UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-22738
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First Trust MLP and Energy Income Fund
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(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Name and address of agent for service)
registrant's telephone number, including area code: 630-765-8000
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Date of fiscal year end: October 31
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Date of reporting period: April 30, 2013
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 100 F Street, NE,
Washington, DC 20549. The OMB has reviewed this collection of information under
the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The Report to Shareholders is attached herewith.
FIRST TRUST
MLP AND
ENERGY
INCOME
FUND
SEMI-ANNUAL REPORT
FOR THE PERIOD
NOVEMBER 27, 2012
(Commencement of Operations)
THROUGH APRIL 30, 2013
FIRST TRUST
ENERGY INCOME PARTNERS, LLC
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TABLE OF CONTENTS
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FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
SEMI-ANNUAL REPORT
APRIL 30, 2013
Shareholder Letter.............................................................1
At A Glance....................................................................2
Portfolio Commentary...........................................................3
Portfolio of Investments.......................................................5
Statement of Assets and Liabilities...........................................10
Statement of Operations.......................................................11
Statement of Changes in Net Assets............................................12
Statement of Cash Flows.......................................................13
Financial Highlights..........................................................14
Notes to Financial Statements.................................................15
Additional Information........................................................21
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 Notes to
Financial Statements for a discussion of certain other risks of investing in the
Fund.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
http://www.ftportfolios.com or speak with your financial advisor. Investment
returns, net asset value and common share price will fluctuate and Fund shares,
when sold, may be worth more or less than their original cost.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment. It
includes details about the Fund and presents data and analysis that provide
insight into the Fund's performance and investment approach.
By reading the portfolio commentary by the portfolio management team of the
Fund, you may obtain an understanding of how the market environment affected the
Fund's performance. The statistical information that follows may help you
understand the Fund's performance compared to that of relevant market
benchmarks.
It is important to keep in mind that the opinions expressed by personnel of EIP
are just that: informed opinions. They should not be considered to be promises
or advice. The opinions, like the statistics, cover the period through the date
on the cover of this report. The risks of investing in the Fund are spelled out
in the prospectus, the statement of additional information, this report and
other Fund regulatory filings.
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SHAREHOLDER LETTER
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FIRST TRUST MLP AND ENERGY INCOME FUND (FEI)
SEMI-ANNUAL LETTER FROM THE CHAIRMAN AND CEO
APRIL 30, 2013
Dear Shareholders:
I am pleased to present you with the semi-annual report for your investment in
First Trust MLP and Energy Income Fund (the "Fund").
The report you hold contains detailed information about your investment; a
portfolio commentary from the Fund's management team that provides a recap of
the period; a performance analysis and a market and Fund outlook. Additionally,
you will find the Fund's financial statements for the period this report covers.
I encourage you to read this document and discuss it with your financial
advisor. A successful investor is also typically a knowledgeable one, as we have
found to be the case at First Trust Advisors L.P. ("First Trust").
The last six months have been more positive for the U.S. markets. In fact, the
S&P 500 Index, as measured on a total return basis, rose 16% during the year
ended December 31, 2012, and many economists and investors have felt positive
about the current market environment. Of course, past performance can never be
an indicator of future performance. First Trust believes that staying invested
in quality products through up and down markets and having a long-term horizon
can help investors reach their financial goals.
As you know, First Trust offers a variety of products that we believe could fit
many financial plans to help investors seeking long-term investment success. We
encourage you to talk to your advisor about the other investments First Trust
offers that might also fit your financial goals and to discuss those goals with
your advisor regularly so that he or she can help keep you on track.
First Trust will continue to make available up-to-date information about your
investments so you and your financial advisor are current on any First Trust
investments you own. We value our relationship with you, and thank you for the
opportunity to assist you in achieving your financial goals. I look forward to
the remainder of 2013 and to the next edition of your Fund's report.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees of First Trust MLP and Energy Income Fund and
Chief Executive Officer of First Trust Advisors L.P.
Page 1
FIRST TRUST MLP AND ENERGY INCOME FUND
"AT A GLANCE"
AS OF APRIL 30, 2013 (UNAUDITED)
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FUND STATISTICS
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Symbol on New York Stock Exchange FEI
Common Share Price $21.27
Common Share Net Asset Value ("NAV") $21.20
Premium (Discount) to NAV 0.33%
Net Assets Applicable to Common Shares $962,995,514
Current Monthly Distribution per Common Share (1) $0.1083
Current Annualized Distribution per Common Share $1.2996
Current Distribution Rate on Closing Common Share Price (2) 6.11%
Current Distribution Rate on NAV (2) 6.13%
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COMMON SHARE PRICE & NAV (WEEKLY CLOSING PRICE)
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Common Share Price NAV
11/12 $19.98 $19.07
20.00 19.03
20.00 18.94
20.13 19.14
12/12 20.35 18.91
20.06 19.60
20.55 19.81
20.31 19.95
1/13 20.48 20.06
21.05 20.18
20.77 20.15
20.80 20.21
2/13 20.55 20.18
20.88 20.18
20.45 20.41
20.65 20.35
20.79 20.74
3/13 20.91 21.05
20.82 20.64
20.80 20.89
20.82 20.90
21.46 20.96
4/13 21.27 21.20
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PERFORMANCE
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Cumulative Total Return
------------------------
Inception
(11/27/2012)
to 4/30/2013
Fund Performance (3)
NAV 12.77%
Market Value 8.04%
Index Performance
S&P 500 Index 15.22%
Alerian MLP Total Return Index 18.29%
Wells Fargo Midstream MLP Total Return Index 20.41%
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% OF TOTAL
INDUSTRY CLASSIFICATION INVESTMENTS
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Pipelines 70.5%
Electric Power 9.6
Propane 7.2
Coal 4.6
Marine 3.0
Natural Gas Utility 0.5
Other 4.6
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Total 100.0%
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% OF TOTAL
TOP 10 HOLDINGS INVESTMENTS
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Enterprise Products Partners, L.P. 9.6%
Enbridge Energy Partners, L.P. 7.0
Kinder Morgan Management, LLC 6.1
Magellan Midstream Partners, L.P. 4.0
Alliance Resource Partners, L.P. 3.3
Williams (The) Cos., Inc. 3.0
Teekay LNG Partners, L.P. 3.0
AmeriGas Partners, L.P. 2.9
ONEOK Partners, L.P. 2.8
Plains All American Pipeline, L.P. 2.8
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Total 44.5%
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(1) Most recent distribution paid or declared through 4/30/2013. Subject to
change in the future.
(2) Distribution rates are calculated by annualizing the most recent
distribution paid or declared through the report date and then dividing by
Common Share price or NAV, as applicable, as of 4/30/2013. Subject to
change in the future.
(3) Total return is based on the combination of reinvested dividend, capital
gain and return of capital distributions, if any, at prices obtained by
the Dividend Reinvestment Plan and changes in NAV per share for NAV
returns and changes in Common Share price for market value returns. Total
returns do not reflect sales load and are not annualized for periods less
than one year. Past performance is not indicative of future results.
Page 2
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PORTFOLIO COMMENTARY
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FIRST TRUST MLP AND ENERGY INCOME FUND
SEMI-ANNUAL REPORT
APRIL 30, 2013
SUB-ADVISOR
ENERGY INCOME PARTNERS, LLC
Energy Income Partners, LLC ("EIP"), Westport, CT, was founded in 2003 to
provide professional asset management services in the area of energy-related
master limited partnerships ("MLPs") and other high-payout securities such as
pipeline companies, power utilities and Canadian income equities. EIP mainly
focuses on investments in energy-related infrastructure assets such as
pipelines, power transmission, petroleum storage and terminals that receive
fee-based or regulated income from their corporate customers. EIP manages or
supervises approximately $3.9 billion of assets as of April 30, 2013. Private
funds advised by EIP include a partnership for U.S. high net worth individuals
and a master-and-feeder fund for institutions. EIP also manages separately
managed accounts and provides its model portfolio to unified managed accounts.
EIP is a registered investment advisor and serves as a sub-advisor to two
closed-end management investment companies other than the First Trust MLP and
Energy Income Fund ('FEI" or the "Fund") and an actively managed exchange-traded
fund (ETF).
PORTFOLIO MANAGEMENT TEAM
JAMES J. MURCHIE EVA PAO
PORTFOLIO MANAGER CO-PORTFOLIO MANAGER
FOUNDER AND CEO OF PRINCIPAL OF
ENERGY INCOME PARTNERS, LLC ENERGY INCOME PARTNERS, LLC
COMMENTARY
FIRST TRUST MLP AND ENERGY INCOME FUND
The Fund was seeded on October 11, 2012 and commenced operations on November 27,
2012. Its investment objective is to seek a high level of total return with an
emphasis on current distributions paid to common shareholders. The Fund pursues
its objective by investing in cash generating securities, with a focus on
investing in MLPs and MLP-related entities in the energy sector and energy
utilities industries. There can be no assurance that the Fund's investment
objective will be achieved. The Fund may not be appropriate for all investors.
