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 811-22528
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First Trust Energy Infrastructure 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: November 30
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Date of reporting period: November 30, 2015
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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.
EXPLANATORY NOTE: The Registrant is filing this amendment to its form N-CSR for
the period ended November 30, 2015 originally filed with the Securities and
Exchange Commission on February 5, 2016 (Accession Number 0001445546-16-006757).
The sole purpose of this fling is to include an exhibit attachment inadvertently
omitted in the original filing.
ITEM 1. REPORTS TO STOCKHOLDERS.
The Report to Shareholders is attached herewith.
FIRST TRUST
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E N E R G Y
INFRASTRUCTURE
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FUND
(FIF)
ANNUAL REPORT
FOR THE YEAR ENDED
NOVEMBER 30, 2015
FIRST TRUST
ENERGY INCOME PARTNERS, LLC
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TABLE OF CONTENTS
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FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
ANNUAL REPORT
NOVEMBER 30, 2015
Shareholder Letter.......................................................... 1
At a Glance................................................................. 2
Portfolio Commentary........................................................ 3
Portfolio of Investments.................................................... 5
Statement of Assets and Liabilities......................................... 10
Statement of Operations..................................................... 11
Statements 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..................... 23
Additional Information...................................................... 24
Board of Trustees and Officers.............................................. 29
Privacy Policy.............................................................. 31
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 Energy Infrastructure 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.
MANAGED DISTRIBUTION POLICY
The Board of Trustees of the Fund has approved a managed distribution policy for
the Fund (the "Plan") in reliance on exemptive relief received from the
Securities and Exchange Commission that permits the Fund to make periodic
distributions of long-term capital gains as frequently as monthly each tax year.
Under the Plan, the Fund currently intends to continue to pay a recurring
monthly distribution in the amount of $0.11 per Common Share that reflects the
distributable cash flow of the Fund. A portion of this monthly distribution may
include realized capital gains. This may result in a reduction of the long-term
capital gain distribution necessary at year end by distributing realized capital
gains throughout the year. The annual distribution rate is independent of the
Fund's performance during any particular period. Accordingly, you should not
draw any conclusions about the Fund's investment performance from the amount of
any distribution or from the terms of the Plan. The Board of Trustees may amend
or terminate the Plan at any time without prior notice to shareholders.
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.
The Advisor may also periodically provide additional information on Fund
performance on the Fund's webpage at http://www.ftportfolios.com.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment in
the Fund. 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 material 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 ENERGY INFRASTRUCTURE FUND (FIF)
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
NOVEMBER 30, 2015
Dear Shareholders:
Thank you for your investment in First Trust Energy Infrastructure Fund (the
"Fund").
First Trust Advisors L.P. ("First Trust") is pleased to provide you with the
annual report which contains detailed information about your investment for the
12 months ended November 30, 2015, including a market overview and a performance
analysis for the period. We encourage you to read this report and discuss it
with your financial advisor.
U.S. markets, fueled by accelerating growth and an accommodating Federal
Reserve, enjoyed a prosperous year in 2014. However, most of 2015 has been
volatile. Economic and global factors, such as the continued conflict in the
Middle East, a sharp decline in oil prices and terrorism around the world, have
impacted U.S. and global markets. Another factor that has weighed upon U.S.
markets for most of the year is the fact that many economists had predicted that
the Federal Reserve would begin to raise interest rates in 2015, which has still
not happened as of November 30, 2015.
As I have written previously, First Trust believes investors should maintain
perspective about the markets and have realistic expectations about their
investments. Markets will always go up and down, but we believe that having a
long-term investment horizon and being invested in quality products can help you
reach your goals.
Thank you for giving First Trust the opportunity to be a part of your investment
plan. We value the relationship and will continue to focus on our disciplined
investment approach and long-term perspective to help investors reach their
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 ENERGY INFRASTRUCTURE FUND (FIF)
"AT A GLANCE"
AS OF NOVEMBER 30, 2015 (UNAUDITED)
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FUND STATISTICS
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Symbol on New York Stock Exchange FIF
Common Share Price $16.16
Common Share Net Asset Value ("NAV") $18.19
Premium (Discount) to NAV (11.16)%
Net Assets Applicable to Common Shares $319,281,712
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) 8.17%
Current Distribution Rate on NAV (2) 7.26%
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COMMON SHARE PRICE & NAV (WEEKLY CLOSING PRICE)
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Common Share Price NAV
11/14 $23.00 $25.94
23.35 26.30
21.30 24.27
22.76 25.62
12/14 23.38 26.35
23.84 26.48
22.73 25.34
22.71 25.38
23.08 25.98
1/15 22.57 25.49
23.43 25.59
23.84 25.63
23.62 25.84
2/15 23.06 25.23
22.58 24.32
22.11 23.56
22.21 24.61
3/15 22.63 24.41
23.19 24.52
23.55 24.91
23.33 25.20
4/15 23.52 25.69
23.00 25.39
22.33 24.99
22.58 25.45
22.52 25.40
5/15 21.99 24.84
21.00 23.81
20.60 23.33
21.01 23.57
6/15 20.51 23.54
19.99 22.96
19.81 23.03
19.25 22.72
18.50 21.50
7/15 18.89 22.31
17.78 20.98
18.64 21.88
17.80 20.46
8/15 17.97 20.91
17.25 19.70
16.61 19.17
17.28 19.62
9/15 16.60 19.11
16.79 19.45
18.98 20.64
18.96 20.63
18.20 19.84
10/15 18.20 19.94
17.03 19.21
15.62 18.13
16.09 18.35
11/15 16.16 18.19
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PERFORMANCE
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Average Annual
Total Return
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1 Year Ended Inception (9/27/11)
11/30/15 to 11/30/15
Fund Performance (3)
NAV -25.29% 9.46%
Market Value -25.05% 5.24%
Index Performance
Philadelphia Stock Exchange Utility Index -5.05% 8.31%
Alerian MLP Total Return Index -34.03% 2.61%
Blended Index (4) -20.03% 5.91%
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% OF TOTAL
INDUSTRY CLASSIFICATION INVESTMENTS
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Pipelines 50.4%
Electric Power 33.1
Natural Gas Utility 7.7
Propane 4.0
Gathering & Processing 2.5
Coal 1.4
Other 0.9
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Total 100.0%
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% OF TOTAL
TOP 10 HOLDINGS INVESTMENTS
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Enbridge Energy Management, LLC 8.4%
Kinder Morgan, Inc. 7.2
Sempra Energy 4.3
Enterprise Products Partners, L.P. 4.1
TransCanada Corp. 4.0
NextEra Energy, Inc. 3.9
Public Service Enterprise Group, Inc. 3.1
Eversource Energy 2.9
UGI Corp. 2.7
Williams (The) Cos., Inc. 2.6
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Total 43.2%
======
(1) Most recent distribution paid or declared through 11/30/2015. 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 11/30/2015. 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 Common 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.
(4) The blended index consists of the following: Philadelphia Stock Exchange
Utility Index (50%) and Alerian MLP Total Return Index (50%).
Page 2
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PORTFOLIO COMMENTARY
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FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
ANNUAL REPORT
NOVEMBER 30, 2015
SUB-ADVISOR
ENERGY INCOME PARTNERS, LLC
Energy Income Partners, LLC ("EIP" or the "Sub-Advisor"), located in Westport,
Connecticut, 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, yield
corporations ("YieldCos")(1), and energy infrastructure real estate investment
trusts ("REITs"). 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 $4.5 billion of assets as of November 30, 2015. 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 serves as an advisor to
separately managed accounts for individuals and institutions and provides its
model portfolio to unified managed accounts. Finally, EIP serves as a
sub-advisor to three closed-end management investment companies in addition to
the First Trust Energy Infrastructure Fund ("FIF" or the "Fund"), an actively
managed exchange-traded fund ("ETF"), a sleeve of an actively managed ETF and a
sleeve of a series of a variable insurance trust. EIP is a registered investment
advisor with the Securities and Exchange Commission.
PORTFOLIO MANAGEMENT TEAM
JAMES J. MURCHIE EVA PAO
PORTFOLIO MANAGER CO-PORTFOLIO MANAGER
FOUNDER AND CHIEF EXECUTIVE OFFICER PRINCIPAL OF ENERGY INCOME PARTNERS, LLC
OF ENERGY INCOME PARTNERS, LLC
COMMENTARY
FIRST TRUST ENERGY INFRASTRUCTURE FUND
The investment objective of the Fund is to seek a high level of total return
with an emphasis on current distributions paid to shareholders. The Fund pursues
its objective by investing primarily in securities of companies engaged in the
energy infrastructure sector. These companies principally include
publicly-traded MLPs, MLP affiliates, YieldCos, pipeline companies, utilities
and other infrastructure-related companies that derive at least 50% of their
revenues from operating or providing services in support of infrastructure
assets such as pipelines, power transmission and petroleum and natural gas
storage in the petroleum, natural gas and power generation industries
(collectively, "Energy Infrastructure Companies"). Under normal market
conditions, the Fund invests at least 80% of its managed assets (total asset
value of the Fund minus the sum of the Fund's liabilities other than the
principal amount of borrowing) in securities of Energy Infrastructure Companies.
There can be no assurance that the Fund will achieve its investment objective.
The Fund may not be appropriate for all investors.
MARKET RECAP
As measured by the Alerian MLP Total Return Index ("AMZX") and the Philadelphia
Stock Exchange Utility Index ("UTY"), the total return for energy-related MLPs
and utilities over the year ended November 30, 2015, was -34.03% and -5.05%,
respectively. These figures are according to data collected from several
sources, including Alerian Capital Management and Bloomberg. While in the short
term, share appreciation of Energy Infrastructure Companies can be volatile, the
Sub-Advisor believes that over the longer term, such share appreciation will
approximate growth in monthly cash distributions and dividends per share. Over
the last 10 years, growth in MLP distributions and utility dividends has
averaged 4.9% and 3.9%, respectively. Over the last 12 months, the cash
distributions of MLPs decreased by about 8.6% and utilities increased by about
5.2% (source: Alerian Capital Management and Bloomberg).
PERFORMANCE ANALYSIS
On a net asset value ("NAV") basis, the Fund provided a total return(2) of
-25.29%, including the reinvestment of distributions for the fiscal year ended
November 30, 2015. This compares, according to collected data, to a -20.03%
return for a blended index consisting of the UTY (50%) and the AMZX (50%) (the
"Blended Index"). Unlike the Fund, the Blended Index does not incur fees and
(1) YieldCos are publicly traded entities that own, operate and acquire
contracted renewable and conventional generation and thermal and other
infrastructure assets, which are generally not MLP-qualifying assets. Like
MLPs, Yieldcos generally seek to position themselves as vehicles for
investors seeking stable and growing dividend income from a diversified
portfolio of lower-risk, hiqh-quality assets.
(2) Total return is based on the combination of reinvested dividends, capital
gains and return of capital distributions, if any, at prices obtained by
the Dividend Reinvestment Plan and changes in NAV per Common 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 3
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PORTFOLIO COMMENTARY (CONTINUED)
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FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
ANNUAL REPORT
NOVEMBER 30, 2015
expenses. On a market value basis, the Fund had a total return, including the
reinvestment of distributions, of -25.05% for the fiscal year. As of November
30, 2015, the Fund's market price per share was $16.16, while the NAV per Common
Share was $18.19, a discount of 11.16%. As of November 30, 2014, the Fund's
market price per share was $23.00, while the NAV per Common Share was $25.97, a
discount of 11.44%.
The Fund declared regular monthly Common Share distributions of $0.11 per share
for each month from December 2014 through November 2015. In addition, the Fund
declared a special long-term capital gain distribution of $0.34 per Common Share
in November 2015.
