[N-CSR] FIRST TRUST MORTGAGE INCOME FUND SEC Filing
Filing Impact
Filing Sentiment
Form Type
N-CSR
Rhea-AI Filing Summary
First Trust Mortgage Income Fund reports solid results for the year ended October 31, 2025. Net asset value (NAV) total return was 9.22%, while the market price total return was 7.00%. The Fund outperformed its benchmark, the Bloomberg U.S. Mortgage Backed Securities Index, which returned 7.32% over the same period.
As of October 31, 2025, NAV was $12.88 per share and the common share price was $12.06, reflecting a 6.37% discount to NAV. Net assets were $54.3 million. The portfolio was primarily invested in mortgage-backed securities and U.S. agency mortgage-backed securities, with additional exposure to asset-backed securities and money market funds.
The Fund paid a monthly distribution that was reduced during the year from $0.0750 to $0.0650 per share, equating to a 6.06% distribution rate on NAV and 6.47% on market price at period end. For the year, 65.33% of distributions were classified as ordinary income and 34.67% as return of capital. Net investment income was $2.74 million and total net increase in net assets from operations was $4.55 million.
Positive
- None.
Negative
- None.
Insights
FMY delivered moderate outperformance versus its MBS benchmark with stable income but continued use of return of capital.
First Trust Mortgage Income Fund generated a
Net investment income of
Leverage and structured exposures are evident: over half of net assets were in non-agency mortgage-backed and asset-backed securities, and the Fund used Treasury futures and options to actively manage duration and curve positioning. All portfolio investments were valued using Level 1 or Level 2 inputs, and the audit opinion was unqualified, which supports confidence in reported values, though future results will continue to depend on credit spreads, prepayment behavior and interest-rate moves.
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-21727
(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios
L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
(Name
and address of agent for service)
Registrant’s telephone number, including area code: 630-765-8000
Date of fiscal year end: October 31
Date of reporting period:
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, NW, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1. Reports to Stockholders.
| (a) | Following is a copy of the annual report transmitted to shareholders pursuant to Rule 30e-1 under the Act. |
First Trust
Mortgage Income Fund (FMY)
Annual Report
For the Year Ended
October 31, 2025
Table of Contents
First Trust Mortgage Income Fund (FMY)
Annual Report
October 31, 2025
|
At a Glance
|
1
|
|
Portfolio Commentary
|
3
|
|
Portfolio of Investments
|
6
|
|
Statement of Assets and Liabilities
|
14
|
|
Statement of Operations
|
15
|
|
Statements of Changes in Net Assets
|
16
|
|
Financial Highlights
|
17
|
|
Notes to Financial Statements
|
18
|
|
Report of Independent Registered Public Accounting Firm
|
27
|
|
Additional Information
|
28
|
|
Investment Objectives, Policies and Risks
|
32
|
|
Board of Trustees and Officers
|
38
|
|
Privacy Policy
|
40
|
Caution Regarding Forward-Looking Statements
This report contains certain forward-looking statements within the meaning of the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements
regarding the goals, beliefs, plans or current expectations of First Trust Advisors L.P. (“First Trust” or the “Advisor”) and its representatives, taking into account the information currently available to them. Forward-looking statements include all statements
that do not relate solely to current or historical fact. For example, forward-looking statements include the use of words such as “anticipate,” “estimate,” “intend,” “expect,” “believe,” “plan,” “may,” “should,” “would” or other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and other
factors that may cause the actual results, performance or achievements of First Trust Mortgage Income Fund (the “Fund”) to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
When evaluating the information included in this report, you are cautioned not to place undue reliance on these forward-looking
statements, which reflect the judgment of the Advisor and its representatives only as of the date hereof. We undertake no obligation
to publicly revise or update these forward-looking statements to reflect events and circumstances that arise after the
date hereof.
Performance and Risk Disclosure
There is no assurance that the Fund will achieve its investment objectives. The Fund
is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund’s shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in the Fund. See “Principal Risks” in the Investment Objectives, Policies and Risks section of this report for a discussion of certain other risks
of investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of future
results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures,
please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and common share price
will fluctuate and Fund shares, when sold, may be worth more or less than their original cost.
The Advisor may also periodically provide additional information on Fund performance on the Fund’s web page at www.ftportfolios.com.
How to Read This Report
This report contains information that may help you evaluate your investment in the
Fund. It includes details about the Fund and presents data and analysis that provide insight into the Fund’s performance and investment approach.
By reading the portfolio commentary by the portfolio management team of the Fund,
you may obtain an understanding of how the market environment affected the Fund’s performance. The statistical information that follows may help you understand the Fund’s performance compared to that of a relevant market benchmark.
It is important to keep in mind that the opinions expressed by personnel of the Advisor
are just that: informed opinions. They should not be considered to be promises or advice. The opinions, like the statistics, cover
the period through the date on the cover of this report. The material risks of investing in the Fund are spelled out in the prospectus,
the statement of additional information, this report and other Fund regulatory filings.
First Trust Mortgage Income Fund (FMY)
“AT A GLANCE”
As of October 31, 2025 (Unaudited)
|
Fund Statistics
|
|
|
Symbol on New York Stock Exchange
|
FMY
|
|
Common Share Price
|
$12.06
|
|
Common Share Net Asset Value (“NAV”)
|
$12.88
|
|
Premium (Discount) to NAV
|
(
)%
|
|
Net Assets Applicable to Common Shares
|
$54,252,201
|
|
Current Distribution per Common Share(1)
|
$0.0650
|
|
Current Annualized Distribution per Common Share
|
$0.7800
|
|
Current Distribution Rate on Common Share Price(2)
|
6.47
%
|
|
Current Distribution Rate on NAV(2)
|
6.06
%
|
Common Share Price & NAV (weekly closing price)
|
Performance
|
|
|
|
|
|
|
|
Average Annual Total Returns
|
||
|
|
1 Year Ended
10/31/25
|
5 Years Ended
10/31/25
|
10 Years Ended
10/31/25
|
Inception (5/25/05)
to 10/31/25
|
|
Fund Performance(3)
|
|
|
|
|
|
NAV
|
9.22
%
|
4.12
%
|
3.82
%
|
5.05
%
|
|
Market Value
|
7.00
%
|
4.33
%
|
4.13
%
|
4.47
%
|
|
Index Performance
|
|
|
|
|
|
Bloomberg U.S. Mortgage Backed Securities
(MBS) Index
|
7.32
%
|
0.04
%
|
1.49
%
|
3.05
%
|
(1)
Most recent distribution paid through October 31, 2025. Subject to change in the future.
(2)
Distribution rates are calculated by annualizing the most recent distribution paid
through the report date and then dividing by Common Share Price or NAV, as applicable, as of October 31, 2025. 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.
Page 1
First Trust Mortgage Income Fund (FMY)
“AT A GLANCE” (Continued)
As of October 31, 2025 (Unaudited)
|
Portfolio Characteristics
|
|
|
Weighted Average Effective Long Duration
|
6.3 Years
|
|
Weighted Average Effective Short Duration
|
(0.2) Years
|
|
Fund Allocation
|
% of Net Assets
|
|
Mortgage-Backed Securities
|
55.0%
|
|
U.S. Government Agency Mortgage-Backed
Securities
|
29.5
|
|
Asset-Backed Securities
|
9.2
|
|
Money Market Funds
|
5.0
|
|
U.S. Government Agency Mortgage-Backed
Securities Sold Short
|
(3.1)
|
|
Put Options Purchased
|
0.0*
|
|
Net Other Assets and Liabilities(4)
|
4.4
|
|
Total
|
100.0%
|
|
* Amount is less than 0.1%
|
|
|
Credit Quality(5)
|
% of Total
Investments
|
|
AAA
|
17.1%
|
|
AA+
|
0.6
|
|
AA
|
0.1
|
|
AA-
|
0.5
|
|
A
|
1.9
|
|
A-
|
2.2
|
|
BBB+
|
2.1
|
|
BBB
|
5.9
|
|
BBB-
|
7.2
|
|
BB+
|
1.0
|
|
BB
|
4.6
|
|
BB-
|
3.4
|
|
B
|
1.8
|
|
B-
|
4.4
|
|
CCC-
|
0.0*
|
|
CC
|
0.6
|
|
Not Rated
|
13.7
|
|
Agency
|
30.8
|
|
Agency Sold Short
|
(3.2)
|
|
Cash & Cash Equivalents
|
5.3
|
|
Total
|
100.0%
|
|
* Amount is less than 0.1%
|
|
(4)
Includes variation margin on futures contracts.
(5)
The ratings are by one or more nationally recognized statistical rating organizations (NRSROs), including S&P Global Ratings, Moody’s Investors Service, Inc., Fitch Ratings, DBRS, Inc., Kroll Bond Rating Agency, Inc. or a comparably rated NRSRO.
For situations in which a security is rated by more than one NRSRO and the ratings are not equivalent, the highest rating is used. A credit rating is
an assessment provided by a 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. “NR” indicates no rating. The credit ratings shown relate to the creditworthiness of the issuers of the underlying securities in the fund, and not to the fund or its shares. U.S. Agency and U.S. Agency mortgage-backed securities appear under “Agency.” Credit ratings are subject to change.
Page 2
Portfolio Commentary
First Trust Mortgage Income Fund (FMY)
Annual Report
October 31, 2025 (Unaudited)
Advisor
First Trust Advisors L.P. (“First Trust” or the “Advisor”) serves as the investment advisor to the First Trust Mortgage Income Fund (the “Fund” or “FMY”) and offers customized portfolio management using its structured, quantitative approach to security selection.
Portfolio Management Team
Jeremiah Charles – Senior Vice President and Senior Portfolio Manager, First Trust Government & Securitized Products Group
James Snyder – Senior Vice President and Senior Portfolio Manager, First Trust Government & Securitized Products Group
Owen Aronson – Vice President and Portfolio Manager, First Trust Government & Securitized Products Group
Commentary
First Trust Mortgage Income Fund
The Fund’s primary investment objective is to seek a high level of current income. As a secondary objective the Fund seeks to preserve capital. The Fund pursues its objectives by investing primarily in mortgage-backed securities (“MBS”) representing part ownership in a pool of either residential or commercial mortgage loans that, in the opinion of the Fund’s investment advisor, offer an attractive combination of credit quality, yield and maturity. There can be no assurance the Fund
will achieve its investment objectives. The Fund may not be appropriate for all investors.
Market Recap
As the post-pandemic bear market in fixed income continued to fade in the rearview
mirror, the bond market spent the 12-month period ended October 31, 2025 grappling with periods of elevated volatility, a re-steepening
of the U.S. yield curve, and a Trump Administration pursuing an aggressive tariff agenda. The period began with the reelection
of President Trump, and in the wake of expectations for renewed tariffs, higher inflation, and elevated deficit spending,
long-dated U.S. yields rose sharply. Once the new Administration took office, it quickly became apparent that policy implementation
would be aggressive. Significant tariffs were announced on many of the United States’ major trading partners, prompting an immediate reaction across global risk markets and triggering meaningful volatility. Equity markets experienced double-digit declines,
U.S. interest rate markets swung sharply, and credit markets showed early signs of stress as investors reassessed the outlook for economic
growth. Over time, however, several of the proposed tariffs were reduced or delayed, allowing room for negotiation and offering
markets some relief. Measures of volatility retreated almost as quickly as they had spiked, and risk assets rebounded strongly.
Equities, credit, and even high-quality fixed income sectors saw substantial tightening over the following months. As the 2025 calendar
moved into the summer months and measures of inflation continued to slowly moderate, attention shifted toward the broader labor
market. Signs of underlying softness began to emerge, prompting investors to anticipate additional monetary easing from the Federal Reserve (the “Fed”), which had remained on hold all year after cutting rates by 100 basis points (“bps”) in 2024. Ultimately, the Fed delivered—implementing a 25-basis-point rate cut in September 2025, followed by another in October 2025.
Performance Analysis
|
|
|
Average Annual Total Returns
|
||
|
|
1 Year Ended
10/31/25
|
5 Years Ended
10/31/25
|
10 Years Ended
10/31/25
|
Inception (5/25/05)
to 10/31/25
|
|
Fund Performance(1)
|
|
|
|
|
|
NAV
|
9.22
%
|
4.12
%
|
3.82
%
|
5.05
%
|
|
Market Value
|
7.00
%
|
4.33
%
|
4.13
%
|
4.47
%
|
|
Index Performance
|
|
|
|
|
|
Bloomberg U.S. Mortgage Backed Securities (MBS)
Index
|
7.32
%
|
0.04
%
|
1.49
%
|
3.05
%
|
(1)
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.
Page 3
Portfolio Commentary (Continued)
First Trust Mortgage Income Fund (FMY)
Annual Report
October 31, 2025 (Unaudited)
The Fund returned 9.22% net of fees for the 12-month period ended October 31, 2025.
The Fund outperformed its benchmark, the Bloomberg U.S. Mortgage Backed Securities
(MBS) Index, which returned 7.32% for the same period.
This 190 bps of net outperformance during the period was due to several factors:
•
Overall, the Fund generated a greater level of income than the benchmark.
•
The Fund maintained overweight allocations to Non-Agency Residential Mortgage-Backed
Securities, Commercial Mortgage-Backed Securities, and Asset-Backed Securities sectors which benefitted the Fund’s performance as spreads broadly tightened across securitized credit.
•
The Fund utilized derivatives to manage interest rate and overall yield curve exposures.
For the period, the use of derivatives was a net benefit to the Fund as the curve steepened, led by the front end moving lower.
The Fund has a practice of seeking to maintain a relatively stable monthly distribution,
which may be changed at any time. The practice has no impact on the Fund’s investment strategy and may reduce the Fund’s net asset value (“NAV”). However, the Advisor believes the practice helps maintain the Fund’s competitiveness and may benefit the Fund’s market price and premium/discount to the Fund’s NAV. The monthly distribution rate began the period at $0.0750 per share and ended at $0.0650 per share. At the $0.0650 per share monthly distribution rate, the annualized distribution rate at October 31, 2025
was 6.06% at NAV and 6.47% at market price. For the 12-month period ended October 31, 2025, 65.33% of the distributions were characterized
as ordinary income and 34.67% of the distributions were characterized as return of capital. The final determination of
the source and tax status of all 2025 distributions will be made after the end of 2025 and will be provided on Form 1099-DIV. Not to be construed
as tax advice. Please consult your tax advisor for further information regarding tax matters
Market and Fund Outlook
The Fed, which is currently under significant political pressure to ease funding rates,
is faced with elevated inflation and slowing job growth but still decent economic growth. We believe these conditions give the Fed
room to be less restrictive but not particularly easy in monetary policy. As such, our base case view is that interest rates are fairly
priced with longer maturities more historically attractive due primarily to issuance generated term structure expansion.
Page 4
Portfolio Commentary (Continued)
First Trust Mortgage Income Fund (FMY)
Annual Report
October 31, 2025 (Unaudited)
Looking forward, we expect lower funding rates, stable spreads, and stable interest
rate volatility with less yield curve movement. This is predicated on a moderately growing economy and very slow inflation improvement.
We think accelerating inflation is unlikely as the tariffs are proving to be more of a political issue than an economic one. Further,
we have taken notice that the economy is still growing without the traditional labor force expansion, and this could be due to higher capital
investment in artificial intelligence-oriented productivity. The corollary may very well be that job production per unit of growth
is less and that immigration restrictions are less important to the economy.
We remain committed to identifying compelling value across the full spectrum of credit
opportunities within the mortgage and securitized markets, as well as along the U.S. yield curve. With the curve having
re-steepened and longer maturities offering improved relative value, we currently favor a neutral to modestly long duration stance versus
the benchmark. This positioning reflects not only the enhanced roll-down potential embedded in today’s curve structure, but also the relative cheapness we continue to observe at the long end. Consistent with this outlook, we remain opportunistic purchasers of intermediate-
and long-maturity bonds and would look to further extend duration should long-end yields once again approach or surpass the
5.0% threshold. At those levels, we believe real yields offer compelling compensation for prevailing inflation dynamics and, more importantly,
for the increasing probability of a decelerating U.S. economy.
At this point in the cycle, we believe maintaining a stable convexity profile is paramount. Our objective is to anchor the portfolio’s duration more reliably relative to the benchmark, fully aware of the meaningful shortening
that can occur within mortgage-backed securities (“MBS”) once refinancing activity accelerates.
From an asset-allocation perspective, after several years of attractive valuations
in securitized credit, and in light of the recent spread tightening, we have begun to incrementally increase the portfolio’s overall credit quality. We are complementing this shift with selectively adding exposure to Agency MBS and specifically the Agency CMO market,
where we see differentiated opportunities. We believe this balanced and deliberately diversified posture can enhance the portfolio’s current yield, supports income generation, strengthens total return potential, and provides durable spread protection for shareholders.
Finally, as an ongoing component of our strategy, the Fund continues to allocate to
interest-only mortgage securities to enhance income and economic earnings. We view this approach as highly effective when supported
by rigorous security selection and disciplined yield-curve management.
