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 811-22795
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First Trust Intermediate Duration Preferred & Income
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Fund (Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(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
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(Name and address of agent for service)
registrant's telephone number, including area code: 630-765-8000
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Date of fiscal year end: October 31
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Date of reporting period: October 31, 2014
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 100 F Street, NE,
Washington, DC 20549. The OMB has reviewed this collection of information under
the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The Report to Shareholders is attached herewith.
FIRST TRUST
INTERMEDIATE DURATION
PREFERRED & INCOME
FUND
(FPF)
ANNUAL REPORT
FOR THE YEAR ENDED
OCTOBER 31, 2014
FIRST TRUST
STONEBRIDGE
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ADVISORS, LLC
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TABLE OF CONTENTS
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FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
ANNUAL REPORT
OCTOBER 31, 2014
Shareholder Letter.......................................................... 1
At a Glance................................................................. 2
Portfolio Commentary........................................................ 3
Portfolio of Investments.................................................... 6
Statement of Assets and Liabilities......................................... 14
Statement of Operations..................................................... 15
Statements of Changes in Net Assets......................................... 16
Statement of Cash Flows..................................................... 17
Financial Highlights........................................................ 18
Notes to Financial Statements............................................... 19
Report of Independent Registered Public Accounting Firm..................... 26
Additional Information...................................................... 27
Board of Trustees and Officers.............................................. 32
Privacy Policy.............................................................. 34
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and/or Stonebridge Advisors LLC ("Stonebridge" or the
"Sub-Advisor") and their respective representatives, taking into account the
information currently available to them. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For example,
forward-looking statements include the use of words such as "anticipate,"
"estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or
other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
First Trust Intermediate Duration Preferred & Income Fund (the "Fund") to be
materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. When evaluating the
information included in this report, you are cautioned not to place undue
reliance on these forward-looking statements, which reflect the judgment of the
Advisor and/or Sub-Advisor and their representatives only as of the date hereof.
We undertake no obligation to publicly revise or update these forward-looking
statements to reflect events and circumstances that arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that the Fund will achieve its investment objectives. The
Fund is subject to market risk, which is the possibility that the market values
of securities owned by the Fund will decline and that the value of the Fund's
shares may therefore be less than what you paid for them. Accordingly, you can
lose money by investing in the Fund. See "Risk Considerations" in the Additional
Information section of this report for a discussion of certain other risks of
investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
http://www.ftportfolios.com or speak with your financial advisor. Investment
returns, net asset value and common share price will fluctuate and Fund shares,
when sold, may be worth more or less than their original cost.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment. It
includes details about the Fund and presents data and analysis that provide
insight into the Fund's performance and investment approach.
By reading the portfolio commentary by the portfolio management team of the
Fund, you may obtain an understanding of how the market environment affected the
Fund's performance. The statistical information that follows may help you
understand the Fund's performance compared to that of relevant market
benchmarks.
It is important to keep in mind that the opinions expressed by personnel of
Stonebridge are just that: informed opinions. They should not be considered to
be promises or advice. The opinions, like the statistics, cover the period
through the date on the cover of this report. The risks of investing in the Fund
are spelled out in the prospectus, the statement of additional information, this
report and other Fund regulatory filings.
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SHAREHOLDER LETTER
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FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
OCTOBER 31, 2014
Dear Shareholders:
I am pleased to present you with the annual report for your investment in the
First Trust Intermediate Duration Preferred & Income Fund (the "Fund"). This
report provides detailed information about the Fund, including a performance
review and the financial statements for the past 12 months. I encourage you to
read this document and discuss it with your financial advisor.
Although markets have seemed choppy over the past 12 months, the U.S. has shown
sustained growth over the period. In fact, the S&P 500(R) Index, as measured on
a total return basis, rose 17.27% during the period. First Trust Advisors L.P.
("First Trust") believes that staying invested in quality products through
different types of markets can benefit investors over the long term.
First Trust offers a variety of products that we believe could fit the financial
plans for many investors seeking long-term investment success. We invite you to
look at our investment products with your financial advisor to determine if any
of them might fit your financial goals. We believe that regularly discussing
your financial objectives and investment options with your financial advisor can
help keep you on track.
First Trust will continue to make available up-to-date information about your
investments so you and your financial advisor are current on any First Trust
investments you own. We value our relationship with you, and thank you for the
opportunity to assist you in achieving your financial goals.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 1
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
"AT A GLANCE"
OCTOBER 31, 2014 (UNAUDITED)
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FUND STATISTICS
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Symbol on New York Stock Exchange FPF
Common Share Price $21.94
Common Share Net Asset Value ("NAV") $24.42
Premium (Discount) to NAV (10.16)%
Net Assets Applicable to Common Shares $1,482,489,666
Current Monthly Distribution per Common Share (1) $0.1575
Current Annualized Distribution per Common Share $1.8900
Current Distribution Rate on Closing Common Share Price (2) 8.61%
Current Distribution Rate on NAV (2) 7.74%
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COMMON SHARE PRICE & NAV (WEEKLY CLOSING PRICE)
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NAV Common Share Price
10/13 21.01 23.41
20.87 23.36
20.45 23.36
20.61 23.36
20.24 23.44
11/13 20.53 23.50
20.48 23.31
20.45 23.35
20.70 23.39
12/13 21.30 23.14
21.14 23.27
21.51 23.45
21.41 23.60
21.46 23.54
1/14 21.07 23.52
21.45 23.52
21.79 23.65
21.64 23.77
2/14 22.12 23.96
21.72 23.95
21.88 23.92
21.84 24.04
3/14 22.00 24.09
22.13 24.09
22.11 24.21
4/14 22.31 24.25
22.49 24.32
22.44 24.42
5/14 22.80 24.53
22.57 24.59
22.80 24.73
22.34 24.63
22.53 24.69
22.83 24.79
6/14 22.98 24.83
22.26 24.71
22.53 24.72
22.36 24.69
7/14 22.25 24.77
21.75 24.39
21.77 24.29
22.06 24.53
22.09 24.65
8/14 22.45 24.74
22.31 24.52
21.83 24.42
21.56 24.54
9/14 21.45 24.40
21.70 24.25
21.45 24.25
21.59 24.16
21.68 24.33
10/14 21.94 24.42
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PERFORMANCE
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Average Annual Total Returns
1 Year Ended Inception (5/23/13)
10/31/14 to 10/31/14
FUND PERFORMANCE (3)
NAV 13.37% 9.55%
Market Value 13.98% -1.48%
INDEX PERFORMANCE
BofA Merrill Lynch Fixed Rate
Preferred Securities Index 12.45% 3.74%
BofA Merrill Lynch U.S. Capital
Securities Index 9.35% 6.37%
Blended Benchmark(4) 10.91% 5.07%
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% OF TOTAL
INDUSTRY CLASSIFICATION INVESTMENTS
------------------------------------------------------------
Banks 43.7%
Insurance 27.2
Diversified Financial Services 7.8
Capital Markets 5.3
Diversified Telecommunication Services 3.0
Electric Utilities 3.0
Real Estate Investment Trusts 2.9
Food Products 2.5
Multi-Utilities 1.8
Oil, Gas & Consumable Fuels 1.6
Energy Equipment & Services 0.5
Consumer Finance 0.3
Independent Power and Renewable
Electricity Producers 0.3
Wireless Telecommunication Services 0.1
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Total 100.00%
========
------------------------------------------------------------
% OF TOTAL
TOP 10 HOLDINGS INVESTMENTS
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General Electric Capital Corp., Series A 2.2%
QBE Capital Funding III Ltd. 2.0
Enel SpA 1.9
Fuerstenberg Capital International Sarl & Cie SECS 1.9
Banco Bilbao Vizcaya Argentaria S.A. 1.6
Cooperatieve Centrale Raiffeisen-Boerenleenbank BA 1.6
JPMorgan Chase & Co., Series 1 1.6
Glen Meadow Pass Through Trust 1.5
Aviva PLC 1.4
Aquarius + Investments PLC for Swiss
Reinsurance Co., Ltd. 1.4
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Total 17.1%
=======
(1) Most recent distribution paid or declared through 10/31/2014. Subject to
change in the future. The distribution was increased subsequent to
10/31/2014. See Note 8 - Subsequent Events in the Notes to Financial
Statements.
(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 10/31/14. 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 less
than one year. Past performance is not indicative of future results.
(4) The blended benchmark consists of the following: BofA Merrill Lynch Fixed
Rate Preferred Securities Index (50%) and BofA Merrill Lynch U.S. Capital
Securities Index (50%).
Page 2
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PORTFOLIO COMMENTARY
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FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
ANNUAL REPORT
OCTOBER 31, 2014
SUB-ADVISOR
Stonebridge Advisors LLC ("Stonebridge" or the "Sub-Advisor") is the Sub-Advisor
to First Trust Intermediate Duration Preferred & Income Fund (the "Fund" or
"FPF") and is a registered investment advisor based in Wilton, Connecticut.
Stonebridge specializes in the management of preferred securities and North
American equity income securities.
PORTFOLIO MANAGEMENT TEAM
SCOTT T. FLEMING - PRESIDENT AND CIO OF STONEBRIDGE ADVISORS LLC
ALLEN SHEPARD,PH.D. - VICE PRESIDENT, SENIOR RISK ANALYST AND
PORTFOLIO ANALYTICS
ROBERT WOLF - VICE PRESIDENT, PORTFOLIO MANAGER AND SENIOR CREDIT ANALYST
DANIELLE SALTERS,CFA - CREDIT ANALYST
COMMENTARY
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND
The Fund's primary investment objective is to seek a high level of current
income. As a secondary objective, the Fund seeks capital appreciation. The Fund
pursues its objectives by investing in preferred and other income-producing
securities. The Fund seeks to maintain, under normal market conditions, a
duration (excluding the effects of leverage) of between three and eight years.
There can be no assurance that the Fund's investment objectives will be
achieved.
MARKET RECAP
The fiscal year ended October 31, 2014 was a period of strong returns for the
preferred and hybrid markets. Duration was a major driver of performance
throughout most of the period, with longer duration securities outperforming as
investors' expectations changed regarding the Federal Reserve's (the "Fed")
interest rate policy. The beginning of the Fed's asset purchase taper during the
fourth quarter of 2013 caused significant investor wariness and underperformance
of long-duration securities. During the last two months of 2013, the Treasury
markets sold off and the 10-year interest rate increased to a period high on
December 27, 2013, of 3.11%. These events, along with tax-loss selling at the
end of 2013, weighed on the retail and institutional markets. However, as
investors began to recognize that changes in monetary policy would remain
accommodative and incremental, the 10-year rate slid back to 2.40% by October
31, 2014, and preferred and hybrid securities had very strong year-to-date
performance.
Underlining the strength in the preferred and hybrid markets was the continued
stabilization and growth of the U.S. economy, as unemployment during the period
dropped from 7.2% to 5.8%. After a sluggish start to the first quarter of 2014
due to weather conditions, real GDP grew in the second and third quarters. In
Europe, the European Central Bank ("ECB") President, Mario Draghi, took historic
measures to make the ECB's central banking policy more accommodative and counter
the threat of deflation. This included broad-based asset buying with the
potential of investments in the European corporate bond market. To cap off the
period, the ECB's Asset Quality Review (AQR) and Stress Test went by without any
major negative headlines, as banks continued to bolster capital levels to work
toward Basel III compliance. Also, Japan ended October 2014 with its
announcement of a large monetary stimulus program, which bolstered markets
across the globe.
These developments in the U.S., Asia, and Europe helped to support the strong
performance and stable inflows into the preferred and hybrid space, despite a
number of geopolitical events that created fleeting spikes of volatility within
the markets. However, as investors recognized the excess spread and yield
available in the preferred market as well as the improved creditworthiness and
capitalization of financials, the markets were able to withstand negative
headlines and show strength throughout the period.
Page 3
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PORTFOLIO COMMENTARY (CONTINUED)
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FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
ANNUAL REPORT
OCTOBER 31, 2014
PERFORMANCE ANALYSIS
The Fund produced a total return of 13.98% on market price and 13.37% based on
net asset value ("NAV") for the fiscal year ended October 31, 2014,
outperforming the blended index (a 50/50 blend of the BofA Merrill Lynch Fixed
Rate Preferred Securities Index ("P0P1") and the BofA Merrill Lynch U.S. Capital
Securities Index ("C0CS")) return of 10.91%. This was achieved despite the Fund
maintaining a conservative interest rate stance throughout the period,
consistently positioning the effective duration of the Fund (excluding the input
of leverage) at least a year lower than the blended index while still keeping
income comparable to peer funds.
TR SINCE
INCEPTION
AS OF 10/31/14 5/23/13 1 YR TR YTD TR 3 MONTH TR
--------------------------------------- ---------------- ----------------- ----------------- ----------------
NAV MKT PRICE DISCOUNT DIV. YIELD NAV MKT PRICE NAV MKT PRICE NAV MKT PRICE NAV MKT PRICE
---------- ------ --------- -------- ---------- ------- ------- ------ --------- ------ --------- ----- ---------
FPF $24.42 $21.94 -10.16% 8.61% 9.55% -1.48% 13.37% 13.98% 12.05% 9.86% 1.23% 1.86%
---------- ------ --------- -------- ---------- ------- ------- ------ --------- ------ --------- ----- ---------
Blended 5.07% 10.91% 11.60% 1.47%
Index
---------- ------ --------- -------- ---------- ------- ------- ------ --------- ------ --------- ----- ---------
Leverage was a major factor in outperformance of FPF relative to the blended
index, which is unlevered, as it added 4.28% to the Fund's total return during
the one-year period. We continue to maintain leverage around the level it was
when the Fund launched in May 2013. As of October 31, 2014, the Fund's leverage
percentage was 30.96%. Also adding to the outperformance was an overweight and
outperformance in issuers not located in the U.S.
The tactical decision to move to a lower duration than the blended index
negatively impacted returns as interest rates defied consensus expectations and
remained low. As a result, longer duration preferred and hybrid securities
outperformed the market for the fiscal year. As part of the move to a relatively
low duration, FPF was positioned with an overweight in fixed-to-float securities
and underweight longer duration low coupon fixed-rate preferreds. Fixed rates
outperformed fixed-to-floats during the fiscal year which was a drag on overall
performance.
Part of the conservative stance taken for FPF hindered the return as the Fund
utilized interest rate derivatives to hedge duration risk at the cost of -0.46%
on performance.
MARKET AND FUND OUTLOOK
Preferred and hybrid securities have been one of the best-performing asset
classes year-to-date. Assuming the global financial markets remain stable, we
believe this positive trend will likely continue. We also believe there will be
a benefit to the market from the recent positive results of the ECB AQR and
Stress Test, which should provide more stability to the European hybrid capital
market going forward. The continued accommodative stance of global central banks
leads us to believe that we are likely to remain in a benign, low-rate
environment over the near term, which should be a positive for preferred
securities. The excess spread or yield built into preferreds relative to
Treasuries and investment-grade corporates continues to prove attractive
relative to most asset classes and should provide support for preferreds, in our
opinion.
