UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-22738
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First Trust MLP and Energy Income Fund
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(Exact name of registrant as specified in charter)
187 Danbury Road
Wilton, CT 06897
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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
Date of fiscal year end: October 31
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Date of reporting period: April 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.
ITEM 1. REPORTS TO STOCKHOLDERS.
The Report to Shareholders is attached herewith.
FIRST TRUST
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MLP AND
ENERGY
INCOME
-----------
FUND
(FEI)
SEMI-ANNUAL REPORT
FOR THE SIX MONTHS ENDED
APRIL 30, 2015
FIRST TRUST
ENERGY INCOME PARTNERS, LLC
---------------------------
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TABLE OF CONTENTS
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FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
SEMI-ANNUAL REPORT
APRIL 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
Additional Information....................................................... 23
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and/or Energy Income Partners, LLC ("EIP" or the
"Sub-Advisor") and their respective representatives, taking into account the
information currently available to them. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For example,
forward-looking statements include the use of words such as "anticipate,"
"estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or
other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
First Trust MLP and Energy Income Fund (the "Fund") to be materially different
from any future results, performance or achievements expressed or implied by the
forward-looking statements. When evaluating the information included in this
report, you are cautioned not to place undue reliance on these forward-looking
statements, which reflect the judgment of the Advisor and/or Sub-Advisor and
their respective representatives only as of the date hereof. We undertake no
obligation to publicly revise or update these forward-looking statements to
reflect events and circumstances that arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that the Fund will achieve its investment objective. The
Fund is subject to market risk, which is the possibility that the market values
of securities owned by the Fund will decline and that the value of the Fund
shares may therefore be less than what you paid for them. Accordingly, you can
lose money by investing in the Fund. See "Risk Considerations" in the Additional
Information section of this report for a discussion of certain other risks of
investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
http://www.ftportfolios.com or speak with your financial advisor. Investment
returns, net asset value and common share price will fluctuate and Fund shares,
when sold, may be worth more or less than their original cost.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment 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 MLP AND ENERGY INCOME FUND (FEI) SEMI-ANNUAL
LETTER FROM THE CHAIRMAN AND CEO
APRIL 30, 2015
Dear Shareholders:
Thank you for your investment in First Trust MLP and Energy Income Fund.
First Trust Advisors L.P. ("First Trust") is pleased to provide you with the
semi-annual report which contains detailed information about your investment for
the six months ended April 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, for the six months covered
by this report, some economic and global factors, including the continued
conflict in the Middle East and a sharp decline in oil prices, created
volatility in the U.S. and global markets. Another factor that has impacted
markets is the fact that many economists are predicting the Federal Reserve will
begin to raise interest rates this year.
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 MLP AND ENERGY INCOME FUND (FEI)
"AT A GLANCE"
AS OF APRIL 30, 2015 (UNAUDITED)
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FUND STATISTICS
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Symbol on New York Stock Exchange FEI
Common Share Price $20.67
Common Share Net Asset Value ("NAV") $22.42
Premium (Discount) to NAV (7.81)%
Net Assets Applicable to Common Shares $1,018,644,646
Current Monthly Distribution per Common Share (1) $0.1150
Current Annualized Distribution per Common Share $1.3800
Current Distribution Rate on Closing Common
Share Price (2) 6.68%
Current Distribution Rate on NAV (2) 6.16%
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COMMON SHARE PRICE & NAV (WEEKLY CLOSING PRICE)
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Common Share Price NAV
4/30/14 20.60 22.13
20.19 22.12
20.27 22.10
20.72 22.26
20.70 22.42
5/30/14 20.80 22.49
20.93 22.67
20.74 22.49
21.12 22.79
6/27/14 21.63 23.32
21.19 23.08
21.29 23.01
21.47 23.13
7/25/14 21.46 23.26
20.61 22.42
20.73 22.47
21.79 23.63
21.67 23.75
8/29/14 22.15 24.09
21.81 23.98
21.45 23.56
21.21 24.02
9/26/14 20.89 23.53
20.97 23.27
19.79 22.07
20.90 22.43
21.23 23.12
10/31/14 21.61 23.27
21.32 23.31
21.40 23.27
21.84 23.90
11/28/14 20.89 23.12
20.95 23.16
19.41 21.56
20.76 22.53
12/26/14 21.13 22.97
21.45 23.10
20.14 22.18
20.15 22.05
20.51 22.49
1/30/15 20.86 22.22
21.27 22.50
20.73 22.62
20.90 22.75
2/27/15 21.08 22.32
20.46 21.77
19.65 21.08
20.19 21.57
3/27/15 20.47 21.48
19.98 21.54
20.19 21.94
20.38 22.10
20.39 22.38
4/30/15 20.67 22.42
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PERFORMANCE
----------------------------------------------------------------------------------------------------------
Average Annual Total Return
----------------------------
Inception
6 Months Ended 1 Year Ended (11/27/12)
4/30/15 4/30/15 to 4/30/15
Fund Performance (3)
NAV -0.41% 8.11% 13.51%
Market Value -1.13% 7.03% 7.69%
Index Performance
S&P 500(R) Index 4.40% 12.98% 20.35%
Alerian MLP Total Return Index -7.48% -0.71% 12.02%
Wells Fargo Midstream MLP Total Return Index -1.35% 9.85% 19.27%
----------------------------------------------------------------------------------------------------------
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% OF TOTAL
INDUSTRY CLASSIFICATION INVESTMENTS
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Pipelines 74.8%
Electric Power 6.4
Propane 5.7
Coal 3.6
Natural Gas Utility 3.6
Marine Transportation 3.0
Gathering & Processing 2.2
Other 0.7
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Total 100.0%
=======
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% OF TOTAL
TOP 10 HOLDINGS INVESTMENTS
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Kinder Morgan, Inc. 10.4%
Enbridge Energy Partners, L.P. 7.4
Enterprise Products Partners, L.P. 6.9
Magellan Midstream Partners, L.P. 4.6
Energy Transfer Equity, L.P. 3.9
Plains All American Pipeline, L.P. 3.8
Williams (The) Cos., Inc. 3.8
TC Pipelines, L.P. 3.3
Spectra Energy Partners, L.P. 3.1
Williams Partners, L.P. 3.1
----------------------------------------------------------
Total 50.3%
=======
(1) Most recent distribution paid or declared through 4/30/2015. 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 4/30/2015. 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 share for NAV
returns and changes in Common Share price for market value returns. Total
returns do not reflect sales load and are not annualized for periods less
than one year. Past performance is not indicative of future results.
Page 2
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PORTFOLIO COMMENTARY
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FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
SEMI-ANNUAL REPORT
APRIL 30, 2015
SUB-ADVISOR
ENERGY INCOME PARTNERS, LLC
Energy Income Partners, LLC ("EIP"), Westport, CT, was founded in 2003 to
provide professional asset management services in the area of energy-related
master limited partnerships ("MLPs") and other high-payout securities such as
pipeline companies, power utilities, Yield-Co's, 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. As of April 30,
2015, EIP manages or supervises approximately $6.1 billion of assets. Private
funds advised by EIP include a partnership for U.S. high net worth individuals
and a master-and-feeder fund for institutions. EIP also manages separately
managed accounts and provides its model portfolio to unified managed accounts.
Finally, EIP serves as a sub-advisor to three closed-end management investment
companies in addition to the First Trust MLP and Energy Income Fund ("FEI" 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 CEO OF PRINCIPAL OF
ENERGY INCOME PARTNERS, LLC ENERGY INCOME PARTNERS, LLC
COMMENTARY
FIRST TRUST MLP AND ENERGY INCOME FUND
The Fund's investment objective is to seek a high level of total return with an
emphasis on current distributions paid to common shareholders. The Fund pursues
its objective by investing in cash-generating securities, with a focus on
investing in MLPs and MLP-related entities in the energy sector and energy
utilities industries. There can be no assurance that the Fund's investment
objective will be achieved. The Fund may not be appropriate for all investors.
MARKET RECAP
As measured by the Alerian MLP Total Return Index ("AMZX") and the Wells Fargo
Midstream MLP Total Return Index ("WCHWMIDT") (collectively the "MLP
benchmarks"), the total return for energy-related MLPs over the six months ended
April 30, 2015 was -7.48% and -1.35%, respectively. For AMZX, these returns
reflect a positive 5.6% on an annualized basis from distribution payments, and
the remaining returns are due to share price depreciation. For WCHWMIDT, these
returns reflect a positive 4.95% on an annualized basis from distribution
payments, while the remaining returns are due to share price depreciation. These
figures are according to data collected from several sources, including the MLP
benchmarks and Bloomberg. While in the short term market share price
appreciation can be volatile, we believe that over the long term share price
appreciation will approximate growth in per share quarterly cash distributions
paid by MLPs. Growth in per share MLP distributions has averaged about 5.5% per
year over the last 10 years. The cash distributions of MLPs decreased by about
4.7% over the last 12 months (source: Alerian Capital Management).
