SEC Form N-CSR filed by First Trust Energy Income and Growth Fund
$FEN
Finance/Investors Services
Finance
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-21549
(Exact name of registrant as specified in charter)
10 Westport Road, Suite C101a
Wilton, CT 06897
(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
(Name and address of agent for service)
Registrant's telephone number, including area code: 630-765-8000
Date of fiscal year end: November 30
Date of reporting period:
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1. Reports to Stockholders.
(a) The Report to Shareholders is attached herewith.
First
Trust
Energy
Income and Growth Fund (FEN)
Annual
Report
For
the Year Ended
November
30, 2023
Table
of Contents
First
Trust Energy Income and Growth Fund (FEN)
Annual
Report
November
30, 2023
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Caution
Regarding Forward-Looking Statements
This
report contains certain forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange
Act of 1934, as amended. Forward-looking statements include statements regarding the goals, beliefs, plans or current expectations of
First Trust Advisors L.P. (“First Trust” or the “Advisor”) and/or Energy Income Partners, LLC (“EIP”
or the “Sub-Advisor”) and their respective representatives, taking into account the information currently available to them.
Forward-looking statements include all statements that do not relate solely to current or historical fact. For example, forward-looking
statements include the use of words such as “anticipate,” “estimate,” “intend,” “expect,”
“believe,” “plan,” “may,” “should,” “would” or other words that convey uncertainty
of future events or outcomes.
Forward-looking
statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements
of First Trust Energy Income and Growth Fund (the “Fund”) to be materially different from any future results, performance
or achievements expressed or implied by the forward-looking statements. When evaluating the information included in this report, you are
cautioned not to place undue reliance on these forward-looking statements, which reflect the judgment of the Advisor and/or Sub-Advisor
and their respective representatives only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking
statements to reflect events and circumstances that arise after the date hereof.
Performance
and Risk Disclosure
There
is no assurance that the Fund will achieve its investment objective. The Fund is subject to market risk, which is the possibility that
the market values of securities owned by the Fund will decline and that the value of the Fund’s shares may therefore be less than
what you paid for them. Accordingly, you can lose money by investing in the Fund. See “Principal Risks” in the Investment
Objective, Policies, Risks and Effects of Leverage section of this report for a discussion of certain other risks of investing in the
Fund.
Performance
data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than
the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com
or speak with your financial advisor. Investment returns, net asset value and common share price will fluctuate and Fund shares, when
sold, may be worth more or less than their original cost.
The
Advisor may also periodically provide additional information on Fund performance on the Fund’s web page at www.ftportfolios.com.
How
to Read This Report
This
report contains information that may help you evaluate your investment in the Fund. It includes details about the Fund and presents data
and analysis that provide insight into the Fund’s performance and investment approach.
By
reading the portfolio commentary by the portfolio management team of the Fund, you may obtain an understanding of how the market environment
affected the Fund’s performance. The statistical information that follows may help you understand the Fund’s performance compared
to that of relevant market benchmarks.
It
is important to keep in mind that the opinions expressed by personnel of First Trust and EIP are just that: informed opinions. They should
not be considered to be promises or advice. The opinions, like the statistics, cover the period through the date on the cover of this
report. The material risks of investing in the Fund are spelled out in the prospectus, the statement of additional information, this report
and other Fund regulatory filings.
Shareholder
Letter
First
Trust Energy Income and Growth Fund (FEN)
Annual
Letter from the Chairman and CEO
November
30, 2023
Dear
Shareholders,
First
Trust is pleased to provide you with the annual report for the First Trust Energy Income and Growth Fund (the “Fund”), which
contains detailed information about the Fund for the twelve months ended November 30, 2023.
Rising
prices and the direction of central bank policy continue to dominate headlines on a global scale. As of December 12, 2023, just one of
the eleven countries that comprise the so-called “Group of Ten” had a rate of inflation that was below its target for the
metric. To rein in these price increases, central banks across the globe have been implementing more restrictive monetary policies. Over
the past twelve months, the Federal Reserve (the “Fed”) increased the Federal Funds target rate (upper bound) from 4.00% (where
it stood on November 30, 2022) to 5.50% as of November 30, 2023. Inflation, as measured by the 12-month change in the rate of the Consumer
Price Index, stood at 3.1% at the end of November 2023, marking the thirty-third consecutive month that the metric has been elevated above
the Fed’s stated goal of 2.0%.
As
many investors are likely aware, tighter monetary policy often leads to lower economic growth. In their October 2023 publication of the
World Economic Outlook, the International Monetary Fund projected that the growth in world economic output is expected to slow from 3.5%
in 2022 to 2.9% in 2024. The economic growth in advanced economies is projected to plummet from 2.6% in 2022 to 1.4% over the same period.
The impact of higher rates on consumers and businesses cannot be overstated. For consumers, rising interest rates typically increase the
cost of borrowing for large purchases, such as homes and automobiles. Assuming a 20% down payment, the rise in mortgage rates since the
Fed began its current tightening cycle amounts to a 31% increase in monthly interest payments on a new 30-year mortgage for the median
new home, according to Brian Wesbury, Chief Economist at First Trust. For corporations, the rising cost of debt financing often leads
to a contraction in business investment as free capital dries up and expansion projects slow. Refinitiv Lipper reported that the value
of global merger and acquisitions activity stood at just $2.38 trillion year-to-date through October 2023, representing a decline of 20%
compared to the same period last year and the lowest January to October total in a decade.
The
financial markets battled a myriad of headwinds over the past year, from geopolitical uncertainty resulting from war (the conflicts between
Israel and Hamas and Russia and Ukraine) to sticky inflation and the looming threat of an economic recession. While calls for a recession
may concern some investors, the following may offer solace. Data from Bloomberg reveals that the S&P 500®
Index has posted positive total returns over the 3-year period following every recession since 1948.
Thank
you for giving First Trust the opportunity to play a role in your financial future. We value our relationship with you and will report
on the Fund again in six months.
Sincerely,
James
A. Bowen
Chairman
of the Board of Trustees
Chief
Executive Officer of First Trust Advisors L.P.
Page
1
First
Trust Energy Income and Growth Fund (FEN)
“AT
A GLANCE”
As
of November 30, 2023 (Unaudited)
| Performance | ||||
| Average Annual Total Returns | ||||
| 1
Year Ended 11/30/23 |
5
Years Ended 11/30/23 |
10
Years Ended 11/30/23 |
Inception
(6/24/04) to 11/30/23 | |
| Fund Performance(3) | ||||
| NAV | 9.79% | 4.48% | 2.10% | 7.41% |
| Market Value | 8.83% | 3.97% | 1.38% | 6.68% |
| Index Performance | ||||
| S&P 500® Index | 13.84% | 12.51% | 11.81% | 9.54% |
| Bloomberg U.S. Credit Index of Corporate Bonds | 3.38% | 1.91% | 2.38% | 3.95% |
| Alerian MLP Total Return Index | 23.29% | 10.33% | 2.29% | 8.96% |
| (1) | Most recent distribution paid through November 30, 2023. Subject to change in the future. |
| (2) | Distribution rates are calculated by annualizing the most recent distribution paid through the report date and then dividing by Common Share Price or NAV, as applicable, as of November 30, 2023. 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. |
Page
2
Portfolio
Commentary
First
Trust Energy Income and Growth Fund (FEN)
Annual
Report
November
30, 2023 (Unaudited)
Proposed
Merger
First
Trust Energy Income and Growth Fund (the “Fund”) will call a special meeting of shareholders to consider merging the Fund
into a wholly-owned subsidiary of a newly created exchange-traded fund (“ETF”) that would be traded on the NYSE Arca and would
be an actively managed ETF managed by First Trust Advisors L.P. (“First Trust” or the “Advisor”) and sub-advised
by Energy Income Partners, LLC (“EIP”), the Fund’s current sub-advisor. More information on the proposed transaction,
including the risks and considerations associated with the proposed transaction, are contained in registration statement/proxy materials,
which are available at https://www.ftportfolios.com/LoadContent/gohdcqj3gy4o. This note is not intended to solicit a proxy from any shareholder
of the Fund and is not intended to, and shall not, constitute an offer to purchase or sell shares of the Fund or a to-be-formed ETF.
Advisor
First
Trust is the investment advisor to the Fund. First Trust is responsible for the ongoing monitoring of the Fund’s investment portfolio,
managing the Fund’s business affairs and providing certain administrative services necessary for the management of the Fund.
Sub-Advisor
Energy
Income Partners, LLC
EIP,
located in Westport, CT, was founded in 2003 to provide professional asset management services in publicly traded energy-related infrastructure
companies with above average dividend payout ratios operating pipelines and related storage and handling facilities, electric power transmission
and distribution as well as long contracted or regulated power generation from renewables and other sources. The corporate structure of
the portfolio companies includes C-corporations, partnerships and energy infrastructure real estate investment trusts. EIP mainly focuses
on investments in assets that receive steady fee-based or regulated income from their corporate and individual customers. EIP manages
or supervises approximately $5.1 billion of assets as of November 30, 2023. EIP advises two privately offered partnerships for U.S. high
net worth individuals and an open-end mutual fund. EIP also manages separately managed accounts and provides its model portfolio to unified
managed accounts. Finally, EIP serves as a sub-advisor to three closed-end management investment companies in addition to the Fund, three
actively managed exchange-traded funds, and a sleeve of a series of a variable insurance trust. EIP is a registered investment advisor
with the Securities and Exchange Commission.
Portfolio
Management Team
James
J. Murchie – Co-Portfolio Manager, Founder and CEO of Energy Income Partners, LLC
Eva
Pao – Co-Portfolio Manager, Principal of Energy Income Partners, LLC
John
Tysseland – Co-Portfolio Manager, Principal of Energy Income Partners, LLC
The
portfolio managers are primarily and jointly responsible for the day-to-day management of the Fund’s portfolio.
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
master limited partnerships (“MLPs”), related public entities in the energy sector, and/or other public companies which EIP
believes offer opportunities for income and growth. There can be no assurance that the Fund will achieve its investment objective. The
Fund may not be appropriate for all investors.
Market
Recap
As
measured by the Alerian MLP Total Return Index (“AMZX” or “MLP Benchmark”), the total return for the MLP Benchmark
for the 12-month period ended November 30, 2023 was 23.29%. For AMZX, this return reflects a positive 9.39% from distribution payments,
while the remaining returns are due to share price appreciation. These figures are according to data collected from Bloomberg. While in
the short term, market share price appreciation can be volatile, we believe that over the long term, share price appreciation will approximate
growth in per share earnings and quarterly cash distributions paid by the companies in the portfolio.
Page
3
Portfolio
Commentary (Continued)
First
Trust Energy Income and Growth Fund (FEN)
Annual
Report
November
30, 2023 (Unaudited)
Performance
Analysis
| Average Annual Total Returns | ||||
| 1
Year Ended 11/30/23 |
5
Years Ended 11/30/23 |
10
Years Ended 11/30/23 |
Inception
(6/24/04) to 11/30/23 | |
| Fund Performance(1) | ||||
| NAV | 9.79% | 4.48% | 2.10% | 7.41% |
| Market Value | 8.83% | 3.97% | 1.38% | 6.68% |
| Index Performance | ||||
| S&P 500® Index | 13.84% | 12.51% | 11.81% | 9.54% |
| Bloomberg U.S. Credit Index of Corporate Bonds | 3.38% | 1.91% | 2.38% | 3.95% |
| Alerian MLP Total Return Index | 23.29% | 10.33% | 2.29% | 8.96% |
Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance.
On
a net asset value (“NAV”) basis, for the 12-month period ended November 30, 2023, the Fund provided a total return(1)
of 9.79%, including the reinvestment of distributions. This compares, according to collected data, to a total return of 13.84% for the
S&P 500® Index (the “Index”), 3.38% for the
Bloomberg U.S. Credit Index of Corporate Bonds and 23.29% for AMZX. On a market value basis, the Fund had a total return(1),
including the reinvestment of distributions, of 8.83% for the same period. At the end of the period, the Fund was priced at $14.73 per
Common Share, while the NAV was $16.08 per Common Share, a discount of 8.40%. On November 30, 2022, the Fund was priced at $14.74 per
Common Share, while the NAV was $15.95 per Common Share, a discount of 7.59%.
For
the 12-month period ended November 30, 2023, the Fund’s NAV underperformed the MLP Benchmark by 1,350 basis points (“bps”).
While strong performance of the Fund’s pipeline and midstream infrastructure companies helped drive positive returns over the last
twelve months, the underperformance of the Fund relative to the MLP Benchmark was due to overweight positions in renewable developers
and electric utilities that are not included in the MLP Benchmark.
The
selloff in utilities was driven by concerns about higher costs for renewables as a bellwether large-cap company in the utilities sector
reduced the growth outlook for its renewable subsidiary. This subsidiary provides the parent with a publicly traded financing option for
completed renewable projects. However, declining share prices for all renewable developers led to a negative feedback loop rendering this
financing vehicle less economically viable and ultimately led to the parent cutting its growth rate for the subsidiary in
| (1) | Total return is based on the combination of reinvested dividend, capital gain and return of capital distributions, if any, at prices obtained by the Dividend Reinvestment Plan and changes in NAV per share for NAV returns and changes in Common Share Price for market value returns. Total returns do not reflect sales load and are not annualized for periods of less than one year. |
Page
4
Portfolio
Commentary (Continued)
First
Trust Energy Income and Growth Fund (FEN)
Annual
Report
November
30, 2023 (Unaudited)
half.
While this was a drag on sentiment for regulated utilities broadly, we do not view higher costs for renewables as an ongoing risk for
the utility sector.
Most
renewable projects are built by so-called renewable developers, not by the regulated utilities that are monopolies earning a regulated
return on all investment. But it just so happens that a few utility parent companies also engage in renewable development as a separate
business, and it is that connection that we believe scared investors in late September 2023. Onshore wind and solar still account for
90% of planned capacity additions over the next five years and remain the low-cost source of power generation in the U.S.(2)
We believe any cost pressures driven by supply chain issues and higher financing costs will be passed through in higher prices sufficient
to allow developers to make a competitive return on invested capital.
As
for the Fund’s MLP Benchmark, it has continued to become more concentrated as companies representing over 23% of the Benchmark were
acquired and are no longer trading as separately traded MLPs (thus excluded from the Benchmark(3)).
EIP has sought to consistently run a more conservative portfolio compared to the MLP Benchmark. This conservatism is reflected in holding
a more diversified set of what we view to be higher quality companies that themselves have more conservative balance sheets, lower dividend
payout ratios, less exposure to commodity prices and more stable cash flows.
While
the Fund’s portfolio is dominated by companies that own natural and legal monopolies operating transport infrastructure in both
the pipeline and power sectors, the Fund selectively owns more diversified energy companies where EIP believes valuations indicate the
cyclical, non-infrastructure portion of their assets are grossly mispriced. EIP believes integrated oil and gas companies (IOCs) possess
those characteristics today and so EIP initiated positions in some of these companies over the last two years. At the end of this period,
IOCs represented about 5% of the Fund’s portfolio.
Two
important factors affecting the return of the Fund, relative to the MLP Benchmark, are the Fund’s accrual for taxes and the use
of financial leverage through a line of credit. The Fund uses leverage because its portfolio managers believe that, over time, leverage
can enhance total return for common shareholders. However, the use of leverage can also increase the volatility of the NAV and, therefore,
the share price. For example, if the prices of securities held by the Fund decline, the effect of changes in common share NAV and common
share total return loss would be magnified by the use of leverage. Conversely, leverage may enhance common share returns during periods
when the prices of securities held by the Fund generally are rising. Unlike the Fund, the MLP Benchmark is not leveraged, nor are its
returns net of an accrual for taxes. Leverage had a positive impact on the performance of the Fund over the period. The accrual for taxes
had a negative impact on the performance of the Fund over the reporting period. Derivatives also had a positive impact on the performance
of the Fund over the reporting period.
The
Fund has a practice of seeking to maintain a relatively stable quarterly distribution, which may be changed at any time. The practice
has no impact on the Fund’s investment strategy and may reduce the Fund’s NAV. However, the Advisor believes the practice
helps maintain the Fund’s competitiveness and may benefit the Fund’s market price and premium/discount to the Fund’s
NAV. The quarterly distribution rate began the period at $0.30 per share and ended at $0.30 per share. At the $0.30 per share quarterly
distribution rate, the annualized distribution rate at November 30, 2023 was 7.46% at NAV and 8.15% at market price. For the 12-month
period ended November 30, 2023, 23% of the distributions were characterized as ordinary income and 77% of the distributions were characterized
as net realized gain. The final determination of the source and tax status of all 2023 distributions will be made after the end of 2023
and will be provided on Form 1099-DIV. The foregoing is not to be construed as tax advice. Please consult your tax advisor for further
information regarding tax matters.
Market
and Fund Outlook
The
underperformance of the Fund relative to the broad market was not remarkable as most of the Index performance was driven by 10 stocks.
