UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-21586
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FIRST TRUST/FIDUCIARY ASSET MANAGEMENT COVERED CALL FUND
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(Exact name of registrant as specified in charter)
1001 Warrenville Road, Suite 300
LISLE, IL 60532
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(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
1001 Warrenville Road, Suite 300
LISLE, IL 60532
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(Name and address of agent for service)
registrant's telephone number, including area code: (630) 241-4141
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Date of fiscal year end: DECEMBER 31
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Date of reporting period: DECEMBER 31, 2006
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 100 F Street, NE,
Washington, DC 20549. The OMB has reviewed this collection of information under
the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The Report to Shareholders is attached herewith.
FIRST TRUST/FIDUCIARY ASSET MANAGEMENT COVERED CALL FUND
ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 2006
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TABLE OF CONTENTS
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FIRST TRUST/FIDUCIARY ASSET MANAGEMENT COVERED CALL FUND (FFA)
DECEMBER 31, 2006
Shareholder Letter..................................................... 1
Portfolio Commentary................................................... 2
Portfolio Components................................................... 4
Portfolio of Investments............................................... 5
Statement of Assets and Liabilities.................................... 13
Statement of Operations................................................ 14
Statements of Changes in Net Assets.................................... 15
Financial Highlights................................................... 16
Notes to Financial Statements.......................................... 17
Report of Independent Registered Public Accounting Firm................ 21
Additional Information................................................. 22
Dividend Reinvestment Plan
Proxy Voting Policies and Procedures
Portfolio Holdings
NYSE Certification Information
Tax Information
By-Law Amendments
Board of Trustees and Officers......................................... 24
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933. Forward-looking statements
include statements regarding the goals, beliefs, plans or current expectations
of First Trust Advisors L.P. (the "Advisor") and/or Fiduciary Asset Management,
LLC (the "Sub-Advisor") and their respective representatives, taking into
account the information currently available to them. Forward-looking statements
include all statements that do not relate solely to current or historical fact.
For example, forward-looking statements include the use of words such as
"anticipate," "estimate," "intend," "expect," "believe," "plan," "may,"
"should," "would" or other words that convey uncertainty of future events or
outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the First Trust/Fiduciary Asset Management Covered Call Fund (the "Fund") to be
materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. When evaluating the
information included in this Annual Report, you are cautioned not to place undue
reliance on these forward-looking statements, which reflect the judgment of the
Advisor and Sub-Advisor and their respective representatives only as of the date
hereof. We undertake no obligation to publicly revise or update these
forward-looking statements to reflect events and circumstances that arise after
the date hereof.
HOW TO READ THIS REPORT
This report contains information that can help you evaluate your investment. It
includes details about the Fund and presents data and analysis that provide
insight into the Fund's performance and investment approach.
By reading the letter from the Fund's President, James A. Bowen, together with
the portfolio commentary by Mohammed Riad and K. Timothy Swanson, Co-Portfolio
Managers of the Sub-Advisor, you may obtain an understanding of how the market
environment affected the Fund's performance. The statistical information that
follows may help you understand the Fund's performance compared to that of
relevant market benchmarks.
It is important to keep in mind that the opinions expressed by Mr. Bowen and
personnel of the Sub-Advisor are just that: informed opinions. They should not
be considered to be promises or advice. The opinions, like the statistics, cover
the period through the date on the cover of this report. Of course, the risks of
investing in the Fund are spelled out in the prospectus.
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SHAREHOLDER LETTER
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FIRST TRUST/FIDUCIARY ASSET MANAGEMENT COVERED CALL FUND (FFA)
ANNUAL REPORT
DECEMBER 31, 2006
Dear Shareholders:
We are pleased to present this annual report of the First Trust/Fiduciary Asset
Management Covered Call Fund (the "Fund") (NYSE symbol: FFA). The Fund posted
gains in both market value and net asset value ("NAV") for the twelve-month
reporting period ended December 31, 2006.
The markets had a strong performance year in 2006. The U.S. economy expanded,
stock markets performed positively, and many of the major economic indicators
were positive. Value stocks outperformed growth stocks for the majority of 2006.
Throughout most of the year, the Fund had a bias toward growth oriented sectors,
which hindered underlying equity performance. As we begin 2007, one of the most
touted areas of the market is large-cap stocks, particularly large-cap growth
stocks. The portfolio managers continue to overweight the growth segments of the
economy based on relative valuations and their economic outlook. For a more
detailed discussion of the portfolio strategy, I encourage you to read the
commentary from the portfolio management team at Fiduciary Asset Management, LLC
found on the following pages. It includes a review of the specific market
conditions that affected the Fund's performance as well as the portfolio
managers' outlook for the markets.
First Trust serves as investment advisor or portfolio supervisor to investment
portfolios with approximately $28 billion in assets which it managed or
supervised as of December 31, 2006. We value our relationship with our investors
and appreciate the opportunity to assist you in achieving your financial goals.
Sincerely,
/S/ JAMES A. BOWEN
James A. Bowen
President of the First Trust/Fiduciary Asset Management Covered Call Fund
February 21, 2007
Page 1
[GRAPHIC OMITTED]
MOHAMMED RIAD PIC
MOHAMMED RIAD
MANAGING DIRECTOR, SENIOR PORTFOLIO MANAGER, CHIEF DERIVATIVES STRATEGIST,
MEMBER OF STRATEGY COMMITTEE AND INVESTMENT COMMITTEE
Mr. Riad joined Fiduciary Asset Management, LLC ("Fiduciary") in 1999 and has 14
years of investment industry experience. He is a member of the portfolio
management team and serves as senior portfolio manager for Fiduciary's
institutional and hedged large-cap equity strategies, as well as closed-end and
open-end funds. Additionally, Mr. Riad has been instrumental in the development
of industry-leading large scale derivatives strategies. He is actively involved
with the Strategy Committee's macroeconomic assessment and top-down approach to
portfolio management. Prior to joining Fiduciary, Mr. Riad worked in management
for six years at Legg Mason Wood Walker in the Washington D.C. and New York
offices. Mr. Riad holds an M.B.A. from Washington University in St. Louis and a
B.S. in business from Wake Forest University.
[GRAPHIC OMITTED]
K. TIMOTHY SWANSON PIC
K. TIMOTHY SWANSON, CFA
SENIOR VICE PRESIDENT, PORTFOLIO MANAGER, MEMBER OF INVESTMENT COMMITTEE
Mr. Swanson performs quantitative and qualitative research and holds portfolio
management duties for Fiduciary's large-cap institutional equity strategies. He
implements portfolio management decisions for hedged equity institutional
portfolios, as well as closed-end and open-end funds. Mr. Swanson provides the
Strategy Committee with statistical and quantitative analysis of macroeconomic,
sector, industry, and company-specific recommendations and supporting data. He
assists in designing, structuring, and managing Fiduciary's quantitative
research effort. Prior to joining Fiduciary, he spent two years as a portfolio
manager for institutional and high-net worth clients and spent nearly seven
years at A.G. Edwards & Sons as a senior analyst for beverage and tobacco
industries, earning eight Wall Street Journal All-Star Analyst awards between
1997 and 2000. He is a Chartered Financial Analyst ("CFA") and member of the St.
Louis Society of Financial Analysts. Mr. Swanson received his M.B.A. from
Washington University in St. Louis and his bachelor of arts degree from Colgate
University.
FIDUCIARY ASSET MANAGEMENT, LLC
Fiduciary Asset Management, LLC ("Fiduciary") is the sub-advisor to the First
Trust/Fiduciary Asset Management Covered Call Fund (the "Fund"). Fiduciary was
founded in 1994 as an employee-owned investment management firm. The investment
manager is a federally-registered investment advisor which manages a broad range
of equity and fixed-income strategies, including both traditional and hedged
strategies, for institutional and private wealth clients. Prior to 1994,
Fiduciary was the internal asset management group for a large corporate pension
plan for nearly 22 years. It continues to function as such plan's chief
investment officer. The investment manager currently supervises and manages
approximately $17 billion in client assets.
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PORTFOLIO COMMENTARY
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MARKET RECAP
The S&P 500 Index total return was dominated by value stocks during 2006, with
the top-three sectors in terms of performance including Telecommunication
Services, Energy, and Utilities. As a broader illustration, the Russell 1000
Value Index outperformed the Russell 1000 Growth Index by 13 percentage points
for the year ended December 31, 2006. We believe the Federal Reserve policy
outlook had much to do with the out-performance of the value sector in 2006
throughout the majority of the year, as investors focused on inflation
expectations and wage pressures to build a consensus view that projected further
interest rate hikes.
Based on our strategic view that inflationary pressures were transitory and that
the Federal Reserve Board ( the "Fed") would lean more toward easing interest
rate policy as the year progressed, we biased the Fund in more growth oriented
sectors given the valuation and growth attractiveness relative to value
counterparts. We chose to underweight defensive industries that exhibited
sub-market growth prospects, which paradoxically experienced dramatic
price-to-earnings multiple expansion and investor attention throughout the year.
Nonetheless, falling commodity prices and lower inflation based on slowing
economic activity has traditionally marked an inflection point in the market
cycle that has favored large-cap equities. As economic activity slows below
trend line and inflationary pressures wane, we believe Fed policy will favor a
more active role in reigniting economic growth. We continue to overweight the
growth segments of the economy based on relative valuations and our anticipated
economic outlook.
PERFORMANCE
The market value total return for the Fund was 17.3% for the year ending
December 31, 2006. The Fund produced a NAV total return of 7.1% for the year as
compared to the S&P 500 Index performance of 15.8%. The Lehman U.S. Aggregate
Index - the fixed-income comparable - returned 4.3%. Another index, the CBOE S&P
500 BuyWrite Index (BXM), returned 13.3% for the same period.
Page 2
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PORTFOLIO COMMENTARY - CONTINUED
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Despite investor bias for value-style equities, the Fund successfully
participated in a number of growth industries during 2006. Within the Consumer
Discretionary sector, the Fund's exposure to the casino industry helped to
generate excess relative returns, owning MGM MIRAGE, in particular,
(representing 2.3% of the Fund's portfolio as of December 31, 2006) which stock
value increased 56% and ranked as the top performing equity for the Fund during
the year. Similarly, positions in the retailing industry - namely Nordstrom
(representing 1.4% of the Fund's portfolio as of December 31, 2006) and Target
(representing 1.1% of the Fund's portfolio as of December 31, 2006) similarly
added to equity performance, advancing 34% and 17%, respectively.