MARKET RECAP
As measured by the Alerian MLP Total Return Index ("AMZX") and the Wells Fargo
Midstream MLP Total Return Index ("WCHWMIDT"), the total return for
energy-related MLPs over the period from November 27, 2012 to April 30, 2013 was
18.29% and 20.41%, respectively. For AMZX, these returns reflect a positive 6.4%
on an annualized basis from income distribution, and the remaining returns are
due to share price appreciation. For WCHWMIDT, these returns reflect a positive
6.1% on an annualized basis from income distribution, while the remaining
returns are due to share price appreciation. These figures are according to data
collected from several sources, including AMZX, WCHWMIDT and Bloomberg. While in
the short term market share price appreciation can be volatile, we believe that
over the longer term, such share price appreciation will approximate growth in
per share quarterly cash distributions paid by MLPs. Over the last 10 years,
growth in per share MLP distributions has averaged about 6.7%. Over the last 12
months, the cash distributions of MLPs increased by about 7.6% (Source: Alerian
Capital Management).
PERFORMANCE ANALYSIS
On a net asset value ("NAV") basis, the Fund provided a total return(1) of
12.77%, including the reinvestment of dividends, for the period ended April 30,
2013. This compares, according to collected data, to a total return of 15.22%
for the S&P 500 Index, 18.29% for AMZX and 20.41% for WCHWMIDT. On a market
value basis, the Fund had a total return,(1) including the reinvestment of
dividends, for the period ended April 30, 2013, of 8.04%. At the end of the
period, the Fund was priced at $21.27, while the NAV was $21.20, a premium of
0.33%.
The Fund declared its first three monthly common share distributions of $0.1083
each on January 10, 2013.
The underperformance of the Fund's NAV relative to the 19.35% average of the two
MLP benchmarks was driven largely by an accrual for income taxes taken against
Fund NAV which was not offset by the Fund's use of financial leverage since the
Fund did not fully deploy its leverage until early in 2013. Income was enhanced
by the use of writing covered calls on select portfolio positions.
--------
1 Total return is based on the combination of reinvested dividend, capital gain
and return of capital distributions, if any, at prices obtained by the Dividend
Reinvestment Plan and 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
SEMI-ANNUAL REPORT
APRIL 30, 2013
In the future, however, an important factor affecting the return of the Fund
will be its use of financial leverage through the use of a line of credit. The
Fund established a committed facility agreement with the Bank of Nova Scotia
with a maximum commitment amount of $350,000,000. The Fund uses leverage because
its managers believe that, over time, leverage can enhance total return for
common shareholders. However, the use of leverage can also increase the
volatility of the NAV and therefore the share price. For example, as the prices
of securities held by the Fund decline, the effect of changes in common share
NAV and common shareholder total return is magnified by the use of leverage, and
conversely, leverage may enhance common share returns during periods when the
prices of securities held by the Fund generally are rising. Unlike the Fund,
AMZX and WCHWMIDT are not leveraged. Once implemented, leverage had a positive
impact on the performance of the Fund over this reporting period.
MARKET AND FUND OUTLOOK
MLPs continue to play an integral role in the restructuring of more diversified
energy conglomerates. This restructuring includes the creation by these more
diversified conglomerates of MLP subsidiaries that contain assets such as
pipelines and storage terminals. It also includes the divestiture by some of
these parent companies of most or all of their cyclical businesses, leaving the
parent company looking very similar to an old-fashioned pipeline utility with a
large holding in a subsidiary MLP. In our view, these diversified energy
conglomerates are restructuring so their regulated infrastructure assets with
predictable cash flows may be better valued by the market, resulting in a better
financing tool to raise capital for the new energy infrastructure projects
related to the rapid growth of North American oil and gas production.
The MLP asset class has experienced 5 IPOs in 2013, as of April 30, 2013. There
also has been a healthy level of secondary financing activity for MLPs as they
continue to fund their ongoing investments in new pipelines, processing and
storage facilities. In 2013, there have been 26 secondary equity offerings for
MLPs that raised $7.4 billion through April 30, 2013. This compares to $23.2
billion raised in all of 2012. MLPs also found access to the public debt
markets, raising $7.1 billion in 7 offerings in 2013 through April 30, 2013.
This compares to $18.2 billion in calendar year 2012 (Source: Barclays).
The Fund aims to be invested in MLPs and other energy infrastructure companies
with mostly non-cyclical cash flows, investment-grade ratings, conservative
balance sheets, modest and/or flexible organic growth commitments and liquidity
on their revolving lines of credit. Cyclical cash flows will always be
unpredictable, making them a bad fit with a steady dividend obligation that is
meant to be most or all of the company's free cash flow.
The total return proposition of owning energy-related infrastructure MLPs, MLP
affiliates and energy infrastructure companies with high payout ratios has been
and continues to be their yield plus their growth in dividends. The yield of the
MLPs, weighted by market capitalization, on April 30, 2013, was 5.69% based on
AMZX. The growth in the quarterly cash distributions that make up this yield has
averaged between 6% and 7% annually over the last ten years. For true
infrastructure MLPs, we expect dividend growth rates to continue to be driven by
three factors: 1) modest increases in volume from growth from both underlying
petroleum demand and increases in North American oil and gas production, 2)
inflation and cost escalators in pipeline tariffs and contracts and 3) accretion
from profitable capital projects and acquisitions.
Page 4
FIRST TRUST MLP AND ENERGY INCOME FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 2013 (UNAUDITED)
SHARES/
UNITS DESCRIPTION VALUE
------------ ----------------------------------------------------------------------------- --------------
MASTER LIMITED PARTNERSHIPS - 86.1%
GAS UTILITIES - 7.7%
851,374 AmeriGas Partners, L.P. (a) ................................................. $ 38,592,783
715,902 Suburban Propane Partners, L.P. (a) ......................................... 35,616,125
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74,208,908
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OIL, GAS & CONSUMABLE FUELS - 78.4%
166,000 Access Midstream Partners, L.P. (a) ......................................... 6,850,820
207,534 Alliance Holdings GP, L.P. (a) .............................................. 12,900,313
589,630 Alliance Resource Partners, L.P. (a) ........................................ 43,886,161
792,000 El Paso Pipeline Partners, L.P. (a) ......................................... 33,929,280
3,089,170 Enbridge Energy Partners, L.P. (a) .......................................... 92,057,266
480,000 Energy Transfer Equity, L.P. (a) ............................................ 28,166,400
532,030 Energy Transfer Partners, L.P. (a) .......................................... 26,489,774
2,088,037 Enterprise Products Partners, L.P. (a) ...................................... 126,639,444
170,000 EQT Midstream Partners, L.P. (a) ............................................ 7,871,000
461,405 Holly Energy Partners, L.P. (a) ............................................. 18,133,216
983,000 Magellan Midstream Partners, L.P. (a) ....................................... 52,128,490
300,000 MPLX, L.P. (a) .............................................................. 11,481,000
171,337 Natural Resource Partners, L.P. (a) ......................................... 4,091,528
435,772 NGL Energy Partners, L.P. (a) ............................................... 12,798,624
605,000 NuStar Energy, L.P. (a) ..................................................... 30,298,400
386,124 NuStar GP Holdings, LLC (a) ................................................. 11,757,476
125,726 Oiltanking Partners, L.P. (a) ............................................... 6,317,731
684,000 ONEOK Partners, L.P. (a) .................................................... 37,004,400
634,500 Plains All American Pipeline, L.P. (a) ...................................... 36,432,990
924,811 Spectra Energy Partners, L.P. (a) ........................................... 35,087,329
128,000 Sunoco Logistics Partners, L.P. (a) ......................................... 7,950,080
642,500 TC Pipelines, L.P. (a) ...................................................... 30,197,500
946,624 Teekay LNG Partners, L.P. (a) ............................................... 39,464,755
289,500 TransMontaigne Partners, L.P. (a) ........................................... 13,867,050
525,019 Williams Partners, L.P. (a) ................................................. 28,692,288
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754,493,315
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TOTAL MASTER LIMITED PARTNERSHIPS ........................................... 828,702,223
(Cost $707,054,511) -------------
COMMON STOCKS - 50.7%
ELECTRIC UTILITIES - 8.2%
163,000 Emera, Inc. (CAD) (a) ....................................................... 5,970,222
575,300 Exelon Corp.................................................................. 21,579,503
197,200 ITC Holdings Corp. (a) ...................................................... 18,185,784
175,000 Northeast Utilities ......................................................... 7,932,750
519,000 Southern (The) Co............................................................ 25,031,370
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78,699,629
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GAS UTILITIES - 4.2%
79,033 Atmos Energy Corp. (a) ...................................................... 3,506,694
71,907 Laclede Group, Inc........................................................... 3,358,776
509,800 Questar Corp................................................................. 12,943,822
See Notes to Financial Statements Page 5
FIRST TRUST MLP AND ENERGY INCOME FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
APRIL 30, 2013 (UNAUDITED)
SHARES DESCRIPTION VALUE
