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 811-22080
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First Trust Active Dividend 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: November 30
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Date of reporting period: November 30, 2007
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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.
[LOGO OMITTED] FIRST TRUST
ADVISORS L.P.
ANNUAL REPORT
For the Period
September 20, 2007
(Commencement of Operations)
to November 30, 2007
FIRST TRUST
ACTIVE DIVIDEND
INCOME
FUND
[LOGO OMITTED] AVIANCE
MANAGEMENT
Front Cover
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TABLE OF CONTENTS
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FIRST TRUST ACTIVE DIVIDEND INCOME FUND (FAV)
ANNUAL REPORT
NOVEMBER 30, 2007
Shareholder Letter 1
Portfolio Commentary 2
Portfolio Components 4
Portfolio of Investments 5
Statement of Assets and Liabilities 8
Statement of Operations 9
Statement of Changes in Net Assets 10
Financial Highlights 11
Notes to Financial Statements 12
Report of Independent Registered Public Accounting Firm 16
Additional Information 17
Board of Trustees and Officers 21
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended. Forward-looking
statements include statements regarding the goals, beliefs, plans or current
expectations of First Trust Advisors L.P. ("First Trust" or the "Advisor")
and/or Aviance Capital Management, LLC ("Aviance" or the "Sub-Advisor") and
their respective representatives, taking into account the information currently
available to them. Forward-looking statements include all statements that do not
relate solely to current or historical fact. For example, forward-looking
statements include the use of words such as "anticipate," "estimate," "intend,"
"expect," "believe," "plan," "may," "should," "would" or other words that convey
uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
First Trust Active Dividend Income Fund (the "Fund") to be materially different
from any future results, performance or achievements expressed or implied by the
forward-looking statements. When evaluating the information included in this
report, you are cautioned not to place undue reliance on these forward-looking
statements, which reflect the judgment of the Advisor and/or Sub-Advisor and
their respective representatives only as of the date hereof. We undertake no
obligation to publicly revise or update these forward-looking statements to
reflect events and circumstances that arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that the Fund will achieve its investment objectives. The
Fund is subject to market risk, which is the possibility that the market values
of securities owned by the Fund will decline and that the value of the Fund
shares may therefore be less than what you paid for them. Accordingly, you can
lose money investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
http://www.ftportfolios.com or speak with your financial advisor. Investment
returns, net asset value and common share price will fluctuate and Fund shares
may be worth more or less than their original cost.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment. It
includes details about the Fund and presents data and analysis that provide
insight into the Fund's performance and investment approach.
By reading the portfolio commentary by the portfolio management team of the
Fund, you may obtain an understanding of how the market environment affected the
Fund's performance. The statistical information that follows may help you
understand the Fund's performance compared to that of relevant market
benchmarks.
It is important to keep in mind that the opinions expressed by personnel of
Aviance are just that: informed opinions. They should not be considered to be
promises or advice. The opinions, like the statistics, cover the period through
the date on the cover of this report. The risks of investing in the Fund are
spelled out in the prospectus.
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SHAREHOLDER LETTER
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FIRST TRUST ACTIVE DIVIDEND INCOME FUND (FAV)
ANNUAL REPORT
NOVEMBER 30, 2007
Dear Shareholders:
We believe investment opportunities abound, both here and abroad, affording the
potential for exceptional returns for investors. At First Trust Advisors L.P.
("First Trust"), we realize that we must be mindful of the complexities of the
global economy and at the same time address the needs of our customers through
the types of investments we bring to market.
We are single-minded about providing a range of investment products, including
our family of closed-end funds, to help First Trust meet the challenge of
maximizing our customers' financial opportunities. Translating investment ideas
into products which can deliver performance over the long term while continuing
to support our current product line remains a focus for First Trust as we head
into the future.
The report you hold will give you detailed information about your investment in
First Trust Active Dividend Income Fund (the "Fund") for the period September
20, 2007 (commencement of operations) to November 30, 2007. I encourage you to
read this report and discuss it with your financial advisor.
First Trust is pleased that the Fund is a part of your financial portfolio and
we will continue to offer current information about your investment, as well as
new opportunities in the financial marketplace, through your financial advisor.
We value our relationship with you and appreciate the opportunity to assist you
in achieving your financial goals.
Sincerely,
/s/ James A. Bowen
James A. Bowen
President of First Trust Active Dividend Income Fund
Page 1
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PORTFOLIO COMMENTARY
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FIRST TRUST ACTIVE DIVIDEND INCOME FUND
The primary investment objective of First Trust Active Dividend Income Fund
("FAV" or the "Fund") is to seek a high level of current income. Its secondary
objective is capital appreciation. The Fund pursues its investment objectives by
investing at least 80% of its managed assets in a diversified portfolio of
dividend-paying multi-cap equity securities of both U.S. and non-U.S. issuers
that the Fund's Sub-Advisor believes offer the potential for attractive income
and/or capital appreciation. There can be no assurance that the Fund's
investment objectives will be achieved. The Fund may not be appropriate for all
investors.
FUND RECAP
The primary investment objective of this Fund is to provide a high level of
current income and in our dividend capture rotations we were able to accomplish
this goal. The Fund's dividend capture rotation strategy seeks to maximize the
level of dividend income that the Fund receives by engaging in the active
accumulation of dividends. In a dividend capture trade, the Fund sells a stock
on or shortly after the stock's ex-dividend date and uses the sale proceeds to
purchase one or more other stocks that are expected to pay dividends before the
next dividend payment on the stock being sold. Through this rotation practice,
the Fund may receive more dividend payments over a given period of time than if
it held a single stock. For the Fund we completed our consumer staples rotation
from Clorox (CLX), to ConAgra (CAG), to Budweiser (BUD), to McDonald's (MCD), to
Coke (KO). The back half line up is also in place with a planned rotation from
Coke to Pepsi (PEP), to Brown Foreman (BF/B), to R J Reynolds (RAI), and ending
with Altria (MO), and Kraft (KFT). We had very few candidates that were up 5% or
more prior to ex-date and those that were we continued to hold for qualified
dividend income purposes. By mostly avoiding the temptation to capture the fat
dividends available in banks and mortgage/bond insurers, the Fund's losses in
these industries were limited. We continue to hold Annaly Capital Management
Inc. (NLY) which is not exposed to sub-prime or any collateralized debt
obligation or structured investment vehicle difficulties.
November was a big month for energy sector dividends. We have accumulated
several names and feel that we will hold many of these positions for their
qualified dividend income. We view exploration and production companies and the
utility sectors as the cheapest space available in the U.S. equity market
currently (early January 2008).
PERFORMANCE ANALYSIS
In the 9 weeks ending November 30, 2007, the Fund operated in one of the most
volatile markets in recent memory, including a price decline of 10% in
mid-November. Since the Fund's inception (9/20/07) through 11/30/07, the Fund's
market value total return was -11.10% and its net asset value ("NAV") total
return was -0.37% vs. its benchmark, the Russell 1000 Value Index, which
returned -5.45% for the same period or the more narrow comparison, the S&P 500
Index, which returned -2.56%. Although we never extol being down as a "good"
situation to be in, we believe the preservation of capital when markets are in
panic mode is essential in providing acceptable total returns.
The Fund did suffer some losses on a few technology positions, IBM (IBM), and
Texas Instruments (TXN). As well, there were some losses in a portion of the
Fund's industrial sleeve. Sometimes the shorter holding periods in capture
candidates can cause short-term losses. Once markets stabilize these tend to be
quickly offset as investors recognize their potential.
MANAGER Q&A
WHAT IS YOUR OUTLOOK FOR 2008?
During the first quarter of 2008, we expect equity volatility to continue and
factors such as earnings and employment indicators to support the fact that the
U.S. is in a recession. This quarter is usually positive for capturing dividends
and we expect to meet our goals in this respect. With regard to NAV, it may be
increasingly difficult to avoid losses should the negative economic news
continue to spread to many sectors. We fully expect to capture sufficient
dividend income to support the Fund's quarterly payouts. We will work to create
NAV appreciation in addition to dividend payout; however, in a difficult market
which we expect to decline over the course of the year, generating added NAV may
be challenging.
During the remainder of 2008, we expect the major indices to fall within the 0%
- - 10% range by the end of the year with a range of -13% to +6% intra-year. We
expect winners will be true growth companies (from Coke to Eli Lilly), world
businesses (from oil exploration to defense) and companies with attractive and
rising dividends (such as Altria, Duke Energy and Diageo). Additionally, we
believe losers will be financials (again), real estate, and retail.
