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: May 31, 2008
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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
[GRAPHIC OMITTED]
SEMI-ANNUAL
REPORT
For the Six Months Ended
May 31, 2008
FIRST TRUST
ACTIVE DIVIDEND
INCOME FUND
[LOGO OMITTED] AVIANCE
CAPITAL MANAGEMENT
Front Cover
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TABLE OF CONTENTS
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First Trust Active Dividend Income Fund (FAV)
Semi-Annual Report
May 31, 2008
Shareholder Letter 1
At A Glance 2
Portfolio Commentary 3
Portfolio of Investments 6
Statement of Assets and Liabilities 10
Statement of Operations 11
Statements of Changes in Net Assets 12
Financial Highlights 13
Notes to Financial Statements 14
Additional Information 18
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 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. See "Risk Considerations" in the Notes to
Financial Statements for a discussion of other risks of 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,
when sold, 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, this report and other regulatory filings.
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SHAREHOLDER LETTER
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First Trust Active Dividend Income Fund (FAV)
Semi-Annual Report
May 31, 2008
Dear Shareholders:
The year 2007 and the first half of 2008 have been somewhat challenging times
for the financial markets and for many investors. Yet, regardless of the market,
First Trust Advisors L.P. ("First Trust") believes that in order to be
successful in reaching your financial goals, you should be invested for the
long-term. We also believe that investors should seek professional help from a
financial advisor who has been through many types of markets, knows the range of
investments available, and is committed to bringing you investments suitable to
your particular situation.
Our goal at First Trust has always been to offer a wide range of investment
products, including our family of closed-end funds, to help financial advisors
give you the opportunity to meet your financial objectives. We have continued to
expand our product line to ensure that you have many choices to fit your
investment needs.
The report you hold contains detailed information about your investment in First
Trust Active Dividend Income Fund. It contains a portfolio commentary from the
Fund's portfolio management team that provides a market recap for the period, a
performance analysis and a market and Fund outlook. Additionally, the report
provides the Fund's financial statements for the period covered by this report.
I encourage you to read this document and discuss it with your financial
advisor.
First Trust has been through many types of markets and remains committed to
bringing you quality investment solutions regardless of the inevitable ups and
downs experienced in the market. We offer a variety of products that may fit
many financial plans to help those investors seeking long-term investment
success. As well, we are committed to giving you up-to-date information about
your investments so you and your financial advisor are always current on your
portfolio.
We continue to value our relationship with you, and we thank you for 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
First Trust Active Dividend Income Fund
"AT A GLANCE"
As of May 31, 2008 (Unaudited)
Fund Statistics
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Symbol on New York Stock Exchange FAV
Common Share Price $16.40
Common Share Net Asset Value $17.67
Premium (Discount) to NAV (7.19)%
Net Assets Applicable to Common Shares $127,330,033
Current Monthly Distribution per Common Share (1) $0.460
Current Annualized Distribution per Common Share $1.840
Current Distribution Rate on Closing Common Share Price (2) 11.22%
Current Distribution Rate on NAV (2) 10.41%
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Common Share Price & NAV (weekly closing price)
- -------------------------------------------------------------------------
[CHART OMITTED]
[DATA POINTS REPRESENTED IN CHART]
Market NAV
9/21/2007 $20.00 $19.06
9/28/2007 $20.00 $19.12
10/5/2007 $20.41 $19.34
10/12/2007 $20.60 $19.48
10/19/2007 $20.07 $19.12
10/26/2007 $20.00 $19.61
11/2/2007 $20.01 $19.57
11/9/2007 $18.71 $18.89
11/16/2007 $18.70 $18.75
11/23/2007 $16.80 $18.72
11/30/2007 $17.78 $19.05
12/7/2007 $17.81 $19.45
12/14/2007 $16.84 $19.11
12/21/2007 $16.97 $19.39
12/28/2007 $16.35 $18.60
1/4/2008 $16.33 $17.73
1/11/2008 $16.19 $17.63
1/18/2008 $14.80 $16.42
1/25/2008 $15.59 $16.30
2/1/2008 $16.34 $17.06
2/8/2008 $15.98 $16.41
2/15/2008 $15.46 $16.59
2/22/2008 $15.48 $16.84
2/29/2008 $15.73 $16.76
3/7/2008 $15.06 $16.34
3/14/2008 $14.76 $16.28
3/20/2008 $15.25 $16.21
3/28/2008 $15.34 $16.18
4/4/2008 $15.97 $16.93
4/11/2008 $15.52 $16.68
4/18/2008 $15.37 $17.06
4/25/2008 $15.37 $17.16
5/2/2008 $15.70 $17.26
5/9/2008 $16.02 $17.22
5/16/2008 $16.32 $17.90
5/23/2008 $15.65 $17.44
