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)
120 East Liberty Drive
Wheaton, IL 60187
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(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive
Wheaton, IL 60187
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(Name and address of agent for service)
Registrant's telephone number, including area code: 630-765-8000
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Date of fiscal year end: November 30
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Date of reporting period: November 30, 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]
ANNUAL REPORT
For the Year Ended
November 30, 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)
Annual Report
November 30, 2008
Shareholder Letter 1
At A Glance 2
Portfolio Commentary 3
Portfolio of Investments 7
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
Report of Independent Registered Public Accounting Firm 18
Additional Information 19
Board of Trustees and Officers 21
Privacy Policy 23
Caution Regarding Forward-Looking Statements
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended and the Securities Exchange Act of 1934,
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, the statement of additional information, this
report and other regulatory filings.
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SHAREHOLDER LETTER
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First Trust Active Dividend Income Fund (FAV)
Annual Report
November 30, 2008
Dear Shareholders:
The year ended November 30, 2008 has been challenging 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 the
First Trust Active Dividend Income Fund (the "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 the 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 making available up-to-date reports about
your investments so you and your financial advisor have current information 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" (Unaudited)
As of November 30, 2008
Fund Statistics
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Symbol on New York Stock Exchange FAV
Common Share Price $8.03
Common Share Net Asset Value $10.61
Premium (Discount) to NAV (24.32)%
Net Assets Applicable to Common Shares $76,456,410
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) 22.91%
Current Distribution Rate on NAV (2) 17.34%
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Common Share Price & NAV (weekly closing price)
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[CHART OMITTED]
[DATA POINTS REPRESENTED IN CHART]
Common Share Price NAV
11/30/2007 $17.78 $19.05
12/28/2007 $16.35 $18.60
1/25/2008 $15.59 $16.30
2/29/2008 $15.73 $16.76
3/28/2008 $15.34 $16.18
4/25/2008 $15.37 $17.16
5/30/2008 $16.40 $17.68
6/27/2008 $15.00 $16.41
7/25/2008 $14.44 $15.19
8/29/2008 $13.65 $15.16
9/26/2008 $12.11 $14.19
10/31/2008 $9.33 $10.96
11/30/2008 $8.03 $10.61
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PERFORMANCE
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Average Annual
Total Return
One Year Ended Inception (9/20/07)
11/30/08 to 11/30/08
FUND PERFORMANCE
NAV (3) (34.64)% (30.11)%
Market Value (4) (47.00)% (46.74)%
INDEX PERFORMANCE
Russell 1000 Value Index (39.06)% (35.01)%
S&P 500 Index (38.17)% (34.32)%
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% of Total
Top 10 Holdings Investments
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UST, Inc. 6.9%
Annaly Capital Management, Inc. 5.3
Embarq Corp. 4.7
Merck & Co., Inc. 4.6
Bank of America Corp. 3.8
Coca-Cola (The) Co. 3.7
Raymond James Financial, Inc. 3.7
Philip Morris International, Inc. 3.6
Wal-Mart Stores, Inc. 3.2
Dominion Resources, Inc. 3.2
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Total 42.7%
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% of Total
Sector Allocation Investments
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Financials 29.5%
Consumer Staples 23.4
Telecommunication Services 10.5
Health Care 10.2
Consumer Discretionary 8.0
Industrials 7.0
Utilities 5.3
Information Technology 3.5
Energy 2.6
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Total 100.0%
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(1) Most recent distribution paid or declared through 11/30/08. Subject to
change in the future.
(2) Distribution rates are calculated by annualizing the most recent
distribution paid or declared through the report date and then dividing
by Common Share price or NAV, as applicable, as of 11/30/08.
(3) Total return based on NAV 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 NAV 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 (Unaudited)
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First Trust Active Dividend Income Fund (FAV)
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 66 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 advisor. 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 Associated, 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.
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. Mr. Belanian graduated from Trinity College with a B.A. in
Modern Language.
Commentary
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.
Market Recap
This section discusses the primary factors that affected FAV's two integrated
approaches throughout the twelve months ended November 30, 2008.
The Year of the Credit Crunch
The reporting period was dominated by the meltdown of the financial sector, a
historically significant event broadly referred to as the Credit Crisis.
Page 3
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PORTFOLIO COMMENTARY (Unaudited) (Continued)
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During late 2007 and early 2008, markets recognized the damage massively
leveraged, collateralized financial products had wreaked on the balance sheets
of financial organizations. Additionally, the fragility of global markets
predicated on easy credit and unregulated "hedge fund" style investing became
painfully apparent. The problems that initially appeared to be confined to a few
companies rapidly spread in depth and breadth.
From mid-2008 on, even companies with exceptionally strong businesses and
balance sheets saw their stocks punished: Cummins, Pfizer, Verizon and Intel
were notable examples. Suddenly, the market consensus was that the economy was
in a deep and protracted recession from which there was no short-term relief.
Price-to-earnings and all similar valuations used to assign valuations to
profitable businesses were disregarded as managers and investors believed
earnings were about to plummet.
