UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED MANAGEMENT
INVESTMENT COMPANY
Investment Company Act file number 811-22738
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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: July 31, 2014
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Form N-Q is to be used by management investment companies, other than small
business investment companies registered on Form N-5 (ss.ss. 239.24 and 274.5 of
this chapter), to file reports with the Commission, not later than 60 days after
the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under
the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may use
the information provided on Form N-Q in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-Q, and
the Commission will make this information public. A registrant is not required
to respond to the collection of information contained in Form N-Q unless the
Form displays a currently valid Office of Management and Budget ("OMB") control
number. Please direct comments concerning the accuracy of the information
collection burden estimate and any suggestions for reducing the burden to the
Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC
20549. The OMB has reviewed this collection of information under the clearance
requirements of 44 U.S.C. ss. 3507.
ITEM 1. SCHEDULE OF INVESTMENTS. The Schedule(s) of Investments is attached
herewith.
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
PORTFOLIO OF INVESTMENTS
JULY 31, 2014 (UNAUDITED)
SHARES/
UNITS DESCRIPTION VALUE
--------------- -------------------------------------------------------------------- --------------
MASTER LIMITED PARTNERSHIPS - 90.1%
GAS UTILITIES - 6.9%
879,374 AmeriGas Partners, L.P. (a)......................................... $ 39,888,404
690,902 Suburban Propane Partners, L.P. (a)................................. 31,062,954
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70,951,358
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INDEPENDENT POWER AND RENEWABLE ELECTRICITY PRODUCERS - 0.6%
100,000 Brookfield Renewable Energy Partners, L.P. (CAD) (a)................ 2,851,378
99,127 NextEra Energy Partners, L.P. (b)................................... 3,374,283
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6,225,661
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OIL, GAS & CONSUMABLE FUELS - 82.6%
166,000 Access Midstream Partners, L.P. (a)................................. 9,996,520
207,534 Alliance Holdings GP, L.P. (a)...................................... 14,560,585
1,129,260 Alliance Resource Partners, L.P. (a)................................ 56,700,145
967,000 El Paso Pipeline Partners, L.P. (a)................................. 32,230,110
3,078,770 Enbridge Energy Partners, L.P. (a).................................. 106,063,627
960,000 Energy Transfer Equity, L.P. (a).................................... 52,214,400
562,030 Energy Transfer Partners, L.P. (a).................................. 31,327,552
1,918,537 Enterprise Products Partners, L.P. (a).............................. 143,122,860
230,000 EQT Midstream Partners, L.P. (a).................................... 19,904,200
492,905 Holly Energy Partners, L.P. (a)..................................... 16,615,828
150,000 Kinder Morgan Energy Partners, L.P. ................................ 12,153,000
810,000 Magellan Midstream Partners, L.P. (a)............................... 64,953,900
275,000 MPLX, L.P. (a)...................................................... 15,606,250
246,337 Natural Resource Partners, L.P. (a)................................. 4,069,487
435,772 NGL Energy Partners, L.P. (a)....................................... 18,716,407
104,052 Oiltanking Partners, L.P. (a)....................................... 4,484,641
734,000 ONEOK Partners, L.P. (a)............................................ 41,162,720
51,000 Phillips 66 Partners, L.P. ......................................... 3,261,450
662,000 Plains All American Pipeline, L.P. (a).............................. 37,965,700
849,811 Spectra Energy Partners, L.P. (a)................................... 43,841,750
702,500 TC Pipelines, L.P. (a).............................................. 36,958,525
961,624 Teekay LNG Partners, L.P. (a)....................................... 41,195,972
262,700 TransMontaigne Partners, L.P. (a)................................... 11,430,077
660,106 Williams Partners, L.P. (a)......................................... 33,427,768
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851,963,474
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TOTAL MASTER LIMITED PARTNERSHIPS .................................. 929,140,493
(Cost $625,435,218) --------------
COMMON STOCKS - 55.3%
ELECTRIC UTILITIES - 8.1%
283,400 American Electric Power Co., Inc. .................................. 14,733,966
163,000 Emera, Inc. (CAD) (a)............................................... 5,039,419
591,600 ITC Holdings Corp. (a).............................................. 21,356,760
65,000 NextEra Energy, Inc. ............................................... 6,102,850
175,000 Northeast Utilities ................................................ 7,682,500
268,200 NRG Yield, Inc., Class A (a)........................................ 14,013,450
350,000 Southern (The) Co. ................................................. 15,151,500
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84,080,445
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See Notes to Quarterly Portfolio of Investments
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
PORTFOLIO OF INVESTMENTS
JULY 31, 2014 (UNAUDITED)
SHARES DESCRIPTION VALUE
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COMMON STOCKS (CONTINUED)
GAS UTILITIES - 4.6%
79,033 Atmos Energy Corp. (a).............................................. $ 3,818,874
175,007 Laclede Group, Inc. (a)............................................. 8,221,829