PERFORMANCE ANALYSIS
On a net asset value ("NAV") basis, for the six months ended April 30, 2015, the
Fund provided a total return of -0.41%, including the reinvestment of
dividends.(1) This compares, according to collected data, to a total return of
4.40% for the S&P 500(R) Index, -7.48% for AMZX and -1.35% for WCHWMIDT. On a
market value basis, the Fund had a total return, including the reinvestment of
dividends, of -1.13% for the six months ended April 30, 2015. At the end of the
period, the Fund was priced at $20.67, while the NAV was $22.42, a discount of
7.81%. On October 31, 2014, the Fund was priced at $21.61, while the NAV was
$23.27, a discount of 7.13%.
-----------------------------
(1) Total return is based on the combination of reinvested dividend, capital
gain and return of capital distributions, if any, at prices obtained by
the Dividend Reinvestment Plan, changes in NAV per share for NAV returns
and changes in Common Share price for market value returns. Total returns
do not reflect a sales load. Past performance is not indicative of future
results.
Page 3
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PORTFOLIO COMMENTARY (CONTINUED)
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FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
SEMI-ANNUAL REPORT
APRIL 30, 2015
The Fund increased its regular monthly Common Share distribution from $0.1117 to
$0.1134 in January 2015 and to $0.1150 in April 2015.
The Fund's NAV outperformed the -4.42% average of the MLP benchmarks.
Contributing to this was underweight positions in MLPs that significantly
underperformed the MLP benchmarks. The non-MLP portion of the portfolio
contributed positively to performance. Income was enhanced by writing covered
calls on select portfolio positions.
Two important factors affecting the return of the Fund, relative to the average
of the MLP benchmarks, are its accrual for taxes and its use of financial
leverage through a line of credit. The Fund established a committed facility
agreement with The Bank of Nova Scotia with a current maximum commitment amount
of $400,000,000. The Fund uses leverage because its managers believe that, over
time, leverage can enhance total return for common shareholders. However, the
use of leverage can also increase the volatility of the NAV and therefore the
share price. For example, 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, the MLP benchmarks are not
leveraged, nor are their returns net of an accrual for taxes. 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 MLP subsidiaries that contain assets such as
pipelines and storage terminals. It also includes the divestiture by some of
these parent companies of most or all of their cyclical businesses, leaving the
parent company looking very similar to an old-fashioned pipeline utility with a
large holding in a subsidiary MLP. In our view, these diversified energy
conglomerates are restructuring so their regulated infrastructure assets with
predictable cash flows may be better valued by the market. The result is a
better financing tool, in our opinion, to raise capital for the new energy
infrastructure projects related to the rapid growth of North American oil and
gas production. This phenomenon has spread to the power utility industry but
instead of spinning out an MLP, diversified power companies are spinning out a
regular "C" corporation with a higher dividend payout ratio (relative to
earnings).
As of April 30, 2015, the MLP asset class experienced three IPOs in 2015. There
also has been a healthy level of secondary financing activity for MLPs as they
continue to fund their ongoing investments in new pipelines, processing and
storage facilities. Calendar year-to-date through April 30, 2015, there have
been 17 secondary equity offerings for MLPs that raised $5.8 billion. This
compares to $19.1 billion raised in calendar year 2014. Calendar year-to-date
through April 30, 2015, MLPs also found access to the public debt markets,
raising $14.1 billion in 14 offerings. This compares to $28.1 billion in
calendar year 2014 (source: Barclays).
The Fund continues to aim to be invested primarily in MLPs and other energy
infrastructure companies with mostly non-cyclical cash flows, investment-grade
ratings, conservative balance sheets, modest and/or flexible organic growth
commitments and liquidity on their revolving lines of credit. Non-cyclical cash
flows are, in our opinion, a good fit with a steady dividend obligation that is
meant to be most or all of an energy infrastructure company's free cash flow.
Page 4
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
PORTFOLIO OF INVESTMENTS
APRIL 30, 2015 (UNAUDITED)
SHARES/
UNITS DESCRIPTION VALUE
------------ ----------------------------------------------------------------------------- --------------
MASTER LIMITED PARTNERSHIPS - 88.3%
GAS UTILITIES - 7.3%
879,374 AmeriGas Partners, L.P. (a).................................................. $ 42,851,895
690,902 Suburban Propane Partners, L.P. (a).......................................... 30,848,774
--------------
73,700,669
--------------
INDEPENDENT POWER AND RENEWABLE ELECTRICITY PRODUCERS - 0.8%
100,000 Brookfield Renewable Energy Partners, L.P. (CAD) (a)......................... 3,269,789
124,127 NextEra Energy Partners, L.P. (a)............................................ 5,259,261
--------------
8,529,050
--------------
OIL, GAS & CONSUMABLE FUELS - 80.2%
257,534 Alliance Holdings GP, L.P. (a)............................................... 12,799,440
1,129,260 Alliance Resource Partners, L.P. (a)......................................... 38,925,592
280,400 Columbia Pipeline Partners, L.P.............................................. 7,584,820
2,915,670 Enbridge Energy Partners, L.P. (a)........................................... 108,287,984
860,000 Energy Transfer Equity, L.P. (a)............................................. 57,327,600
780,030 Energy Transfer Partners, L.P. (a)........................................... 45,070,133
2,970,341 Enterprise Products Partners, L.P. (a)....................................... 101,734,179
250,000 EQT Midstream Partners, L.P. (a)............................................. 22,050,000
125,000 Golar LNG Partners, L.P. (a)................................................. 3,651,250
75,000 Hoegh LNG Partners, L.P. (a)................................................. 1,627,500
743,405 Holly Energy Partners, L.P. (a).............................................. 24,495,195
810,000 Magellan Midstream Partners, L.P. (a)........................................ 67,635,000
296,337 Natural Resource Partners, L.P. (a).......................................... 1,511,318
844,772 NGL Energy Partners, L.P. (a)................................................ 24,718,029
909,000 ONEOK Partners, L.P. (a)..................................................... 38,132,550
101,000 Phillips 66 Partners, L.P. (a)............................................... 7,660,850
1,109,000 Plains All American Pipeline, L.P. (a)....................................... 55,571,990
44,900 Shell Midstream Partners, L.P................................................ 1,804,531
849,811 Spectra Energy Partners, L.P. (a)............................................ 46,042,760
12,500 Tallgrass Energy Partners L.P................................................ 615,000
160,000 Targa Resources Partners, L.P. (a)........................................... 7,270,400
702,500 TC Pipelines, L.P. (a)....................................................... 47,826,200
986,624 Teekay LNG Partners, L.P. (a)................................................ 38,892,718
257,700 TransMontaigne Partners, L.P. (a)............................................ 9,717,867
921,607 Williams Partners, L.P. (a).................................................. 45,527,386
--------------
816,480,292
--------------
TOTAL MASTER LIMITED PARTNERSHIPS............................................ 898,710,011
(Cost $623,791,698) --------------
COMMON STOCKS - 56.0%
ELECTRIC UTILITIES - 3.5%
3,400 American Electric Power Co., Inc............................................. 193,358
163,000 Emera, Inc. (CAD) (a)........................................................ 5,493,228
1,000 Eversource Energy............................................................ 48,760
215,000 Exelon Corp.................................................................. 7,314,300
616,600 ITC Holdings Corp. (a)....................................................... 22,197,600
--------------
35,247,246
--------------
See Notes to Financial Statements Page 5
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2015 (UNAUDITED)
SHARES DESCRIPTION VALUE
------------ ----------------------------------------------------------------------------- --------------
COMMON STOCKS (CONTINUED)
GAS UTILITIES - 1.8%
79,033 Atmos Energy Corp. (a)....................................................... $ 4,267,782
50,000 Piedmont Natural Gas Co., Inc................................................ 1,872,000
40,000 South Jersey Industries, Inc................................................. 2,110,000
299,624 UGI Corp..................................................................... 10,429,912
--------------
18,679,694
--------------
INDEPENDENT POWER AND RENEWABLE ELECTRICITY PRODUCERS - 2.1 %
289,100 NRG Yield, Inc., Class A (a)................................................. 14,223,720
