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
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First Trust Energy Income and Growth Fund
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(Exact name of registrant as specified in charter)
10 Westport Road Suite C101A
Wilton, CT 06897
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(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Name and address of agent for service)
registrant's telephone number, including area code: 630-765-8000
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Date of fiscal year end: November 30
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Date of reporting period: May 31, 2017
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 100 F Street, NE,
Washington, DC 20549. The OMB has reviewed this collection of information under
the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The Report to Shareholders is attached herewith.
FIRST TRUST
ENERGY INCOME AND GROWTH FUND (FEN)
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SEMI-ANNUAL REPORT
FOR THE SIX MONTHS ENDED
MAY 31, 2017
ENERGY INCOME PARTNERS LLC FIRST TRUST
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TABLE OF CONTENTS
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FIRST TRUST ENERGY INCOME AND GROWTH FUND (FEN)
SEMI-ANNUAL REPORT
MAY 31, 2017
Shareholder Letter.......................................................... 1
At a Glance................................................................. 2
Portfolio Commentary........................................................ 3
Portfolio of Investments.................................................... 5
Statement of Assets and Liabilities......................................... 9
Statement of Operations..................................................... 10
Statements of Changes in Net Assets......................................... 11
Statement of Cash Flows..................................................... 12
Financial Highlights........................................................ 13
Notes to Financial Statements............................................... 14
Additional Information...................................................... 21
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
http://www.ftportfolios.com or speak with your financial advisor. Investment
returns, net asset value and common share price will fluctuate and Fund shares,
when sold, may be worth more or less than their original cost.
The Advisor may also periodically provide additional information on Fund
performance on the Fund's webpage at http://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 EIP
are just that: informed opinions. They should not be considered to be promises
or advice. The opinions, like the statistics, cover the period through the date
on the cover of this report. The material risks of investing in the Fund are
spelled out in the prospectus, the statement of additional information, this
report and other Fund regulatory filings.
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SHAREHOLDER LETTER
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FIRST TRUST ENERGY INCOME AND GROWTH FUND (FEN)
SEMI-ANNUAL LETTER FROM THE CHAIRMAN AND CEO
MAY 31, 2017
Dear Shareholders:
First Trust Advisors L.P. ("First Trust") is pleased to provide you with this
semi-annual report containing detailed information and the financial statements
for your investment in the First Trust Energy Income and Growth Fund. We
encourage you to read this report and discuss it with your financial advisor.
Five months into the new year and under a new U.S. President, the stock market
has continued to rise. President Donald Trump's pro-growth, pro-U.S. policy
ideas have, in our opinion, created optimism about the U.S. economy. Indeed,
from Trump's election date (November 8, 2016) through May 31, 2017, the S&P
500(R) Index (the "Index") posted a total return of over 14%, according to
Bloomberg. While we are optimistic about the U.S. economy, we are also well
aware that no one can predict the future or know how a new administration will
affect markets and the economy. This is why we always stress the importance of
maintaining a long-term perspective, as we have done since First Trust's
inception over 25 years ago.
As of May 31, 2017, the Index was up 8.66% (calendar year-to-date). While the
current bull market (measuring from March 9, 2009 through May 31, 2017) is the
second longest in history, it is still behind (by just over 4 years) the longest
bull market, according to Bespoke Investment Group.
Thank you for giving First Trust the opportunity to be a part of your investment
plan. We value our relationship with you and will continue our relentless focus
on bringing you the types of investments that we believe could help you reach
your financial goals.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 1
FIRST TRUST ENERGY INCOME AND GROWTH FUND (FEN)
"AT A GLANCE"
AS OF MAY 31, 2017 (UNAUDITED)
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FUND STATISTICS
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Symbol on NYSE MKT FEN
Common Share Price $25.88
Common Share Net Asset Value ("NAV") $24.61
Premium (Discount) to NAV 5.16%
Net Assets Applicable to Common Shares $477,291,602
Current Quarterly Distribution per Common Share (1) $0.5800
Current Annualized Distribution per Common Share $2.3200
Current Distribution Rate on Common Share Price (2) 8.96%
Current Distribution Rate on NAV (2) 9.43%
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COMMON SHARE PRICE & NAV (WEEKLY CLOSING PRICE)
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Common Share Price NAV
5/16 $24.22 $24.65
24.81 25.21
24.60 25.33
24.41 25.22
6/16 24.89 25.54
25.49 26.00
25.24 25.97
25.24 26.55
25.43 26.10
7/16 25.81 25.98
25.04 25.66
25.49 25.96
26.15 25.92
8/16 25.26 25.55
25.64 25.72
25.86 25.58
25.29 25.13
26.54 26.09
9/16 27.09 26.26
26.16 25.83
25.99 26.08
25.83 25.69
10/16 25.31 25.16
23.50 23.97
24.75 24.26
25.32 24.77
11/16 25.85 25.27
25.42 24.99
25.78 25.52
25.60 25.77
26.21 26.30
12/16 26.54 26.23
27.33 26.70
27.50 26.50
26.80 25.78
1/17 27.56 26.49
27.55 26.63
27.27 26.55
27.44 26.60
2/17 27.72 26.27
27.55 26.37
26.28 25.88
26.93 25.84
26.15 25.80
3/17 26.98 26.27
27.53 26.42
27.60 26.12
27.30 25.40
4/17 27.23 25.57
26.33 25.25
26.18 25.05
26.38 25.11
26.31 25.02
5/17 25.88 24.64
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PERFORMANCE
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Average Annual Total Return
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Inception
6 Months Ended 1 Year Ended 5 Years Ended 10 Years Ended (6/24/04)
5/31/2017 5/31/2017 5/31/2017 5/31/2017 to 5/31/2017
FUND PERFORMANCE (3)
NAV 1.79% 9.33% 5.56% 5.51% 9.46%
Market Value 2.84% 16.87% 5.12% 6.90% 9.48%
INDEX PERFORMANCE
S&P 500(R) Index 10.81% 17.47% 15.41% 6.93% 8.20%
Bloomberg Barclays U.S. Credit Index
of Corporate Bonds(4) 4.04% 3.89% 3.71% 5.54% 5.29%
Alerian MLP Total Return Index 2.28% 6.24% 2.57% 5.90% 10.21%
Wells Fargo Midstream MLP Total Return Index 2.86% 8.64% 5.90% 8.11% 11.88%
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% OF TOTAL
INDUSTRY CLASSIFICATION INVESTMENTS
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Petroleum Product Transmission 30.6%
Natural Gas Transmission 28.4
Crude Oil Transmission 16.9
Electric Power & Transmission 13.1
Natural Gas Gathering & Processing 3.7
Propane 3.2
Coal 2.8
Other 1.3
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Total 100.0%
======
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% OF TOTAL
TOP 10 HOLDINGS INVESTMENTS
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Enterprise Products Partners, L.P. 11.2%
Magellan Midstream Partners, L.P. 7.4
Spectra Energy Partners, L.P. 6.3
Enbridge Energy Partners, L.P. 6.0
Plains All American Pipeline, L.P. 5.7
ONEOK Partners, L.P. 4.6
TC PipeLines, L.P. 4.3
Holly Energy Partners, L.P. 4.2
TransCanada Corp. 4.1
EQT Midstream Partners, L.P. 3.7
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Total 57.5%
======
(1) Most recent distribution paid or declared through 5/31/2017. Subject to
change in the future.
(2) Distribution rates are calculated by annualizing the most recent
distribution paid or declared through the report date and then dividing by
Common Share Price or NAV, as applicable, as of 5/31/2017. Subject to
change in the future.
(3) Total return is based on the combination of reinvested dividend, capital
gain and return of capital distributions, if any, at prices obtained by
the Dividend Reinvestment Plan and changes in NAV per share for NAV
returns and changes in Common Share Price for market value returns. Total
returns do not reflect sales load and are not annualized for periods of
less than one year. Past performance is not indicative of future results.
(4) Formerly known as Barclays Capital U.S. Credit Index of Corporate Bonds.