The ten largest companies of the Index accounted for approximately 90% of Index performance during the period. As of November 30, 2023,
the Fund trades at a 36% discount relative to the Index that trades at a forward 12-month P/E of 19.0x versus 17.4x a year ago.(4)
Our view is optimistic regarding the Fund’s portfolio based on continued earnings growth among the energy infrastructure companies
coupled with low valuations relative to the Index based on forward 12-month earnings expectations.
In
EIP’s opinion, the long-term outlook for electricity and natural gas infrastructure is positive. As low-cost renewables continue
to grow, additional infrastructure is necessary to connect increasingly diverse sources of energy supply to consumers. Utilities are also
now experiencing incremental electricity demand from the electrification of vehicles to power hungry data centers, while the negative
impact of more efficient devices, especially LED lighting, abates as the replacement cycle matures. Additionally, the long-term trend
| (2) | Wolfe Research Power Supply Outlook: Implications for Power, Rails, Natural Gas, Turbines, September 15, 2023 |
| (3) | Out of the 21 members in the AMZX on November 30, 2022, four MLPs representing 23% of the index (CEQP, DCP, MMP, and PBFX) were subsequently acquired and removed from the index over the next twelve months. |
| (4) | Bloomberg |
Page
5
Portfolio
Commentary (Continued)
First
Trust Energy Income and Growth Fund (FEN)
Annual
Report
November
30, 2023 (Unaudited)
away
from coal-fired power generation seems likely to continue. Publicly owned utilities’ five-year integrated resource plans and continued
announcements of coal plant retirements support this view. In most cases, these retirements are being replaced with natural gas and/or
renewables requiring new transport infrastructure. These necessary investments by utilities grow the investment base (known as “rate
base”) upon which they earn their allowed rates of return which in turn grow earnings.
EIP
views the current level of capital discipline among conventional oil and gas producers as well as pipeline and midstream energy companies
as a bullish development for investors. Global capital spending for upstream oil and gas has collapsed due to, in our opinion, previous
over-investment, poor historical returns and ESG (environmental, social and corporate governance) pressures. Instead, cash flows are being
redirected to share repurchase, debt reduction, special dividends and in some cases renewable investments. EIP views these trends as positive
for investors, but EIP does not view the current amount of capital spending as being sufficient to offset natural production declines
nor to grow capacity. Fossil fuels such as natural gas, oil, and coal still account for more than 82% of global primary energy use.(5)
Global real gross domestic product (“GDP”) has a strong historical relationship to global primary energy use. Over the last
fifty-plus years there has never been a five-year period where average global GDP or average global primary energy use has declined.(6)
In our opinion, the lack of conventional oil and gas supply growth and what appears to be inevitable demand growth over any reasonable
investment horizon provides solid fundamentals for conventional energy investors.
EIP
is also optimistic about the technological breakthroughs in energy and invests in companies like renewable developers and network utilities
that, where renewable resources are abundant, benefit from the lower cost and higher performance of renewables, batteries, and other new
grid-related innovations. But EIP is not a venture capitalist; companies in the Fund’s portfolio must have a track record of profitability
and a willingness to share some portion of that profitability through distributions. While the names in the portfolio change over time,
the strategy and the sources of earnings stability and growth remain the same: investing in monopoly infrastructure that provides the
low-cost way of shipping the lowest cost form of energy.
| (5) | Energy Institute Statistical Review of World Energy, 2023 |
| (6) | World Bank, Energy Institute Statistical Review of World Energy – 2023, EIP Estimates. This information is based on assumptions made by EIP, changes to the assumptions will affect the information provided. |
Page
6
First
Trust Energy Income and Growth Fund (FEN)
Portfolio
of Investments
November
30, 2023
| Shares | Description | Value | ||
| COMMON STOCKS (a) – 73.6% | ||||
| Electric Utilities – 13.9% | ||||
| 106,920 |
Alliant Energy Corp. (b) |
$5,406,944 | ||
| 78,914 |
American Electric Power Co., Inc. |
6,277,609 | ||
| 9,500 |
Duke Energy Corp. |
876,660 | ||
| 10,000 |
Emera, Inc. (CAD) |
351,450 | ||
| 453,230 |
Enel S.p.A., ADR (c) |
3,174,876 | ||
| 10,000 |
Entergy Corp. |
1,014,100 | ||
| 34,876 |
Evergy, Inc. |
1,780,071 | ||
| 59,300 |
Eversource Energy |
3,523,013 | ||
| 135,000 |
Exelon Corp. |
5,198,850 | ||
| 11,500 |
Iberdrola S.A., ADR |
569,365 | ||
| 19,320 |
IDACORP, Inc. |
1,864,380 | ||
| 35,085 |
NextEra Energy, Inc. |
2,052,823 | ||
| 11,280 |
Orsted A/S, ADR |
176,758 | ||
| 159,005 |
PPL Corp. |
4,153,211 | ||
| 74,890 |
Southern (The) Co. |
5,315,692 | ||
| 30,733 |
Xcel Energy, Inc. |
1,869,796 | ||
| 43,605,598 | ||||
| Energy Equipment & Services – 1.1% | ||||
| 244,000 |
Archrock, Inc. (c) |
3,535,560 | ||
| Gas Utilities – 7.3% | ||||
| 103,960 |
AltaGas Ltd. (CAD) (c) |
2,114,519 | ||
| 52,150 |
Atmos Energy Corp. (c) |
5,935,192 | ||
| 190,700 |
National Fuel Gas Co. (c) |
9,685,653 | ||
| 55,120 |
New Jersey Resources Corp. (c) |
2,326,064 | ||
| 37,900 |
ONE Gas, Inc. (c) |
2,184,177 | ||
| 25,460 |
UGI Corp. (c) |
559,865 | ||
| 22,805,470 | ||||
| Independent Power & Renewable Electricity Producers – 1.4% | ||||
| 101,512 |
AES (The) Corp. (c) |
1,747,021 | ||
| 96,100 |
Clearway Energy, Inc., Class A |
2,274,687 | ||
| 13,800 |
EDP Renovaveis S.A. (EUR) |
251,607 | ||
| 4,273,315 | ||||
| Multi-Utilities – 10.0% | ||||
| 6,563 |
Ameren Corp. |
509,223 | ||
| 105,000 |
Atco Ltd., Class I (CAD) (c) |
2,866,908 | ||
| 34,031 |
CenterPoint Energy, Inc. (c) |
962,056 | ||
| 31,690 |
CMS Energy Corp. |
1,798,724 | ||
| 30,810 |
DTE Energy Co. (c) |
3,207,629 | ||
| 103,370 |
Public Service Enterprise Group, Inc. |
6,453,389 | ||
| 153,600 |
Sempra |
11,192,832 | ||
| 52,840 |
WEC Energy Group, Inc. |
4,418,481 | ||
| 31,409,242 | ||||
| Oil, Gas & Consumable Fuels – 39.1% | ||||
| 100,000 |
BP PLC, ADR (b) |
3,629,000 | ||
| 28,950 |
Cheniere Energy, Inc. (b) |
5,273,242 | ||
| 15,000 |
Chevron Corp. |
2,154,000 | ||
| 228,155 |
DT Midstream, Inc. (c) |
13,071,000 | ||
| 222,596 |
Enbridge, Inc. (c) |
7,761,923 | ||
| 17,000 |
Exxon Mobil Corp. |
1,746,580 | ||
| 246,370 |
Keyera Corp. (CAD) (c) |
6,203,960 | ||
| 780,595 |
Kinder Morgan, Inc. (c) |
13,715,054 | ||
See
Notes to Financial Statements
Page
7
First
Trust Energy Income and Growth Fund (FEN)
Portfolio
of Investments (Continued)
November
30, 2023
| Shares | Description | Value | ||
| COMMON STOCKS (a) (Continued) | ||||
| Oil, Gas & Consumable Fuels (Continued) | ||||
| 288,942 |
ONEOK, Inc. |
$19,893,657 | ||
| 110,000 |
Shell PLC, ADR |
7,238,000 | ||
| 85,300 |
Targa Resources Corp. |
7,715,385 | ||
| 149,279 |
TC Energy Corp. |
5,600,948 | ||
| 95,500 |
TotalEnergies SE, ADR |
6,498,775 | ||
| 590,852 |
Williams (The) Cos., Inc. |
21,737,445 | ||
| 122,238,969 | ||||
| Professional Services – 0.7% | ||||
| 16,000 |
Jacobs Solutions, Inc. (b) |
2,034,880 | ||
| Water Utilities – 0.1% | ||||
| 3,500 |
American Water Works Co., Inc. |
461,440 | ||
|
Total Common Stocks |
230,364,474 | |||
| (Cost $207,967,847) | ||||
| Units | Description | Value | ||
| MASTER LIMITED PARTNERSHIPS – 53.3% | ||||
| Chemicals – 2.9% | ||||
| 406,698 |
Westlake Chemical Partners, L.P. (c) |
9,211,710 | ||
| Energy Equipment & Services – 0.4% | ||||
| 57,500 |
USA Compression Partners, L.P. |
1,369,075 | ||
| Gas Utilities – 0.9% | ||||
| 165,600 |
Suburban Propane Partners, L.P. (c) |
2,840,040 | ||
| Independent Power & Renewable Electricity Producers – 1.3% | ||||
| 169,161 |
NextEra Energy Partners, L.P. (d) |
3,982,050 | ||
| Oil, Gas & Consumable Fuels – 47.8% | ||||
| 411,625 |
Cheniere Energy Partners, L.P. (c) |
25,413,727 | ||
| 2,295,767 |
Energy Transfer, L.P. (c) |
31,888,204 | ||
| 30,000 |
EnLink Midstream, LLC (c) (d) |
410,100 | ||
| 1,360,016 |
Enterprise Products Partners, L.P. (c) |
36,421,228 | ||
| 370,524 |
Hess Midstream, L.P., Class A (c) (d) |
12,056,851 | ||
| 565,000 |
MPLX, L.P. (c) |
20,599,900 | ||
| 1,224,321 |
Plains All American Pipeline, L.P. (c) |
19,442,217 | ||
| 73,475 |
TXO Partners, L.P. |
1,341,654 | ||
| 65,000 |
Western Midstream Partners, L.P. |
1,938,300 | ||
| 149,512,181 | ||||
|
Total Master Limited Partnerships |
166,915,056 | |||
| (Cost $79,373,002) | ||||
| Shares | Description | Value | ||
| MONEY MARKET FUNDS – 9.2% | ||||
| 28,634,313 |
Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio - Institutional Class - 5.23% (e) |
28,634,313 | ||
| (Cost $28,634,313) | ||||
|
Total Investments – 136.1% |
425,913,843 | |||
| (Cost $315,975,162) | ||||
Page
8
See
Notes to Financial Statements
First
Trust Energy Income and Growth Fund (FEN)
Portfolio
of Investments (Continued)
November
30, 2023
| Number of Contracts | Description | Notional Amount | Exercise Price | Expiration Date | Value | |||||
| WRITTEN OPTIONS – (0.0)% | ||||||||||
| Call Options Written – (0.0)% | ||||||||||
| (990) |
Alliant Energy Corp. |
$(5,006,430) | $52.50 | 12/15/23 | $(9,900) | |||||
| (1,000) |
BP PLC, ADR (f) |
(3,629,000) | 41.00 | 12/15/23 | (2,000) | |||||
| (289) |
Cheniere Energy, Inc. |
(5,264,135) | 180.00 | 12/15/23 | (138,720) | |||||
| (160) |
Jacobs Solutions, Inc. (f) |
(2,034,880) | 140.00 | 12/15/23 | (800) | |||||
|
Total Written Options |
(151,420) | |||||||||
| (Premiums received $272,336) | ||||||||||
| Outstanding Loan – (24.7)% | (77,200,000) | ||
|
Net Other Assets and Liabilities – (11.4)% |
(35,537,160) | ||
|
Net Assets – 100.0% |
$313,025,263 |
| (a) | Securities are issued in U.S. dollars unless otherwise indicated in the security description. |
| (b) | All or a portion of this security’s position represents cover for outstanding options written. |
| (c) | All or a portion of this security serves as collateral on the outstanding loan. At November 30, 2023, the segregated value of these securities amounts to $174,315,711. |
| (d) | This security is taxed as a “C” corporation for federal income tax purposes. |
| (e) | Rate shown reflects yield as of November 30, 2023. |
| (f) | This investment is fair valued by the Advisor’s Pricing Committee in accordance with procedures approved by the Fund’s Board of Trustees, and in accordance with the provisions of the Investment Company Act of 1940 and rules thereunder, as amended. At November 30, 2023, investments noted as such are valued at $(2,800) or (0.0)% of net assets. |
| Abbreviations throughout the Portfolio of Investments: | |
| ADR | – American Depositary Receipt |
| CAD | – Canadian Dollar |
| EUR | – Euro |
Valuation
Inputs
A
summary of the inputs used to value the Fund’s investments as of November 30, 2023 is as follows (see Note 2A - Portfolio Valuation
in the Notes to Financial Statements):
| ASSETS TABLE | ||||
| Total Value at 11/30/2023 |
Level
1 Quoted Prices |
Level
2 Significant Observable Inputs |
Level
3 Significant Unobservable Inputs | |
|
Common Stocks* |
$ 230,364,474 | $ 230,364,474 | $ — | $ — |
|
Master Limited Partnerships* |
166,915,056 | 166,915,056 | — | — |
|
Money Market Funds |
28,634,313 | 28,634,313 | — | — |
|
Total Investments |
$ 425,913,843 | $ 425,913,843 | $— | $— |
| LIABILITIES TABLE | ||||
| Total Value at 11/30/2023 |
Level
1 Quoted Prices |
Level
2 Significant Observable Inputs |
Level
3 Significant Unobservable Inputs | |
|
Written Options |
$ (151,420) | $ (138,720) | $ (12,700) | $ — |
| * | See Portfolio of Investments for industry breakout. |
See
Notes to Financial Statements
Page
9
First
Trust Energy Income and Growth Fund (FEN)
Statement
of Assets and Liabilities
November
30, 2023
| ASSETS: | |
|
Investments, at value |
$ 425,913,843 |
| Receivables: | |
|
Investment securities sold |
1,494,476 |
|
Dividends |
543,122 |
|
Income taxes |
217,892 |
|
Interest |
144,486 |
|
Reclaims |
50,570 |
|
Prepaid expenses |
4,816 |
|
Total Assets |
428,369,205 |
| LIABILITIES: | |
|
Outstanding loan |
77,200,000 |
|
Deferred income taxes |
24,784,837 |
|
Options written, at value |
151,420 |
| Payables: | |
|
Investment securities purchased |
10,914,580 |
|
Income taxes |
1,349,972 |
|
Interest and fees on loan |
402,726 |
|
Investment advisory fees |
312,786 |
|
Audit and tax fees |
102,620 |
|
Shareholder reporting fees |
49,967 |
|
Legal fees |
34,568 |
|
Administrative fees |
16,900 |
|
Custodian fees |
15,769 |
|
Trustees’ fees and expenses |
3,646 |
|
Transfer agent fees |
3,203 |
|
Financial reporting fees |
771 |
|
Other liabilities |
177 |
|
Total Liabilities |
115,343,942 |
|
NET ASSETS |
$313,025,263 |
| NET ASSETS consist of: | |
|
Paid-in capital |
$ 322,831,762 |
|
Par value |
194,637 |
|
Accumulated distributable earnings (loss) |
(10,001,136) |
|
NET ASSETS |
$313,025,263 |
|
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share) |
$16.08 |
|
Number of |
|
|
Investments, at cost |
$315,975,162 |
|
Premiums received on options written |
$272,336 |
Page
10
See
Notes to Financial Statements
First
Trust Energy Income and Growth Fund (FEN)
Statement
of Operations
For
the Year Ended November 30, 2023
| INVESTMENT INCOME: | ||
|
Dividends |
$ 8,749,676 | |
|
Interest |
578,541 | |
|
Foreign withholding tax |
(400,791) | |
|
Total investment income |
8,927,426 | |
| EXPENSES: | ||
|
Investment advisory fees |
3,767,818 | |
|
Interest and fees on loan |
3,714,595 | |
|
Administrative fees |
177,279 | |
|
Audit and tax fees |
111,945 | |
|
Shareholder reporting fees |
92,974 | |
|
Legal fees |
72,957 | |
|
Custodian fees |
27,099 | |
|
Trustees’ fees and expenses |
20,055 | |
|
Listing expense |
20,000 | |
|
Transfer agent fees |
18,669 | |
|
Financial reporting fees |
9,250 | |
|
Other |
11,985 | |
|
Total expenses |
8,044,626 | |
|
NET INVESTMENT INCOME (LOSS) BEFORE TAXES |
882,800 | |
|
Current federal income tax benefit (expense) |
9,396,357 | |
|
Current state income tax benefit (expense) |
1,166,503 | |
|
Deferred federal income tax benefit (expense) |
(10,754,325) | |
|
Deferred state income tax benefit (expense) |
(101,220) | |
|
Total income tax benefit (expense) |
(292,685) | |
|
NET INVESTMENT INCOME (LOSS) |
590,115 | |
| NET REALIZED AND UNREALIZED GAIN (LOSS): | ||
| Net realized gain (loss) before taxes on: | ||
|
Investments |
58,175,521 | |
|
Written options contracts |
4,567,132 | |
|
Foreign currency transactions |
(23,658) | |
|
Net realized gain (loss) before taxes |
62,718,995 | |
|
Current federal income tax benefit (expense) |
(13,170,989) | |
|
Current state income tax benefit (expense) |
(1,401,247) | |
|
Total income tax benefit (expense) |
(14,572,236) | |
|
Net realized gain (loss) on investments, written options and foreign currency transactions |
48,146,759 | |
| Net change in unrealized appreciation (depreciation) before taxes on: | ||
|
Investments |
(32,795,031) | |
|
Written options contracts |
680,877 | |
|
Foreign currency translation |
3,493 | |
|
Net change in unrealized appreciation (depreciation) before taxes |
(32,110,661) | |
|
Deferred federal income tax benefit (expense) |
8,476,215 | |
|
Deferred state income tax benefit (expense) |
899,965 | |
|
Total income tax benefit (expense) |
9,376,180 | |
|
Net change in unrealized appreciation (depreciation) on investments, written options and foreign currency translation |
(22,734,481) | |
|
NET REALIZED AND UNREALIZED GAIN (LOSS) |
25,412,278 | |
|
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS |
$ 26,002,393 | |
See
Notes to Financial Statements
Page
11
First
Trust Energy Income and Growth Fund (FEN)
Statements
of Changes in Net Assets
| Year Ended 11/30/2023 |
Year Ended 11/30/2022 | ||
| OPERATIONS: | |||
|
Net investment income (loss) |
$ 590,115 | $ 2,016,420 | |
|
Net realized gain (loss) |
48,146,759 | 29,431,973 | |
|
Net change in unrealized appreciation (depreciation) |
(22,734,481) | 36,343,218 | |
|
Net increase (decrease) in net assets resulting from operations |
26,002,393 | 67,791,611 | |
| DISTRIBUTIONS TO SHAREHOLDERS FROM: | |||
|
Investment operations |
(23,356,465) | (23,345,986) | |
| CAPITAL TRANSACTIONS: | |||
|
Proceeds from Common Shares reinvested |
— | 214,750 | |
|
Net increase (decrease) in net assets resulting from capital transactions |
— | 214,750 | |
|
Total increase (decrease) in net assets |
2,645,928 | 44,660,375 | |
