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, 2023
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, NW, 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 | $10.88 |
Common Share Net Asset Value (“NAV”) | $11.72 |
Premium (Discount) to NAV | (7.17)% |
Net Assets Applicable to Common Shares | $49,398,421 |
Current Distribution per Common Share(1) | $0.0675 |
Current Annualized Distribution per Common Share | $0.8100 |
Current Distribution Rate on Common Share Price(2) | 7.44% |
Current Distribution Rate on NAV(2) | 6.91% |
Performance | ||||
Average Annual Total Returns | ||||
1 Year Ended 10/31/23 | 5 Years Ended 10/31/23 | 10 Years Ended 10/31/23 | Inception (5/25/05) to 10/31/23 | |
Fund Performance(3) | ||||
NAV | 2.88% | 0.53% | 1.70% | 4.21% |
Market Value | 4.88% | 1.85% | 2.07% | 3.53% |
Index Performance | ||||
Bloomberg U.S. Mortgage Backed Securities (MBS) Index | -0.82% | -1.06% | 0.34% | 2.38% |
Portfolio Characteristics | |
Weighted Average Effective Duration | 6.8 Years |
Weighted Average Effective Maturity | 10.7 Years |
Fund Allocation | % of Net Assets |
Mortgage-Backed Securities | 56.8% |
U.S. Government Agency Mortgage-Backed Securities | 56.4 |
Asset-Backed Securities | 4.2 |
Money Market Funds | 3.5 |
Put Options Written | (0.0)* |
Net Other Assets and Liabilities(4) | (20.9) |
Total | 100.0% |
* | Amount is less than 0.1%. |
Credit Quality(5) | % of Total Fixed-Income Investments |
AAA | 13.0% |
AA+ | 1.1 |
AA | 0.3 |
AA- | 1.5 |
A+ | 0.5 |
A | 0.0* |
A- | 4.6 |
BBB | 1.8 |
BBB- | 8.2 |
BB | 0.2 |
BB- | 1.8 |
B | 0.9 |
CCC | 0.0* |
CCC- | 0.0* |
CC | 0.7 |
Not Rated | 28.1 |
Government | 37.3 |
Cash & Cash Equivalents | 0.0* |
Total | 100.0% |
* | Amount is less than 0.1%. |
(1) | Most recent distribution paid through October 31, 2023. Subject to change in the future. |
(2) | Distribution rates are calculated by annualizing the most recent distribution paid through the report date and then dividing by Common Share Price or NAV, as applicable, as of October 31, 2023. 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. |
(4) | Includes variation margin on futures contracts. |
(5) | The credit quality and ratings information presented above reflect the ratings assigned by one or more nationally recognized statistical rating organizations (NRSROs), including S&P Global Ratings, 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 10/31/23 | 5 Years Ended 10/31/23 | 10 Years Ended 10/31/23 | Inception (5/25/05) to 10/31/23 | |
Fund Performance(1) | ||||
NAV | 2.88% | 0.53% | 1.70% | 4.21% |
Market Value | 4.88% | 1.85% | 2.07% | 3.53% |
Index Performance | ||||
Bloomberg U.S. Mortgage Backed Securities (MBS) Index | -0.82% | -1.06% | 0.34% | 2.38% |
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.
Performance in securitized product investment strategies can be impacted from the benefits of purchasing odd lot positions. The impact of these investments can be particularly meaningful when funds have limited assets under management and may not be a sustainable source of performance as a fund grows in size.
(1) | 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. |
Principal Value | Description | Stated Coupon | Stated Maturity | Value | ||||
MORTGAGE-BACKED SECURITIES – 56.8% | ||||||||
Collateralized Mortgage Obligations – 18.1% | ||||||||
Banc of America Mortgage Trust | ||||||||
$44,186 | Series 2002-L, Class 1A1 (a) | 3.55% | 12/01/32 | $32,736 | ||||
Citigroup Mortgage Loan Trust | ||||||||
70,344 | Series 2005-6, Class A1, US Treasury Yield Curve Rate T Note Constant Maturity 1 Year + 2.10% (b) | 6.15% | 09/01/35 | 69,175 | ||||
10,095 | Series 2009-10, Class 1A1 (a) (c) | 5.68% | 09/01/33 | 9,870 | ||||
Connecticut Avenue Securities Trust | ||||||||
1,000,000 | Series 2019-R01, Class 2B1, 30 Day Average SOFR + CSA + 4.35% (b) (c) | 9.79% | 07/25/31 | 1,066,505 | ||||
Countrywide Home Loan Mortgage Pass-Through Trust | ||||||||
238,040 | Series 2006-HYB5, Class 3A1A (a) | 4.97% | 09/01/36 | 203,241 | ||||
DSLA Mortgage Loan Trust | ||||||||
235,042 | Series 2004-AR3, Class 2A2A, 1 Mo. CME Term SOFR + CSA + 0.74% (b) | 6.19% | 07/19/44 | 210,947 | ||||
GSR Mortgage Loan Trust | ||||||||
2,350 | Series 2003-10, Class 1A12 (a) | 5.71% | 10/01/33 | 2,208 | ||||
79,085 | Series 2005-AR1, Class 4A1 (a) | 3.18% | 01/01/35 | 66,576 | ||||
JP Morgan Mortgage Trust | ||||||||
214,323 | Series 2006-A2, Class 4A1 (a) | 5.59% | 08/01/34 | 210,378 | ||||
32,550 | Series 2006-A2, Class 5A3 (a) | 5.74% | 11/01/33 | 31,006 | ||||
LHOME Mortgage Trust | ||||||||
1,000,000 | Series 2023-RTL2, Class M (c) (d) | 9.00% | 06/25/28 | 899,804 | ||||
MASTR Alternative Loan Trust | ||||||||
3,544,974 | Series 2006-2, Class 2A3, 1 Mo. CME Term SOFR + CSA + 0.35% (b) | 5.79% | 03/25/36 | 376,533 | ||||
MASTR Asset Securitization Trust | ||||||||
14,675 | Series 2003-11, Class 6A16 | 5.25% | 12/01/33 | 13,668 | ||||
MortgageIT Trust | ||||||||
158,385 | Series 2005-2, Class 2A, 1 Mo. CME Term SOFR + CSA + 1.65% (b) | 7.08% | 05/01/35 | 145,051 | ||||
Pretium Mortgage Credit Partners I LLC | ||||||||
