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
-------------------------------------------------------
(Exact name of registrant as specified in charter)
1001 Warrenville Road
Suite 300
LISLE, IL 60532
-------------------------------------------------------
(Address of principal executive offices) (Zip code)
W. Scott Jardine
First Trust Portfolios L.P.
1001 Warrenville Road
Suite 300
LISLE, IL 60532
-------------------------------------------------------
(Name and address of agent for service)
registrant's telephone number, including area code: 630-241-4141
--------------
Date of fiscal year end: NOVEMBER 30
----------------
Date of reporting period: NOVEMBER 30, 2005
--------------------
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.
--------------------------------------------------------------------------------
ENERGY INCOME AND GROWTH FUND
ANNUAL REPORT
FOR THE YEAR ENDED NOVEMBER 30, 2005
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
ENERGY INCOME AND GROWTH FUND
ANNUAL REPORT
NOVEMBER 30, 2005
Shareholder Letter ........................................................ 1
Portfolio Commentary ...................................................... 2
Portfolio of Investments .................................................. 4
Statement of Assets and Liabilities ....................................... 6
Statement of Operations ................................................... 7
Statements of Changes in Net Assets ....................................... 8
Statement of Cash Flows ................................................... 9
Financial Highlights ...................................................... 10
Notes to Financial Statements ............................................. 11
Report of Independent Registered Public Accounting Firm ................... 17
Additional Information .................................................... 18
Dividend Reinvestment Plan
Proxy Voting Policies and Procedures
Portfolio Holdings
Submission of Matters to a Vote of Shareholders
By-Law Amendment
Trustees and Officers ..................................................... 20
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This Annual 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. and/or Fiduciary Asset Management, LLC 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 Energy Income and Growth Fund's (the "Fund")
actual results, performance or achievements 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
Annual Report, you are cautioned not to place undue reliance on these
forward-looking statements, which reflect the judgment of First Trust Advisors
L.P. and/or Fiduciary Asset Management, LLC 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.
HOW TO READ THIS REPORT
This report contains information that can help you evaluate your investment. It
includes details about the Energy Income and Growth Fund (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 the Fund's sub-advisor, Fiduciary Asset Management, LLC, you will obtain an
understanding of how the market environment affected the Fund's performance. The
statistical information that follows can 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, First
Trust Advisors L.P. personnel 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. Of
course, the risks of investing in the Fund are spelled out in the prospectus.
--------------------------------------------------------------------------------
SHAREHOLDER LETTER
--------------------------------------------------------------------------------
ENERGY INCOME AND GROWTH FUND (FEN)
ANNUAL REPORT
NOVEMBER 30, 2005
Dear Shareholders:
We are pleased to present you with this annual report for your Fund, the Energy
Income and Growth Fund (NYSE: FEN), for the fiscal year ended November 30, 2005.
The Fund invests in Master Limited Partnerships ("MLPs") and related public
entities in the energy sector and seeks to provide a high level of after-tax
total return with an emphasis on current distributions. The Fund's market value
total return was 0.3% and the net asset value ("NAV") total return was 12.0% for
the fiscal year. This compares to an 8.4% total return for the S&P 500 Index and
2.5% for the Citigroup U.S. Broad Investment Grade Bond Index (USBIG) over the
same 12-month period ended November 30, 2005. As there are no public MLP indices
to compare against the Fund's performance, these broad-based indexes have been
provided for comparison purposes.
First Trust Advisors L.P. ("First Trust" or the "Advisor") serves as the Fund's
Advisor and currently manages or supervises approximately $21 billion in assets.
Fiduciary Asset Management, LLC ("FAMCO") serves as the Fund's Sub-Advisor and
manages a wide range of institutional equity, covered call and fixed-income
products, including a pioneering role in the management of MLP assets. FAMCO
currently has approximately $17 billion in client assets under management.
I encourage you to read the portfolio commentary found on the following pages.
It includes a review of the Fund's performance and the manager's outlook for the
markets. We thank you for your confidence in First Trust and FAMCO and we will
work diligently to keep earning it.
Sincerely,
/S/ JAMES A. BOWEN
James A. Bowen
President of the Energy Income and Growth Fund
January 6, 2006
Page 1
JAMES J. CUNNANE, JR., CFA
MANAGING DIRECTOR, SENIOR PORTFOLIO MANAGER
MEMBER OF STRATEGY COMMITTEE AND INVESTMENT COMMITTEE
[PHOTO OMITTED]
Mr. Cunnane joined Fiduciary Asset Management in 1996 after having garnered
significant equity research experience as a research analyst with A.G. Edwards.
Mr. Cunnane has managed institutional and private client equity portfolios and
has an industry leading role as portfolio manager of the Master Limited
Partnership (MLP) assets of Fiduciary Asset Management, LLC ("FAMCO"). He is a
senior member of the equity portfolio management team and performs equity
securities research. 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. He graduated
from the St. Louis Priory and holds a B.S. in finance from Indiana University.
Mr. Cunnane 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, the investment manager was the
internal asset management group for a large corporate pension plan for nearly 21
years. It continues to act as such plan's chief investment officer. The
investment manager currently supervises and manages approximately $17 billion in
client assets.
--------------------------------------------------------------------------------
A COMMENTARY ON THE ENERGY INCOME AND GROWTH FUND
--------------------------------------------------------------------------------
Fundamentally, master limited partnerships ("MLPs") had a very sound year of
growth in 2005. The asset class continued to deliver higher-than-anticipated
distributions in 2005 and we expect that organic growth projects and
acquisitions within the space will be a consistent driver of distribution
increases in 2006.
From a market price perspective, 2005 was not as favorable. After powerful
performance in the first three quarters of the year, price levels declined in
the fourth quarter for both the MLP asset class and the Fund. In our opinion,
the sell-off was due primarily to changing supply and demand characteristics.
Over the last few years - particularly in 2004 and in early 2005 - there was a
lot of new demand for MLP investments, generated by new MLP-oriented funds and
other new institutional-type investors. Shares generally rose in that
environment. In the fall, we witnessed a tremendous amount of new supply in the
form of MLP initial public offerings and also in terms of secondary offerings of
existing MLPs. Unfortunately, the number of new investment dollars does not
appear to have kept pace with the high level of new supply. This saturation
created a downdraft in performance, which was reflected in the MLP asset class.
In our opinion, MLPs still offer the best combination of current income and
growth available in the marketplace. We believe their current yields, combined
with their long-term growth potential, outshines other types of growth and
income investments, such as fixed income, utilities and real estate investment
trusts.
We think the MLP market is poised for better performance in the coming year as
distribution increases continue at a reasonable pace and supply and demand
imbalances correct. The current backdrop of generally rising equity prices,
stable longer duration interest rates, and higher energy commodity prices is a
good combination for MLPs. Of course, declining equity markets, rising interest
rates and/or significant changes in energy commodity prices could hamper MLP
performance in 2006.
Our portfolio is built on basic fundamental factors - those partnerships that we
believe offer the best combination of growth, dividend yield and risk
characteristics. While we are pleased with the current portfolio holdings, we
continue to monitor the MLP market for better opportunities and we have
continued to take advantage of select private placement opportunities for the
Fund. We are also pursuing smaller, higher-growth MLP structures that we believe
have a lower hurdle to growth than many of the larger MLPs.
As superior opportunities present themselves, we may look to sell another
security to fund a new purchase. Before making a sell decision, we consider the
fundamentals of the sell candidate(s) to identify which issues might be over or
undervalued relative to other portfolio holdings. We do this through a
proprietary quantitative modeling system. Tax considerations also play a very
important role in all sell decisions given the Fund's investment objective of
providing a favorable after-tax distribution.
A majority of the Fund's MLP assets remain in common units, with a smaller
interest in subordinated units and restricted units of MLPs acquired in private
placements and one privately-held entity we believe owns MLP-qualified assets.
