FHI Federated Hermes Inc

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

FORM N-Q

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED MANAGEMENT
INVESTMENT COMPANY

 Date of fiscal year end: October 31
 ------------

Date of reporting period: January 31, 2011
 ------------------

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

A registrant is required to disclose the information specified by Form N-Q, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-Q unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to the Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. ss. 3507.

ITEM 1. SCHEDULE OF INVESTMENTS. The Schedule of Investments is attached
herewith.

FIRST TRUST STRATEGIC HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (a)
JANUARY 31, 2011 (UNAUDITED)

 PRINCIPAL STATED STATED
 VALUE DESCRIPTION COUPON MATURITY VALUE
________________ _______________________________________ ____________ ____________ _______________
CORPORATE BONDS AND NOTES - 90.3%

 AUTOMOTIVE - 1.2%
 $ 400,000 Ford Motor Co. ........................ 6.50% 08/01/18 $ 420,552
 _______________
 BASIC INDUSTRY - 12.8%
 455,000 AK Steel Corp. (b)..................... 7.63% 05/15/20 466,375
 425,000 Arch Coal, Inc. (b).................... 8.75% 08/01/16 472,812
 425,000 Cascades, Inc. (b)..................... 7.88% 01/15/20 444,125
 215,000 Georgia-Pacific LLC (b)................ 7.38% 12/01/25 230,588
 185,000 Georgia-Pacific LLC ................... 7.25% 06/01/28 195,638
 275,000 Hexion U.S. Finance Corp./Hexion Nova
 Scotia Finance ULC ................ 8.88% 02/01/18 297,687
 425,000 Mercer International, Inc. (c)......... 9.50% 12/01/17 448,375
 325,000 Steel Dynamics, Inc. (b) (c)........... 7.63% 03/15/20 349,375
 450,000 Tembec Industries, Inc. (c)............ 11.25% 12/15/18 491,625
 600,000 United States Steel Corp. (b).......... 7.00% 02/01/18 619,500
 400,000 Westlake Chemical Corp. (b)............ 6.63% 01/15/16 415,000
 _______________
 4,431,100
 _______________

 CAPITAL GOODS - 12.2%
 425,000 BE Aerospace, Inc. .................... 8.50% 07/01/18 464,312
 90,000 Berry Plastics Corp. .................. 9.50% 05/15/18 95,400
 425,000 Bombardier, Inc. (b) (c)............... 7.75% 03/15/20 467,500
 400,000 CNH America LLC (b).................... 7.25% 01/15/16 436,000
 245,000 Coleman Cable, Inc. ................... 9.00% 02/15/18 254,800
 215,000 Mueller Water Products, Inc. .......... 7.38% 06/01/17 209,894
 825,000 Owens-Illinois, Inc. (b)............... 7.80% 05/15/18 899,250
 225,000 RBS Global, Inc./Rexnord LLC .......... 8.50% 05/01/18 242,438
 400,000 Terex Corp. ........................... 8.00% 11/15/17 416,000
 275,000 Trimas Corp. .......................... 9.75% 12/15/17 304,563
 425,000 USG Corp. (d).......................... 9.75% 01/15/18 434,562
 _______________
 4,224,719
 _______________

 CONSUMER CYCLICAL - 9.3%
 425,000 ACCO Brands Corp. (b).................. 10.63% 03/15/15 482,375
 400,000 Easton-Bell Sports, Inc. .............. 9.75% 12/01/16 447,000
 425,000 Ford Motor Credit Corp., LLC (b)....... 8.00% 12/15/16 482,637
 425,000 Levi Strauss & Co. (b)................. 7.63% 05/15/20 446,781
 425,000 Limited Brands, Inc. (b)............... 7.60% 07/15/37 416,500
 220,000 Neiman Marcus Group, Inc. ............. 10.38% 10/15/15 233,750
 250,000 Phillips-Van Heusen Corp. ............. 7.38% 05/15/20 268,438
 425,000 Reynolds Group Issuer, Inc./Reynolds
 Group Issuer LLC (c)............... 9.00% 04/15/19 448,375
 _______________
 3,225,856
 _______________

 CONSUMER NON-CYCLICAL - 5.3%
 425,000 B&G Foods, Inc. ....................... 7.63% 01/15/18 452,625
 500,000 C&S Group Enterprises LLC (c).......... 8.38% 05/01/17 498,125
 425,000 Constellation Brands, Inc. (b)......... 7.25% 05/15/17 456,875
 215,000 Rite Aid Corp. ........................ 8.63% 03/01/15 191,888

See Notes to Quarterly Portfolio of Investments Page 1

FIRST TRUST STRATEGIC HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
JANUARY 31, 2011 (UNAUDITED)

