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 Fund
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(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Name and address of agent for service)
registrant's telephone number, including area code: 630-765-8000
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Date of fiscal year end: October 31
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Date of reporting period: April 30, 2014
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 100 F Street, NE,
Washington, DC 20549. The OMB has reviewed this collection of information under
the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The Report to Shareholders is attached herewith.
FIRST TRUST
INTERMEDIATE DURATION
PREFERRED & INCOME
FUND
(FPF)
SEMI-ANNUAL REPORT
FOR THE SIX MONTHS ENDED
APRIL 30, 2014
FIRST TRUST
STONEBRIDGE
ADVISORS LLC
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TABLE OF CONTENTS
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First Trust Intermediate Duration Preferred & Income Fund (FPF)
Semi-Annual Report
April 30, 2014
Shareholder Letter........................................................... 1
At a Glance.................................................................. 2
Portfolio Commentary......................................................... 3
Portfolio of Investments..................................................... 5
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
Additional Information....................................................... 25
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
shares may therefore be less than what you paid for them. Accordingly, you can
lose money by investing in the Fund. See "Risk Considerations" in the Additional
Information section of this report for a discussion of certain other risks of
investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
http://www.ftportfolios.com or speak with your financial advisor. Investment
returns, net asset value and common share price will fluctuate and Fund shares,
when sold, may be worth more or less than their original cost.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment. It
includes details about the Fund and presents data and analysis that provide
insight into the Fund's performance and investment approach.
By reading the portfolio commentary by the portfolio management team of the
Fund, you may obtain an understanding of how the market environment affected the
Fund's performance. The statistical information that follows may help you
understand the Fund's performance compared to that of relevant market
benchmarks.
It is important to keep in mind that the opinions expressed by personnel of
Stonebridge are just that: informed opinions. They should not be considered to
be promises or advice. The opinions, like the statistics, cover the period
through the date on the cover of this report. The risks of investing in the Fund
are spelled out in the prospectus, the statement of additional information, this
report and other Fund regulatory filings.
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SHAREHOLDER LETTER
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FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
SEMI-ANNUAL LETTER FROM THE CHAIRMAN AND CEO
APRIL 30, 2014
Dear Shareholders:
I am pleased to present you with the semi-annual report for your investment in
First Trust Intermediate Duration Preferred & Income Fund (the "Fund").
As a shareholder, twice a year you receive a detailed report about your
investment, including portfolio commentary from the Fund's management team, a
performance analysis and a market and Fund outlook. Additionally, First Trust
Advisors L.P. ("First Trust") compiles the Fund's financial statements for you
to review. These reports are intended to keep you up-to-date on your investment,
and I encourage you to read this document and discuss it with your financial
advisor.
Despite some volatility, the six months covered by this report have been
positive for the U.S. markets. In fact, the S&P 500(R) Index, as measured on a
total return basis, rose 8.36% during the period. Of course, past performance
can never be an indicator of future performance, but First Trust believes that
staying invested in quality products through up and down markets and having a
long-term horizon can help investors reach their financial goals.
First Trust continues to offer a variety of products that we believe could fit
the financial plans for many investors seeking long-term investment success.
Your financial advisor can tell you about the other investments First Trust
offers that might fit your financial goals. We encourage you to discuss those
goals with your financial advisor regularly so that he or she can help keep you
on track and help you choose investments that match your goals.
First Trust will continue to make available up-to-date information about your
investments so you and your financial advisor are current on any First Trust
investments you own. We value our relationship with you, and thank you for the
opportunity to assist you in achieving your financial goals.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 1
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
"AT A GLANCE"
APRIL 30, 2014 (UNAUDITED)
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FUND STATISTICS
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Symbol on New York Stock Exchange FPF
Common Share Price $22.67
Common Share Net Asset Value ("NAV") $24.44
Premium (Discount) to NAV (7.24)%
Net Assets Applicable to Common Shares $1,483,565,098
Current Monthly Distribution per Common Share (1) $0.1525
Current Annualized Distribution per Common Share $1.8300
Current Distribution Rate on Closing Common Share Price (2) 8.07%
Current Distribution Rate on NAV (2) 7.49%
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COMMON SHARE PRICE & NAV (WEEKLY CLOSING PRICE)
NAV Common Share Price
5/13 23.85 25.00
23.79 25.05
23.51 25.00
23.25 25.07
22.84 24.89
6/13 23.00 25.00
23.01 24.45
23.18 24.05
23.42 23.05
7/13 23.42 23.15
23.26 22.20
23.24 21.70
23.03 21.11
22.93 20.94
8/13 22.97 21.39
22.74 20.81
22.76 21.38
23.02 20.70
9/13 23.01 20.91
22.92 21.39
22.99 21.10
23.25 20.94
10/13 23.41 21.01
23.36 20.87
23.36 20.45
23.36 20.61
23.44 20.24
11/13 23.50 20.53
23.31 20.48
23.35 20.45
23.39 20.70
12/13 23.14 21.30
23.27 21.14
23.45 21.51
23.60 21.41
23.54 21.46
1/14 23.52 21.07
23.52 21.45
23.65 21.79
23.77 21.64
2/14 23.96 22.12
23.95 21.72
23.92 21.88
24.04 21.84
3/14 24.09 22.00
24.09 22.13
24.21 22.11
24.25 22.31
4/14 24.44 22.67
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PERFORMANCE
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Cumulative Total Returns
6 Months Ended Inception (5/23/13)
4/30/14 to 4/30/14
FUND PERFORMANCE (3)
NAV 8.86% 9.51%
Market Value 12.99% -2.97%
INDEX PERFORMANCE
BofA Merrill Lynch Fixed Rate Preferred Securities Index 8.07% 1.32%
BofA Merrill Lynch U.S. Capital Securities Index 5.78% 5.74%
Blended Benchmark(4) 6.92% 3.53%
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% OF TOTAL
LONG-TERM
INDUSTRY CLASSIFICATION INVESTMENTS
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Banks 40.6%
Insurance 29.3
Diversified Financial Services 9.2
Capital Markets 6.9
Diversified Telecommunication Services 3.2
Electric Utilities 2.9
Real Estate Investment Trusts 2.2
Oil, Gas & Consumable Fuels 2.2
Food Products 1.4
Multi-Utilities 1.2
Energy Equipment & Services 0.4
Machinery 0.2
Independent Power Producers and Renewable
Electricity Producers 0.1
Consumer Finance 0.1
Wireless Telecommunication Services 0.1
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Total 100.0%
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% OF TOTAL
LONG-TERM
TOP 10 HOLDINGS INVESTMENTS
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General Electric Capital Corp., Series A 2.6%
JPMorgan Chase & Co., Series 1 2.0
QBE Capital Funding III Ltd. 2.0
XL Group PLC, Series E 1.9
Banco Bilbao Vizcaya Argentaria S.A. 1.6
Wells Fargo & Co., Series K 1.6
Cooperatieve Centrale Raiffeisen-
Boerenleenbank BA 1.6
Aquarius + Investments PLC for Swiss
Reinsurance Co., Ltd. 1.4
KBC Bank N.V. 1.4
Aviva PLC 1.4
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Total 17.5%
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(1) Most recent distribution paid or declared through 4/30/2014. Subject to
change in the future.
(2) Distribution rates are calculated by annualizing the most recent
distribution paid or declared through the report date and then dividing by
Common Share price or NAV, as applicable, as of 4/30/2014. Subject to
change in the future.
(3) Total return is based on the combination of reinvested dividend, capital
gain and return of capital distributions, if any, at prices obtained by
the Dividend Reinvestment Plan and changes in NAV per share for NAV
returns and changes in Common Share price for market value returns. Total
returns do not reflect sales load and are not annualized for periods less
than one year. Past performance is not indicative of future results.
(4) The blended benchmark consists of the following: BofA Merrill Lynch Fixed
Rate Preferred Securities Index (50%) and BofA Merrill Lynch U.S. Capital
Securities Index (50%).
Page 2
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PORTFOLIO COMMENTARY
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FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
APRIL 30, 2014
SUB-ADVISOR
Stonebridge Advisors LLC ("Stonebridge" or the "Sub-Advisor") is the Sub-Advisor
to First Trust Intermediate Duration Preferred & Income Fund (the "Fund" or
"FPF") and is a registered investment advisor based in Wilton, Connecticut.
Stonebridge specializes in the management of preferred securities and North
American equity income securities.
PORTFOLIO MANAGEMENT TEAM
Scott T. Fleming - President and CIO
Allen Shepard, Ph.d. - Vice President, Senior Risk Analyst and Portfolio
Analytics
Robert Wolf - Vice President, Portfolio Manager and Senior Credit Analyst
Danielle Salters, CFA - Credit Analyst
COMMENTARY
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND
The Fund commenced operations on May 23, 2013. The Fund's primary investment
objective is to seek a high level of current income. As a secondary objective,
the Fund seeks capital appreciation. The Fund pursues its objectives by
investing in preferred and other income-producing securities. The Fund seeks to
maintain, under normal market conditions, a duration excluding the effects of
leverage, of between three and eight years. There can be no assurance that the
Fund's investment objectives will be achieved.
MARKET RECAP
The preferred and hybrid securities market experienced a tale of two markets in
the six months ended April 30, 2014. In November and December, the market was
negatively impacted by the combination of higher interest rates on the long end
of the yield curve and year-end tax-loss harvesting. Beginning early in 2014,
the preferred and hybrid market experienced a remarkable start to the year,
earning 9.74% and 5.44% year-to-date through April 30, 2014, according to the
Bank of America Merrill Lynch Preferred and Hybrid Indices, BofA Merrill Lynch
Fixed Rate Preferred Securities Index ("P0P1") and BofA Merrill Lynch U.S.
Capital Securities Index (C0CS), respectively. Performance was driven both by
investors taking advantage of the valuations that had developed after the
sell-off in December, and a continued appetite for yield supported by a rally in
the Treasury markets.
Even as the Federal Reserve continued to reduce asset purchases with another
$10bn taper of quantitative easing in the United States, the Treasury market
experienced positive performance. The drivers of the Treasury rally were
primarily global, as investor demand for the safety of U.S. Treasuries
increased. The flight to quality was initially driven by a slowdown in China and
concerns about possible flow-through to other emerging market economies. It was
propelled by increasing geopolitical risk, with Russia and Ukraine dominating
the headlines. The market was also surprised by remarks from Janet Yellen who,
at her first meeting as Chair of the Federal Reserve, stated that the Federal
Reserve's stimulus program could end this fall, and raised the possibility of a
rate increase six months after the end of quantitative easing. These remarks
primarily caused the front-end of the curve to rise as investors reevaluated
expectations, although the move was short lived and the front-end of the curve
then rallied with the rest of the Treasury market. Economically, in the U.S. we
saw weaker than expected economic growth with sluggish GDP and tame inflation.