1,000,000 | Series 2021-NPL2, Class A2 (c) (d) | 3.84% | 06/27/60 | 778,515 | ||||
PRKCM Trust | ||||||||
1,000,000 | Series 2021-AFC1, Class B2 (c) | 3.95% | 08/01/56 | 507,170 | ||||
Residential Accredit Loans, Inc. | ||||||||
72,609 | Series 2006-QO1, Class 2A1, 1 Mo. CME Term SOFR + CSA + 0.54% (b) | 5.98% | 02/25/46 | 43,883 | ||||
673,459 | Series 2006-QS6, Class 1AV, IO (a) | 0.77% | 06/01/36 | 14,008 | ||||
Residential Asset Securitization Trust | ||||||||
19,007 | Series 2004-A3, Class A7 | 5.25% | 06/01/34 | 16,431 | ||||
Roc Mortgage Trust | ||||||||
1,000,000 | Series 2021-RTL1, Class M (c) | 5.68% | 08/25/26 | 888,603 | ||||
RUN Trust | ||||||||
873,759 | Series 2022-NQM1, Class A1 (c) | 4.00% | 03/01/67 | 790,056 | ||||
Starwood Mortgage Residential Trust | ||||||||
889,034 | Series 2022-3, Class A1 (c) | 4.16% | 03/01/67 | 781,359 | ||||
Structured Asset Securities Corp. Mortgage Pass-Through Certificates | ||||||||
7,318 | Series 2001-SB1, Class A2 | 3.38% | 08/01/31 | 7,282 | ||||
VCAT LLC | ||||||||
1,000,000 | Series 2021-NPL5, Class A2 (c) (d) | 3.84% | 08/25/51 | 778,846 | ||||
1,000,000 | Series 2021-NPL6, Class A2 (c) (d) | 3.97% | 09/25/51 | 778,306 | ||||
Washington Mutual Alternative Mortgage Pass-Through Certificates | ||||||||
9,982 | Series 2007-5, Class A11, (1 Mo. CME Term SOFR + CSA) x -6 + 39.48% (e) | 6.85% | 06/25/37 | 8,649 |
Principal Value | Description | Stated Coupon | Stated Maturity | Value | ||||
MORTGAGE-BACKED SECURITIES (Continued) | ||||||||
Collateralized Mortgage Obligations (Continued) | ||||||||
WinWater Mortgage Loan Trust | ||||||||
$213,378 | Series 2015-3, Class B1 (a) (c) | 3.84% | 03/01/45 | $191,676 | ||||
8,922,482 | ||||||||
Commercial Mortgage-Backed Securities – 38.7% | ||||||||
1211 Avenue of the Americas Trust | ||||||||
935,000 | Series 2015-1211, Class C (a) (c) | 4.14% | 08/01/35 | 841,716 | ||||
Aventura Mall Trust | ||||||||
1,250,000 | Series 2018-AVM, Class D (a) (c) | 4.11% | 07/01/40 | 1,014,983 | ||||
BAMLL Commercial Mortgage Securities Trust | ||||||||
1,000,000 | Series 2013-WBRK, Class A (a) (c) | 3.53% | 03/01/37 | 872,126 | ||||
BANK | ||||||||
22,342,755 | Series 2017-BNK7, Class XA, IO (a) | 0.72% | 09/01/60 | 464,506 | ||||
2,160,500 | Series 2020-BNK30, Class E (c) | 2.50% | 12/01/53 | 1,038,969 | ||||
BBCMS Mortgage Trust | ||||||||
1,000,000 | Series 2018-TALL, Class B, 1 Mo. CME Term SOFR + CSA + 1.12% (b) (c) | 6.50% | 03/15/37 | 870,682 | ||||
Benchmark Mortgage Trust | ||||||||
1,000,000 | Series 2020-IG2, Class UBRD (a) (c) | 3.51% | 09/01/48 | 848,005 | ||||
CCRE Commercial Mortgage Securities L.P. | ||||||||
7,919,618 | CFCRE Mortgage Trust Commercial Mortgage Pass-Through Certificates, Series 2017-C8, Class XA, IO (a) | 1.48% | 06/01/50 | 307,017 | ||||
CD Mortgage Trust | ||||||||
8,622,086 | Series 2018-CD7, Class XA, IO (a) | 0.64% | 08/01/51 | 220,659 | ||||
Citigroup Commercial Mortgage Trust | ||||||||
4,177,399 | Series 2015-GC29, Class XA, IO (a) | 1.01% | 04/01/48 | 45,088 | ||||
8,608,812 | Series 2016-GC37, Class XA, IO (a) | 1.65% | 04/01/49 | 249,455 | ||||
5,515,032 | Series 2016-P4, Class XA, IO (a) | 1.89% | 07/01/49 | 204,890 | ||||
COMM Mortgage Trust | ||||||||
122,774,000 | Series 2014-UBS6, Class XB, IO (a) (c) | 0.04% | 12/01/47 | 60,491 | ||||
3,829,000 | Series 2015-CCRE26, Class XD, IO (a) (c) | 1.21% | 10/01/48 | 77,816 | ||||
14,711,211 | Series 2015-LC21, Class XA, IO (a) | 0.64% | 07/01/48 | 114,016 | ||||
Credit Suisse Mortgage Capital Certificates | ||||||||
1,000,000 | Series 2021-980M, Class G (a) (c) | 3.54% | 07/15/31 | 733,716 | ||||
Credit Suisse Mortgage Trust | ||||||||
1,000,000 | Series 2022-CNTR, Class A, 1 Mo. CME Term SOFR + CSA + 3.94%, 4.09% Floor (b) (c) | 9.28% | 01/15/24 | 867,235 | ||||
CSAIL Commercial Mortgage Trust | ||||||||
5,883,588 | Series 2020-C19, Class XA, IO (a) | 1.10% | 03/01/53 | 294,185 | ||||
FIVE Mortgage Trust | ||||||||
28,958,917 | Series 2023-V1, Class XA, IO (b) | 0.83% | 02/01/56 | 852,336 | ||||
GS Mortgage Securities Corp Trust | ||||||||
1,000,000 | Series 2018-3PCK, Class C, 1 Mo. CME Term SOFR + CSA + 3.50% (b) (c) | 8.95% | 09/15/31 | 967,384 | ||||
GS Mortgage Securities Trust | ||||||||
823,474 | Series 2012-GCJ9, Class D (a) (c) | 4.60% | 11/01/45 | 745,214 | ||||
Houston Galleria Mall Trust | ||||||||
1,000,000 | Series 2015-HGLR, Class D (c) | 3.98% | 03/01/37 | 914,007 | ||||
Hudsons Bay Simon JV Trust | ||||||||
156,152 | Series 2015-HBFL, Class DFL, 1 Mo. CME Term SOFR + CSA + 3.90% (b) (c) | 9.34% | 08/05/34 | 132,646 | ||||
JP Morgan Chase Commercial Mortgage Securities Trust | ||||||||
20,237,120 | Series 2016-JP4, Class XA, IO (a) | 0.58% | 12/01/49 | 269,111 | ||||
969,086 | Series 2018-PHH, Class A, 1 Mo. CME Term SOFR + CSA + 1.21%, 2.71% Floor (b) (c) | 6.59% | 06/15/35 | 857,040 |
Principal Value | Description | Stated Coupon | Stated Maturity | Value | ||||
MORTGAGE-BACKED SECURITIES (Continued) | ||||||||
Commercial Mortgage-Backed Securities (Continued) | ||||||||
LSTAR Commercial Mortgage Trust | ||||||||
