UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED MANAGEMENT
INVESTMENT COMPANY
Investment Company Act file number 811-21727
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First Trust/FIDAC Mortgage Income Fund
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(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Name and address of agent for service)
Registrant's telephone number, including area code: 630-765-8000
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Date of fiscal year end: October 31
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Date of reporting period: January 31, 2011
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Form N-Q is to be used by management investment companies, other than small
business investment companies registered on Form N-5 (ss.ss. 239.24 and 274.5 of
this chapter), to file reports with the Commission, not later than 60 days after
the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under
the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may use
the information provided on Form N-Q in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-Q, and
the Commission will make this information public. A registrant is not required
to respond to the collection of information contained in Form N-Q unless the
Form displays a currently valid Office of Management and Budget ("OMB") control
number. Please direct comments concerning the accuracy of the information
collection burden estimate and any suggestions for reducing the burden to the
Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC
20549. The OMB has reviewed this collection of information under the clearance
requirements of 44 U.S.C. ss. 3507.
ITEM 1. SCHEDULE OF INVESTMENTS. The Schedule of Investments is attached
herewith.
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS (a)
JANUARY 31, 2011 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
________________ ___________________________________________ ____________ ____________ ________________
MORTGAGE-BACKED SECURITIES - 47.8%
COLLATERALIZED MORTGAGE OBLIGATIONS - 47.8%
Adjustable Rate Mortgage Trust
$ 529,524 Series 2004-5, Class 1A1 (b)........... 2.94% 04/25/35 $ 492,203
Banc of America Funding Corp.
1,087,202 Series 2005-F, Class 4A1 (b)........... 3.14% 09/20/35 893,155
Banc of America Mortgage Securities
112,949 Series 2002-L, Class 1A1 (b)........... 2.78% 12/25/32 84,842
169,273 Series 2004-K, Class 4A1 (b)........... 5.24% 12/25/34 160,852
3,394,650 Series 2007-3, Class 2A3 .............. 7.00% 09/25/37 600,727
Bear Stearns Adjustable Rate Mortgage
Trust
1,102,883 Series 2004-10, Class 12A3 (b)......... 2.94% 01/25/35 1,025,077
1,266,603 Series 2004-9, Class 12A3 (b).......... 3.17% 11/25/34 1,124,332
Chase Mortgage Finance Corp.
832,437 Series 2007-A3, Class 3A1 (b)...... 5.93% 12/25/37 767,897
Countrywide Alternative Loan Trust
532,190 Series 2004-14T2, Class A6 ............ 5.50% 08/25/34 538,250
176,853 Series 2004-1T1, Class A1 ............. 5.00% 02/25/34 176,717
1,679,765 Series 2005-J1, Class 2A1 ............. 5.50% 02/25/25 1,536,377
Countrywide Home Loans
365,540 Series 2004-HYB1, Class 2A (b)......... 2.89% 05/20/34 332,526
229,075 Series 2005-20, Class A7 .............. 5.25% 12/25/27 203,273
1,669,343 Series 2005-J4, Class A4 .............. 5.50% 11/25/35 1,600,249
Credit Suisse First Boston Mortgage
Securities Corp.
