N-Q 1 fei_nq.txt QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-Q QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED MANAGEMENT INVESTMENT COMPANY Investment Company Act file number 811-22738 ----------- First Trust MLP and Energy Income Fund ----------------------------------------------------------- (Exact name of registrant as specified in charter) 120 East Liberty Drive, Suite 400 Wheaton, IL 60187 ----------------------------------------------------------- (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 ----------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: 630-765-8000 -------------- Date of fiscal year end: October 31 ------------ Date of reporting period: January 31, 2016 ------------------ Form N-Q is to be used by management investment companies, other than small business investment companies registered on Form N-5 (ss.ss. 239.24 and 274.5 of this chapter), to file reports with the Commission, not later than 60 days after the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may use the information provided on Form N-Q in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-Q, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-Q unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to the Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. ss. 3507. ITEM 1. SCHEDULE OF INVESTMENTS. The Schedule(s) of Investments is attached herewith. FIRST TRUST MLP AND ENERGY INCOME FUND (FEI) PORTFOLIO OF INVESTMENTS JANUARY 31, 2016 (UNAUDITED)
SHARES/ UNITS DESCRIPTION VALUE --------------- -------------------------------------------------------------------- -------------- MASTER LIMITED PARTNERSHIPS - 88.5% CHEMICALS - 0.1% 40,000 Westlake Chemical Partners, L.P. (a)................................ $ 764,000 -------------- GAS UTILITIES - 7.6% 744,374 AmeriGas Partners, L.P. (a)......................................... 28,606,293 640,902 Suburban Propane Partners, L.P. (a)................................. 16,471,181 -------------- 45,077,474 -------------- INDEPENDENT POWER AND RENEWABLE ELECTRICITY PRODUCERS - 2.2% 100,000 Brookfield Renewable Energy Partners, L.P. (CAD) (a)................ 2,644,015 394,001 NextEra Energy Partners, L.P. (a)................................... 10,634,087 -------------- 13,278,102 -------------- OIL, GAS & CONSUMABLE FUELS - 78.6% 212,534 Alliance Holdings GP, L.P. (a)...................................... 3,768,228 1,199,260 Alliance Resource Partners, L.P. (a)................................ 16,981,522 120,000 Buckeye Partners, L.P. (a).......................................... 6,988,800 549,945 Columbia Pipeline Partners, L.P. (a)................................ 8,414,159 2,551,000 Enbridge Energy Partners, L.P. (a).................................. 46,581,260 3,840,341 Enterprise Products Partners, L.P. (a).............................. 91,822,553 480,000 EQT Midstream Partners, L.P. (a).................................... 32,673,600 1,001,905 Holly Energy Partners, L.P. (a)..................................... 25,959,359 820,000 Magellan Midstream Partners, L.P. (a)............................... 52,668,600 424,000 NGL Energy Partners, L.P. (a)....................................... 5,109,200 566,789 ONEOK Partners, L.P. (a)............................................ 15,496,011 2,149,000 Plains All American Pipeline, L.P. (a).............................. 45,365,390 944,811 Spectra Energy Partners, L.P. (a)................................... 39,597,029 421,210 Tallgrass Energy Partners, L.P. (a)................................. 14,535,957 510,500 Targa Resources Partners, L.P. (a).................................. 7,014,270 565,252 TC Pipelines, L.P. (a).............................................. 24,441,496 748,674 Teekay LNG Partners, L.P. (a)....................................... 8,624,724 161,200 TransMontaigne Partners, L.P. (a)................................... 5,118,100 741,007 Williams Partners, L.P. (a)......................................... 16,316,974 -------------- 467,477,232 -------------- TOTAL MASTER LIMITED PARTNERSHIPS .................................. 526,596,808 (Cost $571,121,870) -------------- COMMON STOCKS - 42.9% ELECTRIC UTILITIES - 8.2% 143,400 American Electric Power Co., Inc. .................................. 8,743,098 163,000 Emera, Inc. (CAD) (a)............................................... 5,197,523 76,000 Eversource Energy (a)............................................... 4,088,800 375,900 Exelon Corp. ....................................................... 11,115,363 30,700 Hydro One Ltd. (CAD) (a) (b) (c).................................... 487,378 125,000 NextEra Energy, Inc. ............................................... 13,963,750 56,700 Southern (The) Co. (a).............................................. 2,773,764 60,000 Xcel Energy, Inc. .................................................. 2,293,200 -------------- 48,662,876 --------------
