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, 2015
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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, 2015
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, 2015
Shareholder Letter........................................................... 1
At a Glance.................................................................. 2
Portfolio Commentary......................................................... 4
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.
The Advisor may also periodically provide additional information on Fund
performance on the Fund's webpage at http://www.ftportfolios.com.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment in
the Fund. 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 the
Sub-Advisor 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 material 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, 2015
Dear Shareholders:
Thank you for your investment in First Trust Intermediate Duration Preferred &
Income Fund (the "Fund").
First Trust Advisors L.P. ("First Trust") is pleased to provide you with the
annual report which contains detailed information about your investment for the
12 months ended October 31, 2015, including a market overview and a performance
analysis for the period. We encourage you to read this report and discuss it
with your financial advisor.
U.S. markets, fueled by accelerating growth and an accommodating Federal
Reserve, enjoyed a prosperous year in 2014. However, most of 2015 has been
volatile. Economic and global factors, such as the continued conflict in the
Middle East, a sharp decline in oil prices and terrorism around the world, have
impacted U.S. and global markets. Another factor that has weighed upon U.S.
markets for most of the year is the fact that many economists had predicted that
the Federal Reserve would begin to raise interest rates in 2015, which has still
not happened.
As I have written previously, First Trust believes investors should maintain
perspective about the markets and have realistic expectations about their
investments. Markets will always go up and down, but we believe that having a
long-term investment horizon and being invested in quality products can help you
reach your goals.
Thank you for giving First Trust the opportunity to be a part of your investment
plan. We value the relationship and will continue to focus on our disciplined
investment approach and long-term perspective to help investors reach their
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, 2015 (UNAUDITED)
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FUND STATISTICS
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Symbol on New York Stock Exchange FPF
Common Share Price $21.95
Common Share Net Asset Value ("NAV") $23.69
Premium (Discount) to NAV (7.34)%
Net Assets Applicable to Common Shares $1,438,360,546
Current Monthly Distribution per Common Share (1) $0.1625
Current Annualized Distribution per Common Share $1.9500
Current Distribution Rate on Closing Common Share Price (2)8.88%
Current Distribution Rate on NAV (2) 8.23%
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COMMON SHARE PRICE & NAV (WEEKLY CLOSING PRICE)
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NAV Common Share Price
10/14 21.94 24.42
21.97 24.27
21.68 24.35
22.19 24.34
11/14 22.72 24.43
22.02 24.23
22.21 24.12
21.90 24.08
12/14 21.95 24.14
22.34 23.94
22.19 23.97
22.08 23.96
1/15 22.53 24.17
22.32 24.12
22.37 24.25
22.45 24.27
2/15 22.59 24.43
22.39 24.30
22.32 24.29
22.45 24.35
3/15 22.56 24.42
22.52 24.35
22.65 24.45
22.68 24.40
4/15 22.82 24.48
22.94 24.28
22.44 24.25
22.58 24.29
22.47 24.33
5/15 22.68 24.33
22.26 24.13
21.84 24.07
22.01 23.98
6/15 21.50 24.08
21.38 23.88
21.52 23.86
21.88 24.05
21.77 24.04
7/15 21.60 24.05
21.44 23.86
21.62 23.85
21.67 23.70
8/15 21.66 23.70
21.64 23.52
21.62 23.55
21.96 23.55
9/15 21.63 23.53
21.18 23.18
21.58 23.36
21.78 23.44
21.72 23.61
10/15 21.95 23.69
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PERFORMANCE
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Average Annual Total Returns
1 Year Ended Inception (5/23/13)
10/31/15 to 10/31/15
FUND PERFORMANCE (3)
NAV 6.68% 8.37%
Market Value 10.02% 3.08%
INDEX PERFORMANCE
BofA Merrill Lynch Fixed Rate
Preferred Securities Index 7.50% 5.26%
BofA Merrill Lynch U.S. Capital
Securities Index 1.61% 4.39%
Blended Index(4) 4.52% 4.85%
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(1) Most recent distribution paid or declared through 10/31/2015. Subject to
change in the future.
(2) Distribution rates are calculated by annualizing the most recent
distribution paid or declared through the report date and then dividing by
Common Share price or NAV, as applicable, as of 10/31/15. 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 index consists of the following: BofA Merrill Lynch Fixed Rate
Preferred Securities Index (50%) and BofA Merrill Lynch U.S. Capital
Securities Index (50%). The Blended Index was added to reflect the diverse
allocation of institutional preferred and hybrid securities in the Fund's
portfolio. The indexes do not charge management fees or brokerage
expenses, and no such fees or expenses were deducted from the performance
shown. Indexes are unmanaged and an investor cannot invest directly in an
index.
Page 2
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
"AT A GLANCE" (CONTINUED)
OCTOBER 31, 2015 (UNAUDITED)
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% OF TOTAL
INDUSTRY CLASSIFICATION INVESTMENTS
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Banks 45.2%
Insurance 27.5
Diversified Financial Services 4.5
Food Products 4.0
Capital Markets 3.8
Electric Utilities 3.5
Diversified Telecommunication Services 3.4
Real Estate Investment Trusts (REITS) 3.0
Metals & Mining 1.4
Independent Power Producers and Renewable
Electricity Producers 1.1
Oil, Gas & Consumable Fuels 1.1
Multi-Utilities 0.6
Consumer Finance 0.5
Thrifts & Mortgage Finance 0.3
Wireless Telecommunication Services 0.1
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Total 100.0%
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% OF TOTAL
TOP 10 HOLDINGS INVESTMENTS
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Aquarius + Investments PLC for
Swiss Reinsurance Co., Ltd. 2.1%
Fuerstenberg Capital International Sarl & Cie SECS 2.1
Enel SpA 2.0
QBE Capital Funding III Ltd. 1.8
Banco Bilbao Vizcaya Argentaria S.A. 1.6
American International Group, Inc. 1.6
Cooperatieve Centrale Raiffeisen-Boerenleenbank BA 1.5
Dresdner Funding Trust I 1.5
Friends Life Holdings PLC 1.5
Aviva PLC 1.5
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Total 17.2%
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% OF TOTAL
CREDIT QUALITY (5) INVESTMENTS
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A+ 1.7%
A 0.3
A- 7.1
BBB+ 9.0
BBB 17.1
BBB- 29.4
BB+ 11.9
BB 10.9
BB- 7.5
B+ 1.4
B 0.1
NR 3.6
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Total 100.0%
========
(5) The credit quality and ratings information presented above reflect the
ratings assigned by one or more nationally recognized statistical rating
organizations (NRSROs), including Standard & Poor's Ratings Group, a
division of the McGraw Hill Companies, Inc., Moody's Investors Service,
Inc., Fitch Ratings or a comparably rated NRSRO. For situations in which a
security is rated by more than one NRSRO and the ratings are not
equivalent, the highest ratings are used. Sub-investment grade ratings are
those rated BB+/Ba1 or lower. Investment grade ratings are those rated
BBB-/Baa3 or higher. The credit ratings shown relate to the credit
worthiness of the issuers of the underlying securities in the Fund, and
not to the Fund or its shares. Credit ratings are subject to change.
NR Not Rated.
Page 3
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PORTFOLIO COMMENTARY
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FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
ANNUAL REPORT
OCTOBER 31, 2015
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
ROBERT WOLF - VICE PRESIDENT, PORTFOLIO MANAGER AND SENIOR CREDIT ANALYST
DANIELLE SALTERS, CFA - ASSOCIATE PORTFOLIO MANAGER AND CREDIT ANALYST
COMMENTARY
MARKET RECAP
The fiscal year ended October 31, 2015 was a period of solid returns and strong
relative performance for the preferred and hybrid securities markets. Risk
assets performed well throughout the first half of the period due to the low
rate environment, increasing quantitative easing around the globe, and investor
demand for yield. Outperformance of the preferred and hybrid securities markets,
in particular, was driven by the excess spread and yield available and the
improved creditworthiness of financials. During the second half of the period,
we saw a bifurcation between the retail and institutional markets as the $1000
par securities market was far more reactionary to macro events, while the $25
par securities market continued to rally, driven by low interest rates and
strong inflows into fund products. The retail market earned 7.5% during the
fiscal year while the institutional market earned 1.61%, based on the BofA
Merrill Lynch Fixed Rate Preferred Securities Index ("P0P1") and the BofA
Merrill Lynch U.S. Capital Securities Index ("C0CS"), respectively.
Low interest rates on a global basis continued to support the outperformance of
long-duration fixed-rate securities. This also caused substantial outperformance
of the retail preferred space, which has a higher percentage of fixed-for-life
securities. Additional supporters of the outperformance of retail securities
were the positive technical factors of strong flows into retail exchange-traded
funds ("ETFs") of approximately $3.8 billion and the lack of new retail
securities issuance. Many of the European and U.S. companies that issued new
securities focused on $1000 par securities in U.S. dollars ("USD"). Low rates,
particularly in Europe, have caused increased European investor participation in
USD deals, driven by absolute yield differentials and a strengthening U.S.
dollar.
PERFORMANCE ANALYSIS
The Fund produced a total return of 10.02% based on market price and 6.68% based
on net asset value ("NAV") for the fiscal year ended October 31, 2015,
outperforming the blended index (a 50/50 blend of P0P1 and C0CS) return of
4.52%. This was achieved despite the Fund maintaining a conservative interest
rate stance relative to the blended index. Throughout the year, the effective
duration of the Fund, excluding leverage was around one year lower than the
blended index while still keeping income comparable to peer funds.
