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 811-21727
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FIRST TRUST/FIDAC MORTGAGE INCOME FUND
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(Exact name of registrant as specified in charter)
1001 Warrenville Road, Suite 300
LISLE, IL 60532
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(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
1001 Warrenville Road, Suite 300
LISLE, IL 60532
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(Name and address of agent for service)
registrant's telephone number, including area code: 630-241-4141
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Date of fiscal year end: OCTOBER 31
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Date of reporting period: APRIL 30, 2006
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 100 F Street, NE,
Washington, DC 20549. The OMB has reviewed this collection of information under
the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The Report to Shareholders is attached herewith.
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FIRST TRUST/FIDAC MORTGAGE INCOME FUND
SEMI-ANNUAL REPORT
FOR THE SIX MONTHS ENDED APRIL 30, 2006
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TABLE OF CONTENTS
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FIRST TRUST/FIDAC MORTGAGE INCOME FUND (FMY)
SEMI-ANNUAL REPORT
APRIL 30, 2006
Shareholder Letter........................................................ 1
Portfolio Commentary...................................................... 2
Portfolio Components...................................................... 3
Portfolio of Investments.................................................. 4
Statement of Assets and Liabilities....................................... 6
Statement of Operations................................................... 7
Statements of Changes in Net Assets....................................... 8
Statement of Cash Flows................................................... 9
Financial Highlights...................................................... 10
Notes to Financial Statements............................................. 11
Additional Information.................................................... 15
Dividend Reinvestment Plan
Proxy Voting Policies and Procedures
Portfolio Holdings
By-Law Amendment
Submission of Matters to a Vote of Shareholders
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This Semi-Annual Report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933. Forward-looking statements
include statements regarding the goals, beliefs, plans or current expectations
of First Trust Advisors L.P. (the "Advisor") and/or Fixed Income Discount
Advisory Company ("FIDAC") 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 First Trust/FIDAC Mortgage Income Fund's (the
"Fund") actual results, performance or achievements 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
Semi-Annual Report, you are cautioned not to place undue reliance on these
forward-looking statements, which reflect the judgment of the Advisor and/or
FIDAC 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.
HOW TO READ THIS REPORT
This report contains information that can 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 letter from the Fund's President, James A. Bowen, together with
the portfolio commentary by the portfolio management team at the Fund's
sub-advisor, FIDAC, you will obtain an understanding of how the market
environment affected the Fund's performance. The statistical information that
follows can 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 Mr. Bowen,
personnel of the Advisor and FIDAC personnel 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. Of
course, the risks of investing in the Fund are spelled out in the prospectus.
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SHAREHOLDER LETTER
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FIRST TRUST/FIDAC MORTGAGE INCOME FUND (FMY)
SEMI-ANNUAL REPORT
APRIL 30, 2006
Dear Shareholder:
We are pleased to present this semi-annual report of First Trust/FIDAC Mortgage
Income Fund (the "Fund") (NYSE Symbol: FMY). Fixed Income Discount Advisory
Company ("FIDAC"), sub-advisor to FMY, is a fixed-income management company
specializing in mortgage-backed securities and interest rate sensitive
strategies. At the beginning of this reporting period, yields on the short end
of the yield curve were rising faster than yields on the long end, creating a
flat yield curve and putting some pressure on the Fund's net asset value ("NAV")
and income. The Fund's interest only portion of its portfolio helped to offset
some of the pressures of a flat yield curve. This is because the yields and
prices on these securities increased as the long end of the Treasury curve began
to rise. As a result, during the last four months, the Fund's NAV and income
have remained relatively stable even though the flat yield curve prevails.
As you know, the Fund's primary investment objective is to seek a high level of
current income. As a secondary objective, the Fund seeks to preserve capital.
The Fund currently pursues this investment objective by investing primarily in
mortgage-backed securities representing part ownership in a pool of either
residential or commercial mortgage loans that, in the opinion of FIDAC, offer an
attractive combination of credit quality, yield and maturity.
I encourage you to read the portfolio commentary found on the following pages.
It includes a review of the Fund's performance and the portfolio managers'
outlook for the markets.
We thank you for your continued confidence in First Trust Advisors L.P. and
FIDAC and will work diligently to keep earning it.
Sincerely,
/s/ James A. Bowen
James A. Bowen
President of First Trust/FIDAC Mortgage Income Fund
June 15, 2006
Page 1
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PORTFOLIO COMMENTARY
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FIRST TRUST/FIDAC MORTGAGE INCOME FUND
The First Trust/FIDAC Mortgage Income Fund ("FMY" or the "Fund") received
approximately $76 million in proceeds from its initial public offering on May
26, 2005. The Fund's primary investment objective is to seek a high level of
current income. As a secondary objective, the Fund seeks to preserve capital.
