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
First Trust Energy Income and
Growth Fund
(Exact name of registrant as specified in charter)
10 Westport Road, Suite C101a
Wilton, CT 06897
(Address of principal
executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
(Name and address of agent for service)
registrant's telephone number, including
area code: 630-765-8000
Date of fiscal year end: November
30
Date of reporting period: November
30, 2019
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. § 3507.
Item 1. Reports to Stockholders.
The Report to Shareholders
is attached herewith.
First Trust
Energy Income and
Growth Fund (FEN)
Annual Report
For the
Year Ended
November
30, 2019
First Trust Energy Income and Growth
Fund (FEN)
Annual Report
November 30, 2019
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Caution Regarding
Forward-Looking Statements
This report contains
certain forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. (“First Trust” or the “Advisor”) and/or Energy Income Partners, LLC (“EIP” or the “Sub-Advisor”) and
their respective representatives, taking into account the information currently available to them. Forward-looking statements include all statements that do not relate solely to current or historical fact. For
example, forward-looking statements include the use of words such as “anticipate,” “estimate,” “intend,” “expect,” “believe,” “plan,”
“may,” “should,” “would” or other words that convey uncertainty of future events or outcomes.
Forward-looking
statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of First Trust Energy Income and Growth Fund (the “Fund”) to be
materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. When evaluating the information included in this report, you are cautioned not to place
undue reliance on these forward-looking statements, which reflect the judgment of the Advisor and/or Sub-Advisor and their respective representatives only as of the date hereof. We undertake no obligation to publicly
revise or update these forward-looking statements to reflect events and circumstances that arise after the date hereof.
Performance and Risk
Disclosure
There is no assurance
that the Fund will achieve its investment objective. The Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund
shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in the Fund. See “Risk Considerations” in the Additional Information section of this report for a
discussion of certain other risks of investing in the Fund.
Performance data quoted
represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and common share price will fluctuate and Fund shares, when sold,
may be worth more or less than their original cost.
The Advisor may also
periodically provide additional information on Fund performance on the Fund’s web page at www.ftportfolios.com.
How to Read This
Report
This report contains
information that may help you evaluate your investment in the Fund. It includes details about the Fund and presents data and analysis that provide insight into the Fund’s performance and investment approach.
By reading the portfolio
commentary by the portfolio management team of the Fund, you may obtain an understanding of how the market environment affected the Fund’s performance. The statistical information that follows may help you
understand the Fund’s performance compared to that of relevant market benchmarks.
It is important to keep
in mind that the opinions expressed by personnel of First Trust and EIP are just that: informed opinions. They should not be considered to be promises or advice. The opinions, like the statistics, cover the period
through the date on the cover of this report. The material risks of investing in the Fund are spelled out in the prospectus, the statement of additional information, this report and other Fund regulatory filings.
First Trust Energy Income and Growth
Fund (FEN)
Annual Letter from the Chairman and
CEO
November 30, 2019
Dear Shareholders,
First Trust is pleased
to provide you with the annual report for the First Trust Energy Income and Growth Fund (the “Fund”), which contains detailed information about the Fund for the twelve months ended November 30, 2019,
including a market overview and a performance analysis.
A significant event for
the markets in the past year was the decision by the Federal Reserve (the “Fed”) to reverse course with respect to monetary policy. For those who may not follow the Fed closely, after holding its federal
funds target rate (upper bound) at an artificially low 0.25% for seven years (December 2008-December 2015) to help stimulate U.S. economic activity, the Fed spent the better part of the next four years (December
2015-July 2019) increasing its benchmark lending rate in an effort to normalize it. Over that period, the Fed increased the rate from 0.25% to 2.50%. To lend some perspective, the average federal funds target rate
(upper bound) was 2.96% for the 30-year period ended November 30, 2019, so the Fed came close to achieving its goal of normalizing it, according to data from Bloomberg. From the end of July 2019 through the end of
November, however, the Fed initiated three rate cuts that dropped it from 2.50% to 1.75%.
So why did the Fed
reverse course on monetary policy? We believe, as well as others in the financial media, that the Fed’s reversal on monetary policy has to do with the trade tariffs. The Trump Administration first began
implementing new trade tariffs on imported goods back in March 2018. While the original tariffs targeted just imported steel and aluminum, the use of tariffs quickly escalated to other goods and services. The
lion’s share of the tariff conflict today is between the U.S. and China, the two largest economies in the world. In our opinion, it is widely believed that President Donald J. Trump is utilizing tariffs as
leverage to try and negotiate more favorable trade agreements between the U.S. and its major trading partners. One of the byproducts of the escalation in the use of tariffs by all parties involved has been a slowdown
in global economic growth, particularly in the U.S. The annualized U.S. real gross domestic product growth rate in the second quarter of 2018 (when new tariffs were introduced) was 3.5%. As of the second and third
quarters of 2019, that annualized growth rate was down to 2.0% and 2.1%, respectively, according to data from the Bureau of Economic Analysis. For many months, President Trump has publicly challenged the Fed to lower
rates aggressively to help offset the tempering of economic growth. President Trump has noted that the Fed has room to lower rates due to the extremely low-to-negative rate levels found in many countries abroad as
well as the lack of any significant inflationary pressure in the current climate. While the Fed has delivered some rate cuts in recent months, we believe that President Trump will continue to bang the drum for even
more cuts.
Investors continue to
flock to income-oriented investment products, such as open-end bond mutual funds and exchange-traded bond funds (ETFs). Net inflows to taxable bond funds and ETFs totaled an estimated $319.0 billion for the 12-month
period ended November 30, 2019, according to Morningstar. The current climate featuring low interest rates, low bond yields and low inflation, if sustained, could make closed-end funds an attractive alternative to
other income-oriented products moving forward, in our opinion.
Thank you for giving
First Trust the opportunity to play a role in your financial future. We value our relationship with you and will report on the Fund again in six months.
Sincerely,
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust
Advisors L.P.
First Trust Energy Income and Growth Fund
(FEN)
“AT A GLANCE”
As of November 30, 2019
(Unaudited)
Fund Statistics
|
|
Symbol on NYSE American
|
FEN
|
Common Share Price
|
$20.47
|
Common Share Net Asset Value (“NAV”)
|
$19.88
|
Premium (Discount) to NAV
|
2.97%
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Net Assets Applicable to Common Shares
|
$397,856,542
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Current Quarterly Distribution per Common Share(1)
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$0.5800
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Current Annualized Distribution per Common Share
|
$2.3200
|
Current Distribution Rate on Common Share Price(2)
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11.33%
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Current Distribution Rate on NAV(2)
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11.67%
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Common Share Price & NAV (weekly closing price)
Performance
|
|
|
|
|
|
|
Average Annual Total Returns
|
|
1 Year Ended
11/30/19
|
5 Years Ended
11/30/19
|
10 Years Ended
11/30/19
|
Inception (6/24/04)
to 11/30/19
|
Fund Performance(3)
|
|
|
|
|
NAV
|
4.18%
|
-3.50%
|
8.24%
|
8.17%
|
Market Value
|
14.25%
|
-1.54%
|
7.49%
|
8.06%
|
Index Performance
|
|
|
|
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S&P 500® Index
|
16.11%
|
10.97%
|
13.44%
|
9.01%
|
Bloomberg Barclays U.S. Credit Index of Corporate Bonds
|
15.18%
|
4.33%
|
5.18%
|
5.31%
|
Alerian MLP Total Return Index
|
-11.00%
|
-9.55%
|
4.01%
|
7.11%
|
Wells Fargo Midstream MLP Total Return Index
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-3.21%
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-7.02%
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7.20%
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9.08%
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Industry Classification
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% of Total
Investments
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Natural Gas Transmission
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33.7%
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Petroleum Product Transmission
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30.6
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Crude Oil Transmission
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18.6
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Electric Power & Transmission
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14.0
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Coal
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1.6
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Other
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1.2
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Propane
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0.3
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Total
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100.0%
|
Top Ten Holdings
|
% of Total
Investments
|
Enterprise Products Partners, L.P.
|
12.8%
|
Magellan Midstream Partners, L.P.
|
9.1
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TC Energy Corp.
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8.6
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TC PipeLines, L.P.
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7.8
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Kinder Morgan, Inc.
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7.2
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Enbridge, Inc.
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5.6
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ONEOK, Inc.
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5.0
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Plains All American Pipeline, L.P.
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4.8
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Energy Transfer, L.P.
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4.2
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NextEra Energy Partners, L.P.
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3.8
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Total
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68.9%
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(1)
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Most recent distribution paid or declared through 11/30/2019. Subject to change in the future.
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(2)
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Distribution rates are calculated by annualizing the most recent distribution paid or declared through the report date and then dividing by Common Share Price or NAV, as applicable, as of 11/30/2019.
Subject to change in the future.
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(3)
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Total return is based on the combination of reinvested dividend, capital gain, and return of capital distributions, if any, at prices obtained by the Dividend Reinvestment Plan and changes in NAV per
share for NAV returns and changes in Common Share Price for market value returns. Total returns do not reflect sales load and are not annualized for periods of less than one year. Past performance is not indicative of
future results.
|
Portfolio Commentary
First Trust Energy
Income and Growth Fund (FEN)
Annual Report
November 30, 2019
(Unaudited)
Advisor
First Trust Advisors L.P.
(“First Trust”) is the investment advisor to the First Trust Energy Income and Growth Fund (the “Fund”). First Trust is responsible for the ongoing monitoring of the Fund’s investment
portfolio, managing the Fund’s business affairs and providing certain administrative services necessary for the management of the Fund.
Sub-Advisor
Energy Income Partners,
LLC
Energy Income Partners,
LLC (“EIP”), located in Westport, CT, was founded in 2003 to provide professional asset management services in the area of energy-related master limited partnerships (“MLPs”) and other
high-payout securities such as pipeline companies, power utilities, YieldCos, and energy infrastructure real estate investment trusts (“REITs”). EIP mainly focuses on investments in energy-related
infrastructure assets such as pipelines, power transmission and distribution, petroleum storage and terminals that receive fee-based or regulated income from their corporate and individual customers. EIP manages or
supervises approximately $6.2 billion of assets as of November 30, 2019. EIP advises two privately offered partnerships for U.S. high net worth individuals and an open-end mutual fund. EIP also manages separately
managed accounts and provides its model portfolio to unified managed accounts. Finally, EIP serves as a sub-advisor to three closed-end management investment companies in addition to the Fund, two actively managed
exchange-traded funds (“ETFs”), a sleeve of an actively managed ETF, a sleeve of a series of a variable insurance trust, and an open-end UCITS fund incorporated in Ireland. EIP is a registered investment
advisor with the Securities and Exchange Commission.
Portfolio Management
Team
James J. Murchie –
Co-Portfolio Manager, Founder and CEO of Energy Income Partners, LLC
Eva Pao –
Co-Portfolio Manager, Principal of Energy Income Partners, LLC
John Tysseland –
Co-Portfolio Manager, Principal of Energy Income Partners, LLC
Commentary
First Trust Energy Income
and Growth Fund
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 pursues its objective by investing in cash-generating securities of
energy companies, with a focus on investing in publicly traded MLPs, related public entities in the energy sector, and/or other public companies which EIP believes offer opportunities for income and growth. There can
be no assurance that the Fund will achieve its investment objective. The Fund may not be appropriate for all investors.
Market Recap
The total return for the
Alerian MLP Total Return Index (“AMZX”) and the Wells Fargo Midstream MLP Total Return Index (“WCHWMIDT”) (collectively the “MLP benchmarks”), for the 12-month period ended November
30, 2019 was -11.00% and -3.21%, respectively. For AMZX, these returns reflect a positive 7.18% from distribution payments, while the remaining returns were due to share price depreciation. For WCHWMIDT, these returns
reflect a positive 7.27% from distribution payments, while the remaining returns were due to share price depreciation. These figures are according to data collected from several sources, including the MLP benchmarks
and Bloomberg. While in the short term, market share price appreciation can be volatile, we believe that over the long term, share price appreciation will approximate growth in per share quarterly cash distributions
paid by MLPs.
Performance Analysis
On a net asset value
(“NAV”) basis, the Fund provided a total return of 4.18%1, including the reinvestment of dividends, for the 12-month period ended November 30, 2019. This compares, according to
collected data, to a total return of 16.11% for the S&P 500® Index, 15.18% for the Bloomberg Barclays U.S. Credit Index of Corporate Bonds, -11.00% for AMZX, and -3.21% for
WCHWMIDT. Unlike the Fund, the indices do not incur fees and expenses. On a market value basis, the Fund had a total return, including the reinvestment of dividends, of 14.25% for the 12-month period ended November
30, 2019. At the end of the period, the Fund was priced at $20.47 per share while the NAV per share was $19.88, a premium of 2.97%. On November 30, 2018, the Fund was priced at $19.97 per share, while the NAV per
share was $21.27, a discount of 6.11%.
1
|
Total return is based on the combination of reinvested dividend, capital gain and return of capital distributions, if any, at prices obtained by the Dividend Reinvestment Plan and changes in NAV per
Common Share for NAV returns and changes in Common Share price for market value returns. Total returns do not reflect sales load and are not annualized for periods of less than one year. Past performance is not
indicative of future results.
|
Portfolio Commentary (Continued)
First Trust Energy
Income and Growth Fund (FEN)
Annual Report
November 30, 2019
(Unaudited)
The Fund maintained its
regular quarterly Common Share dividend of $0.58 for the fiscal year ended November 30, 2019.
For the fiscal year ended
November 30, 2019, the Fund’s NAV outperformed the MLP benchmarks’ average return of -7.11% by 1,129 basis points (“bps”). The Fund’s outperformance was driven by overweight positions in
utilities and pipeline C-Corporations (“C-Corps “) and underweight positions in gathering and processing MLPs. The MLP benchmarks do not have exposure to utilities and C-Corp pipeline companies while the
Fund owns a broader universe of infrastructure companies that includes C-Corp pipeline companies, utilities, and MLPs. Derivatives had a positive impact on the performance of the Fund over the reporting period. EIP
believes the high payout ratio found in MLPs and other infrastructure investments is only suitable for a narrow set of long-lived assets that have stable non-cyclical cash flows, such as regulated pipelines or other
infrastructure assets that are legal or natural monopolies. Over the long term, EIP believes this approach leads to a portfolio of companies at the blue-chip end of the spectrum with less volatility and higher
growth.
Two important factors
affecting the return of the Fund, relative to the average of the MLP benchmarks, are the Fund’s accrual for taxes and the use of financial leverage through a line of credit. The Fund established a committed
facility agreement with The BNP Paribas Prime Brokerage with a current maximum commitment amount of $180,000,000. The Fund uses leverage because its portfolio managers believe that, over time, leverage can enhance
total return for common shareholders. However, the use of leverage can also increase the volatility of the NAV and, therefore, the share price. For example, if the prices of securities held by the Fund decline, the
effect of changes in common share NAV and common shareholder total return loss would be magnified by the use of leverage. Conversely, leverage may enhance common share returns during periods when the prices of
securities held by the Fund generally are rising. Unlike the Fund, the MLP benchmarks are not leveraged, nor are their returns net of an accrual for taxes. Leverage had a positive impact on the performance of the Fund
over the reporting period. The accrual for taxes had a negative impact on the performance of the Fund over the reporting period.
Market and Fund Outlook
Many of the assets held
by MLPs were originally constructed decades ago by pipeline and power utilities. When the U.S. deregulated much of the energy industry, these utilities became cyclical commodity companies with too much debt and the
resulting financial stress caused divestment of their pipeline assets to the MLP space that was trading at higher valuations. We believe the reverse trend is happening today. Corporate consolidations and
simplifications are part of that trend. Corporate simplifications involving pipeline companies and their associated MLPs began late in 2014 and continued in 2019. These simplifications involve the acquisition of the
subsidiary MLP by the C-Corp parent as well as MLPs choosing to become taxable corporations. In our opinion, we believe that this trend will likely continue following the Federal Energy Regulatory Commission’s
Revised Policy Statement denying recovery of an Income Tax Allowance (ITA) by most partnership-owned pipelines.
