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
Wheaton, IL 60187
(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive
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: September 30, 2008
Form N-Q is to be used by management investment companies, other than small
business investment companies registered on Form N-5 (Sections 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. Section 3507.
ITEM 1. SCHEDULE OF INVESTMENTS.
The Schedule(s) of Investments is attached herewith.
FIRST TRUST ENHANCED EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (A)
SEPTEMBER 30, 2008 (UNAUDITED)
SHARES DESCRIPTION VALUE
--------- ----------------------------------------------- ------------
COMMON STOCKS - 100.4%
AEROSPACE & DEFENSE - 5.1%
150,000 Honeywell International, Inc................... $ 6,232,500
85,800 Rockwell Collins, Inc.......................... 4,126,122
64,200 United Technologies Corp....................... 3,855,852
------------
14,214,474
------------
AIR FREIGHT & LOGISTICS - 1.2%
40,200 FedEx Corp..................................... 3,177,408
------------
BEVERAGES - 5.2%
100,000 Coca-Cola (The), Company....................... 5,288,000
65,000 Diageo PLC, SP ADR............................. 4,475,900
66,025 PepsiCo, Inc................................... 4,705,602
------------
14,469,502
------------
CAPITAL MARKETS - 4.3%
120,000 AllianceBernstein Holding, LP (b).............. 4,441,200
150,000 Bank of New York Mellon (The) Corp............. 4,887,000
11,500 Goldman Sachs Group (The), Inc................. 1,472,000
20,000 Merrill Lynch & Co., Inc....................... 506,000
60,000 Och-Ziff Capital Management Group, Class A .... 701,400
------------
12,007,600
------------
CHEMICALS - 3.7%
100,000 Dow Chemical (The), Company.................... 3,178,000
120,000 PPG Industries, Inc............................ 6,998,400
------------
10,176,400
------------
COMMUNICATIONS EQUIPMENT - 2.4%
295,200 Cisco Systems, Inc. (c)........................ 6,659,712
------------
COMPUTERS & PERIPHERALS - 1.0%
24,000 International Business Machines Corp........... 2,807,040
------------
CONSUMER FINANCE - 0.5%
25,000 Capital One Financial Corp..................... 1,275,000
------------
DIVERSIFIED FINANCIAL SERVICES - 6.4%
192,500 Bank of America Corp........................... 6,737,500
420,000 CIT Group, Inc................................. 2,923,200
170,000 JPMorgan Chase & Company....................... 7,939,000
------------
17,599,700
------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 8.7%
300,000 Alaska Communications Systems Group, Inc....... 3,669,000
200,000 AT&T, Inc...................................... 5,584,000
249,600 Consolidated Communications Holdings, Inc...... 3,763,968
204,179 FairPoint Communications, Inc.................. 1,770,232
200,000 Frontier Communications Corp................... 2,300,000
221,620 Verizon Communications, Inc.................... 7,111,786
------------
24,198,986
------------
See Notes to Quarterly Portfolio of Investments
Page 1
FIRST TRUST ENHANCED EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (A) - (CONTINUED)
SEPTEMBER 30, 2008 (UNAUDITED)
SHARES DESCRIPTION VALUE
--------- ----------------------------------------------- ------------
COMMON STOCKS - (CONTINUED)
ELECTRIC UTILITIES - 1.4%
100,000 Southern Company............................... $ 3,769,000
------------
ELECTRICAL EQUIPMENT - 2.7%
180,000 Emerson Electric Company....................... 7,342,200
------------
FOOD & STAPLES RETAILING - 1.2%
108,800 Walgreen Company............................... 3,368,448
------------
HEALTHCARE PROVIDERS & SERVICES - 0.2%
30,000 Brookdale Senior Living, Inc................... 659,700
------------
HOTELS, RESTAURANTS & LEISURE - 2.9%
225,000 Carnival Corp.................................. 7,953,750
------------
INDUSTRIAL CONGLOMERATES - 1.8%
190,000 General Electric Company....................... 4,845,000
------------
INSURANCE - 3.4%
20,000 ACE Ltd........................................ 1,082,600
200,000 Genworth Financial, Inc., Class A.............. 1,722,000
30,000 Hartford Financial Services Group, Inc......... 1,229,700
35,000 Lincoln National Corp.......................... 1,498,350
220,000 XL Capital Ltd., Class A ...................... 3,946,800
------------
9,479,450
------------
INTERNET SOFTWARE & SERVICES - 1.2%
