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 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, 2013
------------------
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 of Investments is attached
herewith.
FIRST TRUST MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS
JANUARY 31, 2013 (UNAUDITED)
PRINCIPAL STATED
VALUE DESCRIPTION COUPON STATED MATURITY VALUE
---------------- ------------------------------------------- ----------- --------------- ------------
MORTGAGE-BACKED SECURITIES - 71.8%
COLLATERALIZED MORTGAGE OBLIGATIONS - 57.2%
Adjustable Rate Mortgage Trust
$ 230,235 Series 2004-5, Class 1A1 (a)........... 3.16% 04/25/35 $ 227,247
Banc of America Mortgage Securities
105,244 Series 2002-L, Class 1A1 (a)........... 2.90% 12/25/32 96,023
Bear Stearns Adjustable Rate Mortgage Trust
921,311 Series 2004-9, Class 12A3 (a).......... 3.19% 11/25/34 917,856
Countrywide Alternative Loan Trust
4,457 Series 2004-14T2, Class A6 ............ 5.50% 08/25/34 4,449
845,115 Series 2006-41CB, Class 2A17 .......... 6.00% 01/25/37 721,066
101,575 Series 2007-11T1, Class A37 (b)........ 38.80% 05/25/37 197,505
Countrywide Home Loan Mortgage Pass
Through Trust
964,690 Series 2006-21, Class A8 .............. 5.75% 02/25/37 874,381
117,203 Series 2007-15, Class 2A2 ............. 6.50% 09/25/37 99,785
Countrywide Home Loans
280,448 Series 2004-HYB1, Class 2A (a)......... 2.90% 05/20/34 276,878
Credit Suisse First Boston Mortgage
Securities Corp.
1,947,248 Series 2004-AR2, Class 1A1 (a)......... 2.93% 03/25/34 1,835,323
DSLA Mortgage Loan Trust
1,308,389 Series 2007-AR1, Class 2A1A (a)........ 0.34% 04/19/47 1,049,848
GMAC Mortgage Corporation Loan Trust
334,932 Series 2004-AR1, Class 22A (a)......... 3.63% 06/25/34 317,113
GSAMP Trust
886,036 Series 2007-HE1, Class A2B (a) ........ 0.30% 03/25/47 693,726
142,865 Series 2007-NC1, Class A2A (a) ........ 0.25% 12/25/46 74,490
276,453 Series 2007-NC1, Class A2B (a) ........ 0.30% 12/25/46 145,444
3,079,782 Series 2007-NC1, Class A2C (a) ........ 0.35% 12/25/46 1,634,781
Harborview Mortgage Loan Trust
273,042 Series 2004-1, Class 2A (a)............ 2.85% 04/19/34 271,460
1,089,035 Series 2004-6, Class 3A1 (a)........... 2.97% 08/19/34 1,065,779
JP Morgan Mortgage Trust
2,445,006 Series 2005-ALT1, Class 4A1 (a)........ 5.19% 10/25/35 2,257,364
850,366 Series 2006-A2, Class 4A1 (a).......... 3.01% 08/25/34 866,758
JP Morgan Re-REMIC
2,057,273 Series 2009-7, Class 12A1 (c) (d)...... 6.25% 01/27/37 2,124,461
Lavendar Trust
1,188,857 Series 2010-RR2A, Class A4 (e) ........ 6.25% 10/26/36 719,332
MASTR Asset Securitization Trust
271,127 Series 2006-HE5, Class A2 (a) ......... 0.30% 11/25/36 147,814
1,394,371 Series 2006-HE5, Class A3 (a) ......... 0.36% 11/25/36 767,930
287,440 Series 2006-HE5, Class A4 (a) ......... 0.42% 11/25/36 159,899
1,934,308 Series 2006-NC2, Class A3 (a) ......... 0.31% 08/25/36 947,135
882,919 Series 2006-NC2, Class A5 (a) ......... 0.44% 08/25/36 443,523
966,063 Series 2006-2, Class 1A10 ............. 6.00% 06/25/36 941,710
Mellon Residential Funding Corp.
