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
-----------
First Trust Energy Infrastructure Fund
--------------------------------------------------------------------
(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
--------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
--------------------------------------------------------------------
(Name and address of agent for service)
registrant's telephone number, including area code: 630-765-8000
--------------
Date of fiscal year end: November 30
-------------
Date of reporting period: November 30, 2013
-------------------
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
--------------
E N E R G Y
INFRASTRUCTURE
--------------
FUND
(FIF)
ANNUAL REPORT
FOR THE YEAR ENDED
NOVEMBER 30, 2013
FIRST TRUST
ENERGY INCOME PARTNERS, LLC
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
ANNUAL REPORT
NOVEMBER 30, 2013
Shareholder Letter........................................................... 1
At A Glance.................................................................. 2
Portfolio Commentary......................................................... 3
Portfolio of Investments..................................................... 5
Statement of Assets and Liabilities.......................................... 10
Statement of Operations...................................................... 11
Statements of Changes in Net Assets.......................................... 12
Statement of Cash Flows...................................................... 13
Financial Highlights......................................................... 14
Notes to Financial Statements................................................ 15
Report of Independent Registered Public Accounting Firm...................... 22
Additional Information....................................................... 23
Board of Trustees and Officers............................................... 28
Privacy Policy............................................................... 30
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and/or Energy Income Partners, LLC ("EIP" or the
"Sub-Advisor") and their respective representatives, taking into account the
information currently available to them. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For example,
forward-looking statements include the use of words such as "anticipate,"
"estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or
other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
First Trust Energy Infrastructure Fund (the "Fund") to be materially different
from any future results, performance or achievements expressed or implied by the
forward-looking statements. When evaluating the information included in this
report, you are cautioned not to place undue reliance on these forward-looking
statements, which reflect the judgment of the Advisor and/or Sub-Advisor and
their respective representatives only as of the date hereof. We undertake no
obligation to publicly revise or update these forward-looking statements to
reflect events and circumstances that arise after the date hereof.
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. It
includes details about the Fund and presents data and analysis that provide
insight into the Fund's performance and investment approach.
By reading the portfolio commentary by the portfolio management team of the
Fund, you may obtain an understanding of how the market environment affected the
Fund's performance. The statistical information that follows may help you
understand the Fund's performance compared to that of relevant market
benchmarks.
It is important to keep in mind that the opinions expressed by personnel of EIP
are just that: informed opinions. They should not be considered to be promises
or advice. The opinions, like the statistics, cover the period through the date
on the cover of this report. The risks of investing in the Fund are spelled out
in the prospectus, the statement of additional information, this report and
other Fund regulatory filings.
--------------------------------------------------------------------------------
SHAREHOLDER LETTER
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
NOVEMBER 30, 2013
Dear Shareholders:
I am pleased to present you with the annual report for your investment in First
Trust Energy Infrastructure Fund (the "Fund").
As a shareholder, twice a year you receive a detailed report about your
investment, including portfolio commentary from the Fund's management team, a
performance analysis and a market and Fund outlook. Additionally, First Trust
Advisors L.P. ("First Trust") compiles the Fund's financial statements for you
to review. These reports are intended to keep you up-to-date on your investment,
and I encourage you to read this document and discuss it with your financial
advisor.
As you are probably aware, the twelve months covered by this report saw both
challenging economic and political issues in the U.S. However, the period was
still positive for the markets. In fact, the S&P 500 Index, as measured on a
total return basis, rose 30.30% during the twelve months ended November 30,
2013. Of course, past performance can never be an indicator of future
performance, but First Trust believes that staying invested in quality products
through up and down markets and having a long-term horizon can help investors as
they work toward their financial goals.
First Trust continues to offer a variety of products that we believe could fit
the financial plans for many investors seeking long-term investment success.
Your financial advisor can tell you about the other investments First Trust
offers that might fit your financial goals. We encourage you to discuss those
goals with your financial advisor regularly so that he or she can help keep you
on track and help you choose investments that match your goals.
First Trust will continue to make available up-to-date information about your
investments so you and your financial advisor are current on any First Trust
investments you own. We value our relationship with you, and thank you for the
opportunity to assist you in achieving your financial goals.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 1
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
"AT A GLANCE"
AS OF NOVEMBER 30, 2013 (UNAUDITED)
---------------------------------------------------------------------
FUND STATISTICS
---------------------------------------------------------------------
Symbol on New York Stock Exchange FIF
Common Share Price $21.71
Common Share Net Asset Value ("NAV") $22.30
Premium (Discount) to NAV (2.65)%
Net Assets Applicable to Common Shares $391,336,390
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) 6.08%
Current Distribution Rate on NAV (2) 5.92%
---------------------------------------------------------------------
---------------------------------------------------------------------
COMMON SHARE PRICE & NAV (WEEKLY CLOSING PRICE)
---------------------------------------------------------------------
Common Share Price NAV
11/12 $21.26 $22.74
21.57 22.47
21.40 22.40
21.94 22.19
20.70 21.47
12/12 20.43 20.93
22.19 22.34
22.10 22.53
22.35 22.87
1/13 22.32 23.13
22.64 23.35
22.73 23.37
23.00 23.34
2/13 22.84 23.38
23.61 23.38
23.05 23.78
22.87 23.87
23.07 24.38
3/13 23.83 24.94
23.36 24.48
24.69 24.96
24.23 24.94
4/13 24.79 25.11
24.70 25.02
25.32 25.26
25.21 25.35
24.75 25.07
5/13 23.08 23.86
23.50 24.02
23.60 24.02
21.53 23.10
6/13 23.81 24.03
24.39 23.82
24.10 24.98
23.62 24.90
7/13 24.12 24.97
25.08 24.59
23.17 24.46
22.25 23.79
22.25 23.98
8/13 22.12 23.64
22.02 23.20
21.75 23.18
22.00 23.75
9/13 21.68 23.72
21.65 23.48
21.46 23.71
21.98 24.17
10/13 23.47 24.63
21.27 22.56
21.12 22.32
21.84 22.58
21.24 22.49
11/13 21.71 22.31
---------------------------------------------------------------------
--------------------------------------------------------------------------------------
PERFORMANCE
--------------------------------------------------------------------------------------
Average Annual
Total Return
---------------------
1 Year Ended Inception (9/27/2011)
11/30/2013 to 11/30/2013
Fund Performance (3)
NAV 17.76% 20.15%
Market Value 22.11% 16.16%
Index Performance
Philadelphia Stock Exchange Utility Index 10.37% 7.85%
Alerian MLP Total Return Index 21.61% 20.31%
Blended Benchmark (4) 16.12% 14.20%
--------------------------------------------------------------------------------------
------------------------------------------------------------
% OF TOTAL
INDUSTRY CLASSIFICATION INVESTMENTS
------------------------------------------------------------
Pipelines 53.1%
Electric Power 32.7
Propane 5.0
Coal 2.7
Marine 2.6
Natural Gas Utility 1.5
Gathering & Processing 0.9
Other 1.5
------------------------------------------------------------
Total 100.0%
======
------------------------------------------------------------
% OF TOTAL
TOP 10 HOLDINGS INVESTMENTS
------------------------------------------------------------
Enbridge Energy Management, LLC 8.0%
Kinder Morgan Management, LLC 8.0
Southern (The) Co. 4.9
Kinder Morgan, Inc. 4.2
NextEra Energy, Inc. 4.0
Dominion Resources, Inc. 3.8
Williams (The) Cos., Inc. 3.2
UGI Corp. 3.1
Northeast Utilities 3.0
Duke Energy Corp. 2.9
------------------------------------------------------------
Total 45.1%
======
(1) Most recent distribution paid or declared through 11/30/2013. Subject to
change in the future.
(2) Distribution rates are calculated by annualizing the most recent
distribution paid or declared through the report date and then dividing by
Common Share price or NAV, as applicable, as of 11/30/2013. Subject to
change in the future.
(3) Total return is based on the combination of reinvested dividend, capital
gain and return of capital distributions, if any, at prices obtained by
the Dividend Reinvestment Plan and changes in NAV per share for NAV
returns and changes in Common Share price for market value returns. Total
returns do not reflect sales load and are not annualized for periods less
than one year. Past performance is not indicative of future results.
(4) The blended benchmark consists of the following: Philadelphia Stock
Exchange Utility Index (50%) and Alerian MLP Total Return Index (50%).
Page 2
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
ANNUAL REPORT
NOVEMBER 30, 2013
SUB-ADVISOR
ENERGY INCOME PARTNERS, LLC
Energy Income Partners, LLC ("EIP"), located in Westport, CT, was founded in
2003 to provide professional asset management services in the area of
energy-related master limited partnerships ("MLPs") and other high-payout
securities such as pipeline companies, power utilities and Canadian income
equities. EIP mainly focuses on investments in energy-related infrastructure
assets such as pipelines, power transmission and distribution, petroleum storage
and terminals that receive fee-based or regulated income from their corporate
and individual customers. EIP manages or supervises approximately $4.1 billion
of assets as of November 30, 2013. Private funds advised by EIP include a
partnership for U.S. high net worth individuals and a master-and-feeder fund for
institutions. EIP also serves as an advisor to separately managed accounts for
individuals and institutions and provides its model portfolio to unified managed
accounts. EIP is a registered investment advisor and serves as a sub-advisor to
two closed-end management investment companies in addition to the First Trust
Energy Infrastructure Fund ("FIF" or the "Fund") and an actively managed
exchange-traded fund (ETF).
PORTFOLIO MANAGEMENT TEAM
JAMES J. MURCHIE EVA PAO
PORTFOLIO MANAGER CO-PORTFOLIO MANAGER
FOUNDER AND CEO OF ENERGY INCOME PARTNERS, LLC PRINCIPAL OF ENERGY INCOME PARTNERS, LLC
COMMENTARY
FIRST TRUST ENERGY INFRASTRUCTURE FUND
The investment objective of the Fund is to seek a high level of total return
with an emphasis on current distributions paid to shareholders. The Fund pursues
its objective by investing primarily in securities of companies engaged in the
energy infrastructure sector. These companies principally include
publicly-traded master limited partnerships ("MLPs"), MLP affiliates, Canadian
income equities, 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's
investment objective will be achieved. The Fund may not be appropriate for all
investors.
MARKET RECAP
As measured by the Alerian MLP Total Return Index ("AMZX") and the Philadelphia
Stock Exchange Utility Index ("UTY"), the total return for energy-related MLPs
and utilities over the fiscal year ended November 30, 2013, was 21.61% and
10.37%, respectively. These figures are according to data collected from several
sources, including Alerian Capital Management and Bloomberg.
PERFORMANCE ANALYSIS
On a Net Asset Value ("NAV") basis, the Fund provided a total return1 of 17.76%,
including the reinvestment of dividends, for the fiscal year ended November 30,
2013. This compares, according to collected data, to a total return of 16.12%
for the average of the two benchmarks (21.61% for AMZX and 10.37% for UTY).
Unlike the Fund, the indices do not incur fees and expenses. On a market value
basis, the Fund had a total return, including the reinvestment of dividends, of
22.11% for the fiscal year ended November 30, 2013. The Fund's discount to NAV
narrowed over the course of the period. On November 30, 2013, the Fund was
priced at $21.71, while the NAV was $22.30, a discount of 2.65%. On November 30,
2012, the Fund was priced at $21.34, while the NAV was $22.74, a discount of
6.16%.
1 Total return is based on the combination of reinvested dividend, capital
gain and return of capital distributions, if any, at prices obtained by
the Dividend Reinvestment Plan and changes in NAV per share for NAV
returns and changes in Common Share price for market value returns. Total
returns do not reflect sales load and are not annualized for periods less
than one year. Past performance is not indicative of future results.
Page 3
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY (CONTINUED)
--------------------------------------------------------------------------------
The Fund declared regular monthly Common Share distributions of $0.1085 per
share in December 2012 and $0.11 per share for each month from January through
November 2013. In addition, the Fund declared special distributions of $0.988
per share short-term capital gain and $0.095 per share long-term capital gain in
December 2012 and $1.73 per share long-term capital gain in November 2013.
The outperformance of the Fund's NAV relative to the 16.12% average of the AMZX
and UTY benchmarks was driven by outperforming positions that made up a larger
portion of the Fund than of the respective benchmarks. The companies held by the
Fund tended to have non-cyclical and/or regulated businesses like pipelines,
power transmission and distribution and storage terminals, while the benchmarks
included numerous companies that operated businesses whose earnings and cash
flows were more cyclical. This approach had a favorable impact on performance
relative to the benchmarks over the reporting period.