See Notes to Portfolio of Investments FIRST TRUST MLP AND ENERGY INCOME FUND (FEI) PORTFOLIO OF INVESTMENTS (CONTINUED) JANUARY 31, 2016 (UNAUDITED)
SHARES DESCRIPTION VALUE --------------- -------------------------------------------------------------------- -------------- COMMON STOCKS (CONTINUED) GAS UTILITIES - 2.5% 64,033 Atmos Energy Corp. (a).............................................. $ 4,432,364 30,000 Chesapeake Utilities Corp. (a)...................................... 1,889,100 249,624 UGI Corp. (a)....................................................... 8,487,216 -------------- 14,808,680 -------------- MULTI-UTILITIES - 6.5% 37,400 CMS Energy Corp. ................................................... 1,454,112 60,400 Dominion Resources, Inc. ........................................... 4,359,068 84,500 National Grid PLC, ADR (a).......................................... 5,983,445 241,300 Public Service Enterprise Group, Inc. .............................. 9,965,690 60,000 SCANA Corp. ........................................................ 3,777,000 138,500 Sempra Energy (a)................................................... 13,122,875 -------------- 38,662,190 -------------- OIL, GAS & CONSUMABLE FUELS - 25.7% 635,500 Enbridge Income Fund Holdings, Inc. (CAD) (a)....................... 13,277,953 393,700 Enbridge, Inc. ..................................................... 13,622,020 430,000 Inter Pipeline, Ltd. (CAD) (a)...................................... 6,967,664 449,196 Keyera Corp. (CAD) (a).............................................. 12,312,889 1,344,060 Kinder Morgan, Inc. (a)............................................. 22,109,787 100,000 ONEOK, Inc. ........................................................ 2,491,000 1,002,400 Spectra Energy Corp. ............................................... 27,515,880 1,260,007 TransCanada Corp. (a)............................................... 43,545,842 569,987 Williams (The) Cos., Inc. .......................................... 11,000,749 -------------- 152,843,784 -------------- TOTAL COMMON STOCKS ................................................ 254,977,530 (Cost $292,116,542) -------------- REAL ESTATE INVESTMENT TRUSTS - 1.0% 95,940 CorEnergy Infrastructure Trust, Inc. ............................... 1,515,852 238,090 InfraREIT, Inc. (a)................................................. 4,602,280 -------------- TOTAL REAL ESTATE INVESTMENT TRUSTS ................................ 6,118,132 (Cost $9,152,377) -------------- TOTAL INVESTMENTS - 132.4% ......................................... 787,692,470 (Cost $872,390,789) (d) -------------- NUMBER OF CONTRACTS DESCRIPTION VALUE --------------- -------------------------------------------------------------------- -------------- CALL OPTIONS WRITTEN - (0.9%) American Electric Power Co., Inc. Calls 600 @ $60.00 due March 2016............................................. (117,000) 500 @ 62.50 due May 2016............................................... (70,000) -------------- (187,000) --------------
See Notes to Portfolio of Investments FIRST TRUST MLP AND ENERGY INCOME FUND (FEI) PORTFOLIO OF INVESTMENTS (CONTINUED) JANUARY 31, 2016 (UNAUDITED)
NUMBER OF CONTRACTS DESCRIPTION VALUE --------------- -------------------------------------------------------------------- -------------- CALL OPTIONS WRITTEN (CONTINUED) CMS Energy Corp. Call 374 @ $40.00 due June 2016.............................................. $ (43,945) -------------- Dominion Resources, Inc. Call 600 @ 72.50 due March 2016............................................. (81,000) -------------- Enbridge Energy Partners, L.P. Call 600 @ 25.00 due April 2016............................................. (18,000) -------------- Enbridge, Inc. Calls 1,200 @ 35.00 due March 2016............................................. (195,000) 2,700 @ 42.50 due April 2016............................................. (81,000) -------------- (276,000) -------------- Enterprise Products Partners, L.P. Calls 2,000 @ 26.00 due March 2016............................................. (170,000) 2,500 @ 32.50 due March 2016............................................. (25,000) -------------- (195,000) -------------- Eversource Energy Call 700 @ 55.00 due March 2016............................................. (73,500) -------------- Exelon Corp. Calls 2,100 @ 30.00 due April 2016............................................. (199,500) 1,650 @ 31.00 due April 2016............................................. (99,000) -------------- (298,500) -------------- Magellan Midstream Partners, L.P. Calls 170 @ 67.50 due February 2016.......................................... (23,120) 600 @ 70.00 due March 