UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY
Investment Company Act file number 811-21549
ENERGY INCOME AND GROWTH FUND
(Exact name of registrant as specified in charter)
120 East Liberty Drive
WHEATON, IL 60187
(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive
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: AUGUST 31, 2008
Form N-Q is to be used by management investment companies, other than small
business investment companies registered on Form N-5 (ss.ss. 239.24 and 274.5 of
this chapter), to file reports with the Commission, not later than 60 days after
the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under
the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may use
the information provided on Form N-Q in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-Q, and
the Commission will make this information public. A registrant is not required
to respond to the collection of information contained in Form N-Q 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 the
Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC
20549. The OMB has reviewed this collection of information under the clearance
requirements of 44 U.S.C. ss. 3507.
ITEM 1. SCHEDULE OF INVESTMENTS.
The Schedule(s) of Investments is attached herewith.
ENERGY INCOME AND GROWTH FUND
PORTFOLIO OF INVESTMENTS (a)
AUGUST 31, 2008 (UNAUDITED)
SHARES DESCRIPTION VALUE
-------- ------------------------------------------------------- ------------
MASTER LIMITED PARTNERSHIPS - 131.7%
OIL, GAS & CONSUMABLE FUELS - 131.7%
12,500 Atlas Pipeline Partners, L.P. ......................... $ 426,625
95,000 Buckeye Partners, L.P. ................................ 4,114,450
465,471 Clearwater Natural Resources, L.P. (b) (c) (d) ........ 4,189,239
188,050 Copano Energy, LLC . .................................. 5,948,022
396,975 Crosstex Energy, L.P. ................................. 10,110,953
101,705 DCP Midstream Partners, L.P. .......................... 2,491,773
84,300 Duncan Energy Partners, L.P. .......................... 1,527,516
80,153 El Paso Pipeline Partners, L.P. ....................... 1,480,426
190,947 Enbridge Energy Partners, L.P. ........................ 9,268,567
35,100 Encore Energy Partners, L.P. .......................... 865,215
20,000 Energy Transfer Equity, L.P. .......................... 577,000
355,870 Energy Transfer Partners, L.P. ........................ 15,836,215
290,803 Enterprise GP Holdings, L.P. .......................... 8,642,665
515,338 Enterprise Product Partners, L.P. ..................... 15,176,704
128,709 EV Energy Partner, L.P. ............................... 3,359,305
56,293 Global Partners, L.P. ................................. 699,722
53,100 Hiland Partners, L.P. ................................. 2,442,600
257,600 Holly Energy Partners, L.P. ........................... 8,683,696
147,836 Inergy Holdings, L.P. ................................. 4,819,454
138,864 Inergy, L.P. .......................................... 3,660,455
273,771 Kinder Morgan Energy Partners, L.P. ................... 15,725,406
62,627 Linn Energy, LLC . .................................... 1,354,622
223,239 Magellan Midstream Holdings, L.P. ..................... 4,949,209
437,756 Magellan Midstream Partners, L.P. ..................... 16,275,768
114,719 MarkWest Energy Partners, L.P. ........................ 3,950,922
132,788 Natural Resource Partners, L.P. ....................... 4,606,416
185,126 NuStar Energy, L.P. ................................... 9,137,819
40,000 NuStar GP Holdings, LLC ............................... 845,200
129,630 ONEOK Partners, L.P. .................................. 7,784,282
55,000 Penn Virginia Resource Partners, L.P. ................. 1,370,600
299,516 Plains All American Pipeline, L.P. .................... 14,271,937
10,000 Quicksilver Gas Services, L.P. ........................ 213,500
15,000 Sunoco Logistics Partners, L.P. ....................... 729,600
208,000 Targa Resources Partners, L.P. ........................ 4,971,200
141,200 Williams Partners, L.P. ............................... 4,284,008
110,000 Williams Pipeline Partners, L.P. ...................... 1,890,900
------------
TOTAL MASTER LIMITED PARTNERSHIPS
(Cost $138,344,345) ................................ 196,681,991
------------
CANADIAN INCOME TRUSTS - 5.1%
OIL, GAS & CONSUMABLE FUELS - 2.1%
50,000 AltaGas Income Trust .................................. 1,198,907
