Form N-Q FIRST TRUST ENHANCED For: Mar 31
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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: March 31, 2016
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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
MARCH 31, 2016 (UNAUDITED)
SHARES DESCRIPTION VALUE
--------------- --------------------------------------------- ---------------
COMMON STOCKS - 96.0%
AEROSPACE & DEFENSE - 3.1%
58,000 Honeywell International, Inc. (a)............ $ 6,498,900
20,000 Raytheon Co. (a)............................. 2,452,600
---------------
8,951,500
---------------
AIR FREIGHT & LOGISTICS - 1.6%
28,000 FedEx Corp. (a).............................. 4,556,160
---------------
AUTOMOBILES - 1.4%
130,000 General Motors Co. (a)....................... 4,085,900
---------------
BANKS - 7.4%
200,000 Bank of America Corp. (a).................... 2,704,000
33,500 First Republic Bank CA....................... 2,232,440
135,000 JPMorgan Chase & Co. (a)..................... 7,994,700
28,000 M&T Bank Corp. (a)........................... 3,108,000
115,000 Wells Fargo & Co. (a)........................ 5,561,400
---------------
21,600,540
---------------
BEVERAGES - 3.9%
37,500 Anheuser-Busch InBev N.V., ADR (a)........... 4,674,750
65,000 PepsiCo, Inc. (a)............................ 6,661,200
---------------
11,335,950
---------------
BIOTECHNOLOGY - 2.5%
30,000 Celgene Corp. (a) (b)........................ 3,002,700
48,700 Gilead Sciences, Inc. (a).................... 4,473,582
---------------
7,476,282
---------------
CAPITAL MARKETS - 2.1%
8,000 BlackRock, Inc. (a).......................... 2,724,560
125,000 Charles Schwab (The) Corp. (a)............... 3,502,500
---------------
6,227,060
---------------
CHEMICALS - 1.6%
30,000 LyondellBasell Industries N.V., Class A...... 2,567,400
20,000 PPG Industries, Inc.......................... 2,229,800
---------------
4,797,200
---------------
COMMUNICATIONS EQUIPMENT - 1.9%
200,000 Cisco Systems, Inc. (a)...................... 5,694,000
---------------
CONSUMER FINANCE - 1.4%
66,500 American Express Co. (a)..................... 4,083,100
---------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 2.4%
100,000 AT&T, Inc. (a)............................... 3,917,000
32,000 SBA Communications Corp., Class A (a) (b).... 3,205,440
---------------
7,122,440
---------------
ELECTRIC UTILITIES - 1.4%
110,000 PPL Corp. (a)................................ 4,187,700
---------------
See Notes to Portfolio of Investments
FIRST TRUST ENHANCED EQUITY INCOME FUND (FFA)
PORTFOLIO OF INVESTMENTS(CONTINUED)
MARCH 31, 2016 (UNAUDITED)
SHARES DESCRIPTION VALUE
--------------- --------------------------------------------- ---------------
COMMON STOCKS (CONTINUED)
ENERGY EQUIPMENT & SERVICES - 2.4%
75,000 National Oilwell Varco, Inc. (a)............. $ 2,332,500
125,000 Noble Corp. PLC.............................. 1,293,750
46,000 Schlumberger, Ltd. (a)....................... 3,392,500
---------------
7,018,750
---------------
FOOD & STAPLES RETAILING - 3.3%
25,000 Costco Wholesale Corp. (a)................... 3,939,500
55,000 CVS Health Corp. (a)......................... 5,705,150
---------------
9,644,650
---------------
FOOD PRODUCTS - 1.1%
40,000 Kraft Heinz (The) Co......................... 3,142,400
---------------
HEALTH CARE EQUIPMENT & SUPPLIES - 1.9%
75,000 Medtronic PLC (a)............................ 5,625,000
---------------
HEALTH CARE PROVIDERS & SERVICES - 2.0%
29,000 Cardinal Health, Inc. (a).................... 2,376,550
28,000 UnitedHealth Group, Inc. (a)................. 3,609,200
---------------
5,985,750
---------------
HOTELS, RESTAURANTS & LEISURE - 2.0%
110,000 Carnival Corp. (a)........................... 5,804,700
---------------
HOUSEHOLD DURABLES - 1.4%
95,000 Newell Rubbermaid, Inc....................... 4,207,550
---------------
INDUSTRIAL CONGLOMERATES - 3.6%
330,000 General Electric Co. (a)..................... 10,490,700
---------------
INSURANCE - 4.0%