$1,500,000 | Series 2017-5, Class D (a) (c) | 4.67% | 03/01/50 | $1,034,949 | ||||
23,596,467 | Series 2017-5, Class X, IO (a) (c) | 0.80% | 03/01/50 | 405,998 | ||||
LUXE Trust | ||||||||
1,000,000 | Series 2021-TRIP, Class F, 1 Mo. CME Term SOFR + CSA + 3.25% (b) (c) | 8.70% | 10/15/38 | 973,026 | ||||
Morgan Stanley Bank of America Merrill Lynch Trust | ||||||||
14,448,664 | Series 2014-C16, Class XA, IO (a) | 0.87% | 06/01/47 | 20,368 | ||||
1,863,910 | Series 2014-C19, Class XA, IO (a) | 0.95% | 12/01/47 | 9,691 | ||||
5,632,500 | Series 2014-C19, Class XE, IO (a) (c) | 1.18% | 12/01/47 | 68,845 | ||||
429,743 | Series 2016-C31, Class XA, IO (a) | 1.26% | 11/01/49 | 12,123 | ||||
Morgan Stanley Capital I Trust | ||||||||
2,180,000 | Series 2016-UBS9, Class XD, IO (a) (c) | 1.59% | 03/01/49 | 71,016 | ||||
1,320,000 | Series 2019-L2, Class C (a) | 4.97% | 03/01/52 | 978,146 | ||||
VMC Finance | ||||||||
820,463 | Series 2021-HT1, Class A, 1 Mo. CME Term SOFR + CSA + 1.65% (b) (c) | 7.10% | 01/18/37 | 801,060 | ||||
Wells Fargo Commercial Mortgage Trust | ||||||||
1,255,060 | Series 2015-C26, Class XA, IO (a) | 1.18% | 02/01/48 | 13,054 | ||||
1,034,000 | Series 2016-NXS6, Class C (a) | 4.39% | 11/01/49 | 870,665 | ||||
19,122,234 | ||||||||
Total Mortgage-Backed Securities | 28,044,716 | |||||||
(Cost $31,793,510) | ||||||||
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES – 56.4% | ||||||||
Collateralized Mortgage Obligations – 19.3% | ||||||||
Federal Home Loan Mortgage Corp. | ||||||||
450 | Series 2303, Class SW, IO, ECOFIN x -15.87 + 121.11%, Capped at 10.00% (e) | 10.00% | 03/01/24 | 5 | ||||
117,942 | Series 2439, Class XI, IO, if 1 Mo. LIBOR x -1 + 7.74% is less than 7.50%, then 6.50%, otherwise 0.00% (e) | 6.50% | 03/01/32 | 15,859 | ||||
593,792 | Series 2975, Class SJ, IO, (30 Day Average SOFR + CSA) x -1 + 6.65% (e) | 1.22% | 05/15/35 | 33,544 | ||||
14,051 | Series 3451, Class SB, IO, (30 Day Average SOFR + CSA) x -1 + 6.03% (e) | 0.60% | 05/15/38 | 705 | ||||
208,187 | Series 3471, Class SD, IO, (30 Day Average SOFR + CSA) x -1 + 6.08% (e) | 0.65% | 12/15/36 | 12,253 | ||||
9,670 | Series 4021, Class IP, IO | 3.00% | 03/01/27 | 310 | ||||
169,972 | Series 4057, Class YI, IO | 3.00% | 06/01/27 | 5,873 | ||||
337,638 | Series 4082, Class PI, IO | 3.00% | 06/01/27 | 11,598 | ||||
229,423 | Series 4206, Class IA, IO | 3.00% | 03/01/33 | 18,115 | ||||
Federal Home Loan Mortgage Corp. STACR REMIC Trust | ||||||||
1,000,000 | Series 2020-DNA1, 30 Day Average SOFR + CSA + 5.25% (b) (c) | 10.69% | 01/25/50 | 1,016,062 | ||||
1,000,000 | Series 2020-DNA2, Class B2, 30 Day Average SOFR + CSA + 4.80% (b) (c) | 10.24% | 02/25/50 | 1,003,031 | ||||
1,000,000 | Series 2020-HQA1, 30 Day Average SOFR + CSA + 5.10% (b) (c) | 10.54% | 01/25/50 | 997,772 | ||||
1,000,000 | Series 2020-HQA2, Class B2, 30 Day Average SOFR + CSA + 7.60% (b) (c) | 13.04% | 03/25/50 | 1,090,675 | ||||
Federal Home Loan Mortgage Corp. STACR Trust | ||||||||
1,000,000 | Series 2019-DNA3, Class B2, 30 Day Average SOFR + CSA + 8.15% (b) (c) | 13.59% | 07/25/49 | 1,111,099 |
Principal Value | Description | Stated Coupon | Stated Maturity | Value | ||||
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Continued) | ||||||||
Collateralized Mortgage Obligations (Continued) | ||||||||
Federal Home Loan Mortgage Corp. STACR Trust (Continued) | ||||||||
$1,000,000 | Series 2019-DNA4, Class B2, 30 Day Average SOFR + CSA + 6.25% (b) (c) | 11.69% | 10/25/49 | $1,065,983 | ||||
Federal Home Loan Mortgage Corp. Structured Pass-Through Certificates | ||||||||
44,295 | Series T-56, Class APO, PO | (f) | 05/01/43 | 32,683 | ||||
Federal Home Loan Mortgage Corp., STRIPS | ||||||||
16,492 | Series 177, IO | 7.00% | 07/01/26 | 985 | ||||
Federal National Mortgage Association | ||||||||
12,689 | Series 1996-46, Class ZA | 7.50% | 11/01/26 | 12,690 | ||||
6,040 | Series 1997-85, Class M, IO | 6.50% | 12/01/27 | 55 | ||||
16,328 | Series 2002-80, Class IO, IO | 6.00% | 09/01/32 | 1,081 | ||||
43,808 | Series 2003-15, Class MS, IO, (30 Day Average SOFR + CSA) x -1 + 8.00% (e) | 2.56% | 03/25/33 | 3,938 | ||||
50,753 | Series 2003-44, Class IU, IO | 7.00% | 06/01/33 | 7,901 | ||||
51,222 | Series 2005-6, Class SE, IO, (30 Day Average SOFR + CSA) x -1 + 6.70% (e) | 1.26% | 02/25/35 | 3,060 | ||||
26,477 | Series 2007-100, Class SM, IO, (30 Day Average SOFR + CSA) x -1 + 6.45% (e) | 1.01% | 10/25/37 | 1,765 | ||||
153,017 | Series 2007-37, Class SB, IO, (30 Day Average SOFR + CSA) x -1 + 6.75% (e) | 1.31% | 05/25/37 | 12,240 | ||||
294,177 | Series 2008-17, Class BE | 5.50% | 10/01/37 | 275,627 | ||||
596,095 | Series 2010-103, Class ID, IO | 5.00% | 09/01/40 | 96,382 | ||||
36,439 | Series 2010-99, Class SG, (30 Day Average SOFR + CSA) x -5 + 25.00%, 0.00% Floor (b) (e) | 0.00% | 09/01/40 | 34,246 | ||||
313,231 | Series 2011-81, Class PI, IO | 3.50% | 08/01/26 | 8,019 | ||||
208,010 | Series 2012-112, Class BI, IO | 3.00% | 09/01/31 | 3,671 | ||||
1,275,563 | Series 2012-125, Class MI, IO | 3.50% | 11/01/42 | 177,516 | ||||
