Certified Annual Shareholder Report for Management Investment Companies (n-csr)
January 02 2020 - 9:38AM
Edgar (US Regulatory)
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 811-21727
First Trust Mortgage Income Fund
(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
(Name and address of agent for service)
registrant’s telephone number,
including area code: 630-765-8000
Date of fiscal year end: October 31
Date of reporting period: October
31, 2019
Form N-CSR is to be used by management
investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report
that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking
roles.
A registrant is required to disclose
the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to
respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management
and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden
estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington,
DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1. Reports to Stockholders.
The Report to Shareholders
is attached herewith.
First Trust
Mortgage Income
Fund (FMY)
Annual Report
For the
Year Ended
October 31,
2019
First Trust Mortgage Income Fund
(FMY)
Annual Report
October 31, 2019
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1
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2
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3
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5
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13
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14
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15
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16
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17
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24
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25
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31
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33
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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 its 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 Mortgage Income Fund (the “Fund”) to be materially
different from any future results, performance or achievements expressed or implied by the forward-looking statements. When evaluating the information included in this report, you are cautioned not to place undue
reliance on these forward-looking statements, which reflect the judgment of the Advisor and its representatives only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking
statements to reflect events and circumstances that arise after the date hereof.
Performance and Risk
Disclosure
There is no assurance
that the Fund will achieve its investment objectives. The Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund
shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in the Fund. See “Risk Considerations” in the Additional Information section of this report for a
discussion of certain other risks of investing in the Fund.
Performance data quoted
represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and common share price will fluctuate and Fund shares, when sold,
may be worth more or less than their original cost.
The Advisor may also
periodically provide additional information on Fund performance on the Fund’s web page at www.ftportfolios.com.
How to Read This
Report
This report contains
information that may help you evaluate your investment in the Fund. It includes details about the Fund and presents data and analysis that provide insight into the Fund’s performance and investment approach.
By reading the portfolio
commentary by the portfolio management team of the Fund, you may obtain an understanding of how the market environment affected the Fund’s performance. The statistical information that follows may help you
understand the Fund’s performance compared to that of a relevant market benchmark.
It is important to keep
in mind that the opinions expressed by personnel of the Advisor are just that: informed opinions. They should not be considered to be promises or advice. The opinions, like the statistics, cover the period through the
date on the cover of this report. The material risks of investing in the Fund are spelled out in the prospectus, the statement of additional information, this report and other Fund regulatory filings.
First Trust Mortgage Income Fund
(FMY)
Annual Letter from the Chairman and
CEO
October 31, 2019
Dear Shareholders,
First Trust is pleased
to provide you with the annual report for the First Trust Mortgage Income Fund (the “Fund”), which contains detailed information about the Fund for the twelve months ended October 31, 2019, including a
market overview and a performance analysis. We encourage you to read this report carefully and discuss it with your financial advisor.
One of our
responsibilities as asset managers is to be good listeners. Perhaps the most effective way in which we do this continually is by paying close attention to mutual fund and exchange-traded fund (ETF) money flows. After
all, investors vote with their dollars, and money flows provide valuable feedback with respect to their biases. Over the past 12 months, we have learned that investors, in general, have grown more risk-averse. For the
12-month period ended October 31, 2019, investors funneled an estimated net $359.56 billion into bond mutual funds and ETFs, while liquidating an estimated net $56.86 billion from equity mutual funds and ETFs,
according to data from Morningstar. Over the same period, money market funds took in an estimated net $583.27 billion. Those figures were more balanced for the full-year 2018. Those estimated net flows were as
follows: $94.42 billion (equity mutual funds & ETFs); $137.60 billion (bond mutual funds & ETFs); and $161.60 billion (money market funds).
In addition to
monitoring fund flows, we watch the performance of all the asset classes. Market returns can either help validate or invalidate our interpretation of money flows. As we noted above, we believe that investors have
tempered their appetite for risk, and the returns on the major sectors that comprise the S&P 500® Index back it up. For the 12-month period ended October 31, 2019, as measured by total return, the top performers were
Real Estate and Utilities, up 26.72% and 23.71%, respectively, according to Bloomberg. The S&P 500® Index posted a total return of 14.33% for the period. These two sectors are defensive in nature. They also tend to
distribute cash dividends that are often well above those sectors that are more cyclical in nature. The higher dividend distributions likely drew the attention of fixed-income investors dissatisfied with the current
low-yield climate in the bond market, in our opinion.
The absence of a new
trade deal between the U.S. and China has been a bit of a wet blanket on the global economy. Global growth projections have been trimmed over time by such organizations as the International Monetary Fund. The tariffs
have been in play for 19 months and counting as of October 2019. While the lack of any significant progress in the negotiations between the U.S. and China is a concern, we believe a remedy will be found. Remember, as
uncertain as things may appear in the current climate, investors with diversified investment portfolios were most likely rewarded over the past 12 months. Stay the course and stay engaged!
Thank you for giving
First Trust the opportunity to play a role in your financial future. We value our relationship with you and will report on the Fund again in six months.
Sincerely,
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust
Advisors L.P.
First Trust Mortgage Income Fund (FMY)
“AT A GLANCE”
As of October 31, 2019
(Unaudited)
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Fund Statistics
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Symbol on New York Stock Exchange
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FMY
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Common Share Price
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$13.99
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Common Share Net Asset Value (“NAV”)
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$14.91
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Premium (Discount) to NAV
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(6.17)%
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Net Assets Applicable to Common Shares
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$62,831,539
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Current Distribution per Common Share(1)
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$0.0600
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Current Annualized Distribution per Common Share
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$0.7200
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Current Distribution Rate on Common Share Price(2)
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5.15%
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Current Distribution Rate on NAV(2)
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4.83%
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Common Share Price & NAV (weekly closing price)
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Performance
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Average Annual Total Returns
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1 Year Ended
10/31/19
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5 Years Ended
10/31/19
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10 Years Ended
10/31/19
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Inception (5/25/05)
to 10/31/19
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Fund Performance(3)
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NAV
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5.08%
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3.30%
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4.72%
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5.57%
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Market Value
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13.37%
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4.43%
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5.01%
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4.78%
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Index Performance
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Bloomberg Barclays U.S. Mortgage Backed Securities (MBS) Index
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8.87%
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2.67%
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3.10%
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4.05%
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Portfolio Characteristics
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Weighted Average Effective Duration
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2.54 Years
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Weighted Average Effective Maturity
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5.14 Years
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Asset Classification
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% of Total
Investments
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Mortgage-Backed Securities
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53.3%
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U.S. Government Agency MBS
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40.4
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Asset-Backed Securities
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1.2
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Cash & Cash Equivalents
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5.1
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Total
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100.0%
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Credit Quality(4)
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% of Total
Fixed-Income
Investments
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AAA
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4.6%
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AA+
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8.6
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AA
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3.1
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AA-
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2.1
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A+
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3.0
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A
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1.9
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A-
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0.4
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BBB+
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0.4
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BBB
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0.4
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BBB-
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0.9
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BB+
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0.4
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BB-
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0.3
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B+
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2.6
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B
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0.8
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B-
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0.2
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CCC
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1.1
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CCC-
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0.1
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CC
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4.8
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Not Rated
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18.8
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Government
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40.4
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Cash & Cash Equivalents
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5.1
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Total
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100.0%
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(1)
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Most recent distribution paid or declared through 10/31/2019. Subject to change in the future.
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(2)
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Distribution rates are calculated by annualizing the most recent distribution paid or declared through the report date and then dividing by Common Share Price or NAV, as applicable, as of 10/31/2019.
Subject to change in the future.
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(3)
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Total return is based on the combination of reinvested dividend, capital gain, and return of capital distributions, if any, at prices obtained by the Dividend Reinvestment Plan and changes in NAV per
share for NAV returns and changes in Common Share Price for market value returns. Total returns do not reflect sales load and are not annualized for periods of less than one year. Past performance is not indicative of
future results.
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(4)
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The ratings are by Standard & Poor’s. A credit rating is an assessment provided by a nationally recognized statistical rating organization (NRSRO), of the creditworthiness of an issuer with
respect to debt obligations. Ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). Investment grade is defined as those issuers that have a long-term credit rating of BBB- or higher.
Sub-investment grade ratings are those rated BB+ or lower. The credit ratings shown relate to the credit worthiness of the issuers of the underlying securities in the fund, and not to the fund or its shares. U.S.
Treasury, U.S. Agency and U.S. Agency mortgage-backed securities appear under “Government”. Credit ratings are subject to change.
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Portfolio Commentary
First Trust Mortgage
Income Fund (FMY)
Annual Report
October 31, 2019
(Unaudited)
Advisor
First Trust Advisors L.P.
(“First Trust” or the “Advisor”) serves as the investment advisor to the First Trust Mortgage Income Fund (the “Fund” or “FMY”) and offers customized portfolio
management using its structured, quantitative approach to security selection.
Portfolio Management
Team
Jeremiah Charles –
Senior Vice President, Portfolio Manager
Jim Snyder – Senior
Vice President, Portfolio Manager
Commentary
First Trust Mortgage Income
Fund
The Fund’s primary
investment objective is to seek a high level of current income. As a secondary objective the Fund seeks to preserve capital. The Fund pursues its objectives by investing primarily in mortgage-backed securities
(“MBS”) representing part ownership in a pool of either residential or commercial mortgage loans that, in the opinion of the Fund’s investment advisor, offer an attractive combination of credit
quality, yield and maturity. There can be no assurance the Fund will achieve its investment objectives. The Fund may not be appropriate for all investors.
Market Recap
The 12-month period ended
October 31, 2019 began with volatile bond and equity markets as slowing global growth scenarios and fallout from trade war escalations began to be priced into U.S. markets. As a result, in January 2019 the Federal
Reserve (the “Fed”) paused the well underway monetary policy normalization and subsequently in the spring, announced plans to abruptly end the runoff of its balance sheet. By mid-summer of 2019, the pause
turned to a reversal in monetary policy, and as a result of cross currents from the ongoing China-United States trade war escalation, the Fed began to cut interest rates, with a total of three 25 basis point cuts by
the end of October 2019. Additionally, the Fed once again began to reinvest its holdings of U.S. Treasuries and Agency Mortgage-Backed Securities (“Agency MBS”) and was forced to step in and provide
liquidity to the overnight repo markets as funding pressures intensified due to a confluence of events in September 2019. This eventually led the Fed to announce plans to provide ongoing repo market support alongside
a purchase program targeting $60 billion per month of U.S. Treasury bills to provide adequate reserves in the banking system. This aggressive change of course from the Fed had significant impacts on the U.S. Bond
markets, which saw yields decline dramatically over the period, led by the 5- and 10-Year treasuries, which saw yields fall 145 basis points (“bps”). Given the outperformance by the belly of the curve, the
yield curve inverted and remained as such for most of the period. With the inverted curve, faster than expected prepayments due to interest rates falling with such velocity, and heightened market volatility, Agency
MBS spreads gapped wider in August with the Treasury Option Adjusted Spread (“OAS”) reaching a post-crisis wide 73 bps, before settling 15 bps wider over the year, to close at 56 bps at the end of the
period.
Performance Analysis
During the 12-month
period ended October 31, 2019, the Fund underperformed the the Bloomberg Barclays U.S. MBS Index (the “Index”) by 3.79%, net of fees, on a net asset value (“NAV”) basis and outperformed by
4.50% on a market price basis. Although we had increased the overall duration in the Fund throughout 2018, over the 2019 fiscal year, the Fund maintained a defensive duration in the portfolio relative to its longer
benchmark. The Fund did benefit from the tactical use of treasury futures and options positions to partially offset some of the Fund’s structurally shorter duration, however the overall shorter duration
maintained by the Fund over the course of the 2019 fiscal year was the key driver of NAV underperformance as U.S. bond market yields fell rather significantly, with 5-Year Treasury yields falling 145 bps over the
period.
Fund and Market Outlook
After the dramatic
reversal in monetary policy seen in 2019, the Fed has stated that it intends to be on hold from both additional rate cuts, and also from any near-term interest rate hikes. We believe this will keep the front end of
the yield curve somewhat anchored in place while the Fed remains on hold and maintains data dependency. We believe consumer data will remain resilient and continued economic growth will persist into 2020, and as such,
we do not see an imminent recession. We believe that given the strength of the economy, and the consumer, we anticipate a slightly less dovish Fed than that which the market is pricing in and expectations are for
intermediate and longer maturity yields to move modestly higher over the short to intermediate term, especially as the pace of Treasury issuance increases. Measures of unemployment remain low; however, measures of
inflation appear to be well contained and we do not foresee 2+% symmetric inflation, which we believe will further reinforce the Fed’s current pause. We remain positive on MBS spread valuations over the longer
term and believe large steepening trends in the yield curve will prove to be catalysts for MBS spread
Portfolio Commentary (Continued)
First Trust Mortgage
Income Fund (FMY)
Annual Report
October 31, 2019
(Unaudited)
compression. Lastly, it
is our opinion that interest rate volatility will remain elevated through year-end due to ongoing political and economic environments along with continued fallout from the trade war.
Given our outlook on the
broader bond markets, we plan to continue to manage the Fund defensively versus the Index from a duration standpoint, especially after a 145 bps rally in the 5-Year Treasury yields and no near-term interest rate cut
forecasted with the Fed on hold. From an asset allocation perspective, we plan to maintain our ongoing strategy of reinvesting legacy portfolio runoff into Non-Agency Residential Mortgage-Backed Securities
(“RMBS”) assets allocated to the shorter end of the curve. Additionally, as portfolio runoff continues, we expect to continue to allocate to Agency MBS and certain Agency Commercial Mortgage-Backed
Securities (“CMBS”) profiles. As part of the investment team’s Agency MBS strategy, a substantial portion of the agency securities have been invested in the Collateralized Mortgage Obligation
(“CMO”) and interest-only sectors in an effort to increase the income, economic earnings and tradability of the portfolio. In our opinion, this strategy can be very effective with proper security
selection, particularly when combined with appropriate yield curve management. We are also looking to tactically invest in the intermediate to longer segments of the treasury futures markets to better position the
portfolio for the reversal of the monetary policy cycle and to partially offset the generally short maturity sensitivity of the portfolio. We will continue to deploy appropriate yield curve management strategies
consistent with our market outlook.
