-based data the Advisor’s Pricing Committee considers relevant. In this regard, the Advisor’s Pricing Committee may use last-obtained market-based data to assist it when valuing portfolio securities using amortized cost. |
1) | the fundamental business data relating to the issuer; |
2) | an evaluation of the forces which influence the market in which these securities are purchased and sold; |
3) | the type, size and cost of the security; |
4) | the financial statements of the issuer; |
5) | the credit quality and cash flow of the issuer, based on the Advisor’s or external analysis; |
6) | the information as to any transactions in or offers for the security; |
7) | the price and extent of public trading in similar securities (or equity securities) of the issuer/borrower, or comparable companies; |
8) | the coupon payments; |
9) | the quality, value and salability of collateral, if any, securing the security; |
10) | the business prospects of the issuer, including any ability to obtain money or resources from a parent or affiliate and an assessment of the issuer’s management; |
11) | the prospects for the issuer’s industry, and multiples (of earnings and/or cash flows) being paid for similar businesses in that industry; and |
12) | other relevant factors. |
• | Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
• | Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following: |
o | Quoted prices for similar investments in active markets. |
o | Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly. |
o | Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates). |
o | Inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
• | 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. |
Distributions paid from: | 2021 | 2020 |
Ordinary income | $1,462,301 | $2,663,075 |
Capital gains | — | — |
Return of capital | 1,571,142 | 370,368 |
Undistributed ordinary income | $— |
Undistributed capital gains | — |
Total undistributed earnings | — |
Accumulated capital and other losses | (1,615,306) |
Net unrealized appreciation (depreciation) | (4,446,380) |
Total accumulated earnings (losses) | (6,061,686) |
Other | — |
Paid-in capital | 64,708,527 |
Total net assets | $58,646,841 |
Asset Derivatives | Liability Derivatives | |||||||||
Derivative Instrument | Risk Exposure | Statement of Assets and Liabilities Location | Value | Statement of Assets and Liabilities Location | Value | |||||
Futures | Interest Rate Risk | Unrealized appreciation on futures contracts | $ 625 | Unrealized depreciation on futures contracts | $ — |
Statement of Operations Location | |
Interest Rate Risk Exposure | |
Net realized gain (loss) on futures contracts | $142,801 |
Net change in unrealized appreciation (depreciation) on futures contracts | (2,000) |
(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. |
• | The Fund invests at least 80% of its managed assets in mortgage-backed securities. Such MBS may include those with fixed, floating or variable interest rates, those with interest rates that change based on multiples of changes in a specified index of interest rates and those with interest rates that change inversely to changes in interest rates, as well as those that do not bear interest. The Fund does not invest in corporate bonds other than those primarily secured by interests in real estate. |
• | The Fund may invest up to 35% of its managed assets in securities that, at the time of investment, are rated below investment grade (including securities that are unrated but judged to be of comparable quality by the Advisor). |
• | The Fund may invest up to 20% of its managed assets in U.S. government securities, or cash or other short-term instruments, and may invest up to 10% of its managed assets in real-estate related assets collateralized by pools of assets, such as home equity loans and lines of credit, and asset-backed securities, including non-mortgage asset-backed securities. |
• | The Fund may invest up to 10% of its managed assets in securities that, at the time of investment, are illiquid. |
• | Issuer Risk. The value of fixed-income 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. In addition, an issuer of fixed-income securities may default on its obligation to pay interest and repay principal. |
• | Prepayment Risk. 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 or loans at market interest rates that are below the Fund portfolio’s current earnings rate. |
Name, Year of Birth and Position with the Fund | Term of Office and Year First Elected or Appointed(1) | Principal Occupations During Past 5 Years | Number of Portfolios in the First Trust Fund Complex Overseen by Trustee | Other Trusteeships or Directorships Held by Trustee During Past 5 Years |
INDEPENDENT TRUSTEES | ||||
Richard E. Erickson, Trustee (1951) | • Three Year Term