Strong performance of the preferred and hybrid market was supported by the
strength in the U.S. Treasury market, a revived appetite for duration, and
increased relative value in the preferred market. Many securities that were
oversold in December due to tax-loss harvesting saw significant rebounds. Most
notably, the divergence in performance between $25-par securities and
institutional securities that had widened substantially during the fourth
quarter has narrowed with the outperformance in the retail preferred securities
market.
Page 3
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PORTFOLIO COMMENTARY (CONTINUED)
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PERFORMANCE ANALYSIS
For the six month period ended on April 30, 2014, the Fund produced a total
return1 on its market price ("MP") of 12.99% and a total return on net asset
value ("NAV") of 8.86%. The total return on both MP and NAV outperformed the
Fund's benchmark, which returned 6.92% over the same time period. The benchmark
used for the Fund is an equal 50% weighting in both the Bank of America Merrill
Lynch Fixed Rate Preferred Securities Index (P0P1) and the Bank of America
Merrill Lynch U.S. Capital Securities Index (C0CS).
While the MP outperformance was attributable to the discount on the Fund being
reduced from 10.6% to 7.2%, the primary reasons for the Fund's NAV
outperformance of the blended benchmark was the use of leverage, which was close
to 31% on April 30, 2014. Leverage added approximately 2.71% to the total return
over the six-month period. The Fund uses leverage because its managers believe
that, over time, leverage can enhance total return for common shareholders.
However, the use of leverage can also increase the volatility of the NAV and
therefore the share price. The Fund's benchmark and its component indices are
not leveraged.
The effective duration on the portfolio as of April 30, 2014 was 4.38 years
without leverage and 6.39 years with leverage, while the blended benchmark
duration was 6.26 years. This shows the Fund's continued overweight of variable
rate securities and other lower duration securities in the portfolio. This
strategy helped the Fund's relative performance in November and December but has
hindered it during the initial four months of 2014, as the overall market has
rebounded and rallied nicely.
MARKET AND FUND OUTLOOK
The strong performance in 2014 to date by preferreds and hybrids has the
potential to continue into the summer as long as interest rates don't spike
higher as they did last summer. We believe preferred and hybrid securities
remain attractively priced relative to other fixed-income alternatives. Higher
yields in preferreds and hybrids continue to attract interest by income-seeking
investors and this will likely support a continuation of positive performance in
2014, in our opinion.
Although we believe preferred and hybrid securities offer good relative value to
other asset classes, risks to the market cannot go unmentioned. We believe the
fixed-income markets are at a crossroad where both the Treasury curve will
steepen and credit spread products may sell off with Treasuries, or Treasuries
will continue to be range bound and preferreds and hybrids may continue their
grind tighter. In our opinion, the case for higher interest rates can be built
around the belief that now that the rough winter that put a drag on the economy
is behind us, we should see economic activity accelerate. It is also widely
accepted that the Federal Reserve will continue to curtail the quantitative
easing bond buying program, which may cause Treasuries to sell off on the long
end. A rise in Treasury yields, especially on the long end of the curve, could
result in investors exiting longer-duration securities. Alternatively, if
economic growth continues at a measured pace, Treasury yields are likely to
remain range bound. In that slow economic growth scenario, preferreds will
likely continue their grind tighter as investor concerns over interest rate risk
abates.
With two possible paths for the preferred and hybrid market in mind, Stonebridge
believes the best way to position the Fund is to limit risk to the downside by
maintaining a shorter duration than the general market, protecting against
another possible rise in interest rates. We believe that if there is a back-up
in rates, low coupon/longer duration fixed-rate preferreds are at risk for a
sell-off; therefore, we continue to see the best value in certain fixed-to-float
securities, high coupon/low duration securities and regulatory-call candidates.
Given the attractive current yields in preferreds, even with a shorter duration,
we believe the Fund may still achieve a very healthy income stream.
1 Total return is based on the combination of reinvested dividends, capital
gain and return of capital distributions, if any, at prices obtained by
the Dividend Reinvestment Plan and changes in NAV per share for net asset
value returns and changes in Common Share price for market value returns.
Total returns do not reflect sales load and are not annualized for periods
less than one year. Past performance is not indicative of future results.
Page 4
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS
APRIL 30, 2014 (UNAUDITED)
STATED STATED
SHARES DESCRIPTION RATE MATURITY VALUE
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$20 PAR PREFERRED SECURITIES - 0.4%
REAL ESTATE INVESTMENT TRUSTS - 0.4%
316,465 CommonWealth REIT (a).............................................. 7.50% 11/15/19 $ 6,572,978
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TOTAL $20 PAR PREFERRED SECURITIES......................................................... 6,572,978
(Cost $6,655,809) --------------
$25 PAR PREFERRED SECURITIES - 29.7%
Banks - 6.3%
200,000 Barclays Bank PLC, Series 5 (a).................................... 8.13% (b) 5,182,000
91,000 Citigroup, Inc., Series J (c)...................................... 7.13% (b) 2,470,650
600,000 Citigroup, Inc., Series K (a) (c).................................. 6.88% (b) 16,098,000
600,000 Fifth Third Bancorp, Series I (a) (c).............................. 6.63% (b) 15,936,000
51,709 FNB Corp. (c)...................................................... 7.25% (b) 1,382,647
220,000 PNC Financial Services Group, Inc., Series P (a) (c)............... 6.13% (b) 5,909,200
225,000 Regions Financial Corp., Series A.................................. 6.38% (b) 5,413,500
106,100 Royal Bank of Scotland Group PLC, Series S (a)..................... 6.60% (b) 2,541,095
523,170 Santander Finance Preferred SAU, Series 10......................... 10.50% (b) 13,696,591
200,000 Taylor Capital Group Inc., Series A (a) (f)........................ 8.00% (b) 5,430,000
165,000 Texas Capital Bancshares Inc., Series A (a)........................ 6.50% (b) 4,001,250
200,000 Wells Fargo & Co. (a) (c).......................................... 5.85% (b) 5,070,000
137,953 Wells Fargo & Co. (a) (c).......................................... 6.63% (b) 3,814,400
182,000 Wells Fargo & Co., Series J (a).................................... 8.00% (b) 5,374,460
67,992 Zions Bancorporation, Series G (c)................................. 6.30% (b) 1,715,438
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94,035,231
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CAPITAL MARKETS - 5.0%
107,000 Apollo Investment Corp............................................. 6.88% 07/15/43 2,603,310
190,524 Ares Capital Corp. (a)............................................. 7.00% 02/15/22 4,976,487
44,567 Ares Capital Corp.................................................. 7.75% 10/15/40 1,193,950
54,970 Deutsche Bank Capital Funding Trust IX............................. 6.63% (b) 1,412,179
350,000 Deutsche Bank Contingent Capital Trust II (a)...................... 6.55% (b) 9,205,000
200,000 Goldman Sachs Group, Inc. (a)...................................... 6.13% 11/01/60 5,148,000
300,000 Goldman Sachs Group, Inc., Series K (a) (c)........................ 6.38% (b) 7,584,000
223,222 Morgan Stanley (a) (c)............................................. 6.88% (b) 5,935,473
226,622 Morgan Stanley Capital Trust VI (a)................................ 6.60% 02/01/46 5,722,205
214,051 Morgan Stanley Capital Trust VII (a)............................... 6.60% 10/15/66 5,409,069
104,000 Morgan Stanley, Series E (a) (c)................................... 7.13% (b) 2,839,200
220,000 Morgan Stanley, Series G (a)....................................... 6.63% (b) 5,500,000
200,000 Raymond James Financial, Inc. (a).................................. 6.90% 03/15/42 5,254,000
462,159 State Street Corp., Series D (a) (c)............................... 5.90% (b) 11,997,648
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74,780,521
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DIVERSIFIED FINANCIAL SERVICES - 5.7%
702,419 Citigroup Capital XIII (a) (c)..................................... 7.88% 10/30/40 19,147,942
110,360 Countrywide Capital IV (a)......................................... 6.75% 04/01/33 2,819,698
535,567 Countrywide Capital V (a).......................................... 7.00% 11/01/36 13,651,603
1,710 ING Groep N.V...................................................... 6.13% (b) 43,006
226,235 ING Groep N.V. (a)................................................. 6.20% (b) 5,710,171
475,581 ING Groep N.V. (a)................................................. 6.38% (b) 12,075,002
128,555 ING Groep N.V. (a)................................................. 7.05% (b) 3,309,006
65,917 ING Groep N.V...................................................... 7.20% (b) 1,701,318
See Notes to Financial Statements Page 5
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2014 (UNAUDITED)
STATED STATED
SHARES DESCRIPTION RATE MATURITY VALUE
------------- ------------------------------------------------------------------- --------- ----------- --------------
$25 PAR PREFERRED SECURITIES (Continued)
DIVERSIFIED FINANCIAL SERVICES (Continued)
300,000 ING Groep N.V. (a)................................................. 7.38% (b) $ 7,752,000
40,000 KKR Financial Holdings LLC......................................... 8.38% 11/15/41 1,127,200
243,087 KKR Financial Holdings LLC, Series A (a)........................... 7.38% (b) 6,162,255
87,858 RBS Capital Funding Trust V, Series E (a).......................... 5.90% (b) 2,001,405
19,582 RBS Capital Funding Trust VI, Series F............................. 6.25% (b) 454,890
350,000 RBS Capital Funding Trust VII, Series G (a)........................ 6.08% (b) 8,046,500
--------------
84,001,996
--------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.9%
83,750 Qwest Corp......................................................... 7.38% 06/01/51 2,236,963
148,899 Qwest Corp. (a).................................................... 7.50% 09/15/51 3,972,625
105,200 Qwest Corp. (a).................................................... 7.00% 04/01/52 2,749,928
350,000 Qwest Corp. (a).................................................... 6.13% 06/01/53 8,036,000
453,130 Verizon Communications, Inc. (a)................................... 5.90% 02/15/54 11,359,969
--------------
