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
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First Trust Enhanced Equity Income Fund
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(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(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
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(Name and address of agent for service)
Registrant's telephone number, including area code: (630) 765-8000
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Date of fiscal year end: December 31
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Date of reporting period: September 30, 2012
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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
SEPTEMBER 30, 2012 (UNAUDITED)
SHARES DESCRIPTION VALUE
--------------- --------------------------------------------- ----------------
COMMON STOCKS - 95.3%
AEROSPACE & DEFENSE - 2.7%
37,000 Boeing (The) Co. ............................ $ 2,575,940
80,000 Honeywell International, Inc. ............... 4,780,000
----------------
7,355,940
----------------
AIR FREIGHT & LOGISTICS - 1.6%
60,000 United Parcel Service, Inc., Class B ........ 4,294,200
----------------
BEVERAGES - 3.4%
175,000 Coca-Cola (The) Co. ......................... 6,637,750
35,000 PepsiCo, Inc. ............................... 2,476,950
----------------
9,114,700
----------------
CAPITAL MARKETS - 1.1%
16,000 BlackRock, Inc. ............................. 2,852,800
----------------
CHEMICALS - 2.3%
80,000 E.I. Du Pont de Nemours & Co. ............... 4,021,600
20,000 PPG Industries, Inc. ........................ 2,296,800
----------------
6,318,400
----------------
COMMERCIAL BANKS - 2.0%
40,000 PNC Financial Services Group, Inc. .......... 2,524,000
80,000 Wells Fargo & Co. ........................... 2,762,400
----------------
5,286,400
----------------
COMMUNICATIONS EQUIPMENT - 3.6%
190,000 Cisco Systems, Inc. ......................... 3,627,100
100,000 QUALCOMM, Inc. .............................. 6,249,000
----------------
9,876,100
----------------
COMPUTERS & PERIPHERALS - 5.8%
20,000 Apple, Inc. ................................. 13,345,200
90,000 EMC Corp. (a)................................ 2,454,300
----------------
15,799,500
----------------
CONSUMER FINANCE - 1.3%
60,000 Capital One Financial Corp. ................. 3,420,600
----------------
DIVERSIFIED FINANCIAL SERVICES - 3.5%
187,900 JPMorgan Chase & Co. ........................ 7,606,192
77,000 NYSE Euronext ............................... 1,898,050
----------------
9,504,242
----------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 2.7%
130,000 AT&T, Inc. .................................. 4,901,000
50,000 Verizon Communications, Inc. ................ 2,278,500
----------------
7,179,500
----------------
ELECTRIC UTILITIES - 0.9%
85,000 PPL Corp. ................................... 2,469,250
----------------
See Notes to Quarterly Portfolio of Investments
FIRST TRUST ENHANCED EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
SEPTEMBER 30, 2012 (UNAUDITED)
SHARES DESCRIPTION VALUE
--------------- --------------------------------------------- ----------------
COMMON STOCKS - (CONTINUED)
ENERGY EQUIPMENT & SERVICES - 1.7%
65,000 Schlumberger Ltd. ........................... $ 4,701,450
----------------
FOOD PRODUCTS - 1.8%
110,000 Kraft Foods Group, Inc. (b).................. 4,911,500
----------------
HEALTH CARE EQUIPMENT & SUPPLIES - 1.9%
87,900 Covidien PLC ................................ 5,223,018
----------------
HOTELS, RESTAURANTS & LEISURE - 4.9%
55,000 Carnival Corp. .............................. 2,004,200
63,000 McDonald's Corp. ............................ 5,780,250
45,000 Starwood Hotels & Resorts Worldwide, Inc. ... 2,608,200
25,000 Wynn Resorts Ltd. ........................... 2,886,000
----------------
13,278,650
----------------
HOUSEHOLD DURABLES - 1.0%
145,000 Newell Rubbermaid, Inc. ..................... 2,768,050
----------------
INDUSTRIAL CONGLOMERATES - 3.4%
400,000 General Electric Co. ........................ 9,084,000
----------------
INSURANCE - 5.7%
115,000 Lincoln National Corp. ...................... 2,781,850
50,000 Marsh & McLennan Cos., Inc. ................. 1,696,500
120,000 MetLife, Inc. ............................... 4,135,200
100,000 Travelers (The) Cos., Inc. .................. 6,826,000
----------------
15,439,550
----------------
IT SERVICES - 4.1%
20,000 Accenture PLC, Class A ...................... 1,400,600
52,000 Automatic Data Processing, Inc. ............. 3,050,320
32,500 International Business Machines Corp. ....... 6,742,125
----------------
11,193,045
----------------
LIFE SCIENCES TOOLS & SERVICES - 1.5%
105,000 Agilent Technologies, Inc. .................. 4,037,250
----------------
MACHINERY - 2.5%
37,000 Caterpillar, Inc. ........................... 3,183,480
