Edgar Filing: FIRST TRUST/FIDAC MORTGAGE INCOME FUND

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-Q

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY

Investment Company Act file number 811-21727

FIRST TRUST/FIDAC MORTGAGE INCOME FUND
(Exact name of registrant as specified in charter)

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

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

Registrant's telephone number, including area code:
630-765-8000

Date of fiscal year end: OCTOBER 31

Date of reporting period: JANUARY 31, 2009

Form N-Q is to be used by management investment companies, other than small
business investment companies registered on Form N-5 (ss.ss. 239.24 and 274.5 of
this chapter), to file reports with the Commission, not later than 60 days after
the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under
the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may use
the information provided on Form N-Q in its regulatory, disclosure review,
inspection, and policymaking roles.

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

ITEM 1. SCHEDULE OF INVESTMENTS.
The Schedule(s) of Investments is attached herewith.

FIRST TRUST/FIDAC MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS (a)
JANUARY 31, 2009 (UNAUDITED)

PRINCIPAL STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
------------ ------------------------------------------------------------------ ------ --------- ------------

U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 68.1%
Federal National Mortgage Association (FNMA)
$ 7,180,570 Pool 256182 ................................................... 6.00% 03/01/36 $ 7,344,377
9,829,877 Pool 256328 (b) ............................................... 6.50% 07/01/36 10,204,743
7,557,561 Pool 831145 (b) ............................................... 6.00% 12/01/35 7,806,567
6,979,368 Pool 843971 (b) ............................................... 6.00% 11/01/35 7,209,324
5,157,854 Pool 872303 ................................................... 6.00% 05/01/36 5,322,959
7,737,082 Pool 880203 ................................................... 6.00% 02/01/36 7,944,855
------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES
(Cost $44,446,038) ............................................ 45,832,825
------------
U.S. GOVERNMENT AGENCY AND NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS - 49.7%
Banc of America Funding Corp.
1,363,284 Series 2005-F, Class 4A1 (c) .................................. 5.33% 09/20/35 825,832
Banc of America Mortgage Securities
145,547 Series 2002-L, Class 1A1 (c) .................................. 5.22% 12/25/32 99,893
4,073,804 Series 2007-3, Class 2A3 ...................................... 7.00% 09/25/37 2,541,271
Chase Mortgage Finance Corp.
3,120,661 Series 2007-A3, Class 3A1 (c) ................................. 5.97% 12/25/37 2,020,236
Federal Home Loan Mortgage Corp.
6,306,344 Series 2676, Class IK, IO ..................................... 5.00% 02/15/20 347,077
301,490 Series 2716, Class CI, IO ..................................... 5.00% 05/15/19 12,455
3,434,815 Series 2737, Class IG, IO ..................................... 5.00% 08/15/27 134,758
11,900,860 Series 2807, Class SB, IO (d) ................................. 7.12% 11/15/33 1,271,281
747,982 Series 2836, Class PI, IO ..................................... 5.00% 09/15/22 7,269
5,104,192 Series 2852, Class VI, IO ..................................... 5.00% 06/15/24 132,519
4,739,600 Series 2870, Class JI, IO ..................................... 5.00% 10/15/27 335,876
792,000 Series 2888, Class OI, IO ..................................... 5.00% 01/15/27 60,434
1,774,808 Series 2921, Class IQ, IO ..................................... 5.00% 01/15/29 189,112
1,326,507 Series 2938, Class PI, IO ..................................... 5.00% 11/15/28 77,449
1,275,881 Series 2943, Class JI, IO ..................................... 5.00% 01/15/24 24,092
894,066 Series 2961, Class IP, IO ..................................... 5.50% 07/15/28 28,003
5,446,219 Series 2964, Class IA, IO ..................................... 5.50% 02/15/26 121,069
1,324,049 Series 3069, Class LI, IO ..................................... 5.50% 08/15/32 130,303
493,348 Series 3171, Class CS (d) ..................................... 37.30% 06/15/36 528,590
1,150,000 Series 3195, Class SX (d) ..................................... 43.98% 07/15/36 1,262,967
Federal Home Loan Mortgage Corp., STRIP
25,087,217 Series 227, Class IO, IO ...................................... 5.00% 12/01/34 3,587,216
4,890,873 Series 231, Class IO, IO ...................................... 5.50% 08/01/35 627,101
9,425,171 Series 232, Class IO, IO ...................................... 5.00% 08/01/35 1,346,787
2,659,759 Series 235, Class IO, IO ...................................... 5.50% 02/01/36 332,347
3,909,692 Series 240, Class IO, IO ...................................... 5.50% 07/15/36 507,146
4,349,212 Series 248, Class IO, IO ...................................... 5.50% 07/15/37 489,835
Federal National Mortgage Association
3,501,492 Series 2005-122, Class SN (d) ................................. 27.04% 01/25/36 3,731,454
1,322,348 Series 2005-39, Class BI, IO .................................. 5.00% 06/25/28 62,290
1,637,092 Series 2006-64, Class ST (d) .................................. 20.19% 07/25/36 1,698,722

