FIRST TRUST ENHANCED EQUITY INCOME FUND (FFA) SEMI-ANNUAL REPORT FOR THE SIX MONTHS ENDED JUNE 30, 2017
Table of Contents First Trust Enhanced Equity Income Fund (FFA) Semi-Annual Report June 30, 2017 Shareholder Letter............................................................................................. 1 At a Glance.................................................................................................. 2 Portfolio Commentary......................................................................................... 3 Portfolio of Investments........................................................................................ 5 Statement of Assets and Liabilities................................................................................ 11 Statement of Operations........................................................................................ 12 Statements of Changes in Net Assets.............................................................................. 13 Financial Highlights........................................................................................... 14 Notes to Financial Statements.................................................................................... 15 Additional Information......................................................................................... 21 Caution Regarding Forward-Looking Statements This report contains certain forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding the goals, beliefs, plans or current expectations of First Trust Advisors L.P. ( First Trust or the Advisor ) and/or Chartwell Investment Partners, LLC ( Chartwell or the Sub-Advisor ) and their respective representatives, taking into account the information currently available to them. Forward-looking statements include all statements that do not relate solely to current or historical fact. For example, forward-looking statements include the use of words such as anticipate, estimate, intend, expect, believe, plan, may, should, would or other words that convey uncertainty of future events or outcomes. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of First Trust Enhanced Equity Income Fund (the Fund ) to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. When evaluating the information included in this report, you are cautioned not to place undue reliance on these forward-looking statements, which reflect the judgment of the Advisor and/or Sub-Advisor and their respective representatives only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events and circumstances that arise after the date hereof Managed Distribution Policy The Board of Trustees of the Fund has approved a managed distribution policy for the Fund (the Plan ) in reliance on exemptive relief received from the Securities and Exchange Commission which permits the Fund to make periodic distributions of long-term capital gains more frequently than otherwise permitted with respect to its common shares subject to certain conditions. Under the Plan, the Fund currently intends to pay a quarterly distribution in the amount of $0.285 per share. A portion of this quarterly distribution may include realized capital gains. This may result in a reduction of the long-term capital gain distribution necessary at year end by distributing realized capital gains throughout the year. The annual distribution rate is independent of the Fund s performance during any particular period but is expected to correlate with the Fund s performance over time. Accordingly, you should not draw any conclusions about the Fund s investment performance from the amount of any distribution or from the terms of the Plan. The Board of Trustees may amend or terminate the Plan at any time without prior notice to shareholders. Performance and Risk Disclosure There is no assurance that the Fund will achieve its investment objective. The Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in the Fund. See Risk Considerations in the Additional Information section of this report for a discussion of certain other risks of investing in the Fund. Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit http://www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and common share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost. The Advisor may also periodically provide additional information on Fund performance on the Fund s webpage at http://www.ftportfolios.com. How to Read This Report This report contains information that may help you evaluate your investment in the Fund. It includes details about the Fund and presents data and analysis that provide insight into the Fund s performance and investment approach. By reading the portfolio commentary by the portfolio management team of the Fund, you may obtain an understanding of how the market environment affected the Fund s performance. The statistical information that follows may help you understand the Fund s performance compared to that of relevant market benchmarks. It is important to keep in mind that the opinions expressed by personnel of Chartwell are just that: informed opinions. They should not be considered to be promises or advice. The opinions, like the statistics, cover the period through the date on the cover of this report. The material risks of investing in the Fund are spelled out in the prospectus, the statement of additional information, this report and other Fund regulatory filings.