45,000 Deere & Co. ................................. 3,712,050
----------------
6,895,530
----------------
MEDIA - 2.7%
150,000 Regal Entertainment Group, Class A .......... 2,110,500
25,000 Viacom, Inc., Class B ....................... 1,339,750
75,000 Walt Disney (The) Co. ....................... 3,921,000
----------------
7,371,250
----------------
METALS & MINING - 1.0%
65,000 Freeport-McMoRan Copper & Gold, Inc. ........ 2,572,700
----------------
MULTILINE RETAIL - 0.8%
35,000 Target Corp. ................................ 2,221,450
----------------
See Notes to Quarterly Portfolio of Investments
FIRST TRUST ENHANCED EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
SEPTEMBER 30, 2012 (UNAUDITED)
SHARES DESCRIPTION VALUE
--------------- --------------------------------------------- ----------------
COMMON STOCKS - (CONTINUED)
OIL, GAS & CONSUMABLE FUELS - 8.2%
25,000 Apache Corp. ................................ $ 2,161,750
40,000 Chevron Corp. ............................... 4,662,400
45,000 ConocoPhillips .............................. 2,573,100
90,000 Kinder Morgan, Inc. ......................... 3,196,800
120,000 Marathon Oil Corp. .......................... 3,548,400
72,000 Occidental Petroleum Corp. .................. 6,196,320
----------------
22,338,770
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PAPER & FOREST PRODUCTS - 0.7%
50,000 International Paper Co. ..................... 1,816,000
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PHARMACEUTICALS - 8.1%
132,500 Bristol-Myers Squibb Co. .................... 4,471,875
130,000 Merck & Co., Inc. ........................... 5,863,000
50,000 Novartis AG, ADR ............................ 3,063,000
345,000 Pfizer, Inc. ................................ 8,573,250
----------------
21,971,125
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REAL ESTATE INVESTMENT TRUSTS (REITS) - 1.7%
225,000 MFA Mortgage Investments, Inc. .............. 1,912,500
90,000 National Retail Properties, Inc. ............ 2,745,000
----------------
4,657,500
----------------
ROAD & RAIL - 0.7%
50,000 Ryder System, Inc. .......................... 1,953,000
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SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 2.2%
197,500 Intel Corp. ................................. 4,479,300
47,000 Microchip Technology, Inc. .................. 1,538,780
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6,018,080
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SOFTWARE - 3.5%
157,500 Microsoft Corp. ............................. 4,690,350
155,000 Oracle Corp. ................................ 4,880,950
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9,571,300
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SPECIALTY RETAIL - 1.5%
80,000 Limited Brands, Inc. ........................ 3,940,800
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TOBACCO - 3.2%
55,000 Altria Group, Inc. .......................... 1,836,450
77,000 Philip Morris International, Inc. ........... 6,925,380
----------------
8,761,830
----------------
WATER UTILITIES - 0.9%
65,000 American Water Works Co., Inc. .............. 2,408,900
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WIRELESS TELECOMMUNICATION SERVICES - 0.7%
70,000 Vodafone Group PLC, ADR ..................... 1,994,650
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TOTAL COMMON STOCKS ......................... 258,601,030
(Cost $227,487,741) ----------------
See Notes to Quarterly Portfolio of Investments
FIRST TRUST ENHANCED EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
SEPTEMBER 30, 2012 (UNAUDITED)
SHARES/
UNITS DESCRIPTION VALUE
--------------- --------------------------------------------- ----------------
MASTER LIMITED PARTNERSHIPS - 3.3%
OIL, GAS & CONSUMABLE FUELS - 3.3%
90,000 Energy Transfer Partners, L.P. .............. $ 3,831,300
40,000 Enterprise Products Partners, L.P. .......... 2,144,000
35,000 Magellan Midstream Partners, L.P. ........... 3,061,100
----------------
TOTAL MASTER LIMITED PARTNERSHIPS ........... 9,036,400
(Cost $3,496,104) ----------------
COMMON STOCKS - BUSINESS DEVELOPMENT COMPANIES - 1.3%
CAPITAL MARKETS - 1.3%
210,000 Ares Capital Corp. .......................... 3,599,400
----------------
TOTAL COMMON STOCKS - BUSINESS DEVELOPMENT
COMPANIES ................................ 3,599,400
(Cost $3,392,499) ----------------
TOTAL INVESTMENTS - 99.9% ................... 271,236,830
(Cost $234,376,344) (c) ----------------
NUMBER OF
CONTRACTS DESCRIPTION VALUE
--------------- --------------------------------------------- ----------------
CALL OPTIONS WRITTEN - (0.2%)
Accenture PLC, Class A Calls
100 @ 65 due October 12 ......................... (51,000)
100 @ 67.5 due October 12 ....................... (28,200)
----------------
(79,200)
----------------
Apache Corp. Call
