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 811-21549
ENERGY INCOME AND GROWTH FUND
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(Exact name of registrant as specified in charter)
1001 Warrenville Road, Suite 300
LISLE, IL 60532
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(Address of principal executive offices) (Zip code)
W. Scott Jardine
First Trust Portfolios L.P.
1001 Warrenville Road, Suite 300
LISLE, IL 60532
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(Name and address of agent for service)
registrant's telephone number, including area code: 630-241-4141
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Date of fiscal year end: NOVEMBER 30
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Date of reporting period: MAY 31, 2007
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 100 F Street, NE,
Washington, DC 20549. The OMB has reviewed this collection of information under
the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The Report to Shareholders is attached herewith.
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ENERGY INCOME AND GROWTH FUND
SEMI-ANNUAL REPORT
FOR THE SIX MONTHS ENDED MAY 31, 2007
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TABLE OF CONTENTS
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ENERGY INCOME AND GROWTH FUND (FEN)
SEMI-ANNUAL REPORT
MAY 31, 2007
Shareholder Letter ........................................................ 1
Portfolio Commentary ...................................................... 2
Portfolio Components ...................................................... 5
Portfolio of Investments .................................................. 6
Statement of Assets and Liabilities ....................................... 8
Statement of Operations ................................................... 9
Statements of Changes in Net Assets ....................................... 10
Statement of Cash Flows ................................................... 11
Financial Highlights ...................................................... 12
Notes to Financial Statements ............................................. 13
Additional Information .................................................... 18
Dividend Reinvestment Plan
Proxy Voting Policies and Procedures
Portfolio Holdings
By-Law Amendments
Submission of Matters to a Vote of Shareholders
Advisory and Sub-Advisory Agreements
Privacy Policy
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933. 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 Fiduciary Asset
Management, LLC ("Fiduciary" 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 the Energy Income and Growth 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 Fiduciary 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 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
ftportfolios.com or speak with your financial advisor. Investment returns, net
asset value and common share price will fluctuate and Fund shares, 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 letter from the Fund's President, James A. Bowen, together
with the portfolio commentary by James J. Cunnane, Jr., the Senior Portfolio
Manager of Fiduciary, the Fund's Sub-Advisor, 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 Mr. Bowen
and Mr. Cunnane 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.
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SHAREHOLDER LETTER
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ENERGY INCOME AND GROWTH FUND (FEN)
SEMI-ANNUAL REPORT
MAY 31, 2007
Dear Shareholders:
We believe investment opportunities abound, both here and abroad, affording the
potential for exceptional returns for investors. At First Trust Advisors L.P.
("First Trust"), we realize that we must be mindful of the complexities of the
global economy and at the same time address the needs of our customers through
the types of investments we bring to market.
We are single-minded about providing a range of investment products, including
our family of closed-end funds, to help First Trust meet the challenge of
maximizing our customers' financial opportunities. Translating investment ideas
into products which can deliver performance over the long term while continuing
to support our current product line remains a focus for First Trust as we head
into the future.
The report you hold will give you detailed information about your investment in
Energy Income and Growth Fund over the six-month period ended May 31, 2007. I
encourage you to read this report and discuss it with your financial advisor.
First Trust is pleased to be a part of your financial portfolio and we will
continue to offer you current information about your investment, as well as new
opportunities in the financial marketplace, through your financial advisor. We
value our relationship with you and appreciate the opportunity to assist you in
achieving your financial goals.
Sincerely,
/s/James A. Bowen
James A. Bowen
President of Energy Income and Growth Fund
July 13, 2007
Page 1
JAMES J. CUNNANE, JR., CFA
[PHOTO OMITTED] MANAGING DIRECTOR, SENIOR PORTFOLIO MANAGER
MEMBER OF STRATEGY COMMITTEE AND INVESTMENT COMMITTEE
Mr. Cunnane joined Fiduciary Asset Management in 1996 and has 14 years of
portfolio management and securities research experience. Mr. Cunnane has managed
institutional and private client equity portfolios and has an industry leading
role as portfolio manager of the master limited partnership assets of Fiduciary
Asset Management, LLC ("Fiduciary"). He is actively involved with the Strategy
Committee's macroeconomic assessment and top-down approach to portfolio
management. Prior to joining Fiduciary, Mr. Cunnane worked as a research analyst
with A.G. Edwards & Sons. Mr. Cunnane also worked as an analyst for Maguire
Investment Advisors, where he gained extensive experience in the development of
master limited partnership and small- and mid-cap stock portfolios. Mr. Cunnane
holds a B.S. in finance from Indiana University, is a Chartered Financial
Analyst (CFA) and serves on the investment committee of the Archdiocese of St.
Louis.
FIDUCIARY ASSET MANAGEMENT, LLC
Fiduciary Asset Management, LLC was founded in 1994 as an employee-owned
investment management firm. The investment manager is a federally-registered
investment advisor which manages a broad range of equity and fixed-income
strategies, including both traditional and hedged strategies, for institutional
and private wealth clients. Prior to 1994, Fiduciary was the internal asset
management group for a large corporate pension plan for nearly 22 years. It
continues to function as such plan's chief investment officer. The investment
manager currently supervises and manages approximately $17 billion in client
assets.
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PORTFOLIO COMMENTARY
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ENERGY INCOME AND GROWTH FUND
The investment objective of Energy Income and Growth Fund ("FEN" or the "Fund")
is to seek a high level of after-tax total return with an emphasis on current
distributions paid to shareholders. The Fund anticipates making quarterly
distributions to shareholders, and seeks to provide its shareholders with an
efficient vehicle to invest in Master Limited Partnerships ("MLPs") and related
public entities in the energy sector which the Fund's Sub-Advisor believes offer
opportunities for income and growth.
FUND RECAP
For the six-month period ending May 31, 2007, FEN's market value total return
was 17.9%. On a net asset value ("NAV") basis, the return was 21.1%. This
compares to a total return of 10.3% for the Standard & Poor's 500 Index and 0.6%
for the Citigroup Broad Investment Grade Index over the same period.
As of May 31, 2007, the market price of the Fund was $28.11, a 7.7% discount to
the NAV, which was $30.47. At the end of the last fiscal year, November 30,
2006, the market price was $24.49 versus the Fund's NAV of $25.88, representing
a market price discount of 5.4%.
PERFORMANCE ANALYSIS
When considering the contrast between market value and NAV performance, it is
important to consider the special tax structure of the Fund. The Fund gained
substantial ground on an NAV basis, but the portfolio gains of the Fund were
even higher. For every dollar earned by the Fund, the NAV tends to rise by a
smaller amount. That is because the Fund is a taxable entity, meaning the Fund
recognizes a deferred tax liability that accrues as the NAV of its portfolio
appreciates. This ensures that the Fund's NAV reflects the after-tax value of
the unrealized gains in the Fund's portfolio. With that said, the Fund retains
those additional assets to manage until it sells the underlying securities,
subsequently realizes any gains, and finally pays taxes on the securities sold.
A significant driver of Fund performance has been increases in the dividends
paid to shareholders. The Fund initially paid investors a quarterly dividend of
$0.325 per share. The last quarterly dividend paid was at a rate of $0.38 on
April 30, 2007, representing a 6.5% increase on an annualized basis. Changes to
the Fund's distribution policy announced in December 2006 better align it with
the Fund's investment objective of high after-tax total return. The revised
policy enables the Fund to generate distributions from both the cash flow
received and the capital appreciation of portfolio securities.
Page 2
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PORTFOLIO COMMENTARY - CONTINUED
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As in prior periods, we kept the Fund invested across the MLP market but
maintained most of its exposure in just a few sectors. We perceived the best
opportunities for investment to be within the midstream energy infrastructure
sector, in which we had invested approximately 79.1% of the Fund's total
investments as of May 31, 2007. Other sectors represented and their percentages
of long-term investments as of May 31 are coal (9.5%), propane (6.8%), marine
transportation (1.9%) and oil and gas production (2.7%).
