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: April 30, 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)
SEMI-ANNUAL REPORT
FOR THE SIX MONTHS ENDED
APRIL 30, 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)
SEMI-ANNUAL REPORT
APRIL 30, 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
Additional Information....................................................... 26
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 its 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
http://www.ftportfolios.com or speak with your financial advisor. Investment
returns, net asset value and common share price will fluctuate and Fund shares,
when sold, may be worth more or less than their original cost.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment 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)
SEMI-ANNUAL LETTER FROM THE CHAIRMAN AND CEO
APRIL 30, 2015
Dear Shareholders:
Thank you for your investment in First Trust Intermediate Duration Preferred &
Income Fund.
First Trust Advisors L.P. ("First Trust") is pleased to provide you with the
semi-annual report which contains detailed information about your investment for
the six months ended April 30, 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, for the six months covered
by this report, some economic and global factors, including the continued
conflict in the Middle East and a sharp decline in oil prices, created
volatility in the U.S. and global markets. Another factor that has impacted
markets is the fact that many economists are predicting the Federal Reserve will
begin to raise interest rates this year.
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"
APRIL 30, 2015 (UNAUDITED)
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FUND STATISTICS
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Symbol on New York Stock Exchange FPF
Common Share Price $22.99
Common Share Net Asset Value ("NAV") $24.43
Premium (Discount) to NAV (5.89)%
Net Assets Applicable to Common Shares $1,483,186,074
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) 8.48%
Current Distribution Rate on NAV (2) 7.98%
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COMMON SHARE PRICE & NAV (WEEKLY CLOSING PRICE)
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NAV Common Share Price
4/14 22.67 24.44
22.44 24.42
22.80 24.53
22.57 24.59
5/14 22.8 24.73
22.34 24.63
22.53 24.69
22.83 24.79
6/14 22.98 24.83
22.26 24.71
22.53 24.72
22.36 24.69
7/14 22.25 24.77
21.75 24.39
21.77 24.29
22.06 24.53
22.09 24.65
8/14 22.45 24.74
22.31 24.52
21.83 24.42
21.56 24.54
9/14 21.45 24.40
21.70 24.25
21.45 24.25
21.59 24.16
21.68 24.33
10/14 21.94 24.42
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
21.80 23.92
22.19 23.97
22.08 23.96
22.39 24.13
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
22.82 24.48
4/15 22.99 24.43
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PERFORMANCE
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Average Annual Total Returns
6 Months Ended 1 Year Ended Inception (5/23/13)
4/30/15 4/30/15 to 4/30/15
FUND PERFORMANCE (3)
NAV 5.25% 9.61% 9.89%
Market Value 10.25% 11.20% 4.01%
INDEX PERFORMANCE
BofA Merrill Lynch Fixed Rate
Preferred Securities Index 4.47% 8.72% 5.12%
BofA Merrill Lynch U.S. Capital
Securities Index 3.54% 7.03% 6.60%
Blended Index(4) 4.00% 7.87% 5.86%
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(1) Most recent distribution paid or declared through 4/30/2015. 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 4/30/15. 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)
APRIL 30, 2015 (UNAUDITED)
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% OF TOTAL
INDUSTRY CLASSIFICATION INVESTMENTS
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Banks 44.0%
Insurance 28.8
Diversified Financial Services 5.7
Capital Markets 5.3
Diversified Telecommunication Services 3.0
Electric Utilities 2.8
Real Estate Investment Trusts 2.8
Food Products 2.5
Multi-Utilities 1.6
Oil, Gas & Consumable Fuels 1.4
Independent Power Producers and
Renewable Electricity Producers 1.2
Consumer Finance 0.5
Energy Equipment & Services 0.4
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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%
Enel SpA 2.0
Fuerstenberg Capital International Sarl & Cie SECS 2.0
QBE Capital Funding III Ltd. 1.8
American International Group, Inc. 1.7
Banco Bilbao Vizcaya Argentaria S.A. 1.6
Cooperatieve Centrale Raiffeisen-Boerenleenbank BA 1.5
Dresdner Funding Trust I 1.5
Friends Life Holdings PLC 1.5
Aviva PLC 1.4
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Total 17.1%
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% OF TOTAL
CREDIT QUALITY (5) INVESTMENTS
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A+ 1.7%
A 1.2
A- 3.6
BBB+ 12.8
BBB 14.6
BBB- 27.1
BB+ 15.4
BB 12.2
BB- 6.6
B+ 2.1
B- 0.1
NR 2.6
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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)
SEMI-ANNUAL REPORT
APRIL 30, 2015 (UNAUDITED)
SUB-ADVISOR
Stonebridge Advisors LLC ("Stonebridge" or the "Sub-Advisor") is the Sub-Advisor
to First Trust Intermediate Duration Preferred & Income Fund (the "Fund" or
"FPF") and is a registered investment advisor based in Wilton, Connecticut.
Stonebridge specializes in the management of preferred securities and North
American equity income securities.
PORTFOLIO MANAGEMENT TEAM
SCOTT T. FLEMING - PRESIDENT AND CIO OF STONEBRIDGE ADVISORS LLC
ALLEN SHEPARD, PH.D. - VICE PRESIDENT, SENIOR RISK ANALYST AND
PORTFOLIO ANALYTICS
ROBERT WOLF - VICE PRESIDENT, PORTFOLIO MANAGER AND SENIOR CREDIT ANALYST
DANIELLE SALTERS, CFA - ASSOCIATE PORTFOLIO MANAGER AND CREDIT ANALYST
COMMENTARY
MARKET RECAP
The preferred and hybrid markets experienced strong performance during the six
months ended April 30, 2015. This performance was driven by increasingly
accommodative policy amongst central banks around the world, and supported by
global interest rates that remain near historic lows. The Federal Reserve
continues to be the largest driver of volatility, followed by concerns of
slowing growth around the world, geopolitical risks, and commodity prices. These
macroeconomic concerns have been mitigated by quantitative easing around the
world by central banks and increasing investor demand for yield in conjunction
with improving credit fundamentals and market technicals within the preferred
and hybrid space. The retail preferred securities market, as measured by the
BofA Merrill Lynch Fixed Rate Preferred Securities Index ("P0P1"), earned a
total return of 4.47% during the period while the institutional market, as
measured by the BofA Merrill Lynch U.S. Capital Securities Index ("C0CS"),
earned 3.54%.
The preferred and hybrid markets continue to experience strong market technicals
and fundamentals within financials - the predominant issuers of preferreds. Low
rates, particularly in Europe, have caused increased European investor
participation in U.S. dollar ("USD") deals, driven by absolute yield
differentials and a strengthening U.S. dollar. Short-term volatility arose from
long-awaited issuance during the quarter, but the market was able to efficiently
digest the supply. New issuance has been met with very strong demand as buyers
have been mostly long-term investors in search of yield and attractive
structures - many of which offer a component of rate protection. Overall, the
focus will remain on the Federal Reserve; however, the slow but growing U.S.
economy, stable to improving corporate credit fundamentals and limited supply
continue to be supportive of the preferred and hybrid markets.
PERFORMANCE ANALYSIS
For the six-month period ending April 30, 2015, the total return on FPF's market
price was 10.25% and the total return on net asset value ("NAV") was 5.25%. Both
the market price and NAV returns outperformed that of the blended index, a 50%
weighting in both the P0P1 and C0CS, which had a total return for the period of
4.00%.
While the market price outperformance was attributable to the discount on the
Fund being reduced from approximately 10.2% to 5.9% during the period, the
primary reason for the Fund's NAV outperformance of the blended index was the
use of leverage, which was close to 31% on April 30, 2015. Leverage added
approximately 1.22% to the total return over the six-month period. The Fund uses
leverage because its managers believe that, over time, leverage can enhance
total return for common shareholders. However, the use of leverage can also
increase the volatility of the NAV and therefore the share price.
