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 811-21940
EIP Investment Trust
(Exact name of registrant as specified in charter)
c/o Energy Income Partners, LLC
49 Riverside Avenue
Westport, CT 06880
(Address of principal executive offices) (Zip code)
Linda Longville
c/o Energy Income Partners, LLC
49 Riverside Avenue
Westport, CT 06880
(Name and address of agent for service)
registrant's telephone number, including area code: 203-349-8232
Date of fiscal year end: December 31
Date of reporting period: December 31, 2009
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. Section 3507.
ITEM 1. REPORTS TO STOCKHOLDERS
The Report to Shareholders is attached herewith.
(EIP LOGO)
EIP GROWTH AND INCOME FUND
DECEMBER 31, 2009 ANNUAL REPORT
EIP Growth and Income Fund
TABLE OF CONTENTS
Letter to Shareholders .................................................... 1
Schedule of Investments ................................................... 3
Statement of Assets and Liabilities ....................................... 6
Statement of Operations ................................................... 7
Statements of Changes in Net Assets ....................................... 8
Statement of Cash Flow .................................................... 9
Financial Highlights ...................................................... 10
Notes to Financial Statements ............................................. 11
Report of Independent Registered Public Accounting Firm ................... 20
Additional Information .................................................... 21
You should carefully consider the investment objectives, risks, charges, and
expenses of the Fund before making an investment decision. The private placement
memorandum contains this and other information - please read it carefully before
investing or sending money. Except as noted, numbers in the private placement
memorandum are unaudited. To obtain a copy of the private placement memorandum,
please call (203) 349-8232.
EIP Growth and Income Fund
Dear Fellow Shareholders:
I am pleased to submit this Annual Report for the EIP Growth and Income Fund for
the period ended December 31, 2009. For the year ended December 31, 2009, the
Fund's total return was +70.34%. For the year ended December 31, 2008, the
Fund's total return was -33.04%.
The Fund's primary strategy is investing in publicly traded energy
infrastructure companies with high dividend payouts that offer attractive yields
and have the opportunity to grow. A large portion of our equity investment
opportunities are publicly traded partnerships known as Master Limited
Partnerships ("MLPs"). These securities represent under 25% of the Fund's
assets, which is the maximum allowable for mutual funds. On average, over time
about 20% of our assets are invested in securities with similar characteristics
to the energy-related MLPs, such as MLP affiliates, infrastructure income trusts
in Canada and infrastructure companies with MLP and infrastructure income trust
subsidiaries. We typically invest the remainder of the portfolio in high-quality
corporate and agency bonds with a weighted average maturity of 18 months or less
or a coupon that floats with prevailing interest rates. All of our corporate
bonds must have an AA rating or better, or an equivalent rating from Moody's or,
if unrated, have been determined by Energy Income Partners, LLC to be of similar
quality at the time they are put into the portfolio unless they are issued by an
energy company, in which case the bond must have an investment grade rating or
higher. While the bond portfolio may generate a significant amount of income,
the large allocation to bonds with short duration is expected over time to have
a large dampening effect on the portfolio's volatility. We employ leverage in an
attempt to enhance the portfolio's returns.
BENCHMARKS:
We believe the following benchmarks provide appropriate comparisons of the
Fund's performance:
TOTAL RETURN
(YEAR ENDED
12/31/09)
------------
Wells Fargo Midstream MLP Index 72.51%
Barclays Capital Aggregate U.S. Credit Index (1-3 year) 11.59%
WELLS FARGO MIDSTREAM MLP INDEX (FORMERLY THE WACHOVIA MIDSTREAM MLP TOTAL
RETURN INDEX). We believe the portion of our portfolio invested in MLPs, income
trusts and other energy equities may be compared to the Wells Fargo Midstream
MLP Index. We use this index rather than a broader MLP index as our investment
style tends to focus the portfolio in MLPs involved in pipeline transportation,
storage, terminaling and processing of petroleum and natural gas. These
activities are commonly known as "midstream" as opposed to oil and gas
production ("upstream") and refining and marketing ("downstream"). The upstream
and downstream parts of the energy industry are the customers of the midstream
companies. And while much of the equity portion of the portfolio is not invested
in midstream MLPs per se, their business characteristics are similar: a heavy
weighting in North American midstream operations and a high payout ratio.
BARCLAYS CAPITAL AGGREGATE U.S. CREDIT INDEX. The Barclays Capital Aggregate
U.S. Credit Index (1-3 year) is an index of corporate bonds with an average
duration of about 1.8 years and an average credit quality of between Moody's
assigned A1 to AA3 ratings (Source: Barclays Capital Inc.). While slightly
longer in duration and lower in credit quality, we believe that over time, this
index is the best benchmark for how we run the bond portion of our portfolio.
MLPS AND OTHER EQUITIES
As measured by the Wells Fargo Midstream MLP Index, the total return for MLPs
over the year ended December 31, 2009 was about 72.5%. This return reflects an
initial yield of about 12% and share appreciation of about 61%. While in the
short-term, share price performance can be volatile, and subject to macro
factors such as credit spreads, interest rates and overall market sentiment, we
believe that over the long-term, share performance 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 flat. This compares to a ten-year average of about 7%.
We believe the extreme weakness in the share prices in 2008 was caused by
professional investors who were forced to liquidate either due to redemptions or
margin requirements. The bounce back in 2009 reflects, in our view, the absence
of this selling pressure combined with stable fundamentals that allowed
dividends to remain stable, on average.
RESULTS OF A HYPOTHETICAL
$10,000 INVESTMENT
(PERFORMANCE GRAPH)
Wells Fargo Barclays
EIP Growth Midstream MLP 1-3 Year
& Income Index Credit Index
------------ -------------- -------------
8/22/2006 10000 10000 10000
12/31/2006 10562 11077 10200
6/30/2007 12292 13148 10429
12/31/2007 11649 12535 10808
6/30/2008 11265 11775 11020
12/31/2008 7801 7963 10841
6/30/2009 9963 10391 11584
12/31/2009 13288 13737 12097
The Wells Fargo Midstream MLP Index consists of 34 energy MLPs and represents
the Midstream sub-sector of the Wells Fargo MLP Composite Index. The index is
calculated by S&P using a float-adjusted market capitalization methodology.
Unlike the Fund, the index does not incur fees and expenses.
The Barclays Capital Aggregate Credit Index (1-3 year) is an index of corporate
bonds with an average duration of about 1.8 years and an average credit quality
of between Moody's assigned A1 to AA3 ratings. Unlike the Fund, the index does
not incur fees and expenses.
EIP GROWTH AND INCOME FUND
RETURNS FOR YEAR ENDED 12/31/09
Average Annual Total Returns
One Year 70.34%
Since Inception 8.83%
Inception Date 08/22/06
The performance data quoted represents past performance and does not guarantee
future results. The performance stated may have been due to extraordinary market
conditions, which may not be duplicated in the future. Current performance may
be lower or higher than the performance data quoted. The investment return and
principal value of the fund will fluctuate so that an investor's shares, when
sold, may be worth more or less than the original cost. Calculations do not
reflect the deduction in taxes that a shareholder would pay on fund
distributions or the redemption of shares. Calculations assume reinvestment of
dividends and capital gain distributions. To obtain more recent performance
data, please contact the Energy Income Partners Information Center at
1-203-349-8232.
1
EIP Growth and Income Fund
MLPs have traditionally been held by retail investors and the total return of
MLPs has tended to have low correlations to the overall market, interest rates
and the energy sector. However, the increased ownership by professional
investors made MLPs more vulnerable to external market factors. We believe the
large liquidation by these professional investors resulted in a higher ownership
of more stable investors such as retail investors and institutions such as
insurance companies and mutual funds.
FIXED INCOME
Our bond portfolio has an average credit quality of AA, which is slightly above
the credit quality of our benchmark. The weakest performance from our bond
portfolio in 2008 came from longer dated floating rate notes; these floaters
contributed most to our positive performance in 2009. Our bond portfolio is made
up entirely of corporate issues and US agency bonds. We do not hold any
collateralized debt obligations or mortgage-backed securities or any other types
of structured products. In addition, our strategy is a "buy and hold" approach.
So while the mark-to-market value of some of our bonds has been volatile, we
believe that if we hold them to maturity and there are no events of default, we
should realize 100 cents on the dollar for these bonds as they mature. None of
the bonds we have held have ever defaulted in their payments to the Fund. Of
course, although not currently anticipated, if we sell these bonds before
maturity, we may not realize 100 cents on the dollar for these bonds.
OUTLOOK
The MLP asset class experienced no new IPOs in 2009. In fact, some MLPs were
de-listed due to bankruptcies and restructurings. The number of energy-related
MLPs fell from a peak of 73 to 67 at the end of 2009. Two of the six were
acquired by other MLPs while the other four were taken private or declared
bankruptcy and were characterized by cyclical cash flows and/or too much
financial leverage. There was, however a very healthy level of secondary
financing activity for MLPs as they continued to fund their ongoing investments
in new pipelines, processing and storage facilities. In 2009, there were 52
secondary equity offerings for MLPs that raised $7.3 billion. This compares to
$3.9 billion raised in 2008 and $5.4 billion raised in 2007 (not including
private transactions). MLPs also found access to the public debt markets,
raising $8.0 billion in 17 offerings. This compares to $8.2 billion in 2008 and
$5.2 billion in 2007. (Source: Barclays Capital). While access to debt in 2009
appears to be as good as prior years, pricing of course has changed and the
difference in the cost of debt between investment grade and non-investment grade
companies has widened substantially from two years ago.
In our opinion, the better positioned MLPs have non-cyclical cash flows,
conservative balance sheets, modest and/or flexible organic growth commitments
and liquidity on their revolving lines of credit. While there has been a rebound
in commodity prices, cyclical cash flows will always be unpredictable, making
them a bad fit with a steady dividend obligation. Over the last few years, the
majority of MLP IPOs were companies whose primary business is the production of
oil and gas, shipping, refining or natural gas gathering. While some of these
MLPs have quality assets, competent management teams and the potential for
higher growth, they have more risk associated with the cyclical nature of their
businesses. We have written about the dangers of this trend in the past, and
remain vigilant about limiting our exposure to MLPs with cyclical cash flows.
