UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED MANAGEMENT
INVESTMENT COMPANY
Investment Company Act file number 811-21586
-----------
First Trust Enhanced Equity Income Fund
-----------------------------------------------------------------
(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
-----------------------------------------------------------------
(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
-----------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (630) 765-8000
---------------
Date of fiscal year end: December 31
-------------
Date of reporting period: March 31, 2012
----------------
Form N-Q is to be used by management investment companies, other than small
business investment companies registered on Form N-5 (ss.ss. 239.24 and 274.5 of
this chapter), to file reports with the Commission, not later than 60 days after
the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under
the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may use
the information provided on Form N-Q in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-Q, and
the Commission will make this information public. A registrant is not required
to respond to the collection of information contained in Form N-Q unless the
Form displays a currently valid Office of Management and Budget ("OMB") control
number. Please direct comments concerning the accuracy of the information
collection burden estimate and any suggestions for reducing the burden to the
Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC
20549. The OMB has reviewed this collection of information under the clearance
requirements of 44 U.S.C. ss. 3507.
ITEM 1. SCHEDULE OF INVESTMENTS. The Schedule(s) of Investments is attached
herewith.
FIRST TRUST ENHANCED EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 2012 (UNAUDITED)
SHARES DESCRIPTION VALUE
--------------- --------------------------------------------- ----------------
COMMON STOCKS - 94.8%
AEROSPACE & DEFENSE - 1.2%
55,000 Honeywell International, Inc. ............... $ 3,357,750
----------------
AIR FREIGHT & LOGISTICS - 0.9%
30,000 United Parcel Service, Inc., Class B ........ 2,421,600
----------------
BEVERAGES - 3.9%
100,000 Coca-Cola (The) Co. ......................... 7,401,000
50,000 PepsiCo, Inc. ............................... 3,317,500
----------------
10,718,500
----------------
CAPITAL MARKETS - 2.0%
85,000 Bank of New York Mellon (The) Corp. ......... 2,051,050
17,000 BlackRock, Inc. ............................. 3,483,300
----------------
5,534,350
----------------
CHEMICALS - 2.6%
80,000 E.I. Du Pont de Nemours & Co. ............... 4,232,000
30,000 PPG Industries, Inc. ........................ 2,874,000
----------------
7,106,000
----------------
COMMERCIAL BANKS - 2.3%
40,000 PNC Financial Services Group, Inc. .......... 2,579,600
110,000 Wells Fargo & Co. ........................... 3,755,400
----------------
6,335,000
----------------
COMMUNICATIONS EQUIPMENT - 3.4%
170,000 Cisco Systems, Inc. ......................... 3,595,500
85,000 QUALCOMM, Inc. .............................. 5,781,700
----------------
9,377,200
----------------
COMPUTERS & PERIPHERALS - 5.2%
20,000 Apple, Inc. (a).............................. 11,989,400
75,000 EMC Corp. (a)................................ 2,241,000
----------------
14,230,400
----------------
CONSUMER FINANCE - 0.7%
35,000 Capital One Financial Corp. ................. 1,950,900
----------------
DIVERSIFIED FINANCIAL SERVICES - 2.9%
170,000 JPMorgan Chase & Co. ........................ 7,816,600
----------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 2.1%
62,100 AT&T, Inc. .................................. 1,939,383
100,000 Verizon Communications, Inc. ................ 3,823,000
----------------
5,762,383
----------------
