UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-22795
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First Trust Intermediate Duration Preferred & Income
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Fund (Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Name and address of agent for service)
registrant's telephone number, including area code: 630-765-8000
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Date of fiscal year end: October 31
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Date of reporting period: October 31, 2016
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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)
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ANNUAL REPORT
FOR THE YEAR ENDED
OCTOBER 31, 2016
STONEBRIDGE
ADVISORS LLC
FIRST TRUST
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TABLE OF CONTENTS
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FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
ANNUAL REPORT
OCTOBER 31, 2016 (UNAUDITED)
Shareholder Letter.......................................................... 1
At a Glance................................................................. 2
Portfolio Commentary........................................................ 4
Portfolio of Investments.................................................... 6
Statement of Assets and Liabilities......................................... 13
Statement of Operations..................................................... 14
Statements of Changes in Net Assets......................................... 15
Statement of Cash Flows..................................................... 16
Financial Highlights........................................................ 17
Notes to Financial Statements............................................... 18
Report of Independent Registered Public Accounting Firm..................... 24
Additional Information...................................................... 25
Board of Trustees and Officers.............................................. 30
Privacy Policy.............................................................. 32
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and/or Stonebridge Advisors LLC ("Stonebridge" or the
"Sub-Advisor") and their respective representatives, taking into account the
information currently available to them. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For example,
forward-looking statements include the use of words such as "anticipate,"
"estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or
other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
First Trust Intermediate Duration Preferred & Income Fund (the "Fund") to be
materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. When evaluating the
information included in this report, you are cautioned not to place undue
reliance on these forward-looking statements, which reflect the judgment of the
Advisor and/or Sub-Advisor and their representatives only as of the date hereof.
We undertake no obligation to publicly revise or update these forward-looking
statements to reflect events and circumstances that arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that the Fund will achieve its investment objectives. The
Fund is subject to market risk, which is the possibility that the market values
of securities owned by the Fund will decline and that the value of the Fund's
shares may therefore be less than what you paid for them. Accordingly, you can
lose money by investing in the Fund. See "Risk Considerations" in the Additional
Information section of this report for a discussion of certain other risks of
investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
http://www.ftportfolios.com or speak with your financial advisor. Investment
returns, net asset value and common share price will fluctuate and Fund shares,
when sold, may be worth more or less than their original cost.
The Advisor may also periodically provide additional information on Fund
performance on the Fund's webpage at http://www.ftportfolios.com.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment in
the Fund. It includes details about the Fund and presents data and analysis that
provide insight into the Fund's performance and investment approach.
By reading the portfolio commentary by the portfolio management team of the
Fund, you may obtain an understanding of how the market environment affected the
Fund's performance. The statistical information that follows may help you
understand the Fund's performance compared to that of relevant market
benchmarks.
It is important to keep in mind that the opinions expressed by personnel of the
Sub-Advisor are just that: informed opinions. They should not be considered to
be promises or advice. The opinions, like the statistics, cover the period
through the date on the cover of this report. The material risks of investing in
the Fund are spelled out in the prospectus, the statement of additional
information, this report and other Fund regulatory filings.
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SHAREHOLDER LETTER
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FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
OCTOBER 31, 2016 (UNAUDITED)
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
annual report which contains detailed information about your investment for the
12 months ended October 31, 2016, 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.
Early in 2016, many investors were concerned that the volatility witnessed in
the stock market in 2015 would continue, and it did. During the first six months
of the year, one of the events that affected the global markets was the "Brexit"
vote (where citizens in the UK voted to leave the European Union). Just a few
days after the historic vote, the global equity markets rebounded to close June
30, 2016 at a combined market capitalization of $62 trillion. As of October 31,
2016, the S&P 500(R) Index was up 5.87% calendar year-to-date, according to
Bloomberg. From October 30, 2015 through October 31, 2016, the S&P 500(R) Index
was still in positive territory at 4.51%. The last few months have had investors
keenly watching the presidential election in anticipation of the outcome of the
vote and its effect on the stock market and economy. I will discuss that more in
my next letter.
The current bull market (measuring from March 9, 2009 through October 31, 2016)
is the second longest in history. First Trust believes that having a long-term
investment horizon and investing in quality products can help you reach your
goals, regardless of ups and downs in the market. We strive to provide quality
investment products, which has been one of the hallmarks of our firm since its
inception more than 25 years ago.
Thank you for giving First Trust the opportunity to be a part of your investment
plan. We value our relationship with you and will continue to focus on helping
investors like you reach your financial goals.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 1
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
"AT A GLANCE"
OCTOBER 31, 2016 (UNAUDITED)
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FUND STATISTICS
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Symbol on New York Stock Exchange FPF
Common Share Price $22.66
Common Share Net Asset Value ("NAV") $24.03
Premium (Discount) to NAV (5.70)%
Net Assets Applicable to Common Shares $1,459,928,727
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) 8.61%
Current Distribution Rate on NAV (2) 8.11%
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COMMON SHARE PRICE & NAV (WEEKLY CLOSING PRICE)
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NAV Common Share Price
10/15 21.95 23.69
21.88 23.60
21.58 23.62
21.58 23.69
11/15 21.67 23.73
21.69 23.50
21.36 23.33
21.18 23.31
21.21 23.39
12/15 21.27 23.48
21.42 23.35
21.29 23.07
21.75 22.97
1/16 21.83 23.01
21.49 22.52
20.34 21.58
21.04 22.07
2/16 21.51 22.16
21.54 22.22
21.68 22.47
22.04 22.55
3/16 21.79 22.58
22.37 22.49
22.44 22.53
22.40 22.69
22.53 22.91
4/16 23.02 22.95
22.80 22.81
22.99 22.90
22.89 23.06
5/16 23.10 23.20
23.03 23.09
23.05 23.08
23.26 23.03
6/16 23.03 22.94
23.45 23.01
23.51 23.05
23.48 23.32
23.67 23.53
7/16 23.61 23.71
23.51 23.66
23.51 23.79
23.51 23.90
8/16 23.35 24.02
23.42 23.95
23.14 23.96
22.93 23.75
23.27 23.97
9/17 23.34 23.89
22.92 23.84
22.53 23.76
22.96 23.98
22.76 24.01
10/16 22.66 24.02
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PERFORMANCE
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Average Annual Total Returns
1 Year Ended Inception (5/23/13)
10/31/16 to 10/31/16
FUND PERFORMANCE (3)
NAV 10.68% 9.02%
Market Value 12.65% 5.77%
INDEX PERFORMANCE
BofA Merrill Lynch Fixed Rate
Preferred Securities Index 7.23% 3.70%
BofA Merrill Lynch U.S. Capital
Securities Index 7.30% 3.09%
Blended Index(4) 7.28% 3.41%
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(1) Most recent distribution paid or declared through 10/31/2016. Subject to
change in the future.
(2) Distribution rates are calculated by annualizing the most recent
distribution paid or declared through the report date and then dividing by
Common Share price or NAV, as applicable, as of 10/31/16. Subject to
change in the future.
(3) Total return is based on the combination of reinvested dividend, capital
gain and return of capital distributions, if any, at prices obtained by
the Dividend Reinvestment Plan and changes in NAV per share for NAV
returns and changes in Common Share price for market value returns. Total
returns do not reflect sales load and are not annualized for periods less
than one year. Past performance is not indicative of future results.
(4) The Blended Index consists of the following: BofA Merrill Lynch Fixed Rate
Preferred Securities Index (50%) and BofA Merrill Lynch U.S. Capital
Securities Index (50%). The Blended Index was added to reflect the diverse
allocation of institutional preferred and hybrid securities in the Fund's
Portfolio. The indexes do not charge management fees or brokerage
expenses, and no such fees or expenses were deducted from the performance
shown. Indexes are unmanaged and an investor cannot invest directly in an
index.
Page 2
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
"AT A GLANCE" (CONTINUED)
OCTOBER 31, 2016 (UNAUDITED)
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% OF TOTAL
INDUSTRY CLASSIFICATION INVESTMENTS
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Banks 43.9%
Insurance 26.8
Electric Utilities 5.3
Food Products 5.1
Capital Markets 4.7
Diversified Telecommunication Services 3.3
Consumer Finance 1.5
Oil, Gas & Consumable Fuels 1.4
Energy Equipment & Services 1.4
Diversified Financial Services 1.4
Independent Power Producers and Renewable
Electricity Producers 1.1
Equity Real Estate Investment Trusts 1.0
Metals & Mining 0.8
Multi-Utilities 0.7
Industrial Conglomerates 0.5
Transportation Infrastructure 0.5
Wireless Telecommunication Services 0.4
Internet Software & Services 0.2
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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
Emera, Inc;, Series 16-A 2.0
Cooperatieve Rabobank UA 1.9
Credit Agricole S.A. 1.7
Banco Bilbao Vizcaya Argentaria S.A. 1.7
American International Group, Inc. 1.6
Farm Credit Bank of Texas, Series 1 1.5
Dresdner Funding Trust I 1.4
Koninklijke KPN N.V. 1.4
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Total 17.3%
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% OF TOTAL
CREDIT QUALITY (5) INVESTMENTS
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A 0.6%
A- 4.1
BBB+ 12.3
BBB 19.6
BBB- 20.3
BB+ 22.8
BB 8.2
BB- 4.0
B+ 1.3
B 0.8
B- 0.2
NR 5.8
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Total 100.0%
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(5) The credit quality and ratings information presented above reflect the
ratings assigned by one or more nationally recognized statistical rating
organizations (NRSROs), including Standard & Poor's Ratings Group, a
division of the McGraw Hill Companies, Inc., Moody's Investors Service,
Inc., Fitch Ratings or a comparably rated NRSRO. For situations in which a
security is rated by more than one NRSRO and the ratings are not
equivalent, the highest ratings are used. Sub-investment grade ratings are
those rated BB+/Ba1 or lower. Investment grade ratings are those rated
BBB-/Baa3 or higher. The credit ratings shown relate to the credit
worthiness of the issuers of the underlying securities in the Fund, and
not to the Fund or its shares. Credit ratings are subject to change.
NR Not Rated.
Page 3
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PORTFOLIO COMMENTARY
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FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
ANNUAL REPORT
OCTOBER 31, 2016 (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.
STONEBRIDGE ADVISORS LLC PORTFOLIO MANAGEMENT TEAM
SCOTT T. FLEMING - PRESIDENT AND CHIEF INVESTMENT OFFICER
ROBERT WOLF - SENIOR VICE PRESIDENT AND SENIOR PORTFOLIO MANAGER
DANIELLE SALTERS, CFA - PORTFOLIO MANAGER AND CREDIT ANALYST
COMMENTARY
MARKET RECAP
The fiscal year ended October 31, 2016 was a period of solid returns for the
preferred and hybrid markets. Risk assets were initially weak during the period
in response to the Federal Reserve raising rates in December 2015 and the
dramatic sell-off in commodities in the first part of 2016. However, risk assets
recovered and performed well throughout the last three quarters of the period
due to the extended low rate environment and continued quantitative easing
around the globe. Positive performance in the preferred and hybrid markets was
also driven by continued investor demand for high income producing securities
coupled with a positive market technical factor resulting from limited new issue
supply. The retail preferred market was pushed higher by inflows into the
passive preferred ETFs, while institutional hybrids lagged retail until the last
quarter of the period. For the fiscal year, the retail market earned 7.23% while
the institutional market earned 7.30%, according to BofA Merrill Lynch Fixed
Rate Preferred Securities Index (P0P1) and The BofA Merrill Lynch U.S. Capital
Securities Index (C0CS), respectively.
PERFORMANCE ANALYSIS
The First Trust Intermediate Duration Preferred & Income Fund (the "Fund")
produced a total return of 12.65% based on market price and 10.68% based on net
asset value ("NAV") for the fiscal year ended October 31, 2016, outperforming
the blended benchmark's (a 50/50 blend of P0P1 and The C0CS) return of 7.28%.
This was achieved despite the Fund maintaining a conservative interest rate
stance relative to the blended Benchmark. Throughout the year, the effective
duration of the Fund excluding leverage was lower than the blended Benchmark
while still keeping income comparable to peer funds.
The primary factor that contributed to the outperformance of the Fund relative
to the blended benchmark was security selection. The Fund achieved superior
security selection within most categories, including fixed-to-float and
fixed-for-life structured securities, retail and institutional securities, short
and long duration securities, investment grade (IG) and non-IG securities, and
U.S. and non-U.S. securities. In general, long duration and fixed-for-life
securities within the benchmark outperformed shorter duration and fixed-to-float
securities. As a result, the Fund's strategy to maintain a shorter duration and
overweight fixed-to-float securities compared to the blended benchmark, which is
its principal method for managing duration, was a drag on relative performance
from an allocation standpoint. However, the superior security selection within
the shorter duration and fixed-to-float securities more than offset this
detractor. Also, the Fund's relative performance suffered from its overweight in
European securities, but security selection once again helped to offset this
detractor. Although the aforementioned contributors were all meaningful, the
largest factor that added to the relative outperformance was leverage, which
added around 300 bps of performance to the Fund.
The Fund also employed a hedging strategy throughout the year in order to
further manage its interest rate risk. This strategy consisted of an interest
rate swap. The continuing low rate environment caused the hedge to detract about
65 bps from performance. Going forward, the Fund continues to believe it is
prudent to maintain a conservative interest rate stance relative to the blended
benchmark, particularly if it is able to do so while continuing to pay a healthy
distribution to shareholders.