317,700 Questar Corp. ...................................................... 7,065,648
21,500 South Jersey Industries, Inc. ...................................... 1,151,755
561,083 UGI Corp. .......................................................... 27,234,969
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47,493,075
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INDEPENDENT POWER AND RENEWABLE ELECTRICITY PRODUCERS - 0.4%
120,000 Pattern Energy Group, Inc. ......................................... 3,718,800
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MULTI-UTILITIES - 8.4%
142,000 ATCO, Ltd., Class I (CAD) (a)....................................... 6,225,157
471,400 CMS Energy Corp. ................................................... 13,637,602
482,200 Dominion Resources, Inc. ........................................... 32,616,008
34,500 National Grid PLC, ADR ............................................. 2,476,755
414,400 NiSource, Inc. ..................................................... 15,614,592
80,000 Public Service Enterprise Group, Inc. .............................. 2,813,600
15,000 Sempra Energy ...................................................... 1,495,650
276,300 Wisconsin Energy Corp. ............................................. 12,041,154
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86,920,518
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OIL, GAS & CONSUMABLE FUELS - 33.4%
774,500 Enbridge Income Fund Holdings, Inc. (CAD) (a)....................... 20,855,065
798,700 Enbridge, Inc. ..................................................... 39,120,326
1,045,500 Inter Pipeline, Ltd. (CAD) (a)...................................... 32,390,508
117,000 Keyera Corp. (CAD) (a).............................................. 8,758,234
994,144 Kinder Morgan Management, LLC (a) (c)............................... 76,479,471
817,800 Kinder Morgan, Inc. ................................................ 29,424,444
198,000 Pembina Pipeline Corp. (CAD) (a).................................... 8,295,171
1,155,000 Spectra Energy Corp. ............................................... 47,262,600
619,624 TransCanada Corp. .................................................. 31,086,536
891,200 Williams (The) Cos., Inc. .......................................... 50,468,656
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344,141,011
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REAL ESTATE INVESTMENT TRUSTS - 0.4%
465,867 CorEnergy Infrastructure Trust ..................................... 3,712,960
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TOTAL COMMON STOCKS ................................................ 570,066,809
(Cost $494,977,014) --------------
TOTAL INVESTMENTS - 145.4% ......................................... 1,499,207,302
(Cost $1,120,412,232) (d) --------------
NUMBER OF
CONTRACTS DESCRIPTION VALUE
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CALL OPTIONS WRITTEN - (1.0%)
American Electric Power Co., Inc. Calls
1,890 @ $55.00 due September 2014......................................... (37,800)
900 @ 55.00 due November 2014.......................................... (54,000)
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(91,800)
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See Notes to Quarterly Portfolio of Investments
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 2014 (UNAUDITED)
NUMBER OF
CONTRACTS DESCRIPTION VALUE
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CALL OPTIONS WRITTEN (CONTINUED)
CMS Energy Corp. Call
3,000 @ $32.00 due September 2014......................................... $ (23,346)
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Dominion Resources, Inc. Calls
4,000 @ 72.50 due September 2014......................................... (64,000)
500 @ 72.50 due October 2014........................................... (16,000)
300 @ 75.00 due January 2015........................................... (13,500)
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(93,500)
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Enbridge Energy Partners, L.P. Calls
130 @ 32.50 due October 2014........................................... (22,100)
2,550 @ 37.50 due October 2014........................................... (57,375)
2,200 @ 37.50 due January 2015........................................... (77,000)
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(156,475)
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Enbridge, Inc. Calls
2,570 @ 50.00 due October 2014........................................... (172,190)
5,410 @ 55.00 due January 2015........................................... (140,660)
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(312,850)
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Energy Transfer Partners, L.P. Calls
250 @ 57.50 due September 2014......................................... (16,250)
870 @ 60.00 due September 2014......................................... (19,140)
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(35,390)
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Enterprise Products Partners, L.P. Calls
4,475 @ 77.50 due September 2014......................................... (308,775)
120 @ 82.50 due September 2014......................................... (1,200)
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(309,975)
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Kinder Morgan Energy Partners, L.P. Calls
2 @ 80.00 due September 2014......................................... (455)
200 @ 85.00 due December 2014.......................................... (26,200)
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(26,655)
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Kinder Morgan, Inc. Calls
1,100 @ 40.00 due September 2014......................................... (24,200)
2,700 @ 40.00 due December 2014.......................................... (189,000)
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(213,200)
