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
First Trust Intermediate
Duration Preferred & Income Fund
(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
(Name and address of agent for service)
registrant’s telephone number, including area code: 630-765-8000
Date of fiscal year end: October 31
Date of reporting period: October 31, 2018
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1. Reports to Stockholders.
The Report to Shareholders is attached herewith.
First Trust
Intermediate
Duration Preferred & Income Fund (FPF)
Annual Report
For the
Year Ended
October 31,
2018
Table of Contents
First Trust Intermediate Duration
Preferred & Income Fund (FPF)
Annual Report
October 31, 2018
| 1 | |
| 2 | |
| 4 | |
| 6 | |
| 13 | |
| 14 | |
| 15 | |
| 16 | |
| 17 | |
| 18 | |
| 25 | |
| 26 | |
| 33 | |
| 35 |
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 respective 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
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 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 web page at 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 First Trust and Stonebridge are just that: informed opinions. They should not be considered to be promises or advice. The opinions, like the statistics, cover the
period through the date on the cover of this report. The 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.
Shareholder Letter
First Trust Intermediate Duration
Preferred & Income Fund (FPF)
Annual Letter from the Chairman and
CEO
October 31, 2018
Dear Shareholders,
First Trust is pleased
to provide you with the annual report for the First Trust Intermediate Duration Preferred & Income Fund (the “Fund”), which contains detailed information about the Fund for the twelve months ended
October 31, 2018, including a market overview and a performance analysis. We encourage you to read this report carefully and discuss it with your financial advisor.
As I mentioned in my
April 2018 letter, 2017 was a very strong year for U.S. and global markets. Investors were rewarded with rising markets and very little volatility. As 2018 began, investors were hoping for another strong year in the
markets. For the entire first quarter, however, increased market volatility was the norm for U.S. and global markets. The markets continued their volatility throughout the second quarter. During April and May, the Dow
Jones Industrial Average (“DJIA”) closed out each month slightly down, but ended both June and July slightly up. August was a strong month for stocks, and the DJIA finished August just under its previous
high in January of 2018. At the close of the third quarter in September, the markets had moved higher into positive territory. In fact, all three major U.S. indices (the Nasdaq Composite Index, the DJIA and the S&
P 500® Index) hit record levels during the third quarter. In October, markets were again very volatile, surprising analysts
and investors alike. Both global and U.S. markets fell on fears of slowing growth, trade wars and higher interest rates. The DJIA was down 5% for October and the MSCI EAFE Index, an index of stocks in 21 developed
markets (excluding the U.S. and Canada), was down 9% for the same period.
Based on continued
strong job growth and the economic outlook in the U.S., the Federal Reserve (the “Fed”) raised interest rates in March, June and September. At their September meeting, the Fed also indicated the
possibility of one more rate hike in 2018 as well as three more rate hikes in 2019.
Trade tensions have had
an impact on markets around the world and could continue to do so in the future. However, our economists believe that the long-term impact of U.S. tariffs will be to encourage countries to come back to the table and
talk about more equal trade. Despite market volatility, we continue to believe that the combination of low interest rates, low inflation and strong corporate earnings still point to a positive economic environment and
further growth, though we understand that past performance can never guarantee future performance.
We continue to believe
that you should invest for the long term and be prepared for market movements, which can happen at any time. You can do this by keeping current on your portfolio and by speaking regularly with your investment
professional. Markets go up and they also go down, but savvy investors are prepared for either through careful attention to investment goals.
Thank you for giving
First Trust the opportunity to be a part of your financial plan. We value our relationship with you and will report on the Fund again in six months.
Sincerely,
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust
Advisors L.P.
Page 1
First Trust Intermediate Duration
Preferred & Income Fund (FPF)
“AT A GLANCE”
As of October 31, 2018
(Unaudited)
| Performance | |||
| Average Annual Total Return | |||
| 1 Year Ended 10/31/18 | 5 Years Ended 10/31/18 | Inception (5/23/13) to 10/31/18 | |
| Fund Performance(3) | |||
| NAV | -2.23% | 8.30% | 7.72% |
| Market Value | -10.78% | 8.36% | 4.68% |
| Index Performance | |||
| ICE BofAML Fixed Rate Preferred Securities Index | -1.23% | 6.41% | 4.63% |
| ICE BofAML U.S. Capital Securities Index | -2.14% | 4.45% | 4.07% |
| Blended Index(4) | -1.67% | 5.44% | 4.37% |
| (1) | Most recent distribution paid or declared through 10/31/2018. 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 10/31/2018. Subject to change in the future. |
| (3) | Total return is based on the combination of reinvested dividend, capital gain, and return of capital distributions, if any, at prices obtained by the Dividend Reinvestment Plan and changes in NAV per share for NAV returns and changes in Common Share Price for market value returns. Total returns do not reflect sales load and are not annualized for periods of less than one year. Past performance is not indicative of future results. |
| (4) | The Blended Index consists of the following: ICE BofAML Fixed Rate Preferred Securities Index (50%) and ICE BofAML 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)
As of October 31, 2018
(Unaudited)
| (5) | The credit quality and ratings information presented above reflect the ratings assigned by one or more nationally recognized statistical rating organizations (NRSROs), including Standard & Poor’s Ratings Group, a division of the McGraw Hill Companies, Inc., Moody’s Investors Service, Inc., Fitch Ratings or a comparably rated NRSRO. For situations in which a security is rated by more than one NRSRO and the ratings are not equivalent, the highest rating is used. Sub-investment grade ratings are those rated BB+/Ba1 or lower. Investment grade ratings are those rated BBB-/Baa3 or higher. The credit ratings shown relate to the creditworthiness of the issuers of the underlying securities in the Fund, and not to the Fund or its shares. Credit ratings are subject to change. |
Page 3
Portfolio Commentary
First Trust Intermediate
Duration Preferred & Income Fund (FPF)
Annual Report
October 31, 2018
(Unaudited)
Advisor
First Trust Advisors L.P.
(“First Trust” or the “Advisor”) serves as the investment advisor to the First Trust Intermediate Duration Preferred & Income Fund (the “Fund”). First Trust is responsible for
the ongoing monitoring of the Fund’s investment portfolio, managing the Fund’s business affairs and providing certain administrative services necessary for the management of the Fund.
Sub-Advisor
Stonebridge Advisors LLC
(“Stonebridge” or the “Sub-Advisor”) is the sub-advisor to the Fund and is a registered investment advisor based in Wilton, Connecticut. Stonebridge specializes in the management of preferred
and hybrid securities.
Stonebridge Advisors LLC
Portfolio Management Team
Scott T. Fleming –
Chief Executive Officer and President
Robert Wolf – Chief
Investment Officer, Senior Vice President and Senior Portfolio Manager
Commentary
Market Recap
The fiscal year ended
October 31, 2018 was a volatile period for the preferred and hybrid securities market with all parts of the market experiencing negative performance. This was largely driven by rising interest rates as well as
economic and political headlines across the globe. The Federal Reserve (the “Fed”) guided short-term interest rates higher by 0.25% four times during the period as improving economic and employment data in
the United States supported further rate hikes. Longer term interest rates also moved higher, but the curve flattened substantially as short-term rates increased at a faster pace. Credit spreads also managed to
tighten within the preferred and hybrid securities market amid continued improvement in credit fundamentals, despite political uncertainty in Turkey, BREXIT negotiations, and trade tensions between China and the
United States weighing on fixed income markets overall. These headlines pressured contingent capital securities (“CoCos”) in particular, which are largely issued by European banks. As a result, CoCos, as
measured by the ICE BofAML USD Investment Grade Contingent Capital Index (“COCU”), were the worst performing part of the preferred and hybrid market during the period, as COCU was down -2.52%. Finally, the
retail $25 par market outperformed the institutional $1000 par market during the period, as limited new issuance and net negative supply supported that part of the market. For the fiscal year, the retail market fell
1.23% while the institutional market lost 2.14% according to The ICE BofAML Fixed Rate Preferred Securities Index (“P0P1”) and the ICE BofAML U.S. Capital Securities Index (“C0CS”),
respectively.