438,110 Series 2001-TBC1, Class A1 (a)......... 0.91% 11/15/31 432,876
See Notes to Quarterly Portfolio of Investments Page 1
FIRST TRUST MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
JANUARY 31, 2013 (UNAUDITED)
PRINCIPAL STATED
VALUE DESCRIPTION COUPON STATED MATURITY VALUE
---------------- ------------------------------------------- ----------- --------------- ------------
MORTGAGE-BACKED SECURITIES - (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS - (CONTINUED)
Morgan Stanley Capital, Inc.
$ 415,617 Series 2005-HE6, Class A2C (a)......... 0.52% 11/25/35 $ 412,311
Morgan Stanley Mortgage Loan Trust
670,737 Series 2004-7AR, Class 2A6 (a)......... 2.69% 09/25/34 680,470
Nationstar Home Equity Loan Trust
1,731,000 Series 2006-B, Class AV4 (a) .......... 0.48% 09/25/36 1,370,750
Natixis Real Estate Capital Trust
1,312,439 Series 2007-HE2, Class A1 (a) ......... 0.33% 07/25/37 471,452
1,383,507 Series 2007-HE2, Class A2 (a) ......... 0.45% 07/25/37 509,088
138,259 Series 2007-HE2, Class A3 (a) ......... 0.50% 07/25/37 51,379
283,843 Series 2007-HE2, Class A4 (a) ......... 0.60% 07/25/37 107,549
Park Place Securities, Inc.
557,822 Series 2004-MHQ1, Class M1 (a)......... 0.90% 12/25/34 557,851
Provident Funding Mortgage Loan Trust
365,957 Series 2005-1, Class 1A1 (a)........... 2.97% 05/25/35 364,516
Residential Accredit Loans, Inc.
1,011,440 Series 2004-QS2, Class CB ............. 5.75% 02/25/34 1,023,599
Residential Funding Mortgage Securities I
335,135 Series 2005-S5, Class A5 .............. 5.25% 07/25/35 339,094
Securitized Asset Backed Receivables LLC
1,336,524 Series 2007-BR2, Class A2 (a) ......... 0.43% 02/25/37 584,193
Thornburg Mortgage Securities Trust
1,244,035 Series 2004-3, Class A (a)............. 0.94% 09/25/44 1,228,731
Wachovia Mortgage Loan Trust, LLC
852,267 Series 2006-A, Class 3A1 (a)........... 2.74% 05/20/36 842,120
WaMu Mortgage Pass Through Certificates
1,182,154 Series 2004-AR10, Class A1B (a) ....... 0.67% 07/25/44 1,123,012
1,492,039 Series 2005-AR11, Class A1A (a) ....... 0.52% 08/25/45 1,406,187
1,660,126 Series 2005-AR19, Class A1A2 (a)....... 0.49% 12/25/45 1,524,727
764,905 Series 2005-AR9, Class A1A (a)......... 0.52% 07/25/45 738,544
1,396,240 Series 2006-AR5, Class A1A (a) ........ 1.16% 06/25/46 1,147,640
Washington Mutual Alternative Mortgage
Pass-Through Certificates
61,314 Series 2007-5, Class A11 (b)........... 38.26% 06/25/37 112,429
Washington Mutual MSC Mortgage Pass-Through
581,034 Series 2004-RA1, Class 2A ............. 7.00% 03/25/34 615,983
Wells Fargo Mortgage Backed Securities
Trust
980,785 Series 2004-A, Class A1 (a)............ 4.89% 02/25/34 1,011,156
994,974 Series 2004-Y, Class 1A2 (a)........... 2.68% 11/25/34 1,008,468
510,429 Series 2005-AR16, Class 1A1 (a)........ 2.75% 08/25/33 526,300
495,000 Series 2006-AR1, Class 2A5 (a)......... 5.35% 03/25/36 489,988
1,350,759 Series 2006-AR10, Class 5A2 (a)........ 2.60% 07/25/36 1,249,554
1,486,424 Series 2007-10, Class 1A18 ............ 6.00% 07/25/37 1,502,858
994,023 Series 2007-16, Class 1A1 ............. 6.00% 12/28/37 1,068,816
870,110 Series 2007-2, Class 1A13 ............. 6.00% 03/25/37 838,131
Page 2 See Notes to Quarterly Portfolio of Investments
FIRST TRUST MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
JANUARY 31, 2013 (UNAUDITED)
PRINCIPAL STATED
VALUE DESCRIPTION COUPON STATED MATURITY VALUE
---------------- ------------------------------------------- ----------- --------------- ------------
MORTGAGE-BACKED SECURITIES - (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS - (CONTINUED)
Wells Fargo Mortgage Backed Securities
Trust (Continued)
$ 220,179 Series 2007-8, Class 2A2 .............. 6.00% 07/25/37 $ 216,956
------------
43,435,808
------------
COMMERCIAL MORTGAGE-BACKED SECURITIES - 14.6%