Page 4
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PORTFOLIO COMMENTARY (CONTINUED)
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FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
ANNUAL REPORT
OCTOBER 31, 2016 (UNAUDITED)
MARKET AND FUND OUTLOOK
Recent economic data in the U.S. shows modest strength and low inflation while
the rest of the world continues to show weak growth with markets supported by
accommodative monetary policies. Although U.S. interest rates moved higher
recently, they still remain low by historical standards. In this overall low
rate environment, credit spreads generally remain fairly wide, supported by
stable credit fundamentals within financials. Historically wide yield spreads of
preferred and hybrid securities relative to both U.S. Treasuries and other
credit spread products should drive positive performance in the asset class.
Furthermore, we expect issuance in the preferred and hybrid market over the next
year to be subdued relative to the first part of the fund's fiscal year, which
should be a positive market technical factor in preferred and hybrid securities.
We will continue to actively manage the Fund to protect against the downside
risks in the market while aiming to outperform in all market environments on a
risk adjusted basis. With the potential for rate volatility, we believe it is
prudent to maintain durations shorter than the blended benchmark, particularly
if we can do so while paying dividends comparable to peer funds. We also
continue to favor structures with good rate protection and high current yields.
Despite our expectation that the Federal Reserve will soon raise interest rates,
we believe that a slowly growing U.S. economy, stable-to-improving corporate
credit, and limited supply of new preferred issuance continue to be supportive
of the preferred and hybrid markets.
Page 5
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2016
STATED STATED
SHARES DESCRIPTION RATE MATURITY VALUE
---------------- --------------------------------------------------- ----------- ---------- --------------
$25 PAR PREFERRED SECURITIES - 29.1%
Banks - 9.3%
100,000 Banc Of California, Inc., Series E................. 7.00% (a) $ 2,490,000
692 Bank of America Corp., Series CC................... 6.20% (a) 18,020
104,314 Bank of America Corp., Series W.................... 6.63% (a) 2,849,076
151,400 Bank of America Corp., Series Y.................... 6.50% (a) 4,071,146
417,451 Citigroup Capital XIII (b) (c)..................... 7.26% 10/30/40 10,857,900
151,390 Citigroup, Inc., Series J (d)...................... 7.13% (a) 4,317,643
500,000 Citigroup, Inc., Series K (c) (d).................. 6.88% (a) 14,345,000
512,413 Citigroup, Inc., Series S (c)...................... 6.30% (a) 13,584,069
55,880 Fifth Third Bancorp, Series I (d).................. 6.63% (a) 1,676,959
168,761 FNB Corp. (c) (d).................................. 7.25% (a) 5,027,390
658,373 GMAC Capital Trust I, Series 2 (b) (c)............. 6.67% 02/15/40 16,808,263
115,157 ING Groep N.V...................................... 6.20% (a) 2,956,080
100,000 JPMorgan Chase & Co., Series AA.................... 6.10% (a) 2,668,000
215,000 JPMorgan Chase & Co., Series BB.................... 6.15% (a) 5,734,050
237,305 KeyCorp, Series C (c) (d).......................... 8.63% (a) 6,193,660
198,230 MB Financial, Inc., Series A (c) (e)............... 8.00% (a) 5,294,723
691,300 People's United Financial, Inc., Series A (d)...... 5.63% (a) 18,042,930
364,153 Royal Bank of Scotland Group PLC, Series S (c)..... 6.60% (a) 9,260,411
101,431 Valley National Bancorp, Series A (c) (d).......... 6.25% (a) 2,924,256
100,000 Wells Fargo & Co., Series W........................ 5.70% (a) 2,575,000
115,455 Wintrust Financial Corp., Series D (c) (d)......... 6.50% (a) 3,256,986
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134,951,562
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Capital Markets - 4.3%
150,000 Apollo Investment Corp. (c)........................ 6.88% 07/15/43 3,954,000
350,000 Charles Schwab Corp., Series D (c)................. 5.95% (a) 9,474,500
193,200 Goldman Sachs Group, Inc., Series J (d)............ 5.50% (a) 5,036,724
307,974 Morgan Stanley, Series E (c) (d)................... 7.13% (a) 8,986,681
501,249 Morgan Stanley, Series F (c) (d)................... 6.88% (a) 14,566,296
400,000 Morgan Stanley, Series I (c) (d)................... 6.38% (a) 11,040,000
40,000 State Street Corp., Series G (d)................... 5.35% (a) 1,070,800
333,400 Stifel Financial Corp., Series A (c)............... 6.25% (a) 8,961,792
--------------
63,090,793
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Consumer Finance - 1.5%
240,000 Capital One Financial Corp., Series B (c).......... 6.00% (a) 6,194,400
287,450 Capital One Financial Corp., Series C (c).......... 6.25% (a) 7,634,672
282,289 Capital One Financial Corp., Series D (c).......... 6.70% (a) 7,929,498
--------------
21,758,570
--------------
Diversified Financial Services - 0.7%
391,656 KKR Financial Holdings LLC, Series A (c)........... 7.38% (a) 10,179,139
--------------
Diversified Telecommunication Services - 1.2%
104,820 Qwest Corp......................................... 6.88% 10/01/54 2,704,356
400,000 Qwest Corp. (c).................................... 6.63% 09/15/55 10,224,000
133,868 Qwest Corp......................................... 7.00% 02/01/56 3,539,470
56,497 Qwest Corp......................................... 6.50% 09/01/56 1,437,284
--------------
17,905,110
--------------
Electric Utilities - 0.0%
3,957 SCE Trust V, Series K (d).......................... 5.45% (a) 111,587
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Page 6 See Notes to Financial Statements
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2016
STATED STATED
SHARES DESCRIPTION RATE MATURITY VALUE
---------------- --------------------------------------------------- ----------- ---------- --------------
$25 PAR PREFERRED SECURITIES (Continued)
Equity Real Estate Investment Trusts - 1.4%
300,000 American Homes 4 Rent, Series E (c)................ 6.35% (a) $ 7,854,000
82,300 EPR Properties, Series F........................... 6.63% (a) 2,139,800
75,872 Taubman Centers, Inc., Series J (c)................ 6.50% (a) 1,965,844
85,000 Taubman Centers, Inc., Series K.................... 6.25% (a) 2,236,562
250,000 VEREIT, Inc., Series F (c)......................... 6.70% (a) 6,705,000
--------------
20,901,206
--------------
Food Products - 3.1%
874,388 CHS, Inc., Series 2 (c) (d)........................ 7.10% (a) 25,881,885
582,059 CHS, Inc., Series 3 (c) (d)........................ 6.75% (a) 16,355,858
114,692 CHS, Inc., Series 4 (c)............................ 7.50% (a) 3,354,741
--------------
45,592,484
--------------
Insurance - 5.8%
182,995 Amtrust Financial Services, Inc. (c)............... 7.25% 06/15/55 4,717,611
204,030 Amtrust Financial Services, Inc. (c)............... 7.50% 09/15/55 5,443,520
100,000 Amtrust Financial Services, Inc., Series F......... 6.95% (a) 2,525,000
75,500 Aspen Insurance Holdings Ltd....................... 5.63% (a) 1,930,535
220,087 Aspen Insurance Holdings Ltd. (c) (d).............. 5.95% (a) 6,263,676
203,483 Aspen Insurance Holdings Ltd. (c).................. 7.25% (a) 5,249,861
379,000 Berkley (WR) Corp. (c)............................. 5.75% 06/01/56 9,755,460
403 Endurance Specialty Holdings Ltd., Series C........ 6.35% (a) 10,736
158,193 Global Indemnity PLC (c)........................... 7.75% 08/15/45 4,026,012
17,485 National General Holdings Corp..................... 7.63% 09/15/55 450,239
47,000 National General Holdings Corp., Series C.......... 7.50% (a) 1,205,080
107,835 PartnerRe Ltd., Series G (c)....................... 6.50% (a) 3,070,062
7,456 PartnerRe Ltd., Series H........................... 7.25% (a) 222,189
225,000 Phoenix Companies, Inc............................. 7.45% 01/15/32 4,282,043
973,973 Reinsurance Group of America, Inc. (c) (d)......... 5.75% 06/15/56 27,933,546
299,810 Torchmark Corp. (c)................................ 6.13% 06/15/56 8,103,864
--------------
85,189,434
--------------
Internet Software & Services - 0.3%
182,463 eBay, Inc.......................................... 6.00% 02/01/56 4,844,393
--------------
Multi-Utilities - 1.0%
502,571 Integrys Holding, Inc. (c) (d)..................... 6.00% 08/01/73 13,696,316
--------------
Wireless Telecommunication Services - 0.5%
262,545 United States Cellular Corp. (c)................... 7.25% 12/01/64 6,960,068
--------------
TOTAL $25 PAR PREFERRED SECURITIES............................................ 425,180,662
(Cost $405,082,962) --------------
$50 PAR PREFERRED SECURITIES - 0.1%
Consumer Finance - 0.1%
38,765 SLM Corp., Series A (c)............................ 6.97% (a) 1,948,329
(Cost $1,903,672) --------------
$100 PAR PREFERRED SECURITIES - 4.1%
Banks - 3.6%
80,000 Agribank FCB (d) (e)............................... 6.88% (a) 8,610,000
179,000 CoBank ACB, Series F (c) (d)....................... 6.25% (a) 19,169,790
See Notes to Financial Statements Page 7
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2016
STATED STATED
SHARES DESCRIPTION RATE MATURITY VALUE
---------------- --------------------------------------------------- ----------- ---------- --------------
$100 PAR PREFERRED SECURITIES (Continued)
Banks (Continued)
82,220 CoBank ACB, Series G (c)........................... 6.13% (a) $ 8,283,665
54,250 Cobank ACB, Series H (c) (d)....................... 6.20% (a) 5,701,339
100,000 Farm Credit Bank Of Texas (c) (d) (e).............. 6.75% (a) 10,828,130
--------------
52,592,924
--------------
Consumer Finance - 0.5%
140,000 SLM Corp., Series B (b)............................ 2.55% (a) 6,925,632
--------------
TOTAL $100 PAR PREFERRED SECURITIES........................................... 59,518,556
(Cost $55,867,346) --------------
$1,000 PAR PREFERRED SECURITIES - 6.3%
Banks - 4.4%
12,000 AgStar Financial Services ACA (c) (d) (e) (f)...... 6.75% (a) 12,730,500
25,859 Farm Credit Bank Of Texas, Series 1 (c) (e)........ 10.00% (a) 31,612,627
15,364 Sovereign Real Estate Investment Trust (e) (f)..... 12.00% (a) 19,742,740
--------------
64,085,867
--------------
Diversified Financial Services - 0.3%
4,000 Pitney Bowes International Holdings, Inc.,
Series F (e) (f)................................ 6.13% (a) 4,011,250
--------------
Diversified Telecommunication Services - 1.3%
16,000 Centaur Funding Corp. (e) (f)...................... 9.08% 04/21/20 18,960,000
--------------
Insurance - 0.3%
5,000 XLIT Ltd., Series D (b)............................ 4.00% (a) 3,962,500
--------------
TOTAL $1,000 PAR PREFERRED SECURITIES......................................... 91,019,617
(Cost $92,811,500) --------------
$1,000,000 PAR PREFERRED SECURITIES - 1.1%
Banks - 1.1%
12 FT Real Estate Securities Co., Inc. (e) (f) (g).... 9.50% (a) 15,800,486
(Cost $15,990,000) --------------
STATED STATED
PAR AMOUNT DESCRIPTION RATE MATURITY VALUE
---------------- --------------------------------------------------- ----------- ---------- --------------
CAPITAL PREFERRED SECURITIES - 100.6%
Banks - 43.7%
$ 16,000,000 Australia & New Zealand Banking Group
Ltd. (c) (d) (h) (i)............................ 6.75% (a) 17,592,672
33,200,000 Banco Bilbao Vizcaya Argentaria S.A. (c) (d) (i)... 9.00% (a) 34,590,250
18,000,000 Banco do Brasil S.A. (d) (h) (i)................... 9.00% (a) 16,758,000
17,800,000 Banco Mercantil Del Norte S.A. (d) (h) (i)......... 5.75% 10/04/31 17,243,750
18,000,000 Bank of America Corp., Series DD (c) (d)........... 6.30% (a) 19,685,700
23,867,000 Bank of America Corp., Series Z (c) (d)............ 6.50% (a) 25,925,529
40,000 Barclays Bank PLC (h).............................. 10.18% 06/12/21 50,626
12,500,000 Barclays PLC (c) (d) (i)........................... 8.25% (a) 12,692,187
20,500,000 BNP Paribas S.A. (c) (d) (h) (i)................... 7.63% (a) 21,473,750
7,500,000 BPCE S.A. (c) (d) (h).............................. 12.50% (a) 9,493,650
800,000 Citigroup, Inc., Series E (d) (e).................. 8.40% (a) 881,000
25,000,000 Citigroup, Inc., Series R (c) (d).................. 6.13% (a) 26,166,250
Page 8 See Notes to Financial Statements
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2016
STATED STATED
PAR AMOUNT DESCRIPTION RATE MATURITY VALUE
---------------- --------------------------------------------------- ----------- ---------- --------------
CAPITAL PREFERRED SECURITIES (Continued)
Banks (Continued)
$ 9,000,000 Citigroup, Inc., Series T (c) (d).................. 6.25% (a) $ 9,701,100
7,500,000 Citizens Financial Group, Inc. (c) (d)............. 5.50% (a) 7,406,250
25,000,000 CoBank ACB, Series I (c) (d)....................... 6.25% (a) 27,070,825