Performance Analysis
For the fiscal year ended
October 31, 2018, the net asset value (“NAV”) and market price total returns for the Fund were -2.23% and -10.78%, respectively. This compares to a total return of -1.67% for the Fund’s benchmark,
which is a 50/50 blend of P0P1 and C0CS. The Fund’s underperformance was primarily due to leverage and an overweight to CoCos. However, the Fund was able to partially offset the underperformance through security
selection within $25 par securities and non-CoCo institutional securities and an overweight to floating rate securities.
While the Fund’s
leverage weighed on performance in a negative market, CoCos issued by European banks, which are not held in the benchmark, were the primary reason for underperformance during the period. Political volatility in Italy,
BREXIT negotiations, and tariffs from the United States all weighed on CoCos throughout the period, despite improvements in European bank capitalization. CoCos continue to offer some of the most attractive yields and
structures in the preferred and hybrid securities market and the Fund’s CoCo holdings are issued by well-capitalized multinational banks with stable credit fundamentals that we believe will outperform longer
term.
Positive contributors to
the Fund’s performance relative to the benchmark included superior security selection within $25 par securities and non-CoCo institutional securities. The Fund’s focus on variable rate securities with wide
back-end reset spreads and shorter durations both contributed positively to relative performance.
The Fund also benefited
from overweighting floating rate securities, which appreciated with rising short-term interest rates, spread tightening and a flattening yield curve. In the current rising interest rate environment, we believe it is
prudent to maintain a conservative stance in regard to interest rates relative to the benchmark and peers.
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, which benefited from the rising rate environment. Going forward, we continue to
believe it is prudent to
Page 4
Portfolio Commentary (Continued)
First Trust Intermediate
Duration Preferred & Income Fund (FPF)
Annual Report
October 31, 2018
(Unaudited)
maintain a conservative
interest rate stance relative to the benchmark, particularly if we are able to do so while the Fund continues to pay the highest distribution rate of peer closed-end funds.
Market and Fund Outlook
As we approach 2019, we
believe the preferred and hybrid securities market will be positively supported by strong issuer credit fundamentals, attractive yields compared to other fixed income asset classes and a positive market technical from
limited net new issue supply into 2019. Although headline risks of global trade wars and other geopolitical events will likely persist for the next 6 to 12 months, in our opinion, preferred and hybrid securities
valuations already reflect these risks, in our opinion, and we believe credit fundamentals of issuers in this asset class are generally strong enough to withstand the possibility of slowing economic growth.
We continue to believe
that U.S. interest rates should broadly continue to shift higher and the Treasury yield curve is likely to remain relatively flat into 2019. We believe short-term rates are likely to increase due to Fed normalization,
while inflation pressures are likely to slowly push longer term rates higher overall. In the current environment, we believe the best total return and risk profile will likely be achieved by overweighting short to
intermediate term securities. Additionally, absolute yields and yield spreads of preferreds and hybrids relative to U.S. Treasuries and other credit spread products remain at attractive levels and may continue to
provide a cushion against rising interest rates, in our opinion.
The Fund will attempt to
position the portfolio to protect against the largest risks in the market and continue to identify the best securities in all parts of the preferred and hybrid securities market to construct balanced portfolios that
we believe will lead to long term outperformance.
Page 5
First Trust Intermediate Duration
Preferred & Income Fund (FPF)
Portfolio of Investments
October 31, 2018
| Shares | Description | Stated Rate | Stated Maturity | Value | ||||
| $25 PAR PREFERRED SECURITIES – 19.6% | ||||||||
| Banks – 3.4% | ||||||||
| 85,593 | Banc of California, Inc., Series E | 7.00% | (a) | $2,191,181 | ||||
| 197,943 | Bank of America Corp., Series HH (b) | 5.88% | (a) | 4,932,740 | ||||
| 149,642 | FNB Corp. (b) (c) | 7.25% | (a) | 4,097,198 | ||||
| 864,211 | GMAC Capital Trust I, Series 2, 3 Mo. LIBOR + 5.79% (b) (d) | 8.10% | 02/15/40 | 22,694,181 | ||||
| 206,326 | JPMorgan Chase & Co., Series DD | 5.75% | (a) | 5,133,391 | ||||
| 166,268 | Synovus Financial Corp., Series D (b) (c) | 6.30% | (a) | 4,248,147 | ||||
| 44,878 | Valley National Bancorp, Series A (c) | 6.25% | (a) | 1,145,735 | ||||
| 98,964 | Wintrust Financial Corp., Series D (b) (c) | 6.50% | (a) | 2,557,230 | ||||
| 46,999,803 | ||||||||
| Capital Markets – 1.4% | ||||||||
| 211,494 | Apollo Global Management, LLC, Series B (b) | 6.38% | (a) | 5,221,787 | ||||
| 145,201 | Apollo Investment Corp. (b) | 6.88% | 07/15/43 | 3,651,805 | ||||
| 3,067 | Ares Management L.P., Series A | 7.00% | (a) | 79,712 | ||||
| 388,704 | Morgan Stanley, Series F (b) (c) | 6.88% | (a) | 10,421,154 | ||||
| 19,374,458 | ||||||||
| Diversified Telecommunication Services – 1.3% | ||||||||
| 302,222 | Qwest Corp. (b) | 6.88% | 10/01/54 | 7,313,772 | ||||
| 141,191 | Qwest Corp. (b) | 7.00% | 02/01/56 | 3,525,539 | ||||
| 128,413 | Qwest Corp. | 6.50% | 09/01/56 | 2,832,791 | ||||
| 200,000 | Qwest Corp. (b) | 6.75% | 06/15/57 | 4,626,000 | ||||
| 18,298,102 | ||||||||
| Electric Utilities – 0.3% | ||||||||
| 73,257 | PPL Capital Funding, Inc., Series B | 5.90% | 04/30/73 | 1,827,030 | ||||
| 59,233 | Southern (The) Co. | 6.25% | 10/15/75 | 1,515,772 | ||||
| 3,342,802 | ||||||||
| Equity Real Estate Investment Trusts – 1.4% | ||||||||
| 150,000 | Colony Capital, Inc., Series E (b) | 8.75% | (a) | 3,873,000 | ||||
| 193,100 | Farmland Partners, Inc., Series B, steps up 10/01/24 to 10.00% (b) (e) | 6.00% | (a) | 4,228,890 | ||||
| 91,002 | Global Net Lease, Inc., Series A | 7.25% | (a) | 2,265,040 | ||||
| 114,430 | Urstadt Biddle Properties, Inc., Series H | 6.25% | (a) | 2,649,054 | ||||
| 250,000 | VEREIT, Inc., Series F (b) | 6.70% | (a) | 6,220,000 | ||||
| 19,235,984 | ||||||||
| Food Products – 2.5% | ||||||||
| 824,835 | CHS, Inc., Series 2 (b) (c) | 7.10% | (a) | 21,231,253 | ||||
| 546,059 | CHS, Inc., Series 3 (b) (c) | 6.75% | (a) | 13,760,687 | ||||
| 34,991,940 | ||||||||
| Insurance – 3.8% | ||||||||