Shareholder Letter First Trust Enhanced Equity Income Fund (FFA) Semi-Annual Letter from the Chairman and CEO June 30, 2017 Dear Shareholders: First Trust Advisors L.P. ( First Trust ) is pleased to provide you with this semi-annual report which contains current information and the financial statements for your investment in the First Trust Enhanced Equity Income Fund (the Fund ). We encourage you to read this report and discuss it with your financial advisor. Six months into the year, the bull market in stocks continues. President Donald Trump s pro-growth, pro-u.s. policies, while slow in coming, have at least created some optimism about the prospects for the U.S. economy, in our opinion. From Donald Trump s election on November 8, 2016 through June 30, 2017, the S&P 500 Index (the Index ) posted a total return of 14.79%, according to Bloomberg. The Index closed its June 19, 2017 trading session at an all-time high of 2,453.46. The current bull market (measuring from March 9, 2009 through June 30, 2017) is the second longest in history. While we are optimistic about the U.S. economy, we are also well aware that no one can predict the future or know how an administration will affect markets and the economy in the future. Therefore, we stress the importance of maintaining a long-term perspective, as we have done since First Trust s inception over 25 years ago. Thank you for giving First Trust the opportunity to be a part of your investment plan through the Fund. We value our relationship with you and will continue our relentless focus on bringing the types of investments that we believe could help you reach your financial goals. Sincerely, James A. Bowen Chairman of the Board of Trustees Chief Executive Officer of First Trust Advisors L.P. Page 1
First Trust Enhanced Equity Income Fund (FFA) AT A GLANCE As of Fund Statistics Symbol on New York Stock Exchange FFA Common Share Price $14.65 Common Share Net Asset Value ( NAV ) $16.01 Premium (Discount) to NAV (8.49)% Net Assets Applicable to Common Shares $319,770,333 Current Quarterly Distribution per Common Share (1) $0.285 Current Annualized Distribution per Common Share $1.140 Current Distribution Rate on Common Share Price (2) 7.78% Current Distribution Rate on NAV (2) 7.12% Performance Fund Performance (3) $18.00 $16.00 $14.00 $12.00 $10.00 Common Share Price & NAV (weekly closing price) 6/16 7/16 8/16 Common Share Price 9/16 10/16 11/16 12/16 1/17 2/17 NAV 3/17 4/17 5/17 6/17 Average Annual Total Return 6 Months Ended 1 Year Ended 5 Years Ended 10 Years Ended Inception (8/26/2004) 6/30/2017 6/30/2017 6/30/2017 6/30/2017 to 6/30/2017 NAV 9.02% 16.44% 11.56% 6.76% 7.16% Market Value 12.46% 19.95% 12.00% 6.21% 6.04% Index Performance S&P 500 Index 9.34% 17.90% 14.63% 7.18% 8.55% BXM Index 7.21% 12.06% 7.73% 4.62% 5.61% % of Total Top 10 Holdings Investments Apple, Inc. 5.6% Microsoft Corp. 3.8 Pfizer, Inc. 2.5 Philip Morris International, Inc. 2.4 PepsiCo, Inc. 2.4 JPMorgan Chase & Co. 2.3 Carnival Corp. 2.3 Altria Group, Inc. 2.2 Merck & Co., Inc. 2.2 General Electric Co. 2.1 Total 27.8% Sector Classification % of Total Investments Information Technology 21.1% Financials 15.8 Health Care 14.1 Consumer Staples 13.7 Consumer Discretionary 11.8 Industrials 7.9 Energy 7.8 Utilities 2.6 Real Estate 2.2 Materials 2.1 Telecommunication Services 0.9 Total 100.0% (1) Most recent distribution paid or declared through 6/30/2017. Subject to change in the future. (2) Distribution rates are calculated by annualizing the most recent distribution paid or declared through the report date and then dividing by Common Share price or NAV, as applicable, as of 6/30/2017. Subject to change in the future. (3) Total return is based on the combination of reinvested dividend, capital gain, and return of capital distributions, if any, at prices obtained by the Dividend Reinvestment Plan and changes in NAV per share for NAV returns and changes in Common Share price for market value returns. Total returns do not reflect sales load and are not annualized for periods of less than one year. Past performance is not indicative of future results. Page 2
Portfolio Commentary First Trust Enhanced Equity Income Fund (FFA) Semi-Annual Report Advisor First Trust Advisors L.P. ( First Trust ) is the investment advisor to the First Trust Enhanced Equity Income Fund (the Fund ). First Trust is responsible for the ongoing monitoring of the Fund s investment portfolio, managing the Fund s business affairs and providing certain administrative services necessary for the management of the Fund. Sub-Advisor Chartwell Investment Partners, LLC ( Chartwell ), a wholly-owned subsidiary of TriState Capital Holdings, Inc., is a research-based equity and fixed-income manager with a disciplined, team-oriented investment process. Chartwell is the portfolio manager of the Fund. Portfolio Management Team Douglas W. Kugler, CFA Principal, Senior Portfolio Manager Peter M. Schofield, CFA Principal, Senior Portfolio Manager Commentary First Trust Enhanced Equity Income Fund The investment objective of the Fund is to provide a high level of current income and gains and, to a lesser extent, capital appreciation. The Fund pursues its investment objective by investing in a diversified portfolio of equity securities. Under normal market conditions, the Fund pursues an integrated investment strategy in which the Fund invests substantially all of its managed assets in a diversified portfolio of common stocks of U.S. corporations and U.S. dollar-denominated equity securities of non-u.s. issuers. These securities are traded on U.S. securities exchanges. In addition, on an ongoing and consistent basis, the Fund will write (sell) covered call options on a portion of the Fund s managed assets. There can be no assurance that the Fund s investment objective will be achieved. Market Recap The S&P 500 Index (the Index ) returned 9.34% (inclusive of dividends) for the six-month period ended June 30, 2017 as the animal spirits that we believe were stirred by President Trump s