4,000,000 Commerzbank AG (c)................................. 8.13% 09/19/23 4,613,400
32,104,000 Cooperatieve Rabobank UA (c) (d) (h)............... 11.00% (a) 38,802,500
32,500,000 Credit Agricole S.A. (c) (d) (h) (i)............... 8.13% (a) 34,999,900
5,975,000 Credit Agricole S.A. (c) (d)....................... 8.38% (a) 6,756,410
10,000,000 Credit Agricole S.A. (c) (d) (h)................... 8.38% (a) 11,307,800
25,000,000 Dresdner Funding Trust I (c) (h)................... 8.15% 06/30/31 29,781,250
5,214,000 HSBC Capital Funding (Dollar 1) L.P. (c) (d)....... 10.18% (a) 7,886,175
15,000,000 Intesa Sanpaolo S.p.A. (c) (d) (h) (i)............. 7.70% (a) 13,762,500
20,000,000 JPMorgan Chase & Co., Series S (c) (d)............. 6.75% (a) 22,225,000
5,500,000 KeyCorp, Series D (d).............................. 5.00% (a) 5,413,375
14,150,000 Lloyds Bank PLC (c) (d)............................ 12.00% (a) 19,332,437
14,000,000 Lloyds Bank PLC (c) (d) (h)........................ 12.00% (a) 19,127,500
7,248,000 Macquarie Bank Ltd. (c) (d) (i).................... 10.25% 06/20/57 7,606,414
23,264,000 Natixis S.A. (c) (d) (h)........................... 10.00% (a) 25,881,200
5,575,000 Natixis S.A. (c) (d)............................... 10.00% (a) 6,202,188
11,290,000 NIBC Bank N.V. (c)................................. 7.63% (a) 11,488,365
10,000,000 Royal Bank Of Scotland Group PLC (c) (d)........... 7.65% (a) 11,875,000
10,000,000 Royal Bank Of Scotland Group PLC (c) (d) (i)....... 8.00% (a) 9,525,000
25,000,000 Royal Bank of Scotland Group PLC (c) (d) (i)....... 8.63% (a) 24,937,500
24,600,000 Societe Generale S.A. (c) (d) (h) (i).............. 7.38% (a) 24,452,400
9,500,000 Societe Generale S.A. (c) (d) (i).................. 8.25% (a) 9,796,875
9,400,000 Standard Chartered PLC (d) (h) (i)................. 7.50% (a) 9,488,125
21,500,000 Wells Fargo & Co., Series K (c) (d)................ 7.98% (a) 22,440,625
12,670,000 Zions Bancorporation, Series J (c) (d)............. 7.20% (a) 13,572,737
--------------
638,006,215
--------------
Capital Markets - 2.2%
5,000,000 Aberdeen Asset Management PLC (c).................. 7.00% (a) 5,187,730
4,150,000 Charles Schwab Corp. (c) (d)....................... 7.00% (a) 4,871,062
4,500,000 Credit Suisse Group AG (d) (h) (i)................. 7.50% (a) 4,668,750
2,500,000 Goldman Sachs Group, Inc., Series L (d)............ 5.70% (a) 2,534,375
15,000,000 UBS Group AG (c) (d) (i)........................... 7.13% (a) 15,393,750
--------------
32,655,667
--------------
Diversified Financial Services - 1.0%
18,418,000 Glen Meadow Pass-Through Trust (c) (d) (h)......... 6.51% 02/12/67 14,550,220
--------------
Diversified Telecommunication Services - 2.1%
1,000,000 Koninklijke KPN N.V. (c) (d)....................... 7.00% 03/28/73 1,095,250
27,150,000 Koninklijke KPN N.V. (c) (d) (h)................... 7.00% 03/28/73 29,736,038
--------------
30,831,288
--------------
Electric Utilities - 7.5%
36,500,000 Emera, Inc., Series 16-A (c) (d)................... 6.75% 06/15/76 40,406,157
34,750,000 Enel S.p.A. (c) (d) (h)............................ 8.75% 09/24/73 40,640,125
3,000,000 Nextera Energy Capital Holdings, Inc.,
Series D (c) (d)................................ 7.30% 09/01/67 3,022,500
22,900,000 PPL Capital Funding, Inc., Series A (c) (d)........ 6.70% 03/30/67 20,548,308
4,179,000 Southern California Edison Co., Series E (c) (d)... 6.25% (a) 4,675,256
--------------
109,292,346
--------------
See Notes to Financial Statements Page 9
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2016
STATED STATED
PAR AMOUNT DESCRIPTION RATE MATURITY VALUE
---------------- --------------------------------------------------- ----------- ---------- --------------
CAPITAL PREFERRED SECURITIES (Continued)
Energy Equipment & Services - 2.0%
$ 2,500,000 Enterprise Products Operating LLC, Series A (b).... 4.59% 08/01/66 $ 2,381,250
24,800,000 Transcanda Trust, Series 16-A (c) (d).............. 5.88% 08/15/76 26,598,000
--------------
28,979,250
--------------
Food Products - 4.1%
9,000,000 Dairy Farmers of America (c) (e) (f)............... 7.13% (a) 9,405,000
13,211,000 Land O'Lakes Capital Trust I (c) (h)............... 7.45% 03/15/28 15,192,650
23,000,000 Land O'Lakes, Inc. (c) (e) (f)..................... 8.00% (a) 24,380,000
10,000,000 Land O'Lakes, Inc. (c) (e) (f)..................... 8.00% (a) 10,600,000
--------------
59,577,650
--------------
Independent Power and Renewable Electricity
Producers - 1.6%
12,150,000 AES Gener S.A. (d)................................. 8.38% 12/18/73 12,939,750
9,850,000 AES Gener S.A. (d) (h)............................. 8.38% 12/18/73 10,490,250
--------------
23,430,000
--------------
Industrial Conglomerates - 0.7%
10,000,000 General Electric Co., Series D (c) (d)............. 5.00% (a) 10,606,500
--------------
Insurance - 31.8%
2,500,000 Aegon N.V. (b)..................................... 1.68% (a) 1,717,755
9,600,000 AG Insurance S.A. N.V. (c) (d)..................... 6.75% (a) 10,224,000
25,320,000 American International Group, Inc. (c) (d)......... 8.18% 05/15/58 33,976,832
40,000,000 Aquarius + Investments PLC for Swiss Reinsurance
Co., Ltd. (c) (d)............................... 8.25% (a) 43,070,880
30,000,000 Assured Guaranty Municipal Holdings, Inc. (d) (h).. 6.40% 12/15/66 24,720,000
16,000,000 Aviva PLC (c)...................................... 8.25% (a) 16,948,640
32,000,000 Catlin Insurance Co., Ltd. (c) (d) (h)............. 7.25% (a) 25,840,000
2,050,000 Cloverie PLC for Zurich Insurance Co., Ltd. (d).... 8.25% (a) 2,193,160
10,600,000 CNP Assurances (c) (d)............................. 6.88% (a) 11,415,331
10,600,000 CNP Assurances (c) (d)............................. 7.50% (a) 11,365,066
12,500,000 Dai-Ichi Life Insurance Co., Ltd.
(The) (c) (d) (h)............................... 7.25% (a) 14,812,437
27,375,000 Friends Life Holdings PLC (c) (d).................. 7.88% (a) 29,603,325
25,616,000 La Mondiale SAM (c) (d)............................ 7.63% (a) 27,569,220
14,000,000 Liberty Mutual Group, Inc. (c) (d) (h)............. 7.00% 03/15/37 12,215,000
16,210,000 Liberty Mutual Group, Inc. (c) (h)................. 7.80% 03/15/37 19,087,275
2,000,000 Liberty Mutual Group, Inc. (c) (d)................. 10.75% 06/15/58 3,030,000
15,000,000 Metlife Capital Trust X (c) (h).................... 9.25% 04/08/38 21,885,000
17,180,000 Metlife, Inc. (c).................................. 10.75% 08/01/39 28,132,250
20,000,000 Mitsui Sumitomo Insurance Co., Ltd. (c) (d) (h).... 7.00% 03/15/72 23,950,000
3,000,000 Nationwide Financial Services Capital
Trust (c) (e)................................... 7.90% 03/01/37 3,446,223
19,700,000 Nationwide Financial Services, Inc. (c)............ 6.75% 05/15/37 20,783,500
22,000,000 QBE Capital Funding III Ltd. (c) (d) (h)........... 7.25% 05/24/41 24,860,000
20,250,000 QBE Insurance Group Ltd. (c) (d)................... 6.75% 12/02/44 22,163,625
25,000,000 Sirius International Group Ltd. (d) (e) (f)........ 7.51% (a) 25,218,750
6,800,000 Stancorp Financial Group, Inc. (c) (d)............. 6.90% 06/01/67 5,525,000
--------------
463,753,269
--------------
Metals & Mining - 1.2%
15,000,000 BHP Billiton Finance USA Ltd. (c) (d) (h).......... 6.75% 10/19/75 17,025,000
--------------
Oil, Gas & Consumable Fuels - 2.0%
15,000,000 Enbridge Energy Partners L.P. (c) (d).............. 8.05% 10/01/37 13,671,750
15,000,000 Enterprise Products Operating LLC,
Series B (c) (d)................................ 7.03% 01/15/68 15,836,250
--------------
29,508,000
--------------
Page 10 See Notes to Financial Statements
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2016
STATED STATED
PAR AMOUNT DESCRIPTION RATE MATURITY VALUE
---------------- --------------------------------------------------- ----------- ---------- --------------
CAPITAL PREFERRED SECURITIES (Continued)
Transportation Infrastructure - 0.7%
$ 10,000,000 AerCap Global Aviation Trust (c) (d) (h)........... 6.50% 06/15/45 $ 10,350,000
--------------
TOTAL CAPITAL PREFERRED SECURITIES............................................ 1,468,565,405
(Cost $1,462,074,011) --------------
TOTAL INVESTMENTS - 141.3%.................................................... $2,062,033,055
(Cost $2,033,729,491) (j)
OUTSTANDING LOAN - (44.2%).................................................... (645,000,000)
NET OTHER ASSETS AND LIABILITIES - 2.9%....................................... 42,895,672
--------------
NET ASSETS - 100.0%........................................................... $1,459,928,727
==============
-----------------------------
(a) Perpetual maturity.
(b) Floating rate security. The interest rate shown reflects the rate in
effect at October 31, 2016.
(c) All or a portion of this security serves as collateral on the outstanding
loan.
(d) Fixed-to-floating or fixed-to-variable rate security. The interest rate
shown reflects the fixed rate in effect at October 31, 2016. At a
predetermined date, the fixed rate will change to a floating rate or a
variable rate.
(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 is fair valued by the Advisor's Pricing Committee in
accordance with procedures adopted by the Fund's Board of Trustees, and in
accordance with the provisions of the Investment Company Act of 1940, as
amended. At October 31, 2016, securities noted as such are valued at
$15,800,486 or 1.1% of net assets.
(h) This security, sold within the terms of a private placement memorandum, is
exempt from registration upon resale under Rule 144A under the 1933 Act,
and may be resold in transactions exempt from registration, normally to
qualified institutional buyers. Pursuant to procedures adopted by the
Fund's Board of Trustees, this security has been determined to be liquid
by the Sub-Advisor. Although market instability can result in periods of
increased overall market illiquidity, liquidity for each security is
determined based on security specific factors and assumptions, which
require subjective judgment. At October 31, 2016, securities noted as such
amounted to $600,238,368 or 41.1% of net assets.
(i) This security is a contingent convertible capital security which may be
subject to conversion into common stock of the issuer under certain
circumstances. At October 31, 2016, securities noted as such amounted to
$274,981,823 or 13.1% of managed assets. Of these securities, 12.4% of
these securities originated in emerging markets and 87.6% originated in
foreign markets.
(j) Aggregate cost for federal income tax purposes is $2,031,688,655. As of
October 31, 2016, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$72,769,309 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$42,424,909.
INTEREST RATE SWAP AGREEMENTS:
COUNTERPARTY FLOATING RATE(1) EXPIRATION DATE NOTIONAL AMOUNT FIXED RATE(1) VALUE
--------------------------------------------------------------------------------------------------------------
Bank of Nova Scotia 1 month LIBOR 1/23/25 $ 165,000,000 1.786% $ (4,915,086)
------------- ------------
(1) The Fund pays the fixed rate and receives the floating rate. The floating
rate on October 31, 2016 was 0.524%.
See Notes to Financial Statements Page 11
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2016
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of October 31,
2016 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
10/31/2016 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
$25 Par Preferred Securities:
Insurance...................................... $ 85,189,434 $ 80,907,391 $ 4,282,043 $ --
Multi-Utilities................................ 13,696,316 -- 13,696,316 --
Other industry categories*..................... 326,294,912 326,294,912 -- --
$50 Par Preferred Securities*..................... 1,948,329 1,948,329 -- --
$100 Par Preferred Securities:
Banks.......................................... 52,592,924 -- 52,592,924 --
Consumer Finance............................... 6,925,632 6,925,632 -- --
$1,000 Par Preferred Securities*.................. 91,019,617 -- 91,019,617 --
$1,000,000 Par Preferred Securities*.............. 15,800,486 -- -- 15,800,486
Capital Preferred Securities*..................... 1,468,565,405 -- 1,468,565,405 --
--------------- --------------- --------------- ---------------
Total Investments................................. $ 2,062,033,055 $ 416,076,264 $ 1,630,156,305 $ 15,800,486
=============== =============== =============== ===============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
10/31/2016 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
Interest Rate Swaps**............................. $ (4,915,086) $ -- $ (4,915,086) $ --
=============== =============== =============== ===============
* 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 October 31, 2016.