Banc of America Commercial Mortgage Trust
1,000,000 Series 2006-6, Class AJ ............... 5.42% 10/10/45 826,487
Credit Suisse Mortgage Capital Certificates
820,000 Series 2007-C2, Class A3 .............. 5.54% 01/15/49 942,611
GS Mortgage Securities Corp II
1,000,000 Series 2007-GG10, Class A4 (a) ........ 5.79% 08/10/45 1,150,317
JP Morgan Chase Commercial Mortgage
Securities Corp
1,500,000 Series 2007-LD12, Class A4 ............ 5.88% 02/15/51 1,760,162
800,000 Series 2009-IWST, Class C (a) (e) ..... 7.45% 12/05/27 991,556
LB-UBS Commercial Mortgage Trust
420,000 Series 2007-C1, Class AM .............. 5.46% 02/15/40 475,182
Morgan Stanley Capital I Trust
980,000 Series 2007-IQ16, Class AM (a) ........ 6.10% 12/12/49 1,143,232
820,000 Series 2008-T29, Class AM (a) ......... 6.27% 01/11/43 992,662
VNO Mortgage Trust
900,000 Series 2012-6AVE, Class A (e) ......... 3.00% 11/15/30 919,264
WaMu Mortgage Pass Through Certificates
348,542 Series 2004-AR10, Class A3 (a) ........ 0.80% 07/25/44 327,106
288,433 Series 2004-AR8, Class A2 (a) ......... 0.65% 06/25/44 268,026
1,395,906 Series 2005-AR2, Class 2A23 (a) ....... 0.58% 01/25/45 1,345,670
------------
11,142,275
------------
TOTAL MORTGAGE-BACKED SECURITIES ................................... 54,578,083
(Cost $50,598,891) ------------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 42.7%
COLLATERALIZED MORTGAGE OBLIGATIONS - 16.3%
Federal Home Loan Mortgage Corp.
165,928 Series 2641, Class SC (b).............. 13.49% 07/15/33 168,263
3,698,048 Series 2807, Class SB, IO (b).......... 7.24% 11/15/33 652,930
176,667 Series 3069, Class LI, IO ............. 5.50% 08/15/32 2,267
98,151 Series 3195, Class SX (b).............. 44.81% 07/15/36 145,557
1,110,318 Series 3562, Class KI, IO ............. 4.50% 11/15/22 50,762
877,147 Series 3593, Class IP, IO ............. 5.00% 06/15/36 31,167
5,069,572 Series 3619, Class EI, IO ............. 4.50% 05/15/24 323,852
3,512,691 Series 3692, Class PS, IO (b).......... 6.39% 05/15/38 407,733
632,298 Series 3702, Class SK (b).............. 14.08% 08/15/40 644,857
7,172,975 Series 3726, Class KI, IO ............. 3.50% 04/15/25 530,333
4,240,978 Series 3870, Class WS, IO (b).......... 6.39% 06/15/31 758,758
See Notes to Quarterly Portfolio of Investments Page 3
FIRST TRUST MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
JANUARY 31, 2013 (UNAUDITED)
PRINCIPAL STATED
VALUE DESCRIPTION COUPON STATED MATURITY VALUE
---------------- ------------------------------------------- ----------- --------------- ------------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS - (CONTINUED)
Federal Home Loan Mortgage Corp., STRIP
$ 2,556,445 Series 232, Class IO, IO .............. 5.00% 08/01/35 $ 335,264
Federal National Mortgage Association
1,845,546 Series 2005-122, Class SN (b).......... 27.79% 01/25/36 2,631,519
135,120 Series 2005-91, Class SH (b)........... 23.09% 05/25/33 138,165
1,065,922 Series 2008-50, Class AI, IO .......... 5.50% 06/25/23 53,189
5,200,026 Series 2010-103, Class ID, IO ......... 5.00% 09/25/40 803,108
8,394,657 Series 2010-139, Class KI, IO ......... 1.09% 12/25/40 480,880
2,412,826 Series 2010-142, Class PS, IO (b)...... 5.85% 05/25/40 282,396
1,884,898 Series 2010-145, Class TI, IO ......... 3.50% 12/25/20 149,912
5,948,772 Series 2010-40, Class MI, IO .......... 4.50% 08/25/24 427,812
Federal National Mortgage Association,
STRIP
2,861,667 Series 360, Class 2, IO ............... 5.00% 08/01/35 360,230
4,580,207 Series 406, Class 6, IO ............... 4.00% 01/25/41 518,136
Government National Mortgage Association
2,082,796 Series 2009-65, Class NJ, IO .......... 5.50% 07/20/39 214,792
4,642,308 Series 2010-115, Class IQ, IO ......... 4.50% 11/20/38 699,849
3,193,442 Series 2011-69, Class CI, IO .......... 5.00% 03/20/36 232,540