For a closed-end fund, it is our opinion that access to private or direct
placements can be advantageous. MLPs use private placements of restricted units
to raise capital to fund acquisitions or other growth initiatives. Unregistered
units, or restricted units, typically convert to common units and become
fully-tradable. The Fund may benefit if it purchases the units at a discount to
the then-current price of the MLP's common units. One of the
Page 2
--------------------------------------------------------------------------------
A COMMENTARY ON THE ENERGY INCOME AND GROWTH FUND - (CONTINUED)
--------------------------------------------------------------------------------
primary risks of owning unregistered units is that they are restricted from
trading for a period of time. For a closed-end fund such as this, that risk is
acceptable, as there is generally no need to trade the units to fund redemptions
as might be the case in an open-end fund. There is also the risk that restricted
units will lose value relative to their purchase price, but that is a risk
common to most investments.
Total return on a NAV basis was 12.0% for the year ended November 30, 2005, with
market value total return of 0.3% for the same period. This compares to an 8.4%
total return for the S&P 500 Index and 2.5% for the USBIG Index over the same
period. Performance of the portfolio on a sector basis was in line with our
initial expectations, with mid-stream and coal energy MLPs providing the best
areas for investment and propane MLPs the worst. We remain overweighted in
mid-stream and coal MLPs and underweighted in propane MLPs.
At the entity-specific level, the Fund benefited from its investment in several
MLPs which are expected to grow at higher-than-average rates. Inergy Holdings,
L.P. and Enterprise GP Holdings, L.P. were two standouts. Slower growth,
higher-yield MLPs generally underperformed in 2005. Our holdings of
fundamentally-sound MLPs such as Enbridge Energy Partners, L.P. and Northern
Border Partners, L.P. hampered performance.
FEN utilizes leverage as part of its investment strategy. The purpose of
leverage is to fund the purchase of additional securities that provide increased
income and potentially greater appreciation potential to shareholders than could
be achieved from an unleveraged portfolio. The Fund's leverage hovered around
20% of total assets during fiscal year 2005. Rising short-term interest rates
increased the Fund's cost of leverage in fiscal year 2005. While our cost of
leverage increased, the use of leverage was additive to the portfolio's value.
We will continue to employ a leveraged strategy as long as we believe that it
benefits shareholders. We did purchase an interest rate cap in 2005, effectively
purchasing insurance against a large rise in short-term interest rates. We are
continually evaluating the use of interest rate caps and swaps to protect
against unfavorable interest rate environments.
The composition of the Fund's portfolio as of November 30, 2005, is summarized
in the chart below.
PORTFOLIO COMPONENTS
[THE FOLLOWING TABLE WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL.]
Oil & Gas Storage & Transportation 76.5%
Oil & Gas Refining & Marketing 5.5%
Coal & Consumable Fuels 13.3%
Integrated Oil & Gas 4.7%
* Percentages are based on total investments. Please note that the
percentages shown on the Portfolio of Investments are based on net assets.
Page 3
ENERGY INCOME AND GROWTH FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 2005
MARKET
SHARES VALUE
----------- ------------
MASTER LIMITED PARTNERSHIPS - 133.0%
OIL, GAS & CONSUMABLE FUELS - 133.0%
278,290 Alliance Resource Partners, L.P ................... $ 11,075,942
131,300 Atlas Pipeline Partners, L.P ...................... 5,454,202
45,600 Boardwalk Pipeline Partners, L.P. * ............... 841,320
357,143 Clearwater Natural Resources, L.P. + .............. 7,142,860
40,000 Copano Energy, LLC ................................ 1,499,600
253,201 Copano Energy, LLC + .............................. 9,365,591
317,272 Crosstex Energy, L.P .............................. 10,723,794
16,892 Enbridge Energy Partners, L.P ..................... 777,032
567,370 Energy Transfer Partners, L.P ..................... 19,160,085
176,425 Enterprise GP Holdings, L.P ....................... 6,086,662
459,998 Enterprise Product Partners, L.P .................. 11,513,750
23,396 Global Partners, L.P. * ........................... 458,328
73,100 Hiland Partners, L.P .............................. 2,900,608
250,000 Holly Energy Partners, L.P ........................ 9,670,000
148,000 Inergy Holdings, L.P .............................. 5,283,600
385,275 Inergy, L.P ....................................... 9,728,194
140,771 Kinder Morgan Energy Partners, L.P ................ 7,016,027
113,930 Magellan Midstream Partners, L.P .................. 3,662,849
347,826 Magellan Midstream Partners, L.P.+ ................ 10,981,319
230,178 MarkWest Energy Partners, L.P ..................... 10,836,780
25,477 Martin Midstream Partners, L.P .................... 814,958
128,169 Natural Resource Partners, L.P .................... 7,381,253
7,154 Northern Border Partners, L.P ..................... 305,404
81,300 Pacific Energy Partners, L.P. + ................... 2,258,481
203,843 Pacific Energy Partners, L.P ...................... 6,048,022
344,956 Plains All American Pipeline, L.P ................. 13,701,652
21,500 Suburban Propane Partners, L.P. ................... 551,475
14,000 Teekay LNG Partners, L.P .......................... 392,420
70,000 U.S. Shipping Partners, L.P ....................... 1,590,400
205,291 Valero, L.P ....................................... 10,777,778
153,600 Williams Partners, L.P ............................ 5,171,712
------------
193,172,098
------------
TOTAL MASTER LIMITED PARTNERSHIPS ................. 193,172,098
(Cost $147,538,223) ------------
RIGHTS - 0.0%
OIL, GAS & CONSUMABLE FUELS - 0.0%
17 Clearwater Natural Resources, L.P. - Rights +* .... 0
------------
TOTAL RIGHTS ...................................... 0
(Cost $0) ------------
Page 4 See Notes to Financial Statements.
ENERGY INCOME AND GROWTH FUND - (CONTINUED)
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 2005
MARKET
VALUE
------------
TOTAL INVESTMENTS - 133.0% ........................ $193,172,098
(Cost $147,538,223)**
NET OTHER ASSETS & LIABILITIES - (9.6)% ........... (13,942,571)
------------
ENERGY NOTES PAYABLE - (23.4)% .................... (34,000,000)
------------
NET ASSETS - 100.0% ............................... $145,229,527
============
================================================================================
* As of November 30, 2005, this security has not paid a distribution
to the Fund.
** Aggregate cost for federal income tax purposes is $144,286,270.
+ Securities are restricted and cannot be offered for public sale
without first being registered under the Securities Act of 1933, as
amended. Before they are registered, these securities may only be
resold, in transactions exempt from registration, to qualified
institutional buyers. Market value is determined in accordance with
procedures adopted by the Board of Trustees (See Note 2D).
See Notes to Financial Statements. Page 5
ENERGY INCOME AND GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 2005
ASSETS:
Investments, at value
(Cost $147,538,223) ................................................................... $ 193,172,098
Cash .................................................................................... 2,981,413
Interest rate cap (cost $488,392) ....................................................... 597,662
Prepaid expenses ........................................................................ 482,398
Receivables:
Investment securities sold .......................................................... 174,367
Interest ............................................................................ 5,015
-------------
Total Assets ........................................................................ 197,412,953
-------------
LIABILITIES:
Energy notes payable .................................................................... 34,000,000
Deferred income tax liability ........................................................... 17,239,691
Payables:
Income taxes ........................................................................ 532,854
Audit and legal fees ................................................................ 140,549
Investment advisory fees ............................................................ 112,210
Interest on energy notes ............................................................ 100,351
Printing fees ....................................................................... 27,607
Administrative fees ................................................................. 14,961
Accrued expenses ........................................................................ 15,203
-------------
Total Liabilities ................................................................... 52,183,426
-------------
NET ASSETS .............................................................................. $ 145,229,527
=============
NET ASSETS CONSIST OF:
Accumulated net realized loss on investments sold, net of income taxes .................. $ (2,632,588)
Net unrealized appreciation of investments and interest rate cap, net of income taxes ... 29,873,731
Par value ............................................................................... 64,470
Paid-in capital ......................................................................... 117,923,914
-------------
Total Net Assets .................................................................... $ 145,229,527
=============
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share) .................... $ 22.53
=============
Number of Common Shares outstanding ..................................................... 6,446,995
=============
Page 6 See Notes to Financial Statements.