• Since Fund Inception | Physician; Officer, Wheaton Orthopedics; Limited Partner, Gundersen Real Estate Limited Partnership (June 1992 to December 2016) | 215 | None |
Thomas R. Kadlec, Trustee (1957) | • Three Year Term
• Since Fund Inception | President, ADM Investor Services, Inc. (Futures Commission Merchant) | 215 | Director of ADM Investor Services, Inc., ADM Investor Services International, Futures Industry Association, and National Futures Association |
Robert F. Keith, Trustee (1956) | • Three Year Term
• Since June 2006 | President, Hibs Enterprises (Financial and Management Consulting) | 215 | Director of Trust Company of Illinois |
Niel B. Nielson, Trustee (1954) | • Three Year Term
• Since Fund Inception | Senior Advisor (August 2018 to Present), Managing Director and Chief Operating Officer (January 2015 to August 2018), Pelita Harapan Educational Foundation (Educational Products and Services) | 215 | None |
INTERESTED TRUSTEE | ||||
James A. Bowen(2), Trustee and Chairman of the Board (1955) | • Three Year Term
• Since Fund Inception | Chief Executive Officer, First Trust Advisors L.P. and First Trust Portfolios L.P.; Chairman of the Board of Directors, BondWave LLC (Software Development Company) and Stonebridge Advisors LLC (Investment Advisor) | 215 | None |
(1) | Currently, James A. Bowen and Niel B. Nielson, as Class III Trustees, are serving as trustees until the Fund’s 2022 annual meeting of shareholders. Robert F. Keith, as a Class I Trustee, is serving as a trustee until the Fund’s 2023 annual meeting of shareholders. Richard E. Erickson and Thomas R. Kadlec, as Class II Trustees, are serving as trustees until the Fund’s 2024 annual meeting of shareholders. |
(2) | Mr. Bowen is deemed an “interested person” of the Fund due to his position as CEO of First Trust Advisors L.P., investment advisor of the Fund. |
Name and Year of Birth | Position and Offices with Fund | Term of Office and Length of Service | Principal Occupations During Past 5 Years |
OFFICERS(3) | |||
James M. Dykas (1966) | President and Chief Executive Officer | • Indefinite Term • Since January 2016 | Managing Director and Chief Financial Officer (January 2016 to Present), Controller (January 2011 to January 2016), Senior Vice President (April 2007 to January 2016), First Trust Advisors L.P. and First Trust Portfolios L.P.; Chief Financial Officer (January 2016 to Present), BondWave LLC (Software Development Company) and Stonebridge Advisors LLC (Investment Advisor) |
Donald P. Swade (1972) | Treasurer, Chief Financial Officer and Chief Accounting Officer | • Indefinite Term • Since January 2016 | Senior Vice President (July 2016 to Present), Vice President (April 2012 to July 2016), First Trust Advisors L.P. and First Trust Portfolios L.P. |
W. Scott Jardine (1960) | Secretary and Chief Legal Officer | • Indefinite Term • Since Fund Inception | General Counsel, First Trust Advisors L.P. and First Trust Portfolios L.P.; Secretary and General Counsel, BondWave LLC; Secretary, Stonebridge Advisors LLC |
Daniel J. Lindquist (1970) | Vice President | • Indefinite Term • Since Fund Inception | Managing Director, First Trust Advisors L.P. and First Trust Portfolios L.P. |
Kristi A. Maher (1966) | Chief Compliance Officer and Assistant Secretary | • Indefinite Term
• Assistant Secretary Since Fund Inception | Deputy General Counsel, First Trust Advisors L.P. and First Trust Portfolios L.P. |
(3) | The term “officer” means the president, vice president, secretary, treasurer, controller or any other officer who performs a policy making function. |
• | 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. |
• | 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). |
FUND ACCOUNTANT,
AND CUSTODIAN
PUBLIC ACCOUNTING FIRM
(b) Not applicable.
Item 2. Code of Ethics.
(a) | The registrant, as of the end of the period covered by this report, has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. |
(c) | There have been no amendments, during the period covered by this report, to a provision of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and that relates to any element of the code of ethics description. |
(d) | The registrant has not granted any waivers, including an implicit waiver, from a provision of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, that relates to one or more of the items set forth in paragraph (b) of this item’s instructions. |
(e) | Not applicable. |
(f) | A copy of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller is filed as an exhibit pursuant to Item 13(a)(1). |
Item 3. Audit Committee Financial Expert.
As of the end of the period covered by the report, the registrant’s board of trustees has determined that Thomas R. Kadlec and Robert F. Keith are qualified to serve as audit committee financial experts serving on its audit committee and that each of them is “independent,” as defined by Item 3 of Form N-CSR.
Item 4. Principal Accountant Fees and Services.
