(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.
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
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.