The Fund pursues its objectives by investing primarily in mortgage-backed
securities representing part ownership in a pool of either residential or
commercial mortgage loans that, in the opinion of the Fund's sub-advisor, offer
an attractive combination of credit quality, yield and maturity. These
securities may be issued by government agencies or by private originators or
issuers, generally in the form of pass-through certificates, collateralized
mortgage obligations, residential mortgage-backed securities or commercial
mortgage-backed securities. The Fund may leverage to an aggregate amount of up
to 33-1/3% of the Fund's managed assets. The Fund uses leverage primarily
through the use of reverse repurchase agreements.
The Fund has an initial bias towards rising interest rates and should outperform
other fixed-income investments when interest rates are rising. Conversely it
will generally under-perform other fixed-income investments when interest rates
are falling. The majority of return is achieved through dividend income and
therefore dividends may fluctuate in response to the market environment.
FUND PERFORMANCE
For the six-month period ended April 30, 2006, the Fund had a net asset value
("NAV") total return of 0.99% and a market value total return of 0.91%. As of
April 30, 2006, the Fund's closing market price was $16.00, a 13.84% discount to
its NAV. Below is a table comparing the Fund's NAV and market price total
returns to the Fund's benchmark, the Lehman Brothers MBS Fixed Rate Index:
FMY FMY LEHMAN BROTHERS MBS
NAV MARKET PRICE FIXED RATE INDEX
--- ------------ ----------------
10/31/2005 -
04/30/2006 0.99% 0.91% 1.25%
During the six-month period ended April 30, 2006, the Fund declared $0.548 in
dividends and the Fund's NAV fell 2.37% to $18.57 from $19.02. During the last
two months of 2005, the Fund's NAV and income came under pressure relative to
its index from a flattening yield curve. During this two-month period, the
spread between the 2-Year Treasury Note and 10-Year Treasury Note declined
0.19%, and the spread between the Federal Funds Rate and the 10-Year Treasury
Note declined by 0.66%. A flattening yield curve negatively impacts the Fund's
assets because it implies higher future funding rates and lower future long-term
rates. However, during the last four months, the Fund's NAV and income have
remained relatively stable despite the continuing pressures of a flat yield
curve. Mitigating the pressures of a flat yield curve were the interest only
portion of the portfolio, as yields and prices on these securities crept upwards
as the long end of the Treasury curve finally began to rise. Further, some of
the portfolio adjustments we made at the beginning of the first calendar quarter
of 2006, for example, going up in coupon from 5.0% mortgage-backed securities to
6.0% mortgage-backed securities, helped the portfolio to maintain its income
performance.
OUTLOOK
Looking forward, we continue to expect the Fund to outperform other fixed-income
asset classes if mortgage rates continue to increase. Nevertheless, the income
of the Fund will come under pressure if the Federal Reserve continues to
increase funding costs and the Treasury curve remains flat. The effect of
increased funding costs could be somewhat offset by higher yields on the
securities due to slower prepayments and we continue to explore portfolio
adjustments that will help maintain income performance under such a scenario.
Page 2
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
PORTFOLIO COMPONENTS+
APRIL 30, 2006 (UNAUDITED)
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Collateralized Mortgage Obligations 32.3%
U.S. Government Agency Mortgage-Backed Securities 67.7%
+ Percentages are based on total investments. Please note that the
percentages shown on the Portfolio of Investments are based on net assets.
See Notes to Financial Statements. Page 3
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 2006 (UNAUDITED)
PRINCIPAL MARKET
VALUE DESCRIPTION VALUE
-------------- ---------------------------------------------------------------- -------------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
SECURITIES - 84.1%
FEDERAL HOME LOAN MORTGAGE CORPORATION
(FHLMC) - 9.4%
$ 7,091,589 Gold, Pool A38042, 6.00%, 10/01/35 ............................. $ 7,072,810
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FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA) - 74.7%
5,833,465 Pool 256007, 6.00%, 10/01/35 ................................... 5,775,130
10,899,425 Pool 256182, 6.00%, 3/01/36 .................................... 10,787,025
10,521,658 Pool 831145, 6.00%, 12/01/35 ................................... 10,484,688
9,889,453 Pool 843971, 6.00%, 11/01/35 ................................... 9,854,705
7,600,000 Pool 872303, 6.00%, 5/01/36 .................................... 7,567,979
11,722,566 Pool 880203, 6.00%, 2/01/36 .................................... 11,609,004
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56,078,531
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TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES ..................................... 63,151,341
(Cost $63,682,012) -------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 40.1%
3,000,000 Banc of America Mortgage Securities,
Series 2005-1, Class 1A16, 5.50%, 2/25/35 ................... 2,787,604
3,000,000 Citicorp Mortgage Securities, Inc.,
Series 2005-3, Class 1A3, 5.50%, 4/25/35 .................... 2,734,382
15,693,126 Federal Home Loan Mortgage Corp.,
Series 2807, Class SB, IO, 2.55%, 11/15/33+ ................. 1,250,596
2,360,100 Federal Home Loan Mortgage Corp.,
Series 2836, Class PI, IO, 5.00%, 9/15/22 ................... 253,763
8,161,223 Federal Home Loan Mortgage Corp.,
Series 2869, Class ST, IO, 2.35%, 3/15/23+. ................. 528,103
4,739,600 Federal Home Loan Mortgage Corp.,
Series 2870, Class JI, IO, 5.00%, 10/15/27 .................. 932,688
792,000 Federal Home Loan Mortgage Corp.,
Series 2888, Class OI, IO, 5.00%, 1/15/27. .................. 157,133
2,857,026 Federal Home Loan Mortgage Corp.,