2016............................................. (103,200) -------------- (126,320) -------------- National Grid PLC Call 300 @ 75.00 due March 2016............................................. (5,250) -------------- NextEra Energy, Inc. Calls 750 @ 110.00 due February 2016......................................... (207,750) 500 @ 110.00 due June 2016............................................. (270,000) -------------- (477,750) -------------- Plains All American Pipeline, L.P. Call 2,000 @ 22.50 due February 2016.......................................... (180,000) -------------- Public Service Enterprise Group, Inc. Calls 1,450 @ 40.00 due February 2016.......................................... (246,500) 900 @ 45.00 due June 2016.............................................. (54,000) -------------- (300,500) -------------- SCANA Corp. Call 600 @ 65.00 due May 2016............................................... (93,000) --------------
See Notes to Portfolio of Investments FIRST TRUST MLP AND ENERGY INCOME FUND (FEI) PORTFOLIO OF INVESTMENTS (CONTINUED) JANUARY 31, 2016 (UNAUDITED)
NUMBER OF CONTRACTS DESCRIPTION VALUE --------------- -------------------------------------------------------------------- -------------- CALL OPTIONS WRITTEN (CONTINUED) Sempra Energy Call 1,300 @ $97.50 due March 2016............................................. $ (214,500) -------------- Spectra Energy Corp. Calls 6,500 @ 26.00 due March 2016............................................. (1,378,000) 500 @ 27.00 due March 2016............................................. (75,000) 3,000 @ 30.00 due March 2016............................................. (120,000) -------------- (1,573,000) -------------- TransCanada Corp. Calls 5,610 @ 35.00 due February 2016.......................................... (532,950) 1,180 @ 40.00 due February 2016 (e)...................................... (11,800) 2,100 @ 35.00 due March 2016............................................. (357,000) 2,700 @ 35.00 due May 2016............................................... (567,000) -------------- (1,468,750) -------------- UGI Corp. Calls 900 @ 37.00 due April 2016 ............................................ (24,362) 1,500 @ 40.00 due April 2016 (e)......................................... (15,000) -------------- (39,362) -------------- Xcel Energy, Inc. Call 600 @ 40.00 due March 2016............................................. (18,000) -------------- TOTAL CALL OPTIONS WRITTEN ......................................... (5,669,377) (Premiums received $2,939,638) -------------- OUTSTANDING LOAN - (34.5%) ......................................... (205,000,000) NET OTHER ASSETS AND LIABILITIES - 3.0% ............................ 17,780,568 -------------- NET ASSETS - 100.0% ................................................ $ 594,803,661 ==============
(a) All or a portion of this security serves as collateral on the outstanding loan. (b) Non-income producing security. (c) This security, sold within the terms of a private placement memorandum, is exempt from registration upon resale under Rule 144A under the Securities Act of 1933, as amended, and may be resold in transactions exempt from registration, normally to qualified institutional buyers (see Note 2E - Restricted Securities in the Notes to Portfolio of Investments). (d) Aggregate cost for federal income tax purposes is $783,756,696. As of January 31, 2016, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $140,898,060 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $136,962,286. (e) This investment is fair valued by the Advisor's Pricing Committee in accordance with procedures adopted by the Fund's Board of Trustees, and in accordance with the provisions of the Investment Company Act of 1940, as amended. At January 31, 2016, investments noted as such are valued at $(26,800) or (0.0)% of net assets. ADR American Depositary Receipt CAD Canadian Dollar - Security is denominated in Canadian Dollars and is translated into U.S. Dollars based upon the current exchange rate. See Notes to Portfolio of Investments FIRST TRUST MLP AND ENERGY INCOME FUND (FEI) PORTFOLIO OF INVESTMENTS (CONTINUED) JANUARY 31, 2016 (UNAUDITED) INTEREST RATE SWAP AGREEMENTS:
EXPIRATION NOTIONAL COUNTERPARTY FLOATING RATE (1) DATE AMOUNT FIXED RATE (1) VALUE ---------------------------------------------------------------------------------------------------- Bank of Nova Scotia 1 month LIBOR 10/08/23 $ 77,250,000 2.734% $ (7,468,165) Bank of Nova Scotia 1 month LIBOR 09/03/24 97,000,000 2.367% (6,734,874) ------------- ------------ $ 174,250,000 $(14,203,039) ============= ============
(1) The Fund pays the fixed rate and receives the floating rate. The floating rates on January 31, 2016 were 0.424% and 0.428%, respectively. VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of January 31, 2016 is as follows (see Note 2A - Portfolio Valuation in the Notes to Portfolio of Investments):