5/30/2008 $16.40 $17.68
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PERFORMANCE
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6 Months Ended Inception (9/20/07)
5/31/08 to 5/31/08
FUND PERFORMANCE
NAV (3) 0.97% 0.71%
Market Value (4) 0.35% -10.79%
INDEX PERFORMANCE
Russell 1000 Value Index -5.35% -10.68%
S&P500 Index -4.47% -6.50%
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% of Long-Term
Top 10 Holdings Investments
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Frontline Ltd. 5.1%
Intel Corp. 3.2
Taiwan Semiconductor Manufacturing Co. Ltd.,
Sponsored ADR 3.1
Honeywell International, Inc. 2.7
Parker-Hannifin Corp. 2.6
Embarq Corp. 2.5
Nabors Industries Ltd. 2.4
Altria Group, Inc. 2.4
UltraShort Oil & Gas ProShares 2.3
McDermott International, Inc. 2.3
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Total 28.6%
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% of Long-Term
Sector Allocation Investments
- ------------------------------------------------------------
Industrials 34.5%
Energy 17.2
Information Technology 13.5
Financials 12.3
Consumer Staples 7.0
Materials 5.7
Telecommunication Services 5.2
Utilities 2.9
Consumer Discretionary 1.2
Health Care 0.5
- ------------------------------------------------------------
Total 100.0%
=============
(1) Most recent distribution paid or of record through 5/31/08. Subject to
change in the future.
(2) Distribution rates are calculated by annualizing the most recent
distribution paid or of record through the report date and then dividing by
market price or NAV, as applicable, as of 5/31/08.
(3) Total return based on net asset value is the combination of reinvested
dividend distributions and reinvested capital gain 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. Past performance is
not indicative of future results.
(4) 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 price. Past performance is not indicative of future results.
Page 2
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PORTFOLIO COMMENTARY
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First Trust Active Dividend Income Fund (FAV)
Semi-Annual Report
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 over 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 over 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 over 14 years of experience in supporting and managing
portfolios. He is also responsible for a limited number of selected client
relationships. He joined GFPC/Aviance 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 over 9 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 Christian 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.
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.
Page 3
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PORTFOLIO COMMENTARY (Continued)
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FAV is a long-only, unleveraged fund which utilizes a disciplined
"value-at-a-reasonable-price" methodology to construct its portfolio. A
proprietary "dividend capture" technique is implemented to generate income.
Market recap
The credit crunch continues; its effect spreads
This section discusses the primary factors which impacted the Fund throughout
the six-month period ended May 31, 2008.
The reporting period was dominated by the financial sector's continued quarterly
cycle of write-offs, loss announcements and balance sheet bolstering, together
with the declaration of newly found capital exposures. Moreover, the effects of
what has been broadly described as the "credit crunch" began to spread to other
sectors including Homebuilders and Transportation. Consumer and Retail stocks
suffered during the period as the consumer started to unwind the 25-year debt
and spending splurge the U.S. has experienced. Sales and profits are now showing
consistent erosion with the exception of the large national discount chains.
Not surprisingly, equity market sentiment focused on a possible recession.
Although the technical market-index measurement of a recession was not breached,
many indicators suggested the economy was headed that way. This weighed heavily
on all markets. A second question upon which markets vacillated was: "when will
oil peak?"
In contrast, many manufacturing, technology and commodities-based companies
reported encouraging results and maintained strong balance sheets during the
period. However, it was inevitable that the stock prices of these companies
would also suffer some negative pressure.
The current credit crunch has highlighted how well the Fund's focus on the
rotation of dividend-paying stocks with strong balance sheets works in declining
markets. The Sub-Advisor's investment philosophy remains as it was at inception;
however, we are continually analyzing all areas of the market for their
potential to generate income without high risk of capital loss. Adherence to our
philosophical discipline does not preclude a movement back into areas such as
Financials when our fundamentals indicate this may be prudent for the Fund.
