Item 1. Reports to Stockholders.
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 $0.315 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’s shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in the Fund. See “Principal Risks” in the Investment Objective, Policies, and Risks
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 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 web page at 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 First Trust and 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.
First Trust Enhanced Equity Income
Fund (FFA)
Annual Letter from the Chairman and
CEO
December 31, 2022
Dear Shareholders,
First Trust is pleased
to provide you with the annual report for the First Trust Enhanced Equity Income Fund (the “Fund”), which contains detailed information about the Fund for the twelve months ended December 31, 2022.
The past year was filled
with challenges, several of which surely tested the resolve of even the most seasoned investors. The year began with the same headwinds that existed at the end of 2021, namely: stubbornly high inflation and rising
interest rates. When Russia invaded Ukraine in late February 2022, we added war, geopolitical tension, and potential food and energy shortages to the list. Considering the bleak backdrop at the start of the year, it
probably does not surprise you to read that with a total return of -18.11%, 2022 was the worst year for the S&P 500® Index since 2008. Even the bond market struggled to provide a haven to weary investors. The Bloomberg U.S. Aggregate Bond Index posted a total
return of -13.01% for the year; its worst total return in 45 years.
A common topic of
discussion in 2022 was whether central banks around the world had tightened monetary policy enough to quell inflation without causing excess damage to their economies. In the U.S., the Federal Reserve (the
“Fed”) described this as a “soft landing,” stating it was their intent to keep the labor market strong but to increase interest rates enough to bring inflation down to 2.0%. True to their word,
over the course of seven interest rate hikes, the Fed increased the Federal Funds target rate (upper bound) from 0.25% (where it stood in March 2022) to 4.50% as of December 2022. This is the highest the Federal Funds
rate has been since 2008.
The economic impact of
the Fed’s tighter monetary policy quickly became evident. Excluding the economic contraction from COVID-19 in 2020, the U.S. experienced its first decline in the gross domestic product (“GDP”) growth
rate since March 2014. Data from the U.S. Bureau of Economic Analysis indicates that annualized real GDP growth rates over the first three quarters of 2022 were -1.6%, -0.6%, and 3.2%, respectively. Thankfully,
inflation, as measured by the trailing 12-month rate on the Consumer Price Index (“CPI”), appears to be responding to the Fed’s tightening. After peaking at 9.1% in June 2022, the CPI rate fell to
6.5% at the end of December 2022. For comparative purposes, the CPI rate has averaged 2.5% over the past 30 years. Job creation has provided a respite from dreary economic data in recent months, but that could quickly
change. Nearly 125,000 employees have lost their jobs since June 2022 as more than 120 U.S. companies announced layoffs, according to Forbes. The jury is still out on whether the Fed will be able to pull off a soft landing, but the job market will tell the tale, in my opinion.
Since 1928, the S&P
500® Index has only fallen for two consecutive years on four occasions: The Great Depression, World War II, the oil crisis of the 1970s and the
burst of the dot-com bubble in the early 2000s. As we enter 2023, the U.S. economy has significant obstacles to overcome to avoid a recession and another negative year. We will be watching and reporting on what
transpires.
Thank you for giving
First Trust the opportunity to play a role in your financial future. We value our relationship with you and will report on the Fund again in six months.
Sincerely,
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust
Advisors L.P.
Portfolio Commentary
First Trust Enhanced
Equity Income Fund (FFA)
Annual Report
December 31, 2022
(Unaudited)
Advisor
First Trust Advisors L.P.
(“First Trust” or the “Advisor”) 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”), until June 1, 2022, 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.
Effective June 1, 2022,
Chartwell’s parent company, TriState Capital Holdings, Inc. (NASDAQ: TSC), was acquired by Raymond James Financial, Inc. (NYSE: RJF), a leading diversified financial services company, headquartered in St.
