Edgar Filing: ENERGY INCOME & GROWTH FUND

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES

Investment Company Act file number 811-21549
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ENERGY INCOME AND GROWTH FUND
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(Exact name of registrant as specified in charter)

1001 Warrenville Road, Suite 300
LISLE, IL 60532
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(Address of principal executive offices) (Zip code)

W. Scott Jardine, Esq.
First Trust Portfolios L.P.
1001 Warrenville Road, Suite 300
LISLE, IL 60532
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(Name and address of agent for service)

registrant's telephone number, including area code: 630-241-4141
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Date of fiscal year end: NOVEMBER 30
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Date of reporting period: NOVEMBER 30, 2007
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 100 F Street, NE,
Washington, DC 20549. The OMB has reviewed this collection of information under
the clearance requirements of 44 U.S.C. ss. 3507.

ITEM 1. REPORTS TO STOCKHOLDERS.

The Report to Shareholders is attached herewith.

[GRAPHIC OMITTED]

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[LOGO] FIRSTTRUST
ADVISORS L.P.

ANNUAL REPORT
FOR THE YEAR ENDED
NOVEMBER 30, 2007

ENERGY
INCOME AND GROWTH
FUND

EIP
Energy Income Partners, LLC

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TABLE OF CONTENTS
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ENERGY INCOME AND GROWTH FUND (FEN)
ANNUAL REPORT
NOVEMBER 30, 2007

Shareholder Letter ........................................................ 1
Portfolio Commentary ...................................................... 2
Portfolio of Investments .................................................. 6
Statement of Assets and Liabilities ....................................... 9
Statement of Operations ................................................... 10
Statements of Changes in Net Assets ....................................... 11
Statement of Cash Flows ................................................... 12
Financial Highlights ...................................................... 13
Notes to Financial Statements ............................................. 14
Report of Independent Registered Public Accounting Firm ................... 20
Additional Information .................................................... 21
Board of Trustees and Officers ............................................ 25

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933. Forward-looking statements include
statements regarding the goals, beliefs, plans or current expectations of First
Trust Advisors L.P. ("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 the Energy Income and Growth Fund (the "Fund") to be materially different
from any future results, performance or achievements expressed or implied by the
forward-looking statements. When evaluating the information included in this
report, you are cautioned not to place undue reliance on these forward-looking
statements, which reflect the judgment of the Advisor and/or Sub-Advisor and
their respective representatives only as of the date hereof. We undertake no
obligation to publicly revise or update these forward-looking statements to
reflect events and circumstances that arise after the date hereof.

PERFORMANCE AND RISK DISCLOSURE

There is no assurance that the Fund will achieve its investment objective.
The Fund is subject to market risk, which is the possibility that the market
values of securities owned by the Fund will decline and that the value of the
Fund shares may therefore be less than what you paid for them. Accordingly, you
can lose money investing in the Fund.

Performance data quoted represents past performance, which is no guarantee
of future results, and current performance may be lower or higher than the
figures shown. For the most recent month-end performance figures, please visit
http://www.ftportfolios.com or speak with your financial advisor. Investment
returns, net asset value and common share price will fluctuate and Fund shares,
may be worth more or less than their original cost.

HOW TO READ THIS REPORT

This report contains information that may help you evaluate your
investment. 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 James J. Murchie, the Senior
Portfolio Manager of EIP, the Fund's Sub-Advisor, 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 Mr. Murchie
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 risks of investing in the Fund are spelled out
in the prospectus.

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SHAREHOLDER LETTER
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ENERGY INCOME AND GROWTH FUND (FEN)
ANNUAL REPORT
NOVEMBER 30, 2007

Dear Shareholders:

We believe investment opportunities abound, both here and abroad, affording the
potential for exceptional returns for investors. At First Trust Advisors L.P.
("First Trust") we realize that we must be mindful of the complexities of the
global economy and at the same time address the needs of our customers through
the types of investments we bring to market.

We are single-minded about providing a range of investment products, including
our family of closed-end funds, to help First Trust meet the challenge of
maximizing our customers' financial opportunities. Translating investment ideas
into products which can deliver performance over the long term while continuing
to support our current product line remains a focus for First Trust as we head
into the future.

The report you hold will give you detailed information about your investment in
Energy Income and Growth Fund for the 12-month period ended November 30, 2007. I
encourage you to read this report and discuss it with your financial advisor.

First Trust is pleased that the Fund is a part of your financial portfolio and
we will continue to offer you current information about your investment, as well
as new opportunities in the financial marketplace, through your financial
advisor. We value our relationship with you and appreciate the opportunity to
assist you in achieving your financial goals.

Sincerely,

/s/ James A. Bowen

James A. Bowen
President of Energy Income and Growth Fund
January 23, 2008

Page 1

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PORTFOLIO COMMENTARY
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ENERGY INCOME AND GROWTH FUND

The investment objective of Energy Income and Growth Fund ("FEN" or the "Fund")
is to seek a high level of after-tax total return with an emphasis on current
distributions paid to shareholders. The Fund will focus on investing in
publicly-traded master limited partnerships ("MLPs") and related public entities
in the energy sector, which the Fund's Sub-Advisor believes offer opportunities
for income and growth. There can be no assurance that the Fund's investment
objective will be achieved. The Fund may not be appropriate for all investors.

MARKET RECAP

As measured by the Alerian MLP Index and the Wachovia Midstream MLP Index, the
total return for energy-related MLPs over the fiscal year ended November 30,
2007 was 13.7% and 12.8%, respectively. These returns reflect (for the Alerian
MLP Index) 6.3 percentage points from income distribution and the remainder from
share appreciation. For the Wachovia Midstream MLP Index, 6.3 reflects the
percentage points from income distribution while the remainder is from share
appreciation. These figures are according to data we collected from several
sources, including the Alerian MLP Index and the Wachovia MLP Index. While in
the short term, share appreciation can be volatile, we believe that over the
longer term, share appreciation will approximate growth in per share quarterly
cash distributions paid by MLPs. Over the last 12 months, the average growth in
per share cash distributions of energy-related MLPs has been about 12%, based on
information we collected on year over year distribution growth of energy-related
MLPs. In the early part of the year, MLP shares appreciated faster than this
growth rate but since July, share appreciation reversed, even though growth in
cash distributions continued at about the same pace.

The weakness in the last four months of fiscal year 2007 appears to be driven by
concerns that MLPs will be unable to fund their growth due to a tighter credit
market. Since MLPs pay out most or all of their cash flow every quarter, growth
opportunities need to be financed with the issuance of new shares and new debt.
Over the long term, this need to "get approval" from the capital markets for new
projects imposes a welcome extra layer of scrutiny over these projects. However,
there will be times when the capital markets are tight and less willing to
provide new funding. Today's credit market is one of those times. Managers of
equity and fixed-income funds are worried about monitoring their existing
portfolios and have less time to analyze (and even less appetite to take on) new
issues.

There are large differences, however, across the MLP universe. Smaller and newer
MLPs involved in cyclical businesses are having the most difficult time
accessing capital, while the older, more established MLPs involved in
non-cyclical midstream operations, seem to have about the same ability to raise
new capital as they did before. And since the bulk of the market capitalization
of the MLP universe is made up of these more established midstream companies, we
believe the sector as a whole is unlikely to experience any lasting negative
effects of the current credit market turmoil.

PERFORMANCE ANALYSIS

On a net asset value ("NAV") basis, the Fund provided a total return of 9.4% 1,
including the reinvestment of dividends, for the year ending November 30, 2007.
This compares, according to collected data, to a total return of 7.7% for the
S&P 500, 4.0% for the Lehman Credit Index of corporate bonds, 13.7% for the
Alerian MLP Index, 12.8% for the Wachovia Midstream MLP Index and 6.4% for the
Citigroup Broad Investment Grade Index. The Fund's market value total return for
the twelve-month period covered by this report was 3.0% 2. The Fund's discount
to NAV widened over the year. One year ago, on November 30, 2006, the Fund was
priced at $24.49 while the NAV was $25.88, a 5.4% discount. On November 30,
2007, the Fund was priced at $23.82 while the NAV was $26.74, a discount of
10.9%. So while the price of the Fund's shares fell 2.7% for the year ending
November 30, the NAV was actually up 3.3%. The widening of the Fund's discount
to its NAV coincided with similar moves in many other closed-end funds. In fact,
recent discounts to NAVs for closed-end funds in general are at historic levels,
driven in large part by fears in the credit markets related to the uncertainty
of sub-prime mortgage valuations. While the Fund's exposure to credit markets is
limited to the leverage it employs, there are no positions in its portfolio that
have exposure to mortgage-backed securities. However, the swing in sentiment
resulting from the turmoil in the credit markets has affected assets that pay a
substantial yield like MLPs and closed-end funds.

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1 Total return based on NAV is the combination of reinvested dividend
distributions and reinvested capital gains distributions, if any, at prices
obtained by the Dividend Reinvestment Plan and changes in NAV per share and
does not reflect sales load.

2 Total return based on market value is the combination of reinvested
dividend distributions and reinvested capital gains distributions, if any,
at prices obtained by the Dividend Reinvestment Plan and changes in Common
Share market value.

Page 2

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PORTFOLIO COMMENTARY - CONTINUED
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While most of the Fund's portfolio companies are partnerships which do not pay
state or federal income tax, the Fund does pay tax when gains in the portfolio
are realized through the sale of appreciated securities. Before the shares are
sold, as they appreciate, the NAV of the Fund grows at a slower pace than the
underlying shares because we subtract from the NAV the future tax liability from
the eventual sale of those securities. Thus, the NAV is lower than the net value
of the securities in the portfolio because those taxes have not yet been paid,
and will not be paid until the securities are actually sold. In the meantime,
the Fund invests the value of this deferred tax liability in the Fund's
portfolio, with the objective of earning a return and lowering the impact of the
Fund's taxable status.

The Fund raised its dividend three times during the year: from $0.355 per share
in October, 2006 to $0.375 in January, 2007; $0.380 in April, 2007; and $0.385
for the July and October, 2007 quarterly dividends. The $0.385 represents an
8.5% increase over the prior October dividend and reflects the growth in
quarterly distributions from the Fund's portfolio companies. While the
underlying growth in MLP distributions continues, the Fund is paying a slightly
higher rate for the leverage it employs as prevailing interest rates for this
type of borrowing have increased.

The Fund's weaker performance versus the MLP indices is in part a function of
last year's success as the largest positions representing about 20% of the
portfolio gave back some of the very strong outperformance they enjoyed in 2006.
In addition, investments related to coal, shipping, and oil and gas production
detracted from the Fund's performance.

MANAGER Q&A

WHAT IS YOUR OVERALL OUTLOOK FOR THE MLP MARKET?

The MLP asset class continues to grow. Energy-related MLPs now number 70 with
approximately $135 billion of market capitalization up from 57 MLPs a year ago
with market cap of approximately $106 billion. The initial public offerings
during the year accounted for about $3 billion of the increase in market cap;
secondary share offerings accounted for about $12 billion; and share
appreciation of about $14 billion accounted for the rest. The growth in the
asset class is being partly driven by the market's demand for yield and the
energy industry's desire to finance its organic spending opportunities.
Historically, the energy industry was slow to sell its infrastructure assets
(pipelines, terminals, storage facilities, etc.) to MLPs or to create MLPs from
portions of their existing assets as they preferred to retain the more stable
cash flows in order to stabilize their overall business. But after years of
under-investment, energy infrastructure in North America is in need of much new
capacity. Creating new infrastructure MLPs provides a valuable financing tool to
fund these new projects. Very often, these assets will trade at a higher
valuation once they are spun out into a pure-play infrastructure MLP with an
attractive yield. In our view, this has spurred the energy industry to
accelerate the creation of MLPs.

Along with the creation of new infrastructure MLPs, there are a lot of MLPs
whose primary business is the production of oil and gas or shipping or refining.
While some of these MLPs are attractive and have the potential for higher
growth, they come with more risk associated with the cyclical nature of their
businesses. Looking forward, we believe the MLP space will become less
homogeneous and increasingly include all aspects of the energy industry. We
welcome the new mix of companies as it provides opportunities for us to add
value through our rigorous research and portfolio construction discipline.
However, we will continue to have the bulk of the Fund's portfolio invested in
companies whose primary business is energy infrastructure.

CAN YOU DESCRIBE THE CURRENT MLP MARKET IN MORE DETAIL?

The total return proposition of owning energy-related MLPs has been and
continues to be their yield plus their growth, which over the last ten years has
averaged about 7% annually. This average growth rate has accelerated to about
12% both last year and this year. The yield of the MLPs - weighted by market
capitalization - on November 30, 2007 was about 6.7%, based on our study of the
MLP energy-related universe.

The growth in MLP cash distributions is running above the long-term average
primarily because of the profitable organic growth opportunities available
today. In last year's report there was a discussion of the large industry trends
that are driving these growth opportunities. Little has changed as these trends
are slow to develop and will be with us for some time. They include the rapid
growth of oil production out of Canada's oil sands development, the growth in
onshore natural gas production from the application of new technologies in areas
like the Rocky Mountains and the Fort Worth Basin in Texas, increased imports of
crude oil and liquified natural gas, and increased demand for motor fuel
additives like ethanol and bio-diesel. All these developments require additional
pipelines, storage and terminaling investment. The MLPs as a group have done a
great job capitalizing on these opportunities while the pipeline divisions
inside the utility and oil companies are often viewed as cost centers and not
profitable businesses in their own right. With higher oil and gas prices, the
oil companies are inclined to spend their time drilling up new reserves and are
content to let someone else do the more mundane work of building infrastructure.
If potentially offering a 6.7% yield while generating over 10% growth is
mundane, then we prefer the mundane.

Page 3

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PORTFOLIO COMMENTARY - CONTINUED
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And so while the current market environment is choppy, the business of adding to
North America's energy infrastructure backed by long-term contracts or regulated
returns continues to grind on. While we do not know how long growth rates will
continue above their long-term averages, we believe there is currently no slow
down on the horizon.

WHAT CHANGES DOES THE NEW PORTFOLIO MANAGER ANTICIPATE MAKING TO THE FUND'S
PORTFOLIO HOLDINGS?

We will be making changes to the portfolio that we think will achieve the
following:

1. Reduce exposure to cyclical businesses

2. Increase exposure to stable growth

3. Increase credit quality of portfolio companies

4. Improve fundamental valuation characteristics

5. Increase income as a percent of NAV

6. Reduce concentration

We believe we can reduce the risk of the portfolio while at the same time
increase its income generating ability. The changes in the investment climate
make these changes the right thing to do as we believe it is the more
established companies in less cyclical businesses that will have the best access
to the capital markets and therefore continue to grow their distributions. Since
these companies are viewed as more mundane, their valuations are often lower.
Finally, we view a less concentrated portfolio as having less risk.

PORTFOLIO COMPONENTS (a)
NOVEMBER 30, 2007

[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]

Coal 6.5%
Oil & Gas Service 1.3%
Marine Transport 0.9%
BDC Investment Co. Energy Related 0.2%
Midstream Oil 41.1%
Midstream Gas 36.4%
OIL & GAS 7.6%
Propane 6.0%

(a) Percentages are based on total investments. Please note that the
percentages shown on the Portfolio of Investments are based on net assets.

ENERGY INCOME PARTNERS, LLC

Energy Income Partners, LLC ("EIP"), Westport, CT, appointed as the interim
Sub-Advisor of FEN in September 2007, was founded in 2003 to provide
professional asset management services in the area of energy-related Master
Limited Partnerships and other high-payout securities such as Income Trusts and
Royalty Trusts. EIP mainly focuses on infrastructure assets such as pipelines,
petroleum storage and terminals that receive fee-based or regulated income from
its corporate customers. EIP manages or supervises approximately $700 million of
assets. While independent, EIP is affiliated with Ospraie Management, a $7
billion family of funds focused on the energy and commodity industries. The
relationship with Ospraie enhances EIP's access to industry and company
investment research. Lehman Brothers owns 20% of Ospraie Management. EIP's other
funds include a partnership for U.S. high net worth individuals and a
master-and-feeder fund for institutions. EIP is a Registered Investment Advisor
and currently serves as an interim investment sub-advisor to Energy Income and
Growth Fund and investment advisor to another investment company in addition to
FEN.

Page 4

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PORTFOLIO COMMENTARY - CONTINUED
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JAMES J. MURCHIE

FOUNDER AND CEO OF ENERGY INCOME PARTNERS, LLC

James Murchie founded EIP in 2003 and is the portfolio manager for all of its
funds which focus on energy-related master limited partnerships, income trusts
and similar securities. From 2005 to mid-2006, Mr. Murchie and the EIP
investment team was affiliated with Pequot Capital Management. In July 2006, EIP
re-established its independence and began an affiliation with the Ospraie
Wingspan portfolio of managers. From 1998 to 2003, he managed a long/short
equity fund that invested in energy and cyclical equities and commodities as
head of Lawhill Capital. From 1995 to 1997, he was a managing director at Tiger
Management where his primary responsibility was investments in energy,
commodities and related equities. From 1990-1995, Mr. Murchie was a principal at
Sanford C. Bernstein where he was a top-ranked energy analyst and sat on the
Research Department's Recommendation Review Committee. Before joining Bernstein,
he spent 8 years at British Petroleum in 7 operating and staff positions of
increasing responsibility. He has served on the board of Clark Refining and
Marketing Company and as President and treasurer of the Oil Analysts Group of
New York. Mr. Murchie holds degrees from Rice University and Harvard University.

EVA PAO

PRINCIPAL OF ENERGY INCOME PARTNERS, LLC

Eva Pao joined EIP in 2003 after graduating from Harvard Business School,
serving as Managing Director of EIP until the EIP investment team joined Pequot
Capital Management. Ms. Pao served as Vice President of Pequot Capital
Management from 2005 to mid-2006. In July 2006, EIP re-established its
independence and began an affiliation with the Ospraie Wingspan portfolio of
managers. 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.

Page 5

ENERGY INCOME AND GROWTH FUND
PORTFOLIO OF INVESTMENTS (a)
NOVEMBER 30, 2007

SHARES DESCRIPTION VALUE
------------ ------------------------------------------------------------- --------------

MASTER LIMITED PARTNERSHIPS - 156.0%

OIL, GAS & CONSUMABLE FUELS - 156.0%
225,090 Abraxas Energy Partners, L.P. (b) (c) (d) ................... $ 3,749,999
40 Alliance Holdings GP, L.P. .................................. 900
128,502 Alliance Resource Partners, L.P. ............................ 4,888,217
37,197 Atlas Pipeline Partners, L.P. ............................... 1,670,145
253,352 BreitBurn Energy Partners, L.P. (b) (c) ..................... 6,346,645
100,000 Buckeye Partners, L.P. ...................................... 4,805,000
1,210 Capital Product Partners, L.P. .............................. 29,911
465,471 Clearwater Natural Resources, L.P. (b) (c) .................. 6,516,594
486,882 Copano Energy, LLC .......................................... 18,988,398
317,272 Crosstex Energy, L.P. ....................................... 10,638,130
106,910 Crosstex Energy, L.P. Series C Subordinated Units (b) (d) ... 3,482,925
100,860 DCP Midstream Partners, L.P. ................................ 4,108,028
86,705 DCP Midstream Partners, L.P. (b) (c) ........................ 3,434,784
93,500 El Paso Pipeline Partners, L.P. (d) ......................... 2,178,550
65,112 Enbridge Energy Partners, L.P. .............................. 3,333,083
66,000 Encore Energy Partners, L.P. ................................ 1,327,920
435,280 Energy Transfer Partners, L.P. .............................. 22,416,920
92,500 Enterprise GP Holdings, L.P. ................................ 3,257,850
597,388 Enterprise Product Partners, L.P. ........................... 18,674,349
88,709 EV Energy Partner, L.P. (b) (c) ............................. 3,131,880
102,143 Global Partners, L.P. ....................................... 2,805,868
73,100 Hiland Partners, L.P. ....................................... 3,472,250
250,000 Holly Energy Partners, L.P. ................................. 10,875,000
147,836 Inergy Holdings, L.P. ....................................... 6,526,959
329,275 Inergy, L.P. ................................................ 10,635,583
312,521 Kinder Morgan Energy Partners, L.P. ......................... 15,810,437
143,633 Linn Energy, LLC (b) (c) .................................... 3,742,421
69,994 Linn Energy, LLC, Class D (b) (c) ........................... 1,715,294
96,400 Magellan Midstream Holdings, L.P. ........................... 2,495,796
437,756 Magellan Midstream Partners, L.P. ........................... 19,164,958
294,720 MarkWest Energy Partners, L.P. .............................. 9,657,974
25,477 Martin Midstream Partners, L.P. ............................. 980,100
230,338 Natural Resource Partners, L.P. ............................. 7,412,277
170,126 NuStar Energy, L.P. ......................................... 9,629,132
42,030 ONEOK Partners, L.P. ........................................ 2,528,945
479,516 Plains All American Pipeline, L.P ........................... 25,073,892
66,500 Quest Energy Partners, L.P. (d) ............................. 1,019,445
27,600 Regency Energy Partners, L.P. ............................... 851,460
15,000 Sunoco Logistics Partners, L.P. ............................. 751,650
14,632 Targa Resources Partners, L.P ............................... 417,012
14,565 Teekay LNG Partners, L.P. ................................... 431,852
55,000 TEPPCO Partners, L.P. ....................................... 2,184,600
159,396 U.S. Shipping Partners, L.P. ................................ 1,984,480
141,200 Williams Partners, L.P. ..................................... 5,807,556
---------------

TOTAL MASTER LIMITED PARTNERSHIPS ........................... 268,955,169
(Cost $162,615,172)
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Page 6 See Notes to Financial Statements.

ENERGY INCOME AND GROWTH FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
NOVEMBER 30, 2007

SHARES DESCRIPTION VALUE
------------ ------------------------------------------------------------- --------------

CANADIAN INCOME TRUSTS - 3.3%

OIL, GAS & CONSUMABLE FUELS - 3.3%
20,000 AltaGas Income Trust ........................................ $ 499,825
81,800 Keyera Facilities Income Fund ............................... 1,515,012
105,000 Mullen Group Income Fund .................................... 1,764,088
115,000 Newalta Income Fund ......................................... 1,782,589
17,600 Phoenix Technology Income Fund .............................. 150,488
--------------
TOTAL CANADIAN INCOME TRUSTS ................................ 5,712,002
(Cost $6,051,774)
--------------

COMMON STOCKS - 7.4%

OIL, GAS & CONSUMABLE FUELS - 7.1%
190,578 Abraxas Petroleum Corp. (e) ................................. 647,965
120,006 Enbridge Energy Management, LLC (e). ........................ 6,211,504
60,000 Enbridge, Inc. .............................................. 2,236,200
45,560 Kinder Morgan Management, LLC (e) ........................... 2,280,269
10,000 ONEOK, Inc. ................................................. 465,000
15,000 Spectra Energy Corp. ........................................ 369,600
--------------
12,210,538
--------------
CAPITAL MARKETS - 0.3%
36,100 NGP Capital Resources Co. ................................... 529,587
--------------
TOTAL COMMON STOCKS ......................................... 12,740,125
(Cost $11,230,510)
--------------

RIGHTS - 0.0%

OIL, GAS & CONSUMABLE FUELS - 0.0%
17 Clearwater Natural Resources, L.P. - Rights (b) (c) (d) ..... 0
--------------

TOTAL RIGHTS ................................................ 0
(Cost $0)
--------------

WARRANTS - 0.0%

OIL, GAS & CONSUMABLE FUELS - 0.0%
48,956 Abraxas Petroleum Corp. - Warrants, Expiration
05/25/12 (b) (d) ......................................... 90,946
--------------

TOTAL WARRANTS .............................................. 90,946
(Cost $0)
--------------

TOTAL INVESTMENTS - 166.7% .................................. 287,498,242
(Cost $179,897,456) (f)

NET OTHER ASSETS AND LIABILITIES - (23.7)% .................. (40,827,309)
LOAN OUTSTANDING - (8.8)% ................................... (15,250,000)
SERIES A ENERGY NOTES PAYABLE - (19.7)% ..................... (34,000,000)
SERIES B ENERGY NOTES PAYABLE - (14.5)% ..................... (25,000,000)
--------------
NET ASSETS - 100.0% ......................................... $ 172,420,933
==============

See Notes to Financial Statements. Page 7

ENERGY INCOME AND GROWTH FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
NOVEMBER 30, 2007

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(a) All percentages shown in the Portfolio of Investments are based on net
assets.

(b) Security is fair valued in accordance with procedures adopted by the
Fund's Board of Trustees.

(c) Securities are 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 2C).

(d) Non-income producing security.

(e) Non-income producing security which pays regular in-kind distributions.

(f) Aggregate cost for federal income tax purposes is $166,522,941.

Page 8 See Notes to Financial Statements.

