Edgar Filing: FIRST TRUST/FIDAC MORTGAGE INCOME FUND

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-Q

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY

Investment Company Act file number 811-21727

FIRST TRUST/FIDAC MORTGAGE INCOME FUND
(Exact name of registrant as specified in charter)

120 East Liberty Drive, Suite 400
WHEATON, IL 60187
(Address of principal executive offices) (Zip code)

W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
WHEATON, IL 60187
(Name and address of agent for service)

Registrant's telephone number, including area code: 630-765-8000

Date of fiscal year end: OCTOBER 31

Date of reporting period: JULY 31, 2009

Form N-Q is to be used by management investment companies, other than small
business investment companies registered on Form N-5 (ss.ss. 239.24 and 274.5 of
this chapter), to file reports with the Commission, not later than 60 days after
the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under
the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may use
the information provided on Form N-Q in its regulatory, disclosure review,
inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-Q, and
the Commission will make this information public. A registrant is not required
to respond to the collection of information contained in Form N-Q 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 the
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. SCHEDULE OF INVESTMENTS.
The Schedule(s) of Investments is attached herewith.

FIRST TRUST/FIDAC MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS (a)
JULY 31, 2009 (UNAUDITED)

PRINCIPAL STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
------------ ------------------------------------------------------- ------ -------- ------------

U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 57.1%
Federal National Mortgage Association (FNMA)
$ 6,529,100 Pool 256182 ........................................ 6.00% 03/01/36 $ 6,844,272
9,094,039 Pool 256328 (b) .................................... 6.50% 07/01/36 9,711,689
6,223,443 Pool 831145 (b) .................................... 6.00% 12/01/35 6,550,268
6,240,396 Pool 843971 (b) .................................... 6.00% 11/01/35 6,568,111
4,733,699 Pool 872303 (b) .................................... 6.00% 05/01/36 4,974,893
7,484,285 Pool 880203 ........................................ 6.00% 02/01/36 7,848,087
------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES
(Cost $40,302,393) ................................. 42,497,320
------------
U.S. GOVERNMENT AGENCY AND NON-AGENCY COLLATERALIZED
MORTGAGE OBLIGATIONS - 68.0%
1,289,305 Banc of America Funding Corp.
Series 2005-F, Class 4A1 (c) ....................... 5.31% 09/20/35 917,381
Banc of America Mortgage Securities
117,787 Series 2002-L, Class 1A1 (c) ....................... 5.26% 12/25/32 82,029
298,421 Series 2004-K, Class 4A1 (c) ....................... 5.18% 12/25/34 242,370
3,962,216 Series 2007-3, Class 2A3 ........................... 7.00% 09/25/37 2,336,261
1,423,934 Chase Mortgage Finance Corp.
Series 2007-A3, Class 3A1 (c) ...................... 5.97% 12/25/37 979,440
Countrywide Alternative Loan Trust
915,362 Series 2004-1T1, Class A1 .......................... 5.00% 02/25/34 801,054
2,245,688 Series 2005-J1, Class 2A1 .......................... 5.50% 02/25/25 1,899,361
Countrywide Home Loans
461,412 Series 2004-HYB1, Class 2A (c) ..................... 4.77% 05/20/34 335,508
241,284 Series 2005-20, Class A7 ........................... 5.25% 10/25/35 169,391
2,757,365 Series 2005-J4, Class A4 ........................... 5.50% 11/25/35 2,272,323
Federal Home Loan Mortgage Corp.
4,949,194 Series 2676, Class IK, IO .......................... 5.00% 02/15/20 197,140
215,799 Series 2716, Class CI, IO .......................... 5.00% 05/15/19 6,874
2,491,881 Series 2737, Class IG, IO .......................... 5.00% 08/15/27 92,771
10,846,918 Series 2807, Class SB, IO (d) ...................... 7.16% 11/15/33 1,283,643
2,830,354 Series 2852, Class VI, IO .......................... 5.00% 06/15/24 57,608
4,739,600 Series 2870, Class JI, IO .......................... 5.00% 10/15/27 252,847
792,000 Series 2888, Class OI, IO .......................... 5.00% 01/15/27 48,764
1,774,808 Series 2921, Class IQ, IO .......................... 5.00% 01/15/29 130,647
1,083,359 Series 2938, Class PI, IO .......................... 5.00% 11/15/28 66,282
539,735 Series 2943, Class JI, IO .......................... 5.00% 01/15/24 4,881
710,960 Series 2961, Class IP, IO .......................... 5.50% 07/15/28 28,403
3,613,726 Series 2964, Class IA, IO .......................... 5.50% 02/15/26 86,336
1,346,700 Series 3000, Class SU (d) .......................... 22.20% 04/15/35 1,426,657
1,145,261 Series 3069, Class LI, IO .......................... 5.50% 08/15/32 98,081
523,573 Series 3107, Class ST (d) .......................... 43.50% 02/15/31 554,378
336,639 Series 3171, Class CS (d) .......................... 37.57% 06/15/36 371,012
902,480 Series 3195, Class SX (d) .......................... 44.28% 07/15/36 1,202,730
Federal Home Loan Mortgage Corp., STRIP
22,355,890 Series 227, Class IO, IO ........................... 5.00% 12/01/34 3,969,033
8,336,108 Series 232, Class IO, IO ........................... 5.00% 08/01/35 1,428,108