Page 2
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PORTFOLIO COMMENTARY
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FIRST TRUST ENERGY INCOME AND GROWTH FUND (FEN)
SEMI-ANNUAL REPORT
MAY 31, 2017 (UNAUDITED)
ADVISOR
First Trust Advisors L.P. ("First Trust") was established in 1991 and is located
in Wheaton, Illinois. First Trust is a registered investment advisor which
offers customized portfolio management using its structured, quantitative
approach to security selection. As of May 31, 2017, First Trust managed or
supervised $107.206 billion in assets.
SUB-ADVISOR
Energy Income Partners, LLC ("EIP" or the "Sub-Advisor"), located in Westport,
Connecticut, serves as the investment sub-advisor to the First Trust Energy
Income and Growth Fund ("FEN" or the "Fund"). EIP was founded in 2003 and
provides professional asset management services in the area of energy-related
master limited partnerships ("MLPs") and other high payout securities such as
pipeline companies, power utilities, yield corporations ("YieldCos")(1), and
energy infrastructure real estate investment trusts ("REITs"). EIP mainly
focuses on investments in energy-related infrastructure assets such as
pipelines, power transmission and distribution, petroleum storage and terminals
that receive fee based or regulated income from their corporate and individual
customers. EIP manages or supervises approximately $5.7 billion of assets as of
May 31, 2017. Private funds advised by EIP include two partnerships for U.S.
high net worth individuals. EIP also serves as an advisor to separately managed
accounts for individuals and institutions, an open-end mutual fund 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, an actively managed exchange-traded fund ("ETF"), a sleeve of an
actively managed ETF, a sleeve of a series of a variable insurance trust and an
open-end UCIT 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, CHIEF EXECUTIVE OFFICER AND
PRINCIPAL 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 and related public
entities in the energy sector, 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
As measured by the Alerian MLP Total Return Index ("AMZX") and the Wells Fargo
Midstream MLP Total Return Index ("WCHWMIDT") (the average of AMZX and WCHWMIDT
is referred to in this report as the "MLP Benchmark"), the total return over the
six months ended May 31, 2017 was 2.28% and 2.86%, respectively. For AMZX, this
return reflects a positive 3.40% from distribution payments while the remaining
return is due to share price depreciation. For WCHWMIDT, this return reflects a
positive 3.36% from distribution payments while the remaining return is due to
share depreciation. These figures are according to data collected from several
sources, including Alerian Capital Management and Bloomberg. While in the short
term market share appreciation can be volatile, the Sub-Advisor believes that
over the long term, such share appreciation will approximate growth in per share
quarterly cash distributions paid by MLPs. Growth in per share MLP distributions
has averaged 1.4% over the last 10 years. The cash distributions of MLPs
represented by the AMZX decreased by about 6.4% over the last 12 months.(2)
-----------------------------
(1) YieldCos are publicly traded entities that own, operate and acquire
contracted renewable and conventional generation and thermal and other
infrastructure assets, which are generally not MLP-qualifying assets. Like
MLPs, YieldCos generally seek to position themselves as vehicles for
investors seeking stable and growing dividend income from a diversified
portfolio of low-risk, high-quality assets.
(2) Source: Alerian Capital Management, EIP Calculations.
Page 3
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PORTFOLIO COMMENTARY (CONTINUED)
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FIRST TRUST ENERGY INCOME AND GROWTH FUND (FEN)
SEMI-ANNUAL REPORT
MAY 31, 2017 (UNAUDITED)
PERFORMANCE ANALYSIS
For the six months ended May 31, 2017, on a net asset value ("NAV") basis, the
Fund provided a total return(3) of 1.79%, including the reinvestment of
dividends. This compares, according to collected data, to a total return of
10.81% for the S&P 500(R) Index, 4.04% for the Bloomberg Barclays U.S. Credit
Index of Corporate Bonds, 2.28% for AMZX, and 2.86% for WCHWMIDT. Unlike the
Fund, the indices do not incur fees and expenses. For the six months ended May
31, 2017, on a market value basis, the Fund had a total return of 2.84%,
including the reinvestment of dividends. As of May 31, 2017, the Fund was priced
at $25.88 while the NAV was $24.61, a premium of 5.16%. On November 30, 2016,
the Fund was priced at $26.30, while the NAV was $25.27, a premium of 4.08%.
The Fund maintained its regular quarterly Common Share dividend of $0.58 for the
six months ended May 31, 2017.
For the six months ended May 31, 2017, the Fund's NAV total return of 1.79%
underperformed the MLP Benchmark's 2.57% total return by 78 basis points. We
believe the MLP structure and a high payout ratio 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. We believe this approach leads to a portfolio of companies at the
blue-chip end of the spectrum with less volatility and higher growth. In our
view, these types of companies tend to lag in up markets and outperform in down
markets.
Two important factors affecting the return of the Fund relative to the MLP
Benchmark are its accrual for taxes and its use of financial leverage through a
line of credit. The Fund has a committed facility agreement with BNP Paribas
Prime Brokerage Inc. with a maximum commitment amount of $225,000,000. The Fund
uses leverage because its managers believe that, over time, leverage can enhance
total return for common shareholders. However, the use of leverage can also
increase the volatility of the NAV and therefore the share price. For example,
if the prices of securities held by the Fund decline, the changes in Common
Share NAV and common shareholder total return would be magnified by the use of
leverage. Conversely, if the prices of securities held by the Fund rise,
leverage may enhance common share returns. Unlike the Fund, the MLP Benchmark is
not leveraged, nor are the returns net of an accrual for taxes. Leverage had a
positive impact on the performance of the Fund over this reporting period.
MARKET AND FUND OUTLOOK
Corporate simplification involving pipeline companies and their associated MLPs
began in late 2014 with Kinder Morgan and has continued with the ONEOK
transaction that was announced earlier in 2017. These transactions have raised
several questions about why they are occurring and what is driving them. Simply
put, these transactions are a way to reduce the cost of equity financing.
Normally a high payout entity like an MLP or a YieldCo is created because it
lowers the cost of equity financing. Unlike normal corporations, the MLP
structure can actually lead to a higher cost of equity financing over time if
the management team strings together multiple years of stable earnings and
consistent dividend growth. While typically this sort of long-term track record
would lead to a higher valuation (and therefore a lower cost of equity
financing), incentive payments paid by the MLP to its corporate parent that
holds the general partner interest have the opposite effect. These incentives
increase with per share dividend growth at the LP level and are due on newly
issued shares, as well as older shares that have experienced the growth. So, the
more successful the MLP is in growing its dividends, the closer it gets to
ultimately re-combining itself with the parent corporation or conducting some
other transaction that eliminates the incentive payments that ultimately
increase the cost of equity financing. In most cases, MLPs are merely a part of
the corporate finance structure of a company. MLPs are created when they lower
the cost of capital and rolled-up or acquired when they do not.
The Fund continues to seek to invest primarily in MLPs and other energy
infrastructure companies with mostly non-cyclical cash flows, investment-grade
ratings, conservative balance sheets, modest and/or flexible organic growth
commitments and liquidity on their revolving lines of credit. 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.
-----------------------------
(3) Total return is based on the combination of reinvested dividend, capital
gain and return of capital distributions, if any, at prices obtained by
the Dividend Reinvestment Plan and changes in NAV per share for NAV
returns and changes in Common Share Price for market value returns. Total
returns do not reflect sales load and are not annualized for periods of
less than one year. Past performance is not indicative of future results.
