UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED MANAGEMENT
INVESTMENT COMPANY
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: July 31, 2014
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Form N-Q is to be used by management investment companies, other than small
business investment companies registered on Form N-5 (ss.ss. 239.24 and 274.5 of
this chapter), to file reports with the Commission, not later than 60 days after
the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under
the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may use
the information provided on Form N-Q in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-Q, and
the Commission will make this information public. A registrant is not required
to respond to the collection of information contained in Form N-Q 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 the
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. SCHEDULE OF INVESTMENTS. The Schedule of Investments is attached
herewith.
FIRST TRUST MORTGAGE INCOME FUND (FMY)
PORTFOLIO OF INVESTMENTS
JULY 31, 2014 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ------------------------------------------- ----------- --------------- ------------
MORTGAGE-BACKED SECURITIES - 79.3%
COLLATERALIZED MORTGAGE OBLIGATIONS - 66.9%
ACE Securities Corp. Home Equity Loan Trust
$ 1,267,042 Series 2006-ASAP6, Class A2D (a)........ 0.37% 12/25/36 $ 711,463
Adjustable Rate Mortgage Trust
46,265 Series 2004-5, Class 1A1 (a)............ 2.53% 04/25/35 45,163
Banc of America Mortgage Trust
80,860 Series 2002-L, Class 1A1 (a) (b)........ 2.62% 12/25/32 75,012
Bear Stearns Adjustable Rate Mortgage Trust
701,719 Series 2004-9, Class 12A1 (a)........... 2.87% 11/25/34 703,219
535,186 Series 2005-5, Class A2 (a)............. 2.27% 08/25/35 544,566
Chase Mortgage Finance Trust
487,788 Series 2007-A1, Class 1A3 (a)........... 2.58% 02/25/37 491,568
Countrywide Alternative Loan Trust
683,946 Series 2006-41CB, Class 2A17 ........... 6.00% 01/25/37 608,507
79,068 Series 2007-11T1, Class A37 (c)......... 39.09% 05/25/37 139,675
Countrywide Home Loan Mortgage Pass-Through
Trust
1,227,361 Series 2003-46, Class 2A1 (a) .......... 2.80% 01/19/34 1,237,228
221,010 Series 2004-HYB1, Class 2A (a).......... 2.54% 05/20/34 213,281
655,312 Series 2006-21, Class A8 ............... 5.75% 02/25/37 616,743
924,789 Series 2006-HYB5, Class 3A1A (a) ....... 2.64% 09/20/36 731,318
Credit Suisse First Boston Mortgage
Securities Corp.
1,433,007 Series 2004-AR2, Class 1A1 (a).......... 2.67% 03/25/34 1,428,361
1,382,875 Series 2004-AR8, Class 6A1 (a).......... 2.41% 09/25/34 1,400,357
DSLA Mortgage Loan Trust
1,317,470 Series 2004-AR3, Class 2A2A (a)......... 0.53% 07/19/44 1,287,941
1,186,482 Series 2007-AR1, Class 2A1A (a)......... 0.30% 04/19/47 999,583
GMAC Mortgage Corporation Loan Trust
238,954 Series 2004-AR1, Class 22A (a).......... 2.88% 06/25/34 230,893
GSR Mortgage Loan Trust
418,951 Series 2005-AR1, Class 4A1 (a).......... 4.52% 01/25/35 414,383
Harborview Mortgage Loan Trust
193,575 Series 2004-1, Class 2A (a)............. 2.41% 04/19/34 195,046
830,214 Series 2004-6, Class 3A1 (a)............ 2.62% 08/19/34 808,322
JP Morgan Mortgage Trust