| 54,323 | Allstate Corp., Series E | 6.63% | (a) | 1,376,545 | ||||
| 193,648 | AmTrust Financial Services, Inc. (b) | 7.25% | 06/15/55 | 4,473,269 | ||||
| 210,480 | AmTrust Financial Services, Inc. (b) | 7.50% | 09/15/55 | 5,001,005 | ||||
| 100,000 | AmTrust Financial Services, Inc., Series F | 6.95% | (a) | 1,600,000 | ||||
| 59,196 | Aspen Insurance Holdings Ltd. | 5.63% | (a) | 1,352,037 | ||||
| 379,385 | Delphi Financial Group, Inc., 3 Mo. LIBOR + 3.19% (b) (d) | 5.50% | 05/15/37 | 8,631,009 | ||||
| 428,412 | Enstar Group Ltd., Series D (b) (c) | 7.00% | (a) | 11,005,904 | ||||
| 158,193 | Global Indemnity Ltd. (b) | 7.75% | 08/15/45 | 3,957,989 | ||||
| 190,380 | Global Indemnity Ltd. (b) | 7.88% | 04/15/47 | 4,812,806 | ||||
| 19,685 | National General Holdings Corp. | 7.63% | 09/15/55 | 491,338 | ||||
| 133,133 | National General Holdings Corp., Series C (b) | 7.50% | (a) | 3,187,204 | ||||
| 107,835 | PartnerRe Ltd., Series G (b) | 6.50% | (a) | 2,774,594 | ||||
Page 6
See Notes to Financial Statements
First Trust Intermediate Duration
Preferred & Income Fund (FPF)
Portfolio of Investments
(Continued)
October 31, 2018
| Shares | Description | Stated Rate | Stated Maturity | Value | ||||
| $25 PAR PREFERRED SECURITIES (Continued) | ||||||||
| Insurance (Continued) | ||||||||
| 225,000 | Phoenix Cos., Inc. | 7.45% | 01/15/32 | $3,853,125 | ||||
| 52,516,825 | ||||||||
| Mortgage Real Estate Investment Trusts – 1.6% | ||||||||
| 346,092 | Annaly Capital Management, Inc., Series F (b) (c) | 6.95% | (a) | 8,697,292 | ||||
| 121,000 | Invesco Mortgage Capital, Inc., Series B (b) (c) | 7.75% | (a) | 3,115,750 | ||||
| 207,000 | Two Harbors Investment Corp., Series B (b) (c) | 7.63% | (a) | 5,108,760 | ||||
| 220,000 | Two Harbors Investment Corp., Series C (b) (c) | 7.25% | (a) | 5,337,200 | ||||
| 22,259,002 | ||||||||
| Multi-Utilities – 2.4% | ||||||||
| 221,976 | Algonquin Power & Utilities Corp. (c) | 6.88% | 10/17/78 | 5,663,163 | ||||
| 133,279 | CMS Energy Corp. | 5.88% | 10/15/78 | 3,345,303 | ||||
| 732,571 | Integrys Holding, Inc. (b) (c) | 6.00% | 08/01/73 | 18,559,686 | ||||
| 350,000 | Just Energy Group, Inc., Series A (b) (c) | 8.50% | (a) | 6,268,500 | ||||
| 33,836,652 | ||||||||
| Oil, Gas & Consumable Fuels – 0.3% | ||||||||
| 148,780 | Enbridge, Inc., Series B (c) | 6.38% | 04/15/78 | 3,671,890 | ||||
| 24,279 | Energy Transfer Operating L.P., Series D (c) | 7.63% | (a) | 608,189 | ||||
| 4,280,079 | ||||||||
| Thrifts & Mortgage Finance – 0.7% | ||||||||
| 379,159 | New York Community Bancorp, Inc., Series A (b) (c) | 6.38% | (a) | 9,615,472 | ||||
| Wireless Telecommunication Services – 0.5% | ||||||||
| 262,545 | United States Cellular Corp. (b) | 7.25% | 12/01/64 | 6,634,512 | ||||
Total $25 Par Preferred Securities | 271,385,631 | |||||||
| (Cost $275,892,843) | ||||||||
| $100 PAR PREFERRED SECURITIES – 3.7% | ||||||||
| Banks – 3.7% | ||||||||
| 80,000 | Agribank FCB (c) (f) | 6.88% | (a) | 8,580,000 | ||||
| 179,000 | CoBank ACB, Series F (b) (c) (f) | 6.25% | (a) | 18,526,500 | ||||
| 82,220 | CoBank ACB, Series G (b) (f) | 6.13% | (a) | 8,250,777 | ||||
| 54,250 | CoBank ACB, Series H (b) (c) (f) | 6.20% | (a) | 5,663,700 | ||||
| 100,000 | Farm Credit Bank of Texas (b) (c) (g) | 6.75% | (a) | 10,650,000 | ||||
Total $100 Par Preferred Securities | 51,670,977 | |||||||
| (Cost $50,687,346) | ||||||||
| $1,000 PAR PREFERRED SECURITIES – 7.4% | ||||||||
| Banks – 3.9% | ||||||||
| 3,557 | CoBank ACB, 3 Mo. LIBOR + 1.18% (d) (g) | 3.59% | (a) | 2,329,835 | ||||
| 30,859 | Farm Credit Bank of Texas, Series 1 (b) (f) | 10.00% | (a) | 35,333,555 | ||||
| 15,364 | Sovereign Real Estate Investment Trust (g) | 12.00% | (a) | 17,169,270 | ||||
| 54,832,660 | ||||||||
| Diversified Financial Services – 0.9% | ||||||||
| 12,000 | Compeer Financial ACA (b) (c) (g) | 6.75% | (a) | 12,840,000 | ||||
| Insurance – 2.0% | ||||||||
| 27,596 | XLIT Ltd., Series D, 3 Mo. LIBOR + 3.12% (d) | 5.56% | (a) | 27,733,980 | ||||
See Notes to Financial Statements
Page 7
First Trust Intermediate Duration
Preferred & Income Fund (FPF)
Portfolio of Investments
(Continued)
October 31, 2018
| Shares | Description | Stated Rate | Stated Maturity | Value | ||||
| $1,000 PAR PREFERRED SECURITIES (Continued) | ||||||||
| Oil, Gas & Consumable Fuels – 0.6% | ||||||||
| 8,500 | Kinder Morgan GP, Inc., 3 Mo. LIBOR + 3.90% (d) (g) | 6.22% | 08/18/57 | $7,794,249 | ||||
Total $1,000 Par Preferred Securities | 103,200,889 | |||||||
| (Cost $104,731,795) | ||||||||
| $1,000,000 PAR PREFERRED SECURITIES – 1.0% | ||||||||
| Banks – 1.0% | ||||||||
| 12 | FT Real Estate Securities Co., Inc. (g) (h) (i) | 9.50% | (a) | 14,552,328 | ||||
| (Cost $15,990,000) | ||||||||
| Par Amount | Description | Stated Rate | Stated Maturity | Value | ||||
| CAPITAL PREFERRED SECURITIES – 110.0% | ||||||||
| Automobiles – 1.4% | ||||||||
| $4,700,000 | General Motors Financial Co., Inc., Series A (c) | 5.75% | (a) | 4,244,006 | ||||
| 16,400,000 | General Motors Financial Co., Inc., Series B (b) (c) | 6.50% | (a) | 15,457,000 | ||||
| 19,701,006 | ||||||||
| Banks – 55.2% | ||||||||
| 16,000,000 | Australia & New Zealand Banking Group Ltd. (b) (c) (j) (k) | 6.75% | (a) | 16,460,000 | ||||
| 6,800,000 | Banco Bilbao Vizcaya Argentaria S.A. (c) (k) | 6.13% | (a) | 5,873,500 | ||||
| 8,000,000 | Banco Mercantil del Norte S.A. (c) (j) (k) | 7.63% | (a) | 7,860,080 | ||||
| 12,200,000 | Banco Santander S.A. (b) (c) (k) | 6.38% | (a) | 12,061,079 | ||||
| 18,000,000 | Bank of America Corp., Series DD (b) (c) | 6.30% | (a) | 19,012,500 | ||||
| 5,000,000 | Bank of America Corp., Series X (c) | 6.25% | (a) | 5,156,250 | ||||
| 23,867,000 | Bank of America Corp., Series Z (b) (c) | 6.50% | (a) | 25,339,594 | ||||
| 40,000 | Barclays Bank PLC (j) | 10.18% | 06/12/21 | 45,472 | ||||
| 5,200,000 | Barclays PLC (c) (k) | 7.75% | (a) | 5,201,040 | ||||
| 35,136,000 | Barclays PLC (b) (c) (k) | 7.88% | (a) | 36,277,920 | ||||
| 2,000,000 | BNP Paribas S.A. (c) (j) (k) | 7.38% | (a) | 2,057,500 | ||||
| 29,774,000 | BNP Paribas S.A. (b) (c) (j) (k) | 7.63% | (a) | 31,002,178 | ||||
| 9,500,000 | BPCE S.A. (b) (c) (j) | 12.50% | (a) | 10,213,260 | ||||
| 5,000,000 | Citigroup, Inc., Series O (b) (c) | 5.88% | (a) | 5,075,000 | ||||
| 25,000,000 | Citigroup, Inc., Series R (b) (c) | 6.13% | (a) | 25,593,750 | ||||
| 5,250,000 | Citizens Financial Group, Inc., Series C (c) | 6.38% | (a) | 5,262,521 | ||||
| 25,000,000 | CoBank ACB, Series I (b) (c) (f) | 6.25% | (a) | 26,250,000 | ||||
| 32,104,000 | Cooperatieve Rabobank UA (b) (c) (j) | 11.00% | (a) | 33,701,174 | ||||
| 24,100,000 | Credit Agricole S.A. (b) (c) (j) (k) | 7.88% | (a) | 24,976,131 | ||||