Page 4
FIRST TRUST ENERGY INCOME AND GROWTH FUND (FEN)
PORTFOLIO OF INVESTMENTS
MAY 31, 2017 (UNAUDITED)
SHARES/
UNITS DESCRIPTION VALUE
---------- --------------------------------------------------- --------------
MASTER LIMITED PARTNERSHIPS - 113.3%
CHEMICALS - 0.2%
35,000 Westlake Chemical Partners, L.P. (a)............... $ 850,500
--------------
GAS UTILITIES - 4.1%
428,181 AmeriGas Partners, L.P. (a)........................ 18,985,545
21,384 Suburban Propane Partners, L.P..................... 505,518
--------------
19,491,063
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INDEPENDENT POWER AND RENEWABLE ELECTRICITY
PRODUCERS - 3.5%
486,311 NextEra Energy Partners, L.P. (a) (b).............. 16,797,182
--------------
OIL, GAS & CONSUMABLE FUELS - 105.5%
181,401 Alliance Holdings GP, L.P. (a)..................... 5,135,462
744,744 Alliance Resource Partners, L.P. (a)............... 16,011,996
246,500 Buckeye Partners, L.P. (a)......................... 15,776,000
123,900 Dominion Energy Midstream Partners, L.P. (a)....... 3,549,735
2,745,261 Enbridge Energy Partners, L.P. (a)................. 45,461,522
3,158,006 Enterprise Products Partners, L.P. (a)............. 84,666,141
384,700 EQT Midstream Partners, L.P. (a)................... 28,375,472
972,747 Holly Energy Partners, L.P. (a).................... 31,867,192
775,254 Magellan Midstream Partners, L.P. (a).............. 56,275,688
275,560 NGL Energy Partners, L.P. (a)...................... 3,747,616
717,040 ONEOK Partners, L.P. (a)........................... 35,070,427
126,000 Phillips 66 Partners, L.P.......................... 6,239,520
1,623,782 Plains All American Pipeline, L.P. (a)............. 42,997,747
72,700 Shell Midstream Partners, L.P...................... 2,168,641
1,099,784 Spectra Energy Partners, L.P. (a).................. 47,444,682
295,962 Tallgrass Energy Partners, L.P. (a)................ 14,679,715
572,827 TC PipeLines, L.P. (a)............................. 32,232,975
86,126 TransMontaigne Partners, L.P. (a).................. 3,578,535
723,976 Williams Partners, L.P. (a)........................ 28,358,140
--------------
503,637,206
--------------
TOTAL MASTER LIMITED PARTNERSHIPS.................. 540,775,951
(Cost $306,840,009) --------------
COMMON STOCKS - 44.4%
ELECTRIC UTILITIES - 11.2%
121,000 American Electric Power Co., Inc................... 8,685,380
63,100 Duke Energy Corp. (a).............................. 5,406,408
108,100 Emera, Inc. (CAD) (a).............................. 3,855,541
140,000 Eversource Energy.................................. 8,689,800
429,400 Exelon Corp........................................ 15,591,514
50,000 Hydro One Ltd. (CAD) (a) (c)....................... 878,706
38,800 NextEra Energy, Inc................................ 5,487,872
53,000 Southern (The) Co.................................. 2,682,330
47,600 Xcel Energy, Inc................................... 2,280,516
--------------
53,558,067
--------------
GAS UTILITIES - 1.9%
9,300 Atmos Energy Corp. (a)............................. 774,783
49,500 Chesapeake Utilities Corp. (a)..................... 3,675,375
85,500 UGI Corp........................................... 4,375,890
--------------
8,826,048
--------------
See Notes to Financial Statements Page 5
FIRST TRUST ENERGY INCOME AND GROWTH FUND (FEN)
PORTFOLIO OF INVESTMENTS (CONTINUED)
MAY 31, 2017 (UNAUDITED)
SHARES DESCRIPTION VALUE
---------- --------------------------------------------------- --------------
COMMON STOCKS (CONTINUED)
MULTI-UTILITIES - 6.9%
92,300 CMS Energy Corp. (a)............................... $ 4,375,943
137,300 National Grid PLC, ADR............................. 9,405,050
175,599 Public Service Enterprise Group, Inc............... 7,886,151
50,600 SCANA Corp......................................... 3,450,920
69,100 Sempra Energy...................................... 8,049,459
--------------
33,167,523
--------------
OIL, GAS & CONSUMABLE FUELS - 24.4%
573,700 Enbridge Income Fund Holdings, Inc. (CAD) (a)...... 13,777,124
290,600 Enbridge, Inc...................................... 11,191,006
311,000 Inter Pipeline, Ltd. (CAD) (a)..................... 6,158,530
244,360 Keyera Corp. (CAD) (a)............................. 7,271,919
725,855 Kinder Morgan, Inc................................. 13,617,040
175,000 ONEOK, Inc......................................... 8,694,000
61,900 Targa Resources Corp............................... 2,843,067
668,571 TransCanada Corp. (a).............................. 31,055,123
762,773 Williams (The) Cos., Inc........................... 21,815,308
--------------
116,423,117
--------------
TOTAL COMMON STOCKS................................ 211,974,755
(Cost $182,864,107) --------------
REAL ESTATE INVESTMENT TRUSTS - 1.2%
EQUITY REAL ESTATE INVESTMENT TRUSTS - 1.2%
42,611 CorEnergy Infrastructure Trust, Inc................ 1,499,055
207,400 InfraREIT, Inc. (a)................................ 4,000,746
--------------
TOTAL REAL ESTATE INVESTMENT TRUSTS................ 5,499,801
(Cost $6,382,673) --------------
TOTAL INVESTMENTS - 158.9%......................... 758,250,507
(Cost $496,086,789) (d) --------------
NUMBER OF
CONTRACTS DESCRIPTION VALUE
---------- --------------------------------------------------- --------------
CALL OPTIONS WRITTEN - (0.3%)
American Electric Power Co., Inc. Call
1,200 @ $70.00 due August 2017........................... (324,000)
--------------
Enbridge, Inc. Calls
1,000 @ 45.00 due July 2017............................. (5,000)
400 @ 42.50 due October 2017.......................... (18,400)
--------------
(23,400)
--------------
Enterprise Products Partners, L.P. Call
5,000 @ 30.00 due June 2017 (e)......................... (5,000)
--------------
Eversource Energy Call
700 @ 65.00 due October 2017.......................... (58,100)
--------------
Exelon Corp. Calls
2,000 @ 35.00 due June 2017............................. (300,000)
139 @ 36.00 due July 2017............................. (14,456)
--------------
(314,456)
--------------
Page 6 See Notes to Financial Statements
FIRST TRUST ENERGY INCOME AND GROWTH FUND (FEN)
PORTFOLIO OF INVESTMENTS (CONTINUED)
MAY 31, 2017 (UNAUDITED)
NUMBER OF
CONTRACTS DESCRIPTION VALUE
---------- --------------------------------------------------- --------------
CALL OPTIONS WRITTEN (CONTINUED)
Kinder Morgan, Inc. Calls
2,500 @ 22.00 due June 2017............................. $ (2,500)
2,000 @ 22.00 due July 2017............................. (4,000)
2,400 @ 22.00 due September 2017........................ (26,400)
--------------
(32,900)
--------------
NextEra Energy, Inc. Call
100 @ 145.00 due July 2017............................ (11,800)
--------------
ONEOK, Inc. Calls
400 @ 52.50 due June 2017............................. (6,000)
1,000 @ 55.00 due June 2017 (e)......................... (5,000)
--------------
(11,000)
--------------
Plains All American Pipeline, L.P. Call
2,400 @ 29.00 due July 2017............................. (36,000)
--------------
Public Service Enterprise Group, Inc. Calls
30 @ 45.00 due June 2017............................. (1,500)
1,700 @ 45.00 due September 2017........................ (195,500)
--------------
(197,000)
--------------
Sempra Energy Call
400 @ 115.00 due June 2017............................ (92,000)
--------------
Southern (The) Co. Call
200 @ 52.50 due July 2017............................. (5,200)
--------------
TransCanada Corp. Calls
2,800 @ 50.00 due August 2017........................... (70,000)
500 @ 50.00 due November 2017......................... (27,500)
--------------
(97,500)
--------------
Williams (The) Cos., Inc. Calls
1,000 @ 32.00 due July 2017............................. (8,000)
2,500 @ 31.00 due August 2017........................... (100,000)
--------------
(108,000)
--------------
TOTAL CALL OPTIONS WRITTEN......................... (1,316,356)
(Premiums received $1,320,306) --------------
OUTSTANDING LOAN - (37.4%)......................... (178,500,000)
NET OTHER ASSETS AND LIABILITIES - (21.2%)......... (101,142,549)
--------------
NET ASSETS - 100.0%................................ $ 477,291,602
==============
-----------------------------
(a) All or a portion of this security serves as collateral on the outstanding
loan.