Within the MLP universe, performance was reasonably consistent across sectors. A
relatively new group, oil and gas production, was a powerful performer over the
last six months. Our exposure in this area is minimal, but we are considering
opportunities. The portfolio's coal MLPs, which detracted from performance in
the prior fiscal year, performed well during this period in a rather volatile
coal market. Six months ago there were concerns about coal because natural gas
prices were down, and costs of equipment and labor were rising for coal
operators. Prices of natural gas and coal tend to move together, since both are
fuel sources for electric utilities, and they can often be substituted for one
another. This year natural gas pricing has improved, and the price increases
have flowed through to coal. In addition, some of the cost problems in coal have
been mitigated. Accordingly, several of the Fund's coal MLPs, including Alliance
Resource Partners, LP and Natural Resource Partners, LP, performed well.
A strong performer was Inergy, LP, a propane entity that also owns midstream
storage capacity. Inergy, LP represented 6.8% of total investments as of May 31,
2007, through the Fund's ownership in its limited and general partner entities.
Propane is weather-sensitive, tending to perform well in cold winters and hot
summers. A cold winter, compared to recent warmer winters, was positive for both
pricing and volume of propane. The general partnership units were especially
strong; the underlying results benefit disproportionately from strong
performance because of operational leverage.
One private holding, Clearwater Natural Resources, is a central Appalachian coal
producer that detracted from NAV performance. This entity is privately-owned.
The value of the Fund's investment was reduced in November 2006 and again in
February 2007. The company has had some operational problems and, in order to
stabilize the investment, the Sub-Advisor of this Fund, as well as some other
owners, have become more involved in operations of the company, including
driving significant management changes. The company is now in an improving mode,
and we believe the investment will contribute to returns in the future.
Another negative was U.S. Shipping, a marine transportation MLP. U.S. Shipping
is known as a Jones Act operator, named for 1920 legislation that restricts
carriage of goods or passengers between U.S. ports to U.S. flagships with U.S.
crews. U.S. Shipping takes products such as crude oil from big ocean-going
tankers that deliver to Eastern seaboard ports and moves them to other parts of
the country. The company developed a promising growth plan several years ago,
but performance has been hampered by significant delays and cost overruns in one
of its ships under construction. We believe the company's problems have now been
resolved, and we expect it to perform well in the months ahead.
Additionally, the Fund's use of leverage added significantly to performance
during this period. The cost of leverage was stable, reflecting stable
short-term interest rates, and the use of borrowed funds enabled the Fund to
increase its participation in the growing MLP market, which performed well.
MARKET RECAP
Market conditions were very positive over the trailing six-month period for two
main reasons: strong MLP operating fundamentals and increasing demand for MLPs
as an investment. In terms of fundamentals, a favorable commodities market has
allowed many of the partnerships to increase distributions to unitholders. Using
the Alerian MLP Index as a benchmark for the industry, distributions rose at an
annualized rate of over 9% for the last six-month period, well above our
expectation of long-term distribution growth, which is 4% to 6%. 1
MLPs have two main sources of distribution growth: organic growth and growth
through acquisitions. Most partnerships are actively seeking to build or buy
complementary assets, which can add to earnings. There has been substantial
acquisition activity over the past few years, and it appears that acquisitions
will set another record this year.
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1 The Alerian MLP Index (NYSE: AMZ) measures the composite performance of
the 50 most prominet energy master limited partnerships, and is calculated
by Standard & Poor's using a float-adjusted, capitalization-weighted
methodology.
Page 3
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PORTFOLIO COMMENTARY - CONTINUED
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Changing market conditions are bringing new types of suitable assets into the
MLP structure. For example, demand for storage capacity for natural gas and
petroleum products has been increasing, possibly because people are aware of
rising prices or possible disruptions in the supply chain. The owners of storage
capacity, many of which are MLPs, are benefiting, not only from increased usage
of their facilities, but also because growing demand gives them pricing power.
Another example of a new type of asset is gasoline storage capacity needed for
the multiple blends of gasoline mandated by environmental regulations for
various markets. Since the existing gasoline infrastructure system was not
designed to handle these multiple blends, MLPs are building new storage
facilities to satisfy these new demands. MLPs also have the ability to acquire
assets that are MLP-eligible but are not now in MLPs, such as pipelines, storage
tanks or other infrastructure facilities. In some cases, these assets may be
synergistic with a partnership's existing operations, or they may just add to
earnings, making it possible for the partnerships to pay higher distributions to
investors.
As stated above, another significant driver of rising MLP market prices is
increasing demand for these attractive investment vehicles. MLPs as a category
were redefined by the tax code enacted in 1986, yet this is still an emerging
asset class. MLPs have not been widely owned by institutional investors, in part
because of issues related to reporting for tax purposes and also because many of
the partnerships did not have adequate market capitalization for large investors
to establish meaningful positions. The partnerships have improved reporting
practices and many have fairly large market caps, and now institutions such as
pension funds are showing increasing interest, creating demand in excess of
supply.
SUB-ADVISOR Q&A
WHAT IS YOUR OUTLOOK FOR FUTURE GROWTH OF THE MLP MARKET?
We believe distribution growth and increased institutional demand will continue
to drive MLP returns in the near term. Sophisticated investors are attracted to
MLPs now that there are more investment vehicles and greater liquidity. The
partnerships' growth prospects and current yields are generally higher than
income-producing alternatives such as real estate investment trusts, municipal
bonds or utility stocks, and MLPs offer some tax deferment features. Another
reason for their growing appeal is that MLPs can help diversify an investor's
portfolio because they do not correlate strongly with other asset classes.
The MLP asset class has continued to expand and diversify as we see consistent
expansion of types of assets that are put into MLPs. Several years ago coal was
a relatively new category; now we are seeing initial public offerings of MLPs
that specialize in exploration and production. The key driver of this expansion
is the recapitalization of lower growth, stable oil and gas-producing assets
that can be effectively hedged in the financial or physical markets. Stable
production volumes with long-term price visibility allows these partnerships to
deliver on their distribution promises to shareholders, at the same time
acquiring similar assets with their lower cost of capital.
ARE THERE OTHER CHANGES TO BE SEEN IN THE MLP MARKET, IN YOUR OPINION?
Traditionally, oil and gas exploration and production has not been considered a
very suitable business for MLPs because the success level of exploration is
relatively low and the commodity price risk is high. Instead, MLPs have owned
relatively stable assets such as pipelines used for transportation of fuel. But
recently, companies in the exploration business have been creating MLPs using
mature oil fields that have been drilled for many years and will generally
produce predictable streams over the next few years. In addition, companies can
now hedge the price risk; this was not possible 10 years ago because hedging
vehicles were not well developed. The mature fields, together with the price
hedges, produce fairly stable cash flow.
WILL THE MLP MARKET CONTINUE TO BE ATTRACTIVE?
Generally, we have a positive outlook for the MLP market. Current prices seem
reasonable, and there is considerable development in the market, with several
new types of MLPs and related entities being introduced. We believe demand will
remain strong, as improved reporting, and greater liquidity and market
capitalization increase the appeal of MLPs to institutional investors.
Nonetheless, following the outstanding performance in the MLP market over the
last year, we feel that a degree of caution is appropriate, as there could be
some short-term weakness in the market. We continue to believe that MLPs offer
the best combination of current yield and growth potential available, with
greater stability, higher yield and better long-term potential than other
income-oriented investments such as bonds, utility stocks or real estate
investment trusts.
