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 811-22738
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First Trust MLP and Energy Income Fund
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(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Name and address of agent for service)
registrant's telephone number, including area code: 630-765-8000
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Date of fiscal year end: October 31
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Date of reporting period: October 31, 2013
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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
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MLP AND
ENERGY
INCOME
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FUND
ANNUAL REPORT
FOR THE PERIOD
NOVEMBER 27, 2012
(COMMENCEMENT OF OPERATIONS)
THROUGH OCTOBER 31, 2013
FIRST TRUST
ENERGY INCOME PARTNERS, LLC
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TABLE OF CONTENTS
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FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
ANNUAL REPORT
OCTOBER 31, 2013
Shareholder Letter........................................................... 1
At A Glance.................................................................. 2
Portfolio Commentary......................................................... 3
Portfolio of Investments..................................................... 5
Statement of Assets and Liabilities.......................................... 10
Statement of Operations...................................................... 11
Statement of Changes in Net Assets........................................... 12
Statement of Cash Flows...................................................... 13
Financial Highlights......................................................... 14
Notes to Financial Statements................................................ 15
Report of Independent Registered Public Accounting Firm...................... 22
Additional Information....................................................... 23
Board of Trustees and Officers............................................... 25
Privacy Policy............................................................... 27
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and/or Energy Income Partners, LLC ("EIP" or 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
First Trust MLP and Energy Income 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
report, you are cautioned not to place undue reliance on these forward-looking
statements, which reflect the judgment of the Advisor and/or 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.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that the Fund will achieve its investment objective. The
Fund is subject to market risk, which is the possibility that the market values
of securities owned by the Fund will decline and that the value of the Fund
shares may therefore be less than what you paid for them. Accordingly, you can
lose money by investing in the Fund. See "Risk Considerations" in the Additional
Information section of this report for a discussion of certain other risks of
investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
http://www.ftportfolios.com or speak with your financial advisor. Investment
returns, net asset value and common share price will fluctuate and Fund shares,
when sold, may be worth more or less than their original cost.
HOW TO READ THIS REPORT
This report contains information that may 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 portfolio commentary by the portfolio management team of the
Fund, 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 personnel of EIP
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. The risks of investing in the Fund are spelled out
in the prospectus, the statement of additional information, this report and
other Fund regulatory filings.
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SHAREHOLDER LETTER
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FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
OCTOBER 31, 2013
Dear Shareholders:
I am pleased to present you with the annual report for your investment in First
Trust MLP and Energy Income Fund (the "Fund").
As a shareholder, twice a year you receive a detailed report about your
investment, including portfolio commentary from the Fund's management team, a
performance analysis, and a market and Fund outlook. Additionally, First Trust
Advisors L.P. ("First Trust") compiles the Fund's financial statements for you
to review. These reports are intended to keep you up-to-date on your investment,
and I encourage you to read this document and discuss it with your financial
advisor.
As you are probably aware, the twelve months covered by this report saw both
challenging economic and political issues in the U.S. However, the period was
still positive for the markets. In fact, the S&P 500 Index, as measured on a
total return basis, rose 27.18% during the twelve months ended October 31, 2013.
Of course, past performance can never be an indicator of future performance, but
First Trust believes that staying invested in quality products through up and
down markets and having a long-term horizon can help investors as they work
toward their financial goals.
First Trust continues to offer a variety of products that we believe could fit
many financial plans for investors seeking long-term investment success. Your
advisor can tell you about the other investments First Trust offers that might
fit your financial goals. We encourage you to discuss those goals with your
advisor regularly so that he or she can help keep you on track and help you
choose investments that match your goals.
First Trust will continue to make available up-to-date information about your
investments so you and your financial advisor are current on any First Trust
investments you own. We value our relationship with you, and thank you for the
opportunity to assist you in achieving your financial goals.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 1
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
"AT A GLANCE"
AS OF OCTOBER 31, 2013 (UNAUDITED)
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FUND STATISTICS
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Symbol on New York Stock Exchange FEI
Common Share Price $19.63
Common Share Net Asset Value ("NAV") $20.80
Premium (Discount) to NAV (5.63)%
Net Assets Applicable to Common Shares $945,149,392
Current Monthly Distribution per Common Share (1) $0.1100
Current Annualized Distribution per Common Share $1.3200
Current Distribution Rate on Closing Common
Share Price (2) 6.72%
Current Distribution Rate on NAV (2) 6.35%
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COMMON SHARE PRICE & NAV (WEEKLY CLOSING PRICE)
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Common Share Price NAV
11/12 19.98 19.07
20.00 19.03
20.00 18.94
20.13 19.14
12/12 20.35 18.91
20.06 19.60
20.55 19.81
20.31 19.95
1/13 20.48 20.06
21.05 20.18
20.77 20.15
20.80 20.21
2/13 20.55 20.18
20.88 20.18
20.45 20.41
20.65 20.35
20.79 20.74
3/13 20.91 21.05
20.82 20.64
20.80 20.89
20.82 20.90
4/13 21.46 20.96
21.11 20.89
21.75 21.19
22.22 21.15
22.29 21.20
5/13 21.19 20.50
20.73 20.49
20.09 20.52
19.64 20.12
6/13 20.46 20.76
20.45 20.67
20.50 21.20
20.29 21.04
7/13 20.55 21.11
20.85 20.78
20.80 20.72
19.89 20.36
19.63 20.52
8/13 19.44 20.30
19.75 20.06
18.91 20.08
19.98 20.46
9/13 19.96 20.47
19.69 20.34
19.35 20.35
19.87 20.64
19.74 20.92
10/13 19.63 20.78
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PERFORMANCE
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Cumulative Total Return
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Inception
(11/27/2012)
to 10/31/2013
Fund Performance (3)
NAV 14.27%
Market Value 2.99%
Index Performance
S&P 500 Index 28.06%
Alerian MLP Total Return Index 21.81%
Wells Fargo Midstream MLP Total Return Index 25.50%
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% OF TOTAL
INDUSTRY CLASSIFICATION INVESTMENTS
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Pipelines 72.6%
Propane 7.5
Electric Power 7.4
Coal 4.3
Marine 3.1
Gathering & Processing 1.7
Natural Gas Utility 0.9
Other 2.5
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Total 100.0%
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% OF TOTAL
TOP 10 HOLDINGS INVESTMENTS
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Enterprise Products Partners, L.P. 9.5%
Enbridge Energy Partners, L.P. 7.2
Kinder Morgan Management, LLC 5.5
Magellan Midstream Partners, L.P. 3.8
Enbridge, Inc. 3.4
Alliance Resource Partners, L.P. 3.3
Plains All American Pipeline, L.P. 3.3
Spectra Energy Corp. 3.2
Teekay LNG Partners, L.P. 3.1
AmeriGas Partners, L.P. 3.1
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Total 45.4%
=======
(1) Most recent distribution paid or declared through 10/31/2013. Subject to
change in the future.
(2) Distribution rates are calculated by annualizing the most recent
distribution paid or declared through the report date and then dividing by
Common Share price or NAV, as applicable, as of 10/31/2013. Subject to
change in the future.
(3) Total return is based on the combination of reinvested dividend, capital
gain and return of capital distributions, if any, at prices obtained by
the Dividend Reinvestment Plan and changes in NAV per share for NAV
returns and changes in Common Share price for market value returns. Total
returns do not reflect sales load and are not annualized for periods less
than one year. Past performance is not indicative of future results.
Page 2
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PORTFOLIO COMMENTARY
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FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
ANNUAL REPORT
OCTOBER 31, 2013
SUB-ADVISOR
ENERGY INCOME PARTNERS, LLC
Energy Income Partners, LLC ("EIP"), Westport, CT, was founded in 2003 to
provide professional asset management services in the area of energy-related
master limited partnerships ("MLPs") and other high-payout securities such as
pipeline companies, power utilities and Canadian income equities. EIP mainly
focuses on investments in energy-related infrastructure assets such as
pipelines, power transmission and distribution, petroleum storage and terminals
that receive fee-based or regulated income from their corporate and individual
customers. EIP manages or supervises approximately $4.1 billion of assets as of
October 31, 2013. Private funds advised by EIP include a partnership for U.S.
high net worth individuals and a master-and-feeder fund for institutions. EIP
also manages separately managed accounts and provides its model portfolio to
unified managed accounts. EIP is a registered investment advisor and serves as a
sub-advisor to two closed-end management investment companies other than the
First Trust MLP and Energy Income Fund ("FEI" or the "Fund") and an actively
managed exchange-traded fund ("ETF").
PORTFOLIO MANAGEMENT TEAM
JAMES J. MURCHIE EVA PAO
PORTFOLIO MANAGER CO-PORTFOLIO MANAGER
FOUNDER AND CEO OF PRINCIPAL OF
ENERGY INCOME PARTNERS, LLC ENERGY INCOME PARTNERS, LLC
COMMENTARY
FIRST TRUST MLP AND ENERGY INCOME FUND
The Fund was seeded on October 11, 2012 and commenced operations on November 27,
2012. Its investment objective is to seek a high level of total return with an
emphasis on current distributions paid to common shareholders. The Fund pursues
its objective by investing in cash generating securities, with a focus on
investing in MLPs and MLP-related entities in the energy sector and energy
utilities industries. There can be no assurance that the Fund's investment
objective will be achieved. The Fund may not be appropriate for all investors.
MARKET RECAP
As measured by the Alerian MLP Total Return Index ("AMZX") and the Wells Fargo
Midstream MLP Total Return Index ("WCHWMIDT"), the total return for
energy-related MLPs over the period from November 27, 2012 to October 31, 2013
was 21.81% and 25.50%, respectively. For AMZX, these returns reflect a positive
6.4% on an annualized basis from income distribution, and the remaining returns
are due to share price appreciation. For WCHWMIDT, these returns reflect a
positive 6.1% on an annualized basis from income distribution, while the
remaining returns are due to share price appreciation. These figures are
according to data collected from several sources, including AMZX, WCHWMIDT and
Bloomberg. While in the short term market share price appreciation can be
volatile, we believe that over the long term such share price appreciation will
approximate growth in per share quarterly cash distributions paid by MLPs.
Growth in per share MLP distributions has averaged about 6.8% over the last 10
years. The cash distributions of MLPs increased by about 7% over the last 12
months (Source: Alerian Capital Management).
PERFORMANCE ANALYSIS
On a net asset value ("NAV") basis, the Fund provided a total return1 of 14.27%,
including the reinvestment of dividends, for the period from November 27, 2012
to October 31, 2013. This compares, according to collected data, to a total
return of 28.06% for the S&P 500 Index, 21.81% for AMZX and 25.50% for WCHWMIDT.
On a market value basis, the Fund had a total return, including the reinvestment
of dividends, of 2.99% for the period ended October 31, 2013. At the end of the
period, the Fund was priced at $19.63, while the NAV was $20.80; a discount of
5.63%.
The Fund declared regular monthly Common Share distributions of $0.1083, payable
beginning in February 2013. The Fund increased its monthly distribution to $0.11
beginning in October 2013.
The underperformance of the Fund's NAV relative to the 23.65% average of the two
MLP benchmarks was driven largely by an accrual for income taxes taken against
Fund NAV, which was not offset by the Fund's use of financial leverage (since
the Fund did not fully deploy its leverage until early in 2013). Also
contributing to the underperformance in the last six months of the period was
the non-MLP portion of the portfolio. Income was enhanced by writing covered
calls on select portfolio positions.