The total return proposition of owning energy-related infrastructure MLPs has
been and continues to be their yield plus their growth. The yield of the MLPs,
weighted by market capitalization, on December 31, 2009, was 7.4% based on the
Alerian Index. The historical growth in the quarterly cash distributions that
make up this yield has averaged between 6% and 7% annually over the last ten
years, though it dropped to minus 2% in 2009 (Source: Alerian Capital
Management). For true infrastructure MLPs, we expect dividend growth rates to
average in the mid-single digits over the next few years. We believe this growth
will continue to be driven by modest increases in underlying demand as the
economy recovers, inflation and cost escalators in pipeline tariffs and
contracts and accretion from profitable capital projects and acquisitions. The
capital projects continue to be related to growth in areas such as the new
natural gas shale resources, the need for more infrastructure related to bio
fuels and other environmental requirements, and Canadian oil sands. Thus far, we
believe the MLPs as a group have done a great job capitalizing on these
opportunities. The slower capital spending by the customers of infrastructure
MLPs (oil and gas producers and refiners) experienced last year appears to have
reversed course with higher commodity prices and a rosier outlook for the
economy. This is good news for our portfolio companies.
Sincerely,
James Murchie
President
EIP Growth and Income Fund
The views expressed in this commentary reflect those of the Fund's portfolio
management team as of December 31, 2009. Any such views are subject to change at
any time based on market or other conditions, and the Fund disclaims any
responsibility to update such views. These views are not intended to be a
forecast of future events, a guarantee of future results or advice. Because
investment decisions for the Fund are based on numerous factors, these views may
not be relied upon as an indication of trading intent on behalf of the Fund. The
information contained herein has been prepared from sources believed to be
reliable, but is not guaranteed by the Fund as to its accuracy or completeness.
2
EIP Growth and Income Fund
DECEMBER 31, 2009
SCHEDULE OF INVESTMENTS
(PIE CHART)
CANADIAN INCOME TRUSTS AND COMMON STOCKS 2%
INVESTMENT COMPANY 8%
UNITED STATES COMMON STOCKS 9%
MASTER LIMITED PARTNERSHIPS 18%
CORPORATE NOTES AND BONDS 19%
U.S. GOVERNMENT AND AGENCY OBLIGATIONS 44%
% OF TOTAL INVESTMENTS
PAR VALUE FAIR VALUE
- ------------ --------------
CORPORATE NOTES AND BONDS - 23.01%+
CREDIT - MISCELLANEOUS BUSINESS - 4.62%+
$ 3,000,000 General Electric Capital Corp., MTN
0.484%, 01/08/16 (b) ........................ $ 2,723,787
--------------
CREDIT - PERSONAL - 10.04%+
6,000,000 American Express Credit, MTN
0.393%, 06/16/11 (a) (b) .................... 5,921,358
--------------
SECURITIES BROKER/DEALER - 8.35%+
5,000,000 Merrill Lynch & Co., Inc., MTN
0.482%, 07/25/11 (a) (b) .................... 4,925,065
--------------
TOTAL CORPORATE NOTES AND BONDS
(Cost $14,006,704) .......................... 13,570,210
--------------
SHARES
- ------------
MASTER LIMITED PARTNERSHIPS - 21.08%+
CONSUMER CYCLICALS - 1.25%+
9,935 Global Partners, LP ............................ 228,108
8,640 Inergy Holdings, LP ............................ 507,600
--------------
735,708
--------------
ENERGY - 19.83%+
30,238 Buckeye GP Holdings, LP ........................ 866,016
1,000 Buckeye Partners, LP ........................... 54,450
24,285 Duncan Energy Partners, LP ..................... 576,769
29,400 El Paso Pipeline Partners, LP .................. 763,224
14,000 Energy Transfer Equity, LP ..................... 428,120
6,500 Energy Transfer Partners, LP ................... 292,305
35,488 Enterprise GP Holdings, LP ..................... 1,382,967
13,800 Enterprise Products Partners, LP ............... 433,458
13,279 Holly Energy Partners, LP ...................... 529,035
18,700 Magellan Midstream Partners, LP ................ 810,271
1,140 Natural Resource Partners, LP .................. 27,634
19,750 NuStar Energy, LP .............................. 1,107,777
36,200 NuStar GP Holdings, LLC ........................ 974,504
14,043 ONEOK Partners, LP ............................. 874,879
6,651 Penn Virginia Resource Partners, LP ............ 143,396
9,000 Plains All American Pipeline, LP ............... 475,650
2,350 Quicksilver Gas Services, LP ................... 49,303
20,871 Sunoco Logistics Partners, LP .................. 1,396,061
SHARES FAIR VALUE
- ------------ --------------
MASTER LIMITED PARTNERSHIPS (CONTINUED)
ENERGY (CONTINUED)
8,309 TC Pipelines, LP ............................... $ 306,104
3,200 Transmontaigne Partners, LP .................... 88,000
5,000 Williams Pipeline Partners, LP ................. 118,750
--------------
11,698,673
--------------
TOTAL MASTER LIMITED PARTNERSHIPS
(Cost $8,730,812) ........................... 12,434,381
--------------
UNITED STATES COMMON STOCKS - 11.29%+
ENERGY - 5.50%+
26,247 Enbridge Energy Management,
LLC (c) ..................................... 1,394,230
900 Enbridge, Inc. ................................. 41,598
16,000 Exxon Mobil Corp. .............................. 1,091,040
13,136 Kinder Morgan Management,
LLC (c) ..................................... 717,761
--------------
3,244,629
--------------
FINANCE - 2.38%+
74,000 MLP & Strategic Equity Fund (d) ................ 1,177,340
28,050 NGP Capital Resources Co. ...................... 228,046
--------------
1,405,386
--------------
UTILITIES - 3.41%+
3,500 Dominion Resources, Inc. ....................... 136,220
5,000 FPL Group, Inc. ................................ 264,100
10,000 ITC Holdings Corp. ............................. 520,900
8,800 Public Service Enterprise Group,
Inc. ........................................ 292,600
3,500 Sempra Energy .................................. 195,930
7,800 Southern Co. ................................... 259,896
14,000 UGI Corp. ...................................... 338,660
--------------
2,008,306
--------------
TOTAL COMMON STOCKS
(Cost $5,379,458) ........................... 6,658,321
--------------
CANADIAN COMMON STOCKS - 0.55%+
INDUSTRIAL - 0.55%+
42,700 Newalta, Inc. .................................. 326,660
--------------
TOTAL CANADIAN COMMON STOCKS
(Cost $99,124) .............................. 326,660
--------------
CANADIAN INCOME TRUSTS - 2.00%+
ENERGY - 0.04%+
3,000 Phoenix Technology Income Fund ................. 23,551
--------------
FINANCE - 0.48%+
22,500 Enbridge Income Fund ........................... 285,448
--------------
UTILITIES - 1.48%+
37,258 Keyera Facilities Income Fund .................. 869,656
--------------
TOTAL CANADIAN INCOME TRUSTS
(Cost $749,274) ............................. 1,178,655
--------------
PAR VALUE
- ------------
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS - 52.96%+
FEDERAL HOME LOAN BANK - 27.84%+
$ 16,400,000 Federal Home Loan Bank
0.790%, 03/11/10 (a) (b) .................... 16,420,320
--------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
3
EIP Growth and Income Fund
DECEMBER 31, 2009
SCHEDULE OF INVESTMENTS - CONTINUED
PAR VALUE FAIR VALUE
- ------------ --------------
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS (CONTINUED)
FEDERAL HOME LOAN MORTGAGE - 13.75%+
$ 8,000,000 Federal Home Loan Mortgage Corp.
7.000%, 03/15/10 (a) ........................ $ 8,108,568
--------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 11.37%+
2,500,000 Federal National Mortgage Association
4.125%, 05/15/10 (a) ........................ 2,536,273
4,000,000 Federal National Mortgage Association
3.625%, 08/15/11 (a) ........................ 4,169,108
--------------
6,705,381
--------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(Cost $31,221,299) .......................... 31,234,269
--------------
SHARES
- ------------
INVESTMENT COMPANY - 9.58%+
5,652,106 PNC Bank Money Market .......................... 5,652,106
--------------
TOTAL INVESTMENT COMPANY
(Cost $5,652,106) ........................... 5,652,106
--------------
TOTAL INVESTMENTS - 120.47%+
(Cost $65,838,777)* ........................................ 71,054,602
--------------
PRINCIPAL
- ------------
REVERSE REPURCHASE AGREEMENTS (e) - (64.17)%+
$ (4,260,000) With Credit Suisse for American
Express Credit, 1.50% dated
12/31/09, to be repurchased
at $4,260,710 on 01/04/10 ................... (4,260,000)
(15,580,000) With Credit Suisse for Federal
Home Loan Bank, 0.25% dated
12/31/09 to be repurchased at
$15,580,433 on 01/04/10 ..................... (15,580,000)
(7,980,000) With Credit Suisse for Federal
Home Loan Mortgage Corp.,
0.25% dated 12/31/09, to be
repurchased at $7,980,222
on 01/04/10 ................................. (7,980,000)
(2,428,125) With Credit Suisse for Federal
National Mortgage Association,
0.25% dated 12/31/09, to be
repurchased at $2,428,192
on 01/04/10 ................................. (2,428,125)
(4,000,000) With Credit Suisse for Federal
National Mortgage Association,
0.25% dated 12/31/09, to be
repurchased at $4,000,111
on 01/04/10 ................................. (4,000,000)
(3,600,000) With Credit Suisse for Merrill Lynch
& Co., Inc., 1.50% dated
12/31/09, to be repurchased at
$3,600,600 on 01/04/10 ...................... (3,600,000)
--------------
TOTAL REVERSE REPURCHASE AGREEMENTS
(Cost $(37,848,125)) ........................ (37,848,125)
--------------
TOTAL INVESTMENTS AND REVERSE REPURCHASE AGREEMENTS - 56.30%+
(Cost $27,990,652) ......................................... 33,206,477
--------------
FAIR VALUE
--------------
OTHER ASSETS IN EXCESS OF LIABILITIES - 43.70%+ ............... $ 25,776,962
--------------
NET ASSETS - 100.00%+ ......................................... $ 58,983,439
==============
+ Percentages are calculated based on net assets, inclusive of reverse
repurchase agreements.
* Aggregate cost for federal tax purposes is $68,116,359.
(a) Segregated as collateral for Reverse Repurchase Agreements as of December
31, 2009.
(b) Floating rate note. The interest rate shown reflects the rate in effect at
December 31, 2009.
(c) Non-income producing security.
(d) Closed-End Fund
(e) A reverse repurchase agreement, although structured as a sale and
repurchase obligation, acts as a financing transaction under which the Fund
will effectively pledge certain assets as collateral to secure a short-term
loan. Generally the other party to the agreement makes the loan in an
amount equal to a percentage of the market value of the pledged collateral.
