Edgar Filing: FIRST TRUST STRATEGIC HIGH INCOME FUND

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

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES

Investment Company Act file number 811-21756
-----------

First Trust Strategic High 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: October 31, 2010
------------------

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
STRATEGIC
HIGH INCOME
FUND

ANNUAL REPORT

FOR THE YEAR ENDED
OCTOBER 31, 2010

[LOGO OMITTED] FIRST TRUST BROOKFIELD

--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------

FIRST TRUST STRATEGIC HIGH INCOME FUND (FHI)
ANNUAL REPORT
OCTOBER 31, 2010

Shareholder Letter........................................... 1
At A Glance.................................................. 2
Portfolio Commentary......................................... 3
Portfolio of Investments..................................... 6
Statement of Assets and Liabilities.......................... 13
Statement of Operations...................................... 14
Statements of Changes in Net Assets.......................... 15
Statement of Cash Flows...................................... 16
Financial Highlights......................................... 17
Notes to Financial Statements................................ 18
Report of Independent Registered Public Accounting Firm...... 26
Additional Information....................................... 27
Board of Trustees and Officers............................... 31
Privacy Policy............................................... 33

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") 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 Strategic High Income Fund (the "Fund") to be materially different
from any future results, performance or achievements expressed or implied by the
forward-looking statements. When evaluating the information included in this
report, you are cautioned not to place undue reliance on these forward-looking
statements, which reflect the judgment of the Advisor and/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.

--------------------------------------------------------------------------------
SHAREHOLDER LETTER
--------------------------------------------------------------------------------

FIRST TRUST STRATEGIC HIGH INCOME FUND (FHI)
ANNUAL REPORT
OCTOBER 31, 2010

Dear Shareholders:

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

First Trust Advisors L.P. ("First Trust") has always believed that staying
invested in quality products and having a long-term horizon can help investors
reach their financial goals. While the past two years have been challenging,
successful investors understand that having a long-term investment perspective
through all kinds of markets can help them reach their investing goals. First
Trust is a long-term investor and investment manager, and we will continue to
bring investments we believe fit investors with long-term goals.

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 twelve months this report
covers. I encourage you to read this document and discuss it with your financial
advisor.

First Trust offers a variety of products that can fit many financial plans to
help those investors who are seeking long-term financial success and we remain
committed to bringing you quality investment solutions regardless of the
inevitable volatility the market experiences. In addition to going over your
investment plan, you may want to talk to your advisor about the investments
First Trust offers that might also fit your financial plan.

At First Trust we continue to be committed to making available up-to-date
information about your investments so you and your financial advisor have
current information on your portfolio. We value our relationship with you, and
we thank you for the opportunity to assist you in achieving your financial
goals.

Sincerely,

/s/ James A. Bowen

James A. Bowen
President of First Trust Strategic High Income Fund

Page 1

FIRST TRUST STRATEGIC HIGH INCOME FUND
"AT A GLANCE"
AS OF OCTOBER 31, 2010 (UNAUDITED)

FUND STATISTICS

Symbol on New York Stock Exchange FHI
Common Share Price $ 3.45
Common Share Net Asset Value ("NAV") $ 3.75
Premium (Discount) to NAV (8.00)%
Net Assets Applicable to Common Shares $34,321,785
Current Monthly Distribution per Common Share (1) $ 0.025
Current Annualized Distribution per Common Share $ 0.300
Current Distribution Rate on Closing Common Share Price (2) 8.70%
Current Distribution Rate on NAV (2) 8.00%

COMMON SHARE PRICE & NAV (WEEKLY CLOSING PRICE)

[PERFORMANCE GRAPH]

Common Share Price NAV
------------------ ----

10/30/2009 2.63 2.92
11/6/2009 2.60 2.89
11/13/2009 2.61 2.96
11/20/2009 2.73 3.02
11/27/2009 2.78 3.16
12/4/2009 2.84 3.15
12/11/2009 2.87 3.16
12/18/2009 2.91 3.19
12/24/2009 2.90 3.18
12/31/2009 2.93 3.18
1/8/2010 2.89 3.20
1/15/2010 3.03 3.37
1/22/2010 3.05 3.37
1/29/2010 3.10 3.40
2/5/2010 3.00 3.38
2/12/2010 3.02 3.35
2/19/2010 3.04 3.38
2/26/2010 3.07 3.40
3/5/2010 3.08 3.34
3/12/2010 3.11 3.38
3/19/2010 3.17 3.40
3/26/2010 3.20 3.41
4/1/2010 3.29 3.39
4/9/2010 3.26 3.42
4/16/2010 3.25 3.49
4/23/2010 3.27 3.50
4/30/2010 3.32 3.52
5/7/2010 3.04 3.44
5/14/2010 3.03 3.45
5/21/2010 2.92 3.40
5/28/2010 3.04 3.39
6/4/2010 3.03 3.37
6/11/2010 3.04 3.35
6/18/2010 3.08 3.41
6/25/2010 3.08 3.43
7/2/2010 3.06 3.40
7/9/2010 3.08 3.43
7/16/2010 3.09 3.47
7/23/2010 3.17 3.50
7/30/2010 3.34 3.67
8/6/2010 3.35 3.65
8/13/2010 3.34 3.63
8/20/2010 3.33 3.62
8/27/2010 3.32 3.63
9/3/2010 3.33 3.63
9/10/2010 3.33 3.66
9/17/2010 3.36 3.68
9/24/2010 3.40 3.69
10/1/2010 3.41 3.68
10/8/2010 3.42 3.75
10/15/2010 3.55 3.77
10/22/2010 3.50 3.73
10/29/2010 3.45 3.75

PERFORMANCE
----------------------------------------------------------------------------------------------------------
Average Annual Total Return
---------------------------------------
1 Year Ended 5 Years Ended Inception (7/26/2005)
10/31/2010 10/31/10 to 10/31/2010

FUND PERFORMANCE (3)
NAV 41.21% -15.79% -14.89%
Market Value 44.24% -16.87% -16.96%
INDEX PERFORMANCE
Barclays Capital Ba U.S. High Yield Index 19.18% 9.38% 8.65%
----------------------------------------------------------------------------------------------------------

% OF TOTAL
ASSET CLASSIFICATION INVESTMENTS
--------------------------------------------------------------

Corporate Bonds and Notes 70.1%
U.S. Government Agency Mortgage-Backed Securities 9.4
Commercial Mortgage-Backed Securities 7.0
Manufactured Housing Loans 6.2
Credit Card Receivables 4.2
Residential Mortgage-Backed Securities 2.1
Collateralized Debt Obligations 0.4
Senior Floating-Rate Notes 0.4
Franchise Loans 0.1
Equity 0.1
-----------------------------------------------------------
Total 100.0%
======

% OF TOTAL
FIXED-INCOME
CREDIT QUALITY(4) INVESTMENTS
-----------------------------------

AAA 14.5%
AA 0.7
AA- 0.8
A+ 0.5
BBB- 0.9
BB+ 2.1
BB 10.0
BB- 11.3
B+ 15.1
B 9.9
B- 15.1
CCC+ 6.4
CCC 2.8
CCC- 1.1
CC 0.7
C 4.6
D 3.5
--------------------------------
Total 100.0%
======

(1) Most recent distribution paid or declared through 10/31/2010. 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 10/31/2010. 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 represented refelcts the ratings assigned
by one or more nationally recognized statistical rating organizations
(NRSROs). For situations in which a security is rated by more than one
NRSRO and ratings are not equivalent, the ratings are averaged.

Page 2

--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY
--------------------------------------------------------------------------------

SUB-ADVISOR

BROOKFIELD INVESTMENT MANAGEMENT INC.

Brookfield Investment Management Inc. ("Brookfield") is an SEC-registered
investment advisor specializing in core fixed-income, high yield, structured
products (mortgage-backed securities ("MBS") including Commercial MBS,
Residential MBS and Asset-Backed Securities ("ABS")) as well as global real
estate securities and listed infrastructure securities. Headquartered in New
York, the firm had approximately $23 billion of assets under management* as of
September 30, 2010. Brookfield is a subsidiary of Brookfield Asset Management
Inc., a global asset manager focused on property, power and other infrastructure
assets with approximately $100 billion of assets under management as of
September 30, 2010.

* Includes assets managed through AMP Capital Brookfield Pty Limited.

PORTFOLIO MANAGEMENT TEAM

DANA E. ERIKSON, CFA
MANAGING DIRECTOR

Mr. Erikson, Portfolio Manager and the Head of the High Yield Team, is
responsible for Brookfield's corporate high yield and leveraged loan exposures,
the establishment of portfolio objectives and strategies. Mr. Erikson has 24
years of investment experience. Mr. Erikson received a Bachelor of Arts degree
in Economics from Brown University and a Masters degree, with honors, from
Northeastern University. He also holds the Chartered Financial Analyst
designation and is a member of the Boston Security Analysts Society.

ANTHONY BREAKS, CFA
DIRECTOR

Mr. Breaks is a Portfolio Manager and an MBS/ABS team leader in the Structured
Products Investments team. Mr. Breaks is also head of the Short Term Investments
and Financing business, including repo-financing. Mr. Breaks joined the firm
from Brookfield Asset Management. At Brookfield Asset Management, he was
responsible for portfolio investments and credit analysis for a reinsurance
affiliate, execution and management of a synthetic CDO, and development of
insurance-related investment products. Mr. Breaks earned a Bachelor of Science
degree in Electrical Engineering from the Massachusetts Institute of Technology.
He holds the Chartered Financial Analyst designation.

COMMENTARY

FIRST TRUST STRATEGIC HIGH INCOME FUND

The primary investment objective of the First Trust Strategic High Income Fund
("FHI" or the "Fund") is to seek a high level of current income. The Fund seeks
capital growth as a secondary objective. The Fund seeks to achieve its
investment objectives by investing in a diversified portfolio of
below-investment grade and investment grade debt securities, and equity
securities that Brookfield believes offer attractive yield and/or capital
appreciation potential. The Fund may invest up to 100% of its managed assets in
below-investment grade debt securities (commonly referred to as "high-yield" or
"junk bonds"). Managed assets means 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. There can be no assurance
that the Fund will achieve its investment objectives. The Fund may not be
appropriate for all investors.

MARKET RECAP AND OUTLOOK

High Yield

The high-yield market continued its rally over the 12 months ended October 31,
2010. While returns for the high-yield market, as measured by the Barclays
Capital Ba U.S. High Yield Index, were not as strong as in the prior 12 months,
it is worth highlighting that a number of important and supportive themes
persisted. Perhaps one of the most dramatic was continued access to the new
issue market. As investors searched for investments that provided income, money
flowed into the high-yield market, resulting in robust demand for new high-yield
corporate bonds. This demand has allowed many companies to aggressively manage
their balance sheets and drive healthy liquidity positions, as well as removing
much of the near-term maturities in the market. Lower-quality bonds continued
their performance advantage over the past 12 months, although by a smaller
margin than in the prior 12 months. Finally, defaults continued to decline, with
very few defaults during the period.

Page 3

--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY (CONTINUED)
--------------------------------------------------------------------------------

Together, these themes point to a positive backdrop for corporate credit. Some
volatility has remained as concerns over European sovereign debt and the ability
of the Federal Reserve to stimulate economic growth have weighed on investor
enthusiasm. However, we believe that the outlook for the corporate high-yield
debt market remains positive. As yield spreads in the market have narrowed
dramatically since their peak, we believe the potential for future total return
performance has diminished to an extent.

