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, 2013
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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 (FFA)
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 2013 (UNAUDITED)
SHARES DESCRIPTION VALUE
--------------- --------------------------------------------- ----------------
COMMON STOCKS - 94.4%
AEROSPACE & DEFENSE - 1.5%
50,000 Honeywell International, Inc. ............... $ 4,152,000
---------------
AIR FREIGHT & LOGISTICS - 1.2%
30,000 FedEx Corp. ................................. 3,423,300
---------------
BEVERAGES - 3.9%
45,000 Anheuser-Busch InBev N.V., ADR .............. 4,464,000
100,000 Coca-Cola (The) Co. ......................... 3,788,000
35,000 PepsiCo, Inc. ............................... 2,782,500
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11,034,500
---------------
CAPITAL MARKETS - 3.0%
12,000 BlackRock, Inc. ............................. 3,247,440
70,000 Invesco, Ltd. ............................... 2,233,000
45,000 State Street Corp. .......................... 2,958,750
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8,439,190
---------------
CHEMICALS - 1.4%
70,000 E.I. du Pont de Nemours & Co. ............... 4,099,200
---------------
COMMERCIAL BANKS - 2.9%
55,000 PNC Financial Services Group, Inc. .......... 3,984,750
105,000 Wells Fargo & Co. ........................... 4,338,600
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8,323,350
---------------
COMMUNICATIONS EQUIPMENT - 3.7%
250,000 Cisco Systems, Inc. ......................... 5,855,000
70,000 QUALCOMM, Inc. .............................. 4,715,200
---------------
10,570,200
---------------
COMPUTERS & PERIPHERALS - 5.8%
24,000 Apple, Inc. ................................. 11,442,000
200,000 EMC Corp. ................................... 5,112,000
---------------
16,554,000
---------------
CONSUMER FINANCE - 1.2%
50,000 Capital One Financial Corp. ................. 3,437,000
---------------
DIVERSIFIED FINANCIAL SERVICES - 4.4%
60,000 Citigroup, Inc. ............................. 2,910,600
187,900 JPMorgan Chase & Co. ........................ 9,712,551
---------------
12,623,151
---------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.2%
105,000 AT&T, Inc. .................................. 3,551,100
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ELECTRIC UTILITIES - 1.2%
110,000 PPL Corp. ................................... 3,341,800
---------------
ENERGY EQUIPMENT & SERVICES - 4.4%
45,000 Helmerich & Payne, Inc. ..................... 3,102,750
42,500 National Oilwell Varco, Inc. ................ 3,319,675
See Notes to Quarterly Portfolio of Investments
FIRST TRUST ENHANCED EQUITY INCOME FUND (FFA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2013 (UNAUDITED)
SHARES DESCRIPTION VALUE
--------------- --------------------------------------------- ----------------
COMMON STOCKS (CONTINUED)
ENERGY EQUIPMENT & SERVICES (CONTINUED)
70,000 Schlumberger Ltd. ........................... $ 6,185,200
---------------
12,607,625
---------------
FOOD PRODUCTS - 2.9%
100,000 Kraft Foods Group, Inc. ..................... 5,244,000
95,000 Mondelez International, Inc., Class A ....... 2,984,900
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8,228,900
---------------
HEALTH CARE EQUIPMENT & SUPPLIES - 1.7%
80,000 Covidien PLC ................................ 4,875,200
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HEALTH CARE PROVIDERS & SERVICES - 1.3%
70,000 Cardinal Health, Inc. ....................... 3,650,500
---------------
HOTELS, RESTAURANTS & LEISURE - 2.7%
55,000 Carnival Corp. .............................. 1,795,200
60,000 Starwood Hotels & Resorts Worldwide, Inc. ... 3,987,000
12,500 Wynn Resorts Ltd. ........................... 1,975,125
---------------
7,757,325
---------------
HOUSEHOLD DURABLES - 2.2%
125,000 Newell Rubbermaid, Inc. ..................... 3,437,500
90,000 Toll Brothers, Inc. (a)...................... 2,918,700
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6,356,200
---------------
INDUSTRIAL CONGLOMERATES - 3.2%
375,000 General Electric Co. ........................ 8,958,750
---------------
INSURANCE - 3.5%
67,000 Lincoln National Corp. ...................... 2,813,330
90,000 MetLife, Inc. ............................... 4,225,500
35,000 Travelers (The) Cos., Inc. .................. 2,966,950
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10,005,780
---------------
IT SERVICES - 2.6%
52,000 Automatic Data Processing, Inc. ............. 3,763,760
20,000 International Business Machines Corp. ....... 3,703,600
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7,467,360
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LIFE SCIENCES TOOLS & SERVICES - 1.3%
70,000 Agilent Technologies, Inc. .................. 3,587,500
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MACHINERY - 2.4%
37,000 Caterpillar, Inc. ........................... 3,084,690