Level 3 Par preferred securities are valued using broker quotes. These values
are based on unobservable and non-quantitative inputs. The Fund's Board of
Trustees has adopted valuation procedures that are utilized by the Advisor's
Pricing Committee to oversee the day-to-day valuation of the Fund's investments.
The Advisor's Pricing Committee, through the Fund's fund accounting agent,
monitors daily pricing via tolerance checks and stale and unchanged price
reviews. The Advisor's Pricing Committee also reviews monthly back testing of
pricing service prices by comparing sales prices of the Fund's investments to
prior day pricing service prices. Additionally, the Advisor's Pricing Committee
reviews periodic information from the Fund's third-party pricing service that
compares secondary market trade prices to their daily valuations.
The following table presents the activity of the Fund's investments measured at
fair value on a recurring basis using significant unobservable inputs (Level 3)
for the period presented.
BEGINNING BALANCE AT OCTOBER 31, 2015
$1,000,000 Par Preferred Securities $ --
Net Realized Gain (Loss) --
Net Change in Unrealized Appreciation/Depreciation --
Purchases:
$1,000,000 Par Preferred Securities 15,800,486
Sales --
Transfers In --
Transfers Out --
ENDING BALANCE AT OCTOBER 31, 2016
$1,000,000 Par Preferred Securities 15,800,486
---------------
Total Level 3 holdings $ 15,800,486
===============
Page 12 See Notes to Financial Statements
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2016
ASSETS:
Investments, at value
(Cost $2,033,729,491)........................................................................ $ 2,062,033,055
Cash............................................................................................ 9,465,911
Cash segregated as collateral for open swap contracts........................................... 11,391,646
Receivables:
Interest..................................................................................... 23,939,850
Investment securities sold................................................................... 17,710,611
Dividends.................................................................................... 1,156,564
Tax reclaims................................................................................. 323,106
Other assets.................................................................................... 33,758
----------------
Total Assets................................................................................. 2,126,054,501
----------------
LIABILITIES:
Outstanding loan................................................................................ 645,000,000
Swap contracts, at value........................................................................ 4,915,086
Payables:
Investment securities purchased.............................................................. 13,701,039
Investment advisory fees..................................................................... 1,508,355
Interest and fees due on loan................................................................ 733,693
Administrative fees.......................................................................... 79,637
Printing fees................................................................................ 66,252
Legal fees................................................................................... 47,679
Custodian fees............................................................................... 37,055
Audit and tax fees........................................................................... 33,200
Transfer agent fees.......................................................................... 1,507
Trustees' fees and expenses.................................................................. 1,475
Financial reporting fees..................................................................... 771
Other liabilities............................................................................... 25
----------------
Total Liabilities............................................................................ 666,125,774
----------------
NET ASSETS...................................................................................... $ 1,459,928,727
================
NET ASSETS CONSIST OF:
Paid-in capital................................................................................. $ 1,448,052,970
Par value....................................................................................... 607,660
Accumulated net investment income (loss)........................................................ 8,338,470
Accumulated net realized gain (loss) on investments, futures and swap contracts................. (20,458,851)
Net unrealized appreciation (depreciation) on investments and swap contracts.................... 23,388,478
----------------
NET ASSETS...................................................................................... $ 1,459,928,727
================
NET ASSET VALUE, per share...................................................................... $ 24.03
================
Number of Common Shares outstanding (unlimited number of Common Shares
has been authorized)......................................................................... 60,765,997
================
See Notes to Financial Statements Page 13
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2016
INVESTMENT INCOME:
Interest........................................................................................ $ 102,365,904
Dividends....................................................................................... 41,642,113
Other........................................................................................... 22,480
----------------
Total investment income...................................................................... 144,030,497
----------------
EXPENSES:
Investment advisory fees........................................................................ 17,336,811
Interest and fees on loan....................................................................... 7,552,514
Administrative fees............................................................................. 676,103
Excise tax expense.............................................................................. 257,333
Printing fees................................................................................... 218,393
Custodian fees.................................................................................. 177,674
Legal fees...................................................................................... 90,176
Listing expense................................................................................. 53,489
Audit and tax fees.............................................................................. 34,351
Trustees' fees and expenses..................................................................... 21,922
Transfer agent fees............................................................................. 20,976
Financial reporting fees........................................................................ 9,250
Other........................................................................................... 52,343
----------------
Total expenses............................................................................... 26,501,335
----------------
NET INVESTMENT INCOME (LOSS).................................................................... 117,529,162
----------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments.................................................................................. 8,015,097
Swap contracts............................................................................... (2,302,666)
----------------
5,712,431
----------------
Net change in unrealized appreciation (depreciation) on:
Investments.................................................................................. 21,132,604
Swap contracts............................................................................... (5,819,259)
----------------
Net change in unrealized appreciation (depreciation)............................................ 15,313,345
----------------
NET REALIZED AND UNREALIZED GAIN (LOSS)......................................................... 21,025,776
----------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................. $ 138,554,938
================
Page 14 See Notes to Financial Statements
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE FOR THE
YEAR YEAR
ENDED ENDED
10/31/2016 10/31/2015
-------------- --------------
OPERATIONS:
Net investment income (loss)...................................................... $ 117,529,162 $ 118,894,137
Net realized gain (loss).......................................................... 5,712,431 (13,571,457)
Net change in unrealized appreciation (depreciation).............................. 15,313,345 (21,627,325)
-------------- --------------
Net increase (decrease) in net assets resulting from operations................... 138,554,938 83,695,355
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................................. (118,413,319) (127,934,078)
-------------- --------------
Total distributions to shareholders............................................... (118,413,319) (127,934,078)
-------------- --------------
SHAREHOLDER TRANSACTIONS:
Proceeds from Common Shares reinvested............................................ 1,426,562 --
Offering costs.................................................................... -- 109,603
-------------- --------------
Net increase (decrease) in net assets resulting from shareholder transactions..... 1,426,562 109,603
-------------- --------------
Total increase (decrease) in net assets........................................... 21,568,181 (44,129,120)
NET ASSETS:
Beginning of period............................................................... 1,438,360,546 1,482,489,666
-------------- --------------
End of period..................................................................... $1,459,928,727 $1,438,360,546
============== ==============
Accumulated net investment income (loss) at end of year........................... $ 8,338,470 $ 6,710,552
============== ==============
CHANGES IN SHARES OUTSTANDING:
Common Shares outstanding, beginning of period.................................... 60,704,189 60,704,189
Common Shares issued as reinvestment under the Dividend Reinvestment Plan......... 61,808 --
-------------- --------------
Common Shares outstanding, end of period.......................................... 60,765,997 60,704,189
============== ==============
See Notes to Financial Statements Page 15
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED OCTOBER 31, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) in net assets resulting from operations................... $ 138,554,938
Adjustments to reconcile net increase (decrease) in net assets resulting from
operations to net cash used by operating activities:
Purchases of investments..................................................... (987,355,451)
Sales, maturities and paydowns of investments................................ 979,325,086
Return of capital received from investment in REIT's......................... 340,277
Net amortization/accretion of premium/discount on investments................ 990,225
Net realized gain/loss on investments........................................ (8,015,097)
Net change in unrealized appreciation/depreciation on investments............ (21,132,604)
Net change in unrealized appreciation/depreciation on swap contracts......... 5,819,259
Increase in cash segregated as collateral for open swap contracts............ (5,197,148)
Changes in assets and liabilities:
Decrease in interest receivable.............................................. 1,523,644
Decrease in dividends receivable............................................. 1,048,435
Decrease in prepaid expenses................................................. 27,306
Increase in other assets..................................................... (17,009)
Increase in tax reclaim...................................................... (61,262)
Increase in interest and fees on loan payable................................ 190,116
Increase in investment advisory fees payable................................. 14,513
Increase in legal fees payable............................................... 43,012
Decrease in printing fees payable............................................ (980)
Decrease in administrative fees payable...................................... (265,707)
Decrease in custodian fees payable........................................... (61,167)
Increase in transfer agent fees payable...................................... 3
Decrease in Trustees' fees and expenses payable.............................. (1,228)
Increase in other liabilities payable........................................ 25
--------------
CASH PROVIDED BY OPERATING ACTIVITIES............................................. $ 105,769,186
--------------
Cash flows from financing activities:
Proceeds of Common Shares reinvested......................................... 1,426,562
Distributions to Common Shareholders from net investment income.............. (118,413,319)
Proceeds from borrowings..................................................... 49,000,000
Repayment of borrowings...................................................... (49,000,000)
--------------
CASH USED BY FINANCING ACTIVITIES................................................. (116,986,757)
--------------
Decrease in cash.................................................................. (11,217,571)
Cash at beginning of period....................................................... 20,683,482
--------------
Cash at end of period............................................................. $ 9,465,911
==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest and fees................................. $ 7,296,903
==============
Page 16 See Notes to Financial Statements
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
FINANCIAL HIGHLIGHTS
FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FOR THE PERIOD
YEAR ENDED OCTOBER 31, 5/23/2013 (a)
----------------------------------------------- THROUGH
2016 2015 2014 10/31/2013
------------- ------------- ------------- -------------
Net asset value, beginning of period............ $ 23.69 $ 24.42 $ 23.51 $ 23.88 (b)
----------- ----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).................... 1.94 1.96 1.85 0.70
Net realized and unrealized gain (loss)......... 0.35 (0.58) 0.97 (0.64)
----------- ----------- ----------- -----------
Total from investment operations................ 2.29 1.38 2.82 0.06
----------- ----------- ----------- -----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income........................... (1.95) (2.11) (1.91) (0.46)
----------- ----------- ----------- -----------
Common Shares offering costs charged to
paid-in capital.............................. -- 0.00 (c) -- (0.03)
----------- ----------- ----------- -----------
Capital reduction resulting from issuance of
common shares................................ -- -- -- 0.06
----------- ----------- ----------- -----------
Net asset value, end of period.................. $ 24.03 $ 23.69 $ 24.42 $ 23.51
=========== =========== =========== ===========
Market value, end of period..................... $ 22.66 $ 21.95 $ 21.94 $ 21.01
=========== =========== =========== ===========
TOTAL RETURN BASED ON NET ASSET VALUE (d)....... 10.68% 6.68% 13.37% 0.60%
=========== =========== =========== ===========
TOTAL RETURN BASED ON MARKET VALUE (d).......... 12.65% 10.02% 13.98% (14.13)%
=========== =========== =========== ===========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)............ $ 1,459,929 $ 1,438,361 $ 1,482,490 $ 1,427,164
Ratio of total expenses to average net assets... 1.88% 1.76% 1.69% 1.53% (e)
Ratio of net expenses to average net assets
excluding interest expense................... 1.34% 1.34% 1.33% 1.24% (e)
Ratio of net investment income (loss) to average
net assets................................... 8.34% 8.15% 7.66% 7.01% (e)
Portfolio turnover rate......................... 50% 48% 62% 11%
INDEBTEDNESS:
Total loan outstanding (in 000's)............... $ 645,000 $ 645,000 $ 665,000 $ 584,000
Asset coverage per $1,000 of indebtedness (f)... $ 3,263 $ 3,230 $ 3,229 $ 3,444
-----------------------------
(a) The Fund was seeded on April 16, 2013 and commenced operations on May 23,
2013.
(b) Beginning net asset value is net of sales load of $1.125 per share from
the initial offering.
(c) Amount represents less than $0.01 per share.
(d) Total return 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 of less than one year. Past performance is not
indicative of future results.
(e) Annualized.
(f) Calculated by taking the Fund's total assets less the Fund's total
liabilities (not including the loan outstanding) and dividing by the loan
balance in 000's.
See Notes to Financial Statements Page 17
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2016
1. ORGANIZATION
First Trust Intermediate Duration Preferred & Income Fund (the "Fund") is a
non-diversified closed-end management investment company organized as a
Massachusetts business trust on February 4, 2013, and is registered with the
Securities and Exchange Commission ("SEC") under the Investment Company Act of
1940, as amended. The Fund trades under the ticker symbol "FPF" on the New York
Stock Exchange ("NYSE").
The primary investment objective is to seek a high level of current income. The
Fund has a secondary objective of capital appreciation. The Fund seeks to
achieve its objectives by investing, under normal market conditions, at least
80% of its managed assets in preferred securities and other income producing
securities issued by U.S. and non-U.S. companies, including traditional
preferred securities, hybrid preferred securities that have investment and
economic characteristics of both preferred securities and debt securities,
floating rate and fixed-to-floating rate preferred securities, debt securities,
convertible securities and contingent convertible securities. There can be no
assurance that the Fund will achieve its investment objectives. The Fund seeks
to maintain, under normal market conditions, a duration of between three and
eight years. The Fund may not be appropriate for all investors.
2. SIGNIFICANT ACCOUNTING POLICIES
The Fund is considered an investment company and follows accounting and
reporting guidance under Financial Accounting Standards Board Accounting
Standards Codification Topic 946, "Financial Services - Investment Companies."
Accounting Standards Codification Topic 946, "Financial Services-Investment
Companies." The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of the financial
statements. The preparation of the financial statements in accordance with
accounting principles generally accepted in the United States of America ("U.S.
GAAP") requires management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual results
could differ from those estimates.
A. PORTFOLIO VALUATION
The Fund's net asset value ("NAV") is determined daily as of the close of
regular trading on the NYSE, normally 4:00 p.m. Eastern time, on each day the
NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV
is determined as of that time. Domestic debt securities and foreign securities
are priced using data reflecting the earlier closing of the principal markets
for those securities. The Fund's NAV is calculated by dividing the value of all
assets of the Fund (including accrued interest and dividends), less all
liabilities (including accrued expenses and dividends declared but unpaid and
any borrowings of the Fund), by the total number of shares outstanding.