At the maturity of the reverse repurchase agreement, the Fund will be
required to repay the loan and interest and correspondingly receive back
its collateral. While used as collateral, the assets continue to pay
principal and interest which are for the benefit of the Fund.
MTN Medium Term Note
The amount of $428,717 in cash was segregated with the broker, Credit Suisse, to
cover margin requirements for the following open futures contracts as of
December 31, 2009:
SHORT FUTURES NUMBER OF NOTIONAL UNREALIZED
OUTSTANDING CONTRACTS AMOUNT DEPRECIATION
- ------------- --------- ---------- ------------
Canadian Dollar (03/10) 77 $7,362,740 $(93,862)
The amount of $4,131,954 in cash was segregated with the custodian to cover the
following total return swaps outstanding at December 31, 2009:
LONG TOTAL PAY EXPIRATION NOTIONAL UNREALIZED
RETURN EQUITY SWAPS RATE DATE AMOUNT APPRECIATION
- ------------------- ------------ ---------- ---------- ------------
Inter Pipeline Fund ** 1 month
Libor + 40
basis points 9/13/11 $ 516,896 $26,566
Mullen Group, Ltd.** 1 month
Libor + 40
basis points 9/13/11 213,861 22,275
Phoenix Technology
Income Fund ** 1 month
Libor + 125
basis points 9/13/11 168,596 21,521
El Paso Pipeline, LP ** 1 month
Libor + 100
basis points 12/24/13 515,600 3,431
Energy Transfer
Partners, LP ** 1 month
Libor + 150
basis points 12/24/13 355,600 4,023
Kinder Morgan
Management, LLC ** 1 month
Libor + 50
basis points 12/24/13 1,767,139 13,121
Magellan Midstream
Partners ** 1 month
Libor + 150
basis points 12/24/13 1,491,000 24,976
ONEOK, Inc. ** 1 month
Libor + 50
basis points 12/24/13 1,549,023 41,826
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
4
EIP Growth and Income Fund
DECEMBER 31, 2009
SCHEDULE OF INVESTMENTS - CONTINUED
UNREALIZED
LONG TOTAL PAY EXPIRATION NOTIONAL APPRECIATION/
RETURN EQUITY SWAPS RATE DATE AMOUNT (DEPRECIATION)
- ------------------- ------------ ---------- ----------- --------------
Williams Pipeline
Partners, LP ** 1 month
Libor + 100
basis points 12/24/13 $ 586,250 $ 7,368
Enbridge, Inc. ** 1 month
Libor + 44
basis points 1/21/14 1,116,250 39,083
Spectra Energy
Corp. ** 1 month
Libor + 35
basis points 1/21/14 455,366 1,951
TransCanada
Corp. ** 1 month
Libor + 40
basis points 1/21/14 709,776 33,449
UGI Corp. ** 1 month
Libor + 35
basis points 1/21/14 538,302 (4,230)
Williams Companies,
Inc. ** 1 month
Libor + 35
basis points 1/21/14 1,262,394 18,061
----------- --------
$11,246,053 $253,421
=========== ========
SHORT TOTAL PAY EXPIRATION NOTIONAL UNREALIZED
RETURN EQUITY SWAPS RATE DATE AMOUNT DEPRECIATION
- ------------------- ------------ ---------- ----------- ------------
Copano Energy, LLC** 1 month
Libor - 250
basis points 10/17/11 $322,200 $(36,775)
-------- --------
$322,200 $(36,775)
======== ========
** Credit Suisse is the counterparty to the above total return swaps.
The following table summarizes the activity for written options for the year
ended December 31, 2009:
NUMBER OF
CONTRACTS PREMIUM
--------- ---------
Outstanding, January 1, 2009 2,625 $ 359,683
Call Options Written 770 115,514
Put Options Written 360 62,320
Call Options Closed (770) (115,514)
Put Options Closed (907) (120,298)
Call Options Expired (1,357) (183,477)
Put Options Exercised (721) (118,228)
------ ---------
Outstanding, December 31, 2009 -- $ --
====== =========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
5
EIP Growth and Income Fund
DECEMBER 31, 2009
STATEMENT OF ASSETS AND LIABILITIES
ASSETS:
Investments, at value (Cost $65,838,777) .................................. $ 71,054,602
Restricted cash ........................................................... 4,560,702
Swaps (premium paid $0) ................................................... 257,651
Receivables:
Investments sold .................................................... 21,050,787
Dividends and interest .............................................. 288,668
Prepaid expenses .......................................................... 54,450
------------
Total assets ..................................................... 97,266,860
------------
LIABILITIES:
Reverse repurchase agreements ............................................. 37,848,125
Interest expense payable .................................................. 25,704
Due to broker - variation margin on future contracts ...................... 93,862
Swaps (premium received $0) ............................................... 41,005
Payables:
Advisory fees (Note 3) .............................................. 48,924
Professional fees ................................................... 178,245
Administration fees (Note 3) ........................................ 15,334
Printing expense .................................................... 10,229
Trustees fees and related expenses (Note 3) ......................... 2,573
Custodian fees ...................................................... 2,000
Transfer agent fees ................................................. 4,609
Other payables ...................................................... 12,811
------------
Total liabilities ................................................ 38,283,421
------------
NET ASSETS ................................................................ $ 58,983,439
============
NET ASSETS CONSIST OF:
Par value ($0.01 per share) ............................................ $ 51,596
Paid in capital ........................................................ 74,149,257
Accumulated undistributed net investment loss .......................... (552,131)
Accumulated net realized loss on investments, swap transactions, futures
contracts, written options and foreign currency transactions ........ (20,002,729)
Net unrealized appreciation on investments, swap transactions, futures
contracts and foreign currency transactions ......................... 5,337,446
------------
$ 58,983,439
============
Shares outstanding (unlimited number of shares authorized) ................ 5,159,609
============
Net Asset Value, offering and redemption price per share (net assets/shares
outstanding) ........................................................... $ 11.43
============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
6
EIP Growth and Income Fund
FOR THE YEAR ENDED DECEMBER 31, 2009
STATEMENT OF OPERATIONS
INVESTMENT INCOME:
Dividends .............................................................. $ 378,440
Less: foreign taxes withheld ........................................... (25,043)
Interest ............................................................... 653,192
------------
Total investment income ............................................. 1,006,589
------------
EXPENSES:
Interest expense (Note 2) .............................................. 645,727
Investment advisory fees (Note 3) ...................................... 533,803
Professional fees ...................................................... 405,837
Administration fees (Note 3) ........................................... 179,689
Transfer agent fees (Note 3) ........................................... 48,501
Trustees fees and related expenses (Note 3) ............................ 45,333
Custodian fees ......................................................... 24,226
Registration expenses .................................................. 560
Printing expenses ...................................................... 8,769
Other expenses ......................................................... 122,524
------------
Total expenses ...................................................... 2,014,969
------------
NET INVESTMENT LOSS ................................................. (1,008,380)
------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
NET REALIZED GAIN/(LOSS) ON:
Investments ............................................................ (13,764,219)
Swap transactions ...................................................... 1,597,416
Futures contracts ...................................................... (678,330)
Written options ........................................................ 85,507
Foreign currency transactions .......................................... (1,878)
------------
Net realized loss ................................................... (12,761,504)
------------
NET CHANGE IN UNREALIZED APPRECIATION/(DEPRECIATION) ON:
Investments ............................................................ 41,488,935
Swap transactions ...................................................... 26,675
Futures contracts ...................................................... (24,871)
Written options ........................................................ 337,647
Foreign currency transactions .......................................... (1,077)
------------
Net change in unrealized appreciation ............................... 41,827,309
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS ........................... 29,065,805
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ................................ $ 28,057,425
============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
7
EIP Growth and Income Fund
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2009 2008
------------ -------------
OPERATIONS:
Net investment income/(loss) ........................................... $ (1,008,380) $ 945,299
Net realized loss on investments, swaps, futures, written options and
foreign currency transactions ....................................... (12,761,504) (18,335,365)
Net change in unrealized appreciation/(depreciation) on investments,
swaps, futures, written options and foreign currency transactions ... 41,827,309 (44,533,972)
------------ -------------
Net increase (decrease) in net assets from operations ............... 28,057,425 (61,924,038)
------------ -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income .................................................. -- (2,321,372)
Net realized gain on investments: ...................................... -- (7,576,753)
------------ -------------
Total distributions .............................................. -- (9,898,125)
------------ -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares .......................................... -- 56,421,352
Proceeds from reinvestment of distributions ............................ -- 9,898,125
Cost of shares redeemed ................................................ (56,821,298) (114,011,043)
------------ -------------
Net decrease in net assets from capital share transactions ....... (56,821,298) (47,691,566)
------------ -------------
Total decrease in net assets ..................................... (28,763,873) (119,513,729)
------------ -------------
NET ASSETS:
BEGINNING OF YEAR ......................................................... 87,747,312 207,261,041
END OF YEAR ............................................................... $ 58,983,439 $ 87,747,312
============ =============
(A) Undistributed net investment income/(loss) ............................ $ (552,131) $ 2,917
============ =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
8
EIP Growth and Income Fund
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2009
OPERATING ACTIVITIES
Net increase in net assets from operations ............................. $ 28,057,425
ADJUSTMENTS TO NET INCREASE IN NET ASSETS FROM OPERATIONS
Purchase of investment securities ...................................... (57,688,723)
Proceeds from disposition of investment securities ..................... 184,853,230
Net purchase of short-term investment securities ....................... (17,187,518)
Net realized loss on investments ....................................... 13,766,117
Net change in unrealized depreciation on investments ................... (41,488,935)
Net accretion of premium ............................................... 777,419
Return of capital received from investments in MLPs .................... 2,084,153
Net increase in due to broker-variation margin on futures contracts .... 24,871
Net change in swap appreciation ........................................ (26,675)
Net change in premiums received on swaps ............................... 4,297
Net change in premium received from options ............................ (359,683)
Net change in unrealized depreciation on written options ............... (337,647)
Decrease in restricted cash ............................................ 5,820,729
Decrease in dividends and interest receivable .......................... 984,499
Decrease in prepaid expenses ........................................... 24,963
Increase in other payables ............................................. 8,957
Increase in printing payable ........................................... 1,427
Increase in transfer agent fees payable ................................ 555
Increase in investments sold receivable ................................ (18,666,281)
Decrease in investments purchased payable .............................. (559,157)
Decrease in interest expense payable ................................... (292,336)
Decrease in advisory fee payable ....................................... (26,181)
Decrease in custodian fees payable ..................................... (6,130)
Decrease in professional fees payable .................................. (3,942)
Decrease in administration fees payable ................................ (3,133)
Decrease in trustees fees and related expense payable .................. (940)
------------
Net cash provided by operating activities ................................. 99,761,361
------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in reverse repurchase agreements .......................... (42,940,063)
Payment of shares redeemed ............................................. (56,821,298)
------------
Net cash used in financing activities ..................................... (99,761,361)
Net increase (decrease) in unrestricted cash ........................... --
BEGINNING OF YEAR ......................................................... $ --
------------
END OF YEAR ............................................................... $ --
============
Cash paid for interest expense ............................................ $ $938,063
============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
9
EIP Growth and Income Fund
FINANCIAL HIGHLIGHTS DECEMBER 31, 2009
THE FINANCIAL HIGHLIGHTS TABLE IS INTENDED TO HELP YOU UNDERSTAND THE FUND'S
FINANCIAL PERFORMANCE SINCE THE COMMENCEMENT OF THE FUND'S OPERATIONS. CERTAIN
INFORMATION REFLECTS FINANCIAL RESULTS FOR A SHARE OUTSTANDING THROUGHOUT EACH
PERIOD. THE TOTAL RETURNS IN THE TABLE REPRESENT THE RATE THAT AN INVESTOR WOULD
HAVE EARNED (OR LOST) ON AN INVESTMENT IN THE FUND (ASSUMING REINVESTMENT OF ALL
DIVIDENDS AND DISTRIBUTIONS).