Stock market volatility
The lack of a definitive answer to the aforementioned recession question,
together with the stop-start manner in which financial organizations chose to
declare losses and write-offs, created exceptionally high equity volatility. In
the Sub-Advisor's opinion, the primary driver of this volatility was reaction to
discrete news events which caused sentiment to oscillate on a daily basis.
Sentiment could drive prices down in the morning, only to be followed by an
afternoon rally based on the feeling the crisis was overstated.
The reporting period saw two distinct phases. During the first three months of
the period, sectors such as Financials, Retail and Homebuilders enjoyed a number
of price rallies while the sectors the Fund was primarily invested in, including
Technology, Energy and Commodities, regularly suffered price declines on general
downward sentiment or specific news.
During the second three months of the period, the credit-hit sectors suffered a
number of confidence jarring, rapid price declines, while the Fund's favored
sectors quietly trended upwards.
Balance sheets and dividends
We look to invest the Fund's portfolio in companies with strong balance sheets
which can consistently afford to pay dividends. For the Fund, therefore, the
most important feature of the credit crunch is the dramatic weakening of balance
sheets in a number of sectors.
Historically, the Financials sector is a valuable source of dividends; however,
the perilous state of most financial organization balance sheets precluded us
from investing the Fund in most of this sector. This limited the areas within
which we felt comfortable capturing dividends without excessive risk of capital
loss.
Performance analysis
The Fund's market value total return and net asset value ("NAV") total return
for the six months ended May 31, 2008 was +0.35% and +0.97%, respectively. Over
the same period, the total return of the S&P 500 Index, the Fund's primary
benchmark, was -4.47%, while the Fund's secondary benchmark, the Russell 1000
Value Index, returned -5.35%. Taking into account the deduction of dividends
from the Fund's NAV, the Fund has maintained investor assets ahead of what would
have been expected from an investment in the S&P 500 Index.
Page 4
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PORTFOLIO COMMENTARY (Continued)
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The portfolio management of the Fund predicted much of the severity and length
of the decline of equity markets and the Fund's outperformance can be primarily
attributed to the avoidance of companies with deteriorating balance sheets and
business prospects for the reasons discussed in the Market recap above. However,
as an invested, long-only fund seeking a high level of current income as its
primary objective, it has been difficult to protect investors from some loss of
principal.
We believed a recession of some degree was inevitable and positioned the Fund
accordingly. Even though the technical measures did not, in general, confirm our
instinct during the period, the broad economy increasingly exhibited potentially
recessionary behavior.
To understand how the Fund performed, it is necessary to discuss two periods, of
approximately three month, separately:
1) During the first three months of the period, the Fund lagged the benchmark
indices as its concentration in Global Infrastructure, Commodities, Energy and
Technology was sold off by the market. The predominant short-term theme of many
investors was to purchase Financials, Retail, and Real Estate (homebuilders). We
viewed these periodic price gains as "counter-rallies" and throughout this
period we predominantly stuck to our discipline of strong fundamentals and
captured dividends where possible.
2) During the second three months of the reporting period, market participants
had a more sober and realistic view of earnings potential and the value of
strong balance sheets, which resulted in strong outperformance by the Fund. The
Fund's holdings in Global Infrastructure, Commodities, Energy and Technology all
contributed to strong outperformance while generating solid dividend income.
Market and Fund outlook
For the remainder of 2008, we expect the major indices to continue their
decline. We maintain our belief that companies that actually grow their markets
and revenues - global businesses and companies possessing strong fundamentals
with rising dividends -will provide outperformance compared to the broader
market. Our market outlook is in line with our long-term belief that 2008 will
be another tough year in what may prove to be a significant period which results
in little or no capital appreciation in equity markets. However, capital
appreciation is different from dividends. We believe certain companies will
continue to generate earnings and where balance sheets remain strong, dividends
will be paid.
We expect credit-related Financials and Real Estate related issues to continue
to weigh down the broader market with inflation adding to the downward pressure
on equities and a move away from commodity-oriented issues. For example,
Financials no longer operate many of their highly profitable business practices,
leverage is being cut and stock-dilutive restructurings are eroding investor
capital. It is difficult to predict when the financial sector will return to
previous profit levels.
Global growth may cushion the economic slowdown in the U.S. and parts of Europe
as those companies with a global strategy to participate in building the
emerging economies will benefit from increased overseas revenues.