As we expected, the level of defaults peaked in late 2009 and has fallen
dramatically this year. The 12-month default rate ended 2009 at 12.7%1 and
dropped substantially to less than 3% at the end of October 2010.2 Many analysts
have reduced their forecast default rate for 2010, and we expect it to be around
2% for the year, representing continued improvement in credit quality. For the
month of October, only two companies defaulted, Terrestar and Wolverine Tube.3

Most new issues came well-subscribed and traded well in the aftermarket. Over
the past 12 months, approximately 68% of new issue proceeds were for
refinancing,4 further addressing the much-feared maturity wall many companies
face between 2013 through 2015. Refinancing has the effect of reducing overall
credit risk in the market by providing companies with longer-term capital. The
large new issue calendar enhances this positive credit effect, providing a boost
to prices, rather than weighing heavily on buyers moving prices lower.

We continue to maintain our positive view of the high-yield market, and find the
current yield spreads attractive in view of the favorable trend in corporate
credit quality. We note that rating agencies are upgrading more high-yield
companies than they are downgrading at the greatest rate in 12 years,4 a view
with which we agree. Furthermore, we believe high-yield will remain attractive
to yield-hungry investors in a world offering few opportunities to invest for
income.

Structured Products

Measures of collateral performance for most segments of the structured products
market were flat on an absolute basis. In some other sectors, this may have
disappointed the market and caused a sell-off; however, for structured products
expectations are quite conservative and flat performance was cause for a rally.
On a risk-adjusted basis, we continue to see a great deal of value in structured
products, especially credit-sensitive structured products such as non-Agency
residential mortgage-backed securities and commercial mortgage-backed
securities. Prices have the potential to improve significantly as yields are
high on a relative (and absolute) basis to other sectors. In addition, the
limited supply of non-Agency securities, due to almost no new issuance, will
also help drive prices upwards.

PERFORMANCE ANALYSIS

For the fiscal year ended October 31, 2010, the Fund's net asset value ("NAV")
increased by 28.42%, resulting in an NAV total return5 of 41.21%. For the
period, the Fund traded from a discount to NAV of 9.93% to a discount to NAV of
8.00%, resulting in a market value total return5 of 44.24%. During the period,
the Fund benefitted from the recovery in the structured products market,
especially Morgan Stanley Capital I, Inc., Series 1999-WF1, Class M, Banc of
America Large Loan, Inc., Series 2005-MIB1, Class L and Merit Securities Corp.,
Series 13, Class M2. These three securities, comprised of two commercial
mortgage-backed securities bonds and a manufactured housing bond, respectively,
resulted in an NAV total return of approximately 5%. A handful of structured
products also detracted from performance, including Government National Mortgage
Association Series 2003-59, Class XA , which had a loss equivalent to 0.7% of
the portfolio.

The total return for the Fund's benchmark, the Barclays Capital Ba U.S. High
Yield Index, was 19.18% for the 12 months ended October 31, 2010. While the
benchmark contains mostly corporate debt, the Fund had significant exposure to
structured finance and mortgage-related securities during the period. As
investor risk appetite continued to return to the market during the period
covered by this report, corporate credit spreads tightened dramatically
resulting in strong performance by the Fund's benchmark. Lower quality names
performed the best, as evidenced by the 20.41% return of the Barclays Capital
Caa U.S. High Yield Index for the 12 months ended October 31, 2010.

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

1 Merrill Lynch "Situation Room: High Yield in 2010: Year Ahead Outlook,"
December 28, 2009 p.4.

2 JP Morgan, High Yield Market Monitor, October 1, 2010, p. 14.

3 JP Morgan, High Yield Market Monitor, October 1, 2010, p. 1.

4 Credit Suisse "Leveraged Finance Strategy Update" October 1, 2010, p. 2.

5 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.

Page 4

--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY (CONTINUED)
--------------------------------------------------------------------------------

DISCLOSURE

The Fund's portfolio holdings are subject to change without notice. The mention
of specific securities is not a recommendation or solicitation for any person to
buy, sell or hold any particular security. There is no assurance that the Fund
currently holds these securities.

The Barclays Capital Ba U.S. High Yield Index is the Ba component of the
Barclays Capital U.S. High Yield Index, which covers the universe of fixed rate,
non-investment grade debt. Eurobonds and debt issues from countries designated
as emerging markets (e.g., Argentina, Brazil, Venezuela, etc.) are excluded, but
Canadian and global bonds (SEC registered) of issuers in non-EMG countries are
included. Original issue zeroes, step-up coupon structures, 144-As and
pay-in-kind bonds (PIKs, as of October 1, 2009) are also included. The index is
unmanaged and, unlike the Fund, is not affected by cash flows or trading and
other expenses. It is not possible to invest directly in an index. Index
performance is shown for illustrative purposes only and does not predict or
depict the performance of the Fund.

Page 5

FIRST TRUST STRATEGIC HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (a)
OCTOBER 31, 2010

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

ASSET-BACKED SECURITIES - 15.7%
Bombardier Capital Mortgage Securitization Corp.
$ 311,294 Series 1999-B, Class A1B .................. 6.61% 12/15/29 $ 184,761
1,115,792 Series 1999-B, Class A3 ................... 7.18% 12/15/29 705,543
Citibank Credit Card Issuance Trust
1,600,000 Series 2006-A3, Class A3 .................. 5.30% 03/15/18 1,867,590
Conseco Finance Securitizations Corp.
2,801,567 Series 2000-6, Class M1 ................... 7.72% 09/01/31 752,175
Falcon Franchise Loan Trust
4,905,000 Series 2000-1, Class E (b) (c)............. 6.50% 04/05/16 49,050
4,231,000 Series 2003-1, Class E (d) (e)............. 6.00% 01/05/25 5,500
Green Tree Financial Corp.
228,652 Series 1997-4, Class B1 ................... 7.23% 02/15/29 29,273
880,178 Series 1998-4, Class M1 ................... 6.83% 04/01/30 408,679
4,106,062 Series 1999-3, Class M1 ................... 6.96% 02/01/31 672,612
GSAMP Trust
440,199 Series 2004-AR2, Class B4 (e).............. 5.00% 08/25/34 19,056
970,758 Series 2006-S3, Class A2 (c)............... 5.77% 05/25/36 59,563
850,377 Series 2006-S5, Class A1 (f)............... 0.35% 09/25/36 20,963
Independence III CDO, Ltd.
5,000,000 Series 3A, Class C1 (e) (f)(g)............. 2.79% 10/03/37 29,100
Long Beach Mortgage Loan Trust
1,914,840 Series 2006-A, Class A2 (c)................ 5.55% 05/25/36 126,552
Park Place Securities, Inc.
1,637,166 Series 2004-WCW1, Class M8 (f)............. 3.76% 09/25/34 32,135
1,301,976 Series 2004-WCW2, Class M10 (e) (f)........ 3.01% 10/25/34 36,976
Stanfield Azure CLO, Ltd.
116,272 Series 2006-1A, Class X (b)................ 5.34% 05/27/20 117,595
Structured Asset Securities Corp.
226,412 Series 2006-GEL1, Class A1 (b) (f)......... 0.40% 11/25/35 226,059
Summit CBO I, Ltd.
4,190,994 Series 1A, Class B (d) (e) (f)............. 1.70% 05/23/11 5,448
Summit Lake CLO, Ltd.
27,176 Series 2005-1A, Class X (b)................ 5.25% 02/24/11 27,638
------------
TOTAL ASSET-BACKED SECURITIES ............................................... 5,376,268
(Cost $4,981,599) ------------

COLLATERALIZED MORTGAGE OBLIGATIONS - 1.2%
Countrywide Home Loan Mortgage Pass Through Trust
156,324 Series 2005-27, Class 2A1 ................. 5.50% 12/25/35 139,757
HarborView Mortgage Loan Trust
3,715,308 Series 2005-9, Class B10 (f)............... 2.01% 06/20/35 273,241

------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS ................................... 412,998
(Cost $1,458,327) ------------

COMMERCIAL MORTGAGE-BACKED SECURITIES - 9.0%
Banc of America Commercial Mortgage, Inc.
778,723 Series 2000-1, Class M (d) (e) ............ 6.00% 11/15/31 8
Banc of America Large Loan, Inc.
2,000,000 Series 2005-MIB1, Class L (c) (e) (f)...... 3.26% 03/15/22 556,521

Page 6 See Notes to Financial Statements

FIRST TRUST STRATEGIC HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
OCTOBER 31, 2010

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

COMMERCIAL MORTGAGE-BACKED SECURITIES - (CONTINUED)

Citigroup/Deutsche Bank Commercial Mortgage Trust
$ 310,000 Series 2007-CD4, Class A4 ................. 5.32% 12/11/49 $ 323,951
Commercial Mortgage Pass Through Certificates
330,000 Series 2007-C9, Class A4 (f)............... 6.01% 12/10/49 357,813
GE Capital Commercial Mortgage Corp.
700,000 Series 2000-1, Class G (c) (e)............. 6.13% 01/15/33 381,253
Greenwich Capital Commercial Funding Corp.
200,000 Series 2007-GG11, Class A4 ................ 5.74% 12/10/49 211,418
LB-UBS Commercial Mortgage Trust
3,025,000 Series 2001-C7, Class Q (e)................ 5.87% 11/15/33 151,348
1,148,715 Series 2001-C7, Class S (c) (e)............ 5.87% 11/15/33 20,894
Morgan Stanley Capital I, Inc.
968,400 Series 1999-WF1, Class M (e)............... 5.91% 11/15/31 839,650
2,787,919 Series 2003-IQ5, Class O (c) (e)........... 5.24% 04/15/38 264,481
------------
TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES ................................. 3,107,337
(Cost $2,601,057) ------------

CORPORATE BONDS AND NOTES - 90.8%
AUTOMOTIVE - 1.2%
400,000 Ford Motor Co. ............................... 6.50% 08/01/18 425,000
------------
BASIC INDUSTRY - 12.2%
455,000 AK Steel Corp. (h)............................ 7.63% 05/15/20 476,044
215,000 Appleton Papers, Inc. (b)..................... 10.50% 06/15/15 208,550
425,000 Arch Coal, Inc. (h)........................... 8.75% 08/01/16 479,187
425,000 Cascades, Inc. ............................... 7.88% 01/15/20 458,469
215,000 Georgia-Pacific LLC (h)....................... 7.38% 12/01/25 238,650
185,000 Georgia-Pacific LLC .......................... 7.25% 06/01/28 204,425
275,000 Hexion U.S. Finance Corp./Hexion Nova
Scotia Finance ULC ...................... 8.88% 02/01/18 296,656
325,000 Steel Dynamics, Inc. (b) (h).................. 7.63% 03/15/20 350,187
600,000 United States Steel Corp. (h)................. 7.00% 02/01/18 616,500
400,000 Verso Paper Holdings LLC/Verso
Paper, Inc. ............................. 11.50% 07/01/14 448,000
400,000 Westlake Chemical Corp. (h)................... 6.63% 01/15/16 413,000
------------
4,189,668
------------
CAPITAL GOODS - 12.2%
425,000 BE Aerospace, Inc. (h)........................ 8.50% 07/01/18 477,063
90,000 Berry Plastics Corp. ......................... 9.50% 05/15/18 88,650
425,000 Bombardier, Inc. (b) (h)...................... 7.75% 03/15/20 473,875
400,000 CNH America LLC (h)........................... 7.25% 01/15/16 438,000
245,000 Coleman Cable, Inc. .......................... 9.00% 02/15/18 257,556
215,000 Mueller Water Products, Inc. ................. 7.38% 06/01/17 195,650
825,000 Owens-Illinois, Inc. (h)...................... 7.80% 05/15/18 895,125
225,000 RBS Global, Inc./Rexnord LLC ................. 8.50% 05/01/18 237,375
400,000 Terex Corp. .................................. 8.00% 11/15/17 401,000
275,000 Trimas Corp. (b).............................. 9.75% 12/15/17 301,469
425,000 USG Corp. (i)................................. 9.50% 01/15/18 420,750
------------
4,186,513
------------