Series 2906, Class XW, 4.42%, 7/15/34+ ...................... 2,438,353
1,774,808 Federal Home Loan Mortgage Corp.,
Series 2921, Class IQ, IO, 5.00%, 1/15/29. .................. 373,982
2,356,315 Federal Home Loan Mortgage Corp.,
Series 2938, Class PI, IO, 5.00%, 11/15/28 .................. 310,972
1,933,440 Federal Home Loan Mortgage Corp.,
Series 2943, Class JI, IO, 5.00%, 1/15/24 ................... 251,844
32,755,263 Federal Home Loan Mortgage Corp., STRIP,
Series 227, Class IO, IO, 5.00%, 12/01/34. .................. 8,533,959
6,763,653 Federal Home Loan Mortgage Corp., STRIP,
Series 231, Class IO, IO, 5.50%, 8/01/35. ................... 1,814,363
12,337,633 Federal Home Loan Mortgage Corp., STRIP,
Series 232, Class IO, IO, 5.00%, 8/01/35. ................... 3,256,213
3,459,921 Federal Home Loan Mortgage Corp., STRIP,
Series 235, Class IO, IO, 5.50%, 2/01/36. ................... 974,961
Page 4 See Notes to Financial Statements.
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
APRIL 30, 2006 (UNAUDITED)
PRINCIPAL MARKET
VALUE DESCRIPTION VALUE
-------------- -------------------------------------------------------------- -------------
COLLATERALIZED MORTGAGE OBLIGATIONS - CONTINUED
$ 2,627,730 Federal National Mortgage Association,
Series 2005-39, Class BI, IO, 5.00%, 6/25/28. .............. $ 318,468
12,351,269 Federal National Mortgage Association, STRIP,
Series 360, Class 2, IO, 5.00%, 8/01/35. ................... 3,254,682
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TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS ..................... 30,172,066
(Cost $29,280,600) -------------
TOTAL INVESTMENTS - 124.2% .................................... 93,323,407
(Cost $92,962,612)*
REVERSE REPURCHASE AGREEMENT - (24.8%)
(18,618,000) With UBS Securities 4.86% dated 4/28/2006, to
be repurchased at $18,625,540 on 5/01/06,
collateralized by $18,992,239 FHLMC Gold
5.50% and FHLMC Gold 5.50%, due 6/01/35
(as supported by investment securities sold
receivable at April 30, 2006) and FNMA 6.00%,
due 11/01/35. ................................................. (18,618,000)
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NET OTHER ASSETS AND LIABILITIES - 0.6% ....................... 415,461
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NET ASSETS - 100.0% ........................................... $ 75,120,868
=============
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* Aggregate cost for federal income tax and financial reporting purposes.
+ Variable rate security. The interest rate shown reflects the rate in
effect at April 30, 2006.
STRIP Separate trading of registered interest and principal of securities
IO Interest only
See Notes to Financial Statements. Page 5
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2006 (UNAUDITED)
ASSETS:
Investments, at value
(Cost $92,962,612) ............................................................................ $ 93,323,407
Cash ............................................................................................. 13,356
Prepaid expenses ................................................................................. 19,046
Receivables:
Investment securities sold .................................................................. 18,335,045
Interest .................................................................................... 727,021
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Total Assets ................................................................................ 112,417,875
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LIABILITIES:
Reverse repurchase agreement ..................................................................... 18,618,000
Payables:
Investment securities purchased ............................................................. 18,350,921
Interest expense on reverse repurchase agreements ........................................... 149,940
Investment advisory fees .................................................................... 77,462
Printing fees ............................................................................... 39,839
Audit and legal fees ........................................................................ 25,632
Administrative fees ......................................................................... 7,746
Trustees' fees and expenses ................................................................. 3,333
Custodian fees .............................................................................. 1,965
Accrued expenses ................................................................................. 22,169
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Total Liabilities ......................................................................... 37,297,007
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NET ASSETS ....................................................................................... $ 75,120,868
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NET ASSETS CONSIST OF:
Undistributed net investment income .............................................................. $ 110,815
Accumulated net realized loss on investments sold ................................................ (2,452,940)
Net unrealized appreciation of investments ....................................................... 360,795
Par value ........................................................................................ 40,452
Paid-in capital .................................................................................. 77,061,746
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Total Net Assets .......................................................................... $ 75,120,868
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NET ASSET VALUE, per Common Share (par value $0.01 per Common Share) ............................. $ 18.57
=============
Number of Common Shares outstanding (unlimited number of Common Shares has been authorized) ...... 4,045,236
=============
Page 6 See Notes to Financial Statements.