Our outlook for the Fund is more sanguine than our outlook for the market. We
believe that the compounding of dividends will prove a better method to achieve
positive returns than any other strategic option available to the Fund. We
continue to feel that we have invested in the correct stocks that capture the
Dividend Rotation process we are employing for the Fund's management. We see a
difficult environment for U.S. stocks, but we still believe that the global
economy will be generally resilient.
The Fund continues to own the securities of those companies that possess strong
balance sheets while staying away from those that don't. In our opinion, this
should protect the Fund from excessive loss of capital. However, it may not
allow the Fund to fully participate in any market rallies as such rallies are
typically led by those sectors which have recently suffered significant price
declines. For this reason, we anticipate increasing positions within the
Financials sector for the purposes of dividend income, but only where we feel
the business model and underlying financial position are solid enough to warrant
an investment. Our portfolio selection looks to identify those companies which
are building new physical and technological infrastructure in developing
countries.
Our aim in managing the Fund looking forward is to continue to maintain NAV
movements in line with broader equity markets while generating income at current
dividend levels.
Page 5
First Trust Active Dividend Income Fund
Portfolio of Investments (a)
May 31, 2008 (Unaudited)
Shares Description Value
--------- --------------------------------------------- ---------------
COMMON STOCKS - 91.4%
AEROSPACE & DEFENSE - 5.4%
55,000 Honeywell International, Inc. $ 3,279,100
9,000 Lockheed Martin Corp. 984,960
13,000 Northrop Grumman Corp. 980,980
25,000 Raytheon Co. 1,596,500
----------------
6,841,540
----------------
BEVERAGES - 2.4%
10,000 Coca-Cola (The) Co. 572,600
36,500 PepsiCo, Inc. 2,492,950
---------------
3,065,550
---------------
CAPITAL MARKETS - 0.5%
3,600 Goldman Sachs Group (The), Inc. 635,076
---------------
CHEMICALS - 3.1%
20,000 Air Products and Chemicals, Inc. 2,038,400
20,000 Praxair, Inc. 1,901,200
---------------
3,939,600
---------------
COMMERCIAL BANKS - 0.9%
12,500 Bank of Montreal 613,500
15,000 U.S. Bancorp 497,850
---------------
1,111,350
---------------
COMMUNICATIONS EQUIPMENT - 0.9%
5,000 Cisco Systems, Inc. 133,600
15,000 Harris Corp. 986,700
---------------
1,120,300
---------------
COMPUTERS & PERIPHERALS - 3.4%
130,000 EMC Corp. 2,267,200
10,000 International Business Machines Corp. 1,294,300
20,000 Western Digital Corp. 750,600
---------------
4,312,100
---------------
CONSTRUCTION & ENGINEERING - 2.7%
25,000 Chicago Bridge & Iron Co. N.V. 1,142,500
12,000 Fluor Corp. 2,238,600
---------------
3,381,100
---------------
DIVERSIFIED FINANCIAL SERVICES - 1.6%
60,000 Bank of America Corp. 2,040,600
---------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 4.1%
15,000 AT&T, Inc. 598,500
66,000 Embarq Corp. 3,123,120
35,000 Telefonos de Mexico SAB de CV, Sponsored ADR 1,442,700
---------------
5,164,320
---------------
ELECTRICAL UTILITIES - 0.6%
40,000 Duke Energy Corp. 739,200
---------------
Page 6 See Notes to Financial Statements
Trust Active Dividend Income Fund
Portfolio of Investments - (Continued) (a)
May 31, 2008 (Unaudited)
Shares Description Value
--------- --------------------------------------------- ---------------
COMMON STOCKS - (Continued)
ELECTRICAL EQUIPMENT - 4.9%
50,000 ABB Ltd., ADR $ 1,624,000
40,000 Emerson Electric Co. 2,327,200
40,000 Rockwell Automation, Inc. 2,342,000
----------------
6,293,200
----------------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 2.1%
135,000 Flextronics International Ltd. (b) 1,445,850
100,000 Jabil Circuit, Inc. 1,272,000
----------------
2,717,850
----------------