2,081,876 Series 2005-ALT1, Class 4A1 (a)......... 5.19% 10/25/35 2,009,062
578,459 Series 2006-A2, Class 4A1 (a)........... 2.50% 08/25/34 579,257
194,127 Series 2006-A2, Class 5A3 (a)........... 2.75% 11/25/33 194,319
JP Morgan Re-REMIC
1,405,721 Series 2009-7, Class 12A1 (d)........... 6.25% 01/27/37 1,490,753
MASTR Asset Backed Securities Trust
1,224,223 Series 2006-HE5, Class A3 (a)........... 0.32% 11/25/36 831,568
252,366 Series 2006-HE5, Class A4 (a)........... 0.38% 11/25/36 172,969
1,761,010 Series 2006-NC2, Class A3 (a)........... 0.27% 08/25/36 978,502
803,817 Series 2006-NC2, Class A5 (a)........... 0.40% 08/25/36 456,969
Mellon Residential Funding Corp. Mortgage
Pass-Through Trust
703,046 Series 2001-TBC1, Class A1 (a).......... 0.86% 11/15/31 703,846
752,084 Series 2002-TBC2, Class A (a)........... 1.02% 08/15/32 713,043
See Notes to Quarterly Portfolio of Investments
FIRST TRUST MORTGAGE INCOME FUND (FMY)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 2014 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ------------------------------------------- ----------- --------------- ------------
MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Morgan Stanley Mortgage Loan Trust
$ 543,326 Series 2004-7AR, Class 2A6 (a).......... 2.45% 09/25/34 $ 548,556
Nationstar Home Equity Loan Trust
1,731,000 Series 2006-B, Class AV4 (a)............ 0.43% 09/25/36 1,540,536
Provident Funding Mortgage Loan Trust
290,395 Series 2005-1, Class 1A1 (a)............ 2.50% 05/25/35 292,787
Residential Accredit Loans, Inc. ...........
769,507 Series 2004-QS2, Class CB .............. 5.75% 02/25/34 810,846
274,425 Series 2006-QO1, Class 2A1 (a).......... 0.43% 02/25/46 161,730
Residential Funding Mortgage Securities I
93,418 Series 2005-S5, Class A5 ............... 5.25% 07/25/35 94,030
Securitized Asset Backed Receivables LLC
1,231,426 Series 2007-BR2, Class A2 (a)........... 0.39% 02/25/37 740,684
Structured Adjustable Rate Mortgage Loan
Trust
775,069 Series 2004-2, Class 4A2 (a)............ 2.52% 03/25/34 781,761
Thornburg Mortgage Securities Trust
705,500 Series 2003-4, Class A1 (a)............. 0.80% 09/25/43 695,498
601,746 Series 2005-1, Class A3 (a)............. 2.25% 04/25/45 611,973
Wachovia Mortgage Loan Trust, LLC
612,508 Series 2006-A, Class 3A1 (a)............ 2.66% 05/20/36 595,439
WaMu Mortgage Pass-Through Certificates
954,478 Series 2004-AR1, Class A (a)............ 2.41% 03/25/34 960,707
978,042 Series 2004-AR10, Class A1B (a)......... 0.58% 07/25/44 942,589
728,668 Series 2004-AR13, Class A1A (a)......... 0.52% 11/25/34 708,510
1,048,612 Series 2005-AR1, Class A1A (a).......... 0.48% 01/25/45 1,012,671
1,410,021 Series 2005-AR11, Class A1A (a)......... 0.48% 08/25/45 1,356,849
106,177 Series 2005-AR2, Class 2A21 (a) ........ 0.49% 01/25/45 104,948
1,168,020 Series 2005-AR2, Class 2A23 (a)......... 0.54% 01/25/45 1,159,057
1,328,397 Series 2005-AR6, Class 2A1A (a)......... 0.39% 04/25/45 1,276,876
614,761 Series 2005-AR9, Class A1A (a).......... 0.48% 07/25/45 589,375
979,695 Series 2006-AR2, Class 1A1 (a) ......... 2.34% 03/25/36 918,473
1,217,051 Series 2006-AR5, Class A1A (a).......... 1.11% 06/25/46 1,081,900
Washington Mutual Alternative Mortgage
Pass-Through Certificates