ENERGY INCOME AND GROWTH FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 2005
INVESTMENT INCOME:
Interest ............................................................................................. $ 60,181
------------
Total investment income .......................................................................... 60,181
------------
EXPENSES:
Investment advisory fees ............................................................................. 1,805,061
Interest expense ..................................................................................... 1,118,728
Audit and legal fees ................................................................................. 365,820
Administration fees .................................................................................. 180,504
Trustees' fees and expenses .......................................................................... 59,766
Printing fees ........................................................................................ 47,046
Custodian fees ....................................................................................... 17,428
Other ................................................................................................ 282,345
------------
Total expenses ................................................................................... 3,876,698
Fees waived by the investment advisor ............................................................ (451,281)
------------
Net expenses ......................................................................................... 3,425,417
------------
NET INVESTMENT LOSS BEFORE TAXES: .................................................................... (3,365,236)
Current federal income tax benefit ............................................. 3,145,420
Current income tax expense - other ............................................. (44,743)
Deferred federal income tax expense ............................................ (1,913,878)
Deferred income tax expense - other ............................................ (28,486)
----------
Total income tax benefit .......................................................................... 1,158,313
------------
Net investment loss .................................................................................. (2,206,923)
------------
NET REALIZED AND UNREALIZED GAIN/LOSS ON INVESTMENTS
AND INTEREST RATE CAP TRANSACTION:
Net realized gain/(loss) on:
Securities transactions ........................................................................... 8,907,484
Written option transactions ....................................................................... (186,522)
------------
Net realized gain on investments during the period before taxes ...................................... 8,720,962
------------
Current federal income tax expense ............................................. (3,621,140)
Deferred federal income tax benefit ............................................ 567,034
Deferred income tax benefit - other ............................................ 5,053
----------
Total income tax expense .......................................................................... (3,049,053)
------------
Net realized gain on investments during the period ................................................... 5,671,909
Net increase from payment by the investment advisor and sub-advisor before taxes* .................... 35,403
Current federal income tax expense ................................................................ (12,391)
------------
Net increase from payment by the investment advisor and sub-advisor* ................................. 23,012
Net change in unrealized appreciation/(depreciation) of:
Investments ....................................................................................... 19,285,879
Written option transactions ....................................................................... 183,243
Interest rate cap transaction ..................................................................... 109,270
------------
Net change in unrealized appreciation/(depreciation) of investments and interest rate
cap transaction during the period before tax: ...................................................... 19,578,392
Deferred federal income tax expense ............................................ (6,831,133)
Deferred income tax expense - other ............................................ (60,869)
----------
Total income tax expense .......................................................................... (6,892,002)
------------
Net change in unrealized appreciation/(depreciation) of investments and interest rate
cap transaction during the period ................................................................. 12,686,390
------------
Net realized and unrealized gains on investments and interest rate cap transaction ................... 18,381,311
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ................................................. 16,174,388
============
-----------------------------------------------------
* See Note 3 in Notes to Financial Statements.
See Notes to Financial Statements. Page 7
ENERGY INCOME AND GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
YEAR PERIOD
ENDED ENDED
11/30/2005 11/30/2004*
------------- -------------
OPERATIONS:
Net investment loss ........................................... $ (2,206,923) $ (824,050)
Net realized gain on investments during the period ............ 5,671,909 316,965
Net change in unrealized appreciation/(depreciation) of
investments and interest rate cap transaction during
the period .................................................. 12,686,390 17,187,341
Net increase from payment by the investment advisor and
sub-advisor** ............................................... 23,012 --
------------- -------------
Net increase in net assets resulting from operations .......... 16,174,388 16,680,256
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain on investments .............................. (5,613,501) --
Return of capital ............................................. (2,915,894) (2,081,702)
------------- -------------
Total distributions to shareholders ........................... (8,529,395) (2,081,702)
CAPITAL TRANSACTIONS:
Net proceeds from sale of 6,405,236 Common Shares ............. -- 122,083,798
Proceeds from 26,352 and 15,407 Common Shares reinvested,
respectively ................................................ 591,262 310,920
------------- -------------
Total capital transactions .................................... 591,262 122,394,718
------------- -------------
Net increase in net assets .................................... 8,236,255 136,993,272
NET ASSETS:
Beginning of period ........................................... 136,993,272 --
------------- -------------
End of period ................................................. $ 145,229,527 $ 136,993,272
============= =============
Accumulated net investment loss at end of period .............. $ -- $ (507,085)
============= =============
-----------------------------------------------------
* The Fund commenced operations on June 17, 2004.
** See Note 3 in Notes to Financial Statements.
Page 8 See Notes to Financial Statements.
ENERGY INCOME AND GROWTH FUND
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED NOVEMBER 30, 2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations, after income tax expense ... $ 16,174,388
Adjustments to reconcile net increase in net assets resulting from operations
to net cash provided by operating activities:
Changes in assets and liabilities:
Increase in investments, at value* .......................................... (19,014,095)
Increase in interest rate cap** ............................................. (597,662)
Increase in interest receivable ............................................. (3,414)
Decrease in dividends receivable ............................................ 44,555
Increase in prepaid expenses ................................................ (482,398)
Decrease in receivable for investment securities sold ....................... 731,845
Decrease in options written, at value*** .................................... (397,435)
Decrease in payable for investment securities purchased ..................... (2,048,358)
Increase in interest expense payable ........................................ 25,332
Increase in investment advisory fees payable ................................ 11,145
Increase in audit and legal fees payable .................................... 77,195
Increase in printing fees payable ........................................... 1,486
Increase in administrative fees payable ..................................... 1,486
Increase in custodian fees payable .......................................... (4,323)
Decrease in accrued expenses ................................................ 1,599
Increase in income tax liability ............................................ 8,795,133
------------
CASH PROVIDED BY OPERATING ACTIVITIES ............................................ $ 3,316,479
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions paid (net of proceeds from 26,352 shares reinvested) ............ (7,938,133)
Repayment of loan outstanding ................................................. (30,000,000)
Issuance of Energy Notes ...................................................... 34,000,000
------------
CASH USED BY FINANCING ACTIVITIES ................................................ (3,938,133)
-----------
Decrease in cash ................................................................. (621,654)
Cash at beginning of year ........................................................ 3,603,067
-----------
Cash at end of year .............................................................. $ 2,981,413
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest ........................................... $ 1,093,396
-----------------------------------------------------
* Includes net change in unrealized appreciation on investments of
$19,285,879.
** Includes net change in unrealized appreciation on interest rate cap
transaction of $109,270.
*** Includes net change in unrealized appreciation on written option
transactions of $183,243.
See Notes to Financial Statements. Page 9
ENERGY INCOME AND GROWTH FUND
FINANCIAL HIGHLIGHTS
FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR PERIOD
ENDED ENDED
11/30/2005 11/30/2004*
---------- -----------
Net asset value, beginning of period ................................................ $ 21.34 $ 19.10
-------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss ................................................................. (0.34) (0.13)
Net realized and unrealized gain on investments and interest rate cap transaction ... 2.86 2.74
-------- --------
Total from investment operations after income tax expense ........................... 2.52 2.61
-------- --------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net realized gain on investments .................................................... (0.88) --
Return of capital ................................................................... (0.45) (0.33)
-------- --------
Total from distributions ............................................................ (1.33) (0.33)
-------- --------
Common Shares offering costs charged to paid-in capital ............................. -- (0.04)
-------- --------
Net asset value, end of period ...................................................... $ 22.53 $ 21.34
======== ========
Market value, end of period ......................................................... $ 20.92 $ 22.12
======== ========
TOTAL RETURN BASED ON NET ASSET VALUE (A)+ .......................................... 11.96%(f) 13.53%
======== ========
TOTAL RETURN BASED ON MARKET VALUE (B)+ ............................................. 0.29% 12.38%
======== ========
Net assets, end of period (in 000's) ................................................ $145,230 $136,993
RATIOS OF EXPENSES TO AVERAGE NET ASSETS:
Net expense ratio excluding interest expense ....................................... 1.57% 1.36%**
Total expense ratio ................................................................ 2.64% 2.20%**
Net expense ratio .................................................................. 2.33% 1.91%**
Net expense ratio including tax expenses (g) ....................................... 8.31% 18.09%**
RATIOS OF NET INVESTMENT LOSS TO AVERAGE NET ASSETS:
Net investment loss ratio before tax expenses ...................................... (2.29)% (1.49)%**
Net investment loss ratio including tax expenses (g) ............................... (8.27)% (17.67)%**
Portfolio turnover rate ............................................................ 38.18% 34.86%
DEBT:
Total Energy Notes outstanding ($25,000 per note) ................................... 1,360 N/A
Principal amount and market value per Energy Note (d) ............................... $ 25,074 N/A
Asset coverage per Energy Note (e) .................................................. $131,786 N/A
Total loan outstanding (in 000's) ................................................... N/A $ 30,000
Asset coverage per $1,000 senior indebtedness (c) ................................... N/A $ 5,566
-----------------------------------------------------
* The Fund commenced operations on June 17, 2004.