During the year, the Fund's NAV underperformed the -20.03% return of the Blended
Index. The MLP portion of the portfolio outperformed the AMZX due in part to the
Fund's underweight positions in MLPs with commodity exposure. This was more than
offset by the non-MLP portion of the portfolio that underperformed the UTY
index. Underperforming non-MLP positions in the Fund included MLP parent
corporations and Canadian infrastructure corporations. This negative performance
was partially offset by the Fund's underweight positions in UTY members that own
non-regulated power assets that underperformed the index. Income was enhanced by
writing covered calls on select portfolio positions.
An important factor that affected the return of the Fund was its use of
financial leverage through the use of a line of credit. The Fund has a committed
facility agreement with The Bank of Nova Scotia, with a maximum commitment
amount of $200,000,000. The Fund uses leverage because the Sub-Advisor believes
that, over time, leverage can enhance total return for common shareholders.
However, the use of leverage can also increase the volatility of the Fund's NAV
and therefore volatility of the Fund's Common Share price. For example, if the
prices of securities held by the Fund decline, the effect of changes in common
share NAV and common shareholder total return loss is magnified by the use of
leverage. 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 UTY are not leveraged. Leverage had a negative 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 subsidiaries with high dividend payout ratios that
own assets with stable cash flows such as pipelines, storage terminals and
electric power assets with long-term fixed-price contracts. The restructuring
can also include the divestiture by some of the 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 that their
regulated infrastructure assets that have predictable cash flows may be better
valued by the market. In our opinion, the result is a better financing tool to
raise capital for the new energy infrastructure projects. This phenomenon is
beginning to spread to the power utility industry, but instead of spinning out
MLPs, diversified power companies are spinning out regular "C" corporations with
higher dividend payout ratios (relative to earnings).
From January 1, 2015 through November 30, 2015, the MLP asset class experienced
nine IPOs that raised $4.9 billion compared to nineteen IPOs that raised $7.3
billion over the same time period in 2014. Reduced activity could be attributed
to weak MLP equity markets as many indexes were down sharply in the past year.
From January 1, 2015 through November 30, 2015, total MLP equity issuance was
down 47% to $18.4 billion compared to $34.5 billion over the same time period of
2014. Total MLP debt transactions were down 8.6% to $37.1 billion from January
1, 2015 through November 30, 2015, which compares to $40.6 billion over the same
time period of 2014, according to Barclays MLP Weekly.
Capital expenditures for the 20 companies that comprise the UTY Index were $66.0
billion for the first 3 calendar quarters of 2015. The capital expenditure
estimate for 2015 is $94.9 billion. (Source: Bloomberg) This compares to $80.8
billion in 2013 and about $86.3 billion in 2014. The expenditures are in
response to needs such as reliability, interconnection, modernization and
growing demand. These capital investments are supported, in part, by federal and
state regulation, which allows companies to recoup investments they have made in
the rates they charge their customers.
The Fund continues to seek to weight the portfolio toward Energy Infrastructure
Companies with mostly non-cyclical cash flows, investment-grade ratings,
conservative balance sheets, modest and/or flexible organic growth commitments
and available liquidity under revolving lines of credit. Since the Fund invests
in securities that tend to have high dividend payout ratios (relative to
earnings), in EIP's opinion, securities with unpredictable cyclical cash flows
make a poor fit within the portfolio. While there are some businesses within the
Fund's portfolio whose cash flows are cyclical, they are generally small and
analyzed in the context of each company's financial and operating leverage and
payout ratio.
Page 4
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 2015
SHARES DESCRIPTION VALUE
------------ ----------------------------------------------------------------------------- --------------
COMMON STOCKS - 96.8%
ELECTRIC UTILITIES - 19.2%
157,400 American Electric Power Co., Inc. (a)........................................ $ 8,815,974
76,400 Emera, Inc. (CAD) (a)........................................................ 2,437,683
241,600 Eversource Energy (a)........................................................ 12,309,520
194,700 Exelon Corp. (a)............................................................. 5,317,257
176,800 Fortis, Inc. (CAD) (a)....................................................... 4,882,537
13,100 Hydro One Ltd. (CAD) (b) (c)................................................. 221,203
60,000 IDACORP, Inc. (a)............................................................ 4,082,400
190,800 ITC Holdings Corp. (a)....................................................... 7,036,704
162,300 NextEra Energy, Inc. (a)..................................................... 16,207,278
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61,310,556
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GAS UTILITIES - 9.0%
81,800 Atmos Energy Corp. (a)....................................................... 5,096,958
57,810 Chesapeake Utilities Corp. (a)............................................... 3,080,695
213,000 New Jersey Resources Corp. (a)............................................... 6,400,650
52,000 ONE Gas, Inc. (a)............................................................ 2,535,000
7,600 Piedmont Natural Gas Co., Inc................................................ 441,940
323,718 UGI Corp. (a)................................................................ 11,223,303
--------------
28,778,546
--------------
MULTI-UTILITIES - 26.2%
49,000 Alliant Energy Corp. (a)..................................................... 2,949,310
22,800 ATCO, Ltd., Class I (CAD) (a)................................................ 615,990
241,000 CMS Energy Corp. (a)......................................................... 8,439,820
113,900 Dominion Resources, Inc. (a)................................................. 7,673,443
99,000 National Grid PLC, ADR (a)................................................... 6,875,550
377,900 NiSource, Inc. (a)........................................................... 7,251,901
329,000 Public Service Enterprise Group, Inc. (a).................................... 12,863,900
102,000 SCANA Corp. (a).............................................................. 6,032,280
181,800 Sempra Energy (a)............................................................ 18,040,014
205,100 WEC Energy Group, Inc. (a)................................................... 10,115,532
75,000 Xcel Energy, Inc............................................................. 2,674,500
--------------
83,532,240
--------------
OIL, GAS & CONSUMABLE FUELS - 42.4%
1,408,350 Enbridge Energy Management, LLC (a) (d)...................................... 35,124,249
461,600 Enbridge Income Fund Holdings, Inc. (CAD) (a)................................ 10,120,669
164,169 Enbridge, Inc. (a)........................................................... 5,819,791
337,900 Inter Pipeline, Ltd. (CAD) (a)............................................... 5,875,202
180,600 Keyera Corp. (CAD) (a)....................................................... 5,386,423
1,288,575 Kinder Morgan, Inc. (a)...................................................... 30,371,713
150,000 ONEOK, Inc. (a).............................................................. 4,422,000
394,400 Spectra Energy Corp. (a)..................................................... 10,333,280
536,670 TransCanada Corp. (a)........................................................ 16,953,405
304,400 Williams (The) Cos., Inc. (a)................................................ 11,128,864
--------------
135,535,596
--------------
TOTAL COMMON STOCKS.......................................................... 309,156,938
(Cost $324,369,799) --------------
See Notes to Financial Statements Page 5
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2015
SHARES/
UNITS DESCRIPTION VALUE
------------ ----------------------------------------------------------------------------- --------------
MASTER LIMITED PARTNERSHIPS - 34.0%
CHEMICALS - 0.2%
25,000 Westlake Chemical Partners, L.P. (a)......................................... $ 389,500
--------------
GAS UTILITIES - 1.7%
139,752 AmeriGas Partners, L.P. (a).................................................. 5,479,676
--------------
INDEPENDENT POWER AND RENEWABLE ELECTRICITY PRODUCERS - 2.3%
285,655 NextEra Energy Partners, L.P. (a)............................................ 7,387,038
--------------
OIL, GAS & CONSUMABLE FUELS - 29.8%
46,000 Alliance Holdings GP, L.P. (a)............................................... 1,097,100
289,430 Alliance Resource Partners, L.P. (a)......................................... 4,963,724
99,200 Columbia Pipeline Partners, L.P. (a)......................................... 1,491,968
94,000 Energy Transfer Equity, L.P. (a)............................................. 1,780,360
55,404 Energy Transfer Partners, L.P. (a)........................................... 2,116,987
677,300 Enterprise Products Partners, L.P. (a)....................................... 17,196,647
129,700 EQT Midstream Partners, L.P. (a)............................................. 8,774,205
221,186 Holly Energy Partners, L.P. (a).............................................. 7,367,706
70,600 Magellan Midstream Partners, L.P. (a)........................................ 4,414,618
178,172 NGL Energy Partners, L.P. (a)................................................ 3,126,919
370,386 Plains All American Pipeline, L.P. (a)....................................... 9,178,165
151,900 Spectra Energy Partners, L.P. (a)............................................ 6,436,003
157,928 Tallgrass Energy Partners, L.P. (a).......................................... 6,798,800
325,000 Targa Resources Partners, L.P. (a)........................................... 7,423,000
125,095 TC Pipelines, L.P. (a)....................................................... 6,187,199
135,762 TransMontaigne Partners, L.P. (a)............................................ 3,266,434
130,938 Williams Partners, L.P. (a).................................................. 3,590,320
--------------
95,210,155
--------------
TOTAL MASTER LIMITED PARTNERSHIPS............................................ 108,466,369
(Cost $120,107,635) --------------
REAL ESTATE INVESTMENT TRUSTS - 0.8%
REAL ESTATE INVESTMENT TRUSTS - 0.8%
89,150 InfraREIT, Inc. (a).......................................................... 1,798,155
135,000 CorEnergy Infrastructure Trust, Inc.......................................... 681,750
--------------
TOTAL REAL ESTATE INVESTMENT TRUSTS.......................................... 2,479,905
(Cost $3,296,051) --------------
TOTAL INVESTMENTS - 131.6%................................................... 420,103,212
(Cost $447,773,485) (e) --------------
NUMBER OF
CONTRACTS DESCRIPTION VALUE
------------ ----------------------------------------------------------------------------- --------------
CALL OPTIONS WRITTEN - (0.2%)
American Electric Power Co., Inc. Calls
940 @ $57.50 due January 2016.................................................... (81,780)
30 @ 60.00 due January 2016.................................................... (750)
--------------
(82,530)
--------------
CMS Energy Corp. Calls
510 @ 35.00 due December 2015................................................... (35,700)
980 @ 40.00 due June 2016....................................................... (21,560)
--------------
(57,260)
--------------
Page 6 See Notes to Financial Statements
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2015
NUMBER OF
CONTRACTS DESCRIPTION VALUE
------------ ----------------------------------------------------------------------------- --------------
CALL OPTIONS WRITTEN (CONTINUED)
Dominion Resources, Inc. Call
900 @ $77.50 due December 2015 (f)............................................... $ (4,500)
--------------
Enbridge, Inc. Call
530 @ 42.50 due April 2016...................................................... (21,200)
--------------
Eversource Energy Call
1,490 @ 55.00 due January 2016.................................................... (26,075)
--------------
Exelon Corp. Calls
210 @ 32.00 due January 2016.................................................... (2,100)
1,290 @ 33.00 due January 2016 (f)................................................ (6,450)
--------------
(8,550)
--------------
Kinder Morgan, Inc. Calls
1,990 @ 35.00 due December 2015 (f)............................................... (1,990)
2,000 @ 47.50 due December 2015 (f)............................................... (4,000)
--------------
(5,990)
--------------
National Grid PLC Call
700 @ 75.00 due March 2016...................................................... (36,750)
--------------
NextEra Energy, Inc. Calls
710 @ 105.00 due December 2015................................................... (10,650)
290 @ 110.00 due December 2015................................................... (1,450)
--------------
(12,100)
--------------
NiSource, Inc. Call
2,680 @ 19.00 due January 2016.................................................... (174,200)
--------------
Public Service Enterprise Group, Inc. Call
2,580 @ 45.00 due March 2016...................................................... (77,400)
--------------
Sempra Energy Calls
630 @ 105.00 due January 2016.................................................... (25,200)
340 @ 110.00 due January 2016 (f)................................................ (10,200)
--------------
(35,400)
--------------
Spectra Energy Corp. Calls
250 @ 30.00 due December 2015 (f)............................................... (1,250)
2,190 @ 32.00 due December 2015 (f)............................................... (10,950)
--------------
(12,200)
--------------
UGI Corp. Call
1,900 @ 40.00 due April 2016 (f).................................................. (76,000)
--------------
WEC Energy Group, Inc. Call
1,270 @ 55.00 due April 2016...................................................... (57,150)
--------------
Williams (The) Cos., Inc. Call
720 @ 45.00 due December 2015 (f)............................................... (18,000)
--------------
TOTAL CALL OPTIONS WRITTEN................................................... (705,305)
(Premiums received $1,352,376) --------------
OUTSTANDING LOAN - (34.6%)................................................... (110,500,000)
NET OTHER ASSETS AND LIABILITIES - 3.2%...................................... 10,383,805
--------------
NET ASSETS - 100.0%.......................................................... $ 319,281,712
==============
See Notes to Financial Statements Page 7
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2015
-----------------------------
(a) All or a portion of this security serves as collateral on the outstanding
loan.