election continued to push the market higher. The market grappled with a number of macro-related items but seemed to be buoyed by apparent economic strength that was reflected in survey data released during the period, two 0.25% hikes in the Federal Funds rate announced by the Federal Open Market Committee ( FOMC ), and the promise of significant tax reform. The Index reached a new all-time high on June 19, 2017 at 2,453,46 and closed on June 30, 2017 only 1.2% beneath that record level. Later in the period, there were signs of possible rotation among the groups that have led the market higher. The technology group gave back a portion of its year-to-date performance in June and the financials group took over the leadership of the market for a brief spell. While technology was the best performing group for the period, healthcare was quietly strong and was the second best performing group for the first half of 2017 (both up more than 15%). Meanwhile, the energy and telecommunications groups both saw double-digit declines. An almost complete lack of downward volatility was a hallmark of the six-month period. The largest drawdown (change from high to low) in the Index during the period was -2.8%. In fact, that drawdown was the largest since Brexit (the vote in the UK to leave the European Union) on June 23, 2016. That means the farthest the Index fell from a near-term peak in the more than one year period from June 23, 2016 through June 30, 2017 was 2.8%. The volatility in the 10-year U.S. Treasury market was more balanced with the yield starting the year at 2.48%, trading up to 2.60% before falling to a low of 2.13% and closing on June 30, 2017 at 2.27%. The FOMC did increase the Fed Funds rate by a total of 0.50% in the period and with the 10-year Treasury yield declining during the six months, the heavily watched 10-year over 2-year spread declined significantly. A significant decline in this measure is believed to signal that economic weakness appears to have either started, or, in our view, is coming, but we believe this signal is not foolproof. Meanwhile, the price of oil was fairly volatile. The price of a barrel of West Texas Intermediate ( WTI ), the domestic benchmark price, started the year at $53.72 per barrel, rose slightly to $54.45 per barrel shortly after the start of the year but then traded in a series of lower highs and lower lows bottoming at $42.53 per barrel in late June before closing the period at $46.04 per barrel as of June 30, 2017. The oil price declined as the benefits of the Organization of the Petroleum Exporting Countries ( OPEC ) maintaining their production cut were out-weighed by the negative forces of growing U.S. oil production and inventories. Page 3
Portfolio Commentary (Continued) First Trust Enhanced Equity Income Fund (FFA) Semi-Annual Report Performance Summary For the six months ended June 30, 2017 the Fund s net asset value ( NAV ) and market value total returns 1 were 9.02% and 12.46%, respectively. The Index returned 9.34% on a total return basis over the same period. The covered call options program had a slight negative influence on the Fund s return during the period, which we believe was a solid performance given the strong positive return of the Index. Certain broad themes in the market proved to be headwinds for the relative performance of the Fund s portfolio during the six-month period. As occurred in the second half of 2016, higher beta (beta is a measure of price volatility compared to the Index) stocks outperformed the Index. While the Fund will hold some higher beta stocks, in general, the overall weighted-average beta of the Fund has been fairly close to the market s. In addition, the Fund s portfolio will generally carry a higher yield than the Index and for the first half of 2017, lower-yielding stocks handily outperformed higher yielding stocks. Overall, the stock portfolio performed essentially in-line with the Index. Within the stock portfolio, the largest detractors to relative performance were the portfolio s slight overweight of the energy group as well as poor stock selection within the energy, healthcare and industrials groups. These detractors essentially offset the mostly positive stock selection throughout the rest of the portfolio. Among the weaker stocks, Helmerich & Payne, Inc. (-28.2%), Hess Corp. (-28.8%) and Occidental Petroleum Corp. (-13.8%) were in the energy group; not owning Johnson & Johnson (+16.3%) or Abbott Laboratories (+28.2%) was harmful in the healthcare group, and having an overweight in General Electric Co. (-13.1%) and not owning Boeing Co. (+29.1%) detracted from performance in the industrials group. On the positive side, Phillip Morris International, Inc. (+30.7%) and Constellation Brands, Inc. (+27.1%) helped relative performance in the consumer staples group; Apple, Inc. (+25.4%), Oracle Corp. (+31.5%), Applied Materials, Inc. (+28.7%) and Broadcom Ltd. (+33.0%) provided strong relative performance in the information technology group. Market Outlook The Index attained an all-time closing high of 2,453.46 on June 19, 2017, and it closed the first half of 2017 down 1.2% from that record level. With both quarters in the first half of this year, producing positive returns for the Index, the second quarter marked the 17th out of the last 18 quarters where the Index (inclusive of dividends) was positive. 