See Notes to Financial Statements Page 7

FIRST TRUST STRATEGIC HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
OCTOBER 31, 2010

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

CORPORATE BONDS AND NOTES - (CONTINUED)
CONSUMER CYCLICAL - 10.0%
$ 425,000 ACCO Brands Corp. ............................ 10.63% 03/15/15 $ 481,844
425,000 Couche-Tard U.S., LP/Couche-Tard
Finance Corp. (h)........................ 7.50% 12/15/13 433,500
400,000 Easton-Bell Sports, Inc. ..................... 9.75% 12/01/16 440,000
425,000 Ford Motor Credit Corp., LLC (h)............. 8.00% 12/15/16 498,088
425,000 Levi Strauss & Co. ........................... 7.63% 05/15/20 449,437
425,000 Limited Brands, Inc. (h)...................... 7.60% 07/15/37 420,750
400,000 Neiman Marcus Group, Inc. .................... 10.38% 10/15/15 424,000
250,000 Phillips-Van Heusen Corp. .................... 7.38% 05/15/20 272,188
------------
3,419,807
------------
CONSUMER NON-CYCLICAL - 6.6%
425,000 B&G Foods, Inc. .............................. 7.63% 01/15/18 453,688
500,000 C&S Group Enterprises LLC (b)................. 8.38% 05/01/17 502,500
425,000 Constellation Brands, Inc. ................... 7.25% 05/15/17 468,031
215,000 Rite Aid Corp. ............................... 8.63% 03/01/15 189,200
200,000 Rite Aid Corp. ............................... 9.75% 06/12/16 218,000
425,000 SUPERVALU, Inc. .............................. 8.00% 05/01/16 434,031
------------
2,265,450
------------
ENERGY - 11.6%
425,000 Crosstex Energy LP/Crosstex Energy
Finance Corp. ........................... 8.88% 02/15/18 461,125
425,000 Edgen Murray Corp. ........................... 12.25% 01/15/15 347,438
275,000 Hercules Offshore LLC (b)..................... 10.50% 10/15/17 214,500
425,000 Hilcorp Energy I LP/Hilcorp Finance
Co. (b).................................. 8.00% 02/15/20 450,500
120,000 Linn Energy LLC/Linn Energy Finance
Corp. (b)................................ 8.63% 04/15/20 130,200
400,000 McJunkin Red Man Corp. (b).................... 9.50% 12/15/16 370,000
495,000 Niska Gas Storage US LLC/Niska Gas
Storage Canada ULC (b)................... 8.88% 03/15/18 543,263
425,000 Pioneer Natural Resources Co. (h)............. 6.65% 03/15/17 460,989
425,000 Plains Exploration & Production Co. .......... 7.63% 06/01/18 455,813
500,000 Whiting Petroleum Corp. ...................... 6.50% 10/01/18 538,750
------------
3,972,578
------------
MEDIA - 9.4%
425,000 Cablevision Systems Corp. .................... 8.63% 09/15/17 481,844
425,000 CCO Holdings LLC/CCO Holdings
Capital Corp. (b) (h).................... 8.13% 04/30/20 461,125
425,000 Deluxe Corp. (h).............................. 7.38% 06/01/15 444,125
425,000 Dish DBS Corp. (h)............................ 7.88% 09/01/19 468,031
425,000 Insight Communications Co., Inc. (b).......... 9.38% 07/15/18 463,250
425,000 Lamar Media Corp. ............................ 7.88% 04/15/18 455,812
425,000 Mediacom LLC/Mediacom Capital Corp. .......... 9.13% 08/15/19 451,562
------------
3,225,749
------------

Page 8 See Notes to Financial Statements

FIRST TRUST STRATEGIC HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
OCTOBER 31, 2010

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

CORPORATE BONDS AND NOTES - (CONTINUED)
SERVICES - 15.8%
$ 400,000 AMC Entertainment, Inc. ...................... 8.75% 06/01/19 $ 430,500
425,000 ARAMARK Corp. ................................ 8.50% 02/01/15 448,375
425,000 Avis Budget Car Rental LLC/Avis Budget
Finance, Inc. ........................... 9.63% 03/15/18 459,000
200,000 Beazer Homes USA, Inc. ....................... 9.13% 06/15/18 195,500
400,000 Harrah's Operating Co., Inc. ................. 11.25% 06/01/17 444,000
400,000 HCA, Inc. (h)................................. 9.25% 11/15/16 434,000
400,000 Iron Mountain, Inc. (h)....................... 8.75% 07/15/18 427,000
270,000 KAR Holdings, Inc. ........................... 10.00% 05/01/15 286,875
300,000 Maxim Crane Works LP (b)...................... 12.25% 04/15/15 282,000
225,000 MGM Resorts International .................... 5.88% 02/27/14 203,625
225,000 MGM Resorts International .................... 10.38% 05/15/14 254,250
425,000 Pulte Group, Inc. ............................ 6.38% 05/15/33 341,063
225,000 RSC Equipment Rental, Inc./RSC
Holdings III LLC ........................ 10.25% 11/15/19 245,812
425,000 Standard Pacific Corp. ....................... 8.38% 05/15/18 442,531
400,000 United Rentals North America, Inc. ........... 9.25% 12/15/19 446,000
80,000 United Rentals North America, Inc. ........... 8.38% 09/15/20 81,600
------------
5,422,131
------------
TECHNOLOGY & ELECTRONICS - 2.1%
215,000 First Data Corp. ............................. 9.88% 09/24/15 182,750
500,000 Freescale Semiconductor, Inc. (b)............. 9.25% 04/15/18 537,500
------------
720,250
------------
TELECOMMUNICATIONS - 7.5%
215,000 Cincinnati Bell, Inc. ........................ 8.25% 10/15/17 219,300
210,000 Cincinnati Bell, Inc. ........................ 8.38% 10/15/20 210,525
400,000 Citizens Communications (h)................... 7.13% 03/15/19 430,000
400,000 Global Crossing Ltd. ......................... 12.00% 09/15/15 459,000
200,000 PAETEC Holding Corp. ......................... 9.50% 07/15/15 212,500
200,000 PAETEC Holding Corp. ......................... 8.88% 06/30/17 216,500
400,000 Qwest Corp. (h)............................... 6.88% 09/15/33 404,000
425,000 Windstream Corp. (h).......................... 7.00% 03/15/19 431,906
------------
2,583,731
------------
UTILITY - 2.2%
425,000 Calpine Corp. (b)............................. 7.25% 10/15/17 444,125
225,000 Dynegy Holdings, Inc. ........................ 7.75% 06/01/19 154,688
225,000 Edison Mission Energy ........................ 7.00% 05/15/17 167,063
------------
765,876
------------
TOTAL CORPORATE BONDS AND NOTES ............................................. 31,176,753
(Cost $29,732,141) ------------

See Notes to Financial Statements Page 9

FIRST TRUST STRATEGIC HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
OCTOBER 31, 2010

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

U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 12.3%
$ 1,938,000 FannieMae, November (j)....................... 5.50% 30 yr. TBA $ 2,080,928
FannieMae-ACES
2,509,032 Series 1998-M7, Class N, IO (f)............ 0.49% 05/25/36 39,892
1,938,000 Government National Mortgage Association,
November (j)............................ 5.00% 30 yr. TBA 2,085,156
------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES ........ .......... 4,205,976
------------
(Cost $4,255,317)

SENIOR FLOATING-RATE LOAN INTERESTS - 0.5%

UTILITY - 0.5%
223,846 Texas Competitive Electric Holdings Co.,
LLC Tranche B2 (f)....................... 3.29% 10/10/14 175,411
------------
TOTAL SENIOR FLOATING-RATE LOAN INTERESTS.................................... 175,411
------------
(Cost $188,779)

STRUCTURED NOTES - 0.0%

3,750,000 Preferred Term Securities XXV, Ltd. (e)....... (k) 06/22/37 375
------------
TOTAL STRUCTURED NOTES ...................................................... 375
(Cost $0) ------------

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

PREFERRED SECURITIES - 0.1%
2,000 Soloso CDO, Ltd., Series 2005-1 (e) (k)................................... 20,000
3,000 White Marlin CDO, Ltd., Series AI (e) (g) (k)............................. 15,000
------------
TOTAL CONVERTIBLE PREFERRED SECURITIES ................................... 35,000
(Cost $0) ------------

TOTAL INVESTMENTS - 129.6% ............................................... 44,490,118
(Cost $43,217,220) (l) ------------

PRINCIPAL
VALUE DESCRIPTION AMOUNT
---------------- ---------------------------------------------------------------------------- ------------
REVERSE REPURCHASE AGREEMENTS - (22.0%)
$ (338,800) With Barclays Capital Inc. 1.00% dated 09/1/10, to be repurchased at
$339,515 on 11/16/10.................................................... (338,800)
(1,802,024) With Barclays Capital Inc. 1.00% dated 09/15/10, to be repurchased at
$1,805,128 on 11/16/10.................................................. (1,802,024)
(3,259,077) With Barclays Capital Inc. 1.00% dated 09/16/10, to be repurchased at
$3,264,690 on 11/17/10.................................................. (3,259,077)
(1,819,917) With Barclays Capital Inc. 1.00% dated 09/20/10, to be repurchased at
$1,822,899 on 11/18/10.................................................. (1,819,917)
(328,313) With Barclays Capital Inc. 1.00% dated 10/22/10, to be repurchased at
$328,559 on 11/18/10.................................................... (328,313)
------------
TOTAL REVERSE REPURCHASE AGREEMENTS ..................................... (7,548,131)
NET OTHER ASSETS AND LIABILITIES - (7.6%) ................................ (2,620,202)
------------
NET ASSETS - 100.0% ...................................................... $ 34,321,785
============

Page 10 See Notes to Financial Statements

FIRST TRUST STRATEGIC HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
OCTOBER 31, 2010

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

(b) 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 (the "1933 Act"), and may be resold in
transactions exempt from registration, normally to qualified institutional
buyers. Pursuant to procedures adopted by the Fund's Board of Trustees,
this security has been determined to be liquid by Brookfield Investment
Management Inc., the Fund's investment sub-advisor. Although market
instability can result in periods of increased overall market illiquidity,
liquidity for each security is determined based on security specific
factors and assumptions, which require subjective judgment. At October 31,
2010, securities noted as such amounted to $6,153,386 or 17.9% of net
assets.

(d) Security missed one or more of its interest payments.

(e) This security, sold within the terms of a private placement memorandum, is
exempt from registration upon resale under Rule 144A under the 1933 Act
and may be resold in transactions exempt from registration, normally to
qualified institutional buyers (see Note 2C - Restricted Securities in the
Notes to Financial Statements).

(f) Floating rate security. The interest rate shown reflects the rate in
effect at October 31, 2010.

(g) The issuer is in default. Income is not being accrued.

