UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY
Investment Company Act file number 811-21727
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
(Exact name of registrant as specified in charter)
1001 Warrenville Road, Suite 300
LISLE, IL 60532
(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
1001 Warrenville Road, Suite 300
LISLE, IL 60532
(Name and address of agent for service)
Registrant's telephone number, including area
code: 630-241-4141
Date of fiscal year end: OCTOBER 31
Date of reporting period: JULY 31, 2008
Form N-Q is to be used by management investment companies, other than small
business investment companies registered on Form N-5 (ss.ss. 239.24 and 274.5 of
this chapter), to file reports with the Commission, not later than 60 days after
the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under
the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may use
the information provided on Form N-Q in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-Q, and
the Commission will make this information public. A registrant is not required
to respond to the collection of information contained in Form N-Q unless the
Form displays a currently valid Office of Management and Budget ("OMB") control
number. Please direct comments concerning the accuracy of the information
collection burden estimate and any suggestions for reducing the burden to the
Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC
20549. The OMB has reviewed this collection of information under the clearance
requirements of 44 U.S.C. ss. 3507.
ITEM 1. SCHEDULE OF INVESTMENTS.
The Schedule(s) of Investments is attached herewith.
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS (A)
JULY 31, 2008 (UNAUDITED)
PRINCIPAL STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------- ----------------------------------------------- ----------- -------------- ----------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 66.5%
Federal Home Loan Mortgage Corporation (FHLMC)
$ 4,962,493 Gold, Pool A38042 6.00% 10/01/35 $ 5,001,883
Federal National Mortgage Association (FNMA)
7,554,658 Pool 256182 ................................ 6.00% 03/01/36 7,539,313
10,339,582 Pool 256328 (b)............................. 6.50% 07/01/36 10,553,913
7,736,592 Pool 831145 ................................ 6.00% 12/01/35 7,793,166
7,267,457 Pool 843971 (b)............................. 6.00% 11/01/35 7,320,600
5,388,461 Pool 872303 (b)............................. 6.00% 05/01/36 5,421,970
8,166,453 Pool 880203 ................................ 6.00% 02/01/36 8,150,988
--------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES...................... 51,781,833
--------------
(Cost $51,451,738)
U.S. GOVERNMENT AGENCY AND NON-AGENCY COLLATERALIZED
MORTGAGE OBLIGATIONS - 50.5%
Banc of America Mortgage Securities
146,766 Series 2002-L, Class 1A1 (c)................ 7.02% 12/25/32 146,280
4,305,311 Series 2007-3, Class 2A3 ................... 7.00% 09/25/37 4,163,095
Federal Home Loan Mortgage Corp.
7,328,234 Series 2676, Class IK, IO .................. 5.00% 02/15/20 584,841
369,236 Series 2716, Class CI, IO .................. 5.00% 05/15/19 23,395
3,673,838 Series 2737, Class IG, IO .................. 5.00% 08/15/27 267,891
310,564 Series 2747, Class IH, IO .................. 5.00% 12/15/13 557
12,361,512 Series 2807, Class SB, IO (d)............... 4.99% 11/15/33 1,767,264
1,436,256 Series 2836, Class PI, IO .................. 5.00% 09/15/22 25,509
4,739,600 Series 2870, Class JI, IO .................. 5.00% 10/15/27 491,483
792,000 Series 2888, Class OI, IO .................. 5.00% 01/15/27 87,436
1,774,808 Series 2921, Class IQ, IO .................. 5.00% 01/15/29 233,134
1,478,053 Series 2938, Class PI, IO .................. 5.00% 11/15/28 134,709
1,800,594 Series 2943, Class JI, IO .................. 5.00% 01/15/24 56,733
1,016,896 Series 2961, Class IP, IO .................. 5.50% 07/15/28 97,066
6,694,599 Series 2964, Class IA, IO .................. 5.50% 02/15/26 417,822
1,431,302 Series 3069, Class LI, IO .................. 5.50% 08/15/32 185,303
518,557 Series 3171, Class CS (d)................... 24.55% 06/15/36 544,907
1,199,539 Series 3195, Class SX (d)................... 30.18% 07/15/36 1,567,557
Federal Home Loan Mortgage Corp., STRIP
26,102,898 Series 227, Class IO, IO ................... 5.00% 12/01/34 7,188,060
5,111,915 Series 231, Class IO, IO ................... 5.50% 08/01/35 1,391,993
9,816,469 Series 232, Class IO, IO ................... 5.00% 08/01/35 2,673,267
2,768,186 Series 235, Class IO, IO ................... 5.50% 02/01/36 774,554
4,090,204 Series 240, Class IO, IO ................... 5.50% 07/15/36 1,153,582
4,525,919 Series 248, Class IO, IO ................... 5.50% 07/15/37 1,266,225
Federal National Mortgage Association
3,501,492 Series 2005-122, Class SN (d)............... 18.76% 01/25/36 3,725,031
1,506,092 Series 2005-39, Class BI, IO ............... 5.00% 06/25/28 126,584
Federal National Mortgage Association, STRIP...