ELECTRIC UTILITIES - 1.7%
100,000 Southern Co. ................................ 4,493,000
----------------
ELECTRICAL EQUIPMENT - 1.2%
60,000 Emerson Electric Co. ........................ 3,130,800
----------------
See Notes to Quarterly Portfolio of Investments
FIRST TRUST ENHANCED EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
MARCH 31, 2012 (UNAUDITED)
SHARES DESCRIPTION VALUE
--------------- --------------------------------------------- ----------------
COMMON STOCKS - (CONTINUED)
ENERGY EQUIPMENT & SERVICES - 1.5%
58,000 Schlumberger Ltd. ........................... $ 4,055,940
----------------
FOOD PRODUCTS - 1.2%
85,000 Kraft Foods, Inc., Class A .................. 3,230,850
----------------
HEALTH CARE EQUIPMENT & SUPPLIES - 2.6%
65,000 Covidien PLC ................................ 3,554,200
80,000 St. Jude Medical, Inc. ...................... 3,544,800
----------------
7,099,000
----------------
HOTELS, RESTAURANTS & LEISURE - 4.5%
110,000 Carnival Corp. .............................. 3,528,800
35,000 Darden Restaurants, Inc. .................... 1,790,600
25,000 McDonald's Corp. ............................ 2,452,500
80,000 Starwood Hotels & Resorts Worldwide, Inc. ... 4,512,800
----------------
12,284,700
----------------
HOUSEHOLD PRODUCTS - 1.5%
60,000 Procter & Gamble (The) Co. .................. 4,032,600
----------------
INDUSTRIAL CONGLOMERATES - 2.8%
375,000 General Electric Co. ........................ 7,526,250
----------------
INSURANCE - 5.8%
160,000 Lincoln National Corp. ...................... 4,217,600
60,000 Marsh & McLennan Cos., Inc. ................. 1,967,400
150,000 MetLife, Inc. ............................... 5,602,500
70,000 Travelers (The) Cos., Inc. .................. 4,144,000
----------------
15,931,500
----------------
IT SERVICES - 4.3%
40,000 Accenture PLC ............................... 2,580,000
42,000 Automatic Data Processing, Inc. ............. 2,317,980
32,500 International Business Machines Corp. ....... 6,781,125
----------------
11,679,105
----------------
LIFE SCIENCES TOOLS & SERVICES - 1.7%
105,000 Agilent Technologies, Inc. .................. 4,673,550
----------------
MACHINERY - 3.7%
45,000 Caterpillar, Inc. ........................... 4,793,400
20,000 Cummins, Inc. ............................... 2,400,800
35,000 Deere & Co. ................................. 2,831,500
----------------
10,025,700
----------------
MARINE - 0.6%
100,000 Nordic American Tanker Shipping Ltd. ........ 1,588,000
----------------
MEDIA - 2.9%
150,000 Regal Entertainment Group, Class A .......... 2,040,000
55,000 Viacom, Inc., Class B ....................... 2,610,300
See Notes to Quarterly Portfolio of Investments
FIRST TRUST ENHANCED EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
MARCH 31, 2012 (UNAUDITED)
SHARES DESCRIPTION VALUE
--------------- --------------------------------------------- ----------------
COMMON STOCKS - (CONTINUED)
MEDIA - (CONTINUED)
75,000 Walt Disney (The) Co. ....................... $ 3,283,500
----------------
7,933,800
----------------
METALS & MINING - 1.1%
80,000 Freeport-McMoRan Copper & Gold, Inc. ........ 3,043,200
----------------
MULTILINE RETAIL - 0.8%
35,000 Target Corp. ................................ 2,039,450
----------------
OIL, GAS & CONSUMABLE FUELS - 7.8%
40,000 Chevron Corp. ............................... 4,289,600
45,000 ConocoPhillips .............................. 3,420,450
30,000 Exxon Mobil Corp. ........................... 2,601,900
100,000 Marathon Oil Corp. .......................... 3,170,000
82,000 Occidental Petroleum Corp. .................. 7,808,860
----------------
21,290,810
----------------
PAPER & FOREST PRODUCTS - 1.0%
80,000 International Paper Co. ..................... 2,808,000
----------------
PHARMACEUTICALS - 7.3%