Page 5
First Trust Mortgage Income Fund (FMY)
Portfolio of Investments
October 31, 2025
|
Principal
Value
|
Description
|
Stated
Coupon
|
Stated
Maturity
|
Value
|
|
MORTGAGE-BACKED SECURITIES – 55.0%
|
||||
|
|
Collateralized Mortgage Obligations – 33.2%
|
|
|
|
|
|
Banc of America Mortgage Trust
|
|
|
|
|
$27,308
|
Series 2002-L, Class 1A1 (a)
|
3.20
%
|
12/25/32
|
$23,346
|
|
|
Citigroup Mortgage Loan Trust
|
|
|
|
|
38,593
|
Series 2005-6, Class A1, US Treasury Yield Curve Rate T
Note Constant Maturity 1 Year + 2.10% (b)
|
5.75
%
|
09/25/35
|
39,364
|
|
4,142
|
Series 2009-10, Class 1A1 (a) (c)
|
5.67
%
|
09/25/33
|
4,142
|
|
|
COLT Mortgage Loan Trust
|
|
|
|
|
500,000
|
Series 2021-HX1, Class B3A (a) (c)
|
4.16
%
|
10/25/66
|
387,922
|
|
|
Connecticut Avenue Securities Trust
|
|
|
|
|
1,000,000
|
Series 2024-R02, Class 1B2, 30 Day Average SOFR +
3.70% (b) (c)
|
7.88
%
|
02/25/44
|
1,054,768
|
|
|
Countrywide Home Loan Mortgage Pass-Through Trust
|
|
|
|
|
142,379
|
Series 2006-HYB5, Class 3A1A (a)
|
4.99
%
|
09/20/36
|
126,867
|
|
|
Credit Suisse Mortgage Trust
|
|
|
|
|
705,939
|
Series 2017-FHA1, Class A1 (c)
|
3.25
%
|
04/25/47
|
651,837
|
|
|
Fidelis Mortgage Trust
|
|
|
|
|
1,000,000
|
Series 2025-RTL1, Class B (c)
|
8.95
%
|
02/27/40
|
1,021,289
|
|
|
Galton Funding Mortgage Trust
|
|
|
|
|
273,834
|
Series 2018-2, Class B2 (c)
|
4.56
%
|
10/25/58
|
265,375
|
|
|
GSR Mortgage Loan Trust
|
|
|
|
|
1,269
|
Series 2003-10, Class 1A12 (a)
|
5.58
%
|
10/25/33
|
1,218
|
|
74,246
|
Series 2005-AR1, Class 4A1 (a)
|
3.79
%
|
01/25/35
|
65,886
|
|
|
JP Morgan Mortgage Trust
|
|
|
|
|
17,572
|
Series 2006-A2, Class 5A3 (a)
|
6.42
%
|
11/25/33
|
17,402
|
|
72,640
|
Series 2015-IVR2, Class A5 (a) (c)
|
5.89
%
|
01/25/45
|
72,537
|
|
|
LHOME Mortgage Trust
|
|
|
|
|
1,000,000
|
Series 2024-RTL1, Class M, steps up to 13.45% on
8/25/2026 (c) (d)
|
11.95
%
|
01/25/29
|
1,014,421
|
|
800,000
|
Series 2024-RTL2, Class M, steps up to 13.08% on
10/25/2026 (c) (d)
|
11.58
%
|
03/25/29
|
809,911
|
|
|
MASTR Alternative Loan Trust
|
|
|
|
|
3,538,368
|
Series 2006-2, Class 2A3, 1 Mo. CME Term SOFR + CSA +
0.35% (b)
|
4.46
%
|
03/25/36
|
315,121
|
|
|
Onslow Bay Mortgage Loan Trust
|
|
|
|
|
510,552
|
Series 2021-NQM4, Class A1 (c)
|
1.96
%
|
10/25/61
|
442,011
|
|
|
PRET Trust
|
|
|
|
|
500,000
|
Series 2024-RPL1, Class M2 (a) (c)
|
3.99
%
|
10/25/63
|
390,452
|
|
|
PRKCM Trust
|
|
|
|
|
1,000,000
|
Series 2021-AFC1, Class B2 (c)
|
3.95
%
|
08/25/56
|
715,318
|
|
|
PRPM
|
|
|
|
|
1,000,000
|
Series 2025-3, Class A2, steps up to 12.07% on 5/01/2028 (c) (d)
|
9.07
%
|
05/25/30
|
1,001,357
|
|
|
PRPM LLC
|
|
|
|
|
1,000,000
|
Series 2025-6, Class M1 (c)
|
10.56
%
|
08/25/28
|
999,831
|
|
1,250,000
|
Series 2025-RPL4, Class M1A, steps up to 4.00% on
5/01/2029 (c) (d)
|
3.00
%
|
05/25/55
|
1,116,564
|
|
|
PRPM Trust
|
|
|
|
|
725,000
|
Series 2024-NQM1, Class M1 (a) (c)
|
6.71
%
|
12/25/68
|
734,006
|
|
|
Redwood Funding Trust
|
|
|
|
|
659,830
|
Series 2025-2, Class A (c)
|
7.11
%
|
10/25/55
|
665,720
|
|
455,357
|
Series 2025-3, Class A (c)
|
6.23
%
|
12/27/56
|
459,683
|
|
255,000
|
Series 2025-3, Class B (c)
|
7.75
%
|
12/27/56
|
257,325
|
|
|
Residential Accredit Loans, Inc.
|
|
|
|
|
64,115
|
Series 2006-QO1, Class 2A1, 1 Mo. CME Term SOFR + CSA +
0.54% (b)
|
4.65
%
|
02/25/46
|
32,969
|
|
561,502
|
Series 2006-QS6, Class 1AV, IO (a)
|
0.77
%
|
06/25/36
|
14,574
|
See Notes to Financial Statements
Page 6
First Trust Mortgage Income Fund (FMY)
Portfolio of Investments (Continued)
October 31, 2025
|
Principal
Value
|
Description
|
Stated
Coupon
|
Stated
Maturity
|
Value
|
|
MORTGAGE-BACKED SECURITIES (Continued)
|
||||
|
|
Collateralized Mortgage Obligations (Continued)
|
|
|
|
|
|
Residential Asset Securitization Trust
|
|
|
|
|
$15,609
|
Series 2004-A3, Class A7
|
5.25
%
|
06/25/34
|
$15,627
|
|
|
Roc Mortgage Trust
|
|
|
|
|
1,000,000
|
Series 2021-RTL1, Class M (c)
|
6.68
%
|
08/25/26
|
992,945
|
|
|
Starwood Mortgage Residential Trust
|
|
|
|
|
733,254
|
Series 2022-3, Class A1 (c)
|
4.16
%
|
03/25/67
|
731,124
|
|
|
Structured Asset Securities Corp. Mortgage Pass-Through
Certificates
|
|
|
|
|
487
|
Series 2001-SB1, Class A2
|
3.38
%
|
08/25/31
|
485
|
|
|
Towd Point Mortgage Trust
|
|
|
|
|
1,250,000
|
Series 2017-4, Class B4 (c)
|
3.65
%
|
06/25/57
|
999,505
|
|
|
Verus Securitization Trust
|
|
|
|
|
533,000
|
Series 2021-5, Class B2 (c)
|
3.94
%
|
09/25/66
|
419,523
|
|
425,000
|
Series 2021-R2, Class B2 (c)
|
4.26
%
|
02/25/64
|
338,022
|
|
691,998
|
Series 2022-1, Class A1, steps up to 3.72% on 1/1/2026 (c) (d)
|
2.72
%
|
01/25/67
|
652,231
|
|
1,000,000
|
Series 2025-INV1, Class B2 (c)
|
6.95
%
|
02/25/70
|
1,008,626
|
|
|
Washington Mutual Alternative Mortgage Pass-Through Certificates
|
|
|
|
|
8,474
|
Series 2007-5, Class A11, (1 Mo. CME Term SOFR + CSA) x -6
+ 39.48% (e)
|
14.85
%
|
06/25/37
|
10,897
|
|
|
WinWater Mortgage Loan Trust
|
|
|
|
|
168,106
|
Series 2015-3, Class B1 (a) (c)
|
3.83
%
|
03/20/45
|
158,435
|
|
|
|
18,028,636
|
||
|
|
Commercial Mortgage-Backed Securities – 21.8%
|
|
|
|
|
|
BANK
|
|
|
|
|
20,268,398
|
Series 2017-BNK7, Class XA, IO (a)
|
0.66
%
|
09/15/60
|
191,838
|
|
11,413,390
|
Series 2019-BN19, Class XA, IO (a)
|
0.93
%
|
08/15/61
|
332,800
|
|
8,854,131
|
Series 2019-BN23, Class XA, IO (a)
|
0.68
%
|
12/15/52
|
205,947
|
|
5,170,985
|
Series 2020-BN26, Class XA, IO (a)
|
1.19
%
|
03/15/63
|
198,819
|
|
|
BBCMS Mortgage Trust
|
|
|
|
|
864,000
|
Series 2018-TALL, Class A, 1 Mo. CME Term SOFR + CSA +
0.87% (b) (c)
|
4.95
%
|
03/15/37
|
815,860
|
|
|
Benchmark Mortgage Trust
|
|
|
|
|
20,371,051
|
Series 2018-B5, Class XA, IO (a)
|
0.45
%
|
07/15/51
|
203,106
|
|
|
BWAY Trust
|
|
|
|
|
600,000
|
Series 2025-1535, Class B (a) (c)
|
7.46
%
|
05/05/42
|
629,566
|
|
|
Cali 2024
|
|
|
|
|
350,000
|
Series 2024-Sun, Class D, 1 Mo. CME Term SOFR +
3.63% (b) (c)
|
7.71
%
|
07/15/41
|
351,848
|
|
|
CCRE Commercial Mortgage Securities L.P.
|
|
|
|
|
7,533,188
|
CFCRE Mortgage Trust Commercial Mortgage Pass-Through
Certificates, Series 2017-C8, Class XA, IO (a)
|
1.47
%
|
06/15/50
|
110,969
|
|
|
CD Commercial Mortgage Trust
|
|
|
|
|
8,273,025
|
Series 2018-CD7, Class XA, IO (a)
|
0.63
%
|
08/15/51
|
125,025
|
|
|
Citigroup Commercial Mortgage Trust
|
|
|
|
|
6,214,545
|
Series 2016-GC37, Class XA, IO (a)
|
1.59
%
|
04/10/49
|
62
|
|
5,606,903
|
Series 2016-P4, Class XA, IO (a)
|
1.89
%
|
07/10/49
|
25,100
|
|
|
COMM Mortgage Trust
|
|
|
|
|
3,829,000
|
Series 2015-CCRE26, Class XD, IO (a) (c)
|
1.14
%
|
10/10/48
|
38
|
|
|
Credit Suisse Mortgage Trust
|
|
|
|
|
1,000,000
|
Series 2022-CNTR, Class A, 1 Mo. CME Term SOFR +
3.94% (b) (f)
|
7.98
%
|
01/09/25
|
663,546
|
|
|
CSAIL Commercial Mortgage Trust
|
|
|
|
|
250,000
|
Series 2015-C3, Class B (a)
|
3.81
%
|
08/15/48
|
234,774
|
|
5,791,083
|
Series 2020-C19, Class XA, IO (a)
|
1.09
%
|
03/15/53
|
205,481
|
See Notes to Financial Statements
Page 7
First Trust Mortgage Income Fund (FMY)
Portfolio of Investments (Continued)
October 31, 2025
|
Principal
Value
|
Description
|
Stated
Coupon
|
Stated
Maturity
|
Value
|
|
MORTGAGE-BACKED SECURITIES (Continued)
|
||||
|
|
Commercial Mortgage-Backed Securities (Continued)
|
|
|
|
|
|
FIVE Mortgage Trust
|
|
|
|
|
$22,249,046
|
Series 2023-V1, Class XA, IO (g)
|
0.67
%
|
02/10/56
|
$277,913
|
|
|
Great Wolf Trust
|
|
|
|
|
1,000,000
|
Series 2024-WOLF, Class E, 1 Mo. CME Term SOFR +
3.64% (b) (c)
|
7.67
%
|
03/15/39
|
1,010,575
|
|
|
JP Morgan Chase Commercial Mortgage Securities Trust
|
|
|
|
|
18,846,548
|
Series 2016-JP4, Class XA, IO (a)
|
0.57
%
|
12/15/49
|
66,964
|
|
242,271
|
Series 2018-PHH, Class A, 1 Mo. CME Term SOFR + CSA +
1.21% (b) (c)
|
5.29
%
|
06/15/35
|
204,566
|
|
|
Life Mortgage Trust
|
|
|
|
|
280,000
|
Series 2021-BMR, Class D, 1 Mo. CME Term SOFR + CSA +
1.40% (b) (c)
|
5.55
%
|
03/15/38
|
278,112
|
|
|
LSTAR Commercial Mortgage Trust
|
|
|
|
|
22,538,955
|
Series 2017-5, Class X, IO (a) (c)
|
0.87
%
|
03/10/50
|
156,538
|
|
|
MCR Mortgage Trust
|
|
|
|
|
885,000
|
Series 2024-TWA, Class F (c)
|
10.38
%
|
06/12/39
|
908,758
|
|
|
Morgan Stanley Bank of America Merrill Lynch Trust
|
|
|
|
|
389,490
|
Series 2016-C31, Class XA, IO (a)
|
1.24
%
|
11/15/49
|
2,292
|
|
|
Morgan Stanley Capital I Trust
|
|
|
|
|
2,180,000
|
Series 2016-UBS9, Class XD, IO (a) (c)
|
1.53
%
|
03/15/49
|
44,707
|
|
265,000
|
Series 2018-MP, Class A (a) (c)
|
4.28
%
|
07/11/40
|
252,119
|
|
1,320,000
|
Series 2019-L2, Class C (a)
|
4.97
%
|
03/15/52
|
1,157,985
|
|
|
MSWF Commercial Mortgage Trust
|
|
|
|
|
7,569,953
|
Series 2023-1, Class XA, IO (a)
|
0.86
%
|
05/15/56
|
379,967
|
|
|
NYO Commercial Mortgage Trust
|
|
|
|
|
380,000
|
Series 2021-1290, Class D, 1 Mo. CME Term SOFR + CSA +
2.55% (b) (c)
|
6.69
%
|
11/15/38
|
372,360
|
|
|
SFO Commercial Mortgage Trust
|
|
|
|
|
1,102,700
|
Series 2021-555, Class A, 1 Mo. CME Term SOFR + CSA +
1.15% (b) (c)
|
5.30
%
|
05/15/38
|
1,096,311
|
|
1,000,000
|
Series 2021-555, Class D, 1 Mo. CME Term SOFR + CSA +
2.40% (b) (c)
|
6.55
%
|
05/15/38
|
989,353
|
|
|
Wells Fargo Commercial Mortgage Trust
|
|
|
|
|
5,305,650
|
Series 2021-C60, Class XA, IO (a)
|
1.49
%
|
08/15/54
|
327,604
|
|
|
|
11,820,903
|
||
|
|
Total Mortgage-Backed Securities
|
29,849,539
|
||
|
|
(Cost $31,173,718)
|
|
|
|
|
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES – 29.5%
|
||||
|
|
Collateralized Mortgage Obligations – 18.7%
|
|
|
|
|
|
Federal Home Loan Mortgage Corp.