| NET ASSETS: | |||
|
Beginning of period |
310,379,335 | 265,718,960 | |
|
End of period |
$ 313,025,263 | $ 310,379,335 | |
| CAPITAL TRANSACTIONS were as follows: | |||
|
Common Shares at beginning of period |
19,463,721 | 19,449,643 | |
|
Common Shares issued as reinvestment under the Dividend Reinvestment Plan |
— | 14,078 | |
|
Common Shares at end of period |
19,463,721 | 19,463,721 |
Page
12
See
Notes to Financial Statements
First
Trust Energy Income and Growth Fund (FEN)
Statement
of Cash Flows
For
the Year Ended November 30, 2023
| Cash flows from operating activities: | ||
|
Net increase (decrease) in net assets resulting from operations |
$26,002,393 | |
| Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by operating activities: | ||
|
Purchases of investments |
(352,309,354) | |
|
Sales of investments |
343,962,896 | |
|
Proceeds from written options |
5,819,698 | |
|
Amount paid to close written options |
(196,139) | |
|
Return of capital received from investment in MLPs |
15,224,529 | |
|
Net realized gain/loss on investments and written options |
(62,742,653) | |
|
Net change in unrealized appreciation/depreciation on investments and written options |
32,114,154 | |
| Changes in assets and liabilities: | ||
|
Decrease in income taxes receivable |
2,018,435 | |
|
Increase in interest receivable |
(144,486) | |
|
Increase in reclaims receivable |
(45,217) | |
|
Decrease in dividends receivable |
24,017 | |
|
Decrease in prepaid expenses |
272 | |
|
Increase in interest and fees payable on loan |
150,641 | |
|
Increase in income taxes payable |
1,349,972 | |
|
Increase in deferred income tax payable |
1,479,366 | |
|
Decrease in investment advisory fees payable |
(1,065) | |
|
Increase in audit and tax fees payable |
88 | |
|
Increase in legal fees payable |
31,563 | |
|
Increase in shareholder reporting fees payable |
26,779 | |
|
Increase in administrative fees payable |
1,983 | |
|
Increase in custodian fees payable |
10,960 | |
|
Increase in transfer agent fees payable |
1,698 | |
|
Increase in trustees’ fees and expenses payable |
561 | |
|
Increase in other liabilities payable |
1 | |
|
Cash provided by operating activities |
$12,781,092 | |
| Cash flows from financing activities: | ||
|
Distributions to Common Shareholders from investment operations |
(23,356,465) | |
|
Repayment of borrowing |
(5,000,000) | |
|
Proceeds from borrowing |
3,000,000 | |
|
Cash used in financing activities |
(25,356,465) | |
|
Decrease in cash |
(12,575,373) | |
|
Cash at beginning of period |
12,575,373 | |
|
Cash at end of period |
$— | |
| Supplemental disclosure of cash flow information: | ||
|
Cash paid during the period for interest and fees |
$3,563,954 | |
|
Cash paid during the period for taxes |
$640,979 |
See
Notes to Financial Statements
Page
13
First
Trust Energy Income and Growth Fund (FEN)
Financial
Highlights
For
a Common Share outstanding throughout each period
| Year Ended November 30, | |||||||||
| 2023 | 2022 | 2021 | 2020 | 2019 | |||||
|
Net asset value, beginning of period |
$ 15.95 | $ 13.66 | $ 12.62 | $ 19.88 | $ 21.27 | ||||
| Income from investment operations: | |||||||||
|
Net investment income (loss) (a) |
0.03 | 0.10 | 0.06 | (0.70) | 0.11 | ||||
|
Net realized and unrealized gain (loss) |
1.30 | 3.39 | 2.15 | (4.83) | 0.82 (b) | ||||
|
Total from investment operations |
1.33 | 3.49 | 2.21 | (5.53) | 0.93 | ||||
| Distributions paid to shareholders from: | |||||||||
|
Net investment income |
(0.28) | — | (0.30) | — | (0.34) | ||||
|
Net realized gain |
(0.92) | (1.20) | (0.90) | — | (0.98) | ||||
|
Return of capital |
— | — | — | (1.76) | (1.00) | ||||
|
Total distributions paid to Common Shareholders |
(1.20) | (1.20) | (1.20) | (1.76) | (2.32) | ||||
|
Common Share repurchases |
— | — | 0.03 | 0.03 | — | ||||
|
Net asset value, end of period |
$ | $15.95 | $13.66 | $12.62 | $19.88 | ||||
|
Market value, end of period |
$ | $14.74 | $13.65 | $10.73 | $20.47 | ||||
|
Total return based on net asset value (c) |
9.79% | 26.22% | 18.27% | (27.08)% | 4.18% (b) | ||||
|
Total return based on market value (c) |
8.83% | 16.73% | 39.00% | (39.79)% | 14.25% | ||||
|
Net assets, end of period (in 000’s) |
$ 313,025 | $ 310,379 | $ 265,719 | $ 249,524 | $ 397,857 | ||||
|
Portfolio turnover rate |
47% | 54% | 81% | 91% | 65% | ||||
| Ratios of expenses to average net assets: | |||||||||
|
Including current and deferred income taxes (d) |
4.53% | 8.79% | 6.95% | (5.70)% (e) | 3.79% | ||||
|
Excluding current and deferred income taxes |
2.69% | 2.26% | 2.13% | 3.93% (e) | 2.82% | ||||
|
Excluding current and deferred income taxes and interest expense |
1.45% | 1.44% | 1.43% | 1.50% | 1.52% | ||||
| Ratios of net investment income (loss) to average net assets: | |||||||||
|
Net investment income (loss) ratio before tax expenses |
0.30% | 0.11% | (0.01)% | (2.76)% (e) | 0.38% | ||||
|
Net investment income (loss) ratio including tax expenses (d) |
(1.54)% | (6.42)% | (4.82)% | 6.88% (e) | (0.59)% | ||||
| Indebtedness: | |||||||||
|
Total loan outstanding (in 000’s) |
$ 77,200 | $ 79,200 | $ 75,700 | $ 59,200 | $ 146,000 | ||||
|
Asset coverage per $1,000 of indebtedness (f) |
$ 5,055 | $ 4,919 | $ 4,510 | $ 5,215 | $ 3,725 | ||||
| (a) | Based on average shares outstanding. |
| (b) | During the fiscal year ended November 30, 2019, the sub-advisor reimbursed the Fund $130,183 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. |
| (c) | Total return is based on the combination of reinvested dividend, capital gain and return of capital distributions, if any, at prices obtained by the Dividend Reinvestment Plan, and changes in net asset value per share for net asset value returns and changes in Common Share Price for market value returns. Total returns do not reflect sales load and are not annualized for periods of less than one year. Past performance is not indicative of future results. |
| (d) | Includes current and deferred income taxes associated with each component of the Statement of Operations. |
| (e) | This ratio includes breakage fees. If breakage fees had not been included, these expense ratios would have been 1.48% lower and the net investment income ratios would have been 1.48% higher. |
| (f) | Calculated by subtracting the Fund’s total liabilities (not including the loan outstanding) from the Fund’s total assets, and dividing by the outstanding loan balance in 000’s. |
Page
14
See
Notes to Financial Statements
Notes
to Financial Statements
First
Trust Energy Income and Growth Fund (FEN)
November
30, 2023
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 under the Investment
Company Act of 1940, as amended (the “1940 Act”). The Fund trades under the ticker symbol “FEN” on the NYSE American.
The
Fund’s investment objective is to seek a high level of after-tax total return with an emphasis on current distributions paid to
shareholders. The Fund seeks to provide its shareholders with an efficient vehicle to invest in a portfolio of cash-generating securities
of energy companies. The Fund focuses on investing in publicly-traded master limited partnerships (“MLPs”), MLP-related entities
and other companies in the energy sector which Energy Income Partners, LLC (“EIP” or the “Sub-Advisor”) believes
offer opportunities for income and growth. Under normal market conditions, the Fund will invest at least 85% of its managed assets in
securities of energy companies, energy sector MLPs and energy sector MLP-related entities. There can be no assurance that the Fund will
achieve its investment objective. The Fund may not be appropriate for all investors.
2. Significant
Accounting Policies
The
Fund is considered an investment company and follows accounting and reporting guidance under Financial Accounting Standards Board Accounting
Standards Codification Topic 946, “Financial Services-Investment Companies.” The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of the financial statements. The preparation of the financial statements
in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management
to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
A. Portfolio
Valuation
The
net asset value (“NAV”) of the Common Shares of the Fund is determined daily as of the close of regular trading on the New
York Stock Exchange (“NYSE”), normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. If the NYSE closes
early on a valuation day, the NAV is determined as of that time. Foreign securities are priced using data reflecting the earlier closing
of the principal markets for those securities. The Fund’s NAV per Common Share is calculated by dividing the value of all assets
of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses, the value of call options written
(sold), dividends declared but unpaid, deferred income taxes and any borrowings of the Fund), by the total number of Common Shares outstanding.
The
Fund’s investments are valued daily at market value or, in the absence of market value with respect to any portfolio securities,
at fair value. Market value prices represent readily available market quotations such as 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 approved by the Fund’s Board of Trustees, and in accordance with provisions of the 1940
Act and rules thereunder. 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, MLPs, and other equity securities listed on any national or foreign exchange (excluding Nasdaq, Inc. (“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 primary exchange for such securities.
Securities
trading on foreign exchanges or over-the-counter markets that close prior to the NYSE close may be valued using a systematic fair valuation
model provided by a third-party pricing service. If these foreign securities meet certain criteria in relation to the valuation model,
their valuation is systematically adjusted to reflect the impact of movement in the U.S. market after the close of the foreign markets.
Shares
of open-end funds are valued based on NAV per share.
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 valued at the mean of their most recent bid and ask price, if both are available. Over-the-counter
options contracts are valued as follows, depending on the market in which the instrument trades: (1) the mean of their most recent
bid and ask price, if available; or (2) a price based on the equivalent exchange-traded option.
Page
15
Notes
to Financial Statements (Continued)
First
Trust Energy Income and Growth Fund (FEN)
November
30, 2023
Equity
securities traded in an over-the-counter market are valued at the close price or the last trade price.
Certain
securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by 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 last sale price on the exchange on which they are principally traded or, for Nasdaq and AIM securities, the official closing price; |
| 2) | the type of security; |
| 3) | the size of the holding; |
| 4) | the initial cost of the security; |
| 5) | transactions in comparable securities; |
| 6) | price quotes from dealers and/or third-party pricing services; |
| 7) | relationships among various securities; |
| 8) | information obtained by contacting the issuer, analysts, or the appropriate stock exchange; |
| 9) | an analysis of the issuer’s financial statements; |
| 10) | the existence of merger proposals or tender offers that might affect the value of the security; and |
| 11) | other relevant factors. |
If
the securities in question are foreign securities, the following additional information may be considered:
| 1) | the last sale price on the exchange on which they are principally traded; |
| 2) | the value of similar foreign securities traded on other foreign markets; |
| 3) | ADR trading of similar securities; |
| 4) | closed-end fund or exchange-traded fund trading of similar securities; |
| 5) | foreign currency exchange activity; |
| 6) | the trading prices of financial products that are tied to baskets of foreign securities; |
| 7) | factors relating to the event that precipitated the pricing problem; |
| 8) | whether the event is likely to recur; |
| 9) | whether the effects of the event are isolated or whether they affect entire markets, countries or regions; and |
| 10) | other relevant factors. |
The
Fund is subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide
a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the
fair value hierarchy are as follows:
| • | Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
| • | Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following: |
| o | Quoted prices for similar investments in active markets. |
| o | Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly. |
| o | Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates). |
| o | Inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
Page
16
Notes
to Financial Statements (Continued)
First
Trust Energy Income and Growth Fund (FEN)
November
30, 2023
| • | Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment. |
The
inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those
investments. A summary of the inputs used to value the Fund’s investments as of November 30, 2023, 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
stocks held in the Fund’s portfolio as determined to be appropriate by the Sub-Advisor. The number of options the Fund can write
(sell) is limited by the amount of MLPs and common stocks the Fund holds in its portfolio. The Fund will not write (sell) “naked”
or uncovered options. When the Fund writes (sells) an option, an amount equal to the premium received by the Fund is included in “Options
written, at value” on the Fund’s Statement of Assets and Liabilities. Options are marked-to-market daily and their value will
be affected by changes in the value and dividend rates of the underlying equity securities, changes in interest rates, changes in the
actual or perceived volatility of the securities markets and the underlying equity securities and the remaining time to the options’
expiration. The value of options may also be adversely affected if the market for the options becomes less liquid or trading volume diminishes.
The
options that the Fund writes (sells) will either be exercised, expire or be canceled pursuant to a closing transaction. If the price of
the underlying equity security exceeds the option’s exercise price, it is likely that the option holder will exercise the option.
If an option written (sold) by the Fund is exercised, the Fund would be obligated to deliver the underlying equity security to the option
holder upon payment of the strike price. In this case, the option premium received by the Fund will be added to the amount realized on
the sale of the underlying security for purposes of determining gain or loss and is included in “Net realized gain (loss) before
taxes on investments” on the Statement of Operations. If the price of the underlying equity security is less than the option’s
strike price, the option will likely expire without being exercised. The option premium received by the Fund will, in this case, be treated
as short-term capital gain on the expiration date of the option. The Fund may also elect to close out its position in an option prior
to its expiration by purchasing an option of the same series as the option written (sold) by the Fund. Gain or loss on options is presented
separately as “Net realized gain (loss) before taxes on written options contracts” on the Statement of Operations.
The
options that the Fund writes (sells) give the option holder the right, but not the obligation, to purchase a security from the Fund at
the strike price on or prior to the option’s expiration date. The ability to successfully implement the writing (selling) of covered
call options depends on the ability of the Sub-Advisor to predict pertinent market movements, which cannot be assured. Thus, the use of
options may require the Fund to sell portfolio securities at inopportune times or for prices other than current market value, which may
limit the amount of appreciation the Fund can realize on an investment, or may cause the Fund to hold a security that it might otherwise
sell. As the writer (seller) of a covered option, the Fund foregoes, during the option’s life, the opportunity to profit from increases
in the market value of the security covering the option above the sum of the premium and the strike price of the option, but has retained
the risk of loss should the price of the underlying security decline. The writer (seller) of an option has no control over the time when
it may be required to fulfill its obligation as a writer (seller) of the option. Once an option writer (seller) has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate its obligation under the option and must deliver the underlying
security to the option holder at the exercise price.