260,000 Pattern Energy Group, Inc. (a)............................................... 7,534,800
--------------
21,758,520
--------------
MULTI-UTILITIES - 6.4%
142,000 ATCO, Ltd., Class I (CAD) (a)................................................ 5,382,230
1,400 CMS Energy Corp.............................................................. 47,502
431,400 Dominion Resources, Inc...................................................... 30,922,752
34,500 National Grid PLC, ADR....................................................... 2,326,335
316,400 NiSource, Inc................................................................ 13,738,088
75,000 Public Service Enterprise Group, Inc......................................... 3,115,500
86,500 Sempra Energy................................................................ 9,183,705
4,600 Wisconsin Energy Corp........................................................ 225,952
--------------
64,942,064
--------------
OIL, GAS & CONSUMABLE FUELS - 41.1%
774,500 Enbridge Income Fund Holdings, Inc. (CAD) (a)................................ 24,952,188
823,700 Enbridge, Inc................................................................ 43,104,221
1,045,500 Inter Pipeline, Ltd. (CAD) (a)............................................... 27,383,174
436,096 Keyera Corp. (CAD) (a)....................................................... 15,351,013
3,572,943 Kinder Morgan, Inc. (a)...................................................... 153,457,902
100,000 ONEOK, Inc................................................................... 4,810,000
273,000 Pembina Pipeline Corp. (CAD) (a)............................................. 9,501,260
1,167,400 Spectra Energy Corp.......................................................... 43,485,650
886,657 TransCanada Corp............................................................. 41,158,618
1,081,000 Williams (The) Cos., Inc..................................................... 55,336,390
--------------
418,540,416
--------------
REAL ESTATE INVESTMENT TRUSTS - 1.1%
465,867 CorEnergy Infrastructure Trust............................................... 3,163,237
269,090 InfraREIT, Inc............................................................... 8,392,917
--------------
11,556,154
--------------
TOTAL COMMON STOCKS.......................................................... 570,724,094
(Cost $466,440,643) --------------
TOTAL INVESTMENTS - 144.3%................................................... 1,469,434,105
(Cost $1,090,232,341) (b) --------------
Page 6 See Notes to Financial Statements
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2015 (UNAUDITED)
NUMBER OF
CONTRACTS DESCRIPTION VALUE
------------ ----------------------------------------------------------------------------- --------------
CALL OPTIONS WRITTEN - (0.5%)
Dominion Resources, Inc. Calls
2,300 @ $75.00 due June 2015....................................................... $ (105,800)
2,000 @ 75.00 due July 2015....................................................... (130,000)
--------------
(235,800)
--------------
Enbridge Energy Partners, L.P. Calls
2,000 @ 40.00 due July 2015....................................................... (80,000)
2,180 @ 40.00 due October 2015.................................................... (141,700)
--------------
(221,700)
--------------
Enbridge, Inc. Calls
200 @ 55.00 due June 2015....................................................... (11,000)
2,000 @ 55.00 due July 2015....................................................... (200,000)
6,000 @ 60.00 due October 2015.................................................... (375,000)
--------------
(586,000)
--------------
Energy Transfer Partners, L.P. Call
2,100 @ 60.00 due June 2015....................................................... (252,000)
--------------
Enterprise Products Partners, L.P. Calls
2,320 @ 35.00 due June 2015....................................................... (150,800)
2,300 @ 37.50 due June 2015....................................................... (23,000)
2,500 @ 37.50 due September 2015.................................................. (112,500)
--------------
(286,300)
--------------
Exelon Corp. Call
2,150 @ 36.00 due July 2015....................................................... (86,000)
--------------
ITC Holdings Corp. Call
750 @ 45.00 due August 2015 (c)................................................. (15,000)
--------------
Kinder Morgan, Inc. Calls
65 @ 42.50 due May 2015........................................................ (5,330)
9,280 @ 45.00 due June 2015....................................................... (287,680)
2,000 @ 47.50 due June 2015....................................................... (18,000)
2,500 @ 45.00 due September 2015.................................................. (217,500)
940 @ 50.00 due September 2015.................................................. (17,390)
3,000 @ 47.50 due December 2015................................................... (198,000)
--------------
(743,900)
--------------
Magellan Midstream Partners, L.P. Call
1,000 @ 87.50 due July 2015....................................................... (150,000)
--------------
National Grid PLC, ADR Call
300 @ 70.00 due June 2015....................................................... (9,000)
--------------
NiSource, Inc. Calls
2,580 @ 46.00 due June 2015....................................................... (122,550)
300 @ 46.00 due July 2015....................................................... (20,250)
210 @ 47.00 due July 2015....................................................... (8,925)
--------------
(151,725)
--------------
ONEOK Partners, L.P. Call
1,000 @ 52.50 due July 2015....................................................... (107,500)
--------------
Plains All American Pipeline, L.P. Calls
800 @ 52.50 due August 2015..................................................... (92,000)
860 @ 55.00 due August 2015..................................................... (30,100)
--------------
(122,100)
--------------
See Notes to Financial Statements Page 7
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2015 (UNAUDITED)
NUMBER OF
CONTRACTS DESCRIPTION VALUE
------------ ----------------------------------------------------------------------------- --------------
CALL OPTIONS WRITTEN (CONTINUED)
Public Service Enterprise Group, Inc. Call
750 @ $45.00 due May 2015........................................................ $ (5,625)
--------------
Sempra Energy Calls
300 @ 115.00 due July 2015...................................................... (15,000)
560 @ 125.00 due July 2015 (c).................................................. (25,200)
--------------
(40,200)
--------------
Spectra Energy Corp. Calls
600 @ 38.00 due May 2015........................................................ (18,000)
2,000 @ 37.00 due June 2015....................................................... (215,000)
3,570 @ 38.00 due June 2015....................................................... (274,890)
1,500 @ 39.00 due June 2015....................................................... (64,500)
2,000 @ 40.00 due June 2015....................................................... (45,000)
2,000 @ 39.00 due September 2015.................................................. (170,000)
--------------
(787,390)
--------------
TransCanada Corp. Calls
2,500 @ 50.00 due May 2015........................................................ (25,000)
2,620 @ 55.00 due May 2015 (c).................................................... (26,200)
1,150 @ 50.00 due August 2015..................................................... (86,250)
2,500 @ 50.00 due November 2015................................................... (331,250)
--------------
(468,700)
--------------
UGI Corp. Call
2,900 @ 37.50 due October 2015.................................................... (209,260)
--------------
Williams (The) Cos., Inc.
2,000 @ 52.50 due May 2015........................................................ (74,000)
590 @ 52.50 due June 2015....................................................... (51,330)
2,240 @ 55.00 due June 2015....................................................... (71,680)
3,580 @ 55.00 due July 2015....................................................... (189,740)
2,399 @ 55.00 due August 2015..................................................... (201,516)
--------------
(588,266)
--------------
TOTAL CALL OPTIONS WRITTEN................................................... (5,066,466)
(Premiums received $5,176,963) --------------
OUTSTANDING LOAN - (33.2%)................................................... (338,000,000)
NET OTHER ASSETS AND LIABILITIES - (10.6%)................................... (107,722,993)
--------------
NET ASSETS - 100.0%.......................................................... $1,018,644,646
==============
-----------------------------
(a) All or a portion of this security serves as collateral on the outstanding
loan.
(b) Aggregate cost for federal income tax purposes is $988,011,643. As of
April 30, 2015, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$487,041,461 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$5,618,999.
(c) This investment is fair valued by the Advisor'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 April 30, 2015, investments noted as such are valued at
$(66,400) or (0.01%) 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.
