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
(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
(Name and address of agent for service)
Registrant's telephone number, including area code: 630-765-8000
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Date of fiscal year end: November 30
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Date of reporting period: November 30, 2012
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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.
FIRST TRUST
ANNUAL REPORT
FOR THE YEAR ENDED
NOVEMBER 30, 2012
FIRST TRUST
ACTIVE DIVIDEND
INCOME
FUND
AVIANCE
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Capital Management
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TABLE OF CONTENTS
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FIRST TRUST ACTIVE DIVIDEND INCOME FUND (FAV)
ANNUAL REPORT
NOVEMBER 30, 2012
Shareholder Letter............................................................ 1
At A Glance................................................................... 2
Portfolio Commentary.......................................................... 3
Portfolio of Investments...................................................... 7
Statement of Assets and Liabilities...........................................12
Statement of Operations.......................................................13
Statements of Changes in Net Assets...........................................14
Financial Highlights..........................................................15
Notes to Financial Statements.................................................16
Report of Independent Registered Public Accounting Firm.......................22
Additional Information........................................................23
Board of Trustees and Officers................................................27
Privacy Policy................................................................29
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/or Sub-Advisor and
their respective representatives only as of the date hereof. We undertake no
obligation to publicly revise or update these forward-looking statements to
reflect events and circumstances that arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that the Fund will achieve its investment objectives. The
Fund is subject to market risk, which is the possibility that the market values
of securities owned by the Fund will decline and that the value of the Fund
shares may therefore be less than what you paid for them. Accordingly, you can
lose money by investing in the Fund. See "Risk Considerations" in the Notes to
Financial Statements for a discussion of certain 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 Fund regulatory filings.
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SHAREHOLDER LETTER
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FIRST TRUST ACTIVE DIVIDEND INCOME FUND (FAV)
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
NOVEMBER 30, 2012
Dear Shareholders:
I am pleased to present you with the annual report for your investment in First
Trust Active Dividend Income Fund (the "Fund").
The report you hold contains detailed information about your investment; a
portfolio commentary from the Fund's management team that provides a recap of
the period; a performance analysis and a market and Fund outlook. Additionally,
you will find the Fund's financial statements for the period this report covers.
I encourage you to read this document and discuss it with your financial
advisor. A successful investor is also typically a knowledgeable one, as we have
found to be the case at First Trust.
First Trust remains committed to being a long-term investor and investment
manager and to bringing you quality financial solutions regardless of market ups
and downs. We have always believed, as I have written previously, that there are
two ways to attain success in reaching your financial goals: staying invested in
quality products and having a long-term investment horizon. We are committed to
this approach in the products we manage or supervise and offer to investors.
As you know, First Trust offers a variety of products that we believe could fit
many financial plans to help investors seeking long-term investment success. We
encourage you to talk to your advisor about the other investments First Trust
offers that might also fit your financial goals and to discuss those goals with
your advisor regularly so that he or she can help keep you on track.
First Trust will continue to make available up-to-date information about your
investments so you and your financial advisor are current on any First Trust
investments you own. We value our relationship with you, and thank you for the
opportunity to assist you in achieving your financial goals. I look forward to
the New Year and to the next edition of your Fund's report.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees of First Trust Active Dividend Income Fund and
Chief Executive Officer of First Trust Advisors L.P.
Page 1
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
"AT A GLANCE"
AS OF NOVEMBER 30, 2012 (UNAUDITED)
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FUND STATISTICS
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Symbol on New York Stock Exchange FAV
Common Share Price $7.69
Common Share Net Asset Value ("NAV") $8.63
Premium (Discount) to NAV (10.89)%
Net Assets Applicable to Common Shares $71,261,470
Current Quarterly Distribution per Common Share (1) $0.1800
Current Annualized Distribution per Common Share $0.7200
Current Distribution Rate on Closing Common Share Price (2) 9.36%
Current Distribution Rate on NAV (2) 8.34%
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COMMON SHARE PRICE & NAV (WEEKLY CLOSING PRICE)
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Common Share Price NAV
11/11 $8.41 $9.20
8.36 9.13
8.37 9.19
8.12 9.05
8.37 9.37
12/11 8.38 9.38
8.48 9.29
8.42 9.32
8.35 9.30
1/12 8.35 9.33
8.60 9.51
8.63 9.43
8.63 9.54
2/12 8.77 9.58
8.71 9.56
3/9/2012 8.63 9.52
8.78 9.65
8.70 9.60
3/12 8.70 9.59
8.54 9.50
8.47 9.36
8.37 9.16
4/12 8.35 9.32
8.20 9.05
8.02 8.96
7.53 8.48
5/12 7.70 8.57
7.41 8.33
7.62 8.64
7.63 8.72
7.55 8.67
6/12 7.80 8.82
7.80 8.82
7.90 8.91
7.64 8.74
7/12 7.91 8.86
7.90 8.93
7.97 9.06
8.24 9.10
8.13 9.02
8/12 8.08 8.97
8.15 9.09
8.36 9.16
8.37 9.11
9/12 8.47 9.02
8.43 9.14
8.36 9.00
8.40 9.04
10/12 8.13 8.75
8.09 8.71
7.78 8.47
7.34 8.35
7.65 8.58
11/12 7.69 8.63
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PERFORMANCE
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Average Annual Total Return
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Inception
1 Year Ended 5 Years Ended (9/20/2007)
11/30/2012 11/30/2012 to 11/30/2012
FUND PERFORMANCE (3)
NAV 2.24% -2.63% -2.58%
Market Value -0.34% -3.52% -5.56%
INDEX PERFORMANCE
Russell 1000(R) Value Index 17.45% -0.01% -0.96%
S&P 500(R) Index 16.13% -39.35% -33.33%
Dow Jones Select Dividend Index 13.09% 4.59% 1.74%
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% OF TOTAL
TOP 10 HOLDINGS INVESTMENTS
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SK Telecom Co., Ltd., ADR 2.9%
Telecom Corp. of New Zealand Ltd., ADR 2.8
Verizon Communications, Inc. 2.6
Kimberly-Clark Corp. 2.6
Pfizer, Inc. 2.5
Philip Morris International, Inc. 2.2
Copano Energy, LLC 2.2
AT&T, Inc. 2.1
Procter & Gamble (The) Co. 2.1
Encana Corp. 2.1
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Total 24.1%
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% OF TOTAL
SECTOR ALLOCATION INVESTMENTS
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Consumer Staples 22.1%
Telecommunication Services 17.5
Energy 14.2
Consumer Discretionary 10.3
Utilities 7.9
Information Technology 7.6
Health Care 7.0
Financials 6.8
Industrials 6.6
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Total 100.0%
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(1) Most recent distribution paid or declared through 11/30/2012. 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 11/30/2012. Subject to
change in the future.
(3) Total return is based on the combination of reinvested dividend, capital
gain and return of capital distributions, if any, at prices obtained by
the Dividend Reinvestment Plan and changes in NAV per share for NAV
returns and changes in Common Share price for market value returns. Total
returns do not reflect sales load and are not annualized for periods less
than one year. Past performance is not indicative of future results.
Page 2
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PORTFOLIO COMMENTARY
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FIRST TRUST ACTIVE DIVIDEND INCOME FUND (FAV)
ANNUAL REPORT
NOVEMBER 30, 2012
SUB-ADVISOR
Aviance Capital Management, LLC ("Aviance"), a registered investment advisor, is
the sub-advisor to First Trust Active Dividend Income Fund ("FAV" or the
"Fund"). Aviance is an asset management firm focused on managing multi-cap value
and growth portfolios and is currently managed by Christian C. Bertelsen,
Michael J. Dixon, and Edward C. Bertelsen, who are all Founding Members of the
firm. Aviance is responsible for the day-to-day management of the equity
securities portion of the Fund's portfolio, utilizing a team made up of
Christian C. Bertelsen, Jeffrey J. Walker, Edward C. Bertelsen and Mark
Belanian. The team has approximately seven years of experience working together
and more than 67 years of cumulative industry experience. First Trust is
responsible for the day-to-day management of the option portion of the Fund's
portfolio. Rob A. Guttschow and John Gambla, Senior Portfolio Managers in First
Trust's Alternative and Equity Investment Group, manage the option portion of
the Fund's portfolio. Their management activities for the Fund began with the
commencement of the option overlay strategy (discussed on page 17) on August 20,
2012.
PORTFOLIO MANAGEMENT TEAM
CHRISTIAN C. BERTELSEN, CHIEF INVESTMENT OFFICER AND SENIOR PORTFOLIO MANAGER
Christian C. Bertelsen has over 43 years of investment experience. In November
2004, he became 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.
JEFFERY J. WALKER, ANALYST AND ASSISTANT PORTFOLIO MANAGER
Jeffrey J. Walker has 5 years of investment industry experience which includes
trading, investment analysis/research, and portfolio management. Mr. Walker
started as an intern with GF Investment Services, LLC in May 2006 before
starting full-time employment in March 2009. He joined GFPC/Aviance in May 2011
as an analyst/assistant portfolio manager. Mr. Walker graduated magna cum laude
from Florida State University with a B.S. in Finance, and is currently a Level
III Candidate in the Chartered Financial Analyst ("CFA") Program
EDWARD C. BERTELSEN, PORTFOLIO MANAGER - RESEARCH
Edward C. Bertelsen has over 10 years of experience in supporting and managing
portfolios. He is also responsible for a limited number of selected client
relationships. He joined GFPC/Aviance in April 2004 and was instrumental in
creating its trading environment. Between March 2001 and April 2004, Mr.
Bertelsen was a Senior Portfolio Manager with Salomon Smith Barney. Between
November 1996 and March 2001, Mr. Bertelsen was employed by Legg Mason Wood
Walker as a Portfolio Manager. He graduated with honors from Albion College in
1993 with a B.A. in Economics and History and started his financial career with
Raymond James in July 1993.
MARK BELANIAN, PORTFOLIO ANALYST
Mark Belanian has over 10 years of investment industry experience. Mr. Belanian
joined GFPC/Aviance in February 2006 from Merrill Lynch's Global Private Client
Group in Sarasota, Florida, where he had worked since February 2005. Mr.
Belanian worked with Christian Bertelsen as a portfolio analyst at Phoenix
Investment Counsel between June 1998 and January 2005. Mr. Belanian graduated
from Trinity College with a B.A. in Modern Language.
JOHN GAMBLA, CFA, SENIOR PORTFOLIO MANAGER
John Gambla is a Senior Portfolio Manager of the Alternative and Equity
Investment Group at First Trust. Mr. Gambla has 20 years of investment
experience. He joined First Trust in 2011. Before joining First Trust he was a
co-Chief Investment Officer at the Nuveen HydePark Group LLC, a wholly-owned
subsidiary of Nuveen Investments from May 2004 to March 2011. While at HydePark
Mr. Gambla co-directed HydePark's investment activities including research,
product development, trading, portfolio management, and performance attribution.