(a) | Audit Fees (registrant) -- The aggregate fees billed for each of the last two fiscal years 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 $45,000 for the fiscal year ended October 31, 2020 and $45,000 for the fiscal year ended October 31, 2021. |
(b) | Audit-Related Fees (registrant) -- The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under paragraph (a) of this Item were $0 for the fiscal year ended October 31, 2020 and $0 for the fiscal year ended October 31, 2021. |
Audit-Related Fees (Investment Advisor) -- The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under paragraph (a) of this Item were $0 for the fiscal year ended October 31, 2020 and $0 for the fiscal year ended October 31, 2021.
(c) | Tax Fees (registrant) -- The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning were $18,257 for the fiscal year ended October 31, 2020 and $17,072 for the fiscal year ended October 31, 2021. These fees were for tax return consultation and/or tax return preparation. |
Tax Fees (Investment Advisor) -- The aggregate fees billed in each of the last two fiscal years 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, 2020 and $0 for the fiscal year ended October 31, 2021.
(d) | All Other Fees (registrant) -- The aggregate fees billed in each of the last two fiscal years 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, 2020 and $0 for the fiscal year ended October 31, 2021. |
All Other Fees (Investment Advisor) The aggregate fees billed in each of the last two fiscal years 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, 2020 and $0 for the fiscal year ended October 31, 2021.
(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 registrant’s fiscal year ended October 31, 2020 were $18,257 for the registrant and $70,370 for the registrant’s investment advisor and for the registrant’s fiscal year ended October 31, 2021 were $17,072 for the registrant and $16,500 for the registrant’s investment 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. |
(i) | Not applicable. |
(j) | Not applicable. |
Item 5. Audit Committee of Listed Registrants.
(a) | The registrant has a separately designated audit committee consisting of all the independent directors of the registrant. The members of the audit committee are: Thomas R. Kadlec, Niel B. Nielson, Richard E. Erickson and Robert F. Keith. |
(b) | Not applicable. |
Item 6. Investments.
(a) | Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 of this form. |
(b) | Not applicable. |
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
FIRST TRUST ADVISORS L.P.
PROXY VOTING GUIDELINES
Rule 206(4)-6 requires advisors to adopt and implement policies and procedures reasonably designed to ensure any proxy voting on behalf of advisory clients is conducted in a manner in the best interests of clients and address how conflicts of interest are managed between the advisor’s interest and the interests of the client. In addition to adopting policies and procedures, advisors must disclose proxy voting policies and procedures to its clients, offer to furnish a copy of its policies and procedures and inform clients on how to obtain records of proxy votes cast on their behalf.
First Trust Advisors L.P. (“FTA” or the “Advisor”) serves as investment advisor to separate managed accounts, open- and closed-end investment companies, and other collective investments (the “Clients”). As part of these services, the Advisor has, in most cases, agreed to be responsible for proxy voting on its Clients’ behalf. In fulfilling these duties, the Advisor has adopted the following policies and procedures:
1. It is the Advisor’s policy to seek and to ensure that proxies are voted consistently and in the best economic interests of the Client. FTA’s Investment Committee is responsible for the implementation of the FTA Proxy Voting Guidelines (the “Policy”).
2. The Advisor has contracted with Institutional Shareholder Services (“ISS”) to provide proxy research, recommendations, and voting services. ISS provides a password protected website which is accessible to authorized FTA personnel to download upcoming proxy meeting data, including research reports, of companies held in Client portfolios. The website can be used to view the various Client accounts for which FTA votes proxies, to view proposed proxy votes, to enter votes for upcoming meetings and to run various reports.
FTA typically provides a file of the securities held in each Client account to ISS nightly. ISS uses this data to update the Client holdings in their system.
3. FTA will generally follow the ISS Proxy Voting Guidelines to vote proxies for Client accounts, so long as such guidelines are considered to be in the best interests of the Client, and so long as there are no noted or perceived conflicts of interest. FTA’s use of the ISS Proxy Voting Guidelines is not intended to constrain FTA’s consideration of any proxy proposal, and there may be times when FTA deviates from the ISS Proxy Voting Guidelines. FTA retains final authority and fiduciary responsibility for proxy voting.
In certain circumstances, where FTA has determined that it is consistent with the Client’s best interest, FTA will not take steps to ensure that proxies are voted on securities in the Client’s accounts. The following are circumstances where this may occur:
(a) Limited Value. Proxies will not be required to be voted on securities in a Client’s account if the value of the Client’s economic interest in the securities is indeterminable or insignificant (less than $1,000). Proxies will also not be required to be voted for any securities that are no longer held by the Client’s account.