------------ ----------------------------------------------------------------------------- --------------
COMMON STOCKS - (CONTINUED)
GAS UTILITIES - (CONTINUED)
512,983 UGI Corp..................................................................... $ 21,022,043
-------------
40,831,335
-------------
MULTI-UTILITIES - 10.8%
71,000 ATCO, Ltd., Class I (CAD) (a) ............................................... 6,800,129
583,000 Centerpoint Energy, Inc...................................................... 14,388,440
443,000 Dominion Resources, Inc...................................................... 27,324,240
493,000 National Grid PLC, ADR ...................................................... 31,443,540
325,000 NiSource, Inc................................................................ 9,987,250
300,400 Wisconsin Energy Corp........................................................ 13,499,976
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103,443,575
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OIL, GAS & CONSUMABLE FUELS - 27.4%
759,500 Enbridge Income Fund Holdings, Inc. (CAD) (a) ............................... 18,696,312
745,000 Enbridge, Inc................................................................ 35,462,000
117,000 Keyera Corp. (CAD) (a) ...................................................... 7,308,363
911,778 Kinder Morgan Management, LLC (a) (b) ....................................... 80,482,640
414,000 Kinder Morgan, Inc........................................................... 16,187,400
198,000 Pembina Pipeline Corp. (CAD) (a) ............................................ 6,499,439
853,000 Spectra Energy Corp.......................................................... 26,895,090
661,000 TransCanada Corp............................................................. 32,726,110
1,043,800 Williams (The) Cos., Inc..................................................... 39,800,094
-------------
264,057,448
-------------
REAL ESTATE INVESTMENT TRUSTS - 0.1%
165,867 CorEnergy Infrastructure Trust .............................................. 1,268,883
-------------
TOTAL COMMON STOCKS ......................................................... 488,300,870
(Cost $429,917,348) -------------
TOTAL INVESTMENTS - 136.8% .................................................. 1,317,003,093
(Cost $1,136,971,859) (c) -------------
NUMBER OF
CONTRACTS DESCRIPTION VALUE
------------ ----------------------------------------------------------------------------- --------------
CALL OPTIONS WRITTEN - (2.0%)
Centerpoint Energy, Inc. Calls
2,000 @ $22.50 due May 2013 ....................................................... (420,000)
1,230 @ 25.00 due August 2013 .................................................... (98,400)
2,600 @ 22.50 due January 2014 ................................................... (689,000)
-------------
(1,207,400)
-------------
Dominion Resources, Inc. Calls
430 @ 62.50 due June 2013 ...................................................... (24,940)
4,000 @ 55.00 due July 2013 ...................................................... (2,680,000)
-------------
(2,704,940)
-------------
Enbridge, Inc. Calls
4,000 @ 45.00 due July 2013 ...................................................... (1,150,000)
2,450 @ 50.00 due October 2013 ................................................... (196,000)
-------------
(1,346,000)
-------------
Page 6 See Notes to Financial Statements
FIRST TRUST MLP AND ENERGY INCOME FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
APRIL 30, 2013 (UNAUDITED)
NUMBER OF
CONTRACTS DESCRIPTION VALUE
------------ ----------------------------------------------------------------------------- --------------
CALL OPTIONS WRITTEN - (CONTINUED)
Enterprise Products Partners, L.P. Calls
20 @ $57.50 due June 2013 ...................................................... $ (7,000)
2,500 @ 60.00 due June 2013 ...................................................... (437,500)
2,500 @ 62.50 due June 2013 ...................................................... (137,500)
-------------
(582,000)
-------------
Exelon Corp. Calls
2,000 @ 35.00 due May 2013 ....................................................... (480,000)
1,953 @ 39.00 due July 2013 ...................................................... (58,590)
1,800 @ 40.00 due October 2013 ................................................... (81,000)
-------------
(619,590)
-------------
Kinder Morgan, Inc. Calls
2,740 @ 40.00 due June 2013 ...................................................... (169,880)
1,400 @ 40.00 due September 2013 ................................................. (161,000)
-------------
(330,880)
-------------
National Grid PLC, ADR Call
4,930 @ 60.00 due September 2013 ................................................. (2,119,900)
-------------
NiSource, Inc. Calls
572 @ 32.00 due June 2013 ...................................................... (8,580)
2,496 @ 32.00 due October 2013 ................................................... (137,280)
-------------
(145,860)
-------------
Northeast Utilities Call
1,008 @ 45.00 due July 2013 ...................................................... (90,720)
-------------
Plains All American Pipeline, L.P. Call
105 @ 55.00 due May 2013 ....................................................... (25,200)
-------------
Questar Corp. Calls
2,000 @ 21.00 due July 2013 ...................................................... (850,000)
1,496 @ 22.00 due July 2013 ...................................................... (508,640)
1,198 @ 27.00 due October 2013 ................................................... (57,504)
-------------
(1,416,144)
-------------
Southern (The) Co. Calls
3,940 @ 46.00 due May 2013 ....................................................... (854,980)
1,250 @ 47.00 due August 2013 .................................................... (178,750)
-------------
(1,033,730)
-------------
Spectra Energy Corp. Calls
5,770 @ 29.00 due June 2013 ...................................................... (1,471,350)
1,760 @ 30.00 due June 2013 ...................................................... (272,800)
1,000 @ 31.00 due June 2013 ...................................................... (80,000)
-------------
(1,824,150)
-------------
TransCanada Corp. Calls
4,113 @ 50.00 due May 2013 ....................................................... (174,802)
1,100 @ 50.00 due August 2013 .................................................... (137,500)
1,397 @ 55.00 due August 2013 .................................................... (41,910)
-------------
(354,212)
-------------
UGI Corp. Calls
740 @ 35.00 due July 2013 ...................................................... (444,000)
1,515 @ 40.00 due July 2013 ...................................................... (249,975)
1,644 @ 45.00 due October 2013 ................................................... (49,320)
-------------
(743,295)
-------------
See Notes to Financial Statements Page 7
FIRST TRUST MLP AND ENERGY INCOME FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
APRIL 30, 2013 (UNAUDITED)
NUMBER OF
CONTRACTS DESCRIPTION VALUE
------------ ----------------------------------------------------------------------------- --------------
CALL OPTIONS WRITTEN - (CONTINUED)
Williams (The) Cos., Inc. Calls
6,518 @ $34.00 due May 2013 ....................................................... $ (2,704,970)
2,302 @ 36.00 due May 2013 ....................................................... (531,762)
600 @ 37.00 due May 2013 ....................................................... (90,000)
700 @ 37.00 due June 2013 ...................................................... (130,550)
318 @ 38.00 due June 2013 ...................................................... (41,181)
-------------
(3,498,463)
-------------
Wisconsin Energy Corp. Call
3,000 @ 40.00 due July 2013 ...................................................... (1,432,500)
-------------
TOTAL CALL OPTIONS WRITTEN .................................................. (19,474,984)
(Premiums received $4,017,130) -------------
OUTSTANDING LOAN - (31.7%) .................................................. (305,000,000)
NET OTHER ASSETS AND LIABILITIES - (3.1%) ................................... (29,532,595)
-------------
NET ASSETS - 100.0% ......................................................... $ 962,995,514
=============
--------------------------------------------------
(a) All or a portion of this security serves as collateral on the outstanding
loan.
(b) Non-income producing security which pays in-kind distributions.
(c) Aggregate cost for federal income tax purposes is $1,136,874,123. As of
April 30, 2013, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$180,152,277 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$23,307.
ADR American Depositary Receipt
CAD Canadian Dollar - Security is denominated in Canadian Dollars and is
translated into U.S. Dollars based upon the current exchange rate.
UNREALIZED
LONG TOTAL RETURN NOTIONAL APPRECIATION/
EQUITY SWAP COUNTERPARTY PAY RATE AMOUNT EXPIRATION DATE (DEPRECIATION)
------------------ -------------- ------------------ ------------- ----------------- -----------------
Credit Suisse 1 month LIBOR +
Inter Pipeline Fund International 40 basis points$ $ 12,288,409 02/24/14 $ 436,013
Page 8 See Notes to Financial Statements
FIRST TRUST MLP AND ENERGY INCOME FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
APRIL 30, 2013 (UNAUDITED)
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of April 30,
2013 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
ASSETS TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
4/30/2013 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
Master Limited Partnerships*................... $ 828,702,223 $ 828,702,223 $ -- $ --
Common Stocks*................................. 488,300,870 488,300,870 -- --
--------------- --------------- --------------- ---------------
Total Investments.............................. 1,317,003,093 1,317,003,093 -- --
Total Return Equity Swap....................... 436,013 -- 436,013 --
--------------- --------------- --------------- ---------------
TOTAL.......................................... $ 1,317,439,106 $ 1,317,003,093 $ 436,013 $ --
=============== =============== =============== ===============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
4/30/2013 PRICES INPUTS INPUTS
--------------- --------------- --------------- ---------------
Call Options Written........................... $ (19,474,984) $ (19,474,984) $ -- $ --
=============== =============== =============== ===============
*See Portfolio of Investments for industry breakout.