|
|
|
|
|
67,217
|
Series 2439, Class XI, IO, if 30 Day Average SOFR is less than
7.39%, then 6.50%, otherwise 0.00% (e)
|
6.50
%
|
03/15/32
|
7,448
|
|
384,014
|
Series 2975, Class SJ, IO, (30 Day Average SOFR + CSA) x -1 +
6.65% (e)
|
2.30
%
|
05/15/35
|
35,444
|
|
10,746
|
Series 3451, Class SB, IO, (30 Day Average SOFR + CSA) x -1 +
6.03% (e)
|
1.68
%
|
05/15/38
|
945
|
|
152,357
|
Series 3471, Class SD, IO, (30 Day Average SOFR + CSA) x -1 +
6.08% (e)
|
1.73
%
|
12/15/36
|
14,730
|
|
2,706
|
Series 4021, Class IP, IO
|
3.00
%
|
03/15/27
|
35
|
|
47,593
|
Series 4057, Class YI, IO
|
3.00
%
|
06/15/27
|
731
|
|
91,677
|
Series 4082, Class PI, IO
|
3.00
%
|
06/15/27
|
1,354
|
|
131,562
|
Series 4206, Class IA, IO
|
3.00
%
|
03/15/33
|
6,946
|
|
896,902
|
Series 4959, Class JF, 30 Day Average SOFR + CSA + 0.45% (b)
|
4.75
%
|
03/25/50
|
876,235
|
See Notes to Financial Statements
Page 8
First Trust Mortgage Income Fund (FMY)
Portfolio of Investments (Continued)
October 31, 2025
|
Principal
Value
|
Description
|
Stated
Coupon
|
Stated
Maturity
|
Value
|
|
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Continued)
|
||||
|
|
Collateralized Mortgage Obligations (Continued)
|
|
|
|
|
|
Federal Home Loan Mortgage Corp. (Continued)
|
|
|
|
|
$945,444
|
Series 4990, Class AF, 30 Day Average SOFR + CSA +
0.40% (b)
|
4.70
%
|
07/25/50
|
$921,684
|
|
882,892
|
Series 5004, Class FG, 30 Day Average SOFR + CSA +
0.40% (b)
|
4.70
%
|
08/25/50
|
857,657
|
|
2,019,017
|
Series 5179, Class GZ
|
2.00
%
|
01/25/52
|
1,158,895
|
|
852,997
|
Series 5350, Class PO, PO
|
(h)
|
11/25/53
|
746,293
|
|
|
Federal Home Loan Mortgage Corp. Structured Pass-Through
Certificates
|
|
|
|
|
42,953
|
Series T-56, Class APO, PO
|
(h)
|
05/25/43
|
41,748
|
|
|
Federal Home Loan Mortgage Corp., STRIPS
|
|
|
|
|
1,428
|
Series 177, Class IO, IO
|
7.00
%
|
07/01/26
|
17
|
|
|
Federal National Mortgage Association
|
|
|
|
|
188
|
Series 1996-46, Class ZA
|
7.50
%
|
11/25/26
|
188
|
|
7,875
|
Series 2002-80, Class IO, IO
|
6.00
%
|
09/25/32
|
266
|
|
28,857
|
Series 2003-15, Class MS, IO, (30 Day Average SOFR + CSA) x
-1 + 8.00% (e)
|
3.70
%
|
03/25/33
|
3,516
|
|
33,933
|
Series 2003-44, Class IU, IO
|
7.00
%
|
06/25/33
|
3,971
|
|
34,079
|
Series 2005-6, Class SE, IO, (30 Day Average SOFR + CSA) x -1
+ 6.70% (e)
|
2.40
%
|
02/25/35
|
2,781
|
|
20,276
|
Series 2007-100, Class SM, IO, (30 Day Average SOFR + CSA) x
-1 + 6.45% (e)
|
2.15
%
|
10/25/37
|
2,038
|
|
112,316
|
Series 2007-37, Class SB, IO, (30 Day Average SOFR + CSA) x
-1 + 6.75% (e)
|
2.45
%
|
05/25/37
|
14,248
|
|
294,177
|
Series 2008-17, Class BE
|
5.50
%
|
10/25/37
|
295,695
|
|
502,168
|
Series 2010-103, Class ID, IO
|
5.00
%
|
09/25/40
|
72,106
|
|
26,200
|
Series 2010-99, Class SG, (30 Day Average SOFR + CSA) x -5 +
25.00% (e)
|
2.85
%
|
09/25/40
|
30,063
|
|
6,679
|
Series 2011-81, Class PI, IO
|
3.50
%
|
08/25/26
|
9
|
|
1,051,226
|
Series 2012-125, Class MI, IO
|
3.50
%
|
11/25/42
|
140,001
|
|
16,897
|
Series 2013-132, Class SW, (30 Day Average SOFR + CSA) x
-2.67 + 10.67%, 0.00% Floor (e)
|
0.00
%
|
01/25/44
|
13,657
|
|
998,682
|
Series 2013-32, Class IG, IO
|
3.50
%
|
04/25/33
|
68,600
|
|
1,036,990
|
Series 2015-20, Class ES, IO, (30 Day Average SOFR + CSA) x
-1 + 6.15% (e)
|
1.85
%
|
04/25/45
|
133,474
|
|
168,142
|
Series 2016-74, Class LI, IO
|
3.50
%
|
09/25/46
|
39,250
|
|
1,888,097
|
Series 2017-109, Class SJ, IO, (30 Day Average SOFR + CSA) x
-1 + 6.20% (e)
|
1.90
%
|
01/25/48
|
231,025
|
|
252,272
|
Series 2020-47, Class FA, 30 Day Average SOFR + CSA +
0.40% (b)
|
4.70
%
|
07/25/50
|
246,693
|
|
936,031
|
Series 2022-69, Class FA, 30 Day Average SOFR + 0.82% (b)
|
5.00
%
|
10/25/52
|
925,811
|
|
1,046,553
|
Series 5435, Class BS, (30 Day Average SOFR) x -2 +
11.93% (e)
|
3.56
%
|
07/25/54
|
992,554
|
|
1,028,527
|
Series 5502, Class FC, 30 Day Average SOFR + 2.00% (b)
|
6.00
%
|
02/25/55
|
1,041,334
|
|
|
Federal National Mortgage Association, STRIPS
|
|
|
|
|
6,965
|
Series 305, Class 12, IO (g)
|
6.50
%
|
12/25/29
|
375
|
|
19,141
|
Series 355, Class 18, IO
|
7.50
%
|
11/25/33
|
1,979
|
|
347,044
|
Series 406, Class 6, IO (g)
|
4.00
%
|
01/25/41
|
53,588
|
|
|
Government National Mortgage Association
|
|
|
|
|
73,677
|
Series 2005-33, Class AY
|
5.50
%
|
04/16/35
|
73,539
|
|
100,694
|
Series 2007-68, Class PI, IO, (1 Mo. CME Term SOFR + CSA) x
-1 + 6.65% (e)
|
2.50
%
|
11/20/37
|
1,569
|
|
100,000
|
Series 2008-2, Class HB
|
5.50
%
|
01/16/38
|
101,172
|
|
85,716
|
Series 2008-73, Class SK, IO, (1 Mo. CME Term SOFR + CSA) x
-1 + 6.74% (e)
|
2.59
%
|
08/20/38
|
3,674
|
See Notes to Financial Statements
Page 9
First Trust Mortgage Income Fund (FMY)
Portfolio of Investments (Continued)
October 31, 2025
|
Principal
Value
|
Description
|
Stated
Coupon
|
Stated
Maturity
|
Value
|
|
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (Continued)
|
||||
|
|
Collateralized Mortgage Obligations (Continued)
|
|
|
|
|
|
Government National Mortgage Association (Continued)
|
|
|
|
|
$140,602
|
Series 2013-104, Class YS, IO, (1 Mo. CME Term SOFR + CSA)
x -1 + 6.15% (e)
|
2.00
%
|
07/16/43
|
$12,775
|
|
2,944,992
|
Series 2015-158, Class KS, IO, (1 Mo. CME Term SOFR + CSA)
x -1 + 6.25% (e)
|
2.10
%
|
11/20/45
|
455,566
|
|
78,606
|
Series 2016-139, Class MZ
|
1.50
%
|
07/20/45
|
49,441
|
|
171,567
|
Series 2017-4, Class CZ
|
3.00
%
|
01/20/47
|
142,515
|
|
145,047
|
Series 2017-H18, Class DZ (g)
|
4.61
%
|
09/20/67
|
138,551
|
|
8,045,065
|
Series 2020-13, Class BT, IO, (1 Mo. CME Term SOFR + CSA) x
-1 + 6.20%, Capped at 0.50% (e)
|
0.50
%
|
11/20/45
|
178,147
|
|
|
|
10,140,333
|
||
|
|
Commercial Mortgage-Backed Securities – 10.8%
|
|
|
|
|
|
Federal Home Loan Mortgage Corp. Multifamily Structured
Pass-Through Certificates
|
|
|
|
|
14,500,000
|
Series K071, Class X3, IO (a)
|
2.01
%
|
11/25/45
|
551,226
|
|
12,589,940
|
Series K100, Class X3, IO (a)
|
1.87
%
|
11/25/47
|
805,112
|
|
4,000,000
|
Series K110, Class X3, IO (a)
|
3.37
%
|
06/25/48
|
520,730
|
|
4,326,216
|
Series K118, Class X3, IO (a)
|
2.69
%
|
10/25/48
|
475,635
|
|
1,900,000
|
Series K122, Class X3, IO (a)
|
2.63
%
|
01/25/49
|
210,626
|
|
3,343,856
|
Series K128, Class X3, IO (a)
|
2.78
%
|
04/25/31
|
415,642
|
|
1,831,144
|
Series K739, Class X3, IO (a)
|
2.80
%
|
11/25/48
|
79,349
|
|
2,454,000
|
Series K755, Class X3, IO (a)
|
5.64
%
|
02/25/31
|
613,338
|
|
1,663,400
|
Series K757, Class X3, IO (a)
|
5.55
%
|
10/25/61
|
439,704
|
|
4,571,896
|
Series KG06, Class X3, IO (a)
|
2.74
%
|
10/25/31
|
592,222
|
|
|
Federal National Mortgage Association, ACES
|
|
|
|
|
15,150,000
|
Series 2019-M29, Class X4, IO (a)
|
0.70
%
|
03/25/29
|
278,139
|
|
|
Freddie Mac Multiclass Certificates
|
|
|
|
|
5,572,287
|
Series 2021-P011, Class X1, IO (a)
|
1.75
%
|
09/25/45
|
603,169
|
|
|
Government National Mortgage Association
|
|
|
|
|
4,860,055
|
Series 2024-32, Class IO, IO (a)
|
0.70
%
|
06/16/63
|
246,152
|
|
|
|
5,831,044
|
||
|
|
Total U.S. Government Agency Mortgage-Backed Securities
|
15,971,377
|
||
|
|
(Cost $17,828,793)
|
|
|
|
|
ASSET-BACKED SECURITIES – 9.2%
|
||||
|
|
Adams Outdoor Advertising LP
|
|
|
|
|
1,000,000
|
Series 2023-1, Class B (c)
|
8.81
%
|
07/15/53
|
1,034,975
|
|
|
CoreVest American Finance Trust
|
|
|
|
|
197,580
|
Series 2021-1, Class A (c)
|
1.57
%
|
04/15/53
|
194,581
|
|
6,618,393
|
Series 2021-3, Class XA, IO (a) (c)
|
2.37
%
|
10/15/54
|
121,761
|
|
|
Exeter Automobile Receivables Trust
|
|
|
|
|
750,000
|
Series 2024-1A, Class E (c)
|
7.89
%
|
08/15/31
|
778,794
|
|
|
Gracie Point International Funding LLC
|
|
|
|
|
692,000
|
Series 2024-1A, Class D, 90 Day Average SOFR + 7.15% (b) (c)
|
11.51
%
|
03/01/28
|
694,709
|
|
500,000
|
Series 2025-1A, Class D, 30 Day Average SOFR + 4.50% (b) (c)
|
8.81
%
|
08/15/28
|
499,755
|
|
|
Island Finance Trust
|
|
|
|
|
500,000
|
Series 2025-1A, Class B (c)
|
7.95
%
|
03/19/35
|
508,125
|
|
500,000
|
Series 2025-1A, Class C (c)
|
10.00
%
|
03/19/35
|
510,284
|
|
|
Mid-State Capital Corp. Trust
|
|
|
|
|
34,747
|
Series 2005-1, Class A
|
5.75
%
|
01/15/40
|
34,747
|
|
|
PAGAYA AI Debt Grantor Trust
|
|
|
|
|
266,306
|
Series 2024-10, Class E (c)
|
10.41
%
|
06/15/32
|
273,922
|
See Notes to Financial Statements
Page 10
First Trust Mortgage Income Fund (FMY)
Portfolio of Investments (Continued)
October 31, 2025
|
Principal
Value
|
Description
|
Stated
Coupon
|
Stated
Maturity
|
Value
|
|
ASSET-BACKED SECURITIES (Continued)
|
||||
|
|
PAGAYA AI Debt Trust
|
|
|
|
|
$350,885
|
Series 2024-3, Class D (c)
|
9.00
%
|
10/15/31
|
$353,491
|
|
|
Total Asset-Backed Securities
|
5,005,144
|
||
|
|
(Cost $4,812,963)
|
|
|
|
|
Shares
|
Description
|
Value
|
|
MONEY MARKET FUNDS – 5.0%
|
||
|
2,738,276
|
Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio - Institutional
Class - 3.94% (i)
|
2,738,276
|
|
|
(Cost $2,738,276)
|
|
|
|
Total Investments – 98.7%
|
53,564,336
|
||
|
|
(Cost $56,553,750)
|
|
|
|
|
Principal
Value
|
Description
|
Stated
Coupon
|
Stated
Maturity
|
Value
|
|
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES SOLD SHORT – (3.1)%
|
||||
|
|
Pass-through Security – (3.1)%
|
|
|
|
|
|
Fannie Mae or Freddie Mac
|
|
|
|
|
(237,000
)
|
Pool TBA (j)
|
3.50
%
|
12/01/54
|
(218,351
)
|
|
(770,000
)
|
Pool TBA (j)
|
3.00
%
|
12/01/55
|
(682,292
)
|
|
(238,000
)
|
Pool TBA (j)
|
3.50
%
|
01/01/56
|
(219,329
)
|
|
(580,000
)
|
Pool TBA (j)
|
4.50
%
|
12/01/55
|
(565,077
)
|
|
|
Total Investments Sold Short – (3.1)%
|
(1,685,049
)
|
||
|
|
(Proceeds $1,683,357)
|
|
|
|
|
Number of
Contracts
|
Description
|
Notional
Amount
|
Exercise
Price
|
Expiration
Date
|
Value
|
|
PURCHASED OPTIONS – 0.0%
|
|||||
|
|
Put Options Purchased – 0.0%
|
|
|
|
|
|
5
|
US Treasury Bond Futures Put
|
$586,563
|
$95.00
|
11/21/25
|
5
|
|
|
Total Purchased Options
|
5
|
|||
|
|
(Cost $794)
|
|
|
|
|
|
|
Net Other Assets and Liabilities – 4.4%
|
2,372,909
|
|
|
Net Assets – 100.0%
|
$54,252,201
|
See Notes to Financial Statements
Page 11
First Trust Mortgage Income Fund (FMY)
Portfolio of Investments (Continued)
October 31, 2025
Futures Contracts (See Note 2D - Futures Contracts in the Notes to Financial Statements):
|
Futures Contracts
|
Position
|
Number of
Contracts
|
Expiration
Date
|
Notional
Value
|
Unrealized
Appreciation
(Depreciation)/
Value
|
|
10-Year U.S. Treasury Note Futures
|
Long
|
41
|
Dec 2025
|
$4,619,547
|
$6,212
|
|
CME Ultra Long Term U.S. Treasury Bond Futures
|
Long
|
5
|
Dec 2025
|
606,407
|
20,625
|
|
Ultra 10 Year US Treasury Note Futures
|
Long
|
71
|
Dec 2025
|
8,199,391
|
83,188
|
|
US Treasury 2 Year Note Futures
|
Long
|
21
|
Dec 2025
|
4,373,086
|
(5,125)
|
|
US Treasury 5 Year Note Futures
|
Long
|
50
|
Dec 2025
|
5,460,547
|
(8,952)
|
|
US Treasury Bond Futures
|
Long
|
8
|
Dec 2025
|
938,500
|
15,410
|
|
|
|
|
|
$24,197,478
|
$111,358
|
|
(a)
|
Collateral Strip Rate security. Coupon is based on the weighted net interest rate of the investment’s underlying collateral. The
interest rate resets periodically.
|
|
(b)
|
Floating or variable rate security.
|
|
(c)
|
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., (the “Advisor”). Although market instability can result in
periods of increased overall market illiquidity, liquidity for each security is determined
based on security specific factors and
assumptions, which require subjective judgment. At October 31, 2025, securities noted
as such amounted to $29,445,988 or
54.3% of net assets.
|
|
(d)
|
Step-up security. A security where the coupon increases or steps up at a predetermined
date. Interest rate shown reflects the rate in
effect at October 31, 2025.
|
|
(e)
|
Inverse floating rate security.
|
|
(f)
|
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).
|
|
(g)
|
Weighted Average Coupon security. Coupon is based on the blended interest rate of
the underlying holdings, which may have
different coupons. The coupon may change in any period.
|
|
(h)
|
Zero coupon security.
|
|
(i)
|
Rate shown reflects yield as of October 31, 2025.
|
|
(j)
|
All or portion of this security is part of a mortgage dollar roll agreement (see Note
2K - Mortgage Dollar Rolls and TBA
Transactions in the Notes to Financial Statements).
|
|
Abbreviations throughout the Portfolio of Investments:
|
|
|
ACES
|
– Alternative Credit Enhancement Securities
|
|
CME
|
– Chicago Mercantile Exchange
|
|
CSA
|
– Credit Spread Adjustment
|
|
IO
|
– Interest-Only Security - Principal amount shown represents par value on which interest payments are based.
|
|
PO
|
– Principal-Only Security
|
|
SOFR
|
– Secured Overnight Financing Rate
|
|
STRIPS
|
– Separate Trading of Registered Interest and Principal of Securities
|
|
TBA
|
– To-Be-Announced Security
|
See Notes to Financial Statements
Page 12
First Trust Mortgage Income Fund (FMY)
Portfolio of Investments (Continued)
October 31, 2025
Valuation Inputs
A summary of the inputs used to value the Fund’s investments as of October 31, 2025 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
|
ASSETS TABLE
|
||||
|
|
Total
Value at
10/31/2025
|
Level 1
Quoted
Prices
|
Level 2
Significant
Observable
Inputs
|
Level 3
Significant
Unobservable
Inputs
|
|
Mortgage-Backed Securities
|
$29,849,539
|
$—
|
$29,849,539
|
$—
|
|
U.S. Government Agency Mortgage-Backed Securities
|
15,971,377
|
—
|
15,971,377
|
—
|
|
Asset-Backed Securities
|
5,005,144
|
—
|
5,005,144
|
—
|
|
Money Market Funds
|
2,738,276
|
2,738,276
|
—
|
—
|
|
Total Investments
|
53,564,336
|
2,738,276
|
50,826,060
|
—
|
|
Purchased Options
|
5
|
5
|
—
|
—
|
|
Futures Contracts*
|
125,435
|
125,435
|
—
|
—
|
|
Total
|
$53,689,776
|
$2,863,716
|
$50,826,060
|
$—
|
|
|
||||
|
LIABILITIES TABLE
|
||||
|
|
Total
Value at
10/31/2025
|
Level 1
Quoted
Prices
|
Level 2
Significant
Observable
Inputs
|
Level 3
Significant
Unobservable
Inputs
|
|
U.S. Government Agency Mortgage-
Backed Securities Sold Short
|
$(1,685,049
)
|
$—
|
$(1,685,049
)
|
$—
|
|
Futures Contracts*
|
(14,077
)
|
(14,077
)
|
—
|
—
|
|
Total
|
$(1,699,126
)
|
$(14,077
)
|
$(1,685,049
)
|
$—
|
|
* Includes cumulative appreciation/depreciation on futures contracts as reported in the Futures Contracts table. Only the current day’s
variation margin is presented on the Statement of Assets and Liabilities.