ENERGY EQUIPMENT & SERVICES - 4.5%
20,000 Halliburton Co. 971,600
70,000 Nabors Industries Ltd. (b) 2,942,800
18,000 Schlumberger Ltd. 1,820,340
----------------
5,734,740
----------------
INDUSTRIAL CONGLOMERATES - 3.6%
8,000 3M Co. 620,480
46,000 McDermott International, Inc. (b) 2,853,380
25,000 Tyco International Ltd. 1,129,750
----------------
4,603,610
----------------
INSURANCE - 0.8%
15,000 Aflac, Inc. 1,006,950
----------------
MACHINERY - 16.5%
30,000 Caterpillar, Inc. 2,479,200
20,000 Deere & Co. 1,626,800
15,000 Eaton Corp. 1,450,200
35,000 Illinois Tool Works, Inc. 1,879,500
60,000 Ingersoll-Rand Co. Ltd. 2,642,400
15,000 Joy Global, Inc. 1,263,450
55,000 Manitowoc Co., Inc. 2,139,500
50,000 Paccar, Inc. 2,669,500
37,000 Parker-Hannifin Corp. 3,132,790
25,000 Terex Corp. 1,783,750
----------------
21,067,090
----------------
MARINE - 0.1%
5,000 Diana Shipping, Inc. 174,950
----------------
MEDIA - 1.2%
10,000 Interactive Data Corp. 275,400
70,000 Regal Entertainment Group, Class A 1,229,900
----------------
1,505,300
----------------
METALS & MINING - 2.4%
26,000 Nucor Corp. 1,944,800
10,000 Southern Copper Corp. 1,102,300
----------------
3,047,100
----------------
See Notes to Financial Statements Page 7
Trust Active Dividend Income Fund
Portfolio of Investments - (Continued) (a)
May 31, 2008 (Unaudited)
Shares Description Value
--------- --------------------------------------------- ---------------
COMMON STOCKS - (Continued)
MULTI-UTILITIES - 2.2%
30,000 Ameren Corp. $ 1,363,500
35,000 SCANA Corp. 1,404,900
----------------
2,768,400
----------------
OIL, GAS & CONSUMABLE FUELS - 12.1%
6,000 Apache Corp. 804,360
40,000 Chesapeake Energy Corp. 2,190,800
9,000 Devon Energy Corp. 1,043,460
98,000 Frontline Ltd. 6,246,520
20,000 Occidental Petroleum Corp. 1,838,600
20,000 Petroleo Brasileiro SA, ADR 1,410,000
30,000 XTO Energy, Inc. 1,908,600
----------------
15,442,340
----------------
PHARMACEUTICALS - 0.5%
10,000 Johnson & Johnson 667,400
----------------
REAL ESTATE INVESTMENT TRUSTS (REITS) - 2.0%
140,000 Annaly Capital Management, Inc. 2,493,400
----------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 6.5%
170,000 Intel Corp. 3,940,600
28,000 National Semiconductor Corp. 589,400
330,000 Taiwan Semiconductor Manufacturing Co.
Ltd., Sponsored ADR 3,778,500
----------------
8,308,500
----------------
SOFTWARE - 0.1%
5,000 Oracle Corp. (b) 114,200
----------------
TOBACCO - 4.3%
130,000 Altria Group, Inc. 2,893,800
29,000 Philip Morris International, Inc. 1,527,140
20,000 UST, Inc. 1,104,600
----------------
5,525,540
----------------
THRIFTS & MORTGAGE FINANCE - 1.1%
28,000 Freddie Mac 711,760
25,000 Fannie Mae 675,500
----------------
1,387,260
----------------
WIRELESS COMMUNICATIONS - 0.9%
37,000 Vodafone Group Plc, Sponsored ADR 1,187,330
----------------
Total Common Stocks - 91.4% 116,395,896
----------------
(Cost $111,172,840)
Page 8 See Notes to Financial Statements
Trust Active Dividend Income Fund
Portfolio of Investments - (Continued) (a)
May 31, 2008 (Unaudited)
Shares Description Value
--------- --------------------------------------------- ---------------
INVESTMENT COMPANIES - 5.0%
ASSET MANAGEMENT & CUSTODY BANKS
36,000 India Fund, Inc. $ 1,655,280
6,000 Ultra QQQ ProShares 543,000
12,000 UltraShort Financials ProShares 1,325,160
100,000 UltraShort Oil & Gas ProShares 2,880,000
----------------
TOTAL INVESTMENT COMPANIES - 5.0% 6,403,440
----------------
(Cost $6,399,206)
SHORT-TERM INVESTMENTS - 6.2%
ASSET MANAGEMENT & CUSTODY BANKS
7,857,406 JP Morgan U.S. Government Money Market Fund 7,857,406
----------------
(Cost $7,857,406)
TOTAL INVESTMENTS - 102.6% 130,656,742
(Cost $125,429,452) (c)
NET OTHER ASSETS AND LIABILITIES - (2.6%) (3,326,709)
----------------
NET ASSETS - 100.0% $ 127,330,033
================
- --------------------
(a) All percentages shown in the Portfolio of Investments are based on
net assets.
