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)
1001 Warrenville Road, Suite 300
LISLE, IL 60532
----------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
1001 Warrenville Road, Suite 300
LISLE, IL 60532
----------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (630) 241-4141
----------------
Date of fiscal year end: DECEMBER 31
-----------------
Date of reporting period: MARCH 31, 2008
---------------
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
PORTFOLIO OF INVESTMENTS (a)
MARCH 31, 2008 (UNAUDITED)
SHARES DESCRIPTION VALUE
------------ ----------------------------------------------- --------------
COMMON STOCKS (b) - 101.0%
AEROSPACE & DEFENSE - 2.9%
42,900 Rockwell Collins, Inc. ........................ $ 2,451,735
104,200 United Technologies Corp. ..................... 7,171,044
--------------
9,622,779
--------------
AIR FREIGHT & LOGISTICS - 0.6%
22,200 FedEx Corp. ................................... 2,057,274
--------------
BEVERAGES - 4.9%
184,000 Coca-Cola (The), Company ...................... 11,200,080
66,025 PepsiCo, Inc. ................................. 4,767,005
--------------
15,967,085
--------------
CAPITAL MARKETS - 3.9%
120,000 AllianceBernstein Holding, LP (e) ............. 7,605,600
100,000 Lehman Brothers Holdings, Inc. ................ 3,764,000
72,800 Och-Ziff Capital Management Group, Class A .... 1,528,800
--------------
12,898,400
--------------
CHEMICALS - 2.7%
100,000 Dow Chemical (The) Company .................... 3,685,000
83,740 PPG Industries, Inc. .......................... 5,067,107
--------------
8,752,107
--------------
COMMERCIAL BANKS - 4.8%
100,000 PNC Financial Services Group, Inc. ............ 6,557,000
10,000 U.S. Bancorp .................................. 323,600
100,000 Wachovia Corp. ................................ 2,700,000
210,000 Wells Fargo & Company ......................... 6,111,000
--------------
15,691,600
--------------
COMMERCIAL SERVICES & SUPPLIES - 1.5%
100,000 Pitney Bowes, Inc. ............................ 3,502,000
40,000 Waste Management, Inc. ........................ 1,342,400
--------------
4,844,400
--------------
COMMUNICATIONS EQUIPMENT - 3.9%
295,200 Cisco Systems, Inc. (c) ....................... 7,111,368
136,500 QUALCOMM, Inc. ................................ 5,596,500
--------------
12,707,868
--------------
CONTAINERS & PACKAGING - 0.8%
110,000 Packaging Corp. of America .................... 2,456,300
--------------
DIVERSIFIED FINANCIAL SERVICES - 6.4%
192,500 Bank of America Corp. ......................... 7,297,675
320,000 JPMorgan Chase & Company ...................... 13,744,000
--------------
21,041,675
--------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 10.2%
300,000 Alaska Communications Systems Group, Inc. ..... 3,672,000
364,400 AT&T, Inc. .................................... 13,956,520
See Notes to Quarterly Portfolio of Investments Page 1
FIRST TRUST ENHANCED EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
MARCH 31, 2008 (UNAUDITED)
SHARES DESCRIPTION VALUE
------------ ----------------------------------------------- --------------
COMMON STOCKS (b) - (CONTINUED)
DIVERSIFIED TELECOMMUNICATION SERVICES - (CONTINUED)
200,000 Citizens Communications Co. ................... $ 2,098,000
249,600 Consolidated Communications Holdings, Inc. .... 3,776,448
200,000 FairPoint Communications, Inc. ................ 1,804,000
221,620 Verizon Communications, Inc. .................. 8,078,049
--------------
33,385,017
--------------
ELECTRIC UTILITIES - 1.2%
110,000 Southern Company .............................. 3,917,100
--------------
ELECTRICAL EQUIPMENT - 2.5%
156,100 Emerson Electric Company ...................... 8,032,906
--------------
ENERGY EQUIPMENT & SERVICES - 0.9%
32,000 Schlumberger Ltd. ............................. 2,784,000
--------------
FOOD & STAPLES RETAILING - 1.3%
108,800 Walgreen Company .............................. 4,144,192
--------------
FOOD PRODUCTS - 0.9%
100,000 Kraft Foods, Inc., Class A .................... 3,101,000
--------------
HEALTHCARE PROVIDERS & SERVICES - 0.7%
100,000 Brookdale Senior Living, Inc. ................. 2,390,000
--------------
HOTELS, RESTAURANTS & LEISURE - 3.2%
100,000 Carnival Corp. ................................ 4,048,000
115,000 McDonald's Corp. .............................. 6,413,550
--------------
10,461,550
--------------
HOUSEHOLD PRODUCTS - 0.5%
30,000 Clorox (The) Company .......................... 1,699,200
--------------
INDUSTRIAL CONGLOMERATES - 2.1%
190,000 General Electric Company ...................... 7,031,900
