UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY
Investment Company Act file number 811-21586
First Trust Enhanced Equity Income Fund
(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
(Name and address of agent for service)
Registrant's telephone number, including area code: (630) 765-8000
Date of fiscal year end: December 31
Date of reporting period: September 30, 2010
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, 2010 (UNAUDITED)
SHARES DESCRIPTION VALUE
--------- ---------------------------------------------------- -------------
COMMON STOCKS - 93.2%
AEROSPACE & DEFENSE - 3.2%
75,900 Honeywell International, Inc. (b)................... $ 3,335,046
64,000 United Technologies Corp............................ 4,558,720
-------------
7,893,766
-------------
AIR FREIGHT & LOGISTICS - 1.1%
40,000 United Parcel Service, Inc., Class B ............... 2,667,600
-------------
BEVERAGES - 5.0%
80,000 Coca-Cola (The) Co.................................. 4,681,600
34,800 Diageo PLC, ADR .................................... 2,401,548
80,000 PepsiCo, Inc. (c)................................... 5,315,200
-------------
12,398,348
-------------
CAPITAL MARKETS - 4.0%
56,300 Ameriprise Financial, Inc........................... 2,664,679
295,000 Apollo Investment Corp. (b)......................... 3,017,850
160,000 Invesco, Ltd........................................ 3,396,800
35,000 Solar Capital, Ltd.................................. 750,750
-------------
9,830,079
-------------
CHEMICALS - 4.8%
100,000 Dow Chemical (The) Co. (b).......................... 2,746,000
90,000 E.I. du Pont de Nemours & Co. (b)................... 4,015,800
70,000 PPG Industries, Inc. (b)............................ 5,096,000
-------------
11,857,800
-------------
COMMERCIAL SERVICES & SUPPLIES - 1.1%
75,000 Waste Management, Inc. (b).......................... 2,680,500
-------------
COMMUNICATIONS EQUIPMENT - 2.2%
245,200 Cisco Systems, Inc. (d)............................. 5,369,880
-------------
COMPUTERS & PERIPHERALS - 4.9%
130,000 Hewlett-Packard Co.................................. 5,469,100
50,000 International Business Machines Corp. (c)........... 6,707,000
-------------
12,176,100
-------------
DIVERSIFIED FINANCIAL SERVICES - 3.5%
147,000 JPMorgan Chase & Co................................. 5,596,290
110,000 NYSE Euronext....................................... 3,142,700
-------------
8,738,990
-------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 2.8%
62,100 AT&T, Inc........................................... 1,776,060
113,005 Frontier Communications Corp........................ 923,251
130,000 Verizon Communications, Inc......................... 4,236,700
-------------
6,936,011
-------------
ELECTRIC UTILITIES - 0.9%
60,000 Southern Co. (c).................................... 2,234,400
-------------
ELECTRICAL EQUIPMENT - 1.5%
69,100 Emerson Electric Co................................. 3,638,806
-------------
See Notes to Quarterly Portfolio of Investments
Page 1
FIRST TRUST ENHANCED EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
SEPTEMBER 30, 2010 (UNAUDITED)
SHARES DESCRIPTION VALUE
--------- ---------------------------------------------------- -------------
COMMON STOCKS - (CONTINUED)
FOOD & STAPLES RETAILING - 1.8%
75,000 CVS Caremark Corp................................... $ 2,360,250
70,000 Sysco Corp.......................................... 1,996,400
-------------
4,356,650
-------------
FOOD PRODUCTS - 0.6%
50,000 Kraft Foods, Inc., Class A (b) ..................... 1,543,000
-------------
HOTELS, RESTAURANTS & LEISURE - 2.0%
60,000 Carnival Corp. (b).................................. 2,292,600
35,000 McDonald's Corp. (c)................................ 2,607,850
-------------
4,900,450
-------------
INDUSTRIAL CONGLOMERATES - 2.4%
40,000 3M Co. (b).......................................... 3,468,400
160,000 General Electric Co................................. 2,600,000
-------------
6,068,400
-------------
INSURANCE - 4.9%
62,500 ACE Ltd............................................. 3,640,625
120,000 Lincoln National Corp............................... 2,870,400
85,000 MetLife, Inc........................................ 3,268,250