(b) Non-income producing security.
(c) Aggregate cost for federal income tax and financial reporting purposes.
ADR - American Depositary Receipt
See Notes to Financial Statements Page 9
First Trust Active Dividend Income Fund
Statement of Assets and Liabilities
May 31, 2008 (Unaudited)
ASSETS:
Investments, at value
(Cost $125,429,452) $130,656,742
Cash 1,395,923
Prepaid expenses 21,532
Receivables:
Investment securities sold 27,288,852
Dividends 637,526
--------------
Total Assets 160,000,575
--------------
LIABILITIES:
Payables:
Investment securities purchased 32,440,650
Investment advisory fees 106,630
Legal fees 24,958
Administrative fees 24,156
Custodian fees 23,719
Audit and tax fees 17,625
Transfer agent fees 14,041
Printing fees 11,500
Trustees' fees and expenses 7,263
--------------
Total Liabilities 32,670,542
--------------
NET ASSETS $127,330,033
==============
NET ASSETS consist of:
Paid-in capital $137,259,956
Par value 72,052
Accumulated net investment income (loss) 2,423,175
Net unrealized appreciation (depreciation) on investments 5,227,290
Accumulated net realized gain (loss) on investments (17,652,440)
--------------
NET ASSETS $127,330,033
==============
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share) $ 17.67
==============
Number of Common Shares outstanding (unlimited number of Common Shares has been authorized) 7,205,236
==============
Page 10 See Notes to Financial Statements
First Trust Active Dividend Income Fund
Statement of Operations
For the Six Months Ended May 31, 2008 (Unaudited)
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $7,294) $ 7,327,858
---------------
Total investment income 7,327,858
---------------
EXPENSES:
Investment advisory fees 623,878
Excise tax expense 55,392
Administrative fees 45,035
Legal fees 25,000
Custodian fees 23,500
Trustees' fees and expenses 19,330
Transfer agent fees 16,666
Audit and tax fees 16,125
Printing fees 4,425
Other 22,513
---------------
Total expenses 851,864
---------------
NET INVESTMENT INCOME 6,475,994
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments (13,539,396)
Net change in unrealized appreciation (depreciation) on investments 6,571,568
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) (6,967,828)
---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (491,834)
===============
See Notes to Financial Statements Page 11
First Trust Active Dividend Income Fund
Statements of Changes in Net Assets
Six Months
Ended Period
5/31/2008 Ended
(Unaudited) 11/30/2007 (a)
---------------- ----------------
OPERATIONS:
Net investment income (loss) $ 6,475,994 $ 3,512,679
Net realized gain (loss) (13,539,396) (2,386,854)
Net increase from payment from the Sub-Advisor -- 3,067
Net change in unrealized appreciation (depreciation) 6,571,568 (1,344,278)
---------------- ----------------
Net increase (decrease) in net assets resulting from operations (491,834) (215,386)
---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (7,565,498) --
Net realized gain (1,729,257) --
---------------- ----------------
Total distributions to shareholders (9,294,755) --
---------------- ----------------
CAPITAL TRANSACTIONS:
Proceeds from sale of 0 and 7,205,236 Common Shares, respectively -- 137,620,008
Offering costs -- (288,000)
---------------- ----------------
Net increase (decrease) from capital transactions -- 137,332,008
---------------- ----------------
Net increase (decrease) in net assets (9,786,589) 137,116,622
NET ASSETS:
Beginning of period 137,116,622 --
---------------- ----------------
End of period $ 127,330,033 $ 137,116,622
================ ================
Accumulated net investment income (loss) at end of period $ 2,423,175 $ 3,512,679
================ ================
- ------------------
<FN>
(a) Initial seed date of July 19, 2007. The Fund commenced operations on
September 20, 2007.