45,000 Deere & Co. ................................. 3,662,550
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6,747,240
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MEDIA - 1.7%
75,000 Walt Disney (The) Co. ....................... 4,836,750
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METALS & MINING - 1.0%
90,000 Freeport-McMoRan Copper & Gold, Inc. ........ 2,977,200
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See Notes to Quarterly Portfolio of Investments
FIRST TRUST ENHANCED EQUITY INCOME FUND (FFA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2013 (UNAUDITED)
SHARES DESCRIPTION VALUE
--------------- --------------------------------------------- ----------------
COMMON STOCKS (CONTINUED)
MULTILINE RETAIL - 0.9%
40,000 Target Corp. ................................ $ 2,559,200
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OIL, GAS & CONSUMABLE FUELS - 7.6%
35,000 Chevron Corp. ............................... 4,252,500
45,000 ConocoPhillips .............................. 3,127,950
90,000 Kinder Morgan, Inc. ......................... 3,201,300
120,000 Marathon Oil Corp. .......................... 4,185,600
72,000 Occidental Petroleum Corp. .................. 6,734,880
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21,502,230
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PHARMACEUTICALS - 8.7%
80,000 Bristol-Myers Squibb Co. .................... 3,702,400
80,000 Johnson & Johnson ........................... 6,935,200
100,000 Merck & Co., Inc. ........................... 4,761,000
326,886 Pfizer, Inc. ................................ 9,384,897
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24,783,497
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REAL ESTATE INVESTMENT TRUSTS - 1.7%
45,000 Digital Realty Trust, Inc. .................. 2,389,500
40,000 Mid-America Apartment Communities, Inc. ..... 2,500,000
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4,889,500
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ROAD & RAIL - 1.4%
150,000 CSX Corp. ................................... 3,861,000
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SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 2.3%
40,000 Analog Devices, Inc. ........................ 1,882,000
102,500 Intel Corp. ................................. 2,349,300
60,000 Microchip Technology, Inc. .................. 2,417,400
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6,648,700
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SOFTWARE - 3.4%
112,500 Microsoft Corp. ............................. 3,747,375
175,000 Oracle Corp. ................................ 5,804,750
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9,552,125
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SPECIALTY RETAIL - 1.3%
60,000 L Brands, Inc. .............................. 3,666,000
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TOBACCO - 3.6%
70,000 Altria Group, Inc. .......................... 2,404,500
90,000 Philip Morris International, Inc. ........... 7,793,100
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10,197,600
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WATER UTILITIES - 1.2%
80,000 American Water Works Co., Inc. .............. 3,302,400
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TOTAL COMMON STOCKS ......................... 268,567,373
(Cost $229,055,531) ---------------
See Notes to Quarterly Portfolio of Investments
FIRST TRUST ENHANCED EQUITY INCOME FUND (FFA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2013 (UNAUDITED)
SHARES/
UNITS DESCRIPTION VALUE
--------------- --------------------------------------------- ----------------
MASTER LIMITED PARTNERSHIPS - 3.1%
OIL, GAS & CONSUMABLE FUELS - 3.1%
120,000 Energy Transfer Partners, L.P. .............. $ 6,248,400
40,000 Enterprise Products Partners, L.P. .......... 2,441,600
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TOTAL MASTER LIMITED PARTNERSHIPS ........... 8,690,000
(Cost $3,460,764) ---------------
COMMON STOCKS - BUSINESS DEVELOPMENT COMPANIES - 0.8%
CAPITAL MARKETS - 0.8%
136,459 Ares Capital Corp. .......................... 2,359,376
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TOTAL COMMON STOCKS - BUSINESS DEVELOPMENT
COMPANIES ................................ 2,359,376
(Cost $2,253,179) ---------------
EXCHANGE-TRADED FUNDS - 0.8%
CAPITAL MARKETS - 0.8%
14,000 SPDR S&P 500 ETF Trust ...................... 2,353,400
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TOTAL EXCHANGE-TRADED FUNDS ................. 2,353,400
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(Cost $2,315,460)
TOTAL INVESTMENTS - 99.1% ................... 281,970,149
(Cost $237,084,934) (b) ---------------
NUMBER OF
CONTRACTS DESCRIPTION VALUE
--------------- --------------------------------------------- ----------------
CALL OPTIONS WRITTEN - (0.1%)
Agilent Technologies, Inc. Call