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
12/31/09 12/31/08 12/31/07 12/31/06(a)
-------- -------- -------- -----------
Net asset value, beginning of period ..... $ 6.71 $ 11.22 $ 10.50 $ 10.00
------- ------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income/(loss) .......... (0.16)(b) 0.05(b) 0.11 0.05
Net realized and unrealized gain/(loss)
on investments ..................... 4.88 (3.75) 0.96 0.51
------- ------- -------- --------
Total from investment operations ...... 4.72 (3.70) 1.07 0.56
------- ------- -------- --------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income ................. -- (0.19) -- (0.06)
Net realized gain on investments ...... -- (0.62) (0.35) --
------- ------- -------- --------
Total from distributions .............. -- (0.81) (0.35) (0.06)
------- ------- -------- --------
Net increase (decrease) in net asset value 4.72 (4.51) 0.72 0.50
------- ------- -------- --------
Net asset value, end of period ........... $ 11.43 $ 6.71 $ 11.22 $ 10.50
------- ------- -------- --------
TOTAL RETURN ............................. 70.34% (33.04)% 10.29% 5.62%*
======= ======= ======== ========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ..... $58,983 $87,747 $207,261 $119,896
Ratios of expenses to average net assets:
Operating expenses excluding interest
expense ............................ 2.57% 1.54% 1.61% 2.90%**
Operating expenses including interest
expense ............................ 3.77% 4.30% 5.84% 6.23%**
Ratios of net investment income/(loss) to
average net assets .................... (1.89)% 0.52% 0.99% 1.69%**
Portfolio turnover rate .................. 93% 42% 24% 6%*
- ----------
(a) The Fund commenced operations on August 22, 2006.
(b) Per share investment income has been calculated using the average shares
method.
* Not annualized
** Annualized
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
10
EIP Growth and Income Fund
DECEMBER 31, 2009
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
EIP Growth and Income Fund (the "Fund") is a diversified, open-end management
investment company. The Fund commenced operations on August 22, 2006. The Fund
is currently the sole series of EIP Investment Trust (the "Trust"), a Delaware
statutory trust. The Fund is managed by Energy Income Partners, LLC (the
"Manager"). At this time, the Fund does not intend to publicly offer its shares.
Fund shares are available only to certain unregistered investment companies
through a "master/feeder" arrangement pursuant to Section 12(d)(1)(E) of the
Investment Company Act of 1940, as amended (the "1940 Act") and certain other
accredited investors.
The Fund's primary investment objective is to seek a high level of total
shareholder return that is balanced between current income and growth. As a
secondary objective, the Fund will seek low volatility. Under normal market
conditions, the Fund's investments will be concentrated in the securities of one
or more issuers conducting their principal business activities in the Energy
Industry. The Energy Industry is defined as enterprises connected to the
exploration, development, production, gathering, transportation, processing,
storing, refining, distribution, mining or marketing of natural gas, natural gas
liquids (including propane), crude oil, refined petroleum products, electricity,
coal or other energy sources.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements and which are in conformity
with accounting principles generally accepted in the United States of America
("U.S. GAAP") for investment companies. The preparation of financial statements
in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
SECURITY VALUATION: For purposes of valuing investment securities, readily
marketable portfolio securities listed on any exchange or the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") Global
Market are valued, except as indicated below, at the last sale price or the
NASDAQ official closing price as determined by NASDAQ 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 between the most recent bid and asked price on
such day. Portfolio securities traded on more than one securities exchange are
valued at the last sale price on the business day of which such value is being
determined at the close of the exchange representing the principal market for
such securities. Investments initially valued in currencies other than the U.S.
dollar are converted to U.S. dollars using exchange rates obtained from
independent pricing services. As a result, the net asset value ("NAV") of the
Fund's shares may be affected by changes in the value of currencies in relation
to the U.S. dollar. The value of securities traded in markets outside of the
United States or denominated in currencies other than the U.S. dollar may be
affected significantly on a day that the New York Stock Exchange ("NYSE") is
closed and an investor is not able to purchase or redeem shares.
Equity securities traded in the over-the-counter ("OTC") market, but excluding
securities trading on the NASDAQ Global Market, are valued at the closing bid
prices, if held long, or at the closing asked prices, if held short. Debt
securities are priced based upon valuations provided by independent, third-party
pricing agents. These third-party pricing agents may employ methodologies that
utilize actual market transactions, broker-dealer supplied valuation, or other
electronic data processing techniques. Such techniques generally consider such
factors as security prices, yields, maturities, call features, ratings and
developments relating to specific securities in arriving at valuations. If
reliable market quotations are not readily available with respect to a portfolio
security held by the Fund, including any illiquid securities, or if a valuation
is deemed inappropriate, the fair value of such security will be determined
under procedures adopted by the Board of Trustees of the Trust (the "Board") in
a manner that most fairly reflects market value of the security on the valuation
date as described below.
The use of fair value pricing by the Fund indicates that a readily available
market quotation is unavailable (such as when the exchange on which a security
trades does not open for the day due to extraordinary circumstances and no other
market prices are available or when events occur after the close of a relevant
market and prior to the close of the NYSE that materially affect the value of an
asset) and in such situations the Board (or the Manager, acting at the Board's
direction) will estimate the value of a security using available information. In
such situations, the values assigned to such securities may not necessarily
represent the amounts which might be realized upon their sale. The use of fair
value pricing by the Fund will be governed by valuation procedures adopted by
the Trust's Board, and in accordance with the provisions of the 1940 Act. At
December 31, 2009, there were no fair valued securities.
11
EIP Growth and Income Fund
DECEMBER 31, 2009
NOTES TO FINANCIAL STATEMENTS - CONTINUED
FAIR VALUE MEASUREMENT: The inputs and valuation techniques used to measure fair
value of the Fund's net assets are summarized into three levels as described in
the hierarchy below:
- Level 1 - quoted prices in active markets for identical securities
- Level 2 - other significant observable inputs (including quoted prices
for similar securities, interest rates, prepayment speeds, credit
risk, evaluation pricing, etc.)
- Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not necessarily an
indication of the risk associated with investing in those securities. A summary
of the values of each investment in each level as of December 31, 2009 is as
follows:
LEVEL 2 LEVEL 3
TOTAL FAIR LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
12/31/09 PRICE INPUTS INPUTS
----------- ----------- ----------- ------------
ASSETS
Corporate Notes and Bonds $13,570,210 $ -- $13,570,210 $--
Master Limited Partnerships* 12,434,381 12,434,381 -- --
United States Common Stocks* 6,658,321 6,658,321 -- --
Canadian Income Trusts and Common Stocks* 1,505,315 1,505,315 -- --
U.S. Government and Agency Obligations 31,234,269 -- 31,234,269 --
Investment Company 5,652,106 5,652,106 -- --
Total Return Equity Swaps 257,651 -- 257,651 --
----------- ----------- ----------- ---
Total 71,312,253 26,250,123 45,062,130 --
LIABILITIES
Total Return Equity Swaps 41,005 -- 41,005 --
Variation Margin on Future Contracts 93,862 93,682 -- --
----------- ----------- ----------- ---
Total $ 134,867 $ 93,862 $ 41,005 $--
----------- ----------- ----------- ---
* See Schedule of Investments detail for industry breakout.
The Fund held no securities or financial instruments during 2009 which measured
their fair value using Level 3 inputs.
The fair value of the Fund's reverse repurchase agreements, which qualify as
financial instruments under FASB Accounting Standards Codification ("ASC") 820
"Disclosures about Fair Values of Financial Instruments", approximates the
carrying amounts presented in the Schedule of Investments and Statement of
Assets and Liabilities.
MLP COMMON UNITS: Master Limited Partnership ("MLP") common units represent
limited partnership interests in the MLP. Common units are generally listed and
traded on U.S. securities exchanges or OTC with their value fluctuating
predominantly based on the success of the MLP. Unlike owners of common stock of
a corporation, owners of MLP common units have limited voting rights. MLPs
generally distribute all available cash flow (cash flow from operations less
maintenance capital expenditures) in the form of quarterly distributions. Common
unit holders have first priority to receive quarterly cash distributions up to
the minimum quarterly distribution and have arrearage rights. In the event of
liquidation, common unit holders have preference over subordinated units, but
not debt holders or preferred unit holders, to the remaining assets of the MLP.
RESTRICTED CASH: Restricted cash includes amounts required to be segregated with
the Fund's custodian or brokers as collateral for the Fund's derivatives as
shown on the Schedule of Investments.