(b) Securities Lending Program. When securities are out on loan, they are transferred into the borrower’s name and are voted by the borrower, in its discretion. In most cases, FTA will not take steps to see that loaned securities are recalled to be voted. However, where FTA determines that a proxy vote, or other shareholder action, is materially important to the Client’s account, FTA will make a good faith effort to recall the security for purposes of voting, understanding that in certain cases, the attempt to recall the security may not be effective in time for voting deadlines to be met.
(c) Unjustifiable Costs. In certain circumstances, after doing a cost-benefit analysis, FTA may choose not to vote where the cost of voting a Client’s proxy would exceed any anticipated benefits to the Client of the proxy proposal (e.g. foreign securities).
(d) International Markets Share Blocking. In international markets where share blocking applies, FTA typically will not, but reserves the right to, vote proxies due to liquidity constraints. Share blocking is the “freezing” of shares for trading purposes at the custodian/sub-custodian bank level in order to vote proxies. While shares are frozen, they may not be traded. Therefore, the potential exists for a pending trade to fail if trade settlement falls on a date during the blocking period.
4. On a weekly basis, a member of FTA’s Portfolio and Product Management Department reviews ISS’ Level Classification and Quality Score of new proxies. For any proxy meeting deemed material1 a copy of the ISS research report will be downloaded and saved. All other matters will be reviewed only at the discretion of FTA’s Investment Committee, Portfolio Management or Research. The downloaded ISS research reports are submitted to FTA’s Research Department for review and to determine if they agree with ISS’ recommendations. Research will review ISS’ and the target company’s management recommendation and may review information publicly available about the target company. This includes original and subsequent amendments to ISS’ research report, EDGAR filings and any noted conflicts of interest. The Research Department’s decision will be communicated to FTA’s Investment Committee.
1 Materiality is generally defined as any proxy with a Classification Level of 4 or higher or a target company’s governance Quality Score of 10. See below for a description of Classification Levels. Quality Score indicates a company’s governance risk (board structure, compensation programs, shareholder rights, and audit and risk oversight). The lowest score of 1 indicates relatively higher quality governance practices and relatively lower governance risk and conversely, the highest score of 10 indicates relatively higher governance risk.
For fund Clients relying on Section 12(d)(1)(F) of the 1940 Act or applicable exemptive relief, FTA will vote proxies for investment company securities held by such funds in the same proportion as all other holders of such securities (i.e. mirror or echo voting) to the extent possible.
5. FTA may determine voting in accordance with the ISS recommendations is not in the best interests of a Client. Whenever a conflict of interest arises between ISS and a target company subject to a proxy vote, the Advisor will consider the recommendation of the company and what the Advisor believes to be in the best interests of the Client and will vote the proxy without using the analyses of ISS. If FTA has knowledge of a material conflict of interest between itself and a Client, the Advisor shall vote the applicable proxy in accordance with the ISS recommendations to avoid such conflict of interest. If there is a decision to go against the ISS recommendation, FTA’s Investment Committee will document the reasoning for the decision and instruct ISS to change its vote to reflect this decision.
With respect to fund and variable annuity sub-account Clients, if there is a conflict of interest between fund shareholders and FTA or other fund service providers, FTA will vote the proxy based on the recommendations of ISS to avoid such conflict of interest.
6. If a Client requests the Advisor to follow specific voting guidelines or additional guidelines, the Advisor shall review the request and follow such guidelines, unless the Advisor determines that it is unable to follow such guidelines. In such case, the Advisor shall inform the Client that it is not able to follow the Client’s request.
7. FTA receives various reports from ISS on a quarterly basis. These reports include, among other things, a proxy summary of all proxies voted during the prior quarter, a list of all proxies that were not voted and the reason. FTA will periodically review a random sample of the votes recommended by ISS to ensure they are consistent with the Voting Guidelines and report any inconsistencies to FTA’s Investment Committee. A list of proxies not voted for the First Trust funds and reason why is provided to Legal for inclusion in the quarterly First Trust funds board book.
8. Any Client requests for a copy of FTA’s proxy voting policies and procedures, voting guidelines, or voting results must be forwarded to Compliance for review and response.