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, 2013.
See Notes to Financial Statements Page 9
FIRST TRUST MLP AND ENERGY INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2013 (UNAUDITED)
ASSETS:
Investments, at value
(Cost $1,136,971,859)...................................................................... $1,317,003,093
Cash ......................................................................................... 64,906,297
Cash segregated as collateral for open swaps ................................................. 3,400,000
Swap contracts ............................................................................... 436,013
Receivables:
Investment securities sold................................................................. 10,758,202
Dividends.................................................................................. 3,393,552
Interest................................................................................... 743
Prepaid expenses ............................................................................. 28,430
--------------
Total Assets............................................................................. 1,399,926,330
--------------
LIABILITIES:
Outstanding loan ............................................................................. 305,000,000
Deferred income taxes ........................................................................ 58,476,754
Options written, at value (Premiums received $4,017,130) ..................................... 19,474,984
Payables:
Investment securities purchased............................................................ 50,452,029
Income taxes............................................................................... 1,787,242
Investment advisory fees................................................................... 1,020,322
Interest and fees on loan.................................................................. 215,745
Offering costs............................................................................. 180,680
Custodian fees............................................................................. 83,075
Administrative fees........................................................................ 81,097
Printing fees.............................................................................. 73,580
Audit and tax fees......................................................................... 54,144
Legal fees................................................................................. 17,405
Transfer agent fees........................................................................ 4,989
Financial reporting fees................................................................... 841
Trustees' fees and expenses................................................................ 254
Other liabilities ............................................................................ 7,675
--------------
Total Liabilities........................................................................ 436,930,816
--------------
NET ASSETS ................................................................................... $ 962,995,514
==============
NET ASSETS CONSIST OF:
Paid-in capital .............................................................................. $ 855,737,576
Par value .................................................................................... 454,286
Accumulated net investment income (loss), net of income taxes ................................ (1,531,165)
Accumulated net realized gain (loss) on investments, written options, swaps and
foreign currency transactions, net of income taxes .......................................... 1,193,730
Net unrealized appreciation (depreciation) on investments, written options,
swaps and foreign currency translation, net of income taxes ................................. 107,141,087
--------------
NET ASSETS ................................................................................... $ 962,995,514
==============
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share) ......................... $ 21.20
==============
Number of Common Shares outstanding (unlimited number of Common Shares has been authorized)... 45,428,646
==============
Page 10 See Notes to Financial Statements
FIRST TRUST MLP AND ENERGY INCOME FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED APRIL 30, 2013 (UNAUDITED) (a)
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $215,940)......................................... $ 3,573,487
Interest....................................................................................... 3,968
--------------
Total investment income..................................................................... 3,577,455
--------------
EXPENSES:
Investment advisory fees....................................................................... 4,428,531
Interest and fees on loan...................................................................... 683,044
Administrative fees............................................................................ 347,907
Custodian fees................................................................................. 83,075
Printing fees.................................................................................. 74,771
Audit and tax fees............................................................................. 54,143
Legal fees..................................................................................... 53,021
Trustees' fees and expenses.................................................................... 25,545
Transfer agent fees............................................................................ 12,490
Financial reporting fees....................................................................... 4,205
Other.......................................................................................... 28,895
--------------
Total expenses.............................................................................. 5,795,627
--------------
NET INVESTMENT INCOME (LOSS) BEFORE TAXES...................................................... (2,218,172)
--------------
Current state income tax benefit (expense).................................................. (220,630)
Current federal income tax benefit (expense)................................................ (1,566,612)
Current foreign income tax benefit (expense)................................................ --
Deferred federal income tax benefit (expense)............................................... 3,557,541
Deferred state income tax benefit (expense)................................................. (1,083,292)
--------------
Total income tax benefit (expense).......................................................... 687,007
--------------
NET INVESTMENT INCOME (LOSS)................................................................... (1,531,165)
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) before taxes on:
Investments................................................................................. 7,942,978
Written option transactions (b)............................................................. 547,241
Swap contracts.............................................................................. 217,970
Foreign currency transactions............................................................... 60,611
--------------
Net realized gain (loss) before taxes.......................................................... 8,768,800
--------------
Deferred federal income tax benefit (expense)............................................... (3,080,177)
--------------
Total income tax benefit (expense).......................................................... (3,080,177)
--------------
Net realized gain (loss) on investments, written options, swaps and foreign
currency transactions 5,688,623
--------------
Net change in unrealized appreciation (depreciation) before taxes on:
Investments................................................................................. 180,031,234
Written options held (b).................................................................... (15,457,854)
Swap contracts.............................................................................. 436,013
Foreign currency translation................................................................ 2,521
--------------
Net change in unrealized appreciation (depreciation) before taxes.............................. 165,011,914
--------------
Deferred federal income tax benefits (expense).............................................. (57,870,827)
--------------
Total income tax benefit (expense).......................................................... (57,870,827)
--------------
Net change in unrealized appreciation (depreciation) on investments, written options,
swaps and foreign currency translation....................................................... 107,141,087
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)........................................................ 112,829,710
--------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................ $ 111,298,545
==============
(a) The Fund was seeded on October 11, 2012 and commenced operations on
November 27, 2012.
(b) Primary risk exposure is equity option contracts.
See Notes to Financial Statements Page 11
FIRST TRUST MLP AND ENERGY INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
PERIOD
ENDED
4/30/2013
(UNAUDITED) (a)
----------------
OPERATIONS:
Net investment income (loss)....................................................... $ (1,531,165)
Net realized gain (loss)........................................................... 5,688,623
Net change in unrealized appreciation (depreciation)............................... 107,141,087
-------------
Net increase (decrease) in net assets resulting from operations.................... 111,298,545
-------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.............................................................. --
Net realized gain.................................................................. (4,494,893)
Return of capital.................................................................. (10,262,963)
-------------
Total distributions to shareholders................................................ (14,757,856)
-------------
CAPITAL TRANSACTIONS:
Proceeds from Common Shares sold (b)............................................... 867,489,568
Proceeds from Common Shares reinvested............................................. 210,257
Offering costs..................................................................... (1,245,000)
-------------
Net increase (decrease) in net assets resulting from capital transactions.......... 866,454,825
-------------
Total increase (decrease) in net assets............................................ 962,995,514
NET ASSETS:
Beginning of period................................................................ --
-------------
End of period...................................................................... $ 962,995,514
=============
Accumulated net investment income (loss), net of income taxes...................... $ (1,531,165)
=============
CAPITAL TRANSACTIONS WERE AS FOLLOWS:
Common Shares at beginning of period............................................... --
Common Shares sold (b)............................................................. 45,418,302
Common Shares issued as reinvestment under the Dividend Reinvestment Plan.......... 10,344
-------------
Common Shares at end of period..................................................... 45,428,646
=============
--------------------------------------------------------------------
(a) The Fund was seeded on October 11, 2012 and commenced operations on
November 27, 2012.
(b) Includes 3,913,066 shares sold from the over allotment option of the
initial public offering. The shares were sold on January 11, 2013, the
trade date, at the initial offering price of $19.10, which differed from
the closing common share price of $20.34 and the closing NAV per share of
$19.74 on that date.
Page 12 See Notes to Financial Statements
FIRST TRUST MLP AND ENERGY INCOME FUND
STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED APRIL 30, 2013 (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) in net assets resulting from operations...... $ 111,298,545
Adjustments to reconcile net increase (decrease) in net assets resulting
from operations to net cash used in operating activities:
Purchases of investments........................................... (1,229,559,780)
Sales of investments............................................... 125,250,600
Proceeds from written options...................................... 6,120,933
Return of capital received from investment in MLPs................. 13,417,564
Net realized gain/loss on investments and options.................. (8,490,219)
Net change in unrealized appreciation/depreciation on
investments and options.......................................... (164,573,380)
Net change in unrealized appreciation/depreciation on swap contracts (436,013)
Increase in cash segregated as collateral for open swaps........... (3,400,000)
CHANGES IN ASSETS AND LIABILITIES:
Increase in interest receivable.................................... (743)
Increase in dividends receivable (a)............................... (3,393,552)
Increase in prepaid expenses....................................... (28,430)
Increase in interest and fees on loan payable...................... 215,745
Increase in investment advisory fees payable....................... 1,020,322
Increase in audit and tax fees payable............................. 54,144
Increase in income tax payable..................................... 1,787,242
Increase in legal fees payable..................................... 17,405
Increase in printing fees payable.................................. 73,580
Increase in administrative fees payable............................ 81,097
Increase in custodian fees payable................................. 83,075
Increase in transfer agent fees payable............................ 4,989
Increase in Trustees' fees and expenses payable.................... 254
Increase in financial reporting fees payable....................... 841
Increase in deferred income tax payable............................ 58,476,754
Increase in other liabilities payable.............................. 7,675
----------------
CASH USED IN OPERATING ACTIVITIES..................................... $ (1,091,971,352)
----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Common Shares sold................................... 867,489,568
Proceeds from Common Shares reinvested............................. 210,257
Offering costs..................................................... (1,064,320)
Distributions to Common Shareholders from net realized gain........ (4,494,893)
Distributions to Common Shareholders from return of capital........ (10,262,963)
Issuances of loan.................................................. 305,000,000
----------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES........................... 1,156,877,649
----------------
Increase in cash...................................................... 64,906,297
Cash at beginning of period........................................... --
----------------
CASH AT END OF PERIOD................................................. $ 64,906,297
================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest and fees..................... $ 467,299
================
Cash paid during the period for taxes................................. $ --
================
--------------------------------------------------------------------
(a) Includes net change in unrealized appreciation (depreciation) on foreign
currency of $2,521.