</FN>
Page 12 See Notes to Financial Statements
First Trust Active Dividend Income Fund
Financial Highlights
For a Common Share outstanding throughout each period
Six Months
Ended Period
5/31/2008 Ended
(Unaudited) 11/30/2007 (a)
---------------- ----------------
Net asset value, beginning of period $ 19.03 $ 19.10 (b)
---------------- ----------------
Income from investment operations:
Net investment income (loss) (g) 0.90 0.52
Net realized and unrealized gain (loss) (0.97) (0.55) (h)
---------------- ----------------
Total from investment operations (0.07) (0.03)
---------------- ----------------
Distributions paid to shareholders from:
Net investment income (1.05) --
Net realized gain (0.24) --
---------------- ----------------
Total Distributions (1.29) --
---------------- ----------------
Common Shares offering costs charged to paid-in capital -- (0.04)
---------------- ----------------
Net asset value, end of period $ 17.67 $ 19.03
================ ================
Market value, end of period $ 16.40 $ 17.78
================ ================
Total return based on net asset value (c) (d) 0.97% (0.37)%
================ ================
Total return based on market value (d) (e) 0.35% (11.10)%
================ ================
- ------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $127,330 $137,117
Ratio of total expenses to average net assets 1.36% (f) 1.44% (f)
Ratio of net investment income to average net assets 10.38% (f) 13.87% (f)
Portfolio turnover rate 703% 178%
- ------------------------------------------------------------------------
<FN>
(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
price.
(f) Annualized
(g) Based on average shares outstanding.
(h) Reimbursement from the Sub-Advisor represents less than $0.01.
</FN>
See Notes to Financial Statements Page 13
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
First Trust Active Dividend Income Fund
May 31, 2008 (Unaudited)
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 (as
defined below) 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 dividing
the value of all assets of the Fund (including accrued dividends), less all
liabilities (including accrued expenses, dividends declared but unpaid and any
borrowings of the Fund) by the total number of Common Shares outstanding.
The Fund's investments are valued daily 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.
In September 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 157, Fair Value Measurements ("FAS 157"),
effective for fiscal years beginning after November 15, 2007. This standard
clarifies the definition of fair value for financial reporting, establishes a
framework for measuring fair value and requires additional disclosures about the
use of fair value measurements. FAS 157 became effective for the Fund as of
December 1, 2007, the beginning of its current fiscal year. The three levels of
the fair value hierarchy under FAS 157 are described below:
o Level 1 - quoted prices in active markets for identical securities
o Level 2 - other significant observable inputs (including quoted
prices for similar securities, interest rates, prepayment speeds,
credit risk, etc.)
o Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not necessarily an
indication of the risk associated with investing in those securities. A summary
of the inputs used to value the Fund's net assets as of May 31, 2008 is as
follows:
Page 14
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (Continued)
- --------------------------------------------------------------------------------
First Trust Active Dividend Income Fund
May 31, 2008 (Unaudited)
Investments
Valuation Inputs in Securities
---------------- -------------
Level 1 - Quoted Prices $122,799,336
Level 2 - Other Significant Observable Inputs 7,857,406
Level 3 - Significant Unobservable Inputs --
------------
Total $130,656,742
============
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, if any. 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.
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 continue to qualify as a regulated investment company by
complying with the requirements under Subchapter M of the Internal Revenue Code
of 1986, as amended, which includes distributing substantially all of its net
investment income and net realized gains to shareholders. Accordingly, no
provision has been made for federal or state income taxes.
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 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 May31, 2008, 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 costs 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 March 2008, FASB released Statement of Financial Accounting Standards No.
161, "Disclosures about Derivative Instruments and Hedging Activities" ("FAS
161"). FAS 161 requires qualitative disclosures about objectives and strategies
Page 15
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (Continued)
- --------------------------------------------------------------------------------
First Trust Active Dividend Income Fund
May 31, 2008 (Unaudited)
for using derivatives, quantitative disclosures about fair value amounts of and
gains and losses on derivative instruments, and disclosures about
credit-risk-related contingent features in derivative agreements. The
application of FAS 161 is required for fiscal years beginning after November 15,
2008 and interim periods within those fiscal years. Management is currently
evaluating the impact the adoption of FAS 161 will have on the Fund's financial
statement disclosures, if any.
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 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.
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, the Lead Independent Trustee is paid $10,000 annually and the
Chairman of the Audit Committee is paid $5,000 annually, with such compensation
paid by the trusts in the First Trust Fund Complex and divided among those
trusts. 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 are 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, the Lead
Independent Trustee and each Committee chairman will serve two year terms.