9,881,960 Series 360, Class 2, IO 5.00% 08/01/35 2,688,258
GSR Mortgage Loan Trust .......................
6,648,957 Series 2007-1F, Class 3A10, IO ............. 6.00% 01/25/37 1,072,995
See Notes to Quarterly Portfolio of Investments Page 1
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS (A)-(CONTINUED)
JULY 31, 2008 (UNAUDITED)
PRINCIPAL STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------- ----------------------------------------------- ----------- -------------- ----------
U.S. GOVERNMENT AGENCY AND NON-AGENCY COLLATERALIZED
MORTGAGE OBLIGATIONS -(Continued)
Wells Fargo Mortgage Backed Securities Trust
$ 7,203,857 Series 2006-9, Class 1A32 6.00% 08/25/36 $ 6,447,973
--------------
TOTAL U.S. GOVERNMENT AGENCY AND NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS 39,303,504
--------------
(Cost $35,319,241)
ASSET-BACKED SECURITIES - 0.2%
Countrywide Asset-Backed Certificates
24,205 Series 2005-12, Class 1A1 (c)............... 2.61% 02/25/36 24,167
142,301 Series 2006-12, Class 2A1 (c)............... 2.53% 12/25/36 141,069
HSI Asset Securitization Corporation Trust
1,975 Series 2006-OPT2, Class 2A1 (c) ............ 2.54% 01/25/36 1,971
--------------
TOTAL ASSET-BACKED SECURITIES................................................ 167,207
--------------
(Cost $168,077)
U.S. GOVERNMENT AGENCY OBLIGATIONS - 9.6%
5,000,000 Federal Home Loan Mortgage Corp., Series 1 (c) 7.50% 12/27/21 4,562,500
3,000,000 Federal Home Loan Mortgage Corp. (c) .......... 7.00% 07/11/22 2,953,500
--------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS..................................... 7,516,000
--------------
(Cost $7,959,856)
SHARES DESCRIPTION VALUE
---------------- ------------------------------------------------------------------------------- --------------
PREFERRED SECURITIES - 1.3%
20,000 Fannie Mae, 8.25% (f).......................... 335,800
40,000 Freddie Mac, Series Z, 8.38% (f)............... 678,000
--------------
TOTAL PREFERRED SECURITIES................................................... 1,013,800
--------------
(Cost $1,500,000)
TOTAL INVESTMENTS - 128.1%................................................... $ 99,782,344
--------------
(Cost $96,398,912) (e)
Page 2 See Notes to Quarterly Portfolio of Investments
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS (A)-(CONTINUED)
JULY 31, 2008 (UNAUDITED)
PRINCIPAL
VALUE DESCRIPTION VALUE
---------------- ------------------------------------------------------------------------------- --------------
REVERSE REPURCHASE AGREEMENT - (30.0%)
$ (23,366,000) With UBS Securities 2.27% dated 07/31/08, to be repurchased at $23,367,473
on 08/01/08, collateralized by $23,296,483 FNMA 6.00%, due 05/01/36, FNMA
6.00%, due 11/01/35 and FNMA 6.50%, due 07/01/36............................. $ (23,366,000)
(Cost $23,366,000)
NET OTHER ASSETS AND LIABILITIES - 1.9%...................................... 1,490,057
--------------
NET ASSETS - 100.0%.......................................................... $ 77,906,401
==============
-----------------------
(a) All percentages shown in the Portfolio of Investments are based on net
assets.
(b) Security segregated as collateral for the reverse repurchase agreement.
(c) Floating rate security. The interest rate shown reflects the rate in
effect at July 31, 2008.
(d) Inverse floating rate instrument. The interest rate shown reflects the
rate in effect at July 31, 2008.
(e) Aggregate cost for federal income tax and financial reporting purposes.
As of July 31, 2008, the aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost was
$4,498,269 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$1,114,837.
(f) The U.S. Government took control over this company subsequent to the
date of this report.
