UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY
Investment Company Act file number 811-21727
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First Trust/FIDAC Mortgage Income Fund
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(Exact name of registrant as specified in charter)
1001 Warrenville Road, Suite 300
Lisle, IL 60532
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(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
1001 Warrenville Road, Suite 300
Lisle, IL 60532
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(Name and address of agent for service)
Registrant's telephone number, including area code: 630-241-4141
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Date of fiscal year end: October 31
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Date of reporting period: January 31, 2008
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Form N-Q is to be used by management investment companies, other than small
business investment companies registered on Form N-5 (ss.ss. 239.24 and 274.5 of
this chapter), to file reports with the Commission, not later than 60 days after
the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under
the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may use
the information provided on Form N-Q in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-Q, and
the Commission will make this information public. A registrant is not required
to respond to the collection of information contained in Form N-Q unless the
Form displays a currently valid Office of Management and Budget ("OMB") control
number. Please direct comments concerning the accuracy of the information
collection burden estimate and any suggestions for reducing the burden to the
Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC
20549. The OMB has reviewed this collection of information under the clearance
requirements of 44 U.S.C. ss. 3507.
ITEM 1. SCHEDULE OF INVESTMENTS.
The Schedule(s) of Investments is attached herewith.
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS (A)
JANUARY 31, 2008 (UNAUDITED)
PRINCIPAL STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
------------ ----------------------------------------------- ----------- -------------- -----------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 76.2%
Federal Home Loan Mortgage Corporation (FHLMC)
$ 5,474,388 Gold, Pool A38042.............................. 6.00% 10/01/35 $ 5,618,985
Federal National Mortgage Association (FNMA)
8,235,396 Pool 256182.................................... 6.00% 03/01/36 8,412,971
11,622,606 Pool 256328.................................... 6.50% 07/01/36 11,979,571
8,146,241 Pool 831145.................................... 6.00% 12/01/35 8,368,938
7,525,733 Pool 843971.................................... 6.00% 11/01/35 7,731,466
6,038,145 Pool 872303.................................... 6.00% 05/01/36 6,198,039
8,311,457 Pool 880203.................................... 6.00% 02/01/36 8,463,041
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TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES..................... 56,773,011
(Cost $55,374,151) -----------
U.S. GOVERNMENT AGENCY AND NON-AGENCY
COLLATERALIZED MORTGAGE OBLIGATIONS - 39.9%
Banc of America Mortgage Securities
4,776,524 Series 2007-3, Class 2A3................... 7.00% 09/25/37 4,890,353
Federal Home Loan Mortgage Corp.
445,309 Series 2716, Class CI, IO .................. 5.00% 05/15/19 27,700
3,673,838 Series 2737, Class IG, IO .................. 5.00% 08/15/27 320,830
1,447,835 Series 2747, Class IH, IO .................. 5.00% 12/15/13 22,134
12,974,931 Series 2807, Class SB, IO (b)............... 3.21% 11/15/33 1,632,459
2,248,426 Series 2836, Class PI, IO .................. 5.00% 09/15/22 60,883
4,739,600 Series 2870, Class JI, IO .................. 5.00% 10/15/27 516,199
792,000 Series 2888, Class OI, IO .................. 5.00% 01/15/27 90,534
1,774,808 Series 2921, Class IQ, IO .................. 5.00% 01/15/29 255,694
1,695,583 Series 2938, Class PI, IO .................. 5.00% 11/15/28 158,009
1,933,440 Series 2943, Class JI, IO .................. 5.00% 01/15/24 105,313
1,177,187 Series 2961, Class IP, IO .................. 5.50% 07/15/28 104,668
1,581,155 Series 3069, Class LI, IO .................. 5.50% 08/15/32 180,063
613,577 Series 3171, Class CS (b)................... 13.88% 06/15/36 623,248
1,431,147 Series 3195, Class SX (b)................... 18.61% 07/15/36 1,682,014
Federal Home Loan Mortgage Corp., STRIP
27,425,322 Series 227, Class IO, IO ................... 5.00% 12/01/34 6,199,818
5,432,536 Series 231, Class IO, IO ................... 5.50% 08/01/35 1,115,276
10,325,278 Series 232, Class IO, IO ................... 5.00% 08/01/35 2,207,597
2,931,872 Series 235, Class IO, IO ................... 5.50% 02/01/36 593,277
4,440,853 Series 240, Class IO, IO ................... 5.50% 07/15/36 876,933
4,848,826 Series 248, Class IO, IO ................... 5.50% 07/15/37 949,968
Federal National Mortgage Association
3,501,492 Series 2005-122, Class SN (b)............... 15.10% 01/25/36 3,661,744
1,762,402 Series 2005-39, Class BI, IO ............... 5.00% 06/25/28 148,449
See Notes to Quarterly Portfolio of Investments Page 1
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS (A)-(Continued)
JANUARY 31, 2008 (UNAUDITED)
PRINCIPAL STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
------------ ----------------------------------------------- ----------- -------------- -----------
U.S. GOVERNMENT AGENCY AND NON-AGENCY
COLLATERALIZED MORTGAGE OBLIGATIONS - (CONTINUED)
Federal National Mortgage Association, STRIP
$ 10,378,750 Series 360, Class 2, IO..................... 5.00% 08/01/35 $ 2,222,171
GSR Mortgage Loan Trust
7,280,183 Series 2007-1F, Class 3A10, IO.............. 6.00% 01/25/37 1,073,863
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TOTAL U.S. GOVERNMENT AGENCY AND NON-AGENCY
COLLATERALIZED MORTGAGE OBLIGATIONS......................................... 29,719,197
(Cost $30,376,598) ------------
ASSET-BACKED SECURITIES - 0.6%
Asset-Backed Securities Corporation Home Equity
79,834 Series 2006-HE3, Class A3 (c)............... 3.44% 03/25/36 79,672
Countrywide Asset-Backed Certificates
83,800 Series 2005-12, Class 1A1 (c)............... 3.53% 02/25/36 83,618