The primary factors that contributed to the outperformance of the Fund relative
to the blended index were security selection within fixed-to-float, non-U.S.,
and shorter-duration securities, as well as the Fund's leverage. In general,
long-duration securities within the blended index outperformed shorter-duration
securities during the period. As a result, the Fund's strategy to maintain a
shorter duration than the blended index was a drag on relative performance from
an allocation standpoint, but the superior security selection within the
shorter-duration buckets more than offset this detractor. The principal method
that the Fund utilizes to manage its duration is by overweighting fixed-to-float
securities, which underperformed fixed-for-life securities during the period.
However, security selection within the fixed-to-float bucket added to the Fund's
relative outperformance. Also, the Fund's security selection in non-U.S.
securities was a significant contributor to relative outperformance. Although
the aforementioned contributors were all meaningful, the largest factor that
added to the relative outperformance was leverage, which added over 200 basis
points ("bps") of performance to the Fund. Please note that the use of leverage
can result in additional risk and cost, and can magnify the effect of any
losses.
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, 2015
The Fund also employed a hedging strategy throughout the year in order to
further manage its interest rate risk. This strategy consisted of an interest
rate swap and shorting of Treasury futures. The continuing low rate environment
caused the hedge to detract 10 bps from performance. Going forward, the
Sub-Adivsor continues to believe it is prudent to maintain a conservative
interest rate stance relative to the blended index, particularly if the Fund is
able to do so while continuing to pay a distribution rate comparable to and
sometimes higher than peer closed-end funds.
MARKET AND FUND OUTLOOK
The preferred and hybrid securities markets continue to benefit from strong
market technicals and improving credit fundamentals. With recent strong economic
data in the U.S., we believe the end of the zero interest rate policy by the
Federal Reserve is inevitable. We expect that short-term rates will rise
modestly in the U.S. while global interest rates remain low, causing the U.S.
Treasury curve to flatten with the 10-year and 30-year parts of the curve to
remain low by historical standards. In this environment, we continue to see
attractive yields on preferred and hybrid securities relative to other parts of
the fixed-income market. Furthermore, issuer credit fundamentals, particularly
in the financials sector, should continue to support the preferred and hybrid
securities markets into 2016, in our opinion. Yield spreads of preferred and
hybrid securities relative to both U.S. Treasuries and other credit spread
products remain wider than historical averages, which we believe should help
drive positive performance in the asset class.
We expect preferred and hybrid securities issuance to be active in 2016 from
both the financials and industrials sectors. Similar to what occurred in 2015,
we anticipate new issuance will be met with strong demand, as buyers have mostly
been long-term investors in search of yield and attractive structures, and many
of the new issues offer a component of rate protection. We also expect more new
issuance to be generated by non-U.S. issuers, particularly European banks
issuing Contingent Convertible securities ("CoCos") to meet additional Tier 1
("AT1") regulatory capital requirements. Lack of supply within the U.S. hybrid
securities market will likely continue to provide additional support for the
secondary market.
We will continue to actively manage the Fund to protect against the downside
risks in the market while aiming to outperform in all market environments on a
risk-adjusted basis. With the potential for rate volatility, we believe it is
prudent to maintain durations shorter than the blended index, particularly if we
can do so while paying income comparable to the blended index's yield. We also
continue to favor structures with good rate protection and high current yields.
Despite the impending Federal Reserve rate hike, we believe that a slowly
growing U.S. economy, stable to improving corporate credit, and limited supply
continue to be supportive of the preferred and hybrid securities markets.
Page 5
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2015
STATED STATED
SHARES DESCRIPTION RATE MATURITY VALUE
---------------- --------------------------------------------------- ----------- ----------- --------------
$25 PAR PREFERRED SECURITIES - 35.0%
BANKS - 14.9%
100,000 Bank of America Corp., Series W (a)................ 6.63% (b) $ 2,659,380
149,523 Bank of America Corp., Series Y (a)................ 6.50% (b) 3,935,445
702,419 Citigroup Capital XIII (a) (c)..................... 6.69% 10/30/40 17,841,443
200,000 Citigroup, Inc., Series J (a) (c).................. 7.13% (b) 5,514,000
650,000 Citigroup, Inc., Series K (a) (c).................. 6.88% (b) 17,901,000
566,593 Fifth Third Bancorp, Series I (a) (c).............. 6.63% (b) 15,807,945
400,250 First Niagara Financial Group, Inc.,
Series B (a) (c)................................ 8.63% (b) 11,022,885
288,318 FNB Corp. (a) (c).................................. 7.25% (b) 8,418,886
799,980 GMAC Capital Trust I, Series 2 (a) (c)............. 8.13% 02/15/40 20,663,483
19,476 HSBC USA, Inc., Series F (d)....................... 3.50% (b) 426,914
196,862 HSBC USA, Inc., Series H (a)....................... 6.50% (b) 5,043,604
226,235 ING Groep N.V. (a)................................. 6.20% (b) 5,782,567
500,000 ING Groep N.V. (a)................................. 6.38% (b) 12,805,000
200,000 JPMorgan Chase & Co., Series AA (a)................ 6.10% (b) 5,062,000
25,000 JPMorgan Chase & Co., Series BB.................... 6.15% (b) 630,250
130,000 JPMorgan Chase & Co., Series T (a)................. 6.70% (b) 3,510,000
250,000 JPMorgan Chase & Co., Series W (a)................. 6.30% (b) 6,512,500
234,000 JPMorgan Chase & Co., Series Y (a)................. 6.13% (b) 5,931,900
198,230 MB Financial, Inc., Series A (a) (e)............... 8.00% (b) 5,290,759
220,000 PNC Financial Services Group, Inc.,
Series P (a) (c)................................ 6.13% (b) 6,127,000
287,914 Royal Bank of Scotland Group PLC, Series R (a)..... 6.13% (b) 7,194,971
424,591 Royal Bank of Scotland Group PLC, Series S (a)..... 6.60% (b) 10,780,365
289,247 Santander Finance Preferred SAU, Series 6 (a) (d).. 4.00% (b) 6,710,530
109,365 Synovus Financial Corp., Series C (c).............. 7.88% (b) 3,058,939
165,000 Texas Capital Bancshares, Inc., Series A (a)....... 6.50% (b) 4,219,050
130,000 Valley National Bancorp, Series A (a) (c).......... 6.25% (b) 3,409,900
230,956 Wells Fargo & Co. (a) (c).......................... 6.63% (b) 6,499,102
182,000 Wells Fargo & Co., Series J (a).................... 8.00% (b) 5,105,100
150,000 Wintrust Financial Corp., Series D (c)............. 6.50% (b) 3,871,500
67,992 Zions Bancorporation, Series G (a) (c)............. 6.30% (b) 1,776,631
--------------
213,513,049
--------------
CAPITAL MARKETS - 3.8%
150,000 Apollo Investment Corp. (a)........................ 6.88% 07/15/43 3,811,500
50,000 Charles Schwab Corp., Series C..................... 6.00% (b) 1,295,500
350,000 Deutsche Bank Contingent Capital Trust II (a)...... 6.55% (b) 9,037,000
200,000 Deutsche Bank Contingent Capital Trust III (a)..... 7.60% (b) 5,348,000
200,000 Deutsche Bank Contingent Capital Trust V (a)....... 8.05% (b) 5,468,000
250,000 Goldman Sachs Group, Inc., Series K (a) (c)........ 6.38% (b) 6,707,500
244,000 Morgan Stanley, Series E (a) (c)................... 7.13% (b) 6,795,400
350,000 Morgan Stanley, Series F (a) (c)................... 6.88% (b) 9,467,500
200,000 Morgan Stanley, Series I (a) (c)................... 6.38% (b) 5,180,000
65,292 Raymond James Financial, Inc....................... 6.90% 03/15/42 1,758,314
--------------
54,868,714
--------------
CONSUMER FINANCE - 0.6%
200,000 Capital One Financial Corp., Series C (a).......... 6.25% (b) 5,180,000
138,802 Capital One Financial Corp., Series D (a).......... 6.70% (b) 3,776,802
--------------
8,956,802
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Page 6 See Notes to Financial Statements
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2015
STATED STATED
SHARES DESCRIPTION RATE MATURITY VALUE
---------------- --------------------------------------------------- ----------- ----------- --------------