16,897 | Series 2013-132, Class SW, (30 Day Average SOFR + CSA) x -2.67 + 10.67%, 0.00% Floor (b) (e) | 0.00% | 01/01/44 | 9,719 | ||||
1,589,806 | Series 2013-32, Class IG, IO | 3.50% | 04/01/33 | 165,218 | ||||
1,300,064 | Series 2015-20, Class ES, IO, (30 Day Average SOFR + CSA) x -1 + 6.15% (e) | 0.71% | 04/25/45 | 114,947 | ||||
84,786 | Series 2015-76, Class BI, IO | 4.00% | 10/01/39 | 1,796 | ||||
168,142 | Series 2016-74, Class LI, IO | 3.50% | 09/01/46 | 41,857 | ||||
2,364,481 | Series 2017-109, Class SJ, IO, (30 Day Average SOFR + CSA) x -1 + 6.20% (e) | 0.76% | 01/25/48 | 214,222 | ||||
1,939,915 | Series 5179, Class GZ | 2.00% | 01/01/52 | 854,239 | ||||
Federal National Mortgage Association, STRIPS | ||||||||
15,947 | Series 305, Class 12, IO (g) | 6.50% | 12/01/29 | 1,394 | ||||
31,057 | Series 355, Class 18, IO | 7.50% | 11/01/33 | 4,321 | ||||
434,515 | Series 406, Class 6, IO (g) | 4.00% | 01/01/41 | 71,876 | ||||
Government National Mortgage Association | ||||||||
108,661 | Series 2005-33, Class AY | 5.50% | 04/01/35 | 107,540 | ||||
133,858 | Series 2007-68, Class PI, IO, (1 Mo. CME Term SOFR + CSA) x -1 + 6.65% (e) | 1.20% | 11/20/37 | 3,176 | ||||
100,000 | Series 2008-2, Class HB | 5.50% | 01/01/38 | 96,601 | ||||
110,129 | Series 2008-73, Class SK, IO, (1 Mo. CME Term SOFR + CSA) x -1 + 6.74% (e) | 1.29% | 08/20/38 | 5,353 | ||||
210,067 | Series 2013-104, Class YS, IO, (1 Mo. CME Term SOFR + CSA) x -1 + 6.15% (e) | 0.70% | 07/16/43 | 10,269 | ||||
3,543,476 | Series 2015-158, Class KS, IO, (1 Mo. CME Term SOFR + CSA) x -1 + 6.25% (e) | 0.80% | 11/20/45 | 314,292 | ||||
76,284 | Series 2016-139, Class MZ | 1.50% | 07/01/45 | 53,740 | ||||
161,588 | Series 2017-4, Class CZ | 3.00% | 01/01/47 | 114,339 |
Principal Value | Description | Stated Coupon | Stated Maturity | Value | ||||
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Continued) | ||||||||
Collateralized Mortgage Obligations (Continued) | ||||||||
Government National Mortgage Association (Continued) | ||||||||
$132,257 | Series 2017-H18, Class DZ (g) | 4.63% | 09/01/67 | $115,940 | ||||
9,996,077 | Series 2020-13, Class BT, IO, (1 Mo. CME Term SOFR + CSA) x -1 + 6.20%, Capped at 0.50% (e) | 0.50% | 11/20/45 | 199,310 | ||||
9,554,892 | ||||||||
Commercial Mortgage-Backed Securities – 14.9% | ||||||||
Federal Home Loan Mortgage Corp. Multifamily Structured Pass-Through Certificates | ||||||||
30,000,000 | Series K043, Class X3, IO (a) | 1.63% | 02/01/43 | 550,479 | ||||
14,500,000 | Series K071, Class X3, IO (a) | 2.01% | 11/01/45 | 1,020,382 | ||||
4,000,000 | Series K110, Class X3, IO (a) | 3.40% | 06/01/48 | 663,421 | ||||
4,605,411 | Series K115, Class X3, IO (a) | 2.96% | 09/01/48 | 680,819 | ||||
4,326,216 | Series K118, Class X3, IO (a) | 2.69% | 10/25/48 | 594,308 | ||||
1,900,000 | Series K122, Class X3, IO (a) | 2.63% | 01/01/49 | 259,838 | ||||
5,000,000 | Series K124, Class X3, IO (a) | 2.62% | 02/01/49 | 693,239 | ||||
3,343,856 | Series K128, Class X3, IO (a) | 2.78% | 04/01/31 | 501,017 | ||||
1,831,144 | Series K739, Class X3, IO (a) | 2.81% | 11/25/48 | 160,151 | ||||
341,978,793 | Series KBX1, Class X1, IO (a) | 0.09% | 01/01/26 | 444,299 | ||||
4,571,896 | Series KG06, Class X3, IO (a) | 2.73% | 10/01/31 | 678,627 | ||||
Federal National Mortgage Association, ACES | ||||||||
13,100,000 | Series 2019-M29, Class X4, IO | 0.70% | 03/01/29 | 362,596 | ||||
Freddie Mac Multiclass Certificates | ||||||||
5,782,630 | Series 2021-P011, Class X1, IO (a) | 1.78% | 09/01/45 | 666,270 | ||||
Government National Mortgage Association | ||||||||
2,187,863 | Series 2016-11, Class IO, IO (g) | 0.78% | 01/01/56 | 74,672 | ||||
7,350,118 | ||||||||
Pass-through Security – 22.2% | ||||||||
Fannie Mae or Freddie Mac | ||||||||
2,000,000 | Pool TBA (h) | 3.50% | 11/01/53 | 1,665,573 | ||||
3,000,000 | Pool TBA (h) | 5.00% | 11/01/53 | 2,765,859 | ||||
1,500,000 | Pool TBA (h) | 5.50% | 11/01/53 | 1,422,774 | ||||
2,000,000 | Pool TBA (h) | 3.50% | 12/01/53 | 1,667,448 | ||||
4,000,000 | Pool TBA (h) | 4.00% | 12/01/53 | 3,458,125 | ||||
10,979,779 | ||||||||
Total U.S. Government Agency Mortgage-Backed Securities | 27,884,789 | |||||||
(Cost $31,647,281) | ||||||||
ASSET-BACKED SECURITIES – 4.2% | ||||||||
Adams Outdoor Advertising LP | ||||||||
1,000,000 | Series 2023-1, Class B (c) | 8.81% | 07/15/53 | 994,988 | ||||
CoreVest American Finance Trust | ||||||||
8,938,703 | Series 2021-3, Class XA, IO (a) (c) | 2.38% | 10/01/54 | 510,283 | ||||
Mid-State Capital Corp. Trust | ||||||||
116,540 | Series 2005-1, Class A | 5.75% | 01/01/40 | 113,949 | ||||
PAGAYA AI Debt Trust | ||||||||
447,246 | Series 2022-3, Class A (c) | 6.06% | 03/15/30 | 445,186 | ||||
Total Asset-Backed Securities | 2,064,406 | |||||||
(Cost $2,115,223) |
Shares | Description | Value | ||
MONEY MARKET FUNDS – 3.5% | ||||
1,748,885 | Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio - Institutional Class - 5.22% (i) | $1,748,885 | ||
(Cost $1,748,885) |
Total Investments – 120.9% | 59,742,796 | ||||
(Cost $67,304,899) |
Number of Contracts | Description | Notional Amount | Exercise Price | Expiration Date | Value | |||||