** Annualized.
(a) 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.
(b) 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 market price per share, all based on Common Share market price per
share.
(c) Calculated by subtracting the Fund's total liabilities (not including loan
outstanding) from the Fund's total assets and dividing this by the amount
of senior indebtedness.
(d) Includes accumulated and unpaid interest.
(e) Calculated by subtracting the Fund's total liabilities (not including the
Energy Notes) from the Fund's total assets and dividing this by the number
of Energy Notes outstanding.
(f) In 2005, the Fund received reimbursements from the investment advisor and
sub-advisor. This reimbursement had no effect on the Fund's total return
for Common Shares.
(g) Includes tax expense associated with each component of the Statement of
Operations.
+ Total return is not annualized for periods less than one year.
Page 10 See Notes to Financial Statements.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
ENERGY INCOME AND GROWTH FUND
NOVEMBER 30, 2005
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 will determine 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 option premiums, accrued interest and dividends), less all Fund
liabilities (including accrued expenses, dividends payable, current and deferred
income taxes, any borrowings of the Fund and the market value of written call
options) 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
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.
Exchange-traded options and futures contracts are valued at the closing price in
the market where such contracts are principally traded.
B. OPTION CONTRACTS:
The Fund may enter into various hedging and strategic transactions to seek to
reduce interest rate risks arising from any use of financial leverage by the
Fund, to facilitate portfolio management and mitigate risks.
Call options are contracts representing the right to purchase a common stock at
a specified price (the "strike price") through a specified future date (the
"expiration date"). The price of the option is determined from trading activity
in the broad options market, and generally reflects the relationship between the
current market price for the underlying common stock and the strike price, as
well as the time remaining until the expiration date. The Fund will write call
options only if they are "covered." In the case of a call option on a common
stock or other security, the option is "covered" if the Fund owns the security
underlying the call or has an absolute and immediate right to acquire that
security without additional cash consideration (or, if additional cash
consideration is required, cash or other assets determined to be liquid by the
Sub-Advisor in such amount are segregated by the Fund's custodian) upon
conversion or exchange of other securities held by the Fund.
Page 11
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
ENERGY INCOME AND GROWTH FUND
NOVEMBER 30, 2005
If an option written by the Fund expires unexercised, the Fund realizes on the
expiration date a capital gain equal to the premium received by the Fund at the
time the option was written. If an option purchased by the Fund expires
unexercised, the Fund realizes a capital loss equal to the premium paid at the
time the option expires. Prior to the earlier of exercise or expiration, an
exchange-traded option may be closed out by an offsetting purchase or sale of an
option of the same series (type, underlying security, exercise price and
expiration). There can be no assurance, however, that a closing purchase or sale
transaction can be effected when the Fund desires. The Fund may sell put or call
options it has previously purchased, which could result in a net gain or loss
depending on whether the amount realized on the sale is more or less than the
premium and other transaction costs paid on the put or call option purchased.
C. 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 a 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 instructs the custodian to
segregate assets of the Fund with a current value at least equal to the amount
of its when-issued purchase commitments.
D. RESTRICTED SECURITIES:
The Fund may invest up to 35% of its Managed Assets, the average daily gross
asset value of the Fund minus accrued liabilities (excluding the principal 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. The Fund currently holds the restricted
securities shown in the following table consisting of limited partnership units
of Clearwater Natural Resources, L.P. ("Clearwater"), limited liability company
units of Copano Energy, LLC ("Copano"), and limited partnership units of Pacific
Energy Partners, L.P. ("Pacific"), which were purchased in private placement
transactions. Restricted securities are valued at fair value in accordance with
procedures adopted by the Fund's Board of Trustees.
CARRYING
CARRYING COST VALUE PER
VALUE PER PER SHARE SHARE
SHARE AT ACQUISITION AT ACQUISITION 11/30/05
ACQUISITION 11/30/05 DATE DATE VALUE % OF
SECURITY DATE SHARES (RESTRICTED) (RESTRICTED) (UNRESTRICTED) (RESTRICTED) NET ASSETS
---------------------------------------------------------------------------------------------------------------------------------
Clearwater
Natural
Resources, L.P. 8/01/05 357,143 $ 20.00 $ 20.00 N/A $ 7,142,860 4.92%
Copano Energy,
LLC 8/01/05 253,201 36.99 28.21 $ 40.50* 9,365,591 6.45
Pacific Energy
Partners, L.P. 9/30/05 81,300 27.78 30.75 65.31** 2,258,481 1.56
Magellan Midstream
Partners, L.P. 4/13/05 347,826 31.57 28.75 30.92 10,981,319 7.56
--------- ----------- -----
1,039,470 $29,748,251 20.49%
========= =========== =====
* This is the carrying value of unrestricted shares of Copano at 8/01/05,
which is the date of purchase and date an enforceable right to acquire the
restricted Copano securities was obtained by the Fund.
** This is the carrying value of unrestricted shares of Pacific at 9/30/05,
which is the date of purchase and date an enforceable right to acquire the
restricted Pacific securities was obtained by the Fund.
E. DISTRIBUTIONS TO SHAREHOLDERS:
The Fund intends to make quarterly distributions to Common Shareholders. The
Fund's distributions generally will consist of cash and paid-in-kind
distributions from MLPs or their affiliates, dividends from common stocks,
interest from debt instruments and income from other investments held by the
Fund less operating expenses, including taxes. Distributions made from current
and accumulated earnings and profits of the Fund will be taxable to shareholders
as dividend income.
Page 12
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
ENERGY INCOME AND GROWTH FUND
NOVEMBER 30, 2005
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 its Common Shares, and such
distributions would correspondingly reduce the amount of realized loss upon the
sale of the Common Shares. A reduction in the shareholder's basis would 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 its Common Shares
will be taxed as a capital gain.
Distributions paid during the year ended November 30, 2005, totaled $8,529,395;
of those distributions, $5,613,501 have been characterized as net investment
income and $2,915,894 have been characterized as return of capital for tax
purposes. 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. Permanent differences incurred
during the year ended November 30, 2005, resulting from differences in book and
tax accounting and have been reclassified at year end to reflect a decrease in
accumulated net investment loss by $2,714,008 and a decrease to accumulated net
realized gain on investments sold by $2,714,008. Net assets were not affected by
this reclassification.
F. INCOME TAXES:
The Fund has elected to be 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 United States 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 United States Internal
Revenue Code of 1986, as amended.
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 year ended November 30, 2005, distributions of $11,036,973 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 ...................................... $ 488,111
Current other taxes ............................................... 44,743
Deferred federal income taxes ..................................... 8,177,977
Deferred other income taxes ....................................... 84,302
----------
Total income tax expense .......................................... $8,795,133
==========
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. Components of the Fund's
deferred tax assets and liabilities as of November 30, 2005 are as follows:
DEFERRED TAX ASSETS:
State net operating loss .......................................... $ 56,897
State income taxes ................................................ 48,627
---------
Total deferred tax assets ......................................... 105,524
Less: valuation allowance ......................................... (56,673)
---------
Net deferred tax asset ............................................ $ 48,851
=========
Page 13
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
ENERGY INCOME AND GROWTH FUND
NOVEMBER 30, 2005
DEFERRED TAX LIABILITIES:
Unrealized gains on investment securities ...................... $ 17,287,771
Other .......................................................... 771
------------
Total deferred tax liabilities ................................. $ 17,288,542
------------
Total net deferred tax liability ............................... $ 17,239,691
============
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 ....................... $ 8,739,332
State income taxes, net ........................................ 19,335
Change in valuation allowance .................................. 36,838
Other .......................................................... (372)
------------
Total .......................................................... $ 8,795,133
============
G. EXPENSES:
The Fund will pay all expenses directly related to its operations.
