Edgar Filing: FIRST TRUST MORTGAGE INCOME FUND

INVESTMENT COMPANIES

Investment Company Act file number 811-21727
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First Trust Mortgage Income Fund
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(Exact name of registrant as specified in charter)

120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Address of principal executive offices) (Zip code)

W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Name and address of agent for service)

registrant's telephone number, including area code: 630-765-8000
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Date of fiscal year end: October 31
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Date of reporting period: October 31, 2011
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 100 F Street, NE,
Washington, DC 20549. The OMB has reviewed this collection of information under
the clearance requirements of 44 U.S.C. Section 3507.

ITEM 1. REPORTS TO STOCKHOLDERS.

The Report to Shareholders is attached herewith.

FIRST TRUST BROOKFIELD

FIRST TRUST
MORTGAGE INCOME FUND

ANNUAL REPORT
FOR THE YEAR ENDED
OCTOBER 31, 2011

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TABLE OF CONTENTS
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FIRST TRUST MORTGAGE INCOME FUND (FMY)
ANNUAL REPORT
OCTOBER 31, 2011

Shareholder Letter........................................................... 1
At a Glance.................................................................. 2
Portfolio Commentary......................................................... 3
Portfolio of Investments..................................................... 6
Statement of Assets and Liabilities.......................................... 12
Statement of Operations...................................................... 13
Statements of Changes in Net Assets.......................................... 14
Statement of Cash Flows...................................................... 15
Financial Highlights......................................................... 16
Notes to Financial Statements................................................ 17
Report of Independent Registered Public Accounting Firm...................... 24
Additional Information....................................................... 25
Board of Trustees and Officers............................................... 27
Privacy Policy............................................................... 29

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and/or Brookfield Investment Management Inc.
("Brookfield" or the "Sub-Advisor") (effective April 29, 2011, Brookfield
replaced Fixed Income Discount Advisory Company ("FIDAC") as the Fund's
sub-advisor - see Note 3 in the Notes to Financial Statements for additional
information regarding the change in the Fund's sub-advisor) and their respective
representatives, taking into account the information currently available to
them. Forward-looking statements include all statements that do not relate
solely to current or historical fact. For example, forward-looking statements
include the use of words such as "anticipate," "estimate," "intend," "expect,"
"believe," "plan," "may," "should," "would" or other words that convey
uncertainty of future events or outcomes.

Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
First Trust Mortgage Income Fund (formerly known as First Trust/FIDAC Mortgage
Income Fund - see Note 3 in the Notes to Financial Statements for additional
information regarding the Fund's name change) (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/or
Sub-Advisor and their respective representatives only as of the date hereof. We
undertake no obligation to publicly revise or update these forward-looking
statements to reflect events and circumstances that arise after the date hereof.

PERFORMANCE AND RISK DISCLOSURE

There is no assurance that the Fund will achieve its investment objectives. The
Fund is subject to market risk, which is the possibility that the market values
of securities owned by the Fund will decline and that the value of the Fund
shares may therefore be less than what you paid for them. Accordingly, you can
lose money by investing in the Fund. See "Risk Considerations" in the Notes to
Financial Statements for a discussion of certain other risks of investing in the
Fund.

Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
http://www.ftportfolios.com or speak with your financial advisor. Investment
returns, net asset value and common share price will fluctuate and Fund shares,
when sold, may be worth more or less than their original cost.

HOW TO READ THIS REPORT

This report contains information that may help you evaluate your investment. 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 relevant market
benchmarks.

It is important to keep in mind that the opinions expressed by personnel of
Brookfield 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 risks of investing in the Fund are
spelled out in the prospectus, the statement of additional information, this
report and other Fund regulatory filings.

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SHAREHOLDER LETTER
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FIRST TRUST MORTGAGE INCOME FUND (FMY)
ANNUAL LETTER FROM THE PRESIDENT
OCTOBER 31, 2011

Dear Shareholders:

I am pleased to present you with the annual report for your investment in First
Trust Mortgage Income Fund (the "Fund").

First Trust Advisors L.P. ("First Trust"), now in our 20th year, has always
believed that staying invested in quality products and having a long-term
horizon can help investors reach their financial goals. Like many successful
investors, we understand that success in the markets doesn't just happen--it
requires a long-term investment perspective through all kinds of markets.
Although the markets have been somewhat choppy over the past six months, the
equity market is well above the lows it sank to during the recent recession.

The report you hold contains detailed information about your investment; a
portfolio commentary from the Fund's management team that provides a recap of
the period; a performance analysis and a market and Fund outlook. Additionally,
you will find the Fund's financial statements for the period this report covers.
I encourage you to read this document and discuss it with your financial
advisor. A successful investor is also typically a knowledgeable one, as we have
found to be the case at First Trust.

First Trust remains committed to being a long-term investor and investment
manager and to bringing you quality investment solutions regardless of market
ups and downs. We offer a variety of products that may fit many financial plans
to help those investors seeking long-term investment success. You may want to
talk to your advisor about the other investments First Trust offers that might
also fit your financial goals.

First Trust will continue to make available up-to-date information about your
investments so you and your financial advisor are current on any First Trust
investments you own. We value our relationship with you, and thank you for the
opportunity to assist you in achieving your financial goals. I look forward to
2012 and to the next edition of your Fund's report.

Sincerely,

/s/ James A. Bowen

James A. Bowen
President of First Trust Mortgage Income Fund

Page 1

FIRST TRUST MORTGAGE INCOME FUND
"AT A GLANCE"
AS OF OCTOBER 31, 2011 (UNAUDITED)

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FUND STATISTICS
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Symbol on New York Stock Exchange FMY
Common Share Price $18.94
Common Share Net Asset Value ("NAV") $18.43
Premium (Discount) to NAV 2.77%
Net Assets Applicable to Common Shares $75,014,241
Current Monthly Distribution per Common Share (1) $0.160
Current Annualized Distribution per Common Share $1.920
Current Distribution Rate on Closing Common Share Price (2) 10.14%
Current Distribution Rate on NAV (2) 10.42%
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COMMON SHARE PRICE & NAV (WEEKLY CLOSING PRICE)
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Common Share Price NAV
10/31/2010 $20.70 $19.59
20.12 19.31
19.09 19.44
19.72 19.54
11/26/2010 19.50 19.75
19.31 19.70
18.69 19.70
19.05 19.79
19.59 19.81
12/31/2010 19.38 19.50
19.29 19.61
18.82 19.73
19.55 19.71
1/28/2011 19.59 19.75
19.20 19.64
19.44 19.70
19.69 19.70
2/25/2011 20.07 19.71
20.18 19.71
19.83 19.65
19.79 19.64
3/25/2011 20.22 19.76
20.25 19.72
19.98 19.81
20.07 19.78
20.40 19.72
4/29/2011 20.78 19.68
20.59 19.49
20.61 19.53
20.89 19.61
5/27/2011 20.98 19.75
20.95 19.69
20.22 19.60
20.35 19.56
6/24/2011 21.16 19.59
20.74 19.54
20.94 19.77
20.87 19.66
20.76 19.70
7/29/2011 19.68 19.50
19.39 19.12
19.02 18.70
19.01 18.59
8/26/2011 19.16 18.71
19.10 18.61
19.00 18.55
19.05 18.58
18.94 18.18
9/30/2011 18.66 18.20
17.70 18.05
18.54 18.41
18.42 18.39
18.82 18.48
10/31/2011 18.94 18.43

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PERFORMANCE (3)
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Average Annual Total Return
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1 Year Ended 5 Years Ended Inception (5/25/2005)
10/31/2011 10/31/2011 to 10/31/2011

FUND PERFORMANCE
NAV 4.60% 8.48% 7.29%
Market Value 1.68% 11.36% 6.97%

INDEX PERFORMANCE
Barclays Capital U.S. MBS: Agency
Fixed Rate MBS Index 4.80% 7.01% 6.36%
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PORTFOLIO CHARACTERISTICS
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Weighted Average Duration 1.15
Weighted Average Life (Years) 4.30
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% OF TOTAL
ASSET CLASSIFICATION INVESTMENTS
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Mortgage-Backed Securities 52.3%
U.S. Government Agency Mortgage-Backed Securities 45.5
Asset-Backed Securities 2.2
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Total 100.0%
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% OF TOTAL
SECURITY TYPE INVESTMENTS
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Fixed Rate Securities 58.7%
Adjustable Rate Securities 25.0
Interest Only Securities 16.3
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Total 100.0%
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% OF TOTAL
FIXED-INCOME
CREDIT QUALITY (4) INVESTMENTS
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AAA 63.6%
AA+ 1.0
AA 6.3
AA- 1.1
A+ 2.6
A 1.7
A- 1.1
BBB 0.6
BB 1.4
BB- 0.5
B+ 0.4
B 2.7
B- 3.0
CCC+ 5.8
CCC 6.7
CC 1.5
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Total 100.0%
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(1) Most recent distribution paid or declared through 10/31/2011. Subject to
change in the future.

(2) Distribution rates are calculated by annualizing the most recent
distribution paid or declared through the report date and then dividing by
Common Share price or NAV, as applicable, as of 10/31/2011. 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 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
less than one year. Past performance is not indicative of future results.

(4) The credit quality information presented reflects the ratings assigned by
one or more nationally recognized statistical rating organizations
(NRSROs), including Standard & Poor's Ratings Group, a division of the
McGraw Hill Companies, Inc., Moody's Investors Service, Inc. or a
comparably rated NRSRO. For situations in which a security is rated by
more than one NRSRO and ratings are not equivalent, the highest ratings
are used. Sub-investment grade ratings are those rated BB+/Ba1 or lower.
Investment grade ratings are those rated BBB-/Baa3 or higher.

Page 2

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PORTFOLIO COMMENTARY
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SUB-ADVISOR

BROOKFIELD INVESTMENT MANAGEMENT INC.

Brookfield Investment Management Inc. ("Brookfield" or the "Sub-Advisor") is a
global investment manager focused on specialized equity and fixed-income
securities investments. The firm is a subsidiary of Brookfield Asset Management
Inc., a global alternative asset manager with approximately $150 billion in
assets under management as of September 30, 2011 and over 100 years of history
in owning and operating assets with a focus on real estate, infrastructure,
power and private equity. The combination of access to this operational
experience, along with the breadth of Brookfield's product offerings and depth
of its investment teams, provides enhanced opportunity for investment.

Brookfield is an SEC-registered investment advisor and with its affiliates, had
approximately $21 billion in assets under management as of September 30, 2011.
Headquartered in New York, the firm maintains offices and investment teams in
Chicago, Boston, London, Hong Kong, Sydney, and Toronto.

PORTFOLIO MANAGEMENT TEAM

ANTHONY BREAKS, CFA
DIRECTOR

Mr. Breaks is a Portfolio Manager on the Securitized Products Investments team.
Mr. Breaks is one of four team leaders in mortgage-backed securities ("MBS") and
asset-backed securities ("ABS") and is a member of the team's securities
analysis committee. In his role, Mr. Breaks is one of the team's portfolio
managers. Mr. Breaks also has managed securitized product vehicles, such as
structured investment vehicle ("SIV"), asset-backed commercial paper ("ABCP")
and collateralized debt obligations ("CDOs") for Brookfield and has experience
in insurance company asset management. Mr. Breaks earned a Bachelor of Science
degree in Electrical Engineering from the Massachusetts Institute of Technology.
He holds the Chartered Financial Analyst ("CFA") designation.

CHRIS WU
DIRECTOR

Mr. Wu is a Portfolio Manager on the Securitized Products Investment Team
focusing on Agency MBS. He is responsible for the firm's Agency MBS exposures.
He develops quantitative tools to formulate research and develop trading
strategies for Agency MBS exposures. Mr. Wu holds an MBA from New York
University as well as a Master of Science degree in Computer Science from the
University of Saskatchewan. He also earned a Bachelor of Economics from Huazhong
University of Science and Technology in China.

COMMENTARY

FIRST TRUST MORTGAGE INCOME FUND

The First Trust Mortgage Income Fund's (the "Fund") 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 MBS representing part ownership in a pool of either residential or
commercial mortgage loans that, in the opinion of the Fund's Sub-Advisor, offer
an attractive combination of credit quality, yield and maturity. These
securities may be issued by government agencies or by private originators or
issuers, generally in the form of pass-through certificates, collateralized
mortgage obligations, residential mortgage- backed securities ("RMBS") or
commercial mortgage-backed securities ("CMBS"). The Fund may leverage to an
aggregate amount of up to 33-1/3% of the Fund's Managed Assets(1). The Fund uses
leverage primarily through the use of repurchase agreements.

MARKET RECAP AND OUTLOOK

During the last few months, worries about European sovereign debt and core
European Union ("EU") banks have weighed heavily on stocks and many sectors of
fixed-income. Softer economic data in the U.S. has reinforced investor worry and
resulted in some economists forecasting a double-dip recession. In response,
investors have moved towards liquid, defensive assets such as U.S. Treasuries,
bringing benchmark rates down to historical lows. Conversely,
economically-sensitive assets (such as non-Agency RMBS and CMBS) have had price
declines or at least underperformed Treasuries.

Price declines have generally been proportionate to economic sensitivity. Senior
bonds, which are our focus, have fared better than junior bonds, as they have a
first claim on the cash flows securing the deal. Therefore, senior bonds are
last to take principal losses and if losses occur, they are typically less
severe. Lower prices also mean higher yields and so we see attractive
opportunities to deploy the Fund's cash and increase income in the portfolio.

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(1) The Fund's Managed Assets are 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.

Page 3

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PORTFOLIO COMMENTARY - (CONTINUED)
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We believe prime MBS senior securities and CMBS "super duper" (refers to
AAA-rated CMBS that are broken into "junior" parts, have a 30% credit
enhancement and have added extension risk) senior securities are attractive in
the near- to medium- term and have an excellent combination of credit stability
and income, in our opinion. Subprime, Alt-A and Option ARM-backed MBS have
declined in value and we see some selective opportunities available. Supply has
been low recently, but we will continue to take advantage of opportunities to
add exposure to "story-specific" securities, our name for bonds with attractive
nuances we think the market is missing.