48,556 Series 2007-5, Class A11 (c)............ 38.55% 06/25/37 86,304
Washington Mutual MSC Mortgage Pass-Through
Certificates
394,953 Series 2004-RA1, Class 2A .............. 7.00% 03/25/34 420,608
Wells Fargo Mortgage Backed Securities
Trust
742,645 Series 2003-H, Class A1 (a)............. 2.62% 09/25/33 756,813
568,561 Series 2004-A, Class A1 (a)............. 2.64% 02/25/34 580,935
2,044,392 Series 2004-R, Class 1A1 (a)............ 2.62% 09/25/34 2,090,840
558,065 Series 2004-S, Class A1 (a)............. 2.62% 09/25/34 573,630
999,553 Series 2004-Y, Class 1A2 (a)............ 2.62% 11/25/34 1,007,763
542,874 Series 2005-AR10, Class 2A17 (a)........ 2.61% 06/25/35 549,888
See Notes to Quarterly Portfolio of Investments
FIRST TRUST MORTGAGE INCOME FUND (FMY)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 2014 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ------------------------------------------- ----------- --------------- ------------
MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Wells Fargo Mortgage Backed Securities
Trust (Continued)
$ 1,131,417 Series 2005-AR16, Class 1A1 (a)......... 2.60% 08/25/33 $ 1,163,396
464,273 Series 2005-AR3, Class 2A1 (a).......... 2.61% 03/25/35 470,979
802,266 Series 2005-AR8, Class 1A1 (a).......... 2.61% 06/25/35 821,660
339,597 Series 2006-AR1, Class 2A5 (a).......... 5.36% 03/25/36 340,829
1,040,109 Series 2006-AR10, Class 5A2 (a)......... 2.61% 07/25/36 1,021,127
495,492 Series 2007-16, Class 1A1 .............. 6.00% 12/28/37 514,532
580,069 Series 2007-2, Class 1A13 .............. 6.00% 03/25/37 570,166
134,218 Series 2007-8, Class 2A2 ............... 6.00% 07/25/37 133,177
------------
49,101,359
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COMMERCIAL MORTGAGE-BACKED SECURITIES - 12.4%
Banc of America Commercial Mortgage Trust
1,000,000 Series 2006-6, Class AJ ................ 5.42% 10/10/45 1,042,459
Bayview Commercial Asset Trust
832,754 Series 2004-2, Class A (a) (d).......... 0.59% 08/25/34 787,963
Credit Suisse Commercial Mortgage Trust
820,000 Series 2007-C2, Class A3 ............... 5.54% 01/15/49 893,059
GS Mortgage Securities Trust
907,733 Series 2007-GG10, Class A4 (a).......... 5.99% 08/10/45 1,001,476
HLSS Servicer Advance Receivables Backed
Notes
750,000 Series 2013-T5, Class CT5 (d)........... 2.52% 08/15/46 747,864
JP Morgan Chase Commercial Mortgage
Securities Trust
1,500,000 Series 2007-LDP12, Class A4 ............ 5.88% 02/15/51 1,648,217
890,000 Series 2012-PHH, Class C (a) (d)........ 2.52% 10/15/25 891,151
LB-UBS Commercial Mortgage Trust
420,000 Series 2007-C1, Class AM ............... 5.46% 02/15/40 457,112
100,000 Series 2007-C2, Class AM (a)............ 5.49% 02/15/40 107,497
Mid-State Capital Corp. Trust
606,585 Series 2004-1, Class M1 ................ 6.50% 08/15/37 655,863
VNDO Mortgage Trust
900,000 Series 2012-6AVE, Class A (d)........... 3.00% 11/15/30 891,285
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9,123,946
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TOTAL MORTGAGE-BACKED SECURITIES......................................... 58,225,305
(Cost $56,080,671) ------------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 28.2%
COLLATERALIZED MORTGAGE OBLIGATIONS - 11.5%
Federal Home Loan Mortgage Corp.
