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)
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 7. Disclosure of Proxy
Voting Policies and Procedures for Closed-End Management Investment Companies.
FIRST TRUST ADVISORS L.P.
PROXY VOTING GUIDELINES
Rule 206(4)-6
requires advisers to adopt and implement policies and procedures reasonably designed to ensure any proxy voting on behalf of advisory
clients is conducted in a manner in the best interests of clients and address how conflicts of interest are managed between the
advisors interest and the interests of the client. In addition to adopting policies and procedures, advisers must disclose proxy
voting policies and procedure to its clients, offer to furnish a copy of its policies and procedures and inform clients on how
to obtain records of proxy votes cast on their behalf.
First Trust
Advisors L.P. (“FTA” or the “Adviser”) serves as investment adviser to separate managed accounts, open-
and closed-end investment companies, and other collective investments (the “Clients”). As part of these services, the
Adviser has, in most cases, agreed to be responsible for proxy voting on its Clients’ behalf. In fulfilling these duties,
the Adviser has adopted the following policies and procedures:
1. It is the Adviser’s
policy to seek and to ensure that proxies are voted consistently and in the best economic interests of the Client. FTA’s
Investment Committee is responsible for the implementation of this Policy.
2. The Adviser has contracted
with Institutional Shareholder Services (“ISS”) to provide proxy research, recommendations, and voting services. ISS
provides a password protected website which is accessible to authorized FTA personnel to download upcoming proxy meeting data,
including research reports, of companies held in Client portfolios. The website can be used to view the various Client accounts
for which FTA votes proxies, to view proposed proxy votes, to enter votes for upcoming meetings and to run various reports.
FTA typically
provides a file of the securities held in each Client account to ISS nightly. ISS uses this data to update the Client accounts
in their system.
3. FTA will follow the ISS
Proxy Voting Guidelines to vote proxies for Client accounts, so long as such guidelines are considered to be in the best interests
of the Client, and so long as there are no noted or perceived conflicts of interest. In certain circumstances, where FTA has determined
that it is consistent with the Client’s best interest, FTA will not take steps to ensure that proxies are voted on securities
in the Client’s accounts. The following are circumstances where this may occur:
(a) Limited Value.
Proxies will not be required to be voted on securities in a Client’s account if the value of the Client’s economic
interest in the securities is indeterminable or insignificant (less than $1,000). Proxies will also not be required to be voted
for any securities that are no longer held by the Client’s account.
(b) Securities
Lending Program. When securities are out on loan, they are transferred into the borrower’s name and are voted by the
borrower, in its discretion. In most cases, FTA will not take steps to see that loaned securities are recalled to be voted. However,
where FTA determines that a proxy vote, or other shareholder action, is materially important to the Client’s account, FTA
will make a good faith effort to recall the security for purposes of voting, understanding that in certain cases, the attempt to
recall the security may not be effective in time for voting deadlines to be met.
(c) Unjustifiable
Costs. In certain circumstances, after doing a cost-benefit analysis, FTA may choose not to vote where the cost of voting a
Client’s proxy would exceed any anticipated benefits to the Client of the proxy proposal (e.g. foreign securities).
(d) International
Markets Share Blocking. In international markets where share blocking applies, FTA typically will not, but reserves the right
to, vote proxies due to liquidity constraints. Share blocking is the “freezing” of shares for trading purposes at the
custodian/sub-custodian bank level in order to vote proxies. While shares are frozen, they may not be traded. Therefore, the potential
exists for a pending trade to fail if trade settlement falls on a date during the blocking period.
4. On a weekly basis, a
member of FTA’s Portfolio and Product Management Department reviews ISS’ Level Classification and Quality Score of
new proxies. For any proxy meeting deemed material1
a copy of the ISS research report will be downloaded and saved. All other matters will be reviewed only at the discretion of FTA’s
Investment Committee, Portfolio Management or Research. The downloaded ISS research reports are submitted to FTA’s Research
Department for review and to determine if they agree with ISS’ recommendations. Research will review ISS’ and the target
company’s management recommendation, and any information publicly available about the target company. This includes original
and subsequent amendments to ISS’ research report, EDGAR filings and any noted conflicts of interest. The Research Department’s
decision will be communicated to the Investment Committee.