ENERGY INCOME AND GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 2007

ASSETS:
Investments, at value
(Cost ($179,897,456) ........................................................................................ $ 287,498,242
Cash ........................................................................................................... 2,895,994
Interest rate cap (Cost $267,633) .............................................................................. 76,609
Prepaid expenses ............................................................................................... 747,440
Receivables:
Investment securities sold .................................................................................. 6,453,915
Income taxes ................................................................................................ 113,205
Dividends ................................................................................................... 88,382
-------------
Total Assets ............................................................................................. 297,873,787
-------------
LIABILITIES:
Deferred income tax liability .................................................................................. 41,837,044
Series A Energy Notes payable .................................................................................. 34,000,000
Series B Energy Notes payable .................................................................................. 25,000,000
Outstanding loan ............................................................................................... 15,250,000
Payables:
Investment securities purchased .......................................................................... 8,762,478
Investment advisory fees ................................................................................. 203,251
Interest and fees due on loan and Energy Notes ........................................................... 149,648
Audit and tax fees ....................................................................................... 114,998
Income taxes ............................................................................................. 58,950
Printing fees ............................................................................................ 26,843
Administrative fees ...................................................................................... 17,388
Legal fees ............................................................................................... 14,891
Trustees' fees and expenses .............................................................................. 10,530
Custodian fees ........................................................................................... 3,214
Transfer agent fees ...................................................................................... 3,087
Accrued expenses and other liabilities ......................................................................... 532
-------------
Total Liabilities ........................................................................................ 125,452,854
-------------
NET ASSETS ..................................................................................................... $ 172,420,933
=============
NET ASSETS CONSIST OF:
Paid-in capital ................................................................................................ $ 109,059,295
Par value ...................................................................................................... 64,470
Accumulated net investment loss, net of income taxes ........................................................... (7,580,087)
Accumulated net realized gain on investments, net of income taxes .............................................. 756,194
Net unrealized appreciation of investments and interest rate cap, net of income taxes .......................... 70,121,061
-------------
Total Net Assets ......................................................................................... $ 172,420,933
=============
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share) ........................................... $ 26.74
=============
Number of Common Shares outstanding (unlimited number of Common Shares has been authorized) .................... 6,446,995
=============

See Notes to Financial Statements. Page 9

ENERGY INCOME AND GROWTH FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 2007

INVESTMENT INCOME:
Interest .................................................................................................... $ 108,330
Dividends ................................................................................................... 87,104
-------------
Total investment income .................................................................................. 195,434
-------------
EXPENSES:
Interest expense ............................................................................................ 3,728,049
Investment advisory fees .................................................................................... 2,501,386
Administration fees ......................................................................................... 237,951
Audit and tax fees .......................................................................................... 164,876
Auction fees ................................................................................................ 149,548
Legal fees .................................................................................................. 47,872
Trustees' fees and expenses ................................................................................. 40,998
Transfer agent fees ......................................................................................... 34,751
Printing fees ............................................................................................... 26,223
Custodian fees .............................................................................................. 22,353
Other ....................................................................................................... 221,330
-------------
Total expenses ........................................................................................... 7,175,337
-------------
NET INVESTMENT INCOME (LOSS) BEFORE TAXES ................................................................... (6,979,903)
Current federal income tax expense .......................................................... (330,770)
Current income tax expense - other .......................................................... (22,104)
Deferred federal income tax benefit ......................................................... 2,991,715
Deferred income tax expense - other ......................................................... (10,363)
----------
Total income tax benefit ................................................................................. 2,628,478
-------------
NET INVESTMENT LOSS ......................................................................................... (4,351,425)
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) before taxes on:
Investments ................................................................................................ 19,901,592
Foreign currency ........................................................................................... 2,299
-------------
Net realized gain (loss) before taxes ....................................................................... 19,903,891
-------------
Deferred federal income tax expense ......................................................... (7,354,553)
----------
Total income tax expense ................................................................................. (7,354,553)
-------------
Net realized gain (loss) on investments and foreign currency ................................................ 12,549,338
-------------
Net change in unrealized appreciation (depreciation) before taxes on:
Investments .............................................................................................. 10,978,096
Foreign currency ......................................................................................... 8,493
Interest rate cap ........................................................................................ (168,229)
-------------
Net change in unrealized appreciation (depreciation) before taxes ........................................... 10,818,360
-------------
Deferred federal income tax expense ......................................................... (3,846,453)
Deferred income tax benefit - other ......................................................... 232,628
----------
Total income tax expense ................................................................................. (3,613,825)
-------------
Net change in unrealized appreciation (depreciation) ........................................................ 7,204,535
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ..................................................................... 19,753,873
-------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ............................................. $ 15,402,448
=============

Page 10 See Notes to Financial Statements.

ENERGY INCOME AND GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS

YEAR YEAR
ENDED ENDED
11/30/2007 11/30/2006
------------- -------------

OPERATIONS:
Net investment loss ............................................................................ $ (4,351,425) $ (3,228,662)
Net realized gain (loss) ....................................................................... 12,549,338 671,112
Net change in unrealized appreciation (depreciation) ........................................... 7,204,535 33,042,795
------------- -------------
Net increase (decrease) in net assets resulting from operations ................................ 15,402,448 30,485,245
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized capital gain ...................................................................... (9,831,668) --
Return of capital .............................................................................. -- (8,864,619)
------------- -------------
Total distributions to shareholders ............................................................ (9,831,668) (8,864,619)
------------- -------------
Net increase (decrease) in net assets .......................................................... 5,570,780 21,620,626

NET ASSETS:
Beginning of year .............................................................................. 166,850,153 145,229,527
------------- -------------
End of year .................................................................................... $ 172,420,933 $ 166,850,153
============= =============
Accumulated net investment income (loss), net of income taxes .................................. $ (7,580,087) $ (3,228,662)
============= =============

See Notes to Financial Statements. Page 11

ENERGY INCOME AND GROWTH FUND
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED NOVEMBER 30, 2007

CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations, after income tax expense ... $ 15,402,448
Adjustments to reconcile net increase in net assets resulting from operations to
net cash used for operating activities:
Purchases of investments ...................................................... (62,202,396)
Sales of investments .......................................................... 45,422,739
Return of capital received from investments in MLPs ........................... 16,105,668
Net realized gain on investments .............................................. (19,901,592)
Net change in unrealized appreciation (depreciation) on investments ........... (10,978,096)

CHANGES IN ASSETS AND LIABILITIES:
Decrease in interest rate cap (a) ............................................. 278,609
Decrease in income tax receivable ............................................. 326.002
Decrease in interest receivable ............................................... 8,462
Increase in dividends receivable .............................................. (84,622)
Decrease in prepaid expenses .................................................. 73,475
Increase in receivable for investment securities sold ......................... (5,835,335)
Increase in payable for investment securities purchased ....................... 8,762,478
Decrease in interest and fees due on loan and Energy Notes .................... (12,258)
Decrease in income tax payable ................................................ (174,842)
Increase in investment advisory fees payable .................................. 19,486
Increase in audit and tax fees payable ........................................ 33,960
Decrease in legal fees payable ................................................ (52,669)
Decrease in printing fees payable ............................................. (19,767)
Decrease in administrative fees payable ....................................... (601)
Increase in transfer agent fees payable ....................................... 386
Increase in custodian fees payable ............................................ 1,126
Increase in Trustees' fees and expenses payable ............................... 530
Decrease in accrued expenses .................................................. (24,823)
Increase in deferred income tax liability ..................................... 7,963,189
--------------
CASH USED BY OPERATING ACTIVITIES ................................................ $ (4,888,443)

CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Distributions paid ............................................................ (9,831,668)
Issuance of loan .............................................................. 21,350,000
Repayment of loan ............................................................. (6,100,000)
--------------
CASH FLOWS FROM FINANCING ACTIVITIES ............................................. 5,418,332
-------------
Increase in cash ................................................................. 529,889
Cash at beginning of period ...................................................... 2,366,105
-------------
Cash at end of period ............................................................ $ 2,895,994
=============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest ......................................... $ 3,740,307
=============

----------
(a) Includes net change in unrealized appreciation (depreciation) on interest
rate cap of $(168,229).

Page 12 See Notes to Financial Statements.

ENERGY INCOME AND GROWTH FUND
FINANCIAL HIGHLIGHTS
FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD

YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
11/30/2007(1) 11/30/2006 11/30/2005 11/30/2004(a)
------------- ---------- ---------- --------------

Net asset value, beginning of period ......................... $ 25.88 $ 22.53 $ 21.34 $ 19.10 (b)
------------- ---------- ---------- --------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss .......................................... (0.67) (0.50) (0.34) (0.13)
Net realized and unrealized gain (loss) on investments and
interest rate cap ............................................ 3.06 5.23 2.86 2.74
------------- ---------- ---------- --------------
Total from investment operations after income tax ............ 2.39 4.73 2.52 2.61
------------- ---------- ---------- --------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net realized gain ............................................ (1.53) -- (0.88) --
Return of capital ............................................ -- (1.38) (0.45) (0.33)
------------- ---------- ---------- --------------
Total from distributions ..................................... (1.53) (1.38) (1.33) (0.33)
------------- ---------- ---------- --------------
Common Shares offering costs charged to paid-in capital ...... -- -- -- (0.04)
------------- ---------- ---------- --------------
Net asset value, end of period ............................... $ 26.74 $ 25.88 $ 22.53 $ 21.34
============= ========== ========== ==============
Market value, end of period .................................. $ 23.82 $ 24.49 $ 20.92 $ 22.12
============= ========== ========== ==============
TOTAL RETURN BASED ON NET ASSET VALUE (c) (d) ................ 9.38% 22.23% 11.96%(f) 13.53%
============= ========== ========== ==============
TOTAL RETURN BASED ON MARKET VALUE (d) (e) ................... 2.96% 24.57% 0.29% 12.38%
============= ========== ========== ==============
Net assets, end of period (in 000's) ......................... $ 172,421 $ 166,850 $ 145,230 $ 136,993
------------------------------------------------------------------------------

RATIOS OF EXPENSES TO AVERAGE NET ASSETS:
Including current and deferred income taxes before
waiver (g) .............................................. 8.52% 14.47% 8.62% 18.38%(h)
Including current and deferred income taxes after
waiver (g) .............................................. 8.52% 14.29% 8.31% 18.09%(h)
Excluding current and deferred income taxes
before waiver ........................................... 3.94% 3.63% 2.64% 2.20%(h)
Excluding current and deferred income taxes
after waiver ............................................ 3.94% 3.45% 2.33% 1.91%(h)
Excluding current and deferred income taxes and
interest expense after waiver ........................... 1.89% 1.76% 1.57% 1.36%(h)

RATIOS OF NET INVESTMENT LOSS TO AVERAGE NET ASSETS:
Net investment loss ratio before tax expenses ............. (3.83)% (3.26)% (2.29)% (1.49)%(h)
Net investment loss ratio including tax expenses (i) ...... (8.41)% (14.10)% (8.27)% (17.67)%(h)
Portfolio turnover rate ................................... 16% 17% 38% 35%

DEBT:
Total Energy Notes outstanding ($25,000 per note) ............ 2,360 2,360 1,360 N/A
Principal amount and market value per Energy Note (j) ........ $ 25,004 $ 25,069 $ 25,074 N/A
Asset coverage per Energy Note (k) ........................... $ 98,060 $ 95,699 $ 131,786 N/A
Total loan outstanding (in 000's) ............................ $ 15,250 N/A N/A $ 30,000
Asset coverage per $1,000 senior indebtedness (l) ............ $ 12,306 N/A N/A $ 5,566
------------------------------------------------------------------------------

(1) On Sepember 14, 2007, the Fund's Board of Trustees approved an interim
sub-advisory agreement with Energy Income Partners. LLC. See Footnote 3
"Investment Advisory Fee and Other Affiliated Transactions" in the Notes
to Financial Statements.

(a) Initial seed date of June 17, 2004. The Fund commenced operations on June
24, 2004.

(b) Net of sales load of $0.90 per Common Share on initial offering.

(c) Total return based on net asset value is the combination of reinvested
dividend distributions and reinvested capital gains distributions, if any,
at prices obtained by the Dividend Reinvestment Plan, and changes in net
asset value per share and does not reflect sales load.

(d) Total return is not annualized for periods less than one year.

(e) Total return based on market value is the combination of reinvested
dividend distributions and reinvested capital gains distributions, if any,
at prices obtained by the Dividend Reinvestment Plan, and changes in
Common Share price per share.

(f) In 2005, the Fund received reimbursements from the investment advisor and
former sub-advisor. This reimbursement had no effect on the Fund's total
return.

(g) Includes current and deferred income taxes associated with each component
of the Statement of Operations.

(h) Annualized.

(i) Includes tax expenses associated with each component of the Statement of
Operations.

(j) Includes accumulated and unpaid interest.

(k) Calculated by subtracting the Fund's total liabilities (not including the
Energy Notes) from the Fund's total assets, and dividing by the
outstanding Energy Notes.

(l) Calculated by subtracting the Fund's total liabilities (not including the
loan outstanding) from the Fund's total assets, and dividing by the loan
outstanding.

N/A Not applicable.

See Notes to Financial Statements. Page 13

--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

ENERGY INCOME AND GROWTH FUND
NOVEMBER 30, 2007

1. FUND DESCRIPTION

Energy Income and Growth Fund (the "Fund") is a non-diversified, closed-end
management investment company organized as a Massachusetts business trust on
March 25, 2004, and is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940, as amended (the "1940 Act").
The Fund trades under the ticker symbol FEN on the American Stock Exchange.

The Fund's investment objective is to seek a high level of after-tax total
return with an emphasis on current distributions paid to shareholders. The Fund
seeks to provide its shareholders with an efficient vehicle to invest in a
portfolio of cash-generating securities of energy companies. The Fund will focus
on investing in publicly-traded master limited partnerships ("MLPs") and related
public entities in the energy sector, which Energy Income Partners, LLC (the
"Sub-Advisor") believes offer opportunities for income and growth. Due to the
tax treatment of cash distributions made by MLPs to their investors (such as the
Fund), a portion of the distributions received may be tax deferred, thereby
maximizing cash available for distribution by the Fund to its shareholders.
There can be no assurance that the Fund's investment objective will be achieved.

2. SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.

A. PORTFOLIO VALUATION:

The net asset value ("NAV") of the Fund's Common Shares is determined as of the
close of regular trading on the New York Stock Exchange ("NYSE"), normally 4:00
p.m. Eastern time, no less frequently than weekly on Friday of each week. The
NAV per Common Share is computed by dividing the value of all assets of the Fund
(including accrued interest and dividends), less all Fund liabilities (including
accrued expenses, dividends payable, 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 MLPs, which is not
necessarily timely, to estimate taxable income allocable to the MLP units held
in the Fund's portfolio and to estimate the associated deferred tax liability.
From time to time, the Fund will modify its estimates and/or assumptions
regarding its deferred tax liability as new information becomes available. To
the extent the Fund modifies its estimates and/or assumptions, the net asset
value of the Fund would likely fluctuate.

The Fund's investments are valued at market value or, in the absence of market
value with respect to any portfolio securities, at fair value according to
procedures adopted by the Fund's Board of Trustees. Portfolio securities listed
on any exchange other than the NASDAQ National Market ("NASDAQ") are valued at
the last sale price on the business day as of which such value is being
determined. If there has been no sale on such day, the securities are valued at
the mean of the most recent bid and asked prices on such day. Securities traded
on the NASDAQ are valued at the NASDAQ Official Closing Price as determined by
NASDAQ. Portfolio securities traded on more than one securities exchange are
valued at the last sale price on the business day as of which such value is
being determined at the close of the exchange representing the principal market
for such securities. Portfolio securities traded in the over-the-counter market,
but excluding securities traded on the NASDAQ, are valued at the closing bid
prices. Fixed-income securities with a remaining maturity of 60 days or more
will be valued by the Fund using a pricing service. Short-term investments that
mature in less than 60 days are valued at amortized cost.

B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME:

Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income is
recognized and recorded on the accrual basis, including amortization of premiums
and accretion of discounts.

Distributions received from the Fund's investments in MLPs generally are
comprised of return of capital from the MLP to the extent of the cost basis of
such MLP investments. Cumulative distributions received in excess of the Fund's
cost basis in an MLP generally are recorded as dividend income. For the year
ended November 30, 2007, distributions of $16,105,668 received from MLPs have
been classified as return of capital. The cost basis of applicable MLPs has been
reduced accordingly.

Securities purchased or sold on a when-issued or delayed-delivery basis may be
settled a month or more after the trade date; interest income on such securities
is not accrued until settlement date. The Fund maintains liquid assets with a
current value at least equal to the amount of its when-issued or
delayed-delivery purchase commitments. At November 30, 2007, the Fund had no
when-issued or delayed-delivery purchase commitments.

Page 14

--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------

ENERGY INCOME AND GROWTH FUND
NOVEMBER 30, 2007

C. RESTRICTED SECURITIES:

The Fund may invest up to 35% of its Managed Assets, which is the 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 currently
holds the restricted securities 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 procedures adopted by the
Fund's Board of Trustees.

VALUE PER CURRENT
ACQUISITION SHARE CARRYING 11/30/07 % OF
SECURITY DATE SHARES 11/30/07 COST VALUE NET ASSETS
----------------------------------------------------------------------------------------------------------------------

Abraxas Energy Partners, L.P 05/25/07 225,090 $ 16.66 $ 3,631,377 $ 3,749,999 2.18%
BreitBurn Energy Partners, L.P. 01/11/07 253,352 25.05 6,728,396 6,346,645 3.68
Clearwater Natural Resources, L.P. 08/01/05 465,471 14.00 8,601,560 6,516,594 3.78
Clearwater Natural Resources,
L.P.- Rights 08/01/05 17 0.00 0 0 0.00
DCP Midstream Partners, L.P. 06/22/07 86,705 39.61 3,656,350 3,434,784 1.99
EV Energy Partner, L.P 06/01/07 88,709 35.31 2,966,429 3,131,880 1.82
Linn Energy, LLC 01/30/07 143,633 26.06 3,621,878 3,742,421 2.17
Linn Energy, LLC, Class D 08/31/07 69,994 24.51 2,128,105 1,715,294 0.99
--------- ----------- ----------- -----

1,332,971 $31,334,095 $28,637,617 16.61%
========= =========== =========== =====

D. DISTRIBUTIONS TO SHAREHOLDERS:

The Fund intends to make quarterly distributions to Common Shareholders. On
December 11, 2006, the Board of Trustees approved a managed distribution policy
to better align the Fund with its after-tax total return investment objective.
The Fund's distributions generally will consist of cash and paid-in-kind
distributions from MLPs or their affiliates, dividends from common stocks,
interest from debt instruments and income from other investments held by the
Fund less operating expenses, including taxes. Distributions to Common
Shareholders are recorded on the ex-date and are determined based on U.S.
generally accepted accounting principles, which may differ from their ultimate
characterization for federal income tax purposes.

Distributions made from current and 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 or reduce the amount of realized loss upon the sale of the
Common Shares. Additionally, distributions not paid from current and accumulated
earnings and profits that exceed a shareholder's tax basis in the Common Shares
will be taxed as a capital gain.

Distributions of $9,831,668 paid during the year ended November 30, 2007, have
been characterized as taxable dividend income for federal income tax purposes.
Distributions will automatically be reinvested in additional Common Shares
pursuant to the Fund's Dividend Reinvestment Plan unless cash distributions are
elected by the shareholder.

E. INCOME TAXES:

The Fund is treated as a regular C corporation for U.S. federal income tax
purposes and as such will be obligated to pay federal and applicable state and
foreign corporate taxes on its taxable income. The Fund's tax expense or benefit
is included in the Statement of Operations based on the component of income or
gains (losses) to which such expense or benefit relates. The current U.S.
federal maximum graduated income tax rate for corporations is 35%. In addition,
the U.S. also imposes a 20% alternative minimum tax on the recalculated
alternative minimum taxable income of an entity treated as a corporation. This
differs from most investment companies, which elect to be treated as "regulated
investment companies" under the 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.

Page 15

ENERGY INCOME AND GROWTH FUND
NOVEMBER 30, 2007

The tax deferral benefit the Fund derives from its investment in MLPs results
largely because the MLPs are treated as partnerships for federal income tax
purposes. As a partnership, an MLP has no income tax liability at the entity
level. As a limited partner in the MLPs in which it invests, the Fund will be
allocated its pro rata share of income, gains, losses, deductions and credits
from the MLPs, regardless of whether or not any cash is distributed from the
MLPs.

To the extent that the distributions received from the MLPs exceed the net
taxable income realized by the Fund from its investment, a tax liability
results. This tax liability is a deferred liability to the extent that MLP
distributions received have not exceeded the Fund's adjusted tax basis in the
respective MLPs. To the extent that distributions from an MLP exceed the Fund's
adjusted tax basis, the Fund will recognize a taxable capital gain.

The Fund's provision for income taxes is calculated in accordance with SFAS No.
109 Accounting for Income Taxes and consists of the following:

Current federal income taxes .................. $ 330,770
Current other taxes ........................... 22,104
Deferred federal income taxes ................. 8,209,291
Deferred other income taxes ................... (222,265)
----------------
Total income tax expense ...................... $ 8,339,900
================

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, 2007, the Fund
had a net operating loss for federal and state income tax purposes of $2,209,998
and $4,119,398, respectively. The Fund's 2007 income tax provision includes a
full valuation allowance against the deferred tax assets associated with this
state net operating loss. Components of the Fund's deferred tax assets and
liabilities as of November 30, 2007 are as follows:

DEFERRED TAX ASSETS:
Federal net operating loss .................... $ 432,772
State net operating loss ...................... 239,539
State income taxes ............................ 131,487
Other ......................................... 389,876
----------------
Total deferred tax assets ..................... 1,193,674
Less: valuation allowance ..................... (239,539)
----------------
Net deferred tax assets ....................... $ 954,135
================
DEFERRED TAX LIABILITIES:
Unrealized gains on investment securities ..... $ 42,791,179
----------------
Total deferred tax liabilities ................ 42,791,179
----------------
Total net deferred tax liabilities ............ $ 41,837,044
================

Total income taxes differ from the amount computed by applying the federal
statutory income tax rate of 35% to net investment income and realized and
unrealized gains on investments.

Application of statutory income tax rate ...... $ 8,309,822
State income taxes, net ....................... 38,317
Change in valuation allowance ................. 158,673
Other ......................................... (166,912)
----------------
Total ......................................... $ 8,339,900
================

Page 16

ENERGY INCOME AND GROWTH FUND
NOVEMBER 30, 2007

In June 2006, Financial Accounting Standards Board ("FASB") Interpretation No.
48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB
Statement 109 ("FIN 48"), was issued and is effective for fiscal years beginning
after December 15, 2006. This Interpretation prescribes a minimum threshold for
financial statement recognition of the benefit of a tax position taken or
expected to be taken in a tax return. As of November 30, 2007, management has
evaluated the application of FIN 48 to the Fund, and has determined that there
is no material impact resulting from the adoption of this Interpretation on the
Fund's financial statements.

F. EXPENSES:

The Fund pays all expenses directly related to its operations.

G. INTEREST RATE CAP:

The Fund has entered into an interest rate cap transaction with Lehman Brothers
Special Financing Inc. for the purpose of limiting the impact that higher
short-term interest rates would have on the leverage costs of the Fund. The
transaction has a notional amount of $34,000,000, a cap rate of 5.00% per annum
and a termination date of May 3, 2010 and is marked to market with the change in
value reflected in "Net change in unrealized appreciation (depreciation) on
interest rate cap" on the Statement of Operations. The initial cost of the
transaction, $552,500, was capitalized and is being amortized to expense on a
straight line basis over the term of the transaction.

H. ACCOUNTING PRONOUNCEMENTS:

In September 2006, Statement of Financial Accounting Standards No. 157 Fair
Value Measurements ("SFAS 157") was issued by the FASB and is effective for
fiscal years beginning after November 15, 2007. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. At this time, management is evaluating the implications
of SFAS 157 and its impact on the Fund's financial statements, if any, has not
been determined.

3. INVESTMENT ADVISORY FEE AND OTHER AFFILIATED TRANSACTIONS

First Trust is a limited partnership with one limited partner, Grace Partners of
DuPage L.P., and one general partner, The Charger Corporation. First Trust
serves as investment advisor to the Fund pursuant to an Investment Management
Agreement. First Trust is responsible for the ongoing monitoring of the Fund's
investment portfolio, managing the Fund's business affairs and certain
administrative services necessary for the management of the Fund. For these
services, First Trust is entitled to a monthly fee calculated at an annual rate
of 1.00% of the Fund's Managed Assets.

Prior to September 14, 2007, Fiduciary Asset Management, LLC served as the
Fund's sub-advisor. Effective September 14, 2007, the Board of Trustees, after
careful consideration appointed Energy Income Partners, LLC ("EIP") as
sub-advisor pursuant to an interim investment sub-advisory agreement pending
shareholder approval of a new investment sub-advisory agreement with EIP. (See
Additional Information-Sub-Advisory Agreement). On January 8, 2008, the Fund's
shareholders approved the new investment sub-advisory agreement with EIP.

EIP serves as the Fund's Sub-Advisor and manages the Fund's portfolio subject to
First Trust's supervision. The Sub-Advisor receives an annual portfolio
management fee of 0.50% of Managed Assets that is paid monthly by First Trust.

PFPC Inc., an indirect, majority-owned subsidiary of The PNC Financial Services
Group, Inc., serves as the Fund's Administrator and Transfer Agent in accordance
with certain fee arrangements. PFPC Trust Company, also an indirect,
majority-owned subsidiary of The PNC Financial Services Group, Inc., serves as
the Fund's Custodian in accordance with certain fee arrangements.

Effective January 1, 2007, the Trustees approved a revised compensation plan.
Under the revised plan, each Trustee who is not an officer or employee of First
Trust, any sub-advisor or any of their affiliates ("Independent Trustees") is
paid an annual retainer of $10,000 per trust for the first 14 trusts of the
First Trust Fund Complex and an annual retainer of $7,500 per trust of each
subsequent trust added to the First Trust Fund Complex. The annual retainer is
allocated equally among each of the trusts. No additional meeting fees are paid
in connection with board or committee meetings.

Additionally, Thomas R. Kadlec is paid $10,000 annually to serve as the Lead
Independent Trustee and Niel B. Nielson is paid $5,000 annually to serve as the
chairman of the Audit Committee, with such compensation paid by the trusts in
the First Trust Fund Complex and divided among those trusts. Trustees are also
reimbursed by the trusts in the First Trust Fund Complex for travel and out-of
pocket expenses in connection with all meetings. Prior to January 1, 2007, the
trusts paid each Trustee who is not an officer or employee of First Trust, any
sub-advisor or any of their affiliates an annual retainer of $10,000, which
included compensation for all board and committee meetings. Effective January 1,
2008, each of the chairmen of the Nominating and Governace Committee and the
Valuation Committee will be paid $2,500 to serve in such capacities with such
compensation paid by the trusts in First Trust Fund Complex and divided among
those trusts. Also effective January 1, 2008, each committee chairman will serve
two years before rotating to serve as a chairman of another committee.