PUT OPTIONS WRITTEN – (0.0)% | ||||||||||
(10) | U.S. 10-Year Treasury Futures Put | $(1,061,719) | $104.50 | 11/24/23 | (2,813) | |||||
(Premiums received $7,005) |
Net Other Assets and Liabilities – (20.9)% | (10,341,562) | ||
Net Assets – 100.0% | $49,398,421 |
Futures Contracts | Position | Number of Contracts | Expiration Date | Notional Value | Unrealized Appreciation (Depreciation)/ Value | |||||
US Treasury 10 Year Note Future | Long | 6 | Dec 2023 | $ 637,031 | $1,781 | |||||
US Treasury 2 Year Note Future | Long | 8 | Dec 2023 | 1,619,350 | (187) | |||||
US Treasury 5 Year Note Future | Long | 26 | Dec 2023 | 2,716,391 | (656) | |||||
US Treasury Bond Future | Long | 33 | Dec 2023 | 3,611,437 | 13,906 | |||||
US Treasury Ultra 10 Year Note Future | Long | 54 | Dec 2023 | 5,876,719 | (216,828) | |||||
$14,460,928 | $(201,984) |
(a) | Collateral Strip Rate security. Coupon is based on the weighted net interest rate of the investment’s underlying collateral. The interest rate resets periodically. |
(b) | Floating or variable rate security. |
(c) | This security, sold within the terms of a private placement memorandum, is exempt from registration upon resale under Rule 144A of 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 Fund’s investment 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, 2023, securities noted as such amounted to $29,902,713 or 60.5% of net assets. |
(d) | Step-up security. A security where the coupon increases or steps up at a predetermined date. Interest rate shown reflects the rate in effect at October 31, 2023. |
(e) | Inverse floating rate security. |
(f) | Zero coupon security. |
(g) | 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. |
(h) | All or portion of this security is part of a mortgage dollar roll agreement (see Note 2I - Mortgage Dollar Rolls and TBA Transactions in the Notes to Financial Statements). |
(i) | Rate shown reflects yield as of October 31, 2023. |
Abbreviations throughout the Portfolio of Investments: | |
ACES | – Alternative Credit Enhancement Securities |
CME | – Chicago Mercantile Exchange |
CSA | – Credit Spread Adjustment |
ECOFIN | – Enterprise 11th District COFI Institutional Replacement Index |
IO | – Interest-Only Security - Principal amount shown represents par value on which interest payments are based. |
LIBOR | – London Interbank Offered Rate |
PO | – Principal-Only Security |
REMIC | – Real Estate Mortgage Investment Conduit |
SOFR | – Secured Overnight Financing Rate |
STACR | – Structured Agency Credit Risk |
STRIPS | – Separate Trading of Registered Interest and Principal of Securities |
TBA | – To-Be-Announced Security |
ASSETS TABLE | ||||
Total Value at 10/31/2023 | Level 1 Quoted Prices | Level 2 Significant Observable Inputs | Level 3 Significant Unobservable Inputs | |
Mortgage-Backed Securities | $ 28,044,716 | $ — | $ 28,044,716 | $ — |
U.S. Government Agency Mortgage-Backed Securities | 27,884,789 | — | 27,884,789 | — |
Asset-Backed Securities | 2,064,406 | — | 2,064,406 | — |
Money Market Funds | 1,748,885 | 1,748,885 | — | — |
Total Investments | 59,742,796 | 1,748,885 | 57,993,911 | — |
Futures Contracts* | 15,687 | 15,687 | — | — |
Total | $ 59,758,483 | $ 1,764,572 | $ 57,993,911 | $— |
LIABILITIES TABLE | ||||
Total Value at 10/31/2023 | Level 1 Quoted Prices | Level 2 Significant Observable Inputs | Level 3 Significant Unobservable Inputs | |
Futures Contracts* | $ (217,671) | $ (217,671) | $ — | $ — |
Written Options | (2,813) | (2,813) | — | — |
Total | $ (220,484) | $ (220,484) | $— | $— |
* | Includes cumulative appreciation/depreciation on futures contracts as reported in the Futures Contracts table. Only the current day’s variation margin is presented on the Statement of Assets and Liabilities. |
ASSETS: | |
Investments, at value | $ 59,742,796 |
Restricted Cash | 361,818 |
Receivables: | |
Interest | 490,599 |
Variation margin | 3,914 |
Prepaid expenses | 5,366 |
Total Assets | 60,604,493 |
LIABILITIES: | |
Options written, at value | 2,813 |
Payables: | |
Investment securities purchased | 11,053,668 |
Audit and tax fees | 74,188 |
Investment advisory fees | 35,878 |
Administrative fees | 15,673 |
Shareholder reporting fees | 7,438 |
Legal fees | 6,289 |
Custodian fees | 4,065 |
Transfer agent fees | 3,213 |
Trustees’ fees and expenses | 932 |
Financial reporting fees | 771 |
Other liabilities | 1,144 |
Total Liabilities | 11,206,072 |
NET ASSETS | $49,398,421 |
NET ASSETS consist of: | |
Paid-in capital | $ 63,705,638 |
Par value | 42,131 |
Accumulated distributable earnings (loss) | (14,349,348) |
NET ASSETS | $49,398,421 |
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share) | $11.72 |
Number of Common Shares outstanding (unlimited number of Common Shares has been authorized) | |
Investments, at cost | $67,304,899 |
Premiums received on options written | $7,005 |
INVESTMENT INCOME: | ||
Interest | $ 3,876,178 | |
Other | 9,974 | |
Total investment income | 3,886,152 | |
EXPENSES: | ||
Investment advisory fees | 438,137 | |
Audit and tax fees | 74,811 | |
Administrative fees | 49,230 | |