First Trust Mortgage Income Fund (FMY)
Portfolio of Investments
October 31, 2019
Principal
Value
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Description
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Stated
Coupon
|
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Stated
Maturity
|
|
Value
|
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MORTGAGE-BACKED SECURITIES – 52.9%
|
|
|
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Collateralized Mortgage Obligations – 50.0%
|
|
|
|
|
|
|
|
|
|
Accredited Mortgage Loan Trust
|
|
|
|
|
|
|
|
$287,412
|
|
Series 2003-2, Class A1
|
|
4.98%
|
|
10/01/33
|
|
$302,123
|
|
|
|
ACE Securities Corp. Home Equity Loan Trust
|
|
|
|
|
|
|
|
825,887
|
|
Series 2006-ASAP6, Class A2D, 1 Mo. LIBOR + 0.22% (a)
|
|
2.04%
|
|
12/25/36
|
|
411,527
|
|
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|
Asset Backed Securities Corp Home Equity Loan Trust
|
|
|
|
|
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195,585
|
|
Series 2005-HE4, Class M4, 1 Mo. LIBOR + 0.95% (a)
|
|
2.77%
|
|
05/25/35
|
|
196,807
|
|
|
|
Banc of America Funding Corp.
|
|
|
|
|
|
|
|
42,245
|
|
Series 2008-R2, Class 1A4 (b)
|
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6.00%
|
|
09/01/37
|
|
42,837
|
|
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|
Banc of America Mortgage Trust
|
|
|
|
|
|
|
|
49,783
|
|
Series 2002-L, Class 1A1 (c)
|
|
3.11%
|
|
12/01/32
|
|
41,894
|
|
157,782
|
|
Series 2005-A, Class 2A1 (c)
|
|
4.46%
|
|
02/01/35
|
|
161,162
|
|
|
|
Chase Mortgage Finance Trust
|
|
|
|
|
|
|
|
124,806
|
|
Series 2007-A1, Class 1A3 (c)
|
|
4.70%
|
|
02/01/37
|
|
129,031
|
|
|
|
Citigroup Mortgage Loan Trust
|
|
|
|
|
|
|
|
210,666
|
|
Series 2005-6, Class A1, US Treasury Yield Curve Rate T Note Constant Maturity 1 Year + 2.10% (a)
|
|
3.84%
|
|
09/01/35
|
|
218,344
|
|
44,111
|
|
Series 2009-10, Class 1A1 (b) (c)
|
|
4.32%
|
|
09/01/33
|
|
45,387
|
|
527,039
|
|
Series 2012-7, Class 10A2 (b) (c)
|
|
4.71%
|
|
09/01/36
|
|
541,628
|
|
|
|
COLT Mortgage Loan Trust
|
|
|
|
|
|
|
|
140,729
|
|
Series 2018-1, Class A1 (b)
|
|
2.93%
|
|
02/01/48
|
|
141,185
|
|
|
|
Countrywide Home Loan Mortgage Pass-Through Trust
|
|
|
|
|
|
|
|
292,832
|
|
Series 2003-46, Class 2A1 (c)
|
|
4.00%
|
|
01/01/34
|
|
295,983
|
|
93,298
|
|
Series 2005-HYB3, Class 2A6B (c)
|
|
4.15%
|
|
06/01/35
|
|
96,455
|
|
242,671
|
|
Series 2006-21, Class A8
|
|
5.75%
|
|
02/01/37
|
|
206,715
|
|
409,362
|
|
Series 2006-HYB5, Class 3A1A (c)
|
|
4.20%
|
|
09/01/36
|
|
360,256
|
|
|
|
Credit Suisse First Boston Mortgage Securities Corp.
|
|
|
|
|
|
|
|
342,351
|
|
Series 2004-AR2, Class 1A1 (c)
|
|
4.08%
|
|
03/01/34
|
|
351,502
|
|
175,091
|
|
Series 2004-AR8, Class 6A1 (c)
|
|
4.26%
|
|
09/01/34
|
|
179,148
|
|
110,715
|
|
Series 2005-5, Class 3A2, 1 Mo. LIBOR + 0.30% (a)
|
|
2.12%
|
|
07/25/35
|
|
107,353
|
|
|
|
Credit Suisse Mortgage Trust
|
|
|
|
|
|
|
|
13,949
|
|
Series 2011-12R, Class 3A1 (b) (c)
|
|
4.11%
|
|
07/27/36
|
|
14,030
|
|
45,539
|
|
Series 2014-11R, Class 9A1, 1 Mo. LIBOR + 0.14% (a) (b)
|
|
2.16%
|
|
10/27/36
|
|
45,557
|
|
391,248
|
|
Series 2017-FHA1, Class A1 (b) (c)
|
|
3.25%
|
|
04/01/47
|
|
395,055
|
|
|
|
Deutsche ALT-A Securities, Inc., Mortgage Loan Trust
|
|
|
|
|
|
|
|
2,734
|
|
Series 2003-3, Class 3A1
|
|
5.00%
|
|
10/25/33
|
|
2,733
|
|
|
|
DSLA Mortgage Loan Trust
|
|
|
|
|
|
|
|
522,315
|
|
Series 2004-AR3, Class 2A2A, 1 Mo. LIBOR + 0.74% (a)
|
|
2.59%
|
|
07/19/44
|
|
536,749
|
|
647,438
|
|
Series 2007-AR1, Class 2A1A, 1 Mo. LIBOR + 0.14% (a)
|
|
1.99%
|
|
04/19/47
|
|
632,181
|
|
|
|
Galton Funding Mortgage Trust
|
|
|
|
|
|
|
|
309,796
|
|
Series 2018-2, Class A41 (b)
|
|
4.50%
|
|
10/01/58
|
|
318,095
|
|
|
|
GSR Mortgage Loan Trust
|
|
|
|
|
|
|
|
8,978
|
|
Series 2003-10, Class 1A12 (c)
|
|
4.65%
|
|
10/01/33
|
|
9,198
|
|
177,724
|
|
Series 2005-AR1, Class 4A1 (c)
|
|
3.57%
|
|
01/01/35
|
|
178,355
|
|
|
|
Harborview Mortgage Loan Trust
|
|
|
|
|
|
|
|
356,450
|
|
Series 2004-6, Class 3A1 (c)
|
|
4.52%
|
|
08/01/34
|
|
360,980
|
|
|
|
Home Equity Asset Trust
|
|
|
|
|
|
|
|
36,731
|
|
Series 2005-3, Class M4, 1 Mo. LIBOR + 0.64% (a)
|
|
2.46%
|
|
08/25/35
|
|
37,061
|
|
508,003
|
|
Series 2005-9, Class M1, 1 Mo. LIBOR + 0.41% (a)
|
|
2.23%
|
|
04/25/36
|
|
508,795
|
|
|
|
Impac CMB Trust
|
|
|
|
|
|
|
|
180,801
|
|
Series 2004-6, Class 1A2, 1 Mo. LIBOR + 0.78% (a)
|
|
2.60%
|
|
10/25/34
|
|
181,518
|
|
|
|
IXIS Real Estate Capital Trust
|
|
|
|
|
|
|
|
1,086,520
|
|
Series 2007-HE1, Class A3, 1 Mo. LIBOR + 0.16% (a)
|
|
1.98%
|
|
05/25/37
|
|
379,396
|
|
|
|
JP Morgan Mortgage Trust
|
|
|
|
|
|
|
|
797,803
|
|
Series 2005-ALT1, Class 4A1 (c)
|
|
4.45%
|
|
10/01/35
|
|
752,663
|
|
630,126
|
|
Series 2006-A2, Class 4A1 (c)
|
|
4.71%
|
|
08/01/34
|
|
663,829
|
See Notes to Financial Statements
Page 5
First Trust Mortgage Income Fund (FMY)
Portfolio of Investments
(Continued)
October 31, 2019
Principal
Value
|
|
Description
|
|
Stated
Coupon
|
|
Stated
Maturity
|
|
Value
|
|
MORTGAGE-BACKED SECURITIES (Continued)
|
|
|
|
Collateralized Mortgage Obligations (Continued)
|
|
|
|
|
|
|
|
|
|
JP Morgan Mortgage Trust (Continued)
|
|
|
|
|
|
|
|
$142,905
|
|
Series 2006-A2, Class 5A3 (c)
|
|
4.38%
|
|
11/01/33
|
|
$149,191
|
|
90,155
|
|
Series 2014-2, Class 1A1 (b)
|
|
3.00%
|
|
06/01/29
|
|
91,859
|
|
|
|
MASTR Adjustable Rate Mortgages Trust
|
|
|
|
|
|
|
|
35,127
|
|
Series 2004-13, Class 3A7B, US Treasury Yield Curve Rate T Note Constant Maturity 1 Year + 2.00% (a)
|
|
3.74%
|
|
11/01/34
|
|
36,176
|
|
|
|
MASTR Alternative Loan Trust
|
|
|
|
|
|
|
|
3,587,347
|
|
Series 2006-2, Class 2A3, 1 Mo. LIBOR + 0.35% (a)
|
|
2.17%
|
|
03/25/36
|
|
561,162
|
|
|
|
MASTR Asset Backed Securities Trust
|
|
|
|
|
|
|
|
784,627
|
|
Series 2006-HE5, Class A3, 1 Mo. LIBOR + 0.16% (a)
|
|
1.98%
|
|
11/25/36
|
|
552,193
|
|
1,247,185
|
|
Series 2006-NC2, Class A3, 1 Mo. LIBOR + 0.11% (a)
|
|
1.93%
|
|
08/25/36
|
|
651,782
|
|
569,280
|
|
Series 2006-NC2, Class A5, 1 Mo. LIBOR + 0.24% (a)
|
|
2.06%
|
|
08/25/36
|
|
306,738
|
|
|
|
MASTR Asset Securitization Trust
|
|
|
|
|
|
|
|
13,055
|
|
Series 2003-11, Class 5A2
|
|
5.25%
|
|
12/01/23
|
|
13,059
|
|
52,382
|
|
Series 2003-11, Class 6A16
|
|
5.25%
|
|
12/01/33
|
|
53,545
|
|
|
|
Mellon Residential Funding Corp. Mortgage Pass-Through Trust
|
|
|
|
|
|
|
|
258,096
|
|
Series 2001-TBC1, Class A1, 1 Mo. LIBOR + 0.70% (a)
|
|
2.61%
|
|
11/15/31
|
|
262,203
|
|
260,469
|
|
Series 2002-TBC2, Class A, 1 Mo. LIBOR + 0.86% (a)
|
|
2.77%
|
|
08/15/32
|
|
258,328
|
|
|
|
Meritage Mortgage Loan Trust
|
|
|
|
|
|
|
|
2,469
|
|
Series 2004-2, Class M3, 1 Mo. LIBOR + 0.98% (a)
|
|
2.80%
|
|
01/25/35
|
|
2,394
|
|
|
|
Mill City Mortgage Trust
|
|
|
|
|
|
|
|
314,000
|
|
Series 2017-2, Class M2 (b)
|
|
3.25%
|
|
07/01/59
|
|
323,052
|
|
|
|
Morgan Stanley Mortgage Loan Trust
|
|
|
|
|
|
|
|
400,949
|
|
Series 2004-7AR, Class 2A6 (c)
|
|
4.42%
|
|
09/01/34
|
|
416,890
|
|
|
|
MortgageIT Trust
|
|
|
|
|
|
|
|
227,294
|
|
Series 2005-2, Class 2A, 1 Mo. LIBOR + 1.65% (a)
|
|
3.68%
|
|
05/01/35
|
|
234,366
|
|
|
|
New Residential Mortgage Loan Trust
|
|
|
|
|
|
|
|
496,832
|
|
Series 2014-2A, Class A2 (b)
|
|
3.75%
|
|
05/01/54
|
|
507,298
|
|
588,677
|
|
Series 2016-1A, Class A1 (b)
|
|
3.75%
|
|
03/01/56
|
|
613,383
|
|
462,266
|
|
Series 2016-3A, Class A1 (b)
|
|
3.75%
|
|
09/01/56
|
|
482,207
|
|
|
|
Nomura Asset Acceptance Corporation
|
|
|
|
|
|
|
|
822,498
|
|
Series 2004-AR4, Class M1, 1 Mo. LIBOR + 1.10% (a)
|
|
2.92%
|
|
12/25/34
|
|
841,274
|
|
|
|
Nomura Resecuritization Trust
|
|
|
|
|
|
|
|
1,205,515
|
|
Series 2015-6R, Class 2A4 (b) (c)
|
|
6.12%
|
|
01/02/37
|
|
1,002,293
|
|
|
|
Oakwood Mortgage Investors, Inc.
|
|
|
|
|
|
|
|
183,009
|
|
Series 2001-B, Class A2, 1 Mo. LIBOR + 0.38% (a) (b)
|
|
2.29%
|
|
08/15/30
|
|
182,473
|
|
|
|
Provident Funding Mortgage Loan Trust
|
|
|
|
|
|
|
|
59,345
|
|
Series 2004-1, Class 1A1 (c)
|
|
4.84%
|
|
04/01/34
|
|
60,039
|
|
85,726
|
|
Series 2005-1, Class 1A1 (c)
|
|
4.42%
|
|
05/01/35
|
|
88,021
|
|
|
|
Residential Accredit Loans, Inc.
|
|
|
|
|
|
|
|
128,972
|
|
Series 2006-QO1, Class 2A1, 1 Mo. LIBOR + 0.27% (a)
|
|
2.09%
|
|
02/25/46
|
|
98,936
|
|
1,372,046
|
|
Series 2006-QS6, Class 1AV, IO (c)
|
|
0.76%
|
|
06/01/36
|
|
36,176
|
|
|
|
Residential Asset Securitization Trust
|
|
|
|
|
|
|
|
29,637
|
|
Series 2004-A3, Class A7
|
|
5.25%
|
|
06/01/34
|
|
30,987
|
|
|
|
Saxon Asset Securities Trust
|
|
|
|
|
|
|
|
836,101
|
|
Series 2007-2, Class A2D, 1 Mo. LIBOR + 0.30% (a)
|
|
2.12%
|
|
05/25/47
|
|
699,862
|
|
|
|
Seasoned Credit Risk Transfer Trust
|
|
|
|
|
|
|
|
1,315,000
|
|
Series 2017-2, Class M1 (b)
|
|
4.00%
|
|
08/01/56
|
|
1,323,959
|
|
|
|
Sequoia Mortgage Trust
|
|
|
|
|
|
|
|
755,735
|
|
Series 2017-CH2, Class A10 (b)
|
|
4.00%
|
|
12/01/47
|
|
763,755
|
|
209,742
|
|
Series 2018-CH2, Class A12 (b)
|
|
4.00%
|
|
06/01/48
|
|
212,445
|
|
|
|
Structured Adjustable Rate Mortgage Loan Trust
|
|
|
|
|
|
|
|
254,081
|
|
Series 2004-2, Class 4A2 (c)
|
|
4.11%
|
|
03/01/34
|
|
259,952
|
Page 6
See Notes to Financial Statements
First Trust Mortgage Income Fund (FMY)
Portfolio of Investments
(Continued)
October 31, 2019
Principal
Value
|
|
Description
|
|
Stated
Coupon
|
|
Stated
Maturity
|
|
Value
|
|
MORTGAGE-BACKED SECURITIES (Continued)
|
|
|
|
Collateralized Mortgage Obligations (Continued)
|
|
|
|
|
|
|
|
|
|
Structured Asset Securities Corp. Mortgage Pass-Through
Certificates
|
|
|
|
|
|
|
|
$47,498
|
|
Series 2001-SB1, Class A2
|
|
3.38%
|
|
08/01/31
|
|
$47,064
|
|
|
|
Thornburg Mortgage Securities Trust
|
|
|
|
|
|
|
|
237,287
|
|
Series 2003-4, Class A1, 1 Mo. LIBOR + 0.64% (a)
|
|
2.46%
|
|
09/25/43
|
|
241,874
|
|
|
|
Towd Point Mortgage Trust
|
|
|
|
|
|
|
|
775,065
|
|
Series 2015-1, Class AES (b)
|
|
3.00%
|
|
10/01/53
|
|
778,509
|
|
1,117,618
|
|
Series 2015-2, Class 2A1 (b)
|
|
3.75%
|
|
11/01/57
|
|
1,129,722
|
|
885,214
|
|
Series 2015-3, Class A1B (b)
|
|
3.00%
|
|
03/01/54
|
|
891,362
|
|
79,763
|
|
Series 2015-6, Class A1 (b)
|
|
3.50%
|
|
04/01/55
|
|
81,348
|
|
846,417
|
|
Series 2016-1, Class A3B (b)
|
|
3.00%
|
|
02/01/55
|
|
848,802
|
|
188,841
|
|
Series 2016-4, Class A1 (b)
|
|
2.25%
|
|
07/01/56
|
|
188,977
|
|
647,951
|
|
Series 2017-3, Class A3 (b) (c)
|
|
2.78%
|
|
07/01/57
|
|
656,139
|
|
|
|
Wachovia Mortgage Loan Trust, LLC
|
|
|
|
|
|
|
|
161,339
|
|
Series 2006-A, Class 3A1 (c)
|
|
4.71%
|
|
05/01/36
|
|
162,388
|
|
|
|
WaMu Mortgage Pass-Through Certificates
|
|
|
|
|
|
|
|
182,771
|
|
Series 2003-AR5, Class A7 (c)
|
|
4.68%
|
|
06/01/33
|
|
189,914
|
|
290,825
|
|
Series 2004-AR1, Class A (c)
|
|
4.85%
|
|
03/01/34
|
|
300,001
|
|
368,675
|
|
Series 2004-AR10, Class A1B, 1 Mo. LIBOR + 0.42% (a)
|
|
2.24%
|
|
07/25/44
|
|
369,304
|
|
297,727
|
|
Series 2004-AR13, Class A1A, 1 Mo. LIBOR + 0.72% (a)
|
|
2.54%
|
|
11/25/34
|
|
305,191
|
|
50,717
|
|
Series 2004-AR3, Class A2 (c)
|
|
4.50%
|
|
06/01/34
|
|
52,524
|
|
420,019
|
|
Series 2005-AR1, Class A1A, 1 Mo. LIBOR + 0.64% (a)
|
|
2.46%
|
|
01/25/45
|
|
421,050
|
|
564,028
|
|
Series 2005-AR11, Class A1A, 1 Mo. LIBOR + 0.32% (a)
|
|
2.14%
|
|
08/25/45
|
|
566,832
|
|
602,061
|
|
Series 2005-AR6, Class 2A1A, 1 Mo. LIBOR + 0.46% (a)
|
|
2.28%
|
|
04/25/45
|
|
602,392
|
|
220,984
|
|
Series 2005-AR9, Class A1A, 1 Mo. LIBOR + 0.64% (a)
|
|
2.46%
|
|
07/25/45
|
|
220,918
|
|
382,627
|
|
Series 2006-AR2, Class 1A1 (c)
|
|
4.25%
|
|
03/01/36
|
|
376,883
|
|
|
|
Washington Mutual Alternative Mortgage Pass-Through Certificates
|
|
|
|
|
|
|
|
21,178
|
|
Series 2007-5, Class A11, 1 Mo. LIBOR x -6 + 39.48% (d)
|
|
28.54%
|
|
06/25/37
|
|
42,503
|
|
|
|
Washington Mutual MSC Mortgage Pass-Through Certificates
|
|
|
|
|
|
|
|
293,884
|
|
Series 2004-RA1, Class 2A
|
|
7.00%
|
|
03/01/34
|
|
317,207
|
|
|
|
Wells Fargo Mortgage Backed Securities Trust
|
|
|
|
|
|
|
|
185,955
|
|
Series 2003-H, Class A1 (c)
|
|
4.77%
|
|
09/01/33
|
|
192,404
|
|
268,727
|
|
Series 2004-A, Class A1 (c)
|
|
4.97%
|
|
02/01/34
|
|
282,080
|
|
36,704
|
|
Series 2004-EE, Class 3A1 (c)
|
|
4.66%
|
|
12/01/34
|
|
38,270
|
|
501,448
|
|
Series 2004-R, Class 1A1 (c)
|
|
4.74%
|
|
09/01/34
|
|
521,845
|
|
104,143
|
|
Series 2004-S, Class A1 (c)
|
|
4.89%
|
|
09/01/34
|
|
108,914
|
|
122,976
|
|
Series 2005-AR10, Class 2A17 (c)
|
|
4.93%
|
|
06/01/35
|
|
129,193
|
|
160,509
|
|
Series 2005-AR16, Class 1A1 (c)
|
|
4.95%
|
|
08/01/33
|
|
162,190
|
|
183,603
|
|
Series 2005-AR3, Class 2A1 (c)
|
|
4.84%
|
|
03/01/35
|
|
190,784
|
|
178,450
|
|
Series 2005-AR8, Class 1A1 (c)
|
|
4.96%
|
|
06/01/35
|
|
180,705
|
|
57,264
|
|
Series 2007-16, Class 1A1
|
|
6.00%
|
|
12/04/37
|
|
57,526
|
|
|
|
WinWater Mortgage Loan Trust
|
|
|
|
|
|
|
|
442,282
|
|
Series 2015-3, Class B1 (b) (c)
|
|
3.90%
|
|
03/01/45
|
|
465,065
|
|
334,664
|
|
Series 2015-5, Class A5 (b)
|
|
3.50%
|
|
08/01/45
|
|
338,923
|
|
|
|
|
|
31,420,333
|
|
|
|
Commercial Mortgage-Backed Securities – 2.9%
|
|
|
|
|
|
|
|
|
|
Hudsons Bay Simon JV Trust
|
|
|
|
|
|
|
|
510,000
|
|
Series 2015-HBFL, Class DFL, 1 Mo. LIBOR + 3.90% (a) (b)
|
|
5.97%
|
|
08/05/34
|
|
511,103
|
|
|
|
Morgan Stanley Capital I Trust
|
|
|
|
|
|
|
|
1,000,000
|
|
Series 2017-CLS, Class D, 1 Mo. LIBOR + 1.40% (a) (b)
|
|
3.31%
|
|
11/15/34
|
|
1,002,659
|
See Notes to Financial Statements
Page 7
First Trust Mortgage Income Fund (FMY)
Portfolio of Investments
(Continued)
October 31, 2019
Principal
Value
|
|
Description
|
|
Stated
Coupon
|
|
Stated
Maturity
|
|
Value
|
|
MORTGAGE-BACKED SECURITIES (Continued)
|
|
|
|
Commercial Mortgage-Backed Securities (Continued)
|
|
|
|
|
|
|
|
|
|
UBS-Barclays Commercial Mortgage Trust
|
|
|
|
|
|
|
|
$13,508,328
|
|
Series 2013-C5, Class XA, IO (b) (c)
|
|
0.95%
|
|
03/01/46
|
|
$346,488
|
|
|
|
|
|
1,860,250
|
|
|
|
Total Mortgage-Backed Securities
|
|
33,280,583
|
|
|
|
(Cost $33,395,116)
|
|
|
|
|
|
|
|
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES – 40.2%
|
|
|
|
Collateralized Mortgage Obligations – 28.6%
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Mortgage Corp.