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

(i) Multi-Step Coupon Bond - coupon steps up or down based upon ratings
changes by Standard & Poor's Ratings Group or Moody's Investors Service,
Inc. The interest rate shown reflects the rate in effect at October 31,
2010.

(j) Security purchased on a forward commitment basis.

(k) Zero coupon security.

(l) Aggregate cost for federal income tax purposes is $82,341,162. As of
October 31, 2010, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$3,886,805 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$41,737,849.

ACES Alternative Credit Enhancement Securities
CBO Collateralized Bond Obligation
CDO Collateralized Debt Obligation
CLO Collateralized Loan Obligation
IO Interest-Only Security - Principal amount shown represents par value
on which interest payments are based.
TBA To be announced; maturity date has not yet been established. Upon
settlement and delivery of the mortgage pools, maturity dates will be
assigned.

VALUATION INPUTS

A summary of the inputs used to value the Fund's total investments as of October
31, 2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to
Financial Statements):

LEVEL 2 LEVEL 3
TOTAL MARKET LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
10/31/2010 PRICES INPUTS INPUTS
------------- ----------- ------------ ----------------

Asset-Backed Securities................................ $ 5,376,268 $ -- $ 5,288,632 $ 87,636
Collateralized Mortgage Obligations.................... 412,998 -- 412,998 --
Commercial Mortgage-Backed Securities.................. 3,107,337 -- 3,107,337 --
Corporate Bonds and Notes ............................. 31,176,753 -- 31,176,753 --
U.S. Government Agency Mortgage-Backed Securities...... 4,205,976 -- 4,205,976 --
Senior Floating-Rate Loan Interests.................... 175,411 -- 175,411 --
Structured Notes....................................... 375 -- 375 --
Preferred Securities................................... 35,000 -- -- 35,000
------------- ----------- ------------ ------------
TOTAL INVESTMENTS.............................. $ 44,490,118 $ -- $ 44,367,482 $ 122,636
============= =========== ============ ============

See Notes to Financial Statements Page 11

FIRST TRUST STRATEGIC HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
OCTOBER 31, 2010

The following table presents the Fund's investments measured at fair value on a
recurring basis using significant unobservable inputs (Level 3) for the period
presented.

CHANGE IN
TRANSFERS NET UNREALIZED NET BALANCE
INVESTMENTS AT FAIR VALUE USING BALANCE AS OF IN (OUT) NET REALIZED APPRECIATION PURCHASES AS OF
SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3) OCTOBER 31, 2009 OF LEVEL 3 GAINS (LOSSES) (DEPRECIATION) (SALES) OCTOBER 31, 2010
------------------------------------------------------------------------------------------------------------------------------------

Asset-Backed Securities................ $ 1,648,255 $(126,552) $ (1,255,983) $ 1,142,416 $(1,320,500) $ 87,636
Corporate Bonds and Notes.............. 482,400 -- (225,000) 717,600 (975,000) --
Structured Notes........................ 92,250 -- (61,605) 435,199 (465,844) --
Preferred Securities.................... 84,500 -- (496,411) 653,911 (207,000) 35,000
-----------------------------------------------------------------------------------
Total Investments....................... $ 2,307,405 $(126,552) $(2,038,999) $2,949,126 $(2,968,344) $122,636
===================================================================================

Net change in unrealized appreciation from Level 3 investments held as of
October 31, 2010 was $405,245 and is included in "Net change in unrealized
appreciation (depreciation) on investments" on the Statement of Operations.

Page 12 See Notes to Financial Statements

FIRST TRUST STRATEGIC HIGH INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2010

ASSETS:
Investments, at value
(Cost $43,217,220).......................................................................... $ 44,490,118
Cash .......................................................................................... 864,434
Prepaid expenses............................................................................... 6,639
Interest receivable............................................................................ 943,043
------------
Total Assets................................................................................ 46,304,234
------------

LIABILITIES:
Reverse repurchase agreements.................................................................. 7,548,131
Payables:
Investment securities purchased............................................................. 4,293,060
Audit and tax fees.......................................................................... 55,200
Investment advisory fees.................................................................... 31,904
Printing fees............................................................................... 21,288
Interest on reverse repurchase agreements................................................... 9,278
Administrative fees......................................................................... 8,333
Trustees' fees and expenses................................................................. 3,358
Transfer agent fees......................................................................... 2,849
Custodian fees.............................................................................. 2,050
Legal fees.................................................................................. 1,958
Other liabilities.............................................................................. 5,040
------------
Total Liabilities........................................................................... 11,982,449
------------
NET ASSETS..................................................................................... $ 34,321,785
============

NET ASSETS CONSIST OF:
Paid-in capital................................................................................ $120,206,150
Par value...................................................................................... 91,506
Accumulated net investment income (loss)....................................................... (3,833,045)
Accumulated net realized gain (loss) on investments............................................ (83,415,724)
Net unrealized appreciation (depreciation) on investments...................................... 1,272,898
------------
NET ASSETS..................................................................................... $ 34,321,785
============
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share)........................... $ 3.75
============
Number of Common Shares outstanding (unlimited number of Common Shares has been authorized).... 9,150,594
============

See Notes to Financial Statements Page 13

FIRST TRUST STRATEGIC HIGH INCOME FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2010

INVESTMENT INCOME:
Interest......................................................................... $ 4,344,917
Other............................................................................ 3,247
------------
Total investment income.................................................... 4,348,164
------------
EXPENSES:
Investment advisory fees......................................................... 301,058
Legal fees....................................................................... 106,019
Administrative fees.............................................................. 99,997
Printing fees.................................................................... 76,647
Audit and tax fees............................................................... 56,235
Trustees' fees and expenses...................................................... 39,537
Transfer agent fees.............................................................. 36,404
Interest expense on reverse repurchase agreements................................ 22,597
Custodian fees................................................................... 12,654
Other............................................................................ 86,582
------------
Total expenses............................................................. 837,730
------------
NET INVESTMENT INCOME (LOSS)..................................................... 3,510,434
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments.................................... (12,133,350)
Net change in unrealized appreciation (depreciation) on investments........ 18,952,376
------------
NET REALIZED AND UNREALIZED GAIN (LOSS).......................................... 6,819,026
------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.................. $ 10,329,460
============

Page 14 See Notes to Financial Statements

FIRST TRUST STRATEGIC HIGH INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS

YEAR YEAR
ENDED ENDED
10/31/2010 10/31/2009
-------------- -------------
OPERATIONS:

Net investment income (loss)....................................................... $ 3,510,434 $ 9,794,757
Net realized gain (loss)........................................................... (12,133,350) (78,709,995)
Net change in unrealized appreciation (depreciation)............................... 18,952,376 45,535,716
-------------- -------------

Net increase (decrease) in net assets resulting from operations.................... 10,329,460 (23,379,522)
-------------- -------------

DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.............................................................. -- --
Net realized gain.................................................................. -- --
Return of capital.................................................................. (2,745,178) (9,752,238)
-------------- -------------

Total distributions to shareholders................................................ (2,745,178) (9,752,238)
-------------- -------------

CAPITAL TRANSACTIONS:
Proceeds from Common Shares reinvested............................................. -- 488,089
-------------- -------------

Net increase (decrease) in net assets resulting from capital transactions.......... -- 488,089
-------------- -------------

Total increase (decrease) in net assets............................................ 7,584,282 (32,643,671)

NET ASSETS:
Beginning of period................................................................ 26,737,503 59,381,174
-------------- -------------

End of period...................................................................... $ 34,321,785 $ 26,737,503
============== =============

Accumulated net investment income (loss) at end of period.......................... $ (3,833,045) $ (1,518,220)
============== =============

CAPITAL TRANSACTIONS WERE AS FOLLOWS:
Common Shares at beginning of period............................................... 9,150,594 9,035,801
Common Shares issued as reinvestment under the Dividend Reinvestment Plan.......... -- 114,793
-------------- -------------

Common Shares at end of period..................................................... 9,150,594 9,150,594
============== =============

See Notes to Financial Statements Page 15

FIRST TRUST STRATEGIC HIGH INCOME FUND
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED OCTOBER 31, 2010

CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) in net assets resulting from operations................. $ 10,329,460
Adjustments to reconcile net increase (decrease)in net assets resulting from
operations to net cash used in operating activities:
Purchases of investments.................................................. (131,357,438)
Sales, maturities and paydowns of investments............................. 120,395,330
Net amortization/accretion of premiums/discounts on investments........... 1,142,499
Net realized gain/loss on investments..................................... 12,133,350
Net change in unrealized appreciation/depreciation on investments......... (18,952,376)
CHANGES IN ASSETS AND LIABILITIES:
Increase in interest receivable........................................... (189,811)
Increase in prepaid expenses.............................................. (603)
Increase in interest payable on reverse repurchase agreements............. 9,278
Increase in investment advisory fees payable.............................. 12,044
Increase in audit and tax fees payable.................................... 4,167
Decrease in legal fees payable............................................ (1,940)
Decrease in printing fees payable......................................... (4,841)
Increase in custodian fees payable........................................ 297
Decrease in transfer agent fees payable................................... (2)
Decrease in Trustees' fees and expenses payable........................... (101)
Increase in other liabilities............................................. 1,522
-------------

CASH USED IN OPERATING ACTIVITIES............................................... $ (6,479,165)
----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Return of capital distributions........................................... (2,745,178)
Repurchases of reverse repurchase agreements.............................. (9,202,965)
Reverse repurchase agreements borrowings.................................. 16,751,096
-------------

CASH FLOWS PROVIDED BY FINANCING ACTIVITIES..................................... 4,802,953
----------------

Decrease in cash................................................................ (1,676,212)
Cash at beginning of period..................................................... 2,540,646
----------------

CASH AT END OF PERIOD........................................................... $ 864,434
================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest ....................................... $ 13,319
================

Page 16 See Notes to Financial Statements

FIRST TRUST STRATEGIC HIGH INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH YEAR

YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
10/31/2010 (e) 10/31/2009 (a) 10/31/2008 10/31/2007 10/31/2006
-------------- -------------- ---------- ---------- ----------

Net asset value, beginning of period......... $ 2.92 $ 6.57 $ 15.16 $ 19.82 $ 19.13
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)................. 0.38 1.07 2.05 2.17 2.08
Net realized and unrealized gain (loss)...... 0.75 (3.64) (8.72) (4.84) 0.76
--------- --------- --------- --------- ---------
Total from investment operations............. 1.13 (2.57) (6.67) (2.67) 2.84
--------- --------- --------- --------- ---------

DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income........................ -- -- (0.81) (1.97) (2.15)
Net realized gain............................ -- -- -- (0.02) --
Return of capital............................ (0.30) (1.08) (1.11) -- --
--------- --------- --------- --------- ---------
Total from distributions..................... (0.30) (1.08) (1.92) (1.99) (2.15)
--------- --------- --------- --------- ---------
Net asset value, end of period............... $ 3.75 $ 2.92 $ 6.57 $ 15.16 $ 19.82
========= ========= ========= ========= =========
Market value, end of period.................. $ 3.45 $ 2.63 $ 6.34 $ 14.19 $ 21.19
========= ========= ========= ========= =========
TOTAL RETURN BASED ON NET ASSET VALUE (b).... 41.21% (42.52)% (47.16)% (14.65)% 15.73%
========= ========= ========= ========= =========
TOTAL RETURN BASED ON MARKET VALUE (b)....... 44.24% (46.35)% (45.56)% (25.30)% 26.16%
========= ========= ========= ========= =========

----------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)......... $ 34,322 $ 26,738 $ 59,381 $ 136,145 $ 176,375
Ratio of total expenses to average net assets 2.68% 1.78% 4.32% 3.70% 1.20%
Ratio of total expenses to average net assets
excluding interest expense ................ 2.61% 1.72% 2.21% 1.68% 1.20%
Ratio of net investment income (loss) to
average net assets........................ 11.23% 28.82% 19.21% 11.78% 10.84%
Portfolio turnover rate...................... 302% (c) 127% (c) 4% 19% 78%

INDEBTEDNESS:
Total loan outstanding (in 000's)............ N/A N/A $ 15,000 $ 61,200 N/A
Asset coverage per $1,000 of indebtedness (d) N/A N/A $ 4,959 $ 3,225 N/A
----------------------------------------------------------------

(a) On June 29, 2009, the Fund's Board of Trustees approved an interim
sub-advisory agreement with Brookfield Investment Management Inc. (formerly
known as Hyperion Brookfield Asset Management, Inc.) ("Brookfield"), and on
October 14, 2009, the Shareholders voted to approve Brookfield as
investment sub-advisor.