2,137,293 Series 2807, Class SB, IO (c)........... 7.30% 11/15/33 431,377
13,874 Series 3195, Class SX (c)............... 45.14% 07/15/36 36,674
See Notes to Quarterly Portfolio of Investments
FIRST TRUST MORTGAGE INCOME FUND (FMY)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 2014 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ------------------------------------------- ----------- --------------- ------------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Federal Home Loan Mortgage Corp. (Continued)
$ 377,459 Series 3562, Class KI, IO .............. 4.50% 11/15/22 $ 10,166
2,495,156 Series 3619, Class EI, IO .............. 4.50% 05/15/24 178,041
1,911,452 Series 3692, Class PS, IO (c)........... 6.45% 05/15/38 187,393
4,106,114 Series 3726, Class KI, IO .............. 3.50% 04/15/25 376,153
2,942,008 Series 3870, Class WS, IO (c)........... 6.45% 06/15/31 516,066
1,602,245 Series 4206, Class IA, IO .............. 3.00% 03/15/33 261,439
Federal National Mortgage Association
790,096 Series 2005-122, Class SN (c)........... 27.98% 01/25/36 1,057,349
208,885 Series 2008-50, Class AI, IO ........... 5.50% 06/25/23 12,842
4,105,957 Series 2010-103, Class ID, IO .......... 5.00% 09/25/40 791,978
7,006,846 Series 2010-139, Class KI, IO .......... 1.09% 12/25/40 361,872
808,901 Series 2010-142, Class PS, IO (c)....... 5.90% 05/25/40 78,223
1,057,409 Series 2010-145, Class TI, IO .......... 3.50% 12/25/20 75,087
3,074,140 Series 2010-40, Class MI, IO ........... 4.50% 08/25/24 210,403
4,184,662 Series 2012-112, Class BI, IO .......... 3.00% 09/25/31 621,605
3,029,229 Series 2012-125, Class MI, IO .......... 3.50% 11/25/42 641,637
4,251,960 Series 2013-32, Class IG, IO ........... 3.50% 04/25/33 778,061
Federal National Mortgage Association, STRIP
3,053,976 Series 406, Class 6, IO ................ 4.00% 01/25/41 526,941
Government National Mortgage Association
1,113,886 Series 2009-65, Class NJ, IO ........... 5.50% 07/20/39 99,921
3,358,447 Series 2010-115, Class IQ, IO .......... 4.50% 11/20/38 465,240
7,205,947 Series 2011-131, Class EI, IO .......... 4.50% 08/20/39 706,807
1,310,514 Series 2011-69, Class CI, IO ........... 5.00% 03/20/36 51,246
------------
8,476,521
------------
COMMERCIAL MORTGAGE-BACKED SECURITIES - 4.1%
Government National Mortgage Association
16,993,664 Series 2011-152, Class IO, IO (a)....... 1.34% 08/16/51 943,828
8,500,524 Series 2012-100, Class IO, IO (a) (e)... 0.83% 08/16/52 557,953
11,725,934 Series 2012-70, Class IO, IO (a) (e).... 0.97% 08/16/52 747,013
7,289,883 Series 2012-78, Class IO, IO (a) (e).... 1.05% 06/16/52 517,359
2,564,576 Series 2012-95, Class IO, IO (a) (e).... 0.99% 02/16/53 201,755
------------
2,967,908
------------
PASS-THROUGH SECURITIES - 12.6%
1,000,000 Fannie Mae Pool ............................ 4.00% 09/30/44 1,048,410
Fannie Mae REMICs
926,416 Series 2005-83, Class LZ ............... 5.50% 10/25/35 957,992
Federal Home Loan Mortgage Corp.
1,687,344 Pool A94738 (e)......................... 4.50% 11/01/40 1,815,471
760,808 Pool K36017 (e)......................... 5.00% 09/01/47 822,756
Federal National Mortgage Association
1,975,877 Pool 831145 (e)......................... 6.00% 12/01/35 2,232,071
See Notes to Quarterly Portfolio of Investments
FIRST TRUST MORTGAGE INCOME FUND (FMY)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 2014 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- ------------------------------------------- ----------- --------------- ------------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
PASS-THROUGH SECURITIES (CONTINUED)
Federal National Mortgage Association (Continued)
$ 2,113,068 Pool 843971 (e)......................... 6.00% 11/01/35 $ 2,407,996
------------
9,284,696
------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES.................. 20,729,125
(Cost $22,900,844) ------------
ASSET-BACKED SECURITIES - 0.3%
Green Tree Financial Corp.
