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: January 31, 2010

Form N-Q is to be used by management investment companies, other than small
business investment companies registered on Form N-5 (Sections 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. Section 3507.

ITEM 1. SCHEDULE OF INVESTMENTS.

The Schedule of Investments is attached herewith.

FIRST TRUST/FIDAC MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS (a)
JANUARY 31, 2010 (UNAUDITED)

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

U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 47.4%
Federal National Mortgage Association (FNMA)
$ 5,917,863 Pool 256182 ................................................... 6.00% 03/01/36 $ 6,334,728
7,859,702 Pool 256328 (b) ............................................... 6.50% 07/01/36 8,450,195
5,664,705 Pool 831145 (b) ............................................... 6.00% 12/01/35 6,093,830
5,875,010 Pool 843971 (b) ............................................... 6.00% 11/01/35 6,320,067
3,785,354 Pool 872303 (b) ............................................... 6.00% 05/01/36 4,063,239
6,863,438 Pool 880203 ................................................... 6.00% 02/01/36 7,335,114
------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES .............................. 38,597,173
------------
(Cost $35,967,919)

U.S. GOVERNMENT AGENCY AND NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS - 76.6%
Banc of America Funding Corp.
1,201,637 Series 2005-F, Class 4A1 (c) .................................. 5.27% 09/20/35 870,963
Banc of America Mortgage Securities
116,419 Series 2002-L, Class 1A1 (c) .................................. 3.42% 12/25/32 82,884
253,339 Series 2004-K, Class 4A1 (c) .................................. 5.20% 12/25/34 245,053
3,753,045 Series 2007-3, Class 2A3 ...................................... 7.00% 09/25/37 2,254,710
Chase Mortgage Finance Corp.
1,242,736 Series 2007-A3, Class 3A1 (c) ................................. 5.95% 12/25/37 1,061,210
Countrywide Alternative Loan Trust
841,057 Series 2004-14T2, Class A6 .................................... 5.50% 08/25/34 823,701
615,826 Series 2004-1T1, Class A1 ..................................... 5.00% 02/25/34 609,617
2,133,074 Series 2005-J1, Class 2A1 ..................................... 5.50% 02/25/25 1,854,959
Countrywide Home Loans
432,174 Series 2004-HYB1, Class 2A (c) ................................ 3.33% 05/20/34 357,537
237,319 Series 2005-20, Class A7 ...................................... 5.25% 12/25/27 218,601
2,449,090 Series 2005-J4, Class A4 ...................................... 5.50% 11/25/35 2,029,810
Federal Home Loan Mortgage Corp.
3,815,938 Series 2676, Class IK, IO ..................................... 5.00% 02/15/20 139,113
145,501 Series 2716, Class CI, IO ..................................... 5.00% 05/15/19 3,074
1,796,904 Series 2737, Class IG, IO ..................................... 5.00% 08/15/27 50,265
10,089,032 Series 2807, Class SB, IO (d) ................................. 7.22% 11/15/33 1,449,643
1,087,506 Series 2852, Class VI, IO ..................................... 5.00% 06/15/24 6,135
4,048,000 Series 2870, Class JI, IO ..................................... 5.00% 10/15/27 143,325
792,000 Series 2888, Class OI, IO ..................................... 5.00% 01/15/27 29,591
1,774,808 Series 2921, Class IQ, IO ..................................... 5.00% 01/15/29 99,866
896,554 Series 2938, Class PI, IO ..................................... 5.00% 11/15/28 49,219
565,019 Series 2961, Class IP, IO ..................................... 5.50% 07/15/28 22,650
2,148,459 Series 2964, Class IA, IO ..................................... 5.50% 02/15/26 37,145
948,387 Series 3000, Class SU (d) ..................................... 22.43% 04/15/35 1,077,317
1,008,796 Series 3069, Class LI, IO ..................................... 5.50% 08/15/32 102,099
309,709 Series 3107, Class ST (d) ..................................... 43.93% 02/15/31 337,397
270,507 Series 3171, Class CS (d) ..................................... 37.90% 06/15/36 304,042
769,269 Series 3195, Class SX (d) ..................................... 44.63% 07/15/36 1,086,413
Federal Home Loan Mortgage Corp., STRIP
20,577,233 Series 227, Class IO, IO ...................................... 5.00% 12/01/34 4,717,429
7,640,047 Series 232, Class IO, IO ...................................... 5.00% 08/01/35 1,685,343

See Notes to Quarterly Portfolio of Investments

Page 1

FIRST TRUST/FIDAC MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
JANUARY 31, 2010 (UNAUDITED)