2016 was the eighth positive year in a row (inclusive of dividends) for the Index and barring a strong reversal in the second half of this year, 2017 could be the ninth! For those eight and one-half years, the market has risen 222% cumulatively which represents a 14.7% compound annual growth rate. And since the market s low point on March 9, 2009, the market is up approximately 19.1% per year through June 30, 2017. We have said that given valuations in the equity markets are above longer-term averages and higher interest rates (which are typically viewed as a headwind to equity valuations) appear to be coming, we believe that earnings growth will have to improve in order for the equity market to move substantially higher. That has been happening. First quarter 2017 earnings were strongly higher year over year marking the third straight quarter of growth and those earnings were better than expected. Expectations for the second quarter earnings season are for the positive growth trend to continue. We believe that companies have learned how to operate well in the low (GDP) growth environment and that some of the bigger restraints to total earnings growth (e.g. lower oil prices, stronger dollar) may be less of a restraint on growth. In addition, we believe that the uptick in mergers and acquisitions will continue as will strong stock repurchases which should help corporations in their search for earnings growth. Despite slightly higher and increasing interest rates, interest rates are still lower than normal and should continue to facilitate these corporate actions. Absent a global recession, revenues should move higher and we believe companies will continue to be vigilant on controlling costs thereby keeping margins at or near current high levels. Our position is essentially unchanged. Despite the uncertainties, we believe the economy should continue to grow at a reasonable, but not overly strong rate, and corporate profits should continue to grow as well. This could provide a solid backdrop for the market going forward. However, with the valuation of the stock market above long-term averages, and with earnings growth and its magnitude not assured, moves higher in the Index will likely be more muted going forward. And despite recent history, we believe there is an increased likelihood of periods of price declines. No matter the outcome of these issues, we will manage the Fund with the dual objectives of generating a high level of current income while seeking capital appreciation over the market cycle. 1 Total return is based on the combination of reinvested dividends, capital gains and return of capital distributions, if any, at prices obtained by the Dividend Reinvestment Plan and changes in NAV per share for net asset value returns and changes in Common Share price for market value returns. Total returns do not reflect sales loads and are not annualized for periods less than one year. Past performance is not indicative of future results. Page 4
First Trust Enhanced Equity Income Fund (FFA) Portfolio of Investments Shares Description Value COMMON STOCKS - 93.9% Aerospace & Defense - 1.7% 33,000 Raytheon Co. (a)............................................................ $ 5,328,840 Air Freight & Logistics - 1.7% 24,500 FedEx Corp. (a)............................................................. 5,324,585 Automobiles - 1.1% 105,000 General Motors Co........................................................... 3,667,650 Banks - 8.2% 225,000 Bank of America Corp........................................................ 5,458,500 52,500 First Republic Bank (a)....................................................... 5,255,250 80,000 JPMorgan Chase & Co. (a).................................................... 7,312,000 15,000 SVB Financial Group (b)...................................................... 2,636,850 100,000 Wells Fargo & Co............................................................ 5,541,000 26,203,600 Beverages - 4.9% 37,500 Anheuser-Busch InBev S.A./N.V., ADR.......................................... 4,138,500 20,000 Constellation Brands, Inc., Class A (a)........................................... 3,874,600 65,000 PepsiCo, Inc. (a)............................................................. 7,506,850 15,519,950 Biotechnology - 2.8% 37,500 Celgene Corp. (b)............................................................ 4,870,125 58,000 Gilead Sciences, Inc.......................................................... 4,105,240 8,975,365 Capital Markets - 1.6% 120,000 Charles Schwab (The) Corp. (a)................................................ 5,155,200 Chemicals - 2.1% 70,000 Dow Chemical (The) Co. (a)................................................... 4,414,900 20,000 PPG Industries, Inc........................................................... 2,199,200 6,614,100 Communications Equipment - 2.6% 170,000 Cisco Systems, Inc. (a)........................................................ 5,321,000 22,500 Palo Alto Networks, Inc. (b)................................................... 3,010,725 8,331,725 Consumer Finance - 1.1% 41,500 American Express Co......................................................... 3,495,960 Diversified Telecommunication Services - 0.9% 80,000 AT&T, Inc.................................................................. 3,018,400 Electric Utilities - 1.3% 110,000 PPL Corp. (a)............................................................... 4,252,600 Energy Equipment & Services - 1.9% 55,000 Helmerich & Payne, Inc....................................................... 2,988,700 46,000 Schlumberger, Ltd. (a)........................................................ 3,028,640 6,017,340 See Notes to Financial Statements Page 5
First Trust Enhanced Equity Income Fund (FFA) Portfolio of Investments (Continued) Shares Description Value COMMON STOCKS (Continued) Food & Staples Retailing - 3.0% 29,000 Costco Wholesale Corp. (a).................................................... $ 4,637,970 60,000 CVS Health Corp. (a)......................................................... 4,827,600 9,465,570 Food Products - 1.2% 45,000 Kraft Heinz (The) Co. (a)..................................................... 3,853,800 Health Care Equipment & Supplies - 1.4% 50,000 Medtronic PLC.............................................................. 4,437,500 Health Care Providers & Services - 1.8% 31,600 UnitedHealth Group, Inc. (a)................................................... 5,859,272 Hotels, Restaurants & Leisure - 2.3% 110,000 Carnival Corp. (a)............................................................ 7,212,700 Household Durables - 1.8% 110,000 Newell Brands, Inc. (a)....................................................... 