The Fund's investments are valued daily at market value or, in absence of market
value with respect to any portfolio securities, at fair value. Market value
prices represent last sale or official closing prices from a national or foreign
exchange (i.e., a regulated market) and are primarily obtained from third-party
pricing services. Fair value prices represent any prices not considered market
value prices and are either obtained from a third-party pricing service or are
determined by the Pricing Committee of the Fund's investment advisor, First
Trust Advisors L.P. ("First Trust" or the "Advisor"), in accordance with
valuation procedures adopted by the Fund's Board of Trustees, and in accordance
with provisions of the 1940 Act. Investments valued by the Advisor's Pricing
Committee are footnoted as such in the footnotes to the Portfolio of
Investments. The Fund's investments are valued as follows:
Preferred stocks and other equity securities listed on any national or
foreign exchange (excluding The Nasdaq Stock Market LLC ("Nasdaq") and the
London Stock Exchange Alternative Investment Market ("AIM")), are valued
at the last sale price on the exchange on which they are principally
traded or, for Nasdaq and AIM securities, the official closing price.
Securities traded on one or more than one securities exchange are valued
at the last sale price or official closing price, as applicable, at the
close of the securities exchange representing the principal market for
such securities.
Corporate bonds, notes and other debt securities are valued on the basis
of valuations provided by dealers who make markets in such securities or
by a third-party pricing service approved by the Fund's Board of Trustees,
which may use the following valuation inputs when available:
1) benchmark yields;
2) reported trades;
3) broker/dealer quotes;
4) issuer spreads;
5) benchmark securities;
6) bids and offers; and
7) reference data including market research publications.
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 18
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2016
Swaps are fair valued utilizing quotations provided by a third-party
pricing service or, if the pricing service does not provide a value, by
quotes provided by the selling dealer or financial institution.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Fund's Board of Trustees or its
delegate, the Advisor's Pricing Committee, at fair value. These securities
generally include, but are not limited to, restricted securities (securities
which may not be publicly sold without registration under the Securities Act of
1933, as amended (the "1933 Act")) for which a third-party pricing service is
unable to provide a market price; securities whose trading has been formally
suspended; a security whose market or fair value price is not available from a
pre-established pricing source; a security with respect to which an event has
occurred that is likely to materially affect the value of the security after the
market has closed but before the calculation of the Fund's NAV or make it
difficult or impossible to obtain a reliable market quotation; and a security
whose price, as provided by the third-party pricing service, does not reflect
the security's fair value. As a general principle, the current fair value of a
security would appear to be the amount which the owner might reasonably expect
to receive for the security upon its current sale. When fair value prices are
used, generally they will differ from market quotations or official closing
prices on the applicable exchanges. A variety of factors may be considered in
determining the fair value of such securities, including, but not limited to,
the following:
1) the type of security;
2) the size of the holding;
3) the initial cost of the security;
4) transactions in comparable securities;
5) price quotes from dealers and/or third-party pricing services;
6) relationships among various securities;
7) information obtained by contacting the issuer, analysts, or the
appropriate stock exchange;
8) an analysis of the issuer's financial statements; and
9) the existence of merger proposals or tender offers that might affect
the value of the security.
If the securities in question are foreign securities, the following additional
information may be considered:
1) the value of similar foreign securities traded on other foreign
markets;
2) ADR trading of similar securities;
3) closed-end fund trading of similar securities;
4) foreign currency exchange activity;
5) the trading prices of financial products that are tied to baskets of
foreign securities;
6) factors relating to the event that precipitated the pricing problem;
7) whether the event is likely to recur; and
8) whether the effects of the event are isolated or whether they affect
entire markets, countries or regions.
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
The inputs or methodologies used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of October 31, 2016, is
included with the Fund's Portfolio of Investments.
Page 19
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2016
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income is recorded
on the accrual basis. Amortization of premiums and the accretion of discounts
are recorded using the effective interest method.
The Fund may hold the securities of real estate investments trusts ("REITs").
Distributions from such investments may include income, capital gains and return
of capital. The actual character of amounts received during the year is not
known until after the REITs' fiscal year end. The Fund records the character of
distributions received from the REITs during the year based on estimates
available. The characterization of distributions received by the Fund may be
subsequently revised based on information received from the REITs after their
tax reporting periods conclude.
C. RESTRICTED SECURITIES
The Fund invests in restricted securities, which are securities that may not be
offered for public sale without first being registered under the 1933 Act. Prior
to registration, restricted securities may only be resold in transactions exempt
from registration under Rule 144A under the 1933 Act, normally to qualified
institutional buyers. As of October 31, 2016, 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
---------------------------------- --------------- ----------- ------------ ------------ ------------ ------
AgStar Financial Services ACA,
6.75% 5/29/13-7/31/15 12,000 $ 1,060.88 $ 12,105,000 $ 12,730,500 0.87%
Centaur Funding Corp., 9.08%,
04/21/20 5/29/13-5/31/13 16,000 1,185.00 20,528,750 18,960,000 1.30
FT Real Estate Securities Co.,
Inc., 9.50% 6/15/16 12 1,316,707.20 15,990,000 15,800,486 1.08
Pitney Bowes International
Holdings, Inc., Series F, 6.13% 6/27/13 4,000 1,002.81 3,935,000 4,011,250 0.27
Sovereign Real Estate Investment
Trust, 12.00% 6/11/13-3/22/16 15,364 1,285.00 20,231,885 19,742,740 1.35
Dairy Farmers of America, 7.13% 9/15/16 $ 9,000,000 104.50 9,000,000 9,405,000 0.64
Land O'Lakes, Inc., 8.00% 7/09/15-3/18/16 $23,000,000 106.00 23,032,500 24,380,000 1.67
Land O'Lakes, Inc;, 8.00% 4/11/16 $10,000,000 106.00 10,000,000 10,600,000 0.73
Sirius International Group Ltd.,
7.51% 8/06/14-4/24/15 $25,000,000 100.88 26,480,164 25,218,750 1.73
----------------------------------
$141,303,299 $140,848,726 9.64%
==================================
D. SWAP AGREEMENTS
The Fund may enter into interest rate swap agreements. A swap is a financial
instrument that typically involves the exchange of cash flows between two
parties ("Counterparties") on specified dates (settlement dates) where the cash
flows are based on agreed upon prices, rates, etc. Payments received or made by
the Fund for interest rate swaps are recorded in the Statement of Operations as
"Net realized gain (loss) on swap contracts." When an interest rate swap is
terminated, the Fund will record a realized gain or loss equal to the difference
between the proceeds from (or cost of) the closing transaction and the Fund's
basis in the contract, if any. Generally, the basis of the contracts, if any, is
the premium received or paid. Swap agreements are individually negotiated and
involve the risk of the potential inability of the Counterparties to meet the
terms of the agreement. In connection with these agreements, cash and securities
may be identified as collateral in accordance with the terms of the respective
swap agreements to provide assets of value and recourse in the event of default
under the swap agreement or bankruptcy/insolvency of a party to the swap
agreement. In the event of a default by the Counterparty, the Fund will seek
withdrawal of this collateral and may incur certain costs exercising its right
with respect to the collateral. If a Counterparty becomes bankrupt or otherwise
fails to perform its obligations due to financial difficulties, the Fund may
experience significant delays in obtaining any recovery in a bankruptcy or other
reorganization proceeding. The Fund may obtain only limited recovery or may
obtain no recovery in such circumstances.
Page 20
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2016
Swap agreements may increase or decrease the overall volatility of the
investments of the Fund. The performance of swap agreements may be affected by a
change in the specific interest rate, security, currency, or other factors that
determine the amounts of payments due to and from the Fund. The Fund's maximum
equity price risk to meet its future payments under swap agreements outstanding
at October 31, 2016 is equal to the total notional amount as shown on the
Portfolio of Investments. The notional amount represents the U.S. dollar value
of the contract as of the day of the opening transaction or contract reset. When
the Fund enters into a swap agreement, any premium paid is included in "Swap
contracts, at value" on the Statement of Assets and Liabilities.
The Fund held interest rate swap agreements at October 31, 2016. An interest
rate swap agreement involves the Fund's agreement to exchange a stream of
interest payments for another party's stream of cash flows. Interest rate swaps
do not involve the delivery of securities or other underlying assets or
principal. Accordingly, the risk of loss with respect to interest rate swaps is
limited to the net amount of interest payments that the Fund is contractually
obligated to make.
Cash segregated as collateral for open swap contracts in the amount of
$11,391,646 is shown on the Statement of Assets and Liabilities.
E. 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
federal income tax regulations, which may differ from U.S. GAAP. Certain capital
accounts in the financial statements are periodically adjusted for permanent
differences in order to reflect their tax character. These permanent differences
are primarily due to the varying treatment of income and gain/loss on portfolio
securities held by the Fund and have no impact on net assets or NAV per share.
Temporary differences, which arise from recognizing certain items of income,
expense and gain/loss in different periods for financial statement and tax
purposes, will reverse at some time in the future.
Permanent differences incurred during the year ended October 31, 2016, resulting
in book and tax accounting differences, have been reclassified at year end to
reflect an increase in accumulated net investment income (loss) of $2,512,075, a
decrease in accumulated net realized gain (loss) on investments of $2,254,742,
and a decrease to paid-in capital of $257,333. Net assets were not affected by
these reclassifications.
The tax character of distributions paid during the fiscal periods ended October
31, 2016 and 2015, was as follows:
Distributions paid from: 2016 2015
Ordinary income.............................. $ 118,413,319 $ 127,934,078
As of October 31, 2016, the components of distributable earnings on a tax basis
were as follows:
Undistributed ordinary income................ $ 4,048,023
Undistributed capital gains.................. --
---------------
Total undistributed earnings................. 4,048,023
Accumulated capital and other losses......... (18,255,523)
Net unrealized appreciation (depreciation)... 25,475,597
---------------
Total accumulated earnings (losses).......... 11,268,097
Other........................................ --
Paid-in capital.............................. 1,448,660,630
---------------
Net Assets................................... $ 1,459,928,727
===============
F. INCOME TAXES
The Fund intends to continue to qualify as a regulated investment company by
complying with the requirements under Subchapter M of the Internal Revenue Code
of 1986, as amended, which includes distributing substantially all of its net
investment income and net realized gains to shareholders. Accordingly, no
provision has been made for federal or state income taxes. However, due to the
timing and amount of distributions, the Fund may be subject to an excise tax of
4% of the amount by which approximately 98% of the Fund's taxable income exceeds
the distributions from such taxable income for the calendar year.
The Fund intends to utilize provisions of the federal income tax laws, which
allow it to carry a realized capital loss forward indefinitely following the
year of the loss and offset such loss against any future realized capital gains.
The Fund is subject to certain limitations under U.S. tax rules on the use of
capital carryforwards and net unrealized built-in losses. These limitations
apply when there has been a 50% change in ownership. At October 31, 2016, the
Fund had capital loss carryforwards for federal income tax purposes of
$18,255,523.
Page 21
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2016
The Fund is subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. The taxable years ended 2013,
2014, 2015 and 2016 remain open to federal and state audit. As of October 31,
2016, management has evaluated the application of these standards to the Fund,
and has determined that no provision for income tax is required in the Fund's
financial statements for uncertain tax positions.
G. EXPENSES
The Fund will pay all expenses directly related to its operations.
H. ORGANIZATION AND OFFERING COSTS
Organization costs consisted of costs incurred to establish the Fund and enable
it to legally conduct business. These costs included filing fees, listing fees,
legal services pertaining to the organization of the business and audit fees
relating to the initial registration and auditing the initial statement of
assets and liabilities, among other fees. Offering costs consisted of legal fees
pertaining to the Fund's shares offered for sale, registration fees,
underwriting fees, and printing of the initial prospectus, among other fees.
First Trust paid all organization expenses. The Fund's Common Share offering
costs of $1,704,000 were recorded as a reduction of the proceeds from the sale
of Common Shares during the period ended October 31, 2013. During the fiscal
year ended October 31, 2015, it was determined that actual offering costs were
less than the estimated offering costs by $109,603. Therefore, paid-in-capital
was increased by that amount in the current fiscal year, as reflected in the
offering costs line item on the Statement of Changes in Net Assets.
I. NEW AND AMENDED FINANCIAL REPORTING RULES AND FORMS
On October 13, 2016, the SEC adopted new rules and forms, and amended existing
rules and forms. The new and amended rules and forms are intended to modernize
the reporting of information provided by funds and to improve the quality and
type of information that funds provide to the SEC and investors. The new and
amended rules and forms will be effective for the First Trust funds, including
the Fund, for reporting periods beginning on and after June 1, 2018. Management
is evaluating the new and amended rules and forms to determine the impact to the
Fund.
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Fund, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for ongoing monitoring of the Fund's investment portfolio,
managing the Fund's business affairs and providing certain administrative
services necessary for the management of the Fund. For these investment
management services, First Trust is entitled to a monthly fee calculated at an
annual rate of 0.85% of the Fund's average daily net assets. First Trust also
provides fund reporting services to the Fund for a flat annual fee in the amount
of $9,250.
Stonebridge, a majority-owned affiliate of First Trust, serves as the Fund's
sub-advisor and manages the Fund's portfolio subject to First Trust's
supervision. The Sub-Advisor receives a monthly portfolio management fee
calculated at an annual rate of 0.425% of average daily net assets that is paid
by First Trust out of its investment advisory fee.
Brown Brothers Harriman & Co. ("BBH") serves as the Fund's administrator, fund
accountant and custodian in accordance with certain fee arrangements. As
administrator and fund accountant, BBH is responsible for providing certain
administrative and accounting services to the Fund, including maintaining the
Fund's books of account, records of the Fund's securities transactions, and
certain other books and records. As custodian, BBH is responsible for custody of
the Fund's assets.
