UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-22528
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First Trust Energy Infrastructure Fund
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(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Name and address of agent for service)
registrant's telephone number, including area code: 630-765-8000
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Date of fiscal year end: November 30
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Date of reporting period: May 31, 2015
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 100 F Street, NE,
Washington, DC 20549. The OMB has reviewed this collection of information under
the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The Report to Shareholders is attached herewith.
FIRST TRUST
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ENERGY
INFRASTRUCTURE
-------------------
FUND
(FIF)
SEMI-ANNUAL REPORT
For the Six Months Ended
May 31, 2015
FIRST TRUST
ENERGY INCOME PARTNERS, LLC
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TABLE OF CONTENTS
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FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
SEMI-ANNUAL REPORT
MAY 31, 2015
Shareholder Letter.......................................................... 1
At a Glance................................................................. 2
Portfolio Commentary........................................................ 3
Portfolio of Investments.................................................... 5
Statement of Assets and Liabilities......................................... 10
Statement of Operations..................................................... 11
Statements of Changes in Net Assets......................................... 12
Statement of Cash Flows..................................................... 13
Financial Highlights........................................................ 14
Notes to Financial Statements............................................... 15
Additional Information...................................................... 22
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and/or Energy Income Partners, LLC ("EIP" or the
"Sub-Advisor") and their respective representatives, taking into account the
information currently available to them. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For example,
forward-looking statements include the use of words such as "anticipate,"
"estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or
other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
First Trust Energy Infrastructure Fund (the "Fund") to be materially different
from any future results, performance or achievements expressed or implied by the
forward-looking statements. When evaluating the information included in this
report, you are cautioned not to place undue reliance on these forward-looking
statements, which reflect the judgment of the Advisor and/or the Sub-Advisor and
their respective representatives only as of the date hereof. We undertake no
obligation to publicly revise or update these forward-looking statements to
reflect events and circumstances that arise after the date hereof.
MANAGED DISTRIBUTION POLICY
The Board of Trustees of the Fund has approved a managed distribution policy for
the Fund (the "Plan") in reliance on exemptive relief received from the
Securities and Exchange Commission that permits the Fund to make periodic
distributions of long-term capital gains as frequently as monthly each tax year.
Under the Plan, the Fund currently intends to continue to pay a recurring
monthly distribution in the amount of $0.11 per share that reflects the
distributable cash flow of the Fund. A portion of this monthly distribution may
include realized capital gains. This may result in a reduction of the long-term
capital gain distribution necessary at year end by distributing realized capital
gains throughout the year. The annual distribution rate is independent of the
Fund's performance during any particular period. Accordingly, you should not
draw any conclusions about the Fund's investment performance from the amount of
any distribution or from the terms of the Plan. The Board of Trustees may amend
or terminate the Plan at any time without prior notice to shareholders.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that the Fund will achieve its investment objective. The
Fund is subject to market risk, which is the possibility that the market values
of securities owned by the Fund will decline and that the value of the Fund
shares may therefore be less than what you paid for them. Accordingly, you can
lose money by investing in the Fund. See "Risk Considerations" in the Additional
Information section of this report for a discussion of certain other risks of
investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
http://www.ftportfolios.com or speak with your financial advisor. Investment
returns, net asset value and common share price will fluctuate and Fund shares,
when sold, may be worth more or less than their original cost.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment in
the Fund. It includes details about the Fund and presents data and analysis that
provide insight into the Fund's performance and investment approach.
By reading the portfolio commentary by the portfolio management team of the
Fund, you may obtain an understanding of how the market environment affected the
Fund's performance. The statistical information that follows may help you
understand the Fund's performance compared to that of relevant market
benchmarks.
It is important to keep in mind that the opinions expressed by personnel of EIP
are just that: informed opinions. They should not be considered to be promises
or advice. The opinions, like the statistics, cover the period through the date
on the cover of this report. The material risks of investing in the Fund are
spelled out in the prospectus, the statement of additional information, this
report and other Fund regulatory filings.
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SHAREHOLDER LETTER
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FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
SEMI-ANNUAL LETTER FROM THE CHAIRMAN AND CEO
MAY 31, 2015
Dear Shareholders:
Thank you for your investment in First Trust Energy Infrastructure Fund (the
"Fund").
First Trust Advisors L.P. ("First Trust") is pleased to provide you with this
semi-annual report which contains detailed information about your investment for
the six months ended May 31, 2015, including a portfolio commentary from the
Fund's management team, a performance analysis and a market and Fund outlook.
Additionally, First Trust has compiled the Fund's financial statements for you
to review. We encourage you to read this report and discuss it with your
financial advisor.
U.S. markets, fueled by accelerating growth and an accommodating Federal
Reserve, enjoyed a prosperous year in 2014. However, for the six months covered
by this report, some economic and global factors, including the continued
conflict in the Middle East and a sharp decline in oil prices, created
volatility in the U.S. and global markets. Another factor that has impacted
markets is the fact that many economists are predicting the Federal Reserve will
begin to raise interest rates this year.
As I have written previously, First Trust believes investors should maintain
perspective about the markets and have realistic expectations about their
investments. Markets will always go up and down, but we believe that having a
long-term investment horizon and being invested in quality products can help you
reach your goals.
Thank you for giving First Trust the opportunity to be a part of your investment
plan. We value the relationship and will continue to focus on our disciplined
investment approach and long-term perspective to help investors reach their
financial goals.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 1
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
"AT A GLANCE"
AS OF MAY 31, 2015 (UNAUDITED)
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FUND STATISTICS
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Symbol on New York Stock Exchange FIF
Common Share Price $21.99
Common Share Net Asset Value ("NAV") $24.84
Premium (Discount) to NAV (11.47)%
Net Assets Applicable to Common Shares $435,910,239
Current Monthly Distribution per Common Share (1) $0.1100
Current Annualized Distribution per Common Share $1.3200
Current Distribution Rate on Closing Common Share Price (2) 6.00%
Current Distribution Rate on NAV (2) 5.31%
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COMMON SHARE PRICE & NAV (WEEKLY CLOSING PRICE)
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Common Share Price NAV
5/14 $22.59 $25.04
22.91 25.39
22.80 25.13
23.17 25.98
6/14 23.74 26.58
23.22 26.20
23.46 26.10
23.84 26.49
7/14 24.00 26.53
22.82 25.34
22.67 25.40
24.43 27.35
24.89 27.56
8/14 24.94 27.98
24.92 27.94
24.33 27.05
24.20 27.70
9/14 23.52 26.83
23.47 26.79
22.26 25.32
23.33 25.80
24.67 27.09
10/14 25.07 27.43
23.25 26.05
22.99 25.85
23.79 26.74
11/14 23.00 25.94
23.35 26.30
21.30 24.27
22.76 25.62
12/14 23.38 26.35
23.84 26.48
22.73 25.34
22.71 25.38
23.08 25.98
1/15 22.57 25.49
23.43 25.59
23.84 25.63
23.62 25.84
2/15 23.06 25.23
22.58 24.32
22.11 23.56
22.21 24.61
3/15 22.63 24.41
23.19 24.52
23.55 24.91
23.33 25.20
4/15 23.52 25.69
23.00 25.39
22.33 24.99
22.58 25.45
22.52 25.40
5/15 21.99 24.84
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PERFORMANCE
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Average Annual
Total Return
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6 Months Ended 1 Year Ended Inception (9/27/11)
5/31/15 5/31/15 to 5/31/15
FUND PERFORMANCE (3)
NAV -1.56% 11.30% 19.44%
Market Value -1.60% 9.22% 14.11%
INDEX PERFORMANCE
Philadelphia Stock Exchange Utility Index -1.93% 8.13% 10.46%
Alerian MLP Total Return Index -8.42% -7.40% 12.58%
Blended Index (4) -4.91% 0.65% 11.88%
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% OF TOTAL
INDUSTRY CLASSIFICATION INVESTMENTS
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Pipelines 58.0%
Electric Power 23.6
Natural Gas Utility 7.6
Propane 5.0
Marine Transportation 2.0
Coal 1.7
Gathering & Processing 1.1
Other 1.0
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Total 100.0%
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% OF TOTAL
TOP 10 HOLDINGS INVESTMENTS
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Kinder Morgan, Inc. 9.8%
Enbridge Energy Management, LLC 8.1
Williams (The) Cos., Inc. 6.0
TransCanada Corp. 3.8
Energy Transfer Partners, L.P. 2.9
Spectra Energy Corp. 2.7
Enbridge Income Fund Holdings, Inc. (CAD) 2.5
AmeriGas Partners, L.P. 2.3
Enbridge, Inc. 2.3
UGI Corp. 2.2
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Total 42.6%
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(1) Most recent distribution paid or declared through 5/31/2015. Subject to
change in the future.
(2) Distribution rates are calculated by annualizing the most recent
distribution paid or declared through the report date and then dividing by
Common Share Price or NAV, as applicable, as of 5/31/2015. Subject to
change in the future.
(3) Total return is based on the combination of reinvested dividend, capital
gain and return of capital distributions, if any, at prices obtained by
the Dividend Reinvestment Plan and changes in NAV per share for NAV
returns and changes in Common Share Price for market value returns. Total
returns do not reflect sales load and are not annualized for periods less
than one year. Past performance is not indicative of future results.
(4) The blended index consists of the following: Philadelphia Stock Exchange
Utility Index (50%) and Alerian MLP Total Return Index (50%).
Page 2
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PORTFOLIO COMMENTARY
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FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
SEMI-ANNUAL REPORT
MAY 31, 2015
SUB-ADVISOR
ENERGY INCOME PARTNERS, LLC
Energy Income Partners, LLC ("EIP" or the "Sub-Advisor"), located in Westport,
Connecticut, was founded in 2003 to provide professional asset management
services in the area of energy-related master limited partnerships ("MLPs") and
other high-payout securities such as pipeline companies, power utilities, yield
corporations ("Yieldcos")(1), and energy infrastructure real estate investment
trusts ("REITs"). EIP mainly focuses on investments in energy-related
infrastructure assets such as pipelines, power transmission and distribution,
petroleum storage and terminals that receive fee-based or regulated income from
their corporate and individual customers. EIP manages or supervises
approximately $6.1 billion of assets as of May 31, 2015. Private funds advised
by EIP include a partnership for U.S. high net worth individuals and a
master-and-feeder fund for institutions. EIP also serves as an advisor to
separately managed accounts for individuals and institutions and provides its
model portfolio to unified managed accounts. Finally, EIP serves as a
sub-advisor to three closed-end management investment companies in addition to
the First Trust Energy Infrastructure Fund ("FIF" or the "Fund"), an actively
managed exchange-traded fund ("ETF"), a sleeve of an actively managed ETF and a
sleeve of a series of a variable insurance trust. EIP is a registered investment
advisor with the Securities and Exchange Commission.