Page 4
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PORTFOLIO COMPONENTS
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ENERGY INCOME AND GROWTH FUND
PORTFOLIO COMPONENTS (a)
MAY 31, 2007 (UNAUDITED)
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Coal 9.5%
Marine Transport 1.9%
Midstream Gas 42.9%
Midstream Oil 36.2%
Oil & Gas 2.7%
Propane 6.8%
(a) Percentages are based on total investments. Please note that the
percentages shown on the Portfolio of Investments are based on net assets.
Page 5
ENERGY INCOME AND GROWTH FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 2007 (UNAUDITED)
MARKET
SHARES DESCRIPTION VALUE
--------- ------------------------------------------------------------------------ ------------
MASTER LIMITED PARTNERSHIPS - 159.9%
OIL, GAS & CONSUMABLE FUELS - 159.9%
225,090 Abraxas Energy Partners, L.P. (a) (b) (c) .............................. $ 3,749,999
244,778 Abraxas Petroleum Corp. (a) (b) (c) .................................... 881,764
56,540 Alliance Holdings GP, L.P .............................................. 1,622,698
278,290 Alliance Resource Partners, L.P ........................................ 12,214,148
131,300 Atlas Pipeline Partners, L.P ........................................... 6,617,520
51,210 Capital Product Partners L.P. (c) ...................................... 1,305,855
465,471 Clearwater Natural Resources, L.P. (a) (b) ............................. 6,516,594
586,402 Copano Energy, LLC ..................................................... 25,660,952
317,272 Crosstex Energy, L.P ................................................... 11,171,147
106,910 Crosstex Energy, L.P. (a) (c) .......................................... 3,406,687
100,860 DCP Midstream Partners, L.P ............................................ 4,399,513
115,971 Enbridge Energy Management, LLC (d) .................................... 6,434,105
23,912 Enbridge Energy Partners, L.P .......................................... 1,334,290
567,370 Energy Transfer Partners, L.P .......................................... 34,723,044
597,388 Enterprise Product Partners, L.P ....................................... 18,710,192
107,143 Global Partners L.P. (a) (b) ........................................... 3,558,712
73,100 Hiland Partners, L.P ................................................... 3,954,710
250,000 Holly Energy Partners, L.P ............................................. 12,540,000
148,000 Inergy Holdings, L.P ................................................... 7,404,440
385,275 Inergy, L.P ............................................................ 14,020,157
320,521 Kinder Morgan Energy Partners, L.P ..................................... 17,692,759
44,048 Kinder Morgan Management, LLC (d) ...................................... 2,256,608
117,634 Linn Energy, LLC (a) ................................................... 3,837,821
461,756 Magellan Midstream Partners, L.P ....................................... 21,411,626
456,756 MarkWest Energy Partners, L.P .......................................... 15,758,082
25,477 Martin Midstream Partners, L.P ......................................... 1,058,569
256,338 Natural Resource Partners, L.P ......................................... 9,374,281
186,726 NuStar Energy L.P ...................................................... 12,335,120
564,516 Plains All American Pipeline, L.P ...................................... 34,971,766
52,600 Regency Energy Partners, L.P ........................................... 1,367,600
14,632 Targa Resources Partners L.P ........................................... 486,514
14,000 Teekay LNG Partners, L.P ............................................... 505,540
6,000 TransMontaigne Partners, L.P ........................................... 215,760
219,319 U.S. Shipping Partners, L.P ............................................ 4,035,470
178,600 Williams Partners, L.P ................................................. 8,701,392
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TOTAL MASTER LIMITED PARTNERSHIPS ...................................... 314,235,435
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(Cost $161,897,479)
RIGHTS - 0.0%
OIL, GAS & CONSUMABLE FUELS - 0.0%
17 Clearwater Natural
Resources, L.P. - Rights (a) (b) (c) ................................ 0
------------
TOTAL RIGHTS ........................................................... 0
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(Cost $0)
Page 6 See Notes to Financial Statements.
ENERGY INCOME AND GROWTH FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
MAY 31, 2007 (UNAUDITED)
MARKET
SHARES DESCRIPTION VALUE
--------- ------------------------------------------------------------------------ --------------
WARRANTS - 0.1%
OIL, GAS & CONSUMABLE FUELS - 0.1%
48,956 Abraxas Petroleum Corp. - Warrants,
Expiration 12/25/12 (a) (b) (c) ...................................... $ 107,507
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TOTAL WARRANTS ......................................................... 107,507
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(Cost $0)
TOTAL INVESTMENTS - 160.0% ............................................. 314,342,942
(Cost $161,897,479) (e)
NET OTHER ASSETS AND LIABILITIES - (24.4%) ............................. (47,902,900)
LOAN OUTSTANDING - (5.6)% .............................................. (11,000,000)
SERIES A ENERGY NOTES PAYABLE - (17.3)% ................................ (34,000,000)
SERIES B ENERGY NOTES PAYABLE - (12.7)% ................................ (25,000,000)
--------------
NET ASSETS - 100.0% .................................................... $ 196,440,042
==============
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(a) Security is fair valued in accordance with procedures adopted by the
Fund's Board of Trustees.
(b) Securities are restricted and cannot be offered for public sale without
first being registered under the Securities Act of 1933, as amended. Fair
value is determined in accordance with procedures adopted by the Fund's
Board of Trustees (See Note 2C).
(c) Non-income producing security.
(d) Non-income producing security which pays regular in-kind distributions.
(e) Aggregate cost for federal income tax purposes is $152,874,344.
See Notes to Financial Statements. Page 7
ENERGY INCOME AND GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 2007 (UNAUDITED)
ASSETS
Investments, at value
(Cost ($161,897,479) ............................................................................. $ 314,342,942
Cash ............................................................................................... 3,595,204
Interest rate cap (Cost $322,974) .................................................................. 383,380
Prepaid expenses ................................................................................... 798,688
Receivables:
Income taxes ..................................................................................... 439,207
Interest ......................................................................................... 8,462
Dividends ........................................................................................ 46,117
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Total Assets ................................................................................... 319,614,000
-------------
LIABILITIES:
Deferred income tax liability ...................................................................... 52,250,210
Series A Energy Notes payable ...................................................................... 34,000,000
Series B Energy Notes payable ...................................................................... 25,000,000
Outstanding loan ................................................................................... 11,000,000
Payables:
Income taxes ..................................................................................... 404,765
Investment advisory fees ......................................................................... 225,110
Interest and fees due on loan and Energy Notes ................................................... 139,200
Audit and legal fees ............................................................................. 57,383
Printing fees .................................................................................... 50,748
Administrative fees .............................................................................. 21,406
Trustees' fees and expenses ...................................................................... 6,747
Transfer agent fees .............................................................................. 3,782
Custodian fees ................................................................................... 1,395
Accrued expenses and other liabilities ............................................................. 13,212
-------------
Total Liabilities .............................................................................. 123,173,958
-------------
NET ASSETS ......................................................................................... $ 196,440,042
=============
NET ASSETS CONSIST OF:
Accumulated net investment loss, net of income taxes ............................................... $ (5,299,704)
Accumulated net realized gain (loss) on investments sold, net of income taxes ...................... (1,718,382)
Net unrealized appreciation (depreciation) of investments and interest rate cap, net of income taxes 99,201,846
Par value .......................................................................................... 64,470
Paid-in capital .................................................................................... 104,191,812
-------------
Net Assets ..................................................................................... $ 196,440,042
=============
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share) ............................... $ 30.47
=============
Number of Common Shares outstanding (unlimited number of Common Shares has been authorized) ........ 6,446,995
=============
Page 8 See Notes to Financial Statements.