View from the Bridge
From Aviance's perspective, the market environment over the last twelve months
can be better understood as two separate periods:
THROUGH THE SUMMER, the market trended downwards with two significant,
fear-inducing drops. During this period, the market behaved somewhat rationally
and broadly as we expected, given Aviance's view of the financial weakness of
many sectors and the certainty of recession. The downward trend of financial
stocks preceded that of home builders, consumer cyclical and retail stocks as a
result of the unwinding of a 25-year debt-heavy spending streak. In this
economic environment, it wasn't hard to predict weaker, less-diversified
companies would increasingly report lower earnings and guidance.
AFTER SUMMER, prices plummeted and volatility spiked to historically high
levels. Equity markets made it difficult to assign a reliable value to any
security. Many companies that had escaped earlier downgrades were systematically
analyzed for the slightest weakness and penalized when any form of negative data
was found.
As a result, desperation seemed to grip investment managers of all sizes as they
were confronted with redemptions and margin calls. This may have been a major
contributor to the manner in which managers liquidated their best and most
liquid performers with scant regard to future portfolio considerations.
In addition, as the market looked ahead and saw a possible deep recession, or
depression, earnings expectations were cut and stock prices were "corrected"
accordingly. Stocks that survived the first six months unscathed were taken down
to the levels of the stocks that had already been punished.
Dividend Payers...
Though financial companies pay strong dividends that typically reflect strong
fundamentals and cash flows, the last 12 months have been an exception to this
rule. Financials suffered from broad market recognition of their high leverage,
shaky collateral and exposure to derivatives, factors which prevented their
inclusion in the Fund for much of the reporting period.
Dividend-paying stocks underperformed the S&P 500 Index during the first 6
months of 2008, primarily due to the fact that financial stocks lost value more
severely than other sectors.
During July, August and September, dividend-payers staged a comeback versus the
S&P 500 Index. From September onwards, dividend-payers dropped in line with this
broad index. For example, iShares Dow Jones Select Dividend Index ("DVY," a
common proxy for dividend-paying stocks) traded at 62 on September 19, 2008,
only 8% off its price on November 30, 2007. Two months later, on November 20, it
was trading at 38, a fall of 39%.
....and Dividend Payments
Fortunately, when equity prices fall, yields tend to rise correspondingly.
During 2008, the S&P 500 Index saw its yield rise into the 3% range for the
first time in over a decade. Moreover, many attractive yields were available
within individual companies such as GE at 7.2%; Pfizer at 7.8% and AT&T at
5.6%.1
It was widely reported that companies would start to reduce or eliminate
dividend payments; however, this did not happen to a degree that affected the
Fund during the period. In the third quarter of 2008, only 138 of 7,000
publicly-traded companies reporting dividend information to Standard & Poor's
reduced their dividend. One noteworthy example of a company that did reduce its
dividend is Bank of America, which halved its dividend. In spite of the cut, it
still had an indicated yield of 7.8% on November 30, 2008.
The Bailout Line Forms
A commentary on the last 12 months would be incomplete without mention of the
role played by the U.S. government and the "on-again, off-again," bailout. The
last 12 months saw the progressive realization of the depth of the great debt
and derivative problem followed by the importance of government intervention.
Page 4
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PORTFOLIO COMMENTARY (Unaudited) (Continued)
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The Troubled Asset Relief Program ("TARP") may retrospectively be seen as a
turning point for confidence; selected companies were given the support of "the
full faith and credit of the U.S. government" and we believe it's tough to bet
against the U.S. government!
One of the important roles of government is now to ensure capital markets do not
implode and to unfreeze credit markets for businesses and homeowners. We will
leave further discussion for the Market Outlook section at the end of this
commentary.
Performance Analysis
The net asset value ("NAV") total return2 of the Fund for the twelve months
ended November 30, 2008 was -34.64%. Over the same period, the total return of
the S&P 500 Index, the Fund's primary benchmark index, was -38.17%, while the
Fund's secondary benchmark index, the Russell 1000 Value, returned -39.06%.
The Fund's market value total return3 of the Fund for the twelve months ended
November 30, 2008 was -47.00%.
NAV Performance
For the first two quarters of 2008, the Fund outperformed its benchmarks by a
healthy margin. We prepared for much of the severity and length of the decline
in equity markets through avoidance of companies with deteriorating balance
sheets and business prospects for the reasons discussed in the Market Recap
above.
We believed a recession of some degree was inevitable and positioned the Fund
accordingly, primarily by maintaining an overweight Industrials and underweight
Financials allocation.
The industrial stocks we selected were those we felt had the ability to benefit
from the rebuilding of the global infrastructure and global economic strength.
We stayed underweight in Financials due to our view that balance sheets and the
outlook for the sector did not provide a safe place for capital.
From the end of the second quarter of 2008, the performance of the Fund
regressed close to the declines experienced by our benchmarks. Sectors and
stocks that were held for their strong balance sheets and business models, and
which had avoided earlier declines, suffered steep declines.
The Fund's overweight in Industrials hurt its NAV relative to the benchmarks as
we underestimated the punishment the market would mete out to what we believed
to be stable stocks. Many excellent businesses were priced at levels which
suggested break-up value. During the second quarter, we tentatively began
investing in selected Financials by buying into those companies receiving TARP
funds and where fundamentals had improved to a level at which we could justify
investment.
Price Performance
The price of the Fund performed in line with the NAV for the first half of the
reporting period, trading at a premium for much of the first quarter. During
August 2008, the price began to fall at a greater rate than the NAV and a price
discount to NAV continued through period end.