Page 17

ENERGY INCOME AND GROWTH FUND
NOVEMBER 30, 2007

4. PURCHASES AND SALES OF SECURITIES

Cost of purchases and proceeds from sales of investment securities, excluding
short-term investments, for the year ended November 30, 2007, were $62,202,396
and $45,422,739, respectively.

As of November 30, 2007, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $126,048,761
and the aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $5,073,460.

5. COMMON SHARES

As of November 30, 2007, 6,446,995 of $0.01 par value Common Shares were issued
and outstanding. An unlimited number of Common Shares has been authorized under
the Fund's Dividend Reinvestment Plan.

6. ENERGY NOTES

The Fund's Declaration of Trust authorizes the issuance of notes as determined
by the Board of Trustees without the approval of Common Shareholders. As of
November 30, 2007, the Fund has 1,360 Series A Energy Notes and 1,000 Series B
Energy Notes outstanding at a principal value of $25,000 per note. The principal
amounts of the Series A and Series B Energy Notes will be due and payable on
March 2, 2045 and March 30, 2046, respectively. The Series A and Series B Energy
Notes offering costs of $158,761 and $99,326 and commissions of $340,000 and
$250,000, respectively, were capitalized and are being amortized to expense on a
straight line basis over the term of each of the Series A and Series B Energy
Notes.

An auction of the Series A Energy Notes is generally held every 28 days. An
Auction of the Series B Energy Notes is generally held every 7 days. The Series
A and Series B Energy Notes will pay interest at annual rates that may vary for
each auction rate period. Existing note holders may submit an order to buy, sell
or hold such notes on each auction date.

The Series A Energy Notes annual interest rate in effect as of November 30, 2007
was 5.70%. The interest rate, as set by the auction process, is generally
expected to vary with short-term interest rates. The high and low annual
interest rates during the year ended November 30, 2007, were 6.90% and 5.24 %,
respectively, and the average interest rate was 5.49%.

The Series B Energy Notes annual interest rate in effect as of November 30, 2007
was 5.00%. The interest rate, as set by the auction process, is generally
expected to vary with short-term interest rates. The high and low annual
interest rates during the year ended November 30, 2007, were 6.15% and 4.74%,
respectively, and the average interest rate was 5.20%.

7. CREDIT AGREEMENT

The Fund has a credit agreement with the Custodial Trust Company of Bear
Stearns, under which the Fund may borrow from the Custodial Trust Company an
aggregate amount of up to the lesser of $30,000,000 or the maximum amount the
Fund is permitted to borrow under the 1940 Act. For the year ended November 30,
2007, the average amount outstanding was $10,516,340 with a weighted average
interest rate of 6.23%. This credit agreement has no maturity date and can be
paid or called at any time. As of November 30, 2007, the Fund had $15,250,000 in
outstanding borrowings under this credit agreement, which had an interest rate
of 5.78% as of November 30, 2007. The high and low annual interest rates during
the year ended November 30, 2007 were 6.50% and 5.78%, respectively.

8. INDEMNIFICATION

The Fund has a variety of indemnification obligations under contracts with its
service providers. The Fund's maximum exposure under these arrangements is
unknown. However, the Fund has not had prior claims or losses pursuant to these
contracts and expects the risk of loss to be remote.

9. RISK CONSIDERATIONS

The Fund intends to invest at least 85% of its Managed Assets in securities
issued by energy companies, energy sector MLPs and MLP-related entities. Given
this industry concentration, the Fund will be more susceptible to adverse
economic or regulatory occurrences affecting that industry than an investment
company that is not concentrated in a single industry. Energy issuers may be
subject to a variety of factors that may adversely affect their business or
operations, including high interest costs in connection with capital
construction programs, high leverage costs associated with environmental and
other regulations, the effects of economic slowdown, surplus capacity, increased
competition from other providers of services, uncertainties concerning the
availability of fuel at reasonable prices, the effects of energy conservation
policies and other factors.

Page 18

ENERGY INCOME AND GROWTH FUND
NOVEMBER 30, 2007

An investment in MLP units involves risks which differ from an investment in
common stock of a corporation. Holders of MLP units have limited control and
voting rights on matters affecting the partnership. In addition, there are
certain tax risks associated with an investment in MLP units and conflicts of
interest exist between common unit holders and the general partner, including
those arising from incentive distribution payments.

LEVERAGE RISK. The use of leverage results in additional risks and can magnify
the effect of any losses. The funds borrowed pursuant to a leverage borrowing
program, or obtained through the issuance of Preferred Shares, constitute a
substantial lien and burden by reason of their prior claim against the income of
the Fund and against the net assets of the Fund in liquidation. The rights of
lenders to receive payments of interest on and repayments of principal on any
borrowings made by the Fund under a leverage borrowing program are senior to the
rights of holders of Common Shares and the holders of Preferred Shares, with
respect to the payment of dividends or upon liquidation. The Fund may not be
permitted to declare dividends or other distributions, including dividends and
distributions with respect to Common Shares or Preferred Shares or purchase
Common Shares or Preferred Shares.

RESTRICTED SECURITIES RISK. The Fund may invest in unregistered or otherwise
restricted securities. The term "restricted securities" refers to securities
that are unregistered or are held by control persons of the issuer and
securities that are subject to contractual restrictions on their resale. As a
result, restricted securities may be more difficult to value and the Fund may
have difficulty disposing of such assets either in a timely manner or for a
reasonable price. In order to dispose of an unregistered security, the Fund,
where it has contractual rights to do so, may have to cause such security to be
registered. A considerable period may elapse between the time the decision is
made to sell the security and the time the security is registered so that the
Fund could sell it. Contractual restrictions on the resale of securities vary in
length and scope and are generally the result of a negotiation between the
issuer and acquirer of the securities. The Fund would, in either case, bear
market risks during that period.

NON-DIVERSIFICATION RISK. Because the Fund is non-diversified, it is only
limited as to the percentage of its assets which may be invested in the
securities of any one issuer by the diversification requirements imposed by the
Internal Revenue Code of 1986, as amended. Because the Fund may invest a
relatively high percentage of its assets in a limited number of issuers, the
Fund may be more susceptible to any single economic, political or regulatory
occurrence and to the financial conditions of the issuers in which it invests.

10. SUBSEQUENT EVENTS

On January 9, 2008, the Fund declared a dividend of $0.385 per share to Common
Shareholders of record January 22, 2008, payable January 31, 2008.

On December 10, 2007, the Board of Trustees approved an increase in the Fund's
borrowings in an aggregate amount from 30% to up to 33 1/3% of the Fund's
Managed Assets.

Page 19

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF ENERGY INCOME AND GROWTH FUND:

We have audited the accompanying statement of assets and liabilities of Energy
Income and Growth Fund (the "Fund"), including the portfolio of investments, as
of November 30, 2007, the related statements of operations and cash flows for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended and the financial highlights for the periods
presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of November 30, 2007, by correspondence with the Fund's
custodian and brokers; where replies were not received, we performed other
auditing procedures. We believe that our audits provide a reasonable basis for
our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Fund as of November 30, 2007, the results of its operations and its cash flows,
the changes in its net assets, and the financial highlights for the respective
stated periods, in conformity with accounting principles generally accepted in
the United States of America.

/s/ DELOITTE & TOUCHE LLP

Chicago, Illinois
January 22, 2008

Page 20

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ADDITIONAL INFORMATION
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ENERGY INCOME AND GROWTH FUND
NOVEMBER 30, 2007 (UNAUDITED)

DIVIDEND REINVESTMENT PLAN

If your Common Shares are registered directly with the Fund or if you hold your
Common Shares with a brokerage firm that participates in the Fund's Dividend
Reinvestment Plan (the "Plan"), unless you elect, by written notice to the Fund,
to receive cash distributions, all dividends, including any capital gain
distributions, on your Common Shares will be automatically reinvested by PFPC
Inc. (the "Plan Agent"), in additional Common Shares under the Plan. If you
elect to receive cash distributions, you will receive all distributions in cash
paid by check mailed directly to you by PFPC Inc., as dividend paying agent.

If you decide to participate in the Plan, the number of Common Shares you will
receive will be determined as follows:

(1) If Common Shares are trading at or above 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 American
Stock Exchange or elsewhere, for the participants' accounts. It is
possible that the market price for the Common Shares may increase
before the Plan Agent has completed its purchases. Therefore, the
average purchase price per share paid by the Plan Agent may exceed
the market price at the time of valuation, resulting in the purchase
of fewer shares than if the dividend or distribution had been paid
in Common Shares issued by the Fund. The Plan Agent will use all
dividends and distributions received in cash to purchase Common
Shares in the open market within 30 days of the valuation date
except where temporary curtailment or suspension of purchases is
necessary to comply with federal securities laws. Interest will not
be paid on any uninvested cash payments.

You may elect to opt-out of or withdraw from the Plan at any time by giving
written notice to the Plan Agent, or by telephone at (800) 331-1710, in
accordance with such reasonable requirements as the Plan Agent and Fund may
agree upon. If you withdraw or the Plan is terminated, you will receive a
certificate for each whole share in your account under the Plan and you will
receive a cash payment for any fraction of a share in your account. If you wish,
the Plan Agent will sell your shares and send you the proceeds, minus brokerage
commissions.

The Plan Agent maintains all Common Shareholders' accounts in the Plan and gives
written confirmation of all transactions in the accounts, including information
you may need for tax records. Common Shares in your account will be held by the
Plan Agent in non-certificated form. The Plan Agent will forward to each
participant any proxy solicitation material and will vote any shares so held
only in accordance with proxies returned to the Fund. Any proxy you receive will
include all Common Shares you have received under the Plan.

There is no brokerage charge for reinvestment of your dividends or distributions
in Common Shares. However, all participants will pay a pro rata share of
brokerage commissions incurred by the Plan Agent when it makes open market
purchases.

Automatically reinvesting dividends and distributions does not mean that you do
not have to pay income taxes due upon receiving dividends and distributions.
Capital gains and income are realized, although cash is not received by you.
Consult your financial advisor for more information.

If you hold your Common Shares with a brokerage firm that does not participate
in the Plan, you will not be able to participate in the Plan and any dividend
reinvestment may be effected on different terms than those described above.

The Fund reserves the right to amend or terminate the Plan if in the judgment of
the Board of Trustees the change is warranted. There is no direct service charge
to participants in the Plan; however, the Fund reserves the right to amend the
Plan to include a service charge payable by the participants. Additional
information about the Plan may be obtained by writing PFPC Inc., 301 Bellevue
Parkway, Wilmington, Delaware 19809.

--------------------------------------------------------------------------------
PROXY VOTING POLICIES AND PROCEDURES

A description of the policies and procedures that the Fund uses to determine how
to vote proxies and information on how the Fund voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Fund's website located at http://www.ftportfolios.com; and (3) on the
Securities and Exchange Commission's website at http://www.sec.gov.

Page 21

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ADDITIONAL INFORMATION - (CONTINUED)
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ENERGY INCOME AND GROWTH FUND
NOVEMBER 30, 2007 (UNAUDITED)

PORTFOLIO HOLDINGS

The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available (1) by calling (800)
988-5891; (2) on the Fund's website located at http://www.ftportfolios.com; (3)
on the SEC's website at http://www.sec.gov; and (4) for review and copying at
the SEC's Public Reference Room ("PRR") in Washington, DC. Information regarding
the operation of the PRR may be obtained by calling (800) SEC-0330.

BY-LAW AMENDMENT

On December 10, 2006, the Board of Trustees of the Fund approved certain changes
to the By-Laws of the Fund which may have the effect of delaying or preventing a
change in control of the Fund, including the implementation of a staggered Board
of Trustees. These changes were not required to be, and were not approved by the
Fund's shareholders. To receive a copy of the revised By-Laws, investors may
call the Fund at (800) 988-5891.

SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS

The Joint Annual Meeting of Shareholders of the Common Shares of Macquarie/First
Trust Global Infrastructure/Utilities Dividend & Income Fund, Energy Income and
Growth Fund, First Trust/Fiduciary Asset Management Covered Call Fund, First
Trust/Aberdeen Global Opportunity Income Fund, First Trust/FIDAC Mortgage Income
Fund, First Trust Strategic High Income Fund, First Trust Strategic High Income
Fund II, First Trust Tax-Advantaged Preferred Income Fund and First
Trust/Aberdeen Emerging Opportunity Fund was held on April 16, 2007. At the
Annual Meeting, Trustee Keith was elected for a one-year term; Trustees Erickson
and Kadlec were elected for two-year terms; and Trustees Bowen and Nielson were
elected for three-year terms. The number of votes cast in favor of James A.
Bowen was 5,872,316, the number of votes withheld was 36,612 and the number of
abstentions was 538,067. The number of votes cast in favor of Niel B. Nielson
was 5,869,239, the number of votes withheld was 39,689 and the number of
abstentions was 538,067. The number of votes cast in favor of Richard E.
Erickson was 5,871,089, the number of votes withheld was 37,839 and the number
of abstentions was 538,067. The number of votes cast in favor of Thomas R.
Kadlec was 5,871,155, the number of votes withheld was 37,773 and the number of
abstentions was 538,067. The number of votes cast in favor of Robert F. Keith
was 5,871,766, the number of votes withheld was 37,162 and the number of
abstentions was 538,067.

The Special Meeting of Shareholders of the Common Shares of the Fund was held on
January 8, 2008. At that meeting the shareholders approved the new sub-advisory
agreement with Energy Income Partners, LLC. The number of votes cast for was
2,986,720, the number of votes against was 182,668 and the number of abstentions
was 134,526. The Special Meeting was adjourned until January 23, 2008, with
respect to the second proposal to authorize the sale of common shares at a net
price less than the then-current net asset value per common share. On January
23, 2008, the Special Meeting was further adjourned until February 20, 2008 with
respect to such proposal.

CHANGE IN INVESTMENT POLICY

The Fund may invest up to 15% of its Managed Assets in non-U.S securities as
well as hedge the currency risk of the non-U.S. securities using derivative
instruments. This policy will become effective on or about April 1, 2008.

SUB-ADVISORY AGREEMENT

BOARD CONSIDERATIONS REGARDING APPROVAL OF SUB-ADVISORY CONTRACTS

The Board of Trustees of Energy Income and Growth Fund (the "Fund"), including a
majority of the Independent Trustees, approved the Interim Sub-Advisory
Agreement and the New Sub-Advisory Agreement (collectively, the "Agreements")
among the Fund, First Trust Advisors L.P. (the "Advisor") and Energy Income
Partners, LLC ("EIP") at special meetings held on September 14, 2007 and
September 21, 2007, respectively. The Board determined that the terms of the
Agreements are fair and reasonable and in the best interests of the Fund.

In April 2007, the Board was informed that Fiduciary Asset Management, LLC
("FAMCO"), which served as the Fund's sub-advisor, had entered into a definitive
agreement with Piper Jaffray Companies ("Piper Jaffray") pursuant to which Piper
Jaffray agreed to acquire FAMCO (the "Transaction"). The Board was also informed
that, if the Transaction was consummated, the sub-advisory agreement between the
Fund, the Advisor and FAMCO (the "FAMCO Sub-Advisory Agreement") would terminate
pursuant to its terms and the requirements of the Investment Company Act of
1940, as amended (the "1940 Act"). In light of the potential termination of the
FAMCO Sub-Advisory Agreement, the Board, over the course of several months,
requested and evaluated all information it deemed reasonably necessary to
evaluate the various alternatives the Fund could pursue if the Transaction were
completed. As part of the review process, the Board met on several occasions
with representatives of the Advisor to discuss the Transaction. The Independent
Trustees also asked that written requests for information be sent on their
behalf to FAMCO and Piper Jaffray. On June 11, 2007, the Board met with
representatives of FAMCO and Piper Jaffray and received a presentation on the
Transaction. The Board was able to ask questions about

Page 22

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ADDITIONAL INFORMATION - (CONTINUED)
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ENERGY INCOME AND GROWTH FUND
MAY 31, 2007 (UNAUDITED)

the possible effects of the Transaction on the services provided by FAMCO to the
Fund. At the June 11th meeting, the Board also requested that the Advisor
research and provide information on potential alternative sub-advisors for its
July meeting. At the July 18, 2007 meeting, the Board met with representatives
of EIP and received a presentation regarding EIP's investment style. Throughout
the entire review process, the Independent Trustees were advised by their
independent legal counsel.

As a result of the consummation of the Transaction and the termination of the
FAMCO Sub-Advisory Agreement, the Board held a special meeting on September 14,
2007 to consider how to proceed. At this meeting, the Advisor recommended to the
Board that EIP serve as the new sub-advisor for the Fund. Based on its
consideration of all the information received prior to the closing of the
Transaction, the Board appointed EIP as the interim sub-advisor to the Fund,
pursuant to the Interim Sub-Advisory Agreement. At a special meeting on
September 21, 2007, the Board approved the New Sub-Advisory Agreement and
determined to recommend it to shareholders of the Fund for their approval. The
Board noted that, at the request of the Independent Trustees, the Advisor and/or
EIP had agreed to bear the costs associated with soliciting shareholder approval
of the New Sub-Advisory Agreement.

To reach its determination, the Board considered its duties under 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. To assist the Board in its evaluation of
the Agreements, the Independent Trustees received a report from EIP responding
to a request for information from the Advisor and counsel to the Independent
Trustees. The report, among other things, outlined the services to be provided
by EIP (including the relevant personnel responsible for these services and
their experience); the sub-advisory fee for the Fund as compared to fees charged
to other clients of EIP; the nature of expenses to be incurred in providing
services to the Fund and the potential for economies of scale, if any; financial
data on EIP; any fallout benefits to EIP; and information on EIP's compliance
program. The Independent Trustees also met separately on a number of occasions
with their independent legal counsel to discuss the information provided by EIP
and the Advisor. The Board applied its business judgment to determine whether
the arrangements between the Fund, the Advisor and EIP are reasonable business
arrangements from the Fund's perspective as well as from the perspective of
shareholders.

In reviewing the Agreements, the Board considered the nature, quality and extent
of services to be provided by EIP under the Agreements. The Board noted EIP's
investment style and the backgrounds of the investment personnel who would be
responsible for the day-to-day management of the Fund. The Board considered, in
particular, EIP's experience as advisor to a registered investment company and
to three unregistered investment companies with portfolio strategies similar to
the strategies of the Fund. The Board considered the investment performance of
the Fund under FAMCO, and also considered performance information for one of the
unregistered investment companies managed by EIP in a manner similar to the
style to be used for the Fund. In light of the information presented and the
considerations made, the Board concluded that the nature, quality and extent of
services to be provided to the Fund by EIP under the Agreements are expected to
be satisfactory.

The Board considered the sub-advisory fees to be paid under the Agreements,
noting that they would be the same as the fees paid under the FAMCO Sub-Advisory
Agreement. The Board considered the proposed sub-advisory fee and how it would
relate to the overall management fee structure of the Fund, noting that the fees
to be paid to EIP would be paid by the Advisor from its advisory fee. The Board
also considered information provided by EIP as to the fees it charges to other
clients, noting that the sub-advisory fee is less than the fees charged by EIP
to the other investment companies it manages. On the basis of all the
information provided on the fees of the Fund, the Board concluded that the
sub-advisory fees to be paid under the Agreements were reasonable and
appropriate in light of the nature, quality and extent of services expected to
be provided by EIP under the Agreements.

The Board considered EIP's representation that its expenses incurred in
providing services to the Fund are primarily fixed in nature. The Board also
considered that EIP expects that additional investments in personnel and
infrastructure will be made over the course of the next twelve months. The Board
concluded that the fees to be paid under the Agreements as well as under the
investment management agreement with the Advisor reflect an appropriate sharing
of any economies of scale. With respect to EIP's anticipated profitability under
the Agreements, the Board reviewed a pro forma statement of profits and losses
provided by EIP. The Board noted that the sub-advisory fee rate was negotiated
at arm's length between the Advisor and EIP, and that EIP would be paid by the
Advisor. Based on the information provided, the Board concluded that the
profitability of the Agreements to EIP was anticipated to be not unreasonable.
The Board considered the fall-out benefits expected to be realized by EIP from
its relationship with the Fund, including possible soft dollar arrangements.

Based on all of the information considered and the conclusions reached, the
Board, including a majority of the Independent Trustees, determined that the
terms of the Agreements are fair and reasonable and that the approval of the
Agreements is in the best interests of the Fund. No single factor was
determinative in the Board's analysis.

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ADDITIONAL INFORMATION - (CONTINUED)
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ENERGY INCOME AND GROWTH FUND
NOVEMBER 30, 2007 (UNAUDITED)

The open-end and closed-end funds advised by First Trust Advisors L.P. (each a
"Fund") consider your privacy an important priority in maintaining our
relationship. We are committed to protecting the security and confidentiality of
your personal information.

SOURCES OF INFORMATION

We may collect nonpublic personal information about you from the following
sources:

o Information we receive from you or your broker-dealer, investment advisor
or financial representative through interviews, applications, agreements
or other forms;

o Information about your transactions with us, our affiliates or others;

o Information we receive from your inquiries by mail, e-mail or telephone;
and

o 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. The permitted uses
include the disclosure of such information to unaffiliated companies for the
following reasons:

o 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 and printers.

o 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 with affiliates of the Fund. Please note,
however, that the California Financial Information Privacy Act contains an "opt
out" mechanism that California consumers may use to prevent us from sharing
nonpublic personal information with affiliates.

CONFIDENTIALITY AND SECURITY

With regard to our internal security procedures, the Fund restricts access to
your nonpublic personal information to those individuals who need to know that
information to provide products or services to you. We maintain physical,
electronic and procedural safeguards to protect your nonpublic personal
information.

POLICY UPDATES AND INQUIRIES

As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time; however, if we do change
it, we will tell you promptly.

For questions about our policy, or for additional copies of this notice, please
contact us at (800) 621-1675.

Page 24

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BOARD OF TRUSTEES AND OFFICERS (UNAUDITED)
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ENERGY INCOME AND GROWTH FUND
NOVEMBER 30, 2007

NUMBER OF
PORTFOLIOS IN OTHER
THE FIRST TRUST TRUSTEESHIPS OR
NAME, ADDRESS, DATE OF BIRTH TERM OF OFFICE AND PRINCIPAL OCCUPATIONS FUND COMPLEX DIRECTORSHIPS
AND POSITION WITH THE FUND LENGTH OF SERVICE DURING PAST 5 YEARS OVERSEEN BY TRUSTEE HELD BY TRUSTEE

----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
----------------------------------------------------------------------------------------------------------------------------------

Richard E. Erickson, Trustee o Two Year Term Physician; President, 58 None
c/o First Trust Advisors L.P. Wheaton Orthopedics;
1001 Warrenville Road, o Since Fund Co-owner and Co-
Suite 300 Inception Director (January 1996 to
Lisle, IL 60532 May 2007), Sports Med
D.O.B. 04/51 Center for Fitness;
Limited Partner,
Gundersen Real Estate
Partnership; Limited
Partner, Sportsmed LLC

Thomas R. Kadlec, Trustee o Two Year Term Senior Vice President and 58 None
c/o First Trust Advisors L.P. Chief Financial Officer
1001 Warrenville Road, o Since Fund (May 2007 to Present),
Suite 300 Inception Vice President and Chief
Lisle, IL 60532 Financial Officer (1990 to
D.O.B. 11/57 May 2007), ADM
Investor Services, Inc.
(Futures Commission
Merchant); Vice
President (May 2005 to
Present), ADM
Derivatives, Inc.;
Registered Representative
(2000 to Present),
Segerdahl & Company,
Inc., a FINRA member
(Broker-Dealer)

Robert F. Keith, Trustee o One Year Term President (2003 to 58 None
c/o First Trust Advisors L.P. Present), Hibs Enterprises
1001 Warrenville Road, o Since June 2006 (Financial and
Suite 300 Management Consulting);
Lisle, IL 60532 President (2001 to 2003),
D.O.B. 11/56 Aramark Service Master
Management; President
and Chief Operating
Officer (1998 to 2003),
Service Master
Management Services

Page 25

--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS (UNAUDITED) - (CONTINUED)
--------------------------------------------------------------------------------

ENERGY INCOME AND GROWTH FUND
NOVEMBER 30, 2007

----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES (CONTINUED)
----------------------------------------------------------------------------------------------------------------------------------

Niel B. Nielson, Trustee o Three Year Term President (June 2002 to 58 Director of Covenant
c/o First Trust Advisors L.P. Present), Covenant Transport Inc.
1001 Warrenville Road, o Since Fund College
Suite 300 Inception
Lisle, IL 60532
D.O.B. 03/54

----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
----------------------------------------------------------------------------------------------------------------------------------

James A. Bowen 1, Trustee, o Three Year Trustee President, First Trust 58 Trustee of Wheaton
President, Chairman of the Term and Advisors L.P. and First College
Board and CEO Indefinite Officer Trust Portfolios L.P.;
1001 Warrenville Road, Term Chairman of the Board of
Suite 300 Directors, BondWave
Lisle, IL 60532 o Since Fund LLC (Software
D.O.B. 09/55 Inception Development
Company/Broker-Dealer)
and Stonebridge Advisors
LLC (Investment
Advisor)

NAME, ADDRESS POSITION AND OFFICES TERM OF OFFICE AND PRINCIPAL OCCUPATIONS
AND DATE OF BIRTH WITH FUND LENGTH OF SERVICE DURING PAST 5 YEARS

-----------------------------------------------------------------------------------------------------------
OFFICERS WHO ARE NOT TRUSTEES
-----------------------------------------------------------------------------------------------------------

Mark R. Bradley Treasurer, Controller, o Indefinite term Chief Financial Officer,
1001 Warrenville Road, Chief Financial Officer First Trust Advisors L.P.
Suite 300 and Chief Accounting o Since Fund Inception and First Trust Portfolios
Lisle, IL 60532 Officer L.P.; Chief Financial
D.O.B. 11/57 Officer, BondWave LLC
(Software Development
Company/Broker-Dealer)
and Stonebridge Advisors
LLC (Investment Advisor)

----------
1 Mr. Bowen is deemed an "interested person" of the Fund due to his position
as President of First Trust Advisors L.P., investment advisor of the Fund.