See Notes to Quarterly Portfolio of Investments

Page 1

FIRST TRUST/FIDAC MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
JANUARY 31, 2009 (UNAUDITED)

PRINCIPAL STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
------------ ------------------------------------------------------------------ ------ --------- ------------

U.S. GOVERNMENT AGENCY AND NON-AGENCY COLLATERALIZED
MORTGAGE OBLIGATIONS - (CONTINUED)
Federal National Mortgage Association, STRIP
$ 9,499,551 Series 360, Class 2, IO ....................................... 5.00% 08/01/35 $ 1,339,615
GSR Mortgage Loan Trust
6,151,265 Series 2007-1F, Class 3A10, IO ................................ 6.00% 01/25/37 754,636
Residential Accredit Loans, Inc.
237,808 Series 2002-QS18, Class A1 .................................... 5.50% 12/25/17 223,614
Sequoia Mortgage Trust
4,861,871 Series 2007-1, Class 2A1 (c) .................................. 5.81% 02/20/47 3,243,704
Wells Fargo Mortgage Backed Securities Trust
6,799,419 Series 2006-9, Class 1A32 ..................................... 6.00% 08/25/36 4,229,719
1,295,043 Series 2006-AR10, Class 5A2 (c) ............................... 5.59% 07/25/36 1,170,835
------------
TOTAL U.S. GOVERNMENT AGENCY AND NON-AGENCY
COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $41,350,719) ............................................ 33,495,507
------------
ASSET-BACKED SECURITIES - 0.1%
33,069 Countrywide Asset-Backed Certificates
Series 2006-12, Class 2A1 (c) ................................. 0.46% 12/25/36 32,585
------------
TOTAL ASSET-BACKED SECURITIES
(Cost $32,991) ................................................ 32,585
------------

SHARES DESCRIPTION VALUE
------------ ------------------------------------------------------------------ ------------

PREFERRED SECURITIES - 0.1%
20,000 Fannie Mae, 8.25% (e) ............................................ 22,000
40,000 Freddie Mac, Series Z, 8.38% (e) ................................. 42,800
------------
TOTAL PREFERRED SECURITIES
(Cost $1,500,000) ............................................. 64,800
------------
TOTAL INVESTMENTS - 118.0%
(Cost $87,329,748) (f) ........................................ 79,425,717
------------

See Notes to Quarterly Portfolio of Investments

Page 2

FIRST TRUST/FIDAC MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
JANUARY 31, 2009 (UNAUDITED)

PRINCIPAL
VALUE DESCRIPTION VALUE
------------ ------------------------------------------------------------------ ------------

REVERSE REPURCHASE AGREEMENT - (23.7)%
$(15,955,000) With UBS Securities 0.35% dated 01/30/09, to be repurchased at
$15,955,465 on 02/02/09 ....................................... $(15,955,000)
NET OTHER ASSETS AND LIABILITIES - 5.7% .......................... 3,863,813
------------
NET ASSETS - 100.0% .............................................. $ 67,334,530
============

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

(b) This security or a portion of this security is segregated as collateral for
the reverse repurchase agreement.

(d) Inverse floating rate instrument. The interest rate shown reflects the rate
in effect at January 31, 2009.

(e) The U.S. Government took control over this company in September 2008, and
it has since suspended its dividend.

(f) Aggregate cost for federal income tax and financial reporting purposes. As
of January 31, 2009, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$2,660,644 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$10,564,675.

IO Interest Only - represents the interest only portion of a mortgage-backed
security, which allows the holder to receive interest only payments based
on the amount of notional principal outstanding.

STRIP Separate Trading of Registered Interest and Principal of Securities -
Stripped Mortgage-Backed Securities are created by separating the interest
payments from the principal payments of underlying mortgage securities to
create new interest only (IO) and principal only (PO) zero coupon
securities.