Computershare, Inc. serves as the Fund's transfer agent in accordance with
certain fee arrangements. As transfer agent, Computershare, Inc. is responsible
for maintaining shareholder records for the Fund.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer that is allocated equally among each fund in the First Trust Fund
Complex. Prior to January 1, 2016, the fixed annual retainer was allocated pro
rata based on each Fund's net assets. Each Independent Trustee is also paid an
annual per fund fee that varies based on whether the fund is a closed-end or
other actively managed fund, or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee are paid
annual fees to serve in such capacities, with such compensation allocated pro
rata among each fund in the First Trust Fund Complex based on net assets.
Independent Trustees are reimbursed for travel and out-of-pocket expenses in
connection with all meetings. The Lead Independent Trustee and Committee
Chairmen rotate every three years. The officers and "Interested" Trustee receive
no compensation from the Fund for acting in such capacities.
Page 22
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2016
4. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 2016, the cost of purchases and proceeds from
sales of investments, excluding short-term investments for the Fund, were
$992,715,263 and $992,637,424, respectively.
5. DERIVATIVE TRANSACTIONS
The following table presents the types of derivatives held by the Fund at
October 31, 2016, 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 $ -- Swap Contracts, at Value $ 4,915,086
The following table presents the amount of net realized gain (loss) and change
in net unrealized appreciation (depreciation) recognized for the fiscal year
ended October 31, 2016, on derivative instruments as well as the primary
underlying risk exposure associated with each instrument.
STATEMENT OF OPERATIONS LOCATION
------------------------------------------------------------------------------------------
INTEREST RATE RISK
Net realized gain (loss) on swaps contracts.................................. $ (2,302,666)
Net change in unrealized appreciation (depreciation) on swaps contracts...... (5,819,259)
The average volume of interest rates swaps held was $165,000,000 for the fiscal
year ended October 31, 2016.
The Fund does not have the right to offset financial assets and financial
liabilities related to swap contracts on the Statement of Assets and
Liabilities.
6. BORROWINGS
The Fund entered into a credit agreement with 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, 2015 and
October 31, 2016, was $630,898,907 with a weighted average interest rate of
1.19%. As of October 31, 2016, the Fund had outstanding borrowings of
$645,000,000 under this committed facility agreement. The high and low annual
interest rates for the year ended October 31, 2016, were 1.30% and 0.90%,
respectively. The interest rate at October 31, 2016, was 1.28%.
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 November 21, 2016, the Fund declared a distribution of $0.1625 per share to
Common Shareholders of record on December 5, 2016, payable December 12, 2016.
Page 23
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FIRST TRUST INTERMEDIATE DURATION
PREFERRED & INCOME FUND:
We have audited the accompanying statement of assets and liabilities of First
Trust Intermediate Duration Preferred & Income Fund (the "Fund"), including the
portfolio of investments, as of October 31, 2016, and the related statements of
operations and cash flows for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the periods presented. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of October 31, 2016, by correspondence with the Fund's
custodian and brokers; where replies were not received from brokers, we
performed other auditing procedures. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
First Trust Intermediate Duration Preferred & Income Fund as of October 31,
2016, the results of its operations and its cash flows for the year then ended,
the changes in its net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods presented, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Deloitte & Touche LLP
Chicago, Illinois
December 20, 2016
Page 24
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ADDITIONAL INFORMATION
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FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2016 (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 Form N-Qs
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 25
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2016 (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 New Opportunities MLP & Energy Fund and First Trust
Intermediate Duration Preferred & Income Fund was held on April 22, 2016 (the
"Annual Meeting"). At the Annual Meeting, James A. Bowen and Niel B. Nielson
were elected by the Common Shareholders of the First Trust Intermediate Duration
Preferred & Income Fund as Class III Trustees for a three-year term expiring at
the Fund's annual meeting of shareholders in 2019. The number of votes cast in
favor of Mr. Bowen was 50,947,217, the number of votes against Mr. Bowen was
900,637, and the number of broker non-votes was 8,856,335. The number of votes
cast in favor of Mr. Nielson was 50,924,726, the number of votes against Mr.
Nielson was 923,128, and the number of broker non-votes was 8,856,335. Richard
E. Erickson, Thomas R. Kadlec and Robert F. Keith are the other current and
continuing Trustees.
NYSE CERTIFICATION INFORMATION
In accordance with Section 303A-12 of the New York Stock Exchange ("NYSE")
Listed Company Manual, the Fund's President has certified to the NYSE that, as
of April 26, 2016, he was not aware of any violation by the Fund of NYSE
corporate governance listing standards. In addition, the Fund's reports to the
SEC on Forms N-CSR, N-CSRS and N-Q contain certifications by the Fund's
principal executive officer and principal financial officer that relate to the
Fund's public disclosure in such reports and are required by Rule 30a-2 under
the 1940 Act.
FEDERAL TAX INFORMATION
For the taxable year ended October 31, 2016, the following percentages of income
dividends paid by the Fund qualify for the dividends received deduction
available to corporations:
Dividends Received Deduction
-----------------------------
28.97%
For the taxable year ended October 31, 2016, the following percentage of income
dividends paid by the Fund is hereby designated as qualified divided income:
Qualified Dividend Income
-----------------------------
59.58%
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
Page 26
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2016 (UNAUDITED)
including the likelihood of greater volatility of net asset value and market
price of the common shares than a comparable portfolio without leverage, and the
risk that fluctuations in interest rates on reverse repurchase agreements,
borrowings and short-term debt or in the dividend rates on any preferred shares
of the fund that the fund may pay will reduce the return to the holders of
common shares or will result in fluctuations in the dividends paid on the common
shares. There is no assurance that a leveraging strategy will be successful.
Although the fund seeks to maintain a duration, under normal market
circumstances, excluding the effects of leverage, of between three and eight
years, if the effect of the fund's use of leverage was included in calculating
duration, it could result in a longer duration for the fund.
CALL/PREPAYMENT AND REINVESTMENT RISK: If an issuer of a security exercises an
option to redeem its issue at par or prepay principal earlier than scheduled,
the Fund may be forced to reinvest in lower yielding securities. A decline in
income could affect the Common Shares' market price or the overall return of the
Fund.
DURATION RISK: The Fund seeks to maintain, under normal market conditions, a
duration, excluding the effects of leverage, of between three and eight years.
Various techniques may be used to shorten or lengthen the Fund's duration.
Securities with longer durations tend to be more sensitive to interest rate (or
yield) changes than securities with shorter durations. The duration of a
security will be expected to change over time with changes in market factors and
time to maturity.
RISKS OF CONCENTRATION IN THE FINANCIALS SECTOR: Because the Fund invests 25% or
more of its managed assets in the financial sector, it will be more susceptible
to adverse economic or regulatory occurrences affecting this sector, such as
changes in interest rates, loan concentration and competition.
INTEREST RATE RISK: The Fund is subject to interest rate risk, which is the risk
that the preferred and debt securities in which the Fund invests will decline in
value because of rising market interest rates.
FLOATING RATE AND FIXED-TO-FLOATING RATE SECURITIES RISK: The market value of
floating rate and fixed-to-floating rate securities may fall in a declining
interest rate environment and may also fall in a rising interest rate
environment if there is a lag between the rise in interest rates and the
interest rate reset. A secondary risk associated with declining interest rates
is the risk that income earned by the Fund on floating rate and
fixed-to-floating rate securities may decline due to lower coupon payments on
floating-rate securities.
CONVERTIBLE SECURITIES/CONTINGENT CONVERTIBLE SECURITIES RISK: The market value
of convertible securities tends to decline as interest rates increase and,
conversely, tends to increase as interest rates decline. In addition, because of
the conversion feature, the market value of convertible securities tends to vary
with fluctuations in the market value of the underlying common stock.
Contingent convertible securities ("CoCos") 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. CoCos may be considered to
be high yield securities (a.k.a. "junk" bonds) and, to the extent a CoCo held by
the Fund undergoes a write down, the Fund may lose some or all of its original
investment in the CoCo. Performance of a CoCo issuer may, in general, be
correlated with the performance of other CoCo issuers. As a result, negative
information regarding one CoCo issuer may cause a decline in value of other CoCo
issuers. Subordinate securities such as CoCos are more likely to experience
credit loss than non subordinate securities of the same issuer - even if the
CoCos do not convert to equity securities. Any losses incurred by subordinate
securities, such as CoCos, are likely to be proportionately greater than
non-subordinate securities and any recovery of principal and interest of
subordinate may take more time. As a result, any perceived decline in credit
worthiness of a CoCo issuer is likely to have a greater impact on the CoCo, as a
subordinate security.
FOREIGN (NON-U.S.) SECURITIES RISK: Investing in securities of non-U.S. issuers
may involve certain risks not typically associated with investing in securities
of U.S. issuers. These risks include: (i) there may be less publicly available
information about non-U.S. issuers or markets due to less rigorous disclosure or
accounting standards or regulatory practices; (ii) non-U.S. markets may be
smaller, less liquid and more volatile than the U.S. market; (iii) potential
adverse effects of fluctuations in currency exchange rates or controls on the
value of the Fund's investments; (iv) the economies of non U.S. countries may
grow at slower rates than expected or may experience a downturn or recession;
(v) the impact of economic, political, social or diplomatic events; (vi) certain
non-U.S. countries may impose restrictions on the ability of non U.S. issuers to
make payments of principal and interest to investors located in the United
States due to blockage of non-U.S. currency exchanges or otherwise; and (vii)
withholding and other non-U.S. taxes may decrease the Fund's return.
ILLIQUID AND RESTRICTED SECURITIES RISK: The Fund may invest up to 25% of its
Managed Assets in illiquid securities and may able invest, without limit, in
unregistered or otherwise restricted securities. Investment of the Fund's assets
in illiquid and restricted securities may restrict the Fund's ability to take
advantage of market opportunities. Illiquid and restricted securities may be
difficult to dispose of at a fair price at the times when the Fund believes it
is desirable to do so. The market price of illiquid and restricted securities
Page 27
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2016 (UNAUDITED)
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.
ADVISORY AND SUB-ADVISORY AGREEMENTS
BOARD CONSIDERATIONS REGARDING APPROVAL OF CONTINUATION OF INVESTMENT MANAGEMENT
AND INVESTMENT SUB-ADVISORY AGREEMENTS
The Board of Trustees of First Trust Intermediate Duration Preferred & Income
Fund (the "Fund"), including the Independent Trustees, unanimously approved the
continuation of the Investment Management Agreement (the "Advisory Agreement")
between the Fund and First Trust Advisors L.P. (the "Advisor") and the
Investment Sub Advisory Agreement (the "Sub Advisory Agreement" and together
with the Advisory Agreement, the "Agreements") among the Fund, the Advisor and
Stonebridge Advisors LLC (the "Sub-Advisor") for a one-year period ending June
30, 2017 at a meeting held on June 13, 2016. The Board determined that the
continuation of the Agreements is in the best interests of the Fund in light of
the extent and quality of the services provided and such other matters as the
Board considered to be relevant in the exercise of its reasonable business
judgment.
To reach this determination, the Board considered its duties under the
Investment Company Act of 1940, as amended (the "1940 Act"), as well as under
the general principles of state law in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
on such agreements. At meetings held on April 22, 2016 and June 13, 2016, the
Board, including the Independent Trustees, reviewed materials provided by the
Advisor and the Sub-Advisor responding to requests for information from counsel
to the Independent Trustees that, among other things, outlined the services
provided by the Advisor and the Sub-Advisor to the Fund (including the relevant
personnel responsible for these services and their experience); the advisory fee
rate payable by the Fund and the sub- advisory fees for the Fund as compared to
fees charged to a peer group of funds compiled by Management Practice, Inc.
("MPI"), an independent source (the "MPI Peer Group"), and as compared to fees
charged to other clients of the Advisor and the Sub-Advisor; expenses of the
Fund as compared to expense ratios of the funds in the MPI Peer Group;
performance information for the Fund; the nature of expenses incurred in
providing services to the Fund and the potential for economies of scale, if any;
financial data on the Advisor and the Sub-Advisor; any fall out benefits to the
Advisor and its affiliate, First Trust Capital Partners, LLC ("FTCP"), and the
Sub-Advisor; and information on the Advisor's and the Sub-Advisor's compliance
programs. The Board reviewed initial materials with the Advisor at a special
meeting held on April 22, 2016, prior to which the Independent Trustees and
their counsel met separately to discuss the information provided by the Advisor
and the Sub-Advisor. Following the April meeting, independent legal counsel on
behalf of the Independent Trustees requested certain clarifications and
supplements to the materials provided, and the information provided in response
to those requests was considered at an executive session of the Independent
Trustees and independent legal counsel held prior to the June 13, 2016 meeting,
as well as at the meeting held that day. The Board applied its business judgment
to determine whether the arrangements between the Fund and the Advisor and among
the Fund, the Advisor and the Sub-Advisor continue to be reasonable business
arrangements from the Fund's perspective as well as from the perspective of
shareholders. The Board determined that, given the totality of the information
provided with respect to the Agreements, the Board had received sufficient
information to renew the Agreements. The Board considered that shareholders
chose to invest or remain invested in the Fund knowing that the Advisor and the
Sub-Advisor manage the Fund.