Shareholder reporting fees | 28,090 | |
Listing expense | 23,750 | |
Transfer agent fees | 18,992 | |
Trustees’ fees and expenses | 18,707 | |
Legal fees | 13,242 | |
Financial reporting fees | 9,250 | |
Custodian fees | 8,070 | |
Other | 19,268 | |
Total expenses | 701,547 | |
NET INVESTMENT INCOME (LOSS) | 3,184,605 | |
NET REALIZED AND UNREALIZED GAIN (LOSS): | ||
Net realized gain (loss) on: | ||
Investments | (1,335,140) | |
Purchased options contracts | (44,617) | |
Written options contracts | 32,820 | |
Futures contracts | (651,269) | |
Net realized gain (loss) | (1,998,206) | |
Net change in unrealized appreciation (depreciation) on: | ||
Investments | 276,494 | |
Written options contracts | 4,192 | |
Futures contracts | (132,922) | |
Net change in unrealized appreciation (depreciation) | 147,764 | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | (1,850,442) | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ 1,334,163 |
Year Ended 10/31/2023 | Year Ended 10/31/2022 | ||
OPERATIONS: | |||
Net investment income (loss) | $ 3,184,605 | $ 2,122,909 | |
Net realized gain (loss) | (1,998,206) | (1,419,227) | |
Net change in unrealized appreciation (depreciation) | 147,764 | (5,640,691) | |
Net increase (decrease) in net assets resulting from operations | 1,334,163 | (4,937,009) | |
DISTRIBUTIONS TO SHAREHOLDERS FROM: | |||
Investment operations | (2,864,918) | (1,819,898) | |
Return of capital | — | (960,758) | |
Total distributions to shareholders | (2,864,918) | (2,780,656) | |
Total increase (decrease) in net assets | (1,530,755) | (7,717,665) | |
NET ASSETS: | |||
Beginning of period | 50,929,176 | 58,646,841 | |
End of period | $ 49,398,421 | $ 50,929,176 | |
COMMON SHARES: | |||
Common Shares at end of period | 4,213,115 | 4,213,115 |
Year Ended October 31, | |||||||||
2023 | 2022 | 2021 | 2020 | 2019 | |||||
Net asset value, beginning of period | $ 12.09 | $ 13.92 | $ 14.45 | $ 14.91 | $ 14.96 | ||||
Income from investment operations: | |||||||||
Net investment income (loss) | 0.76 (a) | 0.50 | 0.44 | 0.44 | 0.34 | ||||
Net realized and unrealized gain (loss) | (0.45) | (1.67) | (0.25) | (0.18) | 0.33 | ||||
Total from investment operations | 0.31 | (1.17) | 0.19 | 0.26 | 0.67 | ||||
Distributions paid to shareholders from: | |||||||||
Net investment income | (0.68) | (0.43) | (0.35) | (0.63) | (0.50) | ||||
Return of capital | — | (0.23) | (0.37) | (0.09) | (0.22) | ||||
Total distributions paid to Common Shareholders | (0.68) | (0.66) | (0.72) | (0.72) | (0.72) | ||||
Net asset value, end of period | $ | $12.09 | $13.92 | $14.45 | $14.91 | ||||
Market value, end of period | $ | $11.01 | $13.70 | $13.40 | $13.99 | ||||
Total return based on net asset value (b) | 2.88% | (8.38)% | 1.51% | 2.12% | 5.08% | ||||
Total return based on market value (b) | 4.88% | (15.22)% | 7.74% | 0.93% | 13.37% | ||||
Ratios to average net assets/supplemental data: | |||||||||
Net assets, end of period (in 000’s) | $ 49,398 | $ 50,929 | $ 58,647 | $ 60,878 | $ 62,832 | ||||
Ratio of total expenses to average net assets | 1.36% | 1.33% | 1.31% | 1.33% | 1.33% | ||||
Ratio of net investment income (loss) to average net assets | 6.18% | 3.86% | 3.11% | 3.03% | 2.29% | ||||
Portfolio turnover rate | 143% | 44% | 67% | 28% | 69% |
(a) | Based on average shares outstanding. |
(b) | 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) | available market prices for the fixed-income security; |
3) | an evaluation of the forces which influence the market in which these securities are purchased and sold; |
4) | the type, size and cost of the security; |
5) | the financial statements of the issuer; |
6) | the credit quality and cash flow of the issuer, based on the Advisor’s or external analysis; |
7) | the information as to any transactions in or offers for the security; |
8) | the price and extent of public trading in similar securities (or equity securities) of the borrower/issuer, or comparable companies; |
9) | the coupon payments; |
10) | the quality, value and salability of collateral, if any, securing the security; |
11) | 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; |
12) | the prospects for the issuer’s industry, and multiples (of earnings and/or cash flows) being paid for similar businesses in that industry; and |
13) | 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: | 2023 | 2022 |
Ordinary income | $2,864,918 | $1,819,898 |
Capital gains | — | — |
Return of capital | — | 960,758 |
Undistributed ordinary income | $179,390 |
Undistributed capital gains | — |
Total undistributed earnings | 179,390 |
Accumulated capital and other losses | (3,670,720) |
Net unrealized appreciation (depreciation) | (10,858,018) |
Total accumulated earnings (losses) | (14,349,348) |
Other | — |
Paid-in capital | 63,747,769 |
Total net assets | $49,398,421 |
Tax Cost | Gross Unrealized Appreciation | Gross Unrealized (Depreciation) | Net Unrealized Appreciation (Depreciation) | |||
$70,396,017 | $416,595 | $(11,274,613) | $(10,858,018) |
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* | $ 15,687 | Unrealized depreciation on futures contracts* | $ 217,671 | |||||