--------------
INSURANCE - 3.1%
110,000 American International Group, Inc. ............ 4,757,500
40,000 Arthur J. Gallagher & Company ................. 944,800
60,000 Hartford Financial Services Group, Inc. ....... 4,546,200
--------------
10,248,500
--------------
INTERNET SOFTWARE & SERVICES - 1.3%
145,700 eBay, Inc. (c) ................................ 4,347,688
--------------
IT SERVICES - 0.4%
40,000 Paychex, Inc. ................................. 1,370,400
--------------
MACHINERY - 1.6%
67,600 Caterpillar, Inc. ............................. 5,292,404
--------------
Page 2 See Notes to Quarterly Portfolio of Investments
FIRST TRUST ENHANCED EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
MARCH 31, 2008 (UNAUDITED)
SHARES DESCRIPTION VALUE
------------ ----------------------------------------------- --------------
COMMON STOCKS (b) - (CONTINUED)
MARINE - 1.4%
100,375 Eagle Bulk Shipping, Inc. ..................... $ 2,585,660
323,051 FreeSeas, Inc. ................................ 1,922,154
--------------
4,507,814
--------------
MEDIA - 3.9%
407,500 Entercom Communications Corp., Class A ........ 4,046,475
300,000 GateHouse Media, Inc. ......................... 1,752,000
100,000 Pearson PLC, SP ADR ........................... 1,358,000
135,600 Regal Entertainment Group, Class A ............ 2,615,724
91,500 Walt Disney (The), Company .................... 2,871,270
--------------
12,643,469
--------------
MULTILINE RETAIL - 1.6%
101,000 Target Corp. .................................. 5,118,680
--------------
OIL, GAS & CONSUMABLE FUELS - 11.5%
50,000 BP PLC, SP ADR ................................ 3,032,500
97,800 Chevron Corp. ................................. 8,348,208
50,000 ConocoPhillips ................................ 3,810,500
307,900 El Paso Corp. ................................. 5,123,456
100,000 Exxon Mobil Corp. ............................. 8,458,000
85,000 Occidental Petroleum Corp. .................... 6,219,450
54,800 Valero Energy Corp. ........................... 2,691,228
--------------
37,683,342
--------------
PAPER & FOREST PRODUCTS - 0.6%
30,000 Weyerhaeuser Company .......................... 1,951,200
--------------
PHARMACEUTICALS - 6.4%
100,000 Abbott Laboratories ........................... 5,515,000
110,000 Bristol-Myers Squibb Company .................. 2,343,000
100,000 Eli Lilly & Co. ............................... 5,159,000
373,100 Pfizer, Inc. .................................. 7,808,983
--------------
20,825,983
--------------
REAL ESTATE INVESTMENT TRUSTS (REITS) - 3.1%
230,000 Annaly Capital Management, Inc. ............... 3,523,600
352,500 CapitalSource, Inc. ........................... 3,408,675
121,410 iStar Financial, Inc. ......................... 1,703,382
260,000 MFA Mortgage Investments, Inc. ................ 1,638,000
--------------
10,273,657
--------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 3.8%
284,800 Intel Corp. ................................... 6,032,064
120,000 Microchip Technology, Inc. .................... 3,927,600
84,400 Texas Instruments, Inc. ....................... 2,385,988
--------------
12,345,652
--------------
SPECIALTY RETAIL - 1.1%
90,500 Best Buy Company, Inc. ........................ 3,752,130
--------------
See Notes to Quarterly Portfolio of Investments Page 3
FIRST TRUST ENHANCED EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
MARCH 31, 2008 (UNAUDITED)
SHARES DESCRIPTION VALUE
------------ ----------------------------------------------- --------------
COMMON STOCKS (b) - (CONTINUED)
TOBACCO - 4.1%
113,435 Altria Group, Inc. ............................ $ 2,518,257
113,435 Philip Morris International, Inc. (f) ......... 5,737,542
90,000 Reynolds American, Inc. ....................... 5,312,700
--------------
13,568,499
--------------
TRADING COMPANIES & DISTRIBUTORS - 0.8%
230,000 Aircastle Ltd. ................................ 2,587,500
--------------
TRANSPORTATION INFRASTRUCTURE - 0.4%
50,000 Macquarie Infrastructure Company, LLC ......... 1,456,500
--------------
TOTAL COMMON STOCKS (b) ....................... 330,959,771
(Cost $380,745,519) --------------
TOTAL INVESTMENTS - 101.0% .................... 330,959,771
(Cost $380,745,519) (d)
CALL OPTIONS WRITTEN - (1.6%) ................. (5,320,913)
(Premiums received $5,765,760)
NET OTHER ASSETS AND LIABILITIES - 0.6% ....... 2,152,331
--------------
NET ASSETS - 100.0% ........................... $ 327,791,189
==============
----------
(a) All percentages shown in the Portfolio of Investments are based on
net assets.
