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
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First Trust Mortgage Income Fund
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(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Name and address of agent for service)
registrant's telephone number, including area code: 630-765-8000
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Date of fiscal year end: October 31
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Date of reporting period: October 31, 2016
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 100 F Street, NE,
Washington, DC 20549. The OMB has reviewed this collection of information under
the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The Report to Shareholders is attached herewith.
FIRST TRUST
MORTGAGE INCOME FUND (FMY)
ANNUAL REPORT
FOR THE YEAR ENDED
OCTOBER 31, 2016
FIRST TRUST
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TABLE OF CONTENTS
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FIRST TRUST MORTGAGE INCOME FUND (FMY)
ANNUAL REPORT
OCTOBER 31, 2016
Shareholder Letter.......................................................... 1
At a Glance................................................................. 2
Portfolio Commentary........................................................ 3
Portfolio of Investments.................................................... 4
Statement of Assets and Liabilities......................................... 10
Statement of Operations..................................................... 11
Statements of Changes in Net Assets......................................... 12
Statement of Cash Flows..................................................... 13
Financial Highlights........................................................ 14
Notes to Financial Statements............................................... 15
Report of Independent Registered Public Accounting Firm..................... 21
Additional Information...................................................... 22
Board of Trustees and Officers.............................................. 27
Privacy Policy.............................................................. 29
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 respective representatives, taking into account
the information currently available to them. Forward-looking statements include
all statements that do not relate solely to current or historical fact. For
example, forward-looking statements include the use of words such as
"anticipate," "estimate," "intend," "expect," "believe," "plan," "may,"
"should," "would" or other words that convey uncertainty of future events or
outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
First Trust 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 respective
representatives only as of the date hereof. We undertake no obligation to
publicly revise or update these forward-looking statements to reflect events and
circumstances that arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that the Fund will achieve its investment objectives. The
Fund is subject to market risk, which is the possibility that the market values
of securities owned by the Fund will decline and that the value of the Fund
shares may therefore be less than what you paid for them. Accordingly, you can
lose money by investing in the Fund. See "Risk Considerations" in the Additional
Information section of this report for a discussion of certain other risks of
investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
http://www.ftportfolios.com or speak with your financial advisor. Investment
returns, net asset value and common share price will fluctuate and Fund shares,
when sold, may be worth more or less than their original cost.
The Advisor may periodically provide additional information on Fund performance
on the Fund's webpage at http://www.ftportfolios.com.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment in
the Fund. It includes details about the Fund and presents data and analysis that
provide insight into the Fund's performance and investment approach.
By reading the portfolio commentary by the portfolio management team of the
Fund, you may obtain an understanding of how the market environment affected the
Fund's performance. The statistical information that follows may help you
understand the Fund's performance compared to that of the 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.
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SHAREHOLDER LETTER
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FIRST TRUST MORTGAGE INCOME FUND (FMY)
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
OCTOBER 31, 2016
Dear Shareholders:
Thank you for your investment in First Trust Mortgage Income Fund.
First Trust Advisors L.P. ("First Trust") is pleased to provide you with the
annual report which contains detailed information about your investment for the
12 months ended October 31, 2016, including a market overview and a performance
analysis for the period. We encourage you to read this report and discuss it
with your financial advisor.
Early in 2016, many investors were concerned that the volatility witnessed in
the stock market in 2015 would continue, and it did. During the first six months
of the year, one of the events that affected the global markets was the "Brexit"
vote (where citizens in the UK voted to leave the European Union). Just a few
days after the historic vote, the global equity markets rebounded to close June
30, 2016 at a combined market capitalization of $62 trillion. As of October 31,
2016, the S&P 500(R) Index was up 5.87% calendar year-to-date, according to
Bloomberg. From October 30, 2015 through October 31, 2016, the S&P 500(R) Index
was also in positive territory at 4.51%. The last few months have had investors
keenly watching the presidential election in anticipation of the outcome of the
vote and its effect on the stock market and economy. I will discuss that more in
my next letter.
The current bull market (measuring from March 9, 2009 through October 31, 2016)
is the second longest in history. First Trust believes that having a long-term
investment horizon and investing in quality products can help you reach your
goals, regardless of ups and downs in the market. We strive to provide quality
investment products, which has been one of the hallmarks of our firm since its
inception more than 25 years ago.
Thank you for giving First Trust the opportunity to be a part of your investment
plan. We value our relationship with you and will continue to focus on helping
investors like you reach your financial goals.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 1
FIRST TRUST MORTGAGE INCOME FUND (FMY)
"AT A GLANCE"
AS OF OCTOBER 31, 2016 (UNAUDITED)
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FUND STATISTICS
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Symbol on New York Stock Exchange FMY
Common Share Price $14.00
Common Share Net Asset Value ("NAV") $15.53
Premium (Discount) to NAV (9.85)%
Net Assets Applicable to Common Shares $65,436,838
Current Monthly Distribution per Common Share (1) $0.065
Current Annualized Distribution per Common Share $0.780
Current Distribution Rate on Closing Common Share Price (2) 5.57%
Current Distribution Rate on NAV (2) 5.02%
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COMMON SHARE PRICE & NAV (WEEKLY CLOSING PRICE)
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Common Share Price NAV
10/15 14.58 16.05
14.36 15.99
14.36 15.99
14.50 15.98
14.54 15.98
11/15 14.52 15.92
14.38 15.92
14.43 15.89
14.63 15.89
12/15 14.54 15.88
14.54 15.81
14.08 15.79
14.19 15.76
14.40 15.75
1/16 14.40 15.68
14.36 15.64
14.15 15.56
14.24 15.57
2/16 14.31 15.51
14.44 15.52
14.43 15.52
14.45 15.54
3/16 14.48 15.49
14.50 15.49
14.51 15.49
14.46 15.55
14.49 15.57
4/16 14.20 15.52
14.39 15.50
14.53 15.51
14.46 15.53
5/16 14.40 15.47
14.40 15.47
14.36 15.47
14.37 15.48
14.40 15.45
6/16 14.61 15.44
14.57 15.49
14.54 15.49
14.70 15.50
7/16 14.58 15.47
14.56 15.45
14.60 15.47
14.51 15.48
8/16 14.56 15.44
14.50 15.44
14.54 15.45
14.46 15.44
9/16 14.40 15.50
14.41 15.48
14.28 15.49
14.10 15.51
14.00 15.54
10/16 14.00 15.53
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PERFORMANCE
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Average Annual Total Return
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1 Year Ended 5 Years Ended 10 Years Ended Inception (5/25/05)
10/31/16 10/31/16 10/31/16 to 10/31/16
FUND PERFORMANCE (3)
NAV 3.05% 4.26% 6.35% 5.95%
Market Value 2.26% 1.58% 6.36% 4.58%
INDEX PERFORMANCE
Bloomberg Barclays U.S. Mortgage Backed
Securities (MBS) Index 3.27% 2.59% 4.55% 4.45%
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PORTFOLIO CHARACTERISTICS
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Weighted Average Effective Duration 1.06
Weighted Average Effective Maturity 4.08
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% OF TOTAL
ASSET CLASSIFICATION INVESTMENTS
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Mortgage-Backed Securities 68.37%
U.S. Government Agency MBS 21.02
Asset-Backed Securities 1.47
Cash & Cash Equivalents 9.14
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Total 100.00%
=======
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% OF TOTAL
FIXED-INCOME
CREDIT QUALITY (4) INVESTMENTS
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Government 21.02%
AAA 0.27
AA+ 14.34
AA 2.54
AA- 4.94
A+ 9.05
A 0.96
A- 1.28
BBB 1.79
BBB- 2.03
BB+ 0.86
BB- 4.69
B 1.06
B- 1.30
CCC 8.59
CC 3.05
D 3.36
NR 9.73
Cash & Cash Equivalents 9.14
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Total 100.00%
=======
(1) Most recent distribution paid or declared through 10/31/2016. Subject to
change in the future.
(2) Distribution rates are calculated by annualizing the most recent
distribution paid or declared through the report date and then dividing by
Common Share Price or NAV, as applicable, as of 10/31/2016. Subject to
change in the future.
(3) Total return is based on the combination of reinvested dividend, capital
gain and return of capital distributions, if any, at prices obtained by
the Dividend Reinvestment Plan and changes in NAV per share for NAV
returns and changes in Common Share Price for market value returns. Total
returns do not reflect sales load and are not annualized for periods of
less than one year. Past performance is not indicative of future results.
(4) 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. "NR" indicates no rating. 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.
NR Not Rated
Page 2
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PORTFOLIO COMMENTARY
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FIRST TRUST MORTGAGE INCOME FUND (FMY)
ANNUAL REPORT
OCTOBER 31, 2016 (UNAUDITED)
INVESTMENT MANAGER
First Trust Advisors L.P. ("First Trust") was established in 1991 and is located
in Wheaton, Illinois. First Trust is a registered investment advisor which
offers customized portfolio management using its structured, quantitative
approach to security selection. As of October 31, 2016, First Trust managed or
supervised $95.051 billion in assets. Effective September 19, 2016, the
portfolio management of the First Trust Mortgage Income Fund ("FMY" or the
"Fund") transitioned to the First Trust Mortgage Securities Team, led by Jim
Snyder and Jeremiah Charles. Prior to that date, Brookfield Investment
Management, Inc. ("Brookfield") served as the Fund's sub-advisor and was
responsible for the management of the Fund's portfolio. On September 19, 2016,
Schroder Investment Management North America Inc. acquired the portfolio
management team of Brookfield, 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.
PORTFOLIO MANAGEMENT TEAM
JEREMIAH CHARLES - VICE PRESIDENT, PORTFOLIO MANAGER
JIM SNYDER - 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 will seek to preserve capital. The
Fund will pursue its objectives by investing primarily in mortgage-backed
securities 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 longer maturity segment of the U.S. bond market rallied from October 31,
2015 through October 31, 2016, led by the 30-year Treasury, which saw its yield
decline by 34 basis points ("bps"). The long end outperformed the 5-year
Treasury, with a yield curve bull flattening of 13bps. The fiscal year began
with a significant rally in intermediate and long maturities and saw ongoing
rate volatility as the market reacted to a wavering Federal Reserve ("Fed") and
the shock of UK's vote to leave the European Union ("Brexit"). Post Brexit, the
market began to focus on improving U.S. fundamentals and the risk-off decline in
yield slowly dissipated. Mortgage-backed securities ("MBS") spreads tightened
modestly from October 31, 2015 through October 31, 2016, in 7bps to close at
15bps option-adjusted spread ("OAS"), as measured using the Bank of America
Merrill Lynch US Mortgage Backed Index calculations. This allowed MBS to
generally outperform Treasury securities of similar maturities on a price return
basis.