2,706,167 Series 2004-AR2, Class 1A1 (b)......... 2.70% 03/25/34 2,205,808
First Horizon Mortgage Trust
2,101,626 Series 2005-8, Class 1A5 .............. 5.75% 02/25/36 2,092,100
GMAC Mortgage Corporation Loan Trust
400,399 Series 2004-AR1, Class 22A (b)......... 3.04% 06/25/34 352,285
GSR Mortgage Loan Trust
97,731 Series 2004-5, Class 3A2 (b)........... 4.59% 05/25/34 97,671
342,324 Series 2005-AR2, Class 5A1 (b)......... 2.87% 04/25/35 309,970
3,492,907 Series 2007-1F, Class 3A10, IO ........ 6.00% 01/25/37 403,261
Harborview Mortgage Loan Trust
318,769 Series 2004-1, Class 2A (b)............ 2.74% 04/19/34 315,707
1,315,714 Series 2004-6, Class 3A1 (b)........... 2.94% 08/19/34 1,049,396
JP Morgan Mortgage Trust
2,943,887 Series 2005-ALT1, Class 4A1 (b)........ 5.56% 10/25/35 2,587,724
JP Morgan Re-REMIC
3,378,451 Series 2009-7, Class 12A1 (b) (c)...... 6.25% 01/27/37 3,458,787
MASTR Alternative Loan Trust
706,274 Series 2004-8, Class 5A1 .............. 6.00% 09/25/34 730,395
Merrill Lynch Mortgage Investors Trust
1,725,483 Series 2005-A7, Class 2A1 (b).......... 5.31% 09/25/35 1,607,692
Morgan Stanley Mortgage Loan Trust
276,336 Series 2004-7AR, Class 2A6 (b)......... 2.60% 09/25/34 260,304
Provident Funding Mortgage Loan Trust
521,623 Series 2005-1, Class 1A1 (b)........... 2.76% 05/25/35 460,227
See Notes to Quarterly Portfolio of Investments Page 1
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
JANUARY 31, 2011 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
________________ ___________________________________________ ____________ ____________ ________________
MORTGAGE-BACKED SECURITIES - (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS - (CONTINUED)
Residential Accredit Loans, Inc.
$ 135,664 Series 2002-QS18, Class A1 ............ 5.50% 12/25/17 $ 138,625
1,269,052 Series 2004-QS2, Class CB ............. 5.75% 02/25/34 1,285,898
Residential Funding Mortgage Securities I
558,091 Series 2005-S5, Class A5 .............. 5.25% 07/25/35 538,392
Sequoia Mortgage Trust
3,341,722 Series 2007-1, Class 2A1 (b)........... 5.25% 02/20/47 2,739,646
Wachovia Mortgage Loan Trust, LLC
1,251,479 Series 2006-A, Class 3A1 (b)........... 4.99% 05/20/36 1,155,906
Washington Mutual Msc Mortgage Pass-Through
883,837 Series 2004-RA1, Class 2A ............. 7.00% 03/25/34 929,095
Wells Fargo Mortgage Backed Securities
Trust
761,708 Series 2005-AR16, Class 1A1 (b)........ 2.88% 10/25/35 760,482
307,200 Series 2006-16, Class A18 ............. 5.00% 11/25/36 306,806
952,889 Series 2006-9, Class 1A32 ............. 6.00% 08/25/36 952,028
343,279 Series 2006-AR10, Class 5A2 (b)........ 5.45% 07/25/36 290,810
2,091,552 Series 2007-16, Class 1A1 ............. 6.00% 12/28/37 2,202,591
1,368,233 Series 2007-8, Class 2A7 .............. 6.00% 07/25/37 1,390,124
_____________
TOTAL MORTGAGE-BACKED SECURITIES ................................... 38,158,207
(Cost $35,060,350) _____________
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 72.0%
COLLATERALIZED MORTGAGE OBLIGATIONS - 35.0%
Federal Home Loan Mortgage Corp.