(b) NextEra Energy Partners, L.P. is taxed as a "C" corporation for federal
income tax purposes.
(c) This security is restricted in the U.S. and cannot be offered for public
sale without first being registered under the Securities Act of 1933, as
amended. This security is not restricted on the foreign exchange where it
trades freely without any additional registration. As such, it does not
require the additional disclosure required of restricted securities.
(d) Aggregate cost for federal income tax purposes is $395,265,024. As of May
31, 2017, the aggregate gross unrealized appreciation for all securities
in which there was an excess of value over tax cost was $366,991,247 and
the aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $4,005,764.
See Notes to Financial Statements Page 7
FIRST TRUST ENERGY INCOME AND GROWTH FUND (FEN)
PORTFOLIO OF INVESTMENTS (CONTINUED)
MAY 31, 2017 (UNAUDITED)
(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 May 31, 2017, investments noted as such are valued at
$(10,000) or (0.0)% of net assets.
ADR American Depositary Receipt
CAD Canadian Dollar - Security is denominated in Canadian Dollars and is
translated into U.S. Dollars based upon the current exchange rate.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of May 31, 2017
is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
ASSETS TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
5/31/2017 PRICES INPUTS INPUTS
-------------- -------------- -------------- --------------
Master Limited Partnerships*....................... $ 540,775,951 $ 540,775,951 $ -- $ --
Common Stocks*..................................... 211,974,755 211,974,755 -- --
Real Estate Investment Trusts*..................... 5,499,801 5,499,801 -- --
-------------- -------------- -------------- --------------
Total Investments.................................. $ 758,250,507 $ 758,250,507 $ -- $ --
============== ============== ============== ==============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
5/31/2017 PRICES INPUTS INPUTS
-------------- -------------- -------------- --------------
Call Options Written............................... $ (1,316,356) $ (1,262,356) $ (54,000) $ --
============== ============== ============== ==============
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between levels at May 31, 2017.
Page 8 See Notes to Financial Statements
FIRST TRUST ENERGY INCOME AND GROWTH FUND (FEN)
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 2017 (UNAUDITED)
ASSETS:
Investments, at value
(Cost $496,086,789)............................................................................ $ 758,250,507
Cash.............................................................................................. 15,795,641
Receivables:
Income taxes................................................................................ 13,153,853
Investment securities sold.................................................................. 5,049,033
Dividends................................................................................... 2,127,445
Prepaid expenses.................................................................................. 4,945
--------------
Total Assets................................................................................ 794,381,424
--------------
LIABILITIES:
Outstanding loan.................................................................................. 178,500,000
Deferred income taxes............................................................................. 130,794,206
Options written, at value (Premiums received $1,320,306).......................................... 1,316,356
Payables:
Investment securities purchased............................................................. 5,168,154
Investment advisory fees.................................................................... 564,630
Interest and fees on loan................................................................... 549,138
Audit and tax fees.......................................................................... 95,331
Administrative fees......................................................................... 27,533
Printing fees............................................................................... 26,163
Transfer agent fees......................................................................... 20,481
Custodian fees.............................................................................. 19,182
Trustees' fees and expenses................................................................. 3,117
Legal fees.................................................................................. 1,659
Financial reporting fees.................................................................... 771
Other liabilities................................................................................. 3,101
--------------
Total Liabilities........................................................................... 317,089,822
--------------
NET ASSETS........................................................................................ $ 477,291,602
==============
NET ASSETS CONSIST OF:
Paid-in capital................................................................................... $ 363,480,421
Par value......................................................................................... 193,972
Accumulated net investment income (loss), net of income taxes..................................... (16,498,706)
Accumulated net realized gain (loss) on investments, written options and foreign currency
transactions, net of income taxes.............................................................. (38,843,533)
Net unrealized appreciation (depreciation) on investments, written options and foreign currency
translation, net of income taxes............................................................... 168,959,448
--------------
NET ASSETS........................................................................................ $ 477,291,602
==============
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share).............................. $ 24.61
==============
Number of Common Shares outstanding (unlimited number of Common Shares has been authorized)....... 19,397,177
==============
See Notes to Financial Statements Page 9
FIRST TRUST ENERGY INCOME AND GROWTH FUND (FEN)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MAY 31, 2017 (UNAUDITED)
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $250,771)......................................... $ 6,487,682
Interest....................................................................................... 554
--------------
Total investment income..................................................................... 6,488,236
--------------
EXPENSES:
Investment advisory fees....................................................................... 3,380,657
Interest and fees on loan...................................................................... 2,775,206
Administrative fees............................................................................ 158,314
Printing fees.................................................................................. 61,783
Audit and tax fees............................................................................. 48,819
Custodian fees................................................................................. 41,220
Transfer agent fees............................................................................ 17,906
Trustees' fees and expenses.................................................................... 8,950
Legal fees..................................................................................... 5,758
Financial reporting fees....................................................................... 4,625
Other.......................................................................................... 19,528
--------------
Total expenses.............................................................................. 6,522,766
--------------
NET INVESTMENT INCOME (LOSS) BEFORE TAXES...................................................... (34,530)
--------------
Current state income tax benefit (expense)................................... (7,771)
Deferred federal income tax benefit (expense)................................ 791,855
Deferred state income tax benefit (expense).................................. (780,898)
-------------
Total income tax benefit (expense).......................................................... 3,186
--------------
NET INVESTMENT INCOME (LOSS)................................................................... (31,344)
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) before taxes on:
Investments................................................................................. 11,573,327
Written options............................................................................. 2,445,720
Foreign currency transactions............................................................... (16,940)
--------------
Net realized gain (loss) before taxes.......................................................... 14,002,107
--------------
Deferred federal income tax benefit (expense)................................ (5,167,502)
Deferred state income tax benefit (expense).................................. (308,472)
-------------
Total income tax benefit (expense).......................................................... (5,475,974)
--------------
Net realized gain (loss) on investments, written options and foreign currency transactions..... 8,526,133
--------------
Net change in unrealized appreciation (depreciation) before taxes on:
Investments................................................................................. 1,014,238
Written options............................................................................. 172,496
Foreign currency translation................................................................ (426)
--------------
Net change in unrealized appreciation (depreciation) before taxes.............................. 1,186,308
--------------
Deferred federal income tax benefits (expense)............................... (93,900)
Deferred state income tax benefits (expense)................................. (25,881)
-------------
Total income tax benefit (expense).......................................................... (119,781)
--------------
Net change in unrealized appreciation (depreciation) on investments, written options and
foreign currency translation................................................................ 1,066,527
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)........................................................ 9,592,660
--------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................... $ 9.561,316
==============
Page 10 See Notes to Financial Statements
FIRST TRUST ENERGY INCOME AND GROWTH FUND (FEN)
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR
5/31/2017 ENDED
(UNAUDITED) 11/30/2016
------------- -------------
OPERATIONS:
Net investment income (loss)......................................................... $ (31,344) $ 692,012
Net realized gain (loss)............................................................. 8,526,133 (11,640,198)
Net increase from payment by the sub-advisor......................................... -- 34,465
Net change in unrealized appreciation (depreciation)................................. 1,066,527 53,166,671
------------- -------------
Net increase (decrease) in net assets resulting from operations...................... 9,561,316 42,252,950
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain.................................................................... (10,797,167) (4,920,478)
Return of capital (See Note 2D)...................................................... (11,687,163) (39,997,449)
------------- -------------
Total distributions to shareholders.................................................. (22,484,330) (44,917,927)
------------- -------------
CAPITAL TRANSACTIONS:
Proceeds from Common Shares reinvested............................................... 471,777 587,902
------------- -------------
Net increase (decrease) in net assets resulting from capital transactions............ 471,777 587,902
------------- -------------
Total increase (decrease) in net assets.............................................. (12,451,237) (2,077,075)
NET ASSETS:
Beginning of period.................................................................. 489,742,839 491,819,914
------------- -------------
End of period........................................................................ $ 477,291,602 $ 489,742,839
============= =============
Accumulated net investment income (loss), net of income taxes at end of period....... $ (16,498,706) $ (16,467,362)
============= =============
CAPITAL TRANSACTIONS WERE AS FOLLOWS:
Common Shares at beginning of period................................................. 19,379,021 19,355,214
Common Shares issued as reinvestment under the Dividend Reinvestment Plan............ 18,156 23,807
------------- -------------
Common Shares at end of period....................................................... 19,397,177 19,379,021
============= =============
See Notes to Financial Statements Page 11
FIRST TRUST ENERGY INCOME AND GROWTH FUND (FEN)
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED MAY 31, 2017 (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) in net assets resulting from operations............. $ 9,561,316
Adjustments to reconcile net increase (decrease) in net assets resulting
from operations to net cash provided by operating activities:
Purchases of investments.............................................. (113,603,979)
Sales, maturities and paydowns of investments......................... 115,528,186
Proceeds from written options......................................... 4,598,728
Amount paid to close written options.................................. (1,417,360)
Return of capital received from investment in MLPs.................... 17,571,020
Net realized gain/loss on investments and written options............. (14,019,047)
Net change in unrealized appreciation/depreciation on
investments and written options.................................... (1,186,734)
CHANGES IN ASSETS AND LIABILITIES:
Increase in income tax receivable..................................... (21,022)
Decrease in interest receivable....................................... 73
Increase in dividends receivable...................................... (1,427,035)
Increase in prepaid expenses.......................................... (3,354)
Increase in interest and fees on loan payable......................... 66,001
Increase in investment advisory fees payable.......................... 29,077
Decrease in audit and tax fees payable................................ (9,359)
Decrease in legal fees payable........................................ (4,851)
Decrease in printing fees payable..................................... (15,815)
Increase in administrative fees payable............................... 1,495
Decrease in custodian fees payable.................................... (13,784)
Increase in transfer agent fees payable............................... 14,849
Increase in Trustees' fees and expenses payable....................... 147
Increase in deferred income tax payable............................... 5,584,793
Decrease in other liabilities......................................... (1,822)
---------------
CASH PROVIDED BY OPERATING ACTIVITIES....................................... $ 21,231,523
---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of Common Shares reinvested.................................. 471,777
Distributions to Common Shareholders from net realized gain........... (10,797,167)
Distributions to Common Shareholders from return of capital........... (11,687,163)
Proceeds from borrowing............................................... 4,000,000
---------------
CASH USED IN FINANCING ACTIVITIES........................................... (18,012,553)
---------------
Increase in cash (a)........................................................ 3,218,970
Cash at beginning of period................................................. 12,576,671
---------------
CASH AT END OF PERIOD....................................................... $ 15,795,641
===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest and fees........................... $ 2,709,205
===============
Cash paid during the period for taxes....................................... $ 29,030
===============
-----------------------------
(a) Includes net change in unrealized appreciation (depreciation) on foreign
currency of $(426).
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
SIX MONTHS
ENDED YEAR ENDED NOVEMBER 30,
MAY 31, 2017 ------------------------------------------------------------------
(UNAUDITED) 2016 2015 2014 2013 2012
---------- ---------- ---------- ---------- ---------- ----------
Net asset value, beginning of period....... $ 25.27 $ 25.41 $ 38.08 $ 32.93 $ 29.12 $ 27.31
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (a)........... (0.00) (b) 0.04 0.18 (0.03) (0.14) (0.07)
Net realized and unrealized gain (loss).... 0.50 2.14 (c) (10.59) 7.33 6.01 3.70
-------- -------- -------- -------- -------- --------
Total from investment operations........... 0.50 2.18 (10.41) 7.30 5.87 3.63
-------- -------- -------- -------- -------- --------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net realized gain.......................... (0.56) (0.25) (2.26) (2.15) (1.60) (1.64)
Return of capital.......................... (0.60) (2.07) -- -- (0.47) (0.32)
-------- -------- -------- -------- -------- --------
Total distributions to Common
Shareholders............................ (1.16) (2.32) (2.26) (2.15) (2.07) (1.96)
-------- -------- -------- -------- -------- --------
Premiums from shares sold in Common
Share offering.......................... -- -- -- -- 0.01 0.14
-------- -------- -------- -------- -------- --------
Net asset value, end of period............. $ 24.61 $ 25.27 $ 25.41 $ 38.08 $ 32.93 $ 29.12
======== ======== ======== ======== ======== ========
Market value, end of period................ $ 25.88 $ 26.30 $ 23.12 $ 35.47 $ 32.38 $ 30.69
======== ======== ======== ======== ======== ========
TOTAL RETURN BASED ON NET ASSET VALUE (d).. 1.79% 9.61% (c) (28.30)% 23.06% 20.41% 14.01%
======== ======== ======== ======== ======== ========
TOTAL RETURN BASED ON MARKET VALUE (d)..... 2.84% 25.39% (29.96)% 16.57% 12.34% 19.50%
======== ======== ======== ======== ======== ========
--------------------
Net assets, end of period (in 000's)....... $477,292 $489,743 $491,820 $737,135 $637,311 $481,549
Portfolio turnover rate.................... 14% 54% 28% 21% 25% 26%
RATIOS OF EXPENSES TO AVERAGE NET ASSETS:
Including current and deferred income
taxes (e)............................... 4.83% (f) 7.65% (15.26)% 13.34% 11.34% 9.49%
Excluding current and deferred income
taxes................................... 2.60% (f) 2.60% 2.21% 2.04% 1.85% 2.25%
Excluding current and deferred income taxes
and interest expense.................... 1.49% (f) 1.51% 1.47% 1.37% 1.41% 1.79%
RATIOS OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS:
Net investment income (loss) ratio before
tax expenses............................ (0.01)% (f) (0.77)% 0.72% (0.15)% (0.64)% (0.36)%
Net investment income (loss) ratio
including tax expenses (e).............. (2.24)% (f) (5.82)% 18.18% (11.46)% (10.12)% (7.59)%
SENIOR SECURITIES:
Total loan outstanding (in 000's).......... $178,500 $174,500 $183,000 $248,000 $205,400 $170,400
Asset coverage per $1,000 of senior
indebtedness (g)........................ $ 3,674 $ 3,807 $ 3,688 $ 3,972 $ 4,103 $ 3,826
-----------------------------
(a) Based on average shares outstanding.
(b) Amount is less than $0.01 per share.
(c) During the year ended November 30, 2016, the sub-advisor reimbursed the
Fund $55,570 in connection with a trade error, which represents less than
$0.01 per share. Since the sub-advisor reimbursed the Fund, there was no
effect on the total return.
(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) Annualized.
(g) Calculated by taking the Fund's total assets less the Fund's total
liabilities (not including the loan outstanding) and dividing by the loan
outstanding in 000's.
See Notes to Financial Statements Page 13
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INCOME AND GROWTH FUND (FEN)
MAY 31, 2017 (UNAUDITED)
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 MKT.
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") and related
public entities in the energy sector, which Energy Income Partners, LLC ("EIP"
or the "Sub-Advisor") 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.
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 its
financial statements. The preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America ("U.S.
GAAP") requires management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual results
could differ from those estimates.
A. PORTFOLIO VALUATION
The net asset value ("NAV") of the Common Shares of the Fund is determined daily
as of the close of regular trading on the 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,
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 ("REITs"), 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 the 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 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 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;
Page 14
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INCOME AND GROWTH FUND (FEN)
MAY 31, 2017 (UNAUDITED)
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 trading of similar securities;
4) foreign currency exchange activity;
5) the trading prices of financial products that are tied to baskets of
foreign securities;
6) factors relating to the event that precipitated the pricing problem;
7) whether the event is likely to recur; and
8) whether the effects of the event are isolated or whether they affect
entire markets, countries or regions.