(b) Non-income producing security.
(c) This security, sold within the terms of a private placement memorandum, is
exempt from registration upon resale under Rule 144A under the Securities
Act of 1933, as amended, and may be resold in transactions exempt from
registration, normally to qualified institutional buyers (see Note 3E -
Restricted Securities in the Notes to Financial Statements).
(d) Non-income producing security that makes payment-in-kind ("PIK")
distributions. For the fiscal year ended November 30, 2015, the Fund
received 93,762 PIK shares of Enbridge Energy Management, LLC.
(e) Aggregate cost for federal income tax purposes is $436,191,372. As of
November 30, 2015, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$34,896,164 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$50,984,324.
(f) This security is fair valued by the First Trust Advisors L.P.'s Pricing
Committee in accordance with procedures adopted by the Fund's Board of
Trustees and in accordance with provisions of the Investment Company Act
of 1940, as amended. At November 30, 2015, securities noted as such are
valued at $(133,340) or (0.04)% of net assets.
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 10/08/20 $ 36,475,000 2.121% $ (1,278,343)
Bank of Nova Scotia 1 month LIBOR 09/03/24 36,475,000 2.367% (1,658,769)
------------- --------------
$ 72,950,000 $ (2,937,112)
============= ==============
(1) The Fund pays the fixed rate and receives the floating rate. The floating
rate on November 30, 2015 was 0.195% and 0.192%, respectively.
Page 8 See Notes to Financial Statements
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2015
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of November 30,
2015, is as follows (see Note 3A - Portfolio Valuation in the Notes to Financial
Statements):
ASSETS TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
11/30/2015 PRICES INPUTS INPUTS
------------ ------------ ------------ ------------
Common Stocks*..................................... $309,156,938 $309,156,938 $ -- $ --
Master Limited Partnerships *...................... 108,466,369 108,466,369 -- --
Real Estate Investment Trusts...................... 2,479,905 2,479,905 -- --
------------ ------------ ------------ ------------
Total.............................................. $420,103,212 $420,103,212 $ -- $ --
============ ============ ============ ============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
11/30/2015 PRICES INPUTS INPUTS
------------ ------------ ------------ ------------
Call Options Written............................... $ (705,305) $ (571,965) $ (133,340) $ --
Interest Rate Swaps**.............................. (2,937,112) -- (2,937,112) --
------------ ------------ ------------ ------------
Total.............................................. $ (3,642,417) $ (571,965) $ (3,070,452) $ --
============ ============ ============ ============
* 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 November 30, 2015.
See Notes to Financial Statements Page 9
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 2015
ASSETS:
Investments, at value
(Cost $447,773,485).......................................................................... $ 420,103,212
Cash........................................................................................... 5,725,983
Foreign currency, at value (Cost $1,267,183)................................................... 1,263,656
Cash segregated as collateral for open swap contracts.......................................... 5,353,505
Receivables:
Dividends.................................................................................... 1,046,436
Investment securities sold................................................................... 518,578
Interest..................................................................................... 55
Prepaid expenses............................................................................... 7,339
--------------
Total Assets................................................................................. 434,018,764
--------------
LIABILITIES:
Outstanding loan............................................................................... 110,500,000
Options written, at value (Premiums received $1,352,376)....................................... 705,305
Swap contracts, at value (Cost $569)........................................................... 2,937,112
Payables:
Investment advisory fees..................................................................... 367,788
Interest and fees on loan.................................................................... 101,634
Audit and tax fees........................................................................... 50,300
Printing fees................................................................................ 35,516
Administrative fees.......................................................................... 19,643
Custodian fees............................................................................... 8,916
Legal fees................................................................................... 3,452
Trustees' fees and expenses.................................................................. 3,342
Transfer agent fees.......................................................................... 2,889
Financial reporting fees..................................................................... 771
Other liabilities.............................................................................. 384
--------------
Total Liabilities............................................................................ 114,737,052
--------------
NET ASSETS..................................................................................... $ 319,281,712
==============
NET ASSETS CONSIST OF:
Paid-in capital................................................................................ $ 332,168,303
Par value...................................................................................... 175,502
Accumulated net investment income (loss)....................................................... 12,580,015
Accumulated net realized gain (loss) on investments, written options, swap contracts and
foreign currency transactions................................................................ 4,322,140
Net unrealized appreciation (depreciation) on investments, written options, swap contracts
and foreign currency translation............................................................. (29,964,248)
--------------
NET ASSETS..................................................................................... $ 319,281,712
==============
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share)........................... $ 18.19
==============
Number of Common Shares outstanding (unlimited number of Common Shares has been authorized).... 17,550,236
==============
Page 10 See Notes to Financial Statements
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 2015
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $466,927)......................................... $ 13,366,954
Interest....................................................................................... 399
Other.......................................................................................... 8
--------------
Total investment income...................................................................... 13,367,361
--------------
EXPENSES:
Investment advisory fees....................................................................... 5,436,647
Interest and fees on loan...................................................................... 1,362,501
Administrative fees............................................................................ 213,361
Printing fees.................................................................................. 172,344
Custodian fees................................................................................. 55,769
Audit and tax fees............................................................................. 54,472
Transfer agent fees............................................................................ 27,239
Trustees' fees and expenses.................................................................... 20,663
Legal fees..................................................................................... 13,158
Financial reporting fees....................................................................... 9,250
Other.......................................................................................... 49,952
--------------
Total expenses............................................................................... 7,415,356
--------------
NET INVESTMENT INCOME (LOSS)................................................................... 5,952,005
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments.................................................................................. 21,597,647
Written options.............................................................................. 3,724,597
Swap contracts............................................................................... (1,533,243)
Foreign currency transactions................................................................ 24,669
--------------
Net realized gain (loss)....................................................................... 23,813,670
--------------
Net change in unrealized appreciation (depreciation) on:
Investments.................................................................................. (143,563,483)
Written options.............................................................................. 1,634,393
Swap contracts............................................................................... (1,235,719)
Foreign currency translation................................................................. (1,572)
--------------
Net change in unrealized appreciation (depreciation)........................................... (143,166,381)
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)........................................................ (119,352,711)
--------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................... $ (113,400,706)
==============
See Notes to Financial Statements Page 11
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE FOR THE
YEAR YEAR
ENDED ENDED
11/30/2015 11/30/2014
-------------- --------------
OPERATIONS:
Net investment income (loss)......................................................... $ 5,952,005 $ 3,824,748
Net realized gain (loss)............................................................. 23,813,670 47,585,603
Net change in unrealized appreciation (depreciation)................................. (143,166,381) 61,365,138
------------ ------------
Net increase (decrease) in net assets resulting from operations...................... (113,400,706) 112,775,489
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................................................................ (6,311,176) (7,795,582)
Net realized gain.................................................................... (16,855,136) (38,829,529)
Return of capital.................................................................... -- (1,638,038)
------------ ------------
Total distributions to shareholders.................................................. (23,166,312) (48,263,149)
------------ ------------
Total increase (decrease) in net assets.............................................. (136,567,018) 64,512,340
NET ASSETS:
Beginning of period.................................................................. 455,848,730 391,336,390
------------ ------------
End of period........................................................................ $319,281,712 $455,848,730
============ ============
Accumulated net investment income (loss) at end of period............................ $ 12,580,015 $ 10,704,267
============ ============
COMMON SHARES:
Common Shares at end of period....................................................... 17,550,236 17,550,236
============ ============
Page 12 See Notes to Financial Statements
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED NOVEMBER 30, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) in net assets resulting from operations ......... $ (113,400,706)
Adjustments to reconcile net increase (decrease) in net assets resulting
from operations to net cash provided by operating activities:
Purchases of investments............................................... (225,019,687)
Sales of investments................................................... 270,083,058
Proceeds from written options.......................................... 6,492,479
Amount paid to close written options................................... (3,000,564)
Return of capital distributions received from investment in MLPs....... 8,411,945
Net realized gain/loss on investments and written options.............. (25,322,244)
Net change in unrealized appreciation/depreciation on investments and
written options...................................................... 141,929,090
Net change in unrealized appreciation/depreciation on swap contracts... 1,235,719
Increase in cash segregated as collateral for open swap contracts...... (1,817,325)
CHANGES IN ASSETS AND LIABILITIES:
Decrease in interest receivable........................................ 74
Decrease in dividends receivable ...................................... 279,584
Decrease in prepaid expenses........................................... 2,961
Increase in interest and fees on loan payable.......................... 1,593
Decrease in investment advisory fees payable........................... (142,820)
Decrease in legal fees payable......................................... (6,671)
Increase in printing fees payable...................................... 9,083
Decrease in administrative fees payable................................ (67,698)
Decrease in custodian fees payable..................................... (8,750)
Decrease in transfer agent fees payable................................ (2,617)
Decrease in Trustees' fees and expenses payable........................ (522)
Decrease in other liabilities.......................................... (3,912)
--------------
CASH PROVIDED BY OPERATING ACTIVITIES.................................... $ 59,652,070
---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to Common Shareholders from net investment income........ (6,311,176)
Distributions to Common Shareholders from net realized gain............ (16,855,136)
Proceeds from borrowing................................................ 14,500,000
Repayment of borrowing................................................. (62,000,000)
--------------
CASH USED IN FINANCING ACTIVITIES........................................ (70,666,312)
---------------
Decrease in cash and foreign currency (a)................................ (11,014,242)
Cash and foreign currency at beginning of period......................... 18,003,881
---------------
Cash and foreign currency at end of period............................... $ 6,989,639
===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest and fees........................ $ 1,360,908
===============
-----------------------------
(a) Includes net change in unrealized appreciation (depreciation) on foreign
currency of $(1,572).