For fund Clients relying on Section
12(d)(1)(F) of the 1940 Act or applicable exemptive relief, FTA will vote proxies for investment company securities held by such
funds in the same proportion as all other holders of such securities (i.e. mirror or echo voting) to the extent possible.
5. FTA may determine voting
in accordance with the ISS recommendations is not in the best interests of a Client. Whenever a conflict of interest arises between
ISS and a target company subject to a proxy vote, the Adviser will consider the recommendation of the company and what the Adviser
believes to be in the best interests of the Client and will vote the proxy without using the analyses of ISS. If FTA has knowledge
of a material conflict of interest between itself and a Client, the Adviser shall vote the applicable proxy in accordance with
the ISS recommendations to avoid such conflict of interest. If there is a decision to go against the ISS recommendation, the Investment
Committee will document the reasoning for the decision and instruct ISS to change its
1
Materiality is generally defined as any proxy with a Classification Level of 4 or higher or a target
company’s governance Quality Score of 10. See below for a description of Classification Levels. Quality Score indicates
a company’s governance risk (board structure, compensation programs, shareholder rights, and audit and risk oversight). The
lowest score of 1 indicates relatively higher quality governance practices and relatively lower governance risk and conversely,
the highest score of 10 indicates relatively higher governance risk.
With respect
to fund and variable annuity sub-account Clients, if there is a conflict of interest between fund shareholders and FTA or other
fund service providers, FTA will vote the proxy based on the recommendations of ISS to avoid such conflict of interest.
6. If a Client requests
the Adviser to follow specific voting guidelines or additional guidelines, the Adviser shall review the request and follow such
guidelines, unless the Adviser determines that it is unable to follow such guidelines. In such case, the Adviser shall inform the
Client that it is not able to follow the Client’s request.
7. FTA receives various
reports from ISS on a quarterly basis. These reports include, among other things, a vote summary of all votes cast during the prior
quarter, a list of all proxies that were not voted and the reason. FTA will periodically review a random sample of the votes recommended
by ISS to ensure they are consistent with the Voting Guidelines and report any inconsistencies to the Investment Committee. A list
of proxies not voted for the First Trust funds and reason why is provided to legal for inclusion in the quarterly First Trust funds
board book.
8. Any Client requests for
a copy of FTA’s proxy voting policies and procedures, voting guidelines, or voting results must be forwarded to Compliance
for review and response.
Shareholders
of any fund managed by FTA can review the proxy voting guidelines on the First Trust Fund’s website www.ftportfolios.com
and the funds voted proxies (if any) relating to portfolio securities during the most recent 12-month period ended June 30 is available
upon request or by accessing EDGAR from the SEC’s website at www.sec.gov FTA’s Proxy
Voting Policy Statement and Procedures will be provided with each advisory contract and will also be described and provided with
the Form ADV, Part 2A.
9. FTA shall provide reasonable
oversight of ISS. FTA will seek to ascertain whether ISS has the capacity and competency to adequately analyze proxy issues. Specific
oversight responsibilities will include the following:
(a) On at least an
annual basis, if not more frequent, the FTA will:
(i) conduct a due
diligence review of ISS;
(ii) review the adequacy
and quality of the proxy advisory firm’s staffing and personnel and technology;
(iii) monitor changes
to the ISS guidelines and disclosed conflicts of interest on at least an annual basis to determine that such guidelines and potential
conflicts continue to result in a proxy voting policy that is in the best interest of clients.
(iv) review whether
ISS has identified any recommendation based on a material factual error. If so, FTA’s Investment Committee shall investigate
the error and evaluate whether ISS is taking steps to mitigate making such errors in the future.
10. Recordkeeping
FTA will maintain
the following records relating to proxy voting:
(a) a copy of this
Policy;
(b) a copy of each
proxy form for which it is responsible to vote;
(c) a copy of each
proxy solicitation, including proxy statements and related materials with regard to each proxy issue it votes;
(d) documents relating
to the identification and resolution of conflicts of interest, if any;
(e) any documents
created by FTA that were material to a proxy voting decision or that memorialized the basis for that decision; and
(f) a copy of each
written request from any Client for information on how FTA voted proxies on the Client’s behalf, and a copy of any written
response by FTA to any written or oral request for information by a Client on how FTA voted proxies for that Client’s account.