 PRINCIPAL STATED STATED
 VALUE DESCRIPTION COUPON MATURITY VALUE
________________ _______________________________________ ____________ ____________ _______________
CORPORATE BONDS AND NOTES - (CONTINUED)

 CONSUMER NON-CYCLICAL - (CONTINUED)
 $ 200,000 Rite Aid Corp. ........................ 9.75% 06/12/16 $ 224,000
 _______________
 1,823,513
 _______________

 ENERGY - 12.8%
 200,000 Chaparral Energy, Inc. ................ 8.88% 02/01/17 210,000
 425,000 Crosstex Energy LP/Crosstex Energy
 Finance Corp. ..................... 8.88% 02/15/18 462,187
 425,000 Edgen Murray Corp. .................... 12.25% 01/15/15 386,750
 275,000 Hercules Offshore LLC (c).............. 10.50% 10/15/17 243,375
 425,000 Hilcorp Energy I LP/Hilcorp Finance Co.
 (b) (c)............................ 8.00% 02/15/20 463,250
 120,000 Linn Energy LLC/Linn Energy Finance Corp.
 (c)................................ 8.63% 04/15/20 132,000
 400,000 McJunkin Red Man Corp. (c)............. 9.50% 12/15/16 398,500
 495,000 Niska Gas Storage US LLC/Niska Gas Sorage
 Canada ULC (b) (c)................. 8.88% 03/15/18 542,025
 425,000 Pioneer Natural Resources Co. (b)...... 6.65% 03/15/17 456,620
 425,000 Plains Exploration & Production Co. ... 7.63% 06/01/18 454,750
 170,000 Precision Drilling Corp. (c)........... 6.63% 11/15/20 176,163
 500,000 Whiting Petroleum Corp. ............... 6.50% 10/01/18 518,125
 _______________
 4,443,745
 _______________

 MEDIA - 10.1%
 285,000 American Reprographics Co. (c)......... 10.50% 12/15/16 303,525
 425,000 Cablevision Systems Corp. (b).......... 8.63% 09/15/17 477,062
 425,000 CCO Holdings LLC/CCO Holdings Capital
 Corp. (c).......................... 8.13% 04/30/20 454,750
 425,000 Deluxe Corp. (b)....................... 7.38% 06/01/15 443,063
 425,000 Dish DBS Corp. (b)..................... 7.88% 09/01/19 452,094
 425,000 Insight Communications Co., Inc. (c)... 9.38% 07/15/18 466,437
 425,000 Lamar Media Corp. ..................... 7.88% 04/15/18 453,687
 425,000 Mediacom LLC/Mediacom Capital Corp. ... 9.13% 08/15/19 440,938
 _______________
 3,491,556
 _______________

 SERVICES - 15.0%
 400,000 AMC Entertainment, Inc. ............... 8.75% 06/01/19 431,000
 425,000 ARAMARK Corp. ......................... 8.50% 02/01/15 445,187
 425,000 Avis Budget Car Rental LLC/Avis Budget
 Finance, Inc. ..................... 9.63% 03/15/18 469,625
 200,000 Beazer Homes USA, Inc. ................ 9.13% 06/15/18 204,000
 400,000 Harrah's Operating Co., Inc. .......... 11.25% 06/01/17 456,000
 400,000 HCA, Inc. (b).......................... 9.25% 11/15/16 432,500
 400,000 Iron Mountain, Inc. (b)................ 8.75% 07/15/18 425,500
 97,000 KAR Holdings, Inc. .................... 10.00% 05/01/15 103,305
 300,000 Maxim Crane Works LP (c)............... 12.25% 04/15/15 305,250
 225,000 MGM Resorts International ............. 5.88% 02/27/14 214,313
 225,000 MGM Resorts International ............. 10.38% 05/15/14 255,937
 425,000 Pulte Group, Inc. ..................... 6.38% 05/15/33 325,125

See Notes to Quarterly Portfolio of Investments Page 2

FIRST TRUST STRATEGIC HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
JANUARY 31, 2011 (UNAUDITED)

 PRINCIPAL STATED STATED
 VALUE DESCRIPTION COUPON MATURITY VALUE
________________ _______________________________________ ____________ ____________ _______________
CORPORATE BONDS AND NOTES - (CONTINUED)

 SERVICES - (CONTINUED)
 $ 225,000 RSC Equipment Rental, Inc./RSC Holdings
 III LLC ........................... 10.25% 11/15/19 $ 250,875
 425,000 Standard Pacific Corp. ................ 8.38% 05/15/18 444,125
 425,000 United Rentals North America, Inc. .... 8.38% 09/15/20 446,250
 _______________
 5,208,992
 _______________

 TECHNOLOGY & ELECTRONICS - 1.9%
 22,000 First Data Corp. ...................... 9.88% 09/24/15 22,055
 96,000 First Data Corp. (c)................... 8.25% 01/15/21 92,880
 500,000 Freescale Semiconductor, Inc. (c)...... 9.25% 04/15/18 556,250
 _______________
 671,185
 _______________