|
|
|
|
|
|
|
|
1,417
|
|
Series 1007, Class H, 1 Mo. LIBOR x -1.35 + 20.88% (d)
|
|
18.29%
|
|
10/15/20
|
|
1,474
|
|
19,564
|
|
Series 1394, Class ID, Cost of Funds 11th District of San Fransisco x -4.67 + 44.56%, Capped at 9.57% (d)
|
|
9.57%
|
|
10/15/22
|
|
21,367
|
|
20,296
|
|
Series 2303, Class SW, Cost of Funds 11th District of San Fransisco x -15.87 + 121.11%, Capped at 10.00% (d)
|
|
10.00%
|
|
03/01/24
|
|
2,994
|
|
72,306
|
|
Series 2334, Class QS, 1 Mo. LIBOR x -3.5 + 28.18% (d)
|
|
21.45%
|
|
07/15/31
|
|
107,646
|
|
284,313
|
|
Series 2439, Class XI, IO, if 1 Mo. LIBOR x -1 + 7.74% is less than 7.50%, then 6.50%, otherwise 0.00% (d)
|
|
6.50%
|
|
03/01/32
|
|
51,736
|
|
631,076
|
|
Series 2807, Class SB, IO, 1 Mo. LIBOR x -1 + 7.45% (d)
|
|
5.53%
|
|
11/15/33
|
|
102,231
|
|
725,493
|
|
Series 2973, Class SX, IO, 1 Mo. LIBOR x -1 + 6.60%, Capped at 1.60% (d)
|
|
1.60%
|
|
05/15/35
|
|
3,161
|
|
1,495,606
|
|
Series 2975, Class SJ, IO, 1 Mo. LIBOR x -1 + 6.65% (d)
|
|
4.73%
|
|
05/15/35
|
|
226,249
|
|
304,203
|
|
Series 3012, Class GK, 1 Mo. LIBOR x -4.5 + 24.75% (d)
|
|
16.10%
|
|
06/15/35
|
|
521,492
|
|
226,587
|
|
Series 3108, Class QZ
|
|
6.00%
|
|
02/01/36
|
|
333,096
|
|
13,874
|
|
Series 3195, Class SX, 1 Mo. LIBOR x -6.5 + 46.15% (d)
|
|
33.66%
|
|
07/15/36
|
|
48,994
|
|
308,525
|
|
Series 3210, Class ZA
|
|
6.00%
|
|
09/01/36
|
|
401,235
|
|
152,257
|
|
Series 3410, Class HC
|
|
5.50%
|
|
02/01/38
|
|
170,345
|
|
107,693
|
|
Series 3451, Class SB, IO, 1 Mo. LIBOR x -1 + 6.03% (d)
|
|
4.11%
|
|
05/15/38
|
|
11,853
|
|
506,455
|
|
Series 3471, Class SD, IO, 1 Mo. LIBOR x -1 + 6.08% (d)
|
|
4.16%
|
|
12/15/36
|
|
80,655
|
|
345,390
|
|
Series 3784, Class BI, IO
|
|
3.50%
|
|
01/01/21
|
|
5,041
|
|
250,000
|
|
Series 3797, Class KB
|
|
4.50%
|
|
01/01/41
|
|
291,491
|
|
88,139
|
|
Series 3898, Class NI, IO
|
|
5.00%
|
|
07/01/40
|
|
985
|
|
621,075
|
|
Series 3985, Class GI, IO
|
|
3.00%
|
|
10/01/26
|
|
25,690
|
|
53,209
|
|
Series 4021, Class IP, IO
|
|
3.00%
|
|
03/01/27
|
|
3,301
|
|
777,073
|
|
Series 4057, Class YI, IO
|
|
3.00%
|
|
06/01/27
|
|
58,677
|
|
1,475,101
|
|
Series 4082, Class PI, IO
|
|
3.00%
|
|
06/01/27
|
|
107,559
|
|
894,445
|
|
Series 4206, Class IA, IO
|
|
3.00%
|
|
03/01/33
|
|
99,119
|
|
477,081
|
|
Series 4615, Class GT, 1 Mo. LIBOR x -4 + 16.00%, Capped at 4.00% (d)
|
|
4.00%
|
|
10/15/42
|
|
489,086
|
|
5,586,270
|
|
Series 4619, Class IB, IO
|
|
4.00%
|
|
12/01/47
|
|
330,547
|
|
|
|
Federal Home Loan Mortgage Corp. Structured Pass-Through
Certificates
|
|
|
|
|
|
|
|
50,535
|
|
Series T-56, Class APO
|
|
(e)
|
|
05/01/43
|
|
46,767
|
|
|
|
Federal Home Loan Mortgage Corp., STRIPS
|
|
|
|
|
|
|
|
82,586
|
|
Series 177, IO
|
|
7.00%
|
|
06/17/26
|
|
12,083
|
|
677,354
|
|
Series 243, Class 2, IO
|
|
5.00%
|
|
11/01/35
|
|
113,336
|
|
4,610,165
|
|
Series 303, Class C17, IO
|
|
3.50%
|
|
01/01/43
|
|
694,244
|
|
|
|
Federal National Mortgage Association
|
|
|
|
|
|
|
|
77,449
|
|
Series 1996-46, Class ZA
|
|
7.50%
|
|
11/01/26
|
|
86,208
|
|
301,376
|
|
Series 1997-85, Class M, IO
|
|
6.50%
|
|
12/01/27
|
|
28,779
|
|
50,308
|
|
Series 2002-80, Class IO, IO
|
|
6.00%
|
|
09/01/32
|
|
6,909
|
|
94,031
|
|
Series 2003-15, Class MS, IO, 1 Mo. LIBOR x -1 + 8.00% (d)
|
|
6.18%
|
|
03/25/33
|
|
15,123
|
|
118,634
|
|
Series 2003-44, Class IU, IO
|
|
7.00%
|
|
06/01/33
|
|
27,396
|
|
697,173
|
|
Series 2003-62, Class PO
|
|
(e)
|
|
07/01/33
|
|
636,145
|
|
616,577
|
|
Series 2004-49, Class SN, IO, 1 Mo. LIBOR x -1 + 7.10% (d)
|
|
5.28%
|
|
07/25/34
|
|
86,985
|
|
18,114
|
|
Series 2004-74, Class SW, 1 Mo. LIBOR x -2 + 15.50% (d)
|
|
11.75%
|
|
11/25/31
|
|
24,112
|
Page 8
See Notes to Financial Statements
First Trust Mortgage Income Fund (FMY)
Portfolio of Investments
(Continued)
October 31, 2019
Principal
Value
|
|
Description
|
|
Stated
Coupon
|
|
Stated
Maturity
|
|
Value
|
|
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Continued)
|
|
|
|
Collateralized Mortgage Obligations (Continued)
|
|
|
|
|
|
|
|
|
|
Federal National Mortgage Association (Continued)
|
|
|
|
|
|
|
|
$432,155
|
|
Series 2004-W10, Class A6
|
|
5.75%
|
|
08/01/34
|
|
$482,101
|
|
273,214
|
|
Series 2005-122, Class SN, 1 Mo. LIBOR x -4 + 28.60% (d)
|
|
21.31%
|
|
01/25/36
|
|
482,748
|
|
29,676
|
|
Series 2005-59 SU, 1 Mo. LIBOR x -5 + 25.50% (d)
|
|
16.39%
|
|
06/25/35
|
|
45,362
|
|
107,047
|
|
Series 2005-6, Class SE, IO, 1 Mo. LIBOR x -1 + 6.70% (d)
|
|
4.88%
|
|
02/25/35
|
|
19,508
|
|
408,572
|
|
Series 2005-74, Class NZ
|
|
6.00%
|
|
09/01/35
|
|
533,377
|
|
222,078
|
|
Series 2006-105, Class ZA
|
|
6.00%
|
|
11/01/36
|
|
303,223
|
|
718,590
|
|
Series 2006-5, Class 3A2, 1 Mo. LIBOR + 2.08% (a)
|
|
4.40%
|
|
05/01/35
|
|
756,366
|
|
68,687
|
|
Series 2007-100, Class SM, IO, 1 Mo. LIBOR x -1 + 6.45% (d)
|
|
4.63%
|
|
10/25/37
|
|
11,758
|
|
233,651
|
|
Series 2007-30, Class ZM
|
|
4.25%
|
|
04/01/37
|
|
274,472
|
|
318,345
|
|
Series 2007-37, Class SB, IO, 1 Mo. LIBOR x -1 + 6.75% (d)
|
|
4.93%
|
|
05/25/37
|
|
65,390
|
|
294,177
|
|
Series 2008-17, Class BE
|
|
5.50%
|
|
10/01/37
|
|
363,294
|
|
182,000
|
|
Series 2008-2, Class PH
|
|
5.50%
|
|
02/01/38
|
|
224,414
|
|
469,000
|
|
Series 2009-28, Class HX
|
|
5.00%
|
|
05/01/39
|
|
579,903
|
|
183,374
|
|
Series 2009-37, Class NZ
|
|
5.71%
|
|
02/01/37
|
|
239,411
|
|
1,447,862
|
|
Series 2010-103, Class ID, IO
|
|
5.00%
|
|
09/01/40
|
|
311,926
|
|
87,738
|
|
Series 2010-104, Class CI, IO
|
|
4.00%
|
|
09/01/20
|
|
648
|
|
49,382
|
|
Series 2010-145, Class TI, IO
|
|
3.50%
|
|
12/01/20
|
|
500
|
|
86,686
|
|
Series 2010-99, Class SG, 1 Mo. LIBOR x -5 + 25.00% (d)
|
|
14.84%
|
|
09/01/40
|
|
146,164
|
|
33,450
|
|
Series 2011-5, Class IK, IO
|
|
8.00%
|
|
02/01/21
|
|
908
|
|
825,000
|
|
Series 2011-52, Class LB
|
|
5.50%
|
|
06/01/41
|
|
945,638
|
|
745,139
|
|
Series 2011-66, Class QI, IO
|
|
3.50%
|
|
07/01/21
|
|
16,362
|
|
2,106,811
|
|
Series 2011-81, Class PI, IO
|
|
3.50%
|
|
08/01/26
|
|
128,813
|
|
120,812
|
|
Series 2012-111, Class B
|
|
7.00%
|
|
10/01/42
|
|
140,754
|
|
1,671,837
|
|
Series 2012-112, Class BI, IO
|
|
3.00%
|
|
09/01/31
|
|
114,891
|
|
1,895,301
|
|
Series 2012-125, Class MI, IO
|
|
3.50%
|
|
11/01/42
|
|
241,922
|
|
23,328
|
|
Series 2012-74, Class OA
|
|
(e)
|
|
03/01/42
|
|
21,476
|
|
23,328
|
|
Series 2012-75, Class AO
|
|
(e)
|
|
03/01/42
|
|
21,476
|
|
149,284
|
|
Series 2013-132, Class SW, 1 Mo. LIBOR x -2.67 + 10.67% (d)
|
|
5.25%
|
|
01/01/44
|
|
171,897
|
|
581,160
|
|
Series 2013-28, Class AQ
|
|
2.00%
|
|
07/01/38
|
|
578,766
|
|
1,771,133
|
|
Series 2013-32, Class IG, IO
|
|
3.50%
|
|
04/01/33
|
|
205,484
|
|
450,688
|
|
Series 2013-51, Class PI, IO
|
|
3.00%
|
|
11/01/32
|
|
39,965
|
|
3,160,681
|
|
Series 2015-20, Class ES, IO, 1 Mo. LIBOR x -1 + 6.15% (d)
|
|
4.33%
|
|
04/25/45
|
|
566,135
|
|
1,167,207
|
|
Series 2015-76, Class BI, IO
|
|
4.00%
|
|
10/01/39
|
|
97,580
|
|
3,350,132
|
|
Series 2015-97, Class AI, IO
|
|
4.00%
|
|
09/01/41
|
|
299,282
|
|
168,142
|
|
Series 2016-74, Class LI, IO
|
|
3.50%
|
|
09/01/46
|
|
54,309
|
|
|
|
Federal National Mortgage Association, STRIPS
|
|
|
|
|
|
|
|
56,308
|
|
Series 305, Class 12, IO (f)
|
|
6.50%
|
|
12/01/29
|
|
9,594
|
|
64,052
|
|
Series 355, Class 18, IO
|
|
7.50%
|
|
11/01/33
|
|
14,964
|
|
2,267,098
|
|
Series 387, Class 10, IO
|
|
6.00%
|
|
04/01/38
|
|
406,122
|
|
1,369,806
|
|
Series 406, Class 6, IO (f)
|
|
4.00%
|
|
01/01/41
|
|
196,166
|
|
|
|
Government National Mortgage Association
|
|
|
|
|
|
|
|
195,423
|
|
Series 2004-95, Class QZ
|
|
4.50%
|
|
11/01/34
|
|
216,462
|
|
256,729
|
|
Series 2005-33, Class AY
|
|
5.50%
|
|
04/01/35
|
|
284,748
|
|
104,157
|
|
Series 2005-68, Class DP, 1 Mo. LIBOR x -2.41 + 16.43% (d)
|
|
11.82%
|
|
06/17/35
|
|
127,459
|
|
356,400
|
|
Series 2005-68, Class KI, IO, 1 Mo. LIBOR x -1 + 6.30% (d)
|
|
4.45%
|
|
09/20/35
|
|
74,472
|
|
41,880
|
|
Series 2006-28, Class VS, 1 Mo. LIBOR x -13 + 87.10% (d)
|
|
63.10%
|
|
06/20/36
|
|
129,013
|
|
562,155
|
|
Series 2007-14, Class PB
|
|
5.40%
|
|
03/01/37
|
|
614,874
|
|
89,888
|
|
Series 2007-50, Class AI, IO, 1 Mo. LIBOR x -1 + 6.78% (d)
|
|
4.93%
|
|
08/20/37
|
|
18,182
|
|
299,534
|
|
Series 2007-68, Class PI, IO, 1 Mo. LIBOR x -1 + 6.65% (d)
|
|
4.80%
|
|
11/20/37
|
|
42,194
|
|
100,000
|
|
Series 2008-2, Class HB
|
|
5.50%
|
|
01/01/38
|
|
119,911
|
|
279,000
|
|
Series 2008-32, Class JD
|
|
5.50%
|
|
04/01/38
|
|
344,632
|
|
252,261
|
|
Series 2008-73, Class SK, IO, 1 Mo. LIBOR x -1 + 6.74% (d)
|
|
4.89%
|
|
08/20/38
|
|
32,663
|
|
627,830
|
|
Series 2009-100, Class SL, IO, 1 Mo. LIBOR x -1 + 6.50% (d)
|
|
4.61%
|
|
05/16/39
|
|
25,372
|
|
208,684
|
|
Series 2009-12, Class IE, IO
|
|
5.50%
|
|
03/01/39
|
|
37,440
|
See Notes to Financial Statements
Page 9
First Trust Mortgage Income Fund (FMY)
Portfolio of Investments
(Continued)
October 31, 2019
Principal
Value
|
|
Description
|
|
Stated
Coupon
|
|
Stated
Maturity
|
|
Value
|
|
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Continued)
|
|
|
|
Collateralized Mortgage Obligations (Continued)
|
|
|
|
|
|
|
|
|
|
Government National Mortgage Association (Continued)
|
|
|
|
|
|
|
|
$39,071
|
|
Series 2009-65, Class NJ, IO
|
|
5.50%
|
|
07/01/39
|
|
$1,342
|
|
129,638
|
|
Series 2009-79, Class PZ
|
|
6.00%
|
|
09/01/39
|
|
171,428
|
|
715,000
|
|
Series 2010-61, Class KE
|
|
5.00%
|
|
05/01/40
|
|
883,595
|
|
156,872
|
|
Series 2011-131, Class EI, IO
|
|
4.50%
|
|
08/01/39
|
|
2,145
|
|
452,626
|
|
Series 2013-104, Class YS, IO, 1 Mo. LIBOR x -1 + 6.15% (d)
|
|
4.26%
|
|
07/16/43
|
|
81,105
|
|
71,844
|
|
Series 2016-139, Class MZ
|
|
1.50%
|
|
07/01/45
|
|
60,481
|
|
143,337
|
|
Series 2017-4, Class CZ
|
|
3.00%
|
|
01/01/47
|
|
151,329
|
|
110,019
|
|
Series 2017-H18, Class DZ (f)
|
|
4.59%
|
|
09/01/67
|
|
137,739
|
|
|
|
|
|
17,943,766
|
|
|
|
Commercial Mortgage-Backed Securities – 4.3%
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Mortgage Corp. Multifamily Structured
Pass-Through Certificates
|
|
|
|
|
|
|
|
19,970,910
|
|
Series K087, Class X1, IO (c)
|
|
0.36%
|
|
12/01/28
|
|
621,834
|
|
|
|
Government National Mortgage Association
|
|
|
|
|
|
|
|
218,000
|
|
Series 2013-57, Class D (f)
|
|
2.35%
|
|
06/01/46
|
|
213,955
|
|
5,131,210
|
|
Series 2016-11, Class IO (f)
|
|
0.88%
|
|
01/01/56
|
|
309,824
|
|
8,294,776
|
|
Series 2016-143, Class IO
|
|
0.96%
|
|
10/01/56
|
|
650,634
|
|
11,772,571
|
|
Series 2016-166, Class IO (f)
|
|
1.09%
|
|
04/01/58
|
|
939,372
|
|
|
|
|
|
2,735,619
|
|
|
|
Pass-through Security – 7.3%
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Mortgage Corp.