-----------------------------
1 Total return is based on the combination of reinvested dividend, capital
gain and return of capital distributions, if any, at prices obtained by
the Dividend Reinvestment Plan, changes in NAV per share for NAV returns
and changes in Common Share price for market value returns. Total returns
do not reflect a sales load. Past performance is not indicative of future
results.
Page 3
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PORTFOLIO COMMENTARY (CONTINUED)
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FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
ANNUAL REPORT
OCTOBER 31, 2013
In the future, an important factor affecting the return of the Fund will be its
use of financial leverage through the use of a line of credit. The Fund
established a committed facility agreement with The Bank of Nova Scotia with a
maximum commitment amount of $350,000,000. The Fund uses leverage because its
managers believe that, over time, leverage can enhance total return for common
shareholders. However, the use of leverage can also increase the volatility of
the NAV and therefore the share price. For example, as the prices of securities
held by the Fund decline, the effect of changes in common share NAV and common
shareholder total return is magnified by the use of leverage, and conversely,
leverage may enhance common share returns during periods when the prices of
securities held by the Fund generally are rising. Unlike the Fund, AMZX and
WCHWMIDT are not leveraged. Once implemented, leverage had a positive impact on
the performance of the Fund over this reporting period.
MARKET AND FUND OUTLOOK
MLPs continue to play an integral role in the restructuring of more diversified
energy conglomerates. This restructuring includes the creation by these more
diversified conglomerates of MLP subsidiaries that contain assets such as
pipelines and storage terminals. It also includes the divestiture by some of
these parent companies of most or all of their cyclical businesses, leaving the
parent company looking very similar to an old-fashioned pipeline utility with a
large holding in a subsidiary MLP. In our view, these diversified energy
conglomerates are restructuring so their regulated infrastructure assets with
predictable cash flows may be better valued by the market. The result is a
better financing tool to raise capital for the new energy infrastructure
projects related to the rapid growth of North American oil and gas production.
The MLP asset class experienced 16 IPOs in 2013, as of October 31, 2013. There
also has been a healthy level of secondary financing activity for MLPs as they
continue to fund their ongoing investments in new pipelines, processing and
storage facilities. In 2013, there have been 58 secondary equity offerings for
MLPs that raised $17.3 billion through October 31, 2013. This compares to $25
billion raised in all of 2012. MLPs also found access to the public debt
markets, raising $16.9 billion in 19 offerings through October 31, 2013. This
compares to $18.2 billion in calendar year 2012 (Source: Barclays).
The Fund aims to be invested in MLPs and other energy infrastructure companies
with mostly non-cyclical cash flows, investment-grade ratings, conservative
balance sheets, modest and/or flexible organic growth commitments and liquidity
on their revolving lines of credit. Cyclical cash flows will always be
unpredictable, making them a bad fit with a steady dividend obligation that is
meant to be most or all of an energy infrastructure company's free cash flow.
Page 4
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2013
SHARES/
UNITS DESCRIPTION VALUE
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MASTER LIMITED PARTNERSHIPS - 84.4%
GAS UTILITIES - 7.8%
879,374 AmeriGas Partners, L.P. (a) ................................................. $ 39,633,386
715,902 Suburban Propane Partners, L.P. (a) ......................................... 34,134,208
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73,767,594
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INDEPENDENT POWER PRODUCERS & ENERGY TRADERS - 0.3%
100,000 Brookfield Renewable Energy Partners, L.P. (CAD) (a) ........................ 2,739,174
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OIL, GAS & CONSUMABLE FUELS - 76.3% .........................................
166,000 Access Midstream Partners, L.P. (a) ......................................... 8,887,640
207,534 Alliance Holdings GP, L.P. (a) .............................................. 12,377,328
564,630 Alliance Resource Partners, L.P. (a) ........................................ 42,861,063
792,000 El Paso Pipeline Partners, L.P. (a) ......................................... 32,123,520
3,089,170 Enbridge Energy Partners, L.P. (a) .......................................... 93,509,176
480,000 Energy Transfer Equity, L.P. (a) ............................................ 32,443,200
537,030 Energy Transfer Partners, L.P. (a) .......................................... 28,446,479
1,931,037 Enterprise Products Partners, L.P. (a) ...................................... 122,196,021
230,000 EQT Midstream Partners, L.P. (a) ............................................ 12,104,900
461,405 Holly Energy Partners, L.P. (a) ............................................. 14,691,135
100,000 Kinder Morgan Energy Partners, L.P........................................... 8,070,000
810,000 Magellan Midstream Partners, L.P. (a) ....................................... 48,632,400
275,000 MPLX, L.P. (a) .............................................................. 10,131,000
171,337 Natural Resource Partners, L.P. (a) ......................................... 3,666,612
435,772 NGL Energy Partners, L.P. (a) ............................................... 13,709,387
52,026 Oiltanking Partners, L.P. (a) ............................................... 2,996,698
684,000 ONEOK Partners, L.P. (a) .................................................... 36,778,680
51,000 Phillips 66 Partners L.P..................................................... 1,713,600
824,000 Plains All American Pipeline, L.P. (a) ...................................... 42,205,280
849,811 Spectra Energy Partners, L.P. (a) ........................................... 37,153,737
702,500 TC Pipelines, L.P. (a) ...................................................... 35,834,525
961,624 Teekay LNG Partners, L.P. (a) ............................................... 39,907,396
289,500 TransMontaigne Partners, L.P. (a) ........................................... 12,214,005
550,019 Williams Partners, L.P. (a) ................................................. 28,281,977
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720,935,759
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TOTAL MASTER LIMITED PARTNERSHIPS ........................................... 797,442,527
(Cost $645,214,203) ......................................................... --------------
COMMON STOCKS - 52.2%
ELECTRIC UTILITIES - 6.7%
163,000 Emera, Inc. (CAD) (a) ....................................................... 4,805,659
197,200 ITC Holdings Corp. (a) ...................................................... 19,836,348
175,000 Northeast Utilities ......................................................... 7,505,750
268,200 NRG Yield, Inc., Class A (a) ................................................ 9,499,644
525,000 Southern (The) Co............................................................ 21,477,750
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63,125,151
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GAS UTILITIES - 4.5%
79,033 Atmos Energy Corp. (a) ...................................................... 3,498,791
175,007 Laclede Group, Inc. (a) ..................................................... 8,237,579
See Notes to Financial Statements Page 5
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2013
SHARES DESCRIPTION VALUE
------------ ----------------------------------------------------------------------------- --------------
COMMON STOCKS (CONTINUED)
GAS UTILITIES (CONTINUED)
317,700 Questar Corp................................................................. $ 7,516,782
561,183 UGI Corp..................................................................... 23,216,141
--------------
42,469,293
--------------
MULTI-UTILITIES - 9.9%
142,000 ATCO, Ltd., Class I (CAD) (a) ............................................... 6,590,303
482,000 Dominion Resources, Inc...................................................... 30,727,500
478,000 National Grid PLC, ADR ...................................................... 30,080,540
414,600 NiSource, Inc................................................................ 13,068,192
300,000 Wisconsin Energy Corp........................................................ 12,633,000
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93,099,535
--------------
OIL, GAS & CONSUMABLE FUELS - 31.0%
774,500 Enbridge Income Fund Holdings, Inc. (CAD) (a) ............................... 17,344,819
1,011,000 Enbridge, Inc................................................................ 43,867,290
1,045,500 Inter Pipeline, Ltd. (CAD) (a) .............................................. 26,281,643
117,000 Keyera Corp. (CAD) (a) ...................................................... 6,923,608
942,403 Kinder Morgan Management, LLC (a) (b) ....................................... 70,981,757
414,000 Kinder Morgan, Inc........................................................... 14,618,340
198,000 Pembina Pipeline Corp. (CAD) (a) ............................................ 6,496,504
1,158,300 Spectra Energy Corp.......................................................... 41,200,731
696,000 TransCanada Corp............................................................. 31,396,560
961,800 Williams (The) Cos., Inc..................................................... 34,345,878
--------------
293,457,130
--------------
REAL ESTATE INVESTMENT TRUSTS - 0.1%
165,867 CorEnergy Infrastructure Trust .............................................. 1,157,752
--------------
TOTAL COMMON STOCKS ......................................................... 493,308,861
(Cost $471,359,333) --------------
TOTAL INVESTMENTS - 136.6% .................................................. 1,290,751,388
(Cost $1,116,573,536) (c) --------------
NUMBER OF
CONTRACTS DESCRIPTION VALUE
------------ ----------------------------------------------------------------------------- --------------
CALL OPTIONS WRITTEN - (0.4%)
Dominion Resources, Inc. Calls
1,890 @ $65.00 due January 2014 ................................................... (245,700)
1,500 @ 67.50 due January 2014 ................................................... (67,500)
--------------
(313,200)
--------------
Enbridge Energy Partners L.P. Call
3,000 @ 32.50 due January 2014 ................................................... (30,000)
--------------
Enbridge, Inc. Calls
2,250 @ 45.00 due January 2014 ................................................... (78,750)
3,300 @ 50.00 due January 2014 ................................................... (26,400)
4,500 @ 45.00 due April 2014 ..................................................... (416,250)
--------------
(521,400)
--------------
Page 6 See Notes to Financial Statements
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2013
NUMBER OF
CONTRACTS DESCRIPTION VALUE
------------ ----------------------------------------------------------------------------- --------------
CALL OPTIONS WRITTEN (CONTINUED)
Enterprise Products Partners, L.P. Calls
2,100 @ $65.00 due December 2013 .................................................. $ (147,000)
2,500 @ 67.50 due December 2013 .................................................. (50,000)
--------------
(197,000)
--------------
Kinder Morgan, Inc. Calls
1,640 @ 42.50 due December 2013 .................................................. (8,200)
1,100 @ 42.50 due January 2014 ................................................... (5,500)
1,400 @ 40.00 due March 2014 ..................................................... (74,200)
--------------
(87,900)
--------------
National Grid PLC, ADR Calls
2,000 @ 60.00 due November 2013 .................................................. (644,000)
280 @ 65.00 due December 2013 .................................................. (7,700)
2,500 @ 65.00 due March 2014 ..................................................... (181,250)
--------------
(832,950)
--------------
NiSource, Inc. Calls
822 @ 31.00 due January 2014 ................................................... (104,805)
828 @ 32.00 due January 2014 ................................................... (49,680)
2,400 @ 34.00 due January 2014 ................................................... (42,000)
--------------
(196,485)
--------------
Northeast Utilities Call
1,742 @ 45.00 due January 2014 ................................................... (43,550)
--------------
Plains All American Pipeline, L.P. Call
2,000 @ 62.50 due November 2013 .................................................. (6,000)
--------------
Questar Corp. Calls
177 @ 26.00 due January 2014 ................................................... (2,301)
3,000 @ 25.00 due April 2014 ..................................................... (150,000)
--------------
(152,301)
--------------
Southern (The) Co. Calls
3,000 @ 45.00 due November 2013 .................................................. (3,000)
1,500 @ 47.00 due November 2013 .................................................. (1,500)
750 @ 44.00 due January 2014 ................................................... (11,250)
--------------
(15,750)
--------------
Spectra Energy Corp. Calls
2,000 @ 36.00 due December 2013 .................................................. (110,000)
1,280 @ 37.00 due December 2013 .................................................. (28,800)
4,869 @ 39.00 due December 2013 .................................................. (14,607)
3,420 @ 37.00 due January 2014 ................................................... (136,800)
--------------
(290,207)
--------------
TransCanada Corp. Calls
3,578 @ 45.00 due November 2013 .................................................. (232,570)
1,113 @ 50.00 due November 2013 .................................................. (5,565)
--------------
(238,135)
--------------
See Notes to Financial Statements Page 7
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2013
NUMBER OF
CONTRACTS DESCRIPTION VALUE
------------ ----------------------------------------------------------------------------- --------------
CALL OPTIONS WRITTEN (CONTINUED)
UGI Corp. Call
5,611 @ $45.00 due April 2014 ..................................................... $ (336,660)
--------------
Williams (The) Cos., Inc. Calls
3,000 @ 37.00 due November 2013 .................................................. (84,000)
1,500 @ 38.00 due December 2013 .................................................. (57,000)
3,000 @ 37.00 due January 2014 ................................................... (249,000)
600 @ 38.00 due January 2014 ................................................... (35,400)
1,518 @ 40.00 due February 2014 .................................................. (69,828)
--------------
(495,228)
--------------
Wisconsin Energy Corp. Call
3,000 @ 45.00 due April 2014 .................................................... (105,000)
--------------
TOTAL CALL OPTIONS WRITTEN .................................................. (3,861,766)
(Premiums received $4,580,588) --------------
OUTSTANDING LOAN - (35.4%) .................................................. (334,000,000)
NET OTHER ASSETS AND LIABILITIES - (0.8%) ................................... (7,740,230)
--------------
NET ASSETS - 100.0% ......................................................... $ 945,149,392
==============
-----------------------------
(a) All or a portion of this security serves as collateral on the outstanding
loan.