28,355,485
--------------
ELECTRIC UTILITIES - 0.3%
59,454 Entergy Texas, Inc................................................. 7.88% 06/01/39 1,516,672
97,950 SCE Trust III (a) (c).............................................. 5.75% (b) 2,528,089
--------------
4,044,761
--------------
FOOD PRODUCTS - 2.0%
1,048,152 CHS, Inc., Series 2 (a) (c)........................................ 7.10% (b) 28,949,958
--------------
Insurance - 5.4%
120,000 Allstate Corp., Series E........................................... 6.63% (b) 3,097,200
250,000 Aspen Insurance Holdings Ltd. (a) (c).............................. 5.95% (b) 6,310,000
361,470 Aspen Insurance Holdings Ltd. (c).................................. 7.40% (b) 9,499,432
93,700 Aviva PLC.......................................................... 8.25% 12/01/41 2,603,923
150,515 Axis Capital Holdings Ltd., Series C............................... 6.88% (b) 3,887,802
264,683 Endurance Specialty Holdings Ltd., Series B........................ 7.50% (b) 6,963,810
433,315 Hartford Financial Services Group, Inc. (a) (c).................... 7.88% 04/15/42 12,960,452
115,000 Maiden Holdings North America Ltd.................................. 8.25% 06/15/41 3,009,550
500,000 MetLife, Inc., Series B (a)........................................ 6.50% (b) 12,710,000
200,000 Montpelier Re Holdings Ltd., Series A (a).......................... 8.88% (b) 5,382,000
118,028 PartnerRe Ltd., Series E........................................... 7.25% (b) 3,187,936
361,590 Reinsurance Group of America, Inc. (a) (c)......................... 6.20% 09/15/42 9,799,089
--------------
79,411,194
--------------
MULTI-UTILITIES - 1.0%
473,173 Integrys Energy Group, Inc. (a) (c)................................ 6.00% 08/01/73 11,947,618
93,750 SCANA Corp......................................................... 7.70% 01/30/65 2,455,313
--------------
14,402,931
--------------
REAL ESTATE INVESTMENT TRUSTS - 2.0%
111,835 CommonWealth REIT.................................................. 5.75% 08/01/42 2,375,375
178,774 CommonWealth REIT, Series E (a).................................... 7.25% (b) 4,605,218
110,285 DuPont Fabros Technology Inc., Series A (a)........................ 7.88% (b) 2,849,765
Page 6 See Notes to Financial Statements
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2014 (UNAUDITED)
STATED STATED
SHARES DESCRIPTION RATE MATURITY VALUE
------------- ------------------------------------------------------------------- --------- ----------- --------------
$25 PAR PREFERRED SECURITIES (Continued)
REAL ESTATE INVESTMENT TRUSTS (Continued)
62,848 EPR Properties, Series F........................................... 6.63% (b) $ 1,475,043
150,541 Kilroy Realty Corp., Series G (a).................................. 6.88% (b) 3,801,160
30,980 Kilroy Realty Corp., Series H...................................... 6.38% (b) 739,802
300,000 National Retail Properties, Inc., Series D (a)..................... 6.63% (b) 7,524,000
99,794 Taubman Centers, Inc., Series J.................................... 6.50% (b) 2,499,840
70,879 Taubman Centers, Inc., Series K.................................... 6.25% (b) 1,705,349
88,499 Vornado Realty Trust, Series J..................................... 6.88% (b) 2,300,089
--------------
29,875,641
--------------
WIRELESS TELECOMMUNICATION SERVICES - 0.1%
23,318 Telephone & Data Systems, Inc...................................... 6.63% 03/31/45 579,918
65,600 Telephone & Data Systems, Inc...................................... 6.88% 11/15/59 1,652,464
--------------
2,232,382
--------------
TOTAL $25 PAR PREFERRED SECURITIES......................................................... 440,090,100
(Cost $432,399,232) --------------
$50 PAR PREFERRED SECURITIES - 0.2%
CONSUMER FINANCE - 0.2%
54,367 SLM Corp., Series A................................................ 6.97% (b) 2,686,817
--------------
TOTAL $50 PAR PREFERRED SECURITIES......................................................... 2,686,817
(Cost $2,677,798) --------------
$100 PAR PREFERRED SECURITIES - 2.9%
BANKS - 2.8%
80,000 AgriBank FCB (a) (c) (f)........................................... 6.88% (b) 8,340,000
175,000 CoBank ACB, Series F (a) (c) (d)................................... 6.25% (b) 17,975,790
50,000 CoBank ACB, Series G (a)........................................... 6.13% (b) 4,350,000
100,000 Farm Credit Bank of Texas (a) (c) (g).............................. 6.75% (b) 10,321,880
--------------
40,987,670
--------------
INSURANCE - 0.1%
20,200 Principal Financial Group, Inc., Series A (c)...................... 5.56% (b) 2,097,645
--------------
TOTAL $100 PAR PREFERRED SECURITIES........................................................ 43,085,315
(Cost $43,940,434) --------------
$1,000 PAR PREFERRED SECURITIES - 4.5%
BANKS - 1.4%
10,000 AgStar Financial Services ACA (a) (c) (g).......................... 6.75% (b) 10,124,375
10,215 Santander Finance Preferred SAU, Series 11 (a) (c)................. 10.50% (b) 10,687,444
--------------
20,811,819
--------------
DIVERSIFIED FINANCIAL SERVICES - 1.1%
15,000 Pitney Bowes International Holdings Inc.,
Series F (a) (g)............................................... 6.13% (b) 15,633,750
--------------
See Notes to Financial Statements Page 7
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2014 (UNAUDITED)
STATED STATED
SHARES DESCRIPTION RATE MATURITY VALUE
------------- ------------------------------------------------------------------- --------- ----------- --------------
$1,000 PAR PREFERRED SECURITIES (Continued)
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.3%
16,000 Centaur Funding Corp. (a) (g)...................................... 9.08% 04/21/20 $ 19,965,000
--------------
REAL ESTATE INVESTMENT TRUSTS - 0.7%
8,000 Sovereign Real Estate Investment Trust (a) (g)..................... 12.00% (b) 10,102,768
--------------
TOTAL $1,000 PAR PREFERRED SECURITIES...................................................... 66,513,337
(Cost $66,595,509) --------------
STATED STATED
PAR AMOUNT DESCRIPTION RATE MATURITY VALUE
------------- ------------------------------------------------------------------- --------- ----------- --------------
CAPITAL PREFERRED SECURITIES - 99.0%
BANKS - 43.9%
$ 31,000,000 Banco Bilbao Vizcaya Argentaria S.A. (c)........................... 9.00% (b) 34,332,500
20,500,000 Bank of America Corp., Series K (a) (c)............................ 8.00% (b) 23,329,861
17,000,000 Bank of America Corp., Series M (a) (c)............................ 8.13% (b) 19,395,929
9,940,000 Barclays Bank PLC (a) (d).......................................... 10.18% 06/12/21 13,550,755
15,000,000 Barclays Bank PLC (a) (c).......................................... 7.75% 04/10/23 16,687,500
6,000,000 Barclays Bank PLC (a) (c) (d)...................................... 7.43% (b) 6,735,000
10,000,000 Barclays PLC (c)................................................... 8.25% (b) 10,668,600
16,750,000 BBVA International Preferred SAU (a) (c)........................... 5.92% (b) 17,168,750
17,000,000 BNP Paribas S.A. (a) (c) (d)....................................... 7.20% (b) 19,125,000
7,500,000 BPCE S.A. (a) (c) (d).............................................. 12.50% (b) 10,050,000
3,000,000 BPCE S.A........................................................... 13.00% (b) 3,408,000
10,000,000 Citigroup, Inc. (a) (c)............................................ 5.95% (b) 9,887,500
800,000 Citigroup, Inc., Series E (c) (f).................................. 8.40% (b) 927,000
24,500,000 Citigroup, Inc., Series M (a) (c).................................. 6.30% (b) 24,510,412
20,000,000 Cooperatieve Centrale Raiffeisen-Boerenleenbank
BA (c).......................................................... 8.40% (b) 22,760,000
25,104,000 Cooperatieve Centrale Raiffeisen-Boerenleenbank
BA (a) (c) (d).................................................. 11.00% (b) 33,513,840
4,000,000 Cooperatieve Centrale Raiffeisen-Boerenleenbank
BA (c).......................................................... 8.38% (b) 4,420,000
13,000,000 Credit Agricole S.A. (a) (c) (d)................................... 7.88% (b) 14,002,950
11,000,000 Credit Agricole S.A. (a) (c) (d)................................... 8.38% (b) 12,815,000
3,500,000 Credit Agricole S.A. (c)........................................... 8.38% (b) 4,077,500
5,000,000 Dresdner Funding Trust I (d)....................................... 8.15% 06/30/31 5,825,000
10,000,000 HBOS Capital Funding L.P........................................... 6.85% (b) 10,081,250
4,000,000 HSBC USA Capital Trust II (a) (g).................................. 8.38% 05/15/27 4,050,500
37,500,000 JPMorgan Chase & Co., Series 1 (a) (c)............................. 7.90% (b) 42,562,500
5,000,000 JPMorgan Chase & Co., Series R (a) (c)............................. 6.00% (b) 5,000,000
16,500,000 JPMorgan Chase & Co., Series S (a) (c)............................. 6.75% (b) 17,572,500
5,000,000 JPMorgan Chase & Co., Series U (a) (c)............................. 6.13% (b) 5,021,625
14,775,000 Lloyds Bank PLC (a) (c) (d)........................................ 12.00% (b) 21,054,375
2,500,000 Lloyds Bank PLC (c)................................................ 12.00% (b) 3,562,500
12,755,000 Lloyds Banking Group PLC (a) (c) (d)............................... 5.92% (b) 12,914,437
23,500,000 Lloyds Banking Group PLC (a) (c) (d)............................... 6.27% (b) 23,852,500
5,000,000 M&T Bank Corp. (c)................................................. 6.45% (b) 5,250,000
10,000,000 Macquarie PMI LLC.................................................. 8.38% (b) 10,627,000
9,964,000 Mizuho Capital Investment USD 2, Ltd. (a) (c) (d).................. 14.95% (b) 10,286,335
5,575,000 Natixis (c)........................................................ 10.00% (b) 6,703,938
Page 8 See Notes to Financial Statements
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2014 (UNAUDITED)
STATED STATED
PAR AMOUNT DESCRIPTION RATE MATURITY VALUE
------------- ------------------------------------------------------------------- --------- ----------- --------------
CAPITAL PREFERRED SECURITIES (CONTINUED)
BANKS (Continued)
$ 10,754,000 Natixis (a) (c) (d)................................................ 10.00% (b) $ 12,931,685
4,200,000 NIBC Bank N.V...................................................... 7.63% (b) 4,210,500
24,600,000 Royal Bank of Scotland Group PLC,
Series U (a) (c)................................................ 7.64% (b) 25,707,000
20,000,000 Royal Bank of Scotland PLC (The) (c)............................... 9.50% 03/16/22 23,442,700
13,980,000 SMFG Preferred Capital USD 3 Ltd. (a) (c) (d)...................... 9.50% (b) 17,593,830
9,500,000 Societe Generale SA (c)............................................ 8.25% (b) 10,335,288
15,184,000 Standard Chartered Bank (c)........................................ 9.50% (b) 15,903,342
4,500,000 Standard Chartered PLC (a) (c) (d)................................. 6.41% (b) 4,857,188
30,000,000 Wells Fargo & Co., Series K (a) (c)................................ 7.98% (b) 34,200,000
6,800,000 Zions Bancorporation (a) (c)....................................... 5.80% (b) 6,375,000