PORTFOLIO MANAGEMENT TEAM
JAMES J. MURCHIE EVA PAO
PORTFOLIO MANAGER CO-PORTFOLIO MANAGER
FOUNDER AND CEO OF PRINCIPAL OF
ENERGY INCOME PARTNERS, LLC ENERGY INCOME PARTNERS, LLC
COMMENTARY
FIRST TRUST ENERGY INFRASTRUCTURE FUND
The investment objective of the Fund is to seek a high level of total return
with an emphasis on current distributions paid to shareholders. The Fund pursues
its objective by investing primarily in securities of companies engaged in the
energy infrastructure sector. These companies principally include
publicly-traded MLPs, MLP affiliates, YieldCos, pipeline companies, utilities
and other infrastructure-related companies that derive at least 50% of their
revenues from operating or providing services in support of infrastructure
assets such as pipelines, power transmission and petroleum and natural gas
storage in the petroleum, natural gas and power generation industries
(collectively, "Energy Infrastructure Companies"). Under normal market
conditions, the Fund invests at least 80% of its managed assets (total asset
value of the Fund minus the sum of the Fund's liabilities other than the
principal amount of borrowing) in securities of Energy Infrastructure Companies.
There can be no assurance that the Fund will achieve its investment objective.
The Fund may not be appropriate for all investors.
MARKET RECAP
As measured by the Alerian MLP Total Return Index ("AMZX") and the Philadelphia
Stock Exchange Utility Index ("UTY"), the total return for energy-related MLPs
and utilities over the six months ended May 31, 2015, was -8.42% and -1.93%,
respectively. These figures are according to data collected from several
sources, including Alerian Capital Management and Bloomberg. While in the short
term, share appreciation of Energy Infrastructure Companies can be volatile, the
Sub-Advisor believes that over the longer term, such share appreciation will
approximate growth in monthly cash distributions and dividends per share. Over
the last 10 years, growth in MLP distributions and utility dividends has
averaged 5.4% and 4.3%, respectively. Over the last 12 months, the cash
distributions of MLPs decreased by about 4.6% and utilities increased by about
3.6% (source: Alerian Capital Management and Bloomberg).
PERFORMANCE ANALYSIS
On a net asset value ("NAV") basis, the Fund provided a total return(2) of
-1.56%, including the reinvestment of distributions for the six months ended May
31, 2015. This compares, according to collected data, to a -4.91% return for a
blended index consisting of the UTY (50%) and the AMZX (50%), (the "Blended
Index"). Unlike the Fund, the Blended Index does not incur
(1) Yieldcos are publicly traded entities that own, operate and acquire
contracted renewable and conventional generation and thermal and other
infrastructure assets, which are generally not MLP-qualifying assets. Like
MLPs, Yieldcos generally seek to position themselves as vehicles for
investors seeking stable and growing dividend income from a diversified
portfolio of lower-risk, hiqh-quality assets.
(2) Total return is based on the combination of reinvested dividends, capital
gains and return of capital distributions, if any, at prices obtained by
the Dividend Reinvestment Plan and changes in NAV per share for NAV
returns and changes in common share price for market value returns. Total
returns do not reflect sales load and are not annualized for periods less
than one year. Past performance is not indicative of future results.
Page 3
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PORTFOLIO COMMENTARY (CONTINUED)
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fees and expenses. On a market value basis, the Fund had a total return,
including the reinvestment of distributions, of -1.60% for the period. As of May
31, 2015, the Fund's market price per share was $21.99, while the NAV per share
was $24.84, a discount of 11.47%. As of November 30, 2014, the Fund's market
price per share was $23.00, while the NAV per share was $25.97, a discount of
11.44%.
The Fund declared regular monthly Common Share distributions of $0.11 per share
for each month from December 2014 through May 2015.
During the six-month period, the Fund's NAV outperformed the -4.91% return of
the Blended Index. The MLP portion of the portfolio outperformed the AMZX due in
part to the Fund's overweight positions in MLPs that benefited from corporate
restructurings and underweight positions in MLPs with commodity exposure. The
non-MLP portion of the portfolio outperformed the UTY index. Outperforming
non-MLP positions in the Fund included MLP parent corporations and Canadian
infrastructure corporations. This positive performance was offset by the Fund's
underweight positions in UTY members that outperformed the index. Income was
enhanced by writing covered calls on select portfolio positions.
An important factor that affected the return of the Fund was its use of
financial leverage through the use of a line of credit. The Fund has a committed
facility agreement with The Bank of Nova Scotia, with a maximum commitment
amount of $200,000,000. The Fund uses leverage because the Sub-Advisor believes
that, over time, leverage can enhance total return for common shareholders.
However, the use of leverage can also increase the volatility of the Fund's NAV
and therefore volatility of the Fund's share price. For example, if the prices
of securities held by the Fund decline, the effect of changes in common share
NAV and common shareholder total return loss is magnified by the use of
leverage. Conversely, leverage may enhance common share returns during periods
when the prices of securities held by the Fund generally are rising. Unlike the
Fund, AMZX and UTY are not leveraged. Leverage had a negative impact on the
performance of the Fund over this reporting period.
MARKET AND FUND OUTLOOK
MLPs continue to play an integral role in the restructuring of more diversified
energy conglomerates. This restructuring includes the creation by these more
diversified conglomerates of subsidiaries with high dividend payout ratios that
contain assets with stable cash flows such as pipelines, storage terminals and
electric power assets with long-term fixed-price contracts. The restructuring
can also include the divestiture by some of the parent companies of most or all
of their cyclical businesses, leaving the parent company looking very similar to
an old-fashioned pipeline utility with a large holding in a subsidiary MLP. In
our view, these diversified energy conglomerates are restructuring so that their
regulated infrastructure assets that have predictable cash flows may be better
valued by the market. In our opinion, the result is a better financing tool to
raise capital for the new energy infrastructure projects related to the rapid
growth of North American oil and gas production. This phenomenon is beginning to
spread to the power utility industry, but instead of spinning out MLPs,
diversified power companies are spinning out regular "C" corporations with
higher dividend payout ratios (relative to earnings).
Calendar year-to-date through May 31, 2015, five MLPs have conducted initial
public offerings ("IPOs"). In addition, there was secondary financing activity
for MLPs during the reporting period, as MLPs continued to fund their ongoing
investments in new pipelines, processing and storage facilities. During the same
period, there have been 22 secondary equity offerings for MLPs, which raised an
aggregate of $6.4 billion in proceeds during the period. This compares to $19.1
billion raised in all of 2014. Calendar year-to-date through May 31, 2015, MLPs
also found access to the public debt markets, raising an aggregate of $21
billion in 21 offerings. This compares to $28.1 billion in calendar year 2014.
(Source: Barclays Capital).
Capital expenditures for the 20 companies that comprise the UTY Index were $22
billion for the first calendar quarter of 2015. The capital expenditure estimate
for 2015 is $93 billion. (Source: Bloomberg) This compares to $81 billion in
2013 and about $86.3 billion in 2014. The expenditures are in response to needs
such as reliability, interconnection, modernization and growing demand. These
capital investments are supported, in part, by federal and state regulation,
which allows companies to recoup investments they have made in the rates they
charge their customers.
The Fund continues to aim to weight the portfolio toward Energy Infrastructure
Companies with mostly non-cyclical cash flows, investment-grade ratings,
conservative balance sheets, modest and/or flexible organic growth commitments
and available liquidity under revolving lines of credit. Since the Fund invests
in securities that tend to have high dividend payout ratios (relative to
earnings), in EIP's opinion, securities with unpredictable cyclical cash flows
make a poor fit within the portfolio. While there are some businesses within the
Fund's portfolio whose cash flows are cyclical, they are generally small and
analyzed in the context of each company's financial and operating leverage and
payout ratio.