H. 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 unrealized appreciation/(depreciation) in 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.
I. ORGANIZATION AND OFFERING COSTS:
Organization costs consist of costs incurred to establish the Fund and enable it
to legally do business. These costs include filing fees, legal services
pertaining to the organization of the business and audit fees relating to the
initial registration and auditing the initial statement of assets and
liabilities, among other fees. Offering costs consist of legal fees pertaining
to the Fund's shares offered for sale, registration fees, underwriting fees, and
printing of the initial prospectus, among other fees. First Trust Advisors L.P.
("First Trust"), the Fund's investment advisor, has paid all organization
expenses. The Fund's estimated share of Common Share offering costs, $256,209,
was recorded as a reduction of the proceeds from the sale of Common Shares
during the period ended November 30, 2004.
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, the average daily gross asset value of
the Fund minus accrued liabilities.
During the year, the Fund's investment advisor and sub-advisor reimbursed the
Fund for $35,403 in connection with an affiliated transaction.
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
a portfolio management fee of 0.50% of Managed Assets that is paid monthly by
First Trust from its investment advisory fee.
First Trust has agreed to waive fees and reimburse the Fund for expenses in an
amount equal to 0.25% of the average daily Managed Assets of the Fund through
June 24, 2006. The Sub-Advisor has agreed to bear a portion of this fee waiver
and expense reimbursement obligation by reducing the amount of its full
sub-advisory fee by 0.382% of the average daily Managed Assets. Waivers and
reimbursements are reported as "fees waived by the investment advisor" on the
Statement of Operations.
Page 14
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
ENERGY INCOME AND GROWTH FUND
NOVEMBER 30, 2005
PFPC Inc. ("PFPC"), 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, an indirect,
majority-owned subsidiary of The PNC Financial Services Group, Inc., serves as
the Fund's Custodian in accordance with certain fee arrangements.
The Fund pays each Trustee who is not an officer or employee of First Trust or
any of its affiliates an annual retainer of $10,000, which includes compensation
for all regular quarterly board meetings and regular committee meetings. No
additional meeting fees are paid in connection with regular quarterly board
meetings or regular committee meetings. Additional fees of $1,000 and $500 are
paid to non-interested Trustees for special board meetings and non-regular
committee meetings, respectively. These additional fees are shared by the funds
in the First Trust fund complex that participate in the particular meeting and
are not per fund fees. Trustees are also reimbursed for travel and out-of-pocket
expenses in connection with all meetings.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of investment securities, excluding
short-term investments, for the year ended November 30, 2005, were $73,688,256
and $82,867,524, respectively.
As of November 30, 2005, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $49,152,906
and the aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $267,078.
WRITTEN OPTION ACTIVITY FOR THE FUND WAS AS FOLLOWS:
NUMBER
OF
CONTRACTS PREMIUMS
--------- ---------
WRITTEN OPTIONS
Options outstanding at November 30, 2004 ............ 1,139 $ 214,192
Options written ..................................... 65 21,969
Options closed ...................................... (1,204) (236,161)
------ ---------
Options outstanding at November 30, 2005 ............ -- $ --
====== =========
5. COMMON SHARES
As of November 30, 2005, 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.
COMMON SHARE TRANSACTIONS WERE AS FOLLOWS:
YEAR ENDED PERIOD ENDED
NOVEMBER 30, 2005 NOVEMBER 30, 2004
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Proceeds from Common Shares sold ......... -- $ -- 6,405,236 $ 122,340,007
Issued as reinvestment of dividends
under the Dividend Reinvestment Plan ... 26,352 591,262 15,407 310,920
Offering costs of Common Shares .......... -- -- -- (256,209)
------------- ------------- ------------- -------------
26,352 $ 591,262 6,420,643 $ 122,394,718
============= ============= ============= =============
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
November 30, 2005, the Fund has 1,360 Series A Energy Notes ("Energy Notes")
outstanding at a principal value of $25,000 per note. The principal amount of
the Energy Notes will be due and payable on March 2, 2045. The Energy Notes
offering costs of $158,761 and commissions of $340,000 paid directly to Lehman
Brothers were capitalized and are being amortized to expense on a straight line
basis over the term of the Energy Notes.
An auction of the Energy Notes is generally held every 28 days. The Energy Notes
will pay interest at an annual rate 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 annual interest rate in effect as of November 30, 2005, was 4.014%. 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
year ended November 30, 2005, were 4.014% and 2.466%, respectively, and the
average interest rate of 3.186%.
Page 15
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
ENERGY INCOME AND GROWTH FUND
NOVEMBER 30, 2005
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 year ended November 30,
2005, the average amount outstanding was $4,767,123 with a weighted average
interest rate of 3.34%. This credit agreement has no maturity date and can be
paid or called at any time. As of November 30, 2005, the Fund had no outstanding
borrowings under this credit agreement.
8. CONCENTRATION OF CREDIT RISK
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.
9. SUBSEQUENT EVENT
On December 20, 2005, the Fund declared a dividend of $0.335 per share to Common
Shareholders of record January 17, 2006, payable January 31, 2006.
Page 16
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF ENERGY INCOME AND GROWTH FUND:
We have audited the accompanying statement of assets and liabilities of Energy
Income and Growth Fund (the "Fund"), including the portfolio of investments, as
of November 30, 2005, the related statements of operations and cash flows for
the year then ended, and the statements of changes in net assets and the
financial highlights for the year then ended and for the period June 17, 2004
(inception) through November 30, 2004. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of November 30, 2005, by correspondence with the Fund's
custodian. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Fund as of November 30, 2005, the results of its operations and its cash flows,
the changes in its net assets, and the financial highlights for the respective
stated periods, in conformity with accounting principles generally accepted in
the United States of America.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
January 13, 2006
Page 17
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
ENERGY INCOME AND GROWTH FUND
NOVEMBER 30, 2005 (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 the Common Shares are trading at or above net asset value ("NAV")
at the time of valuation, the Fund will issue new shares at a price
equal to the greater of (i) NAV per Common Share on that date or
(ii) 95% of the market price on that date.
(2) If the 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 located at http://www.sec.gov.
Page 18
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION - (CONTINUED)
--------------------------------------------------------------------------------
ENERGY INCOME AND GROWTH FUND
NOVEMBER 30, 2005 (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 1-800-SEC-0330.
SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
The Joint Annual Meeting of Shareholders of Energy Income and Growth Fund, First
Trust Value Line(R) 100 Fund, First Trust/Fiduciary Asset Management Covered
Call Fund and First Trust/Aberdeen Global Opportunity Income Fund was held on
April 18, 2005. At the Annual Meeting, the Fund's Board of Trustees, consisting
of James A. Bowen, Niel B. Nielson, Thomas R. Kadlec, Richard E. Erickson and
David M. Oster, was elected to serve an additional one-year term. The number of
votes cast for James A. Bowen was 6,283,545, the number of votes withheld was
50,441 and the number of abstentions was 100,348. The number of votes cast for
Niel B. Nielson was 6,283,886, the number of votes withheld was 50,100 and the
number of abstentions was 100,348. The number of votes cast for Richard E.
Erickson was 6,286,021, the number of votes withheld was 47,965 and the number
of abstentions was 100,348. The number of votes cast for Thomas R. Kadlec was
6,285,494, the number of votes withheld was 48,492 and the number of abstentions
was 100,348. The number of votes cast for David M. Oster was 6,285,421, the
number of votes withheld was 48,565 and the number of abstentions was 100,348.
BY-LAW AMENDMENT
On December 12, 2005, the Board of Trustees of the Fund approved certain changes
to the By-Laws of the Fund that may have the effect of delaying or preventing a
change of control of the Fund. To receive a copy of the revised By-Laws,
investors may call the Fund at (800) 988-5891.
Page 19
--------------------------------------------------------------------------------
TRUSTEES AND OFFICERS - (UNAUDITED)
--------------------------------------------------------------------------------
ENERGY INCOME AND GROWTH FUND
NOVEMBER 30, 2005
BOARD OF TRUSTEES AND OFFICERS
Information pertaining to the Trustees and officers* of the Fund is set forth
below. The statement of additional information includes additional information
about the Trustees and is available without charge, upon request, by calling
(800) 988-5891.