Another element of our analysis is to compare non-Agency RMBS and CMBS to other
comparable income-oriented sectors. Our analysis was that generally these
alternatives seemed more expensive, more volatile, and economically-sensitive
than securitized products and that, therefore, they may be more vulnerable to
small changes in outlooks.

New issuance has continued to be minimal for RMBS in 2011, although $7 billion
of CMBS was issued in the second quarter of 2011 and $10 billion through August
2011. Secondary supply has been primarily provided by traditional investment
managers selling and boom-era CDOs liquidating their portfolios. European banks
are large holders of RMBS, but have only sold a fraction of their positions. If
pressure in Europe continues to build, we may see considerable supply from EU
banks.

We continue to see demand from money managers and insurance companies. Many
insurance companies are now increasing exposure to RMBS and CMBS due to their
yields. With rates so low on Treasuries and investment-grade corporate bonds,
the search for income has become more urgent. In fact, Treasuries are yielding
less than inflation expectations and so investors are all but locking in a loss
of buying power. The dynamic tension is between defensive credit positions that
minimize risk and a need to meet return hurdles and earn sufficient income to
meet liabilities. We believe RMBS and CMBS will remain attractive as they
typically provide a healthy mix of stability and yield.

At today's prices, we view RMBS and CMBS as attractive for closed-end funds as
well. Closed-end funds can now expect to improve return potential through
repurchase agreements and other borrowings. With leverage available through
insurance company balance sheets and to money managers through repurchase
agreements, we see room for prices to increase as required yields decrease.

On the policy front, the Federal Reserve announced in August 2011 that it would
likely hold interest rates near zero until at least mid-2013. It is unusual for
the Federal Reserve to communicate its intentions for such a long period of
time. Financial markets took this as a sign that the Federal Reserve believes
the economy is weak and so equities and credit-oriented fixed-income sold off on
this and other indications of a weaker recovery.

Also on the policy front, the U.S. government has a stated goal of encouraging
higher levels of refinancing. Refinancing reduces monthly payments for
consumers, thereby creating more capacity to spend and stimulate the economy.
This has been attempted in several forms over the last few years and saw a
renewed push recently. As with many areas of public policy, encouraging this
refinancing has been difficult to implement. There are several barriers to
refinancing for borrowers and the power to lessen those rests with the Federal
Housing Financing Agency, or the FHFA (not the President or Congress directly),
and so our projection is for a modest increase in refinancing activity. We have
targeted investments in loan pools with coupons above current mortgage levels
but with secondary characteristics likely to lessen refinancing.

The EU continues to struggle with Greece and other heavily-indebted countries
within the Union. Greece debt yields exceeded 24.7% as of October 31, 2011, with
the expectation of a 50% reduction in debt principal. Temporary support from the
European Central Bank ("ECB") and International Monetary Fund ("IMF") are
providing breathing room to Greece as well, and major policy initiatives to
leverage existing funds are working their way through European legislatures.

The need for a solution is gaining urgency as market fears have spilled over
into the European banking system, with many banks losing half of their market
capitalization in recent months and finding limited funding for
dollar-denominated assets. Problems in Europe are causing global investors to be
more defensive across all investment categories and so we have been watching
developments in Europe carefully as they affect pricing in the Fund's focus
sectors (despite being U.S. centric).

Agency MBS, which are securities backed by government guaranteed loans, have
been strong performers over the past year. With this strong performance, prices
have risen to substantial premiums to par. For most bonds within this sector,
higher prices mean greater exposure to increased refinancing by borrowers. Since
the outset of the financial crisis, refinancing activity has been limited by the
large drop in home values and stricter underwriting standards. Even so, with
Treasury rates falling to all-time lows, Agency MBS have lately struggled to
match the price returns of Treasury bonds. We continue to view Agency MBS as a
good alternative to Treasuries due to their high coupon payments and U.S.
government equivalent credit.

Also notable during the period covered by this report, was the Federal Reserve's
announcement that it will reinvest payments received on its RMBS portfolios into
Agency MBS rather than Treasury bonds. We project that this constitutes $200
billion of additional demand for the sector, a more than 50% increase over core
demand from private investors. This was very positive news for Agency MBS.

Page 4

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PORTFOLIO COMMENTARY - (CONTINUED)
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PERFORMANCE ANALYSIS

For the twelve-month period ended October 31, 2011, the Fund had a total
return(2) of 4.60% based on net asset value ("NAV"). For the period, the Fund
traded from a premium to NAV of 5.67% to a premium to NAV of 2.77%, resulting in
a total return2 of 1.68%, based on market price. During the period, the Fund's
benchmark, the Barclays Capital U.S. MBS: Agency Fixed Rate MBS Index, returned
4.80%.

Over the course of the period, the Fund's primary purchases were
investment-grade fixed-coupon CMBS and fixed-coupon non-Agency RMBS. The Fund
was a net seller of Agency MBS as we repositioned the Fund for reduced
prepayment risk as interest rates fell. The purchases were funded with existing
cash, repaid principal on existing holdings and sales. We also increased the
Fund's diversification by adding exposure to various sectors where we found
relative value such as Manufactured Housing ("MH"). In total, the Fund purchased
approximately $12.2 million in senior non-Agency RMBS, $14.1 million in senior
CMBS and $1.1 million of senior MH bonds.

With the Board's approval of a below-investment grade allocation, the Fund added
some lower-rated bonds during the period. We are focused on bonds that have
stable yield profiles, despite a non-investment grade rating. One sector we find
particularly attractive is senior prime RMBS in which Fund purchases totaled
$10.3 million for the period. Currently, we see 6.5% to 7.5% yields, loss
adjusted, with moderate degradation, if losses come in higher than expected.
Anchoring the yield are modest losses, high coupons and a discounted price.

We also prefer the most senior bonds in CMBS purchases. They have a great deal
of credit enhancement to avoid losses and consequently have high
investment-grade ratings. When spreads on these bonds widen, we see a great
opportunity to pick up spread to Agencies with more price upside potential. MH
is similarly remote from principal loss and with higher spreads, although it is
slower to find price appreciation in an improving market.

Currently, the leverage of the Fund is relatively low at 23.49% of the Fund's
Managed Assets, as of October 31, 2011, given that the Fund may utilize leverage
in an amount up to 33-1/3% of Managed Assets. Where our overall budget for risk
warrants it and when the return opportunities are compelling, we are likely to
increase leverage in an attempt to improve returns. In periods of stability,
this may be an especially important tool.

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(2) Total return is based on the combination of reinvested dividend, capital
gains and return of capital distributions, if any, at prices obtained by
the Dividend Reinvestment Plan and changes in NAV 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
less than one year. Past performance is not indicative of future results.

Page 5

FIRST TRUST MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS (a)
OCTOBER 31, 2011

COLLATERALIZED MORTGAGE OBLIGATIONS - 48.2%

Adjustable Rate Mortgage Trust
$ 356,760 Series 2004-5, Class 1A1 (b)............... 2.96% 04/25/35 $ 297,424
Banc of America Funding Corp.
1,014,323 Series 2005-F, Class 4A1 (b)............... 2.78% 09/20/35 683,368
Banc of America Mortgage Securities
109,951 Series 2002-L, Class 1A1 (b)............... 2.75% 12/25/32 83,353
146,382 Series 2004-K, Class 4A1 (b)............... 5.25% 12/25/34 133,757
1,509,000 Series 2007-1, Class 1A26 ................. 6.00% 03/25/37 1,339,538
3,035,516 Series 2007-3, Class 2A3 .................. 7.00% 09/25/37 397,364
Bear Stearns Adjustable Rate Mortgage Trust
1,011,733 Series 2004-10, Class 12A3 (b)............. 2.76% 01/25/35 799,035
1,163,918 Series 2004-9, Class 12A3 (b).............. 2.88% 11/25/34 1,011,656
Chase Mortgage Finance Corp.
678,939 Series 2007-A3, Class 3A1 (b).............. 5.84% 12/25/37 555,073
Countrywide Alternative Loan Trust
307,724 Series 2004-14T2, Class A6 ................ 5.50% 08/25/34 308,103
28,733 Series 2004-1T1, Class A1 ................. 5.00% 02/25/34 28,748
1,397,774 Series 2005-J1, Class 2A1 ................. 5.50% 02/25/25 1,358,903
Countrywide Home Loan Mortgage Pass
Through Trust
1,253,115 Series 2006-21, Class A8 .................. 5.75% 02/25/37 1,029,823
145,088 Series 2007-15, Class 2A2 ................. 6.50% 09/25/37 116,307
Countrywide Home Loans
332,771 Series 2004-HYB1, Class 2A (b)............. 2.78% 05/20/34 275,320
222,585 Series 2005-20, Class A7 .................. 5.25% 12/25/27 199,243
1,069,843 Series 2005-J4, Class A4 .................. 5.50% 11/25/35 1,062,574
Credit Suisse First Boston Mortgage
Securities Corp.
2,029,913 Series 2004-AR2, Class 1A1 (b)............. 2.73% 03/25/34 1,451,399
First Horizon Mortgage Trust
530,148 Series 2005-8, Class 1A5 .................. 5.75% 02/25/36 527,116
753,123 Series 2006-2, Class 1A3 .................. 6.00% 08/25/36 661,763
GMAC Mortgage Corporation Loan Trust
382,074 Series 2004-AR1, Class 22A (b)............. 2.96% 06/25/34 314,821
GSR Mortgage Loan Trust
321,534 Series 2005-AR2, Class 5A1 (b)............. 2.63% 04/25/35 267,749
2,666,643 Series 2007-1F, Class 3A10, IO ............ 6.00% 01/25/37 264,627
Harborview Mortgage Loan Trust
312,764 Series 2004-1, Class 2A (b)................ 2.65% 04/19/34 286,283
1,240,541 Series 2004-6, Class 3A1 (b)............... 2.76% 08/19/34 882,675
JP Morgan Mortgage Trust
2,742,598 Series 2005-ALT1, Class 4A1 (b)............ 5.33% 10/25/35 2,006,656
JP Morgan Re-REMIC
2,847,005 Series 2009-7, Class 12A1 (b) (c).......... 6.25% 01/27/37 2,906,691
MASTR Alternative Loan Trust
660,924 Series 2004-8, Class 5A1 .................. 6.00% 09/25/34 697,869
MASTR Asset Securitization Trust
1,200,645 Series 2006-2, Class 1A10 (b).............. 6.00% 06/25/36 1,086,105

Page 6 See Notes to Financial Statements

FIRST TRUST MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
OCTOBER 31, 2011

COLLATERALIZED MORTGAGE OBLIGATIONS - (CONTINUED)

Merrill Lynch Mortgage Investors Trust
$ 1,488,965 Series 2005-A7, Class 2A1 (b).............. 5.25% 09/25/35 $ 1,267,052
Morgan Stanley Mortgage Loan Trust
251,458 Series 2004-7AR, Class 2A6 (b)............. 2.48% 09/25/34 221,053
Provident Funding Mortgage Loan Trust
486,405 Series 2005-1, Class 1A1 (b)............... 2.67% 05/25/35 404,976
Residential Accredit Loans, Inc.
112,046 Series 2002-QS18, Class A1 ................ 5.50% 12/25/17 114,559
1,152,939 Series 2004-QS2, Class CB ................. 5.75% 02/25/34 1,167,942
Residential Funding Mortgage Securities I
485,699 Series 2005-S5, Class A5 .................. 5.25% 07/25/35 472,684
Structured Asset Securities Corp.
930,000 Series 2005-16, Class 1A2.................. 5.50% 09/25/35 808,895
Wachovia Mortgage Loan Trust, LLC
1,023,667 Series 2006-A, Class 3A1 (b)............... 4.85% 05/20/36 899,131
Washington Mutual Msc Mortgage Pass-
Through
762,966 Series 2004-RA1, Class 2A ................. 7.00% 03/25/34 814,867
Wells Fargo Mortgage Backed Securities Trust
2,746,000 Series 2005-9, Class 2A9 .................. 5.25% 10/25/35 2,571,438
671,450 Series 2005-AR16, Class 1A1 (b)............ 2.74% 10/25/35 674,732
495,000 Series 2006-AR1, Class 2A5 (b)............. 5.37% 03/25/36 438,285
309,821 Series 2006-AR10, Class 5A2 (b)............ 2.73% 07/25/36 226,380
1,798,926 Series 2007-10, Class 1A18 ................ 6.00% 07/25/37 1,658,546
1,622,630 Series 2007-16, Class 1A1 ................. 6.00% 12/28/37 1,675,501
1,144,279 Series 2007-2, Class 1A13 ................. 6.00% 03/25/37 1,021,629
265,000 Series 2007-8, Class 2A2 .................. 6.00% 07/25/37 249,899
425,986 Series 2007-8, Class 2A7 .................. 6.00% 07/25/37 421,030
--------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS ................................ 36,141,942
--------------

COMMERCIAL MORTGAGE-BACKED SECURITIES - 17.3%
Banc of America Merrill Lynch Commercial
Mortgage, Inc.
1,000,000 Series 2007-2, Class A4 (b) (e)............ 5.81% 04/10/49 1,070,918
Citigroup/Deutsche Bank Commercial Mortgage
Trust
1,000,000 Series 2007-CD4, Class A4 ................. 5.32% 12/11/49 1,051,228
Credit Suisse Mortgage Capital Certificates
820,000 Series 2007-C2, Class A3 (b)............... 5.54% 01/15/49 848,303
Greenwich Capital Commercial Funding Corp.
1,000,000 Series 2007-GG11, Class A4 (e)............. 5.74% 12/10/49 1,064,003
1,000,000 Series 2007-GG9, Class A4 ................. 5.44% 03/10/39 1,071,224
GS Mortgage Securities Corp II
1,000,000 Series 2007-GG10, Class A4 (b)............. 5.98% 08/10/45 1,069,197
JP Morgan Chase Commercial Mortgage
Securities Corp
905,000 Series 2007-CB18, Class A4 ................ 5.44% 06/12/47 957,165