Prior to May 2004, Mr. Gambla was a Senior Trader and Quantitative specialist at
Nuveen Asset Management. While there, he was responsible for trading all
derivatives for more than 120 municipal mutual funds.
Page 3
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PORTFOLIO COMMENTARY - (CONTINUED)
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Mr. Gambla graduated Phi Beta Kappa with a B.S. in Genetics and Development
Biology (Cum Laude) and a B.A. in Finance (departmental distinction) from the
University of Illinois at Urbana/Champaign, and earned an MBA from the
University of Chicago's Graduate School of Business. He is a CFA Charterholder
and holds FRM and PRM designations.
ROB A. GUTTSCHOW, CFA, SENIOR PORTFOLIO MANAGER
Rob Guttschow is a Senior Portfolio Manager for the Alternative and Equity
Investment Group at First Trust. Mr. Guttschow has nearly 20 years of investment
experience. He joined First Trust in 2011. Before joining First Trust he was a
co-Chief Investment Officer at the Nuveen HydePark Group LLC, a wholly-owned
subsidiary of Nuveen Investments from May 2004 to March 2011. While at HydePark
Mr. Guttschow co-directed HydePark's investment activities including research,
product development, trading, portfolio management, and performance attribution.
Prior to joining HydePark, Mr. Guttschow was an Overlay Manager and Senior
Portfolio Manager at Nuveen Asset Management, a wholly-owned subsidiary of
Nuveen Investments. Prior to May 2004, Mr. Guttschow was a Partner, Managing
Director and Senior Portfolio Manager at Lotsoff Capital Management. While at
Lotsoff, he was responsible for managing a variety of fixed-income and
equity-based enhanced index products for the firm's institutional clients. Mr.
Guttschow earned a B.S. degree in Engineering and an MBA from the University of
Illinois at Urbana/Champaign. He is a CFA Charterholder and a member of the CFA
Society of Chicago.
COMMENTARY
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
The primary investment objective of 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. In addition, on an
ongoing and consistent basis, the Fund will write call options on stock indices
and single stocks on up to 50% of the Fund's portfolio value. There can be no
assurance that the Fund's investment objectives will be achieved. The Fund may
not be appropriate for all investors.
MARKET RECAP
This section discusses the primary factors which impacted FAV's two integrated
objectives throughout the twelve months ended November 30, 2012.
CORRECTION AND "HOPE BASED" RALLY
For the twelve months ended November 30, 2012, the Russell 1000 Value Index
("R1000V") gained 17.45%. The Standard & Poor's 500 Index ("S&P 500"), the
Fund's secondary benchmark, rose 16.13% for the same period.
The reporting period primarily consisted of a "hope based" rally in broad global
equity markets. The rally was interrupted during May when FAV's major benchmark,
the R1000V, fell from 688.70 on May 1 to 623.74 on June 4; a drop of
approximately 9.43%. The main cause of this precipitous drop was uncertainty
over the European Debt crisis, slowing growth in China and weakening U.S.
economic indicators. Despite these worries, demand for risky assets increased
during the following months as investors speculated world central banks would
add additional stimulus through outright asset purchases - known as quantitative
easing.
Asset classes were driven by headlines out of the European Union and Central
Bank stimulus speculation. Fundamentals and actual macro-economic data often
enjoyed an inverse relationship with equity market prices. For example,
increases in unemployment and slowing GDP expectations improved the probability
of a third round of government quantitative easing which actually caused markets
to rally. Thus, the second half of the reporting period was a difficult time for
conservative/income-oriented investors, many of whom saw markets appreciate
while their fundamental data indicated depreciating equity prices.
CORPORATE EARNINGS
The twelve-month period covered by this report was a time of slowing global
economic growth and fears the European Union would not be able to agree on a
long-term solution to its sovereign debt crisis. Initially, corporations
continued to beat expectations by cutting costs to compensate for slowing
revenue growth. As revenue growth continued to decrease, the slowing economic
conditions started to be reflected in lower corporate earnings.
With 494 S&P 500 companies reporting for the third quarter of 2012, at the time
of writing, 334 had beat expectations, 155 missed and 5 met their operating
estimates. The pace of growth for both revenue and sales has slowed
significantly from recent quarters with third quarter earnings growth of just
0.90% and sales growth of -0.03%. Looking forward, this trend could continue if
global economies are dragged down by the U.S. fiscal problems and the European
Debt crisis.
Page 4
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PORTFOLIO COMMENTARY - (CONTINUED)
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DIVIDEND RECAP
HOW WERE DIVIDENDS AFFECTED?
The primary aim of the Fund is the generation of yield from the capture of
dividends and from holding dividend-paying stocks that, in the Sub-Advisor's
opinion, are undervalued by the market, so-called "value" stocks. Therefore, a
major factor which affects the Fund's management is the availability of
dividends. Moreover, an important component of the Fund's security selection
process is the identification of those companies with a history of consistent
and rising dividend payments. Where such dividend raises are financially
sustainable, in the opinion of the Sub-Advisor, the company assumes a higher
probability of selection within the Fund. Moreover, rising dividends suggest the
potential for rising aggregate yields for the Fund's investors.
For the third quarter of 2012, "Dividends continue to have a great year, with
actual cash payments increasing over 19% and the forward indicated dividend rate
reaching a new all-time high," said Howard Silverblatt, Senior Index Analyst at
S&P Indices. During the third quarter of 2012, 439 companies increased their
dividends compared to 350 companies during the same period in 2011. There were
53 negative dividend actions in Q3 2012, compared to 23 the same period of 2011.
We see this as an indication that the financial strength of the majority of
companies continues to improve.
After the U.S. election in November, investors turned their attention to the
U.S. "fiscal cliff," which includes the expiration of the Bush Era tax cuts and
would imply an increase in the tax rates paid on dividends. Due to this
uncertainty, investors sold off high-yielding equities. In the Sub-Advisors'
opinion, the selloff was an overreaction and the downward pressure on these
equities will reverse in the coming months as investors continue to search for
yield in a low interest-rate environment.
PERFORMANCE ANALYSIS
The net asset value ("NAV") total return(1) of the Fund for the twelve months
ended November 30, 2012 was 2.24%. Over the same period, the total return of the
R1000V Index, the Fund's primary benchmark index, was 17.45%, while the Fund's
secondary benchmark index, the S&P 500, returned 16.13%.
NAV PERFORMANCE
The Fund's NAV total return lagged the performance of its main benchmark, the
Russell 1000 Value Index, by 15.21% for the twelve-month reporting period.
The Sub-Advisor's aim is to manage FAV to collect the required dividend income
and secondly, to attempt to participate in capital appreciation while seeking to
protect capital. As a result of ongoing Euro debt contagion fears, slowing
growth in China and weakening U.S. economic data, we decided to protect capital
by moving the portfolio holdings to a more defensive position by replacing high
beta stocks with lower beta stocks (Beta is an indication of the systematic risk
of a security). This resulted in a lower level of participation in the
benchmark's appreciation performance.
The Fund's underperformance was mainly the result of the Fund's defensive
positioning and the benchmark's "hope based" rally. As central bank stimulus
drove up the price of high beta stocks, the Fund's lower beta stocks did not
participate as much. Additionally, after the U.S. Presidential elections in
November, there was a large scale sell off of high-yield equities as investors
focused on potential changes to the dividend tax rate.
PRICE PERFORMANCE
The Fund's market value provided a total return(1) of -0.34% during the
reporting period. The price of FAV closely followed the price of the R1000V for
much of the reporting period, with the exception of the month of November. After
the U.S. election, FAV's price dropped, which we believe is attributable to
investors' fears of uncertainty over the U.S. fiscal cliff consequences and the
resulting impact on dividend taxes.
Although the price of FAV is not directly managed by the Advisor or Sub-Advisor,
in the opinion of the Sub-Advisor, the drop in price after the election was an
overreaction to the uncertainty over tax policy. Dividend stocks have performed
well during periods of both high and low dividend tax rates and we believe they
should continue to perform well under the current rates.
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1 Total return is based on the combination of reinvested dividend, capital gain
and return of capital distributions, if any, at prices obtained by the
Dividend Reinvestment Plan and changes in NAV per share for NAV returns and
changes in Common Share price for market value returns. Total returns do not
reflect sales load and are not annualized for periods less than one year.
Past performance is not indicative of future results.
Page 5
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PORTFOLIO COMMENTARY - (CONTINUED)
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MARKET & FUND OUTLOOK
Our short- to medium-term outlook remains defensive based on the fact that the
solution to European debt problems will take a long time for countries to agree
upon and subsequently implement. At the same time, U.S. corporate earnings look
set to soften. The level of confidence we see returning to global markets
appears overdone for the next quarter or two.
The great debt and derivative unwind now includes Europe. It will take many
years for the effects of our recent fiscal profligacy to unwind. That said, we
do not expect another 2008-like liquidity crisis. Governments and central banks
across the world are committed to providing enough liquidity to keep the wheels
of global financial markets turning. Our goal will remain the same: generate the
required income and protect capital in down markets.
We see interest rates remaining low throughout 2013.
U.S. FISCAL POLICY ("THE FISCAL CLIFF")
The Congressional solution to the fiscal cliff could have large implications on
not only the U.S. economic recovery but also the extent of the current European
recession and the slowing growth in China. In the Sub-Advisor's opinion,
resolution of other fiscal issues, such as sequestration and the upcoming debt
ceiling show down, could have significant impacts on the U.S. economy.
FURTHER U.S. EASING
The U.S. Federal Reserve might bring about a change in future U.S. equity market
direction with a commitment to further quantitative easing, a fourth leg to the
previous three programs. A quantitative easing-inspired rally would be
short-lived in our opinion; we'd rather see debt continue to unwind. However, at
the low interest rates being paid by the U.S. Government to borrow, further
printing of money can't be ruled out.
We will monitor Federal Reserve activity for signs of renewed monetary easing.
EARNINGS
At the time of writing, we see corporate guidance softening. We expect this to
flow through into lower earnings in the next few quarters; nothing too dramatic,
but the earnings growth curve should start to flatten. We continue to focus on
sectors that have shown continued recovery. For example, we believe there has
been a meaningful rebound in the housing market and the companies exposed to
housing should outperform in 2013.
