UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED MANAGEMENT
INVESTMENT COMPANY
Investment Company Act file number 811-21586
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First Trust Enhanced Equity Income Fund
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(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Name and address of agent for service)
Registrant's telephone number, including area code: (630) 765-8000
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Date of fiscal year end: December 31
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Date of reporting period: September 30, 2014
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Form N-Q is to be used by management investment companies, other than small
business investment companies registered on Form N-5 (ss.ss. 239.24 and 274.5 of
this chapter), to file reports with the Commission, not later than 60 days after
the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under
the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may use
the information provided on Form N-Q in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-Q, and
the Commission will make this information public. A registrant is not required
to respond to the collection of information contained in Form N-Q unless the
Form displays a currently valid Office of Management and Budget ("OMB") control
number. Please direct comments concerning the accuracy of the information
collection burden estimate and any suggestions for reducing the burden to the
Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC
20549. The OMB has reviewed this collection of information under the clearance
requirements of 44 U.S.C. ss. 3507.
ITEM 1. SCHEDULE OF INVESTMENTS. The Schedule(s) of Investments is attached
herewith.
FIRST TRUST ENHANCED EQUITY INCOME FUND (FFA)
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 2014 (UNAUDITED)
SHARES DESCRIPTION VALUE
--------------- --------------------------------------------- ----------------
COMMON STOCKS - 96.0%
AEROSPACE & DEFENSE - 1.5%
50,000 Honeywell International, Inc. ............... $ 4,656,000
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AIR FREIGHT & LOGISTICS - 1.4%
28,000 FedEx Corp. ................................. 4,520,600
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AUTOMOBILES - 0.9%
90,000 General Motors Co. .......................... 2,874,600
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BANKS - 9.0%
120,000 BB&T Corp. .................................. 4,465,200
205,400 JPMorgan Chase & Co. ........................ 12,373,296
55,000 PNC Financial Services Group, Inc. .......... 4,706,900
54,000 U.S. Bancorp ................................ 2,258,820
89,000 Wells Fargo & Co. ........................... 4,616,430
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28,420,646
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BEVERAGES - 3.5%
35,000 Anheuser-Busch InBev N.V., ADR .............. 3,879,750
95,000 Coca-Cola (The) Co. ......................... 4,052,700
35,000 PepsiCo, Inc. ............................... 3,258,150
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11,190,600
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BIOTECHNOLOGY - 1.7%
50,000 Gilead Sciences, Inc. (a).................... 5,322,500
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CAPITAL MARKETS - 3.8%
9,000 BlackRock, Inc. ............................. 2,954,880
100,000 Invesco, Ltd. ............................... 3,948,000
71,000 State Street Corp. .......................... 5,226,310
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12,129,190
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CHEMICALS - 1.0%
30,000 LyondellBasell Industries N.V., Class A ..... 3,259,800
---------------
COMMUNICATIONS EQUIPMENT - 3.6%
250,000 Cisco Systems, Inc. ......................... 6,292,500
70,000 QUALCOMM, Inc. .............................. 5,233,900
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11,526,400
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DIVERSIFIED TELECOMMUNICATION SERVICES - 1.6%
100,000 Verizon Communications, Inc. ................ 4,999,000
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ELECTRIC UTILITIES - 1.1%
110,000 PPL Corp. ................................... 3,612,400
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ELECTRICAL EQUIPMENT - 1.0%
28,000 Rockwell Automation, Inc. ................... 3,076,640
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ENERGY EQUIPMENT & SERVICES - 2.7%
60,000 National Oilwell Varco, Inc. ................ 4,566,000
40,000 Schlumberger, Ltd. .......................... 4,067,600
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8,633,600
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See Notes to Quarterly Portfolio of Investments
FIRST TRUST ENHANCED EQUITY INCOME FUND (FFA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2014 (UNAUDITED)
SHARES DESCRIPTION VALUE
