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 Dividend and Income Fund
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(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Name and address of agent for service)
registrant's telephone number, including area code: 630-765-8000
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Date of fiscal year end: November 30
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Date of reporting period: May 31, 2013
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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
SEMI-ANNUAL REPORT
FOR THE SIX MONTHS ENDED
MAY 31, 2013
FIRST TRUST
Dividend and
Income
Fund
(formerly known as
First Trust Active Dividend
Income Fund)
Chartwell Investment Partners
-------------------------
Institutional and Private Asset Management
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TABLE OF CONTENTS
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FIRST TRUST DIVIDEND AND INCOME FUND (FAV)
(FORMERLY KNOWN AS FIRST TRUST ACTIVE DIVIDEND INCOME FUND)
SEMI-ANNUAL REPORT
MAY 31, 2013
Shareholder Letter........................................................... 1
At A Glance.................................................................. 2
Portfolio Commentary......................................................... 3
Portfolio of Investments..................................................... 5
Statement of Assets and Liabilities ......................................... 10
Statement of Operations...................................................... 11
Statements of Changes in Net Assets.......................................... 12
Financial Highlights......................................................... 13
Notes to Financial Statements................................................ 14
Additional Information....................................................... 19
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 Chartwell Investment Partners, L.P. ("Chartwell"
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 Dividend and Income Fund (formerly known as 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 Additional
Information section of this report 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
Chartwell 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 DIVIDEND AND INCOME FUND (FAV)
(FORMERLY KNOWN AS FIRST TRUST ACTIVE DIVIDEND INCOME FUND)
SEMI-ANNUAL LETTER FROM THE CHAIRMAN AND CEO
MAY 31, 2013
Dear Shareholders:
I am pleased to present you with the semi-annual report for your investment in
First Trust Dividend and Income Fund (the "Fund").
The report you hold contains detailed information about your investment.
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 Advisors L.P. ("First Trust").
In addition, you should be aware that on June 10, 2013, the Fund's Board of
Trustees appointed Chartwell Investment Partners, L.P. ("Chartwell") as
sub-advisor to the Fund, effective July 1, 2013, pursuant to an interim
sub-advisory agreement. A Special Meeting of the Shareholders of the Fund has
been set for September 16, 2013 at which Shareholders will be asked to approve a
new sub-advisory agreement with Chartwell. In addition, the Board approved a
name change for the Fund that became effective on July 1, 2013 and certain
changes to the Fund's investment strategies that will become effective on
September 17, 2013. Under the new investment strategies, among other things, the
Fund will seek to achieve its investment objectives by investing at least 80% of
its managed assets in a diversified portfolio of dividend-paying multi-cap
equity securities, debt securities and senior, secured floating rate loans that
offer the potential for attractive income and/or capital appreciation. In
addition, the Fund intends to employ leverage and to pursue a revised options
strategy.
The six months covered by this report have been more positive for the U.S.
markets. In fact, the S&P 500 Index, as measured on a total return basis, rose
16.43% during the period, and many economists and investors have felt positive
about the current market environment. Of course, past performance can never be
an indicator of future performance. As I have written many times, First Trust
believes that staying invested in quality products through up and down markets
and having a long-term horizon can help investors reach their financial goals.
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 remainder of 2013 and to the next edition of your Fund's report.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees and
Chief Executive Officer of First Trust Advisors L.P.
Page 1
FIRST TRUST DIVIDEND AND INCOME FUND (FAV)
(FORMERLY KNOWN AS FIRST TRUST ACTIVE DIVIDEND INCOME FUND)
"AT A GLANCE"
AS OF MAY 31, 2013 (UNAUDITED)
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FUND STATISTICS
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Symbol on New York Stock Exchange FAV
Common Share Price $8.27
Common Share Net Asset Value ("NAV") $9.29
Premium (Discount) to NAV (10.98)%
Net Assets Applicable to Common Shares $76,718,274
Current Quarterly Distribution per Common Share (1) $0.1500
Current Annualized Distribution per Common Share $0.6000
Current Distribution Rate on Closing Common Share Price (2) 7.26%
Current Distribution Rate on NAV (2) 6.46%
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COMMON SHARE PRICE & NAV (WEEKLY CLOSING PRICE)
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Common Share Price NAV
5/12 7.66 8.52
7.41 8.33
7.62 8.64
7.63 8.72
6/12 7.55 8.67
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
8/12 8.13 9.02
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
11/12 7.65 8.58
7.69 8.63
7.52 8.62
7.52 8.54
7.53 8.61
12/12 7.37 8.46
7.77 8.83
7.99 8.83
8.11 8.93
1/13 7.93 8.82
8.03 8.90
8.16 8.89
8.06 8.91
2/13 8.01 8.89
8.01 8.90
8.18 9.08
8.16 9.12
8.31 9.08
3/13 8.31 9.14
8.15 9.07
8.22 9.22
8.15 9.09
4/13 8.13 9.10
8.23 9.25
8.28 9.34
8.44 9.49
8.42 9.45
5/13 8.27 9.29
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PERFORMANCE
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Average Annual Total Return
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5 Years Inception
6 Months Ended 1 Year Ended Ended (9/20/2007)
5/31/2013 5/31/2013 5/31/2013 to 5/31/2013
Fund Performance (3)
NAV 12.07% 18.64% -0.57% -0.38%
Market Value 11.95% 17.48% -1.39% -3.18%
Index Performance
Russell 1000(R) Value Index 19.35% 32.71% 4.73% 2.25%
S&P 500(R) Index 16.43% 27.28% 5.43% 3.52%
Dow Jones Select Dividend Index 14.14% 22.46% 6.89% 3.16%
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% OF TOTAL
TOP 10 HOLDINGS INVESTMENTS
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Intel Corp. 2.9%
Morgan Stanley 2.6
Citigroup, Inc. 2.5
XL Group PLC 2.5
JPMorgan Chase & Co. 2.4
Bank of America Corp. 2.4
Ford Motor Co. 2.3
Wells Fargo & Co. 2.3
AT&T, Inc. 2.2
Stanley Black & Decker, Inc. 2.2
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Total 24.3%
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% OF TOTAL
SECTOR ALLOCATION INVESTMENTS
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Financials 20.6%
Energy 15.5
Consumer Staples 11.6
Information Technology 11.5
Industrials 11.3
Consumer Discretionary 8.7
Telecommunication Services 6.3
Health Care 5.8
Utilities 5.8
Materials 2.9
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Total 100.0%
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(1) Most recent distribution paid or declared through 5/31/2013. 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 5/31/2013. 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 DIVIDEND AND INCOME FUND (FAV)
(FORMERLY KNOWN AS FIRST TRUST ACTIVE DIVIDEND INCOME FUND)
SEMI-ANNUAL REPORT
MAY 31, 2013
Aviance Capital Management, LLC ("Aviance"), a registered investment advisor,
was the sub-advisor to the First Trust Active Dividend Income Fund during the
period covered by this report and up through June 30, 2013. Aviance is an asset
management firm focused on managing multi-cap value and growth portfolios.
Effective July 1, 2013, Chartwell Investment Partners, L.P. ("Chartwell" or the
"Sub-Advisor") was appointed the Fund's sub-advisor by the Fund's Board of
Trustees pursuant to an interim investment sub-advisory agreement with a maximum
150-day term. A new investment sub-advisory agreement with Chartwell will be
entered into upon shareholder approval.