Over-the-counter
options have the risk of the potential inability of counterparties to meet the terms of their contracts. The Fund’s maximum equity
price risk for purchased options is limited to the premium initially paid. In addition, certain risks may arise upon entering into option
contracts including the risk that an illiquid secondary market will limit the Fund’s ability to close out an option contract prior
to the expiration date and that a change in the value of the option contract may not correlate exactly with changes in the value of the
securities hedged.
C. Securities
Transactions and Investment Income
Securities
transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on an identified cost
basis. Dividend income is recorded on the ex-dividend date. Interest income is recorded daily on an accrual basis, including amortization
of premiums and accretion of discounts. The Fund will rely to some extent on information provided by the MLPs, which is not necessarily
timely, to estimate taxable income allocable to the MLP units held in the Fund’s portfolio and to estimate the associated deferred
tax asset or liability. From time to time, the Fund will modify its estimates and/or assumptions regarding its deferred tax liability
as new information becomes available. To the extent the Fund modifies its estimates and/or assumptions, the NAV of the Fund will likely
fluctuate.
Page
17
Notes
to Financial Statements (Continued)
First
Trust Energy Income and Growth Fund (FEN)
November
30, 2023
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.
The
United Kingdom’s Financial Conduct Authority (the “FCA”), which regulates the London Interbank Offered Rates (“LIBOR”),
ceased making LIBOR available as a reference rate over a phase-out period that began December 31, 2021. The overnight and 12-month USD
LIBOR settings permanently ceased as of June 30, 2023. The FCA announced that the 1-, 3- and 6-month USD LIBOR settings will continue
to be published using a synthetic methodology to serve as a fallback for non-U.S. contracts until September 2024. In response to the discontinuation
of LIBOR, investors have added fallback provisions to existing contracts for investments whose value is tied to LIBOR, with most fallback
provisions requiring the adoption of the Secured Overnight Financing Rate (“SOFR”) as a replacement rate. There is no assurance
that any alternative reference rate, including SOFR, will be similar to or produce the same value or economic equivalence as LIBOR or
that instruments using an alternative rate will have the same volume or liquidity. At this time, it is not possible to predict the full
impact of the elimination of LIBOR and the establishment of an alternative reference rate on the Fund or its investments.
D. Foreign
Currency
The
books and records of the Fund are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities are translated
into U.S. dollars at the exchange rates prevailing at the end of the period. Purchases and sales of investments and items of income and
expense are translated on the respective dates of such transactions. Unrealized gains and losses on assets and liabilities, other than
investments in securities, which result from changes in foreign currency exchange rates have been included in “Net change in unrealized
appreciation (depreciation) before taxes on foreign currency translation” on the Statement of Operations. Unrealized gains and losses
on investments in securities which result from changes in foreign exchange rates are included with fluctuations arising from changes in
market price and are shown in “Net change in unrealized appreciation (depreciation) before taxes on investments” on the Statement
of Operations. Net realized foreign currency gains and losses include the effect of changes in exchange rates between trade date and settlement
date on investment security transactions, foreign currency transactions and interest and dividends received and are shown in “Net
realized gain (loss) before taxes on foreign currency transactions” on the Statement of Operations. The portion of foreign currency
gains and losses related to fluctuations in exchange rates between the initial purchase settlement date and subsequent sale trade date
is included in “Net realized gain (loss) before taxes on investments” on the Statement of Operations.
E. Distributions
to Shareholders
The
Fund intends to make quarterly distributions to Common Shareholders. The Fund’s distributions generally will consist of cash and
paid-in kind distributions from MLPs or their affiliates, dividends from common stocks, and income from other investments held by the
Fund less operating expenses, including taxes. Distributions to Common Shareholders are recorded on the ex-date and are based on U.S.
GAAP, which may differ from their ultimate characterization for federal income tax purposes.
Distributions
made from current or accumulated earnings and profits of the Fund will be taxable to shareholders as dividend income. Distributions that
are in an amount greater than the Fund’s current and accumulated earnings and profits will represent a tax-deferred return of capital
to the extent of a shareholder’s basis in the Common Shares, and such distributions will correspondingly increase the realized gain
upon the sale of the Common Shares. Additionally, distributions not paid from current or accumulated earnings and profits that exceed
a shareholder’s tax basis in the Common Shares will generally be taxed as a capital gain.
Distributions
of $23,356,465 paid during the fiscal year ended November 30, 2023 are anticipated to be characterized as taxable dividends for federal
income tax purposes. The amounts may be eligible to be taxed as qualified dividend income at the reduced capital gains rates, subject
to shareholder period requirements. However, the ultimate determination of the character of the distributions will be made after the 2023
calendar year. Distributions will automatically be reinvested in additional Common Shares pursuant to the Fund’s Dividend Reinvestment
Plan unless cash distributions are elected by the shareholder.
F. Income
Taxes
The
Fund is treated as a regular C corporation for U.S. federal income tax purposes and as such will be obligated to pay federal and applicable
state and foreign corporate taxes on its taxable income. The Fund’s tax expense or benefit is included in the Statement of Operations
based on the component of income or gains (losses) to which such expense or benefit relates. 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
Page
18
Notes
to Financial Statements (Continued)
First
Trust Energy Income and Growth Fund (FEN)
November
30, 2023
in
which it invests, the Fund will be allocated its pro rata share of income, gains, losses, deductions and credits from the MLPs, regardless
of whether or not any cash is distributed from the MLPs.
To
the extent that the distributions received from the MLPs exceed the net taxable income realized by the Fund from its investment, a tax
liability results. This tax liability is a deferred liability to the extent that MLP distributions received have not exceeded the Fund’s
adjusted tax basis in the respective MLPs. To the extent that distributions from an MLP exceed the Fund’s adjusted tax basis, the
Fund will recognize a taxable capital gain. For the fiscal year ended November 30, 2023, distributions of $13,844,869 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) |
$ (3,774,632) |
|
Current state income tax benefit (expense) |
(234,744) |
|
Current foreign income tax benefit (expense) |
— |
|
Deferred federal income tax benefit (expense) |
(2,278,110) |
|
Deferred state income tax benefit (expense) |
798,745 |
|
Total income tax benefit (expense) |
$(5,488,741) |
Deferred
income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes. At November 30, 2023, the Fund had a net operating loss carryforward for state income
tax purposes of $38,178,102. The Fund’s 2023 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 November 30, 2023
are as follows:
Deferred
tax assets:
|
Federal net operating loss |
$— |
|
State net operating loss |
1,280,705 |
|
State income taxes |
610,327 |
|
Federal and state capital loss carryforward |
5,535,450 |
|
Other |
184,170 |
|
Total deferred tax assets |
7,610,652 |
|
Less: valuation allowance |
(2,164,508) |
|
Net deferred tax assets |
$5,446,144 |
| Deferred tax liabilities: | |
|
Unrealized gains on investment securities |
$(30,230,981) |
|
Total deferred tax liabilities |
(30,230,981) |
|
Total net deferred tax liabilities |
$(24,784,837) |
Total
income taxes differ from the amount computed by applying the federal income tax rate of 21% to net investment income and realized and
unrealized gains on investments.
|
Application of statutory income tax rate |
$ 6,613,138 |
|
State income taxes, net |
(395,878) |
|
Change in valuation allowance |
1,022 |
|
Current year change in tax rate |
— |
|
Other |
(729,541) |
|
Total |
$ 5,488,741 |
The
Fund intends to utilize provisions of the federal income tax laws, which allow it to carry realized capital losses forward for five years
following the year of the loss and offset such loss against any future realized capital gains. The Fund is subject to certain limitations
under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply
Page
19
Notes
to Financial Statements (Continued)
First
Trust Energy Income and Growth Fund (FEN)
November
30, 2023
when
there has been a 50% change in ownership. During the taxable year ended November 30, 2023, the Fund utilized $57,449,119 of capital loss
carryforward. The remaining $22,150,696 of capital loss carryforward will expire on November 30, 2025.
The
Fund is subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of
a tax position taken or expected to be taken in a tax return. Taxable years ended 2020, 2021, 2022, and 2023 remain open to federal and
state audit. As of November 30, 2023, management has evaluated the application of these standards to the Fund and has determined that
no provision for income tax is required in the Fund’s financial statements for uncertain tax positions. The Montana Department of
Revenue initiated a corporate income tax audit for the Fund’s 2017-2019 tax years. The audit is currently open.
As
of November 30, 2023, the aggregate cost, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation/(depreciation)
on investments (including short positions and derivatives, if any) for federal income tax purposes were as follows:
| Tax Cost | Gross Unrealized Appreciation |
Gross Unrealized (Depreciation) |
Net
Unrealized Appreciation (Depreciation) | |||
| $295,795,769 | $139,885,675 | $(9,919,021) | $129,966,654 |
G. Expenses
The
Fund will pay all expenses directly related to its operations.
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 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.
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.
Computershare,
Inc. (“Computershare”) serves as the Fund’s transfer agent in accordance with certain fee arrangements. As transfer
agent, Computershare 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 a subsidiary of The
Bank of New York Mellon Corporation, a financial holding company.
Each
Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”)
is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund Complex. Each Independent Trustee is
also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, a target outcome
fund or an index fund.
Additionally,
the Lead Independent Trustee and the Chairs 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 Chairs rotate every three years. The officers and “Interested” Trustee receive no compensation from
the Fund for acting in such capacities.
Page
20
Notes
to Financial Statements (Continued)
First
Trust Energy Income and Growth Fund (FEN)
November
30, 2023
4. Purchases
and Sales of Securities
The
cost of purchases and proceeds from sales of securities, excluding short-term investments, for the fiscal year ended November 30, 2023,
were $183,190,520 and $205,593,865, respectively.
5. Derivative
Transactions
The
following table presents the types of derivatives held by the Fund at November 30, 2023, the primary underlying risk exposure and the
location of these instruments as presented on the Statement of Assets and Liabilities.
| Asset Derivatives | Liability Derivatives | |||||||||
| Derivative Instrument |
Risk Exposure |
Statement
of Assets and Liabilities Location |
Value | Statement
of Assets and Liabilities Location |
Value | |||||
| Written Options | Equity Risk | — | $ — | Options written, at value | $ 151,420 | |||||
The
following table presents the amount of net realized gain (loss) and change in net unrealized appreciation (depreciation) recognized for
the fiscal year ended November 30, 2023, on derivative instruments, as well as the primary underlying risk exposure associated with each
instrument.
| Statement of Operations Location | |
| Equity Risk Exposure | |
| Net realized gain (loss) before taxes on written options contracts | $4,567,132 |
| Net change in unrealized appreciation (depreciation) before taxes on written options contracts | 680,877 |
During
the fiscal year ended November 30, 2023, the premiums for written options opened were $5,819,698, and the premiums for written options
closed, exercised and expired were $6,129,961.
The
Fund does not have the right to offset financial assets and 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 International,
Ltd. (“PBL”). Absent certain events of default or failure to maintain certain collateral requirements, PBL may not terminate
the Committed Facility Agreement except upon 179 calendar days’ prior notice. The maximum commitment amount is $93,000,000. The
commitment fee of 0.55% of the undrawn amount is waived on any day on which the drawn amount is 80% or more of the maximum commitment
amount. The borrowing rate: (i) on the floating rate financing amount is equal to 1-month Term SOFR plus 95 basis points and (ii) the
borrowing rate on the fixed rate financing amount was 3.53%. The fixed rate financing amount was for a 10-year period that ended on October
10, 2023.
The
average amount outstanding for the fiscal year ended November 30, 2023, was $77,860,274, with a weighted average interest rate of 5.91%.
As of November 30, 2023, the Fund had outstanding borrowings of $77,200,000, which approximates fair value, under the Committed Facility
Agreement. The borrowings are categorized as Level 2 within the fair value hierarchy. On the floating rate financing amount, the high
and low annual interest rates for the fiscal year ended November 30, 2023, were 6.30% and 4.75%, respectively. The weighted average interest
rate at November 30, 2023, was 6.26%.
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 energy sector MLP-related entities. Given this industry concentration, the Fund is more susceptible to adverse economic or regulatory
occurrences affecting that industry than an investment company that is not concentrated in a single industry. Energy issuers may be subject
to a variety of factors that may adversely affect their business or operations, including high interest costs in connection with capital
construction programs, high leverage costs associated with environmental and other regulations, the
Page
21
Notes
to Financial Statements (Continued)
First
Trust Energy Income and Growth Fund (FEN)
November
30, 2023
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.
9. Subsequent
Events
Management
has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued and has determined
that there were no subsequent events requiring recognition or disclosure in the financial statements that have not already been disclosed.
Page
22
Report
of Independent Registered Public Accounting Firm
To
the Shareholders and the Board of Trustees of First Trust Energy Income and Growth Fund:
Opinion
on the Financial Statements and Financial Highlights
We
have audited the accompanying statement of assets and liabilities of First Trust Energy Income and Growth Fund (the “Fund”),
including the portfolio of investments, as of November 30, 2023, the related statements of operations and cash flows for the year then
ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of
the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present
fairly, in all material respects, the financial position of the Fund as of November 30, 2023, and the results of its operations and its
cash flows for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended in conformity with accounting principles generally accepted in the United
States of America.
Basis
for Opinion
These
financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express
an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to
error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose
of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no
such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating
the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements and financial highlights. Our procedures included confirmation of securities owned as of November 30, 2023, by correspondence
with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our
audits provide a reasonable basis for our opinion.
/s/
Deloitte & Touche, LLP
Chicago,
Illinois
January
24, 2024
We
have served as the auditor of one or more First Trust investment companies since 2001.
Page
23
Additional
Information
First
Trust Energy Income and Growth Fund (FEN)
November
30, 2023 (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 Computershare
Trust Company N.A. (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 Computershare, Inc., P.O. Box 43006, Providence,
RI 02940-3006.
Proxy
Voting Policies and Procedures
A
description of the policies and procedures that the Fund uses to determine how to vote proxies and information on how the Fund voted proxies
relating to portfolio investments during the most recent 12-month period ended June 30 is available (1) without charge, upon request,
by calling (800) 988-5891; (2) on the Fund’s website at www.ftportfolios.com;
and (3) on the Securities and Exchange Commission’s (“SEC”) website at www.sec.gov.
Portfolio
Holdings
The
Fund files portfolio holdings information for each month in a fiscal quarter within 60 days after the end of the relevant fiscal quarter
on Form N-PORT. Portfolio holdings information for the third month of each fiscal quarter will be publicly available on the
Page
24
Additional
Information (Continued)
First
Trust Energy Income and Growth Fund (FEN)
November
30, 2023 (Unaudited)
SEC’s
website at www.sec.gov. The Fund’s complete schedule of portfolio
holdings for the second and fourth quarters of each fiscal year is included in the semi-annual and annual reports to shareholders, respectively,
and is filed with the SEC on Form N-CSR. The semi-annual and annual report for the Fund is available to investors within 60 days after
the period to which it relates. The Fund’s Forms N-PORT and Forms N-CSR are available on the SEC’s website listed above.
NYSE
Certification Information
In
accordance with Section 303A-12 of the New York Stock Exchange (“NYSE”) Listed Company Manual, the Fund’s President
has certified to the NYSE that, as of April 18, 2023, he was not aware of any violation by the Fund of NYSE corporate governance listing
standards. In addition, the Fund’s reports to the SEC on Form N-CSR contain certifications by the Fund’s principal executive
officer and principal financial officer that relate to the Fund’s public disclosure in such reports and are required by Rule 30a-2
under the 1940 Act.
Submission
of Matters to a Vote of Shareholders
The
Fund held its Annual Meeting of Shareholders (the “Annual Meeting”) on April 17, 2023. At the Annual Meeting, Denise M. Keefe
and Robert F. Keith were elected by the Common Shareholders of the First Trust Energy Income and Growth Fund as Class I Trustees for a
three-year term expiring at the Fund’s annual meeting of shareholders in 2026. The number of votes cast in favor of Ms. Keefe was
13,309,027 and the number of votes withheld was 805,870. The number of votes cast in favor of Mr. Keith was 13,372,673 and the number
of votes withheld was 742,224. Richard E. Erickson, Thomas R. Kaldec, James A. Bowen, Niel B. Nielson, and Bronwyn Wright are the other
current and continuing Trustees.
Amended
and Restated By-Laws
On
June 22, 2023, the Board of Trustees of the Fund amended and restated the existing Amended and Restated By-Laws (and as so amended and
restated, the “By-Laws”), effective immediately. The By-Laws were revised to rescind Article XII and its accompanying control
share provisions, along with other conforming amendments.
The
foregoing description is qualified in its entirety by reference to the full text of the By-Laws, a copy of which can be found in the Current
Report on Form 8-K filed by the Fund with the Securities and Exchange Commission on June 23, 2023, which is available at www.sec.gov,
and may also be obtained by writing to the Secretary of the Fund at the Fund’s principal executive office.