The primary issuance market for banks is likely to be a driver of performance
both in the preferred and hybrid space as well as corporate bonds. We are
anticipating a continuation of robust issuance into next year and beyond due to
banks working to meet regulatory requirements. Banks will continue to issue
additional tier 1 debt (AT1) but are also expected to significantly increase
issuance of senior debt over the next few years to satisfy leverage ratios and
total loss absorbing capacity (TLAC) requirements. New issuance both in the U.S.
and Europe has the potential of slightly re-pricing the market wider, especially
if the market is subject to a large number of new issues over a short time
frame.
Preferreds and hybrids remain very attractive relative to other asset classes
due to their above-average yields. As of October 31, 2014, the P0P1 Index
currently yields 6.19%, which is over 2% more than the BofA Merrill Lynch U.S.
Corporate Index and only 0.5% less than the BofA Merrill Lynch U.S .. Cash Pay
High Yield Index. The C0CS Institutional Index yields 5.81%, 0.38% lower than
P0P1, yet it provides more yield than all other investment grade asset classes.
On a spread to Treasury basis, the current spreads of P0P1 and C0CS to the
10-year Treasury are 3.84% and 3.46%, respectively. The financial sector's
heightened regulation, coupled with significantly improved capitalization for
Page 4
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PORTFOLIO COMMENTARY (CONTINUED)
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FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
ANNUAL REPORT
OCTOBER 31, 2014
the banking industry, leads us to believe that there is room for further spread
compression of preferreds back to pre-crisis levels, which were approximately
1.00% tighter than current levels. This implies that we may have room for
further appreciation of the asset class in this low-rate environment and, in
addition, provide a cushion against a future rise in rates, in our opinion.
Stonebridge will continue to actively manage the Fund to seek to protect against
the downside risks in the market while seeking to outperform in all market
environments on a risk-adjusted basis. Based on our current outlook, we intend
to maintain a shorter duration in FPF, on a gross asset basis, than the blended
index to better protect investors in a rising interest rate environment. In our
opinion, the current low-rate environment will be a positive for preferreds
given the attractive yield of the product. Nonetheless, given how quickly rates
moved last year, we believe maintaining a shorter duration than the Fund's
blended index is the best way to position the Fund, especially if the Fund does
not have to sacrifice yield.
Page 5
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2014
STATED STATED
SHARES DESCRIPTION RATE MATURITY VALUE
---------------- ---------------------------------------------------- ---------- ----------- --------------
$20 PAR PREFERRED SECURITIES - 0.4%
REAL ESTATE INVESTMENT TRUSTS - 0.4%
316,465 Equity Commonwealth (a)............................. 7.50% 11/15/19 $ 6,332,465
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TOTAL $20 PAR PREFERRED SECURITIES............................................... 6,332,465
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(Cost $6,169,781)
$25 PAR PREFERRED SECURITIES - 33.7%
BANKS - 11.0%
100,000 Bank of America Corp., Series W..................... 6.63% (b) 2,533,250
206,400 Barclays Bank PLC, Series 5......................... 8.13% (b) 5,327,184
702,419 Citigroup Capital XIII (a) (c)...................... 7.88% 10/30/40 18,698,394
200,300 Citigroup, Inc., Series J (a) (c)................... 7.13% (b) 5,420,118
635,144 Citigroup, Inc., Series K (a) (c)................... 6.88% (b) 16,996,453
600,000 Fifth Third Bancorp, Series I (a) (c)............... 6.63% (b) 16,278,000
94,453 FNB Corp. (a) (c)................................... 7.25% (b) 2,572,900
19,476 HSBC USA, Inc., Series F (d)........................ 3.50% (b) 427,498
196,862 HSBC USA, Inc., Series H............................ 6.50% (b) 5,014,075
226,235 ING Groep N.V. (a).................................. 6.20% (b) 5,685,286
500,000 ING Groep N.V. (a).................................. 6.38% (b) 12,655,000
128,555 ING Groep N.V. (a).................................. 7.05% (b) 3,274,296
65,917 ING Groep N.V....................................... 7.20% (b) 1,687,475
300,000 ING Groep N.V. (a).................................. 7.38% (b) 7,650,000
250,000 JPMorgan Chase & Co., Series W (a).................. 6.30% (b) 6,240,000
198,230 MB Financial, Inc., Series A (a) (e)................ 8.00% (b) 5,471,148
220,000 PNC Financial Services Group, Inc.,
Series P (a) (c)................................. 6.13% (b) 5,992,800
354,938 Royal Bank of Scotland Group PLC, Series M (a)...... 6.40% (b) 8,724,376
145,421 Royal Bank of Scotland Group PLC, Series N (a)...... 6.35% (b) 3,578,811
425,000 Royal Bank of Scotland Group PLC, Series S (a)...... 6.60% (b) 10,548,500
165,000 Texas Capital Bancshares, Inc., Series A (a)........ 6.50% (b) 4,103,550
200,000 Wells Fargo & Co. (a) (c)........................... 5.85% (b) 5,192,000
43,597 Wells Fargo & Co. (c)............................... 6.63% (b) 1,223,768
182,000 Wells Fargo & Co., Series J (a)..................... 8.00% (b) 5,345,340
67,992 Zions Bancorporation, Series G (c).................. 6.30% (b) 1,774,591
--------------
162,414,813
--------------
CAPITAL MARKETS - 5.2%
107,000 Apollo Investment Corp.............................. 6.88% 07/15/43 2,678,210
190,524 Ares Capital Corp. (a).............................. 7.00% 02/15/22 4,845,025
44,567 Ares Capital Corp................................... 7.75% 10/15/40 1,172,112
175,239 Deutsche Bank Capital Funding Trust IX (a).......... 6.63% (b) 4,459,833
350,000 Deutsche Bank Contingent Capital Trust II (a)....... 6.55% (b) 9,068,500
110,288 Goldman Sachs Group, Inc............................ 6.13% 11/01/60 2,852,048
250,000 Goldman Sachs Group, Inc., Series K (a) (c)......... 6.38% (b) 6,350,000
300,000 Morgan Stanley (a) (c).............................. 6.88% (b) 7,956,000
226,622 Morgan Stanley Capital Trust VI (a)................. 6.60% 02/01/46 5,792,458
214,051 Morgan Stanley Capital Trust VII (a)................ 6.60% 10/15/66 5,451,879
104,000 Morgan Stanley, Series E (a) (c).................... 7.13% (b) 2,835,040
220,000 Morgan Stanley, Series G (a)........................ 6.63% (b) 5,605,600
200,000 Raymond James Financial, Inc. (a)................... 6.90% 03/15/42 5,400,000
462,159 State Street Corp., Series D (a) (c)................ 5.90% (b) 12,062,350
--------------
76,529,055
--------------
Page 6 See Notes to Financial Statements
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2014
STATED STATED
SHARES DESCRIPTION RATE MATURITY VALUE
---------------- ---------------------------------------------------- ---------- ----------- --------------
$25 PAR PREFERRED SECURITIES (CONTINUED)
CONSUMER FINANCE - 0.3%
160,511 Capital One Financial Corp., Series C............... 6.25% (b) $ 3,906,838
25,000 Capital One Financial Corp., Series D............... 6.70% (b) 628,500
--------------
4,535,338
--------------
DIVERSIFIED FINANCIAL SERVICES - 3.2%
36,657 Allied Capital Corp................................. 6.88% 04/15/47 924,123
110,360 Countrywide Capital IV (a).......................... 6.75% 04/01/33 2,823,009
535,567 Countrywide Capital V (a)........................... 7.00% 11/01/36 13,699,804
40,000 KKR Financial Holdings LLC.......................... 8.38% 11/15/41 1,130,000
345,164 KKR Financial Holdings LLC, Series A (a)............ 7.38% (b) 8,974,264
400,000 RBS Capital Funding Trust V, Series E (a)........... 5.90% (b) 9,560,000
19,582 RBS Capital Funding Trust VI, Series F.............. 6.25% (b) 473,688
435,300 RBS Capital Funding Trust VII, Series G (a)......... 6.08% (b) 10,529,907
--------------
48,114,795
--------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.6%
251,594 Qwest Corp. (a)..................................... 7.50% 09/15/51 6,717,560
49,050 Qwest Corp.......................................... 7.00% 04/01/52 1,258,132
350,000 Qwest Corp. (a)..................................... 6.13% 06/01/53 8,239,000
200,000 Qwest Corp.......................................... 6.88% 10/01/54 5,114,000
103,213 Verizon Communications, Inc......................... 5.90% 02/15/54 2,673,217
--------------
24,001,909
--------------
ELECTRIC UTILITIES - 0.2%
97,950 SCE Trust III (a) (c)............................... 5.75% (b) 2,648,568
--------------
FOOD PRODUCTS - 2.9%
600,000 CHS, Inc. (a) (c)................................... 6.75% (b) 15,108,000
1,046,935 CHS, Inc., Series 2 (a) (c)......................... 7.10% (b) 28,120,674
--------------
43,228,674
--------------
INSURANCE - 5.8%
150,000 Allstate Corp., Series E (a)........................ 6.63% (b) 3,951,000
250,000 Aspen Insurance Holdings Ltd. (a) (c)............... 5.95% (b) 6,467,500
361,470 Aspen Insurance Holdings Ltd. (a) (c)............... 7.40% (b) 9,782,282
69,186 Aviva PLC........................................... 8.25% 12/01/41 1,938,592
150,515 Axis Capital Holdings Ltd., Series C................ 6.88% (b) 4,011,225
264,683 Endurance Specialty Holdings Ltd., Series B (a)..... 7.50% (b) 7,059,095
603,315 Hartford Financial Services Group, Inc. (a) (c)..... 7.88% 04/15/42 18,268,378
115,000 Maiden Holdings North America Ltd................... 8.25% 06/15/41 3,024,500
500,000 MetLife, Inc., Series B (a)......................... 6.50% (b) 12,975,000
200,000 Montpelier Re Holdings Ltd., Series A (a)........... 8.88% (b) 5,520,000
118,028 PartnerRe Ltd., Series E............................ 7.25% (b) 3,231,606
361,590 Reinsurance Group of America, Inc. (a) (c).......... 6.20% 09/15/42 10,099,209
--------------
86,328,387
--------------
See Notes to Financial Statements Page 7
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2014
STATED STATED
SHARES DESCRIPTION RATE MATURITY VALUE
---------------- ---------------------------------------------------- ---------- ----------- --------------
$25 PAR PREFERRED SECURITIES (CONTINUED)
MULTI-UTILITIES - 1.0%
473,173 Integrys Energy Group, Inc. (a) (c)................. 6.00% 08/01/73 $ 12,359,279
93,750 SCANA Corp.......................................... 7.70% 01/30/65 2,381,250
--------------
14,740,529
--------------
REAL ESTATE INVESTMENT TRUSTS - 2.3%
250,000 American Realty Capital Properties, Inc., Series F.. 6.70% (b) 5,505,000
164,285 DuPont Fabros Technology, Inc., Series A (a)........ 7.88% (b) 4,205,696
62,848 EPR Properties, Series F............................ 6.63% (b) 1,571,200
178,774 Equity Commonwealth, Series E....................... 7.25% (b) 4,533,709
150,541 Kilroy Realty Corp., Series G (a)................... 6.88% (b) 3,895,248
25,094 Kilroy Realty Corp., Series H....................... 6.38% (b) 633,372
300,000 National Retail Properties, Inc., Series D (a)...... 6.63% (b) 7,791,000
99,794 Taubman Centers, Inc., Series J..................... 6.50% (b) 2,594,644
70,879 Taubman Centers, Inc., Series K..................... 6.25% (b) 1,775,519
88,499 Vornado Realty Trust, Series J...................... 6.88% (b) 2,389,473
--------------
34,894,861
--------------
WIRELESS TELECOMMUNICATION SERVICES - 0.2%
23,168 Telephone & Data Systems, Inc....................... 6.63% 03/31/45 581,980
86,603 Telephone & Data Systems, Inc....................... 6.88% 11/15/59 2,181,530
--------------
2,763,510
--------------
TOTAL $25 PAR PREFERRED SECURITIES............................................... 500,200,439
(Cost $488,262,978) --------------
$50 PAR PREFERRED SECURITIES - 0.2%
CONSUMER FINANCE - 0.2%
54,367 SLM Corp., Series A................................. 6.97% (b) 2,672,682
--------------
TOTAL $50 PAR PREFERRED SECURITIES............................................... 2,672,682
(Cost $2,677,798) --------------
$100 PAR PREFERRED SECURITIES - 3.0%
BANKS - 2.8%
80,000 AgriBank FCB (a) (c) (e)............................ 6.88% (b) 8,215,000
175,000 CoBank ACB, Series F (a) (c) (f).................... 6.25% (b) 18,292,977
50,000 CoBank ACB, Series G (a)............................ 6.13% (b) 4,632,815
100,000 Farm Credit Bank of Texas (a) (c) (e) (g)........... 6.75% (b) 10,678,130
--------------
41,818,922
--------------
INSURANCE - 0.2%
20,200 Principal Financial Group, Inc., Series A (c)....... 5.56% (b) 2,062,295
--------------
TOTAL $100 PAR PREFERRED SECURITIES.............................................. 43,881,217
(Cost $43,940,434) --------------
Page 8 See Notes to Financial Statements
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2014
STATED STATED
SHARES DESCRIPTION RATE MATURITY VALUE
---------------- ---------------------------------------------------- ---------- ----------- --------------
$1,000 PAR PREFERRED SECURITIES - 3.9%
BANKS - 0.7%
10,000 AgStar Financial Services ACA (a) (c) (e) (g)....... 6.75% (b) $ 10,258,750
--------------
DIVERSIFIED FINANCIAL SERVICES - 0.6%
8,500 Pitney Bowes International Holdings, Inc.,
Series F (e) (g)................................. 6.13% (b) 9,031,250
--------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.3%
16,000 Centaur Funding Corp. (a) (e) (g)................... 9.08% 04/21/20 20,160,000
--------------
REAL ESTATE INVESTMENT TRUSTS - 1.3%
14,000 Sovereign Real Estate Investment Trust (a) (e) (g).. 12.00% (b) 18,825,366
--------------
TOTAL $1,000 PAR PREFERRED SECURITIES............................................ 58,275,366
(Cost $57,380,000) --------------
STATED STATED
PAR AMOUNT DESCRIPTION RATE MATURITY VALUE
---------------- ---------------------------------------------------- ---------- ----------- --------------
CAPITAL PREFERRED SECURITIES - 99.8%
BANKS - 47.1%
$ 31,000,000 Banco Bilbao Vizcaya Argentaria S.A. (c)............ 9.00% (b) 33,582,300
25,000,000 Banco do Brasil S.A. (a) (c) (f).................... 9.00% (b) 24,700,000
15,000,000 Bank of America Corp., Series K (a) (c)............. 8.00% (b) 16,218,750
5,000,000 Bank of America Corp., Series V (c)................. 5.13% (b) 4,875,000
1,500,000 Bank of America Corp., Series X (c)................. 6.25% (b) 1,505,625
10,000,000 Bank of America Corp., Series Z (c)................. 6.50% (b) 10,300,000
2,560,000 Barclays Bank PLC................................... 10.18% 06/12/21 3,446,039
9,940,000 Barclays Bank PLC (a) (f)........................... 10.18% 06/12/21 13,380,314
15,000,000 Barclays Bank PLC (a) (c)........................... 7.75% 04/10/23 16,462,500