SUB-ADVISOR
Chartwell Investment Partners, L.P. ("Chartwell") is an employee-owned
investment advisory firm founded on April 1, 1997 by nine investment
professionals from Delaware Investment Advisers. The firm is 75% owned by the
partners and employees of Chartwell and 25% owned by a limited partnership
comprised of three passive investors in the Philadelphia area. There are no
affiliates at this time. The firm is a research-based equity and fixed-income
manager with a disciplined, team-oriented investment process.
Timothy J. Riddle, an executive with 33 years of investment industry experience,
is the Chief Executive Officer of Chartwell. Michael J. McCloskey, an executive
with 25 years of management experience, serves as President. G. Gregory Hagar is
Chartwell's Chief Financial Officer and Chief Compliance Officer. He has 24
years of related experience.
PORTFOLIO MANAGEMENT TEAM
BERNARD P. SCHAFFER
MANAGING PARTNER, SENIOR PORTFOLIO MANAGER
Mr. Schaffer is a founding partner of Chartwell and has 42 years of investment
industry experience. He serves as senior portfolio manager for Chartwell's
closed-end fund and hedged large-cap equity strategies, and focuses on
securities in the Energy and Financials sectors. He was employed as a Senior
Portfolio Manager at Delaware Investment Advisers from 1990 to 1997, managing
closed-end equity income funds that utilized option strategies to generate
portfolio gains. Mr. Schaffer earned a Bachelor's degree in Economics from
Villanova University and an MBA from the University of Pennsylvania's Wharton
School.
DOUGLAS W. KUGLER, CFA
PRINCIPAL, SENIOR PORTFOLIO MANAGER
Mr. Kugler is a portfolio manager on Chartwell's large-cap equity portfolio
management team and has 16 years of investment industry experience. His areas of
focus include the Consumer Discretionary, Energy, Industrials, Materials and
Technology sectors of the market. From 1993 to 2003, he held several positions
at Morgan Stanley Investment Management (Miller Anderson & Sherrerd) including
Head of Mutual Fund Administration and Vice President and Treasurer of the MAS
Funds, Junior Associate in the Equity Department, and his last position held
prior to joining Chartwell was Senior Associate and Analyst for the Large Cap
Value team. Mr. Kugler holds the Chartered Financial Analyst designation and is
a member of the CFA (Chartered Financial Analysts) Institute and the CFA Society
of Philadelphia. Mr. Kugler earned a Bachelor's degree in Accounting from the
University of Delaware.
PETER M. SCHOFIELD, CFA
PRINCIPAL, SENIOR PORTFOLIO MANAGER
Mr. Schofield is a Senior Portfolio Manager on Chartwell's large-cap equity
portfolio management team and has 29 years of investment industry experience.
His areas of focus include Consumer Staples, Financials, Health Care,
Industrials and Materials sectors of the Market. From 2005 to 2010, he was a
Co-Chief Investment Officer at Knott Capital. From 1996 to 2005, he was a
Portfolio Manager at Sovereign Asset Management. Prior to Sovereign Asset
Management, he was a portfolio manager at Geewax, Terker & Company. Mr.
Schofield holds the Chartered Financial Analyst designation and is a member of
the CFA (Chartered Financial Analysts) Institute and the CFA Society of
Philadelphia. Mr. Schofield earned a Bachelor's degree in History from the
University of Pennsylvania.
COMMENTARY
FIRST TRUST DIVIDEND AND INCOME FUND
The primary investment objective of First Trust Dividend and Income Fund ("FAV"
or the "Fund") is to seek a high level of current income. Its secondary
objective is capital appreciation. The Fund pursues its investment objectives by
investing at least 80% of its managed assets in a diversified portfolio of
dividend-paying multi-cap equity securities of both U.S. and non-U.S. issuers
that the Fund's sub-advisor believes offer the potential for attractive income
and/or capital appreciation. There can be no assurance that the Fund's
investment objectives will be achieved. The Fund may not be appropriate for all
investors.
Page 3
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PORTFOLIO COMMENTARY (CONTINUED)
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MARKET RECAP
The S&P 500 Index ("Index") returned 16.43% (inclusive of dividends) during the
six-month period from November 30, 2012 to May 31, 2013. In December 2012 the
Index was up approximately 1% but as the calendar turned to 2013, stocks began a
surge that resulted in an all-time closing high for the Index of 1,669.16 when
the market closed on May 21. The rally occurred as the threat of any large
impact from the "fiscal cliff" was removed and reported economic data met or
exceeded expectations. There were several things that were remarkable about the
market's rally during the first five months of 2013. The market closed higher
almost every week in the first quarter, advancing 10% in that period. Thus, the
first quarter of 2013 was the 8th best returning quarter for the S&P 500 Index
in the last 10 years. The composition of the returns was unusual in that the
Index was led higher by the more defensive sectors of the market. Healthcare,
Consumer Staples and Utilities were the highest returning sectors in the Index
in that first quarter. Most significant rallies are often led by the more
cyclical sectors of the market. It is believed that this unusual leadership was
brought about by the strong demand for higher yielding equities which are more
commonplace in the defensive sectors. Also, the market continued to increase in
April and May, adding yet another 3.9%. April and May were more volatile than
the previous three months as the market began to wrestle with some mixed
messages regarding the future of the Fed's accommodative monetary policies and
news surrounding possible continued slowing of the Chinese economy. Overall, the
16.43% return in the Index during the period took many by surprise. In
hindsight, it was driven by a combination of the removal of some negatives
(systemic risk in Europe, fear of a hard-landing in China, fiscal-cliff
concerns) and the emergence of new positives (improving U.S. economy, fund flows
into equities) plus the continuation of ongoing positives (central-bank
accommodation, corporate profitability, low interest rates).
MARKET OUTLOOK
While the S&P 500 has hovered near its all-time high reached in May, it is up
well over 125% from its closing low of 676.53 on March 9, 2009. Three of the
four full calendar years from 2009 to 2012 saw double-digit increases and so far
in calendar 2013 it is more of the same. The question is: where to now? The
market is currently wrestling with a number of issues which makes for an
uncertain environment - but these uncertainties can also provide positive
impetus to stock prices if they are resolved in a market friendly manner. While
there were periods of uncertainty since early 2009, stock prices rose on a
combination of the resolution of those uncertainties, strong earnings growth and
increased confidence in the economy's ability to continue to improve coming out
of the "Great Recession." We believe that this can continue, but not without
volatility. Companies have been cutting operating and administrative costs
aggressively and a good number of them have taken advantage of temporarily low
interest rates by refinancing higher cost debt to debt with lower rates. This
has brought overall corporate profit margins to near all-time highs, greatly
aiding the growth in corporate earnings. But this creates uncertainty regarding
companies' abilities to increase or even maintain margins at these levels.