Shareholders of any fund managed by FTA can review the proxy voting guidelines on the First Trust Fund’s website www.ftportfolios.com and a fund’s voted proxies (if any) relating to portfolio securities during the most recent 12-month period ended June 30 is available upon request or by accessing EDGAR from the SEC’s website at www.sec.gov. This Policy will be provided with each advisory contract and will also be described and provided with the Form ADV, Part 2A.
9. FTA shall provide reasonable oversight of ISS. FTA will seek to ascertain whether ISS has the capacity and competency to adequately analyze proxy issues. Specific oversight responsibilities will include the following:
(a) | On at least an annual basis, if not more frequent, FTA will: |
(i) | conduct a due diligence review of ISS; |
(ii) | review the adequacy and quality of the proxy advisory firm’s staffing and personnel and technology; |
(iii) | monitor changes to the ISS guidelines and disclosed conflicts of interest on at least an annual basis to determine that such guidelines and potential conflicts continue to result in a proxy voting policy that is in the best interest of clients; and |
(iv) | review whether ISS has identified any recommendation based on a material factual error. If so, FTA’s Investment Committee shall investigate the error and evaluate whether ISS is taking steps to mitigate making such errors in the future. |
10. Recordkeeping
FTA will maintain the following records relating to proxy voting:
(a) | a copy of this Policy; |
(b) | a copy of each proxy form for which it is responsible to vote; |
(c) | a copy of each proxy solicitation, including proxy statements and related materials with regard to each proxy issue it votes; |
(d) | documents relating to the identification and resolution of conflicts of interest, if any; |
(e) | any documents created by FTA that were material to a proxy voting decision or that memorialized the basis for that decision; and |
(f) | a copy of each written request from any Client for information on how FTA voted proxies on the Client’s behalf, and a copy of any written response by FTA to any written or oral request for information by a Client on how FTA voted proxies for that Client’s account. |
11. ISS, on FTA’s behalf, will maintain the following records relating to proxy voting:
(a) | a copy of each proxy form (as voted); |
(b) | a copy of each proxy solicitation, including proxy statements and related materials with regard to each vote; |
(c) | documents relating to the identification and resolution of conflicts of interest it identifies, if any; and |
(d) | any documents created by ISS that were material to a proxy voting decision or that memorialized the basis for that decision. |
12. These records are either maintained at FTA’s office or are electronically available to FTA through access to ISS’s portal.
ISS Level Classification Descriptions
Level 1 – Election of directors (except for proxy contests); fix number of directors; ratification of auditors; name change; change in date of time of meeting; adjourn meeting; other business; can include shareholder proposals.
Level 2 – Employee stock purchase plans; increase in stock (except for private placements); reverse stock splits; standard corporate governance provisions (declassifying the board, supermajority votes, etc.); social/environmental/human rights proposals; standard mutual fund proposals (except for advisory agreements, proposals to open-end the fund).
Level 3 – Compensation Plans.
Level 4 – Private Placements; formation of a holding company; anti-takeover proposals (poison pills, fair price provisions, etc.); reincorporation; director and officer liability indemnification; conversion of securities; liquidation of assets; mutual fund advisory agreements.
Level 5 – Mergers; acquisitions; sale of assets; conversion of closed-end fund to open-end; reorganization; restructuring.
Level 6 – Proxy Contests.
Adopted: | September 15, 2003 |
Amended: | December 10, 2007 |
Amended: | September 21, 2009 |
Amended: | September 12, 2016 |
Amended: | March 9, 2020 |
Amended: | June 7, 2021 |
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
(a)(1) Identification of Portfolio Manager(s) or Management Team Members and Description of Role of Portfolio Manager(s) or Management Team Members.
Information provided as of January 7, 2022.
The Securitized Products Group of First Trust Advisors L.P. is responsible for the day–to-day management of the registrant’s portfolio. The Securitized Products group has been led by James Snyder and Jeremiah Charles since 2013 and was previously known as the Mortgage Securities Team.
James Snyder. Mr. Snyder is a Portfolio Manager for the First Trust Securitized Products Group. Prior to joining First Trust in 2013, Mr. Snyder worked as a Senior Portfolio Manager at Fort Sheridan Advisors where he managed mortgage portfolios for institutional clients. Mr. Snyder has led several mortgage trading and portfolio groups at Deerfield Capital, Spyglass Capital & Trading and American Express Financial Advisors. Mr. Snyder managed AXP Federal Income Fund and developed mortgage trading strategies for Spyglass Capital and Deerfield’s Mortgage REIT and Opportunity Fund. Mr. Snyder holds a B.S. and M.A. in Economics from DePaul University and an MBA from University of Chicago Booth School of Business.