Page 6
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 2012
SHARES DESCRIPTION VALUE
------------ ------------------------------------------------- --------------
COMMON STOCKS - 90.8%
AEROSPACE & DEFENSE - 3.2%
14,000 Lockheed Martin Corp.............................. $ 1,306,200
17,000 Raytheon Co....................................... 971,210
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2,277,410
--------------
BEVERAGES - 2.1%
20,000 Coca-Cola (The) Co................................ 758,400
11,000 PepsiCo, Inc...................................... 772,310
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1,530,710
--------------
COMMERCIAL BANKS - 0.9%
24,000 BB&T Corp......................................... 676,080
--------------
COMMUNICATIONS EQUIPMENT - 3.1%
12,000 Loral Space & Communications, Inc................. 1,020,840
19,000 QUALCOMM, Inc..................................... 1,208,780
--------------
2,229,620
--------------
COMPUTERS & PERIPHERALS - 1.9%
2,300 Apple, Inc........................................ 1,346,144
--------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 12.9%
44,000 AT&T, Inc......................................... 1,501,720
17,000 BCE, Inc.......................................... 719,100
20,000 Centurylink, Inc.................................. 776,800
23,600 Chunghwa Telecom Co., Ltd., ADR .................. 758,740
48,000 KT Corp., ADR .................................... 826,080
207,600 Telecom Corp. of New Zealand Ltd., ADR ........... 1,953,516
21,000 Telekomunikasi Indonesia Persero Tbk PT, ADR ..... 798,840
42,000 Verizon Communications, Inc....................... 1,853,040
--------------
9,187,836
--------------
ELECTRIC UTILITIES - 6.0%
40,000 Cia Energetica de Minas Gerais, ADR .............. 489,600
11,600 Duke Energy Corp.................................. 740,312
21,000 Exelon Corp....................................... 634,620
17,000 FirstEnergy Corp.................................. 721,820
14,000 NextEra Energy, Inc............................... 961,940
25,500 PPL Corp.......................................... 748,425
--------------
4,296,717
--------------
FOOD & STAPLES RETAILING - 3.0%
13,000 Costco Wholesale Corp............................. 1,351,870
10,000 PriceSmart, Inc................................... 775,200
--------------
2,127,070
--------------
FOOD PRODUCTS - 7.1%
33,600 Campbell Soup Co.................................. 1,234,800
18,000 General Mills, Inc................................ 737,820
14,000 H.J. Heinz Co..................................... 818,440
15,000 Kraft Foods Group, Inc............................ 678,300
33,000 Mondelez International, Inc....................... 854,370
See Notes to Financial Statements Page 7
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
NOVEMBER 30, 2012
SHARES DESCRIPTION VALUE
------------ ------------------------------------------------- --------------
COMMON STOCKS - (CONTINUED)
FOOD PRODUCTS - (CONTINUED)
20,000 Unilever NV ...................................... $ 756,600
--------------
5,080,330
--------------
HOTELS, RESTAURANTS & LEISURE - 2.6%
36,000 Arcos Dorados Holdings, Inc....................... 441,000
16,200 McDonald's Corp................................... 1,410,048
--------------
1,851,048
--------------
HOUSEHOLD PRODUCTS - 4.6%
21,000 Kimberly-Clark Corp............................... 1,800,120
21,000 Procter & Gamble (The) Co......................... 1,466,430
--------------
3,266,550
--------------
INDUSTRIAL CONGLOMERATES - 1.9%
64,000 General Electric Co............................... 1,352,320
--------------
INSURANCE - 4.7%
30,000 Lincoln National Corp............................. 741,000
40,000 MetLife, Inc...................................... 1,327,600
25,000 Prudential Financial, Inc......................... 1,303,000
--------------
3,371,600
--------------
INTERNET & CATALOG RETAIL - 1.1%
3,000 Amazon.com, Inc. (a) ............................. 756,150
--------------
INTERNET SOFTWARE & SERVICES - 1.6%
30,000 AOL, Inc. (a) .................................... 1,125,600
--------------
MACHINERY - 1.4%
15,000 Kennametal, Inc................................... 571,800
5,000 Parker Hannifin Corp.............................. 410,750
--------------
982,550
--------------
MEDIA - 2.4%
15,000 CBS Corp.......................................... 539,700
23,000 Walt Disney (The) Co.............................. 1,142,180
--------------
1,681,880
--------------
MULTI-UTILITIES - 1.8%
6,000 DTE Energy Co..................................... 363,480
16,000 National Grid PLC, ADR ........................... 906,240
--------------
1,269,720
--------------
MULTILINE RETAIL - 1.2%
10,000 Dillard's, Inc.................................... 889,100
--------------
OIL, GAS & CONSUMABLE FUELS - 6.3%
14,000 ConocoPhillips ................................... 797,160
66,300 Encana Corp....................................... 1,444,677
20,000 Kinder Morgan, Inc................................ 676,200
10,000 Range Resources Corp.............................. 640,200
Page 8 See Notes to Financial Statements
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
NOVEMBER 30, 2012
SHARES/
UNITS DESCRIPTION VALUE
------------ ------------------------------------------------- --------------
COMMON STOCKS - (CONTINUED)
OIL, GAS & CONSUMABLE FUELS - (CONTINUED)
20,000 TransCanada Corp.................................. $ 919,800
--------------
4,478,037
--------------
PHARMACEUTICALS - 6.9%
17,500 Abbott Laboratories .............................. 1,137,500
16,700 AstraZeneca PLC, ADR ............................. 793,918
10,000 Bristol-Myers Squibb Co........................... 326,300
20,000 Merck & Co., Inc.................................. 886,000
70,000 Pfizer, Inc....................................... 1,751,400
--------------
4,895,118
--------------
REAL ESTATE INVESTMENT TRUSTS (REITS) - 1.0%
48,500 Annaly Capital Management, Inc.................... 713,920
--------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 0.9%
33,000 Intel Corp........................................ 645,810
--------------
SPECIALTY RETAIL - 1.8%
35,000 Lowe's Cos., Inc.................................. 1,263,150
--------------
TEXTILES, APPAREL & LUXURY GOODS - 1.1%
8,000 NIKE, Inc., Class B .............................. 779,840
--------------
TOBACCO - 4.9%
33,000 Altria Group, Inc................................. 1,115,730
1,000 Lorillard, Inc.................................... 121,160
17,000 Philip Morris International, Inc.................. 1,527,960
17,000 Reynolds American, Inc............................ 743,240
--------------
3,508,090
--------------
WIRELESS TELECOMMUNICATION SERVICES - 4.4%
15,000 Philippine Long Distance Telephone Co., ADR ...... 933,300
135,000 SK Telecom Co., Ltd., ADR ........................ 2,061,450
5,000 Vodafone Group PLC, ADR .......................... 129,000
--------------
3,123,750
--------------
TOTAL COMMON STOCKS 64,706,150
(Cost $64,409,347) --------------
MASTER LIMITED PARTNERSHIPS - 7.7%
ENERGY EQUIPMENT & SERVICES - 0.4%
12,000 Exterran Partners, L.P............................ 261,240
--------------
OIL, GAS & CONSUMABLE FUELS - 7.3%
20,000 Atlas Resource Partners L.P....................... 446,000
24,000 Boardwalk Pipeline Partners, L.P.................. 618,960
25,000 BreitBurn Energy Partners, L.P.................... 462,000
48,000 Copano Energy, LLC ............................... 1,513,440
20,000 Energy Transfer Partners, L.P..................... 877,800
11,000 Enterprise Products Partners, L.P................. 570,130
See Notes to Financial Statements Page 9
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
NOVEMBER 30, 2012
SHARES/
UNITS DESCRIPTION VALUE
------------ ------------------------------------------------- --------------
MASTER LIMITED PARTNERSHIPS - (CONTINUED)
OIL, GAS & CONSUMABLE FUELS - (CONTINUED)
9,000 Kinder Morgan Energy Partners, L.P................ $ 733,590
--------------
5,221,920
--------------
TOTAL MASTER LIMITED PARTNERSHIPS ................ 5,483,160
(Cost $5,441,085) --------------
TOTAL INVESTMENTS - 98.5% ........................ 70,189,310
Cost $69,850,432) (b) --------------
NUMBER OF
CONTRACTS DESCRIPTION VALUE
------------ ------------------------------------------------- --------------
CALL OPTIONS WRITTEN - (0.4%)
S&P 500 Index Calls
35 @ $1,420.00 due November 2012 ................... (175)
70 @ 1,400.00 due December 2012 ................... (199,500)
35 @ 1,425.00 due January 2013 .................... (82,250)
--------------
TOTAL CALL OPTIONS WRITTEN ....................... (281,925)
(Premiums received $111,751) --------------
NET OTHER ASSETS AND LIABILITIES - 1.9% .......... 1,354,085
--------------
NET ASSETS - 100.0% .............................. $ 71,261,470
==============
-----------------------
(a) Non-income producing security.
(b) Aggregate cost for federal income tax purposes is $70,830,092. As of
November 30, 2012, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$1,854,725 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$2,495,507.
ADR American Depositary Receipt
Page 10 See Notes to Financial Statements
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
NOVEMBER 30, 2012
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of November 30,
2012 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
ASSETS TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
INVESTMENTS 11/30/2012 PRICES INPUTS INPUTS
------------------------------------------------ -------------- ------------- ------------ ------------
Common Stocks*.................................. $ 64,706,150 $ 64,706,150 $ -- $ --
Master Limited Partnerships*.................... 5,483,160 5,483,160 -- --
-------------- ------------- ------------ ------------
TOTAL INVESTMENTS............................... $ 70,189,310 $ 70,189,310 $ -- $ --
============== ============= ============ ============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
INVESTMENTS 11/30/2012 PRICES INPUTS INPUTS
------------------------------------------------ -------------- ------------- ------------ ------------
Call Options Written............................ $ (281,925) $ (281,925) $ -- $ --
============== ============= ============ ============
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at November 30, 2012.
See Notes to Financial Statements Page 11
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 2012
ASSETS:
Investments, at value
(Cost $69,850,432) .................................................................. $ 70,189,310
Cash 1,890,361
Prepaid expenses 4,270
Receivables:
Investment securities sold......................................................... 4,319,422
Dividends.......................................................................... 323,510
Dividend reclaims.................................................................. 16,686
-------------
Total Assets..................................................................... 76,743,559
-------------
LIABILITIES:
Options written, at value (Premiums received $111,751) ............................... 281,925
Payables:
Investment securities purchased................................................... 4,488,826
Due to broker..................................................................... 573,430
Investment advisory fees.......................................................... 57,727
Audit and tax fees................................................................ 34,300
Printing fees..................................................................... 13,578
Administrative fees............................................................... 7,500
Custodian fees.................................................................... 6,348
Transfer agent fees............................................................... 5,881
Legal fees........................................................................ 4,437
Trustees' fees and expenses....................................................... 3,291
Financial reporting fees.......................................................... 771
Other liabilities .................................................................... 4,075
-------------
5,482,089
-------------
NET ASSETS ........................................................................... $ 71,261,470
=============
NET ASSETS CONSIST OF:
Paid-in capital ...................................................................... $ 145,335,913
Par value ............................................................................ 82,595
Accumulated net investment income (loss) ............................................. (192,427)
Accumulated net realized gain (loss) on investments .................................. (74,133,315)
Net unrealized appreciation (depreciation) on investments ............................ 168,704
-------------
NET ASSETS ........................................................................... $ 71,261,470
=============
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share) ................. $ 8.63
=============
Number of Common Shares outstanding (unlimited number of Common Shares has
been authorized).................................................................... 8,259,517
=============
Page 12 See Notes to Financial Statements
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 2012
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $130,430)................................ $ 5,297,986
Interest.............................................................................. 1,337
Other................................................................................. 496
-------------
Total investment income............................................................ 5,299,819
-------------
EXPENSES:
Investment advisory fees.............................................................. 749,277
Administrative fees................................................................... 89,997
Printing fees......................................................................... 46,975
Custodian fees........................................................................ 41,180
Audit and tax fees.................................................................... 34,965
Transfer agent fees................................................................... 28,854
Legal fees............................................................................ 21,998
Trustees' fees and expenses........................................................... 21,400
Financial reporting fees.............................................................. 9,250
Other................................................................................. 63,049
-------------
Total expenses..................................................................... 1,106,945
-------------
NET INVESTMENT INCOME (LOSS).......................................................... 4,192,874
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments........................................................................ (2,926,164)
Written options (a)................................................................ 2,780
-------------
Net realized gain (loss).............................................................. (2,923,384)
-------------
Net increase from payment from the sub-advisor........................................ 12,651
-------------
Net change in unrealized appreciation (depreciation) on:
Investments........................................................................ 116,185
Written options (a)................................................................ (170,174)
-------------
Net change in unrealized appreciation (depreciation).................................. (53,989)
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS)............................................... (2,964,722)
-------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS....................... $ 1,228,152
=============
(a) Primary risk exposure is equity option contracts.