5,898,200 Industrial Conglomerates - 3.7% 245,000 General Electric Co........................................................... 6,617,450 40,000 Honeywell International, Inc................................................... 5,331,600 11,949,050 Insurance - 3.8% 75,000 Arthur J. Gallagher & Co. (a).................................................. 4,293,750 40,000 Chubb, Ltd.................................................................. 5,815,200 40,000 MetLife, Inc................................................................. 2,197,600 12,306,550 Life Sciences Tools & Services - 1.9% 35,000 Thermo Fisher Scientific, Inc. (a)............................................... 6,106,450 Media - 4.0% 80,000 CBS Corp., Class B (a)....................................................... 5,102,400 95,000 Cinemark Holdings, Inc. (a)................................................... 3,690,750 105,000 Comcast Corp., Class A (a).................................................... 4,086,600 12,879,750 Oil, Gas & Consumable Fuels - 3.8% 42,000 Chevron Corp. (a)............................................................ 4,381,860 50,000 Hess Corp. (a)............................................................... 2,193,500 65,000 HollyFrontier Corp. (a)....................................................... 1,785,550 63,000 Occidental Petroleum Corp. (a)................................................. 3,771,810 12,132,720 Pharmaceuticals - 5.7% 14,000 Allergan PLC............................................................... 3,403,260 110,000 Merck & Co., Inc. (a)......................................................... 7,049,900 235,000 Pfizer, Inc................................................................... 7,893,650 18,346,810 Road & Rail - 0.8% 28,000 JB Hunt Transport Services, Inc................................................. 2,558,640 Page 6 See Notes to Financial Statements
First Trust Enhanced Equity Income Fund (FFA) Portfolio of Investments (Continued) Shares/Units Description Value COMMON STOCKS (Continued) Semiconductors & Semiconductor Equipment - 5.7% 115,000 Applied Materials, Inc. (a)..................................................... $ 4,750,650 19,000 Broadcom Ltd. (a)........................................................... 4,427,950 150,000 Intel Corp................................................................... 5,061,000 130,000 Micron Technology, Inc. (b)................................................... 3,881,800 18,121,400 Software - 7.2% 15,000 Adobe Systems, Inc. (a) (b).................................................... 2,121,600 175,000 Microsoft Corp. (a)........................................................... 12,062,750 130,000 Oracle Corp. (a)............................................................. 6,518,200 30,000 Take-Two Interactive Software, Inc. (a) (b)....................................... 2,201,400 22,903,950 Specialty Retail - 2.5% 70,000 Foot Locker, Inc. (a).......................................................... 3,449,600 29,000 Home Depot (The), Inc........................................................ 4,448,600 7,898,200 Technology Hardware, Storage & Peripherals - 5.6% 123,500 Apple, Inc. (a)............................................................... 17,786,470 Tobacco - 4.6% 95,000 Altria Group, Inc............................................................. 7,074,650 66,000 Philip Morris International, Inc. (a).............................................. 7,751,700 14,826,350 Water Utilities - 1.2% 50,000 American Water Works Co., Inc................................................. 3,897,500 Total Common Stocks..................................................... 300,346,197 (Cost $241,009,704) REAL ESTATE INVESTMENT TRUSTS - 2.2% Equity Real Estate Investment Trusts - 2.2% 40,000 Lamar Advertising Co., Class A (a).............................................. 2,942,800 42,000 Crown Castle International Corp. (a)............................................ 4,207,560 Total Real Estate Investment Trusts......................................... 7,150,360 (Cost $6,119,091) MASTER LIMITED PARTNERSHIPS - 1.4% Oil, Gas & Consumable Fuels - 1.4% 82,500 Energy Transfer Partners L.P................................................... 1,682,175 100,000 Enterprise Products Partners, L.P. (a)............................................ 2,708,000 Total Master Limited Partnerships.......................................... 4,390,175 (Cost $2,461,490) COMMON STOCKS - BUSINESS DEVELOPMENT COMPANIES - 0.9% Capital Markets - 0.9% 180,000 Ares Capital Corp............................................................ 2,948,400 (Cost $3,116,652) See Notes to Financial Statements Page 7
First Trust Enhanced Equity Income Fund (FFA) Portfolio of Investments (Continued) Stated Stated Shares Description Rate Maturity (c) Value CONVERTIBLE PREFERRED SECURITIES - 1.1% Health Care Equipment & Supplies - 0.4% 20,000 Becton Dickinson and Co., Series A...................... 6.13% 05/01/20 $ 1,095,600 Oil, Gas & Consumable Fuels - 0.7% 40,000 Hess Corp., Series A................................... 8.00% 02/01/19 2,224,800 Total Convertible Preferred Securities....................................... 3,320,400 (Cost $3,497,797) Total Investments 99.5%................................................. 