152,500 Bristol-Myers Squibb Co. .................... 5,146,875
135,000 Merck & Co., Inc. ........................... 5,184,000
50,000 Novartis AG, ADR ............................ 2,770,500
300,000 Pfizer, Inc. ................................ 6,798,000
----------------
19,899,375
----------------
REAL ESTATE INVESTMENT TRUSTS (REITS) - 2.0%
130,900 Annaly Capital Management, Inc. ............. 2,070,838
250,000 MFA Mortgage Investments, Inc. .............. 1,867,500
60,000 National Retail Properties, Inc. ............ 1,631,400
----------------
5,569,738
----------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 2.6%
197,500 Intel Corp. ................................. 5,551,725
42,000 Microchip Technology, Inc. .................. 1,562,400
----------------
7,114,125
----------------
SOFTWARE - 3.7%
140,000 Microsoft Corp. ............................. 4,515,000
190,000 Oracle Corp. ................................ 5,540,400
----------------
10,055,400
----------------
SPECIALTY RETAIL - 1.4%
80,000 Limited Brands, Inc. ........................ 3,840,000
----------------
TOBACCO - 3.1%
55,000 Altria Group, Inc. .......................... 1,697,850
77,000 Philip Morris International, Inc. ........... 6,822,970
----------------
8,520,820
----------------
See Notes to Quarterly Portfolio of Investments
FIRST TRUST ENHANCED EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
MARCH 31, 2012 (UNAUDITED)
SHARES/
UNITS DESCRIPTION VALUE
--------------- --------------------------------------------- ----------------
COMMON STOCKS - (CONTINUED)
WIRELESS TELECOMMUNICATION SERVICES - 0.8%
80,000 Vodafone Group PLC, ADR ..................... $ 2,213,600
----------------
TOTAL COMMON STOCKS ......................... 258,689,996
(Cost $228,454,270) ----------------
MASTER LIMITED PARTNERSHIPS - 3.2%
OIL, GAS & CONSUMABLE FUELS - 3.2%
90,000 Energy Transfer Partners, L.P. .............. 4,221,900
40,000 Enterprise Products Partners, L.P. .......... 2,018,800
35,000 Magellan Midstream Partners, L.P. ........... 2,531,900
----------------
TOTAL MASTER LIMITED PARTNERSHIPS ........... 8,772,600
(Cost $3,769,866) ----------------
COMMON STOCKS - BUSINESS DEVELOPMENT COMPANIES - 1.0%
CAPITAL MARKETS - 1.0%
170,000 Ares Capital Corp. .......................... 2,779,500
----------------
TOTAL COMMON STOCKS - BUSINESS
DEVELOPMENT COMPANIES .................... 2,779,500
(Cost $2,720,099) ----------------
CONVERTIBLE PREFERRED SECURITIES - 1.1%
AUTOMOBILES - 0.2%
10,000 General Motors Co., Ser B, 4.75% ............ 418,500
----------------
OIL, GAS & CONSUMABLE FUELS - 0.9%
45,000 Apache Corp., 6.00% ......................... 2,499,300
----------------
TOTAL CONVERTIBLE PREFERRED SECURITIES ...... 2,917,800
(Cost $3,095,928) ----------------
TOTAL INVESTMENTS - 100.1% .................. 273,159,896
(Cost $238,040,163) (b) ----------------
NUMBER OF
CONTRACTS DESCRIPTION VALUE
--------------- --------------------------------------------- ----------------
CALL OPTIONS WRITTEN - (0.5%)
Accenture PLC Call
200 @ 65 due April 12 ........................... (14,000)
----------------
Agilent Technologies, Inc. Call
200 @ 48 due April 12 ........................... (2,800)
----------------
Annaly Capital Management, Inc. Call
500 @ 17 due April 12 ........................... (500)
----------------
Apple, Inc. Call
50 @ 640 due April 12 .......................... (21,250)
----------------
See Notes to Quarterly Portfolio of Investments
FIRST TRUST ENHANCED EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
MARCH 31, 2012 (UNAUDITED)
NUMBER OF
CONTRACTS DESCRIPTION VALUE
--------------- --------------------------------------------- ----------------
CALL OPTIONS WRITTEN - (CONTINUED)
Bank of New York Mellon (The) Corp. Call
300 @ 24 due April 12 ........................... $ (19,800)