See Notes to Financial Statements Page 13
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
YEAR YEAR
ENDED ENDED
11/30/2012 11/30/2011
------------ ------------
OPERATIONS:
Net investment income (loss)....................................................... $ 4,192,874 $ 6,913,854
Net realized gain (loss)........................................................... (2,923,384) (3,260,414)
Net increase from payment from sub-advisor......................................... 12,651 --
Net change in unrealized appreciation (depreciation)............................... (53,989) (1,411,564)
------------ ------------
Net increase (decrease) in net assets resulting from operations.................... 1,228,152 2,241,876
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.............................................................. (4,223,907) (6,465,000)
Net realized gain.................................................................. -- --
Return of capital.................................................................. (1,722,945) (1,945,904)
------------ ------------
Total distributions to shareholders................................................ (5,946,852) (8,410,904)
------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from Common Shares sold through shelf offerings........................... -- 1,581,799
Proceeds from Common Shares reinvested............................................. -- 265,412
------------ ------------
Net increase (decrease) in net assets resulting from capital transactions.......... -- 1,847,211
------------ ------------
Total increase (decrease) in net assets............................................ (4,718,700) (4,321,817)
NET ASSETS:
Beginning of period................................................................ 75,980,170 80,301,987
------------ ------------
End of period...................................................................... $ 71,261,470 $ 75,980,170
============ ============
Accumulated net investment income (loss) at end of period.......................... $ (192,427) $ (118,967)
============ ============
CAPITAL TRANSACTIONS WERE AS FOLLOWS:
Common Shares at beginning of period............................................... 8,259,517 8,088,610
Common Shares sold through shelf offerings......................................... -- 145,676
Common Shares issued as reinvestment under the Dividend Reinvestment Plan.......... -- 25,231
------------ ------------
Common Shares at end of period..................................................... 8,259,517 8,259,517
============ ============
Page 14 See Notes to Financial Statements
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
11/30/2012 11/30/2011 11/30/2010 11/30/2009 11/30/2008
----------- ----------- ----------- ------------ -------------
Net asset value, beginning of period ... $ 9.20 $ 9.93 $ 10.48 $ 10.61 $ 19.03
----------- ----------- ----------- ------------ -------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) ........... 0.51 0.84(a) 1.15(a) 1.90(a) 1.78(a)
Net realized and unrealized gain (loss) (0.36) (0.56) (0.45) (0.20) (7.99)
----------- ----------- ----------- ------------ -------------
Total from investment operations ....... 0.15 0.28 0.70 1.70 (6.21)
----------- ----------- ----------- ------------ -------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income .................. (0.51) (0.78) (1.21) (1.84) (1.97)
Net realized gain ...................... -- -- -- -- (0.24)
Return of capital ...................... (0.21) (0.24) (0.21) -- --
----------- ----------- ----------- ------------ -------------
Total from distributions ............... (0.72) (1.02) (1.42) (1.84) (2.21)
----------- ----------- ----------- ------------ -------------
Premiums from shares sold in at the
market offering ...................... -- 0.01 0.17 0.01 --
----------- ----------- ----------- ------------ -------------
Net asset value, end of period ......... $ 8.63 $ 9.20 $ 9.93 $ 10.48 $ 10.61
=========== =========== =========== ============ =============
Market value, end of period ............ $ 7.69 $ 8.41 $ 10.47 $ 12.10 $ 8.03
=========== =========== =========== ============ =============
TOTAL RETURN BASED ON NET ASSET VALUE (b) 2.24%(c) 2.81% 7.59% 18.44% (34.64)%
=========== =========== =========== ============ =============
TOTAL RETURN BASED ON MARKET VALUE (b) (0.34)% (10.96)% (1.56)% 80.51% (47.00)%
=========== =========== =========== ============ =============
----------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ... $ 71,261 $ 75,980 $ 80,302 $ 76,196 $ 76,456
Ratio of total expenses to average
net assets ............................ 1.48% 1.60% 1.66% 1.89% 1.31%
Ratio of net investment income (loss) to
average net assets ................... 5.60% 8.42% 11.34% 19.31% 11.34%
Portfolio turnover rate ................ 790% 1,297% 1,516% 2,030% 1,722%
----------------------------------------------
(a) Based on average shares outstanding.
(b) Total return is based on the combination of reinvested dividend, capital
gain and return of capital distributions, if any, at prices obtained by the
Dividend Reinvestment Plan, and changes in net asset value per share for net
asset value returns and changes in Common Share price for market value
returns. Total returns do not reflect sales load and are not annualized for
periods less than one year. Past performance is not indicative of future
results.
(c) The Fund received a reimbursement from the sub-advisor in the amount of
$12,651. The reimbursement from the sub-advisor represents less than $0.01
per share and had no effect on the Fund's total return.
See Notes to Financial Statements Page 15
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
NOVEMBER 30, 2012
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. In addition, on an ongoing and consistent
basis, the Fund will write call options on stock indices and single stocks on up
to 50% of the Fund's portfolio value. First Trust is responsible for the
day-to-day management of the option portion of the Fund's portfolio. Managed
Assets are defined as the total asset value of the Fund minus the sum of the
Fund's liabilities other than the principal amount of borrowings. There can be
no assurance that the Fund's investment objectives will be achieved. The Fund
may not be appropriate for all investors.
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 ("U.S. GAAP") 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 Common Shares of the Fund is determined daily
as of the close of regular trading on the NYSE, normally 4:00 p.m. Eastern time,
on each day the NYSE is open for trading. If the NYSE closes early on a
valuation day, the NAV is determined as of that time. Domestic debt securities
and foreign securities are priced using data reflecting the earlier closing of
the principal markets for those securities. The NAV per Common Share is
calculated by dividing the value of all assets of the Fund (including accrued
interest and dividends), less all liabilities (including accrued expenses,
dividends declared but unpaid, and any borrowings of the Fund) by the total
number of Common Shares outstanding.
The Fund's investments are valued daily in accordance with valuation procedures
adopted by the Fund's Board of Trustees, and in accordance with provisions of
the 1940 Act. The Fund's securities will be valued as follows:
Common stocks, master limited partnerships ("MLPs") and other equity
securities listed on any national or foreign exchange (excluding the
NASDAQ(R) Stock Market LLC ("NASDAQ") and the London Stock Exchange
Alternative Investment Market ("AIM") are valued at the last sale price on
the exchange on which they are principally traded or, for NASDAQ and AIM
securities, the official closing price. Securities traded on more than one
securities exchange are valued at the last sale price or official closing
price, as applicable, at the close of the securities exchange representing
the principal market for such securities.
Securities traded in the over-the-counter market are valued at their
closing bid prices.
Exchange-traded options contracts are valued at the closing price in the
market where such contracts are principally traded. If no closing price is
available, exchange-traded options contracts are valued at the mean
between the most recent bid and asked prices. Over-the-counter options
contracts are valued at their closing bid prices.
Short-term investments that mature in less than 60 days when purchased are
valued at amortized cost.
All market quotations used in valuing the Fund's securities will be obtained
from a third party pricing service. If no quotation is received from a pricing
service, attempts will be made to obtain one or more broker quotes for the
security. In the event the pricing service does not provide a valuation, broker
quotations are not readily available, or the valuations received 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.
Additionally, if events occur after the close of the principal markets for
certain securities (e.g., domestic debt and foreign securities) that could
materially affect the Fund's NAV, First Trust will use a fair value method to
value the Fund's securities. The use of fair value pricing is governed by
valuation procedures adopted by the Fund's Board of Trustees, and in accordance
with the provisions of the 1940 Act. As a general principle, the fair value of a
security is the amount which the Fund might reasonably expect to receive for the
security upon its current sale. In light of the judgment involved in fair
valuations, there can be no assurance that a fair value assigned to a particular
security will be the amount which the Fund might be able to receive upon its
current sale. Fair valuation of a security will be based on the consideration of
all available information, including, but not limited to the following:
1) the type of security;
2) the size of the holding;
3) the initial cost of the security;
4) transactions in comparable securities;
5) price quotes from dealers and/or pricing services;
Page 16
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
NOVEMBER 30, 2012
6) relationships among various securities;
7) information obtained by contacting the issuer, analysts, or the
appropriate stock exchange;
8) an analysis of the issuer's financial statements; and
9) the existence of merger proposals or tender offers that might affect
the value of the security.
If the securities in question are foreign securities, the following additional
information may be considered:
1) the value of similar foreign securities traded on other foreign
markets;
2) ADR trading of similar securities;
3) closed-end fund trading of similar securities;
4) foreign currency exchange activity;
5) the trading prices of financial products that are tied to baskets of
foreign securities;
6) factors relating to the event that precipitated the pricing problem;
7) whether the event is likely to recur; and
8) whether the effects of the event are isolated or whether they affect
entire markets, countries or regions.
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
- Quoted prices for similar investments in active markets.
- Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
- Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
- Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable inputs
may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
The inputs or methodology used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of November 30, 2012, is
included with the Fund's Portfolio of Investments.
