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 811-22080
First Trust Active Dividend Income Fund
(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
(Name and address of agent for service)
Registrant's telephone number, including area code: 630-765-8000
Date of fiscal year end: November 30
Date of reporting period: August 31, 2013
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 DIVIDEND AND INCOME FUND (FAV)
PORTFOLIO OF INVESTMENTS
AUGUST 31, 2013 (UNAUDITED)
SHARES DESCRIPTION VALUE
--------------- ---------------------------------------------------------------------- ---------------
COMMON STOCKS - 84.0%
AEROSPACE & DEFENSE - 3.3%
13,400 Honeywell International, Inc.......................................... $ 1,066,238
11,900 Lockheed Martin Corp.................................................. 1,456,798
---------------
2,523,036
---------------
CAPITAL MARKETS - 1.7%
4,900 BlackRock, Inc........................................................ 1,275,568
---------------
CHEMICALS - 1.4%
29,200 Dow Chemical (The) Co................................................. 1,092,080
---------------
COMMERCIAL BANKS - 1.3%
24,300 Wells Fargo & Co...................................................... 998,244
---------------
COMMUNICATIONS EQUIPMENT - 1.0%
11,400 QUALCOMM, Inc......................................................... 755,592
---------------
COMPUTERS & PERIPHERALS - 1.1%
1,700 Apple, Inc............................................................ 827,985
---------------
DIVERSIFIED FINANCIAL SERVICES - 3.1%
20,400 Citigroup, Inc........................................................ 985,932
27,700 JPMorgan Chase & Co................................................... 1,399,681
---------------
2,385,613
---------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 5.6%
43,700 AT&T, Inc............................................................. 1,478,371
42,300 Centurylink, Inc...................................................... 1,400,976
28,900 Verizon Communications, Inc........................................... 1,369,282
---------------
4,248,629
---------------
ELECTRIC UTILITIES - 3.6%
11,000 Duke Energy Corp...................................................... 721,600
37,500 Exelon Corp........................................................... 1,143,375
28,100 PPL Corp.............................................................. 862,670
---------------
2,727,645
---------------
ENERGY EQUIPMENT & SERVICES - 1.9%
30,500 Seadrill Ltd.......................................................... 1,410,930
---------------
FOOD PRODUCTS - 1.0%
15,300 Kraft Foods Group, Inc................................................ 792,081
---------------
HEALTH CARE EQUIPMENT & SUPPLIES - 1.0%
12,200 Covidien PLC.......................................................... 724,680
---------------
HOTELS, RESTAURANTS & LEISURE - 3.7%
14,000 DineEquity, Inc....................................................... 927,780
27,000 Six Flags Entertainment Corp.......................................... 891,270
6,900 Wynn Resorts Ltd...................................................... 973,176
---------------
2,792,226
---------------
INDUSTRIAL CONGLOMERATES - 2.8%
93,000 General Electric Co................................................... 2,152,020
---------------
|
See Notes to Quarterly Portfolio of Investments Page 1
FIRST TRUST DIVIDEND AND INCOME FUND (FAV)
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2013 (UNAUDITED)
SHARES DESCRIPTION VALUE
--------------- ---------------------------------------------------------------------- ---------------
COMMON STOCKS (CONTINUED)
INSURANCE - 5.0%
104,400 Old Republic International Corp....................................... $ 1,482,480
15,600 Prudential Financial, Inc............................................. 1,168,128
14,000 Travelers (The) Cos., Inc............................................. 1,118,600
---------------
3,769,208
---------------
LEISURE EQUIPMENT & PRODUCTS - 1.0%
18,200 Mattel, Inc........................................................... 737,100
---------------
MACHINERY - 1.2%
11,300 Deere & Co............................................................ 945,132
---------------
MEDIA - 4.4%
96,600 National Cinemedia, Inc............................................... 1,736,868
91,300 Regal Entertainment Group, Class A.................................... 1,633,357
---------------
3,370,225
---------------
METALS & MINING - 2.1%
13,000 BHP Billiton Ltd., ADR................................................ 822,640
25,300 Freeport-McMoRan Copper & Gold, Inc................................... 764,566
---------------
1,587,206
---------------
MULTI-UTILITIES - 1.0%
12,500 National Grid PLC, ADR................................................ 719,500