|
See Notes to Financial Statements
Page 13
First Trust Mortgage Income Fund (FMY)
Statement of Assets and Liabilities
October 31, 2025
|
ASSETS:
|
|
|
Investments, at value
|
$ 53,564,336
|
|
Restricted Cash
|
400,981
|
|
Options contracts purchased, at value
|
5
|
|
Receivables:
|
|
|
Investment securities sold
|
3,422,048
|
|
Interest
|
450,098
|
|
Prepaid expenses
|
5,383
|
|
Total Assets
|
57,842,851
|
|
LIABILITIES:
|
|
|
Investments sold short, at value
|
1,685,049
|
|
Payables:
|
|
|
Investment securities purchased
|
1,741,237
|
|
Audit and tax fees
|
70,129
|
|
Investment advisory fees
|
39,207
|
|
Administrative fees
|
19,552
|
|
Shareholder reporting fees
|
11,177
|
|
Variation margin
|
10,188
|
|
Trustees’ fees and expenses
|
4,139
|
|
Legal fees
|
3,039
|
|
Transfer agent fees
|
1,914
|
|
Interest expense on investments sold short
|
1,898
|
|
Custodian fees
|
1,669
|
|
Financial reporting fees
|
833
|
|
Other liabilities
|
619
|
|
Total Liabilities
|
3,590,650
|
|
NET ASSETS
|
$54,252,201
|
|
NET ASSETS consist of:
|
|
|
Paid-in capital
|
$ 62,114,504
|
|
Par value
|
42,131
|
|
Accumulated distributable earnings (loss)
|
(7,904,434
)
|
|
NET ASSETS
|
$54,252,201
|
|
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share)
|
$12.88
|
|
|
|
|
Investments, at cost
|
$56,553,750
|
|
Premiums paid on options contracts purchased
|
$794
|
|
Investments sold short, proceeds
|
$1,683,357
|
See Notes to Financial Statements
Page 14
First Trust Mortgage Income Fund (FMY)
Statement of Operations
For the Year Ended October 31, 2025
|
INVESTMENT INCOME:
|
|
|
|
Interest
|
$ 3,486,880
|
|
|
Other
|
3,712
|
|
|
Total investment income
|
3,490,592
|
|
|
EXPENSES:
|
|
|
|
Investment advisory fees
|
453,609
|
|
|
Audit and tax fees
|
75,925
|
|
|
Trustees’ fees and expenses
|
50,241
|
|
|
Administrative fees
|
46,696
|
|
|
Shareholder reporting fees
|
38,333
|
|
|
Listing expense
|
24,589
|
|
|
Transfer agent fees
|
23,532
|
|
|
Financial reporting fees
|
9,500
|
|
|
Custodian fees
|
5,222
|
|
|
Legal fees
|
4,310
|
|
|
Other
|
14,614
|
|
|
Total expenses
|
746,571
|
|
|
NET INVESTMENT INCOME (LOSS)
|
2,744,021
|
|
|
NET REALIZED AND UNREALIZED GAIN (LOSS):
|
|
|
|
Net realized gain (loss) on:
|
|
|
|
Investments
|
325,914
|
|
|
Purchased options contracts
|
(9,506
)
|
|
|
Written options contracts
|
5,359
|
|
|
Futures contracts
|
(558,918
)
|
|
|
Net realized gain (loss)
|
(237,151
)
|
|
|
Net change in unrealized appreciation (depreciation) on:
|
|
|
|
Investments
|
1,229,506
|
|
|
Purchased options contracts
|
(789
)
|
|
|
Written options contracts
|
49,545
|
|
|
Futures contracts
|
770,237
|
|
|
Investments sold short
|
(1,692
)
|
|
|
Net change in unrealized appreciation (depreciation)
|
2,046,807
|
|
|
NET REALIZED AND UNREALIZED GAIN (LOSS)
|
1,809,656
|
|
|
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
|
$ 4,553,677
|
|
See Notes to Financial Statements
Page 15
First Trust Mortgage Income Fund (FMY)
Statements of Changes in Net Assets
|
|
Year
Ended
10/31/2025
|
Year
Ended
10/31/2024
|
|
OPERATIONS:
|
|
|
|
Net investment income (loss)
|
$ 2,744,021
|
$ 3,922,366
|
|
Net realized gain (loss)
|
(237,151
)
|
1,264,811
|
|
Net increase from payment by the advisor
|
—
|
908
|
|
Net change in unrealized appreciation (depreciation)
|
2,046,807
|
2,832,551
|
|
Net increase (decrease) in net assets resulting from operations
|
4,553,677
|
8,020,636
|
|
DISTRIBUTIONS TO SHAREHOLDERS FROM:
|
|
|
|
Investment operations
|
(2,394,577
)
|
(3,734,822
)
|
|
Return of capital
|
(1,270,833
)
|
(320,301
)
|
|
Total distributions to shareholders
|
(3,665,410
)
|
(4,055,123
)
|
|
Total increase (decrease) in net assets
|
888,267
|
3,965,513
|
|
NET ASSETS:
|
|
|
|
Beginning of period
|
53,363,934
|
49,398,421
|
|
End of period
|
$ 54,252,201
|
$ 53,363,934
|
|
COMMON SHARES:
|
|
|
|
Common Shares at end of period
|
4,213,115
|
4,213,115
|
See Notes to Financial Statements
Page 16
First Trust Mortgage Income Fund (FMY)
Financial Highlights
For a Common Share outstanding throughout each period
|
|
Year Ended October 31,
|
||||
|
2025
|
2024
|
2023
|
2022
|
2021
|
|
|
Net asset value, beginning of period
|
$ 12.67
|
$ 11.72
|
$ 12.09
|
$ 13.92
|
$ 14.45
|
|
Income from investment operations:
|
|
|
|
|
|
|
Net investment income (loss)
|
0.65
(a)
|
0.93
(a)
|
0.76
(a)
|
0.50
|
0.44
|
|
Net realized and unrealized gain (loss)
|
0.43
|
0.98
(b)
|
(0.45
)
|
(1.67
)
|
(0.25
)
|
|
Total from investment operations
|
1.08
|
1.91
|
0.31
|
(1.17
)
|
0.19
|
|
Distributions paid to shareholders from:
|
|
|
|
|
|
|
Net investment income
|
(0.57
)
|
(0.88
)
|
(0.68
)
|
(0.43
)
|
(0.35
)
|
|
Return of capital
|
(0.30
)
|
(0.08
)
|
—
|
(0.23
)
|
(0.37
)
|
|
Total distributions paid to Common Shareholders
|
(0.87
)
|
(0.96
)
|
(0.68
)
|
(0.66
)
|
(0.72
)
|
|
Net asset value, end of period
|
$
|
$12.67
|
$11.72
|
$12.09
|
$13.92
|
|
Market value, end of period
|
$
|
$12.11
|
$10.88
|
$11.01
|
$13.70
|
|
Total return based on net asset value (c)
|
9.22
%
|
17.10
%
|
2.88
%
|
(8.38
)%
|
1.51
%
|
|
Total return based on market value (c)
|
7.00
%
|
20.57
%
|
4.88
%
|
(15.22
)%
|
7.74
%
|
|
Ratios to average net assets/supplemental data:
|
|
|
|
|
|
|
Net assets, end of period (in 000’s)
|
$ 54,252
|
$ 53,364
|
$ 49,398
|
$ 50,929
|
$ 58,647
|
|
Ratio of total expenses to average net assets
|
1.40
%
|
1.42
%
|
1.36
%
|
1.33
%
|
1.31
%
|
|
Ratio of net investment income (loss) to average net assets
|
5.14
%
|
7.39
%
|
6.18
%
|
3.86
%
|
3.11
%
|
|
Portfolio turnover rate
|
82
%
|
100
%
|
143
%
|
44
%
|
67
%
|
|
(a)
|
Based on average shares outstanding.
|
|
(b)
|
The Fund received a payment from the advisor in the amount of $908, which represents
less than $0.01 per share. Since the
advisor reimbursed the Fund, there was no effect on the Fund’s total return.
|
|
(c)
|
Total return is based on the combination of reinvested dividend, capital gain and
return of capital distributions, if any, at prices
obtained by the Dividend Reinvestment Plan, and changes in net asset value per share
for net asset value returns and changes in
Common 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.
|
See Notes to Financial Statements
Page 17
Notes to Financial Statements
First Trust Mortgage Income Fund (FMY)
October 31, 2025
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”).
The Fund’s primary investment objective is to seek a high level of current income. As a secondary objective, the Fund seeks to preserve capital. The Fund pursues its objectives by investing primarily in mortgage-backed securities (“MBS”) representing part ownership in a pool of either residential or commercial mortgage loans that, in the opinion of First Trust Advisors L.P. (“First Trust” or the “Advisor”), offer an attractive combination of credit quality, yield and maturity. There can be no assurance the Fund will achieve its investment objectives. The Fund may not be appropriate for all investors.
2. Significant Accounting Policies
The Fund is considered an investment company and follows accounting and reporting
guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946, “Financial Services-Investment Companies.” The following is a summary of significant accounting policies consistently followed by the Fund in the
preparation of the financial statements. The preparation of the financial statements in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
A. Portfolio Valuation
The net asset value (“NAV”) of the Common Shares of the Fund is determined daily as of the close of regular trading on the NYSE, normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. If the
NYSE closes early on a valuation day, the NAV is determined as of that time. Domestic debt securities and foreign securities are priced
using data reflecting the earlier closing of the principal markets for those securities. The Fund’s NAV per Common Share is calculated by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued
expenses, dividends declared but unpaid and any borrowings of the Fund), by the total number of Common Shares outstanding.
The Fund’s investments are valued daily at market value or, in the absence of market value with respect to any portfolio securities, at fair value. Market value prices represent readily available market quotations such
as 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 approved by the Fund’s Board of Trustees, and in accordance with provisions of the 1940 Act and rules thereunder. 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 a third-party pricing service approved by the Advisor’s Pricing Committee, 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.
Pricing services generally value fixed-income securities assuming orderly transactions
of an institutional round lot size, but a Fund may hold or transact in such securities in smaller, odd lot sizes. Odd lots may
trade at lower prices than institutional round lots.
Shares of open-end funds are valued based on NAV per share.
Exchange-traded options contracts are valued at the closing price in the market where
such contracts are principally traded. If no closing price is available, exchange-traded options contracts are fair valued at the
mean of their most recent bid and ask price,
Page 18
Notes to Financial Statements (Continued)
First Trust Mortgage Income Fund (FMY)
October 31, 2025
if both are available. Over-the-counter options contracts are valued as follows, depending
on the market in which the investment trades: (1) the mean of the most recent bid and ask price, if available; or (2) a
price based on the equivalent exchange-traded option.
Exchange-traded futures contracts are valued at the end of the day settlement price.
Fixed income and other debt securities having a remaining maturity of sixty days or
less when purchased are fair valued at cost adjusted for amortization of premiums and accretion of discounts (amortized cost), provided the Advisor’s Pricing Committee has determined that the use of amortized cost is an appropriate reflection of fair
value given market and issuer-specific conditions existing at the time of the determination. Factors that may be considered
in determining the appropriateness of the use of amortized cost include, but are not limited to, the following:
1)
the credit conditions in the relevant market and changes thereto;
2)
the liquidity conditions in the relevant market and changes thereto;
3)
the interest rate conditions in the relevant market and changes thereto (such as significant
changes in interest rates);
4)
issuer-specific conditions (such as significant credit deterioration); and
5)
any other market-based data the Advisor’s Pricing Committee considers relevant. In this regard, the Advisor’s Pricing Committee may use last-obtained market-based data to assist it when valuing portfolio
securities using amortized cost.
Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the 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)
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)
available market prices for the fixed-income security;
3)
an evaluation of the forces which influence the market in which these securities are
purchased and sold;
4)
the type, size and cost of the security;
5)
the financial statements of the issuer;
6)
the credit quality and cash flow of the issuer, based on the Advisor’s or external analysis;
7)
the information as to any transactions in or offers for the security;
8)
the price and extent of public trading in similar securities (or equity securities)
of the borrower/issuer, or comparable companies;
9)
the coupon payments;
10)
the quality, value and salability of collateral, if any, securing the security;
11)
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;
12)
the prospects for the issuer’s industry, and multiples (of earnings and/or cash flows) being paid for similar businesses in that industry; and
13)
other relevant factors.
The Fund is subject to fair value accounting standards that define fair value, establish
the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation
as of the measurement date. The three levels of the fair value hierarchy are as follows:
•
Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide
pricing information on an ongoing basis.
Page 19
Notes to Financial Statements (Continued)
First Trust Mortgage Income Fund (FMY)
October 31, 2025
•
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.
•
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, 2025, is included with the Fund’s Portfolio of Investments.
B. Securities Transactions and Investment Income
Securities transactions are recorded as of the trade date. Realized gains and losses
from securities transactions are recorded on the identified cost basis. Interest income is recorded daily on the accrual basis. Amortization
of premiums and accretion of discounts are recorded using the effective interest method.
The Fund invests in interest-only securities. For these securities, if there is a
change in the estimated cash flows, based on an evaluation of current information, then the estimated yield is adjusted. Additionally,
if the evaluation of current information indicates a permanent impairment of the security, the cost basis of the security is written down
and a loss is recognized. Debt obligations may be placed on non-accrual status and the related interest income may be reduced by ceasing
current accruals and writing off interest receivables when the collection of all or a portion of interest has become doubtful
based on consistently applied procedures. A debt obligation is removed from non-accrual status when the issuer resumes interest payments
or when collectability of interest is reasonably assured.
Securities purchased or sold on a when-issued, delayed-delivery or forward purchase
commitment basis may have extended settlement periods. The value of the security 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, 2025, the Fund had no when-issued or delayed-delivery securities.
At October 31, 2025, the Fund held $1,685,049 of forward purchase-commitments sold short.
C. Restricted Securities
As of October 31, 2025, the Fund held restricted securities as shown in the following
table that the Advisor deemed illiquid pursuant to procedures adopted by the Fund’s Board of Trustees:
|
Security
|
Acquisition
Date
|
Principal
Value
|
Current Price
|
Carrying
Cost
|
Value
|
% of
Net
Assets
|
|
Credit Suisse Mortgage Trust, 7.98%, 01/09/25
|
03/10/22
|
$1,000,000
|
$66.35
|
$1,000,000
|
$663,546
|
1.22
%
|
D. Futures Contracts
The Fund may purchase or sell (i.e., is long or short) exchange-listed futures contracts
to hedge against changes in interest rates (interest rate risk). Futures contracts are agreements between the Fund and a counterparty
to buy or sell a specific quantity of an underlying instrument at a specified price and at a specified date. Depending on the
terms of the contract, futures contracts are settled either through physical delivery of the underlying instrument on the settlement date
or by payment of a cash settlement amount on the settlement date. Open futures contracts can also be closed out prior to settlement
by entering into an offsetting transaction in a matching futures contract. If the Fund is not able to enter into an offsetting transaction,
the Fund will continue to be required to maintain margin deposits on the futures contract. When the contract is closed or expires,
the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and
the value at the time it was closed or expired. This gain or loss is included in “Net realized gain (loss) on futures contracts” on the Statement of Operations.
Page 20
Notes to Financial Statements (Continued)
First Trust Mortgage Income Fund (FMY)
October 31, 2025
Upon entering into a futures contract, the Fund must deposit funds, called margin,
with its custodian in the name of the clearing broker equal to a specified percentage of the current value of the contract. Open futures
contracts are marked to market daily with the change in value recognized as a component of “Net change in unrealized appreciation (depreciation) on futures contracts” on the Statement of Operations. Pursuant to the contract, the Fund agrees to receive from or pay to the
broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are included in “Variation margin” payable or receivable on the Statement of Assets and Liabilities.
If market conditions change unexpectedly, the Fund may not achieve the anticipated
benefits of the futures contract and may realize a loss. The use of futures contracts involves the risk of imperfect correlation in movements
in the price of the futures contracts, interest rates and the underlying instruments.
Restricted cash segregated as collateral for futures contracts in the amount of $400,981 is shown as “Restricted Cash” on the Statement of Assets and Liabilities.
E. Options Contracts
The Fund may invest in exchange-listed options on U.S. Treasury securities, exchange-listed
options on U.S. Treasury futures contracts, exchange-listed U.S. Treasury futures contracts, exchange-listed options
on secured overnight financing rate futures contracts and options on interest-rate swap agreements. The Fund uses derivative instruments
primarily to hedge interest rate risk and actively manage interest rate exposure. The primary risk exposure is interest rate
risk.
The Fund may purchase (buy) or write (sell) put and call options on futures contracts
and enter into closing transactions with respect to such options to terminate an existing position. A futures option gives the holder
the right, in return for the premium paid, to assume a long position (call) or short position (put) in a futures contract at a specified
exercise price prior to the expiration of the option. Upon exercise of a call option, the holder acquires a long position in the futures contract
and the writer is assigned the opposite short position. In the case of a put option, the opposite is true. Prior to exercise or
expiration, a futures option contract may be closed out by an offsetting purchase or sale of a futures option of the same series. When the Fund
writes (sells) an option, an amount equal to the premium received by the Fund is included in “Options written, at value” on the Statement of Assets and Liabilities. When the Fund purchases (buys) an option, the premium paid represents the cost of the option, which is included in “Premiums paid on options purchased” on the Statement of Assets and Liabilities. Options are marked-to-market daily and their value is affected by changes in the value of the underlying security, changes in interest rates, changes in the actual
or perceived volatility of the securities markets and the underlying securities, and the remaining time to the option’s expiration. The value of options may also be adversely affected if the market for the options becomes less liquid or the trading volume diminishes.
The Fund uses options on futures contracts in connection with hedging strategies.
Generally, these strategies are applied under the same market and market sector conditions in which the Fund uses put and call options
on securities. The purchase of put options on futures contracts is analogous to the purchase of puts on securities so as to hedge the Fund’s securities holdings against the risk of declining market prices. The writing of a call option or the purchasing of a put option
on a futures contract constitutes a partial hedge against declining prices of securities which are deliverable upon exercise of the
futures contract. If the price at expiration of a written call option is below the exercise price, the Fund will retain the full amount of the
option premium which provides a partial hedge against any decline that may have occurred in the Fund’s holdings of securities. If the price when the option is exercised is above the exercise price, however, the Fund may incur a loss (depending on the original sale
price of the option), which may be offset, in whole or in part, by the increase in the value of the securities held by the Fund that were
being hedged. Writing a put option or purchasing a call option on a futures contract serves as a partial hedge against an increase in
the value of the securities the Fund intends to acquire. Realized gains and losses on written options are included in “Net realized gain (loss) on written options contracts” on the Statement of Operations. Realized gains and losses on purchased options are included in “Net realized gain (loss) on purchased options contracts” on the Statement of Operations.
The Fund is required to deposit and maintain margin with respect to put and call options
on futures contracts written by it. Such margin deposits will vary depending on the nature of the underlying futures contract
(and the related initial margin requirements), the current market value of the option and other futures positions held by the Fund. The
Fund will pledge in a segregated account at the Fund’s custodian, liquid assets, such as cash, U.S. government securities or other high-grade liquid debt obligations equal in value to the amount due on the underlying obligation. Such segregated assets will be marked-to-market
daily, and additional assets will be pledged in the segregated account whenever the total value of the pledged assets falls
below the amount due on the underlying obligation.
The risks associated with the use of options on future contracts include the risk
that the Fund may close out its position as a writer of an option only if a liquid secondary market exists for such options, which cannot be assured. The Fund’s successful use of options on futures contracts depends on the Advisor’s ability to correctly forecast the movement in prices on futures contracts and the underlying
Page 21
Notes to Financial Statements (Continued)
First Trust Mortgage Income Fund (FMY)
October 31, 2025
instruments, which may prove to be incorrect. In addition, there may be imperfect
correlation between the instruments being hedged and the futures contract subject to option.
For the fiscal year ended October 31, 2025 there was no restricted cash held for options
on futures contracts.
F. Short Sales
Short sales are utilized for investment and risk management purposes and are transactions
in which securities or other instruments (such as options, forwards, futures or other derivative contracts) are sold by the Fund, but are not currently owned in the Fund’s portfolio. When the Fund engages in a short sale, the Fund must borrow the security
sold short and deliver the security to the counterparty. Short selling allows the Fund to profit from a decline in a market price
to the extent such decline exceeds the transaction costs and the costs of borrowing the securities. The Fund will pay a fee or premium
to borrow the securities sold short and is obligated to repay the lenders of the securities. Any dividends or interest that accrues on
the securities during the period of the loan are due to the lenders. A gain, limited to the price at which the security was sold short, or
a loss, unlimited in size, will be recognized upon the termination of the short sale; which is affected by the Fund purchasing the security
sold short and delivering the security to the lender. Any such gain or loss may be offset, completely or in part, by the change in the value of the long portion of the Fund’s portfolio. The Fund is subject to the risk that it may be unable to reacquire a security to terminate
a short position except at a price substantially in excess of the last quoted price. Also, there is the risk that the counterparty to
a short sale may fail to honor its contractual terms, causing a loss to the Fund.