Once again, Fund holdings in the Diversified Financial Services industry helped
to generate strong relative performance. Specific overweight holdings included
Goldman Sachs Group Inc. (no longer owned in the Fund's portfolio as of December
31, 2006), Bear Stearns Cos. (representing 1.9% of the Fund's portfolio as of
December 31, 2006) and Lehman Brothers Holdings, Inc. (representing 2.6% of the
Fund's portfolio as of December 31, 2006) performed exceedingly well for the
year, increasing 55%, 42%, and 23%, respectively.
Given investor attraction to equities with relatively stable return streams, the
Fund's exposure to the Consumer Staples sector performed well during the year,
especially CVS Corp. (no longer owned in the portfolio as of December 31, 2006)
which added solid relative performance for the Fund by advancing 17%. Equities
within the Wireless Telecommunication Services sector such as ALLTEL Corp
(representing 3.4% of the Fund's portfolio as of December 31, 2006) and Verizon
Communications Inc. (representing 0.8% of the Fund's portfolio as of December
31, 2006) are similarly believed to have benefited from investor attention - up
19% and 35%, respectively -- despite uninspiring earnings performance.
On the whole, the Fund's overweighting in the growth-oriented Technology sector
hindered underlying equity performance, in particular companies participating in
the Communications Equipment industry. Despite generating strong earnings
performance throughout the year, equities such as QUALCOMM Inc (representing
1.0% of the Fund's portfolio as of December 31, 2006), Texas Instruments
(representing 2.0% of the Fund's portfolio as of December 31, 2006) and Corning
Inc. (representing 1.5% of the Fund's portfolio as of December 31, 2006) found
price-to-earnings multiples contracting as investor risk aversions are believed
to have increased and returns declined correspondingly at 11%, 10%, and 23%,
respectively.
Conversely, bellwether technology stalwarts such as Apple Inc. (representing
1.6% of the Fund's portfolio as of December 31, 2006) and Microsoft Corp,
(representing 2.1% of the Fund's portfolio as of December 31, 2006) performed
modestly better than the sector, while the Fund's top-performing technology
company - BEA Systems Inc. (no longer owned in the Fund's portfolio as of
December 31, 2006) helped to offset some return weakness from other technology
holdings, advancing 39% for the year.
In contrast to 2005, the Fund's exposure to the healthcare services and
biotechnology industries in 2006 negatively impacted relative performance.
Similar to a large number of growth-oriented equities, strong profits from the
Fund's positions such as Genentech Inc. (representing 1.4% of the Fund's
portfolio as of December 31, 2006) and UnitedHealth Group Inc. (representing
2.0% of the Fund's portfolio as of December 31, 2006) nonetheless suffered in a
decline of valuations with returns down 12% and 13%, respectively.
Low volatility levels within the Fund's underlying equity portfolio reduced the
amount of call option premium the Fund was able to generate in advance of the
market correction during the spring of 2006, negatively impacting overall
covered call performance for that time period. However, once the market bottomed
during mid-summer 2006, we were able to adjust the option overlay to capture
more of the equity performance through the end of the year.
DIVIDENDS
During 2006, the Fund declared and paid four-quarterly dividends to
shareholders. The aggregate amount of these dividends, $1.60 per share, computes
to an annualized yield of 8.7% based upon the December 31, 2006 Common Share
price of $18.41 per share. Of this total, $1.30 per share represented ordinary
income and $0.30 per share was from long-term capital gains.
OUTLOOK
Since our semi-annual report to shareholders, our view of the economy has not
been dramatically altered as we continue to expect economic growth to remain
about a percentage-point below historic trend-line growth of approximately 3.5%.
We believe the current housing and manufacturing weakness is a direct result of
the Fed's continuing tight monetary policy, designed to soften these
flash-points of the economy enough to lower the core inflation reading to its
targeted range of 1% to 2% annually.
In our opinion, the equity market retains strong fundamentals despite perceived
uncertainty surrounding inflation, economic growth, or Fed's monetary actions.
Corporations have excess cash which we believe will continue to be used for
dividend increases, share buybacks, acquisitions and capital investments.
Private equity funds, which raised about $750 billion from investors in 2006,
are also cash rich with a mission to invest the money. Equity markets may also
derive thrust from rising price earnings multiples if inflation continues
decelerating, which should cause long-term bond yields to decline. Relative
valuation still favors equities versus fixed-income, although equities'
valuation advantage could diminish if earnings have an unexpected decline.
Page 3
FIRST TRUST/FIDUCIARY ASSET MANAGEMENT COVERED CALL FUND
PORTFOLIO COMPONENTS+
DECEMBER 31, 2006
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN GRAPHIC
Diversified Financial Services 8.0%
Communications Equipment 6.8%
Commercial Banks 5.6%
Computers & Peripherals 5.2%
Semiconductors & Semiconductor Equipment 5.2%
Aerospace & Defense 4.6%
Capital Markets 4.5%
Health Care Providers & Services 4.5%
Hotels, Restaurants & Leisure 4.4%
Household Durables 4.0%
Biotechnology 3.7%
Wireless Telecommunication Services 3.4%
Industrial Conglomerates 3.2%
Oil, Gas & Consumable Fuels 3.1%
Pharmaceuticals 3.0%
Specialty Retail 2.9%
Software 2.8%
Health Care Equipment & Supplies 2.7%
Multiline Retail 2.6%
Machinery 2.4%
Energy Equipment & Services 2.3%
Insurance 2.3%
Road & Rail 1.7%
Beverages 1.6%
Media 1.6%
Electrical Equipment 1.5%
Food & Staples Retailing 1.5%
Air Freight & Logistics 1.4%
Internet Software & Services 1.4%
Chemicals 0.8%
Diversified Telecommunication Services 0.8%
Put options purchased 0.4%
+ Percentages are based on total investments. Please note that the percentages
shown on the Portfolio of Investments are based on net assets.
Page 4
FIRST TRUST/FIDUCIARY ASSET MANAGEMENT COVERED CALL FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2006
MARKET
SHARES VALUE
------------ ------------
COMMON STOCKS+ - 100.0%
AEROSPACE & DEFENSE - 4.6%
240,600 Honeywell International, Inc.................... $ 10,884,744
102,900 United Technologies Corp........................ 6,433,308
---------------
17,318,052
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AIR FREIGHT & LOGISTICS - 1.5%
49,900 FedEx Corp...................................... 5,420,138
---------------
BEVERAGES - 1.6%
96,000 PepsiCo, Inc.................................... 6,004,800
---------------
BIOTECHNOLOGY - 3.7%
86,300 Amgen, Inc.*.................................... 5,895,153
66,400 Genentech, Inc.*................................ 5,387,032
40,100 Gilead Sciences, Inc.*.......................... 2,603,693
---------------
13,885,878
---------------
CAPITAL MARKETS - 4.5%
43,000 Bear Stearns Companies (The), Inc............... 6,999,540
125,000 Lehman Brothers Holdings, Inc................... 9,765,000
---------------
16,764,540
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CHEMICALS - 0.8%
55,600 Monsanto Company................................ 2,920,668
---------------
COMMERCIAL BANKS - 5.6%
267,400 Wachovia Corp................................... 15,228,430
156,500 Wells Fargo & Company........................... 5,565,140
---------------
20,793,570
---------------
COMMUNICATIONS EQUIPMENT - 6.9%
244,000 Cisco Systems, Inc.*............................ 6,668,520
294,600 Corning, Inc.*.................................. 5,511,966
402,500 Motorola, Inc................................... 8,275,400
100,200 QUALCOMM, Inc................................... 3,786,558
126,800 Tellabs, Inc.*.................................. 1,300,968
---------------
25,543,412
---------------
COMPUTERS & PERIPHERALS - 5.3%
70,200 Apple Computer, Inc.*........................... 5,955,768
284,900 Dell, Inc.*..................................... 7,148,141
491,500 EMC Corp.* ..................................... 6,487,800
---------------
19,591,709
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DIVERSIFIED FINANCIAL SERVICES - 8.1%
143,700 Bank of America Corp............................ 7,672,143
117,600 CIT Group, Inc.................................. 6,558,552
182,100 Citigroup, Inc.................................. 10,142,970
118,200 JPMorgan Chase & Company........................ 5,709,060
---------------
30,082,725
---------------
See Notes to Financial Statements. Page 5
FIRST TRUST/FIDUCIARY ASSET MANAGEMENT COVERED CALL FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
DECEMBER 31, 2006
MARKET
SHARES VALUE
------------ ------------
COMMON STOCKS+ - CONTINUED
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.8%
75,600 Verizon Communications, Inc..................... $ 2,815,344
---------------
ELECTRICAL EQUIPMENT - 1.5%
130,800 Emerson Electric Company........................ 5,764,356
---------------
ENERGY EQUIPMENT & SERVICES - 2.3%
50,800 Baker Hughes, Inc............................... 3,792,728
103,200 BJ Services Company............................. 3,025,824
29,300 Schlumberger Ltd................................ 1,850,588
---------------
8,669,140
---------------
FOOD & STAPLES RETAILING - 1.5%
78,900 Wal-Mart Stores, Inc............................ 3,643,602
40,000 Whole Foods Market, Inc......................... 1,877,200
---------------
5,520,802
---------------
HEALTH CARE EQUIPMENT & SUPPLIES - 2.7%
134,700 Medtronic, Inc.................................. 7,207,797
37,600 Zimmer Holdings, Inc.*.......................... 2,947,088
---------------
10,154,885
---------------
HEALTH CARE PROVIDERS & SERVICES - 4.5%
43,300 Cardinal Health, Inc............................ 2,789,819
127,050 Coventry Health Care, Inc.*..................... 6,358,853
141,300 UnitedHealth Group, Inc......................... 7,592,049
---------------
16,740,721
---------------
HOTELS, RESTAURANTS & LEISURE - 4.4%
98,300 Harrah's Entertainment, Inc..................... 8,131,376
147,200 MGM MIRAGE*..................................... 8,441,920
---------------
16,573,296
---------------
HOUSEHOLD DURABLES - 4.0%
54,500 Centex Corp..................................... 3,066,715
81,600 Lennar Corp., Class A........................... 4,280,736
118,400 Procter & Gamble (The) Company.................. 7,609,568
---------------
14,957,019
---------------
INDUSTRIAL CONGLOMERATES - 3.2%
317,800 General Electric Company........................ 11,825,338
---------------
INSURANCE - 2.3%
119,500 American International Group, Inc............... 8,563,370
---------------
INTERNET SOFTWARE & SERVICES - 1.4%
211,700 Yahoo! Inc.*.................................... 5,406,818
---------------
MACHINERY - 2.4%
93,100 Caterpillar, Inc................................ 5,709,823
32,900 Deere & Company................................. 3,127,803
---------------
8,837,626
---------------
Page 6 See Notes to Financial Statements.