Page 2
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PORTFOLIO COMMENTARY (CONTINUED)
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WHAT IS YOUR LONG-TERM VIEW OF THE MARKET?
The coming year should support our long-term outlook for the next 5 years. We
believe this period will be similar to the years 1966 to 1982, where dividends
matched equity appreciation.
SUB-ADVISOR
Aviance Capital Management, LLC, a registered investment advisor, is the
Sub-Advisor to the Fund. Aviance is an asset management firm focused on managing
multi-cap value and growth portfolios. Aviance was founded, and is currently
managed, by its Managing Members: Christian C. Bertelsen; Gary T. Dvorchak, CFA;
Michael J. Dixon; and Edward C. Bertelsen.
Aviance is responsible for the day-to-day management of the Fund's portfolio
utilizing a team led by Christian C. Bertelsen, Gary T. Dvorchak, and Mark
Belanian. The team has approximately six years of experience working together
and approximately 80 years of cumulative industry experience.
PORTFOLIO MANAGEMENT TEAM
CHRISTIAN C. BERTELSEN, Chief Investment Officer and Senior Portfolio Manager
Christian C. Bertelsen has 41 years of investment experience. Since November
2004, he was Chief Investment Officer at Global Financial Private Capital
("GFPC"), the incubator company of Aviance. From July 1997 to December 2003, Mr.
Bertelsen was director of the value equity group for Phoenix Investment Counsel,
during which time he was responsible for developing strategies that focused on
the analysis of dividends as a means of identifying undervalued companies and
generating income. He served as Chief Investment Officer at Dreman Value
Advisors between January 1996 and July 1997, and was a Senior Vice President
with Eagle Asset Management between April 1993 and January 1996. From June 1986
to April 1993, Mr. Bertelsen headed the equity investment department at Colonial
Advisory Services, Inc., and managed The Colonial Fund. Prior to 1986, he held
positions with Batterymarch Financial Management and State Street Bank & Trust
Company. Mr. Bertelsen holds an M.B.A. and a B.A. in Economics and History from
Boston University.
GARY T. DVORCHAK, CFA, Portfolio Manager - Quantitative Dividend Analyst
Gary T. Dvorchak, CFA, has 16 years of experience in the institutional
investment management business. Before joining Aviance, Mr. Dvorchak founded
Channel Island Partners, a hedge fund investment adviser. From January 2004 to
October 2005, Channel Island Partners managed the Systematic Income Fund, an
income-oriented, dividend capture fund. The fund was closed and the partners
moved their assets into Aviance's dividend strategy upon the merger of Channel
Island Partners into GFPC. From May 1998 to November 2001, Mr. Dvorchak was a
senior portfolio manager at Provident Investment Counsel, a Pasadena-based
institutional asset manager with $20 billion of assets under management. Between
April 1993 and April 1998, Mr. Dvorchak was a senior analyst and member of the
investment committee at Sit Investment Associates, an institutional manager
based in Minneapolis. Mr. Dvorchak earned an M.B.A. in 1992 from the Kellogg
Graduate School of Management at Northwestern University. He graduated Phi Beta
Kappa in 1986 from the University of Iowa and earned the Chartered Financial
Analyst designation in 1996.
EDWARD C. BERTELSEN, Portfolio Manager - Research
Edward C. Bertelsen has 14 years of experience in supporting and managing
portfolios. He is also responsible for a limited number of selected client
relationships. He joined GFPC in April 2004 and was instrumental in creating its
trading environment. Between March 2001 and April 2004, Mr. Bertelsen was a
Senior Portfolio Manager with Salomon Smith Barney. Between November 1996 and
March 2001, Mr. Bertelsen was employed by Legg Mason Wood Walker as a Portfolio
Manager. He graduated with Honors from Albion College in 1993 with a B.A. in
Economics and History and started his financial career with Raymond James in
July 1993.
MARK BELANIAN, Portfolio Analyst
Mark Belanian has nine years of investment industry experience. Mr. Belanian
joined GFPC/Aviance in February 2006 from Merrill Lynch's Global Private Client
Group in Sarasota, Florida, where he had worked since February 2005. Mr.
Belanian worked with Chris Bertelsen as a portfolio analyst at Phoenix
Investment Counsel between June 1998 and January 2005. Mr. Belanian graduated
from Trinity College with a B.A. in Modern Language.
Page 3
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
PORTFOLIO COMPONENTS (a)
NOVEMBER 30, 2007 (UNAUDITED)
PORTFOLIO COMPONENTS - BY INDUSTRY
[BAR GRAPH OMITTED]
[DATA REPRESENTED BY BAR GRAPH PRESENTED BELOW]
Asset Management & Custody Banks 12.2%
Oil, Gas & Consumable Fuels 10.4%
Energy Equipment & Services 9.0%
Beverages 7.2%
Hotels, Restaurants & Leisure 6.0%
Multi-Utilities 5.5%
Semiconductors & Semiconductor Equipment 5.5%
Tobacco 4.9%
Computers & Peripherals 4.2%
Commercial Banks 3.9%
Diversified Financial Services 3.4%
Aerospace & Defense 3.0%
Machinery 2.9%
Software 2.6%
Pharmaceuticals 2.5%
Food Products 2.4%
Leisure Equipment & Products 2.2%
Industrial Conglomerates 1.9%
Wireless Telecommunication Services 1.6%
Electric Utilities 1.5%
Capital Markets 1.4%
Media 1.4%
Real Estate Investment Trusts (REITs) 1.4%
Construction & Engineering 1.3%
Diversified Telecommunication Services 0.9%
Metals & Mining 0.8%
(a) Percentages are based on total investments. Please note that the percentages
on the Portfolio of Investments are based on net assets.
Page 4 See Notes to Financial Statements
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
PORTFOLIO OF INVESTMENTS (a)
NOVEMBER 30, 2007
Shares Description Value
------ --------------------------------------------- -----------------
COMMON STOCKS - 91.5%
Aerospace & Defense - 3.1%
18,900 Honeywell International, Inc. $ 1,070,118
28,700 Lockheed Martin Corp. 3,176,229
-----------------
4,246,347
-----------------
Beverages - 7.5%
38,800 Brown-Forman Corp., Class B 2,740,832
65,800 Coca-Cola (The) Co. 4,086,180
45,500 PepsiCo, Inc. 3,511,690
-----------------
10,338,702
-----------------
Capital Markets - 1.4%
51,400 American Capital Strategies, Ltd. 1,933,154
-----------------
Commercial Banks - 4.0%
88,000 Banco Bradesco S.A. - Sponsored ADR 2,829,200
28,800 Comerica, Inc. 1,318,464
68,000 National City Corp. 1,343,680
-----------------
5,491,344
-----------------
Computers & Peripherals - 4.4%
48,200 Hewlett-Packard Co. 2,465,912
21,700 International Business Machines Corp. 2,282,406
184,500 Palm, Inc. 1,285,965
-----------------
6,034,283
-----------------
Construction & Engineering - 1.4%
13,100 Fluor Corp. 1,927,927
-----------------
Diversified Financial Services - 3.5%
75,800 Bank of America Corp. 3,496,654
29,400 JPMorgan Chase & Co. 1,341,228
-----------------
4,837,882
-----------------
Diversified Telecommunication Services - 1.0%
35,100 Telefonos de Mexico SAB de CV - Sponsored ADR 1,308,177
-----------------
Electric Utilities - 1.5%
74,700 Pepco Holdings, Inc. 2,099,070
-----------------
Energy Equipment & Services - 9.4%
28,900 Diamond Offshore Drilling, Inc. 3,364,827
36,600 Halliburton Co. 1,339,926
19,000 Schlumberger Ltd. 1,775,550
46,407 Transocean Inc. 6,371,253
-----------------
12,851,556
-----------------
Food Products - 2.5%
42,600 H.J. Heinz Co. 2,014,980
40,000 Kraft Foods, Inc., Class A 1,382,000
-----------------
3,396,980
-----------------
See Notes to Financial Statements Page 5
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED) (a)
NOVEMBER 30, 2007
Shares Description Value
------ --------------------------------------------- -----------------
COMMON STOCKS - (Continued)
Hotels, Restaurants & Leisure - 6.3%
92,700 McDonald's Corp. $ 5,420,169
25,200 Wynn Resorts, Ltd. 3,198,888
-----------------
8,619,057
-----------------
Industrial Conglomerates - 2.0%
39,700 Textron, Inc. 2,741,285
-----------------
Leisure Equipment & Products - 2.3%
158,400 Mattel, Inc. 3,164,832
-----------------
Machinery - 3.0%
27,000 Parker-Hannifin Corp. 2,144,610
31,300 Terex Corp. 2,017,285
-----------------
4,161,895
-----------------
Media - 1.5%
103,200 Regal Entertainment Group, Class A 2,042,328
-----------------
Metals & Mining - 0.9%
29,000 Barrick Gold Corp. 1,174,790
-----------------
Multi-Utilities - 5.8%
38,000 Ameren Corp. 2,046,300
18,200 Public Service Enterprise Group 1,742,468
47,900 SCANA Corp. 2,041,019
89,800 Xcel Energy, Inc. 2,075,278
-----------------
7,905,065
-----------------
Oil, Gas & Consumable Fuels - 10.8%
33,800 Anadarko Petroleum Corp. 1,913,080
51,700 Chesapeake Energy Corp. 1,956,845
14,900 Devon Energy Corp. 1,233,869
125,100 Frontline Ltd. 5,823,405
28,500 Occidental Petroleum Corp. 1,988,445