G. 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.
H. 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.
I. 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.
J. Principal-Only Securities
A principal-only security (“PO Security”) is the principal-only portion of a mortgage-backed security that does not receive any interest, is priced at a deep discount to its redemption value and ultimately receives
the redemption value. Generally speaking, when interest rates are falling and prepayment rates are increasing, the value of a PO
Security will rise. Conversely, when interest rates are rising and prepayment rates are decreasing, generally the value of a PO Security will
fall. These securities, if any, are identified on the Portfolio of Investments.
K. Mortgage Dollar Rolls and TBA Transactions
The Fund may invest, without limitation, in mortgage dollar rolls. The Fund intends
to enter into mortgage dollar rolls only with high quality securities dealers and banks, as determined by the Fund’s investment advisor. In a mortgage dollar roll, the Fund will sell (or buy) mortgage-backed securities for delivery on a specified date and simultaneously
contract to repurchase (or sell) substantially similar (same type, coupon and maturity) securities on a future date. Mortgage dollar
rolls are recorded as separate purchases and sales in the Fund. The Fund may also invest in to-be-announced transactions (“TBA Transactions”). A TBA Transaction is a method of trading mortgage-backed securities. TBA Transactions generally are conducted in accordance
with widely-accepted guidelines which
Page 22
Notes to Financial Statements (Continued)
First Trust Mortgage Income Fund (FMY)
October 31, 2025
establish commonly observed terms and conditions for execution, settlement and delivery.
In a TBA Transaction, the buyer and the seller agree on general trade parameters such as agency, settlement date, par amount
and price.
L. Dividends and Distributions to Shareholders
The Fund will distribute to holders of its Common Shares monthly dividends of all
or a portion of its net income after the payment of interest and dividends in connection with leverage, if any. Distributions of any net
long-term capital gains earned by the Fund are distributed at least annually. Distributions will automatically be reinvested into additional Common Shares pursuant to the Fund’s Dividend Reinvestment Plan unless cash distributions are elected by the shareholder.
Distributions from net investment income and realized capital gains are determined
in accordance with federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements
are periodically adjusted for permanent differences in order to reflect their tax character. These permanent differences are
primarily due to the varying treatment of income and gain/loss on portfolio securities held by the Fund and have no impact on net assets
or NAV per share. Temporary differences, which arise from recognizing certain items of income, expense and gain/loss in different
periods for financial statement and tax purposes, will reverse at some point in the future. Permanent differences incurred during the
fiscal year ended October 31, 2025, resulting in book and tax accounting differences, have been reclassified at year end to reflect
an increase in accumulated net investment income (loss) of $235,832 and a decrease in accumulated net realized gain (loss) of $235,832.
Accumulated distributable earnings (loss) consists of accumulated net investment income (loss), accumulated net realized gain
(loss) on investments, and unrealized appreciation (depreciation) on investments. Net assets were not affected by this reclassification.
The tax character of distributions paid by the Fund during the fiscal years ended
October 31, 2025 and 2024, was as follows:
|
Distributions paid from:
|
2025
|
2024
|
|
Ordinary income
|
$2,394,577
|
$3,734,822
|
|
Capital gains
|
—
|
—
|
|
Return of capital
|
1,270,833
|
320,301
|
As of October 31, 2025, the components of distributable earnings and net assets on
a tax basis were as follows:
|
Undistributed ordinary income
|
$—
|
|
Undistributed capital gains
|
—
|
|
Total undistributed earnings
|
—
|
|
Accumulated capital and other losses
|
(2,292,768
)
|
|
Net unrealized appreciation (depreciation)
|
(5,611,666
)
|
|
Total accumulated earnings (losses)
|
(7,904,434
)
|
|
Other
|
—
|
|
Paid-in capital
|
62,156,635
|
|
Total net assets
|
$54,252,201
|
M. 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.
The Fund intends to utilize provisions of the federal income tax laws which allow
it to carry a realized capital loss forward indefinitely following the year of the loss and offset such loss against any future realized capital
gains. The Fund is subject to certain limitations under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in
losses. These limitations apply when there has been a 50% change in ownership. At October 31, 2025, the Fund had non-expiring capital
loss carryforwards available for federal income tax purposes of $2,292,768.
At the taxable year ended October 31, 2025, the Fund utilized $346,572 of its capital
loss carryforward.
Page 23
Notes to Financial Statements (Continued)
First Trust Mortgage Income Fund (FMY)
October 31, 2025
Certain losses realized during the current fiscal year may be deferred and treated
as occurring on the first day of the following fiscal year for federal income tax purposes. For the fiscal year ended October 31, 2025,
the Fund had no net late year ordinary or capital losses.
The Fund is subject to accounting standards that establish a minimum threshold for
recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. The taxable
years ended 2022, 2023, 2024, and 2025 remain open to federal and state audit. As of October 31, 2025, 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.
As of October 31, 2025, the aggregate cost, gross unrealized appreciation, gross unrealized
depreciation, and net unrealized appreciation/(depreciation) on investments (including short positions and derivatives,
if any) for federal income tax purposes were as follows:
|
Tax Cost
|
Gross
Unrealized
Appreciation
|
Gross
Unrealized
(Depreciation)
|
Net Unrealized
Appreciation
(Depreciation)
|
|
$57,602,316
|
$769,344
|
$(6,381,010)
|
$(5,611,666)
|
N. Expenses
The Fund will pay all expenses directly related to its operations.
O. Segment Reporting
The Fund has adopted FASB Accounting Standards Update 2023-07, Segment Reporting (Topic
280) - Improvements to Reportable Segment Disclosures. Adoption of the standard impacted financial statement disclosures only and did not affect the Fund’s financial position or the results of its operations. An operating segment is defined in Topic
280 as a component of a public entity that engages in business activities from which it may recognize revenues and incur expenses, has operating
results that are regularly reviewed by the public entity’s chief operating decision maker (“CODM”) to make decisions about resources to be allocated to the segment and assess its performance, and has discrete financial information available. The CODM is the
President and Chief Executive Officer of the Fund. The Fund operates as a single operating segment. The Fund’s income, expenses, assets, changes in net assets resulting from operations and performance are regularly monitored and assessed as a whole by the CODM responsible
for oversight functions of the Fund, using the information presented in the financial statements and financial highlights.
3. Investment Advisory Fee, Affiliated Transactions and Other Fee Arrangements
First Trust, the investment advisor to the Fund, is a limited partnership with one
limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois
corporation controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for the selection and ongoing monitoring of the Fund’s investment portfolio, managing the Fund’s business affairs and providing certain administrative services necessary for the management of the Fund. For these investment management services, First Trust is entitled to a monthly
fee calculated at an annual rate of 0.85% of the Fund’s Managed Assets (the average daily total asset value of the Fund minus the sum of the Fund’s liabilities other than the principal amount of borrowings or reverse repurchase agreements, if any). First Trust also provides
fund reporting services to the Fund for a flat annual fee in the amount of $10,000. Prior to July 1, 2025, the financial reporting
fee was $9,250.
Computershare, Inc. (“Computershare”) serves as the Fund’s transfer agent in accordance with certain fee arrangements. As transfer agent, Computershare is responsible for maintaining shareholder records for the Fund.
The Bank of New York Mellon (“BNY”) serves as the Fund’s administrator, fund accountant, and custodian in accordance with certain fee arrangements. As administrator and fund accountant, BNY is responsible for providing
certain administrative and accounting services to the Fund, including maintaining the Fund’s books of account, records of the Fund’s securities transactions, and certain other books and records. As custodian, BNY is responsible for custody of the Fund’s assets. BNY is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First
Trust Fund Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end
or other actively managed fund, a target outcome fund or an index fund.
Page 24
Notes to Financial Statements (Continued)
First Trust Mortgage Income Fund (FMY)
October 31, 2025
Additionally, the Chairs of the Audit Committee, Nominating and Governance Committee
and Valuation Committee, the Vice Chair of the Audit Committee, the Lead Independent Trustee and the Vice Lead Independent Trustee
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 Committee Chairs, the Audit Committee Vice Chair, the Lead Independent Trustee and the Vice Lead Independent
Trustee rotate periodically in serving in such capacities. 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, 2025, were $24,100,611 and $19,455,054, 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, 2025, were $23,980,627 and $19,377,701, respectively.
5. Derivative Transactions
The following table presents the type of derivatives held by the Fund at October 31,
2025, the primary underlying risk exposure and the location of these instruments as presented on the Statement of Assets and Liabilities.
|
|
|
Asset Derivatives
|
Liability Derivatives
|
||
|
Derivative
Instrument
|
Risk
Exposure
|
Statement of Assets and
Liabilities Location
|
Value
|
Statement of Assets and
Liabilities Location
|
Value
|
|
Options contracts
|
Interest Rate Risk
|
Options contracts
purchased, at value
|
$ 5
|
Options contracts
written, at value
|
$ —
|
|
Futures contracts
|
Interest Rate Risk
|
Unrealized appreciation
on futures contracts*
|
125,435
|
Unrealized depreciation
on futures contracts*
|
14,077
|
*Includes cumulative appreciation/depreciation on futures contracts as reported in the Fund’s Portfolio of Investments. Only the current day’s variation margin is presented on the Statement of Assets and Liabilities.
The following table presents the amount of net realized gain (loss) and change in
net unrealized appreciation (depreciation) recognized for the fiscal year ended October 31, 2025, on derivative instruments, as well as
the primary underlying risk exposure associated with each instrument.
|
Statement of Operations Location
|
|
|
Interest Rate Risk Exposure
|
|
|
Net realized gain (loss) on:
|
|
|
Purchased options contracts
|
$(9,506
)
|
|
Written options contracts
|
5,359
|
|
Futures contracts
|
(558,918
)
|
|
Net change in unrealized appreciation (depreciation) on:
|
|
|
Purchased options contracts
|
(789
)
|
|
Written options contracts
|
49,545
|
|
Futures contracts
|
770,237
|
The average notional value of futures contracts outstanding during the fiscal year
ended October 31, 2025, which is indicative of the volume of this derivative type was $22,435,649.
During the fiscal year ended October 31, 2025, the premiums for purchased options
opened were $10,300, and the premiums for purchased options closed, exercised and expired were $9,506.
During the fiscal year ended October 31, 2025, the premiums for written options opened
were $157,421, and the premiums for written options closed, exercised and expired were $186,470.
The Fund does not have the right to offset financial assets and liabilities related
to futures and options on futures contracts on the Statement of Assets and Liabilities.
Page 25
Notes to Financial Statements (Continued)
First Trust Mortgage Income Fund (FMY)
October 31, 2025
6. Indemnification
The Fund has a variety of indemnification obligations under contracts with its service providers. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses
pursuant to these contracts and expects the risk of loss to be remote.
7. Subsequent Events
Management has evaluated the impact of all subsequent events on the Fund through the
date the financial statements were issued and has determined that there were no subsequent events requiring recognition or disclosure
in the financial statements that have not already been disclosed.
Page 26
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Trustees of First Trust Mortgage Income Fund:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of First Trust Mortgage Income Fund (the “Fund”), including the portfolio of investments, as of October 31, 2025, the related statement of operations
for the year then ended, statements of changes in net assets for each of the two years in the period then ended, financial highlights
for each of the five years in the period then ended, and the related notes (collectively referred to as the “financial statements and financial highlights”). In our opinion, the financial statements and financial highlights present fairly, in all material respects, the
financial position of the Fund as of October 31, 2025, and the results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended in
conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding
of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement
of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements
and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures
included confirmation of securities owned as of October 31, 2025, by correspondence with the custodian and brokers; when replies were
not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for
our opinion.
/s/ Deloitte & Touche, LLP
Chicago, Illinois
December 22, 2025
We have served as the auditor of one or more First Trust investment companies since
2001.
Page 27
Additional Information
First Trust Mortgage Income Fund (FMY)
October 31, 2025 (Unaudited)
Dividend Reinvestment Plan
If your Common Shares are registered directly with the Fund or if you hold your Common
Shares with a brokerage firm that participates in the Fund’s Dividend Reinvestment Plan (the “Plan”), unless you elect, by written notice to the Fund, to receive cash distributions, all dividends, including any capital gain distributions, on your Common
Shares will be automatically reinvested by Computershare Trust Company N.A. (the “Plan Agent”), in additional Common Shares under the Plan. If you elect to receive cash distributions, you will receive all distributions in cash paid by check mailed directly
to you by the Plan Agent, as the dividend paying agent.
If you decide to participate in the Plan, the number of Common Shares you will receive
will be determined as follows:
(1)
If Common Shares are trading at or above net asset value (“NAV”) at the time of valuation, the Fund will issue new shares at a price equal to the greater of (i) NAV per Common Share on that date or (ii) 95%
of the market price on that date.
(2)
If Common Shares are trading below NAV at the time of valuation, the Plan Agent will
receive the dividend or distribution in cash and will purchase Common Shares in the open market, on the NYSE or elsewhere, for the participants’ accounts. It is possible that the market price for the Common Shares may increase before the Plan
Agent has completed its purchases. Therefore, the average purchase price per share paid by the Plan Agent may exceed
the market price at the time of valuation, resulting in the purchase of fewer shares than if the dividend or distribution had
been paid in Common Shares issued by the Fund. The Plan Agent will use all dividends and distributions received in cash to
purchase Common Shares in the open market within 30 days of the valuation date except where temporary curtailment or
suspension of purchases is necessary to comply with federal securities laws. Interest will not be paid on any uninvested cash
payments.
You may elect to opt-out of or withdraw from the Plan at any time by giving written
notice to the Plan Agent, or by telephone at (866) 340-1104, in accordance with such reasonable requirements as the Plan Agent
and the Fund may agree upon. If you withdraw or the Plan is terminated, you will receive a certificate for each whole share in your
account under the Plan, and you will receive a cash payment for any fraction of a share in your account. If you wish, the Plan Agent will
sell your shares and send you the proceeds, minus brokerage commissions.
The Plan Agent maintains all Common Shareholders’ accounts in the Plan and gives written confirmation of all transactions in the accounts, including information you may need for tax records. Common Shares in your
account will be held by the Plan Agent in non-certificated form. The Plan Agent will forward to each participant any proxy solicitation
material and will vote any shares so held only in accordance with proxies returned to the Fund. Any proxy you receive will include
all Common Shares you have received under the Plan.
There is no brokerage charge for reinvestment of your dividends or distributions in
Common Shares. However, all participants will pay a pro rata share of brokerage commissions incurred by the Plan Agent when it makes
open market purchases.
Automatically reinvesting dividends and distributions does not mean that you do not
have to pay income taxes due upon receiving dividends and distributions. Capital gains and income are realized although cash is
not received by you. Consult your financial advisor for more information.
If you hold your Common Shares with a brokerage firm that does not participate in
the Plan, you will not be able to participate in the Plan and any dividend reinvestment may be effected on different terms than those described
above.
The Fund reserves the right to amend or terminate the Plan if in the judgment of the
Board of Trustees the change is warranted. There is no direct service charge to participants in the Plan; however, the Fund reserves
the right to amend the Plan to include a service charge payable by the participants. Additional information about the Plan may be obtained
by writing Computershare, Inc., P.O. Box 43006, Providence, RI 02940-3006.
Proxy Voting Policies and Procedures
A description of the policies and procedures that the Fund uses to determine how to
vote proxies and information on how the Fund voted proxies relating to portfolio investments during the most recent 12-month period
ended June 30 is available (1) without charge, upon request, by calling (800) 988-5891 or emailing info@ftportfolios.com; (2) on the Fund’s website at www.ftportfolios.com; and (3) on the Securities and Exchange Commission’s (“SEC”) website at www.sec.gov.
Portfolio Holdings
The Fund files portfolio holdings information for each month in a fiscal quarter within
60 days after the end of the relevant fiscal quarter on Form N-PORT. Portfolio holdings information for the third month of each
fiscal quarter will be publicly available on the
Page 28
Additional Information (Continued)
First Trust Mortgage Income Fund (FMY)
October 31, 2025 (Unaudited)
SEC’s website at www.sec.gov. The Fund’s complete schedule of portfolio holdings for the second and fourth quarters of each fiscal year is included in the semi-annual and annual reports to shareholders, respectively,
and is filed with the SEC on Form N-CSR. The semi-annual and annual report for the Fund is available to investors within 60 days after the period to which it relates. The Fund’s Forms N-PORT and Forms N-CSR are available on the SEC’s website listed above.
Federal Tax Information
Distributions paid to foreign shareholders during the Fund’s fiscal year ended October 31, 2025, that were properly designated by the Fund as “interest-related dividends” or “short-term capital gain dividends,” may not be subject to federal income tax provided that the income was earned by such foreign shareholders.
Of the ordinary income (including short-term capital gain) distributions made by the
Fund during the period ended October 31, 2025, none qualify for the corporate dividends received deduction available to corporate
shareholders or as qualified dividend income.
NYSE Certification Information
In accordance with Section 303A-12 of the New York Stock Exchange (“NYSE”) Listed Company Manual, the Fund’s President has certified to the NYSE that, as of May 1, 2025, 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 Form N-CSR contain certifications by the Fund’s principal executive officer and principal financial officer that relate to the Fund’s public disclosure in such reports and are required by Rule 30a-2 under the 1940 Act.
Submission of Matters to a Vote of Shareholders
The Fund held its Annual Meeting of Shareholders (the “Annual Meeting”) on April 21, 2025. At the Annual Meeting, James A. Bowen, Niel B. Nielson and Bronwyn Wright were elected by the Common Shareholders
of First Trust Mortgage Income Fund as Class III Trustees for a three-year term expiring at the Fund’s annual meeting of shareholders in 2028. The number of votes cast in favor of Mr. Bowen was 3,259,153 and the number of votes withheld was 60,957. The
number of votes cast in favor of Mr. Nielson was 3,198,286 and the number of votes withheld was 121,824. The number of votes cast
in favor of Ms. Wright was 1,414,425 and the number of votes withheld was 1,905,685. Denise M. Keefe, Robert F. Keith, Thomas R.
Kadlec and Richard E. Erickson are the other current and continuing Trustees.