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 $165,000,000. The Fund uses leverage because its managers believe that, over
time, leverage can enhance total return for common shareholders. However, the
use of leverage can also increase the volatility of the NAV and therefore
volatility of the share price. For example, if the prices of securities held by
the Fund decline, the effect of changes in Common Share NAV and common
shareholder total return is magnified by the use of leverage, and conversely,
leverage may enhance Common Share returns during periods when the prices of
securities held by the Fund generally are rising. Unlike the Fund, AMZX and UTY
are not leveraged. Leverage had a positive impact on the performance of the Fund
over this reporting period.
MARKET AND FUND OUTLOOK
MLPs continue to play an integral role in the restructuring of more diversified
energy conglomerates. This restructuring includes the creation by these more
diversified conglomerates of 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. These new
subsidiaries take the form of an MLP or a C-corporation. 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.
Diversified energy conglomerates are doing this so that their infrastructure
assets with predictable cash flows may be better valued by the market, resulting
in a better financing tool to raise capital for the new energy infrastructure
projects related to the rapid growth of North American oil and gas production
and the need to upgrade the power grid. This corporate activity also includes
companies that are categorized as utilities or members of utility indices.
The MLP asset class has experienced 19 IPOs so far in 2013, as of November 30,
2013. There was a healthy level of secondary financing activity for MLPs during
the reporting period, as they continued to fund their ongoing investments in new
pipelines, processing and storage facilities. There have been 64 secondary
equity offerings in 2013 through November 30, 2013, which raised $18.9 billion
in proceeds. In 2012, there were a total of 67 secondary equity offerings for
MLPs that raised $25.0 billion. MLPs also found access to the public debt
markets, raising $19.6 billion in 23 offerings in 2013 through November 30,
2013. This compares to $18.2 billion in 2012 (Source: Barclays Capital). The
combination of equity and debt raised in 2012 of approximately $43 billion
represents approximately 11% of the roughly $389 billion MLP market cap.
Capital spending for utilities continues to increase. As measured by UTY,
capital expenditures for the power utility industry have grown from $77 billion
in 2011 to $80 billion in 2012. This growth in expenditures is 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 their
rate structure.
The Fund continues to weight the portfolio towards Energy Infrastructure
Companies with mostly non-cyclical cash flows, investment-grade ratings,
conservative balance sheets, modest and/or flexible organic growth commitments
and liquidity on their revolving lines of credit. Since the Fund invests in
securities that tend to have high dividend payout ratios (as measured versus
earnings), securities with unpredictable cyclical cash flows make them a poorer
fit with the portfolio, in the opinion of the Sub-Advisor. While there are some
businesses within the Fund's portfolio whose cash flows are cyclical, they are
usually small and analyzed in the context of each company's financial and
operating leverage and payout ratio.
While in the short term, share appreciation of Energy Infrastructure Companies
can be volatile, we believe that over the longer term, share appreciation will
approximate growth in per share quarterly cash distributions and dividends. Over
the last 10 years, growth in per share MLP distributions and utility dividends
has averaged 6.8% and 5.7%, respectively. Over the last 12 months, the cash
distributions of MLPs and utilities increased by about 6.9% and 3.0%,
respectively (Source: Alerian Capital Management and Bloomberg).
Page 4
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 2013
SHARES/
UNITS DESCRIPTION VALUE
------------ ----------------------------------------------------------------------------- --------------
COMMON STOCKS - 100.4%
ELECTRIC UTILITIES - 26.6%
30,000 American Electric Power Co., Inc............................................. $ 1,411,800
220,800 Duke Energy Corp. (a) ....................................................... 15,447,168
224,400 Emera, Inc. (CAD) (a) ....................................................... 6,192,093
180,800 Fortis, Inc. (CAD) (a) ...................................................... 5,300,381
98,600 ITC Holdings Corp. (a) ...................................................... 8,921,328
248,300 NextEra Energy, Inc. (a) .................................................... 21,003,697
378,600 Northeast Utilities (a) ..................................................... 15,552,888
127,400 NRG Yield, Inc., Class A (a) ................................................ 4,605,510
636,900 Southern (The) Co. (a) ...................................................... 25,877,247
--------------
104,312,112
--------------
GAS UTILITIES - 8.3%
50,800 Atmos Energy Corp. (a) ...................................................... 2,258,060
119,385 Laclede Group, Inc. (a) ..................................................... 5,504,842
375,500 Questar Corp. (a) ........................................................... 8,456,260
400,479 UGI Corp. (a) ............................................................... 16,123,285
--------------
32,342,447
--------------
MULTI-UTILITIES - 17.1%
113,200 ATCO, Ltd. (CAD) (a) ........................................................ 5,177,657
149,000 Canadian Utilities, Ltd., Class A (CAD) (a) ................................. 5,058,049
50,000 CMS Energy Corp.............................................................. 1,327,000
306,900 Dominion Resources, Inc. (a) ................................................ 19,920,879
177,000 National Grid PLC, ADR (a) .................................................. 11,214,720
242,800 NiSource, Inc. (a) .......................................................... 7,677,336
60,000 Scana Corp................................................................... 2,830,200
29,000 Sempra Energy (a) ........................................................... 2,564,760
265,100 Wisconsin Energy Corp. (a) .................................................. 11,073,227
--------------
66,843,828
--------------
OIL, GAS & CONSUMABLE FUELS - 48.4%
1,481,580 Enbridge Energy Management, LLC (a) (b) ..................................... 42,313,925
508,600 Enbridge Income Fund Holdings, Inc. (CAD) (a) ............................... 10,961,310
253,569 Enbridge, Inc. (a) .......................................................... 10,482,542
467,000 Inter Pipeline, Ltd. (CAD) (a) .............................................. 11,172,312
49,300 Keyera Corp. (CAD) (a) ...................................................... 2,849,754
547,883 Kinder Morgan Management, LLC (a) (b) ....................................... 41,951,401
616,500 Kinder Morgan, Inc. (a) ..................................................... 21,910,410
202,100 Pembina Pipeline Corp. (CAD) (a) ............................................ 6,419,345
399,400 Spectra Energy Corp. (a) .................................................... 13,399,870
253,100 TransCanada Corp. (a) ....................................................... 11,235,109
476,700 Williams (The) Cos., Inc. (a) ............................................... 16,789,374
--------------
189,485,352
--------------
TOTAL COMMON STOCKS ......................................................... 392,983,739
(Cost $371,111,334) --------------
MASTER LIMITED PARTNERSHIPS - 34.1%
GAS UTILITIES - 2.6%
172,764 AmeriGas Partners, L.P. (a) ................................................. 7,466,860
See Notes to Financial Statements Page 5
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2013
SHARES/
UNITS DESCRIPTION VALUE
------------ ----------------------------------------------------------------------------- --------------
MASTER LIMITED PARTNERSHIPS (CONTINUED)
GAS UTILITIES (CONTINUED)
60,000 Suburban Propane Partners, L.P. (a) ......................................... $ 2,753,400
--------------
10,220,260
--------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS - 0.0%
5,000 Brookfield Renewable Energy Partners, L.P. (CAD) (a) ........................ 135,429
--------------
OIL, GAS & CONSUMABLE FUELS - 31.5%
24,000 Access Midstream Partners, L.P. (a) ......................................... 1,348,080
47,000 Alliance Holdings GP, L.P. (a) .............................................. 2,584,530
139,715 Alliance Resource Partners, L.P. (a) ........................................ 10,236,918
187,200 El Paso Pipeline Partners, L.P. (a) ......................................... 7,783,776
80,000 Energy Transfer Equity, L.P. (a) ............................................ 5,981,600
151,400 Energy Transfer Partners, L.P. (a) .......................................... 8,199,824
130,600 Enterprise Products Partners, L.P. (a) ...................................... 8,223,882
102,700 EQT Midstream Partners, L.P. (a) ............................................ 5,647,473
168,876 Holly Energy Partners, L.P. (a) ............................................. 5,311,150
92,600 Magellan Midstream Partners, L.P. (a) ....................................... 5,754,164
80,239 Natural Resource Partners, L.P. (a) ......................................... 1,612,002
103,472 NGL Energy Partners, L.P. (a) ............................................... 3,360,771
154,200 ONEOK Partners, L.P. (a) .................................................... 8,258,952
16,100 Phillips 66 Partners, L.P. (a) .............................................. 530,334
129,886 Plains All American Pipeline, L.P. (a) ...................................... 6,698,221
205,500 Spectra Energy Partners, L.P. (a) ........................................... 9,239,280
162,095 TC Pipelines, L.P. (a) ...................................................... 7,942,655
334,628 Teekay LNG Partners, L.P. (a) ............................................... 13,753,211
190,362 TransMontaigne Partners, L.P. (a) ........................................... 8,018,047
50,000 Williams Partners, L.P....................................................... 2,569,500
--------------
123,054,370
--------------
TOTAL MASTER LIMITED PARTNERSHIPS ........................................... 133,410,059
(Cost $103,481,047) --------------
TOTAL INVESTMENTS - 134.5% .................................................. 526,393,798
(Cost $474,592,381) (c) --------------
NUMBER OF
CONTRACTS DESCRIPTION VALUE
------------ ----------------------------------------------------------------------------- --------------
CALL OPTIONS WRITTEN - (0.3%)
American Electric Power Co., Inc. Call
180 @ $49.00 due February 2014 .................................................. (8,550)
--------------
CMS Energy Corp. Call
290 @ 30.00 due March 2014 ..................................................... (5,075)
--------------
Dominion Resources, Inc. Calls
1,140 @ 67.50 due December 2013 .................................................. (17,100)
900 @ 62.50 due January 2014 ................................................... (261,000)
--------------
(278,100)
--------------
Page 6 See Notes to Financial Statements
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2013
NUMBER OF
CONTRACTS DESCRIPTION VALUE
------------ ----------------------------------------------------------------------------- --------------
CALL OPTIONS WRITTEN (CONTINUED)
Duke Energy Corp. Call
1,700 @ $75.00 due December 2013 .................................................. $ (5,100)
--------------
Enbridge, Inc. Calls
701 @ 45.00 due January 2014 ................................................... (8,763)
1,075 @ 50.00 due January 2014 ................................................... (3,225)
--------------
(11,988)
--------------
Kinder Morgan, Inc. Calls
1,900 @ 37.50 due December 2013 .................................................. (17,100)
960 @ 42.50 due December 2013 .................................................. (1,920)
800 @ 42.50 due January 2014 ................................................... (800)
--------------
(19,820)
--------------
National Grid PLC, ADR Calls
1,000 @ 60.00 due December 2013 .................................................. (345,000)
420 @ 65.00 due December 2013 .................................................. (2,100)
--------------
(347,100)
--------------
Nextera Energy, Inc. Calls
1,300 @ 85.00 due December 2013 .................................................. (146,900)
300 @ 87.50 due December 2013 .................................................. (10,500)
--------------
(157,400)
--------------
NiSource, Inc. Calls
1,500 @ 32.00 due January 2014 ................................................... (78,750)
100 @ 34.00 due January 2014 ................................................... (1,300)
--------------
(80,050)
--------------
Northeast Utilities Call
2,461 @ 45.00 due January 2014 .................................................. (36,915)
--------------
Questar Corp. Calls
1,280 @ 24.00 due January 2014 ................................................... (10,240)
964 @ 26.00 due January 2014 ................................................... (4,820)
--------------
(15,060)
--------------
Scana Corp. Call
350 @ 50.00 due May 2014........................................................ (22,750)
--------------
Southern (The) Co. Calls
1,410 @ 43.00 due January 2014 ................................................... (19,740)
1,410 @ 44.00 due January 2014 ................................................... (5,640)
1,000 @ 43.00 due February 2014 .................................................. (27,000)
--------------
(52,380)
--------------
Spectra Energy Corp. Calls
220 @ 37.00 due December 2013 .................................................. (1,100)
2,080 @ 37.00 due January 2014 ................................................... (6,240)
100 @ 36.00 due March 2014 ..................................................... (3,750)
--------------
(11,090)
--------------
UGI Corp. Call
2,400 @ 45.00 due April 2014 ..................................................... (60,000)
--------------
See Notes to Financial Statements Page 7
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2013
NUMBER OF
CONTRACTS DESCRIPTION VALUE
------------ ----------------------------------------------------------------------------- --------------
CALL OPTIONS WRITTEN (CONTINUED)
Williams (The) Cos., Inc. Calls
1,000 @ $37.00 due February 2014 .................................................. $ (67,000)
1,862 @ 40.00 due February 2014 .................................................. (34,447)
--------------
(101,447)
--------------
Wisconsin Energy Corp. Calls
1,090 @ 45.00 due January 2014 ................................................... (19,075)
500 @ 45.00 due April 2014 ..................................................... (20,000)
--------------
(39,075)
--------------
TOTAL CALL OPTIONS WRITTEN .................................................. (1,251,900)
(Premiums received $1,571,359) --------------
OUTSTANDING LOAN - (37.3%) .................................................. (145,900,000)
NET OTHER ASSETS AND LIABILITIES - 3.1% ..................................... 12,094,492
--------------
NET ASSETS - 100.0% ......................................................... $ 391,336,390
==============
---------------------------------------
(a) All or a portion of this security serves as collateral on the
outstanding loan.