145,700 eBay, Inc. (c)................................. 3,260,766
------------
IT SERVICES - 1.2%
100,000 Paychex, Inc................................... 3,303,000
------------
MACHINERY - 2.8%
131,000 Caterpillar, Inc............................... 7,807,600
------------
MARINE - 1.4%
323,051 FreeSeas, Inc.................................. 1,327,739
140,000 Seaspan Corp................................... 2,532,600
------------
3,860,339
------------
MEDIA - 1.6%
350,000 Entercom Communications Corp., Class A......... 1,757,000
175,000 Regal Entertainment Group, Class A............. 2,761,500
------------
4,518,500
------------
MULTILINE RETAIL - 2.1%
121,000 Target Corp.................................... 5,935,050
------------
See Notes to Quarterly Portfolio of Investments
Page 2
FIRST TRUST ENHANCED EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (A) - (CONTINUED)
SEPTEMBER 30, 2008 (UNAUDITED)
SHARES DESCRIPTION VALUE
--------- ----------------------------------------------- ------------
COMMON STOCKS - (CONTINUED)
OIL, GAS & CONSUMABLE FUELS - 17.5%
60,000 BP PLC, SP ADR................................. $ 3,010,200
110,800 Chevron Corp................................... 9,138,784
120,000 ConocoPhillips ................................ 8,790,000
100,000 Copano Energy, LLC............................. 2,446,000
135,000 Exxon Mobil Corp............................... 10,484,100
130,000 Occidental Petroleum Corp...................... 9,158,500
60,000 Total SA, SP ADR .............................. 3,640,800
54,800 Valero Energy Corp............................. 1,660,440
------------
48,328,824
------------
PHARMACEUTICALS - 8.8%
170,000 Abbott Laboratories ........................... 9,788,600
375,000 Bristol-Myers Squibb Company................... 7,818,750
373,100 Pfizer, Inc.................................... 6,879,964
------------
24,487,314
------------
REAL ESTATE INVESTMENT TRUSTS (REITS) - 2.4%
230,000 Annaly Capital Management, Inc................. 3,093,500
550,000 MFA Mortgage Investments, Inc.................. 3,575,000
------------
6,668,500
------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 4.3%
334,800 Intel Corp..................................... 6,270,804
100,000 Microchip Technology, Inc...................... 2,943,000
124,400 Texas Instruments, Inc......................... 2,674,600
------------
11,888,404
------------
SOFTWARE - 1.1%
110,000 Microsoft Corp................................. 2,935,900
------------
THRIFTS & MORTGAGE FINANCE - 0.3%
200,000 Sovereign Bancorp, Inc......................... 790,000
------------
TOBACCO - 2.9%
113,435 Altria Group, Inc.............................. 2,250,550
30,000 Philip Morris International, Inc............... 1,443,000
90,000 Reynolds American, Inc......................... 4,375,800
------------
8,069,350
------------
TRADING COMPANIES & DISTRIBUTORS - 0.7%
200,000 Aircastle Ltd.................................. 1,982,000
------------
TOTAL COMMON STOCKS............................ 277,838,917
(Cost $357,982,278) ------------
TOTAL INVESTMENTS - 100.4%..................... 277,838,917
(Cost $357,982,278) (d)
See Notes to Quarterly Portfolio of Investments
Page 3
FIRST TRUST ENHANCED EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (A) - (CONTINUED)
SEPTEMBER 30, 2008 (UNAUDITED)
NUMBER OF
CONTRACTS DESCRIPTION VALUE
--------- ----------------------------------------------- ------------
CALL OPTIONS WRITTEN - (1.7%)
Abbott Laboratories Calls
1,300 @ 60 due Oct 08................................ $ (84,500)
400 @ 62.5 due Oct 08.............................. (8,000)
------------
(92,500)
------------
Ace Ltd. Call
200 @ 60 due Oct 08................................ (10,000)
------------
Altria Group, Inc. Call
1,134 @ 22 due Oct 08................................ (9,072)
------------
Annaly Capital Management, Inc. Call
2,300 @ 16 due Oct 08................................ (46,000)
------------
AT&T, Inc. Calls
800 @ 31 due Oct 08................................ (12,000)
1,200 @ 32.5 due Oct 08.............................. (8,400)
------------
(20,400)
------------
Bank of America Corp. Call
1,925 @ 35 due Oct 08................................ (446,600)
------------
Bank of New York Mellon (The) Corp. Calls
300 @ 32.5 due Oct 08.............................. (90,300)
400 @ 37.5 due Oct 08.............................. (40,000)