10,000,000 Barclays PLC (a) (c)................................ 6.63% (b) 9,591,750
15,500,000 Barclays PLC (a) (c)................................ 8.25% (b) 16,034,750
2,010,000 BBVA Global Finance Ltd............................. 7.00% 12/01/25 2,269,041
16,750,000 BBVA International Preferred SAU (a) (c)............ 5.92% (b) 17,168,750
10,000,000 BNP Paribas S.A. (a) (c) (f)........................ 7.20% (b) 11,556,300
7,500,000 BPCE S.A. (a) (c) (f)............................... 12.50% (b) 10,275,000
3,000,000 BPCE S.A............................................ 13.00% (b) 3,306,000
10,000,000 Citigroup, Inc. (a) (c)............................. 5.95% (b) 9,937,500
800,000 Citigroup, Inc., Series E (c) (e)................... 8.40% (b) 889,550
14,500,000 Citigroup, Inc., Series M (a) (c)................... 6.30% (b) 14,445,625
7,500,000 Citigroup, Inc., Series N (c)....................... 5.80% (b) 7,533,750
4,000,000 Cooperatieve Centrale Raiffeisen-
Boerenleenbank BA (c)............................ 8.38% (b) 4,300,000
20,000,000 Cooperatieve Centrale Raiffeisen-
Boerenleenbank BA (c)............................ 8.40% (b) 22,050,000
25,104,000 Cooperatieve Centrale Raiffeisen-
Boerenleenbank BA (a) (c) (f).................... 11.00% (b) 32,823,480
5,000,000 Credit Agricole S.A. (a) (c) (f).................... 8.13% 09/19/33 5,681,250
15,000,000 Credit Agricole S.A. (a) (c) (f).................... 6.63% (b) 14,660,250
3,500,000 Credit Agricole S.A. (c)............................ 8.38% (b) 4,073,125
11,000,000 Credit Agricole S.A. (a) (c) (f).................... 8.38% (b) 12,801,250
25,000,000 Dresdner Funding Trust I (a) (f).................... 8.15% 06/30/31 29,312,500
38,694,000 Fuerstenberg Capital International Sarl & Cie
SECS (a) (c)..................................... 10.25% (b) 40,021,204
See Notes to Financial Statements Page 9
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2014
STATED STATED
PAR AMOUNT DESCRIPTION RATE MATURITY VALUE
---------------- ---------------------------------------------------- ---------- ----------- --------------
CAPITAL PREFERRED SECURITIES (CONTINUED)
BANKS (CONTINUED)
$ 10,000,000 HBOS Capital Funding L.P............................ 6.85% (b) $ 10,061,250
4,000,000 HSBC USA Capital Trust II (a) (e) (g)............... 8.38% 05/15/27 4,054,084
30,000,000 JPMorgan Chase & Co., Series 1 (a) (c).............. 7.90% (b) 32,662,500
25,000,000 JPMorgan Chase & Co., Series S (a) (c).............. 6.75% (b) 26,465,000
26,000,000 KBC Bank N.V. (c)................................... 8.00% 01/25/23 28,983,500
10,000,000 Lloyds Bank PLC (c)................................. 12.00% (b) 14,575,000
17,000,000 Lloyds Bank PLC (a) (c) (f)......................... 12.00% (b) 24,777,500
7,755,000 Lloyds Banking Group PLC (a) (c) (f)................ 5.92% (b) 7,832,550
5,000,000 M&T Bank Corp., Series E (a) (c).................... 6.45% (b) 5,353,805
10,754,000 Natixis (a) (c) (f)................................. 10.00% (b) 12,703,162
5,575,000 Natixis S.A. (c).................................... 10.00% (b) 6,585,469
5,990,000 NIBC Bank N.V....................................... 7.63% (b) 6,019,950
9,500,000 Nordea Bank AB (a) (c) (f).......................... 6.13% (b) 9,557,143
19,700,000 Royal Bank of Scotland Group PLC (a) (c)............ 7.65% (b) 23,270,625
10,000,000 Royal Bank of Scotland PLC (The) (c)................ 9.50% 03/16/22 11,450,350
13,980,000 SMFG Preferred Capital USD 3 Ltd. (a) (c) (f)....... 9.50% (b) 17,108,025
9,500,000 Societe Generale SA (c)............................. 8.25% (b) 10,061,450
15,184,000 Standard Chartered Bank (c)......................... 9.50% (b) 15,371,902
20,000,000 Wells Fargo & Co., Series K (a) (c)................. 7.98% (b) 22,143,740
6,800,000 Zions Bancorporation (a) (c)........................ 5.80% (b) 6,511,000
9,000,000 Zions Bancorporation, Series J (a) (c).............. 7.20% (b) 9,545,976
--------------
698,295,584
--------------
CAPITAL MARKETS - 2.3%
10,000,000 Credit Suisse Group Guernsey I Ltd. (c)............. 7.88% 02/24/41 10,693,750
2,500,000 Deutsche Bank Capital Trust IV (c) (e).............. 4.59% (b) 2,437,500
8,500,000 UBS AG (c).......................................... 7.25% 02/22/22 9,212,300
10,000,000 UBS AG (a).......................................... 7.63% 08/17/22 11,819,360
--------------
34,162,910
--------------
DIVERSIFIED FINANCIAL SERVICES - 7.1%
3,000,000 Banco Btg Pactual S.A. (c) (f)...................... 8.75% (b) 3,121,500
40,000,000 General Electric Capital Corp., Series A (a) (c).... 7.13% (b) 46,750,000
31,040,000 Glen Meadow Pass Through Trust (a) (c) (f).......... 6.51% 02/12/67 30,690,800
10,000,000 Macquarie PMI LLC................................... 8.38% (b) 10,475,000
14,530,000 Voya Financial, Inc. (a) (c)........................ 5.65% 05/15/53 14,602,650
--------------
105,639,950
--------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.3%
18,700,000 Koninklijke KPN N.V. (a) (c) (f).................... 7.00% 03/28/73 19,578,900
--------------
ELECTRIC UTILITIES - 4.0%
34,750,000 Enel SpA (a) (c) (f)................................ 8.75% 09/24/73 40,744,375
14,000,000 PPL Capital Funding Inc., Series A (a) (c).......... 6.70% 03/30/67 14,200,284
4,179,000 Southern California Edison Co., Series E (a) (c).... 6.25% (b) 4,600,385
--------------
59,545,044
--------------
ENERGY EQUIPMENT & SERVICES - 0.6%
9,650,000 DCP Midstream LLC (a) (c) (f)....................... 5.85% 05/21/43 9,577,625
--------------
Page 10 See Notes to Financial Statements
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2014
STATED STATED
PAR AMOUNT DESCRIPTION RATE MATURITY VALUE
---------------- ---------------------------------------------------- ---------- ----------- --------------
CAPITAL PREFERRED SECURITIES (CONTINUED)
FOOD PRODUCTS - 0.7%
$ 9,530,000 Land O'Lakes Capital Trust I (a) (f)................ 7.45% 03/15/28 $ 10,006,500
--------------
INDEPENDENT POWER AND RENEWABLE
ELECTRICITY PRODUCERS - 0.4%
5,000,000 AES Gener S.A. (c) (f).............................. 8.38% 12/18/73 5,618,750
--------------
INSURANCE - 32.5%
2,500,000 Aegon N.V. (d)...................................... 2.55% (b) 2,231,250
15,000,000 American International Group, Inc. (a) (c).......... 8.18% 05/15/58 20,437,500
26,500,000 Aquarius + Investments PLC for Swiss
Reinsurance Co., Ltd. (c)......................... 8.25% (b) 29,315,625
25,000,000 Assured Guaranty Municipal Holdings, Inc.
(a) (c) (f)...................................... 6.40% 12/15/66 22,000,000
4,930,000 Assured Guaranty US Holdings, Series A (a) (c)...... 6.40% 12/15/66 4,634,200
27,000,000 Aviva PLC (a)....................................... 8.25% (b) 30,374,325
6,800,000 AXA S.A. (a)........................................ 8.60% 12/15/30 9,171,500
15,000,000 AXA S.A. (a) (c) (f)................................ 6.46% (b) 15,740,700
22,005,000 Catlin Insurance Co Ltd. (a) (c) (f)................ 7.25% (b) 22,665,150
15,050,000 Cloverie PLC for Zurich Insurance Co., Ltd. (c)..... 8.25% (b) 17,271,756
7,000,000 CNP Assurances (c).................................. 6.88% (b) 7,585,025
10,600,000 CNP Assurances (c).................................. 7.50% (b) 11,699,750
12,500,000 Dai-ichi Life Insurance Co Ltd. (The) (a) (c) (f)... 7.25% (b) 14,644,887
25,000,000 Friends Life Holdings PLC (a) (c)................... 7.88% (b) 27,677,650
20,000,000 Genworth Holdings, Inc. (a) (c)..................... 6.15% 11/15/66 17,150,000
11,782,000 Hartford Financial Services Group, Inc. (a) (c)..... 8.13% 06/15/38 13,711,303
6,000,000 La Mondiale SAM (c)................................. 7.63% (b) 6,543,900
2,000,000 Liberty Mutual Group, Inc. (c)...................... 10.75% 06/15/58 3,070,000
7,500,000 MetLife Capital Trust X (a) (f)..................... 9.25% 04/08/38 10,762,500
16,265,000 MetLife, Inc. (a)................................... 10.75% 08/01/39 26,471,287
15,000,000 Mitsui Sumitomo Insurance Co., Ltd. (a) (c) (f)..... 7.00% 03/15/72 17,493,750
3,000,000 Nationwide Financial Services Capital Trust (a) (e). 7.90% 03/01/37 3,535,857
14,700,000 Nationwide Financial Services, Inc. (a)............. 6.75% 05/15/37 15,361,500
10,600,000 Provident Financing Trust I (a)..................... 7.41% 03/15/38 12,419,352
23,265,000 Prudential Financial, Inc. (a) (c).................. 8.88% 06/15/38 27,947,081
20,389,000 Prudential PLC (c).................................. 11.75% (b) 20,739,691
39,520,000 QBE Capital Funding III Ltd. (a) (c) (f)............ 7.25% 05/24/41 42,879,200
9,940,000 Sirius International Group Ltd. (a) (c) (e) (f)..... 7.51% (b) 10,486,412
5,500,000 StanCorp Financial Group, Inc. (a) (c).............. 6.90% 06/01/67 5,706,250
3,000,000 Sumitomo Life Insurance Co. (c) (f)................. 6.50% 09/20/73 3,367,626
8,000,000 Swiss Re Capital I LP (a) (c) (f)................... 6.85% (b) 8,430,000
--------------
481,525,027
--------------
MULTI-UTILITIES - 1.5%
20,778,000 RWE AG (c).......................................... 7.00% 10/12/72 22,598,153
--------------
OIL, GAS & CONSUMABLE FUELS - 2.3%
5,000,000 BG Energy Capital PLC (c)........................... 6.50% 11/30/72 5,457,130
15,000,000 Enbridge Energy Partners L.P. (a) (c)............... 8.05% 10/01/37 16,968,750
10,000,000 Enterprise Products Operating LLC, Series B (a) (c). 7.03% 01/15/68 11,133,030
--------------
33,558,910
--------------
TOTAL CAPITAL PREFERRED SECURITIES............................................... 1,480,107,353
(Cost $1,460,904,852) --------------
See Notes to Financial Statements Page 11
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2014
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ---------------------------------------------------- ---------- ----------- --------------
CORPORATE BONDS AND NOTES - 0.5%
BANKS - 0.4%
5,000,000 Zions Bancorporation (c)............................ 5.65% 11/15/23 $ 5,152,715
INSURANCE - 0.1%
1,050,000 AIG Life Holdings, Inc. (e) (g)..................... 7.57% 12/01/45 1,393,177
--------------
TOTAL CORPORATE BONDS AND NOTES.................................................. 6,545,892
(Cost $6,560,550) --------------
TOTAL INVESTMENTS - 141.5%....................................................... 2,098,015,414
(Cost $2,065,896,393) (h)
OUTSTANDING LOAN - (44.9%)....................................................... (665,000,000)
NET OTHER ASSETS AND LIABILITIES - 3.4%.......................................... 49,474,252
--------------
NET ASSETS - 100.0%.............................................................. $1,482,489,666
==============
(a) All or a portion of this security serves as collateral on the outstanding
loan.
(b) Perpetual maturity.
(c) Fixed-to-floating or fixed-to-variable rate security. The interest rate
shown reflects the fixed rate in effect at October 31, 2014. At a
predetermined date, the fixed rate will change to a floating rate or a
variable rate.
(d) Floating rate security. The interest rate shown reflects the rate in
effect at October 31, 2014.
(e) Pursuant to procedures adopted by the Fund's Board of Trustees, this
security has been determined to be illiquid by Stonebridge Advisors LLC
(the "Sub-Advisor").
(f) This security, sold within the terms of a private placement memorandum, is
exempt from registration upon resale under Rule 144A under the Securities
Act of 1933, as amended (the "1933 Act"), and may be resold in
transactions exempt from registration, normally to qualified institutional
buyers. Pursuant to procedures adopted by the Fund's Board of Trustees,
this security has been determined to be liquid by the Fund's Sub-Advisor.
Although market instability can result in periods of increased overall
market illiquidity, liquidity for each security is determined based on
security-specific factors and assumptions, which require subjective
judgment. At October 31, 2014, securities noted as such are valued at
$533,270,376, or 35.97% of net assets.
(g) This security, sold within the terms of a private placement memorandum, is
exempt from registration upon resale under Rule 144A under the 1933 Act,
and may be resold in transactions exempt from registration, normally to
qualified institutional buyers (see Note 2C - Restricted Securities in the
Notes to Financial Statements).
(h) Aggregate cost for financial reporting purposes is $2,071,752,505, which
approximated the aggregate cost for federal income tax purposes. As of
October 31, 2014, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$46,391,911 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$20,129,002.
Page 12 See Notes to Financial Statements
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2014
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of October 31,
2014 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
ASSETS TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
INVESTMENTS 10/31/2014 PRICES INPUTS INPUTS
-------------------------------------------------- --------------- --------------- --------------- ---------------
$20 Par Preferred Securities*..................... $ 6,332,465 $ 6,332,465 $ -- $ --
$25 Par Preferred Securities*..................... 500,200,439 500,200,439 -- --
$50 Par Preferred Securities*..................... 2,672,682 2,672,682 -- --
$100 Par Preferred Securities*.................... 43,881,217 -- 43,881,217 --
$1,000 Par Preferred Securities*.................. 58,275,366 -- 58,275,366 --
Capital Preferred Securities*..................... 1,480,107,353 -- 1,480,107,353 --
Corporate Bonds and Notes*........................ 6,545,892 -- 6,545,892 --
--------------- --------------- --------------- ---------------
Total Investments................................. $ 2,098,015,414 $ 509,205,586 $ 1,588,809,828 $ --
=============== =============== =============== ===============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
10/31/2014 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
Futures Contracts................................. $ (2,416,563) $ (2,416,563) $ -- $ --
--------------- --------------- --------------- ---------------
Total............................................. $ (2,416,563) $ (2,416,563) $ -- $ --
=============== =============== =============== ===============
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. As of October
31, 2014, the Fund transferred $100 Par Preferred Securities valued at
$8,215,000 from Level 1 to Level 2. The $100 Par Preferred Securities
transferred from Level 1 to Level 2 due to use of observable market inputs in an
inactive market (for valuing these securities).