(b) 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.

(c) For the years ended October 31, 2010 and 2009, the Fund's portfolio
turnover rate reflects mortgage pool forward commitments as purchases and
sales. This caused the reported portfolio turnover rate to be higher than
in previous fiscal years. The turnover rate may vary greatly from year to
year as well as within a year.

(d) Calculated by subtracting the Fund's total liabilities (not including the
loan outstanding) from the Fund's total assets, and dividing by the
outstanding loan balance in 000's.

(e) On September 20, 2010, the Fund's Board of Trustees approved an interim
investment manaagreement with First Trust Advisors L.P. and an interim
investment sub-advisory agreement with Brookfield Investment Management
Inc., and on December 20, 2010, the Shareholders voted to approve both
agreements. (See footnote 3 in the Notes to Financial Statements.)

N/A Not Applicable.

See Notes to Financial Statements Page 17

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

FIRST TRUST STRATEGIC HIGH INCOME FUND
OCTOBER 31, 2010

1. FUND DESCRIPTION

First Trust Strategic High Income Fund (the "Fund") is a diversified, closed-end
management investment company organized as a Massachusetts business trust on
April 15, 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 FHI on the New York Stock Exchange
("NYSE").

The Fund's primary investment objective is to seek a high level of current
income. The Fund seeks capital growth as a secondary objective. The Fund seeks
to achieve its investment objectives by investing in a diversified portfolio of
below-investment grade and investment grade debt securities, and equity
securities that Brookfield Investment Management Inc. ("Brookfield" or the
"Sub-Advisor") believes offer attractive yield and/or capital appreciation
potential. The Fund may invest up to 100% of its managed assets in
below-investment grade debt securities (commonly referred to as "high-yield" or
"junk bonds"). Managed assets means 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. There can be no assurance
that the Fund will achieve its investment objectives. 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. Securities for which market quotations are readily available are
valued using the last reported sale price on the business day as of which such
value is being determined. If no sales are reported on such business day (as in
the case of some securities traded over-the-counter), the last reported bid
price is used, except that certain U.S. Government securities are valued at the
mean between the last reported bid and asked prices. Mortgage-backed securities
("MBS") and other debt securities not traded in an organized market 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.

A ready market does not exist for some of these investments. As such, these
values may differ from the values that would have been used had a ready market
for these investments existed, and the differences could be material.

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 market quotations are not readily available, 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

Page 18

--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (Continued)
--------------------------------------------------------------------------------

FIRST TRUST STRATEGIC HIGH INCOME FUND
OCTOBER 31, 2010

security 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;
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.

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.

The Fund invests a significant portion of its assets in below-investment grade
debt securities, including structured finance securities and corporate bonds.
Structured finance securities include: asset-backed securities, including home
equity, auto, equipment lease, credit card, aircraft, franchise, manufactured
housing, etc.; commercial mortgage-backed securities; residential
mortgage-backed or private-label collateralized mortgage obligations;
collateralized debt obligations and collateralized loan obligations. The value
and related income of these securities is sensitive to changes in economic
conditions, including delinquencies and/or defaults. Instability in the markets
for fixed-income securities, particularly mortgage-backed and asset-backed
securities, has resulted in increased volatility and periods of illiquidity that
have adversely impacted the valuation of certain securities held by the Fund.

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, 2010, is
included with the Fund's Portfolio of Investments.

B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME:

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

The Fund invests in certain lower credit quality securitized assets (for
example, asset-backed securities, collateralized mortgage obligations and
commercial mortgage-backed securities), as well as interest-only securities,
that have contractual cash flows. For these securities, if there is a change in

Page 19

FIRST TRUST STRATEGIC HIGH INCOME FUND
OCTOBER 31, 2010

the estimated cash flows, based on an evaluation of current information, then
the estimated yield is adjusted on a prospective basis over the remaining life
of the security. 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 amortization/accretion 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 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, 2010, the Fund had when-issued, delayed-delivery or forward
purchase commitments with a cost of $4,146,563 and a value of $4,166,084.

C. RESTRICTED SECURITIES:

The Fund invests in restricted securities, which are securities that may not be
offered for public sale without first being registered under the 1933 Act. Prior
to registration, restricted securities may only be resold in transactions exempt
from registration under Rule 144A under the 1933 Act, normally to qualified
institutional buyers. As of October 31, 2010, the Fund held restricted
securities as shown in the following table that the Sub-Advisor has deemed
illiquid pursuant to procedures adopted by the Fund's Board of Trustees.
Although market instability can result in periods of increased overall market
illiquidity, liquidity for each security is determined based on
security-specific factors and assumptions, which require subjective judgment.
The Fund does not have the right to demand that such securities be registered.
These securities are valued according to the valuation procedures as stated in
the Portfolio Valuation footnote (Note 2A) and are not expressed as a discount
to the carrying value of a comparable unrestricted security. There are no
unrestricted securities with the same maturity dates and yields for these
issuers.

% OF
ACQUISITION PRINCIPAL CARRYING NET
SECURITY DATE VALUE/SHARES PRICE COST VALUE ASSETS
------------------------------------------------------------------------------------------------------------------------------------

Banc of America Commercial Mortgage, Inc.
Series 2000-1, Class M, 6.00%, 11/15/31 08/22/05 $ 778,723 $ 0.00* $ -- $ 8 0.00% **
Banc of America Large Loan, Inc.
Series 2005-MIB1, Class L, 3.26%, 03/15/22 08/26/06 $ 2,000,000 27.83 515,974 556,521 1.62
Falcon Franchise Loan Trust
Series 2003-1, Class E, 6.00%, 01/05/25 08/09/05 $ 4,231,000 0.13 -- 5,500 0.02
GE Capital Commercial Mortgage Corp.
Series 2000-1, Class G, 6.13%, 01/15/33 06/27/07 $ 700,000 54.46 466,939 381,253 1.11
GSAMP Trust
Series 2004-AR2, Class B4, 5.00%, 08/25/34 08/17/05 $ 440,199 4.33 -- 19,056 0.06
Independence III CDO, Ltd.
Series 3A, Class C1, 2.79%, 10/03/37 12/27/06 $ 5,000,000 0.58 -- 29,100 0.08
LB-UBS Commercial Mortgage Trust
Series 2001-C7, Class Q, 5.87%, 11/15/33 09/19/05 $ 3,025,000 5.00 9,531 151,348 0.44
Series 2001-C7, Class S, 5.87%, 11/15/33 09/29/05 $ 1,148,715 1.82 -- 20,894 0.05
Morgan Stanley Capital I, Inc.
Series 1999-WF1, Class M, 5.91%, 11/15/31 08/03/05 $ 968,400 86.70 709,757 839,650 2.45
Series 2003-IQ5, Class O, 5.24%, 04/15/38 10/19/06 $ 2,787,919 9.49 31,774 264,481 0.77
Park Place Securities, Inc.
Series 2004-WCW2, Class M10, 3.01%, 10/25/34 03/24/06 $ 1,301,976 2.84 99,323 36,976 0.11
Preferred Term Securities XXV, Ltd.
Zero Coupon, 06/22/37 03/22/07 $ 3,750,000 0.00* -- 375 0.00 **
Soloso CDO, Ltd., Series 2005-1 11/30/05 2,000 10.00 -- 20,000 0.06
Summit CBO I, Ltd
Series 1A, Class B, 1.70%, 05/23/11 08/03/05 $ 4,190,994 0.13 61,558 5,448 0.02
White Marlin CDO, Ltd., Series AI 06/01/07 3,000 5.00 -- 15,000 0.04
---------- ---------- -----
$1,894,856 $2,345,610 6.83%
========== ========== =====

* Amount is less than $0.01.
** Amount is less than 0.01%.

Page 20

FIRST TRUST STRATEGIC HIGH INCOME FUND
OCTOBER 31, 2010

D. 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.

Information for the year ended October 31, 2010:

Maximum amount outstanding during the period.................. $7,904,655
Average amount outstanding during the period*................. $2,216,282
Average monthly Common Shares outstanding during the period... 9,150,594
Average debt per Common Share outstanding during the period... $0.24

* 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, 2010.

During the year ended October 31, 2010, interest rates ranged from 0.98% to
1.05%, with a weighted average interest rate of 1.00%, on borrowings by the Fund
under reverse repurchase agreements, which had interest expense that aggregated
$22,597.

E. 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, if held in the Fund, are identified in the
Portfolio of Investments.

F. TBA SALE COMMITMENTS:

A to be announced ("TBA") sale commitment is used to hedge a portfolio position
or to sell a MBS owned under a delayed-delivery arrangement. Proceeds from TBA
sale commitments are not received until the contractual settlement date. During
the time a TBA sale commitment is outstanding, equivalent deliverable
securities, or an offsetting TBA purchase commitment deliverable on or before
the sale commitment date, are held as "cover" for the transaction. Unsettled TBA
sale commitments are valued at approximately the current value of the underlying
securities. The contract is "marked-to market" daily and the change in the value
is recorded as an unrealized gain or loss. If the TBA sale commitment is closed
through the acquisition of an offsetting purchase commitment, a gain or loss
from the sale of the securities is realized based upon the unit price
established at the commitment date.

G. MORTGAGE DOLLAR ROLLS:

The Fund may enter into mortgage dollar rolls in which the Fund sells
mortgage-backed securities for delivery in the current month, realizing a gain
or loss, and simultaneously contracts to repurchase substantially similar (same
type, coupon and maturity) securities to settle on a specified future date.

The Fund executes its mortgage dollar rolls entirely in the TBA market, whereby
the Fund makes a forward commitment to purchase a security and, instead of
accepting delivery, the position is offset by a sale of the security with a
simultaneous agreement to repurchase at a future date. The Fund accounts for
mortgage dollar rolls as purchases and sales.

The risk of entering into mortgage dollar rolls is that the market value of the
securities the Fund is obligated to repurchase under the agreement may decline
below the repurchase price. In the event the buyer of securities under a
mortgage dollar roll files for bankruptcy or becomes insolvent, the Fund's use
of the proceeds of the mortgage dollar roll may be restricted pending a
determination by the counterparty, or its trustee or receiver, whether to
enforce the Fund's obligation to repurchase the securities.