B. OPTION CONTRACTS:
On June 11, 2012 the Fund's Board of Trustees approved a modification of the
Fund's dividend capture strategy by adding an equity dividend value
consideration and also approved the addition of an option overlay strategy to
the Fund's equity dividend value strategy. The Fund's primary investment
objective of a high level of current income, combined with its secondary
objective of capital appreciation, remains the same. The goal of the option
overlay strategy is to generate additional income from option premiums in an
attempt to enhance the distributions payable to shareholders and reduce overall
portfolio volatility. The Fund generally will write call options on stock
indices and single stocks "at-the-money" or "out-of-the-money" on up to 50% of
the Fund's portfolio value. The option strategy will be managed by the
Alternatives Group at First Trust, the investment advisor to the Fund. The Fund
will not write (sell) "naked" or uncovered options. When the Fund writes (sells)
an option, an amount equal to the premium received by the Fund is included in
"options written, at value" on the Statement of Assets and Liabilities. Options
are marked-to-market daily and their value will be affected by changes in the
value and dividend rates of the underlying equity securities, changes in
interest rates, changes in the actual or perceived volatility of the securities
markets and the underlying equity securities and the remaining time to the
options' expiration. The value of options may also be adversely affected if the
market for the options becomes less liquid or trading volume diminishes.
Options the Fund writes (sells) will either be exercised, expire or be cancelled
pursuant to a closing transaction. If the price of the underlying equity
security exceeds the option's exercise price, it is likely that the option
holder will exercise the option. If a single stock option written (sold) by the
Fund is exercised, the Fund would be obligated to deliver the underlying equity
security to the option holder upon payment of the strike price. In this case,
the option premium received by the Fund will be added to the amount realized on
the sale of the underlying security for purposes of determining gain or loss.
Index options, if exercised, are settled in cash and therefore the Fund never
has to deliver any physical securities. If the price of the underlying equity
security is less than the option's strike price, the option will likely expire
without being exercised. The option premium received by the Fund will, in this
case, be treated as short-term capital gain on the expiration date of the
option. The Fund may also elect to close out its position in an option prior to
its expiration by purchasing an option of the same series as the option written
(sold) by the Fund. Gain or loss on options is presented separately as "Net
realized gain (loss) on written options" on the Statement of Operations.
Page 17
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NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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FIRST TRUST ACTIVE DIVIDEND INCOME FUND
NOVEMBER 30, 2012
Single stock options that the Fund writes (sells) give the option holder the
right, but not the obligation, to purchase a security from the Fund at the
strike price on or prior to the option's expiration date. The purchaser of an
index option written by the Fund has the right to any appreciation in the cash
value of the index over the strike price on the expiration date. The ability to
successfully implement the writing (selling) of covered call options depends on
the ability of the Advisor to predict pertinent market movements, which cannot
be assured. Thus, the use of options may require the Fund to sell portfolio
securities at inopportune times or for prices other than current market value,
which may limit the amount of appreciation the Fund can realize on an
investment, or may cause the Fund to hold a security that it might otherwise
sell. As the writer (seller) of a covered option, the Fund foregoes, during the
option's life, the opportunity to profit from increases in the market value of
the security covering the option above the sum of the premium and the strike
price of the option, but has retained the risk of loss should the price of the
underlying security decline. The writer (seller) of an option has no control
over the time when it may be required to fulfill its obligation as a writer
(seller) of the option. Once an option writer (seller) has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate
its obligation under the option and must deliver the underlying security to the
option holder at the exercise price.
Over-the-counter options have the risk of the potential inability of
counterparties to meet the terms of their contracts. The Fund's maximum equity
price risk for purchased options is limited to the premium initially paid. In
addition, certain risks may arise upon entering into option contracts including
the risk that an illiquid secondary market will limit the Fund's ability to
close out an option contract prior to the expiration date and that a change in
the value of the option contract may not correlate exactly with changes in the
value of the securities hedged.
C. SECURITIES TRANSACTIONS 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 daily on the accrual basis, including amortization of premiums and
accretion of discounts.
For the fiscal year ended November 30, 2012, distributions of $873,752 received
from MLPs have been reclassified as return of capital. The cost basis of
applicable MLPs has been reduced accordingly.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Level dividend distributions are declared and paid quarterly or as the Board of
Trustees may determine from time to time. If, for any quarterly distribution,
net investment company taxable income, if any (which term includes net
short-term capital gain), as determined as of the close of the Fund's taxable
year, is less than the amount of the distribution, the difference will generally
be a tax-free return of capital distributed from the Fund's assets.
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 U.S. GAAP. Certain capital
accounts in the financial statements are periodically adjusted for permanent
differences in order to reflect their tax character. These permanent differences
are primarily due to the varying treatment of income and gain/loss on portfolio
securities held by the Fund and have no impact on net assets or NAV per share.
Temporary differences, which arise from recognizing certain items of income,
expense and gain/loss in different periods for financial statement and tax
purposes, will reverse at some point in the future. Permanent differences
incurred during the fiscal year ended November 30, 2012, primarily as a result
of book/tax treatment of sale of MLP investments, have been reclassified at year
end to reflect a decrease in accumulated net investment income (loss) of
$42,427, a decrease in accumulated net realized gain (loss) on investments of
$695,389 and an increase to paid-in capital of $737,816.
The tax character of distributions paid during the fiscal years ended November
30, 2012 and 2011 was as follows:
Distributions paid from: 2012 2011
Ordinary income................................... $ 4,223,907 $ 6,465,000
Capital gain...................................... -- --
Return of capital................................. 1,722,945 1,945,904
As of November 30, 2012 the distributable earnings and net assets on a tax basis
were as follows:
Undistributed ordinary income..................... $ --
Undistributed capital gains....................... --
------------
Total undistributed earnings...................... --
Accumulated capital and other losses.............. (73,516,256)
Net unrealized appreciation (depreciation)........ (640,782)
------------
Total accumulated earnings (losses)............... (74,157,038)
Other ............................................ --
Paid-in capital................................... 145,418,508
------------
Net assets........................................ $ 71,261,470
============
Page 18
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NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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FIRST TRUST ACTIVE DIVIDEND INCOME FUND
NOVEMBER 30, 2012
E. 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. However, due to the
timing and amount of distributions, the Fund may be subject to an excise tax of
4% of the amount by which approximately 98% of the Fund's taxable income exceeds
the distributions from such taxable income for the calendar year.
Under the Regulated Investment Company Modernization Act of 2010 (the "Act"),
net capital losses arising in taxable years after December 22, 2010, may be
carried forward indefinitely, and their character is retained as short-term
and/or long-term losses. Previously, net capital losses were carried forward for
eight years and treated as short-term losses. As a transition rule, the Act
requires that post-enactment net capital losses be used before pre-enactment net
capital losses. At November 30, 2012, the Fund had capital loss carryforward for
federal income tax purposes of $71,992,501 expiring as follows:
EXPIRATION DATE AMOUNT
November 30, 2016 $44,083,569
November 30, 2017 17,263,318
November 30, 2018 5,877,626
November 30, 2019 1,094,433
Non-expiring 3,673,555
The Fund is subject to certain limitations under the U.S. tax rules on the use
of capital loss carryforwards and net unrealized built-in losses. These
limitations apply when there has been a 50% change in ownership.
Certain losses realized during the current fiscal year may be deferred and
treated as occurring on the first day of the following fiscal year for federal
income tax purposes. For the fiscal year ended November 30, 2012, the Fund
intends to elect to defer net realized capital losses in the amount of
$1,523,755.
The Fund is subject to accounting standards that establish a 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. Taxable years ended 2009, 2010,
2011 and 2012 remain open to federal and state audit. As of November 30, 2012,
management has evaluated the application of these standards to the Fund and has
determined that no provision for income tax is required in the Fund's financial
statements for uncertain tax positions.
F. EXPENSES:
The Fund will pay all expenses directly related to its operations.
G. ACCOUNTING PRONOUNCEMENT:
In May 2011, the Financial Accounting Standards Board ("FASB") issued ASU
2011-04, "Amendments to Achieve Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and IFRSs," modifying Topic 820, "Fair Value
Measurements and Disclosures." At the same time, the International Accounting
Standards Board ("IASB") issued International Financial Reporting Standard
("IFRS") 13, "Fair Value Measurement." The objective of the FASB and IASB is
convergence of their guidance on fair value measurements and disclosures.
Specifically, the ASU requires reporting entities to disclose (i) the amounts of
any transfers between Level 1 and Level 2, and the reasons for the transfers,
(ii) for Level 3 fair value measurements, quantitative information about
significant unobservable inputs used, (iii) a description of the valuation
processes used by the reporting entity, and (iv) a narrative description of the
sensitivity of the fair value measurement to changes in unobservable inputs if a
change in those inputs might result in a significantly higher or lower fair
value measurement. The effective date of the ASU is for interim and annual
periods beginning after December 15, 2011, and it is therefore not effective for
the current fiscal year. Management is in the process of assessing the impact of
the updated standards on the Fund's financial statements, if any.
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Fund, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the option overlay strategy, 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 investment management services, First Trust is entitled to a monthly fee
calculated at an annual rate of 1.00% of the Fund's Managed Assets. First Trust
also provides fund reporting services to the Fund for a flat annual fee in the
amount of $9,250.
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
sub-advisory fee calculated at an annual rate of 0.50% of the Funds Managed
Assets that is paid by First Trust out of its investment advisory fee.
FTIA Holdings, LLC, an affiliate of the Advisor, holds a 28% ownership interest
in Aviance.
During the year ended November 30, 2012, the Fund received a payment from the
Sub-Advisor of $12,651 in connection with a trade error.
Page 19
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NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
NOVEMBER 30, 2012
BNY Mellon Investment Servicing (US) Inc. serves as the Fund's Administrator,
Fund Accountant and Transfer Agent in accordance with certain fee arrangements.
The Bank of New York Mellon serves as the Fund's Custodian in accordance with
certain fee arrangements.
Effective January 23, 2012, James A. Bowen resigned from his position as the
President and Chief Executive Officer of the Fund. He will continue as a
Trustee, the Chairman of the Board of Trustees and a member of the Executive
Committee. The Board elected Mark R. Bradley to serve as the President and Chief
Executive Officer of the Fund and James M. Dykas to serve as the Treasurer,
Chief Financial Officer and Chief Accounting Officer of the Fund.
Effective January 1, 2012, each Trustee who is not an officer or employee of
First Trust, any sub-advisor or any of their affiliates ("Independent Trustees")
is paid a fixed annual retainer of $125,000 per year and an annual per fund fee
of $4,000 for each closed-end fund or other actively managed fund and $1,000 for
each index fund in the First Trust Fund Complex. The fixed annual retainer is
allocated pro rata among each fund in the First Trust Fund Complex based on net
assets. Prior to January 1, 2012, each Independent Trustee received 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 additional trust in
the First Trust Fund Complex. The annual retainer was allocated equally among
each of the trusts.