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

U.S. GOVERNMENT AGENCY AND NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS -
(CONTINUED)
Federal National Mortgage Association
$ 3,418,375 Series 2005-122, Class SN (d) ................................. 27.68% 01/25/36 $ 4,264,493
835,885 Series 2005-39, Class BI, IO .................................. 5.00% 06/25/28 37,820
551,902 Series 2005-91, Class SH (d) .................................. 22.99% 05/25/33 651,086
Federal National Mortgage Association, STRIP
7,834,755 Series 360, Class 2, IO ....................................... 5.00% 08/01/35 1,740,045
First Horizon Mortgage Trust
3,009,000 Series 2005-8, Class 1A5 ...................................... 5.75% 02/25/36 2,781,828
GMAC Mortgage Corporation Loan Trust
440,553 Series 2004-AR1, Class 22A (c) ................................ 4.06% 06/25/34 354,670
Government National Mortgage Association
3,974,227 Series 2009-65, Class NJ, IO .................................. 5.50% 07/20/39 595,762
GSR Mortgage Loan Trust
1,298,172 Series 2004-5, Class 3A2 (c) .................................. 4.66% 05/25/34 1,286,126
365,985 Series 2005-AR2, Class 5A1 (c) ................................ 3.55% 04/25/35 326,937
4,657,701 Series 2007-1F, Class 3A10, IO ................................ 6.00% 01/25/37 369,764
Harborview Mortgage Loan Trust
359,387 Series 2004-1, Class 2A (c) ................................... 3.17% 04/19/34 321,586
1,498,390 Series 2004-6, Class 3A1 (c) .................................. 4.01% 08/19/34 1,114,827
JP Morgan Mortgage Trust
3,320,866 Series 2005-ALT1, Class 4A1 (c) ............................... 5.61% 10/25/35 2,646,005
JP Morgan Re-REMIC
4,371,857 Series 2009-7, Class 12A1 (c) (e) ............................. 6.25% 01/27/37 4,339,068
Merrill Lynch Mortgage Investors Trust
2,058,939 Series 2005-A7, Class 2A1 (c) ................................. 5.37% 09/25/35 1,799,085
Morgan Stanley Mortgage Loan Trust
314,212 Series 2004-7AR, Class 2A6 (c) ................................ 2.83% 09/25/34 295,492
Provident Funding Mortgage Loan Trust
662,606 Series 2005-1, Class 1A1 (c) .................................. 3.65% 05/25/35 499,025
Residential Accredit Loans, Inc.
181,334 Series 2002-QS18, Class A1 .................................... 5.50% 12/25/17 179,445
1,429,656 Series 2004-QS2, Class CB ..................................... 5.75% 02/25/34 1,274,162
Residential Funding Mortgage Securities I
630,000 Series 2005-S5, Class A5 ...................................... 5.25% 07/25/35 635,428
Sequoia Mortgage Trust
3,898,428 Series 2007-1, Class 2A1 (c) .................................. 5.64% 02/20/47 3,161,478
Wachovia Mortgage Loan Trust, LLC
1,745,019 Series 2006-A, Class 3A1 (c) .................................. 5.22% 05/20/36 1,594,284
Washington Mutual Msc Mortgage Pass-Through
1,179,023 Series 2004-RA1, Class 2A ..................................... 7.00% 03/25/34 1,203,128
Wells Fargo Mortgage Backed Securities Trust
890,749 Series 2005-AR16, Class 1A1 (c) ............................... 3.42% 10/25/35 862,383
3,491,393 Series 2006-9, Class 1A32 ..................................... 6.00% 08/25/36 2,293,869
708,609 Series 2006-AR10, Class 5A2 (c) ............................... 5.53% 07/25/36 636,455
2,968,028 Series 2007-16, Class 1A1 ..................................... 6.00% 12/28/37 2,851,041
2,715,495 Series 2007-8, Class 2A7 ...................................... 6.00% 07/25/37 2,592,571
------------
TOTAL U.S. GOVERNMENT AGENCY AND NON-AGENCY COLLATERALIZED

MORTGAGE OBLIGATIONS .............................................................. 62,456,974
(Cost $55,910,152) ------------

See Notes to Quarterly Portfolio of Investments

Page 2

FIRST TRUST/FIDAC MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
JANUARY 31, 2010 (UNAUDITED)

SHARES DESCRIPTION VALUE
------------ -------------------------------------------------------------------------------------- ------------