| 32,500,000 | Credit Agricole S.A. (b) (c) (j) (k) | 8.13% | (a) | 34,940,490 | ||||
| 10,000,000 | Credit Agricole S.A. (b) (c) (j) | 8.38% | (a) | 10,400,000 | ||||
| 14,180,000 | Danske Bank A.S. (b) (c) (k) | 6.13% | (a) | 12,712,966 | ||||
| 3,450,000 | Farm Credit Bank of Texas, Series 3 (b) (c) (j) | 6.20% | (a) | 3,458,625 | ||||
| 16,500,000 | HSBC Holdings PLC (b) (c) (k) | 6.38% | (a) | 16,066,875 | ||||
| 3,000,000 | HSBC Holdings PLC (c) (k) | 6.38% | (a) | 2,914,500 | ||||
| 9,400,000 | HSBC Holdings PLC (b) (c) (k) | 6.88% | (a) | 9,764,250 | ||||
| 13,920,000 | ING Groep N.V. (b) (c) (k) | 6.50% | (a) | 13,230,960 | ||||
| 10,000,000 | ING Groep N.V. (b) (c) (k) | 6.88% | (a) | 10,118,750 | ||||
| 27,300,000 | Intesa Sanpaolo S.p.A. (b) (c) (j) (k) | 7.70% | (a) | 24,808,875 | ||||
| 7,884,000 | JPMorgan Chase & Co., Series I, 3 Mo. LIBOR + 3.47% (b) (d) | 5.99% | (a) | 7,936,113 | ||||
| 20,000,000 | JPMorgan Chase & Co., Series S (b) (c) | 6.75% | (a) | 21,355,000 | ||||
| 5,580,000 | JPMorgan Chase & Co., Series V (b) (c) | 5.00% | (a) | 5,586,975 | ||||
| 18,000,000 | Lloyds Bank PLC (b) (c) (j) | 12.00% | (a) | 21,678,498 | ||||
| 14,150,000 | Lloyds Bank PLC (b) (c) | 12.00% | (a) | 17,041,708 | ||||
| 27,313,000 | Lloyds Banking Group PLC (b) (c) (k) | 7.50% | (a) | 27,620,271 | ||||
| 12,000,000 | Lloyds Banking Group PLC (c) (k) | 7.50% | (a) | 12,090,000 | ||||
| 5,363,000 | Nordea Bank Abp (c) (k) | 6.13% | (a) | 5,168,591 | ||||
Page 8
See Notes to Financial Statements
First Trust Intermediate Duration
Preferred & Income Fund (FPF)
Portfolio of Investments
(Continued)
October 31, 2018
| Par Amount | Description | Stated Rate | Stated Maturity | Value | ||||
| CAPITAL PREFERRED SECURITIES (Continued) | ||||||||
| Banks (Continued) | ||||||||
| $1,600,000 | Nordea Bank Abp (c) (j) (k) | 6.13% | (a) | $1,542,000 | ||||
| 23,400,000 | Royal Bank of Scotland Group PLC (b) (c) (k) | 8.00% | (a) | 24,204,375 | ||||
| 31,050,000 | Royal Bank of Scotland Group PLC (b) (c) (k) | 8.63% | (a) | 32,718,937 | ||||
| 10,200,000 | Societe Generale S.A. (b) (c) (j) (k) | 6.00% | (a) | 10,059,852 | ||||
| 24,600,000 | Societe Generale S.A. (b) (c) (j) (k) | 7.38% | (a) | 24,999,750 | ||||
| 15,250,000 | Societe Generale S.A. (b) (c) (j) (k) | 7.88% | (a) | 15,383,438 | ||||
| 2,000,000 | Societe Generale S.A. (c) (k) | 7.38% | 03/13/67 | 2,032,500 | ||||
| 65,000 | Standard Chartered PLC (c) | 7.01% | (a) | 67,540 | ||||
| 12,400,000 | Standard Chartered PLC (b) (c) (j) (k) | 7.50% | (a) | 12,570,500 | ||||
| 7,500,000 | Standard Chartered PLC (c) (j) (k) | 7.75% | (a) | 7,593,750 | ||||
| 825,000 | Standard Chartered PLC (c) (k) | 7.75% | (a) | 835,313 | ||||
| 3,400,000 | Swedbank AB (c) (k) | 6.00% | (a) | 3,336,250 | ||||
| 29,746,000 | UniCredit S.p.A. (b) (c) (k) | 8.00% | (a) | 26,813,342 | ||||
| 16,000,000 | UniCredit S.p.A. (b) (c) (j) | 5.86% | 06/19/32 | 13,735,392 | ||||
| 21,500,000 | Wells Fargo & Co., Series K, 3 Mo. LIBOR + 3.77% (b) (d) | 6.10% | (a) | 21,688,125 | ||||
| 12,670,000 | Zions Bancorporation, Series J (b) (c) | 7.20% | (a) | 13,588,575 | ||||
| 765,482,035 | ||||||||
| Capital Markets – 4.5% | ||||||||
| 5,100,000 | Credit Suisse Group AG (c) (j) (k) | 7.25% | (a) | 5,055,375 | ||||
| 17,079,000 | Credit Suisse Group AG (b) (c) (j) (k) | 7.50% | (a) | 17,829,161 | ||||
| 7,875,000 | Credit Suisse Group AG (c) (k) | 7.50% | (a) | 8,220,894 | ||||
| 12,000,000 | Credit Suisse Group AG (c) (j) (k) | 7.50% | (a) | 12,240,000 | ||||
| 3,350,000 | UBS Group Funding Switzerland AG (c) (k) | 7.00% | (a) | 3,496,562 | ||||
| 15,000,000 | UBS Group Funding Switzerland AG (b) (c) (k) | 7.13% | (a) | 15,289,305 | ||||
| 62,131,297 | ||||||||
| Consumer Finance – 0.4% | ||||||||
| 6,200,000 | American Express Co., Series C (b) (c) | 4.90% | (a) | 6,184,500 | ||||
| Diversified Financial Services – 0.3% | ||||||||
| 3,904,000 | Voya Financial, Inc. (b) (c) | 5.65% | 05/15/53 | 3,855,200 | ||||
| Diversified Telecommunication Services – 1.6% | ||||||||
| 20,000,000 | Koninklijke KPN N.V. (b) (c) (j) | 7.00% | 03/28/73 | 20,830,000 | ||||
| 1,000,000 | Koninklijke KPN N.V. (b) (c) | 7.00% | 03/28/73 | 1,041,500 | ||||
| 21,871,500 | ||||||||
| Electric Utilities – 6.5% | ||||||||
| 36,500,000 | Emera, Inc., Series 16-A (b) (c) | 6.75% | 06/15/76 | 38,142,500 | ||||
| 42,128,000 | Enel S.p.A. (b) (c) (j) | 8.75% | 09/24/73 | 45,603,560 | ||||
| 6,500,000 | Southern (The) Co., Series B (b) (c) | 5.50% | 03/15/57 | 6,499,814 | ||||
| 90,245,874 | ||||||||
| Energy Equipment & Services – 1.8% | ||||||||
| 24,800,000 | Transcanada Trust, Series 16-A (b) (c) | 5.88% | 08/15/76 | 24,475,120 | ||||
| Food Products – 5.1% | ||||||||
| 9,000,000 | Dairy Farmers of America, Inc. (b) (g) | 7.13% | (a) | 9,427,500 | ||||
| 14,488,000 | Land O’Lakes Capital Trust I (b) (g) | 7.45% | 03/15/28 | 15,701,370 | ||||
| 10,000,000 | Land O’Lakes, Inc. (b) (j) | 7.25% | (a) | 10,400,000 | ||||
| 33,000,000 | Land O’Lakes, Inc. (b) (j) | 8.00% | (a) | 35,970,000 | ||||
| 71,498,870 | ||||||||
| Independent Power and Renewable Electricity Producers – 1.6% | ||||||||
| 9,850,000 | AES Gener S.A. (c) (j) | 8.38% | 12/18/73 | 10,006,123 | ||||
See Notes to Financial Statements
Page 9
First Trust Intermediate Duration
Preferred & Income Fund (FPF)
Portfolio of Investments
(Continued)
October 31, 2018
| Par Amount | Description | Stated Rate | Stated Maturity | Value | ||||
| CAPITAL PREFERRED SECURITIES (Continued) | ||||||||
| Independent Power and Renewable Electricity Producers (Continued) | ||||||||
| $12,150,000 | AES Gener S.A. (c) | 8.38% | 12/18/73 | $12,342,577 | ||||
| 22,348,700 | ||||||||
| Insurance – 21.6% | ||||||||
| 9,600,000 | AG Insurance S.A. (b) (c) | 6.75% | (a) | 9,708,883 | ||||
| 5,350,000 | American International Group, Inc., Series A-9 (b) (c) | 5.75% | 04/01/48 | 5,065,808 | ||||
| 3,839,000 | Asahi Mutual Life Insurance Co. (b) (c) | 7.25% | (a) | 3,932,672 | ||||
| 16,975,000 | Assurant, Inc. (b) (c) | 7.00% | 03/27/48 | 17,059,875 | ||||
| 39,700,000 | Catlin Insurance Co., Ltd., 3 Mo. LIBOR + 2.98% (b) (d) (j) | 5.42% | (a) | 39,104,500 | ||||
| 10,600,000 | CNP Assurances (b) (c) | 6.88% | (a) | 10,832,288 | ||||
| 12,500,000 | Dai-Ichi Life Insurance (The) Co., Ltd. (b) (c) (j) | 7.25% | (a) | 13,518,750 | ||||
| 8,134,000 | Everest Reinsurance Holdings, Inc., 3 Mo. LIBOR + 2.39% (b) (d) | 4.70% | 05/15/37 | 7,930,650 | ||||
| 15,300,000 | Fortegra Financial Corp. (b) (c) (g) | 8.50% | 10/15/57 | 15,567,750 | ||||
| 14,876,000 | Friends Life Holdings PLC (c) | 7.88% | (a) | 14,897,273 | ||||
| 1,000,000 | Fukoku Mutual Life Insurance Co. (c) | 6.50% | (a) | 1,068,125 | ||||