Concurrent to this increase in corporate earnings and margins, the economy has
been growing the last few years but at an unspectacular pace. This "plow-horse"
level of growth has led to uncertainty regarding whether the domestic U.S.
economy can sustain this level of growth after the Federal Reserve reduces the
amount of "accommodation" they have been providing. It appears as if we will
find out in the fall as the Chairman of the FOMC (Federal Open Market Committee)
has said that if the economy reaches certain milestones, the pace of the
accommodation will be reduced. Some view the reduction of help from the Fed as a
good thing - meaning that the economy is strong enough to move forward without
help. Others are fearful that growth will stop when the accommodation is
reduced. What this has done is raise the level of interest rates and add
uncertainty. Also adding to uncertainty around the market is the condition of
certain international economies - most notably China, other emerging markets and
Europe. Each of these regions is dealing with their own economic issues which
has had the effect of slowing economic growth outside of the U.S.
Our basic position is that, despite these uncertainties, the economy should
continue to grow at a reasonable, but not strong rate, and corporate profits
should continue to grow at a subdued pace when compared to previous years. This
could provide a solid backdrop for the market going forward. However, with
valuation of the stock market no longer at the lower end of historical norms,
and with earnings growth flattening out, moves higher in the Index will likely
be more muted going forward with the increased likelihood of periods of price
declines. Given the increased likelihood of higher interest rates over the next
few years and continued economic growth, we believe positioning the portfolio in
certain portions of the financial, industrial and technology sectors of the
market may be advantageous. In addition, some portions of the consumer staples,
utility and telecommunication sectors may be disadvantaged due to the expected
higher interest rates. No matter the outcome of these issues, we will manage the
Fund with the dual objectives of generating a high level of current income while
seeking capital appreciation over the market cycle.
Page 4
FIRST TRUST DIVIDEND AND INCOME FUND
(FORMERLY KNOWN AS FIRST TRUST ACTIVE DIVIDEND INCOME FUND)
PORTFOLIO OF INVESTMENTS
MAY 31, 2013 (UNAUDITED)
SHARES DESCRIPTION VALUE
------------ --------------------------------------------------- -------------
COMMON STOCKS - 88.1%
AEROSPACE & DEFENSE - 2.1%
18,700 L-3 Communications Holdings, Inc. ................. $ 1,591,183
------------
AUTOMOBILES - 2.2%
110,000 Ford Motor Co. .................................... 1,724,800
------------
BEVERAGES - 1.0%
19,400 Coca-Cola (The) Co. ............................... 775,806
------------
BIOTECHNOLOGY - 0.0%
500 Kamada Ltd. (a) ................................... 5,050
------------
BUILDING PRODUCTS - 0.0%
1,000 PGT, Inc. (a) ..................................... 8,250
------------
CAPITAL MARKETS - 2.5%
73,900 Morgan Stanley .................................... 1,914,010
------------
COMMERCIAL BANKS - 5.4%
48,300 BB&T Corp. ........................................ 1,590,036
12,000 PNC Financial Services Group, Inc. ................ 859,680
41,300 Wells Fargo & Co. ................................. 1,674,715
------------
4,124,431
------------
COMMUNICATIONS EQUIPMENT - 2.6%
20,000 Cisco Systems, Inc. ............................... 481,600
15,000 Harris Corp. ...................................... 751,950
11,400 QUALCOMM, Inc. .................................... 723,672
------------
1,957,222
------------
COMPUTERS & PERIPHERALS - 4.7%
700 Apple, Inc. ....................................... 314,776
23,300 Diebold, Inc. ..................................... 750,493
30,000 Seagate Technology PLC ............................ 1,292,400
20,000 Western Digital Corp. ............................. 1,266,400
------------
3,624,069
------------
DIVERSIFIED FINANCIAL SERVICES - 7.0%
127,800 Bank of America Corp. ............................. 1,745,748
35,800 Citigroup, Inc. ................................... 1,861,242
32,800 JPMorgan Chase & Co. .............................. 1,790,552
------------
5,397,542
------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 5.5%
46,000 AT&T, Inc. ........................................ 1,609,540
80,000 KT Corp., ADR ..................................... 1,348,800
26,400 Verizon Communications, Inc. ...................... 1,279,872
------------
4,238,212
------------
ELECTRIC UTILITIES - 3.9%
11,000 Duke Energy Corp. ................................. 736,230
47,900 Exelon Corp. ...................................... 1,501,186
See Notes to Financial Statements Page 5
FIRST TRUST DIVIDEND AND INCOME FUND
(FORMERLY KNOWN AS FIRST TRUST ACTIVE DIVIDEND INCOME FUND)
PORTFOLIO OF INVESTMENTS (Continued)
MAY 31, 2013 (UNAUDITED)
SHARES DESCRIPTION VALUE
------------ --------------------------------------------------- -------------
COMMON STOCKS (Continued)
ELECTRIC UTILITIES (CONTINUED)
24,600 PPL Corp. ......................................... $ 730,620
------------
2,968,036
------------
FOOD & STAPLES RETAILING - 1.0%
9,500 PriceSmart, Inc. .................................. 802,085
------------
FOOD PRODUCTS - 4.1%
20,000 General Mills, Inc. ............................... 941,600
10,000 Kellogg Co. ....................................... 620,500
15,300 Kraft Foods Group, Inc. ........................... 843,489
18,600 Unilever NV ....................................... 758,508
------------
3,164,097
------------
HEALTH CARE EQUIPMENT & SUPPLIES - 1.0%
21,800 Abbott Laboratories ............................... 799,406
------------
HEALTH CARE PROVIDERS & SERVICES - 0.4%
5,000 Express Scripts Holding Co. (a) ................... 310,600
------------
HOTELS, RESTAURANTS & LEISURE - 3.0%
56,800 Arcos Dorados Holdings, Inc. ...................... 782,704
16,000 McDonald's Corp. .................................. 1,545,120
------------
2,327,824
------------
HOUSEHOLD DURABLES - 0.8%
30,000 Sony Corp., ADR ................................... 604,500
------------
HOUSEHOLD PRODUCTS - 3.1%
8,500 Kimberly-Clark Corp. .............................. 823,055
20,100 Procter & Gamble (The) Co. ........................ 1,542,876
------------
2,365,931
------------
INDUSTRIAL CONGLOMERATES - 2.1%
67,900 General Electric Co. .............................. 1,583,428
------------
INSURANCE - 4.1%
30,300 American International Group, Inc. (a) ............ 1,347,138
57,600 XL Group PLC ...................................... 1,810,368