Page 26

ENERGY INCOME AND GROWTH FUND
NOVEMBER 30, 2007

NAME, ADDRESS POSITION AND OFFICES TERM OF OFFICE AND PRINCIPAL OCCUPATIONS
AND DATE OF BIRTH WITH FUND LENGTH OF SERVICE DURING PAST 5 YEARS

-----------------------------------------------------------------------------------------------------------
OFFICERS WHO ARE NOT TRUSTEES - (CONTINUED)
-----------------------------------------------------------------------------------------------------------

Kelley Christensen Vice President o Indefinite term Assistant Vice President,
1001 Warrenville Road, First Trust Advisors L.P.
Suite 300 o Since December 2006 and First Trust Portfolios
Lisle, IL 60532 L.P.
D.O.B. 09/70

James M. Dykas Assistant Treasurer o Indefinite term Senior Vice President
1001 Warrenville Road, (April 2007 to Present),
Suite 300 o Since Fund Inception Vice President (January
Lisle, IL 60532 2005 to April 2007), First
D.O.B. 01/66 Trust Advisors L.P. and
First Trust Portfolios L.P.;
Executive Director
(December 2002 to
January 2005), Vice
President (December 2000
to December 2002), Van
Kampen Asset
Management and Morgan
Stanley Investment
Management

Christopher Fallow Assistant Vice President o Indefinite term Assistant Vice President
1001 Warrenville Road, (August 2006 to Present),
Suite 300 o Since December 2006 Associate (January 2005
Lisle, IL 60532 to August 2006), First
D.O.B. 04/79 Trust Advisors L.P. and
First Trust Portfolios L.P.;
Municipal Bond Trader
(July 2001 to January
2005), BondWave LLC
(Software Development
Company/Broker-Dealer)

----------
* The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.

Page 27

ENERGY INCOME AND GROWTH FUND
NOVEMBER 30, 2007

NAME, ADDRESS POSITION AND OFFICES TERM OF OFFICE AND PRINCIPAL OCCUPATIONS
AND DATE OF BIRTH WITH FUND LENGTH OF SERVICE DURING PAST 5 YEARS

W. Scott Jardine Secretary and Chief o Indefinite term General Counsel, First
1001 Warrenville Road, Compliance Officer Trust Advisors L.P. and
Suite 300 o Since Fund Inception First Trust Portfolios L.P.;
Lisle, IL 60532 Secretary, BondWave LLC
D.O.B. 05/60 (Software Development
Company/Broker-Dealer)
and Stonebridge Advisors
LLC (Investment Advisor)

Daniel J. Lindquist Vice President o Indefinite term Senior Vice President
1001 Warrenville Road, (September 2005 to
Suite 300 o Since Fund Inception Present), Vice President
Lisle, IL 60532 (April 2004 to September
D.O.B. 02/70 2005), First Trust
Advisors L.P. and First
Trust Portfolios L.P.; Chief
Operating Officer (January
2004 to April 2004), Mina
Capital Management,
LLC; Chief Operating
Officer (April 2000 to
January 2004), Samaritan
Asset Management
Services, Inc.

Kristi A. Maher Assistant Secretary o Indefinite term Deputy General Counsel
1001 Warrenville Road, (May 2007 to Present),
Suite 300 o Since Fund Inception Assistant General Counsel
Lisle, IL 60532 (March 2004 to May
D.O.B. 12/66 2007), First Trust
Advisors L.P. and First
Trust Portfolios L.P.;
Associate (December 1995
to March 2004), Chapman
and Cutler LLP

Page 28

[LOGO] FIRSTTRUST
ADVISORS L.P.

INVESTMENT ADVISOR
First Trust Advisors L.P.
1001 Warrenville Road
Lisle, IL 60532

INVESTMENT SUB-ADVISOR
Energy Income Partners, LLC
49 Riverside Avenue
Westport, CT 06880

ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT,
TRANSFER AGENT &
BOARD ADMINISTRATOR
PFPC Inc.
301 Bellevue Parkway
Wilmington, DE 19809

INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606

LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603

ITEM 2. CODE OF ETHICS.

(a) The registrant, as of the end of the period covered by this report, has
adopted a code of ethics that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant
or a third party.

(c) There have been no amendments, during the period covered by this
report, to a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing
similar functions, regardless of whether these individuals are employed
by the registrant or a third party, and that relates to any element of
the code of ethics definition enumerated in paragraph (b) of this
item's instructions.

(d) The registrant has not, during the period covered by this report,
granted any waivers, including an implicit waiver, from a provision of
the code of ethics that applies to the registrant's principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions, regardless of
whether these individuals are employed by the registrant or a third
party, that relates to one or more of the items set forth in paragraph
(b) of this item's instructions.

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.

As of the end of the period covered by the report, the Registrant's board of
trustees has determined that Thomas R. Kadlec and Robert F. Keith are qualified
to serve as audit committee financial experts serving on its audit committee and
that each of them is "independent," as defined by Item 3 of Form N-CSR.

ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

(a) AUDIT FEES (REGISTRANT) -- The aggregate fees billed for each of
the last two fiscal years for professional services rendered by the principal
accountant for the audit of the Registrant's annual financial statements or
services that are normally provided by the accountant in connection with
statutory and regulatory filings or engagements were $54,750 for 2006 and
$96,500 for 2007.

(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 2006 and $0 for 2007.

AUDIT-RELATED FEES (INVESTMENT ADVISER) -- The aggregate fees
billed in each of the last two fiscal years of the Registrant 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 2006 and $3,000 for 2007.
These fees were for additional audit work for the Registrant.

(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 $11,000 in 2006 and $79,500 for 2007. These fees were for tax consultation
and tax preparation.

TAX FEES (INVESTMENT ADVISER) -- The aggregate fees billed in
each of the last two fiscal years of the Registrant for professional services
rendered by the principal accountant for tax compliance, tax advice, and tax
planning to the Registrant's adviser were $0 for 2006 and $0 for 2007.

(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 $1,617.25 for 2006 and $878.14 for 2007. These
fees were for compliance consulting services.

ALL OTHER FEES (INVESTMENT ADVISER) -- The aggregate fees billed
in each of the last two fiscal years for products and services provided by the
principal accountant to the Registrant's investment adviser, other than services
reported in paragraphs (a) through (c) of this Item were $39,110.50 for 2006 and
$16,769 for 2007. These fees were for Canadian tax consultation, compliance
consulting and AIMR-PPS Verification Services.

(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 authorized to give such
pre-approvals on behalf of the Committee up to $25,000 and report any such
pre-approval to the full Committee.

The Committee is also responsible for the pre-approval of the
independent auditor's engagements for non-audit services with the registrant's
adviser (not including a sub-adviser whose role is primarily portfolio
management and is sub-contracted or overseen by another investment adviser) and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the Registrant, if the
engagement relates directly to the operations and financial reporting of the
Registrant, subject to the DE MINIMIS exceptions for non-audit services
described in Rule 2-01 of Regulation S-X. If the independent auditor has
provided non-audit services to the Registrant's adviser (other than any
sub-adviser whose role is primarily portfolio management and is sub-contracted
with or overseen by another investment adviser) and any entity controlling,
controlled by or under common control with the investment adviser that provides
ongoing services to the Registrant that were not pre-approved pursuant to its
policies, the Committee will consider whether the provision of such non-audit
services is compatible with the auditor's independence.

(e)(2) The percentage of services described in each of paragraphs (b) through
(d) for the Registrant and the Registrant's investment adviser of this
Item that were approved by the audit committee pursuant to the
pre-approval exceptions included in paragraph (c)(7)(i)(c) or paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X are as follows:

(b) 0%

(d) 0%

(f) The percentage of hours expended on the principal accountant's
engagement to audit the Registrant's financial statements for the most
recent fiscal year that were attributed to work performed by persons
other than the principal accountant's full-time, permanent employees
was less than fifty percent.

(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the Registrant, and rendered to the Registrant's
investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by
another investment adviser), and any entity controlling, controlled by,
or under common control with the adviser that provides ongoing services
to the Registrant for 2006 were $12,451.25 and $70,285.50 for the
Registrant and the Registrant's investment adviser, respectively and
for 2007 were $83,378.14 and $23,769 for the Registrant and the
Registrant's investment adviser, respectively.

(h) The Registrant's audit committee of its Board of Trustees has
determined that the provision of non-audit services that were rendered
to the Registrant's investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted with
or overseen by another investment adviser), and any entity controlling,
controlled by, or under common control with the investment adviser that
provides ongoing services to the Registrant that were not pre-approved
pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is
compatible with maintaining the principal accountant's independence.

ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.

(a) The Registrant has a separately designated audit committee consisting of
all the independent trustees of the Registrant. The members of the audit
committee are: Thomas R. Kadlec, Niel B. Nielson, Richard E. Erickson and
Robert F. Keith.

ITEM 6. SCHEDULE OF INVESTMENTS.

Schedule of Investments in securities of unaffiliated issuers as of the close of
the reporting period is included as part of the report to shareholders filed
under Item 1 of this form.

ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.

The Proxy Voting Policies are attached herewith.

ENERGY INCOME PARTNERS PROXY VOTING GUIDELINES

1.1. POLICY

EIP recognizes that voting rights have economic value and that the
exercise of such voting rights is part of its fiduciary duty. As such, it is
EIP's policy to monitor corporate actions and vote proxies on behalf of its
discretionary clients generally in accordance with these policies and
procedures. EIP will evaluate and vote issues in the best interest of its
clients with a view toward maximizing the ultimate economic value of the
investment. A proxy must be voted on behalf of all discretionary clients in a
prudent manner, considering the prevailing circumstances, and in accordance with
EIP's fiduciary duty. With respect to ERISA clients for which EIP is an
investment manager, EIP will act prudently and solely in the interest of the
participants and beneficiaries of such ERISA client. If a proxy is received
after termination of EIP's services, then the proxy will not be voted, but will
be forwarded directly to the client.

EIP has contracted with Institutional Shareholder Services, Inc.
("ISS") to provide it with proxy voting services, including, but not limited to,
analyses, research, recommendations and guidelines to assist EIP in monitoring
corporate actions and voting proxies on behalf of its clients. EIP has adopted
the ISS Proxy Voting Manual and ISS Global Proxy Voting Guidelines (hereafter,
"Proxy Voting Guidelines") as part of these policies and procedures. In
addition, on an ongoing basis, EIP will identify material conflicts of interest,
if any, which may arise between EIP and its clients as it relates to voting
proxies to ensure that all proxies are voted in the best interest of its
clients. Furthermore, EIP will review ISS's conflict procedures periodically to
ascertain their adequacy.

As further described herein, EIP has assigned a Proxy Voting
Administrator to be responsible for monitoring corporate actions, conduct
administrative functions with regards to proxies, and generally vote on routine
matters. In addition, EIP has established a Proxy Voting Committee to be
responsible for resolving proxy voting issues, for making proxy voting decisions
where material conflicts of interest exist and setting policy.

1.2 PROXY VOTING GUIDELINES

EIP will generally vote proxies in accordance with the Proxy Voting
Guidelines in Appendix A. These guidelines generally provide that: (i) when
EIP's view of the issuer's management is favorable, EIP will generally support
current management initiatives with the exceptions as noted below and (ii) when
EIP's view is that changes to the management structure would probably increase
shareholder value, EIP will not support management on a variety of proposals.

o Where there is a clear conflict between management and shareholder
interests, EIP may elect to vote against management.

o In general, EIP opposes proposals, which in its view, act to entrench
management.

o In some instances, even though EIP may support management, there are
some corporate governance issues that, in spite of management
objections, EIP believes should be subject to shareholder approval.

Furthermore, with regards to certain issues including, but not limited
to, option re-pricing and the terms and conditions of members of the Board of
Directors, EIP will vote on a case-by-case basis, which may be different than
the recommendations set forth in the Proxy Voting Guidelines. Nevertheless, in
voting all proxies, EIP will take into account what is in the best economic
interest of its clients. EIP will maintain documentation memorializing the
decision to vote a proxy in a manner different than what is stated in the Proxy
Voting Guidelines. In addition, the Proxy Voting Committee will be periodically
informed of all proxies that were not voted in accordance with the Proxy Voting
Guidelines.

There may be times when EIP believes that abstaining from voting a
proxy is in its client's best economic interest, such as when it is determined
that the cost of voting the proxy exceeds the expected benefit to the client. As
an example, voting on a foreign security may involve additional costs such as a
translator or traveling to a foreign country to vote in person. Documentation
will be maintained of all proxies that are not voted and the reasons thereof.

Any person receiving an inquiry directly from a company regarding a
particular proxy issue should immediately notify (via e-mail or other
appropriate means) the Research Coordinator. It is EIP's general policy not to
disclose its clients' ownership interests in securities or EIP's view on a
specific proxy issue.

1.3 PROXY BALLOT INFORMATION

EIP will receive proxy ballot information directly from ISS through its
VoteX platform. In the event that EIP receives any proxy ballots directly, EIP
will send such ballots to ISS to be incorporated into their electronic database.
All proxy ballots should be sent to the Proxy Voting Administrator who will be
responsible to:

1. Monitor all corporate actions.

2. Determine which clients currently hold securities of the
company subject to the proxy and the total number of shares
voting authority is held on behalf of EIP's clients as of
the record date.

3. As necessary, reconcile the information obtained from ISS
with the client's positions recorded in EIP's internal
accounting system. Any discrepancies should be noted and
documentation as to the resolution of such discrepancies
should be maintained.

4. Maintain a record of any proxy ballot information received.
A record of the proxies EIP receives through ISS will be
maintained in the ISS database.

5. Review the proxy ballot information.

6. Determine whether the company is on the Proxy Watch List
(See Section 1.5). If so, the proxy ballot information
should be forwarded to the Proxy Voting Committee for their
review and decision.

7. Submit all instructions through the ISS VoteX platform in a
timely manner (unless submitted by the research analyst or
portfolio manager).

8. Maintain a record of the votes cast. A record of the votes
cast through ISS will be maintained in the ISS database.

9. Maintain any documentation or data that was material in
making a decision regarding how to vote a proxy issue, or
that memorializes the basis for the decision, including
proxies that were not voted.

1.4 PROXY VOTING RESPONSIBILITIES

The Proxy Voting Administrator will be responsible for making proxy
voting decisions on routine matters where no material conflicts of interest
exist. In making decisions, the Proxy Voting Administrator may either vote in
accordance with the Proxy Voting Guidelines or forward the proxy ballot
information to the Research Coordinator. The Research Coordinator will
coordinate the proxy voting decision-making process by providing the proxy
ballot information to the appropriate research analysts or portfolio managers
(as the case may be) responsible for covering the company. The research analysts
or portfolio managers will then be responsible for making a unanimous decision
as to how the proxy should be voted. If the research analysts or portfolio
managers do not reach a unanimous decision regarding any specific proxy issue,
that proxy issue shall be forwarded to the Proxy Voting Committee for further
analysis and voting resolution.

1.5 MATERIAL CONFLICTS OF INTEREST

Given the nature of EIP's business activities, material conflicts of
interest may arise between EIP and its clients with regards to voting proxies.
The Proxy Voting Committee will be responsible for identifying potential
material conflicts of interest. These conflicts of interest may include, but are
not limited to the following:

1. DIRECTORSHIPS: Certain employees and/or members of such
------------
employee's immediate household may be on the Board of Directors of
public or private companies in which EIP may invest on behalf of its
clients. However, a material conflict of interest will generally not
exist in the case where certain employees are on the Board of Directors
of public or private companies on behalf, or at the direction, of EIP.
Nevertheless, EIP will review each of these situations on a
case-by-case basis to confirm that no material conflicts of interest
exist.

2. MANAGEMENT OF PENSION PLANS: EIP may provide portfolio
------------------------------
management services, for which it may receive compensation, to the
pension plan of a public or private company in which EIP may invest on
behalf of its clients.

3. OTHER SERVICES: EIP may provide other services, for which it
--------------
may receive compensation, to public or private companies in which EIP
may invest on behalf of its clients.

The Proxy Voting Committee will maintain a list entitled, Proxy Watch
List, of companies in which it believes EIP may have a potential material
conflict of interest as it relates to voting proxies on behalf of its clients.
The Proxy Watch List will be updated periodically to reflect any changes. The
Proxy Voting Administrator will be provided with a copy of this list so that
he/she can properly identify these companies and forward their proxy ballot
information to the Proxy Committee.

If it is determined that a material conflict of interest exists, the
Proxy Voting Committee will vote the proxies of that company in accordance with
the Proxy Voting Guidelines unless, the Proxy Voting Committee determines that
it would not be in the best interest of EIP's clients. If a proxy of a company
where a material conflict of interest exists is not voted in accordance with the
Proxy Voting Guidelines, the Proxy Voting Committee will be required to document
the basis for their decision.

If a member of the Proxy Voting Committee has a material conflict of
interest with regards to a company for which a proxy is to be voted, they shall
refrain from participating in making a decision on such proxy. A majority vote
of the Proxy Voting Committee members is required for a final ruling on proxy
issues.

1.6 DISCLOSURE

A. Form ADV

EIP will include the following disclosures in Part II of its Form ADV:

1. A concise summary of these policies and procedures, and any
amendments thereto;

2. An offer to provide clients with a copy of these policies
and procedures upon request.

3. Information, including contact details (Investor Relations
[( ) - ] or [email protected]), as to how
clients can obtain information regarding how securities
held in their account were voted.

B. Clients

EIP will provide its clients with the disclosures included in its Form
ADV and any material amendments to such disclosures. If a client requests
information on how securities held in their accounts were voted, EIP will
provide, at a minimum, the following information: (i) the name of the issuer;
(ii) the proposal voted upon and (iii) how EIP voted the proxy.

Client requests for information as to EIP's intentions to vote a
particular proxy prior to the deadline date will be handled on a case-by-case
basis. If the proxy is of a controversial nature, EIP's intentions may not be
disclosed to the client.

1.7 RECORD-KEEPING

EIP must maintain the following documents for a period of not less than
five years, the first two years in its offices:

1. EIP's proxy voting policies and procedures, and any
amendments thereto.

2. Proxy ballot information regarding client securities will
generally be maintained in the ISS database. However, any
proxy ballot information received by EIP, which is not
otherwise maintained in the ISS database, will be
maintained by EIP.

3. Records of the votes that are cast by EIP on behalf of its
clients.

4, Written records of client/investor requests for proxy
information and any written response to any (written or
oral) client/investor request for information on how EIP
voted the proxies, including any e-mails.

5. Any documents prepared by EIP that were material in making
a decision regarding how to vote a proxy issue, or that
memorializes the basis for the decision, including e-mails.

6. A copy of the written disclosure provided to
clients/investors, which describe EIP's proxy voting
policies and procedures and any related correspondence sent
to clients/investors, including e-mails.

1.8 REVIEW

These policies and procedures will be reviewed periodically in light of
regulatory developments and will be amended as needed.

In addition, EIP will periodically evaluate the services
provided by ISS and the Proxy Voting Guidelines to ensure compliance with
current applicable regulatory requirements.

1.9 IDENTIFICATITON OF PERSONS

The Proxy Voting Administrator, Research Coordinators and members of
the Proxy Voting Committee are identified in Appendix B, which may be amended
from time to time.

--------------------------------------------------------------------------------
ISS 2007 PROXY VOTING GUIDELINES
SUMMARY
--------------------------------------------------------------------------------

[GRAPHIC OMITTED]
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All rights reserved. No part of this publication may be reproduced or
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Requests for permission to make copies of any part of this work should be sent
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Rockville, MD 20850 ISS is a trademark used herein under license.

ISS 2007 PROXY VOTING GUIDELINES SUMMARY
EFFECTIVE FOR MEETINGS FEB 1, 2007

UPDATED DECEMBER 15, 2006

The following is a condensed version of the proxy voting recommendations
contained in the ISS Proxy Voting Manual.

1. OPERATIONAL ITEMS........................................................6
Adjourn Meeting...................................................... 6
Amend Quorum Requirements.............................................6
Amend Minor Bylaws ...................................................6
Auditor Indemnification and Limitation of Liability.................. 6
Auditor Ratification................................................. 6
Change Company Name ................................................. 7
Change Date, Time, or Location of Annual Meeting..................... 7
Transact Other Business ............................................. 7

2. BOARD OF DIRECTORS...................................................... 8
Voting on Director Nominees in Uncontested Elections ................ 8
2007 Classification of Directors ................................... 10
Age Limits ......................................................... 11
Board Size ......................................................... 11
Classification/Declassification of the Board........................ 11
Cumulative Voting................................................... 11
Director and Officer Indemnification and Liability Protection....... 12
Establish/Amend Nominee Qualifications.............................. 12
Filling Vacancies/Removal of Directors ............................. 12
Independent Chair (Separate Chair/CEO............................... 13
Majority of Independent Directors/Establishment of Committees....... 13
Majority Vote Shareholder Proposals ................................ 13
Office of the Board................................................. 14
Open Access......................................................... 14
Performance Test for Directors...................................... 14
Stock Ownership Requirements ....................................... 15
Term Limits ........................................................ 15

3. PROXY CONTESTS ........................................................ 16
Voting for Director Nominees in Contested Elections................. 16
Reimbursing Proxy Solicitation Expenses ............................ 16
Confidential Voting................................................. 16

4. ANTITAKEOVER DEFENSES AND VOTING RELATED ISSUES........................ 17
Advance Notice Requirements for Shareholder Proposals/Nominations .. 17
Amend Bylaws without Shareholder Consent ........................... 17
Poison Pills ....................................................... 17
Shareholder Ability to Act by Written Consent....................... 17
Shareholder Ability to Call Special Meetings........................ 17
Supermajority Vote Requirements..................................... 17

5. MERGERS AND CORPORATE RESTRUCTURINGS ....................................... 18
Overall Approach......................................................... 18
Appraisal Rights......................................................... 18
Asset Purchases ......................................................... 18
Asset Sales ............................................................. 19
Bundled Proposals........................................................ 19
Conversion of Securities................................................. 19
Corporate Reorganization/Debt Restructuring/Prepackaged Bankruptcy
Plans/Reverse
Leveraged Buyouts/Wrap Plans ............................................ 19
Formation of Holding Company ............................................ 19
Going Private Transactions (LBOs, Minority Squeezeouts, and Going Dark.. 20
Joint Ventures .......................................................... 20
Liquidations............................................................. 20
Mergers and Acquisitions/ Issuance of Shares to Facilitate Merger or
Acquisition.............................................................. 20
Private Placements/Warrants/Convertible Debentures ...................... 20
Spinoffs ................................................................ 21
Value Maximization Proposals............................................. 21

6. STATE OF INCORPORATION ..................................................... 22
Control Share Acquisition Provisions..................................... 22
Control Share Cash-out Provisions ....................................... 22
Disgorgement Provisions.................................................. 22
Fair Price Provisions.................................................... 22
Freeze-out Provisions.....................................................22
Greenmail ............................................................... 22
Reincorporation Proposals................................................ 23
Stakeholder Provisions .................................................. 23
State Antitakeover Statutes ............................................. 23

7. CAPITAL STRUCTURE........................................................... 24
Adjustments to Par Value of Common Stock................................. 24
Common Stock Authorization .............................................. 24
Dual-Class Stock ........................................................ 24
Issue Stock for Use with Rights Plan..................................... 24
Preemptive Rights........................................................ 24
Preferred Stock ......................................................... 24
Recapitalization......................................................... 25
Reverse Stock Splits..................................................... 25
Share Repurchase Programs ............................................... 25
Stock Distributions: Splits and Dividends ............................... 25
Tracking Stock .......................................................... 25

8. EXECUTIVE AND DIRECTOR COMPENSATION ........................................ 26
Equity Compensation Plans ..................................................26
Cost of Equity Plans..................................................... 26
Repricing Provisions .................................................... 26
Pay-for Performance Disconnect........................................... 26
Three-Year Burn Rate/Burn Rate Commitment................................ 28
Poor Pay Practices ...................................................... 29
Specific Treatment of Certain Award Types in Equity Plan Evaluations........30
Dividend Equivalent Rights............................................... 30
Liberal Share Recycling Provisions ...................................... 30
Other Compensation Proposals and Policies ..................................30

401(k) Employee Benefit Plans ........................................... 30
Director Compensation ................................................... 30
Director Retirement Plans................................................ 31
Employee Stock Ownership Plans (ESOPs) .................................. 31
Employee Stock Purchase Plans-- Qualified Plans.......................... 31
Employee Stock Purchase Plans-- Non-Qualified Plans...................... 31
Incentive Bonus Plans and Tax Deductibility Proposals (OBRA-Related ..... 32
Compensation Proposals................................................... 32
Options Backdating....................................................... 32
Option Exchange Programs/Repricing Options............................... 32
Stock Plans in Lieu of Cash.............................................. 33
Transfer Programs of Stock Options ...................................... 33
Shareholder Proposals on Compensation ..................................... 33
Advisory Vote on Executive Compensation (Say-on-Pay) .................... 33
Compensation Consultants- Disclosure of Board or Company's Utilization... 33
Disclosure/Setting Levels or Types of Compensation for Executives and
Directors................................................................ 34
Option Repricing ........................................................ 34
Pay for Superior Performance ............................................ 34
Pension Plan Income Accounting .......................................... 34
Performance-Based Awards................................................. 35
Severance Agreements for Executives/Golden Parachutes.................... 35
Supplemental Executive Retirement Plans (SERPs) ......................... 35