54,000 Keyera Facilities Income Fund ......................... 1,184,969
40,000 Pembina Pipeline Income Fund .......................... 693,163
------------
3,077,039
------------
See Notes to Quarterly Portfolio of Investments
Page 1
ENERGY INCOME AND GROWTH FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
AUGUST 31, 2008 (UNAUDITED)
SHARES DESCRIPTION VALUE
-------- ------------------------------------------------------- ------------
CANADIAN INCOME TRUSTS - (CONTINUED)
COMMERCIAL SERVICES & SUPPLIES - 1.6%
146,900 Newalta Income Fund ................................... $ 2,421,125
------------
ENERGY EQUIPMENT & SERVICES - 1.4%
80,000 Mullen Group Income Fund .............................. 1,695,234
31,600 Phoenix Technology Income Fund ........................ 449,388
------------
2,144,622
------------
TOTAL CANADIAN INCOME TRUSTS
(Cost $7,125,135) .................................. 7,642,786
------------
COMMON STOCKS - 27.4%
OIL, GAS & CONSUMABLE FUELS - 19.0%
190,000 El Paso Corp. (e) ..................................... 3,184,400
114,723 Enbridge Energy Management, LLC (f) ................... 5,800,396
112,400 Enbridge, Inc. (g) .................................... 4,714,056
40,844 Kinder Morgan Management, LLC (f) ..................... 2,266,823
291,200 Spectra Energy Corp. (e) .............................. 7,705,152
155,300 Williams Companies, Inc. (g) .......................... 4,797,217
------------
28,468,044
------------
GAS UTILITIES - 8.0%
178,000 ONEOK, Inc. (g) ....................................... 7,780,380
149,800 UGI Corp. (e) ......................................... 4,119,500
------------
11,899,880
------------
CAPITAL MARKETS - 0.4%
36,100 NGP Capital Resources Co. ............................. 587,347
------------
TOTAL COMMON STOCKS
(Cost $38,736,071) ................................. 40,955,271
------------
RIGHTS - 0.0%
OIL, GAS & CONSUMABLE FUELS - 0.0%
17 Clearwater Natural Resources, L.P. -
Rights (b) (c) (d) ................................. 0
------------
TOTAL RIGHTS
(Cost $0) .......................................... 0
------------
WARRANTS - 0.1%
OIL, GAS & CONSUMABLE FUELS - 0.1%
48,956 Abraxas Petroleum Corp. - Warrants,
Expiration 05/25/12 (c) (d) ........................ 89,134
------------
TOTAL WARRANTS
(Cost $0) .......................................... 89,134
------------
TOTAL INVESTMENTS - 164.3%
(Cost $184,205,551) (h) ............................ 245,369,182
See Notes to Quarterly Portfolio of Investments
Page 2
ENERGY INCOME AND GROWTH FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
AUGUST 31, 2008 (UNAUDITED)
DESCRIPTION VALUE
------------------------------------------------------- ------------
CALL OPTIONS WRITTEN - (0.7)%
(Premiums received $1,357,291) ..................... $ (985,025)
NET OTHER ASSETS AND LIABILITIES - (17.9%) ............ (26,763,592)
LOAN OUTSTANDING - (29.0)% ............................ (43,250,000)
SERIES B ENERGY NOTES PAYABLE - (16.7)% ............... (25,000,000)
------------
NET ASSETS - 100.0% ................................... $149,370,565
============
----------
(a) All percentages shown in the Portfolio of Investments are based on net
assets.
(b) This security is restricted and cannot be offered for public sale without
first being registered under the Securities Act of 1933, as amended. Prior
to registration, restricted securities may only be resold in transactions
exempt from registration. (See Note 1D - Restricted Securities in the Notes
to Quarterly Portfolio of Investments).
(c) This security is fair valued in accordance with valuation procedures
adopted by the Fund's Board of Trustees.
(d) Non-income producing security.
(e) Call options were written on this entire Common Stock position. All Common
Stocks relating to this call option position are pledged as collateral.
(f) Non-income producing security which pays regular in-kind distributions.
(g) Call options were written on a portion of this Common Stock position. The
underlying portion of this Common Stock position is pledged as collateral.
(h) Aggregate cost for federal income tax and financial reporting purposes. As
of August 31, 2008, the aggregate unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$71,263,264 and the gross unrealized depreciation for all securities in
which there was an excess of tax cost over value was $10,099,633.