60,386 Series 1997-2, Class A6 ................ 7.24% 06/15/28 63,351
75,757 Series 1997-3, Class A6 ................ 7.32% 03/15/28 81,223
86,393 Series 1997-7, Class A6 ................ 6.76% 07/15/28 90,556
------------
TOTAL ASSET-BACKED SECURITIES............................................ 235,130
(Cost $234,206) ------------
TOTAL INVESTMENTS - 107.8%............................................... 79,189,560
(Cost $79,215,721) (f) ------------
PRINCIPAL
VALUE DESCRIPTION AMOUNT
---------------- ------------------------------------------------------------------------- ------------
REVERSE REPURCHASE AGREEMENTS - (11.8%)
(1,294,000) With JP Morgan 1.00% dated 07/07/14, to be repurchased at
$1,295,082 on 08/06/14............................................... (1,294,000)
(4,447,000) With JP Morgan 0.34% dated 07/08/14, to be repurchased at
$4,450,780 on 10/06/14............................................... (4,447,000)
(2,522,000) With JP Morgan 0.37% dated 07/16/14, to be repurchased at
$2,524,333 on 10/14/14............................................... (2,522,000)
(411,000) With JP Morgan 1.01% dated 07/28/14, to be repurchased at
$411,333 on 08/26/14................................................. (411,000)
------------
TOTAL REVERSE REPURCHASE AGREEMENTS...................................... (8,674,000)
------------
NET OTHER ASSETS AND LIABILITIES - 4.0%.................................. 2,947,850
------------
NET ASSETS - 100.0%...................................................... $ 73,463,410
============
---------------------------------------
(a) Floating or variable rate security. The interest rate shown reflects the
rate in effect at July 31, 2014.
(b) Illiquid, as determined by Brookfield Investment Management Inc.
("Brookfield"), the Fund's sub-advisor.
(c) Inverse floating rate instrument. The interest rate shown reflects the
rate in effect at July 31, 2014.
See Notes to Quarterly Portfolio of Investments
FIRST TRUST MORTGAGE INCOME FUND (FMY)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 2014 (UNAUDITED)
(d) 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, 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 Brookfield. 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 July 31, 2014,
securities noted as such amounted to $4,809,016, or 6.55% of net assets.
(e) This security or a portion of this security is segregated as collateral
for reverse repurchase agreements.
(f) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of July 31, 2014, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $4,492,491 and the aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over value was $4,518,652.
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 July 31, 2014
is as follows (see Note 2A - Portfolio Valuation in the Notes to Quarterly
Portfolio of Investments):
ASSETS TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
7/31/2014 PRICES INPUTS INPUTS
------------- ----------- ------------- ------------
Mortgage-Backed Securities...................... $ 58,225,305 $ -- $ 58,225,305 $ --
U.S. Government Agency Mortgage-Backed
Securities................................... 20,729,125 -- 20,729,125 --
Asset-Backed Securities......................... 235,130 -- 235,130 --
------------- ----------- ------------- ------------
TOTAL .......................................... $ 79,189,560 $ -- $ 79,189,560 $ --
============= =========== ============= ============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
7/31/2014 PRICES INPUTS INPUTS
------------- ----------- ------------- ------------
Reverse Repurchase Agreements .................. $ (8,674,000) $ -- $ (8,674,000) $ --
============= =========== ============= ============
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 July 31, 2014.
See Notes to Quarterly Portfolio of Investments
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS
FIRST TRUST MORTGAGE INCOME FUND (FMY)
JULY 31, 2014 (UNAUDITED)
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
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").
2. VALUATION AND INVESTMENT PRACTICES
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 in
accordance with valuation procedures adopted by the Fund's Board of Trustees,
and in accordance with provisions of the 1940 Act. Market quotations and prices
used to value the Fund's investments are primarily obtained from third party
pricing services. The Fund's investments are valued as follows:
U.S. government securities, mortgage-backed securities, asset-backed
securities and other debt securities are valued on the basis of valuations
provided by dealers who make markets in such securities or by an
independent pricing service approved by the Fund's Board of Trustees,
which may use the following valuation inputs when available:
1) benchmark yields;
2) reported trades;
3) broker/dealer quotes;
4) issuer spreads;
5) benchmark securities;
6) bids and offers; and
7) reference data including market research publications.
Debt securities having a remaining maturity of sixty days or less when
purchased are valued at cost adjusted for amortization of premiums and
accretion of discounts.