250 @ 92.5 due October 12 ....................... (6,250)
----------------
AT&T, Inc. Call
1,100 @ 39 due October 12 ......................... (6,600)
----------------
BlackRock, Inc. Call
160 @ 190 due October 12 ........................ (5,600)
----------------
Capital One Financial Corp. Call
300 @ 62.5 due October 12 ....................... (2,400)
----------------
Carnival Corp. Calls
100 @ 38 due October 12 ......................... (2,000)
200 @ 39 due October 12 ......................... (1,400)
----------------
(3,400)
----------------
Chevron Corp. Call
400 @ 120 due October 12 ........................ (18,400)
----------------
See Notes to Quarterly Portfolio of Investments
FIRST TRUST ENHANCED EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
SEPTEMBER 30, 2012 (UNAUDITED)
NUMBER OF
CONTRACTS DESCRIPTION VALUE
--------------- --------------------------------------------- ----------------
CALL OPTIONS WRITTEN - (CONTINUED)
Cisco Systems, Inc. Call
500 @ 20 due October 12 ......................... $ (4,500)
----------------
EMC Corp. Call
300 @ 29 due October 12 ......................... (4,200)
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Freeport-McMoRan Copper & Gold, Inc. Call
200 @ 43 due October 12 ......................... (4,400)
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General Electric Co. Call
4,000 @ 23 due October 12 ......................... (116,000)
----------------
Honeywell International, Inc. Call
200 @ 62.5 due October 12 ....................... (6,600)
----------------
Intel Corp. Call
500 @ 24 due October 12 ......................... (6,000)
----------------
International Business Machines Corp. Call
150 @ 215 due October 12 ........................ (16,200)
----------------
International Paper Co. Call
250 @ 36 due October 12 ......................... (27,750)
----------------
JPMorgan Chase & Co. Call
300 @ 43 due October 12 ......................... (5,100)
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Lincoln National Corp. Call
200 @ 27 due October 12 ......................... (1,100)
----------------
Marathon Oil Corp. Call
300 @ 32 due October 12 ......................... (2,700)
----------------
McDonald's Corp. Call
130 @ 95 due October 12 ......................... (3,510)
----------------
Merck & Co., Inc. Call
1,300 @ 46 due October 12 ......................... (31,200)
----------------
Newell Rubbermaid, Inc. Call
1,000 @ 20 due October 12 ......................... (15,000)
----------------
See Notes to Quarterly Portfolio of Investments
FIRST TRUST ENHANCED EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
SEPTEMBER 30, 2012 (UNAUDITED)
NUMBER OF
CONTRACTS DESCRIPTION VALUE
--------------- --------------------------------------------- ----------------
CALL OPTIONS WRITTEN - (CONTINUED)
NYSE Euronext Call
300 @ 27 due October 12 ......................... $ (750)
----------------
Oracle Corp. Call
500 @ 33 due October 12 ......................... (6,000)
----------------
Pfizer, Inc. Call
1,000 @ 25 due October 12 ......................... (26,000)
----------------
Philip Morris International, Inc. Call
270 @ 95 due October 12 ......................... (3,510)
----------------
PNC Financial Services Group, Inc. Call
400 @ 67.5 due October 12 ....................... (3,200)
----------------
PPG Industries, Inc. Call
100 @ 120 due October 12 ........................ (7,500)
----------------
QUALCOMM, Inc. Call
200 @ 67.5 due October 12 ....................... (2,400)
----------------
Regal Entertainment Group, Class A Call
1,500 @ 15 due January 13 ......................... (45,000)
----------------
S&P 500 Index Calls (d)
200 @ 1480 due October 12 ....................... (55,000)
400 @ 1495 due October 12 ....................... (44,000)
----------------
(99,000)
----------------
Starwood Hotels & Resorts Worldwide,
Inc. Call
300 @ 62.5 due October 12 ....................... (5,250)
----------------
Target Corp. Call
350 @ 67.5 due October 12 ....................... (1,750)
----------------
Travelers (The) Cos., Inc. Call
500 @ 70 due October 12 ......................... (27,500)
----------------
Viacom, Inc., Class B Call
200 @ 52.5 due October 12 ....................... (35,000)
----------------
Walt Disney (The) Co. Call
350 @ 55 due October 12 ......................... (3,150)
----------------
TOTAL CALL OPTIONS WRITTEN .................. (632,120)
(Premiums received $918,613) ----------------
See Notes to Quarterly Portfolio of Investments
FIRST TRUST ENHANCED EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
SEPTEMBER 30, 2012 (UNAUDITED)
DESCRIPTION VALUE
--------------------------------------------- ----------------
NET OTHER ASSETS AND LIABILITIES - 0.3% ..... $ 728,952
----------------
NET ASSETS - 100.0% ......................... $ 271,333,662
================
(a) Non-income producing security.