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 2006 (UNAUDITED)
INVESTMENT INCOME:
Interest ...................................................................................... $ 3,154,660
-----------
Total investment income .................................................................. 3,154,660
-----------
EXPENSES:
Investment advisory fees ...................................................................... 471,824
Interest expense on reverse repurchase agreements ............................................. 442,750
Administration fees ........................................................................... 47,182
Audit and legal fees .......................................................................... 28,302
Trustees' fees and expenses ................................................................... 20,154
Custodian fees ................................................................................ 5,568
Other ......................................................................................... 63,798
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Total expenses ........................................................................... 1,079,578
Fees waived by the investment advisor .................................................... (24,183)
Fees waived by the administrator ......................................................... (3,224)
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Net expenses .................................................................................. 1,052,171
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NET INVESTMENT INCOME ......................................................................... 2,102,489
-----------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized loss on investments during the period ............................................ (2,379,550)
Net change in unrealized appreciation/(depreciation) of investments during the period ......... 691,617
-----------
Net realized and unrealized loss on investments ............................................... (1,687,933)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .......................................... $ 414,556
===========
See Notes to Financial Statements. Page 7
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED PERIOD
4/30/2006 ENDED
(UNAUDITED) 10/31/2005*
------------ ------------
OPERATIONS:
Net investment income .......................................................................... $ 2,102,489 $ 1,436,281
Net realized loss on investments during the period ............................................. (2,379,550) (18,397)
Net change in unrealized appreciation/(depreciation) of investments during the period .......... 691,617 (330,822)
------------ ------------
Net increase in net assets resulting from operations ........................................... 414,556 1,087,062
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income .......................................................................... (2,218,407) (1,264,541)
------------ ------------
Total distributions to shareholders ............................................................ (2,218,407) (1,264,541)
CAPITAL TRANSACTIONS:
Net proceeds from sale of 4,045,236 Common Shares .............................................. -- 77,264,007
Offering costs ................................................................................. -- (161,809)
------------ ------------
Total capital transactions ..................................................................... -- 77,102,198
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Net increase/(decrease) in net assets .......................................................... (1,803,851) 76,924,719
NET ASSETS:
Beginning of period ............................................................................ 76,924,719 --
------------ ------------
End of period .................................................................................. $ 75,120,868 $ 76,924,719
============ ============
Undistributed net investment income at end of period ........................................... $ 110,815 $ 226,733
============ ============
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* The Fund commenced operations on May 17, 2005.
Page 8 See Notes to Financial Statements.
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED APRIL 30, 2006 (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations ................ $ 414,556
Adjustments to reconcile net increase in net assets resulting
from operations to net cash provided by operating activities:
Changes in assets and liabilities:
Decrease in investments, at value* ............................... 4,131,998
Increase in interest receivable .................................. (40,835)
Decrease in prepaid expenses and other assets .................... 25,900
Increase in receivable for investment securities sold ............ (18,335,045)
Increase in payable for investment securities purchased .......... 17,100,989
Increase in interest expense on reverse repurchase agreements .... 123,944
Increase in investment advisory fees payable ..................... 8,258
Decrease in audit and legal fees payable ......................... (22,345)
Increase in printing fees payable ................................ 3,515
Increase in administrative fees payable .......................... 1,233
Decrease in trustees' fees and expenses payable .................. (181)
Decrease in custodian fees payable ............................... (171)
Increase in accrued expenses and other liabilities ............... 8,595
------------
CASH PROVIDED BY OPERATING ACTIVITIES ............................... $ 3,420,411
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to shareholders from net investment income ......... (2,218,407)
Decrease in reverse repurchase agreements ........................ (1,482,000)
------------
CASH USED BY FINANCING ACTIVITIES ................................... (3,700,407)
-----------
Decrease in cash .................................................... (279,996)
Cash at beginning of period ......................................... 293,352
-----------
Cash at end of period ............................................... $ 13,356
===========
----------
* Includes net change in unrealized appreciation on investments of $691,617.
See Notes to Financial Statements. Page 9
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX MONTHS
ENDED PERIOD
4/30/2006 ENDED
(UNAUDITED) 10/31/2005*
----------- -----------
Net asset value, beginning of period ........................................... $ 19.02 $ 19.10
---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .......................................................... 0.52 0.36
Net realized and unrealized loss on investments ................................ (0.42) (0.09)
---------- ----------
Total from investment operations ............................................... 0.10 0.27
---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income .......................................................... (0.55) (0.31)
---------- ----------
Total from distributions ....................................................... (0.55) (0.31)
---------- ----------
Common Shares offering costs charged to paid-in capital ........................ -- (0.04)
---------- ----------
Net asset value, end of period ................................................. $ 18.57 $ 19.02
========== ==========
Market value, end of period .................................................... $ 16.00 $ 16.40
========== ==========
TOTAL RETURN BASED ON NET ASSET VALUE (a)+ ..................................... 0.99% 1.37%
========== ==========
TOTAL RETURN BASED ON MARKET VALUE (b)+ ........................................ 0.91% (16.53)%
========== ==========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ........................................... $ 75,121 $ 76,925
Ratio of net expenses to average net assets excluding interest expense ......... 1.63%** 1.62%**
Ratio of net expenses to average net assets .................................... 2.82%** 2.28%**
Ratio of total expenses to average net assets .................................. 2.89%** 2.48%**
Ratio of net investment income to average net assets ........................... 5.63%** 4.30%**
Portfolio turnover rate ........................................................ 80.32% 14.37%
----------
* The Fund commenced operations on May 17, 2005.