11,649,793 Series 2011-131, Class EI, IO ......... 4.50% 08/20/39 1,302,998
------------
12,347,269
------------
COMMERCIAL MORTGAGE-BACKED SECURITIES - 3.2%
Government National Mortgage Association
9,040,201 Series 2012-100, Class IO, IO (a) (d) . 0.89% 08/16/52 693,758
12,181,422 Series 2012-70, Class IO, IO (a) (d) .. 0.96% 08/16/52 861,927
7,534,036 Series 2012-78, Class IO, IO (a) (d) .. 1.05% 06/16/52 589,192
2,681,905 Series 2012-95, Class IO, IO (a) (d) .. 1.05% 02/16/53 252,724
------------
2,397,601
------------
PASS-THROUGH SECURITIES - 23.2%
Fannie Mae REMICs
1,567,799 Series 2005-83, Class LZ (d)........... 5.50% 10/25/35 1,694,343
Federal Home Loan Mortgage Corp.
5,000,000 Gold Pool ............................. 3.50% 11/01/42 5,254,688
2,187,463 Pool A94738 (d)........................ 4.50% 11/01/40 2,336,339
1,288,695 Pool K36017 (d)........................ 5.00% 09/01/47 1,377,488
Federal National Mortgage Association
3,043,719 Pool 831145 (d)........................ 6.00% 12/01/35 3,397,470
3,210,969 Pool 843971 (d)........................ 6.00% 11/01/35 3,600,212
------------
17,660,540
------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES ............ 32,405,410
(Cost $33,736,532) ------------
ASSET-BACKED SECURITIES - 0.5%
Green Tree Financial Corp.
98,912 Series 1997-2, Class A6 ............... 7.24% 06/15/28 105,857
Page 4 See Notes to Quarterly Portfolio of Investments
FIRST TRUST MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
JANUARY 31, 2013 (UNAUDITED)
PRINCIPAL STATED
VALUE DESCRIPTION COUPON STATED MATURITY VALUE
---------------- ------------------------------------------- ----------- --------------- ------------
ASSET-BACKED SECURITIES - (CONTINUED)
Green Tree Financial Corp. (Continued)
$ 111,907 Series 1997-3, Class A6 ............... 7.32% 03/15/28 $ 123,107
138,030 Series 1997-7, Class A6 ............... 6.76% 07/15/28 147,869
------------
TOTAL ASSET-BACKED SECURITIES ...................................... 376,833
(Cost $368,001) ------------
TOTAL INVESTMENTS - 115.0% ......................................... 87,360,326
(Cost $84,703,424) (f) ------------
PRINCIPAL
VALUE DESCRIPTION AMOUNT
---------------- ------------------------------------------------------------------------- ------------
REVERSE REPURCHASE AGREEMENTS - (20.2%)
(1,670,000) With JP Morgan 0.83% dated 11/01/12, to be repurchased at
$1,673,542 on 02/01/13 ........................................ (1,670,000)
(1,661,798) With JP Morgan 1.71% dated 01/07/13, to be repurchased at
$1,664,242 on 02/07/13 ........................................ (1,661,798)
(713,270) With JP Morgan 1.06% dated 01/07/13, to be repurchased at
$713,919 on 02/07/13 .......................................... (713,270)
(6,559,000) With JP Morgan 0.45% dated 01/11/13, to be repurchased at
$6,561,541 on 02/11/13 ........................................ (6,559,000)
(739,000) With JP Morgan 1.06% dated 01/11/13, to be repurchased at
$739,672 on 02/11/13 .......................................... (739,000)
(3,526,000) With JP Morgan 0.44% dated 01/17/13, to be repurchased at
$3,527,250 on 02/15/13 ........................................ (3,526,000)
(489,000) With JP Morgan 1.05% dated 01/25/13, to be repurchased at
$489,444 on 02/25/13 .......................................... (489,000)
------------
TOTAL REVERSE REPURCHASE AGREEMENTS ................................ (15,358,068)
------------
NET OTHER ASSETS AND LIABILITIES - 5.2% ............................ 3,971,379
------------
NET ASSETS - 100.0% ................................................ $ 75,973,637
============
------------------------
(a) Floating or variable rate security. The interest rate shown reflects the
rate in effect at January 31, 2013.