500 @ $55.00 due October 2013.................... (7,500)
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Anheuser-Busch Inbev N.V. ADR Call
100 @ 100.00 due October 2013................... (13,500)
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Apple, Inc. Call
75 @ 505.00 due October 2013................... (27,000)
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Bristol-Myers Squibb Co. Call
200 @ 48.00 due October 2013.................... (3,800)
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Citigroup, Inc. Call
250 @ 52.50 due October 2013.................... (4,000)
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CSX Corp. Call
500 @ 27.50 due October 2013.................... (4,000)
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FedEx Corp. Call
150 @ 120.00 due October 2013................... (6,600)
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See Notes to Quarterly Portfolio of Investments
FIRST TRUST ENHANCED EQUITY INCOME FUND (FFA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2013 (UNAUDITED)
NUMBER OF
CONTRACTS DESCRIPTION VALUE
--------------- --------------------------------------------- ----------------
CALL OPTIONS WRITTEN (CONTINUED)
Freeport-McMoRan Copper & Gold, Inc. Calls
300 @ $34.00 due October 2013.................... $ (9,300)
300 @ 36.00 due October 2013.................... (1,500)
----------------
(10,800)
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General Electric Co. Call
800 @ 25.00 due October 2013.................... (8,000)
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Helmerich & Payne, Inc. Call
200 @ 72.50 due October 2013.................... (6,000)
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Honeywell International, Inc. Call
200 @ 87.50 due October 2013.................... (4,400)
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Intel Corp. Calls
300 @ 24.00 due October 2013.................... (6,000)
300 @ 25.00 due October 2013.................... (2,100)
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(8,100)
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International Business Machines Corp. Call
100 @ 200.00 due October 2013................... (3,100)
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JPMorgan Chase & Co. Call
300 @ 55.00 due October 2013.................... (4,800)
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Lincoln National Corp. Call
250 @ 45.00 due October 2013.................... (3,875)
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MetLife, Inc. Call
300 @ 50.00 due October 2013.................... (4,800)
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Microsoft Corp. Call
350 @ 34.00 due October 2013.................... (11,900)
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National Oilwell Varco, Inc. Call
250 @ 82.50 due October 2013.................... (6,250)
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Newell Rubbermaid, Inc. Call
350 @ 27.00 due October 2013.................... (27,125)
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Occidental Petroleum Corp. Call
400 @ 95.00 due October 2013.................... (46,400)
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Pfizer, Inc. Call
500 @ 29.00 due October 2013.................... (12,500)
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QUALCOMM, Inc. Call
300 @ 72.50 due October 2013.................... (3,300)
---------------
See Notes to Quarterly Portfolio of Investments
FIRST TRUST ENHANCED EQUITY INCOME FUND (FFA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2013 (UNAUDITED)
NUMBER OF
CONTRACTS DESCRIPTION VALUE
--------------- --------------------------------------------- ----------------
CALL OPTIONS WRITTEN (CONTINUED)
S&P 500 Index Calls (c)
300 @ $1,760.00 due October 2013................. $ (19,500)
300 @ 1,745.00 due October 2013................. (51,000)
---------------
(70,500)
---------------
Schlumberger Ltd. Call
250 @ 90.00 due October 2013.................... (30,750)
---------------
Starwood Hotels & Resorts Worldwide, Inc. Call
250 @ 70.00 due October 2013.................... (6,750)
---------------
Toll Brothers, Inc. Call
350 @ 34.00 due October 2013.................... (15,400)
---------------
Wynn Resorts Ltd. Call
125 @ 155.00 due October 2013................... (63,750)
---------------
TOTAL CALL OPTIONS WRITTEN .................. (414,900)
(Premiums received $706,128) ---------------
NET OTHER ASSETS AND LIABILITIES - 1.0% ..... 2,846,705
---------------
NET ASSETS - 100.0% ......................... $ 284,401,954
===============
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(a) Non-income producing security.
(b) Aggregate cost for financial reporting purposes, which approximates
the aggregate cost for federal income tax purposes. As of September
30, 2013, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$48,707,888 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$3,822,673.