Page 4
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
PORTFOLIO OF INVESTMENTS
MAY 31, 2015 (UNAUDITED)
SHARES DESCRIPTION VALUE
------------- ----------------------------------------------------------------------------------------- --------------
COMMON STOCKS - 93.9%
ELECTRIC UTILITIES - 15.8%
122,400 American Electric Power Co., Inc. (a).................................................... $ 6,889,896
38,200 Duke Energy Corp......................................................................... 2,892,886
176,400 Emera, Inc. (CAD) (a).................................................................... 5,851,158
241,600 Eversource Energy (a).................................................................... 11,898,800
168,700 Exelon Corp. (a)......................................................................... 5,707,121
176,800 Fortis, Inc. (CAD) (a)................................................................... 5,399,537
60,000 IDACORP, Inc. (a)........................................................................ 3,568,200
280,800 ITC Holdings Corp. (a)................................................................... 9,909,432
113,300 NextEra Energy, Inc. (a)................................................................. 11,595,122
117,900 Southern (The) Co. (a)................................................................... 5,151,051
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68,863,203
--------------
GAS UTILITIES - 8.2%
111,800 Atmos Energy Corp. (a)................................................................... 6,039,436
27,810 Chesapeake Utilities Corp. (a)........................................................... 1,463,640
161,000 ONE Gas, Inc. (a)........................................................................ 7,137,130
150,000 Piedmont Natural Gas Co., Inc............................................................ 5,593,500
138,000 South Jersey Industries, Inc. (a)........................................................ 3,641,820
323,718 UGI Corp. (a)............................................................................ 12,107,053
--------------
35,982,579
--------------
INDEPENDENT POWER AND RENEWABLE ELECTRICITY PRODUCERS - 1.6%
54,300 NRG Yield, Inc., Class A (a)............................................................. 1,438,950
54,300 NRG Yield, Inc., Class C (a)............................................................. 1,469,901
137,000 Pattern Energy Group, Inc. (a)........................................................... 3,896,280
--------------
6,805,131
--------------
MULTI-UTILITIES - 15.6%
49,000 Alliant Energy Corp. (a)................................................................. 3,003,700
142,200 ATCO, Ltd., Class I (CAD) (a)............................................................ 4,975,171
191,000 Canadian Utilities Ltd., Class A (CAD) (a)............................................... 5,671,944
116,000 CMS Energy Corp. (a)..................................................................... 3,960,240
113,900 Dominion Resources, Inc. (a)............................................................. 8,032,228
64,000 National Grid PLC, ADR................................................................... 4,587,520
222,900 NiSource, Inc. (a)....................................................................... 10,516,422
159,000 Public Service Enterprise Group, Inc..................................................... 6,778,170
85,000 SCANA Corp............................................................................... 4,518,600
56,000 Sempra Energy (a)........................................................................ 6,018,320
205,100 Wisconsin Energy Corp. (a)............................................................... 9,902,228
--------------
67,964,543
--------------
OIL, GAS & CONSUMABLE FUELS - 51.7%
1,254,850 Enbridge Energy Management, LLC (a) (b).................................................. 45,350,279
458,600 Enbridge Income Fund Holdings, Inc. (CAD) (a)............................................ 14,075,878
264,169 Enbridge, Inc. (a)....................................................................... 12,658,979
422,000 Inter Pipeline, Ltd. (CAD) (a)........................................................... 10,499,099
180,600 Keyera Corp. (CAD) (a)................................................................... 5,946,904
1,331,075 Kinder Morgan, Inc. (a).................................................................. 55,226,302
150,000 ONEOK, Inc. (a).......................................................................... 6,288,000
153,100 Pembina Pipeline Corp. (CAD) (a)......................................................... 4,935,493
434,400 Spectra Energy Corp. (a)................................................................. 15,277,848
495,700 TransCanada Corp. (a).................................................................... 21,498,509
661,800 Williams (The) Cos., Inc. (a)............................................................ 33,817,980
--------------
225,575,271
--------------
See Notes to Financial Statements Page 5
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
MAY 31, 2015 (UNAUDITED)
SHARES/
UNITS DESCRIPTION VALUE
------------- ----------------------------------------------------------------------------------------- --------------
COMMON STOCKS (CONTINUED)
REAL ESTATE INVESTMENT TRUSTS - 1.0%
135,000 CorEnergy Infrastructure Trust........................................................... $ 897,750
109,150 InfraREIT, Inc........................................................................... 3,307,245
--------------
4,204,995
--------------
TOTAL COMMON STOCKS...................................................................... 409,395,722
(Cost $353,921,702) --------------
MASTER LIMITED PARTNERSHIPS - 34.7%
CHEMICALS - 0.1%
25,000 Westlake Chemical Partners, L.P.......................................................... 546,000
--------------
GAS UTILITIES - 3.7%
263,752 AmeriGas Partners, L.P. (a).............................................................. 13,002,973
67,000 Suburban Propane Partners, L.P. (a)...................................................... 2,934,600
--------------
15,937,573
--------------
INDEPENDENT POWER AND RENEWABLE ELECTRICITY PRODUCERS - 0.9%
84,300 NextEra Energy Partners, L.P. (a)........................................................ 3,983,175
--------------
OIL, GAS & CONSUMABLE FUELS - 30.0 %
46,000 Alliance Holdings GP, L.P. (a)........................................................... 2,217,200
219,430 Alliance Resource Partners, L.P. (a)..................................................... 6,580,706
34,200 Columbia Pipeline Partners, L.P.......................................................... 925,110
97,000 Energy Transfer Equity, L.P. (a)......................................................... 6,660,990
285,400 Energy Transfer Partners, L.P. (a)....................................................... 16,048,042
241,200 Enterprise Products Partners, L.P. (a)................................................... 7,819,704
89,700 EQT Midstream Partners, L.P. (a)......................................................... 7,505,199
180,539 Golar LNG Partners, L.P. (a)............................................................. 5,093,005
19,800 Hoegh LNG Partners, L.P.................................................................. 455,400
208,876 Holly Energy Partners, L.P. (a).......................................................... 7,045,387
70,600 Magellan Midstream Partners, L.P. (a).................................................... 5,628,232
201,239 Natural Resource Partners, L.P. (a)...................................................... 825,080
178,172 NGL Energy Partners, L.P. (a)............................................................ 5,355,850
120,200 ONEOK Partners, L.P. (a)................................................................. 4,693,810
47,100 Phillips 66 Partners, L.P. (a)........................................................... 3,426,054
173,486 Plains All American Pipeline, L.P. (a)................................................... 8,145,168
18,600 Shell Midstream Partners, L.P. (a)....................................................... 835,140
141,900 Spectra Energy Partners, L.P. (a)........................................................ 7,236,900
67,938 Tallgrass Energy Partners, L.P........................................................... 3,362,252
20,000 Targa Resources Partners, L.P............................................................ 864,600
125,095 TC Pipelines, L.P. (a)................................................................... 7,993,571
159,628 Teekay LNG Partners, L.P. (a)............................................................ 5,596,558
135,762 TransMontaigne Partners, L.P. (a)........................................................ 5,343,592
201,938 Williams Partners, L.P. (a).............................................................. 11,284,295
--------------
130,941,845
--------------
TOTAL MASTER LIMITED PARTNERSHIPS........................................................ 151,408,593
(Cost $124,202,163) --------------
TOTAL INVESTMENTS - 128.6%............................................................... 560,804,315
(Cost $478,123,865) (c) --------------
Page 6 See Notes to Financial Statements
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
MAY 31, 2015 (UNAUDITED)
NUMBER OF
CONTRACTS DESCRIPTION VALUE
------------- ----------------------------------------------------------------------------------------- --------------
CALL OPTIONS WRITTEN - (0.2%)
American Electric Power Co., Inc. Calls
30 @ $57.50 due June 2015................................................................... $ (1,050)
720 @ 60.00 due August 2015................................................................. (27,360)
--------------
(28,410)
--------------
CMS Energy Corp. Call
710 @ 40.00 due June 2015 (d)............................................................... (8,520)
--------------
Dominion Resources, Inc. Call
700 @ 75.00 due June 2015 (d)............................................................... (4,200)
--------------
Duke Energy Corp. Call
230 @ 82.50 due July 2015................................................................... (2,300)
--------------
Enbridge, Inc. Call
1,630 @ 55.00 due June 2015 (d)............................................................... (16,300)
--------------
Eversource Energy Call
1,490 @ 55.00 due October 2015................................................................ (56,620)
--------------
Exelon Corp. Call
1,380 @ 36.00 due July 2015................................................................... (28,980)
--------------
IDACORP, Inc. Calls
100 @ 70.00 due August 2015 (d)............................................................. (9,500)
270 @ 75.00 due August 2015 (d)............................................................. (24,300)
--------------
(33,800)
--------------
Kinder Morgan, Inc. Calls
300 @ 45.00 due June 2015................................................................... (600)
2,000 @ 45.00 due September 2015.............................................................. (68,000)
770 @ 50.00 due September 2015.............................................................. (6,545)
2,000 @ 47.50 due December 2015............................................................... (70,000)
--------------
(145,145)
--------------
National Grid PLC, ADR Call
380 @ 70.00 due June 2015................................................................... (100,700)
--------------
NextEra Energy, Inc. Calls
130 @ 110.00 due June 2015 (d)............................................................... (520)
570 @ 120.00 due September 2015.............................................................. (9,975)
--------------
(10,495)
--------------
NiSource, Inc. Calls
320 @ 46.00 due June 2015................................................................... (56,000)
1,060 @ 47.00 due July 2015................................................................... (174,900)
--------------
(230,900)
--------------
ONE Gas, Inc. Calls
590 @ 45.00 due June 2015................................................................... (38,350)
400 @ 50.00 due July 2015 (d)............................................................... (10,000)
--------------
(48,350)
--------------
ONEOK, Inc. Calls
330 @ 50.00 due July 2015................................................................... (6,270)
600 @ 52.50 due July 2015................................................................... (7,800)
--------------
(14,070)
--------------
See Notes to Financial Statements Page 7
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
MAY 31, 2015 (UNAUDITED)
NUMBER OF
CONTRACTS DESCRIPTION VALUE
------------- ----------------------------------------------------------------------------------------- --------------
CALL OPTIONS WRITTEN (CONTINUED)
Plains All American Pipeline, L.P. Calls
200 @ $52.50 due August 2015................................................................. $ (5,000)
450 @ 55.00 due August 2015................................................................. (5,625)
--------------
(10,625)
--------------
Public Service Enterprise Group, Inc. Calls
740 @ 45.00 due June 2015 (d)............................................................... (5,920)
400 @ 45.00 due July 2015................................................................... (15,000)
--------------
(20,920)
--------------
SCANA Corp. Call
520 @ 65.00 due August 2015 (d)............................................................. (7,800)
--------------
Sempra Energy Call
340 @ 125.00 due July 2015 (d)............................................................... (15,300)
--------------
Southern (The) Co. Call
730 @ 45.00 due July 2015................................................................... (33,580)
--------------
Spectra Energy Corp. Calls
2,530 @ 38.00 due June 2015 (d)............................................................... (12,650)
160 @ 40.00 due June 2015................................................................... (800)
--------------
(13,450)
--------------
TransCanada Corp. Calls
1,270 @ 50.00 due August 2015................................................................. (19,050)
500 @ 50.00 due November 2015............................................................... (20,000)
--------------
(39,050)
--------------
UGI Corp. Calls
100 @ 37.50 due October 2015 (d)............................................................ (17,732)
1,000 @ 40.00 due October 2015................................................................ (45,000)
--------------
(62,732)
--------------
Williams Cos., Inc. Calls
40 @ 52.50 due June 2015................................................................... (1,080)
200 @ 55.00 due June 2015................................................................... (1,000)
1,805 @ 55.00 due July 2015................................................................... (39,710)
1,770 @ 57.50 due July 2015................................................................... (11,505)
908 @ 55.00 due August 2015................................................................. (49,940)
--------------
(103,235)
--------------
Wisconsin Energy Corp. Call
1,580 @ 60.00 due July 2015 (d)............................................................... (23,700)
--------------
TOTAL CALL OPTIONS WRITTEN............................................................... (1,059,182)
(Premiums received $1,972,488) --------------
OUTSTANDING LOAN - (32.3%)............................................................... (141,000,000)
NET OTHER ASSETS AND LIABILITIES - 3.9%.................................................. 17,165,106
--------------
NET ASSETS - 100.0%...................................................................... $ 435,910,239
==============
Page 8 See Notes to Financial Statements
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
MAY 31, 2015 (UNAUDITED)
-----------------------------
(a) All or a portion of this security serves as collateral on the outstanding
loan.
(b) Non-income producing security that makes payment-in-kind ("PIK")
distributions. For the fiscal year-to-date period (December 1, 2014
through May 31, 2015), the Fund received 40,260 PIK shares of Enbridge
Energy Management, LLC.