The effective duration on the portfolio as of April 30, 2015 was 4.11 years
without leverage and 6.00 years with leverage, while the blended index's
duration was 5.32 years. The Fund's relatively low duration is due to a
combination of a continued overweight in variable-rate securities and other
lower duration securities, along with a hedge executed in January 2015 to fix
approximately 25% of the leverage for 10 years. This conservative strategy
hindered the Fund's relative performance during the period as longer duration
securities continue to be the best performers. However, security selection
offset this potential underperformance.
Page 4
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PORTFOLIO COMMENTARY (CONTINUED)
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FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
SEMI-ANNUAL REPORT
APRIL 30, 2015 (UNAUDITED)
MARKET AND FUND OUTLOOK
Historically low interest rates globally, relatively attractive yields on
preferreds and hybrids, and positive issuer credit fundamentals should continue
to support the preferred and hybrid market in 2015, in our opinion.
Long-term bond yields in developed economies are at historically low levels due
to accommodative central bank actions and tepid global economic activity.
Foreign demand for relatively attractive U.S. Treasuries has kept long-term bond
yields low, which has increased the attractiveness of USD preferred and hybrid
securities. Yield spreads of preferred and hybrid securities relative to both
U.S. Treasuries and other credit spread products remain wider than historical
averages, which should help drive positive performance in the asset class.
Additionally, while preferred and hybrid credit spreads in general have
tightened due to the improvement and stabilization of issuers' credit quality,
we believe that credit spreads have room to tighten further as fundamentals
continue to improve.
Although current market conditions are favorable for preferreds and hybrids, we
have chosen to take a conservative stance as it relates to potential interest
rate risk by increasing exposure to less interest rate sensitive securities. We
currently favor structures with good rate protection and high current yields,
such as 10 year non-call fixed-to-floats with high reset rates. Fixed-rate
securities with high current yields, in which we believe the issuer could
refinance at a substantially lower cost of capital and that have attractive
yield-to-calls (varies depending on the call date), are also attractive. We also
like legacy tier 1 capital securities issued by banks that are likely to be
called in the next few years that are trading at discounts or have attractive
yields. 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 distributing dividend income comparable to the blended index yield.
Page 5
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS
APRIL 30, 2015 (UNAUDITED)
STATED STATED
SHARES DESCRIPTION RATE MATURITY VALUE
---------------- ------------------------------------------------------- ---------- ---------- --------------
$25 PAR PREFERRED SECURITIES - 35.6%
BANKS - 13.6%
100,000 Bank of America Corp., Series W (a).................... 6.63% (b) $ 2,604,250
231,955 Bank of America Corp., Series Y (a).................... 6.50% (b) 5,984,439
29,216 Barclays Bank PLC, Series 5............................ 8.13% (b) 763,706
702,419 Citigroup Capital XIII (a) (c)......................... 7.88% 10/30/40 18,185,628
200,000 Citigroup, Inc., Series J (a) (c)...................... 7.13% (b) 5,548,000
650,000 Citigroup, Inc., Series K (a) (c)...................... 6.88% (b) 17,693,000
581,887 Fifth Third Bancorp, Series I (a) (c).................. 6.63% (b) 16,368,481
288,318 FNB Corp. (a) (c)...................................... 7.25% (b) 8,061,371
400,000 GMAC Capital Trust I, Series 2 (a) (c)................. 8.13% 02/15/40 10,512,000
19,476 HSBC USA, Inc., Series F (d)........................... 3.50% (b) 452,233
196,862 HSBC USA, Inc., Series H (a)........................... 6.50% (b) 5,016,044
226,235 ING Groep N.V. (a)..................................... 6.20% (b) 5,716,958
500,000 ING Groep N.V. (a)..................................... 6.38% (b) 12,720,000
48,373 ING Groep N.V.......................................... 7.05% (b) 1,237,865
199,706 ING Groep N.V.......................................... 7.38% (b) 5,108,479
234,000 JPMorgan Chase & Co., Series T (a)..................... 6.13% (b) 5,903,820
250,000 JPMorgan Chase & Co., Series W (a)..................... 6.30% (b) 6,455,000
130,000 JPMorgan Chase & Co., Series Y (a)..................... 6.70% (b) 3,490,500
198,230 MB Financial, Inc., Series A (a) (e)................... 8.00% (b) 5,342,497
220,000 PNC Financial Services Group, Inc., Series P (a) (c)... 6.13% (b) 6,173,200
200,000 Royal Bank of Scotland Group PLC, Series M (a)......... 6.40% (b) 5,006,000
233,786 Royal Bank of Scotland Group PLC, Series N (a)......... 6.35% (b) 5,846,988
200,000 Royal Bank of Scotland Group PLC, Series P (a)......... 6.25% (b) 4,960,000
287,714 Royal Bank of Scotland Group PLC, Series R (a)......... 6.13% (b) 7,103,659
424,591 Royal Bank of Scotland Group PLC, Series S (a)......... 6.60% (b) 10,627,513
291,029 Santander Finance Preferred SAU., Series 6 (a) (d)..... 4.00% (b) 6,655,833
165,000 Texas Capital Bancshares, Inc., Series A (a)........... 6.50% (b) 4,187,700
230,956 Wells Fargo & Co. (a) (c).............................. 6.63% (b) 6,494,483
182,000 Wells Fargo & Co., Series J (a)........................ 8.00% (b) 5,272,540
67,992 Zions Bancorporation, Series G (a) (c)................. 6.30% (b) 1,824,905
--------------
201,317,092
--------------
CAPITAL MARKETS - 4.5%
119,601 Apollo Investment Corp. (a)............................ 6.88% 07/15/43 3,092,882
46,400 Ares Capital Corp...................................... 7.75% 10/15/40 1,193,408
350,000 Deutsche Bank Contingent Capital Trust II (a).......... 6.55% (b) 9,383,500
11,453 Deutsche Bank Contingent Capital Trust V............... 8.05% (b) 328,472
250,000 Goldman Sachs Group, Inc., Series K (a) (c)............ 6.38% (b) 6,550,000
226,622 Morgan Stanley Capital Trust VI (a).................... 6.60% 02/01/46 5,685,946
214,051 Morgan Stanley Capital Trust VII (a)................... 6.60% 10/15/66 5,374,821
244,000 Morgan Stanley, Series E (a) (c)....................... 7.13% (b) 6,917,400
350,000 Morgan Stanley, Series F (a) (c)....................... 6.88% (b) 9,590,000
220,000 Morgan Stanley, Series G (a)........................... 6.63% (b) 5,742,000
65,292 Raymond James Financial, Inc........................... 6.90% 03/15/42 1,761,578
414,385 State Street Corp., Series D (a) (c)................... 5.90% (b) 11,159,388
--------------
66,779,395
--------------
CONSUMER FINANCE - 0.6%
200,000 Capital One Financial Corp., Series C (a).............. 6.25% (b) 5,136,000
138,802 Capital One Financial Corp., Series D (a).............. 6.70% (b) 3,728,222
--------------
8,864,222
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Page 6 See Notes to Financial Statements
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2015 (UNAUDITED)
STATED STATED
SHARES DESCRIPTION RATE MATURITY VALUE
---------------- ------------------------------------------------------- ---------- ---------- --------------