(b) Call options were written on either entire or partial Common Stock
positions; all Common Stocks are pledged as collateral. Call options
on securities indices were written on a portion of the Common Stock
positions that were not covered by call options on individual equity
securities held in the Fund's Portfolio.
(c) Non-income producing security.
(d) Aggregate cost for federal income tax and financial reporting
purposes.
(e) Master Limited Partnership ("MLP").
(f) This security spun-off from Altria Group, Inc. on March 28, 2008. As
of March 31, 2008, this security had not paid a distribution to the
Fund.
SP ADR Sponsored American Depositary Receipt.
Page 4 See Notes to Quarterly Portfolio of Investments
FIRST TRUST ENHANCED EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
MARCH 31, 2008 (UNAUDITED)
NUMBER OF
CONTRACTS DESCRIPTION VALUE
------------ ----------------------------------------------- --------------
CALL OPTIONS WRITTEN - (1.6%)
Abbott Laboratories Call
1,000 @ 57.5 due Apr 08 ............................. $ (45,000)
--------------
AllianceBernstein Holding, LP Call
1,200 @ 75 due Jul 08 ............................... (120,000)
--------------
Altria Group, Inc. Call
1,134 @ 75 due Apr 08 ............................... (56,700)
--------------
American International Group, Inc. Calls
500 @ 45 due Apr 08 ............................... (60,000)
474 @ 50 due Apr 08 ............................... (7,584)
126 @ 55 due Apr 08 ............................... (252)
--------------
(67,836)
--------------
Annaly Capital Management, Inc. Calls
889 @ 17.5 due Apr 08 ............................. (17,780)
522 @ 20 due Apr 08 ............................... (1,044)
889 @ 20 due May 08 ............................... (8,890)
--------------
(27,714)
--------------
Arthur J. Gallagher & Company Call
400 @ 25 due Apr 08 ............................... (6,000)
--------------
AT&T, Inc. Calls
1,500 @ 40 due Apr 08 ............................... (39,000)
897 @ 37.5 due Apr 08 ............................. (132,756)
--------------
(171,756)
--------------
Bank of America Corp. Call
1,925 @ 40 due Apr 08 ............................... (134,750)
--------------
Best Buy Company, Inc. Call
905 @ 40 due Apr 08 ............................... (259,735)
--------------
Bristol-Myers Squibb Company Calls
500 @ 22.5 due Apr 08 ............................. (6,000)
200 @ 22.5 due May 08 ............................. (10,200)
400 @ 25 due June 08 .............................. (9,600)
--------------
(25,800)
--------------
Brookdale Senior Living, Inc. Call
1,000 @ 25 due Apr 08 ............................... (47,500)
--------------
CapitalSource, Inc. Calls
1,025 @ 12.5 due Apr 08 ............................. (15,375)
525 @ 15 due May 08 ............................... (5,250)
1,000 @ 15 due Apr 08 ............................... (10,000)
--------------
(30,625)
--------------
Carnival Corp. Call
1,000 @ 42.5 due Apr 08 ............................. (70,000)
--------------
See Notes to Quarterly Portfolio of Investments Page 5
FIRST TRUST ENHANCED EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
MARCH 31, 2008 (UNAUDITED)
NUMBER OF
CONTRACTS DESCRIPTION VALUE
------------ ----------------------------------------------- --------------
CALL OPTIONS WRITTEN - (CONTINUED)
Caterpillar, Inc. Calls
300 @ 80 due Apr 08 ............................... $ (47,700)
376 @ 75 due Apr 08 ............................... (169,200)
--------------
(216,900)
--------------
Chevron Corp. Calls
500 @ 85 due Apr 08 ............................... (120,000)
478 @ 90 due Apr 08 ............................... (21,510)
--------------
(141,510)
--------------
Cisco Systems, Inc. Call
2,952 @ 27.5 due Apr 08 ............................. (11,808)
--------------
Clorox (The) Company Call
300 @ 60 due Apr 08 ............................... (1,500)
--------------
Coca-Cola (The), Company Call