318,155,532 (Cost $256,204,734) (d) Number of Contracts Description Value CALL OPTIONS WRITTEN - (0.2%) Adobe Systems, Inc. Call 75 @ $150.00 due July 2017..................................................... (3,450) Altria Group, Inc. Call 250 @ 80.00 due July 2017...................................................... (250) Applied Materials, Inc. Call 250 @ 46.00 due July 2017...................................................... (2,750) Bank of America Corp. Call 500 @ 25.00 due July 2017...................................................... (14,000) Carnival Corp. Calls 150 @ 65.00 due July 2017...................................................... (24,000) 300 @ 67.50 due July 2017...................................................... (15,900) (39,900) Celgene Corp. Call 125 @ 140.00 due July 2017..................................................... (3,250) Charles Schwab (The) Corp. Call 300 @ 44.00 due July 2017...................................................... (19,500) Chubb Ltd. Call 125 @ 150.00 due July 2017..................................................... (1,875) Constellation Brands, Inc. Call 75 @ 200.00 due July 2017..................................................... (12,000) Costco Wholesale Corp. Call 100 @ 185.00 due July 2017..................................................... (200) FedEx Corp. Call 75 @ 220.00 due July 2017..................................................... (19,425) First Republic Bank Call 125 @ 105.00 due July 2017..................................................... (7,500) General Electric Co. Call 500 @ 30.00 due July 2017...................................................... (1,000) Honeywell International, Inc. Call 200 @ 140.00 due July 2017..................................................... (4,800) Micron Technology, Inc. Calls 400 @ 34.00 due July 2017...................................................... (7,600) 250 @ 36.00 due July 2017...................................................... (2,250) (9,850) Page 8 See Notes to Financial Statements
First Trust Enhanced Equity Income Fund (FFA) Portfolio of Investments (Continued) Number of Contracts Description Value CALL OPTIONS WRITTEN (Continued) Microsoft Corp. Call 500 @ $72.50 due July 2017...................................................... $ (18,500) Newell Brands, Inc. Call 225 @ 55.00 due July 2017...................................................... (8,438) Oracle Corp. Call 400 @ 48.00 due July 2017...................................................... (91,600) Palo Alto Networks, Inc. Call 150 @ 145.00 due July 2017..................................................... (10,800) PepsiCo, Inc. Call 150 @ 120.00 due July 2017..................................................... (4,350) Philip Morris International, Inc. Call 200 @ 125.00 due July 2017..................................................... (3,600) S&P 500 Index Calls (e) 100 @ 2,445.00 due July 2017.................................................... (87,000) 350 @ 2,455.00 due July 2017.................................................... (185,500) 100 @ 2,475.00 due July 2017.................................................... (16,000) (288,500) Take-Two Interactive Software, Inc. Call 100 @ 80.00 due July 2017...................................................... (3,100) UnitedHealth Group, Inc. Calls 75 @ 185.00 due July 2017..................................................... (28,800) 100 @ 190.00 due July 2017..................................................... (16,700) (45,500) Total Call Options Written................................................ (614,138) (Premiums received $855,197) Net Other Assets and Liabilities 0.7%...................................... 2,228,939 Net Assets 100.0%...................................................... $ 319,770,333 (a) (b) (c) (d) (e) All or a portion of this security is pledged to cover index call options written. Non-income producing security. Stated maturity represents the mandatory conversion date. Aggregate cost for financial reporting purposes, which approximates the aggregate cost for federal income tax purposes. As of June 30, 2017, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $70,650,559 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $8,699,761. 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 Financial Statements Page 9
First Trust Enhanced Equity Income Fund (FFA) Portfolio of Investments (Continued) Valuation Inputs A summary of the inputs used to value the Fund s investments as of June 30, 2017 is as follows (see Note 3A - Portfolio Valuation in the Notes to Financial Statements): ASSETS TABLE Level 2 Level 3 Total Level 1 Significant Significant Value at Quoted Observable Unobservable 6/30/2017 Prices Inputs Inputs Common Stocks*............................. $ 300,346,197 $ 300,346,197 $ $ Real Estate Investment Trusts*.................. 7,150,360 7,150,360 Master Limited Partnerships*................... 4,390,175 4,390,175 Common Stocks - Business Development Companies*............................... 2,948,400 2,948,400 Convertible Preferred Securities*................ 3,320,400 3,320,400 Total Investments............................. $ 318,155,532 $ 318,155,532 $ $ LIABILITIES TABLE Level 2 Level 3 Total Level 1 Significant Significant Value at Quoted Observable Unobservable 6/30/2017 Prices Inputs Inputs Call Options Written.......................... $ (614,138) $ (603,825) $ (10,313) $ * 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 June 30, 2017. Page 10 See Notes to Financial Statements
First Trust Enhanced Equity Income Fund (FFA) Statement of Assets and Liabilities ASSETS: Investments, at value (Cost $256,204,734)......................................................................... $ 318,155,532 Cash........................................................................................ 2,092,953 Dividends receivable........................................................................... 519,873 Prepaid expenses.............................................................................. 16,346 Total Assets................................................................................ 320,784,704 LIABILITIES: Options written, at value (Premiums received $855,197).............................................. 614,138 Payables: Investment advisory fees..................................................................... 265,967 Investment securities purchased................................................................ 