|
|
|
|
|
|
|
|
174,649
|
|
Pool A94738
|
|
4.50%
|
|
11/01/40
|
|
183,846
|
|
530,349
|
|
Pool K36017
|
|
5.00%
|
|
09/01/47
|
|
558,880
|
|
929,142
|
|
Pool U99176
|
|
4.00%
|
|
12/01/47
|
|
992,043
|
|
|
|
Federal National Mortgage Association
|
|
|
|
|
|
|
|
6,084
|
|
Pool 535919
|
|
6.50%
|
|
05/01/21
|
|
6,777
|
|
757,146
|
|
Pool 831145
|
|
6.00%
|
|
12/01/35
|
|
870,291
|
|
643,996
|
|
Pool 843971
|
|
6.00%
|
|
11/01/35
|
|
737,056
|
|
1,158,143
|
|
Pool AB5688
|
|
3.50%
|
|
07/01/37
|
|
1,214,365
|
|
|
|
|
|
4,563,258
|
|
|
|
Total U.S. Government Agency Mortgage-Backed Securities
|
|
25,242,643
|
|
|
|
(Cost $25,828,663)
|
|
|
|
|
|
|
|
ASSET-BACKED SECURITIES – 1.2%
|
|
|
|
Green Tree Financial Corp.
|
|
|
|
|
|
|
|
48,059
|
|
Series 1998-4, Class A7
|
|
6.87%
|
|
04/01/30
|
|
50,233
|
|
|
|
Mid-State Capital Corp. Trust
|
|
|
|
|
|
|
|
304,531
|
|
Series 2004-1, Class M1
|
|
6.50%
|
|
08/01/37
|
|
330,312
|
|
331,609
|
|
Series 2005-1, Class A
|
|
5.75%
|
|
01/01/40
|
|
362,886
|
|
|
|
Total Asset-Backed Securities
|
|
743,431
|
|
|
|
(Cost $687,774)
|
|
|
|
|
|
|
|
|
Total Investments – 94.3%
|
|
59,266,657
|
|
|
(Cost $59,911,553) (g)
|
|
|
Page 10
See Notes to Financial Statements
First Trust Mortgage Income Fund (FMY)
Portfolio of Investments
(Continued)
October 31, 2019
|
Number of Contracts
|
|
Description
|
|
Notional Amount
|
|
Exercise Price
|
|
Expiration Date
|
|
Value
|
|
CALL OPTIONS PURCHASED – 0.1%
|
|
10
|
|
U.S. Treasury Long Term Bond Futures
|
|
$160,190
|
|
$158.00
|
|
Jan 2020
|
|
$35,156
|
|
|
|
(Cost $19,262)
|
|
|
|
|
|
|
|
|
|
|
Net Other Assets and Liabilities – 5.6%
|
|
3,529,726
|
|
|
Net Assets – 100.0%
|
|
$62,831,539
|
Futures Contracts (See Note 2C - Futures Contracts in the Notes to Financial Statements):
|
Futures Contracts
|
|
Position
|
|
Number of
Contracts
|
|
Expiration
Date
|
|
Notional
Value
|
|
Unrealized
Appreciation
(Depreciation)/
Value
|
|
U.S. Treasury 5-Year Notes
|
|
Long
|
|
2
|
|
Dec 2019
|
|
$ 238,406
|
|
$(1,000)
|
|
U.S. Treasury CME Ultra Long Term Bond Futures
|
|
Long
|
|
5
|
|
Dec 2019
|
|
948,750
|
|
26,656
|
|
Total Futures Contracts
|
|
|
|
|
|
|
|
$1,187,156
|
|
$25,656
|
|
|
(a)
|
Floating or variable rate security.
|
|
(b)
|
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 First Trust Advisors L.P. (the “Advisor”). Although market instability can result in periods of increased overall market illiquidity, liquidity for each security is
determined based on security specific factors and assumptions, which require subjective judgment. At October 31, 2019, securities noted as such amounted to $14,285,595 or 22.7% of net assets.
|
|
(c)
|
Collateral Strip Rate security. Coupon is based on the weighted net interest rate of the investment’s underlying collateral. The interest rate resets periodically.
|
|
(d)
|
Inverse floating rate security.
|
|
(e)
|
Zero coupon security.
|
|
(f)
|
Weighted Average Coupon security. Coupon is based on the blended interest rate of the underlying holdings, which may have different coupons. The coupon may change in any period.
|
|
(g)
|
Aggregate cost for federal income tax purposes was $60,845,622. As of October 31, 2019, the aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost was $2,449,746 and the aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value was $3,967,899. The net unrealized
depreciation was $1,518,153. The amounts presented are inclusive of derivative contracts.
|
|
IO
|
Interest-Only Security - Principal amount shown represents par value on which interest payments are based.
|
|
LIBOR
|
London Interbank Offered Rate
|
|
STRIPS
|
Separate Trading of Registered Interest and Principal of Securities
|
See Notes to Financial Statements
Page 11
First Trust Mortgage Income Fund (FMY)
Portfolio of Investments
(Continued)
October 31, 2019
Valuation Inputs
A summary of the inputs
used to value the Fund’s investments as of October 31, 2019 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
|
ASSETS TABLE
|
|
|
Total
Value at
10/31/2019
|
Level 1
Quoted
Prices
|
Level 2
Significant
Observable
Inputs
|
Level 3
Significant
Unobservable
Inputs
|
|
Mortgage-Backed Securities
|
$ 33,280,583
|
$ —
|
$ 33,280,583
|
$ —
|
|
U.S. Government Agency Mortgage-Backed Securities
|
25,242,643
|
—
|
25,242,643
|
—
|
|
Asset-Backed Securities
|
743,431
|
—
|
743,431
|
—
|
|
Total Investments
|
59,266,657
|
—
|
59,266,657
|
—
|
|
Call Options Purchased
|
35,156
|
35,156
|
—
|
—
|
|
Futures Contracts
|
26,656
|
26,656
|
—
|
—
|
|
Total
|
$ 59,328,469
|
$ 61,812
|
$ 59,266,657
|
$—
|
|
LIABILITIES TABLE
|
|
|
Total
Value at
10/31/2019
|
Level 1
Quoted
Prices
|
Level 2
Significant
Observable
Inputs
|
Level 3
Significant
Unobservable
Inputs
|
|
Futures Contracts
|
$ (1,000)
|
$ (1,000)
|
$ —
|
$ —
|
Page 12
See Notes to Financial Statements
First Trust Mortgage Income Fund (FMY)
Statement of Assets and
Liabilities
October 31, 2019
|
ASSETS:
|
|
|
Investments, at value
(Cost $59,911,553)
|
$ 59,266,657
|
|
Cash
|
3,174,527
|
|
Restricted Cash
|
171,469
|
|
Options purchased, at value
|
35,156
|
|
Receivables:
|
|
|
Interest
|
310,207
|
|
Variation margin
|
28,666
|
|
Prepaid expenses
|
6,695
|
|
Total Assets
|
62,993,377
|
|
LIABILITIES:
|
|
|
Payables:
|
|
|
Audit and tax fees
|
67,605
|
|
Investment advisory fees
|
45,309
|
|
Administrative fees
|
18,570
|
|
Shareholder reporting fees
|
6,624
|
|
Transfer agent fees
|
6,226
|
|
Trustees’ fees and expenses
|
5,432
|
|
Custodian fees
|
5,305
|
|
Legal fees
|
4,199
|
|
Financial reporting fees
|
771
|
|
Other liabilities
|
1,797
|
|
Total Liabilities
|
161,838
|
|
NET ASSETS
|
$62,831,539
|
|
NET ASSETS consist of:
|
|
|
Paid-in capital
|
$ 66,607,906
|
|
Par value
|
42,131
|
|
Accumulated distributable earnings (loss)
|
(3,818,498)
|
|
NET ASSETS
|
$62,831,539
|
|
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share)
|
$14.91
|
|
Number of Common Shares outstanding (unlimited number of Common Shares has been authorized)
|
4,213,115
|
|
Premiums paid on options purchased
|
$19,262
|
See Notes to Financial Statements
Page 13
First Trust Mortgage Income Fund (FMY)
Statement of Operations
For the Year Ended October
31, 2019
|
INVESTMENT INCOME:
|
|
|
Interest
|
$ 2,283,773
|
|
Total investment income
|
2,283,773
|
|
EXPENSES:
|
|
|
Investment advisory fees
|
535,334
|
|
Audit and tax fees
|
79,811
|
|
Administrative fees
|
72,042
|
|
Transfer agent fees
|
36,241
|
|
Shareholder reporting fees
|
27,112
|
|
Custodian fees
|
21,665
|
|
Listing expense
|
21,283
|
|
Trustees’ fees and expenses
|
16,221
|
|
Financial reporting fees
|
9,250
|
|
Legal fees
|
5,333
|
|
Other
|
14,665
|
|
Total expenses
|
838,957
|
|
NET INVESTMENT INCOME (LOSS)
|
1,444,816
|
|
NET REALIZED AND UNREALIZED GAIN (LOSS):
|
|
|
Net realized gain (loss) on:
|
|
|
Investments
|
36,649
|
|
Futures
|
96,774
|
|
Purchased options
|
5,816
|
|
Net realized gain (loss)
|
139,239
|
|
Net change in unrealized appreciation (depreciation) on:
|
|
|
Investments
|
1,185,171
|
|
Futures
|
33,219
|
|
Purchased options
|
15,894
|
|
Net change in unrealized appreciation (depreciation)
|
1,234,284
|
|
NET REALIZED AND UNREALIZED GAIN (LOSS)
|
1,373,523
|
|
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
|
$ 2,818,339
|
Page 14
See Notes to Financial Statements
First Trust Mortgage Income Fund (FMY)
Statements of Changes in
Net Assets
|
|
Year
Ended
10/31/2019
|
|
Year
Ended
10/31/2018
|
|
OPERATIONS:
|
|
|
|
|
Net investment income (loss)
|
$ 1,444,816
|
|
$ 1,887,154
|
|
Net realized gain (loss)
|
139,239
|
|
(229,462)
|
|
Net change in unrealized appreciation (depreciation)
|
1,234,284
|
|
(647,350)
|
|
Net increase (decrease) in net assets resulting from operations
|
2,818,339
|
|
1,010,342
|
|
DISTRIBUTIONS TO SHAREHOLDERS FROM:
|
|
|
|
|
Investment operations
|
(2,109,890)
|
|
(1,767,839)
|
|
Return of capital
|
(923,552)
|
|
(1,391,998)
|
|
Total distributions to shareholders
|
(3,033,442)
|
|
(3,159,837)
|
|
Total increase (decrease) in net assets
|
(215,103)
|
|
(2,149,495)
|
|
NET ASSETS:
|
|
|
|
|
Beginning of period
|
63,046,642
|
|
65,196,137
|
|
End of period
|
$ 62,831,539
|
|
$ 63,046,642
|
|
COMMON SHARES:
|
|
|
|
|
Common Shares at end of period
|
4,213,115
|
|
4,213,115
|
See Notes to Financial Statements
Page 15
First Trust Mortgage Income Fund (FMY)
Financial Highlights
For a Common Share
outstanding throughout each period
|
|
Year Ended October 31,
|
|
2019
|
|
2018
|
|
2017
|
|
2016 (a)
|
|
2015
|
|
Net asset value, beginning of period
|
$ 14.96
|
|
$ 15.47
|
|
$ 15.53
|
|
$ 16.05
|
|
$ 17.02
|
|
Income from investment operations:
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss)
|
0.34
|
|
0.45
|
|
0.18
|
|
(0.02)
|
|
1.02
|
|
Net realized and unrealized gain (loss)
|
0.33
|
|
(0.21)
|
|
0.54
|
|
0.41
|
|
(0.97)
|
|
Total from investment operations
|
0.67
|
|
0.24
|
|
0.72
|
|
0.39
|
|
0.05
|
|
Distributions paid to shareholders from:
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
(0.50)
|
|
(0.42)
|
|
(0.46)
|
|
(0.54)
|
|
(0.47)
|
|
Return of capital
|
(0.22)
|
|
(0.33)
|
|
(0.32)
|
|
(0.37)
|
|
(0.55)
|
|
Total distributions paid to Common Shareholders
|
(0.72)
|
|
(0.75)
|
|
(0.78)
|
|
(0.91)
|
|
(1.02)
|
|
Net asset value, end of period
|
$14.91
|
|
$14.96
|
|
$15.47
|
|
$15.53
|
|
$16.05
|
|
Market value, end of period
|
$13.99
|
|
$13.01
|
|
$14.39
|
|
$14.00
|
|
$14.58
|
|
Total return based on net asset value (b)
|
5.08%
|
|
2.13%
|
|
5.25%
|
|
3.05%
|
|
1.06%
|
|
Total return based on market value (b)
|
13.37%
|
|
(4.52)%
|
|
8.60%
|
|
2.26%
|
|
3.34%
|
|
Ratios to average net assets/supplemental data:
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (in 000’s)
|
$ 62,832
|
|
$ 63,047
|
|
$ 65,196
|
|
$ 65,437
|
|
$ 67,639
|
|
Ratio of total expenses to average net assets
|
1.33%
|
|
1.59%
|
|
1.25%
|
|
1.47%
|
|
1.55%
|
|
Ratio of total expenses to average net assets excluding interest expense
|
1.33%
|
|
1.59%
|
|
1.25%
|
|
1.43%
|
|
1.51%
|
|
Ratio of net investment income (loss) to average net assets
|
2.29%
|
|
2.95%
|
|
1.12%
|
|
(0.11)%
|
|
6.18%
|
|
Portfolio turnover rate
|
69%
|
|
30%
|
|
27%
|
|
49%
|
|
46%
|
|
(a)
|
Effective September 19, 2016, the portfolio management of the Fund transitioned to the Securitized Products Group of First Trust, formerly known as First Trust Mortgage Securities
Team. Schroder Investment Management North America Inc. acquired the portfolio management team of Brookfield Investment Management Inc. (“Brookfield”), previously responsible for the portfolio management
of the Fund, resulting in the automatic termination of the investment sub-advisory agreement among Brookfield, First Trust and the Fund. In connection with the change in portfolio management, First Trust agreed to
lower the investment management fee payable by the Fund to a rate of 0.85% of the Fund’s managed assets, a decrease from the Fund’s previous investment management fee of 1.00% of the Fund’s managed
assets.