ENERGY INCOME AND GROWTH FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MAY 31, 2007 (UNAUDITED)
INVESTMENT INCOME:
Dividends ............................................................................................. $ 58,707
Interest .............................................................................................. 55,611
------------
Total investment income ........................................................................... 114,318
------------
EXPENSES:
Interest expense ...................................................................................... 1,617,328
Investment advisory fees .............................................................................. 1,210,484
Administration fees ................................................................................... 116,784
Audit and legal fees .................................................................................. 99,940
Auction fees .......................................................................................... 74,569
Printing fees ......................................................................................... 24,162
Trustees' fees and expenses ........................................................................... 17,236
Transfer agent fees ................................................................................... 16,962
Custodian fees ........................................................................................ 10,078
Other ................................................................................................. 106,229
------------
Total expenses .................................................................................... 3,293,772
------------
NET INVESTMENT INCOME (LOSS) BEFORE TAXES ............................................................. (3,179,454)
Current income tax expense - other .................................................. (176,088)
Deferred federal income tax benefit ................................................. 932,071
Deferred income tax expense - other ................................................. 352,429
------------
Total income tax benefit .......................................................................... 1,108,412
------------
NET INVESTMENT LOSS ................................................................................... (2,071,042)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments before taxes .................................................. 373,981
Deferred federal income tax expense ................................................. (130,897)
Deferred income tax benefit - other ................................................. 10
------------
Total income tax expenses ......................................................................... (130,887)
------------
Net realized gain (loss) on investments ............................................................... 243,094
------------
Net change in unrealized appreciation (depreciation) on:
Investments ....................................................................................... 55,822,773
Interest rate cap transaction ..................................................................... 83,201
------------
Net change in unrealized appreciation (depreciation) .................................................. 55,905,974
------------
Deferred federal income tax expense ................................................. (19,538,249)
Deferred income tax expense - other ................................................. (82,405)
------------
Total income tax expense .......................................................................... (19,620,654)
------------
Net change in unrealized appreciation (depreciation) of investments and interest rate cap ............. 36,285,320
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
INTEREST RATE TRANSACTION ........................................................................... 36,528,414
------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ....................................... $ 34,457,372
============
See Notes to Financial Statements. Page 9
ENERGY INCOME AND GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR
05/31/07 ENDED
(UNAUDITED) 11/30/2006
------------- -------------
OPERATIONS:
Net investment loss ..................................................................... $ (2,071,042) $ (3,228,662)
Net realized gain (loss) on investments ................................................. 243,094 671,112
Net change in unrealized appreciation (depreciation) on investments and interest rate cap 36,285,320 33,042,795
------------- -------------
Net increase (decrease) in net assets resulting from operations ......................... 34,457,372 30,485,245
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Return of capital ....................................................................... (4,867,483) (8,864,619)
------------- -------------
Total distributions to shareholders ..................................................... (4,867,483) (8,864,619)
------------- -------------
Net increase (decrease) in net assets ................................................... 29,589,889 21,620,626
NET ASSETS:
Beginning of period ..................................................................... 166,850,153 145,229,527
------------- -------------
End of period ........................................................................... $ 196,440,042 $ 166,850,153
============= =============
Accumulated net investment income (loss) at end of period ............................... $ (5,299,704) $ (3,228,662)
============= =============
Page 10 See Notes to Financial Statements.
ENERGY INCOME AND GROWTH FUND
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED MAY 31, 2007 (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations, after income tax expense .......... $ 34,457,372
Adjustments to reconcile net increase in net assets resulting from operations to net
cash used by operating activities:
Changes in assets and liabilities:
Increase in investments, at value (a) ............................................... (58,398,377)
Increase in interest rate cap (b) ................................................... (28,162)
Increase in dividends receivable .................................................... (42,357)
Decrease in prepaid expenses ........................................................ 22,227
Decrease in receivable for investment securities sold ............................... 618,580
Decrease in interest payable on loan and Energy Notes ............................... (22,706)
Increase in income tax payable ...................................................... 170,973
Increase in investment advisory fees payable ........................................ 41,345
Decrease in audit and legal fees payable ............................................ (91,215)
Increase in printing fees payable ................................................... 4,138
Increase in administrative fees payable ............................................. 3,417
Increase in transfer agent fees payable ............................................. 3,782
Increase in Trustees' fees and expenses payable ..................................... 6,747
Decrease in accrued expenses ........................................................ (25,537)
Increase in deferred income tax liability ........................................... 18,376,355
-------------
CASH USED BY OPERATING ACTIVITIES ....................................................... $ (4,903,418)
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid .................................................................. (4,867,483)
Issuance of loan .................................................................... 14,400,000
Repayment of loan ................................................................... (3,400,000)
-------------
CASH PROVIDED BY FINANCING ACTIVITIES ................................................... 6,132,517
-------------
Increase in cash ........................................................................ 1,229,099
Cash at beginning of period ............................................................. 2,366,105
-------------
Cash at end of period ................................................................... $ 3,595,204
=============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest ................................................ $ 1,643,339
--------------------------------------------------------------------
(a) Includes net changes in unrealized appreciation on investments of
$55,822,773.
(b) Includes net changes in unrealized appreciation on interest rate cap of
$83,201.
See Notes to Financial Statements. Page 11
ENERGY INCOME AND GROWTH FUND
FINANCIAL HIGHLIGHTS
FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX MONTHS
ENDED YEAR YEAR PERIOD
05/31/07 ENDED ENDED ENDED
(UNAUDITED) 11/30/2006 11/30/2005 11/30/2004(a)
----------- ----------- ----------- --------------
Net asset value, beginning of period ........................ $ 25.88 $ 22.53 $ 21.34 $ 19.10(b)
----------- ----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss ......................................... (0.32) (0.50) (0.34) (0.13)
Net realized and unrealized gain (loss) on investments and
interest rate cap ........................................... 5.67 5.23 2.86 2.74
----------- ----------- ----------- -----------
Total from investment operations after income tax ........... 5.35 4.73 2.52 2.61
----------- ----------- ----------- -----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net realized gain on investments ............................ -- -- (0.88) --
Return of capital. .......................................... (0.76) (1.38) (0.45) (0.33)
----------- ----------- ----------- -----------
Total from distributions .................................... (0.76) (1.38) (1.33) (0.33)
----------- ----------- ----------- -----------
Common Shares offering costs charged to paid-in capital ..... -- -- -- (0.04)
----------- ----------- ----------- -----------
Net asset value, end of period .............................. $ 30.47 $ 25.88 $ 22.53 $ 21.34
=========== =========== =========== ===========
Market value, end of period ................................. $ 28.11 $ 24.49 $ 20.92 $ 22.12
=========== =========== =========== ===========
TOTAL RETURN BASED ON NET ASSET VALUE (c) (d) ............... 21.13% 22.23% 11.96%(f) 13.53%
=========== =========== =========== ===========
TOTAL RETURN BASED ON MARKET VALUE (d) (e) .................. 17.90% 24.57% 0.29% 12.38%
=========== =========== =========== ===========
Net assets, end of period (in 000's) ........................ $ 196,440 $ 166,850 $ 145,230 $ 136,993
---------------------------------------------------------------------------
RATIOS OF EXPENSES TO AVERAGE NET ASSETS:
Including current and deferred income taxes
before waiver (g) ........................................ 24.30%(h) 14.47% 8.62% 18.38%(h)
Including current and deferred income taxes after waiver (g) 24.30%(h) 14.29% 8.31% 18.09%(h)
Excluding current and deferred income taxes
before waiver ............................................ 3.65%(h) 3.63% 2.64% 2.20%(h)
Excluding current and deferred income taxes
after waiver ............................................. 3.65%(h) 3.45% 2.33% 1.91%(h)
Excluding current and deferred income taxes and
interest expense after waiver ............................ 1.86%(h) 1.76% 1.57% 1.36%(h)
RATIOS OF NET INVESTMENT LOSS TO AVERAGE NET ASSETS:
Net investment loss ratio before tax expenses .............. (3.52)%(h) (3.26)% (2.29)% (1.49)%(h)
Net investment loss ratio including tax expenses (i) ....... (24.18)%(h) (14.10)% (8.27)% (17.67)%(h)
Portfolio turnover rate .................................... 1% 17% 38% 35%
DEBT:
Total Energy Notes outstanding ($25,000 per note) ........... 2,360 2,360 1,360 N/A
Principal amount and market value per Energy Note (j) ....... $ 25,021 $ 25,069 $ 25,074 N/A
Asset coverage per Energy Note (k) .......................... $ 108,237 $ 95,699 $ 131,786 N/A
Total loan outstanding (in 000's) ........................... $ 11,000 N/A N/A $ 30,000
Asset coverage per $1,000 senior indebtedness (l) ........... $ 18,858 N/A N/A $ 5,566
---------------------------------------------------------------------------
(a) Initial seed date of June 17, 2004. The Fund commenced operations on June
24, 2004.