1,823,152 Series 2641, Class SC (d).............. 13.38% 07/15/33 1,950,415
852,600 Series 2676, Class IK, IO ............. 5.00% 02/15/20 7,365
11,555 Series 2716, Class CI, IO ............. 5.00% 05/15/19 3
471,693 Series 2737, Class IG, IO ............. 5.00% 08/15/27 3,401
7,598,377 Series 2807, Class SB, IO (d).......... 7.19% 11/15/33 1,064,646
1,755,214 Series 2870, Class JI, IO ............. 5.00% 10/15/27 24,840
302,243 Series 2888, Class OI, IO ............. 5.00% 01/15/27 3,825
1,140,134 Series 2921, Class IQ, IO ............. 5.00% 01/15/29 28,216
540,282 Series 2938, Class PI, IO ............. 5.00% 11/15/28 13,295
95,053 Series 2961, Class IP, IO ............. 5.50% 07/15/28 512
600,853 Series 3000, Class SU (d).............. 22.32% 04/15/35 672,740
748,321 Series 3069, Class LI, IO ............. 5.50% 08/15/32 61,760
62,381 Series 3171, Class CS (d).............. 37.73% 06/15/36 68,427
343,235 Series 3195, Class SX (d).............. 44.45% 07/15/36 491,015
3,045,599 Series 3562, Class KI, IO ............. 4.50% 11/15/22 306,712
105,002 Series 3569, Class SN (d).............. 13.35% 08/15/39 104,480
49,169 Series 3570, Class SB (d).............. 9.48% 08/15/39 49,177
2,748,078 Series 3593, Class IP, IO ............. 5.00% 06/15/36 300,590
11,617,433 Series 3619, Class EI, IO ............. 4.50% 05/15/24 1,330,049
3,026,427 Series 3702, Class SK (d).............. 13.92% 08/15/40 3,086,179
13,469,093 Series 3726, Class KI, IO ............. 3.50% 04/15/25 1,786,396
See Notes to Quarterly Portfolio of Investments Page 2
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
JANUARY 31, 2011 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
________________ ___________________________________________ ____________ ____________ ________________
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS - (CONTINUED)
Federal Home Loan Mortgage Corp., STRIP
$ 11,076,348 Series 227, Class IO, IO .............. 5.00% 12/01/34 $ 2,310,694
5,468,434 Series 232, Class IO, IO .............. 5.00% 08/01/35 1,125,787
Federal National Mortgage Association
2,289,586 Series 2005-122, Class SN (d).......... 27.56% 01/25/36 2,793,249
425,497 Series 2005-39, Class BI, IO .......... 5.00% 06/25/28 10,212
375,885 Series 2005-91, Class SH (d)........... 22.88% 05/25/33 448,554
4,287,911 Series 2008-50, Class AI, IO .......... 5.50% 06/25/23 318,331
2,913,910 Series 2009-111, Class SB (d).......... 7.58% 04/25/35 2,855,746
7,066,205 Series 2009-56, Class PI, IO .......... 5.00% 11/25/30 197,912
6,597,643 Series 2010-103, Class ID, IO ......... 5.00% 09/25/40 1,434,857
9,816,274 Series 2010-139, Class KI, IO ......... 1.09% 12/25/40 420,588
4,431,361 Series 2010-145, Class TI, IO ......... 3.50% 12/25/20 477,805
15,256,143 Series 2010-40, Class MI, IO .......... 4.50% 08/25/24 1,352,849
Federal National Mortgage Association, STRIP
5,833,536 Series 360, Class 2, IO ............... 5.00% 08/01/35 1,187,637
Government National Mortgage Association
3,501,200 Series 2009-65, Class NJ, IO .......... 5.50% 07/20/39 489,166
5,474,782 Series 2010-115, Class IQ, IO ......... 4.50% 11/20/38 1,085,166
_____________
27,862,596
_____________
PASS-THROUGH SECURITIES - 37.0%
Federal Home Loan Mortgage Corp.
2,741,950 Pool A94738 ........................... 4.50% 11/01/40 2,802,787
1,498,373 Pool K36017 ........................... 5.00% 09/01/47 1,558,960
Federal National Mortgage Association
3,879,030 Pool 256182 ........................... 6.00% 03/01/36 4,190,911
3,788,087 Pool 256328 (e)........................ 6.50% 07/01/36 4,182,792
4,311,440 Pool 831145 ........................... 6.00% 12/01/35 4,720,737
4,488,429 Pool 843971 (e)........................ 6.00% 11/01/35 4,949,595
2,265,653 Pool 872303 (e)........................ 6.00% 05/01/36 2,468,702
4,307,100 Pool 880203 (e)........................ 6.00% 02/01/36 4,650,706
_____________
29,525,190
_____________
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES ............ 57,387,786
(Cost $53,910,491) _____________
TOTAL INVESTMENTS - 119.8% ......................................... 95,545,993
(Cost $88,970,841) (f)
See Notes to Quarterly Portfolio of Investments Page 3
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
JANUARY 31, 2011 (UNAUDITED)
PRINCIPAL
VALUE DESCRIPTION AMOUNT
_______________ ____________________________________________________________________ ______________
REVERSE REPURCHASE AGREEMENTS - (20.2%)
$ (16,117,000) With UBS Securities 0.31% dated 01/31/11, to be repurchased at
$16,117,139 on 02/01/11 ............................................ $(16,117,000)
NET OTHER ASSETS AND LIABILITIES - 0.4% ............................ 346,751
_____________
NET ASSETS - 100.0% ................................................ $ 79,775,744
=============
__________________________________
(a) All percentages shown in the Portfolio of Investments are based on
net assets.