Market and Fund Outlook
The Debt and Derivative Unwind
The world seems set for a period of adjustment which Aviance characterizes as
the "Great Debt and Derivative Unwind." The unwinding of financial derivatives
such as CDOs (Collateralized Debt Obligations) and CDSs (Credit Default Swaps),
is taking place at break-neck speed and has resulted in persistent quarterly
losses and write-offs in financial and related industries. In our opinion, these
complex instruments have expanded too far and exerted too much control over the
economy; they needed to be curtailed to some degree.
In the middle of 2008, the debt unwind began in earnest. Many sectors of the
economy, companies and individuals have enjoyed easy credit and employed
leverage to some degree. The net effect of this has become unsustainable. How
many cars are on the road as a result of excessive lending? What percentage of
home prices is a result of mortgages which can only be justified by the demand
for collateralized debt products? Currently, credit is tighter and therefore
many of the debt-financed spending practices must come to an end.
Value Outlook
As a predominantly value-based asset manager, recent stock market declines are
in line with Aviance's optimistic mindset related to the long-term prospects for
equities. This does not mean we expect a quick end to the current turmoil or a
considerable near term rally in prices; however, it increases the probability
that a manager with the ability to understand the "real" financial and business
value of a company may be rewarded.
Page 5
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PORTFOLIO COMMENTARY (Unaudited) (Continued)
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As we look at the market through our "value-tinted" glasses, we see two types of
companies: those whose price has temporarily declined and those with permanent
impairment.
The stock prices of many companies have suffered excessively from this bear
market. In spite of this, their business models and fundamentals remain strong
even when a deep recession is factored in. Where we feel current price levels
are temporarily low we will look to invest, both to capture dividends with
limited downside and then to participate in a capital appreciation rally. On the
other hand, we see many companies where their business or financial position has
been permanently impaired. These stocks will not return to previous highs and we
will guard against the temptation to invest in recovery stories which do not
possess solid fundamental reasoning.
Are We at the Bottom?
There is a graveyard full of investment managers who called bottoms; it is not
our intention to join them nor to call the bottom. The NAV of the Fund is
predicated on selecting stock positions which reflect measurable value to our
investors. We feel the market will continue to be weighed down with poor
economic news, forcing expectations and forecasts downward for another quarter
or two.
The "full faith and credit of the U.S. government" should provide a market floor
going forward as the government has demonstrated willingness to intervene when
markets drop precipitously. Though the credit market pendulum swung too far to
the side of easy credit, the government is showing signs that it will try to
stop the pendulum from swinging violently to the side of zero credit.
As value managers we are excited to see deeply discounted stocks together with
the government guaranteeing continued operation of certain businesses.
Aviance's ability to perform in-depth analysis of balance sheets and businesses
should be rewarded. We look to invest in those companies with sufficient capital
and dividend coverage ratios to withstand the recession and avoid those
businesses and business models which rely heavily on the availability of debt
and leverage with lax standards.
Dividends
Given the expected pressure the recession will impose on earnings, dividend cuts
and suspensions may increase, thereby limiting the stocks we can buy for
dividend capture. At the time of writing in December 2008, we have not
experienced this to a degree which would markedly affect the management of the
Fund.
Recent reductions in the Fund's NAV increases the income percentage required to
meet the target $0.46 quarterly dividend, even though the yield on many stocks
has also increased at similar rates. As the Fund's dividend percentage
increases, we must capture more dividends by increasing the rate at which we buy
and sell.
Holding stocks for the required time to meet Qualified Dividend Income ("QDI")
tax requirements may be a casualty in this situation as we may have to increase
the "velocity" of capture and hold stocks for shorter periods. Therefore, for
the near term, Aviance does not expect to capture dividends with the same level
of QDI that was previously done for the Fund.
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1 Indicated Yield on November 30, 2008
2 Total return based on NAV 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 NAV per share and
does not reflect sales load.
3 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.