Jeremiah Charles. Mr. Charles is a Portfolio Manager for the First Trust Securitized Products Group. Prior to joining First Trust in 2013, Mr. Charles worked as a Vice President of Mortgage Product Sales for CRT Capital where he advised pension funds, hedge funds, and institutional money managers. Before joining CRT in 2011, Mr. Charles spent 6 years with Deerfield Capital Management LLC as a Senior Vice President and Senior Portfolio Manager for the Mortgage Trading team. He began his professional career as an Analyst at Piper Jaffray. Mr. Charles holds a B.S. in Finance from the Leeds School of Business at the University of Colorado, and a M.S. in Real Estate Finance with Honors from the Charles H. Kellstadt Graduate School of Business at DePaul University.
(2) | Other Accounts Managed by Portfolio Managers or Management Team Member and Potential Conflicts of Interest |
Information provided as of October 31, 2021.
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. Jeremiah Charles | Registered Investment Companies: | 5 | $7,395,448,604 | 0 | $ 0 |
Other Pooled Investment Vehicles: | 0 | $ 0 | 0 | $ 0 | |
Other Accounts: | 0 | $ 0 | 0 | $ 0 | |
2. James Snyder | Registered Investment Companies: | 5 | $7,395,448,604 | 0 | $ 0 |
Other Pooled Investment Vehicles: | 0 | $ 0 | 0 | $ 0 | |
Other Accounts: | 0 | $ 0 | 0 | $ 0 |
*Information excludes the registrant.
Portfolio Manager Material Conflicts of Interest
Potential conflicts of interest may arise when a portfolio manager of the registrant has day-to-day management responsibilities with respect to one or more other funds or other accounts. The First Trust Securitized Products Group adheres to its trade allocation policy utilizing a pro-rata methodology to address this conflict.
First Trust and its affiliate, First Trust Portfolios L.P. (“FTP”), have in place a joint Code of Ethics and Insider Trading Policies and Procedures that are designed to (a) prevent First Trust personnel from trading securities based upon material inside information in the possession of such personnel and (b) ensure that First Trust personnel avoid actual or potential conflicts of interest or abuse of their positions of trust and responsibility that could occur through such activities as front running securities trades for the registrant. Personnel are required to have duplicate confirmations and account statements delivered to First Trust and FTP compliance personnel who then compare such trades to trading activity to detect any potential conflict situations.
(3) Compensation Structure of Portfolio Managers or Management Team Members
Portfolio Manager Compensation
Information provided as of October 31, 2021.
The compensation structure at First Trust is based on a fixed salary and discretionary bonus determined by First Trust management. Salaries are based on each individual’s position and overall value to First Trust. Bonuses are determined by First Trust management and are based on individual performance, the commitment to team performance and profitability, and the profitability of First Trust. Certain internal portfolio managers have an indirect ownership stake in the firm and will therefore receive their allocable share of ownership-related distributions.
(4)(a) Disclosure of Securities Ownership
Information provided as of October 31, 2021.
Name | Dollar Range of Fund Shares Beneficially Owned |
Jeremiah Charles | None |
James Snyder | None |
(b) | Not applicable. |
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant’s board of directors, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)), or this Item.
Item 11. Controls and Procedures.
(a) | The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)). |
(b) | There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
(a) | Not applicable. |
(b) | Not applicable. |
Item 13. Exhibits.
(a)(1) | Code of ethics, or any amendment thereto, that is the subject of disclosure required by Item 2 is attached hereto. |
(a)(2) | Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. |
(a)(3) | Not applicable. |
(a)(4) | Not applicable. |
(b) | Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) | First Trust Mortgage Income Fund |
By (Signature and Title)* | /s/ James M. Dykas | |
James M. Dykas, President and Chief Executive Officer (principal executive officer) |
Date: | January 7, 2022 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title)* | /s/ James M. Dykas | |
James M. Dykas, President and Chief Executive Officer (principal executive officer) |
Date: | January 7, 2022 |
By (Signature and Title)* | /s/ Donald P. Swade | |
Donald P. Swade, Treasurer, Chief Financial Officer and Chief Accounting Officer (principal financial officer) |
Date: | January 7, 2022 |
* Print the name and title of each signing officer under his or her signature.