1,840 @ 62.5 due Apr 08 ............................. (101,200)
--------------
ConocoPhillips Call
500 @ 75 due Apr 08 ............................... (150,000)
--------------
Consolidated Communications Holdings, Inc. Call
2,400 @ 17.5 due Jul 08 ............................. (96,000)
--------------
Dow Chemical (The) Company Call
1,000 @ 40 due June 08 .............................. (95,000)
--------------
Eagle Bulk Shipping, Inc. Call
1,003 @ 30 due June 08 .............................. (75,225)
--------------
eBay, Inc. Call
1,457 @ 30 due Apr 08 ............................... (192,324)
--------------
El Paso Corp. Call
3,079 @ 17 due Apr 08 ............................... (92,370)
--------------
Exxon Mobil Corp. Call
1,000 @ 90 due Apr 08 ............................... (50,000)
--------------
FedEx Corp. Call
222 @ 95 due Apr 08 ............................... (31,080)
--------------
Hartford Financial Services Group, Inc. Call
600 @ 75 due Apr 08 ............................... (165,000)
--------------
Intel Corp. Call
2,848 @ 22.5 due Apr 08 ............................. (99,680)
--------------
Page 6 See Notes to Quarterly Portfolio of Investments
FIRST TRUST ENHANCED EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
MARCH 31, 2008 (UNAUDITED)
NUMBER OF
CONTRACTS DESCRIPTION VALUE
------------ ----------------------------------------------- --------------
CALL OPTIONS WRITTEN - (CONTINUED)
JPMorgan Chase & Company Calls
2,700 @ 42.5 due Apr 08 ............................. $ (540,000)
500 @ 47.5 due Apr 08 ............................. (15,000)
--------------
(555,000)
--------------
Kraft Foods, Inc., Class A Call
1,000 @ 32.5 due Apr 08 ............................. (18,000)
--------------
Lehman Brothers Holdings, Inc. Call
1,000 @ 50 due Apr 08 ............................... (40,000)
--------------
McDonald's Corp. Calls
650 @ 55 due Apr 08 ............................... (122,200)
500 @ 57.5 due Apr 08 ............................. (27,500)
--------------
(149,700)
--------------
MFA Mortgage Investments, Inc. Call
600 @ 10 due Jul 08 ............................... (6,000)
--------------
Microchip Technology, Inc. Calls
300 @ 35 due Apr 08 ............................... (10,500)
900 @ 35 due Jul 08 ............................... (130,500)
--------------
(141,000)
--------------
Occidental Petroleum Corp. Calls
600 @ 80 due Apr 08 ............................... (45,000)
250 @ 80 due May 08 ............................... (50,000)
--------------
(95,000)
--------------
Och-Ziff Capital Management Group,
Class A Call
728 @ 25 due June 08 .............................. (74,620)
--------------
Paychex, Inc. Call
400 @ 35 due Apr 08 ............................... (22,000)
--------------
PepsiCo, Inc. Calls
200 @ 70 due Apr 08 ............................... (56,000)
400 @ 75 due Apr 08 ............................... (10,000)
--------------
(66,000)
--------------
PNC Financial Services Group, Inc. Calls
500 @ 65 due Apr 08 ............................... (150,000)
500 @ 70 due Apr 08 ............................... (42,500)
--------------
(192,500)
--------------
QUALCOMM, Inc. Calls
865 @ 45 due May 08 ............................... (61,415)
500 @ 42.5 due Apr 08 ............................. (29,500)
--------------
(90,915)
--------------
Regal Entertainment Group, Class A Call
1,356 @ 20 due Apr 08 ............................... (33,900)
--------------
See Notes to Quarterly Portfolio of Investments Page 7
FIRST TRUST ENHANCED EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
MARCH 31, 2008 (UNAUDITED)
NUMBER OF
CONTRACTS DESCRIPTION VALUE
------------ ----------------------------------------------- --------------
CALL OPTIONS WRITTEN - (CONTINUED)
S&P 500 Index Calls
200 @ 1,360 due Apr 08 ............................ $ (220,000)
100 @ 1,395 due Apr 08 ............................ (37,000)
--------------
(257,000)
--------------