31,000 XTO Energy, Inc. 1,916,420
-----------------
14,832,064
-----------------
Pharmaceuticals - 2.6%
60,110 Merck & Co., Inc. 3,568,129
-----------------
Real Estate Investment Trusts (REITs) - 1.4%
114,100 Annaly Capital Management, Inc. 1,963,661
-----------------
Semiconductors & Semiconductor Equipment - 5.7%
234,800 Intel Corp. 6,123,584
74,500 National Semiconductor Corp. 1,703,070
-----------------
7,826,654
-----------------
Software - 2.7%
110,000 Microsoft Corp. 3,696,000
-----------------
Page 6 See Notes to Financial Statements
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED) (a)
NOVEMBER 30, 2007
Shares Description Value
------ --------------------------------------------- -----------------
COMMON STOCKS - (Continued)
Tobacco - 5.2%
54,300 Altria Group, Inc. $ 4,211,508
40,700 Reynolds American, Inc. 2,849,814
-----------------
7,061,322
-----------------
Wireless Telecommunication Services - 1.6%
60,000 Vodafone Group Plc - Sponsored ADR 2,235,000
-----------------
Total Common Stocks - 91.5% 125,457,504
(Cost $127,084,695) -----------------
INVESTMENT COMPANIES - 7.5%
Asset Management & Custody Banks
66,600 India Fund, Inc. 4,059,270
69,500 iShares MSCI Australia Index Fund 2,198,980
49,100 iShares MSCI Brazil Index Fund 3,974,645
-----------------
Total Investment Companies 10,232,895
(Cost $9,949,982) -----------------
SHORT-TERM INVESTMENT - 5.2%
Asset Management & Custody Banks
7,193,761 JP Morgan U.S. Government Money Market Fund 7,193,761
(Cost $7,193,761) -----------------
Total Investments - 104.2% 142,884,160
(Cost $144,228,438) (b)
Net Other Assets and Liabilities - (4.2%) (5,767,538)
-----------------
Net Assets - 100.0% $ 137,116,622
=================
- -----------------
(a) All percentages shown in the Portfolio of Investments are based on net
assets.
(b) Aggregate cost for federal income tax purposes is $144,507,812.
ADR - American Depositary Receipt
See Notes to Financial Statements Page 7
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 2007
ASSETS:
Investments, at value
(Cost $144,228,438) $142,884,160
Receivables:
Investment securities sold 17,530,037
Dividends 1,870,152
Due from Sub-Advisor 3,067
------------------
Total Assets 162,287,416
------------------
LIABILITIES:
Payables:
Investment securities purchased 24,677,537
Offering costs 288,000
Investment advisory fees 111,561
Audit fees 32,250
Administrative fees 15,810
Printing fees 12,500
Custodian fees 9,143
Trustees' fees and expenses 7,486
Legal fees 4,718
Transfer agent fees 4,559
Accrued expenses and other liabilities 7,230
------------------
Total Liabilities 25,170,794
------------------
NET ASSETS $137,116,622
==================
NET ASSETS consist of:
Paid-in capital $137,259,956
Par value 72,052
Accumulated net investment income (loss) 3,512,679
Net unrealized appreciation (depreciation) on investments (1,344,278)
Accumulated net realized gain (loss) on investments (2,383,787)
------------------
NET ASSETS $137,116,622
==================
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share) $ 19.03
==================
Number of Common Shares outstanding (unlimited number of Common Shares has been authorized) 7,205,236
==================
Page 8 See Notes to Financial Statements
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED NOVEMBER 30, 2007 (a)
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $1,035) $ 3,876,365
---------------
Total investment income 3,876,365
---------------
EXPENSES:
Investment advisory fees 256,952
Audit fees 32,250
Administration fees 21,361
Printing fees 12,500
Legal fees 10,115
Custodian fees 9,143
Trustees' fees and expenses 7,520
Transfer agent fees 6,615
Other 7,230
---------------
Total expenses 363,686
---------------
NET INVESTMENT INCOME 3,512,679
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments (2,386,854)
Net increase from payment from the Sub-Advisor 3,067
Net change in unrealized appreciation (depreciation) on investments (1,344,278)
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) (3,728,065)
---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (215,386)
===============
- ----------------
<FN>
(a) Initial seed date of July 19, 2007. The Fund commenced operations on
September 20, 2007.
</FN>
See Notes to Financial Statements Page 9
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
Period
Ended
11/30/2007 (a)
----------------
OPERATIONS:
Net investment income (loss) $ 3,512,679
Net realized gain (loss) (2,386,854)
Net increase from payment from the Sub-Advisor 3,067
Net change in unrealized appreciation (depreciation) (1,344,278)
----------------
Net increase (decrease) in net assets resulting from operations (215,386)
----------------
CAPITAL TRANSACTIONS:
Proceeds from sale of 7,205,236 Common Shares 137,620,008
Offering costs (288,000)
----------------
Net increase (decrease) from capital transactions 137,332,008
----------------
Net increase (decrease) in net assets 137,116,622
NET ASSETS:
Beginning of period --
----------------
End of period $137,116,622
================
Accumulated net investment income (loss) at end of period $ 3,512,679
================
- ----------------------
(a) Initial seed date of July 19, 2007. The Fund commenced operations on
September 20, 2007.
Page 10 See Notes to Financial Statements
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A COMMON SHARE OUTSTANDING THROUGHOUT THE PERIOD
Period
Ended
11/30/2007 (a)
----------------
Net asset value, beginning of period $ 19.10 (b)
----------------
Income from investment operations:
Net investment income (loss) (g) 0.52
Net realized and unrealized gain (loss) (0.55)(h)
----------------
Total from investment operations (0.03)
Common Shares offering costs charged to paid-in capital (0.04)
----------------
Net asset value, end of period $ 19.03
================
Market value, end of period $ 17.78
================
Total return based on net asset value (c) (d) (0.37)%
================
Total return based on market value (d) (e) (11.10)%
================
- --------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $137,117
Ratio of total expenses to average net assets 1.44%(f)
Ratio of net investment income to average net assets 13.87%(f)
Portfolio turnover rate 178%
- --------------------------------
(a) Initial seed date of July 19, 2007. The Fund commenced operations on
September 20, 2007.
(b) Net of sales load of $0.90 per share on initial shares issued.
(c) 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.
(d) Total return is not annualized for periods less than one year.
(e) 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.
(f) Annualized
(g) Based on average shares outstanding.
(h) Reimbursement from the Sub-Advisor represents less than $0.01.
See Notes to Financial Statements Page 11
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NOTES TO FINANCIAL STATEMENTS
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FIRST TRUST ACTIVE DIVIDEND INCOME FUND
NOVEMBER 30, 2007
1. FUND DESCRIPTION
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").
The Fund's primary investment objective is to seek a high level of current
income. It has a secondary objective of capital appreciation. The Fund seeks to
achieve its objectives by investing at least 80% of its Managed Assets in a
diversified portfolio of dividend-paying, multi-cap equity securities of both
U.S. and non-U.S. issuers that Aviance Capital Management, LLC ("Aviance" or the
"Sub-Advisor") believes offer the potential for attractive income and/or capital
appreciation. Managed Assets are defined as the value of the securities and
other investments the Fund holds plus cash and other assets, including interest
accrued but not yet received, minus accrued liabilities other than the principal
amount of any borrowings. 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 Fund's Common Shares 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. 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
subtracting the Fund's liabilities (including accrued expenses, dividends
payable and any 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. A majority of the Fund's
assets are valued using market information supplied by third parties. In the
event that market quotations are not readily available, the pricing service does
not provide a valuation for a particular asset, or the valuations are deemed
unreliable, First Trust Advisors L.P. ("First Trust") may use a fair value
method to value the Fund's securities and investments. Additionally, if events
occur after the close of the principal markets for particular securities (e.g.,
domestic debt and foreign securities), but before the Fund values its assets,
that could materially affect NAV, 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.