While MLPs represented a
way for the industry to lower its cost of financing between 2004 through 2014, the severe correction in the price of crude oil in 2014 caused a collapse in MLP valuations as much of the AMZX had become exposed to
commodity prices between 2004 and 2014. MLP distribution cuts and even some bankruptcies followed. Over the last five years, about 60% of the MLPs in the AMZX have cut or eliminated their dividends. Now, MLPs in the
AMZX trade at valuations that are about 45% lower than 2014, while, during that same time period, the valuation multiples of non-MLP energy infrastructure companies like utilities have risen. (Source: Alerian,
Bloomberg L.P., FactSet Research Systems Inc.) MLPs are now in many cases a higher-cost way of financing these industries; the reverse of the conditions that led to the growth of the asset class in the early part of
the last decade. As a result, we are now witnessing the consolidation or simplification of corporate structures where the MLP sleeve of capital is being eliminated when it no longer reduces a company’s cost of
equity financing.
While some stand-alone
pipeline companies are now seeking a lower cost of financing outside of the MLP structure, some cyclical companies continue to use the MLP structure to finance non-cyclical assets through sponsored entities. In most
cases these sponsored entities formed as MLPs still trade at higher multiples compared to companies in cyclical industries such as refining, oil and gas production, and petrochemicals. Therefore, some of these
cyclical energy companies still have an opportunity to lower their financing costs by divesting stable assets such as pipelines and related storage facilities to an MLP subsidiary as a method to reduce the overall
company’s cost of equity financing. Whether from the perspective of a diversified energy company seeking to lower its overall financing costs or the energy industry in its entirety, we believe it is fair to say
that MLPs are created when they lower the cost of equity financing and eliminated when they do not.
Portfolio Commentary (Continued)
First Trust Energy
Income and Growth Fund (FEN)
Annual Report
November 30, 2019
(Unaudited)
Historically, the
pipeline utility industry has moved in very long cycles and we believe the cycle that saw most of U.S. pipeline assets move to the MLP space due to the MLP being a superior financing tool is reversing. In our view,
the investment merits of owning these assets (stable, slow-growing earnings with a high dividend payout ratio) have not changed. The Fund continues to seek to invest primarily in energy infrastructure companies
including MLPs with mostly non-cyclical cash flows, investment-grade ratings, conservative balance sheets, modest and/or flexible organic growth commitments and liquidity on their revolving lines of credit.
Non-cyclical cash flows are, in our opinion, a good fit with a steady anticipated dividend distribution that is meant to be most or all of an energy infrastructure company’s free cash flow.
First Trust Energy Income and Growth Fund
(FEN)
Portfolio of Investments
November 30, 2019
Shares/
Units
|
|
Description
|
|
Value
|
MASTER LIMITED PARTNERSHIPS – 81.2%
|
|
|
Chemicals – 1.5%
|
|
|
259,800
|
|
Westlake Chemical Partners, L.P. (a)
|
|
$5,764,962
|
|
|
Gas Utilities – 0.5%
|
|
|
82,600
|
|
Suburban Propane Partners, L.P. (a)
|
|
1,851,892
|
|
|
Independent Power & Renewable Electricity Producers – 5.5%
|
|
|
412,911
|
|
NextEra Energy Partners, L.P. (a) (b)
|
|
21,937,961
|
|
|
Oil, Gas & Consumable Fuels – 73.7%
|
|
|
883,416
|
|
Alliance Resource Partners, L.P. (a)
|
|
9,275,868
|
491,074
|
|
BP Midstream Partners, L.P. (a)
|
|
7,169,680
|
2,032,767
|
|
Energy Transfer, L.P. (a)
|
|
24,006,978
|
2,790,806
|
|
Enterprise Products Partners, L.P. (a) (c)
|
|
73,454,014
|
941,147
|
|
Holly Energy Partners, L.P. (a)
|
|
21,044,047
|
895,454
|
|
Magellan Midstream Partners, L.P. (a) (c)
|
|
52,357,195
|
303,800
|
|
MPLX, L.P. (a)
|
|
7,184,870
|
213,800
|
|
Phillips 66 Partners, L.P. (a)
|
|
11,915,074
|
1,598,601
|
|
Plains All American Pipeline, L.P. (a) (c)
|
|
27,815,658
|
743,200
|
|
Shell Midstream Partners, L.P. (a)
|
|
14,611,312
|
1,141,350
|
|
TC PipeLines, L.P. (a)
|
|
44,501,237
|
|
|
|
|
293,335,933
|
|
|
Total Master Limited Partnerships
|
|
322,890,748
|
|
|
(Cost $214,027,185)
|
|
|
COMMON STOCKS – 62.7%
|
|
|
Electric Utilities – 9.4%
|
|
|
26,700
|
|
American Electric Power Co., Inc. (c)
|
|
2,439,045
|
33,000
|
|
Duke Energy Corp. (c)
|
|
2,909,610
|
10,600
|
|
Emera, Inc. (CAD) (a)
|
|
435,874
|
58,600
|
|
Eversource Energy (c)
|
|
4,842,704
|
247,600
|
|
Exelon Corp. (c)
|
|
10,993,440
|
22,000
|
|
NextEra Energy, Inc. (c)
|
|
5,144,040
|
312,400
|
|
PPL Corp. (c)
|
|
10,630,972
|
300
|
|
Southern (The) Co.
|
|
18,597
|
|
|
|
|
37,414,282
|
|
|
Gas Utilities – 0.2%
|
|
|
3,600
|
|
Atmos Energy Corp. (a)
|
|
385,056
|
3,699
|
|
Chesapeake Utilities Corp. (a)
|
|
337,127
|
|
|
|
|
722,183
|
|
|
Multi-Utilities – 6.3%
|
|
|
71,700
|
|
CMS Energy Corp. (c)
|
|
4,395,210
|
275,499
|
|
Public Service Enterprise Group, Inc. (c)
|
|
16,339,846
|
30,800
|
|
Sempra Energy
|
|
4,535,916
|
|
|
|
|
25,270,972
|
|
|
Oil, Gas & Consumable Fuels – 46.8%
|
|
|
841,796
|
|
Enbridge, Inc. (a)
|
|
31,988,248
|
373,640
|
|
Equitrans Midstream Corp. (a)
|
|
3,725,191
|
377,200
|
|
Inter Pipeline, Ltd. (CAD) (a)
|
|
6,247,384
|
145,060
|
|
Keyera Corp. (CAD) (a)
|
|
3,539,407
|
2,114,955
|
|
Kinder Morgan, Inc. (a) (c)
|
|
41,474,268
|
399,984
|
|
ONEOK, Inc. (c)
|
|
28,418,863
|
966,906
|
|
TC Energy Corp. (c)
|
|
49,244,523
|
Page 6
See Notes to Financial Statements
First Trust Energy Income and Growth Fund
(FEN)
Portfolio of Investments
(Continued)
November 30, 2019
Shares/
Units
|
|
Description
|
|
Value
|
COMMON STOCKS (Continued)
|
|
|
Oil, Gas & Consumable Fuels (Continued)
|
|
|
951,941
|
|
Williams (The) Cos., Inc. (c)
|
|
$21,628,099
|
|
|
|
|
186,265,983
|
|
|
Total Common Stocks
|
|
249,673,420
|
|
|
(Cost $224,070,793)
|
|
|
REAL ESTATE INVESTMENT TRUSTS – 0.3%
|
|
|
Equity Real Estate Investment Trusts – 0.3%
|
|
|
24,236
|
|
CorEnergy Infrastructure Trust, Inc. (a)
|
|
1,072,201
|
|
|
(Cost $684,853)
|
|
|
|
|
Total Investments – 144.2%
|
|
573,636,369
|
|
|
(Cost $438,782,831) (d)
|
|
|
Number of Contracts
|
|
Description
|
|
Notional Amount
|
|
Exercise Price
|
|
Expiration Date
|
|
Value
|
CALL OPTIONS WRITTEN – (0.3)%
|
(267)
|
|
American Electric Power Co., Inc.
|
|
$(2,439,045)
|
|
$97.50
|
|
Jan 2020
|
|
(5,340)
|
(717)
|
|
CMS Energy Corp. (e)
|
|
(4,395,210)
|
|
65.00
|
|
Dec 2019
|
|
(3,585)
|
(330)
|
|
Duke Energy Corp.
|
|
(2,909,610)
|
|
90.00
|
|
Jan 2020
|
|
(33,000)
|
(1,600)
|
|
Enterprise Products Partners, L.P. (e)
|
|
(4,211,200)
|
|
31.00
|
|
Dec 2019
|
|
(1,600)
|
(6,500)
|
|
Enterprise Products Partners, L.P.
|
|
(17,108,000)
|
|
30.00
|
|
Jan 2020
|
|
(32,500)
|
(586)
|
|
Eversource Energy
|
|
(4,842,704)
|
|
85.00
|
|
Jan 2020
|
|
(39,555)
|
(2,476)
|
|
Exelon Corp.
|
|
(10,993,440)
|
|
46.00
|
|
Dec 2019
|
|
(51,996)
|
(6,000)
|
|
Kinder Morgan, Inc.
|
|
(11,766,000)
|
|
21.00
|
|
Jan 2020
|
|
(54,000)
|
(1,724)
|
|
Kinder Morgan, Inc.
|
|
(3,380,764)
|
|
22.00
|
|
Jan 2020
|
|
(8,620)
|
(1,200)
|
|
Magellan Midstream Partners, L.P.
|
|
(7,016,400)
|
|
62.50
|
|
Dec 2019
|
|
(9,000)
|
(220)
|
|
NextEra Energy, Inc.
|
|
(5,144,040)
|
|
250.00
|
|
Mar 2020
|
|
(66,880)
|
(1,419)
|
|
ONEOK, Inc.
|
|
(10,081,995)
|
|
72.50
|
|
Dec 2019
|
|
(92,235)
|
(2,580)
|
|
ONEOK, Inc.
|
|
(18,330,900)
|
|
72.50
|
|
Jan 2020
|
|
(361,200)
|
(4,000)
|
|
Plains All American Pipeline, L.P. (e)
|
|
(6,960,000)
|
|
21.00
|
|
Feb 2020
|
|
(20,000)
|
(3,124)
|
|
PPL Corp.
|
|
(10,630,972)
|
|
34.00
|
|
Jan 2020
|
|
(237,424)
|
(1,394)
|
|
Public Service Enterprise Group, Inc.
|
|
(8,267,814)
|
|
60.00
|
|
Dec 2019
|
|
(75,276)
|
(1,360)
|
|
Public Service Enterprise Group, Inc.
|
|
(8,066,160)
|
|
65.00
|
|
Mar 2020
|
|
(51,000)
|
(3,700)
|
|
TC Energy Corp. (e)
|
|
(18,844,100)
|
|
55.00
|
|
Dec 2019
|
|
(7,400)
|
(3,000)
|
|
TC Energy Corp.
|
|
(15,279,000)
|
|
55.00
|
|
Feb 2020
|
|
(45,000)
|
(3,500)
|
|
Williams (The) Cos., Inc.
|
|
(7,952,000)
|
|
23.00
|
|
Jan 2020
|
|
(175,000)
|
|
|
Total Call Options Written
|
|
(1,370,611)
|
|
|
(Premiums received $2,493,685)
|
|
|
|
|
|
|
|
|
|
Outstanding Loan – (36.7)%
|
|
(146,000,000)
|
|
Net Other Assets and Liabilities – (7.2)%
|
|
(28,409,216)
|
|
Net Assets – 100.0%
|
|
$397,856,542
|
|
(a)
|
All or a portion of this security serves as collateral on the outstanding loan.
|
(b)
|
This security is taxed as a “C” corporation for federal income tax purposes.
|
(c)
|
All or a portion of this security’s position represents cover for outstanding options written.
|
(d)
|
Aggregate cost for federal income tax purposes was $391,883,091. As of November 30, 2019, the aggregate gross unrealized appreciation for all investments in which there was an excess
of value over tax cost was $195,899,078 and the aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value was $15,516,411. The net unrealized appreciation was
$180,382,667. The amounts presented are inclusive of derivative contracts.
|
(e)
|
This investment is fair valued by the Advisor’s Pricing Committee in accordance with procedures adopted by the Fund’s Board of Trustees, and in
accordance with the provisions of the Investment Company Act of 1940, as amended. At November 30, 2019, investments noted as such are valued at $(32,585) or (0.0)% of net assets.
|
See Notes to Financial
Statements
Page 7
First Trust Energy Income and Growth Fund
(FEN)
Portfolio of Investments
(Continued)
November 30, 2019
CAD
|
Canadian Dollar - Security is denominated in Canadian Dollars and is translated into U.S. Dollars based upon the current exchange rate.
|
Valuation Inputs
A summary of the inputs
used to value the Fund’s investments as of November 30, 2019 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
ASSETS TABLE
|
|
Total
Value at
11/30/2019
|
Level 1
Quoted
Prices
|
Level 2
Significant
Observable
Inputs
|
Level 3
Significant
Unobservable
Inputs
|
Master Limited Partnerships*
|
$ 322,890,748
|
$ 322,890,748
|
$ —
|
$ —
|
Common Stocks*
|
249,673,420
|
249,673,420
|
—
|
—
|
Real Estate Investment Trusts*
|
1,072,201
|
1,072,201
|
—
|
—
|
Total Investments
|
$ 573,636,369
|
$ 573,636,369
|
$—
|
$—
|
LIABILITIES TABLE
|
|
Total
Value at
11/30/2019
|
Level 1
Quoted
Prices
|
Level 2
Significant
Observable
Inputs
|
Level 3
Significant
Unobservable
Inputs
|
Call Options Written
|
$ (1,370,611)
|
$ (785,036)
|
$ (585,575)
|
$ —
|
*
|
See Portfolio of Investments for industry breakout.