(b) Non-income producing security which pays in-kind distributions in
the form of additional shares.
(c) Aggregate cost for federal income tax purposes is $468,868,278. As
of November 30, 2013, the aggregate gross unrealized appreciation
for all securities in which there was an excess of value over tax
cost was $65,844,647 and the aggregate gross unrealized depreciation
for all securities in which there was an excess of tax cost over
value was $8,319,127.
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% $ (280,855)
(1) The Fund pays the fixed rate and receives the floating rate. The floating
rate on November 30, 2013 was 0.169%.
Page 8 See Notes to Financial Statements
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2013
---------------------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of November 30,
2013 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
ASSETS TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
11/30/2013 PRICES INPUTS INPUTS
------------ ------------ ------------ ------------
Common Stocks*.................................. $392,983,739 $392,983,739 $ -- $ --
Master Limited Partnerships*.................... 133,410,059 133,410,059 -- --
------------ ------------ ------------ ------------
Total .......................................... $526,393,798 $526,393,798 $ -- $ --
============ ============ ============ ============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
11/30/2013 PRICES INPUTS INPUTS
------------ ------------ ------------ ------------
Call Options Written............................ $ (1,251,900) $ (1,251,900) $ -- $ --
Interest Rate Swap**............................ (280,855) -- (280,855) --
------------ ------------ ------------ ------------
Total .......................................... $ (1,532,755) $ (1,251,900) $ (280,855) $ --
============ ============ ============ ============
* See Portfolio of Investments for industry breakout.
** See Interest Rate Swap Agreements for contract detail.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at November 30, 2013.
See Notes to Financial Statements Page 9
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 2013
ASSETS:
Investments, at value
(Cost $474,592,381) ........................................................................... $ 526,393,798
Cash........................................................................................... 10,529,500
Cash segregated as collateral for open swap contracts ......................................... 1,188,256
Receivables:
Dividends ................................................................................... 1,368,165
Prepaid expenses .............................................................................. 12,454
--------------
Total Assets ................................................................................ 539,492,173
--------------
LIABILITIES:
Outstanding loan .............................................................................. 145,900,000
Options written, at value (Premiums received $1,571,359) ...................................... 1,251,900
Swap contracts, at value (Cost $569) .......................................................... 280,855
Payables: .....................................................................................
Investment advisory fees .................................................................... 445,681
Interest and fees on loan ................................................................... 95,736
Audit and tax fees .......................................................................... 50,300
Custodian fees .............................................................................. 40,182
Administrative fees ......................................................................... 37,776
Printing fees ............................................................................... 26,577
Legal fees .................................................................................. 16,107
Trustees' fees and expenses ................................................................. 5,890
Transfer agent fees ......................................................................... 2,861
Financial reporting fees .................................................................... 771
Other liabilities ............................................................................. 1,147
--------------
Total Liabilities ........................................................................... 148,155,783
--------------
NET ASSETS .................................................................................... $ 391,336,390
==============
NET ASSETS CONSIST OF:
Paid-in capital ............................................................................... $ 333,654,042
Par value ..................................................................................... 175,502
Accumulated net investment income (loss) ...................................................... 5,919,898
Accumulated net realized gain (loss) on investments, written options, swap contracts and
foreign currency transactions .............................................................. (250,047)
Net unrealized appreciation (depreciation) on investments, written options, swap contracts
and foreign currency translation ........................................................... 51,836,995
--------------
NET ASSETS .................................................................................... $ 391,336,390
==============
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share) .......................... $ 22.30
==============
Number of Common Shares outstanding (unlimited number of Common Shares has been authorized).... 17,550,236
==============
Page 10 See Notes to Financial Statements
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 2013
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $456,200)......................................... $ 11,593,919
Interest....................................................................................... 4,348
--------------
Total investment income..................................................................... 11,598,267
--------------
EXPENSES:
Investment advisory fees....................................................................... 5,610,764
Interest and fees on loan...................................................................... 1,206,080
Administrative fees............................................................................ 458,392
Printing fees.................................................................................. 102,691
Custodian fees................................................................................. 60,875
Audit and tax fees............................................................................. 51,583
Legal fees..................................................................................... 39,889
Trustees' fees and expenses.................................................................... 30,096
Transfer agent fees............................................................................ 28,844
Financial reporting fees....................................................................... 9,250
Other.......................................................................................... 52,341
--------------
Total expenses.............................................................................. 7,650,805
--------------
NET INVESTMENT INCOME (LOSS)................................................................... 3,947,462
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments................................................................................. 46,229,325
Written options (a)......................................................................... 2,096,596
Swap contracts.............................................................................. 989,999
Foreign currency transactions............................................................... (60,458)
--------------
Net realized gain (loss)....................................................................... 49,255,462
--------------
Net increase from payment by the sub-advisor (b)............................................... 5,421
--------------
Net change in unrealized appreciation (depreciation) on:
Investments................................................................................. 12,192,783
Written options (a)......................................................................... (363,094)
Swap contracts.............................................................................. (281,424)
Foreign currency translation................................................................ (3,155)
--------------
Net change in unrealized appreciation (depreciation)........................................... 11,545,110
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)........................................................ 60,805,993
--------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................... $ 64,753,455
==============
---------------------------------------
(a) Primary risk exposure is equity option contracts.
(b) See Note 3 in the Notes to Financial Statements.
See Notes to Financial Statements Page 11
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
STATEMENTS OF CHANGES IN NET ASSETS
YEAR YEAR
ENDED ENDED
11/30/2013 11/30/2012
-------------- --------------
OPERATIONS:
Net investment income (loss)....................................................... $ 3,947,462 $ 4,785,848
Net realized gain (loss)........................................................... 49,255,462 36,621,810
Net increase from payment by the Sub-Advisor (a)................................... 5,421 104
Net change in unrealized appreciation (depreciation)............................... 11,545,110 5,198,386
------------ ------------
Net increase (decrease) in net assets resulting from operations.................... 64,753,455 46,606,148
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.............................................................. (14,525,290) (5,424,795)
Net realized gain.................................................................. (57,064,592) (17,425,612)
Return of capital.................................................................. (918,918) --
------------ ------------
Total distributions to shareholders................................................ (72,508,800) (22,850,407)
------------ ------------
CAPITAL TRANSACTIONS:
Offering costs..................................................................... -- 103,795
------------ ------------
Net increase (decrease) in net assets resulting from capital transactions.......... -- 103,795
------------ ------------
Total increase (decrease) in net assets............................................ (7,755,345) 23,859,536
------------ ------------
NET ASSETS:
Beginning of period................................................................ 399,091,735 375,232,199
------------ ------------
End of period...................................................................... $391,336,390 $399,091,735
============ ============
Accumulated net investment income (loss) at end of period.......................... $ 5,919,898 $ 1,024,721
============ ============
CAPITAL TRANSACTIONS WERE AS FOLLOWS:
Common Shares at beginning of period............................................... 17,550,236 17,550,236
Common Shares sold................................................................. -- --
Common Shares issued as reinvestment under the Dividend Reinvestment Plan.......... -- --
------------ ------------
Common Shares at end of period..................................................... 17,550,236 17,550,236
============ ============
---------------------------------------
(a) See Note 3 in the Notes to Financial Statements.
Page 12 See Notes to Financial Statements
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED NOVEMBER 30, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) in net assets resulting from operations......... $ 64,753,455
Adjustments to reconcile net increase (decrease) in net assets resulting
from operations to net cash provided by operating activities:
Purchases of investments............................................. (298,682,173)
Sales of investments................................................. 347,738,745
Proceeds from written options........................................ 5,082,143
Amount paid to close written options................................. (1,442,570)
Return of capital received from investment in MLPs................... 7,898,129
Net realized gain/loss on investments and options.................... (48,325,921)
Net change in unrealized appreciation/depreciation on investments and
written options.................................................... (11,829,689)
Net change in unrealized appreciation/depreciation on swap contracts 281,424
Net increase from payment from Sub-Advisor........................... (5,421)
Payments for open swap contracts..................................... (569)
CHANGES IN ASSETS AND LIABILITIES:
Increase in cash segregated as collateral for open swap contracts.... (1,188,256)
Decrease in dividends receivable (a)................................. 721,003
Decrease in prepaid expenses......................................... 3,113
Decrease in interest and fees on loan payable........................ (6,712)
Increase in investment advisory fees payable......................... 8,626
Increase in legal fees payable....................................... 3,651
Increase in printing fees payable.................................... 1,592
Increase in administrative fees payable.............................. 2,552
Increase in custodian fees payable................................... 32,797
Decrease in transfer agent fees payable.............................. (3,588)
Decrease in Trustees' fees and expenses payable...................... (39)
Decrease in other liabilities........................................ (3,586)
--------------
CASH PROVIDED BY OPERATING ACTIVITIES................................... $ 65,038,706
---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to Common Shareholders from net investment income...... (14,525,290)
Distributions to Common Shareholders from net realized gain.......... (57,064,592)
Distributions to Common Shareholders from return of capital.......... (918,918)
Proceeds from borrowing.............................................. 10,000,000
Repayment of borrowing............................................... (6,000,000)
--------------
CASH USED IN FINANCING ACTIVITIES....................................... (68,508,800)
---------------
Decrease in cash........................................................ (3,470,094)
Cash at beginning of period............................................. 13,999,594
---------------
CASH AT END OF PERIOD................................................... $ 10,529,500
===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest and fees..................... $ 1,212,792
===============
---------------------------------------
(a) Includes net change in unrealized appreciation (depreciation) on foreign
currency of $(3,155).
See Notes to Financial Statements Page 13
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
FINANCIAL HIGHLIGHTS
FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR YEAR PERIOD
ENDED ENDED ENDED
11/30/2013 11/30/2012 11/30/2011 (a)
------------- ------------- -----------------
Net asset value, beginning of period ..................................... $ 22.74 $ 21.38 $ 19.10 (b)
----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) ............................................. 0.22 0.27 0.05
Net realized and unrealized gain (loss) .................................. 3.47 2.38 2.30
----------- ----------- -----------
Total from investment operations ......................................... 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 .................................................... (0.83) (1.01) --
Net realized gain ........................................................ (3.25) (0.29) --
Return of capital ........................................................ (0.05) -- --
----------- ----------- -----------
Total distributions to Common Shareholders ............................... (4.13) (1.30) --
----------- ----------- -----------
Net asset value, end of period ........................................... $ 22.30 $ 22.74 $ 21.38
=========== =========== ===========
Market value, end of period .............................................. $ 21.71 $ 21.34 $ 19.82
=========== =========== ===========
TOTAL RETURN BASED ON NET ASSET VALUE (c) ................................ 17.76% (d) 13.08% (e) 11.94%
=========== =========== ===========
TOTAL RETURN BASED ON MARKET VALUE (c) ................................... 22.11% 14.47% (0.90)%
=========== =========== ===========
--------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ..................................... $ 391,336 $ 399,092 $ 375,232
Ratio of net expenses to average net assets .............................. 1.84% 1.82% 1.66% (f)
Ratio of total expenses to average net assets excluding interest expense
and fees on loan ...................................................... 1.55% 1.52% 1.48% (f)
Ratio of net investment income (loss) to average net assets .............. 0.95% 1.21% 1.49% (f)
Portfolio turnover rate .................................................. 54% 46% 8%
INDEBTEDNESS:
Total loan outstanding (in 000's) ........................................ $ 145,900 $ 141,900 $ 102,000
Asset coverage per $1,000 of indebtedness (g) ............................ $ 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)
NOVEMBER 30, 2013
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 ("SEC") 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 trusts
and their successor companies (collectively, "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. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America ("U.S. GAAP") requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
A. PORTFOLIO VALUATION:
The net asset value ("NAV") of the Common Shares of the Fund is determined daily
as of the close of regular trading on the NYSE, normally 4:00 p.m. Eastern time,
on each day the NYSE is open for trading. If the NYSE closes early on a
valuation day, the NAV is determined as of that time. The NAV per Common Share
is calculated by dividing the value of all assets of the Fund (including accrued
interest and dividends), less all liabilities (including accrued expenses,
dividends declared but unpaid 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 in
accordance with valuation procedures adopted by the Fund's Board of Trustees,
and in accordance with provisions of the 1940 Act. Market quotations and prices
used to value the Fund's investments are primarily obtained from third party
pricing services. The Fund's securities will be valued as follows:
Common stocks, MLPs and other equity securities listed on any national or
foreign exchange (excluding the NASDAQ(R) Stock Market, LLC ("NASDAQ") and
the London Stock Exchange Alternative Investment Market ("AIM")) are
valued at the last 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 and futures contracts are valued at the closing
price in the market where such contracts are principally traded.