60,900 Audit and tax fees........................................................................... 26,483 Transfer agent fees.......................................................................... 19,853 Administrative fees.......................................................................... 14,123 Custodian fees............................................................................. 6,287 Printing fees............................................................................... 5,632 Financial reporting fees...................................................................... 771 Trustees fees and expenses................................................................... 217 Total Liabilities............................................................................. 1,014,371 NET ASSETS................................................................................ $ 319,770,333 NET ASSETS consist of: Paid-in capital................................................................................ $ 263,631,234 Par value.................................................................................... 199,732 Accumulated net investment income (loss)......................................................... (7,381,475) Accumulated net realized gain (loss) on investments and written options................................. 1,128,985 Net unrealized appreciation (depreciation) on investments and written options............................. 62,191,857 NET ASSETS................................................................................ $ 319,770,333 NET ASSET VALUE, per Common Share (par value $0.01 per Common Share).......................... $ 16.01 Number of Common Shares outstanding (unlimited number of Common Shares has been authorized).......... 19,973,164 See Notes to Financial Statements Page 11
First Trust Enhanced Equity Income Fund (FFA) Statement of Operations For the Six Months Ended INVESTMENT INCOME: Dividends (net of foreign withholding tax of $24,668)................................................ $ 3,745,419 Interest...................................................................................... 102 Total investment income..................................................................... 3,745,521 EXPENSES: Investment advisory fees....................................................................... 1,576,746 Administrative fees............................................................................ 77,042 Printing fees................................................................................. 36,779 Audit and tax fees............................................................................. 21,487 Transfer agent fees............................................................................ 17,565 Custodian fees................................................................................ 13,273 Trustees fees and expenses..................................................................... 8,750 Legal fees................................................................................... 4,891 Financial reporting fees........................................................................ 4,625 Other....................................................................................... 14,077 Total expenses............................................................................. 1,775,235 NET INVESTMENT INCOME (LOSS)......................................................... 1,970,286 NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments................................................................................ 7,023,788 Written options............................................................................. 397,934 Net realized gain (loss)......................................................................... 7,421,722 Net change in unrealized appreciation (depreciation) on: Investments................................................................................ 17,392,794 Written options............................................................................. (443,075) Net change in unrealized appreciation (depreciation)................................................. 16,949,719 NET REALIZED AND UNREALIZED GAIN (LOSS)............................................. 24,371,441 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............... $ 26,341,727 Page 12 See Notes to Financial Statements
First Trust Enhanced Equity Income Fund (FFA) Statements of Changes in Net Assets Six Months Ended Year 6/30/2017 Ended (Unaudited) 12/31/2016 OPERATIONS: Net investment income (loss)....................................................... $ 1,970,286 $ 3,744,905 Net realized gain (loss)........................................................... 7,421,722 11,586,388 Net change in unrealized appreciation (depreciation).................................... 16,949,719 8,568,630 Net increase (decrease) in net assets resulting from operations............................ 26,341,727 23,899,923 DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income............................................................ (10,685,643) (3,566,425) Net realized gain................................................................ (9,587,119) Return of capital................................................................. (6,020,694) Total distributions to shareholders................................................... (10,685,643) (19,174,238) Total increase (decrease) in net assets................................................ 15,656,084 4,725,685 NET ASSETS: Beginning of period.............................................................. 304,114,249 299,388,564 End of period................................................................... $ 319,770,333 $ 304,114,249 Accumulated net investment income (loss) at end of period.............................. $ (7,381,475) $ 1,333,882 COMMON SHARES: Common Shares at end of period*................................................... 19,973,164 19,973,164 * On September 15, 2016, the Fund commenced a share repurchase program. The program originally expired on March 15, 2017, but the Board of Trustees of the Fund has subsequently authorized the continuation of the Fund s share repurchase program until September 15, 2017. From September 15, 2016 through June 30, 2017, the Fund has not repurchased any common shares. The Fund expects to continue the share repurchase program until the earlier of (i) the repurchase of 998,658 common shares or (ii) September 15, 2017. See Notes to Financial Statements Page 13