$25 PAR PREFERRED SECURITIES (CONTINUED)
DIVERSIFIED FINANCIAL SERVICES - 3.5%
21,187 Allied Capital Corp.................................... 6.88% 04/15/47 $ 540,057
110,360 Countrywide Capital IV (a)............................. 6.75% 04/01/33 2,814,180
535,567 Countrywide Capital V (a).............................. 7.00% 11/01/36 13,726,582
40,000 KKR Financial Holdings LLC............................. 8.38% 11/15/41 1,098,400
345,164 KKR Financial Holdings LLC, Series A (a)............... 7.38% (b) 8,967,361
500,000 RBS Capital Funding Trust V, Series E (a).............. 5.90% (b) 12,315,000
19,582 RBS Capital Funding Trust VI, Series F................. 6.25% (b) 487,787
504,065 RBS Capital Funding Trust VII, Series G (a)............ 6.08% (b) 12,546,178
--------------
52,495,545
--------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.5%
27,223 Qwest Corp............................................. 7.38% 06/01/51 713,787
251,594 Qwest Corp. (a)........................................ 7.50% 09/15/51 6,692,400
350,000 Qwest Corp. (a)........................................ 6.13% 06/01/53 8,844,500
205,150 Qwest Corp. (a)........................................ 6.88% 10/01/54 5,465,196
--------------
21,715,883
--------------
ELECTRIC UTILITIES - 0.1%
38,164 SCE Trust III (c)...................................... 5.75% (b) 1,036,153
--------------
FOOD PRODUCTS - 2.7%
945,538 CHS, Inc., Series 2 (a) (c)............................ 7.10% (b) 25,236,409
600,000 CHS, Inc., Series 3 (a) (c)............................ 6.75% (b) 15,672,000
1,012 CHS, Inc., Series 4.................................... 7.50% (b) 28,205
--------------
40,936,614
--------------
INSURANCE - 5.4%
150,000 Allstate Corp., Series E (a)........................... 6.63% (b) 4,062,000
333,141 Aspen Insurance Holdings Ltd. (a) (c).................. 5.95% (b) 8,571,718
203,483 Aspen Insurance Holdings Ltd........................... 7.25% (b) 5,400,439
193,516 Aspen Insurance Holdings Ltd. (c)...................... 7.40% (b) 5,079,795
69,186 Aviva PLC.............................................. 8.25% 12/01/41 1,912,301
150,515 Axis Capital Holdings Ltd., Series C................... 6.88% (b) 4,026,276
264,683 Endurance Specialty Holdings Ltd., Series B............ 7.50% (b) 6,998,219
603,315 Hartford Financial Services Group, Inc. (a) (c)........ 7.88% 04/15/42 18,871,693
94,645 Maiden Holdings North America Ltd...................... 8.25% 06/15/41 2,505,253
400,000 MetLife, Inc., Series B (a)............................ 6.50% (b) 10,272,000
197,552 Montpelier Re Holdings Ltd., Series A (a).............. 8.88% (b) 5,154,132
118,028 PartnerRe Ltd., Series E............................... 7.25% (b) 3,127,742
171,311 Reinsurance Group of America, Inc.,
Series D (a) (c).................................... 6.20% 09/15/42 4,911,486
--------------
80,893,054
--------------
MULTI-UTILITIES - 0.9%
473,173 Integrys Energy Group, Inc. (a) (c).................... 6.00% 08/01/73 12,950,745
--------------
REAL ESTATE INVESTMENT TRUSTS - 2.8%
250,000 American Realty Capital Properties, Inc.,
Series F (a)........................................ 6.70% (b) 6,002,500
200,000 Digital Realty Trust, Inc., Series E (a)............... 7.00% (b) 5,142,000
219,385 DuPont Fabros Technology, Inc., Series A (a)........... 7.88% (b) 5,651,357
62,848 EPR Properties, Series F............................... 6.63% (b) 1,624,621
178,774 Equity Commonwealth, Series E.......................... 7.25% (b) 4,517,619
See Notes to Financial Statements Page 7
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2015 (UNAUDITED)
STATED STATED
SHARES DESCRIPTION RATE MATURITY VALUE
---------------- ------------------------------------------------------- ---------- ---------- --------------
$25 PAR PREFERRED SECURITIES (CONTINUED)
REAL ESTATE INVESTMENT TRUSTS (CONTINUED)
150,541 Kilroy Realty Corp., Series G (a)...................... 6.88% (b) $ 3,980,304
300,000 National Retail Properties, Inc., Series D (a)......... 6.63% (b) 7,845,000
99,794 Taubman Centers, Inc., Series J (a).................... 6.50% (b) 2,567,700
71,356 Taubman Centers, Inc., Series K (a).................... 6.25% (b) 1,822,432
78,000 Vornado Realty Trust, Series J......................... 6.88% (b) 2,016,222
--------------
41,169,755
--------------
TOTAL $25 PAR PREFERRED SECURITIES............................................... 528,158,458
(Cost $509,987,089) --------------
$50 PAR PREFERRED SECURITIES - 0.1%
CONSUMER FINANCE - 0.1%
38,465 SLM Corp., Series A.................................... 6.97% (b) 1,896,324
--------------
TOTAL $50 PAR PREFERRED SECURITIES............................................... 1,896,324
(Cost $1,889,695) --------------
$100 PAR PREFERRED SECURITIES - 3.5%
BANKS - 3.4%
80,000 AgriBank FCB (c) (e)................................... 6.88% (b) 8,372,504
179,000 CoBank ACB, Series F (a) (c)........................... 6.25% (b) 18,498,540
82,220 CoBank ACB, Series G (a)............................... 6.13% (b) 7,744,097
60,000 CoBank ACB, Series H (a) (c)........................... 6.20% (b) 6,165,000
100,000 Farm Credit Bank of Texas (a) (c) (e) (f).............. 6.75% (b) 10,359,380
--------------
51,139,521
--------------
INSURANCE - 0.1%
17,350 Principal Financial Group, Inc., Series A (c).......... 5.56% (b) 1,737,169
--------------
TOTAL $100 PAR PREFERRED SECURITIES.............................................. 52,876,690
(Cost $52,982,437) --------------
$1,000 PAR PREFERRED SECURITIES - 3.9%
BANKS - 0.7%
10,000 AgStar Financial Services ACA (a) (c) (e) (f).......... 6.75% (b) 10,455,625
--------------
DIVERSIFIED FINANCIAL SERVICES - 0.3%
4,000 Pitney Bowes International Holdings, Inc.,
Series F (a) (e) (f)................................ 6.13% (b) 4,152,500
--------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.4%
16,000 Centaur Funding Corp. (e) (f).......................... 9.08% 04/21/20 20,040,000
--------------
INSURANCE - 0.3 %
5,000 XLIT Ltd. (d).......................................... 3.40% (b) 4,139,062
--------------
REAL ESTATE INVESTMENT TRUSTS - 1.2%
14,000 Sovereign Real Estate Investment Trust (e) (f)......... 12.00% (b) 18,322,500
--------------
TOTAL $1,000 PAR PREFERRED SECURITIES............................................ 57,109,687
(Cost $57,090,625) --------------
Page 8 See Notes to Financial Statements
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2015 (UNAUDITED)
STATED STATED
PAR AMOUNT DESCRIPTION RATE MATURITY VALUE
---------------- ------------------------------------------------------- ---------- ---------- --------------
CAPITAL PREFERRED SECURITIES - 97.5%
BANKS - 43.5%
$ 31,000,000 Banco Bilbao Vizcaya Argentaria S.A. (a) (c)........... 9.00% (b) $ 33,596,250
20,000,000 Banco do Brasil S.A. (c) (g)........................... 9.00% (b) 18,600,000
3,430,000 Banco do Brasil S.A. (c)............................... 9.25% (b) 3,365,859
17,500,000 Bank of America Corp., Series Z (a) (c)................ 6.50% (b) 18,637,500
9,940,000 Barclays Bank PLC (a) (g).............................. 10.18% 06/12/21 13,449,406
2,560,000 Barclays Bank PLC (a).................................. 10.18% 06/12/21 3,463,831
15,000,000 Barclays Bank PLC (a) (c).............................. 7.75% 04/10/23 16,668,750