$25 PAR PREFERRED SECURITIES (Continued)
DIVERSIFIED FINANCIAL SERVICES - 2.1%
21,187 Allied Capital Corp................................ 6.88% 04/15/47 $ 544,718
57,757 Countrywide Capital IV............................. 6.75% 04/01/33 1,487,243
159,788 Countrywide Capital V.............................. 7.00% 11/01/36 4,103,356
40,000 KKR Financial Holdings LLC......................... 8.38% 11/15/41 1,094,000
391,656 KKR Financial Holdings LLC, Series A (a)........... 7.38% (b) 10,367,134
19,582 RBS Capital Funding Trust VI, Series F............. 6.25% (b) 494,054
504,065 RBS Capital Funding Trust VII, Series G (a)........ 6.08% (b) 12,551,218
--------------
30,641,723
--------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.7%
250,400 Qwest Corp. (a).................................... 7.38% 06/01/51 6,462,824
251,594 Qwest Corp. (a).................................... 7.50% 09/15/51 6,591,763
217,145 Qwest Corp. (a).................................... 6.88% 10/01/54 5,602,341
240,940 Qwest Corp. (a).................................... 6.63% 09/15/55 6,045,184
--------------
24,702,112
--------------
ELECTRIC UTILITIES - 0.4%
200,000 Southern (The) Co.................................. 6.25% 10/15/75 5,272,000
--------------
FOOD PRODUCTS - 3.1%
930,633 CHS, Inc., Series 2 (a) (c)........................ 7.10% (b) 25,759,921
582,059 CHS, Inc., Series 3 (a) (c)........................ 6.75% (b) 15,692,311
114,692 CHS, Inc., Series 4 (a)............................ 7.50% (b) 3,184,997
--------------
44,637,229
--------------
INSURANCE - 4.2%
150,000 Allstate Corp., Series E (a)....................... 6.63% (b) 4,078,500
204,030 AmTrust Financial Services, Inc.................... 7.50% 09/15/55 5,257,853
333,141 Aspen Insurance Holdings Ltd. (a) (c).............. 5.95% (b) 8,491,764
203,483 Aspen Insurance Holdings Ltd. (a).................. 7.25% (b) 5,424,857
190,236 Aspen Insurance Holdings Ltd. (c).................. 7.40% (b) 4,858,627
25,522 Aviva PLC.......................................... 8.25% 12/01/41 689,349
157,824 Axis Capital Holdings Ltd., Series C (a)........... 6.88% (b) 4,267,561
264,683 Endurance Specialty Holdings Ltd., Series B (a).... 7.50% (b) 6,894,992
136,640 Global Indemnity PLC............................... 7.75% 08/15/45 3,279,360
204,240 Hartford Financial Services Group, Inc. (c)........ 7.88% 04/15/42 6,290,592
90,729 Maiden Holdings North America Ltd. (f)............. 8.25% 06/15/41 2,336,272
98,326 PartnerRe Ltd., Series D........................... 6.50% (b) 2,664,635
221,479 PartnerRe Ltd., Series E (a)....................... 7.25% (b) 6,329,870
--------------
60,864,232
--------------
MULTI-UTILITIES - 0.9%
513,571 Integrys Energy Group, Inc. (a) (c)................ 6.00% 08/01/73 13,112,135
--------------
REAL ESTATE INVESTMENT TRUSTS - 3.1%
200,000 Digital Realty Trust, Inc., Series E (a)........... 7.00% (b) 5,174,000
100,000 Digital Realty Trust, Inc., Series H............... 7.38% (b) 2,745,000
219,385 DuPont Fabros Technology, Inc., Series A (a)....... 7.88% (b) 5,526,308
229,604 Equity Commonwealth, Series E (a).................. 7.25% (b) 5,875,567
150,541 Kilroy Realty Corp., Series G (a).................. 6.88% (b) 3,865,893
300,000 National Retail Properties, Inc., Series D (a)..... 6.63% (b) 7,938,000
99,794 Taubman Centers, Inc., Series J (a)................ 6.50% (b) 2,555,724
71,356 Taubman Centers, Inc., Series K (a)................ 6.25% (b) 1,824,573
See Notes to Financial Statements Page 7
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2015
STATED STATED
SHARES DESCRIPTION RATE MATURITY VALUE
---------------- --------------------------------------------------- ----------- ----------- --------------
$25 PAR PREFERRED SECURITIES (Continued)
REAL ESTATE INVESTMENT TRUSTS (Continued)
250,000 VEREIT, Inc., Series F (a)......................... 6.70% (b) $ 6,202,500
78,000 Vornado Realty Trust, Series J..................... 6.88% (b) 2,020,200
--------------
43,727,765
--------------
WIRELESS TELECOMMUNICATION SERVICES - 0.2%
100,000 United States Cellular Corp........................ 7.25% 12/01/63 2,562,000
--------------
TOTAL $25 PAR PREFERRED SECURITIES............................................. 502,857,761
(Cost $487,662,156) --------------
$50 PAR PREFERRED SECURITIES - 0.1%
CONSUMER FINANCE - 0.1%
38,465 SLM Corp., Series A................................ 6.97% (b) 1,677,074
(Cost $1,889,695) --------------
$100 PAR PREFERRED SECURITIES - 3.5%
BANKS - 3.5%
80,000 AgriBank FCB (c) (e)............................... 6.88% (b) 8,375,000
179,000 CoBank ACB, Series F (a) (c) (g)................... 6.25% (b) 18,604,812
82,220 CoBank ACB, Series G (a)........................... 6.13% (b) 7,500,010
60,000 CoBank ACB, Series H (a) (c)....................... 6.20% (b) 6,163,128
100,000 Farm Credit Bank of Texas (a) (c) (e) (h).......... 6.75% (b) 10,540,630
--------------
TOTAL $100 PAR PREFERRED SECURITIES............................................ 51,183,580
(Cost $51,241,096) --------------
$1,000 PAR PREFERRED SECURITIES - 4.9%
BANKS - 1.2%
12,000 AgStar Financial Services ACA (a) (c) (e) (h)...... 6.75% (b) 12,756,750
4,000 Farm Credit Bank of Texas, Series 1 (e) (h)........ 10.00% (b) 5,050,000
--------------
17,806,750
--------------
CONSUMER FINANCE - 0.4%
5,000 Flagstar Bancorp, Inc., Series C (e)............... 9.00% (b) 6,070,223
--------------
DIVERSIFIED FINANCIAL SERVICES - 0.3%
4,000 Pitney Bowes International Holdings, Inc.,
Series F (a) (e) (h)............................ 6.13% (b) 4,243,750
--------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.4%
16,000 Centaur Funding Corp. (e) (h)...................... 9.08% 04/21/20 19,840,000
--------------
INSURANCE - 0.3%
5,000 XLIT Ltd., Series D (d)............................ 3.44% (b) 4,137,500
--------------
REAL ESTATE INVESTMENT TRUSTS - 1.3%
14,000 Sovereign Real Estate Investment Trust (e) (h)..... 12.00% (b) 17,832,500
--------------
TOTAL $1,000 PAR PREFERRED SECURITIES.......................................... 69,930,723
(Cost $70,495,625) --------------
Page 8 See Notes to Financial Statements
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2015
STATED STATED
PAR AMOUNT DESCRIPTION RATE MATURITY VALUE
---------------- --------------------------------------------------- ----------- ----------- --------------
CAPITAL PREFERRED SECURITIES 96.3%
BANKS 43.4%
$ 31,000,000 Banco Bilbao Vizcaya Argentaria S.A. (a) (c)....... 9.00% (b) $ 33,500,150
20,000,000 Banco do Brasil S.A. (c) (g)....................... 9.00% (b) 13,900,000
3,430,000 Banco do Brasil S.A. (c)........................... 9.25% (b) 2,448,163
23,000,000 Bank of America Corp., Series Z (a) (c)............ 6.50% (b) 24,063,980
9,940,000 Barclays Bank PLC (a) (g).......................... 10.18% 06/12/21 13,074,877
15,000,000 Barclays Bank PLC (a) (c).......................... 7.75% 04/10/23 16,312,500
10,000,000 Barclays PLC (a) (c)............................... 6.63% (b) 9,893,700
10,000,000 Barclays PLC (a) (c)............................... 8.25% (b) 10,672,050
3,510,000 BBVA Global Finance Ltd. (a)....................... 7.00% 12/01/25 3,834,401
10,000,000 BNP Paribas S.A. (c) (g)........................... 7.38% (b) 10,362,500
1,700,000 BNP Paribas S.A. (c) (g)........................... 7.20% (b) 1,950,750
7,500,000 BPCE S.A. (a) (c) (g).............................. 12.50% (b) 9,750,000
800,000 Citigroup, Inc., Series E (c) (e).................. 8.40% (b) 895,000
20,000,000 Citizens Financial Group, Inc. (a) (c) (g)......... 5.50% (b) 19,700,000
4,000,000 Commerzbank AG (a)................................. 8.13% 09/19/23 4,646,680
4,000,000 Cooperatieve Centrale Raiffeisen-Boerenleenbank
BA (a) (c)...................................... 8.38% (b) 4,170,072
15,000,000 Cooperatieve Centrale Raiffeisen-Boerenleenbank
BA (a) (c)...................................... 8.40% (b) 16,279,200
25,104,000 Cooperatieve Centrale Raiffeisen-Boerenleenbank
BA (a) (c) (g).................................. 11.00% (b) 31,317,240
3,033,000 Countrywide Capital III, Series B.................. 8.05% 06/15/27 3,795,138
5,000,000 Credit Agricole S.A. (a) (c) (g)................... 8.13% 09/19/33 5,539,695
17,000,000 Credit Agricole S.A. (a) (c) (g)................... 8.38% (b) 19,339,200
5,975,000 Credit Agricole S.A. (a) (c)....................... 8.38% (b) 6,797,160
25,000,000 Dresdner Funding Trust I (a) (g)................... 8.15% 06/30/31 30,875,000
40,694,000 Fuerstenberg Capital International Sarl & Cie