See Notes to Financial Statements Page 13
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
FINANCIAL HIGHLIGHTS
FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FOR THE PERIOD
YEAR ENDED NOVEMBER 30, 9/27/2011 (a)
--------------------------------------------------------- THROUGH
2015 2014 2013 2012 11/30/2011
------------ ------------ ------------ ------------ --------------
Net asset value, beginning of period............... $ 25.97 $ 22.30 $ 22.74 $ 21.38 $ 19.10 (b)
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)....................... 0.34 0.22 0.22 0.27 0.05
Net realized and unrealized gain (loss)............ (6.80) 6.20 3.47 2.38 2.30
---------- ---------- ---------- ---------- ----------
Total from investment operations................... (6.46) 6.42 3.69 2.65 2.35
---------- ---------- ---------- ---------- ----------
Common Shares offering costs charged to
paid-in capital.................................. -- -- -- 0.01 (0.04)
---------- ---------- ---------- ---------- ----------
Capital reduction from issuance of Common Shares
related to over-allotment........................ -- -- -- -- (0.03)
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income.............................. (0.36) (0.45) (0.83) (1.01) --
Net realized gain.................................. (0.96) (2.21) (3.25) (0.29) --
Return of capital.................................. -- (0.09) (0.05) -- --
---------- ---------- ---------- ---------- ----------
Total distributions to Common Shareholders......... (1.32) (2.75) (4.13) (1.30) --
---------- ---------- ---------- ---------- ----------
Net asset value, end of period..................... $ 18.19 $ 25.97 $ 22.30 $ 22.74 $ 21.38
========== ========== ========== ========== ==========
Market value, end of period........................ $ 16.16 $ 23.00 $ 21.71 $ 21.34 $ 19.82
========== ========== ========== ========== ==========
TOTAL RETURN BASED ON NET ASSET VALUE (c).......... (25.29)% 31.02% 17.76% (d) 13.08% (e) 11.94%
========== ========== ========== ========== ==========
TOTAL RETURN BASED ON MARKET VALUE (c)............. (25.05)% 19.18% 22.11% 14.47% (0.90)%
========== ========== ========== ========== ==========
-----------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)............... $ 319,282 $ 455,849 $ 391,336 $ 399,092 $ 375,232
Ratio of net expenses to average net assets........ 1.83% 1.80% 1.84% 1.82% 1.66% (f)
Ratio of total expenses to average net assets
excluding interest expense and fees on loan...... 1.49% 1.53% 1.55% 1.52% 1.48% (f)
Ratio of net investment income (loss) to average
net assets....................................... 1.47% 0.88% 0.95% 1.21% 1.49% (f)
Portfolio turnover rate............................ 42% 42% 54% 46% 8%
INDEBTEDNESS:
Total loan outstanding (in 000's).................. $ 110,500 $ 158,000 $ 145,900 $ 141,900 $ 102,000
Asset coverage per $1,000 of indebtedness (g)...... $ 3,889 $ 3,885 $ 3,682 $ 3,812 $ 4,679
-----------------------------
(a) Initial seed date of August 18, 2011. The Fund commenced operations on
September 27, 2011.
(b) Net of sales load of $0.90 per Common Share on 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 Common
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 of less than one year. Past performance is not
indicative of future results.
(d) The Fund received a reimbursement from the Sub-Advisor in the amount of
$5,421 in connection with a trade error. The reimbursement from the
Sub-Advisor represents less than $0.01 per Common Share and had no effect
on the Fund's total return.
(e) The Fund received a reimbursement from the Sub-Advisor in the amount of
$104 in connection with a trade error. The reimbursement from the
Sub-Advisor represents less than $0.01 per Common Share and had no effect
on the Fund's total return.
(f) Annualized.
(g) Calculated by taking the Fund's total assets less the Fund's total
liabilities (not including the loan outstanding) and dividing by the
outstanding loan balance in 000's.
Page 14 See Notes to Financial Statements
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
NOVEMBER 30, 2015
1. ORGANIZATION
First Trust Energy Infrastructure Fund (the "Fund") is a non-diversified,
closed-end management investment company organized as a Massachusetts business
trust on February 22, 2011 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 FIF on the New York Stock
Exchange ("NYSE").
The Fund's investment objective is to seek a high level of total return with an
emphasis on current distributions paid to shareholders. The Fund seeks to
achieve its objective by investing primarily in securities of companies engaged
in the energy infrastructure sector. Energy infrastructure companies principally
include publicly-traded master limited partnerships and limited liability
companies taxed as partnerships ("MLPs"), MLP affiliates, YieldCos, pipeline
companies, utilities, and other companies that derive at least 50% of their
revenues from operating or providing services in support of infrastructure
assets such as pipelines, power transmission and petroleum and natural gas
storage in the petroleum, natural gas and power generation industries
(collectively, "Energy Infrastructure Companies"). For purposes of the Fund's
investment objective, total return includes capital appreciation of, and all
distributions received from, securities in which the Fund will invest, taking
into account the varying tax characteristics of such securities. There can be no
assurance that the Fund will achieve its investment objective. The Fund may not
be appropriate for all investors.
2. MANAGED DISTRIBUTION POLICY
The Board of Trustees of the Fund has approved a managed distribution policy for
the Fund (the "Plan") in reliance on exemptive relief received from the
Securities and Exchange Commission that permits the Fund to make periodic
distributions of long-term capital gains as frequently as monthly each tax year.
Under the Plan, the Fund currently intends to continue to pay a recurring
monthly distribution in the amount of $0.11 per Common Share that reflects the
distributable cash flow of the Fund. A portion of this monthly distribution may
include realized capital gains. This may result in a reduction of the long-term
capital gain distribution necessary at year end by distributing realized capital
gains throughout the year. The annual distribution rate is independent of the
Fund's performance during any particular period. Accordingly, you should not
draw any conclusions about the Fund's investment performance from the amount of
any distribution or from the terms of the Plan. The Board of Trustees may amend
or terminate the Plan at any time without prior notice to shareholders.
3. SIGNIFICANT ACCOUNTING POLICIES
The Fund, which is an investment company within the scope of Financial
Accounting Standards Board ("FASB") Accounting Standards Update 2013-08, follows
accounting and reporting guidance under FASB Accounting Standards Codification
Topic 946, "Financial Services-Investment Companies." The following is a summary
of significant accounting policies consistently followed by the Fund in the
preparation of its financial statements. The preparation of financial statements
in accordance with accounting principles generally accepted in the United States
of America ("U.S. GAAP") requires management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates.
A. PORTFOLIO VALUATION
The net asset value ("NAV") of the Common Shares of the Fund is determined daily
as of the close of regular trading on the NYSE, normally 4:00 p.m. Eastern time,
on each day the NYSE is open for trading. If the NYSE closes early on a
valuation day, the NAV is determined as of that time. Foreign securities are
priced using data reflecting the earlier closing of the principal markets for
those securities. The Fund's NAV per Common Share is calculated by dividing the
value of all assets of the Fund (including accrued interest and dividends), less
all liabilities (including accrued expenses, dividends declared but unpaid and
any borrowings of the Fund) by the total number of Common Shares outstanding.
The Fund's investments are valued daily at market value or, in the absence of
market value with respect to any portfolio securities, at fair value. Market
value prices represent last sale or official closing prices from a national or
foreign exchange (i.e., a regulated market) and are primarily obtained from
third-party pricing services. Fair value prices represent any prices not
considered market value prices and are either obtained from a third-party
pricing service or are determined by the Pricing Committee of the Fund's
investment advisor, First Trust Advisors L.P. ("First Trust" or the "Advisor")
in accordance with valuation procedures adopted by the Fund's Board of Trustees,
and in accordance with provisions of the 1940 Act. Investments valued by the
Advisor's Pricing Committee, if any, are footnoted as such in the footnotes to
the Portfolio of Investments. The Fund's investments are valued as follows:
Common stocks, MLPs, real estate investment trusts, 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 sale price
on the exchange on which they are principally traded or, for Nasdaq and
AIM securities, the official closing price. Securities traded on more than
one securities exchange are valued at the last sale price or official
closing price, as applicable, at the close of the securities exchange
representing the principal market for such securities.
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 fair 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 fair
valued at the mean of their most recent bid and asked price, if available,
and otherwise at their closing bid price.
Page 15
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
NOVEMBER 30, 2015
Securities traded in an over-the-counter market are fair valued at the
mean of their most recent bid and asked price, if available, and otherwise
at their closing bid price.
Swaps are fair 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.
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, the Advisor's Pricing Committee, 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 (the "1933 Act")) for which a pricing service is unable to
provide a market price; securities whose trading has been formally suspended; a
security whose market or fair value 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. When fair value prices are used, generally
they will differ from market quotations or official closing prices on the
applicable exchanges. 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.
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 methodologies 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 November 30, 2015, is
included with the Fund's Portfolio of Investments.
Page 16
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
NOVEMBER 30, 2015
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. 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 equity
security exceeds the option's exercise price, it is likely that the option
holder will exercise the option. If an option written (sold) by the Fund is
exercised, the Fund would be obligated to deliver the underlying 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 equity security is less than the option's strike price, the
option will likely expire without being exercised. The option premium received
by the Fund will, in this case, be treated as short-term capital gain on the
expiration date of the option. The Fund may also elect to close out its position
in an option prior to its expiration by purchasing an option of the same series
as the option written (sold) by the Fund. Gain or loss on options is presented
separately as "Net realized gain (loss) on written options" on the Statement of
Operations.
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
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. Payments received or made by the Fund for interest rate swaps are recorded
on the Statement of Operations as "Net realized gain (loss) on swap contracts."
When an interest rate swap is terminated, the Fund will record a realized gain
or loss equal to the difference between the proceeds from (or cost of) the
closing transaction and the Fund's basis in the contract, if any. Generally, the
basis of the contracts, if any, is the premium received or paid. 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 a Counterparty, the Fund will seek withdrawal of the collateral and
may incur certain costs exercising its rights 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
changes 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 November 30, 2015 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.
Page 17
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
NOVEMBER 30, 2015
The Fund held interest rate swap agreements at November 30, 2015 to hedge
against changes in borrowing rates under the Fund's committed facility
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. Cash segregated as collateral for open
swap contracts in the amount of $5,353,505 is shown on the Statement of Assets
and Liabilities.
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. The Fund will rely to some extent on information
provided by MLPs, which is not necessarily timely, to estimate taxable income
allocable to the MLP units held in the Fund's portfolio.
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. For the fiscal year ended November 30, 2015, distributions of
$8,411,945 received from MLPs have been reclassified as return of capital. The
cost basis of applicable MLPs has been reduced accordingly.
The Fund may hold the securities of real estate investment trusts ("REITs").
Distributions from such investments may be comprised of return of capital,
capital gains and income. The actual character of amounts received during the
year is not known until after the REIT's fiscal year end. The Fund records the
character of distributions received from REITs during the year based on
estimates available. The characterization of distributions received by the Fund
may be subsequently revised based on information received from the REITs after
their tax reporting periods conclude.
E. RESTRICTED SECURITIES
The Fund invests in restricted securities, which are securities that may not be
offered for public sale without first being registered under the the 1933 Act.
Prior to registration, restricted securities may only be resold in transactions
exempt from registration under Rule 144A under the 1933 Act, normally to
qualified institutional buyers. As of November 30, 2015, the Fund held
restricted securities as shown in the following table that the Sub-Advisor has
deemed illiquid pursuant to procedures adopted by the Fund's Board of Trustees.
Although market instability can result in periods of increased overall market
illiquidity, liquidity for each security is determined based on
security-specific factors and assumptions, which require subjective judgment.
The Fund does not have the right to demand that such securities be registered.
These securities are valued according to the valuation procedures as stated in
the Portfolio Valuation note (Note 3A) and are not expressed as a discount to
the carrying value of a comparable unrestricted security.
ACQUISITION CURRENT CARRYING % OF NET
SECURITY DATE SHARES PRICE COST VALUE ASSETS
--------------------------------------------------------------------------------------------------
Hydro One Ltd. 10/29/15 13,100 $ 16.89 $ 203,934 $ 221,203 0.07%
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
The Fund will distribute to holders of its Common Shares monthly dividends of
all or a portion of its net income after the payment of interest in connection
with leverage, if any. Distributions of any long-term capital gains earned by
the Fund are distributed at least annually. Distributions will automatically be
reinvested into additional Common Shares pursuant to the Fund's Dividend
Reinvestment Plan unless cash distributions are elected by the shareholder.
Distributions from income and capital gains are determined in accordance with
income tax regulations, which may differ from U.S. GAAP. Certain capital
accounts in the financial statements are periodically adjusted for permanent
differences in order to reflect their tax character. These permanent differences
are primarily due to the varying treatment of income and gain/loss on portfolio
securities held by the Fund and have no impact on net assets or NAV per Common
Share. Temporary differences, which arise from recognizing certain items of
income, expense and gain/loss in different periods for financial statement and
tax purposes, will reverse at some point in the future. Permanent differences
incurred during the year ended November 30, 2015, primarily as a result of
differing book and tax treatments on the sale of MLP investments, have been
reclassified at year end to reflect an increase in accumulated net investment
income (loss) of $2,234,919 a decrease in accumulated net realized gain (loss)
on investments of $2,102,651 and a decrease to paid-in capital of $132,268. Net
assets were not affected by these reclassifications.