OPEN FUTURES CONTRACTS AT OCTOBER 31, 2014 (see Note 2D - Futures Contracts in
the Notes to Financial Statements):
UNREALIZED
NUMBER OF EXPIRATION NOTIONAL APPRECIATION
SHORT FUTURES CONTRACTS CONTRACTS MONTH VALUE (DEPRECIATION)
-------------------------------------------------- --------------- --------------- --------------- ---------------
U.S. Treasury Long Bond Futures................... 220 Dec-2014 $ 29,923,438 $ (1,117,188)
Ultra Long Term U.S. Treasury Bond Futures........ 165 Dec-2014 24,574,688 (1,299,375)
----- --------------- --------------- ---------------
Total Futures Contracts........................... 385 $ 54,498,126 $ (2,416,563)
===== =============== ===============
See Notes to Financial Statements Page 13
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2014
ASSETS:
Investments, at value
(Cost $2,065,896,393)....................................................................... $ 2,098,015,414
Cash........................................................................................... 21,179,274
Restricted cash................................................................................ 5,215,563
Prepaid expenses............................................................................... 30,791
Receivables:
Interest.................................................................................... 27,125,896
Investment securities sold.................................................................. 6,309,193
Tax reclaims................................................................................ 204,042
Dividends................................................................................... 1,548,583
----------------
Total Assets................................................................................ 2,159,628,756
----------------
LIABILITIES:
Outstanding loan............................................................................... 665,000,000
Payables:
Investment securities purchased............................................................. 7,468,333
Variation margin............................................................................ 2,416,563
Investment advisory fees.................................................................... 1,547,379
Administrative fees......................................................................... 288,637
Offering costs.............................................................................. 109,603
Custodian fees.............................................................................. 102,328
Printing fees............................................................................... 99,105
Legal fees.................................................................................. 36,662
Audit and tax fees.......................................................................... 33,202
Interest and fees due on loan............................................................... 31,523
Trustees' fees and expenses................................................................. 3,231
Transfer agent fees......................................................................... 1,505
Financial reporting fees.................................................................... 770
Other liabilities........................................................................... 249
----------------
Total Liabilities........................................................................... 677,139,090
----------------
NET ASSETS..................................................................................... $ 1,482,489,666
================
NET ASSETS CONSIST OF:
Paid-in capital................................................................................ $ 1,446,812,822
Par value...................................................................................... 607,042
Accumulated net investment income (loss)....................................................... 17,506,509
Accumulated net realized gain (loss) on investments, written options and futures contracts..... (12,139,165)
Net unrealized appreciation (depreciation) on investments and futures contracts................ 29,702,458
----------------
NET ASSETS..................................................................................... $ 1,482,489,666
================
NET ASSET VALUE, per share..................................................................... $ 24.42
================
Number of Common Shares outstanding (unlimited number of Common Shares
has been authorized)........................................................................ 60,704,189
================
Page 14 See Notes to Financial Statements
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2014
INVESTMENT INCOME:
Interest (net of foreign tax withholding of $95,868)........................................... $ 100,603,853
Dividends...................................................................................... 35,530,495
Other.......................................................................................... 706,850
----------------
Total investment income..................................................................... 136,841,198
----------------
EXPENSES:
Investment advisory fees....................................................................... 17,960,315
Interest and fees on loan...................................................................... 5,259,868
Administrative fees............................................................................ 681,107
Printing fees.................................................................................. 203,352
Excise tax..................................................................................... 188,648
Legal fees..................................................................................... 137,627
Listing expense................................................................................ 63,184
Custodian fees................................................................................. 47,712
Trustees' fees and expenses.................................................................... 45,660
Audit and tax fees............................................................................. 34,906
Transfer agent fees............................................................................ 20,967
Financial reporting fees....................................................................... 9,250
Other.......................................................................................... 61,606
----------------
Total expenses.............................................................................. 24,714,202
----------------
NET INVESTMENT INCOME (LOSS)................................................................... 112,126,996
----------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments................................................................................. 5,864,204
Written options transactions................................................................ (364,500)
Futures contracts........................................................................... (4,845,105)
----------------
Net realized gain (loss)....................................................................... 654,599
----------------
Net change in unrealized appreciation (depreciation) on:
Investments................................................................................. 60,984,118
Futures contracts........................................................................... (2,416,563)
----------------
Net change in unrealized appreciation (depreciation)........................................... 58,567,555
----------------
NET REALIZED AND UNREALIZED GAIN (LOSS)........................................................ 59,222,154
----------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................ $ 171,349,150
================
See Notes to Financial Statements Page 15
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE PERIOD
ENDED ENDED
10/31/2014 10/31/2013 (a)
-------------- --------------
OPERATIONS:
Net investment income (loss)..................................................... $ 112,126,996 $ 42,418,720
Net realized gain (loss)......................................................... 654,599 (6,225,537)
Net change in unrealized appreciation (depreciation)............................. 58,567,555 (28,865,097)
-------------- --------------
Net increase (decrease) in net assets resulting from operations.................. 171,349,150 7,328,086
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................................ (116,023,916) (27,772,166)
-------------- --------------
Total distributions to shareholders.............................................. (116,023,916) (27,772,166)
-------------- --------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold........................................................ -- 1,449,312,512
Offering costs................................................................... -- (1,704,000)
-------------- --------------
Net increase (decrease) in net assets resulting from shareholder transactions.... -- 1,447,608,512
-------------- --------------
Total increase (decrease) in net assets.......................................... 55,325,234 1,427,164,432
NET ASSETS:
Beginning of year................................................................ 1,427,164,432 --
-------------- --------------
End of year...................................................................... $1,482,489,666 $1,427,164,432
============== ==============
Accumulated net investment income (loss) at end of year.......................... $ 17,506,509 $ 15,554,873
============== ==============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period.......................................... 60,704,189 --
Shares sold...................................................................... -- 60,704,189
-------------- --------------
Shares outstanding, end of period................................................ 60,704,189 60,704,189
============== ==============
(a) The Fund was seeded on April 16, 2013 and commenced operations on May 23,
2013.
Page 16 See Notes to Financial Statements
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED OCTOBER 31, 2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) in net assets resulting from operations .............. $ 171,349,150
Adjustments to reconcile net increase (decrease) in net assets
resulting from operations to net cash used by operating activities:
Purchases of investments................................................. (1,025,068,766)
Sales, maturities and paydowns of investments............................ 937,160,852
Proceeds from written options....................... .................... 620,206
Amount paid to close written options..................................... (984,707)
Return of capital received from investments in REITs..................... 549,075
Net amortization/accretion of premiums/discounts on investments.......... 6,766,772
Net realized gain/loss on investments and written options................ (5,499,704)
Net change in unrealized appreciation/depreciation on investments
and options........................................................... (60,984,118)
Increase in restricted cash.............................................. (5,215,563)
CHANGES IN ASSETS AND LIABILITIES:
Decrease in interest receivable.......................................... 256,749
Increase in dividends receivable......................................... (342,615)
Decrease in prepaid expenses............................................. 19,874
Decrease in other assets................................................. 1,466
Increase in variation margin payable..................................... 2,416,563
Increase in interest and fees on loan payable............................ 3,361
Increase in investment advisory fees payable............................. 117,400
Increase in audit and tax fees payable................................... 2
Increase in legal fees payable........................................... 29,022
Decrease in printing fees payable........................................ (12,167)
Increase in administrative fees payable.................................. 56,485
Decrease in custodian fees payable....................................... (174,627)
Decrease in transfer agent fees payable.................................. (2,995)
Increase in Trustees' fees and expenses payable.......................... 3,231
Increase in other liabilities payable.................................... 249
Decrease in financial reporting fees payable............................. (3,284)
--------------
CASH PROVIDED BY OPERATING ACTIVITIES......................................... $ 21,061,911
--------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to common shareholders from net investment income.......... (116,023,916)
Proceeds from borrowing.................................................. 102,014,769
Repayment of borrowing................................................... (21,014,769)
--------------
CASH USED BY FINANCING ACTIVITIES............................................. (35,023,916)
--------------
Decrease in cash.............................................................. (13,962,005)
Cash at beginning of period................................................... 35,141,279
--------------
CASH AT END OF PERIOD......................................................... $ 21,179,274
==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest and fees............................. $ 5,256,507
==============
Cash paid during the year for excise taxes.................................... $ 188,648
==============
See Notes to Financial Statements Page 17
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
FINANCIAL HIGHLIGHTS
FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FOR THE PERIOD
YEAR 5/23/2013 (a)
ENDED THROUGH
10/31/2014 10/31/2013
------------- --------------
Net asset value, beginning of period............ $ 23.51 $ 23.88 (b)
----------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).................... 1.85 0.70
Net realized and unrealized gain (loss)......... 0.97 (0.64)
----------- -----------
Total from investment operations................ 2.82 0.06
----------- -----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income........................... (1.91) (0.46)
----------- -----------
Common Shares offering costs charged to
paid-in capital.............................. -- (0.03)
----------- -----------
Premiums from shares sold in at the
market offerings............................. -- 0.06
----------- -----------
Net asset value, end of period.................. $ 24.42 $ 23.51
=========== ===========
Market value, end of period..................... $ 21.94 $ 21.01
=========== ===========
TOTAL RETURN BASED ON NET ASSET VALUE (c)....... 13.37% 0.60%
=========== ===========
TOTAL RETURN BASED ON MARKET VALUE (c).......... 13.98% (14.13)%
=========== ===========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)............ $ 1,482,490 $ 1,427,164
Ratio of total expenses to average net assets... 1.69% 1.53% (d)
Ratio of net expenses to average net assets
excluding interest expense................... 1.33% 1.24% (d)
Ratio of net investment income (loss) to
average net assets........................... 7.66% 7.01% (d)
Portfolio turnover rate......................... 62% 11%
INDEBTEDNESS:
Total loan outstanding (in 000's)............... $ 665,000 $ 584,000
Asset coverage per $1,000 of indebtedness (e)... $ 3,229 $ 3,444
--------------------
(a) The Fund was seeded on April 16, 2013 and commenced operations on May 23,
2013.
(b) Beginning net asset value is net of sales load of $1.125 per share from
the initial offering.
(c) 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 Shares price for market
value returns. Total returns do not reflect sales load and are not
annualized for periods less than one year. Past performance is not
indicative of future results.
(d) Annualized.
(e) Calculated by taking the Fund's total assets less the Fund's total
liabilities (not including the loan outstanding) and dividing by the loan
balance in 000's.
Page 18 See Notes to Financial Statements
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2014
1. ORGANIZATION
First Trust Intermediate Duration Preferred & Income Fund (the "Fund") is a
non-diversified, closed-end management investment company organized as a
Massachusetts business trust on February 4, 2013, and is registered with the
Securities and Exchange Commission under the Investment Company Act of 1940, as
amended. The Fund trades under the ticker symbol "FPF" on the New York Stock
Exchange ("NYSE").
The primary investment objective is to seek a high level of current income. The
Fund has a secondary objective of capital appreciation. The Fund seeks to
achieve its objectives by investing, under normal market conditions, at least
80% of its managed assets in preferred securities and other income producing
securities issued by U.S. and non-U.S. companies, including traditional
preferred securities, hybrid preferred securities that have investment and
economic characteristics of both preferred securities and debt securities,
floating rate and fixed-to-floating rate preferred securities, debt securities,
convertible securities and contingent convertible securities. There can be no
assurance that the Fund will achieve its investment objectives. The Fund seeks
to maintain, under normal market conditions, a duration of between three and
eight years. The Fund may not be appropriate for all investors.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of the financial statements. The
preparation of the financial statements in accordance with accounting principles
generally accepted in the United States of America ("U.S. GAAP") requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
A. PORTFOLIO VALUATION:
The Fund's net asset value ("NAV") is determined daily as of the close of
regular trading on the NYSE, normally 4:00 p.m. Eastern time, on each day the
NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV
is determined as of that time. Domestic debt securities and foreign securities
are priced using data reflecting the earlier closing of the principal markets
for those securities. The NAV is calculated by dividing the value of all assets
of the Fund (including accrued interest and dividends), less all liabilities
(including accrued expenses and dividends declared but unpaid and any borrowings
of the Fund), by the total number of shares outstanding.
The Fund's investments are valued daily at market value or, in absence of market
value with respect to any portfolio securities, at fair value. Market value
prices represent last sale or official closing prices from a national or foreign
exchange (i.e., a regulated market) and are primarily obtained from third party
pricing services. Fair value prices represent any prices not considered market
value prices and are either obtained from a third party pricing service or are
determined by the Pricing Committee of the Fund's investment advisor, First
Trust Advisors L.P. ("First Trust" or the "Advisor") in accordance with
valuation procedures adopted by the Fund's Board of Trustees, and in accordance
with provisions of the 1940 Act. Investments valued by the Advisor's Pricing
Committee are footnoted as such in the footnotes to the Portfolio of
Investments. The Fund's investments are valued as follows:
Preferred stocks and other equity securities listed on any national or
foreign exchange (excluding The NASDAQ(R) Stock Market LLC ("NASDAQ") and
the London Stock Exchange Alternative Investment Market ("AIM")), are
valued at the last sale price on the exchange on which they are
principally traded or, for NASDAQ and AIM securities, the official closing
price. Securities traded on one or more than one securities exchange are
valued at the last sale price or official closing price, as applicable, at
the close of the securities exchange representing the principal market for
such securities.
Corporate bonds, notes and other debt securities are valued on the basis
of valuations provided by dealers who make markets in such securities or
by an independent pricing service approved by the Fund's Board of
Trustees, which may use the following valuation inputs when available:
1) benchmark yields;
2) reported trades;
3) broker/dealer quotes;
4) issuer spreads;
5) benchmark securities;
6) bids and offers; and
7) reference data including market research publications.
Securities traded in an over-the-counter market are fair valued at the
mean of their most recent bid and asked price, if available, and otherwise
at their closing bid price.
Page 19
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2014
Exchange-traded options and futures contracts are valued at the closing
price in the market where such contracts are principally traded. If no
closing price is available, exchange-traded options and futures contracts
are fair valued at the mean of the most recent bid and asked price, if
available, and otherwise at their closing bid price. Over-the-counter
options contracts are fair valued at the mean of the most recent bid and
asked price, if available, and otherwise at their closing bid price.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Board of Trustees or its delegate,
the Advisor's Pricing Committee, at fair value. These securities generally
include, but are not limited to, restricted securities (securities which may not
be publicly sold without registration under the Securities Act of 1933, as
amended (the "1933 Act")) for which a pricing service is unable to provide a
market price; securities whose trading has been formally suspended; a security
whose market or fair value price is not available from a pre-established pricing
source; a security with respect to which an event has occurred that is likely to
materially affect the value of the security after the market has closed but
before the calculation of the Fund's NAV or make it difficult or impossible to
obtain a reliable market quotation; and a security whose price, as provided by
the pricing service, does not reflect the security's fair value. As a general
principle, the current fair value of a security would appear to be the amount
which the owner might reasonably expect to receive for the security upon its
current sale. When fair value prices are used, generally they will differ from
market quotations or official closing prices on the applicable exchanges. A
variety of factors may be considered in determining the fair value of such
securities, including, but not limited to, the following:
1) the type of security;
2) the size of the holding;
3) the initial cost of the security;
4) transactions in comparable securities;
5) price quotes from dealers and/or pricing services;
6) relationships among various securities;
7) information obtained by contacting the issuer, analysts, or the
appropriate stock exchange;
8) an analysis of the issuer's financial statements; and
9) the existence of merger proposals or tender offers that might affect
the value of the security.