Page 8 See Notes to Financial Statements
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
PORTFOLIO OF INVESTMENTS (CONTINUED)
APRIL 30, 2015 (UNAUDITED)
INTEREST RATE SWAP AGREEMENTS:
NOTIONAL
COUNTERPARTY FLOATING RATE (1) EXPIRATION DATE AMOUNT FIXED RATE (1) VALUE
-------------------- ----------------- ------------------ ------------- ----------------- ------------
Bank of Nova Scotia 1 month LIBOR 10/08/23 $ 77,250,000 2.734% $ (5,677,876)
Bank of Nova Scotia 1 month LIBOR 09/03/24 97,000,000 2.367% (4,015,010)
------------- ------------
$ 174,250,000 $ (9,692,886)
============= ============
(1) The Fund pays the fixed rate and receives the floating rate. The floating
rates on April 30, 2015 were 0.180%.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of April 30,
2015 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
ASSETS TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
4/30/2015 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
Master Limited Partnerships*................... $ 898,710,011 $ 898,710,011 $ -- $ --
Common Stocks*................................. 570,724,094 570,724,094 -- --
--------------- --------------- --------------- ---------------
TOTAL.......................................... $ 1,469,434,105 $ 1,469,434,105 $ -- $ --
=============== =============== =============== ===============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
4/30/2015 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
Call Options Written........................... $ (5,066,466) $ (5,000,066) $ (66,400) $ --
Interest Rate Swap**........................... (9,692,886) -- (9,692,886) --
--------------- --------------- --------------- ---------------
TOTAL.......................................... $ (14,759,352) $ (5,000,066) $ (9,759,286) $ --
=============== =============== =============== ===============
* 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 April 30, 2015.
See Notes to Financial Statements Page 9
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2015 (UNAUDITED)
ASSETS:
Investments, at value
(Cost $1,090,232,341)...................................................................... $1,469,434,105
Cash........................................................................................... 35,139,704
Cash segregated as collateral for open swap contracts.......................................... 17,822,774
Receivables:
Dividends.................................................................................. 6,238,044
Investment securities sold................................................................. 2,802,883
Income taxes............................................................................... 552,257
Interest................................................................................... 240
Prepaid expenses............................................................................... 43,830
--------------
Total Assets............................................................................... 1,532,033,837
--------------
LIABILITIES:
Outstanding loan............................................................................... 338,000,000
Deferred income taxes.......................................................................... 149,872,237
Options written, at value (Premiums received $5,176,963)....................................... 5,066,466
Swap contracts, at value (Cost $968)........................................................... 9,692,886
Payables:
Investment securities purchased............................................................ 8,917,246
Investment advisory fees................................................................... 1,098,526
Administrative fees........................................................................ 307,594
Interest and fees on loan.................................................................. 255,215
Audit and tax fees......................................................................... 90,724
Custodian fees............................................................................. 50,482
Legal fees................................................................................. 21,427
Transfer agent fees........................................................................ 6,565
Printing fees.............................................................................. 4,453
Trustees' fees and expenses................................................................ 3,508
Financial reporting fees................................................................... 771
Other liabilities.............................................................................. 1,091
--------------
Total Liabilities.......................................................................... 513,389,191
--------------
NET ASSETS..................................................................................... $1,018,644,646
==============
NET ASSETS CONSIST OF:
Paid-in capital................................................................................ $ 741,995,139
Par value...................................................................................... 454,395
Accumulated net investment income (loss), net of income taxes.................................. (2,456,444)
Accumulated net realized gain (loss) on investments, written options, swap
contracts and foreign currency transactions, net of income taxes........................... 38,431,955
Net unrealized appreciation (depreciation) on investments, written options, swap
contracts and foreign currency translation, net of income taxes............................ 240,219,601
--------------
NET ASSETS..................................................................................... $1,018,644,646
==============
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share)........................... $ 22.42
==============
Number of Common Shares outstanding (unlimited number of Common Shares has been authorized).... 45,439,454
==============
Page 10 See Notes to Financial Statements
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 2015 (UNAUDITED)
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $452,416)......................................... $ 10,955,404
Interest....................................................................................... 946
Other.......................................................................................... 127
--------------
Total investment income.................................................................... 10,956,477
--------------
EXPENSES:
Investment advisory fees....................................................................... 6,746,932
Interest and fees on loan...................................................................... 1,411,415
Administrative fees............................................................................ 473,827
Printing fees.................................................................................. 79,346
Custodian fees................................................................................. 63,248
Audit and tax fees............................................................................. 49,047
Legal fees..................................................................................... 18,649
Trustees' fees and expenses.................................................................... 15,858
Transfer agent fees............................................................................ 13,079
Financial reporting fees....................................................................... 4,625
Other.......................................................................................... 33,967
--------------
Total expenses............................................................................. 8,909,993
--------------
NET INVESTMENT INCOME (LOSS) BEFORE TAXES...................................................... 2,046,484
--------------
Current state income tax benefit (expense)..................................... (6,471)
Current federal income tax benefit (expense)................................... --
Current foreign income tax benefit (expense)................................... --
Deferred federal income tax benefit (expense).................................. (231,292)
Deferred state income tax benefit (expense).................................... (422,436)
-----------
Total income tax benefit (expense)............................................................. (660,199)
--------------
NET INVESTMENT INCOME (LOSS)................................................................... 1,386,285
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) before taxes on:
Investments................................................................................ 7,011,217
Written options............................................................................ 5,362,063
Swap contracts............................................................................. (2,102,494)
Foreign currency transactions.............................................................. (29,824)
--------------
Net realized gain (loss) before taxes.......................................................... 10,240,962
--------------
Deferred federal income tax benefit (expense).................................. (2,599,190)
Deferred state income tax benefit (expense).................................... (77,486)
-----------
Total income tax benefit (expense)......................................................... (2,676,676)
--------------
Net realized gain (loss) on investments, written options, swap contracts and foreign currency
transactions............................................................................... 7,564,286
--------------
Net change in unrealized appreciation (depreciation) before taxes on:
Investments................................................................................ (23,940,473)
Written options............................................................................ 3,174,205
Swap contracts............................................................................. (5,702,901)
Foreign currency translation............................................................... 2,306
--------------
Net change in unrealized appreciation (depreciation) before taxes.............................. (26,466,863)
--------------
Deferred federal income tax benefits (expense)................................. 9,326,112
Deferred state income tax benefits (expense)................................... 353,371
-----------
Total income tax benefit (expense)......................................................... 9,679,483
--------------
Net change in unrealized appreciation (depreciation) on investments, written
options, swap contracts and foreign currency translation................................... (16,787,380)
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)........................................................ (9,223,094)
--------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................ $ (7,836,809)
==============
See Notes to Financial Statements Page 11
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR
4/30/2015 ENDED
(UNAUDITED) 10/31/2014
---------------- ----------------
OPERATIONS:
Net investment income (loss)........................................................ $ 1,386,285 $ (1,464,780)
Net realized gain (loss)............................................................ 7,564,286 29,882,551
Net change in unrealized appreciation (depreciation)................................ (16,787,380) 144,347,561
-------------- --------------
Net increase (decrease) in net assets resulting from operations..................... (7,836,809) 172,765,332
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................................... -- --
Return of capital................................................................... (30,835,213) (60,598,056)
-------------- --------------
Total distributions to shareholders................................................. (30,835,213) (60,598,056)
-------------- --------------
Total increase (decrease) in net assets............................................. (38,672,022) 112,167,276
NET ASSETS:
Beginning of period................................................................. 1,057,316,668 945,149,392
-------------- --------------
End of period....................................................................... $1,018,644,646 $1,057,316,668
============== ==============
Accumulated net investment income (loss), net of income taxes at end of period...... $ (2,456,444) $ (3,842,729)
============== ==============
COMMON SHARES:
Common Shares at end of period...................................................... 45,439,454 45,439,454
============== ==============
Page 12 See Notes to Financial Statements
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED APRIL 30, 2015 (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) in net assets resulting from operations.................... $ (7,836,809)
Adjustments to reconcile net increase (decrease) in net assets resulting from
operations to net cash provided by operating activities:
Purchases of investments....................................................... (215,812,450)
Sales of investments........................................................... 229,077,483
Proceeds from written options.................................................. 10,237,654
Amount paid to close written options........................................... (2,980,466)
Return of capital received from investment in MLPs............................. 21,051,203
Net realized gain/loss on investments and written options...................... (12,373,280)
Net change in unrealized appreciation/depreciation on investments
and written options.......................................................... 20,766,268
Net change in unrealized appreciation/depreciation on swap contracts........... 5,702,901
Increase in cash segregated as collateral for open swap contracts.............. (4,872,504)
CHANGES IN ASSETS AND LIABILITIES:
Increase in interest receivable................................................ (240)
Decrease in dividends receivable (a)........................................... 1,649,170
Decrease in income tax receivable.............................................. 2,580
Increase in prepaid expenses................................................... (16,747)
Increase in interest and fees on loan payable.................................. 19,762
Decrease in investment advisory fees payable................................... (77,132)
Decrease in audit and tax fees payable......................................... (8,276)
Increase in legal fees payable................................................. 2,050
Decrease in printing fees payable.............................................. (35,742)
Increase in administrative fees payable........................................ 212,367
Increase in custodian fees payable............................................. 18,144
Increase in transfer agent fees payable........................................ 1,527
Increase in Trustees' fees and expenses payable................................ 890
Decrease in deferred income tax payable........................................ (6,349,079)
Decrease in other liabilities payable.......................................... (12,212)
----------------
CASH PROVIDED BY OPERATING ACTIVITIES............................................. $ 38,367,062
----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to Common Shareholders from return of capital.................... (30,835,213)
Proceeds from borrowing........................................................ 23,000,000
Repayment of borrowing......................................................... (35,000,000)
----------------
CASH USED IN FINANCING ACTIVITIES.................................................. (42,835,213)
----------------
Decrease in cash and foreign currency.............................................. (4,468,151)
Cash and foreign currency at beginning of period................................... 39,607,855
----------------
CASH AT END OF PERIOD.............................................................. $ 35,139,704
================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest and fees.................................. $ 1,391,653
================
Cash paid during the period for taxes.............................................. $ 1,113,565
================
-----------------------------
(a) Includes net change in unrealized appreciation (depreciation) on foreign
currency of $2,306.