PERFORMANCE ANALYSIS
For the 12-month period ended October 31, 2016, the Fund returned 3.05% based on
net asset value ("NAV") and 2.26% based on market price. During the period, the
Fund's benchmark, the Bloomberg Barclays U.S. MBS Index returned 3.28%
Since taking over management of the Fund, early changes have been focused on
achieving two objectives. First, we have increased the Fund's position in
negative duration, interest-only securities, which we believe will help improve
the Fund's income and reduce the Fund's interest rate risk. Second, we have made
purchases to longer maturity, higher credit quality securities in anticipation
of a flatter yield curve and some expected deterioration in the relative
performance of lower credit quality, fully valued securities.
MARKET OUTLOOK
The fiscal year ended October 31, 2016 saw the Fed delay interest rates policy
normalization, possibly focused on political events and their corresponding
impacts on capital markets. The Brexit created a very short-term market
dislocation but was very quickly reversed. We expect that the Fed will finally
begin increasing the funding rate with a potential of a total of four hikes
during the 2016-2017 period. The labor markets have tightened substantially over
the past year, now accompanied by the long-awaited income and wage growth. The
numerous goal posts that the Fed has set as obstacles to normalization seem to
have been met, and therefore, we now see an impatient committee that is
signaling to the financial markets to be prepared for monetary tightening. We
are ready for the new regime.
Given our views and outlook on the markets, we plan to continue to manage the
Fund defensively versus the Fund's benchmark, the Bloomberg Barclays U.S. MBS
Index, from a duration standpoint, while maintaining our ongoing strategy of
barbelling our duration across the yield curve, with higher yielding, spread
assets allocated primarily to defensive short maturities. We continue to be
bearish on the benchmark and credit spreads in general, and as such, we plan to
upgrade quality in the Fund and to keep "powder dry" for expected widening in
spreads which often materialize in monetary tightening cycles.
Page 3
FIRST TRUST MORTGAGE INCOME FUND (FMY)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2016
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
--------------- ------------------------------------------------------- ---------- ---------- ---------------
MORTGAGE-BACKED SECURITIES - 69.1%
COLLATERALIZED MORTGAGE OBLIGATIONS - 52.8%
Accredited Mortgage Loan Trust
$ 412,995 Series 2003-2, Class A1............................. 4.98% 10/01/33 $ 422,287
ACE Securities Corp. Home Equity Loan Trust
1,055,072 Series 2006-ASAP6, Class A2D (a).................... 0.75% 12/25/36 585,395
Banc of America Mortgage Trust
54,419 Series 2002-L, Class 1A1 (a)........................ 2.50% 12/01/32 48,013
Chase Mortgage Finance Trust
287,272 Series 2007-A1, Class 1A3 (a)....................... 3.06% 02/01/37 284,450
Citigroup Mortgage Loan Trust
955,057 Series 2012-7, Class 10A2 (a) (b)................... 3.23% 09/01/36 882,517
Countrywide Asset-Backed Certificates
205,751 Series 2006-S8, Class A6............................ 5.51% 04/01/36 204,276
Countrywide Home Loan Mortgage Pass-Through Trust
573,028 Series 2003-46, Class 2A1 (a)....................... 3.20% 01/01/34 567,093
416,961 Series 2006-21, Class A8............................ 5.75% 02/01/37 375,818
706,429 Series 2006-HYB5, Class 3A1A (a).................... 3.10% 09/01/36 567,746
Credit Suisse First Boston Mortgage Securities Corp.
388,169 Series 2004-AR2, Class 1A1 (a)...................... 3.20% 03/01/34 381,471
745,527 Series 2004-AR8, Class 6A1 (a)...................... 2.91% 09/01/34 748,673
DSLA Mortgage Loan Trust
912,698 Series 2004-AR3, Class 2A2A (a)..................... 0.90% 07/19/44 886,365
962,410 Series 2007-AR1, Class 2A1A (a)..................... 0.67% 04/19/47 776,589
GMAC Mortgage Corporation Loan Trust
190,949 Series 2004-AR1, Class 22A (a)...................... 3.53% 06/01/34 187,635
GSR Mortgage Loan Trust
235,694 Series 2005-AR1, Class 4A1 (a)...................... 2.48% 01/01/35 225,949
Harborview Mortgage Loan Trust
549,681 Series 2004-6, Class 3A1 (a)........................ 3.41% 08/01/34 531,568
Home Equity Asset Trust
520,000 Series 2005-9, Class M1 (a)......................... 0.94% 04/25/36 481,966
Irwin Home Equity Loan Trust
259,394 Series 2006-3, Class 2A2 (b)........................ 5.83% 09/01/37 261,655
IXIS Real Estate Capital Trust
1,208,397 Series 2007-HE1, Class A3 (a)....................... 0.69% 05/25/37 434,648
JP Morgan Mortgage Trust
1,480,995 Series 2005-ALT1, Class 4A1 (a)..................... 3.12% 10/01/35 1,378,465
663,343 Series 2006-A2, Class 4A1 (a)....................... 3.18% 08/01/34 666,475
398,538 Series 2006-A2, Class 5A3 (a)....................... 2.97% 11/01/33 405,293
JP Morgan Re-REMIC
456,987 Series 2009-7, Class 12A1 (b)....................... 6.25% 01/01/37 467,721
MASTR Alternative Loan Trust
4,091,712 Series 2006-2, Class 2A3 (a)........................ 0.88% 03/25/36 803,527
MASTR Asset Backed Securities Trust
1,011,274 Series 2006-HE5, Class A3 (a)....................... 0.69% 11/25/36 668,813
1,504,422 Series 2006-NC2, Class A3 (a)....................... 0.64% 08/25/36 784,381
686,697 Series 2006-NC2, Class A5 (a)....................... 0.77% 08/25/36 369,181
Page 4 See Notes to Financial Statements
FIRST TRUST MORTGAGE INCOME FUND (FMY)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2016
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
--------------- ------------------------------------------------------- ---------- ---------- ---------------
MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Mellon Residential Funding Corp.
Mortgage Pass-Through Trust
$ 463,840 Series 2001-TBC1, Class A1 (a)...................... 1.23% 11/15/31 $ 434,513
433,048 Series 2002-TBC2, Class A (a)....................... 1.39% 08/15/32 413,168
Morgan Stanley Mortgage Loan Trust
331,436 Series 2004-7AR, Class 2A6 (a)...................... 2.96% 09/01/34 337,734
Nomura Asset Acceptance Corporation
839,011 Series 2004-AR4, Class M1 (a)....................... 1.13% 12/25/34 786,471
Nomura Resecuritization Trust
1,263,000 Series 2015-6R, Class 2A4 (a) (b)................... 7.20% 01/02/37 1,022,777
Provident Funding Mortgage Loan Trust
133,041 Series 2005-1, Class 1A1 (a)........................ 2.85% 05/01/35 132,929
Residential Accredit Loans, Inc
31,101,775 Series 2004-QS1, Class AV, IO (a)................... 0.40% 01/01/34 153,721
189,812 Series 2006-QO1, Class 2A1 (a)...................... 0.80% 02/25/46 113,587
2,344,248 Series 2006-QS6, Class 1AV, IO (a).................. 0.76% 06/01/36 70,697
Saxon Asset Securities Trust
1,087,553 Series 2007-2, Class A2D (a)........................ 0.83% 05/25/47 794,607
Springleaf Mortgage Loan Trust
174,681 Series 2013-3A, Class A (b)......................... 1.87% 09/01/57 175,053
850,000 Series 2013-3A, Class M3 (b)........................ 5.00% 09/01/57 849,913
Structured Adjustable Rate Mortgage Loan Trust
546,306 Series 2004-2, Class 4A2 (a)........................ 2.98% 03/01/34 547,378
Thornburg Mortgage Securities Trust
445,714 Series 2003-4, Class A1 (a)......................... 1.17% 09/25/43 431,466
Towd Point Mortgage Trust
854,197 Series 2015-2, Class 2A1 (a) (b).................... 3.75% 11/01/57 886,668
Wachovia Mortgage Loan Trust, LLC
519,658 Series 2006-A, Class 3A1 (a)........................ 3.02% 05/01/36 496,607
WaMu Mortgage Pass-Through Certificates
245,401 Series 2003-AR5, Class A7 (a)....................... 2.82% 06/01/33 248,155
631,704 Series 2004-AR1, Class A (a)........................ 2.79% 03/01/34 633,766
695,402 Series 2004-AR10, Class A1B (a)..................... 0.95% 07/25/44 665,885
546,691 Series 2004-AR13, Class A1A (a)..................... 1.25% 11/25/34 522,905
709,401 Series 2005-AR1, Class A1A (a)...................... 1.17% 01/25/45 669,827
1,027,598 Series 2005-AR11, Class A1A (a)..................... 0.85% 08/25/45 959,908
974,971 Series 2005-AR6, Class 2A1A (a)..................... 0.76% 04/25/45 922,211
419,567 Series 2005-AR9, Class A1A (a)...................... 1.17% 07/25/45 401,360
687,687 Series 2006-AR2, Class 1A1 (a)...................... 2.48% 03/01/36 640,507
Washington Mutual Alternative Mortgage
Pass-Through Certificates
35,350 Series 2007-5, Class A11 (c)........................ 36.28% 06/25/37 81,753
Washington Mutual MSC Mortgage
Pass-Through Certificates
486,291 Series 2004-RA1, Class 2A........................... 7.00% 03/01/34 532,589
See Notes to Financial Statements Page 5
FIRST TRUST MORTGAGE INCOME FUND (FMY)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2016
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
--------------- ------------------------------------------------------- ---------- ---------- ---------------
MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Wells Fargo Mortgage Backed Securities Trust
$ 471,172 Series 2003-H, Class A1 (a)......................... 3.02% 09/01/33 $ 470,048
616,993 Series 2004-A, Class A1 (a)......................... 2.88% 02/01/34 622,303
1,242,320 Series 2004-R, Class 1A1 (a)........................ 3.03% 09/01/34 1,256,060
316,010 Series 2004-S, Class A1 (a)......................... 3.03% 09/01/34 322,217
627,429 Series 2004-Y, Class 1A2 (a)........................ 2.95% 11/01/34 620,794
315,214 Series 2005-AR10, Class 2A17 (a).................... 2.98% 06/01/35 325,675
651,911 Series 2005-AR16, Class 1A1 (a)..................... 3.06% 08/01/33 669,320
301,523 Series 2005-AR3, Class 2A1 (a)...................... 3.10% 03/01/35 304,100
501,763 Series 2005-AR8, Class 1A1 (a)...................... 3.04% 06/01/35 509,292
582,281 Series 2006-13, Class A5............................ 6.00% 10/01/36 587,113
205,178 Series 2007-16, Class 1A1........................... 6.00% 12/04/37 212,968
291,109 Series 2007-2, Class 1A13........................... 6.00% 03/01/37 289,370
72,338 Series 2007-8, Class 2A2............................ 6.00% 07/01/37 72,268
---------------
34,585,653
---------------
COMMERCIAL MORTGAGE-BACKED SECURITIES - 16.3%
Banc of America Commercial Mortgage Trust
1,000,000 Series 2006-6, Class AJ............................. 5.42% 10/01/45 998,915
650,000 Series 2007-3, Class AJ, STRIP...................... 5.55% 06/01/49 659,914
Bayview Commercial Asset Trust
560,868 Series 2004-2, Class A (a) (b)...................... 0.96% 08/25/34 518,928
BXHTL Mortgage Trust
800,000 Series 2015-JWRZ, Class B (a) (d)................... 2.24% 05/15/29 795,884
COMM Mortgage Trust
150,000 Series 2007-C9, Class AJ............................ 5.65% 12/01/49 153,547
Greenwich Capital Commercial Funding Corp.