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
The inputs or methodologies used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of May 31, 2017, 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 common stock of energy companies 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 the MLPs and common stock of energy
companies the Fund holds in its portfolio. The Fund will not write (sell)
"naked" or uncovered options. When the Fund writes (sells) an option, an amount
equal to the premium received by the Fund is included in "Options written, at
value" on the Fund's Statement of Assets and Liabilities. Options are
marked-to-market daily and their value will be affected by changes in the value
and dividend rates of the underlying equity securities, changes in interest
rates, changes in the actual or perceived volatility of the securities markets
and the underlying equity securities and the remaining time to the options'
expiration. The value of options may also be adversely affected if the market
for the options becomes less liquid or trading volume diminishes.
Options the Fund writes (sells) will either be exercised, expire or be cancelled
pursuant to a closing transaction. If the price of the underlying equity
security exceeds the option's exercise price, it is likely that the option
holder will exercise the option. If an option written (sold) by the Fund is
exercised, the Fund would be obligated to deliver the underlying 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.
Page 15
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST ENERGY INCOME AND GROWTH FUND (FEN)
MAY 31, 2017 (UNAUDITED)
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 the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income is recorded
daily on the accrual basis, including amortization of premiums and accretion of
discounts. The Fund will rely to some extent on information provided by the
MLPs, which is not necessarily timely, to estimate taxable income allocable to
the MLP units held in the Fund's portfolio 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. DISTRIBUTIONS TO SHAREHOLDERS
The Fund intends to make quarterly distributions to Common Shareholders. The
Fund's distributions generally will consist of cash and paid-in-kind
distributions from MLPs or their affiliates, dividends from common stocks,
interest from debt instruments and income from other investments held by the
Fund less operating expenses, including taxes, on Fund taxable income.
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 $10,797,167 paid during the six months ended May 31, 2017, 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 tax rates, subject to shareholder holding period
requirements. The remaining $11,687,163 in distributions paid during the six
months ended May 31, 2017, is expected to be return of capital. However, the
ultimate determination of the character of the distributions will be made after
the 2017 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.
E. INCOME TAXES
The Fund is treated as a regular C corporation for U.S. federal income tax
purposes and as such will be obligated to pay federal and applicable state and
foreign corporate taxes on its taxable income. The Fund's tax expense or benefit
is included in the Statement of Operations based on the component of income or
gains (losses) to which such expense or benefit relates. The current U.S.
federal maximum graduated income tax rate for corporations is 35%. The Fund may
be subject to a 20% federal alternative minimum tax on its federal alternative
minimum taxable income to the extent that its alternative minimum tax exceeds
its regular federal income tax. 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.
Page 16
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST ENERGY INCOME AND GROWTH FUND (FEN)
MAY 31, 2017 (UNAUDITED)
To the extent that the distributions received from the MLPs exceed the net
taxable income realized by the Fund from its investment, a tax liability
results. This tax liability is a deferred liability to the extent that MLP
distributions received have not exceeded the Fund's adjusted tax basis in the
respective MLPs. To the extent that distributions from an MLP exceed the Fund's
adjusted tax basis, the Fund will recognize a taxable capital gain. For the six
months ended May 31, 2017, distributions of $18,423,876 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)...... $ --
Current state income tax benefit (expense)........ (7,771)
Current foreign income tax benefit (expense)...... --
Deferred federal income tax benefit (expense ..... (4,469,547)
Deferred state income tax benefit (expense)....... (1,115,251)
-------------
Total income tax benefit (expense)................ $ (5,592,569)
=============
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 2017 income tax
provision includes a full valuation 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 May 31, 2017 are as follows:
Deferred tax assets:
Federal net operating loss........................ $ 1,207,521
State net operating loss.......................... 3,248,344
State income taxes................................ 2,797,499
Capital loss carryforward......................... --
Other............................................. 205,124
-------------
Total deferred tax assets......................... 7,458,488
Less: valuation allowance......................... (3,248,344)
-------------
Net deferred tax assets........................... $ 4,210,144
=============
Deferred tax liabilities:
Unrealized gains on investment securities......... $(135,004,350)
-------------
Total deferred tax liabilities.................... (135,004,350)
-------------
Total net deferred tax liabilities................ $(130,794,206)
=============
Total income taxes differ from the amount computed by applying the maximum
graduated federal income tax rate of 35% to net investment income and realized
and unrealized gains on investments.
Application of statutory income tax rate.......... $ 5,303,860
State income taxes, net .......................... 185,256
Change in valuation allowance..................... 544,708
Other............................................. (441,255)
-------------
Total............................................. $ 5,592,569
=============
The Fund is subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. Taxable years ending 2013, 2014,
2015 and 2016 remain open to federal and state audit. As of May 31, 2017,
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.
F. EXPENSES
The Fund will pay all expenses directly related to its operations.
G. 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 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
Page 17
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INCOME AND GROWTH FUND (FEN)
MAY 31, 2017 (UNAUDITED)
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.
H. NEW AND AMENDED FINANCIAL REPORTING RULES AND FORMS
On October 13, 2016, the SEC adopted new rules and forms, and amended existing
rules and forms. The new and amended rules and forms are intended to modernize
the reporting of information provided by funds and to improve the quality and
type of information that funds provide to the SEC and investors. The new and
amended rules and forms will be effective for the First Trusts funds, including
the Fund, for reporting periods beginning on and after June 1, 2018. Management
is evaluating the new and amended rules and forms to determine the impact to the
Fund.
I. NEW ACCOUNTING PRONOUNCEMENT
In December 2016, FASB released Accounting Standards Update ("ASU") 2016-19 that
makes technical changes to various sections of the ASC, including Topic 820,
Fair Value Measurement. The changes to Topic 820 are intended to clarify the
difference between a valuation approach and a valuation technique. The changes
to ASC 820-10-50-2 require a reporting entity to disclose, for Level 2 and Level
3 fair value measurements, a change in either or both a valuation approach and a
valuation technique and the reason(s) for the change. The changes to Topic 820
are effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2016. At this time, management is evaluating the
implications of the ASU and has not yet determined its impact on the financial
statements and disclosures.
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Fund, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the ongoing monitoring of the Fund's investment
portfolio, managing the Fund's business affairs and providing certain
administrative services necessary for the management of the Fund. For these
investment management services, First Trust is entitled to a monthly fee
calculated at an annual rate of 1.00% of the Fund's Managed Assets (the average
daily total asset value of the Fund minus the sum of the Fund's liabilities
other than the principal amount of borrowings). First Trust also provides fund
reporting services to the Fund for a flat annual fee in the amount of $9,250.
EIP serves as the Fund's sub-advisor and manages the Fund's portfolio subject to
First Trust's supervision. The Sub-Advisor receives a monthly sub-advisory fee
calculated at an annual rate of 0.50% of the Fund's Managed Assets that is paid
by First Trust out of its investment advisory fee.
During the year ended November 30, 2016, the Fund received a payment from the
Sub-Advisor of $55,570 in connection with a trade error.
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.
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,
or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee are paid
annual fees to serve in such capacities, with such compensation allocated pro
rata among each fund in the First Trust Fund Complex based on net assets.
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 investments, excluding
short-term investments, for the six months ended May 31, 2017, were $116,720,497
and $112,898,136, respectively.
Page 18
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INCOME AND GROWTH FUND (FEN)
MAY 31, 2017 (UNAUDITED)
5. DERIVATIVE TRANSACTIONS
Written option activity for the Fund was as follows:
NUMBER OF
WRITTEN OPTIONS CONTRACTS PREMIUMS
-----------------------------------------------------------------------------
Options outstanding at November 30, 2016........ 16,300 $ 1,066,554
Options Written................................. 86,979 4,598,728
Options Expired................................. (47,935) (2,960,556)
Options Exercised............................... (8,375) (481,896)
Options Closed.................................. (16,600) (902,524)
--------- ------------
Options outstanding at May 31, 2017............. 30,369 $ 1,320,306
========= ============
The following table presents the types of derivatives held by the Fund at May
31, 2017, the primary underlying risk exposure and the location of these
instruments as presented on the Statement of Assets and Liabilities.