FIRST TRUST/FIDUCIARY ASSET MANAGEMENT COVERED CALL FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
DECEMBER 31, 2006
MARKET
SHARES VALUE
------------ ------------
COMMON STOCKS+ - CONTINUED
MEDIA - 1.6%
137,200 Comcast Corp., Class A*......................... $ 5,807,676
---------------
MULTILINE RETAIL - 2.6%
109,200 Nordstrom, Inc.................................. 5,387,928
74,300 Target Corp..................................... 4,238,815
---------------
9,626,743
---------------
OIL, GAS & CONSUMABLE FUELS - 3.1%
56,600 Chevron Corp.................................... 4,161,798
289,400 Williams Companies (The), Inc................... 7,559,128
---------------
11,720,926
---------------
PHARMACEUTICALS - 3.0%
357,000 Pfizer, Inc..................................... 9,246,300
42,000 Sanofi-Aventis, SP ADR.......................... 1,939,140
---------------
11,185,440
---------------
ROAD & RAIL - 1.7%
86,700 Burlington Northern Santa Fe Corp............... 6,399,327
---------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT - 5.2%
215,800 Broadcom Corp., Class A*........................ 6,972,498
248,200 Intel Corp...................................... 5,026,050
257,000 Texas Instruments, Inc.......................... 7,401,600
---------------
19,400,148
---------------
SOFTWARE - 2.8%
258,000 Microsoft Corp.................................. 7,703,880
132,800 Symantec Corp.*................................. 2,768,880
---------------
10,472,760
---------------
SPECIALTY RETAIL - 3.0%
123,800 Best Buy Company, Inc........................... 6,089,722
158,600 Lowe's Companies, Inc........................... 4,940,390
---------------
11,030,112
---------------
WIRELESS TELECOMMUNICATION SERVICES - 3.4%
208,100 ALLTEL Corp..................................... 12,585,888
---------------
TOTAL COMMON STOCKS+............................ 372,383,227
---------------
(Cost $379,625,603)
PUT OPTIONS PURCHASED - 0.4%
14,500 SPDR Trust Series I Put
@ 127 due June 07 .............................. 1,595,000
---------------
TOTAL PUT OPTIONS PURCHASED..................... 1,595,000
---------------
(Cost $2,494,000)
See Notes to Financial Statements. Page 7
FIRST TRUST/FIDUCIARY ASSET MANAGEMENT COVERED CALL FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
DECEMBER 31, 2006
MARKET
VALUE
------------
TOTAL INVESTMENTS - 100.4%...................... $ 373,978,227
(Cost $382,119,603)**
CALL OPTIONS WRITTEN - (2.0%)................... (7,372,401)
(Premiums received $8,241,701)
NET OTHER ASSETS & LIABILITIES - 1.6%........... 5,969,746
---------------
NET ASSETS - 100.0%............................. $ 372,575,572
===============
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ADR American Depositary Receipt
* Non-income producing security.
** Aggregate cost for federal income tax purposes is $382,304,053 for
investments and $6,529,950 for premiums received on options
written.
+ Call options were written on either entire or partial Common Stock
positions; all Common Stocks are pledged as collateral.
NUMBER OF MARKET
CONTRACTS VALUE
------------ ------------
CALL OPTIONS WRITTEN - (2.0%)
ALLTEL Corp. Calls
1,292 @ 60 due Jan 07 ............................. $ (290,700)
789 @ 65 due Apr 07 ............................. (161,745)
---------------
(452,445)
---------------
American International Group, Inc. Call
865 @ 75 due May 07 ............................. (134,075)
---------------
Amgen, Inc. Calls
216 @ 85 due Apr 07.............................. (3,240)
647 @ 30 due July 07............................. (35,585)
---------------
(38,825)
---------------
Apple Computer, Inc. Call
702 @ 95 due Jan 07 ............................. (66,690)
---------------
Baker Hughes Inc. Calls
254 @ 75 due Jan 07.............................. (48,260)
254 @ 85 due Apr 07.............................. (49,530)
---------------
(97,790)
---------------
Bank of America Corp. Calls
411 @ 55 due Jan 07.............................. (6,165)
513 @ 55 due Feb 07.............................. (30,780)
513 @ 57.5 due May 07............................ (28,728)
---------------
(65,673)
---------------
Bear Stearns Companies (The), Inc. Call
430 @ 165 due Apr 07 ............................ (356,900)
---------------
Best Buy Company, Inc. Calls
581 @ 50 due Mar 07.............................. (145,250)
657 @ 60 due June 07............................. (91,980)
---------------
(237,230)
---------------
Page 8 See Notes to Financial Statements.
FIRST TRUST/FIDUCIARY ASSET MANAGEMENT COVERED CALL FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
DECEMBER 31, 2006
NUMBER OF MARKET
CONTRACTS VALUE
------------ ------------
CALL OPTIONS WRITTEN - CONTINUED
BJ Services Company Calls
204 @ 35 due Jan 07.............................. $ (1,020)
253 @ 37.5 due Jan 07............................ (1,265)
204 @ 30 due Apr 07.............................. (45,492)
371 @ 37.5 due Apr 07............................ (14,840)
---------------
(62,617)
---------------
Broadcom Corp. Calls
1,279 @ 40 due Feb 07.............................. (38,370)
450 @ 40 due May 07.............................. (56,250)
---------------
(94,620)
---------------
Burlington Northern Santa Fe Corp. Calls
681 @ 85 due Jan 07.............................. (3,405)
186 @ 90 due Apr 07.............................. (7,440)
---------------
(10,845)
---------------
Cardinal Health, Inc. Call
433 @ 70 due Mar 07 ............................. (28,145)
---------------
Caterpillar, Inc. Call
751 @ 67.5 due Feb 07 ........................... (26,285)
---------------
Centex Corp. Calls
204 @ 55 due Jan 07.............................. (48,144)
227 @ 60 due Feb 07.............................. (30,645)
114 @ 65 due Apr 07.............................. (13,680)
---------------
(92,469)
---------------
Chevron Corp. Calls
283 @ 75 due Mar 07.............................. (67,920)
283 @ 80 due June 07............................. (52,355)
---------------
(120,275)
---------------
Cisco Systems, Inc. Call
1,830 @ 27.5 due Apr 07 ........................... (320,250)
---------------
CIT Group, Inc. Call
1,176 @ 55 due Jan 07 ............................. (205,800)
---------------
Citigroup, Inc. Calls
717 @ 55 due June 07............................. (211,515)
717 @ 57.5 due June 07........................... (118,305)
---------------
(329,820)
---------------
Comcast Corp. Call
1,242 @ 45 due Apr 07 ............................. (167,670)
---------------
Coventry Health Care, Inc. Call
889 @ 55 due Apr 07 ............................. (97,790)
---------------
Deere & Company Calls
164 @ 95 due Jan 07.............................. (35,260)
165 @ 100 due Jan 07............................. (7,425)
---------------
(42,685)
---------------
See Notes to Financial Statements. Page 9
FIRST TRUST/FIDUCIARY ASSET MANAGEMENT COVERED CALL FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
DECEMBER 31, 2006
NUMBER OF MARKET
CONTRACTS VALUE
------------ ------------
CALL OPTIONS WRITTEN - CONTINUED
Dell, Inc. Calls
1,795 @ 27.5 due Feb 07............................ $ (62,825)
1,054 @ 30 due May 07.............................. (47,430)
---------------
(110,255)
---------------
EMC Corp. Calls
1,536 @ 14 due Apr 07.............................. (61,440)
773 @ 15 due Apr 07.............................. (15,460)
---------------
(76,900)
---------------
Emerson Electric Company Call
1,062 @ 45 due Mar 07 ............................. (122,130)
---------------
Fedex Corp. Call
499 @ 125 due Apr 07 ............................ (44,910)
---------------
General Electric Company Call
3,178 @ 40 due June 07 ............................ (238,350)
---------------
Genentech, Inc. Call
531 @ 90 due Mar 07 ............................. (38,763)
---------------
Gilead Sciences, Inc. Call
401 @ 70 due May 07 ............................. (118,295)
---------------
Honeywell International, Inc. Calls
1,882 @ 45 due Jan 07.............................. (188,200)
271 @ 45 due Mar 07.............................. (52,303)
---------------
(240,503)
---------------
Intel Corp. Call
1,941 @ 25 due July 07 ............................ (77,640)
---------------
JPMorgan Chase & Company Call
887 @ 50 due Mar 07 ............................. (70,960)
---------------
Lehman Brothers Holdings, Inc. Calls
1,178 @ 80 due Jan 07.............................. (100,130)
72 @ 90 due Apr 07.............................. (7,200)
---------------
(107,330)
---------------
Lennar Corp. Calls
241 @ 50 due Jan 07.............................. (79,530)
575 @ 55 due Feb 07.............................. (77,625)
---------------
(157,155)
---------------
Lowe's Companies, Inc. Calls
1,086 @ 32.5 due Jan 07............................ (16,290)
500 @ 32.5 due Apr 07............................ (22,500)
---------------
(38,790)
---------------
Medtronic, Inc. Call
1,347 @ 55 due May 07 ............................. (289,605)
---------------
Page 10 See Notes to Financial Statements.