Page 6
First Trust Active Dividend Income Fund
Portfolio of Investments (a)
November 30, 2008
Shares Description Value
-------- --------------------------------------------- ---------------
COMMON STOCKS - 82.4%
AUTO COMPONENTS - 1.9%
80,000 Johnson Controls, Inc. $ 1,412,800
----------------
BEVERAGES - 5.6%
55,000 Coca-Cola (The) Co. 2,577,850
30,000 PepsiCo, Inc. 1,701,000
----------------
4,278,850
----------------
CAPITAL MARKETS - 4.4%
60,000 Merrill Lynch & Co., Inc. 793,200
117,000 Raymond James Financial, Inc. 2,570,490
----------------
3,363,690
----------------
COMMERCIAL BANKS - 3.0%
80,000 Huntington Bancshares, Inc. 640,000
60,000 U.S. Bancorp 1,618,800
----------------
2,258,800
----------------
COMMERCIAL SERVICES & SUPPLIES - 1.7%
45,000 Waste Management, Inc. 1,314,000
----------------
COMMUNICATIONS EQUIPMENT - 0.7%
15,000 QUALCOMM, Inc. 503,550
----------------
CONSTRUCTION & ENGINEERING - 1.8%
31,000 Fluor Corp. 1,411,740
----------------
DIVERSIFIED FINANCIAL SERVICES - 4.3%
165,000 Bank of America Corp. 2,681,250
3,000 CME Group, Inc. 635,850
----------------
3,317,100
----------------
DIVERSIFIED TELECOMMUNICATION SERVICEs - 8.4%
50,000 AT&T, Inc. 1,428,000
15,000 Chunghwa Telecom Co., Ltd. - ADR 234,600
100,000 Embarq Corp. 3,264,000
46,000 Verizon Communications, Inc. 1,501,900
----------------
6,428,500
----------------
ENERGY EQUIPMENT & SERVICES - 0.6%
25,000 Halliburton Co. 440,000
----------------
FOOD & STAPLES RETAILING - 2.9%
40,000 Wal-Mart Stores, Inc. 2,235,200
----------------
FOOD PRODUCTS - 1.9%
30,000 Kellogg Co. 1,302,900
5,000 Kraft Foods, Inc., Class A 136,050
----------------
1,438,950
----------------
HEALTH CARE EQUIPMENT & SUPPLIES - 3.1%
35,000 Baxter International, Inc. 1,851,500
10,000 Datascope Corp. 522,100
----------------
2,373,600
----------------
HOTELS, RESTAURANTS & LEISURE - 1.9%
25,000 McDonald's Corp. 1,468,750
-----------------
See Notes to Financial Statements Page 7
First Trust Active Dividend Income Fund
Portfolio of Investments (Continued) (a)
November 30, 2008
Shares Description Value
-------- --------------------------------------------- ---------------
COMMON STOCKS - (Continued)
HOUSEHOLD DURABLES - 1.3%
50,000 Tupperware Brands Corp. $ 983,500
----------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS - 0.9%
27,000 Constellation Energy Group, Inc. 660,690
----------------
INDUSTRIAL CONGLOMERATES - 2.4%
105,000 General Electric Co. 1,802,850
----------------
INSURANCE - 1.2%
10,000 Aflac, Inc. 463,000
15,000 Cincinnati Financial Corp. 438,600
----------------
901,600
----------------
IT SERVICES - 2.1%
40,000 Automatic Data Processing, Inc. 1,642,400
----------------
MACHINERY - 0.1%
3,000 Deere & Co. 104,430
----------------
MEDIA - 1.0%
85,000 Regal Entertainment Group, Class A 779,450
----------------
MULTI-UTILITIES - 4.0%
24,000 Ameren Corp. 853,920
60,000 Dominion Resources, Inc. 2,209,200
----------------
3,063,120
----------------
OIL, GAS & CONSUMABLE FUELS - 1.8%
150,000 El Paso Corp. 1,108,500
5,000 Occidental Petroleum Corp. 270,700
----------------
1,379,200
----------------
PHARMACEUTICALS - 6.2%
45,000 Bristol-Myers Squibb Co. 931,500
10,000 Johnson & Johnson 585,800
120,000 Merck & Co., Inc. 3,206,400
----------------
4,723,700
----------------
REAL ESTATE INVESTMENT TRUSTS (REITs) - 5.1%
260,000 Annaly Capital Management, Inc. 3,736,200
5,000 Hatteras Financial Corp. 128,850
----------------
3,865,050
----------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 0.4%
15,000 Analog Devices, Inc. 256,500
5,000 Texas Instruments, Inc. 77,850
----------------
334,350
----------------
SPECIALTY RETAIL - 1.2%
25,000 American Eagle Outfitters, Inc. 240,000
30,000 Home Depot (The), Inc. 693,300
----------------
933,300
----------------
TOBACCO - 11.0%
65,000 Altria Group, Inc. 1,045,200
60,000 Philip Morris International, Inc. 2,529,600
70,000 UST, Inc. 4,812,500
----------------
8,387,300
----------------
Page 8 See Notes to Financial Statements
First Trust Active Dividend Income Fund
Portfolio of Investments (Continued) (a)
November 30, 2008
Shares Description Value
-------- --------------------------------------------- ---------------
COMMON STOCKS - (Continued)
TRANSPORTATION INFRASTRUCTURE - 0.3%
50,000 Macquarie Infrastructure Co., LLC $ 233,000
----------------
WIRELESS TELECOMMUNICATION SERVICES - 1.2%
120,000 Centennial Communications Corp. (b) 927,600
----------------
TOTAL COMMON STOCKS - 82.4% 62,967,070
(Cost $59,776,940) ----------------
INVESTMENT COMPANIES - 7.3%
ASSET MANAGEMENT & CUSTODY BANKS
55,000 iShares FTSE/Xinhua China 25 Index Fund 1,462,450
230,000 ProShares Ultra Financials 1,446,700
15,000 ProShares Ultra Oil & Gas 490,500
30,000 ProShares Ultra S&P500 796,200
20,000 ProShares UltraShort Oil & Gas 608,000
9,000 ProShares UltraShort S&P500 799,560
----------------
TOTAL INVESTMENT COMPANIES 5,603,410
(Cost $5,629,901) ----------------
SHORT-TERM INVESTMENTS - 1.7%
ASSET MANAGEMENT & CUSTODY BANKS
1,281,901 JP Morgan U.S. Government Money Market Fund 1,281,901
(Cost $1,281,901) ----------------
TOTAL INVESTMENTS - 91.4% 69,852,381
(Cost $66,688,742) (c)
NET OTHER ASSETS AND LIABILITIES - 8.6% 6,604,029
----------------
NET ASSETS - 100.0% $ 76,456,410
================
- --------------------
(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 purposes is $77,826,590. As of
November 30, 2008, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$3,997,682 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$11,971,891.