Board
of Trustees
Effective
September 10, 2023, the exchange-traded funds, closed-end funds, mutual funds and variable insurance funds (collectively, the “Funds”)
advised by First Trust Advisors L.P. (“FTA”) announced the appointment of Ms. Bronwyn Wright as a Trustee of all Funds except
the exchange-traded funds included in the First Trust Exchange-Traded Fund. Ms. Wright has acted as an independent director to a number
of Irish collective investment funds since 2009. Ms. Wright is a former Managing Director of Citibank Europe plc and Head of Securities
and Fund Services for Citi Ireland. In these positions, she was responsible for the management and strategic direction of Citi Ireland’s
securities and fund services business which included funds, custody, security finance/lending and global agency and trust. She also had
responsibility for leading, managing and growing the Trustee, Custodian and Depositary business in Ireland, the United Kingdom, Luxembourg,
Jersey and Cayman.
Advisory
and Sub-Advisory Agreements
Board
Considerations Regarding Approval of the Continuation of the Investment Management and Sub-Advisory Agreements
The
Board of Trustees of First Trust Energy Income and Growth Fund (the “Fund”), including the Independent Trustees, unanimously
approved the continuation of the Investment Management Agreement (the “Advisory Agreement”) between the Fund and First Trust
Advisors L.P. (the “Advisor”) and the Investment Sub-Advisory Agreement (the “Sub-Advisory Agreement” and together
with the Advisory Agreement, the “Agreements”) among the Fund, the Advisor and Energy Income Partners, LLC (the “Sub-Advisor”).
The Board approved the continuation of the Agreements for a one-year period ending June 30, 2024 at a meeting held on June 4–5,
2023. The Board determined that the continuation of the Agreements is in the best interests of the Fund in light of the nature,
extent and quality of the services provided and such other matters as the Board considered to be relevant in the exercise of its business
judgment.
To
reach this determination, the Board considered its duties under the Investment Company Act of 1940, as amended (the “1940 Act”),
as well as under the general principles of state law, in reviewing and approving advisory contracts; the requirements of the 1940 Act
in such matters; the fiduciary duty of investment advisors with respect to advisory agreements and compensation; the standards used by
courts in determining whether investment company boards have fulfilled their duties; and the factors to be considered by the Board in
voting on such agreements. At meetings held on April 17, 2023 and June 4–5, 2023, the Board, including the Independent Trustees,
Page
25
Additional
Information (Continued)
First
Trust Energy Income and Growth Fund (FEN)
November
30, 2023 (Unaudited)
reviewed
materials provided by the Advisor and the Sub-Advisor responding to requests for information from counsel to the Independent Trustees,
submitted on behalf of the Independent Trustees, that, among other things, outlined: the services provided by the Advisor and the Sub-Advisor
to the Fund (including the relevant personnel responsible for these services and their experience); the advisory fee rate payable by the
Fund and the sub-advisory fee rate as compared to fees charged to a peer group of funds (the “Expense Group”) and a broad
peer universe of funds (the “Expense Universe”), each assembled by Broadridge Financial Solutions, Inc. (“Broadridge”),
an independent source, and as compared to fees charged to other clients of the Advisor and the Sub-Advisor; the expense ratio of the Fund
as compared to expense ratios of the funds in the Fund’s Expense Group and Expense Universe; performance information for the Fund,
including comparisons of the Fund’s performance to that of one or more relevant benchmark indexes and to that of a performance group
of funds and a broad performance universe of funds (the “Performance Universe”), each assembled by Broadridge; the nature
of expenses incurred in providing services to the Fund and the potential for the Advisor and the Sub-Advisor to realize economies of scale,
if any; profitability and other financial data for the Advisor; financial data for the Sub-Advisor; any indirect benefits to the Advisor
and its affiliate, First Trust Capital Partners, LLC (“FTCP”), and the Sub-Advisor; and information on the Advisor’s
and the Sub-Advisor’s compliance programs. The Board reviewed initial materials with the Advisor at the meeting held on April
17, 2023, prior to which the Independent Trustees and their counsel met separately to discuss the information provided by the Advisor
and the Sub-Advisor. Following the April meeting, counsel to the Independent Trustees, on behalf of the Independent Trustees,
requested certain clarifications and supplements to the materials provided, and the information provided in response to those requests
was considered at an executive session of the Independent Trustees and their counsel held prior to the June 4–5, 2023 meeting, as
well as at the June meeting. The Board applied its business judgment to determine whether the arrangements between the Fund and the Advisor
and among the Fund, the Advisor and the Sub-Advisor continue to be reasonable business arrangements from the Fund’s perspective.
The Board determined that, given the totality of the information provided with respect to the Agreements, the Board had received sufficient
information to renew the Agreements. The Board considered that shareholders chose to invest or remain invested in the Fund knowing
that the Advisor and the Sub-Advisor manage the Fund.
In
reviewing the Agreements, the Board considered the nature, extent and quality of the services provided by the Advisor and the Sub-Advisor
under the Agreements. With respect to the Advisory Agreement, the Board considered that the Advisor is responsible for the overall
management and administration of the Fund and reviewed all of the services provided by the Advisor to the Fund, including the oversight
of the Sub-Advisor, as well as the background and experience of the persons responsible for such services. The Board noted that
the Advisor oversees the Sub-Advisor’s day-to-day management of the Fund’s investments, including portfolio risk monitoring
and performance review. In reviewing the services provided, the Board noted the compliance program that had been developed by the
Advisor and considered that it includes a robust program for monitoring the Advisor’s, the Sub-Advisor’s and the Fund’s
compliance with the 1940 Act, as well as the Fund’s compliance with its investment objective, policies and restrictions. The
Board also considered a report from the Advisor with respect to its risk management functions related to the operation of the Fund.
Finally, as part of the Board’s consideration of the Advisor’s services, the Advisor, in its written materials and at the
April 17, 2023 meeting, described to the Board the scope of its ongoing investment in additional personnel and infrastructure to maintain
and improve the quality of services provided to the Fund and the other funds in the First Trust Fund Complex. With respect to the
Sub-Advisory Agreement, the Board reviewed the materials provided by the Sub-Advisor and considered the services that the Sub-Advisor
provides to the Fund, including the Sub-Advisor’s day-to-day management of the Fund’s investments. In considering the
Sub-Advisor’s management of the Fund, the Board noted the background and experience of the Sub-Advisor’s portfolio management
team, including the Board’s prior meetings with members of the portfolio management team. In light of the information presented
and the considerations made, the Board concluded that the nature, extent and quality of the services provided to the Fund by the Advisor
and the Sub-Advisor under the Agreements have been and are expected to remain satisfactory and that the Sub-Advisor, under the oversight
of the Advisor, has managed the Fund consistent with its investment objective, policies and restrictions.
The
Board considered the advisory and sub-advisory fee rates payable under the Agreements for the services provided. The Board noted
that the sub-advisory fee is paid by the Advisor from its advisory fee. The Board received and reviewed information showing the
fee rates and expense ratios of the peer funds in the Expense Group, as well as advisory and unitary fee rates charged by the Advisor
and the Sub-Advisor to other fund and non-fund clients, as applicable. With respect to the Expense Group, the Board, at the April
17, 2023 meeting, discussed with Broadridge its methodology for assembling peer groups and discussed with the Advisor limitations in creating
a relevant peer group for the Fund, including that (i) not all peer funds employ an advisor/sub-advisor management structure; and (ii)
the Fund is unique in its composition, which makes assembling peers with similar strategies and asset mix difficult. The Board took
these limitations into account in considering the peer data. Based on the information provided, the Board noted that the contractual
advisory fee rate payable by the Fund, based on average managed assets, was equal to the median contractual advisory fee of the peer funds
in the Expense Group. With respect to fees charged to other clients, the Board considered differences between the Fund and other
clients that limited their comparability. In considering the advisory fee rate overall, the Board also considered the Advisor’s
statement that it seeks to meet investor needs through innovative and value-added investment solutions and the Advisor’s demonstrated
long-term commitment to the Fund and the other funds in the First Trust Fund Complex.
Page
26
Additional
Information (Continued)
First
Trust Energy Income and Growth Fund (FEN)
November
30, 2023 (Unaudited)
The
Board considered performance information for the Fund. The Board noted the process it has established for monitoring the Fund’s
performance and portfolio risk on an ongoing basis, which includes quarterly performance reporting from the Advisor and the Sub-Advisor
for the Fund. The Board determined that this process continues to be effective for reviewing the Fund’s performance.
The Board received and reviewed information comparing the Fund’s performance for periods ended December 31, 2022 to the performance
of the funds in the Performance Universe and to that of a benchmark index. In reviewing the Fund’s performance as compared
to the performance of the Performance Universe, the Board took into account the limitations described above with respect to creating a
relevant peer group for the Fund. Based on the information provided on net asset value performance, the Board noted that the Fund
outperformed the Performance Universe median for the one-, five- and ten-year periods ended December 31, 2022 and underperformed the Performance
Universe median for the three-year period ended December 31, 2022. The Board also noted that the underperformed the benchmark index
for the one-, three- and five-year periods ended December 31, 2022 and outperformed the benchmark index for the ten-year period ended
December 31, 2022. In addition, the Board considered information provided by the Advisor on the impact of leverage on the Fund’s
returns. The Board also received information on the Fund’s annual distribution rate as of December 31, 2022 and the Fund’s
average trading discount for various periods and comparable information for a peer group.
On
the basis of all the information provided on the fees, expenses and performance of the Fund and the ongoing oversight by the Board, the
Board concluded that the advisory and sub-advisory fees continue to be reasonable and appropriate in light of the nature, extent and quality
of the services provided by the Advisor and the Sub-Advisor to the Fund under the Agreements.
The
Board considered information and discussed with the Advisor whether there were any economies of scale in connection with providing advisory
services to the Fund at current asset levels and whether the Fund may benefit from any economies of scale. The Board noted the Advisor’s
statement that it believes that its expenses relating to providing advisory services to the Fund will increase during the next twelve
months as the Advisor continues to build infrastructure and add new staff. The Board concluded that due to the Fund’s closed-end
structure, the potential for realization of economies of scale as Fund assets grow was not a material factor to be considered. The
Board considered the revenues and allocated costs (including the allocation methodology) of the Advisor in serving as investment advisor
to the Fund for the twelve months ended December 31, 2022 and the estimated profitability level for the Fund calculated by the Advisor
based on such data, as well as complex-wide and product-line profitability data, for the same period. The Board noted the inherent
limitations in the profitability analysis and concluded that, based on the information provided, the Advisor’s profitability level
for the Fund was not unreasonable. In addition, the Board considered indirect benefits described by the Advisor that may be realized
from its relationship with the Fund. The Board considered the ownership interest of FTCP in the Sub-Advisor and potential indirect
benefits to the Advisor from such ownership interest. The Board noted that in addition to the advisory fees paid by the Fund, the
Advisor is compensated for fund reporting services pursuant to a separate Fund Reporting Services Agreement. The Board concluded
that the character and amount of potential indirect benefits to the Advisor were not unreasonable.
The
Board considered that the Sub-Advisor anticipates that its expenses will continue to rise due to additions to personnel and system upgrades.
The Board noted that the Advisor pays the Sub-Advisor from its advisory fee and its understanding that the Fund’s sub-advisory fee
rate was the product of an arm’s length negotiation. The Board did not review the profitability of the Sub-Advisor with respect
to the Fund. The Board concluded that the profitability analysis for the Advisor was more relevant. The Board considered indirect
benefits that may be realized by the Sub-Advisor from its relationship with the Fund, including soft-dollar arrangements, and considered
a summary of such arrangements. The Board also considered the potential indirect benefits to the Sub-Advisor from the ownership
interest of FTCP in the Sub-Advisor. The Board concluded that the character and amount of potential indirect benefits to the Sub-Advisor
were not unreasonable.
Based
on all of the information considered and the conclusions reached, the Board, including the Independent Trustees, unanimously determined
that the terms of the Agreements continue to be fair and reasonable and that the continuation of the Agreements is in the best interests
of the Fund. No single factor was determinative in the Board’s analysis.
Page
27
Investment
Objective, Policies, Risks and Effects of Leverage
First
Trust Energy Income and Growth Fund (FEN)
November
30, 2023 (Unaudited)
Changes
Occurring During the Prior Fiscal Year
The
following information is a summary of certain changes during the most recent fiscal year ended November 30, 2023. This information may
not reflect all of the changes that have occurred since you purchased shares of the Fund.
During
the Fund’s most recent fiscal year, there were no material changes to the Fund’s investment objective or policies that have
not been approved by shareholders or in the principal risk factors associated with an investment in the Fund.
Investment
Objective
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.
Principal
Investment Policies
The
Fund focuses on investing in master limited partnerships (“MLPs”), related public entities in the energy sector and other
energy companies, which the Fund’s Sub-Advisor believes offer opportunities for income and growth.
Under
normal market conditions:
| • | The Fund invests at least 85% of its Managed Assets in securities of energy companies and energy sector MLPs and energy sector MLP-related entities. |
| o | The Fund considers investments in “MLP-related entities” to include investments that offer economic exposure to publicly traded and private MLPs, securities of entities holding primarily general partner or managing member interests in MLPs and securities that are derivatives of interests in MLPs. |
| o | The Fund considers investments in the energy sector to include companies that derive more than a majority of their revenues or operating income from transporting, processing, storing, distributing, marketing, exploring, developing, managing or producing natural gas, natural gas liquids (“NGLs”) (including propane), crude oil, refined petroleum products, coal or electricity, or from supplying energy-related products and services, or any such other companies within the energy sector as classified under the Global Industry Classification Standards developed by MSCI, Inc. and Standard & Poor’s (“GICS”). |
| o | An “energy company” is one that derives its revenues from transporting, processing, storing, distributing or marketing natural gas, NGLs, crude oil, refined petroleum products, coal or electricity, or exploring, developing, managing or producing such commodities or products, or in supplying energy related products and services. |
| • | The Fund may invest up to 35% of its Managed Assets in unregistered or otherwise restricted securities (including up to 10% of its Managed Assets in securities issued by private companies). |
| o | The term “restricted securities” refers to securities that have not been registered under the Securities Act of 1933, or are held by control persons of the issuer and securities that are subject to contractual restrictions on their resale. |
| o | The types of unregistered or otherwise restricted securities that the Fund may purchase consist of MLP common units, MLP subordinated units and securities of public and private energy companies. |
| • | The Fund may invest up to 25% of its Managed Assets in debt securities of energy companies, MLPs and MLP-related entities, including below investment grade securities. |
| • | The Fund will not invest more than 15% of its Managed Assets in any single issuer. |
| • | The Fund will not engage in short sales, except to the extent the Fund engages in derivative investments to seek to hedge against interest rate risk in connection with the Fund’s use of leverage or market risks associated with the Fund’s portfolio. |
| • | The Fund will not invest more than 30% of its Managed Assets in non-U.S. securities and may hedge the currency risk of the non-U.S. securities using derivative instruments. |
| • | The Fund writes (or sells) covered call options on its Managed Assets to generate additional income. |
To
the extent the Fund enters into derivatives transactions, it will do so pursuant to Rule 18f-4 under the 1940 Act. Rule 18f-4 requires
the Fund to implement certain policies and procedures designed to manage its derivatives risks, dependent upon the Fund’s level
of exposure to derivative instruments.
Unless
otherwise stated, all investment restrictions above apply at the time of purchase and the Fund will not be required to reduce a position
due solely to market value fluctuations.
MLPs
are limited partnerships whose shares (or units) are listed and traded on a U.S. securities exchange, just like common stock. To qualify
as an MLP, a partnership must receive at least 90% of its income from qualifying sources such as natural resource activities.
Page
28
Investment
Objective, Policies, Risks and Effects of Leverage (Continued)
First
Trust Energy Income and Growth Fund (FEN)
November
30, 2023 (Unaudited)
Natural
resource activities include the exploration, development, mining, production, processing, refining, transportation and marketing of mineral
or natural resources. MLPs generally have two classes of owners, the general partner and limited partners. The general partner, which
is generally a major energy company, investment fund or the management of the MLP, typically controls the MLP through a 2% general partner
equity interest in the MLP plus common units and subordinated units. Limited partners own the remainder of the partnership, through ownership
of common units, and have a limited role in the partnership’s operations and management.
The
Fund may, but is not required to, use various hedging and strategic transactions to seek to reduce interest rate risks arising from any
use of leverage, to facilitate portfolio management and to mitigate risks, including interest rate, currency and credit risks. The Fund
currently writes (or sells) covered call options on its Managed Assets. Call options are contracts representing the right to purchase
a common stock at a specified price (the “strike price”) at a specified future date (the “expiration date”). The
Fund will write call options only if they are “covered.” In the case of a call option on a common stock or other security,
the Fund considers an option to be “covered” if the Fund owns the security underlying the call.
In
addition to writing (selling) covered call options on its Managed Assets, the Fund expects to continue to enter into interest rate swaps
as a principal part of its investment strategy. In an interest rate swap, the Fund exchanges with another party their respective commitments
to pay or receive interest (e.g., an exchange of fixed rate payments for floating rate payments). Interest rate swaps allow the Sub-Advisor
to potentially manage the interest rate profile of the Fund’s portfolio.