See Notes to Quarterly Portfolio of Investments

Page 1

FIRST TRUST/FIDAC MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
JULY 31, 2009 (UNAUDITED)

PRINCIPAL STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
------------ ------------------------------------------------------- ------ -------- ------------

U.S. GOVERNMENT AGENCY AND NON-AGENCY COLLATERALIZED MORTGAGE
OBLIGATIONS - (CONTINUED)
Federal National Mortgage Association
$ 3,501,492 Series 2005-122, Class SN (d) ...................... 27.46% 01/25/36 $ 3,851,582
1,051,066 Series 2005-39, Class BI, IO ....................... 5.00% 06/25/28 56,182
681,802 Series 2005-91, Class SH (d) ....................... 22.79% 05/25/33 749,878
8,545,993 Federal National Mortgage Association, STRIP
Series 360, Class 2, IO ............................ 5.00% 08/01/35 1,473,912
3,009,000 First Horizon Mortgage Trust
Series 2005-8, Class 1A5 ........................... 5.75% 02/25/36 2,621,041
GSR Mortgage Loan Trust
372,031 Series 2005-AR2, Class 5A1 (c) ..................... 4.69% 04/25/35 286,580
5,268,423 Series 2007-1F, Class 3A10, IO ..................... 6.00% 01/25/37 634,979
384,475 Harborview Mortgage Loan Trust
Series 2004-1, Class 2A (c) ........................ 4.32% 04/19/34 321,107
2,187,579 Merrill Lynch Mortgage Investors Trust
Series 2005-A7, Class 2A1 (c) ...................... 5.38% 09/25/35 1,541,865
337,728 Morgan Stanley Mortgage Loan Trust
Series 2004-7AR, Class 2A6 (c) ..................... 3.51% 09/25/34 291,613
205,936 Residential Accredit Loans, Inc.
Series 2002-QS18, Class A1 ......................... 5.50% 12/25/17 193,253
4,412,195 Sequoia Mortgage Trust
Series 2007-1, Class 2A1 (c) ....................... 5.77% 02/20/47 3,212,452
1,957,868 Wachovia Mortgage Loan Trust, LLC
Series 2006-A, Class 3A1 (c) ....................... 5.24% 05/20/36 1,499,651
1,444,519 Washington Mutual Msc Mortgage Pass-Through
Series 2004-RA1, Class 2A .......................... 7.00% 03/25/34 1,400,212
Wells Fargo Mortgage Backed Securities Trust
996,759 Series 2005-AR16, Class 1A1 (c) .................... 3.86% 10/25/35 919,006
4,726,790 Series 2006-9, Class 1A32 .......................... 6.00% 08/25/36 2,998,358
1,001,826 Series 2006-AR10, Class 5A2 (c) .................... 5.59% 07/25/36 957,039
3,427,120 Series 2007-16, Class 1A1 .......................... 6.00% 12/28/37 3,046,764
3,409,713 Series 2007-8, Class 2A7 ........................... 6.00% 07/25/37 3,208,809
------------
TOTAL U.S. GOVERNMENT AGENCY AND NON-AGENCY
COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $51,548,242) ................................. 50,605,596
------------
PREFERRED SECURITIES - 0.1%
20,000 Fannie Mae, 8.25% (e) ................................. 37,200
40,000 Freddie Mac, Series Z, 8.38% (e) ...................... 52,400
------------
TOTAL PREFERRED SECURITIES
(Cost $1,500,000) .................................. 89,600
------------
TOTAL INVESTMENTS - 125.2%
(Cost $93,350,635) (f) ............................. 93,192,516
------------

See Notes to Quarterly Portfolio of Investments

Page 2

FIRST TRUST/FIDAC MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
JULY 31, 2009 (UNAUDITED)

PRINCIPAL
VALUE DESCRIPTION VALUE
------------ ------------------------------------------------------- ------------

REVERSE REPURCHASE AGREEMENTS - (33.4%)
$(24,815,000) With UBS Securities 0.30% dated 7/31/09, to be
repurchased at $24,815,620 on 8/03/09 .............. $(24,815,000)
NET OTHER ASSETS AND LIABILITIES - 8.1% ............... 6,028,477
------------
NET ASSETS - 100.0% ................................... $ 74,405,993
============

----------
(a) All percentages shown in the Portfolio of Investments are based on net
assets.