9,000,000 Zions Bancorporation, Series J (a) (c)............................. 7.20% (b) 9,409,500
--------------
650,696,590
--------------
CAPITAL MARKETS - 3.2%
2,618,000 Charles Schwab Corp. (c)........................................... 7.00% (b) 3,024,706
10,000,000 Credit Suisse Group Guernsey I Ltd. (c)............................ 7.88% 02/24/41 10,937,500
2,000,000 Deutsche Bank Capital Funding Trust I (d).......................... 3.20% (b) 1,900,000
2,500,000 Deutsche Bank Capital Trust IV (c) (f)............................. 4.59% (b) 2,375,000
20,000,000 Goldman Sachs Capital I (a)........................................ 6.35% 02/15/34 21,207,980
8,500,000 Goldman Sachs Group, Inc., Series A (a) (c)........................ 5.70% (b) 8,722,717
--------------
48,167,903
--------------
DIVERSIFIED FINANCIAL SERVICES - 6.3%
47,500,000 General Electric Capital Corp., Series A (a) (c)................... 7.13% (b) 54,710,927
20,520,000 Glen Meadow Pass Through Trust (a) (c) (d)......................... 6.51% 02/12/67 20,520,000
14,530,000 Voya Financial, Inc. (a) (c)....................................... 5.65% 05/15/53 14,601,197
3,585,000 ZFS Finance USA Trust II (c) (d)................................... 6.45% 12/15/65 3,880,763
--------------
93,712,887
--------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.3%
18,700,000 Koninklijke KPN N.V. (c) (d)....................................... 7.00% 03/28/73 19,635,000
--------------
ELECTRIC UTILITIES - 3.8%
8,250,000 Enel SpA (a) (c) (d)............................................... 8.75% 09/24/73 9,528,750
14,975,000 NextEra Energy Capital Holdings, Inc.,
Series D (a) (c)................................................ 7.30% 09/01/67 16,559,670
25,000,000 PPL Capital Funding Inc., Series A (a) (c)......................... 6.70% 03/30/67 25,266,450
4,179,000 Southern California Edison Co., Series E (a) (c)................... 6.25% (b) 4,471,530
--------------
55,826,400
--------------
ENERGY EQUIPMENT & SERVICES - 0.6%
9,000,000 DCP Midstream LLC (a) (c) (d)...................................... 5.85% 05/21/43 8,550,000
--------------
INDEPENDENT POWER AND RENEWABLE ELECTRICITY PRODUCERS - 0.2%
2,500,000 AES Gener S.A. (c) (d)............................................. 8.38% 12/18/73 2,700,000
--------------
See Notes to Financial Statements Page 9
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2014 (UNAUDITED)
STATED STATED
PAR AMOUNT DESCRIPTION RATE MATURITY VALUE
------------- ------------------------------------------------------------------- --------- ----------- --------------
CAPITAL PREFERRED SECURITIES (CONTINUED)
INSURANCE - 35.5%
$ 2,500,000 Aegon N.V. (e)..................................................... 2.85% (b) $ 2,270,375
10,000,000 AIG Life Holdings, Inc. (a) (d).................................... 7.57% 12/01/45 12,648,100
13,000,000 American International Group, Inc. (a) (c)......................... 8.18% 05/15/58 17,452,500
26,500,000 Aquarius + Investments PLC for Swiss Reinsurance
Co., Ltd. (c)................................................... 8.25% (b) 29,804,550
10,000,000 Assured Guaranty Municipal Holdings,
Inc. (a) (c) (d)................................................ 6.40% 12/15/66 8,550,000
4,930,000 Assured Guaranty US Holdings, Series A (c)......................... 6.40% 12/15/66 4,510,950
26,000,000 Aviva PLC (a)...................................................... 8.25% (b) 29,282,500
15,000,000 AXA S.A. (a) (c) (d)............................................... 6.46% (b) 16,155,000
22,005,000 Catlin Insurance Co Ltd. (a) (c) (d)............................... 7.25% (b) 22,830,188
15,050,000 Cloverie PLC for Zurich Insurance Co., Ltd. (c).................... 8.25% (b) 17,525,725
7,000,000 CNP Assurances (c)................................................. 6.88% (b) 7,611,716
10,600,000 CNP Assurances (c)................................................. 7.50% (b) 11,816,880
12,500,000 Dai-ichi Life Insurance Co Ltd. (The) (a) (c) (d).................. 7.25% (b) 14,646,038
23,000,000 Friends Life Group PLC (c)......................................... 7.88% (b) 25,386,250
22,200,000 Genworth Holdings, Inc. (a) (c).................................... 6.15% 11/15/66 20,840,250
23,782,000 Hartford Financial Services Group, Inc. (a) (c).................... 8.13% 06/15/38 28,151,942
13,000,000 Lincoln National Corp. (a) (c)..................................... 7.00% 05/17/66 13,555,100
18,000,000 Lincoln National Corp. (a) (c)..................................... 6.05% 04/20/67 18,180,000
7,500,000 MetLife Capital Trust X (a) (d).................................... 9.25% 04/08/38 10,125,000
16,265,000 MetLife, Inc. (a).................................................. 10.75% 08/01/39 24,966,775
15,000,000 Mitsui Sumitomo Insurance Co., Ltd. (a) (c) (d).................... 7.00% 03/15/72 17,681,250
3,000,000 Nationwide Financial Services Capital Trust (a) (f)................ 7.90% 03/01/37 3,395,814
13,000,000 Nationwide Financial Services, Inc. (a)............................ 6.75% 05/15/37 13,325,000
5,000,000 Provident Financing Trust I (a).................................... 7.41% 03/15/38 5,600,000
23,265,000 Prudential Financial, Inc. (a) (c)................................. 8.88% 06/15/38 28,557,787
20,389,000 Prudential PLC (c)................................................. 11.75% (b) 21,739,771
39,520,000 QBE Capital Funding III Ltd. (a) (c) (d)........................... 7.25% 05/24/41 42,385,200
5,500,000 StanCorp Financial Group, Inc. (a) (c)............................. 6.90% 06/01/67 5,666,870
3,000,000 Sumitomo Life Insurance Co. (c) (d)................................ 6.50% 09/20/73 3,473,445
8,000,000 Swiss Re Capital I LP (a) (c) (d).................................. 6.85% (b) 8,586,000
40,611,000 XL Group PLC, Series E (a) (c)..................................... 6.50% (b) 40,204,890
--------------
526,925,866
--------------
MACHINERY - 0.3%
4,500,000 Stanley Black & Decker, Inc. (c)................................... 5.75% 12/15/53 4,888,125
--------------
MULTI-UTILITIES - 0.8%
10,000,000 RWE AG (c)......................................................... 7.00% 10/12/72 11,129,000
--------------
OIL, GAS & CONSUMABLE FUELS - 3.1%
5,000,000 BG Energy Capital PLC (c).......................................... 6.50% 11/30/72 5,512,500
25,720,000 Enbridge Energy Partners L.P. (a) (c).............................. 8.05% 10/01/37 29,172,910
10,000,000 Enterprise Products Operating LLC, Series B (a) (c)................ 7.03% 01/15/68 11,334,330
--------------
46,019,740
--------------
TOTAL CAPITAL PREFERRED SECURITIES......................................................... 1,468,251,511
(Cost $1,442,048,030) --------------
Page 10 See Notes to Financial Statements
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2014 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
------------- ------------------------------------------------------------------- --------- ----------- --------------
CORPORATE BONDS AND NOTES - 5.2%
BANKS - 3.2%
$ 2,560,000 Barclays Bank PLC.................................................. 10.18% 06/12/21 $ 3,489,933
1,010,000 BBVA Global Finance Ltd............................................ 7.00% 12/01/25 1,087,261
7,400,000 BPCE S.A. (d)...................................................... 5.15% 07/21/24 7,539,105
5,000,000 Credit Agricole S.A. (a) (c) (d)................................... 8.13% 09/19/33 5,780,500
26,000,000 KBC Bank N.V. (c).................................................. 8.00% 01/25/23 29,640,000
--------------
47,536,799
--------------
CAPITAL MARKETS - 1.4%
8,500,000 UBS AG (c)......................................................... 7.25% 02/22/22 9,390,375
10,000,000 UBS AG (a)......................................................... 7.63% 08/17/22 11,901,510
--------------
21,291,885
--------------
INSURANCE - 0.6%
6,800,000 AXA S.A. (a)....................................................... 8.60% 12/15/30 8,823,000
--------------
TOTAL CORPORATE BONDS AND NOTES............................................................ 77,651,684
(Cost $72,900,385) --------------
NUMBER OF
CONTRACTS DESCRIPTION VALUE
------------- ------------------------------------------------------------------------------------------- --------------
PUT OPTIONS PURCHASED 0.0%
10 YEAR US TREASURY NOTE FUTURES
130 @ 123.5 due July 2014...................................................................... 109,688
(Cost $179,313) --------------
TOTAL INVESTMENTS - 141.9%................................................................. 2,104,961,430
(Cost $2,067,396,510) (h)
CALL OPTIONS WRITTEN (0.0%)
10 YEAR US TREASURY NOTE FUTURES
100 @ 122.5 due July 2014...................................................................... (151,562)
(Premiums received $107,379) --------------
OUTSTANDING LOAN - (44.9%)................................................................. (666,000,000)
NET OTHER ASSETS AND LIABILITIES - 3.0%.................................................... 44,755,230
--------------
NET ASSETS - 100.0%........................................................................ $1,483,565,098
==============
(a) All or a portion of this security serves as collateral on the outstanding
loan.
(b) Perpetual maturity.
(c) Fixed-to-floating or fixed-to-variable rate security. The interest rate
shown reflects the fixed rate in effect at April 30, 2014. At a
predetermined date, the fixed rate will change to a floating rate or a
variable rate.
(d) This security, sold within the terms of a private placement memorandum, is
exempt from registration upon resale under Rule 144A under the Securities
Act of 1933, as amended (the "1933 Act"), and may be resold in
transactions exempt from registration, normally to qualified institutional
buyers. Pursuant to procedures adopted by the Fund's Board of Trustees,
this security has been determined to be liquid by Stonebridge Advisors
LLC, the Fund's sub-advisor. Although market instability can result in
periods of increased overall market illiquidity, liquidity for each
security is determined based on security specific factors and assumptions,
which require subjective judgment. At April 30, 2014, securities noted as
such amounted to $544,396,297 or 36.70% of net assets.
(e) Floating rate security. The interest rate shown reflects the rate in
effect at April 30, 2014.
(f) This security has been determined to be illiquid by the sub-advisor.
See Notes to Financial Statements Page 11
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2014 (UNAUDITED)
(g) This security, sold within the terms of a private placement memorandum, is
exempt from registration upon resale under Rule 144A under the 1933 Act,
and may be resold in transactions exempt from registration, normally to
qualified institutional buyers (see Note 2C - Restricted Securities in the
Notes to Financial Statements).
(h) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of April 30, 2014, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $56,011,563 and the aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over value was $18,446,643.