The
Fund may purchase and sell other derivative investments such as total return and equity swaps, exchange-listed and over-the-counter put
and call options securities, energy-related commodities, equity, fixed income and interest rate indices, currencies, and other financial
instruments, purchase and sell financial futures contracts and options thereon, and enter into various interest rate transactions such
as swaps, caps, floors or collars or credit transactions and credit default swaps. The Fund also may purchase derivative investments that
combine features of these instruments. The Fund generally seeks to use these instruments and transactions as a portfolio management or
hedging technique to seek to protect against possible adverse changes in the market value of securities held in or to be purchased for
the Fund’s portfolio, protect the value of the Fund’s portfolio, facilitate the sale of certain securities for investment
purposes, manage the effective interest rate and currency exposure of the Fund, or establish positions in the derivatives markets as a
temporary substitute for purchasing or selling particular securities. For purposes of determining the Fund’s compliance with the
investment requirements relating to MLP and MLP-related entities, the Fund values its hedging and strategic transactions based upon their
respective current fair market values.
The
Fund may also enter into other strategic transactions to seek to manage the risks of the Fund’s portfolio securities or for other
purposes to the extent the Sub-Advisor determines that the use of strategic transactions is consistent with the Fund’s investment
objective and policies and applicable regulatory requirements. Certain of these strategic transactions may provide investment leverage
to the Fund’s portfolio.
“Managed
Assets” means the average daily gross asset value of the Fund (which includes assets attributable to the Fund’s preferred
shares of beneficial interest (“Preferred Shares”), if any, and the principal amount of any borrowings), minus the sum of
the Fund’s accrued and unpaid dividends on any outstanding Preferred Shares and accrued liabilities (other than the principal amount
of any borrowings or money incurred and the liquidation preference of any outstanding Preferred Shares).
The
Fund’s foregoing investment policies may be changed by the Board of Trustees of the Fund without a shareholder vote, provided that
shareholders receive at least 60 days’ prior notice of any change.
Fundamental
Investment Policies
Except
as described below, the Fund, as a fundamental policy, may not, without the approval of the holders of a majority of its outstanding common
shares of beneficial interest (“Common Shares”) and Preferred Shares, if any, voting together as a single class, and of the
holders of the outstanding Preferred Shares voting as a single class:
1)
Issue senior securities, as defined in the 1940 Act, other than (i) preferred shares which immediately after issuance will have asset
coverage of at least 200%, (ii) indebtedness which immediately after issuance will have asset coverage of at least 300%, or (iii) the
borrowings permitted by investment restriction (2) set forth below;
2)
Borrow money, except as permitted by the 1940 Act;
3)
Act as underwriter of another issuer’s securities, except to the extent that the Fund may be deemed to be an underwriter within
the meaning of the Securities Act of 1933, in connection with the purchase and sale of portfolio securities;
Page
29
Investment
Objective, Policies, Risks and Effects of Leverage (Continued)
First
Trust Energy Income and Growth Fund (FEN)
November
30, 2023 (Unaudited)
4)
Purchase or sell real estate, but this shall not prevent the Fund from investing in securities of companies that deal in real estate or
are engaged in the real estate business, including real estate investment trusts, and securities secured by real estate or interests therein
and the Fund may hold and sell real estate or mortgages on real estate acquired through default, liquidation, or other distributions of
an interest in real estate as a result of the Fund’s ownership of such securities;
5)
Purchase or sell physical commodities unless acquired as a result of ownership of securities or other instruments (but this shall not
prevent the Fund from purchasing or selling options, futures contracts, derivative instruments or from investing in securities or other
instruments backed by physical commodities); or
6)
Make loans of funds or other assets, other than by entering into repurchase agreements, lending portfolio securities and through the purchase
of securities in accordance with its investment objective, policies and limitations.
As
a fundamental policy, the Fund concentrates its investments in the following group of industries that are part of the energy sector: transporting,
processing, storing, distributing, marketing, exploring, developing, managing and producing natural gas, natural gas liquids (including
propane), crude oil, refined petroleum products, coal and electricity, and supplying products and services in support of pipelines, power
transmission, petroleum and natural gas production, transportation and storage. The foregoing fundamental investment policies, together
with the investment objective of the Fund, cannot be changed without approval by holders of a majority of the outstanding voting securities
of the Fund, as defined in the 1940 Act, which includes Common Shares and Preferred Shares, if any, voting together as a single class,
and of the holders of the outstanding Preferred Shares voting as a single class. Under the 1940 Act a “majority of the outstanding
voting securities” means the vote of: (1) 67% or more of the Fund’s shares present at a meeting, if the holders of more than
50% of the Fund’s shares are present or represented by proxy; or (2) more than 50% of the Fund’s shares, whichever is less.
Principal
Risks
The
Fund is a closed-end management investment company designed primarily as a long-term investment and not as a trading vehicle. The Fund
is not intended to be a complete investment program and, due to the uncertainty inherent in all investments, there can be no assurance
that the Fund will achieve its investment objective.
The
following discussion summarizes certain (but not all) of the principal risks associated with investing in the Fund, which includes the
risk that you could lose some or all of your investment in the Fund. The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 and, in accordance therewith, files reports, proxy statements and other information
that is available for review.
Concentration
Risk. The Fund invests over 25% of its total assets in the energy sector. As a result, the Fund’s
portfolio may be subject to greater risk and volatility than if investments had been made in a broader diversification of investments.
Covered
Call Options Risk. As the writer (seller) of a call option, the Fund forgoes, during the life of the
option, the opportunity to profit from increases in the market value of the portfolio security covering the option above the sum of the
premium and the strike price of the call option but retains the risk of loss should the price of the underlying security decline. The
value of call options written by the Fund, which are priced daily, are determined by trading activity in the broad options market and
will be affected by, among other factors, changes in the value of the underlying security in relation to the strike price, changes in
dividend rates of the underlying security, changes in interest rates, changes in actual or perceived volatility of the stock market and
the underlying security, and the time remaining until the expiration date. The value of call options written by the Fund may be adversely
affected if the market for the option is reduced or becomes illiquid. There can be no assurance that a liquid market will exist when the
Fund seeks to close out an option position.
Conversion
Risk. The Board of Trustees of the Fund has approved the merger of the Fund into a wholly-owned subsidiary
of a newly created exchange-traded fund (“ETF”). It is currently expected that the transaction will be consummated during
the second quarter of 2024, subject to requisite shareholder approval and satisfaction of applicable regulatory requirements and approvals
and customary closing conditions. There is no assurance when or whether such approvals, or any other approvals required for the
transaction, will be obtained. Under the terms of the proposed transaction, shareholders of the Fund would become shareholders of
the ETF, which will have its own investment strategies, and thereafter cease to be a shareholder of the Fund. More information on
the proposed transaction, including the risks and considerations associated with the transaction as well as the risks of investing in
the new ETF, are contained in registration statement/proxy materials. Shareholders should refer to such registration statement/proxy
materials, which are available at https://www.ftportfolios.com/LoadContent/gohdcqj3gy4o.
Current
Market Conditions Risk. Current market conditions risk is the risk that a particular investment, or
shares of the Fund in general, may fall in value due to current market conditions. As a means to fight inflation, which remains at elevated
levels, the Federal Reserve and certain foreign central banks have raised interest rates and expect to continue to do so, and the Federal
Reserve has
Page
30
Investment
Objective, Policies, Risks and Effects of Leverage (Continued)
First
Trust Energy Income and Growth Fund (FEN)
November
30, 2023 (Unaudited)
announced
that it intends to reverse previously implemented quantitative easing. U.S. regulators have proposed several changes to market and issuer
regulations which would directly impact the Fund, and any regulatory changes could adversely impact the Fund’s ability to achieve
its investment strategies or make certain investments. Recent and potential future bank failures could result in disruption to the broader
banking industry or markets generally and reduce confidence in financial institutions and the economy as a whole, which may also heighten
market volatility and reduce liquidity. The ongoing adversarial political climate in the United States, as well as political and diplomatic
events both domestic and abroad, have and may continue to have an adverse impact the U.S. regulatory landscape, markets and investor behavior,
which could have a negative impact on the Fund’s investments and operations. Other unexpected political, regulatory and diplomatic
events within the U.S. and abroad may affect investor and consumer confidence and may adversely impact financial markets and the broader
economy. For example, in February 2022, Russia invaded Ukraine which has caused and could continue to cause significant market disruptions
and volatility within the markets in Russia, Europe, and the United States. The hostilities and sanctions resulting from those hostilities
have and could continue to have a significant impact on certain Fund investments as well as Fund performance and liquidity. The economies
of the United States and its trading partners, as well as the financial markets generally, may be adversely impacted by trade disputes
and other matters. For example, the United States has imposed trade barriers and restrictions on China. In addition, the Chinese government
is engaged in a longstanding dispute with Taiwan, continually threatening an invasion. If the political climate between the United States
and China does not improve or continues to deteriorate, if China were to attempt invading Taiwan, or if other geopolitical conflicts develop
or worsen, economies, markets and individual securities may be adversely affected, and the value of the Fund’s assets may go down.
The COVID-19 global pandemic, or any future public health crisis, and the ensuing policies enacted by governments and central banks have
caused and may continue to cause significant volatility and uncertainty in global financial markets, negatively impacting global growth
prospects. While vaccines have been developed, there is no guarantee that vaccines will be effective against emerging future variants
of the disease. As this global pandemic illustrated, such events may affect certain geographic regions, countries, sectors and industries
more significantly than others. Advancements in technology may also adversely impact markets and the overall performance of the Fund.
For instance, the economy may be significantly impacted by the advanced development and increased regulation of artificial intelligence.
These events, and any other future events, may adversely affect the prices and liquidity of the Fund’s portfolio investments and
could result in disruptions in the trading markets.
Cyber
Security Risk. The Fund is susceptible to potential operational risks through breaches in cyber security.
A breach in cyber security refers to both intentional and unintentional events that may cause the Fund to lose proprietary information,
suffer data corruption or lose operational capacity. Such events could cause the Fund to incur regulatory penalties, reputational damage,
additional compliance costs associated with corrective measures and/or financial loss. Cyber security breaches may involve unauthorized
access to the Fund’s digital information systems through “hacking” or malicious software coding but may also result
from outside attacks such as denial-of-service attacks through efforts to make network services unavailable to intended users. In addition,
cyber security breaches of the Fund’s third-party service providers, such as its administrator, transfer agent, custodian, or sub-advisor,
as applicable, or issuers in which the Fund invests, can also subject the Fund to many of the same risks associated with direct cyber
security breaches. The Fund has established risk management systems designed to reduce the risks associated with cyber security. However,
there is no guarantee that such efforts will succeed, especially because the Fund does not directly control the cyber security systems
of issuers or third-party service providers. Substantial costs may be incurred by the Fund in order to resolve or prevent cyber incidents
in the future.
Energy
Infrastructure Companies Risk. Energy infrastructure companies may be directly affected by energy
commodity prices, especially those companies which own the underlying energy commodity. A decrease in the production or availability of
natural gas, natural gas liquids, crude oil, coal or other energy commodities or a decrease in the volume of such commodities available
for transportation, processing, storage or distribution may adversely impact the financial performance of energy infrastructure companies.
Energy infrastructure companies are subject to significant federal, state and local government regulation in virtually every aspect of
their operations, including how facilities are constructed, maintained and operated, environmental and safety controls, and the prices
they may charge for products and services. Various governmental authorities have the power to enforce compliance with these regulations
and the permits issued under them and violators are subject to administrative, civil and criminal penalties, including civil fines, injunctions
or both. Stricter laws, regulations or enforcement policies could be enacted in the future which would likely increase compliance costs
and may adversely affect the financial performance of energy infrastructure companies. Natural disasters, such as hurricanes in the Gulf
of Mexico, also may impact energy infrastructure companies.
Certain
energy infrastructure companies are subject to the imposition of rate caps, increased competition due to deregulation, counterparties
to contracts defaulting or going bankrupt, the difficulty in obtaining an adequate return on invested capital or in financing large construction
projects, the limitations on operations and increased costs and delays attributable to environmental considerations, and the capital market’s
ability to absorb utility debt. In addition, taxes, government regulation, international politics, price and supply fluctuations, volatile
interest rates and energy conservation may cause difficulties for these companies.
Page
31
Investment
Objective, Policies, Risks and Effects of Leverage (Continued)
First
Trust Energy Income and Growth Fund (FEN)
November
30, 2023 (Unaudited)
Energy
Sector Risk. The Fund’s investments are concentrated in the group of industries that are part
of the energy sector, with a particular focus on energy sector MLPs, energy sector MLP-related entities and other energy companies. The
Fund’s concentration in the group of industries that are part of the energy sector may present more risk than if the Fund were broadly
diversified over multiple sectors of the economy. A downturn in one or more industries within the energy sector, material declines in
energy-related commodity prices, adverse political, legislative or regulatory developments or other events could have a larger impact
on the Fund than on an investment company that does not concentrate in the group of industries that are part of the energy sector. Certain
risks inherent in investing in the business of the types of securities that the Fund may invest include: commodity pricing risk, commodity
supply and demand risk, lack of diversification of and reliance on customers and suppliers risk, including the risk of counterparty default,
commodity depletion and exploration risk, energy sector and energy utility industry regulatory risk, including risks associated with the
prices and methodology of determining prices that energy companies may charge for their products and services, interest rate risk, risk
of lack of acquisition or reinvestment opportunities, risk of lacking of funding, dependency on MLP affiliate risk, weather risk, catastrophe
risk, terrorism and MLP market disruption risk, obsolescence risk and technology risk.
Companies
that own interstate pipelines are subject to regulation by the Federal Energy Regulatory Commission (FERC) with respect to the tariff
rates that they may charge customers and may change policies to no longer permit such companies to include certain costs in their costs
of services. This may lower the tariff rates charged to customers which will in turn negatively affect performance.
Other
factors which may reduce the amount of cash an MLP, MLP-related entity and other energy sector company has available to pay its debt and
equity holders include increased operating costs, maintenance capital expenditures, acquisition costs, expansion or construction costs
and borrowing costs (including increased borrowing costs as a result of additional collateral requirements as a result of ratings downgrades
by credit agencies).
Equity
Securities Risk. The value of the Fund’s shares will fluctuate with changes in the value of the
equity securities in which the Fund invests. Prices of equity securities fluctuate for several reasons, including changes in investors’
perceptions of the financial condition of an issuer or the general condition of the relevant stock market, such as market volatility,
or when political or economic events affecting the issuers occur. Common stock prices may be particularly sensitive to rising interest
rates, as the cost of capital rises and borrowing costs increase. Equity securities may decline significantly in price over short or extended
periods of time, and such declines may occur in the equity market as a whole, or they may occur in only a particular country, company,
industry or sector of the market.
Interest
Rate Swaps Risk. To the extent that the Fund invests in swaps, if short-term interest rates are lower
than the Fund’s fixed rate of payment on an interest rate swap, the swap will reduce common share net earnings. In addition, a default
by the counterparty to a swap transaction could also negatively impact the performance of the common shares.
Leverage
Risk. The use of leverage by the Fund can magnify the effect of any losses. If the income and gains
from the securities and investments purchased with leverage proceeds do not cover the cost of leverage, the return to the common shares
will be less than if leverage had not been used. Leverage involves risks and special considerations for common shareholders including:
(i) the likelihood of greater volatility of net asset value and market price of the common shares than a comparable portfolio without
leverage; (ii) the risk that fluctuations in interest rates on borrowings will reduce the return to the common shareholders or will result
in fluctuations in the dividends paid on the common shares; (iii) in a declining market, the use of leverage is likely to cause a greater
decline in the net asset value of the common shares than if the Fund were not leveraged, which may result in a greater decline in the
market price of the common shares; and (iv) when the Fund uses certain types of leverage, the investment advisory fee payable to the Advisor
and by the Advisor to the Sub-Advisor will be higher than if the Fund did not use leverage.
Liquidity
Risk. Certain securities in which the Fund may invest may trade less frequently, particularly those
of issuers with smaller capitalizations. Securities with limited trading volumes may display volatile or erratic price movements. The
Fund may have difficulty selling these investments in a timely manner, be forced to sell them for less than it otherwise would have been
able to realize, or both.
Management
Risk and Reliance on Key Personnel. The implementation of the Fund’s investment strategy depends
upon the continued contributions of certain key employees of the Advisor and Sub-Advisor, some of whom have unique talents and experience
and would be difficult to replace. The loss or interruption of the services of a key member of the portfolio management team could have
a negative impact on the Fund.
Market
Discount from Net Asset Value. Shares of closed-end investment companies such as the Fund frequently
trade at a discount from their net asset value. The Fund cannot predict whether its common shares will trade at, below or above net asset
value.