(b) Non-income producing security which pays in-kind distributions in the form
of additional shares.
(c) Aggregate cost for federal income tax purposes is $1,118,444,829. As of
October 31, 2013, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$180,533,936 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$8,227,377.
ADR American Depositary Receipt
CAD Canadian Dollar - Security is denominated in Canadian Dollars and is
translated into U.S. Dollars based upon the current exchange rate.
INTEREST RATE SWAP AGREEMENTS:
NOTIONAL
COUNTERPARTY FLOATING RATE (1) EXPIRATION DATE AMOUNT FIXED RATE (1) VALUE
-------------------- ----------------- ------------------ ------------- ----------------- -----------------
Bank of Nova Scotia 1 month LIBOR 10/08/23 $ 77,250,000 2.734% $ (1,318,298)
(1) The Fund pays the fixed rate and receives the floating rate. The floating
rate on October 31, 2013 was 0.173%.
Page 8 See Notes to Financial Statements
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
PORTFOLIO OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2013
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of October 31,
2013 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
ASSETS TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
10/31/2013 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
Master Limited Partnerships*................... $ 797,442,527 $ 797,442,527 $ -- $ --
Common Stocks*................................. 493,308,861 493,308,861 -- --
--------------- --------------- --------------- ---------------
Total.......................................... $ 1,290,751,388 $ 1,290,751,388 $ -- $ --
=============== =============== =============== ===============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
10/31/2013 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
Call Options Written........................... $ (3,861,766) $ (3,861,766) $ -- $ --
Interest Rate Swap** .......................... (1,318,298) -- (1,318,298) --
--------------- --------------- --------------- ---------------
Total ......................................... $ (5,180,064) $ (3,861,766) $ (1,318,298) $ --
=============== =============== =============== ===============
* See Portfolio of Investments for industry breakout.
** See Interest Rate Swap Agreements for contract detail.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at October 31, 2013.
See Notes to Financial Statements Page 9
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2013
ASSETS:
Investments, at value
(Cost $1,116,573,536)...................................................................... $1,290,751,388
Cash .......................................................................................... 40,738,107
Cash segregated as collateral for open swap contracts ......................................... 3,874,032
Receivables:
Dividends................................................................................... 6,521,432
Investment securities sold.................................................................. 6,141,531
Interest.................................................................................... 160
Prepaid expenses .............................................................................. 31,425
--------------
Total Assets............................................................................. 1,348,058,075
--------------
LIABILITIES:
Outstanding loan .............................................................................. 334,000,000
Deferred income taxes ......................................................................... 61,233,974
Options written, at value (Premiums received $4,580,588) ...................................... 3,861,766
Swap contracts, at value (Cost $968) .......................................................... 1,318,298
Payables:
Investment advisory fees.................................................................... 1,069,105
Income tax.................................................................................. 841,361
Interest and fees on loan................................................................... 236,483
Audit and tax fees.......................................................................... 109,000
Administrative fees......................................................................... 84,768
Custodian fees.............................................................................. 71,500
Printing fees............................................................................... 38,928
Legal fees.................................................................................. 34,968
Trustees' fees and expenses................................................................. 3,350
Transfer agent fees......................................................................... 2,316
Financial reporting fees.................................................................... 841
Other liabilities 2,025
--------------
Total Liabilities........................................................................ 402,908,683
--------------
NET ASSETS $ 945,149,392
==============
NET ASSETS CONSIST OF:
Paid-in capital ............................................................................... $ 833,428,408
Par value ..................................................................................... 454,395
Accumulated net investment income (loss), net of income taxes ................................. (2,377,949)
Accumulated net realized gain (loss) on investments, written options, swap contracts and
foreign currency transactions, net of income taxes ......................................... 985,118
Net unrealized appreciation (depreciation) on investments, written options, swap contracts and
foreign currency translation, net of income taxes .......................................... 112,659,420
--------------
NET ASSETS .................................................................................... $ 945,149,392
==============
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share) .......................... $ 20.80
==============
Number of Common Shares outstanding (unlimited number of Common Shares has been authorized).... 45,439,454
==============
Page 10 See Notes to Financial Statements
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED OCTOBER 31, 2013 (a)
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $554,168)......................................... $ 10,568,448
Interest....................................................................................... 5,918
--------------
Total investment income..................................................................... 10,574,366
--------------
EXPENSES:
Investment advisory fees....................................................................... 10,730,742
Interest and fees on loan...................................................................... 2,053,722
Administrative fees............................................................................ 841,687
Audit and tax fees............................................................................. 109,000
Legal fees..................................................................................... 99,218
Printing fees.................................................................................. 79,007
Custodian fees................................................................................. 72,005
Trustees' fees and expenses.................................................................... 49,818
Transfer agent fees............................................................................ 24,300
Financial reporting fees....................................................................... 9,250
Other.......................................................................................... 63,550
--------------
Total expenses.............................................................................. 14,132,299
--------------
NET INVESTMENT INCOME (LOSS) BEFORE TAXES...................................................... (3,557,933)
--------------
Current state income tax benefit (expense)................................... (668,766)
Current federal income tax benefit (expense)................................. (4,531,150)
Current foreign income tax benefit (expense)................................. --
Deferred federal income tax benefit (expense)................................ 8,058,595
Deferred state income tax benefit (expense).................................. (1,678,695)
-----------
Total income tax benefit (expense)............................................................. 1,179,984
--------------
NET INVESTMENT INCOME (LOSS)................................................................... (2,377,949)
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) before taxes on:
Investments................................................................................. 15,840,209
Written option transactions (b)............................................................. 1,493,723
Swap contracts.............................................................................. 1,621,238
Foreign currency transactions............................................................... 106,041
--------------
Net realized gain (loss) before taxes.......................................................... 19,061,211
--------------
Deferred federal income tax benefit (expense)................................ (6,697,244)
-----------
Total income tax benefit (expense).......................................................... (6,697,244)
--------------
Net realized gain (loss) on investments, written options, swap contracts and foreign currency
transactions 12,363,967
--------------
Net change in unrealized appreciation (depreciation) before taxes on:
Investments................................................................................. 174,177,852
Written options held (b).................................................................... 718,822
Swap contracts.............................................................................. (1,319,266)
Foreign currency translation................................................................ (1,358)
--------------
Net change in unrealized appreciation (depreciation) before taxes.............................. 173,576,050
--------------
Deferred federal income tax benefits (expense)............................... (60,916,630)
-----------
Total income tax benefit (expense).......................................................... (60,916,630)
--------------
Net change in unrealized appreciation (depreciation) on investments, written options, swap
contracts and foreign currency translation.................................................. 112,659,420
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)........................................................ 125,023,387
--------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................ $ 122,645,438
==============
(a) The Fund was seeded on October 11, 2012 and commenced operations on
November 27, 2012.
(b) Primary risk exposure is equity option contracts.
See Notes to Financial Statements Page 11
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
STATEMENT OF CHANGES IN NET ASSETS
PERIOD
ENDED
10/31/2013 (a)
----------------
OPERATIONS:
Net investment income (loss)....................................................... $(2,377,949)
Net realized gain (loss)........................................................... 12,363,967
Net change in unrealized appreciation (depreciation)............................... 112,659,420
-------------
Net increase (decrease) in net assets resulting from operations.................... 122,645,438
-------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.............................................................. --
Net realized gain.................................................................. (11,378,849)
Return of capital.................................................................. (32,981,641)
-------------
Total distributions to shareholders................................................ (44,360,490)
-------------
CAPITAL TRANSACTIONS:
Proceeds from Common Shares sold (b)............................................... 867,489,568
Proceeds from Common Shares reinvested............................................. 439,196
Offering costs..................................................................... (1,064,320)
-------------
Net increase (decrease) in net assets resulting from capital transactions.......... 866,864,444
-------------
Total increase (decrease) in net assets............................................ 945,149,392
NET ASSETS:
Beginning of period................................................................ --
-------------
End of period...................................................................... $ 945,149,392
=============
Accumulated net investment income (loss), net of income taxes...................... $ (2,377,949)
=============
CAPITAL TRANSACTIONS WERE AS FOLLOWS:
Common Shares at beginning of period............................................... --
Common Shares sold (b)............................................................. 45,418,302
Common Shares issued as reinvestment under the Dividend Reinvestment Plan.......... 21,152
-------------
Common Shares at end of period..................................................... 45,439,454
=============
-----------------------------
(a) The Fund was seeded on October 11, 2012 and commenced operations on
November 27, 2012.
(b) Includes 3,913,066 shares sold from the over allotment option of the
initial public offering. The shares were sold on January 11, 2013, the
trade date, at the initial offering price of $19.10, which differed from
the closing common share price of $20.34 and the closing NAV per share of
$19.74 on that date.