9. CORPORATE RESPONSIBILITY.................................................... 36
Consumer Issues and Public Safety ......................................... 36
Animal Rights............................................................ 36
Drug Pricing ............................................................ 36
Drug Reimportation....................................................... 36
Genetically Modified Foods .............................................. 36
Handguns................................................................. 37
HIV/AIDS................................................................. 37
Predatory Lending........................................................ 37
Tobacco ................................................................. 38
Toxic Chemicals.......................................................... 38
Environment and Energy..................................................... 38
Arctic National Wildlife Refuge ......................................... 38
CERES Principles......................................................... 39
Climate Change .......................................................... 39
Concentrated Area Feeding Operations (CAFOs.............................. 39
Environmental-Economic Risk Report....................................... 39
Environmental Reports ................................................... 39
Global Warming .......................................................... 40
Kyoto Protocol Compliance................................................ 40
Land Use................................................................. 40
Nuclear Safety .......................................................... 40
Operations in Protected Areas............................................ 40
Recycling................................................................ 40
Renewable Energy......................................................... 41
Sustainability Report.................................................... 41
General Corporate Issues .................................................. 41
Charitable/Political Contributions....................................... 41
Disclosure of Lobbying Expenditures/Initiatives ......................... 42
Link Executive Compensation to Social Performance........................ 42
Outsourcing/Offshoring................................................... 42
Labor Standards and Human Rights........................................... 42
China Principles ........................................................ 42
Country-specific Human Rights Reports.................................... 42

International Codes of Conduct/Vendor Standards ......................... 42
MacBride Principles ..................................................... 43
Military Business ......................................................... 43
Foreign Military Sales/Offsets........................................... 43
Landmines and Cluster Bombs.............................................. 43
Nuclear Weapons ......................................................... 44
Operations in Nations Sponsoring Terrorism (e.g., Iran).................. 44
Spaced-Based Weaponization .............................................. 44

Workplace Diversity...................................................... 44
Board Diversity......................................................... 44
Equal Employment Opportunity (EEO....................................... 44
Glass Ceiling........................................................... 45
Sexual Orientation ..................................................... 45

10. MUTUAL FUND PROXIES ....................................................... 46
Election of Directors.................................................... 46
Converting Closed-end Fund to Open-end Fund ............................. 46
Proxy Contests........................................................... 46
Investment Advisory Agreements .......................................... 46
Approving New Classes or Series of Shares................................ 46
Preferred Stock Proposals................................................ 46
1940 Act Policies ....................................................... 46
Changing a Fundamental Restriction to a Nonfundamental Restriction....... 47
Change Fundamental Investment Objective to Nonfundamental................ 47
Name Change Proposals.................................................... 47
Change in Fund's Subclassification....................................... 47
Disposition of Assets/Termination/Liquidation............................ 47
Changes to the Charter Document ......................................... 47
Changing the Domicile of a Fund ......................................... 48
Authorizing the Board to Hire and Terminate Subadvisors Without
Shareholder Approval..................................................... 48
Distribution Agreements.................................................. 48
Master-Feeder Structure.................................................. 48
Mergers.................................................................. 48
Shareholder Proposals for Mutual Funds..................................... 48
Establish Director Ownership Requirement................................. 48
Reimburse Shareholder for Expenses Incurred.............................. 48
Terminate the Investment Advisor ........................................ 48

1. OPERATIONAL ITEMS
ADJOURN MEETING

Generally vote AGAINST proposals to provide management with the authority to
adjourn an annual or special meeting absent compelling reasons to support the
proposal.

Vote FOR proposals that relate specifically to soliciting votes for a merger or
transaction if supporting that merger or transaction. Vote AGAINST proposals if
the wording is too vague or if the proposal includes "other business."

AMEND QUORUM REQUIREMENTS

Vote AGAINST proposals to reduce quorum requirements for shareholder meetings
below a majority of the shares outstanding unless there are compelling reasons
to support the proposal.

AMEND MINOR BYLAWS

Vote FOR bylaw or charter changes that are of a housekeeping nature (updates or
corrections).

AUDITOR INDEMNIFICATION AND LIMITATION OF LIABILITY

Consider the issue of auditor indemnification and limitation of liability on a
CASE-BY-CASE basis. Factors to be assessed include, but are not limited to:

The terms of the auditor agreement- the degree to which these
agreements impact shareholders' rights;

Motivation and rationale for establishing the agreements; Quality of
disclosure; and Historical practices in the audit area.

WTHHOLD against members of an audit committee in situations where there is
persuasive evidence that the audit committee entered into an inappropriate
indemnification agreement with its auditor that limits the ability of the
company, or its shareholders, to pursue legitimate legal recourse against the
audit firm.

AUDITOR RATIFICATION

Vote FOR proposals to ratify auditors, unless any of the following apply:

An auditor has a financial interest in or association with the company,
and is therefore not independent,

There is reason to believe that the independent auditor has rendered an
opinion which is neither accurate nor indicative of the company's financial
position, or

Fees for non-audit services ("Other" fees) are excessive.

Non-audit fees are excessive if:

Non-audit ("other") fees >audit fees + audit-related fees + tax compliance/
preparation fees

Tax compliance and preparation include the preparation of original and amended
tax returns, refund claims and tax payment planning. All other services in the
tax category, such as tax advice, planning or consulting should be added to
"Other" fees. If the breakout of tax fees cannot be determined, add all tax fees
to "Other" fees.

Vote CASE-BY-CASE on shareholder proposals asking companies to prohibit or limit
their auditors from engaging in non-audit services.

Vote CASE-BY-CASE on shareholder proposals asking for audit firm rotation,
taking into account: The tenure of the audit firm; The length of rotation
specified in the proposal; Any significant audit-related issues at the company;
The number of Audit Committee meetings held each year; The number of financial
experts serving on the committee; and Whether the company has a periodic renewal
process where the auditor is evaluated for both
audit quality and competitive price.

CHANGE COMPANY NAME

Vote FOR proposals to change the corporate name.

CHANGE DATE, TIME, OR LOCATION OF ANNUAL MEETING

Vote FOR management proposals to change the date, time, and/or location of the
annual meeting unless the proposed change is unreasonable.

Vote AGAINST shareholder proposals to change the date, time, and/or location of
the annual meeting unless the current scheduling or location is unreasonable.

TRANSACT OTHER BUSINESS

Vote AGAINST proposals to approve other business when it appears as voting item.

2. BOARD OF DIRECTORS:

VOTING ON DIRECTOR NOMINEES IN UNCONTESTED ELECTIONS

Vote CASE-BY-CASE on director nominees, examining, but not limited to, the
following factors:

o Composition of the board and key board committees;
o Attendance at board and committee meetings;
o Corporate governance provisions and takeover activity;
o Disclosures under Section 404 of Sarbanes-Oxley Act;
o Long-term company performance relative to a market and peer index;
o Extent of the director's investment in the company;
o Existence of related party transactions;
o Whether the chairman is also serving as CEO; o Whether a retired CEO sits on
the board;
o Number of outside boards at which a director serves;
o Majority vote standard for director elections without a provision to allow for
plurality voting when

there are more nominees than seats.

WITHHOLD from individual directors who:

o Attend less than 75 percent of the board and committee meetings without
a valid excuse (such as illness, service to the nation, work on behalf
of the company);
o Sit on more than six public company boards;
o Are CEOs of public companies who sit on the boards of more than two
public companies besides their own-- withhold only at their outside
boards.

WITHHOLD from the entire board of directors, (except from new nominees, who
should be considered on a CASE-BY-CASE basis) if:

o The company's proxy indicates that not all directors attended 75% of
the aggregate of their board and committee meetings, but fails to
provide the required disclosure of the names of the directors involved.
If this information cannot be obtained, withhold from all incumbent
directors;
o The company's poison pill has a dead-hand or modified dead-hand
feature. Withhold every year until this feature is removed;
o The board adopts or renews a poison pill without shareholder approval
since the beginning of 2005, does not commit to putting it to
shareholder vote within 12 months of adoption, or reneges on a
commitment to put the pill to a vote, and has not yet received a
withhold recommendation for this issue;
o The board failed to act on a shareholder proposal that received
approval by a majority of the shares outstanding the previous year;
o The board failed to act on a shareholder proposal that received
approval of the majority of shares cast for the previous two
consecutive years;
o The board failed to act on takeover offers where the majority of the
shareholders tendered their shares;
o At the previous board election, any director received more than 50
percent withhold votes of the shares cast and the company has failed to
address the issue(s) that caused the high withhold rate;
o The company is a Russell 3000 company that underperformed its industry
group (GICS group) under the criteria discussed in the section
"Performance Test for Directors".
o WITHHOLD from Inside Directors and Affiliated Outside Directors (per
the Classification of Directors below) when:
o The inside or affiliated outside director serves on any of the three
key committees: audit, compensation, or nominating;
o The company lacks an audit, compensation, or nominating committee so
that the full board functions as that committee;
o The company lacks a formal nominating committee, even if board attests
that the independent directors fulfill the functions of such a
committee;

o The full board is less than majority independent.

WITHHOLD from the members of the Audit Committee if:

o The non - audit fees paid to the auditor are excessive (see discussion
under Auditor Ratification);
o A material weakness identified in the Section 404 Sarbanes-Oxley Act
disclosures rises to a level of serious concern; there are chronic
internal control issues and an absence of established effective control
mechanisms;
o There is persuasive evidence that the audit committee entered into an
inappropriate indemnification agreement with its auditor that limits
the ability of the company, or its shareholders, to pursue legitimate
legal recourse against the audit firm.

WITHHOLD from the members of the Compensation Committee if:

o There is a negative correlation between the chief executive's pay and
company performance (see discussion under Equity Compensation Plans);
o The company reprices underwater options for stock, cash or other
consideration without prior shareholder approval, even if allowed in
their equity plan;
o The company fails to submit one-time transfers of stock options to a
shareholder vote;
o The company fails to fulfill the terms of a burn rate commitment they
made to shareholders;
o The company has backdated options (see "Options Backdating" policy);
o The company has poor compensation practices (see "Poor Pay Practices"
policy). Poor pay practices may warrant withholding votes from the CEO
and potentially the entire board as well.

WITHHOLD from directors, individually or the entire board, for egregious actions
or failure to replace management as appropriate.

2007 CLASSIFICATION OF DIRECTORS
INSIDE DIRECTOR (I)

o Employee of the company or one of its affiliates(1);
o Non-employee officer of the company if among the five most highly paid
individuals (excluding interim CEO);
o Listed as a Section 16 officer(2);
o Current interim CEO;
o Beneficial owner of more than 50 percent of the company's voting power
(this may be aggregated if voting power is distributed among more than
one member of a defined group).

AFFILIATED OUTSIDE DIRECTOR (AO)

o Board attestation that an outside director is not independent;
o Former CEO of the company;
o Former CEO of an acquired company within the past five years;
o Former interim CEO if the service was longer than 18 months. If the
service was between twelve and eighteen months an assessment of the
interim CEO's employment agreement will be made;(3)
o Former executive(2) of the company, an affiliate or an acquired firm
within the past five years;
o Executive(2) of a former parent or predecessor firm at the time the
company was sold or split off from the parent/predecessor within the
past five years;
o Executive, former executive, general or limited partner of a joint
venture or partnership with the company;
o Relative(4) of a current Section 16 officer of company or its
affiliates;
o Relative(4) of a current employee of company or its affiliates where
additional factors raise concern (which may include, but are not
limited to, the following: a director related to numerous employees;
the company or its affiliates employ relatives of numerous board
members; or a non-Section 16 officer in a key strategic role);
o Relative(4) of former Section 16 officer, of company or its affiliate
within the last five years;
o Currently provides (or a relative(4) provides) professional services(5)
to the company, to an affiliate of the company or an individual officer
of the company or one of its affiliates in excess of $10,000 per year;
o Employed by (or a relative(4) is employed by) a significant customer or
supplier(6);
o Has (or a relative(4) has) any transactional relationship with the
company or its affiliates excluding investments in the company through
a private placement; (6)
o Any material financial tie or other related party transactional
relationship to the company;
o Party to a voting agreement to vote in line with management on
proposals being brought to shareholder vote;
o Has (or a relative(4) has) an interlocking relationship as defined by
the SEC involving members of the board of directors or its Compensation
and Stock Option Committee; (7)

o Founder(8) of the company but not currently an employee;
o Is (or a relative(4) is) a trustee, director or employee of a
charitable or non-profit organization that receives grants or
endowments6 from the company or its affiliates(1).

INDEPENDENT OUTSIDE DIRECTOR (IO)

o No material9 connection to the company other than a board seat.

--------------------------------------------------------------------------------
FOOTNOTES:

(1) "Affiliate" includes a subsidiary, sibling company, or parent company. ISS
uses 50 percent control ownership by the parent company as the standard for
applying its affiliate designation.

(2) "Executives" (officers subject to Section 16 of the Securities and Exchange
Act of 1934) include the chief executive, operating, financial, legal,
technology, and accounting officers of a company (including the president,
treasurer, secretary, controller, or any vice president in charge of a principal
business unit, division or policy function).

--------------------------------------------------------------------------------
3 ISS will look at the terms of the interim CEO's employment contract to
determine if it contains severance pay, long-term health and pension benefits or
other such standard provisions typically contained in contracts of permanent,
non-temporary CEOs. ISS will also consider if a formal search process was
underway for a full-time CEO at the time.

4 "Relative" follows the SEC's new definition of "immediate family members"
which covers spouses, parents, children, step-parents, step-children, siblings,
in-laws, and any person (other than a tenant or employee) sharing the household
of any director, nominee for director, executive officer, or significant
shareholder of the company.

5 Professional services can be characterized as advisory in nature and
generally include the following: investment banking/financial advisory services;
commercial banking (beyond deposit services); investment services; insurance
services; accounting/audit services; consulting services; marketing services;
and legal services. The case of participation in a banking syndicate by a
non-lead bank should be considered a transaction (and hence subject to the
associated materiality test) rather than a professional relationship.

6 If the company makes or receives annual payments exceeding the greater of
$200,000 or five percent of the recipient's gross revenues. (The recipient is
the party receiving the financial proceeds from the transaction).

7 Interlocks include: (a) executive officers serving as directors on each
other's compensation or similar committees (or, in the absence of such a
committee, on the board) or (b) executive officers sitting on each other's
boards and at least one serves on the other's compensation or similar committees
(or, in the absence of such a committee, on the board).

8 The operating involvement of the Founder with the company will be
considered. Little to no operating involvement may cause ISS to deem the Founder
as an independent outsider.

9 For purposes of ISS' director independence classification, "material" will be
defined as a standard of relationship (financial, personal or otherwise) that a
reasonable person might conclude could potentially influence one's objectivity
in the boardroom in a manner that would have a meaningful impact on an
individual's ability to satisfy requisite fiduciary standards on behalf of
shareholders.
--------------------------------------------------------------------------------

AGE LIMITS

Vote AGAINST shareholder or management proposals to limit the tenure of outside
directors through mandatory retirement ages.

BOARD SIZE

Vote FOR proposals seeking to fix the board size or designate a range for the
board size.

Vote AGAINST proposals that give management the ability to alter the size of the
board outside of a specified range without shareholder approval.

CLASSIFICATION/DECLASSIFICATION OF THE BOARD Vote AGAINST proposals to classify
the board.

Vote FOR proposals to repeal classified boards and to elect all directors
annually.

CUMULATIVE VOTING

Generally vote AGAINST proposals to eliminate cumulative voting.

Generally vote FOR proposals to restore or provide for cumulative voting unless
the company meets ALL of the following criteria:

o Majority vote standard in director elections, including a carve-out for
plurality voting in contested situations;
o Annually elected board;
o Two-thirds of the board composed of independent directors;
o Nominating committee composed solely of independent directors;
o Confidential voting; however, there may be a provision for suspending
confidential voting during proxy contests;

o Ability of shareholders to call special meetings or act by written
consent with 90 days' notice;
o Absence of superior voting rights for one or more classes of stock;
o Board does not have the right to change the size of the board beyond a
stated range that has been approved by shareholders;
o The company has not under-performed its both industry peers and index
on both a one-year and three-year total shareholder returns basis*,
unless there has been a change in the CEO position within the last
three years; and
o No director received a WITHHOLD vote level of 35% or more of the votes
cast in the previous election.

* Starting in 2007, the industry peer group used for this evaluation will change
from the 4-digit GICS group to the average of the 12 companies in the same
6-digit GICS group that are closest in revenue to the company. To fail, the
company must under-perform its index and industry group on all 4 measures (1 and
3 year on industry peers and index).

DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY PROTECTION

Vote CASE-BY-CASE on proposals on director and officer indemnification and
liability protection using Delaware law as the standard.

Vote AGAINST proposals to eliminate entirely directors' and officers' liability
for monetary damages for violating the duty of care.

Vote AGAINST indemnification proposals that would expand coverage beyond just
legal expenses to liability for acts, such as negligence, that are more serious
violations of fiduciary obligation than mere carelessness.

Vote AGAINST proposals that would expand the scope of indemnification to provide
for mandatory indemnification of company officials in connection with acts that
previously the company was permitted to provide indemnification for at the
discretion of the company's board (i.e. "permissive indemnification") but that
previously the company was not required to indemnify.

Vote FOR only those proposals providing such expanded coverage in cases when a
director's or officer's legal defense was unsuccessful if both of the following
apply:

If the director was found to have acted in good faith and in a manner
that he reasonably believed was in the best interests of the company; and

If only the director's legal expenses would be covered.

ESTABLISH/AMEND NOMINEE QUALIFICATIONS

Vote CASE-BY-CASE on proposals that establish or amend director qualifications.
Votes should be based on how reasonable the criteria are and to what degree they
may preclude dissident nominees from joining the board.

Vote AGAINST shareholder proposals requiring two candidates per board seat.

FILLING VACANCIES/REMOVAL OF DIRECTORS

Vote AGAINST proposals that provide that directors may be removed only for
cause.

Vote FOR proposals to restore shareholders' ability to remove directors with or
without cause.

Vote AGAINST proposals that provide that only continuing directors may elect
replacements to fill board vacancies.

Vote FOR proposals that permit shareholders to elect directors to fill board
vacancies.

INDEPENDENT CHAIR (SEPARATE CHAIR/CEO)

Generally vote FOR shareholder proposals requiring the position of chair be
filled by an independent director unless there are compelling reasons to
recommend against the proposal, such as a counterbalancing governance structure.
This should include all of the following:

o Designated lead director, elected by and from the independent board
members with clearly delineated and comprehensive duties. (The role may
alternatively reside with a presiding director, vice chairman, or
rotating lead director; however the director must serve a minimum of
one year in order to qualify as a lead director.) At a minimum these
should include:

- Presides at all meetings of the board at which the chairman is not
present, including executive sessions of the independent directors,
- Serves as liaison between the chairman and the independent directors,
- Approves information sent to the board,
- Approves meeting agendas for the board,
- Approves meetings schedules to assure that there is
sufficient time for discussion of all agenda items,
- Has the authority to call meetings of the independent directors,
- If requested by major shareholders, ensures that he is available for
consultation and direct communication;

Two-thirds independent board;

o All-independent key committees;
o Established governance guidelines;
o The company should not have underperformed both its industry peers and
index on both a one-year and three-year total shareholder returns
basis*, unless there has been a change in the Chairman/CEO position
within that time;
o The company does not have any problematic governance issues.

MAJORI

TY OF INDEPENDENT DIRECTORS/ESTABLISHMENT OF COMMITTEES

Vote FOR shareholder proposals asking that a majority or more of directors be
independent unless the board composition already meets the proposed threshold by
ISS' definition of independent outsider. (See Classification of Directors.)

Vote FOR shareholder proposals asking that board audit, compensation, and/or
nominating committees be composed exclusively of independent directors if they
currently do not meet that standard.

MAJORITY VOTE SHAREHOLDER PROPOSALS

Generally vote FOR precatory and binding resolutions requesting that the board
change the company's bylaws to stipulate that directors need to be elected with
an affirmative majority of votes cast, provided it does not conflict with the
state law where the company is incorporated. Binding resolutions need to allow
for a carve-out for a plurality vote standard when there are more nominees than
board seats.

Companies are strongly encouraged to also adopt a post-election policy (also
know as a director resignation policy) that will provide guidelines so that the
company will promptly address the situation of a holdover director.

OFFICE OF THE BOARD

Generally vote FOR shareholders proposals requesting that the board establish an
Office of the Board of Directors in order to facilitate direct communications
between shareholders and non-management directors, unless the company has all of
the following:

o Established a communication structure that goes beyond the exchange
requirements to facilitate the exchange of information between
shareholders and members of the board;
o Effectively disclosed information with respect to this structure to its
shareholders;
o Company has not ignored majority-supported shareholder proposals or a
majority withhold vote on a director nominee; and
o The company has an independent chairman or a lead/presiding director,
according to ISS' definition. This individual must be made available
for periodic consultation and direct communication with major
shareholders.

OPEN ACCESS

Generally vote FOR reasonably crafted shareholder proposals providing
shareholders with the ability to nominate director candidates to be included on
management's proxy card, provided the proposal substantially mirrors the SEC's
proposed two-trigger formulation (see the proposed "Security Holder Director
Nominations" rule (HTTP://WWW.SEC.GOV/RULES/PROPOSED/34-48626.HTM) or ISS'
comment letter to the SEC dated 6/13/2003, available on ISS website under
Governance Center- ISS Position Papers).

PERFORMANCE TEST FOR DIRECTORS

WITHHOLD from directors of Russell 3000 companies that underperformed relative
to their industry peers. The criterion used to evaluate such underperformance is
a combination of four performance measures:

One measurement will be a market-based performance metric and three measurements
will be tied to the company's operational performance. The market performance
metric in the methodology is five-year Total Shareholder Return (TSR) on a
relative basis within each four-digit GICS group. The three operational
performance metrics are sales growth, EBITDA growth, and pre-tax operating
Return on Invested Capital (ROIC) on a relative basis within each four-digit
GICS group. All four metrics will be time-weighted as follows: 40 percent on the
trailing 12 month period and 60 percent on the 48 month period prior to the
trailing 12 months. This methodology emphasizes the company's historical
performance over a five-year period yet also accounts for near-term changes in a
company's performance.

The table below summarizes the new framework: Adopt a two-phased approach. In
2007 (YEAR 1), the worst performers (bottom five percent) within each of the 24
GICS groups will automatically receive CAUTIONARY LANGUAGE, except for companies
that have already received cautionary language or withhold votes in 2006 under
the current policy. The latter may be subject to withhold votes in 2007. For
2008 (YEAR 2), WITHHOLD votes from director nominees if a company continues to
be in the bottom five percent within its GICS group for that respective year
and/or shows no improvement in its most recent trailing 12 months operating and
market performance relative to its peers in its GICS group. This policy would be
applied on a rolling basis going forward.

---------------------------------------------------------------------------------------------------------------------------------
Metrics Basis of Evaluation Weighting 2nd Weighting
---------------------------------------------------------------------------------------------------------------------------------
OPERATIONAL PERFORMANCE 50%
---------------------------------------------------------------------------------------------------------------------------------
5-YEAR AVERAGE PRE-TAX MANAGEMENT EFFICIENCY 33.3%
OPERATING ROIC IN DEPLOYING ASSETS
---------------------------------------------------------------------------------------------------------------------------------
5-YEAR SALES GROWTH TOP-LINE 33.3%
---------------------------------------------------------------------------------------------------------------------------------
5-YEAR EBITDA GROWTH CORE-EARNINGS 33.3%
---------------------------------------------------------------------------------------------------------------------------------
SUB TOTAL 100%
---------------------------------------------------------------------------------------------------------------------------------

STOCK 50%
PERFORMANCE
----------------------------------------------------------------
5-YEAR TSR MARKET
----------------------------------------------------------------
TOTAL 100%
----------------------------------------------------------------

STOCK OWNERSHIP REQUIREMENTS

Generally vote AGAINST shareholder proposals that mandate a minimum amount of
stock that directors must own in order to qualify as a director or to remain on
the board. While stock ownership on the part of directors is desired, the
company should determine the appropriate ownership requirement.

Vote CASE-BY-CASE on shareholder proposals asking that the company adopt a
holding or retention period for its executives (for holding stock after the
vesting or exercise of equity awards), taking into account any stock ownership
requirements or holding period/retention ratio already in place and the actual
ownership level of executives.

TERM LIMITS

Vote AGAINST shareholder or management proposals to limit the tenure of outside
directors through term limits. However, scrutinize boards where the average
tenure of all directors exceeds 15 years for independence from management and
for sufficient turnover to ensure that new perspectives are being added to the
board.

3. PROXY CONTESTS

VOTING FOR DIRECTOR NOMINEES IN CONTESTED ELECTIONS

Vote CASE-BY-CASE on the election of directors in contested elections,
considering the following factors:
Long-term financial performance of the target company relative to its industry;
Management's track record; Background to the proxy contest;
Qualifications of director nominees (both slates);
Strategic plan of dissident slate and quality of critique against
management; Likelihood that the proposed goals and objectives can be
achieved (both slates); Stock ownership positions.

REIMBURSING PROXY SOLICITATION EXPENSES

Vote CASE-BY-CASE on proposals to reimburse proxy solicitation expenses. When
voting in conjunction with support of a dissident slate, vote FOR the
reimbursement of all appropriate proxy solicitation expenses associated with the
election.