800 @ 35 due Oct 08................................ (168,000)
------------
(298,300)
------------
BP PLC, SP ADR Call
600 @ 55 due Oct 08................................ (36,000)
------------
Bristol-Myers Squibb Company Call
3,250 @ 22.5 due Oct 08.............................. (39,000)
------------
Brookdale Senior Living, Inc. Call
300 @ 20 due Oct 08................................ (60,000)
------------
Capital One Financial Corp. Calls
100 @ 55 due Oct 08................................ (21,200)
150 @ 50 due Oct 08................................ (72,000)
------------
(93,200)
------------
Carnival Corp. Calls
2,050 @ 40 due Oct 08................................ (51,250)
200 @ 37.5 due Oct 08.............................. (12,000)
------------
(63,250)
------------
Caterpillar, Inc. Call
1,310 @ 70 due Oct 08................................ (30,130)
------------
See Notes to Quarterly Portfolio of Investments
Page 4
FIRST TRUST ENHANCED EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (A) - (CONTINUED)
SEPTEMBER 30, 2008 (UNAUDITED)
NUMBER OF
CONTRACTS DESCRIPTION VALUE
--------- ----------------------------------------------- ------------
CALL OPTIONS WRITTEN - (CONTINUED)
Chevron Corp. Calls
500 @ 85 due Oct 08................................ $ (88,500)
608 @ 85 due Nov 08................................ (204,896)
------------
(293,396)
------------
Cisco Systems, Inc. Call
2,950 @ 25 due Oct 08................................ (47,200)
------------
CIT Group. Inc. Calls
2,200 @ 10 due Oct 08................................ (55,000)
2,000 @ 12.5 due Oct 08.............................. (20,000)
------------
(75,000)
------------
ConocoPhillips Calls
300 @ 75 due Oct 08................................ (73,500)
600 @ 80 due Oct 08................................ (51,000)
300 @ 85 due Oct 08................................ (6,000)
------------
(130,500)
------------
Consolidated Communications
Holdings, Inc. Call
2,496 @ 17.5 due Oct 08.............................. (24,960)
------------
Diageo PLC, SP ADR Calls
400 @ 75 due Oct 08................................ (20,000)
250 @ 80 due Oct 08................................ (3,750)
------------
(23,750)
------------
Dow Chemical (The) Company Call
1,000 @ 40 due Dec 08................................ (20,000)
------------
eBay, Inc. Calls
500 @ 24 due Oct 08................................ (32,500)
957 @ 25 due Oct 08................................ (36,366)
------------
(68,866)
------------
Exxon Mobil Corp. Calls
850 @ 80 due Oct 08................................ (154,700)
500 @ 85 due Oct 08................................ (20,000)
------------
(174,700)
------------
FairPoint Communications, Inc. Call
2,041 @ 10 due Oct 08................................ (40,820)
------------
FedEx Corp. Call
402 @ 85 due Oct 08................................ (40,200)
------------
General Electric Company Calls
950 @ 27 due Oct 08................................ (66,500)
950 @ 28 due Oct 08................................ (28,500)
------------
(95,000)
------------
See Notes to Quarterly Portfolio of Investments
Page 5
FIRST TRUST ENHANCED EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (A) - (CONTINUED)
SEPTEMBER 30, 2008 (UNAUDITED)
NUMBER OF
CONTRACTS DESCRIPTION VALUE
--------- ----------------------------------------------- ------------
CALL OPTIONS WRITTEN - (CONTINUED)
Genworth Financial, Inc., Class A Calls
1,000 @ 10 due Oct 08................................ $ (155,000)
1,000 @ 7.5 due Oct 08............................... (260,000)
------------
(415,000)
------------
Goldman Sachs Group (The), Inc. Calls
100 @ 125 due Oct 08............................... (104,000)
15 @ 135 due Oct 08............................... (8,325)
------------
(112,325)
------------
Hartford Financial Services Group, Inc. Calls
100 @ 55 due Oct 08................................ (7,000)
200 @ 60 due Oct 08................................ (4,000)
------------
(11,000)
------------
Honeywell International, Inc. Calls
500 @ 45 due Oct 08................................ (43,000)
1,000 @ 50 due Oct 08................................ (15,000)
------------
(58,000)
------------
International Business Machines Corp. Call
240 @ 120 due Oct 08............................... (67,200)
------------
JPMorgan Chase & Company Call
1,700 @ 45 due Oct 08................................ (544,000)
------------