FIRST TRUST/FIDUCIARY ASSET MANAGEMENT COVERED CALL FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
DECEMBER 31, 2006
NUMBER OF MARKET
CONTRACTS VALUE
------------ ------------
CALL OPTIONS WRITTEN - CONTINUED
MGM MIRAGE Call
711 @ 60 due Jan 08 ............................. $ (433,710)
---------------
Microsoft Corp. Calls
1,460 @ 30 due Jan 07.............................. (58,400)
1,120 @ 32.5 due July 07........................... (106,400)
---------------
(164,800)
---------------
Monsanto Company Call
556 @ 50 due Jan 07 ............................. (177,920)
---------------
Motorola, Inc. Calls
1,662 @ 25 due Jan 07.............................. (8,310)
2,363 @ 25 due July 07............................. (120,513)
---------------
(128,823)
---------------
Nordstrom, Inc. Calls
726 @ 50 due Jan 07.............................. (72,600)
295 @ 50 due Apr 07.............................. (100,300)
71 @ 55 due Apr 07.............................. (10,295)
---------------
(183,195)
---------------
PepsiCo, Inc. Calls
229 @ 65 due Jan 07.............................. (1,145)
731 @ 67.5 due Apr 07............................ (32,895)
---------------
(34,040)
---------------
Pfizer, Inc. Call
2,231 @ 30 due Jan 08 ............................. (178,480)
---------------
Procter & Gamble (The) Company Call
1,184 @ 65 due Jan 07 ............................. (41,440)
---------------
QUALCOMM, Inc. Call
752 @ 45 due Apr 07 ............................. (51,136)
---------------
Sanofi-Aventis Call
420 @ 50 due June 07 ............................ (61,950)
---------------
Schlumberger Ltd. Call
293 @ 70 due Feb 07 ............................. (23,440)
---------------
Target Corp. Calls
372 @ 60 due Jan 07.............................. (5,580)
185 @ 57.5 due Feb 07............................ (33,300)
186 @ 65 due Apr 07.............................. (10,230)
---------------
(49,110)
---------------
Texas instruments, Inc. Call
1,464 @ 37.5 due Apr 07 ........................... (10,980)
---------------
See Notes to Financial Statements. Page 11
FIRST TRUST/FIDUCIARY ASSET MANAGEMENT COVERED CALL FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
DECEMBER 31, 2006
NUMBER OF MARKET
CONTRACTS VALUE
------------ ------------
CALL OPTIONS WRITTEN - CONTINUED
United Technologies Corp. Calls
684 @ 70 due Feb 07.............................. $ (6,840)
345 @ 65 due May 07.............................. (74,175)
---------------
(81,015)
---------------
UnitedHealth Group, Inc. Call
1,041 @ 55 due Mar 07 ............................. (208,200)
---------------
Verizon Communications, Inc. Call
756 @ 40 due July 07 ............................ (69,552)
---------------
Wachovia Corp. Calls
669 @ 57.5 due Apr 07............................ (133,800)
1,337 @ 60 due Apr 07.............................. (106,960)
---------------
(240,760)
---------------
Wal-Mart Stores, Inc. Call
665 @ 50 due Jan 07 ............................. (6,650)
---------------
Wells Fargo & Company Calls
1,174 @ 37.5 due Jan 07............................ (5,870)
391 @ 40 due Apr 07.............................. (5,865)
---------------
(11,735)
---------------
Whole Foods Market, Inc. Call
400 @ 55 due May 07 ............................. (54,000)
---------------
Williams Companies (The), Inc. Call
2,894 @ 30 due May 07 ............................. (202,580)
---------------
Yahoo! Inc. Call
1,901 @ 30 due Apr 07 ............................. (152,080)
---------------
Zimmer Holdings, Inc. Call
376 @ 80 due Jan 07 ............................. (26,320)
---------------
TOTAL CALL OPTIONS WRITTEN...................... $ (7,372,401)
===============
(Premiums Received $8,241,701)
Page 12 See Notes to Financial Statements.
FIRST TRUST/FIDUCIARY ASSET MANAGEMENT COVERED CALL FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2006
ASSETS:
Investments, at value
Cost ($382,119,603)............................................................................. $ 373,978,227
Cash .............................................................................................. 6,770,626
Prepaid expenses................................................................................... 19,249
Receivables:
Dividends..................................................................................... 272,038
Interest...................................................................................... 35,290
--------------
Total Assets.................................................................................. 381,075,430
--------------
LIABILITIES:
Options written, at value (Premiums received $8,241,701)........................................... 7,372,401
Payables:
Investment securities purchased............................................................... 594,804
Investment advisory fees...................................................................... 320,064
Audit and legal fees.......................................................................... 86,118
Printing fees................................................................................. 72,404
Administrative fees........................................................................... 29,002
Custodian fees................................................................................ 19,821
Transfer agent fees........................................................................... 3,017
Accrued expenses and other liabilities............................................................. 2,227
--------------
Total Liabilities............................................................................. 8,499,858
--------------
NET ASSETS......................................................................................... $ 372,575,572
==============
NET ASSETS CONSIST OF:
Accumulated net realized loss on investments and written options transactions ..................... $ (846,499)
Net unrealized appreciation (depreciation) on investments and options written ..................... (7,272,076)
Par value.......................................................................................... 199,732
Paid-in capital.................................................................................... 380,494,415
--------------
Net Assets......................................................................................... $ 372,575,572
==============
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share)............................... $ 18.65
--------------
Number of Common Shares outstanding (unlimited number of Common Shares has been authorized) ....... 19,973,164
==============
See Notes to Financial Statements. Page 13
FIRST TRUST/FIDUCIARY ASSET MANAGEMENT COVERED CALL FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2006
INVESTMENT INCOME:
Dividends.......................................................................................... $ 4,937,105
Interest........................................................................................... 223,012
--------------
Total investment income....................................................................... 5,160,117
--------------
EXPENSES:
Investment advisory fees........................................................................... 3,753,083
Administration fees................................................................................ 340,247
Custodian fees..................................................................................... 181,630
Audit and legal fees............................................................................... 123,253
Printing fees...................................................................................... 113,765
Trustees' fees and expenses........................................................................ 41,722
Transfer agent fees................................................................................ 35,570
Other.............................................................................................. 76,809
--------------
Total expenses................................................................................ 4,666,079
--------------
NET INVESTMENT INCOME.............................................................................. 494,038
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments..................................................................................... 34,402,885
Written option transactions..................................................................... (4,525,690)
--------------
Net realized gain (loss)........................................................................... 29,877,195
--------------
Net change in unrealized appreciation (depreciation) on:
Investments..................................................................................... (2,351,770)
Written option transactions..................................................................... (2,732,123)
--------------
Net change in unrealized appreciation (depreciation)............................................... (5,083,893)
--------------
Net realized and unrealized gain (loss) on investments............................................. 24,793,302
--------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.................................... $ 25,287,340
==============
Page 14 See Notes to Financial Statements.
FIRST TRUST/FIDUCIARY ASSET MANAGEMENT COVERED CALL FUND
STATEMENTS OF CHANGES IN NET ASSETS
YEAR YEAR
ENDED ENDED
12/31/2006 12/31/2005
--------------- --------------
OPERATIONS:
Net investment income................................................................. $ 494,038 $ 140,038
Net realized gain (loss).............................................................. 29,877,195 32,569,965
Net change in unrealized appreciation (depreciation).................................. (5,083,893) (20,366,292)
-------------- --------------
Net increase (decrease) in net assets resulting from operations....................... 25,287,340 12,343,711
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................................................................. (494,038) (140,038)
Net realized gain on investments...................................................... (31,463,024) (31,665,665)
--------------- --------------
Total distributions to shareholders................................................... (31,957,062) (31,805,703)
CAPITAL TRANSACTIONS:
Proceeds from 192,928 Common Shares reinvested........................................ -- 3,682,849
--------------- --------------
Total capital transactions............................................................ -- 3,682,849
--------------- --------------
Net decrease in net assets............................................................ (6,669,722) (15,779,143)
NET ASSETS:
Beginning of year..................................................................... 379,245,294 395,024,437
-------------- --------------
End of year........................................................................... $ 372,575,572 $ 379,245,294
============== ==============
Undistributed net investment income at end of year.................................... $ -- $ --
============== ==============
See Notes to Financial Statements. Page 15
FIRST TRUST/FIDUCIARY ASSET MANAGEMENT COVERED CALL FUND
FINANCIAL HIGHLIGHTS
FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR YEAR PERIOD
ENDED ENDED ENDED
12/31/2006 12/31/2005 12/31/2004*
------------ ------------ -------------
Net asset value, beginning of period............................. $ 18.99 $ 19.97 $ 19.10 (c)
------------ ------------ -------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)..................................... 0.02 0.01 (0.01)
Net realized and unrealized gain on investments.................. 1.24 0.61 1.46
------------ ------------ -------------
Total from investment operations................................. 1.26 0.62 1.45
------------ ------------ -------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income............................................ (0.02) (0.01) --
Net realized gains............................................... (1.58) (1.59) (0.54)
------------ ------------ -------------
Total from distributions......................................... (1.60) (1.60) (0.54)
------------ ------------ -------------
Common Shares offering costs charged to paid-in capital.......... -- -- (0.04)
------------ ------------ -------------
Net asset value, end of period................................... $ 18.65 $ 18.99 $ 19.97
============ ============ =============
Market value, end of period...................................... $ 18.41 $ 17.12 $ 20.00
============ ============ =============
TOTAL RETURN BASED ON NET ASSET VALUE (A)+....................... 7.09% 3.48% 7.29%
============ ============ =============
TOTAL RETURN BASED ON MARKET VALUE (B)+.......................... 17.26% (6.85)% 2.62%
============ ============ =============
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)............................. $ 372,576 $ 379,245 $ 395,024
Ratio of total expenses to average net assets.................... 1.24% 1.23% 1.26%**
Ratio of net investment income (loss) to average net assets...... 0.13% 0.04% (0.09)%**
Portfolio turnover rate.......................................... 131% 266% 73%
--------------------------------------------------
* The Fund commenced operations on August 17, 2004.