CONFIDENTIAL VOTING

Vote FOR shareholder proposals requesting that corporations adopt confidential
voting, use independent vote tabulators, and use independent inspectors of
election, as long as the proposal includes a provision for proxy contests as
follows: In the case of a contested election, management should be permitted to
request that the dissident group honor its confidential voting policy. If the
dissidents agree, the policy remains in place. If the dissidents will not agree,
the confidential voting policy is waived.

Vote FOR management proposals to adopt confidential voting.

4. ANTITAKEOVER DEFENSES AND VOTING RELATED ISSUES
ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS/NOMINATIONS

Vote CASE-BY-CASE on advance notice proposals, supporting those proposals which
allow shareholders to submit proposals as close to the meeting date as
reasonably possible and within the broadest window possible.

AMEND BYLAWS WITHOUT SHAREHOLDER CONSENT

Vote AGAINST proposals giving the board exclusive authority to amend the bylaws.
Vote FOR proposals giving the board the ability to amend the bylaws in addition
to shareholders.

POISON PILLS

Vote FOR shareholder proposals requesting that the company submit its poison
pill to a shareholder vote or redeem it UNLESS the company has: (1) A
shareholder approved poison pill in place; or (2) The company has adopted a
policy concerning the adoption of a pill in the future specifying that the board
will only adopt a shareholder rights plan if either:

o Shareholders have approved the adoption of the plan; or
o The board, in its exercise of its fiduciary responsibilities,
determines that it is in the best interest of shareholders under the
circumstances to adopt a pill without the delay in adoption that would
result from seeking stockholder approval (i.e. the "fiduciary out"
provision). A poison pill adopted under this fiduciary out will be put
to a shareholder ratification vote within twelve months of adoption or
expire. If the pill is not approved by a majority of the votes cast on
this issue, the plan will immediately terminate.

Vote FOR shareholder proposals calling for poison pills to be put to a vote
within a time period of less than one year after adoption. If the company has no
non-shareholder approved poison pill in place and has adopted a policy with the
provisions outlined above, vote AGAINST the proposal. If these conditions are
not met, vote FOR the proposal, but with the caveat that a vote within twelve
months would be considered sufficient.

Vote CASE-by-CASE on management proposals on poison pill ratification, focusing
on the features of the shareholder rights plan. Rights plans should contain the
following attributes:

o No lower than a 20% trigger, flip-in or flip-over;
o A term of no more than three years;
o No dead-hand, slow-hand, no-hand or similar feature that limits the
ability of a future board to redeem the pill;
o Shareholder redemption feature (qualifying offer clause); if the board
refuses to redeem the pill 90 days after a qualifying offer is
announced, ten percent of the shares may call a special meeting or seek
a written consent to vote on rescinding the pill.

SHAREHOLDER ABILITY TO ACT BY WRITTEN CONSENT

Vote AGAINST proposals to restrict or prohibit shareholder ability to take
action by written consent. Vote FOR proposals to allow or make easier
shareholder action by written consent.

SHAREHOLDER ABILITY TO CALL SPECIAL MEETINGS

Vote AGAINST proposals to restrict or prohibit shareholder ability to call
special meetings. Vote FOR proposals that remove restrictions on the right of
shareholders to act independently of management.

SUPERMAJORITY VOTE REQUIREMENTS

Vote AGAINST proposals to require a supermajority shareholder vote. Vote FOR
proposals to lower supermajority vote requirements.

5. MERGERS AND CORPORATE RESTRUCTURINGS OVERALL APPROACH

For mergers and acquisitions, review and evaluate the merits and drawbacks of
the proposed transaction, balancing various and sometimes countervailing factors
including:

o VALUATION - Is the value to be received by the target shareholders (or
paid by the acquirer) reasonable? While the fairness opinion may
provide an initial starting point for assessing valuation
reasonableness, emphasis is placed on the offer premium, market
reaction and strategic rationale.

o MARKET REACTION - How has the market responded to the proposed deal? A
negative market reaction should cause closer scrutiny of a deal.

o STRATEGIC RATIONALE - Does the deal make sense strategically? From
where is the value derived? Cost and revenue synergies should not be
overly aggressive or optimistic, but reasonably achievable. Management
should also have a favorable track record of successful integration of
historical acquisitions.

o NEGOTIATIONS AND PROCESS - Were the terms of the transaction negotiated
at arm's-length? Was the process fair and equitable? A fair process
helps to ensure the best price for shareholders. Significant
negotiation "wins" can also signify the deal makers' competency. The
comprehensiveness of the sales process (e.g., full auction, partial
auction, no auction) can also affect shareholder value.

o CONFLICTS OF INTEREST - Are insiders benefiting from the transaction
disproportionately and inappropriately as compared to non-insider
shareholders? As the result of potential conflicts, the directors and
officers of the company may be more likely to vote to approve a merger
than if they did not hold these interests. Consider whether these
interests may have influenced these directors and officers to support
or recommend the merger. The CIC figure presented in the "ISS
Transaction Summary" section of this report is an aggregate figure that
can in certain cases be a misleading indicator of the true value
transfer from shareholders to insiders. Where such figure appears to be
excessive, analyze the underlying assumptions to determine whether a
potential conflict exists.

o GOVERNANCE - Will the combined company have a better or worse
governance profile than the current governance profiles of the
respective parties to the transaction? If the governance profile is to
change for the worse, the burden is on the company to prove that other
issues (such as valuation) outweigh any deterioration in governance.

APPRAISAL RIGHTS

Vote FOR proposals to restore, or provide shareholders with, rights of
appraisal.

ASSET PURCHASES

Vote CASE-BY-CASE on asset purchase proposals, considering the following
factors:
o Purchase price;
o Fairness opinion;
o Financial and strategic benefits;
o How the deal was negotiated;
o Conflicts of interest;
o Other alternatives for the business;
o Non-completion risk.

ASSET SALES

Vote CASE-BY-CASE on asset sales, considering the following factors:

o Impact on the balance sheet/working capital;
o Potential elimination of diseconomies;
o Anticipated financial and operating benefits;
o Anticipated use of funds;
o Value received for the asset;
o Fairness opinion;
o How the deal was negotiated;
o Conflicts of interest.

BUNDLED PROPOSALS

Vote CASE-BY-CASE on bundled or "conditional" proxy proposals. In the case of
items that are conditioned upon each other, examine the benefits and costs of
the packaged items. In instances when the joint effect of the conditioned items
is not in shareholders' best interests, vote AGAINST the proposals. If the
combined effect is positive, support such proposals.

CONVERSION OF SECURITIES

Vote CASE-BY-CASE on proposals regarding conversion of securities. When
evaluating these proposals the investor should review the dilution to existing
shareholders, the conversion price relative to market value, financial issues,
control issues, termination penalties, and conflicts of interest.

Vote FOR the conversion if it is expected that the company will be subject to
onerous penalties or will be forced to file for bankruptcy if the transaction is
not approved.

CORPORATE REORGANIZATION/DEBT RESTRUCTURING/PREPACKAGED BANKRUPTCY PLANS/REVERSE
LEVERAGED BUYOUTS/WRAP PLANS

Vote CASE-BY-CASE on proposals to increase common and/or preferred shares and to
issue shares as part of a debt restructuring plan, taking into consideration the
following:

o Dilution to existing shareholders' position;
o Terms of the offer;
o Financial issues;
o Management's efforts to pursue other alternatives;
o Control issues;
o Conflicts of interest.

Vote FOR the debt restructuring if it is expected that the company will file for
bankruptcy if the transaction is not approved.

FORMATION OF HOLDING COMPANY

Vote CASE-BY-CASE on proposals regarding the formation of a holding company,
taking into consideration the following:

o The reasons for the change;
o Any financial or tax benefits;
o Regulatory benefits;
o Increases in capital structure;
o Changes to the articles of incorporation or bylaws of the company.

Absent compelling financial reasons to recommend the transaction, vote
AGAINST the formation of a holding company if the transaction would include
either of the following:

o Increases in common or preferred stock in excess of the allowable
maximum (see discussion under "Capital Structure");
o Adverse changes in shareholder rights.

GOING PRIVATE TRANSACTIONS (LBOS, MINORITY SQUEEZEOUTS, AND GOING DARK) Vote
CASE-BY-CASE on going private transactions, taking into account the following:

o Offer price/premium;
o Fairness opinion;
o How the deal was negotiated;
o Conflicts of interest;
o Other alternatives/offers considered; and
o Non-completion risk.

Vote CASE-BY-CASE on "going dark" transactions, determining whether the
transaction enhances shareholder value by taking into consideration:

o Whether the company has attained benefits from being publicly-traded
(examination of trading volume, liquidity, and market research of the
stock);
o Cash-out value;
o Whether the interests of continuing and cashed-out shareholders are
balanced; and
o The market reaction to public announcement of transaction.

JOINT VENTURES

Vote CASE-BY-CASE on proposals to form joint ventures, taking into account the
following:

o Percentage of assets/business contributed;
o Percentage ownership;
o Financial and strategic benefits;
o Governance structure;
o Conflicts of interest;
o Other alternatives;
o Noncompletion risk.

LIQUIDATIONS

Vote CASE-BY-CASE on liquidations, taking into account the following:

o Management's efforts to pursue other alternatives;
o Appraisal value of assets; and
o The compensation plan for executives managing the liquidation.

Vote FOR the liquidation if the company will file for bankruptcy if the proposal
is not approved.

MERGERS AND ACQUISITIONS/ ISSUANCE OF SHARES TO FACILITATE MERGER OR ACQUISITION

Vote CASE-BY-CASE on mergers and acquisitions, determining whether the
transaction enhances shareholder value by giving consideration to items listed
under "Mergers and Corporate Restructurings: Overall Approach."

PRIVATE PLACEMENTS/WARRANTS/CONVERTIBLE DEBENTURES

Vote CASE-BY-CASE on proposals regarding private placements, taking into
consideration:

o Dilution to existing shareholders' position;
o Terms of the offer;
o Financial issues;
o Management's efforts to pursue other alternatives;
o Control issues;
o Conflicts of interest.

Vote FOR the private placement if it is expected that the company will file for
bankruptcy if the transaction is not approved.

SPINOFFS

Vote CASE-BY-CASE on spin-offs, considering:

o Tax and regulatory advantages;
o Planned use of the sale proceeds;
o Valuation of spinoff;
o Fairness opinion;
o Benefits to the parent company;
o Conflicts of interest;
o Managerial incentives;
o Corporate governance changes;
o Changes in the capital structure.
o

VALUE MAXIMIZATION PROPOSALS
Vote CASE-BY-CASE on shareholder proposals seeking to maximize shareholder value
by hiring a financial advisor to explore strategic alternatives, selling the
company or liquidating the company and distributing the proceeds to
shareholders. These proposals should be evaluated based on the following
factors:

o Prolonged poor performance with no turnaround in sight;
o Signs of entrenched board and management;
o Strategic plan in place for improving value;
o Likelihood of receiving reasonable value in a sale or dissolution; and
o Whether company is actively exploring its strategic options, including
retaining a financial advisor.

6. STATE OF INCORPORATION
CONTROL SHARE ACQUISITION PROVISIONS

Control share acquisition statutes function by denying shares their voting
rights when they contribute to ownership in excess of certain thresholds. Voting
rights for those shares exceeding ownership limits may only be restored by
approval of either a majority or supermajority of disinterested shares. Thus,
control share acquisition statutes effectively require a hostile bidder to put
its offer to a shareholder vote or risk voting disenfranchisement if the bidder
continues buying up a large block of shares.

Vote FOR proposals to opt out of control share acquisition statutes unless doing
so would enable the completion of a takeover that would be detrimental to
shareholders.

Vote AGAINST proposals to amend the charter to include control share acquisition
provisions.

Vote FOR proposals to restore voting rights to the control shares.

CONTROL SHARE CASH-OUT PROVISIONS

Control share cash-out statutes give dissident shareholders the right to
"cash-out" of their position in a company at the expense of the shareholder who
has taken a control position. In other words, when an investor crosses a preset
threshold level, remaining shareholders are given the right to sell their shares
to the acquirer, who must buy them at the highest acquiring price.

Vote FOR proposals to opt out of control share cash-out statutes.

DISGORGEMENT PROVISIONS

Disgorgement provisions require an acquirer or potential acquirer of more than a
certain percentage of a company's stock to disgorge, or pay back, to the company
any profits realized from the sale of that company's stock purchased 24 months
before achieving control status. All sales of company stock by the acquirer
occurring within a certain period of time (between 18 months and 24 months)
prior to the investor's gaining control status are subject to these
recapture-of-profits provisions.

Vote FOR proposals to opt out of state disgorgement provisions.

FAIR PRICE PROVISIONS

Vote CASE-BY-CASE on proposals to adopt fair price provisions (provisions that
stipulate that an acquirer must pay the same price to acquire all shares as it
paid to acquire the control shares), evaluating factors such as the vote
required to approve the proposed acquisition, the vote required to repeal the
fair price provision, and the mechanism for determining the fair price.

Generally, vote AGAINST fair price provisions with shareholder vote requirements
greater than a majority of disinterested shares.

FREEZE-OUT PROVISIONS

Vote FOR proposals to opt out of state freeze-out provisions. Freeze-out
provisions force an investor who surpasses a certain ownership threshold in a
company to wait a specified period of time before gaining control of the
company.

GREENMAIL

Greenmail payments are targeted share repurchases by management of company stock
from individuals or groups seeking control of the company. Since only the
hostile party receives payment, usually at a substantial premium over the market
value of its shares, the practice discriminates against all other shareholders.

Vote FOR proposals to adopt anti-greenmail charter or bylaw amendments or
otherwise restrict a company's ability to make greenmail payments.

Vote CASE-BY-CASE on anti-greenmail proposals when they are bundled with other
charter or bylaw amendments.

REINCORPORATION PROPOSALS

Vote CASE-BY-CASE on proposals to change a company's state of incorporation,
taking into consideration both financial and corporate governance concerns,
including:
The reasons for reincorporating;
A comparison of the governance provisions;
Comparative economic benefits; and
A comparison of the jurisdictional laws.

Vote FOR re-incorporation when the economic factors outweigh any neutral or
negative governance changes.

STAKEHOLDER PROVISIONS

Vote AGAINST proposals that ask the board to consider non-shareholder
constituencies or other non-financial effects when evaluating a merger or
business combination.

STATE ANTITAKEOVER STATUTES

Vote CASE-BY-CASE on proposals to opt in or out of state takeover statutes
(including control share acquisition statutes, control share cash-out statutes,
freezeout provisions, fair price provisions, stakeholder laws, poison pill
endorsements, severance pay and labor contract provisions, anti-greenmail
provisions, and disgorgement provisions).

7. CAPITAL STRUCTURE

ADJUSTMENTS TO PAR VALUE OF COMMON STOCK

Vote FOR management proposals to reduce the par value of common stock.

COMMON STOCK AUTHORIZATION

Vote CASE-BY-CASE on proposals to increase the number of shares of common stock
authorized for issuance using a model developed by ISS.

Vote FOR proposals to approve increases beyond the allowable increase when a
company's shares are in danger of being delisted or if a company's ability to
continue to operate as a going concern is uncertain.

In addition, for capital requests less than or equal to 300 percent of the
current authorized shares that marginally fail the calculated allowable cap
(i.e., exceed the allowable cap by no more than 5 percent), on a CASE-BY-CASE
basis, vote FOR the increase based on the company's performance and whether the
company's ongoing use of shares has shown prudence. Factors should include, at a
minimum, the following:

o Rationale;
o Good performance with respect to peers and index on a five-year total
shareholder return basis;
o Absence of non-shareholder approved poison pill;
o Reasonable equity compensation burn rate;
o No non-shareholder approved pay plans; and
o Absence of egregious equity compensation practices.

DUAL-CLASS STOCK

Vote AGAINST proposals to create a new class of common stock with superior
voting rights.

Vote AGAINST proposals at companies with dual-class capital structures to
increase the number of authorized shares of the class of stock that has superior
voting rights.

Vote FOR proposals to create a new class of nonvoting or sub-voting common stock
if:

o It is intended for financing purposes with minimal or no dilution to
current shareholders;
o It is not designed to preserve the voting power of an insider or
significant shareholder.

ISSUE STOCK FOR USE WITH RIGHTS PLAN

Vote AGAINST proposals that increase authorized common stock for the explicit
purpose of implementing a non-shareholder approved shareholder rights plan
(poison pill).

PREEMPTIVE RIGHTS

Vote CASE-BY-CASE on shareholder proposals that seek preemptive rights, taking
into consideration: the size of a company, the characteristics of its
shareholder base, and the liquidity of the stock.

PREFERRED STOCK

Vote AGAINST proposals authorizing the creation of new classes of preferred
stock with unspecified voting, conversion, dividend distribution, and other
rights ("blank check" preferred stock).

Vote FOR proposals to create "declawed" blank check preferred stock (stock that
cannot be used as a takeover defense).

Vote FOR proposals to authorize preferred stock in cases where the company
specifies the voting, dividend, conversion, and other rights of such stock and
the terms of the preferred stock appear reasonable.

Vote AGAINST proposals to increase the number of blank check preferred stock
authorized for issuance when no shares have been issued or reserved for a
specific purpose.

Vote CASE-BY-CASE on proposals to increase the number of blank check preferred
shares after analyzing the number of preferred shares available for issue given
a company's industry and performance in terms of shareholder returns.

RECAPITALIZATION

Vote CASE-BY-CASE on recapitalizations (reclassifications of securities), taking
into account the following:

o More simplified capital structure;
o Enhanced liquidity;
o Fairness of conversion terms;
o Impact on voting power and dividends;
o Reasons for the reclassification;
o Conflicts of interest; and
o Other alternatives considered.

REVERSE STOCK SPLITS

Vote FOR management proposals to implement a reverse stock split when the number
of authorized shares will be proportionately reduced.

Vote FOR management proposals to implement a reverse stock split to avoid
delisting.

Vote CASE-BY-CASE on proposals to implement a reverse stock split that do not
proportionately reduce the number of shares authorized for issue based on the
allowable increased calculated using the Capital Structure model.

SHARE REPURCHASE PROGRAMS

Vote FOR management proposals to institute open-market share repurchase plans in
which all shareholders may participate on equal terms.

STOCK DISTRIBUTIONS: SPLITS AND DIVIDENDS

Vote FOR management proposals to increase the common share authorization for a
stock split or share dividend, provided that the increase in authorized shares
would not result in an excessive number of shares available for issuance as
determined using a model developed by ISS.

TRACKING STOCK

Vote CASE-BY-CASE on the creation of tracking stock, weighing the strategic
value of the transaction against such factors as:

o Adverse governance changes;
o Excessive increases in authorized capital stock;
o Unfair method of distribution;
o Diminution of voting rights;
o Adverse conversion features;
o Negative impact on stock option plans; and
o Alternatives such as spin-off.

8. EXECUTIVE AND DIRECTOR COMPENSATION EQUITY COMPENSATION PLANS

Vote CASE-BY-CASE on equity-based compensation plans. Vote AGAINST the equity
plan if any of the following factors apply:

o The total cost of the company's equity plans is unreasonable;
o The plan expressly permits the repricing of stock options without prior
shareholder approval;
o There is a disconnect between CEO pay and the company's performance;
o The company's three year burn rate exceeds the greater of 2% and the
mean plus 1 standard deviation of its industry group; or
o The plan is a vehicle for poor pay practices.

Each of these factors is further described below:

COST OF EQUITY PLANS

Generally, vote AGAINST equity plans if the cost is unreasonable. For
non-employee director plans, vote FOR the plan if certain factors are met (see
Director Compensation section).

The cost of the equity plans is expressed as Shareholder Value Transfer (SVT),
which is measured using a binomial option pricing model that assesses the amount
of shareholders' equity flowing out of the company to employees and directors.
SVT is expressed as both a dollar amount and as a percentage of market value,
and includes the new shares proposed, shares available under existing plans, and
shares granted but unexercised. All award types are valued. For omnibus plans,
unless limitations are placed on the most expensive types of awards (for
example, full value awards), the assumption is made that all awards to be
granted will be the most expensive types. See discussion of specific types of
awards.

The Shareholder Value Transfer is reasonable if it falls below the
company-specific allowable cap. The allowable cap is determined as follows: The
top quartile performers in each industry group (using the Global Industry
Classification Standard GICS) are identified. Benchmark SVT levels for each
industry are established based on these top performers' historic SVT. Regression
analyses are run on each industry group to identify the variables most strongly
correlated to SVT. The benchmark industry SVT level is then adjusted upwards or
downwards for the specific company by plugging the company-specific performance
measures, size and cash compensation into the industry cap equations to arrive
at the company's allowable cap.

REPRICING PROVISIONS

Vote AGAINST plans that expressly permit the repricing of underwater stock
options without prior shareholder approval, even if the cost of the plan is
reasonable. Also, WITHHOLD from members of the Compensation Committee who
approved and/or implemented an option exchange program by repricing and buying
out underwater options for stock, cash or other consideration or canceling
underwater options and regranting options with a lower exercise price without
prior shareholder approval, even if such repricings are allowed in their equity
plan.

Vote AGAINST plans if the company has a history of repricing options without
shareholder approval, and the applicable listing standards would not preclude
them from doing so.

PAY-FOR PERFORMANCE DISCONNECT Generally vote AGAINST plans in which:

o there is a disconnect between the CEO's pay and company performance (an
increase in pay and a decrease in performance);
o the main source of the pay increase (over half) is equity-based, and
o the CEO is a participant of the equity proposal.

Performance decreases are based on negative one- and three-year total
shareholder returns. CEO pay increases are based on the CEO's total direct
compensation (salary, cash bonus, present value of stock options, face value of
restricted stock, value of non-equity incentive payouts, change in pension value
and nonqualified deferred compensation earnings, and all other compensation)
increasing over the previous year.

WITHHOLD votes from the Compensation Committee members when the company has a
pay for performance disconnect.

On a CASE-BY-CASE basis, vote for equity plans and FOR compensation committee
members with a pay-for-performance disconnect if compensation committee members
can present strong and compelling evidence of improved committee performance.
This evidence must go beyond the usual compensation committee report disclosure.
This additional evidence necessary includes all of the following:

o The compensation committee has reviewed all components of the CEO's
compensation, including the following:

- Base salary, bonus, long-term incentives;
- Accumulative realized and unrealized stock option and restricted
stock gains;
- Dollar value of perquisites and other personal benefits to the CEO
and the total cost to the company;
- Earnings and accumulated payment obligations under the company's
nonqualified deferred compensation program;
- Actual projected payment obligations under the company's supplemental
executive retirement plan (SERPs).

o A tally sheet with all the above components should be disclosed for the
following termination scenarios:

- Payment if termination occurs within 12 months: $_____;
- Payment if "not for cause" termination occurs within 12 months:
$_____;
- Payment if "change of control" termination occurs within 12 months:
$_____.

o The compensation committee is committed to providing additional
information on the named executives' annual cash bonus program and/or
long-term incentive cash plan for the current fiscal year. The
compensation committee will provide full disclosure of the qualitative
and quantitative performance criteria and hurdle rates used to
determine the payouts of the cash program. From this disclosure,
shareholders will know the minimum level of performance required for
any cash bonus to be delivered, as well as the maximum cash bonus
payable for superior performance.

The repetition of the compensation committee report does not meet ISS'
requirement of compelling and strong evidence of improved disclosure. The level
of transparency and disclosure is at the highest level where shareholders can
understand the mechanics of the annual cash bonus and/or long-term incentive
cash plan based on the additional disclosure.

o The compensation committee is committed to granting a substantial
portion of performance-based equity awards to the named executive
officers. A substantial portion of performance-based awards would be at
least 50 percent of the shares awarded to each of the named executive
officers. Performance-based equity awards are earned or paid out based
on the achievement of company performance targets. The company will
disclose the details of the performance criteria (e.g., return on
equity) and the hurdle rates (e.g., 15 percent) associated with the
performance targets. From this disclosure, shareholders will know the
minimum level of performance required for any equity grants to be made.
The performance-based equity awards do not refer to non-qualified stock
options(1) or performance-accelerated grants.(2) Instead,
performance-based equity awards are performance-contingent grants where
the individual will not receive the equity grant by not meeting the
target performance and vice versa.

The level of transparency and disclosure is at the highest level where
shareholders can understand the mechanics of the performance-based equity awards
based on the additional disclosure.

o The compensation committee has the sole authority to hire and fire
outside compensation consultants. The role of the outside compensation
consultant is to assist the compensation committee to analyze executive
pay packages or contracts and understand the company's financial
measures.

THREE-YEAR BURN RATE/BURN RATE COMMITMENT

Generally vote AGAINST plans if the company's most recent three-year burn rate
exceeds one standard deviation in excess of the industry mean (per the following
Burn Rate Table) and is over two percent of common shares outstanding. The
three-year burn rate policy does not apply to non-employee director plans unless
outside directors receive a significant portion of shares each year.

However, vote FOR equity plans if the company fails this burn rate test but the
company commits in a public filing to a three-year average burn rate equal to
its GICS group burn rate mean plus one standard deviation (or 2%, whichever is
greater), assuming all other conditions for voting FOR the plan have been met.

If a company fails to fulfill its burn rate commitment, vote to WITHHOLD from
the compensation committee.

(1) Non-qualified stock options are not performance-based awards unless the
grant or the vesting of the stock options is tied to the achievement of a
pre-determined and disclosed performance measure. A rising stock market will
generally increase share prices of all companies, despite of the company's
underlying performance. (2) Performance-accelerated grants are awards that vest
earlier based on the achievement of a specified measure. However, these grants
will ultimately vest over time even without the attainment of the goal(s).