|
Page 8
See Notes to Financial Statements
First Trust Energy Income and Growth Fund
(FEN)
Statement of Assets and
Liabilities
November 30, 2019
ASSETS:
|
|
Investments, at value
(Cost $438,782,831)
|
$ 573,636,369
|
Cash
|
10,175,195
|
Receivables:
|
|
Income taxes
|
2,811,774
|
Dividends
|
597,721
|
Dividend reclaims
|
61,366
|
Prepaid expenses
|
7,341
|
Total Assets
|
587,289,766
|
LIABILITIES:
|
|
Outstanding loan
|
146,000,000
|
Deferred income taxes
|
40,990,468
|
Options written, at value (Premiums received $2,493,685)
|
1,370,611
|
Payables:
|
|
Investment advisory fees
|
451,516
|
Interest and fees on loan
|
402,789
|
Audit and tax fees
|
100,233
|
Shareholder reporting fees
|
26,255
|
Administrative fees
|
23,958
|
Custodian fees
|
20,709
|
Trustees’ fees and expenses
|
6,884
|
Transfer agent fees
|
5,869
|
Legal fees
|
5,406
|
Financial reporting fees
|
771
|
Other liabilities
|
27,755
|
Total Liabilities
|
189,433,224
|
NET ASSETS
|
$397,856,542
|
NET ASSETS consist of:
|
|
Paid-in capital
|
$ 363,760,580
|
Par value
|
200,116
|
Accumulated distributable earnings (loss)
|
33,895,846
|
NET ASSETS
|
$397,856,542
|
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share)
|
$19.88
|
Number of Common Shares outstanding (unlimited number of Common Shares has been authorized)
|
20,011,594
|
See Notes to Financial Statements
Page 9
First Trust Energy Income and Growth Fund
(FEN)
Statement of Operations
For the Year Ended November
30, 2019
INVESTMENT INCOME:
|
|
Dividends (net of foreign withholding tax of $740,763)
|
$ 12,984,508
|
Interest
|
712,221
|
Total investment income
|
13,696,729
|
EXPENSES:
|
|
Investment advisory fees
|
5,770,359
|
Interest and fees on loan
|
5,541,389
|
Administrative fees
|
278,119
|
Audit and tax fees
|
100,558
|
Shareholder reporting fees
|
93,985
|
Custodian fees
|
61,127
|
At the market offering costs
|
35,575
|
Transfer agent fees
|
33,030
|
Legal fees
|
21,229
|
Listing expense
|
20,000
|
Trustees’ fees and expenses
|
16,687
|
Financial reporting fees
|
9,250
|
Other
|
81,880
|
Total expenses
|
12,063,188
|
NET INVESTMENT INCOME (LOSS) BEFORE TAXES
|
1,633,541
|
Current state income tax benefit (expense)
|
(374,346)
|
|
Current federal income tax benefit (expense)
|
(5,257,823)
|
|
Deferred federal income tax benefit (expense)
|
5,024,802
|
|
Deferred state income tax benefit (expense)
|
1,248,813
|
|
Total income tax benefit (expense)
|
641,446
|
NET INVESTMENT INCOME (LOSS)
|
2,274,987
|
NET REALIZED AND UNREALIZED GAIN (LOSS):
|
|
Net realized gain (loss) before taxes on:
|
|
Investments
|
23,566,834
|
Written options
|
5,178,960
|
Foreign currency transactions
|
4,190
|
Net realized gain (loss) before taxes
|
28,749,984
|
Current federal income tax benefit (expense)
|
(6,037,498)
|
|
Current state income tax benefit (expense)
|
(641,351)
|
|
Total income tax benefit (expense)
|
(6,678,849)
|
Net realized gain (loss) on investments, written options and foreign currency transactions
|
22,071,135
|
Net increase from payment by the sub-advisor before taxes
|
130,183
|
Current federal income tax benefit (expense)
|
(27,338)
|
|
Current state income tax benefit (expense)
|
(2,904)
|
|
Total income tax benefit (expense)
|
(30,242)
|
Net increase from payment by the sub-advisor
|
99,941
|
Net change in unrealized appreciation (depreciation) before taxes on:
|
|
Investments
|
(9,489,436)
|
Written options
|
1,672,339
|
Foreign currency translation
|
814
|
Net change in unrealized appreciation (depreciation) before taxes
|
(7,816,283)
|
Deferred federal income tax benefit (expense)
|
1,688,036
|
|
Deferred state income tax benefit (expense)
|
229,677
|
|
Total income tax benefit (expense)
|
1,917,713
|
Net change in unrealized appreciation (depreciation) on investments, written options and foreign currency translation
|
(5,898,570)
|
NET REALIZED AND UNREALIZED GAIN (LOSS)
|
16,272,506
|
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
|
$ 18,547,493
|
Page 10
See Notes to Financial Statements
First Trust Energy Income and Growth Fund
(FEN)
Statements of Changes in
Net Assets
|
Year
Ended
11/30/2019
|
|
Year
Ended
11/30/2018
|
OPERATIONS:
|
|
|
|
Net investment income (loss)
|
$ 2,274,987
|
|
$ (3,979,575)
|
Net realized gain (loss)
|
22,071,135
|
|
27,669,981
|
Net increase from payment by the sub-advisor
|
99,941
|
|
—
|
Net change in unrealized appreciation (depreciation)
|
(5,898,570)
|
|
(6,442,747)
|
Net increase (decrease) in net assets resulting from operations
|
18,547,493
|
|
17,247,659
|
DISTRIBUTIONS TO SHAREHOLDERS FROM:
|
|
|
|
Investment operations
|
(26,260,210)
|
|
(40,205,780)
|
Return of capital (See Note 2E)
|
(20,120,435)
|
|
(5,960,091)
|
Total distributions to shareholders
|
(46,380,645)
|
|
(46,165,871)
|
CAPITAL TRANSACTIONS:
|
|
|
|
Proceeds from Common Shares sold through at the market offerings
|
—
|
|
4,111,227
|
Proceeds from Common Shares reinvested
|
577,146
|
|
534,902
|
Net increase (decrease) in net assets resulting from capital transactions
|
577,146
|
|
4,646,129
|
Total increase (decrease) in net assets
|
(27,256,006)
|
|
(24,272,083)
|
NET ASSETS:
|
|
|
|
Beginning of period
|
425,112,548
|
|
449,384,631
|
End of period
|
$ 397,856,542
|
|
$ 425,112,548
|
CAPITAL TRANSACTIONS were as follows:
|
|
|
|
Common Shares at beginning of period
|
19,984,376
|
|
19,778,270
|
Common Shares sold through at the market offerings
|
—
|
|
183,236
|
Common Shares issued as reinvestment under the Dividend Reinvestment Plan
|
27,218
|
|
22,870
|
Common Shares at end of period
|
20,011,594
|
|
19,984,376
|
See Notes to Financial Statements
Page 11
First Trust Energy Income and Growth Fund
(FEN)
Statement of Cash Flows
For the Year Ended November
30, 2019
Cash flows from operating activities:
|
|
|
Net increase (decrease) in net assets resulting from operations
|
$18,547,493
|
|
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by operating
activities:
|
|
|
Purchases of investments
|
(390,715,822)
|
|
Sales of investments
|
413,648,941
|
|
Proceeds from written options
|
10,437,282
|
|
Amount paid to close written options
|
(2,068,722)
|
|
Return of capital received from investment in MLPs
|
24,975,474
|
|
Net realized gain/loss on investments and written options
|
(28,745,794)
|
|
Net change in unrealized appreciation/depreciation on investments and written options
|
7,817,097
|
|
Net increase from payment by the sub-advisor
|
(130,183)
|
|
Decrease in deferred income tax payable
|
(8,191,330)
|
|
Changes in assets and liabilities:
|
|
|
Decrease in income tax receivable
|
9,494,386
|
|
Decrease in interest receivable
|
180,000
|
|
Increase in dividend reclaims receivable
|
(61,366)
|
|
Increase in dividends receivable
|
(188,553)
|
|
Decrease in prepaid expenses
|
29,933
|
|
Decrease in interest and fees payable on loan
|
(85,006)
|
|
Decrease in investment advisory fees payable
|
(22,123)
|
|
Increase in audit and tax fees payable
|
324
|
|
Increase in legal fees payable
|
575
|
|
Decrease in shareholder reporting fees payable
|
(6,153)
|
|
Decrease in administrative fees payable
|
(2,170)
|
|
Decrease in custodian fees payable
|
(1,733)
|
|
Increase in transfer agent fees payable
|
2,720
|
|
Increase in Trustees’ fees and expenses payable
|
4,192
|
|
Decrease in offering costs payable
|
(78,750)
|
|
Increase in other liabilities payable
|
24,549
|
|
Cash provided by operating activities
|
|
$54,865,261
|
Cash flows from financing activities:
|
|
|
Proceeds from Common Shares reinvested
|
577,146
|
|
Distributions to Common Shareholders from investment operations
|
(26,260,210)
|
|
Distributions to Common Shareholders from return of capital
|
(20,120,435)
|
|
Repayment of borrowing
|
(48,500,000)
|
|
Proceeds from borrowing
|
44,000,000
|
|
Cash used in financing activities
|
|
(50,303,499)
|
Increase in cash
|
|
4,561,762
|
Cash at beginning of period
|
|
5,613,433
|
Cash at end of period
|
|
$10,175,195
|
Supplemental disclosure of cash flow information:
|
|
|
Cash paid during the period for interest and fees
|
|
$5,626,395
|
Cash paid during the period for taxes
|
|
$2,846,875
|
Page 12
See Notes to Financial Statements
First Trust Energy Income and Growth Fund
(FEN)
Financial Highlights
For a Common Share
outstanding throughout each period
|
Year Ended November 30,
|
2019
|
|
2018
|
|
2017
|
|
2016
|
|
2015
|
Net asset value, beginning of period
|
$ 21.27
|
|
$ 22.72
|
|
$ 25.27
|
|
$ 25.41
|
|
$ 38.08
|
Income from investment operations:
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) (a)
|
0.11
|
|
(0.20)
|
|
0.13
|
|
0.04
|
|
0.18
|
Net realized and unrealized gain (loss)
|
0.82 (b)
|
|
1.07
|
|
(0.37) (b)
|
|
2.14 (b)
|
|
(10.59)
|
Total from investment operations
|
0.93
|
|
0.87
|
|
(0.24)
|
|
2.18
|
|
(10.41)
|
Distributions paid to shareholders from:
|
|
|
|
|
|
|
|
|
|
Net investment income
|
(0.34)
|
|
(0.38)
|
|
—
|
|
—
|
|
—
|
Net realized gain
|
(0.98)
|
|
(1.64)
|
|
(2.32)
|
|
(0.25)
|
|
(2.26)
|
Return of capital
|
(1.00)
|
|
(0.30)
|
|
—
|
|
(2.07)
|
|
—
|
Total distributions paid to Common Shareholders
|
(2.32)
|
|
(2.32)
|
|
(2.32)
|
|
(2.32)
|
|
(2.26)
|
Premiums from shares sold in at the market offering
|
—
|
|
0.00 (c)
|
|
0.01
|
|
—
|
|
—
|
Net asset value, end of period
|
$19.88
|
|
$21.27
|
|
$22.72
|
|
$25.27
|
|
$25.41
|
Market value, end of period
|
$20.47
|
|
$19.97
|
|
$22.24
|
|
$26.30
|
|
$23.12
|
Total return based on net asset value (d)
|
4.18% (b)
|
|
3.69%
|
|
(1.42)% (b)
|
|
9.61% (b)
|
|
(28.30)%
|
Total return based on market value (d)
|
14.25%
|
|
(0.55)%
|
|
(7.28)%
|
|
25.39%
|
|
(29.96)%
|
Net assets, end of period (in 000’s)
|
$ 397,857
|
|
$ 425,113
|
|
$ 449,385
|
|
$ 489,743
|
|
$ 491,820
|
Portfolio turnover rate
|
65%
|
|
42%
|
|
40%
|
|
54%
|
|
28%
|
Ratios of expenses to average net assets:
|
|
|
|
|
|
|
|
|
|
Including current and deferred income taxes (e)
|
3.79%
|
|
(7.20)%
|
|
2.07%
|
|
7.65%
|
|
(15.26)%
|
Excluding current and deferred income taxes
|
2.82%
|
|
2.79%
|
|
2.68%
|
|
2.60%
|
|
2.21%
|
Excluding current and deferred income taxes and interest expense
|
1.52%
|
|
1.54%
|
|
1.52%
|
|
1.51%
|
|
1.47%
|
Ratios of net investment income (loss) to average net assets:
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) ratio before tax expenses
|
0.38%
|
|
(0.42)%
|
|
(0.09)%
|
|
(0.77)%
|
|
0.72%
|
Net investment income (loss) ratio including tax expenses (e)
|
(0.59)%
|
|
9.57%
|
|
0.52%
|
|
(5.82)%
|
|
18.18%
|
Indebtedness:
|
|
|
|
|
|
|
|
|
|
Total loan outstanding (in 000’s)
|
$ 146,000
|
|
$ 150,500
|
|
$ 155,500
|
|
$ 174,500
|
|
$ 183,000
|
Asset coverage per $1,000 of indebtedness (f)
|
$ 3,725
|
|
$ 3,825
|
|
$ 3,890
|
|
$ 3,807
|
|
$ 3,688
|
(a)
|
Based on average shares outstanding.
|
(b)
|
During the fiscal years ended November 30, 2019, 2017, and 2016, the sub-advisor reimbursed the Fund $130,183, $39,539 and $55,570, respectively, in connection with trade errors which
each represent less than $0.01 per share. Since the sub-advisor reimbursed the Fund, there was no effect on the total return.
|
(c)
|
Amount is less than $0.01.
|
(d)
|
Total return is based on the combination of reinvested dividend, capital gain and return of capital distributions, if any, at prices obtained by the Dividend Reinvestment Plan, and
changes in net asset value per share for net asset value returns and changes in Common Share Price for market value returns. Total returns do not reflect sales load and are not annualized for periods of less than one
year. Past performance is not indicative of future results.
|
(e)
|
Includes current and deferred income taxes associated with each component of the Statement of Operations.
|
(f)
|
Calculated by subtracting the Fund’s total liabilities (not including the loan outstanding) from the Fund’s total assets, and dividing by the
outstanding loan balance in 000’s.
|
See Notes to Financial Statements
Page 13
Notes to Financial Statements
First Trust Energy
Income and Growth Fund (FEN)
November 30, 2019
1. Organization
First Trust 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 NYSE American.
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 focuses on investing in publicly-traded master limited partnerships (“MLPs”), related public entities in the energy sector and other
public companies, which Energy Income Partners, LLC (“EIP” or the “Sub-Advisor”) believes offer opportunities for income and growth. Under normal market conditions, the Fund will invest at
least 85% of its managed assets in securities of energy companies, energy sector MLPs and energy sector MLP-related entities. There can be no assurance that the Fund will achieve its investment objective. The Fund may
not be appropriate for all investors.
2. Significant
Accounting Policies
The Fund is considered an
investment company and follows accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, “Financial
Services-Investment Companies.” The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of the financial statements. The preparation of the financial
statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from those estimates.
A. Portfolio
Valuation
The net asset value
(“NAV”) of the Common Shares of the Fund is determined daily as of the close of regular trading on the New York Stock Exchange (“NYSE”), normally 4:00 p.m. Eastern time, on each day the NYSE is
open for trading. If the NYSE closes early on a valuation day, the NAV is determined as of that time. Foreign securities are priced using data reflecting the earlier closing of the principal markets for those
securities. The Fund’s NAV per Common Share is calculated by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses, the value
of call options written (sold), dividends declared but unpaid, deferred income taxes and any borrowings of the Fund), by the total number of Common Shares outstanding.
The Fund’s
investments are valued daily at market value or, in the absence of market value with respect to any portfolio securities, at fair value. Market value prices represent last sale or official closing prices from a
national or foreign exchange (i.e., a regulated market) and are primarily obtained from third-party pricing services. Fair value prices represent any prices not considered market value prices and are either obtained
from a third-party pricing service or are determined by the Pricing Committee of the Fund’s investment advisor, First Trust Advisors L.P. (“First Trust” or the “Advisor”), in accordance
with valuation procedures adopted by the Fund’s Board of Trustees, and in accordance with provisions of the 1940 Act. Investments valued by the Advisor’s Pricing Committee, if any, are footnoted as such in
the footnotes to the Portfolio of Investments. The Fund’s investments are valued as follows:
Common
stocks, real estate investment trusts, MLPs, and other equity securities listed on any national or foreign exchange (excluding The Nasdaq Stock Market LLC (“Nasdaq”) and the London Stock Exchange
Alternative Investment Market (“AIM”)) are valued at the last sale price on the exchange on which they are principally traded or, for Nasdaq and AIM securities, the official closing price. Securities
traded on more than one securities exchange are valued at the last sale price or official closing price, as applicable, at the close of the securities exchange representing the principal market for such securities.
Exchange-traded options contracts are valued at the closing price in the market where such contracts are principally traded. If no closing price is available, exchange-traded options contracts are fair valued at the
mean of their most recent bid and asked price, if available, and otherwise at their closing bid price. Over-the-counter options contracts are fair valued at the mean of their most recent bid and asked price, if
available, and otherwise at their closing bid price.
Securities traded in an over-the-counter market are fair valued at the mean of their most recent bid and asked price, if available, and otherwise at their closing bid price.