Lincoln National Corp. Calls
150 @ 50 due Oct 08................................ (24,000)
200 @ 55 due Oct 08................................ (10,000)
------------
(34,000)
------------
Merrill Lynch & Company, Inc. Call
200 @ 29 due Oct 08................................ (12,000)
------------
Microchip Technology, Inc. Call
1,000 @ 35 due Oct 08................................ (10,000)
------------
Microsoft Corp. Call
1,100 @ 28 due Oct 08................................ (48,400)
------------
Occidental Petroleum Corp. Calls
900 @ 80 due Oct 08................................ (94,500)
400 @ 85 due Oct 08................................ (18,000)
------------
(112,500)
------------
Paychex, Inc. Call
1,000 @ 35 due Oct 08................................ (32,500)
------------
PepsiCo, Inc. Call
660 @ 75 due Oct 08................................ (33,000)
------------
Pfizer, Inc. Call
3,731 @ 20 due Oct 08................................ (59,696)
------------
See Notes to Quarterly Portfolio of Investments
Page 6
FIRST TRUST ENHANCED EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (A) - (CONTINUED)
SEPTEMBER 30, 2008 (UNAUDITED)
NUMBER OF
CONTRACTS DESCRIPTION VALUE
--------- ----------------------------------------------- ------------
CALL OPTIONS WRITTEN - (CONTINUED)
Philip Morris International, Inc. Call
300 @ 55 due Oct 08................................ $ (3,000)
------------
PPG Industries, Inc. Calls
500 @ 65 due Oct 08................................ (13,750)
700 @ 70 due Oct 08................................ (7,000)
------------
(20,750)
------------
Reynolds American, Inc. Call
900 @ 55 due Oct 08................................ (9,000)
------------
S&P 500 Index Calls
100 @ 1275 due Oct 08.............................. (50,000)
192 @ 1300 due Oct 08.............................. (51,840)
100 @ 1195 due Oct 08.............................. (270,000)
------------
(371,840)
------------
Southern Company Call
1,000 @ 40 due Oct 08................................ (15,000)
------------
Sovereign Bancorp, Inc. Call
2,000 @ 5 due Oct 08................................. (170,000)
------------
Target Corp. Calls
510 @ 52.5 due Oct 08.............................. (57,120)
700 @ 55 due Oct 08................................ (32,900)
------------
(90,020)
------------
Texas Instruments, Inc. Call
1,240 @ 25 due Oct 08................................ (7,440)
------------
Total SA, SP ADR Call
600 @ 70 due Oct 08................................ (9,000)
------------
United Technologies Corp. Call
642 @ 70 due Oct 08................................ (9,630)
------------
Valero Energy Corp. Call
548 @ 40 due Oct 08................................ (6,028)
------------
Verizon Communications, Inc. Calls
1,000 @ 35 due Oct 08................................ (16,000)
400 @ 32.5 due Oct 08.............................. (28,800)
816 @ 37.5 due Nov 08.............................. (16,320)
------------
(61,120)
------------
Walgreen Company Calls
588 @ 35 due Oct 08................................ (5,880)
500 @ 37.5 due Nov 08.............................. (5,000)
------------
(10,880)
------------
See Notes to Quarterly Portfolio of Investments
Page 7
FIRST TRUST ENHANCED EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (A) - (CONTINUED)
SEPTEMBER 30, 2008 (UNAUDITED)
NUMBER OF
CONTRACTS DESCRIPTION VALUE
--------- ----------------------------------------------- ------------
CALL OPTIONS WRITTEN - (CONTINUED)
XL Capital Ltd. Calls
1,900 @ 20 due Oct 08................................ $ (104,500)
300 @ 17.5 due Oct 08.............................. (37,500)
------------
(142,000)
------------
TOTAL CALL OPTIONS WRITTEN - (1.7)%............ (4,754,173)
(Premiums received $7,613,693)
NET OTHER ASSETS AND LIABILITIES - 1.3%........ 3,704,299
------------
NET ASSETS - 100.0%............................ $276,789,043
============
----------
(a) All percentages shown in the Portfolio of Investments are based on net
assets.
(b) Master Limited Partnership ("MLP")
(c) Non-income producing security.
(d) Aggregate cost for federal income tax and financial reporting purposes. As
of September 30, 2008, the aggregate unrealized appreciation for all
securities in which there was an excess of value over tax cost was $368,021
and the gross unrealized depreciation for all securities in which there was
an excess of tax cost over value was $80,511,382.