NUMBER OF OTHER
PORTFOLIOS TRUSTEESHIPS/
NAME, D.O.B., ADDRESS AND TERM OF OFFICE AND PRINCIPAL OCCUPATION(S) IN FUND COMPLEX DIRECTORSHIPS
POSITION(S) WITH THE FUND LENGTH OF TIME SERVED DURING PAST 5 YEARS OVERSEEN BY TRUSTEE HELD BY TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
DISINTERESTED TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
Richard E. Erickson, Trustee o One year term Physician; President, 24 portfolios None
D.O.B. 04/51 o 19 months served Wheaton Orthopedics;
c/o First Trust Advisors L.P. Co-owner and Co-
1001 Warrenville Road Director, Sports Med
Suite 300 Center for Fitness;
Lisle, IL 60532 Limited Partner,
Gundersen Real Estate
Partnership
Thomas R. Kadlec, Trustee o One year term Vice President and Chief 24 portfolios None
D.O.B. 11/57 o 19 months served Financial Officer (1990
c/o First Trust Advisors L.P. to present); ADM
1001 Warrenville Road Investor Services, Inc.
Suite 300 (Futures Commission
Lisle, IL 60532 Merchant); Registered
Representative (2000 to
present), Segerdahl &
Company, Inc., an
NASD member (Broker-
Dealer). President,
ADM Derivatives, Inc.
(May 2005 to present)
Niel B. Nielson, Trustee o One year term President, Covenant 24 portfolios Director of Good
D.O.B. 03/54 o 19 months served College (June 2002 to News Publishers-
c/o First Trust Advisors L.P. present); Pastor, College Crossway Books;
1001 Warrenville Road Church in Wheaton Covenant
Suite 300 (1997 to June 2002) Transport, Inc.
Lisle, IL 60532
David M. Oster o One year term Trader (self-employed) 12 portfolios None
D.O.B. 03/64 o 19 months served (1987 to present)
c/o First Trust Advisors L.P. (Options Trading and
1001 Warrenville Road Market Making)
Suite 300
Lisle, IL 60532
Page 20
--------------------------------------------------------------------------------
TRUSTEES AND OFFICERS - (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
ENERGY INCOME AND GROWTH FUND
NOVEMBER 30, 2005
BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
NUMBER OF OTHER
PORTFOLIOS TRUSTEESHIPS/
NAME, D.O.B., ADDRESS AND TERM OF OFFICE AND PRINCIPAL OCCUPATION(S) IN FUND COMPLEX DIRECTORSHIPS
POSITION(S) WITH THE FUND LENGTH OF TIME SERVED DURING PAST 5 YEARS OVERSEEN BY TRUSTEE HELD BY TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen, Trustee o One year Trustee President, First Trust 24 portfolios None
President, Chairman of the term and indefinite Advisors L.P. and First
Board and CEO officer term Trust Portfolios L.P;
D.O.B. 09/55 o 19 months served Chairman of the Board,
1001 Warrenville Road BondWave LLC and
Suite 300 Stonebridge Advisors
Lisle, IL 60532 LLC
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS WHO ARE NOT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
Mark R. Bradley, Treasurer, o Indefinite term Chief Financial Officer, N/A N/A
Controller, Chief Financial o 19 months served Managing Director,
Officer, Chief Accounting First Trust Advisors L.P.
Officer and First Trust
D.O.B. 11/57 Portfolios L.P.; Chief
1001 Warrenville Road Financial Officer,
Suite 300 BondWave LLC
Lisle, IL 60532 and Stonebridge
Advisors LLC
Susan M. Brix o Indefinite term Representative, First N/A N/A
Assistant Vice President o 19 months served Trust Portfolios L.P.;
D.O.B. 01/60 Assistant Portfolio
1001 Warrenville Road Manager, First Trust
Suite 300 Advisors L.P.
Lisle, IL 60532
Robert F. Carey o Indefinite term Senior Vice President, N/A N/A
Vice President o 19 months served First Trust Advisors L.P.
D.O.B. 07/63 and First Trust
1001 Warrenville Road Portfolios L.P.
Suite 300
Lisle, IL 60532
Page 21
--------------------------------------------------------------------------------
TRUSTEES AND OFFICERS - (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
ENERGY INCOME AND GROWTH FUND
NOVEMBER 30, 2005
BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
NUMBER OF OTHER
PORTFOLIOS TRUSTEESHIPS/
NAME, D.O.B., ADDRESS AND TERM OF OFFICE AND PRINCIPAL OCCUPATION(S) IN FUND COMPLEX DIRECTORSHIPS
POSITION(S) WITH THE FUND LENGTH OF TIME SERVED DURING PAST 5 YEARS OVERSEEN BY TRUSTEE HELD BY TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS WHO ARE NOT TRUSTEES - (CONTINUED)
------------------------------------------------------------------------------------------------------------------------------------
W. Scott Jardine, Secretary o Indefinite term General Counsel, N/A N/A
and Chief Compliance o 19 months served First Trust Advisors L.P.
Officer and First Trust
D.O.B. 05/60 Portfolios L.P.;
1001 Warrenville Road Secretary, BondWave
Suite 300 LLC and Stonebridge
Lisle, IL 60532 Advisors LLC
Kristi A. Maher o Indefinite term Assistant General N/A N/A
Assistant Secretary o 18 months served Counsel, First Trust
D.O.B. 12/66 Advisors L.P. and First
1001 Warrenville Road Trust Portfolios L.P.
Suite 300 (March 2004 to present);
Lisle, IL 60532 Associate, Chapman and
Cutler LLP (1995-2004)
Roger F. Testin o Indefinite term Senior Vice President, N/A N/A
Vice President o 19 months served First Trust Advisors L.P.
D.O.B. 06/66 and First Trust Portfolios
1001 Warrenville Road L.P. (August 2001 to
Suite 300 present); Analyst, Dolan
Lisle, IL 60532 Capital Management
(1998-2001)
----------
* The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.
Page 22
This Page Left Blank Intentionally.
This Page Left Blank Intentionally.
This Page Left Blank Intentionally.
ITEM 2. CODE OF ETHICS.
(a) The registrant, as of the end of the period covered by this report, has
adopted a code of ethics that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant
or a third party.
(c) There have been no amendments, during the period covered by this
report, to a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing
similar functions, regardless of whether these individuals are employed
by the registrant or a third party, and that relates to any element of
the code of ethics description.
(d) The registrant has not granted any waivers, including an implicit
waiver, from a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing
similar functions, regardless of whether these individuals are
employed by the registrant or a third party, that relates to one or
more of the items set forth in paragraph (b) of this item's
instructions.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
As of the end of the period covered by the report, the registrant's board of
trustees has determined that Thomas R. Kadlec is qualified to serve as an audit
committee financial expert serving on its audit committee and that he is
"independent," as defined by Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a)AUDIT FEES (REGISTRANT) -- The aggregate fees billed for each of the
last two fiscal years for professional services rendered by the principal
accountant for the audit of the Registrant's annual financial statements or
services that are normally provided by the accountant in connection with
statutory and regulatory filings or engagements for such fiscal years were $0
from the Registrant's inception on June 24, 2004 through November 30, 2004, and
$70,340, from December 1, 2004 through November 30, 2005.
(b) AUDIT-RELATED FEES (REGISTRANT) -- The aggregate fees billed for
each of the last two fiscal years for assurance and related services by the
principal accountant that are reasonably related to the performance of the audit
of the Registrant's financial statements and are not reported under paragraph
(a) of this Item were $0.
AUDIT-RELATED FEES (INVESTMENT ADVISER) -- The aggregate fees
billed for each of the last two fiscal years for assurance and related services
by the principal accountant that are reasonably related to the performance of
the audit of the Registrant's financial statements and are not reported under
paragraph (a) of this Item were $0.
(c) TAX FEES (REGISTRANT) -- The aggregate fees billed in each of the
last two fiscal years for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning to the Registrant
were $0 from the Registrant's inception on June 24, 2004 through November 30,
2004, and $85,450, from December 1, 2004 through November 30, 2005.