See Notes to Financial Statements Page 7

FIRST TRUST MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
OCTOBER 31, 2011

COMMERCIAL MORTGAGE-BACKED SECURITIES - (CONTINUED)

LB-UBS Commercial Mortgage Trust
$ 1,200,000 Series 2007-C7, Class A3 (b) (e)........... 5.87% 09/15/45 $ 1,279,656
Merrill Lynch/Countrywide Commercial
Mortgage Trust
1,200,000 Series 2007-7, Class A4 (b) (e)............ 5.81% 06/12/50 1,264,835
Morgan Stanley Capital I, Inc.
1,000,000 Series 2007-IQ14, Class A4 (b) (e)......... 5.69% 04/15/49 1,052,377
Wachovia Bank Commercial Mortgage Trust
1,000,000 Series 2007-C30, Class A5 (e).............. 5.34% 12/15/43 1,046,677
1,000,000 Series 2007-C32, Class A3 (b) (e).......... 5.93% 06/15/49 1,048,470
Washington Mutual Alternative Mortgage
Pass-Through Certificates
78,591 Series 2007-5, Class A11 (d)............... 38.01% 06/25/37 132,215
--------------
TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES .............................. 12,956,268
--------------
TOTAL MORTGAGE-BACKED SECURITIES ......................................... 49,098,210
(Cost $49,775,529) --------------

U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 56.9%
COLLATERALIZED MORTGAGE OBLIGATIONS - 32.9%
Federal Home Loan Mortgage Corp.
1,473,521 Series 2641, Class SC (d).................. 13.41% 07/15/33 1,677,570
6,340,214 Series 2807, Class SB, IO (d).............. 7.21% 11/15/33 1,002,796
311,551 Series 2921, Class IQ, IO ................. 5.00% 01/15/29 1,381
152,463 Series 2938, Class PI, IO ................. 5.00% 11/15/28 1,044
600,821 Series 3000, Class SU (d).................. 22.39% 04/15/35 723,209
563,368 Series 3069, Class LI, IO ................. 5.50% 08/15/32 38,022
267,242 Series 3195, Class SX (d).................. 44.57% 07/15/36 546,058
2,430,545 Series 3562, Class KI, IO ................. 4.50% 11/15/22 127,693
35,728 Series 3569, Class SN (d).................. 13.39% 08/15/39 36,287
2,355,256 Series 3593, Class IP, IO ................. 5.00% 06/15/36 170,865
9,335,269 Series 3619, Class EI, IO ................. 4.50% 05/15/24 766,052
4,639,356 Series 3692, Class PS, IO (d).............. 6.36% 05/15/38 729,460
2,319,536 Series 3702, Class SK (d).................. 13.97% 08/15/40 2,338,001
12,543,146 Series 3726, Class KI, IO ................. 3.50% 04/15/25 1,558,812
5,803,678 Series 3870, Class WS, IO (d).............. 6.36% 06/15/31 1,007,795
Federal Home Loan Mortgage Corp., STRIP
9,211,203 Series 227, Class IO, IO .................. 5.00% 12/01/34 1,354,752
4,524,765 Series 232, Class IO, IO .................. 5.00% 08/01/35 740,816
Federal National Mortgage Association
2,202,865 Series 2005-122, Class SN (d).............. 27.62% 01/25/36 3,367,732
126,795 Series 2005-39, Class BI, IO .............. 5.00% 06/25/28 332
306,020 Series 2005-91, Class SH (d)............... 22.94% 05/25/33 417,979
2,814,307 Series 2008-50, Class AI, IO .............. 5.50% 06/25/23 173,199
502,941 Series 2009-111, Class SB (d).............. 7.61% 04/25/35 505,625
2,519,269 Series 2009-56, Class PI, IO .............. 5.00% 11/25/30 23,275
6,229,090 Series 2010-103, Class ID, IO ............. 5.00% 09/25/40 1,212,286
9,165,945 Series 2010-139, Class KI, IO ............. 1.09% 12/25/40 452,750
4,936,404 Series 2010-142, Class PS, IO (d).......... 5.81% 05/25/40 564,010

Page 8 See Notes to Financial Statements

FIRST TRUST MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
OCTOBER 31, 2011

PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
---------------- --------------------------------------------- ---------- ------------ --------------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS - (CONTINUED)
Federal National Mortgage Association - (Continued)

$ 3,203,121 Series 2010-145, Class TI, IO ............. 3.50% 12/25/20 $ 280,292
12,236,458 Series 2010-40, Class MI, IO .............. 4.50% 08/25/24 1,147,277
Federal National Mortgage Association, STRIP
4,869,004 Series 360, Class 2, IO ................... 5.00% 08/01/35 773,826
7,540,323 Series 406, Class 6, IO (d)................ 4.00% 01/25/41 944,282
Government National Mortgage Association
2,984,979 Series 2009-65, Class NJ, IO .............. 5.50% 07/20/39 385,930
5,302,460 Series 2010-115, Class IQ, IO ............. 4.50% 11/20/38 910,638
5,544,938 Series 2011-69, Class CI, IO .............. 5.00% 03/20/36 667,915
--------------
24,647,961
--------------
PASS-THROUGH SECURITIES - 24.0%
Federal Home Loan Mortgage Corp.
2,710,807 Pool A94738 (e)............................ 4.50% 11/01/40 2,864,190
1,413,668 Pool K36017 (e)............................ 5.00% 09/01/47 1,505,860
Federal National Mortgage Association
3,740,603 Pool 831145 (e)............................ 6.00% 12/01/35 4,147,977
4,241,542 Pool 843971 (e)............................ 6.00% 11/01/35 4,743,237
Federal National Mortgage Association REMICs
2,545,246 Series 2005-83, Class LZ (e)............... 5.50% 10/25/35 2,720,805
2,001,433 Series 2010-110, Class WG (e).............. 5.50% 09/25/40 2,030,121
--------------
18,012,190
--------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES ................. 42,660,151
--------------
(Cost $41,707,308)

ASSET-BACKED SECURITIES - 2.8%
Green Tree Financial Corp.
135,891 Series 1997-2, Class A6 (b)................ 7.24% 06/15/28 149,507
145,457 Series 1997-3, Class A6 ................... 7.32% 03/15/28 160,287
182,267 Series 1997-7, Class A6 ................... 6.76% 07/15/29 196,546
Lehman ABS Manufactured Housing Contract Trust
285,229 Series 2001-B, Class A4 ................... 5.27% 09/15/18 298,231
Mid-State Trust
273,915 Series 2006-1, Class A .................... 5.79% 10/15/40 297,026
Park Place Securities, Inc.
1,019,471 Series 2004-MHQ1, Class M1 (b)............. 0.94% 12/25/34 984,858
--------------
TOTAL ASSET-BACKED SECURITIES ........................................... 2,086,455
(Cost $2,051,717) --------------

TOTAL INVESTMENTS - 125.2% ................ 93,844,816
(Cost $93,534,554) (f) --------------

See Notes to Financial Statements Page 9

FIRST TRUST MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
OCTOBER 31, 2011

PRINCIPAL
VALUE DESCRIPTION AMOUNT
---------------- ---------------------------------------------------------------------------- --------------
REVERSE REPURCHASE AGREEMENTS - (30.7%)

$ (6,313,000) With Credit Suisse 1.55% dated 09/06/11, to be repurchased at
$6,329,852 on 11/07/11..................................................... $ (6,313,000)
(8,439,500) With Credit Suisse 0.31% dated 09/14/11, to be repurchased at
$8,443,933 on 11/14/11..................................................... (8,439,500)
(4,123,000) With Credit Suisse 0.34% dated 10/18/11, to be repurchased at
$4,126,583 on 01/18/12..................................................... (4,123,000)
(4,118,250) With Credit Suisse 0.90% dated 10/31/11, to be repurchased at
$4,127,722 on 01/31/12..................................................... (4,118,250)
--------------
TOTAL REVERSE REPURCHASE AGREEMENTS......................................... (22,993,750)

NET OTHER ASSETS AND LIABILITIES - 5.5%..................................... 4,163,175
--------------
NET ASSETS - 100.0% ........................................................ $ 75,014,241
==============

(a) All percentages shown in the Portfolio of Investments are based on net
assets.

(b) Floating rate security. The interest rate shown reflects the rate in
effect at October 31, 2011.

(c) This security, sold within the terms of a private placement memorandum, is
exempt from registration upon resale under Rule 144A under the Securities
Act of 1933, as amended, and may be resold in transactions exempt from
registration, normally to qualified institutional buyers. The Fund does
not have the right to demand that this security be registered. This
security is valued according to the valuation procedures as stated in the
Portfolio Valuation footnote (Note 2A in the Notes to Financial
Statements) and is not expressed as a discount to the carrying value of a
comparable unrestricted security. This security was acquired on September
9, 2009, has a current carrying cost of $2,755,411, a carrying value per
share of $1.02 and represents 3.87% of net assets.

(d) Inverse floating rate instrument. The interest rate shown reflects the
rate in effect at October 31, 2011.

(e) This security or a portion of this security is segregated as collateral
for reverse repurchase agreements.

(f) Aggregate cost for federal income tax purposes is $97,223,196. As of
October 31, 2011, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$5,126,968 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$8,505,348.

IO Interest-Only Security -- Principal amount shown represents par value on
which interest payments are based.

STRIP Separate Trading of Registered Interest and Principal of Securities

Page 10 See Notes to Financial Statements

VALUATION INPUTS

A summary of the inputs used to value the Fund's investments as of October 31,
2011 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):

LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
10/31/2011 PRICES INPUTS INPUTS
-------------- -------------- -------------- --------------

Mortgage-Backed Securities......................... $ 49,098,210 $ -- $ 49,098,210 $ --
U.S. Government Agency Mortgage-Backed
Securities....................................... 42,660,151 -- 42,660,151 --
Asset-Backed Securities............................ 2,086,455 -- 2,086,455 --
-------------- -------------- -------------- --------------
TOTAL INVESTMENTS.................................. $ 93,844,816 $ -- $ 93,844,816 $ --
============== ============== ============== ==============

All transfers in and out of Level 3 securities during the period are assumed to
be transferred on the last day of the period at their current value. The
following table presents the activity of the Fund's investments measured at fair
value on a recurring basis using significant unobservable inputs (Level 3) for
the period presented.

INVESTMENTS AT FAIR CHANGE IN NET
VALUE USING SIGNIFICANT UNREALIZED NET
UNOBSERVABLE INPUTS BALANCE AS OF TRANSFERS IN NET REALIZED APPRECIATION PURCHASES BALANCE AS OF
(LEVEL 3) OCTOBER 31, 2010 (OUT) OF LEVEL 3 GAINS (LOSSES) (DEPRECIATION) (SALES) OCTOBER 31, 2011
------------------------------------------------------------------------------------------------------------------------------------

Mortgage-Backed
Securities $ 3,747,608 $ (2,906,691) $ 33,150 $ (113,253) $ (760,814) $ --
========================================================================================================

See Notes to Financial Statements Page 11

FIRST TRUST MORTGAGE INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2011

ASSETS:

Investments, at value
(Cost $93,534,554) ......................................................................... $ 93,844,816
Cash .......................................................................................... 3,054,966
Restricted cash ............................................................................... 490,000
Prepaid expenses .............................................................................. 8,158
Interest receivable ........................................................................... 802,340
-------------
Total Assets ............................................................................ 98,200,280
-------------
LIABILITIES:
Reverse repurchase agreements 22,993,750
Payables:
Investment advisory fees ................................................................... 82,910
Audit and tax fees ......................................................................... 45,184
Interest on reverse repurchase agreements .................................................. 19,358
Printing fees .............................................................................. 11,602
Investment securities purchased ............................................................ 8,183
Administrative fees ........................................................................ 7,500
Custodian fees ............................................................................. 3,885
Transfer agent fees ........................................................................ 3,706
Trustees' fees and expenses ................................................................ 3,292
Legal fees ................................................................................. 1,976
Financial reporting fees ................................................................... 771
Other liabilities ............................................................................. 3,922
-------------
Total Liabilities........................................................................ 23,186,039
-------------
NET ASSETS $ 75,014,241
=============

NET ASSETS CONSIST OF:
Paid-in capital ............................................................................... $ 76,914,369
Par value ..................................................................................... 40,708
Accumulated net investment income (loss) ...................................................... 3,958,078
Accumulated net realized gain (loss) on investments ........................................... (6,209,176)
Net unrealized appreciation (depreciation) on investments ..................................... 310,262
-------------
NET ASSETS $ 75,014,241
=============
NET ASSET VALUE, per Common Share outstanding (par value $0.01 per Common Share) .............. $ 18.43
=============
Number of Common Shares outstanding (unlimited number of Common Shares has been authorized).... 4,070,832
=============

Page 12 See Notes to Financial Statements

FIRST TRUST MORTGAGE INCOME FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2011

INVESTMENT INCOME:

Interest....................................................................................... $ 8,630,275
-------------
Total investment income.................................................................. 8,630,275
-------------
EXPENSES:
Investment advisory fees....................................................................... 975,055
Excise tax expense............................................................................. 235,612
Administrative fees............................................................................ 90,097
Legal fees..................................................................................... 88,986
Printing fees.................................................................................. 75,795
Interest expense on reverse repurchase agreements.............................................. 73,758
Audit and tax fees............................................................................. 45,835
Transfer agent fees............................................................................ 41,841
Trustees' fees and expenses.................................................................... 39,012
Custodian fees................................................................................. 15,866
Financial reporting fees....................................................................... 9,250
Other.......................................................................................... 65,779
-------------
Total expenses........................................................................... 1,756,886
-------------
NET INVESTMENT INCOME.......................................................................... 6,873,389
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments.................................................. 1,524,527
Net change in unrealized appreciation (depreciation) on investments...................... (4,901,731)
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS)........................................................ (3,377,204)
-------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................ $ 3,496,185
=============