------------
3,157,506
------------
MACHINERY - 6.7%
14,000 Caterpillar, Inc. ................................. 1,201,200
6,600 Cummins, Inc. ..................................... 789,558
8,300 Deere & Co. ....................................... 723,013
8,200 Parker Hannifin Corp. ............................. 818,032
20,200 Stanley Black & Decker, Inc. ...................... 1,600,244
------------
5,132,047
------------
MEDIA - 0.4%
10,000 News Corp., Class B ............................... 322,400
------------
METALS & MINING - 2.8%
13,000 BHP Billiton Ltd., ADR ............................ 849,160
Page 6 See Notes to Financial Statements
FIRST TRUST DIVIDEND AND INCOME FUND
(FORMERLY KNOWN AS FIRST TRUST ACTIVE DIVIDEND INCOME FUND)
PORTFOLIO OF INVESTMENTS (Continued)
MAY 31, 2013 (UNAUDITED)
SHARES DESCRIPTION VALUE
------------ --------------------------------------------------- -------------
COMMON STOCKS (Continued)
METALS & MINING (CONTINUED)
42,200 Freeport-McMoRan Copper & Gold, Inc. .............. $ 1,310,310
------------
2,159,470
------------
MULTI-UTILITIES - 1.4%
10,000 Ameren Corp. ...................................... 340,400
12,500 National Grid PLC, ADR ............................ 744,500
------------
1,084,900
------------
OIL, GAS & CONSUMABLE FUELS - 6.8%
10,000 Chevron Corp. ..................................... 1,227,500
24,100 ConocoPhillips .................................... 1,478,294
19,000 LinnCo LLC ........................................ 689,605
11,200 Range Resources Corp. ............................. 842,016
10,000 Total S.A., ADR ................................... 498,500
10,000 TransCanada Corp. ................................. 458,500
------------
5,194,415
------------
PHARMACEUTICALS - 4.1%
21,800 Abbvie, Inc. ...................................... 930,642
56,500 Pfizer, Inc. ...................................... 1,538,495
35,000 Warner Chilcott PLC, Class A ...................... 672,000
------------
3,141,137
------------
REAL ESTATE INVESTMENT TRUSTS - 0.8%
5,000 Annaly Capital Management, Inc. ................... 67,900
10,000 Ellington Residential Mortgage REIT ............... 194,000
1,000 LTC Properties, Inc. .............................. 41,610
7,000 Realty Income Corp. ............................... 318,150
------------
621,660
------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 3.4%
88,100 Intel Corp. ....................................... 2,139,068
7,500 Microchip Technology, Inc. ........................ 273,600
5,000 Texas Instruments, Inc. ........................... 179,450
------------
2,592,118
------------
SOFTWARE - 0.5%
10,000 Microsoft Corp. ................................... 348,800
------------
SPECIALTY RETAIL - 1.1%
20,000 Lowe's Cos., Inc. ................................. 842,200
------------
TEXTILES, APPAREL & LUXURY GOODS - 0.8%
10,000 NIKE, Inc., Class B ............................... 616,600
------------
TOBACCO - 1.9%
16,400 Philip Morris International, Inc. ................. 1,490,924
------------
TRANSPORTATION INFRASTRUCTURE - 0.0%
400 Wesco Aircraft Holdings, Inc. (a) ................. 7,020
------------
See Notes to Financial Statements Page 7
FIRST TRUST DIVIDEND AND INCOME FUND
(FORMERLY KNOWN AS FIRST TRUST ACTIVE DIVIDEND INCOME FUND)
PORTFOLIO OF INVESTMENTS (CONTINUED)
MAY 31, 2013 (UNAUDITED)
SHARES/
UNITS DESCRIPTION VALUE
------------ --------------------------------------------------- -------------
COMMON STOCKS (Continued)
WATER UTILITIES - 0.3%
5,000 American Water Works Co., Inc. .................... $ 199,700
------------
WIRELESS TELECOMMUNICATION SERVICES - 0.6%
6,000 Philippine Long Distance Telephone Co., ADR ....... 431,880
------------
TOTAL COMMON STOCKS ............................... 67,629,259
(Cost $61,375,975) ------------
MASTER LIMITED PARTNERSHIPS - 8.2%
OIL, GAS & CONSUMABLE FUELS - 8.2%
5,000 Boardwalk Pipeline Partners, L.P. ................. 148,000
12,500 Buckeye Partners, L.P. ............................ 826,750
20,000 Calumet Specialty Products Partners, L.P. ......... 683,000
32,600 Energy Transfer Partners, L.P. .................... 1,584,686
3,000 Kinder Morgan Energy Partners, L.P. ............... 250,200
20,000 Linn Energy LLC ................................... 658,000
30,000 Martin Midstream Partners, L.P. ................... 1,231,800
31,000 Vanguard Natural Resources LLC .................... 872,650
------------
TOTAL MASTER LIMITED PARTNERSHIPS ................. 6,255,086
(Cost $5,466,577) ------------
TOTAL INVESTMENTS - 96.3% ......................... 73,884,345
(Cost $66,842,552) (b) ------------
NUMBER OF
CONTRACTS DESCRIPTION VALUE
------------ --------------------------------------------------- -------------
CALL OPTIONS WRITTEN - (0.5%)
S&P 500 Index Calls
35 @ $1,585.00 due June 2013 ........................ (201,600)
35 @ 1,600.00 due June 2013 ........................ (146,125)
35 @ 1,685.00 due July 2013 ........................ (45,150)
------------
TOTAL CALL OPTIONS WRITTEN ........................ (392,875)
(Premiums received $150,026) ------------
NET OTHER ASSETS AND LIABILITIES - 4.2% ........... 3,226,804
------------
NET ASSETS - 100.0% ............................... $ 76,718,274
============
-----------------------------
(a) Non-income producing security.
(b) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of May 31, 2013, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $7,945,253 and the aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over value was $903,460.
ADR American Depositary Receipt
Page 8 See Notes to Financial Statements
FIRST TRUST DIVIDEND AND INCOME FUND
(FORMERLY KNOWN AS FIRST TRUST ACTIVE DIVIDEND INCOME FUND)
PORTFOLIO OF INVESTMENTS (Continued)
MAY 31, 2013 (UNAUDITED)
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of May 31, 2013
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 5/31/2013 PRICES INPUTS INPUTS
--------------------------------------- ------------- ------------- ------------- -------------
Common Stocks*......................... $ 67,629,259 $ 67,629,259 $ -- $ --
Master Limited Partnerships*........... 6,255,086 6,255,086 -- --
------------- ------------- ------------- -------------
TOTAL INVESTMENTS...................... $ 73,884,345 $ 73,884,345 $ -- $ --
============= ============= ============= =============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
5/31/2013 PRICES INPUTS INPUTS
------------- ------------- ------------- -------------
Call Options Written................... $ (392,875) $ (392,875) $ -- $ --
============= ============= ============= =============
* 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 May 31, 2013.