See Notes to Financial Statements Page 13
FIRST TRUST MLP AND ENERGY INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A COMMON SHARE OUTSTANDING THROUGHOUT THE PERIOD
PERIOD
ENDED
4/30/2013
(UNAUDITED) (a)
---------------
Net asset value, beginning of period ................ $ 19.10 (b)
-----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) ........................ (0.03)
Net realized and unrealized gain (loss) ............. 2.54
-----------
Total from investment operations .................... 2.51
-----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income ............................... --
Net realized gain ................................... (0.10)
Return of capital ................................... (0.22)
-----------
Total distributions ................................. (0.32)
-----------
Common Shares offering costs charged
to paid-in capital .............................. (0.03)
-----------
Capital reduction resulting from issuance of
Common Shares related to over allotment ......... (0.06)
-----------
Net asset value, end of period ...................... $ 21.20
===========
Market value, end of period ......................... $ 21.27
===========
TOTAL RETURN BASED ON NET ASSET VALUE (c) ........... 12.77%
===========
TOTAL RETURN BASED ON MARKET VALUE (c) .............. 8.04%
===========
--------------------------------------
Net assets, end of period (in 000's) ................ $ 962,996
Portfolio turnover rate ............................. 12%
RATIOS OF EXPENSES TO AVERAGE NET ASSETS:
Including current and deferred income taxes (d) ..... 17.75% (e)
Excluding current and deferred income taxes ......... 1.55% (e)
Excluding current and deferred income taxes
and interest expense ............................ 1.37% (e)
RATIOS OF NET INVESTMENT INCOME (LOSS) TO AVERAGE
NET ASSETS:
Net investment income (loss) ratio before tax
expenses ........................................ (0.60)% (e)
Net investment income (loss) ratio including tax
expenses (d) .................................... (16.79)% (e)
INDEBTEDNESS:
Total loan outstanding (in 000's) ................... $ 305,000
Asset coverage per $1,000 of indebtedness (f) ....... $ 4,157
--------------------------------------
(a) The Fund was seeded on October 11, 2012 and commenced operations on
November 27, 2012.
(b) Beginning NAV is net of sales load of $0.90 per share from the initial
offering.
(c) Total return is based on the combination of reinvested dividend, capital
gain and return of capital distributions, if any, at prices obtained by
the Dividend Reinvestment Plan, and changes in net asset value per share
for net asset value returns and changes in Common Share price for market
value returns. Total returns do not reflect sales load and are not
annualized for periods less than one year. Past performance is not
indicative of future results.
(d) Includes current and deferred income taxes associated with each component
of the Statement of Operations.
(e) Annualized.
(f) Calculated by taking the Fund's total assets less the Fund's total
liabilities (not including the loan outstanding) and dividing by the loan
outstanding in 000's.
Page 14 See Notes to Financial Statements
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST MLP AND ENERGY INCOME FUND
APRIL 30, 2013 (UNAUDITED)
1. ORGANIZATION
First Trust MLP and Energy Income Fund (the "Fund") is a newly organized,
non-diversified, closed-end management investment company organized as a
Massachusetts business trust on August 17, 2012 and is registered with the
Securities and Exchange Commission ("SEC") under the Investment Company Act of
1940, as amended (the "1940 Act").
The Fund's investment objective is to seek a high level of total return with an
emphasis on current distributions paid to common shareholders. The Fund seeks to
provide its shareholders with an efficient vehicle to invest in a portfolio of
cash generating securities of energy companies. The Fund focuses on investing in
equity and debt securities of master limited partnerships ("MLPs"), MLP-related
entities and other energy sector and energy utilities companies, which Energy
Income Partners, LLC ("EIP" or the "Sub-Advisor") believes offer opportunities
for income and growth. There can be no assurance that the Fund will achieve its
investment objective. The Fund may not be appropriate for all investors.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America ("U.S. GAAP") requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
A. PORTFOLIO VALUATION:
The net asset value ("NAV") of the Common Shares of the Fund is determined daily
as of the close of regular trading on the New York Stock Exchange ("NYSE"),
normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. If
the NYSE closes early on a valuation day, the NAV is determined as of that time.
Domestic debt securities and foreign securities are priced using data reflecting
the earlier closing of the principal markets for those securities. The NAV per
Common Share is calculated by dividing the value of all assets of the Fund
(including accrued interest and dividends), less all liabilities (including
accrued expenses, dividends declared but unpaid, deferred income taxes and any
borrowings of the Fund) by the total number of Common Shares outstanding.
The Fund's investments are valued daily in accordance with valuation procedures
adopted by the Fund's Board of Trustees, and in accordance with provisions of
the 1940 Act. The Fund's securities will be valued as follows:
Common stocks, MLPs and other equity securities listed on any national or
foreign exchange (excluding the NASDAQ(R) Stock Market LLC ("NASDAQ") and
the London Stock Exchange Alternative Investment Market ("AIM")) are
valued at the last price on the exchange on which they are principally
traded or, for NASDAQ and AIM securities, the official closing price.
Securities traded on more than one securities exchange are valued at the
last sale price or official closing price, as applicable, at the close of
the securities exchange representing the principal market for such
securities.
Exchange-traded options and futures contracts are valued at the closing
price in the market where such contracts are principally traded. If no
closing price is available, exchange-traded options and futures contracts
are valued at the mean between the most recent bid and asked prices.
Over-the-counter options and futures contracts are valued at their closing
bid prices.
Swaps are valued utilizing quotations provided by a third party pricing
service.
Short-term investments that mature in less than sixty days when purchased
are valued at amortized cost.
All market quotations used in valuing the Fund's securities will be obtained
from a third party pricing service. If no quotation is received from a pricing
service, attempts will be made to obtain one or more broker quotes for the
security. In the event the pricing service does not provide a valuation, broker
quotations are not readily available, or the valuations received are deemed
unreliable, the Fund's Board of Trustees has designated First Trust Advisors
L.P. ("First Trust") to use a fair value method to value the Fund's securities.
Additionally, if events occur after the close of the principal markets for
certain securities (e.g., domestic debt and foreign securities) that could
materially affect the Fund's NAV, First Trust will use a fair value method to
value the Fund's securities. The use of fair value pricing is governed by
valuation procedures adopted by the Fund's Board of Trustees, and in accordance
with the provisions of the 1940 Act. As a general principle, the fair value of a
security is the amount which the Fund might reasonably expect to receive for the
security upon its current sale. In light of the judgment involved in fair
valuations, there can be no assurance that a fair value assigned to a particular
security will be the amount which the Fund might be able to receive upon its
current sale. Fair valuation of a security will be based on the consideration of
all available information, 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.
Page 15
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MLP AND ENERGY INCOME FUND
APRIL 30, 2013 (UNAUDITED)
If the securities in question are foreign securities, the following additional
information may be considered:
1) the value of similar foreign securities traded on other foreign
markets;
2) ADR trading of similar securities;
3) closed-end fund trading of similar securities;
4) foreign currency exchange activity;
5) the trading prices of financial products that are tied to baskets of
foreign securities;
6) factors relating to the event that precipitated the pricing problem;
7) whether the event is likely to recur; and
8) whether the effects of the event are isolated or whether they affect
entire markets, countries or regions.
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices
are not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and
default rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable inputs
may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
The inputs or methodology used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of April 30, 2013, is
included with the Fund's Portfolio of Investments.
B. OPTION CONTRACTS:
The Fund is subject to equity price risk in the normal course of pursuing its
investment objective and may write (sell) options to hedge against changes in
the value of equities. Also, the Fund seeks to generate additional income, in
the form of premiums received, from writing (selling) the options. The Fund may
write (sell) covered call or put options ("options") on all or a portion of the
common stock of energy companies 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 of energy companies the Fund
holds in its portfolio. The Fund will not write (sell) "naked" or uncovered
options. When the Fund writes (sells) an option, an amount equal to the premium
received by the Fund is included in "Options written, at value" on the Fund's
Statement of Assets and Liabilities. Options are marked-to-market daily and
their value will be affected by changes in the value and dividend rates of the
underlying equity securities, changes in interest rates, changes in the actual
or perceived volatility of the securities markets and the underlying equity
securities and the remaining time to the options' expiration. The value of
options may also be adversely affected if the market for the options becomes
less liquid or trading volume diminishes.