SECURITY VALUATION INPUTS

A summary of the inputs used to value the Fund's investments as of January 31,
2009 is as follows (See Note 1A - Portfolio Valuation in the Notes to Quarterly
Portfolio of Investments):

OTHER
FINANCIAL
VALUATION INPUTS INVESTMENTS INSTRUMENTS*
---------------- ----------- ------------

Level 1 - Quoted Prices ......................... $ 64,800 $(15,955,000)
Level 2 - Other Significant Observable Inputs ... 79,360,917 --
Level 3 - Significant Unobservable Inputs ....... -- --
----------- ------------
Total ........................................... $79,425,717 $(15,955,000)
=========== ============

* The other financial instrument is a reverse repurchase agreement referenced
in the Portfolio of Investments.

See Notes to Quarterly Portfolio of Investments

Page 3

NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS

FIRST TRUST/FIDAC MORTGAGE INCOME FUND
JANUARY 31, 2009 (UNAUDITED)

1. VALUATION AND INVESTMENT PRACTICES

A. PORTFOLIO VALUATION:

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

The Fund's investments are valued daily at market value or, in the absence of
market value with respect to any portfolio securities, at fair value according
to valuation procedures adopted by the Fund's Board of Trustees. Securities for
which market quotations are readily available are valued at market value, which
is currently determined using the last reported sale price or, if no sales are
reported (as in the case of some securities traded over-the-counter), the last
reported bid price, except that certain U.S. Government securities are valued at
the mean between the last reported bid and asked prices. The Fund values
Mortgage-Backed Securities and other debt securities not traded in an organized
market on the basis of valuations provided by dealers or by an independent
pricing service, approved by the Fund's Board of Trustees, which uses
information with respect to transactions in such securities, quotations from
dealers, market transactions for comparable securities, various relationships
between securities and yield to maturity in determining value. Debt securities
having a remaining maturity of less than sixty days when purchased are valued at
amortized cost. In the event that market quotations are not readily available,
the pricing service does not provide a valuation for a particular asset, or the
valuations are deemed unreliable, 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 and other investments. Additionally, if events occur after
the close of the principal markets for particular securities (e.g., domestic
debt and foreign securities), but before the Fund values its assets, that could
materially affect NAV, First Trust may use a fair value method to value the
Fund's securities and other investments. The use of fair value pricing by the
Fund is governed by valuation procedures adopted by the Fund's Board of
Trustees, and in accordance with the provisions of the Investment Company Act of
1940, as amended.

In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 157, Fair Value Measurements
("FAS 157"), effective for fiscal years beginning after November 15, 2007. This
standard clarifies the definition of fair value for financial reporting,
establishes a framework for measuring fair value and requires additional
disclosures about the use of fair value measurements. FAS 157 became effective
for the Fund as of November 1, 2008, the beginning of its current fiscal year.
The three levels of the fair value hierarchy under FAS 157 are described as
follows:

- Level 1 - quoted prices in active markets for identical securities

- Level 2 - other significant observable inputs (including quoted prices
for similar securities, interest rates, prepayment speeds,
credit risk, etc.)

- Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)

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 January 31, 2009 is
included with the Fund's Portfolio of Investments.

B. SECURITIES TRANSACTIONS:

Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.

C. REVERSE REPURCHASE AGREEMENTS:

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

Page 4

NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS - (CONTINUED)

FIRST TRUST/FIDAC MORTGAGE INCOME FUND
JANUARY 31, 2009 (UNAUDITED)

Information for the three months ended January 31, 2009:

Maximum amount outstanding during the period ............... $24,719,000
Average amount outstanding during the period* .............. $39,767,739
Average monthly shares outstanding during the period ....... 4,045,889
Average debt per share outstanding during the period ....... $ 9.83

* The average amount outstanding during the period was calculated by adding
the borrowings at the end of each day and dividing the sum by the number of
days in the three-month period ended January 31, 2009.

Interest rates ranged from 0.10% to 0.70% during the three-month period ended
January 31, 2009, on borrowings by the Fund under reverse repurchase agreements,
which had interest expense that aggregated $15,365.

D. INVERSE FLOATING-RATE INSTRUMENTS:

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

F. INTEREST ONLY SECURITIES:

An interest only security is the interest only portion of a mortgage-backed
security ("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. IOs 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 investments are identified on the Portfolio of
Investments.

Page 5

ITEM 2. CONTROLS AND PROCEDURES.

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

(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the registrant's last
fiscal quarter that have materially affected, or are reasonably likely
to materially affect, the registrant's internal control over financial
reporting.

ITEM 3. EXHIBITS.

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

SIGNATURES

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

(Registrant) FIRST TRUST/FIDAC MORTGAGE INCOME FUND

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

Date MARCH 26, 2009
----------------------------------------------------------------------------

Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

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

Date MARCH 26, 2009
----------------------------------------------------------------------------

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

Date MARCH 26, 2009
----------------------------------------------------------------------------

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