See Notes to Financial Statements Page 13
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
FINANCIAL HIGHLIGHTS
FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX MONTHS
ENDED YEAR PERIOD
4/30/2015 ENDED ENDED
(UNAUDITED) 10/31/2014 10/31/2013 (a)
--------------- --------------- ---------------
Net asset value, beginning of period.............. $ 23.27 $ 20.80 $ 19.10 (b)
----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)...................... 0.03 (0.03) (0.05)
Net realized and unrealized gain (loss)........... (0.20) 3.83 2.81
----------- ----------- -----------
Total from investment operations.................. (0.17) 3.80 2.76
----------- ----------- -----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income............................. -- -- --
Net realized gain................................. -- -- (0.25)
Return of capital................................. (0.68) (1.33) (0.73)
----------- ----------- -----------
Total distributions............................... (0.68) (1.33) (0.98)
----------- ----------- -----------
Common Shares offering costs charged to paid-in
capital....................................... -- -- (0.02)
----------- ----------- -----------
Capital reduction resulting from issuance of
Common Shares related to over-allotment....... -- -- (0.06)
----------- ----------- -----------
Net asset value, end of period.................... $ 22.42 $ 23.27 $ 20.80
=========== =========== ===========
Market value, end of period....................... $ 20.67 $ 21.61 $ 19.63
=========== =========== ===========
TOTAL RETURN BASED ON NET ASSET VALUE (c)......... (0.41)% 19.43% 14.27%
=========== =========== ===========
TOTAL RETURN BASED ON MARKET VALUE (c)............ (1.13)% 17.52% 2.99%
=========== =========== ===========
-----------------------------
Net assets, end of period (in 000's).............. $ 1,018,645 $ 1,057,317 $ 945,149
Portfolio turnover rate........................... 14% 34% 35%
RATIOS OF EXPENSES TO AVERAGE NET ASSETS:
Including current and deferred income taxes (d)... 0.51% (e) 11.28% 9.53% (e)
Excluding current and deferred income taxes....... 1.77% (e) 1.79% 1.67% (e)
Excluding current and deferred income taxes
and interest expense.......................... 1.49% (e) 1.51% 1.43% (e)
RATIOS OF NET INVESTMENT INCOME (LOSS) TO AVERAGE NET ASSETS:
Net investment income (loss) ratio before
tax expenses.................................. 0.41% (e) 0.24)% (0.42)% (e)
Net investment income (loss) ratio including
tax expenses (d).............................. 1.66% (e) (9.74)% (8.28)% (e)
INDEBTEDNESS:
Total loan outstanding (in 000's)................. $ 338,000 $ 350,000 $ 334,000
Asset coverage per $1,000 of indebtedness (f)..... $ 4,014 $ 4,021 $ 3,830
-----------------------------
(a) The Fund was seeded on October 11, 2012 and commenced operations on
November 27, 2012.
(b) Beginning net asset value is net of sales load of $0.90 per share from the
initial offering.
(c) Total return is based on the combination of reinvested dividend, capital
gain and return of capital distributions, if any, at prices obtained by
the Dividend Reinvestment Plan, and changes in net asset value per share
for net asset value returns and changes in Common Share price for market
value returns. Total returns do not reflect sales load and are not
annualized for periods less than one year. Past performance is not
indicative of future results.
(d) Includes current and deferred income taxes associated with each component
of the Statement of Operations.
(e) Annualized.
(f) Calculated by taking the Fund's total assets less the Fund's total
liabilities (not including the loan outstanding) and dividing by the loan
outstanding in 000's.
Page 14 See Notes to Financial Statements
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
APRIL 30, 2015 (UNAUDITED)
1. ORGANIZATION
First Trust MLP and Energy Income Fund (the "Fund") is a non-diversified,
closed-end management investment company organized as a Massachusetts business
trust on August 17, 2012 and is registered with the Securities and Exchange
Commission under the Investment Company Act of 1940, as amended (the "1940
Act"). The Fund trades under the ticker symbol FEI on the New York Stock
Exchange ("NYSE").
The Fund's investment objective is to seek a high level of total return with an
emphasis on current distributions paid to common shareholders. The Fund seeks to
provide its shareholders with an efficient vehicle to invest in a portfolio of
cash generating securities of energy companies. The Fund focuses on investing in
equity and debt securities of master limited partnerships ("MLPs"), MLP-related
entities and other energy sector and energy utilities companies, which Energy
Income Partners, LLC ("EIP" or the "Sub-Advisor") believes offer opportunities
for income and growth. There can be no assurance that the Fund will achieve its
investment objective. The Fund may not be appropriate for all investors.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America ("U.S. GAAP") requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
A. PORTFOLIO VALUATION:
The net asset value ("NAV") of the Common Shares of the Fund is determined daily
as of the close of regular trading on the NYSE, normally 4:00 p.m. Eastern time,
on each day the NYSE is open for trading. If the NYSE closes early on a
valuation day, the NAV is determined as of that time. Foreign securities are
priced using data reflecting the earlier closing of the principal markets for
those securities. The NAV per Common Share is calculated by dividing the value
of all assets of the Fund (including accrued interest and dividends), less all
liabilities (including accrued expenses, dividends declared but unpaid, deferred
income taxes and any borrowings of the Fund) by the total number of Common
Shares outstanding.
The Fund's investments are valued daily at market value or, in the absence of
market value with respect to any portfolio securities, at fair value. 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 and other equity securities listed on any national or
foreign exchange (excluding The NASDAQ(R) Stock Market LLC ("NASDAQ") and
the London Stock Exchange Alternative Investment Market ("AIM")) are
valued at the last price on the exchange on which they are principally
traded or, for NASDAQ and AIM securities, the official closing price.
Securities traded on more than one securities exchange are valued at the
last sale price or official closing price, as applicable, at the close of
the securities exchange representing the principal market for such
securities.
Exchange-traded options contracts are valued at the closing price in the
market where such contracts are principally traded. If no closing price is
available, exchange-traded options contracts are 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.
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) 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
Page 15
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
APRIL 30, 2015 (UNAUDITED)
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 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 April 30, 2015, is
included with the Fund's Portfolio of Investments.
B. OPTION CONTRACTS:
The Fund is subject to equity price risk in the normal course of pursuing its
investment objective and may write (sell) options to hedge against changes in
the value of equities. Also, the Fund seeks to generate additional income, in
the form of premiums received, from writing (selling) the options. The Fund may
write (sell) covered call or put options ("options") on all or a portion of the
common stock and MLPs held in the Fund's portfolio as determined to be
appropriate by the Sub-Advisor. The number of options the Fund can write (sell)
is limited by the amount of common stock and MLPs the Fund holds in its
portfolio. The Fund will not write (sell) "naked" or uncovered options. When the
Fund writes (sells) an option, an amount equal to the premium received by the
Fund is included in "Options written, at value" on the Fund's Statement of
Assets and Liabilities. Options are marked-to-market daily and their value will
be affected by changes in the value and dividend rates of the underlying equity
securities, changes in interest rates, changes in the actual or perceived
volatility of the securities markets and the underlying equity securities and
the remaining time to the options' expiration. The value of options may also be
adversely affected if the market for the options becomes less liquid or trading
volume diminishes.
Page 16
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
APRIL 30, 2015 (UNAUDITED)
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) before taxes on written options" on the
Statement of Operations.