700,000 Series 2007-GG11, Class AJ.......................... 6.03% 12/01/49 700,458
Hudsons Bay Simon JV Trust
510,000 Series 2015-HBFL, Class DFL (a) (b)................. 4.17% 08/05/34 504,675
Hyatt Hotel Portfolio Trust
1,040,000 Series 2015-HYT, Class B (a) (b).................... 2.23% 11/15/29 1,040,879
JP Morgan Chase Commercial Mortgage Securities Corp
113,947 Series 2007-CB18, Class A4.......................... 5.44% 06/01/47 114,251
LB-UBS Commercial Mortgage Trust
210,000 Series 2007-C1, Class AJ............................ 5.48% 02/11/40 210,319
835,000 Series 2007-C1, Class AM............................ 5.46% 02/11/40 839,459
440,000 Series 2007-C2, Class AM............................ 5.49% 02/11/40 446,112
Morgan Stanley Capital I Trust
540,000 Series 2007-T25, Class AM........................... 5.54% 11/01/49 542,151
UBS-Barclays Commercial Mortgage Trust
14,952,487 Series 2013-C5, Class XA, IO (a) (b)................ 1.05% 03/01/46 748,886
Wachovia Bank Commercial Mortgage Trust
740,000 Series 2007-C30, Class AJ........................... 5.41% 12/01/43 740,156
650,000 Series 2007-C33, Class AJ, STRIP.................... 5.96% 02/01/51 651,140
Page 6 See Notes to Financial Statements
FIRST TRUST MORTGAGE INCOME FUND (FMY)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2016
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
--------------- ------------------------------------------------------- ---------- ---------- ---------------
MORTGAGE-BACKED SECURITIES (CONTINUED)
COMMERCIAL MORTGAGE-BACKED SECURITIES (CONTINUED)
Waldorf Astoria Boca Raton Trust
$ 1,000,000 Series 2016-BOCA, Class E (a) (d)................... 4.88% 06/15/29 $ 1,001,486
---------------
10,667,160
---------------
TOTAL MORTGAGE-BACKED SECURITIES.................................................... 45,252,813
(Cost $45,734,218) ---------------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 21.3%
COLLATERALIZED MORTGAGE OBLIGATIONS - 10.0%
Federal Home Loan Mortgage Corp.
1,197,666 Series 2807, Class SB, IO (c)....................... 6.92% 11/15/33 169,126
2,284,797 Series 2975, Class SJ, IO (c)....................... 6.12% 05/15/35 436,027
13,874 Series 3195, Class SX (c)........................... 42.68% 07/15/36 56,863
762,725 Series 3619, Class EI, IO........................... 4.50% 05/01/24 19,121
504,681 Series 3692, Class PS, IO (c)....................... 6.07% 05/15/38 19,799
2,035,544 Series 3726, Class KI, IO........................... 3.50% 04/01/25 105,719
1,599,717 Series 3870, Class WS, IO (c)....................... 6.07% 06/15/31 196,824
654,920 Series 3898, Class NI, IO........................... 5.00% 07/01/40 46,519
1,302,787 Series 4206, Class IA, IO........................... 3.00% 03/01/33 178,023
520,209 Series 4615, Class GT (c)........................... 4.00% 10/15/42 541,879
Federal National Mortgage Association
180,182 Series 2003-15, Class MS, IO (c).................... 7.47% 03/25/33 43,674
369,720 Series 2005-122, Class SN (c)....................... 26.46% 01/25/36 413,721
15,454 Series 2008-50, Class AI, IO........................ 5.50% 06/01/23 625
2,592,075 Series 2010-103, Class ID, IO....................... 5.00% 09/01/40 369,875
3,902,465 Series 2010-139, Class KI, IO....................... 1.09% 12/01/40 189,406
109,985 Series 2010-142, Class PS, IO (c)................... 5.52% 05/25/40 3,762
528,206 Series 2010-145, Class TI, IO....................... 3.50% 12/01/20 25,978
931,932 Series 2010-40, Class MI, IO........................ 4.50% 08/01/24 16,675
2,807,771 Series 2012-112, Class BI, IO....................... 3.00% 09/01/31 251,966
2,311,035 Series 2012-125, Class MI, IO....................... 3.50% 11/01/42 411,543
3,101,718 Series 2013-32, Class IG, IO........................ 3.50% 04/01/33 413,400
2,362,777 Series 2015-76, Class BI, IO........................ 4.00% 10/01/39 275,356
5,830,822 Series 2015-97, Class AI, IO........................ 4.00% 09/01/41 845,139
Federal National Mortgage Association, STRIP
1,693,714 Series 406, Class 6, IO............................. 4.00% 01/01/41 265,277
Government National Mortgage Association
104,582 Series 2005-68, Class DP (c)........................ 15.07% 06/17/35 137,768
314,552 Series 2009-65, Class NJ, IO........................ 5.50% 07/01/39 23,091
1,523,997 Series 2010-115, Class IQ, IO....................... 4.50% 11/01/38 80,136
715,000 Series 2010-61, Class KE............................ 5.00% 05/01/40 894,514
1,990,461 Series 2011-131, Class EI, IO....................... 4.50% 08/01/39 66,727
---------------
6,498,533
---------------
See Notes to Financial Statements Page 7
FIRST TRUST MORTGAGE INCOME FUND (FMY)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2016
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
--------------- ------------------------------------------------------- ---------- ---------- ---------------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COMMERCIAL MORTGAGE-BACKED SECURITIES - 0.3%
Government National Mortgage Association
$ 218,000 Series 2013-57, Class D............................. 2.35% 06/01/46 $ 201,617
---------------
201,617
---------------
PASS-THROUGH SECURITIES - 11.0%
Federal Home Loan Mortgage Corp.
988,290 Gold Pool........................................... 3.00% 08/01/46 1,018,610
729,929 Pool A94738......................................... 4.50% 11/01/40 801,148
553,110 Pool K36017......................................... 5.00% 09/01/47 601,967
Federal National Mortgage Association
1,181,087 Pool 831145......................................... 6.00% 12/01/35 1,360,836
1,150,052 Pool 843971......................................... 6.00% 11/01/35 1,345,310
981,571 Pool AS9194......................................... 4.50% 12/01/44 1,095,748
951,945 Pool AT2720......................................... 3.00% 05/01/43 985,472
---------------
7,209,091
---------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES............................. 13,909,241
(Cost $16,862,165) ---------------
ASSET-BACKED SECURITIES - 1.5%
Green Tree Financial Corp.
10,876 Series 1997-2, Class A6............................. 7.24% 06/15/28 10,880
26,279 Series 1997-3, Class A6............................. 7.32% 03/15/28 27,262
21,502 Series 1997-7, Class A6............................. 6.76% 07/15/28 21,789
Mid-State Capital Corp. Trust
489,506 Series 2004-1, Class M1............................. 6.50% 08/01/37 530,893
353,304 Series 2005-1, Class A.............................. 5.75% 01/01/40 381,114
---------------
TOTAL ASSET-BACKED SECURITIES....................................................... 971,938
(Cost $987,120) ---------------
TOTAL INVESTMENTS - 91.9%........................................................... 60,133,992
(Cost $63,583,503) (e)
NET OTHER ASSETS AND LIABILITIES - 8.1%............................................. 5,302,846
---------------
NET ASSETS - 100.0%................................................................. $ 65,436,838
===============
Page 8 See Notes to Financial Statements
FIRST TRUST MORTGAGE INCOME FUND (FMY)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2016
-----------------------------
(a) Floating or variable rate security. The interest rate shown reflects the
rate in effect at October 31, 2016.
(b) This security, sold within the terms of a private placement memorandum, is
exempt from registration upon resale under Rule 144A of 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.
("First Trust" or the "Advisor"), the Fund's advisor. Although market
instability can result in periods of increased overall market illiquidity,
liquidity for each security is determined based on security specific
factors and assumptions, which require subjective judgment. At October 31,
2016, securities noted as such amounted to $7,359,672, or 11.25% of net
assets.
(c) Inverse floating rate instrument. The interest rate shown reflects the
rate in effect at October 31, 2016.
(d) This security, sold within the terms of a private placement memorandum, is
exempt from registration upon resale under Rule 144A of the 1933 Act, and
may be resold in transactions exempt from registration, normally to
qualified institutional buyers (see Note 2C - Restricted Securities in the
Notes to Financial Statements).
(e) Aggregate cost for federal income tax purposes is $63,698,974. As of
October 31, 2016, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$1,313,742 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$4,878,724.
IO Interest-Only Security - Principal amount shown represents par value on
which interest payments are based.