ADR - American Depositary Receipt
SECURITY VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of November 30,
2008 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Valuation of Inputs Investments
-------------------------------------------------------------
Level 1 - Quoted Prices $68,570,480
Level 2 - Other Significant Observable Inputs 1,281,901
Level 3 - Significant Unobservable Inputs --
-----------
Total $69,852,381
===========
See Notes to Financial Statements Page 9
First Trust Active Dividend Income Fund
Statement of Assets and Liabilities
November 30, 2008
ASSETS:
Investments, at value
(Cost $66,688,742) $ 69,852,381
Receivables:
Investment securities sold 29,774,875
Dividends 1,203,254
--------------
Total Assets 100,830,510
--------------
LIABILITIES:
Payables:
Investment securities purchased 24,225,067
Investment advisory fees 61,399
Audit and tax fees 30,050
Administrative fees 16,607
Printing fees 11,881
Trustees' fees and expenses 8,662
Custodian fees 8,033
Legal fees 7,969
Transfer agent fees 4,432
--------------
Total Liabilities 24,374,100
--------------
NET ASSETS $ 76,456,410
==============
NET ASSETS consist of:
Paid-in capital $137,227,976
Par value 72,052
Accumulated net investment income (loss) 1,092,527
Net unrealized appreciation (depreciation) on investments 3,163,639
Accumulated net realized gain (loss) on investments (65,099,784)
--------------
NET ASSETS $ 76,456,410
==============
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share) $ 10.61
=============
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 Year Ended November 30, 2008
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $23,627) $ 14,306,724
---------------
Total investment income 14,306,724
---------------
EXPENSES:
Investment advisory fees 1,131,407
Administrative fees 79,988
Excise tax expense 55,392
Trustees' fees and expenses 40,279
Audit and tax fees 32,050
Legal fees 31,628
Custodian fees 29,504
Printing fees 19,110
Transfer agent fees 13,098
Other 49,382
---------------
Total expenses 1,481,838
---------------
NET INVESTMENT INCOME 12,824,886
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments (62,037,019)
Net change in unrealized appreciation (depreciation) on investments 4,507,917
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) (57,529,102)
---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (44,704,216)
===============
See Notes to Financial Statements Page 11
First Trust Active Dividend Income Fund
Statements of Changes in Net Assets
Year Period
Ended Ended
11/30/2008 11/30/2007 (a)
---------------- ----------------
OPERATIONS:
Net investment income (loss) $ 12,824,886 $ 3,512,679
Net realized gain (loss) (62,037,019) (2,386,854)
Net increase from payment from the Sub-Advisor -- 3,067
Net change in unrealized appreciation (depreciation) 4,507,917 (1,344,278)
---------------- ----------------
Net increase (decrease) in net assets resulting from operations (44,704,216) (215,386)
---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (14,173,245) --
Net realized gain (1,782,751) --
---------------- ----------------
Total distributions to shareholders (15,955,996) --
---------------- ----------------
CAPITAL TRANSACTIONS:
Proceeds from sale of Common Shares -- 137,620,008
Offering costs -- (288,000)
---------------- ----------------
Net increase (decrease) from capital transactions -- 137,332,008
---------------- ----------------
Total increase (decrease) in net assets (60,660,212) 137,116,622
NET ASSETS:
Beginning of period 137,116,622 --
---------------- ----------------
End of period $ 76,456,410 $ 137,116,622
================ ================
Accumulated net investment income (loss) at end of period $ 1,092,527 $ 3,512,679
================ ================
CAPITAL TRANSACTIONS were as follows:
Common Shares at beginning of period 7,205,236 --
Common Shares sold -- 7,205,236
---------------- ----------------
Common Shares at end of period 7,205,236 7,205,236
================ ================
- ------------------
<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
Year Period
Ended Ended
11/30/2008 11/30/2007 (a)
---------------- ----------------
Net asset value, beginning of period $ 19.03 $ 19.10(b)
---------------- -----------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (g) 1.78 0.52
Net realized and unrealized gain (loss) (7.99) (0.55)(h)
---------------- -----------------
Total from investment operations (6.21) (0.03)
---------------- -----------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (1.97) --
Net realized gain (0.24) --
---------------- -----------------
Total distributions (2.21) --
---------------- -----------------
Common Shares offering costs charged to paid-in capital -- (0.04)
---------------- -----------------
Net asset value, end of period $ 10.61 $ 19.03
================ =================
Market value, end of period $ 8.03 $ 17.78=
================ ================
TOTAL RETURN BASED ON NET ASSET VALUE (c) (d) (34.64)% (0.37)%
================ =================
TOTAL RETURN BASED ON MARKET VALUE (d) (e) (47.00)% (11.10)%
================ =================
- ------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 76,456 $137,117
Ratio of total expenses to average net assets 1.31% 1.44% (f)
Ratio of net investment income to average net assets 11.34% 13.87% (f)
Portfolio turnover rate 1,722% 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
November 30, 2008
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 dividends 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, the Fund's Board of Trustees has designated First Trust Advisors
L.P. ("First Trust") to use a fair value method to value the Fund's securities
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 when purchased are valued at amortized cost.