Page 12 See Notes to Financial Statements
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED OCTOBER 31, 2013 (a)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) in net assets resulting from operations................. $ 122,645,438
Adjustments to reconcile net increase (decrease) in net assets resulting from
operations to net cash used in operating activities:
Purchases of investments..................................................... (1,577,408,469)
Sales of investments......................................................... 426,665,423
Proceeds from written options................................................ 13,501,131
Amount paid to close written options......................................... (3,375,321)
Return of capital received from investment in MLPs........................... 39,815,721
Net realized gain/loss on investments and written options.................... (17,333,932)
Net change in unrealized appreciation/depreciation on investments
and written options........................................................ (174,896,674)
Net change in unrealized appreciation/depreciation on swap contracts ........ 1,319,266
Increase in cash segregated as collateral for open swap contracts............ (3,874,032)
CHANGES IN ASSETS AND LIABILITIES:
Increase in interest receivable.............................................. (160)
Increase in dividends receivable (b)......................................... (6,521,432)
Increase in prepaid expenses................................................. (31,425)
Increase in interest and fees on loan payable................................ 236,483
Increase in investment advisory fees payable................................. 1,069,105
Increase in audit and tax fees payable....................................... 109,000
Increase in income tax payable............................................... 841,361
Increase in legal fees payable............................................... 34,968
Increase in printing fees payable............................................ 38,928
Increase in administrative fees payable...................................... 84,768
Increase in custodian fees payable........................................... 71,500
Increase in transfer agent fees payable...................................... 2,316
Increase in Trustees' fees and expenses payable.............................. 3,350
Increase in financial reporting fees payable................................. 841
Increase in deferred income tax payable...................................... 61,233,974
Increase in other liabilities payable........................................ 2,025
----------------
CASH USED IN OPERATING ACTIVITIES............................................... $ (1,115,765,847)
----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Common Shares sold............................................. 867,489,568
Proceeds from Common Shares reinvested....................................... 439,196
Offering Costs............................................................... (1,064,320)
Distributions to Common Shareholders from net realized gain.................. (11,378,849)
Distributions to Common Shareholders from return of capital.................. (32,981,641)
Issuances of loan............................................................ 334,000,000
----------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES..................................... 1,156,503,954
----------------
Increase in cash................................................................ 40,738,107
Cash at beginning of period..................................................... --
----------------
CASH AT END OF PERIOD........................................................... $ 40,738,107
================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest and fees............................... $ 1,817,239
================
Cash paid during the period for taxes........................................... $ 4,358,555
================
-----------------------------
(a) The Fund was seeded on October 11, 2012 and commenced operations on
November 27, 2012.
(b) Includes net change in unrealized appreciation (depreciation) on foreign
currency of $(1,358).
See Notes to Financial Statements Page 13
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
FINANCIAL HIGHLIGHTS
FOR A COMMON SHARE OUTSTANDING THROUGHOUT THE PERIOD
PERIOD
ENDED
10/31/2013 (a)
---------------
Net asset value, beginning of period............... $ 19.10 (b)
-----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)....................... (0.05)
Net realized and unrealized gain (loss)............ 2.81
-----------
Total from investment operations................... 2.76
-----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income.............................. --
Net realized gain.................................. (0.25)
Return of capital.................................. (0.73)
-----------
Total distributions................................ (0.98)
-----------
Common Shares offering costs charged to paid-in
capital ........................................ (0.02)
-----------
Capital reduction resulting from issuance of
Common Shares related to over-allotment......... (0.06)
-----------
Net asset value, end of period..................... $ 20.80
===========
Market value, end of period........................ $ 19.63
===========
TOTAL RETURN BASED ON NET ASSET VALUE (c).......... 14.27%
===========
TOTAL RETURN BASED ON MARKET VALUE (c)............. 2.99%
===========
-----------------------------
Net assets, end of period (in 000's)............... $ 945,149
Portfolio turnover rate............................ 35%
RATIOS OF EXPENSES TO AVERAGE NET ASSETS:
Including current and deferred income taxes (d).... 9.53% (e)
Excluding current and deferred income taxes........ 1.67% (e)
Excluding current and deferred income taxes and
interest expense................................. 1.43% (e)
RATIOS OF NET INVESTMENT INCOME (LOSS) TO AVERAGE NET ASSETS:
Net investment income (loss) ratio before tax
expenses......................................... (0.42)% (e)
Net investment income (loss) ratio including tax
expenses (d)..................................... (8.28)% (e)
INDEBTEDNESS:
Total loan outstanding (in 000's).................. $ 334,000
Asset coverage per $1,000 of indebtedness (f)...... $ 3,830
-----------------------------
(a) The Fund was seeded on October 11, 2012 and commenced operations on
November 27, 2012.
(b) Beginning NAV is net of sales load of $0.90 per share from the initial
offering.
(c) Total return is based on the combination of reinvested dividend, capital
gain and return of capital distributions, if any, at prices obtained by
the Dividend Reinvestment Plan, and changes in net asset value per share
for net asset value returns and changes in Common Share price for market
value returns. Total returns do not reflect sales load and are not
annualized for periods less than one year. Past performance is not
indicative of future results.
(d) Includes current and deferred income taxes associated with each component
of the Statement of Operations.
(e) Annualized.
(f) Calculated by taking the Fund's total assets less the Fund's total
liabilities (not including the loan outstanding) and dividing by the loan
outstanding in 000's.
Page 14 See Notes to Financial Statements
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
OCTOBER 31, 2013
1. ORGANIZATION
First Trust MLP and Energy Income Fund (the "Fund") is a newly organized,
non-diversified, closed-end management investment company organized as a
Massachusetts business trust on August 17, 2012 and is registered with the
Securities and Exchange Commission ("SEC") under the Investment Company Act of
1940, as amended (the "1940 Act").
The Fund's investment objective is to seek a high level of total return with an
emphasis on current distributions paid to common shareholders. The Fund seeks to
provide its shareholders with an efficient vehicle to invest in a portfolio of
cash generating securities of energy companies. The Fund focuses on investing in
equity and debt securities of master limited partnerships ("MLPs"), MLP-related
entities and other energy sector and energy utilities companies, which Energy
Income Partners, LLC ("EIP" or the "Sub-Advisor") believes offer opportunities
for income and growth. There can be no assurance that the Fund will achieve its
investment objective. The Fund may not be appropriate for all investors.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America ("U.S. GAAP") requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
A. PORTFOLIO VALUATION:
The net asset value ("NAV") of the Common Shares of the Fund is determined daily
as of the close of regular trading on the 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, deferred income taxes and any
borrowings of the Fund) by the total number of Common Shares outstanding.
The Fund's investments are valued daily in accordance with valuation procedures
adopted by the Fund's Board of Trustees, and in accordance with provisions of
the 1940 Act. Market quotations and prices used to value the Fund's investments
are primarily obtained from third party pricing services. The Fund's securities
will be valued as follows:
Common stocks, MLPs and other equity securities listed on any national or
foreign exchange (excluding the NASDAQ(R) Stock Market LLC ("NASDAQ") and
the London Stock Exchange Alternative Investment Market ("AIM")) are
valued at the last price on the exchange on which they are principally
traded or, for NASDAQ and AIM securities, the official closing price.
Securities traded on more than one securities exchange are valued at the
last sale price or official closing price, as applicable, at the close of
the securities exchange representing the principal market for such
securities.
Exchange-traded options and futures contracts are valued at the closing
price in the market where such contracts are principally traded.
Over-the-counter options and futures contracts are valued at the midpoint
between the bid and asked price, if available, and otherwise at the
closing bid price.
Swaps are valued utilizing quotations provided by a third party pricing
service, or if the pricing service does not provide a value, by quotes
provided by the selling dealer or financial institution.
Short-term investments that mature in less than sixty days when purchased
are valued at amortized cost.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Board of Trustees or its delegate
at fair value. These securities generally include, but are not limited to,
restricted securities (securities which may not be publicly sold without
registration under the Securities Act of 1933, as amended) for which a pricing
service is unable to provide a market price; securities whose trading has been
formally suspended; a security whose market price is not available from a
pre-established pricing source; a security with respect to which an event has
occurred that is likely to materially affect the value of the security after the
market has closed but before the calculation of the Fund's NAV or make it
difficult or impossible to obtain a reliable market quotation; and a security
whose price, as provided by the pricing service, does not reflect the security's
"fair value." As a general principle, the current "fair value" of a security
would appear to be the amount which the owner might reasonably expect to receive
for the security upon its current sale. The use of fair value prices by the Fund
generally results in prices used by the Fund that may differ from current market
quotations or official closing prices on the applicable exchange. A variety of
factors may be considered in determining the fair value of such securities,
including, but not limited to, the following:
1) the type of security;
2) the size of the holding;
3) the initial cost of the security;
4) transactions in comparable securities;
5) price quotes from dealers and/or pricing services;
6) relationships among various securities;
Page 15
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
OCTOBER 31, 2013
7) information obtained by contacting the issuer, analysts, or the
appropriate stock exchange;
8) an analysis of the issuer's financial statements; and
9) the existence of merger proposals or tender offers that might affect
the value of the security.
If the securities in question are foreign securities, the following additional
information may be considered:
1) the value of similar foreign securities traded on other foreign
markets;
2) ADR trading of similar securities;
3) closed-end fund trading of similar securities;
4) foreign currency exchange activity;
5) the trading prices of financial products that are tied to baskets of
foreign securities;
6) factors relating to the event that precipitated the pricing problem;
7) whether the event is likely to recur; and
8) whether the effects of the event are isolated or whether they affect
entire markets, countries or regions.
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
The inputs or methodology used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of October 31, 2013, is
included with the Fund's Portfolio of Investments.
B. OPTION CONTRACTS:
The Fund is subject to equity price risk in the normal course of pursuing its
investment objective and may write (sell) options to hedge against changes in
the value of equities. Also, the Fund seeks to generate additional income, in
the form of premiums received, from writing (selling) the options. The Fund may
write (sell) covered call or put options ("options") on all or a portion of the
common stock and MLPs held in the Fund's portfolio as determined to be
appropriate by the Sub-Advisor. The number of options the Fund can write (sell)
is limited by the amount of common stock and MLPs the Fund holds in its
portfolio. The Fund will not write (sell) "naked" or uncovered options. When the
Fund writes (sells) an option, an amount equal to the premium received by the
Fund is included in "Options written, at value" on the Fund's Statement of
Assets and Liabilities. Options are marked-to-market daily and their value will
be affected by changes in the value and dividend rates of the underlying equity
securities, changes in interest rates, changes in the actual or perceived
volatility of the securities markets and the underlying equity securities and
the remaining time to the options' expiration. The value of options may also be
adversely affected if the market for the options becomes less liquid or trading
volume diminishes.
Options the Fund writes (sells) will either be exercised, expire or be cancelled
pursuant to a closing transaction. If the price of the underlying 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 security to the option holder
upon payment of the strike price. In this case, the option premium received by
the Fund will be added to the amount realized on the sale of the underlying
security for purposes of determining gain or loss. If the price of the
underlying security is less than the option's strike price, the option will
likely expire without being exercised. The option premium received by the Fund
will, in this case, be treated as short-term capital gain on the expiration date
of the option. The Fund may also elect to close out its position in an option
prior to its expiration by purchasing an option of the same series as the option
written (sold) by the Fund. Gain or loss on options is presented separately as
"Net realized gain (loss) before taxes on written options" on the Statement of
Operations.
The options that the Fund writes (sells) give the option holder the right, but
not the obligation, to purchase a security from the Fund at the strike price on
or prior to the option's expiration date. The ability to successfully implement
the writing (selling) of covered call options depends on the ability of the
Sub-Advisor to predict pertinent market movements, which cannot be assured.
Thus, the use of options may require the Fund to sell portfolio securities at
inopportune times or for prices other than current market value, which may limit
the amount of
Page 16
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
OCTOBER 31, 2013
appreciation the Fund can realize on an investment, or may cause the Fund to
hold a security that it might otherwise sell. As the writer (seller) of a
covered option, the Fund foregoes, during the option's life, the opportunity to
profit from increases in the market value of the security covering the option
above the sum of the premium and the strike price of the option, but has
retained the risk of loss should the price of the underlying security decline.
The writer (seller) of an option has no control over the time when it may be
required to fulfill its obligation as a writer (seller) of the option. Once an
option writer (seller) has received an exercise notice, it cannot effect a
closing purchase transaction in order to terminate its obligation under the
option and must deliver the underlying security to the option holder at the
exercise price.