Certain securities may
not be able to be priced by pre-established pricing methods. Such securities may be valued by the Fund’s Board of Trustees or its delegate, the Advisor’s Pricing Committee, at fair value. These securities
generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933, as amended (the “1933 Act”)) for which a
third-party pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security whose market or fair value price is not available from a pre-established pricing source;
a security with respect to
Notes to Financial Statements (Continued)
First Trust Energy
Income and Growth Fund (FEN)
November 30, 2019
which an event has occurred that is
likely to materially affect the value of the security after the market has closed but before the calculation of the Fund’s NAV or make it difficult or impossible to obtain a reliable market quotation; and a
security whose price, as provided by the third-party pricing service, does not reflect the security’s fair value. As a general principle, the current fair value of a security would appear to be the amount which
the owner might reasonably expect to receive for the security upon its current sale. When fair value prices are used, generally they will differ from market quotations or official closing prices on the applicable
exchanges. A variety of factors may be considered in determining the fair value of such securities, including, but not limited to, the following:
1)
|
the type of security;
|
2)
|
the size of the holding;
|
3)
|
the initial cost of the security;
|
4)
|
transactions in comparable securities;
|
5)
|
price quotes from dealers and/or third-party pricing services;
|
6)
|
relationships among various securities;
|
7)
|
information obtained by contacting the issuer, analysts, or the appropriate stock exchange;
|
8)
|
an analysis of the issuer’s financial statements; and
|
9)
|
the existence of merger proposals or tender offers that might affect the value of the security.
|
If the securities in
question are foreign securities, the following additional information may be considered:
1)
|
the value of similar foreign securities traded on other foreign markets;
|
2)
|
ADR trading of similar securities;
|
3)
|
closed-end fund or exchange-traded fund trading of similar securities;
|
4)
|
foreign currency exchange activity;
|
5)
|
the trading prices of financial products that are tied to baskets of foreign securities;
|
6)
|
factors relating to the event that precipitated the pricing problem;
|
7)
|
whether the event is likely to recur; and
|
8)
|
whether the effects of the event are isolated or whether they affect entire markets, countries or regions.
|
The Fund is subject to
fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
•
|
Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
|
•
|
Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following:
|
o
|
Quoted prices for similar investments in active markets.
|
o
|
Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or
price quotations vary substantially either over time or among market makers, or in which little information is released publicly.
|
o
|
Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss
severities, credit risks, and default rates).
|
o
|
Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
•
|
Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing
the investment.
|
The inputs or
methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value the Fund’s investments as of
November 30, 2019, is included with the Fund’s Portfolio of Investments.
B. Option
Contracts
The Fund is subject to
equity price risk in the normal course of pursuing its investment objective and may write (sell) options to hedge against changes in the value of equities. Also, the Fund seeks to generate additional income, in the
form of premiums received, from writing (selling) the options. The Fund may write (sell) covered call or put options (“options”) on all or a portion of the MLPs and
Notes to Financial Statements (Continued)
First Trust Energy
Income and Growth Fund (FEN)
November 30, 2019
common stocks held in the Fund’s
portfolio as determined to be appropriate by the Sub-Advisor. The number of options the Fund can write (sell) is limited by the amount of MLPs and common stocks the Fund holds in its portfolio. The Fund will not write
(sell) “naked” or uncovered options. When the Fund writes (sells) an option, an amount equal to the premium received by the Fund is included in “Options written, at value” on the Fund’s
Statement of Assets and Liabilities. Options are marked-to-market daily and their value will be affected by changes in the value and dividend rates of the underlying equity securities, changes in interest rates,
changes in the actual or perceived volatility of the securities markets and the underlying equity securities and the remaining time to the options’ expiration. The value of options may also be adversely affected
if the market for the options becomes less liquid or trading volume diminishes.
The options that the Fund
writes (sells) will either be exercised, expire or be canceled pursuant to a closing transaction. If the price of the underlying equity security exceeds the option’s exercise price, it is likely that the option
holder will exercise the option. If an option written (sold) by the Fund is exercised, the Fund would be obligated to deliver the underlying equity security to the option holder upon payment of the strike price. In
this case, the option premium received by the Fund will be added to the amount realized on the sale of the underlying security for purposes of determining gain or loss and is included in “Net realized gain
(loss) before taxes on investments” on the Statement of Operations. If the price of the underlying equity security is less than the option’s strike price, the option will likely expire without being
exercised. The option premium received by the Fund will, in this case, be treated as short-term capital gain on the expiration date of the option. The Fund may also elect to close out its position in an option prior
to its expiration by purchasing an option of the same series as the option written (sold) by the Fund. Gain or loss on options is presented separately as “Net realized gain (loss) before taxes on written
options” on the Statement of Operations.
The options that the Fund
writes (sells) give the option holder the right, but not the obligation, to purchase a security from the Fund at the strike price on or prior to the option’s expiration date. The ability to successfully
implement the writing (selling) of covered call options depends on the ability of the Sub-Advisor to predict pertinent market movements, which cannot be assured. Thus, the use of options may require the Fund to sell
portfolio securities at inopportune times or for prices other than current market value, which may limit the amount of appreciation the Fund can realize on an investment, or may cause the Fund to hold a security that
it might otherwise sell. As the writer (seller) of a covered option, the Fund foregoes, during the option’s life, the opportunity to profit from increases in the market value of the security covering the option
above the sum of the premium and the strike price of the option, but has retained the risk of loss should the price of the underlying security decline. The writer (seller) of an option has no control over the time
when it may be required to fulfill its obligation as a writer (seller) of the option. Once an option writer (seller) has received an exercise notice, it cannot effect a closing purchase transaction in order to
terminate its obligation under the option and must deliver the underlying security to the option holder at the exercise price.
Over-the-counter options
have the risk of the potential inability of counterparties to meet the terms of their contracts. The Fund’s maximum equity price risk for purchased options is limited to the premium initially paid. In addition,
certain risks may arise upon entering into option contracts including the risk that an illiquid secondary market will limit the Fund’s ability to close out an option contract prior to the expiration date and
that a change in the value of the option contract may not correlate exactly with changes in the value of the securities hedged.
C. Securities
Transactions and Investment Income
Securities transactions
are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on an identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income is recorded
daily on an accrual basis, including amortization of premiums and accretion of discounts. The Fund will rely to some extent on information provided by the MLPs, which is not necessarily timely, to estimate taxable
income allocable to the MLP units held in the Fund’s portfolio and to estimate the associated deferred tax asset or 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 NAV of the Fund will likely fluctuate.
Distributions received
from the Fund’s investments in MLPs generally are comprised of return of capital and investment income. The Fund records estimated return of capital and investment income based on historical information
available from each MLP. These estimates may subsequently be revised based on information received from the MLPs after their tax reporting periods are concluded.
D. Foreign
Currency
The books and records of
the Fund are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities are translated into U.S. dollars at the exchange rates prevailing at the end of the period. Purchases and sales
of investments and items of income and expense are translated on the respective dates of such transactions. Unrealized gains and losses on assets and liabilities, other than investments in securities, which result
from changes in foreign currency exchange rates have been included in “Net change in unrealized appreciation (depreciation) before taxes on foreign currency translation” on the Statement of Operations.
Unrealized gains and losses on investments in securities which result from changes in foreign exchange rates are included with fluctuations arising
Notes to Financial Statements (Continued)
First Trust Energy
Income and Growth Fund (FEN)
November 30, 2019
from changes in market price and are
shown in “Net change in unrealized appreciation (depreciation) before taxes on investments” on the Statement of Operations. Net realized foreign currency gains and losses include the effect of changes in
exchange rates between trade date and settlement date on investment security transactions, foreign currency transactions and interest and dividends received and are shown in “Net realized gain (loss) before
taxes on foreign currency transactions” on the Statement of Operations. The portion of foreign currency gains and losses related to fluctuation in exchange rates between the initial purchase settlement date and
subsequent sale trade date is included in “Net realized gain (loss) before taxes on investments” on the Statement of Operations.
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, and income from
other investments held by the Fund less operating expenses, including taxes. Distributions to Common Shareholders are recorded on the ex-date and are based on U.S. GAAP, which may differ from their ultimate
characterization for federal income tax purposes.
Distributions made from
current or accumulated earnings and profits of the Fund will be taxable to shareholders as dividend income. Distributions that are in an amount greater than the Fund’s current and accumulated earnings and
profits will represent a tax-deferred return of capital to the extent of a shareholder’s basis in the Common Shares, and such distributions will correspondingly increase the realized gain upon the sale of the
Common Shares. Additionally, distributions not paid from current or accumulated earnings and profits that exceed a shareholder’s tax basis in the Common Shares will generally be taxed as a capital gain.
Distributions of
$26,260,210 paid during the fiscal year ended November 30, 2019 are anticipated to be characterized as taxable dividends for federal income tax purposes. The amounts may be eligible to be taxed as qualified dividend
income at the reduced capital gains rates, subject to shareholder holding period requirements. The remaining $20,120,435 in distributions paid during the fiscal year ended November 30, 2019, is expected to be return
of capital. However, the ultimate determination of the character of the distributions will be made after the 2019 calendar year. 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.
F. Income Taxes
The Fund is treated as a
regular C corporation for U.S. federal income tax purposes and as such will be obligated to pay federal and applicable state and foreign corporate taxes on its taxable income. The Fund’s tax expense or benefit
is included in the Statement of Operations based on the component of income or gains (losses) to which such expense or benefit relates. The “Tax Cuts and Jobs Act of 2017” (the “Act”) reduced
the maximum graduated income tax rate for corporations from 35% to a flat 21% and repealed the corporate alternative minimum tax for tax years that begin after December 31, 2017. This differs from most investment
companies, which elect to be treated as “regulated investment companies” under the U.S. Internal Revenue Code of 1986, as amended. The various investments of the Fund may cause the Fund to be subject to
state income taxes on a portion of its income at various rates.
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 fiscal year ended November 30, 2019, distributions of $24,774,698 received from MLPs have been reclassified as a return of capital. The cost basis of applicable MLPs has been reduced accordingly.
The Fund’s
provision for income taxes consists of the following:
Current federal income tax benefit (expense)
|
$ (11,322,659)
|
Current state income tax benefit (expense)
|
(1,018,601)
|
Current foreign income tax benefit (expense)
|
—
|
Deferred federal income tax benefit (expense)
|
6,712,838
|
Deferred state income tax benefit (expense)
|
1,478,490
|
Total income tax benefit (expense)
|
$ (4,149,932)
|
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. The Fund’s 2019 income tax
provision includes a full valuation
Notes to Financial Statements (Continued)
First Trust Energy
Income and Growth Fund (FEN)
November 30, 2019
allowance against the deferred tax
assets associated with the state net operating loss. Components of the Fund’s deferred tax assets and liabilities as of November 30, 2019 are as follows:
Deferred tax assets:
Federal net operating loss
|
$—
|
State net operating loss
|
2,857,657
|
State income taxes
|
847,264
|
Capital loss carryforward
|
—
|
Other
|
184,165
|
Total deferred tax assets
|
3,889,086
|
Less: valuation allowance
|
(2,857,657)
|
Net deferred tax assets
|
$1,031,429
|
Deferred tax liabilities:
|
|
Unrealized gains on investment securities
|
$(42,021,897)
|
Total deferred tax liabilities
|
(42,021,897)
|
Total net deferred tax liabilities
|
$(40,990,468)
|
Total income taxes differ
from the amount computed by applying the federal income tax rate of 21% to net investment income and realized and unrealized gains on investments.
Application of statutory income tax rate
|
$ 4,766,459
|
State income taxes, net
|
160,421
|
Change in valuation allowance
|
83,569
|
Effect of permanent differences
|
(420,748)
|
Other
|
(439,769)
|
Total
|
$ 4,149,932
|
The Fund is subject to
accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. Taxable years ended 2016, 2017, 2018,
and 2019 remain open to federal and state audit. As of November 30, 2019, management has evaluated the application of these standards to the Fund, and has determined that no provision for income tax is required in the
Fund’s financial statements for uncertain tax positions. The Internal Revenue Service initiated a corporate income tax audit for the Fund’s 2015 tax year. The audit closed with no changes recommended.
G. Expenses
The Fund will pay all
expenses directly related to its operations.
H. New Accounting
Pronouncement
On August 28, 2018, the
FASB issued Accounting Standards Update (“ASU”) 2018-13, “Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” which amends the fair value
measurement disclosure requirements of ASC 820. The amendments of ASU 2018-13 include new, eliminated, and modified disclosure requirements of ASC 820. In addition, the amendments clarify that materiality is an
appropriate consideration of entities when evaluating disclosure requirements. The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption is permitted
for any eliminated or modified disclosures upon issuance of this ASU. The Fund has early adopted ASU 2018-13 for these financial statements, which did not result in a material impact.
3. Investment
Advisory Fee, Affiliated Transactions and Other Fee Arrangements
First Trust, the
investment advisor to the Fund, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for the ongoing monitoring of the Fund’s investment portfolio, managing the Fund’s business affairs and
providing certain administrative services necessary for the management of the Fund. For these investment management services, First Trust is entitled to a monthly fee calculated at an annual rate of 1.00% of the
Fund’s Managed Assets (the average daily total asset value of the Fund minus the sum of the Fund’s liabilities other than the principal amount of borrowings). First Trust also provides fund reporting
services to the Fund for a flat annual fee in the amount of $9,250.
Notes to Financial Statements (Continued)
First Trust Energy
Income and Growth Fund (FEN)
November 30, 2019
EIP serves as the
Fund’s sub-advisor and manages the Fund’s portfolio subject to First Trust’s supervision. The Sub-Advisor receives a monthly sub-advisory fee calculated at an annual rate of 0.50% of the Fund’s
Managed Assets that is paid by First Trust out of its investment advisory fee.
First Trust Capital
Partners, LLC (“FTCP”), an affiliate of First Trust, owns, through a wholly-owned subsidiary, a 15% ownership interest in each of EIP and EIP Partners, LLC, an affiliate of EIP.
During the fiscal year
ended November 30, 2019, the Fund received a payment from the Sub-Advisor of $130,183 in connection with a trade error.
BNY Mellon Investment
Servicing (US) Inc. (“BNYM IS”) serves as the Fund’s transfer agent in accordance with certain fee arrangements. As transfer agent, BNYM IS is responsible for maintaining shareholder records for the
Fund. The Bank of New York Mellon (“BNYM”) serves as the Fund’s administrator, fund accountant, and custodian in accordance with certain fee arrangements. As administrator and fund accountant, BNYM
is responsible for providing certain administrative and accounting services to the Fund, including maintaining the Fund’s books of account, records of the Fund’s securities transactions, and certain other
books and records. As custodian, BNYM is responsible for custody of the Fund’s assets. BNYM IS and BNYM are subsidiaries of The Bank of New York Mellon Corporation, a financial holding company.
Each Trustee who is not
an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund
Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, a defined-outcome fund, or an index fund.
Additionally, the Lead
Independent Trustee and the Chairmen of the Audit Committee, Nominating and Governance Committee and Valuation Committee are paid annual fees to serve in such capacities, with such compensation allocated pro rata
among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Lead Independent Trustee and
Committee Chairmen rotate every three years. The officers and “Interested” Trustee receive no compensation from the Fund for acting in such capacities.
4. Purchases and
Sales of Securities
The cost of purchases and
proceeds from sales of securities, excluding short-term investments, for the fiscal year ended November 30, 2019, were $390,715,822 and $401,035,627, respectively.
5. Derivative
Transactions
The following table
presents the types of derivatives held by the Fund at November 30, 2019, the primary underlying risk exposure and the location of these instruments as presented on the Statement of Assets and Liabilities.
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
Derivative
Instrument
|
|
Risk
Exposure
|
|
Statement of Assets and
Liabilities Location
|
|
Value
|
|
Statement of Assets and
Liabilities Location
|
|
Value
|
Written Options
|
|
Equity Risk
|
|
—
|
|
—
|
|
Options written, at value
|
|
$ 1,370,611
|
The following table
presents the amount of net realized gain (loss) and change in net unrealized appreciation (depreciation) recognized for the fiscal year ended November 30, 2019, on derivative instruments, as well as the primary
underlying risk exposure associated with each instrument.
Statement of Operations Location
|
|
Equity Risk Exposure
|
|
Net realized gain (loss) before taxes on written options
|
$5,178,960
|
Net change in unrealized appreciation (depreciation) before taxes on written options
|
1,672,339
|
During the fiscal year
ended November 30, 2019, the premiums for written options opened were $10,437,282, and the premiums for written options closed, exercised and expired were $10,035,187.
The Fund does not have
the right to offset financial assets and liabilities related to option contracts on the Statement of Assets and Liabilities.