Schlumberger Ltd. Call
320 @ 85 due Apr 08 ............................... (144,960)
--------------
Southern Company Calls
1,000 @ 40 due Aug 08 ............................... (35,000)
100 @ 40 due May 08 ............................... (750)
--------------
(35,750)
--------------
Target Corp. Calls
395 @ 52.5 due Apr 08 ............................. (47,400)
615 @ 55 due May 08 ............................... (86,715)
--------------
(134,115)
--------------
Texas Instruments, Inc. Call
844 @ 30 due Apr 08 ............................... (21,100)
--------------
U.S. Bancorp Call
100 @ 35 due June 08 .............................. (10,500)
--------------
Valero Energy Corp. Call
548 @ 60 due Apr 08 ............................... (5,480)
--------------
Verizon Communications, Inc. Calls
1,000 @ 37.5 due Apr 08 ............................. (45,000)
1,216 @ 40 due May 08 ............................... (42,560)
--------------
(87,560)
--------------
Wachovia Corp. Calls
500 @ 27.5 due Apr 08 ............................. (80,000)
500 @ 30 due Apr 08 ............................... (33,500)
--------------
(113,500)
--------------
Walgreen Company Call
1,088 @ 37.5 due Apr 08 ............................. (136,000)
--------------
Walt Disney (The) Company Call
915 @ 32.5 due Apr 08 ............................. (36,600)
--------------
Waste Management, Inc. Call
400 @ 35 due Apr 08 ............................... (10,000)
--------------
Wells Fargo & Company Calls
1,500 @ 30 due Apr 08 ............................... (169,500)
600 @ 32.5 due May 08 ............................. (49,800)
--------------
(219,300)
--------------
Page 8 See Notes to Quarterly Portfolio of Investments
FIRST TRUST ENHANCED EQUITY INCOME FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
MARCH 31, 2008 (UNAUDITED)
NUMBER OF
CONTRACTS DESCRIPTION VALUE
------------ ----------------------------------------------- --------------
CALL OPTIONS WRITTEN - (CONTINUED)
Weyerhaeuser Company Calls
150 @ 65 due Apr 08 ............................... $ (33,000)
150 @ 70 due Apr 08 ............................... (8,400)
--------------
(41,400)
--------------
TOTAL CALL OPTIONS WRITTEN .................... $ (5,320,913)
(Premiums received $5,765,760) ==============
See Notes to Quarterly Portfolio of Investments Page 9
--------------------------------------------------------------------------------
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED EQUITY INCOME FUND
MARCH 31, 2008 (UNAUDITED)
1. VALUATION AND INVESTMENT PRACTICES
A. PORTFOLIO VALUATION:
The net asset value ("NAV") of the Common Shares of First Trust Enhanced Equity
Income Fund (the "Fund") is determined daily, as of the close of regular trading
on the New York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time, on
each day the NYSE is open for trading. The NAV per Common Share is calculated by
dividing the value of all assets of the Fund (including accrued interest and
dividends), less all liabilities (including accrued expenses, the value of call
options written (sold) and dividends declared but unpaid), by the total number
of Common Shares outstanding.
The Fund's investments are valued 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. 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, 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 traded 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 trading on the NASDAQ, are valued at the closing bid
prices. Fixed-income securities with a remaining maturity of 60 days or more
will be valued by the Fund using a pricing service. Short-term investments that
mature in less than 60 days are valued at amortized cost.
The Fund values exchange-traded options and other derivative contracts at the
closing price on the exchange on which they are principally traded, or if not
traded, or no closing price is available, at the mean between the last bid and
asked price.