Portfolio securities listed on any exchange other than the NASDAQ National
Market ("NASDAQ") are valued at the last sale price on the business day as of
which such value is being determined. If there has been no sale on such day, the
securities are valued at the mean of the most recent bid and asked prices on
such day. Securities traded on the NASDAQ are valued at the NASDAQ Official
Closing Price as determined by NASDAQ. Portfolio securities traded on more than
one securities exchange are valued at the last sale price on the business day as
of which such value is being determined at the close of the exchange
representing the principal market for such securities. Portfolio securities
traded in the over-the-counter market, but excluding securities trading on the
NASDAQ, are valued at the closing bid prices. Short-term investments that mature
in less than 60 days are valued at amortized cost.
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, if any, is
recorded on the accrual basis.
C. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Level dividend distributions are declared and paid quarterly to Common
Shareholders after the payment of interest and/or dividends in connection with
leverage. The level dividend rate may be modified by the Board of Trustees from
time to time. Distributions of any net long-term capital gains earned by the
Fund are distributed at least annually. 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.
Page 12
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NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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FIRST TRUST ACTIVE DIVIDEND INCOME FUND
NOVEMBER 30, 2007
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.
There were no distributions paid during the period ended November 30, 2007.
As of November 30, 2007, the components of distributable earnings on a tax
basis were as follows:
Undistributed Ordinary Income $ 5,244,813
Accumulated Capital Gain 39,687
Net Unrealized Appreciation (Depreciation) (1,623,652)
D. INCOME TAXES:
The Fund intends 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 to distribute 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.
Certain capital losses realized after October 31 may be deferred and treated as
occurring on the first day of the following fiscal year. For the fiscal period
ended November 30, 2007, the Fund has elected to defer capital losses occurring
between November 1, 2007 and November 30, 2007 in the amount of $3,876,234.
In June 2006, Financial Accounting Standards Board ("FASB") Interpretation No.
48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB
Statement 109 ("FIN 48"), was issued and is effective for fiscal years beginning
after December 15, 2006. This Interpretation prescribes a minimum threshold for
financial statement recognition of the benefit of a tax position taken or
expected to be taken in a tax return. As of November 30, 2007, management has
evaluated the application of FIN 48 to the Fund, and has determined that there
is no material impact resulting from the adoption of this Interpretation on the
Fund's financial statements.
E. EXPENSES:
The Fund pays all expenses directly related to its operations.
F. ORGANIZATION AND OFFERING COSTS:
Organization costs consisted of costs incurred to establish the Fund and enable
it to legally conduct business. These costs included 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 consisted 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 Aviance 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, $288,000, was recorded as a
reduction of the proceeds from the sale of Common Shares during the period ended
November 30, 2007.
G. ACCOUNTING PRONOUNCEMENT:
In September 2006, Statement of Financial Accounting Standards No. 157 Fair
Value Measurements ("SFAS 157") was issued by the FASB and is effective for
fiscal years beginning after November 15, 2007. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. At this time, management is evaluating the implications
of SFAS 157 and its impact on the Fund's financial statements, if any, has not
been determined.
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
services, First Trust is entitled to a monthly fee calculated at an annual rate
of 1.00% of the Fund's Managed Assets.
Aviance serves as the Fund's sub-advisor and manages the Fund's portfolio
subject to First Trust's supervision. The Sub-Advisor receives an annual
portfolio management fee calculated at an annual rate of 0.50% of Managed Assets
that is paid monthly by First Trust out of its investment advisory fee.
During the period ended November 30, 2007, the Fund recorded a receivable due
from the Sub-Advisor of $3,067 in connection with a trade error.
Page 13
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NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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FIRST TRUST ACTIVE DIVIDEND INCOME FUND
NOVEMBER 30, 2007
In accordance with certain fee arrangements, JPMorgan Investor Services Co.
serves as the Fund's Administrator and Fund Accountant, JPMorgan Chase Bank,
National Association serves as the Custodian and American Stock Transfer & Trust
Company serves as the Transfer Agent.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid an annual retainer
of $10,000 per trust for the first 14 trusts of the First Trust Fund Complex and
an annual retainer of $7,500 per trust for each subsequent trust added to the
First Trust Fund Complex. The annual retainer is allocated equally among each of
the trusts. No additional meeting fees are paid in connection with board or
committee meetings.
Additionally, Thomas R. Kadlec is paid $10,000 annually to serve as the Lead
Independent Trustee and Niel B. Nielson is paid $5,000 annually to serve as the
chairman of the Audit Committee, with such compensation paid by the trusts in
the First Trust Fund Complex and divided among those trusts. Independent
Trustees are also reimbursed by the trusts in the First Trust Fund Complex for
travel and out-of-pocket expenses in connection with all meetings. Effective
January 1, 2008, each of the chairmen of the Nominating and Governance Committee
and the Valuation Committee will be paid $2,500 annually to serve in such
capacities with such compensation paid by the trusts in the First Trust Fund
Complex and divided among those trusts. Also effective January 1, 2008, each
committee chairman will serve two years before rotating to serve as a chairman
of another committee.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, other than U.S.
government obligations and short-term obligations, for the period ended November
30, 2007, were $363,832,298 and $224,371,080, respectively.
As of November 30, 2007, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $2,520,290
and the aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $4,143,942.
5. COMMON SHARES
As of November 30, 2007, 7,205,236 of $0.01 par value Common Shares were issued
and outstanding. An unlimited number of Common Shares has been authorized for
the Fund's Dividend Reinvestment Plan.
Common Share transactions were as follows:
Period Ended November 30, 2007
Shares Amount
Proceeds from shares sold 7,205,236 $137,620,008
Offering costs -- (288,000)
-------------- ------------------
7,205,236 $137,332,008
============== ==================
6. INDEMNIFICATION
The Fund has a variety of indemnification obligations under contracts with its
service providers. The Fund's maximum exposure under these arrangements is
unknown. However, the Fund has not had prior claims or losses pursuant to these
contracts and expects the risk of loss to be remote.
7. RISK CONSIDERATIONS
INVESTMENT AND MARKET RISK: An investment in the Fund's Common Shares is subject
to investment risk, including the possible loss of the entire principal
invested. An investment in Common Shares represents an indirect investment in
the securities owned by the Fund. The value of these securities, like other
market investments, may move up or down, sometimes rapidly and unpredictably.
Common Shares at any point in time may be worth less than the original
investment, even after taking into account the reinvestment of Fund dividends
and distributions. Security prices can fluctuate for several reasons including
the general condition of the equity market, or when political or economic events
affecting the issuer occur.
Page 14
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NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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FIRST TRUST ACTIVE DIVIDEND INCOME FUND
NOVEMBER 30, 2007
DIVIDEND STRATEGY RISK: The Sub-Advisor may not be able to anticipate the level
of dividends that companies will pay in any given timeframe. The Fund's
strategies require the Sub-Advisor to identify and exploit opportunities such as
the announcement of major corporate actions that may lead to high current
dividend income. These situations are typically not recurring in nature or the
frequency may be difficult to predict and may not result in an opportunity that
allows the Sub-Advisor to fulfill the Fund's investment objective. In addition,
the dividend policies of the Fund's target companies are heavily influenced by
the current economic climate.
QUALIFIED DIVIDEND TAX RISK: There can be no assurance as to what portion of the
distributions paid to the Fund's Common Shareholders will consist of
tax-advantaged qualified dividend income. For taxable years beginning before
January 1, 2011, certain distributions designated by the Fund as derived from
qualified dividend income will be taxed in the hands of non-corporate Common
Shareholders at the rates applicable to long-term capital gain, provided certain
holding period and other requirements are satisfied by both the Fund and the
Common Shareholders. Additional requirements apply in determining whether
distributions by foreign issuers should be regarded as qualified dividend
income. Certain investment strategies of the Fund will limit the Fund's ability
to meet these requirements and consequently will limit the amount of qualified
dividend income received and distributed by the Fund. A change in the favorable
provisions of the federal tax laws with respect to qualified dividends may
effect a widespread reduction in announced dividends and may adversely impact
the valuation of the shares of dividend-paying companies.