REVERSE REPURCHASE AGREEMENTS: One method by which the Fund currently incurs
leverage is through the use of reverse repurchase agreements. In a reverse
repurchase agreement, the Fund sells securities to a bank, securities dealer or
one of their respective affiliates and agrees to repurchase such securities on
demand or on a specified future date and at a specified price, including an
interest payment. During the period between the sale and the forward purchase,
the Fund will continue to receive principal and interest payments on the
securities sold and also have the opportunity to earn a return on the collateral
furnished by the counterparty to secure its obligation to redeliver the
securities. Reverse repurchase agreements involve the risk that the buyer of the
securities sold by the Fund might be unable to deliver them when the Fund seeks
to repurchase such securities. If the buyer of the securities under the reverse
repurchase agreement files for bankruptcy or becomes insolvent, the buyer or a
trustee or receiver may receive an extension of time to determine whether to
enforce the Fund's obligation to repurchase the securities, and the Fund's use
of the proceeds of the reverse repurchase agreement may effectively be
restricted pending that decision. The Fund will
12
EIP Growth and Income Fund
DECEMBER 31, 2009
NOTES TO FINANCIAL STATEMENTS - CONTINUED
segregate on its books assets in an amount at least equal to its obligations,
marked to market daily, under any reverse repurchase agreement or take other
permissible actions to cover its obligations. The use of leverage involves risks
of increased volatility of the Fund's investment portfolio, among others. In
certain cases, the Fund may be required to sell securities with a value
significantly in excess of the cash received by the Fund from the buyer. In
certain reverse repurchase agreements, the buyer may require excess cover of the
Fund's obligation. If the buyer files for bankruptcy or becomes insolvent, the
Fund may lose the value of the securities in excess of the cash received.
Maximum amount outstanding during the year $80,788,188
Average amount outstanding during the year* $39,001,024
Average shares outstanding during the year 6,307,234
Average debt per share outstanding during the year $ 6.18
* The average amount outstanding during the year was calculated by adding the
cash received under reverse repurchase agreements at the end of each day
and dividing the sum by the number of days in the year ended December 31,
2009.
The reverse repurchase agreements are executed daily based on the previous day's
terms. The accrued interest and maturity amounts are payable at the time the
reverse repurchase agreement is not renewed or the terms of the agreement are
renegotiated. Interest accrues on a daily basis from the initial opening date or
last interest payment date, if an interest payment has been made for the
respective repurchase agreement.
Interest rates ranged from 0.25% to 3.00% during the year ended December 31,
2009, on cash received under reverse repurchase agreements. Interest expense for
the year ended December 31, 2009 aggregated $645,727, which is included in the
Statement of Operations under "Interest Expense".
SHORT SALES OF SECURITIES: The Fund may enter into short sale transactions. A
short sale is a transaction in which the Fund sells securities it does not own
(but has or may have borrowed) in anticipation of a decline in the market price
of the securities. To complete a short sale, the Fund may arrange through a
broker to borrow the securities to be delivered to the buyer. The proceeds
received by the Fund for the short sale are retained by the broker until the
Fund replaces the borrowed securities. In borrowing the securities to be
delivered to the buyer, the Fund becomes obligated to replace the securities
borrowed at their market price at the time of replacement, whatever that price
may be. The Fund did not enter into any short sale transactions during the year
ended December 31, 2009.
DISCLOSURES ABOUT DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES: The following
is a table summarizing the fair value of derivatives held at December 31, 2009
by primary risk exposure:
ASSET DERIVATIVES LIABILITY DERIVATIVES
------------------------------------- -------------------------------------
Derivatives not accounted for
as hedging instruments
Statement of Assets Statement of Assets
and Liabilities Location Fair Value and Liabilities Location Fair Value
------------------------ ---------- ------------------------ ----------
Due to broker -
variation margin on
Foreign Exchange Futures Contracts -- $ -- futures contract $ 93,862
Equity Contracts Swaps 257,651 Swaps 41,005
-------- --------
Total $257,651 $134,867
======== ========
13
EIP Growth and Income Fund
DECEMBER 31, 2009
NOTES TO FINANCIAL STATEMENTS - CONTINUED
The Effect of Derivative Instruments on the Statement of Operations for the year
ended December 31, 2009:
CHANGE IN UNREALIZED
APPRECIATION OR
LOCATION OF GAIN OR REALIZED GAIN OR (LOSS) (DEPRECIATION) ON
Derivatives not accounted for (LOSS) ON DERIVATIVES ON DERIVATIVES DERIVATIVES
as hedging instruments RECOGNIZED IN INCOME RECOGNIZED IN INCOME RECOGNIZED IN INCOME
- ----------------------------- ---------------------------------- ----------------------- --------------------
Foreign Exchange Futures Contracts Net realized loss on futures
contracts/change in unrealized
appreciation/(depreciation) on
futures contracts $ (678,330) $(24,871)
Equity Contracts Net realized gain/(loss) on swap
transactions and written options/
change in unrealized appreciation/
(depreciation) on swap
transactions and written options 1,682,923 364,322
---------- --------
Total $1,004,593 $339,451
========== ========
FUTURES CONTRACTS: The Fund is subject to foreign currency exchange rate risk in
the normal course of pursuing its investment objectives. The Fund may purchase
or sell futures contracts to hedge against foreign currency exchange risk or for
any other purpose permitted by applicable law. The purchase of futures contracts
may be more efficient or cost effective than actually buying the underlying
securities or assets. A futures contract is an agreement between two parties to
buy and sell an instrument at a set price on a future date and is
exchange-traded. Upon entering into a futures contract, the Fund is required to
pledge to the broker an amount of cash, U.S. Government securities or other
high-quality debt securities equal to the minimum "initial margin" requirements
of the exchange or the broker. Pursuant to a contract entered into with a
futures commission merchant, the Fund agrees to receive from or pay to the firm
an amount of cash equal to the cumulative daily fluctuation in the value of the
contract. Such receipts or payments are known as "variation margin" and are
recorded by the Fund as unrealized gains or losses. When the contract is closed,
the Fund records a gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed. The
Fund will cover its current obligations under futures contracts by the
segregation of liquid assets or by entering into offsetting transactions or
owning positions covering its obligations. The risks of entering into futures
contracts include the possibility that there may be an illiquid market and that
a change in the value of the contracts may not correlate with changes in the
value of the underlying securities or assets. The Fund's maximum foreign
currency exchange rate risk on those futures contracts where the underlying is
long currency is an amount equal to the notional amount of the related
contracts. As of December 31, 2009, the Fund held no futures contracts where the
underlying is long currency. The Fund's maximum foreign currency exchange rate
risk on those futures contracts where the underlying is short currency is
theoretically unlimited. However, if effectively hedged, any loss would be
offset in unrealized foreign currency gains of securities denominated in the
same currency. For the year ended December 31, 2009, the Fund's average volume
of futures activity was $5,254,574 of notional amount.
CURRENCY HEDGING TRANSACTIONS: The Fund may engage in certain transactions
intended to hedge the Fund's exposure to currency risks, including without
limitation buying or selling options or futures, entering into forward foreign
currency contracts, currency swaps or options on currency and currency futures
and other derivative transactions. Hedging transactions can be expensive and
have risks, including the imperfect correlation between the value of such
instruments and the underlying assets, the possible default of the other party
to the transaction or illiquidity of the derivatives instruments.
FOREIGN CURRENCY TRANSLATIONS: The accounting records of the Fund are maintained
in U.S. dollars. The Fund may purchase securities that are denominated in
foreign currencies. Investment securities and other assets and liabilities
denominated in foreign currency are translated into U.S. dollars at the current
exchange rates. Purchases and sales of securities, income and expenses are
translated into U.S. dollars at the exchange rates on the dates of the
respective transactions.
Although the net assets of the Fund are calculated using the foreign exchange
rates and market values at the close of the period, the Fund does not isolate
that portion of the results of operations arising as a result of changes in the
foreign exchange rates from the fluctuations arising from changes in the market
prices of long-term securities held at the end of the period. Similarly, the
Fund does not isolate the effect of changes in foreign exchange rates from the
fluctuations arising from changes in the market prices of long-term portfolio
securities sold during the period. Accordingly, these foreign exchange gains or
14
EIP Growth and Income Fund
DECEMBER 31, 2009
NOTES TO FINANCIAL STATEMENTS - CONTINUED
losses are included in the reported net realized and unrealized gain or loss on
investments.
Net realized gains or losses on foreign currency transactions represent net
foreign exchange gains or losses from the holding of foreign currencies,
currency gains or losses realized between the trade date and settlement date on
securities transactions, and the difference between the amounts of dividends,
interest and foreign withholding taxes recorded on the Funds' books and the U.S.
dollar equivalent amounts actually received or paid. Net unrealized currency
gains or losses from valuing foreign currency denominated assets and liabilities
(other than investments) at period end exchange rates are reflected as a
component of net unrealized appreciation (depreciation) on foreign currency
transactions.
SWAP AGREEMENTS: The Fund is subject to equity price risk in the normal course
of pursuing its investment objectives. The Fund may enter into swap agreements
as a substitute for purchasing equity securities of issuers in the Energy
Industry as defined in Note 1 above, to achieve the same exposure as it would by
engaging in short sales transactions of energy securities, to hedge its currency
exposure or for any other purpose permitted by applicable law. A swap is a
financial instrument that typically involves the exchange of cash flows between
two parties on specified dates (settlement dates) where the cash flows are based
on agreed-upon prices, rates, etc. In a typical equity swap agreement, one party
agrees to pay another party the return on a security or basket of securities in
return for a specified interest rate. By entering into swaps, the Fund can gain
exposure to a security without actually purchasing the underlying asset. Swap
agreements involve both the risk associated with the investment in the security
as well as the risk that the performance of the security, including any
dividends, will not exceed the interest that the Fund will be committed to pay
under the swap. Swaps are individually negotiated. Swap agreements may increase
or decrease the overall volatility of the investments of the Fund. The
performance of swap agreements may be affected by a change in the specific
interest rate, security, currency, or other factors that determine the amounts
of payments due to and from the Fund. The Fund will cover its current
obligations under swap agreements by the segregation of liquid assets or by
entering into offsetting transactions or owning positions covering its
obligations. A swap agreement would expose the Fund to the same equity price
risk as it would have if the underlying equity securities were purchased.
The Fund's maximum equity price risk to meet its future payments under long swap
agreements outstanding as of December 31, 2009 is equal to the total notional
amount as shown on the Schedule of Investments. The Fund's maximum equity price
risk to meet its future payments under short swap agreements outstanding is
theoretically unlimited. For the year ended December 31, 2009, the average
volume of long Total Return Equity Swaps was $11,366,695 of notional amount. The
average volume of short Total Return Equity Swaps for the period outstanding,
beginning in November 2009 through December 2009, was $302,745 of notional
amount.
OPTIONS CONTRACTS: The Fund is subject to equity price risk in the normal course
of pursuing its investment objectives. The Fund may enter into option contracts
in order to hedge against potential adverse price movements in the value of
portfolio assets, as a temporary substitute for selling selected investments, to
lock in the purchase price of a security or currency which it expects to
purchase in the near future, as a temporary substitute for purchasing selected
investments, to enhance potential gain, and for any other purpose permitted by
applicable law. An option contract is a contract in which the writer of the
option grants the buyer of the option the right to purchase from (call option),
or sell to (put option), the writer a designated instrument at a specified price
within a specified period of time. Certain options, including options on
indices, would require cash settlement by the Fund if the option is exercised.