See Notes to Financial Statements Page 13

FIRST TRUST MORTGAGE INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS

YEAR YEAR
ENDED ENDED
10/31/2011 10/31/2010
------------- -------------
OPERATIONS:

Net investment income (loss)....................................................... $ 6,873,389 $ 8,366,690
Net realized gain (loss)........................................................... 1,524,527 (1,453,923)
Net change in unrealized appreciation (depreciation)............................... (4,901,731) (354,361)
------------- -------------

Net increase (decrease) in net assets resulting from operations.................... 3,496,185 6,558,406
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.............................................................. (8,244,891) (6,682,196)
Net realized gain.................................................................. -- --
Return of capital.................................................................. -- --
------------- -------------

Total distributions to shareholders................................................ (8,244,891) (6,682,196)
------------- -------------
CAPITAL TRANSACTIONS:
Proceeds from Common Shares reinvested............................................. 268,427 156,220
------------- -------------
Net increase (decrease) in net assets resulting from capital transactions.......... 268,427 156,220
------------- -------------
Total increase (decrease) in net assets............................................ (4,480,279) 32,430

NET ASSETS:
Beginning of period................................................................ 79,494,520 79,462,090
------------- -------------
End of period...................................................................... $ 75,014,241 $ 79,494,520
============= =============
Accumulated net investment income (loss) at end of period.......................... $ 3,958,078 $ 4,493,077
============= =============
CAPITAL TRANSACTIONS WERE AS FOLLOWS:
Common Shares at beginning of period............................................... 4,056,945 4,048,993
Common Shares issued as reinvestment under the Dividend Reinvestment Plan.......... 13,887 7,952
------------- -------------
Common Shares at end of period..................................................... 4,070,832 4,056,945
============= =============

Page 14 See Notes to Financial Statements

FIRST TRUST MORTGAGE INCOME FUND
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED OCTOBER 31, 2011

CASH FLOWS FROM OPERATING ACTIVITIES:

Net increase (decrease) in net assets resulting from operations ................... $ 3,496,185
Adjustments to reconcile net increase (decrease) in net assets
resulting from operations to net cash provided by operating activities:
Purchases of investments..................................................... (54,923,649)
Sales, maturities and paydowns on investments................................ 44,274,622
Net amortization/accretion of premiums/discounts on investments.............. 4,799,105
Net realized gain/loss on investments........................................ (1,524,527)
Net change in unrealized appreciation/depreciation on investments............ 4,901,731
CHANGES IN ASSETS AND LIABILITIES:
Decrease in interest receivable.............................................. 44,325
Decrease in prepaid expenses................................................. 1,935
Increase in restricted cash.................................................. (490,000)
Increase in interest payable on reverse repurchase agreements................ 7,750
Increase in investment advisory fees payable................................. 3,875
Decrease in audit and tax fees payable....................................... (16)
Decrease in legal fees payable............................................... (647)
Decrease in printing fees payable............................................ (3,401)
Decrease in administrative fees payable...................................... (833)
Increase in custodian fees payable........................................... 1,529
Increase in transfer agent fees payable...................................... 1,160
Decrease in Trustees' fees and expenses payable.............................. (65)
Increase in financial reporting fees payable................................. 771
Increase in other liabilities payable........................................ 2,151
-------------
CASH PROVIDED BY OPERATING ACTIVITIES.............................................. $ 592,001
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of Common Shares reinvested......................................... 268,427
Distributions to Common Shareholders from net investment income.............. (8,244,891)
Repurchases of reverse repurchase agreements................................. (1,776,760,375)
Reverse repurchase agreements borrowings..................................... 1,786,778,125
-------------

CASH FLOWS PROVIDED BY FINANCING ACTIVITIES........................................ 2,041,286
-------------
Increase in cash................................................................... 2,633,287
Cash at beginning of period........................................................ 421,679
-------------
CASH AT END OF PERIOD.............................................................. $ 3,054,966
=============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest........................................... $ 66,008
=============

See Notes to Financial Statements Page 15

FIRST TRUST MORTGAGE INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD

YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
10/31/2011 (b) 10/31/2010 (a) 10/31/2009 10/31/2008 10/31/2007
-------------- -------------- -------------- -------------- --------------

Net asset value, beginning of period........ $ 19.59 $ 19.63 $ 18.03 $ 18.66 $ 18.41
-------------- -------------- -------------- -------------- --------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)................ 1.69 2.06 1.57 1.49 1.04
Net realized and unrealized gain (loss)..... (0.82) (0.45) 1.40 (1.00) 0.23
-------------- -------------- -------------- -------------- --------------
Total from investment operations............ 0.87 1.61 2.97 0.49 1.27
-------------- -------------- -------------- -------------- --------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income....................... (2.03) (1.65) (1.37) (1.12) (1.02)
-------------- -------------- -------------- -------------- --------------
Total from distributions.................... (2.03) (1.65) (1.37) (1.12) (1.02)
-------------- -------------- -------------- -------------- --------------
Net asset value, end of period.............. $ 18.43 $ 19.59 $ 19.63 $ 18.03 $ 18.66
============== ============== ============== ============== ==============
Market value, end of period................. $ 18.94 $ 20.70 $ 17.91 $ 15.71 $ 16.32
============== ============== ============== ============== ==============
TOTAL RETURN BASED ON NET ASSET VALUE (c) .. 4.60% 9.01% 18.21% 3.38% 7.80%
============== ============== ============== ============== ==============
TOTAL RETURN BASED ON MARKET VALUE (c)...... 1.68% 26.18% 23.91% 2.94% 4.69%
============== ============== ============== ============== ==============

-----------------------------

RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........ $ 75,014 $ 79,495 $ 79,462 $ 72,956 $ 75,487
Ratio of total expenses to average
net assets ............................... 2.23% 2.00% 2.07% 2.69% 3.24%
Ratio of total expenses to average net
assets excluding interest expense......... 2.14% 1.95% 1.99% 1.83% 1.71%
Ratio of net investment income (loss) to ...
average net assets........................ 8.74% 10.50% 9.01% 7.93% 5.70%
Portfolio turnover rate..................... 47% 36% 39% 10% 22%

-----------------------------

(a) On September 20, 2010, the Fund's Board of Trustees approved a new
investment management agreement with First Trust Advisors L.P. and a new
investment sub-advisory agreement with Fixed Income Discount Advisory
Company ("FIDAC"), and on December 6, 2010, the Fund's shareholders voted
to approve both agreements. (See Note 3 in the Notes to Financial
Statements.)

(b) Effective April 29, 2011, the Fund's Board of Trustees approved Brookfield
Investment Management Inc. ("Brookfield") as the investment sub-advisor to
the Fund, replacing FIDAC. The Fund's shareholders approved the Investment
Management Agreement with Brookfield on July 25, 2011. (See Note 3 in the
Notes to Financial Statements.)

(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 less than one year. Past performance is not
indicative of future results.

Page 16 See Notes to Financial Statements

--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

FIRST TRUST MORTGAGE INCOME FUND
OCTOBER 31, 2011

1. FUND DESCRIPTION

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
("SEC") under the Investment Company Act of 1940, as amended (the "1940 Act").
The Fund trades under the ticker symbol FMY on the New York Stock Exchange
("NYSE").

The Fund's primary investment objective is to seek a high level of current
income. As a secondary objective, the Fund seeks to preserve capital. The Fund
pursues these objectives by investing in mortgage-backed securities that, in the
opinion of Brookfield Investment Management Inc. ("Brookfield" or the
"Sub-Advisor"), offer an attractive combination of credit quality, yield and
maturity. There can be no assurance that the Fund's investment objectives will
be achieved. The Fund may not be appropriate for all investors.

2. SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.

A. PORTFOLIO VALUATION:

The net asset value ("NAV") of the Common Shares of the Fund is determined
daily, as of the close of regular trading on the NYSE, normally 4:00 p.m.
Eastern time, on each day the NYSE is open for trading. If the NYSE closes early
on a valuation day, the NAV is determined as of that time. Domestic debt
securities and foreign securities are priced using data reflecting the earlier
closing of the principal markets for those securities. The NAV per Common Share
is calculated by dividing the value of all assets of the Fund (including accrued
interest and dividends), less all liabilities (including accrued expenses,
dividends declared but unpaid and any borrowings of the Fund), by the total
number of Common Shares outstanding.

The Fund's investments are valued daily in accordance with valuation procedures
adopted by the Fund's Board of Trustees, and in accordance with provisions of
the 1940 Act. The Fund's securities will be valued as follows:

U.S. Government securities, Mortgage-backed securities ("MBS"),
Asset-backed securities ("ABS") and other debt securities are valued on
the basis of valuations provided by dealers who make markets in such
securities or by an independent pricing service approved by the Fund's
Board of Trustees, which may use the following valuation inputs when
available:

1) benchmark yields;

2) reported trades;

3) broker/dealer quotes;

4) issuer spreads;

5) benchmark securities;

6) bids and offers; and

7) reference data including market research publications.

Debt securities having a remaining maturity of sixty days or less when
purchased are valued at cost adjusted for amortization of premiums and
accretion of discounts.

In the event that the pricing service or dealer does not provide a valuation, or
the valuations received are deemed unreliable, the Fund's Board of Trustees has
designated First Trust Advisors L.P. ("First Trust") to use a fair value method
to value the Fund's securities. Additionally, if events occur after the close of
the principal markets for certain securities (e.g., domestic debt and foreign
securities) that could materially affect the Fund's NAV, First Trust may use a
fair value method to value the Fund's securities. The use of fair value pricing
is governed by valuation procedures adopted by the Fund's Board of Trustees, and
in accordance with the provisions of the 1940 Act. As a general principle, the
fair value of a security is the amount which the Fund might reasonably expect to
receive for the security upon its current sale. However, in light of the
judgment involved in fair valuations, there can be no assurance that a fair
value assigned to a particular security will be the amount which the Fund might
be able to receive upon its current sale. Fair valuation of a security is based
on the consideration of all available information, including, but not limited
to, the following:

1) the fundamental business data relating to the issuer;

2) an evaluation of the forces which influence the market in which
these securities are purchased and sold;

3) the type, size and cost of security;

4) the financial statements of the issuer;

Page 17

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NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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FIRST TRUST MORTGAGE INCOME FUND
OCTOBER 31, 2011

5) the credit quality and cash flow of the issuer, based on the
Sub-Advisor's or external analysis;

6) the information as to any transactions in or offers for the
security;

7) the price and extent of public trading in similar securities (or
equity securities) of the issuer/borrower, or comparable companies;

8) the coupon payments;

9) the quality, value and salability of collateral, if any, securing
the security;

10) the business prospects of the issuer, including any ability to
obtain money or resources from a parent or affiliate and an
assessment of the issuer's management;

11) the prospects for the issuer's industry, and multiples (of earnings
and/or cash flows) being paid for similar businesses in that
industry; and

12) other relevant factors.

The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:

o Level 1 - Level 1 inputs are quoted prices in active markets for
identical securities. An active market is a market in which
transactions for the security occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.

o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:

o Quoted prices for similar securities in active markets.

o Quoted prices for identical or similar securities in markets
that are non-active. A non-active market is a market where
there are few transactions for the security, 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
security (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).

o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.

o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
security.

The inputs or methodology used for valuing securities are not necessarily an
indication of the risk associated with investing in those securities. A summary
of the inputs used to value the Fund's investments as of October 31, 2011, is
included with the Fund's Portfolio of Investments.

B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME:

Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Interest income is recorded daily on the accrual basis. Amortization of premiums
and the accretion of discounts are recorded using the effective interest method.

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 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, 2011, the Fund had no when-issued,
delayed-delivery or forward purchase commitments.

C. REVERSE REPURCHASE AGREEMENTS:

Reverse repurchase agreements are utilized as leverage for the Fund. A reverse
repurchase agreement, although structured as a sale and repurchase obligation,
acts as a financing under which Fund assets are pledged as collateral to secure
a short-term loan. Generally, the other party to the agreement makes the loan in
an amount equal to a percentage of the market value of the pledged collateral.
At the maturity of the reverse repurchase agreement, the loan will be repaid and
the collateral will correspondingly be received back to the Fund. While used as
collateral, the assets continue to pay principal and interest which are for the
benefit of the Fund.

Page 18

FIRST TRUST MORTGAGE INCOME FUND
OCTOBER 31, 2011

Information for the year ended October 31, 2011:

Maximum amount outstanding during the period.................. $30,304,250
Average amount outstanding during the period*................. $19,051,802
Average Common Shares outstanding during the period........... 4,062,374
Average debt per Common Share outstanding during the period... $4.69

* 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 year ended October 31, 2011.

During the year ended October 31, 2011, interest rates ranged from 0.08% to
1.55%, with a weighted average interest rate of 0.38%, on borrowings by the Fund
under reverse repurchase agreements, which had interest expense that aggregated
$73,758.

D. INVERSE FLOATING-RATE SECURITIES:

An inverse floating-rate security is one where the coupon is inversely indexed
to a short-term floating interest rate multiplied by a specific factor. As the
floating rate rises, the coupon is reduced. Conversely, as the floating rate
declines, the coupon is increased. The price of these securities may be more
volatile than the price of a comparable fixed-rate security. These instruments
are typically used to enhance the yield of the portfolio. These securities are
identified on the Portfolio of Investments.

E. STRIPPED MORTGAGE-BACKED SECURITIES:

Stripped Mortgage-Backed Securities are created by segregating the cash flows
from underlying mortgage loans or mortgage securities to create two or more new
securities, each with a specified percentage of the underlying security's
principal or interest payments. Mortgage securities may be partially stripped so
that each investor class receives some interest and some principal. When
securities are completely stripped, however, all of the interest is distributed
to holders of one type of security known as an interest-only or IO security and
all of the principal is distributed to holders of another type of security known
as a principal-only or PO security. These securities are identified on the
Portfolio of Investments.