Over-the-counter options have the risk of the potential inability of
counterparties to meet the terms of their contracts. The Fund's maximum equity
price risk for purchased options is limited to the premium initially paid. In
addition, certain risks may arise upon entering into option contracts including
the risk that an illiquid secondary market will limit the Fund's ability to
close out an option contract prior to the expiration date and that a change in
the value of the option contract may not correlate exactly with changes in the
value of the securities hedged.
C. SWAP AGREEMENTS:
The Fund may enter into total return equity swap and interest rate swap
agreements. A swap is a financial instrument that typically involves the
exchange of cash flows between two parties ("Counterparties") on specified dates
(settlement dates) where the cash flows are based on agreed-upon prices, rates,
etc. Swap agreements are individually negotiated and involve the risk of the
potential inability of the Counterparties to meet the terms of the agreement. In
connection with these agreements, cash and securities may be identified as
collateral in accordance with the terms of the respective swap agreements to
provide assets of value and recourse in the event of default under the swap
agreement or bankruptcy/insolvency of a party to the swap agreement. In the
event of a default by the Counterparty, the Fund will seek withdrawal of this
collateral and may incur certain costs exercising its right with respect to the
collateral. If a Counterparty becomes bankrupt or otherwise fails to perform its
obligations due to financial difficulties, the Fund may experience significant
delays in obtaining any recovery in a bankruptcy or other reorganization
proceeding. The Fund may obtain only limited recovery or may obtain no recovery
in such circumstances.
Swap agreements may increase or decrease the overall volatility of the
investments of the Fund. The performance of swap agreements may be affected by a
change in the specific interest rate, security, currency, or other factors that
determine the amounts of payments due to and from the Fund. The Fund's maximum
equity price risk to meet its future payments under swap agreements outstanding
at October 31, 2013 is equal to the total notional amount as shown on the
Portfolio of Investments. The notional amount represents the U.S. dollar value
of the contract as of the day of the opening transaction or contract reset. When
the Fund enters into a swap agreement, any premium paid is included in "Swap
contracts, at value" on the Statement of Assets and Liabilities.
Total Return Equity Swap Agreement
In a typical total return equity swap agreement, one party agrees to pay another
party the return on an equity security or basket of equity securities in return
for payment of a specified interest rate. By entering into total return equity
swaps, the Fund can gain exposure to a security without actually purchasing the
underlying asset. Total return equity swap agreements expose the Fund to the
same equity price risk as it would have if the underlying equity securities were
purchased, as well as the risk that the performance of the security, including
any dividends, will not exceed the interest that the Fund will be committed to
pay under the swap. The Fund entered into a total return equity swap agreement
on January 16, 2013 and sold it on October 10, 2013. The average volume of total
return equity swaps was $15,363,641 for the period January 16, 2013 to October
10, 2013.
Interest Rate Swap Agreement
An interest rate swap agreement involves the Fund's agreement to exchange a
stream of interest payments for another party's stream of cash flows. Interest
rate swaps do not involve the delivery of securities or other underlying assets
or principal. Accordingly, the risk of loss with respect to interest rate swaps
is limited to the net amount of interest payments that the Fund is contractually
obligated to make. The Fund entered into an interest rate swap agreement on
October 8, 2013. The average volume of interest rate swaps was $77,250,000 for
the period October 8, 2013 to October 31, 2013.
D. 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
daily on the accrual basis, including amortization of premiums and accretion of
discounts. The Fund will rely to some extent on information provided by the
MLPs, which is not necessarily timely, to estimate taxable income allocable to
the MLP units held in the Fund's portfolio and to estimate the associated
deferred tax asset or liability. From time to time, the Fund will modify its
estimates and/or assumptions regarding its deferred tax liability as new
information becomes available. To the extent the Fund modifies its estimates
and/or assumptions, the NAV of the Fund will likely fluctuate.
Distributions received from the Fund's investments in MLPs generally are
comprised of return of capital and investment income. The Fund records estimated
return of capital and investment income based on historical information
available from each MLP. These estimates may subsequently be revised based on
information received from the MLPs after their tax reporting periods are
concluded.
Page 17
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
OCTOBER 31, 2013
E. DISTRIBUTIONS TO SHAREHOLDERS:
The Fund intends to make monthly distributions to Common Shareholders. The
Fund's distributions generally will consist of cash and paid-in-kind
distributions from MLPs or their affiliates, dividends from common stocks, and
income from other investments held by the Fund less operating expenses,
including taxes. Distributions to Common Shareholders are recorded on the
ex-date and are based on U.S. GAAP, which may differ from their ultimate
characterization for federal income tax purposes.
Distributions made from current or accumulated earnings and profits of the Fund
will be taxable to shareholders as dividend income. Distributions that are in an
amount greater than the Fund's current and accumulated earnings and profits will
represent a tax-deferred return of capital to the extent of a shareholder's
basis in the Common Shares, and such distributions will correspondingly increase
the realized gain upon the sale of the Common Shares. Additionally,
distributions not paid from current or accumulated earnings and profits that
exceed a shareholder's tax basis in the Common Shares will generally be taxed as
a capital gain.
Distributions of $11,378,849 paid during the period ended October 31, 2013, are
anticipated to be characterized as taxable dividends for federal income tax
purposes. The remaining $32,981,641 in distributions paid during the period is
expected to be return of capital. However, the ultimate determination of the
character of the distributions will be made after the 2013 calendar year.
Distributions will automatically be reinvested in additional Common Shares
pursuant to the Fund's Dividend Reinvestment Plan unless cash distributions are
elected by the shareholder.
F. INCOME TAXES:
The Fund is treated as a regular C corporation for U.S. federal income tax
purposes and as such will be obligated to pay federal and applicable state and
foreign corporate taxes on its taxable income. The Fund's tax expense or benefit
is included in the Statement of Operations based on the component of income or
gains (losses) to which such expense or benefit relates. The current U.S.
federal maximum graduated income tax rate for corporations is 35%. The Fund may
be subject to a 20% alternative minimum tax on its federal alternative minimum
taxable income to the extent that its alternative minimum tax exceeds its
regular federal income tax. This differs from most investment companies, which
elect to be treated as "regulated investment companies" under the U.S. Internal
Revenue Code of 1986, as amended. The various investments of the Fund may cause
the Fund to be subject to state income taxes on a portion of its income at
various rates.
The tax deferral benefit the Fund derives from its investment in MLPs results
largely because the MLPs are treated as partnerships for federal income tax
purposes. As a partnership, an MLP has no income tax liability at the entity
level. As a limited partner in the MLPs in which it invests, the Fund will be
allocated its pro rata share of income, gains, losses, deductions and credits
from the MLPs, regardless of whether or not any cash is distributed from the
MLPs.
To the extent that the distributions received from the MLPs exceed the net
taxable income realized by the Fund from its investment, a tax liability
results. This tax liability is a deferred liability to the extent that MLP
distributions received have not exceeded the Fund's adjusted tax basis in the
respective MLPs. To the extent that distributions from an MLP exceed the Fund's
adjusted tax basis, the Fund will recognize a taxable capital gain. For the
period ended October 31, 2013, distributions of $39,815,721 received from MLPs
have been reclassified as a return of capital. The cost basis of applicable MLPs
has been reduced accordingly.
The Fund's provision for income taxes consists of the following:
Current federal income tax benefit (expense)....... $ (4,531,150)
Current state income tax benefit (expense)......... (668,766)
Current foreign income tax benefit (expense)....... --
Deferred federal income tax benefit (expense)...... 8,058,595
Deferred state income tax benefit (expense)........ (1,678,695)
------------
Total income tax benefit (expense)................. $ 1,179,984
============
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes. The Fund's 2013 income tax
provision includes a full valuation allowance against the deferred tax assets
associated with the state net operating loss. Components of the Fund's deferred
tax assets and liabilities as of October 31, 2013 are as follows:
Deferred tax assets:
Federal net operating loss......................... $ --
State net operating loss........................... 8,796
State income taxes................................. 587,543
Capital loss carryforward.......................... --
Other ............................................. --
------------
Total deferred tax assets.......................... 596,339
Less: valuation allowance.......................... (8,796)
------------
Net deferred tax assets............................ $ 587,543
============
Page 18
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
OCTOBER 31, 2013
Deferred tax liabilities:
Unrealized gains on investment securities.......... $(61,821,517)
------------
Total deferred tax liabilities..................... (61,821,517)
------------
Total net deferred tax liabilities................. $(61,233,974)
============
Total income taxes differ from the amount computed by applying the maximum
graduated federal income tax rate of 35% to net investment income and realized
and unrealized gains on investments.
Application of statutory income tax rate........... $ 66,177,765
State income taxes, net ........................... 1,520,133
Change in valuation allowance...................... 8,796
Other ............................................. (1,272,804)
------------
Total ............................................. $ 66,433,890
============
The Fund is subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. Taxable year ending 2013 remains
open to federal and state audit. As of October 31, 2013, management has
evaluated the application of these standards to the Fund, and has determined
that no provision for income tax is required in the Fund's financial statements
for uncertain tax positions.
G. EXPENSES:
The Fund will pay all expenses directly related to its operations.
H. FOREIGN CURRENCY:
The books and records of the Fund are maintained in U.S. dollars. Foreign
currencies, investments and other assets and liabilities are translated into
U.S. dollars at the exchange rates prevailing at the end of the period.
Purchases and sales of investments and items of income and expense are
translated on the respective dates of such transactions. Unrealized gains and
losses on assets and liabilities, other than investments in securities, which
result from changes in foreign currency exchange rates have been included in
"Net change in unrealized appreciation (depreciation) before taxes on foreign
currency translation" on the Statement of Operations. Unrealized gains and
losses on investments in securities which result from changes in foreign
exchange rates are included with fluctuations arising from changes in market
price and are shown in "Net change in unrealized appreciation (depreciation)
before taxes on investments" on the Statement of Operations. Net realized
foreign currency gains and losses include the effect of changes in exchange
rates between trade date and settlement date on investment security
transactions, foreign currency transactions and interest and dividends received.
The portion of foreign currency gains and losses related to fluctuation in
exchange rates between the initial purchase trade date and subsequent sale trade
date is included in "Net realized gain (loss) before taxes on foreign currency
transactions" on the Statement of Operations.
I. ORGANIZATION AND OFFERING COSTS:
Organization costs consisted of costs incurred to establish the Fund and enable
it to legally conduct business. These costs included filing fees, listing fees,
legal services pertaining to the organization of the business and audit fees
relating to the initial registration and auditing the initial statement of
assets and liabilities, among other fees. Offering costs consisted of legal fees
pertaining to the Fund's shares offered for sale, registration fees,
underwriting fees, and printing of the initial prospectus, among other fees.
First Trust and the Sub-Advisor paid all organization expenses. The Fund's
Common Share offering costs of $1,064,320 were recorded as a reduction of the
proceeds from the sale of Common Shares during the period ended October 31,
2013.
J. ACCOUNTING PRONOUNCEMENTS
In December 2011, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update No. 2011-11 "Disclosures about Offsetting Assets and
Liabilities" ("ASU 2011-11"). This disclosure requirement is intended to help
investors and other financial statement users better assess the effect or
potential effect of offsetting arrangements on a fund's financial position. ASU
2011-11 requires entities to disclose both gross and net information about both
instruments and transactions eligible for offset on the Statements of Assets and
Liabilities, and disclose instruments and transactions subject to master netting
or similar agreements. In addition, in January 2013, FASB issued Accounting
Standards Update No. 2013-1 "Clarifying the Scope of Offsetting Assets and
Liabilities" ("ASU 2013-1"), specifying which transactions are subject to
offsetting disclosures. The scope of the disclosure requirements is limited to
derivative instruments, repurchase agreements and reverse repurchase agreements,
and securities borrowing and securities lending transactions. ASU 2011-11 and
ASU 2013-1 are effective for financial statements with fiscal years beginning on
or after January 1, 2013, and interim periods within those fiscal years.