Page 15
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- -------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of First Trust Active
Dividend Income Fund:
We have audited the accompanying statement of assets and liabilities of First
Trust Active Dividend Income Fund (the "Fund"), including the portfolio of
investments, as of November 30, 2007, and the related statements of operations
and changes in net assets and the financial highlights for the period from
September 20, 2007 (commencement of operations) through November 30, 2007. These
financial statements and the financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of November 30, 2007, by correspondence with the Fund's
custodian and brokers; where replies were not received, we performed other
auditing procedures. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of First
Trust Active Dividend Income Fund as of November 30, 2007, the related
statements of operations and changes in net assets, and the financial highlights
for the period from September 20, 2007 (commencement of operations) through
November 30, 2007, in conformity with accounting principles generally accepted
in the United States of America.
/s/ Deloitte & Touche LLP
Chicago, Illinois
January 22, 2008
Page 16
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ADDITIONAL INFORMATION
- -------------------------------------------------------------------------------
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
NOVEMBER 30, 2007 (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
American Stock Transfer & Trust Company (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
American Stock Transfer & Trust Company, as 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 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) 334-1710, 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 noncertificated 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 American Stock Transfer &
Trust Company, 59 Maiden Lane, Plaza Level, New York, New York 10038.
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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 located at http://www.sec.gov.
Page 17
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST ACTIVE DIVIDEND INCOME FUND
NOVEMBER 30, 2007 (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 will be available (1) by calling (800)
988-5891; (2) on the Fund's website located at http://www.ftportfolios.com; (3)
on the SEC's website at http://www.sec.gov; and (4) for review and copying at
the SEC's Public Reference Room ("PRR") in Washington, DC. Information regarding
the operation of the PRR may be obtained by calling (800) SEC-0330.
TAX INFORMATION
For the fiscal year ended November 30, 2007, the Fund will designate up to the
maximum allowable pursuant to the Internal Revenue Code as qualified dividend
income eligible for reduced tax rates. These lower rates range from 5% to 15%
depending on an individual's tax bracket. If the Fund pays a distribution during
the calendar year 2007, complete information will be reported in conjunction
with Form 1099-DIV.
NYSE CERTIFICATION INFORMATION
In accordance with Section 303A-12 of the New York Stock Exchange ("NYSE")
Listed Company Manual, the Fund's President has certified to the NYSE that, as
of May 10, 2007, he was not aware of any violation by the Fund of NYSE corporate
governance listing standards. In addition, the Fund's reports to the SEC on
Forms N-CSR and N-Q contain certifications by the Fund's principal executive
officer and principal financial officer that relate to the Fund's public
disclosure in such reports and are required by Rule 30a-2 under the 1940 Act.
ADVISORY AND SUB-ADVISORY AGREEMENTS
Board Considerations Regarding Approval of Investment Management
and Sub-Advisory Agreements
The Board of Trustees of First Trust Active Dividend Income Fund (the "Fund"),
including the Independent Trustees, unanimously approved the Investment
Management Agreement (the "Advisory Agreement") between the Fund and First Trust
Advisors L.P. (the "Advisor") and the Investment Sub-Advisory Agreement (the
"Sub-Advisory Agreement" and together with the Advisory Agreement, the
"Agreements") among the Fund, the Advisor and Aviance Capital Management, LLC
(the "Sub-Advisor"), at a meeting held on July 18, 2007. The Board determined
that the terms of the Agreements are fair and reasonable and that the Agreements
are in the best interests of the Fund.
To reach this determination, the Board considered its duties under the
Investment Company Act of 1940, as amended (the "1940 Act"), as well as under
the general principles of state law in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisers with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
on such agreements. To assist the Board in its evaluation of the Agreements, the
Independent Trustees received a separate report from each of the Advisor and the
Sub-Advisor in advance of the Board meeting responding to a request for
information from counsel to the Independent Trustees. The reports, among other
things, outlined the services to be provided by the Advisor and the Sub-Advisor
(including the relevant personnel responsible for these services and their
experience); the proposed advisory and sub-advisory fees for the Fund as
compared to fees charged by investment advisors and sub-advisors to comparable
funds and as compared to fees charged to other clients of the Advisor and the
Sub-Advisor; estimated expenses of the Fund as compared to expense ratios of
comparable funds; the nature of expenses to be incurred in providing services to
the Fund and the potential for economies of scale, if any; financial data on the
Advisor and the Sub-Advisor; any fall-out benefits to the Advisor and the
Sub-Advisor; and information on the Advisor's and the Sub-Advisor's compliance
programs. The Independent Trustees also met separately with their independent
legal counsel to discuss the information provided by the Advisor and the
Sub-Advisor. The Board applied its business judgment to determine whether the
arrangements between the Fund and the Advisor and among the Fund, the Advisor
and the Sub-Advisor are reasonable business arrangements from the Fund's
perspective as well as from the perspective of shareholders.
In reviewing the Agreements, the Board considered the nature, quality and extent
of services to be provided by the Advisor and the Sub-Advisor under the
Agreements. With respect to the Advisory Agreement, the Board considered that
the Advisor will be responsible for the overall management and administration of
the Fund, including the oversight of the Sub-Advisor. The Board noted the
compliance program that had been developed by the Advisor and considered that
Page 18
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST ACTIVE DIVIDEND INCOME FUND
NOVEMBER 30, 2007 (UNAUDITED)
the compliance program includes policies and procedures for monitoring the
Sub-Advisor's compliance with the 1940 Act and with the Fund's investment
objectives and policies. The Board also noted the efforts expended by the
Advisor in organizing the Fund and making arrangements for entities to provide
services to the Fund. With respect to the Sub-Advisory Agreement, the Board
noted the background and experience of the Sub-Advisor's portfolio management
team and the Sub-Advisor's investment style. At the meeting, the Trustees
received a presentation from representatives of the Sub-Advisor and were able to
ask questions about the Sub-Advisor's proposed investment strategies for the
Fund. The Independent Trustees noted that First Trust Portfolios L.P., an
affiliate of the Advisor, has an ownership interest in the Sub-Advisor and
considered that this interest would enable more informed oversight of the
Sub-Advisor by the Advisor, particularly with respect to the oversight of the
Sub-Advisor's compliance with the Fund's investment policies. In light of the
information presented and the considerations made, the Board concluded that the
nature, quality and extent of services to be provided to the Fund by the Advisor
and the Sub-Advisor under the Agreements are expected to be satisfactory.
The Board considered the advisory and sub-advisory fees to be paid under the
Agreements. The Board reviewed data prepared by Lipper Inc. ("Lipper"), an
independent source, showing the proposed advisory and sub-advisory fees and
estimated expense ratios of the Fund as compared to the advisory and
sub-advisory fees and expense ratios of one peer group selected by Lipper and a
second peer group selected by the Advisor. The Board discussed with
representatives of the Advisor the differences between the two peer groups and
the limitations in creating a relevant peer group for the Fund, including that
some of the peer funds use leverage. Based on the information provided, the
Board noted that the Fund's proposed advisory fee was slightly above the average
advisory fee of the Lipper peer group and below the average advisory fee of the
Advisor peer group, and noted that the Advisor peer group consisted solely of
closed-end funds launched within the past year. The Board also noted that the
Fund's expected expense ratios were below the average expense ratios of both the
Lipper peer group and the Advisor peer group. The Board considered the proposed
sub-advisory fee rate and how it would relate to the overall management fee
structure of the Fund, noting that the fees to be paid to the Sub-Advisor would
be paid by the Advisor from its advisory fee. The Board also considered the
advisory fees paid to the Advisor by similar funds, and noted that the Advisor
does not provide advisory services to clients with investment objectives and
policies similar to the Fund's, other than to three other closed-end funds (for
which the fees are the same). The Board also considered information provided by
the Sub-Advisor as to the fee it charges to other clients, noting that such fee
was five basis points higher than the proposed sub-advisory fee. Since the Fund
is newly organized, the Board did not consider investment performance of the
Fund. On the basis of all the information provided on the fees and expenses of
the Fund, the Board concluded that the advisory and sub-advisory fees were
reasonable and appropriate in light of the nature, quality and extent of
services expected to be provided by the Advisor and the Sub-Advisor under the
Agreements.