| 9,200,000 | Hartford Financial Services Group (The), Inc., 3 Mo. LIBOR + 2.13% (b) (d) (j) | 4.44% | 02/12/47 | 8,487,000 | ||||
| 25,616,000 | La Mondiale SAM (b) (c) | 7.63% | (a) | 26,108,980 | ||||
| 14,115,000 | Liberty Mutual Group, Inc. (b) (j) | 7.80% | 03/15/37 | 16,196,963 | ||||
| 2,000,000 | Liberty Mutual Group, Inc. (b) (c) | 10.75% | 06/15/58 | 2,945,000 | ||||
| 5,000,000 | Liberty Mutual Group, Inc., 3 Mo. LIBOR + 2.91% (b) (d) (j) | 5.24% | 03/15/37 | 4,837,500 | ||||
| 320,000 | Meiji Yasuda Life Insurance, Co. (c) (j) | 5.10% | 04/26/48 | 317,600 | ||||
| 25,000,000 | Mitsui Sumitomo Insurance Co., Ltd. (b) (c) (j) | 7.00% | 03/15/72 | 27,000,000 | ||||
| 3,000,000 | Nationwide Financial Services Capital Trust (b) (f) | 7.90% | 03/01/37 | 3,305,098 | ||||
| 11,300,000 | Nationwide Financial Services, Inc. (b) | 6.75% | 05/15/37 | 12,147,500 | ||||
| 24,300,000 | QBE Insurance Group, Ltd. (b) (c) (j) | 7.50% | 11/24/43 | 26,395,875 | ||||
| 20,250,000 | QBE Insurance Group, Ltd. (b) (c) | 6.75% | 12/02/44 | 20,806,875 | ||||
| 8,130,000 | Sumitomo Life Insurance Co. (b) (c) (j) | 6.50% | 09/20/73 | 8,720,238 | ||||
| 3,800,000 | VIVAT N.V. (c) | 6.25% | (a) | 3,795,972 | ||||
| 299,751,175 | ||||||||
| Metals & Mining – 1.8% | ||||||||
| 23,500,000 | BHP Billiton Finance USA Ltd. (b) (c) (j) | 6.75% | 10/19/75 | 25,497,500 | ||||
| Multi-Utilities – 0.8% | ||||||||
| 5,150,000 | CenterPoint Energy, Inc., Series A (b) (c) | 6.13% | (a) | 5,207,937 | ||||
| 5,500,000 | NiSource, Inc. (b) (c) (j) | 5.65% | (a) | 5,397,975 | ||||
| 10,605,912 | ||||||||
| Oil, Gas & Consumable Fuels – 5.9% | ||||||||
| 8,000,000 | DCP Midstream L.P., Series A (b) (c) | 7.38% | (a) | 7,680,000 | ||||
| 28,243,000 | Enbridge Energy Partners L.P., 3 Mo. LIBOR + 3.80% (b) (d) | 6.19% | 10/01/37 | 28,104,751 | ||||
| 5,400,000 | Enbridge, Inc. (b) (c) | 5.50% | 07/15/77 | 4,815,165 | ||||
| 14,700,000 | Enbridge, Inc. (b) (c) | 6.25% | 03/01/78 | 13,799,446 | ||||
| 5,000,000 | Enbridge, Inc., Series 16-A (b) (c) | 6.00% | 01/15/77 | 4,699,780 | ||||
| 20,700,000 | Energy Transfer Operating L.P., 3 Mo. LIBOR + 3.02% (b) (d) | 5.36% | 11/01/66 | 17,595,000 | ||||
| 4,200,000 | Energy Transfer Operating L.P., Series B (b) (c) | 6.63% | (a) | 3,871,875 | ||||
| 2,000,000 | Enterprise Products Operating LLC, 3 Mo. LIBOR + 2.78% (d) | 5.10% | 06/01/67 | 1,985,254 | ||||
| 82,551,271 | ||||||||
| Transportation Infrastructure – 1.5% | ||||||||
| 19,817,000 | AerCap Global Aviation Trust (b) (c) (j) | 6.50% | 06/15/45 | 20,411,510 | ||||
Total Capital Preferred Securities | 1,526,611,470 | |||||||
| (Cost $1,572,301,751) | ||||||||
Page 10
See Notes to Financial Statements
First Trust Intermediate Duration
Preferred & Income Fund (FPF)
Portfolio of Investments
(Continued)
October 31, 2018
| Principal Value | Description | Stated Coupon | Stated Maturity | Value | ||||
| CORPORATE BONDS AND NOTES – 0.7% | ||||||||
| Insurance – 0.7% | ||||||||
| $10,000,000 | AmTrust Financial Services, Inc. (b) | 6.13% | 08/15/23 | $9,394,702 | ||||
| (Cost $9,965,963) | ||||||||
Total Investments – 142.4% |
1,976,815,997 | ||
| (Cost $2,029,569,698) (l) | |||
Outstanding Loan – (44.7)% |
(620,000,000) | ||
Net Other Assets and Liabilities – 2.3% |
31,144,523 | ||
Net Assets – 100.0% |
$1,387,960,520 |
Interest Rate Swap Agreements:
| Counterparty | Floating Rate (1) | Expiration Date | Notional Amount | Fixed Rate (1) | Unrealized Appreciation (Depreciation)/ Value | |||||
| Bank of Nova Scotia | 1 month LIBOR | 01/23/25 | $165,000,000 | 1.786% | $11,516,276 |
| (1) | The Fund pays the fixed rate and receives the floating rate. The floating rate on October 31, 2018 was 2.282%. |
| (a) | Perpetual maturity. |
| (b) | All or a portion of this security serves as collateral on the outstanding loan. |
| (c) | Fixed-to-floating or fixed-to-variable rate security. The interest rate shown reflects the fixed rate in effect at October 31, 2018. At a predetermined date, the fixed rate will change to a floating rate or a variable rate. |
| (d) | Floating rate security. |
| (e) | Step-up security. A security where the coupon increases or steps up at a predetermined date. |
| (f) | 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”). |
| (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 (see Note 2D - Restricted Securities in the Notes to Financial Statements). |
| (h) | This security is fair valued by the Advisor’s Pricing Committee in accordance with procedures adopted by the Fund’s Board of Trustees, and in accordance with the provisions of the Investment Company Act of 1940, as amended. At October 31, 2018, securities noted as such are valued at $14,552,328 or 1.0% of net assets. |
| (i) | This security’s value was determined using significant unobservable inputs (see Note 2A-Portfolio Valuation in the Notes to Financial Statements). |
| (j) | 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. 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, 2018, securities noted as such amounted to $661,306,595 or 47.6% of net assets. |
| (k) | This security is a contingent convertible capital security which may be subject to conversion into common stock of the issuer under certain circumstances. At October 31, 2018, securities noted as such amounted to $535,427,260 or 26.7% of managed assets. Of these securities, 1.5% originated in emerging markets, and 98.5% originated in foreign markets. |
| (l) | Aggregate cost for federal income tax purposes was $2,027,465,476. As of October 31, 2018, the aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost was $40,523,403 and the aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value was $79,656,606. The net unrealized depreciation was $39,133,203. The amounts presented are inclusive of derivative contracts. |
See Notes to Financial Statements
Page 11
First Trust Intermediate Duration
Preferred & Income Fund (FPF)
Portfolio of Investments
(Continued)
October 31, 2018
Valuation Inputs
A summary of the inputs
used to value the Fund’s investments as of October 31, 2018 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| Total Value at 10/31/2018 | Level 1 Quoted Prices | Level 2 Significant Observable Inputs | Level 3 Significant Unobservable Inputs | |
| $25 Par Preferred Securities: | ||||
Insurance | $ 52,516,825 | $ 40,032,691 | $ 12,484,134 | $ — |
Multi-Utilities | 33,836,652 | 15,276,966 | 18,559,686 | — |
Other industry categories* | 185,032,154 | 185,032,154 | — | — |
$100 Par Preferred Securities* | 51,670,977 | — | 51,670,977 | — |
$1,000 Par Preferred Securities* | 103,200,889 | — | 103,200,889 | — |
$1,000,000 Par Preferred Securities* | 14,552,328 | — | — | 14,552,328 |
Capital Preferred Securities* | 1,526,611,470 | — | 1,526,611,470 | — |