 TELECOMMUNICATIONS - 7.4%
 215,000 Cincinnati Bell, Inc. ................. 8.25% 10/15/17 218,225
 210,000 Cincinnati Bell, Inc. ................. 8.38% 10/15/20 205,275
 400,000 Citizens Communications (b)............ 7.13% 03/15/19 422,000
 400,000 Global Crossing Ltd. .................. 12.00% 09/15/15 462,000
 200,000 PAETEC Holding Corp. .................. 9.50% 07/15/15 210,500
 200,000 PAETEC Holding Corp. .................. 8.88% 06/30/17 216,000
 400,000 Qwest Corp. (b)........................ 6.88% 09/15/33 398,000
 425,000 Windstream Corp. (b)................... 7.00% 03/15/19 425,000
 _______________
 2,557,000
 _______________

 UTILITY - 2.3%
 425,000 Calpine Corp. (c)...................... 7.25% 10/15/17 436,687
 225,000 Dynegy Holdings, Inc. ................. 7.75% 06/01/19 162,563
 225,000 Edison Mission Energy ................. 7.00% 05/15/17 185,625
 _______________
 784,875
 _______________
 TOTAL CORPORATE BONDS AND NOTES .................................... 31,283,093
 (Cost $29,754,243) _______________


MORTGAGE-BACKED SECURITIES - 20.8%

 COLLATERALIZED MORTGAGE OBLIGATIONS - 8.4%
 Chase Mortgage Finance Corp.
 143,804 Series 2007-S2, Class 1A8 ......... 6.00% 03/25/37 132,875
 Citicorp Mortgage Securities, Inc.
 660,000 Series 2007-2, Class 1A3 .......... 6.00% 02/25/37 648,200
 Countrywide Alternative Loan Trust
 98,509 Series 2006-41CB, Class 2A14 ...... 6.00% 01/25/37 83,874
 Countrywide Home Loan Mortgage Pass
 Through Trust
 470,477 Series 2005-27, Class 2A1 ......... 5.50% 12/25/35 430,931
 314,000 Series 2007-10, Class A5 .......... 6.00% 07/25/37 261,799
 HarborView Mortgage Loan Trust
 3,680,848 Series 2005-9, Class B10 (e)....... 2.01% 06/20/35 325,632
 JP Morgan Mortgage Trust
 78,753 Series 2006-S3, Class 1A30 ........ 6.50% 08/25/36 72,979
 Residential Asset Securitization Trust
 398,069 Series 2005-A8CB, Class A11 ....... 6.00% 07/25/35 366,472

See Notes to Quarterly Portfolio of Investments Page 3

FIRST TRUST STRATEGIC HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
JANUARY 31, 2011 (UNAUDITED)

 PRINCIPAL STATED STATED
 VALUE DESCRIPTION COUPON MATURITY VALUE
________________ _______________________________________ ____________ ____________ _______________
MORTGAGE-BACKED SECURITIES - (CONTINUED)

 COLLATERALIZED MORTGAGE OBLIGATIONS - (CONTINUED)
 Structured Asset Securities Corp.
 $ 66,168 Series 2003-10, Class A ........... 6.00% 04/25/33 $ 70,112
 Wells Fargo Mortgage Backed Securities
 Trust
 308,000 Series 2006-8, Class A15 .......... 6.00% 07/25/36 296,235
 216,485 Series 2007-7, Class A38 .......... 6.00% 06/25/37 209,965
 28,241 Series 2007-8, Class 1A16 ......... 6.00% 07/25/37 25,652
 _______________
 2,924,726
 _______________

 COMMERCIAL MORTGAGE-BACKED SECURITIES - 12.4%
 Banc of America Commercial Mortgage, Inc.
 778,723 Series 2000-1, Class M (g) (h)..... 6.00% 11/15/31 8
 Banc of America Large Loan, Inc.
 2,000,000 Series 2005-MIB1, Class L (e) (f) (g) 3.26% 03/15/22 674,394
 Citigroup/Deutsche Bank Commercial Mortgage
 Trust
 310,000 Series 2007-CD4, Class A4 ......... 5.32% 12/11/49 323,336
 Commercial Mortgage Pass Through
 Certificates
 330,000 Series 2007-C9, Class A4 (e)....... 5.81% 12/10/49 357,922
 Credit Suisse Mortgage Capital Certificates
 60,000 Series 2006-C5, Class AJ .......... 5.37% 12/15/39 53,776
 Extended Stay America Trust
 830,000 Series 2010-ESHA, Class D (c)...... 5.50% 11/05/27 845,256
 GE Capital Commercial Mortgage Corp.
 700,000 Series 2000-1, Class G (f) (g)..... 6.13% 01/15/33 286,473
 Greenwich Capital Commercial Funding
 Corp.
 200,000 Series 2007-GG11, Class A4 ........ 5.74% 12/10/49 212,522
 330,000 Series 2007-GG11, Class AJ ........ 6.00% 12/10/49 293,645
 LB-UBS Commercial Mortgage Trust
 3,025,000 Series 2001-C7, Class Q (g)........ 5.87% 11/15/33 136,211
 773,848 Series 2001-C7, Class S (g)........ 5.87% 11/15/33 14,178
 Morgan Stanley Capital I, Inc.
 968,400 Series 1999-WF1, Class M (g)....... 5.91% 11/15/31 819,962
 2,787,919 Series 2003-IQ5, Class O (f) (g)... 5.24% 04/15/38 261,971
 _______________
 4,279,654
 _______________
 TOTAL MORTGAGE-BACKED SECURITIES ................................... 7,204,380
 (Cost $7,591,302) _______________