SECS (a) (c).................................... 10.25% (b) 42,208,102
1,464,000 HSBC Capital Funding L.P. (c)...................... 10.18% (b) 2,214,300
21,500,000 JPMorgan Chase & Co., Series S (a) (c)............. 6.75% (b) 23,354,375
26,000,000 KBC Bank N.V. (a) (c).............................. 8.00% 01/25/23 28,775,526
10,000,000 LBG Capital No.1 PLC (a) (c) (g)................... 8.00% (b) 11,300,000
10,500,000 LBG Capital No.1 PLC (a) (c)....................... 8.50% (b) 12,268,935
19,500,000 Lloyds Bank PLC (a) (c) (g)........................ 12.00% (b) 28,177,500
14,150,000 Lloyds Bank PLC (a) (c)............................ 12.00% (b) 20,446,750
5,000,000 M&T Bank Corp., Series E (a) (c)................... 6.45% (b) 5,351,560
10,754,000 Natixis S.A. (a) (c) (g)........................... 10.00% (b) 12,393,985
5,575,000 Natixis S.A. (a) (c)............................... 10.00% (b) 6,425,188
11,290,000 NIBC Bank N.V. (a)................................. 7.63% (b) 11,404,548
10,000,000 Royal Bank of Scotland Group PLC (a) (c)........... 7.50% (b) 10,375,000
19,700,000 Royal Bank of Scotland Group PLC (a) (c)........... 7.65% (b) 24,625,000
20,000,000 Royal Bank of Scotland Group PLC (a) (c)........... 8.00% (b) 20,950,000
10,000,000 Societe Generale S.A. (a) (c) (g).................. 7.88% (b) 10,056,300
20,000,000 Societe Generale S.A. (a) (c) (g).................. 8.00% (b) 20,240,660
9,500,000 Societe Generale S.A. (a) (c)...................... 8.25% (b) 10,028,048
9,500,000 Wells Fargo & Co., Series U (a) (c)................ 5.88% (b) 10,060,025
6,800,000 Zions Bancorporation (a) (c)....................... 5.80% (b) 6,749,000
12,670,000 Zions Bancorporation, Series J (a) (c)............. 7.20% (b) 13,683,600
--------------
624,205,858
--------------
See Notes to Financial Statements Page 9
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2015
STATED STATED
PAR AMOUNT DESCRIPTION RATE MATURITY VALUE
---------------- --------------------------------------------------- ----------- ----------- --------------
CAPITAL PREFERRED SECURITIES (Continued)
CAPITAL MARKETS - 1.6%
$ 4,150,000 Charles Schwab Corp. (c)........................... 7.00% (b) $ 4,824,375
2,500,000 Deutsche Bank Capital Trust IV (c) (e)............. 4.59% (b) 2,486,825
15,000,000 UBS Group AG (a) (c)............................... 7.13% (b) 15,675,300
--------------
22,986,500
--------------
DIVERSIFIED FINANCIAL SERVICES - 4.7%
15,000,000 General Electric Capital Corp., Series A (a) (c)... 7.13% (b) 17,643,750
15,000,000 General Electric Capital Corp., Series B (a) (c)... 6.25% (b) 16,719,000
25,000,000 Glen Meadow Pass Through Trust (a) (c) (g)......... 6.51% 02/12/67 21,687,500
11,400,000 Macquarie PMI LLC (a).............................. 8.38% (b) 11,455,005
--------------
67,505,255
--------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.7%
22,650,000 Koninklijke KPN N.V. (a) (c) (g)................... 7.00% 03/28/73 23,451,131
1,000,000 Koninklijke KPN N.V. (c)........................... 7.00% 03/28/73 1,035,370
--------------
24,486,501
--------------
ELECTRIC UTILITIES - 4.6%
34,750,000 Enel SpA (a) (c) (g)............................... 8.75% 09/24/73 40,136,250
3,000,000 NextEra Energy Capital Holdings, Inc.,
Series D (a) (c)................................ 7.30% 09/01/67 2,992,500
21,900,000 PPL Capital Funding, Inc., Series A (a) (c)........ 6.70% 03/30/67 18,511,238
4,179,000 Southern California Edison Co., Series E (a) (c)... 6.25% (b) 4,649,137
--------------
66,289,125
--------------
FOOD PRODUCTS - 1.0%
13,211,000 Land O'Lakes Capital Trust I (a) (g)............... 7.45% 03/15/28 14,069,715
--------------
INDEPENDENT POWER AND RENEWABLE ELECTRICITY
PRODUCERS - 1.6%
12,150,000 AES Gener S.A. (c)................................. 8.38% 12/18/73 12,636,000
9,850,000 AES Gener S.A. (c) (g)............................. 8.38% 12/18/73 10,244,000
--------------
22,880,000
--------------
INSURANCE - 34.3%
2,500,000 Aegon N.V. (a) (d)................................. 2.14% (b) 1,960,025
1,600,000 AG Insurance S.A. N.V. (c)......................... 6.75% (b) 1,730,200
25,320,000 American International Group, Inc. (a) (c)......... 8.18% 05/15/58 33,485,700
39,660,000 Aquarius + Investments PLC for Swiss
Reinsurance Co., Ltd. (a) (c)................... 8.25% (b) 43,300,550
30,000,000 Assured Guaranty Municipal Holdings,
Inc. (a) (c) (g)................................ 6.40% 12/15/66 21,900,000
27,000,000 Aviva PLC (a)...................................... 8.25% (b) 29,580,660
6,800,000 AXA S.A. (a)....................................... 8.60% 12/15/30 9,345,784
28,530,000 Catlin Insurance Co., Ltd. (a) (c) (g)............. 7.25% (b) 24,535,800
5,050,000 Cloverie PLC for Zurich Insurance Co., Ltd. (c).... 8.25% (b) 5,680,089
10,600,000 CNP Assurances (a) (c)............................. 6.88% (b) 11,402,314
10,600,000 CNP Assurances (a) (c)............................. 7.50% (b) 11,635,450
12,500,000 Dai-ichi Life Insurance Co., Ltd.
(The) (a) (c) (g)............................... 7.25% (b) 14,710,938
27,375,000 Friends Life Holdings PLC (a) (c).................. 7.88% (b) 30,627,314
11,782,000 Hartford Financial Services Group, Inc. (a) (c).... 8.13% 06/15/38 13,113,366
18,265,000 La Mondiale SAM (a) (c)............................ 7.63% (b) 19,863,187
14,000,000 Liberty Mutual Group, Inc. (a) (c) (g)............. 7.00% 03/15/37 13,457,500
5,492,000 Liberty Mutual Group, Inc. (a) (g)................. 7.80% 03/15/37 6,453,100
Page 10 See Notes to Financial Statements
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2015
STATED STATED
PAR AMOUNT DESCRIPTION RATE MATURITY VALUE
---------------- --------------------------------------------------- ----------- ----------- --------------
CAPITAL PREFERRED SECURITIES (Continued)
INSURANCE (Continued)
$ 2,000,000 Liberty Mutual Group, Inc. (a) (c)................. 10.75% 06/15/58 $ 3,005,000
17,500,000 Meiji Yasuda Life Insurance Co. (c) (g)............ 5.20% 10/20/45 18,094,230
15,000,000 MetLife Capital Trust X (a) (g).................... 9.25% 04/08/38 20,890,500
17,180,000 MetLife, Inc. (a).................................. 10.75% 08/01/39 27,101,450
25,000,000 Mitsui Sumitomo Insurance Co., Ltd. (a) (c) (g).... 7.00% 03/15/72 29,093,750
3,000,000 Nationwide Financial Services Capital
Trust (a) (e)................................... 7.90% 03/01/37 3,333,729
19,700,000 Nationwide Financial Services, Inc. (a)............ 6.75% 05/15/37 20,291,000
8,517,000 Prudential Financial, Inc. (c)..................... 8.88% 06/15/38 9,736,038
33,520,000 QBE Capital Funding III Ltd. (a) (c) (g)........... 7.25% 05/24/41 37,123,400
25,000,000 Sirius International Group Ltd. (a) (c) (e) (h).... 7.51% (b) 25,312,500
7,500,000 StanCorp Financial Group, Inc. (c)................. 6.90% 06/01/67 6,506,250
--------------
493,269,824
--------------
METALS & MINING - 1.9%
12,000,000 BHP Billiton Finance USA Ltd. (c) (g).............. 6.25% 10/19/75 12,285,000
15,000,000 BHP Billiton Finance USA Ltd. (c) (g).............. 6.75% 10/19/75 15,318,750
--------------
27,603,750
--------------
OIL, GAS & CONSUMABLE FUELS - 1.5%
13,000,000 Enbridge Energy Partners L.P. (a) (c).............. 8.05% 10/01/37 11,862,500
10,000,000 Enterprise Products Operating LLC,
Series B (a) (c)................................ 7.03% 01/15/68 10,587,500
--------------
22,450,000
--------------
TOTAL CAPITAL PREFERRED SECURITIES.............................................. 1,385,746,528
(Cost $1,393,678,634) --------------
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- --------------------------------------------------- ----------- ----------- --------------
CORPORATE BONDS AND NOTES 1.6%
Food Products 1.6%
22,000,000 Land O'Lakes, Inc. (a) (e) (h)..................... 8.00% (b) $ 22,742,500
--------------
TOTAL CORPORATE BONDS AND NOTES................................................ 22,742,500
(Cost $22,000,000) --------------
TOTAL INVESTMENTS - 141.4%..................................................... 2,034,138,166
(Cost $2,026,967,206) (i)
OUTSTANDING LOAN - (44.8%)..................................................... (645,000,000)
NET OTHER ASSETS AND LIABILITIES - 3.4%........................................ 49,222,380
--------------
NET ASSETS - 100.0%............................................................ $1,438,360,546
==============
See Notes to Financial Statements Page 11
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2015
-----------------------------
(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, 2015. 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, 2015.