The Board noted that the Advisor continues to invest in personnel and
infrastructure but did not identify any economies of scale to be realized by the
Fund and indicated that, because the Fund is a closed-end fund that is not
issuing more shares after the initial issuance of shares other than pursuant to
its dividend reinvestment plan, the Advisor believed that any discussion of
economies of scale was not material to a discussion of the advisory fee
structure. The Board concluded that the advisory fee reflects an appropriate
level of sharing of any economies of scale. The Board took the costs to be borne
by the Advisor in connection with its services to be performed under the
Advisory Agreement into consideration and noted that the Advisor was unable to
estimate the profitability of the Advisory Agreement to the Advisor. The Board
considered the Advisor's estimated profitability for serving as investment
advisor to the closed-end funds in the First Trust Fund Complex and concluded
that the profitability of the Advisory Agreement to the Advisor was anticipated
to be not unreasonable. The Board considered that the Sub-Advisor was unable to
estimate the profitability of the Sub-Advisory Agreement to the Sub-Advisor, but
the Board noted that the sub-advisory fee rate was negotiated at arm's length
between the Advisor and the Sub-Advisor, and that the Sub-Advisor would be paid
by the Advisor. The Board considered that the Advisor had identified as a
fall-out benefit to the Advisor its exposure to investors and brokers who, in
the absence of the Fund, may have had no dealings with the Advisor. The Board
considered the fall-out benefits expected to be realized by the Sub-Advisor from
its relationship with the Fund, including possible soft dollar arrangements.
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, determined that the terms of the
Agreements are fair and reasonable and that the approval of the Agreements is in
the best interests of the Fund. No single factor was determinative in the
Board's analysis.
PRIVACY POLICY
The open-end and closed-end funds advised by First Trust Advisors L.P. (each a
"Fund") consider your privacy an important priority in maintaining our
relationship. We are committed to protecting the security and confidentiality of
your personal information.
Page 19
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ADDITIONAL INFORMATION (CONTINUED)
- -------------------------------------------------------------------------------
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
NOVEMBER 30, 2007 (UNAUDITED)
Sources of Information
We may collect nonpublic personal information about you from the following
sources:
o Information we receive from you or your broker-dealer, investment
adviser or financial representative through interviews, applications,
agreements or other forms;
o Information about your transactions with us, our affiliates or others;
o Information we receive from your inquiries by mail, e-mail or telephone;
and
o Information we collect on our website through the use of "cookies." For
example, we may identify the pages on our website that your browser
requests or visits.
Information Collected
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
Disclosure of Information
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. The permitted uses
include the disclosure of such information to unaffiliated companies for the
following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians and
trustees, or that assist us in the distribution of investor materials
such as trustees, banks, financial representatives and printers.
o We may release information we have about you if you direct us to do so,
if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information with affiliates of the Fund. Please note,
however, that the California Financial Information Privacy Act contains an "opt
out" mechanism that California consumers may use to prevent us from sharing
nonpublic personal information with affiliates.
Confidentiality and Security
With regard to our internal security procedures, the Fund restricts access to
your nonpublic personal information to those individuals who need to know that
information to provide products or services to you. We maintain physical,
electronic and procedural safeguards to protect your nonpublic personal
information.
Policy Updates and Inquiries
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time; however, if we do change
it, we will tell you promptly.
For questions about our policy, or for additional copies of this notice, please
contact us at (800) 621-1675.
Page 20
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BOARD OF TRUSTEES AND OFFICERS
- -------------------------------------------------------------------------------
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
NOVEMBER 30, 2007 (UNAUDITED)
NUMBER OF
PORTFOLIOS IN
THE FIRST TRUST OTHER
TERM OF OFFICE FUND COMPLEX TRUSTEESHIPS OR
NAME, ADDRESS DATE OF BIRTH AND AND LENGTH OF PRINCIPAL OCCUPATIONS OVERSEEN BY DIRECTORSHIPS
POSITION WITH THE FUND SERVICE DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE
INDEPENDENT TRUSTEES
Richard E. Erickson, Trustee o Two Year Term Physician; President, 58 None
c/o First Trust Advisors L.P. Wheaton Orthopedics;
1001 Warrenville Road, o Since Fund Co-owner and Co-Director
Suite 300 Inception (January 1996 to May
Lisle, IL 60532 2007), Sports Med Center
D.O.B. 04/51 for Fitness; Limited
Partner, Gundersen Real
Estate Partnership;
Limited Partner, Sportsmed LLC
Thomas R. Kadlec, Trustee o Two Year Term Senior Vice President and 58 None
c/o First Trust Advisors L.P. Chief Financial Officer
1001 Warrenville Road, o Since Fund (May 2007 to Present), Vice
Suite 300 Inception President and Chief
Lisle, IL 60532 Financial Officer (1990 to
D.O.B. 11/57 May 2007), ADM Investor
Services, Inc. (Futures
Commission Merchant); Vice
President (May 2005 to
Present), ADM Derivatives,
Inc.; Registered
Representative (2000 to
Present), Segerdahl &
Company, Inc., a FINRA
member (Broker-Dealer)
Robert F. Keith, Trustee o One Year Term President (2003 to 58 None
c/o First Trust Advisors L.P. Present), Hibs Enterprises
1001 Warrenville Road, o Since Fund (Financial and Management
Suite 300 Inception Consulting); President
Lisle, IL 60532 (2001 to 2003), Aramark
D.O.B. 11/56 Service Master Management;
President and Chief
Operating Officer (1998 to
2003), Service Master
Management Services
Niel B. Nielson, Trustee o Three Year Term President (June 2002 to 58 Director of
c/o First Trust Advisors L.P. Present), Covenant College Covenant
1001 Warrenville Road, o Since Fund Transport Inc.
Suite 300 Inception
Lisle, IL 60532
D.O.B. 03/54
INTERESTED TRUSTEE
James A. Bowen(1), Trustee, o Three Year President, First Trust 58 Trustee of
President, Chairman of the Trustee Term Advisors L.P. and First Wheaton College
Board and CEO and Indefinite Trust Portfolios L.P.;
1001 Warrenville Road, Officer Term Chairman of the Board of
Suite 300 Directors, BondWave LLC
Lisle, IL 60532 o Since Fund (Software Development
D.O.B. 09/55 Inception Company/Broker-Dealer) and
Stonebridge Advisors LLC
(Investment Advisor)
- -------------
(1) Mr. Bowen is deemed an "interested person" of the Fund due to his position
as President of First Trust Advisors L.P., investment advisor of the Fund.
Page 21
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BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
- -------------------------------------------------------------------------------
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
NOVEMBER 30, 2007 (UNAUDITED)
OFFICERS WHO ARE NOT TRUSTEES
NAME, ADDRESS POSITION AND OFFICES TERM OF OFFICE AND PRINCIPAL OCCUPATIONS
AND DATE OF BIRTH WITH FUND LENGTH OF SERVICE DURING PAST 5 YEARS
Mark R. Bradley Treasurer, Controller, o Indefinite Term Chief Financial Officer,
1001 Warrenville Road, Chief Financial Officer First Trust Advisors L.P. and
Suite 300 and Chief Accounting o Since Fund First Trust Portfolios L.P.;
Lisle, IL 60532 Officer Inception Chief Financial Officer,
D.O.B. 11/57 BondWave LLC (Software Development
Company/Broker-Dealer) and
Stonebridge Advisors LLC
(Investment Advisor)
Kelley Christensen Vice President o Indefinite Term Assistant Vice President,
1001 Warrenville Road, First Trust Advisors L.P. and
Suite 300 o Since Fund First Trust Portfolios L.P.