STRIP Separate Trading of Registered Interest and Principal of Securities
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of October 31,
2016 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
10/31/2016 PRICES INPUTS INPUTS
------------ ------------ ------------- ------------
Mortgage-Backed Securities......................... $ 45,252,813 $ -- $ 45,252,813 $ --
U.S. Government Agency Mortgage-Backed Securities.. 13,909,241 -- 13,909,241 --
Asset-Backed Securities............................ 971,938 -- 971,938 --
------------ ------------ ------------- ------------
Total Investments.................................. $ 60,133,992 $ -- $ 60,133,992 $ --
============ ============ ============= ============
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at October 31, 2016.
See Notes to Financial Statements Page 9
FIRST TRUST MORTGAGE INCOME FUND (FMY)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2016
ASSETS:
Investments, at value
(Cost $63,583,503).......................................................................... $ 60,133,992
Cash........................................................................................... 5,262,525
Restricted cash................................................................................ 788,066
Interest receivable............................................................................ 278,380
------------
Total Assets................................................................................ 66,462,963
------------
LIABILITIES:
Payables:
Investment securities purchased............................................................. 891,069
Audit and tax fees.......................................................................... 50,200
Investment advisory fees.................................................................... 46,982
Printing fees............................................................................... 10,943
Administrative fees......................................................................... 7,942
Transfer agent fees......................................................................... 7,306
Custodian fees.............................................................................. 7,119
Trustees' fees and expenses................................................................. 1,435
Legal fees.................................................................................. 823
Financial reporting fees.................................................................... 773
Other liabilities.............................................................................. 1,533
------------
Total Liabilities........................................................................... 1,026,125
------------
NET ASSETS..................................................................................... $ 65,436,838
============
NET ASSETS CONSIST OF:
Paid-in capital................................................................................ $ 73,952,951
Par value...................................................................................... 42,131
Accumulated net investment income (loss)....................................................... (115,471)
Accumulated net realized gain (loss) on investments............................................ (4,993,262)
Net unrealized appreciation (depreciation) on investments...................................... (3,449,511)
------------
NET ASSETS..................................................................................... $ 65,436,838
============
NET ASSET VALUE, per Common Share outstanding (par value $0.01 per Common Share)............... $ 15.53
============
Number of Common Shares outstanding (unlimited number of Common Shares has been authorized).... 4,213,115
============
Page 10 See Notes to Financial Statements
FIRST TRUST MORTGAGE INCOME FUND (FMY)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2016
INVESTMENT INCOME:
Interest....................................................................................... $ 893,166
------------
Total investment income..................................................................... 893,166
------------
EXPENSES:
Investment advisory fees....................................................................... 683,015
Audit and tax fees............................................................................. 54,351
Administrative fees............................................................................ 51,092
Transfer agent fees............................................................................ 40,628
Printing fees.................................................................................. 25,263
Interest expense on reverse repurchase agreements.............................................. 25,073
Trustees' fees and expenses.................................................................... 17,371
Custodian fees................................................................................. 14,020
Financial reporting fees....................................................................... 9,252
Legal fees..................................................................................... 3,774
Other.......................................................................................... 41,720
------------
Total expenses.............................................................................. 965,559
------------
NET INVESTMENT INCOME.......................................................................... (72,393)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments..................................................... 416,597
Net change in unrealized appreciation (depreciation) on investments......................... 1,287,288
------------
NET REALIZED AND UNREALIZED GAIN (LOSS)........................................................ 1,703,885
------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................ $ 1,631,492
============
See Notes to Financial Statements Page 11
FIRST TRUST MORTGAGE INCOME FUND (FMY)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE FOR THE
YEAR YEAR
ENDED ENDED
10/31/2016 10/31/2015
-------------- --------------
OPERATIONS:
Net investment income (loss)........................................................ $ (72,393) $ 4,296,840
Net realized gain (loss)............................................................ 416,597 (1,637,322)
Net change in unrealized appreciation (depreciation)................................ 1,287,288 (2,431,118)
-------------- --------------
Net increase (decrease) in net assets resulting from operations..................... 1,631,492 228,400
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................................... (2,266,839) (1,990,325)
Return of capital................................................................... (1,567,096) (2,307,052)
-------------- --------------
Total distributions to shareholders................................................. (3,833,935) (4,297,377)
-------------- --------------
Total increase (decrease) in net assets............................................. (2,202,443) (4,068,977)
NET ASSETS:
Beginning of period................................................................. 67,639,281 71,708,258
-------------- --------------
End of period....................................................................... $ 65,436,838 $ 67,639,281
============== ==============
Accumulated net investment income (loss) at end of period........................... $ (115,471) $ 1,284,635
============== ==============
CAPITAL TRANSACTIONS WERE AS FOLLOWS:
Common Shares at end of period...................................................... 4,213,115 4,213,115
============== ==============
Page 12 See Notes to Financial Statements
FIRST TRUST MORTGAGE INCOME FUND (FMY)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED OCTOBER 31, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) in net assets resulting from operations..................... $ 1,631,492
Adjustments to reconcile net increase (decrease) in net assets resulting from
operations to net cash used in operating activities:
Purchases of investments...................................................... (31,546,523)
Sales, maturities and paydowns on investments................................. 34,832,097
Net amortization/accretion of premiums/discounts on investments............... 3,022,198
Net realized gain/loss on investments......................................... (416,597)
Net change in unrealized appreciation/depreciation on investments............. (1,287,288)
CHANGES IN ASSETS AND LIABILITIES:
Increase in interest receivable............................................... (16,998)
Decrease in prepaid expenses.................................................. 5,689
Decrease in interest payable on reverse repurchase agreements................. (2,597)
Decrease in investment advisory fees payable.................................. (15,009)
Increase in legal fees payable................................................ 54
Increase in printing fees payable............................................. 763
Decrease in administrative fees payable....................................... (9,433)
Increase in custodian fees payable............................................ 3,613
Increase in transfer agent fees payable....................................... 3,761
Increase in Trustees' fees and expenses payable............................... 33
Increase in financial reporting fees payable.................................. 2
Increase in other liabilities payable......................................... 521
--------------
CASH PROVIDED BY OPERATING ACTIVITIES........................................... $ 6,205,778
--------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to Common Shareholders from net investment income............... (2,266,839)
Distributions to Common Shareholders from return of capital................... (1,567,096)
Repurchases of reverse repurchase agreements.................................. (48,611,020)
Reverse repurchase agreements borrowings...................................... 43,302,020
--------------
CASH USED IN FINANCING ACTIVITIES............................................... (9,142,935)
--------------
Decrease in cash.................................................................... (2,937,157)
Cash at beginning of period......................................................... 8,199,682
--------------
CASH AT END OF PERIOD............................................................... $ 5,262,525
==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest............................................ $ 27,670
==============
See Notes to Financial Statements Page 13
FIRST TRUST MORTGAGE INCOME FUND (FMY)
FINANCIAL HIGHLIGHTS
FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------
2016 (a) 2015 2014 2013 2012
----------- ----------- ----------- ----------- -----------
Net asset value, beginning of period....... $ 16.05 $ 17.02 $ 17.63 $ 17.91 $ 18.43
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)............... (0.02) 1.02 1.02 1.25 1.28
Net realized and unrealized gain (loss).... 0.41 (0.97) (0.61) (0.28) 0.17
------- ------- ------- ------- -------
Total from investment operations........... 0.39 0.05 0.41 0.97 1.45
------- ------- ------- ------- -------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income...................... (0.54) (0.47) (1.02) (1.25) (2.03)
Return of capital.......................... (0.37) (0.55) -- -- --
------- ------- ------- ------- -------
Total distributions to Common
Shareholders............................ (0.91) (1.02) (1.02) (1.25) (2.03)
------- ------- ------- ------- -------
Premium from shares sold in Common Share
offering................................ -- -- -- -- 0.06
------- ------- ------- ------- -------
Net asset value, end of period............. $ 15.53 $ 16.05 $ 17.02 $ 17.63 $ 17.91
======= ======= ======= ======= =======
Market value, end of period................ $ 14.00 $ 14.58 $ 15.12 $ 15.79 $ 19.00
======= ======= ======= ======= =======
TOTAL RETURN BASED ON NET ASSET VALUE (b).. 3.05% 1.06% 3.01% (c) 6.04% (c) 8.30%
======= ======= ======= ======= =======
TOTAL RETURN BASED ON MARKET VALUE (b)..... 2.26% 3.34% 2.17% (10.47)% 11.86%
======= ======= ======= ======= =======
-----------------------------
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)....... $65,437 $67,639 $71,708 $74,259 $75,439
Ratio of total expenses to average net
assets.................................. 1.47% 1.55% 1.78% 1.96% 2.47%
Ratio of total expenses to average net
assets excluding interest expense....... 1.43% 1.51% 1.72% 1.83% 2.20%
Ratio of net investment income (loss) to
average net assets...................... (0.11)% 6.18% 5.84% 7.01% 7.28%
Portfolio turnover rate.................... 49% 46% 54% 109% 52%
-----------------------------
(a) Effective September 19, 2016, the portfolio management of the Fund
transitioned to the 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.
(c) The Fund received reimbursements from Brookfield in the amount of $1,180
and $5,310 for the years ended October 31, 2014 and 2013, respectively. The
reimbursements from Brookfield represent less than $0.01 per share and had
no effect on the Fund's total return.
Page 14 See Notes to Financial Statements
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST MORTGAGE INCOME FUND (FMY)
OCTOBER 31, 2016
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
(the "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 these objectives by investing primarily in mortgage-backed securities
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 that the Fund's investment objectives will
be achieved. The Fund may not be appropriate for all investors.
2. SIGNIFICANT ACCOUNTING POLICIES
The Fund is considered an investment company and follows accounting and
reporting guidance under Financial Accounting Standards Board Accounting
Standards Codification Topic 946, "Financial Services-Investment Companies." The
following is a summary of significant accounting policies consistently followed
by the Fund in the preparation of its financial statements. The preparation of
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 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.
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 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.
Page 15
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MORTGAGE INCOME FUND (FMY)
OCTOBER 31, 2016
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 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:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
The inputs or methodologies used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of October 31, 2016, is
included with the Fund's Portfolio of Investments.
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 the accretion of discounts are recorded using the effective interest method.
Page 16
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST MORTGAGE INCOME FUND (FMY)
OCTOBER 31, 2016
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 so 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, 2016 the Fund had no when-issued,
delayed-delivery or forward purchase commitments.