--------------- --------------------------------------------- ----------------
COMMON STOCKS (CONTINUED)
FOOD PRODUCTS - 2.6%
100,000 Kraft Foods Group, Inc. ..................... $ 5,640,000
75,000 Mondelez International, Inc., Class A ....... 2,569,875
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8,209,875
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HEALTH CARE EQUIPMENT & SUPPLIES - 1.2%
60,000 Medtronic, Inc. ............................. 3,717,000
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HEALTH CARE PROVIDERS & SERVICES - 1.7%
70,000 Cardinal Health, Inc. ....................... 5,244,400
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HOTELS, RESTAURANTS & LEISURE - 2.9%
85,000 Carnival Corp. .............................. 3,414,450
70,000 Starwood Hotels & Resorts Worldwide, Inc. ... 5,824,700
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9,239,150
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INDUSTRIAL CONGLOMERATES - 2.9%
360,000 General Electric Co. ........................ 9,223,200
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INSURANCE - 2.9%
66,000 Arthur J. Gallagher & Co. ................... 2,993,760
65,000 MetLife, Inc. ............................... 3,491,800
31,000 Prudential Financial, Inc. .................. 2,726,140
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9,211,700
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IT SERVICES - 1.4%
52,000 Automatic Data Processing, Inc. ............. 4,320,160
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LIFE SCIENCES TOOLS & SERVICES - 1.3%
70,000 Agilent Technologies, Inc. .................. 3,988,600
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MEDIA - 3.6%
57,500 CBS Corp., Class B .......................... 3,076,250
55,000 Comcast Corp., Class A ...................... 2,957,900
32,000 Lamar Advertising Co., Class A .............. 1,576,000
42,000 Walt Disney (The) Co. ....................... 3,739,260
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11,349,410
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METALS & MINING - 1.1%
110,000 Freeport-McMoRan, Inc. ...................... 3,591,500
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MULTILINE RETAIL - 1.1%
55,000 Kohl's Corp. ................................ 3,356,650
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OIL, GAS & CONSUMABLE FUELS - 5.6%
42,000 Chevron Corp. ............................... 5,011,440
25,000 Exxon Mobil Corp. ........................... 2,351,250
120,000 Marathon Oil Corp. .......................... 4,510,800
62,000 Occidental Petroleum Corp. .................. 5,961,300
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17,834,790
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PAPER & FOREST PRODUCTS - 1.0%
85,655 Domtar Corp. ................................ 3,009,060
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See Notes to Quarterly Portfolio of Investments
FIRST TRUST ENHANCED EQUITY INCOME FUND (FFA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2014 (UNAUDITED)
SHARES DESCRIPTION VALUE
--------------- --------------------------------------------- ----------------
COMMON STOCKS (CONTINUED)
PHARMACEUTICALS - 7.4%
40,000 Bristol-Myers Squibb Co. .................... $ 2,047,200
60,000 Johnson & Johnson ........................... 6,395,400
115,000 Merck & Co., Inc. ........................... 6,817,200
276,886 Pfizer, Inc. ................................ 8,187,519
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23,447,319
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REAL ESTATE INVESTMENT TRUSTS - 0.8%
40,000 Mid-America Apartment Communities, Inc. ..... 2,626,000
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ROAD & RAIL - 1.2%
120,000 CSX Corp. ................................... 3,847,200
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SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 3.6%
40,000 Analog Devices, Inc. ........................ 1,979,600
110,000 Intel Corp. ................................. 3,830,200
70,000 Microchip Technology, Inc. .................. 3,306,100
130,000 NVIDIA Corp. ................................ 2,398,500
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11,514,400
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SOFTWARE - 5.0%
65,000 Check Point Software Technologies Ltd. (a)... 4,500,600
110,000 Microsoft Corp. ............................. 5,099,600
160,000 Oracle Corp. ................................ 6,124,800
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15,725,000
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SPECIALTY RETAIL - 2.8%
80,000 GameStop Corp., Class A ..................... 3,296,000
85,000 L Brands, Inc. .............................. 5,693,300
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8,989,300
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TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS - 6.7%