Page 18
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
NOVEMBER 30, 2015
The tax character of distributions paid during the fiscal year ended November
30, 2015 and 2014 is as follows:
Distributions paid from: 2015 2014
Ordinary income.................................. $ 9,729,196 $ 7,795,582
Capital gains.................................... 13,437,116 38,829,529
Return of capital................................ -- 1,638,038
As of November 30, 2015, the components of distributable earnings and net assets
on a tax basis were as follows:
Undistributed ordinary income.................... $ --
Undistributed capital gains...................... 5,326,969
-------------
Total undistributed earnings..................... 5,326,969
Accumulated capital and other losses............. --
Net unrealized appreciation (depreciation)....... (18,382,135)
-------------
Total accumulated earnings (losses).............. (13,055,166)
Other............................................ (6,927)
Paid-in capital.................................. 332,343,805
-------------
Net assets....................................... $ 319,281,712
=============
G. INCOME TAXES
The Fund intends to continue to qualify as a regulated investment company by
complying with the requirements under Subchapter M of the Internal Revenue Code
of 1986, as amended, which includes distributing substantially all of its net
investment income and net realized gains to shareholders. Accordingly, no
provision has been made for federal or state income taxes. However, due to the
timing and amount of distributions, the Fund may be subject to an excise tax of
4% of the amount by which approximately 98% of the Fund's taxable income exceeds
the distributions from such taxable income for the calendar year.
The Fund intends to utilize provisions of the federal income tax laws, which
allow it to carry a realized capital loss forward indefinitely following the
year of the loss and offset such loss against any future realized capital gains.
The Fund is subject to certain limitations under U.S. tax rules on the use of
capital loss carryforwards and net unrealized built-in losses. These limitations
apply when there has been a 50% change in ownership. At November 30, 2015, the
Fund had no non-expiring capital loss carryforwards for federal income tax
purposes.
Certain losses realized during the current fiscal year may be deferred and
treated as occurring on the first day of the following fiscal year for federal
income tax purposes. For the fiscal year ended November 30, 2015, the Fund had
no qualified late year losses.
The Fund is subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. Taxable years ending 2012, 2013,
2014 and 2015 remain open to federal and state audit. As of November 30, 2015,
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.
H. EXPENSES
The Fund will pay all expenses directly related to its operations.
I. 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) 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) 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 and are shown in "Net realized
gain (loss) on foreign currency transactions" on the Statement of Operations.
The portion of foreign currency gains and losses related to fluctuation in
exchange rates between the initial purchase settlement date and subsequent sale
trade date is included in "Net realized gain (loss) on investments" on the
Statement of Operations.
Page 19
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
NOVEMBER 30, 2015
J. OFFSETTING ON THE STATEMENT OF ASSETS AND LIABILITIES
Offsetting Assets and Liabilities require entities to disclose both gross and
net information about 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. These disclosure requirements
are 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. The transactions subject to offsetting disclosures are derivative
instruments, repurchase agreements and reverse repurchase agreements, and
securities borrowing and securities lending transactions.
For financial reporting purposes, the Fund does not offset financial assets and
financial liabilities that are subject to master netting arrangements ("MNAs")
or similar agreements on the Statement of Assets and Liabilities. MNAs provide
the right, in the event of default (including bankruptcy and insolvency), for
the non-defaulting counterparty to liquidate the collateral and calculate the
net exposure to the defaulting party or request additional collateral.
At November 30, 2015, derivative assets and liabilities (by type) on a gross
basis are as follows:
GROSS AMOUNTS NOT OFFSET
IN THE STATEMENT OF
NET AMOUNTS OF ASSETS AND LIABILITIES
GROSS GROSS AMOUNTS LIABILITIES PRESENTED --------------------------
AMOUNTS OF OFFSET IN THE IN THE STATEMENT CASH
RECOGNIZED STATEMENT OF ASSETS OF ASSETS AND FINANCIAL SEGREGATED AS NET
LIABILITIES AND LIABILITIES LIABILITIES INSTRUMENTS COLLATERAL AMOUNT
-------------------------------------------------------------------------------------------------------------------------------
Interest Rate Swap Contracts $(2,937,112) $ -- $ (2,937,112) $ -- $ 2,937,112 $ --
4. 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 (the average
daily total asset value of the Fund minus the sum of the Fund's liabilities
other than the principal amount of borrowings). 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 EIP and
EIP Partners, LLC, an affiliate of the EIP. In addition, on March 27, 2014,
FTCP, through a wholly-owned subsidiary, purchased a preferred interest in EIP.
The preferred interest was non-voting and did not share in the profits or losses
of EIP. EIP redeemed all of the preferred shares in March 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. BNYM IS and BNYM are subsidiaries of The Bank of New York Mellon
Corporation, a financial holding company.
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 that is allocated pro rata among each fund in the First Trust Fund
Complex based on net assets. Each Independent Trustee is also paid an annual per
fund fee that varies based on whether the fund is a closed-end or other actively
managed fund, or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee are paid
annual fees 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 Committee Chairmen rotate every
three years. The officers and "Interested" Trustee receive no compensation from
the Fund for acting in such capacities.
Page 20
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
NOVEMBER 30, 2015
5. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of investments, excluding short-term
investments, for the year ended November 30, 2015, were $218,887,222 and
$266,643,042, respectively.
6. DERIVATIVE TRANSACTIONS
For the fiscal year ended November 30, 2015, written option activity for the
Fund was as follows:
NUMBER
OF
WRITTEN OPTIONS CONTRACTS PREMIUMS
-------------------------------------------------------------------------------
Options outstanding at November 30, 2014... 28,408 $ 1,585,058
Options Written............................ 112,662 6,492,479
Options Expired............................ (83,247) (4,744,380)
Options Exercised.......................... (22,486) (1,446,204)
Options Closed............................. (10,207) (534,577)
---------- ------------
Options outstanding at November 30, 2015... 25,130 $ 1,352,376
========== ============
The following table presents the types of derivatives held by the Fund at
November 30, 2015, the primary underlying risk exposure and the location of
these instruments as presented on the Statement of Assets and Liabilities.
ASSET DERIVATIVES LIABILITY DERIVATIVES
--------------------------------------- ---------------------------------------
DERIVATIVE RISK STATEMENT OF ASSETS AND STATEMENT OF ASSETS AND
INSTRUMENTS EXPOSURE LIABILITIES LOCATION VALUE LIABILITIES LOCATION VALUE
------------------ ------------------ ------------------------- ------------ ------------------------- ------------
Written Options Equity Risk -- -- Options written, at value $ 705,305
Interest Rate Swap
Agreement Interest Rate Risk -- -- Swap contracts, at value 2,937,112
The following table presents the amount of net realized gain (loss) and change
in net unrealized appreciation (depreciation) recognized for the year ended
November 30, 2015, on derivative instruments, as well as the primary underlying
risk exposure associated with each instrument.
STATEMENT OF OPERATIONS LOCATION
------------------------------------------------------------------------
EQUITY RISK EXPOSURE
Net realized gain (loss) on written options $ 3,724,597
Net change in unrealized appreciation
(depreciation) on written options 1,634,393
INTEREST RATE RISK EXPOSURE
Net realized gain (loss) on swap contracts (1,533,243)
Net change in unrealized appreciation
(depreciation) on swap contracts (1,235,719)
The average volume of interest rate swaps was $72,950,000 for the year ended
November 30, 2015.
The Fund does not have the right to offset financial assets and financial
liabilities related to option contracts on the Statement of Assets and
Liabilities.
7. BORROWINGS
During the period covered by this report, the Fund maintained a committed
facility agreement with The Bank of Nova Scotia ("Scotia") with a maximum
commitment amount of $200,000,000 and a borrowing rate equal to the 1-month
LIBOR plus 70 basis points. In addition, under the facility, the Fund pays a
commitment fee of 0.15% when the undrawn amount of such facility is greater than
50% of the maximum commitment. The average amount outstanding under the facility
for the fiscal year ended November 30, 2015 was $138,123,288, with a weighted
average interest rate of 0.88%. As of November 30, 2015, the Fund had
outstanding borrowings of $110,500,000 under this committed facility agreement.
The high and low annual interest rates for the fiscal year ended November 30,
2015, were 0.94% and 0.81%, respectively. The interest rate at November 30, 2015
was 0.94%. Prior to December 22, 2014, the maximum commitment amount was
$165,000,000 and the borrowing rate was 1-month LIBOR plus 65 basis points.
Page 21
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
NOVEMBER 30, 2015
8. 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.
9. INDUSTRY CONCENTRATION RISK
The Fund invests at least 80% of its Managed Assets in securities issued by
Energy Infrastructure Companies. 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 Infrastructure Company 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.
10. SUBSEQUENT EVENT
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:
At a meeting on December 7, 2015, the Board accepted Mr. Bradley's resignation
from his position as the President and Chief Executive Officer of the Fund,
effective December 31, 2015. At the same meeting, the Board elected Mr. Dykas,
formerly Chief Financial Officer and Treasurer of the Fund, to serve as the
President and Chief Executive Officer and Mr. Swade, formerly an Assistant
Treasurer of the Fund, to serve as the Treasurer, Chief Financial Officer and
Chief Accounting Officer of the Fund.
On December 21, 2015, the Fund declared a distribution of $0.11 per share to
Common Shareholders of record on January 6, 2016, payable January 15, 2016.
Effective January 1, 2016, the fixed annual retainer paid to the Independent
Trustees will be allocated equally among each fund in the First Trust Fund
Complex and will no longer be allocated pro rata based on each fund's net
assets.
Page 22
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FIRST TRUST ENERGY INFRASTRUCTURE
FUND:
We have audited the accompanying statement of assets and liabilities of First
Trust Energy Infrastructure Fund (the "Fund"), including the portfolio of
investments, as of November 30, 2015, and the related statements of operations
and cash flows for the year then ended, the statements of changes in net assets
for each of the two years in the period then ended, and the financial highlights
for each of the periods presented. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of November 30, 2015 by correspondence with the Fund's
custodian and brokers; when replies were not received from brokers, we performed
other auditing procedures. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of First
Trust Energy Infrastructure Fund, as of November 30, 2015, the results of its
operations and its cash flows for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the financial
highlights for each of the periods presented, in conformity with accounting
principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Chicago, Illinois
January 25, 2016
Page 23
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
NOVEMBER 30, 2015 (UNAUDITED)
DIVIDEND REINVESTMENT PLAN
If your Common Shares are registered directly with the Fund or if you hold your
Common Shares with a brokerage firm that participates in the Fund's Dividend
Reinvestment Plan (the "Plan"), unless you elect, by written notice to the Fund,
to receive cash distributions, all dividends, including any capital gain
distributions, on your Common Shares will be automatically reinvested by BNY
Mellon Investment Servicing (US) Inc. (the "Plan Agent"), in additional Common
Shares under the Plan. If you elect to receive cash distributions, you will
receive all distributions in cash paid by check mailed directly to you by the
Plan Agent, as the dividend paying agent.
If you decide to participate in the Plan, the number of Common Shares you will
receive will be determined as follows:
(1) If Common Shares are trading at or above net asset value ("NAV") at
the time of valuation, the Fund will issue new shares at a price
equal to the greater of (i) NAV per Common Share on that date or
(ii) 95% of the market price on that date.