The liability representing the Fund's obligation under an exchange-traded
written option or investment in a purchased option is valued at the last sale
price or, in the absence of a sale on such day, the mean between the closing bid
and ask prices on such day or at the most recent asked price (bid for purchased
options) if no bid and asked prices are available. OTC written or purchased
options are valued using dealer supplied quotations. Gain or loss is recognized
when the option contract expires or is closed.
If the Fund writes a covered call option, the Fund foregoes, in exchange for the
premium, the opportunity to profit during the option period from an increase in
the market value of the underlying security above the exercise price. If the
Fund writes a put option it accepts the risk of a decline in the market value of
the underlying security below the exercise price. OTC options have the risk of
the potential inability of counterparties to meet the terms of their contracts.
The Fund's maximum equity price risk for purchased options is limited to the
premium initially paid. In addition, certain risks may arise upon entering into
option contracts including the risk that an illiquid secondary market will limit
the Fund's ability to close out an option contract prior to the expiration date
and that a change in the value of the option contract may not corre-
15
EIP Growth and Income Fund
DECEMBER 31, 2009
NOTES TO FINANCIAL STATEMENTS - CONTINUED
late exactly with changes in the value of the securities or currencies hedged.
At December 31, 2009, the Fund did not hold any option contracts. See the
Schedule of Investments for the Fund's option contract activity for the year.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on a trade date basis. Realized gain and loss from securities
transactions are recorded on the specific identified cost basis. Dividend income
is recognized on the ex-dividend date. Dividend income on foreign securities is
recognized as soon as the Fund is informed of the ex-dividend date.
Distributions received in excess of income are recorded as a reduction of cost
of investments and/or as a realized gain. Interest income is recognized on the
accrual basis. All discounts/premiums are accreted/amortized using the effective
yield method.
DIVIDENDS AND DISTRIBUTIONS: At least annually, the Fund intends to distribute
all or substantially all of its investment company taxable income (computed
without regard to the deduction for dividends paid) and net capital gain. The
tax treatment and characterization of the Fund's distributions may vary
significantly from time to time because of the varied nature of the Fund's
investments. The Fund will reinvest distributions in additional shares of the
Fund unless a shareholder has written to request distributions, in whole or in
part, in cash. There was no distribution paid during the calendar year ended
December 31, 2009. The tax character of distributions paid during the calendar
year ended December 31, 2008, were as follows:
Ordinary Income $4,139,596
Long-Term Capital Gains $5,758,529
The Fund will be considered a nonpublicly offered regulated investment company
("RIC") under the Internal Revenue Code of 1986, as amended (the "Code"). Thus,
certain expenses of the Fund, including the management fee, are subject to
special rules that may affect certain shareholders of the Fund (including
individuals and entities that compute their taxable income in the same manner as
an individual). In particular, such a shareholder's pro rata portion of the
affected expenses for the calendar year (but generally reduced by the Fund's net
operating loss, if any, for its tax year ending within the calendar year), will
be taxable to such shareholders as an additional dividend, but the deductibility
of such expenses by such shareholders will be subject to the 2% "floor" on
miscellaneous itemized deductions and other significant limitations on itemized
deductions set forth in the Code and will not be deductible for the purposes of
calculating alternative minimum tax. The Fund has a tax year end of June 30. As
of June 30, 2009, the components of distributable earnings on a tax basis were
as follows:
Undistributed Ordinary Income $ 0
Capital Loss Carryforward $10,735,440
Post October Loss - Capital & Foreign Currency $18,356,298
Taxable income and capital gains are determined in accordance with U.S. federal
income tax rules, which may differ from accounting principles generally accepted
in the United States of America. These differences are primarily due to
differing treatments of income and gains on various investment securities held
by the Fund, timing differences and differing characterization of distributions
made by the Fund.
The difference between taxable undistributed earnings as of June 30, 2009 and
undistributed earnings per the statement of assets and liabilities as of
December 31, 2009 is the operating results for the period July 1, 2009 through
December 31, 2009.
Permanent book and tax accounting differences relating to the tax year ended
June 30, 2009 have been reclassified to reflect a decrease in undistributed net
investment loss of $453,332, a decrease in accumulated net realized loss on
investments of $16,774,115 and a decrease in paid-in-capital of $17,227,447.
These differences are primarily due to passive loss limitations, swap character
reclasses and net operating losses. Net assets were not affected by this
reclassification.
CAPITAL LOSS CARRYFORWARD: At June 30, 2009, the Fund had a net operating loss
carryforward of $10,735,440. This loss carryforward is available as a reduction,
to the extent provided in the regulations, of any future net realized capital
gains. The capital loss carryforward will expire in 2017.
POST OCTOBER LOSSES: Under current laws, certain net capital and foreign
currency losses realized after October 31 may be deferred and treated as
occurring on the first day of the following tax year. For the tax year ended
June 30, 2009, the Fund intends to elect to defer net realized currency losses
of $1,626 and net realized capital losses on investments sold of $18,354,672
incurred from November 1, 2008 through June 30, 2009.
FEDERAL INCOME TAX: The Fund intends to qualify each year for taxation as a RIC
eligible for treatment under the provisions of Subchapter M of the Code. If the
Fund so qualifies and satisfies certain distribution requirements, the Fund will
not be subject to federal income tax on income and gains distributed in a timely
manner to its shareholders in the form of dividends or capital gain dividends.
As of December 31, 2009, the cost of securities and gross unrealized
appreciation and depreciation for all securities on a tax basis was as follows:
16
EIP Growth and Income Fund
DECEMBER 31, 2009
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Total Cost of Investments $68,116,359
Gross Unrealized Appreciation on Investments $ 3,384,175
Gross Unrealized Depreciation on Investments $ (445,932)
-----------
Net Unrealized Appreciation on Investments $ 2,938,243
===========
Management has analyzed the Fund's tax positions taken on federal income tax
returns for all open tax years and has concluded that no provision for federal
income tax is required in the Fund's financial statements.
The Fund files U.S. federal and Connecticut state tax returns. No income tax
returns are currently under examination. The Fund's U.S. federal tax returns and
Connecticut state tax returns remain open for examination for the tax years
ended June 30, 2009, June 30, 2008 and June 30, 2007.
EXPENSES: The Fund will pay all of its own expenses incurred in its operations.
RECENTLY ISSUED ACCOUNTING STANDARDS: In January 2010, the Financial Accounting
Standards Board issued Accounting Standards Update ("ASU") No. 2010-06
"Improving Disclosures about Fair Value Measurements". ASU 2010-06 clarifies
existing disclosure and requires additional disclosures regarding fair value
measurements. Effective for interim and annual reporting periods beginning after
December 15, 2009, entities will be required to disclose significant transfers
into and out of Level 1 and 2 measurements in the fair value hierarchy and the
reasons for those transfers. Effective for fiscal years beginning after December
15, 2010, and for interim periods within those fiscal years, entities will need
to disclose information about purchases, sales, issuances and settlements of
Level 3 securities on a gross basis, rather than as a net number as currently
required. Management is currently evaluating the impact ASU No. 2010-06 will
have on its financial statement disclosures.
3. INVESTMENT ADVISORY FEE, ADMINISTRATION FEE AND OTHER RELATED PARTY
TRANSACTIONS
Pursuant to an investment advisory agreement, Energy Income Partners, LLC,
serves as the Fund's investment manager with responsibility for the management
of the Fund's investment portfolio, subject to the supervision of the Board of
Trustees of the Trust. For providing such services, the Fund pays to the Manager
a fee, computed and paid monthly at the annual rate of 1% of the average daily
net assets of the Fund.
PFPC Trust Company serves as custodian for the Fund and has custody of all
securities and cash of the Fund and attends to the collection of principal and
income and payment for and collection of proceeds of securities bought and sold
by the Fund.
PNC Global Investment Servicing (U.S.) Inc. (formerly known as PFPC Inc.)
("PNC") serves as the transfer agent, registrar, dividend disbursing agent and
shareholder servicing agent for the Fund and provides certain clerical,
bookkeeping, shareholder servicing and administrative services necessary for the
operation of the Fund and maintenance of shareholder accounts.
PNC also provides certain accounting and administrative services to the Fund
pursuant to an Administration and Accounting Services Agreement. For
administrative and accounting services, the Fund pays PNC a fee equal to 0.07%
of the Fund's first $250 million of average gross assets, 0.05% of the Fund's
next $200 million of average gross assets and 0.03% of the Fund's average gross
assets in excess of $450 million, on a monthly basis, in addition to certain
out-of-pocket expenses. The Fund is currently paying the minimum fee of
$100,000/year ($8,333/month). For regulatory administration services, the Fund
pays PNC a fee equal to 0.03% of the Fund's first $250 million of average gross
assets and 0.02% of the Fund's average gross assets in excess of $250 million,
on a monthly basis, in addition to certain other fees and expenses. The Fund is
currently paying the minimum fee of $50,000/year ($4,167/month).
The Fund does not charge any sales load or fees pursuant to Rule 12b-1 of the
1940 Act. Currently, the Fund offers only a single class of shares. The Fund is
self-distributed and does not have a principal underwriter or private placement
agent.
The Fund pays each member of the Board of Trustees who is not an "interested
person" as defined in Section 2(a)(19) of the 1940 Act ("Disinterested
Trustees") an annual retainer fee of $22,000 which includes compensation for all
regular quarterly board meetings and regular committee meetings. Additional fees
of $1,250 and $400 are paid to Disinterested Trustees for special in-person
board or non-regular committee meetings and telephonic board or non-regular
committee meetings, respectively.
4. PURCHASES AND SALES
The aggregate amounts of purchases and sales of the Fund's investment
securities, other than short-term securities for the year ended December 31,
2009 were as follows:
17
EIP Growth and Income Fund
DECEMBER 31, 2009
NOTES TO FINANCIAL STATEMENTS - CONTINUED
PURCHASES SALES
----------- ------------
U.S. Government Securities $ 4,188,760 $ 8,000,000
Other Investment Securities 53,499,963 176,853,230
5. SHARES OF BENEFICIAL INTEREST
The Trust has authorized capital of unlimited shares of beneficial interest with
a par value of $0.01 which may be issued in more than one class or series.
Currently, the Fund is the only series of the Trust and the Fund currently
offers one class of shares.