Options the Fund writes (sells) will either be exercised, expire or be cancelled
pursuant to a closing transaction. If the price of the underlying equity
security exceeds the option's exercise price, it is likely that the option
holder will exercise the option. If an option written (sold) by the Fund is
exercised, the Fund would be obligated to deliver the underlying equity 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
Page 16
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MLP AND ENERGY INCOME FUND
APRIL 30, 2013 (UNAUDITED)
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 swap agreements as a substitute for investing in certain
securities. 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. In a typical swap agreement, one party agrees to pay another party the
return on a security or basket of securities in return for payment of a
specified interest rate. By entering into swaps, the Fund can gain exposure to a
security without actually purchasing the underlying asset. Swap agreements
involve the risk associated with the investment in the security as well as the
risk that the performance of the security, including any dividends, will not
exceed the interest that the Fund will be committed to pay under the swap. 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. A total return equity swap agreement would expose the Fund to the same
equity price risk as it would have if the underlying equity securities were
purchased. The Fund's maximum equity price risk to meet its future payments
under swap agreements outstanding as of April 30, 2013, is equal to the total
notional amount as shown on the Portfolio of Investments. The notional amount
represents the U.S. dollar value of the contracts as of the day of the opening
transaction or contract reset. The Fund entered into Total Return Equity Swap
agreements on January 16, 2013. The average volume of Total Return Equity Swaps
was $10,458,310 for the period January 16, 2013 to April 30, 2013.
D. SECURITIES TRANSACTIONS AND INVESTMENT INCOME:
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income is recorded
daily on the accrual basis, including amortization of premiums and accretion of
discounts. The Fund will rely to some extent on information provided by the
MLPs, which is not necessarily timely, to estimate taxable income allocable to
the MLP units held in the Fund's portfolio and to estimate the associated
deferred tax asset or liability. From time to time, the Fund will modify its
estimates and/or assumptions regarding its deferred tax liability as new
information becomes available. To the extent the Fund modifies its estimates
and/or assumptions, the NAV of the Fund will likely fluctuate.
Distributions received from the Fund's investments in MLPs generally are
comprised of return of capital and investment income. The Fund records estimated
return of capital and investment income based on historical information
available from each MLP. These estimates may subsequently be revised based on
information received from the MLPs after their tax reporting periods are
concluded.
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,
interest from debt instruments 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 $4,494,893 paid during the period ended April 30, 2013, are
anticipated to be characterized as taxable dividends for federal income tax
purposes. The remaining $10,262,963 in distributions paid during the period is
expected to be return of capital. However, the ultimate determination of the
character of the distributions will be made after the 2013 calendar year.
Distributions will automatically be reinvested in additional Common Shares
pursuant to the Fund's Dividend Reinvestment Plan unless cash distributions are
elected by the shareholder.
Page 17
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NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MLP AND ENERGY INCOME FUND
APRIL 30, 2013 (UNAUDITED)
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
period ended April 30, 2013, distributions of $13,417,564 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)...... $ (1,566,612)
Current state income tax benefit (expense)........ (220,630)
Current foreign income tax benefit (expense)...... --
Deferred federal income tax benefit (expense) .... (57,393,463)
Deferred state income tax benefit (expense) ...... (1,083,292)
-------------
Total income tax benefit (expense) ............... $ (60,263,997)
=============
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes. The Fund's 2013 income tax
provision includes a full valuation allowance against the deferred tax assets
associated with the state net operating loss. Components of the Fund's deferred
tax assets and liabilities as of April 30, 2013 are as follows:
Deferred tax assets:
Federal net operating loss........................ $ --
State net operating loss.......................... 8,090
State income taxes................................ 379,152
Capital loss carryforward......................... --
Other............................................. --
-------------
Total deferred tax assets......................... 387,242
Less: valuation allowance......................... (8,090)
-------------
Net deferred tax assets........................... $ 379,152
=============
Deferred tax liabilities:
Unrealized gains on investment securities......... $ (58,855,906)
-------------
Total deferred tax liabilities.................... (58,855,906)
-------------
Total net deferred tax liabilities................ $ (58,476,754)
=============
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.......... $ 60,046,890
State income taxes, net .......................... 842,291
Change in valuation allowance..................... 8,090
Other............................................. (633,274)
-------------
Total............................................. $ 60,263,997
=============
The Fund is subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. Taxable year ending 2013 remains
open to federal and state audit. As of April 30, 2013, management has evaluated
the application of these standards to the Fund, and has determined that no
provision for income tax is required in the Fund's financial statements for
uncertain tax positions.
Page 18
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NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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FIRST TRUST MLP AND ENERGY INCOME FUND
APRIL 30, 2013 (UNAUDITED)
G. EXPENSES:
The Fund will pay all expenses directly related to its operations.
H. FOREIGN CURRENCY:
The books and records of the Fund are maintained in U.S. dollars. Foreign
currencies, investments and other assets and liabilities are translated into
U.S. dollars at the exchange rates prevailing at the end of the period.
Purchases and sales of investments and items of income and expense are
translated on the respective dates of such transactions. Unrealized gains and
losses on assets and liabilities, other than investments in securities, which
result from changes in foreign currency exchange rates have been included in
"Net change in unrealized appreciation (depreciation) before taxes on foreign
currency translation" on the Statement of Operations. Unrealized gains and
losses on investments in securities which result from changes in foreign
exchange rates are included with fluctuations arising from changes in market
price and are shown in "Net change in unrealized appreciation (depreciation)
before taxes on investments" on the Statement of Operations. Net realized
foreign currency gains and losses include the effect of changes in exchange
rates between trade date and settlement date on investment security
transactions, foreign currency transactions and interest and dividends received.
The portion of foreign currency gains and losses related to fluctuation in
exchange rates between the initial purchase trade date and subsequent sale trade
date is included in "Net realized gain (loss) before taxes on foreign currency
transactions" on the Statement of Operations.
I. ORGANIZATION AND OFFERING COSTS:
Organization costs consisted of costs incurred to establish the Fund and enable
it to legally conduct business. These costs included filing fees, listing fees,
legal services pertaining to the organization of the business and audit fees
relating to the initial registration and auditing the initial statement of
assets and liabilities, among other fees. Offering costs consisted of legal fees
pertaining to the Fund's shares offered for sale, registration fees,
underwriting fees, and printing of the initial prospectus, among other fees.
First Trust and the Sub-Advisor paid all organization expenses. The Fund's
Common Share offering costs of $1,245,000 were recorded as a reduction of the
proceeds from the sale of Common Shares during the period ended April 30, 2013.
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Fund, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the ongoing monitoring of the Fund's investment
portfolio, managing the Fund's business affairs and providing certain
administrative services necessary for the management of the Fund. For these
investment management services, First Trust is entitled to a monthly fee
calculated at an annual rate of 1.00% of the Fund's Managed Assets. First Trust
also provides fund reporting services to the Fund for a flat annual fee in the
amount of $9,250.
EIP serves as the Fund's sub-advisor and manages the Fund's portfolio subject to
First Trust's supervision. The Sub-Advisor receives a monthly sub-advisory fee
calculated at an annual rate of 0.50% of the Fund's Managed Assets that is paid
by First Trust out of its investment advisory fee.
First Trust Capital Partners, LLC ("FTCP"), an affiliate of First Trust, owns,
through a wholly-owned subsidiary, a 15% ownership interest in each of the
Sub-Advisor and EIP Partners, LLC, an affiliate of the Sub-Advisor. In addition,
as of November 29, 2012, FTCP, through a wholly-owned subsidiary, purchased a
preferred interest in the Sub-Advisor. The preferred interest is non-voting and
does not share in the profits or losses of the Sub-Advisor. The Sub-Advisor may
buy back any or all of FTCP's preferred interest at any time and FTCP may sell
back to the Sub-Advisor up to 50% of its preferred interest on or after July 29,
2014 and any or all of its preferred interest after November 29, 2015.
BNY Mellon Investment Servicing (US) Inc. ("BNYM IS") serves as the Fund's
administrator, fund accountant and transfer agent in accordance with certain fee
arrangements. As administrator and fund accountant, BNYM IS is responsible for
providing certain administrative and accounting services to the Fund, including
maintaining the Fund's books of account, records of the Fund's securities
transactions, and certain other books and records. As transfer agent, BNYM IS is
responsible for maintaining shareholder records for the Fund. The Bank of New
York Mellon ("BNYM") serves as the Fund's custodian in accordance with certain
fee arrangements. As custodian, BNYM is responsible for custody of the Fund's
assets.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer of $125,000 per year and an annual per fund fee of $4,000 for each
closed-end fund or other actively managed fund and $1,000 for each index fund in
the First Trust Fund Complex. The fixed annual retainer is allocated pro rata
among each fund in the First Trust Fund Complex based on net assets.