---------------------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of April 30,
2014 is as follows(see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
ASSETS TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
INVESTMENTS 4/30/2014 PRICES INPUTS INPUTS
----------------------------- -------------- -------------- -------------- --------------
$20 Par Preferred Securities*...................... $ 6,572,978 $ 6,572,978 $ -- $ --
$25 Par Preferred Securities*...................... 440,090,100 440,090,100 -- --
$50 Par Preferred Securities*...................... 2,686,817 2,686,817 -- --
$100 Par Preferred Securities*..................... 43,085,315 -- 43,085,315 --
$1,000 Par Preferred Securities:
Banks........................................... 20,811,819 10,124,375 10,687,444 --
Other Industry Categories*......................... 45,701,518 -- 45,701,518 --
Capital Preferred Securities*...................... 1,468,251,511 -- 1,468,251,511 --
Corporate Bonds and Notes*......................... 77,651,684 -- 77,651,684 --
Put Options Purchased.............................. 109,688 109,688 -- --
-------------- -------------- -------------- --------------
Total Investments.................................. $2,104,961,430 $ 459,583,958 $1,645,377,472 $ --
============== ============== ============== ==============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
4/30/2014 PRICES INPUTS INPUTS
-------------- -------------- -------------- --------------
Call Options Written............................... $ (151,562) $ (151,562) $ -- $ --
Futures Contracts.................................. (1,202,124) (1,202,124) -- --
-------------- -------------- -------------- --------------
Total.............................................. $ (1,353,686) $ (1,353,686) $ -- $ --
============== ============== ============== ==============
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. As of April
30, 2014, the Fund transferred $100 Par preferred securities valued at
$8,340,000 from Level 2 to Level 1.
OPEN FUTURES CONTRACTS AT APRIL 30, 2014 (see Note 2D - Futures Contracts in the
Notes toFinancial Statements):
UNREALIZED
NUMBER OF EXPIRATION NOTIONAL APPRECIATION
SHORT FUTURES CONTRACTS CONTRACTS MONTH VALUE (DEPRECIATION)
-------------------------------------------------- -------------- -------------- -------------- --------------
U.S. Treasury Long Bond Futures................... 220 June-2014 $ 29,210,166 $ (476,085)
Ultra Long Term U.S. Treasury Bond Futures........ 165 June-2014 23,576,954 (724,452)
------- -------------- --------------
Total Futures Contracts........................... 385 $ 52,787,120 $ (1,200,537)
======= ============== ==============
Page 12 See Notes to Financial Statements
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2014 (UNAUDITED)
ASSETS:
Investments, at value
(Cost $2,067,396,510)....................................................................... $ 2,104,961,430
Cash........................................................................................... 20,527,041
Prepaid expenses............................................................................... 83,026
Receivables:
Interest.................................................................................... 27,451,443
Investment securities sold.................................................................. 19,752,005
Dividends................................................................................... 1,359,370
Tax reclaims................................................................................ 96,197
------------------
Total Assets................................................................................ 2,174,230,512
------------------
LIABILITIES:
Outstanding loan............................................................................... 666,000,000
Options written, at value (Premiums received $107,379)......................................... 151,562
Payables:
Investment securities purchased............................................................. 21,207,909
Investment advisory fees.................................................................... 1,485,912
Variation margin............................................................................ 1,200,537
Custodian fees.............................................................................. 250,322
Administrative fees......................................................................... 113,182
Offering costs.............................................................................. 109,603
Printing fees............................................................................... 84,942
Interest and fees due on loan............................................................... 31,487
Audit and tax fees.......................................................................... 19,969
Trustees' fees and expenses................................................................. 5,352
Transfer agent fees......................................................................... 3,905
Financial reporting fees.................................................................... 732
------------------
Total Liabilities........................................................................... 690,665,414
------------------
NET ASSETS.....................................................................................
$ 1,483,565,098
==================
NET ASSETS CONSIST OF:
Paid-in capital................................................................................ $ 1,447,001,470
Par value...................................................................................... 607,042
Accumulated net investment income (loss)....................................................... 13,439,261
Accumulated net realized gain (loss) on investments, options, and futures contracts............ (13,802,875)
Net unrealized appreciation (depreciation) investments, options, and futures contracts......... 36,320,200
------------------
NET ASSETS.....................................................................................
$ 1,483,565,098
==================
NET ASSET VALUE, per common share (par value $0.01 per common share)...........................
$ 24.44
==================
Number of common shares outstanding (unlimited number of common shares has been authorized).... 60,704,189
==================
See Notes to Financial Statements Page 13
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 2014 (UNAUDITED)
INVESTMENT INCOME:
Interest (net of foreign withholding tax of $185,435).......................................... $ 53,905,182
Dividends...................................................................................... 16,362,682
------------------
Total investment income..................................................................... 70,267,864
------------------
EXPENSES:
Investment advisory fees....................................................................... 8,670,924
Interest expense............................................................................... 2,671,245
Administrative fees............................................................................ 333,084
Custodian fees................................................................................. 129,952
Printing fees.................................................................................. 128,932
Legal fees..................................................................................... 36,885
Listing expense................................................................................ 36,846
Trustees' fees and expenses.................................................................... 27,818
Audit and tax fees............................................................................. 16,473
Transfer agent fees............................................................................ 11,407
Financial reporting fees....................................................................... 4,587
Other.......................................................................................... 139,260
------------------
Total expenses.............................................................................. 12,207,413
------------------
NET INVESTMENT INCOME (LOSS)................................................................... 58,060,451
------------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments................................................................................. (4,329,965)
Written options............................................................................. (158,053)
Futures contracts........................................................................... (2,181,001)
------------------
Net realized gain (loss)....................................................................... (6,669,019)
------------------
Net change in unrealized appreciation (depreciation) on:
Investments................................................................................. 66,430,017
Written options held........................................................................ (44,183)
Futures contracts........................................................................... (1,200,537)
------------------
Net change in unrealized appreciation (depreciation)........................................... 65,185,297
------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)........................................................ 58,516,278
------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................ $ 116,576,729
==================
Page 14 See Notes to Financial Statements
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED APRIL 30, 2014 (UNAUDITED)
SIX MONTHS
ENDED PERIOD
4/30/2014 ENDED
(UNAUDITED) 10/31/2013 (a)
--------------- -----------------
OPERATIONS:
Net investment income (loss)..................................................... $ 58,060,451 $ 42,418,720
Net realized gain (loss)......................................................... (6,669,019) (6,225,537)
Net change in unrealized appreciation (depreciation)............................. 65,185,297 (28,865,097)
--------------- -----------------
Net increase (decrease) in net assets resulting from operations.................. 116,576,729 7,328,086
--------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................................ (60,176,063) (27,772,166)
--------------- -----------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold........................................................ -- 1,449,312,512
Offering costs................................................................... -- (1,704,000)
--------------- -----------------
Net increase (decrease) in net assets resulting from shareholder transactions.... -- 1,447,608,512
--------------- -----------------
Total increase (decrease) in net assets.......................................... 56,400,666 1,427,164,432
NET ASSETS:
Beginning of period.............................................................. 1,427,164,432 --
--------------- -----------------
End of period.................................................................... $ 1,483,565,098 $ 1,427,164,432
=============== =================
Accumulated net investment income (loss) at end of period........................ $ 13,439,261 $ 15,554,873
=============== =================
CAPITAL TRANSACTIONS WERE AS FOLLOWS:
Common shares at beginning of period............................................. 60,704,189 --
Common shares sold............................................................... -- 60,704,189
--------------- -----------------
Common shares at end of period................................................... 60,704,189 60,704,189
=============== =================
(a) The Fund was seeded on April 16, 2013 and commenced operations on May 23,
2013.
See Notes to Financial Statements Page 15
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED APRIL 30, 2014 (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) in net assets resulting from operations ............... $ 116,576,729
Adjustments to reconcile net increase (decrease) in net assets resulting from
operations to net cash used in operating activities:
Purchases of investments.................................................. (479,165,841)
Sales, maturities and paydowns of investments............................. 387,370,999
Proceeds from written options............................................. 434,716
Amount paid to close written options...................................... (485,389)
Net realized gain/loss on investments and options......................... 4,293,269
Net change in unrealized appreciation/depreciation on investments
and options............................................................ (66,385,834)
CHANGES IN ASSETS AND LIABILITIES:
Increase in interest receivable........................................... (68,798)
Increase in dividends receivable.......................................... (153,402)
Increase in prepaid expenses.............................................. (32,361)
Decrease in tax reclaim receivable........................................ 107,845
Decrease in other assets.................................................. 1,466
Increase in variation margin payable...................................... 1,200,537
Increase in interest and fees on loan payable............................. 3,325
Increase in investment advisory fees payable.............................. 55,933
Decrease in audit and tax fees payable.................................... (13,231)
Decrease in legal fees payable............................................ (7,640)
Decrease in printing fees payable......................................... (26,330)
Decrease in administrative fees payable................................... (118,970)
Decrease in custodian fees payable........................................ (26,633)
Decrease in transfer agent fees payable................................... (595)
Increase in Trustees' fees and expenses payable........................... 5,352
Decrease in financial reporting fees payable.............................. (3,322)
----------------
CASH USED IN OPERATING ACTIVITIES.............................................. $ (36,438,175)
-----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to common shareholders from net investment income........... (60,176,063)
Issuance of loan.......................................................... 82,000,000
----------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES.................................... 21,823,937
-----------------
Decrease in cash.......................................................... (14,614,238)
Cash at beginning of period............................................... 35,141,279
-----------------
Cash at end of period..................................................... $ 20,527,041
=================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest and fees.............................. $ 2,667,920
=================
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
SIX MONTHS FOR THE PERIOD
ENDED 5/23/2013 (a)
4/30/2014 THROUGH
(UNAUDITED) 10/31/2013
------------ -----------------
Net asset value, beginning of period............ $ 23.51 $ 23.88(b)
------------ -------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).................... 0.96 0.70
Net realized and unrealized gain (loss)......... 0.96 (0.64)
------------ -------------
Total from investment operations................ 1.92 0.06
------------ -------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income........................... (0.99) (0.46)
------------ -------------
Common Shares offering costs charged to
paid-in capital.............................. -- (0.03)
------------ -------------
Premiums from shares sold in at the market
offerings.................................... -- 0.06
------------ -------------
Net asset value, end of period.................. $ 24.44 $ 23.51
============ =============
Market value, end of period..................... $ 22.67 $ 21.01
============ =============
TOTAL RETURN BASED ON NET ASSET VALUE (c)....... 8.86% 0.60%
============ =============
TOTAL RETURN BASED ON MARKET VALUE (c).......... 12.99% (14.13)%
============ =============
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)............ $ 1,483,565 $ 1,427,164
Ratio of total expenses to average net assets... 1.71%(d) 1.53%(d)
Ratio of net expenses to average net assets
excluding interest expense................... 1.34%(d) 1.24%(d)
Ratio of net investment income (loss) to average
net assets................................... 8.15%(d) 7.01%(d)
Portfolio turnover rate......................... 20% 11%
INDEBTEDNESS:
Total loan outstanding (in 000's)............... $ 666,000 $ 584,000
Asset coverage per $1,000 of indebtedness (e)... $ 3,228 $ 3,444
(a) The Fund was seeded on April 16, 2013 and commenced operations on May 23,
2013.
(b) Beginning net asset value is net of sales load of $1.125 per share from
the initial offering.
(c) Total return is based on the combination of reinvested dividend, capital
gain and return of capital distributions, if any, at prices obtained by
the Dividend Reinvestment Plan, and changes in net asset value per share
for net asset value returns and changes in Common Shares price for market
value returns. Total returns do not reflect sales load and are not
annualized for periods less than one year. Past performance is not
indicative of future results.