(b) This security or a portion of this security is segregated as collateral for
the reverse repurchase agreement.

(d) Inverse floating rate instrument. The interest rate shown reflects the rate
in effect at July 31, 2009.

(e) The U.S. Government took control over this company in September 2008, and
it has since suspended its dividend.

(f) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of July 31, 2009, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $6,173,830 and the aggregate gross
unrealized depreciation for all securities in which there was an excess of
tax cost over value was $6,331,949.

IO Interest Only - represents the interest only portion of a mortgage-backed
security, which allows the holder to receive interest only payments on the
amount of notional principal outstanding.

STRIP Separate Trading of Registered Interest and Principal of Securities -
Stripped Mortgage-Backed Securities are created by separating the interest
payments from the principal payments of underlying mortgage securities to
create new interest only (IO) and principal only (PO) zero coupon
securities.

SECURITY VALUATION INPUTS

A summary of inputs used to value the Fund's investments as of July 31, 2009 is
as follows (see Note 1A - Portfolio Valuation in the Notes to Quarterly
Portfolio of Investments):

ASSETS

LEVEL 2 LEVEL 3
TOTAL MARKET LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
VALUATION INPUTS 07/31/2009 PRICE INPUTS INPUTS
---------------- ------------ ------------ ----------- ------------

U.S. Government Agency Mortgage-Backed
Securities $ 42,497,320 $ -- $42,497,320 $--
U.S. Government Agency and Non-Agency
Collateralized Mortgage Obligations 50,605,596 -- 50,605,596 --
Preferred Securities 89,600 89,600 -- --
------------ ------------ ----------- ---
Total Investments $ 93,192,516 $ 89,600 $93,102,916 $--
============ ============ =========== ===

LIABILITIES

Reverse Repurchase Agreements $(24,815,000) $(24,815,000) $ -- $--
============ ============ =========== ===

See Notes to Quarterly Portfolio of Investments

Page 3

NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS

FIRST TRUST/FIDAC MORTGAGE INCOME FUND
JULY 31, 2009 (UNAUDITED)

1. VALUATION AND INVESTMENT PRACTICES

A. PORTFOLIO VALUATION:

The net asset value ("NAV") of the Common Shares of First Trust/FIDAC Mortgage
Income Fund (the "Fund") is determined daily, as of the close of regular trading
on the New York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time, on
each day the NYSE is open for trading. Domestic debt securities and foreign
securities are priced using data reflecting the earlier closing of the principal
markets for those securities. The NAV per Common Share is calculated by dividing
the value of all assets of the Fund (including accrued 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 at market value or, in the absence of
market value with respect to any portfolio securities, at fair value according
to valuation procedures adopted by the Fund's Board of Trustees. Securities for
which market quotations are readily available are valued at market value, which
is currently determined using the last reported sale price on the business day
as of which such value is being determined or, if no sales are reported on such
day (as in the case of some securities traded over-the-counter), the last
reported bid price, except that certain U.S. Government securities are valued at
the mean between the last reported bid and asked prices. The Fund values
mortgage-backed securities ("MBS") and other debt securities not traded in an
organized market on the basis of valuations provided by dealers who make markets
in such securities or by an independent pricing service approved by the Fund's
Board of Trustees, which uses information with respect to transactions in such
securities, quotations from dealers, market transactions for comparable
securities, various relationships between securities and yield to maturity in
determining value.

Debt securities having a remaining maturity of less than sixty days when
purchased are valued at cost adjusted for amortization of premiums and accretion
of discounts.

In the event that market quotations are not readily available, the pricing
service does not provide a valuation for a particular asset, or the valuations
are deemed unreliable, the Fund's Board of Trustees has designated First Trust
Advisors L.P. ("First Trust") to use a fair value method to value the Fund's
securities and other investments. Additionally, if events occur after the close
of the principal markets for particular securities (e.g., domestic debt and
foreign securities), but before the Fund values its assets, that could
materially affect NAV, First Trust may use a fair value method to value the
Fund's securities and other investments. The use of fair value pricing by the
Fund is governed by valuation procedures adopted by the Fund's Board of
Trustees, and in accordance with the provisions of the Investment Company Act of
1940, as amended.

In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 157, "Fair Value Measurements"
("FAS 157"), effective for fiscal years beginning after November 15, 2007. This
standard clarifies the definition of fair value for financial reporting,
establishes a framework for measuring fair value and requires additional
disclosures about the use of fair value measurements. FAS 157 became effective
for the Fund as of November 1, 2008, the beginning of its current fiscal year.
The three levels of the fair value hierarchy under FAS 157 are described as
follows:

- Level 1 - quoted prices in active markets for identical securities

- Level 2 - other significant observable inputs (including quoted prices
for similar securities, interest rates, prepayment speeds, credit
risk, etc.)

- Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)

In April 2009, FASB issued FASB Staff Position No. 157-4, "Determining Fair
Value when the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly" ("FSP
157-4"). FSP 157-4 is effective for fiscal years and interim periods ending
after June 15, 2009. FSP 157-4 provides additional guidance for estimating fair
value in accordance with FAS 157, when the volume and level of activity for the
asset or liability have significantly decreased. FSP 157-4 also includes
guidance on identifying circumstances that indicate a transaction is not
orderly. FSP 157-4 requires entities to describe the inputs used in valuation
techniques used to measure fair value and changes in inputs over the period. FSP
157-4 expands the three-level hierarchy disclosure and the Level 3 roll-forward
disclosure for each major security type.

The inputs or methodology used for valuing securities are not necessarily an
indication of the risk associated with investing in those securities. A summary
of the inputs used to value the Fund's investments as of July 31, 2009 is
included with the Fund's Portfolio of Investments.

Page 4

NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS - (CONTINUED)

FIRST TRUST/FIDAC MORTGAGE INCOME FUND
JULY 31, 2009 (UNAUDITED)

B. SECURITIES TRANSACTIONS:

Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.

C. REVERSE REPURCHASE AGREEMENTS:

The Fund utilizes leverage through the use of reverse repurchase agreements. A
reverse repurchase agreement, although structured as a sale and repurchase
obligation, acts as a financing under which the Fund pledges its assets as
collateral to secure a short-term loan. Generally, the other party to the
agreement makes the loan in an amount equal to a percentage of the market value
of the pledged collateral. At the maturity of the reverse repurchase agreement,
the Fund will be required to repay the loan and will correspondingly receive
back its collateral. While used as collateral, the assets continue to pay
principal and interest which are for the benefit of the Fund.

Information for the nine months ended July 31, 2009:

Maximum amount outstanding during the period ............. $24,815,000
Average amount outstanding during the period* ............ $20,193,842
Average monthly shares outstanding during the period ..... 4,047,947
Average debt per share outstanding during the period ..... $ 4.99

* The average amount outstanding during the period was calculated by adding
the borrowings at the end of each day and dividing the sum by the number of
days in the nine-month period ended July 31, 2009.

During the nine-month period ended July 31, 2009, interest rates ranged from
0.10% to 0.70%, with a weighted average interest rate of 0.31%, on borrowings by
the Fund under reverse repurchase agreements, which had interest expense that
aggregated $47,582.

D. INVERSE FLOATING RATE INSTRUMENTS:

An inverse floating rate security is one where the coupon is inversely indexed
to a short-term floating interest rate multiplied by a specific factor. As the
floating rate rises, the coupon is reduced. Conversely, as the floating rate
declines, the coupon is increased. The price of these securities may be more
volatile than the price of a comparable fixed-rate security. These instruments
are typically used to enhance the yield of the portfolio. These investments are
identified on the Portfolio of Investments.

E. STRIPPED MORTGAGE-BACKED SECURITIES:

Stripped Mortgage-Backed Securities are created by segregating the cash flows
from underlying mortgage loans or mortgage securities to create two or more new
securities, each with a specified percentage of the underlying security's
principal or interest payments. Mortgage securities may be partially stripped so
that each investor class receives some interest and some principal. When
securities are completely stripped, however, all of the interest is distributed
to holders of one type of security, known as an interest only or IO security,
and all of the principal is distributed to holders of another type of security
known as a principal only or PO security. These investments are identified on
the Portfolio of Investments.

F. INTEREST ONLY SECURITIES:

An interest only security is the interest only portion of an MBS that receives
some or all of the interest portion of the underlying MBS and little or no
principal. A reference principal value called a notional value is used to
calculate the amount of interest due to the IO security. IOs are sold at a deep
discount to their notional principal amount. Generally speaking, when interest
rates are falling and prepayment rates are increasing, the value of an IO
security will fall. Conversely, when interest rates are rising and prepayment
rates are decreasing, generally the value of an IO security will rise. These
investments are identified on the Portfolio of Investments.

Page 5

ITEM 2. 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
last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the registrant's internal
control over financial reporting.

ITEM 3. EXHIBITS.

Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 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/FIDAC MORTGAGE INCOME FUND

By (Signature and Title)* /S/ JAMES A. BOWEN
-------------------------------------------------------
James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)

Date 9/23/09
----------------------------------------------------------------------------

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.

Date 9/23/09
----------------------------------------------------------------------------

By (Signature and Title)* /S/ MARK R. BRADLEY
-------------------------------------------------------
Mark R. Bradley, Treasurer, Controller,
Chief Financial Officer and Chief Accounting Officer
(principal financial officer)

Date 9/23/09
----------------------------------------------------------------------------

* Print the name and title of each signing officer under his or her signature.