In September 2006, the Financial Accounting Standards Board ("FASB") 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 November 30, 2008 is
included in the Fund's Portfolio of Investments.
Page 14
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (Continued)
- --------------------------------------------------------------------------------
First Trust Active Dividend Income Fund
November 30, 2008
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.
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. Permanent differences incurred during the fiscal year ended
November 30, 2008, resulting in book and tax accounting differences, have been
reclassified at year end to reflect a decrease in accumulated net investment
income (loss) of $1,071,793, a decrease in paid-in capital of $31,980 and an
increase to accumulated net realized gain (loss) on investments of $1,103,773.
Net assets were not affected by this reclassification.
The tax character of distributions paid during the periods ended November 30,
2008 and 2007 was as follows:
Distributions paid from: 2008 2007
Ordinary Income $15,925,846 $ --
Long-Term Capital Gain 30,150 --
As of November 30, 2008, the components of distributable earnings on a tax basis
were as follows:
Undistributed Ordinary Income $ 1,092,527
Net Unrealized Appreciation (Depreciation) (7,974,209)
Accumulated Capital and Other Losses (53,961,936)
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 year
ended November 30, 2008, the Fund elected to defer capital losses occurring
between November 1, 2008 and November 30, 2008 in the amount of $9,874,010.
The Fund intends to utilize provisions of the federal income tax laws, which
allows it to carry a realized capital loss forward for eight years following the
year of the loss and offset such loss against any future realized capital gains.
At November 30, 2008, the Fund had available realized capital losses of
$44,087,926 to offset future net capital gains through the fiscal year 2016.
In June 2006, the FASB issued Interpretation No. 48 ("FIN 48"), "Accounting for
Uncertainty in Income Taxes." FIN 48 establishes the minimum threshold for
recognizing, and a system for measuring, the benefits of a tax position taken or
expected to be taken in a tax return, and is effective for the Fund's current
fiscal year. As of November 30, 2008, management has evaluated the application
of FIN 48 to the Fund, and has determined that no provision for income tax is
required in 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
for using derivatives, quantitative disclosures about fair value amounts of and
Page 15
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (Continued)
- --------------------------------------------------------------------------------
First Trust Active Dividend Income Fund
November 30, 2008
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 providing 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 a monthly
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.
PNC Global Investment Servicing (U.S.) Inc., formerly known as PFPC, Inc.,
provides certain administrative services to the Fund in connection with the
Board's meetings and other related matters.
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 in 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. The
officers and the interested trustee receive no compensation from the Fund for
serving in such capacities.
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 fiscal year ended
November 30, 2008, were $1,815,338,399 and $1,824,929,216, respectively.
5. 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.
6. Risk Considerations
Risks are inherent in all investing. The following summarizes some of the risks
that should be considered for the Fund. For additional information about the
risks associated with investing in the Fund, please see the Fund's prospectus
and statement of additional information, as well as other Fund regulatory
filings.
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
Page 16
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (Continued)
- --------------------------------------------------------------------------------
First Trust Active Dividend Income Fund
November 30, 2008
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. When the Advisor or Sub-Advisor determines that it
is temporarily unable to follow the Fund's investment strategy or that it is
impractical to do so (such as when a market disruption event has occurred and
trading in the securities is extrememly limited or absent), the Fund may take
temporary defensive positions.
In 2008, securities markets have been significantly negatively affected by the
financial crisis that initially resulted from the downturn in the subprime
mortgage market in the United States. The potential impact of the financial
crisis on securities markets may prove to be significant and long-lasting and
may have a substantial impact on the value of the Fund.
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 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
result in a widespread reduction in announced dividends and may adversely impact
the valuation of the shares of dividend-paying companies.
Page 17
- --------------------------------------------------------------------------------
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, 2008, the related statement of operations for
the year then ended and the statement of changes in net assets and financial
highlights for the year then ended and for the period September 20, 2007
(inception) through November 30, 2007. These financial statements and 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 audits.
We conducted our audits 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 audits 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, 2008, by correspondence with the Fund's
custodian and brokers; where replies were not received from brokers, we
performed other auditing procedures. We believe that our audits provide 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, 2008, the results of its
operations for the year then ended and changes in its net assets and financial
highlights for the year then ended and for the period September 20, 2007
(inception) through November 30, 2007, in conformity with accounting principles
generally accepted in the United States of America.
Chicago, Illinois
January 23, 2009
Page 18
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ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
First Trust Active Dividend Income Fund
November 30, 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.
- --------------------------------------------------------------------------------
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 19
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION - (Continued)
- --------------------------------------------------------------------------------
First Trust Active Dividend Income Fund
November 30, 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.
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 14, 2008, 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.
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 Specialty Finance
and Financial Opportunities Fund (formerly known as 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 64,277. James A. Bowen, Richard E.
Erickson, Thomas R. Kadlec and Niel B. Nielson are the current and continuing
Trustees.
Tax Information
Of the ordinary income (including short-term capital gain) distributions made by
the Fund during the year ended November 30, 2008, 9.52% qualified for the
corporate dividend received deduction available to corporate shareholders.
The Fund hereby designates as qualified dividend income distributions 17.54% of
ordinary income distributions (including short-term capital gains), for the year
end November 30, 2008.
For the year ended November 30, 2008, the amount of long-term capital gain
distributions designated by the Fund was $30,150, which is taxable at a maximum
rate of 15% for federal income tax purposes.