---------------
OIL, GAS & CONSUMABLE FUELS - 10.5%
9,000 Chevron Corp.......................................................... 1,083,870
31,700 ConocoPhillips........................................................ 2,101,710
12,700 Occidental Petroleum Corp............................................. 1,120,267
29,800 Royal Dutch Shell PLC, ADR............................................ 1,924,782
31,600 Total S.A., ADR....................................................... 1,747,796
---------------
7,978,425
---------------
PHARMACEUTICALS - 9.1%
33,200 AstraZeneca PLC, ADR.................................................. 1,633,772
33,100 Bristol-Myers Squibb Co............................................... 1,379,939
26,800 Merck & Co., Inc...................................................... 1,267,372
92,200 Pfizer, Inc........................................................... 2,600,962
---------------
6,882,045
---------------
REAL ESTATE INVESTMENT TRUSTS - 5.3%
65,800 Annaly Capital Management, Inc........................................ 767,886
16,100 Digital Realty Trust, Inc............................................. 895,160
22,100 EPR Properties........................................................ 1,082,458
17,500 Hospitality Properties Trust.......................................... 472,850
24,800 National Retail Properties, Inc....................................... 759,624
---------------
3,977,978
---------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 1.9%
64,300 Intel Corp............................................................ 1,413,314
---------------
SOFTWARE - 1.4%
32,600 Microsoft Corp........................................................ 1,088,840
---------------
|
Page 2 See Notes to Quarterly Portfolio of Investments
FIRST TRUST DIVIDEND AND INCOME FUND (FAV)
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2013 (UNAUDITED)
SHARES/UNITS DESCRIPTION VALUE
--------------- ---------------------------------------------------------------------- ---------------
COMMON STOCKS (CONTINUED)
THRIFTS & MORTGAGE FINANCE - 1.4%
76,800 People's United Financial, Inc........................................ $ 1,092,096
---------------
TOBACCO - 5.3%
48,800 Altria Group, Inc..................................................... 1,653,344
18,400 Lorillard, Inc........................................................ 778,320
18,800 Philip Morris International, Inc...................................... 1,568,672
---------------
4,000,336
---------------
TRADING COMPANIES & DISTRIBUTORS - 1.9%
33,100 TAL International Group, Inc.......................................... 1,416,680
---------------
TOTAL COMMON STOCKS................................................... 63,684,414
(Cost $62,497,404) ---------------
MASTER LIMITED PARTNERSHIPS - 8.0%
DIVERSIFIED FINANCIAL SERVICES - 0.7%
48,200 KKR Financial Holdings LLC............................................ 490,194
---------------
OIL, GAS & CONSUMABLE FUELS - 7.3%
10,500 Alliance Resource Partners, L.P....................................... 790,440
34,700 Energy Transfer Partners, L.P......................................... 1,779,069
23,600 Golar LNG Partners, L.P............................................... 767,000
8,000 Kinder Morgan Energy Partners, L.P.................................... 652,480
26,000 Teekay Offshore Partners, L.P......................................... 826,020
14,500 Williams Partners, L.P................................................ 715,285
---------------
5,530,294
---------------
TOTAL MASTER LIMITED PARTNERSHIPS..................................... 6,020,488
(Cost $5,791,846) ---------------
CLOSED-END FUNDS - 1.5%
DIVERSIFIED FINANCIAL SERVICES - 1.5%
32,300 Kayne Anderson MLP Investment Co...................................... 1,148,911
---------------
TOTAL CLOSED-END FUNDS................................................ 1,148,911
(Cost $1,193,299) ---------------
COMMON STOCKS - BUSINESS DEVELOPMENT COMPANIES - 1.0%
CAPITAL MARKETS - 1.0%
44,500 Ares Capital Corp..................................................... 782,310
---------------
TOTAL COMMON STOCKS - BUSINESS DEVELOPMENT COMPANIES.................. 782,310
(Cost $772,673) ---------------
$25 PAR PREFERRED SECURITIES - 3.6%
STATED STATED
SHARES DESCRIPTION RATE MATURITY VALUE
--------------- ----------------------------------------- ------------- ------------ ---------------
CAPITAL MARKETS - 0.9%
29,300 Goldman Sachs Group, Inc. ............... 5.95% (a) 669,212
---------------
|
See Notes to Quarterly Portfolio of Investments Page 3
FIRST TRUST DIVIDEND AND INCOME FUND (FAV)
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2013 (UNAUDITED)
STATED STATED
SHARES DESCRIPTION RATE MATURITY VALUE