Corporate Bonds and Notes* | 9,394,702 | — | 9,394,702 | — |
Total Investments | 1,976,815,997 | 240,341,811 | 1,721,921,858 | 14,552,328 |
Interest Rate Swap Agreement | 11,516,276 | — | 11,516,276 | — |
Total | $ 1,988,332,273 | $ 240,341,811 | $ 1,733,438,134 | $ 14,552,328 |
| * | See Portfolio of Investments for industry breakout. |
Level 3 Par Preferred
Securities are fair valued using broker quotes and are footnoted in the Portfolio of Investments. These values are based on unobservable and non-quantitative inputs.
The following table
presents the activity of the Fund’s investments measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the period presented.
| Beginning Balance at October 31, 2017 | |
| $1,000,000 Par Preferred Securities | $15,126,120 |
| Net Realized Gain (Loss) | — |
| Net Change in Unrealized Appreciation/Depreciation | (573,792) |
| Purchases | — |
| Sales | — |
| Transfers In | — |
| Transfers Out | — |
| Ending Balance at October 31, 2018 | |
| $1,000,000 Par Preferred Securities | 14,552,328 |
| Total Level 3 holdings | $14,552,328 |
There was a net change of
$(573,792) in unrealized appreciation (depreciation) from Level 3 investments held as of October 31, 2018.
Page 12
See Notes to Financial Statements
First Trust Intermediate Duration
Preferred & Income Fund (FPF)
Statement of Assets and
Liabilities
October 31, 2018
| ASSETS: | |
Investments, at value (Cost $2,029,569,698) | $ 1,976,815,997 |
Cash | 6,322,039 |
Swap contracts, at value | 11,516,276 |
| Receivables: | |
Interest | 21,532,287 |
Investment securities sold | 1,268,963 |
Dividends | 587,904 |
Interest reclaims | 506,785 |
Dividend reclaims | 85,323 |
Total Assets | 2,018,635,574 |
| LIABILITIES: | |
Outstanding loan | 620,000,000 |
| Payables: | |
Due to broker | 7,169,022 |
Interest and fees on loan | 1,674,333 |
Investment advisory fees | 1,455,477 |
Administrative fees | 190,883 |
Custodian fees | 76,024 |
Shareholder reporting fees | 57,473 |
Audit and tax fees | 33,928 |
Legal fees | 8,310 |
Financial reporting fees | 2,313 |
Transfer agent fees | 1,558 |
Trustees’ fees and expenses | 1,317 |
Other liabilities | 4,416 |
Total Liabilities | 630,675,054 |
NET ASSETS | $1,387,960,520 |
| NET ASSETS consist of: | |
Paid-in capital | $ 1,443,781,239 |
Par value | 607,660 |
Accumulated distributable earnings (loss) | (56,428,379) |
NET ASSETS | $1,387,960,520 |
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share) | $22.84 |
Number of Common Shares outstanding (unlimited number of Common Shares has been authorized) | 60,765,997 |
See Notes to Financial Statements
Page 13
First Trust Intermediate Duration
Preferred & Income Fund (FPF)
Statement of Operations
For the Year Ended October
31, 2018
| INVESTMENT INCOME: | ||
Interest (net of foreign withholding tax of $839) | $ 110,934,848 | |
Dividends (net of foreign withholding tax of $69,575) | 30,653,753 | |
Total investment income | 141,588,601 | |
| EXPENSES: | ||
Investment advisory fees | 17,975,804 | |
Interest and fees on loan | 16,904,106 | |
Administrative fees | 686,480 | |
Custodian fees | 334,040 | |
Shareholder reporting fees | 209,164 | |
Legal fees | 73,483 | |
Listing expense | 53,542 | |
Audit and tax fees | 34,181 | |
Transfer agent fees | 20,505 | |
Trustees’ fees and expenses | 17,660 | |
Financial reporting fees | 9,250 | |
Other | 33,848 | |
Total expenses | 36,352,063 | |
NET INVESTMENT INCOME (LOSS) | 105,236,538 | |
| NET REALIZED AND UNREALIZED GAIN (LOSS): | ||
| Net realized gain (loss) on: | ||
Investments | (5,971,170) | |
Swap contracts | (159,110) | |
Net realized gain (loss) | (6,130,280) | |
| Net change in unrealized appreciation (depreciation) on: | ||
Investments | (146,879,192) | |
Swap contracts | 8,055,425 | |
Net change in unrealized appreciation (depreciation) | (138,823,767) | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | (144,954,047) | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $(39,717,509) | |
Page 14
See Notes to Financial Statements
First Trust Intermediate Duration
Preferred & Income Fund (FPF)
Statements of Changes in
Net Assets
| Year Ended 10/31/2018 | Year Ended 10/31/2017 | ||
| OPERATIONS: | |||
Net investment income (loss) | $ 105,236,538 | $ 113,143,853 | |
Net realized gain (loss) | (6,130,280) | 2,811,134 | |
Net change in unrealized appreciation (depreciation) | (138,823,767) | 74,197,864 | |
Net increase (decrease) in net assets resulting from operations | (39,717,509) | 190,152,851 | |
| DISTRIBUTIONS TO SHAREHOLDERS FROM: | |||
Investment operations | (103,284,084) | ||
Net investment income | (114,847,734) | ||
Return of capital | (4,271,731) | — | |
Total distributions to shareholders | (107,555,815) | (114,847,734) | |
Total increase (decrease) in net assets | (147,273,324) | 75,305,117 | |
| NET ASSETS: | |||
Beginning of period | 1,535,233,844 | 1,459,928,727 | |
End of period | $ 1,387,960,520 | $ 1,535,233,844 | |
Accumulated net investment income (loss) at end of period | $5,555,240 | ||
| COMMON SHARES: | |||
Common Shares at end of period | 60,765,997 | 60,765,997 |
See Notes to Financial Statements
Page 15
First Trust Intermediate Duration
Preferred & Income Fund (FPF)
Statement of Cash Flows
For the Year Ended October
31, 2018
| Cash flows from operating activities: | ||
Net increase (decrease) in net assets resulting from operations | $(39,717,509) | |
| Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by operating activities: | ||
Purchases of investments | (597,187,123) | |
Sales, maturities and paydown of investments | 644,995,397 | |
Net amortization/accretion of premiums/discounts on investments | 357,674 | |
Net realized gain/loss on investments | 5,971,170 | |
Net change in unrealized appreciation/depreciation on investments | 146,879,192 | |
Net change in unrealized appreciation/depreciation on swap contracts | (8,055,425) | |
Decrease in cash segregated as collateral for open swap contracts | 3,927,669 | |
| Changes in assets and liabilities: | ||
Decrease in interest receivable | 1,530,335 | |
Increase in interest reclaims receivable | (244,941) | |
Increase in dividend reclaims receivable | (55,781) | |
Decrease in dividends receivable | 290,598 | |
Increase in interest and fees payable on loan | 472,722 | |
Increase in due to broker | 7,169,022 | |
Decrease in investment advisory fees payable | (135,001) | |
Increase in audit and tax fees payable | 431 | |
Decrease in legal fees payable | (784) | |
Increase in shareholder reporting fees payable | 3,618 | |
Decrease in administrative fees payable | (62,619) | |
Increase in custodian fees payable | 69,791 | |
Increase in transfer agent fees payable | 8 | |
Decrease in Trustees’ fees and expenses payable | (206) | |