ASSETS TABLE LEVEL 2 LEVEL 3 TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT VALUE AT QUOTED OBSERVABLE UNOBSERVABLE 1/31/2016 PRICES INPUTS INPUTS ---------------- ---------------- -------------- -------------- Master Limited Partnerships *................. $ 526,596,808 $ 526,596,808 $ -- $ -- Common Stocks *............................... 254,977,530 254,977,530 -- -- Real Estate Investment Trusts................. 6,118,132 6,118,132 -- -- ---------------- ---------------- -------------- -------------- TOTAL ........................................ $ 787,692,470 $ 787,692,470 $ -- $ -- ================ ================ ============== ============== LIABILITIES TABLE LEVEL 2 LEVEL 3 TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT VALUE AT QUOTED OBSERVABLE UNOBSERVABLE 1/31/2016 PRICES INPUTS INPUTS ---------------- ---------------- -------------- -------------- Call Options Written.......................... $ (5,669,377) $ (5,618,215) $ (51,162) $ -- Interest Rate Swaps** ........................ (14,203,039) -- (14,203,039) -- ---------------- ---------------- -------------- -------------- TOTAL ........................................ $ (19,872,416) $ (5,618,215) $ (14,254,201) $ -- ================ ================ ============== ==============
* See Portfolio of Investments for industry breakout. ** See Interest Rate Swap Agreements for contract detail. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. As of January 31, 2016, the Fund transferred a common stock valued at $487,378 from Level 2 to Level 1 of the fair value hierarchy. The common stock that transferred from Level 2 to Level 1 did so as a result of being valued based on quoted prices. Previously, this security was fair valued because a price was not available from a third-party pricing service. See Notes to Portfolio of Investments NOTES TO PORTFOLIO OF INVESTMENTS FIRST TRUST MLP AND ENERGY INCOME FUND (FEI) JANUARY 31, 2016 (UNAUDITED) 1. ORGANIZATION First Trust MLP and Energy Income Fund (the "Fund") is a non-diversified, closed-end management investment company organized as a Massachusetts business trust on August 17, 2012 and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the "1940 Act"). The Fund trades under the ticker symbol FEI on the New York Stock Exchange ("NYSE"). The Fund, which is an investment company within the scope of Financial Accounting Standards Board ("FASB") Accounting Standards Update 2013-08, follows accounting and reporting guidance under FASB Accounting Standards Codification Topic 946, "Financial Services-Investment Companies." 2. VALUATION AND INVESTMENT PRACTICES A. PORTFOLIO VALUATION The net asset value ("NAV") of the Common Shares of the Fund is determined daily as of the close of regular trading on the NYSE, normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV is determined as of that time. Foreign securities are priced using data reflecting the earlier closing of the principal markets for those securities. The Fund's NAV per Common Share is calculated by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses, dividends declared but unpaid, deferred income taxes and any borrowings of the Fund), by the total number of Common Shares outstanding. The Fund's investments are valued daily at market value or, in the absence of market value with respect to any portfolio securities, at fair value. Market value prices represent last sale or official closing prices from a national or foreign exchange (i.e., a regulated market) and are primarily obtained from third-party pricing services. Fair value prices represent any prices not considered market value prices and are either obtained from a third-party pricing service or are determined by the Pricing Committee of the Fund's investment advisor, First Trust Advisors L.P. ("First Trust" or the "Advisor"), in accordance with valuation procedures adopted by the Fund's Board of Trustees, and in accordance with provisions of the 1940 Act. Investments valued by the Advisor's Pricing Committee, if any, are footnoted as such in the footnotes to the Portfolio of Investments. The Fund's investments are valued as follows: Common stocks, master limited partnerships ("MLPs"), real estate investment trusts and other equity securities listed on any national or foreign exchange (excluding The Nasdaq(R) Stock Market LLC ("Nasdaq") and the London Stock Exchange Alternative Investment Market ("AIM")) are valued at the last sale price on the exchange on which they are principally traded or, for Nasdaq and AIM securities, the official closing price. Securities traded on more than one securities exchange are valued at the last sale price or official closing price, as applicable, at the close of the securities exchange representing the principal market