Management is currently evaluating the impact of the updated standards on the
Fund's financial statements, if any.
Page 19
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
OCTOBER 31, 2013
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Fund, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the ongoing monitoring of the Fund's investment
portfolio, managing the Fund's business affairs and providing certain
administrative services necessary for the management of the Fund. For these
investment management services, First Trust is entitled to a monthly fee
calculated at an annual rate of 1.00% of the Fund's Managed Assets. First Trust
also provides fund reporting services to the Fund for a flat annual fee in the
amount of $9,250.
EIP serves as the Fund's sub-advisor and manages the Fund's portfolio subject to
First Trust's supervision. The Sub-Advisor receives a monthly sub-advisory fee
calculated at an annual rate of 0.50% of the Fund's Managed Assets that is paid
by First Trust out of its investment advisory fee.
First Trust Capital Partners, LLC ("FTCP"), an affiliate of First Trust, owns,
through a wholly-owned subsidiary, a 15% ownership interest in each of the
Sub-Advisor and EIP Partners, LLC, an affiliate of the Sub-Advisor. In addition,
as of November 29, 2012, FTCP purchased a preferred interest in the Sub-Advisor.
The preferred interest is non-voting and does not share in the profits or losses
of the Sub-Advisor. The Sub-Advisor may buy back any or all of FTCP's preferred
interest at any time and FTCP may sell back to the Sub-Advisor up to 50% of its
preferred interest on or after July 29, 2014 and any or all of its preferred
interest after November 29, 2015.
BNY Mellon Investment Servicing (US) Inc. ("BNYM IS") serves as the Fund's
administrator, fund accountant and transfer agent in accordance with certain fee
arrangements. As administrator and fund accountant, BNYM IS is responsible for
providing certain administrative and accounting services to the Fund, including
maintaining the Fund's books of account, records of the Fund's securities
transactions, and certain other books and records. As transfer agent, BNYM IS is
responsible for maintaining shareholder records for the Fund. The Bank of New
York Mellon ("BNYM") serves as the Fund's custodian in accordance with certain
fee arrangements. As custodian, BNYM is responsible for custody of the Fund's
assets.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer of $125,000 per year and an annual per fund fee of $4,000 for each
closed end fund or other actively managed fund and $1,000 for each index fund in
the First Trust Fund Complex. The fixed annual retainer is allocated pro rata
among each fund in the First Trust Fund Complex based on net assets.
Additionally, the Lead Independent Trustee is paid $15,000 annually, the
Chairman of the Audit Committee is paid $10,000 annually, and each of the
Chairmen of the Nominating and Governance Committee and the Valuation Committee
is paid $5,000 annually to serve in such capacities, with such compensation
allocated pro rata among each fund in the First Trust Fund Complex based on net
assets. Trustees are reimbursed for travel and out-of-pocket expenses in
connection with all meetings. The Lead Independent Trustee and each Committee
Chairman will serve two-year terms until December 31, 2013 before rotating to
serve as Chairman of another Committee or as Lead Independent Trustee. After
December 31, 2013, the Lead Independent Trustee and Committee Chairmen will
rotate every three years. The officers and "Interested" Trustee receive no
compensation from the funds for acting in such capacities.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of investments, excluding short-term
investments, for the period ended October 31, 2013, were $1,577,407,501 and
$432,806,954, respectively.
Written option activity for the Fund was as follows:
NUMBER
OF
WRITTEN OPTIONS CONTRACTS PREMIUMS
-----------------------------------------------------------------------------
Options outstanding at beginning of period...... -- $ --
Options Written................................. 274,134 13,501,131
Options Expired................................. (91,567) (4,078,728)
Options Exercised............................... (87,075) (4,051,499)
Options Closed.................................. (14,824) (790,316)
--------- ------------
Options outstanding at October 31, 2013......... 80,668 $ 4,580,588
========= ============
5. BORROWINGS
The Fund has a committed facility agreement with The Bank of Nova Scotia
("Scotia") that has a maximum commitment amount of $350,000,000. The borrowing
rate under the facility is equal to the 1-month LIBOR plus 65 basis points. In
addition, under the facility, the Fund pays a commitment fee of 0.15% on the
undrawn amount of such facility. The average amount outstanding for the period
December 26,
Page 20
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
OCTOBER 31, 2013
2012 through October 31, 2013 was $270,200,000, with a weighted average interest
rate of 0.84%. As of October 31, 2013, the Fund had outstanding borrowings of
$334,000,000 under this committed facility agreement. The high and low annual
interest rates for the period ended October 31, 2013 were 0.86% and 0.82%,
respectively. The interest rate at October 31, 2013 was 0.82%.
6. INDEMNIFICATION
The Fund has a variety of indemnification obligations under contracts with its
service providers. The Fund's maximum exposure under these arrangements is
unknown. However, the Fund has not had prior claims or losses pursuant to these
contracts and expects the risk of loss to be remote.
7. INDUSTRY CONCENTRATION RISK
The Fund invests at least 85% of its Managed Assets in securities issued by
energy companies, energy sector MLPs and MLP-related entities and at least 65%
of its Managed Assets in equity securities of such MLPs and MLP-related
entities. Given this industry concentration, the Fund is more susceptible to
adverse economic or regulatory occurrences affecting that industry than an
investment company that is not concentrated in a single industry. Energy issuers
may be subject to a variety of factors that may adversely affect their business
or operations, including high interest costs in connection with capital
construction programs, high leverage costs associated with environmental and
other regulations, the effects of economic slowdown, surplus capacity, increased
competition from other providers of services, uncertainties concerning the
availability of fuel at reasonable prices, the effects of energy conservation
policies and other factors.
8. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events to the Fund through
the date the financial statements were issued, and has determined that there
were the following subsequent events:
On November 20, 2013, the Fund declared a dividend of $0.11 per share to Common
Shareholders of record on December 4, 2013, payable December 10, 2013.
On December 17, 2013, the Fund declared a dividend of $0.11 per share to Common
Shareholders of record on January 6, 2014, payable January 15, 2014.
Page 21
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of First Trust MLP and Energy Income
Fund:
We have audited the accompanying statement of assets and liabilities of First
Trust MLP and Energy Income Fund (the "Fund"), including the portfolio of
investments, as of October 31, 2013, and the related statements of operations,
cash flows, and changes in net assets and the financial highlights for the
period 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
audit.
We conducted our audit 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 audit 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 October 31, 2013 by correspondence with the Fund's
custodian and brokers. We believe that our audit provides 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
First Trust MLP and Energy Income Fund as of October 31, 2013, and the results
of its operations, its cash flows, changes in its net assets, and the financial
highlights for the period presented, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Chicago, Illinois
December 20, 2013
Page 22
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
OCTOBER 31, 2013 (UNAUDITED)
DIVIDEND REINVESTMENT PLAN
If your Common Shares are registered directly with the Fund or if you hold your
Common Shares with a brokerage firm that participates in the Fund's Dividend
Reinvestment Plan (the "Plan"), unless you elect, by written notice to the Fund,
to receive cash distributions, all dividends, including any capital gain
distributions, on your Common Shares will be automatically reinvested by BNY
Mellon Investment Servicing (US) Inc. (the "Plan Agent"), in additional Common
Shares under the Plan. If you elect to receive cash distributions, you will
receive all distributions in cash paid by check mailed directly to you by the
Plan Agent, as the dividend paying agent.
If you decide to participate in the Plan, the number of Common Shares you will
receive will be determined as follows:
(1) If Common Shares are trading at or above net asset value ("NAV") at
the time of valuation, the Fund will issue new shares at a price
equal to the greater of (i) NAV per Common Share on that date or
(ii) 95% of the market price on that date.
(2) If Common Shares are trading below NAV at the time of valuation, the
Plan Agent will receive the dividend or distribution in cash and
will purchase Common Shares in the open market, on the NYSE or
elsewhere, for the participants' accounts. It is possible that the
market price for the Common Shares may increase before the Plan
Agent has completed its purchases. Therefore, the average purchase
price per share paid by the Plan Agent may exceed the market price
at the time of valuation, resulting in the purchase of fewer shares
than if the dividend or distribution had been paid in Common Shares
issued by the Fund. The Plan Agent will use all dividends and
distributions received in cash to purchase Common Shares in the open
market within 30 days of the valuation date except where temporary
curtailment or suspension of purchases is necessary to comply with
federal securities laws. Interest will not be paid on any uninvested
cash payments.
You may elect to opt-out of or withdraw from the Plan at any time by giving
written notice to the Plan Agent, or by telephone at (866) 340-1104, in
accordance with such reasonable requirements as the Plan Agent and the Fund may
agree upon. If you withdraw or the Plan is terminated, you will receive a
certificate for each whole share in your account under the Plan, and you will
receive a cash payment for any fraction of a share in your account. If you wish,
the Plan Agent will sell your shares and send you the proceeds, minus brokerage
commissions.
The Plan Agent maintains all Common Shareholders' accounts in the Plan and gives
written confirmation of all transactions in the accounts, including information
you may need for tax records. Common Shares in your account will be held by the
Plan Agent in non-certificated form. The Plan Agent will forward to each
participant any proxy solicitation material and will vote any shares so held
only in accordance with proxies returned to the Fund. Any proxy you receive will
include all Common Shares you have received under the Plan.
There is no brokerage charge for reinvestment of your dividends or distributions
in Common Shares. However, all participants will pay a pro rata share of
brokerage commissions incurred by the Plan Agent when it makes open market
purchases.
Automatically reinvesting dividends and distributions does not mean that you do
not have to pay income taxes due upon receiving dividends and distributions.
Capital gains and income are realized although cash is not received by you.
Consult your financial advisor for more information.
If you hold your Common Shares with a brokerage firm that does not participate
in the Plan, you will not be able to participate in the Plan and any dividend
reinvestment may be effected on different terms than those described above.
The Fund reserves the right to amend or terminate the Plan if in the judgment of
the Board of Trustees the change is warranted. There is no direct service charge
to participants in the Plan; however, the Fund reserves the right to amend the
Plan to include a service charge payable by the participants. Additional
information about the Plan may be obtained by writing BNY Mellon Investment
Servicing (US) Inc., 301 Bellevue Parkway, Wilmington, Delaware 19809.
--------------------------------------------------------------------------------
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Fund uses to determine how
to vote proxies and information on how the Fund voted proxies relating to
portfolio investments during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Fund's website located at http://www.ftportfolios.com; and (3) on the
Securities and Exchange Commission's ("SEC") website located at
http://www.sec.gov.
PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q
are available (1) by calling (800) 988-5891; (2) on the Fund's website located
at http://www.ftportfolios.com; (3) on the SEC's website at http://www.sec.gov;
and (4) for review and copying at the SEC's Public Reference Room ("PRR") in
Washington, DC. Information regarding the operation of the PRR may be obtained
by calling (800) SEC-0330.
Page 23
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
OCTOBER 31, 2013 (UNAUDITED)
RISK CONSIDERATIONS
Risks are inherent in all investing. The following summarizes some, but not all,
of the risks that should be considered for the Fund. For additional information
about the risks associated with investing in the Fund, please see the Fund's
prospectus and statement of additional information, as well as other Fund
regulatory filings.