In September 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 157 Fair Value Measurements ("FAS 157")
effective for fiscal years beginning after November 15, 2007. This standard
clarifies the definition of fair value for financial reporting, establishes a
framework for measuring fair value and requires additional disclosures about the
use of fair value measurements. The Fund has adopted FAS 157 as of January 1,
2008, the beginning of its current fiscal year. The three levels of the fair
value hierarchy under FAS 157 are described below:
o Level 1 - quoted prices in active markets for identical securities
o Level 2 - other significant observable inputs (including quoted
prices for similar securities, interest rates, prepayment speeds,
credit risk, etc.)
o Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not necessarily an
indication of the risk associated with investing in those securities. A summary
of the inputs used to value the Fund's net assets as of March 31, 2008 is as
follows:
VALUATION INPUTS INVESTMENTS IN SECURITIES OTHER FINANCIAL INSTRUMENTS (a)
--------------------------------------------------- ------------------------- -------------------------------
Level 1 - Quoted Prices - Investments ............. $ 330,959,771 $ (5,320,913)
Level 2 - Other Significant Observable Inputs ..... -- --
Level 3 - Significant Unobservable Input .......... -- --
------------------------- ----------------------
TOTAL ............................................. $ 330,959,771 $ (5,320,913)
========================= ======================
(a) Other financial instruments are call option contracts, which are valued at
the closing price on the exchange on which they are principally traded.
B. OPTION CONTRACTS:
COVERED OPTIONS. The Fund may write (sell) covered call or put options
("options") on all or a portion of the equity securities held in the Fund's
portfolio and on securities indices as determined to be appropriate by Chartwell
Investment Partners, L.P (the "Sub-Advisor" or "Chartwell"), consistent with the
Fund's investment objective. The number of options the Fund can write (sell) is
limited by the amount of equity securities the Fund holds in its portfolio.
Options on securities indices are designed to reflect price fluctuations in a
group of securities or 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
Page 10
--------------------------------------------------------------------------------
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ENHANCED EQUITY INCOME FUND
MARCH 31, 2008 (UNAUDITED)
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 smaller.
Options the Fund writes (sells) will either be exercised, expire or be cancelled
pursuant to a closing transaction. If the price of the underlying equity
security exceeds the option's strike 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 equity security for purposes of determining gain or loss. If the
price of the underlying equity security is less than the option's strike price,
the option will likely expire without being exercised. The option premium
received by the Fund will, in this case, be treated as short-term capital gain
on the expiration date of the option. The Fund may also elect to close out its
position in an option prior to its expiration by purchasing an option of the
same series as the option written (sold) by the Fund.
The options that the Fund writes (sells) give the option holder the right, but
not the obligation, to purchase a security from the Fund at the strike price on
or prior to the option's expiration date. The ability to successfully implement
the 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 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
strike price.
C. SECURITIES TRANSACTIONS:
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
2. UNREALIZED APPRECIATION (DEPRECIATION)
As of March 31, 2008, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $3,229,479
and the aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $53,015,227.
3. OPTION ACTIVITY
Option activity for the quarter ended March 31, 2008 was as follows:
NUMBER
OF
CONTRACTS PREMIUMS
--------- -------------
WRITTEN OPTIONS
Options outstanding at December 31, 2007 .......... 68,218 $ 5,622,371
Options written ................................... 243,067 22,173,492
Options expired ................................... (77,490) (5,472,927)
Options exercised ................................. (6,070) (556,645)
Options closed .................................... (162,169) (16,000,531)
--------- -------------
Options outstanding at March 31, 2008 ............. 65,556 $ 5,765,760
========= =============
Page 11
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 MAY 27, 2008
----------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /S/ JAMES A. BOWEN
-------------------------------------------------------
James A. Bowen, Chairman of the Board,
President and Chief Executive Officer
(principal executive officer)
Date MAY 27, 2008
----------------------------------------------------------------------------
By (Signature and Title)* /S/ MARK R. BRADLEY
-------------------------------------------------------
Mark R. Bradley, Treasurer, Controller,
Chief Financial Officer and Chief Accounting Officer
(principal financial officer)
Date MAY 27, 2008
----------------------------------------------------------------------------
* Print the name and title of each signing officer under his or her signature.