(c) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of May 31, 2015, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $93,868,290 and the aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over value was $11,187,840.
(d) This security is fair valued by the First Trust Advisors L.P.'s Pricing
Committee in accordance with procedures adopted by the Fund's Board of
Trustees and in accordance with provisions of the Investment Company Act
of 1940, as amended. At May 31, 2015, securities noted as such are valued
at $(156,442) or (0.04%) of net assets.
ADR American Depositary Receipt
CAD Canadian Dollar - Security is denominated in Canadian Dollars and is
translated into U.S. Dollars based upon the current exchange rate.
-----------------------------
INTEREST RATE SWAP AGREEMENTS:
NOTIONAL
COUNTERPARTY FLOATING RATE (1) EXPIRATION DATE AMOUNT FIXED RATE (1) VALUE
--------------------------------------------------------------------------------------------------------
Bank of Nova Scotia 1 month LIBOR 10/08/20 $ 36,475,000 2.121% $ (1,228,710)
Bank of Nova Scotia 1 month LIBOR 09/03/24 36,475,000 2.367% (1,351,620)
-------------- ---------------
$ 72,950,000 $ (2,580,330)
============== ===============
(1) The Fund pays the fixed rate and receives the floating rate. The floating
rate on May 31, 2015 was 0.18%.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of May 31, 2015
is as follows (see Note 3A - Portfolio Valuation in the Notes to Financial
Statements):
ASSETS TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
INVESTMENTS 5/31/2015 PRICES INPUTS INPUTS
-------------------------------------------------- -------------- -------------- -------------- --------------
Common Stocks*.................................... $ 409,395,722 $ 409,395,722 $ -- $ --
Master Limited Partnerships *..................... 151,408,593 151,408,593 -- --
-------------- -------------- -------------- --------------
Total............................................. $ 560,804,315 $ 560,804,315 $ -- $ --
============== ============== ============== ==============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
5/31/2015 PRICES INPUTS INPUTS
-------------- -------------- -------------- --------------
Call Options Written.............................. $ (1,059,182) $ (902,740) $ (156,442) $ --
Interest Rate Swaps**............................. (2,580,330) -- (2,580,330) --
-------------- -------------- -------------- --------------
Total............................................. $ (3,639,512) $ (902,740) $ (2,736,772) $ --
============== ============== ============== ==============
* See Portfolio of Investments for industry breakout.
** See Interest Rate Swap Agreements for contract detail.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at May 31, 2015.
See Notes to Financial Statements Page 9
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 2015 (UNAUDITED)
ASSETS:
Investments, at value
(Cost $478,123,865)......................................................................... $ 560,804,315
Cash............................................................................................ 13,972,140
Cash segregated as collateral for open swap contracts........................................... 5,315,828
Receivables:
Dividends................................................................................... 1,165,575
Interest.................................................................................... 42
Prepaid expenses................................................................................ 20,328
-------------
Total Assets................................................................................ 581,278,228
-------------
LIABILITIES:
Outstanding loan................................................................................ 141,000,000
Due to custodian foreign currency (Proceeds $15,723)............................................ 16,240
Options written, at value (Premiums received $1,972,488)........................................ 1,059,182
Swap contracts, at value (Cost $569)............................................................ 2,580,330
Payables:
Investment advisory fees.................................................................... 494,769
Interest and fees on loan................................................................... 114,699
Audit and tax fees.......................................................................... 30,209
Administrative fees......................................................................... 25,268
Custodian fees.............................................................................. 17,125
Printing fees............................................................................... 10,813
Legal fees.................................................................................. 8,516
Transfer agent fees......................................................................... 5,863
Trustees' fees and expenses................................................................. 4,204
Financial reporting fees.................................................................... 771
-------------
Total Liabilities........................................................................... 145,367,989
-------------
NET ASSETS...................................................................................... $ 435,910,239
=============
NET ASSETS CONSIST OF:
Paid-in capital................................................................................. $ 332,300,571
Par value....................................................................................... 175,502
Accumulated net investment income (loss)........................................................ 1,893,779
Accumulated net realized gain (loss) on investments, written options, swap
contracts and foreign currency transactions................................................... 20,531,951
Net unrealized appreciation (depreciation) on investments, written options, swap
contracts and foreign currency translation.................................................... 81,008,436
-------------
NET ASSETS...................................................................................... $ 435,910,239
=============
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share)............................ $ 24.84
=============
Number of Common Shares outstanding (unlimited number of Common Shares has been authorized)..... 17,550,236
=============
Page 10 See Notes to Financial Statements
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MAY 31, 2015 (UNAUDITED)
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $251,424).......................................... $ 6,684,378
Interest........................................................................................ (188)
Other........................................................................................... 71
-------------
Total investment income..................................................................... 6,684,261
-------------
EXPENSES:
Investment advisory fees........................................................................ 2,935,324
Interest and fees on loan....................................................................... 695,058
Administrative fees............................................................................. 89,672
Printing fees................................................................................... 77,648
Custodian fees.................................................................................. 28,902
Audit and tax fees.............................................................................. 25,081
Transfer agent fees............................................................................. 14,136
Trustees' fees and expenses..................................................................... 11,374
Legal fees...................................................................................... 8,701
Financial reporting fees........................................................................ 4,625
Other........................................................................................... 21,072
-------------
Total expenses.............................................................................. 3,911,593
-------------
NET INVESTMENT INCOME (LOSS).................................................................... 2,772,668
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments................................................................................. 20,773,790
Written options............................................................................. 1,068,543
Swap contracts.............................................................................. (770,351)
Foreign currency transactions............................................................... (6,288)
-------------
Net realized gain (loss)........................................................................ 21,065,694
-------------
Net change in unrealized appreciation (depreciation) on:
Investments................................................................................. (33,212,760)
Written options............................................................................. 1,900,628
Swap contracts.............................................................................. (878,937)
Foreign currency translation................................................................ (2,628)
-------------
Net change in unrealized appreciation (depreciation)............................................ (32,193,697)
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS)......................................................... (11,128,003)
-------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................ $ (8,355,335)
=============
See Notes to Financial Statements Page 11
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE
SIX MONTHS FOR THE
ENDED YEAR
5/31/2015 ENDED
(UNAUDITED) 11/30/2014
-------------- --------------
OPERATIONS:
Net investment income (loss)......................................................... $ 2,772,668 $ 3,824,748
Net realized gain (loss)............................................................. 21,065,694 47,585,603
Net change in unrealized appreciation (depreciation)................................. (32,193,697) 61,365,138
-------------- --------------
Net increase (decrease) in net assets resulting from operations...................... (8,355,335) 112,775,489
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................................................................ (11,583,156) (7,795,582)
Net realized gain.................................................................... -- (38,829,529)
Return of capital.................................................................... -- (1,638,038)
-------------- --------------
Total distributions to shareholders.................................................. (11,583,156) (48,263,149)
-------------- --------------
Total increase (decrease) in net assets.............................................. (19,938,491) 64,512,340
NET ASSETS:
Beginning of period.................................................................. 455,848,730 391,336,390
-------------- --------------
End of period........................................................................ $ 435,910,239 $ 455,848,730
============== ==============
Accumulated net investment income (loss) at end of period............................ $ 1,893,779 $ 10,704,267
============== ==============
COMMON SHARES:
Common Shares at end of period....................................................... 17,550,236 17,550,236
============== ==============
Page 12 See Notes to Financial Statements
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED MAY 31, 2015 (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) in net assets resulting from operations ......... $ (8,355,335)
Adjustments to reconcile net increase (decrease) in net assets resulting
from operations to net cash provided by operating activities:
Purchases of investments............................................. (99,052,271)
Sales of investments................................................. 116,761,837
Proceeds from written options........................................ 3,644,872
Amount paid to close written options................................. (1,257,586)
Return of capital received from investment in MLPs................... 4,178,778
Net realized gain/loss on investments and written options............ (21,842,333)
Net change in unrealized appreciation/depreciation on investments and
written options.................................................... 31,312,132
Net change in unrealized appreciation/depreciation on swap contracts. 878,937
Increase in cash segregated as collateral for open swap contracts.... (1,779,648)
CHANGES IN ASSETS AND LIABILITIES:
Decrease in interest receivable...................................... 87
Decrease in dividends receivable (a)................................. 160,445
Increase in prepaid expenses......................................... (10,028)
Increase in interest and fees on loan payable........................ 14,658
Decrease in investment advisory fees payable......................... (15,839)
Decrease in audit and tax fees payable............................... (20,091)
Decrease in legal fees payable....................................... (1,607)
Decrease in printing fees payable.................................... (15,620)
Decrease in administrative fees payable.............................. (62,073)
Decrease in custodian fees payable................................... (541)
Increase in transfer agent fees payable.............................. 357
Increase in Trustees' fees and expenses payable...................... 340
Decrease in other liabilities payable................................ (4,296)
--------------
CASH PROVIDED BY OPERATING ACTIVITIES................................... $ 24,535,175
--------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to Common Shareholders from net investment income.... (11,583,156)
Proceeds from borrowing............................................ 3,000,000
Repayment of borrowing............................................. (20,000,000)
--------------
CASH USED IN FINANCING ACTIVITIES....................................... (28,583,156)
--------------
Decrease in cash and foreign currency................................... (4,047,981)
Cash and foreign currency at beginning of period........................ 18,003,881
--------------
Cash and foreign currency at end of period.............................. $ 13,955,900
==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest and fees....................... $ 680,400
==============
-----------------------------
(a) Includes net change in unrealized appreciation (depreciation) on foreign
currency of $(2,628).