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National Grid PLC Call
300 @ 80.00 due December 2014.......................................... (8,250)
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NextEra Energy, Inc. Calls
250 @ 110.00 due September 2014........................................ (2,500)
400 @ 105.00 due December 2014......................................... (24,836)
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(27,336)
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NiSource, Inc. Calls
1,660 @ 41.00 due October 2014........................................... (66,400)
260 @ 42.00 due October 2014........................................... (8,450)
2,218 @ 42.00 due January 2015........................................... (133,080)
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(207,930)
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See Notes to Quarterly Portfolio of Investments
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 2014 (UNAUDITED)
NUMBER OF
CONTRACTS DESCRIPTION VALUE
--------------- -------------------------------------------------------------------- --------------
CALL OPTIONS WRITTEN (CONTINUED)
Northeast Utilities Call
1,740 @ $50.00 due October 2014........................................... $ (43,500)
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Plains All American Pipeline, L.P. Calls
30 @ 57.50 due August 2014............................................ (2,250)
100 @ 60.00 due August 2014............................................ (1,500)
370 @ 62.50 due November 2014.......................................... (13,875)
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(17,625)
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Public Service Enterprise Group, Inc. Call
800 @ 40.00 due December 2014.......................................... (20,000)
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Questar Corp. Calls
1,500 @ 25.00 due October 2014........................................... (22,500)
1,500 @ 26.00 due October 2014........................................... (15,000)
170 @ 25.00 due January 2015........................................... (3,825)
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(41,325)
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Sempra Energy Call
150 @ 105.00 due October 2014.......................................... (12,000)
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Southern (The) Co. Call
3,500 @ 45.00 due August 2014............................................ (31,500)
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Spectra Energy Corp. Calls
5,290 @ 39.00 due September 2014......................................... (1,296,050)
1,200 @ 42.00 due September 2014......................................... (66,000)
4,700 @ 44.00 due September 2014......................................... (70,500)
360 @ 45.00 due December 2014.......................................... (12,600)
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(1,445,150)
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TransCanada Corp. Calls
2,890 @ 50.00 due August 2014............................................ (262,990)
3,300 @ 50.00 due November 2014.......................................... (561,000)
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(823,990)
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UGI Corp. Call
5,610 @ 50.00 due October 2014......................................... (476,850)
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Williams (The) Cos., Inc. Calls
134 @ 43.00 due August 2014............................................ (185,590)
4,600 @ 46.00 due August 2014............................................ (4,749,500)
1,000 @ 62.50 due October 2014........................................... (34,000)
18 @ 50.00 due November 2014.......................................... (11,592)
2,300 @ 62.50 due November 2014.......................................... (167,900)
800 @ 62.50 due January 2015........................................... (80,000)
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(5,228,582)
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Wisconsin Energy Corp. Call
2,700 @ 50.00 due January 2015........................................... (54,000)
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TOTAL CALL OPTIONS WRITTEN ......................................... (9,701,229)
(Premiums received $4,505,802) --------------
See Notes to Quarterly Portfolio of Investments
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 2014 (UNAUDITED)
DESCRIPTION VALUE
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OUTSTANDING LOAN - (33.9%) ......................................... $ (350,000,000)
NET OTHER ASSETS AND LIABILITIES - (10.5%) ......................... (108,135,945)
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NET ASSETS - 100.0% ................................................ $1,031,370,128
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(a) All or a portion of this security serves as collateral on the outstanding
loan.
(b) Non-income producing security.
(c) Non-income producing security which pays in-kind ("PIK") distributions.
For the fiscal year-to-date period (November 1, 2013 through July 31,
2014), the Fund received 51,742 PIK shares of Kinder Morgan Management,
LLC.
(d) Aggregate cost for federal income tax purposes is $1,055,874,472. As of
July 31, 2014, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$448,563,576 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$5,230,746.
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:
EXPIRATION NOTIONAL
COUNTERPARTY FLOATING RATE (1) DATE AMOUNT FIXED RATE (1) VALUE
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Bank of Nova Scotia 1 month LIBOR 10/08/23 $ 77,250,000 2.734% $ (1,888,378)
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(1) The Fund pays the fixed rate and receives the floating rate. The floating
rate on July 31, 2014 was 0.153%.