(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 is fair valued by the Advisor's Pricing Committee in
accordance with procedures adopted by the Fund's Board of Trustees, and in
accordance with provisions of the Investment Company Act of 1940, as
amended. At October 31, 2015, securities noted as such are valued at
$2,336,272 or 0.16% 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 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 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, 2015, securities noted as such are valued at
$580,034,083 or 40.33% of net assets.
(h) 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).
(i) Aggregate cost for federal income tax purposes is $2,027,736,609. As of
October 31, 2015, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$48,111,085 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$41,709,528.
-----------------------------
INTEREST RATE SWAP AGREEMENTS:
COUNTERPARTY FLOATING RATE(1) EXPIRATION DATE NOTIONAL AMOUNT FIXED RATE(1) VALUE
--------------------------------------------------------------------------------------------------------------------
Bank of Nova Scotia 1 month LIBOR 1/23/25 $ 165,000,000 1.786% $ 904,173
------------- ---------
(1) The Fund pays the fixed rate and receives the floating rate. The floating
rate on October 31, 2015 was 0.195%.
Page 12 See Notes to Financial Statements
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2015
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of October 31,
2015 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
10/31/2015 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
$25 Par Preferred Securities:
Insurance...................................... $ 60,864,232 $ 58,527,960 $ 2,336,272 $ --
Multi-Utilities................................ 13,112,135 -- 13,112,135 --
Other industry categories*..................... 428,881,394 428,881,394 -- --
$50 Par Preferred Securities*..................... 1,677,074 1,677,074 -- --
$100 Par Preferred Securities*.................... 51,183,580 -- 51,183,580 --
$1,000 Par Preferred Securities*.................. 69,930,723 -- 69,930,723 --
Capital Preferred Securities*..................... 1,385,746,528 -- 1,385,746,528 --
Corporate Bonds and Notes*........................ 22,742,500 -- 22,742,500 --
--------------- --------------- --------------- ---------------
Total Investments................................. 2,034,138,166 489,086,428 1,545,051,738 --
Interest Rate Swaps**............................. 904,173 -- 904,173 --
--------------- --------------- --------------- ---------------
Total............................................. $ 2,035,042,339 $ 489,086,428 $ 1,545,955,911 $ --
=============== =============== =============== ===============
* See Portfolio of Investments for industry breakout.
** See Interest Rate Swap Agreements for contract detail.
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, 2015, the Fund transferred $25 Par preferred securities valued at
$14,416,994 from Level 1 to Level 2. Maiden Holding North America Ltd.
transferred from Level 1 to Level 2 as a result of a lack of trading on the
primary exchange. Integrys Energy Group, Inc. transferred from Level 1 to Level
2 due to use of observable market inputs not in an active market.
See Notes to Financial Statements Page 13
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2015
ASSETS:
Investments, at value
(Cost $2,026,967,206)........................................................................ $ 2,034,138,166
Cash............................................................................................ 20,683,482
Cash segregated as collateral for open swap contracts........................................... 6,194,498
Swap contracts, at value........................................................................ 904,173
Prepaid expenses................................................................................ 27,306
Receivables:
Interest..................................................................................... 25,463,494
Investment securities sold................................................................... 4,398,124
Dividends.................................................................................... 2,204,999
Tax reclaims................................................................................. 261,844
Other assets.................................................................................... 16,749
----------------
Total Assets................................................................................. 2,094,292,835
----------------
LIABILITIES:
Outstanding loan................................................................................ 645,000,000
Payables:
Investment securities purchased.............................................................. 8,341,227
Investment advisory fees..................................................................... 1,493,842
Interest and fees due on loan................................................................ 543,577
Administrative fees.......................................................................... 345,344
Custodian fees............................................................................... 98,222
Printing fees................................................................................ 67,232
Audit and tax fees........................................................................... 33,200
Legal fees................................................................................... 4,667
Trustees' fees and expenses.................................................................. 2,703
Transfer agent fees.......................................................................... 1,504
Financial reporting fees..................................................................... 771
----------------
Total Liabilities............................................................................ 655,932,289
----------------
NET ASSETS...................................................................................... $ 1,438,360,546
================
NET ASSETS CONSIST OF:
Paid-in capital................................................................................. 1,446,884,359
Par value....................................................................................... 607,042
Accumulated net investment income (loss)........................................................ 6,710,552
Accumulated net realized gain (loss) on investments, futures contracts and swap contracts....... (23,916,540)
Net unrealized appreciation (depreciation) on investments and swap contracts.................... 8,075,133
----------------
NET ASSETS...................................................................................... $ 1,438,360,546
================
NET ASSET VALUE, per share...................................................................... $ 23.69
================
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, 2015
INVESTMENT INCOME:
Interest........................................................................................ $ 103,983,790
Dividends....................................................................................... 40,499,976
Other........................................................................................... 51,829
----------------
Total investment income...................................................................... 144,535,595
----------------
EXPENSES:
Investment advisory fees........................................................................ 18,038,484
Interest and fees on loan....................................................................... 6,122,629
Administrative fees............................................................................. 689,568
Custodian fees.................................................................................. 208,738
Printing fees................................................................................... 189,848
Listing expense................................................................................. 58,169
Legal fees...................................................................................... 57,080
Audit and tax fees.............................................................................. 34,788
Trustees' fees and expenses..................................................................... 33,283
Transfer agent fees............................................................................. 20,991
Financial reporting fees........................................................................ 9,251
Interest expense on margin account.............................................................. 160
Other........................................................................................... 178,469
----------------
Total expenses............................................................................... 25,641,458
----------------
NET INVESTMENT INCOME (LOSS).................................................................... 118,894,137
----------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments.................................................................................. (8,279,110)
Futures contracts............................................................................ (3,286,250)
Swap contracts............................................................................... (2,006,097)
----------------
Net realized gain (loss)........................................................................ (13,571,457)
----------------
Net change in unrealized appreciation (depreciation) on:
Investments............................................................................... (24,948,061)
Futures contracts......................................................................... 2,416,563
Swap contracts............................................................................ 904,173
----------------
Net change in unrealized appreciation (depreciation)............................................ (21,627,325)
----------------
NET REALIZED AND UNREALIZED GAIN (LOSS)......................................................... (35,198,782)
----------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................. $ 83,695,355
================
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
10/31/2015 10/31/2014
-------------- --------------
OPERATIONS:
Net investment income (loss)...................................................... $ 118,894,137 $ 112,126,996
Net realized gain (loss).......................................................... (13,571,457) 654,599
Net change in unrealized appreciation (depreciation).............................. (21,627,325) 58,567,555
-------------- --------------
Net increase (decrease) in net assets resulting from operations................... 83,695,355 171,349,150
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................................. (127,934,078) (116,023,916)
-------------- --------------
Total distributions to shareholders............................................... (127,934,078) (116,023,916)
-------------- --------------
SHAREHOLDER TRANSACTIONS:
Offering costs.................................................................... 109,603 --
-------------- --------------
Net increase (decrease) in net assets resulting from shareholder transactions..... 109,603 --
-------------- --------------
Total increase (decrease) in net assets........................................... (44,129,120) 55,325,234
NET ASSETS:
Beginning of year................................................................. 1,482,489,666 1,427,164,432
-------------- --------------
End of year....................................................................... $1,438,360,546 $1,482,489,666
============== ==============
Accumulated net investment income (loss) at end of year........................... $ 6,710,552 $ 17,506,509
============== ==============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period........................................... 60,704,189 60,704,189
-------------- --------------
Shares outstanding, end of period................................................. 60,704,189 60,704,189
============== ==============
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, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) in net assets resulting from operations................... $ 83,695,355
Adjustments to reconcile net increase (decrease) in net assets resulting from
operations to net cash used by operating activities:
Purchases of investments..................................................... (999,150,439)
Sales, maturities and pay downs of investments............................... 1,031,914,176
Net amortization/accretion of premiums/discounts on investments.............. (165,052)
Return of capital received from investments in REITs......................... 835,355
Net realized gain/loss on investments........................................ 8,279,110
Net change in unrealized appreciation/depreciation on investments............ 24,948,061