** Annualized.
(a) Total return based on net asset value is the combination of reinvested
dividend distributions and reinvested capital gains distributions, if any,
at prices obtained by the Dividend Reinvestment Plan, and changes in net
asset value per share and does not reflect sales load.
(b) Total return based on market value is the combination of reinvested
dividend distributions and reinvested capital gains distributions, if any,
at prices obtained by the Dividend Reinvestment Plan, and changes in Common
Share market price per share, all based on Common Share market price per
share.
(c) Net of sales load of $0.90 per Common Share on initial offering.
+ Total return is not annualized for periods less than one year.
Page 16 See Notes to Financial Statements.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST/FIDUCIARY ASSET MANAGEMENT COVERED CALL FUND
DECEMBER 31, 2006
1. FUND DESCRIPTION
First Trust/Fiduciary Asset Management Covered Call Fund (the "Fund") is a
diversified closed-end management investment company organized as a
Massachusetts business trust on May 20, 2004 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 FFA
on the New York Stock Exchange ("NYSE").
The Fund's investment objective is to provide a high level of current income and
gains and, to a lesser extent, capital appreciation. The Fund seeks to achieve
its investment objective by investing in a diversified portfolio of equity
securities and writing (selling) call options on at least 80% of the Fund's
Managed Assets ("Managed Assets" means the average daily gross assets of the
Fund minus the sum of the Fund's accrued and unpaid dividends on any outstanding
Common Shares and accrued liabilities, including the value of call options
written). There can be no assurance that the Fund's investment objective will be
achieved.
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 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 Fund determines the net asset value ("NAV") of its shares daily, as of the
close of regular session trading on the NYSE, normally 4:00 p.m. Eastern time,
on each day the NYSE is open for trading. The NAV is computed by dividing the
value of all assets of the Fund (including accrued interest and dividends), less
all liabilities (including accrued expenses, the value of call options written
(sold) and dividends declared but unpaid), by the total number of Common Shares
outstanding.
The Fund's investments are valued at market value, or in the absence of market
value with respect to any portfolio securities, at fair value according to
procedures adopted by the Fund's Board of Trustees. Portfolio securities listed
on any exchange other than the NASDAQ National Market ("NASDAQ") are valued at
the last sale price on the business day as of which such value is being
determined. If there has been no sale on such day, the securities are valued at
the mean of the most recent bid and asked prices on such day. Securities traded
on the NASDAQ are valued at the NASDAQ Official Closing Price as determined by
NASDAQ. Portfolio securities traded on more than one securities exchange are
valued at the last sale price on the business day as of which such value is
being determined at the close of the exchange representing the principal market
for such securities. Portfolio securities traded in the over-the-counter market,
but excluding securities trading on the NASDAQ, are valued at the closing bid
prices. Fixed income securities with a remaining maturity of 60 days or more
will be valued by the Fund using a pricing service. Short-term investments that
mature in less than 60 days are valued at amortized cost.
The Fund values exchange-traded options and other derivative contracts at the
closing price on the exchange on which they are principally traded, or if not
traded, or no closing price is available, at the mean between the last bid and
asked price.
B. OPTION CONTRACTS:
COVERED OPTIONS. When the Fund purchases equity securities, it simultaneously
writes (sells) covered call or put options ("options") on substantially all of
such equity securities. The number of options the Fund can write (sell) is
limited by the amount of equity securities the Fund holds in its portfolio. The
Fund will not write (sell) "naked" or uncovered options. By writing (selling)
options, the Fund seeks to generate additional income, in the form of premiums
received for writing (selling) the options, and provide a partial hedge against
a market decline in the underlying equity security. 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, an increase 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 smaller.
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 an option written (sold) by the Fund is
exercised, the Fund would be obligated to deliver the underlying equity security
to the option holder upon
Page 17
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST/FIDUCIARY ASSET MANAGEMENT COVERED CALL FUND
DECEMBER 31, 2006
payment of the exercise price. In this case, the option premium received by the
Fund will be added to the amount realized on the sale of the underlying equity
security for purposes of determining gain or loss. If the price of the
underlying equity security is less than the option's exercise 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.
The Fund writes (sells) options on at least 80% of the Fund's Managed Assets.
These options 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 ability to successfully implement the Fund's
investment strategy depends on the ability of Fiduciary Asset Management, LLC
("Fiduciary" or 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, 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 forgoes, 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.
PURCHASED OPTIONS. The purchase of a put option entitles the Fund, in exchange
for the premium paid, to sell specific securities at a specified price during
the option period. The purchase of protective puts is designed to offset or
hedge against a decline in the market value of the Fund's portfolio securities.
Put options may also be purchased by the Fund for the purpose of affirmatively
benefiting from a decline in the price of securities which is does not own. The
Fund will ordinarily realize a gain if, during the option period, the value of
the underlying securities decreases below the exercise price sufficiently to
cover the premium and transaction costs; otherwise, the Fund will realize either
no gain or a loss on the purchase of the put option. Gains and losses on the
purchase of put options may be offset by countervailing changes in the value of
the Fund's portfolio securities.
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 is recorded
on the accrual basis, including amortization of premiums and accretion of
discounts.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income of the Fund are declared and paid quarterly
or as the Board of Trustees may determine from time to time. Distributions of
any net realized 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 realized capital gains are determined in
accordance with income tax regulations, which may differ from accounting
principles generally accepted in the United States of America. These differences
are primarily due to differing treatments of income and gains on various
investment securities held by the Fund, timing differences and differing
characterization of distributions made by the Fund.
The tax character of distributions paid during the fiscal years ended December
31, 2006 and December 31, 2005 is as follows:
Distributions paid from:
2006 2005
---- ----
Ordinary Income................................ $ 26,007,917 $ 31,805,703
Long-Term Capital Gains........................ 5,949,145 --
As of December 31, 2006, the components of distributable earnings on a tax basis
were as follows:
Undistributed Long-Term Capital Gains.......... $ 1,141,089
Net Unrealized Depreciation.................... (10,037,577)
Page 18
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST/FIDUCIARY ASSET MANAGEMENT COVERED CALL FUND
DECEMBER 31, 2006
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, and by 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.
F. EXPENSES:
The Fund pays all expenses directly related to its operations.
G. NEW ACCOUNTING PRONOUNCEMENT:
In July 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes."
This pronouncement provides guidance on the recognition, measurement,
classification, and disclosures related to uncertain tax positions, along with
any related interest and penalties. FIN 48 is effective for fiscal years
beginning after December 15, 2006. Management is currently evaluating the
implications of FIN 48 and its impact on the financial statements which has not
yet been determined.
In addition, in September 2006, Statement of Financial Accounting Standards No.
157 Fair Value Measurements ("SFAS 157") was issued by the FASB and is effective
for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is currently evaluating the impact the
adoption of SFAS 157 could have on the Fund's financial statement disclosures.
3. INVESTMENT ADVISORY FEE AND OTHER AFFILIATED TRANSACTIONS
First Trust is a limited partnership with one limited partner, Grace Partners of
DuPage L.P., and one general partner, The Charger Corporation. First Trust
serves as investment advisor to the Fund pursuant to an Investment Management
Agreement. First Trust is responsible for the ongoing monitoring of the Fund's
investment portfolio, managing the Fund's business affairs and 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.
Fiduciary serves as the Fund's sub-advisor and manages the Fund's portfolio
subject to First Trust's supervision. The Sub-Advisor receives a portfolio
management fee calculated at an annual rate of 0.50% of the Fund's Managed
Assets that is paid monthly by First Trust out of its investment advisory fee.
PFPC Inc. ("PFPC"), an indirect, majority-owned subsidiary of The PNC Financial
Services Group, Inc., serves as the Fund's Administrator and Transfer Agent in
accordance with certain fee arrangements. PFPC Trust Company, also an indirect,
majority-owned subsidiary of The PNC Financial Services Group, Inc., serves as
the Fund's Custodian in accordance with certain fee arrangements.
The Fund paid each Trustee who is not an officer or employee of First Trust or
any of its affiliates (the "Independent Trustees") an annual retainer of
$10,000, which includes compensation for all Board and Committee meetings.
Trustees are also reimbursed for travel and out-of-pocket expenses in connection
with all meetings.
Effective June 12, 2006, the Board of Trustees unanimously appointed Robert F.
Keith to the Board of Trustees and as a member of the Fund's Audit Committee,
Valuation Committee and Nominating and Governance Committee.
4. PURCHASES AND SALES OF SECURITIES AND OPTIONS
Cost of purchases and proceeds from sales of investment securities, excluding
short-term investments, for the year ended December 31, 2006 were $499,044,415
and $537,549,755, respectively.
As of December 31, 2006, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $16,269,765
and the aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $25,438,042.
Page 19
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST/FIDUCIARY ASSET MANAGEMENT COVERED CALL FUND
DECEMBER 31, 2006
Written option activity was as follows.
NUMBER
OF
CONTRACTS PREMIUMS
WRITTEN OPTIONS
Options outstanding at December 31, 2005............. 66,886 $ 8,930,333
Options written...................................... 696,394 103,833,423
Options expired...................................... (100,577) (8,065,471)
Options exercised.................................... (823) (111,717)
Options closed....................................... (590,480) (96,344,867)
---------- ------------
Options outstanding at December 31, 2006............. 71,400 $ 8,241,701
========== ============
5. COMMON SHARES
As of December 31, 2006, 19,973,164 of $0.01 par value Common Shares were
issued. An unlimited number of Common Shares has been authorized under the
Fund's Dividend Reinvestment Plan.
COMMON SHARE TRANSACTIONS WERE AS FOLLOWS:
YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
SHARES AMOUNT SHARES AMOUNT
Issued as reinvestment of dividends
under the Dividend Reinvestment Plan.............. -- $ -- 192,928 $ 3,682,849
---------- ----------- ---------- ------------
-- $ -- 192,928 $ 3,682,849
========== =========== ========== ============
6. SUBSEQUENT EVENTS
The Board of Trustees of the Fund adopted a compensation policy pursuant to
which, effective January 1, 2007, the Independent Trustees are paid an annual
retainer of $10,000 for each investment company of the First Trust Fund Complex
up to a total of 14 investment companies (the "Trustees Compensation I") and an
annual retainer of $7,500 for each subsequent investment company added to the
First Trust Fund Complex (the "Trustees Compensation II" and together with
Trustees Compensation I, the "Aggregate Trustee Compensation"). The Aggregate
Trustee Compensation is divided equally among each of the investment companies
in the First Trust Fund Complex. No additional meeting fees are paid in
connection with board or committee meetings. Trustees are also reimbursed for
travel and out-of-pocket expenses in connection with all meetings.