Market
Risk. Investments held by the Fund, as well as shares of the Fund itself, are subject to market fluctuations
caused by real or perceived adverse economic conditions, political events, regulatory factors or market developments, changes in interest
rates and perceived trends in securities prices. Shares of the Fund could decline in value or underperform other investments as a result
of the risk of loss associated with these market fluctuations. In addition, local, regional or global events such as war, acts of terrorism,
market
Page
32
Investment
Objective, Policies, Risks and Effects of Leverage (Continued)
First
Trust Energy Income and Growth Fund (FEN)
November
30, 2023 (Unaudited)
manipulation,
government defaults, government shutdowns, regulatory actions, political changes, diplomatic developments, the imposition of sanctions
and other similar measures, spread of infectious diseases or other public health issues, recessions, or other events could have a significant
negative impact on the Fund and its investments. Any of such circumstances could have a materially negative impact on the value of the
Fund’s shares, the liquidity of an investment, and result in increased market volatility. During any such events, the Fund’s
shares may trade at increased premiums or discounts to their net asset value, the bid/ask spread on the Fund’s shares may widen
and the returns on investment may fluctuate.
MLP
Risk. Investments in securities of MLPs involve certain risks different from or in addition to the risks
of investing in common stocks. MLP common units can be affected by macro-economic factors and other factors unique to the partnership
or company and the industry or industries in which the MLP operates. Certain MLP securities may trade in relatively low volumes due to
their smaller capitalizations or other factors, which may cause them to have a high degree of price volatility and illiquidity. The structures
of MLPs create certain risks, including, for example, risks related to the limited ability of investors to control an MLP and to vote
on matters affecting the MLP, risks related to potential conflicts of interest between an MLP and the MLP’s general partner, the
risk that an MLP will generate insufficient cash flow to meet its current operating requirements, the risk that an MLP will issue additional
securities or engage in other transactions that will have the effect of diluting the interests of existing investors, and risks related
to the general partner’s right to require unit-holders to sell their common units at an undesirable time or price.
Non-Diversification
Risk. The Fund is a non-diversified investment company under the 1940 Act and will not be treated as
a regulated investment company under the Internal Revenue Code of 1986. Accordingly, the diversification-specific regulatory requirements
under the 1940 Act and the Internal Revenue Code of 1986 regarding the minimum number or size of portfolio securities do not apply to
the Fund, and the Fund’s investments may be more heavily concentrated in, and thus more sensitive to changes in the prices of, securities
of particular issuers.
Non-U.S.
Securities and Currency Risk. Investing in non-U.S. securities involves certain risks not involved in
domestic investments, including, but not limited to: fluctuations in currency exchange rates; future foreign economic, financial, political
and social developments; different legal systems; the possible imposition of exchange controls or other foreign governmental laws or restrictions;
lower trading volume; withholding taxes; greater price volatility and illiquidity; different trading and settlement practices; less governmental
supervision; high and volatile rates of inflation; fluctuating interest rates; less publicly available information; and different accounting,
auditing and financial recordkeeping standards and requirements. Because the Fund may invest in securities denominated or quoted in non-U.S.
currencies, changes in the non-U.S. currency/United States dollar exchange rate may affect the value of the Fund’s securities and
the unrealized appreciation or depreciation of investments.
Operational
Risk. The Fund is subject to risks arising from various operational factors, including, but not limited
to, human error, processing and communication errors, errors of the Fund’s service providers, counterparties or other third-parties,
failed or inadequate processes and technology or systems failures. The Fund relies on third parties for a range of services, including
custody. Any delay or failure relating to engaging or maintaining such service providers may affect the Fund’s ability to meet its
investment objective. Although the Fund and the Advisor seek to reduce these operational risks through controls and procedures, there
is no way to completely protect against such risks.
Potential
Conflicts of Interest Risk. First Trust, EIP and the portfolio managers have interests which may conflict
with the interests of the Fund. In particular, First Trust and EIP currently manage and may in the future manage and/or advise other investment
funds or accounts with the same or substantially similar investment objective and strategies as the Fund. In addition, while the Fund
is using leverage, the amount of the fees paid to First Trust (and by First Trust to EIP) for investment advisory and management services
are higher than if the Fund did not use leverage because the fees paid are calculated based on managed assets. Therefore, First Trust
and EIP have a financial incentive to leverage the Fund.
Recent
Market and Economic Developments. In recent years, prices of oil and other energy commodities have experienced
significant volatility. During such periods, such volatility has adversely impacted many of the MLPs, MLP-related entities and other companies
in the energy sector and energy utility industries in which the Fund has invested or may invest. For example, many MLPs, MLP-related entities
and other companies in the energy sector and energy utility industries have in recent years experienced eroding growth prospects, reduced
distribution levels or, in some cases, bankruptcy. These conditions have impacted, and may in the future impact, the NAV of the Fund and
its ability to pay distributions to shareholders at current or historic levels.
Renewable
Energy Company Risk. Renewable energy companies are a subset of energy companies and, as such, are subject
to many of the same risks as energy companies. In addition, the future growth of renewable energy companies may be dependent upon government
policies that support renewable power generation and enhance the economic viability of owning renewable electric generation assets. Such
policies can include renewable portfolio standard programs, which mandate that a specified percentage of electricity sales come from eligible
sources of renewable energy, accelerated cost-recovery systems of depreciation and tax credits.
Page
33
Investment
Objective, Policies, Risks and Effects of Leverage (Continued)
First
Trust Energy Income and Growth Fund (FEN)
November
30, 2023 (Unaudited)
Restricted
Securities Risk. The Fund may invest in 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.
Tax
Risk. Changes in tax laws or regulations, or interpretations thereof in the future, could adversely
affect the Fund or the MLPs, MLP-related entities and other energy sector and energy utility companies in which the Fund invests. A change
in current tax law, a change in the business of a given MLP, or a change in the types of income earned by a given MLP could result in
an MLP being treated as a corporation for United States federal income tax purposes, which would result in such MLP being required to
pay United States federal income tax on its taxable income. In the past, certain events have caused some MLPs to be reclassified or restructured
as corporations. The classification of an MLP as a corporation for United States federal income tax purposes has the effect of reducing
the amount of cash available for distribution by the MLP and causing any such distributions received by the Fund to be taxed as dividend
income to the extent of the MLP’s current or accumulated earnings and profits.
A
reduction in the percentage of the income offset by tax deductions or an increase in sales of the Fund’s MLP holdings that result
in capital gains will reduce that portion of the Fund’s distribution from an MLP treated as a return of capital and increase that
portion treated as income, and may result in lower after-tax distributions to the Fund’s common shareholders. On the other hand,
to the extent a distribution received by the Fund from an MLP is treated as a return of capital, the Fund’s adjusted tax basis in
the interests of the MLP may be reduced, which will result in an increase in the amount of income or gain or decrease in the amount of
loss that will be recognized by the Fund for tax purposes upon the sale of any such interests.
Utility
Companies Risk. Utility companies include companies producing or providing gas, electricity or water.
These companies are subject to the risk of the imposition of rate caps, increased competition due to deregulation, the difficulty in obtaining
an adequate return on invested capital or in financing large construction projects, the limitations on operations and increased costs
and delays attributable to environmental considerations and the capital market’s ability to absorb utility debt. In addition, in
many regions, including the United States, the utility industry is experiencing increasing competitive pressures, primarily in wholesale
markets, as a result of consumer demand, technological advances, greater availability of natural gas with respect to electric utility
companies and other factors. Taxes, government regulation, international politics, price and supply fluctuations, volatile interest rates
and energy conservation also may negatively affect utility companies.
Valuation
Risk. Market prices generally will not be available for subordinated units, direct ownership of general
partner interests, restricted securities or unregistered securities of certain MLPs or MLP-related entities, and the value of such investments
will ordinarily be determined based on fair valuations determined pursuant to procedures adopted by the Board of Trustees. The value of
these securities typically requires more reliance on the judgment of the Sub-Advisor than that required for securities for which there
is an active trading market. In addition, the Fund relies on information provided by certain MLPs, which is usually not timely, to calculate
taxable income allocable to the MLP units held in the Fund’s portfolio and to determine the tax character of distributions to common
shareholders. From time to time the Fund will modify its estimates and/or assumptions as new information becomes available. To the extent
the Fund modifies its estimates and/or assumptions, the net asset value of the Fund would likely fluctuate.
| NOT FDIC INSURED | NOT BANK GUARANTEED | MAY LOSE VALUE |
Effects
of Leverage
The
aggregate principal amount of borrowings under the committed facility agreement (the “Committed Facility Agreement”) with
BNP Paribas Prime Brokerage International, Ltd. (“PBL”) represented approximately 19.78% of Managed Assets as of November
30, 2023. Asset coverage with respect to the borrowings under the Committed Facility Agreement was 505.47% and the Fund had $15,800,000
of unutilized funds available for borrowing under the Committed Facility Agreement as of that date. Outstanding balances under the Committed
Facility Agreement accrue interest at fixed and variable rates. As of November 30, 2023, the maximum commitment amount of the Commitment
Facility was $93,000,000. The borrowing rate on the floating rate financing amount is equal to the SOFR plus 95 basis points and the borrowing
rate on the fixed rate financing amount was 3.53%. The fixed rate financing amount was for a ten-year period that ended on October 10,
2023. As of November 30, 2023, the Fund had $77,200,000 outstanding under the Commitment Facility. The Commitment Facility also has an
annual unused fee of 0.55% on the unutilized funds available for borrowing, subject to a waiver on any day on which the drawn amount is
80% or more of the maximum commitment amount. As of November 30, 2023, the approximate average annual interest and fee rate was 6.26%.
Page
34
Investment
Objective, Policies, Risks and Effects of Leverage (Continued)
First
Trust Energy Income and Growth Fund (FEN)
November
30, 2023 (Unaudited)
Assuming
that the Fund’s leverage costs remain as described above (at an assumed average annual cost of 6.26 %), the annual return that the
Fund’s portfolio must experience (net of expenses) in order to cover its leverage costs would be 1.24 %.
The
following table is furnished in response to requirements of the SEC. It is designed to illustrate the effect of leverage on Common Share
total return, assuming investment portfolio total returns (comprised of income and changes in the value of securities held in the Fund’s
portfolio) of (10%), (5%), 0%, 5% and 10%. These assumed investment portfolio returns are hypothetical figures and are not necessarily
indicative of the investment portfolio returns experienced or expected to be experienced by the Fund.
The
table further assumes leverage representing 19.78% of the Fund’s Managed Assets, net of expenses, and an annual leverage interest
and fee rate of 6.26%.
|
Assumed Portfolio Total Return (Net of Expenses) |
-10% | -5% | 0% | 5% | 10% |
|
Common Share Total Return |
- |
- |
- |
Common
Share total return is composed of two elements: the Common Share dividends paid by the Fund (the amount of which is largely determined
by the net investment income of the Fund after paying dividends or interest on its leverage) and gains or losses on the value of the securities
the Fund owns. As required by SEC rules, the table above assumes that the Fund is more likely to suffer capital losses than to enjoy capital
appreciation. For example, to assume a total return of 0% the Fund must assume that the distributions it receives on its investments are
entirely offset by losses in the value of those securities.
Page
35
Board
of Trustees and Officers
First
Trust Energy Income and Growth Fund (FEN)
November
30, 2023 (Unaudited)
The
following tables identify the Trustees and Officers of the Fund. Unless otherwise indicated, the address of all persons is 120 East Liberty
Drive, Suite 400, Wheaton, IL 60187.
| Name, Year of Birth and Position with the Fund | Term of Office and Year First Elected or Appointed(1) | Principal
Occupations During Past 5 Years |
Number of Portfolios in the First Trust Fund Complex Overseen by Trustee | Other Trusteeships or Directorships Held by Trustee During Past 5 Years |
| INDEPENDENT TRUSTEES | ||||
| Richard
E. Erickson, Trustee (1951) |
• Three Year Term• Since Fund Inception | Retired; Physician, Edward-Elmhurst Medical Group (2021 to September 2023); Physician and Officer, Wheaton Orthopedics (1990 to 2021) | 256 | None |
| Thomas
R. Kadlec, Trustee (1957) |
• Three Year Term• Since Fund Inception | Retired; President, ADM Investor Services, Inc. (Futures Commission Merchant) (2010 to July 2022) | 256 | Director, National Futures Association and ADMIS Singapore Ltd.; Formerly, Director of ADM Investor Services, Inc., ADM Investor Services International, ADMIS Hong Kong Ltd., and Futures Industry Association |
| Denise
M. Keefe, Trustee (1964) |
• Three Year Term• Since 2021 | Executive Vice President, Advocate Aurora Health and President, Advocate Aurora Continuing Health Division (Integrated Healthcare System) | 256 | Director and Board Chair of Advocate Home Health Services, Advocate Home Care Products and Advocate Hospice; Director and Board Chair of Aurora At Home (since 2018); Director of Advocate Physician Partners Accountable Care Organization; Director of RML Long Term Acute Care Hospitals; Director of Senior Helpers (since 2021); and Director of MobileHelp (since 2022) |
| Robert
F. Keith, Trustee (1956) |
• Three Year Term• Since Fund Inception | President, Hibs Enterprises (Financial and Management Consulting) | 256 | Formerly, Director of Trust Company of Illinois |
| Niel
B. Nielson, Trustee (1954) |
• Three Year Term• Since Fund Inception | Senior Advisor (2018 to Present), Managing Director and Chief Operating Officer (2015 to 2018), Pelita Harapan Educational Foundation (Educational Products and Services) | 256 | None |
| (1) | Currently, Denise M. Keefe and Robert F. Keith, as Class I Trustees, are serving as trustees until the Fund’s 2026 annual meeting of shareholders. Richard E. Erickson and Thomas R. Kadlec, as Class II Trustees, are serving as trustees until the Fund’s 2024 annual meeting of shareholders. James A. Bowen, Niel B. Nielson, and Bronwyn Wright, as Class III Trustees, are serving as trustees until the Fund’s 2025 annual meeting of shareholders. |
Page
36
Board
of Trustees and Officers (Continued)
First
Trust Energy Income and Growth Fund (FEN)
November
30, 2023 (Unaudited)
| Name, Year of Birth and Position with the Fund | Term of Office and Year First Elected or Appointed(1) | Principal
Occupations During Past 5 Years |
Number of Portfolios in the First Trust Fund Complex Overseen by Trustee | Other Trusteeships or Directorships Held by Trustee During Past 5 Years |
| INDEPENDENT TRUSTEES | ||||
| Bronwyn
Wright, Trustee (1971) |
• Three Year Term• Since 2023 | Independent Director to a number of Irish collective investment funds (2009 to Present); Various roles at international affiliates of Citibank (1994 to 2009), including Managing Director, Citibank Europe plc and Head of Securities and Fund Services, Citi Ireland (2007 to 2009) | 232 | None |
| INTERESTED TRUSTEE | ||||
| James
A. Bowen(2), Trustee and Chairman of the Board (1955) |
• Three Year Term• Since Fund Inception | Chief Executive Officer, First Trust Advisors L.P. and First Trust Portfolios L.P.; Chairman of the Board of Directors, BondWave LLC (Software Development Company) and Stonebridge Advisors LLC (Investment Advisor) | 256 | None |
| Name and Year of Birth | Position and Offices with Fund | Term of Office and Length of Service | Principal
Occupations During Past 5 Years |
| OFFICERS(3) | |||
| James
M. Dykas (1966) |
President and Chief Executive Officer | • Indefinite
Term • Since 2016 |
Managing Director and Chief Financial Officer, First Trust Advisors L.P. and First Trust Portfolios L.P.; Chief Financial Officer, BondWave LLC (Software Development Company) and Stonebridge Advisors LLC (Investment Advisor) |
| Derek
D. Maltbie (1972) |
Treasurer, Chief Financial Officer and Chief Accounting Officer | • Indefinite
Term • Since 2023 |
Senior Vice President, First Trust Advisors L.P. and First Trust Portfolios L.P., July 2021 to Present. Previously, Vice President, First Trust Advisors L.P. and First Trust Portfolios L.P., 2014 to 2021. |
| W.
Scott Jardine (1960) |
Secretary and Chief Legal Officer | • Indefinite
Term • Since Fund Inception |
General Counsel, First Trust Advisors L.P. and First Trust Portfolios L.P.; Secretary and General Counsel, BondWave LLC; Secretary, Stonebridge Advisors LLC |
| Daniel
J. Lindquist (1970) |
Vice President | • Indefinite
Term • Since December 2005 |
Managing Director, First Trust Advisors L.P. and First Trust Portfolios L.P. |
| Kristi
A. Maher (1966) |
Chief Compliance Officer and Assistant Secretary | •
Indefinite Term • Chief Compliance Officer Since January 2011• Assistant Secretary Since Fund Inception |
Deputy General Counsel, First Trust Advisors L.P. and First Trust Portfolios L.P. |
| (2) | Mr. Bowen is deemed an “interested person” of the Fund due to his position as CEO of First Trust Advisors L.P., investment advisor of the Fund. |
| (3) | The term “officer” means the president, vice president, secretary, treasurer, controller or any other officer who performs a policy making function. |
Page
37
Privacy
Policy
First
Trust Energy Income and Growth Fund (FEN)
November
30, 2023 (Unaudited)
Privacy
Policy
First
Trust values our relationship with you and considers your privacy an important priority in maintaining that relationship. We are committed
to protecting the security and confidentiality of your personal information.