See Notes to Financial Statements Page 13
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
FINANCIAL HIGHLIGHTS
FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX MONTHS FOR THE
ENDED YEAR YEAR YEAR PERIOD
5/31/2015 ENDED ENDED ENDED ENDED
(UNAUDITED) 11/30/2014 11/30/2013 11/30/2012 11/30/2011 (a)
----------- ----------- ----------- ----------- --------------
Net asset value, beginning of period................ $ 25.97 $ 22.30 $ 22.74 $ 21.38 $ 19.10 (b)
--------- --------- --------- --------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)........................ 0.16 0.22 0.22 0.27 0.05
Net realized and unrealized gain (loss)............. (0.63) 6.20 3.47 2.38 2.30
--------- --------- --------- --------- ----------
Total from investment operations.................... (0.47) 6.42 3.69 2.65 2.35
--------- --------- --------- --------- ----------
Common Shares offering costs charged to paid-in
capital.......................................... -- -- -- 0.01 (0.04)
--------- --------- --------- --------- ----------
Capital reduction from issuance of Common Shares
related to over allotment........................ -- -- -- -- (0.03)
--------- --------- --------- --------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income............................... (0.66) (0.45) (0.83) (1.01) --
Net realized gain................................... -- (2.21) (3.25) (0.29) --
Return of capital................................... -- (0.09) (0.05) -- --
--------- --------- --------- --------- ----------
Total distributions to Common Shareholders.......... (0.66) (2.75) (4.13) (1.30) --
--------- --------- --------- --------- ----------
Net asset value, end of period...................... $ 24.84 $ 25.97 $ 22.30 $ 22.74 $ 21.38
========= ========= ========= ========= ==========
Market value, end of period......................... $ 21.99 $ 23.00 $ 21.71 $ 21.34 $ 19.82
========= ========= ========= ========= ==========
TOTAL RETURN BASED ON NET ASSET VALUE (c)........... (1.56)% 31.02% 17.76% (d) 13.08% (e) 11.94%
========= ========= ========= ========= ==========
TOTAL RETURN BASED ON MARKET VALUE (c).............. (1.60)% 19.18% 22.11% 14.47% (0.90)%
========= ========= ========= ========= ==========
-----------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)................ $ 435,910 $ 455,849 $ 391,336 $ 399,092 $ 375,232
Ratio of net expenses to average net assets......... 1.77% (f) 1.80% 1.84% 1.82% 1.66% (f)
Ratio of total expenses to average net assets
excluding interest expense and fees on loan....... 1.46% (f) 1.53% 1.55% 1.52% 1.48% (f)
Ratio of net investment income (loss) to average
net assets........................................ 1.26% (f) 0.88% 0.95% 1.21% 1.49% (f)
Portfolio turnover rate............................. 16% 42% 54% 46% 8%
INDEBTEDNESS:
Total loan outstanding (in 000's)................... $ 141,000 $ 158,000 $ 145,900 $ 141,900 $ 102,000
Asset coverage per $1,000 of indebtedness (g)....... $ 4,092 $ 3,885 $ 3,682 $ 3,812 $ 4,679
-----------------------------
(a) Initial seed date of August 18, 2011. The Fund commenced operations on
September 27, 2011.
(b) Net of sales load of $0.90 per Common Share on initial offering.
(c) Total return is based on the combination of reinvested dividend, capital
gain and return of capital distributions, if any, at prices obtained by
the Dividend Reinvestment Plan, and changes in net asset value per 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) The Fund received a reimbursement from the Sub-Advisor in the amount of
$5,421 in connection with a trade error. The reimbursement from the
Sub-Advisor represents less than $0.01 per share and had no effect on the
Fund's total return.
(e) The Fund received a reimbursement from the Sub-Advisor in the amount of
$104 in connection with a trade error. The reimbursement from the
Sub-Advisor represents less than $0.01 per share and had no effect on the
Fund's total return.
(f) Annualized.
(g) Calculated by taking the Fund's total assets less the Fund's total
liabilities (not including the loan outstanding) and dividing by the
outstanding loan balance in 000's.
Page 14 See Notes to Financial Statements
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
MAY 31, 2015 (UNAUDITED)
1. ORGANIZATION
First Trust Energy Infrastructure Fund (the "Fund") is a non-diversified,
closed-end management investment company organized as a Massachusetts business
trust on February 22, 2011 and is registered with the Securities and Exchange
Commission under the Investment Company Act of 1940, as amended (the "1940
Act"). The Fund trades under the ticker symbol FIF on the New York Stock
Exchange ("NYSE").
The Fund's investment objective is to seek a high level of total return with an
emphasis on current distributions paid to shareholders. The Fund seeks to
achieve its objective by investing primarily in securities of companies engaged
in the energy infrastructure sector. Energy infrastructure companies principally
include publicly-traded master limited partnerships and limited liability
companies taxed as partnerships ("MLPs"), MLP affiliates, Canadian income
equities, pipeline companies, utilities, and other companies that derive at
least 50% of their revenues from operating or providing services in support of
infrastructure assets such as pipelines, power transmission and petroleum and
natural gas storage in the petroleum, natural gas and power generation
industries (collectively, "Energy Infrastructure Companies"). For purposes of
the Fund's investment objective, total return includes capital appreciation of,
and all distributions received from, securities in which the Fund will invest,
taking into account the varying tax characteristics of such securities. There
can be no assurance that the Fund will achieve its investment objective. The
Fund may not be appropriate for all investors.
2. MANAGED DISTRIBUTION POLICY
The Board of Trustees of the Fund has approved a managed distribution policy for
the Fund (the "Plan") in reliance on exemptive relief received from the
Securities and Exchange Commission that permits the Fund to make periodic
distributions of long-term capital gains as frequently as monthly each tax year.
Under the Plan, the Fund currently intends to continue to pay a recurring
monthly distribution in the amount of $0.11 per share that reflects the
distributable cash flow of the Fund. A portion of this monthly distribution may
include realized capital gains. This may result in a reduction of the long-term
capital gain distribution necessary at year end by distributing realized capital
gains throughout the year. The annual distribution rate is independent of the
Fund's performance during any particular period. Accordingly, you should not
draw any conclusions about the Fund's investment performance from the amount of
any distribution or from the terms of the Plan. The Board of Trustees may amend
or terminate the Plan at any time without prior notice to shareholders.
3. SIGNIFICANT ACCOUNTING POLICIES
The Fund, which is an investment company within the scope of Financial
Accounting Standards Board ("FASB") Accounting Standards Update 2013-08, follows
accounting and reporting guidance under FASB Accounting Standards Codification
Topic 946, "Financial Services-Investment Companies."
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America ("U.S. GAAP") requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
A. PORTFOLIO VALUATION
The net asset value ("NAV") of the Common Shares of the Fund is determined daily
as of the close of regular trading on the NYSE, normally 4:00 p.m. Eastern time,
on each day the NYSE is open for trading. If the NYSE closes early on a
valuation day, the NAV is determined as of that time. Foreign securities are
priced using data reflecting the earlier closing of the principal markets for
those securities. The Fund's NAV per Common Share is calculated by dividing the
value of all assets of the Fund (including accrued interest and dividends), less
all liabilities (including accrued expenses, dividends declared but unpaid and
any borrowings of the Fund) by the total number of Common Shares outstanding.
The Fund's investments are valued daily at market value or, in the absence of
market value with respect to any portfolio securities, at fair value. Market
value prices represent last sale or official closing prices from a national or
foreign exchange (i.e., a regulated market) and are primarily obtained from
third-party pricing services. Fair value prices represent any prices not
considered market value prices and are either obtained from a third-party
pricing service or are determined by the Pricing Committee of the Fund's
investment advisor, First Trust Advisors L.P. ("First Trust" or the "Advisor")
in accordance with valuation procedures adopted by the Fund's Board of Trustees,
and in accordance with provisions of the 1940 Act. Investments valued by the
Advisor's Pricing Committee, if any, are footnoted as such in the footnotes to
the Portfolio of Investments. The Fund's investments are valued as follows:
Common stocks, MLPs and other equity securities listed on any national or
foreign exchange (excluding The NASDAQ(R) Stock Market, LLC ("NASDAQ") and
the London Stock Exchange Alternative Investment Market ("AIM")) are
valued at the last sale price on the exchange on which they are
principally traded or, for NASDAQ and AIM securities, the official closing
price. Securities traded on more than one securities exchange are valued
at the last sale price or official closing price, as applicable, at the
close of the securities exchange representing the principal market for
such securities.
Exchange-traded options contracts are valued at the closing price in the
market where such contracts are principally traded. If no closing price is
available, exchange-traded options contracts are fair valued at the mean
of their most recent bid and asked price, if available, and otherwise at
their closing bid price. Over-the-counter options contracts are fair
valued at the mean of their most recent bid and asked price, if available,
and otherwise at their closing bid price.
Page 15
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
MAY 31, 2015 (UNAUDITED)
Securities traded in an over-the-counter market are fair valued at the
mean of their most recent bid and asked price, if available, and otherwise
at their closing bid price.
Swaps are fair valued utilizing quotations provided by a third-party
pricing service or, if the pricing service does not provide a value, by
quotes provided by the selling dealer or financial institution.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Fund's Board of Trustees or its
delegate, the Advisor's Pricing Committee, at fair value. These securities
generally include, but are not limited to, restricted securities (securities
which may not be publicly sold without registration under the Securities Act of
1933, as amended) for which a pricing service is unable to provide a market
price; securities whose trading has been formally suspended; a security whose
market or fair value price is not available from a pre-established pricing
source; a security with respect to which an event has occurred that is likely to
materially affect the value of the security after the market has closed but
before the calculation of the Fund's NAV or make it difficult or impossible to
obtain a reliable market quotation; and a security whose price, as provided by
the pricing service, does not reflect the security's fair value. As a general
principle, the current fair value of a security would appear to be the amount
which the owner might reasonably expect to receive for the security upon its
current sale. When fair value prices are used, generally they will differ from
market quotations or official closing prices on the applicable exchanges. A
variety of factors may be considered in determining the fair value of such
securities, including, but not limited to, the following:
1) the type of security;
2) the size of the holding;
3) the initial cost of the security;
4) transactions in comparable securities;
5) price quotes from dealers and/or pricing services;
6) relationships among various securities;
7) information obtained by contacting the issuer, analysts, or the
appropriate stock exchange;
8) an analysis of the issuer's financial statements; and
9) the existence of merger proposals or tender offers that might affect
the value of the security.
If the securities in question are foreign securities, the following additional
information may be considered:
1) the value of similar foreign securities traded on other foreign
markets;
2) ADR trading of similar securities;
3) closed-end fund trading of similar securities;
4) foreign currency exchange activity;
5) the trading prices of financial products that are tied to baskets of
foreign securities;
6) factors relating to the event that precipitated the pricing problem;
7) whether the event is likely to recur; and
8) whether the effects of the event are isolated or whether they affect
entire markets, countries or regions.
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
The inputs or methodologies used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of May 31, 2015, is
included with the Fund's Portfolio of Investments.