If the securities in question are foreign securities, the following additional
information may be considered:
1) the value of similar foreign securities traded on other foreign
markets;
2) ADR trading of similar securities;
3) closed-end fund trading of similar securities;
4) foreign currency exchange activity;
5) the trading prices of financial products that are tied to baskets of
foreign securities;
6) factors relating to the event that precipitated the pricing problem;
7) whether the event is likely to recur; and
8) whether the effects of the event are isolated or whether they affect
entire markets, countries or regions.
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
The inputs or methodology used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of October 31, 2014, is
included with the Fund's Portfolio of Investments.
Page 20
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2014
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME:
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income is recorded
on the accrual basis, including the amortization of premiums and accretion of
discounts. Amortization of premiums and the accretion of discounts are recorded
using the effective interest method.
The Fund may hold the securities of real estate investments trusts ("REITs").
Distributions from such investments may include income, capital gains and return
of capital. The actual character of amounts received during the year is not
known until after the REITs' fiscal year end. The Fund records the character of
distributions received from the REITs during the year based on estimates
available. The characterization of distributions received by the Fund may be
subsequently revised based on information received from the REITs after their
tax reporting periods conclude.
C. RESTRICTED SECURITIES:
The Fund invests in restricted securities, which are securities that may not be
offered for public sale without first being registered under the 1933 Act. Prior
to registration, restricted securities may only be resold in transactions exempt
from registration under Rule 144A under the 1933 Act, normally to qualified
institutional buyers. As of October 31, 2014, the Fund held restricted
securities as shown in the following table that Stonebridge Advisors LLC
("Stonebridge" or the "Sub-Advisor") has deemed illiquid pursuant to procedures
adopted by the Fund's Board of Trustees. Although market instability can result
in periods of increased overall market illiquidity, liquidity for each security
is determined based on security-specific factors and assumptions, which require
subjective judgment. The Fund does not have the right to demand that such
securities be registered. These securities are valued according to the valuation
procedures as stated in the Portfolio Valuation note (Note 2A) and are not
expressed as a discount to the carrying value of a comparable unrestricted
security. There are no unrestricted securities with the same maturity dates and
yields for these issuers.
PAR % OF
ACQUISITION AMOUNT/ CARRYING NET
SECURITY DATE SHARES PRICE COST VALUE ASSETS
---------------------------------------------- ----------- ---------- ---------- ------------ ------------ ------
AgStar Financial Services ACA, 6.75% 5/29/13 10,000 $ 1,025.88 $ 10,000,000 $ 10,258,750 0.69%
Centaur Funding Corp., 9.08%, 04/21/20 5/29/13 16,000 1,260.00 20,528,750 20,160,000 1.36
Farm Credit Bank of Texas, 6.75% 7/16/13 100,000 106.78 10,020,000 10,678,130 0.72
Pitney Bowes International Holdings Inc.,
Series F, 6.13% 6/06/13 8,500 1,062.50 8,361,875 9,031,250 0.61
Sovereign Real Estate Investment Trust, 12.00% 6/12/13 14,000 1,344.67 18,489,375 18,825,366 1.27
AIG Life Holdings, Inc., 7.57%, 12/01/45 3/07/14 $1,050,000 132.68 1,349,250 1,393,177 0.09
HSBC USA Capital Trust II, 8.38%, 05/15/27 9/09/13 $4,000,000 101.35 4,042,789 4,054,084 0.27
------------ ------------ ------
$ 72,792,039 $ 74,400,757 5.01%
============ ============ ======
D. FUTURES CONTRACTS:
The Fund purchases or sells (i.e. is long or short) futures contracts to hedge
against changes in interest rates (interest rate risk). Futures contracts are
agreements between the Fund and a counterparty to buy or sell a specific
quantity of an underlying instrument at a specified price and at a specified
date. Depending on the terms of the contract, futures contracts are settled
either through physical delivery of the underlying instrument on the settlement
date or by payment of a cash settlement amount on the settlement date. Open
futures contracts can also be closed out prior to settlement by entering into an
offsetting transaction in a matching futures contract. If the Fund is not able
to enter into an offsetting transaction, the Fund will continue to be required
to maintain margin deposits on the futures contract. When the contract is closed
or expires, the Fund records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value at the
time it was closed or expired. This gain or loss is included in "Net realized
gain (loss) on futures contracts" on the Statement of Operations.
Upon entering into a futures contract, the Fund must deposit funds, called
margin, with its custodian in the name of the clearing broker equal to a
specified percentage of the current value of the contract. Open futures contacts
are marked to market daily. Pursuant to the contract, the Fund agrees to receive
from or pay to the broker an amount of cash equal to the daily fluctuation in
value of the contract. Such receipts or payments are known as variation margin
and are included in "Variation margin payable or variation margin receivable" on
the Statement of Assets and Liabilities.
If market conditions change unexpectedly, the Fund may not achieve the
anticipated benefits of the futures contract and may realize a loss. The use of
futures contracts involves the risk of imperfect correlation in movements in the
price of the futures contracts, interest rates and the underlying instruments.
Restricted Cash in the amount of $5,215,563, as shown on the Statement of Assets
and Liabilities, is associated with cash held at the broker as of October 31,
2014.
Page 21
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2014
E. OPTION CONTRACTS:
The Fund may purchase or write put and call options on futures contracts and
enter into closing transactions with respect to such options to terminate an
existing position. A futures option gives the holder the right, in return for
the premium paid, to assume a long position (call) or short position (put) in a
futures contract at a specified exercise price prior to the expiration of the
option. Upon exercise of a call option, the holder acquires a long position in
the futures contract and the writer is assigned the opposite short position. In
the case of a put option, the opposite is true. Prior to exercise or expiration,
a futures option may be closed out by an offsetting purchase or sale of a
futures option of the same series.
The Fund may use options on futures contracts in connection with hedging
strategies. Generally, these strategies would be applied under the same market
and market sector conditions in which the Fund uses put and call options on
securities or indices. The purchase of put options on futures contracts is
analogous to the purchase of puts on securities or indices so as to hedge a
Fund's securities holdings against the risk of declining market prices. The
writing of a call option or the purchasing of a put option on the futures
contract constitutes a partial hedge against declining prices of securities
which are deliverable upon exercise of the futures contract. If the price at
expiration of a written call option is below the exercise price, the Fund will
retain the full amount of the option premium, which provides a partial hedge
against any decline that may have occurred in the Fund's holdings of securities.
If the price when the option is exercised is above the exercise price, however,
the Fund will incur a loss, which may be offset, in whole or in part, by the
increase in the value of the securities held by a Fund that were being hedged.
Writing a put option or purchasing a call option on a futures contract serves as
a partial hedge against an increase in the value of the securities the Fund
intends to acquire.
As with investments in futures contracts, the Fund is required to deposit and
maintain margin with respect to put and call options on futures contracts
written by them. Such margin deposits will vary depending on the nature of the
underlying futures contract (and the related initial margin requirements), the
current market value of the option, and other futures positions held by the
Fund. The Fund will earmark or set aside in a segregated account at such Fund's
custodian, liquid assets, such as cash, U.S. government securities or other
high-grade liquid debt obligations equal in value to the amount due on the
underlying obligation. Such segregated assets will be marked-to-market daily,
and additional assets will be earmarked or placed in the segregated account
whenever the total value of the earmarked or segregated assets falls below the
amount due on the underlying obligation.
The risks associated with the use of options on futures contracts include the
risk that the Fund may close out its position as a writer of an option only if a
liquid secondary market exists for such options, which cannot be assured. The
Fund's successful use of options on futures contracts depends on its
Sub-Advisor's ability to correctly predict the movement in prices of futures
contracts and the underlying instruments, which may prove to be incorrect. In
addition, there may be imperfect correlation between the instruments being
hedged and the futures contract subject to the option. Certain characteristics
of the futures market might increase the risk that movements in the prices of
futures contracts or options on futures contracts might not correlate perfectly
with movements in the prices of the investments being hedged. For example, all
participants in the futures and options on futures contracts markets are subject
to daily variation margin calls and might be compelled to liquidate Futures or
options on futures contracts positions whose prices are moving unfavorably to
avoid being subject to further calls. These liquidations could increase the
price volatility of the instruments and distort the normal price relationship
between the futures or options and the investments being hedged. Also, because
of initial margin deposit requirements, there might be increased participation
by speculators in the futures markets. This participation also might cause
temporary price distortions. In addition, activities of large traders in both
the futures and securities markets involving arbitrage, "program trading," and
other investment strategies might result in temporary price distortions.
Over-the-counter options have the risk of the potential inability of
counterparties to meet the terms of their contracts. The Fund's maximum equity
price risk for purchased options is limited to the premium initially paid. In
addition, certain risks may arise upon entering into option contracts including
the risk that an illiquid secondary market will limit the Fund's ability to
close out an option contract prior to the expiration date and that a change in
the value of the option contract may not correlate exactly with changes in the
value of the securities hedged.
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income, if any, are declared and paid monthly, or
as the Board of Trustees may determine from time to time. Distributions of net
realized capital gains earned by the Fund, if any, will be distributed at least
annually.
Distributions from income and capital gains are determined in accordance with
income tax regulations, which may differ from U.S. GAAP. Certain capital
accounts in the financial statements are periodically adjusted for permanent
differences in order to reflect their tax character. These permanent differences
are primarily due to the varying treatment of income and gain/loss on portfolio
securities held by the Fund and have no impact on net assets or NAV per share.
Temporary differences, which arise from recognizing certain items of income,
expense and gain/loss in different periods for financial statement and tax
purposes, will reverse at some time in the future.
Page 22
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2014
Permanent differences incurred during the year ended October 31, 2014, resulting
in book and tax accounting differences, have been reclassified at year end to
reflect an increase in accumulated net investment income (loss) of $5,848,556,
and a decrease in accumulated net realized gain (loss) on investments of
$5,659,908, and a decrease to paid-in capital of $188,648. Net assets were not
affected by these reclassifications.
The tax character of distributions paid during the fiscal year ended October 31,
2014, was as follows:
Distributions paid from:
Ordinary income................................... $ 116,023,916
Capital gain...................................... --
Return of capital................................. --
As of October 31, 2014, the components of distributable earnings on a tax basis
were as follows:
Undistributed ordinary income..................... $ 16,595,849
Undistributed capital gains....................... --
---------------
Total undistributed earnings...................... 16,595,849
Accumulated capital and other losses.............. (7,788,956)
Net unrealized appreciation (depreciation)........ 26,262,909
---------------
Total accumulated earnings (losses)............... 35,069,802
Other............................................. --
Paid in capital................................... 1,447,419,864
---------------
Net Assets........................................ $ 1,482,489,666
===============
G. INCOME TAXES:
The Fund intends to continue to qualify as a regulated investment company by
complying with the requirements under Subchapter M of the Internal Revenue Code
of 1986, as amended, which includes distributing substantially all of its net
investment income and net realized gains to shareholders. Accordingly, no
provision has been made for federal or state income taxes. However, due to the
timing and amount of distributions, the Fund may be subject to an excise tax of
4% of the amount by which approximately 98% of the Fund's taxable income exceeds
the distributions from such taxable income for the calendar year.
The Fund intends to utilize provisions of the federal income tax laws, which
allow it to carry a realized capital loss forward indefinitely following the
year of the loss and offset such loss against any future realized capital gains.
The Fund is subject to certain limitations under U.S. tax rules on the use of
capital carryforwards and net unrealized built-in losses. These limitations
apply when there has been a 50% change in ownership. At October 31, 2014, the
Fund had capital loss carryforwards for federal income tax purposes of
$7,788,956.
The Fund is subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. The taxable years ended 2014 and
2013 remains open to federal and state audit. As of October 31, 2014, management
has evaluated the application of these standards to the Fund, and has determined
that no provision for income tax is required in the Fund's financial statements
for uncertain tax positions.
H. EXPENSES:
The Fund will pay all expenses directly related to its operations.
I. ORGANIZATION AND OFFERING COSTS:
Organization costs consisted of costs incurred to establish the Fund and enable
it to legally conduct business. These costs included filing fees, listing fees,
legal services pertaining to the organization of the business and audit fees
relating to the initial registration and auditing the initial statement of
assets and liabilities, among other fees. Offering costs consisted of legal fees
pertaining to the Fund's shares offered for sale, registration fees,
underwriting fees, and printing of the initial prospectus, among other fees.
First Trust paid all organization expenses. The Fund's Common Share offering
costs of $1,704,000 were recorded as a reduction of the proceeds from the sale
of Common Shares during the period ended October 31, 2013.
Page 23
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2014
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND
OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Fund, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the selection and ongoing monitoring of the securities
in the Fund's portfolio, managing the Fund's business affairs and providing
certain administrative services necessary for the management of the Fund. For
those services, First Trust is entitled to a monthly fee calculated at an annual
rate of 0.85% of the Fund's average daily net assets. First Trust also provides
fund reporting services to the Fund for a flat annual fee in the amount of
$9,250.
Stonebridge, a majority-owned affiliate of First Trust, serves as the Fund's
sub-advisor and manages the Fund's portfolio subject to First Trust's
supervision. The Sub-Advisor receives a monthly portfolio management fee
calculated at an annual rate of 0.425% of average daily net assets that is paid
by First Trust out of its investment advisory fee.
Brown Brothers Harriman & Co. ("BBH") serves as the Fund's administrator, fund
accountant and custodian in accordance with certain fee arrangements. As
administrator and fund accountant, BBH is responsible for providing certain
administrative and accounting services to the Fund, including maintaining the
Fund's books of account, records of the Fund's securities transactions, and
certain other books and records. As custodian, BBH is responsible for custody of
the Fund's assets.
Computershare serves as the Fund's transfer agent in accordance with certain fee
arrangements. As transfer agent, Computershare is responsible for maintaining
shareholder records for the Fund.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer that is allocated pro rata among each fund in the First Trust Fund
Complex based on net assets. Each Independent Trustee is also paid an annual per
fund fee that varies based on whether the fund is a closed-end or other actively
managed fund, or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee are paid
annual fees to serve in such capacities, with such compensation allocated pro
rata among each fund in the First Trust Fund Complex based on net assets.
Trustees are reimbursed for travel and out-of-pocket expenses in connection with
all meetings. The Lead Independent Trustee and Committee Chairmen rotate every
three years. The officers and "Interested" Trustee receive no compensation from
the Fund for acting in such capacities.
4. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 2014, the cost of purchases and proceeds from
sales of investments, excluding short-term investments for the Fund, were
$1,019,552,998 and $941,693,097, respectively.