2007 BURN RATE TABLE

RUSSELL 3000 NON-RUSSELL 3000
Standard Mean +
GICS Description Mean Deviation STDEV
-----------------------------------------------------------------------------------------------------------------
1010 Energy 1.37% 0.92% 2.29%
-----------------------------------------------------------------------------------------------------------------
1510 Materials 1.23% 0.62% 1.85%
-----------------------------------------------------------------------------------------------------------------
2010 Capital Goods 1.60% 0.98% 2.57%
-----------------------------------------------------------------------------------------------------------------
2020 Commercial Services & Supplies 2.39% 1.42% 3.81%
-----------------------------------------------------------------------------------------------------------------
2030 Transportation 1.30% 1.01% 2.31%
-----------------------------------------------------------------------------------------------------------------
2510 Automobiles & Components 1.93% 0.98% 2.90%
-----------------------------------------------------------------------------------------------------------------
2520 Consumer Durables & Apparel 1.97% 1.12% 3.09%
-----------------------------------------------------------------------------------------------------------------
2530 Hotels Restaurants & Leisure 2.22% 1.19% 3.41%
-----------------------------------------------------------------------------------------------------------------
2540 Media 1.78% 0.92% 2.70%
-----------------------------------------------------------------------------------------------------------------
2550 Retailing 1.95% 1.10% 3.05%
-----------------------------------------------------------------------------------------------------------------
3010,
3020, Food & Staples Retailing 1.66% 1.25% 2.91%
3030
-----------------------------------------------------------------------------------------------------------------
3510 Health Care Equipment & Services 2.87% 1.32% 4.19%
-----------------------------------------------------------------------------------------------------------------
3520 Pharmaceuticals & Biotechnology 3.12% 1.38% 4.50%
-----------------------------------------------------------------------------------------------------------------
4010 Banks 1.31% 0.89% 2.20%
-----------------------------------------------------------------------------------------------------------------
4020 Diversified Financials 2.13% 1.64% 3.76%
4030 Insurance 1.34% 0.88% 2.22%
------------------------------------------------------------------------------------------------------------------
4040 Real Estate 1.21% 1.02% 2.23%
-----------------------------------------------------------------------------------------------------------------
4510 Software & Services 3.77% 2.05% 5.82%
-----------------------------------------------------------------------------------------------------------------
4520 Technology Hardware & Equipment 3.05% 1.65% 4.70%
-----------------------------------------------------------------------------------------------------------------
4530 Semiconductors & Semiconductor 3.76% 1.64% 5.40%
Equip.
-----------------------------------------------------------------------------------------------------------------
5010 Telecommunication Services 1.71% 0.99% 2.70%
-----------------------------------------------------------------------------------------------------------------
5510 Utilities 0.84% 0.51% 1.35%
-----------------------------------------------------------------------------------------------------------------

Standard Mean +
Mean Deviation STDEV
------------------------------------------------------------
1.76% 2.01% 3.77%
------------------------------------------------------------
2.21% 2.15% 4.36%
------------------------------------------------------------
2.34% 1.98% 4.32%
------------------------------------------------------------
2.25% 1.93% 4.18%
------------------------------------------------------------
1.92% 1.95% 3.86%
------------------------------------------------------------
2.37% 2.32% 4.69%
------------------------------------------------------------
2.02% 1.68% 3.70%
------------------------------------------------------------
2.29% 1.88% 4.17%
------------------------------------------------------------
3.26% 2.36% 5.62%
------------------------------------------------------------
2.92% 2.21% 5.14%
------------------------------------------------------------
1.90% 2.00% 3.90%
------------------------------------------------------------
3.51% 2.31% 5.81%
------------------------------------------------------------
3.96% 2.89% 6.85%
------------------------------------------------------------
1.15% 1.10% 2.25%
------------------------------------------------------------
4.84% 5.03% 9.87%
------------------------------------------------------------
1.60% 1.96% 3.56%
------------------------------------------------------------
1.21% 1.02% 2.23%
------------------------------------------------------------
5.33% 3.13% 8.46%
------------------------------------------------------------
3.58% 2.34% 5.92%
------------------------------------------------------------
4.48% 2.46% 6.94%
------------------------------------------------------------
2.98% 2.94% 5.92%
------------------------------------------------------------
0.84% 0.51% 1.35%
------------------------------------------------------------

For companies that grant both full value awards and stock options to their
employees, ISS shall apply a premium on full value awards for the past three
fiscal years. The guideline for applying the premium is as follows:

-----------------------------------------------------------------------------------------------------------------------
CHARACTERISTICS ANNUAL STOCK PRICE VOLATILITY PREMIUM
-----------------------------------------------------------------------------------------------------------------------
High annual volatility 53% and higher 1 full-value award will count as 1.5 option shares
-----------------------------------------------------------------------------------------------------------------------
Moderate annual volatility 25% - 52% 1 full-value award will count as 2.0 option shares
-----------------------------------------------------------------------------------------------------------------------
Low annual volatility Less than 25% 1 full-value award will count as 4.0 option shares
-----------------------------------------------------------------------------------------------------------------------

POOR PAY PRACTICES

Vote AGAINST equity plans if the plan is a vehicle for poor compensation
practices.

WITHHOLD from compensation committee members, CEO, and potentially the entire
board, if the company has poor compensation practices. The following practices,
while not exhaustive, are examples of poor compensation practices that may
warrant withholding votes:

Egregious employment contracts (e.g., those containing multi-year guarantees for
bonuses and grants);
Excessive perks that dominate compensation (e.g., tax gross-ups for personal use
of corporate aircraft);
Huge bonus payouts without justifiable performance linkage or proper disclosure;
Performance metrics that are changed (e.g., canceled or replaced during the
performance period
without adequate explanation of the action and the link to performance);
Egregious pension/SERP (supplemental executive retirement plan) payouts
(e.g., the inclusion of additional years of service not worked or inclusion of
performance-based equity awards in the pension calculation);
New CEO awarded an overly generous new hire package (e.g., including excessive
"make whole" provisions or any of the poor pay practices listed in this policy);
Excessive severance provisions (e.g., including excessive change in control
payments);

Change in control payouts without loss of job or substantial diminution of job
duties; Internal pay disparity;
Options backdating (covered in a separate policy);
and Other excessive compensation payouts or poor pay practices at the company.

SPECIFIC TREATMENT OF CERTAIN AWARD TYPES IN EQUITY PLAN EVALUATIONS:

DIVIDEND EQUIVALENT RIGHTS

Options that have Dividend Equivalent Rights (DERs) associated with them will
have a higher calculated award value than those without DERs under the binomial
model, based on the value of these dividend streams. The higher value will be
applied to new shares, shares available under existing plans, and shares awarded
but not exercised per the plan specifications. DERS transfer more shareholder
equity to employees and non-employee directors and this cost should be captured.

LIBERAL SHARE RECYCLING PROVISIONS

Under net share counting provisions, shares tendered by an option holder to pay
for the exercise of an option, shares withheld for taxes or shares repurchased
by the company on the open market can be recycled back into the equity plan for
awarding again. All awards with such provisions should be valued as full-value
awards. Stock-settled stock appreciation rights (SSARs) will also be considered
as full-value awards if a company counts only the net shares issued to employees
towards their plan reserve.

OTHER COMPENSATION PROPOSALS AND POLICIES

401(K) EMPLOYEE BENEFIT PLANS

Vote FOR proposals to implement a 401(k) savings plan for employees.

DIRECTOR COMPENSATION

Vote CASE-BY-CASE on compensation plans for non-employee directors, based on the
cost of the plans against the company's allowable cap.

On occasion, director stock plans that set aside a relatively small number of
shares when combined with employee or executive stock compensation plans exceed
the allowable cap. Vote for the plan if ALL of the following qualitative factors
in the board's compensation are met and disclosed in the proxy statement:

Director stock ownership guidelines with a minimum of three times the annual
cash retainer.

o Vesting schedule or mandatory holding/deferral period:
- A minimum vesting of three years for stock options or restricted
stock; or
- Deferred stock payable at the end of a three-year deferral
period.
o Mix between cash and equity:
- A balanced mix of cash and equity, for example 40% cash/60%
equity or 50% cash/50% equity;

- If the mix is heavier on the equity component, the vesting
schedule or deferral period should be more stringent, with the
lesser of five years or the term of directorship.

No retirement/benefits and perquisites provided to non-employee directors; and
Detailed disclosure provided on cash and equity compensation delivered to each
non-employee director for the most recent fiscal year in a table. The column
headers for the table may include the following: name of each non-employee
director, annual retainer, board meeting fees, committee retainer,
committee-meeting fees, and equity grants.

DIRECTOR RETIREMENT PLANS

Vote AGAINST retirement plans for non-employee directors.

Vote FOR shareholder proposals to eliminate retirement plans for non-employee
directors.

EMPLOYEE STOCK OWNERSHIP PLANS (ESOPS)

Vote FOR proposals to implement an ESOP or increase authorized shares for
existing ESOPs, unless the number of shares allocated to the ESOP is excessive
(more than five percent of outstanding shares).

EMPLOYEE STOCK PURCHASE PLANS-- QUALIFIED PLANS

Vote CASE-BY-CASE on qualified employee stock purchase plans. Vote FOR employee
stock purchase plans where all of the following apply:
Purchase price is at least 85 percent of fair market value;
Offering period is 27 months or less; and
The number of shares allocated to the plan is ten percent or less of the
outstanding shares.

Vote AGAINST qualified employee stock purchase plans where any of the following
apply:
Purchase price is less than 85 percent of fair market value; or
Offering period is greater than 27 months; or
The number of shares allocated to the plan is more than ten percent of the
outstanding shares.

EMPLOYEE STOCK PURCHASE PLANS-- NON-QUALIFIED PLANS

Vote CASE-by-CASE on nonqualified employee stock purchase plans. Vote FOR
nonqualified employee stock purchase plans with all the following features:
Broad-based participation (i.e., all employees of the company with the exclusion
of individuals with 5 percent or more of beneficial ownership of the company);
Limits on employee contribution, which may be a fixed dollar amount or expressed
as a percent of base salary;
Company matching contribution up to 25 percent of employee's contribution, which
is effectively a discount of 20 percent from market value;
No discount on the stock price on the date of purchase since there is a company
matching contribution.

Vote AGAINST nonqualified employee stock purchase plans when any of the plan
features do not meet the above criteria. If the company matching contribution
exceeds 25 percent of employee's contribution, evaluate the cost of the plan
against its allowable cap.

INCENTIVE BONUS PLANS AND TAX DEDUCTIBILITY PROPOSALS (OBRA-RELATED COMPENSATION
PROPOSALS) Vote FOR proposals that simply amend shareholder-approved
compensation plans to include administrative features or place a cap on the
annual grants any one participant may receive to comply with the provisions of
Section 162(m).

Vote FOR proposals to add performance goals to existing compensation plans to
comply with the provisions of Section 162(m) unless they are clearly
inappropriate.

Vote CASE-BY-CASE on amendments to existing plans to increase shares reserved
and to qualify for favorable tax treatment under the provisions of Section
162(m) as long as the plan does not exceed the allowable cap and the plan does
not violate any of the supplemental policies.

Generally vote FOR cash or cash and stock bonus plans that are submitted to
shareholders for the purpose of exempting compensation from taxes under the
provisions of Section 162(m) if no increase in shares is requested.

OPTIONS BACKDATING

In cases where a company has practiced options backdating, WITHHOLD on a
CASE-BY-CASE basis from the members of the compensation committee, depending on
the severity of the practices and the subsequent corrective actions on the part
of the board. WITHHOLD from the compensation committee members who oversaw the
questionable options grant practices or from current compensation committee
members who fail to respond to the issue proactively, depending on several
factors, including, but not limited to:

Reason and motive for the options backdating issue, such as inadvertent vs.
deliberate grant date changes;

Length of time of options backdating;
Size of restatement due to options backdating;
Corrective actions taken by the board or compensation committee,
such as canceling or repricing backdated options,
or recoupment of option gains on backdated grants;
Adoption of a grant policy that prohibits backdating, and creation of a fixed
grant schedule or window period for equity grants going forward.

OPTION EXCHANGE PROGRAMS/REPRICING OPTIONS

Vote CASE-by-CASE on management proposals seeking approval to exchange/reprice
options taking into consideration:

Historic trading patterns--the stock price should not be so volatile that the
options are likely to be back "in-the-money" over the near term;
Rationale for the re-pricing--was the stock price decline beyond management's
control? Is this a value-for-value exchange?
Are surrendered stock options added back to the plan reserve?
Option vesting--does the new option vest immediately or is there a black-out
period?
Term of the option--the term should remain the same as that of the replaced
option;
Exercise price--should be set at fair market or a premium to market;
Participants--executive officers and directors should be excluded.

If the surrendered options are added back to the equity plans for re-issuance,
then also take into consideration the company's three-year average burn rate. In
addition to the above considerations, evaluate the intent, rationale, and timing
of the repricing proposal. The proposal should clearly articulate why the board
is choosing to conduct an exchange program at this point in time. Repricing
underwater options after a recent precipitous drop in the company's stock price
demonstrates poor timing. Repricing after a recent decline in stock price
triggers additional scrutiny and a potential AGAINST vote on the proposal. At a
minimum, the decline should not have happened within the past year. Also,
consider the terms of the surrendered options, such as the grant date, exercise
price and vesting schedule. Grant dates of surrendered options should be far
enough back (two to three years) so as not to suggest that repricings are being
done to take advantage of short-term downward price movements. Similarly, the
exercise price of surrendered options should be above the 52-week high for the
stock price.

Vote FOR shareholder proposals to put option repricings to a shareholder vote.

STOCK PLANS IN LIEU OF CASH

Vote CASE-by-CASE on plans which provide participants with the option of taking
all or a portion of their cash compensation in the form of stock.

Vote FOR non-employee director only equity plans which provide a
dollar-for-dollar cash for stock exchange.

Vote CASE-by-CASE on plans which do not provide a dollar-for-dollar cash for
stock exchange. In cases where the exchange is not dollar-for-dollar, the
request for new or additional shares for such equity program will be considered
using the binomial option pricing model. In an effort to capture the total cost
of total compensation, ISS will not make any adjustments to carve out the
in-lieu-of cash compensation.

TRANSFER PROGRAMS OF STOCK OPTIONS One-time Transfers: WITHHOLD votes from
compensation committee members if they fail to submit one-time transfers for to
shareholders for approval.

Vote CASE-BY-CASE on one-time transfers. Vote FOR if:
Executive officers and non-employee directors are excluded from participating;
Stock options are purchased by third-party financial institutions at a discount
to their fair value using option pricing models such as Black-Scholes or a
Binomial Option Valuation or other appropriate financial models;
There is a two-year minimum holding period for sale proceeds (cash or stock) for
all participants.

Additionally, management should provide a clear explanation of why options are
being transferred and whether the events leading up to the decline in stock
price were beyond management's control. A review of the company's historic stock
price volatility should indicate if the options are likely to be back
"in-the-money" over the near term.

SHAREHOLDER PROPOSALS ON COMPENSATION

ADVISORY VOTE ON EXECUTIVE COMPENSATION (SAY-ON-PAY)

Generally, vote FOR shareholder proposals that call for non-binding shareholder
ratification of the compensation of the named Executive Officers and the
accompanying narrative disclosure of material factors provided to understand the
Summary Compensation Table.

COMPENSATION CONSULTANTS- DISCLOSURE OF BOARD OR COMPANY'S UTILIZATION

Generally vote FOR shareholder proposals seeking disclosure regarding the
Company, Board, or Board committee's use of compensation consultants, such as
company name, business relationship(s) and fees paid.

DISCLOSURE/SETTING LEVELS OR TYPES OF COMPENSATION FOR EXECUTIVES AND DIRECTORS

Generally, vote FOR shareholder proposals seeking additional disclosure of
executive and director pay information, provided the information requested is
relevant to shareholders' needs, would not put the company at a competitive
disadvantage relative to its industry, and is not unduly burdensome to the
company.

Vote AGAINST shareholder proposals seeking to set absolute levels on
compensation or otherwise dictate the amount or form of compensation.

Vote AGAINST shareholder proposals requiring director fees be paid in stock
only.

Vote CASE-BY-CASE on all other shareholder proposals regarding executive and
director pay, taking into account company performance, pay level versus peers,
pay level versus industry, and long term corporate outlook.

OPTION REPRICING

Vote FOR shareholder proposals to put option repricings to a shareholder vote.

PAY FOR SUPERIOR PERFORMANCE

Generally vote FOR shareholder proposals based on a case-by-case analysis that
requests the board establish a pay-for-superior performance standard in the
company's executive compensation plan for senior executives. The proposals call
for:
the annual incentive component of the plan should utilize financial performance
criteria that can be benchmarked against peer group performance, and provide
that no annual bonus be awarded based on financial performance criteria unless
the company exceeds the median or mean performance of a disclosed group of peer
companies on the selected financial criteria;
the long-term equity compensation component of the plan should utilize financial
and/or stock price performance criteria that can be benchmarked against peer
group performance, and any options, restricted shares, or other equity
compensation used should be structured so that compensation is received only
when company performance exceeds the median or mean performance of the peer
group companies on the selected financial and stock price performance criteria;
and
the plan disclosure should allow shareholders to monitor the correlation between
pay and performance.

Consider the following factors in evaluating this proposal:
What aspects of the company's annual and long -term equity incentive programs
are performance driven?
If the annual and long-term equity incentive programs are performance driven,
are the performance criteria and hurdle rates disclosed to shareholders or are
they benchmarked against a disclosed peer group?
Can shareholders assess the correlation between pay and performance based on the
current disclosure?
What type of industry and stage of business cycle does the company belong to?

PENSION PLAN INCOME ACCOUNTING

Generally vote FOR shareholder proposals to exclude pension plan income in the
calculation of earnings used in determining executive bonuses/compensation.

PERFORMANCE-BASED AWARDS

Vote CASE-BY-CASE on shareholder proposal requesting that a significant amount
of future long-term incentive compensation awarded to senior executives shall be
performance-based and requesting that the board adopt and disclose challenging
performance metrics to shareholders, based on the following analytical steps:

First, vote FOR shareholder proposals advocating the use of performance-based
equity awards, such as performance contingent options or restricted stock,
indexed options or premium-priced options, unless the proposal is overly
restrictive or if the company has demonstrated that it is using a "substantial"
portion of performance-based awards for its top executives. Standard stock
options and performance-accelerated awards do not meet the criteria to be
considered as performance-based awards. Further, premium-priced options should
have a premium of at least 25 percent and higher to be considered
performance-based awards.
Second, assess the rigor of the company's performance-based equity program. If
the bar set for the performance-based program is too low based on the company's
historical or peer group comparison, generally vote FOR the proposal.
Furthermore, if target performance results in an above target payout, vote FOR
the shareholder proposal due to program's poor design. If the company does not
disclose the performance metric of the performance-based equity program, vote
FOR the shareholder proposal regardless of the outcome of the first step to the
test.

In general, vote FOR the shareholder proposal if the company does not meet both
of the above two steps.

SEVERANCE AGREEMENTS FOR EXECUTIVES/GOLDEN PARACHUTES

Vote FOR shareholder proposals to require golden parachutes or executive
severance agreements to be submitted for shareholder ratification, unless the
proposal requires shareholder approval prior to entering into employment
contracts.

Vote on a CASE-BY-CASE basis on proposals to ratify or cancel golden parachutes.
An acceptable parachute should include, but is not limited to, the following:

The triggering mechanism should be beyond the control of management; The amount
should not exceed three times base amount (defined as the average annual taxable
W-2 compensation during the five years prior to the year in which the change of
control occurs;
Change-in-control payments should be double-triggered, i.e., (1) after a change
in control has taken place, and (2) termination of the executive as a result of
the change in control. Change in control is defined as a change in the company
ownership structure.

SUPPLEMENTAL EXECUTIVE RETIREMENT PLANS (SERPS)

Generally vote FOR shareholder proposals requesting to put extraordinary
benefits contained in SERP agreements to a shareholder vote unless the company's
executive pension plans do not contain excessive benefits beyond what is offered
under employee-wide plans.

Generally vote FOR shareholder proposals requesting to limit the executive
benefits provided under the company's supplemental executive retirement plan
(SERP) by limiting covered compensation to a senior executive's annual salary
and excluding of all incentive or bonus pay from the plan's definition of
covered compensation used to establish such benefits.

9. CORPORATE RESPONSIBILITY CONSUMER ISSUES AND PUBLIC SAFETY

ANIMAL RIGHTS

Generally vote AGAINST proposals to phase out the use of animals in product
testing unless:
The company is conducting animal testing programs that are
unnecessary or not required by regulation;
The company is conducting animal testing when suitable alternatives are accepted
and used at peer firms;
The company has been the subject of recent, significant controversy related to
its testing programs.

Generally vote FOR proposals seeking a report on the company's animal welfare
standards unless:
The company has already published a set of animal welfare standards and monitors
compliance;
The company's standards are comparable to or better than those of peer firms;
and
There are no serious controversies surrounding the company's treatment of
animals.

DRUG PRICING

Generally vote AGAINST proposals requesting that companies implement specific
price restraints on pharmaceutical products unless the company fails to adhere
to legislative guidelines or industry norms in its product pricing.

Vote CASE-BY-CASE on proposals requesting that the company evaluate their
product pricing considering: The existing level of disclosure on pricing
policies;

Deviation from established industry pricing norms;
The company's existing initiatives to provide its products to needy consumers;
Whether the proposal focuses on specific products or geographic regions.

DRUG REIMPORTATION

Generally vote FOR proposals requesting that companies report on the financial
and legal impact of their policies regarding prescription drug reimportation
unless such information is already publicly disclosed.

Generally vote AGAINST proposals requesting that companies adopt specific
policies to encourage or constrain prescription drug reimportation.

GENETICALLY MODIFIED FOODS

Vote AGAINST proposals asking companies to voluntarily label genetically
engineered (GE) ingredients in their products or alternatively to provide
interim labeling and eventually eliminate GE ingredients due to the costs and
feasibility of labeling and/or phasing out the use of GE ingredients.

Vote CASE-BY-CASE on proposals asking for a report on the feasibility of
labeling products containing GE ingredients taking into account:
The relevance of the proposal in terms of the company's business and the
proportion of it affected by the resolution;
The quality of the company's disclosure on GE product labeling and related
voluntary initiatives and how this disclosure compares with peer company
disclosure;
Company's current disclosure on the feasibility of GE product labeling,
including information on the related costs;

Any voluntary labeling initiatives undertaken or considered by the company.

Vote CASE-BY-CASE on proposals asking for the preparation of a report on the
financial, legal, and environmental impact of continued use of GE
ingredients/seeds. Evaluate the following:
The relevance of the proposal in terms of the company's business and the
proportion of it affected by the resolution;
The quality of the company's disclosure on risks related to GE product use and
how this disclosure compares with peer company disclosure;
The percentage of revenue derived from international operations, particularly in
Europe, where GE products are more regulated and consumer backlash is more
pronounced.

Vote AGAINST proposals seeking a report on the health and environmental effects
of genetically modified organisms (GMOs). Health studies of this sort are better
undertaken by regulators and the scientific community.

Vote AGAINST proposals to completely phase out GE ingredients from the company's
products or proposals asking for reports outlining the steps necessary to
eliminate GE ingredients from the company's products. Such resolutions
presuppose that there are proven health risks to GE ingredients (an issue better
left to federal regulators) that outweigh the economic benefits derived from
biotechnology.

HANDGUNS

Generally vote AGAINST requests for reports on a company's policies aimed at
curtailing gun violence in the United States unless the report is confined to
product safety information. Criminal misuse of firearms is beyond company
control and instead falls within the purview of law enforcement agencies.

HIV/AIDS

Vote CASE-BY-CASE on requests for reports outlining the impact of the health
pandemic (HIV/AIDS, malaria and tuberculosis) on the company's Sub-Saharan
operations and how the company is responding to it, taking into account:
The nature and size of the company's operations in Sub-Saharan Africa and the
number of local employees;
The company's existing healthcare policies, including benefits and healthcare
access for local workers;
Company donations to healthcare providers operating in the region.

Vote AGAINST proposals asking companies to establish, implement, and report on a
standard of response to the HIV/AIDS, TB, and malaria health pandemic in Africa
and other developing countries, unless the company has significant operations in
these markets and has failed to adopt policies and/or procedures to address
these issues comparable to those of industry peers.

PREDATORY LENDING

Vote CASE-BY CASE on requests for reports on the company's procedures for
preventing predatory lending, including the establishment of a board committee
for oversight, taking into account:
Whether the company has adequately disclosed mechanisms in place to prevent
abusive lending practices;
Whether the company has adequately disclosed the financial risks of its subprime
business;
Whether the company has been subject to violations of lending laws or
serious lending controversies;
Peer companies' policies to prevent abusive lending practices.

TOBACCO

Most tobacco-related proposals should be evaluated on a CASE-BY-CASE basis,
taking into account the following factors:

Second-hand smoke:
Whether the company complies with all local ordinances and regulations;
The degree that voluntary restrictions beyond those mandated by law might hurt
the company's competitiveness;
The risk of any health-related liabilities.

Advertising to youth:
Whether the company complies with federal, state, and local laws on the
marketing of tobacco or if it has been fined for violations;
Whether the company has gone as far as peers in restricting advertising;
Whether the company entered into the Master Settlement Agreement, which
restricts marketing of tobacco to youth;
Whether restrictions on marketing to youth extend to foreign countries.

Cease production of tobacco-related products or avoid selling products to
tobacco companies:
The percentage of the company's business affected; The economic loss of
eliminating the business versus any potential tobacco-related liabilities.

Spin-off tobacco-related businesses:
The percentage of the company's business affected;
The feasibility of a spin-off; Potential future liabilities related to
the company's tobacco business.

Stronger product warnings:
Vote AGAINST proposals seeking stronger product warnings. Such decisions are
better left to public health authorities.