Additionally, Thomas R. Kadlec is paid annual compensation of $10,000 to serve
as the Lead Trustee and Niel B. Nielson is paid annual compensation of $5,000 to
serve as the chairman of the Audit Committee of each of the investment companies
in the First Trust Fund Complex. Such additional compensation to Messrs. Kadlec
and Nielson is paid by the investment companies in the First Trust Fund Complex
and the fees are divided equally among those investment companies.
Page 20
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FIRST TRUST/FIDUCIARY ASSET
MANAGEMENT COVERED CALL FUND
We have audited the accompanying statement of assets and liabilities of First
Trust/Fiduciary Asset Management Covered Call Fund (the "Fund"), including the
portfolio of investments, as of December 31, 2006, the related statements of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended and the financial highlights for
the periods presented. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of December 31, 2006, by correspondence with the Fund's
custodian and broker; where replies were not received, we performed other
auditing procedures. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Fund as of December 31, 2006, the results of its operations, the changes in its
net assets, and the financial highlights for the respective stated periods, in
conformity with accounting principles generally accepted in the United States of
America.
[GRAPHIC OMITTED]
DELOITE LOGO ART
Chicago, Illinois
February 21, 2007
Page 21
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST/FIDUCIARY ASSET MANAGEMENT COVERED CALL FUND
DECEMBER 31, 2006 (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 PFPC
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 PFPC Inc. as 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 New York
Stock Exchange 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 (800) 331-1710, in
accordance with such reasonable requirements as the Plan Agent and 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 PFPC Inc., 301 Bellevue
Parkway, Wilmington, Delaware 19809.
Page 22
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ADDITIONAL INFORMATION - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST/FIDUCIARY ASSET MANAGEMENT COVERED CALL FUND
DECEMBER 31, 2006 (UNAUDITED)
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 securities 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 website at http://www.sec.gov.
PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("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 1-800-SEC-0330.
NYSE CERTIFICATION INFORMATION
In accordance with Section 303A-12 of the New York Stock Exchange ("NYSE")
Listed Company Manual, the Fund's President has certified to the NYSE that, as
of May 15, 2006, he was not aware of any violation by the Fund of NYSE corporate
governance listing standards, In addition, the Fund's reports to the SEC on Form
N-CSR and N-Q contain certifications by the Fund's principal executive officer
and principal financial officer to the Fund's public disclosure in such reports
and that are required by Rule 30a-2 under the 1940 Act.
TAX INFORMATION
Of the ordinary income (including short-term capital gain) distributions made by
the Fund during the year ended December 31, 2006, 18.63% qualifies for the
corporate dividend received deduction available to corporate shareholders.
The Fund hereby designates as qualified dividend income distributions 15.03% of
the ordinary income distributions (including short-term capital gain), for the
year ended December 31, 2006.
For the year ended December 31, 2006, the amount of long-term capital gain
distributions designated by the Fund was $7,090,234 which is taxable at a 15%
rate gain for federal income tax purposes.
BY-LAW AMENDMENTS
On June 12, 2006 and December 11, 2006, the Board of Trustees approved certain
changes to the By-Laws of the Fund which may have the effect of delaying or
preventing a change in control of the Fund, including the implementation of a
staggered Board of Trustees. The changes were not required to be, and were not,
approved by the Fund's shareholders. To receive a copy of the revised By-Laws,
investors may call the Fund at (800) 988-5891.
Page 23
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS - (UNAUDITED)
--------------------------------------------------------------------------------
FIRST TRUST/FIDUCIARY ASSET MANAGEMENT COVERED CALL FUND
DECEMBER 31, 2006
Information pertaining to the Trustees and Officers* of the Fund is set forth
below.
NUMBER OF OTHER
PORTFOLIOS TRUSTEESHIPS/
NAME, D.O.B., ADDRESS AND TERM OF OFFICE AND PRINCIPAL OCCUPATION(S) IN FUND COMPLEX DIRECTORSHIPS
POSITION(S) WITH THE FUND LENGTH OF TIME SERVED DURING PAST 5 YEARS OVERSEEN BY TRUSTEE HELD BY TRUSTEE
INDEPENDENT TRUSTEES
Richard E. Erickson, Trustee o One year term Physician; President, 34 portfolios None
D.O.B. 04/51 o 2 years, 7 months Wheaton Orthopedics; Co-
c/o First Trust Advisors L.P. served owner and Co-Director,
1001 Warrenville Road Sports Med Center for
Suite 300 Fitness; Limited Partner,
Lisle, IL 60532 Gundersen Real Estate
Partnership
Thomas R. Kadlec, Trustee o One year term Vice President and Chief 34 portfolios None
D.O.B. 11/57 o 2 years, 7 months Financial Officer (1990 to
c/o First Trust Advisors L.P. served present), ADM Investor
1001 Warrenville Road Services, Inc. (Futures
Suite 300 Commission Merchant);
Lisle, IL 60532 Registered Representative
(2000 to present),
Segerdahl & Company,
Inc., an NASD member
(Broker-Dealer); President,
ADM Derivatives, Inc.
(May 2005 to present)
Robert F. Keith, Trustee o One year term President, Hibs Enterprises 22 portfolios None
D.O.B. 11/56 o 7 months served (Financial and
c/o First Trust Advisors L.P. Management Consulting)
1001 Warrenville Road (2003 to present); Aramark
Suite 300 Service Master
Lisle, IL 60532 Management (2001 to
2003); President and Chief
Operating Officer, Service
Master Management
Services (1998 to 2003)
Niel B. Nielson, Trustee o One year term President, Covenant 34 portfolios Director of Good
D.O.B. 03/54 o 2 years, 7 months College (June 2002 to News Publishers-
c/o First Trust Advisors L.P. served present); Pastor, College Crossway Books;
1001 Warrenville Road Church in Wheaton (1997 Covenant Transport,
Suite 300 to June 2002) Inc.
Lisle, IL 60532
Page 24
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS - (UNAUDITED)-(CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST/FIDUCIARY ASSET MANAGEMENT COVERED CALL FUND
DECEMBER 31, 2006
NUMBER OF OTHER
PORTFOLIOS TRUSTEESHIPS/
NAME, D.O.B., ADDRESS AND TERM OF OFFICE AND PRINCIPAL OCCUPATION(S) IN FUND COMPLEX DIRECTORSHIPS
POSITION(S) WITH THE FUND LENGTH OF TIME SERVED DURING PAST 5 YEARS OVERSEEN BY TRUSTEE HELD BY TRUSTEE
INTERESTED TRUSTEE
James A. Bowen, Trustee o One year Trustee President, First Trust 34 portfolios Trustee of Wheaton
President, Chairman of the term and indefinite Advisors L.P. and First College
Board and CEO officer term Trust Portfolios L.P.;
D.O.B. 09/55 o 2 years, 7 months Chairman of the Board,
1001 Warrenville Road served BondWave LLC and
Suite 300 Stonebridge Advisors LLC
Lisle, IL 60532
OFFICERS WHO ARE NOT TRUSTEES
Mark R. Bradley, Treasurer, o Indefinite term Chief Financial Officer, N/A N/A
Controller, Chief Financial o 2 years, 7 months Managing Director, First
Officer, Chief Accounting served Trust Advisors L.P. and
Officer First Trust Portfolios L.P.;
D.O.B. 11/57 Chief Financial Officer,
1001 Warrenville Road BondWave LLC and
Suite 300 Stonebridge Advisors LLC
Lisle, IL 60532
Kelley Christensen o Indefinite term Assistant Vice President of N/A N/A
Vice President o Since December First Trust Portfolios L.P.
D.O.B. 09/70 10, 2006 and First Trust Advisors
1001 Warrenville Road L.P.
Suite 300
Lisle, IL 60532
James M. Dykas o Indefinite term Vice President, First Trust N/A N/A
Assistant Treasurer o 13 months served Advisors L.P. and First
D.O.B. 01/66 Trust Portfolios L.P.
1001 Warrenville Road (January 2005 to present);
Suite 300 Executive Director, Van
Lisle, IL 60532 Kampen Asset
Management and Morgan
Stanley Investment
Management (1999-2005)
Christopher R. Fallow o Indefinite term Assistant Vice President of N/A N/A
Assistant Vice President o Since December 10, First Trust Portfolios L.P.
D.O.B. 04/79 2006 and First Trust Advisors
1001 Warrenville Road L.P.
Suite 300
Lisle, IL 60532
Page 25
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BOARD OF TRUSTEES AND OFFICERS - (UNAUDITED)-(CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST/FIDUCIARY ASSET MANAGEMENT COVERED CALL FUND
DECEMBER 31, 2006
NUMBER OF OTHER
PORTFOLIOS TRUSTEESHIPS/
NAME, D.O.B., ADDRESS AND TERM OF OFFICE AND PRINCIPAL OCCUPATION(S) IN FUND COMPLEX DIRECTORSHIPS
POSITION(S) WITH THE FUND LENGTH OF TIME SERVED DURING PAST 5 YEARS OVERSEEN BY TRUSTEE HELD BY TRUSTEE
OFFICERS WHO ARE NOT TRUSTEES - (CONTINUED)
W. Scott Jardine, Secretary o Indefinite term General Counsel, First N/A N/A
and Chief Compliance Officer o 2 years, 7 months Trust Advisors L.P. and
D.O.B. 05/60 served First Trust Portfolios L.P.;
1001 Warrenville Road Secretary, BondWave LLC
Suite 300 and Stonebridge Advisors
Lisle, IL 6053 LLC
Daniel J. Lindquist o Indefinite term Senior Vice President, N/A N/A
Vice President o 13 months served First Trust Advisors L.P.;
D.O.B. 02/70 Vice President, First Trust
1001 Warrenville Road Portfolios L.P. (April 2004
Suite 300 to present); Chief
Lisle, IL 60532 Operating Officer, Mina
Capital Management, LLC
(January 2004-April 2004);
Chief Operating Officer,
Samaritan Asset
Management Services, Inc.