Options | Interest Rate Risk | Options contracts purchased, at value | — | Options contracts written, at value | 2,813 |
Statement of Operations Location | |
Interest Rate Risk Exposure | |
Net realized gain (loss) on purchased options contracts | $(44,617) |
Net realized gain (loss) on written options contracts | 32,820 |
Net change in unrealized appreciation (depreciation) on written options contracts | 4,192 |
Net realized gain (loss) on futures contracts | (651,269) |
Net change in unrealized appreciation (depreciation) on futures contracts | (132,922) |
(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 may also invest in MBS through TBA Transactions. 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. 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 or loans at market interest rates that are below the Fund portfolio’s current earnings rate. |
NOT FDIC INSURED | NOT BANK GUARANTEED | MAY LOSE VALUE |
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 | Retired; Physician, Edward-Elmhurst Medical Group (2021 to September 2023); Physician and Officer, Wheaton Orthopedics (1990 to 2021) | 254 | None |
Thomas R. Kadlec, Trustee (1957) | • Three Year Term• Since Fund Inception | Retired; President, ADM Investor Services, Inc. (Futures Commission Merchant) (2010 to July 2022) | 254 | Director, National Futures Association and ADMIS Singapore Ltd.; Formerly, Director of ADM Investor Services, Inc., ADM Investor Services International, ADMIS Hong Kong Ltd., and Futures Industry Association |
Denise M. Keefe, Trustee (1964) | • Three Year Term• Since 2021 | Executive Vice President, Advocate Aurora Health and President, Advocate Aurora Continuing Health Division (Integrated Healthcare System) | 254 | Director and Board Chair of Advocate Home Health Services, Advocate Home Care Products and Advocate Hospice; Director and Board Chair of Aurora At Home (since 2018); Director of Advocate Physician Partners Accountable Care Organization; Director of RML Long Term Acute Care Hospitals; Director of Senior Helpers (since 2021); and Director of MobileHelp (since 2022) |
Robert F. Keith, Trustee (1956) | • Three Year Term• Since June 2006 | President, Hibs Enterprises (Financial and Management Consulting) | 254 | Formerly, Director of Trust Company of Illinois |
Niel B. Nielson, Trustee (1954) | • Three Year Term• Since Fund Inception | Senior Advisor (2018 to Present), Managing Director and Chief Operating Officer (2015 to 2018), Pelita Harapan Educational Foundation (Educational Products and Services) | 254 | None |
Bronwyn Wright, Trustee (1971) | • Three Year Term• Since 2023 | Independent Director to a number of Irish collective investment funds (2009 to Present); Various roles at international affiliates of Citibank (1994 to 2009), including Managing Director, Citibank Europe plc and Head of Securities and Fund Services, Citi Ireland (2007 to 2009) | 229 | None |
(1) | Currently, Denise M. Keefe and Robert F. Keith, as Class I Trustees, are serving as trustees until the Fund’s 2026 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. James A. Bowen, Niel B. Nielson, and Bronwyn Wright, as Class III Trustees, are serving as trustees until the Fund’s 2025 annual meeting of shareholders. |
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 |
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) | 254 | None |
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 2016 | Managing Director and Chief Financial Officer, First Trust Advisors L.P. and First Trust Portfolios L.P.; Chief Financial Officer, BondWave LLC (Software Development Company) and Stonebridge Advisors LLC (Investment Advisor) |
Derek D. Maltbie (1972) | Treasurer, Chief Financial Officer and Chief Accounting Officer | • Indefinite Term • Since 2023 | Senior Vice President, First Trust Advisors L.P. and First Trust Portfolios L.P., July 2021 to Present. Previously, Vice President, First Trust Advisors L.P. and First Trust Portfolios L.P., 2014 to 2021. |
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 • Chief Compliance Officer Since January 2011• Assistant Secretary Since Fund Inception | Deputy General Counsel, First Trust Advisors L.P. and First Trust Portfolios L.P. |
(1) | Currently, Denise M. Keefe and Robert F. Keith, as Class I Trustees, are serving as trustees until the Fund’s 2026 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. James A. Bowen, Niel B. Nielson, and Bronwyn Wright, as Class III Trustees, are serving as trustees until the Fund’s 2025 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. |
(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, Robert F. Keith and Bronwyn Wright 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 $47,000 for the fiscal year ended October 31, 2022 and $47,000 for the fiscal year ended October 31, 2023. |
(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, 2022 and $0 for the fiscal year ended October 31, 2023. |
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, 2022 and $0 for the fiscal year ended October 31, 2023.