In reviewing the Agreements, the Board considered the nature, extent and quality
of the services provided by the Advisor and the Sub-Advisor under the
Agreements. With respect to the Advisory Agreement, the Board considered that
the Advisor is responsible for the overall management and administration of the
Fund and reviewed all of the services provided by the Advisor to the Fund,
including the oversight of the Sub-Advisor, as well as the background and
experience of the persons responsible for such services. In reviewing the
services provided, the Board noted the compliance program that had been
developed by the Advisor and considered that it includes a robust program for
monitoring the Advisor's, the Sub-Advisor's and the Fund's compliance with the
1940 Act, as well as the Fund's compliance with its investment objectives and
policies. In addition, as part of the Board's consideration of the Advisor's
services, the Advisor, in its written materials and at the April 22, 2016
meeting, described to the Board the scope of its ongoing investment in
additional infrastructure and personnel to maintain and improve the quality of
services provided to the Fund and the other funds in the First Trust Fund
Complex. With respect to the Sub-Advisory Agreement, the Board reviewed the
materials provided by the Sub-Advisor and considered the services that the
Sub-Advisor provides to the Fund, including the Sub-Advisor's day-to-day
management of the Fund's investments. In considering the Sub-Advisor's
management of the Fund, the Board noted the background and experience of the
Sub-Advisor's portfolio management team. In light of the information presented
and the considerations made, the Board concluded that the nature, extent and
quality of the services provided to the Fund by the Advisor and the Sub-Advisor
under the Agreements have been and are expected to remain satisfactory and that
the Sub-Advisor, under the oversight of the Advisor, has managed the Fund
consistent with its investment objectives and policies.
Page 28
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2016 (UNAUDITED)
The Board considered the advisory and sub-advisory fee rates payable under the
Agreements for the services provided. The Board noted that the sub-advisory fee
is paid by the Advisor from its advisory fee. The Board received and reviewed
information showing the advisory fee rates and expense ratios of the peer funds
in the MPI Peer Group, as well as advisory fee rates charged by the Advisor and
the Sub-Advisor to other fund and non-fund clients, as applicable. With respect
to the MPI Peer Group, the Board discussed with representatives of the Advisor
the limitations in creating a relevant peer group for the Fund, including that
(i) the Fund is unique in its composition, which makes assembling peers with
similar strategies and asset mix difficult; (ii) peer funds may use different
amounts and types of leverage with different costs associated with them or may
use no leverage; (iii) only half of the peer funds employ an advisor/sub-advisor
management structure and none of the peer funds employs an advisor/sub-advisor
management structure with an unaffiliated sub-advisor; and (iv) some of the peer
funds are part of a larger fund complex that may allow for additional economies
of scale. The Board took these limitations into account in considering the peer
data, and noted that the advisory fee rate payable by the Fund, based on average
net assets, was above the median of the MPI Peer Group. With respect to fees
charged to other clients, the Board considered differences between the Fund and
other clients that limited their comparability. In considering the advisory fee
rate overall, the Board also considered the Advisor's statement that it seeks to
meet investor needs through innovative and value-added investment solutions and
the Advisor's description of its long-term commitment to the Fund.
The Board considered performance information for the Fund. The Board noted the
process it has established for monitoring the Fund's performance and portfolio
risk on an ongoing basis, which includes quarterly performance reporting from
the Advisor and Sub-Advisor for the Fund. The Board determined that this process
continues to be effective for reviewing the Fund's performance. The Board
received and reviewed information comparing the Fund's performance for periods
ended December 31, 2015 to the performance of the MPI Peer Group and to a
blended benchmark index. In reviewing the Fund's performance as compared to the
performance of the MPI Peer Group, the Board took into account the limitations
described above with respect to creating a relevant peer group for the Fund.
Based on the information provided on net asset value performance, the Board
noted that the Fund outperformed the MPI Peer Group average for the one-year
period ended December 31, 2015. The Board also noted that the Fund outperformed
the blended benchmark index for the one-year period ended December 31, 2015. In
addition, the Board considered information provided by the Advisor on the impact
of leverage on the Fund's returns. The Board also received information on the
Fund's annual distribution rate as of December 31, 2015 and the Fund's average
trading discount during 2015 and comparable information for the peer group.
On the basis of all the information provided on the fees, expenses and
performance of the Fund and the ongoing oversight by the Board, the Board
concluded that the advisory and sub advisory fees continue to be reasonable and
appropriate in light of the nature, extent and quality of the services provided
by the Advisor and the Sub Advisor to the Fund under the Agreements.
The Board considered information and discussed with the Advisor whether there
were any economies of scale in connection with providing advisory services to
the Fund and noted the Advisor's statement that it expects its expenses to
increase over the next twelve months as the Advisor continues to make
investments in personnel and infrastructure. The Board determined that due to
the Fund's closed-end structure, the potential for realization of economies of
scale as Fund assets grow was not a material factor to be considered. The Board
considered the revenues and allocated costs (including the allocation
methodology) of the Advisor in serving as investment advisor to the Fund for the
twelve months ended December 31, 2015 and the estimated profitability level for
the Fund calculated by the Advisor based on such data, as well as complex-wide
and product-line profitability data for the same period. The Board noted the
inherent limitations in the profitability analysis, and concluded that, based on
the information provided, the Advisor's profitability level for the Fund was not
unreasonable. In addition, the Board considered fall-out benefits described by
the Advisor that may be realized from its relationship with the Fund. The Board
considered the ownership interest of FTCP in the Sub-Advisor and potential
fall-out benefits to the Advisor from such ownership interest. The Board noted
that in addition to the advisory fees paid by the Fund, the Advisor is
compensated for fund reporting services pursuant to a separate Fund Reporting
Services Agreement.
The Board considered the Sub Advisor's expenses in providing investment services
to the Fund and noted the Sub-Advisor's recent hiring of additional personnel to
work on the Fund and commitment to add additional personnel if assets increase.
The Board considered that the sub advisory fee rate was negotiated at arm's
length between the Advisor and the Sub Advisor. The Board also considered
information provided by the Sub Advisor with respect to the profitability of the
Sub Advisory Agreement to the Sub Advisor. The Board noted the inherent
limitations in the profitability analysis and concluded that the profitability
analysis for the Advisor was more relevant. The Board considered fall-out
benefits that may be realized by the Sub-Advisor from its relationship with the
Fund, including potential fall-out benefits to the Sub-Advisor from the
ownership interest of FTCP in the Sub-Advisor. The Board noted that the
Sub-Advisor does not maintain any soft-dollar arrangements.
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, unanimously determined that the terms
of the Agreements continue to be fair and reasonable and that the continuation
of the Agreements is in the best interests of the Fund. No single factor was
determinative in the Board's analysis.
Page 29
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2016 (UNAUDITED)
NUMBER OF OTHER
PORTFOLIOS IN TRUSTEESHIPS OR
THE FIRST TRUST DIRECTORSHIPS
NAME, ADDRESS, TERM OF OFFICE FUND COMPLEX HELD BY TRUSTEE
DATE OF BIRTH AND AND LENGTH OF PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE FUND SERVICE (2) DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
Richard E. Erickson, Trustee o Three-Year Term Physician; President, Wheaton Orthopedics; 137 None
c/o First Trust Advisors L.P. Limited Partner, Gundersen Real Estate
120 E. Liberty Drive, o Since Fund Limited Partnership; Member, Sportsmed
Suite 400 Inception LLC (April 2007 to November 2015)
Wheaton, IL 60187
D.O.B.: 04/51
Thomas R. Kadlec, Trustee o Three-Year Term President, ADM Investor Services, Inc. 137 Director of ADM
c/o First Trust Advisors L.P. (Futures Commission Merchant) Investor Services,
120 E. Liberty Drive, o Since Fund Inc., ADM
Suite 400 Inception Investor Services
Wheaton, IL 60187 International, and
D.O.B.: 11/57 Futures Industry
Association
Robert F. Keith, Trustee o Three-Year Term President, Hibs Enterprises (Financial and 137 Director of Trust
c/o First Trust Advisors L.P. Management Consulting) Company of
120 E. Liberty Drive, o Since Fund Illinois
Suite 400 Inception
Wheaton, IL 60187
D.O.B.: 11/56
Niel B. Nielson, Trustee o Three-Year Term Managing Director and Chief Operating 137 Director of
c/o First Trust Advisors L.P. Officer ( January 2015 to Present), Pelita Covenant
120 E. Liberty Drive, o Since Fund Harapan Education Foundation (Educational Transport Inc.
Suite 400 Inception Products and Services); President and (May 2003 to
Wheaton, IL 60187 Chief Executive Officer (June 2012 to May 2014)
D.O.B.: 03/54 September 2014), Servant Interactive LLC
(Educational Products and Services); Dew
Learning LLC (Educational Products and
Services), President (June 2002 to June
2012), Covenant College
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee o Three Year Term Chief Executive Officer, First Trust 137 None
and Chairman of the Board Advisors L.P. and First Trust Portfolios
120 E. Liberty Drive, o Since Fund L.P.; Chairman of the Board of Directors,
Suite 400 Inception BondWave LLC (Software Development
Wheaton, IL 60187 Company) and Stonebridge Advisors LLC
D.O.B.: 09/55 (Investment Advisor)
-----------------------------
(1) Mr. Bowen is deemed an "interested person" of the Fund due to his position
as CEO of First Trust Advisors L.P., investment advisor of the Fund.
(2) Currently, Robert F. Keith, as a Class I Trustee, is serving as a trustee
until the Fund's 2017 annual meeting of shareholders. Richard E. Erickson
and Thomas R. Kadlec, as Class II Trustees, are serving as trustees until
the Fund's 2018 annual meeting of shareholders. James A. Bowen and Niel B.
Nielson, as Class III Trustees, are serving as trustees until the Fund's
2019 annual meeting of shareholders.
Page 30
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2016 (UNAUDITED)
NAME, ADDRESS POSITION AND OFFICES TERM OF OFFICE AND PRINCIPAL OCCUPATIONS
AND DATE OF BIRTH WITH FUND LENGTH OF SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(3)
------------------------------------------------------------------------------------------------------------------------------------
James M. Dykas President and Chief o Indefinite Term Managing Director and Chief Financial Officer
120 E. Liberty Drive, Executive Officer (January 2016 to Present), Controller (January
Suite 400 o Since January 2016 2011 to January 2016), Senior Vice President
Wheaton, IL 60187 (April 2007 to January 2016), First Trust Advisors
D.O.B.: 01/66 L.P. and First Trust Portfolios L.P.; Chief Financial
Officer, Bondwave LLC (Software Development
Company) (January 2016 to Present) and
Stonebridge Advisors LLC (Investment Advisor)
(January 2016 to Present)
Donald P. Swade Treasurer, Chief o Indefinite Term Senior Vice President (July 2016 to Present),
120 E. Liberty Drive, Financial Officer and Vice President (April 2012 to July 2016),
Suite 400 Chief Accounting o Since January 2016 First Trust Advisors L.P. and First Trust
Wheaton, IL 60187 Officer Portfolios L.P., Vice President (September 2006
D.O.B.: 08/72 to April 2012), Guggenheim Funds Investment
Advisors, LLC/Claymore Securities, Inc.
W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P. and
120 E. Liberty Drive, Legal Officer First Trust Portfolios L.P.; Secretary and
Suite 400 o Since Fund General Counsel, BondWave LLC; Secretary
Wheaton, IL 60187 Inception of Stonebridge Advisors LLC
D.O.B.: 05/60
Daniel J. Lindquist Vice President o Indefinite Term Managing Director (July 2012 to Present),
120 E. Liberty Drive, Senior Vice President (September 2005 to
Suite 400 o Since Fund July 2012), First Trust Advisors L.P. and First
Wheaton, IL 60187 Inception Trust Portfolios L.P.
D.O.B: 02/70
Kristi A. Maher Chief Compliance o Indefinite Term Deputy General Counsel, First Trust Advisors
120 E. Liberty Drive, Officer and L.P. and First Trust Portfolios L.P.
Suite 400 Assistant Secretary o Since Fund
Wheaton, IL 60187 Inception
D.O.B.: 12/66
-----------------------------
(3) Officers of the Fund have an indefinite term. The term "officer" means the
president, vice president, secretary, treasurer, controller or any other
officer who performs a policy making function.
Page 31
--------------------------------------------------------------------------------
PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
OCTOBER 31, 2016 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies".
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives, proxy
services, solicitors and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information within First Trust.
PRIVACY ONLINE
We allow third-party companies, including AddThis (a social media sharing
service), to collect certain anonymous information when you visit our website.
These companies may use non-personally identifiable information during your
visits to this and other websites in order to provide advertisements about goods
and services likely to be of greater interest to you. These companies typically
use a cookie, third party web beacon or pixel tags, to collect this information.
To learn more about this behavioral advertising practice, you can visit
www.networkadvertising.org.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, First Trust restricts access to
your nonpublic personal information to those First Trust employees who need to
know that information to provide products or services to you. We maintain
physical, electronic and procedural safeguards to protect your nonpublic
personal information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
March 2016
Page 32
FIRST TRUST
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 E. Liberty Drive, Suite 400
Wheaton, IL 60187
INVESTMENT SUB-ADVISOR
Stonebridge Advisors LLC
10 Westport Road
Suite C101
Wilton, CT 06897
ADMINISTRATOR,
FUND ACCOUNTANT &
CUSTODIAN
Brown Brothers Harriman & Co.
50 Post Office Square
Boston, MA 02110
TRANSFER AGENT
Computershare, Inc.
P.O. Box 30170
College Station, TX 77842-3170
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
[BLANK BACK COVER]
ITEM 2. CODE OF ETHICS.
(a) The registrant, as of the end of the period covered by this report, has
adopted a code of ethics that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions, regardless
of whether these individuals are employed by the registrant or a third
party.