(d) Annualized.
(e) Calculated by taking the Fund's total assets less the Fund's total
liabilities (not including the loan outstanding) and dividing by the loan
balance in 000's.
See Notes to Financial Statements Page 17
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
APRIL 30, 2014 (UNAUDITED)
1. ORGANIZATION
First Trust Intermediate Duration Preferred & Income Fund (the "Fund") is a
non-diversified, closed-end management investment company organized as a
Massachusetts business trust on February 4, 2013, and is registered with the
Securities and Exchange Commission under the Investment Company Act of 1940, as
amended (the "1940 Act"). The Fund trades under the ticker symbol FPF on the New
York Stock Exchange ("NYSE").
The Fund's primary investment objective is to seek a high level of current
income. The Fund has a secondary objective of capital appreciation. The Fund
seeks to achieve its objectives by investing, under normal market conditions, at
least 80% of its managed assets in preferred securities and other income
producing securities issued by U.S. and non-U.S. companies, including
traditional preferred securities, hybrid preferred securities that have
investment and economic characteristics of both preferred securities and debt
securities, floating rate and fixed-to-floating rate preferred securities, debt
securities, convertible securities and contingent convertible securities. There
can be no assurance that the Fund will achieve its investment objectives. The
Fund seeks to maintain, under normal market conditions, a duration of between
three and eight years. The Fund may not be appropriate for all investors.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of the financial statements. The
preparation of the financial statements in accordance with accounting principles
generally accepted in the United States of America ("U.S. GAAP") requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
A. PORTFOLIO VALUATION:
The Fund's net asset value ("NAV") is determined daily as of the close of
regular trading on the New York Stock Exchange ("NYSE"), normally 4:00 p.m.
Eastern time, on each day the NYSE is open for trading. If the NYSE closes early
on a valuation day, the NAV is determined as of that time. Domestic debt
securities and foreign securities are priced using data reflecting the earlier
closing of the principal markets for those securities. The NAV is calculated by
dividing the value of all assets of the Fund (including accrued interest and
dividends), less all liabilities (including accrued expenses and dividends
declared but unpaid, and any borrowings of the Fund), by the total number of
shares outstanding.
The Fund's investments are valued daily at market value or, in the absence of
market value with respect to any portfolio securities, at fair value in
accordance with valuation procedures adopted by the Fund's Board of Trustees,
and in accordance with provisions of the 1940 Act. Market quotations and prices
used to value the Fund's investments are primarily obtained from third party
pricing services. The Fund's investments are valued as follows:
Preferred stocks and other equity securities listed on any national or
foreign exchange (excluding the NASDAQ(R) National Market LLC ("NASDAQ")
and the London Stock Exchange Alternative Investment Market ("AIM")), are
valued at the last sale price on the exchange on which they are
principally traded or, for NASDAQ and AIM securities, the official
closing price. Securities traded on one or more than one securities
exchange are valued at the last sale price or official closing price, as
applicable, at the close of the securities exchange representing the
principal market for such securities.
Corporate bonds, notes and other debt securities are valued on the basis
of valuations provided by dealers who make markets in such securities or
by an independent pricing service approved by the Fund's Board of
Trustees, which may use the following valuation inputs when available:
1) benchmark yields;
2) reported trades;
3) broker/dealer quotes;
4) issuer spreads;
5) benchmark securities;
6) bids and offers; and
7) reference data including market research publications.
Securities traded in an over-the-counter market are valued at the mean of
their most recent bid and asked price, if available, and otherwise at
their closing bid price.
Debt securities having a maturity of sixty days or less when purchased
are valued at cost adjusted for amortization of premiums and accretion of
discounts.
Page 18
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
APRIL 30, 2014 (UNAUDITED)
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Board of Trustees or its delegate
at fair value. These securities generally include, but are not limited to,
restricted securities (securities which may not be publicly sold without
registration under the Securities Act of 1933, as amended (the "1933 Act")) for
which a pricing service is unable to provide a market price; securities whose
trading has been formally suspended; a security whose market price is not
available from a pre-established pricing source; a security with respect to
which an event has occurred that is likely to materially affect the value of the
security after the market has closed but before the calculation of the Fund's
NAV or make it difficult or impossible to obtain a reliable market quotation;
and a security whose price, as provided by the pricing service, does not reflect
the security's "fair value."
As a general principle, the current "fair value" of a security would appear to
be the amount which the owner might reasonably expect to receive for the
security upon its current sale. The use of fair value prices by the Fund
generally results in prices used by the Fund that may differ from current market
quotations or official closing prices on the applicable exchange. A variety of
factors may be considered in determining the fair value of such securities,
including, but not limited to, the following:
1) the type of security;
2) the size of the holding;
3) the initial cost of the security;
4) transactions in comparable securities;
5) price quotes from dealers and/or pricing services;
6) relationships among various securities;
7) information obtained by contacting the issuer, analysts, or
the appropriate stock exchange; 8) an analysis of the issuer's
financial statements; and
9) the existence of merger proposals or tender offers that might
affect the value of the security.
If the securities in question are foreign securities, the following additional
information may be considered:
1) the value of similar foreign securities traded on other
foreign markets;
2) ADR trading of similar securities;
3) closed-end fund trading of similar securities;
4) foreign currency exchange activity;
5) the trading prices of financial products that are tied to
baskets of foreign securities;
6) factors relating to the event that precipitated the pricing
problem;
7) whether the event is likely to recur; and
8) whether the effects of the event are isolated or whether they
affect entire markets,countries or regions.
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
The inputs or methodology used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of April 30, 2014, is
included with the Fund's Portfolio of Investments.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income, if any, is
recorded on the accrual basis, including the amortization of premiums and
accretion of discounts.
Page 19
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
APRIL 30, 2014 (UNAUDITED)
The Fund may hold the securities of real estate investments trusts ("REITs").
Distributions from such investments may include income, capital gains and return
of capital. The actual character of amounts received during the year is not
known until after the REITs' fiscal year end. The Fund records the character of
distributions received from the REITs during the year based on estimates
available. The characterization of distributions received by the Fund may be
subsequently revised based on information received from the REITs after their
tax reporting periods conclude.
C. RESTRICTED SECURITIES:
The Fund invests in restricted securities, which are securities that may not be
offered for public sale without first being registered under the 1933 Act. Prior
to registration, restricted securities may only be resold in transactions exempt
from registration under Rule 144A under the 1933 Act, normally to qualified
institutional buyers. As of April 30, 2014, the Fund held restricted securities
as shown in the following table that Stonebridge Advisors LLC ("Stonebridge" or
the "Sub-Advisor") has deemed illiquid pursuant to procedures adopted by the
Fund's Board of Trustees. Although market instability can result in periods of
increased overall market illiquidity, liquidity for each security is determined
based on security-specific factors and assumptions, which require subjective
judgment. The Fund does not have the right to demand that such securities be
registered. These securities are valued according to the valuation procedures as
stated in the Portfolio Valuation note (Note 2A) and are not expressed as a
discount to the carrying value of a comparable unrestricted security. There are
no unrestricted securities with the same maturity dates and yields for these
issuers.
PAR % OF
ACQUISITION AMOUNT/ CARRYING NET
SECURITY DATE SHARES PRICE COST VALUE ASSETS
--------------------------------------------------------------------------------------------------------------------------
Farm Credit Bank of Texas, 6.75% 7/16/13 100,000 $ 103.22 $ 10,020,000 $ 10,321,880 0.70%
AgStar Financial Services ACA, Series F, 6.75% 5/29/13 10,000 1,012.44 10,000,000 10,124,375 0.68
Pitney Bowes International Holdings Inc.,
Series F, 6.13% 6/06/13 15,000 1,042.25 14,756,250 15,633,750 1.05
Centaur Funding Corp., 9.08%, 04/21/20 5/29/13 16,000 1,247.81 20,528,750 19,965,000 1.35
Sovereign Real Estate Investment Trust, 12.00% 6/12/13 8,000 1,262.85 10,494,375 10,102,768 0.68
HSBC USA Capital Trust II, 8.38%, 05/15/27 9/09/13 $4,000,000 1,012.50 4,080,000 4,050,500 0.27
--------------------------------------
$ 69,879,375 $ 70,198,273 4.73%
======================================
D. FUTURES CONTRACTS:
The Fund purchases or sells (i.e., is long or short) futures contracts to hedge
against changes in interest rates (interest rate risk). Futures contracts are
agreements between the Fund and a counterparty to buy or sell a specific
quantity of an underlying instrument at a specified price and at a specified
date. Depending on the terms of the contract, futures contracts are settled
either through physical delivery of the underlying instrument on the settlement
date or by payment of a cash settlement amount on the settlement date. Open
futures contracts can also be closed out prior to settlement by entering into an
offsetting transaction in a matching futures contract. If the Fund is not able
to enter into an offsetting transaction, the Fund will continue to be required
to maintain margin deposits on the futures contract. When the contract is closed
or expires, the Fund records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value at the
time it was closed or expired.
Upon entering into a futures contract, the Fund must deposit funds, called
margin, with its custodian in the name of the clearing broker equal to a
specified percentage of the current value of the contract. Open futures contacts
are marked to market daily. Pursuant to the contract, the Fund agrees to receive
from or pay to the broker an amount of cash equal to the daily fluctuation in
value of the contract. Such receipts or payments are known as variation margin.
If market conditions change unexpectedly, the Fund may not achieve the
anticipated benefits of the futures contract and may realize a loss. The use of
futures contracts involves the risk of imperfect correlation in movements in the
price of the futures contracts, interest rates and the underlying instruments.
E. OPTION CONTRACTS:
The Fund may purchase or write put and call options on futures contracts and
enter into closing transactions with respect to such options to terminate an
existing position. A futures option gives the holder the right, in return for
the premium paid, to assume a long position (call) or short position (put) in a
futures contract at a specified exercise price prior to the expiration of the
option. Upon exercise of a call option, the holder acquires a long position in
the futures contract and the writer is assigned the opposite short position. In
the case of a put option, the opposite is true. Prior to exercise or expiration,
a futures option may be closed out by an offsetting purchase or sale of a
futures option of the same series.
Page 20
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
APRIL 30, 2014 (UNAUDITED)
The Fund may use options on futures contracts in connection with hedging
strategies. Generally, these strategies would be applied under the same market
and market sector conditions in which the Fund uses put and call options on
securities or indices. The purchase of put options on futures contracts is
analogous to the purchase of puts on securities or indices so as to hedge the
Fund's securities holdings against the risk of declining market prices. The
writing of a call option or the purchasing of a put option on a futures contract
constitutes a partial hedge against declining prices of securities which are
deliverable upon exercise of the futures contract. If the price at expiration of
a written call option is below the exercise price, the Fund will retain the full
amount of the option premium, which provides a partial hedge against any decline
that may have occurred in the Fund's holdings of securities. If the price when
the option is exercised is above the exercise price, however, the Fund will
incur a loss, which may be offset, in whole or in part, by the increase in the
value of the securities held by the Fund that were being hedged. Writing a put
option or purchasing a call option on a futures contract serves as a partial
hedge against an increase in the value of the securities the Fund intends to
acquire.