(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 $28,762 for the fiscal year ended October 31, 2022 and $33,120 for the fiscal year ended October 31, 2023. These fees were for tax 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, 2022 and $0 for the fiscal year ended October 31, 2023.
(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, 2022 and $0 for the fiscal year ended October 31, 2023. |
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, 2022 and $0 for the fiscal year ended October 31, 2023.
(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 and distributor of this Item that were approved by the audit committee pursuant to the pre-approval exceptions included in paragraph (c)(7)(i)(C) or paragraph (C)(7)(ii) of Rule 2-01 of Regulation S-X are as follows: |
Registrant: | Advisor and Distributor: | |
(b) 0% | (b) 0% | |
(c) 0% | (c) 0% | |
(d) 0% | (d) 0% |
(f) | The percentage of hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees was less than fifty percent. |
(g) | The aggregate non-audit fees billed by the registrant’s accountant for services rendered to the registrant, and rendered to the registrant’s investment 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, 2022 were $28,762 for the registrant and $0 for the registrant’s investment advisor and for the registrant’s fiscal year ended October 31, 2023 were $33,120 for the registrant and $44,000 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 standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934 consisting of all the independent directors of the registrant. The audit committee of the registrant is comprised of: Richard E. Erickson, Thomas R. Kadlec, Denise M. Keefe, Robert F. Keith, Niel B. Nielson and Bronwyn Wright. |
(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.
A description of the policies and procedures used to vote proxies on behalf of the Fund is attached as an exhibit.
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 8, 2024.
The First Trust Government & Securitized Products Group of First Trust Advisors L.P. is responsible for the day–to-day management of the registrant’s portfolio. The First Trust Government & Securitized Products group has been led by James Snyder and Jeremiah Charles since 2013 and was previously known as the Mortgage Securities Team.
Jim Snyder. Mr. Snyder is a Senior Portfolio Manager and Co-head of the First Trust Government & Securitized Products Group. He has over 32 years of investment and portfolio management experience. At First Trust, he is responsible for the management of the firm’s mortgage and securitized product fund offerings. Prior to joining First Trust in 2013, Jim spent most of his career leading several mortgage trading and portfolio management groups at American Express Financial Advisors, where he managed the AXP Federal Income Fund, and at Deerfield Capital, where he managed Deerfield’s Mortgage REIT and Opportunity Fund. Additionally, he has held senior positions at Fort Sheridan Advisors and Spyglass Capital. Mr. Snyder holds a B.S. and M.A. in Economics from DePaul University and an MBA from the University of Chicago Booth School of Business.
Jeremiah Charles. Mr. Charles is a Senior Portfolio Manager and Co-head of the First Trust Government & Securitized Products Group. He has over 19 years of investment, trading and portfolio management experience. At First Trust, he is responsible for the management of the firm’s mortgage and securitized product fund offerings. Prior to joining First Trust in 2013, Jeremiah spent the majority of his career as a Senior Portfolio Manager at Deerfield Capital Management where he helped manage the Deerfield Mortgage REIT. In his career, he has also held positions at CRT Capital, where he worked as a Vice President in Securitized Products and at Piper Jaffray, where he began his career as an Analyst. Mr. Charles holds a B.S. in Finance from the Leeds School of Business at the University of Colorado, and a MS in Real Estate with honors from the Charles H. Kellstadt Graduate School of Business at DePaul University.
Owen Aronson. Mr. Aronson is a Senior Investment Analyst for the First Trust Government & Securitized Products Group. He has over 15 years of investment research and trading experience. At First Trust, he focuses primarily on the commercial mortgage-backed securities, CMBS, sector and contributes to the management of the non-agency sectors. Prior to joining First Trust in 2020, Owen spent the majority of his career in the Securitized Products team at Neuberger Berman where he was responsible for CMBS investments. He began his career at Lehman Brothers Asset Management as an Analyst. Mr. Aronson holds a B.A. in Economics from the University of Chicago.
(2) | Other Accounts Managed by Portfolio Managers or Management Team Member and Potential Conflicts of Interest |
Information provided as of October 31, 2023.
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 | $11,568,521,334 | 0 | $ 0 |
Other Pooled Investment Vehicles: | 0 | $ 0 | 0 | $ 0 | |
Other Accounts: | 0 | $ 0 | 0 | $ 0 | |
2. James Snyder | Registered Investment Companies: | 5 | $11,568,521,334 | 0 | $ 0 |
Other Pooled Investment Vehicles: | 0 | $ 0 | 0 | $ 0 | |
Other Accounts: | 0 | $ 0 | 0 | $ 0 | |
3. Owen Aronson | Registered Investment Companies: | 2 | $3,841,816,649 | 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, 2023.
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, 2023.
Name | Dollar Range of Fund Shares Beneficially Owned |
Jeremiah Charles | None |
James Snyder | None |
Owen Aronson | 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. |
(c) | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies as required by Item 7 is 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 8, 2024 |
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 8, 2024 |
By (Signature and Title)* | /s/ Derek D. Maltbie | |
Derek D. Maltbie, Treasurer, Chief Financial Officer and Chief Accounting Officer (principal financial officer) |
Date: | January 8, 2024 |
* Print the name and title of each signing officer under his or her signature.