The options that the Fund writes (sells) give the option holder the right, but
not the obligation, to purchase a security from the Fund at the strike price on
or prior to the option's expiration date. The ability to successfully implement
the writing (selling) of covered call options depends on the ability of the
Sub-Advisor to predict pertinent market movements, which cannot be assured.
Thus, the use of options may require the Fund to sell portfolio securities at
inopportune times or for prices other than current market value, which may limit
the amount of appreciation the Fund can realize on an investment, or may cause
the Fund to hold a security that it might otherwise sell. As the writer (seller)
of a covered option, the Fund foregoes, during the option's life, the
opportunity to profit from increases in the market value of the security
covering the option above the sum of the premium and the strike price of the
option, but has retained the risk of loss should the price of the underlying
security decline. The writer (seller) of an option has no control over the time
when it may be required to fulfill its obligation as a writer (seller) of the
option. Once an option writer (seller) has received an exercise notice, it
cannot effect a closing purchase transaction in order to terminate its
obligation under the option and must deliver the underlying security to the
option holder at the exercise price.
Over-the-counter options have the risk of the potential inability of
counterparties to meet the terms of their contracts. The Fund's maximum equity
price risk for purchased options is limited to the premium initially paid. In
addition, certain risks may arise upon entering into option contracts including
the risk that an illiquid secondary market will limit the Fund's ability to
close out an option contract prior to the expiration date and that a change in
the value of the option contract may not correlate exactly with changes in the
value of the securities hedged.
C. SWAP AGREEMENTS:
The Fund may enter into total return equity swap and interest rate swap
agreements. A swap is a financial instrument that typically involves the
exchange of cash flows between two parties ("Counterparties") on specified dates
(settlement dates) where the cash flows are based on agreed upon prices, rates,
etc. Swap agreements are individually negotiated and involve the risk of the
potential inability of the Counterparties to meet the terms of the agreement. In
connection with these agreements, cash and securities may be identified as
collateral in accordance with the terms of the respective swap agreements to
provide assets of value and recourse in the event of default under the swap
agreement or bankruptcy/insolvency of a party to the swap agreement. In the
event of a default by the Counterparty, the Fund will seek withdrawal of this
collateral and may incur certain costs exercising its right with respect to the
collateral. If a Counterparty becomes bankrupt or otherwise fails to perform its
obligations due to financial difficulties, the Fund may experience significant
delays in obtaining any recovery in a bankruptcy or other reorganization
proceeding. The Fund may obtain only limited recovery or may obtain no recovery
in such circumstances.
Swap agreements may increase or decrease the overall volatility of the
investments of the Fund. The performance of swap agreements may be affected by a
change in the specific interest rate, security, currency, or other factors that
determine the amounts of payments due to and from the Fund. The Fund's maximum
equity price risk to meet its future payments under swap agreements outstanding
at April 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.
The Fund held interest rate swap agreements at April 30, 2015. An interest rate
swap agreement involves the Fund's agreement to exchange a stream of interest
payments for another party's stream of cash flows. Interest rate swaps do not
involve the delivery of securities or other underlying assets or principal.
Accordingly, the risk of loss with respect to interest rate swaps is limited to
the net amount of interest payments that the Fund is contractually obligated to
make.
D. SECURITIES TRANSACTIONS AND INVESTMENT INCOME:
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income is recorded
daily on the accrual basis, including amortization of premiums and accretion of
discounts. The Fund will rely to some extent on information provided by the
MLPs, which is not necessarily timely, to estimate taxable income allocable to
the MLP units held in the Fund's portfolio and to estimate the associated
deferred tax asset or liability. From time to time, the Fund will modify its
estimates and/or assumptions regarding its deferred tax liability as new
information becomes available. To the extent the Fund modifies its estimates
and/or assumptions, the NAV of the Fund will likely fluctuate.
Page 17
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
APRIL 30, 2015 (UNAUDITED)
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.
E. DISTRIBUTIONS TO SHAREHOLDERS:
The Fund intends to make monthly distributions to Common Shareholders. The
Fund's distributions generally will consist of cash and paid-in-kind
distributions from MLPs or their affiliates, dividends from common stocks, and
income from other investments held by the Fund less operating expenses,
including taxes. Distributions to Common Shareholders are recorded on the
ex-date and are based on U.S. GAAP, which may differ from their ultimate
characterization for federal income tax purposes.
Distributions made from current or accumulated earnings and profits of the Fund
will be taxable to shareholders as dividend income. Distributions that are in an
amount greater than the Fund's current and accumulated earnings and profits will
represent a tax-deferred return of capital to the extent of a shareholder's
basis in the Common Shares, and such distributions will correspondingly increase
the realized gain upon the sale of the Common Shares. Additionally,
distributions not paid from current or accumulated earnings and profits that
exceed a shareholder's tax basis in the Common Shares will generally be taxed as
a capital gain.
Distributions of $30,835,213 paid during the six months ended April 30, 2015,
are anticipated to be characterized as return of capital for federal income tax
purposes. However, the ultimate determination of the character of the
distributions will be made after the 2015 calendar year. Distributions will
automatically be reinvested in additional Common Shares pursuant to the Fund's
Dividend Reinvestment Plan unless cash distributions are elected by the
shareholder.
F. INCOME TAXES:
The Fund is treated as a regular C corporation for U.S. federal income tax
purposes and as such will be obligated to pay federal and applicable state and
foreign corporate taxes on its taxable income. The Fund's tax expense or benefit
is included in the Statement of Operations based on the component of income or
gains (losses) to which such expense or benefit relates. The current U.S.
federal maximum graduated income tax rate for corporations is 35%. The Fund may
be subject to a 20% federal alternative minimum tax on its federal alternative
minimum taxable income to the extent that its alternative minimum tax exceeds
its regular federal income tax. This differs from most investment companies,
which elect to be treated as "regulated investment companies" under the U.S.
Internal Revenue Code of 1986, as amended. The various investments of the Fund
may cause the Fund to be subject to state income taxes on a portion of its
income at various rates.
The tax deferral benefit the Fund derives from its investment in MLPs results
largely because the MLPs are treated as partnerships for federal income tax
purposes. As a partnership, an MLP has no income tax liability at the entity
level. As a limited partner in the MLPs in which it invests, the Fund will be
allocated its pro rata share of income, gains, losses, deductions and credits
from the MLPs, regardless of whether or not any cash is distributed from the
MLPs.
To the extent that the distributions received from the MLPs exceed the net
taxable income realized by the Fund from its investment, a tax liability
results. This tax liability is a deferred liability to the extent that MLP
distributions received have not exceeded the Fund's adjusted tax basis in the
respective MLPs. To the extent that distributions from an MLP exceed the Fund's
adjusted tax basis, the Fund will recognize a taxable capital gain. For the six
months ended April 30, 2015, distributions of $21,140,194 received from MLPs
have been reclassified as a return of capital. The cost basis of applicable MLPs
has been reduced accordingly.
The Fund's provision for income taxes consists of the following:
Current federal income tax benefit (expense)...... $ --
Current state income tax benefit (expense)........ (6,471)
Current foreign income tax benefit (expense)...... --
Deferred federal income tax benefit (expense)..... 6,495,630
Deferred state income tax benefit (expense)....... (146,551)
----------------
Total income tax benefit (expense)................ $ 6,342,608
================
Page 18
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
APRIL 30, 2015 (UNAUDITED)
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes. The Fund's 2015 income tax
provision includes a full valuation allowance against the deferred tax assets
associated with the state net operating loss. Components of the Fund's deferred
tax assets and liabilities as of April 30, 2015 are as follows:
Deferred tax assets:
Federal net operating loss........................ $ 17,485,662
State net operating loss.......................... 3,387,543
State income taxes................................ 2,177,785
Capital loss carryforward......................... --
Other .......................................... --
----------------
Total deferred tax assets......................... 23,050,990
Less: valuation allowance......................... (3,387,543)
----------------
Net deferred tax assets........................... $ 19,663,447
================
Deferred tax liabilities:
Unrealized gains on investment securities......... $ (169,535,684)
----------------
Total deferred tax liabilities.................... (169,535,684)
----------------
Total net deferred tax liabilities................ $ (149,872,237)
================
Total income taxes differ from the amount computed by applying the maximum
graduated federal income tax rate of 35% to net investment income and realized
and unrealized gains on investments.