C. RESTRICTED SECURITIES
The Fund invests in restricted securities, which are securities that may not be
offered for public sale without first being registered under the 1933 Act. Prior
to registration, restricted securities may only be resold in transactions exempt
from registration under Rule 144A under the 1933 Act, normally to qualified
institutional buyers. As of October 31, 2016, the Fund held restricted
securities as shown in the following table that the Advisor has deemed illiquid
pursuant to procedures adopted by the Fund's Board of Trustees. Although market
instability can result in periods of increased overall market illiquidity,
liquidity for each security is determined based on security-specific factors and
assumptions, which require subjective judgment. The Fund does not have the right
to demand that such securities be registered. These securities are valued
according to the valuation procedures as stated in the Portfolio Valuation note
(Note 2A) and are not expressed as a discount to the carrying value of a
comparable unrestricted security. There are no unrestricted securities with the
same maturity dates and yields for these issuers.
% of
Acquisition Principal Current Carrying Net
SECURITY Date Value Price Cost Value Assets
-------------------------------------------------------------------------------------------------------------------
BXHTL Mortgage Trust, Series
2015-JWRZ, Class B 6/19/15 $ 800,000 $ 99.49 $ 800,000 $ 795,884 1.22%
Waldorf Astoria Boca Raton Trust,
Series 2016-BOCA, Class E 7/12/16 1,000,000 100.15 1,000,000 1,001,486 1.53
----------- ----------- ------
$ 1,800,000 $ 1,797,370 2.75%
=========== =========== ======
D. REVERSE REPURCHASE AGREEMENTS
During the period November 1, 2015 to July 27, 2016, reverse repurchase
agreements were utilized as leverage for the Fund. A reverse repurchase
agreement, although structured as a sale and repurchase obligation, acts as
financing under which Fund assets are pledged as collateral to secure a
short-term loan. Generally, the other party to the agreement makes the loan in
an amount equal to a percentage of the market value of the pledged collateral.
At the maturity of the reverse repurchase agreement, the loan will be repaid and
the collateral will correspondingly be received back by the Fund. While used as
collateral, the assets continue to pay principal and interest which are for the
benefit of the Fund.
Restricted cash in the amount of $788,066, as shown on the Statement of Assets
and Liabilities, is pledged as collateral for reverse repurchase agreements.
Information for the period during which reverse repurchase agreements were
outstanding:
Maximum amount outstanding during the period.................. $ 5,309,000
Average amount outstanding during the period*................. $ 5,031,413
Average Common Shares outstanding during the period........... 4,213,115
Average debt per Common Share outstanding during the period... $ 1.19
* The average amount outstanding during the period was calculated by adding the
borrowings at the end of each day and dividing the sum by the number of days
during which reverse repurchase agreements were outstanding in the year ended
October 31, 2016.
During the year ended October 31, 2016, the interest rates ranged from 0.42% to
0.75%, with a weighted average interest rate of 0.66%, on borrowings by the Fund
under reverse repurchase agreements, which had interest expense that aggregated
$25,073.
Page 17
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST MORTGAGE INCOME FUND (FMY)
OCTOBER 31, 2016
E. 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.
F. 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.
G. 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.
H. 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 income and capital gains are determined in accordance with
federal income tax regulations, which may differ from U.S. GAAP. Certain capital
accounts in the financial statements are periodically adjusted for permanent
differences in order to reflect their tax character. These permanent differences
are primarily due to the varying treatment of income and gain/loss on portfolio
securities held by the Fund and have no impact on net assets or NAV per share.
Temporary differences, which arise from recognizing certain items of income,
expense and gain/loss in different periods for financial statement and tax
purposes, will reverse at some point in the future. Permanent differences
incurred during the fiscal year ended October 31, 2016, primarily as a result of
differing book/tax treatment on recognition of amortization/accretion on
portfolio holdings, have been reclassified at year end to reflect an increase in
accumulated net investment income (loss) by $939,126 and a decrease in
accumulated net realized gain (loss) on investments by $939,126. Net assets were
not affected by this reclassification.
The tax character of distributions paid during the fiscal year ended October 31,
2016, and 2015, was as follows:
Distributions paid from: 2016 2015
Ordinary income................................ $ 2,266,839 $ 1,990,325
Capital gain................................... -- --
Return of capital.............................. 1,567,096 2,307,052
As of October 31, 2016, the 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........... (4,993,262)
Net unrealized appreciation (depreciation)..... (3,564,982)
--------------
Total accumulated earnings (losses)............ (8,558,244)
Other.......................................... --
Paid-in capital................................ 73,995,082
--------------
Net assets..................................... $ 65,436,838
==============
Page 18
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST MORTGAGE INCOME FUND (FMY)
OCTOBER 31, 2016
I. 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, 2016, the Fund had pre-enactment net capital
losses for federal income tax purposes of $3,349,872. At October 31, 2016, the
Fund had post-enactment net capital losses for federal income tax purposes of
$1,643,390 to be carried forward indefinitely. The pre-enactment net capital
losses for federal income tax purposes will expire as follows:
EXPIRATION DATE AMOUNT
October 31, 2017 $ 1,927,985
October 31, 2018 $ 1,421,887
During the taxable year ended October 31, 2016, the Fund did not utilize any
pre-enactment capital loss carryforwards.
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.
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 2013, 2014,
2015 and 2016 remain open to federal and state audit. As of October 31, 2016,
management has evaluated the application of these standards to the Fund and has
determined that no provision for income tax is required in the Fund's financial
statements for uncertain tax positions.
J. EXPENSES
The Fund will pay all expenses directly related to its operations.
K. NEW AND AMENDED FINANCIAL REPORTING RULES AND FORMS
On October 13, 2016, the SEC adopted new rules and forms, and amended existing
rules and forms. The new and amended rules and forms are intended to modernize
the reporting of information provided by funds and to improve the quality and
type of information that funds provide to the SEC and investors. The new and
amended rules and forms will be effective for the First Trust funds, including
the Fund, for reporting periods beginning on and after June 1, 2018. Management
is evaluating the new and amended rules and forms to determine the impact to the
Fund.
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Fund, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the 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.
Prior to September 19, 2016, Brookfield Investment Management Inc.
("Brookfield") served as the Fund's sub-advisor and managed the Fund's portfolio
subject to First Trust's supervision. Brookfield received a portfolio management
fee equal to an annual rate of 0.50% of the Fund's Managed Assets that was paid
monthly by First Trust from its investment advisory fee.
Page 19
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST MORTGAGE INCOME FUND (FMY)
OCTOBER 31, 2016
Effective September 19, 2016, the portfolio management of the Fund transitioned
to the First Trust Mortgage Securities Team. Schroder Investment Management
North America Inc. acquired the portfolio management team of Brookfield,
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.
BNY Mellon Investment Servicing (US) Inc. ("BNYM IS") serves as the Fund's
administrator, fund accountant and transfer agent in accordance with certain fee
arrangements. As administrator and fund accountant, BNYM IS 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 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 custodian in accordance with certain
fee arrangements. 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. Prior to January 1, 2016, the fixed annual retainer was allocated pro
rata based on each fund's net assets. Each Independent Trustee is also paid an
annual per fund fee that varies based on whether the fund is a closed-end or
other actively managed fund, or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee are paid
annual fees to serve in such capacities, with such compensation allocated pro
rata among each fund in the First Trust Fund Complex based on net assets.
Independent Trustees are reimbursed for travel and out-of-pocket expenses in
connection with all meetings. The Lead Independent Trustee and Committee
Chairmen rotate every three years. The officers and "Interested" Trustee receive
no compensation from the Fund for acting in such capacities.
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,
2016, were $22,019,339 and $8,360,291, 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, 2016, were
$19,128,642 and $15,703,455, respectively.
5. 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.
6. SUBSEQUENT EVENT
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 was
the following subsequent event:
On November 21, 2016, the Fund declared a distribution of $0.065 per share to
Common Shareholders of record on December 5, 2016, payable December 12, 2016.
Page 20
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FIRST TRUST MORTGAGE INCOME FUND:
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, 2016, and the related statements of operations and cash flows
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of October 31, 2016, by correspondence with the Fund's
custodian and brokers; where replies were not received from brokers, we
performed other auditing procedures. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
First Trust Mortgage Income Fund as of October 31, 2016, the results of its
operations and its cash flows for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended, in conformity
with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Chicago, Illinois
December 20, 2016
Page 21
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST MORTGAGE INCOME FUND (FMY)
OCTOBER 31, 2016 (UNAUDITED)
DIVIDEND REINVESTMENT PLAN
If your Common Shares are registered directly with the Fund or if you hold your
Common Shares with a brokerage firm that participates in the Fund's Dividend
Reinvestment Plan (the "Plan"), unless you elect, by written notice to the Fund,
to receive cash distributions, all dividends, including any capital gain
distributions, on your Common Shares will be automatically reinvested by 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 securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Fund's website located at http://www.ftportfolios.com; and (3) on the
Securities and Exchange Commission's ("SEC") website at http://www.sec.gov.
Page 22
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST MORTGAGE INCOME FUND (FMY)
OCTOBER 31, 2016 (UNAUDITED)
PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q
are available (1) by calling (800) 988-5891; (2) on the Fund's website located
at http://www.ftportfolios.com; (3) on the SEC's website at http://www.sec.gov;
and (4) for review and copying at the SEC's Public Reference Room ("PRR") in
Washington, DC. Information regarding the operation of the PRR may be obtained
by calling (800) SEC-0330.
NYSE CERTIFICATION INFORMATION
In accordance with Section 303A-12 of the New York Stock Exchange ("NYSE")
Listed Company Manual, the Fund's President has certified to the NYSE that, as
of April 26, 2016, he was not aware of any violation by the Fund of NYSE
corporate governance listing standards. In addition, the Fund's reports to the
SEC on Forms N-CSR, N-CSRS and N-Q contain certifications by the Fund's
principal executive officer and principal financial officer that relate to the
Fund's public disclosure in such reports and are required by Rule 30a-2 under
the 1940 Act.
TAX INFORMATION
Of the ordinary income (including short-term capital gain) distributions made by
the Fund during the year ended October 31, 2016, none qualify for the corporate
dividends received deduction available to corporate shareholders or as qualified
dividend income.
SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
The Joint Annual Meeting of Shareholders of the Common Shares of Macquarie/First
Trust Global Infrastructure/Utilities Dividend & Income Fund, First Trust Energy
Income and Growth Fund, First Trust Enhanced Equity Income Fund, First
Trust/Aberdeen Global Opportunity Income Fund, First Trust Mortgage Income Fund,
First Trust Strategic High Income Fund II, First Trust/Aberdeen Emerging
Opportunity Fund, First Trust Specialty Finance and Financial Opportunities
Fund, First Trust High Income Long/Short Fund, First Trust Energy Infrastructure
Fund, First Trust MLP and Energy Income Fund, First Trust Intermediate Duration
Preferred & Income Fund and First Trust New Opportunities MLP & Energy Fund was
held on April 22, 2016 (the "Annual Meeting"). At the Annual Meeting, James A.
Bowen and Niel B. Nielson were elected by the Common Shareholders of the First
Trust Mortgage Income Fund as Class III Trustees for a three-year term expiring
at the Fund's annual meeting of shareholders in 2019. The number of votes cast
in favor of Mr. Bowen was 3,339,139, the number of votes against was 352,697 and
the number of broker non-votes was 521,279. The number of votes cast in favor of
Mr. Nielson was 3,332,225, the number of votes against was 359,611 and the
number of broker non-votes was 521,279. Richard E. Erickson, Thomas R. Kadlec
and Robert F. Keith are the other current and continuing Trustees.
RISK CONSIDERATIONS
Risks are inherent in all investing. The following summarizes some of the risks
that should be considered for the Fund. For additional information about the
risks associated with investing in the Fund, please see the Fund's prospectus
and statement of additional information, as well as other Fund regulatory
filings.
FIXED-INCOME SECURITIES RISK: Debt securities, including high yield securities,
are subject to certain risks, including: (i) issuer risk, which is the risk that
the value of fixed-income securities may decline for a number of reasons which
directly relate to the issuer, such as management performance, financial
leverage and reduced demand for the issuer's goods and services or, in the case
of asset-backed issuers, a decline in the value and/or cash flows of the
underlying assets; (ii) reinvestment risk, which is the risk that income from
the Fund's portfolio will decline if the proceeds from matured, traded or called
bonds are invested at market interest rates that are below the Fund portfolio's
current earnings rate; and (iii) credit risk, which is the risk that a security
in the Fund's portfolio will decline in price or the issuer fails to make
interest payments when due because the issuer of the security experiences a
decline in its financial status.
INTEREST RATE RISK: The Fund may also hold MBS which are Stripped
Mortgage-Backed Securities, IO securities and PO securities. Generally speaking,
when interest rates are falling and prepayment rates are increasing, the value
of a PO security will rise and the value of an IO security will fall.
Conversely, when interest rates are rising and prepayment rates are decreasing,
generally the value of a PO security will fall and the value of an IO security
will rise.
INVESTMENT AND MARKET RISK: An investment in the Fund's Common Shares is subject
to investment risk, including the possible loss of the entire principal
invested. An investment in Common Shares represents an indirect investment in
the securities owned by the Fund. The value of these securities, like other
market investments, may move up or down, sometimes rapidly and unpredictably.
Common Shares at any point in time may be worth less than the original
investment, even after taking into account the reinvestment of Fund
distributions. Security prices can fluctuate for several reasons including the
general condition of the securities market, or when political or economic
Page 23
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST MORTGAGE INCOME FUND (FMY)
OCTOBER 31, 2016 (UNAUDITED)
events affecting the issuers occur, including the risk that borrowers do not pay
their mortgages. When the advisor determines that it is temporarily unable to
follow the fund's investment strategy or that it is impractical to do so (such
as when a market disruption event has occurred and trading in the securities is
extremely limited or absent), the advisor may take temporary defensive
positions.
LEVERAGE RISK: Borrowings up to 33-1/3% (or such other percentage as permitted
by law) of Fund assets (including the amount borrowed) less liabilities other
than borrowings may be utilized in the Fund. Leverage may be used for investment
purposes and to meet cash requirements. The leveraged capital structure creates
special risks not associated with unleveraged funds having similar investment
objectives and policies. These include the possibility of higher volatility of
the NAV of the Fund. Reverse repurchase agreements are used to leverage the
Fund's assets. Reverse repurchase agreements are subject to the risks that the
market value of the Fund's securities sold may decline below the price of the
securities the Fund is obligated to repurchase, and that the securities may not
be returned to the Fund. From time to time the amount of the leverage may be
changed in response to actual or anticipated changes in interest rates or the
value of the Fund's investment portfolio. There can be no assurance that the
leverage strategies will be successful.
MORTGAGE AND ASSET-BACKED SECURITIES RISK: The value of mortgage and
asset-backed securities can fall if the owners of the underlying mortgages or
other obligations pay off their mortgages or other obligations sooner than
expected, which could happen when interest rates fall or for other reasons.
Mortgage and asset-backed securities are also subject to extension risk, which
is the risk that rising interest rates could cause mortgages or other
obligations underlying the securities to be prepaid more slowly than expected,
which would, in effect, convert a short or medium duration mortgage or
asset-backed security into a longer duration security, increasing its
sensitivity to interest rate changes and causing its price to decline. Mortgage
and asset-backed security values may also be affected by the creditworthiness of
the servicing agent for the pool, the originator of the loans or receivables or
entities providing for any credit enhancement.
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 certain mortgage backed security defaults, the value
of that security may decrease.
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.
PREPAYMENT RISK: If borrowers prepay their mortgage loans at rates that are
faster than expected, this results in prepayments that are faster than expected
on MBS. These faster than expected prepayments may adversely affect the Fund's
profitability, particularly if the prepayments must be reinvested at market
interest rates that are below the Fund portfolio's current earnings rate.
Moreover, the Fund may also hold MBS that are less affected by prepayments.
While the Advisor seeks to minimize prepayment risk to the extent practical,
they must balance prepayment risk against other risks and the potential returns
of each investment in selecting investments. No strategy can completely insulate
the Fund from prepayment risk.
SUBORDINATED DEBT RISK: A portion of the Fund's Managed Assets may be invested
in subordinated classes of MBS, including debt obligations issued by private
originators or issuers backed by residential mortgage loans and multi-class debt
or pass-through or pay-through securities backed by a mortgage loan or pool of
mortgage loans on commercial real estate. Such subordinated classes are subject
to a greater degree of non-payment risk than are senior classes of the same
issuer or agency.
ADVISORY AND SUB-ADVISORY AGREEMENTS
BOARD CONSIDERATIONS REGARDING CONTINUATION OF INVESTMENT MANAGEMENT AND
INVESTMENT SUB-ADVISORY AGREEMENTS
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 "Advisory Agreement") between the Fund and
First Trust Advisors L.P. (the "Advisor") and the Investment Sub Advisory
Agreement (the "Sub Advisory Agreement" and together with the Advisory
Agreement, the "Agreements") among the Fund, the Advisor and Brookfield
Investment Management Inc. (the "Sub Advisor") for a one-year period ending June
30, 2017 at a meeting held on June 13, 2016. The Board determined that the
continuation of the Agreements is in the best interests of the Fund in light of
the extent and quality of the services provided and such other matters as the
Board considered to be relevant in the exercise of its reasonable business
judgment.
To reach this determination, the Board considered its duties under the
Investment Company Act of 1940, as amended (the "1940 Act"), as well as under
the general principles of state law in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
on such agreements. At meetings held on April 22, 2016 and June 13, 2016, the
Board, including the Independent Trustees, reviewed materials provided by the
Advisor and the Sub Advisor responding to requests for information from counsel
Page 24
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST MORTGAGE INCOME FUND (FMY)
OCTOBER 31, 2016 (UNAUDITED)
to the Independent Trustees that, among other things, outlined the services
provided by the Advisor and the Sub Advisor to the Fund (including the relevant
personnel responsible for these services and their experience); the advisory fee
rate payable by the Fund and the sub-advisory fees for the Fund as compared to
fees charged to a peer group of funds compiled by Management Practice, Inc.
("MPI"), an independent source (the "MPI Peer Group"), and as compared to fees
charged to other clients of the Advisor and the Sub Advisor; expenses of the
Fund as compared to expense ratios of the funds in the MPI Peer Group;
performance information for the Fund; the nature of expenses incurred in
providing services to the Fund and the potential for economies of scale, if any;
financial data on the Advisor and the Sub Advisor; any fall out benefits to the
Advisor and the Sub Advisor; and information on the Advisor's and the Sub
Advisor's compliance programs. The Board reviewed initial materials with the
Advisor at a special meeting held on April 22, 2016, prior to which the
Independent Trustees and their counsel met separately to discuss the information
provided by the Advisor and the Sub-Advisor. Following the April meeting,
independent legal counsel on behalf of the Independent Trustees requested
certain clarifications and supplements to the materials provided, and the
information provided in response to those requests was considered at an
executive session of the Independent Trustees and independent legal counsel held
prior to the June 13, 2016 meeting, as well as at the meeting held that day.
Also subsequent to the April meeting, on May 16, 2016, the Sub-Advisor announced
that Schroder Investment Management North America Inc. ("Schroders") had agreed
to acquire a portion of the Sub-Advisor's business that included the
Sub-Advisor's portfolio management team responsible for the Fund. The
Sub-Advisor informed the Advisor and the Board that the transaction was expected
to close in the third quarter of 2016. The Advisor informed the Board that the
consummation of the transaction would be considered an assignment of the
Sub-Advisory Agreement and would result in the automatic termination of the
Sub-Advisory Agreement. At the June 13, 2016 meeting, the Board received a
presentation from the CEO of Schroders and from one of the Brookfield portfolio
managers. At that time, the Advisor discussed with the Board potential options
for the management of the Fund upon the termination of the Sub-Advisory
Agreement, including continuing with the current portfolio management team after
its move to Schroders or transitioning portfolio management of the Fund to the
Advisor's Mortgage Securities Team. The Advisor agreed that it would continue to
review the various options and present a formal recommendation at a future
meeting, but was requesting that the Board renew the Sub-Advisory Agreement at
the meeting. The Board took all the information presented under consideration as
it considered the renewal of the Sub-Advisory Agreement. The Board applied its
business judgment to determine whether the arrangements between the Fund and the
Advisor and among the Fund, the Advisor and the Sub Advisor continue to be
reasonable business arrangements from the Fund's perspective as well as from the
perspective of shareholders. The Board determined that, given the totality of
the information provided with respect to the Agreements, the Board had received
sufficient information to renew the Agreements. The Board considered that
shareholders chose to invest or remain invested in the Fund knowing that the
Advisor and the Sub Advisor manage the Fund.