INVESTMENT AND MARKET RISK: An investment in the Fund's Common Shares is subject
to investment risk, including the possible loss of the entire principal
invested. An investment in Common Shares represents an indirect investment in
the securities owned by the Fund. The value of these securities, like other
market investments, may move up or down, sometimes rapidly and unpredictably.
Common Shares at any point in time may be worth less than the original
investment, even after taking into account the reinvestment of Fund dividends
and distributions. Security prices can fluctuate for several reasons including
the general condition of the securities markets, or when political or economic
events affecting the issuers occur. When the Advisor or Sub-Advisor determines
that it is temporarily unable to follow the Fund's investment strategy or that
it is impractical to do so (such as when a market disruption event has occurred
and trading in the securities is extremely limited or absent), the Fund may take
temporary defensive positions.
MLP RISK: An investment in MLP units involves risks which differ from an
investment in common stock of a corporation. Holders of MLP units have limited
control and voting rights on matters affecting the partnership. In addition,
there are certain tax risks associated with an investment in MLP units and
conflicts of interest exist between common unit holders and the general partner,
including those arising from incentive distribution payments.
LEVERAGE RISK: The use of leverage results in additional risks and can magnify
the effect of any losses. The funds borrowed pursuant to a leverage borrowing
program constitute a substantial lien and burden by reason of their prior claim
against the income of the Fund and against the net assets of the Fund in
liquidation. If the Fund is not in compliance with certain credit facility
provisions, the Fund may not be permitted to declare dividends or other
distributions.
RESTRICTED SECURITIES RISK: The Fund may invest in unregistered or otherwise
restricted securities. The term "restricted securities" refers to securities
that are unregistered or are held by control persons of the issuer and
securities that are subject to contractual restrictions on their resale. As a
result, restricted securities may be more difficult to value and the Fund may
have difficulty disposing of such assets either in a timely manner or for a
reasonable price. In order to dispose of an unregistered security, the Fund,
where it has contractual rights to do so, may have to cause such security to be
registered. A considerable period may elapse between the time the decision is
made to sell the security and the time the security is registered so that the
Fund could sell it. Contractual restrictions on the resale of securities vary in
length and scope and are generally the result of a negotiation between the
issuer and acquirer of the securities. The Fund would, in either case, bear
market risks during that period.
NON-DIVERSIFICATION RISK: The Fund is a non-diversified investment company under
the 1940 Act and will not be treated as a regulated investment company under the
Internal Revenue Code. Accordingly, there are no regulatory requirements under
the 1940 Act or the Internal Revenue Code on the minimum number or size of
securities held by the Fund.
CURRENCY RISK: The value of securities denominated or quoted in foreign
currencies may be adversely affected by fluctuations in the relative currency
exchange rates and by exchange control regulations. The Fund's investment
performance may be negatively affected by a devaluation of a currency in which
the Fund's investments are denominated or quoted. Further, the Fund's investment
performance may be significantly affected, either positively or negatively, by
currency exchange rates because the U.S. dollar value of securities denominated
or quoted in another currency will increase or decrease in response to changes
in the value of such currency in relation to the U.S. dollar. While certain of
the Fund's non-U.S. dollar-denominated securities may be hedged into U.S.
dollars, hedging may not alleviate all currency risks.
NON-U.S. RISK: The Fund may invest a portion of its assets in the equity
securities of issuers domiciled in jurisdictions other than the U.S. Investments
in the securities and instruments of non-U.S. issuers involve certain
considerations and risks not ordinarily associated with investments in
securities and instruments of U.S. issuers. Non-U.S. companies are not generally
subject to uniform accounting, auditing and financial standards and requirements
comparable to those applicable to U.S. companies. Non-U.S. securities exchanges,
brokers and listed companies may be subject to less government supervision and
regulation than exists in the United States. Dividend and interest income may be
subject to withholding and other non-U.S. taxes, which may adversely affect the
net return on such investments. A related risk is that there may be difficulty
in obtaining or enforcing a court judgment abroad
Page 24
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
OCTOBER 31, 2013 (UNAUDITED)
The Fund's statement of additional information includes additional information
about the Trustees and is available, without charge, upon request, by calling
(800) 988-5891.
NUMBER OF OTHER
PORTFOLIOS IN TRUSTEESHIPS OR
THE FIRST TRUST DIRECTORSHIPS
NAME, ADDRESS, TERM OF OFFICE FUND COMPLEX HELD BY TRUSTEE
DATE OF BIRTH AND AND LENGTH OF PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE FUND SERVICE(2) DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
Richard E. Erickson, Trustee o Three-Year Term Physician; President, Wheaton Orthopedics; 105 None
c/o First Trust Advisors L.P. Limited Partner, Gundersen Real Estate
120 East Liberty Drive, o Since Fund Limited Partnership; Member,
Suite 400 Inception Sportsmed LLC
Wheaton, IL 60187
D.O.B.: 04/51
Thomas R. Kadlec, Trustee o Three-Year Term President (March 2010 to Present), Senior 105 Director of ADM
c/o First Trust Advisors L.P. Vice President and Chief Financial Officer Investor Services,
120 East Liberty Drive, o Since Fund (May 2007 to March 2010), ADM Investor Inc. and ADM
Suite 400 Inception Services, Inc. (Futures Commission Investor Services
Wheaton, IL 60187 Merchant) International
D.O.B.: 11/57
Robert F. Keith, Trustee o Three-Year Term President (2003 to Present), Hibs 105 Director of Trust
c/o First Trust Advisors L.P. Enterprises (Financial and Management Company of
120 East Liberty Drive, o Since Fund Consulting) Illinois
Suite 400 Inception
Wheaton, IL 60187
D.O.B.: 11/56
Niel B. Nielson, Trustee o Three-Year Term President and Chief Executive Officer (June 105 Director of
c/o First Trust Advisors L.P. 2012 to Present), Dew Learning LLC Covenant
120 East Liberty Drive, o Since Fund (Educational Products and Services); Transport Inc.
Suite 400 Inception President (June 2002 to June 2012),
Wheaton, IL 60187 Covenant College
D.O.B.: 03/54
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(2), Trustee, o Three-Year Term Chief Executive Officer (December 2010 105 None
Chairman of the Board to Present), President (until December
120 East Liberty Drive, o Since Fund 2010), First Trust Advisors L.P. and First
Suite 400 Inception Trust Portfolios L.P.; Chairman of the
Wheaton, IL 60187 Board of Directors, BondWave LLC
D.O.B.: 09/55 (Software Development Company/
Investment Advisor) and Stonebridge
Advisors LLC (Investment Advisor)
-----------------------------
(1) Currently, Robert F. Keith, as a Class I Trustee, is serving as a trustee
until the Fund's 2014 annual meeting of shareholders. Richard E. Erickson
and Thomas R. Kadlec, as Class II Trustees, are serving as trustees until
the Fund's 2015 annual meeting of shareholders. James A. Bowen and Niel B.
Nielson, as Class III Trustees, are serving as trustees until the Fund's
2016 annual meeting of shareholders. Officers of the Fund have an
indefinite term. The term "officer" means the president, vice president,
secretary, treasurer, controller or any other officer who performs a
policy making function.
(2) Mr. Bowen is deemed an "interested person" of the Trust due to his
position as President of First Trust Advisors L.P., investment advisor of
the Trust.
Page 25
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
OCTOBER 31, 2013 (UNAUDITED)
NAME, ADDRESS POSITION AND OFFICES TERM OF OFFICE AND PRINCIPAL OCCUPATIONS
AND DATE OF BIRTH WITH FUND LENGTH OF SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS WHO ARE NOT TRUSTEES(3)
------------------------------------------------------------------------------------------------------------------------------------
Mark R. Bradley President and Chief o Indefinite Term Chief Operating Officer (December 2010 to Present)
120 E. Liberty Drive, Executive Officer and Chief Financial Officer, First Trust Advisors
Suite 400 o Since Fund Inception L.P. and First Trust Portfolios L.P.; Chief Financial
Wheaton, IL 60187 Officer, BondWave LLC (Software Development
D.O.B.: 11/57 Company/Investment Advisor) and Stonebridge
Advisors LLC (Investment Advisor)
James M. Dykas Treasurer, Chief Financial o Indefinite Term Controller (January 2011 to Present), Senior Vice
120 E. Liberty Drive, Officer and Chief President (April 2007 to January 2011), First Trust
Suite 400 Accounting Officer o Since Fund Inception Advisors L.P. and First Trust Portfolios L.P.
Wheaton, IL 60187
D.O.B.: 01/66
W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P. and First
120 E. Liberty Drive, Legal Officer Trust Portfolios L.P.; Secretary, BondWave LLC
Suite 400 o Since Fund Inception (Software Development Company/Investment
Wheaton, IL 60187 Advisor); Secretary of Stonebridge Advisors LLC
D.O.B.: 05/60 (Investment Advisor)
Daniel J. Lindquist Vice President o Indefinite Term Managing Director (July 2012 to Present), Senior
120 E. Liberty Drive, Vice President (September 2005 to July 2012),
Suite 400 o Since Fund Inception First Trust Advisors L.P. and First Trust Portfolios
Wheaton, IL 60187 L.P.
D.O.B.: 02/70
Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust Advisors L.P.
120 E. Liberty Drive, and Assistant Secretary and First Trust Portfolios L.P.
Suite 400 o Since Fund Inception
Wheaton, IL 60187
D.O.B.: 12/66
-----------------------------
2 The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.
Page 26
--------------------------------------------------------------------------------
PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
OCTOBER 31, 2013 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies."
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives, proxy
services, solicitors and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information with affiliates of the Fund.
PRIVACY ONLINE
We allow third-party companies, including AddThis (a social media sharing
service), to collect certain anonymous information when you visit our website.
These companies may use non-personally identifiable information during your
visits to this and other websites in order to provide advertisements about goods
and services likely to be of greater interest to you. These companies typically
use a cookie, third party web beacon or pixel tags, to collect this information.
To learn more about this behavioral advertising practice, you can visit
www.networkadvertising.org.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, we restrict access to your
nonpublic personal information to those individuals who need to know that
information to provide products or services to you. We maintain physical,
electronic and procedural safeguards to protect your nonpublic personal
information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
Page 27
This Page Left Blank Intentionally.
FIRST TRUST
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 E. Liberty Drive, Suite 400
Wheaton, IL 60187
INVESTMENT SUB-ADVISOR
Energy Income Partners, LLC
49 Riverside Avenue
Westport, CT 06880
ADMINISTRATOR,
FUND ACCOUNTANT &
TRANSFER AGENT
BNY Mellon Investment Servicing (US) Inc.
301 Bellevue Parkway
Wilmington, DE 19809
CUSTODIAN
The Bank of New York Mellon
101 Barclay Street, 20th Floor
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
[BLANK BACK COVER]
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 description.
(d) The registrant has not 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 the last
fiscal year 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
for those fiscal years were $78,000 for the fiscal year ended
beginning from Registrant's inception on November 27, 2012 through
October 31, 2013.
(b) Audit-Related Fees (Registrant) -- The aggregate fees billed in the
last fiscal year 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 for the fiscal year ended
beginning from Registrant's inception on November 27, 2012 through
October 31, 2013.
Audit-Related Fees (Investment Advisor) -- The aggregate fees billed in
the last fiscal year 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 $7,000 for the fiscal year ended beginning from
Registrant's inception on November 27, 2012 through October 31, 2013.