** Annualized.
(a) Total return based on net asset value is the combination of reinvested
dividend distributions and reinvested capital gains distributions, if any,
at prices obtained by the Dividend Reinvestment Plan and changes in net
asset value per share and does not reflect sales load.
(b) Total return based on market value is the combination of reinvested
dividend distributions and reinvested capital gains distributions, if any,
at prices obtained by the Dividend Reinvestment Plan and changes in Common
Share market price per share, all based on Common Share market price per
share.
+ Total return is not annualized for periods less than one year.
Page 10 See Notes to Financial Statements.
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NOTES TO FINANCIAL STATEMENTS
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FIRST TRUST/FIDAC MORTGAGE INCOME FUND
APRIL 30, 2006 (UNAUDITED)
1. FUND DESCRIPTION
First Trust/FIDAC Mortgage Income Fund (the "Fund") is a diversified closed-end
management investment company organized as a Massachusetts business trust on
February 22, 2005, and is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940, as amended (the "1940 Act").
The Fund trades under the ticker symbol FMY on the New York Stock Exchange
("NYSE").
The Fund's primary investment objective is to seek a high level of current
income. As a secondary objective, the Fund will seek to preserve capital. The
Fund will pursue these objectives by investing in mortgage-backed securities
that, in the opinion of Fixed Income Discount Advisory Company ("FIDAC") or the
("Sub-Advisor"), offer an attractive combination of credit quality, yield and
maturity. There can be no assurance that the Fund's investment objectives will
be achieved.
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 computed based
upon the value of the Fund's portfolio securities and other assets less any
accrued liabilities. The NAV is determined as of the close of regular trading
session on the NYSE, normally 4:00 p.m. Eastern time, on each day the NYSE is
open for trading. Domestic debt securities and foreign securities are priced
using data reflecting the earlier closing of the principal markets for those
securities. The Fund calculates NAV per Common Share by subtracting the Fund's
liabilities (including accrued expenses, dividends payable and all borrowings of
the Fund) from the Fund's Total Assets (the value of the securities and other
investments the Fund holds plus cash or other assets, including interest accrued
but not yet received) and dividing the result by the total number of Common
Shares outstanding.
The Fund's investments are valued daily at market value or, in the absence of
market value with respect to any portfolio securities, at fair value according
to procedures adopted by the Fund's Board of Trustees. Securities for which
market quotations are readily available are valued at market value, which is
currently determined using the last reported sale price or, if no sales are
reported (as in the case of some securities traded over-the-counter), the last
reported bid price, except that certain U.S. government securities are valued at
the mean between the last reported bid and asked prices. The Fund will value
Mortgage-Backed Securities ("MBS") and other debt securities not traded in an
organized market on the basis of valuations provided by dealers or by an
independent pricing service, approved by the Board of Trustees, which uses
information with respect to transactions in such securities, quotations from
dealers, market transactions for comparable securities, various relationships
between securities and yield to maturity in determining value. Debt securities
having a remaining maturity of less than sixty days when purchased and debt
securities originally purchased with maturities of sixty days or more but which
currently have maturities of less than sixty days are valued at cost adjusted
for amortization of premiums and accretion of discounts. In the event that
market quotations are not readily available, the pricing service does not
provide a valuation for a particular security, or the valuations are deemed
unreliable, or if events occurring after the close of the principal markets for
particular securities (e.g., domestic debt and foreign securities), but before
the Fund values its assets, would materially affect NAV, First Trust Advisors
L.P. ("First Trust") may use a fair value method to value the Fund's securities
and investments. The use of fair value pricing by the Fund is governed by
valuation procedures adopted by the Fund's Board of Trustees, and in accordance
with the provisions of the 1940 Act.
The Fund values exchange-traded options and other derivative contracts at the
closing price on the exchange on which they are principally traded, or if not
traded, or no closing price is available, at the mean between the last bid and
asked prices.
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.
Dividend income is recorded on the ex-dividend date. Interest income is recorded
on the accrual basis, including amortization of premiums and the accretion of
discounts.
Securities purchased or sold on a when-issued or delayed-delivery basis may be
settled a month or more after the trade date; interest income is not accrued
until settlement date. The Fund instructs the custodian to segregate assets of
the Fund with a current value at least equal to the amount of its when-issued
purchase commitments.