ASSET-BACKED SECURITIES - 10.4%
 Ace Securities Corp.
 322,000 Series 2003-MH1, Class A4 (c)...... 6.50% 08/15/30 343,986
 Bombardier Capital Mortgage
 Securitization Corp.
 308,658 Series 1999-B, Class A1B .......... 6.61% 12/15/29 184,757
 1,106,347 Series 1999-B, Class A3 ........... 7.18% 12/15/29 706,359

See Notes to Quarterly Portfolio of Investments Page 4

FIRST TRUST STRATEGIC HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
JANUARY 31, 2011 (UNAUDITED)

 PRINCIPAL STATED STATED
 VALUE DESCRIPTION COUPON MATURITY VALUE
________________ _______________________________________ ____________ ____________ _______________
ASSET-BACKED SECURITIES - (CONTINUED)

 Conseco Finance Securitizations Corp.
 $ 2,720,628 Series 2000-6, Class M1 ........... 7.72% 09/01/31 $ 699,536
 Countrywide Asset-Backed Certificates
 232,948 Series 2006-13, Class 3AV2 (e)..... 0.41% 01/25/37 164,301
 Credit Suisse First Boston Mortgage
 Securities Corp.
 100,966 Series 2002-MH3, Class A .......... 6.70% 12/25/31 104,996
 Falcon Franchise Loan Trust
 4,905,000 Series 2000-1, Class E (c) (f)..... 6.50% 04/05/16 49,050
 4,231,000 Series 2003-1, Class E (g) (h)..... 6.00% 01/05/25 5,500
 Green Tree Financial Corp.
 208,298 Series 1997-4, Class B1 ........... 7.23% 02/15/29 24,725
 858,461 Series 1998-4, Class M1 ........... 6.83% 04/01/30 383,426
 3,844,951 Series 1999-3, Class M1 ........... 6.96% 02/01/31 512,327
 GSAMP Trust
 440,199 Series 2004-AR2, Class B4 (g)...... 5.00% 08/25/34 15,171
 968,788 Series 2006-S3, Class A2 (f)....... 5.77% 05/25/36 59,480
 848,537 Series 2006-S5, Class A1 (e)....... 0.35% 09/25/36 26,589
 Cndependence III CDO, Ltd.
 5,000,000 Series 3A, Class C1 (e) (g) (i).... 2.80% 10/03/37 33,450
 Long Beach Mortgage Loan Trust
 1,912,209 Series 2006-A, Class A2 (f)........ 6.05% 05/25/36 93,581
 Park Place Securities, Inc.
 1,564,299 Series 2004-WCW1, Class M8 (e)..... 3.76% 09/25/34 36,155
 1,301,976 Series 2004-WCW2, Class M10 (e) (g) 3.01% 10/25/34 70,527
 Stanfield Azure CLO, Ltd.
 77,999 Series 2006-1A, Class X (c)........ 5.34% 05/27/20 78,550
 Summit CBO I, Ltd.
 4,219,712 Series 1A, Class B (e) (g) (h)..... 1.44% 05/23/11 5,486
 Summit Lake CLO, Ltd.
 13,656 Series 2005-1A, Class X (c)........ 5.25% 02/24/11 13,698
 _______________
 TOTAL ASSET-BACKED SECURITIES ...................................... 3,611,650
 (Cost $3,446,262) _______________


SENIOR FLOATING-RATE LOAN INTERESTS - 0.5%

 UTILITY - 0.5%
 223,269 Texas Competitive Electric Holdings Co.,
 LLC Tranche B2 (e)................. 3.30% 10/10/14 184,511
 _______________
 TOTAL SENIOR FLOATING-RATE LOAN INTERESTS .......................... 184,511
 (Cost $193,290) _______________