for such securities. Exchange-traded options contracts are valued at the closing price in the market where such contracts are principally traded. If no closing price is available, exchange-traded options contracts are fair valued at the mean of their most recent bid and asked price, if available, and otherwise at their closing bid price. Over-the-counter options contracts are fair valued at the mean of their most recent bid and asked price, if available, and otherwise at their closing bid price. Securities traded in an over-the-counter market are fair valued at the mean of their most recent bid and asked price, if available, and otherwise at their closing bid price. Swaps are fair valued utilizing quotations provided by a third-party pricing service or, if the pricing service does not provide a value, by quotes provided by the selling dealer or financial institution. Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Fund's Board of Trustees or its delegate, the Advisor's Pricing Committee, at fair value. These securities generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933, as amended (the "1933 Act")) for which a pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security whose market or fair value price is not available from a pre-established pricing source; a security with respect to which an event has occurred that is likely to materially affect the value of the security after the market has closed but before the calculation of the Fund's NAV or make it difficult or impossible to obtain a reliable market quotation; and a security whose price, as provided by the pricing service, does not reflect the security's fair value. As a general principle, the current fair value of a security would appear to be the amount which the owner might reasonably expect to receive for the security upon its current sale. When fair value prices are used, generally they will differ from market quotations or official closing prices on the applicable exchanges. A variety of factors may be considered in determining the fair value of such securities, including, but not limited to, the following: 1) the type of security; 2) the size of the holding; 3) the initial cost of the security; 4) transactions in comparable securities; NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED) FIRST TRUST MLP AND ENERGY INCOME FUND (FEI) JANUARY 31, 2016 (UNAUDITED) 5) price quotes from dealers and/or pricing services; 6) relationships among various securities; 7) information obtained by contacting the issuer, analysts, or the appropriate stock exchange; 8) an analysis of the issuer's financial statements; and 9) the existence of merger proposals or tender offers that might affect the value of the security. If the securities in question are foreign securities, the following additional information may be considered: 1) the value of similar foreign securities traded on other foreign markets; 2) ADR trading of similar securities; 3) closed-end fund trading of similar securities; 4) foreign currency exchange activity; 5) the trading prices of financial products that are tied to baskets of foreign securities; 6) factors relating to the event that precipitated the pricing problem; 7) whether the event is likely to recur; and 8) whether the effects of the event are isolated or whether they affect entire markets, countries or regions. The Fund is subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows: o Level 1 - Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis. o Level 2 - Level 2 inputs are observable inputs, either directly or indirectly, and include the following: o Quoted prices for similar investments in active markets. o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly. o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates). o Inputs that are derived principally from or corroborated by observable market data by correlation or other means. o Level 3 - Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity's own assumptions about the assumptions that market participants would use in pricing the investment. The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value the Fund's investments as of January 31, 2016, is included with the Fund's Portfolio of Investments. B. OPTION CONTRACTS The Fund is subject to equity price risk in the normal course of pursuing its investment objective and may write (sell) options to hedge against changes in the value of equities. Also, the Fund seeks to generate additional income, in the form of premiums received, from writing (selling) the options. The Fund may write (sell) covered call or put options ("options") on all or a portion of the common stock and MLPs held in the Fund's portfolio as determined to be appropriate by Energy Income Partners, LLC ("EIP" or the "Sub-Advisor"). The number of options the Fund can write (sell) is