Share transactions were as follows:
YEAR ENDED
DECEMBER 31, 2009
-------------------------
SHARES AMOUNT
---------- ------------
Shares sold -- $ --
Shares issued as reinvestment of distribution -- --
Shares redeemed (7,910,733) (56,821,298)
---------- ------------
Total net decrease from Fund share transactions (7,910,733) $(56,821,298)
========== ============
YEAR ENDED
DECEMBER 31, 2008
---------------------------
Shares sold 5,404,679 $ 56,421,352
Shares issued as reinvestment of distribution 1,472,935 9,898,125
Shares redeemed (12,272,312) (114,011,043)
----------- -------------
Total net decrease from Fund share transactions (5,394,698) $ (47,691,566)
=========== =============
6. INDUSTRY CONCENTRATION AND OTHER RISK FACTORS
The Fund's investments are concentrated in the Energy Industry and are likely to
present more risks than a fund that is broadly invested in a number of different
industries.
The Fund may invest in securities denominated or quoted in foreign currencies
and therefore changes in the exchange rate between the U.S. dollar and such
foreign currencies will affect the U.S. dollar value of these securities and the
unrealized appreciation or depreciation of these investments. The Fund may hedge
against certain currency risk by, among other techniques, buying or selling
options or futures or entering into other foreign currency transactions
including forward foreign currency contracts, currency swaps or options on
currency and currency futures and other derivatives transactions. The use of
hedging transactions has risks and may result in losses greater than if they had
not been used, may require the Fund to sell or purchase portfolio securities at
inopportune times or for prices other than current market values, may limit the
amount of appreciation the Fund can real-ize on an investment, or may cause the
Fund to hold a security that it might otherwise sell.
The Fund may transact in various financial instruments including futures
contracts, swap contracts and options. With these financial instruments, the
Fund is exposed to market risk in excess of the amounts recorded in the
statement of assets and liabilities. Further, the Fund is exposed to credit risk
from potential counterparty non-performance. At the statement of assets and
liabilities date, credit risk is limited to amounts recorded in the statement of
assets and liabilities.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the possibility of political and economic instability or
the level of governmental supervision and regulation of foreign securities
markets.
COUNTERPARTY RISK
Some of the markets in which the Fund effects its transactions are
"over-the-counter" markets. The participants in such markets are typically not
subject to credit evaluation and regulatory oversight as are members of
"exchange based" markets. This exposes the Fund to the risk that a counterparty
will not settle a transaction in accordance with its terms and conditions
because of a dispute over the terms of the contract or because of a credit or
liquidity problem, thus causing the Fund to suffer a loss. Such "counterparty
risk" is accentuated for contracts with longer maturities where events may
intervene to prevent settlement, or where the Fund has concentrated its
transactions with a single or small group of counterparties. The Manager is not
restricted from concentrating any or all of its transactions with one
counterparty. The ability of the Fund to transact business with any one or
number of counterparties, the lack of any meaningful and independent evaluation
of such counterparties' financial capabilities, and the absence of a regulated
market to facilitate settlement may increase the potential for losses by the
Fund. Please see the Private Placement Memorandum and the Statement of
Additional Information of the Fund for further information.
7. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events on the Fund through
February 25, 2010, the date the financial statements were issued, and has
determined that there were the following subsequent events:
18
EIP Growth and Income Fund
DECEMBER 31, 2009
NOTES TO FINANCIAL STATEMENTS - CONTINUED
On January 6 and January 7, 2010, the Fund satisfied redemption requests of
$22,000,000 and $3,400,000, respectively.
On February 2, 2010, The PNC Financial Services Group, Inc. ("PNC") entered into
a Stock Purchase Agreement (the "Stock Purchase Agreement") with The Bank of New
York Mellon Corporation ("BNY Mellon"). Upon the terms and subject to the
conditions set forth in the Stock Purchase Agreement, which has been approved by
the board of directors of each company, PNC will sell to BNY Mellon (the "Stock
Sale") 100% of the issued and outstanding shares of PNC Global Investment
Servicing Inc., an indirect, wholly-owned subsidiary of PNC ("GIS").
The Stock Sale includes PNC Global Investment Servicing (U.S.) Inc. and PFPC
Trust Company and is expected to close in the third quarter of 2010.
19
EIP Growth and Income Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF EIP GROWTH AND INCOME FUND:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments of EIP Growth and Income Fund (the "Fund"), the sole
series of EIP Investment Trust (the "Trust"), as of December 31, 2009, and the
related statements of operations and cash flows for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the three years in the period
then ended and for the period from August 22, 2006 (commencement of operations)
through December 31, 2006. 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 December 31, 2009, by correspondence with the
custodian and brokers; where replies were not received from brokers, 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 EIP
Growth and Income Fund, the sole series of the EIP investment Trust, as of
December 31, 2009, the results of its operations and its cash flows for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the three years in
the period then ended and for the period from August 22, 2006 (commencement of
operations) through December 31, 2006, in conformity with accounting principles
generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
February 25, 2010
20
EIP Growth and Income Fund
DECEMBER 31, 2009
ADDITIONAL INFORMATION (UNAUDITED)
FORM N-Q: The Trust files complete Portfolio of Investments for the Fund with
the SEC for the Trust's first and third quarters of each fiscal year on Form
N-Q. The Trust's Forms N-Q are available on the SEC's website at www.sec.gov and
are available for review and copying at the SEC's Public Reference Room in
Washington, D.C. Information on the operations of the Public Reference Room may
be obtained by calling the SEC at 1-202-942-8090.
PROXY VOTING: The Fund's Proxy Voting Policies and Procedures, used to determine
how to vote proxies relating to portfolio securities, are included in the
Trust's Statement of Additional Information, and are also available (i) upon
request, without charge, by calling collect 1-203-349-8323 or (ii) on the SEC's
website at www.sec.gov.
The Fund's Proxy Voting Record for the most recent twelve month period ended
June 30 (which is filed by August 31 of each year) is available (i) upon
request, without charge, by calling collect 1-203-349-8323 or (ii) on the SEC's
website at www.sec.gov.
DISCLOSURE OF FUND EXPENSES
We believe it is important for you to understand the impact of fees regarding
your investment. All mutual funds have operating expenses. As a shareholder of a
mutual fund, you incur ongoing costs, which include costs for portfolio
management, administrative services, and shareholder reports (like this one),
among others. Operating expenses, which are deducted from a fund's gross income,
directly reduce the investment return of the fund. A fund's expenses are
expressed as a percentage of its average net assets. This figure is known as the
expense ratio. The following examples are intended to help you understand the
ongoing fees (in dollars) of investing in the Fund and to compare these costs
with those of other mutual funds. The examples are based on an investment of
$1,000 made at the beginning of the period shown and held for the entire period.
This table illustrates the Fund's costs in two ways:
ACTUAL FUND RETURN: This section helps you to estimate the actual expenses,
after any applicable fee waivers, which you paid over the period. The "Ending
Account Value" shown is derived from the Fund's actual return for the past six
month period, the "Expense Ratio" column shows the period's annualized expense
ratio, and the "Expenses Incurred During Period" column shows the dollar amount
that would have been paid by an investor who started with $1,000 in the Fund at
the beginning of the period.
You may use the information here, together with your account value, to estimate
the expenses that you paid over the period. To do so, simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number given in the first line under the heading
entitled "Expenses Incurred During Period."
HYPOTHETICAL 5% RETURN: This section is intended to help you compare your Fund's
costs with those of other mutual funds. It assumes that the Fund had an annual
return of 5% before expenses, but that the expense ratio is unchanged. In this
case, because the return used is not the Fund's actual return, the results do
not apply to your investment. This example is useful in making comparisons to
other mutual funds because the SEC requires all mutual funds to calculate
expenses based on an assumed 5% annual return. You can assess your Fund's costs
by comparing this hypothetical example with the hypothetical examples that
appear in shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight and help
you compare your ongoing costs only and do not reflect any transactional costs
such as sales charges (loads) and redemption fees. The Fund does not charge any
sales loads or redemption fees but these may be present in other funds to which
you compare this data. Therefore, the hypothetical portions of the table are
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds.
EXPENSE
BEGINNING ENDING RATIO(1)(2) EXPENSES
ACCOUNT ACCOUNT INCLUDING INCURRED
VALUE VALUE INTEREST DURING
07/01/09 12/31/09 EXPENSE PERIOD(3)
--------- --------- ----------- ---------
Actual Fund Return $1,000.00 $1,333.70 3.18% $18.71
Hypothetical 5% Return $1,000.00 $1,009.17 3.18% $16.10
(1) Annualized, based on the Fund's most recent fiscal expenses.
(2) Expense ratio includes interest expense. If interest expense were not
included, the Fund's expense ratio would be 2.59%, and would result in the
following expenses:
EXPENSE
BEGINNING ENDING RATIO(1) EXPENSES
ACCOUNT ACCOUNT EXCLUDING INCURRED
VALUE VALUE INTEREST DURING
07/01/09 12/31/09 EXPENSE PERIOD(3)
--------- --------- --------- ---------
Actual Fund Return $1,000.00 $1,333.70 2.59% $15.23
Hypothetical 5% Return $1,000.00 $1,012.15 2.59% $13.14
(3) Expenses are equal to the Fund's annualized expense ratio, as indicated,
multiplied by the average account value over the period, multiplied by the
number of days in the most recent fiscal half-year or applicable period,
then divided by 365.
21
EIP Growth and Income Fund
DECEMBER 31, 2009
ADDITIONAL INFORMATION (UNAUDITED) - CONTINUED
TRUSTEES AND OFFICERS OF THE TRUST
Under Delaware law, the business and affairs of the Trust are managed under the
direction of the Board of Trustees. Information pertaining to the Trustees and
Executive Officers of the Trust is set forth below. The term "officer" means the
president, vice president, secretary, treasurer, controller or any other officer
who performs a policy making function.
TERM OF NUMBER OF
OFFICE(1) PORTFOLIOS IN
AND FUND COMPLEX OTHER TRUSTEESHIPS/
NAME, ADDRESS, AGE AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS
POSITION(S) WITH TRUST TIME SERVED DURING PAST FIVE YEARS TRUSTEE HELD BY TRUSTEE
---------------------- ----------- ---------------------------------------- ------------- -----------------------
DISINTERESTED TRUSTEES
Kenneth I. Rosenblum Since Independent Consultant (since January One Independent Director of
DOB: 04/27/41 December 1990); Trustee of McMorgan Funds San Luis Trust Bank,
c/o EIP Investment Trust 2005 (6 funds) (1994-2008); Independent San Luis Obispo, CA
49 Riverside Avenue Director and Audit Committee
Westport, CT 06880 Chairman, United Labor Bank, F.S.B.