Page 20
- -----------------------------------------------------------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
First Trust Active Dividend Income Fund
November 30, 2008 (Unaudited)
Number of
Portfolios
Term of in the Other
Office First Trust Trusteeshipss
and Year Fund or
Name, Address, First Complex Directorships
Date of Birth and Elected or Principal Occupations Overseen by Held by
Position with the Fund Appointed(2) During Past 5 Years Trustee Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
- -----------------------------------------------------------------------------------------------------------------------------------
James A. Bowen,(1) Trustee, o Three Year President, First Trust 60 Trustee of
President, Chairman of Trustee Term Advisors L.P. and Wheaton
the Board and CEO and Indefinite First Trust Portfolios College
120 E. Liberty Drive, Officer Term L.P.; Chairman of the
Suite 400 Board of Directors,
Wheaton, IL 60187 o Since Fund BondWave LLC (Software
D.O.B.: 09/55 Inception Development Company/Broker-
Dealer/Investment Advisor) and
Stonebridge Advisors LLC
(Investment Advisor)
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------------
Richard E. Erickson, o Two Year Term Physician; President, 60 None
Trustee Wheaton Orthopedics;
c/o First Trust Advisors o Since Fund Co-owner and
L.P. Inception Co-Director (January
120 E. Liberty Drive, 1996 to May 2007),
Suite 400 Sports Med Center for
Wheaton, IL 60187 Fitness; Limited
D.O.B.: 04/51 Partner, Gundersen
Real Estate
Partnership; Limited
Partner, Sportsmed LLC
Thomas R. Kadlec, Trustee o Two Year Term Senior Vice President 60 Director
c/o First Trust Advisors and Chief Financial of ADM Investor
L.P. o Since Fund Officer (May 2007 to Services, Inc.
120 E. Liberty Drive, Inception Present), Vice and Director of
Suite 400 President and Chief Archer Financial
Wheaton, IL 60187 Financial Officer Services, Inc.
D.O.B.: 11/57 (1990 to May 2007),
ADM Investor Services,
Inc. (Futures
Commission Merchant);
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 Three Year Term President (2003 to 60 None
c/o First Trust Advisors Present),
L.P. o Since Fund Hibs Enterprises
120 E. Liberty Drive, Inception (Financial and
Suite 400 Management
Wheaton, IL 60187 Consulting); President
D.O.B.: 03/64 (2001 to 2003),
Aramark Management
Services LP; President
and Chief Operating
Officer (1998 to
2003), ServiceMaster
Management Services LP
Niel B. Nielson, Trustee o Three Year Term President (June 2002 60 Director of
c/o First Trust Advisors to Present), Covenant Covenant
L.P. o Since Fund College Transport Inc.
120 E. Liberty Drive, Inception
Suite 400
Wheaton, IL 60187
D.O.B.: 03/54
- -------------------------
<FN>
(1) Mr. Bowen is deemed an "interested person" of the Fund due to his position
of President of First Trust Advisors L.P., investment advisor of the Fund.
(2) Currently, Robert F. Keith, as a Class I Trustee, is serving as a trustee
until the Fund's 2011 annual meeting of shareholders. Richard E. Erickson
and Thomas R. Kadlec, as Class II Trustees, are each serving as trustees
until the Fund's 2009 annual meeting of shareholders. James A. Bowen and
Niel B. Nielson, as Class III Trustees, are each serving as trustees until
the Fund's 2010 annual meeting. Officers of the Fund have an indefinite
term. The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.
</FN>
Page 21
- -----------------------------------------------------------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
First Trust Active Dividend Income Fund
November 30, 2008 (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUND
- -----------------------------------------------------------------------------------------------------------------------------------
Position and Term of Office
Name, Address Offices and Length of Principal Occupations
and Date of Birth with Fund Service(2) During Past 5 Years
Mark R. Bradley Treasurer, o Indefinite Chief Financial Officer,
120 E. Liberty Drive, Controller, term First Trust Advisors
Suite 400 Chief Financial L.P. and First Trust
Wheaton, IL 60187 Officer and o Since Fund Portfolios L.P.; Chief
D.O.B.: 11/57 Chief Accounting Inception Financial Officer,
Officer BondWave LLC (Software
Development Company/Broker-Dealer/
Investment Advisor) and Stonebridge
Advisors LLC (Investment Advisor)
James M. Dykas Assistant o Indefinite Senior Vice President
120 E. Liberty Drive, Treasurer term (April 2007 to Present),
Suite 400 Vice President (January
Wheaton, IL 60187 o Since Fund 2005 to April 2007),
D.O.B.: 01/66 Inception First Trust 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 R. Fallow Assistant Vice o Indefinite Assistant Vice President
120 E. Liberty Drive, President term (August 2006 to Present),
Suite 400 Associate (January 2005 to
Wheaton, IL 60187 o Since Fund August 2006), First Trust
D.O.B.: 04/79 Inception Advisors L.P. and First
Trust Portfolios L.P.; Municipal
Bond Trader (July 2001 to January
2005), BondWave LLC (Software
Development Company/Broker-Dealer/
Investment Advisor)
W. Scott Jardine Secretary and o Indefinite General Counsel, First
120 E. Liberty Drive, Chief Compliance term Trust Advisors L.P. and
Suite 400 Officer First Trust Portfolios
Wheaton, IL 60187 o Since Fund L.P.; Secretary,
D.O.B.: 05/60 Inception BondWave LLC (Software
Development Company/Broker-Dealer/
Investment Advisor) and
Stonebridge Advisors
LLC (Investment Advisor)
Daniel J. Lindquist Vice President o Indefinite Senior Vice President
120 E. Liberty Drive, term (September 2005 to
Suite 400 Present), Vice President
Wheaton, IL 60187 o Since Fund (April 2004 to September 2005),
D.O.B.: 02/70 Inception First Trust 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.