As with investments in futures contracts, the Fund is required to deposit and
maintain margin with respect to put and call options on futures contracts
written by them. Such margin deposits will vary depending on the nature of the
underlying futures contract (and the related initial margin requirements), the
current market value of the option, and other Futures positions held by the
Fund. The Fund will earmark or set aside in a segregated account at the Fund's
custodian, liquid assets, such as cash, U.S. government securities or other
high-grade liquid debt obligations equal in value to the amount due on the
underlying obligation. Such segregated assets will be marked-to-market daily,
and additional assets will be earmarked or placed in the segregated account
whenever the total value of the earmarked or segregated assets falls below the
amount due on the underlying obligation.
The risks associated with the use of options on futures contracts include the
risk that the Fund may close out its position as a writer of an option only if a
liquid secondary market exists for such options, which cannot be assured. The
Fund's successful use of options on futures contracts depends on the
Sub-Advisor's ability to correctly predict the movement in prices of futures
contracts and the underlying instruments, which may prove to be incorrect. In
addition, there may be imperfect correlation between the instruments being
hedged and the futures contract subject to the option. Certain characteristics
of the futures market might increase the risk that movements in the prices of
futures contracts or options on futures contracts might not correlate perfectly
with movements in the prices of the investments being hedged. For example, all
participants in the futures and options on futures contracts markets are subject
to daily variation margin calls and might be compelled to liquidate futures or
options on futures contracts positions whose prices are moving unfavorably to
avoid being subject to further calls. These liquidations could increase the
price volatility of the instruments and distort the normal price relationship
between the futures or options and the investments being hedged. Also, because
of initial margin deposit requirements, there might be increased participation
by speculators in the futures markets. This participation also might cause
temporary price distortions. In addition, activities of large traders in both
the futures and securities markets involving arbitrage, "program trading," and
other investment strategies might result in temporary price distortions.
Over-the-counter options have the risk of the potential inability of
counterparties to meet the terms of their contracts. The Fund's maximum equity
price risk for purchased options is limited to the premium initially paid. In
addition, certain risks may arise upon entering into option contracts including
the risk that an illiquid secondary market will limit the Fund's ability to
close out an option contract prior to the expiration date and that a change in
the value of the option contract may not correlate exactly with changes in the
value of the securities hedged.
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income, if any, are declared and paid monthly, or
as the Board of Trustees may determine from time to time. Distributions of net
realized capital gains earned by the Fund, if any, will be distributed at least
annually.
Distributions from income and capital gains are determined in accordance with
income tax regulations, which may differ from U.S. GAAP. Certain capital
accounts in the financial statements are periodically adjusted for permanent
differences in order to reflect their tax character. These permanent differences
are primarily due to the varying treatment of income and gain/loss on portfolio
securities held by the Fund and has no impact on net assets or NAV per share.
Temporary differences, which arise from recognizing certain items of income,
expense and gain/loss in different periods for financial statement and tax
purposes, will reverse at some time in the future.
The tax character of distributions paid during the fiscal period ended October
31, 2013, was as follows:
Distributions paid from:
Ordinary income................................... $ 27,772,166
Capital gain...................................... --
Return of capital................................. --
Page 21
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
APRIL 30, 2014 (UNAUDITED)
As of October 31, 2013, the components of distributable earnings on a tax basis
were as follows:
Undistributed ordinary income..................... $ 15,265,178
Undistributed capital gains....................... --
---------------
Total undistributed earnings...................... 15,265,178
Accumulated capital and other losses.............. (7,133,856)
Net unrealized appreciation (depreciation)........ (28,575,402)
---------------
Total accumulated earnings (losses)............... (20,444,080)
Other............................................. --
Paid in Capital................................... 1,447,608,512
---------------
Net Assets........................................ $ 1,427,164,432
===============
G. INCOME TAXES
The Fund intends to continue to qualify as a regulated investment company by
complying with the requirements under Subchapter M of the Internal Revenue Code
of 1986, as amended, which includes distributing substantially all of its net
investment income and net realized gains to shareholders. Accordingly, no
provision has been made for federal or state income taxes. However, due to the
timing and amount of distributions, the Fund may be subject to an excise tax of
4% of the amount by which approximately 98% of the Fund's taxable income exceeds
the distributions from such taxable income for the calendar year.
The Fund intends to utilize provisions of the federal income tax laws, which
allow it to carry a realized capital loss forward indefinitely following the
year of the loss and offset such loss against any future realized capital gains.
The Fund is subject to certain limitations under U.S. tax rules on the use of
capital loss carryforwards and net unrealized built-in losses. These limitations
apply when there has been a 50% change in ownership. At October 31, 2013, the
Fund had a capital loss carryforward of $7,133,856 for federal income tax
purposes.
The Fund is subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. As of April 30, 2014, management
has evaluated the application of these standards to the Fund, and has determined
that no provision for income tax is required in the Fund's financial statements
for uncertain tax positions. Tax year ended 2013 remains open for audit.
H. EXPENSES
The Fund will pay all expenses directly related to its operations.
I. ORGANIZATION AND OFFERING COSTS
Organization costs consisted of costs incurred to establish the Fund and enable
it to legally conduct business. These costs included filing fees, listing fees,
legal services pertaining to the organization of the business and audit fees
relating to the initial registration and auditing the initial statement of
assets and liabilities, among other fees. Offering costs consisted of legal fees
pertaining to the Fund's shares offered for sale, registration fees,
underwriting fees, and printing of the initial prospectus, among other fees.
First Trust Advisors L.P. ("First Trust" or the "Advisor") and the Sub-Advisor
paid all organization expenses. The Fund's Common Share offering costs of
$1,704,000 were recorded as a reduction of the proceeds from the sale of Common
Shares during the period ended October 31, 2013.
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Fund, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the selection and ongoing monitoring of the securities
in the Fund's portfolio, managing the Fund's business affairs and providing
certain administrative services necessary for the management of the Fund. For
these services, First Trust is entitled to a monthly fee calculated at an annual
rate of 0.85% of the Fund's average daily net assets. First Trust also provides
fund reporting services to the Fund for a flat annual fee in the amount of
$9,250.
Stonebridge, a majority-owned affiliate of First Trust, serves as the Fund's
sub-advisor and manages the Fund's portfolio subject to First Trust's
supervision. The Sub-Advisor receives a monthly portfolio management fee
calculated at an annual rate of 0.425% of average daily net assets that is paid
by First Trust out of its investment advisory fee.
Brown Brothers Harriman & Co. ("BBH") serves as the Fund's administrator, fund
accountant and custodian in accordance with certain fee arrangements. As
administrator and fund accountant, BBH is responsible for providing certain
administrative and accounting services to the Fund, including maintaining the
Fund's books of account, records of the Fund's securities transactions, and
certain other books and records. As custodian, BBH is responsible for custody of
the Fund's assets.
Page 22
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
APRIL 30, 2014 (UNAUDITED)
Computershare Inc. ("Computershare") serves as the Fund's transfer agent in
accordance with certain fee arrangements. As transfer agent, Computershare is
responsible for maintaining shareholder records for the Fund.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer that is allocated pro rata among each fund in the First Trust Fund
Complex based on net assets. Each Independent Trustee is also paid an annual per
fund fee that varies based on whether the fund is a closed-end or other actively
managed fund, or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee are paid
annual fees to serve in such capacities, with such compensation allocated pro
rata among each fund in the First Trust Fund Complex based on net assets.
Trustees are reimbursed for travel and out-of-pocket expenses in connection with
all meetings. The Lead Independent Trustee and Committee Chairmen rotate every
three years. The officers and "Interested" Trustee receive no compensation from
the Fund for acting in such capacities.
4. PURCHASES AND SALES OF SECURITIES
For the period ended April 30, 2014, the cost of purchases and proceeds from
sales of investment securities, excluding short-term investments, for the Fund
was $487,487,729 and $405,171,039, respectively.
5. DERIVATIVES TRANSACTIONS
For the six months ended April 30, 2014, written option activity was as follows:
NUMBER
OF
WRITTEN OPTIONS CONTRACTS PREMIUMS
--------------------------------------------------------------------
Options outstanding at October 31, 2013.... -- $ --
Options Written............................ 330 434,716
Options Expired............................ -- --
Options Exercised.......................... -- --
Options Closed............................. (230) (327,337)
--------- ---------
Options outstanding at April 30, 2014...... 100 $ 107,379
========= =========
The following table presents the types of derivatives in the Fund by location as
presented on the Statement of Assets and Liabilities at April 30, 2014.
ASSET DERIVATIVES LIABILITY DERIVATIVES
------------------------------------------------- -------------------------------------------------
STATEMENT OF ASSETS AND STATEMENT OF ASSETS AND
RISK EXPOSURE LIABILITIES LOCATION FAIR VALUE LIABILITIES LOCATION FAIR VALUE
------------------ ------------------------------- ---------------- ------------------------------- ----------------
Equity Risk Investments, at value* $ 109,688 Options written, at value $ 151,562
Interest Rate Risk Futures Contracts, at value -- Futures Contracts, at value 1,200,537
The following table presents the types of derivatives in the Fund by location as
presented on
the Statement of Operations at April 30, 2014.
STATEMENT OF OPERATIONS LOCATION EQUITY RISK
-------------------------------------------------------------------------------
Net realized gain (loss) on Investments*..................... $ (194,749)
Net realized gain (loss) on Written options.................. (158,053)
Net change in unrealized gain (loss) on Investments*......... (69,625)
Net change in unrealized gain (loss) on Written options held. (44,183)
INTEREST RATE
RISK
-------------
Net realized gain (loss) on Futures contracts................ $ (2,179,414)
Net change in unrealized gain (loss) on Futures contracts.... (1,202,124)
* Purchased options are included within Investments.
Page 23
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
APRIL 30, 2014 (UNAUDITED)
At April 30, 2014, the Fund held 130 put option contracts with a notional value
of $16,055,000. This is representative of contracts held throughout the period.
For the six months ended April 30, 2014, the amount of notional values of
futures contracts opened and closed were $103,986,963 and $51,199,843,
respectively.
6. BORROWINGS
The Fund has entered into a credit agreement with Bank of America Merrill Lynch
that has a maximum commitment amount of $725,000,000. The borrowing rate under
the facility is equal to the 1-month LIBOR plus 70 basis points. In addition,
under the facility, the Fund pays a commitment fee of 0.25% on the undrawn
amount of such facility on any date that the loan balance is less than 20% of
the total commitment amount. The average amount outstanding between November 1,
2013 and April 30, 2014 was $620,588,161 with a weighted average interest rate
of 0.86%. As of April 30, 2014, the Fund had outstanding borrowings of
$666,000,000, under this committed facility agreement. The high and low annual
interest rates for the period ended April 30, 2014, were 0.87% and 0.85%,
respectively. The interest rate at April 30, 2014, was 0.85%.