(2) If Common Shares are trading below NAV at the time of valuation, the
Plan Agent will receive the dividend or distribution in cash and
will purchase Common Shares in the open market, on the NYSE or
elsewhere, for the participants' accounts. It is possible that the
market price for the Common Shares may increase before the Plan
Agent has completed its purchases. Therefore, the average purchase
price per share paid by the Plan Agent may exceed the market price
at the time of valuation, resulting in the purchase of fewer shares
than if the dividend or distribution had been paid in Common Shares
issued by the Fund. The Plan Agent will use all dividends and
distributions received in cash to purchase Common Shares in the open
market within 30 days of the valuation date except where temporary
curtailment or suspension of purchases is necessary to comply with
federal securities laws. Interest will not be paid on any uninvested
cash payments.
You may elect to opt-out of or withdraw from the Plan at any time by giving
written notice to the Plan Agent, or by telephone at (866) 340-1104, in
accordance with such reasonable requirements as the Plan Agent and the Fund may
agree upon. If you withdraw or the Plan is terminated, you will receive a
certificate for each whole share in your account under the Plan, and you will
receive a cash payment for any fraction of a share in your account. If you wish,
the Plan Agent will sell your shares and send you the proceeds, minus brokerage
commissions.
The Plan Agent maintains all Common Shareholders' accounts in the Plan and gives
written confirmation of all transactions in the accounts, including information
you may need for tax records. Common Shares in your account will be held by the
Plan Agent in non-certificated form. The Plan Agent will forward to each
participant any proxy solicitation material and will vote any shares so held
only in accordance with proxies returned to the Fund. Any proxy you receive will
include all Common Shares you have received under the Plan.
There is no brokerage charge for reinvestment of your dividends or distributions
in Common Shares. However, all participants will pay a pro rata share of
brokerage commissions incurred by the Plan Agent when it makes open market
purchases.
Automatically reinvesting dividends and distributions does not mean that you do
not have to pay income taxes due upon receiving dividends and distributions.
Capital gains and income are realized although cash is not received by you.
Consult your financial advisor for more information.
If you hold your Common Shares with a brokerage firm that does not participate
in the Plan, you will not be able to participate in the Plan and any dividend
reinvestment may be effected on different terms than those described above.
The Fund reserves the right to amend or terminate the Plan if in the judgment of
the Board of Trustees the change is warranted. There is no direct service charge
to participants in the Plan; however, the Fund reserves the right to amend the
Plan to include a service charge payable by the participants. Additional
information about the Plan may be obtained by writing BNY Mellon Investment
Servicing (US) Inc., 301 Bellevue Parkway, Wilmington, Delaware 19809.
--------------------------------------------------------------------------------
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Fund uses to determine how
to vote proxies and information on how the Fund voted proxies relating to
portfolio investments during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Fund's website located at http://www.ftportfolios.com; and (3) on the
Securities and Exchange Commission's ("SEC") website located at
http://www.sec.gov.
Page 24
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
NOVEMBER 30, 2015 (UNAUDITED)
PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Form N-Qs
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.
TAX INFORMATION
Of the ordinary income (including short-term capital gain) distributions made by
the Fund during the fiscal year ended November 30, 2015, 61.61% qualified for
the corporate dividends received deduction available to corporate shareholders.
The Fund hereby designates as qualified dividend income 86.58% of the ordinary
income distributions for the year ended November 30, 2015.
For the fiscal year ended November 30, 2015, the amount of long-term capital
gain distributions by the Fund was $13,437,116 which is taxable at a maximum
rate of 20% for federal income tax purposes.
NYSE CERTIFICATION INFORMATION
In accordance with Section 303A-12 of the New York Stock Exchange ("NYSE")
Listed Company Manual, the Fund's President has certified to the NYSE that, as
of April 29, 2015, he was not aware of any violation by the Fund of NYSE
corporate governance listing standards. In addition, the Fund's reports to the
SEC on Forms N-CSR, N-CSRS and N-Q contain certifications by the Fund's
principal executive officer and principal financial officer that relate to the
Fund's public disclosure in such reports and are required by Rule 30a-2 under
the 1940 Act.
SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
The Joint Annual Meeting of Shareholders of the Common Shares of Macquarie/First
Trust Global Infrastructure/Utilities Dividend & Income Fund, First Trust Energy
Income and Growth Fund, First Trust Enhanced Equity Income Fund, First
Trust/Aberdeen Global Opportunity Income Fund, First Trust Mortgage Income Fund,
First Trust Strategic High Income Fund II, First Trust/Aberdeen Emerging
Opportunity Fund, First Trust Specialty Finance and Financial Opportunities
Fund, First Trust Dividend and Income Fund, First Trust High Income Long/Short
Fund, First Trust Energy Infrastructure Fund, First Trust MLP and Energy Income
Fund, First Trust Intermediate Duration Preferred & Income Fund and First Trust
New Opportunities MLP & Energy Fund was held on April 20, 2015 (the "Annual
Meeting"). At the Annual Meeting, Richard E. Erickson and Thomas R. Kadlec were
elected by the Common Shareholders of the First Trust Energy Infrastructure Fund
as a Class II Trustees for a three-year term expiring at the Fund's Annual
Meeting of Shareholders in 2018. The number of votes cast for Mr. Erickson was
15,243,684, the number of votes against was 347,777 and the number of broker
non-votes was 1,958,775. The number of votes cast for Mr. Kadlec was 15,240,727,
the number of votes against was 350,734 and the number of broker non-votes was
1,958,775. James A. Bowen, Robert F. Keith and Niel B. Nielson are the other
current and continuing Trustees
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.
INDUSTRY CONCENTRATION RISK: The Fund invests at least 80% of its Managed Assets
in securities issued by Energy Infrastructure Companies. 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 Infrastructure Company 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.
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.
Page 25
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
NOVEMBER 30, 2015 (UNAUDITED)
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.
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.
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.
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.
QUALIFIED DIVIDEND INCOME TAX RISK: There can be no assurance as to what portion
of the distributions paid to the Fund's Common Shareholders will consist of
tax-advantaged qualified dividend income. Certain distributions designated by
the Fund as derived from qualified dividend income will be taxed in the hands of
non-corporate Common Shareholders at the rates applicable to long-term capital
gains, provided certain holding period and other requirements are satisfied by
both the Fund and the Common Shareholders. Additional requirements apply in
determining whether distributions by foreign issuers should be regarded as
qualified dividend income. Certain investment strategies of the Fund will limit
the Fund's ability to meet these requirements and consequently will limit the
amount of qualified dividend income received and distributed by the Fund. A
change in the favorable provisions of the federal tax laws with respect to
qualified dividends may result in a widespread reduction in announced dividends
and may adversely impact the valuation of the shares of dividend-paying
companies.
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.
INVESTMENT MANAGEMENT AGREEMENT
BOARD CONSIDERATIONS REGARDING APPROVAL OF CONTINUATION OF INVESTMENT MANAGEMENT
AGREEMENT
The Board of Trustees of First Trust Energy Infrastructure Fund (the "Fund"),
including the Independent Trustees, unanimously approved the continuation of the
Investment Management Agreement (the "Advisory Agreement") between the Fund and
First Trust Advisors L.P. (the "Advisor") and the Investment Sub Advisory
Agreement (the "Sub Advisory Agreement" and together with the Advisory
Agreement, the "Agreements") among the Fund, the Advisor and Energy Income
Partners, LLC (the "Sub-Advisor"), at a meeting held on June 16, 2015. The Board
determined that the continuation of the Agreements is in the best interests of
the Fund in light of the extent and quality of the services provided and such
other matters as the Board considered to be relevant in the exercise of its
reasonable business judgment.
Page 26
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
NOVEMBER 30, 2015 (UNAUDITED)
To reach this determination, the Board considered its duties under the
Investment Company Act of 1940, as amended (the "1940 Act"), as well as under
the general principles of state law in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
on such agreements. At meetings held on April 20, 2015 and June 16, 2015, the
Board, including the Independent Trustees, reviewed materials provided by the
Advisor and the Sub-Advisor responding to requests for information from counsel
to the Independent Trustees that, among other things, outlined the services
provided by the Advisor and the Sub-Advisor (including the relevant personnel
responsible for these services and their experience); the advisory and
sub-advisory fees for the Fund as compared to fees charged to other clients of
the Advisor and the Sub-Advisor and as compared to fees charged to a peer group
of funds selected by Management Practice, Inc. ("MPI"), an independent source
(the "MPI Peer Group"); expenses of the Fund as compared to expense ratios of
the funds in the MPI Peer Group; performance information for the Fund; the
nature of expenses incurred in providing services to the Fund and the potential
for economies of scale, if any; financial data on the Advisor and the
Sub-Advisor; any fall out benefits to the Advisor and the Sub-Advisor; and
information on the Advisor's and the Sub-Advisor's compliance programs. The
Board reviewed initial materials with the Advisor at a special meeting held on
April 20, 2015, at which the Independent Trustees and their counsel met
separately to discuss the information provided by the Advisor and the
Sub-Advisor. Following the April meeting, independent legal counsel on behalf of
the Independent Trustees requested certain clarifications and supplements to the
materials provided, and those were considered at an executive session of the
Independent Trustees and independent legal counsel held prior to the June 16,
2015 meeting, as well as at the meeting. The Board applied its business judgment
to determine whether the arrangements between the Fund and the Advisor and among
the Fund, the Advisor and the Sub-Advisor are reasonable business arrangements
from the Fund's perspective as well as from the perspective of shareholders. The
Board considered that shareholders chose to invest or remain invested in the
Fund knowing that the Advisor and the Sub-Advisor manage the Fund.
In reviewing the Agreements, the Board considered the nature, extent and quality
of services provided by the Advisor and the Sub-Advisor under the Agreements.
With respect to the Advisory Agreement, the Board considered that the Advisor is
responsible for the overall management and administration of the Fund and
reviewed the services provided by the Advisor to the Fund, including the
oversight of the Sub-Advisor. The Board noted the compliance program that had
been developed by the Advisor and considered that it includes a robust program
for monitoring the Sub-Advisor's compliance with the 1940 Act and the Fund's
investment objective and policies. The Board considered the significant asset
growth of the First Trust Fund Complex and the Advisor's concomitant investment
in infrastructure and personnel dedicated to the First Trust funds. With respect
to the Sub-Advisory Agreement, the Board noted the background and experience of
the Sub-Advisor's portfolio management team. At the June 16, 2015 meeting, the
Board received a presentation from representatives of the Sub Advisor, including
the portfolio managers, discussing the services that the Sub-Advisor provides to
the Fund and how the Sub-Advisor manages the Fund's investments. In light of the
information presented and the considerations made, the Board concluded that the
nature, extent and quality of services provided to the Fund by the Advisor and
the Sub-Advisor under the Agreements have been and are expected to remain
satisfactory and that the Sub-Advisor, under the oversight of the Advisor, has
managed the Fund consistent with its investment objective and policies.
The Board considered the advisory and sub-advisory fees paid under the
Agreements. The Board considered the advisory fees charged by the Advisor to
similar funds and other non-fund clients, noting that the Advisor provides
advisory services to three other closed-end funds and one actively managed
exchange-traded fund ("ETF") sub-advised by the Sub-Advisor and certain
separately managed accounts that may have investment objectives and policies
similar to the Fund's. The Board noted that the Advisor charges the same
advisory fee rate to the Fund and the other closed-end funds sub-advised by the
Sub-Advisor and a lower advisory fee rate to the actively managed ETF and the
separately managed accounts. The Board noted the Advisor's statement that the
nature of the services provided to the separately managed accounts is not
comparable to those provided to the Fund. The Board considered the sub-advisory
fee and how it relates to the Fund's overall advisory fee structure and noted
that the sub-advisory fee is paid by the Advisor from its advisory fee. The
Board noted that the Sub-Advisor provides sub-advisory services to the other
closed-end funds and the actively managed ETF noted above and that the
sub-advisory fee rate for the other closed-end funds is the same as that
received from the Advisor for the Fund and that the sub-advisory fee for the ETF
is lower than for the Fund. The Board also considered information provided by
the Sub-Advisor as to the fees it charges to other similar clients, noting that
the sub-advisory fee rate is generally similar to the fee rate charged by the
Sub-Advisor to other similar clients. In addition, the Board reviewed data
prepared by MPI showing the advisory fee and expense ratio of the Fund as
compared to the advisory fees and expense ratios of the MPI Peer Group. The
Board discussed with representatives of the Advisor the limitations in creating
a relevant peer group for the Fund, including that (i) the Fund is unique in its
composition, which makes assembling peers with similar strategies and asset mix
difficult; (ii) peer funds may use different amounts and types of leverage with
different costs associated with them or may use no leverage; (iii) most of the
peer funds do not employ an advisor/sub-advisor management structure; and (iv)
most of the peer funds are larger than the Fund, which causes the Fund's fixed
expenses to be higher on a percentage basis as compared to the larger peer
funds. The Board took these limitations into account in considering the peer
data. In reviewing the peer data, the Board noted that the Fund's advisory fee,
based on average net assets, was below the median of the MPI Peer Group.