IO Interest Only
STRIP Separate trading of registered interest and principal of securities
See Notes to Quarterly Portfolio of Investments Page 3
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NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS
--------------------------------------------------------------------------------
First Trust/FIDAC Mortgage Income Fund
July 31, 2008 (Unaudited)
1. VALUATION AND INVESTMENT PRACTICES
A. PORTFOLIO VALUATION:
The net asset value ("NAV") of the Common Shares of the First Trust/FIDAC
Mortgage Income Fund (the "Fund") is determined daily, as of the close of
regular trading on the New York Stock Exchange ("NYSE"), normally 4:00 p.m.
Eastern time, on each day the NYSE is open for trading. Domestic debt securities
and foreign securities are priced using data reflecting the earlier closing of
the principal markets for those securities. The NAV per Common Share is
calculated by dividing the value of all assets of the Fund (including accrued
interest and dividends), less all liabilities (including accrued expenses, the
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 according
to procedures adopted by the Fund's Board of Trustees. Securities for which
market quotations are readily available are valued at market value, which is
currently determined using the last reported sale price or, if no sales are
reported (as in the case of some securities traded over-the-counter), the last
reported bid price, except that certain U.S. government securities are valued at
the mean between the last reported bid and asked prices. The Fund values
mortgage-backed securities and other debt securities not traded in an organized
market on the basis of valuations provided by dealers or by an independent
pricing service, approved by the Fund's Board of Trustees, which uses
information with respect to transactions in such securities, quotations from
dealers, market transactions for comparable securities, various relationships
between securities and yield to maturity in determining value. Debt securities
having a remaining maturity of less than sixty days when purchased are valued at
amortized cost. In the event that market quotations are not readily available,
the pricing service does not provide a valuation for a particular asset, or the
valuations are deemed unreliable, First Trust Advisors L.P. ("First Trust") may
use a fair value method to value the Fund's securities and other investments.
Additionally, if events occur after the close of the principal markets for
particular securities (e.g., domestic debt and foreign securities), but before
the Fund values its assets, that could materially affect NAV, First Trust may
use a fair value method to value the Fund's securities and other investments.
The use of fair value pricing by the Fund is governed by valuation procedures
adopted by the Fund's Board of Trustees, and in accordance with the provisions
of the Investment Company Act of 1940, as amended.
B. SECURITIES TRANSACTIONS:
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
C. REVERSE REPURCHASE AGREEMENTS:
The Fund utilizes leverage through the use of reverse repurchase agreements. A
reverse repurchase agreement, although structured as a sale and repurchase
obligation, acts as a financing under which the Fund pledges its assets as
collateral to secure a short-term loan. Generally the other party to the
agreement makes the loan in an amount equal to a percentage of the market value
of the pledged collateral. At the maturity of the reverse repurchase agreement,
the Fund will be required to repay the loan and correspondingly receive back its
collateral. While used as collateral, the assets continue to pay principal and
interest which are for the benefit of the Fund.
Information for the nine months ended July 31, 2008 :
Maximum amount outstanding during the period................... $26,448,000
Average amount outstanding during the period*.................. $23,416,493
Average monthly shares outstanding during the period........... 4,045,236
Average debt per share outstanding during the period........... $ 5.79
* The average amount outstanding during the period was calculated by adding the
borrowings at the end of each day and dividing the sum by the number of days in
the nine-month period ended July 31, 2008.
Interest rates ranged from 1.98% to 4.94% during the nine-month period ended
July 31, 2008, on borrowings by the Fund under reverse repurchase agreements,
which had interest expense that aggregated $553,162.
Page 4
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NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS - (CONTINUED)
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First Trust/FIDAC Mortgage Income Fund
July 31, 2008 (Unaudited)
D. INVERSE FLOATING-RATE INSTRUMENTS:
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. The investments are
identified on the Portfolio of Investments.
Page 5
ITEM 2. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within
90 days of the filing date of the report that includes the disclosure
required by this paragraph, based on their evaluation of these
controls and procedures required by Rule 30a-3(b) under the 1940 Act
(17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the
Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or
240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the registrant's last
fiscal quarter that have materially affected, or are reasonably likely
to materially affect, the registrant's internal control over financial
reporting.
ITEM 3. EXHIBITS.
Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of
the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) FIRST TRUST/FIDAC MORTGAGE INCOME FUND
By (Signature and Title)* /S/ JAMES A. BOWEN
-------------------------------------------------------
James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
Date September 24, 2008
----------------------------------------------------------------------------
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 A. BOWEN
-------------------------------------------------------
James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
Date September 24, 2008
----------------------------------------------------------------------------
By (Signature and Title)* /S/ MARK R. BRADLEY
-------------------------------------------------------
Mark R. Bradley, Treasurer, Controller, Chief
Financial Officer and Chief Accounting Officer
(principal financial officer)
Date September 24, 2008
----------------------------------------------------------------------------
* Print the name and title of each signing officer under his or her signature.