H. COLLATERALIZED DEBT OBLIGATIONS:

A collateralized debt obligation ("CDO") is an asset-backed security whose
underlying collateral is typically a portfolio of bonds or bank loans. Where the
underlying collateral is a portfolio of bonds, a CDO is referred to as a
collateralized bond obligation ("CBO"). Where the underlying collateral is a
portfolio of bank loans, a CDO is referred to as a collateralized loan
obligation ("CLO"). Investors in CDOs bear the credit risk of the underlying
collateral. Multiple tranches of securities are issued by the CDO, offering
investors various maturity and credit risk characteristics. Tranches are
categorized as senior, mezzanine, and subordinated/equity, according to their
degree of risk. If there are defaults or the CDO's collateral otherwise

Page 21

FIRST TRUST STRATEGIC HIGH INCOME FUND
OCTOBER 31, 2010

underperforms, scheduled payments to senior tranches take precedence over those
of mezzanine tranches, and scheduled payments to mezzanine tranches take
precedence over those to subordinated/equity tranches. CDOs, similar to other
asset-backed securities, are subject to prepayment risk.

I. 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. These differences are primarily due to
differing treatments of income and gains/losses on various investment securities
held by the Fund, timing differences and differing characterization of
distributions made by the Fund. Permanent differences incurred during the fiscal
year ended October 31, 2010, resulting in book and tax accounting differences,
have been reclassified at year end to reflect a decrease in accumulated net
investment income (loss) by $5,825,259, an increase in accumulated net realized
gain (loss) on investments by $10,855,128 and a decrease to paid-in capital of
$5,029,869. Net assets were not affected by this reclassification.

The tax character of distributions paid during the fiscal year ended October 31,
2010 and October 31, 2009 was as follows:

Distributions paid from: 2010 2009

Ordinary income................................. $ -- $ --
Capital gain.................................... -- --
Return of capital............................... 2,745,178 9,752,238

As of October 31, 2010, the components of net assets on a tax basis were as
follows:

Undistributed ordinary income..................... $ --
Undistributed capital gains....................... --
--------------
Total undistributed earnings...................... --
Accumulated capital and other losses.............. (47,096,138)
Net unrealized appreciation (depreciation)........ (37,851,044)
--------------
Total accumulated earnings (losses)............... (84,947,182)
Other............................................. (1,028,689)
Paid-in capital................................... 120,297,656
--------------
Net assets........................................ $ 34,321,785
==============
J. 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% 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, 2010, the
Fund had a capital loss carryforward for federal income tax purposes of
$47,096,138, with $2,534,309, $15,350,612, $14,707,929 and $14,503,288 expiring
on October 31, 2015, 2016, 2017 and 2018, respectively.

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 2007, 2008,
2009 and 2010 remain open to federal and state audit. As of October 31, 2010,
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.

K. EXPENSES:

The Fund pays all expenses directly related to its operations.

Page 22

FIRST TRUST STRATEGIC HIGH INCOME FUND
OCTOBER 31, 2010

L. ACCOUNTING PRONOUNCEMENT:

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 interim and annual reporting
periods beginning after December 15, 2009, and other required disclosures 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.

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 0.90% of the Fund's Managed Assets.

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 at an annual rate of 0.45% of Managed Assets that is paid by
First Trust from its investment advisory fee.

James A. Bowen, the President of First Trust, on October 12, 2010, acquired 100%
of the voting stock of The Charger Corporation, the general partner of First
Trust (the "Transaction"). The consummation of the Transaction was deemed to be
an "assignment" (as defined in the 1940 Act) of the Fund's investment management
agreement and investment sub-advisory agreement and resulted in the automatic
termination of the agreements. The Transaction is not expected to impact the
day-to-day operations of the Fund.

The Board of Trustees of the Fund approved an interim investment management
agreement with First Trust and an interim investment sub-advisory agreement,
which were entered into effective upon the closing of the Transaction and would
be in effect for a maximum period of 150 days absent sharholder approval. A new
investment management agreement with First Trust and a new investment
sub-advisory agreement have been approved by the Board of Trustees of the Fund
and were submitted to shareholders of the Fund as of the record date (September
30, 2010) for approval to take effect upon such shareholder approval. A special
shareholder meeting of the Fund to vote on a proposal to approve the new
investment management agreement and the new investment sub-advisory agreement
was held on December 20, 2010, at which time the new investment management
agreement and new investment sub-advisory agreement were approved by the Fund's
shareholders. Until December 20, 2010, advisory fees payable to First Trust and
Brookfield were held in escrow. See Submission of Matters to a Vote of
Shareholders, in the Additional Information section of this report, for the
results.

BNY Mellon Investment Servicing (US) Inc. (formerly PNC Global Investment
Servicing (U.S.) Inc.) serves as the Fund's Administrator, Fund Accountant and
Transfer Agent in accordance with certain fee arrangements. PFPC Trust Company,
which will be renamed BNY Mellon Investment Servicing Trust Company effective
July 1, 2011, serves 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,
2010 were $89,404,365 and $34,657,339, 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, 2010 were
$97,725,748 and $22,644,445, 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 23

FIRST TRUST STRATEGIC HIGH INCOME FUND
OCTOBER 31, 2010

6. LITIGATION

Two class action lawsuits were filed in the United States District Court for the
Northern District of Illinois on behalf of purchasers of shares of First Trust
Strategic High Income Fund, First Trust Strategic High Income Fund II and First
Trust Strategic High Income Fund III. These lawsuits, Gosselin vs. First Trust
Advisors L.P., et al. (filed September 12, 2008) and Evans vs. First Trust
Advisors L.P., et al. (filed September 19, 2008), were consolidated into one
class action complaint, Gosselin vs. First Trust Advisors L.P. et al. (filed
April 30, 2009), that names the following entities as defendants: First Trust
Advisors L.P., First Trust Portfolios L.P., and the three closed-end funds (the
"Funds") named above. The consolidated complaint also names certain officers of
the Funds as defendants. The plaintiffs purport to bring the action on behalf of
a putative class consisting of all persons or entities who acquired shares of
the Funds between July 26, 2005 and July 7, 2008 inclusive.

The plaintiffs assert, among other things, that the registration statements and
prospectuses for the Funds failed to disclose that (a) the Funds lacked
effective controls and hedges to minimize the risk of loss from mortgage
delinquencies, (b) the Funds lacked effective internal controls, (c) the extent
of the Funds' liquidity risk was omitted, and (d) the extent of the Funds' risk
exposure to mortgage-backed assets was misstated. On July 29, 2009, the
defendants filed a motion to dismiss the consolidated complaint. On December 17,
2009, the court denied the defendants' motion to dismiss. The defendants believe
the lawsuit is without merit.

7. 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 dividends
and distributions. Security prices can fluctuate for several reasons including
the general condition of the securities markets, 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.

RESIDENTIAL MORTGAGE-BACKED SECURITIES RISK: MBS's may have less potential for
capital appreciation than comparable fixed-income securities due to the
likelihood of increased prepayments of mortgages as interest rates decline. If
the Fund buys MBS's at a premium, mortgage foreclosures and prepayments of
principal by mortgagors (which usually may be made at any time without penalty)
may result in some loss of the Fund's principal investment to the extent of the
premium paid. Alternatively, in a rising interest rate environment, the value of
MBS's may be adversely affected when payments on underlying mortgages do not
occur as anticipated, resulting in the extension of the security's effective
maturity and the related increase in interest rate sensitivity of a longer-term
instrument. The value of MBS's may also change due to shifts in the market's
perception of issuers and regulatory or tax changes adversely affecting the
markets as a whole. In addition, MBS's are subject to the credit risk associated
with the performance of the underlying mortgage properties. In certain
instances, third-party guarantees or other forms of credit support can reduce
the credit risk. The Fund may also invest in MBS's which are interest-only
securities ("IO") and principal-only ("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 will fall and the value of an IO security will rise. In
addition to the foregoing, residential MBS's are subject to additional risks,
including, but not limited to: (i) the United States residential mortgage market
has recently encountered various difficulties and changed economic conditions.
In addition, recently, residential property values in various states have
declined or remained stable after extended periods of appreciation. A continued
decline or an extended flattening in those values may result in additional
increases in delinquencies and losses on residential mortgage loans generally;
(ii) if a residential mortgage obligation is secured by a junior lien it will be
subordinate to the rights of the mortgagees or beneficiaries under the related
senior mortgages or deeds of trust; and (iii) depending on the length of a
residential mortgage obligation underling a residential MBS, unscheduled or
early payments of principal and interest may shorten the security's effective
maturity and prevailing interest rates may be higher or lower than the current
yield of the Fund's portfolio at the time the Fund receives the payments for
reinvestment.

VALUE INVESTING RISK: The Sub-Advisor focuses the Fund's investments on
securities that they believe are undervalued or inexpensive relative to other
investments. Such securities are subject to the risk of misestimating certain
fundamental factors. Disciplined adherence to a "value" investment mandate
during periods in which that style is "out of favor" can result in significant
underperformance relative to overall market indices and other managed investment
vehicles that pursue growth style investments and/or flexible style mandates.

Page 24

FIRST TRUST STRATEGIC HIGH INCOME FUND
OCTOBER 31, 2010

BELOW-INVESTMENT GRADE SECURITIES RISK: The Fund invests in below-investment
grade securities. The market values for high-yield securities tend to be very
volatile, and these securities are less liquid than investment grade debt
securities. For these reasons, an investment in the Fund is subject to the
following specific risks: (a) increased price sensitivity to changing interest
rates and to a deteriorating economic environment; (b) greater risk of loss due
to default or declining credit quality; (c) adverse issuer specific events are
more likely to render the issuer unable to make interest and/or principal
payments; and (d) a negative perception of the high-yield market may depress the
price and liquidity of high-yield securities.

DISTRESSED SECURITIES RISK: The Fund may invest in securities issued by
companies in a bankruptcy reorganization proceeding, subject to some other form
of a public or private debt restructuring or otherwise in default or in
significant risk of default in the payment of interest or repayment of principal
or trading at prices substantially below other below-investment grade debt
securities of companies in similar industries. Distressed securities frequently
do not produce income while they are outstanding. The Fund may be required to
incur certain extraordinary expenses in order to protect and recover its
investment. Therefore, to the extent the Sub-Advisor seeks capital appreciation
through investment in distressed securities; the ability to achieve current
income may be diminished.

ECONOMIC CONDITIONS RISK: Adverse changes in economic conditions are more likely
to lead to a weakened capacity of a high-yield issuer to make principal payments
and interest payments than an investment grade issuer. An economic downturn
could severely affect the ability of highly leveraged issuers to service their
debt obligations or to repay their obligations upon maturity. Under adverse
market or economic conditions, the secondary market for high-yield securities
could contract further, independent of any specific adverse changes in the
condition of a particular issuer and these securities may become illiquid. As a
result, the Sub-Advisor could find it more difficult to sell these securities or
may be able to sell the securities only at prices lower than if such securities
were widely traded.

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 reinvested at market interest rates that are below the portfolio's
current earnings rate; (iii) prepayment risk, which is the risk that during
periods of declining interest rates, the issuer of a security may exercise its
option to prepay principal earlier than scheduled, forcing the reinvestment in
lower yielding securities; and (iv) 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.

INTEREST RATE RISK: The Fund's portfolio is also subject to interest rate risk.
Interest rate risk is the risk that fixed-income securities will decline in
value because of changes in market interest rates. Investments in debt
securities with long-term maturities may experience significant price declines
if long-term interest rates increase.

LEVERAGE RISK: The Fund may borrow an amount up to 33-1/3% (or such other
percentage as permitted by law) of its assets (including the amount borrowed)
less liabilities other than borrowings. The Fund may use leverage for investment
purposes and to meet cash requirements. Its 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. The Fund leverages its assets through the use of reverse
repurchase agreements. Reverse repurchase agreements are subject to the risks
that the market value of the securities sold by the Fund 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. The Fund may from time to time
consider changing the amount of the leverage 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.