See Notes to Quarterly Portfolio of Investments
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 2014 (UNAUDITED)
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of July 31, 2014
is as follows (see Note 2A - Portfolio Valuation in the Notes to Quarterly
Portfolio of Investments):
ASSETS TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
7/31/2014 PRICES INPUTS INPUTS
---------------- ---------------- ---------------- --------------
Master Limited Partnerships*.................. $ 929,140,493 $ 929,140,493 $ -- $ --
Common Stocks*................................ 570,066,809 570,066,809 -- --
---------------- ---------------- ---------------- --------------
TOTAL ........................................ $ 1,499,207,302 $ 1,499,207,302 $ -- $ --
================ ================ ================ ==============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
7/31/2014 PRICES INPUTS INPUTS
---------------- ---------------- ---------------- --------------
Call Options Written.......................... $ (9,701,229) $ (9,701,229) $ -- $ --
Interest Rates Swap** ........................ (1,888,378) -- (1,888,378) --
---------------- ---------------- ---------------- --------------
TOTAL ........................................ $ (11,589,607) $ (9,701,229) $ (1,888,378) $ --
================ ================ ================ ==============
* 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 July 31, 2014.
See Notes to Quarterly Portfolio of Investments
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
JULY 31, 2014 (UNAUDITED)
1. ORGANIZATION
First Trust MLP and Energy Income Fund (the "Fund") is a 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 under the Investment Company Act of 1940, as amended (the "1940
Act"). The Fund trades under the ticker symbol FEI on the New York Stock
Exchange ("NYSE").
2. VALUATION AND INVESTMENT PRACTICES
A. PORTFOLIO VALUATION:
The net asset value ("NAV") of the Common Shares of the Fund is determined daily
as of the close of regular trading on the NYSE, normally 4:00 p.m. Eastern time,
on each day the NYSE is open for trading. If the NYSE closes early on a
valuation day, the NAV is determined as of that time. 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 at market value or, in the absence of
market value with respect to any portfolio securities, at fair value 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 investments are valued as follows:
Common stocks, master limited partnerships ("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 contracts are valued at the closing price in the
market where such contracts are principally traded. If no closing price is
available, exchange-traded options contracts are valued at the mean of
their most recent bid and asked price, if available, and otherwise at
their closing bid price. Over-the-counter options contracts are valued at
the mean of their most recent bid and asked price, if available, and
otherwise at their closing bid price.
Securities traded in an over-the-counter market are valued at the mean of
their most recent bid and asked price, if available, and otherwise at
their 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 Fund's 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;
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.
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS (CONTINUED)
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
JULY 31, 2014 (UNAUDITED)
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 July 31, 2014, 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 Energy Income Partners, LLC ("EIP" or 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. 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.
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 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
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS (CONTINUED)
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
JULY 31, 2014 (UNAUDITED)
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 July 31, 2014 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.
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.
D. SECURITIES TRANSACTIONS:
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
E. 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.
3. DERIVATIVES TRANSACTIONS
Written option activity for the Fund for the fiscal year-to-date period
(November 1, 2013 through July 31, 2014) was as follows:
NUMBER
OF
WRITTEN OPTIONS CONTRACTS PREMIUMS
------------------------------------------------- -------------- ------------
Options outstanding at October 31, 2013.... 80,668 $ 4,580,588
Options Written............................ 193,793 10,232,200
Options Expired............................ (91,933) (4,311,856)
Options Exercised.......................... (62,267) (3,371,110)
Options Closed............................. (37,244) (2,624,020)
-------------- ------------
Options outstanding at July 31, 2014....... 83,017 $ 4,505,802
============== ============
The average volume of interest rate swaps was $77,250,000 for the fiscal
year-to-date period (November 1, 2013 through July 31, 2014).
ITEM 2. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers, or
persons performing similar functions, have concluded that the registrant's
disclosure controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR
270.30a-3(c))) are effective, as of a date within 90 days of the filing
date of the report that includes the disclosure required by this
paragraph, based on their evaluation of these controls and procedures
required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and
Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as
amended (17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR
270.30a-3(d)) that occurred during the registrant's last fiscal quarter
that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
ITEM 3. EXHIBITS.
Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of
the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) First Trust 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: September 19, 2014
-----------------------
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: September 19, 2014
-----------------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: September 19, 2014
-----------------------
* Print the name and title of each signing officer under his or her signature.