Trustee and First ULB Corp. (1997-2003).
Salvatore Faia Since President, Vigilant Compliance One None
DOB: 12/25/62 December Services, (mutual fund and investment
c/o EIP Investment Trust 2005 adviser compliance company) (since
49 Riverside Avenue August 2004); Senior Legal Counsel,
Westport, CT 06880 PFPC Inc. (2002-2004), Partner,
Trustee Pepper Hamilton LLP (law firm)
(1997-2001).
INTERESTED TRUSTEES
James J. Murchie(2) Since July Principal, Energy Income Partners, One None
DOB: 11/14/57 2006 LLC (2003-2004, since 2006);
c/o EIP Investment Trust Principal, Pequot Capital, Inc. (invest-
49 Riverside Avenue ment adviser) (2004-2006); Principal,
Westport, CT 06880 Lawhill Capital Partners, LLC (invest-
Trustee and President ment adviser) (1997-2003).
OFFICERS WHO ARE NOT TRUSTEES
Linda Longville Since July Principal, Energy Income Partners, N/A N/A
DOB: 07/26/58 2006 LLC (2003-2004, since 2006);
c/o EIP Investment Trust Research Analyst, Pequot Capital, Inc.
49 Riverside Avenue (investment adviser) (2004-2006);
Westport, CT 06880 Research Analyst, Lawhill Capital
Treasurer and Principal Financial Partners, LLC (investment adviser)
and Accounting Officer (2001-2003).
Eva Pao Since July Principal, Energy Income Partners, N/A N/A
DOB: 04/18/74 2006 LLC (2003-2004, since 2006); Co-
c/o EIP Investment Trust Portfolio Manager, Pequot Capital, Inc.
49 Riverside Avenue (investment adviser) (2004-2006).
Westport, CT 06880
Chief Legal Officer,
Chief Compliance Officer
and Anti-Money Laundering
Compliance Officer
22
EIP Growth and Income Fund
DECEMBER 31, 2009
ADDITIONAL INFORMATION (UNAUDITED) - CONTINUED
TERM OF NUMBER OF
OFFICE(1) PORTFOLIOS IN
AND FUND COMPLEX OTHER TRUSTEESHIPS/
NAME, ADDRESS, AGE AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS
POSITION(S) WITH TRUST TIME SERVED DURING PAST FIVE YEARS TRUSTEE HELD BY TRUSTEE
---------------------- ----------- ---------------------------------------- ------------- -----------------------
OFFICERS WHO ARE NOT TRUSTEES
Jennifer Rogers Since Vice President and Counsel, N/A N/A
DOB: 07/28/74 February Regulatory Administration, PNC Global
C/O PNC Global Investment 2009 Investment Servicing (since July
Servicing (U.S.) Inc. 2007); Vice President and Assistant
301 Bellevue Parkway Counsel, PNC Global Investment
2nd Floor Servicing (2005-2007).
Wilmington, DE 19809
Secretary
- ----------
(1) Each Trustee serves during the continued lifetime of the Trust until he or
she dies, resigns or is removed, or, if sooner, until the next meeting of
shareholders called for the purpose of electing Trustees and until the
election and qualification of his or her successor. Except as otherwise
provided by law, the Trust's Declaration of Trust or Bylaws, the President
and the Treasurer hold office until his or her resignation has been
accepted by the Trustees or until his or her respective successor has been
duly elected and qualified, or in each case until he or she sooner dies,
resigns, is removed or becomes disqualified. All other officers hold office
at the pleasure of the Trustees.
(2) Mr. Murchie is deemed an "interested person" of the Fund due to his
positions of Principal of the Manager and President of the Fund and due to
his beneficial ownership of interests in the Manager.
The Fund's Statement of Additional Information includes additional information
about the Fund's trustees and is available, without charge, upon request by
calling collect 1-203-349-8232.
23
This page is left blank intentionally.
EIP Growth and Income Fund
ADVISER
Energy Income Partners, LLC
49 Riverside Avenue
Westport, CT 06880
SHAREHOLDER SERVICES
PNC Global Investment Servicing (U.S.) Inc.
760 Moore Road
King of Prussia, PA 19406
OFFICERS
James J. Murchie, President
Linda Longville, Treasurer and Principal Financial and Accounting Officer
Eva Pao, Chief Legal Officer, Chief Compliance Officer and Anti-Money
Laundering Compliance Officer
Jennifer Rogers, Secretary
CUSTODIAN
PFPC Trust Company
8800 Tinicum Boulevard, 3rd Floor
Philadelphia, PA 19153
LEGAL COUNSEL
Ropes & Gray LLP
One International Place
Boston, MA 02110
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
1700 Market Street
Philadelphia, PA 19103
(EIP LOGO)
EIP GROWTH AND INCOME FUND
49 Riverside Avenue
Westport, CT 06880
203.349.8232
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.
(b) Omitted
(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 Item 2.
(d) The registrant has not granted any waivers, including an implicit
waiver, from a provision of the code of ethics, during the period
covered by this report, to the registrant's principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions, regardless of
whether these individuals are employed by the registrant or a third
party, that relates to one or more of the items set forth in paragraph
(b) of this item's instructions.
(e) Not applicable.
(f) Omitted
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The board of trustees of the registrant has determined that Mr. Salvatore Faia
qualifies as an "audit committee financial expert" (as such term has been
defined by the Regulations) based on its review of his pertinent experience,
knowledge and education. Mr. Faia is "independent," as defined by this Item 3.
The SEC has stated that the designation or identification of a person as an
audit committee financial expert pursuant to this Item 3 of Form N-CSR does not
impose on such person any duties, obligations or liability that are greater than
the duties, obligations and liability imposed on such person as a member of the
audit committee and the board of trustees in absence of such designation or
identification.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
AUDIT FEES
(a) The aggregate fees billed for each of the last two fiscal years for
professional services rendered by the principal accountant for the
audit of the registrant's annual financial statements or services that
are normally provided by the accountant in connection with statutory
and regulatory filings or engagements for those fiscal years are
$58,000 for the fiscal year ended December 31, 2008 and $58,000 for
the fiscal year ended December 31, 2009.
AUDIT-RELATED FEES
(b) 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 are $0 for the fiscal year ended December 31, 2008 and $0 for the
fiscal year ended December 31, 2009.
TAX FEES
(c) 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 are $27,500 for the fiscal
year ended December 31, 2008 and $27,500 for the fiscal year ended
December 31, 2009. The nature of these services was to prepare Form
1120-RIC, along with applicable state income/franchise tax returns as
well as Form 8613, Return of Excise Tax on Undistributed Income of
Regulated Investment companies.
ALL OTHER FEES
(d) The aggregate fees billed in each of the last two fiscal years for
products and services provided by the principal accountant, other than
the services reported in paragraphs (a) through (c) of this Item are
$0 for the fiscal year ended December 31, 2008 and $0 for the fiscal
year ended December 31, 2009.
(e)(1) The audit committee's pre-approval policies and procedures described
in paragraph (c)(7) of Rule 2-01 of Regulation S-X are as follows:
Pursuant to its charter, the Registrant's Audit Committee (the "Committee")
annually reviews and, if the Committee so determines, pre-approves the scope of
the audit of EIP Growth and Income Fund (the "Fund") and proposed audit fees and
permitted non-audit (including audit-related) services that are proposed to be
performed by the Fund's independent accountants for the Fund as well as for the
Fund's investment adviser (Energy Income Partners, LLC, ("EIP")) or any entity
controlling, controlled by or under common control with EIP that provides
ongoing services to the Fund ("Applicable Service Providers"), if the engagement
relates directly to the operations and financial reporting of the Fund.
In addition to the Committee's pre-approval of services, the engagement of the
independent accounting firm for any permitted non-audit service provided to the
Fund also requires the separate pre-approval of the President, Treasurer or
Assistant Treasurer of the Fund, who may only grant such approval if he or she
believes that the accounting firm's engagement will not adversely affect the
firm's independence.
Individual (i) audit services, (ii) audit-related services, (iii) tax services,
and (iv) services that are not audit, audit-related, or tax services that are
not presented to the Committee as part of the annual pre-approval process may
be pre-approved, if deemed consistent with the accounting firm's independence,
by the Committee at any regular or special meeting (whether in-person or
telephonic). Such services may also be pre-approved by the Committee Chair (or
any other Committee member who is a disinterested trustee under the Investment
Company Act to whom this responsibility has been delegated) so long as the
estimated fee for the particular service for which pre-approval is sought does
not exceed $75,000 for audit services or $100,000 for all other permitted
services. Any pre-approval by a Committee member shall be reported to the full
Committee at its next regularly scheduled meeting.
* * * * *
(e)(2) The percentage of services described in each of paragraphs (b)
through (d) of this Item that were approved by the audit committee
pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X are
as follows:
(b) N/A
(c) 0%
(d) 0%
(f) Not applicable.
(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 each of the last two fiscal years of
the registrant was $112,000 for the fiscal year ended December 31,
2008 and $134,500 for the fiscal year ended December 31, 2009.
(h) The registrant's audit committee of the board of directors has
considered whether 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.
Not applicable.
ITEM 6. INVESTMENTS.
(a) Schedule of Investments in securities of unaffiliated issuers as of the
close of the reporting period is included as part of the report to
shareholders filed under Item 1 of this form.
(b) Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of trustees, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)),
or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) EIP Investment Trust's (the "Registrant") principal executive and
principal financial officers have concluded, based on their evaluation
of the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days of the filing date of this
report, that the Registrant's disclosure controls and procedures are
reasonably designed to provide reasonable assurance that information
required to be disclosed by the Registrant on Form N-CSR is recorded,
processed, summarized and reported within the required time periods
and that information required to be disclosed by the Registrant in the
reports that it files or submits on Form N-CSR is accumulated and
communicated to the Registrant's management, including its principal
executive and principal financial officers, as appropriate to allow
timely decisions regarding required disclosure.
(b) There were no changes in the Registrant's internal control over
financial reporting during the Registrant's last fiscal quarter that
have materially affected, or are reasonably likely to materially
affect, the 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) Not applicable.
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) EIP Investment Trust
By (Signature and Title) /s/ James Murchie
----------------------------------------
James Murchie, President
(principal executive officer)
Date 2/23/10
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title) /s/ James Murchie
----------------------------------------
James Murchie, President
(principal executive officer)
Date 2/23/10
By (Signature and Title) /s/ Linda Longville
----------------------------------------
Linda Longville, Treasurer and Principal
Financial and Accounting Officer
(principal financial officer)
Date 2/23/10