8. 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 as follows:

On November 22, 2010, the Fund declared a dividend of $0.025 per share to Common
Shareholders of record on December 3, 2010, payable December 10, 2010.

On December 20, 2010, the Fund declared a dividend of $0.025 per share to Common
Shareholders of record on January 5, 2011, payable January 14, 2011.

Page 25

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

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

We have audited the accompanying statement of assets and liabilities of First
Trust Strategic High Income Fund (the "Fund"), including the portfolio of
investments, as of October 31, 2010, 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 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, 2010, by correspondence with the Fund's
custodian and brokers; where replies were not received, we performed other
auditing procedures. 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 Strategic High Income Fund as of October 31, 2010, 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 the periods presented, in conformity with accounting principles
generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP

Chicago, Illinois
December 23, 2010

Page 26

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

FIRST TRUST STRATEGIC HIGH INCOME FUND
OCTOBER 31, 2010 (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 investments 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 ("SEC") website located at
http://www.sec.gov.

Page 27

--------------------------------------------------------------------------------
ADDITIONAL INFORMATION - (Continued)
--------------------------------------------------------------------------------

FIRST TRUST STRATEGIC HIGH INCOME FUND
OCTOBER 31, 2010 (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.

TAX INFORMATION

Of the ordinary income (including short-term capital gain) distributions made by
the Fund during the year ended October 31, 2010, none qualify for the corporate
dividends received deduction available to corporate shareholders or as qualified
dividend income.

NYSE CERTIFICATION INFORMATION

In accordance with Section 303A-12 of the New York Stock Exchange ("NYSE")
Listed Company Manual, the Fund's President has certified to the NYSE that, as
of June 14, 2010, 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.

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/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 14, 2010. At the
Annual Meeting, Trustees James A. Bowen and Niel B. Nielson were elected by the
Common Shareholders of the First Trust Strategic High Income Fund as Class III
Trustees for a three-year term expiring at the Fund's annual meeting of
shareholders in 2013. The number of votes cast in favor of Mr. Bowen was
7,749,760, the number of votes against was 232,451 and the number of abstentions
was 1,168,383. The number of votes cast in favor of Mr. Nielson was 7,596,212,
the number of votes against was 385,999 and the number of abstentions was
1,168,383. Richard E. Erickson, Thomas R. Kadlec and Robert F. Keith are the
other current and continuing Trustees.

A special meeting of shareholders of the Fund was held on December 20, 2010. At
the meeting, shareholders approved a new investment management agreement between
the Fund and First Trust and a new investment sub-advisory agreement between the
Fund, First Trust and Brookfield. 4,730,477 (51.70%) of the outstanding voting
securities were voted at the meeting. The number of votes cast in favor of the
new investment management agreement was 4,151,043, the number of votes against
was 159,441, and the number of abstentions was 419,993. The number of votes cast
in favor of the new investment sub-advisory agreement was 4,129,901, the number
of votes against was 181,476, and the number of abstentions was 419,099. The
terms of the new investment management agreement and new investment sub-advisory
agreement are substantially similar to the terms of the previous agreements.

INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS

BOARD CONSIDERATIONS REGARDING APPROVAL OF INVESTMENT MANAGEMENT AND
SUB-ADVISORY AGREEMENTS

The Board of Trustees of First Trust Strategic High Income Fund (the "Fund"),
including the Independent Trustees, approved the Interim Investment Management
Agreement and the New Investment Management Agreement (collectively, the
"Advisory Agreements") between the Fund and First Trust Advisors L.P. (the
"Advisor") and the Interim Investment Sub-Advisory Agreement and New Investment
Sub-Advisory Agreement (collectively, the "Sub-Advisory Agreements" and together
with the Advisory Agreements, the "Agreements") among the Fund, the Advisor and
Brookfield Investment Management Inc. (the "Sub-Advisor"), at a meeting held on
September 20, 2010. The Board determined that the terms of the Agreements are
fair and reasonable and that the Agreements are in the best interests of the
Fund. The Board also determined that it believes that the scope and quality of
services to be provided to the Fund under the Agreements will be at least
equivalent to the scope and quality of services provided under the current
Investment Management Agreement with the Advisor and the current Investment
Sub-Advisory Agreement among the Fund, the Advisor and the Sub-Advisor
(collectively, the "Original Agreements").

On August 25, 2010, the Independent Trustees were informed that James A. Bowen,
the President of the Advisor and a Trustee and Chairman of the Board of the
Fund, had entered into an agreement to acquire 100% of the common stock of The
Charger Corporation, the general partner of the Advisor (the "Transaction"), the
consummation of which would constitute a "change of control" of the Advisor and
would result in the "assignment" and termination of the current Investment

Page 28

--------------------------------------------------------------------------------
ADDITIONAL INFORMATION - (Continued)
--------------------------------------------------------------------------------

FIRST TRUST STRATEGIC HIGH INCOME FUND
OCTOBER 31, 2010 (UNAUDITED)

Management Agreement and may also result in the "assignment" and termination of
the current Investment Sub-Advisory Agreement pursuant to their terms and in
accordance with Section 15 of the Investment Company Act of 1940, as amended
(the "1940 Act"). On August 31, 2010, counsel to the Independent Trustees
forwarded to Mr. Bowen and the Advisor a request for information regarding the
Transaction. In anticipation of the consummation of the Transaction, the Board
at its meeting held on September 20, 2010, considered the information provided
by Mr. Bowen and the Advisor in response to the Independent Trustees' request
for information and considered the approval of the Agreements.

To reach its determination, the Board considered its duties under the 1940 Act,
as well as under the general principles of state law in reviewing and approving
advisory contracts; the requirements of the 1940 Act in such matters; the
fiduciary duty of investment advisors with respect to advisory agreements and
compensation; the standards used by courts in determining whether investment
company boards have fulfilled their duties; and the factors to be considered by
the Board in voting on such agreements. In connection with its deliberations
regarding the Agreements, the Board noted the Advisor's representation that
apart from their effective and termination dates and any provisions of the
Interim Investment Management Agreement and Interim Investment Sub-Advisory
Agreement required by Rule 15a-4 under the 1940 Act, the Advisory Agreements and
Sub-Advisory Agreements were the same in all material respects as the Original
Agreements. The Board noted that it had recently considered the Advisor's and
Sub-Advisor's capabilities at a meeting held on March 21-22, 2010 and had
determined to renew the current Investment Management Agreement for an
additional one-year term (the "2010 Renewal"). The Board noted that shareholders
had approved the current Investment Sub-Advisory Agreement among the Fund, the
Advisor and the Sub-Advisor for a two-year term at a special meeting held on
October 14, 2009. The Board considered that in connection with the 2010 Renewal
and its approval of the current Investment Sub-Advisory Agreement in 2009, it
had received a report from each of the Advisor and the Sub-Advisor that, among
other things, outlined the services provided by the Advisor and the Sub-Advisor
(including the relevant personnel responsible for these services and their
experience); the advisory and sub-advisory fees for the Fund as compared to fees
charged to other clients of the Advisor and the Sub-Advisor and as compared to
fees charged by investment advisors and sub-advisors to comparable funds;
expenses of the Fund as compared to expense ratios of comparable funds; the
nature of expenses incurred in providing services to the Fund and the potential
for economies of scale, if any; financial data on the Advisor and the
Sub-Advisor; any fall-out benefits to the Advisor and the Sub-Advisor; and
information on the Advisor's and the Sub-Advisor's compliance programs. Prior to
the September meeting, the Advisor represented to the Board that there had been
no material changes to the information provided in March 2010 with respect to
the Original Agreements and that the Board could continue to rely on such
information. In addition, the Sub-Advisor represented to the Board that, except
for the addition of certain portfolio management techniques that the Sub-Advisor
had discussed with the Board, there had been no material changes to the
information previously provided to the Board and that the Board could continue
to rely on such information.

Because the Board determined that any differences between the Original
Agreements and the Agreements were immaterial, the Board determined that much of
its previous analysis of the Original Agreements applied to its review and
consideration of the Agreements. Accordingly, the Board took note of such prior
analysis and supplemented it with the additional considerations noted below. The
Independent Trustees also met separately with their independent legal counsel to
discuss the Transaction and their consideration of the Agreements.

In reviewing the Agreements, the Board considered the nature, quality and extent
of services to be provided by the Advisor and the Sub-Advisor under the
Agreements. The Board noted that the Transaction was not expected to result in
any changes to the personnel of the Advisor and Sub-Advisor responsible for
providing services to the Fund. The Board also considered the representations of
both the Advisor and the Sub-Advisor that there will be no diminution in
services provided under the Agreements. In light of the information presented
and the considerations made at the September meeting, including the
considerations made with respect to the Original Agreements, the Board concluded
that the nature, quality and extent of services to be provided to the Fund by
the Advisor and the Sub-Advisor under the Agreements are expected to be
satisfactory.

The Board considered the advisory and sub-advisory fees payable under the
Agreements, noting that they would be the same as the fees payable under the
Original Agreements. The Board considered that in connection with the 2010
Renewal it had reviewed the advisory fees charged by the Advisor to similar
funds and other non-fund clients, and had noted that the Advisor does not
provide advisory services to clients with investment objectives and policies
similar to the Fund's, other than to two other closed-end funds for which the
fee rate is identical. The Board also considered that it had reviewed
information provided by the Sub-Advisor as to the fees it charges to other
similar clients. The Board also considered performance information for the Fund,
including the Fund's quarterly performance report, which is part of the process
that the Board has established for monitoring the Fund's performance and
portfolio risk on an ongoing basis. The Board also considered the changes in
investment strategies and changes made to the Fund's portfolio since the
Sub-Advisor began managing the portfolio in 2009. In light of the information
presented on the fees and performance of the Fund and the considerations made at
the September meeting, including the considerations made with respect to the
Original Agreements, the Board concluded that the advisory and sub-advisory fees
were reasonable and appropriate in light of the nature, quality and extent of
services expected to be provided by the Advisor and Sub-Advisor under the
Agreements.

Page 29

--------------------------------------------------------------------------------
ADDITIONAL INFORMATION - (Continued)
--------------------------------------------------------------------------------

FIRST TRUST STRATEGIC HIGH INCOME FUND
OCTOBER 31, 2010 (UNAUDITED)

The Board noted that the Advisor has continued to invest in personnel and
infrastructure and considered whether fee levels reflect any economies of scale
for the benefit of shareholders. The Board concluded that the advisory fee
continues to reflect an appropriate level of sharing of any economies of scale
at current asset levels. The Board noted that in connection with the 2010
Renewal it had reviewed the costs of the services provided and profits realized
by the Advisor from serving as investment manager to the Fund for the twelve
months ended December 31, 2009. The Board considered its prior conclusion that
the Advisor's profitability appeared to be not excessive in light of the
services provided to the Fund. The Board considered whether the Advisor derives
any ancillary benefits from its relationship with the Fund and noted that the
typical fall-out benefits to the Advisor such as soft dollars are not present.
The Board noted that the Advisor will receive compensation from the Fund for
providing fund reporting services. The Board concluded that any other fall-out
benefits received by the Advisor or its affiliates would appear to be limited.
The Board also considered information regarding a private lawsuit involving the
Advisor and the Fund alleging misleading disclosure in the Fund's registration
statement. The Board noted the Advisor's representation that the lawsuit would
not impact the Advisor's ability to perform under the Agreements.