5. DERIVATIVES TRANSACTIONS
For the year ended October 31, 2014, written option activity was as follows:
NUMBER
OF
WRITTEN OPTIONS CONTRACTS PREMIUMS
---------------------------------------------------------------------
Options outstanding at October 31, 2013.... -- $ --
Options Written............................ 430 620,206
Options Expired............................ -- --
Options Exercised.......................... -- --
Options Closed............................. (430) (620,206)
------ ----------
Options outstanding at October 31, 2014.... -- $ --
====== ==========
During the year ended October 31, 2014, the Fund held purchased options with
market values ranging from $0 to $109,688, as measured at each month end.
Page 24
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2014
The following table presents the types of derivatives held by the Fund at
October 31, 2014, the primary underlying risk exposure and the location of these
instruments as presented on the Statement of Assets and Liabilities.
ASSET DERIVATIVES LIABILITY DERIVATIVES
----------------------------------------- --------------------------------------
DERIVATIVE RISK STATEMENT OF ASSETS AND FAIR STATEMENT OF ASSETS AND FAIR
INSTRUMENTS EXPOSURE LIABILITIES LOCATION VALUE LIABILITIES LOCATION VALUE
----------------- ------------------ --------------------------- ----------- ------------------------ -----------
Futures Contracts Interest Rate Risk Variation margin receivable $ -- Variation margin payable $ 2,416,563
The following table presents the amount of net realized gain (loss) and change
in net unrealized appreciation (depreciation) recognized for the year ended
October 31, 2014, on derivative instruments as well as the primary underlying
risk exposure associated with each instrument.
STATEMENT OF OPERATIONS LOCATION EQUITY RISK
--------------------------------------------------------------------------------------------
Net realized gain (loss) on investments*..................................... $ (452,412)
Net realized gain (loss) on written options tranactions...................... (364,500)
INTEREST RATE
RISK
-------------
Net realized gain (loss) on futures contracts................................ $ (4,845,105)
Net change in unrealized appreciation/depreciation on futures contracts...... (2,416,563)
* Represents put options purchased.
For the year ended October 31, 2014, the amount of notional values of futures
contracts opened and closed were $212,870,636 and $158,372,510, respectively.
The Fund does not have the right to offset financial assets and financial
liabilities related to Futures Contracts on the Statement of Assets and
Liabilities.
6. BORROWINGS
The Fund has entered into a credit agreement with Bank of America Merrill Lynch
that has a maximum commitment amount of $725,000,000. The borrowing rate under
the facility is equal to the 1-month LIBOR plus 70 basis points. In addition,
under the facility, the Fund pays a commitment fee of 0.25% on the undrawn
amount of such facility on any day that the loan balance is less than 20% of the
total commitment amount. The average amount outstanding between November 1, 2013
and October 31, 2014, was $650,614,306 with a weighted average interest rate of
0.86%. As of October 31, 2014, the Fund had outstanding borrowings of
$665,000,000 under this committed facility agreement. The high and low annual
interest rates for the year ended October 31, 2014, were 0.87% and 0.85%,
respectively. The interest rate at October 31, 2014, was 0.86%.
7. INDEMNIFICATION
The Fund has a variety of indemnification obligations under contracts with its
service providers. The Fund's maximum exposure under these arrangements is
unknown. However, the Fund has not had prior claims or losses pursuant to these
contracts and expects the risk of loss to be remote.
8. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events on the Fund through
the date the financial statements were issued, and has determined that there
were the following subsequent events:
On November 20, 2014, the Fund declared a distribution of $0.1625 per share to
Common Shareholders of record on December 3, 2014, payable December 10, 2014.
Effective November 26, 2014, the credit agreement with Bank of America Merrill
Lynch was terminated and the Fund entered into a credit agreement establishing a
credit facility with The Bank of Nova Scotia. The credit facility with The Bank
of Nova Scotia has a maximum commitment amount of $725,000,000. The borrowing
rate under the facility is equal to the 1-month LIBOR plus 75 basis points. In
addition, under the facility, the Fund pays a commitment fee of 15 basis points
on the undrawn amount of the facility on any day that the loan balance is less
than 50% of current maximum loan amount.
Page 25
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FIRST TRUST INTERMEDIATE DURATION
PREFERRED & INCOME FUND:
We have audited the accompanying statement of assets and liabilities of First
Trust Intermediate Duration Preferred & Income Fund (the "Fund"), including the
portfolio of investments, as of October 31, 2014, and the related statements of
operations and cash flows for the year then ended, and the statements of changes
in net assets and the financial highlights for each of the periods presented.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
The Fund is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of October 31, 2014 by correspondence with the Fund's
custodian and brokers; where replies were not received, we performed other
auditing procedures. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
First Trust Intermediate Duration Preferred & Income Fund as of October 31,
2014, and the results of its operations and its cash flows for the year then
ended, and the changes in its net assets and the financial highlights for each
of the periods presented, in conformity with accounting principles generally
accepted in the United States of America.
/s/ Deloitte & Touche LLP
Chicago, Illinois
December 23, 2014
Page 26
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2014 (UNAUDITED)
DIVIDEND REINVESTMENT PLAN
If your Common Shares are registered directly with the Fund or if you hold your
Common Shares with a brokerage firm that participates in the Fund's Dividend
Reinvestment Plan (the "Plan"), unless you elect, by written notice to the Fund,
to receive cash distributions, all dividends, including any capital gain
distributions, on your Common Shares will be automatically reinvested by
Computershare Trust Company, N.A. (the "Plan Agent"), in additional Common
Shares under the Plan. If you elect to receive cash distributions, you will
receive all distributions in cash paid by check mailed directly to you by the
Plan Agent, as the dividend paying agent.
If you decide to participate in the Plan, the number of Common Shares you will
receive will be determined as follows:
(1) If Common Shares are trading at or above net asset value ("NAV") at
the time of valuation, the Fund will issue new shares at a price
equal to the greater of (i) NAV per Common Share on that date or
(ii) 95% of the market price on that date.
(2) If Common Shares are trading below NAV at the time of valuation, the
Plan Agent will receive the dividend or distribution in cash and
will purchase Common Shares in the open market, on the NYSE or
elsewhere, for the participants' accounts. It is possible that the
market price for the Common Shares may increase before the Plan
Agent has completed its purchases. Therefore, the average purchase
price per share paid by the Plan Agent may exceed the market price
at the time of valuation, resulting in the purchase of fewer shares
than if the dividend or distribution had been paid in Common Shares
issued by the Fund. The Plan Agent will use all dividends and
distributions received in cash to purchase Common Shares in the open
market within 30 days of the valuation date except where temporary
curtailment or suspension of purchases is necessary to comply with
federal securities laws. Interest will not be paid on You may elect
to opt-out of or withdraw from the Plan at any time by giving
written notice to the Plan Agent, or by telephone at (866) 340-1104,
in accordance with such reasonable requirements as the Plan Agent
and the Fund may agree upon. If you withdraw or the Plan is
terminated, you will receive a certificate for each whole share in
your account under the Plan, and you will receive a cash payment for
any fraction of a share in your account. If you wish, the Plan Agent
will sell your shares and send you the proceeds, minus brokerage
commissions.
The Plan Agent maintains all Common Shareholders' accounts in the Plan and gives
written confirmation of all transactions in the accounts, including information
you may need for tax records. Common Shares in your account will be held by the
Plan Agent in non-certificated form. The Plan Agent will forward to each
participant any proxy solicitation material and will vote any shares so held
only in accordance with proxies returned to the Fund. Any proxy you receive will
include all Common Shares you have received under the Plan.
There is no brokerage charge for reinvestment of your dividends or distributions
in Common Shares. However, all participants will pay a pro rata share of
brokerage commissions incurred by the Plan Agent when it makes open market
purchases.
Automatically reinvesting dividends and distributions does not mean that you do
not have to pay income taxes due upon receiving dividends and distributions.
Capital gains and income are realized although cash is not received by you.
Consult your financial advisor for more information.
If you hold your Common Shares with a brokerage firm that does not participate
in the Plan, you will not be able to participate in the Plan and any dividend
reinvestment may be effected on different terms than those described above.
The Fund reserves the right to amend or terminate the Plan if in the judgment of
the Board of Trustees the change is warranted. There is no direct service charge
to participants in the Plan; however, the Fund reserves the right to amend the
Plan to include a service charge payable by the participants. Additional
information about the Plan may be obtained by writing Computershare Inc., P.O.
Box 30170, College Station, TX 77842-3170.
--------------------------------------------------------------------------------
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Fund uses to determine how
to vote proxies and information on how the Fund voted proxies relating to
portfolio investments during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Fund's website located at http://www.ftportfolios.com; and (3) on the
Securities and Exchange Commission's ("SEC") website located at
http://www.sec.gov.
PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q
are available (1) by calling (800) 988-5891; (2) on the Fund's website located
at http://www.ftportfolios.com; (3) on the SEC's website at http://www.sec.gov;
and (4) for review and copying at the SEC's Public Reference Room ("PRR") in
Washington, DC. Information regarding the operation of the PRR may be obtained
by calling (800) SEC-0330.
Page 27
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2014 (UNAUDITED)
FEDERAL TAX INFORMATION
For the taxable year ended October 31, 2014, the following percentages of income
dividends paid by the Fund qualify for the dividends received deduction
available to corporations:
Dividends Received Deduction
----------------------------
26.51%
For the taxable year ended October 31, 2014, the following percentage of income
dividends paid by the Fund is hereby designated as qualified divided income:
Qualified Dividend Income
-------------------------
56.53%
ADVISORY AGREEMENT
BOARD CONSIDERATIONS REGARDING APPROVAL OF CONTINUATION OF INVESTMENT MANAGEMENT
AND SUB-ADVISORY AGREEMENTS
The Board of Trustees of First Trust Intermediate Duration Preferred & Income
Fund (the "Fund"), including the Independent Trustees, unanimously approved the
continuation of the Investment Management Agreement (the "Advisory Agreement")
between the Fund and First Trust Advisors L.P. (the "Advisor") and the
Investment Sub-Advisory Agreement (the "Sub-Advisory Agreement" and together
with the Advisory Agreement, the "Agreements") among the Fund, the Advisor and
Stonebridge Advisors LLC (the "Sub-Advisor"), at a meeting held June 8-9, 2014.
The Board of Trustees determined that the continuation of the Agreements is in
the best interests of the Fund in light of the extent and quality of the
services provided and such other matters as the Board considered to be relevant
in the exercise of its reasonable business judgment.
To reach this determination, the Board considered its duties under the
Investment Company Act of 1940, as amended (the "1940 Act"), as well as under
the general principles of state law in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
on such agreements. To assist the Board in its evaluation of the Agreements, the
Independent Trustees received a separate report from each of the Advisor and the
Sub-Advisor in advance of the Board meeting responding to a request for
information from counsel to the Independent Trustees. The reports, among other
things, outlined the services provided by the Advisor and the Sub-Advisor
(including the relevant personnel responsible for these services and their
experience); the advisory and sub-advisory fees for the Fund as compared to fees
charged to other clients of the Advisor and the Sub-Advisor and as compared to
fees charged by investment advisors and sub-advisors to comparable funds;
expenses of the Fund as compared to expense ratios of comparable funds; the
nature of expenses incurred in providing services to the Fund and the potential
for economies of scale, if any; financial data on the Advisor and the
Sub-Advisor; any fall out benefits to the Advisor and the Sub-Advisor; and
information on the Advisor's and the Sub-Advisor's compliance programs.
Following receipt of this information, counsel to the Independent Trustees posed
follow-up questions to the Advisor, and the Independent Trustees and their
counsel met separately to discuss the information provided by the Advisor and
the Sub-Advisor, including the supplemental responses. The Board applied its
business judgment to determine whether the arrangements between the Fund and the
Advisor and among the Fund, the Advisor and the Sub-Advisor are reasonable
business arrangements from the Fund's perspective as well as from the
perspective of shareholders. The Board considered that shareholders chose to
invest or remain invested in the Fund knowing that the Advisor and Sub-Advisor
manage the Fund.
In reviewing the Agreements, the Board considered the nature, extent and quality
of services provided by the Advisor and the Sub-Advisor under the Agreements.
The Board considered the Advisor's statements regarding the incremental benefits
associated with the Fund's advisor/sub-advisor management structure. With
respect to the Advisory Agreement, the Board considered that the Advisor is
responsible for the overall management and administration of the Fund and
reviewed the services provided by the Advisor to the Fund, including the
oversight of the Sub-Advisor. The Board noted the compliance program that had
been developed by the Advisor and considered that it includes a robust program
for monitoring the Sub-Advisor's compliance with the 1940 Act and the Fund's
investment objectives and policies. With respect to the Sub-Advisory Agreement,
the Board noted the background and experience of the Sub-Advisor's portfolio
management team, and recent additions to the team. The Board also reviewed the
materials provided by the Sub-Advisor and considered the services that the
Sub-Advisor provides to the Fund, including the Sub-Advisor's day-to-day
management of the Fund's investments. The Board noted its familiarity with the
Sub-Advisor, including its oversight of two other funds in the First Trust fund
complex sub-advised by the Sub-Advisor, the First Trust Preferred Securities and
Income Fund (the "Open-End Fund") and the First Trust Preferred Securities and
Income ETF (the "ETF"). In light of the information presented and the
considerations made, the Board concluded that the nature, extent and quality of
services provided to the Fund by the Advisor and the Sub-Advisor under the
Agreements have been and are expected to remain satisfactory and that the
Sub-Advisor, under the oversight of the Advisor, has managed the Fund consistent
with its investment objectives and policies.
Page 28
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2014 (UNAUDITED)
The Board considered the advisory and sub-advisory fees paid under the
Agreements. The Board considered the advisory fees charged by the Advisor to
similar funds and other non-fund clients, including the Open-End Fund and the
ETF, and that the Advisor provides services to certain separately managed
accounts that may have investment objectives and policies similar to the Fund's.
The Board noted that the Advisor charges a lower advisory fee rate to the
separately managed accounts, as well as the Advisor's statement that the nature
of the services provided to the separately managed accounts is not comparable to
those provided to the Fund. The Board considered the sub-advisory fee and how it
relates to the Fund's overall advisory fee structure and noted that the
sub-advisory fee is paid by the Advisor from its advisory fee. The Board also
considered information provided by the Sub-Advisor as to the fees it charges to
other clients, including for serving as sub-advisor to the Open-End Fund and the
ETF. In addition, the Board reviewed data prepared by Lipper Inc. ("Lipper"), an
independent source, showing the advisory fees and expense ratios of the Fund as
compared to the advisory fees and expense ratios of an expense peer group
selected by Lipper and similar data from the Advisor for a separate peer group
selected by the Advisor. The Board noted that the Lipper and Advisor peer groups
included three overlapping peer funds. The Board discussed with representatives
of the Advisor the limitations in creating a relevant peer group for the Fund,
including that (i) the Fund is unique in its composition, which makes assembling
peers with similar strategies and asset mix difficult; (ii) peer funds may use
different amounts and types of leverage which have different costs associated
with them or may use no leverage; and (iii) most peer funds do not employ an
advisor/sub-advisor management structure. The Board took these limitations into
account in considering the peer data. In reviewing the peer data, the Board
noted that the Fund's contractual advisory fee was higher than the median of the
Lipper peer group.