Investment in tobacco stocks:
Vote AGAINST proposals prohibiting investment in tobacco equities. Such
decisions are better left to portfolio managers.

TOXIC CHEMICALS

Generally vote FOR resolutions requesting that a company discloses its policies
related to toxic chemicals.

Vote CASE-BY-CASE on resolutions requesting that companies evaluate and disclose
the potential financial and legal risks associated with utilizing certain
chemicals, considering:

Current regulations in the markets in which the company operates;
Recent significant controversy, litigation, or fines stemming from toxic
chemicals or ingredients at the company;
and
The current level of disclosure on this topic.

Generally vote AGAINST resolutions requiring that a company reformulate its
products within a certain timeframe unless such actions are required by law in
specific markets.

ENVIRONMENT AND ENERGY

ARCTIC NATIONAL WILDLIFE REFUGE

Generally vote AGAINST request for reports outlining potential environmental
damage from drilling in the Arctic National Wildlife Refuge (ANWR) unless:

New legislation is adopted allowing development and drilling in the ANWR region;
The company intends to pursue operations in the ANWR; and The company does not
currently disclose an environmental risk report for their operations in

the ANWR.

CERES PRINCIPLES

Vote CASE-BY-CASE on proposals to adopt the CERES Principles, taking into
account:
The company's current environmental disclosure beyond legal requirements,
including environmental health and safety (EHS) audits and reports that may
duplicate CERES;
The company's environmental performance record, including violations of federal
and state regulations, level of toxic emissions, and accidental spills;
Environmentally conscious practices of peer companies, including endorsement of
CERES; Costs of membership and implementation.

CLIMATE CHANGE

In general, vote FOR resolutions requesting that a company disclose information
on the impact of climate change on the company's operations unless:
The company already provides current, publicly-available information on the
perceived impact that climate change may have on the company as well as
associated policies and procedures to address such risks and/or opportunities;
The company's level of disclosure is comparable to or better than information
provided by industry peers; and
There are no significant fines, penalties, or litigation associated with the
company's environmental performance.

CONCENTRATED AREA FEEDING OPERATIONS (CAFOS)

Vote FOR resolutions requesting that companies report to shareholders on the
risks and liabilities associated with CAFOs unless:

The company has publicly disclosed guidelines for its corporate and contract
farming operations, including

compliance monitoring; or
The company does not directly source from CAFOs.

ENVIRONMENTAL-ECONOMIC RISK REPORT

Vote CASE-BY-CASE on proposals requesting an economic risk assessment of
environmental performance considering:

The feasibility of financially quantifying environmental risk factors;
The company's compliance with applicable legislation and/or regulations
regarding environmental performance;
The costs associated with implementing improved standards;
The potential costs associated with remediation resulting from poor
environmental performance; and
The current level of disclosure on environmental policies and initiatives.

ENVIRONMENTAL REPORTS

Generally vote FOR requests for reports disclosing the company's environmental
policies unless it already has well-documented environmental management systems
that are available to the public.

GLOBAL WARMING

Generally vote FOR proposals requesting a report on greenhouse gas emissions
from company operations and/or products unless this information is already
publicly disclosed or such factors are not integral to the company's line of
business.

Generally vote AGAINST proposals that call for reduction in greenhouse gas
emissions by specified amounts or within a restrictive time frame unless the
company lags industry standards and has been the subject of recent, significant
fines or litigation resulting from greenhouse gas emissions.

KYOTO PROTOCOL COMPLIANCE

Generally vote FOR resolutions requesting that companies outline their
preparations to comply with standards established by Kyoto Protocol signatory
markets unless:
The company does not maintain operations in Kyoto signatory markets;
The company already evaluates and substantially discloses such
information; or, Greenhouse gas emissions do not significantly impact
the company's core businesses.

LAND USE

Generally vote AGAINST resolutions that request the disclosure of detailed
information on a company's policies related to land use or development unless
the company has been the subject of recent, significant fines or litigation
stemming from its land use.

NUCLEAR SAFETY

Generally vote AGAINST resolutions requesting that companies report on risks
associated with their nuclear reactor designs and/or the production and interim
storage of irradiated fuel rods unless:
The company does not have publicly disclosed guidelines describing its policies
and procedures for addressing risks associated with its operations;
The company is non-compliant with Nuclear Regulatory Commission (NRC)
requirements; or

The company stands out amongst its peers or competitors as having significant
problems with safety or

environmental performance related to its nuclear operations.

OPERATIONS IN PROTECTED AREAS

Generally vote FOR requests for reports outlining potential environmental damage
from operations in protected regions, including wildlife refuges unless:
The company does not currently have operations or plans to develop operations in
these protected regions; or,
The company provides disclosure on its operations and environmental policies in
these regions comparable to industry peers.

RECYCLING

Vote CASE-BY-CASE on proposals to adopt a comprehensive recycling strategy,
taking into account:
The nature of the company's business and the percentage affected;
The extent that peer companies are recycling;
The timetable prescribed by the proposal;
The costs and methods of implementation;
Whether the company has a poor environmental track record, such as violations of
federal and

state regulations.

RENEWABLE ENERGY

In general, vote FOR requests for reports on the feasibility of developing
renewable energy sources unless the report is duplicative of existing disclosure
or irrelevant to the company's line of business.

Generally vote AGAINST proposals requesting that the company invest in renewable
energy sources. Such decisions are best left to management's evaluation of the
feasibility and financial impact that such programs may have on the company.

SUSTAINABILITY REPORT

Generally vote FOR proposals requesting the company to report on policies and
initiatives related to social, economic, and environmental sustainability,
unless:
The company already discloses similar information through existing reports or
policies such as an Environment, Health, and Safety (EHS) report; a
comprehensive Code of Corporate Conduct; and/or a Diversity Report; or
The company has formally committed to the implementation of a reporting program
based on Global Reporting Initiative (GRI) guidelines or a similar standard
within a specified time frame.

GENERAL CORPORATE ISSUES

CHARITABLE/POLITICAL CONTRIBUTIONS

Generally vote AGAINST proposals asking the company to affirm political
nonpartisanship in the workplace so long as:

The company is in compliance with laws governing corporate political activities;
and The company has procedures in place to ensure that employee contributions to
company-sponsored political action committees (PACs) are strictly voluntary and
not coercive.

Vote AGAINST proposals to publish in newspapers and public media the company's
political contributions as such publications could present significant cost to
the company without providing commensurate value to shareholders.

Vote CASE-BY-CASE on proposals to improve the disclosure of a company's
political contributions considering:

Recent significant controversy or litigation related to the company's political
contributions or governmental affairs; and
The public availability of a policy on political contributions.

Vote AGAINST proposals barring the company from making political contributions.
Businesses are affected by legislation at the federal, state, and local level
and barring contributions can put the company at a competitive disadvantage.

Vote AGAINST proposals restricting the company from making charitable
contributions. Charitable contributions are generally useful for assisting
worthwhile causes and for creating goodwill in the community. In the absence of
bad faith, self-dealing, or gross negligence, management should determine which
contributions are in the best interests of the company.

Vote AGAINST proposals asking for a list of company executives, directors,
consultants, legal counsels, lobbyists, or investment bankers that have prior
government service and whether such service had a bearing on the business of the
company. Such a list would be burdensome to prepare without providing any
meaningful information to shareholders.

DISCLOSURE OF LOBBYING EXPENDITURES/INITIATIVES

Vote CASE-BY-CASE on proposals requesting information on a company's lobbying
initiatives, considering any significant controversy or litigation surrounding a
company's public policy activities, the current level of disclosure on lobbying
strategy, and the impact that the policy issue may have on the company's
business operations.

LINK EXECUTIVE COMPENSATION TO SOCIAL PERFORMANCE

Vote CASE-BY-CASE on proposals to review ways of linking executive compensation
to social factors, such as corporate downsizings, customer or employee
satisfaction, community involvement, human rights, environmental performance,
predatory lending, and executive/employee pay disparities. Such resolutions
should be evaluated in the context of:

The relevance of the issue to be linked to pay;
The degree that social performance is already included in the company's pay
structure and disclosed;
The degree that social performance is used by peer companies in setting pay;
Violations or complaints filed against the company relating to the particular
social performance measure;
Artificial limits sought by the proposal, such as freezing or capping executive
pay Independence of the compensation committee; Current company pay levels.

OUTSOURCING/OFFSHORING

Vote CASE-BY-CASE on proposals calling for companies to report on the risks
associated with outsourcing, considering:

Risks associated with certain international markets;
The utility of such a report to shareholders;
The existence of a publicly available code of corporate conduct that
applies to international operations.

LABOR STANDARDS AND HUMAN RIGHTS

CHINA PRINCIPLES

Vote AGAINST proposals to implement the China Principles unless:

There are serious controversies surrounding the company's China
operations; and
The company does not have a code of conduct with standards similar to those
promulgated by the International Labor Organization (ILO).

COUNTRY-SPECIFIC HUMAN RIGHTS REPORTS

Vote CASE-BY-CASE on requests for reports detailing the company's operations in
a particular country and steps to protect human rights, based on:

The nature and amount of company business in that country; The
company's workplace code of conduct; Proprietary and confidential
information involved; Company compliance with U.S. regulations on
investing in the country; Level of peer company involvement in the
country.

INTERNATIONAL CODES OF CONDUCT/VENDOR STANDARDS

Vote CASE-BY-CASE on proposals to implement certain human rights standards at
company facilities or those of its suppliers and to commit to outside,
independent monitoring. In evaluating these proposals, the following should be
considered:
The company's current workplace code of conduct or adherence to other global
standards and the degree they meet the standards promulgated by the proponent;
Agreements with foreign suppliers to meet certain workplace standards;
Whether company and vendor facilities are monitored and how;
Company participation in fair labor organizations;
Type of business;
Proportion of business conducted overseas;
Countries of operation with known human rights abuses;
Whether the company has been recently involved in significant labor and human
rights controversies or violations;
Peer company standards and practices; Union presence in company's international
factories.

Generally vote FOR reports outlining vendor standards compliance unless any of
the following apply:
The company does not operate in countries with significant human rights
violations;
The company has no recent human rights controversies or violations; or
The company already publicly discloses information on its vendor standards
compliance.

MACBRIDE PRINCIPLES

Vote CASE-BY-CASE on proposals to endorse or increase activity on the MacBride
Principles, taking into account:

Company compliance with or violations of the Fair Employment Act of 1989;
Company antidiscrimination policies that already exceed the legal requirements;
The cost and feasibility of adopting all nine principles;
The cost of duplicating efforts to follow two sets of standards (Fair Employment
and the MacBride Principles);
The potential for charges of reverse discrimination;
The potential that any company sales or contracts in the rest of the United
Kingdom could be negatively impacted;
The level of the company's investment in Northern Ireland; The number of company
employees in Northern Ireland;
The degree that industry peers have adopted the MacBride Principles;
Applicable state and municipal laws that limit contracts with companies that
have not adopted the MacBride Principles.

MILITARY BUSINESS

FOREIGN MILITARY SALES/OFFSETS

Vote AGAINST reports on foreign military sales or offsets. Such disclosures may
involve sensitive and confidential information. Moreover, companies must comply
with government controls and reporting on foreign military sales.

LANDMINES AND CLUSTER BOMBS

Vote CASE-BY-CASE on proposals asking a company to renounce future involvement
in antipersonnel landmine production, taking into account:
Whether the company has in the past manufactured landmine components;
Whether the company's peers have renounced future production.

Vote CASE-BY-CASE on proposals asking a company to renounce future involvement
in cluster bomb production, taking into account:
What weapons classifications the proponent views as cluster bombs;
Whether the company currently or in the past has manufactured cluster
bombs or their components;
The percentage of revenue derived from cluster bomb manufacture;
Whether the company's peers have renounced future production.

NUCLEAR WEAPONS

Vote AGAINST proposals asking a company to cease production of nuclear weapons
components and delivery systems, including disengaging from current and proposed
contracts. Components and delivery systems serve multiple military and
non-military uses, and withdrawal from these contracts could have a negative
impact on the company's business.

OPERATIONS IN NATIONS SPONSORING TERRORISM (E.G., IRAN)

Vote CASE-BY-CASE on requests for a board committee review and report outlining
the company's financial and reputational risks from its operations in a
terrorism-sponsoring state, taking into account current disclosure on:

The nature and purpose of the operations and the amount of business involved
(direct and indirect revenues and expenses) that could be affected by political
disruption;
Compliance with U.S. sanctions and laws.

SPACED-BASED WEAPONIZATION

Generally vote FOR reports on a company's involvement in spaced-based
weaponization unless:
The information is already publicly available; or
The disclosures sought could compromise proprietary information.

WORKPLACE DIVERSITY
BOARD DIVERSITY

Generally vote FOR reports on the company's efforts to diversify the board,
unless:
The board composition is reasonably inclusive in relation to companies of
similar size and business; or
The board already reports on its nominating procedures and diversity
initiatives.

Generally vote AGAINST proposals that would call for the adoption of specific
committee charter language regarding diversity initiatives unless the company
fails to publicly disclose existing equal opportunity or non-discrimination
policies.

Vote CASE-BY-CASE on proposals asking the company to increase the representation
of women and minorities on the board, taking into account:

The degree of board diversity;
Comparison with peer companies;
Established process for improving board diversity; Existence of
independent nominating committee; Use of outside search firm; History
of EEO violations.

EQUAL EMPLOYMENT OPPORTUNITY (EEO)

Generally vote FOR reports outlining the company's affirmative action
initiatives unless all of the following apply:

The company has well-documented equal opportunity programs;
The company already publicly reports on its company-wide affirmative initiatives
and provides data on its workforce diversity;
and The company has no recent EEO-related violations or litigation.

Vote AGAINST proposals seeking information on the diversity efforts of suppliers
and service providers, which can pose a significant cost and administration
burden on the company.

GLASS CEILING

Generally vote FOR reports outlining the company's progress towards the Glass
Ceiling Commission's business recommendations, unless:

The composition of senior management and the board is fairly inclusive;
The company has well-documented programs addressing diversity
initiatives and leadership development;
The company already issues public reports on its company-wide affirmative
initiatives and provides data on its workforce diversity; and
The company has had no recent, significant EEO-related violations or litigation.

SEXUAL ORIENTATION

Vote FOR proposals seeking to amend a company's EEO statement in order to
prohibit discrimination based on sexual orientation, unless the change would
result in excessive costs for the company.

Vote AGAINST proposals to extend company benefits to or eliminate benefits from
domestic partners. Benefits decisions should be left to the discretion of the
company.

10. MUTUAL FUND PROXIES
ELECTION OF DIRECTORS

Vote CASE-BY-CASE on the election of directors and trustees, following the same
guidelines for uncontested directors for public company shareholder meetings.
However, mutual fund boards do not usually have compensation committees, so do
not withhold for the lack of this committee.

CONVERTING CLOSED-END FUND TO OPEN-END FUND

Vote CASE-BY-CASE on conversion proposals, considering the following factors:
Past performance as a closed-end fund;
Market in which the fund invests;
Measures taken by the board to address the discount; and
Past shareholder activism, board activity, and votes on related
proposals.

PROXY CONTESTS

Vote CASE-BY-CASE on proxy contests, considering the following factors:

Past performance relative to its peers;
Market in which fund invests;
Measures taken by the board to address the issues;
Past shareholder activism, board activity, and votes on related proposals;
Strategy of the incumbents versus the dissidents;
Independence of directors; Experience and skills of director candidates;
Governance profile of the company;
Evidence of management entrenchment.

INVESTMENT ADVISORY AGREEMENTS

Vote CASE-BY-CASE on investment advisory agreements, considering the following
factors:
Proposed and current fee schedules;
Fund category/investment objective;
Performance benchmarks; Share price performance as compared with peers;
Resulting fees relative to peers;
Assignments (where the advisor undergoes a change of control).

APPROVING NEW CLASSES OR SERIES OF SHARES

Vote FOR the establishment of new classes or series of shares.

PREFERRED STOCK PROPOSALS

Vote CASE-BY-CASE on the authorization for or increase in preferred shares,
considering the following factors:
Stated specific financing purpose;
Possible dilution for common shares;
Whether the shares can be used for antitakeover purposes.

1940 ACT POLICIES

Vote CASE-BY-CASE on policies under the Investment Advisor Act of 1940,
considering the following factors:
Potential competitiveness; Regulatory developments; Current and
potential returns; and Current and potential risk.

Generally vote FOR these amendments as long as the proposed changes do not
fundamentally alter the investment focus of the fund and do comply with the
current SEC interpretation.

CHANGING A FUNDAMENTAL RESTRICTION TO A NONFUNDAMENTAL RESTRICTION

Vote CASE-BY-CASE on proposals to change a fundamental restriction to a
non-fundamental restriction, considering the following factors:
The fund's target investments;
The reasons given by the fund for the change; and
The projected impact of the change on the portfolio.

CHANGE FUNDAMENTAL INVESTMENT OBJECTIVE TO NONFUNDAMENTAL

Vote AGAINST proposals to change a fund's fundamental investment objective to
non-fundamental.

NAME CHANGE PROPOSALS

Vote CASE-BY-CASE on name change proposals, considering the following factors:
Political/economic changes in the target market;
Consolidation in the target market; and
Current asset composition.

CHANGE IN FUND'S SUBCLASSIFICATION

Vote CASE-BY-CASE on changes in a fund's sub-classification, considering the
following factors:
Potential competitiveness;
Current and potential returns;
Risk of concentration;
Consolidation in target industry.

DISPOSITION OF ASSETS/TERMINATION/LIQUIDATION

Vote CASE-BY-CASE on proposals to dispose of assets, to terminate or liquidate,
considering the following factors:
Strategies employed to salvage the company;
The fund's past performance;
The terms of the liquidation.

CHANGES TO THE CHARTER DOCUMENT

Vote CASE-BY-CASE on changes to the charter document, considering the following
factors:
The degree of change implied by the proposal;
The efficiencies that could result;
The state of incorporation;
Regulatory standards and implications.

Vote AGAINST any of the following changes:
Removal of shareholder approval requirement to reorganize or terminate the trust
or any of its series;
Removal of shareholder approval requirement for amendments to the new
declaration of trust;
Removal of shareholder approval requirement to amend the fund's management
contract, allowing the contract to be modified by the investment manager and the
trust management, as permitted by the 1940 Act;
Allow the trustees to impose other fees in addition to sales charges on
investment in a fund, such as deferred sales charges and redemption fees that
may be imposed upon redemption of a fund's shares;
Removal of shareholder approval requirement to engage in and terminate
subadvisory arrangements;
Removal of shareholder approval requirement to change the domicile of the fund.

CHANGING THE DOMICILE OF A FUND

Vote CASE-BY-CASE on re-incorporations, considering the following factors:

Regulations of both states;
Required fundamental policies of both states;
The increased flexibility available.

AUTHORIZING THE BOARD TO HIRE AND TERMINATE SUBADVISORS WITHOUT SHAREHOLDER
APPROVAL

Vote AGAINST proposals authorizing the board to hire/terminate subadvisors
without shareholder approval.

DISTRIBUTION AGREEMENTS

Vote CASE-BY-CASE on distribution agreement proposals, considering the following
factors:
Fees charged to comparably sized funds with similar objectives;
The proposed distributor's reputation and past performance;
The competitiveness of the fund in the industry;
The terms of the agreement.

MASTER-FEEDER STRUCTURE

Vote FOR the establishment of a master-feeder structure.

MERGERS

Vote CASE-BY-CASE on merger proposals, considering the following factors:
Resulting fee structure;
Performance of both funds;
Continuity of management personnel;
Changes in corporate governance and their impact on shareholder rights.

SHAREHOLDER PROPOSALS FOR MUTUAL FUNDS

ESTABLISH DIRECTOR OWNERSHIP REQUIREMENT

Generally vote AGAINST shareholder proposals that mandate a specific minimum
amount of stock that directors must own in order to qualify as a director or to
remain on the board.

REIMBURSE SHAREHOLDER FOR EXPENSES INCURRED

Vote CASE-BY-CASE on shareholder proposals to reimburse proxy solicitation
expenses. When supporting the dissidents, vote FOR the reimbursement of the
proxy solicitation expenses.

TERMINATE THE INVESTMENT ADVISOR

Vote CASE-BY-CASE on proposals to terminate the investment advisor, considering
the following factors:
Performance of the fund's Net Asset Value (NAV);
The fund's history of shareholder relations;
The performance of other funds under the advisor's management.

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

James Murchie, Chief Executive Officer and principal of Energy Income Partners,
LLC ("EIP" or "Sub-Advisor"), and Eva Pao, principal of EIP, are co-portfolio
managers responsible for the day-to-day management of the Registrant's
portfolio.

LENGTH OF
SERVICE WITH
NAME TITLE REGISTRANT BUSINESS EXPERIENCE PAST 5 YEARS
---- ----- ---------- --------------------------------

James Murchie Co-Portfolio 3 months Portfolio Manager, EIP
Manager

Eva Pao Co-Portfolio 3 months Portfolio Manager, EIP
Manager

(A)(2) OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGER AND POTENTIAL CONFLICTS
OF INTEREST

OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGER AS OF NOVEMBER 30, 2007

-------------------------- ----------------- --------------- ---------------- ------------------------- -----------------------
Total Assets for
Total # of # of Accounts Managed which Advisory Fee is
Name of Portfolio Type of Accounts Total Assets for which Advisory Fee Based on Performance
Manager or Team Member Accounts* Managed (millions) is Based on Performance (millions)
-------------------------- ----------------- --------------- ---------------- ------------------------- -----------------------
-------------------------- ----------------- --------------- ---------------- ------------------------- -----------------------

Registered
Investment
1. James Murchie Companies: 1 $369 0 $0
-------------------------- ----------------- --------------- ---------------- ------------------------- -----------------------
-------------------------- ----------------- --------------- ---------------- ------------------------- -----------------------
Other Pooled
Investment
Vehicles: 3 $257 3 $220
-------------------------- ----------------- --------------- ---------------- ------------------------- -----------------------
-------------------------- ----------------- --------------- ---------------- ------------------------- -----------------------
Other Accounts: 0 $0 0 $0
-------------------------- ----------------- --------------- ---------------- ------------------------- -----------------------
-------------------------- ----------------- --------------- ---------------- ------------------------- -----------------------
Registered
Investment
2. Eva Pao Companies: 1 $369 0 $0
-------------------------- ----------------- --------------- ---------------- ------------------------- -----------------------
-------------------------- ----------------- --------------- ---------------- ------------------------- -----------------------
Other Pooled
Investment
Vehicles: 3 $257 3 $220
-------------------------- ----------------- --------------- ---------------- ------------------------- -----------------------
-------------------------- ----------------- --------------- ---------------- ------------------------- -----------------------
Other Accounts: 0 $0 0 $0
-------------------------- ----------------- --------------- ---------------- ------------------------- -----------------------

POTENTIAL CONFLICTS OF INTERESTS

The EIP investment professionals that serve as portfolio managers of the
Registrant also serve as portfolio managers to three private investment funds
(the "Private Funds"), each of which has a performance-based fee and one
open-ended Mutual Fund which does not have a performance-based fee.

Decisions to buy and sell securities for the Registrant are made by EIP.
Although investment decisions of each fund managed by EIP are made independently
from those of other accounts managed by EIP, investments similar to those the
Registrant makes may also be made for the other accounts. When the Registrant
and one or more other accounts managed by EIP are prepared to invest, or desire
to dispose of, the same security, available investments or opportunities for
sales will be allocated in a manner believed by EIP to be equitable to each
account.

EIP has written policies and procedures regarding Trade Aggregation and
Allocation to ensure that all accounts are treated fairly and equitably and that
no account is disadvantaged. A number of factors are taken into consideration
when allocating investment opportunities among EIP's clients, including
investment objectives and strategies, compliance with securities regulations,
risk tolerances, tax status, size of client accounts, size of available
positions, current market conditions, total portfolio invested positions and the
nature of the security to be allocated. In addition, the CCO monitors conflicts
that may arise in managing its accounts, including reviewing trade allocations
and performance data of similarly managed accounts.

(A)(3) COMPENSATION STRUCTURE OF PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM MEMBERS

The portfolio managers are compensated by a competitive minimum base salary and
share in the profits of EIP in relationship to their ownership of EIP. The
profits of EIP are influenced by the assets managed by the funds and the
performance of the funds. While a portion of the portfolio manager's
compensation is tied to performance through incentive fees earned through the
Private Funds, the portfolio managers are not incentivized to take undue risk in
circumstances when the funds' performance lags as their investment fees may
sometimes have a high water mark or be subject to a hurdle rate. Moreover, the
Registrant's portfolio managers are the principal owners of EIP and are
incentivized to maximize the long-term performance of all of its funds. The
compensation of the Portfolio team members is determined according to prevailing
rates within the industry for similar positions. EIP wishes to attract, retain
and reward high quality personnel through competitive compensation.

(A)(4) DISCLOSURE OF SECURITIES OWNERSHIP

Information provided as of November 30, 2007.

Dollar Range of Fund Shares
NAME Beneficially Owned
----- ------------------
James Murchie $0
Eva Pao $0

(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 Registrant's second fiscal
quarter of the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the
Registrant's internal control over financial reporting.

ITEM 12. EXHIBITS.

(a)(1) Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.

(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached
hereto.

(a)(3) Not applicable.

(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and
Section 906 of the Sarbanes-Oxley Act of 2002 are attached
hereto.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

(registrant) ENERGY INCOME AND GROWTH FUND

By (Signature and Title)* /S/ JAMES A. BOWEN
-------------------------------------------------------
James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)

Date JANUARY 24, 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.

Date JANUARY 24, 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 JANUARY 24, 2008
----------------------------------------------------------------------------

* Print the name and title of each signing officer under his or her signature.