The Board considered that the sub-advisory fee rate was negotiated at arm's
length between the Advisor and the Sub-Advisor, an unaffiliated third party. The
Board noted that the overall management fee structure reflects an appropriate
level of sharing of any economies of scale. The Board noted that the Sub-Advisor
does not maintain soft-dollar arrangements in connection with its management of
the Fund's portfolio and that the Sub-Advisor indicated that it does not receive
any material fall-out benefits from its relationship to the Fund.

Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, determined that the terms of the
Agreements are fair and reasonable and that the approval of the Agreements is in
the best interests of the Fund. No single factor was determinative in the
Board's analysis.

Page 30

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

FIRST TRUST STRATEGIC HIGH INCOME FUND
OCTOBER 31, 2010 (UNAUDITED)

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

------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------

Richard E. Erickson, Trustee o Three Year Physician; President, Wheaton 64 None
c/o First Trust Advisors L.P. Term Orthopedics; Co-owner and Co-Director
120 E. Liberty Drive, (January 1996 to May 2007), Sports
Suite 400 Med Center for Fitness; Limited
Wheaton, IL 60187 o Since Fund Partner, Gundersen Real Estate
D.O.B.: 04/51 Inception Limited Partnership; Member,
Sportsmed LLC

Thomas R. Kadlec, Trustee o Three Year President (March 2010 to Present), 64 Director of ADM
c/o First Trust Advisors L.P. Term Senior Vice President and Chief Investor
120 E. Liberty Drive, Financial Officer (May 2007 to March Services, Inc.
Suite 400 o Since Fund 2010), Vice President and Chief and ADM
Wheaton, IL 60187 Inception Financial Officer (1990 to May 2007), Investor
D.O.B.: 11/57 ADM Investor Services, Inc. (Futures Services
Commission Merchant) International

Robert F. Keith, Trustee o Three Year President (2003 to Present), 64 None
c/o First Trust Advisors L.P. Term Hibs Enterprises (Financial and
120 E. Liberty Drive, Management Consulting)
Suite 400 o Since June
Wheaton, IL 60187 2006
D.O.B.: 11/56

Niel B. Nielson, Trustee o Three Year President (June 2002 64 Director of
c/o First Trust Advisors L.P. Term to Present), Covenant Covenant
120 E. Liberty Drive, College Transport Inc.
Suite 400 o Since Fund
Wheaton, IL 60187 Inception
D.O.B.: 03/54

------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------

James A. Bowen, Trustee, o Three Year President, First Trust Advisors L.P. 64 Trustee of
President, Chairman of the Board Trustee and First Trust Portfolios L.P.; Wheaton College
and CEO(1) Term and Chairman of the Board of Directors,
120 E. Liberty Drive, Indefinite BondWave LLC (Software Development
Suite 400 Officer Company/Investment Advisor) and
Wheaton, IL 60187 Term Stonebridge Advisors LLC (Investment
D.O.B.: 09/55 Advisor)
o Since Fund
Inception

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

(1) Mr. Bowen is deemed an interested person of the Fund due to his position
as President 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 2011 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 31

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

FIRST TRUST STRATEGIC HIGH INCOME FUND
OCTOBER 31, 2010 (UNAUDITED)

TERM OF OFFICE
NAME, ADDRESS AND POSITION AND OFFICES AND LENGTH OF PRINCIPAL OCCUPATIONS
DATE OF BIRTH WITH FUND SERVICE DURING PAST 5 YEARS

-----------------------------------------------------------------------------------------------------------------------------------
OFFICERS WHO ARE NOT TRUSTEES (3)
-----------------------------------------------------------------------------------------------------------------------------------

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

Erin E. Chapman Assistant Secretary o Indefinite term Assistant General Counsel
120 E. Liberty Drive, (October 2007 to Present),
Suite 400 o Since June 2009 Associate Counsel (March
Wheaton, IL 60187 2006 to October 2007), First
D.O.B.: 08/76 Trust Advisors L.P. and
First Trust Portfolios L.P.;
Associate Attorney (November
2003 to March 2006), Doyle &
Bolotin, Ltd.

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

Christopher R. Fallow Assistant Vice o Indefinite term Assistant Vice President
120 E. Liberty Drive, President (August 2006 to Present),
Suite 400 o Since Fund Associate (January 2005 to
Wheaton, IL 60187 Inception August 2006), First Trust
D.O.B.: 04/79 Advisors L.P. and First
Trust Portfolios L.P.

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

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

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

Kristi A. Maher Assistant Secretary o Indefinite term Deputy General Counsel (May
120 E. Liberty Drive, and Deputy Chief 2007 to Present), Assistant
Suite 400 Compliance Officer o Assistant General Counsel (March 2004 to
Wheaton, IL 60187 Secretary since May 2007), First Trust
D.O.B.: 12/66 Fund Inception Advisors L.P. and First Trust
Portfolios L.P.
o Deputy Chief
Compliance
Officer since
November 2009

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

Page 32

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

FIRST TRUST STRATEGIC HIGH INCOME FUND
OCTOBER 31, 2010 (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 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.

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 33

This Page Left Blank Intentionally.

[LOGO OMITTED] 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
PFPC Trust Company
8800 Tinicum Boulevard
Philadelphia, PA 19153

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

Inside Back Cover

[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 $45,800 for the fiscal year
ended October 31, 2009 and $45,800 for the fiscal year ended October
31, 2010.

(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, 2009 and $0 for the fiscal year ended October 31,
2010.

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, 2009 and $0 for the fiscal year ended
October 31, 2010.

(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, 2009 and $5,200 for the
fiscal year ended October 31, 2010.

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, 2009 and $0 for the
fiscal year ended October 31, 2010.

(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, 2009 and $0 for the fiscal year ended
October 31, 2010.

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, 2009 and $0 for the fiscal year ended
October 31, 2010.

(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, 2009, were $5,200 for the Registrant and $36,000 for the
Registrant's investment adviser and 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.

(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.

The Proxy Voting Policies are attached herewith.

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

(a)(1) IDENTIFICATION OF PORTFOLIO MANAGERS OR MANAGEMENT TEAM MEMBERS AND
DESCRIPTION OF ROLE OF PORTFOLIO MANAGERS OR MANAGEMENT TEAM MEMBERS

Information provided as of January 3, 2011.

Brookfield Investment Management Inc. ("Brookfield"), serves as the
Registrant's investment sub-advisor and is an SEC-registered investment advisor
specializing in core fixed-income, high yield, structured products
(Mortgage-backed securities ("MBS") including Commercial MBS, Residential MBS
and Asset-Backed Securities ("ABS")) as well as global Real Estate Investment
Trusts and listed infrastructure securities. Headquartered in New York, the firm
has approximately $23 billion of assets under management as of September 30,
2010. Brookfield Investment Management is a subsidiary of Brookfield Asset
Management Inc., a global asset manager focused on property, power and other
infrastructure assets with approximately $100 billion of assets under management
as of September 30, 2010. Dana E. Erikson and Anthony Breaks are joint and
primary Portfolio Managers for the Registrant.

DANA E. ERIKSON, CFA, MANAGING DIRECTOR

Mr. Erikson, Portfolio Manager and the Head of the High Yield Team, is
responsible for Brookfield's corporate high yield and leveraged loan exposures,
the establishment of portfolio objectives and strategies. Mr. Erikson is a
member of Brookfield's Investment Committee. Mr. Erikson has 24 years of
investment experience. Prior to joining Brookfield in September 2006, he was
with Evergreen Investments or one of its predecessor firms since 1996. He was a
senior portfolio manager and the Head of the High Yield team. Prior to that, he
was the Head of High Yield Research. Prior to Evergreen, Mr. Erikson was an
Associate Portfolio Manager for Prospect Street Investment Management Company.
Additionally, he was an Analyst with the Kellett Group and a Research Assistant
with Robert R. Nathan Associates.

Mr. Erikson received a BA in Economics from Brown University and an MBA,
with honors, from Northeastern University. He is a member of the Boston Security
Analysts Society.

ANTHONY BREAKS, CFA, DIRECTOR

Mr. Breaks is a Portfolio Manager and an MBS/ABS team leader in the
Structured Products Investment team. Mr. Breaks is also head of the Short Term
Investments and Financing business, including repo-financing. Mr. Breaks joined
Brookfield in September 2005 from Brookfield Asset Management (formerly known as
Brascan), where he worked since 2002. At Brascan he was responsible for
portfolio investments and credit analysis for a reinsurance affiliate, execution
and management of a synthetic CDO, and development of insurance related
investment products. Prior to joining Brascan, Mr. Breaks was a Director at
Liberty Hampshire since 2000 and was responsible for structuring, restructuring
and executing several CDOs, as well as ongoing monitoring and credit analysis
for the CDO assets. Mr. Breaks began his career at Merrill Lynch where he worked
in trading and structuring capacities in CDOs, adjustable rate mortgages and
medium-term notes.

Mr. Breaks earned a BS in Electrical Engineering from the Massachusetts
Institute of Technology and holds the Chartered Financial Analyst designation.

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

Information provided as of October 31, 2010.

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

1. Dana Erikson Registered Investment Companies: 8 $396M 0 $0
Other Pooled Investment Vehicles: 1 $35M 0 $0
Other Accounts: 3 $121M 0 $0

2. Anthony Breaks Registered Investment Companies: 2 $93M 0 $0
Other Pooled Investment Vehicles: 5 $951M 0 $0
Other Accounts: 0 $0 0 $0

POTENTIAL CONFLICTS OF INTERESTS

Potential conflicts of interest may arise when a portfolio manager of the
Registrant has day-to-day management responsibilities with respect to one or
more other funds or other accounts, as is the case for the Portfolio Managers of
the Registrant.

These potential conflicts include:

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 fund'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 Brookfield'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 Brookfield 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. Brookfield 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
Brookfield 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 has also adopted trade
allocation procedures that are designed to facilitate the fair allocation of
limited investment opportunities among multiple funds and accounts. There is,
however, no guarantee that such policies and procedures will be able to detect
and prevent every situation in which an actual or potential conflict may appear.

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

Information provided as of October 31, 2010.

The Registrant's portfolio managers are compensated by Brookfield. The
compensation structure of Brookfield's portfolio managers and other investment
professionals has three primary components: (1) a base salary, (2) an annual
cash bonus, and (3) if applicable, long-term stock-based compensation consisting
generally of restricted stock units of Brookfield's indirect parent company,
Brookfield Asset Management, Inc. The portfolio managers also receive certain
retirement, insurance and other benefits that are broadly available to all of
Brookfield's employees. Compensation of the portfolio managers is reviewed on an
annual basis by senior management.

Brookfield compensates its portfolio managers based primarily 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 the portfolio manager's seniority and position. The
compensation of portfolio managers with other job responsibilities (such as
acting as an executive officer of Brookfield and supervising various
departments) will include 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 are also influenced by
the operating performance of Brookfield and its indirect parent. While the
salaries of Brookfield's portfolio managers are comparatively fixed, cash
bonuses and stock-based compensation may fluctuate significantly from year to
year, based on changes in the portfolio manager's performance and other factors
as described herein.

(a)(4) DISCLOSURE OF SECURITIES OWNERSHIP

Information provided as of October 31, 2010.

Dollar Range of Fund Shares
Name Beneficially Owned

Dana Erikson $0

Anthony Breaks $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 Strategic High 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 21, 2010

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 21, 2010

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

Date December 21, 2010

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