Securities traded in an over-the-counter market are valued at the mean of
the bid and asked price, if available, and otherwise at the closing bid
price.
Swaps are 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.
Short-term investments that mature in less than 60 days when purchased are
valued at amortized cost.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Board of Trustees or its delegate
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 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. The use of fair value prices by the Fund
generally results in prices used by the Fund that may differ from current market
quotations or official closing prices on the applicable exchange. A variety of
factors may be considered in determining the fair value of such securities,
including, but not limited to, the following:
Page 15
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
NOVEMBER 30, 2013
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 methodology used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of November 30, 2013, is
included with the Fund's Portfolio of Investments.
B. OPTION CONTRACTS:
The Fund is subject to equity price risk in the normal course of pursuing its
investment objective and may write (sell) options to hedge against changes in
the value of equities. Also, the Fund seeks to generate additional income, in
the form of premiums received, from writing (selling) the options. The Fund may
write (sell) covered call or put options ("options") on all or a portion of the
common stock and MLPs held in the Fund's portfolio as determined to be
appropriate by Energy Income Partners, LLC ("EIP" or the "Sub-Advisor"). The
number of options the Fund can write (sell) is limited by the amount of common
stock and MLPs the Fund holds in its portfolio. The Fund will not write (sell)
"naked" or uncovered options. When the Fund writes (sells) an option, an amount
equal to the premium received by the Fund is included in "Options written, at
value" on the Fund's Statement of Assets and Liabilities. Options are
marked-to-market daily and their value will be affected by changes in the value
and dividend rates of the underlying equity securities, changes in interest
rates, changes in the actual or perceived volatility of the securities markets
and the underlying equity securities and the remaining time to the options'
expiration. The value of options may also be adversely affected if the market
for the options becomes less liquid or trading volume diminishes.
Options the Fund writes (sells) will either be exercised, expire or be cancelled
pursuant to a closing transaction. If the price of the underlying security
exceeds the option's exercise price, it is likely that the option holder will
exercise the option. If an option written (sold) by the Fund is exercised, the
Fund would be obligated to deliver the underlying security to the option holder
upon payment of the strike price. In this case, the option premium received by
the Fund will be added to the amount realized on the sale of the underlying
security for purposes of determining gain or loss. If the price of the
underlying security is less than the option's strike price, the option will
likely expire without being exercised. The option premium received by the Fund
will, in this case, be treated as short-term capital gain on the expiration date
of the option. The Fund may also elect to close out its position in an option
prior to its expiration by purchasing an option of the same series as the option
written (sold) by the Fund. Gain or loss on options is presented separately as
"Net realized gain (loss) on written options" on the Statement of Operations.
Page 16
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
NOVEMBER 30, 2013
The options that the Fund writes (sells) give the option holder the right, but
not the obligation, to purchase a security from the Fund at the strike price on
or prior to the option's expiration date. The ability to successfully implement
the writing (selling) of covered call options depends on the ability of the
Sub-Advisor to predict pertinent market movements, which cannot be assured.
Thus, the use of options may require the Fund to sell portfolio securities at
inopportune times or for prices other than current market value, which may limit
the amount of appreciation the Fund can realize on an investment, or may cause
the Fund to hold a security that it might otherwise sell. As the writer (seller)
of a covered option, the Fund foregoes, during the option's life, the
opportunity to profit from increases in the market value of the security
covering the option above the sum of the premium and the strike price of the
option, but has retained the risk of loss should the price of the underlying
security decline. The writer (seller) of an option has no control over the time
when it may be required to fulfill its obligation as a writer (seller) of the
option. Once an option writer (seller) has received an exercise notice, it
cannot effect a closing purchase transaction in order to terminate its
obligation under the option and must deliver the underlying security to the
option holder at the exercise price.
Over-the-counter options have the risk of the potential inability of
counterparties to meet the terms of their contracts. The Fund's maximum equity
price risk for purchased options is limited to the premium initially paid. In
addition, certain risks may arise upon entering into option contracts including
the risk that an illiquid secondary market will limit the Fund's ability to
close out an option contract prior to the expiration date and that a change in
the value of the option contract may not correlate exactly with changes in the
value of the securities hedged.
C. SWAP AGREEMENTS:
The Fund may enter into total return equity swap and interest rate swap
agreements. A swap is a financial instrument that typically involves the
exchange of cash flows between two parties ("Counterparties") on specified dates
(settlement dates) where the cash flows are based on agreed-upon prices, rates,
etc. Swap agreements are individually negotiated and involve the risk of the
potential inability of the Counterparties to meet the terms of the agreement. In
connection with these agreements, cash and securities may be identified as
collateral in accordance with the terms of the respective swap agreements to
provide assets of value and recourse in the event of default under the swap
agreement or bankruptcy/insolvency of a party to the swap agreement. In the
event of a default by the Counterparty, the Fund will seek withdrawal of this
collateral and may incur certain costs exercising its right with respect to the
collateral. If a Counterparty becomes bankrupt or otherwise fails to perform its
obligations due to financial difficulties, the Fund may experience significant
delays in obtaining any recovery in a bankruptcy or other reorganization
proceeding. The Fund may obtain only limited recovery or may obtain no recovery
in such circumstances.
Swap agreements may increase or decrease the overall volatility of the
investments of the Fund. The performance of swap agreements may be affected by a
change in the specific interest rate, security, currency, or other factors that
determine the amounts of payments due to and from the Fund. The Fund's maximum
equity price risk to meet its future payments under swap agreements outstanding
at November 30, 2013 is equal to the total notional amount as shown on the
Portfolio of Investments. The notional amount represents the U.S. dollar value
of the 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.
Total Return Equity Swap Agreement
In a typical total return equity swap agreement, one party agrees to pay another
party the return on an equity security or basket of equity securities in return
for payment of a specified interest rate. By entering into total return equity
swaps, the Fund can gain exposure to a security without actually purchasing the
underlying asset. Total return equity swap agreements expose the Fund to the
same equity price risk as it would have if the underlying equity securities were
purchased, as well as the risk that the performance of the security, including
any dividends, will not exceed the interest that the Fund will be committed to
pay under the swap. The Fund entered into a total return equity swap agreement
on January 22, 2013 and sold it on September 26, 2013. For the year ended
November 30, 2013, the Fund recorded realized gains on total return equity swaps
of $1,051,174, which is included in "Net realized gain (loss) on swap contracts"
on the Statement of Operations. The average volume of total return equity swaps
was $7,728,852 for the period January 22, 2013 to September 26, 2013.
Interest Rate Swap Agreement
An interest rate swap agreement involves the Fund's agreement to exchange a
stream of interest payments for another party's stream of cash flows. Interest
rate swaps do not involve the delivery of securities or other underlying assets
or principal. Accordingly, the risk of loss with respect to interest rate swaps
is limited to the net amount of interest payments that the Fund is contractually
obligated to make. The Fund entered into an interest rate swap agreement on
October 8, 2013. At November 30, 2013, the unrealized depreciation on the
interest rate swap agreement was $281,424, which is included in "Swap contracts,
at value" on the Statement of Assets and Liabilities. For the year ended
November 30, 2013, the Fund recorded a change in unrealized loss of $281,424 on
the interest rate swap agreement, which is included in the "Net change in
unrealized appreciation (depreciation) on swap contracts" on the Statement of
Operations. For the year ended November 30, 2013, the Fund recorded a realized
loss on interest rate swaps of $61,175, which is included in "Net realized gain
(loss) on swap contracts" on the Statement of Operations. The average volume of
interest rate swaps was $36,475,000 for the period October 8, 2013 to November
30, 2013.
Page 17
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
NOVEMBER 30, 2013
D. SECURITIES TRANSACTIONS AND INVESTMENT INCOME:
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income is recorded
daily on the accrual basis, including amortization of premiums and accretion of
discounts. The Fund will rely to some extent on information provided by the
MLPs, which is not necessarily timely, to estimate taxable income allocable to
the MLP units held in the Fund's portfolio.
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 year ended ended November 30, 2013, distributions of
$7,898,129 received from MLPs have been reclassified as return of capital.
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. Permanent differences
incurred during the year ended November 30, 2013, primarily as a result of
differing book and tax treatments on the sale of MLP investments, have been
reclassified at year end to reflect an increase in accumulated net investment
income (loss) of $15,473,005 and a decrease in accumulated net realized gain
(loss) on investments of $15,599,641 and an increase to paid-in capital of
$126,636. Net assets were not affected by these reclassifications.
The tax character of distributions paid during the fiscal years ended November
30, 2013 and 2012 is as follows:
Distributions paid from: 2013 2012
Ordinary income .................................. $ 36,268,003 $ 22,850,407
Capital gain...................................... $ 35,321,879 $ --
Return of capital................................. $ 918,918 $ --
As of November 30, 2013, 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)........ 57,561,098
------------
Total accumulated earnings (losses)............... 57,561,098
Other .......................................... (54,252)
Paid-in capital................................... 333,829,544
------------
Net assets........................................ $391,336,390
============
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, 2013, 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, 2013, the Fund had
no qualified late year losses.
Page 18
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
NOVEMBER 30, 2013
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
and 2013 remain open to federal and state audit. As of November 30, 2013,
management has evaluated the application of these standards to the Fund and has
determined that no provision for income tax is required in the Fund's financial
statements for uncertain tax positions.
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 investment securities 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 trade date and subsequent sale trade date is included in "Net
realized gain (loss) on investments" on the Statement of Operations.
I. ORGANIZATION AND OFFERING COSTS:
Organization costs consisted of costs incurred to establish the Fund and enable
it to legally conduct business. These costs included filing fees, listing fees,
legal services pertaining to the organization of the business and audit fees
relating to the initial registration and auditing the initial statement of
assets and liabilities, among other fees. Offering costs consisted of legal fees
pertaining to the Fund's shares offered for sale, registration fees,
underwriting fees, and printing of the initial prospectus, among other fees.
First Trust paid all organization expenses. The Fund's Common Share offering
costs of $690,000 were recorded as a reduction of the proceeds from the sale of
Common Shares during the period ended November 30, 2011. During the fiscal year
ended November 30, 2012, it was determined that actual offering costs were less
than the estimated offering costs by $103,795. Therefore, paid-in capital was
increased by that amount in the fiscal year ended November 30, 2012, as
reflected in the offering costs line item on the Statements of Changes in Net
Assets.
J. ACCOUNTING PRONOUNCEMENTS:
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 Statements 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 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.
Management is currently evaluating the impact of the updated standards on the
Fund's financial statements, if any.
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Fund, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the ongoing monitoring of the Fund's investment
portfolio, managing the Fund's business affairs and providing certain
administrative services necessary for the management of the Fund. For these
investment management services, First Trust is entitled to a monthly fee
calculated at an annual rate of 1.00% of the Fund's Managed Assets (the average
daily total asset value of the Fund minus the sum of the Fund's liabilities
other than the principal amount of borrowings). First Trust also provides fund
reporting services to the Fund for a flat annual fee in the amount of $9,250.
EIP serves as the Fund's sub-advisor and manages the Fund's portfolio subject to
First Trust's supervision. The Sub-Advisor receives a monthly sub-advisory fee
calculated at an annual rate of 0.50% of the Fund's Managed Assets that is paid
by First Trust out of its investment advisory fee.
During the fiscal years ended November 30, 2013 and 2012, the Fund received
reimbursements from the Sub-Advisor of $5,421 and $104, respectively, in
connection with trade errors.
Page 19
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
NOVEMBER 30, 2013
First Trust Capital Partners, LLC ("FTCP"), an affiliate of First Trust, owns,
through a wholly-owned subsidiary, a 15% ownership interest in each of the
Sub-Advisor and EIP Partners, LLC, an affiliate of the Sub-Advisor. In addition,
as of November 29, 2012, FTCP, through a wholly-owned subsidiary, purchased a
preferred interest in the Sub-Advisor. The preferred interest is non-voting and
does not share in the profits or losses of the Sub-Advisor. The Sub-Advisor may
buy back any or all of FTCP's preferred interest at any time and FTCP may sell
back to the Sub-Advisor up to 50% of its preferred interest on or after July 29,
2014 and any or all of its preferred interest after November 29, 2015.