SP ADR Sponsored American Depositary Receipt
SECURITY VALUATION INPUTS
A summary of the inputs used to value the Fund's net assets as of September 30,
2008 is as follows (See Note 1A-Portfolio Valuation in the Notes to Quarterly
Portfolio of Investments):
VALUATION INPUTS INVESTMENTS IN SECURITIES
---------------- -------------------------
Level 1 - Quoted Prices - Investments $277,838,917
Level 1 - Quoted Prices - Written Options (4,754,173)
Level 2 - Other Significant Observable Inputs --
Level 3 - Significant Unobservable Inputs --
------------
TOTAL $273,084,744
============
See Notes to Quarterly Portfolio of Investments
Page 8
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS
FIRST TRUST ENHANCED EQUITY INCOME FUND
SEPTEMBER 30, 2008 (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. 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 at market value or, in the absence of
market value with respect to any portfolio securities, at fair value in
accordance with valuation procedures adopted by the Fund's Board of Trustees.
Portfolio securities listed on any exchange other than the NASDAQ National
Market ("NASDAQ") and the London Stock Exchange Alternative Investment Market
("AIM") are valued at the last sale price on the business day as of which such
value is being determined. Securities listed on the NASDAQ or the AIM are valued
at the official closing price on the business day as of which such value is
being determined. If there has been no sale on such day, or no official closing
price in the case of securities traded on the NASDAQ or the AIM, the securities
are valued at the mean of the most recent bid and ask prices on such day.
Portfolio securities traded on more than one securities exchange are valued at
the last sale price or official closing price, as applicable, on the business
day as of which such value is being determined at the close of the exchange
representing the principal market for such securities. Portfolio securities
traded in the over-the-counter market, but excluding securities trading on the
NASDAQ and the AIM, are valued at the closing bid prices. Short-term investments
that mature in less than 60 days when purchased are valued at amortized cost.
The Fund values exchange-traded options and other derivative contracts at the
closing price on the exchange on which they are principally traded, or if not
traded, or no closing price is available, at the mean between the last bid and
asked price.
In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 157, Fair Value Measurements
("FAS 157"), effective for fiscal years beginning after November 15, 2007. This
standard clarifies the definition of fair value for financial reporting,
establishes a framework for measuring fair value and requires additional
disclosures about the use of fair value measurements. FAS 157 became effective
for the Fund as of January 1, 2008, the beginning of its current fiscal year.
The three levels of the fair value hierarchy under FAS 157 are described below:
- Level 1 - quoted prices in active markets for identical securities
- Level 2 - other significant observable inputs (including quoted prices
for similar securities, interest rates, prepayment speeds, credit
risk, etc.)
- Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not necessarily an
indication of the risk associated with investing in those securities. A summary
of the inputs used to value the Fund's net assets as of September 30, 2008 is
included with the Fund's Portfolio of Investments.
B. OPTION CONTRACTS:
COVERED 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 (the "Sub-Advisor" or "Chartwell"), 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 a 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. By writing (selling) options, the Fund
seeks to generate additional income, in the form of premiums received for
writing (selling) the options, and to provide a partial hedge against a market
decline in the underlying equity security. 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,
Page 9
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS - (CONTINUED)
FIRST TRUST ENHANCED EQUITY INCOME FUND
SEPTEMBER 30, 2008 (UNAUDITED)
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 smaller.
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 exercise price. In this case, the
option premium received by the Fund will be added to the amount realized on the
sale of the underlying equity security for purposes of determining gain or loss.
If the price of the underlying equity security is less than the option's
exercise 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 exercise price
on or prior to the option's expiration date. The ability to successfully
implement the Fund's covered call investment strategy depends on the ability of
Chartwell 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 forgoes, 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 exercise price of the option, but has
retained the risk of loss should the price of the underlying security decline.
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.
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.
2. WRITTEN OPTION ACTIVITY
Written option activity for the nine months ended September 30, 2008 was as
follows:
NUMBER
OF
CONTRACTS PREMIUMS
--------- ------------
WRITTEN OPTIONS
Options outstanding at December 31, 2007... 68,218 $ 5,622,371
Options written............................ 737,054 72,302,635
Options expired............................ (208,477) (14,334,472)
Options exercised.......................... (31,788) (2,775,056)
Options closed............................. (494,802) (53,201,785)
-------- ------------
Options outstanding at September 30, 2008.. 70,205 $ 7,613,693
======== ============
Page 10
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/ James A. Bowen
----------------------------------------------------
James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
Date November 24, 2008
-------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ James A. Bowen
----------------------------------------------------
James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
Date November 24, 2008
-------------------
By (Signature and Title)* /s/ Mark R. Bradley
----------------------------------------------------
Mark R. Bradley, Treasurer, Controller, Chief
Financial Officer and Chief Accounting Officer
(principal financial officer)
Date November 24, 2008
-------------------
* Print the name and title of each signing officer under his or her
signature.