(c) 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
See Notes to Quarterly Portfolio of Investments
FIRST TRUST ENHANCED EQUITY INCOME FUND (FFA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2013 (UNAUDITED)
---------------------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of September 30,
2013 is as follows (see Note 2A - 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
9/30/2013 PRICES INPUTS INPUTS
--------------- ------------- --------------- --------------
Common Stocks*................................ $ 268,567,373 $ 268,567,373 $ -- $ --
Master Limited Partnerships*.................. 8,690,000 8,690,000 -- --
Common Stocks - Business Development
Companies*.................................. 2,359,376 2,359,376 -- --
Exchange-Traded Funds*........................ 2,353,400 2,353,400 -- --
--------------- ------------- --------------- --------------
TOTAL INVESTMENTS............................. $ 281,970,149 $ 281,970,149 $ -- $ --
=============== ============= =============== ==============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
9/30/2013 PRICES INPUTS INPUTS
--------------- ------------- --------------- --------------
Call Options Written.......................... $ (414,900) $ (414,900) $ -- $ --
=============== ============= =============== ==============
* See the Portfolio of Investments for industry breakdown.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at September 30, 2013.
See Notes to Quarterly Portfolio of Investments
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS
FIRST TRUST ENHANCED EQUITY INCOME FUND (FFA)
SEPTEMBER 30, 2013 (UNAUDITED)
1. ORGANIZATION
First Trust Enhanced Equity Income Fund (the "Fund") is a diversified,
closed-end management investment company organized as a Massachusetts business
trust on May 20, 2004 , and is registered with the Securities and Exchange
Commission ("SEC") under the Investment Company Act of 1940, as amended (the
"1940 Act"). The Fund trades under the ticker symbol FFA on the New York Stock
Exchange ("NYSE").
2. VALUATION AND INVESTMENT PRACTICES
A. PORTFOLIO VALUATION:
The net asset value ("NAV") of the Common Shares of the Fund is determined daily
as of the close of regular trading on the 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 1940 Act. Market quotations and prices used to value the Fund's investments
are primarily obtained from third party pricing services. The Fund's securities
will be valued as follows:
Common stocks, master limited partnerships ("MLPs"), exchange-traded funds
and other equity securities listed on any national or foreign exchange
(excluding the NASDAQ(R) Stock Market LLC ("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 or, for
NASDAQ and AIM securities, the official closing price. Securities traded
on more than one securities exchange are valued at the last sale price or
official closing price, as applicable, at the close of the securities
exchange representing the principal market for such securities.
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.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Board of Trustees or its delegate
at fair value. These securities generally include, but are not limited to,
restricted securities (securities which may not be publicly sold without
registration under the Securities Act of 1933, as amended) for which a pricing
service is unable to provide a market price; securities whose trading has been
formally suspended; a security whose market price is not available from a
pre-established pricing source; a security with respect to which an event has
occurred that is likely to materially affect the value of the security after the
market has closed but before the calculation of a Fund's NAV or make it
difficult or impossible to obtain a reliable market quotation; and a security
whose price, as provided by the pricing service, does not reflect the security's
"fair value." As a general principle, the current "fair value" of a security
would appear to be the amount which the owner might reasonably expect to receive
for the security upon its current sale. The use of fair value prices by a Fund
generally results in prices used by the Fund that may differ from current market
quotations or official closing prices on the applicable exchange. A variety of
factors may be considered in determining the fair value of such securities,
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:
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS (CONTINUED)
FIRST TRUST ENHANCED EQUITY INCOME FUND (FFA)
SEPTEMBER 30, 2013 (UNAUDITED)
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
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, 2013, 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.
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS (CONTINUED)
FIRST TRUST ENHANCED EQUITY INCOME FUND (FFA)
SEPTEMBER 30, 2013 (UNAUDITED)
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 AND INVESTMENT INCOME:
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
3. OPTION ACTIVITY
Written option activity for the Fund for the fiscal year to date period (January
1, 2013 through September 30, 2013) was as follows:
NUMBER
OF
WRITTEN OPTIONS CONTRACTS PREMIUMS
-----------------------------------------------------------------------------
Options outstanding at December 31, 2012.... 13,800 $ 858,201
Options Written............................. 131,085 13,802,195
Options Expired............................. (61,471) (4,419,167)
Options Exercised........................... (8,346) (424,526)
Options Closed.............................. (66,218) (9,110,575)
---------- -------------
Options outstanding at September 30, 2013... 8,850 $ 706,128
========== =============
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 20, 2013
---------------------------
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 20, 2013
---------------------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: November 20, 2013
---------------------------
* Print the name and title of each signing officer under his or her signature.