Additionally, the Lead Independent Trustee is paid $15,000 annually, the
Chairman of the Audit Committee is paid $10,000 annually, and each of the
Chairmen of the Nominating and Governance Committee and the Valuation Committee
is paid $5,000 annually to serve in such capacities, with such compensation
allocated pro rata among each fund in the First Trust Fund Complex based on net
assets. Trustees are reimbursed for travel and out-of-pocket expenses in
connection with all meetings. The Lead Independent Trustee and each Committee
Chairman will serve two-year terms until December 31, 2013 before rotating to
serve as Chairman of another Committee or as Lead Independent Trustee. After
December 31, 2013, the Lead Independent Trustee and Committee Chairmen will
rotate every three years. The officers and "Interested" Trustee receive no
compensation from the funds for acting in such capacities.
Page 19
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NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MLP AND ENERGY INCOME FUND
APRIL 30, 2013 (UNAUDITED)
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of investments, excluding short-term
investments, for the period ended April 30, 2013, were $1,280,011,809 and
$136,008,803, respectively.
Written option activity for the Fund was as follows:
NUMBER
OF
WRITTEN OPTIONS CONTRACTS PREMIUMS
--------------------------------------------------------------------------------
Options outstanding at beginning of period. -- $ --
Options Written............................ 134,344 6,120,933
Options Expired............................ (13,100) (547,241)
Options Exercised.......................... (38,149) (1,556,562)
Options Closed............................. -- --
--------- -------------
Options outstanding at April 30, 2013...... 83,095 $ 4,017,130
========= =============
5. BORROWINGS
The Fund has a committed facility agreement with the Bank of Nova Scotia
("Scotia") that has a maximum commitment amount of $350,000,000. The borrowing
rate under the facility is equal to the 1-month LIBOR plus 65 basis points. In
addition, under the facility, the Fund pays a commitment fee of 0.15% on the
undrawn amount of such facility. The average amount outstanding for the period
December 26, 2012 through April 30, 2013, was $208,523,810 with a weighted
average interest rate of 0.84%. As of April 30, 2013, the Fund had outstanding
borrowings of $305,000,000 under this committed facility agreement. The high and
low annual interest rates for the period ended April 30, 2013 were 0.86% and
0.85%, respectively. The interest rate at April 30, 2013 was 0.85%.
6. INDEMNIFICATION
The Fund has a variety of indemnification obligations under contracts with its
service providers. The Fund's maximum exposure under these arrangements is
unknown. However, the Fund has not had prior claims or losses pursuant to these
contracts and expects the risk of loss to be remote.
7. INDUSTRY CONCENTRATION RISK
The Fund invests at least 85% of its Managed Assets in securities issued by
energy companies, energy sector MLPs and MLP-related entities and at least 65%
of its Managed Assets in equity securities of such MLPs and MLP-related
entities. Given this industry concentration, the Fund is more susceptible to
adverse economic or regulatory occurrences affecting that industry than an
investment company that is not concentrated in a single industry. Energy issuers
may be subject to a variety of factors that may adversely affect their business
or operations, including high interest costs in connection with capital
construction programs, high leverage costs associated with environmental and
other regulations, the effects of economic slowdown, surplus capacity, increased
competition from other providers of services, uncertainties concerning the
availability of fuel at reasonable prices, the effects of energy conservation
policies and other factors.
8. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events to the Fund through
the date the financial statements were issued, and has determined that there
were the following subsequent events:
On May 20, 2013, the Fund declared a dividend of $0.1083 per share to Common
Shareholders of record on June 5, 2013, payable June 17, 2013.
On June 20, 2013, the Fund declared a dividend of $0.1083 per share to Common
Shareholders of record on July 3, 2013, payable July 15, 2013.
Page 20
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST MLP AND ENERGY INCOME FUND
APRIL 30, 2013 (UNAUDITED)
DIVIDEND REINVESTMENT PLAN
If your Common Shares are registered directly with the Fund or if you hold your
Common Shares with a brokerage firm that participates in the Fund's Dividend
Reinvestment Plan (the "Plan"), unless you elect, by written notice to the Fund,
to receive cash distributions, all dividends, including any capital gain
distributions, on your Common Shares will be automatically reinvested by BNY
Mellon Investment Servicing (US) Inc. (the "Plan Agent"), in additional Common
Shares under the Plan. If you elect to receive cash distributions, you will
receive all distributions in cash paid by check mailed directly to you by the
Plan Agent, as the dividend paying agent.
If you decide to participate in the Plan, the number of Common Shares you will
receive will be determined as follows:
(1) If Common Shares are trading at or above net asset value ("NAV") at
the time of valuation, the Fund will issue new shares at a price
equal to the greater of (i) NAV per Common Share on that date or
(ii) 95% of the market price on that date.
(2) If Common Shares are trading below NAV at the time of valuation, the
Plan Agent will receive the dividend or distribution in cash and
will purchase Common Shares in the open market, on the NYSE or
elsewhere, for the participants' accounts. It is possible that the
market price for the Common Shares may increase before the Plan
Agent has completed its purchases. Therefore, the average purchase
price per share paid by the Plan Agent may exceed the market price
at the time of valuation, resulting in the purchase of fewer shares
than if the dividend or distribution had been paid in Common Shares
issued by the Fund. The Plan Agent will use all dividends and
distributions received in cash to purchase Common Shares in the open
market within 30 days of the valuation date except where temporary
curtailment or suspension of purchases is necessary to comply with
federal securities laws. Interest will not be paid on any uninvested
cash payments.
You may elect to opt-out of or withdraw from the Plan at any time by giving
written notice to the Plan Agent, or by telephone at (866) 340-1104, in
accordance with such reasonable requirements as the Plan Agent and the Fund may
agree upon. If you withdraw or the Plan is terminated, you will receive a
certificate for each whole share in your account under the Plan, and you will
receive a cash payment for any fraction of a share in your account. If you wish,
the Plan Agent will sell your shares and send you the proceeds, minus brokerage
commissions.
The Plan Agent maintains all Common Shareholders' accounts in the Plan and gives
written confirmation of all transactions in the accounts, including information
you may need for tax records. Common Shares in your account will be held by the
Plan Agent in non-certificated form. The Plan Agent will forward to each
participant any proxy solicitation material and will vote any shares so held
only in accordance with proxies returned to the Fund. Any proxy you receive will
include all Common Shares you have received under the Plan.
There is no brokerage charge for reinvestment of your dividends or distributions
in Common Shares. However, all participants will pay a pro rata share of
brokerage commissions incurred by the Plan Agent when it makes open market
purchases.
Automatically reinvesting dividends and distributions does not mean that you do
not have to pay income taxes due upon receiving dividends and distributions.
Capital gains and income are realized although cash is not received by you.
Consult your financial advisor for more information.
If you hold your Common Shares with a brokerage firm that does not participate
in the Plan, you will not be able to participate in the Plan and any dividend
reinvestment may be effected on different terms than those described above.
The Fund reserves the right to amend or terminate the Plan if in the judgment of
the Board of Trustees the change is warranted. There is no direct service charge
to participants in the Plan; however, the Fund reserves the right to amend the
Plan to include a service charge payable by the participants. Additional
information about the Plan may be obtained by writing BNY Mellon Investment
Servicing (US) Inc., 301 Bellevue Parkway, Wilmington, Delaware 19809.
--------------------------------------------------------------------------------
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Fund uses to determine how
to vote proxies and information on how the Fund voted proxies relating to
portfolio investments during the most recent 12-month period ended June 30 will
be available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Fund's website located at http://www.ftportfolios.com; and (3) on the
Securities and Exchange Commission's ("SEC") website located at
http://www.sec.gov.
Page 21
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ADDITIONAL INFORMATION - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MLP AND ENERGY INCOME FUND
APRIL 30, 2013 (UNAUDITED)
PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's 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.
ADVISORY AND SUB-ADVISORY AGREEMENTS
BOARD CONSIDERATIONS REGARDING APPROVAL OF INVESTMENT MANAGEMENT AND
SUB-ADVISORY AGREEMENTS
The Board of Trustees of First Trust MLP and Income Fund (subsequently renamed
First Trust MLP and Energy Income Fund) (the "Fund"), including the Independent
Trustees, approved the Investment Management Agreement (the "Advisory
Agreement") between the Fund and First Trust Advisors L.P. (the "Advisor") and
the Investment Sub-Advisory Agreement (the "Sub-Advisory Agreement" and together
with the Advisory Agreement, the "Agreements") among the Fund, the Advisor and
Energy Income Partners, LLC (the "Sub-Advisor"), at a meeting held on September
17, 2012. The Board of Trustees determined that the Agreements are in the best
interests of the Fund in light of the extent and quality of the services
expected to be provided and such other matters as the Board considered to be
relevant in the exercise of its reasonable business judgment.