----------------
Bristol-Myers Squibb Co. Call
200 @ 34 due April 12 ........................... (4,600)
----------------
Carnival Corp. Call
500 @ 33 due April 12 ........................... (17,500)
----------------
Chevron Corp. Call
200 @ 115 due April 12 .......................... (1,600)
----------------
Coca-Cola (The) Co. Call
300 @ 75 due April 12 ........................... (15,000)
----------------
Cummins, Inc. Call
200 @ 130 due April 12 .......................... (10,400)
----------------
E.I. Du Pont de Nemours & Co. Call
300 @ 55 due April 12 ........................... (5,700)
----------------
Honeywell International, Inc. Call
200 @ 62.5 due April 12 ......................... (11,800)
----------------
International Business Machines Corp. Call
100 @ 205 due April 12 .......................... (58,000)
----------------
International Paper Co. Call
300 @ 35 due April 12 ........................... (24,900)
----------------
JPMorgan Chase & Co. Calls
200 @ 45 due April 12 ........................... (30,400)
300 @ 47 due April 12 ........................... (16,800)
----------------
(47,200)
----------------
Limited Brands, Inc. Call
200 @ 49 due April 12 ........................... (12,000)
----------------
Lincoln National Corp. Call
400 @ 28 due April 12 ........................... (7,600)
----------------
McDonald's Corp. Call
250 @ 100 due April 12 .......................... (13,250)
----------------
Microsoft Corp. Call
300 @ 33 due April 12 ........................... (9,300)
----------------
See Notes to Quarterly Portfolio of Investments
FIRST TRUST ENHANCED EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
MARCH 31, 2012 (UNAUDITED)
NUMBER OF
CONTRACTS DESCRIPTION VALUE
--------------- --------------------------------------------- ----------------
CALL OPTIONS WRITTEN - (CONTINUED)
Oracle Corp. Call
400 @ 32 due April 12 ........................... $ (800)
----------------
Philip Morris International, Inc. Call
500 @ 87.5 due April 12 ......................... (102,500)
----------------
QUALCOMM, Inc. Calls
150 @ 67.5 due April 12 ......................... (31,050)
250 @ 70 due April 12 ........................... (23,000)
----------------
(54,050)
----------------
S&P 500 Index Calls (c)
200 @ 1425 due April 12 ......................... (160,000)
400 @ 1415 due April 12 ......................... (528,000)
200 @ 1450 due April 12 ......................... (40,000)
----------------
(728,000)
----------------
Southern Co. Calls
300 @ 45 due April 12 ........................... (9,900)
700 @ 46 due April 12 ........................... (3,500)
----------------
(13,400)
----------------
Starwood Hotels & Resorts Worldwide, Inc. Call
300 @ 60 due April 12 ........................... (9,600)
----------------
United Parcel Service, Inc., Class B Call
300 @ 82.5 due April 12 ......................... (9,900)
----------------
Wells Fargo & Co. Calls
150 @ 33 due April 12 ........................... (22,500)
300 @ 35 due April 12 ........................... (14,400)
----------------
(36,900)
----------------
TOTAL CALL OPTIONS WRITTEN .................. (1,252,350)
(Premiums received $1,001,913) ----------------
NET OTHER ASSETS AND LIABILITIES - 0.4% ..... 1,083,283
----------------
NET ASSETS - 100.0% ......................... $ 272,990,829
================
---------------------------------------
(a) Non-income producing security.
(b) Aggregate cost for financial reporting purposes, which approximates
the aggregate cost for federal income tax purposes. As of March 31,
2012, the aggregate gross unrealized appreciation for all securities
in which there was an excess of value over tax cost was $42,133,385
and the aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value was $7,013,652.