10,000,000 Barclays PLC (a) (c)................................... 6.63% (b) 9,935,780
10,000,000 Barclays PLC (a) (c)................................... 8.25% (b) 10,671,980
3,510,000 BBVA Global Finance Ltd. (a)........................... 7.00% 12/01/25 4,030,772
16,750,000 BBVA International Preferred SAU (a) (c)............... 5.92% (b) 17,403,250
10,000,000 BNP Paribas S.A. (a) (c) (g)........................... 7.20% (b) 12,050,000
7,500,000 BPCE S.A. (a) (c) (g).................................. 12.50% (b) 10,214,100
3,000,000 BPCE S.A. (a).......................................... 13.00% (b) 3,150,000
800,000 Citigroup, Inc., Series E (c) (e)...................... 8.40% (b) 915,600
8,500,000 Citigroup, Inc., Series O (a) (c)...................... 5.88% (b) 8,574,375
8,000,000 Citigroup, Inc., Series P (c).......................... 5.95% (b) 7,967,496
14,500,000 Citizens Financial Group, Inc. (c) (g)................. 5.50% (b) 14,373,125
4,000,000 Commerzbank AG......................................... 8.13% 09/19/23 4,845,000
4,000,000 Cooperatieve Centrale Raiffeisen-
Boerenleenbank BA (c)............................... 8.38% (b) 4,250,016
15,000,000 Cooperatieve Centrale Raiffeisen-
Boerenleenbank BA (a) (c)........................... 8.40% (b) 16,537,500
25,104,000 Cooperatieve Centrale Raiffeisen-
Boerenleenbank BA (a) (c) (g)....................... 11.00% (b) 32,321,400
3,033,000 Countrywide Capital III, Series B...................... 8.05% 06/15/27 3,854,142
5,000,000 Credit Agricole S.A. (a) (c) (g)....................... 8.13% 09/19/33 5,662,500
5,975,000 Credit Agricole S.A. (a) (c)........................... 8.38% (b) 7,090,831
11,000,000 Credit Agricole S.A. (a) (c) (g)....................... 8.38% (b) 13,054,250
25,000,000 Dresdner Funding Trust I (a) (g)....................... 8.15% 06/30/31 31,406,250
40,694,000 Fuerstenberg Capital International
Sarl & Cie SECS (a) (c)............................. 10.25% (b) 41,355,278
1,464,000 HSBC Capital Funding L.P. (c).......................... 10.18% (b) 2,239,920
3,000,000 HSBC Holdings PLC (c).................................. 6.38% (b) 3,105,000
2,000,000 HSBC USA Capital Trust I (g)........................... 7.81% 12/15/26 2,008,302
4,000,000 HSBC USA Capital Trust II (a) (e) (f).................. 8.38% 05/15/27 4,036,780
1,500,000 HSBC USA Capital Trust III............................. 7.75% 11/15/26 1,506,636
4,000,000 ING Groep N.V. (c)..................................... 6.00% (b) 4,002,500
4,000,000 ING Groep N.V. (c)..................................... 6.50% (b) 3,997,500
21,500,000 JPMorgan Chase & Co., Series S (a) (c)................. 6.75% (b) 23,591,950
10,000,000 JPMorgan Chase & Co., Series Z (c)..................... 5.30% (b) 10,012,500
26,000,000 KBC Bank N.V. (a) (c).................................. 8.00% 01/25/23 29,022,500
10,000,000 LBG Capital No.1 PLC (a) (c) (g)....................... 8.00% (b) 10,950,000
10,500,000 LBG Capital No.1 PLC (a) (c)........................... 8.50% (b) 11,734,286
13,000,000 Lloyds Bank PLC (a) (c)................................ 12.00% (b) 18,687,500
19,500,000 Lloyds Bank PLC (a) (c) (g)............................ 12.00% (b) 28,031,250
5,000,000 M&T Bank Corp., Series E (a) (c)....................... 6.45% (b) 5,425,000
10,754,000 Natixis (a) (c) (g).................................... 10.00% (b) 12,851,030
5,575,000 Natixis S.A. (a) (c)................................... 10.00% (b) 6,662,125
5,990,000 NIBC Bank N.V. (a)..................................... 7.63% (b) 6,095,496
See Notes to Financial Statements Page 9
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2015 (UNAUDITED)
STATED STATED
PAR AMOUNT DESCRIPTION RATE MATURITY VALUE
---------------- ------------------------------------------------------- ---------- ---------- --------------
CAPITAL PREFERRED SECURITIES (CONTINUED)
BANKS (CONTINUED)
$ 19,700,000 Royal Bank of Scotland Group PLC (a) (c)............... 7.65% (b) $ 25,216,000
10,000,000 Royal Bank of Scotland PLC (The) (a) (c)............... 9.50% 03/16/22 11,245,970
13,980,000 SMFG Preferred Capital USD 3 Ltd. (a) (c) (g).......... 9.50% (b) 17,013,660
9,500,000 Societe Generale S.A. (a) (c).......................... 8.25% (b) 10,117,500
9,500,000 Wells Fargo & Co., Series U (a) (c).................... 5.88% (b) 10,105,625
6,800,000 Zions Bancorporation (a) (c)........................... 5.80% (b) 6,582,400
12,000,000 Zions Bancorporation, Series J (a) (c)................. 7.20% (b) 12,954,000
--------------
644,640,671
--------------
CAPITAL MARKETS - 3.0%
5,000,000 Bank of New York Mellon Corp., Series E (c)............ 4.95% (b) 5,005,080
3,500,000 Charles Schwab Corp. (c)............................... 7.00% (b) 4,138,750
10,000,000 Credit Suisse Group Guernsey I Ltd. (c)................ 7.88% 02/24/41 10,606,250
2,500,000 Deutsche Bank Capital Trust IV (c) (e)................. 4.59% (b) 2,487,500
10,000,000 Goldman Sachs Group, Inc., Series M (c)................ 5.38% (b) 10,002,500
10,000,000 UBS AG (a)............................................. 7.63% 08/17/22 12,034,500
--------------
44,274,580
--------------
DIVERSIFIED FINANCIAL SERVICES - 5.1%
20,000,000 General Electric Capital Corp., Series A (a) (c)....... 7.13% (b) 23,325,000
10,000,000 General Electric Capital Corp., Series B (a) (c)....... 6.25% (b) 11,250,000
31,040,000 Glen Meadow Pass Through Trust (a) (c) (g)............. 6.51% 02/12/67 29,177,600
11,400,000 Macquarie PMI LLC...................................... 8.38% (b) 11,816,111
--------------
75,568,711
--------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.4%
19,650,000 Koninklijke KPN N.V. (a) (c) (g)....................... 7.00% 03/28/73 21,246,562
--------------
ELECTRIC UTILITIES - 4.0%
34,750,000 Enel SpA (a) (c) (g)................................... 8.75% 09/24/73 41,995,375
13,000,000 PPL Capital Funding Inc., Series A (a) (c)............. 6.70% 03/30/67 12,034,724
4,179,000 Southern California Edison Co., Series E (a) (c)....... 6.25% (b) 4,705,847
--------------
58,735,946
--------------
ENERGY EQUIPMENT & SERVICES - 0.5%
9,650,000 DCP Midstream LLC (c) (g).............................. 5.85% 05/21/43 7,334,000
--------------
FOOD PRODUCTS - 0.8%
11,265,000 Land O'Lakes Capital Trust I (a) (g)................... 7.45% 03/15/28 12,250,688
--------------
INDEPENDENT POWER AND RENEWABLE ELECTRICITY
PRODUCERS - 1.7%
12,150,000 AES Gener S.A. (c)..................................... 8.38% 12/18/73 13,425,750
9,850,000 AES Gener S.A. (c) (g)................................. 8.38% 12/18/73 10,884,250
--------------
24,310,000
--------------
INSURANCE - 34.2%
2,500,000 Aegon N.V. (a) (d)..................................... 14% (b) 2,135,677
25,320,000 American International Group, Inc. (a) (c)............. 8.18% 05/15/58 35,194,800
39,660,000 Aquarius + Investments PLC for Swiss
Reinsurance Co., Ltd. (a) (c)....................... 8.25% (b) 44,419,200
Page 10 See Notes to Financial Statements
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2015 (UNAUDITED)
STATED STATED
PAR AMOUNT DESCRIPTION RATE MATURITY VALUE
---------------- ------------------------------------------------------- ---------- ---------- --------------
CAPITAL PREFERRED SECURITIES (CONTINUED)
INSURANCE (CONTINUED)
$ 29,000,000 Assured Guaranty Municipal Holdings, Inc.