ASSET DERIVATIVES LIABILITY DERIVATIVES
--------------------------------------- ---------------------------------------
DERIVATIVE RISK STATEMENT OF ASSETS AND STATEMENT OF ASSETS AND
INSTRUMENT EXPOSURE LIABILITIES LOCATION VALUE LIABILITIES LOCATION VALUE
---------------- ------------ ------------------------- ----------- ------------------------- ------------
Written Options Equity Risk -- -- Options written, at value $ 1,316,356
The following table presents the amount of net realized gain (loss) and change
in net unrealized appreciation (depreciation) recognized for the six months
ended May 31, 2017, on derivative instruments, as well as the primary underlying
risk exposure associated with each instrument.
STATEMENT OF OPERATIONS LOCATION
-----------------------------------------------------------------------
EQUITY RISK
Net realized gain (loss) before taxes on written options $ 2,445,720
Net change in unrealized appreciation (depreciation)
before taxes on written options 172,496
The Fund does not have the right to offset financial assets and financial
liabilities related to option contracts on the Statement of Assets and
Liabilities.
6. BORROWINGS
The Fund entered into a committed facility agreement (the "Committed Facility
Agreement") with BNP Paribas Prime Brokerage Inc. ("BNP"). Absent certain events
of default or failure to maintain certain collateral requirements, BNP may not
terminate the Committed Facility Agreement except upon 180 calendar days' prior
notice. The maximum commitment amount is $225,000,000, which comprises a
floating rate financing amount and a fixed rate financing amount. The commitment
fee of 0.80% of the undrawn amount is waived on any day on which the drawn
amount is 80% or more of the maximum commitment amount. The borrowing rate on
the floating rate financing amount is equal to the 1-month LIBOR plus 100 basis
points and the borrowing rate on the fixed rate financing amount of $102,700,000
is 3.68%. The fixed rate financing amount is for a ten-year period ending in
2023. Prior to December 7, 2016, the borrowing rate on the floating rate
financing amount was equal to the 1-month LIBOR plus 70 basis points, and the
maximum commitment amount and floating rate financing amount were $270,000,000
and $167,300,000, respectively.
The average amount outstanding for the six months ended May 31, 2017 was
$175,159,341, with a weighted average interest rate of 2.73%. As of May 31,
2017, the Fund had outstanding borrowings of $178,500,000 under the Committed
Facility Agreement. On the floating rate financing amount, the high and low
annual interest rates for the six months ended May 31, 2017 were 2.04% and
1.33%, respectively. The weighted average interest rate at May 31, 2017 was
2.99%.
7. 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.
8. 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
MLP-related entities and at least 65% of its Managed Assets in equity securities
of such MLPs and 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.
Page 19
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INCOME AND GROWTH FUND (FEN)
MAY 31, 2017 (UNAUDITED)
9. NON-FUNDAMENTAL CHANGE IN INVESTMENT STRATEGY
The Board of Trustees for the Fund previously approved the following
non-fundamental change to the Fund's investment strategy:
o The Fund may write (or sell) covered call options on its Managed
Assets on a principal basis. Previously, the Fund was able to write
(or sell) covered call options on a principal basis on the common
stock of energy companies. This change will become effective on or
about October 6, 2017.
The Fund's investment objective did not change.
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 the following subsequent events:
On June 19, 2017, the Fund, Advisor and Sub-Advisor entered into a sales
agreement with JonesTrading Institutional Services, LLC ("JonesTrading") whereby
the Fund may offer and sell up to 2,800,000 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 MKT 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.
On July 10, 2017, the Fund declared a distribution of $0.58 per share to Common
Shareholders of record on July 25, 2017, payable July 31, 2017.
Page 20
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INCOME AND GROWTH FUND (FEN)
MAY 31, 2017 (UNAUDITED)
DIVIDEND REINVESTMENT PLAN
If your Common Shares are registered directly with the Fund or if you hold your
Common Shares with a brokerage firm that participates in the Fund's Dividend
Reinvestment Plan (the "Plan"), unless you elect, by written notice to the Fund,
to receive cash distributions, all dividends, including any capital gain
distributions, on your Common Shares will be automatically reinvested by BNY
Mellon Investment Servicing (US) Inc. (the "Plan Agent"), in additional Common
Shares under the Plan. If you elect to receive cash distributions, you will
receive all distributions in cash paid by check mailed directly to you by the
Plan Agent, as the dividend paying agent.
If you decide to participate in the Plan, the number of Common Shares you will
receive will be determined as follows:
(1) If Common Shares are trading at or above net asset value ("NAV") at
the time of valuation, the Fund will issue new shares at a price
equal to the greater of (i) NAV per Common Share on that date or
(ii) 95% of the market price on that date.
(2) If Common Shares are trading below NAV at the time of valuation, the
Plan Agent will receive the dividend or distribution in cash and
will purchase Common Shares in the open market, on the NYSE or
elsewhere, for the participants' accounts. It is possible that the
market price for the Common Shares may increase before the Plan
Agent has completed its purchases. Therefore, the average purchase
price per share paid by the Plan Agent may exceed the market price
at the time of valuation, resulting in the purchase of fewer shares
than if the dividend or distribution had been paid in Common Shares
issued by the Fund. The Plan Agent will use all dividends and
distributions received in cash to purchase Common Shares in the open
market within 30 days of the valuation date except where temporary
curtailment or suspension of purchases is necessary to comply with
federal securities laws. Interest will not be paid on any uninvested
cash payments.
You may elect to opt-out of or withdraw from the Plan at any time by giving
written notice to the Plan Agent, or by telephone at (866) 340-1104, in
accordance with such reasonable requirements as the Plan Agent and the Fund may
agree upon. If you withdraw or the Plan is terminated, you will receive a
certificate for each whole share in your account under the Plan, and you will
receive a cash payment for any fraction of a share in your account. If you wish,
the Plan Agent will sell your shares and send you the proceeds, minus brokerage
commissions.
The Plan Agent maintains all Common Shareholders' accounts in the Plan and gives
written confirmation of all transactions in the accounts, including information
you may need for tax records. Common Shares in your account will be held by the
Plan Agent in non-certificated form. The Plan Agent will forward to each
participant any proxy solicitation material and will vote any shares so held
only in accordance with proxies returned to the Fund. Any proxy you receive will
include all Common Shares you have received under the Plan.
There is no brokerage charge for reinvestment of your dividends or distributions
in Common Shares. However, all participants will pay a pro rata share of
brokerage commissions incurred by the Plan Agent when it makes open market
purchases.
Automatically reinvesting dividends and distributions does not mean that you do
not have to pay income taxes due upon receiving dividends and distributions.
Capital gains and income are realized although cash is not received by you.
Consult your financial advisor for more information.
If you hold your Common Shares with a brokerage firm that does not participate
in the Plan, you will not be able to participate in the Plan and any dividend
reinvestment may be effected on different terms than those described above.
The Fund reserves the right to amend or terminate the Plan if in the judgment of
the Board of Trustees the change is warranted. There is no direct service charge
to participants in the Plan; however, the Fund reserves the right to amend the
Plan to include a service charge payable by the participants. Additional
information about the Plan may be obtained by writing BNY Mellon Investment
Servicing (US) Inc., 301 Bellevue Parkway, Wilmington, Delaware 19809.
--------------------------------------------------------------------------------
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Fund uses to determine how
to vote proxies and information on how the Fund voted proxies relating to
portfolio investments during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Fund's website located at http://www.ftportfolios.com; and (3) on the
Securities and Exchange Commission's ("SEC") website located at
http://www.sec.gov.
PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Form N-Qs
are available (1) by calling (800) 988-5891; (2) on the Fund's website located
at http://www.ftportfolios.com; (3) on the SEC's website at http://www.sec.gov;
and (4) for review and copying at the SEC's Public Reference Room ("PRR") in
Washington, DC. Information regarding the operation of the PRR may be obtained
by calling (800) SEC-0330.