The Board also considered performance information for the Fund, noting that the
performance information included the Fund's quarterly performance report, which
is part of the process that the Board has established for monitoring the Fund's
performance and portfolio risk on an ongoing basis. The Board determined that
this process continues to be effective for reviewing the Fund's performance. In
addition to the Board's ongoing review of performance, the Board also received
data prepared by Lipper comparing the Fund's performance to a performance peer
universe selected by Lipper and to a blended benchmark. In reviewing the Fund's
performance as compared to the performance of the Lipper performance peer
universe, the Board took into account the limitations described above with
respect to creating a relevant peer group for the Fund. The Board also noted
that because the Fund launched in May 2013, it had not yet completed a full
calendar year of performance. The Board also considered the Fund's dividend
yield as of March 31, 2014 and information provided by the Advisor on the Fund's
leverage, including that leverage was accretive to the Fund's total return in
2013. In addition, the Board compared the Fund's premium/discount over the past
three quarters to the average and median premium/discount of the Advisor peer
group over the same period and considered the factors that may impact a fund's
premium/discount.
On the basis of all the information provided on the fees, expenses and
performance of the Fund, the Board concluded that the advisory and sub advisory
fees were reasonable and appropriate in light of the nature, extent and quality
of services provided by the Advisor and Sub-Advisor under the Agreements.
The Board noted that the Advisor has continued to invest in personnel and
infrastructure and considered whether fee levels reflect any economies of scale
for the benefit of shareholders. The Board determined that due to the Fund's
closed-end structure, the potential for realization of economies of scale as
Fund assets grow was not a material factor to be considered. The Board also
considered the costs of the services provided and profits realized by the
Advisor from serving as investment advisor to the Fund for the period from
inception through December 31, 2013, as well as product-line profitability data
for the same period, as set forth in the materials provided to the Board. The
Board noted the inherent limitations in the profitability analysis, and
concluded that the Advisor's estimated profitability appeared to be not
excessive in light of the services provided to the Fund. The Board considered
fall-out benefits described by the Advisor that may be realized from its
relationship with the Fund, including the Advisor's compensation for fund
reporting services pursuant to a separate Fund Reporting Services Agreement. The
Board noted that an affiliate of the Advisor, First Trust Portfolios L.P., has
an ownership interest in the Sub-Advisor and considered potential fall-out
benefits to the Advisor from such ownership interest.
The Board considered the Sub-Advisor's expenses in providing investment services
to the Fund and noted the Sub-Advisor's recent hiring of additional personnel to
work on the Fund. The Board also considered the Sub-Advisor's statement that it
does not expect economies of scale to be present in connection with its
provision of services to the Fund. The Board considered that the sub advisory
fee rate was negotiated at arm's length between the Advisor and the Sub-Advisor.
The Board also considered data provided by the Sub-Advisor with respect to the
profitability of the Sub-Advisory Agreement to the Sub-Advisor. The Board noted
the inherent limitations in the profitability analysis and concluded that the
profitability analysis for the Advisor was more relevant, but noted that the
Sub-Advisor estimated that the Fund was not profitable for the Sub-Advisor. The
Board considered fall-out benefits realized by the Sub-Advisor from its
relationship with the Fund including potential fall-out benefits to the
Sub-Advisor from the ownership interest of First Trust Portfolios L.P. in the
Sub-Advisor. The Board noted that the Sub-Advisor does not maintain any
soft-dollar arrangements.
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, unanimously determined that the terms
of the Agreements continue to be fair and reasonable and that the continuation
of the Agreements is in the best interests of the Fund. No single factor was
determinative in the Board's analysis.
Page 29
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2014 (UNAUDITED)
NYSE CERTIFICATION INFORMATION
In accordance with Section 303A-12 of the New York Stock Exchange ("NYSE")
Listed Company Manual, the Fund's President has certified to the NYSE that, as
of April 28, 2014, he was not aware of any violation by the Fund of NYSE
corporate governance listing standards. In addition, the Fund's reports to the
SEC on Forms N-CSR, N-CSRS and N-Q contain certifications by the Fund's
principal executive officer and principal financial officer that relate to the
Fund's public disclosure in such reports and are required by Rule 30a-2 under
the 1940 Act.
SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
The Joint Annual Meeting of Shareholders of the Common Shares of Macquarie/First
Trust Global Infrastructure/Utilities Dividend & Income Fund, First Trust Energy
Income and Growth Fund, First Trust Enhanced Equity Income Fund, First
Trust/Aberdeen Global Opportunity Income Fund, First Trust Mortgage Income Fund,
First Trust Strategic High Income Fund II, First Trust/Aberdeen Emerging
Opportunity Fund, First Trust Specialty Finance and Financial Opportunities
Fund, First Trust Dividend and Income Fund, First Trust High Income Long/Short
Fund, First Trust Energy Infrastructure Fund, First Trust MLP and Energy Income
Fund, First Trust Intermediate Duration Preferred & Income Fund and First Trust
New Opportunities MLP & Energy Fund was held on April 23, 2014 (the "Annual
Meeting"). At the Annual Meeting, Robert F. Keith was elected by the Common
Shareholders of the First Trust Intermediate Duration Preferred & Income Fund as
a Class I Trustee for a three-year term expiring at the Fund's annual meeting of
shareholders in 2017. The number of votes cast in favor of Mr. Keith was
49,793,900, the number of votes against was 1,650,702 and the number of broker
non-votes was 9,259,587. James A. Bowen, Richard E. Erickson, Thomas R. Kadlec
and Niel B. Nielson are the other current and continuing Trustees.
RISK CONSIDERATIONS
Risks are inherent in all investing. The following summarizes some, but not all,
of the risks that should be considered for the Fund. For additional information
about the risks associated with investing in the Fund, please see the Fund's
prospectus and statement of additional information, as well as other Fund
regulatory filings.
INVESTMENT AND MARKET RISK: An investment in the Fund's common shares ("Common
Shares") is subject to investment risk, including the possible loss of the
entire principal invested. Common Shares at any point in time may be worth less
than the original investment, even after taking into account the reinvestment of
Fund dividends and distributions. The Fund utilizes leverage, which magnifies
investment risk.
PREFERRED/HYBRID PREFERRED AND DEBT SECURITIES RISK: Preferred/hybrid preferred
and debt securities in which the Fund invests are subject to various risks,
including credit risk, interest rate risk, call/prepayment risk and reinvestment
risk, as described below. In addition, preferred and hybrid preferred securities
are subject to certain other risks, including deferral and omission risk,
subordination risk, limited voting rights risk and special redemption rights
risk.
CREDIT AND BELOW INVESTMENT GRADE SECURITIES RISK: The Fund is subject to credit
risk, which is the risk that an issuer of a security may be unable or unwilling
to make dividend, interest and principal payments when due and the related risk
that the value of a security may decline because of concerns about the issuer's
ability or willingness to make such payments. Credit risk may be heightened for
the Fund because it invests in below investment grade securities, which involve
greater risks than investment grade securities, including the possibility of
dividend or interest deferral, default or bankruptcy.
LEVERAGE RISK: The use of leverage by the Fund can magnify the effect of any
losses. If the income and gains from the securities and investments purchased
with leverage proceeds do not cover the cost of leverage, the return to the
Common Shares will be less than if leverage had not been used. Moreover,
leverage involves risks and special considerations for holders of Common Shares
including the likelihood of greater volatility of net asset value and market
price of the Common Shares than a comparable portfolio without leverage, and the
risk that fluctuations in interest rates on reverse repurchase agreements,
borrowings and short-term debt or in the dividend rates on any preferred shares
of the Fund that the Fund may pay will reduce the return to the holders of
Common Shares or will result in fluctuations in the dividends paid on the Common
Shares. There is no assurance that a leveraging strategy will be successful.
Although the Fund seeks to maintain a duration, under normal market
circumstances, excluding the effects of leverage, of between three and eight
years, if the effect of the Fund's use of leverage was included in calculating
duration, it could result in a longer duration for the Fund.
CALL/PREPAYMENT AND REINVESTMENT RISK: If an issuer of a security exercises an
option to redeem its issue at par or prepay principal earlier than scheduled,
the Fund may be forced to reinvest in lower yielding securities. A decline in
income could affect the Common Shares' market price or the overall return of the
Fund.
Page 30
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2014 (UNAUDITED)
DURATION RISK: The Fund seeks to maintain, under normal market conditions, a
duration, excluding the effects of leverage, of between three and eight years.
Various techniques may be used to shorten or lengthen the Fund's duration.
Securities with longer durations tend to be more sensitive to interest rate (or
yield) changes than securities with shorter durations. The duration of a
security will be expected to change over time with changes in market factors and
time to maturity.
RISKS OF CONCENTRATION IN THE FINANCIALS SECTOR: Because the Fund invests 25% or
more of its managed assets in the financials sector, it will be more susceptible
to adverse economic or regulatory occurrences affecting this sector, such as
changes in interest rates, loan concentration and competition.
INTEREST RATE RISK: The Fund is subject to interest rate risk, which is the risk
that the preferred and debt securities in which the Fund invests will decline in
value because of rising market interest rates.
FLOATING RATE AND FIXED-TO-FLOATING RATE SECURITIES RISK: The market value of
floating rate and fixed-to-floating rate securities may fall in a declining
interest rate environment and may also fall in a rising interest rate
environment if there is a lag between the rise in interest rates and the
interest rate reset. A secondary risk associated with declining interest rates
is the risk that income earned by the Fund on floating rate and
fixed-to-floating rate securities may decline due to lower coupon payments on
floating-rate securities.
CONVERTIBLE SECURITIES/CONTINGENT CONVERTIBLE SECURITIES RISK: The market value
of convertible securities tends to decline as interest rates increase and,
conversely, tends to increase as interest rates decline. In addition, because of
the conversion feature, the market value of convertible securities tends to vary
with fluctuations in the market value of the underlying common stock. Contingent
convertible securities provide for mandatory conversion into common stock of the
issuer under certain circumstances. Since the common stock of the issuer may not
pay a dividend, investors in these instruments could experience a reduced income
rate, potentially to zero; and conversion would deepen the subordination of the
investor, hence worsening standing in a bankruptcy. In addition, some such
instruments have a set stock conversion rate that would cause a reduction in
value of the security if the price of the stock is below the conversion price on
the conversion date.
FOREIGN (NON-U.S.) SECURITIES RISK: Investing in securities of non-U.S. issuers
may involve certain risks not typically associated with investing in securities
of U.S. issuers. These risks include: (i) there may be less publicly available
information about non-U.S. issuers or markets due to less rigorous disclosure or
accounting standards or regulatory practices; (ii) non-U.S. markets may be
smaller, less liquid and more volatile than the U.S. market; (iii) potential
adverse effects of fluctuations in currency exchange rates or controls on the
value of the Fund's investments; (iv) the economies of non U.S. countries may
grow at slower rates than expected or may experience a downturn or recession;
(v) the impact of economic, political, social or diplomatic events; (vi) certain
non-U.S. countries may impose restrictions on the ability of non U.S. issuers to
make payments of principal and interest to investors located in the United
States due to blockage of non-U.S. currency exchanges or otherwise; and (vii)
withholding and other non-U.S. taxes may decrease the Fund's return.
ILLIQUID AND RESTRICTED SECURITIES RISK: The Fund may invest up to 25% of its
Managed Assets in illiquid securities and may also invest, without limit, in
unregistered or otherwise restricted securities. Investment of the Fund's assets
in illiquid and restricted securities may restrict the Fund's ability to take
advantage of market opportunities. Illiquid and restricted securities may be
difficult to dispose of at a fair price at the times when the Fund believes it
is desirable to do so. The market price of illiquid and restricted securities
generally is more volatile than that of more liquid securities, which may
adversely affect the price that the Fund pays for or recovers upon the sale of
such securities. Illiquid and restricted securities are also more difficult to
value, especially in challenging markets. The risks associated with illiquid and
restricted securities may be particularly acute in situations in which the
Fund's operations require cash and could result in the Fund borrowing to meet
its short-term needs or incurring losses on the sale of illiquid or restricted
securities.
Page 31
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BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2014 (UNAUDITED)
NUMBER OF OTHER
PORTFOLIOS IN TRUSTEESHIPS OR
THE FIRST TRUST DIRECTORSHIPS
NAME, ADDRESS, TERM OF OFFICE FUND COMPLEX HELD BY TRUSTEE
DATE OF BIRTH AND AND LENGTH OF PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE FUND SERVICE (2) DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
Richard E. Erickson, Trustee o Three Year Term Physician; President, Wheaton Orthopedics; 111 None
c/o First Trust Advisors L.P. Limited Partner, Gundersen Real
120 East Liberty Drive, o Since Fund Estate Limited Partnership; Member,
Suite 400 Inception Sportsmed LLC
Wheaton, IL 60187
D.O.B.: 04/51
Thomas R. Kadlec, Trustee o Three Year Term President (March 2010 to Present), Senior 111 Director of ADM
c/o First Trust Advisors L.P. Vice President and Chief Financial Officer Investor Services,
120 East Liberty Drive, o Since Fund (May 2007 to March 2010), Inc., ADM
Suite 400 Inception ADM Investor Services, Inc. Investor Services
Wheaton, IL 60187 (Futures Commission Merchant) International, and
D.O.B.: 11/57 Futures Industry
Association
Robert F. Keith, Trustee o Three Year Term President (2003 to Present), Hibs 111 Director of
c/o First Trust Advisors L.P. Enterprises (Financial and Management Trust Company
120 East Liberty Drive, o Since Fund Consulting) of Illinois
Suite 400 Inception
Wheaton, IL 60187
D.O.B.: 11/56
Niel B. Nielson, Trustee o Three-Year Term Managing Director and Chief Operating 111 Director of
c/o First Trust Advisors L.P. Officer (January 2015 to Present), Pelita Covenant
120 East Liberty Drive, o Since Fund Harapan Educational Foundation Transport, Inc.
Suite 400 Inception (Educational Products and Services); (May 2003 to
Wheaton, IL 60187 President and Chief Executive Officer May 2014)
D.O.B.: 03/54 (June 2012 to September 2014), Servant
Interactive LLC (Educational Products and
Services); President and Chief Executive
Officer (June 2012 to September 2014), Dew
Learning LLC (Educational Products and
Services); President (June 2002 to June
2012), Covenant College
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee and o Three Year Term Chief Executive Officer (December 2010 111 None
Chairman of the Board to Present), President (until December
120 East Liberty Drive, o Since Fund 2010), First Trust Advisors L.P. and First
Suite 400 Inception Trust Portfolios L.P.; Chairman of the
Wheaton, IL 60187 Board of Directors, BondWave LLC
D.O.B.: 09/55 (Software Development Company/
Investment Advisor) and Stonebridge
Advisors LLC (Investment Advisor)
-------------------
(1) 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.
(2) Currently, Robert F. Keith, as a Class I Trustee, is serving as a trustee
until the Fund's 2017 annual meeting of shareholders. Richard E. Erickson
and Thomas R. Kadlec, as Class II Trustees, are serving as trustees until
the Fund's 2015 annual meeting of shareholders. James A. Bowen and Niel B.
Nielson, as Class III Trustees, are serving as trustees until the Fund's
2016 annual meeting of shareholders.