45,000 Prudential Financial, Inc........................... 2,438,100
-------------
12,217,375
-------------
IT SERVICES - 0.5%
50,000 Paychex, Inc........................................ 1,374,500
-------------
LEISURE EQUIPMENT & PRODUCTS - 1.0%
110,000 Mattel, Inc......................................... 2,580,600
-------------
MACHINERY - 2.2%
70,000 Caterpillar, Inc. (c)............................... 5,507,600
-------------
MARINE - 1.3%
50,000 Nordic American Tanker Shipping, Ltd.. ............. 1,338,000
150,000 Seaspan Corp........................................ 1,851,000
-------------
3,189,000
-------------
MEDIA - 1.4%
200,000 Regal Entertainment Group, Class A ................. 2,624,000
25,500 Walt Disney (The) Co................................ 844,305
-------------
3,468,305
-------------
MULTILINE RETAIL - 3.4%
120,000 J.C. Penney Co., Inc................................ 3,261,600
95,000 Target Corp......................................... 5,076,800
-------------
8,338,400
-------------
OIL, GAS & CONSUMABLE FUELS - 8.0%
40,000 Chevron Corp........................................ 3,242,000
120,000 Exxon Mobil Corp.................................... 7,414,800
115,000 Occidental Petroleum Corp........................... 9,004,500
-------------
19,661,300
-------------
PAPER & FOREST PRODUCTS - 0.9%
100,000 International Paper Co. (b)......................... 2,175,000
-------------
See Notes to Quarterly Portfolio of Investments
Page 2
FIRST TRUST ENHANCED EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
SEPTEMBER 30, 2010 (UNAUDITED)
SHARES DESCRIPTION VALUE
--------- ---------------------------------------------------- -------------
COMMON STOCKS - (CONTINUED)
PERSONAL PRODUCTS - 1.6%
120,000 Avon Products, Inc.................................. $ 3,853,200
-------------
PHARMACEUTICALS - 8.8%
95,000 Abbott Laboratories (b)............................. 4,962,800
290,000 Bristol-Myers Squibb Co. (b) ....................... 7,861,900
100,000 Merck & Co., Inc.................................... 3,681,000
300,000 Pfizer, Inc......................................... 5,151,000
-------------
21,656,700
-------------
REAL ESTATE INVESTMENT TRUSTS (REITS) - 2.1%
184,300 Annaly Capital Management, Inc...................... 3,243,680
250,000 MFA Mortgage Investments, Inc....................... 1,907,500
-------------
5,151,180
-------------
RETAIL - 0.8%
97,000 Staples, Inc........................................ 2,029,240
-------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 6.1%
457,300 Intel Corp.......................................... 8,793,879
200,000 Microchip Technology, Inc. (b)...................... 6,290,000
-------------
15,083,879
-------------
SOFTWARE - 2.0%
200,000 Microsoft Corp...................................... 4,898,000
-------------
SPECIALTY RETAIL - 2.2%
65,000 Best Buy Co., Inc. (c).............................. 2,653,950
100,000 Limited Brands, Inc. (b)............................ 2,678,000
-------------
5,331,950
-------------
TOBACCO - 2.7%
160,000 Altria Group, Inc................................... 3,843,200
50,000 Philip Morris International, Inc.................... 2,801,000
-------------
6,644,200
-------------
WATER UTILITIES - 0.7%
74,200 American Water Works Co., Inc....................... 1,726,634
-------------
WIRELESS TELECOMMUNICATION SERVICES - 0.8%
80,000 Vodafone Group PLC, ADR (b)......................... 1,984,800
-------------
TOTAL COMMON STOCKS
(Cost $238,878,211)................................. 230,162,643
-------------
SHARES/
UNITS DESCRIPTION VALUE
--------- ---------------------------------------------------- -------------
MASTER LIMITED PARTNERSHIPS - 4.5%
OIL, GAS & CONSUMABLE FUELS - 4.5%
80,000 Copano Energy, LLC ................................. 2,192,800
90,000 Energy Transfer Partners, L.P.. .................... 4,345,200
40,000 Enterprise Products Partners, L.P................... 1,586,800
60,000 Magellan Midstream Partners, L.P.................... 3,087,000
-------------
TOTAL MASTER LIMITED PARTNERSHIPS
(Cost $7,346,613) .................................. 11,211,800
-------------
See Notes to Quarterly Portfolio of Investments
Page 3
FIRST TRUST ENHANCED EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