U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 0.1%

 COMMERCIAL MORTGAGE-BACKED SECURITIES - 0.1%
 FannieMae-ACES
 2,497,896 Series 1998-M7, Class N, IO (e).... 0.63% 05/25/36 15,113
 _______________
 TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES ............ 15,113
 (Cost $105,240) _______________

See Notes to Quarterly Portfolio of Investments Page 5

FIRST TRUST STRATEGIC HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
JANUARY 31, 2011 (UNAUDITED)

 PRINCIPAL STATED STATED
 VALUE DESCRIPTION COUPON MATURITY VALUE
________________ _______________________________________ ____________ ____________ _______________
STRUCTURED NOTES - 0.0%

 $ 3,750,000 Preferred Term Securities XXV, Ltd. (g) (j) 06/22/37 $ 375
 _______________
 TOTAL STRUCTURED NOTES ............................................. 375
 _______________
 (Cost $0)

 SHARES DESCRIPTION VALUE
________________ ______________________________________________________________________ _______________
PREFERRED SECURITIES - 0.1%

 2,000 Soloso CDO, Ltd., Series 2005-1 (g) (j)............................. 20,000
 3,000 White Marlin CDO, Ltd., Series AI (g) (i) (j)....................... 15,000
 _______________
 TOTAL PREFERRED SECURITIES ......................................... 35,000
 (Cost $0) _______________

 TOTAL INVESTMENTS - 122.2% ......................................... 42,334,122
 (Cost $41,090,337) (k)



 PRINCIPAL
 VALUE DESCRIPTION AMOUNT
 _______________ ______________________________________________________________________ _______________

REVERSE REPURCHASE AGREEMENTS - (28.0%)

$ (3,774,054) With Barclays Capital Inc. 1.00% dated 01/18/11, to be repurchased at
 $3,777,724 on 02/22/11 ............................................. (3,774,054)
 (3,663,820) With Barclays Capital Inc. 1.00% dated 01/19/11, to be repurchased at
 $3,667,381 on 02/23/11 ............................................. (3,663,820)
 (2,247,087) With Barclays Capital Inc. 1.00% dated 01/20/11, to be repurchased at
 $2,249,272 on 02/24/11 ............................................. (2,247,087)
 _______________
 TOTAL REVERSE REPURCHASE AGREEMENTS ................................ (9,684,961)
 _______________


 NET OTHER ASSETS AND LIABILITIES - 5.8% ............................ 1,997,004
 _______________
 NET ASSETS - 100.0% ................................................ $ 34,646,165
 ===============

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

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

(c) This security, sold within the terms of a private placement memorandum, is exempt from registration upon resale under Rule 144A under the Securities Act of 1933, as amended (the "1933 Act"), and may be resold in transactions exempt from registration, normally to qualified institutional buyers. Pursuant to procedures adopted by the Fund's Board of Trustees, this security has been determined to be liquid by Brookfield Investment Management Inc., the Fund's investment sub-advisor. Although market instability can result in periods of increased overall market illiquidity, liquidity for each security is determined based on security specific factors and assumptions, which require subjective judgment. At January 31, 2011, securities noted as such amounted to $8,605,007 or 22.84% of net assets.

(d) Multi-Step Coupon Bond - coupon steps up or down based upon ratings changes by Standard & Poor's Ratings Group or Moody's Investors Service, Inc. The interest rate shown reflects the rate in effect at January 31, 2011.

(e) Floating rate security. The interest rate shown reflects the rate in effect at January 31, 2011.

(f) Security is receiving less than the stated coupon.

See Notes to Quarterly Portfolio of Investments Page 6

FIRST TRUST STRATEGIC HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
JANUARY 31, 2011 (UNAUDITED)

(g) This security, sold within the terms of a private placement memorandum, is exempt from regiupon resale under Rule 144A under the 1933 Act, and may be resold in transactions exempt from registration, normally to qualified institutional buyers (see Note C
- Restricted Securities in the Notes to Quarterly Portfolio of Investments).

(h) Security missed one or more of its interest payments.

(i) The issuer is in default. Income is not being accrued.

(j) Zero coupon security.

(k) Aggregate cost for financial reporting purposes, which approximates the aggregate cost for federal income tax purposes. As of January 31, 2011, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $3,057,892 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $1,814,107.

ACES Alternative Credit Enhancement Securities CBO Collateralized Bond Obligation CDO Collateralized Debt Obligation CLO Collateralized Loan Obligation IO Interest-Only Security - Principal amount shown represents par value on which interest payments are based.