In reviewing the Agreements, the Board considered the nature, extent and quality
of the services provided by the Advisor and the Sub Advisor under the
Agreements. With respect to the Advisory Agreement, the Board considered that
the Advisor is responsible for the overall management and administration of the
Fund and reviewed all of the services provided by the Advisor to the Fund,
including the oversight of the Sub Advisor, as well as the background and
experience of the persons responsible for such services. In reviewing the
services provided, the Board noted the compliance program that had been
developed by the Advisor and considered that it includes a robust program for
monitoring the Advisor's, the Sub Advisor's and the Fund's compliance with the
1940 Act, as well as the Fund's compliance with its investment objectives and
policies. In addition, as part of the Board's consideration of the Advisor's
services, the Advisor, in its written materials and at the April 22, 2016
meeting, described to the Board the scope of its ongoing investment in
additional infrastructure and personnel to maintain and improve the quality of
services provided to the Fund and the other funds in the First Trust Fund
Complex. With respect to the Sub Advisory Agreement, in addition to the written
materials provided by the Sub-Advisor, at the June 13, 2016 meeting, the Board
also received a presentation from one of the Sub-Advisor's portfolio managers
discussing the services that the Sub-Advisor provides to the Fund and how the
Sub-Advisor manages the Fund's investments. In considering the Sub-Advisor's
management of the Fund, the Board noted the background and experience of the
Sub-Advisor's portfolio management team. In light of the information presented
and the considerations made, the Board concluded that the nature, extent and
quality of the services provided to the Fund by the Advisor and the Sub Advisor
under the Agreements have been and are expected to remain satisfactory and that
the Sub Advisor, under the oversight of the Advisor, has managed the Fund
consistent with its investment objectives and policies.
The Board considered the advisory and sub advisory fee rates payable under the
Agreements for the services provided. The Board noted that the sub advisory fee
is paid by the Advisor from its advisory fee. The Board received and reviewed
information showing the advisory fee rates and expense ratios of the peer funds
in the MPI Peer Group, as well as advisory fee rates charged by the Advisor and
the Sub-Advisor to other fund and non-fund clients, as applicable. With respect
to the MPI Peer Group, the Board discussed with representatives of the Advisor
the limitations in creating a relevant peer group for the Fund, including that
(i) the Fund is unique in its composition, which makes assembling peers with
similar strategies and asset mix difficult; (ii) peer funds may use different
amounts and types of leverage with different costs associated with them or may
use no leverage; (iii) none of the peer funds employs an advisor/sub advisor
management structure with an unaffiliated sub-advisor; and (iv) most of the peer
funds are larger than the Fund, which causes the Fund's fixed expenses to be
higher on a percentage basis as compared to the larger peer funds, and some of
the peer funds are part of a larger fund complex that may allow for additional
economies of scale. The Board took these limitations into account in considering
the peer data, and noted that the advisory fee rate payable by the Fund, based
on average net assets, was below the median of the MPI Peer Group. With respect
Page 25
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST MORTGAGE INCOME FUND (FMY)
OCTOBER 31, 2016 (UNAUDITED)
to fees charged to other clients, the Board considered differences between the
Fund and other clients that limited their comparability. In considering the
advisory fee rate overall, the Board also considered the Advisor's statement
that it seeks to meet investor needs through innovative and value-added
investment solutions and the Advisor's description of its long-term commitment
to the Fund.
The Board considered performance information for the Fund. The Board noted the
process it has established for monitoring the Fund's performance and portfolio
risk on an ongoing basis, which includes quarterly performance reporting from
the Advisor and Sub-Advisor for the Fund. The Board determined that this process
continues to be effective for reviewing the Fund's performance. The Board
received and reviewed information comparing the Fund's performance for periods
ended December 31, 2015 to the performance of the MPI Peer Group and to a
benchmark index. In reviewing the Fund's performance as compared to the
performance of the MPI Peer Group, the Board took into account the limitations
described above with respect to creating a relevant peer group for the Fund.
Based on the information provided on net asset value performance, the Board
noted that the Fund underperformed the MPI Peer Group average for the one-,
three- and five-year periods ended December 31, 2015. The Board also noted that
the Fund underperformed the benchmark index in the one-year period, but
outperformed the benchmark index in the three- and five-year periods ended
December 31, 2015. In addition, the Board considered information provided by the
Advisor on the impact of leverage on the Fund's returns. The Board also received
information on the Fund's annual distribution rate as of December 31, 2015 and
the Fund's average trading discount during 2015 and comparable information for
the peer group.
On the basis of all the information provided on the fees, expenses and
performance of the Fund and the ongoing oversight by the Board, the Board
concluded that the advisory and sub advisory fees continue to be reasonable and
appropriate in light of the nature, extent and quality of the services provided
by the Advisor and the Sub Advisor to the Fund under the Agreements.
The Board considered information and discussed with the Advisor whether there
were any economies of scale in connection with providing advisory services to
the Fund and noted the Advisor's statement that it expects its expenses to
increase over the next twelve months as the Advisor continues to make
investments in personnel and infrastructure. The Board determined that due to
the Fund's closed-end structure, the potential for realization of economies of
scale as Fund assets grow was not a material factor to be considered. The Board
considered the revenues and allocated costs (including the allocation
methodology) of the Advisor in serving as investment advisor to the Fund for the
twelve months ended December 31, 2015 and the estimated profitability level for
the Fund calculated by the Advisor based on such data, as well as complex-wide
and product-line profitability data for the same period. The Board noted the
inherent limitations in the profitability analysis, and concluded that, based on
the information provided, the Advisor's profitability level for the Fund was not
unreasonable. In addition, the Board considered fall out benefits described by
the Advisor that may be realized from its relationship with the Fund, including
the Advisor's compensation for fund reporting services pursuant to a separate
Fund Reporting Services Agreement.
The Board noted the Sub Advisor's expenses in providing investment services to
the Fund and considered the Sub Advisor's statement that it does not expect
economies of scale to be present in connection with its provision of services to
the Fund but that there may be economic efficiencies achieved from aggregate
trade orders. The Board considered that the sub advisory fee rate was negotiated
at arm's length between the Advisor and the Sub Advisor, an unaffiliated third
party. The Board also considered information provided by the Sub Advisor with
respect to the profitability of the Sub Advisory Agreement to the Sub Advisor.
The Board noted the inherent limitations in the profitability analysis and
concluded that the profitability analysis for the Advisor was more relevant. The
Board noted that the Sub Advisor does not maintain any soft-dollar arrangements
and that the Sub Advisor indicated that it does not anticipate any material fall
out benefits from its relationship to the Fund.
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, unanimously determined that the terms
of the Agreements continue to be fair and reasonable and that the continuation
of the Agreements is in the best interests of the Fund. No single factor was
determinative in the Board's analysis.
Page 26
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BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST MORTGAGE INCOME FUND (FMY)
OCTOBER 31, 2016 (UNAUDITED)
NUMBER OF OTHER
PORTFOLIOS IN TRUSTEESHIPS OR
THE FIRST TRUST DIRECTORSHIPS
NAME, ADDRESS, TERM OF OFFICE FUND COMPLEX HELD BY TRUSTEE
DATE OF BIRTH AND AND LENGTH OF PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE FUND SERVICE (1) DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
Richard E. Erickson, Trustee o Three-Year Term Physician; President, Wheaton Orthopedics; 137 None
c/o First Trust Advisors L.P. Limited Partner, Gundersen Real
120 East Liberty Drive, o Since Fund Estate Limited Partnership; Member,
Suite 400 Inception Sportsmed LLC (April 2007 to November
Wheaton, IL 60187 2015)
D.O.B.: 04/51
Thomas R. Kadlec, Trustee o Three-Year Term President, ADM Investor Services, 137 Director of ADM
c/o First Trust Advisors L.P. Inc. (Futures Commission Merchant) Investor Services,
120 East Liberty Drive, o Since Fund Inc., ADM
Suite 400 Inception Investor Services
Wheaton, IL 60187 International, and
D.O.B.: 11/57 Futures Industry
Association
Robert F. Keith, Trustee o Three-Year Term President, Hibs Enterprises (Financial and 137 Director of Trust
c/o First Trust Advisors L.P. Management Consulting) Company of
120 East Liberty Drive, o Since June 2006 Illinois
Suite 400
Wheaton, IL 60187
D.O.B.: 11/56
Niel B. Nielson, Trustee o Three-Year Term Managing Director and Chief Operating 137 Director of
c/o First Trust Advisors L.P. Officer (January 2015 to Present), Pelita Covenant
120 East Liberty Drive, o Since Fund Harapan Educational Foundation Transport, Inc.
Suite 400 Inception (Educational Products and Services); (May 2003 to
Wheaton, IL 60187 President and Chief Executive Officer May 2014)
D.O.B.: 03/54 (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); President (June 2002 to June
2012), Covenant College
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(2), Trustee, o Three-Year Term Chief Executive Officer, First Trust 137 None
Chairman of the Board Advisors L.P. and First Trust Portfolios
120 East Liberty Drive, o Since Fund L.P.; Chairman of the Board of Directors,
Suite 400 Inception BondWave LLC (Software Development
Wheaton, IL 60187 Company) and Stonebridge Advisors LLC
D.O.B.: 09/55 (Investment Advisor)
-----------------------------
(1) Currently, Robert F. Keith, as a Class I Trustee, is serving as a trustee
until the Fund's 2017 annual meeting of shareholders. Richard E. Erickson
and Thomas R. Kadlec, as Class II Trustees, are serving as trustees until
the Fund's 2018 annual meeting of shareholders. James A. Bowen and Niel B.
Nielson, as Class III Trustees, are serving as trustees until the Fund's
2019 annual meeting of shareholders.
(2) Mr. Bowen is deemed an "interested person" of the Fund due to his position
as Chief Executive Officer of First Trust Advisors L.P., investment
advisor of the Fund.