154,000 Apple, Inc. ................................. 15,515,500
200,000 EMC Corp. ................................... 5,852,000
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21,367,500
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TEXTILES, APPAREL & LUXURY GOODS - 1.5%
70,000 VF Corp. .................................... 4,622,100
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TOBACCO - 3.5%
80,000 Altria Group, Inc. .......................... 3,675,200
90,000 Philip Morris International, Inc. ........... 7,506,000
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11,181,200
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WATER UTILITIES - 1.4%
90,000 American Water Works Co., Inc. .............. 4,340,700
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TOTAL COMMON STOCKS ......................... 304,178,190
(Cost $249,742,832) ---------------
See Notes to Quarterly Portfolio of Investments
FIRST TRUST ENHANCED EQUITY INCOME FUND (FFA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2014 (UNAUDITED)
SHARES/
UNITS DESCRIPTION VALUE
--------------- --------------------------------------------- ----------------
MASTER LIMITED PARTNERSHIPS - 2.8%
OIL, GAS & CONSUMABLE FUELS - 2.8%
55,000 Energy Transfer Partners, L.P. .............. $ 3,519,450
130,000 Enterprise Products Partners, L.P. .......... 5,239,000
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TOTAL MASTER LIMITED PARTNERSHIPS ........... 8,758,450
(Cost $3,621,806) ---------------
COMMON STOCKS - BUSINESS DEVELOPMENT COMPANIES - 0.9%
CAPITAL MARKETS - 0.9%
187,000 Ares Capital Corp. .......................... 3,021,920
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TOTAL COMMON STOCKS - BUSINESS DEVELOPMENT
COMPANIES ................................ 3,021,920
(Cost $3,148,066) ---------------
EXCHANGE-TRADED FUNDS - 0.2%
CAPITAL MARKETS - 0.2%
3,000 SPDR S&P 500 ETF Trust ...................... 591,060
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TOTAL EXCHANGE-TRADED FUNDS ................. 591,060
(Cost $597,269) ---------------
TOTAL INVESTMENTS - 99.9% ................... 316,549,620
(Cost $257,109,973) (b) ---------------
NUMBER OF
CONTRACTS DESCRIPTION VALUE
--------------- --------------------------------------------- ----------------
CALL OPTIONS WRITTEN - (0.2%)
Altria Group, Inc. Call
400 @ $46.00 due October 2014.................... (24,800)
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Anheuser-Busch InBev N.V., ADR Call
150 @ 120.00 due October 2014................... (1,875)
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Apple, Inc. Call
400 @ 105.00 due October 2014................... (15,600)
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BB&T Corp. Call
400 @ 40.00 due October 2014.................... (2,200)
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Carnival Corp. Calls
300 @ 42.00 due October 2014.................... (4,500)
300 @ 43.00 due October 2014.................... (2,250)
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(6,750)
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CBS Corp., Class B Call
300 @ 57.50 due October 2014.................... (8,100)
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See Notes to Quarterly Portfolio of Investments
FIRST TRUST ENHANCED EQUITY INCOME FUND (FFA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2014 (UNAUDITED)
NUMBER OF
CONTRACTS DESCRIPTION VALUE
--------------- --------------------------------------------- ----------------
CALL OPTIONS WRITTEN (CONTINUED)
Domtar Corp. Calls
10 @ $37.50 due October 2014.................... $ (450)
500 @ 40.00 due October 2014.................... (12,500)
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(12,950)
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EMC Corp. Call
500 @ 31.00 due October 2014.................... (10,000)
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GameStop Corp., Class A Call
400 @ 46.00 due October 2014.................... (5,600)
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General Electric Co. Call
900 @ 27.00 due October 2014.................... (4,500)
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Gilead Sciences, Inc. Call
300 @ 115.00 due October 2014................... (25,500)
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Intel Corp. Call
825 @ 36.00 due October 2014.................... (35,475)
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Johnson & Johnson Call
200 @ 110.00 due October 2014................... (5,200)
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JPMorgan Chase & Co. Call
500 @ 62.50 due October 2014.................... (11,500)
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Kohl's Corp. Call
275 @ 65.00 due October 2014.................... (4,125)
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L Brands, Inc. Call
700 @ 67.50 due October 2014.................... (80,500)