See Notes to Financial Statements Page 9
FIRST TRUST DIVIDEND AND INCOME FUND
(FORMERLY KNOWN AS FIRST TRUST ACTIVE DIVIDEND INCOME FUND)
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 2013 (UNAUDITED)
ASSETS:
Investments, at value
(Cost $66,842,552) .......................................................................... $ 73,884,345
Cash........................................................................................... 3,741,114
Prepaid expenses .............................................................................. 17,159
Receivables:
Dividends ................................................................................... 201,081
Dividend reclaims ........................................................................... 16,686
Interest .................................................................................... 166
-------------
Total Assets ................................................................................ 77,860,551
-------------
LIABILITIES:
Options written, at value (Premiums received $150,026) ........................................ 392,875
Payables:
Investment securities purchased ............................................................. 608,825
Investment advisory fees .................................................................... 65,682
Audit and tax fees .......................................................................... 23,553
Custodian fees .............................................................................. 22,365
Printing fees ............................................................................... 8,498
Administrative fees ......................................................................... 8,400
Legal fees .................................................................................. 4,496
Transfer agent fees ......................................................................... 3,472
Trustees' fees and expenses ................................................................. 3,093
Financial reporting fees .................................................................... 771
Other liabilities ............................................................................. 247
-------------
Total Liabilities ......................................................................... 1,142,277
-------------
NET ASSETS .................................................................................... $ 76,718,274
=============
NET ASSETS CONSIST OF:
Paid-in capital ............................................................................... $ 145,335,913
Par value ..................................................................................... 82,595
Accumulated net investment income (loss) ...................................................... (2,161,250)
Accumulated net realized gain (loss) on investments ........................................... (73,337,928)
Net unrealized appreciation (depreciation) on investments ..................................... 6,798,944
-------------
NET ASSETS .................................................................................... $ 76,718,274
=============
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share) .......................... $ 9.29
=============
Number of Common Shares outstanding (unlimited number of Common Shares has been authorized).... 8,259,517
=============
Page 10 See Notes to Financial Statements
FIRST TRUST DIVIDEND AND INCOME FUND
(FORMERLY KNOWN AS FIRST TRUST ACTIVE DIVIDEND INCOME FUND)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MAY 31, 2013 (UNAUDITED)
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $32,716).......................................... $ 1,274,715
Interest....................................................................................... 690
-------------
Total investment income..................................................................... 1,275,405
-------------
EXPENSES:
Investment advisory fees....................................................................... 369,304
Administrative fees............................................................................ 47,427
Printing fees.................................................................................. 20,910
Audit and tax fees............................................................................. 17,253
Custodian fees................................................................................. 16,017
Transfer agent fees............................................................................ 9,880
Trustees' fees and expenses.................................................................... 9,273
Legal fees..................................................................................... 6,338
Financial reporting fees....................................................................... 4,625
Other.......................................................................................... 17,560
-------------
Total expenses.............................................................................. 518,587
-------------
NET INVESTMENT INCOME (LOSS)................................................................... 756,818
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments................................................................................. 1,594,616
Written options (a)......................................................................... (799,229)
-------------
Net realized gain (loss)....................................................................... 795,387
-------------
Net change in unrealized appreciation (depreciation) on:
Investments................................................................................. 6,702,915
Written options (a)......................................................................... (72,675)
-------------
Net change in unrealized appreciation (depreciation)........................................... 6,630,240
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS)........................................................ 7,425,627
-------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................... $ 8,182,445
=============
(a) Primary risk exposure is equity index option contracts.
See Notes to Financial Statements Page 11
FIRST TRUST DIVIDEND AND INCOME FUND
(FORMERLY KNOWN AS FIRST TRUST ACTIVE DIVIDEND INCOME FUND)
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR
5/31/2013 ENDED
(UNAUDITED) 11/30/2012
------------- -------------
OPERATIONS:
Net investment income (loss).................................................... $ 756,818 $ 4,192,874
Net realized gain (loss)........................................................ 795,387 (2,923,384)
Net change in unrealized appreciation (depreciation)............................ 6,630,240 (53,989)
Net increase from payment by the Sub-Advisor.................................... -- 12,651
------------- -------------
Net increase (decrease) in net assets resulting from operations................. 8,182,445 1,228,152
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income........................................................... (2,725,641) (4,223,907)
Return of capital............................................................... -- (1,722,945)
------------- -------------
Total distributions to shareholders............................................. (2,725,641) (5,946,852)
------------- -------------
Total increase (decrease) in net assets......................................... 5,456,804 (4,718,700)
NET ASSETS:
Beginning of period............................................................. 71,261,470 75,980,170
------------- -------------
End of period................................................................... $ 76,718,274 $ 71,261,470
============= =============
Accumulated net investment income (loss) at end of period....................... $ (2,161,250) $ (192,427)
============= =============
COMMON SHARES:
Common Shares at end of period.................................................. 8,259,517 8,259,517
============= =============
Page 12 See Notes to Financial Statements
FIRST TRUST DIVIDEND AND INCOME FUND
(FORMERLY KNOWN AS FIRST TRUST ACTIVE DIVIDEND INCOME FUND)
FINANCIAL HIGHLIGHTS
FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR PERIOD
5/31/2013 ENDED ENDED ENDED ENDED ENDED
(UNAUDITED) 11/30/2012 11/30/2011 11/30/2010 11/30/2009 11/30/2008
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, beginning of period ...... $ 8.63 $ 9.20 $ 9.93 $ 10.48 $ 10.61 $ 19.03
--------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .............. 0.09 0.51 0.84 (a) 1.15 (a) 1.90 (a) 1.78 (a)
Net realized and unrealized gain (loss) ... 0.90 (0.36) (0.56) (0.45) (0.20) (7.99)
--------- --------- --------- --------- --------- ---------
Total from investment operations .......... 0.99 0.15 0.28 0.70 1.70 (6.21)
--------- --------- --------- --------- --------- ---------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income ..................... (0.33) (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 distributions to Common
Shareholders ............................ (0.33) (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 ............ $ 9.29 $ 8.63 $ 9.20 $ 9.93 $ 10.48 $ 10.61
========= ========= ========= ========= ========= =========
Market value, end of period ............... $ 8.27 $ 7.69 $ 8.41 $ 10.47 $ 12.10 $ 8.03
========= ========= ========= ========= ========= =========
TOTAL RETURN BASED ON NET ASSET
VALUE (b) ............................... 12.07% 2.24% (c) 2.81% 7.59% 18.44% (34.64)%
========= ========= ========= ========= ========= =========
TOTAL RETURN BASED ON MARKET VALUE (b) .... 11.95% (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) ...... $ 76,718 $ 71,261 $ 75,980 $ 80,302 $ 76,196 $ 76,456
Ratio of total expenses to average net
assets .................................. 1.40% (d) 1.48% 1.60% 1.66% 1.89% 1.31%
Ratio of net investment income (loss) to
average net assets ...................... 2.05% (d) 5.60% 8.42% 11.34% 19.31% 11.34%
Portfolio turnover rate ................... 98% 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.
(d) Annualized.
See Notes to Financial Statements Page 13
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST DIVIDEND AND INCOME FUND
(FORMERLY KNOWN AS FIRST TRUST ACTIVE DIVIDEND INCOME FUND)
MAY 31, 2013 (UNAUDITED)
1. ORGANIZATION
First Trust Dividend and Income Fund (formerly known as First Trust Active
Dividend Income Fund) (the "Fund") is a diversified, closed-end management
investment company organized as a Massachusetts business trust on June 14, 2007
and is registered with the Securities and Exchange Commission ("SEC") under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Fund trades
under the ticker symbol FAV on the New York Stock Exchange ("NYSE"). Effective
July 1, 2013, the Fund's name was changed to its current name and Chartwell
Investment Partners, L.P. ("Sub-Advisor" or "Chartwell") began serving as
sub-advisor of the Fund, pursuant to an interim investment sub-advisory
agreement.
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 Chartwell believes offer the
potential for attractive income and/or capital appreciation. In addition, on an
ongoing and consistent basis, the Fund will pursue an option overlay strategy
whereby the Fund will write call options on stock indices and single stocks on
up to 50% of the Fund's portfolio value. 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 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 an over-the-counter market are valued at their
closing bid prices.
Exchange-traded options contracts are valued at the closing price in the
market where such contracts are principally traded. If no closing price is
available, exchange-traded options contracts are valued at the mean
between the most recent bid and asked prices. Over-the-counter options
contracts are valued at their closing bid prices.
Short-term investments that mature in less than 60 days when purchased are
valued at amortized cost.