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 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) for which a pricing
service is unable to provide a market price; securities whose trading has been
formally suspended; a security whose market price is not available from a
pre-established pricing source; a security with respect to which an event has
occurred that is likely to materially affect the value of the security after the
market has closed but before the calculation of the Fund's NAV or make it
difficult or impossible to obtain a reliable market quotation; and a security
whose price, as provided by the pricing service, does not reflect the security's
"fair value." As a general principle, the current "fair value" of a security
would appear to be the amount which the owner might reasonably expect to receive
for the security upon its current sale. The use of fair value prices by the Fund
generally results in prices used by the Fund that may differ from current market
quotations or official closing prices on the applicable exchange. A variety of
factors may be considered in determining the fair value of such securities,
including, but not limited to, the following:
1) the 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
Brookfield Investment Management Inc.'s, the Fund's
sub-advisor, 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;
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS (CONTINUED)
FIRST TRUST MORTGAGE INCOME FUND (FMY)
JULY 31, 2014 (UNAUDITED)
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 methodology used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of July 31, 2014, is
included with the Fund's Portfolio of Investments.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME:
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
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 July 31, 2014, the Fund had no when-issued, delayed-delivery
or forward purchase commitments.
C. REVERSE REPURCHASE AGREEMENTS:
Reverse repurchase agreements are utilized as leverage for the Fund. A reverse
repurchase agreement, although structured as a sale and repurchase obligation,
acts as a 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.
Information for the fiscal period ended July 31, 2014:
Maximum amount outstanding during the period ................. $10,054,000
Average amount outstanding during the period* ................ $9,458,905
Average Common Shares outstanding during the period .......... 4,213,115
Average debt per Common Share outstanding during the period... $2.25
* 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 in the fiscal period ended July 31, 2014.
During the fiscal period ended July 31, 2014, the interest rates ranged from
0.34% to 1.28%, with a weighted average interest rate of 0.54%, on borrowings by
the Fund under reverse repurchase agreements, which had interest expense that
aggregated $38,786.
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS (CONTINUED)
FIRST TRUST MORTGAGE INCOME FUND (FMY)
JULY 31, 2014 (UNAUDITED)
D. INVERSE FLOATING-RATE SECURITIES:
An inverse floating-rate security is one where the coupon is inversely indexed
to a short-term floating interest rate multiplied by a specific factor. As the
floating rate rises, the coupon is reduced. Conversely, as the floating rate
declines, the coupon is increased. The price of these securities may be more
volatile than the price of a comparable fixed-rate security. These instruments
are typically used to enhance the yield of the portfolio. These securities, if
any, are identified on the Portfolio of Investments.
E. STRIPPED MORTGAGE-BACKED SECURITIES:
Stripped Mortgage-Backed Securities are created by segregating the cash flows
from underlying mortgage loans or mortgage securities to create two or more new
securities, each with a specified percentage of the underlying security's
principal or interest payments. Mortgage securities may be partially stripped so
that each investor class receives some interest and some principal. When
securities are completely stripped, however, all of the interest is distributed
to holders of one type of security known as an interest-only security ("IO
Security") and all of the principal is distributed to holders of another type of
security known as a principal-only security. These securities, if any, are
identified on the Portfolio of Investments.
F. INTEREST-ONLY SECURITIES:
An IO Security is the interest-only portion of a mortgage-backed security that
receives some or all of the interest portion of the underlying mortgage-backed
security and little or no principal. A reference principal value called a
notional value is used to calculate the amount of interest due to the IO
Security. IO Securities are sold at a deep discount to their notional principal
amount. Generally speaking, when interest rates are falling and prepayment rates
are increasing, the value of an IO Security will fall. Conversely, when interest
rates are rising and prepayment rates are decreasing, generally the value of an
IO Security will rise. These securities, if any, are identified on the Portfolio
of Investments.
ITEM 2. 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 last fiscal quarter
that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
ITEM 3. EXHIBITS.
Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 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/ Mark R. Bradley
----------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)
Date: September 19, 2014
----------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Mark R. Bradley
----------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)
Date: September 19, 2014
----------------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: September 19, 2014
----------------------
* Print the name and title of each signing officer under his or her signature.