Lisle, IL 60532 Inception
D.O.B. 09/70
James M. Dykas Assistant Treasurer o Indefinite Term Senior Vice President (April
1001 Warrenville Road, 2007 to Present), Vice
Suite 300 o Since Fund President (January 2005 to
Lisle, IL 60532 Inception April 2007), First Trust
D.O.B. 01/66 Advisors L.P. and First Trust
Portfolios L.P.; Executive
Director (December 2002 to
January 2005), Vice President
(December 2000 to December
2002), Van Kampen Asset
Management and Morgan Stanley
Investment Management
Christopher Fallow Assistant Vice President o Indefinite Term Assistant Vice President
1001 Warrenville Road, (August 2006 to Present),
Suite 300 o Since Fund Associate (January 2005 to
Lisle, IL 60532 Inception August 2006), First Trust
D.O.B. 04/79 Advisors L.P. and First Trust
Portfolios L.P.; Municipal
Bond Trader (July 2001 to
January 2005), BondWave LLC
(Software Development
Company/Broker-Dealer)
W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust
1001 Warrenville Road, Compliance Officer Advisors L.P. and First Trust
Suite 300 o Since Fund Portfolios L.P.; Secretary,
Lisle, IL 60532 Inception BondWave LLC (Software
D.O.B. 05/60 Development Company/Broker-Dealer)
and Stonebridge Advisors LLC
(Investment Advisor)
Daniel J. Lindquist Vice President o Indefinite Term Senior Vice President
1001 Warrenville Road, (September 2005 to Present),
Suite 300 Vice President (April 2004 to
Lisle, IL 60532 o Since Fund September 2005), First Trust
D.O.B. 02/70 Inception Advisors L.P. and First Trust
Portfolios L.P.; Chief
Operating Officer (January
2004 to April 2004), Mina
Capital Management, LLC;
Chief Operating Officer
(April 2000 to January 2004),
Samaritan Asset Management
Services, Inc.
Kristi A. Maher Assistant Secretary o Indefinite Term Deputy General Counsel (May
1001 Warrenville Road, 2007 to Present), Assistant
Suite 300 o Since Fund General Counsel (March 2004
Lisle, IL 60532 Inception to May 2007), First Trust
D.O.B. 12/66 Advisors L.P. and First Trust
Portfolios L.P.; Associate
(December 1995 to March
2004), Chapman and Cutler LLP
Page 22
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[BLANK INSIDE BACK COVER]
[LOGO OMITTED] FIRST TRUST
ADVISORS L.P.
INVESTMENT ADVISOR
First Trust Advisors L.P.
1001 Warrenville Road
Lisle, IL 60532
INVESTMENT SUB-ADVISOR
Aviance Capital Management, LLC
2080 Ringling Boulevard
Sarasota, FL 34237
CUSTODIAN
JPMorgan Chase Bank, National Association
3 Chase Metrotech Center, 6th Floor
Brooklyn, NY 11245
ADMINISTRATOR & FUND ACCOUNTANT
JPMorgan Investor Services Co.
73 Tremont Street
Boston, MA 02108
TRANSFER AGENT
American Stock Transfer & Trust Company
59 Maiden Lane, Plaza Level
New York, NY 10038
BOARD ADMINISTRATOR
PFPC Inc.
301 Bellevue Parkway
Wilmington, DE 19809
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
ITEM 2. CODE OF ETHICS.
(a) The registrant, as of the end of the period covered by this report, has
adopted a code of ethics that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant
or a third party.
(c) There have been no amendments, during the period covered by this
report, to a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing
similar functions, regardless of whether these individuals are employed
by the registrant or a third party, and that relates to any element of
the code of ethics description.
(d) The registrant has not granted any waivers, including an implicit
waiver, from a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing
similar functions, regardless of whether these individuals are employed
by the registrant or a third party, that relates to one or more of the
items set forth in paragraph (b) of this item's instructions.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
As of the end of the period covered by the report, the Registrant's board of
trustees has determined that Thomas R. Kadlec and Robert F. Keith are qualified
to serve as audit committee financial experts serving on its audit committee and
that each of them is "independent," as defined by Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees (Registrant) -- The aggregate fees billed from
Registrant's inception on September 20, 2007 through November 30, 2007 for
professional services rendered by the principal accountant for the audit of the
Registrant's annual financial statements or services that are normally provided
by the accountant in connection with statutory and regulatory filings or
engagements for such fiscal years were $40,500.
(b) Audit-Related Fees (Registrant) -- The aggregate fees billed from
Registrant's inception on September 20, 2007 through November 30, 2007 for
assurance and related services by the principal accountant that are reasonably
related to the performance of the audit of the Registrant's financial statements
and are not reported under paragraph (a) of this Item were $0.
Audit-Related Fees (Investment Adviser) -- The aggregate fees
billed from Registrant's inception on September 20, 2007 through November 30,
2007 for assurance and related services by the principal accountant that are
reasonably related to the performance of the audit of the Registrant's financial
statements and are not reported under paragraph (a) of this Item were $0.
(c) Tax Fees (Registrant) -- The aggregate fees billed from
Registrant's inception on September 20, 2007 through November 30, 2007 for
professional services rendered by the principal accountant for tax compliance,
tax advice, and tax planning to the Registrant were $0.
Tax Fees (Investment Adviser) -- The aggregate fees billed from
Registrant's inception on September 20, 2007 through November 30, 2007 for
professional services rendered by the principal accountant for tax compliance,
tax advice, and tax planning to the Registrant's investment adviser were $0.
(d) All Other Fees (Registrant) -- The aggregate fees billed from
Registrant's inception on September 20, 2007 through November 30, 2007 for
products and services provided by the principal accountant to the Registrant,
other than the services reported in paragraphs (a) through (c) of this Item were
$0.
All Other Fees (Investment Adviser) -- The aggregate fees billed
from Registrant's inception on September 20, 2007 through November 30, 2007 for
products and services provided by the principal accountant to the Registrant's
investment adviser, other than services reported in paragraphs (a) through (c)
of this Item were $0.
(e)(1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
Pursuant to its charter and its Audit and Non-Audit Services
Pre-Approval Policy, the Audit Committee (the "Committee") is responsible for
the pre-approval of all audit services and permitted non-audit services
(including the fees and terms thereof) to be performed for the Registrant by its
independent auditors. The Chairman of the Committee authorized to give such
pre-approvals on behalf of the Committee up to $25,000 and report any such
pre-approval to the full Committee.
The Committee is also responsible for the pre-approval of the
independent auditor's engagements for non-audit services with the Registrant's
adviser (not including a sub-adviser whose role is primarily portfolio
management and is sub-contracted or overseen by another investment adviser) and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the Registrant, if the
engagement relates directly to the operations and financial reporting of the
Registrant, subject to the de minimis exceptions for non-audit services
described in Rule 2-01 of Regulation S-X. If the independent auditor has
provided non-audit services to the Registrant's adviser (other than any
sub-adviser whose role is primarily portfolio management and is sub-contracted
with or overseen by another investment adviser) and any entity controlling,
controlled by or under common control with the investment adviser that provides
ongoing services to the Registrant that were not pre-approved pursuant to the de
minimis exception, the Committee will consider whether the provision of such
non-audit services is compatible with the auditor's independence.
(e)(2) The percentage of services described in each of paragraphs (b) through
(d) for the Registrant and the Registrant's investment adviser of this
Item that were approved by the audit committee pursuant to the
pre-approval exceptions included in paragraph (c)(7)(i)(c) or paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X are as follows:
(b) 0%
(c) 0%
(d) 0%
(f) The percentage of hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the most
recent fiscal year that were attributed to work performed by persons
other than the principal accountant's full-time, permanent employees
was less than fifty percent.
(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, and rendered to the registrant's
investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by
another investment adviser), and any entity controlling, controlled by,
or under common control with the adviser that provides ongoing services
to the Registrant from Registrant's inception on September 20, 2007
through November 30, 2007 were $0 for the Registrant and $0 for the
Registrant's investment adviser.
(h) The Registrant's audit committee of its Board of Trustees has
determined that the provision of non-audit services that were rendered
to the Registrant's investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted with
or overseen by another investment adviser), and any entity controlling,
controlled by, or under common control with the investment adviser that
provides ongoing services to the Registrant that were not pre-approved
pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is
compatible with maintaining the principal accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
(a) The Registrant has a separately designated audit committee consisting
of all the independent directors of the Registrant. The members of the
audit committee are: Thomas R. Kadlec, Niel B. Nielson, Richard E.
Erickson and Robert F. Keith.
(b) 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.
AVIANCE CAPITAL MANAGEMENT, LLC
PROXY VOTING GUIDELINES
Aviance Capital Management, LLC. (the "Sub-Adviser") serves as
investment adviser providing discretionary investment advisory services for a
closed-end investment company (the "Fund"). As part of these services, the
Sub-Adviser has full responsibility for proxy voting and related duties. In
fulfilling these duties, the Sub-Adviser has adopted the following policies and
procedures:
1. It is the Sub-Adviser's policy to seek to ensure that proxies for
securities held by the Fund are voted consistently and solely in the best
economic interests of the Fund.
2. The Sub-Adviser shall be responsible for the oversight of the
Fund's proxy voting process and shall assign a senior member of its staff to be
responsible for this oversight.