|
|
(b)
|
Total return is based on the combination of reinvested dividend, capital gain and return of capital distributions, if any, at prices obtained by the Dividend
Reinvestment Plan, and changes in net asset value per share for net asset value returns and changes in Common Share Price for market value returns. Total returns do not reflect sales load and are not annualized for
periods of less than one year. Past performance is not indicative of future results.
|
Page 16
See Notes to Financial Statements
Notes to Financial Statements
First Trust Mortgage
Income Fund (FMY)
October 31, 2019
1. Organization
First Trust Mortgage
Income Fund (the “Fund”) is a diversified, closed-end management investment company organized as a Massachusetts business trust on February 22, 2005, and is registered with the Securities and Exchange
Commission (“SEC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). The Fund trades under the ticker symbol “FMY” on the New York Stock Exchange
(“NYSE”).
The Fund’s primary
investment objective is to seek a high level of current income. As a secondary objective, the Fund seeks to preserve capital. The Fund pursues its objectives by investing primarily in mortgage-backed securities
(“MBS”) representing part ownership in a pool of either residential or commercial mortgage loans that, in the opinion of First Trust Advisors L.P. (“First Trust” or the “Advisor”),
offer an attractive combination of credit quality, yield and maturity. There can be no assurance the Fund will achieve its investment objectives. The Fund may not be appropriate for all investors.
2. Significant
Accounting Policies
The Fund is considered an
investment company and follows accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, “Financial
Services-Investment Companies.” The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of the financial statements. The preparation of the financial
statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from those estimates.
A. Portfolio
Valuation
The net asset value
(“NAV”) of the Common Shares of the Fund is determined daily as of the close of regular trading on the NYSE, normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. If the NYSE closes
early on a valuation day, the NAV is determined as of that time. Domestic debt securities and foreign securities are priced using data reflecting the earlier closing of the principal markets for those securities. The
Fund’s NAV per Common Share is calculated by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses, dividends declared but
unpaid and any borrowings of the Fund), by the total number of Common Shares outstanding.
The Fund’s
investments are valued daily at market value or, in the absence of market value with respect to any portfolio securities, at fair value. Market value prices represent last sale or official closing prices from a
national or foreign exchange (i.e., a regulated market) and are primarily obtained from third-party pricing services. Fair value prices represent any prices not considered market value prices and are either obtained
from a third-party pricing service or are determined by the Advisor’s Pricing Committee, in accordance with valuation procedures adopted by the Fund’s Board of Trustees, and in accordance with provisions
of the 1940 Act. Investments valued by the Advisor’s Pricing Committee, if any, are footnoted as such in the footnotes to the Portfolio of Investments. The Fund’s investments are valued as follows:
U.S.
government securities, mortgage-backed securities, asset-backed securities and other debt securities are fair valued on the basis of valuations provided by dealers who make markets in such securities or by a
third-party pricing service approved by the Fund’s Board of Trustees, which may use the following valuation inputs when available:
|
1)
|
benchmark yields;
|
|
2)
|
reported trades;
|
|
3)
|
broker/dealer quotes;
|
|
4)
|
issuer spreads;
|
|
5)
|
benchmark securities;
|
|
6)
|
bids and offers; and
|
|
7)
|
reference data including market research publications.
|
Exchange-traded futures contracts are valued at the closing price in the market where such contracts are principally traded. If no closing price is available, exchange-traded futures contracts are fair valued at the
mean of their most recent bid and asked price, if available, and otherwise at their closing bid price.
Exchange-traded options contracts are valued at the closing price in the market where such contracts are principally traded. If no closing price is available, exchange-traded options contracts are fair valued at the
mean of their most recent bid and asked price, if available, and otherwise at their closing bid price.
Fixed
income and other debt securities having a remaining maturity of sixty days or less when purchased are fair valued at cost adjusted for amortization of premiums and accretion of discounts (amortized cost), provided the
Advisor’s Pricing Committee
Notes to Financial Statements (Continued)
First Trust Mortgage
Income Fund (FMY)
October 31, 2019
has determined that
the use of amortized cost is an appropriate reflection of fair value given market and issuer-specific conditions existing at the time of the determination. Factors that may be considered in determining the
appropriateness of the use of amortized cost include, but are not limited to, the following:
|
1)
|
the credit conditions in the relevant market and changes thereto;
|
|
2)
|
the liquidity conditions in the relevant market and changes thereto;
|
|
3)
|
the interest rate conditions in the relevant market and changes thereto (such as significant changes in interest rates);
|
|
4)
|
issuer-specific conditions (such as significant credit deterioration); and
|
|
5)
|
any other market-based data the Advisor’s Pricing Committee considers relevant. In this regard, the Advisor’s Pricing Committee may use last-obtained market-based data to assist it when
valuing portfolio securities using amortized cost.
|
Certain securities may
not be able to be priced by pre-established pricing methods. Such securities may be valued by the Fund’s Board of Trustees or its delegate, the Advisor’s Pricing Committee, at fair value. These securities
generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933, as amended (the “1933 Act”)) for which a
third-party pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security whose market or fair value price is not available from a pre-established pricing source;
a security with respect to which an event has occurred that is likely to materially affect the value of the security after the market has closed but before the calculation of the Fund’s NAV or make it difficult
or impossible to obtain a reliable market quotation; and a security whose price, as provided by the third-party pricing service, does not reflect the security’s fair value. As a general principle, the current
fair value of a security would appear to be the amount which the owner might reasonably expect to receive for the security upon its current sale. When fair value prices are used, generally they will differ from market
quotations or official closing prices on the applicable exchanges. A variety of factors may be considered in determining the fair value of such securities, including, but not limited to, the following:
|
1)
|
the fundamental business data relating to the issuer;
|
|
2)
|
an evaluation of the forces which influence the market in which these securities are purchased and sold;
|
|
3)
|
the type, size and cost of the security;
|
|
4)
|
the financial statements of the issuer;
|
|
5)
|
the credit quality and cash flow of the issuer, based on the Advisor’s or external analysis;
|
|
6)
|
the information as to any transactions in or offers for the security;
|
|
7)
|
the price and extent of public trading in similar securities (or equity securities) of the issuer/borrower, or comparable companies;
|
|
8)
|
the coupon payments;
|
|
9)
|
the quality, value and salability of collateral, if any, securing the security;
|
|
10)
|
the business prospects of the issuer, including any ability to obtain money or resources from a parent or affiliate and an assessment of the issuer’s management;
|
|
11)
|
the prospects for the issuer’s industry, and multiples (of earnings and/or cash flows) being paid for similar businesses in that industry; and
|
|
12)
|
other relevant factors.
|
The Fund is subject to
fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
|
•
|
Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
|
|
•
|
Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following:
|
|
o
|
Quoted prices for similar investments in active markets.
|
|
o
|
Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or
price quotations vary substantially either over time or among market makers, or in which little information is released publicly.
|
|
o
|
Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss
severities, credit risks, and default rates).
|
|
o
|
Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
Notes to Financial Statements (Continued)
First Trust Mortgage
Income Fund (FMY)
October 31, 2019
|
•
|
Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing
the investment.
|
The inputs or
methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value the Fund’s investments as of October
31, 2019, 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. Interest income is recorded daily on the accrual basis. Amortization of premiums and
accretion of discounts are recorded using the effective interest method.
The Fund invests in
interest-only securities. For these securities, if there is a change in the estimated cash flows, based on an evaluation of current information, then the estimated yield is adjusted. Additionally, if the evaluation of
current information indicates a permanent impairment of the security, the cost basis of the security is written down and a loss is recognized. Debt obligations may be placed on non-accrual status and the related
interest income may be reduced by ceasing current accruals and writing off interest receivables when the collection of all or a portion of interest has become doubtful based on consistently applied procedures. A debt
obligation is removed from non-accrual status when the issuer resumes interest payments or when collectability of interest is reasonably assured.
Securities purchased or
sold on a when-issued, delayed-delivery or forward purchase commitment basis may have extended settlement periods. The value of the security purchased is subject to market fluctuations during this period. The Fund
maintains liquid assets with a current value at least equal to the amount of its when-issued, delayed-delivery or forward purchase commitments until payment is made. At October 31, 2019, the Fund had no when-issued,
delayed-delivery or forward purchase commitments.
On July 27, 2017, the
Financial Conduct Authority (“FCA”) announced that it will no longer persuade or compel banks to submit rates for the calculations of the London Interbank Offered Rates (“LIBOR”) after 2021
(the “FCA Announcement”). Furthermore, in the United States, efforts to identify a set of alternative U.S. dollar reference interest rates include proposals by the Alternative References Rates Committee of
the Federal Reserve Board and the Federal Reserve Bank of New York. On August 24, 2017, the Federal Reserve Board requested public comment on a proposal by the Federal Reserve Bank of New York, in cooperation with the
Office of Financial Research, to produce three new reference rates intended to serve as alternatives to LIBOR. These alternative rates are based on overnight repurchase agreement transactions secured by U.S. Treasury
Securities. On December 12, 2017, following consideration of public comments, the Federal Reserve Board concluded that the public would benefit if the Federal Reserve Bank of New York published the three proposed
reference rates as alternatives to LIBOR (the “Federal Reserve Board Notice”).
At this time, it is not
possible to predict the effect of the FCA Announcement, the Federal Reserve Board Notice, or other regulatory changes or announcements, any establishment of alternative reference rates of any other reforms to LIBOR
that may be enacted in the United Kingdom, the United States or elsewhere. As such, the potential effect of any such event on the Fund cannot yet be determined.
C. Futures
Contracts
The Fund may purchase or
sell (i.e., is long or short) exchange-listed futures contracts to hedge against changes in interest rates (interest rate risk). Futures contracts are agreements between the Fund and a counterparty to buy or sell a
specific quantity of an underlying instrument at a specified price and at a specified date. Depending on the terms of the contract, futures contracts are settled either through physical delivery of the underlying
instrument on the settlement date or by payment of a cash settlement amount on the settlement date. Open futures contracts can also be closed out prior to settlement by entering into an offsetting transaction in a
matching futures contract. If the Fund is not able to enter into an offsetting transaction, the Fund will continue to be required to maintain margin deposits on the futures contract. When the contract is closed or
expires, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed or expired. This gain or loss is included
in “Net realized gain (loss) on futures” on the Statement of Operations.
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 contracts are
marked to market daily with the change in value recognized as a component of “Net change in unrealized appreciation (depreciation) on futures” on the Statement of Operations. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are included in “Variation
margin” payable or receivable on the Statement of Assets and Liabilities.
Notes to Financial Statements (Continued)
First Trust Mortgage
Income Fund (FMY)
October 31, 2019
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.
Restricted cash
segregated as collateral for futures contracts in the amount of $171,469 is shown as “Restricted Cash” on the Statement of Assets and Liabilities.
D. Inverse
Floating-Rate Securities
An inverse floating-rate
security is one where the coupon is inversely indexed to a short-term floating interest rate multiplied by a specific factor. As the floating rate rises, the coupon is reduced. Conversely, as the floating rate
declines, the coupon is increased. The price of these securities may be more volatile than the price of a comparable fixed-rate security. These instruments are typically used to enhance the yield of the portfolio and
have the effect of creating leverage. These securities, if any, are identified on the Portfolio of Investments.
E. Stripped
Mortgage-Backed Securities
Stripped Mortgage-Backed
Securities are created by segregating the cash flows from underlying mortgage loans or mortgage securities to create two or more new securities, each with a specified percentage of the underlying security’s
principal or interest payments. Mortgage securities may be partially stripped so that each investor class receives some interest and some principal. When securities are completely stripped, however, all of the
interest is distributed to holders of one type of security known as an interest-only security (“IO Security”) and all of the principal is distributed to holders of another type of security known as a
principal-only security. These securities, if any, are identified on the Portfolio of Investments.
F. Interest-Only
Securities
An IO Security is the
interest-only portion of a mortgage-backed security that receives some or all of the interest portion of the underlying mortgage-backed security and little or no principal. A reference principal value called a
notional value is used to calculate the amount of interest due to the IO Security. IO Securities are sold at a deep discount to their notional principal amount. Generally speaking, when interest rates are falling and
prepayment rates are increasing, the value of an IO Security will fall. Conversely, when interest rates are rising and prepayment rates are decreasing, generally the value of an IO Security will rise. These
securities, if any, are identified on the Portfolio of Investments.
G. Dividends and
Distributions to Shareholders
The Fund will distribute
to holders of its Common Shares monthly dividends of all or a portion of its net income after the payment of interest and dividends in connection with leverage, if any. Distributions of any net long-term capital gains
earned by the Fund are distributed at least annually. Distributions will automatically be reinvested into additional Common Shares pursuant to the Fund’s Dividend Reinvestment Plan unless cash distributions are
elected by the shareholder.
Distributions from net
investment income and realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically
adjusted for permanent differences in order to reflect their tax character. These permanent differences are primarily due to the varying treatment of income and gain/loss on portfolio securities held by the Fund and
have no impact on net assets or NAV per share. Temporary differences, which arise from recognizing certain items of income, expense and gain/loss in different periods for financial statement and tax purposes, will
reverse at some point in the future. Permanent differences incurred during the fiscal year ended October 31, 2019, resulting in book and tax accounting differences, have been reclassified at year end to reflect an
increase in accumulated net investment income (loss) of $89,675 and a decrease in accumulated net realized gain (loss) of $89,675. Accumulated distributable earnings (loss) consists of accumulated net investment
income (loss), accumulated net realized gain (loss) on investments, and unrealized appreciation (depreciation) on investments. Net assets were not affected by these reclassifications.
The tax character of
distributions paid by the Fund during the fiscal years ended October 31, 2019 and 2018, was as follows:
|
Distributions paid from:
|
2019
|
2018
|
|
Ordinary income
|
$2,109,890
|
$1,767,839
|
|
Capital gains
|
—
|
—
|
|
Return of capital
|
923,552
|
1,391,998
|
Notes to Financial Statements (Continued)
First Trust Mortgage
Income Fund (FMY)
October 31, 2019
As of October 31, 2019,
the components of distributable earnings and net assets on a tax basis were as follows:
|
Undistributed ordinary income
|
$—
|
|
Undistributed capital gains
|
—
|
|
Total undistributed earnings
|
—
|
|
Accumulated capital and other losses
|
(2,300,345)
|
|
Net unrealized appreciation (depreciation)
|
(1,518,153)
|
|
Total accumulated earnings (losses)
|
(3,818,498)
|
|
Other
|
—
|
|
Paid-in capital
|
66,650,037
|
|
Total net assets
|
$62,831,539
|
H. Income Taxes
The Fund intends to
continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, which includes distributing substantially all of its net
investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal and state income taxes. However, due to the timing and amount of distributions, the Fund may be subject to
an excise tax of 4% of the amount by which approximately 98% of the Fund’s taxable income exceeds the distributions from such taxable income for the calendar year.