Increase in financial reporting fees payable | 1,542 | |
Increase in other liabilities payable | 2,784 | |
Cash provided by operating activities | $166,212,564 | |
| Cash flows from financing activities: | ||
Distributions to Common Shareholders from investment operations | (103,284,084) | |
Distributions to Common Shareholders from return of capital | (4,271,731) | |
Repayment of borrowing | (60,000,000) | |
Cash used in financing activities | (167,555,815) | |
Decrease in cash | (1,343,251) | |
Cash at beginning of period | 7,665,290 | |
Cash at end of period | $6,322,039 | |
| Supplemental disclosure of cash flow information: | ||
Cash paid during the period for interest and fees | $16,431,384 |
Page 16
See Notes to Financial Statements
First Trust Intermediate Duration
Preferred & Income Fund (FPF)
Financial Highlights
For a Common Share
outstanding throughout each period
| Year Ended October 31, | |||||||||
| 2018 | 2017 | 2016 | 2015 | 2014 | |||||
Net asset value, beginning of period | $ 25.26 | $ 24.03 | $ 23.69 | $ 24.42 | $ 23.51 | ||||
| Income from investment operations: | |||||||||
Net investment income (loss) | 1.73 | 1.86 | 1.94 | 1.96 | 1.85 | ||||
Net realized and unrealized gain (loss) | (2.38) | 1.26 | 0.35 | (0.58) | 0.97 | ||||
Total from investment operations | (0.65) | 3.12 | 2.29 | 1.38 | 2.82 | ||||
| Distributions paid to shareholders from: | |||||||||
Net investment income | (1.70) | (1.89) | (1.95) | (2.11) | (1.91) | ||||
Return of capital | (0.07) | — | — | — | — | ||||
Total distributions paid to Common Shareholders | (1.77) | — | — | — | — | ||||
Common Shares offering costs charged to paid-in capital | — | — | — | 0.00 (a) | — | ||||
Net asset value, end of period | $22.84 | $25.26 | $24.03 | $23.69 | $24.42 | ||||
Market value, end of period | $20.47 | $24.80 | $22.66 | $21.95 | $21.94 | ||||
Total return based on net asset value (b) | (2.23)% | 13.85% | 10.68% | 6.68% | 13.37% | ||||
Total return based on market value (b) | (10.78)% | 18.53% | 12.65% | 10.02% | 13.98% | ||||
| Ratios to average net assets/supplemental data: | |||||||||
Net assets, end of period (in 000’s) | $ 1,387,961 | $ 1,535,234 | $ 1,459,929 | $ 1,438,361 | $ 1,482,490 | ||||
Ratio of total expenses to average net assets | 2.49% | 2.09% | 1.88% | 1.76% | 1.69% | ||||
Ratio of total expenses to average net assets excluding interest expense | 1.33% | 1.31% | 1.34% | 1.34% | 1.33% | ||||
Ratio of net investment income (loss) to average net assets | 7.21% | 7.67% | 8.34% | 8.15% | 7.66% | ||||
Portfolio turnover rate | 29% | 31% | 50% | 48% | 62% | ||||
| Indebtedness: | |||||||||
Total loan outstanding (in 000’s) | $ 620,000 | $ 680,000 | $ 645,000 | $ 645,000 | $ 665,000 | ||||
Asset coverage per $1,000 of indebtedness (c) | $ 3,239 | $ 3,258 | $ 3,263 | $ 3,230 | $ 3,229 | ||||
| (a) | Amount is less than $0.01. |
| (b) | Total return is based on the combination of reinvested dividend, capital gain and return of capital distributions, if any, at prices obtained by the Dividend Reinvestment Plan, and changes in net asset value per share for net asset value returns and changes in Common Share Price for market value returns. Total returns do not reflect sales load and are not annualized for periods of less than one year. Past performance is not indicative of future results. |
| (c) | Calculated by subtracting the Fund’s total liabilities (not including the loan outstanding) from the Fund’s total assets, and dividing by the outstanding loan balance in 000’s. |
See Notes to Financial Statements
Page 17
Notes to Financial Statements
First Trust Intermediate
Duration Preferred & Income Fund (FPF)
October 31, 2018
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 (“SEC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). 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 is considered an
investment company and follows accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 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 net asset value
(“NAV”) of the Common Shares of the Fund 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 per Common Share is calculated by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses, dividends declared but
unpaid and any borrowings of the Fund), by the total number of Common Shares outstanding.
The Fund’s
investments are valued daily at market value or, in the 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, if any, 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 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 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 fair valued on the basis of valuations provided by dealers who make markets in such securities or by a third-party 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. |
Page 18
Notes to Financial Statements (Continued)
First Trust Intermediate
Duration Preferred & Income Fund (FPF)
October 31, 2018
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.
Swaps
are fair valued utilizing quotations provided by a third-party pricing service or, if the third-party 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
third-party 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 third-party 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 third-party 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:
| • | Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
| • | Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following: |
| o | Quoted prices for similar investments in active markets. |
| o | Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly. |
| o | Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates). |
| o | Inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
Page 19
Notes to Financial Statements (Continued)
First Trust Intermediate
Duration Preferred & Income Fund (FPF)
October 31, 2018
| • | Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment. |
The inputs or
methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value the Fund’s investments as of October
31, 2018, is included with the Fund’s Portfolio of Investments.
B. 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. Payment received or made by the Fund for interest rate swaps are recorded on 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 a Counterparty, the Fund will seek withdrawal of
the collateral and may incur certain costs exercising its rights 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 changes 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 interest rate risk to meet its future payments under swap agreements outstanding at October 31, 2018, 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, 2018. 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.