Page 21
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INCOME AND GROWTH FUND (FEN)
MAY 31, 2017 (UNAUDITED)
SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
The Fund held its Annual Meeting of Shareholders (the "Annual Meeting") on April
24, 2017. At the Annual Meeting, Robert F. Keith was elected by the Common
Shareholders of the First Trust Energy Income and Growth Fund as a Class I
Trustee for a three-year term expiring at the Fund's annual meeting of
shareholders in 2020. The number of votes cast in favor of Mr. Keith was
16,678,310, the number of votes against was 379,164 and the number of broker
non-votes was 2,329,592. James A. Bowen, Richard E. Erickson, Thomas R. Kadlec
and Niel B. Nielson are the other current and continuing Trustees.
RISK CONSIDERATIONS
Risks are inherent in all investing. The following summarizes some, but not all,
of the risks that should be considered for the Fund. For additional information
about the risks associated with investing in the Fund, please see the Fund's
prospectus and statement of additional information, as well as other Fund
regulatory filings.
CURRENCY RISK: The value of securities denominated or quoted in foreign
currencies may be adversely affected by fluctuations in the relative currency
exchange rates and by exchange control regulations. The Fund's investment
performance may be negatively affected by a devaluation of a currency in which
the Fund's investments are denominated or quoted. Further, the Fund's investment
performance may be significantly affected, either positively or negatively, by
currency exchange rates because the U.S. dollar value of securities denominated
or quoted in another currency will increase or decrease in response to changes
in the value of such currency in relation to the U.S. dollar. While certain of
the Fund's non-U.S. dollar-denominated securities may be hedged into U.S.
dollars, hedging may not alleviate all currency risks.
DERIVATIVES RISK: The Fund may enter into total return swaps, credit default
swaps or other types of swaps, options, forwards and combinations thereof and
related derivatives. These transactions generally provide for the transfer from
one counterparty to another of certain risks inherent in the ownership of a
financial asset such as a common stock or debt instrument. Such risks include,
among other things, the risk of default and insolvency of the obligor of such
asset, the risk that the credit of the obligor or the underlying collateral will
decline or the risk that the common stock of the underlying issuer will decline
in value. The Fund's ability to successfully use hedging and interest rate
derivative transactions depends on the Sub-Advisor's ability to predict
pertinent market movements, which cannot be assured. Thus, the use of
derivatives for hedging and interest rate management purposes may result in
losses greater than if they had not been used, may require the Fund to sell or
purchase portfolio securities at inopportune times or for prices other than
current market values, 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. Additionally, amounts paid by the Fund as premiums and cash or
other assets held in margin accounts with respect to hedging and strategic
transactions are not otherwise available to the Fund for investment purposes. As
the writer of a covered call option, the Fund forgoes, during the option's life,
the opportunity to profit from increases in the market value of the security
covering the call option above the sum of the premium and the strike price of
the call, but has retained the risk of loss should the price of the underlying
security decline. The writer of an option has no control over the time when it
may be required to fulfill its obligation as a writer of the option. Once an
option writer 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 at the exercise price.
EQUITY SECURITIES RISK: Because the Fund invests in equity securities, the value
of the Fund's shares will fluctuate with changes in the value of these equity
securities. Equity securities prices 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 the capital rises and borrowing costs increase.
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 MLP-related entities and at least 65% of its Managed Assets in
equity securities of such MLPs and 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.
INVESTMENT AND MARKET RISK: An investment in the Fund's Common Shares is subject
to investment risk, including the possible loss of the entire principal
invested. An investment in Common Shares represents an indirect investment in
the securities owned by the Fund. The value of these securities, like other
market investments, may move up or down, sometimes rapidly and unpredictably.
Common Shares at any point in time may be worth less than the original
investment, even after taking into account the reinvestment of Fund dividends
and distributions. Security prices can fluctuate for several reasons including
the general condition of the securities markets, or when political or economic
events affecting the issuers occur. When the Advisor or Sub-Advisor determines
that it is temporarily unable to follow the Fund's investment strategy or that
it is impractical to do so (such as when a market disruption event has occurred
and trading in the securities is extremely limited or absent), the Fund may take
temporary defensive positions.
Page 22
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENERGY INCOME AND GROWTH FUND (FEN)
MAY 31, 2017 (UNAUDITED)
LEVERAGE RISK: The use of leverage results in additional risks and can magnify
the effect of any losses. The funds borrowed pursuant to a leverage borrowing
program constitute a substantial lien and burden by reason of their prior claim
against the income of the Fund and against the net assets of the Fund in
liquidation. If the Fund is not in compliance with certain credit facility
provisions, the Fund may not be permitted to declare dividends or other
distributions.
MLP RISK: An investment in MLP units involves risks which differ from an
investment in common stock of a corporation. Holders of MLP units have limited
control and voting rights on matters affecting the partnership. In addition,
there are certain tax risks associated with an investment in MLP units and
conflicts of interest exist between common unit holders and the general partner,
including those arising from incentive distribution payments.
NON-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. Accordingly, there are no regulatory requirements under
the 1940 Act or the Internal Revenue Code on the minimum number or size of
securities held by the Fund.
NON-U.S. RISK: The Fund may invest a portion of its assets in the equity
securities of issuers domiciled in jurisdictions other than the U.S. Investments
in the securities and instruments of non-U.S. issuers involve certain
considerations and risks not ordinarily associated with investments in
securities and instruments of U.S. issuers. Non-U.S. companies are not generally
subject to uniform accounting, auditing and financial standards and requirements
comparable to those applicable to U.S. companies. Non-U.S. securities exchanges,
brokers and listed companies may be subject to less government supervision and
regulation than exists in the United States. Dividend and interest income may be
subject to withholding and other non-U.S. taxes, which may adversely affect the
net return on such investments. A related risk is that there may be difficulty
in obtaining or enforcing a court judgment abroad.
RESTRICTED SECURITIES RISK: The Fund may invest in unregistered or otherwise
restricted securities. The term "restricted securities" refers to securities
that are unregistered or are held by control persons of the issuer and
securities that are subject to contractual restrictions on their resale. As a
result, restricted securities may be more difficult to value and the Fund may
have difficulty disposing of such assets either in a timely manner or for a
reasonable price. In order to dispose of an unregistered security, the Fund,
where it has contractual rights to do so, may have to cause such security to be
registered. A considerable period may elapse between the time the decision is
made to sell the security and the time the security is registered so that the
Fund could sell it. Contractual restrictions on the resale of securities vary in
length and scope and are generally the result of a negotiation between the
issuer and acquirer of the securities. The Fund would, in either case, bear
market risks during that period.
Page 23
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FIRST TRUST
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 E. Liberty Drive, Suite 400
Wheaton, IL 60187
INVESTMENT SUB-ADVISOR
Energy Income Partners, LLC
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
101 Barclay Street, 20th Floor
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
[BLANK BACK COVER]
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. INVESTMENTS.
(a) Schedule of Investments in securities of unaffiliated issuers as of the
close of the reporting period is included as part of the report to
shareholders filed under Item 1 of this form.
(b) Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a) Not applicable.
(b) Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the Registrant's board of trustees, where those
changes were implemented after the Registrant last provided disclosure in
response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)),
or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The Registrant's principal executive and principal financial officers, or
persons performing similar functions, have concluded that the Registrant's
disclosure controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR
270.30a-3(c))) are effective, as of a date within 90 days of the filing
date of the report that includes the disclosure required by this
paragraph, based on their evaluation of these controls and procedures
required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and
Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as
amended (17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the Registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR
270.30a-3(d)) that occurred during the Registrant's second fiscal quarter
of the period covered by this report that has materially affected, or is
reasonably likely to materially affect, the Registrant's internal control
over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Not applicable.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section
302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section
906 of the Sarbanes- Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) First Trust Energy Income and Growth Fund
----------------------------------------------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, President and
Chief Executive Officer
(principal executive officer)
Date: July 11, 2017
------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, President and
Chief Executive Officer
(principal executive officer)
Date: July 11, 2017
------------------
By (Signature and Title)* /s/ Donald P. Swade
----------------------------------------
Donald P. Swade, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: July 11, 2017
------------------
* Print the name and title of each signing officer under his or her signature.