Page 11
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NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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FIRST TRUST/FIDAC MORTGAGE INCOME FUND
APRIL 30, 2006 (UNAUDITED)
C. REVERSE REPURCHASE AGREEMENTS:
A reverse repurchase agreement, although structured as a sale and repurchase
obligation, acts as a financing under which the Fund will effectively pledge its
assets as collateral to secure a short-term loan. Generally the other party to
the agreement makes the loan in an amount equal to a percentage of the market
value of the pledged collateral. At the maturity of the reverse repurchase
agreement, the Fund will be required to repay the loan and correspondingly
receive back its collateral. While used as collateral, the assets continue to
pay principal and interest which are for the benefit of the Fund.
Maximum amount outstanding during the period.................... $22,100,000
Average amount outstanding during the period*................... $19,898,033
Average monthly shares outstanding during the period............ 4,045,236
Average debt per share outstanding during the period............ $ 4.92
* 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 six months ended April 30, 2006.
Interest rates ranged from 4.00% to 4.88% during the six months ended April 30,
2006, on borrowings by the Fund under reverse repurchase agreements, which had
interest expense that aggregated $442,750.
D. 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. 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 on various investment securities held
by the Fund, timing differences and differing characterization of distributions
made by the Fund. Permanent differences incurred during the period ended October
31, 2005, resulting in book and tax accounting differences, have been
reclassified at year end to reflect an increase in undistributed net investment
income by $54,993 and an increase in accumulated net realized loss on
investments by $54,993. Net assets were not affected by this reclassification.
The tax character of distributions paid during fiscal period ended October 31,
2005 is as follows:
2005
----
Distributions paid from:
Ordinary Income................................ $ 1,264,541
As of October 31, 2005, the components of distributable earnings on a tax basis
were as follows:
Undistributed Ordinary Income.................. $ 226,733
Net Unrealized Depreciation.................... $ (379,670)
E. INCOME 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, and by 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.
As of October 31, 2005, the Fund had a capital loss carryforward for federal
income tax purposes of $24,542 expiring on October 31, 2013.
Page 12
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NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
APRIL 30, 2006 (UNAUDITED)
F. EXPENSES:
The Fund pays all expenses directly related to its operations.
G. ORGANIZATION AND OFFERING COSTS:
Organization costs consist of costs incurred to establish the Fund and enable it
to legally do business. These costs include filing fees, listing fees, legal
services pertaining to the organization of the business and audit fees relating
to the initial registration and auditing the initial statement of assets and
liabilities, among other fees. Offering costs consist of legal fees pertaining
to the Fund's shares offered for sale, registration fees, underwriting fees, and
printing of the initial prospectus, among other fees. First Trust and FIDAC have
paid all organization expenses and all offering costs of the Fund (other than
sales load) that exceeded $0.04 per Common Share. The Fund's share of Common
Share offering costs, $161,809, was recorded as a reduction of the proceeds from
the sale of Common Shares during the period ended October 31, 2005.
3. INVESTMENT ADVISORY FEE AND OTHER AFFILIATED TRANSACTIONS
First Trust is a limited partnership with one limited partner, Grace Partners of
DuPage L.P., and one general partner, The Charger Corporation. First Trust
serves as investment advisor to the Fund pursuant to an Investment Management
Agreement. First Trust is responsible for the ongoing monitoring of the Fund's
investment portfolio, managing the Fund's business affairs and certain
administrative services necessary for the management of the Fund. For these
investment management services, First Trust is entitled to a monthly fee
calculated at an annual rate of 1.00% of the Fund's Managed Assets (the value of
the securities and other investments the Fund holds plus cash or other assets,
including interest accrued but not yet received minus accrued liabilities other
than the principal amount of borrowings).
FIDAC serves as the Fund's sub-advisor and manages the Fund's portfolio subject
to First Trust's supervision. The Sub-Advisor receives a portfolio management
fee of 0.50% of Managed Assets that is paid monthly by First Trust from its
investment advisory fee.
First Trust agreed to reimburse the Fund for fees and expenses in an amount
equal to 0.15% of the average daily Managed Assets of the Fund through December
31, 2005. The Sub-Advisor agreed to bear a portion of this expense reimbursement
obligation by reducing the amount of its full sub-advisory fee by the lesser of
(i) $100,000 or (ii) one-half of such organization expenses and offering costs
of the Fund that exceeded 0.2% (or $0.04 per Common Share of the Fund's offering
price). Reimbursements are reported as "fees waived by the investment advisor"
on the Statement of Operations.
PFPC Inc. ("PFPC"), an indirect, majority-owned subsidiary of The PNC Financial
Services Group, Inc., serves as the Fund's Administrator and Transfer Agent in
accordance with certain fee arrangements. PFPC Trust Company, also an indirect,
majority-owned subsidiary of The PNC Financial Services Group, Inc., serves as
the Fund's Custodian in accordance with certain fee arrangements. PFPC agreed to
reimburse the Fund through December 31, 2005, for fees and expenses in an amount
equal to 0.02% of the average daily Managed Assets of the Fund. Reimbursements
are reported as "fees waived by the administrator" in the Statement of
Operations.