Page 32
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BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2014 (UNAUDITED)
NAME, ADDRESS POSITION AND OFFICES TERM OF OFFICE AND PRINCIPAL OCCUPATIONS
AND DATE OF BIRTH WITH FUND LENGTH OF SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(3)
------------------------------------------------------------------------------------------------------------------------------------
Mark R. Bradley President and Chief o Indefinite Term Chief Operating Officer (December 2010 to Present)
120 East Liberty Drive, Executive Officer and Chief Financial Officer, First Trust Advisors
Suite 400 o Since Fund Inception L.P. and First Trust Portfolios L.P.; Chief Financial
Wheaton, IL 60187 Officer, BondWave LLC (Software Development
D.O.B.: 11/57 Company/Investment Advisor) and Stonebridge
Advisors LLC (Investment Advisor)
James M. Dykas Treasurer, Chief Financial o Indefinite Term Controller (January 2011 to Present),
120 East Liberty Drive, Officer and Chief Senior Vice President (April 2007 to
Suite 400 Accounting Officer o Since Fund Inception Present), First Trust Advisors L.P.
Wheaton, IL 60187 and First Trust Portfolios L.P.
D.O.B.: 01/66
W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P., First
120 East Liberty Drive, Legal Officer Trust Portfolios L.P. and BondWave LLC
Suite 400 o Since Fund Inception (Software Development Company/Investment
Wheaton, IL 60187 Advisor); Secretary of Stonebridge Advisors LLC
D.O.B.: 05/60 (Investment Advisor)
Daniel J. Lindquist Vice President o Indefinite Term Managing Director (July 2012 to Present) and
120 East Liberty Drive, Senior Vice President (September 2005 to July
Suite 400 2012), First Trust Advisors L.P. and First Trust
Wheaton, IL 60187 Portfolios L.P.
D.O.B.: 02/70 o Since Fund Inception
Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel,
120 East Liberty Drive, and Assistant Secretary First Trust Advisors L.P. and
Suite 400 o Since Fund Inception First Trust Portfolios L.P.
Wheaton, IL 60187
D.O.B.: 12/66
-------------------
(3) Officers of the Fund have an indefinite term. The term "officer" means the
president, vice president, secretary, treasurer, controller or any other
officer who performs a policy making function.
Page 33
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PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2014 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship.
We are committed to protecting the security and confidentiality of your personal
information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources
o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies".
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o 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.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information within First Trust.
PRIVACY ONLINE
We allow third-party companies, including AddThis (a social media sharing
service), to collect certain anonymous information when you visit our website.
These companies may use non-personally identifiable information during your
visits to this and other websites in order to provide advertisements about goods
and services likely to be of greater interest to you. These companies typically
use a cookie, third party web beacon or pixel tags, to collect this information.
To learn more about this behavioral advertising practice, you can visit
www.networkadvertising.org.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, First Trust restricts access to
your nonpublic personal information to those First Trust employees who need to
know that information to provide products or services to you. We maintain
physical, electronic and procedural safeguards to protect your nonpublic
personal information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
Page 34
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This Page Left Blank Intentionally.
FIRST TRUST
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 E. Liberty Drive, Suite 400
Wheaton, IL 60187
INVESTMENT SUB-ADVISOR
Stonebridge Advisors LLC
187 Danbury Road
Wilton, CT 06897
ADMINISTRATOR,
FUND ACCOUNTANT &
CUSTODIAN
Brown Brothers Harriman & Co.
50 Milk Street
Boston, MA 02109
TRANSFER AGENT
Computershare Inc.
P.O. Box 30170
College Station, TX 77842-3170
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
[BLANK BACK COVER]
ITEM 2. CODE OF ETHICS.
(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.
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 the last fiscal
year for professional services rendered by the principal accountant for
the audit of the registrant's annual financial statements or services that
are normally provided by the accountant in connection with statutory and
regulatory filings or engagements for those fiscal years were $47,250 from
the registrant's inception on May 23, 2013 through October 31, 2013 and
$28,000 for the fiscal year ended October 31, 2014.
(b) Audit-Related Fees (Registrant) -- The aggregate fees billed in the last
fiscal year for assurance and related services by the principal accountant
that are reasonably related to the performance of the audit of the
registrant's financial statements and are not reported under paragraph (a)
of this Item were $0 from the registrant's inception on May 23, 2013
through October 31, 2013 and $0 for the fiscal year ended October 31,
2014.
Audit-Related Fees (Investment Advisor) -- The aggregate fees billed in
the last fiscal year for assurance and related services by the principal
accountant that are reasonably related to the performance of the audit of
the registrant's financial statements and are not reported under paragraph
(a) of this Item were $7,000 from the registrant's inception on May 23,
2013 through October 31, 2013 and $0 for the fiscal year ended October 31,
2014. These were for the registrant's seed audit and consent.
Audit-Related Fees (Investment Sub-Advisor) -- The aggregate fees billed
in the last fiscal year for assurance and related services by the
principal accountant that are reasonably related to the performance of the
audit of the registrant's financial statements and are not reported under
paragraph (a) of this Item were $0 from the registrant's inception on May
23, 2013 through October 31, 2013 and $0 for the fiscal year ended October
31, 2014.
(c) Tax Fees (Registrant) -- The aggregate fees billed in the last fiscal year
for professional services rendered by the principal accountant for tax
compliance, tax advice, and tax planning were $0 from the registrant's
inception on May 23, 2013 through October 31, 2013 and $5,200 for the
fiscal year ended October 31, 2014. These fees were for tax return
preparation.
Tax Fees (Investment Advisor) -- The aggregate fees billed in the last
fiscal year for professional services rendered by the principal accountant
for tax compliance, tax advice, and tax planning were $0 from the
registrant's inception on May 23, 2013 through October 31, 2013 and $0 for
the fiscal year ended October 31, 2014.
Tax Fees (Investment Sub-Advisor) -- The aggregate fees billed in the last
fiscal year for professional services rendered by the principal accountant
for tax compliance, tax advice, and tax planning were $0 from the
registrant's inception on May 23, 2013 through October 31, 2013 and $0 for
the fiscal year ended October 31, 2014.
(d) All Other Fees (Registrant) -- The aggregate fees billed in the last
fiscal year for products and services provided by the principal accountant
to the registrant, other than the services reported in paragraphs (a)
through (c) of this Item were $0 from the registrant's inception on May
23, 2013 through October 31, 2013 and $0 for the fiscal year ended October
31, 2014.
All Other Fees (Investment Adviser) The aggregate fees billed in the last
fiscal year for products and services provided by the principal accountant
to the registrant, other than the services reported in paragraphs (a)
through (c) of this Item were $0 from the registrant's inception on May
23, 2013 through October 31, 2013 and $0 for the fiscal year ended October
31, 2014.
All Other Fees (Investment Sub-Adviser) The aggregate fees billed in the
last fiscal year for products and services provided by the principal
accountant to the registrant, other than the services reported in
paragraphs (a) through (c) of this Item were $0 from the registrant's
inception on May 23, 2013 through October 31, 2013 and $0 for the fiscal
year ended October 31, 2014.
(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 adviser (not
including a sub-adviser whose role is primarily portfolio management and is
sub-contracted or overseen by another investment adviser) and any entity
controlling, controlled by or under common control with the investment adviser
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 adviser (other than any sub-adviser whose role is primarily
portfolio management and is sub-contracted with or overseen by another
investment adviser) and any entity controlling, controlled by or under common
control with the investment adviser 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 adviser 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 adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by, or under
common control with the adviser that provides ongoing services to the
registrant from the registrant's inception on May 23, 2013 through October
31, 2013 were $0 for the registrant, $0 for the registrant's investment
adviser and $0 for the registrant's investment sub-adviser and for the
registrant's fiscal year ended October 31, 2014 were $5,200 for the
registrant, $43,500 for the registrant's investment adviser and $3,000 for
the registrant's investment sub-adviser.
(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 adviser (not including any sub-adviser whose role
is primarily portfolio management and is subcontracted with or overseen by
another investment adviser), and any entity controlling, controlled by, or
under common control with the investment adviser that provides ongoing
services to the registrant that were not pre-approved pursuant to
paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with
maintaining the principal accountant's independence.
ITEM 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.
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.
The Proxy Voting Policies are attached herewith.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a)(1) IDENTIFICATION OF PORTFOLIO MANAGERS OR MANAGEMENT TEAM MEMBERS AND
DESCRIPTION OF ROLE OF PORTFOLIO MANAGERS OR MANAGEMENT TEAM MEMBERS
Information provided as of January 5, 2014.
Stonebridge Advisors LLC is a registered investment advisor based in Wilton,
Connecticut. Stonebridge specializes in the management of preferred securities
and North American equity income securities.
Scott T. Fleming, President and CIO of Stonebridge Advisors LLC Mr. Fleming
leads the Investment Team at Stonebridge, oversees and takes lead role over
Investment Team decisions. Prior to founding Stonebridge, Mr. Fleming co-founded
Spectrum Asset Management, Inc., an investment advisor that specializes in
preferred securities asset management for institutional clients and mutual
funds. During his 13-year tenure there, he served as Chairman of the Board of
Directors, Chief Financial Officer and Chief Investment Officer. Under his
leadership, Spectrum grew to be the largest preferred securities manager in the
country. As Chief Investment Officer at Spectrum, Mr. Fleming established and
implemented custom investment strategies for the firm's clients. In this
capacity he was instrumental in growing assets under management to over $2
billion by consistently outperforming stated benchmarks by solid margins. Mr.
Fleming previously served as Vice President, Portfolio Manager for DBL Preferred
Management, Inc. in New York City. There he managed over $300 million of
institutional assets with a strategy specializing in preferred securities. Mr.
Fleming received a BS in Accounting from Bentley College in Waltham, MA and his
MBA in Finance from Babson College in Wellesley, MA.
Robert Wolf, Vice President, Portfolio Manager and Senior Credit Analyst For the
registrant, Mr. Wolf is the portfolio strategist, a portfolio manager and the
lead Credit Analyst. He analyzes both investment grade and non-investment grade
securities and makes security recommendations Mr. Wolf brings 14 years of
fixed-income experience to Stonebridge in both portfolio management and credit
research. Prior to joining Stonebridge in 2006, Mr. Wolf was a high-yield
fixed-income research analyst at Lehman Brothers. In this role, his
responsibilities included detailed credit analysis across multiple sectors,
relative value analysis, and developing trade recommendations for Lehman's
High-Yield proprietary trading effort. Mr. Wolf previously worked for Lehman
Brothers Commercial Mortgage-Backed Securities (CMBS) trading desk as a credit
analyst where he provided in-depth analysis of CMBS transactions and the
underlying Commercial Real Estate. Mr. Wolf received his B.S. degree in
Chemistry from Villanova University in 1999 and his MBA in Finance from the New
York University Stern School of Business in 2004.
Allen Shepard, PhD, Vice President, Senior Risk Analyst and Portfolio Analyst.
Dr. Shepard is the Senior Risk Analyst for Stonebridge and is responsible for
monitoring fund compliance and the internal attribution program for various
strategies. Dr. Shepard joined Stonebridge in 2004 and developed proprietary
hedging models for use in managing preferred and fixed-income securities. Prior
to joining Stonebridge, Dr. Shepard held positions as a Gibbs Instructor in the
Mathematics Department at Yale University and as an Assistant Professor of
Mathematics at Allegheny College. Dr. Shepard brings a strong academic
background to Stonebridge's analytical team. He received a BA in Mathematics
from Hampshire College in 1980 and a PhD in Mathematics from Brown University in
1985, specializing in the field of algebraic topology. His subsequent research
has been in mathematical economics. Dr. Shepard collaborated extensively with
leading economists to create a new mathematical framework for modeling the
substitution effect in the Consumer Price Index.
Danielle Salters, CFA, Credit Analyst
Ms. Salters is an associate portfolio manager and Credit Analyst. She is also a
trader and make trade recommendations for the registrant. Ms. Salters has six
years of investment management experience of which five years have been focused
on fixed-income. Previous functions have included fundamental credit research,
relative value analysis and trading. Prior to beginning at Stonebridge, Ms.
Salters was Portfolio Analyst at a boutique asset manager where she focused on
high-yield credit analysis and portfolio analytics for a hedge fund and
institutional client. Previously, Ms. Salters was employed by UBS Financial
Services, Inc., where she worked in Taxable Fixed-Income Sales and, later,
served as the Fixed-Income Specialist to a Portfolio Manager. Ms. Salters
received her A.B. in economics from Duke University in 2007.
(a)(2) OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGERS OR MANAGEMENT TEAM MEMBER
AND POTENTIAL CONFLICTS OF INTEREST
Information provided as of October 31, 2014.
# of Accounts Total Assets
Total Managed for which for which
Advisory Fee is Advisory Fee
Name of Portfolio Manager or # of Accounts Based on is Based on
Team Member Type of Accounts* Managed Total Assets Performance Performance
------------------------------ ---------------------------------- ------------- ------------ ------------------ -------------
1. Scott T. Fleming Registered Investment Companies 2 $238.51M 0 0
Other Pooled Investment Vehicles 0 $ 0 0 0
Other Accounts 1516 $521.08M 0 0
2. Robert Wolf Registered Investment Companies 0 $ 0 0 0
Other Pooled Investment Vehicles 5 $ 21.67M 0 0
Other Accounts 1516 $521.08M 0 0
3. Allen Shepard Registered Investment Companies 0 $ 0 0 0
Other Pooled Investment Vehicles 5 $ 21.67M 0 0
Other Accounts 1516 $521.08M 0 0
4. Danielle Salters Registered Investment Companies 0 $ 0 0 0
Other Pooled Investment Vehicles 5 $ 21.67M 0 0
Other Accounts 1516 $521.08M 0 0
PORTFOLIO MANAGER POTENTIAL CONFLICTS OF INTERESTS
Potential conflicts of interest may arise when a fund's portfolio manager has
day-to-day management responsibilities with respect to one or more other funds
or other accounts, as is the case for the portfolio managers of the Fund. These
potential conflicts may include:
Stonebridge Advisors LLC's ("Stonebridge") Preferred Securities investment style
is consistent across all of its managed accounts. Stonebridge is not aware of
any material conflicts of interest between its separately managed accounts and
the Fund. In the case where Stonebridge does block trades that involve the Fund
and other accounts, Stonebridge follows its trade allocation policy and handles
the trade in a fair and equitable manner.
(a)(3) COMPENSATION STRUCTURE OF PORTFOLIO MANAGERS OR MANAGEMENT TEAM MEMBERS
PORTFOLIO MANAGER COMPENSATION
Information provided as of October 31, 2013.
Annual salary plus mid-year and year-end discretionary bonus based on
performance of individual, firm as a whole, company profitability, and asset
growth.
(a)(4) DISCLOSURE OF SECURITIES OWNERSHIP
Information provided as of October 31, 2012.
Dollar Range of Fund Shares
Name Beneficially Owned
---------------------------- ---------------------------
Scott T. Fleming $50,001-100,000
Danielle Salters, CFA $0
Robert Wolf $0
Allen Shepard $0
(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 registrant's second fiscal quarter
of the period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal control
over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) 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.
(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 Intermediate Duration Preferred & Income Fund
-----------------------------------------------------------
By (Signature and Title)* /s/ Mark R. Bradley
----------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)
Date: December 23, 2014
--------------------
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/ Mark R. Bradley
----------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)
Date: December 23, 2014
--------------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: December 23, 2014
--------------------
* Print the name and title of each signing officer under his or her signature.