BNY Mellon Investment Servicing (US) Inc. ("BNYM IS") serves as the Fund's
administrator, fund accountant and transfer agent in accordance with certain fee
arrangements. As administrator and fund accountant, BNYM IS is responsible for
providing certain administrative and accounting services to the Fund, including
maintaining the Fund's books of account, records of the Fund's securities
transactions, and certain other books and records. As transfer agent, BNYM IS is
responsible for maintaining shareholder records for the Fund. The Bank of New
York Mellon ("BNYM") serves as the Fund's custodian in accordance with certain
fee arrangements. As custodian, BNYM is responsible for custody of the Fund's
assets.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer of $125,000 per year and an annual per fund fee of $4,000 for each
closed-end fund or other actively managed fund and $1,000 for each index fund in
the First Trust Fund Complex. The fixed annual retainer is allocated pro rata
among each fund in the First Trust Fund Complex based on net assets.
Additionally, the Lead Independent Trustee is paid $15,000 annually, the
Chairman of the Audit Committee is paid $10,000 annually, and each of the
Chairmen of the Nominating and Governance Committee and the Valuation Committee
is paid $5,000 annually to serve in such capacities, with such compensation
allocated pro rata among each fund in the First Trust Fund Complex based on net
assets. Trustees are reimbursed for travel and out-of-pocket expenses in
connection with all meetings. The Lead Independent Trustee and each Committee
Chairman will serve two-year terms until December 31, 2013 before rotating to
serve as Chairman of another Committee or as Lead Independent Trustee. After
December 31, 2013, the Lead Independent Trustee and Committee Chairmen will
rotate every three years. The officers and "Interested" Trustee receive no
compensation from the funds for acting in such capacities.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of investments, excluding short-term
investments, for the year ended November 30, 2013, were $298,294,010 and
$345,862,247, respectively.
Written option activity for the Fund was as follows:
NUMBER
OF
WRITTEN OPTIONS CONTRACTS PREMIUMS
-------------------------------------------------------------------------------
Options outstanding at November 30, 2012... 35,234 $ 1,576,846
Options Written............................ 106,348 5,082,143
Options Expired............................ (68,221) (3,199,426)
Options Exercised.......................... (34,486) (1,548,464)
Options Closed............................. (6,482) (339,740)
---------- ------------
Options outstanding at November 30, 2013... 32,393 $ 1,571,359
========== ============
5. BORROWINGS
The Fund has a committed facility agreement with The Bank of Nova Scotia
("Scotia") that has a maximum commitment amount of $165,000,000. The borrowing
rate under the facility is equal to the 1-month LIBOR plus 65 basis points. In
addition, under the facility, the Fund pays a commitment fee of 0.20% on the
undrawn amount of such facility. The average amount outstanding for the year
ended November 30, 2013 was $144,930,137, with a weighted average interest rate
of 0.80%. As of November 30, 2013, the Fund had outstanding borrowings of
$145,900,000 under this committed facility agreement. The high and low annual
interest rates for the year ended November 30, 2013 were 0.87% and 0.76%,
respectively. The interest rate at November 30, 2013 was 0.77%.
6. INDEMNIFICATION
The Fund has a variety of indemnification obligations under contracts with its
service providers. The Fund's maximum exposure under these arrangements is
unknown. However, the Fund has not had prior claims or losses pursuant to these
contracts and expects the risk of loss to be remote.
Page 20
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
NOVEMBER 30, 2013
7. 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.
8. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events to the Fund through
the date the financial statements were issued, and has determined that there
were the following subsequent events:
On December 17, 2013, the Fund declared a dividend of $0.11 per share to Common
Shareholders of record on January 6, 2014, payable January 15, 2014.
On January 21, 2014, the Fund declared a dividend of $0.11 per share to Common
Shareholders of record on February 5, 2014, payable February 14, 2014.
Page 21
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FIRST TRUST ENERGY INFRASTRUCTURE
FUND:
We have audited the accompanying statement of assets and liabilities of First
Trust Energy Infrastructure Fund (the "Fund"), including the portfolio of
investments, as of November 30, 2013, and the related statements of operations
and cash flows for the year then ended, the statements of changes in net assets
for each of the two years in the period then ended, and the financial highlights
for the periods presented. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
The Fund is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of November 30, 2013 by correspondence with the Fund's
custodian and brokers. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of First
Trust Energy Infrastructure Fund, as of November 30, 2013, and the results of
its operations and its cash flows for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and the financial
highlights for the periods presented, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Chicago, Illinois
January 24, 2014
Page 22
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
NOVEMBER 30, 2013 (UNAUDITED)
DIVIDEND REINVESTMENT PLAN
If your Common Shares are registered directly with the Fund or if you hold your
Common Shares with a brokerage firm that participates in the Fund's Dividend
Reinvestment Plan (the "Plan"), unless you elect, by written notice to the Fund,
to receive cash distributions, all dividends, including any capital gain
distributions, on your Common Shares will be automatically reinvested by BNY
Mellon Investment Servicing (US) Inc. (the "Plan Agent"), in additional Common
Shares under the Plan. If you elect to receive cash distributions, you will
receive all distributions in cash paid by check mailed directly to you by the
Plan Agent, as the dividend paying agent.
If you decide to participate in the Plan, the number of Common Shares you will
receive will be determined as follows:
(1) If Common Shares are trading at or above net asset value ("NAV") at
the time of valuation, the Fund will issue new shares at a price
equal to the greater of (i) NAV per Common Share on that date or
(ii) 95% of the market price on that date.
(2) If Common Shares are trading below NAV at the time of valuation, the
Plan Agent will receive the dividend or distribution in cash and
will purchase Common Shares in the open market, on the NYSE or
elsewhere, for the participants' accounts. It is possible that the
market price for the Common Shares may increase before the Plan
Agent has completed its purchases. Therefore, the average purchase
price per share paid by the Plan Agent may exceed the market price
at the time of valuation, resulting in the purchase of fewer shares
than if the dividend or distribution had been paid in Common Shares
issued by the Fund. The Plan Agent will use all dividends and
distributions received in cash to purchase Common Shares in the open
market within 30 days of the valuation date except where temporary
curtailment or suspension of purchases is necessary to comply with
federal securities laws. Interest will not be paid on any uninvested
cash payments.
You may elect to opt-out of or withdraw from the Plan at any time by giving
written notice to the Plan Agent, or by telephone at (866) 340-1104, in
accordance with such reasonable requirements as the Plan Agent and the Fund may
agree upon. If you withdraw or the Plan is terminated, you will receive a
certificate for each whole share in your account under the Plan, and you will
receive a cash payment for any fraction of a share in your account. If you wish,
the Plan Agent will sell your shares and send you the proceeds, minus brokerage
commissions.
The Plan Agent maintains all Common Shareholders' accounts in the Plan and gives
written confirmation of all transactions in the accounts, including information
you may need for tax records. Common Shares in your account will be held by the
Plan Agent in non-certificated form. The Plan Agent will forward to each
participant any proxy solicitation material and will vote any shares so held
only in accordance with proxies returned to the Fund. Any proxy you receive will
include all Common Shares you have received under the Plan.
There is no brokerage charge for reinvestment of your dividends or distributions
in Common Shares. However, all participants will pay a pro rata share of
brokerage commissions incurred by the Plan Agent when it makes open market
purchases.
Automatically reinvesting dividends and distributions does not mean that you do
not have to pay income taxes due upon receiving dividends and distributions.
Capital gains and income are realized although cash is not received by you.
Consult your financial advisor for more information.
If you hold your Common Shares with a brokerage firm that does not participate
in the Plan, you will not be able to participate in the Plan and any dividend
reinvestment may be effected on different terms than those described above.
The Fund reserves the right to amend or terminate the Plan if in the judgment of
the Board of Trustees the change is warranted. There is no direct service charge
to participants in the Plan; however, the Fund reserves the right to amend the
Plan to include a service charge payable by the participants. Additional
information about the Plan may be obtained by writing BNY Mellon Investment
Servicing (US) Inc., 301 Bellevue Parkway, Wilmington, Delaware 19809.
--------------------------------------------------------------------------------
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Fund uses to determine how
to vote proxies and information on how the Fund voted proxies relating to
portfolio investments during the most recent 12-month period ended June 30 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 23
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
NOVEMBER 30, 2013 (UNAUDITED)
PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q
are available (1) by calling (800) 988-5891; (2) on the Fund's website located
at http://www.ftportfolios.com; (3) on the SEC's website at http://www.sec.gov;
and (4) for review and copying at the SEC's Public Reference Room ("PRR") in
Washington, DC. Information regarding the operation of the PRR may be obtained
by calling (800) SEC-0330.
TAX INFORMATION
Of the ordinary income (including short-term capital gain) distributions made by
the Fund during the year ended November 30, 2013, 34.82% qualified for the
corporate dividends received deduction available to corporate shareholders.
The Fund hereby designates as qualified dividend income 51.47% of the ordinary
income distributions for the year ended November 30, 2013.
For the year ended November 30, 2013, the amount of long-term capital gain
distributions by the Fund was $35,321,879 which is taxable at a maximum rate of
20% for federal income tax purposes.
NYSE CERTIFICATION INFORMATION
In accordance with Section 303A-12 of the New York Stock Exchange ("NYSE")
Listed Company Manual, the Fund's President has certified to the NYSE that, as
of May 14, 2013, he was not aware of any violation by the Fund of NYSE corporate
governance listing standards. In addition, the Fund's reports to the SEC on
Forms N-CSR, N-CSRS and N-Q contain certifications by the Fund's principal
executive officer and principal financial officer that relate to the Fund's
public disclosure in such reports and are required by Rule 30a-2 under the 1940
Act.
SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
The Joint Annual Meeting of Shareholders of the Common Shares of 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 (formerly First Trust Active Dividend
Income Fund), First Trust Energy Infrastructure Fund, Macquarie/First Trust
Global Infrastructure/Utilities Dividend & Income Fund and First Trust High
Income Long/Short Fund was held on April 17, 2013 (the "Annual Meeting"). At the
Annual Meeting, James A. Bowen and Niel B. Nielson were elected by the Common
Shareholders of the First Trust Energy Infrastructure Fund as Class III Trustees
for a three-year term expiring at the Fund's annual meeting of shareholders in
2016. The number of votes cast in favor of Mr. Bowen was 15,612,801, the number
of votes against was 221,307 and the number of abstentions was 1,716,128. The
number of votes cast in favor of Mr. Nielson was 15,615,777, the number of votes
against was 218,331 and the number of abstentions was 1,716,128. Richard E.
Erickson, Thomas R. Kadlec and Robert F. Keith are the other current and
continuing Trustees.
RISK CONSIDERATIONS
Risks are inherent in all investing. The following summarizes some, but not all,
of the risks that should be considered for the Fund. For additional information
about the risks associated with investing in the Fund, please see the Fund's
prospectus and statement of additional information, as well as other Fund
regulatory filings.
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
Page 24
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
NOVEMBER 30, 2013 (UNAUDITED)
events affecting the issuers occur. When the Advisor or Sub-Advisor determines
that it is temporarily unable to follow the Fund's investment strategy or that
it is impractical to do so (such as when a market disruption event has occurred
and trading in the securities is extremely limited or absent), the Fund may take
temporary defensive positions.
LEVERAGE RISK: The use of leverage results in additional risks and can magnify
the effect of any losses. The funds borrowed pursuant to a leverage borrowing
program constitute a substantial lien and burden by reason of their prior claim
against the income of the Fund and against the net assets of the Fund in
liquidation. If the Fund is not in compliance with certain credit facility
provisions, the Fund may not be permitted to declare dividends or other
distributions.
MLP RISK: An investment in MLP units involves risks which differ from an
investment in common stock of a corporation. Holders of MLP units have limited
control and voting rights on matters affecting the partnership. In addition,
there are certain tax risks associated with an investment in MLP units and
conflicts of interest exist between common unit holders and the general partner,
including those arising from incentive distribution payments.
NON-U.S. RISK: The Fund may invest a portion of its assets in the equity
securities of issuers domiciled in jurisdictions other than the U.S. Investments
in the securities and instruments of non-U.S. issuers involve certain
considerations and risks not ordinarily associated with investments in
securities and instruments of U.S. issuers. Non-U.S. companies are not generally
subject to uniform accounting, auditing and financial standards and requirements
comparable to those applicable to U.S. companies. Non-U.S. securities exchanges,
brokers and listed companies may be subject to less government supervision and
regulation than exists in the United States. Dividend and interest income may be
subject to withholding and other non-U.S. taxes, which may adversely affect the
net return on such investments. A related risk is that there may be difficulty
in obtaining or enforcing a court judgment abroad.