Additionally, the Lead Independent Trustee is paid $15,000 annually, the
Chairman of the Audit Committee is paid $10,000 annually, and each of the
Chairmen of the Nominating and Governance Committee and the Valuation Committee
is paid $5,000 annually to serve in such capacities, with such compensation
allocated pro rata among each fund in the First Trust Fund Complex based on net
assets. Prior to January 1, 2012, the annual amounts paid were $10,000, $5,000
and $2,500, respectively. Trustees are reimbursed for travel and out-of-pocket
expenses in connection with all meetings. The Lead Independent Trustee and each
Committee chairman will serve two-year terms until December 31, 2013, before
rotating to serve as chairman of another committee or as Lead Independent
Trustee. After December 31, 2013, the Lead Independent Trustee and Committee
chairmen will rotate every three years. The officers and "Interested" Trustee
receive no compensation from the funds for acting in such capacities.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding short-term
investments, for the year ended November 30, 2012 were $569,562,394 and
$566,410,540, respectively.
Written option activity for the Fund was as follows:
NUMBER
OF
WRITTEN OPTIONS CONTRACTS PREMIUMS
-----------------------------------------------------------------------------
Options outstanding at November 30, 2011... 0 $ 0
Options Written............................ 665 596,661
Options Expired............................ (210) (86,164)
Options Exercised.......................... 0 0
Options Closed............................. (315) (398,746)
--------- -----------
Options outstanding at November 30, 2012... 140 $ 111,751
========= ===========
5. AT THE MARKET OFFERINGS
The Fund, Advisor and Sub-Advisor entered into a sales agreement with
JonesTrading whereby the Fund may offer and sell up to 1,000,000 Common Shares
from time to time through JonesTrading as agent for the offer and sale of the
Common Shares. Sales of Common Shares pursuant to the sales agreement may be
made in negotiated transactions or transactions that are deemed to be "at the
market" as defined in Rule 415 under the Securities Act of 1933, as amended,
including sales made directly on the NYSE or sales made through a market maker
other than on an exchange, at an offering price equal to or in excess of the net
asset value per share of the Fund's Common Shares at the time such Common Shares
are initially sold. The Fund used the net proceeds from the sale of the Common
Shares in accordance with its investment objectives and policies. The Fund has
not offered Common Shares pursuant to the sales agreement with JonesTrading
since February 1, 2011. Transactions for the year ended November 30, 2011 are as
follows:
NET PROCEEDS
COMMON NET PROCEEDS NET ASSET VALUE RECEIVED IN EXCESS
SHARES SOLD RECEIVED OF SHARES SOLD OF NET ASSET VALUE
----------- ------------ -------------- ------------------
145,676 $ 1,581,799 $ 1,512,325 $ 69,474
Page 20
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NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
NOVEMBER 30, 2012
6. INDEMNIFICATION
The Fund has a variety of indemnification obligations under contracts with its
service providers. The Fund's maximum exposure under these arrangements is
unknown. However, the Fund has not had prior claims or losses pursuant to these
contracts and expects the risk of loss to be remote.
7. RISK CONSIDERATIONS
Risks are inherent in all investing. The following summarizes some, but not all,
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
and distributions. Security prices can fluctuate for several reasons including
the general condition of the securities markets, 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 extremely limited or absent), the Fund may take
temporary defensive positions.
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.
MLP RISK: An investment in MLP units involves risks which differ from an
investment in common stock of a corporation. Holders of MLP units have limited
control and voting rights on matters affecting the partnership. In addition,
there are certain tax risks associated with an investment in MLP units and
conflicts of interest exist between common unit holders and the general partner,
including those arising from incentive distribution payments.
QUALIFIED DIVIDEND INCOME 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. 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
gains, 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.
OPTION RISK: The Fund may write (sell) covered call options on up to 50% of the
equity securities held in the Fund's portfolio as determined to be appropriate
by the Fund's Advisor, consistent with the Fund's investment objectives. The
ability to successfully implement the Fund's investment strategy depends on the
Advisor's ability to predict pertinent market movements, which cannot be
assured. Thus, the use of options may require the Fund to sell portfolio
securities at inopportune times or for prices other than current market values,
may limit the amount of appreciation the Fund can realize on an investment, or
may cause the Fund to hold an equity security that it might otherwise sell.
There can be no assurance that a liquid market for the options will exist when
the Fund seeks to close out an option position. Additionally, to the extent that
the Fund purchases options pursuant to a hedging strategy, the Fund will be
subject to additional risks.
8. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events to the Fund through
the date the financial statements were issued, and has determined that there was
the following subsequent event:
On January 10, 2013, the Fund declared a dividend of $0.18 per share to Common
Shareholders of record on January 24, 2013, payable January 31, 2013.
Page 21
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FIRST TRUST ACTIVE DIVIDEND INCOME
FUND:
We have audited the accompanying statement of assets and liabilities of First
Trust Active Dividend Income Fund (the "Fund"), including the portfolio of
investments, as of November 30, 2012 and the related statements of operations
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
five years in the period then ended. 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 audits 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, 2012 by correspondence with the Fund's
custodian and brokers; where replies were not received, 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, 2012, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
January 28, 2013
Page 22
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
NOVEMBER 30, 2012 (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 BNY
Mellon Investment Servicing (US) Inc. (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 the 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 net asset value ("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) 340-1104, 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.
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 non-certificated 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 BNY Mellon Investment
Servicing (US) Inc., 301 Bellevue Parkway, Wilmington, Delaware 19809.
-------------------------------------------------------------------------------
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 investments during the most recent 12-month period ended June 30 is
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 ("SEC") website located at
http://www.sec.gov.
Page 23
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ADDITIONAL INFORMATION - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
NOVEMBER 30, 2012 (UNAUDITED)
PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the 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.
TAX INFORMATION
Of the ordinary income (including short-term capital gain) distributions made by
the Fund during the year ended November 30, 2012, 26.03% qualified for the
corporate dividends received deduction available to corporate shareholders.
The Fund hereby designates as qualified dividend income 34.21% of the ordinary
income distributions for the year ended November 30, 2012.
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 8, 2012, 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, N-CSRS 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 First Trust
Energy Infrastructure Fund, Macquarie/First Trust Global
Infrastructure/Utilities Dividend & Income Fund, First Trust Energy Income and
Growth Fund, First Trust Enhanced Equity Income Fund, First Trust/Aberdeen
Global Opportunity Income Fund, First Trust Mortgage Income Fund, First Trust
Strategic High Income Fund II, First Trust/Aberdeen Emerging Opportunity Fund,
First Trust Specialty Finance and Financial Opportunities Fund, First Trust
Active Dividend Income Fund, and First Trust High Income Long/Short Fund was
held on April 18, 2012 (the "Annual Meeting"). At the Annual Meeting, Richard E.
Erickson and Thomas R. Kadlec were elected by the Common Shareholders of the
First Trust Active Dividend Income Fund as Class II Trustees for a three-year
term expiring at the Fund's annual meeting of shareholders in 2015. The number
of votes cast in favor of Mr. Erickson was 6,688,768, the number of votes
against was 620,649 and the number of abstentions was 950,100. The number of
votes cast in favor of Mr. Kadlec was 6,688,434, the number of votes against was
620,983 and the number of abstentions was 950,100. James A. Bowen, Niel B.
Nielson and Robert F. Keith are the other current and continuing Trustees.
ADVISORY AND SUB-ADVISORY AGREEMENTS
BOARD CONSIDERATIONS REGARDING APPROVAL OF CONTINUATION OF INVESTMENT MANAGEMENT
AGREEMENT AND SUB-ADVISORY AGREEMENT
The Board of Trustees of First Trust Active Dividend Income Fund (the "Fund"),
including the Independent Trustees, approved the continuation of the Investment
Management Agreement (the "Advisory Agreement") between the Fund and First Trust
Advisors L.P. (the "Advisor") and the Investment Sub-Advisory Agreement (the
"Sub-Advisory Agreement" and together with the Advisory Agreement, the
"Agreements") among the Fund, the Advisor and Aviance Capital Management, LLC
(the "Sub-Advisor"), at a meeting held on June 10-11, 2012. The Board determined
that the continuation of the Agreements is in the best interests of the Fund in
light of the extent and quality of the services provided and such other matters
as the Board considered to be relevant in the exercise of its reasonable
business judgment.
To reach this determination, the Board considered its duties under the
Investment Company Act of 1940, as amended (the "1940 Act"), as well as under
the general principles of state law in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
on such agreements. To assist the Board in its evaluation of the Agreements, the
Independent Trustees received a separate report from each of the Advisor and the
Sub-Advisor in advance of the Board meeting responding to a request for
information from counsel to the Independent Trustees. The reports, among other
things, outlined the services provided by the Advisor and the Sub-Advisor
(including the relevant personnel responsible for these services and their
experience); the advisory and sub-advisory fees for the Fund as compared to fees
charged to other clients of the Advisor and the Sub-Advisor and as compared to
fees charged by investment advisors and sub-advisors to comparable funds;
expenses of the Fund as compared to expense ratios of comparable funds; the
nature of expenses incurred in providing services to the Fund and the potential
for economies of scale, if any; financial data on the Advisor and the
Sub-Advisor; any fall-out benefits to the Advisor and the Sub-Advisor; and
information on the Advisor's and the Sub-Advisor's compliance programs.
Following receipt of this information, counsel to the Independent Trustees posed
follow-up questions, and the Independent Trustees and their counsel then met
separately to discuss the information provided by the Advisor and the
Sub-Advisor, including the supplemental responses. The Board applied its
business judgment to determine whether the arrangements between the Fund and the
Advisor and among the Fund, the Advisor and the Sub-Advisor are reasonable
Page 24
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ADDITIONAL INFORMATION - (CONTINUED)
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FIRST TRUST ACTIVE DIVIDEND INCOME FUND
NOVEMBER 30, 2012 (UNAUDITED)
business arrangements from the Fund's perspective as well as from the
perspective of shareholders. The Board considered that shareholders chose to
invest or remain invested in the Fund knowing that the Advisor and the
Sub-Advisor manage the Fund. The Board also considered that the Agreements were
approved by shareholders of the Fund at a meeting held in January 2011.
In reviewing the Agreements, the Board considered the nature, extent and quality
of services provided by the Advisor and the Sub-Advisor under the Agreements.
The Board considered the Advisor's statements regarding the incremental benefits
associated with the Fund's advisor/sub-advisor management structure. With
respect to the Advisory Agreement, the Board considered that the Advisor is
responsible for the overall management and administration of the Fund and
reviewed the services provided by the Advisor to the Fund, including the
oversight of the Sub-Advisor. The Board noted the compliance program that had
been developed by the Advisor and considered that it includes a robust program
for monitoring the Sub-Advisor's compliance with the 1940 Act and the Fund's
investment objectives and policies. With respect to the Sub-Advisory Agreement,
the Board received a presentation from representatives of the Sub-Advisor
discussing the services that the Sub-Advisor provides to the Fund. The
representatives of the Sub-Advisor also reviewed with the Board proposed changes
to the portfolio management strategy for the Fund, including holding a larger
portion of the portfolio over longer-term periods and adding an option overlay
strategy to the portfolio. The Board noted that the proposed option overlay
strategy would be implemented by employees of the Advisor, but that no change in
the allocation of the advisory fees between the Advisor and Sub-Advisor was
being proposed. In light of the information presented and the considerations
made, the Board concluded that the nature, extent and quality of services
provided to the Fund by the Advisor and the Sub-Advisor under the Agreements
have been and are expected to remain satisfactory and that the Sub-Advisor,
under the oversight of the Advisor, has managed the Fund consistent with its
investment objectives and policies.