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LyondellBasell Industries N.V., Class A Call
150 @ 115.00 due October 2014................... (6,000)
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Marathon Oil Corp. Calls
400 @ 41.00 due October 2014.................... (2,000)
400 @ 42.00 due October 2014.................... (1,000)
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(3,000)
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Medtronic, Inc. Call
400 @ 67.50 due October 2014.................... (4,000)
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Merck & Co., Inc. Call
350 @ 62.50 due October 2014.................... (3,150)
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MetLife, Inc. Call
350 @ 57.50 due October 2014.................... (3,850)
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See Notes to Quarterly Portfolio of Investments
FIRST TRUST ENHANCED EQUITY INCOME FUND (FFA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2014 (UNAUDITED)
NUMBER OF
CONTRACTS DESCRIPTION VALUE
--------------- --------------------------------------------- ----------------
CALL OPTIONS WRITTEN (CONTINUED)
Microsoft Corp. Call
350 @ $48.00 due October 2014.................... $ (3,500)
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NVIDIA Corp. Call
500 @ 19.50 due October 2014.................... (4,500)
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Prudential Financial, Inc. Call
200 @ 95.00 due October 2014.................... (2,400)
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S&P 500 Index Calls (c)
300 @ 2,015.00 due October 2014................. (126,900)
300 @ 2,035.00 due October 2014................. (34,500)
100 @ 2,040.00 due October 2014................. (11,000)
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(172,400)
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Starwood Hotels & Resorts Worldwide, Inc. Call
300 @ 86.85 due October 2014.................... (7,050)
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Verizon Communications, Inc. Call
400 @ 50.00 due October 2014.................... (16,400)
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Walt Disney (The) Co. Call
350 @ 92.50 due October 2014.................... (7,000)
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TOTAL CALL OPTIONS WRITTEN .................. (487,925)
(Premiums received $1,000,417) ---------------
NET OTHER ASSETS AND LIABILITIES - 0.3% ..... 822,359
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NET ASSETS - 100.0% ......................... $ 316,884,054
===============
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(a) Non-income producing security.
(b) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of September 30, 2014,
the aggregate gross unrealized appreciation for all securities in which
there was an excess of value over tax cost was $63,130,553 and the
aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over value was $3,690,906.
(c) Call options on securities indices were written on a portion of the common
stock positions that were not used to cover call options written on
individual equity securities held in the Fund's portfolio.
ADR American Depositary Receipt
See Notes to Quarterly Portfolio of Investments
FIRST TRUST ENHANCED EQUITY INCOME FUND (FFA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2014 (UNAUDITED)
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VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of September 30,
2014 is as follows (see Note 2A - Portfolio Valuation in the Notes to Quarterly
Portfolio of Investments):
ASSETS TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
INVESTMENTS 9/30/2014 PRICES INPUTS INPUTS
---------------------------------------------- --------------- ------------- --------------- --------------
Common Stocks*................................ $ 304,178,190 $ 304,178,190 $ -- $ --
Master Limited Partnerships*.................. 8,758,450 8,758,450 -- --
Common Stocks - Business Development
Companies*.................................. 3,021,920 3,021,920 -- --
Exchange-Traded Funds*........................ 591,060 591,060 -- --
--------------- ------------- --------------- --------------
Total Investments............................. $ 316,549,620 $ 316,549,620 $ -- $ --
=============== ============= =============== ==============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
9/30/2014 PRICES INPUTS INPUTS
--------------- ------------- --------------- --------------
Call Options Written.......................... $ (487,925) $ (487,925) $ -- $ --
=============== ============= =============== ==============
* See the Portfolio of Investments for industry breakdown.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at September 30, 2014.
See Notes to Quarterly Portfolio of Investments
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS
FIRST TRUST ENHANCED EQUITY INCOME FUND (FFA)
SEPTEMBER 30, 2014 (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").