(b) Net of sales load of $0.90 per Common Share on initial offering.
(c) Total return based on net asset value is the combination of reinvested
dividend distributions and reinvested capital gains distributions, if any,
at prices obtained by the Dividend Reinvestment Plan, and changes in net
asset value per share and does not reflect sales load.
(d) Total return is not annualized for periods less than one year.
(e) Total return based on market value is the combination of reinvested
dividend distributions and reinvested capital gains distributions, if any,
at prices obtained by the Dividend Reinvestment Plan, and changes in
Common Share price per share, all based on Common Share market price per
share.
(f) In 2005, the Fund received reimbursements from the investment advisor and
sub-advisor. This reimbursement had no effect on the Fund's total returns.
(g) Includes current and deferred income taxes associated with each component
of the Statement of Operations.
(h) Annualized.
(i) Includes tax expenses associated with each component of the Statement of
Operations.
(j) Includes accumulated and unpaid interest.
(k) Calculated by subtracting the Fund's total liabilities (not including the
Energy Notes) from the Fund's total assets, and dividing by the
outstanding Energy Notes.
(l) Calculated by subtracting the Fund's total liabilities (not including the
loan outstanding) from the Fund's total assets, and dividing by the
outstanding senior indebtedness.
N/A Not applicable.
Page 12 See Notes to Financial Statements.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
ENERGY INCOME AND GROWTH FUND
MAY 31, 2007 (UNAUDITED)
1. FUND DESCRIPTION
Energy Income and Growth Fund (the "Fund") is a non-diversified, closed-end
management investment company organized as a Massachusetts business trust on
March 25, 2004, 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 FEN on the American Stock Exchange.
The Fund's investment objective is to seek a high level of after-tax total
return with an emphasis on current distributions paid to shareholders. The Fund
seeks to provide its shareholders with an efficient vehicle to invest in a
portfolio of cash-generating securities of energy companies. The Fund will focus
on investing in publicly-traded master limited partnerships ("MLPs") and related
public entities in the energy sector, which Fiduciary Asset Management, LLC (the
"Sub-Advisor") believes offer opportunities for income and growth. Due to the
tax treatment of cash distributions made by MLPs to their investors, a portion
of the distributions received may be tax deferred, thereby maximizing cash
available for distribution by the Fund to its shareholders. There can be no
assurance that the Fund's investment objective will be achieved.
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 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 Fund determines the net asset value of its Common Shares as of the close of
regular session trading on the New York Stock Exchange ("NYSE"), normally 4:00
p.m. Eastern time, no less frequently than weekly on Friday of each week. Net
asset value is computed by dividing the value of all assets of the Fund
(including accrued interest and dividends), less all Fund liabilities (including
accrued expenses, dividends payable, current and deferred income taxes and any
borrowings of the Fund) by the total number of shares outstanding. The Fund will
rely to some extent on information provided by the MLPs, which is not
necessarily timely, to estimate taxable income allocable to the MLP units held
in the Fund's portfolio and to estimate the associated deferred tax liability.
From time to time, the Fund will modify its estimates and/or assumptions
regarding its deferred tax liability as new information becomes available. To
the extent the Fund modifies its estimates and/or assumptions, the net asset
value of the Fund would likely fluctuate.
The Fund's investments are valued at market value or, in the absence of market
value with respect to any portfolio securities, at fair value according to
procedures adopted by the Fund's Board of Trustees. Portfolio securities listed
on any exchange other than the NASDAQ National Market ("NASDAQ") are valued at
the last sale price on the business day as of which such value is being
determined. If there has been no sale on such day, the securities are valued at
the mean of the most recent bid and asked prices on such day. Securities traded
on the NASDAQ are valued at the NASDAQ Official Closing Price as determined by
NASDAQ. Portfolio securities traded on more than one securities exchange are
valued at the last sale price on the business day as of which such value is
being determined at the close of the exchange representing the principal market
for such securities. Portfolio securities traded in the over-the-counter market,
but excluding securities traded on the NASDAQ, are valued at the closing bid
prices. Fixed-income securities with a remaining maturity of 60 days or more
will be valued by the Fund using a pricing service. When price quotes are not
readily available, fair market value is based on prices of comparable
securities. Short-term investments that mature in less than 60 days are valued
at amortized cost.
B. 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
recognized and recorded on the accrual basis, including amortization of premiums
and accretion of discounts.
Distributions received from the Fund's investments in MLPs generally are
comprised of return of capital from the MLP to the extent of the cost basis of
such MLP investments. Cumulative distributions received in excess of the Fund's
cost basis in an MLP generally are recorded as dividend income.
Securities purchased or sold on a when-issued or delayed-delivery basis may be
settled a month or more after the trade date; interest income on such securities
is not accrued until settlement date. The Fund maintains liquid assets with a
current value at least equal to the amount of its when-issued or
delayed-delivery purchase commitments.
Page 13
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
ENERGY INCOME AND GROWTH FUND
MAY 31, 2007 (UNAUDITED)
C. RESTRICTED SECURITIES:
The Fund may invest up to 35% of its Managed Assets, which is the average daily
gross asset value of the Fund minus accrued liabilities (excluding the principal
amount of any borrowings), in restricted securities. Restricted securities are
securities that cannot be offered for public sale without first being registered
under the Securities Act of 1933, as amended. Prior to registration, restricted
securities may only be resold in transactions exempt from registration. The Fund
currently holds the restricted securities shown in the following table. The Fund
does not have the right to demand that such securities be registered. Restricted
securities are valued at fair value in accordance with procedures adopted by the
Fund's Board of Trustees.
CARRYING
VALUE PER CURRENT 5/31/07
ACQUISITION SHARE CARRYING MARKET % OF
SECURITY DATE SHARES 5/31/07 COST VALUE NET ASSETS
-----------------------------------------------------------------------------------------------------------
Clearwater Natural
Resources, L.P. 08/01/05 465,471 $ 14.00 $ 8,601,560 $ 6,516,594 3.32%
Clearwater Natural
Resources, L.P. - Rights 08/01/05 17 0.00 0.00 0 0.00
Abraxas Energy Partners L.P. 05/25/07 255,090 16.66 3,749,999 3,749,999 1.91
Abraxas Petroleum Corp. 05/25/07 244,778 3.60 937,500 881,764 0.45
Abraxas Petroleum Corp.
Warrants 05/25/07 48,956 2.20 0.00 107,507 0.05
Global Partners L.P. 05/09/07 107,143 33.21 2,950,183 3,558,712 1.81
--------- ----------- ----------- ----
1,121,455 $16,239,242 $14,814,576 7.54%
========= =========== =========== ====
D. DISTRIBUTIONS TO SHAREHOLDERS:
The Fund intends to make quarterly distributions to Common Shareholders. On
December 11, 2006, the Board of Trustees approved a managed distribution policy
to better align the Fund with its after-tax total return investment objective.