(b) Inverse floating rate instrument. The interest rate shown reflects the
rate in effect at January 31, 2013.
(c) This security, sold within the terms of a private placement memorandum is
exempt from registration upon resale under Rule 144A of the Securities Act
of 1933, as amended (the "1933 Act"), and may be resold in transactions
exempt from registration, normally to qualified institutional buyers. The
Fund does not have the right to demand that this security be registered.
This security is valued according to the valuation procedures as stated in
the Portfolio Valuation footnote (Note A in the Notes to Quarterly
Portfolio of Investments) and is not expressed as a discount to the
carrying value of a comparable unrestricted security. This security was
acquired on September 9, 2009, has a current carrying cost of $2,048,795,
a carrying value per share of $1.03 and represents 2.80% of net assets.
(d) This security or a portion of this security is segregated as collateral
for reverse repurchase agreements.
See Notes to Quarterly Portfolio of Investments Page 5
FIRST TRUST MORTGAGE INCOME FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
JANUARY 31, 2013 (UNAUDITED)
(e) This security, sold within the terms of a private placement memorandum is
exempt from registration upon resale under Rule 144A of the Securities Act
of 1933, as amended (the "1933 Act"), and may be resold in transactions
exempt from registration, normally to qualified institutional buyers.
Pursuant to procedures adopted by the Fund's Board of Trustees, this
security has been determined to be liquid by Brookfield Investment
Management Inc., the Fund's sub-advisor. Although market instability can
result in periods of increased overall market illiquidity, liquidity for
each security is determined based on security specific factors and
assumptions, which require subjective judgment. At January 31, 2013,
securities noted as such amounted to $2,630,152, or 3.46% of net assets.
(f) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of January 31, 2013,
the aggregate gross unrealized appreciation for all securities in which
there was an excess of value over tax cost was $6,563,350 and the
aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over value was $3,906,448.
IO Interest-Only Security - Principal amount shown represents par value on
which interest payments are based.
STRIP Separate Trading of Registered Interest and Principal of Securities
------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of January 31,
2013 is as follows (see Note A - Portfolio Valuation in the Notes to Quarterly
Portfolio of Investments):
ASSETS TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
1/31/2013 PRICES INPUTS INPUTS
------------- ----------- ------------- ------------
Mortgage-Backed Securities...................... $ 54,578,083 $ -- $ 54,578,083 $ --
U.S. Government Agency Mortgage-Backed
Securities.................................... 32,405,410 -- 32,405,410 --
Asset-Backed Securities......................... 376,833 -- 376,833 --
------------- ----------- ------------- ------------
TOTAL .......................................... $ 87,360,326 $ -- $ 87,360,326 $ --
============= =========== ============= ============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
1/31/2013 PRICES INPUTS INPUTS
------------- ----------- ------------- ------------
Reverse Repurchase Agreements .................. $ (15,358,068) $ -- $ (15,358,068) $ --
============= =========== ============= ============
All transfers in and out of the Levels during the period are assumed to be on
the last day of the period at their current value. There were no transfers
between Levels at January 31, 2013.