Page 27
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BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MORTGAGE INCOME FUND (FMY)
OCTOBER 31, 2016 (UNAUDITED)
NAME, ADDRESS POSITION AND OFFICES TERM OF OFFICE AND PRINCIPAL OCCUPATIONS
AND DATE OF BIRTH WITH FUND LENGTH OF SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(3)
------------------------------------------------------------------------------------------------------------------------------------
James M. Dykas President and Chief o Indefinite Term Managing Director and Chief Financial
120 E. Liberty Drive, Executive Officer Officer (January 2016 to Present), Controller
Suite 400 o Since January 2016 (January 2011 to January 2016), Senior Vice
Wheaton, IL 60187 President (April 2007 to January 2016), First
D.O.B.: 01/66 Trust Advisors L.P. and First Trust
Portfolios L.P.; Chief Financial Officer,
BondWave LLC (Software Development
Company) (January 2016 to Present) and
Stonebridge Advisors LLC (Investment Advisor)
(January 2016 to Present)
Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President (July 2016 to Present),
120 E. Liberty Drive, Officer and Chief Vice President (April 2012 to July 2016), First
Suite 400 Accounting Officer o Since January 2016 Trust Advisors L.P. and First Trust
Wheaton, IL 60187 Portfolios L.P.; Vice President (September
D.O.B.: 08/72 2006 to April 2012), Guggenheim Funds
Investment Advisors, LLC/Claymore
Securities, Inc.
W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P.,
120 E. Liberty Drive, Legal Officer First Trust Portfolios L.P.; Secretary and
Suite 400 o Since Fund General Counsel, BondWave LLC; Secretary
Wheaton, IL 60187 Inception of Stonebridge Advisors LLC
D.O.B.: 05/60
Daniel J. Lindquist Vice President o Indefinite Term Managing Director (July 2012 to Present), Senior
120 E. Liberty Drive, Vice President (September 2005 to July 2012),
Suite 400 o Since Fund First Trust Advisors L.P. and First Trust
Wheaton, IL 60187 Inception Portfolios L.P.
D.O.B.: 02/70
Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust
120 E. Liberty Drive, and Assistant Secretary Advisors L.P. and First Trust Portfolios L.P.
Suite 400 o Chief Compliance
Wheaton, IL 60187 Officer since
D.O.B.: 12/66 January 2011
o Assistant Secretary
since Fund Inception
-----------------------------
(3) The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.
Page 28
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PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST MORTGAGE INCOME FUND (FMY)
OCTOBER 31, 2016 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies".
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives, proxy
services, solicitors and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information within First Trust.
PRIVACY ONLINE
We allow third-party companies, including AddThis (a social media sharing
service), to collect certain anonymous information when you visit our website.
These companies may use non-personally identifiable information during your
visits to this and other websites in order to provide advertisements about goods
and services likely to be of greater interest to you. These companies typically
use a cookie, third party web beacon or pixel tags, to collect this information.
To learn more about this behavioral advertising practice, you can visit
www.networkadvertising.org.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, First Trust restricts access to
your nonpublic personal information to those First Trust employees who need to
know that information to provide products or services to you. We maintain
physical, electronic and procedural safeguards to protect your nonpublic
personal information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
March 2016
Page 29
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FIRST TRUST
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 E. Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR,
FUND ACCOUNTANT &
TRANSFER AGENT
BNY Mellon Investment Servicing (US) Inc.
301 Bellevue Parkway
Wilmington, DE 19809
CUSTODIAN
The Bank of New York Mellon
101 Barclay Street, 20th Floor
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
[BLANK BACK COVER]
ITEM 2. CODE OF ETHICS.
(a) The registrant, as of the end of the period covered by this report, has
adopted a code of ethics that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions, regardless
of whether these individuals are employed by the registrant or a third
party.
(c) There have been no amendments, during the period covered by this report,
to a provision of the code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant or
a third party, and that relates to any element of the code of ethics
description.
(d) The registrant has not granted any waivers, including an implicit waiver,
from a provision of the code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant or
a third party, that relates to one or more of the items set forth in
paragraph (b) of this item's instructions.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
As of the end of the period covered by the report, the Registrant's board of
trustees has determined that Thomas R. Kadlec and Robert F. Keith are qualified
to serve as audit committee financial experts serving on its audit committee and
that each of them is "independent," as defined by Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees (Registrant) -- The aggregate fees billed for 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, 2015 and $45,000
for the fiscal year ended October 31, 2016.
(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,
2015 and $3,000 for the fiscal year ended October 31, 2016. The 2016
audit-related fees reflect fees for auditing data after migration to new
fund accounting software.
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, 2015 and $0 for the fiscal year ended October 31, 2016.
(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 $5,200
for the fiscal year ended October 31, 2015 and $5,200 for the fiscal year
ended October 31, 2016. These fees were for tax return preparation 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, 2015 and $0 for the fiscal year ended
October 31, 2016.
(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, 2015 and $0 for the fiscal year ended October 31, 2016.
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, 2015 and $0 for the fiscal year ended October 31, 2016.
(e)(1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
Pursuant to its charter and its Audit and Non-Audit Services Pre-Approval
Policy, the Audit Committee (the "Committee") is responsible for the
pre-approval of all audit services and permitted non-audit services (including
the fees and terms thereof) to be performed for the registrant by its
independent auditors. The Chairman of the Committee is authorized to give such
pre-approvals on behalf of the Committee up to $25,000 and report any such
pre-approval to the full Committee.
The Committee is also responsible for the pre-approval of the independent
auditor's engagements for non-audit services with the registrant's adviser (not
including a sub-adviser whose role is primarily portfolio management and is
sub-contracted or overseen by another investment adviser) and any entity
controlling, controlled by or under common control with the investment adviser
that provides ongoing services to the registrant, if the engagement relates
directly to the operations and financial reporting of the registrant, subject to
the de minimis exceptions for non-audit services described in Rule 2-01 of
Regulation S-X. If the independent auditor has provided non-audit services to
the registrant's adviser (other than any sub-adviser whose role is primarily
portfolio management and is sub-contracted with or overseen by another
investment adviser) and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
registrant that were not pre-approved pursuant to its policies, the Committee
will consider whether the provision of such non-audit services is compatible
with the auditor's independence.
(e)(2) The percentage of services described in each of paragraphs (b) through
(d) for the Registrant and the Registrant's investment adviser of this
Item that were approved by the audit committee pursuant to the
pre-approval exceptions included in paragraph (c)(7)(i)(c) or paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X are as follows:
(b) 0%
(c) 0%
(d) 0%
(f) The percentage of hours expended on the principal accountant's engagement
to audit the registrant's financial statements for the most recent fiscal
year that were attributed to work performed by persons other than the
principal accountant's full-time, permanent employees was less than fifty
percent.
(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, and rendered to the registrant's
investment adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by, or under
common control with the adviser that provides ongoing services to the
registrant for the Registrant's fiscal year ended October 31, 2015 were
$5,200 for the Registrant and $12,500 for the Registrant's investment
adviser and for the Registrant's fiscal year ended October 31, 2016 were
$5,200 for the Registrant and $13,000 for the Registrant's investment
adviser.
(h) The registrant's audit committee of the board of directors has considered
whether the provision of non-audit services that were rendered to the
registrant's investment adviser (not including any sub-adviser whose role
is primarily portfolio management and is subcontracted with or overseen by
another investment adviser), and any entity controlling, controlled by, or
under common control with the investment adviser that provides ongoing
services to the registrant that were not pre-approved pursuant to
paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with
maintaining the principal accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
(a) The Registrant has a separately designated audit committee consisting of
all the independent directors of the Registrant. The members of the audit
committee are: Thomas R. Kadlec, Niel B. Nielson, Richard E. Erickson and
Robert F. Keith.
ITEM 6. INVESTMENTS.
(a) Schedule of Investments in securities of unaffiliated issuers as of the
close of the reporting period is included as part of the report to
shareholders filed under Item 1 of this form.
(b) Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Proxy Voting Policies are attached herewith.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(A)(1) IDENTIFICATION OF PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM MEMBERS AND
DESCRIPTION OF ROLE OF PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM MEMBERS.
Information provided as of January 5, 2017.
Effective September 19, 2016, the day-to-day management of the registrant's
portfolio transitioned to the First Trust Mortgage Securities Team, led by Jim
Snyder and Jeremiah Charles.
JIM SNYDER. Mr. Snyder is a Portfolio Manager for the First Trust Mortgage
Securities Team. 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
Mortgage Securities Team. 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, 2016.
# of Accounts Total Assets
Total Managed for which for which
Advisory Fee is Advisory Fee
Name of Portfolio Manager or # of Accounts Based on is Based on
Team Member Type of Accounts* Managed Total Assets Performance Performance
------------------------------ ------------------------------ -------------- ------------ ----------------- --------------
1. Jeremiah Charles Registered Investment Companies: 4 $349,974,834 0 $ 0
--------------------------------
Other Pooled Investment Vehicles: 0 $ 0 0 $ 0
---------------------------------
Other Accounts: 0 $ 0 0 $ 0
---------------
2. James Snyder Registered Investment Companies: 0 $349,974,834 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 Mortgage Securities Team
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, 2016.
The compensation structure for the Mortgage Securities Team 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. Bonuses are also determined by
management and are based upon an individual's overall contribution to the
success of the firm and the profitability of the firm. Salaries and bonuses for
members of the First Trust Advisors L.P. Mortgage Securities Team are not based
upon criteria such as performance of the Registrant and are not directly tied to
the value of assets of the Fund.
(4) DISCLOSURE OF SECURITIES OWNERSHIP
Information provided as of October 31, 2016.
DOLLAR RANGE OF FUND
SHARES BENEFICIALLY
NAME OWNED
Jeremiah Charles $ 0
James Snyder $ 0
(B) Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of directors, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)),
or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers, or
persons performing similar functions, have concluded that the registrant's
disclosure controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR
270.30a-3(c))) are effective, as of a date within 90 days of the filing
date of the report that includes the disclosure required by this
paragraph, based on their evaluation of these controls and procedures
required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and
Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as
amended (17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR
270.30a-3(d)) that occurred during the registrant's second fiscal quarter
of the period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal control
over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section
302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section
906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) First Trust Mortgage Income Fund
------------------------------------------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, President and
Chief Executive Officer
(principal executive officer)
Date: December 20, 2016
-------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, President and
Chief Executive Officer
(principal executive officer)
Date: December 20, 2016
-------------------
By (Signature and Title)* /s/ Donald P. Swade
----------------------------------------
Donald P. Swade, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: December 20, 2016
-------------------
* Print the name and title of each signing officer under his or her signature.