SEPTEMBER 30, 2010 (UNAUDITED)
SHARES/
UNITS DESCRIPTION VALUE
--------- ---------------------------------------------------- -------------
EXCHANGE-TRADED FUNDS - 2.5%
CAPITAL MARKETS - 2.5%
264,200 SPDR KBW Bank ETF (b)............................... $ 6,063,390
-------------
TOTAL EXCHANGE-TRADED FUNDS
(Cost $3,925,808)................................... 6,063,390
-------------
TOTAL INVESTMENTS - 100.2%
(Cost $250,150,632) (e)............................. 247,437,833
-------------
NUMBER OF
CONTRACTS DESCRIPTION VALUE
--------- ---------------------------------------------------- -------------
CALL OPTIONS WRITTEN - (0.6%)
3M Co. Call
200 @ 90 due Oct 10 .................................... (6,800)
-------------
Abbott Laboratories Call
500 @ 52.5 due Oct 10 .................................. (23,000)
-------------
Apollo Investment Corp. Call
251 @ 11 due Oct 10 .................................... (2,510)
-------------
Best Buy Co., Inc. Calls
250 @ 40 due Oct 10 .................................... (35,750)
400 @ 41 due Oct 10 .................................... (33,200)
-------------
(68,950)
-------------
Bristol-Myers Squibb Co. Call
1,000 @ 28 due Oct 10 .................................... (12,000)
-------------
Carnival Corp. Call
400 @ 38 due Oct 10 .................................... (40,000)
-------------
Caterpillar, Inc. Call
700 @ 80 due Oct 10 .................................... (93,800)
-------------
Dow Chemical (The) Co. Call
300 @ 28 due Oct 10 .................................... (12,900)
-------------
E.I. du Pont de Nemours & Co. Call
800 @ 45 due Oct 10 .................................... (52,000)
-------------
Honeywell International, Inc. Calls
150 @ 45 due Oct 10 .................................... (7,950)
300 @ 46 due Oct 10 .................................... (6,900)
-------------
(14,850)
-------------
International Business Machines Corp. Call
500 @ 140 due Oct 10 ................................... (11,500)
-------------
See Notes to Quarterly Portfolio of Investments
Page 4
FIRST TRUST ENHANCED EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
SEPTEMBER 30, 2010 (UNAUDITED)
NUMBER OF
CONTRACTS DESCRIPTION VALUE
--------- ---------------------------------------------------- -------------
CALL OPTIONS WRITTEN - (CONTINUED)
International Paper Co. Calls
150 @ 23 due Oct 10 .................................... $ (3,450)
350 @ 24 due Oct 10 .................................... (2,800)
-------------
(6,250)
-------------
Kraft Foods, Inc., Class A Call
300 @ 32 due Oct 10 .................................... (2,100)
-------------
Limited Brands, Inc. Calls
400 @ 28 due Oct 10 .................................... (12,000)
400 @ 29 due Oct 10 .................................... (4,000)
-------------
(16,000)
-------------
McDonald's Corp. Call
350 @ 75 due Oct 10 .................................... (22,050)
-------------
Microchip Technology, Inc. Call
500 @ 32 due Oct 10 .................................... (17,500)
-------------
PepsiCo, Inc. Call
800 @ 67.5 due Oct 10 .................................. (42,400)
-------------
PPG Industries, Inc. Call
400 @ 75 due Oct 10 .................................... (22,000)
-------------
S&P 500 Index Call (f)
890 @ 1150 due Oct 10 .................................. (1,107,000)
-------------
Southern Co. Call
600 @ 38 due Oct 10 .................................... (6,600)
-------------
SPDR KBW Bank ETF Call
1,000 @ 24 due Oct 10 .................................... (15,000)
-------------
Vodafone Group PLC, ADR Call
130 @ 25 due Oct 10 .................................... (4,550)
-------------
Waste Management, Inc. Call
250 @ 36 due Oct 10 .................................... (8,750)
-------------
TOTAL CALL OPTIONS WRITTEN - (0.6)%
(Premiums received $1,608,383) ..................... (1,608,510)
-------------
NET OTHER ASSETS AND LIABILITIES - 0.4% ............ 1,061,561
-------------
NET ASSETS - 100.0% ................................ $ 246,890,884
=============
See Notes to Quarterly Portfolio of Investments
Page 5
FIRST TRUST ENHANCED EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
SEPTEMBER 30, 2010 (UNAUDITED)
(a) All percentages shown in the Portfolio of Investments are based on net
assets.