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;
Page 14
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST DIVIDEND AND INCOME FUND
(FORMERLY KNOWN AS FIRST TRUST ACTIVE DIVIDEND INCOME FUND)
MAY 31, 2013 (UNAUDITED)
4) transactions in comparable securities;
5) price quotes from dealers and/or pricing services;
6) relationships among various securities;
7) information obtained by contacting the issuer, analysts, or the
appropriate stock exchange;
8) an analysis of the issuer's financial statements; and
9) the existence of merger proposals or tender offers that might affect
the value of the security.
If the securities in question are foreign securities, the following additional
information may be considered:
1) the value of similar foreign securities traded on other foreign
markets;
2) ADR trading of similar securities;
3) closed-end fund trading of similar securities;
4) foreign currency exchange activity;
5) the trading prices of financial products that are tied to baskets of
foreign securities;
6) factors relating to the event that precipitated the pricing problem;
7) whether the event is likely to recur; and
8) whether the effects of the event are isolated or whether they affect
entire markets, countries or regions.
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
The inputs or methodology used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of May 31, 2013, is
included with the Fund's Portfolio of Investments.
B. OPTION CONTRACTS:
The goal of the option overlay strategy is to generate additional income from
option premiums in an attempt to enhance the distributions payable to
shareholders and reduce overall portfolio volatility. The Fund generally will
write 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. Through June 30,
2013, the option strategy was managed by the Alternatives Group at First Trust,
the investment advisor to the Fund. The Fund will not write (sell) "naked" or
uncovered options. 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.
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
Page 15
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST DIVIDEND AND INCOME FUND
(FORMERLY KNOWN AS FIRST TRUST ACTIVE DIVIDEND INCOME FUND)
MAY 31, 2013 (UNAUDITED)
options depends on the ability of the Sub-Advisor to predict pertinent market
movements, which cannot be assured. Thus, the use of options may require the
Fund to sell portfolio securities at inopportune times or for prices other than
current market value, which may limit the amount of appreciation the Fund can
realize on an investment, or may cause the Fund to hold a security that it might
otherwise sell. As the writer (seller) of a covered option, the Fund foregoes,
during the option's life, the opportunity to profit from increases in the market
value of the security covering the option above the sum of the premium and the
strike price of the option, but has retained the risk of loss should the price
of the underlying security decline. The writer (seller) of an option has no
control over the time when it may be required to fulfill its obligation as a
writer (seller) of the option. Once an option writer (seller) has received an
exercise notice, it cannot effect a closing purchase transaction in order to
terminate its obligation under the option and must deliver the underlying
security to the option holder at the exercise price.
Over-the-counter options have the risk of the potential inability of
counterparties to meet the terms of their contracts. The Fund's maximum equity
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 six months ended May 31, 2013, distributions of $737,500 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.
The tax character of distributions paid during the fiscal year ended November
30, 2012, was as follows:
Distributions paid from:
Ordinary income................................... $ 4,223,907
Capital gain...................................... --
Return of capital................................. 1,722,945
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 16
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST DIVIDEND AND INCOME FUND
(FORMERLY KNOWN AS FIRST TRUST ACTIVE DIVIDEND INCOME FUND)
MAY 31, 2013 (UNAUDITED)
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 436,638
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 May 31, 2013,
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.
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 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.
Prior to July 1, 2013, Aviance Capital Management, LLC served as the Fund's
sub-advisor subject to First Trust's supervision. Aviance received a monthly
sub-advisory fee calculated at an annual rate of 0.50% of the Fund's Managed
Assets that was paid by First Trust out of its investment advisory fee.
During the time period covered by this report, FTIA Holdings, LLC, an affiliate
of the Advisor, held a 28% ownership interest in Aviance.
Effective July 1, 2013, the Board of Trustees appointed Chartwell as sub-advisor
pursuant to an interim investment sub-advisory agreement pending shareholder
approval of a new sub-advisory agreement with Chartwell (See Additional
Information - Submission of Matters to a Vote of Shareholders).
Chartwell 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 Fund's Managed
Assets allocated to the Sub-Advisor that is paid by First Trust out of its
investment advisory fee.
BNY Mellon Investment Servicing (US) Inc. ("BNYM IS") serves as the Fund's
administrator, fund accountant and transfer agent in accordance with certain fee
arrangements. As administrator and fund accountant, BNYM IS is responsible for
providing certain administrative and accounting services to the Fund, including
maintaining the Fund's books of account, records of the Fund's securities
transactions, and
Page 17
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST DIVIDEND AND INCOME FUND
(FORMERLY KNOWN AS FIRST TRUST ACTIVE DIVIDEND INCOME FUND)
MAY 31, 2013 (UNAUDITED)
certain other books and records. As transfer agent, BNYM IS is responsible for
maintaining shareholder records for the Fund. -The Bank of New York Mellon
("BNYM") serves as the Fund's custodian in accordance with certain fee
arrangements. -As custodian, BNYM is responsible for custody of the Fund's
assets.
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.
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. 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 six months ended May 31, 2013, were $69,737,973 and
$73,602,969, respectively.
Written option activity for the Fund was as follows:
NUMBER OF
WRITTEN OPTIONS CONTRACTS PREMIUMS
-------------------------------------------------------------------------------
Options outstanding at November 30, 2012... 140 $ 111,751
Options Written............................ 1,085 609,120
Options Expired............................ (560) (137,425)
Options Exercised.......................... -- --
Options Closed............................. (560) (433,420)
------- ---------
Options outstanding at May 31, 2013........ 105 $ 150,026
======= =========
5. INDEMNIFICATION
The Fund has a variety of indemnification obligations under contracts with its
service providers. The Fund's maximum exposure under these arrangements is
unknown. However, the Fund has not had prior claims or losses pursuant to these
contracts and expects the risk of loss to be remote.
6. 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
were the following subsequent events:
On June 10, 2013, the Board of Trustees appointed Chartwell as sub-advisor,
effective July 1, 2013, pursuant to an interim sub-advisory agreement with a
maximum term of 150 days pending shareholder approval of a new sub-advisory
agreement with Chartwell. In addition, the Board approved a name change of the
Fund from First Trust Active Dividend Income Fund to First Trust Dividend and
Income Fund. Finally, the Board approved changes to the Fund's Investment
Strategies. The Fund, under normal market conditions, currently invests 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. Effective September 17, 2013, the Fund will seek to achieve its
investment objectives by investing at least 80% of its Managed Assets in a
diversified portfolio of dividend-paying multi-cap equity securities, debt
securities, and senior, secured floating rate loans that offer the potential for
attractive income and/or capital appreciation. The Fund may employ leverage, in
the form of borrowings, in an effort to enhance the Fund's potential for income.
In addition, the Fund intends to pursue a revised options strategy. The changes
to the Fund's Investment Strategies, and certain of the risks associated
therewith, are more fully discussed in the Proxy Statement mailed on or about
July 11, 2013, to Shareholders of record as of June 20, 2013, which is also
available on First Trust's website. However, the changes to the Fund's
Investment Strategies are not subject to shareholder approval and are not
contingent upon approval by Shareholders of the new investment sub-advisory
agreement with Chartwell. The Fund's primary investment objective, which is to
seek a high level of current income, and secondary objective, which is capital
appreciation, are not changing.
On June 28, 2013, FTIA Holdings, LLC, an affiliate of the Advisor, divested of
its 28% interest in Aviance.
On July 11, 2013, the Fund declared a dividend of $0.15 per share to Common
Shareholders of record on July 24, 2013, payable July 31, 2013.