(c) Tax Fees (Registrant) -- The aggregate fees billed in the last
fiscal year for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning were $0
for the fiscal year ended beginning from Registrant's inception on
November 27, 2012 through October 31, 2013.
Tax Fees (Investment Advisor) -- The aggregate fees billed in the last
fiscal year for professional services rendered by the principal accountant
for tax compliance, tax advice, and tax planning were $0 for the fiscal
year ended beginning from Registrant's inception on November 27, 2012
through October 31, 2013.
(d) All Other Fees (Registrant) -- The aggregate fees billed in the last
fiscal year 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 $0 for the fiscal year
ended beginning from Registrant's inception on November 27, 2012
through October 31, 2013.
All Other Fees (Investment Adviser) The aggregate fees billed in the last
fiscal year 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 $0 for the fiscal year ended beginning from
Registrant's inception on November 27, 2012 through October 31, 2013.
(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, 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 is 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 the Registrant's
fiscal year beginning from Registrant's inception on November 27,
2012 through October 31, 2013, were $0 for the Registrant and $3,000
for the Registrant's investment adviser.
(h) The registrant's audit committee of the board of directors has
considered whether 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 directors 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. INVESTMENTS.
(a) 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.
(b) Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Proxy Voting Policies are attached herewith.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a)(1) IDENTIFICATION OF PORTFOLIO MANAGERS OR MANAGEMENT TEAM MEMBERS AND
DESCRIPTION OF ROLE OF PORTFOLIO MANAGERS OR MANAGEMENT TEAM MEMBERS
Information provided as of January 5, 2014.
Energy Income Partners, LLC
Energy Income Partners, LLC ("EIP"), Westport, CT, was founded in 2003 to
provide professional asset management services in the area of energy-related
master limited partnerships ("MLPs") and other high-payout securities such as
pipeline companies, power utilities and Canadian income equities. EIP mainly
focuses on investments in energy-related infrastructure assets such as
pipelines, power transmission and distribution, petroleum storage and terminals
that receive fee-based or regulated income from their corporate and individual
customers. EIP manages or supervises approximately $4.1 billion of assets as of
October 31, 2013. Private funds advised by EIP include a partnership for U.S.
high net worth individuals and a master-and-feeder fund for institutions. EIP
also manages separately managed accounts and provides its model portfolio to
unified managed accounts. EIP is a registered investment advisor and serves as a
sub-advisor to two closed-end management investment companies other than the
First Trust MLP and Energy Income Fund ("FEI" or the "Fund") and an actively
managed exchange-traded fund ("ETF").
James J. Murchie, Portfolio Manager James J. Murchie is the Founder, Chief
Executive Officer, co-portfolio manager and a Principal of Energy Income
Partners. After founding Energy Income Partners in October 2003, Mr. Murchie and
the Energy Income Partners investment team joined Pequot Capital Management Inc.
("Pequot Capital") in December 2004. In August 2006, Mr. Murchie and the Energy
Income Partners investment team left Pequot Capital and re-established Energy
Income Partners. Prior to founding Energy Income Partners, Mr. Murchie was a
Portfolio Manager at Lawhill Capital Partners, LLC ("Lawhill Capital"), a
long/short equity hedge fund investing in commodities and equities in the energy
and basic industry sectors. Before Lawhill Capital, Mr. Murchie was a Managing
Director at Tiger Management, LLC, where his primary responsibility was managing
a portfolio of investments in commodities and related equities. Mr. Murchie was
also a Principal at Sanford C. Bernstein. He began his career at British
Petroleum, PLC. Mr. Murchie holds a BA from Rice University and an MA from
Harvard University.
Eva Pao, Co-Portfolio Manager
Eva Pao is a Principal of Energy Income Partners and is co-portfolio manager for
all its funds. She has been with EIP since inception in 2003. From 2005 to
mid-2006, Ms. Pao joined Pequot Capital Management during EIP's affiliation with
Pequot. Prior to Harvard Business School, Ms. Pao was a Manager at Enron Corp
where she managed a portfolio in Canadian oil and gas equities for Enron's
internal hedge fund that specialized in energy-related equities and managed a
natural gas trading book. Ms. Pao holds degrees from Rice University and Harvard
Business School.
(a)(2) OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGERS OR MANAGEMENT TEAM MEMBER
AND POTENTIAL CONFLICTS OF INTEREST
Information provided as of October 31, 2013.
# of Accounts Total Assets
Total Managed for which for which
Advisory Fee is Advisory Fee
Name of Portfolio Manager or # of Accounts Based on is Based on
Team Member Type of Accounts* Managed Total Assets Performance Performance
---------------------------- --------------------------------- ------------- ------------ ---------------- --------------
1. James J. Murchie Registered Investment Companies 4 $1906.60M 0 0
Other Pooled Investment Vehicles 3 $179.4M 3 $179.4
Other Accounts 800 $779.1M 1 $4.7
2. Eva Pao Registered Investment Companies 4 $1906.60M 0 0
Other Pooled Investment Vehicles 3 $179.4M 3 $179.4
Other Accounts 800 $779.1M 1 $4.7
PORTFOLIO MANAGER POTENTIAL CONFLICTS OF INTERESTS
Potential conflicts of interest may arise when a fund's portfolio manager has
day-to-day management responsibilities with respect to one or more other funds
or other accounts, as is the case for the portfolio managers of the Fund. These
potential conflicts may include:
Besides the Fund, the EIP investment professionals who serve as portfolio
managers of the Fund also serve as portfolio managers to three private
investment funds (the "Private Funds"), each of which has a performance based
fee, two closed ended mutual funds, one privately placed open ended registered
investment company, one exchange traded fund and 800 separately managed accounts
and unified managed accounts, 2 of which have a performance-based fee.
EIP has written policies and procedures regarding Order Aggregation and
Allocation to ensure that all accounts are treated fairly and equitably and that
no account is disadvantaged. EIP will generally execute client transactions on
an aggregated basis when the Firm believes that to do so will allow it to obtain
best execution and to negotiate more favorable commission rates or avoid certain
transaction costs that might have otherwise been paid had such orders been
placed independently. EIP's ability to implement this may be limited by an
Account's custodian, directed brokerage arrangements or other constraints
limiting EIP's use of a common executing broker.
An aggregated order may be allocated on a basis different from that
specified herein provided that all clients receive fair and equitable treatment
and there is a legitimate reason for the different allocation. Reasons for
deviation may include (but are not limited to): a client's investment guidelines
and restrictions, available cash, liquidity or legal reasons, and to avoid
odd-lots or in cases when a normal allocation would result in a de minimis
allocation to one or more clients.
Notwithstanding the above, due to differing tax ramifications and compliance
ratios, as well as dissimilar risk constraints and tolerances, accounts with
similar investment mandates may trade the same securities at differing points in
time. Additionally, for the reasons noted above, certain accounts, including
Funds in which EIP, its affiliates and/or employees ("EIP Funds") have a
financial interest, may trade separately from other accounts and participate in
transactions which are deemed to be inappropriate for other accounts with
similar investment mandates. Further, during periods in which EIP intends to
trade the same securities across multiple accounts, transactions for those
accounts that must be traded through specific brokers and/or platforms will
often be executed after those for accounts over which EIP exercises full
brokerage discretion, including the EIP Funds.
(a)(3) COMPENSATION STRUCTURE OF PORTFOLIO MANAGERS OR MANAGEMENT TEAM MEMBERS
PORTFOLIO MANAGER COMPENSATION
Information provided as of October 31, 2013.
The portfolio managers are compensated by a competitive minimum base salary and
share in the profits of EIP in relationship to their ownership of EIP. The
profits of EIP are influenced by the assets managed by the funds and the
performance of the funds. While a portion of the portfolio manager's
compensation is tied to the Funds' performance through incentive fees earned
through the private funds, the portfolio managers are not incentivized to take
undue risk in circumstances when the Funds' performance lags as their investment
fees may sometimes have a high water mark or be subject to a hurdle rate.
Moreover, the Funds' portfolio managers are the principal owners of EIP and are
incentivized to maximize the long-term performance of all of its Funds and
managed accounts.
The compensation of the Portfolio team members is determined according to
prevailing rates within the industry for similar positions. EIP wishes to
attract, retain and reward high quality personnel through competitive
compensation.
(a)(4) DISCLOSURE OF SECURITIES OWNERSHIP
Information provided as of October 31, 2012.
Dollar Range of Fund Shares
Name Beneficially Owned
James J. Murchie $0
Eva Pao $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.
At the registrant's organizational meeting the registrant's Board of Trustees
adopted a Nominating and Governance Committee Charter which includes procedures
by which shareholders may recommend nominees to the registrant's board of
trustees as described below:
When a vacancy on the Board of Trustees of a First Trust Fund occurs and
nominations are sought to fill such vacancy, the Nominating and Governance
Committee may seek nominations from those sources it deems appropriate in
its discretion, including shareholders of the Fund. A shareholder may
recommend a person for nomination as a candidate at any time. If a
recommendation is received with satisfactorily completed information (as
set forth below) regarding a candidate during a time when a vacancy exists
on the Board or during such other time as the Committee is accepting
recommendations, the recommendation will be forwarded to the Chair of the
Committee and the outside counsel to the independent trustees.
Recommendations received at any other time will be kept on file until such
time as the Committee is accepting recommendations, at which point they
may be considered for nomination.
To submit a recommendation for nomination as a candidate for a position on
the Board of Trustees, shareholders of the Fund shall mail such
recommendation to W. Scott Jardine, Secretary, at the Fund's address, 120
East Liberty Drive, Suite 400, Wheaton, Illinois 60187. Such
recommendation shall include the following information: (i) a statement in
writing setting forth (A) the name, age, date of birth, business address,
residence address and nationality of the person or persons to be
nominated; (B) the class or series and number of all shares of the
Registrant owned of record or beneficially by each such person or persons,
as reported to such shareholder by such nominee(s); (C) any other
information regarding each such person required by paragraphs (a), (d),
(e) and (f) of Item 401 of Regulation S-K or paragraph (b) of Item 22 of
Rule 14a-101 (Schedule 14A) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (or any successor provision thereto); (D) any
other information regarding the person or persons to be nominated that
would be required to be disclosed in a proxy statement or other filings
required to be made in connection with solicitation of proxies for
election of trustees or directors pursuant to Section 14 of the Exchange
Act and the rules and regulations promulgated thereunder; and (E) whether
such shareholder believes any nominee is or will be an "interested person"
of the Registrant (as defined in the Investment Company Act of 1940) and,
if not an "interested person," information regarding each nominee that
will be sufficient for the Registrant to make such determination; and (ii)
the written and signed consent of any person to be nominated to be named
as a nominee and to serve as a trustee if elected. In addition, the
trustees may require any proposed nominee to furnish such other
information as they may reasonably require or deem necessary to determine
the eligibility of such proposed nominee to serve as a trustee. The
Committee will not consider new trustee candidates who are 72 years of age
or older.
A copy of the Nominating and Governance Committee Charter is available on the
Registrant's website at www.ftportfolios.com.
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 MLP and Energy Income Fund
-------------------------------------------------
By (Signature and Title)* /s/ Mark R. Bradley
----------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)
Date: December 20, 2013
---------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Mark R. Bradley
----------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)
Date: December 20, 2013
---------------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: December 20, 2013
---------------------
* Print the name and title of each signing officer under his or her signature.