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)
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: JULY 31, 2006
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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(s) of Investments is attached herewith.
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS
JULY 31, 2006 (UNAUDITED)
PRINCIPAL MARKET
VALUE DESCRIPTION VALUE
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U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 97.7%
FEDERAL HOME LOAN MORTGAGE CORPORATION
(FHLMC) - 9.3%
$ 6,963,863 Gold, Pool A38042, 6.00%, 10/01/35 ...................................................... $ 6,928,454
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FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - 88.4%
10,578,650 Pool 256182, 6.00%, 3/01/36 ............................................................. 10,459,641
16,879,627 Pool 256328, 6.50%, 7/01/36 ............................................................. 16,998,312
10,300,013 Pool 831145, 6.00%, 12/01/35 ............................................................ 10,245,916
9,368,658 Pool 843971, 6.00%, 11/01/35 ............................................................ 9,319,453
7,369,358 Pool 872303, 6.00%, 5/01/36 ............................................................. 7,326,323
11,601,283 Pool 880203, 6.00%, 2/01/36 ............................................................. 11,468,956
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65,818,601
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TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES ............................................................ 72,747,055
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(Cost $73,103,450)
COLLATERALIZED MORTGAGE OBLIGATIONS - 27.7%
15,210,808 Federal Home Loan Mortgage Corp.,
Series 2807, Class SB, IO, 2.08%, 11/15/33+ ........................................... 1,276,925
2,360,100 Federal Home Loan Mortgage Corp.,
Series 2836, Class PI, IO, 5.00%, 9/15/22 ............................................. 224,686
4,739,600 Federal Home Loan Mortgage Corp.,
Series 2870, Class JI, IO, 5.00%, 10/15/27 ............................................ 873,470
792,000 Federal Home Loan Mortgage Corp.,
Series 2888, Class OI, IO, 5.00%, 1/15/27 ............................................. 150,904
1,774,808 Federal Home Loan Mortgage Corp.,
Series 2921, Class IQ, IO, 5.00%, 1/15/29 ............................................. 365,741
2,279,785 Federal Home Loan Mortgage Corp.,
Series 2938, Class PI, IO, 5.00%, 11/15/28 ............................................ 291,037
1,933,440 Federal Home Loan Mortgage Corp.,
Series 2943, Class JI, IO, 5.00%, 1/15/24 ............................................. 231,305
31,882,254 Federal Home Loan Mortgage Corp., STRIP,
Series 227, Class IO, IO, 5.00%, 12/01/34 ............................................. 8,129,830
6,546,487 Federal Home Loan Mortgage Corp., STRIP,
Series 231, Class IO, IO, 5.50%, 8/01/35 .............................................. 1,697,662
12,037,380 Federal Home Loan Mortgage Corp., STRIP,
Series 232, Class IO, IO, 5.00%, 8/01/35 .............................................. 3,075,918
3,403,217 Federal Home Loan Mortgage Corp., STRIP,
Series 235, Class IO, IO, 5.50%, 2/01/36 .............................................. 921,782
2,495,730 Federal National Mortgage Association,
Series 2005-39, Class BI, IO, 5.00%, 6/25/28 .......................................... 287,199
12,048,709 Federal National Mortgage Association, STRIP,
Series 360, Class 2, IO, 5.00%, 8/01/35 ............................................... 3,120,030
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TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS ............................................... 20,646,489
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(Cost $19,115,184)
Page 1
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
JULY 31, 2006 (UNAUDITED)
PRINCIPAL MARKET
VALUE DESCRIPTION VALUE
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U.S. GOVERNMENT AGENCY OBLIGATION - 6.7%
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA) - 6.7%
$ 5,000,000 FNMA, 7.00%, 6/08/26 .................................................................... $ 5,003,995
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(Cost $4,991,485)
TOTAL INVESTMENTS - 132.1% .............................................................. 98,397,539
(Cost $97,210,119)*
REVERSE REPURCHASE AGREEMENT - (32.8)%
(24,427,000) With UBS Securities 5.32% dated 7/31/006, to be repurchased
at $24,430,610 on 8/01/06, collateralized by $24,993,295 FNMA,
6.00%, 11/01/35, FNMA, 6.00%, 12/01/35, FNMA, 6.00%, 2/01/36
and FNMA, 6.00%, 5/01/36 (24,427,000)
NET OTHER ASSETS AND LIABILITIES - 0.7% ................................................. 509,115
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NET ASSETS - 100.0% ..................................................................... $ 74,479,654
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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 July 31, 2006.
STRIP Separate trading of registered interest and principal of securities
IO Interest Only
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See Notes to Quarterly Portfolio of Investments.
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NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS - (UNAUDITED)
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FIRST TRUST/FIDAC MORTGAGE INCOME FUND
JULY 31, 2006
1. 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 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 session trading on the New York Stock
Exchange ("NYSE"), normally 4:00 p.m. Eastern time, on each day the NYSE is open
for trading. Domestic debt securities and foreign securities are priced using
data reflecting the earlier closing of the principal markets for those
securities. The 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 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. 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
Investment Company Act of 1940, as amended.
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:
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 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.
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.
Information for the period October 31, 2005 through July 31, 2006:
Maximum amount outstanding during the period .............. $ 25,804,000
Average amount outstanding during the period* ............. $ 20,302,216
Average monthly shares outstanding during the period ...... 4,045,236
Average debt per share outstanding during the period ...... $ 5.02
* 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 nine months ended July 31, 2006.
Page 3
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NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS - (UNAUDITED) (CONTINUED)
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FIRST TRUST/FIDAC MORTGAGE INCOME FUND
JULY 31, 2006
Interest rates ranged from 4.00% to 5.34% during the nine months ended July 31,
2006, on borrowings by the Fund under reverse repurchase agreements.
2. UNREALIZED APPRECIATION/(DEPRECIATION):
As of July 31, 2006, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $2,208,789
and the aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $1,021,369.
Page 4
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 SEPTEMBER 21, 2006
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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 SEPTEMBER 21, 2006
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By (Signature and Title)* /S/ MARK R. BRADLEY
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Mark R. Bradley, Treasurer,
Controller, Chief Financial
Officer and Chief Accounting Officer
(principal financial officer)
Date SEPTEMBER 21, 2006
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* Print the name and title of each signing officer under his or her signature.