F. INTEREST-ONLY SECURITIES:

An interest-only security ("IO Security") is the interest-only portion of a MBS
that receives some or all of the interest portion of the underlying MBS 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 are identified on the Portfolio of
Investments.

G. 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 will automatically be
reinvested into additional Common Shares pursuant to the Fund's Dividend
Reinvestment Plan unless cash distributions are elected by the shareholder.

Distributions from income and capital gains are determined in accordance with
income tax regulations, which may differ from accounting principles generally
accepted in the United States of America. 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 net asset value 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, 2011, primarily as a result of
differing book/tax treatment on recognition of amortization/accretion on
portfolio holdings, have been reclassified at year end to reflect an increase in
accumulated net investment income (loss) by $836,503, a decrease in accumulated
net realized gain (loss) on investments by $626,878 and a decrease to paid-in
capital of $209,625. Net assets were not affected by this reclassification.

The tax character of distributions paid during the fiscal year ended October 31,
2011 and October 31, 2010 was as follows:

Distributions paid from: 2011 2010

Ordinary income............................. $8,244,891 $6,682,196
Capital gain................................ -- --
Return of capital........................... -- --

Page 19

FIRST TRUST MORTGAGE INCOME FUND
OCTOBER 31, 2011

As of October 31, 2011, the distributable earnings and net assets on a tax basis
were as follows:

Undistributed ordinary income...................... $ 7,646,720
Undistributed capital gains........................ --
---------------
Total undistributed earnings....................... 7,646,720
Accumulated capital and other losses............... (6,209,176)
Net unrealized appreciation (depreciation)......... (3,378,380)
---------------
Total accumulated earnings (losses)................ (1,940,836)
Other.............................................. --
Paid-in capital.................................... 76,955,077
---------------
Net assets......................................... $ 75,014,241
===============

H. INCOME AND OTHER 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 or 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 98.2% 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 realized capital losses forward for eight years 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, 2011, the
Fund had a capital loss carryforward for federal income tax purposes of
$6,209,176, expiring as follows:

EXPIRATION DATE AMOUNT
October 31, 2014 $ 2,859,304
October 31, 2017 $ 1,927,985
October 31, 2018 $ 1,421,887

During the taxable year ended October 31, 2011, the Fund utilized capital loss
carryforwards in the amount of $897,649.

The Fund is subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. Taxable years ending 2008, 2009,
2010 and 2011 remain open to federal and state audit. As of October 31, 2011,
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.

I. EXPENSES:

The Fund will pay all expenses directly related to its operations.

J. ACCOUNTING PRONOUNCEMENTS:

In January 2010, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") No. 2010-06 "Improving Disclosures about
Fair Value Measurements." ASU No. 2010-06 amends FASB Accounting Standards
Codification Topic 820, Fair Value Measurements and Disclosures, to require
additional disclosures regarding fair value measurements. Certain disclosures
required by ASU No. 2010-06 are effective for fiscal years beginning after
December 15, 2010, and for interim periods within those fiscal years. Management
is currently evaluating the impact ASU No. 2010-06 will have on the Fund's
financial statement disclosures, if any.

In May 2011, the FASB issued ASU 2011-04 "Amendments to Achieve Common Fair
Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs", modifying
Topic 820, Fair Value Measurements and Disclosures. At the same time, the
International Accounting Standards Board ("IASB") issued International Financial
Reporting Standard ("IFRS") 13, Fair Value Measurement. The objective of the
FASB and IASB is convergence of their guidance on fair value measurements and
disclosures. Specifically, the ASU requires reporting entities to disclose (i)
the amounts of any transfers between Level 1 and Level 2, and the reasons for
the transfers, (ii) for Level 3 fair value measurements, quantitative
information about significant unobservable inputs used, (iii) a description of
the valuation processes used by the reporting entity, and (iv) a narrative
description of the sensitivity of the fair value measurement to changes in

Page 20

FIRST TRUST MORTGAGE INCOME FUND
OCTOBER 31, 2011

unobservable inputs if a change in those inputs might result in a significantly
higher or lower fair value measurement. The effective date of the ASU is for
interim and annual periods beginning after December 15, 2011, and is therefore
not effective for the current fiscal year. Management is in the process of
assessing the impact of the updated standards on the Fund's financial
statements, if any.

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. First Trust is responsible for the ongoing monitoring of
the Fund's investment portfolio, managing the Fund's business affairs and
providing certain administrative services necessary for the management of the
Fund. For these investment management services, First Trust is entitled to a
monthly fee calculated at an annual rate of 1.00% of the Fund's Managed Assets
(the average daily total asset value of the Fund minus the sum of the Fund's
liabilities other than the principal amount of borrowings or reverse repurchase
agreements, if any). First Trust also provides fund reporting services to the
Fund for a flat annual fee in the amount of $9,250.

Brookfield serves as the Fund's sub-advisor and manages the Fund's portfolio
subject to First Trust's supervision. The Sub-Advisor receives a portfolio
management fee of 0.50% of Managed Assets that is paid monthly by First Trust
from its investment advisory fee. Prior to April 29, 2011, pursuant to a vote by
the Fund's shareholders on December 6, 2010, Fixed Income Discount Advisory
Corp. ("FIDAC") served as the Fund's sub-advisor and managed the Fund's
portfolio subject to First Trust's supervision. FIDAC also received a portfolio
management fee of 0.50% of Managed Assets that was paid monthly by First Trust
from its investment advisory fee.

On April 18, 2011, the Board of Trustees of the Fund approved Brookfield as
investment sub-advisor to the Fund, replacing FIDAC. Brookfield assumed the
day-to-day responsibility for management of the Fund's portfolio as of April 29,
2011. As a result, the Fund entered into an interim investment sub-advisory
agreement between the Fund, Brookfield and First Trust, which remained in effect
until the earlier of September 26, 2011 or until a new sub-advisory agreement
was approved by shareholders of the Fund. The shareholders of the Fund approved
a new investment sub-advisory agreement with Brookfield on July 25, 2011.

Also, effective on April 29, 2011, the Fund's name was changed from First
Trust/FIDAC Mortgage Income Fund to "First Trust Mortgage Income Fund," and the
Fund continues to trade under the same ticker symbol "FMY."

BNY Mellon Investment Servicing (US) Inc. serves as the Fund's Administrator,
Fund Accountant and Transfer Agent in accordance with certain fee arrangements.
Effective September 30, 2011, the Bank of New York Mellon serves as the Fund's
Custodian in accordance with certain fee arrangements. Prior to September 30,
2011, BNY Mellon Investment Servicing Trust Company (formerly known as PFPC
Trust Company) served as the Fund's Custodian in accordance with certain fee
arrangements.

Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustee") is paid an annual retainer of
$10,000 per trust for the first 14 trusts of the First Trust Fund Complex and an
annual retainer of $7,500 per trust for each subsequent trust in the First Trust
Fund Complex. The annual retainer is allocated equally among each of the trusts.
No additional meeting fees are paid in connection with Board or Committee
meetings.

Additionally, the Lead Independent Trustee is paid $10,000 annually, the
Chairman of the Audit Committee is paid $5,000 annually, and each of the
Chairmen of the Nominating and Governance Committee and the Valuation Committee
is paid $2,500 annually to serve in such capacities, with such compensation paid
by the trusts in the First Trust Fund Complex and divided among those trusts.
Trustees are also reimbursed by the trusts in the First Trust Fund Complex for
travel and out-of-pocket expenses in connection with all meetings. The Lead
Independent Trustee and each Committee chairman will serve two-year terms before
rotating to serve as chairman of another committee or as Lead Independent
Trustee. The officers and "Interested" Trustee receive no compensation from the
Fund for serving 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,
2011 were $26,822,591 and $28,109,241, 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, 2011 were
$28,072,463 and $16,202,159, respectively.

5. INDEMNIFICATION

The Fund has a variety of indemnification obligations under contracts with its
service providers. The Fund's maximum exposure under these arrangements is
unknown. However, the Fund has not had prior claims or losses pursuant to these
contracts and expects the risk of loss to be remote.

Page 21

FIRST TRUST MORTGAGE INCOME FUND
OCTOBER 31, 2011

6. RISK CONSIDERATIONS

Risks are inherent in all investing. The following summarizes some of the risks
that should be considered for the Fund. For additional information about the
risks associated with investing in the Fund, please see the Fund's prospectus
and statement of additional information, as well as other Fund regulatory
filings.

INVESTMENT AND MARKET RISK: An investment in the Fund's Common Shares is subject
to investment risk, including the possible loss of the entire principal
invested. An investment in Common Shares represents an indirect investment in
the securities owned by the Fund. The value of these securities, like other
market investments, may move up or down, sometimes rapidly and unpredictably.
Common Shares at any point in time may be worth less than the original
investment, even after taking into account the reinvestment of Fund
distributions. Security prices can fluctuate for several reasons including the
general condition of the securities market, or when political or economic events
affecting the issuers occur, including the risk that borrowers do not pay their
mortgages. When the Advisor or Sub-Advisor determines that it is temporarily
unable to follow the Fund's investment strategy or that it is impractical to do
so (such as when a market disruption event has occurred and trading in the
securities is extremely limited or absent), the Advisor or Sub-Advisor may take
temporary defensive positions.

SUBORDINATED DEBT RISK: A portion of the Fund's Managed Assets may be invested
in subordinated classes of MBS, including debt obligations issued by private
originators or issuers backed by residential mortgage loans and multi-class debt
or pass-through or pay-through securities backed by a mortgage loan or pool of
mortgage loans on commercial real estate. Such subordinated classes are subject
to a greater degree of non-payment risk than are senior classes of the same
issuer or agency.

PREPAYMENT RISK: If borrowers prepay their mortgage loans at rates that are
faster than expected, this results in prepayments that are faster than expected
on MBS. These faster than expected prepayments may adversely affect the Fund's
profitability, particularly if the prepayments must be reinvested at market
interest rates that are below the Fund portfolio's current earnings rate.

Moreover, the Fund may also hold MBS that are less affected by prepayments.
While the Sub-Advisor seeks to minimize prepayment risk to the extent practical,
they must balance prepayment risk against other risks and the potential returns
of each investment in selecting investments. No strategy can completely insulate
the Fund from prepayment risk.

INTEREST RATE RISK: The Fund may also hold MBS which are Stripped
Mortgage-Backed Securities, IO securities and PO securities. Generally speaking,
when interest rates are falling and prepayment rates are increasing, the value
of a PO security will rise and the value of an IO security will fall.
Conversely, when interest rates are rising and prepayment rates are decreasing,
generally the value of a PO security will fall and the value of an IO security
will rise.

LEVERAGE RISK: Borrowings up to 33-1/3% (or such other percentage as permitted
by law) of Fund assets (including the amount borrowed) less liabilities other
than borrowings may be utilized in the Fund. Leverage may be used for investment
purposes and to meet cash requirements. The leveraged capital structure creates
special risks not associated with unleveraged funds having similar investment
objectives and policies. These include the possibility of higher volatility of
the NAV of the Fund. Reverse repurchase agreements are used to leverage the
Fund's assets. Reverse repurchase agreements are subject to the risks that the
market value of the Fund's securities sold may decline below the price of the
securities the Fund is obligated to repurchase, and that the securities may not
be returned to the Fund. From time to time the amount of the leverage may be
changed in response to actual or anticipated changes in interest rates or the
value of the Fund's investment portfolio. There can be no assurance that the
leverage strategies will be successful.

FIXED-INCOME SECURITIES RISK: Debt securities, including high yield securities,
are subject to certain risks, including: (i) issuer risk, which is the risk that
the value of fixed-income securities may decline for a number of reasons which
directly relate to the issuer, such as management performance, financial
leverage and reduced demand for the issuer's goods and services or, in the case
of asset-backed issuers, a decline in the value and/or cash flows of the
underlying assets; (ii) reinvestment risk, which is the risk that income from
the Fund's portfolio will decline if the proceeds from matured, traded or called
bonds are invested at market interest rates that are below the Fund portfolio's
current earnings rate; and (iii) credit risk, which is the risk that a security
in the Fund's portfolio will decline in price or the issuer fails to make
interest payments when due because the issuer of the security experiences a
decline in its financial status.

7. SUBSEQUENT EVENTS

Management has evaluated the impact of all subsequent events to the Fund through
the date the financial statements were issued, and has determined that there
were subsequent events:

On November 21, 2011, the Fund declared a dividend of $0.16 per share to Common
Shareholders of record on December 5, 2011, payable December 9, 2011.

Page 22

FIRST TRUST MORTGAGE INCOME FUND
OCTOBER 31, 2011

On December 20, 2011, the Fund declared dividends totaling $0.27 per share to
Common Shareholders of record on December 30, 2011, payable January 17, 2012. Of
this amount, $0.16 per share represents the Fund's regular monthly dividend and
$0.11 per share represents a special distribution.

Effective January 1, 2012, each Independent Trustee will be paid a fixed annual
retainer of $125,000 per year and an annual per fund fee of $4,000 for each
closed-end fund or other actively managed fund and $1,000 for each index fund.
The fixed annual retainer will be allocated pro rata among each fund in the
First Trust Fund Complex based on net assets. In addition, each Independent
Trustee will be paid $1,000 by First Trust for his attendance at any
organizational meeting for a new closed-end fund or other actively managed fund
and $500 for any new index fund.

Additionally, the Lead Independent Trustee will be paid $15,000 annually, the
Chairman of the Audit Committee will be paid $10,000 annually, and each of the
Chairmen of the Nominating and Governance Committee and the Valuation Committee
will be paid $5,000 annually to serve in such capacities, with such compensation
allocated pro rata among each fund in the First Trust Fund Complex based on net
assets. Trustees are also reimbursed for travel and out-of-pocket expenses in
connection with all meetings. The officers and "Interested" Trustee receive no
compensation from the Fund for acting in such capacities.