The Fund's distributions generally will consist of cash and paid-in-kind
distributions from MLPs or their affiliates, dividends from common stocks,
interest from debt instruments and income from other investments held by the
Fund less operating expenses, including taxes. Distributions made from current
and accumulated earnings and profits of the Fund will be taxable to shareholders
as dividend income.
Distributions that are in an amount greater than the Fund's current and
accumulated earnings and profits will represent a tax-deferred return of capital
to the extent of a shareholder's basis in the Common Shares, and such
distributions will correspondingly reduce the amount of realized loss upon the
sale of the Common Shares. A reduction in the shareholder's basis will increase
the realized gain or reduce the amount of realized loss upon the sale of the
Common Shares. Additionally, distributions not paid from current and accumulated
earnings and profits that exceed a shareholder's tax basis in the Common Shares
will be taxed as a capital gain.
Distributions of $4,867,483 paid during the six months ended May 31, 2007, have
been characterized as return of capital for tax purposes. However, the ultimate
determination of the character of the distributions will be made after the 2007
calendar year end. Distributions will automatically be reinvested in additional
Common Shares pursuant to the Fund's Dividend Reinvestment Plan unless cash
distributions are elected by the shareholder.
E. INCOME TAXES:
The Fund is treated as a regular C corporation for U.S. federal income tax
purposes and as such will be obligated to pay federal and applicable state and
foreign corporate taxes on its taxable income. The Fund's tax expense or benefit
is included in the Statement of Operations based on the component of income or
gains (losses) to which such expense or benefit relates. The current U.S.
federal maximum graduated income tax rate for corporations is 35%. In addition,
the U.S. also imposes a 20% alternative minimum tax on the recalculated
alternative minimum taxable income of an entity treated as a corporation. This
differs from most investment companies, which elect to be treated as "regulated
investment companies" under the U.S. Internal Revenue Code of 1986, as amended.
The various investments of the Fund may cause the Fund to be subject to state
income taxes on a portion of its income at various rates.
Page 14
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
ENERGY INCOME AND GROWTH FUND
MAY 31, 2007 (UNAUDITED)
The tax deferral benefit the Fund derives from its investment in MLPs results
largely because the MLPs are treated as partnerships for federal income tax
purposes. As a partnership, an MLP has no income tax liability at the entity
level. As a limited partner in the MLPs in which it invests, the Fund will be
allocated its pro rata share of income, gains, losses, deductions and credits
from the MLPs, regardless of whether or not any cash is distributed from the
MLPs.
To the extent that the distributions received from the MLPs exceed the net
taxable income realized by the Fund from its investment, a tax liability
results. This tax liability is a deferred liability to the extent that MLP
distributions received have not exceeded the Fund's adjusted tax basis in the
respective MLPs. To the extent that distributions from an MLP exceed the Fund's
adjusted tax basis, the Fund will recognize a taxable capital gain.
For the six months ended May 31, 2007, distributions of $4,867,483 received from
MLPs have been classified as return of capital. The cost basis of applicable
MLPs has been reduced accordingly.
The Fund's provision for income taxes is calculated in accordance with SFAS No.
109 ACCOUNTING FOR INCOME TAXES and consists of the following:
Current federal income taxes ................................... $ --
Current other taxes ............................................ 176,088
Deferred federal income taxes .................................. 18,737,075
Deferred other income taxes .................................... (270,034)
------------
Total income tax expense ....................................... $ 18,643,129
============
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes. At November 30, 2006, the Fund
had a net operating loss for federal and state income tax purposes of $9,122,635
and $80,866, respectively. The Fund's 2006 income tax provision includes a full
valuation allowance against the deferred tax assets associated with this state
net operating loss. Components of the Fund's deferred tax assets and liabilities
as of May 31, 2007 are as follows:
DEFERRED TAX ASSETS:
Federal net operating loss ..................................... $ 6,324,592
State net operating loss ....................................... 114,688
State income taxes ............................................. 34,833
Other .......................................................... 234,506
------------
Total deferred tax assets ...................................... 6,708,619
Less: valuation allowance ...................................... (114,688)
------------
Net deferred tax assets ........................................ $ 6,593,931
============
DEFERRED TAX LIABILITIES:
Unrealized gains on investment securities ...................... $ 58,844,141
------------
Total deferred tax liabilities ................................. 58,844,141
------------
Total net deferred tax liabilities ............................. $ 52,250,210
============
Total income taxes differ from the amount computed by applying the federal
statutory income tax rate of 35% to net investment income and realized and
unrealized gains on investments.
Application of statutory income tax rate ....................... $ 18,585,175
State income taxes, net ........................................ 50,860
Change in valuation allowance .................................. 25,231
Other .......................................................... (18,137)
------------
Total .......................................................... $ 18,643,129
============
F. EXPENSES:
The Fund will pay all expenses directly related to its operations.
Page 15
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
ENERGY INCOME AND GROWTH FUND
MAY 31, 2007 (UNAUDITED)
G. INTEREST RATE CAP:
The Fund has entered into an interest rate cap transaction with Lehman Brothers
Special Financing Inc. for the purpose of limiting the impact that higher
short-term interest rates would have on the leverage costs of the Fund. The
transaction has a notional amount of $34,000,000, a cap rate of 5.00% per annum
and a termination date of May 3, 2010 and is marked to market with the change in
value reflected in "Net change in unrealized appreciation (depreciation) on
interest rate cap transaction" on the Statement of Operations. The initial cost
of the transaction, $552,500, was capitalized and is being amortized to expense
on a straight line basis over the term of the transaction.
H. ACCOUNTING PRONOUNCEMENTS:
In July 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes."
This pronouncement provides guidance on the recognition, measurement,
classification, and disclosures related to uncertain tax positions, along with
any related interest and penalties. FIN 48 is effective for fiscal years
beginning after December 15, 2006. Management is evaluating the implications of
FIN 48 and its impact on the financial statements has not yet been determined.
In addition, in September 2006, Statement of Financial Accounting Standards No.
157 Fair Value Measurements ("SFAS 157") was issued by the FASB and is effective
for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is currently evaluating the impact the
adoption of SFAS 157 will have on the Fund's financial statement disclosures.
3. INVESTMENT ADVISORY FEE AND OTHER AFFILIATED TRANSACTIONS
First Trust is a limited partnership with one limited partner, Grace Partners of
DuPage L.P., and one general partner, The Charger Corporation. First Trust
serves as investment advisor to the Fund pursuant to an Investment Management
Agreement. First Trust is responsible for the ongoing monitoring of the Fund's
investment portfolio, managing the Fund's business affairs and certain
administrative services necessary for the management of the Fund. For these
services, First Trust is entitled to a monthly fee calculated at an annual rate
of 1.00% of the Fund's Managed Assets.
Fiduciary Asset Management, LLC serves as the Fund's Sub-Advisor and manages the
Fund's portfolio subject to First Trust's supervision. The Sub-Advisor receives
an annual portfolio management fee of 0.50% of Managed Assets that is paid
monthly by First Trust.
On April 13, 2007, Piper Jaffray Companies announced a definitive agreement to
acquire Fiduciary for approximately $66 million in cash (the "Acquisition").
Subject to certain approvals, the Acquisition is expected to be completed during
2007. The Acquisition, if completed, will result in a change of control of
Fiduciary which would constitute an assignment of the sub-advisory agreement
among the Fund, Fiduciary and First Trust, thus having the effect under the 1940
Act of automatically terminating the sub-advisory agreement. The Board of
Trustees of the Fund has been evaluating the Fund's alternatives.