--------------- ----------------------------------------- ------------- ------------ ---------------
$25 PAR PREFERRED SECURITIES (CONTINUED)
COMMERCIAL BANKS - 0.9%
31,500 PNC Financial Services Group, Inc.,
Series Q.............................. 5.38% (a) $ 687,960
---------------
CONSUMER FINANCE - 1.3%
42,800 Discover Financial Services, Series B ... 6.50% (a) 1,011,364
---------------
MARINE - 0.5%
14,700 Seaspan Corp. ........................... 7.95% (a) 373,086
---------------
TOTAL $25 PAR PREFERRED SECURITIES.................................... 2,741,622
(Cost $2,922,415) ---------------
$50 PAR PREFERRED SECURITIES - 1.2%
REAL ESTATE INVESTMENT TRUSTS - 1.2%
16,300 Weyerhaeuser Co. ........................ 6.38% 07/01/16 866,834
---------------
TOTAL $50 PAR PREFERRED SECURITIES.................................... 866,834
(Cost $841,149) ---------------
TOTAL INVESTMENTS - 99.3%............................................. 75,244,579
(Cost $74,018,786) (b) ---------------
NUMBER OF
CONTRACTS DESCRIPTION VALUE
--------------- ---------------------------------------------------------------------- ---------------
CALL OPTIONS WRITTEN - (0.2%)
Annaly Capital Management, Inc. Call
400 @ $12.00 due September 2013........................................... (7,200)
---------------
Apple, Inc. Call
10 @ 485.00 due September 2013.......................................... (15,250)
---------------
Blackrock, Inc. Call
30 @ 290.00 due September 2013.......................................... (750)
---------------
Bristol-Myers Squibb Co. Call
200 @ 43.00 due September 2013........................................... (7,000)
---------------
Citigroup, Inc. Call
125 @ 52.50 due September 2013........................................... (1,625)
---------------
ConocoPhillips Call
200 @ 67.50 due September 2013........................................... (10,800)
---------------
Deere & Co. Call
100 @ 87.50 due September 2013........................................... (3,500)
---------------
Dow Chemical (The) Co. Calls
150 @ 40.00 due September 2013........................................... (3,750)
100 @ 39.00 due September 2013........................................... (3,800)
---------------
(7,550)
---------------
|
Page 4 See Notes to Quarterly Portfolio of Investments
FIRST TRUST DIVIDEND AND INCOME FUND (FAV)
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2013 (UNAUDITED)
NUMBER OF
CONTRACTS DESCRIPTION VALUE
--------------- ---------------------------------------------------------------------- ---------------
CALL OPTIONS WRITTEN (CONTINUED)
Exelon Corp. Call
200 @ $32.00 due September 2013........................................... $ (1,500)
---------------
Freeport-McMoRan Copper & Gold, Inc. Call
150 @ 34.00 due September 2013........................................... (600)
---------------
Honeywell International, Inc. Call
80 @ 85.00 due September 2013........................................... (720)
---------------
Merck & Co., Inc. Call
150 @ 49.00 due September 2013........................................... (1,500)
---------------
Microsoft Corp. Call
300 @ 34.00 due September 2013........................................... (17,400)
---------------
Occidental Petroleum Corp. Call
75 @ 90.00 due September 2013........................................... (6,450)
---------------
Prudential Financial, Inc. Call
125 @ 82.50 due September 2013........................................... (1,500)
---------------
QUALCOMM, Inc. Call
80 @ 70.00 due September 2013........................................... (1,360)
---------------
S&P 500 Index Calls (c)
35 @ 1,705.00 due September 2013........................................ (4,865)
35 @ 1,740.00 due September 2013........................................ (875)
---------------
(5,740)
---------------
Six Flags Entertainment Corp. Call
150 @ 35.00 due September 2013........................................... (2,250)
---------------
Verizon Communications, Inc. Call
200 @ 49.00 due September 2013........................................... (8,600)
---------------
Wells Fargo & Co. Call
150 @ 44.00 due September 2013........................................... (1,050)
---------------
Wynn Resorts Ltd. Call
40 @ 145.00 due September 2013.......................................... (7,200)
---------------
TOTAL CALL OPTIONS WRITTEN............................................ (109,545)
(Premiums received $154,763) ---------------
NET OTHER ASSETS AND LIABILITIES - 0.9%............................... 659,276
---------------
NET ASSETS - 100.0%................................................... $ 75,794,310
===============
|
See Notes to Quarterly Portfolio of Investments Page 5
FIRST TRUST DIVIDEND AND INCOME FUND (FAV)
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2013 (UNAUDITED)
(a) Perpetual maturity.