Application of statutory income tax rate.......... $ (4,962,796)
State income taxes, net........................... (866,289)
Change in valuation allowance..................... 965,754
Other............................................. (1,479,277)
----------------
Total............................................. $ (6,342,608)
================
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 2013 and
2014 remain open to federal and state audit. As of April 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. The Internal Revenue Service initiated a corporate
income tax audit for the Fund's 2012 tax year. The audit is still ongoing and no
adjustments have been proposed to date.
G. EXPENSES:
The Fund will pay all expenses directly related to its operations.
H. FOREIGN CURRENCY:
The books and records of the Fund are maintained in U.S. dollars. Foreign
currencies, investments and other assets and liabilities are translated into
U.S. dollars at the exchange rates prevailing at the end of the period.
Purchases and sales of investments and items of income and expense are
translated on the respective dates of such transactions. Unrealized gains and
losses on assets and liabilities, other than investments in securities, which
result from changes in foreign currency exchange rates have been included in
"Net change in unrealized appreciation (depreciation) before taxes on foreign
currency translation" on the Statement of Operations. Unrealized gains and
losses on investments in securities which result from changes in foreign
exchange rates are included with fluctuations arising from changes in market
price and are shown in "Net change in unrealized appreciation (depreciation)
before taxes on investments" on the Statement of Operations. Net realized
foreign currency gains and losses include the effect of changes in exchange
rates between trade date and settlement date on investment security
transactions, foreign currency transactions and interest and dividends received.
The portion of foreign currency gains and losses related to fluctuation in
exchange rates between the initial purchase settlement date and subsequent sale
trade date is included in "Net realized gain (loss) before taxes on investments"
on the Statement of Operations.
I. OFFSETTING ON THE STATEMENT OF ASSETS AND LIABILITIES:
Accounting Standards Update No. 2011-11 "Disclosures about Offsetting Assets and
Liabilities" ("ASU 2011-11") requires entities to disclose both gross and net
information about both instruments and transactions eligible for offset on the
Statement of Assets and Liabilities, and disclose instruments and transactions
subject to master netting or similar agreements. This disclosure requirement is
intended to help investors and other financial statement users better assess the
effect or potential effect of offsetting arrangements on a fund's financial
position. In addition,
Page 19
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
APRIL 30, 2015 (UNAUDITED)
Accounting Standards Update No. 2013-1 "Clarifying the Scope of Offsetting
Assets and Liabilities" ("ASU 2013-1"), specifies exactly which transactions are
subject to offsetting disclosures. The scope of the disclosure requirements is
limited to derivative instruments, repurchase agreements and reverse repurchase
agreements, and securities borrowing and securities lending transactions.
For financial reporting purposes, the Fund does not offset financial assets and
financial liabilities that are subject to master netting arrangements or similar
agreements on the Statement of Assets and Liabilities. The Fund's right to
setoff may be restricted or prohibited by the bankruptcy or insolvency laws of
the particular jusisdiction to which a specific master netting or similar
agreement counterparty is subject.
At April 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 Amounts Liabilities Presented ---------------------------
Gross 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 $ (9,692,886) $ -- $ (9,692,886) $ -- $ 9,692,886 $ --
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Fund, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the ongoing monitoring of the Fund's investment
portfolio, managing the Fund's business affairs and providing certain
administrative services necessary for the management of the Fund. For these
investment management services, First Trust is entitled to a monthly fee
calculated at an annual rate of 1.00% of the Fund's Managed Assets (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.
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.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of investments, excluding short-term
investments, for the six months ended April 30, 2015, were $216,100,384 and
$210,079,011, respectively.
Page 20
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
APRIL 30, 2015 (UNAUDITED)
5. DERIVATIVES TRANSACTIONS
Written option activity for the Fund was as follows:
NUMBER
OF
WRITTEN OPTIONS CONTRACTS PREMIUMS
-----------------------------------------------------------------------------
Options outstanding at October 31, 2014.... $ 88,854 $ 5,322,013
Options Written............................ 181,418 10,237,654
Options Expired............................ (127,212) (7,584,473)
Options Exercised.......................... (39,961) (2,040,175)
Options Closed............................. (13,705) (758,056)
--------- ------------
Options outstanding at April 30, 2015...... 89,394 $ 5,176,963
========= ============
The following table presents the types of derivatives held by the Fund at April
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
INSTRUMENT EXPOSURE LIABILITIES LOCATION VALUE LIABILITIES LOCATION VALUE
--------------- ----------- ------------------------- ----------- ------------------------- -----------
Written Options Equity Risk -- -- Options written, at value $ 5,066,466
Interest Rate Interest
Swap Agreement Rate Risk Swap contracts, at value -- Swap contracts, at value 9,692,886
The following table presents the amount of net realized gain (loss) and change
in net unrealized appreciation (depreciation) recognized for the six months
ended April 30, 2015, on derivative instruments, as well as the primary
underlying risk exposure associated with each instrument.
STATEMENT OF OPERATIONS LOCATION
---------------------------------------------------------------------------------------------------
EQUITY RISK
Net realized gain (loss) before taxes on written options $ 5,362,063
Net change in unrealized appreciation (depreciation) before taxes on written options 3,174,205
INTEREST RATE RISK
---------------------------------------------------------------------------------------------------
Net realized gain (loss) before taxes on swap contracts $(2,102,494)
Net change in unrealized appreciation (depreciation) before taxes on swap contracts (5,702,901)
The average volume of interest rate swaps was $174,250,000 for the six months
ended April 30, 2015.
6. BORROWINGS
The Fund has a committed facility agreement with The Bank of Nova Scotia that
has a maximum commitment amount of $400,000,000. The borrowing rate under the
facility is equal to the 1-month LIBOR plus 65 basis points. In addition, under
the facility, the Fund pays a commitment fee of 0.15% on the undrawn amount of
such facility when the utilization is below 50% of the maximum commitment
amount. The average amount outstanding for the six months ended April 30, 2015
was $343,215,470 with a weighted average interest rate of 0.82%. As of April 30,
2015, the Fund had outstanding borrowings of $338,000,000 under this committed
facility agreement. The high and low annual interest rates for the six months
ended April 30, 2015 were 0.87% and 0.80%, respectively. The interest rate at
April 30, 2015 was 0.83%.
7. 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.
8. INDUSTRY CONCENTRATION RISK
Under normal market conditions, the Fund will invest at least 85% of its Managed
Assets in equity and debt securities of MLPs, MLP-related entities and other
energy sector and energy utilities companies and at least 65% of its Managed
Assets in equity securities issued by energy sector MLPs and energy sector and
energy utilities MLP-related entities. Given this industry concentration, the
Fund is more susceptible to
Page 21
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
APRIL 30, 2015 (UNAUDITED)
adverse economic or regulatory occurrences affecting that industry than an
investment company that is not concentrated in a single industry. Energy issuers
may be subject to a variety of factors that may adversely affect their business
or operations, including high interest costs in connection with capital
construction programs, high leverage costs associated with environmental and
other regulations, the effects of economic slowdown, surplus capacity, increased
competition from other providers of services, uncertainties concerning the
availability of fuel at reasonable prices, the effects of energy conservation
policies and other factors.
9. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events to the Fund through
the date the financial statements were issued, and has determined that there
were the following subsequent events:
On May 20, 2015, the Fund declared a distribution of $0.115 per share to Common
Shareholders of record on June 3, 2015, payable June 15, 2015.
Page 22
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
APRIL 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.
PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q
are available (1) by calling (800) 988-5891; (2) on the Fund's website located
at http://www.ftportfolios.com; (3) on the SEC's website at http://www.sec.gov;
and (4) for review and copying at the SEC's Public Reference Room ("PRR") in
Washington, DC. Information regarding the operation of the PRR may be obtained
by calling (800) SEC-0330.
Page 23
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
APRIL 30, 2015 (UNAUDITED)
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 and First Trust Intermediate Duration Preferred & Income 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 MLP and Energy Income Fund as Class II Trustees for a three-year
term expiring at the Fund's annual meeting of shareholders in 2018. The number
of votes cast in favor of Mr. Erickson was 37,202,858, the number of votes
against Mr. Erickson was 962,178, and the number of broker non-votes was
7,274,418. The number of votes cast in favor of Mr. Kadlec was 37,237,695, the
number of votes against Mr. Kadlec was 927,341, and the number of broker
non-votes was 7,274,418. James A. Bowen, Niel B. Nielson and Robert F. Keith 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: Under normal market conditions, the Fund will
invest at least 85% of its Managed Assets in equity and debt securities of MLPs,
MLP-related entities and other energy sector and energy utilities companies and
at least 65% of its Managed Assets in equity securities issued by energy sector
MLPs and energy sector and energy utilities MLP-related entities. Given this
industry concentration, the Fund is more susceptible to adverse economic or
regulatory occurrences affecting that industry than an investment company that
is not concentrated in a single industry. Energy issuers may be subject to a
variety of factors that may adversely affect their business or operations,
including high interest costs in connection with capital construction programs,
high leverage costs associated with environmental and other regulations, the
effects of economic slowdown, surplus capacity, increased competition from other
providers of services, uncertainties concerning the availability of fuel at
reasonable prices, the effects of energy conservation policies and other
factors.