The Fund pays each Trustee who is not an officer or employee of First Trust or
any of its affiliates an annual retainer of $10,000, which includes compensation
for all board and committee meetings. Until January 1, 2006, additional fees of
$1,000 and $500 were paid to non-interested Trustees for special board meetings
and non-regular committee meetings, respectively. These additional fees were
shared by the funds in the First Trust fund complex that participated in the
particular meeting and are not per fund fees. Trustees are also reimbursed for
travel and out-of-pocket expenses in connection with all meetings. Effective
January 1, 2006, the non-interested Trustees are no longer paid additional fees
for special board meetings and non-regular committee meetings.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of U.S. government securities,
excluding short-term investments, for the six months ended April 30, 2006,
aggregated amounts were $60,409,618 and $61,541,052, respectively.
As of April 30, 2006, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $2,586,248
and the aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $2,225,453.
5. COMMON SHARES
As of April 30, 2006, 4,045,236 of $0.01 par value Common Shares were issued. An
unlimited number of Common Shares has been authorized under the Fund's Dividend
Reinvestment Plan.
Page 13
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
APRIL 30, 2006 (UNAUDITED)
COMMON SHARE TRANSACTIONS WERE AS FOLLOWS:
SIX MONTHS ENDED PERIOD ENDED
APRIL 30, 2006 OCTOBER 31, 2005
-------------- ----------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
Proceeds from shares sold .................... -- $ -- $4,045,236 $77,264,007
Offering costs ............................... -- -- -- (161,809)
---------- ---------- ---------- ----------
-- $ -- $4,045,236 $77,102,198
========== ========== ========== ==========
6. PREFERRED SHARES OF BENEFICIAL INTEREST
The Fund's Declaration of Trust authorizes the issuance of an unlimited number
of preferred shares of beneficial interest, par value $0.01 per share (the
"Preferred Shares"), in one or more classes or series, with rights as determined
by the Board of Trustees without the approval of Common Shareholders. As of
April 30, 2006, no Preferred Shares had been issued.
7. CONCENTRATION OF 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 bond
market, or when political or economic events affecting the issuers occur.
8. SUBSEQUENT EVENTS
On May 22, 2006, the Fund declared a dividend of $0.085 per share, which
represents a dividend from net investment income to Common Shareholders of
record June 5, 2006, payable June 15, 2006.
Effective June 12, 2006, the Board of Trustees of the Fund unanimously appointed
Robert F. Keith to the Board of Trustees and as a member to the Fund's Audit
Committee, Valuation Committee and Nominating and Governance Committee.
Page 14
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
APRIL 30, 2006 (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 PFPC
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 PFPC Inc., 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 (800) 331-1710 in
accordance with such reasonable requirements as the Plan Agent and 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 PFPC Inc., 301 Bellevue
Parkway, Wilmington, Delaware 19809.
--------------------------------------------------------------------------------
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Fund uses to determine how
to vote proxies and information on how the Fund voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30 will
be available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Fund's website located at http://www.ftportfolios.com; and (3) on the
Securities and Exchange Commission's website at http://www.sec.gov.
Page 15
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ADDITIONAL INFORMATION - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
APRIL 30, 2006 (UNAUDITED)
PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("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 1-800-SEC-0330.
BY-LAW AMENDMENT
On June 12, 2006, the Board of Trustees of the Fund approved certain changes to
the By-Laws of the Fund that may have the effect of delaying or preventing a
change of control of the Fund. To receive a copy of the revised By-Laws,
investors may call the Fund at (800) 988-5891.
SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
The Joint Annual Meeting of Shareholders of First Trust Strategic High Income
Fund, First Trust Value Line 100 Fund, Energy Income and Growth Fund, First
Trust/Fiduciary Asset Management Covered Call Fund, First Trust/Aberdeen Global
Opportunity Income Fund and First Trust/FIDAC Mortgage Income Fund was held on
April 17, 2006. At the Annual Meeting, the Fund's Board of Trustees, consisting
of James A. Bowen, Niel B. Nielson, Thomas R. Kadlec and Richard E. Erickson,
was elected to serve an additional one-year term. The number of votes cast for
James A. Bowen was 2,489,331, the number of votes withheld was 49,118 and the
number of abstentions was 1,506,787. The number of votes cast for Niel B.
Nielson was 2,489,399, the number of votes withheld was 49,050 and the number of
abstentions was 1,506,787. The number of votes cast for Richard E. Erickson was
2,489,399, the number of votes withheld was 49,050 and the number of abstentions
was 1,506,787. The number of votes cast for Thomas R. Kadlec was 2,489,299, the
number of votes withheld was 49,150 and the number of abstentions was 1,506,787.
Also at the Annual Meeting of Shareholders of the Fund, the Shareholders
approved a new sub-advisory agreement with Valhalla. The number of votes cast
was 3,378,452, the number of votes withheld was 295,703 and the number of
abstentions was 5,131,081.
Page 16
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
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.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
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.