(a) (c) (g)......................................... 6.40% 12/15/66 $ 24,360,000
4,930,000 Assured Guaranty US Holdings, Series A (a) (c)......... 6.40% 12/15/66 4,165,850
27,000,000 Aviva PLC (a).......................................... 8.25% (b) 30,289,275
6,800,000 AXA S.A. (a)........................................... 8.60% 12/15/30 9,533,471
4,000,000 AXA S.A. (c) (g)....................................... 6.46% (b) 4,262,400
17,030,000 Catlin Insurance Co., Ltd. (c) (g)..................... 7.25% (b) 16,050,775
15,050,000 Cloverie PLC for Zurich Insurance Co., Ltd. (a) (c).... 8.25% (b) 17,271,756
7,000,000 CNP Assurances (a) (c)................................. 6.88% (b) 7,795,025
10,600,000 CNP Assurances (a) (c)................................. 7.50% (b) 11,867,421
12,500,000 Dai-ichi Life Insurance Co., Ltd. (The) (a) (c) (g).... 7.25% (b) 15,050,575
27,375,000 Friends Life Holdings PLC (a) (c)...................... 7.88% (b) 31,101,969
11,782,000 Hartford Financial Services Group, Inc. (a) (c)........ 8.13% 06/15/38 13,369,625
15,000,000 La Mondiale SAM (a) (c)................................ 7.63% (b) 16,741,875
14,000,000 Liberty Mutual Group, Inc. (a) (c) (g)................. 7.00% 03/15/37 14,507,500
5,492,000 Liberty Mutual Group, Inc. (a) (g)..................... 7.80% 03/15/37 6,783,169
2,000,000 Liberty Mutual Group, Inc. (c)......................... 10.75% 06/15/58 3,070,000
11,000,000 MetLife Capital Trust X (a) (c) (g).................... 9.25% 04/08/38 16,472,500
17,180,000 MetLife, Inc. (a) (c).................................. 10.75% 08/01/39 28,862,400
25,000,000 Mitsui Sumitomo Insurance Co., Ltd. (a) (c) (g)........ 7.00% 03/15/72 30,125,000
3,000,000 Nationwide Financial Services Capital Trust (a) (e).... 7.90% 03/01/37 3,416,235
19,700,000 Nationwide Financial Services, Inc. (a)................ 6.75% 05/15/37 21,079,000
20,265,000 Prudential Financial, Inc. (a) (c)..................... 8.88% 06/15/38 23,821,507
33,520,000 QBE Capital Funding III Ltd. (a) (c) (g)............... 7.25% 05/24/41 37,626,200
25,000,000 Sirius International Group, Ltd. (a) (c) (e) (f)....... 7.51% (b) 26,312,500
3,000,000 Sumitomo Life Insurance Co. (a) (c) (g)................ 6.50% 09/20/73 3,568,884
8,000,000 Swiss Re Capital I L.P. (a) (c) (g).................... 6.85% (b) 8,380,000
--------------
507,634,589
--------------
MULTI-UTILITIES - 1.3%
18,278,000 RWE AG (a) (c)......................................... 7.00% 10/12/72 19,751,207
--------------
OIL, GAS & CONSUMABLE FUELS - 2.0%
5,000,000 BG Energy Capital PLC (a) (c).......................... 6.50% 11/30/72 5,465,495
13,000,000 Enbridge Energy Partners L.P. (a) (c).................. 8.05% 10/01/37 13,552,500
10,000,000 Enterprise Products Operating LLC,
Series B (a) (c).................................... 7.03% 01/15/68 10,862,500
--------------
29,880,495
--------------
TOTAL CAPITAL PREFERRED SECURITIES............................................... 1,445,627,449
(Cost $1,410,189,192) --------------
See Notes to Financial Statements Page 11
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2015 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ------------------------------------------------------- ---------- ---------- --------------
CORPORATE BONDS AND NOTES - 1.1%
BANKS - 0.4%
$ 5,000,000 Zions Bancorporation (a) (c)........................... 5.65% 11/15/23 $ 5,219,375
INSURANCE - 0.7%
10,000,000 Genworth Holdings, Inc................................. 7.63% 09/24/21 10,650,000
--------------
TOTAL CORPORATE BONDS AND NOTES................................................... 15,869,375
(Cost $15,693,853) --------------
TOTAL INVESTMENTS - 141.7%........................................................ 2,101,537,983
(Cost $2,047,832,891) (h)
OUTSTANDING LOAN - (44.8%)........................................................ (665,000,000)
NET OTHER ASSETS AND LIABILITIES - 3.1%........................................... 46,648,091
--------------
NET ASSETS - 100.0%............................................................... $1,483,186,074
==============
-----------------------------
(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 April 30, 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 April 30, 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, 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 2C - Restricted Securities in the Notes to Financial
Statements).
(g) This security, sold within the terms of a private placement memorandum, is
exempt from registration upon resale under Rule 144A under the 1933 Act,
as amended, and may be resold in transactions exempt from registration,
normally to qualified institutional buyers. Pursuant to procedures adopted
by the Fund's Board of Trustees, this security has been determined to be
liquid by 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 April 30, 2015, securities noted as
such are valued at $522,060,751 or 35.20% of net assets.
(h) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of April 30, 2015, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $71,404,386 and the aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over value was $17,699,294.
-----------------------------
INTEREST RATE SWAP AGREEMENTS:
COUNTERPARTY FLOATING RATE EXPIRATION DATE NOTIONAL AMOUNT FIXED RATE(1) VALUE
-----------------------------------------------------------------------------------------------------------------------
Bank of Nova Scotia 1 month LIBOR 1/23/25 $ 165,000,000 1.78% $ 2,299,570
------------- -----------
(1) The Fund pays the fixed rate and receives the floating rate. The floating
rate on April 30, 2015 was 0.18%.
Page 12 See Notes to Financial Statements
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2015 (UNAUDITED)
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of April 30,
2015 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
ASSETS TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
INVESTMENTS 4/30/2015 PRICES INPUTS INPUTS
-------------------------------------------------- --------------- --------------- --------------- ---------------
$25 Par Preferred Securities*..................... $ 528,158,458 $ 528,158,458 $ -- $ --
$50 Par Preferred Securities*..................... 1,896,324 1,896,324 -- --
$100 Par Preferred Securities*.................... 52,876,690 -- 52,876,690 --
$1,000 Par Preferred Securities*.................. 57,109,687 -- 57,109,687 --
Capital Preferred Securities*..................... 1,445,627,449 -- 1,445,627,449 --
Corporate Bonds and Notes*........................ 15,869,375 -- 15,869,375 --
--------------- --------------- --------------- ---------------
Total Investments................................ 2,101,537,983 530,054,782 1,571,483,201 --
Interest Rate Swaps**............................. 2,299,570 -- 2,299,570 --
--------------- --------------- --------------- ---------------
Total............................................ $ 2,103,837,553 $ 530,054,782 $ 1,573,782,771 $ --
=============== =============== =============== ===============
* 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. There were no
transfers between Levels at April 30, 2015.