(c) Call options on securities indices were written on a portion of the
common stock positions that were not used to cover call options on
individual equity securities held in the Fund's portfolio.
ADR American Depositary Receipt
See Notes to Quarterly Portfolio of Investments
FIRST TRUST ENHANCED EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
MARCH 31, 2012 (UNAUDITED)
---------------------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of March 31,
2012 is as follows (see Note 1A - Portfolio Valuation in the Notes to Quarterly
Portfolio of Investments):
ASSETS TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
3/31/2012 PRICES INPUTS INPUTS
--------------- ------------- --------------- --------------
Common Stocks*................................ $ 258,689,996 $ 258,689,996 $ -- $ --
Master Limited Partnerships*.................. 8,772,600 8,772,600 -- --
Common Stocks - Business Development
Companies*.................................. 2,779,500 2,779,500 -- --
Convertible Preferred Securities*............. 2,917,800 2,917,800 -- --
--------------- ------------- --------------- --------------
TOTAL INVESTMENTS............................. $ 273,159,896 $ 273,159,896 $ -- $ --
=============== ============= =============== ==============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
3/31/2012 PRICES INPUTS INPUTS
--------------- ------------- --------------- --------------
Call Options Written.......................... $ (1,252,350) $ (1,252,350) $ -- $ --
=============== ============= =============== ==============
*See the Portfolio of Investments for industry breakdown.
See Notes to Quarterly Portfolio of Investments
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS
FIRST TRUST ENHANCED EQUITY INCOME FUND
MARCH 31, 2012 (UNAUDITED)
1. VALUATION AND INVESTMENT PRACTICES
A. PORTFOLIO VALUATION:
The net asset value ("NAV") of the Common Shares of First Trust Enhanced Equity
Income Fund (the "Fund") is determined daily as of the close of regular trading
on the New York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time, on
each day the NYSE is open for trading. If the NYSE closes early on a valuation
day, the NAV is determined as of that time. Domestic debt securities and foreign
securities are priced using data reflecting the earlier closing of the principal
markets for those securities. The NAV per Common Share is calculated by dividing
the value of all assets of the Fund (including accrued interest and dividends),
less all liabilities (including accrued expenses, the value of call options
written (sold) and dividends declared but unpaid) by the total number of Common
Shares outstanding.
The Fund's investments are valued daily in accordance with valuation procedures
adopted by the Fund's Board of Trustees, and in accordance with provisions of
the Investment Company Act of 1940, as amended (the "1940 Act"). The following
securities, for which accurate and reliable market quotations are readily
available, will be valued as follows:
Common stocks, master limited partnerships ("MLPs"), exchanged-traded
funds and other securities listed on any national or foreign exchange
(excluding the NASDAQ National Market ("NASDAQ") and the London Stock
Exchange Alternative Investment Market ("AIM")) are valued at the last
sale price on the exchange on which they are principally traded. If there
are no transactions on the valuation day, the securities are valued at the
mean between the most recent bid and asked prices.
Securities listed on the NASDAQ or the AIM are valued at the official
closing price. If there is no official closing price on the valuation day,
the securities are valued at the mean between the most recent bid and
asked prices.
Securities traded in the over-the-counter market are valued at their
closing bid prices.
Exchange-traded options and futures contracts are valued at the closing
price in the market where such contracts are principally traded. If no
closing price is available, exchange-traded options and futures contracts
are valued at the mean between the most recent bid and asked prices.
Over-the-counter options and futures contracts are valued at their closing
bid prices.
Short-term investments that mature in less than 60 days when purchased are
valued at amortized cost.