(April 2000-January 2004)
Kristi A. Maher o Indefinite term Assistant General Counsel, N/A N/A
Assistant Secretary o 2 years, 7 months First Trust Advisors L.P.
D.O.B. 12/66 served and First Trust Portfolios
1001 Warrenville Road L.P. (March 2004 to
Suite 300 present); Associate,
Lisle, IL 60532 Chapman and Cutler LLP
(1995-2004)
-------------------
* The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.
Page 26
This Page Left Blank Intentionally.
This Page Left Blank Intentionally.
ITEM 2. CODE OF ETHICS.
(a) The registrant, as of the end of the period covered by this report, has
adopted a code of ethics that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant
or a third party.
(c) There have been no amendments, during the period covered by this
report, to a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing
similar functions, regardless of whether these individuals are employed
by the registrant or a third party, and that relates to any element of
the code of ethics definition enumerated in paragraph (b) of this
item's instructions.
(d) The registrant has not, during the period covered by this report,
granted any waivers, including an implicit waiver, from a provision of
the code of ethics that applies to the registrant's principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions, regardless of
whether these individuals are employed by the registrant or a third
party, that relates to one or more of the items set forth in paragraph
(b) of this item's instructions.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
As of the end of the period covered by the report, the Registrant's board of
trustees has determined that Thomas R. Kadlec and Robert F. Keith are qualified
to serve as audit committee financial experts serving on its audit committee and
that each of them is "independent," as defined by Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) AUDIT FEES (REGISTRANT) -- The aggregate fees billed for each of
the last two fiscal years for professional services rendered by the principal
accountant for the audit of the Registrant's annual financial statements or
services that are normally provided by the accountant in connection with
statutory and regulatory filings or engagements were $26,250 for 2005 and
$35,000 for 2006.
(b) AUDIT-RELATED FEES (REGISTRANT) -- The aggregate fees billed in
each of the last two fiscal years, for assurance and related services by the
principal accountant that are reasonably related to the
performance of the audit of the Registrant's financial statements and are not
reported under paragraph (a) of this Item were $0.
AUDIT-RELATED FEES (INVESTMENT ADVISER) -- The aggregate fees
billed in each of the last two fiscal years of the Registrant for assurance and
related services by the principal accountant that are reasonably related to the
performance of the audit of the Registrant's financial statements and are not
reported under paragraph (a) of this Item were $0.
(c) TAX FEES (REGISTRANT) -- The aggregate fees billed in each of the
last two fiscal years for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning to the Registrant
were $4,500 in 2005 and $4,725 in 2006. These fees were for tax preparation.
TAX FEES (INVESTMENT ADVISER) -- The aggregate fees billed in
each of the last two fiscal years of the Registrant for professional services
rendered by the principal accountant for tax compliance, tax advice, and tax
planning to the Registrant's adviser were $6000 for 2005 and $0 for 2006. These
fees were for tax preparation.
(d) ALL OTHER FEES (REGISTRANT) -- The aggregate fees billed in each of
the last two fiscal years for products and services provided by the principal
accountant to the Registrant, other than the services reported in paragraphs (a)
through (c) of this Item were $6,591.72 for 2005 and $839.64 for 2006. These
fees were for compliance consulting services.
ALL OTHER FEES (INVESTMENT ADVISER) -- The aggregate fees billed
in each of the last two fiscal years for products and services provided by the
principal accountant to the Registrant's investment adviser, other than services
reported in paragraphs (a) through (c) of this Item were $130,569 for 2005 and
$9,308 for 2006. These fees were for Canadian tax consultation, compliance
consulting and AIMR-PPS Verification Services.
(e)(1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
Pursuant to its charter and its Audit and Non-Audit Services
Pre-Approval Policy both amended as of December 10, 2006, the Audit Committee
(the "COMMITTEE") is responsible for the pre-approval of all audit services and
permitted non-audit services (including the fees and terms thereof) to be
performed for the Registrant by its independent auditors. The Chairman of the
Committee authorized to give such pre-approvals on behalf of the Committee up to
$25,000 and report any such pre-approval to the full Committee.
The Committee is also responsible for the pre-approval of the
independent auditor's engagements for non-audit services with the Registrant's
adviser (not including a sub-adviser whose role is primarily portfolio
management and is sub-contracted or overseen by another investment adviser) and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the Registrant, if the
engagement relates directly to the operations and financial reporting of the
Registrant, subject to the DE MINIMIS exceptions for non-audit services
described in Rule 2-01 of Regulation S-X. If the independent auditor has
provided non-audit services to the Registrant's adviser (other than any
sub-adviser whose role is primarily portfolio management and is sub-contracted
with or overseen by another investment adviser) and any entity controlling,
controlled by or under common control with the investment adviser that provides
ongoing services to the Registrant that were
not pre-approved pursuant to its policies, the Committee will consider whether
the provision of such non-audit services is compatible with the auditor's
independence.
(e)(2) The percentage of services described in each of paragraphs (b) through
(d) for the Registrant and the Registrant's investment adviser of this
Item that were approved by the audit committee pursuant to the
pre-approval exceptions included in paragraph (c)(7)(i)(c) or paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X are as follows:
(b) 0%
(c) 0%
(d) 0%
(f) The percentage of hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the most
recent fiscal year that were attributed to work performed by persons
other than the principal accountant's full-time, permanent employees
was less than fifty percent.
(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, and rendered to the registrant's
investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by
another investment adviser), and any entity controlling, controlled by,
or under common control with the adviser that provides ongoing services
to the Registrant for 2005 were $11091.72 and $136,569 for the
Registrant and the Registrant's investment adviser, respectively and
for 2006 were $5564.64 and $34,308 for the Registrant and the
Registrant's investment adviser, respectively.
(h) On December 10, 2006, the Registrant's audit committee of its Board of
Trustees determined that the provision of non-audit services that were
rendered to the Registrant's investment adviser (not including any
sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by another investment adviser), and any
entity controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the Registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal
accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
(a) The Registrant has a separately designated audit committee consisting of
all the independent trustees of the Registrant. The members of the audit
committee are: Thomas R. Kadlec, Niel B. Nielson, Richard E. Erickson and
Robert F. Keith.
ITEM 6. SCHEDULE OF INVESTMENTS.
Schedule of Investments in securities of unaffiliated issuers as of the close of
the reporting period is included as part of the report to shareholders filed
under Item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Proxy Voting Policies are attached herewith.
FAM INVESTMENT ADVISER
POLICIES AND PROCEDURES MANUAL
PROXY VOTING
POLICY
FAM, as a matter of policy and as a fiduciary to our clients, has
responsibility for voting proxies for portfolio securities consistent
with the best economic interests of the clients. Our firm maintains
written policies and procedures as to the handling, research, voting
and reporting of proxy voting and makes appropriate disclosures about
our firm's proxy policies and practices. Our policy and practice
includes the responsibility to monitor corporate actions, receive and
vote client proxies and disclose any potential conflicts of interest as
well as making information available to clients about the voting of
proxies for their portfolio securities and maintaining relevant and
required records.
BACKGROUND
Proxy voting is an important right of shareholders and reasonable care
and diligence must be undertaken to ensure that such rights are
properly and timely exercised. Investment advisers registered with the
SEC, and which exercise voting authority with respect to client
securities, are required by Rule 206(4)-6 of the Advisers Act to (a)
adopt and implement written policies and procedures that are reasonably
designed to ensure that client securities are voted in the best
interests of clients, which must include how an adviser addresses
material conflicts that may arise between an adviser's interests and
those of its clients; (b) to disclose to clients how they may obtain
information from the adviser with respect to the voting of proxies for
their securities; (c) to describe to clients a summary of its proxy
voting policies and procedures and, upon request, furnish a copy to its
clients; and (d) maintain certain records relating to the adviser's
proxy voting activities when the adviser does have proxy voting
authority.
RESPONSIBILITY
FAM's Vice President, Client Administration has the responsibility for
the implementation and monitoring of our proxy voting policy,
practices, disclosures and record keeping, including outlining our
voting guidelines in our procedures.
PROCEDURE
FAM has adopted procedures to implement the firm's policy and reviews
to monitor and insure the firm's policy is observed, implemented
properly and amended or updated, as appropriate, which include the
following:
It is the policy of FAM to vote all proxies over which it has voting
authority in the best interest of FAM's clients.
By "best interest of FAM's clients," FAM means clients' best economic
interest over the long term -- that is, the common interest that all
clients share in seeing the value of a common investment increase over
time. Clients may have differing political or social interests, but
their best economic interest is generally uniform.
By "material conflict of interest," FAM means circumstances when FAM
itself knowingly does business with a particular proxy issuer or
closely affiliated entity, and may appear to have a significant
conflict of interest between its own interests and the interests of
clients in how proxies of that issuer are voted.
FAM INVESTS WITH MANAGEMENT TEAMS THAT SEEK SHAREHOLDERS' BEST
INTERESTS
Under its investment philosophy, FAM generally invests client funds in
a company only if FAM believes that the company's management seeks to
serve shareholders' best interests. Because FAM has confidence in the
managements of the companies in which it invests, it believes that
management decisions and recommendations on issues such as proxy voting
GENERALLY are likely to be in shareholders' best interests.
FAM may periodically reassess its view of company managements. If FAM
concludes that a company's management no longer serves shareholders'
best interests, FAM generally sells its clients' shares of the company.
FAM believes that clients do not usually benefit from holding shares of
a poorly managed company or engaging in proxy contests with management.
FAM'S PROXY VOTING PROCEDURES
When companies in which FAM has invested client funds issue proxies,
FAM routinely votes the proxies as recommended by management, because
it believes that recommendations by these companies' managements
generally are in shareholders' best interests, and therefore in the
best economic interest of FAM's clients.