Under the Regulated
Investment Company Modernization Act of 2010 (the “Act”), net capital losses arising in taxable years after December 22, 2010, may be carried forward indefinitely, and their character is retained as
short-term and/or long-term losses. Previously, net capital losses were carried forward for up to eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital
losses be used before pre-enactment net capital losses. At October 31, 2019, the Fund had no pre-enactment net capital losses for federal income tax purposes. At October 31, 2019, the Fund had post-enactment net
capital losses for federal income tax purposes of $2,300,345 to be carried forward indefinitely.
The Fund is subject to
certain limitations under the 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.
Certain losses realized
during the current fiscal year may be deferred and treated as occurring on the first day of the following fiscal year for federal income tax purposes. For the fiscal year ended October 31, 2019, the Fund did not incur
any net ordinary losses.
The Fund is subject to
accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. Taxable years ended 2016, 2017, 2018,
and 2019 remain open to federal and state audit. As of October 31, 2019, management has evaluated the application of these standards to the Fund and has determined that no provision for income tax is required in the
Fund’s financial statements for uncertain tax positions.
I. Expenses
The Fund will pay all
expenses directly related to its operations.
J. New Accounting
Pronouncements
On March 30, 2017, the
FASB issued Accounting Standards Update (“ASU”) 2017-08 “Premium Amortization on Purchased Callable Debt Securities,” which amends the amortization period for certain purchased callable debt
securities held at a premium by shortening such period to the earliest call date. The new guidance requires an entity to amortize the premium on a callable debt security within its scope to the earliest call date,
unless the guidance for considering estimated prepayments is applied. If the call option is not exercised at the earliest call date, the yield is reset to the effective yield using the payment terms of the security.
If the security has more than one call date and the premium was amortized to a call price greater than the next call price, any excess of the amortized cost basis over the amount repayable at the next call date will
be amortized to that date. If there are no other call dates, any excess of the amortized cost basis over the par amount will be amortized to maturity. Discounts on purchased callable debt securities will continue to
be amortized to the security’s maturity date. ASU 2017-08 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Earlier
adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the ASU in an interim period, any adjustments must be reflected as of the beginning of the fiscal year that
includes that interim period. Management is still assessing the impact of the adoption of ASU 2017-08 on the financial statements but does not expect it to have a material impact.
Notes to Financial Statements (Continued)
First Trust Mortgage
Income Fund (FMY)
October 31, 2019
On August 28, 2018, the
FASB issued ASU 2018-13, “Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” which amends the fair value measurement disclosure requirements of ASC 820. The
amendments of ASU 2018-13 include new, eliminated, and modified disclosure requirements of ASC 820. In addition, the amendments clarify that materiality is an appropriate consideration of entities when evaluating
disclosure requirements. The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption is permitted for any eliminated or modified disclosures upon issuance
of this ASU. The Fund has early adopted ASU 2018-13 for these financial statements, which did not result in a material impact.
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 Fund’s investment portfolio, managing the Fund’s business
affairs and providing certain administrative services necessary for the management of the Fund. For these investment management services, First Trust is entitled to a monthly fee calculated at an annual rate of 0.85%
of the Fund’s Managed Assets (the average daily total asset value of the Fund minus the sum of the Fund’s liabilities other than the principal amount of borrowings or reverse repurchase agreements, if
any). First Trust also provides fund reporting services to the Fund for a flat annual fee in the amount of $9,250.
BNY Mellon Investment
Servicing (US) Inc. (“BNYM IS”) serves as the Fund’s transfer agent in accordance with certain fee arrangements. As transfer agent, BNYM IS is responsible for maintaining shareholder records for the
Fund. The Bank of New York Mellon (“BNYM”) serves as the Fund’s administrator, fund accountant, and custodian in accordance with certain fee arrangements. As administrator and fund accountant, BNYM
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, BNYM is responsible for custody of the Fund’s assets. BNYM IS and BNYM are subsidiaries of The Bank of New York Mellon Corporation, a financial holding company.
Each Trustee who is not
an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund
Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, or is an index fund.
Additionally, the Lead
Independent Trustee and the Chairmen of the Audit Committee, Nominating and Governance Committee and Valuation Committee are paid annual fees to serve in such capacities, with such compensation allocated pro rata
among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Lead Independent Trustee and
Committee Chairmen rotate every three years. The officers and “Interested” Trustee receive no compensation from the Fund for acting in such capacities.
4. Purchases and
Sales of Securities
The cost of purchases of
U.S. Government securities and non-U.S. Government securities, excluding short-term investments, for the year ended October 31, 2019, were $33,930,501 and $8,882,234, respectively. The proceeds from sales and paydowns
of U.S. Government securities and non-U.S. Government securities, excluding short-term investments, for the year ended October 31, 2019, were $32,061,839 and $13,347,276, respectively.
Notes to Financial Statements (Continued)
First Trust Mortgage
Income Fund (FMY)
October 31, 2019
5. Derivative
Transactions
The following table
presents the type of derivatives held by the Fund at October 31, 2019, the primary underlying risk exposure and the location of these instruments as presented on the Statement of Assets and Liabilities.
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
Derivative
Instrument
|
|
Risk
Exposure
|
|
Statement of Assets and
Liabilities Location
|
|
Value
|
|
Statement of Assets and
Liabilities Location
|
|
Value
|
|
Futures
|
|
Interest Rate Risk
|
|
Unrealized appreciation
on futures contracts*
|
|
$ 26,656
|
|
Unrealized depreciation
on futures contracts*
|
|
$ 1,000
|
|
Options
|
|
Interest Rate Risk
|
|
Options contracts
purchased, at value
|
|
35,156
|
|
Options contracts
written, at value
|
|
—
|
* Includes cumulative
appreciation (depreciation) on futures contracts as reported in the Portfolio of Investments. Only the current day’s variation margin is reported within the Statement of Assets and Liabilities.
The following table
presents the amount of net realized gain (loss) and change in net unrealized appreciation (depreciation) recognized for the fiscal year ended October 31, 2019, on derivative instruments, as well as the primary
underlying risk exposure associated with each instrument.
|
Statement of Operations Location
|
|
|
Interest Rate Risk Exposure
|
|
|
Net realized gain (loss) on futures
|
$96,774
|
|
Net realized gain (loss) on purchased options
|
5,816
|
|
Net change in unrealized appreciation (depreciation) on futures
|
33,219
|
|
Net change in unrealized appreciation (depreciation) on purchased options
|
15,894
|
During the fiscal year
ended October 31, 2019, the notional value of futures contracts opened and closed were $8,899,421 and $9,000,718, respectively.
During the fiscal year
ended October 31, 2019, the premiums for purchased options contracts opened were $28,737, and the premiums for purchased options contracts closed, exercised and expired were $9,475.
The Fund does not have
the right to offset financial assets and liabilities related to futures contracts on the Statement of Assets and Liabilities.
6. 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.
7. Subsequent
Events
Management has evaluated
the impact of all subsequent events to the Fund through the date the financial statements were issued, and has determined that there were no subsequent events requiring recognition or disclosure in the financial
statements that have not already been disclosed.
Report of Independent
Registered Public Accounting Firm
To the Shareholders and the
Board of Trustees of First Trust Mortgage Income Fund:
Opinion on the Financial
Statements and Financial Highlights
We have audited the
accompanying statement of assets and liabilities of First Trust Mortgage Income Fund (the “Fund”), including the portfolio of investments, as of October 31, 2019, the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In
our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of October 31, 2019, and the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended in conformity with accounting principles
generally accepted in the United States of America.
Basis for Opinion
These financial
statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits
in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of
material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required
to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly,
we express no such opinion.
Our audits included
performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October
31, 2019, by correspondence with the custodian and brokers. We believe that our audits provide a reasonable basis for our opinion.
Chicago, Illinois
December 20, 2019
We have served as the
auditor of one or more First Trust investment companies since 2001.
Additional Information
First Trust Mortgage
Income Fund (FMY)
October 31, 2019
(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 BNY Mellon Investment Servicing (US) Inc. (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 BNY Mellon Investment Servicing (US) Inc., 301 Bellevue Parkway, Wilmington, Delaware
19809.
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 at www.ftportfolios.com; and (3) on the Securities and Exchange Commission’s (“SEC”) website at www.sec.gov.
Portfolio Holdings
The Fund files portfolio
holdings information for each month in a fiscal quarter within 60 days after the end of the relevant fiscal quarter on Form N-PORT. Portfolio holdings information for the third month of each fiscal quarter will be
publicly available on the
Additional Information (Continued)
First Trust Mortgage
Income Fund (FMY)
October 31, 2019
(Unaudited)
SEC’s website at www.sec.gov. The Fund’s complete schedule of portfolio holdings for the second and fourth quarters of each fiscal year is included in the semi-annual and
annual reports to shareholders, respectively, and is filed with the SEC on Form N-CSR. The semi-annual and annual report for the Fund is available to investors within 60 days after the period to which it relates. The
Fund’s Forms N-PORT and Forms N-CSR are available on the SEC’s website listed above.
Federal Tax
Information
Distributions paid to
foreign shareholders during the Fund’s fiscal year ended October 31, 2019, that were properly designated by the Fund as “interest-related dividends” or “short-term capital gain
dividends,” may not be subject to federal income tax provided that the income was earned by such foreign shareholders.
Of the ordinary income
(including short-term capital gain) distributions made by the Fund during the period ended October 31, 2019, none qualify for the corporate dividends received deduction available to corporate shareholders or as
qualified dividend income.
NYSE Certification
Information
In accordance with
Section 303A-12 of the New York Stock Exchange (“NYSE”) Listed Company Manual, the Fund’s President has certified to the NYSE that, as of April 11, 2019, he was not aware of any violation by the Fund
of NYSE corporate governance listing standards. In addition, the Fund’s reports to the SEC on Forms N-CSR and N-Q contain certifications by the Fund’s principal executive officer and principal financial
officer that relate to the Fund’s public disclosure in such reports and are required by Rule 30a-2 under the 1940 Act.
Submission of Matters to
a Vote of Shareholders
The Fund held its Annual
Meeting of Shareholders (the “Annual Meeting”) on April 8, 2019. At the Annual Meeting, James A. Bowen and Niel B. Nielson were elected by the Common Shareholders of First Trust Mortgage Income Fund as
Class III Trustees for a three-year term expiring at the Fund’s annual meeting of shareholders in 2022. The number of votes cast in favor of Mr. Bowen was 3,816,599, the number of votes against was 153,157 and
the number of broker non-votes was 243,359. The number of votes cast in favor of Mr. Nielson was 3,816,599, the number of votes against was 153,157 and the number of broker non-votes was 243,359. Robert F. Keith,
Richard E. Erickson and Thomas R. Kadlec are the other current and continuing Trustees.
Risk Considerations
The following discussion
summarizes certain (but not all) of the principal risks associated with investing in the Fund. The Fund is subject to the informational requirements of the Securities Exchange Act of 1934 and the Investment Company
Act of 1940 and, in accordance therewith, files reports, proxy statements and other information that is available for review. The order of the below risk factors does not indicate the significance of any particular
risk factor.
Credit Agency Risk. Credit ratings are determined by credit rating agencies and are only the opinions of such entities. Ratings assigned by a rating agency are not absolute standards of credit quality and do
not evaluate market risk or the liquidity of securities. Any shortcomings or inefficiencies in credit rating agencies’ processes for determining credit ratings may adversely affect the credit ratings of
securities held by the Fund and, as a result, may adversely affect those securities’ perceived or actual credit risk.
Credit and Below-Investment
Grade Securities Risk. Credit risk is the risk that the issuer of one or more securities in the Fund’s portfolio will fail to pay dividends or interest or repay principal when due. Below-investment grade
instruments, including instruments that are not rated but judged to be of comparable quality, are commonly referred to as high-yield securities or “junk” bonds and are considered speculative with respect
to the issuer’s capacity to pay dividends or interest and repay principal and are susceptible to default or decline in market value due to adverse economic and business developments. High-yield securities are
often unsecured and subordinated to other creditors of the issuer. The market values for high-yield securities tend to be very volatile, and these securities are generally less liquid than investment grade securities.
For these reasons, an investment in the Fund is subject to the following specific risks: (i) increased price sensitivity to changing interest rates and to a deteriorating economic environment; (ii) greater risk of
loss due to default or declining credit quality; (iii) adverse company specific events more likely to render the issuer unable to make dividend, interest and/or principal payments; (iv) negative perception of the
high-yield market which may depress the price and liquidity of high-yield securities; (v) volatility; and (vi) liquidity.
Cyber Security Risk. The Fund is susceptible to potential operational risks through breaches in cyber security. A breach in cyber security refers to both intentional and unintentional events that may cause the
Fund to lose proprietary information, suffer data corruption or lose operational capacity. Such events could cause the Fund to incur regulatory penalties, reputational damage, additional compliance costs associated
with corrective measures and/or financial loss. Cyber security breaches may involve unauthorized access to the Fund’s digital information systems through “hacking” or malicious software coding, but
may also result
Additional Information (Continued)
First Trust Mortgage
Income Fund (FMY)
October 31, 2019
(Unaudited)
from outside attacks such as
denial-of-service attacks through efforts to make network services unavailable to intended users. In addition, cyber security breaches of the Fund’s third-party service providers, such as its administrator,
transfer agent, custodian, or sub-advisor, as applicable, or issuers in which the Fund invests, can also subject the Fund to many of the same risks associated with direct cyber security breaches. The Fund has
established risk management systems designed to reduce the risks associated with cyber security. However, there is no guarantee that such efforts will succeed, especially because the Fund does not directly control the
cyber security systems of issuers or third party service providers.
Fixed-Income Securities
Risk. An investment in fixed-income securities is subject to certain risks, including:
|
•
|
Issuer Risk. The value of fixed-income securities may decline for a number of reasons which directly relate to the issuer, such as management performance, leverage and reduced demand for the
issuer’s goods and services.
|
|
•
|
Prepayment Risk. During periods of declining interest rates, the issuer of a security may exercise its option to prepay principal earlier than scheduled, forcing the Fund to reinvest the proceeds from such
prepayment in lower yielding securities, which may result in a decline in the Fund’s income and distributions to common shareholders.
|
|
•
|
Reinvestment Risk. Reinvestment risk is the risk that income from the Fund’s portfolio will decline if the Fund invests the proceeds from matured, traded or called bonds at market interest rates that
are below the Fund portfolio’s current earnings rate.
|
Futures Contracts
Risk. The primary risks associated with the use of futures contracts are (a) the imperfect correlation between the change in market value of the instruments or indices underlying the futures
contracts and the price of the futures contracts; (b) possible lack of a liquid secondary market for a futures contract and the resulting inability to close a futures contract when desired; (c) losses caused by
unanticipated market movements, which are potentially unlimited; (d) the investment adviser’s inability to predict correctly the direction of securities prices, interest rates, currency exchange rates and other
economic factors; and (e) the possibility that the counterparty will default in the performance of its obligations.
Illiquid and Restricted
Securities Risk. Investments in restricted securities could have the effect of increasing the amount of the Fund’s assets invested in illiquid securities if qualified institutional buyers are
unwilling to purchase these securities. 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.
Interest Rate and Duration
Risk. Interest rate risk is the risk that securities will decline in value because of changes in market interest rates. For fixed income securities, when market interest rates rise, the market
value of such securities generally will fall. During periods of rising interest rates, the average life of certain types of securities may be extended because of slower than expected prepayments. This may lock in a
below-market yield, increase the security’s duration and further reduce the value of the security. Fixed income securities with longer durations tend to be more sensitive to changes in interest rates, usually
making them more volatile than securities with shorter durations. Investments in fixed rate securities with long-term maturities may experience significant price declines if long-term interest rates
increase.
The interest rates
payable on floating rate securities are not fixed and may fluctuate based upon changes in market rates. As short-term interest rates decline, interest payable on floating rate securities typically decreases.
Alternatively, during periods of rising interest rates, interest payable on floating rate securities typically increases. Changes in interest rates on floating rate securities may lag behind changes in market rates or
may have limits on the maximum increases in interest rates. The value of floating rate securities may decline if their interest rates do not rise as much, or as quickly, as interest rates in general. Many financial
institutions use or may use a floating rate based upon the London Interbank Offered Rate (LIBOR), which is being phased out by the end of 2021. There remains some uncertainty regarding the future utilization of LIBOR
and the nature of any replacement rate.