QUALIFIED DIVIDEND INCOME TAX RISK: There can be no assurance as to what portion
of the distributions paid to the Fund's Common Shareholders will consist of
tax-advantaged qualified dividend income. Certain distributions designated by
the Fund as derived from qualified dividend income will be taxed in the hands of
non-corporate Common Shareholders at the rates applicable to long-term capital
gains, provided certain holding period and other requirements are satisfied by
both the Fund and the Common Shareholders. Additional requirements apply in
determining whether distributions by foreign issuers should be regarded as
qualified dividend income. Certain investment strategies of the Fund will limit
the Fund's ability to meet these requirements and consequently will limit the
amount of qualified dividend income received and distributed by the Fund. A
change in the favorable provisions of the federal tax laws with respect to
qualified dividends may result in a widespread reduction in announced dividends
and may adversely impact the valuation of the shares of dividend-paying
companies.
RESTRICTED SECURITIES RISK: The Fund may invest in unregistered or otherwise
restricted securities. The term "restricted securities" refers to securities
that are unregistered or are held by control persons of the issuer and
securities that are subject to contractual restrictions on their resale. As a
result, restricted securities may be more difficult to value and the Fund may
have difficulty disposing of such assets either in a timely manner or for a
reasonable price. In order to dispose of an unregistered security, the Fund,
where it has contractual rights to do so, may have to cause such security to be
registered. A considerable period may elapse between the time the decision is
made to sell the security andthe 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.
ADVISORY AND SUB-ADVISORY AGREEMENTS
BOARD CONSIDERATIONS REGARDING APPROVAL OF CONTINUATION OF INVESTMENT MANAGEMENT
AND INVESTMENT SUB-ADVISORY AGREEMENTS
The Board of Trustees of First Trust Energy Infrastructure Fund (the "Fund"),
including the Independent Trustees, approved the continuation of the Investment
Management Agreement (the "Advisory Agreement") between the Fund and First Trust
Advisors L.P. (the "Advisor") and the Investment Sub-Advisory Agreement (the
"Sub-Advisory Agreement" and together with the Advisory Agreement, the
"Agreements") among the Fund, the Advisor and Energy Income Partners, LLC (the
"Sub-Advisor"), at a meeting held on June 9-10, 2013. The Board determined that
the continuation of the Agreements is in the best interests of the Fund in light
of the extent and quality of the services provided and such other matters as the
Board considered to be relevant in the exercise of its reasonable business
judgment.
To reach this determination, the Board considered its duties under the
Investment Company Act of 1940, as amended (the "1940 Act"), as well as under
the general principles of state law in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
on such agreements. To assist the Board in its evaluation of the Agreements, the
Independent Trustees received a separate report from each of the Advisor and the
Sub-Advisor in advance of the Board meeting responding to a request for
information from counsel to the Independent Trustees. The reports,
Page 25
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
NOVEMBER 30, 2013 (UNAUDITED)
among other things, outlined the services provided by the Advisor and the
Sub-Advisor (including the relevant personnel responsible for these services and
their experience); the advisory and sub-advisory fees for the Fund as compared
to fees charged to other clients of the Advisor and the Sub-Advisor and as
compared to fees charged by investment advisors and sub-advisors to comparable
funds; expenses of the Fund as compared to expense ratios of comparable funds;
the nature of expenses incurred in providing services to the Fund and the
potential for economies of scale, if any; financial data on the Advisor and the
Sub-Advisor; any fall-out benefits to the Advisor and the Sub-Advisor; and
information on the Advisor's and the Sub-Advisor's compliance programs.
Following receipt of this information, the Independent Trustees and their
counsel met separately to discuss the information provided by the Advisor and
the Sub-Advisor. The Board applied its business judgment to determine whether
the arrangements between the Fund and the Advisor and among the Fund, the
Advisor and the Sub-Advisor are reasonable business arrangements from the Fund's
perspective as well as from the perspective of shareholders. The Board
considered that shareholders chose to invest or remain invested in the Fund
knowing that the Advisor and the Sub-Advisor manage the Fund.
In reviewing the Agreements, the Board considered the nature, extent and quality
of services provided by the Advisor and the Sub-Advisor under the Agreements.
The Board considered the Advisor's statements regarding the incremental benefits
associated with the Fund's advisor/sub-advisor management structure. With
respect to the Advisory Agreement, the Board considered that the Advisor is
responsible for the overall management and administration of the Fund and
reviewed the services provided by the Advisor to the Fund, including the
oversight of the Sub-Advisor. The Board noted the compliance program that had
been developed by the Advisor and considered that it includes a robust program
for monitoring the Sub-Advisor's compliance with the 1940 Act and the Fund's
investment objective and policies. With respect to the Sub-Advisory Agreement,
the Board received a presentation from representatives of the Sub-Advisor
discussing the services that the Sub-Advisor provides to the Fund and how the
Sub-Advisor manages the Fund's investments. In light of the information
presented and the considerations made, the Board concluded that the nature,
extent and quality of services provided to the Fund by the Advisor and the
Sub-Advisor under the Agreements have been and are expected to remain
satisfactory and that the Sub-Advisor, under the oversight of the Advisor, has
managed the Fund consistent with its investment objective and policies.
The Board considered the advisory and sub-advisory fees paid under the
Agreements. The Board considered the advisory fees charged by the Advisor to
similar funds and other non-fund clients, noting that the Advisor provides
advisory services to two other closed-end funds sub-advised by the Sub-Advisor
and certain separately managed accounts with investment objectives and policies
similar to the Fund's. The Board noted that the Advisor charges the same
advisory fee rate to the Fund and the other closed-end funds sub-advised by the
Sub-Advisor and a lower advisory fee rate to the separately managed accounts.
The Board noted the Advisor's statement that the nature of the services provided
to the separately managed accounts is not comparable to those provided to the
Fund. The Board considered the sub-advisory fee and how it relates to the Fund's
overall advisory fee structure and noted that the sub-advisory fee is paid by
the Advisor from its advisory fee. The Board noted that the Sub-Advisor provides
sub-advisory services to the other closed-end funds noted above and that the
sub-advisory fee rate is the same as that received from the Advisor for the
Fund. The Board also considered information provided by the Sub-Advisor as to
the fees it charges to other similar clients, noting that the sub-advisory fee
rate is generally lower than the fee rate charged by the Sub-Advisor to other
similar clients. In addition, the Board reviewed data prepared by Lipper Inc.
("Lipper"), an independent source, showing the advisory fees and expense ratios
of the Fund as compared to the advisory fees and expense ratios of an expense
peer group selected by Lipper and similar data from the Advisor for a separate
peer group selected by the Advisor. The Board noted that the Lipper and Advisor
peer groups did not include any overlapping peer funds. The Board discussed with
representatives of the Advisor the limitations in creating a relevant peer group
for the Fund, including that (i) the Fund is unique in its composition, which
makes assembling peers with similar strategies and asset mix difficult; (ii)
peer funds may use different types of leverage which have different costs
associated with them; (iii) most peer funds do not employ an advisor/sub-advisor
management structure; and (iv) many of the peer funds are larger than the Fund,
which causes the Fund's fixed expenses to be higher on a percentage basis as
compared to the larger peer funds. The Board took these limitations into account
in considering the peer data. In reviewing the peer data, the Board noted that
the Fund's contractual advisory fee was slightly above the median of the Lipper
peer group.
The Board also considered performance information for the Fund, noting that the
performance information included the Fund's quarterly performance report, which
is part of the process that the Board has established for monitoring the Fund's
performance and portfolio risk on an ongoing basis. The Board determined that
this process continues to be effective for reviewing the Fund's performance. In
addition to the Board's ongoing review of performance, the Board also received
data prepared by Lipper comparing the Fund's performance to a performance peer
universe selected by Lipper and to two benchmarks. In reviewing the Fund's
performance as compared to the performance of the Lipper performance peer
universe, the Board took into account the limitations described above with
respect to creating a relevant peer group for the Fund. The Board also noted
that, because the Fund launched in September 2011, it only had one full calendar
year of performance. The Board also considered the Fund's dividend yield as of
March 28, 2013 and an analysis prepared by the Advisor on the continued benefits
provided by the Fund's leverage. In addition, the Board compared the Fund's
premium/discount over the six quarters to the average and median
premium/discount of the Advisor peer group over the same period and considered
the factors that may impact a fund's premium/discount.
On the basis of all the information provided on the fees, expenses and
performance of the Fund, the Board concluded that the advisory and sub-advisory
fees were reasonable and appropriate in light of the nature, extent and quality
of services provided by the Advisor and Sub-Advisor under the Agreements.
Page 26
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
NOVEMBER 30, 2013 (UNAUDITED)
The Board noted that the Advisor has continued to invest in personnel and
infrastructure and considered whether fee levels reflect any economies of scale
for the benefit of shareholders. The Board determined that due to the Fund's
closed-end structure, the potential for realization of economies of scale as
Fund assets grow was not a material factor to be considered. The Board also
considered the costs of the services provided and profits realized by the
Advisor from serving as investment advisor to the Fund for the twelve months
ended December 31, 2012, as set forth in the materials provided to the Board.
The Board noted the inherent limitations in the profitability analysis, and
concluded that the Advisor's estimated profitability appeared to be not
excessive in light of the services provided to the Fund. In addition, the Board
considered fall-out benefits described by the Advisor that may be realized from
its relationship with the Fund, including the Advisor's compensation for fund
reporting services pursuant to a separate Fund Reporting Services Agreement. The
Board considered the ownership interest of an affiliate of the Advisor in the
Sub-Advisor and potential fall-out benefits to the Advisor from such ownership
interest.
The Board considered that the Sub-Advisor's investment services expenses are
primarily fixed, and that the Sub-Advisor has made recent investments in
infrastructure and personnel. The Board considered that the sub advisory fee
rate was negotiated at arm's length between the Advisor and the Sub-Advisor. The
Board also considered data provided by the Sub-Advisor as to the profitability
of the Sub-Advisor's business as a whole, noting that the Sub-Advisor was
profitable. The Board concluded that its consideration of the Advisor's
profitability was more relevant. The Board considered fall-out benefits realized
by the Sub-Advisor from its relationship with the Fund, including soft-dollar
arrangements, and considered a summary of such arrangements. The Board also
considered the potential fall-out benefits to the Sub-Advisor from the ownership
interest of the Advisor's affiliate in the Sub-Advisor.
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, unanimously determined that the terms
of the Agreements continue to be fair and reasonable and that the continuation
of the Agreements is in the best interests of the Fund. No single factor was
determinative in the Board's analysis.
Page 27
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
NOVEMBER 30, 2013 (UNAUDITED)
NUMBER OF OTHER
PORTFOLIOS IN TRUSTEESHIPS OR
THE FIRST TRUST DIRECTORSHIPS
NAME, ADDRESS, TERM OF OFFICE FUND COMPLEX HELD BY TRUSTEE
DATE OF BIRTH AND AND LENGTH OF PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE FUND SERVICE (2) DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
Richard E. Erickson, Trustee o Three-Year Term Physician; President, Wheaton Orthopedics; 105 None
c/o First Trust Advisors L.P. Limited Partner, Gundersen Real Estate
120 East Liberty Drive, o Since Fund Limited Partnership; Member Sportsmed
Suite 400 Inception LLC
Wheaton, IL 60187
D.O.B.: 04/51
Thomas R. Kadlec, Trustee o Three-Year Term President (March 2010 to Present), Senior 105 Director of ADM
c/o First Trust Advisors L.P. Vice President and Chief Financial Officer Investor Services,
120 East Liberty Drive, o Since Fund (May 2007 to March 2010), ADM Services, Inc. and ADM
Suite 400 Inception Inc. (Futures Commission Merchant) Investor Services
Wheaton, IL 60187 International
D.O.B.: 11/57
Robert F. Keith, Trustee o Three-Year Term President (2003 to Present), Hibs 105 Director of Trust
c/o First Trust Advisors L.P. Enterprises (Financial and Management Company of
120 East Liberty Drive, o Since Fund Consulting) Illinois
Suite 400 Inception
Wheaton, IL 60187
D.O.B.: 11/56
Niel B. Nielson, Trustee o Three-Year Term President and Chief Executive Officer 105 Director of
c/o First Trust Advisors L.P. (June 2012 to Present), Dew Learning LLC Covenant
120 East Liberty Drive, o Since Fund (Educational Products and Services); Transport Inc.
Suite 400 Inception President (June 2002 to June 2012),
Wheaton, IL 60187 Covenant College
D.O.B.: 03/54
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee and o Three-Year Term Chief Executive Officer (December 2010 105 None
Chairman of the Board to Present), President (until December
120 East Liberty Drive, o Since Fund 2010), First Trust Advisors L.P. and First
Suite 400 Inception Trust Portfolios L.P.; Chairman of the
Wheaton, IL 60187 Board of Directors, BondWave LLC
D.O.B.: 09/55 (Software Development Company/
Investment Advisor) and Stonebridge
Advisors LLC (Investment Advisor)
-------------------
(1) Mr. Bowen is deemed an "interested person" of the Fund due to his position
as Chief Executive Officer of First Trust Advisors L.P., investment
advisor of the Fund.