3. The Sub-Adviser has engaged the services of Institutional
Shareholder Services, Inc. ("ISS") to make recommendations to the Sub-Adviser on
the voting of proxies related to securities held by the Fund. ISS provides
voting recommendations based on established guidelines and practices. The
Sub-Adviser has adopted these ISS Proxy Voting Guidelines.
4. The Sub-Adviser shall review the ISS recommendations and generally
will vote the proxies in accordance with such recommendations. Notwithstanding
the foregoing, the Sub-Adviser may not vote in accordance with the ISS
recommendations if the Sub-Adviser believes that the specific ISS recommendation
is not in the best interests of the Fund.
5. If the Sub-Adviser manages the assets or pension fund of a company
and any of the Sub-Adviser's clients hold any securities in that company, the
Sub-Adviser will vote proxies relating to such company's securities in
accordance with the ISS recommendations to avoid any conflict of interest. In
addition, if the Sub-Adviser has actual knowledge of any other type of material
conflict of interest between itself and the Fund with respect to the voting of a
proxy, the Sub-Adviser shall vote the applicable proxy in accordance with the
ISS recommendations to avoid such conflict of interest.
6. If the Fund requests the Sub-Adviser to follow specific voting
guidelines or additional guidelines, the Sub-Adviser shall review the request
and follow such guidelines, unless the Sub-Adviser determines that it is unable
to follow such guidelines. In such case, the Sub-Adviser shall inform the Fund
that it is not able to follow the Fund's request.
7. The Sub-Adviser may have clients in addition to the Fund which have
provided the Sub-Adviser with discretionary authority to vote proxies on their
behalf. In such cases, the Sub-Adviser shall follow the same policies and
procedures.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a)(1) IDENTIFICATION OF PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM MEMBERS AND
DESCRIPTION OF ROLE OF PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM MEMBERS
Aviance Capital Management, LLC ("Aviance"), a registered investment advisor, is
the Sub-Advisor to the Registrant. Aviance is an asset management firm focused
on managing multi-cap value and growth portfolios. Aviance was founded, and is
currently managed, by its Managing Members: Christian C. Bertelsen; Gary T.
Dvorchak, CFA; Michael J. Dixon; and Edward C. Bertelsen. Aviance is responsible
for the day-to-day management of the Registrant's portfolio utilizing a team
consisting of Christian C. Bertelsen, Gary T. Dvorchak, Edward C. Bertelsen and
Mark Belanian. The team has approximately six years of experience working
together and approximately 80 years of cumulative industry experience.
CHRISTIAN C. BERTELSEN, Chief Investment Officer and Senior Portfolio Manager
Christian C. Bertelsen has 41 years of investment experience. Since November
2004, he was Chief Investment Officer at GFPC, the incubator company of Aviance.
From July 1997 to December 2003, Mr. Bertelsen was director of the value equity
group for Phoenix Investment Counsel, during which time he was responsible for
developing strategies that focused on the analysis of dividends as a means of
identifying undervalued companies and generating income. He served as Chief
Investment Officer at Dreman Value Advisors between January 1996 and July 1997,
and was a Senior Vice President with Eagle Asset Management between April 1993
and January 1996. From June 1986 to April 1993, Mr. Bertelsen headed the equity
investment department at Colonial Advisory Services, Inc., and managed The
Colonial Fund. Prior to 1986, he held positions with Batterymarch Financial
Management and State Street Bank & Trust Company. Mr. Bertelsen holds an M.B.A.
and a B.A. in Economics and History from Boston University.
GARY T. DVORCHAK, CFA, Portfolio Manager - Quantitative Dividend Analyst
Gary T. Dvorchak, CFA, has 16 years of experience in the institutional
investment management business. Before joining Aviance, Mr. Dvorchak founded
Channel Island Partners, a hedge fund investment adviser. From January 2004 to
October 2005, Channel Island Partners managed the Systematic Income Fund, an
income-oriented, dividend capture fund. The fund was closed and the partners
moved their assets into Aviance's dividend strategy upon the merger of Channel
Island Partners into GFPC. From May 1998 to November 2001, Mr. Dvorchak was a
senior portfolio manager at Provident Investment Counsel, a Pasadena-based
institutional asset manager with $20 billion of assets under management. Between
April 1993 and April 1998, Mr. Dvorchak was a senior analyst and member of the
investment committee at Sit Investment Associates, an institutional manager
based in Minneapolis. Mr. Dvorchak earned an M.B.A. in 1992 from the Kellogg
Graduate School of Management at Northwestern University. He graduated Phi Beta
Kappa in 1986 from the University of Iowa and earned the Chartered Financial
Analyst designation in 1996.
EDWARD C. BERTELSEN, Portfolio Manager - Research
Edward C. Bertelsen has 14 years of experience in supporting and managing
portfolios. He is also responsible for a limited number of selected client
relationships. He joined Global Financial Private Capital in April 2004 and was
instrumental in creating its trading environment. Between March 2001 and April
2004, Mr. Bertelsen was a Senior Portfolio Manager with Salomon Smith Barney.
Between November 1996 and March 2001, Mr. Bertelsen was employed by Legg Mason
Wood Walker as a Portfolio Manager. He graduated with Honors from Albion College
in 1993 with a B.A. in Economics and History and started his financial career
with Raymond James in July 1993.
MARK BELANIAN, Portfolio Analyst
Mark Belanian has nine years of investment industry experience. Mr. Belanian
joined Global Financial Private Capital/Aviance in February 2006 from Merrill
Lynch's Global Private Client Group in Sarasota, Florida, where he had worked
since February 2005. Mr. Belanian worked with Chris Bertelsen as a portfolio
analyst at Phoenix Investment Counsel between June 1998 and January 2005. Mr.
Belanian graduated from Trinity College with a B.A. in Modern Language.
OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGERS OR MANAGEMENT TEAM MEMBER AND
POTENTIAL CONFLICTS OF INTEREST
(a)(2) OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGERS OR MANAGEMENT TEAM MEMBER
AS OF NOVEMBER 30, 2007
# of Accounts Total Assets
Managed for for which
Total # of which Advisory Advisory Fee
Name of Portfolio Manager Accounts Total Fee is Based on is Based on
or Team Member Type of Accounts Managed Assets Performance Performance
Christian C. Bertelsen Registered Investment 0 $0 0 $0
Companies:
Other Pooled Investment 0 $0 0 $0
Vehicles:
Other Accounts: 66 $20 Million 0 $0
Gary T. Dvorchak Registered Investment 0 $0 0 $0
Companies:
Other Pooled Investment 0 $0 0 $0
Vehicles:
Other Accounts: 66 $20 Million 0 $0
Edward C. Bertelsen Registered Investment 0 $0 0 $0
Companies:
Other Pooled Investment 0 $0 0 $0
Vehicles:
Other Accounts: 38 $33 Million 0 $0
Mark Belanian Registered Investment 0 $0 0 $0
Companies:
Other Pooled Investment 0 $0 0 $0
Vehicles:
Other Accounts: 0 $0 0 $0
POTENTIAL CONFLICTS OF INTERESTS
Aviance believes there are not any material conflicts of interest that may arise
in connection with the Portfolio Manager's management of the Registrant's
investments.
(a)(3) COMPENSATION STRUCTURE OF PORTFOLIO MANAGERS OR MANAGEMENT TEAM MEMBERS
The members of the portfolio management team are paid a monthly salary capped at
a level which can rise annually with inflation. Additional bonuses are based on
the overall profitable of the firm. Aviance employees are offered health/dental
insurance through the firm's group policy. The members of the portfolio
flow of the company does not support the full amount of salaries, therefore, the
three members are paid at a discounted level, as cash flow allows.
(a)(4) DISCLOSURE OF SECURITIES OWNERSHIP
Information provided as of November 30, 2007
Dollar Range of Fund Shares
Name Beneficially Owned
Christian C. Bertelsen $0
Gary T. Dvorchak $0
Edward C. Bertelsen $0
Mark Belanian $0
(b) Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Registrant's organizational meeting, the Registrant's Board of
Trustees adopted a Nominating and Governance Committee Charter which includes
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 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) Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and
Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) First Trust Active Dividend Income Fund
------------------------------------------------
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 January 24, 2008
-----------------------
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 January 24, 2008
-----------------------
By (Signature and Title)* /s/ Mark R. Bradley
-----------------------------------------------------
Mark R. Bradley, Treasurer, Controller, Chief
Financial Officer and Chief Accounting Officer
(principal financial officer)
Date January 24, 2008
-----------------------
* Print the name and title of each signing officer under his or her signature.