Page 6 See Notes to Quarterly Portfolio of Investments
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS
FIRST TRUST MORTGAGE INCOME FUND
JANUARY 31, 2013 (UNAUDITED)
VALUATION AND INVESTMENT PRACTICES
A. PORTFOLIO VALUATION:
The net asset value ("NAV") of the Common Shares of First Trust 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. 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 Investment Company Act of 1940, as amended (the "1940 Act). The Fund's
securities will be valued as follows:
U.S. government securities, mortgage-backed securities, asset-backed
securities and other debt securities are valued 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 may use the following valuation inputs when available:
1) benchmark yields;
2) reported trades;
3) broker/dealer quotes;
4) issuer spreads;
5) benchmark securities;
6) bids and offers; and
7) reference data including market research publications.
Debt securities having a remaining maturity of sixty days or less when
purchased are valued at cost adjusted for amortization of premiums and
accretion of discounts.
In the event that the pricing service or dealer does not provide a valuation, 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 may 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 is based on
the consideration of all available information, including, but not limited to,
the following:
1) the fundamental business data relating to the issuer;
2) an evaluation of the forces which influence the market in which
these securities are purchased and sold;
3) the type, size and cost of security;
4) the financial statements of the issuer;
5) the credit quality and cash flow of the issuer, based on the
Sub-Advisor's or external analysis;
6) the information as to any transactions in or offers for the
security;
7) the price and extent of public trading in similar securities (or
equity securities) of the issuer/borrower, or comparable companies;
8) the coupon payments;
9) the quality, value and salability of collateral, if any, securing
the security;
10) the business prospects of the issuer, including any ability to
obtain money or resources from a parent or affiliate and an
assessment of the issuer's management;
11) the prospects for the issuer's industry, and multiples (of earnings
and/or cash flows) being paid for similar businesses in that
industry; and
12) other relevant factors.
Page 7
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS - (CONTINUED)
FIRST TRUST MORTGAGE INCOME FUND
JANUARY 31, 2013 (UNAUDITED)
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 January 31, 2013, is
included with the Fund's Portfolio of Investments.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME:
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Securities purchased or sold on a when-issued, delayed-delivery or forward
purchase commitment basis may have extended settlement periods. The value of the
security so purchased is subject to market fluctuations during this period. The
Fund maintains liquid assets with a current value at least equal to the amount
of its when-issued, delayed-delivery or forward purchase commitments until
payment is made. At January 31, 2013, the Fund had no when-issued,
delayed-delivery or forward purchase commitments.
C. REVERSE REPURCHASE AGREEMENTS:
Reverse repurchase agreements were utilized as leverage for the Fund. A reverse
repurchase agreement, although structured as a sale and repurchase obligation,
acts as a financing under which Fund assets are pledged 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 loan will be repaid and
the collateral will correspondingly be received back to the Fund. While used as
collateral, the assets continue to pay principal and interest which are for the
benefit of the Fund.
Information for the period ended January 31, 2013:
Maximum amount outstanding during the period.................. $24,242,850
Average amount outstanding during the period*................. $21,671,358
Average Common Shares outstanding during the period........... 4,211,845
Average debt per Common Share outstanding during the period... $5.15
* 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 period ended January 31, 2013.
During the period ended January 31, 2013, the interest rates ranged from 0.44%
to 1.76%, with a weighted average interest rate of 0.95%, on borrowings by the
Fund under reverse repurchase agreements, which had interest expense that
aggregated $52,404.
Page 8
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS - (CONTINUED)
FIRST TRUST MORTGAGE INCOME FUND
JANUARY 31, 2013 (UNAUDITED)
D. INVERSE FLOATING-RATE SECURITIES:
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 securities 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 ("IO security") and
all of the principal is distributed to holders of another type of security known
as a principal-only security. These securities, if any, are identified on the
Portfolio of Investments.
F. INTEREST-ONLY SECURITIES:
An IO Security is the interest-only portion of a mortgage-backed security that
receives some or all of the interest portion of the underlying mortgage-backed
security 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 securities, if any, are identified on the Portfolio
of Investments.
Page 9
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 Mortgage Income Fund
---------------------------------------------------
By (Signature and Title)* /s/ Mark R. Bradley
----------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)
Date March 19, 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 March 19, 2013
-------------------
By (Signature and Title)* /s/ Mark R. Bradley
----------------------------------------
James M. Dykas, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date March 19, 2013
-------------------
* Print the name and title of each signing officer under his or her signature.