(2) Currently, Robert F. Keith, as a Class I Trustee, is serving as a Trustee
until the Fund's 2014 annual meeting of shareholders. Richard E. Erickson
and Thomas R. Kadlec, as Class II Trustees, are serving as Trustees until
the Fund's 2015 annual meeting of shareholders. James A. Bowen and Niel B.
Nielson, as Class III Trustees, are serving as Trustees until the Fund's
2016 annual meeting of shareholders.
Page 28
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
NOVEMBER 30, 2013 (UNAUDITED)
NAME, ADDRESS POSITION AND OFFICES TERM OF OFFICE AND PRINCIPAL OCCUPATIONS
AND DATE OF BIRTH WITH FUND LENGTH OF SERVICE DURING PAST 5 YEARS
-----------------------------------------------------------------------------------------------------------------------------------
OFFICERS(3)
-----------------------------------------------------------------------------------------------------------------------------------
Mark R. Bradley President and Chief o Indefinite Term Chief Operating Officer (December 2010 to Present)
120 E. Liberty Drive, Executive Officer and Chief Financial Officer, First Trust Advisors
Suite 400 o Since January 2012 L.P. and First Trust Portfolios L.P.; Chief Financial
Wheaton, IL 60187 Officer, BondWave LLC (Software Development
D.O.B.: 11/57 Company/Investment Advisor) and Stonebridge
Advisors LLC (Investment Advisor)
James M. Dykas Treasurer, Chief Financial o Indefinite Term Controller (January 2011 to Present), Senior Vice
120 E. Liberty Drive, Officer and Chief Accounting President (April 2007 to January 2011), First
Suite 400 Officer o Since January 2012 Trust Advisors L.P. and First Trust Portfolios L.P.
Wheaton, IL 60187
D.O.B.: 01/66
W. Scott Jardine Secretary and Chief Legal o Indefinite Term General Counsel, First Trust Advisors L.P. and
120 E. Liberty Drive, Officer First Trust Portfolios L.P. and Secretary and
Suite 400 o Since Fund Inception General Counsel, BondWave LLC (Software
Wheaton, IL 60187 Development Company/Investment Advisor);
D.O.B.: 05/60 Secretary of Stonebridge Advisors LLC
(Investment Advisor)
Daniel J. Lindquist Vice President o Indefinite Term Managing Director (July 2012 to Present),
120 E. Liberty Drive, Senior Vice President (September 2005 to July
Suite 400 o Since Fund Inception 2012), First Trust Advisors L.P. and First Trust
Wheaton, IL 60187 Portfolios L.P.
D.O.B.: 02/70
Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust Advisors L.P.
120 E. Liberty Drive, and Assistant Secretary and First Trust Portfolios L.P.
Suite 400 o Since Fund Inception
Wheaton, IL 60187
D.O.B.: 12/66
(3) Officers of the Fund have an indefinite term. The term "officer" means the
president, vice president, secretary, treasurer, controller or any other
officer who performs a policy making function.
Page 29
--------------------------------------------------------------------------------
PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INFRASTRUCTURE FUND (FIF)
NOVEMBER 30, 2013 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies".
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives, proxy
services, solicitors and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information within First Trust.
PRIVACY ONLINE
We allow third-party companies, including AddThis (a social media sharing
service), to collect certain anonymous information when you visit our website.
These companies may use non-personally identifiable information during your
visits to this and other websites in order to provide advertisements about goods
and services likely to be of greater interest to you. These companies typically
use a cookie, third party web beacon or pixel tags, to collect this information.
To learn more about this behavioral advertising practice, you can visit
www.networkadvertising.org.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, First Trust restricts access to
your nonpublic personal information to those First Trust employees who need to
know that information to provide products or services to you. We maintain
physical, electronic and procedural safeguards to protect your nonpublic
personal information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
Page 30
This Page Left Blank Intentionally.
This Page Left Blank Intentionally.
FIRST TRUST
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 E. Liberty Drive, Suite 400
Wheaton, IL 60187
INVESTMENT SUB-ADVISOR
Energy Income Partners, LLC
49 Riverside Avenue
Westport, CT 06880
ADMINISTRATOR,
FUND ACCOUNTANT &
TRANSFER AGENT
BNY Mellon Investment Servicing (US) Inc.
301 Bellevue Parkway
Wilmington, DE 19809
CUSTODIAN
The Bank of New York Mellon
101 Barclay Street, 20th Floor
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
[BLANK BACK COVER]
ITEM 2. CODE OF ETHICS.
(a) The registrant, as of the end of the period covered by this report, has
adopted a code of ethics that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant or
a third party.
(c) There have been no amendments, during the period covered by this report,
to a provision of the code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by the
registrant or a third party, and that relates to any element of the code
of ethics description.
(d) The registrant has not granted any waivers, including an implicit waiver,
from a provision of the code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by the
registrant or a third party, that relates to one or more of the items set
forth in paragraph (b) of this item's instructions.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
As of the end of the period covered by the report, the Registrant's board of
trustees has determined that Thomas R. Kadlec and Robert F. Keith are qualified
to serve as audit committee financial experts serving on its audit committee and
that each of them is "independent," as defined by Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees (Registrant) -- The aggregate fees billed for each of the
last two fiscal years for professional services rendered by the principal
accountant for the audit of the Registrant's annual financial statements or
services that are normally provided by the accountant in connection with
statutory and regulatory filings or engagements for those fiscal years were
$44,000 for the fiscal year ended November 30, 2012 and $44,000 for the fiscal
year ended November 30, 2013.
(b) Audit-Related Fees (Registrant) -- The aggregate fees billed in each
of the last two fiscal years for assurance and related services by the principal
accountant that are reasonably related to the performance of the audit of the
registrant's financial statements and are not reported under paragraph (a) of
this Item were $0 for the fiscal year ended November 30, 2012 and $0 for the
fiscal year ended November 30, 2013.
Audit-Related Fees (Investment Adviser) -- The aggregate fees billed in
each of the last two fiscal years for assurance and related services by the
principal accountant that are reasonably related to the performance of the audit
of the registrant's financial statements and are not reported under paragraph
(a) of this Item were $0 for the fiscal year ended November 30, 2012 and $0 for
the fiscal year ended November 30, 2013.
(c) Tax Fees (Registrant) -- The aggregate fees billed in each of the last
two fiscal years for professional services rendered by the principal accountant
for tax compliance, tax advice, and tax planning to the registrant were $6,300
for the fiscal year ended November 30, 2012 and $6,300 for the fiscal year ended
November 30, 2013.
Tax Fees (Investment Adviser) -- The aggregate fees billed in each of the
last two fiscal years for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning to the registrant's
adviser were $0 for the fiscal year ended November 30, 2012 and $0 for the
fiscal year ended November 30, 2013.
(d) All Other Fees (Registrant) -- The aggregate fees billed in each of
the last two fiscal years for products and services provided by the principal
accountant to the registrant, other than the services reported in paragraphs (a)
through (c) of this Item were $0 for the fiscal year ended November 30, 2012 and
$0 for the fiscal year ended November 30, 2013.
All Other Fees (Investment Adviser) -- The aggregate fees billed in each
of the last two fiscal years for products and services provided by the principal
accountant to the registrant's investment adviser, other than the services
reported in paragraphs (a) through (c) of this Item were $0 for the fiscal year
ended November 30, 2012 and $0 for the fiscal year ended November 30, 2013.
(e)(1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
Pursuant to its charter and its Audit and Non-Audit Services Pre-Approval
Policy, the Audit Committee (the "Committee") is responsible for the
pre-approval of all audit services and permitted non-audit services (including
the fees and terms thereof) to be performed for the Registrant by its
independent auditors. The Chairman of the Committee authorized to give such
pre-approvals on behalf of the Committee up to $25,000 and report any such
pre-approval to the full Committee.
The Committee is also responsible for the pre-approval of the independent
auditor's engagements for non-audit services with the Registrant's adviser (not
including a sub-adviser whose role is primarily portfolio management and is
sub-contracted or overseen by another investment adviser) and any entity
controlling, controlled by or under common control with the investment adviser
that provides ongoing services to the Registrant, if the engagement relates
directly to the operations and financial reporting of the Registrant, subject to
the de minimis exceptions for non-audit services described in Rule 2-01 of
Regulation S-X. If the independent auditor has provided non-audit services to
the Registrant's adviser (other than any sub-adviser whose role is primarily
portfolio management and is sub-contracted with or overseen by another
investment adviser) and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
Registrant that were not pre-approved pursuant to the de minimis exception, the
Committee will consider whether the provision of such non-audit services is
compatible with the auditor's independence.
(e)(2) The percentage of services described in each of paragraphs (b)
through (d) for the Registrant and the Registrant's investment adviser of this
Item that were approved by the audit committee pursuant to the pre-approval
exceptions included in paragraph (c)(7)(i)(c) or paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X are as follows:
(b) 0%
(c) 0%
(d) 0%
(f) The percentage of hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the most recent
fiscal year that were attributed to work performed by persons other than the
principal accountant's full-time, permanent employees was less than fifty
percent.
(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the Registrant, and rendered to the Registrant's investment
adviser (not including any sub-adviser whose role is primarily portfolio
management and is subcontracted with or overseen by another investment adviser),
and any entity controlling, controlled by, or under common control with the
adviser that provides ongoing services to the Registrant for the fiscal year
ended November 30, 2012 were $6,300 for the Registrant and $4,120 for the
Registrant's investment adviser, and for the fiscal year ended November 30, 2013
were $6,00 for the registrant and $3,000 for the Registrant's investment
adviser.
(h) The Registrant's audit committee of its Board of Trustees has
determined that the provision of non-audit services that were rendered to the
Registrant's investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by, or under common
control with the investment adviser that provides ongoing services to the
Registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal accountant's
independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The Registrant has a separately designated audit committee consisting of
all the independent trustees of the Registrant. The members of the audit
committee are: Thomas R. Kadlec, Niel B. Nielson, Richard E. Erickson and
Robert F. Keith.
ITEM 6. INVESTMENTS.
(a) Schedule of Investments in securities of unaffiliated issuers as of
the close of the reporting period is included as part of the report to
shareholders filed under Item 1 of this form.
(b) Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
PROXY VOTING POLICIES AND PROCEDURES
If an adviser exercises voting authority with respect to client securities,
Advisers Act Rule 206(4)-6 requires the adviser to adopt and implement written
policies and procedures reasonably designed to ensure that client securities are
voted in the best interest of the client. This is consistent with legal
interpretations which hold that an adviser's fiduciary duty includes handling
the voting of proxies on securities held in client accounts over which the
adviser exercises investment or voting discretion, in a manner consistent with
the best interest of the client.
Absent unusual circumstances, EIP exercises voting authority with respect to
securities held in client accounts pursuant to provisions in its advisory
agreements. Accordingly, EIP has adopted these policies and procedures with the
aim of meeting the following requirements of Rule 206(4)-6:
o ensuring that proxies are voted in the best interest of clients;
o addressing material conflicts that may arise between EIP's interests
and those of its clients in the voting of proxies;
o disclosing to clients how they may obtain information on how EIP
voted proxies with respect to the client's securities;
o describing to clients EIP's proxy voting policies and procedures
and, upon request, furnishing a copy of the policies and procedures
to the requesting client.
ENGAGEMENT OF INSTITUTIONAL SHAREHOLDER SERVICES INC.
With the aim of ensuring that proxies are voted in the best interest of
EIP clients, EIP has engaged Institutional Shareholder Services Inc. ("ISS"),
formerly known as ISS, as its independent proxy voting service to provide EIP
with proxy voting recommendations, as well as to handle the administrative
mechanics of proxy voting. EIP has directed ISS to utilize its Proxy Voting
Guidelines in making recommendations to vote, as those guidelines may be amended
from time to time.