CHANGE IN CERTAIN INVESTMENT STRATEGIES

On April 18, 2011, the Fund's Board of Trustees approved changes to certain of
the Fund's investment strategies. The Fund's investment strategies are
non-fundamental policies of the Fund and require 60 days' prior written notice
to shareholders before they can be changed by the Board without receiving
shareholder approval. As such, effective on or about February 29, 2012, the
following Fund investment strategy change will become effective:

o FMY may invest up to 25% of its Managed Assets in securities that at
the time of investment are rated below A by a nationally recognized
statistical rating organization ("NRSRO") or are unrated but judged
to be of comparable quality by the Fund's Sub-Advisor. In the event
that a given security receives a split rating at the time of
investment, the Fund will treat the security as being rated in the
highest category received from an NRSRO.

Page 23

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------

TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FIRST TRUST MORTGAGE INCOME FUND:

We have audited the accompanying statement of assets and liabilities of First
Trust Mortgage Income Fund (formerly known as First Trust/FIDAC Mortgage Income
Fund) (the "Fund"), including the portfolio of investments, as of October 31,
2011, and the related statements of operations and cash flows for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
The Fund is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of October 31, 2011, by correspondence with the Fund's
custodian and brokers. We believe that our audits provide a reasonable basis for
our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of First
Trust Mortgage Income Fund as of October 31, 2011, the results of its operations
and its cash flows for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods presented, in conformity with accounting principles
generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

Chicago, Illinois
December 23, 2011

Page 24

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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------

FIRST TRUST MORTGAGE INCOME FUND
OCTOBER 31, 2011 (UNAUDITED)

DIVIDEND REINVESTMENT PLAN

If your Common Shares are registered directly with the Fund or if you hold your
Common Shares with a brokerage firm that participates in the Fund's Dividend
Reinvestment Plan (the "Plan"), unless you elect, by written notice to the Fund,
to receive cash distributions, all dividends, including any capital gain
distributions, on your Common Shares will be automatically reinvested by BNY
Mellon Investment Servicing (US) Inc. (the "Plan Agent"), in additional Common
Shares under the Plan. If you elect to receive cash distributions, you will
receive all distributions in cash paid by check mailed directly to you by the
Plan Agent, as the dividend paying agent.

If you decide to participate in the Plan, the number of Common Shares you will
receive will be determined as follows:

(1) If Common Shares are trading at or above net asset value ("NAV") at
the time of valuation, the Fund will issue new shares at a price
equal to the greater of (i) NAV per Common Share on that date or
(ii) 95% of the market price on that date.

(2) If Common Shares are trading below NAV at the time of valuation, the
Plan Agent will receive the dividend or distribution in cash and
will purchase Common Shares in the open market, on the NYSE or
elsewhere, for the participants' accounts. It is possible that the
market price for the Common Shares may increase before the Plan
Agent has completed its purchases. Therefore, the average purchase
price per share paid by the Plan Agent may exceed the market price
at the time of valuation, resulting in the purchase of fewer shares
than if the dividend or distribution had been paid in Common Shares
issued by the Fund. The Plan Agent will use all dividends and
distributions received in cash to purchase Common Shares in the open
market within 30 days of the valuation date except where temporary
curtailment or suspension of purchases is necessary to comply with
federal securities laws. Interest will not be paid on any uninvested
cash payments.

You may elect to opt-out of or withdraw from the Plan at any time by giving
written notice to the Plan Agent, or by telephone at (866) 340-1104, in
accordance with such reasonable requirements as the Plan Agent and the Fund may
agree upon. If you withdraw or the Plan is terminated, you will receive a
certificate for each whole share in your account under the Plan, and you will
receive a cash payment for any fraction of a share in your account. If you wish,
the Plan Agent will sell your shares and send you the proceeds, minus brokerage
commissions.

The Plan Agent maintains all Common Shareholders' accounts in the Plan and gives
written confirmation of all transactions in the accounts, including information
you may need for tax records. Common Shares in your account will be held by the
Plan Agent in non-certificated form. The Plan Agent will forward to each
participant any proxy solicitation material and will vote any shares so held
only in accordance with proxies returned to the Fund. Any proxy you receive will
include all Common Shares you have received under the Plan.

There is no brokerage charge for reinvestment of your dividends or distributions
in Common Shares. However, all participants will pay a pro rata share of
brokerage commissions incurred by the Plan Agent when it makes open market
purchases.

Automatically reinvesting dividends and distributions does not mean that you do
not have to pay income taxes due upon receiving dividends and distributions.
Capital gains and income are realized although cash is not received by you.
Consult your financial advisor for more information.

If you hold your Common Shares with a brokerage firm that does not participate
in the Plan, you will not be able to participate in the Plan and any dividend
reinvestment may be effected on different terms than those described above.

The Fund reserves the right to amend or terminate the Plan if in the judgment of
the Board of Trustees the change is warranted. There is no direct service charge
to participants in the Plan; however, the Fund reserves the right to amend the
Plan to include a service charge payable by the participants. Additional
information about the Plan may be obtained by writing BNY Mellon Investment
Servicing (US) Inc., 301 Bellevue Parkway, Wilmington, Delaware 19809.

--------------------------------------------------------------------------------

PROXY VOTING POLICIES AND PROCEDURES

A description of the policies and procedures that the Fund uses to determine how
to vote proxies and information on how the Fund voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Fund's website located at http://www.ftportfolios.com; and (3) on the
Securities and Exchange Commission's website at http://www.sec.gov.

Page 25

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ADDITIONAL INFORMATION - (CONTINUED)
--------------------------------------------------------------------------------

FIRST TRUST MORTGAGE INCOME FUND
OCTOBER 31, 2011 (UNAUDITED)

PORTFOLIO HOLDINGS

The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q
are available (1) by calling (800) 988-5891; (2) on the Fund's website located
at http://www.ftportfolios.com; (3) on the SEC's website at http://www.sec.gov;
and (4) for review and copying at the SEC's Public Reference Room ("PRR") in
Washington, DC. Information regarding the operation of the PRR may be obtained
by calling (800) SEC-0330.

NYSE CERTIFICATION INFORMATION

In accordance with Section 303A-12 of the New York Stock Exchange ("NYSE")
Listed Company Manual, the Fund's President has certified to the NYSE that, as
of May 31, 2011, he was not aware of any violation by the Fund of NYSE corporate
governance listing standards. In addition, the Fund's reports to the SEC on
Forms N-CSR, N-CSRS and N-Q contain certifications by the Fund's principal
executive officer and principal financial officer that relate to the Fund's
public disclosure in such reports and are required by Rule 30a-2 under the 1940
Act.

TAX INFORMATION

Of the ordinary income (including short-term capital gain) distributions made by
the Fund during the year ended October 31, 2011, none qualify for the corporate
dividends received deduction available to corporate shareholders or as qualified
dividend income.

SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS

The Joint Annual Meeting of Shareholders of the Common Shares of Macquarie/First
Trust Global Infrastructure/Utilities Dividend & Income Fund, Energy Income and
Growth Fund, First Trust Enhanced Equity Income Fund, First Trust/Aberdeen
Global Opportunity Income Fund, First Trust Mortgage Income Fund (formerly known
as First Trust/FIDAC Mortgage Income Fund), First Trust Strategic High Income
Fund, First Trust Strategic High Income Fund II, First Trust/Aberdeen Emerging
Opportunity Fund, First Trust Strategic High Income Fund III, First Trust
Specialty Finance and Financial Opportunities Fund and First Trust Active
Dividend Income Fund was held on April 18, 2011. At the Annual Meeting, Trustee
Robert F. Keith was elected by the Common Shareholders of the First Trust
Mortgage Income Fund as a Class I Trustee for a three-year term expiring at the
Fund's annual meeting of shareholders in 2014. The number of votes cast in favor
of Mr. Keith was 3,505,231, the number of votes against was 75,899 and the
number of abstentions was 475,815. Richard E. Erickson, Thomas R. Kadlec, Niel
B. Nielson and James A. Bowen are the other current and continuing Trustees.

A special meeting of shareholders of the Fund was held on July 25, 2011. At the
meeting, shareholders approved a new investment management sub-advisory
agreement between the Fund, First Trust and Brookfield. 2,092,126 (51.51%) of
the outstanding voting securities were voted at the meeting. The number of votes
cast in favor of the new investment sub-advisory management agreement was
1,972,360, the number of votes against was 48,520, and the number of abstentions
was 71,246. The terms of the new investment sub-advisory agreement are
substantially similar to the terms of the previous agreements.

Page 26

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BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------

FIRST TRUST MORTGAGE INCOME FUND
OCTOBER 31, 2011 (UNAUDITED)

NUMBER OF
PORTFOLIOS IN OTHER
TERM OF OFFICE THE FIRST TRUST TRUSTEESHIPS OR
AND FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS, DATE OF BIRTH LENGTH OF PRINCIPAL OCCUPATIONS OVERSEEN BY HELD BY
AND POSITION WITH THE FUND SERVICE(2) DURING PAST 5 YEARS TRUSTEE TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------

Richard E. Erickson, Trustee o Three Year Term Physician; President, Wheaton Orthopedics; 82 None
c/o First Trust Advisors L.P. Co-Owner and Co-Director (January 1996
120 E. Liberty Drive, o Since Fund to May 2007), Sports Med Center for
Suite 400 Inception Fitness; Limited Partner, Gundersen Real
Wheaton, IL 60187 Estate Limited Partnership; Member,
D.O.B.: 04/51 Sportsmed LLC

Thomas R. Kadlec, Trustee o Three Year Term President (March 2010 to Present), Senior 82 Director of ADM
c/o First Trust Advisors L.P. Vice President and Chief Financial Officer Investor Services,
120 E. Liberty Drive, o Since Fund (May 2007 to March 2010), Vice President Inc. and ADM
Suite 400 Inception and Chief Financial Officer (1990 to May Investor Services,
Wheaton, IL 60187 2007), ADM Investor Services, Inc. International
D.O.B.: 11/57 (Futures Commission Merchant)

Robert F. Keith, Trustee o Three Year Term President (2003 to Present), Hibs 82 Director of Trust
c/o First Trust Advisors L.P. Enterprises (Financial and Management Company of
120 E. Liberty Drive, o Since June 2006 Consulting) Illinois
Suite 400
Wheaton, IL 60187
D.O.B.: 11/56

Niel B. Nielson, Trustee o Three Year Term President (June 2002 to Present), 82 Director of
c/o First Trust Advisors L.P. Covenant College Covenant
120 E. Liberty Drive, o Since Fund Transport Inc.
Suite 400 Inception
Wheaton, IL 60187
D.O.B.: 03/54
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen, Trustee,
President, o Three Year Chief Executive Officer (December 2010 82 None
Chairman of the Board and CEO(1) Trustee Term to Present), President, (until December
120 E. Liberty Drive, and Indefinite 2010), First Trust Advisors L.P. and First
Suite 400 Officer Term Trust Portfolios L.P.; Chairman of the
Wheaton, IL 60187 Board of Directors, BondWave LLC
D.O.B.: 09/55 o Since Fund (Software Development Company/
Inception Investment Advisor) and Stonebridge
Advisors LLC (Investment Advisor)

-----------------------------

(1) Mr. Bowen is deemed an "interested person" of the Fund due to his position
as Chief Executive Officer of First Trust Advisors L.P., investment
advisor of the Fund.

(2) Currently, Robert F. Keith, as a Class I Trustee, is serving as a trustee
until the Fund's 2014 annual meeting of shareholders. Richard E. Erickson
and Thomas R. Kadlec, as Class II Trustees, are serving as trustees until
the Fund's 2012 annual meeting of shareholders. James A. Bowen and Niel B.
Nielson, as Class III Trustees, are serving as trustees until the Fund's
2013 annual meeting of shareholders. Officers of the Fund have an
indefinite term. The term "officer" means the president, vice president,
secretary, treasurer, controller or any other officer who performs a
policy making function ..