NUMBER OF
CONTRACTS DESCRIPTION VALUE
--------- -------------------------------------------------------- ---------
CALL OPTIONS WRITTEN - (0.7%)
El Paso Corp. Calls
800 @ 18 due Oct 08 ........................................ $ (28,000)
300 @ 21 due Oct 08 ........................................ (2,400)
800 @ 17.50 due Jan 09 ..................................... (92,000)
---------
(122,400)
---------
Enbridge, Inc. Calls
514 @ 45 due Oct 08 ........................................ (17,990)
380 @ 45 due Jan 09 ........................................ (48,450)
---------
(66,440)
---------
ONEOK, Inc. Calls
600 @ 47.50 due Oct 08 ..................................... (16,800)
880 @ 50 due Oct 08 ........................................ (13,200)
---------
(30,000)
---------
Spectra Energy Corp. Calls
540 @ 25 due Sep 08. ....................................... (90,450)
1,872 @ 30 due Dec 08 ........................................ (93,600)
500 @ 25 due Jan 09 ........................................ (131,250)
---------
(315,300)
---------
UGI Corp. Calls
300 @ 25 due Oct 08 ........................................ (78,750)
1,198 @ 30 due Jan 09 ........................................ (68,885)
---------
(147,635)
---------
See Notes to Quarterly Portfolio of Investments
Page 3
ENERGY INCOME AND GROWTH FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
AUGUST 31, 2008 (UNAUDITED)
NUMBER OF
CONTRACTS DESCRIPTION VALUE
--------- -------------------------------------------------------- ---------
CALL OPTIONS WRITTEN - (CONTINUED)
Williams Companies, Inc. Calls
400 @ 40 due Nov 08 ........................................ $ (10,000)
1,150 @ 32.5 due Feb 09 ...................................... (293,250)
---------
(303,250)
---------
TOTAL CALL OPTIONS WRITTEN
(Premiums received $1,357,291) ...................... $(985,025)
=========
SECURITY VALUATION INPUTS
A summary of the inputs used to value the Fund's net assets as of August 31,
2008 is as follows (See Note 1A - Portfolio Valuation in the Notes to Quarterly
Portfolio of Investments):
VALUATION INPUTS INVESTMENTS IN SECURITIES
---------------- -------------------------
Level 1 - Quoted Prices - Investments ........... $241,090,809
Level 1 - Quoted Prices - Written Options ....... (985,025)
Level 2 - Other Significant Observable Inputs ... --
Level 3 - Significant Unobservable Inputs ....... 4,278,373
------------
TOTAL ........................................... $244,384,157
============
The following table presents the Fund's assets measured at fair value on a
recurring basis using significant unobservable inputs (Level 3) at November 30,
2007 and at August 31, 2008.
ASSETS AT FAIR VALUE USING SIGNIFICANT
UNOBSERVABLE INPUTS (LEVEL 3) INVESTMENTS IN SECURITIES
-------------------------------------- -------------------------
Balance as of November 30, 2007 .................... $ 6,516,594
Change in unrealized appreciation (depreciation) ... (2,238,221)
-----------
Balance as of August 31, 2008 ...................... $ 4,278,373
===========
See Notes to Quarterly Portfolio of Investments
Page 4
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS
ENERGY INCOME AND GROWTH FUND
AUGUST 31, 2008 (UNAUDITED)
1. VALUATION AND INVESTMENT PRACTICES
A. PORTFOLIO VALUATION:
The net asset value ("NAV") of the Common Shares of Energy Income and Growth
Fund (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. Prior to August 1, 2008, the NAV was calculated at
least weekly on Friday of each week and on each month-end rather than daily. The
NAV per Common Share is calculated by dividing the value of all assets of the
Fund (including accrued interest and dividends), less all liabilities (including
accrued expenses, dividends declared but unpaid, current and deferred income
taxes and any borrowings of the Fund) by the total number of Common Shares
outstanding. The Fund will rely to some extent on information provided by the
master limited partnerships ("MLPs"), which is not necessarily timely, to
estimate taxable income allocable to the MLP units held in the Fund's portfolio
and to estimate the associated deferred tax liability. From time to time, the
Fund will modify its estimates and/or assumptions regarding its deferred tax
liability as new information becomes available. To the extent the Fund modifies
its estimates and/or assumptions, the NAV of the Fund will likely fluctuate.
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 in
accordance with valuation procedures adopted by the Fund's Board of Trustees.
The use of fair value pricing by the Fund is also in accordance with the
provisions of the Investment Company Act of 1940, as amended (the "1940 Act").
Portfolio securities listed on any exchange other than the NASDAQ National
Market ("NASDAQ") are valued at the last sale price on the business day as of
which such value is being determined. If there has been no sale on such day, the
securities are valued at the mean of the most recent bid and asked prices on
such day. Securities traded on the NASDAQ are valued at the NASDAQ Official
Closing Price as determined by NASDAQ. Portfolio securities traded on more than
one securities exchange are valued at the last sale price on the business day as
of which such value is being determined at the close of the exchange
representing the principal market for such securities.
Portfolio securities traded in the over-the-counter market, but excluding
securities traded on the NASDAQ, are valued at the closing bid prices.
Short-term investments that mature in less than 60 days when purchased are
valued at amortized cost.
In September 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 157, Fair Value Measurements ("FAS 157"),
effective for fiscal years beginning after November 15, 2007. This standard
clarifies the definition of fair value for financial reporting, establishes a
framework for measuring fair value and requires additional disclosures about the
use of fair value measurements. FAS 157 became effective for the Fund as of
December 1, 2007, the beginning of its current fiscal year. The three levels of
the fair value hierarchy under FAS 157 are described below:
- Level 1 - quoted prices in active markets for identical securities
- Level 2 - other significant observable inputs (including quoted prices
for similar securities, interest rates, prepayment speeds, credit
risk, etc.)
- Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not necessarily an
indication of the risk associated with investing in those securities. A summary
of the inputs used to value the Fund's net assets as of August 31, 2008 is
included with the Fund's Portfolio of Investments.
B. OPTION CONTRACTS:
COVERED OPTIONS. The Fund may write (sell) covered call options ("options") on
all or a portion of the common stock of energy companies held in the Fund's
portfolio as determined to be appropriate by Energy Income Partners LLC (the
"Sub-Advisor"). The number of options the Fund can write (sell) is limited by
the amount of common stock of energy companies the Fund holds in its portfolio.
The Fund will not write (sell) "naked" or uncovered options. By writing
(selling) options, the Fund seeks to generate additional income, in the form of
premiums received for writing (selling) the options, and provide a partial hedge
against a market decline in the underlying security. Options are
marked-to-market daily and their value will be affected by changes in the value
and dividend rates of the underlying securities, changes in interest rates,
changes in the actual or perceived volatility of the securities markets and the
underlying 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 smaller.
Options the Fund writes (sells) will either be exercised, expire worthless or be
cancelled pursuant to a closing transaction. If the price of the underlying
security exceeds the option's strike 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 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. If the price of
the underlying security is less than the option's strike price, the option
Page 5
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS - (CONTINUED)
ENERGY INCOME AND GROWTH FUND
AUGUST 31, 2008 (UNAUDITED)
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.
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. 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.
C. SECURITIES TRANSACTIONS:
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Distributions received from the Fund's investments in MLPs generally are
comprised of return of capital from the MLP to the extent of the cost basis of
such MLP investments.
D. RESTRICTED SECURITIES:
The Fund may invest up to 35% of its Managed Assets, which is the average gross
asset value of the Fund minus accrued liabilities (excluding the principal
amount of any borrowings), in restricted securities. Restricted securities are
securities that cannot be offered for public sale without first being registered
under the Securities Act of 1933, as amended. Prior to registration, restricted
securities may only be resold in transactions exempt from registration. The Fund
held the restricted securities at August 31, 2008 as shown in the following
table. The Fund does not have the right to demand that such securities be
registered. Restricted securities are valued at fair value in accordance with
valuation procedures adopted by the Fund's Board of Trustees and in accordance
with the provisions of the 1940 Act.
CURRENT % OF
ACQUISITION VALUE PER CARRYING NET
SECURITY DATE SHARES SHARE COST VALUE ASSETS
-------- ----------- ------- --------- ---------- ---------- ------
Clearwater Natural Resources, L.P. 08/01/05 465,471 $9.00 $8,601,560 $4,189,239 2.80%
Clearwater Natural Resources, L.P. - Rights 08/01/05 17 0.00 0 0 0.00
------- ---------- ---------- ----
465,488 $8,601,560 $4,189,239 2.80%
======= ========== ========== ====
2. OPTION ACTIVITY
Option activity for the nine months ended August 31, 2008 was as follows:
NUMBER
OF
WRITTEN OPTIONS CONTRACTS PREMIUMS
--------------- --------- -----------
Options outstanding at
November 30, 2007 .... -- $ --
Options written ......... 18,149 2,820,504
Options expired ......... (2,250) (309,736)
Options exercised ....... (431) (93,846)
Options closed .......... (5,234) (1,059,631)
------- -----------
Options outstanding at
August 31, 2008 ...... 10,234 $ 1,357,291
======= ===========
Page 6
ITEM 2. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within
90 days of the filing date of the report that includes the disclosure
required by this paragraph, based on their evaluation of these
controls and procedures required by Rule 30a-3(b) under the 1940 Act
(17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the
Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or
240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the registrant's last
fiscal quarter that have materially affected, or are reasonably likely
to materially affect, the registrant's internal control over financial
reporting.
ITEM 3. EXHIBITS.
Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of
the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) ENERGY INCOME AND GROWTH FUND
By (Signature and Title)* /S/ JAMES A. BOWEN
-------------------------------------------------------
James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
Date OCTOBER 20, 2008
----------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /S/ JAMES A. BOWEN
-------------------------------------------------------
James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
Date OCTOBER 20, 2008
----------------------------------------------------------------------------
By (Signature and Title)* /S/ MARK R. BRADLEY
-------------------------------------------------------
Mark R. Bradley, Treasurer, Controller, Chief
Financial Officer and Chief Accounting Officer
(principal financial officer)
Date OCTOBER 20, 2008
----------------------------------------------------------------------------
* Print the name and title of each signing officer under his or her signature.