(b) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of August 31, 2013, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $3,033,287 and the aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over value was $1,807,494.
(c) Call options on securities indices were written on a portion of the common
stock positions that were not used to cover call options written on
individual equity securities held in the Fund's portfolio.
ADR American Depositary Receipt
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of August 31,
2013 is as follows (see Note 2A - Portfolio Valuation in the Notes to Quarterly
Portfolio of Investments):
ASSETS TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
8/31/2013 PRICES INPUTS INPUTS
--------------- ------------- --------------- --------------
Common Stocks*..................................... $ 63,684,414 $ 63,684,414 $ -- $ --
Master Limited Partnerships*....................... 6,020,488 6,020,488 -- --
Closed-End Funds*.................................. 1,148,911 1,148,911 -- --
Common Stocks - Business Development Companies* ... 782,310 782,310 -- --
$25 Par Preferred Securities*...................... 2,741,622 2,741,622 -- --
$50 Par Preferred Securities*...................... 866,834 866,834 -- --
--------------- ------------- --------------- --------------
TOTAL INVESTMENTS.................................. $ 75,244,579 $ 75,244,579 $ -- $ --
=============== ============= =============== ==============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
8/31/2013 PRICES INPUTS INPUTS
--------------- ------------- --------------- --------------
Call Options Written............................... $ (109,545) $ (109,545) $ -- $ --
=============== ============= =============== ==============
|
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at August 31, 2013.
Page 6 See Notes to Quarterly Portfolio of Investments
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS
FIRST TRUST DIVIDEND AND INCOME FUND
AUGUST 31, 2013 (UNAUDITED)
1. ORGANIZATION
First Trust Dividend and Income Fund (formerly known as First Trust Active
Dividend Income Fund) (the "Fund") is a diversified, closed-end management
investment company organized as a Massachusetts business trust on June 14, 2007
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 FAV on the New York Stock Exchange ("NYSE"). Effective
July 1, 2013, the Fund's name was changed to its current name and Chartwell
Investment Partners, L.P. ("Sub-Advisor" or "Chartwell") began serving as
sub-advisor of the Fund, pursuant to an interim investment sub-advisory
agreement.
2. VALUATION AND INVESTMENT PRACTICES
A. PORTFOLIO VALUATION:
The net asset value ("NAV") of the Common Shares of First Trust Dividend and
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 1940 Act. The Fund's securities will be valued as follows:
Common stocks, master limited partnerships ("MLPs") and other securities
listed on any national or foreign exchange (excluding the NASDAQ National
Market ("NASDAQ") and the London Stock Exchange Alternative Investment
Market ("AIM")) are valued at the last sale price on the exchange on which
they are principally traded or, for NASDAQ and AIM securities, the
official closing price. Securities traded on one or more than one
securities exchange are valued at the last sale price or official closing
price, as applicable, at the close of the securities exchange representing
the principal market for such securities.
Securities traded in an over-the-counter market are valued at their
closing bid prices.
Exchange-traded options contracts are valued at the closing price in the
market where such contracts are principally traded. If no closing price is
available, exchange-traded options contracts are valued at the mean
between the most recent bid and asked prices. Over-the-counter options
contracts are valued at their closing bid prices.