TAX FEES (INVESTMENT ADVISER) -- The aggregate fees billed in
each of the last two fiscal years for professional services rendered by the
principal accountant for tax compliance, tax advice, and tax planning to the
Registrant's adviser were $0.
(d) ALL OTHER FEES (REGISTRANT) -- The aggregate fees billed in each of
the last two fiscal years for products and services provided by the principal
accountant to the Registrant, other than the services reported in paragraphs (a)
through (c) of this Item were $0 from the Registrant's inception on June 24,
2004 through November 30, 2004, and $2,856.06, from December 1, 2004 through
November 30, 2005. These fees were for services related to compliance program
evaluation.
ALL OTHER FEES (INVESTMENT ADVISER) -- The aggregate fees billed
in each of the last two fiscal years for products and services provided by the
principal accountant to the Registrant's investment adviser, other than services
reported in paragraphs (a) through (c) of this Item were $0 from the
Registrant's inception on June 24, 2004 through November 30, 2004, and $60,000,
from December 1, 2004 through November 30, 2005. These fees were for services
related to compliance program evaluation.
(e)(1) Disclose the audit committee's pre-approval policies and
procedures described in paragraph (c) (7) of Rule 2-01 of Regulation S-X.
Pursuant to its charter and its Audit and Non-Audit Services
Pre-Approval Policy adopted December 12, 2005, the Audit Committee (the
"COMMITTEE") is responsible for the pre-approval of all audit services and
permitted non-audit services (including the fees and terms thereof) to be
performed for the Registrant by its independent auditors. The Chairman of the
Committee is authorized to give such pre-approvals on behalf of the Committee up
to $25,000 and report any such pre-approval to the full Committee.
The Committee is also responsible for the pre-approval of the
independent auditor's engagements for non-audit services with the Registrant's
adviser (not including a sub-adviser whose role is primarily portfolio
management and is sub-contracted or overseen by another investment adviser) and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the Registrant, if the
engagement relates directly to the operations and financial reporting of the
Registrant, subject to the DE MINIMIS exceptions for non-audit services
described in Rule 2-01 of Regulation S-X. If the independent auditor has
provided non-audit services to the Registrant's adviser (other than any
sub-adviser whose role is primarily portfolio management and is sub-contracted
with or overseen by another investment adviser) and any entity controlling,
controlled by or under common control with the investment adviser that provides
ongoing services to the Registrant that were not pre-approved pursuant to the DE
MINIMIS exception, the Committee will consider whether the provision of such
non-audit services is compatible with the auditor's independence.
(e)(2) The percentage of services described in each of paragraphs (b)
through (d) for the Registrant and the Registrant's investment adviser of this
Item that were approved by the audit committee pursuant to the pre-approval
exceptions included in paragraph (c)(7)(i)(C) or paragraph(C)(7)(ii) of Rule
2-01 of Regulation S-X are as follows:
(b) 0%.
(c) 0%.
(d) 0%.
(f) The percentage of hours expended on the principal accountant's
engagement to audit the Registrant's financial statements for the most recent
fiscal year that were attributed to work performed by persons other than the
principal accountant's full-time, permanent employees was less than fifty
percent.
(g) The aggregate non-audit fees billed by the Registrant's accountant
for services rendered to the Registrant, and rendered to the Registrant's
investment adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another investment
adviser), and any entity controlling, controlled by, or under common control
with the adviser that provides ongoing services to the Registrant from the
inception of the Registrant on June 24, 2004 through November 30, 2004, were $0
for the Registrant and $0 for the Registrant's investment adviser, and from
December 1, 2004 through November 30, 2005 were $88,306.06 for the Registrant
and $60,000 for the Registrant's investment adviser.
(h) Not applicable. The audit committee pre-approved all non-audit
services rendered to the Registrant's investment adviser and any entity
controlling, controlled by or under common control with the adviser that
provides ongoing services to the Registrant.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant has a separately designated audit committee consisting of all the
independent trustees of the registrant. The members of the audit committee are:
Thomas R. Kadlec. Niel B. Nielson, David M. Oster and Richard E. Erickson.
ITEM 6. SCHEDULE OF INVESTMENTS.
Schedule of Investments in securities of unaffiliated issures 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.
The Proxy Voting Policies are attached herewith.
FIDUCIARY ASSET MANAGEMENT, LLC
PROXY VOTING POLICY
A. STATEMENT OF POLICY
1. It is the policy of Fiduciary Asset Management, LLC ("FAM") to vote
all proxies over which it has voting authority in the best interest of
FAM's clients.
B. Definitions
2. By "best interest of FAM's clients," FAM means clients' best
economic interest over the long term -- that is, the common interest
that all clients share in seeing the value of a common investment
increase over time. Clients may have differing political or social
interests, but their best economic interest is generally uniform.
3. By "material conflict of interest," FAM means circumstances when FAM
itself knowingly does business with a particular proxy issuer or
closely affiliated entity, and may appear to have a significant
conflict of interest between its own interests and the interests of
clients in how proxies of that issuer are voted.
C. FAM Invests With Managements That Seek Shareholders' Best Interests
4. Under its investment philosophy, FAM generally invests client funds
in a company only if FAM believes that the company's management seeks
to serve shareholders' best interests. Because FAM has confidence in
the managements of the companies in which it invests, it believes that
management decisions and recommendations on issues such as proxy voting
GENERALLY are likely to be in shareholders' best interests.
5. FAM may periodically reassess its view of company managements. If
FAM concludes that a company's management no longer serves
shareholders' best interests, FAM generally sells its clients' shares
of the company. FAM believes that clients do not usually benefit from
holding shares of a poorly managed company or engaging in proxy
contests with management. There are times when FAM believes
management's position on a particular proxy issue is not in the best
interests of our clients but it does not warrant a sale of the client's
shares. In these circumstances, FAM will vote contrary to management's
recommendations.
D. FAM's Proxy Voting Procedures
6. When companies in which FAM has invested client funds issue proxies,
FAM routinely votes the proxies as recommended by management, because
it believes that recommendations by these companies' managements
generally are
in shareholders' best interests, and therefore in the best economic
interest of FAM's clients.
7. If FAM has decided to sell the shares of a company, whether because
of concerns about the company's management or for other reasons, FAM
generally abstains from voting proxies issued by the company after FAM
has made the decision to sell. FAM generally will not notify clients
when this type of routine abstention occurs.
8. FAM also may abstain from voting proxies in other circumstances. FAM
may determine, for example, that abstaining from voting is appropriate
if voting may be unduly burdensome or expensive, or otherwise not in
the best economic interest of clients, such as when foreign proxy
issuers impose unreasonable voting or holding requirements. FAM
generally will not notify clients when this type of routine abstention
occurs.
9. The procedures in this policy apply to all proxy voting matters over
which FAM has voting authority, including changes in corporate
governance structures, the adoption or amendment of compensation plans
(including stock options), and matters involving social issues or
corporate responsibility.
E. Alternative Procedures for Potential Material Conflicts of Interest
10. In certain circumstances, such as when the proponent of a proxy
proposal is also a client of FAM, an appearance might arise of a
potential conflict between FAM's interests and the interests of
affected clients in how the proxies of that issuer are voted.
11. Because FAM does not exercise discretion in voting proxies, but
routinely votes proxies as recommended by management, no potential
conflict of interest could actually affect FAM's voting of the proxies.
12.a. Nevertheless, when FAM itself knowingly does business with a
particular proxy issuer and a material conflict of interest between
FAM's interests and clients' interests may appear to exist, FAM
generally would, to avoid any appearance concerns, follow an
alternative procedure rather than vote proxies as recommended by
management. Such an alternative procedure generally would involve
causing the proxies to be voted in accordance with the recommendations
of an independent service provider that FAM may use to assist in voting
proxies. FAM generally will not notify clients if it uses this
procedure to resolve an apparent material conflict of interest. FAM
will document the identification of any material conflict of interest
and its procedure for resolving the particular conflict.
12.b. In unusual cases, FAM may use other alternative procedures to
address circumstances when a material conflict of interest may appear
to exist, such as, without limitation:
(i) Notifying affected clients of the conflict of interest (if
practical), and seeking a waiver of the conflict to permit FAM to
vote the proxies under its usual policy;
(ii) Abstaining from voting the proxies; or
(iii) Forwarding the proxies to clients so that clients may vote
the proxies themselves.