limited by the amount of common stock and MLPs the Fund holds in its portfolio. The Fund will not write (sell) "naked" or uncovered options. Options are marked-to-market daily and their value will be affected by changes in the value and dividend rates of the underlying equity securities, changes in interest rates, changes in the actual or perceived volatility of the securities markets and the underlying equity securities and the remaining time to the options' expiration. The value of options may also be adversely affected if the market for the options becomes less liquid or trading volume diminishes. Options the Fund writes (sells) will either be exercised, expire or be cancelled pursuant to a closing transaction. If the price of the underlying equity security exceeds the option's exercise price, it is likely that the option holder will exercise the option. If an option written (sold) by the Fund is exercised, the Fund would be obligated to deliver the underlying security to the option holder upon payment of the strike price. In this case, the option premium received by the Fund will be added to the amount realized on the sale of the underlying security for purposes of determining gain or loss. If the price of the underlying 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. NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED) FIRST TRUST MLP AND ENERGY INCOME FUND (FEI) JANUARY 31, 2016 (UNAUDITED) The options that the Fund writes (sells) give the option holder the right, but not the obligation, to purchase a security from the Fund at the strike price on or prior to the option's expiration date. The ability to successfully implement the writing (selling) of covered call options depends on the ability of the Sub-Advisor to predict pertinent market movements, which cannot be assured. Thus, the use of options may require the Fund to sell portfolio securities at inopportune times or for prices other than current market value, which may limit the amount of appreciation the Fund can realize on an investment, or may cause the Fund to hold a security that it might otherwise sell. As the writer (seller) of a covered option, the Fund foregoes, during the option's life, the opportunity to profit from increases in the market value of the security covering the option above the sum of the premium and the strike price of the option, but has retained the risk of loss should the price of the underlying security decline. The writer (seller) of an option has no control over the time when it may be required to fulfill its obligation as a writer (seller) of the option. Once an option writer (seller) has received an exercise notice, it cannot effect a closing purchase transaction in order to terminate its obligation under the option and must deliver the underlying security to the option holder at the exercise price. Over-the-counter options have the risk of the potential inability of counterparties to meet the terms of their contracts. The Fund's maximum equity price risk for purchased options is limited to the premium initially paid. In addition, certain risks may arise upon entering into option contracts including the risk that an illiquid secondary market will limit the Fund's ability to close out an option contract prior to the expiration date and that a change in the value of the option contract may not correlate exactly with changes in the value of the securities hedged. C. SWAP AGREEMENTS The Fund may enter into total return equity swap and interest rate swap agreements. A swap is a financial instrument that typically involves the exchange of cash flows between two parties ("Counterparties") on specified dates (settlement dates) where the cash flows are based on agreed upon prices, rates, etc. Swap agreements are individually negotiated and involve the risk of the potential inability of the Counterparties to meet the terms of the agreement. In connection with these agreements, cash and securities may be identified as collateral in accordance with the terms of the respective swap agreements to provide assets of value and recourse in the event of default under the swap agreement or bankruptcy/insolvency of a party to the swap agreement. In the event of a default by the Counterparty, the Fund will seek withdrawal of this collateral and may incur certain costs exercising its right with respect to the collateral. If a Counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the Fund may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding. The Fund may obtain only limited recovery or may obtain no recovery in such circumstances. Swap agreements may increase or decrease the overall volatility of the investments of the Fund. The performance of swap agreements may be affected by a change in the specific interest rate, security, currency, or other factors that determine the amounts