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 six months ended May
31, 2008, were $841,672,624 and $847,595,859, respectively.
As of May 31, 2008, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $5,867,384
and the aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $640,094.
5. Common Shares
As of May 31, 2008, 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.
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 issuers occur.
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
Page 16
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (Continued)
- --------------------------------------------------------------------------------
First Trust Active Dividend Income Fund
May 31, 2008 (Unaudited)
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 objectives. 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 17
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
First Trust Active Dividend Income Fund
May 31, 2008 (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 the
Plan Agent, 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 (866) 659-2649, in
accordance with such reasonable requirements as the Plan Agent and the 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 and a transaction fee of $15.00.
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, 6201 15th Avenue, Brooklyn, New York 11219 or through their
website located at www.amstock.com. (You will need to know your 10 digit
participant number and social security number to gain access to your account
online.)
- --------------------------------------------------------------------------------
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 18
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION - (Continued)
- --------------------------------------------------------------------------------
First Trust Active Dividend Income Fund
May 31, 2008 (Unaudited)
Portfolio Holdings
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available (1) by calling (800)
988-5891; (2) on the Fund's website located at http://www.ftportfolios.com; (3)
on the SEC's website at http://www.sec.gov; and (4) for review and copying at
the SEC's Public Reference Room ("PRR") in Washington, DC. Information regarding
the operation of the PRR may be obtained by calling (800) SEC-0330.
Submission of Matters to a Vote of Shareholders
The Joint Annual Meeting of Shareholders of the Common Shares of Macquarie/First
Trust Global Infrastructure/Utilities Dividend & Income Fund, Energy Income and
Growth Fund, First Trust Enhanced Equity Income Fund, First Trust/Aberdeen
Global Opportunity Income Fund, First Trust/FIDAC Mortgage Income Fund, First
Trust Strategic High Income Fund, First Trust Strategic High Income Fund II,
First Trust/Aberdeen Emerging Opportunity Fund, First Trust/Gallatin Specialty
Finance and Financial Opportunities Fund and First Trust Active Dividend Income
Fund and Shareholders of the Preferred Shares of First Trust Tax-Advantaged
Preferred Income Fund, was held on April 14, 2008. At the Annual Meeting,
Trustee Robert F. Keith was elected for a three-year term. The number of votes
cast in favor of Mr. Keith was 7,102,302, the number of votes against was 38,707
and the number of abstentions was 64,227.
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[LOGO OMITTED] FIRST TRUST
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
6201 15th Avenue
Brooklyn, NY 11219
BOARD ADMINISTRATOR
PNC Global Investment Servicing (U.S.) 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
Back Cover
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. INVESTMENTS.
(A) 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.
(b) Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a) Not applicable.
(b) There has been no change, as of the date of this filing, in any
of the portfolio managers identified in response to paragraph
(a)(1) of this Item in the registrant's most recently filed
annual report on Form N-CSR.
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.
There have been no material changes to the procedures by which the
shareholders may recommend nominees to the registrant's board of
trustees, where those changes were implemented after the registrant last
provided disclosure in response to the requirements of Item 407(c)(2)(iv)
of Regulation S-K (17 CFR 229.407) (as required by Item 22(b)(15) of
Schedule 14A (17 CFR 240.14a-101)), or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial
officers, or persons performing similar functions, have
concluded that the registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Investment
Company Act of 1940, as amended (the "1940 Act") (17 CFR
270.30a-3(c))) are effective, as of a date within 90 days of the
filing date of the report that includes the disclosure required
by this paragraph, based on their evaluation of these controls
and procedures required by Rule 30a-3(b) under the 1940 Act (17
CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the
Securities Exchange Act of 1934, as amended (17 CFR
240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940
Act (17 CFR 270.30a-3(d)) that occurred during the registrant's
second fiscal quarter of the period covered by this report that
has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting.
ITEM 12. EXHIBITS.
(a)(1) Not applicable.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and
Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
(registrant) First Trust Active Dividend Income Fund
-------------------------------------------
By (Signature and Title)* /s/ James A. Bowen
-----------------------------------------------------
James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
Date July 17, 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 July 17, 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 July 17, 2008
-----------------
* Print the name and title of each signing officer under his or her
signature.