Investment Management Agreement
Board Considerations Regarding Approval of Continuation of Investment Management Agreement
The Board of Trustees of First Trust Mortgage Income Fund (the “Fund”), including the Independent Trustees, unanimously approved the continuation of the Investment Management Agreement (the “Agreement”) between the Fund and First Trust Advisors L.P. (the “Advisor”). The Board approved the continuation of the Agreement for a one-year period ending June 30, 2026 at a meeting held on June 8–9, 2025. The Board determined that the continuation of the Agreement is in the best interests of the Fund in light of the nature, extent and quality of the services provided and such other matters as the Board considered
to be relevant in the exercise of its 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, 2025 and June 8–9, 2025, the Board, including the Independent Trustees, reviewed materials provided by the Advisor responding to requests for information
from counsel to the Independent Trustees, submitted on behalf of the Independent Trustees, that, among other things, outlined:
the services provided by the Advisor to the Fund (including the relevant personnel responsible for these services and their experience);
the advisory fee rate payable by the Fund as compared to fees charged to a peer group of funds (the “Expense Group”) and a broad peer universe of funds (the “Expense Universe”), each assembled by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent source, and as compared to fees charged to other clients of the Advisor; the expense ratio of the Fund as compared to expense ratios of the funds in the Fund’s Expense Group and Expense Universe; performance information for the Fund, including comparisons of the Fund’s performance to that of one or more relevant benchmark indexes and to that of a performance group of funds and
a broad performance universe of funds (the “Performance Universe”), each assembled by Broadridge; the nature of expenses incurred in providing services to the Fund and the potential for the Advisor to realize economies of scale, if any; profitability and
other financial data for the Advisor; any indirect benefits to the Advisor; and information on the Advisor’s compliance program. The Board reviewed initial materials with the Advisor at the meeting held on April 22, 2025, prior to which the Independent Trustees and
their counsel met separately to discuss the
Page 29
Additional Information (Continued)
First Trust Mortgage Income Fund (FMY)
October 31, 2025 (Unaudited)
information provided by the Advisor. Following the April meeting, counsel to the
Independent Trustees, 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 their counsel held prior to the June 8–9, 2025 meeting, as well as at the June meeting. The Board applied its business judgment
to determine whether the arrangement between the Fund and the Advisor continues to be a reasonable business arrangement from the Fund’s perspective. The Board determined that, given the totality of the information provided with respect to the Agreement, the
Board had received sufficient information to renew the Agreement. The Board considered that shareholders chose to invest or remain invested
in the Fund knowing that the Advisor manages the Fund.
In reviewing the Agreement, the Board considered the nature, extent and quality of
the services provided by the Advisor under the Agreement. The Board considered that the Advisor is responsible for the overall management
and administration of the Fund and reviewed all of the services provided by the Advisor to the Fund, as well as the background
and experience of the persons responsible for such services. The Board noted that the Advisor’s Government & Securitized Products Group is responsible for the day-to-day management of the Fund’s investments. The Board considered the background and experience of the members of the Government & Securitized Products Group and noted the Board’s prior meetings with members of the Group. The Board considered the Advisor’s statement that it applies the same oversight model internally with its Government
& Securitized Products Group as it uses for overseeing external sub-advisors, including portfolio risk monitoring and performance
review. In reviewing the services provided, the Board noted the compliance program that had been developed by the Advisor and considered
that it includes a robust program for monitoring the Advisor’s and the Fund’s compliance with the 1940 Act, as well as the Fund’s compliance with its investment objectives, policies and restrictions. The Board also considered a report from the
Advisor with respect to its risk management functions related to the operation of the Fund. Finally, as part of the Board’s consideration of the Advisor’s services, the Advisor, in its written materials and at the April 22, 2025 meeting, described to the Board the scope
of its ongoing investment in additional personnel and infrastructure to maintain and improve the quality of services provided to the
Fund and the other funds in the First Trust Fund Complex. In light of the information presented and the considerations made, the Board
concluded that the nature, extent and quality of the services provided to the Fund by the Advisor under the Agreement have been
and are expected to remain satisfactory and that the Advisor has managed the Fund consistent with its investment objectives, policies
and restrictions.
The Board considered the advisory fee rate payable under the Agreement for the services
provided. The Board received and reviewed information showing the fee rates and expense ratios of the peer funds in the Expense
Group, as well as advisory and unitary fee rates charged by the Advisor to other fund and non-fund clients, as applicable. With respect
to the Expense Group, the Board discussed with the Advisor limitations in creating a relevant peer group for the Fund, including
that (i) certain peer fund assets are larger than those of the Fund, in which case the comparison causes the fixed expenses of the Fund
to be larger on a percentage basis; and (ii) the Fund is unique in its composition, which makes assembling peers with similar strategies
and asset mix difficult. The Board took these limitations into account in considering the peer data. Based on the information provided,
the Board noted that the contractual advisory fee rate payable by the Fund, based on average net assets, was above the median contractual
advisory fee of the peer funds in the Expense Group. With respect to fees charged to other clients, the Board considered
differences between the Fund and other clients that limited their comparability. In considering the advisory fee rate overall, the Board also considered the Advisor’s statement that it seeks to meet investor needs through innovative and value-added investment solutions and the Advisor’s demonstrated long-term commitment to the Fund and the other funds in the First Trust Fund Complex.
The Board considered performance information for the Fund. The Board noted the process
it has established for monitoring the Fund’s performance and portfolio risk on an ongoing basis, which includes quarterly performance reporting from the Advisor for the Fund. 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, 2024 to the performance of the funds in the Performance Universe and to that of a benchmark index. In reviewing the Fund’s performance as compared to the performance of the Performance Universe, the Board took into account the limitations described above
with respect to creating a relevant peer group for the Fund. Based on the information provided on net asset value performance, the Board
noted that the Fund performed equal to the Performance Universe median for the one- and three-year periods ended December 31,
2024, underperformed the Performance Universe median for the five-year period ended December 31, 2024, outperformed the
Performance Universe median for the ten-year period ended December 31, 2024 and outperformed the benchmark index for the one-,
three-, five- and ten-year periods ended December 31, 2024. The Board also received information on the Fund’s average trading discount for various periods and comparable information for a peer group.
On the basis of all the information provided on the fees, expenses and performance
of the Fund and the ongoing oversight by the Board, the Board concluded that the advisory fee continues to be reasonable and appropriate
in light of the nature, extent and quality of the services provided by the Advisor to the Fund under the Agreement.
Page 30
Additional Information (Continued)
First Trust Mortgage Income Fund (FMY)
October 31, 2025 (Unaudited)
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 at current asset levels and whether the Fund
may benefit from any economies of scale. The Board noted the Advisor’s statement that it believes that its expenses relating to providing advisory services to the Fund will increase during the next twelve months as the Advisor continues to build infrastructure and
add new staff. The Board concluded 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, 2024 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
indirect 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 also noted that the Advisor
does not utilize soft dollars in connection with the Fund. The Board concluded that the character and amount of potential indirect
benefits to the Advisor were not unreasonable.
Based on all of the information considered and the conclusions reached, the Board,
including the Independent Trustees, unanimously determined that the terms of the Agreement continue to be fair and reasonable and
that the continuation of the Agreement is in the best interests of the Fund. No single factor was determinative in the Board’s analysis.
Page 31
Investment Objectives, Policies and Risks
First Trust Mortgage Income Fund (FMY)
October 31, 2025 (Unaudited)
Changes Occurring During the Prior Fiscal Year
The following information is a summary of certain changes during the most recent fiscal year ended October 31, 2025. This information may not reflect all of the changes that have occurred since you purchased
shares of the Fund.
During the Fund’s most recent fiscal year, there were no material changes to the Fund’s investment objectives or policies that have not been approved by shareholders or in the principal risk factors associated with an
investment in the Fund.
Investment Objectives
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.
Principal Investment Policies
In the pursuit of its investment objectives, under normal market conditions:
•
The Fund invests at least 80% of its managed assets in mortgage-backed securities.
Such MBS may include those with fixed, floating or variable interest rates, those with interest rates that change based on
multiples of changes in a specified index of interest rates and those with interest rates that change inversely to changes in interest
rates, as well as those that do not bear interest. The Fund may also invest in MBS through TBA Transactions. The Fund does
not invest in corporate bonds other than those primarily secured by interests in real estate.
•
The Fund may invest up to 35% of its managed assets in securities that, at the time
of investment, are rated below investment grade (including securities that are unrated but judged to be of comparable quality
by the Advisor).
•
The Fund may invest up to 20% of its managed assets in U.S. government securities,
or cash or other short-term instruments, and may invest up to 10% of its managed assets in real-estate related assets collateralized
by pools of assets, such as home equity loans and lines of credit, and asset-backed securities, including non-mortgage
asset-backed securities.
•
The Fund may invest up to 10% of its managed assets in securities that, at the time
of investment, are illiquid.
Percentage limitations described herein are as of the time of investment by the Fund
and may be exceeded on a going-forward basis as a result of market value fluctuations of the Fund’s portfolio.
To the extent the Fund enters into derivatives transactions, it will do so pursuant
to Rule 18f-4 under the 1940 Act. Rule 18f-4 requires the Fund to implement certain policies and procedures designed to manage its derivatives risks, dependent upon the Fund’s level of exposure to derivative instruments.
The Fund may engage in the use of leverage by issuing preferred shares of beneficial
interest, entering into reverse repurchase agreements, and/or issuing notes or other evidences of indebtedness including bank
borrowings or commercial paper.
In addition, the Fund may, but is not required to, use various strategic transactions
to: (1) seek to reduce interest rate risks arising from any use of leverage; (2) facilitate portfolio management; and (3) mitigate risks,
including interest rate risk and credit risks. The Fund generally seeks to use these instruments and transactions as portfolio management
or hedging techniques to protect against possible adverse changes in the market value of securities held in or to be purchased for the Fund’s portfolio, protect the value of the Fund’s portfolio, facilitate the sale of certain securities for investment purposes, manage
the effective interest rate exposure of the Fund or establish positions in the derivative markets as a substitute for purchasing or selling
particular securities.
Fundamental Policies
The Fund, as a fundamental policy, may not:
1. With respect to 75% of its total assets, purchase any securities if, as a result (i) more than 5% of the Fund’s total assets would then be invested in securities of any single issuer, or (ii) the Fund would hold more than
10% of the outstanding voting securities of any single issuer; provided, that government securities (as defined in the 1940 Act),
securities issued by other investment companies and cash items (including receivables) shall not be counted for purposes of this limitation;
2. Purchase any security if, as a result of the purchase, 25% or more of the Fund’s total assets (taken at current value) would be invested in the securities of borrowers and other issuers having their principal business
activities in the same industry; provided, that this limitation shall not apply with respect to issuers of mortgage-backed securities
or obligations issued or guaranteed by the U.S. Government or by its agencies or instrumentalities;
3. Borrow money, except as permitted by the 1940 Act, the rules thereunder and interpretations
thereof or pursuant to a Securities and Exchange Commission exemptive order;
Page 32
Investment Objectives, Policies and Risks (Continued)
First Trust Mortgage Income Fund (FMY)
October 31, 2025 (Unaudited)
4. Issue senior securities, as defined in the 1940 Act, other than: (i) Preferred
Shares which immediately after issuance will have asset coverage of at least 200%; (ii) indebtedness which immediately after issuance will
have asset coverage of at least 300%; (iii) the borrowings permitted by investment restriction 3 set forth above; or (iv) pursuant
to a Securities and Exchange Commission exemptive order;
5. Make loans of funds or other assets, other than by entering into repurchase agreements,
lending portfolio securities and through the purchase of debt securities in accordance with its investment objectives, policies
and limitations;
6. Act as underwriter of another issuer’s securities, except to the extent that the Fund may be deemed to be an underwriter within the meaning of the Securities Act of 1933 in connection with the purchase and sale of
portfolio securities;
7. Purchase or sell real estate, but this shall not prevent the Fund from investing
in securities of companies that deal in real estate or are engaged in the real estate business, including real estate investment trusts,
and securities secured by real estate or interests therein and the Fund may hold and sell real estate or mortgages on real estate acquired through
default, liquidation, or other distributions of an interest in real estate as a result of the Fund’s ownership of such securities; and
8. Purchase or sell physical commodities unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the Fund from purchasing or selling options, futures contracts or derivative
instruments or from investing in securities or other instruments backed by physical commodities).
For the purpose of applying the limitation set forth in subparagraph 2 above, an issuer
shall be deemed the sole issuer of a security when its assets and revenues are separate from other governmental entities and its
securities are backed only by its assets and revenues. Similarly, in the case of a non-governmental issuer, such as an industrial corporation
or a privately owned or operated hospital, if the security is backed only by the assets and revenues of the non-governmental issuer,
then such non-governmental issuer would be deemed to be the sole issuer. Where a security is also backed by the enforceable obligation
of a superior or unrelated governmental or other entity (other than a bond insurer), it shall also be included in the computation
of securities owned that are issued by such governmental or other entity. Where a security is guaranteed by a governmental entity
or some other facility, such as a bank guarantee or letter of credit, such a guarantee or letter of credit would be considered a separate
security and would be treated as an issue of such government, other entity or bank. When a municipal bond is insured by bond insurance,
it shall not be considered a security that is issued or guaranteed by the insurer; instead, the issuer of such municipal bond will
be determined in accordance with the principles set forth above.
Except as noted above, the foregoing fundamental investment policies, together with
the investment objectives of the Fund, cannot be changed without approval by holders of a majority of the outstanding voting securities
of the Fund, as defined in the 1940 Act, which includes common shares of beneficial interest and preferred shares of beneficial interest (“Preferred Shares”), if any, voting together as a single class, and of the holders of the outstanding Preferred Shares voting as a single class. Under the 1940 Act a “majority of the outstanding voting securities” means the vote of: (A) 67% or more of the Fund’s shares present at a meeting, if the holders of more than 50% of the Fund’s shares are present or represented by proxy; or (B) more than 50% of the Fund’s shares, whichever is less.
Principal Risks
The Fund is a closed-end management investment company designed primarily as a long-term
investment and not as a trading vehicle. The Fund is not intended to be a complete investment program and, due to the uncertainty
inherent in all investments, there can be no assurance that the Fund will achieve its investment objectives. The following discussion
summarizes the principal risks associated with investing in the Fund, which includes the risk that you could lose some or all of
your investment in the Fund. The Fund is subject to the informational requirements of the Securities Exchange Act of 1934 and the Investment
Company Act of 1940 and, in accordance therewith, files reports, proxy statements and other information that is available
for review.
Collateralized Mortgage Obligations Risk. Collateralized mortgage obligations (“CMOs”) are debt obligations collateralized by mortgage loans or mortgage pass-through securities and are a type of mortgage-backed
security. CMOs are created by dividing the principal and interest payments collected on a pool of mortgages into several revenue
streams (tranches) with different priority rights to portions of the underlying mortgage payments. CMO tranches are often specially
structured in a manner that provides a variety of investment characteristics, such as yield, effective maturity and interest rate sensitivity.
A risk of CMOs is the uncertainty of the timing of cash flows that results from the rate of prepayments on the underlying mortgages
serving as collateral and from the structure of the particular CMO transaction (that is, the priority of the individual tranches). An
increase or decrease in prepayment rates (resulting from a decrease or increase in mortgage interest rates) may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution dates and will affect the yield and price of CMOs.
Certain classes of CMOs are structured in a manner that makes them extremely sensitive to changes in prepayment rates. In addition, if
the collateral securing CMOs or any third-party guarantees are insufficient to make payments, the Fund could sustain a loss.
Page 33
Investment Objectives, Policies and Risks (Continued)
First Trust Mortgage Income Fund (FMY)
October 31, 2025 (Unaudited)
Credit Agency Risk. Credit ratings are determined by credit rating agencies and are only the opinions
of such entities. Ratings assigned by a rating agency are not absolute standards of credit quality and do not
evaluate market risk or the liquidity of securities. Any shortcomings or inefficiencies in credit rating agencies’ processes for determining credit ratings may adversely affect the credit ratings of securities held by the Fund or such credit rating agency’s ability to evaluate creditworthiness and, as a result, may adversely affect those securities’ perceived or actual credit risk.
Credit and Below-Investment Grade Securities Risk. Credit risk is the risk that the issuer or other obligated party of a debt security
in the Fund’s portfolio will fail to pay, or it is perceived that it will fail to pay, dividends or interest and/or repay principal, when due. Below-investment grade instruments, including instruments that are not rated but judged
to be of comparable quality, are commonly referred to as high-yield securities or “junk” bonds and are considered speculative with respect to the issuer’s capacity to pay dividends or interest and repay principal and are more susceptible to default or decline in
market value than investment grade securities due to adverse economic and business developments. High-yield securities are often unsecured
and subordinated to other creditors of the issuer. The market values for high-yield securities tend to be very volatile, and
these securities are generally less liquid than investment grade securities. For these reasons, an investment in the Fund is subject to the following
specific risks: (i) increased price sensitivity to changing interest rates and to a deteriorating economic environment; (ii) greater
risk of loss due to default or declining credit quality; (iii) adverse company specific events more likely to render the issuer unable to make
dividend, interest and/or principal payments; (iv) negative perception of the high-yield market which may depress the price and
liquidity of high-yield securities; (v) volatility; and (vi) liquidity.