Notes to Financial Statements (Continued)
First Trust Energy
Income and Growth Fund (FEN)
November 30, 2019
6. Borrowings
The Fund entered into a
committed facility agreement (the “Committed Facility Agreement”) with BNP Paribas Prime Brokerage International, Ltd. (“PBL”). Absent certain events of default or failure to maintain certain
collateral requirements, PBL may not terminate the Committed Facility Agreement except upon 179 calendar days’ prior notice. The maximum commitment amount is $180,000,000, which comprises a floating rate
financing amount and a fixed rate financing amount. Prior to July 22, 2019, the maximum commitment amount was $225,000,000. The commitment fee of 0.55% of the undrawn amount is waived on any day on which the drawn
amount is 80% or more of the maximum commitment amount. Prior to May 22, 2019, the commitment fee rate was 0.80%. The borrowing rate on the floating rate financing amount is equal to the 1-month LIBOR plus 85 basis
points and the borrowing rate on the fixed rate financing amount of $102,700,000 is 3.53%. The fixed rate financing amount is for a ten-year period ending in 2023.
The average amount
outstanding for the fiscal year ended November 30, 2019, was $149,328,767, with a weighted average interest rate of 3.41%. As of November 30, 2019, the Fund had outstanding borrowings of $146,000,000, which
approximates fair value, under the Committed Facility Agreement. The borrowings are categorized as Level 2 within the fair value hierarchy. On the floating rate financing amount, the high and low annual interest rates
for the fiscal year ended November 30, 2019, were 3.53% and 2.54%, respectively. The weighted average interest rate at November 30, 2019, was 3.24%.
7. Common Share
Offerings
On June 19, 2017, the
Fund and the Advisor entered into a sales agreement with JonesTrading Institutional Services, LLC (“Jones Trading”) whereby the Fund may offer and sell up to Common Shares from time to time through
JonesTrading as agent for the offer and sale of the Common Shares. Sales of Common Shares pursuant to the sales agreement may be made in negotiated transactions or transactions that are deemed to be “at the
market” as defined in Rule 415 under the 1933 Act, including sales made directly on the NYSE or sales made through a market maker other than on an exchange, at an offering price equal to or in excess of the net
asset value per share of the Fund’s Common Shares at the time such Common Shares are initially sold. The Fund used the net proceeds from the sale of the Common Shares in accordance with its investment objective
and policies. The Registration Statement has not been effective since March 2019, and therefore Common Shares have not been offered under the sales agreement since that time. Any future sales of Common Shares under
the sales agreement will be made pursuant to an effective Registration Statement. There were no transactions for the fiscal year ended November 30, 2019. Transactions for the fiscal year ended November 30, 2018
related to offerings under such sales agreements are as follows:
|
Common
Shares
Sold
|
|
Net
Proceeds
Received
|
|
Net Asset
Value of
Shares Sold
|
|
Net Proceeds
Received in
Excess of Net
Asset Value
|
Year ended 11/30/18
|
183,236
|
|
$4,111,227
|
|
$4,039,839
|
|
$71,388
|
Additionally, estimated
offering costs of $132,500 related to this offering were recorded as a prepaid asset and were amortized to expense by the Fund on a straight line basis over a one year period.
8. Indemnification
The Fund has a variety of
indemnification obligations under contracts with its service providers. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these
contracts and expects the risk of loss to be remote.
9. Industry
Concentration Risk
Under normal market
conditions, the Fund invests at least 85% of its Managed Assets in securities issued by energy companies, energy sector MLPs and energy sector MLP-related entities. Given this industry concentration, the Fund is more
susceptible to adverse economic or regulatory occurrences affecting that industry than an investment company that is not concentrated in a single industry. Energy 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.
Notes to Financial Statements (Continued)
First Trust Energy
Income and Growth Fund (FEN)
November 30, 2019
10. Subsequent
Events
Management has evaluated
the impact of all subsequent events to the Fund through the date the financial statements were issued, and has determined that there were no subsequent events requiring recognition or disclosure in the financial
statements that have not already been disclosed.
Report of Independent
Registered Public Accounting Firm
To the Shareholders and the
Board of Trustees of First Trust Energy Income and Growth Fund:
Opinion on the Financial
Statements and Financial Highlights
We have audited the
accompanying statement of assets and liabilities of First Trust Energy Income and Growth Fund (the “Fund”), including the portfolio of investments, as of November 30, 2019, the related statements of
operations and cash flows for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then
ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of November 30, 2019, and the results of
its operations and its cash flows for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then
ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial
statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits
in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required
to obtain an understanding of internal control over financial reporting 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.
Our audits included
performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of
November 30, 2019, by correspondence with the custodian and brokers. We believe that our audits provide a reasonable basis for our opinion.
Chicago, Illinois
January 24, 2020
We have served as the
auditor of one or more First Trust investment companies since 2001.
Additional Information
First Trust Energy
Income and Growth Fund (FEN)
November 30, 2019
(Unaudited)
Dividend Reinvestment
Plan
If your Common Shares are
registered directly with the Fund or if you hold your Common Shares with a brokerage firm that participates in the Fund’s Dividend Reinvestment Plan (the “Plan”), unless you elect, by written notice
to the Fund, to receive cash distributions, all dividends, including any capital gain distributions, on your Common Shares will be automatically reinvested by BNY Mellon Investment Servicing (US) Inc. (the “Plan
Agent”), in additional Common Shares under the Plan. If you elect to receive cash distributions, you will receive all distributions in cash paid by check mailed directly to you by the Plan Agent, as the dividend
paying agent.
If you decide to
participate in the Plan, the number of Common Shares you will receive will be determined as follows:
(1)
|
If Common Shares are trading at or above net asset value (“NAV”) at the time of valuation, the Fund will issue new shares at a price equal to the greater of (i) NAV per Common Share on that
date or (ii) 95% of the market price on that date.
|
(2)
|
If Common Shares are trading below NAV at the time of valuation, the Plan Agent will receive the dividend or distribution in cash and will purchase Common Shares in the open market,
on the NYSE or elsewhere, for the participants’ accounts. It is possible that the market price for the Common Shares may increase before the Plan Agent has completed its purchases. Therefore, the average
purchase price per share paid by the Plan Agent may exceed the market price at the time of valuation, resulting in the purchase of fewer shares than if the dividend or distribution had been paid in Common Shares
issued by the Fund. The Plan Agent will use all dividends and distributions received in cash to purchase Common Shares in the open market within 30 days of the valuation date except where temporary curtailment or
suspension of purchases is necessary to comply with federal securities laws. Interest will not be paid on any uninvested cash payments.
|
You may elect to opt-out
of or withdraw from the Plan at any time by giving written notice to the Plan Agent, or by telephone at (866) 340-1104, in accordance with such reasonable requirements as the Plan Agent and the Fund may agree upon. If
you withdraw or the Plan is terminated, you will receive a certificate for each whole share in your account under the Plan, and you will receive a cash payment for any fraction of a share in your account. If you wish,
the Plan Agent will sell your shares and send you the proceeds, minus brokerage commissions.
The Plan Agent maintains
all Common Shareholders’ accounts in the Plan and gives written confirmation of all transactions in the accounts, including information you may need for tax records. Common Shares in your account will be held by
the Plan Agent in non-certificated form. The Plan Agent will forward to each participant any proxy solicitation material and will vote any shares so held only in accordance with proxies returned to the Fund. Any proxy
you receive will include all Common Shares you have received under the Plan.
There is no brokerage
charge for reinvestment of your dividends or distributions in Common Shares. However, all participants will pay a pro rata share of brokerage commissions incurred by the Plan Agent when it makes open market
purchases.
Automatically reinvesting
dividends and distributions does not mean that you do not have to pay income taxes due upon receiving dividends and distributions. Capital gains and income are realized although cash is not received by you. Consult
your financial advisor for more information.
If you hold your Common
Shares with a brokerage firm that does not participate in the Plan, you will not be able to participate in the Plan and any dividend reinvestment may be effected on different terms than those described above.
The Fund reserves the
right to amend or terminate the Plan if in the judgment of the Board of Trustees the change is warranted. There is no direct service charge to participants in the Plan; however, the Fund reserves the right to amend
the Plan to include a service charge payable by the participants. Additional information about the Plan may be obtained by writing BNY Mellon Investment Servicing (US) Inc., 301 Bellevue Parkway, Wilmington, Delaware
19809.
Proxy Voting Policies
and Procedures
A description of the
policies and procedures that the Fund uses to determine how to vote proxies and information on how the Fund voted proxies relating to portfolio investments during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on the Fund’s website at www.ftportfolios.com; and (3) on the Securities and Exchange Commission’s (“SEC”) website at www.sec.gov.
Portfolio Holdings
The Fund files portfolio
holdings information for each month in a fiscal quarter within 60 days after the end of the relevant fiscal quarter on Form N-PORT. Portfolio holdings information for the third month of each fiscal quarter will be
publicly available on the
Additional Information (Continued)
First Trust Energy
Income and Growth Fund (FEN)
November 30, 2019
(Unaudited)
SEC’s website at www.sec.gov. The Fund’s complete schedule of portfolio holdings for the second and fourth quarters of each fiscal year is included in the semi-annual and
annual reports to shareholders, respectively, and is filed with the SEC on Form N-CSR. The semi-annual and annual report for the Fund is available to investors within 60 days after the period to which it relates. The
Fund’s Forms N-PORT and Forms N-CSR are available on the SEC’s website listed above.
Submission of Matters to
a Vote of Shareholders
The Fund held its Annual
Meeting of Shareholders (the “Annual Meeting”) on April 8, 2019. At the Annual Meeting, James A. Bowen and Niel B. Nielson were elected by the Common Shareholders of the First Trust Energy Income and
Growth Fund as Class III Trustees for a three-year term expiring at the Fund’s annual meeting of shareholders in 2022. The number of votes cast in favor of Mr. Bowen was 17,693,683, the number of votes against
was 423,487 and the number of broker non-votes was 1,867,206. The number of votes cast in favor of Mr. Nielson was 17,673,310, the number of votes against was 443,860 and the number of broker non-votes was 1,867,206.
Richard E. Erickson, Thomas R. Kadlec and Robert F. Keith are the other current and continuing Trustees.
Risk Considerations
The following discussion
summarizes certain (but not all) of the principal risks associated with investing in the Fund. The Fund is subject to the informational requirements of the Securities Exchange Act of 1934 and the Investment Company
Act of 1940 and, in accordance therewith, files reports, proxy statements and other information that is available for review. The order of the below risk factors does not indicate the significance of any particular
risk factor.
Covered Call Options
Risk. As the writer (seller) of a call option, the Fund forgoes, during the life of the option, the opportunity to profit from increases in the market value of the portfolio security covering the
option above the sum of the premium and the strike price of the call option but retains the risk of loss should the price of the underlying security decline. The value of call options written by the Fund, which are
priced daily, are determined by trading activity in the broad options market and will be affected by, among other factors, changes in the value of the underlying security in relation to the strike price, changes in
dividend rates of the underlying security, changes in interest rates, changes in actual or perceived volatility of the stock market and the underlying security, and the time remaining until the expiration date. The
value of call options written by the Fund may be adversely affected if the market for the option is reduced or becomes illiquid. There can be no assurance that a liquid market will exist when the Fund seeks to close
out an option position.
Cyber Security Risk. The Fund is susceptible to potential operational risks through breaches in cyber security. A breach in cyber security refers to both intentional and unintentional events that may cause the
Fund to lose proprietary information, suffer data corruption or lose operational capacity. Such events could cause the Fund to incur regulatory penalties, reputational damage, additional compliance costs associated
with corrective measures and/or financial loss. Cyber security breaches may involve unauthorized access to the Fund’s digital information systems through “hacking” or malicious software coding but
may also result from outside attacks such as denial-of-service attacks through efforts to make network services unavailable to intended users. In addition, cyber security breaches of the Fund’s third-party
service providers, such as its administrator, transfer agent, custodian, or sub-advisor, as applicable, or issuers in which the Fund invests, can also subject the Fund to many of the same risks associated with direct
cyber security breaches. The Fund has established risk management systems designed to reduce the risks associated with cyber security. However, there is no guarantee that such efforts will succeed, especially because
the Fund does not directly control the cyber security systems of issuers or third-party service providers.
Energy Infrastructure
Companies Risk. Energy infrastructure companies may be directly affected by energy commodity prices, especially those companies which own the underlying energy commodity. A decrease in the production or
availability of natural gas, natural gas liquids, crude oil, coal or other energy commodities or a decrease in the volume of such commodities available for transportation, processing, storage or distribution may
adversely impact the financial performance of energy infrastructure companies. Energy infrastructure companies are subject to significant federal, state and local government regulation in virtually every aspect of
their operations, including how facilities are constructed, maintained and operated, environmental and safety controls, and the prices they may charge for products and services. Various governmental authorities have
the power to enforce compliance with these regulations and the permits issued under them and violators are subject to administrative, civil and criminal penalties, including civil fines, injunctions or both. Stricter
laws, regulations or enforcement policies could be enacted in the future which would likely increase compliance costs and may adversely affect the financial performance of energy infrastructure companies. Natural
disasters, such as hurricanes in the Gulf of Mexico, also may impact energy infrastructure companies.
Certain energy
infrastructure companies are subject to the imposition of rate caps, increased competition due to deregulation, counterparties to contracts defaulting or going bankrupt, the difficulty in obtaining an adequate return
on invested capital or in financing large construction projects, the limitations on operations and increased costs and delays attributable to environmental
Additional Information (Continued)
First Trust Energy
Income and Growth Fund (FEN)
November 30, 2019
(Unaudited)
considerations, and the capital
market’s ability to absorb utility debt. In addition, taxes, government regulation, international politics, price and supply fluctuations, volatile interest rates and energy conservation may cause difficulties
for these companies.
Equity Securities
Risk. The value of the Fund’s shares will fluctuate with changes in the value of the equity securities in which the Fund invests. Prices of equity securities fluctuate for several reasons,
including changes in investors’ perceptions of the financial condition of an issuer or the general condition of the relevant stock market, such as market volatility, or when political or economic events
affecting the issuers occur. In addition, common stock prices may be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase.
Interest Rate Swaps
Risk. To the extent that the Fund invests in swaps, if short-term interest rates are lower than the Fund’s fixed rate of payment on an interest rate swap, the swap will reduce common share
net earnings. In addition, a default by the counterparty to a swap transaction could also negatively impact the performance of the common shares.
Investment Concentration
Risk. The Fund’s investments are concentrated in the group of industries that are part of the energy sector, with a particular focus on energy sector MLPs, energy sector MLP-related
entities and other energy companies. The Fund’s concentration in the group of industries that are part of the energy sector may present more risk than if the Fund were broadly diversified over multiple sectors
of the economy. A downturn in one or more industries within the energy sector, material declines in energy-related commodity prices, adverse political, legislative or regulatory developments or other events could have
a larger impact on the Fund than on an investment company that does not concentrate in the group of industries that are part of the energy sector. Certain risks inherent in investing in the business of the types of
securities that the Fund may invest include: commodity pricing risk, commodity supply and demand risk, lack of diversification of and reliance on customers and suppliers risk, including the risk of counterparty
default, commodity depletion and exploration risk, energy sector and energy utility industry regulatory risk, including risks associated with the prices and methodology of determining prices that energy companies may
charge for their products and services, interest rate risk, risk of lack of acquisition or reinvestment opportunities, risk of lacking of funding, dependency on MLP affiliate risk, weather risk, catastrophe risk,
terrorism and MLP market disruption risk, and technology risk.
Companies that own
interstate pipelines are subject to regulation by the Federal Energy Regulatory Commission (FERC) with respect to the tariff rates that they may charge to their customers. In March 2018, FERC changed its tax allowance
policy to no longer permit such companies to include in their cost of service an income tax allowance to the extent that their owners have an actual or potential tax liability on the income generated by them. This has
had a negative impact on the performance of some energy companies affected by this decision.
Other factors which may
reduce the amount of cash an MLP, MLP-related entity and other energy sector company has available to pay its debt and equity holders include increased operating costs, maintenance capital expenditures, acquisition
costs, expansion or construction costs and borrowing costs (including increased borrowing costs as a result of additional collateral requirements as a result of ratings downgrades by credit agencies).