Page 27

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BOARD OF TRUSTEES AND OFFICERS - (CONTINUED)
--------------------------------------------------------------------------------

FIRST TRUST MORTGAGE INCOME FUND
OCTOBER 31, 2011 (UNAUDITED)

NAME, ADDRESS POSITION AND OFFICES TERM OF OFFICE AND PRINCIPAL OCCUPATIONS
AND DATE OF BIRTH WITH FUND LENGTH OF SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS WHO ARE NOT TRUSTEES (3)
------------------------------------------------------------------------------------------------------------------------------------

Mark R. Bradley Treasurer, Chief Financial o Indefinite Term Chief Operating Officer (December 2010 to Present)
120 E. Liberty Drive, Officer and Chief and Chief Financial Officer, First Trust Advisors
Suite 400 Accounting Officer o Since Fund Inception L.P. and First Trust Portfolios L.P.; Chief Financial
Wheaton, IL 60187 Officer, BondWave LLC (Software Development
D.O.B.: 11/57 Company/Investment Advisor) and Stonebridge
Advisors LLC (Investment Advisor)

Erin E. Chapman Assistant Secretary o Indefinite Term Assistant General Counsel (October 2007 to
120 E. Liberty Drive, Present), Associate Counsel (March 2006 to October
Suite 400 o Since June 2009 2007), First Trust Advisors L.P. and First Trust
Wheaton, IL 60187 Portfolios L.P.
D.O.B.: 08/76

James M. Dykas Assistant Treasurer o Indefinite Term Controller (January 2011 to Present), Senior Vice
120 E. Liberty Drive, President (April 2007 to Present), Vice President
Suite 400 o Since Fund Inception (January 2005 to April 2007), First Trust Advisors
Wheaton, IL 60187 L.P. and First Trust Portfolios L.P.
D.O.B.: 01/66

Christopher R. Fallow Assistant Vice President o Indefinite Term Assistant Vice President (August 2006 to Present),
120 E. Liberty Drive, First Trust Advisors L.P. and First Trust Portfolios
Suite 400 o Since Fund Inception L.P.
Wheaton, IL 60187
D.O.B.: 07/55

Roseanne Gatta Assistant Secretary o Indefinite Term Board Liaison Associate (July 2010 to Present),
120 E. Liberty Drive, First Trust Advisors L.P. and First Trust Portfolios
Suite 400 o Since March 2011 L.P.; Assistant Vice President (February 2001 to
Wheaton, IL 60187 July 2010), PNC Global Investment Servicing
D.O.B.: 07/55

W. Scott Jardine Secretary o Indefinite Term General Counsel, First Trust Advisors L.P., First
120 E. Liberty Drive, Trust Portfolios L.P. and BondWave LLC (Software
Suite 400 o Since Fund Inception Development Company/Investment Advisor);
Wheaton, IL 60187 Secretary of Stonebridge Advisors LLC (Investment
D.O.B.: 05/60 Advisor)

Daniel J. Lindquist Vice President o Indefinite Term Senior Vice President (September 2005 to
120 E. Liberty Drive, Present), First Trust Advisors L.P. and First Trust
Suite 400 o Since Fund Inception Portfolios L.P.
Wheaton, IL 60187
D.O.B.: 02/70

Coleen D. Lynch Assistant Vice President o Indefinite Term Assistant Vice President (January 2008 to Present),
120 E. Liberty Drive, First Trust Advisors L.P. and First Trust Portfolios
Suite 400 o Since July 2008 L.P.; Vice President (May 1998 to January 2008),
Wheaton, IL 60187 Van Kampen Asset Management and Morgan
D.O.B.: 07/58 Stanley Investment Management

Kristi A. Maher Assistant Secretary and o Indefinite Term Deputy General Counsel (May 2007 to Present),
120 E. Liberty Drive, Chief Compliance Officer o Assistant Secretary Assistant General Counsel (March 2004 to May
Suite 400 Since Fund Inception 2007), First Trust Advisors L.P. and First Trust
Wheaton, IL 60187 o Chief Compliance Portfolios L.P.
D.O.B.: 12/66 Officer Since
January 2011

-----------------------------
(3) The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.

Page 28

--------------------------------------------------------------------------------
PRIVACY POLICY
--------------------------------------------------------------------------------

FIRST TRUST MORTGAGE INCOME FUND
OCTOBER 31, 2011 (UNAUDITED)

The open-end and closed-end funds advised by First Trust Advisors L.P. (each a
"Fund") value our relationship with you and consider your privacy an important
priority in maintaining our relationship. We are committed to protecting the
security and confidentiality of your personal information.

SOURCES OF INFORMATION

We may collect nonpublic personal information about you from the following
sources:

o Information we receive from you or your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;

o Information about your transactions with us, our affiliates or
others;

o Information we receive from your inquiries by mail, e-mail or
telephone; and

o Information we collect on our website through the use of "cookies."
For example, we may identify the pages on our website that your
browser requests or visits.

INFORMATION COLLECTED

The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.

DISCLOSURE OF INFORMATION

We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required by law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:

o IN ORDER TO PROVIDE YOU WITH PRODUCTS AND SERVICES AND TO EFFECT
TRANSACTIONS THAT YOU REQUEST OR AUTHORIZE, WE MAY DISCLOSE YOUR
PERSONAL INFORMATION AS DESCRIBED ABOVE TO UNAFFILIATED FINANCIAL
SERVICE PROVIDERS AND OTHER COMPANIES THAT PERFORM ADMINISTRATIVE OR
OTHER SERVICES ON OUR BEHALF, SUCH AS TRANSFER AGENTS, CUSTODIANS
AND TRUSTEES, OR THAT ASSIST US IN THE DISTRIBUTION OF INVESTOR
MATERIALS SUCH AS TRUSTEES, BANKS, FINANCIAL REPRESENTATIVES, PROXY
SERVICES, SOLICITORS AND PRINTERS.

o WE MAY RELEASE INFORMATION WE HAVE ABOUT YOU IF YOU DIRECT US TO DO
SO, IF WE ARE COMPELLED BY LAW TO DO SO, OR IN OTHER LEGALLY LIMITED
CIRCUMSTANCES (FOR EXAMPLE TO PROTECT YOUR ACCOUNT FROM FRAUD).

In addition, in order to alert you to our other financial products and services,
we may share your personal information with affiliates of the Fund.

POLICY ONLINE

We allow third-party companies, including AddThis, to collect certain anonymous
information when you visit our website. These companies may use non-personally
identifiable information during your visits to this and other websites in order
to provide advertisements about goods and services likely to be of greater
interest to you. These companies typically use a cookie, third party web beacon
or pixel tags, to collect this information. To learn more about this behavioral
advertising practice, you can visit www.networkadvertising.org.

CONFIDENTIALITY AND SECURITY

With regard to our internal security procedures, the Fund restricts access to
your nonpublic personal information to those individuals who need to know that
information to provide products or services to you. We maintain physical,
electronic and procedural safeguards to protect your nonpublic personal
information.

POLICY UPDATES AND INQUIRIES

As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time; however if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at (800)
621-1675 (First Trust Portfolios) or (800) 222-6822 (First Trust Advisors).

Page 29

This Page Left Blank Intentionally.

FIRST TRUST

INVESTMENT ADVISOR
First Trust Advisors L.P.
120 E. Liberty Drive, Suite 400
Wheaton, IL 60187

INVESTMENT SUB-ADVISOR
Brookfield Investment Management Inc.
3 World Financial Center
200 Vesey Street, 10th Floor
New York, NY 10281

ADMINISTRATOR,
FUND ACCOUNTANT &
TRANSFER AGENT
BNY Mellon Investment Servicing (US) Inc.
301 Bellevue Parkway
Wilmington, DE 19809

CUSTODIAN
The Bank of New York Mellon
1 Wall Street
New York, NY 10286

INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606

LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603

[BLANK BACK COVER]

ITEM 2. CODE OF ETHICS.

(a) The registrant, as of the end of the period covered by this report, has
adopted a code of ethics that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant or
a third party.

(c) There have been no amendments, during the period covered by this report,
to a provision of the code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by the
registrant or a third party, and that relates to any element of the code
of ethics description.

(d) The registrant has not granted any waivers, including an implicit waiver,
from a provision of the code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by the
registrant or a third party, that relates to one or more of the items set
forth in paragraph (b) of this item's instructions.

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.

As of the end of the period covered by the report, the Registrant's board of
trustees has determined that Thomas

R. Kadlec and Robert F. Keith are qualified to serve as audit committee
financial experts serving on its audit committee and that each of them is
"independent," as defined by Item 3 of Form N-CSR.

ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

(a) Audit Fees (Registrant) -- The aggregate fees billed for each of the last
two fiscal years for professional services rendered by the principal
accountant for the audit of the registrant's annual financial statements
or services that are normally provided by the accountant in connection
with statutory and regulatory filings or engagements for those fiscal
years were $45,000 for the fiscal year ended October 31, 2010 and $40,000
for the fiscal year ended October 31, 2011.

(b) Audit-Related Fees (Registrant) -- The aggregate fees billed in each of
the last two fiscal years for assurance and related services by the
principal accountant that are reasonably related to the performance of
the audit of the registrant's financial statements and are not reported
under paragraph (a) of this Item were $0 for the fiscal year ended
October 31, 2010 and $0 for the fiscal year ended October 31, 2011.

Audit-Related Fees (Investment Advisor) -- The aggregate fees billed in
each of the last two fiscal years for assurance and related services by
the principal accountant that are reasonably related to the performance of
the audit of the registrant's financial statements and are not reported
under paragraph (a) of this Item were $0 for the fiscal year ended October
31, 2010 and $3,000 for the fiscal year ended October 31, 2011.

(c) Tax Fees (Registrant) -- The aggregate fees billed in each of the last
two fiscal years for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning were $5,200
for the fiscal year ended October 31, 2010 and $5,200 for the fiscal year
ended October 31, 2011. These fees were for tax return preparation.

Tax Fees (Investment Advisor) -- The aggregate fees billed in each of the
last two fiscal years for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning were $0 for
the fiscal year ended October 31, 2010 and $0 for the fiscal year ended
October 31, 2011.

(d) All Other Fees (Registrant) -- The aggregate fees billed in each of the
last two fiscal years for products and services provided by the principal
accountant to the Registrant, other than the services reported in
paragraphs (a) through (c) of this Item were $0 for the fiscal year ended
October 31, 2010 and $0 for the fiscal year ended October 31, 2011.

All Other Fees (Investment Adviser) The aggregate fees billed in each of
the last two fiscal years for products and services provided by the
principal accountant to the Registrant, other than the services reported
in paragraphs (a) through (c) of this Item were $0 for the fiscal year
ended October 31, 2010 and $0 for the fiscal year ended October 31, 2011.

(e)(1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.

Pursuant to its charter and its Audit and Non-Audit Services Pre-Approval
Policy, the Audit Committee (the "Committee") is responsible for the
pre-approval of all audit services and permitted non-audit services (including
the fees and terms thereof) to be performed for the registrant by its
independent auditors. The Chairman of the Committee is authorized to give such
pre-approvals on behalf of the Committee up to $25,000 and report any such
pre-approval to the full Committee.

The Committee is also responsible for the pre-approval of the independent
auditor's engagements for non-audit services with the registrant's adviser (not
including a sub-adviser whose role is primarily portfolio management and is
sub-contracted or overseen by another investment adviser) and any entity
controlling, controlled by or under common control with the investment adviser
that provides ongoing services to the registrant, if the engagement relates
directly to the operations and financial reporting of the registrant, subject to
the de minimis exceptions for non-audit services described in Rule 2-01 of
Regulation S-X. If the independent auditor has provided non-audit services to
the registrant's adviser (other than any sub-adviser whose role is primarily
portfolio management and is sub-contracted with or overseen by another
investment adviser) and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
registrant that were not pre-approved pursuant to its policies, the Committee
will consider whether the provision of such non-audit services is compatible
with the auditor's independence.

(e)(2) The percentage of services described in each of paragraphs (b)
through (d) for the Registrant and the Registrant's investment adviser of
this Item that were approved by the audit committee pursuant to the
pre-approval exceptions included in paragraph (c)(7)(i)(c) or paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X are as follows:

(b) 0%

(d) 0%

(f) The percentage of hours expended on the principal accountant's engagement
to audit the registrant's financial statements for the most recent fiscal
year that were attributed to work performed by persons other than the
principal accountant's full-time, permanent employees was less than fifty
percent.

(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, and rendered to the registrant's
investment adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by, or under
common control with the adviser that provides ongoing services to the
registrant for the Registrant's fiscal year ended October 31, 2010 were
$5,200 for the Registrant and $6,000 for the Registrant's investment
adviser and for the Registrant's fiscal year ended October 31, 2011 were
$5,200 for the Registrant and $3,720 for the Registrant's investment
adviser.

(h) The registrant's audit committee of the board of directors has considered
whether the provision of non-audit services that were rendered to the
registrant's investment adviser (not including any sub-adviser whose role
is primarily portfolio management and is subcontracted with or overseen
by another investment adviser), and any entity controlling, controlled
by, or under common control with the investment adviser that provides
ongoing services to the registrant that were not pre-approved pursuant to
paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with
maintaining the principal accountant's independence.

ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.

(a) The Registrant has a separately designated audit committee consisting of
all the independent directors of the Registrant. The members of the audit
committee are: Thomas R. Kadlec, Niel B. Nielson, Richard E. Erickson and
Robert F. Keith.

ITEM 6. INVESTMENTS.

(a) Schedule of Investments in securities of unaffiliated issuers as of the
close of the reporting period is included as part of the report to
shareholders filed under Item 1 of this form.

(b) Not applicable.

ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.

BROOKFIELD INVESTMENT MANAGEMENT INC.
PORTFOLIO PROXY VOTING POLICIES AND PROCEDURES
JULY 2010

The Portfolio Proxy Voting Policies and Procedures (the "Policies and
Procedures") set forth the proxy voting policies, procedures and guidelines to
be followed by Brookfield Investment Management Inc. and its subsidiaries
(collectively, "BIM") in voting portfolio proxies relating to securities that
are held in the portfolios of the investment companies or other clients
("Clients") for which BIM has been delegated such proxy voting authority.

A. PROXY VOTING COMMITTEE

BIM's internal proxy voting committee (the "Committee") is responsible for
overseeing the proxy voting process and ensuring that BIM meets its regulatory
and corporate governance obligations in voting of portfolio proxies.

The Committee shall oversee the proxy voting agent's compliance with these
Policies and Procedures, including any deviations by the proxy voting agent from
the proxy voting guidelines ("Guidelines").

B. ADMINISTRATION AND VOTING OF PORTFOLIO PROXIES

1. FIDUCIARY DUTY AND OBJECTIVE

As an investment adviser that has been granted the authority to vote on
portfolio proxies, BIM owes a fiduciary duty to its Clients to monitor corporate
events and to vote portfolio proxies consistent with the best interests of its
Clients. In this regard, BIM seeks to ensure that all votes are free from
unwarranted and inappropriate influences. Accordingly, BIM generally votes
portfolio proxies in a uniform manner for its Clients and in accordance with
these Policies and Procedures and the Guidelines.

In meeting its fiduciary duty, BIM generally view proxy voting as a way to
enhance the value of the company's stock held by the Clients. Similarly, when
voting on matters for which the Guidelines dictate a vote be decided on a
case-by-case basis, BIM's primary consideration is the economic interests its
Clients.

2. PROXY VOTING AGENT

BIM may retain an independent third party proxy voting agent to assist BIM in
its proxy voting responsibilities in accordance with these Policies and
Procedures and in particular, with the Guidelines. As discussed above, the
Committee is responsible for monitoring the proxy voting agent.