INVESTMENT AND MARKET RISK: An investment in the Fund's Common Shares is subject
to investment risk, including the possible loss of the entire principal
invested. An investment in Common Shares represents an indirect investment in
the securities owned by the Fund. The value of these securities, like other
market investments, may move up or down, sometimes rapidly and unpredictably.
Common Shares at any point in time may be worth less than the original
investment, even after taking into account the reinvestment of Fund dividends
and distributions. Security prices can fluctuate for several reasons including
the general condition of the securities markets, or when political or economic
events affecting the issuers occur. When the Advisor or Sub-Advisor determines
that it is temporarily unable to follow the Fund's investment strategy or that
it is impractical to do so (such as when a market disruption event has occurred
and trading in the securities is extremely limited or absent), the Fund may take
temporary defensive positions.
MLP RISK: An investment in MLP units involves risks which differ from an
investment in common stock of a corporation. Holders of MLP units have limited
control and voting rights on matters affecting the partnership. In addition,
there are certain tax risks associated with an investment in MLP units and
conflicts of interest exist between common unit holders and the general partner,
including those arising from incentive distribution payments.
LEVERAGE RISK: The use of leverage results in additional risks and can magnify
the effect of any losses. The funds borrowed pursuant to a leverage borrowing
program constitute a substantial lien and burden by reason of their prior claim
against the income of the Fund and against the net assets of the Fund in
liquidation. If the Fund is not in compliance with certain credit facility
provisions, the Fund may not be permitted to declare dividends or other
distributions.
RESTRICTED SECURITIES RISK: The Fund may invest in unregistered or otherwise
restricted securities. The term "restricted securities" refers to securities
that are unregistered or are held by control persons of the issuer and
securities that are subject to contractual restrictions on their resale. As a
result, restricted securities may be more difficult to value and the Fund may
have difficulty disposing of such assets either in a timely manner or for a
reasonable price. In order to dispose of an unregistered security, the Fund,
where it has contractual rights to do so, may have to cause such security to be
registered. A considerable period may elapse between the time the decision is
made to sell the security and the time the security is registered so that the
Fund could sell it. Contractual restrictions on the resale of securities vary in
length and scope and are generally the result of a negotiation between the
issuer and acquirer of the securities. The Fund would, in either case, bear
market risks during that period.
NON-DIVERSIFICATION RISK: The Fund is a non-diversified investment company under
the 1940 Act and will not be treated as a regulated investment company under the
Internal Revenue Code. Accordingly, there are no regulatory requirements under
the 1940 Act or the Internal Revenue Code on the minimum number or size of
securities held by the Fund.
Page 24
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
APRIL 30, 2015 (UNAUDITED)
CURRENCY RISK: The value of securities denominated or quoted in foreign
currencies may be adversely affected by fluctuations in the relative currency
exchange rates and by exchange control regulations. The Fund's investment
performance may be negatively affected by a devaluation of a currency in which
the Fund's investments are denominated or quoted. Further, the Fund's investment
performance may be significantly affected, either positively or negatively, by
currency exchange rates because the U.S. dollar value of securities denominated
or quoted in another currency will increase or decrease in response to changes
in the value of such currency in relation to the U.S. dollar. While certain of
the Fund's non-U.S. dollar-denominated securities may be hedged into U.S.
dollars, hedging may not alleviate all currency risks.
NON-U.S. RISK: The Fund may invest a portion of its assets in the equity
securities of issuers domiciled in jurisdictions other than the U.S. Investments
in the securities and instruments of non-U.S. issuers involve certain
considerations and risks not ordinarily associated with investments in
securities and instruments of U.S. issuers. Non-U.S. companies are not generally
subject to uniform accounting, auditing and financial standards and requirements
comparable to those applicable to U.S. companies. Non-U.S. securities exchanges,
brokers and listed companies may be subject to less government supervision and
regulation than exists in the United States. Dividend and interest income may be
subject to withholding and other non-U.S. taxes, which may adversely affect the
net return on such investments. A related risk is that there may be difficulty
in obtaining or enforcing a court judgment abroad.
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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.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
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.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a) Not applicable.
(b) There has been no change, as of the date of this filing, in any of the
portfolio managers identified in response to paragraph (a)(1) of this Item
in the registrant's most recently filed annual report on Form N-CSR.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the registrant's organizational meeting the registrant's Board of Trustees
adopted a Nominating and Governance Committee Charter which includes procedures
by which shareholders may recommend nominees to the registrant's board of
trustees as described below:
When a vacancy on the Board of Trustees of a First Trust Fund occurs and
nominations are sought to fill such vacancy, the Nominating and Governance
Committee may seek nominations from those sources it deems appropriate in
its discretion, including shareholders of the Fund. A shareholder may
recommend a person for nomination as a candidate at any time. If a
recommendation is received with satisfactorily completed information (as
set forth below) regarding a candidate during a time when a vacancy exists
on the Board or during such other time as the Committee is accepting
recommendations, the recommendation will be forwarded to the Chair of the
Committee and the outside counsel to the independent trustees.
Recommendations received at any other time will be kept on file until such
time as the Committee is accepting recommendations, at which point they
may be considered for nomination.
To submit a recommendation for nomination as a candidate for a position on
the Board of Trustees, shareholders of the Fund shall mail such
recommendation to W. Scott Jardine, Secretary, at the Fund's address, 120
East Liberty Drive, Suite 400, Wheaton, Illinois 60187. Such
recommendation shall include the following information: (i) a statement in
writing setting forth (A) the name, age, date of birth, business address,
residence address and nationality of the person or persons to be
nominated; (B) the class or series and number of all shares of the
Registrant owned of record or beneficially by each such person or persons,
as reported to such shareholder by such nominee(s); (C) any other
information regarding each such person required by paragraphs (a), (d),
(e) and (f) of Item 401 of Regulation S-K or paragraph (b) of Item 22 of
Rule 14a-101 (Schedule 14A) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (or any successor provision thereto); (D) any
other information regarding the person or persons to be nominated that
would be required to be disclosed in a proxy statement or other filings
required to be made in connection with solicitation of proxies for
election of trustees or directors pursuant to Section 14 of the Exchange
Act and the rules and regulations promulgated thereunder; and (E) whether
such shareholder believes any nominee is or will be an "interested person"
of the Registrant (as defined in the Investment Company Act of 1940) and,
if not an "interested person," information regarding each nominee that
will be sufficient for the Registrant to make such determination; and (ii)
the written and signed consent of any person to be nominated to be named
as a nominee and to serve as a trustee if elected. In addition, the
trustees may require any proposed nominee to furnish such other
information as they may reasonably require or deem necessary to determine
the eligibility of such proposed nominee to serve as a trustee. The
Committee will not consider new trustee candidates who are 72 years of age
or older.
A copy of the Nominating and Governance Committee Charter is available on the
Registrant's website at www.ftportfolios.com.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The Registrant's principal executive and principal financial
officers, or persons performing similar functions, have concluded
that the Registrant's disclosure controls and procedures (as defined
in Rule 30a-3(c) under the Investment Company Act of 1940, as
amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of
a date within 90 days of the filing date of the report that includes
the disclosure required by this paragraph, based on their evaluation
of these controls and procedures required by Rule 30a-3(b) under the
1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b)
under the Securities Exchange Act of 1934, as amended (17 CFR
240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the Registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the Registrant's second
fiscal quarter of the period covered by this report that has
materially affected, or is reasonably likely to materially affect,
the Registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(1) (a) Not applicable.
(2) (a) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(3) (a) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and
Section 906 of the Sarbanes- Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) First Trust MLP and Energy Income Fund
--------------------------------------------------
By (Signature and Title)* /s/ Mark R. Bradley
----------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)
Date: June 22, 2015
---------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Mark R. Bradley
----------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)
Date: June 22, 2015
---------------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: June 22, 2015
---------------------
* Print the name and title of each signing officer under his or her signature.