Net change in unrealized appreciation/depreciation on swap contracts......... (904,173)
Decrease in restricted cash.................................................. 5,215,563
Increase of cash segregated as collateral for open swap contracts............ (6,194,498)
Changes in assets and liabilities:
Increase in tax reclaim receivable........................................... (57,802)
Decrease in interest receivable.............................................. 1,662,402
Increase in dividends receivable............................................. (656,416)
Decrease in prepaid expenses................................................. 3,485
Increase in other assets..................................................... (16,749)
Increase in interest and fees on loan payable................................ 512,054
Decrease in offering cost payable............................................ (109,603)
Decrease in investment advisory fees payable................................. (53,537)
Decrease in audit and tax fees payable....................................... (2)
Decrease in legal fees payable............................................... (31,995)
Decrease in printing fees payable............................................ (31,873)
Increase in administrative fees payable...................................... 56,707
Decrease in custodian fees payable........................................... (4,106)
Decrease in transfer agent fees payable...................................... (1)
Decrease in variation margin payable......................................... (2,416,563)
Decrease in Trustees' fees and expenses payable.............................. (528)
Increase in financial reporting fees payable................................. 1
Decrease in other liabilities................................................ (249)
--------------
CASH PROVIDED BY OPERATING ACTIVITIES............................................. $ 147,328,683
--------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Offering costs............................................................... 109,603
Proceeds from borrowings..................................................... 15,410,642
Repayment of borrowing....................................................... (35,410,642)
Distributions to Common Shareholders from net investment income.............. (127,934,078)
--------------
CASH USED BY FINANCING ACTIVITIES................................................. (147,824,475)
--------------
Increase in cash.................................................................. (495,792)
Cash at beginning of period....................................................... 21,179,274
--------------
Cash at end of period............................................................. $ 20,683,482
==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest and fees................................. $ 5,610,735
==============
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 ENDED OCTOBER 31, 5/23/2013 (a)
-------------------------------- THROUGH
2015 2014 10/31/2013
------------- ------------- -------------
Net asset value, beginning of period............ $ 24.42 $ 23.51 $ 23.88 (b)
----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).................... 1.96 1.85 0.70
Net realized and unrealized gain (loss)......... (0.58) 0.97 (0.64)
----------- ----------- -----------
Total from investment operations................ 1.38 2.82 0.06
----------- ----------- -----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income........................... (2.11) (1.91) (0.46)
----------- ----------- -----------
Common Shares offering costs charged to
paid-in capital.............................. 0.00 (c) -- (0.03)
----------- ----------- -----------
Premiums from shares sold in at the
market offerings............................. -- -- 0.06
----------- ----------- -----------
Net asset value, end of period.................. $ 23.69 $ 24.42 $ 23.51
=========== =========== ===========
Market value, end of period..................... $ 21.95 $ 21.94 $ 21.01
=========== =========== ===========
TOTAL RETURN BASED ON NET ASSET VALUE (d)....... 6.68% 13.37% 0.60%
=========== =========== ===========
TOTAL RETURN BASED ON MARKET VALUE (d).......... 10.02% 13.98% (14.13)%
=========== =========== ===========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)............ $ 1,438,361 $ 1,482,490 $ 1,427,164
Ratio of total expenses to average net assets... 1.76% 1.69% 1.53% (e)
Ratio of net expenses to average net assets
excluding interest expense................... 1.34% 1.33% 1.24% (e)
Ratio of net investment income (loss) to
average net assets........................... 8.15% 7.66% 7.01% (e)
Portfolio turnover rate......................... 48% 62% 11%
INDEBTEDNESS:
Total loan outstanding (in 000's)............... $ 645,000 $ 665,000 $ 584,000
Asset coverage per $1,000 of indebtedness (f)... $ 3,230 $ 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) Amount represents less than $0.01 per share.
(d) Total return in 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.
(e) Annualized.
(f) 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, 2015
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 Fund, which is an investment company within the scope of Financial
Accounting Standards Board ("FASB") Accounting Standards Update 2013-08, follows
accounting and reporting guidance under FASB Accounting Standards Codification
Topic 946, "Financial Services-Investment Companies." 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 Fund's 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, 2015
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 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.
Swaps are fair valued utilizing quotations provided by a third-party
pricing service or, if the pricing service does not provide a value, by
quotes provided by the selling dealer or financial institution.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Fund's 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.
Page 20
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2015
The inputs or methodologies used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of October 31, 2015, is
included with the Fund's Portfolio of Investments.
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. 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, 2015, 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
--------------------------------- --------------- ----------- ---------- ------------ ------------ ------
Farm Credit Bank of Texas,
6.75% 7/16/13-7/17/13 100,000 $ 105.41 $ 10,020,000 $ 10,540,630 0.73%
Centaur Funding Corp.,
9.08%, 04/21/20 5/29/13-5/31/13 16,000 1,240.00 20,528,750 19,840,000 1.38
Sovereign Real Estate
Investment Trust, 12.00% 6/11/13-5/12/14 14,000 1,273.75 18,489,375 17,832,500 1.24
AgStar Financial Services
ACA, 6.75% 5/29/13-7/31/15 12,000 1,063.06 12,105,000 12,756,750 0.89
Farm Credit Bank of Texas,
Series 1, 10.00% 9/18/15 4,000 1,262.50 5,000,000 5,050,000 0.35
Pitney Bowes International
Holding, Inc., Series F, 6.13% 6/27/13 4,000 1,060.94 3,935,000 4,243,750 0.30
Sirius International Group
Ltd., 7.51% 8/06/14-4/24/15 $25,000,000 101.25 26,480,164 25,312,500 1.76
Land O' Lakes, Inc., 8.00% 7/09/15 $22,000,000 103.38 22,000,000 22,742,500 1.58
----------------------------------
$118,558,289 $118,318,630 8.23%
==================================
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.
Page 21
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2015
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.
The Fund did not hold any futures contracts as of October 31, 2015.
E. SWAP AGREEMENTS
The Fund may enter into interest rate swap agreements. A swap is a financial
instrument that typically involves the exchange of cash flows between two
parties ("Counterparties") on specified dates (settlement dates) where the cash
flows are based on agreed upon prices, rates, etc. Payments received or made by
the Fund for interest rate swaps are recorded in the Statement of Operations as
"Net realized gain (loss) on swap contracts." When an interest rate swap is
terminated, the Fund will record a realized gain or loss equal to the difference
between the proceeds from (or cost of) the closing transaction and the Fund's
basis in the contract, if any. Generally, the basis of the contracts, if any, is
the premium received or paid. Swap agreements are individually negotiated and
involve the risk of the potential inability of the Counterparties to meet the
terms of the agreement. In connection with these agreements, cash and securities
may be identified as collateral in accordance with the terms of the respective
swap agreements to provide assets of value and recourse in the event of default
under the swap agreement or bankruptcy/insolvency of a party to the swap
agreement. In the event of a default by the Counterparty, the Fund will seek
withdrawal of this collateral and may incur certain costs exercising its right
with respect to the collateral. If a Counterparty becomes bankrupt or otherwise
fails to perform its obligations due to financial difficulties, the Fund may
experience significant delays in obtaining any recovery in a bankruptcy or other
reorganization proceeding. The Fund may obtain only limited recovery or may
obtain no recovery in such circumstances.
Swap agreements may increase or decrease the overall volatility of the
investments of the Fund. The performance of swap agreements may be affected by a
change in the specific interest rate, security, currency, or other factors that
determine the amounts of payments due to and from the Fund. The Fund's maximum
equity price risk to meet its future payments under swap agreements outstanding
at October 31, 2015 is equal to the total notional amount as shown on the
Portfolio of Investments. The notional amount represents the U.S. dollar value
of the contract as of the day of the opening transaction or contract reset. When
the Fund enters into a swap agreement, any premium paid is included in "Swap
contracts, at value" on the Statement of Assets and Liabilities.
The Fund held interest rate swap agreements at October 31, 2015. An interest
rate swap agreement involves the Fund's agreement to exchange a stream of
interest payments for another party's stream of cash flows. Interest rate swaps
do not involve the delivery of securities or other underlying assets or
principal. Accordingly, the risk of loss with respect to interest rate swaps is
limited to the net amount of interest payments that the Fund is contractually
obligated to make.
Cash segregated as collateral for open swap contracts in the amount of
$6,194,498 is shown on the Statement of Assets and Liabilities.
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.
Permanent differences incurred during the year ended October 31, 2015, resulting
in book and tax accounting differences, have been reclassified at year end to
reflect a decrease in accumulated net investment income (loss) of $1,756,016 and
an increase in accumulated net realized gain (loss) on investments of
$1,794,082, and a decrease to paid-in capital of $38,066. Net assets were not
affected by these reclassifications.
Page 22
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2015
The tax character of distributions paid during the fiscal period ended October
31, 2015 and 2014, was as follows:
Distributions paid from: 2015 2014
--------------- ---------------
Ordinary income............................... $ 127,934,078 $ 116,023,916
As of October 31, 2015, the components of distributable earnings on a tax basis
were as follows:
Undistributed ordinary income................. $ 5,139,718
Undistributed capital gains................... --
---------------
Total undistributed earnings.................. 5,139,718
Accumulated capital and other losses.......... (21,641,950)
Net unrealized appreciation (depreciation).... 7,371,377
---------------
Total accumulated earnings (losses)........... (9,130,855)
Other......................................... --
Paid-in capital............................... 1,447,491,401
---------------
Net Assets.................................... $ 1,438,360,546
===============
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, 2015, the
Fund had capital loss carryforwards for federal income tax purposes of
$21,641,950.
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 2013,
2014 and 2015 remain open to federal and state audit. As of October 31, 2015,
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. During the fiscal
year ended October 31, 2015, it was determined that actual offering costs were
less than the estimated offering costs by $109,063. Therefore, paid-in-capital
was increased by that amount in the current fiscal year, as reflected in the
offering costs line item on the Statement of Changes in Net Assets.
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 ongoing monitoring of the Fund's investment portfolio,
managing the Fund's business affairs and providing certain administrative
services necessary for the management of the Fund. For these investment
management 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.