Current Market Conditions Risk. Current market conditions risk is the risk that a particular investment, or shares
of the Fund in general, may fall in value due to current market conditions. As a means to fight inflation,
the Federal Reserve and certain foreign central banks have raised interest rates; however, the Federal Reserve has begun to
lower interest rates and may continue to do so. U.S. regulators have proposed several changes to market and issuer regulations which would
directly impact the Fund, and any regulatory changes could adversely impact the Fund’s ability to achieve its investment strategies or make certain investments. Potential future bank failures could result in disruption to the broader banking industry or markets
generally and reduce confidence in financial institutions and the economy as a whole, which may also heighten market volatility
and reduce liquidity. Additionally, challenges in commercial real estate markets, including high interest rates, declining valuations
and elevated vacancies, could have a broader impact on financial markets. The ongoing adversarial political climate in the United States,
as well as political and diplomatic events both domestic and abroad, have and may continue to have an adverse impact the U.S. regulatory
landscape, markets and investor behavior, which could have a negative impact on the Fund’s investments and operations. The change in administration resulting from the 2024 United States national elections could result in significant impacts to international
trade relations, tax and immigration policies, and other aspects of the national and international political and financial landscape,
which could affect, among other things, inflation and the securities markets generally. Other unexpected political, regulatory and diplomatic
events within the U.S. and abroad may affect investor and consumer confidence and may adversely impact financial markets and the
broader economy. For example, ongoing armed conflicts between Russia and Ukraine in Europe and among Israel, Iran, Hamas and other
militant groups in the Middle East, have caused and could continue to cause significant market disruptions and volatility within
the markets in Russia, Europe, the Middle East and the United States. The hostilities and sanctions resulting from those hostilities
have and could continue to have a significant impact on certain Fund investments as well as Fund performance and liquidity. The
economies of the United States and its trading partners, as well as the financial markets generally, may be adversely impacted by
trade disputes, including the imposition of tariffs, and other matters. For example, the United States has imposed trade barriers and restrictions
on China. In addition, the Chinese government is engaged in a longstanding dispute with Taiwan, continually threatening
an invasion. If the political climate between the United States and China does not improve or continues to deteriorate, if China were
to attempt invading Taiwan, or if other geopolitical conflicts develop or worsen, economies, markets and individual securities may be adversely affected, and the value of the Fund’s assets may go down. A public health crisis and the ensuing policies enacted by governments
and central banks may cause significant volatility and uncertainty in global financial markets, negatively impacting global
growth prospects. As the COVID-19 global pandemic illustrated, such events may affect certain geographic regions, countries,
sectors and industries more significantly than others. Advancements in technology may also adversely impact markets and the overall
performance of the Fund. For instance, the economy may be significantly impacted by the advanced development and increased regulation
of artificial intelligence. Additionally, cyber security breaches of both government and non-government entities could have
negative impacts on infrastructure and the ability of such entities, including the Fund, to operate properly. These events, and any other
future events, may adversely affect the prices and liquidity of the Fund’s portfolio investments and could result in disruptions in the trading markets.
Cyber Security Risk. The Fund is susceptible to operational, information security and related risks through
breaches in cyber security. A breach in cyber security refers to both intentional and unintentional events that
may cause the Fund to lose proprietary information, suffer data corruption or lose operational capacity, any of which could result in
a material adverse effect on the Fund or its shareholders. Such events could cause the Fund to incur regulatory penalties, reputational
damage, additional compliance costs associated with corrective measures and/or financial loss. Cyber security breaches may involve unauthorized access to the Fund’s digital information systems through “hacking” or malicious software coding, but may also result from outside attacks such as
Page 34
Investment Objectives, Policies and Risks (Continued)
First Trust Mortgage Income Fund (FMY)
October 31, 2025 (Unaudited)
denial-of-service attacks through efforts to make network services unavailable to
intended users. Emerging threats like ransomware or zero-day exploits could also cause disruptions to Fund operations. In addition, cyber
security breaches of the issuers of securities in which the Fund invests or the Fund’s third-party service providers, such as its administrator, transfer agent, custodian, or Sub-Advisor, as applicable, among many other third-party service providers, can also subject the
Fund to many of the same risks associated with direct cyber security breaches. Further, errors, misconduct, or compromise of accounts
of employees of the Fund or its third-party service providers can also create material cybersecurity risks. Although the Fund
has established risk management systems designed to reduce the risks associated with cyber security, there is no guarantee that such efforts
will succeed, especially because the Fund does not directly control the cyber security systems of issuers or third party service
providers. Cyber security incidents may also trigger Fund obligations under data privacy laws, potentially increasing notification and
compliance burdens. Cyber security incidents affecting issuers in whose securities the Fund invests may also have a negative impact
on the value of the securities of such issuers, and in turn, the value of the Fund.
Extension Risk. Extension risk is the risk that, when interest rates rise, certain obligations will
be paid off by the issuer (or other obligated party) more slowly than anticipated, causing the value of these debt securities
to fall. Rising interest rates tend to extend the duration of debt securities, making their market value more sensitive to changes in
interest rates. The value of longer-term debt securities generally changes more in response to changes in interest rates than shorter-term
debt securities. As a result, in a period of rising interest rates, securities may exhibit additional volatility and may lose value.
Fixed-Income Securities Risk. An investment in fixed-income securities is subject to certain risks, including:
•
Issuer Risk. The value of fixed-income securities may decline for a number of reasons which directly
relate to the issuer, such as management performance, leverage and reduced demand for the issuer’s goods and services. In addition, an issuer of fixed-income securities may default on its obligation to pay interest and repay principal.
•
Prepayment Risk. Prepayment risk is the risk that the issuer of a debt security will repay principal
prior to the scheduled maturity date. During periods of declining interest rates, the issuer of a security
may exercise its option to prepay principal earlier than scheduled, forcing the Fund to reinvest the proceeds from such prepayment
in lower yielding securities, which may result in a decline in the Fund’s income and distributions to common shareholders.
•
Reinvestment Risk. Reinvestment risk is the risk that income from the Fund’s portfolio will decline if the Fund invests the proceeds from matured, traded or called securities or loans at market interest rates that are below the Fund portfolio’s current earnings rate.
Futures Contracts Risk. The primary risks associated with the use of futures contracts are: (i) the imperfect
correlation between the change in market value of the instruments or indices underlying the futures contracts
and the price of the futures contracts; (ii) possible lack of a liquid secondary market for a futures contract and the resulting inability
to close a futures contract when desired; (iii) losses caused by unanticipated market movements, which are potentially unlimited; (iv) the investment adviser’s inability to predict correctly the direction of securities prices, interest rates, currency exchange rates and other
economic factors; and (v) the possibility that the counterparty will default in the performance of its obligations.
Illiquid and Restricted Securities Risk. The Fund may invest in securities that are restricted and/or illiquid. Restricted
securities are securities that cannot be offered for public resale unless registered under the applicable
securities laws or that have a contractual restriction that prohibits or limits their resale. Restricted securities may be illiquid
as they generally are not listed on an exchange and may have no active trading market. Investments in restricted securities could have the effect of increasing the amount of the Fund’s assets invested in illiquid securities if qualified institutional buyers are unwilling
to purchase these securities. Illiquid and restricted securities may be difficult to dispose of at a fair price at the times when the Fund
believes it is desirable to do so. The market price of illiquid and restricted securities generally is more volatile than that of more liquid
securities, which may adversely affect the price that the Fund pays for or recovers upon the sale of such securities. Illiquid and restricted
securities are also more difficult to value, especially in challenging markets.
Inflation Risk. The Fund invests in securities that are subject to inflation risk. Inflation risk
is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the
value of money. As inflation increases, the present value of the Fund’s assets and distributions may decline. This risk is more prevalent with respect to debt securities. Inflation rates may change frequently and drastically as a result of various factors, including unexpected
shifts in the domestic or global economy, and the Fund’s investments may not keep pace with inflation, which may result in losses to Fund investors.
Interest Rate and Duration Risk. Interest rate risk is the risk that securities will decline in value because of changes
in market interest rates. For fixed income securities, when market interest rates rise, the
market value of such securities generally will fall. Investments in fixed rate securities with long-term maturities may experience significant
price declines if long-term interest rates increase. During periods of rising interest rates, the average life of certain types
of securities may be extended because of slower than expected prepayments. This may lock in a below-market yield, increase the security’s duration and further reduce the value of the
Page 35
Investment Objectives, Policies and Risks (Continued)
First Trust Mortgage Income Fund (FMY)
October 31, 2025 (Unaudited)
security. Fixed income securities with longer durations tend to be more sensitive
to changes in interest rates, usually making them more volatile than securities with shorter durations. The duration of a security will
be expected to change over time with changes in market factors and time to maturity.
The interest rates payable on floating rate securities are not fixed and may fluctuate
based upon changes in market rates. As short-term interest rates decline, interest payable on floating rate securities typically decreases.
Alternatively, during periods of rising interest rates, interest payable on floating rate securities typically increases. Changes in
interest rates on floating rate securities may lag behind changes in market rates or may have limits on the maximum increases in interest rates.
The value of floating rate securities may decline if their interest rates do not rise as much, or as quickly, as interest rates
in general.
In general, income on inverse floating rate securities will decrease when interest
rates increase and increase when interest rates decrease. Inverse floating rate securities generally will underperform the market
for fixed rate securities in a rising interest rate environment. An inverse floating rate security’s price may be more volatile than that of a fixed rate security.
In the case of stripped mortgage-backed securities, in general, when interest rates
are falling and prepayment rates are increasing, the value of a principal only security (“PO Security”) will rise and the value of an interest only security (“IO Security”) will fall. Conversely, when interest rates are rising and prepayment rates are decreasing, in
general, the value of a PO Security will fall and the value of an IO Security will rise. Yields on IOs and POs are very sensitive to the
rate of principal payments (including prepayments) on the related underlying mortgage assets.
Leverage Risk. The use of leverage by the Fund can magnify the effect of any losses. If the income
and gains from the securities and investments purchased with leverage proceeds do not cover the cost of leverage, the
return to the common shares will be less than if leverage had not been used. Leverage involves risks and special considerations for
common shareholders including: (i) the likelihood of greater volatility of net asset value and market price of the common shares than
a comparable portfolio without leverage; (ii) the risk that fluctuations in interest rates on borrowings will reduce the return to the
common shareholders or will result in fluctuations in the dividends paid on the common shares; (iii) in a declining market, the use of leverage
is likely to cause a greater decline in the net asset value of the common shares than if the Fund were not leveraged, which may result
in a greater decline in the market price of the common shares; and (iv) when the Fund uses certain types of leverage, the investment
advisory fee payable to the Advisor will be higher than if the Fund did not use leverage.
Management Risk and Reliance on Key Personnel. The implementation of the Fund’s investment strategy depends upon the continued contributions of certain key employees of the Advisor, some of whom have
unique talents and experience and would be difficult to replace. The loss or interruption of the services of a key member of
the portfolio management team could have a negative impact on the Fund.
Market Discount from Net Asset Value. Shares of closed-end investment companies such as the Fund frequently trade at a discount
from their net asset value. The Fund cannot predict whether its common shares will
trade at, below or above net asset value.
Market Risk. Investments held by the Fund, as well as shares of the Fund itself, are subject to
market fluctuations caused by real or perceived economic conditions, political events, regulatory factors or market developments,
changes in interest rates and perceived trends in securities prices. Shares of the Fund could decline in value or underperform
other investments as a result of the risk of loss associated with these market fluctuations. In addition, local, regional or global
events such as war, acts of terrorism, market manipulation, government defaults, government shutdowns, regulatory actions, political
changes, diplomatic developments, the imposition of sanctions and other similar measures, spread of infectious diseases
or other public health issues, recessions, natural disasters, or other events could have a significant negative impact on the Fund and
its investments. Any of such circumstances could have a materially negative impact on the value of the Fund’s shares, the liquidity of an investment, and result in increased market volatility. During any such events, the Fund’s shares may trade at increased premiums or discounts to their net asset value, the bid/ask spread on the Fund’s shares may widen and the returns on investment may fluctuate.
Mortgage-Backed Securities Risk. The Fund invests in mortgage-backed securities, representing direct or indirect interests
in pools of underlying residential or commercial mortgage loans that are secured by real property.
These securities provide investors with payments consisting of both principal and interest as the mortgages in the underlying
mortgage pools are paid. A mortgage-backed security may be negatively affected by the quality of the mortgages underlying such
security and the structure of its issuer. For example, if a mortgage underlying a particular mortgage-backed security defaults,
the value of that security may decrease. Moreover, a downturn in the markets for residential or commercial real estate or a general economic
downturn could negatively affect both the price and liquidity of privately issued mortgage-backed securities. Mortgage-backed
securities are subject to prepayment risk, which is the risk that the borrowers under the mortgage loans underlying a Fund’s mortgage-backed securities might pay off their mortgage loans sooner than expected, which could happen when interest rates fall or for other reasons, which could cause the value of the Fund’s mortgage-backed securities to fall. Moreover, if the underlying mortgage loans are
paid off sooner than expected, the Fund may have
Page 36
Investment Objectives, Policies and Risks (Continued)
First Trust Mortgage Income Fund (FMY)
October 31, 2025 (Unaudited)
to reinvest the proceeds in other securities that have lower yields. Mortgage-backed
securities are also subject to extension risk, which is the risk that rising interest rates could cause mortgages underlying the securities
to be prepaid more slowly than expected, resulting in slower prepayments of the securities. This would, in effect, convert a short or
medium-duration mortgage-backed security into a longer-duration security, increasing its sensitivity to interest rate changes and
likely causing its price to decline. Mortgage-backed securities issued by a private issuer, such as commercial mortgage-backed securities,
generally entail greater risk than obligations directly or indirectly guaranteed by the U.S. government or a government-sponsored
entity.
A portion of the Fund’s managed assets may be invested in subordinated classes of mortgage-backed securities. Such subordinated classes are subject to a greater degree of non-payment risk than are senior classes
of the same issuer or agency. In addition, under certain market conditions, the market for subordinated classes of mortgage-backed
securities may not be as liquid as the market for other fixed income securities.
Given its focus in mortgage-backed securities, the Fund may be more susceptible to
adverse economic, political and regulatory events that affect the value of real estate.
Non-Agency Securities Risk. Investments in asset-backed or mortgage-backed securities offered by non-governmental
issuers, such as commercial banks, savings and loans, private mortgage insurance companies, mortgage
bankers and other secondary market issuers are subject to additional risks. There are no direct or indirect government or agency
guarantees of payments in loan pools created by non-government issuers. Securities issued by private issuers are subject to the credit
risks of such issuers. An unexpectedly high rate of defaults on the loan pool may adversely affect the value of a non-agency security
and could result in losses to the Fund. The risk of such defaults is generally higher in the case of pools that include subprime loans.
Non-agency securities are typically traded “over-the-counter” rather than on a securities exchange and there may be a limited market for the securities, especially when there is a perceived weakness in the mortgage and real estate market sectors. Without an active
trading market, the non-agency mortgage-related securities held by the Fund may be particularly difficult to value because of the
complexities involved in assessing the value of the underlying loans.
Operational Risk. The Fund is subject to risks arising from various operational factors, including,
but not limited to, human error, processing and communication errors, errors of the Fund’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. These errors or failures may adversely affect the Fund’s operations, including its ability to execute its investment process or calculate or disseminate its NAV in a timely
manner. The Fund relies on third-parties for a range of services, including custody, valuation, and administration, among many others. Any
delay or failure relating to engaging or maintaining such service providers may affect the Fund’s ability to meet its investment objective. Although the Fund and the Advisor seek to reduce these operational risks through controls and procedures, there is no
way to completely protect against such risks.
Potential Conflicts of Interest Risk. First Trust and the portfolio managers have interests which may conflict with the
interests of the Fund. In particular, First Trust currently manages and may in the future manage and/or
advise other investment funds or accounts with the same or substantially similar investment objectives and strategies as the Fund.
In addition, while the Fund is using leverage, the amount of the fees paid to First Trust for investment advisory and management services
are higher than if the Fund did not use leverage because the fees paid are calculated based on managed assets. Therefore,
First Trust has a financial incentive to leverage the Fund.
TBA Transactions Risk. The Fund may purchase securities via TBA (To Be Announced) Transactions. In such
a transaction, the purchase price of the securities is typically fixed at the time of the commitment,
but delivery and payment can take place a month or more after the date of the commitment. At the time of delivery of the securities,
the value may be more or less than the purchase or sale price. Purchasing securities in a TBA Transaction may give rise to investment leverage and may increase the Fund’s volatility. Default by, or bankruptcy of, a counterparty to a TBA Transaction would expose the
Fund to possible losses because of an adverse market action, expenses or delays in connection with the purchase or sale of the pools
specified in such transaction.
Valuation Risk. The valuation of securitized assets may carry more risk than that of common stock.
Uncertainties in the conditions of the financial markets, unreliable reference data, lack of transparency and inconsistency
of valuation models and processes may lead to inaccurate asset pricing. The Fund may hold investments in sizes smaller than institutionally-sized
round lot positions (sometimes referred to as odd lots). However, third-party pricing services generally provide
evaluations on the basis of institutionally-sized round lots. If the Fund sells certain of its investments in an odd lot transaction, the
sale price may be less than the value at which such securities have been held by the Fund. Odd lots often trade at lower prices than institutional
round lots. There is no assurance that the Fund will be able to sell a portfolio security at the price established by the pricing
service, which could result in a loss to the Fund.
|
NOT FDIC INSURED
|
NOT BANK GUARANTEED
|
MAY LOSE VALUE
|
Page 37
Board of Trustees and Officers
First Trust Mortgage Income Fund (FMY)
October 31, 2025 (Unaudited)
The following tables identify the Trustees and Officers of the Fund. Unless otherwise
indicated, the address of all persons is 120 East Liberty Drive, Suite 400, Wheaton, IL 60187.
|
Name, Year of Birth and
Position with the Fund
|
Term of Office
and Year First
Elected or
Appointed(1)
|
Principal Occupations
During Past 5 Years
|
Number of
Portfolios in
the First Trust
Fund Complex
Overseen by
Trustee
|
Other Trusteeships or
Directorships Held by
Trustee During Past 5 Years
|
|
INDEPENDENT TRUSTEES
|
||||
|
Thomas J. Driscoll, Trustee
(1961)
|
• Three Year
Term
• Since 2025
|
Retired; Partner, Deloitte LLP and
Deloitte Tax LLP (1998 to January
2024)
|
322
|
None
|
|
Richard E. Erickson, Trustee
(1951)
|
• Three Year
Term
• Since Fund
Inception
|
Retired; Physician, Edward-Elmhurst
Medical Group (2021 to September
2023); Physician and Officer,
Wheaton Orthopedics (1990 to 2021)
|
322
|
None
|
|
Thomas R. Kadlec, Trustee
(1957)
|
• Three Year
Term
• Since Fund
Inception
|
Retired; President, ADM Investor
Services, Inc. (Futures Commission
Merchant) (2010 to July 2022)
|
322
|
Director, National Futures
Association; Formerly,
Director of ADM Investor
Services, Inc., ADM Investor
Services International,
ADMIS Hong Kong Ltd.,
ADMIS Singapore, Ltd., and
Futures Industry Association
|
|
Denise M. Keefe, Trustee
(1964)
|
• Three Year
Term
• Since 2021
|
Senior Vice President, Advocate
Health, Continuing Health Division
(Integrated Healthcare System) (2023
to present); Executive Vice President,
Advocate Aurora Health (Integrated
Healthcare System) (2018 to 2023)
|
322
|
Director and Board Chair of
Advocate Home Health
Services, Advocate Home
Care Products and Advocate
Hospice; Director and Board
Chair of Aurora At Home
(since 2018); Director of
Advocate Physician Partners
Accountable Care
Organization; Director of
RML Long Term Acute Care
Hospitals; Director of Senior
Helpers (2021 to 2024); and
Director of MobileHelp
(2022 to 2024)
|
|
Robert F. Keith, Trustee
(1956)
|
• Three Year
Term
• Since June
2006
|
President, Hibs Enterprises (Financial
and Management Consulting)
|
322
|
Formerly, Director of Trust
Company of Illinois
|
|
Niel B. Nielson, Trustee
(1954)
|
• Three Year
Term
• Since Fund
Inception
|
Senior Advisor (2018 to Present),
Managing Director and Chief
Operating Officer (2015 to 2018),
Pelita Harapan Educational
Foundation (Educational Products and
Services)
|
322
|
None
|
(1)
Currently, James A. Bowen, Niel B. Nielson, and Bronwyn Wright, as Class III Trustees, are serving as trustees until the Fund’s 2028 annual meeting of shareholders. Denise M. Keefe and Robert F. Keith, as Class I Trustees, are serving as trustees until the Fund’s 2026 annual meeting of shareholders. Thomas J. Driscoll, Richard E. Erickson and Thomas R. Kadlec, as Class II Trustees, are serving as trustees until the Fund’s 2027 annual meeting of shareholders.