See Notes to Financial Statements Page 13
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2015 (UNAUDITED)
ASSETS:
Investments, at value
(Cost $2,047,832,891)........................................................................ $ 2,101,537,983
Cash............................................................................................ 17,499,500
Swap contracts, at value........................................................................ 2,299,570
Prepaid expenses................................................................................ 45,912
Receivables:
Interest..................................................................................... 29,949,680
Investment securities sold................................................................... 10,119,561
Dividends.................................................................................... 1,433,566
Tax reclaims................................................................................. 54,857
Other assets................................................................................. 4,150
----------------
Total Assets................................................................................. 2,162,944,779
----------------
LIABILITIES:
Outstanding loan................................................................................ 665,000,000
Payables:
Investment securities purchased.............................................................. 12,103,298
Investment advisory fees..................................................................... 1,500,160
Interest and fees due on loan................................................................ 549,777
Administrative fees.......................................................................... 341,812
Custodian fees............................................................................... 121,756
Printing fees................................................................................ 66,659
Legal fees................................................................................... 46,816
Audit and tax fees........................................................................... 20,084
Trustees' fees and expenses.................................................................. 4,712
Transfer agent fees.......................................................................... 2,900
Financial reporting fees..................................................................... 731
----------------
Total Liabilities............................................................................ 679,758,705
----------------
NET ASSETS...................................................................................... $ 1,483,186,074
================
NET ASSETS CONSIST OF:
Paid-in capital................................................................................. $ 1,446,922,425
Par value....................................................................................... 607,042
Accumulated net investment income (loss)........................................................ 6,248,705
Accumulated net realized gain (loss) on investments, written options, futures contracts and
swap contracts............................................................................... (26,596,760)
Net unrealized appreciation (depreciation) on investments and swap contracts.................... 56,004,662
----------------
NET ASSETS...................................................................................... $ 1,483,186,074
================
NET ASSET VALUE, per share...................................................................... $ 24.43
================
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 SIX MONTHS ENDED APRIL 30, 2015 (UNAUDITED)
INVESTMENT INCOME:
Interest........................................................................................ $ 49,489,529
Dividends....................................................................................... 20,830,900
Other........................................................................................... 52,500
----------------
Total investment income...................................................................... 70,372,929
----------------
EXPENSES:
Investment advisory fees........................................................................ 9,009,001
Interest and fees on loan....................................................................... 3,015,610
Administrative fees............................................................................. 341,536
Custodian fees.................................................................................. 130,049
Printing fees................................................................................... 128,662
Legal fees...................................................................................... 33,417
Listing expense................................................................................. 26,844
Trustees' fees and expenses..................................................................... 19,203
Audit and tax fees.............................................................................. 16,472
Transfer agent fees............................................................................. 10,404
Financial reporting fees........................................................................ 4,587
Other........................................................................................... 147,454
----------------
Total expenses............................................................................... 12,883,239
----------------
NET INVESTMENT INCOME (LOSS).................................................................... 57,489,690
----------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments.................................................................................. (10,503,489)
Futures contracts............................................................................ (3,287,852)
Swap contracts............................................................................... (666,254)
----------------
Net realized gain (loss)........................................................................ (14,457,595)
----------------
Net change in unrealized appreciation (depreciation) on:
Investments............................................................................... 21,586,071
Futures contracts......................................................................... 2,416,563
Swap contracts............................................................................ 2,299,570
----------------
Net change in unrealized appreciation (depreciation)......................................... 26,302,204
----------------
NET REALIZED AND UNREALIZED GAIN (LOSS)......................................................... 11,844,609
----------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................. $ 69,334,299
================
See Notes to Financial Statements Page 15
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR
4/30/2015 ENDED
(UNAUDITED) 10/31/2014
-------------- --------------
OPERATIONS:
Net investment income (loss)...................................................... $ 57,489,690 $ 112,126,996
Net realized gain (loss).......................................................... (14,457,595) 654,599
Net change in unrealized appreciation (depreciation).............................. 26,302,204 58,567,555
-------------- --------------
Net increase (decrease) in net assets resulting from operations................... 69,334,299 171,349,150
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................................. (68,747,494) (116,023,916)
-------------- --------------
Total distributions to shareholders............................................... (68,747,494) (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........................................... 696,408 55,325,234
NET ASSETS:
Beginning of period............................................................... 1,482,489,666 1,427,164,432
-------------- --------------
End of period..................................................................... $1,483,186,074 $1,482,489,666
============== ==============
Accumulated net investment income (loss) at end of period......................... $ 6,248,705 $ 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 SIX MONTHS ENDED APRIL 30, 2015 (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) in net assets resulting from operations................... $ 69,334,299
Adjustments to reconcile net increase (decrease) in net assets resulting from
operations to net cash used by operating activities:
Purchases of investments..................................................... (504,731,622)
Sales, maturities and pay downs of investments............................... 510,457,025
Net amortization/accretion of premium/discount on investments................ 2,659,207
Net realized gain/loss on investments........................................ 10,503,489
Net change in unrealized appreciation/depreciation on investments............ (21,586,071)
Net change in unrealized appreciation/depreciation on swap contracts......... (2,299,570)
Decrease in restricted cash.................................................. 5,215,563
CHANGES IN ASSETS AND LIABILITIES:
Decrease in tax reclaim receivable........................................... 149,185
Increase in interest receivable.............................................. (2,823,784)
Decrease in dividends receivable............................................. 115,017
Increase in prepaid expenses................................................. (15,121)
Increase in other assets..................................................... (4,150)
Increase in interest and fees on loan payable................................ 518,254
Decrease in offering cost payable............................................ (109,603)
Decrease in investment advisory fees payable................................. (47,219)
Decrease in audit and tax fees payable....................................... (13,118)
Increase in legal fees payable............................................... 10,154
Decrease in printing fees payable............................................ (32,446)
Increase in administrative fees payable...................................... 53,175
Increase in custodian fees payable........................................... 19,428
Increase in transfer agent fees payable...................................... 1,395
Decrease in variation margin payable......................................... (2,416,563)
Increase in trustees' fees and expenses payable.............................. 1,481
Decrease in financial reporting fees payable................................. (39)
Decrease in other liabilities................................................ (249)
--------------
CASH PROVIDED BY OPERATING ACTIVITIES............................................. $ 64,958,117
--------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Offering costs............................................................... 109,603
Distributions to Common Shareholders from net investment income.............. (68,747,494)
Proceeds from borrowings..................................................... 15,000,000
Repayment of borrowings...................................................... (15,000,000)
--------------
CASH USED IN FINANCING ACTIVITIES................................................. (68,637,891)
--------------
Decrease in cash.................................................................. (3,679,774)
Cash at beginning of period....................................................... 21,179,274
--------------
CASH AT END OF PERIOD............................................................. $ 17,499,500
==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest and fees................................. $ 2,497,356
==============
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
SIX MONTHS FOR THE PERIOD
ENDED YEAR 5/23/2013 (a)
4/30/2015 ENDED THROUGH
(UNAUDITED) 10/31/2014 10/31/2013
------------- ------------- --------------
Net asset value, beginning of period.......... $ 24.42 $ 23.51 $ 23.88 (b)
----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).................. 0.95 1.85 0.70
Net realized and unrealized gain (loss)....... 0.19 0.97 (0.64)
----------- ----------- -----------
Total from investment operations.............. 1.14 2.82 0.06
----------- ----------- -----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income......................... (1.13) (1.91) (0.46)
----------- ----------- -----------
Common Shares offering costs charged to
paid-in capital............................ -- -- (0.03)
----------- ----------- -----------
Premiums from shares sold in at the
market offerings........................... -- -- 0.06
----------- ----------- -----------
Net asset value, end of period................ $ 24.43 $ 24.42 $ 23.51
=========== =========== ===========
Market value, end of period................... $ 22.99 $ 21.94 $ 21.01
=========== =========== ===========
TOTAL RETURN BASED ON NET ASSET VALUE (c)..... 5.25% 13.37% 0.60%
=========== =========== ===========
TOTAL RETURN BASED ON MARKET VALUE (c)........ 10.25% 13.98% (14.13)%
=========== =========== ===========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's).......... $ 1,483,186 $ 1,482,490 $ 1,427,164
Ratio of total expenses to average net
assets..................................... 1.77% (d) 1.69% 1.53% (d)
Ratio of net expenses to average net assets
excluding interest expense................. 1.24% (d) 1.33% 1.24% (d)
Ratio of net investment income (loss) to
average net assets......................... 7.88% (d) 7.66% 7.01% (d)
Portfolio turnover rate....................... 24% 62% 11%
INDEBTEDNESS:
Total loan outstanding (in 000's)............. $ 665,000 $ 665,000 $ 584,000
Asset coverage per $1,000 of
indebtedness (e)........................... $ 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) Total return is based on the combination of reinvested dividend, capital
gain and return of capital distributions, if any, at prices obtained by
the Dividend Reinvestment Plan, and changes in net asset value per share
for net asset value returns and changes in Common Shares price for market
value returns. Total returns do not reflect sales load and are not
annualized for periods less than one year. Past performance is not
indicative of future results.
(d) Annualized.
(e) Calculated by taking the Fund's total assets less the Fund's total
liabilities (not including the loan outstanding) and dividing by the loan
balance in 000's.