75,000 Arthur J. Gallagher & Co. (a)................ 3,336,000
40,000 Chubb, Ltd. (a).............................. 4,766,000
80,000 MetLife, Inc. (a)............................ 3,515,200
---------------
11,617,200
---------------
IT SERVICES - 1.8%
57,500 Automatic Data Processing, Inc. (a).......... 5,158,325
---------------
LIFE SCIENCES TOOLS & SERVICES - 1.9%
40,000 Thermo Fisher Scientific, Inc. (a)........... 5,663,600
---------------
MEDIA - 3.9%
72,500 CBS Corp., Class B (a)....................... 3,994,025
70,000 Cinemark Holdings, Inc. (a).................. 2,508,100
80,000 Comcast Corp., Class A (a)................... 4,886,400
---------------
11,388,525
---------------
OIL, GAS & CONSUMABLE FUELS - 4.8%
42,000 Chevron Corp. (a)............................ 4,006,800
25,000 Exxon Mobil Corp. (a)........................ 2,089,750
65,000 HollyFrontier Corp........................... 2,295,800
120,000 Marathon Oil Corp. (a)....................... 1,336,800
See Notes to Portfolio of Investments
FIRST TRUST ENHANCED EQUITY INCOME FUND (FFA)
PORTFOLIO OF INVESTMENTS(CONTINUED)
MARCH 31, 2016 (UNAUDITED)
SHARES DESCRIPTION VALUE
--------------- --------------------------------------------- ---------------
COMMON STOCKS (CONTINUED)
OIL, GAS & CONSUMABLE FUELS (CONTINUED)
62,000 Occidental Petroleum Corp. (a)............... $ 4,242,660
---------------
13,971,810
---------------
PHARMACEUTICALS - 6.1%
12,500 Allergan PLC (a) (b)......................... 3,350,375
130,000 Merck & Co., Inc. (a)........................ 6,878,300
260,000 Pfizer, Inc. (a)............................. 7,706,400
---------------
17,935,075
---------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT - 5.0%
160,000 Intel Corp. (a).............................. 5,176,000
80,000 Microchip Technology, Inc. (a)............... 3,856,000
130,000 Micron Technology, Inc. (b).................. 1,361,100
121,500 NVIDIA Corp.................................. 4,329,045
---------------
14,722,145
---------------
SOFTWARE - 6.5%
58,500 Check Point Software Technologies Ltd. (a)
(b)....................................... 5,116,995
155,000 Microsoft Corp. (a).......................... 8,560,650
130,000 Oracle Corp. (a)............................. 5,318,300
---------------
18,995,945
---------------
SPECIALTY RETAIL - 1.3%
45,000 L Brands, Inc. (a)........................... 3,951,450
---------------
TECHNOLOGY HARDWARE, STORAGE &
PERIPHERALS - 4.6%
125,000 Apple, Inc. (a).............................. 13,623,750
---------------
TEXTILES, APPAREL & LUXURY GOODS - 2.7%
52,500 NIKE, Inc., Class B.......................... 3,227,175
72,500 VF Corp. (a)................................. 4,695,100
---------------
7,922,275
---------------
TOBACCO - 4.0%
95,000 Altria Group, Inc. (a)....................... 5,952,700
60,000 Philip Morris International, Inc. (a)........ 5,886,600
---------------
11,839,300
---------------
WATER UTILITIES - 1.0%
43,500 American Water Works Co., Inc. (a)........... 2,998,455
---------------
TOTAL COMMON STOCKS.......................... 281,825,187
(Cost $253,370,201) ---------------
REAL ESTATE INVESTMENT TRUSTS - 2.4%
65,000 Lamar Advertising Co., Class A (a)........... 3,997,500
15,000 Simon Property Group, Inc.................... 3,115,350
---------------
TOTAL REAL ESTATE INVESTMENT TRUSTS.......... 7,112,850
(Cost $6,297,299) ---------------
See Notes to Portfolio of Investments
FIRST TRUST ENHANCED EQUITY INCOME FUND (FFA)
PORTFOLIO OF INVESTMENTS(CONTINUED)
MARCH 31, 2016 (UNAUDITED)
SHARES/
UNITS DESCRIPTION VALUE
--------------- --------------------------------------------- ---------------
MASTER LIMITED PARTNERSHIPS - 1.5%
OIL, GAS & CONSUMABLE FUELS - 1.5%
55,000 Energy Transfer Partners, L.P. (a)........... $ 1,778,700
100,000 Enterprise Products Partners, L.P. (a)....... 2,462,000
---------------
TOTAL MASTER LIMITED PARTNERSHIPS............ 4,240,700
(Cost $2,933,495) ---------------
TOTAL INVESTMENTS - 99.9%.................... 293,178,737
(Cost $262,600,995) (c) ---------------
NUMBER OF