11. ISS, on FTA’s
behalf, will maintain the following records relating to proxy voting:
(a) a copy of each
proxy form (as voted);
(b) a copy of each
proxy solicitation, including proxy statements and related materials with regard to each vote;
(c) documents relating
to the identification and resolution of conflicts of interest it identifies, if any; and
(d) any documents
created by ISS that were material to a proxy voting decision or that memorialized the basis for that decision.
12. These records are either
maintained at FTA’s office or are electronically available to FTA through access to ISS’s portal.
ISS Level Classification Descriptions
Level 1 – Election of directors
(except for proxy contests); fix number of directors; ratification of auditors; name change; change in date of time of meeting;
adjourn meeting; other business; can include shareholder proposals.
Level 2 – Employee stock purchase
plans; increase in stock (except for private placements); reverse stock splits; standard corporate governance provisions (declassifying
the board, supermajority votes, etc.); social/environmental/human rights proposals; standard mutual fund proposals (except for
advisory agreements, proposals to open-end the fund).
Level 3 – Compensation Plans.
Level 4 – Private Placements;
formation of a holding company; anti-takeover proposals (poison pills, fair price provisions, etc.); reincorporation; director
and officer liability indemnification; conversion of securities; liquidation of assets; mutual fund advisory agreements.
Level 5 – Mergers; acquisitions;
sale of assets; conversion of closed-end fund to open-end; reorganization; restructuring.
Level 6 – Proxy Contests.
|
Adopted:
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September 15, 2003
|
|
Amended:
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December 10, 2007
|
|
Amended:
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September 21, 2009
|
|
Amended:
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September 12, 2016
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Item 8. Portfolio Managers of Closed-End Management Investment
Companies.
(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 January 4,
2021.
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 has been led by Jim Snyder and Jeremiah Charles since 2013 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, 2020.
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
|
$7,346,472,599
|
0
|
$ 0
|
|
Other Pooled Investment Vehicles:
|
0
|
$ 0
|
0
|
$ 0
|
|
Other Accounts:
|
0
|
$ 0
|
0
|
$ 0
|
|
|
|
|
|
|
2. James Snyder
|
Registered Investment Companies:
|
5
|
$7,346,472,599
|
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, 2020.
The compensation
structure at First Trust is based on a fixed salary and discretionary bonus determined by First Trust management. Salaries are
based on each individual’s position and overall value to First Trust. Bonuses are determined by First Trust management and
are based on individual performance, the commitment to team performance and profitability, and the profitability of First Trust.
Certain internal portfolio managers have an indirect ownership stake in the firm and will therefore receive their allocable share
of ownership-related distributions.
(4) Disclosure
of Securities Ownership
Information provided as of October 31, 2020.
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.
On October 19, 2020, after a thorough
review, and consistent with the interests of the Fund, the Board of Trustees adopted Amended and Restated By-Laws, dated October
19, 2020 (the “Amended and Restated By-Laws”).
Among other changes, the Amended and
Restated By-Laws contain new timelines for advance notice of nominees for Trustee to be brought before a meeting of shareholders.
Further, the Amended and Restated By-Laws require compliance with certain procedural and informational requirements in connection
with the advance notice of nominations, including a requirement to provide certain information about the nominee, and if requested,
requires a nominee to sit for an interview with the Board to determine whether the nominee has the ability to critically review,
evaluate, question and discuss information provided to the Board, and interact effectively with the other Trustees and management
of the Fund, among other parties. Additionally, the Amended and Restated By-Laws include qualifications and eligibility requirements
for Trustees. Any shareholder considering making a nomination should carefully review and comply with those provisions of the Amended
and Restated By-Laws.
This discussion is only a high-level summary
of certain aspects of the Amended and Restated By-Laws, and is qualified in its entirety by reference to the Amended and Restated
By-Laws. Shareholders should refer to the Amended and Restated By-Laws for more information. A copy of the Amended and Restated
By-Laws can be found in the Current Report on Form 8-K filed by the Fund with the Securities and Exchange Commission on October
20, 2020, which is available at www.sec.gov, and may also be obtained by writing to the Secretary of the Fund at the Fund’s
principal executive office.