PREFERRED SECURITIES - 0.1%
20,000 Fannie Mae, 8.25% .................................................................... $ 22,000
40,000 Freddie Mac, Series Z, 8.38% ......................................................... 42,800
------------
TOTAL PREFERRED SECURITIES ........................................................... 64,800
(Cost $1,500,000) ------------

TOTAL INVESTMENTS - 124.1% ........................................................... 101,118,947
(Cost $93,378,071) (f) ------------

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

REVERSE REPURCHASE AGREEMENT - (24.3%)
$(19,806,000) With UBS Securities 0.19% dated 01/29/10, to be repurchased at
$19,806,314 on 02/01/10 ........................................................... (19,806,000)
NET OTHER ASSETS AND LIABILITIES - 0.2% .............................................. 166,572
------------
NET ASSETS - 100.0% .................................................................. $ 81,479,519
============

----------
(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 January 31, 2010.

(e) This security is restricted and cannot be offered for public sale without
first being registered under the Securities Act of 1933, as amended. Prior
to registration, restricted securities may only be resold in transactions
exempt from registration. This security was aquired on September 9, 2009.
It has a current current cost of $4,168,327 and has a carrying value per
share of $0.99 and represents 5.33% of net assets.

(f) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of January 31, 2010, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $11,349,507 and the aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over value was $3,608,631.

IO Interest Only Security

STRIP Separate Trading of Registered Interest and Principal of Securities

See Notes to Quarterly Portfolio of Investments

Page 3

FIRST TRUST/FIDAC MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
JANUARY 31, 2010 (UNAUDITED)

VALUATION INPUTS

A summary of the inputs used to value the Fund's investments as of January 31,
2010 is as follows (see Note A - Portfolio Valuation in the Notes to Quarterly
Portfolio of Investments):

LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
01/31/2010 PRICES INPUTS INPUTS
------------ ------- ------------ ------------

U.S. Government Agency Mortgage-Backed Securities .. $ 38,597,173 $ -- $ 38,597,173 $--
U.S. Government Agency and Non-Agency
Collateralized Mortgage Obligations ............. 62,456,974 -- 62,456,974 --
Preferred Securities ............................... 64,800 64,800 -- --
------------ ------- ------------ ---
Total Investments .................................. $101,118,947 $64,800 $101,054,147 $--
============ ======= ============ ===

See Notes to Quarterly Portfolio of Investments

Page 4

NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS

FIRST TRUST/FIDAC MORTGAGE INCOME FUND
JANUARY 31, 2010 (UNAUDITED)

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.

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:

- Level 1 - Level 1 inputs are quoted prices in active markets for
identical securities. An active market is a market in which
transactions for the security occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.

- Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:

- Quoted prices for similar securities in active markets.

- Quoted prices for identical or similar securities in markets
that are non-active. A non-active market is a market where
there are few transactions for the security, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.

- Inputs other than quoted prices that are observable for the
security (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and
default rates).

- Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.

- Level 3 - Level 3 inputs are unobservable inputs. Unobservable inputs
reflect the reporting entity's own assumptions about the assumptions
that market participants would use in pricing the security.

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 January 31, 2010 is
included with the Fund's Portfolio of Investments.

Page 5

NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS - (CONTINUED)

FIRST TRUST/FIDAC MORTGAGE INCOME FUND
JANUARY 31, 2010 (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.

Securities purchased or sold on a when-issued or delayed-delivery basis may be
settled a month or more after the trade date; interest income on such securities
is not accrued until settlement date. The Fund maintains liquid assets with a
current value at least equal to the amount of its when-issued or
delayed-delivery purchase commitments. At January 31, 2010, the Fund had no
when-issued or delayed-delivery purchase commitments.

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 three months ended January 31, 2010:

Maximum amount outstanding during the period ........... $25,118,000
Average amount outstanding during the period* .......... $21,431,109
Average monthly shares outstanding during the period ... 4,048,993
Average debt per share outstanding during the period ... $ 5.29

* 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 three-month period ended January 31, 2010.

During the three-month period ended January 31, 2010, interest rates ranged from
0.08% to 0.25%, with a weighted average interest rate of 0.18%, on borrowings by
the Fund under reverse repurchase agreements, which had interest expense that
aggregated $10,118.

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 security ("IO
Security"), and all of the principal is distributed to holders of another type
of security known as a principal only security. These investments, if held in
the Fund, are identified on the Portfolio of Investments.

F. INTEREST ONLY SECURITIES:

An IO 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. IO Securities 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 6

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 March 22, 2010

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 March 22, 2010

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

Date March 22, 2010

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