CONTRACTS DESCRIPTION VALUE
--------------- --------------------------------------------- ---------------
CALL OPTIONS WRITTEN - (0.2%)
Apple, Inc. Call
300 @ $110.00 due April 2016..................... (37,500)
---------------
Automatic Data Processing, Inc. Call
225 @ 90.00 due April 2016..................... (20,475)
---------------
BlackRock, Inc. Call
70 @ 360.00 due April 2016..................... (5,320)
---------------
Carnival Corp. Call
400 @ 52.50 due April 2016..................... (46,000)
---------------
Cisco Systems, Inc. Call
400 @ 29.00 due April 2016..................... (3,600)
---------------
Energy Transfer Partners, L.P. Call
125 @ 32.00 due April 2016..................... (16,500)
---------------
FedEx Corp. Call
100 @ 170.00 due April 2016..................... (2,300)
---------------
General Electric Co. Call
1,000 @ 32.00 due April 2016..................... (27,000)
---------------
HollyFrontier Corp. Call
325 @ 38.00 due April 2016..................... (3,250)
---------------
Honeywell International, Inc. Call
125 @ 115.00 due April 2016..................... (4,500)
---------------
Intel Corp. Call
500 @ 34.00 due April 2016..................... (2,000)
---------------
JPMorgan Chase & Co. Call
400 @ 62.50 due April 2016..................... (4,400)
---------------
See Notes to Portfolio of Investments
FIRST TRUST ENHANCED EQUITY INCOME FUND (FFA)
PORTFOLIO OF INVESTMENTS(CONTINUED)
MARCH 31, 2016 (UNAUDITED)
NUMBER OF
CONTRACTS DESCRIPTION VALUE
--------------- --------------------------------------------- ---------------
CALL OPTIONS WRITTEN (CONTINUED)
L Brands, Inc. Call
150 @ $ 90.00 due April 2016..................... $ (7,500)
---------------
LyondellBasell Industries N.V., Class A Call
125 @ 92.50 due April 2016..................... (1,250)
---------------
Microchip Technology, Inc. Calls
300 @ 49.00 due April 2016..................... (18,000)
200 @ 50.00 due April 2016..................... (6,800)
---------------
(24,800)
---------------
Microsoft Corp. Call
350 @ 55.00 due April 2016..................... (32,900)
---------------
NIKE, Inc. Call
150 @ 67.50 due April 2016..................... (300)
---------------
Noble Corp. PLC Call
600 @ 14.00 due April 2016..................... (1,800)
---------------
NVIDIA Corp. Calls
240 @ 36.00 due May 2016....................... (43,920)
245 @ 38.00 due May 2016....................... (27,685)
245 @ 40.00 due May 2016....................... (12,250)
---------------
(83,855)
---------------
Oracle Corp. Call
400 @ 42.00 due April 2016..................... (4,800)
---------------
Philip Morris International, Inc. Call
300 @ 100.00 due April 2016..................... (10,200)
---------------
PPL Corp. Call
400 @ 38.00 due April 2016..................... (16,000)
---------------
S&P 500 Index Calls (d)
150 @ 2,080.00 due April 2016.................. (130,200)
350 @ 2,095.00 due April 2016.................. (124,250)
150 @ 2,130.00 due May 2016.................... (93,750)
---------------
(348,200)
---------------
TOTAL CALL OPTIONS WRITTEN................... (704,450)
(Premiums received $864,382) ---------------
NET OTHER ASSETS AND LIABILITIES - 0.3%...... 1,036,347
---------------
NET ASSETS - 100.0%.......................... $ 293,510,634
===============
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(a) All or a portion of this security is pledged to cover index call options
written.
(b) Non-income producing security.
See Notes to Portfolio of Investments
FIRST TRUST ENHANCED EQUITY INCOME FUND (FFA)
PORTFOLIO OF INVESTMENTS(CONTINUED)
MARCH 31, 2016 (UNAUDITED)
(c) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of March 31, 2016, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $45,263,453 and the aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over value was $14,685,711.
(d) Call options on securities indices were written on a portion of the common
stock positions that were not used to cover call options written on
individual equity securities held in the Fund's portfolio.