C. Securities
Transactions and Investment Income
Securities transactions
are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income is recorded on
the accrual basis. Amortization of premiums and the accretion of discounts are recorded using the effective interest method.
The 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.
D. 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, 2018, the Fund held restricted securities as shown in the following table that Stonebridge
Advisors LLC (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.
Page 20
Notes to Financial Statements (Continued)
First Trust Intermediate
Duration Preferred & Income Fund (FPF)
October 31, 2018
| Security | Acquisition Date | Par Amount/Shares | Current Price | Carrying Cost | Value | % of Net Assets | ||
| CoBank ACB, 3.59% | 3/29/18 | 3,557 | $655.00 | $2,409,867 | $2,329,835 | 0.17% | ||
| Compeer Financial ACA, 6.75% | 5/29/13 - 7/31/15 | 12,000 | 1,070.00 | 12,105,000 | 12,840,000 | 0.93 | ||
| Dairy Farmers of America, Inc., 7.13% | 9/15/16 | $9,000,000 | 104.75 | 9,000,000 | 9,427,500 | 0.68 | ||
| Farm Credit Bank of Texas, 6.75% | 7/16/13 - 7/17/13 | 100,000 | 106.50 | 10,020,000 | 10,650,000 | 0.77 | ||
| Fortegra Financial Corp., 8.50%, 10/15/57 | 10/12/17 - 3/12/18 | $15,300,000 | 101.75 | 15,344,525 | 15,567,750 | 1.12 | ||
| FT Real Estate Securities Co., Inc., 9.50% | 6/15/16 | 12 | 1,212,694.00 | 15,990,000 | 14,552,328 | 1.05 | ||
| Kinder Morgan GP, Inc., 6.22%,08/18/57 | 3/21/17 - 6/20/17 | 8,500 | 916.97 | 7,765,000 | 7,794,249 | 0.56 | ||
| Land O’Lakes Capital Trust I, 7.45%, 03/15/28 | 6/6/14 - 7/7/17 | $14,488,000 | 108.38 | 15,093,310 | 15,701,370 | 1.13 | ||
| Sovereign Real Estate Investment Trust, 12.00% | 6/11/13 - 3/22/16 | 15,364 | 1,117.50 | 20,231,885 | 17,169,270 | 1.24 | ||
| $107,959,587 | $106,032,302 | 7.65% |
E. Dividends and
Distributions to Shareholders
Dividends from net
investment income, if any, are declared and paid monthly by the Fund, or as the Board of Trustees may determine from time to time. Distributions of net realized capital gains earned by the Fund, if any, are
distributed at least annually.
Distributions from income
and realized capital gains are determined in accordance with federal 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
point in the future. Permanent differences incurred during the fiscal year ended October 31, 2018, resulting in book and tax accounting differences, have been reclassified at year end to reflect a decrease in
accumulated net investment income (loss) of $4,942,252 and an increase in accumulated net realized gain (loss) of $4,942,252. Accumulated distributable earnings (loss) consists of accumulated net investment income
(loss), accumulated net realized gain (loss) on investments, and unrealized appreciation (depreciation) on investments. Net assets were not affected by this reclassification.
The tax character of
distributions paid by the Fund during the fiscal years ended October 31, 2018 and 2017, was as follows:
| Distributions paid from: | 2018 | 2017 |
Ordinary income | $103,284,084 | $114,847,734 |
Capital gains | — | — |
Return of capital | 4,271,731 | — |
Page 21
Notes to Financial Statements (Continued)
First Trust Intermediate
Duration Preferred & Income Fund (FPF)
October 31, 2018
As of October 31, 2018,
the components of distributable earnings and net assets on a tax basis were as follows:
Undistributed ordinary income | $— |
Undistributed capital gains | — |
Total undistributed earnings | — |
Accumulated capital and other losses | (17,295,176) |
Net unrealized appreciation (depreciation) | (39,133,203) |
Total accumulated earnings (losses) | (56,428,379) |
Other | — |
Paid-in capital | 1,444,388,899 |
Total net assets | $1,387,960,520 |
F. 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 and 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 loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. At
October 31, 2018, the Fund had $17,295,176 of capital loss carryforwards for federal income tax purposes.
The Fund is subject to
accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. Taxable years ended 2015, 2016, 2017,
and 2018 remain open to federal and state audit. As of October 31, 2018, 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.
G. Expenses
The Fund will pay all
expenses directly related to its operations.
H. New Accounting
Pronouncements
On March 30, 2017, the
FASB issued Accounting Standards Update (“ASU”) 2017-08 “Premium Amortization on Purchased Callable Debt Securities,” which amends the amortization period for certain purchased callable debt
securities held at a premium by shortening such period to the earliest call date. The new guidance requires an entity to amortize the premium on a callable debt security within its scope to the earliest call date,
unless the guidance for considering estimated prepayments is applied. If the call option is not exercised at the earliest call date, the yield is reset to the effective yield using the payment terms of the security.
If the security has more than one call date and the premium was amortized to a call price greater than the next call price, any excess of the amortized cost basis over the amount repayable at the next call date will
be amortized to that date. If there are no other call dates, any excess of the amortized cost basis over the par amount will be amortized to maturity. Discounts on purchased callable debt securities will continue to
be amortized to the security’s maturity date. ASU 2017-08 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Earlier
adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the ASU in an interim period, any adjustments must be reflected as of the beginning of the fiscal year that
includes that interim period. Management is still assessing the impact of the adoption of ASU 2017-08 on the financial statements but does not expect it to have a material impact.
On August 28, 2018, the
FASB issued ASU 2018-13, “Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” which amends the fair value measurement disclosure requirements of ASC 820. The
amendments of ASU 2018-13 include new, eliminated, and modified disclosure requirements of ASC 820. In addition, the amendments clarify that materiality is an appropriate consideration of entities when evaluating
disclosure requirements. The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption is permitted for any eliminated or modified disclosures upon issuance
of this ASU. The Fund has early adopted ASU 2018-13 for these financial statements, which did not result in a material impact.
Page 22
Notes to Financial Statements (Continued)
First Trust Intermediate
Duration Preferred & Income Fund (FPF)
October 31, 2018
3. Investment
Advisory Fee, Affiliated Transactions and Other Fee Arrangements
First Trust, the
investment advisor to the Fund, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for the ongoing monitoring of the Fund’s investment portfolio, managing the Fund’s business affairs and
providing certain administrative services necessary for the management of the Fund. For these 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.
First Trust Capital
Partners, LLC, an affiliate of First Trust, owns a 51% ownership interest in Stonebridge.
Brown Brothers Harriman
& Co. (“BBH”) serves as the Fund’s administrator, fund accountant and custodian in accordance with certain fee arrangements. As administrator and fund accountant, BBH is responsible for providing
certain administrative and accounting services to the Fund, including maintaining the Fund’s books of account, records of the Fund’s securities transactions, and certain other books and records. As
custodian, BBH is responsible for custody of the Fund’s assets.
Computershare, Inc.
(“Computershare”) serves as the Fund’s transfer agent in accordance with certain fee arrangements. As transfer agent, Computershare is responsible for maintaining shareholder records for the Fund.
Each Trustee who is not
an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund
Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, 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. Independent 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 fiscal year ended
October 31, 2018, the cost of purchases and proceeds from sales of investments, excluding short term investments and in-kind transactions, were $595,096,695 and $638,050,717, respectively.
5. Derivative
Transactions
The following table
presents the type of derivatives held by the Fund at October 31, 2018, 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 Instrument | Risk Exposure | Statement of Assets and Liabilities Location | Value | Statement of Assets and Liabilities Location | Value | |||||
| Interest Rate Swap Agreements | Interest Rate Risk | Swap contracts, at value | $11,516,276 | 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, 2018, on derivative instruments, as well as the primary
underlying risk exposure associated with each instrument.
| Statement of Operations Location | |
| Interest Rate Risk Exposure | |
| Net realized gain (loss) on swap contracts | $(159,110) |
| Net change in unrealized appreciation (depreciation) on swap contracts |