Page 18 See Notes to Financial Statements
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
APRIL 30, 2015 (UNAUDITED)
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 "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 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 New York Stock Exchange ("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 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 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) National 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 fair 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)
APRIL 30, 2015 (UNAUDITED)
Exchange-traded options and futures contracts are valued at the closing
price in the market where such contracts are principally traded. If no
closing price is available, exchange-traded options and futures contracts
are fair valued at the mean of the most recent bid and asked price, if
available, and otherwise at their closing bid price. Over-the-counter
options contracts are fair valued at the mean of the most recent bid and
asked price, if available, and otherwise at their closing bid price.
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) for which a pricing service is unable to provide a market price;
securities whose trading has been formally suspended; a security whose market
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)
APRIL 30, 2015 (UNAUDITED)
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 April 30, 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, if any, is
recorded on the accrual basis, including the amortization of premiums and
accretion of discounts. Amortization of premiums and the accretion of discounts
are recorded using the effective interest method.
The Fund may hold the securities of real estate investments trusts ("REITs").
Distributions from such investments may include income, capital gains and return
of capital. The actual character of amounts received during the year is not
known until after the REITs' fiscal year end. The Fund records the character of
distributions received from the REITs during the year based on estimates
available. The characterization of distributions received by the Fund may be
subsequently revised based on information received from the REITs after their
tax reporting periods conclude.
C. RESTRICTED SECURITIES:
The Fund invests in restricted securities, which are securities that may not be
offered for public sale without first being registered under the 1933 Act. Prior
to registration, restricted securities may only be resold in transactions exempt
from registration under Rule 144A under the 1933 Act, normally to qualified
institutional buyers. As of April 30, 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/ CURRENT CARRYING NET
SECURITY DATE SHARES PRICE COST VALUE ASSETS
----------------------------------------- --------------- ----------- ---------- ------------ ------------ ------
Farm Credit Bank
of Texas, 6.75% 7/16/13-7/17/13 100,000 $ 103.59 $ 10,020,000 $ 10,359,380 0.70%
Centaur Funding Corp.,
9.08%, 04/21/20 5/29/13-5/31/13 16,000 1,252.50 20,528,750 20,040,000 1.35
Sovereign Real Estate
Investment Trust, 12.00% 6/11/13-5/21/14 14,000 1,308.75 18,489,375 18,322,500 1.24
AgStar Financial Services
ACA, 6.75% 5/29/13 10,000 1,045.56 10,000,000 10,455,625 0.70
Pitney Bowes International
Holdings Inc.,
Series F, 6.13% 6/27/13 4,000 1,038.13 3,935,000 4,152,500 0.28
Sirius International
Group, Ltd., 7.51% 8/06/14-4/24/15 $25,000,000 105.25 26,480,164 26,312,500 1.77
HSBC USA Capital Trust II,
8.38%, 05/15/27 9/09/13 $ 4,000,000 100.92 4,034,735 4,036,780 0.27
------------ ------------ ------
$ 93,488,024 $ 93,679,285 6.31%
============ ============ ======
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)
APRIL 30, 2015 (UNAUDITED)
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 April 30, 2015.
E. OPTION CONTRACTS:
The Fund may purchase or write put and call options on futures contracts and
enter into closing transactions with respect to such options to terminate an
existing position. A futures option gives the holder the right, in return for
the premium paid, to assume a long position (call) or short position (put) in a
futures contract at a specified exercise price prior to the expiration of the
option. Upon exercise of a call option, the holder acquires a long position in
the futures contract and the writer is assigned the opposite short position. In
the case of a put option, the opposite is true. Prior to exercise or expiration,
a futures option may be closed out by an offsetting purchase or sale of a
futures option of the same series.
The Fund may use options on futures contracts in connection with hedging
strategies. Generally, these strategies would be applied under the same market
and market sector conditions in which the Fund uses put and call options on
securities or indices. The purchase of put options on futures contracts is
analogous to the purchase of puts on securities or indices so as to hedge the
Fund's securities holdings against the risk of declining market prices. The
writing of a call option or the purchasing of a put option on a futures contract
constitutes a partial hedge against declining prices of securities which are
deliverable upon exercise of the futures contract. If the price at expiration of
a written call option is below the exercise price, the Fund will retain the full
amount of the option premium, which provides a partial hedge against any decline
that may have occurred in the Fund's holdings of securities. If the price when
the option is exercised is above the exercise price, however, the Fund will
incur a loss, which may be offset, in whole or in part, by the increase in the
value of the securities held by the Fund that were being hedged. Writing a put
option or purchasing a call option on a futures contract serves as a partial
hedge against an increase in the value of the securities the Fund intends to
acquire.
As with investments in futures contracts, the Fund is required to deposit and
maintain margin with respect to put and call options on futures contracts
written by them. Such margin deposits will vary depending on the nature of the
underlying futures contract (and the related initial margin requirements), the
current market value of the option, and other futures positions held by the
Fund. The Fund will earmark or set aside in a segregated account at such Fund's
custodian, liquid assets, such as cash, U.S. government securities or other
high-grade liquid debt obligations equal in value to the amount due on the
underlying obligation. Such segregated assets will be marked-to-market daily,
and additional assets will be earmarked or placed in the segregated account
whenever the total value of the earmarked or segregated assets falls below the
amount due on the underlying obligation.
The risks associated with the use of options on futures contracts include the
risk that the Fund may close out its position as a writer of an option only if a
liquid secondary market exists for such options, which cannot be assured. The
Fund's successful use of options on futures contracts depends on the
Sub-Advisor's ability to correctly predict the movement in prices of futures
contracts and the underlying instruments, which may prove to be incorrect. In
addition, there may be imperfect correlation between the instruments being
hedged and the futures contract subject to the option. Certain characteristics
of the futures market might increase the risk that movements in the prices of
futures contracts or options on futures contracts might not correlate perfectly
with movements in the prices of the investments being hedged. For example, all
participants in the futures and options on futures contracts markets are subject
to daily variation margin calls and might be compelled to liquidate futures or
options on futures contracts positions whose prices are moving unfavorably to
avoid being subject to further calls. These liquidations could increase the
price volatility of the instruments and distort the normal price relationship
between the futures or options and the investments being hedged. Also, because
of initial margin deposit requirements, there might be increased participation
by speculators in the futures markets. This participation also might cause
temporary price distortions. In addition, activities of large traders in both
the futures and securities markets involving arbitrage, "program trading," and
other investment strategies might result in temporary price distortions.
Over-the-counter options have the risk of the potential inability of
counterparties to meet the terms of their contracts. The Fund's maximum equity
price risk for purchased options is limited to the premium initially paid. In
addition, certain risks may arise upon entering into option contracts including
the risk that an illiquid secondary market will limit the Fund's ability to
close out an option contract prior to the expiration date and that a change in
the value of the option contract may not correlate exactly with changes in the
value of the securities hedged. The Fund did not hold any options as of April
30, 2015.
Page 22
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
APRIL 30, 2015 (UNAUDITED)
F. 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. 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 April 30, 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 April 30, 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.
G. 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.
The tax character of distributions paid during the fiscal period ended October
31, 2014, was as follows:
Distributions paid from:
Ordinary income................................... $ 116,023,916
Capital gain...................................... --
Return of capital................................. --
As of October 31, 2014, the components of distributable earnings on a tax basis
were as follows:
Undistributed ordinary income..................... $ 16,595,849
Undistributed capital gains....................... --
---------------
Total undistributed earnings...................... 16,595,849
Accumulated capital and other losses.............. (7,788,956)
Net unrealized appreciation (depreciation)........ 26,262,909
---------------
Total accumulated earnings (losses)............... 35,069,802
Other............................................. --
Paid-in capital................................... 1,447,419,864
---------------
Net Assets........................................ $ 1,482,489,666
===============
H. 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.
Page 23
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
APRIL 30, 2015 (UNAUDITED)
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, 2014, the
Fund had capital loss carryforwards for federal income tax purposes of
$7,788,956.
The Fund is subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. The taxable years ended 2014 and
2013 remain open to federal and state audit. As of April 30, 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.
I. EXPENSES:
The Fund will pay all expenses directly related to its operations.