ADR American Depositary Receipt
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of March 31,
2016 is as follows (see Note 2A - Portfolio Valuation in the Notes to Portfolio
of Investments):
ASSETS TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
INVESTMENTS 3/31/2016 PRICES INPUTS INPUTS
---------------------------------------------- --------------- ------------- --------------- --------------
Common Stocks*................................ $ 281,825,187 $ 281,825,187 $ -- $ --
Real Estate Investment Trusts................. 7,112,850 7,112,850 -- --
Master Limited Partnerships*.................. 4,240,700 4,240,700 -- --
--------------- ------------- --------------- --------------
Total Investments............................. $ 293,178,737 $ 293,178,737 $ -- $ --
=============== ============= =============== ==============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE OBSERVABLE
3/31/2016 PRICES INPUTS INPUTS
--------------- ------------- --------------- --------------
Call Options Written.......................... $ (704,450) $ (704,450) $ -- $ --
=============== ============= =============== ==============
* See 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 March 31, 2016.
See Notes to Portfolio of Investments
NOTES TO PORTFOLIO OF INVESTMENTS
FIRST TRUST ENHANCED EQUITY INCOME FUND (FFA)
MARCH 31, 2016 (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 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").
The Fund, which is an investment company within the scope of Financial
Accounting Standards Board ("FASB") Accounting Standards Update 2013-08, follows
accounting and reporting guidance under FASB Accounting Standards Codification
Topic 946, "Financial Services-Investment Companies."
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 Fund's 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. Market
value prices represent last sale or official closing prices from a national or
foreign exchange (i.e., a regulated market) and are primarily obtained from
third-party pricing services. Fair value prices represent any prices not
considered market value prices and are either obtained from a third-party
pricing service or are determined by the Pricing Committee of the Fund's
investment advisor, First Trust Advisors L.P. ("First Trust" or the "Advisor"),
in accordance with valuation procedures adopted by the Fund's Board of Trustees,
and in accordance with provisions of the 1940 Act. Investments valued by the
Advisor's Pricing Committee, if any, are footnoted as such in the footnotes to
the Portfolio of Investments. The Fund's investments are valued as follows:
Common stocks, real estate investment trusts, master limited partnerships,
exchange-traded funds and other equity securities listed on any national
or foreign exchange (excluding The Nasdaq 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 an over-the-counter market are fair valued at the
mean of their most recent bid and asked price, if available, and otherwise
at their closing bid price.
Exchange-traded options 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 contracts are fair valued at the mean
of their most recent bid and asked price, if available, and otherwise at
their closing bid price. Over-the-counter options contracts are fair
valued at the mean of their most recent bid and asked price, if available,
and otherwise at their closing bid price.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Fund's Board of Trustees or its
delegate, the Advisor's Pricing Committee, 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 or fair value 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 the 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. When fair value prices are used, generally they will differ from
market quotations or official closing prices on the applicable exchanges. 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;
NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED)
FIRST TRUST ENHANCED EQUITY INCOME FUND (FFA)
MARCH 31, 2016 (UNAUDITED)
6) relationships among various securities;
7) information obtained by contacting the issuer, analysts, or the
appropriate stock exchange;
8) an analysis of the issuer's financial statements; and
9) the existence of merger proposals or tender offers that might affect
the value of the security.
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
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 methodologies used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of March 31, 2016, 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, LLC ("Chartwell" or the
"Sub-Advisor"), consistent with the Fund's investment objective. The number of
options the Fund can write (sell) is limited by the amount of equity securities
the Fund holds in its portfolio. Options on securities indices are designed to
reflect price fluctuations in a group of securities or segment of the securities
market rather than price fluctuations in a single security and are similar to
options on single securities, except that the exercise of securities index
options requires cash settlement payments and does not involve the actual
purchase or sale of securities. The Fund will not write (sell) "naked" or
uncovered options. If certain equity securities held in the Fund's portfolio are
not covered by a related call option on the individual equity security,
securities index options may be written on all or a portion of such uncovered
securities. Options are marked-to-market daily and their value will be affected
by changes in the value and dividend rates of the underlying equity securities,
changes in interest rates, changes in the actual or perceived volatility of the
securities markets and the underlying equity securities and the remaining time
to the options' expiration. The value of options may also be adversely affected
if the market for the options becomes less liquid or trading volume diminishes.
Options the Fund writes (sells) will either be exercised, expire or be cancelled
pursuant to a closing transaction. If the price of the underlying equity
security exceeds the option's exercise price, it is likely that the option
holder will exercise the option. If an option written (sold) by the Fund is
exercised, the Fund would be obligated to deliver the underlying equity security
to the option holder upon payment of the strike price. In this case, the option
premium received by the Fund will be added to the amount realized on the sale of
the underlying security for purposes of determining gain or loss. If the price
of the underlying equity security is less than the option's strike price, the
option will likely expire without being exercised. The option premium received
by the Fund will, in this case, be treated as short-term capital gain on the
expiration date of the option. The Fund may also elect to close out its position
in an option prior to its expiration by purchasing an option of the same series
as the option written (sold) by the Fund.
NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED)
FIRST TRUST ENHANCED EQUITY INCOME FUND (FFA)
MARCH 31, 2016 (UNAUDITED)
The options that the Fund writes (sells) give the option holder the right, but
not the obligation, to purchase a security from the Fund at the strike price on
or prior to the option's expiration date. The ability to successfully implement
the writing (selling) of covered call options depends on the ability of the
Sub-Advisor to predict pertinent market movements, which cannot be assured.
Thus, the use of options may require the Fund to sell portfolio securities at
inopportune times or for prices other than current market value, which may limit
the amount of appreciation the Fund can realize on an investment, or may cause
the Fund to hold a security that it might otherwise sell. As the writer (seller)
of a covered option, the Fund foregoes, during the option's life, the
opportunity to profit from increases in the market value of the security
covering the option above the sum of the premium and the strike price of the
option, but has retained the risk of loss should the price of the underlying
security decline. The writer (seller) of an option has no control over the time
when it may be required to fulfill its obligation as a writer (seller) of the
option. Once an option writer (seller) has received an exercise notice, it
cannot effect a closing purchase transaction in order to terminate its
obligation under the option and must deliver the underlying security to the
option holder at the exercise price.
Over-the-counter options have the risk of the potential inability of
counterparties to meet the terms of their contracts. The Fund's maximum equity
price risk for purchased options is limited to the premium initially paid. In
addition, certain risks may arise upon entering into option contracts including
the risk that an illiquid secondary market will limit the Fund's ability to
close out an option contract prior to the expiration date and that a change in
the value of the option contract may not correlate exactly with changes in the
value of the securities hedged.
C. SECURITIES TRANSACTIONS 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. DERIVATIVE TRANSACTIONS
Written option activity for the Fund for the fiscal year-to-date period (January
1, 2016 through March 31, 2016) was as follows:
NUMBER
OF
WRITTEN OPTIONS CONTRACTS PREMIUMS
--------------------------------------------------------------------------
Options outstanding at December 31, 2015.... 7,115 $ 974,414
Options Written............................. 24,320 4,899,021
Options Expired............................. (13,015) (954,847)
Options Exercised........................... (985) (67,697)
Options Closed.............................. (9,110) (3,986,509)
--------- -------------
Options outstanding at March 31, 2016....... 8,325 $ 864,382
========= =============
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 M. Dykas
----------------------------------------
James M. Dykas, President and
Chief Executive Officer
(principal executive officer)
Date: May 19, 2016
---------------
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 M. Dykas
----------------------------------------
James M. Dykas, President and
Chief Executive Officer
(principal executive officer)
Date: May 19, 2016
---------------
By (Signature and Title)* /s/ Donald P. Swade
----------------------------------------
Donald P. Swade, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: May 19, 2016
---------------
* Print the name and title of each signing officer under his or her signature.
CERTIFICATION PURSUANT TO RULE 30A-2(A) UNDER THE 1940 ACT AND SECTION 302 OF
THE SARBANES-OXLEY ACT
I, James M. Dykas, certify that:
1. I have reviewed this report on Form N-Q of First Trust Enhanced Equity
Income Fund;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the schedules of investments included in this
report fairly present in all material respects the investments of the
registrant as of the end of the fiscal quarter for which the report is
filed;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Rule 30a-3(c) under the Investment Company Act of 1940) and
internal control over financial reporting (as defined in Rule 30a-3(d)
under the Investment Company Act of 1940) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of a
date within 90 days prior to the filing date of this report, based
on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize, and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: May 19, 2016 /s/ James M. Dykas
--------------- ----------------------------------------
James M. Dykas, President and
Chief Executive Officer
(principal executive officer)
CERTIFICATION PURSUANT TO RULE 30A-2(A) UNDER THE 1940 ACT AND SECTION 302 OF
THE SARBANES-OXLEY ACT
I, Donald P. Swade, certify that:
1. I have reviewed this report on Form N-Q of First Trust Enhanced Equity
Income Fund;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the schedules of investments included in this
report fairly present in all material respects the investments of the
registrant as of the end of the fiscal quarter for which the report is
filed;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Rule 30a-3(c) under the Investment Company Act of 1940) and
internal control over financial reporting (as defined in Rule 30a-3(d)
under the Investment Company Act of 1940) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of a
date within 90 days prior to the filing date of this report, based
on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize, and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: May 19, 2016 /s/ Donald P. Swade
--------------- ----------------------------------------
Donald P. Swade, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
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