Page 38
Board of Trustees and Officers (Continued)
First Trust Mortgage Income Fund (FMY)
October 31, 2025 (Unaudited)
|
Name, Year of Birth and
Position with the Fund
|
Term of Office
and Year First
Elected or
Appointed(1)
|
Principal Occupations
During Past 5 Years
|
Number of
Portfolios in
the First Trust
Fund Complex
Overseen by
Trustee
|
Other Trusteeships or
Directorships Held by
Trustee During Past 5 Years
|
|
INDEPENDENT TRUSTEES
|
||||
|
Bronwyn Wright, Trustee
(1971)
|
• Three Year
Term
• Since 2023
|
Independent Director to a number of
Irish collective investment funds
(2009 to Present); Various roles at
international affiliates of Citibank
(1994 to 2009), including Managing
Director, Citibank Europe plc and
Head of Securities and Fund Services,
Citi Ireland (2007 to 2009)
|
322
|
None
|
|
INTERESTED TRUSTEE
|
||||
|
James A. Bowen(2), Trustee and
Chairman of the Board
(1955)
|
• Three Year
Term
• Since Fund
Inception
|
Chief Executive Officer, First Trust
Advisors L.P. and First Trust
Portfolios L.P.; Chairman of the
Board of Directors, BondWave LLC
(Software Development Company)
and Stonebridge Advisors LLC
(Investment Advisor)
|
322
|
None
|
|
Name and Year of Birth
|
Position and Offices
with Fund
|
Term of Office
and Length of
Service
|
Principal Occupations
During Past 5 Years
|
|
OFFICERS(3)
|
|||
|
James M. Dykas
(1966)
|
President and Chief
Executive Officer
|
• Indefinite Term
• Since 2016
|
Managing Director and Chief Financial Officer, First Trust
Advisors L.P. and First Trust Portfolios L.P.; Chief Financial
Officer, Stonebridge Advisors LLC (Investment Advisor)
|
|
Derek D. Maltbie
(1972)
|
Treasurer, Chief Financial
Officer and Chief
Accounting Officer
|
• Indefinite Term
• Since 2023
|
Senior Vice President, First Trust Advisors L.P. and First Trust
Portfolios L.P., July 2021 to Present. Previously, Vice President,
First Trust Advisors L.P. and First Trust Portfolios L.P., 2014 to
2021.
|
|
W. Scott Jardine
(1960)
|
Secretary and Chief Legal
Officer
|
• Indefinite Term
• Since Fund
Inception
|
General Counsel, First Trust Advisors L.P. and First Trust
Portfolios L.P.; Secretary, Stonebridge Advisors LLC
|
|
Daniel J. Lindquist
(1970)
|
Vice President
|
• Indefinite Term
• Since Fund
Inception
|
Managing Director, First Trust Advisors L.P. and First Trust
Portfolios L.P.
|
|
Kristi A. Maher
(1966)
|
Chief Compliance Officer
and Assistant Secretary
|
• Indefinite Term
• Chief
Compliance
Officer Since
January 2011
• Assistant
Secretary Since
Fund Inception
|
International General Counsel, First Trust Advisors L.P. and First
Trust Portfolios L.P.
|
(2)
Mr. Bowen is deemed an “interested person” of the Fund due to his position as CEO of First Trust Advisors L.P., investment advisor of the Fund.
(3)
The term “officer” means the president, vice president, secretary, treasurer, controller or any other officer who performs a policy making function.
Page 39
Privacy Policy
First Trust Mortgage Income Fund (FMY)
October 31, 2025 (Unaudited)
FIRST TRUST FUNDS PRIVACY POLICY
The First Trust Funds value their relationship with you and consider your privacy
a priority in maintaining that relationship. We are committed to protecting the security and confidentiality of your personal information
while providing you with the products/services you request or authorize.
SOURCES OF INFORMATION
We collect nonpublic personal information (NPPI) about you through our transfer agents
that collect, use and maintain the information needed to administer your account with us. The NPPI is received by the transfer agent
from your broker-dealer, investment professional or financial representative on your behalf through applications or other
documentation you provide to establish your account with us.
We also collect information when you visit 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 NPPI we collect through our transfer agent may include your name, address,
social security number, date of birth and other NPPI necessary for the transfer agent to administer your account and verify
your identity under federal law.
DISCLOSURE OF INFORMATION
We do not disclose, and do not authorize our transfer agents to disclose, NPPI about
our consumers, customers or former customers to anyone, except as permitted by law. In addition to using this information to administer
your account and verify your identity through our transfer agents, the permitted uses may also include the disclosure of NPPI to
other unaffiliated third-parties for the following reasons:
•
To assist us in the distribution of First Trust Fund materials such as trustees, banks,
investment advisor or broker-dealer representatives, proxy services, solicitors and printers;
•
If you direct us to do so;
•
When required by law or in other legally limited circumstances, such as to protect
your account from fraud.
PROTECTION OF NPPI COLLECTED
The First Trust Funds engage trusted transfer agents who are subject to the Regulation
S-P data protection requirements and must protect your NPPI from unauthorized access and use through security measures that
comply with federal law. The First Trust Funds take reasonable measures to review and monitor transfer agent compliance with these
requirements and transfer agent cybersecurity and breach risk through third party software and other safeguards.
USE OF WEBSITE ANALYTICS
We currently use third party analytics tools, Google Analytics and Matomo to gather
information for purposes of improving our website and marketing our products and services to you. These tools employ cookies,
which are small pieces of text stored in a file by your web browser and sent to websites that you visit, to collect information, track
website usage and viewing trends such as the number of hits, pages visited, videos and PDFs viewed and the length of user sessions
in order to evaluate website performance and enhance navigation of the website. We may also collect other anonymous information,
which is generally limited to technical and web navigation information such as the IP address of your device, internet browser type
and operating system for purposes of analyzing the data to make our website better and more useful to our users. The information collected
does not include any NPPI unless you voluntarily provide that information through the website for us to contact you in
order to answer your questions or respond to your requests. You should not provide NPPI on our website if you do not want your information
to be used by these services. To find out how to opt-out of these services click on: Google Analytics and Matomo Analytics Platform.
CONFIDENTIALITY AND SECURITY
Certain employees of our investment advisor, First Trust Advisors L.P. and our distributor,
First Trust Portfolios L.P. may have access to information about you but do not receive NPPI. The information accessed is protected
using physical, electronic and procedural safeguards.
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.
December 2025
Page 40
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INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR,
FUND ACCOUNTANT,
AND CUSTODIAN
FUND ACCOUNTANT,
AND CUSTODIAN
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
TRANSFER AGENT
Computershare, Inc.
P.O. Box 43006
Providence, RI 02940
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 South Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
320 South Canal Street
Chicago, IL 60606
| (b) | Not applicable to the Registrant. |
Item 2. Code of Ethics.
| (a) | The First Trust Mortgage Income Fund (“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, during the period covered by this report, 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. |
| (e) | Not applicable to the Registrant. |
| (f) | A copy of the code of ethics that applies to the Registrant’s principal executive officer, principal financial officer, principal accounting officer or controller is filed as an exhibit pursuant to Item 19(a)(1). |
Item 3. Audit Committee Financial Expert.
The Registrant’s Board of Trustees has determined that Thomas J. Driscoll, 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 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 were $47,000 for the fiscal year ended 2024 and $47,000 for the fiscal year ended 2025. |
| (b) | Audit-Related Fees (Registrant) -- The aggregate fees billed 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 2024 and $0 for the fiscal year ended 2025. |
Audit-Related Fees (Investment Advisor) -- The aggregate fees billed 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 2024 and $0 for the fiscal year ended 2025.
Audit-Related Fees (Distributor) -- The aggregate fees billed 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 2024 and $0 for the fiscal year ended 2025.
| (c) | Tax Fees (Registrant) -- The aggregate fees billed for professional services rendered by the principal accountant for tax return review and debt instrument tax analysis and reporting were $30,240 for the fiscal year ended 2024 and $28,840 for the fiscal year ended 2025. |
Tax Fees (Investment Advisor) -- The aggregate fees billed for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning to the Registrant’s advisor were $0 for the fiscal year ended 2024 and $0 for the fiscal year ended 2025.
Tax Fees (Distributor) -- The aggregate fees billed for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning to the Registrant’s distributor were $0 for the fiscal year ended 2024 and $0 for the fiscal year ended 2025.
These fees were for tax consultation and/or tax return preparation.
| (d) | All Other Fees (Registrant) -- The aggregate fees billed 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 2024 and $0 for the fiscal year ended 2025. |
All Other Fees (Investment Advisor) -- The aggregate fees billed for products and services provided by the principal accountant to the Registrant’s investment advisor, other than the services reported in paragraphs (a) through (c) of this Item were $0 for the fiscal year ended 2024 and $0 for the fiscal year ended 2025.
All Other Fees (Distributor) -- The aggregate fees billed for products and services provided by the principal accountant to the Registrant’s distributor, other than the services reported in paragraphs (a) through (c) of this Item were $0 for the fiscal year ended 2024 and $0 for the fiscal year ended 2025.
(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 advisor (not including a sub-advisor whose role is primarily portfolio management and is sub-contracted or overseen by another investment advisor) and any entity controlling, controlled by or under common control with the investment advisor 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 advisor (other than any sub-advisor whose role is primarily portfolio management and is sub-contracted with or overseen by another investment advisor) and any entity controlling, controlled by or under common control with the investment advisor 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 advisor and distributor 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:
| Registrant: | Advisor and Distributor: | |
| (b) 0% | (b) 0% | |
| (c) 0% | (c) 0% | |
| (d) 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 advisor (not including any sub-advisor whose role is primarily portfolio management and is subcontracted with or overseen by another investment advisor), and any entity controlling, controlled by, or under common control with the advisor that provides ongoing services to the Registrant for the fiscal year ended 2024 were $30,240 for the Registrant, $28,080 for the Registrant’s investment advisor and $0 for the Registrant’s distributor; and for the fiscal year ended 2025 were $28,840 for the Registrant, $28,620 for the Registrant’s investment advisor and $0 for the Registrant’s distributor. |
| (h) | The Registrant’s audit committee of its Board of Trustees has determined that the provision of non-audit services that were rendered to the Registrant’s investment advisor (not including any sub-advisor whose role is primarily portfolio management and is subcontracted with or overseen by another investment advisor), and any entity controlling, controlled by, or under common control with the investment advisor 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. |
| (i) | Not applicable to the Registrant. |
| (j) | Not applicable to the Registrant. |
Item 5. Audit Committee of Listed Registrants.
| (a) | The Registrant has a separately designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934 consisting of all the independent directors of the Registrant. The audit committee of the Registrant is comprised of: Thomas J. Driscoll, Richard E. Erickson, Thomas R. Kadlec, Denise M. Keefe, Robert F. Keith, Niel B. Nielson and Bronwyn Wright. |
| (b) | Not applicable to the Registrant. |
Item 6. Investments.
| (a) | The Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included in the Registrant’s Annual Report, which is included as Item 1 of this Form N-CSR. |
| (b) | Not applicable to the Registrant. |
Item 7. Financial Statements and Financial Highlights for Open-End Management Investment Companies.
| (a) | Not applicable to the Registrant. |
| (b) | Not applicable to the Registrant. |
Item 8. Changes in and Disagreements with Accountants for Open-End Management Investment Companies.
Not applicable to the Registrant.
Item 9. Proxy Disclosures for Open-End Management Investment Companies.
Not applicable to the Registrant.
Item 10. Remuneration Paid to Directors, Officers, and Others of Open-End Management Investment Companies
Not applicable to the Registrant.
Item 11. Statement Regarding Basis for Approval of Investment Advisory Contract.
This statement is included in the Registrant’s Annual Report filed under Item 1 of this Form N-CSR.
Item 12. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
The Proxy Voting Policies are attached herewith.
Item 13. 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 the date of filing of this N-CSR.
Jeremiah Charles
Senior Portfolio Manager
Mr. Charles is a Senior Portfolio Manager and Co-head of the First Trust Government & Securitized Products Group. At First Trust, he is responsible for the management of the firm’s mortgage, securitized product and multisector bond funds. Prior to joining First Trust in 2013, Jeremiah spent the majority of his career as a Senior Portfolio Manager at Deerfield Capital Management where he helped manage the Deerfield Mortgage REIT. In his career, he has also held positions at CRT Capital, where he worked as a Vice President in Securitized Products and at Piper Jaffray, where he began his career in 2003 as an Analyst. Mr. Charles holds a B.S. in Finance from the Leeds School of Business at the University of Colorado, and a MS in Real Estate with honors from the Charles H. Kellstadt Graduate School of Business at DePaul University.
James Snyder
Senior Portfolio Manager
Mr. Snyder is a Senior Portfolio Manager and Co-head of the First Trust Government & Securitized Products Group. At First Trust, he is responsible for the management of the firm’s mortgage, securitized product and multisector bond funds. Prior to joining First Trust in 2013, Jim spent most of his career leading several mortgage trading and portfolio management groups at American Express Financial Advisors, where he managed the AXP Federal Income Fund, and at Deerfield Capital, where he managed Deerfield’s Mortgage REIT and Opportunity Fund. Additionally, he has held senior positions at Fort Sheridan Advisors and Spyglass Capital after beginning his career in 1983 at Harris Bank. Mr. Snyder holds a B.S. and M.A. in Economics from DePaul University and an MBA from the University of Chicago Booth School of Business.
Owen Aronson
Vice President
Owen Aronson is a Vice President and Portfolio Manager for First Trust. Prior to joining First Trust in 2020, Mr. Aronson worked as Vice President at Neuberger Berman in the Global Securitized Products team where he was involved in the research, trading, and management of securitized risk across a range of fixed income and real estate debt portfolios. Mr. Aronson began his career as an Analyst at Lehman Brothers Asset Management in 2007. Mr. Aronson holds a B.A. in Economics from the University of Chicago.
(a)(2) Other Accounts Managed by Portfolio Manager(s) or Management Team Member and Potential Conflicts of Interest
Information provided as of October 31, 2025
|
Name of Portfolio |
Type of Accounts | Total # of Accounts Managed |
Total Assets | #
of Accounts Managed for which Advisory Fee is Based on Performance |
Total Assets for which Advisory Fee is Based on Performance |
| 1. Jeremiah Charles | Registered Investment Companies: | 9 | $15,396,381,810 | 0 | $0 |
| 2. Jim Snyder | Registered Investment Companies: | 8 | $14,255,571,810 | 0 | $0 |
|
3. Owen Aronson
|
Registered Investment Companies: | 8 | $14,739,403,830 | 0 |
$0
|
Potential Conflicts of Interests
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 Government & Securitized Products Group adheres to its trade allocation policy utilizing a pro-rata methodology to address this conflict.
First Trust and its affiliate, First Trust Portfolios L.P. (“FTP”), have in place a joint Code of Ethics and Insider Trading Policies and Procedures that are designed to (a) prevent First Trust personnel from trading securities based upon material inside information in the possession of such personnel and (b) ensure that First Trust personnel avoid actual or potential conflicts of interest or abuse of their positions of trust and responsibility that could occur through such activities as front running securities trades for the Registrant. Personnel are required to have duplicate confirmations and account statements delivered to First Trust and FTP compliance personnel who then compare such trades to trading activity to detect any potential conflict situations.
(a)(3) Compensation Structure of Portfolio Manager(s) or Management Team Members
Information provided as of October 31, 2025
The compensation structure for internal portfolio managers is based upon a fixed salary as well as a discretionary bonus determined by the management of FTA. Salaries are determined by management and are based upon an individual’s position and overall value to the firm. Bonuses are also determined by management and are generally based upon an individual’s or team’s overall contribution to the success of the firm, assets under management and the profitability of the firm. Certain internal portfolio managers have an indirect ownership stake in the firm and will therefore receive their allocable share of ownership related distributions.
(a)(4) Disclosure of Securities Ownership as of October 31, 2025
| Name of Portfolio Manager or Team Member |
Dollar ($) Range of Fund Shares Beneficially Owned |
| Jeremiah Charles | None |
| James Snyder | None |
| Owen Aronson | None |
| (b) | Not applicable to the Registrant. |
Item 14. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
No reportable purchases for the period covered by this report.
Item 15. 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 16. Controls and Procedures.
| (a) | The Registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)). |
| (b) | There were no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting. |
Item 17. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
| (a) | The Registrant did not engage in any securities lending activity during its most recent fiscal year. |
| (b) | The Registrant did not engage in any securities lending activity and no services were provided by the securities lending agent to the Registrant during its most recent fiscal year. |
Item 18. Recovery of Erroneously Awarded Compensation.
| (a) | Not applicable to the Registrant. |
| (b) | Not applicable to the Registrant. |
Item 19. 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) | Not applicable to the Registrant. |
| (a)(3) | The certifications required by Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. |
| (a)(4) | Not applicable to the Registrant. |
| (a)(5) | Not applicable to the Registrant. |
| (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. |
| (c) | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies as required by Item 12 is 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: | January 9, 2026 |
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: | January 9, 2026 |
| By (Signature and Title)* | /s/ Derek D. Maltbie | |
| Derek D. Maltbie, Treasurer, Chief Financial Officer and Chief Accounting Officer (principal financial officer) |
| Date: | January 9, 2026 |
* Print the name and title of each signing officer under his or her signature.
First Trust Mortgage Income
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