(b) Floating rate security. The interest rate shown reflects the rate in
effect at January 31, 2011.
(c) The Fund may invest in restricted securities. This security is
restricted and cannot be offered for public sale without first being
registered under the Securities Act of 1933, as amended. Prior to
registration, restricted securities may only be resold in
transactions exempt from registration. The Fund does not have the
right to demand that this security be registered. This security is
valued according to the valuation procedures as stated in the
Portfolio Valuation footnote (Note A) and is not expressed as a
discount to the carrying value of a comparable unrestricted
security. This security was acquired on September 9, 2009, has a
current carrying cost of $3,228,889, a carrying value per share of
$1.02 and represents 4.34% of net assets.
(d) Inverse floating rate instrument. The interest rate shown reflects
the rate in effect at January 31, 2011.
(e) This security or a portion of this security is segregated as
collateral for reverse repurchase agreements.
(f) Aggregate cost for financial reporting purposes, which approximates
the aggregate cost for federal income tax purposes. As of January
31, 2011, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$9,949,607 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$3,374,455.
IO Interest-Only Security - Principal amount shown represents par value
on which interest payments are based.
STRIP Separate Trading of Registered Interest and Principal of Securities
__________________________________
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of January 31,
2011 is as follows (see Note A - Portfolio Valuation in the Notes to Quarterly
Portfolio of Investments):
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
------------- 1/31/2011 PRICES INPUTS INPUTS
______________ ____________ ______________ ______________
Mortgage-Backed Securities.................... $ 38,158,207 $ -- $ 38,158,207 $ --
U.S. Government Agency Mortgage-Backed
Securities: --
Collateralized Mortgage Obligations...... 27,862,596 -- 27,862,596 --
Pass-through Securities.................. 29,525,190 -- 29,525,190 --
______________ ____________ ______________ ______________
TOTAL INVESTMENTS............................. $ 95,545,993 $ -- $ 95,545,993 $ --
============== ============ ============== ==============
See Notes to Quarterly Portfolio of Investments Page 4
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
JANUARY 31, 2011 (UNAUDITED)
The following table presents the activity of the Fund's investments
measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) for the period presented.
INVESTMENTS AT
FAIR VALUE USING CHANGE IN NET
SIGNIFICANT BALANCE AS UNREALIZED BALANCE AS
UNOBSERVABLE OF OCTOBER 31, TRANSFERS IN NET REALIZED APPRECIATION NET PURCHASES OF JANUARY 31,
INPUTS (LEVEL 3) 2010 (OUT) OF LEVEL 3 GAINS (LOSSES) (DEPRECIATION) (SALES) 2011
____________________________________________________________________________________________________________________________________
Mortgage-Backed
Securities $ 3,747,608 $ (3,458,787) $ 1,289 $ (261,110) $ (29,000) $ -
______________________________________________________________________________________________________________
TOTAL INVESTMENTS $ 3,747,608 $ (3,458,787) $ 1,289 $ (261,110) $ (29,000) $ -
==============================================================================================================
See Notes to Quarterly Portfolio of Investments Page 5
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
JANUARY 31, 2011 (UNAUDITED)
VALUATION AND INVESTMENT PRACTICES
A. PORTFOLIO VALUATION:
The net asset value ("NAV") of the Common Shares of the First Trust/FIDAC
Mortgage Income Fund (the "Fund") is determined daily, as of the close of
regular trading on the 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 Investment Company Act of 1940, as amended (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.
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
security upon its current sale. However, in light of the judgment involved in
fair valuations, there can be no assurance that a fair value assigned to a
particular security will be the amount which the Fund might be able to receive
upon its current sale. Fair valuation of a security is based on the
consideration of all available information, including, but not limited to, the
following:
1) the fundamental business data relating to the issuer;
2) an evaluation of the forces which influence the market in which these
securities are purchased and sold;
3) the type, size and cost of security;
4) the financial statements of the issuer;
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.