Page 18
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST DIVIDEND AND INCOME FUND
(FORMERLY KNOWN AS FIRST TRUST ACTIVE DIVIDEND INCOME FUND)
MAY 31, 2013 (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 19
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST DIVIDEND AND INCOME FUND
(FORMERLY KNOWN AS FIRST TRUST ACTIVE DIVIDEND INCOME FUND)
MAY 31, 2013 (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.
SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
The Joint Annual Meeting of Shareholders of the Common Shares of Macquarie/First
Trust Global Infrastructure/Utilities Dividend & Income Fund, 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 Dividend and Income Fund (formerly known as First Trust Active
Dividend Income Fund), First Trust High Income Long/Short Fund and First Trust
Energy Infrastructure Fund was held on April 17, 2013 (the "Annual Meeting"). At
the Annual Meeting, Trustees James A. Bowen and Niel B. Nielson were elected by
the Common Shareholders of the First Trust Dividend and Income Fund as Class III
Trustees for three-year terms expiring at the Fund's annual meeting of
shareholders in 2016. The number of votes cast in favor of Mr. Bowen was
7,003,741, the number of votes against was 304,451 and the number of abstentions
was 951,325. The number of votes cast in favor of Mr. Nielson was 7,032,436, the
number of votes against was 275,756 and the number of abstentions was 951,325.
Richard E. Erickson, Thomas R. Kadlec and Robert F. Keith are the other current
and continuing Trustees.
A Special Meeting (the "Meeting") of the Shareholders of the Fund has been set
for September 16, 2013, at 3:30 p.m. Central Time. The Meeting will be held at
the offices of First Trust, 120 East Liberty Drive, Suite 400, Wheaton, Illinois
60187. The purpose of the Meeting is to have the Shareholders vote on a proposal
to approve a new investment sub-advisory agreement among the Fund, First Trust,
and Chartwell. The Board of Trustees, after careful review, based on the
recommendation of First Trust, determined that is was in the best interests of
the Fund to replace the Fund's former sub-advisor, Aviance Capital Management,
LLC, with Chartwell. First Trust and the Board believe that Chartwell's
experience and expertise in managing investment strategies similar to those of
the Fund make it well-qualified to serve as sub-advisor to the Fund. Chartwell
began managing the Fund pursuant to an interim investment sub-advisory agreement
on July 1, 2013.
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
Page 20
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST DIVIDEND AND INCOME FUND
(FORMERLY KNOWN AS FIRST TRUST ACTIVE DIVIDEND INCOME FUND)
MAY 31, 2013 (UNAUDITED)
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 Sub-Advisor, consistent with the Fund's investment objectives. The
ability to successfully implement the Fund's investment strategy depends on the
Sub-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.
As indicated above, effective September 17, 2013, certain changes to the Fund's
investment strategies will become effective and, as a result, the Fund will be
subject to certain additional and/or heightened risks. (See Notes to Financial
Statements - 6. Subsequent Events.) Some, but not all, of these risks are
briefly described below. In addition, in light of the Fund's revised options
strategy, option risk (described above) may increase.
SENIOR LOAN RISK: An investment in senior loans involves risk that the borrowers
under the senior loans may default on their obligations to pay principal or
interest when due. Such payment defaults would result in a reduction of income
to the Fund, a reduction in the value of the investment and a potential decrease
in the net asset value of the Fund. Senior loans are typically structured as
floating rate instruments in which the interest rate payable on the obligation
fluctuates with interest rate changes. In addition, senior loans are generally
below investment grade quality and may be unrated at the time of investment; are
generally not registered with the Securities and Exchange Commission or state
securities commissions; and are generally not listed on any securities exchange.
DEBT SECURITIES RISK: Debt securities are subject to certain risks including:
(i) issuer risk (the risk that the value of debt securities may decline for a
number of reasons which directly relate to the issuer); (ii) interest rate risk
(the risk that debt securities will decline in value because of changes in
market interest rates); (iii) liquidity risk (the risk that the securities will
not be able to be sold at the time desired by the Fund or at prices
approximating the value at which the Fund is carrying the securities on its
books); (iv) prepayment risk (the risk that during periods of declining interest
rates, the issuer of a security may exercise its option to prepay principal
earlier than scheduled, forcing the Fund to reinvest the proceeds from such
prepayment in lower yielding securities); and (v) reinvestment risk (the risk
that income from the Fund's portfolio will decline if the Fund invests the
proceeds from matured, traded or called bonds at market interest rates that are
below the Fund portfolio's current earnings rate).
CREDIT AND BELOW INVESTMENT GRADE SECURITIES RISK: Credit risk is the risk that
an issuer of a security may be unable or unwilling to make dividend, interest
and principal payments when due and the related risk that the value of a
security may decline because of concerns about the issuer's ability or
willingness to make such payments. Credit risk may be heightened for the Fund
because it may invest in below investment grade securities, which are commonly
referred to as "junk" or "high yield" securities; such securities, while
generally offering higher yields than investment grade debt with similar
maturities, involve greater risks, including the possibility of dividend or
interest deferral, default or bankruptcy, and are regarded as predominantly
speculative with respect to the issuer's capacity to pay dividends or interest
and repay principal.
LEVERAGE RISK: The use of leverage by the Fund can magnify the effect of any
losses. If the income and gains from the securities and investments purchased
with leverage proceeds do not cover the cost of leverage, the return to the
common shares will be less than if leverage had not been used. Moreover,
leverage involves additional risks and special considerations for common
shareholders including: (i) the likelihood of greater volatility of net asset
value and market price of common shares than a comparable portfolio without
leverage; (ii) the risk that fluctuations in interest rates on borrowings and
short-term debt or in the dividend rates on any preferred shares that the Fund
may pay will reduce the return to the common shareholders or will result in
fluctuations in the dividends paid on the common shares; and (iii) the effect of
leverage in a declining market, which is likely to cause a greater decline in
the net asset value of the common shares than if the Fund were not leveraged,
which may result in a greater decline in the market price of the common shares.
Page 21
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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
Chartwell Investment Partners, L.P.
1235 Westlakes Drive, Suite 400
Berwyn, PA 19312
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.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. INVESTMENTS.
(a) Schedule of Investments in securities of unaffiliated issuers as of the
close of the reporting period is included as part of the report to
shareholders filed under Item 1 of this form.
(b) Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a) Not applicable.
(b) Christian C. Bertelsen, Edward C. Bertelsen, Mark Belanian, Jeffrey
Walker, John Gambla and Rob A. Guttschow are no longer Portfolio Managers
for the registrant. Bernard P. Schaffer, Douglas W. Kugler and Peter M.
Schofield have been added as Portfolio Managers for the registrant.
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 AUGUST 5, 2013
PORTFOLIO MANAGEMENT TEAM
BERNARD P. SCHAFFER
MANAGING PARTNER, SENIOR PORTFOLIO MANAGER
Mr. Schaffer is a founding partner of Chartwell and has 42 years of investment
industry experience. He serves as senior portfolio manager for Chartwell's
closed-end fund and hedged large-cap equity strategies. As the lead portfolio
manager for the Fund since 2007, he focuses on securities in the Energy,
Financials and Consumer Staples sectors. He was employed as a Senior Portfolio
Manager at Delaware Investment Advisers from 1990 to 1997, managing closed-end
equity income funds that utilized option strategies to generate portfolio gains.