On December 12, 2005, the Registrant's Board of Trustees adopted an
Amended Nominating and Governance Committee Charter which included some material
changes to the procedures by which shareholders may recommend nominees to the
Registrant's board of trustees as described below:
Any proposal to elect any person nominated by shareholders for election
as trustee may only be brought before an annual meeting of the Registrant if
timely written notice (the "Shareholder Notice") is provided to the secretary of
the Registrant. Unless a greater or lesser period is required under applicable
law, to be timely, the Shareholder Notice must be delivered to or mailed and
received at Registrant's address, 1001 Warrenville Road, Suite 300, Lisle,
Illinois 60532, Attn: W. Scott Jardine, not less than forty-five (45) days nor
more than sixty (60) days prior to the first anniversary date of the date of the
Registrant's proxy statement released to shareholders for the prior year's
annual meeting; provided, however, if and only if the annual meeting is not
scheduled to be held within a period that commences thirty (30) days before the
first anniversary date of the annual meeting for the preceding year and ends
thirty (30) days after such anniversary date (an annual meeting date outside
such period being referred to herein as an "Other Annual Meeting Date"), such
Shareholder Notice must be given in the manner provided herein by the later of
the close of business on (i) the date forty-five (45) days prior to such Other
Annual Meeting Date or (ii) the tenth (10th) business day following the date
such Other Annual Meeting Date is first publicly announced or disclosed.
Any shareholder submitting a nomination of any person or persons (as
the case may be) for election as a trustee or trustees of the Registrant shall
deliver, as part of such Shareholder Notice: (i) a statement in writing setting
forth (A) the name, age, date of birth, business address, residence address and
nationality of the person or persons to be nominated; (B) the class or series
and number of all shares of the Registrant owned of record or beneficially by
each such person or persons, as reported to such shareholder by such nominee(s);
(C) any other information regarding each such person required by paragraphs (a),
(d), (e) and (f) of Item 401 of Regulation S-K or paragraph (b) of Item 22 of
Rule 14a-101 (Schedule 14A) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (or any successor provision thereto); (D) any other
information regarding the person or persons to be nominated that would be
required to be disclosed in a proxy statement or other filings required to be
made in connection with solicitation of proxies for election of trustees or
directors pursuant to Section 14 of the Exchange Act and the rules and
regulations promulgated thereunder; and (E) whether such shareholder believes
any nominee is or will be an "interested person" of the Registrant (as defined
in the Investment Company Act of 1940) and, if not an "interested person,"
information regarding each nominee that will be sufficient for the Registrant to
make such determination; and (ii) the written and signed consent of any person
to be nominated to be named as a nominee and to serve as a trustee if elected.
In addition, the trustees may require any proposed nominee to furnish such other
information as they may reasonably require or deem necessary to determine the
eligibility of such proposed nominee to serve as a trustee.
Without limiting the foregoing, any shareholder who gives a Shareholder
Notice of any matter proposed to be brought before a shareholder meeting
(whether or not involving nominees for trustees) shall deliver, as part of such
Shareholder Notice: (i) the description of and text of the proposal to be
presented; (ii) a brief written statement of the reasons why such shareholder
favors the proposal; (iii) such shareholder's name and address as they appear on
the Registrant's books; (iv) any other information relating to the shareholder
that would be required to be disclosed in a proxy statement or other filings
required to be made in connection with the solicitation of proxies with respect
to the matter(s) proposed pursuant to Section 14 of the Exchange Act; (v) the
class or series and number of all shares of the Registrant owned beneficially
and of record by such shareholder; (vi) any material interest of such
shareholder in the matter proposed (other than as a shareholder); (vii) a
representation that the shareholder intends to appear in person or by proxy at
the shareholder meeting to act on the matter(s) proposed; (viii) if the proposal
involves nominee(s) for trustees, a description of all arrangements or
understandings between the shareholder and each proposed nominee and any other
person or persons (including their names) pursuant to which the nomination(s)
are to be made by the shareholder; and (ix) in the case of a shareholder (a
"Beneficial Owner") that holds shares entitled to vote at the meeting through a
nominee or "street name" holder of record, evidence establishing such Beneficial
Owner's indirect ownership of, and entitlement to vote, shares at the meeting of
shareholders. As used herein, shares "beneficially owned" shall mean all shares
which such person is deemed to beneficially own pursuant to Rules 13d-3 and
13d-5 under the Exchange Act.
A copy of the amended Nominating and Governance Committee Charter is available
on the Registrant's website at www.ftportfolios.com.
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) Not applicable.
(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/FIDAC MORTGAGE INCOME FUND
By (Signature and Title)* /S/ JAMES A. BOWEN
-------------------------------------------------------
James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
Date JUNE 27, 2006
----------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /S/ JAMES A. BOWEN
-------------------------------------------------------
James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
Date JUNE 27, 2006
----------------------------------------------------------------------------
By (Signature and Title)* /S/ MARK R. BRADLEY
-------------------------------------------------------
Mark R. Bradley, Treasurer, Controller, Chief
Financial Officer and Chief Accounting Officer
(principal financial officer)
Date JUNE 27, 2006
----------------------------------------------------------------------------
* Print the name and title of each signing officer under his or her signature.