7. INDEMNIFICATION
The Fund has a variety of indemnification obligations under contracts with its
service providers. The Fund's maximum exposure under these arrangements is
unknown. However, the Fund has not had prior claims or losses pursuant to these
contracts and expects the risk of loss to be remote.
8. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events on the Fund through
the date the financial statements were issued, and has determined that there was
the following subsequent event:
On May 20, 2014, the Fund declared a dividend of $0.1525 per share to Common
Shareholders of record on June 4, 2014, payable June 16, 2014.
On June 19, 2014, the Fund declared a dividend of $0.1525 per share to Common
Shareholders of record on July 3, 2014, payable July 15, 2014.
Page 24
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
APRIL 30, 2014 (UNAUDITED)
DIVIDEND REINVESTMENT PLAN
If your Common Shares are registered directly with the Fund or if you hold your
Common Shares with a brokerage firm that participates in the Fund's Dividend
Reinvestment Plan (the "Plan"), unless you elect, by written notice to the Fund,
to receive cash distributions, all dividends, including any capital gain
distributions, on your Common Shares will be automatically reinvested by
Computershare Trust Company, N.A. (the "Plan Agent"), in additional Common
Shares under the Plan. If you elect to receive cash distributions, you will
receive all distributions in cash paid by check mailed directly to you by the
Plan Agent, as the dividend paying agent.
If you decide to participate in the Plan, the number of Common Shares you will
receive will be determined as follows:
(1) If Common Shares are trading at or above net asset value ("NAV") at
the time of valuation, the Fund will issue new shares at a price
equal to the greater of (i) NAV per Common Share on that date or
(ii) 95% of the market price on that date.
(2) If Common Shares are trading below NAV at the time of valuation, the
Plan Agent will receive the dividend or distribution in cash and
will purchase Common Shares in the open market, on the NYSE or
elsewhere, for the participants' accounts. It is possible that the
market price for the Common Shares may increase before the Plan
Agent has completed its purchases. Therefore, the average purchase
price per share paid by the Plan Agent may exceed the market price
at the time of valuation, resulting in the purchase of fewer shares
than if the dividend or distribution had been paid in Common Shares
issued by the Fund. The Plan Agent will use all dividends and
distributions received in cash to purchase Common Shares in the open
market within 30 days of the valuation date except where temporary
curtailment or suspension of purchases is necessary to comply with
federal securities laws. Interest will not be paid on 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.
Page 25
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
APRIL 30, 2014 (UNAUDITED)
PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q
are available (1) by calling (800) 988-5891; (2) on the Fund's website located
at http://www.ftportfolios.com; (3) on the SEC's website at http://www.sec.gov;
and (4) for review and copying at the SEC's Public Reference Room ("PRR") in
Washington, DC. Information regarding the operation of the PRR may be obtained
by calling (800) SEC-0330.
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 and First Trust Intermediate Duration Preferred & Income Fund was held on
April 23, 2014 (the "Annual Meeting"). At the Annual Meeting, Robert F. Keith
was elected by the Common Shareholders of the First Trust Intermediate Duration
Preferred & Income Fund as a Class I Trustee for a three-year term expiring at
the Fund's annual meeting of shareholders in 2017. The number of votes cast in
favor of Mr. Keith was 49,793,900, the number of votes against was 1,650,702 and
the number of abstentions was 9,259,587. James A. Bowen, Richard E. Erickson,
Thomas R. Kadlec and Niel B. Nielson are the other current and continuing
Trustees.
RISK CONSIDERATIONS
Risks are inherent in all investing. The following summarizes some, but not all,
of the risks that should be considered for the Fund. For additional information
about the risks associated with investing in the Fund, please see the Fund's
prospectus and statement of additional information, as well as other Fund
regulatory filings.
INVESTMENT AND MARKET RISK: An investment in the Fund's common shares ("Common
Shares") is subject to investment risk, including the possible loss of the
entire principal invested. Common Shares at any point in time may be worth less
than the original investment, even after taking into account the reinvestment of
Fund dividends and distributions. The Fund utilizes leverage, which magnifies
investment risk.
PREFERRED/HYBRID PREFERRED AND DEBT SECURITIES RISK: Preferred/hybrid preferred
and debt securities in which the Fund invests are subject to various risks,
including credit risk, interest rate risk, call/prepayment risk and reinvestment
risk, as described below. In addition, preferred and hybrid preferred securities
are subject to certain other risks, including deferral and omission risk,
subordination risk, limited voting rights risk and special redemption rights
risk.
CREDIT AND BELOW INVESTMENT GRADE SECURITIES RISK: The Fund is subject to credit
risk, which is the risk that an issuer of a security may be unable or unwilling
to make dividend, interest and principal payments when due and the related risk
that the value of a security may decline because of concerns about the issuer's
ability or willingness to make such payments. Credit risk may be heightened for
the Fund because it invests in below investment grade securities, which involve
greater risks than investment grade securities, including the possibility of
dividend or interest deferral, default or bankruptcy.
LEVERAGE RISK: The use of leverage by the Fund can magnify the effect of any
losses. If the income and gains from the securities and investments purchased
with leverage proceeds do not cover the cost of leverage, the return to the
Common Shares will be less than if leverage had not been used. Moreover,
leverage involves risks and special considerations for holders of Common Shares
including the likelihood of greater volatility of net asset value and market
price of the Common Shares than a comparable portfolio without leverage, and the
risk that fluctuations in interest rates on reverse repurchase agreements,
borrowings and short-term debt or in the dividend rates on any preferred shares
of the Fund that the Fund may pay will reduce the return to the holders of
Common Shares or will result in fluctuations in the dividends paid on the Common
Shares. There is no assurance that a leveraging strategy will be successful.
Although the Fund seeks to maintain a duration, 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.
Page 26
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST INTERMEDIATE DURATION PREFERRED & INCOME FUND (FPF)
APRIL 30, 2014 (UNAUDITED)
RISKS OF CONCENTRATION IN THE FINANCIALS SECTOR: Because the Fund invests 25% or
more of its managed assets in the financials sector, it will be more susceptible
to adverse economic or regulatory occurrences affecting this sector, such as
changes in interest rates, loan concentration and competition.
INTEREST RATE RISK: The Fund is subject to interest rate risk, which is the risk
that the preferred and debt securities in which the Fund invests will decline in
value because of rising market interest rates.
FLOATING RATE AND FIXED-TO-FLOATING RATE SECURITIES RISK: The market value of
floating rate and fixed-to-floating rate securities may fall in a declining
interest rate environment and may also fall in a rising interest rate
environment if there is a lag between the rise in interest rates and the
interest rate reset. A secondary risk associated with declining interest rates
is the risk that income earned by the Fund on floating rate and
fixed-to-floating rate securities may decline due to lower coupon payments on
floating-rate securities.
CONVERTIBLE SECURITIES/CONTINGENT CONVERTIBLE SECURITIES RISK: The market value
of convertible securities tends to decline as interest rates increase and,
conversely, tends to increase as interest rates decline. In addition, because of
the conversion feature, the market value of convertible securities tends to vary
with fluctuations in the market value of the underlying common stock. Contingent
convertible securities provide for mandatory conversion into common stock of the
issuer under certain circumstances. Since the common stock of the issuer may not
pay a dividend, investors in these instruments could experience a reduced income
rate, potentially to zero; and conversion would deepen the subordination of the
investor, hence worsening standing in a bankruptcy. In addition, some such
instruments have a set stock conversion rate that would cause a reduction in
value of the security if the price of the stock is below the conversion price on
the conversion date.
FOREIGN (NON-U.S.) SECURITIES RISK: Investing in securities of non-U.S. issuers
may involve certain risks not typically associated with investing in securities
of U.S. issuers. These risks include: (i) there may be less publicly available
information about non-U.S. issuers or markets due to less rigorous disclosure or
accounting standards or regulatory practices; (ii) non-U.S. markets may be
smaller, less liquid and more volatile than the U.S. market; (iii) potential
adverse effects of fluctuations in currency exchange rates or controls on the
value of the Fund's investments; (iv) the economies of non U.S. countries may
grow at slower rates than expected or may experience a downturn or recession;
(v) the impact of economic, political, social or diplomatic events; (vi) certain
non-U.S. countries may impose restrictions on the ability of non U.S. issuers to
make payments of principal and interest to investors located in the United
States due to blockage of non-U.S. currency exchanges or otherwise; and (vii)
withholding and other non-U.S. taxes may decrease the Fund's return.
ILLIQUID AND RESTRICTED SECURITIES RISK: Investment of the Fund's assets in
illiquid and restricted securities may restrict the Fund's ability to take
advantage of market opportunities. Illiquid and restricted securities may be
difficult to dispose of at a fair price at the times when the Fund believes it
is desirable to do so. The market price of illiquid and restricted securities
generally is more volatile than that of more liquid securities, which may
adversely affect the price that the Fund pays for or recovers upon the sale of
such securities. Illiquid and restricted securities are also more difficult to
value, especially in challenging markets. The risks associated with illiquid and
restricted securities may be particularly acute in situations in which the
Fund's operations require cash and could result in the Fund borrowing to meet
its short-term needs or incurring losses on the sale of illiquid or restricted
securities.
Page 27
This Page Left Blank Intentionally.
FIRST TRUST
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 E. Liberty Drive, Suite 400
Wheaton, IL 60187
INVESTMENT SUB-ADVISOR
Stonebridge Advisors, LLC
187 Danbury Road
Wilton, CT 06897
ADMINISTRATOR,
FUND ACCOUNTANT &
CUSTODIAN
Brown Brothers Harriman & Co.
50 Milk Street
Boston, MA 02109
TRANSFER AGENT
Computershare Inc.
P.O. Box 30170
College Station, TX 77842-3170
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
[BLANK BACK COVER]
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. INVESTMENTS.
(a) Schedule of Investments in securities of unaffiliated issuers as of the
close of the reporting period is included as part of the report to
shareholders filed under Item 1 of this form.
(b) Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
There has been no change, as of the date of this filing, in any of the
portfolios managers identified in response to paragraph (a)(1) of this Item in
the Registrant's most recently filed annual report on Form N-CSR.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of directors, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)),
or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers, or
persons performing similar functions, have concluded that the registrant's
disclosure controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR
270.30a-3(c))) are effective, as of a date within 90 days of the filing
date of the report that includes the disclosure required by this
paragraph, based on their evaluation of these controls and procedures
required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and
Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as
amended (17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR
270.30a-3(d)) that occurred during the registrant's second fiscal quarter
of the period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal control
over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Not Applicable.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and
Section 906 of the Sarbanes- Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) First Trust Intermediate Duration Preferred & Income Fund
---------------------------------------------------------
By (Signature and Title)* /s/ Mark R. Bradley
----------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)
Date: June 20, 2014
------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Mark R. Bradley
----------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)
Date: June 20, 2014
------------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: June 20, 2014
------------------
* Print the name and title of each signing officer under his or her signature.