Coleen D. Lynch Assistant Vice o Indefinite Assistant Vice President
120 E. Liberty Drive, President term (January 2008 to Present),
Suite 400 First Trust Advisors L.P. and
Wheaton, IL 60187 o Since July First Trust Portfolios L.P.;
D.O.B.: 07/58 2008 Vice President (May 1998 to January
2008), Van Kampen Asset Management
and Morgan Stanley Investment Management
Kristi A. Maher Assistant o Indefinite Deputy General Counsel (May 2007
120 E. Liberty Drive, Secretary term to Present), Assistant General
Suite 400 Counsel (March 2004 to May 2007),
Wheaton, IL 60187 o Since Fund First Trust Advisors L.P. and First Trust
D.O.B.: 12/66 Inception Portfolios L.P.; Associate (December 1995
to March 2004), Chapman and Cutler LLP
Page 22
- --------------------------------------------------------------------------------
PRIVACY POLICY
- --------------------------------------------------------------------------------
First Trust Active Dividend Income Fund
November 30, 2008 (Unaudited)
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.
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 23
This page left blank intentionally.
Page 24
[BLANK INSIDE BACK COVER]
[LOGO OMITTED]
FIRST TRUST
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 E. Liberty Drive, Suite 400
Wheaton, IL 60187
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.
(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 for each of
the last two fiscal years 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 those fiscal years were
$42,000 from the inception of the registrant on September 20, 2007 through
November 30, 2007 and $0 for the fiscal year ended November 30, 2008.
(b) Audit-Related Fees (Registrant) -- The aggregate fees billed in
each of the last two fiscal years 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 from the inception of the registrant on September 20,
2007 through November 30, 2007 and $0 for the fiscal year ended November 30,
2008.
Audit-Related Fees (Investment Adviser) -- The aggregate fees
billed in each of the last two fiscal years 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 $5,000 from the inception of the registrant on
September 20, 2007 through November 30, 2007 and $0 for the fiscal year ended
November 30, 2008.
(c) Tax Fees (Registrant) -- The aggregate fees billed in each of the
last two fiscal years for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning to the registrant
were $0 from the inception of the registrant on September 20, 2007 through
November 30, 2007 and $4,250 for the fiscal year ended November 30, 2008. These
fees were for tax consultation.
Tax Fees (Investment Adviser) -- The aggregate fees billed in each
of the last two fiscal years for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning to the registrant's
adviser were $0 from the inception of the registrant on September 20, 2007
through November 30, 2007 and $0 for the fiscal year ended November 30, 2008.
(d) All Other Fees (Registrant) -- The aggregate fees billed in each of
the last two fiscal years 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 from the inception of the registrant on
September 20, 2007 through November 30, 2007 and $0 for the fiscal year ended
November 30, 2008.
All Other Fees (Investment Adviser) -- The aggregate fees billed in
each of the last two fiscal years for products and services provided by the
principal accountant to the registrant's investment adviser, other than the
services reported in paragraphs (a) through (c) of this Item were $0 from the
inception of the registrant on September 20, 2007 through November 30, 2007 and
$0 for the fiscal year ended November 30, 2008.
(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 is 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 its
policies, 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 the
inception of the registrant on September 20, 2007 through November 30, 2007,
were $0 for the registrant and $0 for the registrant's investment adviser, and
for the fiscal year ended November 30, 2008, were $4,250 for the registrant and
$12,143 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.
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.
The Proxy Voting Policies are attached herewith.
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, and Mark Belanian. The
team has approximately six years of experience working together and
approximately 66 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.
MARK BELANIAN, Portfolio Analyst
Mark Belanian has over 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 AS OF
NOVEMBER 30, 2008
# 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: 71 $28 Million 0 $0
Gary T. Dvorchak Registered Investment 0 $0 0 $0
Companies:
Other Pooled Investment 0 $0 0 $0
Vehicles:
Other Accounts: 71 $28 Million 0 $0
Mark Belanian Registered Investment 0 $0 0 $0
Companies:
Other Pooled Investment 0 $0 0 $0
Vehicles:
Other Accounts: 71 $28 Million 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.
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 profitability of the firm. Aviance employees are offered
health/dental insurance through the firm's group policy. The members of the
portfolio management team are paid at the annual salary cap amount. At this
time, the cash 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.
DISCLOSURE OF SECURITIES OWNERSHIP
Information provided as of November 30, 2008
Dollar Range of Registrant
Name Shares Beneficially Owned
Christian C. Bertelsen $0
Gary T. Dvorchak $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.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of directors, 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) 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
-----------------------------------------------------
James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
Date January 26, 2009
-----------------------
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 26, 2009
-----------------------
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 26, 2009
-----------------------
* Print the name and title of each signing officer under his or her signature.