(b) Call options were written on a portion of the common stock position and are
fully covered by the common stock position.
(c) Call options were written on this entire common stock position and are
fully covered by the common stock position.
(d) Non-income producing security.
(e) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of September 30, 2010,
the aggregate gross unrealized appreciation for all securities in which
there was an excess of value over tax cost was $20,058,689 and the
aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over value was $22,771,488.
(f) Call options on securities indices were written on a portion of the common
stock positions that were not used to cover call options on individual
equity securities held in the Fund's portfolio.
ADR American Depositary Receipt
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of September 30,
2010 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
9/30/2010 PRICES INPUTS INPUTS
------------ ------------ ----------- ------------
Common Stocks* ................ $230,162,643 $230,162,643 $-- $--
Master Limited Partnerships* .. 11,211,800 11,211,800 -- --
Exchange-Traded Funds* ........ 6,063,390 6,063,390 -- --
------------ ------------ --- ---
Total Investments ............. $247,437,833 $247,437,833 $-- $--
============ ============ === ===
LIABILITIES TABLE
--------------------------------------------------------
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
9/30/2010 PRICES INPUTS INPUTS
------------ ------------ ----------- ------------
Call Options Written .......... $(1,608,510) $(1,608,510) $-- $--
=========== =========== === ===
* See the Portfolio of Investments for industry breakdown.
See Notes to Quarterly Portfolio of Investments
Page 6
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS
FIRST TRUST ENHANCED EQUITY INCOME FUND
SEPTEMBER 30, 2010 (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 according
to procedures adopted by the Fund's Board of Trustees. A majority of the Fund's
assets are valued using market information supplied by third parties. In the
event that market quotations are not readily available, the pricing service does
not provide a valuation for a particular asset, or the valuations 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
and other investments. Additionally, if events occur after the close of the
principal markets for particular securities (e.g., domestic debt and foreign
securities), but before the Fund values its assets, that could materially affect
NAV, First Trust may use a fair value method to value the Fund's securities and
other investments. The use of fair value pricing by the Fund is governed by
valuation procedures adopted by the Fund's Board of Trustees, and in accordance
with the provisions of the Investment Company Act of 1940, as amended (the "1940
Act").
Portfolio securities listed on any exchange other than the NASDAQ National
Market ("NASDAQ") are valued at the last sale 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, the
securities are valued at the mean of the most recent bid and asked prices on
such day. Securities traded on the NASDAQ are valued at the NASDAQ Official
Closing Price as determined by NASDAQ. Portfolio securities listed on more than
one securities exchange are valued at the last sale price 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 traded on the
NASDAQ, 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. Over-the-counter options and futures contracts are valued at their
closing bid prices.
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:
- Level 1 - Level 1 inputs are quoted prices in active markets for
identical securities. An active market is a market in
which transactions for the security occur with sufficient
frequency and volume to provide pricing information on an
ongoing basis.
- Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
- Quoted prices for similar securities in active markets.
- Quoted prices for identical or similar securities in
markets that are non-active. A non-active market is a
market where there are few transactions for the
security, 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.
- Inputs other than quoted prices that are observable for
the security (for example, interest rates and yield
curves observable at commonly quoted intervals,
volatilities, prepayment speeds, loss severities,
credit risks, and default rates).
- Inputs that are derived principally from or
corroborated by observable market data by correlation
or other means.
- Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs reflect the reporting entity's own assumptions
about the assumptions that market participants would use in
pricing the security.
Page 7
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS - (CONTINUED)
FIRST TRUST ENHANCED EQUITY INCOME FUND
SEPTEMBER 30, 2010 (UNAUDITED)
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 investments as of September 30, 2010, is
included with the Fund's Portfolio of Investments.
B. WRITTEN 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 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, 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 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 strike 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.
The Fund is subject to equity price risk in the normal course of pursuing its
investment objective. Over-the-Counter ("OTC") options have the risk of the
potential inability of counterparties to meet the terms of their contracts. The
Fund's maximum equity price risk for purchased options is limited to the premium
initially paid. In addition, certain risks may arise upon entering into option
contracts including the risk that an illiquid secondary market will limit the
Fund's ability to close out an option contract prior to the expiration date and
that a change in the value of the option contract may not correlate exactly with
changes in the value of the securities hedged.
C. SECURITIES TRANSACTIONS:
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Page 8
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS - (CONTINUED)
FIRST TRUST ENHANCED EQUITY INCOME FUND
SEPTEMBER 30, 2010 (UNAUDITED)
The Fund may hold publicly-traded master limited partnerships ("MLPs") and real
estate investment trusts ("REITs"). Distributions from such investments may
include a return of capital component from the MLP or REIT to the extent of the
cost basis of such MLP or REIT investments.
2. WRITTEN OPTION ACTIVITY
Written option activity for the nine months ended September 30, 2010 was as
follows:
NUMBER
OF
WRITTEN OPTIONS CONTRACTS PREMIUMS
--------------- --------- -----------
Options outstanding at December 31, 2009 .... 24,445 $ 2,227,651
Options written ............................. 190,123 17,705,946
Options expired. ............................ (104,962) (9,024,771)
Options exercised ........................... (11,997) (655,873)
Options closed .............................. (85,338) (8,644,570)
-------- -----------
Options outstanding at September 30, 2010.... 12,271 $ 1,608,383
======== ===========
3. SUBSEQUENT EVENT
On October 12, 2010, First Trust announced that James A. Bowen, its President,
acquired 100% of the voting stock of The Charger Corporation, the general
partner of First Trust (the "Transaction"). First Trust is a limited partnership
with one limited partner and one general partner (The Charger Corporation). The
Transaction is not expected to impact the day-to-day operations of the Fund. The
consummation of the Transaction is deemed to be an "assignment" (as defined in
the 1940 Act) of the Fund's investment management agreement and investment
sub-advisory agreement and resulted in the automatic termination of the
agreements.
The Board of Trustees of the Fund has approved an interim investment management
agreement with First Trust and an interim investment sub-advisory agreement with
Chartwell, which were entered into effective upon the closing of the Transaction
and will be in effect for a maximum period of 150 days. A new investment
management agreement with First Trust and a new investment sub-advisory
agreement with Chartwell has been approved by the Board of Trustees of the Fund
and will be submitted to shareholders of the Fund as of the record date
(September 30, 2010) for approval and will take effect upon such shareholder
approval. A special shareholder meeting of the Fund to vote on a proposal to
approve the new investment management and the new investment sub-advisory
agreement is expected to be held on December 6, 2010.
Page 9
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 23, 2010
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 23, 2010
By (Signature and Title)* /s/ Mark R. Bradley
------------------------------------------------------
Mark R. Bradley, Treasurer, Chief Financial Officer
and Chief Accounting Officer
(principal financial officer)
Date November 23, 2010
* Print the name and title of each signing officer under his or her
signature.