Leverage Risk. The use of leverage by the Fund can magnify the effect of any losses. If the income and gains from the securities and investments purchased with leverage proceeds do not cover the cost of
leverage, the return to the common shares will be less than if leverage had not been used. Leverage involves risks and special considerations for common shareholders including: the likelihood of greater volatility of
net asset value and market price of the common shares than a comparable portfolio without leverage; the risk that fluctuations in interest rates on borrowings will reduce the return to the common shareholders or will
result in fluctuations in the dividends paid on the common shares; in a declining market, the use of leverage is likely to cause a greater decline in the net asset value of the common shares than if the Fund were not
leveraged, which may result in a greater decline in the market price of the common shares; and when the Fund uses certain types of leverage, the investment advisory fee payable to the Advisor and by the Advisor to the
Sub-Advisor will be higher than if the Fund did not use leverage.
Liquidity Risk. Certain securities in which the Fund may invest may trade less frequently, particularly those of issuers with smaller capitalizations. Securities with limited trading volumes may display
volatile or erratic price movements. The Fund may have difficulty selling these investments in a timely manner, be forced to sell them for less than it otherwise would have been able to realize, or both.
Management Risk and
Reliance on Key Personnel. The implementation of the Fund’s investment strategy depends upon the continued contributions of certain key employees of the Advisor and Sub-Advisor, some of whom have unique
talents and experience and would be difficult to replace. The loss or interruption of the services of a key member of the portfolio management team could have a negative impact on the Fund.
Market Discount from Net
Asset Value. Shares of closed-end investment companies such as the Fund frequently trade at a discount from their net asset value. The Fund cannot predict whether its common shares will trade at, below
or above net asset value.
Additional Information (Continued)
First Trust Energy
Income and Growth Fund (FEN)
November 30, 2019
(Unaudited)
MLP Risk. Investments in securities of MLPs involve certain risks different from or in addition to the risks of investing in common stocks. MLP common units can be affected by macro-economic factors
and other factors unique to the partnership or company and the industry or industries in which the MLP operates. Certain MLP securities may trade in relatively low volumes due to their smaller capitalizations or other
factors, which may cause them to have a high degree of price volatility and illiquidity. The structures of MLPs create certain risks, including, for example, risks related to the limited ability of investors to
control an MLP and to vote on matters affecting the MLP, risks related to potential conflicts of interest between an MLP and the MLP’s general partner, the risk that an MLP will generate insufficient cash flow
to meet its current operating requirements, the risk that an MLP will issue additional securities or engage in other transactions that will have the effect of diluting the interests of existing investors, and risks
related to the general partner’s right to require unit-holders to sell their common units at an undesirable time or price.
Non-Diversification
Risk. The Fund is a non-diversified investment company under the 1940 Act and will not be treated as a regulated investment company under the Internal Revenue Code of 1986. Accordingly, the
diversification-specific regulatory requirements under the 1940 Act and the Internal Revenue Code of 1986 regarding the minimum number or size of portfolio securities do not apply to the Fund, and the Fund’s
investments may be more heavily concentrated in, and thus more sensitive to changes in the prices of, securities of particular issuers.
Non-U.S. Securities and
Currency Risk. Investing in non-U.S. securities involves certain risks not involved in domestic investments, including, but not limited to: fluctuations in currency exchange rates; future foreign
economic, financial, political and social developments; different legal systems; the possible imposition of exchange controls or other foreign governmental laws or restrictions; lower trading volume; withholding taxes;
greater price volatility and illiquidity; different trading and settlement practices; less governmental supervision; high and volatile rates of inflation; fluctuating interest rates; less publicly available
information; and different accounting, auditing and financial recordkeeping standards and requirements. Because the Fund may invest in securities denominated or quoted in non-U.S. currencies, changes in the non-U.S.
currency/United States dollar exchange rate may affect the value of the Fund’s securities and the unrealized appreciation or depreciation of investments.
Potential Conflicts of
Interest Risk. First Trust, EIP and the portfolio managers have interests which may conflict with the interests of the Fund. In particular, First Trust and EIP currently manage and may in the future
manage and/or advise other investment funds or accounts with the same or substantially similar investment objective and strategies as the Fund. In addition, while the Fund is using leverage, the amount of the fees
paid to First Trust (and by First Trust to EIP) for investment advisory and management services are higher than if the Fund did not use leverage because the fees paid are calculated based on managed assets. Therefore,
First Trust and EIP have a financial incentive to leverage the Fund.
Recent Market and Economic
Developments. The number of energy-related MLPs has declined since 2014. The industry is witnessing the consolidation or simplification of corporate structures where the MLP sleeve of capital is being
eliminated. As a result of the foregoing, the Fund’s MLP investments could become less diverse and the Fund may increase its non-MLP investments consistent with its investment objective and policies.
Restricted Securities
Risk. The term “restricted securities” refers to securities that are unregistered or are held by control persons of the issuer and securities that are subject to contractual
restrictions on their resale. As a result, restricted securities may be more difficult to value and the Fund may have difficulty disposing of such assets either in a timely manner or for a reasonable price. In order
to dispose of an unregistered security, the Fund, where it has contractual rights to do so, may have to cause such security to be registered. A considerable period may elapse between the time the decision is made to
sell the security and the time the security is registered so that the Fund could sell it. Contractual restrictions on the resale of securities vary in length and scope and are generally the result of a negotiation
between the issuer and acquirer of the securities. The Fund would, in either case, bear market risks during that period.
Tax Risk. A change in current tax law, a change in the business of a given MLP, or a change in the types of income earned by a given MLP could result in an MLP being treated as a corporation for
United States federal income tax purposes, which would result in such MLP being required to pay United States federal income tax on its taxable income. Recent events have caused some MLPs to be reclassified or
restructured as corporations. The classification of an MLP as a corporation for United States federal income tax purposes has the effect of reducing the amount of cash available for distribution by the MLP and causing
any such distributions received by the Fund to be taxed as dividend income to the extent of the MLP’s current or accumulated earnings and profits.
A reduction in the
percentage of the income offset by tax deductions or an increase in sales of the Fund’s MLP holdings that result in capital gains will reduce that portion of the Fund’s distribution from an MLP treated as
a return of capital and increase that portion treated as income, and may result in lower after-tax distributions to the Fund’s common shareholders. On the other hand, to the extent a distribution received by the
Fund from an MLP is treated as a return of capital, the Fund’s adjusted tax basis in the interests of the MLP may be reduced, which will result in an increase in the amount of income or gain or decrease in the
amount of loss that will be recognized by the Fund for tax purposes upon the sale of any such interests.
Additional Information (Continued)
First Trust Energy
Income and Growth Fund (FEN)
November 30, 2019
(Unaudited)
Changes in tax laws or
regulations, or interpretations thereof in the future, could adversely affect the Fund or the MLPs, MLP-related entities and other energy sector and energy utility companies in which the Fund invests.
Utility Companies
Risk. Utility companies include companies producing or providing gas, electricity or water. These companies are subject to the risk of the imposition of rate caps, increased competition due to
deregulation, the difficulty in obtaining an adequate return on invested capital or in financing large construction projects, the limitations on operations and increased costs and delays attributable to environmental
considerations and the capital market’s ability to absorb utility debt. In addition, taxes, government regulation, international politics, price and supply fluctuations, volatile interest rates and energy
conservation may negatively affect utility companies.
Valuation Risk. Market prices generally will not be available for subordinated units, direct ownership of general partner interests, restricted securities or unregistered securities of certain MLPs or
MLP-related entities, and the value of such investments will ordinarily be determined based on fair valuations determined pursuant to procedures adopted by the Board of Trustees. The value of these securities
typically requires more reliance on the judgment of the Sub-Advisor than that required for securities for which there is an active trading market. In addition, the Fund relies on information provided by certain MLPs,
which is usually not timely, to calculate taxable income allocable to the MLP units held in the Fund’s portfolio and to determine the tax character of distributions to common shareholders. From time to time the
Fund will modify its estimates and/or assumptions 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.
Advisory and
Sub-Advisory Agreements
Board Considerations
Regarding Approval of Continuation of Investment Management and Investment Sub-Advisory Agreements
The Board of Trustees of
First Trust Energy Income and Growth Fund (the “Fund”), including the Independent Trustees, unanimously approved the continuation of the Investment Management Agreement (the “Advisory
Agreement”) between the Fund and First Trust Advisors L.P. (the “Advisor”) and the Investment Sub-Advisory Agreement (the “Sub-Advisory Agreement” and together with the Advisory
Agreement, the “Agreements”) among the Fund, the Advisor and Energy Income Partners, LLC (the “Sub-Advisor”) for a one-year period ending June 30, 2019 at a meeting held on June 11, 2018. The
Board determined that the continuation of the Agreements is in the best interests of the Fund in light of the nature, extent and quality of the services provided and such other matters as the Board considered to be
relevant in the exercise of its reasonable business judgment.
To reach this
determination, the Board considered its duties under the Investment Company Act of 1940, as amended (the “1940 Act”), as well as under the general principles of state law, in reviewing and approving
advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisors with respect to advisory agreements and compensation; the standards used by courts in determining whether
investment company boards have fulfilled their duties; and the factors to be considered by the Board in voting on such agreements. At meetings held on April 23, 2018 and June 11, 2018, the Board, including the
Independent Trustees, reviewed materials provided by the Advisor and the Sub-Advisor responding to requests for information from counsel to the Independent Trustees that, among other things, outlined the services
provided by the Advisor and the Sub-Advisor to the Fund (including the relevant personnel responsible for these services and their experience); the advisory fee rate payable by the Fund and the sub-advisory fee rate
as compared to fees charged to a peer group of funds compiled by Management Practice, Inc. (“MPI”), an independent source (the “Peer Group”), and as compared to fees charged to other clients of
the Advisor and the Sub-Advisor; expenses of the Fund as compared to expense ratios of the funds in the Peer Group; performance information for the Fund; the nature of expenses incurred in providing services to the
Fund and the potential for economies of scale, if any; financial data on the Advisor and the Sub-Advisor; any fall-out benefits to the Advisor and its affiliate, First Trust Capital Partners, LLC (“FTCP”),
and the Sub-Advisor; and information on the Advisor’s and the Sub-Advisor’s compliance programs. The Board reviewed initial materials with the Advisor at the meeting held on April 23, 2018, prior to which
the Independent Trustees and their counsel met separately to discuss the information provided by the Advisor and the Sub-Advisor. Following the April meeting, independent legal counsel on behalf of the Independent
Trustees requested certain clarifications and supplements to the materials provided, and the information provided in response to those requests was considered at an executive session of the Independent Trustees and
independent legal counsel held prior to the June 11, 2018 meeting, as well as at the meeting held that day. The Board applied its business judgment to determine whether the arrangements between the Fund and the
Advisor and among the Fund, the Advisor and the Sub-Advisor continue to be reasonable business arrangements from the Fund’s perspective. The Board determined that, given the totality of the information provided
with respect to the Agreements, the Board had received sufficient information to renew the Agreements. The Board considered that shareholders chose to invest or remain invested in the Fund knowing that the Advisor and
the Sub-Advisor manage the Fund.
In reviewing the
Agreements, the Board considered the nature, extent and quality of the services provided by the Advisor and the Sub-Advisor under the Agreements. With respect to the Advisory Agreement, the Board considered that the
Advisor is responsible for the overall management and administration of the Fund and reviewed all of the services provided by the Advisor to the Fund, including the oversight of the Sub-Advisor, as well as the
background and experience of the persons responsible for such services. The Board
Additional Information (Continued)
First Trust Energy
Income and Growth Fund (FEN)
November 30, 2019
(Unaudited)
noted that the Advisor oversees the
Sub-Advisor’s day-to-day management of the Fund’s investments, including portfolio risk monitoring and performance review. In reviewing the services provided, the Board noted the compliance program that
had been developed by the Advisor and considered that it includes a robust program for monitoring the Advisor’s, the Sub-Advisor’s and the Fund’s compliance with the 1940 Act, as well as the
Fund’s compliance with its investment objective, policies and restrictions. The Board also considered a report from the Advisor with respect to its risk management functions related to the operation of the Fund.
Finally, as part of the Board’s consideration of the Advisor’s services, the Advisor, in its written materials and at the April 23, 2018 meeting, described to the Board the scope of its ongoing investment
in additional infrastructure and personnel to maintain and improve the quality of services provided to the Fund and the other funds in the First Trust Fund Complex. With respect to the Sub-Advisory Agreement, in
addition to the written materials provided by the Sub-Advisor, at the June 11, 2018 meeting, the Board also received a presentation from representatives of the Sub-Advisor discussing the services that the Sub-Advisor
provides to the Fund, including the Sub-Advisor’s day-to-day management of the Fund’s investments. In considering the Sub-Advisor’s management of the Fund, the Board noted the background and
experience of the Sub-Advisor’s portfolio management team. In light of the information presented and the considerations made, the Board concluded that the nature, extent and quality of the services provided to
the Fund by the Advisor and the Sub-Advisor under the Agreements have been and are expected to remain satisfactory and that the Sub-Advisor, under the oversight of the Advisor, has managed the Fund consistent with its
investment objective, policies and restrictions.
The Board considered the
advisory and sub-advisory fee rates payable under the Agreements for the services provided. The Board noted that the sub-advisory fee is paid by the Advisor from its advisory fee. The Board received and reviewed
information showing the advisory fee rates and expense ratios of the peer funds in the Peer Group, as well as advisory and unitary fee rates charged by the Advisor and the Sub-Advisor to other fund and non-fund
clients, as applicable. With respect to the Peer Group, the Board noted its prior discussions with the Advisor and MPI regarding the assembly of the Peer Group and, at the April 23, 2018 meeting, discussed with the
Advisor limitations in creating a relevant peer group for the Fund, including that (i) the Fund is unique in its composition, which makes assembling peers with similar strategies and asset mix difficult; (ii) peer
funds may use different amounts and types of leverage with different costs associated with them; (iii) only two of the peer funds employ an advisor/sub-advisor management structure and only one of those peer funds
employs an unaffiliated sub-advisor; and (iv) most of the peer funds are larger than the Fund, which causes the Fund’s fixed expenses to be higher on a percentage basis as compared to the larger peer funds. The
Board took these limitations into account in considering the peer data, and noted that the advisory fee rate payable by the Fund, based on average managed assets, was at the median of the MPI Peer Group. With respect
to fees charged to other clients, the Board considered differences between the Fund and other clients that limited their comparability. In considering the advisory fee rate overall, the Board also considered the
Advisor’s statement that it seeks to meet investor needs through innovative and value-added investment solutions and the Advisor’s description of its long-term commitment to the Fund.
The Board considered
performance information for the Fund. The Board noted the process it has established for monitoring the Fund’s performance and portfolio risk on an ongoing basis, which includes quarterly performance reporting
from the Advisor and Sub-Advisor for the Fund. The Board determined that this process continues to be effective for reviewing the Fund’s performance. The Board received and reviewed information comparing the
Fund’s performance for periods ended December 31, 2017 to the performance of the peer funds in the Peer Group and to two benchmark indexes. In reviewing the Fund’s performance as compared to the
performance of the Peer Group, the Board took into account the limitations described above with respect to creating a relevant peer group for the Fund. Based on the information provided on net asset value performance,
the Board noted that the Fund outperformed the Peer Group average for the one-, three- and five-year periods ended December 31, 2017. The Board also noted that the Fund outperformed both of the benchmark indexes for
the one-, three- and five-year periods ended December 31, 2017. In addition, the Board considered information provided by the Advisor on the impact of leverage on the Fund’s returns. The Board also received
information on the Fund’s annual distribution rate as of December 31, 2016 and the Fund’s average trading discount for various periods and comparable information for a peer group.
On the basis of all the
information provided on the fees, expenses and performance of the Fund and the ongoing oversight by the Board, the Board concluded that the advisory and sub-advisory fees continue to be reasonable and appropriate in
light of the nature, extent and quality of the services provided by the Advisor and the Sub-Advisor to the Fund under the Agreements.