PFPC Inc., an indirect, majority-owned subsidiary of The PNC Financial Services
Group, Inc., serves as the Fund's Administrator and Transfer Agent in accordance
with certain fee arrangements. PFPC Trust Company, also an indirect,
majority-owned subsidiary of The PNC Financial Services Group, Inc., serves as
the Fund's Custodian in accordance with certain fee arrangements.
Effective January 1, 2007, the Trustees approved a revised compensation plan.
Under the revised plan, each Trustee who is not an officer or employee of First
Trust, any sub-advisor or any of their affiliates ("Independent Trustees") is
paid an annual retainer of $10,000 per investment company for the first 14
investment companies of the First Trust Fund Complex and an annual retainer of
$7,500 per investment company of each subsequent investment company added to the
First Trust Fund Complex. The annual retainer is allocated equally among each of
the investment companies. No additional meeting fees are paid in connection with
board or committee meetings.
Additionally, Thomas R. Kadlec is paid $10,000 annually to serve as the Lead
Trustee and Niel B. Nielson is paid $5,000 annually to serve as the chairman of
the Audit Committee with such compensation paid by the funds in the First Trust
Fund Complex and divided among those funds. Independent Trustees are also
reimbursed by the investment companies in the First Trust Fund Complex for
travel and out-of-pocket expenses in connection with all meetings. The Trustees
adopted the revised plan because the increase in the number of funds in the
First Trust Fund Complex had the effect of rapidly increasing their compensation
under the previous arrangements. Prior to January 1, 2007, the Funds paid each
Independent Trustee an annual retainer of $10,000, which included compensation
for all board and committee meetings.
Page 16
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
ENERGY INCOME AND GROWTH FUND
MAY 31, 2007 (UNAUDITED)
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of investment securities, excluding
short-term investments, for the six months ended May 31, 2007, were $12,511,904
and $2,680,806, respectively.
As of May 31, 2007, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $163,245,077
and the aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $1,776,479.
5. COMMON SHARES
As of May 31, 2007, 6,446,995 of $0.01 par value Common Shares were issued and
outstanding. An unlimited number of Common Shares has been authorized under the
Fund's Dividend Reinvestment Plan.
6. ENERGY NOTES
The Fund's Declaration of Trust authorizes the issuance of notes as determined
by the Board of Trustees without the approval of Common Shareholders. As of May
31, 2007, the Fund has 1,360 Series A Energy Notes and 1,000 Series B Energy
Notes outstanding at a principal value of $25,000 per note. The principal
amounts of the Series A and Series B Energy Notes will be due and payable on
March 2, 2045 and March 30, 2046, respectively. The Series A and Series B Energy
Notes offering costs of $158,761 and $99,326 and commissions of $340,000 and
$250,000, respectively, were capitalized and are being amortized to expense on a
straight line basis over the term of each of the Series A and Series B Energy
Notes.
An auction of the Series A Energy Notes is generally held every 28 days. An
Auction of the Series B Energy Notes is generally held every 7 days. The Series
A and Series B Energy Notes will pay interest at annual rates that may vary for
each auction rate period. Existing note holders may submit an order to buy, sell
or hold such notes on each auction date.
The Series A Energy Notes annual interest rate in effect as of May 31, 2007 was
5.253%. The interest rate, as set by the auction process, is generally expected
to vary with short-term interest rates. The high and low annual interest rates
during the six months ended May 31, 2007, were 5.284% and 5.253%, respectively,
and the average interest rate was 5.266%.
The Series B Energy Notes annual interest rate in effect as of May 31, 2007 was
5.263%. The interest rate, as set by the auction process, is generally expected
to vary with short-term interest rates. The high and low annual interest rates
during the six months ended May 31, 2007, were 5.294% and 5.253%, respectively,
and the average interest rate was 5.268%.
7. CREDIT AGREEMENT
The Fund has a credit agreement with the Custodial Trust Company of Bear
Stearns, under which the Fund may borrow from the Custodial Trust Company an
aggregate amount of up to the lesser of $30,000,000 or the maximum amount the
Fund is permitted to borrow under the 1940 Act. For the six months ended May 31,
2007, the average amount outstanding was $4,111,789 with a weighted average
interest rate of 6.32%. This credit agreement has no maturity date and can be
paid or called at any time. As of May 31, 2007, the Fund had $11,000,000 in
outstanding borrowings under this credit agreement.
8. RISK CONSIDERATIONS
The Fund intends to invest at least 85% of its Managed Assets in securities
issued by energy companies, energy sector MLPs and MLP-related entities. Given
this industry concentration, the Fund will be more susceptible to adverse
economic or regulatory occurrences affecting that industry than an investment
company that is not concentrated in a single industry. Energy issuers may be
subject to a variety of factors that may adversely affect their business or
operations, including high interest costs in connection with capital
construction programs, high leverage costs associated with environmental and
other regulations, the effects of economic slowdown, surplus capacity, increased
competition from other providers of services, uncertainties concerning the
availability of fuel at reasonable prices, the effects of energy conservation
policies and other factors.
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.
Page 17
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ADDITIONAL INFORMATION
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ENERGY INCOME AND GROWTH FUND
MAY 31, 2007 (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 PFPC
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 PFPC Inc., as 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 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 American
Stock Exchange 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 (800) 331-1710, in
accordance with such reasonable requirements as the Plan Agent and 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 PFPC 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 securities 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 website at http://www.sec.gov.
Page 18
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ADDITIONAL INFORMATION - (CONTINUED)
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ENERGY INCOME AND GROWTH FUND
MAY 31, 2007 (UNAUDITED)
PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("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.
BY-LAW AMENDMENTS
On December 12, 2005, June 12, 2006 and December 11, 2006, the Board of Trustees
of the Fund approved certain changes to the ByLaws of the Fund which may have
the effect of delaying or preventing a change in control of the Fund, including
the implementation of a staggered Board of Trustees. These changes were not
required to be, and were not approved by the Fund's shareholders. To receive a
copy of the revised By-Laws, investors may call the Fund at (800) 988-5891.
SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
The Joint Annual Meeting of Shareholders of the Common Shares of Macquarie/First
Trust Global Infrastructure/Utilities Dividend & Income Fund, Energy Income and
Growth Fund, First Trust/Fiduciary Asset Management Covered Call Fund, First
Trust/Aberdeen Global Opportunity Income Fund, First Trust/FIDAC Mortgage Income
Fund, First Trust Strategic High Income Fund, First Trust Strategic High Income
Fund II, First Trust Tax-Advantaged Preferred Income Fund and First
Trust/Aberdeen Emerging Opportunity Fund was held on April 16, 2007. At the
Annual Meeting, Trustee Keith was elected for a one-year term; Trustees Erickson
and Kadlec were elected for two-year terms; and Trustees Bowen and Nielson were
elected for three-year terms. The number of votes cast in favor of James A.
Bowen was 5,872,316, the number of votes withheld was 36,612 and the number of
abstentions was 538,067. The number of votes cast in favor of Niel B. Nielson
was 5,869,239, the number of votes withheld was 39,689 and the number of
abstentions was 538,067. The number of votes cast in favor of Richard E.
Erickson was 5,871,089, the number of votes withheld was 37,839 and the number
of abstentions was 538,067. The number of votes cast in favor of Thomas R.
Kadlec was 5,871,155, the number of votes withheld was 37,773 and the number of
abstentions was 538,067. The number of votes cast in favor of Robert F. Keith
was 5,871,766, the number of votes withheld was 37,162 and the number of
abstentions was 538,067.