Page 16
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
MAY 31, 2015 (UNAUDITED)
B. OPTION CONTRACTS
The Fund is subject to equity price risk in the normal course of pursuing its
investment objective and may write (sell) options to hedge against changes in
the value of equities. Also, the Fund seeks to generate additional income, in
the form of premiums received, from writing (selling) the options. The Fund may
write (sell) covered call or put options ("options") on all or a portion of the
common stock and MLPs held in the Fund's portfolio as determined to be
appropriate by the Sub-Advisor. The number of options the Fund can write (sell)
is limited by the amount of common stock and MLPs the Fund holds in its
portfolio. The Fund will not write (sell) "naked" or uncovered options. When the
Fund writes (sells) an option, an amount equal to the premium received by the
Fund is included in "Options written, at value" on the Fund's Statement of
Assets and Liabilities. Options are marked-to-market daily and their value will
be affected by changes in the value and dividend rates of the underlying equity
securities, changes in interest rates, changes in the actual or perceived
volatility of the securities markets and the underlying equity securities and
the remaining time to the options' expiration. The value of options may also be
adversely affected if the market for the options becomes less liquid or trading
volume diminishes.
Options the Fund writes (sells) will either be exercised, expire or be cancelled
pursuant to a closing transaction. If the price of the underlying equity
security exceeds the option's exercise price, it is likely that the option
holder will exercise the option. If an option written (sold) by the Fund is
exercised, the Fund would be obligated to deliver the underlying security to the
option holder upon payment of the strike price. In this case, the option premium
received by the Fund will be added to the amount realized on the sale of the
underlying security for purposes of determining gain or loss. If the price of
the underlying equity security is less than the option's strike price, the
option will likely expire without being exercised. The option premium received
by the Fund will, in this case, be treated as short-term capital gain on the
expiration date of the option. The Fund may also elect to close out its position
in an option prior to its expiration by purchasing an option of the same series
as the option written (sold) by the Fund. Gain or loss on options is presented
separately as "Net realized gain (loss) on written options" on the Statement of
Operations.
The options that the Fund writes (sells) give the option holder the right, but
not the obligation, to purchase a security from the Fund at the strike price on
or prior to the option's expiration date. The ability to successfully implement
the writing (selling) of covered call options depends on the ability of the
Sub-Advisor to predict pertinent market movements, which cannot be assured.
Thus, the use of options may require the Fund to sell portfolio securities at
inopportune times or for prices other than current market value, which may limit
the amount of appreciation the Fund can realize on an investment, or may cause
the Fund to hold a security that it might otherwise sell. As the writer (seller)
of a covered option, the Fund foregoes, during the option's life, the
opportunity to profit from increases in the market value of the security
covering the option above the sum of the premium and the strike price of the
option, but has retained the risk of loss should the price of the underlying
security decline. The writer (seller) of an option has no control over the time
when it may be required to fulfill its obligation as a writer (seller) of the
option. Once an option writer (seller) has received an exercise notice, it
cannot effect a closing purchase transaction in order to terminate its
obligation under the option and must deliver the underlying security to the
option holder at the exercise price.
Over-the-counter options have the risk of the potential inability of
counterparties to meet the terms of their contracts. The Fund's maximum equity
price risk for purchased options is limited to the premium initially paid. In
addition, certain risks may arise upon entering into option contracts including
the risk that an illiquid secondary market will limit the Fund's ability to
close out an option contract prior to the expiration date and that a change in
the value of the option contract may not correlate exactly with changes in the
value of the securities hedged.
C. SWAP AGREEMENTS
The Fund may enter into total return equity swap and interest rate swap
agreements. A swap is a financial instrument that typically involves the
exchange of cash flows between two parties ("Counterparties") on specified dates
(settlement dates) where the cash flows are based on agreed upon prices, rates,
etc. Swap agreements are individually negotiated and involve the risk of the
potential inability of the Counterparties to meet the terms of the agreement. In
connection with these agreements, cash and securities may be identified as
collateral in accordance with the terms of the respective swap agreements to
provide assets of value and recourse in the event of default under the swap
agreement or bankruptcy/insolvency of a party to the swap agreement. In the
event of a default by a Counterparty, the Fund will seek withdrawal of the
collateral and may incur certain costs exercising its rights with respect to the
collateral. If a Counterparty becomes bankrupt or otherwise fails to perform its
obligations due to financial difficulties, the Fund may experience significant
delays in obtaining any recovery in a bankruptcy or other reorganization
proceeding. The Fund may obtain only limited recovery or may obtain no recovery
in such circumstances.
Swap agreements may increase or decrease the overall volatility of the
investments of the Fund. The performance of swap agreements may be affected by
changes in the specific interest rate, security, currency, or other factors that
determine the amounts of payments due to and from the Fund. The Fund's maximum
equity price risk to meet its future payments under swap agreements outstanding
at May 31, 2015 is equal to the total notional amount as shown on the Portfolio
of Investments. The notional amount represents the U.S. dollar value of the
contract as of the day of the opening transaction or contract reset. When the
Fund enters into a swap agreement, any premium paid is included in "Swap
contracts, at value" on the Statement of Assets and Liabilities.
The Fund held interest rate swap agreements at May 31, 2015. An interest rate
swap agreement involves the Fund's agreement to exchange a stream of interest
payments for another party's stream of cash flows. Interest rate swaps do not
involve the delivery of securities or other underlying assets or principal.
Accordingly, the risk of loss with respect to interest rate swaps is limited to
the net amount of interest payments that the Fund is contractually obligated to
make.
Page 17
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
MAY 31, 2015 (UNAUDITED)
D. SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income is recorded
daily on the accrual basis. The Fund will rely to some extent on information
provided by the MLPs, which is not necessarily timely, to estimate taxable
income allocable to the MLP units held in the Fund's portfolio.
Distributions received from the Fund's investments in MLPs generally are
comprised of return of capital and investment income. The Fund records estimated
return of capital and investment income based on historical information
available from each MLP. These estimates may subsequently be revised based on
information received from the MLPs after their tax reporting periods are
concluded. For the six months ended May 31, 2015, distributions of $4,178,778
received from MLPs have been reclassified as return of capital. The cost basis
of applicable MLPs has been reduced accordingly.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
The Fund will distribute to holders of its Common Shares monthly dividends of
all or a portion of its net income after the payment of interest in connection
with leverage, if any. Distributions of any long-term capital gains earned by
the Fund are distributed at least annually. Distributions will automatically be
reinvested into additional Common Shares pursuant to the Fund's Dividend
Reinvestment Plan unless cash distributions are elected by the shareholder.
Distributions from income and capital gains are determined in accordance with
income tax regulations, which may differ from U.S. GAAP. Certain capital
accounts in the financial statements are periodically adjusted for permanent
differences in order to reflect their tax character. These permanent differences
are primarily due to the varying treatment of income and gain/loss on portfolio
securities held by the Fund and have no impact on net assets or NAV per share.
Temporary differences, which arise from recognizing certain items of income,
expense and gain/loss in different periods for financial statement and tax
purposes, will reverse at some point in the future.
The tax character of distributions paid during the fiscal year ended November
30, 2014 is as follows:
Distributions paid from:
Ordinary income................................... $ 7,795,582
Capital gain...................................... 38,829,529
Return of capital................................. 1,638,038
As of November 30, 2014, the components of distributable earnings and net assets
on a tax basis were as follows:
Undistributed ordinary income..................... $ --
Undistributed capital gains....................... --
-------------
Total undistributed earnings...................... --
Accumulated capital and other losses.............. --
Net unrealized appreciation (depreciation)........ 123,389,404
-------------
Total accumulated earnings (losses)............... 123,389,404
Other............................................. (16,747)
Paid-in capital................................... 332,476,073
-------------
Net assets........................................ $ 455,848,730
=============
F. INCOME TAXES
The Fund intends to continue to qualify as a regulated investment company by
complying with the requirements under Subchapter M of the Internal Revenue Code
of 1986, as amended, which includes distributing substantially all of its net
investment income and net realized gains to shareholders. Accordingly, no
provision has been made for federal or state income taxes. However, due to the
timing and amount of distributions, the Fund may be subject to an excise tax of
4% of the amount by which approximately 98% of the Fund's taxable income exceeds
the distributions from such taxable income for the calendar year.
The Fund intends to utilize provisions of the federal income tax laws, which
allow it to carry a realized capital loss forward indefinitely following the
year of the loss and offset such loss against any future realized capital gains.
The Fund is subject to certain limitations under U.S. tax rules on the use of
capital loss carryforwards and net unrealized built-in losses. These limitations
apply when there has been a 50% change in ownership. At November 30, 2014, the
Fund had no non-expiring capital loss carryforwards for federal income tax
purposes.
Certain losses realized during the current fiscal year may be deferred and
treated as occurring on the first day of the following fiscal year for federal
income tax purposes. For the fiscal year ended November 30, 2014, the Fund had
no qualified late year losses.
Page 18
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
MAY 31, 2015 (UNAUDITED)
The Fund is subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. Taxable years ending 2011, 2012,
2013 and 2014 remain open to federal and state audit. As of May 31, 2015,
management has evaluated the application of these standards to the Fund and has
determined that no provision for income tax is required in the Fund's financial
statements for uncertain tax positions.
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) on foreign currency
translation" on the Statement of Operations. Unrealized gains and losses on
investments in securities which result from changes in foreign exchange rates
are included with fluctuations arising from changes in market price and are
shown in "Net change in unrealized appreciation (depreciation) on investments"
on the Statement of Operations. Net realized foreign currency gains and losses
include the effect of changes in exchange rates between trade date and
settlement date on investment security transactions, foreign currency
transactions and interest and dividends received. The portion of foreign
currency gains and losses related to fluctuation in exchange rates between the
initial purchase settlement date and subsequent sale trade date is included in
"Net realized gain (loss) on investments" on the Statement of Operations.
I. OFFSETTING ON THE STATEMENT OF ASSETS AND LIABILITIES
In December 2011, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update No. 2011-11 "Disclosures about Offsetting Assets and
Liabilities" ("ASU 2011-11"). This disclosure requirement is intended to help
investors and other financial statement users better assess the effect or
potential effect of offsetting arrangements on a fund's financial position. ASU
2011-11 requires entities to disclose both gross and net information about both
instruments and transactions eligible for offset on the Statement of Assets and
Liabilities, and disclose instruments and transactions subject to master netting
or similar agreements. In addition, in January 2013, FASB issued Accounting
Standards Update No. 2013-1 "Clarifying the Scope of Offsetting Assets and
Liabilities" ("ASU 2013-1"), specifying exactly which transactions are subject
to offsetting disclosures. The scope of the disclosure requirements is limited
to derivative instruments, repurchase agreements and reverse repurchase
agreements, and securities borrowing and securities lending transactions. ASU
2011-11 and ASU 2013-1 are effective for financial statements with fiscal years
beginning on or after January 1, 2013, and interim periods within those fiscal
years.