The Board considered
information and discussed with the Advisor whether there were any economies of scale in connection with providing advisory services to the Fund and noted the Advisor’s statement that it believes its expenses
will likely increase over the next twelve months as the Advisor continues to make investments in infrastructure and personnel. The Board determined that due to the Fund’s closed-end structure, the potential for
realization of economies of scale as Fund assets grow was not a material factor to be considered. The Board considered the revenues and allocated costs (including the allocation methodology) of the Advisor in serving
as investment advisor to the Fund for the twelve months ended December 31, 2017 and the estimated profitability level for the Fund calculated by the Advisor based on such data, as well as complex-wide and product-line
profitability data, for the same period. The Board noted the inherent limitations in the profitability analysis and concluded that, based on the information provided, the Advisor’s profitability level for the
Fund was not unreasonable. In addition, the Board considered fall-out benefits described by the Advisor that
Additional Information (Continued)
First Trust Energy
Income and Growth Fund (FEN)
November 30, 2019
(Unaudited)
may be realized from its relationship
with the Fund. The Board considered the ownership interest of FTCP in the Sub-Advisor and potential fall-out benefits to the Advisor from such ownership interest. The Board noted that in addition to the advisory fees
paid by the Fund, the Advisor is compensated for fund reporting services pursuant to a separate Fund Reporting Services Agreement. The Board concluded that the character and amount of potential fall-out benefits to
the Advisor were not unreasonable.
The Board considered that
the Sub-Advisor’s investment services expenses are primarily fixed, and that the Sub-Advisor has made recent investments in personnel and infrastructure and expects its expenses to increase over the next twelve
months as it continues to make investments in additional personnel. The Board did not review the profitability of the Sub-Advisor with respect to the Fund. The Board noted that the Advisor pays the Sub-Advisor from
its advisory fee and its understanding that the Fund’s sub-advisory fee rate was the product of an arm’s length negotiation. The Board concluded that the profitability analysis for the Advisor was more
relevant. The Board considered fall-out benefits that may be realized by the Sub-Advisor from its relationship with the Fund, including soft-dollar arrangements, and considered a summary of such arrangements. The
Board also considered the potential fall-out benefits to the Sub-Advisor from FTCP’s ownership interest in the Sub-Advisor. The Board concluded that the character and amount of potential fall-out benefits to the
Sub-Advisor were not unreasonable.
Based on all of the
information considered and the conclusions reached, the Board, including the Independent Trustees, unanimously determined that the terms of the Agreements continue to be fair and reasonable and that the continuation
of the Agreements is in the best interests of the Fund. No single factor was determinative in the Board’s analysis.
Board of Trustees and Officers
First Trust Energy
Income and Growth Fund (FEN)
November 30, 2019
(Unaudited)
The following tables
identify the Trustees and Officers of the Fund. Unless otherwise indicated, the address of all persons is 120 East Liberty Drive, Suite 400, Wheaton, IL 60187.
Name, Year of Birth and Position with the Fund
|
Term of Office and Year First Elected or Appointed(1)
|
Principal Occupations
During Past 5 Years
|
Number of Portfolios in the First Trust Fund Complex Overseen by Trustee
|
Other Trusteeships or Directorships Held by Trustee During Past 5 Years
|
INDEPENDENT TRUSTEES
|
Richard E. Erickson, Trustee
(1951)
|
• Three Year Term
• Since Fund Inception
|
Physician; Officer, Wheaton Orthopedics; Limited Partner, Gundersen Real Estate Limited Partnership (June 1992 to December 2016); Member, Sportsmed LLC (April 2007
to November 2015)
|
169
|
None
|
Thomas R. Kadlec, Trustee
(1957)
|
• Three Year Term
• Since Fund Inception
|
President, ADM Investor Services, Inc. (Futures Commission Merchant)
|
169
|
Director of ADM Investor Services, Inc., ADM Investor Services International, Futures Industry Association, and National Futures Association
|
Robert F. Keith, Trustee
(1956)
|
• Three Year Term
• Since Fund Inception
|
President, Hibs Enterprises (Financial and Management Consulting)
|
169
|
Director of Trust Company of Illinois
|
Niel B. Nielson, Trustee
(1954)
|
• Three Year Term
• Since Fund Inception
|
Senior Advisor (August 2018 to Present), Managing Director and Chief Operating Officer (January 2015 to August 2018), Pelita Harapan Educational Foundation
(Educational Products and Services); President and Chief Executive Officer (June 2012 to September 2014), Servant Interactive LLC (Educational Products and Services); President and Chief Executive Officer (June 2012
to September 2014), Dew Learning LLC (Educational Products and Services)
|
169
|
None
|
INTERESTED TRUSTEE
|
James A. Bowen(2), Trustee and
Chairman of the Board
(1955)
|
• Three Year Term
• Since Fund Inception
|
Chief Executive Officer, First Trust Advisors L.P. and First Trust Portfolios L.P.; Chairman of the Board of Directors, BondWave LLC (Software
Development Company) and Stonebridge Advisors LLC (Investment Advisor)
|
169
|
None
|
(1)
|
Currently, Robert F. Keith, as a Class I Trustee, is serving as a trustee until the Fund’s 2020 annual meeting of shareholders. Richard E. Erickson and Thomas R. Kadlec, as Class II Trustees, are
serving as trustees until the Fund’s 2021 annual meeting of shareholders. James A. Bowen and Niel B. Nielson, as Class III Trustees, are serving as trustees until the Fund’s 2022 annual meeting of
shareholders.
|
(2)
|
Mr. Bowen is deemed an “interested person” of the Fund due to his position as CEO of First Trust Advisors L.P., investment advisor of the Fund.
|
Board of Trustees and Officers (Continued)
First Trust Energy
Income and Growth Fund (FEN)
November 30, 2019
(Unaudited)
Name and Year of Birth
|
Position and Offices with Fund
|
Term of Office and Length of Service
|
Principal Occupations
During Past 5 Years
|
OFFICERS(3)
|
James M. Dykas
(1966)
|
President and Chief Executive Officer
|
• Indefinite Term
• Since January 2016
|
Managing Director and Chief Financial Officer (January 2016 to Present), Controller (January 2011 to January 2016), Senior Vice President (April 2007 to January 2016), First Trust
Advisors L.P. and First Trust Portfolios L.P.; Chief Financial Officer (January 2016 to Present), BondWave LLC (Software Development Company) and Stonebridge Advisors LLC (Investment Advisor)
|
Donald P. Swade
(1972)
|
Treasurer, Chief Financial Officer and Chief Accounting Officer
|
• Indefinite Term
• Since January 2016
|
Senior Vice President (July 2016 to Present), Vice President (April 2012 to July 2016), First Trust Advisors L.P. and First Trust Portfolios L.P.
|
W. Scott Jardine
(1960)
|
Secretary and Chief Legal Officer
|
• Indefinite Term
• Since Fund Inception
|
General Counsel, First Trust Advisors L.P. and First Trust Portfolios L.P.; Secretary and General Counsel, BondWave LLC; Secretary, Stonebridge Advisors LLC
|
Daniel J. Lindquist
(1970)
|
Vice President
|
• Indefinite Term
• Since December 2005
|
Managing Director, First Trust Advisors L.P. and First Trust Portfolios L.P.
|
Kristi A. Maher
(1966)
|
Chief Compliance Officer and Assistant Secretary
|
• Indefinite
Term
• Chief Compliance Officer Since January 2011
• Assistant Secretary Since Fund Inception
|
Deputy General Counsel, First Trust Advisors L.P. and First Trust Portfolios L.P.
|
(3)
|
The term “officer” means the president, vice president, secretary, treasurer, controller or any other officer who performs a policy making function.
|
Privacy Policy
First Trust Energy
Income and Growth Fund (FEN)
November 30, 2019
(Unaudited)
Privacy Policy
First Trust values our
relationship with you and considers your privacy an important priority in maintaining that relationship. We are committed to protecting the security and confidentiality of your personal information.
Sources of Information
We collect nonpublic
personal information about you from the following sources:
•
|
Information we receive from you and your broker-dealer, investment advisor or financial representative through interviews, applications, agreements or other forms;
|
•
|
Information about your transactions with us, our affiliates or others;
|
•
|
Information we receive from your inquiries by mail, e-mail or telephone; and
|
•
|
Information we collect on our website through the use of “cookies”. For example, we may identify the pages on our website that your browser requests or visits.
|
Information Collected
The type of data we
collect may include your name, address, social security number, age, financial status, assets, income, tax information, retirement and estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal information.
Disclosure of
Information
We do not disclose any
nonpublic personal information about our customers or former customers to anyone, except as permitted by law. In addition to using this information to verify your identity (as required under law), the permitted uses
may also include the disclosure of such information to unaffiliated companies for the following reasons:
•
|
In order to provide you with products and services and to effect transactions that you request or authorize, we may disclose your personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or other services on our behalf, such as transfer agents, custodians and trustees, or that assist us in the distribution of investor materials such as
trustees, banks, financial representatives, proxy services, solicitors and printers.
|
•
|
We may release information we have about you if you direct us to do so, if we are compelled by law to do so, or in other legally limited circumstances (for example to protect your
account from fraud).
|
In addition, in order to
alert you to our other financial products and services, we may share your personal information within First Trust.
Use of Website
Analytics
We currently use third
party analytics tools, Google Analytics and AddThis, to gather information for purposes of improving First Trust’s website and marketing our products and services to you. These tools employ cookies, which are
small pieces of text stored in a file by your web browser and sent to websites that you visit, to collect information, track website usage and viewing trends such as the number of hits, pages visited, videos and PDFs
viewed and the length of user sessions in order to evaluate website performance and enhance navigation of the website. We may also collect other anonymous information, which is generally limited to technical and web
navigation information such as the IP address of your device, internet browser type and operating system for purposes of analyzing the data to make First Trust’s website better and more useful to our users. The
information collected does not include any personal identifiable information such as your name, address, phone number or email address unless you provide that information through the website for us to contact you in
order to answer your questions or respond to your requests. To find out how to opt-out of these services click on: Google Analytics and AddThis.
Confidentiality and
Security
With regard to our
internal security procedures, First Trust restricts access to your nonpublic personal information to those First Trust employees who need to know that information to provide products or services to you. We maintain
physical, electronic and procedural safeguards to protect your nonpublic personal information.
Policy Updates and
Inquiries
As required by federal
law, we will notify you of our privacy policy annually. We reserve the right to modify this policy at any time, however, if we do change it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at 1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust Advisors).
March 2019
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite
400
Wheaton, IL 60187
INVESTMENT SUB-ADVISOR
Energy Income Partners, LLC
10 Wright Street
Westport, CT 06880
TRANSFER AGENT
BNY Mellon Investment Servicing
(US) Inc.
301 Bellevue Parkway
Wilmington, DE 19809
ADMINISTRATOR,
FUND ACCOUNTANT, AND
CUSTODIAN
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
Item 2. Code of Ethics.
|
(a)
|
The registrant, as of the end of the period covered by this report, has adopted a code of ethics
that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or
a third party.
|
|
(c)
|
There have been no amendments, during the period covered by this report, to a provision of the
code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant
or a third party, and that relates to any element of the code of ethics description.
|
|
(d)
|
The registrant has not granted any waivers, including an implicit waiver, from a provision of the
code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant
or a third party, that relates to one or more of the items set forth in paragraph (b) of this item’s instructions.
|
Item 3. Audit Committee Financial Expert.
As of the end of the period covered by the
report, the Registrant’s board of trustees has determined that Thomas R. Kadlec and Robert F. Keith are qualified to serve
as audit committee financial experts serving on its audit committee and that each of them is “independent,” as defined
by Item 3 of Form N-CSR.
Item 4. Principal Accountant Fees and Services.
(a)
Audit Fees (Registrant) -- The aggregate fees billed for each of the last two fiscal years for professional services rendered
by the principal accountant for the audit of the registrant’s annual financial statements or services that are normally
provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years were $82,000
for the fiscal year ended November 30, 2018, and for $57,000 the fiscal year ended November 30, 2019.
(b)
Audit-Related Fees (Registrant) -- The aggregate fees billed in each of the last two fiscal years for assurance and related services
by the principal accountant that are reasonably related to the performance of the audit of the registrant’s financial statements
and are not reported under paragraph (a) of this Item were $0 for the fiscal year ended November 30, 2018, and $0 for the fiscal
year ended November 30, 2019.
Audit-Related
Fees (Investment Adviser) -- The aggregate fees billed in each of the last two fiscal years for assurance and related services
by the principal accountant that are reasonably related to the performance of the audit of the registrant’s financial statements
and are not reported under paragraph (a) of this Item were $0 for the fiscal year ended November 30, 2018, and $0 for the fiscal
year ended November 30, 2019.
(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 $42,000 for the fiscal year ended
November 30, 2018, and $42,044 for the fiscal year ended November 30, 2019. These fees were for tax consultation.
Tax
Fees (Investment Adviser) -- The aggregate fees billed in each of the last two fiscal years for professional services rendered
by the principal accountant for tax compliance, tax advice, and tax planning to the registrant’s adviser were $0 for the
fiscal year ended November 30, 2018, and $0 for the fiscal year ended November 30, 2019.
(d)
All Other Fees (Registrant) -- The aggregate fees billed in each of the last two fiscal years for products and services provided
by the principal accountant to the registrant, other than the services reported in paragraphs (a) through (c) of this Item were
$0 for the fiscal year ended November 30, 2018 and $0 for the fiscal year ended November 30, 2019.
All
Other Fees (Investment Adviser) -- The aggregate fees billed in each of the last two fiscal years for products and services provided
by the principal accountant to the registrant’s investment adviser, other than the services reported in paragraphs (a) through
(c) of this Item were $0 for the fiscal year ended November 30, 2018, and $0 for the fiscal year ended November 30, 2019.
(e)(1)
Disclose the audit committee’s pre-approval policies and procedures described in paragraph (c) (7) of Rule 2-01 of Regulation
S-X.
Pursuant
to its charter and its Audit and Non-Audit Services Pre-Approval Policy, the Audit Committee (the “Committee”) is
responsible for the pre-approval of all audit services and permitted non-audit services (including the fees and terms thereof)
to be performed for the registrant by its independent auditors. The Chairman of the Committee 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 its policies, the Committee will consider whether the provision of such non-audit services is compatible
with the auditor’s independence.
(e)(2)
The percentage of services described in each of paragraphs (b) through (d) for the registrant and the registrant’s investment
adviser of this Item that were approved by the audit committee pursuant to the pre-approval exceptions included in paragraph (c)(7)(i)(c)
or paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X are as follows:
(b) 0%
(c) 0%
(d) 0%
(f)
The percentage of hours expended on the principal accountant’s engagement to audit the registrant’s financial statements
for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s
full-time, permanent employees was less than fifty
percent.
(g)
The aggregate non-audit fees billed by the registrant’s accountant for services rendered to the registrant, and rendered
to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control
with the adviser that provides ongoing services to the registrant for the fiscal year ended November 30, 2018, were $42,000 for
the registrant and $48,190 for the registrant’s investment adviser, and for the fiscal year ended November 30, 2019, were
$42,044 for the registrant and $75,670 for the registrant’s investment adviser.
(h)
The registrant’s audit committee of its Board of Trustees has determined that the provision of non-audit services that were
rendered to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management
and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common
control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence.
Item 5. Audit Committee of Listed Registrants.
The
Registrant has a separately designated audit committee consisting of all the independent trustees of the Registrant. The members
of the audit committee are: Thomas R. Kadlec, Niel B. Nielson, Richard E. Erickson and Robert F. Keith.
Item 6. Investments.
|
(a)
|
Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting
period is included as part of the report to shareholders filed under Item 1 of this form.
|
Item 7. Disclosure of Proxy
Voting Policies and Procedures for Closed-End Management Investment Companies.
Proxy Voting Policies and Procedures
If an adviser exercises voting authority
with respect to client securities, Advisers Act Rule 206(4)-6 requires the adviser to adopt and implement written policies and
procedures reasonably designed to ensure that client securities are voted in the best interest of the client. This is consistent
with legal interpretations which hold that an adviser’s fiduciary duty includes handling the voting of proxies on securities
held in client accounts over which the adviser exercises investment or voting discretion, in a manner consistent with the best
interest of the client.