In general, income on
inverse floating rate securities will decrease when interest rates increase and increase when interest rates decrease. Inverse floating rate securities generally will underperform the market for fixed rate securities
in a rising interest rate environment. An inverse floating rate security’s price may be more volatile than that of a fixed rate security.
In the case of stripped
mortgage-backed securities, in general, when interest rates are falling and prepayment rates are increasing, the value of a principal only security (“PO Security”) will rise and the value of an interest
only security (“IO Security”) will fall. Conversely, when interest rates are rising and prepayment rates are decreasing, in general, the value of a PO Security will fall and the value of an IO Security
will rise.
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. Leverage involves risks and special considerations for common shareholders including: the likelihood of
Additional Information (Continued)
First Trust Mortgage
Income Fund (FMY)
October 31, 2019
(Unaudited)
greater volatility of net asset value
and market price of the common shares than a comparable portfolio without leverage; the risk that fluctuations in interest rates on borrowings will reduce the return to the common shareholders or will result in
fluctuations in the dividends paid on the common shares; in a declining market, the use of leverage is likely to cause a greater decline in the net asset value of the common shares than if the Fund were not leveraged,
which may result in a greater decline in the market price of the common shares; and when the Fund uses certain types of leverage, the investment advisory fee payable to the Advisor and by the Advisor to the
Sub-Advisor will be higher than if the Fund did not use leverage.
Management Risk and
Reliance on Key Personnel. The implementation of the Fund’s investment strategy depends upon the continued contributions of certain key employees of the Advisor, some of whom have unique talents and experience
and would be difficult to replace. The loss or interruption of the services of a key member of the portfolio management team could have a negative impact on the Fund.
Market Discount from Net
Asset Value. Shares of closed-end investment companies such as the Fund frequently trade at a discount from their net asset value. The Fund cannot predict whether its common shares will trade at, below
or above net asset value.
Mortgage-Backed Securities
Risk. A mortgage-backed security may be negatively affected by the quality of the mortgages underlying such security and the structure of its issuer. For example, if a mortgage underlying a
particular mortgage-backed security defaults, the value of that security may decrease. Moreover, a downturn in the markets for residential or commercial real estate or a general economic downturn could negatively
affect both the price and liquidity of privately issued mortgage-backed securities. Mortgage-backed securities are subject to prepayment risk, which is the risk that the borrowers under the mortgage loans underlying a
Fund’s mortgage-backed securities might pay off their mortgage loans sooner than expected, which could happen when interest rates fall or for other reasons, which could cause the value of the Fund’s
mortgage-backed securities to fall. Moreover, if the underlying mortgage loans are paid off sooner than expected, the Fund may have to reinvest the proceeds in other securities that have lower yields. Mortgage-backed
securities are also subject to extension risk, which is the risk that rising interest rates could cause mortgages underlying the securities to be prepaid more slowly than expected, resulting in slower prepayments of
the securities. This would, in effect, convert a short or medium-duration mortgage-backed security into a longer-duration security, increasing its sensitivity to interest rate changes and likely causing its price to
decline. Mortgage-backed securities issued by a private issuer, such as commercial mortgage-backed securities, generally entail greater risk than obligations directly or indirectly guaranteed by the U.S. government or
a government-sponsored entity.
A portion of the
Fund’s managed assets may be invested in subordinated classes of mortgage-backed securities. Such subordinated classes are subject to a greater degree of non-payment risk than are senior classes of the same
issuer or agency. In addition, under certain market conditions, the market for subordinated classes of mortgage-backed securities may not be as liquid as the market for other fixed income securities.
Given its focus in
mortgage-backed securities, the Fund may be more susceptible to adverse economic, political and regulatory events that affect the value of real estate.
Potential Conflicts of
Interest Risk. First Trust and the portfolio managers have interests which may conflict with the interests of the Fund. In particular, First Trust currently manages and may in the future manage and/or
advise other investment funds or accounts with the same or substantially similar investment objectives and strategies as the Fund. In addition, while the Fund is using leverage, the amount of the fees paid to First
Trust for investment advisory and management services are higher than if the Fund did not use leverage because the fees paid are calculated based on managed assets. Therefore, First Trust has a financial incentive to
leverage the Fund.
Valuation Risk. The valuation of mortgage-backed securities may carry more risk than that of common stock. Uncertainties in the conditions of the financial markets, unreliable reference data, lack of
transparency and inconsistency of valuation models and processes may lead to inaccurate asset pricing.
Investment Management
Agreement
Board Considerations
Regarding Approval of Continuation of Investment Management Agreement
The Board of Trustees of
First Trust Mortgage Income Fund (the “Fund”), including the Independent Trustees, unanimously approved the continuation of the Investment Management Agreement (the “Agreement”) between the
Fund and First Trust Advisors L.P. (the “Advisor”). The Board approved the continuation of the Agreement for a one-year period ending June 30, 2020 at a meeting held on June 2, 2019. The Board determined
that the continuation of the Agreement is in the best interests of the Fund in light of the nature, extent and quality of the services provided and such other matters as the Board considered to be relevant in the
exercise of its reasonable business judgment.
Additional Information (Continued)
First Trust Mortgage
Income Fund (FMY)
October 31, 2019
(Unaudited)
To reach this
determination, the Board considered its duties under the Investment Company Act of 1940, as amended (the “1940 Act”), as well as under the general principles of state law, in reviewing and approving
advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisors with respect to advisory agreements and compensation; the standards used by courts in determining whether
investment company boards have fulfilled their duties; and the factors to be considered by the Board in voting on such agreements. At meetings held on April 18, 2019 and June 2, 2019, the Board, including the
Independent Trustees, reviewed materials provided by the Advisor responding to requests for information from counsel to the Independent Trustees, submitted on behalf of the Independent Trustees, that, among other
things, outlined: the services provided by the Advisor to the Fund (including the relevant personnel responsible for these services and their experience); the advisory fee rate payable by the Fund as compared to fees
charged to a peer group of funds (the “Expense Group”) and a broad peer universe of funds (the “Expense Universe”), each assembled by Broadridge Financial Solutions, Inc.
(“Broadridge”), an independent source, and as compared to fees charged to other clients of the Advisor; the expense ratio of the Fund as compared to expense ratios of the funds in the Fund’s Expense
Group and Expense Universe; performance information for the Fund, including comparisons of the Fund’s performance to that of one or more relevant benchmark indexes and to that of a performance group of funds and
a broad performance universe of funds (the “Performance Universe”), each assembled by Broadridge; the nature of expenses incurred in providing services to the Fund and the potential for economies of scale,
if any; financial data on the Advisor; any fall out benefits to the Advisor; and information on the Advisor’s compliance program. The Board reviewed initial materials with the Advisor at the meeting held on
April 18, 2019, prior to which the Independent Trustees and their counsel met separately to discuss the information provided by the Advisor. Following the April meeting, independent legal counsel on behalf of the
Independent Trustees requested certain clarifications and supplements to the materials provided, and the information provided in response to those requests was considered at an executive session of the Independent
Trustees and independent legal counsel held prior to the June 2, 2019 meeting, as well as at the meeting held that day. The Board applied its business judgment to determine whether the arrangement between the Fund and
the Advisor continues to be a reasonable business arrangement from the Fund’s perspective. The Board determined that, given the totality of the information provided with respect to the Agreement, the Board had
received sufficient information to renew the Agreement. The Board considered that shareholders chose to invest or remain invested in the Fund knowing that the Advisor manages the Fund.
In reviewing the
Agreement, the Board considered the nature, extent and quality of the services provided by the Advisor under the Agreement. The Board considered that the Advisor is responsible for the overall management and
administration of the Trust and the Fund and reviewed all of the services provided by the Advisor to the Fund, as well as the background and experience of the persons responsible for such services. The Board noted
that the Advisor’s Mortgage Securities Team is responsible for the day-to-day management of the Fund’s investments. The Board considered the background and experience of the members of the Mortgage
Securities Team and noted the Board’s prior meetings with members of the team. The Board considered the Advisor’s statement that it applies the same oversight model internally with its Mortgage Securities
Team as it uses for overseeing external sub-advisors, including portfolio risk monitoring and performance review. In reviewing the services provided, the Board noted the compliance program that had been developed by
the Advisor and considered that it includes a robust program for monitoring the Advisor’s and the Fund’s compliance with the 1940 Act, as well as the Fund’s compliance with its investment objectives,
policies and restrictions. The Board also considered a report from the Advisor with respect to its risk management functions related to the operation of the Fund. Finally, as part of the Board’s consideration of
the Advisor’s services, the Advisor, in its written materials and at the April 18, 2019 meeting, described to the Board the scope of its ongoing investment in additional infrastructure and personnel to maintain
and improve the quality of services provided to the Fund and the other funds in the First Trust Fund Complex. In light of the information presented and the considerations made, the Board concluded that the nature,
extent and quality of the services provided to the Fund by the Advisor under the Agreement have been and are expected to remain satisfactory and that the Advisor has managed the Fund consistent with its investment
objectives, policies and restrictions.
The Board considered the
advisory fee rate payable under the Agreement for the services provided. The Board received and reviewed information showing the advisory fee rates and expense ratios of the peer funds in the Peer Group, as well as
advisory and unitary fee rates charged by the Advisor to other fund and non-fund clients, as applicable. With respect to the Expense Group, the Board, at the April 18, 2019 meeting, discussed with Broadridge its
methodology for assembling peer groups and discussed with the Advisor limitations in creating a relevant peer group for the Fund, including that (i) the Fund is unique in its composition, which makes assembling peers
with similar strategies and asset mix difficult; and (ii) certain peer fund assets are larger than those of the Fund, in which case the comparison causes the fixed expenses of the Fund to be larger on a percentage
basis. The Board took these limitations into account in considering the peer data, and noted that the advisory fee rate payable by the Fund, based on average net assets, was above the median advisory fee of the peer
funds in the Expense Group. With respect to fees charged to other clients, the Board considered differences between the Fund and other clients that limited their comparability. In considering the advisory fee rate
overall, the Board also considered the Advisor’s statement that it seeks to meet investor needs through innovative and value-added investment solutions and the Advisor’s description of its long-term
commitment to the Fund.
The Board considered
performance information for the Fund. The Board noted the process it has established for monitoring the Fund’s performance and portfolio risk on an ongoing basis, which includes quarterly performance reporting
from the Advisor for the Fund.
Additional Information (Continued)
First Trust Mortgage
Income Fund (FMY)
October 31, 2019
(Unaudited)
The Board determined that this process
continues to be effective for reviewing the Fund’s performance. The Board received and reviewed information comparing the Fund’s performance for periods ended December 31, 2018 to the performance of funds
in the Performance Universe and to that of a benchmark index. In reviewing the Fund’s performance as compared to the performance of the Performance Universe, the Board took into account the limitations described
above with respect to creating a relevant peer group for the Fund. Based on the information provided on net asset value performance, the Board noted that the Fund outperformed the Performance Universe median for the
one and five year periods ended December 31, 2018 but underperformed the Performance Universe median for the three and ten year periods ended December 31, 2018. The Board also noted that the Fund outperformed the
benchmark index for the one-, three-, five-, and ten-year periods ended December 31, 2018. The Board also received information on the Fund’s annual distribution rate as of December 31, 2018 and the Fund’s
average trading discount for various periods and comparable information for a peer group.
On the basis of all the
information provided on the fees, expenses and performance of the Fund and the ongoing oversight by the Board, the Board concluded that the advisory fee continues to be reasonable and appropriate in light of the
nature, extent and quality of the services provided by the Advisor to the Fund under the Agreement.
The Board considered
information and discussed with the Advisor whether there were any economies of scale in connection with providing advisory services to the Fund and noted the Advisor’s statement that it believes its expenses
will likely increase over the next twelve months as the Advisor continues to hire personnel and build infrastructure, including technology, to improve the services to the Fund. The Board determined that due to the
Fund’s closed-end structure, the potential for realization of economies of scale as Fund assets grow was not a material factor to be considered. The Board considered the revenues and allocated costs (including
the allocation methodology) of the Advisor in serving as investment advisor to the Fund for the twelve months ended December 31, 2018 and the estimated profitability level for the Fund calculated by the Advisor based
on such data, as well as complex-wide and product-line profitability data, for the same period. The Board noted the inherent limitations in the profitability analysis and concluded that, based on the information
provided, the Advisor’s profitability level for the Fund was not unreasonable. In addition, the Board considered fall out benefits described by the Advisor that may be realized from its relationship with the
Fund, including the Advisor’s compensation for fund reporting services pursuant to a separate Fund Reporting Services Agreement. The Board concluded that the character and amount of potential fall-out benefits
to the Advisor were not unreasonable.
Based on all of the
information considered and the conclusions reached, the Board, including the Independent Trustees, unanimously determined that the terms of the Agreement continue to be fair and reasonable and that the continuation of
the Agreement is in the best interests of the Fund. No single factor was determinative in the Board’s analysis.
Board of Trustees and Officers
First Trust Mortgage
Income Fund (FMY)
October 31, 2019
(Unaudited)
The following tables
identify the Trustees and Officers of the Fund. Unless otherwise indicated, the address of all persons is 120 East Liberty Drive, Suite 400, Wheaton, IL 60187.
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Name, Year of Birth and Position with the Fund
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Term of Office and Year First Elected or Appointed(1)
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Principal Occupations
During Past 5 Years
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Number of Portfolios in the First Trust Fund Complex Overseen by Trustee
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Other Trusteeships or Directorships Held by Trustee During Past 5 Years
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INDEPENDENT TRUSTEES
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Richard E. Erickson, Trustee
(1951)
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• Three Year Term• Since Fund Inception
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Physician; Officer, Wheaton Orthopedics; Limited Partner, Gundersen Real Estate Limited Partnership (June 1992 to December 2016); Member, Sportsmed LLC (April 2007
to November 2015)
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162
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None
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Thomas R. Kadlec, Trustee
(1957)
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• Three Year Term• Since Fund Inception
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President, ADM Investor Services, Inc. (Futures Commission Merchant)
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162
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Director of ADM Investor Services, Inc., ADM Investor Services International, Futures Industry Association, and National Futures Association
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Robert F. Keith, Trustee
(1956)
|
• Three Year Term• Since June 2006
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President, Hibs Enterprises (Financial and Management Consulting)
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162
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Director of Trust Company of Illinois
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Niel B. Nielson, Trustee
(1954)
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• Three Year Term• Since Fund Inception
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Senior Advisor (August 2018 to Present), Managing Director and Chief Operating Officer (January 2015 to August 2018), Pelita Harapan Educational Foundation
(Educational Products and Services); President and Chief Executive Officer (June 2012 to September 2014), Servant Interactive LLC (Educational Products and Services); President and Chief Executive Officer (June 2012
to September 2014), Dew Learning LLC (Educational Products and Services)
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162
|
None
|
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INTERESTED TRUSTEE
|
James A. Bowen(2), Trustee and
Chairman of the Board
(1955)
|
• Three Year Term• Since Fund Inception
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Chief Executive Officer, First Trust Advisors L.P. and First Trust Portfolios L.P.; Chairman of the Board of Directors, BondWave LLC (Software
Development Company) and Stonebridge Advisors LLC (Investment Advisor)
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162
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None
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(1)
|
Currently, Robert F. Keith, as a Class I Trustee, is serving as a trustee until the Fund’s 2020 annual meeting of shareholders. Richard E. Erickson and Thomas R. Kadlec, as Class II Trustees, are
serving as trustees until the Fund’s 2021 annual meeting of shareholders. James A. Bowen and Niel B. Nielson, as Class III Trustees, are serving as trustees until the Fund’s 2022 annual meeting of
shareholders.
|
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(2)
|
Mr. Bowen is deemed an “interested person” of the Fund due to his position as CEO of First Trust Advisors L.P., investment advisor of the Fund.
|
Board of Trustees and Officers (Continued)
First Trust Mortgage
Income Fund (FMY)
October 31, 2019
(Unaudited)
|
Name and Year of Birth
|
Position and Offices with Fund
|
Term of Office and Length of Service
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Principal Occupations
During Past 5 Years
|
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OFFICERS(3)
|
James M. Dykas
(1966)
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President and Chief Executive Officer
|
• Indefinite Term
• Since January 2016
|
Managing Director and Chief Financial Officer (January 2016 to Present), Controller (January 2011 to January 2016), Senior Vice President (April 2007 to January 2016), First Trust
Advisors L.P. and First Trust Portfolios L.P.; Chief Financial Officer (January 2016 to Present), BondWave LLC (Software Development Company) and Stonebridge Advisors LLC (Investment Advisor)
|
Donald P. Swade
(1972)
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Treasurer, Chief Financial Officer and Chief Accounting Officer
|
• Indefinite Term
• Since January 2016
|
Senior Vice President (July 2016 to Present), Vice President (April 2012 to July 2016), First Trust Advisors L.P. and First Trust Portfolios L.P.
|
W. Scott Jardine
(1960)
|
Secretary and Chief Legal Officer
|
• Indefinite Term
• Since Fund Inception
|
General Counsel, First Trust Advisors L.P. and First Trust Portfolios L.P.; Secretary and General Counsel, BondWave LLC; Secretary, Stonebridge Advisors LLC
|
Daniel J. Lindquist
(1970)
|
Vice President
|
• Indefinite Term
• Since Fund Inception
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Managing Director, First Trust Advisors L.P. and First Trust Portfolios L.P.
|
Kristi A. Maher
(1966)
|
Chief Compliance Officer and Assistant Secretary
|
• Indefinite Term
• Chief Compliance Officer Since January 2011• Assistant Secretary Since Fund Inception
|
Deputy General Counsel, First Trust Advisors L.P. and First Trust Portfolios L.P.
|
|
(3)
|
The term “officer” means the president, vice president, secretary, treasurer, controller or any other officer who performs a policy making function.
|
Privacy Policy
First Trust Mortgage
Income Fund (FMY)
October 31, 2019
(Unaudited)
Privacy Policy
First Trust values our
relationship with you and considers your privacy an important priority in maintaining that relationship. We are committed to protecting the security and confidentiality of your personal information.