of payments due to and from the Fund. The Fund's maximum equity price risk to meet its future payments under swap agreements outstanding at January 31, 2016 is equal to the total notional amount as shown on the Portfolio of Investments. The notional amount represents the U.S. dollar value of the contract as of the day of the opening transaction or contract reset. The Fund held interest rate swap agreements at January 31, 2016 to hedge against changes in borrowing rates under the Fund's committed facility agreement. An interest rate swap agreement involves the Fund's agreement to exchange a stream of interest payments for another party's stream of cash flows. Interest rate swaps do not involve the delivery of securities or other underlying assets or principal. Accordingly, the risk of loss with respect to interest rate swaps is limited to the net amount of interest payments that the Fund is contractually obligated to make. D. SECURITIES TRANSACTIONS Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. E. RESTRICTED SECURITIES The Fund invests in restricted securities, which are securities that may not be offered for public sale without first being registered under the 1933 Act. Prior to registration, restricted securities may only be resold in transactions exempt from registration under Rule 144A under the 1933 Act, normally to qualified institutional buyers. As of January 31, 2016, the Fund held restricted securities as shown in the following table that the Sub-Advisor has deemed illiquid pursuant to procedures adopted by the Fund's Board of Trustees. Although market instability can result in periods of increased overall market illiquidity, liquidity for each security is determined based on security-specific factors and assumptions, which require subjective judgment. The Fund does not have the right to demand that such securities be registered. These securities are valued according to the valuation procedures as stated in the Portfolio Valuation note (Note 2A) and are not expressed as a discount to the carrying value of a comparable unrestricted security. NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED) FIRST TRUST MLP AND ENERGY INCOME FUND (FEI) JANUARY 31, 2016 (UNAUDITED)
ACQUISITION CURRENT CARRYING % OF NET SECURITY DATE SHARES PRICE COST VALUE ASSETS ---------------------------------------------- ------------ ----------- ----------- ----------- ----------- ----------- Hydro One Ltd. 10/29/15 30,700 $15.88 $ 477,921 $ 487,378 0.08%
F. FOREIGN CURRENCY The books and records of the Fund are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities are translated into U.S. dollars at the exchange rates prevailing at the end of the period. Purchases and sales of investments and items of income and expense are translated on the respective dates of such transactions. 3. DERIVATIVE TRANSACTIONS Written option activity for the Fund for the fiscal year-to-date period (November 1, 2015 through January 31, 2016) was as follows:
NUMBER OF WRITTEN OPTIONS CONTRACTS PREMIUMS ------------------------------------------------- -------------- ------------ Options outstanding at October 31, 2015.......... 88,110 $ 4,684,788 Options Written.................................. 48,130 2,967,580 Options Expired.................................. (79,335) (4,195,486) Options Exercised................................ -- -- Options Closed................................... (8,221) (517,244) -------------- ------------ Options outstanding at January 31, 2016.......... 48,684 $ 2,939,638 ============== ============
The average volume of interest rate swaps was $174,250,000 for the fiscal year-to-date period (November 1, 2015 through January 31, 2016). ITEM 2. CONTROLS AND PROCEDURES. (a) The registrant's principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)). (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the registrant's last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 3. EXHIBITS. Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) First Trust MLP and Energy Income Fund ---------------------------------------------------- By (Signature and Title)* /s/ James M. Dykas ---------------------------------------- James M. Dykas President and Chief Executive Officer (principal executive officer) Date: March 22, 2016 ----------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title)* /s/ James M. Dykas ---------------------------------------- James M. Dykas President and Chief Executive Officer (principal executive officer) Date: March 22, 2016 ----------------- By (Signature and Title)* /s/ Donald P. Swade ---------------------------------------- Donald P. Swade Chief Financial Officer and Chief Accounting Officer (principal financial officer) Date: March 22, 2016 ----------------- *Print the name and title of each signing officer under his or her signature.