Page 27
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
NOVEMBER 30, 2015 (UNAUDITED)
The Board also considered performance information for the Fund, noting that the
performance information included the Fund's quarterly performance report, which
is part of the process that the Board has established for monitoring the Fund's
performance and portfolio risk on an ongoing basis. The Board determined that
this process continues to be effective for reviewing the Fund's performance. In
addition to the Board's ongoing review of performance, the Board also reviewed
data prepared by MPI comparing the Fund's performance for period ended December
31, 2014 to the performance of the MPI Peer Group and to a blended benchmark
index. In reviewing the Fund's performance as compared to the performance of the
MPI Peer Group, the Board took into account the limitations described above with
respect to creating a relevant peer group for the Fund. The Board also
considered data from MPI on the Fund's annual distribution rate as of December
31, 2014 as compared to the MPI Peer Group and the Fund's leverage costs versus
the leverage costs of applicable funds in the MPI Peer Group. The Board
considered information provided by the Advisor on the Fund's leverage as well,
including that leverage was accretive to the Fund's total return in 2014. In
addition, the Board compared the Fund's premium/discount over the past eight
quarters to the average and median premium/discount over the same period of a
peer group selected by the Advisor, as well as data on the average
premium/discount for 2014 for the funds in the MPI Peer Group, and considered
factors that may impact a fund's premium/discount.
On the basis of all the information provided on the fees, expenses and
performance of the Fund, the Board concluded that the advisory and sub-advisory
fees were reasonable and appropriate in light of the nature, extent and quality
of services provided by the Advisor and the Sub-Advisor under the Agreements.
The Board noted that the Advisor has made and continues to make significant
investments in personnel and infrastructure and considered whether fee levels
reflect any economies of scale for the benefit of shareholders. The Board
determined that due to the Fund's closed-end structure, the potential for
realization of economies of scale as Fund assets grow was not a material factor
to be considered. The Board also considered the costs of the services provided
and profits realized by the Advisor from serving as investment advisor to the
Fund for the twelve months ended December 31, 2014, as well as product-line
profitability data for the same period, as set forth in the materials provided
to the Board. The Board noted the inherent limitations in the profitability
analysis, and concluded that the pre-tax profits estimated to have been realized
by the Advisor in connection with the management of the Fund were not
unreasonable. In addition, the Board considered fall-out benefits described by
the Advisor that may be realized from its relationship with the Fund, including
the Advisor's compensation for fund reporting services pursuant to a separate
Fund Reporting Services Agreement. The Board considered the ownership interest
of an affiliate of the Advisor in the Sub-Advisor and potential fall-out
benefits to the Advisor from such ownership interest.
The Board considered that the Sub-Advisor's investment services expenses are
primarily fixed, and that the Sub-Advisor has made recent investments in
infrastructure and personnel. The Board considered that the sub advisory fee
rate was negotiated at arm's length between the Advisor and the Sub-Advisor. The
Board also considered data provided by the Sub-Advisor as to the profitability
of the Sub Advisory Agreement to the Sub-Advisor. The Board noted the inherent
limitations in the profitability analysis and concluded that the profitability
analysis for the Advisor was more relevant, although the estimated profitability
of the Sub Advisory Agreement appeared to be not unreasonable in light of the
services provided to the Fund. The Board considered fall-out benefits that may
be realized by the Sub-Advisor from its relationship with the Fund, including
soft-dollar arrangements, and considered a summary of such arrangements. The
Board also considered the potential fall-out benefits to the Sub-Advisor from
the ownership interest of the Advisor's affiliate in the Sub-Advisor.
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, unanimously determined that the terms
of the Agreements continue to be fair and reasonable and that the continuation
of the Agreements is in the best interests of the Fund. No single factor was
determinative in the Board's analysis.
Page 28
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BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
NOVEMBER 30, 2015 (UNAUDITED)
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 (1) DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
Richard E. Erickson, Trustee o Three-Year Term Physician; President, Wheaton Orthopedics; 120 None
c/o First Trust Advisors L.P. Limited Partner, Gundersen Real Estate
120 E. Liberty Drive, o Since Fund Limited Partnership; Member, Sportsmed
Suite 400 Inception LLC
Wheaton, IL 60187
D.O.B.: 04/51
Thomas R. Kadlec, Trustee o Three-Year Term President (March 2010 to present), Senior 120 Director of ADM
c/o First Trust Advisors L.P. Vice President and Chief Financial Officer Investor Services,
120 E. Liberty Drive, o Since Fund (May 2007 to March 2010), ADM Investor Inc., ADM
Suite 400 Inception Services, Inc. (Futures Commission Investor Services
Wheaton, IL 60187 Merchant) International, and
D.O.B.: 11/57 Futures Industry
Association
Robert F. Keith, Trustee o Three-Year Term President (2003 to Present), Hibs 120 Director of
c/o First Trust Advisors L.P. Enterprises (Financial and Management Trust Company
120 E. Liberty Drive, o Since Fund Consulting) of Illinois
Suite 400 Inception
Wheaton, IL 60187
D.O.B.: 11/56
Niel B. Nielson, Trustee o Three-Year Term Managing Director and Chief Operating 120 Director of
c/o First Trust Advisors L.P. Officer (January 2015 to Present), Pelita Covenant
120 E. Liberty Drive, o Since Fund Harapan Educational Foundation Transport, Inc.
Suite 400 Inception (Educational Products and Services); (May 2003 -
Wheaton, IL 60187 President and Chief Executive Officer May 2014)
D.O.B.: 03/54 (June 2012 to September 2014), Servant
Interactive LLC (Educational Products and
Services); President and Chief Executive
Officer (June 2012 to September 2014), Dew
Learning LLC (Educational Products and
Services); President (June 2002 to June
2012), Covenant College
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(2), Trustee, o Three-Year Term Chief Executive Officer (December 2010 120 None
Chairman of the Board to Present), President, (until December
120 E. 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, James A. Bowen and Niel B. Nielson, as Class III Trustees, are
serving as trustees until the Fund's 2016 annual meeting of shareholders.
Robert F. Keith, as a Class I Trustee, is serving as a trustee until the
Fund's 2017 annual meeting of shareholders. Richard E. Erickson and Thomas
R. Kadlec, as Class II Trustees, are serving as trustees until the Fund's
2018 annual meeting of shareholders.
(2) Mr. Bowen is deemed an "interested person" of the Fund due to his position
as Chief Executive Officer of First Trust Advisors L.P., investment
advisor of the Fund.
Page 29
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BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
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FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
NOVEMBER 30, 2015 (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(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 Accounting President (April 2007 to Present), First Trust
Suite 400 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
120 E. Liberty Drive, Legal Officer First Trust Portfolios L.P.; Secretary and
Suite 400 o Since Fund Inception General Counsel, BondWave LLC (Software
Wheaton, IL 60187 Development Company/Investment Advisor)
D.O.B.: 05/60 and Secretary, Stonebridge Advisors LLC
(Investment Advisor)
Daniel J. Lindquist Vice President o Indefinite Term Managing Director (July 2012 to Present),
120 E. Liberty Drive, Senior Vice President (September 2005 to July
Suite 400 o Since Fund Inception 2012), First Trust Advisors L.P. and First Trust
Wheaton, IL 60187 Portfolios 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
-----------------------------
(3) 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.
Page 30
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PRIVACY POLICY
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FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
NOVEMBER 30, 2015 (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 within First Trust.
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, First Trust restricts access to
your nonpublic personal information to those First Trust employees 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 31
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 each of the
last two fiscal years for professional services rendered by the principal
accountant for the audit of the Registrant's annual financial statements or
services that are normally provided by the accountant in connection with
statutory and regulatory filings or engagements for those fiscal years were
$44,000 for the fiscal year ended November 30, 2014 and $44,000 for the fiscal
year ended November 30, 2015.
(b) Audit-Related Fees (Registrant) -- The aggregate fees billed in each
of the last two fiscal years for assurance and related services by the principal
accountant that are reasonably related to the performance of the audit of the
registrant's financial statements and are not reported under paragraph (a) of
this Item were $0 for the fiscal year ended November 30, 2014 and $0 for the
fiscal year ended November 30, 2015.
Audit-Related Fees (Investment Adviser) -- The aggregate fees billed in
each of the last two fiscal years for assurance and related services by the
principal accountant that are reasonably related to the performance of the audit
of the registrant's financial statements and are not reported under paragraph
(a) of this Item were $0 for the fiscal year ended November 30, 2014 and $0 for
the fiscal year ended November 30, 2015.
(c) Tax Fees (Registrant) -- The aggregate fees billed in each of the last
two fiscal years for professional services rendered by the principal accountant
for tax compliance, tax advice, and tax planning to the registrant were $6,300
for the fiscal year ended November 30, 2014 and $6,300 for the fiscal year ended
November 30, 2015.
Tax Fees (Investment Adviser) -- The aggregate fees billed in each of the
last two fiscal years for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning to the registrant's
adviser were $0 for the fiscal year ended November 30, 2014 and $0 for the
fiscal year ended November 30, 2015.
(d) All Other Fees (Registrant) -- The aggregate fees billed in each of
the last two fiscal years for products and services provided by the principal
accountant to the registrant, other than the services reported in paragraphs (a)
through (c) of this Item were $0 for the fiscal year ended November 30, 2014 and
$3,000 for the fiscal year ended November 30, 2015.
All Other Fees (Investment Adviser) -- The aggregate fees billed in each
of the last two fiscal years for products and services provided by the principal
accountant to the registrant's investment adviser, other than the services
reported in paragraphs (a) through (c) of this Item were $0 for the fiscal year
ended November 30, 2014 and $0 for the fiscal year ended November 30, 2015.
(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 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 the de minimis exception, 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 fiscal year
ended November 30, 2014 were $6,300 for the Registrant and $43,500 for the
Registrant's investment adviser, and for the fiscal year ended November 30, 2015
were $9,300 for the registrant and $12,500 for the Registrant's investment
adviser.
(h) The Registrant's audit committee of its Board of Trustees has
determined that the provision of non-audit services that were rendered to the
Registrant's investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by, or under common
control with the investment adviser that provides ongoing services to the
Registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal accountant's
independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The Registrant has a separately designated audit committee consisting of all the
independent trustees of the Registrant. The members of the audit committee are:
Thomas R. Kadlec, Niel B. Nielson, Richard E. Erickson and Robert F. Keith.
ITEM 6. 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.
PROXY VOTING POLICIES AND PROCEDURES
If an adviser exercises voting authority with respect to client securities,
Advisers Act Rule 206(4)-6 requires the adviser to adopt and implement written
policies and procedures reasonably designed to ensure that client securities are
voted in the best interest of the client. This is consistent with legal
interpretations which hold that an adviser's fiduciary duty includes handling
the voting of proxies on securities held in client accounts over which the
adviser exercises investment or voting discretion, in a manner consistent with
the best interest of the client.