285,319 Series 2006-12, Class 2A1 (c)............... 3.45% 12/25/36 281,425
HSI Asset Securitization Corporation Trust
28,871 Series 2006-OPT2, Class 2A1 (c) 3.46% 01/25/36 28,684
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TOTAL ASSET-BACKED SECURITIES............................................... 473,399
(Cost $476,659) -----------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 10.7%
3,000,000 Federal Home Loan Mortgage Corp. (c) ......... 7.00% 07/11/22 2,977,500
5,000,000 Federal Home Loan Mortgage Corp., Series 1 (c) 7.50% 12/27/21 5,004,500
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TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS.................................... 7,982,000
(Cost $7,958,224) -----------
SHARES DESCRIPTION VALUE
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PREFERRED SECURITIES - 2.1%
20,000 Fannie Mae, 8.25% .......................................................... 528,400
40,000 Freddie Mac, Series Z, 8.38% ............................................... 1,074,000
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TOTAL PREFERRED SECURITIES.................................................. 1,602,400
(Cost $1,500,000) -----------
TOTAL INVESTMENTS - 129.5%.................................................. 96,550,007
(Cost $95,685,632) (d) -----------
PRINCIPAL
VALUE DESCRIPTION VALUE
------------ ------------------------------------------------------------------------------- --------------
REVERSE REPURCHASE AGREEMENT - (30.4%)
$ (22,641,000) With UBS Securities 3.10% dated 01/31/08, to be repurchased at $22,642,950 on
02/01/08, collateralized by $25,909,076 FNMA 6.00%, due 11/01/35, FNMA
6.00%, due 05/01/36 and FNMA 6.50%, due 07/01/36. ................ (22,641,000)
(Cost $22,641,000)
NET OTHER ASSETS AND LIABILITIES - 0.9%...................................... 629,695
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NET ASSETS - 100.0%......................................................... $ 74,538,702
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Page 2 See Notes to Quarterly Portfolio of Investments
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS (A)-(Continued)
JANUARY 31, 2008 (UNAUDITED)
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(a) All percentages shown in the Portfolio of Investments are based on
net assets.
(b) Inverse floating rate instrument. The interest rate shown reflects
the rate in effect at January 31, 2008.
(c) Floating rate security.
The interest rate shown reflects the rate in effect at January 31,
2008.
(d) Aggregate cost for federal income tax and financial
reporting purposes.
IO Interest only
STRIP Separate trading of registered interest and principal of securities
See Notes to Quarterly Portfolio of Investments Page 3
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
JANUARY 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 subtracting the Fund's liabilities (including accrued expenses, dividends
payable and all borrowings of the Fund) from the Fund's Total Assets (the value
of the securities and other investments the Fund holds plus cash or other
assets, including interest accrued but not yet received) and dividing the result
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 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 and debt securities originally
purchased with maturities of sixty days or more but which currently have
maturities of less than sixty days are valued at cost adjusted for amortization
of premiums and accretion of discounts. In the event that market quotations are
not readily available, the pricing service does not provide a valuation for a
particular security, 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 investments. Additionally, if events occur after the close of the
principal market 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
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.
Securities purchased or sold on a when-issued or delayed-delivery basis may be
settled a month or more after the trade date; interest income on such securities
is not accrued until settlement date. The Fund maintains liquid assets with a
current value at least equal to the amount of its when-issued or
delayed-delivery purchase commitments. At January 31, 2008, the Fund had no
when-issued or delayed-delivery purchase commitments.
C. 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 three months ended January 31, 2008:
Maximum amount outstanding during the period................ $24,663,000
Average amount outstanding during the period*............... $23,802,250
Average monthly shares outstanding during the period........ 4,045,236
Average debt per share outstanding during the period........ $5.88
*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 three months ended January 31, 2008.
Interest rates ranged from 3.10% to 4.94% during the three months ended January
31, 2008, on borrowings by the Fund under reverse repurchase agreements.
Page 4
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS - (CONTINUED)
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
JANUARY 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 securites 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.
2. UNREALIZED APPRECIATION (DEPRECIATION)
As of January 31, 2008, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $2,242,058
and the aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $1,377,683.
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
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By (Signature and Title)* /s/ James A. Bowen
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James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
Date March 20, 2008
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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
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James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
Date March 20, 2008
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By (Signature and Title)* /s/ Mark R. Bradley
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Mark R. Bradley, Treasurer, Controller, Chief Financial
Officer and Chief Accounting Officer
(principal financial officer)
Date March 20, 2008
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* Print the name and title of each signing officer under his or her signature.