To reach this determination, the Board considered its duties under the
Investment Company Act of 1940, as amended (the "1940 Act"), as well as under
the general principles of state law in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
on such agreements. To assist the Board in its evaluation of the Agreements, the
Independent Trustees received a separate report from each of the Advisor and the
Sub-Advisor in advance of the Board meeting that, among other things, outlined
the services to be provided by the Advisor and the Sub-Advisor (including the
relevant personnel responsible for these services and their experience); the
proposed advisory fee and sub-advisory fee for the Fund as compared to fees
charged by investment advisors and sub-advisors to comparable funds and as
compared to fees charged to other clients of the Advisor and the Sub-Advisor;
estimated expenses of the Fund as compared to expense ratios of comparable
funds; the nature of expenses to be incurred in providing services to the Fund
and the potential for economies of scale, if any; financial data on the Advisor
and the Sub-Advisor; any fall out benefits to the Advisor and the Sub-Advisor;
and information on the Advisor's and the Sub-Advisor's compliance programs. The
Independent Trustees also met separately with their independent legal counsel to
discuss the information provided by the Advisor and the Sub-Advisor. The Board
applied its business judgment to determine whether the arrangements between the
Fund and the Advisor and among the Fund, the Advisor and the Sub-Advisor are
reasonable business arrangements from the Fund's perspective as well as from the
perspective of shareholders.
In reviewing the Agreements, the Board considered the nature, extent and quality
of services to be provided by the Advisor and the Sub-Advisor under the
Agreements, and noted that employees of the Advisor provide management services
to other investment companies in the First Trust fund complex with diligence and
care. With respect to the Advisory Agreement, the Board considered that the
Advisor will be responsible for the overall management and administration of the
Fund and reviewed the services to be provided by the Advisor to the Fund,
including the oversight of the Sub-Advisor. The Board noted the compliance
program that had been developed by the Advisor and considered that it includes a
robust program for monitoring the Sub-Advisor's compliance with the 1940 Act and
the Fund's investment objective and policies. The Board noted the efforts
expended by the Advisor in organizing the Fund and making arrangements for
entities to provide services to the Fund. With respect to the Sub-Advisory
Agreement, the Board noted the background and experience of the Sub-Advisor's
portfolio management team and the Sub-Advisor's investment style. At the
meeting, the Trustees received a presentation from one of the portfolio
managers, and were able to ask questions about the Sub-Advisor's proposed
investment strategies for the Fund, including the option overlay strategy. In
light of the information presented and the considerations made, the Board
concluded that the nature, extent and quality of services to be provided to the
Fund by the Advisor and the Sub-Advisor under the Agreements are expected to be
satisfactory.
The Board considered the advisory and sub-advisory fees to be paid under the
Agreements. The Board reviewed data prepared by Lipper Inc. ("Lipper"), an
independent source, showing the proposed advisory fee and the estimated expense
ratio assuming an asset level for the Fund as compared to the advisory fees and
expense ratios of a peer group of other leveraged closed-end funds selected by
Lipper. The Board noted that the Fund's proposed contractual advisory fee was
equal to the median of the Lipper peer group. The Board considered the proposed
sub-advisory fee rate and how it would relate to the overall management fee
structure of the Fund, noting that the fees to be paid to the Sub-Advisor would
be paid by the Advisor from its advisory fee. The Board also noted the
information provided by Lipper regarding sub-advisory fees for other funds in
the Lipper peer group. The Board considered the advisory fees charged by the
Advisor to other closed-end funds, and noted that the Advisor provides advisory
services to two other closed-end funds overseen by the Board for which the
Sub-Advisor also acts as the sub-advisor with investment objectives and policies
similar to the Fund's that have the same advisory fee and sub-advisory fee
rates. The Board also considered information provided by the Sub-Advisor as to
the fees it charges to other similar clients. Since the Fund is newly organized,
the Board could not consider investment performance of the Fund. The Board
considered performance information for one of the
Page 22
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ADDITIONAL INFORMATION - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MLP AND ENERGY INCOME FUND
APRIL 30, 2013 (UNAUDITED)
similar closed-end funds overseen by the Board and managed by the Advisor for
which the same portfolio managers of the Sub-Advisor serve as such. On the basis
of all the information provided on the fees and estimated expenses of the Fund,
the Board concluded that the advisory and sub-advisory fees were reasonable and
appropriate in light of the nature, extent and quality of services expected to
be provided by the Advisor and the Sub-Advisor under the Agreements.
The Board considered the Advisor's representation that the proposed advisory fee
was not structured to pass the benefits of any economies of scale on to
shareholders. The Board noted that the Advisor has continued to invest in
personnel and infrastructure for the First Trust fund complex and indicated
that, because the Fund is a closed-end fund, the Advisor believed that any
discussion of economies of scale was not material to a discussion of the
advisory fee structure. The Board took the costs to be borne by the Advisor in
connection with its services to be performed under the Advisory Agreement into
consideration and noted that the Advisor was unable to estimate the
profitability of the Advisory Agreement to the Advisor. The Board noted that the
Sub-Advisor commented on its estimated profitability under the Sub-Advisory
Agreement in its written response to the Board and noted that the sub-advisory
fee rate was negotiated at arm's length between the Advisor and the Sub-Advisor,
and that the Sub-Advisor would be paid by the Advisor. The Board considered
fall-out benefits described by the Advisor that may be realized from its
relationship with the Fund, including the Advisor's compensation for fund
reporting services to be provided pursuant to a separate Fund Reporting Services
Agreement. The Board also considered the fall-out benefits described by the
Sub-Advisor that may be realized from its relationship with the Fund, including
the use of soft dollars and the ownership interest of an affiliate of the
Advisor in the Sub-Advisor.
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, unanimously determined that the terms
of the Agreements are fair and reasonable and that the approval of the
Agreements is in the best interests of the Fund. No single factor was
determinative in the Board's analysis.
RISK CONSIDERATIONS
Risks are inherent in all investing. The following summarizes some, but not all,
of the risks that should be considered for the Fund. For additional information
about the risks associated with investing in the Fund, please see the Fund's
prospectus and statement of additional information, as well as other Fund
regulatory filings.
INVESTMENT AND MARKET RISK: An investment in the Fund's Common Shares is subject
to investment risk, including the possible loss of the entire principal
invested. An investment in Common Shares represents an indirect investment in
the securities owned by the Fund. The value of these securities, like other
market investments, may move up or down, sometimes rapidly and unpredictably.
Common Shares at any point in time may be worth less than the original
investment, even after taking into account the reinvestment of Fund dividends
and distributions. Security prices can fluctuate for several reasons including
the general condition of the securities markets, or when political or economic
events affecting the issuers occur. When the Advisor or Sub-Advisor determines
that it is temporarily unable to follow the Fund's investment strategy or that
it is impractical to do so (such as when a market disruption event has occurred
and trading in the securities is extremely limited or absent), the Fund may take
temporary defensive positions.
MLP RISK: An investment in MLP units involves risks which differ from an
investment in common stock of a corporation. Holders of MLP units have limited
control and voting rights on matters affecting the partnership. In addition,
there are certain tax risks associated with an investment in MLP units and
conflicts of interest exist between common unit holders and the general partner,
including those arising from incentive distribution payments.
LEVERAGE RISK: The use of leverage results in additional risks and can magnify
the effect of any losses. The funds borrowed pursuant to a leverage borrowing
program constitute a substantial lien and burden by reason of their prior claim
against the income of the Fund and against the net assets of the Fund in
liquidation. If the Fund is not in compliance with certain credit facility
provisions, the Fund may not be permitted to declare dividends or other
distributions.
RESTRICTED SECURITIES RISK: The Fund may invest in unregistered or otherwise
restricted securities. The term "restricted securities" refers to securities
that are unregistered or are held by control persons of the issuer and
securities that are subject to contractual restrictions on their resale. As a
result, restricted securities may be more difficult to value and the Fund may
have difficulty disposing of such assets either in a timely manner or for a
reasonable price. In order to dispose of an unregistered security, the Fund,
where it has contractual rights to do so, may have to cause such security to be
registered. A considerable period may elapse between the time the decision is
made to sell the security and the time the security is registered so that the
Fund could sell it. Contractual restrictions on the resale of securities vary in
length and scope and are generally the result of a negotiation between the
issuer and acquirer of the securities. The Fund would, in either case, bear
market risks during that period.
NON-DIVERSIFICATION RISK: The Fund is a non-diversified investment company under
the 1940 Act and will not be treated as a regulated investment company under the
Internal Revenue Code. Accordingly, there are no regulatory requirements under
the 1940 Act or the Internal Revenue Code on the minimum number or size of
securities held by the Fund.
Page 23
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ADDITIONAL INFORMATION - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MLP AND ENERGY INCOME FUND
APRIL 30, 2013 (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.
Page 24
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.
(a)(1) Not applicable.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and
Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) First Trust MLP and Energy Income Fund
--------------------------------------------
By (Signature and Title)* /s/ Mark R. Bradley
----------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)
Date: June 18, 2013
--------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Mark R. Bradley
----------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)
Date: June 18, 2013
--------------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: June 18, 2013
--------------------
* Print the name and title of each signing officer under his or her signature.