Page 6
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS - (CONTINUED)
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
JANUARY 31, 2011 (UNAUDITED)
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 January 31, 2011, is
included with the Fund's Portfolio of Investments.
B. SECURITIES TRANSACTIONS:
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Securities purchased or sold on a when-issued, delayed-delivery or forward
purchase commitment basis may have extended settlement periods. The value of the
security so purchased is subject to market fluctuations during this period. The
Fund maintains liquid assets with a current value at least equal to the amount
of its when-issued, delayed-delivery or forward purchase commitments until
payment is made. At January 31, 2011, the Fund had no when-issued,
delayed-delivery or forward purchase commitments.
C. REVERSE REPURCHASE AGREEMENTS:
Reverse repurchase agreements are utilized as leverage for the Fund. A reverse
repurchase agreement, although structured as a sale and repurchase obligation,
acts as a financing under which Fund assets are pledged as collateral to secure
a short-term loan. Generally, the other party to the agreement makes the loan in
an amount equal to a percentage of the market value of the pledged collateral.
At the maturity of the reverse repurchase agreement, the loan will be repaid and
the collateral will correspondingly be received back to the Fund. While used as
collateral, the assets continue to pay principal and interest which are for the
benefit of the Fund.
Information for the period ended January 31, 2011:
Maximum amount outstanding during the period $21,844,000
Average amount outstanding during the period* $16,623,043
Average Common Shares outstanding during the period 4,056,945
Average debt per Common Share outstanding during the period $4.10
* 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 period ended January 31, 2011.
During the period ended January 31, 2011, interest rates ranged from 0.20% to
0.38%, with a weighted average interest rate of 0.28%, on borrowings by the Fund
under reverse repurchase agreements, which had interest expense that aggregated
$11,772.
Page 7
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS - (CONTINUED)
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
JANUARY 31, 2011 (UNAUDITED)
D. INVERSE FLOATING-RATE SECURITIES:
An inverse floating-rate security is one where the coupon is inversely indexed
to a short-term floating interest rate multiplied by a specific factor. As the
floating rate rises, the coupon is reduced. Conversely, as the floating rate
declines, the coupon is increased. The price of these securities may be more
volatile than the price of a comparable fixed-rate security. These instruments
are typically used to enhance the yield of the portfolio. These securities, if
held in the Fund, are identified on the Portfolio of Investments.
E. STRIPPED MORTGAGE-BACKED SECURITIES:
Stripped Mortgage-Backed Securities are created by segregating the cash flows
from underlying mortgage loans or mortgage securities to create two or more new
securities, each with a specified percentage of the underlying security's
principal or interest payments. Mortgage securities may be partially stripped so
that each investor class receives some interest and some principal. When
securities are completely stripped, however, all of the interest is distributed
to holders of one type of security known as an interest only or IO security and
all of the principal is distributed to holders of another type of security known
as a principal only or PO security. These securities, if held in the Fund, are
identified on the Portfolio of Investments.
F. INTEREST-ONLY SECURITIES:
An interest-only security ("IO Security") is the interest-only portion of an 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 on the
Portfolio of Investments.
Page 8
ITEM 2. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers, or
persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the "1940
Act") (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days
of the filing date of the report that includes the disclosure required by
this paragraph, based on their evaluation of these controls and
procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR
270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities
Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR
270.30a-3(d)) that occurred during the registrant's last fiscal quarter
that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
ITEM 3. EXHIBITS.
Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of
the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) First Trust/FIDAC Mortgage Income Fund
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By (Signature and Title)* /s/ James A. Bowen
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James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
Date March 23, 2011
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Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ James A. Bowen
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James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
Date March 23, 2011
------------------------
By (Signature and Title)* /s/ Mark R. Bradley
-----------------------------------------------------
Mark R. Bradley, Treasurer, Chief Financial Officer
and Chief Accounting Officer
(principal financial officer)
Date March 23, 2011
------------------------
* Print the name and title of each signing officer under his or her signature.