Absent unusual circumstances, EIP exercises
voting authority with respect to securities held in client accounts pursuant to provisions in its advisory agreements. Accordingly,
EIP has adopted these policies and procedures with the aim of meeting the following requirements of Rule 206(4)-6:
|
·
|
ensuring that proxies are voted in the best interest of clients;
|
|
·
|
addressing material conflicts that may arise between EIP’s interests and those of its clients
in the voting of proxies;
|
|
·
|
disclosing to clients how they may obtain information on how EIP voted proxies with respect to
the client’s securities;
|
|
·
|
describing to clients EIP’s proxy voting policies and procedures and, upon request, furnishing
a copy of the policies and procedures to the requesting client.
|
Engagement
of Institutional Shareholder Services Inc.
With
the aim of ensuring that proxies are voted in the best interest of EIP clients, EIP has engaged Institutional Shareholder Services
Inc. (“ISS”), as its independent proxy voting service to provide EIP with proxy voting recommendations, as well as
to handle the administrative mechanics of proxy voting. EIP has directed ISS to utilize its Proxy Voting Guidelines in making
recommendations to vote, as those guidelines may be amended from time to time.
Conflicts
of Interest in Proxy Voting
There
may be instances where EIP’s interests conflict, or appear to conflict, with client interests in the voting of proxies.
For example, EIP may provide services to, or have an investor who is a senior member of, a company whose management is soliciting
proxies. There may be a concern that EIP would vote in favor of management because of its relationship with the company or a senior
officer. Or, for example, EIP (or its senior executive officers) may have business or personal relationships with corporate directors
or candidates for directorship.
EIP
addresses these conflicts or appearances of conflicts by ensuring that proxies are voted in accordance with the recommendations
made by ISS, an independent third-party proxy voting service. As previously noted, in most cases, proxies will be voted in accordance
with ISS’s own pre-existing proxy voting guidelines.
Disclosure
on How Proxies Were Voted
EIP
discloses to clients in its Form ADV how clients can obtain information on how their proxies were voted, by contacting EIP at
its office in Westport, CT. EIP also discloses in the ADV a summary of these proxy voting policies and procedures and that upon
request, clients will be furnished a full copy of these policies and procedures.
It
is the responsibility of the CCO to ensure that any requests made by clients for proxy voting information are responded to in
a timely fashion and that a record of requests and responses are maintained in EIP’s books and records.
Proxy
Materials
EIP
personnel instructs custodians to forward to ISS all proxy materials received on securities held in EIP client accounts.
Limitations
In
certain circumstances, where EIP has determined that it is consistent with the client’s best interest, EIP will not take
steps to ensure that proxies are voted on securities in the client’s account. The following are circumstances where this
may occur:
*Limited
Value: Proxies will not be required to be voted on securities in a client’s account if the value of the client’s
economic interest in the securities is indeterminable or insignificant (less than $1,000). Proxies will also not be required to
be voted for any securities that are no longer held by the client’s account.
*Securities
Lending Program: When securities are out on loan, they are transferred into the borrower’s name and are voted by the
borrower, in its discretion. In most cases, EIP will not take steps to see that loaned securities are voted. However, where EIP
determines that a proxy vote, or other shareholder action, is materially important to the client’s account, EIP will make
a good faith effort to recall the security for purposes of voting, understanding that in certain cases, the attempt to recall
the security may not be effective in time for voting deadlines to be met.
*Unjustifiable
Costs: In certain circumstances, after doing a cost-benefit analysis, EIP may choose not to vote where the cost of voting
a client’s proxy would exceed any anticipated benefits to the client of the proxy proposal.
Oversight
of Policy
The
Chief Compliance Officer (“CCO”) will follow the following procedures with respect to the oversight of each proxy
advisory firm retained by the Adviser(s):
|
·
|
Periodically, but no less frequently than semi-annually, sample proxy votes to review whether they
complied with the Advisers’ proxy voting policies and procedures including a review of those items that relate to certain
proposals that may require more analysis (e.g. other than voting for directors).
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·
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Collect information, no less frequently than annually, reasonably sufficient to support the conclusion
that the proxy voting service provide has the capacity and competency to adequately analyze proxy issues. In this regard,
the CCO shall consider, among other things:
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·
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the adequacy and quality of the proxy advisory firm’s staffing and personnel;
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·
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the robustness of its policies and procedures regarding its ability to (i) ensure that its proxy
voting recommendations are based on current and accurate information and (ii) identify and address any conflicts of interest; and
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·
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any other considerations that the CCO believes would be appropriate in considering the nature and
quality of the services provided by the proxy voting service.
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For
purposes of these procedures, the CCO may rely upon information posted by a proxy advisory firm on its website, provided that
the proxy advisory firm represents that the information is complete and current.
Recordkeeping
on Proxies
It
is the responsibility of EIP’s CCO to ensure that the following proxy voting records are maintained:
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·
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a copy of EIP’s proxy voting policies and procedures;
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·
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a copy of all proxy statements received on securities in client accounts (EIP may rely on ISS or
the SEC’s EDGAR system to satisfy this requirement);
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·
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a record of each vote cast on behalf of a client (EIP relies on ISS to satisfy this requirement);
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·
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a copy of any document prepared by EIP that was material to making a voting decision or that memorializes
the basis for that decision;
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·
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a copy of each written client request for information on how proxies were voted on the client’s
behalf or for a copy of EIP’s proxy voting policies and procedures, and
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·
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a copy of any written response to any client request for information on how proxies were voted
on their behalf or furnishing a copy of EIP’s proxy voting policies and procedures.
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The
CCO will see that these books and records are made and maintained in accordance with the requirements and time periods provided
in Rule 204-2 of the Advisers Act.
For
any registered investment companies advised by EIP, votes made on its behalf will be stored electronically or otherwise recorded
so that they are available for preparation of the Form N-PX, Annual Report of Proxy Voting Record of Registered Management Investment
Company.
Item 8. Portfolio Managers of Closed-End Management Investment
Companies.
(a)(1) Identification of Portfolio Manager(s) or Management
Team Members and Description of Role of Portfolio Manager(s) or Management Team Members
Information provided as of January 20, 2020.
Energy Income Partners, LLC
Energy Income Partners, LLC (“EIP”), located in Westport, CT,
was founded in 2003 to provide professional asset management services in the area of energy-related master limited partnerships
and other high-payout securities such as pipeline companies, power utilities, YieldCos, and energy infrastructure real estate investment
trusts (“REITs”). EIP mainly focuses on investments in
energy-related infrastructure assets such as pipelines, power transmission
and distribution, petroleum storage and terminals that receive fee-based or regulated income from their corporate and individual
customers. EIP manages or supervises approximately $6.2 billion of assets as of November 30, 2019. EIP advises two privately offered
partnerships for U.S. high net worth individuals and an open-end mutual fund. EIP also manages separately managed accounts and
provides its model portfolio to unified managed accounts. Finally, EIP serves as a sub-advisor to three closed-end management investment
companies in addition to the Fund, two actively managed exchange-traded funds (“ETFs”), a sleeve of an actively managed
ETF, a sleeve of a series of a variable insurance trust, and an open-end UCITS fund incorporated in Ireland. EIP is a registered
investment advisor with the Securities and Exchange Commission.
James J. Murchie, Co-Portfolio Manager
James J. Murchie is the Founder, Chief Executive Officer, co-portfolio
manager and a Principal of Energy Income Partners. After founding Energy Income Partners in October 2003, Mr. Murchie and the Energy
Income Partners investment team joined Pequot Capital Management Inc. (“Pequot Capital”) in December 2004. In August
2006, Mr. Murchie and the Energy Income Partners investment team left Pequot Capital and re-established Energy Income Partners.
Prior to founding Energy Income Partners, Mr. Murchie was a Portfolio Manager at Lawhill Capital Partners, LLC (“Lawhill
Capital”), a long/short equity hedge fund investing in commodities and equities in the energy and basic industry sectors.
Before Lawhill Capital, Mr. Murchie was a Managing Director at Tiger Management, LLC, where his primary responsibility was managing
a portfolio of investments in commodities and related equities. Mr. Murchie was also a Principal at Sanford C. Bernstein. He began
his career at British Petroleum, PLC. Mr. Murchie holds a BA from Rice University and an MA from Harvard University.
Eva Pao, Co-Portfolio Manager
Eva Pao is a Principal of Energy Income Partners and is
co-portfolio manager. She has been with EIP since inception in 2003. From 2005 to mid-2006, Ms. Pao joined Pequot Capital Management
during EIP’s affiliation with Pequot. Prior to Harvard Business School, Ms. Pao was a Manager at Enron Corp where she managed
a portfolio in Canadian oil and gas equities for Enron’s internal hedge fund that specialized in energy-related equities
and managed a natural gas trading book. Ms. Pao holds degrees from Rice University and Harvard Business School.
John K. Tysseland, Co-Portfolio Manager
John Tysseland is a Principal and co-portfolio manager. From
2005 to 2014, he worked at Citi Research most currently serving as a Managing Director where he covered midstream energy companies
and MLPs. From 1998 to 2005, he worked at Raymond James & Associates as a Vice President who covered the oilfield service industry
and established the firm’s initial coverage of MLPs in 2001. Prior to that, he was an Equity Trader at Momentum Securities
from 1997 to 1998 and an Assistant Executive Director at Sumar Enterprises from 1996 to 1997. He graduated from The University
of Texas at Austin in 1996 with a BA in economics.
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(a)(2)
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Other Accounts Managed by Portfolio Manager and Potential Conflicts of Interest
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Other Accounts Managed by
Portfolio Manager
Information provided as of November 30, 2019.
Name of Portfolio Manager or Team Member
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Type of Accounts*
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Total
# of Accounts
Managed**
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Total Assets
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# of Accounts Managed for which Advisory Fee is Based on Performance
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Total Assets for which Advisory Fee is Based on Performance
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1. James Murchie
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Registered Investment Companies:
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8
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$4222
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0
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$0
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Other Pooled Investment Vehicles:
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3
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$197
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2
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$193
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Other Accounts:
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321
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$1197.2
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0
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$0
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|
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2. Eva Pao
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Registered Investment Companies:
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8
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$4222
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0
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$0
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Other Pooled Investment Vehicles:
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3
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$197
|
2
|
$193
|
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Other Accounts:
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321
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$1197.2
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0
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$0
|
|
|
|
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3. John Tysseland
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Registered Investment Companies:
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8
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$4222
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0
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$0
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Other Pooled Investment Vehicles:
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3
|
$197
|
2
|
$193
|
|
Other Accounts:
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321
|
$1197.2
|
0
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$0
|
|
|
|
|
|
|
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*Examples for Types of Accounts:
Other Registered
Investment Companies: Any investment vehicle which is registered with the SEC, such as mutual funds of registered hedge funds.
Other Pooled
Investment Vehicles: Any unregistered account for which investor assets are pooled together, such as an unregistered hedge fund.
Other Accounts:
Any accounts managed not covered by the other two categories, such as privately managed accounts.
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|
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Portfolio Manager Potential Conflicts of Interests
Portfolio
Manager Potential Conflicts of Interests Potential conflicts of interest may arise when a fund’s portfolio manager has day-to-day
management responsibilities with respect to one or more other funds or other accounts, as is the case for the portfolio managers
of the Fund. These potential conflicts may include:
Besides the Fund, Energy Income Partners, LLC (“EIP”) portfolio
managers serves as portfolio managers to separately managed accounts and provides its model portfolio to unified managed accounts
and serve as portfolio managers to three closed-end management investment companies other than the Fund, two actively managed
exchange-traded funds (ETFs), a sleeve of an ETF, a sleeve of a series of a variable insurance trust and Irish domiciled UCITs
Fund. The portfolio managers also serve as portfolio managers for two private investment funds (the “Private Funds”),
both of which have a performance fee and an open end registered mutual fund.
EIP has written policies and procedures regarding
order aggregation and allocation that seek to ensure that all accounts are treated fairly and equitably and that no account is
at a disadvantage. EIP will generally execute client transactions on an aggregated basis when EIP believes that to do so will
allow it to obtain best execution and to negotiate more favorable commission rates or avoid certain transaction costs that might
have otherwise been paid had such orders been placed independently. EIP’s ability to implement this may be limited by an
account’s custodian, directed brokerage arrangements or other constraints limiting EIP’s use of a common executing
broker.
An aggregated order may be allocated on a basis different from that specified herein provided that all clients
receive fair and equitable treatment and there is a reason for the different allocation. Reasons for deviation may include (but
are not limited to): a client’s investment guidelines and restrictions, available cash, liquidity or legal reasons, and
to avoid odd-lots or in cases when an allocation would result in a de minimis allocation to one or more clients.
Notwithstanding
the above, due to differing tax ramifications and compliance ratios, as well as dissimilar risk constraints and tolerances, accounts
with similar investment mandates may trade the same securities at differing points in time. Additionally, for the reasons noted
above, certain accounts, including funds in which EIP, its affiliates and/or employees (“EIP Funds”) have a financial
interest including proprietary accounts, may trade separately from other accounts and participate in transactions which are deemed
to be inappropriate for other accounts with similar investment mandates. Further, during periods in which EIP intends to trade
the same securities across multiple accounts, transactions for those accounts that must be traded through specific brokers and/or
platforms will often be executed after those for accounts over which EIP exercises full brokerage discretion, including the EIP
Funds.
(a)(3) Compensation Structure of Portfolio Managers
or Management Team Members
Portfolio Manager Compensation
Information provided as of November
30, 2019.
The Fund’s
portfolio managers are compensated by a competitive minimum base salary and share in the profits of EIP in relation to their ownership
of EIP. The profits of EIP are influenced by the assets under management and the performance of the Funds (i.e. all Funds managed
or sub-advised by EIP). Therefore, their success is based on the growth and success for all the funds, not just the funds that
charge an incentive fee. The Fund’s portfolio managers understand that you cannot have asset growth without the trust and
confidence of investors, therefore, they do not engage in taking undue risk to generate performance.
The compensation of the EIP team members
is determined according to prevailing rates within the industry for similar positions. EIP wishes to attract, retain and reward
high quality personnel through a competitive compensation package.
|
(a)(4)
|
Disclosure of Securities Ownership
|
Information provided as of November 30, 2019.
Name
|
Dollar Range of Fund Shares Beneficially Owned
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James Murchie
|
$50,001-100,000
|
Eva Pao
John Tysseland
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$0
$0
|
Item 9. Purchases of Equity
Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which the
shareholders may recommend nominees to the Registrant’s board of trustees, where those changes were implemented after the
Registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as
required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)), or this Item.
Item 11. Controls and Procedures.
(a)
|
|
The Registrant’s principal executive and principal financial officers, or persons
performing similar functions, have concluded that the Registrant’s disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30a-3(c))) are effective,
as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on
their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules
13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)).
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(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 period covered by this report that
have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial
reporting.
|
Item 12. Disclosure of Securities Lending Activities for
Closed-End Management Investment Companies.
Item 13. Exhibits.
(a)(1)
|
|
Code of ethics, or any amendment thereto, that is the subject of disclosure required
by Item 2 is attached hereto.
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(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.
|
(b)
|
|
Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the
Sarbanes- Oxley Act of 2002 are attached hereto.
|
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
(registrant)
|
|
First Trust Energy Income and Growth Fund
|
By (Signature and Title)*
|
|
/s/ James M. Dykas
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|
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James M. Dykas, President and Chief Executive Officer
(principal executive
officer)
|
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)*
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|
/s/ James M. Dykas
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|
|
James M. Dykas, President and Chief Executive Officer
(principal executive
officer)
|
By (Signature and Title)*
|
|
/s/ Donald P. Swade
|
|
|
Donald P. Swade, Treasurer, Chief Financial Officer
and Chief Accounting Officer
(principal financial officer)
|
* Print the name and title of each signing officer under
his or her signature.
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