Absent unusual circumstances, EIP exercises voting authority with respect to
securities held in client accounts pursuant to provisions in its advisory
agreements. Accordingly, EIP has adopted these policies and procedures with the
aim of meeting the following requirements of Rule 206(4)-6:
o ensuring that proxies are voted in the best interest of clients;
o addressing material conflicts that may arise between EIP's interests
and those of its clients in the voting of proxies;
o disclosing to clients how they may obtain information on how EIP
voted proxies with respect to the client's securities;
o describing to clients EIP's proxy voting policies and procedures
and, upon request, furnishing a copy of the policies and procedures
to the requesting client.
ENGAGEMENT OF INSTITUTIONAL SHAREHOLDER SERVICES INC.
With the aim of ensuring that proxies are voted in the best interest of
EIP clients, EIP has engaged Institutional Shareholder Services Inc. ("ISS"), as
its independent proxy voting service to provide EIP with proxy voting
recommendations, as well as to handle the administrative mechanics of proxy
voting. EIP has directed ISS to utilize its Proxy Voting Guidelines in making
recommendations to vote, as those guidelines may be amended from time to time.
CONFLICTS OF INTEREST IN PROXY VOTING
There may be instances where EIP's interests conflict, or appear to
conflict, with client interests in the voting of proxies. For example, EIP may
provide services to, or have an investor who is a senior member of, a company
whose management is soliciting proxies. There may be a concern that EIP would
vote in favor of management because of its relationship with the company or a
senior officer. Or, for example, EIP (or its senior executive officers) may have
business or personal relationships with corporate directors or candidates for
directorship.
EIP addresses these conflicts or appearances of conflicts by ensuring that
proxies are voted in accordance with the recommendations made by ISS, an
independent third party proxy voting service. As previously noted, in most
cases, proxies will be voted in accordance with ISSs's own pre-existing proxy
voting guidelines.
DISCLOSURE ON HOW PROXIES WERE VOTED
EIP discloses to clients in its Form ADV how clients can obtain
information on how their proxies were voted, by contacting EIP at its office in
Westport, CT. EIP also discloses in the ADV a summary of these proxy voting
policies and procedures and that upon request, clients will be furnished a full
copy of these policies and procedures.
It is the responsibility of the CCO to ensure that any requests made by
clients for proxy voting information are responded to in a timely fashion and
that a record of requests and responses are maintained in EIP's books and
records.
PROXY MATERIALS
EIP personnel instructs custodians to forward to ISS all proxy
materials received on securities held in EIP client accounts.
LIMITATIONS
In certain circumstances, where EIP has determined that it is consistent
with the client's best interest, EIP will not take steps to ensure that proxies
are voted on securities in the client's account. The following are circumstances
where this may occur:
*Limited Value: Proxies will not be required to be voted on securities in
a client's account if the value of the client's economic interest in the
securities is indeterminable or insignificant (less than $1,000). Proxies will
also not be required to be voted for any securities that are no longer held by
the client's account.
*Securities Lending Program: When securities are out on loan, they are
transferred into the borrower's name and are voted by the borrower, in its
discretion. In most cases, EIP will not take steps to see that loaned securities
are voted. However, where EIP determines that a proxy vote, or other shareholder
action, is materially important to the client's account, EIP will make a good
faith effort to recall the security for purposes of voting, understanding that
in certain cases, the attempt to recall the security may not be effective in
time for voting deadlines to be met.
*Unjustifiable Costs: In certain circumstances, after doing a cost-benefit
analysis, EIP may choose not to vote where the cost of voting a client's proxy
would exceed any anticipated benefits to the client of the proxy proposal.
OVERSIGHT OF POLICY
The CCO is responsible for overseeing these proxy voting policies and
procedures. In addition, the CCO will review these policies and procedures not
less than annually with a view to determining whether their implementation has
been effective and that they are operating as intended and in such a fashion as
to maintaining EIP's compliance with all applicable requirements.
RECORDKEEPING ON PROXIES
In it the responsibility of EIP's CCO to ensure that the following proxy
voting records are maintained:
o a copy of EIP's proxy voting policies and procedures;
o a copy of all proxy statements received on securities in client
accounts (EIP may rely on ISS or the SEC's EDGAR system to satisfy
this requirement);
o a record of each vote cast on behalf of a client (EIP relies on ISS
to satisfy this requirement);
o a copy of any document prepared by EIP that was material to making a
voting decision or that memorializes the basis for that decision;
o a copy of each written client request for information on how proxies
were voted on the client's behalf or for a copy of EIP's proxy
voting policies and procedures, and
o a copy of any written response to any client request for information
on how proxies were voted on their behalf or furnishing a copy of
EIP's proxy voting policies and procedures.
The CCO will see that these books and records are made and maintained in
accordance with the requirements and time periods provided in Rule 204-2 of the
Advisers Act.
For any registered investment companies advised by EIP, votes made on its
behalf will be stored electronically or otherwise recorded so that they are
available for preparation of the Form N-PX, Annual Report of Proxy Voting Record
of Registered Management Investment Company.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(A)(1) IDENTIFICATION OF PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM MEMBERS AND
DESCRIPTION OF ROLE OF PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM MEMBERS
Information provided as of February 3, 2016.
James Murchie, Chief Executive Officer and Founder of Energy Income Partners,
LLC ("EIP" or "Sub-Advisor"), and Eva Pao, principal of EIP, are co-portfolio
managers responsible for the day-to-day management of the registrant's
portfolio. Both portfolio managers have served in such capacity since the Fund's
inception.
JAMES J. MURCHIE
Founder and CEO of Energy Income Partners, LLC
Mr. Murchie founded EIP in 2003 and is the portfolio manager for all funds
advised by EIP which focus on energy-related master limited partnerships, income
trusts and similar securities. From 2005 to mid-2006, Mr. Murchie and the EIP
investment team joined Pequot Capital Management. In July 2006, Mr. Murchie and
the EIP investment team left Pequot and re-established EIP. From 1998 to 2003,
Mr. Murchie managed a long/short fund that invested in energy and cyclical
equities and commodities. From 1995 to 1997, he was a managing director at Tiger
Management where his primary responsibilities were investments in energy,
commodities and related equities. From 1990 to 1995, Mr. Murchie was a principal
at Sanford C. Bernstein where he was a top-ranked energy analyst and sat on the
Research Department's Recommendation Review Committee. Before joining Bernstein,
he spent eight years at British Petroleum in seven operating and staff positions
of increasing responsibility. He has served on the board of Clark Refining and
Marketing Company and as President and Treasurer of the Oil Analysts Group of
New York. Mr. Murchie holds degrees from Rice University and Harvard University.
EVA PAO
Principal of Energy Income Partners, LLC
Ms. Pao has been with EIP since its inception in 2003 and is co-portfolio
manager for all of the funds advised by EIP. She joined EIP in 2003, serving as
Managing Director of EIP until the EIP investment team joined Pequot Capital
Management. From 2005 to mid-2006, Ms. Pao served as Vice President of Pequot
Capital Management. 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. She received a B.A. from Rice University in
1996. She received an M.B.A. from the Harvard Business School in 2002.
(A)(2) OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGER AND POTENTIAL CONFLICTS OF
INTEREST
OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGER
Information provided as of November 30, 2015.
# of Accounts Total Assets
Managed for which for which
Name of Total Advisory Fee is Advisory Fee
Portfolio Manager or # of Accounts Total Based on is Based on
Team Member Type of Accounts* Managed Gross Assets Performance Performance
----------- ----------------- ------- ------- ----------- -----------
1. James Murchie Registered Investment Companies: 6 $3457.2 0 $0
Other Pooled Investment Vehicles: 2 $155.9 2 $155.9
Other Accounts: 2,145 $937.9 1 $1.9
2. Eva Pao Registered Investment Companies: 6 $3457.2 0 $0
Other Pooled Investment Vehicles: 2 $155.9 2 $155.9
Other Accounts: 2,145 $937.9 1 $1.9
* Examples for Types of Accounts:
Other Registered Investment Companies: Any investment vehicle which is
registered with the SEC, such as mutual funds of registered hedge funds.
Other Pooled Investment Vehicles: Any unregistered account for which
investor assets are pooled together, such as an unregistered hedge fund.
Other Accounts: Any accounts managed not covered by the other two
categories, such as privately managed accounts.
Total Assets FIF: $429.8
POTENTIAL CONFLICTS OF INTERESTS
Besides the Funds, the Energy Income Partners, LLC ("EIP") investment
professionals who serve as portfolio managers to approximately 786 separately
managed accounts, one of which has a performance fee, and provides its model
portfolio to unified managed accounts. EIP serves as a sub-advisor to three
closed-end management investment companies other than the Fund, an actively
managed exchange-traded fund (ETF), a sleeve of an ETF and a sleeve of a series
of a variable insurance trust.
The portfolio managers also serve as portfolio managers to two private
investment funds (the "Private Funds"), each of which charge a performance fee
and a privately offered registered investment company.
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 at a disadvantage. 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 MANAGER(S) OR MANAGEMENT TEAM MEMBERS
Information provided as of November 30, 2015.
The portfolio managers are compensated by a competitive minimum base
salary and share in the profits of EIP based on their EIP ownership. EIP's
profits are based on the assets under management and performance. While a
portion of the portfolio managers' compensation is tied to the performance
through performance fees earned through the Private Funds' performance, the
portfolio managers are not incentivized to take undue risk in circumstances when
the Private Funds' performance lags because their performance fee structures may
sometimes have a high watermark or are subject to a hurdle rate. Moreover, the
portfolio managers are the principal owners of EIP and are incentivized to
maximize the long-term performance of all of its clients, including the Funds,
other funds and managed accounts.
The compensation of the EIP 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 a competitive
compensation package.
(A)(4) DISCLOSURE OF SECURITIES OWNERSHIP
Information provided as of November 30, 2015.
Dollar Range of Fund Shares
Name Beneficially Owned
----- ---------------------------
James Murchie $1-10,000
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.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the Registrant's board of trustees, where those
changes were implemented after the Registrant last provided disclosure in
response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)),
or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The Registrant's principal executive and principal financial officers, or
persons performing similar functions, have concluded that the Registrant's
disclosure controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR
270.30a-3(c))) are effective, as of a date within 90 days of the filing
date of the report that includes the disclosure required by this
paragraph, based on their evaluation of these controls and procedures
required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and
Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as
amended (17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the Registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR
270.30a-3(d)) that occurred during the Registrant's second fiscal quarter
of the period covered by this report that has materially affected, or is
reasonably likely to materially affect, the Registrant's internal control
over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section
302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section
906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(c) Notices to the registrant's common shareholders in accordance with the
order under Section 6(c) of the 1940 Act granting an exemption from
Section 19(b) of the 1940 Act and Rule 19a-1 under the 1940 Act. (1)
(1) The Fund received exemptive relief from the Securities and Exchange
Commission which permits the Fund to make periodic distributions of
long-term capital gains as frequently as monthly each taxable year.
The relief is conditioned, in part, on an undertaking by the Fund to
make the disclosures to the holders of the Fund's common shares, in
addition to the information required by Section 19(a) of the 1940
Act and Rule 19a-1 thereunder. The Fund is likewise obligated to
file with the SEC the information contained in any such notice to
shareholders. In that regard, attached as an exhibit to this filing
is a copy of such notice made during the period.
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 Energy Infrastructure Fund
---------------------------------------------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, President and
Chief Executive Officer
(principal executive officer)
Date: May 18, 2016
--------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, President and
Chief Executive Officer
(principal executive officer)
Date: May 18, 2016
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By (Signature and Title)* /s/ Donald P. Swade
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Donald P. Swade, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: May 18, 2016
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* Print the name and title of each signing officer under his or her signature.