(b) This security is trading on a "when-issued" basis. It will begin
"regular-way" trading on October 2, 2012, following the completion
of the company's spin-off from Kraft Foods Inc.
(c) Aggregate cost for financial reporting purposes, which approximates
the aggregate cost for federal income tax purposes. As of September
30, 2012, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$41,610,688 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$4,750,202.
(d) Call options on securities indices were written on a portion of the
common stock positions that were not used to cover call options
written on individual equity securities held in the Fund's
portfolio.
ADR American Depositary Receipt
--------------------------------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of September 30,
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
9/30/2012 PRICES INPUTS INPUTS
--------------- ------------- --------------- --------------
Common Stocks*................................ $ 258,601,030 $ 258,601,030 $ -- $ --
Master Limited Partnerships*.................. 9,036,400 9,036,400 -- --
Common Stocks - Business Development
Companies*.................................. 3,599,400 3,599,400 -- --
--------------- ------------- --------------- --------------
TOTAL INVESTMENTS............................. $ 271,236,830 $ 271,236,830 $ -- $ --
=============== ============= =============== ==============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
9/30/2012 PRICES INPUTS INPUTS
--------------- ------------- --------------- --------------
Call Options Written.......................... $ (632,120) $ (632,120) $ -- $ --
=============== ============= =============== ==============
* See the Portfolio of Investments for industry breakdown.
There were no transfers between levels at September 30, 2012.
See Notes to Quarterly Portfolio of Investments
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS
FIRST TRUST ENHANCED EQUITY INCOME FUND
SEPTEMBER 30, 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. 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 Fund's
securities 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
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.
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.
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS - (CONTINUED)
FIRST TRUST ENHANCED EQUITY INCOME FUND
SEPTEMBER 30, 2012 (UNAUDITED)
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
investment.
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 September 30, 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 write (sell) options to hedge against changes in
the value of equities. Also, the Fund seeks to generate additional income, in
the form of premiums received, from writing (selling) the options. The Fund may
write (sell) covered call 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.
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.
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS - (CONTINUED)
FIRST TRUST ENHANCED EQUITY INCOME FUND
SEPTEMBER 30, 2012 (UNAUDITED)
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.
Securities purchased on a when-issued, delayed-delivery or forward purchase
commitment basis may have extended settlement periods. The value of the security
so purchased is subject to market fluctuations during this period. The Fund
maintains liquid assets with a current value at least equal to the amount of its
when-issued, delayed-delivery or forward purchase commitments until payment is
made. At September 30, 2012, the Fund had when-issued, delayed-delivery or
forward purchase commitments with a cost of $5,051,948 and a value of
$4,911,500.
2. OPTION ACTIVITY
Written option activity for the Fund for the period ended September 30, 2012 was
as follows:
NUMBER
OF
WRITTEN OPTIONS CONTRACTS PREMIUMS
--------------------------------------------------------------------------------
Options outstanding at December 31, 2011... 9,150 $ 1,132,711
Options written............................ 210,227 17,849,235
Options expired............................ (82,680) (5,187,159)
Options exercised.......................... (6,417) (471,727)
Options closed............................. (111,670) (12,404,447)
------------ -------------
Options outstanding at September 30, 2012.. 18,610 $ 918,613
============ =============
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 November 19, 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 November 19, 2012
---------------------
By (Signature and Title)* /s/ James M. Dykas
------------------------------------------------------
James M. Dykas, Treasurer, Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date November 19, 2012
---------------------
* Print the name and title of each signing officer under his or her signature.