Sources of Information
We collect nonpublic
personal information about you from the following sources:
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•
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Information we receive from you and your broker-dealer, investment advisor or financial representative through interviews, applications, agreements or other forms;
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•
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Information about your transactions with us, our affiliates or others;
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•
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Information we receive from your inquiries by mail, e-mail or telephone; and
|
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•
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Information we collect on our website through the use of “cookies”. For example, we may identify the pages on our website that your browser requests or visits.
|
Information Collected
The type of data we
collect may include your name, address, social security number, age, financial status, assets, income, tax information, retirement and estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal information.
Disclosure of
Information
We do not disclose any
nonpublic personal information about our customers or former customers to anyone, except as permitted by law. In addition to using this information to verify your identity (as required under law), the permitted uses
may also include the disclosure of such information to unaffiliated companies for the following reasons:
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•
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In order to provide you with products and services and to effect transactions that you request or authorize, we may disclose your personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or other services on our behalf, such as transfer agents, custodians and trustees, or that assist us in the distribution of investor materials such as
trustees, banks, financial representatives, proxy services, solicitors and printers.
|
|
•
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We may release information we have about you if you direct us to do so, if we are compelled by law to do so, or in other legally limited circumstances (for example to protect your
account from fraud).
|
In addition, in order to
alert you to our other financial products and services, we may share your personal information within First Trust.
Use of Website
Analytics
We currently use third
party analytics tools, Google Analytics and AddThis, to gather information for purposes of improving First Trust’s website and marketing our products and services to you. These tools employ cookies, which are
small pieces of text stored in a file by your web browser and sent to websites that you visit, to collect information, track website usage and viewing trends such as the number of hits, pages visited, videos and PDFs
viewed and the length of user sessions in order to evaluate website performance and enhance navigation of the website. We may also collect other anonymous information, which is generally limited to technical and web
navigation information such as the IP address of your device, internet browser type and operating system for purposes of analyzing the data to make First Trust’s website better and more useful to our users. The
information collected does not include any personal identifiable information such as your name, address, phone number or email address unless you provide that information through the website for us to contact you in
order to answer your questions or respond to your requests. To find out how to opt-out of these services click on: Google Analytics and AddThis.
Confidentiality and
Security
With regard to our
internal security procedures, First Trust restricts access to your nonpublic personal information to those First Trust employees who need to know that information to provide products or services to you. We maintain
physical, electronic and procedural safeguards to protect your nonpublic personal information.
Policy Updates and
Inquiries
As required by federal
law, we will notify you of our privacy policy annually. We reserve the right to modify this policy at any time, however, if we do change it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at 1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust Advisors).
March 2019
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INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite
400
Wheaton, IL 60187
ADMINISTRATOR,
FUND ACCOUNTANT,
AND CUSTODIAN
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
TRANSFER AGENT
BNY Mellon Investment Servicing
(US) Inc.
301 Bellevue Parkway
Wilmington, DE 19809
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
Item 2. Code of Ethics.
|
(a)
|
|
The registrant, as of the end of the period covered by this report, has adopted a
code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant
or a third party.
|
|
(c)
|
|
There have been no amendments, during the period covered by this report, to a provision
of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed
by the registrant or a third party, and that relates to any element of the code of ethics description.
|
|
(d)
|
|
The registrant has not granted any waivers, including an implicit waiver, from a provision
of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed
by the registrant or a third party, that relates to one or more of the items set forth in paragraph (b) of this item’s instructions.
|
Item 3. Audit Committee Financial Expert.
As of the end of the period covered by the
report, the Registrant’s board of trustees has determined that Thomas R. Kadlec and Robert F. Keith are qualified to serve
as audit committee financial experts serving on its audit committee and that each of them is “independent,” as defined
by Item 3 of Form N-CSR.
Item 4. Principal Accountant Fees and Services.
|
(a)
|
|
Audit Fees (Registrant) -- The aggregate fees billed for each of the last two
fiscal years for professional services rendered by the principal accountant for the audit of the registrant’s annual financial
statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements
for those fiscal years were $45,000 for the fiscal year ended October 31, 2018 and $45,000 for the fiscal year ended October 31,
2019.
|
|
(b)
|
|
Audit-Related Fees (Registrant) -- The aggregate fees billed in each of the
last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance
of the audit of the registrant’s financial statements and are not reported under paragraph (a) of this Item were $0 for
the fiscal year ended October 31, 2018 and $0 for the fiscal year ended October 31, 2019.
|
Audit-Related
Fees (Investment Advisor) -- The aggregate fees billed in each of the last two fiscal years for assurance and related services
by the principal accountant that are reasonably related to the performance of the audit of the registrant’s financial statements
and are not reported under paragraph (a) of this Item were $0 for the fiscal year ended October 31, 2018 and $0 for the fiscal
year ended October 31, 2019.
|
(c)
|
|
Tax Fees (Registrant) -- The aggregate fees billed in each of the last two
fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning were
$21,700 for the fiscal year ended October 31, 2018 and $19,560 for the fiscal year ended October 31, 2019. These fees were for
tax return preparation and review.
|
Tax
Fees (Investment Advisor) -- The aggregate fees billed in each of the last two fiscal years for professional services rendered
by the principal accountant for tax compliance, tax advice, and tax planning were $0 for the fiscal year ended October 31, 2018
and $0 for the fiscal year ended October 31, 2019.
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(d)
|
|
All Other Fees (Registrant) -- The aggregate fees billed in each of the last
two fiscal years for products and services provided by the principal accountant to the Registrant, other than the services reported
in paragraphs (a) through (c) of this Item were $0 for the fiscal year ended October 31, 2018 and $0 for the fiscal year ended
October 31, 2019.
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All
Other Fees (Investment Adviser) The aggregate fees billed in each of the last two fiscal years for products and services provided
by the principal accountant to the Registrant, other than the services reported in paragraphs (a) through (c) of this Item were
$0 for the fiscal year ended October 31, 2018 and $0 for the fiscal year ended October 31, 2019.
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(e)(1)
|
|
Disclose the audit committee’s pre-approval policies and procedures described
in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
|
Pursuant to
its charter and its Audit and Non-Audit Services Pre-Approval Policy, the Audit Committee (the “Committee”)
is responsible for the pre-approval of all audit services and permitted non-audit services (including the fees and terms thereof)
to be performed for the registrant by its independent auditors. The Chairman of the Committee is authorized to give such pre-approvals
on behalf of the Committee up to $25,000 and report any such pre-approval to the full Committee.
The Committee
is also responsible for the pre-approval of the independent auditor’s engagements for non-audit services with the registrant’s
adviser (not including a sub-adviser whose role is primarily portfolio management and is sub-contracted or overseen by another
investment adviser) and any entity controlling, controlled by or under common control with the investment adviser that provides
ongoing services to the registrant, if the engagement relates directly to the operations and financial reporting of the registrant,
subject to the de minimis exceptions for non-audit services described in Rule 2-01 of Regulation S-X. If the independent
auditor has provided non-audit services to the registrant’s adviser (other than any sub-adviser whose role is primarily portfolio
management and is sub-contracted with or overseen by another investment adviser) and any entity controlling, controlled by or under
common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant
to its policies, the Committee will consider whether the provision of such non-audit services is compatible with the auditor’s
independence.
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(e)(2)
|
|
The percentage of services described in each of paragraphs (b) through (d) for the
Registrant and the Registrant’s investment adviser of this Item that were approved by the audit committee pursuant to the
pre-approval exceptions included in paragraph (c)(7)(i)(c) or paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X are as follows:
|
(b) 0%
(c) 0%
(d) 0%
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(f)
|
|
The percentage of hours expended on the principal accountant’s engagement to
audit the registrant’s financial statements for the most recent fiscal year that were attributed to work performed by persons
other than the principal accountant’s full-time, permanent employees was less than fifty percent.
|
|
(g)
|
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The aggregate non-audit fees billed by the registrant’s accountant for services
rendered to the registrant, and rendered to the registrant’s investment adviser (not including any sub-adviser whose role
is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling,
controlled by, or under common control with the adviser that provides ongoing services to the registrant for the Registrant’s
fiscal year ended October 31, 2018 were $21,700 for the Registrant and $48,190 for the Registrant’s investment adviser and
for the Registrant’s fiscal year ended October 31, 2019 were $19,560 for the Registrant and $28,500 for the Registrant’s
investment adviser.
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(h)
|
|
The registrant’s audit committee of the board of directors has considered whether
the provision of non-audit services that were rendered to the registrant’s investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the
principal accountant’s independence.
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Item 5. Audit Committee of Listed registrants.
|
(a)
|
|
The Registrant has a separately designated audit committee consisting of all the independent
directors of the Registrant. The members of the audit committee are: Thomas R. Kadlec, Niel B. Nielson, Richard E. Erickson and
Robert F. Keith.
|
Item 6. Investments.
|
(a)
|
|
Schedule of Investments in securities of unaffiliated
issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 of this form.
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Item 7. Disclosure of Proxy
Voting Policies and Procedures for Closed-End Management Investment Companies.
The Proxy Voting Policies are attached herewith.
Item 8. Portfolio Managers of Closed-End Management Investment
Companies.
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(a)(1)
|
|
Identification of Portfolio Manager(s) or Management Team Members and Description
of Role of Portfolio Manager(s) or Management Team Members.
|
Information provided as of October 31,
2019.
The Securitized Products Group of First
Trust Advisors L.P. is responsible for the day–to-day management of the registrant’s portfolio. The Securitized Products
group is led by Jim Snyder and Jeremiah Charles and was previously known as the Mortgage Securities Team.
Jim Snyder. Mr. Snyder is a Portfolio
Manager for the First Trust Securitized Products Group. Prior to joining First Trust in 2013, Mr. Snyder worked as a Senior Portfolio
Manager at Fort Sheridan Advisors where he managed mortgage portfolios for institutional clients. Mr. Snyder has led several mortgage
trading and portfolio groups at Deerfield Capital, Spyglass Capital & Trading and American Express Financial Advisors. Mr.
Snyder managed AXP Federal Income Fund and developed mortgage trading strategies for Spyglass Capital and Deerfield’s Mortgage
REIT and Opportunity Fund. Mr. Snyder holds a B.S. and M.A. in Economics from DePaul University and an MBA from University of Chicago
Booth School of Business.
Jeremiah Charles. Mr. Charles
is a Portfolio Manager for the First Trust Securitized Products Group. Prior to joining First Trust in 2013, Mr. Charles worked
as a Vice President of Mortgage Product Sales for CRT Capital where he advised pension funds, hedge funds, and institutional money
managers. Before joining CRT in 2011, Mr. Charles spent 6 years with Deerfield Capital Management LLC as a Senior Vice President
and Senior Portfolio Manager for the Mortgage Trading team. He began his professional career as an Analyst at Piper Jaffray. Mr.
Charles holds a B.S. in Finance from the Leeds School of Business at the University of Colorado, and a M.S. in Real Estate Finance
with Honors from the Charles H. Kellstadt Graduate School of Business at DePaul University.
|
(2)
|
|
Other Accounts Managed by Portfolio Managers or Management Team Member and Potential
Conflicts of Interest
|
Information provided as of October 31, 2019.
|
Name of Portfolio Manager or Team Member
|
Type of Accounts*
|
Total
# of Accounts Managed
|
Total Assets
|
# of Accounts Managed for which Advisory Fee is Based on Performance
|
Total Assets for which Advisory Fee is Based on Performance
|
|
|
|
|
|
|
|
|
1. Jeremiah Charles
|
Registered Investment Companies:
|
5
|
$4,640,948,073
|
0
|
$ 0
|
|
|
Other Pooled Investment Vehicles:
|
0
|
$ 0
|
0
|
$ 0
|
|
|
Other Accounts:
|
0
|
$ 0
|
0
|
$ 0
|
|
|
|
|
|
|
|
|
2. James Snyder
|
Registered Investment Companies:
|
5
|
$4,640,948,073
|
0
|
$ 0
|
|
|
Other Pooled Investment Vehicles:
|
0
|
$ 0
|
0
|
$ 0
|
|
|
Other Accounts:
|
0
|
$ 0
|
0
|
$ 0
|
Portfolio Manager Material Conflicts of Interest
Potential
conflicts of interest may arise when a portfolio manager of the Registrant has day-to-day management responsibilities with respect
to one or more other funds or other accounts. The First Trust Securitized Products Group adheres
to its trade allocation policy utilizing a pro-rata methodology to address this conflict.
First Trust and
its affiliate, First Trust Portfolios L.P. (“FTP”), have in place a joint Code of Ethics and Insider Trading Policies
and Procedures that are designed to (a) prevent First Trust personnel from trading securities based upon material inside information
in the possession of such personnel and (b) ensure that First Trust personnel avoid actual or potential conflicts of interest or
abuse of their positions of trust and responsibility that could occur through such activities as front running securities trades
for the Registrant. Personnel are required to have duplicate confirmations and account statements delivered to First Trust and
FTP compliance personnel who then compare such trades to trading activity to detect any potential conflict situations.
|
(3)
|
|
Compensation Structure of Portfolio Managers or Management Team Members
|
Portfolio Manager Compensation
Information provided as of October 31, 2019.
The
compensation structure for the Securitized Products Group of First
Trust is based upon a fixed salary as well as a discretionary bonus determined by the management of First Trust.
Salaries are determined by management and are based upon an individual’s
position and overall value to the firm. The compensation structure for internal portfolio managers is based upon a fixed salary
as well as a discretionary bonus determined by the management of FTA. Salaries are determined by management and are based upon
an individual’s position and overall value to the firm. Bonuses are also determined by management and are generally based
upon an individual’s overall contribution to the success of the firm and the profitability of the firm; however, assets under
management may be a factor in determining bonus pool size for certain portfolio manager groups. Salaries and bonuses are not based
on fund performance.
|
(4)
|
|
Disclosure of Securities Ownership
|
Information provided as of October 31, 2019.
|
Name
|
Dollar Range of Fund Shares Beneficially Owned
|
|
|
|
|
Jeremiah Charles
|
$0
|
|
James Snyder
|
$0
|
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 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. Disclosure of Securities Lending Activities for
Closed-End Management Investment Companies.
Item 13. Exhibits.
|
(a)
|
|
(1) Code of ethics, or any amendment thereto, that is the subject of disclosure
required by Item 2 is attached hereto.
|
|
(a)
|
|
(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302
of the Sarbanes-Oxley Act of 2002 are attached hereto.
|
|
(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 Mortgage Income Fund
|
|
|
|
By (Signature and Title)*
|
|
/s/
James M. Dykas
|
|
|
|
|
|
James M. Dykas, President and Chief Executive Officer
(principal executive officer)
|
|
|
Pursuant to the requirements of the Securities
Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
|
By (Signature and Title)*
|
|
/s/
James M. Dykas
|
|
|
|
|
|
James M. Dykas, President and Chief Executive Officer
(principal executive officer)
|
|
|
|
By (Signature and Title)*
|
|
/s/
Donald P. Swade
|
|
|
|
|
|
Donald P. Swade, Treasurer, Chief Financial Officer
and Chief Accounting Officer
(principal financial officer)
|
|
|
* Print the name and title of each signing officer under
his or her signature.
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