Short-term investments that mature in less than 60 days when purchased are
valued at amortized cost.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Fund's Board of Trustees or its
delegate at fair value. These securities generally include, but are not limited
to, restricted securities (securities which may not be publicly sold without
registration under the Securities Act of 1933, as amended) for which a pricing
service is unable to provide a market price; securities whose trading has been
formally suspended; a security whose market price is not available from a
pre-established pricing source; a security with respect to which an event has
occurred that is likely to materially affect the value of the security after the
market has closed but before the calculation of a Fund's NAV or make it
difficult or impossible to obtain a reliable market quotation; and a security
whose price, as provided by the pricing service, does not reflect the security's
fair value. As a general principle, the current fair value of a security would
appear to be the amount which the owner might reasonably expect to receive for
the security upon its current sale. The use of fair value prices by a Fund
generally results in prices used by the Fund that may differ from current market
quotations or official closing prices on the applicable exchange. A variety of
factors may be considered in determining the fair value of such securities,
including, but not limited to, the following:
1) the type of security;
2) the size of the holding;
3) the initial cost of the security;
4) transactions in comparable securities;
5) price quotes from dealers and/or pricing services;
6) relationships among various securities;
7) information obtained by contacting the issuer, analysts, or the
appropriate stock exchange;
8) an analysis of the issuer's financial statements; and
9) the existence of merger proposals or tender offers that might affect
the value of the security.
If the securities in question are foreign securities, the following additional
information may be considered:
1) the value of similar foreign securities traded on other foreign
markets;
2) ADR trading of similar securities;
3) closed-end fund trading of similar securities;
Page 7
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS - (CONTINUED)
FIRST TRUST DIVIDEND AND INCOME FUND
AUGUST 31, 2013 (UNAUDITED)
4) foreign currency exchange activity;
5) the trading prices of financial products that are tied to baskets of
foreign securities;
6) factors relating to the event that precipitated the pricing problem;
7) whether the event is likely to recur; and
8) whether the effects of the event are isolated or whether they affect
entire markets, countries or regions.
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 investments. An active market is a market in which
transactions for the investment 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 investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, 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
investment (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
investment.
The inputs or methodology used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of August 31, 2013, is
included with the Fund's Portfolio of Investments.
B. OPTION CONTRACTS:
The goal of the option overlay strategy is to generate additional income from
option premiums in an attempt to enhance the distributions payable to
shareholders and reduce overall portfolio volatility. The Fund generally will
write "at-the-money" or "out-of-the-money" call options on stock indices and
single stocks on up to 50% of the Fund's portfolio value. Through June 30, 2013,
the option strategy was managed by the Alternatives Group at First Trust, the
investment advisor to the Fund. The Fund will not write (sell) "naked" or
uncovered options. Options are marked-to-market daily and their value will be
affected by changes in the value and dividend rates of the underlying equity
securities, changes in interest rates, changes in the actual or perceived
volatility of the securities markets and the underlying equity securities and
the remaining time to the options' expiration. The value of options may also be
adversely affected if the market for the options becomes less liquid or trading
volume diminishes.
Options the Fund writes (sells) will either be exercised, expire or be cancelled
pursuant to a closing transaction. If the price of the underlying equity
security exceeds the option's exercise price, it is likely that the option
holder will exercise the option. If a single stock option written (sold) by the
Fund is exercised, the Fund would be obligated to deliver the underlying equity
security to the option holder upon payment of the strike price. In this case,
the option premium received by the Fund will be added to the amount realized on
the sale of the underlying security for purposes of determining gain or loss.
Index options, if exercised, are settled in cash and therefore the Fund never
has to deliver any physical securities. If the price of the underlying equity
security is less than the option's strike price, the option will likely expire
without being exercised. The option premium received by the Fund will, in this
case, be treated as short-term capital gain on the expiration date of the
option. The Fund may also elect to close out its position in an option prior to
its expiration by purchasing an option of the same series as the option written
(sold) by the Fund.