All market quotations used in valuing the Fund's securities are obtained from a
third party pricing service. If no quotation is received from a pricing service,
attempts will be made to obtain one or more broker quotes for the security. In
the event the pricing service does not provide a valuation, broker quotations
are not readily available, or the valuations received are deemed unreliable, the
Fund's Board of Trustees has designated First Trust Advisors L.P. ("First
Trust") to use a fair value method to value the Fund's securities. Additionally,
if events occur after the close of the principal markets for certain securities
(e.g., domestic debt and foreign securities) that could materially affect the
Fund's NAV, First Trust will use a fair value method to value the Fund's
securities. The use of fair value pricing is governed by valuation procedures
adopted by the Fund's Board of Trustees, and in accordance with the provisions
of the 1940 Act. As a general principle, the fair value of a security is the
amount which the Fund might reasonably expect to receive for the security upon
its current sale. However, in light of the judgment involved in fair valuations,
there can be no assurance that a fair value assigned to a particular security
will be the amount which the Fund might be able to receive upon its current
sale. Fair valuation of a security will be based on the consideration of all
available information, including, but not limited to the following:
1) the type of security;
2) the size of the holding;
3) the initial cost of the security;
4) transactions in comparable securities;
5) price quotes from dealers and/or pricing services;
6) relationships among various securities;
7) information obtained by contacting the issuer, analysts, or the
appropriate stock exchange;
8) an analysis of the issuer's financial statements; and
9) the existence of merger proposals or tender offers that might affect
the value of the security.
If the securities in question are foreign securities, the following additional
information may be considered:
1) the value of similar foreign securities traded on other foreign
markets;
2) ADR trading of similar securities;
3) closed-end fund trading of similar securities;
4) foreign currency exchange activity;
5) the trading prices of financial products that are tied to baskets of
foreign securities;
6) factors relating to the event that precipitated the pricing problem;
7) whether the event is likely to recur; and
8) whether the effects of the event are isolated or whether they affect
entire markets, countries or regions.
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS - (CONTINUED)
FIRST TRUST ENHANCED EQUITY INCOME FUND
MARCH 31, 2012 (UNAUDITED)
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investments.
The inputs or methodology used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of March 31, 2012, is
included with the Fund's Portfolio of Investments.
B. OPTION CONTRACTS:
The Fund is subject to equity price risk in the normal course of pursuing its
investment objective and may enter into options written to hedge against changes
in the value of equities. Also, by writing (selling) options, the Fund seeks to
generate additional income, in the form of premiums received, for writing
(selling) the options. The Fund may write (sell) covered call options
("options") on all or a portion of the equity securities held in the Fund's
portfolio and on securities indices as determined to be appropriate by Chartwell
Investment Partners, L.P. ("Chartwell" or the "Sub-Advisor"), consistent with
the Fund's investment objective. The number of options the Fund can write (sell)
is limited by the amount of equity securities the Fund holds in its portfolio.
Options on securities indices are designed to reflect price fluctuations in a
group of securities or segment of the securities market rather than price
fluctuations in a single security and are similar to options on single
securities, except that the exercise of securities index options requires cash
settlement payments and does not involve the actual purchase or sale of
securities. The Fund will not write (sell) "naked" or uncovered options. If
certain equity securities held in the Fund's portfolio are not covered by a
related call option on the individual equity security, securities index options
may be written on all or a portion of such uncovered securities. Options are
marked-to-market daily and their value will be affected by changes in the value
and dividend rates of the underlying equity securities, changes in interest
rates, changes in the actual or perceived volatility of the securities markets
and the underlying equity securities and the remaining time to the options'
expiration. The value of options may also be adversely affected if the market
for the options becomes less liquid or trading volume diminishes.