If FAM has decided to sell the shares of a company, whether because of
concerns about the company's management or for other reasons, FAM
generally abstains from voting proxies issued by the company after FAM
has made the decision to sell. FAM generally will not notify clients
when this type of routine abstention occurs.
FAM also may abstain from voting proxies in other circumstances. FAM
may determine, for example, that abstaining from voting is appropriate
if voting may be unduly burdensome or expensive, or otherwise not in
the best economic interest of clients, such as when foreign proxy
issuers impose unreasonable voting or holding requirements. FAM
generally will not notify clients when this type of routine abstention
occurs.
The procedures in this policy apply to all proxy voting matters over
which FAM has voting authority, including changes in corporate
governance structures, the adoption or amendment of compensation plans
(including stock options), and matters involving social issues or
corporate responsibility.
ALTERNATIVE PROCEDURES FOR POTENTIAL MATERIAL CONFLICTS OF INTEREST
In certain circumstances, such as when the proponent of a proxy
proposal is also a client of FAM, an appearance might arise of a
potential conflict between FAM's interests and the interests of
affected clients in how the proxies of that issuer are voted.
Because FAM does not exercise discretion in voting proxies, but
routinely votes proxies as recommended by management, no potential
conflict of interest could actually affect FAM's voting of the proxies.
Nevertheless, when FAM itself knowingly does business with a particular
proxy issuer and a material conflict of interest between FAM's
interests and clients' interests may appear to exist, FAM generally
would, to avoid any appearance concerns, follow an alternative
procedure rather than vote proxies as recommended by management. Such
an alternative procedure generally would involve causing the proxies to
be voted in accordance with the recommendations of an independent
service provider that FAM may use to assist in voting proxies.
FAM generally will not notify clients if it uses this procedure to
resolve an apparent material conflict of interest. FAM will document
the identification of any material conflict of interest and its
procedure for resolving the particular conflict.
In unusual cases, FAM may use other alternative procedures to address
circumstances when a material conflict of interest may appear to exist,
such as, without limitation:
(i) Notifying affected clients of the conflict of interest (if
practical), and seeking a waiver of the conflict to permit FAM to vote
the proxies under its usual policy;
(ii) Abstaining from voting the proxies; or
(iii) Forwarding the proxies to clients so that clients may vote the
proxies themselves.
FAM generally will notify clients if it uses one of these alternative
procedures to resolve a material conflict of interest.
VOTING BY CLIENT INSTEAD OF FAM
A FAM client may vote its own proxies instead of directing FAM to do
so. FAM recommends this approach if a client believes that proxies
should be voted based on political or social interests.
FAM generally will not accept proxy voting authority from a client (and
will encourage the client to vote its own proxies) if the client seeks
to impose client-specific voting guidelines that may be inconsistent
with FAM's guidelines or with the client's best economic interest in
FAM's view.
FAM generally will abstain from voting on (or otherwise participating
in) the commencement of legal proceedings such as shareholder class
actions or bankruptcy proceedings.
RESPONSIBILITY
FAM's client services staff has primary responsibility for implementing
FAM's proxy voting procedures, including ensuring that proxies are
timely submitted. FAM also may use a service provider to assist in
voting proxies, recordkeeping, and other matters.
FAM's security analysts routinely review proxy proposals as part of
their ongoing reassessment of companies and their managements.
RECORDKEEPING
FAM or a service provider maintains, in accordance with Rule 204-2 of
the Investment Advisers Act:
(i) Copies of all proxy voting policies and procedures;
(ii) Copies of proxy statements received (unless maintained elsewhere
as described below);
(iii) Records of proxy votes cast on behalf of clients;
(iv) Documents prepared by FAM that are material to a decision on how
to vote or memorializing the basis for a decision;
(v) Written client requests for proxy voting information, and (vi)
written responses by FAM to written or oral client requests.
FAM will obtain an undertaking from any service provider that the
service provider will provide copies of proxy voting records and other
documents promptly upon request if FAM relies on the service provider
to maintain related records.
FAM or its service provider may rely on the SEC's EDGAR system to keep
records of certain proxy statements if the proxy statements are
maintained by issuers on that system (as is generally true in the case
of larger U.S.-based issuers).
All proxy related records will be maintained in an easily accessible
place for five years (and an appropriate office of FAM or a service
provider for the first two years).
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(A)(1) IDENTIFICATION OF PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM MEMBERS AND
DESCRIPTION OF ROLE OF PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM MEMBERS
As of December 31, 2006, Mohammed Riad and K. Timothy Swanson serve as
primary portfolio manager and co-portfolio manager of the Registrant,
respectively. Mr. Riad is a Managing Director, Senior Portfolio Manager, and
Chief Derivatives Strategist and has been with Fiduciary Asset Management, LLC
("FAMCO"), the Registrant's sub-adviser, for seven and a half years. Mr. Riad
joined Fiduciary Asset Management in 1999 and has over 15 years of investment
industry experience. He is a member of the portfolio management team and serves
as senior portfolio manager for FAMCO's institutional and hedged large-cap
equity strategies, as well as closed-end and open-end funds. Additionally, Mr.
Riad has been instrumental in the development of industry leading large scale
derivatives strategies. He is actively involved with the Strategy Committee's
macroeconomic assessment and top-down approach to portfolio management.
Mr. Swanson is a Senior Vice President and Portfolio Manager and has
worked at FAMCO for three and a half years. Mr. Swanson performs quantitative
and qualitative research and holds portfolio management duties for FAMCO's
large-cap institutional equity strategies. He implements portfolio management
decisions for hedged equity institutional portfolios, as well as closed-end and
open-end funds. Mr. Swanson provides the Strategy Committee with statistical and
quantitative analysis of macroeconomic, sector, industry, and company-specific
recommendations and supporting data. He assists in designing, structuring, and
managing FAMCO's quantitative research effort.
(A)(2) OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM
MEMBER AND POTENTIAL CONFLICTS OF INTEREST
OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM
MEMBER
The information in the table below is as of December 31, 2006.
# of
Accounts
Managed for Total Assets
which for which
Total # of Advisory Fee Advisory Fee
Name of Portfolio Manager Accounts TOTAL is Based on is Based on
OR TEAM MEMBER TYPE OF ACCOUNTS* MANAGED ASSETS PERFORMANCE PERFORMANCE
-------------- ----------------- ------- ------ ----------- -----------
1. Mohammed Riad Registered Investment Companies: 3 $99.11 mil 0 $0
Other Pooled Investment Vehicles: 1 $ 7.0 0 $0
mil
Other Accounts: 116 $5,747 mil 0 $0
2. K. Timothy Swanson Registered Investment Companies: 3 $99.11 mil 0 $0
Other Pooled Investment Vehicles: 1 $ 7.0 0 $0
mil
Other Accounts: 116 $5,747 mil 0 $0
POTENTIAL CONFLICTS OF INTERESTS
Actual or apparent conflicts of interest may arise when a portfolio
manager has day-to-day management responsibilities with respect to more than one
Fund or other account. More specifically, portfolio managers who manage multiple
Funds and /or other accounts may be presented with one or more of the following
potential conflicts.
The management of multiple Funds and/or other accounts may result in a
portfolio manager devoting unequal time and attention to the management of each
Fund and/or other account. Fiduciary seeks to manage such competing interests
for the time and attention of a portfolio manager by having the portfolio
manager's focus on a particular investment discipline. Most other accounts
managed by a portfolio manager are managed using the same investment models that
are used in connection with the management of the Fund
If a portfolio manager identifies a limited investment opportunity
which may be suitable for more than one Fund or other account, a Fund may not be
able to take full advantage of that opportunity due to an allocation of filled
purchase or sale orders across all eligible Funds and other accounts. To deal
with these situations, Fiduciary and the Fund have adopted procedures for
allocating portfolio transactions across multiple accounts. With respect to
securities transactions for the Funds, Fiduciary determines which broker to use
to execute each order, consistent with its duty to seek best execution of the
transaction. However, with respect to certain other accounts (such as mutual
funds for which Fiduciary acts as sub-advisor, other pooled investment vehicles
that are not registered mutual funds, and other accounts managed for
organizations and individuals), Fiduciary may be limited by the client with
respect to the selection of brokers or may be instructed to direct trades
through a particular broker. In these cases, trades for a Fund in a particular
security may be placed separately from, rather than aggregated with, such other
accounts. Having separate transactions with respect to a security may
temporarily affect the market price of the security or the execution of the
transaction, or both, to the possible detriment of the Fund or other account(s)
involved
Fiduciary and the Fund have adopted certain compliance procedures which
are designed to address these types of conflicts. However, there is no guarantee
that such procedures will detect each and every situation in which a conflict
arises.
(A)(3) COMPENSATION STRUCTURE OF PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM
MEMBERS
The portfolio managers are paid a fixed base salary and an annual
bonus. The base salary is set at a level determined to be appropriate based upon
the individual's experience and responsibilities. The annual bonus is
discretionary and is determined by the CEO. It is not based on the performance
of the fund or managed accounts.
(A)(4) DISCLOSURE OF SECURITIES OWNERSHIP
The information below is as of December 31, 2006:
Name of Portfolio Manager or Dollar Range of Fund Shares
TEAM MEMBER BENEFICIALLY OWNED
Mohammed Riad $10,001-50,000
K. Timothy Swanson $0
(B) Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of directors, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)),
or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within
90 days of the filing date of the report that includes the disclosure
required by this paragraph, based on their evaluation of these controls
and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR
270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities
Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or
240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17
CFR 270.30a-3(d)) that occurred during the registrant's second fiscal
quarter of the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and
Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) FIRST TRUST/FIDUCIARY ASSET MANAGEMENT COVERED CALL 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: FEBRUARY 22, 2007
--------------------------------------------------------------------------
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/ JAMES A. BOWEN
-------------------------------------------------------
James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
Date: FEBRUARY 22, 2007
--------------------------------------------------------------------------
By (Signature and Title)* /S/ MARK R. BRADLEY
-------------------------------------------------------
Mark R. Bradley, Treasurer, Controller, Chief Financial
Officer and Chief Accounting Officer
(principal financial officer)
Date: FEBRUARY 22, 2007
--------------------------------------------------------------------------
* Print the name and title of each signing officer under his or her signature.