Single stock options that the Fund writes (sells) give the option holder the
right, but not the obligation, to purchase a security from the Fund at the
strike price on or prior to the option's expiration date. The purchaser of an
index option written by the Fund has the right to any appreciation in the cash
value of the index over the strike price on the expiration date. The ability to
successfully implement the writing (selling) of covered call options depends on
the ability of the Sub-Advisor to predict pertinent market movements, which
cannot be assured. Thus, the use of options may require the Fund to sell
portfolio securities at inopportune times or for prices other than current
market value, which may limit the amount of appreciation the Fund can realize on
an investment, or may cause the Fund to hold a security that it might otherwise
sell. As the writer (seller) of a covered option, the Fund foregoes, during the
option's life, the opportunity to profit from increases in the market value of
the security covering the option above the sum of the premium and the strike
price of the option, but has retained the risk of loss should the price of the
underlying security decline. The writer (seller) of an option has no control
over the time when it may be required to fulfill its obligation as a writer
(seller) of the option. Once an option writer (seller) has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate
its obligation under the option and must deliver the underlying security to the
option holder at the exercise price.
Over-the-counter options have the risk of the potential inability of
counterparties to meet the terms of their contracts. The Fund's maximum equity
Page 8
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS - (CONTINUED)
FIRST TRUST DIVIDEND AND INCOME FUND
AUGUST 31, 2013 (UNAUDITED)
price risk for purchased options is limited to the premium initially paid. In
addition, certain risks may arise upon entering into option contracts including
the risk that an illiquid secondary market will limit the Fund's ability to
close out an option contract prior to the expiration date and that a change in
the value of the option contract may not correlate exactly with changes in the
value of the securities hedged.
C. 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.
3. OPTION ACTIVITY
Written option activity for the Fund for the fiscal year to date period
(December 1, 2012 through August 31, 2013) was as follows:
Number
of
Written Options Contracts Premiums
------------------------------------------------------------------------------
Options outstanding at November 30, 2012... 140 $ 111,751
Options Written............................ 7,870 1,059,433
Options Expired............................ (3,455) (276,482)
Options Exercised.......................... (175) (5,950)
Options Closed............................. (1,295) (733,989)
------- ----------
Options outstanding at August 31, 2013..... 3,085 $ 154,763
======= ==========
|
4. SUBSEQUENT EVENTS
On September 16, 2013 the shareholders of the Fund voted to approve a new
investment sub-advisory agreement with Chartwell Investment Partners, L.P.
On June 10, 2013, the Board approved a repositioning of the Fund that
contemplated certain changes to the Fund's investment strategies as described
briefly below. Such changes were not subject to shareholder approval. The Fund's
primary investment objective, which is to seek a high level of current income,
and secondary investment objective, which is capital appreciation, are not
changing. The Fund will seek to achieve its investment objectives by investing
at least 80% of its managed assets in a diversified portfolio of dividend-paying
multi-cap equity securities, debt securities, and senior, secured floating rate
loans that offer the potential for attractive income and/or capital
appreciation. The Fund may invest up to 25% of its managed assets in U.S.
dollar-denominated Equity Securities of non-U.S. issuers. On an ongoing and
consistent basis, the Fund expects to write (sell) covered call options on
equity indices and/or Equity Securities within the Equity Component. The Fund
will normally write (sell) covered call options against equity indices and/or
Equity Securities with strike prices and expiration dates that are collectively
intended to provide risk/reward characteristics that are consistent with the
Fund's investment objectives. The Fund initially intends to utilize leverage
through borrowings in an amount up to 25% of the Fund's managed assets to seek
to enhance its potential for current income. To the extent leverage is used, the
Fund currently intends to invest the funds raised through leverage in Senior
Loans and High Yield Debt Securities.
Page 9
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 Active Dividend Income Fund
By (Signature and Title)* /s/ Mark R. Bradley
----------------------------------------
Mark R. Bradley
President and Chief Executive Officer
(principal executive officer)
Date: October 15, 2013
---------------------
|
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/ Mark R. Bradley
----------------------------------------
Mark R. Bradley
President and Chief Executive Officer
(principal executive officer)
Date: October 15, 2013
---------------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: October 15, 2013
---------------------
|
*Print the name and title of each signing officer under his or her signature.
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