Sources
of Information
We
collect nonpublic personal information about you from the following sources:
| • | Information we receive from you and your broker-dealer, investment professional or financial representative through interviews, applications, agreements or other forms; |
| • | Information about your transactions with us, our affiliates or others; |
| • | Information we receive from your inquiries by mail, e-mail or telephone; and |
| • | Information we collect on our website through the use of “cookies.” For example, we may identify the pages on our website that your browser requests or visits. |
Information
Collected
The
type of data we collect may include your name, address, social security number, age, financial status, assets, income, tax information,
retirement and estate plan information, transaction history, account balance, payment history, investment objectives, marital status,
family relationships and other personal information.
Disclosure
of Information
We
do not disclose any nonpublic personal information about our customers or former customers to anyone, except as permitted by law. In addition
to using this information to verify your identity (as required under law), the permitted uses may also include the disclosure of such
information to unaffiliated companies for the following reasons:
| • | In order to provide you with products and services and to effect transactions that you request or authorize, we may disclose your personal information as described above to unaffiliated financial service providers and other companies that perform administrative or other services on our behalf, such as transfer agents, custodians and trustees, or that assist us in the distribution of investor materials such as trustees, banks, financial representatives, proxy services, solicitors and printers. |
| • | We may release information we have about you if you direct us to do so, if we are compelled by law to do so, or in other legally limited circumstances (for example to protect your account from fraud). |
In
addition, in order to alert you to our other financial products and services, we may share your personal information within First Trust.
Use
of Website Analytics
We
currently use third party analytics tools, Google Analytics and AddThis, to gather information for purposes of improving First Trust’s
website and marketing our products and services to you. These tools employ cookies, which are small pieces of text stored in a file by
your web browser and sent to websites that you visit, to collect information, track website usage and viewing trends such as the number
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March
2023
Page
38
INVESTMENT
ADVISOR
First
Trust Advisors L.P.
120
East Liberty Drive, Suite 400
Wheaton,
IL 60187
INVESTMENT
SUB-ADVISOR
Energy
Income Partners, LLC
10
Wright Street
Westport,
CT 06880
TRANSFER
AGENT
Computershare,
Inc.
P.O.
Box 43006
Providence,
RI 02940
ADMINISTRATOR,
FUND ACCOUNTANT, AND
CUSTODIAN
FUND ACCOUNTANT, AND
CUSTODIAN
The
Bank of New York Mellon
240
Greenwich Street
New
York, NY 10286
INDEPENDENT
REGISTERED
PUBLIC ACCOUNTING FIRM
PUBLIC ACCOUNTING FIRM
Deloitte
& Touche LLP
111
S. Wacker Drive
Chicago,
IL 60606
LEGAL
COUNSEL
Chapman
and Cutler LLP
320
South Canal Street
Chicago,
IL 60606
(b) Not applicable.
Item 2. Code of Ethics.
| (a) | The registrant, as of the end of the period covered by this report, has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. |
| (c) | There have been no amendments, during the period covered by this report, to a provision of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and that relates to any element of the code of ethics description. |
| (d) | The registrant has not granted any waivers, including an implicit waiver, from a provision of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, that relates to one or more of the items set forth in paragraph (b) of this item’s instructions. |
| (e) | Not applicable. |
| (f) | A copy of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller is filed as an exhibit pursuant to Item 13(a)(1). |
Item 3. Audit Committee Financial Expert.
As of the end of the period covered by the report, the registrant’s board of trustees has determined that Thomas R. Kadlec, Robert F. Keith and Bronwyn Wright are qualified to serve as audit committee financial experts serving on its audit committee and that each of them is “independent,” as defined by Item 3 of Form N-CSR.
Item 4. Principal Accountant Fees and Services.
(a) Audit Fees (Registrant) -- The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant’s annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years were $59,000 for the fiscal year ended November 30, 2022, and $59,000 for the fiscal year ended November 30, 2023.
(b) Audit-Related Fees (Registrant) -- The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under paragraph (a) of this Item were $0 for the fiscal year ended November 30, 2022, and $0 for the fiscal year ended November 30, 2023.
Audit-Related Fees (Investment Advisor) -- The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under paragraph (a) of this Item were $0 for the fiscal year ended November 30, 2022, and $0 for the fiscal year ended November 30, 2023.
(c) Tax Fees (Registrant) -- The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning to the registrant were $42,000 for the fiscal year ended November 30, 2022, and $52,187 for the fiscal year ended November 30, 2023. These fees were for tax consultation and/or tax return preparation and professional services rendered for PFIC (Passive Foreign Investment Company) Identification Services.
Tax Fees (Investment Advisor) -- The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning to the registrant’s advisor were $0 for the fiscal year ended November 30, 2022, and $0 for the fiscal year ended November 30, 2023.
(d) All Other Fees (Registrant) -- The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant to the registrant, other than the services reported in paragraphs (a) through (c) of this Item were $0 for the fiscal year ended November 30, 2022 and $0 for the fiscal year ended November 30, 2023.
All Other Fees (Investment Advisor) -- The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant to the registrant’s investment advisor, other than the services reported in paragraphs (a) through (c) of this Item were $0 for the fiscal year ended November 30, 2022, and $0 for the fiscal year ended November 30, 2023.
(e)(1) Disclose the audit committee’s pre-approval policies and procedures described in paragraph (c) (7) of Rule 2-01 of Regulation S-X.
Pursuant to its charter and its Audit and Non-Audit Services Pre-Approval Policy, the Audit Committee (the “Committee”) is responsible for the pre-approval of all audit services and permitted non-audit services (including the fees and terms thereof) to be performed for the registrant by its independent auditors. The Chairman of the Committee is authorized to give such pre-approvals on behalf of the Committee up to $25,000 and report any such pre-approval to the full Committee.
The Committee is also responsible for the pre-approval of the independent auditor’s engagements for non-audit services with the registrant’s advisor (not including a sub-advisor whose role is primarily portfolio management and is sub-contracted or overseen by another investment advisor) and any entity controlling, controlled by or under common control with the investment advisor that provides ongoing services to the registrant, if the engagement relates directly to the operations and financial reporting of the registrant, subject to the de minimis exceptions for non-audit services described in Rule 2-01 of Regulation S-X. If the independent auditor has provided non-audit services to the registrant’s advisor (other than any sub-advisor whose role is primarily portfolio management and is sub-contracted with or overseen by another investment advisor) and any entity controlling, controlled by or under common control with the investment advisor that provides ongoing services to the registrant that were not pre-approved pursuant to its policies, the Committee will consider whether the provision of such non-audit services is compatible with the auditor’s independence.
| (e)(2) | The percentage of services described in each of paragraphs (b) through (d) for the registrant and the registrant’s investment advisor of this Item that were approved by the audit committee pursuant to the pre-approval exceptions included in paragraph (c)(7)(i)(c) or paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X are as follows: |
(b) 0%
(c) 0%
(d) 0%
(f) The percentage of hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees was less than fifty percent.
(g) The aggregate non-audit fees billed by the registrant’s accountant for services rendered to the registrant, and rendered to the registrant’s investment advisor (not including any sub-advisor whose role is primarily portfolio management and is subcontracted with or overseen by another investment advisor), and any entity controlling, controlled by, or under common control with the advisor that provides ongoing services to the registrant for the fiscal year ended November 30, 2022 were $42,000 for the registrant and $0 for the registrant’s investment advisor, and for the fiscal year ended November 30, 2023 were $52,187 for the registrant and $44,000 for the registrant’s investment advisor.
(h) The registrant’s audit committee of its Board of Trustees has determined that the provision of non-audit services that were rendered to the registrant’s investment advisor (not including any sub-advisor whose role is primarily portfolio management and is subcontracted with or overseen by another investment advisor), and any entity controlling, controlled by, or under common control with the investment advisor that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence.
Item 5. Audit Committee of Listed Registrants.
| (a) | The registrant has a separately designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934 consisting of all the independent directors of the registrant. The audit committee of the registrant is comprised of: Richard E. Erickson, Thomas R. Kadlec, Denise M. Keefe, Robert F. Keith, Niel B. Nielson and Bronwyn Wright. |
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.
The Proxy Voting Policies are attached herewith.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
(a)(1) Identification of Portfolio Manager(s) or Management Team Members and Description of Role of Portfolio Manager(s) or Management Team Members
Information provided as of November 30, 2023.
Energy Income Partners, LLC
Energy Income Partners, LLC (“EIP”), located in Westport, CT, was founded in 2003 to provide professional asset management services in publicly traded energy-related infrastructure companies with above average dividend payout ratios operating pipelines and related storage and handling facilities, electric power transmission and distribution as well as long contracted or regulated power generation from renewables and other sources. The corporate structure of the portfolio companies include C-corporations, partnerships and energy infrastructure real estate investment trusts. EIP mainly focuses on investments in assets that receive steady fee-based or regulated income from their corporate and individual customers. EIP manages or supervises approximately $5.4 billion of assets as of November 30, 2022. EIP advises two privately offered partnerships for U.S. high net worth individuals and an open-end mutual fund. EIP also manages separately managed accounts and provides its model portfolio to unified managed accounts. Finally, EIP serves as a sub-advisor to three closed-end management investment companies in addition to the Fund, two actively managed exchange-traded funds, a sleeve of an actively managed exchange-traded fund and a sleeve of a series of variable insurance trust. EIP is a registered investment advisor with the Securities and Exchange Commission.
James J. Murchie, Co-Portfolio Manager
James J. Murchie is the Co-Founder, Chief Executive Officer, co-portfolio manager and a Principal of Energy Income Partners. After founding Energy Income Partners in October 2003, Mr. Murchie and the Energy Income Partners investment team joined Pequot Capital Management Inc. (“Pequot Capital”) in December 2004. In August 2006, Mr. Murchie and the Energy Income Partners investment team left Pequot Capital and re-established Energy Income Partners. Prior to founding Energy Income Partners, Mr. Murchie was a Portfolio Manager at Lawhill Capital Partners, LLC (“Lawhill Capital”), a long/short equity hedge fund investing in commodities and equities in the energy and basic industry sectors. Before Lawhill Capital, Mr. Murchie was a Managing Director at Tiger Management, LLC, where his primary responsibility was managing a portfolio of investments in commodities and related equities. Mr. Murchie was also a Principal at Sanford C. Bernstein. He began his career at British Petroleum, PLC. Mr. Murchie holds a BA from Rice University and an MA from Harvard University.
Eva Pao, Co-Portfolio Manager
Eva Pao is a Principal of Energy Income Partners and is a Co-Founder, co-portfolio manager and Principal of Energy Income Partners. She has been with EIP since inception in 2003. From 2005 to mid-2006, Ms. Pao joined Pequot Capital Management during EIP’s affiliation with Pequot. Prior to Harvard Business School, Ms. Pao was a Manager at Enron Corp where she managed a portfolio in Canadian oil and gas equities for Enron’s internal hedge fund that specialized in energy-related equities and managed a natural gas trading book. Ms. Pao holds degrees from Rice University and Harvard Business School.
John K. Tysseland, Co-Portfolio Manager
John Tysseland is a Principal and co-portfolio manager. From 2005 to 2014, he worked at Citi Research most currently serving as a Managing Director where he covered midstream energy companies and MLPs. From 1998 to 2005, he worked at Raymond James & Associates as a Vice President who covered the oilfield service industry and established the firm’s initial coverage of MLPs in 2001. Prior to that, he was an Equity Trader at Momentum Securities from 1997 to 1998 and an Assistant Executive Director at Sumar Enterprises from 1996 to 1997. He graduated from The University of Texas at Austin in 1996 with a BA in economics.
| Name | Title | Length of Service | Business Experience Past 5 Years |
| James Murchie | Co-Portfolio Manager | 17.0 | Co-Portfolio Manager of the Fund |
| Eva Pao | Co-Portfolio Manager | 17.0 | Co-Portfolio Manager of the Fund |
| John Tysseland | Co-Portfolio Manager | 7.5 | Co-Portfolio Manager for the Fund, from May 2016 to present. |
| (a)(2) | Other Accounts Managed by Portfolio Manager and Potential Conflicts of Interest |
Other Accounts Managed by Portfolio Manager
Information provided as of November 30, 2023.
| Name of Portfolio Manager
or Team Member |
Type of Accounts* |
Total # of Accounts |
Total Assets | # of Accounts Managed
for which Advisory Fee is Based on Performance |
Total Assets for which
Advisory Fee is Based on Performance |
| 1. James Murchie | Registered Investment Companies: | 8 | $3,815,000,000 | 0 | $0 |
| Other Pooled Investment Vehicles: | 2 | 155,000,00 | 2 | 155,000,000 | |
| Other Accounts: | 137 | 783,000,000 | 0 | $0 | |
| 2. Eva Pao | Registered Investment Companies: | 8 | 3,815,000,000 | 0 | $0 |
| Other Pooled Investment Vehicles: | 2 | 155,000,000 | 2 | 155,000,000 | |
| Other Accounts: | 137 | 3,815,000,000 | 0 | $0 | |
| 3. John Tysseland | Registered Investment Companies: | 8 | 3,815,000,000 | 0 | $0 |
| Other Pooled Investment Vehicles: | 2 | 155,000,000 | 2 | 155,000,000 | |
| Other Accounts: | 137 | 783,000,000 | 0 | $0 | |
*Examples for Types of Accounts:
Other Registered Investment Companies: Any investment vehicle which is registered with the SEC, such as mutual funds of registered hedge funds.
Other Pooled Investment Vehicles: Any unregistered account for which investor assets are pooled together, such as an unregistered hedge fund.
Other Accounts: Any accounts managed not covered by the other two categories, such as privately managed accounts.
Portfolio Manager Potential Conflicts of Interests
Besides the Fund, Energy Income Partners, LLC (“EIP”) portfolio managers serves as portfolio managers to separately managed accounts and provides its model portfolio to unified managed accounts and serve as portfolio managers to three closed-end management investment companies other than the Fund, three actively managed exchange-traded funds (ETFs), and a sleeve of a series of a variable insurance trust.
The portfolio managers also serve as portfolio managers two private investment funds (the “Private Funds”), both of which have a performance fee and an open end registered mutual fund.
EIP has written policies and procedures regarding order aggregation and allocation that seek to ensure that all accounts are treated fairly and equitably and that no account is at a disadvantage. EIP will generally execute client transactions on an aggregated basis when EIP believes that to do so will allow it to obtain best execution and to negotiate more favorable commission rates or avoid certain transaction costs that might have otherwise been paid had such orders been placed independently. EIP’s ability to implement this may be limited by an account’s custodian, directed brokerage arrangements or other constraints limiting EIP’s use of a common executing broker.
An aggregated order may be allocated on a basis different from that specified herein provided that all clients receive fair and equitable treatment and there is a reason for the different allocation. Reasons for deviation may include (but are not limited to): a client’s investment guidelines and restrictions, available cash, liquidity or legal reasons, and to avoid odd-lots or in cases when an allocation would result in a de minimis allocation to one or more clients.
Notwithstanding the above, due to differing tax ramifications and compliance ratios, as well as dissimilar risk constraints and tolerances, accounts with similar investment mandates may trade the same securities at differing points in time. Additionally, for the reasons noted above, certain accounts, including funds in which EIP, its affiliates and/or employees (“EIP Funds”) have a financial interest including proprietary accounts, may trade separately from other accounts and participate in transactions which are deemed to be inappropriate for other accounts with similar investment mandates. Further, during periods in which EIP intends to trade the same securities across multiple accounts, transactions for those accounts that must be traded through specific brokers and/or platforms will often be executed after those for accounts over which EIP exercises full brokerage discretion, including the EIP Funds and proprietary accounts.
(a)(3) Compensation Structure of Portfolio Managers or Management Team Members
Portfolio Manager Compensation
Information provided as of November 30, 2023.
The Fund’s portfolio managers are compensated by a competitive minimum base salary and share in the profits of EIP in relation to their ownership of EIP. EIP’s profits are influenced by the assets under management and the performance of the Funds (i.e. all Funds managed or sub-advised by EIP) as described above. Therefore, their success is based on the growth and success of all EIP managed products, not just the funds that charge an incentive fee.
The compensation of the EIP team members is determined according to prevailing rates within the industry for similar positions.
| (a)(4) | Disclosure of Securities Ownership |
Information provided as of November 30, 2023.
| Name | Dollar Range of Fund Shares Beneficially Owned |
| James Murchie | $100,001-$500,000 |
| (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 directors, 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 period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
| (a) | Not applicable. |
| (b) | Not applicable. |
Item 13. Exhibits.
| (a)(1) | Code of ethics, or any amendment thereto, that is the subject of disclosure required by Item 2 is attached hereto. |
| (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. |
| (a)(4) | 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. |
| (c) | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies required by Item 7 is 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: | February 8, 2024 |
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: | February 8, 2024 |
| By (Signature and Title)* | /s/ Derek D. Maltbie | |
| Derek D. Maltbie, Treasurer, Chief Financial Officer and Chief Accounting Officer (principal financial officer) |
| Date: | February 8, 2024 |
* Print the name and title of each signing officer under his or her signature.