Mr. Schaffer earned a Bachelor's degree in Economics from Villanova University
and an MBA from the University of Pennsylvania's Wharton School.
DOUGLAS W. KUGLER, CFA
PRINCIPAL, PORTFOLIO MANAGER
Mr. Kugler is a portfolio manager on Chartwell's large-cap equity portfolio
management team and has 16 years of investment industry experience. His areas of
focus include the Consumer Discretionary, Industrials, Materials and Technology
sectors of the market. He has been a portfolio manager for the Fund since 2007.
From 1993 to 2003, he held several positions at Morgan Stanley Investment
Management (Miller Anderson & Sherrerd) the last of which was Senior Associate
and Analyst for the Large Cap Value team. Mr. Kugler is a member of the CFA
(Chartered Financial Analysts) Institute and the CFA Society of Philadelphia. He
holds the Chartered Financial Analyst designation. Mr. Kugler earned a
Bachelor's degree in Accounting from the University of Delaware.
PETER M. SCHOFIELD, CFA
PRINCIPAL, SENIOR PORTFOLIO MANAGER
Mr. Schofield is a Senior Portfolio Manager on Chartwell's large-cap equity
portfolio management team and has 29 years of investment industry experience.
His areas of focus include Consumer Staples, Health Care and Information
Technology. From 2005 to 2010, he was a Co-Chief Investment Officer at Knott
Capital. From 1996 to 2005, he was a Portfolio Manager at Sovereign Asset
Management. Prior to Sovereign Asset Management, he was a portfolio manager at
Geewax, Terker & Company. Mr. Schofield holds the Chartered Financial Analyst
designation and is a member of the CFA (Chartered Financial Analysts) Institute
and the CFA Society of Philadelphia. Mr. Schofield earned a Bachelor's degree in
History from the University of Pennsylvania.
The investment team for the First Trust Enhanced Equity Income Fund consists of
three portfolio managers with an average of 29 years of investment experience.
All team members conduct fundamental research and meet with company management.
Purchase and sale decisions are made by the portfolio managers. The day-to-day
work and the management of the Fund is divided evenly among the portfolio
managers.
OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGER AND POTENTIAL CONFLICTS OF
INTEREST
INFORMATION PROVIDED AS OF AUGUST 5, 2013
# 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
1. Bernard P. Schaffer Registered Investment 1 $292.8 Mil 0 $0
Companies:
Other Pooled Investment 1 $497,000 0 $0
Vehicles:
Other Accounts: 10 $330.5 Mil 0 $0
2. Douglas W. Kugler Registered Investment 1 $292.8 Mil 0 $0
Companies:
Other Pooled Investment 1 $497,000 0 $0
Vehicles:
Other Accounts: 10 $330.5 Mil 0 $0
3. Peter M. Schofield Registered Investment 1 $313.7.9 0 $0
Companies:
Other Pooled Investment 1 $497,000 0 $0
Vehicles:
Other Accounts: 16 $330.5 Mil 0 $0
POTENTIAL CONFLICTS OF INTERESTS
The portfolio managers manage other accounts for Chartwell including
institutional portfolios of similar investment styles. None of these portfolio
managers manage any hedge funds nor any accounts with performance-based fees.
When registered funds and investment accounts are managed side-by-side, firm
personnel must strictly follow the policies and procedures outlined in our Trade
Allocation Policy to ensure that accounts are treated in a fair and equitable
manner, and that no client or account is favored over another. When registered
funds and investment accounts are trading under the same investment product, and
thus trading the same securities, shares are allocated on a pro-rata basis based
on market value, and all portfolios obtain the same average price.
On a monthly basis, a member of Chartwell's Compliance Group, oversees the
performance calculation process handled in Operations, and completes a
spreadsheet of monthly portfolio returns by client. This person provides this
spreadsheet to the CEO, CCO and various investment personnel for their review.
Any performance dispersion noted by anyone on the distribution list is
investigated by a member of Chartwell's Compliance Group by reviewing the
underlying transactional detail, holdings & security weightings by portfolio.
This monthly process ensures that all portfolios that are managed under the same
investment product are treated fairly, and traded in accordance with firm
policy.
COMPENSATION STRUCTURE OF PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM MEMBERS
INFORMATION PROVIDED AS OF AUGUST 5, 2013.
The compensation paid to a Chartwell portfolio manager and analyst consists of
base salary, annual bonus, ownership distribution, and an annual profit-sharing
contribution to the firm's retirement plan.
A portfolio manager's and analyst's base salary is determined by Chartwell's
Compensation Committee and is reviewed at least annually. A portfolio manager's
and analyst's experience, historical performance, and role in firm or product
team management are the primary considerations in determining the base salary.
Industry benchmarking is utilized by the Compensation Committee on an annual
basis.
Annual bonuses are determined by the Compensation Committee based on a number of
factors. The primary factor is a performance-based compensation schedule that is
applied to all accounts managed by a portfolio manager within a particular
investment product, and is not specific to any one account. The bonus is
calibrated based on the gross composite performance of such accounts versus the
appropriate benchmark and peer group rankings. Portfolio construction, sector
and security weighting, and performance are reviewed by the Compliance Committee
and Compensation Committee to prevent a manager from taking undue risks.
Additional factors used to determine the annual bonus include the portfolio
manager's contribution as an analyst, product team management, and contribution
to the strategic planning and development of the investment group as well as the
firm.
Ownership distributions are paid to a portfolio manager and analyst based on the
portfolio manager's and analyst's level and type of ownership interest(s). There
are currently three types of equity: (1) straight limited partnership interests,
(2) Class B share interests, and (3) phantom stock interests. In all cases, the
annual ownership distributions are paid to employees based on their respective
percentage equity interest(s) multiplied by total net cash distributions paid
during the year.
Chartwell also provides a profit sharing and 401(k) plan for all employees. The
annual profit sharing contribution and/or matching contribution from Chartwell
is discretionary and based solely on the profitability of the firm.
DISCLOSURE OF SECURITIES OWNERSHIP
INFORMATION PROVIDED AS OF AUGUST 5, 2013
Name of Portfolio Manager or Dollar Range of Fund Shares
----------------------------- ---------------------------
Team Member Beneficially Owned
----------- ------------------
Bernard P. Schaffer $0
Douglas W. Kugler $0
Peter M. Schofield $0
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of trustees, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)),
or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial
officers, or persons performing similar functions, have concluded
that the registrant's disclosure controls and procedures (as defined
in Rule 30a-3(c) under the Investment Company Act of 1940, as
amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of
a date within 90 days of the filing date of the report that includes
the disclosure required by this paragraph, based on their evaluation
of these controls and procedures required by Rule 30a-3(b) under the
1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b)
under the Securities Exchange Act of 1934, as amended (17 CFR
240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the registrant's second
fiscal quarter of the period covered by this report that has
materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Not applicable.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and
Section 906 of the Sarbanes- Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) First Trust Dividend and Income Fund
---------------------------------------------------
By (Signature and Title)* /s/ Mark R. Bradley
----------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)
Date: July 23, 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: July 23, 2013
----------------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: July 23, 2013
----------------------
* Print the name and title of each signing officer under his or her signature.