(c) There have been no amendments, during the period covered by this report,
to a provision of the code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant or
a third party, and that relates to any element of the code of ethics
description.
(d) The registrant has not granted any waivers, including an implicit waiver,
from a provision of the code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant or
a third party, that relates to one or more of the items set forth in
paragraph (b) of this item's instructions.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
As of the end of the period covered by the report, the Registrant's board of
trustees has determined that Thomas R. Kadlec and Robert F. Keith are qualified
to serve as audit committee financial experts serving on its audit committee and
that each of them is "independent," as defined by Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees (Registrant) -- The aggregate fees billed for the last fiscal
year for professional services rendered by the principal accountant for
the audit of the registrant's annual financial statements or services that
are normally provided by the accountant in connection with statutory and
regulatory filings or engagements for those fiscal years were $28,000 for
the fiscal year ended October 31, 2015 and $28,000 for the fiscal year
ended October 31, 2016.
(b) Audit-Related Fees (Registrant) -- The aggregate fees billed in the last
fiscal year for assurance and related services by the principal accountant
that are reasonably related to the performance of the audit of the
registrant's financial statements and are not reported under paragraph (a)
of this Item were $0 for the fiscal year ended October 31, 2015 and $0 for
the fiscal year ended October 31, 2016.
Audit-Related Fees (Investment Advisor) -- The aggregate fees billed in
the last fiscal year for assurance and related services by the principal
accountant that are reasonably related to the performance of the audit of
the registrant's financial statements and are not reported under paragraph
(a) of this Item were $0 for the fiscal year ended October 31, 2015 and $0
for the fiscal year ended October 31, 2016.
Audit-Related Fees (Investment Sub-Advisor) -- The aggregate fees billed
in the last fiscal year for assurance and related services by the
principal accountant that are reasonably related to the performance of the
audit of the registrant's financial statements and are not reported under
paragraph (a) of this Item were $0 for the fiscal year ended October 31,
2015 and $0 for the fiscal year ended October 31, 2016.
(c) Tax Fees (Registrant) -- The aggregate fees billed in the last fiscal year
for professional services rendered by the principal accountant for tax
compliance, tax advice, and tax planning were $5,200 for the fiscal year
ended October 31, 2015 and $5,200 for the fiscal year ended October 31,
2016. These fees were for tax return preparation.
Tax Fees (Investment Advisor) -- The aggregate fees billed in the last
fiscal year for professional services rendered by the principal accountant
for tax compliance, tax advice, and tax planning were $0 for the fiscal
year ended October 31, 2015 and $0 for the fiscal year ended October 31,
2016.
Tax Fees (Investment Sub-Advisor) -- The aggregate fees billed in the last
fiscal year for professional services rendered by the principal accountant
for tax compliance, tax advice, and tax planning were $0 for the fiscal
year ended October 31, 2015 and $0 for the fiscal year ended October 31,
2016.
(d) All Other Fees (Registrant) -- The aggregate fees billed in the last
fiscal year for products and services provided by the principal accountant
to the registrant, other than the services reported in paragraphs (a)
through (c) of this Item were $0 for the fiscal year ended October 31,
2015 and $0 for the fiscal year ended October 31, 2016.
All Other Fees (Investment Adviser) The aggregate fees billed in the last
fiscal year for products and services provided by the principal accountant
to the registrant, other than the services reported in paragraphs (a)
through (c) of this Item were $0 for the fiscal year ended October 31,
2015 and $0 for the fiscal year ended October 31, 2016.
All Other Fees (Investment Sub-Adviser) The aggregate fees billed in the
last fiscal year for products and services provided by the principal
accountant to the registrant, other than the services reported in
paragraphs (a) through (c) of this Item were $0 for the fiscal year ended
October 31, 2015 and $0 for the fiscal year ended October 31, 2016.
(e)(1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
Pursuant to its charter and its Audit and Non-Audit Services Pre-Approval
Policy, the Audit Committee (the "Committee") is responsible for the
pre-approval of all audit services and permitted non-audit services (including
the fees and terms thereof) to be performed for the registrant by its
independent auditors. The Chairman of the Committee is authorized to give such
pre-approvals on behalf of the Committee up to $25,000 and report any such
pre-approval to the full Committee.
The Committee is also responsible for the pre-approval of the independent
auditor's engagements for non-audit services with the registrant's adviser (not
including a sub-adviser whose role is primarily portfolio management and is
sub-contracted or overseen by another investment adviser) and any entity
controlling, controlled by or under common control with the investment adviser
that provides ongoing services to the registrant, if the engagement relates
directly to the operations and financial reporting of the registrant, subject to
the de minimis exceptions for non-audit services described in Rule 2-01 of
Regulation S-X. If the independent auditor has provided non-audit services to
the registrant's adviser (other than any sub-adviser whose role is primarily
portfolio management and is sub-contracted with or overseen by another
investment adviser) and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
registrant that were not pre-approved pursuant to its policies, the Committee
will consider whether the provision of such non-audit services is compatible
with the auditor's independence.
(e)(2) The percentage of services described in each of paragraphs (b) through
(d) for the registrant and the registrant's investment adviser of this
Item that were approved by the audit committee pursuant to the
pre-approval exceptions included in paragraph (c)(7)(i)(c) or paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X are as follows:
(b) 0%
(c) 0%
(d) 0%
(f) The percentage of hours expended on the principal accountant's engagement
to audit the registrant's financial statements for the most recent fiscal
year that were attributed to work performed by persons other than the
principal accountant's full-time, permanent employees was less than fifty
percent.
(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, and rendered to the registrant's
investment adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by, or under
common control with the adviser that provides ongoing services to the
registrant for the fiscal year ended October 31, 2015 were $5,200 for the
registrant, $12,500 for the registrant's investment adviser and $3,000 for
the registrant's investment sub-adviser and for the registrant's fiscal
year ended October 31, 2016 were $5,200 for the registrant, $13,000 for
the registrant's investment adviser and $3,000 for the registrant's
investment sub-adviser.
(h) The registrant's audit committee of the board of directors has considered
whether the provision of non-audit services that were rendered to the
registrant's investment adviser (not including any sub-adviser whose role
is primarily portfolio management and is subcontracted with or overseen by
another investment adviser), and any entity controlling, controlled by, or
under common control with the investment adviser that provides ongoing
services to the registrant that were not pre-approved pursuant to
paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with
maintaining the principal accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
(a) The Registrant has a separately designated audit committee consisting of
all the independent directors of the registrant. The members of the audit
committee are: Thomas R. Kadlec, Niel B. Nielson, Richard E. Erickson and
Robert F. Keith.
ITEM 6. INVESTMENTS.
(a) Schedule of Investments in securities of unaffiliated issuers as of the
close of the reporting period is included as part of the report to
shareholders filed under Item 1 of this form.
(b) Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Proxy Voting Policies are attached herewith.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(A)(1) IDENTIFICATION OF PORTFOLIO MANAGERS OR MANAGEMENT TEAM MEMBERS AND
DESCRIPTION OF ROLE OF PORTFOLIO MANAGERS OR MANAGEMENT TEAM MEMBERS
Information provided as of December 14, 2016.
Stonebridge Advisors LLC is a registered investment advisor based in Wilton,
Connecticut. Stonebridge specializes in the management of preferred securities
and North American equity income securities.
Scott T. Fleming, President and CIO of Stonebridge Advisors LLC Mr. Fleming
leads the Investment Team at Stonebridge, and oversees and takes lead role over
Investment Team decisions. Prior to founding Stonebridge, Mr. Fleming co-founded
Spectrum Asset Management, Inc., an investment advisor that specializes in
preferred securities asset management for institutional clients and mutual
funds. During his 13-year tenure there, he served as Chairman of the Board of
Directors, Chief Financial Officer and Chief Investment Officer. Under his
leadership, Spectrum grew to be the largest preferred securities manager in the
country. As Chief Investment Officer at Spectrum, Mr. Fleming established and
implemented custom investment strategies for the firm's clients. In this
capacity he was instrumental in growing assets under management to over $2
billion by consistently outperforming stated benchmarks by solid margins. Mr.
Fleming previously served as Vice President, Portfolio Manager for DBL Preferred
Management, Inc. in New York City. There he managed over $300 million of
institutional assets with a strategy specializing in preferred securities. Mr.
Fleming received a BS in Accounting from Bentley College in Waltham, MA and his
MBA in Finance from Babson College in Wellesley, MA.
Robert Wolf, Senior Vice President and Senior Portfolio Manager
Mr. Wolf is a member of the firm's Investment Committee and oversees investment
strategies and portfolio management activities across funds and separately
managed accounts. He analyzes both investment grade and non-investment grade
securities and makes security recommendations. Mr. Wolf brings 15 years of
fixed-income experience to Stonebridge in both portfolio management and credit
research. Prior to joining Stonebridge in 2006, Mr. Wolf was a high-yield
fixed-income research analyst at Lehman Brothers. In this role, his
responsibilities included detailed credit analysis across multiple sectors,
relative value analysis, and developing trade recommendations for Lehman's
High-Yield proprietary trading effort. Mr. Wolf previously worked for Lehman
Brothers Commercial Mortgage-Backed Securities (CMBS) trading desk as a credit
analyst where he provided in-depth analysis of CMBS transactions and the
underlying Commercial Real Estate. Mr. Wolf received his B.S. degree in
Chemistry from Villanova University in 1999 and his MBA in Finance from the New
York University Stern School of Business in 2004.
Danielle Salters, Portfolio Manager and Credit Analyst
Ms. Salters is a member of the firm's Investment Committee and manages
investment strategies in funds and separately managed accounts. She is also a
trader and makes trade recommendations for the firm. Ms. Salters has seven years
of investment management experience of which six years have been focused on
fixed-income. Previous functions have included fundamental credit research,
relative value analysis and trading. Prior to beginning at Stonebridge, Ms.
Salters was Portfolio Analyst at a boutique asset manager where she focused on
high-yield credit analysis and portfolio analytics for a hedge fund and
institutional client. Previously, Ms. Salters was employed by UBS Financial
Services, Inc., where she worked in Taxable Fixed-Income Sales and, later,
served as the Fixed-Income Specialist to a Portfolio Manager. Ms. Salters
received her A.B. in economics from Duke University in 2007.
(A)(2) OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGERS OR MANAGEMENT TEAM MEMBER
AND POTENTIAL CONFLICTS OF INTEREST
Information provided as of October 31, 2016.
# of Accounts Total Assets
Total Managed for which for which
Advisory Fee is Advisory Fee
Name of Portfolio Manager or # of Accounts Based on is Based on
Team Member Type of Accounts* Managed Total Assets Performance Performance
----------------------------- -------------------------------- ------------- ------------ --------------- -------------
1. Scott T. Fleming Registered Investment Companies 4 $1.578 Bil 0 0
Other Pooled Investment Vehicles 0 $0 0 0
Other Accounts 3746 $1.461 Bil 0 0
2. Robert Wolf Registered Investment Companies 4 $1.578 Bil 0 0
Other Pooled Investment Vehicles 0 $0 0 0
Other Accounts 3746 $1.461 Bil 0 0
3. Danielle Salters Registered Investment Companies 4 $1.578 Bil 0 0
Other Pooled Investment Vehicles 0 $0 0 0
Other Accounts 3746 $1.461 Bil 0 0
PORTFOLIO MANAGER POTENTIAL CONFLICTS OF INTERESTS
Potential conflicts of interest may arise when a fund's portfolio manager has
day-to-day management responsibilities with respect to one or more other funds
or other accounts, as is the case for the portfolio managers of the Fund. These
potential conflicts may include:
Stonebridge Advisors LLC's ("Stonebridge") Preferred Securities investment style
is consistent across all of its managed accounts. Stonebridge is not aware of
any material conflicts of interest between its separately managed accounts and
the Fund. In the case where Stonebridge does block trades that involve the Fund
and other accounts, Stonebridge follows its trade allocation policy and handles
the trade in a fair and equitable manner.
(A)(3) COMPENSATION STRUCTURE OF PORTFOLIO MANAGERS OR MANAGEMENT TEAM MEMBERS
PORTFOLIO MANAGER COMPENSATION
Information provided as of October 31, 2016.
Annual salary plus mid-year and year-end discretionary bonus based on firm
profitability, performance of individual, fit with the team, role in firm wide
performance, and work above and beyond what is expected. Stonebridge employees
receive also receive medical benefits and participate in the firm's 401(k) plan.
(A)(4) DISCLOSURE OF SECURITIES OWNERSHIP
Information provided as of October 31, 2012.
Dollar Range of Fund Shares
Name Beneficially Owned
Scott T. Fleming $100,001-500,000
Danielle Salters, CFA $0
Robert Wolf $1-$100,000
(B) Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of directors, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)),
or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers, or
persons performing similar functions, have concluded that the registrant's
disclosure controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR
270.30a-3(c))) are effective, as of a date within 90 days of the filing
date of the report that includes the disclosure required by this
paragraph, based on their evaluation of these controls and procedures
required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and
Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as
amended (17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR
270.30a-3(d)) that occurred during the registrant's second fiscal quarter
of the period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal control
over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section
302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section
906 of the Sarbanes- Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) First Trust Intermediate Duration Preferred & Income Fund
-----------------------------------------------------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, President and
Chief Executive Officer
(principal executive officer)
Date: December 20, 2016
-------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, President and
Chief Executive Officer
(principal executive officer)
Date: December 20, 2016
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By (Signature and Title)* /s/ Donald P. Swade
----------------------------------------
Donald P. Swade, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: December 20, 2016
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* Print the name and title of each signing officer under his or her signature.