For financial reporting purposes, the Fund does not offset financial assets and
financial liabilities that are subject to master netting arrangements ("MNAs")
or similar agreements on the Statement of Assets and Liabilities. MNAs provide
the right, in the event of default (including bankruptcy and involvency) for the
non-defaulting counterparty to liquidate the collateral and calculate the net
exposure to the defaulting party or request additional collateral.
At May 31, 2015, derivative assets and liabilities (by type) on a gross basis
are as follows:
GROSS AMOUNTS NOT OFFSET
IN THE STATEMENT OF
NET AMOUNTS OF ASSETS AND LIABILITIES
GROSS GROSS AMOUNTS LIABILITIES PRESENTED --------------------------
AMOUNTS OF OFFSET IN THE IN THE STATEMENT CASH
RECOGNIZED STATEMENT OF ASSETS OF ASSETS AND FINANCIAL SEGREGATED AS NET
LIABILITIES AND LIABILITIES LIABILITIES INSTRUMENTS COLLATERAL AMOUNT
----------------------------------------------------------------------------------------------------------------------------
Interest Rate Swap Contracts $ (2,580,330) $ -- $ (2,580,330) $ -- $ 2,580,330 $ --
4. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Fund, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the ongoing monitoring of the Fund's investment
portfolio, managing the Fund's business affairs and providing certain
administrative services necessary for the management of the Fund. For these
investment management services, First Trust is entitled to a monthly fee
calculated at an annual rate of 1.00% of the Fund's Managed Assets (the average
daily total asset value of the Fund minus the sum of the Fund's liabilities
other than the principal amount of borrowings). First Trust also provides fund
reporting services to the Fund for a flat annual fee in the amount of $9,250.
Page 19
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
MAY 31, 2015 (UNAUDITED)
EIP serves as the Fund's sub-advisor and manages the Fund's portfolio subject to
First Trust's supervision. The Sub-Advisor receives a monthly sub-advisory fee
calculated at an annual rate of 0.50% of the Fund's Managed Assets that is paid
by First Trust out of its investment advisory fee.
First Trust Capital Partners, LLC ("FTCP"), an affiliate of First Trust, owns,
through a wholly-owned subsidiary, a 15% ownership interest in each of EIP and
EIP Partners, LLC, an affiliate of the EIP. In addition, on March 27, 2014,
FTCP, through a wholly-owned subsidiary, purchased a preferred interest in EIP.
The preferred interest was non-voting and did not share in the profits or losses
of EIP. EIP redeemed all of the preferred shares in March 2015.
BNY Mellon Investment Servicing (US) Inc. ("BNYM IS") serves as the Fund's
administrator, fund accountant and transfer agent in accordance with certain fee
arrangements. As administrator and fund accountant, BNYM IS is responsible for
providing certain administrative and accounting services to the Fund, including
maintaining the Fund's books of account, records of the Fund's securities
transactions, and certain other books and records. As transfer agent, BNYM IS is
responsible for maintaining shareholder records for the Fund. The Bank of New
York Mellon ("BNYM") serves as the Fund's custodian in accordance with certain
fee arrangements. As custodian, BNYM is responsible for custody of the Fund's
assets.
Each Trustee who is not an officer or employee of First Trust, any Sub-Advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer that is allocated pro rata among each fund in the First Trust Fund
Complex based on net assets. Each Independent Trustee is also paid an annual per
fund fee that varies based on whether the fund is a closed-end or other actively
managed fund, or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee are paid
annual fees to serve in such capacities, with such compensation allocated pro
rata among each fund in the First Trust Fund Complex based on net assets.
Trustees are reimbursed for travel and out-of-pocket expenses in connection with
all meetings. The Lead Independent Trustee and Committee Chairmen rotate every
three years. The officers and "Interested" Trustee receive no compensation from
the Fund for acting in such capacities.
5. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of investments, excluding short-term
investments, for the six months ended May 31, 2015, were $92,919,805 and
$112,803,243, respectively.
6. DERIVATIVES TRANSACTIONS
Written option activity for the Fund was as follows:
NUMBER
OF
WRITTEN OPTIONS CONTRACTS PREMIUMS
--------------------------------------------------------------------------------
Options outstanding at November 30, 2014... 28,408 $ 1,585,058
Options Written............................ 66,472 3,644,872
Options Expired............................ (40,118) (1,942,040)
Options Exercised.......................... (15,212) (931,313)
Options Closed............................. (7,597) (384,089)
--------- ------------
Options outstanding at May 31, 2015........ 31,953 $ 1,972,488
========= ============
The following table presents the types of derivatives held by the Fund at May
31, 2015, the primary underlying risk exposure and the location of these
instruments as presented on the Statement of Assets and Liabilities.
ASSET DERIVATIVES LIABILITY DERIVATIVES
-------------------------------------- --------------------------------------
DERIVATIVE RISK STATEMENT OF ASSETS AND STATEMENT OF ASSETS AND
INSTRUMENTS EXPOSURE LIABILITIES LOCATION VALUE LIABILITIES LOCATION VALUE
--------------- ------------- ------------------------- ----------- ------------------------- -----------
Written Options Equity Risk -- -- Options written, at value $ 1,059,182
Interest Rate Interest Rate
Swap Agreement Risk -- -- Swap contracts, at value 2,580,330
Page 20
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
MAY 31, 2015 (UNAUDITED)
The following table presents the amount of net realized gain (loss) and change
in net unrealized appreciation (depreciation) recognized for the six months
ended May 31, 2015, on derivative instruments, as well as the primary underlying
risk exposure associated with each instrument.
STATEMENT OF OPERATIONS LOCATION
-------------------------------------------------------------------------------
EQUITY RISK EXPOSURE
Net realized gain (loss) on written options $ 1,068,543
Net change in unrealized appreciation (depreciation) on
written options 1,900,628
INTEREST RATE RISK EXPOSURE
Net realized gain (loss) on swap contracts (770,351)
Net change in unrealized appreciation (depreciation) on
swap contracts (878,937)
The average volume of interest rate swaps was $72,950,000 for the six months
ended May 31, 2015.
The Fund does not have the right to offset financial assets and financial
liabilities related to option contracts on the Statement of Assets and
Liabilities.
7. BORROWINGS
During the period covered by this report, the Fund maintained a committed
facility agreement with The Bank of Nova Scotia ("Scotia") with a maximum
commitment amount of $200,000,000 and a borrowing rate equal to the 1-month
LIBOR plus 70 basis points. In addition, under the facility, the Fund pays a
commitment fee of 0.20% on the undrawn amount of such facility. The average
amount outstanding under the facility for the six months ended May 31, 2015 was
$145,736,264, with a weighted average interest rate of 0.87%. As of May 31,
2015, the Fund had outstanding borrowings of $141,000,000 under this committed
facility agreement. The high and low annual interest rates for the six months
ended May 31, 2015, were 0.89% and 0.81%, respectively. The interest rate at May
31, 2015 was 0.88%. Prior to December 22, 2014, the maximum commitment amount
was $165,000,000 and the borrowing rate was 1-month LIBOR plus 65 basis points.
8. INDEMNIFICATION
The Fund has a variety of indemnification obligations under contracts with its
service providers. The Fund's maximum exposure under these arrangements is
unknown. However, the Fund has not had prior claims or losses pursuant to these
contracts and expects the risk of loss to be remote.
9. INDUSTRY CONCENTRATION RISK
The Fund invests at least 80% of its Managed Assets in securities issued by
Energy Infrastructure Companies. Given this industry concentration, the Fund is
more susceptible to adverse economic or regulatory occurrences affecting that
industry than an investment company that is not concentrated in a single
industry. Energy Infrastructure Company issuers may be subject to a variety of
factors that may adversely affect their business or operations, including high
interest costs in connection with capital construction programs, high leverage
costs associated with environmental and other regulations, the effects of
economic slowdown, surplus capacity, increased competition from other providers
of services, uncertainties concerning the availability of fuel at reasonable
prices, the effects of energy conservation policies and other factors.
10. SUBSEQUENT EVENT
Management has evaluated the impact of all subsequent events to the Fund through
the date the financial statements were issued and has determined that there was
the following subsequent event:
On June 22, 2015, the Fund declared a distribution of $0.11 per share to Common
Shareholders of record on July 6, 2015, payable July 15, 2015.
On July 20, 2015, the Fund declared a distribution of $0.11 per share to Common
Shareholders of record on August 5, 2015, payable August 17, 2015.
Page 21
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
MAY 31, 2015 (UNAUDITED)
DIVIDEND REINVESTMENT PLAN
If your Common Shares are registered directly with the Fund or if you hold your
Common Shares with a brokerage firm that participates in the Fund's Dividend
Reinvestment Plan (the "Plan"), unless you elect, by written notice to the Fund,
to receive cash distributions, all dividends, including any capital gain
distributions, on your Common Shares will be automatically reinvested by BNY
Mellon Investment Servicing (US) Inc. (the "Plan Agent"), in additional Common
Shares under the Plan. If you elect to receive cash distributions, you will
receive all distributions in cash paid by check mailed directly to you by the
Plan Agent, as the dividend paying agent.
If you decide to participate in the Plan, the number of Common Shares you will
receive will be determined as follows:
(1) If Common Shares are trading at or above net asset value ("NAV") at
the time of valuation, the Fund will issue new shares at a price
equal to the greater of (i) NAV per Common Share on that date or
(ii) 95% of the market price on that date.
(2) If Common Shares are trading below NAV at the time of valuation, the
Plan Agent will receive the dividend or distribution in cash and
will purchase Common Shares in the open market, on the NYSE or
elsewhere, for the participants' accounts. It is possible that the
market price for the Common Shares may increase before the Plan
Agent has completed its purchases. Therefore, the average purchase
price per share paid by the Plan Agent may exceed the market price
at the time of valuation, resulting in the purchase of fewer shares
than if the dividend or distribution had been paid in Common Shares
issued by the Fund. The Plan Agent will use all dividends and
distributions received in cash to purchase Common Shares in the open
market within 30 days of the valuation date except where temporary
curtailment or suspension of purchases is necessary to comply with
federal securities laws. Interest will not be paid on any uninvested
cash payments.
You may elect to opt-out of or withdraw from the Plan at any time by giving
written notice to the Plan Agent, or by telephone at (866) 340-1104, in
accordance with such reasonable requirements as the Plan Agent and the Fund may
agree upon. If you withdraw or the Plan is terminated, you will receive a
certificate for each whole share in your account under the Plan, and you will
receive a cash payment for any fraction of a share in your account. If you wish,
the Plan Agent will sell your shares and send you the proceeds, minus brokerage
commissions.