CONFLICTS OF INTEREST IN PROXY VOTING
There may be instances where EIP's interests conflict, or appear to
conflict, with client interests in the voting of proxies. For example, EIP may
provide services to, or have an investor who is a senior member of, a company
whose management is soliciting proxies. There may be a concern that EIP would
vote in favor of management because of its relationship with the company or a
senior officer. Or, for example, EIP (or its senior executive officers) may have
business or personal relationships with corporate directors or candidates for
directorship.
EIP addresses these conflicts or appearances of conflicts by ensuring that
proxies are voted in accordance with the recommendations made by RiskMetrics, an
independent third party proxy voting service. As previously noted, in most
cases, proxies will be voted in accordance with RiskMetrics's own pre-existing
proxy voting guidelines.
DISCLOSURE ON HOW PROXIES WERE VOTED
EIP will disclose to clients in its Form ADV how clients can obtain
information on how their proxies were voted, by contacting EIP at its office in
Westport, CT. EIP will also disclose in the ADV a summary of these proxy voting
policies and procedures and that upon request, clients will be furnished a full
copy of these policies and procedures. It is the responsibility of the CCO to
ensure that any requests made by clients for proxy voting information are
responded to in a timely fashion and that a record of requests and responses are
maintained in EIP's books and records.
PROXY MATERIALS
EIP personnel will instruct custodians to forward to RiskMetrics all proxy
materials received on securities held in EIP client accounts.
LIMITATIONS
In certain circumstances, where EIP has determined that it is consistent
with the client's best interest, EIP will not take steps to ensure that proxies
are voted on securities in the client's account. The following are circumstances
where this may occur:
*Limited Value: Proxies will not be required to be voted on securities in
a client's account if the value of the client's economic interest in the
securities is indeterminable or insignificant (less than $1,000). Proxies will
also not be required to be voted for any securities that are no longer held by
the client's account.
*Securities Lending Program: When securities are out on loan, they are
transferred into the borrower's name and are voted by the borrower, in its
discretion. In most cases, EIP will not take steps to see that loaned securities
are voted. However, where EIP determines that a proxy vote, or other shareholder
action, is materially important to the client's account, EIP will make a good
faith effort to recall the security for purposes of voting, understanding that
in certain cases, the attempt to recall the security may not be effective in
time for voting deadlines to be met.
*Unjustifiable Costs: In certain circumstances, after doing a cost-benefit
analysis, EIP may choose not to vote where the cost of voting a client's proxy
would exceed any anticipated benefits to the client of the proxy proposal.
OVERSIGHT OF POLICY
The CCO is responsible for overseeing these proxy voting policies and
procedures. In addition, the CCO will review these policies and procedures not
less than annually with a view to determining whether their implementation has
been effective and that they are operating as intended and in such a fashion as
to maintaining EIP's compliance with all applicable requirements.
RECORDKEEPING ON PROXIES
In it the responsibility of EIP's CCO to ensure that the following proxy
voting records are maintained:
o a copy of EIP's proxy voting policies and procedures;
o a copy of all proxy statements received on securities in client
accounts (EIP may rely on RiskMetrics or the SEC's EDGAR system to
satisfy this requirement);
o a record of each vote cast on behalf of a client (EIP relies on
RiskMetrics to satisfy this requirement);
o a copy of any document prepared by EIP that was material to making a
voting decision or that memorializes the basis for that decision;
o a copy of each written client request for information on how proxies
were voted on the client's behalf or for a copy of EIP's proxy
voting policies and procedures, and
o a copy of any written response to any client request for information
on how proxies were voted on their behalf or furnishing a copy of
EIP's proxy voting policies and procedures.
The CCO will see that these books and records are made and maintained in
accordance with the requirements and time periods provided in Rule 204-2 of the
Advisers Act.
For any registered investment companies advised by EIP, votes made on its
behalf will be stored electronically or otherwise recorded so that they are
available for preparation of the Form N-PX, Annual Report of Proxy Voting Record
of Registered Management Investment Company.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(A)(1) IDENTIFICATION OF PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM MEMBERS AND
DESCRIPTION OF ROLE OF PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM MEMBERS
Information provided as of February 4, 2014.
James Murchie, Chief Executive Officer and Founder of Energy Income Partners,
LLC ("EIP" or "Sub-Advisor"), and Eva Pao, principal of EIP, are co-portfolio
managers responsible for the day-to-day management of the registrant's
portfolio. Both portfolio managers have served in such capacity since the Fund's
inception.
JAMES J. MURCHIE
Founder and CEO of Energy Income Partners, LLC
Mr. Murchie founded EIP in 2003 and is the portfolio manager for all funds
advised by EIP which focus on energy-related master limited partnerships, income
trusts and similar securities. From 2005 to mid-2006, Mr. Murchie and the EIP
investment team joined Pequot Capital Management. In July 2006, Mr. Murchie and
the EIP investment team left Pequot and re-established EIP. From 1998 to 2003,
Mr. Murchie managed a long/short fund that invested in energy and cyclical
equities and commodities. From 1995 to 1997, he was a managing director at Tiger
Management where his primary responsibilities were investments in energy,
commodities and related equities. From 1990 to 1995, Mr. Murchie was a principal
at Sanford C. Bernstein where he was a top-ranked energy analyst and sat on the
Research Department's Recommendation Review Committee. Before joining Bernstein,
he spent eight years at British Petroleum in seven operating and staff positions
of increasing responsibility. He has served on the board of Clark Refining and
Marketing Company and as President and Treasurer of the Oil Analysts Group of
New York. Mr. Murchie holds degrees from Rice University and Harvard University.
EVA PAO
Principal of Energy Income Partners, LLC
Ms. Pao has been with EIP since its inception in 2003 and is co-portfolio
manager for all of the funds advised by EIP. She joined EIP in 2003, serving as
Managing Director of EIP until the EIP investment team joined Pequot Capital
Management. From 2005 to mid-2006, Ms. Pao served as Vice President of Pequot
Capital Management. Prior to Harvard Business School, Ms. Pao was a Manager at
Enron Corp where she managed a portfolio in Canadian oil and gas equities for
Enron's internal hedge fund that specialized in energy-related equities and
managed a natural gas trading book. She received a B.A. from Rice University in
1996. She received an M.B.A. from the Harvard Business School in 2002.
LINDA LONGVILLE
Research Director and Chief Financial Officer
Linda Longville is a Principal of EIP serving as Research Director and CFO.
Mrs.Longville has been with EIP since its inception in 2003 and during the
investment team's affiliation with Pequot Capital Management. From 2001 to 2003,
she served in a similar role for Lawhill Capital. Prior to that Mrs. Longville
held various financial, operational and management positions at industrial
companies including Nations Rent and British Petroleum. She graduated from the
Miami (Ohio) University with a B.A.S. in 1980 and an M.A. from Case Western
Reserve University in 1985.
(A)(2) OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGER AND POTENTIAL CONFLICTS OF
INTEREST
OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGER
Information provided as of November 30, 2013.
------------------------- ----------------- -------------- --------------- ------------------------ -----------------------
# of Accounts Managed Total Assets for which
Name of Portfolio Total # of for which Advisory Fee Advisory Fee is Based
Manager or Type of Accounts Total Assets is Based on on Performance
Team Member Accounts Managed (millions) Performance (millions)
------------------------- ----------------- -------------- --------------- ------------------------ -----------------------
1. James Murchie Registered 5 $3,150 0 $0
Investment
Companies:
------------------------- ----------------- -------------- --------------- ------------------------ -----------------------
Other Pooled
Investment
Vehicles: 3 $177.7 3 $177.7
------------------------- ----------------- -------------- --------------- ------------------------ -----------------------
Other Accounts: 1627 $788.6 1 $4.7
------------------------- ----------------- -------------- --------------- ------------------------ -----------------------
Registered
Investment
2. Eva Pao Companies: 5 $3,150 0 $0
------------------------- ----------------- -------------- --------------- ------------------------ -----------------------
Other Pooled
Investment
Vehicles: 3 $177.7 3 $177.7
------------------------- ----------------- -------------- --------------- ------------------------ -----------------------
Other Accounts: 1627 $788.6 1 $4.7
------------------------- ----------------- -------------- --------------- ------------------------ -----------------------
3. Linda Longville Registered 5 $3,150 0 $0
Investment
Companies:
------------------------- ----------------- -------------- --------------- ------------------------ -----------------------
Other Pooled 3 $177.7 3 $177.7
Investment
Vehicles:
------------------------- ----------------- -------------- --------------- ------------------------ -----------------------
Other Accounts: 1627 $788.6 1 $4.7
------------------------- ----------------- -------------- --------------- ------------------------ -----------------------
POTENTIAL CONFLICTS OF INTERESTS
The EIP investment professionals who serve as portfolio managers of the Fund
also serve as portfolio managers to three private investment funds (the "Private
Funds"), each of which has a performance-based fee, one open-ended mutual fund,
one closed-end mutual fund, a managed ETF, and approximately 1,627 separately
managed accounts and unified managed accounts, 1 of which has performance-based
fees.
EIP has written policies and procedures regarding Order Aggregation and
Allocation to ensure that all accounts are treated fairly and equitably and that
no account is disadvantaged. EIP will generally execute client transactions on
an aggregated basis when the Firm believes that to do so will allow it to obtain
best execution and to negotiate more favorable commission rates or avoid certain
transaction costs that might have otherwise been paid had such orders been
placed independently. EIP's ability to implement this may be limited by an
Account's custodian, directed brokerage arrangements or other constraints
limiting EIP's use of a common executing broker.
An aggregated order may be allocated on a basis different from that specified
herein provided all clients receive fair and equitable treatment and there is a
legitimate reason for the different allocation. Reasons for deviation may
include (but are not limited to): a client's investment guidelines and
restrictions, available cash, liquidity requirements, leverage targets,
rebalancing total risk exposure across all clients, tax or legal reasons, and to
avoid odd-lots or in cases when a normal allocation would result in a de minimis
allocation to one or more clients.
Notwithstanding the above, due to differing tax ramifications and compliance
ratios, as well as dissimilar risk constraints and tolerances, accounts with
similar investment mandates may trade the same securities at differing points in
time. Additionally, for the reasons noted above, certain accounts, including
funds in which EIP, its affiliates and/or employees ("EIP Funds") have a
financial interest, may trade separately from other accounts and participate in
transactions which are deemed to be inappropriate for other accounts with
similar investment mandates. Further, during periods in which EIP intends to
trade the same securities across multiple accounts, transactions for those
accounts that must be traded through specific brokers and/or platforms will
often be executed after those for accounts over which EIP exercises full
brokerage discretion, including EIP Funds.
(A)(3) COMPENSATION STRUCTURE OF PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM MEMBERS
Information provided as of November 30, 2013.
The portfolio managers are compensated by a competitive minimum base salary and
share in the profits of EIP in relation to their ownership of EIP. The profits
of EIP are influenced by the assets managed by the funds and the performance of
the funds. While a portion of the portfolio manager's compensation is tied to
performance through incentive fees earned through the private funds, the
portfolio managers are not incentivized to take undue risk in circumstances when
the funds' performance lags as their investment fees may sometimes have a high
water mark or be subject to a hurdle rate. Moreover, the Registrant's portfolio
managers are the principal owners of EIP and are incentivized to maximize the
long-term performance of all of its funds. The compensation of the Portfolio
team members is determined according to prevailing rates within the industry for
similar positions. EIP wishes to attract, retain and reward high quality
personnel through competitive compensation and positive work environment.
(A)(4) DISCLOSURE OF SECURITIES OWNERSHIP
Information provided as of November 30, 2013.
Dollar Range of Fund Shares
Name Beneficially Owned
----- ---------------------------
James Murchie $0
Eva Pao $0
Linda Longville $0
(B) Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the Registrant's board of trustees, where those
changes were implemented after the Registrant last provided disclosure in
response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)),
or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The Registrant's principal executive and principal financial officers, or
persons performing similar functions, have concluded that the
Registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the "1940
Act") (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days
of the filing date of the report that includes the disclosure required by
this paragraph, based on their evaluation of these controls and
procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR
270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities
Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the Registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR
270.30a-3(d)) that occurred during the Registrant's second fiscal quarter
of the period covered by this report that has materially affected, or is
reasonably likely to materially affect, the Registrant's internal control
over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and
Section 906 of the Sarbanes- Oxley Act of 2002 are attached hereto.
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: January 24, 2014
--------------------
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: January 24, 2014
--------------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: January 24, 2014
--------------------
* Print the name and title of each signing officer under his or her signature.