VALUATION INPUTS

A summary of the inputs used to value the Fund's investments as of January 31, 2011 is as follows (see Note A - Portfolio Valuation in the Notes to Quarterly Portfolio of Investments):

 LEVEL 2 LEVEL 3
 TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
 VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
 1/31/2011 PRICES INPUTS INPUTS
 ______________ ___________ ______________ _____________
Corporate Bonds and Notes*....................... $ 31,283,093 $ -- $ 31,283,093 $ --
Mortgage-Backed Securities:
 Collateralized Mortgage Obligations.......... 2,924,726 -- 2,924,726 --
 Commercial Mortgage-Backed Securities........ 4,279,654 -- 4,279,654 --
Asset-Backed Securities.......................... 3,611,650 -- 3,537,916 73,734
Senior Floating-Rate Loan Interests*............. 184,511 -- 184,511 --
U.S. Government Agency Mortgage-Backed
 Securities .................................... 15,113 -- 15,113 --
Structured Notes................................. 375 -- 375 --
Preferred Securities............................. 35,000 -- -- 35,000
 ______________ ___________ ______________ _____________
TOTAL INVESTMENTS................................ $ 42,334,122 $ -- $ 42,225,388 $ 108,734
 ============== =========== ============== =============

* See the Portfolio of Investments for industry breakout.

See Notes to Quarterly Portfolio of Investments Page 7

FIRST TRUST STRATEGIC HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
JANUARY 31, 2011 (UNAUDITED)

The following table presents the Fund's investments measured at fair value on a
recurring basis using significant unobservable inputs (Level 3) for the period presented.

 INVESTMENTS AT FAIR CHANGE IN NET
 VALUE USING SIGNIFICANT BALANCE AS OF TRANSFERS IN NET REALIZED UNREALIZED NET BALANCE AS OF
 UNOBSERVABLE INPUTS OCTOBER 31, (OUT) OF GAINS APPRECIATION PURCHASES JANUARY 31,
 ( LEVEL 3) 2010 LEVEL 3 (LOSSES) (DEPRECIATION) (SALES) 2011
________________________________________________________________________________________________________________________
Asset-Backed Securities $ 87,636 $ -- $ (137) $ (230) $(13,535) $ 73,734
Preferred Securities 35,000 -- -- -- -- 35,000
 ___________________________________________________________________________________________
TOTAL INVESTMENTS $ 122,636 $ -- $ (137) $ (230) $(13,535) $108,734
 ===========================================================================================

See Notes to Quarterly Portfolios of Investments Page 8

NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS

FIRST TRUST STRATEGIC HIGH INCOME FUND
JANUARY 31, 2011 (UNAUDITED)

VALUATION AND INVESTMENT PRACTICES

A. PORTFOLIO VALUATION:

The net asset value ("NAV") of the Common Shares of First Trust Strategic High Income Fund (the "Fund") determined daily as of the close of regular trading on the New York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV is determined as of that time. Domestic debt securities and foreign securities are priced using data reflecting the earlier closing of the principal markets for those securities. The NAV per Common Share is calculated by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses, dividends declared but unpaid and any borrowings of the Fund), by the total number of Common Shares outstanding.

The Fund's investments are valued daily in accordance with valuation procedures adopted by the Fund's Board of Trustees, and in accordance with provisions of the Investment Company Act of 1940, as amended (the "1940 Act"). Securities for which market quotations are readily available are valued using the last reported sale price on the business day as of which such value is being determined. If no sales are reported on such business day (as in the case of some securities traded over-the-counter), the last reported bid price is used, except that certain U.S. Government securities are valued at the mean between the last reported bid and asked prices. Mortgage-backed securities ("MBS") and other debt securities not traded in an organized market are valued on the basis of valuations provided by dealers who make markets in such securities or by an independent pricing service approved by the Fund's Board of Trustees, which may use the following valuation inputs when available:

1) benchmark yields;
2) reported trades;
3) broker/dealer quotes;
4) issuer spreads;
5) benchmark securities;
6) bids and offers; and
7) reference data including market research publications.

A ready market does not exist for some of these investments. As such, these values may differ from the values that would have been used had a ready market for these investments existed, and the differences could be material.

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

In the event that market quotations are not readily available, the pricing service or dealer does not provide a valuation, or the valuations received are deemed unreliable, the Fund's Board of Trustees has designated First Trust Advisors L.P. ("First Trust") to use a fair value method to value the Fund's securities. Additionally, if events occur after the close of the principal markets for certain securities (e.g., domestic debt and foreign securities) that could materially affect the Fund's NAV, First Trust may use a fair value method to value the Fund's securities. The use of fair value pricing is governed by valuation procedures adopted by the Fund's Board of Trustees, and in accordance with the provisions of the 1940 Act. As a general principle, the fair value of a security is the amount which the Fund might reasonably expect to receive for the security upon its current sale. However, in light of the judgment involved in fair valuations, there can be no assurance that a fair value assigned to a particular security will be the amount which the Fund might be able to receive upon its current sale. Fair valuation of a security is based on the consideration of all available information, including, but not limited to, the following:

1) the fundamental business data relating to the issuer;
2) an evaluation of the forces which influence the market in which these securities are purchased and sold;
3) the type, size and cost of security;
4) the financial statements of the issuer;
5) the credit quality and cash flow of the issuer, based on the Sub- Advisor's or external analysis;
6) the information as to any transactions in or offers for the security;
7) the price and extent of public trading in similar securities (or equity securities) of the issuer/borrower, or comparable companies;
8) the coupon payments;
9) the quality, value and salability of collateral, if any, securing the security; 10) the business prospects of the issuer, including any ability to obtain money or resources from a parent or affiliate and an assessment of the issuer's management; 11) the prospects for the issuer's industry, and multiples (of earnings and/or cash flows) being paid for similar businesses in that industry; and 12) other relevant factors.

NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS - (CONTINUED)

FIRST TRUST STRATEGIC HIGH INCOME FUND
JANUARY 31, 2011 (UNAUDITED)

The Fund invests a significant portion of its assets in below-investment grade debt securities, including structured finance securities and corporate bonds. Structured finance securities include: asset-backed securities, including home equity, auto, equipment lease, credit card, aircraft, franchise, manufactured housing, etc.; commercial mortgage-backed securities; residential mortgage-backed or private-label collateralized mortgage obligations; collateralized debt obligations and collateralized loan obligations. The value and related income of these securities is sensitive to changes in economic conditions, including delinquencies and/or defaults. Instability in the markets for fixed-income securities, particularly mortgage-backed and asset-backed securities, has resulted in increased volatility and periods of illiquidity that have adversely impacted the valuation of certain securities held by the Fund.

The Fund is subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows:

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

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

o Quoted prices for similar securities in active markets.
o Quoted prices for identical or similar securities in markets that are non-active. A non-active market is a market where there are few transactions for the security, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly.
o Inputs other than quoted prices that are observable for the security (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates).
o Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

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

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. A summary of the inputs used to value the Fund's investments as of January 31, 2011, is included with the Fund's Portfolio of Investments.

B. SECURITIES TRANSACTIONS:

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

Securities purchased on a when-issued, delayed-delivery or forward purchase commitment basis may have extended settlement periods. The value of the security so purchased is subject to market fluctuations during this period. The Fund maintains liquid assets with a current value at least equal to the amount of its when-issued, delayed-delivery or forward purchase commitments until payment is made. At January 31, 2011, the Fund had no when-issued, delayed-delivery or forward purchase commitments.

C. RESTRICTED SECURITIES:

The Fund invests in restricted securities, which are securities that may not be offered for public sale without first being registered under the 1933 Act. Prior to registration, restricted securities may only be resold in transactions exempt from registration under Rule 144A under the 1933 Act, normally to qualified institutional buyers. As of January 31, 2011, the Fund held restricted securities as shown in the following table that the Brookfield Investment Management Inc. has deemed illiquid pursuant to procedures adopted by the Fund's Board of Trustees. Although market instability can result in periods of increased overall market illiquidity, liquidity for each security is determined based on security-specific factors and assumptions, which require subjective judgment. The Fund does not have the right to demand that such securities be registered. These securities are valued according to the valuation procedures as stated in the Portfolio Valuation footnote (Note A) and are not expressed as a discount to the carrying value of a comparable unrestricted security. There are no unrestricted securities with the same maturity dates and yields for these issuers.

NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS - (CONTINUED)

FIRST TRUST STRATEGIC HIGH INCOME FUND
JANUARY 31, 2011 (UNAUDITED)

 % OF
 ACQUISITION PRINCIPAL CARRYING NET
SECURITY DATE VALUE/SHARES PRICE COST VALUE ASSETS
__________________________________________________________________________________________________________________________________
Banc of America Commercial Mortgage, Inc.
 Series 2000-1, Class M, 6.00%, 11/15/31 08/22/05 $ 778,723 $ 0.00 * $ - $ 8 0.00 % **

Banc of America Large Loan, Inc.
 Series 2005-MIB1, Class L, 3.26%, 03/15/22 08/26/06 $ 2,000,000 33.72 520,128 674,394 1.95

Falcon Franchise Loan Trust
 Series 2003-1, Class E, 6.00%, 01/05/25 08/09/05 $ 4,231,000 0.13 - 5,500 0.02

GE Capital Commercial Mortgage Corp.
 Series 2000-1, Class G, 6.13%, 01/15/33 06/27/07 $ 700,000 40.92 478,396 286,473 0.83

GSAMP Trust
 Series 2004-AR2, Class B4, 5.00%, 08/25/34 08/17/05 $ 440,199 3.45 - 15,171 0.04

Independence III CDO, Ltd.
 Series 3A, Class C1, 2.80%, 10/03/37 12/27/06 $ 5,000,000 0.67 - 33,450 0.10