The Plan Agent maintains all Common Shareholders' accounts in the Plan and gives
written confirmation of all transactions in the accounts, including information
you may need for tax records. Common Shares in your account will be held by the
Plan Agent in non-certificated form. The Plan Agent will forward to each
participant any proxy solicitation material and will vote any shares so held
only in accordance with proxies returned to the Fund. Any proxy you receive will
include all Common Shares you have received under the Plan.
There is no brokerage charge for reinvestment of your dividends or distributions
in Common Shares. However, all participants will pay a pro rata share of
brokerage commissions incurred by the Plan Agent when it makes open market
purchases.
Automatically reinvesting dividends and distributions does not mean that you do
not have to pay income taxes due upon receiving dividends and distributions.
Capital gains and income are realized although cash is not received by you.
Consult your financial advisor for more information.
If you hold your Common Shares with a brokerage firm that does not participate
in the Plan, you will not be able to participate in the Plan and any dividend
reinvestment may be effected on different terms than those described above.
The Fund reserves the right to amend or terminate the Plan if in the judgment of
the Board of Trustees the change is warranted. There is no direct service charge
to participants in the Plan; however, the Fund reserves the right to amend the
Plan to include a service charge payable by the participants. Additional
information about the Plan may be obtained by writing BNY Mellon Investment
Servicing (US) Inc., 301 Bellevue Parkway, Wilmington, Delaware 19809.
--------------------------------------------------------------------------------
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Fund uses to determine how
to vote proxies and information on how the Fund voted proxies relating to
portfolio investments during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Fund's website located at http://www.ftportfolios.com; and (3) on the
Securities and Exchange Commission's ("SEC") website located at
http://www.sec.gov.
Page 22
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
MAY 31, 2015 (UNAUDITED)
PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's 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.
SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
The Joint Annual Meeting of Shareholders of the Common Shares of Macquarie/First
Trust Global Infrastructure/Utilities Dividend & Income Fund, First Trust Energy
Income and Growth Fund, First Trust Enhanced Equity Income Fund, First
Trust/Aberdeen Global Opportunity Income Fund, First Trust Mortgage Income Fund,
First Trust Strategic High Income Fund II, First Trust/Aberdeen Emerging
Opportunity Fund, First Trust Specialty Finance and Financial Opportunities
Fund, First Trust Dividend and Income Fund, First Trust High Income Long/Short
Fund, First Trust Energy Infrastructure Fund, First Trust MLP and Energy Income
Fund and First Trust Intermediate Duration Preferred & Income Fund was held on
April 20, 2015 (the "Annual Meeting"). At the Annual Meeting, Richard E.
Erickson and Thomas R. Kadlec were elected by the Common Shareholders of the
First Trust Energy Infrastructure Fund as a Class II Trustees for a three-year
term expiring at the Fund's Annual Meeting of Shareholders in 2018. The number
of votes cast for Mr. Erickson was 15,243,684, the number of votes against was
347,777 and the number of broker non-votes was 1,958,775. The number of votes
cast for Mr. Kadlec was 15,240,727, the number of votes against was 350,734 and
the number of broker non-votes was 1,958,775. James A. Bowen, Robert F. Keith
and Niel B. Nielson are the other current and continuing Trustees.
RISK CONSIDERATIONS
Risks are inherent in all investing. The following summarizes some, but not all,
of the risks that should be considered for the Fund. For additional information
about the risks associated with investing in the Fund, please see the Fund's
prospectus and statement of additional information, as well as other Fund
regulatory filings.
INDUSTRY CONCENTRATION RISK: The Fund invests at least 80% of its Managed Assets
in securities issued by Energy Infrastructure Companies. Given this industry
concentration, the Fund is more susceptible to adverse economic or regulatory
occurrences affecting that industry than an investment company that is not
concentrated in a single industry. Energy Infrastructure Company issuers may be
subject to a variety of factors that may adversely affect their business or
operations, including high interest costs in connection with capital
construction programs, high leverage costs associated with environmental and
other regulations, the effects of economic slowdown, surplus capacity, increased
competition from other providers of services, uncertainties concerning the
availability of fuel at reasonable prices, the effects of energy conservation
policies and other factors.
CURRENCY RISK: The value of securities denominated or quoted in foreign
currencies may be adversely affected by fluctuations in the relative currency
exchange rates and by exchange control regulations. The Fund's investment
performance may be negatively affected by a devaluation of a currency in which
the Fund's investments are denominated or quoted. Further, the Fund's investment
performance may be significantly affected, either positively or negatively, by
currency exchange rates because the U.S. dollar value of securities denominated
or quoted in another currency will increase or decrease in response to changes
in the value of such currency in relation to the U.S. dollar. While certain of
the Fund's non-U.S. dollar-denominated securities may be hedged into U.S.
dollars, hedging may not alleviate all currency risks.
INVESTMENT AND MARKET RISK: An investment in the Fund's Common Shares is subject
to investment risk, including the possible loss of the entire principal
invested. An investment in Common Shares represents an indirect investment in
the securities owned by the Fund. The value of these securities, like other
market investments, may move up or down, sometimes rapidly and unpredictably.
Common Shares at any point in time may be worth less than the original
investment, even after taking into account the reinvestment of Fund dividends
and distributions. Security prices can fluctuate for several reasons including
the general condition of the securities markets, or when political or economic
events affecting the issuers occur. When the Advisor or Sub-Advisor determines
that it is temporarily unable to follow the Fund's investment strategy or that
it is impractical to do so (such as when a market disruption event has occurred
and trading in the securities is extremely limited or absent), the Fund may take
temporary defensive positions.
LEVERAGE RISK: The use of leverage results in additional risks and can magnify
the effect of any losses. The funds borrowed pursuant to a leverage borrowing
program constitute a substantial lien and burden by reason of their prior claim
against the income of the Fund and against the net assets of the Fund in
liquidation. If the Fund is not in compliance with certain credit facility
provisions, the Fund may not be permitted to declare dividends or other
distributions.
Page 23
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
MAY 31, 2015 (UNAUDITED)
MLP RISK: An investment in MLP units involves risks which differ from an
investment in common stock of a corporation. Holders of MLP units have limited
control and voting rights on matters affecting the partnership. In addition,
there are certain tax risks associated with an investment in MLP units and
conflicts of interest exist between common unit holders and the general partner,
including those arising from incentive distribution payments.
NON-U.S. RISK: The Fund may invest a portion of its assets in the equity
securities of issuers domiciled in jurisdictions other than the U.S. Investments
in the securities and instruments of non-U.S. issuers involve certain
considerations and risks not ordinarily associated with investments in
securities and instruments of U.S. issuers. Non-U.S. companies are not generally
subject to uniform accounting, auditing and financial standards and requirements
comparable to those applicable to U.S. companies. Non-U.S. securities exchanges,
brokers and listed companies may be subject to less government supervision and
regulation than exists in the United States. Dividend and interest income may be
subject to withholding and other non-U.S. taxes, which may adversely affect the
net return on such investments. A related risk is that there may be difficulty
in obtaining or enforcing a court judgment abroad.
QUALIFIED DIVIDEND INCOME TAX RISK: There can be no assurance as to what portion
of the distributions paid to the Fund's Common Shareholders will consist of
tax-advantaged qualified dividend income. Certain distributions designated by
the Fund as derived from qualified dividend income will be taxed in the hands of
non-corporate Common Shareholders at the rates applicable to long-term capital
gains, provided certain holding period and other requirements are satisfied by
both the Fund and the Common Shareholders. Additional requirements apply in
determining whether distributions by foreign issuers should be regarded as
qualified dividend income. Certain investment strategies of the Fund will limit
the Fund's ability to meet these requirements and consequently will limit the
amount of qualified dividend income received and distributed by the Fund. A
change in the favorable provisions of the federal tax laws with respect to
qualified dividends may result in a widespread reduction in announced dividends
and may adversely impact the valuation of the shares of dividend-paying
companies.
RESTRICTED SECURITIES RISK: The Fund may invest in unregistered or otherwise
restricted securities. The term "restricted securities" refers to securities
that are unregistered or are held by control persons of the issuer and
securities that are subject to contractual restrictions on their resale. As a
result, restricted securities may be more difficult to value and the Fund may
have difficulty disposing of such assets either in a timely manner or for a
reasonable price. In order to dispose of an unregistered security, the Fund,
where it has contractual rights to do so, may have to cause such security to be
registered. A considerable period may elapse between the time the decision is
made to sell the security and the time the security is registered so that the
Fund could sell it. Contractual restrictions on the resale of securities vary in
length and scope and are generally the result of a negotiation between the
issuer and acquirer of the securities. The Fund would, in either case, bear
market risks during that period.
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.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the Registrant's board of trustees, where those
changes were implemented after the Registrant last provided disclosure in
response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)),
or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The Registrant's principal executive and principal financial officers, or
persons performing similar functions, have concluded that the Registrant's
disclosure controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR
270.30a-3(c))) are effective, as of a date within 90 days of the filing
date of the report that includes the disclosure required by this
paragraph, based on their evaluation of these controls and procedures
required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and
Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as
amended (17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the Registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR
270.30a-3(d)) that occurred during the Registrant's second fiscal quarter
of the period covered by this report that has materially affected, or is
reasonably likely to materially affect, the Registrant's internal control
over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) 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.
(c) Notices to the registrant's common shareholders in accordance with the
order under Section 6(c) of the 1940 Act granting an exemption from
Section 19(b) of the 1940 Act and Rule 19a-1 under the 1940 Act, dated
March 24, 2010. (1)
(1) The Fund received exemptive relief from the Securities and Exchange
Commission which permits the Fund to make periodic distributions of
long-term capital gains as frequently as monthly each taxable year.
The relief is conditioned, in part, on an undertaking by the Fund to
make the disclosures to the holders of the Fund's common shares, in
addition to the information required by Section 19(a) of the 1940
Act and Rule 19a-1 thereunder. The Fund is likewise obligated to
file with the SEC the information contained in any such notice to
shareholders. In that regard, attached as an exhibit to this filing
is a copy of such notice made during the period.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) First Trust Energy Infrastructure Fund
------------------------------------------------------
By (Signature and Title)* /s/ Mark R. Bradley
----------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)
Date: July 15, 2015
-----------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Mark R. Bradley
----------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)
Date: July 15, 2015
-----------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: July 15, 2015
-----------------
* Print the name and title of each signing officer under his or her signature.