Page 23
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2015
Brown Brothers Harriman & Co. ("BBH") serves as the Fund's administrator, fund
accountant and custodian in accordance with certain fee arrangements. As
administrator and fund accountant, BBH is responsible for providing certain
administrative and accounting services to the Fund, including maintaining the
Fund's books of account, records of the Fund's securities transactions, and
certain other books and records. As custodian, BBH is responsible for custody of
the Fund's assets.
Computershare, Inc. serves as the Fund's transfer agent in accordance with
certain fee arrangements. As transfer agent, Computershare, Inc. 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, 2015, the cost of purchases and proceeds from
sales of investments, excluding short-term investments for the Fund, were
$1,000,023,333 and $1,030,003,107, respectively.
5. DERIVATIVES TRANSACTIONS
The following table presents the types of derivatives held by the Fund at
October 31, 2015, 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
----------------- ------------------ --------------------------- ----------- ------------------------ -----------
Interest Rate Swap
Agreement Interest Rate Risk Swap Contracts, at Value $ 904,173 Swap Contracts, at Value $ --
The following table presents the amount of net realized gain (loss) and change
in net unrealized appreciation (depreciation) recognized for the fiscal year
ended October 31, 2015, on derivative instruments as well as the primary
underlying risk exposure associated with each instrument.
STATEMENT OF OPERATIONS LOCATION
------------------------------------------------------------------------------------------
INTEREST RATE RISK
Net realized gain (loss) on futures contracts................................ $ (3,286,250)
Net realized gain (loss) on swap contracts................................... (2,006,097)
Net change in unrealized appreciation (depreciation) on futures contracts.... 2,416,563
Net change in unrealized appreciation (depreciation) on swaps contracts...... 904,173
For the fiscal year ended October 31, 2015, the amount of notional values of
futures contracts opened and closed were $0 and $54,498,126, respectively.
The average notional value of interest rates swaps held was $165,000,000 for the
fiscal year ended October 31, 2015.
The Fund does not have the right to offset financial assets and financial
liabilities related to swap contracts on the Statement of Assets and
Liabilities.
6. BORROWINGS
The Fund entered into a credit agreement with Bank of America Merrill Lynch that
had a maximum commitment amount of $725,000,000. The borrowing rate under the
facility was equal to the 1-month LIBOR plus 70 basis points. In addition, under
the facility, the Fund paid a commitment fee of 0.25% on the undrawn amount of
such facility on any day that the loan balance was less than 20% of the total
commitment amount. The line of credit terminated on November 26, 2014. Effective
November 26, 2014, the Fund entered into a credit agreement with The Bank of
Page 24
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2015
Nova Scotia that has a maximum commitment amount of $725,000,000. The borrowing
rate under the facility is equal to the 1-month LIBOR plus 75 basis points. In
addition, under the facility, the Fund pays a commitment fee of 0.15% on the
undrawn amount of such facility on any date that the loan balance is less than
50% of the total commitment amount. The average amount outstanding between
November 1, 2014 and October 31, 2015, was $663,006,354, with a weighted average
interest rate of 0.93%. As of October 31, 2015, the Fund had outstanding
borrowings of $645,000,000 under this committed facility agreement. The high and
low annual interest rates for the year ended October 31, 2015, were 0.97% and
0.85%, respectively. The interest rate at October 31, 2015, was 0.94%.
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 19, 2015, the Fund declared a distribution of $0.1625 per share to
Common Shareholders of record on December 3, 2015, payable December 10, 2015.
At a meeting on December 7, 2015, the Board accepted Mr. Bradley's resignation
from his position as the President and Chief Executive Officer of the Fund,
effective December 31, 2015. At the same meeting, the Board elected Mr. Dykas to
serve as the President and Chief Executive Officer and Mr. Donald Swade,
formerly an Assistant Treasurer of the Fund, to serve as the Treasurer, Chief
Financial Officer and Chief Accounting Officer of the Fund.
Management anticipates that sometime before the end of December 2015, First
Trust Portfolios L.P., First Trust's affiliate, will transfer its ownership
interest in Stonebridge to First Trust Capital Partners LLC, an affiliate of
both First Trust and First Trust Portfolios L.P. Like First Trust, First Trust
Portfolios L.P. and First Trust Capital Partners LLC are owned by The Charger
Corporation and Grace Partners of DuPage L.P. The anticipated transfer will not
amount to a change of control in Stonebridge or an assignment of the
sub-advisory agreement between the Fund and Stonebridge, and will otherwise have
no effect on the Fund.
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, 2015, and the related statements of
operations and cash flows for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, 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 audit 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, 2015 by correspondence with the Fund's
custodian and brokers; when replies were not received from brokers, 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,
2015, the results of its operations and its cash flows for the year then ended,
and the changes in its net assets for each of the two years in the period then
ended, 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 22, 2015
Page 26
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2015 (UNAUDITED)
DIVIDEND REINVESTMENT PLAN
If your Common Shares are registered directly with the Fund or if you hold your
Common Shares with a brokerage firm that participates in the Fund's Dividend
Reinvestment Plan (the "Plan"), unless you elect, by written notice to the Fund,
to receive cash distributions, all dividends, including any capital gain
distributions, on your Common Shares will be automatically reinvested by
Computershare Trust Company, N.A. (the "Plan Agent"), in additional Common
Shares under the Plan. If you elect to receive cash distributions, you will
receive all distributions in cash paid by check mailed directly to you by the
Plan Agent, as the dividend paying agent.
If you decide to participate in the Plan, the number of Common Shares you will
receive will be determined as follows:
(1) If Common Shares are trading at or above net asset value ("NAV") at
the time of valuation, the Fund will issue new shares at a price
equal to the greater of (i) NAV per Common Share on that date or
(ii) 95% of the market price on that date.
(2) If Common Shares are trading below NAV at the time of valuation, the
Plan Agent will receive the dividend or distribution in cash and
will purchase Common Shares in the open market, on the NYSE or
elsewhere, for the participants' accounts. It is possible that the
market price for the Common Shares may increase before the Plan
Agent has completed its purchases. Therefore, the average purchase
price per share paid by the Plan Agent may exceed the market price
at the time of valuation, resulting in the purchase of fewer shares
than if the dividend or distribution had been paid in Common Shares
issued by the Fund. The Plan Agent will use all dividends and
distributions received in cash to purchase Common Shares in the open
market within 30 days of the valuation date except where temporary
curtailment or suspension of purchases is necessary to comply with
federal securities laws. Interest will not be paid on any uninvested
cash payments.
You may elect to opt-out of or withdraw from the Plan at any time by giving
written notice to the Plan Agent, or by telephone at (866) 340-1104, in
accordance with such reasonable requirements as the Plan Agent and the Fund may
agree upon. If you withdraw or the Plan is terminated, you will receive a
certificate for each whole share in your account under the Plan, and you will
receive a cash payment for any fraction of a share in your account. If you wish,
the Plan Agent will sell your shares and send you the proceeds, minus brokerage
commissions.
The Plan Agent maintains all Common Shareholders' accounts in the Plan and gives
written confirmation of all transactions in the accounts, including information
you may need for tax records. Common Shares in your account will be held by the
Plan Agent in non-certificated form. The Plan Agent will forward to each
participant any proxy solicitation material and will vote any shares so held
only in accordance with proxies returned to the Fund. Any proxy you receive will
include all Common Shares you have received under the Plan.
There is no brokerage charge for reinvestment of your dividends or distributions
in Common Shares. However, all participants will pay a pro rata share of
brokerage commissions incurred by the Plan Agent when it makes open market
purchases.
Automatically reinvesting dividends and distributions does not mean that you do
not have to pay income taxes due upon receiving dividends and distributions.
Capital gains and income are realized although cash is not received by you.
Consult your financial advisor for more information.
If you hold your Common Shares with a brokerage firm that does not participate
in the Plan, you will not be able to participate in the Plan and any dividend
reinvestment may be effected on different terms than those described above.
The Fund reserves the right to amend or terminate the Plan if in the judgment of
the Board of Trustees the change is warranted. There is no direct service charge
to participants in the Plan; however, the Fund reserves the right to amend the
Plan to include a service charge payable by the participants. Additional
information about the Plan may be obtained by writing Computershare, Inc., P.O.
Box 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, 2015 (UNAUDITED)
FEDERAL TAX INFORMATION
For the taxable year ended October 31, 2015, the following percentages of income
dividends paid by the Fund qualify for the dividends received deduction
available to corporations:
Dividends Received Deduction
----------------------------
25.56%
For the taxable year ended October 31, 2015, the following percentage of income
dividends paid by the Fund is hereby designated as qualified divided income:
Qualified Dividend Income
-------------------------
60.65%
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 29, 2015, 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 20, 2015 (the "Annual
Meeting"). At the Annual Meeting, Richard E. Erickson and Thomas R. Kadlec were
elected by the Common Shareholders of the First Trust Intermediate Duration
Preferred & Income Fund as the Class II Trustees for a three-year term expiring
at the Fund's annual meeting of shareholders in 2018. The number of votes cast
in favor of Mr. Erickson was 49,860,570, the number of votes withheld was
1,162,273 and the number of broker non-votes was 9,681,346. The number of votes
cast in favor of Mr. Kadlec was 49,843,976, the number of votes withheld was
1,178,867 and the number of broker non-votes was 9,681,346. James A. Bowen,
Robert F. Keith 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.