The Board considered the advisory and sub-advisory fees paid under the
Agreements. The Board considered the advisory fees charged by the Advisor to
similar funds and other non-fund clients, noting that the Advisor does not
provide advisory services to other funds with investment objectives and policies
similar to the Fund's, but does provide services to certain separately managed
accounts with investment objectives and policies similar to the Fund's. The
Board noted that the Advisor charges a lower advisory fee rate to the separately
managed accounts, as well as the Advisor's statement that the nature of the
services provided to the separately managed accounts is not comparable to those
provided to the Fund. The Board considered the sub-advisory fee and how it
relates to the Fund's overall advisory fee structure and noted that the
sub-advisory fee is paid by the Advisor from its advisory fee. The Board also
considered information provided by the Sub-Advisor as to the fee it charges to
another client managed similarly to the Fund, noting that the sub-advisory fee
rate is lower than the fee rate charged by the Sub-Advisor to the other client.
In addition, the Board received data prepared by Lipper Inc. ("Lipper"), an
independent source, showing the advisory fees and expense ratios of the Fund as
compared to the advisory fees and expense ratios of a peer group selected by
Lipper and similar data for a separate peer group selected by the Advisor. The
Board noted that the Lipper and Advisor peer groups included no overlapping peer
funds. The Board discussed with representatives of the Advisor the limitations
in creating a relevant peer group for the Fund, including that (i) the Fund is
unique in its composition, which makes assembling peers with similar strategies
and asset mix difficult; (ii) most peer funds do not employ an
advisor/sub-advisor management structure; and (iii) many of the peer funds are
larger than the Fund, which causes the Fund's fixed expenses to be higher on a
percentage basis as compared to the larger peer funds. The Board took these
limitations into account in considering the peer data. In reviewing the peer
data, the Board noted that the Fund's contractual advisory fee was above the
median of both the Lipper and Advisor peer groups.
The Board also considered performance information for the Fund, noting that the
performance information included the Fund's quarterly performance report, which
is part of the process that the Board has established for monitoring the Fund's
performance and portfolio risk on an ongoing basis. The Board determined that
this process continues to be effective for reviewing the Fund's performance. In
addition to the Board's ongoing review of performance, the Board also received
data prepared by Lipper comparing the Fund's performance to the Lipper peer
group, as well as to a larger peer universe and to three benchmarks. In
reviewing the Fund's performance as compared to the performance of the Lipper
peer group and Lipper peer universe, the Board took into account the limitations
described above with respect to creating a relevant peer group for the Fund. The
Board also considered the Fund's dividend yield as of March 30, 2012. In
addition, the Board compared the Fund's premium/discount over the past eight
quarters to the average and median premium/discount of the Advisor peer group
over the same period, noting that the Fund's premium/discount was generally
indicative of the asset class and market events.
On the basis of all the information provided on the fees, expenses and
performance of the Fund, the Board concluded that the advisory and sub-advisory
fees were reasonable and appropriate in light of the nature, extent and quality
of services provided by the Advisor and Sub-Advisor under the Agreements.
The Board noted that the Advisor has continued to invest in personnel and
infrastructure and considered whether fee levels reflect any economies of scale
for the benefit of shareholders. The Board noted the Advisor's statement that
economies of scale in providing services to the Fund are not available at
current asset levels. The Board determined that due to the Fund's closed-end
structure, the potential for realization of economies of scale as Fund assets
grow was not a material factor to be considered. The Board also considered the
costs of the services provided and profits realized by the Advisor from serving
as investment advisor to the Fund for the twelve months ended December 31, 2011,
as set forth in the materials provided to the Board. The Board noted the
inherent limitations in the profitability analysis, and concluded that the
Advisor's estimated profitability appeared to be not excessive in light of the
services provided to the Fund. In addition, the Board considered fall-out
benefits described by the Advisor that may be realized from its relationship
with the Fund, including the Advisor's compensation for fund reporting services
pursuant to a separate Fund Reporting Services Agreement. The Board considered
the ownership interest of an affiliate of the Advisor in the Sub-Advisor and
potential fall-out benefits to the Advisor from such ownership interest.
Page 25
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ADDITIONAL INFORMATION - (CONTINUED)
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FIRST TRUST ACTIVE DIVIDEND INCOME FUND
NOVEMBER 30, 2012 (UNAUDITED)
The Board noted that the Sub-Advisor did not identify any economies of scale
realized in connection with providing services to the Fund. The Board considered
that the sub-advisory fee rate was negotiated at arm's length between the
Advisor and the Sub-Advisor. The Board also considered information provided by
the Sub-Advisor as to the profitability of the Sub-Advisory Agreement to the
Sub-Advisor. The Board noted the inherent limitations in the profitability
analysis and concluded that the profitability analysis for the Advisor was more
relevant, although the profitability of the Sub-Advisory Agreement appeared to
be not excessive in light of the services provided to the Fund. The Board
considered fall-out benefits realized by the Sub-Advisor from its relationship
with the Fund, including soft-dollar arrangements, and considered a summary of
such arrangements. The Board also considered the potential fall-out benefits to
the Sub-Advisor from the ownership interest of the Advisor's affiliate in the
Sub-Advisor.
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, unanimously determined that the terms
of the Agreements continue to be fair and reasonable and that the continuation
of the Agreements is in the best interests of the Fund. No single factor was
determinative in the Board's analysis.
Page 26
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
NOVEMBER 30, 2012 (UNAUDITED)
NUMBER OF
PORTFOLIOS IN
THE FIRST TRUST OTHER
NAME, ADDRESS, TERM OF OFFICE FUND COMPLEX TRUSTEESHIPS OR
DATE OF BIRTH AND AND LENGTH OF PRINCIPAL OCCUPATIONS OVERSEEN BY DIRECTORSHIPS
POSITION WITH THE FUND SERVICE (2) DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE
-----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
-----------------------------------------------------------------------------------------------------------------------------------
Richard E. Erickson, Trustee o Three-Year Term Physician; President, Wheaton Orthopedics; 98 None
c/o First Trust Advisors L.P. Co-Owner and Co-Director (January 1996
120 East Liberty Drive, o Since Fund to May 2007), Sports Med Center for
Suite 400 Inception Fitness; Limited Partner, Gundersen Real
Wheaton, IL 60187 Estate Limited Partnership; Member,
D.O.B.: 04/51 Sportsmed LLC
Thomas R. Kadlec, Trustee o Three-Year Term President (March 2010 to Present), Senior 98 Director of ADM
c/o First Trust Advisors L.P. Vice President and Chief Financial Officer Investor Services,
120 East Liberty Drive, o Since Fund (May 2007 to March 2010), Vice President Inc. and ADM
Suite 400 Inception and Chief Financial Officer (1990 to May Investor Services
Wheaton, IL 60187 2007), ADM Investor Services, Inc. (Futures International
D.O.B.: 11/57 Commission Merchant)
Robert F. Keith, Trustee o Three-Year Term President (2003 to Present), Hibs 98 Director of Trust
c/o First Trust Advisors L.P. Enterprises (Financial and Management Company of
120 East Liberty Drive, o Since Fund Consulting) Illinois
Suite 400 Inception
Wheaton, IL 60187
D.O.B.: 11/56
Niel B. Nielson, Trustee o Three-Year Term President and Chief Executive Officer 98 Director of
c/o First Trust Advisors L.P. (June 2012 to Present), Dew Learning LLC Covenant
120 East Liberty Drive, o Since Fund (Educational Products and Services); Transport Inc.
Suite 400 Inception President(June 2002 to June 2012),
Wheaton, IL 60187 Covenant College
D.O.B.: 03/54
-----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
-----------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee and o Three-Year Term Chief Executive Officer (December 2010 98 None
Chairman of the Board to Present), President (until December
120 East Liberty Drive, o Since Fund 2010), First Trust Advisors L.P. and First
Suite 400 Inception Trust Portfolios L.P.; Chairman of the
Wheaton, IL 60187 Board of Directors, BondWave LLC
D.O.B.: 09/55 (Software Development Company/
Investment Advisor) and Stonebridge
Advisors LLC (Investment Advisor)
-------------------
(1) Mr. Bowen is deemed an "interested person" of the Fund due to his position
as Chief Executive Officer 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 2014 annual meeting of shareholders. Richard E. Erickson
and Thomas R. Kadlec, as Class II Trustees, are serving as trustees until
the Fund's 2015 annual meeting of shareholders. James A. Bowen and Niel B.
Nielson, as Class III Trustees, are serving as trustees until the Fund's
2013 annual meeting of shareholders.
Page 27
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
NOVEMBER 30, 2012 (UNAUDITED)
NAME, ADDRESS POSITION AND OFFICES TERM OF OFFICE AND PRINCIPAL OCCUPATIONS
AND DATE OF BIRTH WITH FUND LENGTH OF SERVICE DURING PAST 5 YEARS
-----------------------------------------------------------------------------------------------------------------------------------
OFFICERS(3)
-----------------------------------------------------------------------------------------------------------------------------------
Mark R. Bradley President and Chief o Indefinite Term Chief Operating Officer (December 2010 to Present)
120 E. Liberty Drive, Executive Officer and Chief Financial Officer, First Trust Advisors
Suite 400 o President and Chief L.P. and First Trust Portfolios L.P.; Chief
Wheaton, IL 60187 Executive Officer Financial Officer, BondWave LLC (Software
D.O.B.: 11/57 Since January 2012 Development Company/Investment Advisor) and
Stonebridge Advisors LLC (Investment Advisor)
o Treasurer, Chief
Financial Officer
and Chief Accounting
Officer from
Fund Inception to
January 2012
James M. Dykas Treasurer, Chief Financial o Indefinite Term Controller (January 2011 to Present), Senior Vice
120 E. Liberty Drive, Officer and Chief President (April 2007 to January 2011), Vice
Suite 400 Accounting Officer o Treasurer, Chief President (January 2005 to April 2007), First
Wheaton, IL 60187 Financial Officer Trust Advisors L.P. and First Trust
D.O.B.: 01/66 and Chief Portfolios L.P.
Accounting Officer
Since January 2012
o Assistant Treasurer
from Fund Inception
to January 2012
W. Scott Jardine Secretary and Chief Legal o Indefinite Term General Counsel, First Trust Advisors L.P., First
120 E. Liberty Drive, Officer Trust Portfolios L.P. and BondWave LLC
Suite 400 o Since Fund Inception (Software Development Company/Investment
Wheaton, IL 60187 Advisor): Secretary of Stonebridge Advisors LLC
D.O.B.: 05/60 (Investment Advisor)
Daniel J. Lindquist Vice President o Indefinite Term Senior Vice President (September 2005 to
120 E. Liberty Drive, Present), First Trust Advisors L.P. and First
Suite 400 o Since Fund Inception Trust Portfolios L.P.