J. 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 and the Sub-Advisor 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 six months ended April 30, 2015, it was determined that actual
offering costs were less than the estimated offering costs by $109,603.
Therefore, paid-in capital was increased by that amount in the current fiscal
year, as reflected in the offering costs line item on the Statements 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 the selection and ongoing monitoring of the securities
in the Fund's portfolio, managing the Fund's business affairs and providing
certain administrative services necessary for the management of the Fund. For
these services, First Trust is entitled to a monthly fee calculated at an annual
rate of 0.85% of the Fund's average daily net assets. First Trust also provides
fund reporting services to the Fund for a flat annual fee in the amount of
$9,250.
Stonebridge, a majority-owned affiliate of First Trust, serves as the Fund's
sub-advisor and manages the Fund's portfolio subject to First Trust's
supervision. The Sub-Advisor receives a monthly portfolio management fee
calculated at an annual rate of 0.425% of average daily net assets that is paid
by First Trust out of its investment advisory fee.
Brown Brothers Harriman & Co. ("BBH") serves as the Fund's administrator, fund
accountant and custodian in accordance with certain fee arrangements. As
administrator and fund accountant, BBH is responsible for providing certain
administrative and accounting services to the Fund, including maintaining the
Fund's books of account, records of the Fund's securities transactions, and
certain other books and records. As custodian, BBH is responsible for custody of
the Fund's assets.
Computershare serves as the Fund's transfer agent in accordance with certain fee
arrangements. As transfer agent, Computershare is responsible for maintaining
shareholder records for the Fund.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer that is allocated pro rata among each fund in the First Trust Fund
Complex based on net assets. Each Independent Trustee is also paid an annual per
fund fee that varies based on whether the fund is a closed-end or other actively
managed fund, or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee are paid
additional 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 period ended April 30, 2015, the cost of purchases and proceeds from
sales of investment securities, excluding short-term investments, for the Fund
was $509,366,587 and $514,267,394, respectively.
Page 24
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
APRIL 30, 2015 (UNAUDITED)
5. DERIVATIVES TRANSACTIONS
The following table presents the types of derivatives held by the Fund at April
30, 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 STATEMENT OF ASSETS AND
INSTRUMENTS EXPOSURE LIABILITIES LOCATION VALUE LIABILITIES LOCATION VALUE
----------------- ------------------ --------------------------- ----------- ------------------------ -----------
Interest Rate
Swap Agreement Interest Rate Risk Swap contracts, at value $ 2,299,570 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 six months
ended April 30, 2015, on derivative instruments as well as the primary
underlying risk exposure associated with each instrument.
INTEREST RATE
STATEMENT OF OPERATIONS LOCATION RISK
--------------------------------------------------------------------------------------------
Net realized gain (loss) on futures contracts............................... $ (3,287,852)
Net realized gain (loss) on swap contracts.................................. (666,254)
Net change in unrealized appreciation (depreciation) on futures contracts... 2,416,563
Net change in unrealized appreciation (depreciation) on swap contracts...... 2,299,570
For the six months ended April 30, 2015, the amount of notional values of
futures contracts opened and closed were $0 and $54,498,126, respectively.
The Fund does not have the right to offset financial assets and financial
liabilities related to futures contracts and swap contracts on the Statement of
Assets and Liabilities.
The average volume of interest rate swaps was $165,000,000 for the six months
ended April 30, 2015.
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
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 April 30, 2015 was $665,067,688 with a weighted average
interest rate of 0.91%. As of April 30, 2015, the Fund had outstanding
borrowings of $665,000,000 under this committed facility agreement. The high and
low annual interest rates for the six months ended April 30, 2015, were 0.93%
and 0.85%, respectively. The interest rate at April 30, 2015, was 0.93%.
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 was
the following subsequent event:
On May 20, 2015, the Fund declared a distribution of $0.1625 per share to Common
Shareholders of record on June 3, 2015, payable June 15, 2015.
Page 25
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
APRIL 30, 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 26
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
APRIL 30, 2015 (UNAUDITED)
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 against 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 against 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.
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 financials sector, it will be more susceptible
to adverse economic or regulatory occurrences affecting this sector, such as
changes in interest rates, loan concentration and competition.
Page 27
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
APRIL 30, 2015 (UNAUDITED)
INTEREST RATE RISK: The Fund is subject to interest rate risk, which is the risk
that the preferred and debt securities in which the Fund invests will decline in
value because of rising market interest rates.
FLOATING RATE AND FIXED-TO-FLOATING RATE SECURITIES RISK: The market value of
floating rate and fixed-to-floating rate securities may fall in a declining
interest rate environment and may also fall in a rising interest rate
environment if there is a lag between the rise in interest rates and the
interest rate reset. A secondary risk associated with declining interest rates
is the risk that income earned by the Fund on floating rate and
fixed-to-floating rate securities may decline due to lower coupon payments on
floating-rate securities.
CONVERTIBLE SECURITIES/CONTINGENT CONVERTIBLE SECURITIES RISK: The market value
of convertible securities tends to decline as interest rates increase and,
conversely, tends to increase as interest rates decline. In addition, because of
the conversion feature, the market value of convertible securities tends to vary
with fluctuations in the market value of the underlying common stock. Contingent
convertible securities provide for mandatory conversion into common stock of the
issuer under certain circumstances. Since the common stock of the issuer may not
pay a dividend, investors in these instruments could experience a reduced income
rate, potentially to zero; and conversion would deepen the subordination of the
investor, hence worsening standing in a bankruptcy. In addition, some such
instruments have a set stock conversion rate that would cause a reduction in
value of the security if the price of the stock is below the conversion price on
the conversion date.
FOREIGN (NON-U.S.) SECURITIES RISK: Investing in securities of non-U.S. issuers
may involve certain risks not typically associated with investing in securities
of U.S. issuers. These risks include: (i) there may be less publicly available
information about non-U.S. issuers or markets due to less rigorous disclosure or
accounting standards or regulatory practices; (ii) non-U.S. markets may be
smaller, less liquid and more volatile than the U.S. market; (iii) potential
adverse effects of fluctuations in currency exchange rates or controls on the
value of the Fund's investments; (iv) the economies of non U.S. countries may
grow at slower rates than expected or may experience a downturn or recession;
(v) the impact of economic, political, social or diplomatic events; (vi) certain
non-U.S. countries may impose restrictions on the ability of non U.S. issuers to
make payments of principal and interest to investors located in the United
States due to blockage of non-U.S. currency exchanges or otherwise; and (vii)
withholding and other non-U.S. taxes may decrease the Fund's return.
ILLIQUID AND RESTRICTED SECURITIES RISK: The Fund may invest up to 25% of its
Managed Assets in illiquid securities and may also invest, without limit, in
unregistered or otherwise restricted securities. Investment of the Fund's assets
in illiquid and restricted securities may restrict the Fund's ability to take
advantage of market opportunities. Illiquid and restricted securities may be
difficult to dispose of at a fair price at the times when the Fund believes it
is desirable to do so. The market price of illiquid and restricted securities
generally is more volatile than that of more liquid securities, which may
adversely affect the price that the Fund pays for or recovers upon the sale of
such securities. Illiquid and restricted securities are also more difficult to
value, especially in challenging markets. The risks associated with illiquid and
restricted securities may be particularly acute in situations in which the
Fund's operations require cash and could result in the Fund borrowing to meet
its short-term needs or incurring losses on the sale of illiquid or restricted
securities.
Page 28
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.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. INVESTMENTS.
(a) Schedule of Investments in securities of unaffiliated issuers as of the
close of the reporting period is included as part of the report to
shareholders filed under Item 1 of this form.
(b) Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
There has been no change, as of the date of this filing, in any of the
portfolios managers identified in response to paragraph (a)(1) of this Item in
the Registrant's most recently filed annual report on Form N-CSR.
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.
(1)(a) Not Applicable.
(2)(a) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section
302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(3)(a) 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: June 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
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Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)
Date: June 22, 2015
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By (Signature and Title)* /s/ James M. Dykas
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James M. Dykas, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: June 22, 2015
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* Print the name and title of each signing officer under his or her signature.