Page 28
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2015 (UNAUDITED)
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.
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 financial 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 able 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 29
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2015 (UNAUDITED)
ADVISORY AND SUB-ADVISORY AGREEMENTS
BOARD CONSIDERATIONS REGARDING APPROVAL OF INVESMTENT MANAGEMENT AGREEMENT AND
SUB-ADVISORY AGREEMENT
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 on June 16,
2015. The Board 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. At meetings held on April 20, 2015 and June 16, 2015, the
Board, including the Independent Trustees, reviewed materials provided by the
Advisor and the Sub-Advisor responding to requests for information from counsel
to the Independent Trustees that, 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 to a peer group
of funds selected by Management Practice, Inc. ("MPI"), an independent source
(the "MPI Peer Group"); expenses of the Fund as compared to expense ratios of
the funds in the MPI Peer Group; performance information for the Fund; 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. The
Board reviewed initial materials with the Advisor at a special meeting held on
April 20, 2015, at which the Independent Trustees and their counsel met
separately to discuss the information provided by the Advisor and the
Sub-Advisor. Following the April meeting, independent legal counsel on behalf of
the Independent Trustees requested certain clarifications and supplements to the
materials provided, and those were considered at an executive session of the
Independent Trustees and independent legal counsel held prior to the June 16,
2015 meeting, as well as at the meeting. The Board applied its business judgment
to determine whether the arrangements between the Fund and the Advisor and among
the Fund, the Advisor and the Sub-Advisor 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 the 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.
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. The Board considered the significant asset
growth of the First Trust Fund Complex and the Advisor's concomitant investment
in infrastructure and personnel dedicated to the First Trust funds. 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
Sub-Advisor's staff. The Board 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. 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.
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, noting that the Advisor provides
advisory services to an actively managed exchange-traded fund ("ETF") and an
open-end fund sub-advised by the Sub-Advisor and certain separately managed
accounts that may have investment objectives and policies similar to the Fund's.
The Board noted that the Advisor charges the same advisory fee rate to the Fund
and the actively managed ETF and a lower advisory fee rate to the open-end fund
and the separately managed accounts. The Board noted 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 noted that the Sub-Advisor provides sub-advisory services to the
actively managed ETF and the open-end fund noted above and that the sub-advisory
fee rate for the ETF is the same as that received from the Advisor for the Fund
and that the sub-advisory fee for the open-end fund is lower than for the Fund.
The Board also considered information provided by the Sub-Advisor as to the fees
it charges to other similar clients, noting that the sub-advisory fee rate is
generally similar to the fee rate charged by the Sub-Advisor to other similar
clients. In addition, the Board reviewed data prepared by MPI showing the
Page 30
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2015 (UNAUDITED)
advisory fee and expense ratio of the Fund as compared to the advisory fees and
expense ratios of the MPI Peer Group. 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 with different costs associated with
them or may use no leverage; and (iii) none of the peer funds 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 advisory fee, based on average net assets, was above the
median of the MPI 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 reviewed
data prepared by MPI comparing the Fund's performance for periods ended December
31, 2014 to the performance of the MPI Peer Group and to a blended benchmark
index. In reviewing the Fund's performance as compared to the performance of the
MPI Peer Group, the Board took into account the limitations described above with
respect to creating a relevant peer group for the Fund. The Board also
considered data from MPI on the Fund's annual distribution rate as of December
31, 2014 as compared to the MPI Peer Group and the Fund's leverage costs versus
the leverage costs of applicable funds in the MPI Peer Group. The Board
considered information provided by the Advisor on the Fund's leverage as well,
including that leverage was accretive to the Fund's total return in 2014. In
addition, the Board compared the Fund's premium/discount over the past seven
quarters to the average and median premium/discount over the same period of a
peer group selected by the Advisor, as well as data on the average
premium/discount for 2014 for the funds in the MPI Peer Group, and considered
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 the Sub Advisor under the Agreements.
The Board noted that the Advisor has made and continues to make significant
investments 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 twelve months ended December 31, 2014, 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 pre-tax profits estimated to have been realized
by the Advisor in connection with the management of the Fund were not
unreasonable. In addition, 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 that may be 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 31
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2015 (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; 117 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 117 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 117 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 117 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 117 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 2018 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
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2015 (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 Senior Vice President, (September 2005 to
120 East Liberty Drive, July 2012), Managing Director (July 2012 to
Suite 400 o Since Fund Inception Present) and Senior Vice President (September
Wheaton, IL 60187 2005 to July 2012), First Trust Advisors L.P.
D.O.B.: 02/70 and First Trust Portfolios L.P.
Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust Advisors
120 East Liberty Drive, and Assistant Secretary L.P. and First Trust Portfolios L.P.
Suite 400 o Since Fund Inception
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
--------------------------------------------------------------------------------
PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2015 (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
This Page Left Blank Intentionally.
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 $28,000 for
the fiscal year ended October 31, 2014 and $28,000 for the fiscal year
ended October 31, 2015.
(b) Audit-Related Fees (Registrant) -- The aggregate fees billed in the last
fiscal year for assurance and related services by the principal accountant
that are reasonably related to the performance of the audit of the
registrant's financial statements and are not reported under paragraph (a)
of this Item were $0 for the fiscal year ended October 31, 2014 and $0 for
the fiscal year ended October 31, 2015.
Audit-Related Fees (Investment Advisor) -- The aggregate fees billed in
the last fiscal year for assurance and related services by the principal
accountant that are reasonably related to the performance of the audit of
the registrant's financial statements and are not reported under paragraph
(a) of this Item were $0 for the fiscal year ended October 31, 2014 and $0
for the fiscal year ended October 31, 2015.
Audit-Related Fees (Investment Sub-Advisor) -- The aggregate fees billed
in the last fiscal year for assurance and related services by the
principal accountant that are reasonably related to the performance of the
audit of the registrant's financial statements and are not reported under
paragraph (a) of this Item were $0 for the fiscal year ended October 31,
2014 and $0 for the fiscal year ended October 31, 2015.
(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 $5,200 for the fiscal year
ended October 31, 2014 and $5,200 for the fiscal year ended October 31,
2015. 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 for the fiscal
year ended October 31, 2014 and $0 for the fiscal year ended October 31,
2015.
Tax Fees (Investment Sub-Advisor) -- The aggregate fees billed in the last
fiscal year for professional services rendered by the principal accountant
for tax compliance, tax advice, and tax planning were $0 for the fiscal
year ended October 31, 2014 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 for the fiscal year ended October 31,
2014 and $0 for the fiscal year ended October 31, 2015.
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 for the fiscal year ended October 31,
2014 and $0 for the fiscal year ended October 31, 2015.
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 for the fiscal year ended
October 31, 2014 and $0 for the fiscal year ended October 31, 2015.
(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 for the 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 and for the registrant's fiscal
year ended October 31, 2015 were $5,200 for the registrant, $12,500 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 December 15, 2015.
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. Stonebridge utilizes a team
approach to portfolio management. Decisions on which securities should be
included in portfolio require a majority vote by all investment team members.
Changes to portfolios are voted on and discussed and require a majority vote of
the team members. Scott Fleming, the CIO, has the final say on any portfolio
changes.
Scott T. Fleming, President and CIO of Stonebridge Advisors LLC
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 B.S. 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 15 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.
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 seven
years of investment management experience of which six 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 and is a CFA
Charterholder.
(a)(2) OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGERS OR MANAGEMENT TEAM MEMBER
AND POTENTIAL CONFLICTS OF INTEREST
Information provided as of October 31, 2015.
# of Accounts Total Assets
Managed for which for which
Total Advisory Fee is Advisory Fee
Name of Portfolio Manager or # of Accounts Total Based on is Based on
Team Member Type of Accounts* Managed Assets Performance Performance
----------- ----------------- ------- ------- ----------- -----------
1. Scott T. Fleming Registered Investment Companies 4 $533.69M 0 0
Other Pooled Investment Vehicles 0 $0 0 0
Other Accounts 1785 $940.63M 0 0
2. Robert Wolf Registered Investment Companies 4 $533.69M 0 0
Other Pooled Investment Vehicles 0 $0 0 0
Other Accounts 1785 $940.63M 0 0
3. Danielle Salters Registered Investment Companies 4 $533.69 0 0
Other Pooled Investment Vehicles 0 $0 0 0
Other Accounts 1785 $940.63M 0 0
PORTFOLIO MANAGER POTENTIAL CONFLICTS OF INTERESTS
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 any of its separately managed
accounts and Funds. 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, 2015.
Stonebridge employees receive an annual salary, mid- and year-end bonuses based
on company performance, medical benefits and a 401(k) plan. Annual salary plus
discretionary bonuses are based on the performance of individual, firm as a
whole, company profitability, and asset growth.
(a)(4) DISCLOSURE OF SECURITIES OWNERSHIP
Information provided as of October 31, 2015.
Dollar Range of Fund Shares
Name Beneficially Owned
Scott T. Fleming $100,001-500,000
Danielle Salters, CFA $0
Robert Wolf $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 22, 2015
--------------------
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 22, 2015
--------------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: December 22, 2015
--------------------
* Print the name and title of each signing officer under his or her signature.