Options the Fund writes (sells) will either be exercised, expire or be cancelled
pursuant to a closing transaction. If the price of the underlying equity
security exceeds the option's exercise price, it is likely that the option
holder will exercise the option. If an option written (sold) by the Fund is
exercised, the Fund would be obligated to deliver the underlying equity security
to the option holder upon payment of the strike price. In this case, the option
premium received by the Fund will be added to the amount realized on the sale of
the underlying security for purposes of determining gain or loss. If the price
of the underlying equity security is less than the option's strike price, the
option will likely expire without being exercised. The option premium received
by the Fund will, in this case, be treated as short-term capital gain on the
expiration date of the option. The Fund may also elect to close out its position
in an option prior to its expiration by purchasing an option of the same series
as the option written (sold) by the Fund.
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS - (CONTINUED)
FIRST TRUST ENHANCED EQUITY INCOME FUND
MARCH 31, 2012 (UNAUDITED)
The options that the Fund writes (sells) give the option holder the right, but
not the obligation, to purchase a security from the Fund at the strike price on
or prior to the option's expiration date. The ability to successfully implement
the writing (selling) of covered call options depends on the ability of the
Sub-Advisor to predict pertinent market movements, which cannot be assured.
Thus, the use of options may require the Fund to sell portfolio securities at
inopportune times or for prices other than current market value, which may limit
the amount of appreciation the Fund can realize on an investment, or may cause
the Fund to hold a security that it might otherwise sell. As the writer (seller)
of a covered option, the Fund foregoes, during the option's life, the
opportunity to profit from increases in the market value of the security
covering the option above the sum of the premium and the strike price of the
option, but has retained the risk of loss should the price of the underlying
security decline. The writer (seller) of an option has no control over the time
when it may be required to fulfill its obligation as a writer (seller) of the
option. Once an option writer (seller) has received an exercise notice, it
cannot effect a closing purchase transaction in order to terminate its
obligation under the option and must deliver the underlying security to the
option holder at the exercise price.
Over-the-counter options have the risk of the potential inability of
counterparties to meet the terms of their contracts. The Fund's maximum equity
price risk for purchased options is limited to the premium initially paid. In
addition, certain risks may arise upon entering into option contracts including
the risk that an illiquid secondary market will limit the Fund's ability to
close out an option contract prior to the expiration date and that a change in
the value of the option contract may not correlate exactly with changes in the
value of the securities hedged.
C. SECURITIES TRANSACTIONS:
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
The Fund may hold publicly-traded MLPs and real estate investment trusts
("REITs"). Distributions from such investments may include a return of capital
component from the MLP or REIT to the extent of the cost basis of such MLP or
REIT investments.
2. OPTION ACTIVITY
Written option activity for the Fund for the period ended March 31, 2012 was as
follows:
NUMBER
OF
WRITTEN OPTIONS CONTRACTS PREMIUMS
--------------------------------------------------------------------------------
Options outstanding at December 31, 2011... 9,150 $ 1,132,711
Options Written............................ 52,190 5,066,459
Options Expired............................ (15,370) (695,521)
Options Exercised.......................... (1,850) (201,897)
Options Closed............................. (34,770) (4,299,839)
------------ -------------
Options outstanding at March 31, 2012...... 9,350 $ 1,001,913
============ =============
ITEM 2. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers, or
persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the "1940
Act") (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days
of the filing date of the report that includes the disclosure required by
this paragraph, based on their evaluation of these controls and
procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR
270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities
Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR
270.30a-3(d)) that occurred during the registrant's last fiscal quarter
that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
ITEM 3. EXHIBITS.
Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of
the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) First Trust Enhanced Equity Income Fund
-------------------------------------------
By (Signature and Title)* /s/ Mark R. Bradley
------------------------------------------------------
Mark R. Bradley, President and Chief Executive Officer
(principal executive officer)
Date May 21, 2012
-----------------
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/ Mark R. Bradley
------------------------------------------------------
Mark R. Bradley, President and Chief Executive Officer
(principal executive officer)
Date May 21, 2012
-----------------
By (Signature and Title)* /s/ James M. Dykas
------------------------------------------------------
James M. Dykas, Treasurer, Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date May 21, 2012
-----------------
* Print the name and title of each signing officer under his or her signature.