Wheaton, IL 60187
D.O.B.: 02/70
Kristi A. Maher Assistant Secretary and o Indefinite Term Deputy General Counsel (May 2007 to Present),
120 E. Liberty Drive, Chief Compliance Officer o Assistant Secretary First Trust Advisors L.P. and First Trust
Suite 400 Since Fund Inception Portfolios L.P.
Wheaton, IL 60187 o Chief Compliance
D.O.B.: 12/66 Officer Since
January 2011
-------------------
(3) 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.
Page 28
--------------------------------------------------------------------------------
PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
NOVEMBER 30, 2012 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
advisor 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. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also 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, proxy services,
solicitors 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 within First Trust.
PRIVACY ONLINE
We allow third-party companies, including AddThis (a social media sharing
service), to collect certain anonymous information when you visit our website.
These companies may use non-personally identifiable information during your
visits to this and other websites in order to provide advertisements about goods
and services likely to be of greater interest to you. These companies typically
use a cookie, third party web beacon or pixel tags, to collect this information.
To learn more about this behavioral advertising practice, you can visit
www.networkadvertising.org.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, First Trust restricts access to
your nonpublic personal information to those First Trust employees 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 go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
Page 29
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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
ADMINISTRATOR,
FUND ACCOUNTANT &
TRANSFER AGENT
BNY Mellon Investment Servicing (US) Inc.
301 Bellevue Parkway
Wilmington, DE 19809
CUSTODIAN
The Bank of New York Mellon
101 Barclay Street, 20th Floor
New York, NY 10286
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
[BLANK 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
$29,800 for the fiscal year ended November 30, 2011 and $28,000 for the fiscal
year ended November 30, 2012.
(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 for the fiscal year ended November 30, 2011 and $0 for the
fiscal year ended November 30, 2012.
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 $0 for the fiscal year ended November 30, 2011 and $0 for
the fiscal year ended November 30, 2012.
(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 $4,500
for the fiscal year ended November 30, 2011 and $0 for the fiscal year ended
November 30, 2012. 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 for the fiscal year ended November 30, 2011 and $0 for the
fiscal year ended November 30, 2012.
(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 for the fiscal year ended November 30, 2011 and
$0 for the fiscal year ended November 30, 2012.
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 for the
fiscal year ended November 30, 2011 and $0 for the fiscal year ended November
30, 2012.
(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 for the fiscal year
ended November 30, 2011, were $4,500 for the registrant and $6,200 for the
registrant's investment adviser, and for the fiscal year ended November 30,
2012, were $0 for the registrant and $4120 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 set forth below.
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
INFORMATION PROVIDED AS OF JANUARY 19, 2013
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 and is currently managed by
Christian C. Bertelsen, Michael J. Dixon, and Edward C. Bertelsen, who are all
Founding Members of the firm. Aviance is responsible for the day-to-day
management of the Registrant's portfolio utilizing a team consisting of
Christian C. Bertelsen, James R. Neel, Edward Bertelsen and Mark Belanian.
CHRISTIAN C. BERTELSEN, Chief Investment Officer and Senior Portfolio Manager
Christian C. Bertelsen has over 43 years of investment experience. In November
2004, he became 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.
JEFFERY J. WALKER, Analyst and Assistant Portfolio Manager
Jeffrey J. Walker has 5 years of investment industry experience which includes
trading, investment analysis/research, and portfolio management. Mr. Walker
started as an intern with GF Investment Services, LLC in May 2006 before
starting full-time employment in March 2009. He joined GFPC/Aviance in May 2011
as an analyst/assistant portfolio manager. Mr. Walker graduated magna cum laude
from Florida State University with a B.S. in Finance, and is currently a Level
III Candidate in the Chartered Financial Analyst ("CFA") Program.
EDWARD C. BERTELSEN, Portfolio Manager - Research
Edward C. Bertelsen has over 10 years of experience in supporting and managing
portfolios. He is also responsible for a limited number of selected client
relationships. He joined GFPC/Aviance in April 2004 and was instrumental in
creating its trading environment. Between March 2001 and April 2004, Mr.
Bertelsen was a Senior Portfolio Manager with Salomon Smith Barney. Between
November 1996 and March 2001, Mr. Bertelsen was employed by Legg Mason Wood
Walker as a Portfolio Manager. He graduated with Honors from Albion College in
1993 with a B.A. in Economics and History and started his financial career with
Raymond James in July 1993.
MARK BELANIAN, Portfolio Analyst
Mark Belanian has over 10 years of investment industry experience. Mr. Belanian
joined GFPC/Aviance in February 2006 from Merrill Lynch's Global Private Client
Group in Sarasota, Florida, where he had worked since February 2005. Mr.
Belanian worked with Christian Bertelsen as a portfolio analyst at Phoenix
Investment Counsel between June 1998 and January 2005. Mr. Belanian graduated
from Trinity College with a B.A. in Modern Language.
JOHN GAMBLA, CFA, Senior Portfolio Manager
John Gambla is a Senior Portfolio Manager of the Alternative and Equity
Investment Group at First Trust Advisors L.P. ("First Trust"). Mr. Gambla has 20
years of investment experience. He joined First Trust in 2011. Before joining
First Trust he was a co-Chief Investment Officer at the Nuveen HydePark Group
LLC, a wholly-owned subsidiary of Nuveen Investments from May 2004 to March
2011. While at HydePark Mr. Gambla co-directed HydePark's investment activities
including research, product development, trading, portfolio management, and
performance attribution. Prior to May 2004, Mr. Gambla was a Senior Trader and
Quantitative specialist at Nuveen Asset Management. While there, he was
responsible for trading all derivatives for more than 120 municipal mutual
funds. Mr. Gambla graduated Phi Beta Kappa with a B.S. in Genetics and
Development Biology (Cum Laude) and a B.A. in Finance (departmental distinction)
from the University of Illinois at Urbana/Champaign, and earned an MBA from the
University of Chicago's Graduate School of Business. He is a CFA Charterholder
and holds FRM and PRM designations.
ROB A. GUTTSCHOW, CFA, Senior Portfolio Manager
Rob Guttschow is a Senior Portfolio Manager for the Alternative and Equity
Investment Group at First Trust. Mr. Guttschow has nearly 20 years of investment
experience. He joined First Trust in 2011. Before joining First Trust he was a
co-Chief Investment Officer at the Nuveen HydePark Group LLC, a wholly-owned
subsidiary of Nuveen Investments from May 2004 to March 2011. While at HydePark
Mr. Guttschow co-directed HydePark's investment activities including research,
product development, trading, portfolio management, and performance attribution.
Prior to joining HydePark Mr. Guttschow was an Overlay Manager and Senior
Portfolio Manager at Nuveen Asset Management, a wholly-owned subsidiary of
Nuveen Investments. Prior to May 2004, Mr. Guttschow was a Partner, Managing
Director and Senior Portfolio Manager at Lotsoff Capital Management. While at
Lotsoff, he was responsible for managing a variety of fixed-income and
equity-based enhanced index products for the firm's institutional clients. Mr.
Guttschow earned a B.S. degree in Engineering and an MBA from the University of
Illinois at Urbana/Champaign. He is a CFA Charterholder and a member of the CFA
Society of Chicago.
(A)(2) OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGER AND POTENTIAL CONFLICTS OF
INTEREST
INFORMATION PROVIDED AS OF NOVEMBER 30, 2012
# of Accounts Total Assets
Managed for for which
Total # of which Advisory Advisory Fee is
Name of Portfolio Manager Accounts Total Fee is Based on 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: 59 $932 Million 0 $0
Jeffrey J. Walker Registered Investment 0 $0 0 $0
Companies:
Other Pooled Investment 0 $0 0 $0
Vehicles:
Other Accounts: 1 $32 Million 0 $0
Edward C. Bertelsen Registered Investment 0 $0 0 $0
Companies:
Other Pooled Investment 0 $0 0 $0
Vehicles:
Other Accounts: 15 $51 Million 0 $0
Mark Belanian Registered Investment
Companies: 0 $0 0 $0
Other Pooled Investment
Vehicles: 0 $0 0 $0
John Gambla Other Accounts: 0 $0 0 $0
Registered Investment 2 $3 Million 0 $0
Companies:
Other Pooled Investment
Vehicles: 0 $0 0 $0
Other Accounts: 5 $588 Thousand 0 $0
Rob A. Guttschow Registered Investment 2 $3 Million 0 $0
Companies:
Other Pooled Investment 0 $0 0 $0
Vehicles:
Other Accounts: 5 $588 Thousand 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. First Trust believes there are not any material conflicts of
interest that may arise in connection with the First Trust's management of the
Registrant's investments.
(A)(3) COMPENSATION STRUCTURE OF PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM
MEMBERS
INFORMATION PROVIDED AS OF JANUARY 19, 2013.
As Members of Aviance, Christian Bertelsen and Edward Bertelsen receive
compensation which is capped at a certain level that can rise annually with
inflation. Additional bonuses are based on the overall profitability of the
firm. At this time, the cash flow of the company does not support the full
amount of the capped draw, therefore Christian Bertelsen and Edward Bertelsen
are paid at a discounted level, as cash flow allows. Mark Belanian is paid a
monthly salary and is eligible for bonuses based on his performance and the
company's profitability. Jeffrey Walker's compensation is tied to the
performance and profitability of the company. Aviance employees are offered
health/dental insurance through the firm's group policy.
John Gambla and Rob Guttschow receive compensation from First Trust which is
based upon a fixed salary and discretionary bonus. The discretionary bonus is
set by First Trust based upon a variety of factors including, but not limited
to, assets under management, performance versus benchmarks, and firm
profitability. First Trust employees are offered health/dental insurance through
the firm's group policy.
(A)(4) DISCLOSURE OF SECURITIES OWNERSHIP
INFORMATION PROVIDED AS OF NOVEMBER 30, 2012
Dollar Range of Registrant
Name Shares Beneficially Owned
Christian C. Bertelsen $0
Jeffrey Walker $0
Edward C. Bertelsen $0
Mark Belanian $0
John Gambla $0
Rob A. Guttschow $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/ Mark R. Bradley
-------------------------------------------
Mark R. Bradley, President and Chief
Executive Officer
(principal executive officer)
Date: January 28, 2013
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Mark R. Bradley
-------------------------------------------
Mark R. Bradley, President and Chief
Executive Officer
(principal executive officer)
Date: January 28, 2013
By (Signature and Title)* /s/ James M. Dykas
-------------------------------------------
James M. Dykas, Treasurer, Chief Financial
Officer and Chief Accounting Officer
(principal financial officer)
Date: January 28, 2013
* Print the name and title of each signing officer under his or her signature.