2. VALUATION AND INVESTMENT PRACTICES
A. PORTFOLIO VALUATION:
The net asset value ("NAV") of the Common Shares of the Fund is determined daily
as of the close of regular trading on the NYSE, normally 4:00 p.m. Eastern time,
on each day the NYSE is open for trading. If the NYSE closes early on a
valuation day, the NAV is determined as of that time. The NAV per Common Share
is calculated by dividing the value of all assets of the Fund (including accrued
interest and dividends), less all liabilities (including accrued expenses, the
value of call options written (sold) and dividends declared but unpaid) by the
total number of Common Shares outstanding.
The Fund's investments are valued daily at market value or, in 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 First Trust Advisors L.P.'s (the "Advisor") Pricing Committee 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 are footnoted as such in the footnotes to the
Portfolio of Investments. The Fund's investments are valued as follows:
Common stocks, master limited partnerships ("MLPs"), exchange-traded funds
and other equity securities listed on any national or foreign exchange
(excluding The NASDAQ(R) Stock Market LLC ("NASDAQ") and the London Stock
Exchange Alternative Investment Market ("AIM")) are valued at the last
sale price on the exchange on which they are principally traded or, for
NASDAQ and AIM securities, the official closing price. Securities traded
on more than one securities exchange are valued at the last sale price or
official closing price, as applicable, at the close of the securities
exchange representing the principal market for such securities.
Securities traded in 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.
Short-term investments that mature in less than 60 days when purchased are
fair valued at amortized cost.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Fund's Board of Trustees or its
delegate at fair value. These securities generally include, but are not limited
to, restricted securities (securities which may not be publicly sold without
registration under the Securities Act of 1933, as amended) for which a pricing
service is unable to provide a market price; securities whose trading has been
formally suspended; a security whose market 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 a Fund's NAV or make it
difficult or impossible to obtain a reliable market quotation; and a security
whose price, as provided by the pricing service, does not reflect the security's
fair value. As a general principle, the current fair value of a security would
appear to be the amount which the owner might reasonably expect to receive for
the security upon its current sale. 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;
6) relationships among various securities;
7) information obtained by contacting the issuer, analysts, or the
appropriate stock exchange;
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS (CONTINUED)
FIRST TRUST ENHANCED EQUITY INCOME FUND (FFA)
SEPTEMBER 30, 2014 (UNAUDITED)
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 methodology used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of September 30, 2014, 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, Inc. ("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 QUARTERLY PORTFOLIO OF INVESTMENTS (CONTINUED)
FIRST TRUST ENHANCED EQUITY INCOME FUND (FFA)
SEPTEMBER 30, 2014 (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:
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
3. DERIVATIVES TRANSACTIONS
Written option activity for the Fund for the fiscal year-to-date period (January
1, 2014 through September 30, 2014) was as follows:
NUMBER
OF
WRITTEN OPTIONS CONTRACTS PREMIUMS
-----------------------------------------------------------------------------
Options outstanding at December 31, 2013..... 6,820 $ 804,967
Options Written.............................. 103,360 10,768,481
Options Expired.............................. (49,251) (3,156,022)
Options Exercised............................ (8,117) (529,476)
Options Closed............................... (41,142) (6,887,533)
Options Split................................ 540 --
--------- -------------
Options outstanding at September 30, 2014.... 12,210 $ 1,000,417
========= =============
ITEM 2. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers, or
persons performing similar functions, have concluded that the registrant's
disclosure controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR
270.30a-3(c))) are effective, as of a date within 90 days of the filing
date of the report that includes the disclosure required by this
paragraph, based on their evaluation of these controls and procedures
required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and
Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as
amended (17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR
270.30a-3(d)) that occurred during the registrant's last fiscal quarter
that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
ITEM 3. EXHIBITS.
Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of
the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) First Trust Enhanced Equity Income Fund
----------------------------------------------------
By (Signature and Title)* /s/ Mark R. Bradley
----------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)
Date: November 20, 2014
---------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Mark R. Bradley
----------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)
Date: November 20, 2014
---------------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: November 20, 2014
---------------------
* Print the name and title of each signing officer under his or her signature.