First Trust Enhanced Equity Income Fund (FFA) Financial Highlights For a Common Share outstanding throughout each period Six Months Ended 6/30/2017 Year Ended December 31, (Unaudited) 2016 2015 2014 (a) 2013 2012 Net asset value, beginning of period....... $ 15.23 $ 14.99 $ 15.95 $ 15.24 $ 13.27 $ 12.51 Income from investment operations: Net investment income (loss)............. 0.10 0.19 0.20 0.24 0.21 0.26 Net realized and unrealized gain (loss)..... 1.22 1.01 (0.22) 1.39 2.66 1.40 Total from investment operations.......... 1.32 1.20 (0.02) 1.63 2.87 1.66 Distributions paid to shareholders from: Net investment income.................. (0.54) (0.18) (0.60) (0.92) (0.90) (0.72) Net realized gain....................... (0.48) (0.34) Return of capital....................... (0.30) (0.18) Total distributions to Common Shareholders......................... (0.54) (0.96) (0.94) (0.92) (0.90) (0.90) Net asset value, end of period............. $ 16.01 $ 15.23 $ 14.99 $ 15.95 $ 15.24 $ 13.27 Market value, end of period.............. $ 14.65 $ 13.51 $ 13.20 $ 14.34 $ 13.32 $ 11.84 Total return based on net asset value (b)... 9.02% 9.18% 0.72% 11.63% 23.11% 14.18% (c) Total return based on market value (b)... 12.46% 9.98% (1.35)% 14.83% 20.60% 17.68% Ratios to average net assets/supplemental data: Net assets, end of period (in 000 s)........ $ 319,770 $ 304,114 $ 299,389 $ 318,640 $ 304,297 $ 265,009 Ratio of total expenses to average net assets............................... 1.13% (d) 1.13% 1.12% 1.18% 1.19% 1.21% Ratio of net investment income (loss) to average net assets..................... 1.25% (d) 1.27% 1.33% 1.54% 1.45% 1.90% Portfolio turnover rate................... 13% 32% 45% 44% 40% 66% (a) (b) (c) (d) On February 20, 2014, the Fund s Board of Trustees approved an interim and new sub-advisory agreement with Chartwell Investment Partners, Inc. ( Chartwell ), which became the Fund s sub-advisor on March 5, 2014, under the interim sub-advisory agreement. On July 2, 2014, the Fund s shareholders voted to approve the new sub-advisory agreement. Total return is based on the combination of reinvested dividend, capital gain and return of capital distributions, if any, at prices obtained by the Dividend Reinvestment Plan, and changes in net asset value per share for net asset value returns and changes in Common Share Price for market value returns. Total returns do not reflect sales load and are not annualized for periods of less than one year. Past performance is not indicative of future results. The Fund received reimbursements from Chartwell Investment Partners, L.P. (the predecessor to Chartwell) in the amount of $77,318, which represents less than $0.01 per share. Since the Fund was reibursed, there was no effect on the Fund s total return. Annualized. Page 14 See Notes to Financial Statements
Notes to Financial Statements First Trust Enhanced Equity Income Fund (FFA) 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 ( SEC ) 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 s investment objective is to provide a high level of current income and gains and, to a lesser extent, capital appreciation. The Fund pursues its investment objective by investing in a diversified portfolio of equity securities. Under normal market conditions, the Fund pursues an integrated investment strategy in which the Fund invests substantially all of its Managed Assets in a diversified portfolio of common stocks of U.S. corporations and U.S. dollar-denominated equity securities of non-u.s. issuers, in each case that are traded on U.S. securities exchanges, and on an ongoing and consistent basis writes (sells) covered call options on a portion of the Fund s Managed Assets. Managed Assets means the total asset value of the Fund minus the sum of the Fund s liabilities, including the value of call options written (sold). There can be no assurance that the Fund will achieve its investment objective. The Fund may not be appropriate for all investors. 2. Managed Distribution Policy The Board of Trustees of the Fund has approved a managed distribution policy for the Fund (the Plan ) in reliance on exemptive relief received from the SEC which permits the Fund to make periodic distributions of long-term capital gains more frequently than otherwise permitted with respect to its common shares subject to certain conditions. Under the Plan, the Fund currently intends to pay a quarterly distribution in the amount of $0.285 per share. A portion of this quarterly distribution may include realized capital gains. This may result in a reduction of the long-term capital gain distribution necessary at year end by distributing realized capital gains throughout the year. The annual distribution rate is independent of the Fund s performance during any particular period but is expected to correlate with the Fund s performance over time. Accordingly, you should not draw any conclusions about the Fund s investment performance from the amount of any distribution or from the terms of the Plan. The Board of Trustees may amend or terminate the Plan at any time without prior notice to shareholders. 3. Significant Accounting Policies The Fund is considered an investment company and follows accounting and reporting guidance under Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services-Investment Companies. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America ( U.S. GAAP ) requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. 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 ( REITs ), master limited partnerships ( MLPs ), exchange-traded funds, convertible preferred stocks, 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. Page 15