LB-UBS Commercial Mortgage Trust
 Series 2001-C7, Class Q, 5.87%, 11/15/33 09/19/05 $ 3,025,000 4.50 - 136,211 0.39
 Series 2001-C7, Class S, 5.87%, 11/15/33 09/29/05 $ 773,848 1.83 - 14,178 0.04

Morgan Stanley Capital I, Inc.
 Series 1999-WF1, Class M, 5.91%, 11/15/31 08/03/05 $ 968,400 84.67 717,462 819,962 2.37
 Series 2003-IQ5, Class O, 5.24%, 04/15/38 10/19/06 $ 2,787,919 9.40 2,592 261,971 0.75

Park Place Securities, Inc.
 Series 2004-WCW2, Class M10, 3.01%, 10/25/34 03/24/06 $ 1,301,976 5.42 120,334 70,527 0.20

Preferred Term Securities XXV, Ltd.
 Zero Coupon, 06/22/37 03/22/07 $ 3,750,000 0.00 * - 375 0.00 **

Soloso CDO, Ltd., Series 2005-1 11/30/05 $ 2,000 10.00 - 20,000 0.06

Summit CBO I, Ltd
 Series 1A, Class B, 1.44%, 05/23/11 08/03/05 $ 4,219,712 0.13 72,625 5,486 0.02

White Marlin CDO, Ltd., Series AI 06/01/07 $ 3,000 5.00 - 15,000 0.04
 ---------- ----------- ---------
 $1,911,537 $ 2,358,706 6.81 %
 ========== =========== =========
* Amount is less than $0.01.
** Amount is less than 0.01%.

D. REVERSE REPURCHASE AGREEMENTS:

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

Information for the period ended January 31, 2011:

Maximum amount outstanding during the period.................. $9,684,961
Average amount outstanding during the period*................. $8,787,235
Average monthly Common Shares outstanding during the period... 9,150,594
Average debt per Common Share outstanding during the period... $0.96

* The average amount outstanding during the period was calculated by adding the borrowings at the end of each day and dividing the sum by the number of days in the period ended January 31, 2011.

During the period ended January 31, 2011, interest rate was 1.00% on borrowings by the Fund under reverse repurchase agreements, which had interest expense that aggregated $22,456.

NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS - (CONTINUED)

FIRST TRUST STRATEGIC HIGH INCOME FUND
JANUARY 31, 2011 (UNAUDITED)

E. INTEREST-ONLY SECURITIES:

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

F. MORTGAGE DOLLAR ROLLS:

The Fund may enter into mortgage dollar rolls in which the Fund sells mortgage-backed securities for delivery in the current month, realizing a gain or loss, and simultaneously contracts to repurchase substantially similar (same type, coupon and maturity) securities to settle on a specified future date.

The Fund executes its mortgage dollar rolls entirely in the TBA market, whereby the Fund makes a forward commitment to purchase a security and, instead of accepting delivery, the position is offset by a sale of the security with a simultaneous agreement to repurchase at a future date. The Fund accounts for mortgage dollar rolls as purchases and sales.

The risk of entering into mortgage dollar rolls is that the market value of the securities the Fund is obligated to repurchase under the agreement may decline below the repurchase price. In the event the buyer of securities under a mortgage dollar roll files for bankruptcy or becomes insolvent, the Fund's use of the proceeds of the mortgage dollar roll may be restricted pending a determination by the counterparty, or its trustee or receiver, whether to enforce the Fund's obligation to repurchase the securities.

G. COLLATERALIZED DEBT OBLIGATIONS:

A collateralized debt obligation ("CDO") is an asset-backed security whose underlying collateral is typically a portfolio of bonds or bank loans. Where the underlying collateral is a portfolio of bonds, a CDO is referred to as a collateralized bond obligation ("CBO"). Where the underlying collateral is a portfolio of bank loans, a CDO is referred to as a collateralized loan obligation ("CLO"). Investors in CDOs bear the credit risk of the underlying collateral. Multiple tranches of securities are issued by the CDO, offering investors various maturity and credit risk characteristics. Tranches are categorized as senior, mezzanine, and subordinated/equity, according to their degree of risk. If there are defaults or the CDO's collateral otherwise underperforms, scheduled payments to senior tranches take precedence over those of mezzanine tranches, and scheduled payments to mezzanine tranches take precedence over those to subordinated/equity tranches. CDOs, similar to other asset-backed securities, are subject to prepayment risk.

ITEM 2. CONTROLS AND PROCEDURES.

(a) The registrant's principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)).

(b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the registrant's last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting.

ITEM 3. EXHIBITS.

Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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

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)

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

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

Federated Hermes (NYSE:FHI)
Historical Stock Chart
Von Jun 2024 bis Jul 2024

Federated Hermes (NYSE:FHI)
Historical Stock Chart
Von Jul 2023 bis Jul 2024