In general, BIM may consider the proxy voting agent's research and analysis as
part of BIM's own review of a proxy proposal in which the Guidelines recommend
that the vote be considered on a case-by-case basis. BIM bears ultimate
responsibility for how portfolio proxies are voted. Unless instructed otherwise
by BIM, the proxy voting agent, when retained, will vote each portfolio proxy in
accordance with the Guidelines. The proxy voting agent also will assist BIM in
maintaining records of BIM's portfolio proxy votes, including the appropriate
records necessary for registered investment companies to meet their regulatory
obligations regarding the annual filing of proxy voting records on Form N-PX
with the Securities and Exchange Commission ("SEC").

3. MATERIAL CONFLICTS OF INTEREST

BIM votes portfolio proxies without regard to any other business relationship
between BIM and the company to which the portfolio proxy relates. To this end,
BIM must identify material conflicts of interest that may arise between a Client
and BIM, such as the following relationships:

o BIM provides significant investment advisory or other services to a
portfolio company or its affiliates (the "Company") whose management
is soliciting proxies or BIM is seeking to provide such services;

o BIM serves as an investment adviser to the pension or other
investment account of the Company or BIM is seeking to serve in that
capacity; or

o BIM and the Company have a lending or other financial-related
relationship.

In each of these situations, voting against the Company management's
recommendation may cause BIM a loss of revenue or other benefit.

BIM generally seeks to avoid such material conflicts of interest by maintaining
separate investment decision-making and proxy voting decision-making processes.
To further minimize possible conflicts of interest, BIM and the Committee employ
the following procedures, as long as BIM determines that the course of action is
consistent with the best interests of the Clients:

o If the proposal that gives rise to a material conflict is
specifically addressed in the Guidelines, BIM will vote the
portfolio proxy in accordance with the Guidelines, provided that the
Guidelines do not provide discretion to BIM on how to vote on the
matter (i.e., case-by-case); or

o If the previous procedure does not provide an appropriate voting
recommendation, BIM may retain an independent fiduciary for advice
on how to vote the proposal or the Committee may direct BIM to
abstain from voting because voting on the particular proposal is
impracticable and/or is outweighed by the cost of voting.

4. CERTAIN FOREIGN SECURITIES

Portfolio proxies relating to foreign securities held by Clients are subject to
these Policies and Procedures. In certain foreign jurisdictions, however, the
voting of portfolio proxies can result in additional restrictions that have an
economic impact to the security, such as "share-blocking." If BIM votes on the
portfolio proxy, share-blocking may prevent BIM from selling the shares of the
foreign security for a period of time. In determining whether to vote portfolio
proxies subject to such restrictions, BIM, in consultation with the Committee,
considers whether the vote, either in itself or together with the votes of other
shareholders, is expected to affect the value of the security that outweighs the
cost of voting. If BIM votes on a portfolio proxy and during the "share-blocking
period," BIM would like to sell the affected foreign security, BIM, in
consultation with the Committee, will attempt to recall the shares (as allowable
within the market time-frame and practices).

C. FUND BOARD REPORTING AND RECORDKEEPING

BIM will prepare periodic reports for submission to the Boards of Directors of
its affiliated funds (the "Helios Funds") describing:

o any issues arising under these Policies and Procedures since the
last report to the Helios Funds' Boards of Directors and the
resolution of such issues, including but not limited to, information
about conflicts of interest not addressed in the Policies and
Procedures; and

o any proxy votes taken by BIM on behalf of the Helios Funds since the
last report to the Helios Funds' Boards of Directors that deviated
from these Policies and Procedures, with reasons for any such
deviations.

In addition, no less frequently than annually, BIM will provide the Boards of
Directors of the Helios Funds with a written report of any recommended changes
based upon BIM's experience under these Policies and Procedures, evolving
industry practices and developments in the applicable laws or regulations.

BIM will maintain all records that are required under, and in accordance with,
the Investment Company Act of 1940, as amended, and the Investment Advisers Act
of 1940, which include, but not limited to:

o these Policies and Procedures, as amended from time to time;

o records of votes cast with respect to portfolio proxies, reflecting
the information required to be included in Form N-PX;

o records of written client requests for proxy voting information and
any written responses of BIM to such requests; and

o any written materials prepared by BIM that were material to making a
decision in how to vote, or that memorialized the basis for the
decision.

D. AMENDMENTS TO THESE PROCEDURES

The Committee shall periodically review and update these Policies and Procedures
as necessary. Any amendments to these Procedures and Policies (including the
Guidelines) shall be provided to the Board of Directors of BIM and to the Boards
of Directors of the Helios Funds for review and approval.

E. PROXY VOTING GUIDELINES

Guidelines are available upon request.

ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

(A)(1) IDENTIFICATION OF PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM MEMBERS AND
DESCRIPTION OF ROLE OF PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM MEMBERS.

INFORMATION PROVIDED AS OF JANUARY 3, 2012.

On April 29, 2011, Brookfield Investment Management Inc. ("Brookfield" or
"Sub-Advisor") took over the portfolio management of the Registrant. Brookfield
is a global investment manager focused on specialized equity and fixed-income
securities investments. The firm is a subsidiary of Brookfield Asset Management
Inc., a global alternative asset manager with approximately $150 billion in
assets under management as of September 30, 2011 and over 100 years of history
in owning and operating assets with a focus on real estate, infrastructure,
power and private equity. The combination of access to this operational
experience, along with the breadth of Brookfield's product offerings and depth
of its investment teams, provides enhanced opportunity for investment.
Brookfield is an SEC-registered investment advisor and with its affiliates, had
approximately $21 billion in assets under management as of September 30, 2011.
Headquartered in New York, the firm maintains offices and investment teams in
Chicago, Boston, London, Hong Kong, Sydney, and Toronto.

Anthony Breaks, CFA, Director
Mr. Breaks is a Portfolio Manager on the Securitized Products Investments team.
Mr. Breaks is one of four team leaders in mortgage-backed securities ("MBS") and
asset-backed securities ("ABS") and is a member of the team's securities
analysis committee. In his role, Mr. Breaks is one of the team's portfolio
managers. Mr. Breaks also has managed securitized product vehicles, such as
structured investment vehicle ("SIV"), asset-backed commercial paper ("ABCP")
and collateralized debt obligations ("CDOs") for Brookfield and has experience
in insurance company asset management. Mr. Breaks earned a Bachelor of Science
degree in Electrical Engineering from the Massachusetts Institute of Technology.
He holds the Chartered Financial Analyst ("CFA") designation.

Chris Wu, Director
Mr. Wu is a Portfolio Manager on the Securitized Products Investment Team
focusing on Agency MBS. He is responsible for the firm's Agency MBS exposures.
He develops quantitative tools to formulate research and develop trading
strategies for Agency MBS exposures. Mr. Wu holds an MBA from New York
University as well as a Master of Science degree in Computer Science from the
University of Saskatchewan. He also earned a Bachelor of Economics from Huazhong
University of Science and Technology in China.

(2) OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGERS OR MANAGEMENT TEAM MEMBER AND
POTENTIAL CONFLICTS OF INTEREST

Information provided as of October 31, 2011.

# of Accounts Total Assets
Managed for which for which
Total Advisory Fee is Advisory Fee
Name of Portfolio Manager or # of Accounts Based on is Based on
Team Member Type of Accounts* Managed Total Assets Performance Performance
----------------------------- ----------------- ------------- ------------ ----------------- ------------

1. Anthony Breaks Registered Investment Companies: 0 $0 0 $ 0

Other Pooled Investment Vehicles: 0 $0 0 $ 0

Other Accounts: 2 $422M 0 $ 0

2. Chris Wu Registered Investment Companies: 0 $ 0 0 $ 0

Other Pooled Investment Vehicles: 0 $ 0 0 $ 0

Other Accounts: 0 $ 0 0 $ 0

POTENTIAL CONFLICTS OF INTERESTS

Allocation of Limited Time and Attention. A portfolio manager who is responsible
for managing multiple funds and/or accounts may devote unequal time and
attention to the management of those funds and/or accounts. As a result, the
portfolio manager may not be able to formulate as complete a strategy or
identify equally attractive investment opportunities for each of those accounts
as the case may be if he or she were to devote substantially more attention to
the management of a single fund. The effects of this potential conflict may be
more pronounced where funds and/or accounts overseen by a particular portfolio
manager have different investment strategies.

Allocation of Limited Investment Opportunities. If a portfolio manager
identifies a limited investment opportunity that may be suitable for multiple
funds and/or accounts, the opportunity may be allocated among these several
funds or accounts, which may limit a client's ability to take full advantage of
the investment opportunity.

Pursuit of Differing Strategies. At times, a portfolio manager may determine
that an investment opportunity may be appropriate for only some of the funds
and/or accounts for which he or she exercises investment responsibility, or may
decide that certain of the funds and/or accounts should take differing positions
with respect to a particular security. In these cases, the portfolio manager may
place separate transactions for one or more funds or accounts which may affect
the market price of the security or the execution of the transaction, or both,
to the detriment or benefit of one or more other funds and/or accounts.

Variation in Compensation. A conflict of interest may arise where the financial
or other benefits available to the portfolio manager differ among the funds
and/or accounts that he or she manages. If the structure of the investment
adviser's management fee and/or the portfolio manager's compensation differs
among funds and/or accounts (such as where certain funds or accounts pay higher
management fees or performance-based management fees), the portfolio manager
might be motivated to help certain funds and/or accounts over others. The
portfolio manager might be motivated to favor funds and/or accounts in which he
or she has an interest or in which the investment advisor and/or its affiliates
have interests. Similarly, the desire to maintain or raise assets under
management or to enhance the portfolio manager's performance record or to derive
other rewards, financial or otherwise, could influence the portfolio manager to
lend preferential treatment to those funds and/or accounts that could most
significantly benefit the portfolio manager.

Related Business Opportunities. The investment adviser or its affiliates may
provide more services (such as distribution or recordkeeping) for some types of
funds or accounts than for others. In such cases, a portfolio manager may
benefit, either directly or indirectly, by devoting disproportionate attention
to the management of fund and/or accounts that provide greater overall returns
to the investment manager and its affiliates.

Brookfield has adopted compliance policies and procedures that are designed to
address the various conflicts of interest that may arise for it and the
individuals that it employs. For example, Brookfield seeks to minimize the
effects of competing interests for the time and attention of portfolio managers
by assigning portfolio managers to manage funds and accounts that share a
similar investment style. Brookfield also has adopted trade allocation
procedures that are designed to facilitate the fair allocation of limited
investment opportunities among multiple funds and accounts.

(3) COMPENSATION STRUCTURE OF PORTFOLIO MANAGERS OR MANAGEMENT TEAM MEMBERS

PORTFOLIO MANAGER COMPENSATION

Information provided as of May 31, 2011.

The Registrant's portfolio managers are compensated by the sub-advisor.
Brookfield compensates its portfolio managers based on the scale and complexity
of their portfolio responsibilities, the total return performance of funds and
accounts managed by the portfolio manager on an absolute basis and versus
appropriate peer groups of similar size and strategy, as well as the management
skills displayed in managing their subordinates and the teamwork displayed in
working with other members of the firm. Since the portfolio managers are
responsible for multiple funds and accounts, investment performance is evaluated
on an aggregate basis almost equally weighted among performance, management and
teamwork. Base compensation for Brookfield's portfolio managers varies in line
with a portfolio manager's seniority and position. The compensation of portfolio
managers with other job responsibilities (such as acting as an executive officer
of Brookfield or supervising various departments) includes consideration of the
scope of such responsibilities and the portfolio manager's performance in
meeting them. Brookfield seeks to compensate portfolio managers commensurate
with their responsibilities and performance, and competitive with other firms
within the investment management industry. Salaries, bonuses and stock-based
compensation also are influenced by the operating performance of Brookfield and
its parent company, Brookfield Asset Management Inc. While the salaries of
Brookfield's portfolio managers are comparatively fixed, cash bonuses and
stock-based compensation may fluctuate significantly from year to year. Bonuses
are determined on a discretionary basis by the senior executives of Brookfield
and measured by individual and team-oriented performance guidelines. The amount
of the Long Term Incentive Plan (LTIP) is approved by the board of directors
annually and there is a rolling vesting schedule to aid in retention of key
people. A key component of this program is achievement of client objectives in
order to properly align interests with our clients. Further, the incentive
compensation of all investment personnel who work on each strategy is directly
tied to the relative performance of the strategy and its clients.

(4) DISCLOSURE OF SECURITIES OWNERSHIP

Information provided as of October 31, 2011

DOLLAR RANGE OF FUND
SHARES BENEFICIALLY
NAME OWNED

Anthony Breaks $ 0
Chris Wu $ 0

(B) Not applicable.

ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.

Not applicable.

ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of directors, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)),
or this Item.

ITEM 11. CONTROLS AND PROCEDURES.

(a) The registrant's principal executive and principal financial officers, or
persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the "1940
Act") (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days
of the filing date of the report that includes the disclosure required by
this paragraph, based on their evaluation of these controls and
procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR
270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities
Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)).

(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR
270.30a-3(d)) that occurred during the registrant's second fiscal quarter
of the period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal control
over financial reporting.

ITEM 12. EXHIBITS.

(a)(1) Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.

(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.

(a)(3) Not applicable.

(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and
Section 906 of the Sarbanes- Oxley Act of 2002 are attached hereto.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

(registrant) First Trust Mortgage Income Fund

By (Signature and Title)* /s/ James A. Bowen
------------------------------------------------------
James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)

Date December 22, 2011

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.

Date December 22, 2011

By (Signature and Title)* /s/ Mark R. Bradley
------------------------------------------------------
Mark R. Bradley, Treasurer, Chief Financial
Officer and Chief Accounting Officer
(principal financial officer)

Date December 22, 2011

* Print the name and title of each signing officer under his or her
signature.