ADVISORY AND SUB-ADVISORY AGREEMENTS
BOARD CONSIDERATIONS REGARDING CONTINUATION OF INVESTMENT MANAGEMENT AND
SUB-ADVISORY CONTRACTS
The Board of Trustees of Energy Income and Growth Fund (the "Fund"), including
the Independent Trustees, unanimously 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 Fiduciary Asset
Management, LLC (the "Sub-Advisor"), at a meeting held on March 12, 2007. The
Board determined that the terms of the Agreements are fair and reasonable and
that the Agreements continue to be in the best interests of the Fund.
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, 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 by investment advisors and sub-advisors to comparable funds and as
compared to fees charged to other clients of the Advisor and the Sub-Advisor;
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. The
Independent Trustees also met separately with their independent legal counsel to
discuss the information provided by the Advisor and the Sub-Advisor. The Board
applied its business judgment to determine whether the arrangements between the
Fund and the Advisor and among the Fund, the Advisor and the Sub-Advisor are
reasonable business arrangements from the Fund's perspective as well as from the
perspective of shareholders.
Page 19
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ADDITIONAL INFORMATION - (CONTINUED)
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ENERGY INCOME AND GROWTH FUND
MAY 31, 2007 (UNAUDITED)
In reviewing the Agreements, the Board considered the nature, quality and extent
of services provided by the Advisor and the Sub-Advisor under the Agreements.
With respect to the Advisory Agreement, the Board considered that the Advisor is
responsible for the overall management and administration of 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 the compliance program
includes policies and procedures 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 meets the Fund's investment
objective. In light of the information presented and the considerations made,
the Board concluded that the nature, quality and extent 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 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 reviewed data prepared by Lipper Inc. ("Lipper"), an
independent source, showing the management fees and expense ratios of the Fund
as compared to the management fees and expense ratios of one peer group selected
by Lipper and a second peer group selected by the Advisor. The Board discussed
with representatives of the Advisor the differences between the two peer groups,
noting that the Advisor peer group contained only three peer funds, and also
discussed the limitations in creating a relevant peer group for the Fund,
including the difficulties in comparing funds using different types of leverage.
Based on the information provided, the Board noted that the Fund's management
fees were in the second quintile of the Lipper peer group and were the lowest in
the Advisor peer group, and also noted that the Fund's expense ratio was in the
fifth quintile of Lipper peer group and was the highest in the Advisor peer
group. The Board noted that the Lipper data reflected a fee waiver that is no
longer in effect. The Board also considered the sub-advisory fee rate and how it
related to the overall management fee structure of the Fund and noted that the
Advisor pays the Sub-Advisor out of the advisory fees it receives from the Fund.
Finally, the Board considered the advisory fees paid to the Advisor by similar
funds, and noted that the Advisor does not provide advisory services to clients
with investment objectives and policies similar to the Fund's. The Board also
considered information provided by the Sub-Advisor as to the fees it charges to
other clients.
The Board also considered the Fund's performance for the one-year, two-year and
since-inception periods ended December 31, 2006, as applicable, as compared to
the performance of relevant benchmark indices and to a performance universe
selected by Lipper. The Board noted that the Fund's performance was in the
fourth quintile of the performance universe for all periods and that the Fund
underperformed its benchmark indices for the one-year and since-inception
periods. The Board also considered performance data provided by the Advisor for
the one-year and since-inception periods, and considered an analysis prepared by
the Advisor on benefits provided by the Fund's leverage. In addition, the Board
considered the market price and net asset value performance of the Fund since
inception, and compared the Fund's premium/discount to the average and median
premium/discount of the Lipper peer group, noting that the Fund's
premium/discount was generally indicative of the asset class. The Board
concluded that the Fund's performance was reasonable, particularly in light of
the strong absolute performance of the Fund.
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, quality and extent
of services provided by the Advisor and Sub-Advisor under the Agreements.
The Board noted that the Advisor has continued to invest in personnel and
infrastructure but had not identified any economies of scale realized by the
Fund and had indicated that, because the Fund is a closed-end fund that is not
issuing more shares other than pursuant to its dividend reinvestment plan, the
Advisor believed that any discussion of economies of scale was not meaningful.
The Board concluded that the management fee reflects an appropriate level of
sharing of any economies of scale. The Board also considered the costs of the
services provided and profits realized by the Advisor from serving as investment
manager to closed-end funds for the twelve months ended December 31, 2006, 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
profitability appeared to be not unreasonable in light of the services provided
to the Fund. In addition, the Board considered and discussed any ancillary
benefits derived by the Advisor from its relationship with the Fund and noted
that the typical fall-out benefits to the Advisor such as soft dollars are not
present. The Board concluded that any other fall-out benefits received by the
Advisor or its affiliates would appear to be attenuated.
The Board considered the Sub-Advisor's representation that economies of scale
are not as evident in regards to closed-end funds since the assets are fixed and
that any economies of scale realized by the Sub-Advisor will be across a variety
of products and services and not only in respect to the Fund. The Board
considered that the sub-advisory fee rate was negotiated at arm's length between
the Advisor and the Sub-Advisor, an unaffiliated third party. The Board also
considered data provided by the Sub-Advisor as to the profitability of the
Sub-Advisory Agreement to the Sub-Advisor. The Board noted the inherent
limitations in this profitability analysis and concluded that the profitability
analysis for the Advisor was more relevant, although the profitability of the
Sub-Advisory Agreement appeared to be not
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ENERGY INCOME AND GROWTH FUND
MAY 31, 2007 (UNAUDITED)
unreasonable in light of the services provided to the Fund. The Board considered
the fall-out benefits realized by the Sub-Advisor from its relationship with the
Fund, including soft-dollar arrangements, and considered the Sub-Advisor's
summary of its soft-dollar policies and procedures.
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, 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.
PRIVACY POLICY
The open-end and closed-end funds advised by First Trust Advisors L.P. (each a
"FUND") consider your privacy an important priority in maintaining our
relationship. We are committed to protecting the security and confidentiality of
your personal information.
SOURCES OF INFORMATION
We may collect nonpublic personal information about you from the following
sources:
o Information we receive from you or 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. The permitted uses
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 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 with affiliates of the Fund. Please note,
however, that the California Financial Information Privacy Act contains an "opt
out" mechanism that California consumers may use to prevent us from sharing
nonpublic personal information with affiliates.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, the Fund restricts access to
your nonpublic personal information to those individuals 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.
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ADDITIONAL INFORMATION - (CONTINUED)
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ENERGY INCOME AND GROWTH FUND
MAY 31, 2007 (UNAUDITED)
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
contact us at (800) 621-1675.
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This Page Left Blank Intentionally.
This Page Left Blank Intentionally.
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
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.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a) Not Applicable
(b) There has been no change, as of the date of this filing, in any of the
portfolio managers identified in response to paragraph (a)(1) of this
Item in the registrant's most recently filed annual report on Form
N-CSR.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of trustees, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)),
or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within
90 days of the filing date of the report that includes the disclosure
required by this paragraph, based on their evaluation of these controls
and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR
270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities
Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or
240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17
CFR 270.30a-3(d)) that occurred during the registrant's second fiscal
quarter of the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Not applicable.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and
Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
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) ENERGY INCOME AND GROWTH FUND
By (Signature and Title)* /S/ JAMES A. BOWEN
-----------------------------------------------------
James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
Date AUGUST 6, 2007
----------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /S/ JAMES A. BOWEN
-----------------------------------------------------
James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
Date AUGUST 6, 2007
----------------------------------------------------------------------------
By (Signature and Title)* /S/ MARK R. BRADLEY
-----------------------------------------------------
Mark R. Bradley, Treasurer, Controller,
Chief Financial Officer and Chief Accounting Officer
(principal financial officer)
Date AUGUST 6, 2007
----------------------------------------------------------------------------
* Print the name and title of each signing officer under his or her signature.