FAM generally will notify affected clients if it uses one of these
alternative procedures to resolve a material conflict of interest.
F. Other Exceptions
13. On an exceptions basis, FAM may for other reasons choose to depart
from its usual procedure of routinely voting proxies as recommended by
management.
G. Voting by Client Instead of FAM
14. A FAM client may vote its own proxies instead of directing FAM to
do so. FAM recommends this approach if a client believes that proxies
should be voted based on political or social interests.
15. FAM generally will not accept proxy voting authority from a client
(and will encourage the client to vote its own proxies) if the client
seeks to impose client-specific voting guidelines that may be
inconsistent with FAM's guidelines or with the client's best economic
interest in FAM's view.
16. FAM generally will abstain from voting on (or otherwise
participating in) the commencement of legal proceedings such as
shareholder class actions or bankruptcy proceedings.
H. Persons Responsible for Implementing FAM's Policy
17. FAM's client services staff has primary responsibility for
implementing FAM's proxy voting procedures, including ensuring that
proxies are timely submitted. FAM also may use a service provider to
assist in voting proxies, recordkeeping, and other matters.
18. FAM's Senior Vice President, Client Relations will routinely confer
with FAM's Chief Investment Officer if there is a proxy proposal which
would result in a vote against managment.
I. Recordkeeping
19. FAM or a service provider maintains, in accordance with Rule 204-2
of the Investment Advisers Act:
(i) Copies of all proxy voting policies and procedures;
(ii) Copies of proxy statements received (unless maintained
elsewhere as described below);
(iii) Records of proxy votes cast on behalf of clients;
(iv) Documents prepared by FAM that are material to a decision on
how to vote or memorializing the basis for a decision;
(v) Written client requests for proxy voting information, and (vi)
written responses by FAM to written or oral client requests.
20. FAM will obtain an undertaking from any service provider that the
service provider will provide copies of proxy voting records and other
documents promptly upon request if FAM relies on the service provider
to maintain related records.
21. FAM or its service provider may rely on the SEC's EDGAR system to
keep records of certain proxy statements if the proxy statements are
maintained by issuers on that system (as is generally true in the case
of larger U.S.-based issuers).
22. All proxy related records will be maintained in an easily
accessible place for five years (and an appropriate office of FAM or a
service provider for the first two years).
J. Availability of Policy and Proxy Voting Records to Clients
23. FAM will initially inform clients of this policy and how a client
may learn of FAM's voting record for the client's securities through
summary disclosure in Part II of FAM's Form ADV. Upon receipt of a
client's request for more information, FAM will provide to the client a
copy of this proxy voting policy and/or how FAM voted proxies for the
client during the period since this policy was adopted.
Adopted effective August 1, 2003 and as amended October 18, 2005
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not yet applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On December 12, 2005, the Registrant's Board of Trustees adopted an
Amended Nominating and Governance Committee Charter which included some material
changes to the procedures by which shareholders may recommend nominees to the
Registrant's board of trustees as described below:
Any proposal to elect any person nominated by shareholders for election
as trustee may only be brought before an annual meeting of the Registrant if
timely written notice (the "Shareholder Notice") is provided to the secretary of
the Registrant. Unless a greater or lesser period is required under applicable
law, to be timely, the Shareholder Notice must be delivered to or mailed and
received at Registrant's address, 1001 Warrenville Road, Suite 300, Lisle,
Illinois 60532, Attn: W. Scott Jardine, not less than forty-five (45) days nor
more than sixty (60) days prior to the first anniversary date of the date of the
Registrant's proxy statement released to shareholders for the prior year's
annual meeting; provided, however, if and only if the annual meeting is not
scheduled to be held within a period that commences thirty (30) days before the
first anniversary date of the annual meeting for the preceding year and ends
thirty (30) days after such anniversary date (an annual meeting date outside
such period being referred to herein as an "Other Annual Meeting Date"), such
Shareholder Notice must be given in the manner provided herein by the later of
the close of business on (i) the date forty-five (45) days prior to such Other
Annual Meeting Date or (ii) the tenth (10th) business day following the date
such Other Annual Meeting Date is first publicly announced or disclosed.
Any shareholder submitting a nomination of any person or persons (as
the case may be) for election as a trustee or trustees of the Registrant shall
deliver, as part of such Shareholder Notice: (i) a statement in writing setting
forth (A) the name, age, date of birth, business address, residence address and
nationality of the person or persons to be nominated; (B) the class or series
and number of all shares of the Registrant owned of record or beneficially by
each such person or persons, as reported to such shareholder by such nominee(s);
(C) any other information regarding each such person required by paragraphs (a),
(d), (e) and (f) of Item 401 of Regulation S-K or paragraph (b) of Item 22 of
Rule 14a-101 (Schedule 14A) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (or any successor provision thereto); (D) any other
information regarding the person or persons to be nominated that would be
required to be disclosed in a proxy statement or other filings required to be
made in connection with solicitation of proxies for election of trustees or
directors pursuant to Section 14 of the Exchange Act and the rules and
regulations promulgated thereunder; and (E) whether such shareholder believes
any nominee is or will be an "interested person" of the Registrant (as defined
in the Investment Company Act of 1940) and, if not an "interested person,"
information regarding each nominee that will be sufficient for the Registrant to
make such determination; and (ii) the written and signed consent of any person
to be nominated to be named as a nominee and to serve as a trustee if elected.
In addition, the trustees may require any proposed nominee to furnish such other
information as they may reasonably require or deem necessary to determine the
eligibility of such proposed nominee to serve as a trustee.
Without limiting the foregoing, any shareholder who gives a Shareholder
Notice of any matter proposed to be brought before a shareholder meeting
(whether or not involving nominees for trustees) shall deliver, as part of such
Shareholder Notice: (i) the description of and text of the proposal to be
presented; (ii) a brief written statement of the reasons why such shareholder
favors the proposal; (iii) such shareholder's name and address as they appear on
the Registrant's books; (iv) any other information relating to the shareholder
that would be required to be disclosed in a proxy statement or other filings
required to be made in connection with the solicitation of proxies with respect
to the matter(s) proposed pursuant to Section 14 of the Exchange Act; (v) the
class or series and number of all shares of the Registrant owned beneficially
and of record by such shareholder; (vi) any material interest of such
shareholder in the matter proposed (other than as a shareholder); (vii) a
representation that the shareholder intends to appear in person or by proxy at
the shareholder meeting to act on the matter(s) proposed; (viii) if the proposal
involves nominee(s) for trustees, a description of all arrangements or
understandings between the shareholder and each proposed nominee and any other
person or persons (including their names) pursuant to which the nomination(s)
are to be made by the shareholder; and (ix) in the case of a shareholder (a
"BENEFICIAL OWNER") that holds shares entitled to vote at the meeting through a
nominee or "street name" holder of record, evidence establishing such Beneficial
Owner's indirect ownership of, and entitlement to vote, shares at the meeting of
shareholders. As used herein, shares "beneficially owned" shall mean all shares
which such person is deemed to beneficially own pursuant to Rules 13d-3 and
13d-5 under the Exchange Act.
A copy of the amended Nominating and Governance Committee Charter is
available on the Registrant's website at www.ftportfolios.com.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within
90 days of the filing date of the report that includes the disclosure
required by this paragraph, based on their evaluation of these controls
and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR
270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities
Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or
240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17
CFR 270.30a-3(d)) that occurred during the registrant's second fiscal
quarter of the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act
and Section 302 of the Sarbanes-Oxley Act of 2002 are
attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act
and Section 906 of the Sarbanes-Oxley Act of 2002 are
attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) 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 FEBRUARY 1, 2006
----------------------------------------------------------------------------
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 FEBRUARY 1, 2006
----------------------------------------------------------------------------
By (Signature and Title)* /S/ MARK R. BRADLEY
-------------------------------------------------------
Mark R. Bradley, Treasurer, Controller,
Chief Financial Officer and Chief Accounting Officer
(principal financial officer)
Date FEBRUARY 1, 2006
----------------------------------------------------------------------------
* Print the name and title of each signing officer under his or her signature.