Petersburg, Florida. Chartwell has operated as the asset management subsidiary of TriState since March of 2014. Under the ownership of Raymond James, Chartwell will continue to operate independently, as a wholly owned
subsidiary of Carillon Tower Advisers (rebranded to Raymond James Investment Management effective October 1, 2022), the asset management subsidiary of Raymond James. There will be no changes to Chartwell personnel or
the manner in which they perform their sub-advisory duties with respect to the Fund as a result of this transaction.
Portfolio Management
Team
Douglas W. Kugler, CFA
Principal, Senior Portfolio
Manager
Peter M. Schofield, CFA
Principal, Senior Portfolio
Manager
Effective December 31,
2022 Peter Schofield resigned as a Portfolio Manager of the Fund so that he can devote more time to his other responsibilities at Chartwell. He is being replaced by Jeffrey Bilsky effective January 1, 2023.
Mr. Bilsky is a Portfolio Manager in Chartwell’s equity investment group and has been with the firm for 9 years. Prior to joining Chartwell Mr. Bilsky held positions at Cruiser Capital as a
Research Analyst, Hudson Securities as a Vice President of Institutional Sales and Trading and at Bank of America in Institutional Sales and Trading.
Commentary
First Trust Enhanced Equity
Income Fund
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. In addition, on an ongoing and consistent basis, the Fund
writes (sells) covered call options on a portion of the Fund’s Managed Assets. “Managed Assets” means the total 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’s investment objective will be achieved. The Fund may not be appropriate for all investors.
Market
Recap
The rally off the
pandemic lows which began in early 2020 and continued through 2021 came to an end this year as the market almost immediately stalled out in the very early days of 2022 and then proceeded to fall into a bear market
(down more than 20% from its high) by the middle of June 2022. The main reason for the S&P 500® Index’s (the “Index”) collapse was rising interest rates brought about by higher and higher inflation readings.
Year-over-year inflation readings had begun to creep higher in early 2021 but were considered to be ‘transitory’ by the Federal Reserve (the “Fed”) due to the economic rebound from COVID-19
closings and supply-chain issues – and the market appeared to accept the ‘transitory’ label. However, as higher prices for goods and services persisted and even accelerated, the Fed started to raise
the Federal Funds target rate in March 2022 and went on to increase the rate by 4.25% (at the mid-point of the range) over the balance of the year. That pace of increase (4.25% over 9 months) was the fastest rate of
increase in at least the last 30 years. Along with the Federal Funds rate increases, members of the Fed began speaking about how vigilant they were going to be in bringing inflation down to their target 2.0% rate from
the peak year-over-year rate of almost 9.0%. As this was happening, the 10-Year Treasury rate increased from 1.51% where it ended 2021 to a peak of 4.23% in late October 2022 and
Portfolio Commentary (Continued)
First Trust Enhanced
Equity Income Fund (FFA)
Annual Report
December 31, 2022
(Unaudited)
and those with the
lowest yields and compared their relative performance. For the year, the 200 stocks in the Index with the highest yields returned an average of -2.3% while the 200 stocks in the Index with the lowest yields returned
-31.1%.
Specifically, within the
equity portfolio the allocation of investments between sectors and groups was mostly neutral with the bulk of the portfolio’s outperformance coming from stock selection. The largest positive contributors to
relative performance came from stock selection in the Communication Services and Consumer Discretionary sectors. While several of our holdings did well such as Las Vegas Sands Corp. (+27.7%), Restaurants Brands
International, Inc. (+10.7%), and Activision Blizzard, Inc. (+15.7%), being underweight Meta Platforms, Inc. (-64.2%), Netflix, Inc. (-51.0%), and Tesla Inc. (-65.0%) was very beneficial as well. The largest
detractors from relative performance came from being underweight the Energy sector (+66.2%) (although the Fund’s stocks did better than the sector) and from stock selection within the Information Technology
sector. Examples from this sector included NVIDIA Corp. (-50.3%), Intel Corp. (-46.7%), PayPal Holdings, Inc. (-62.2%), and Microsoft Corp. (-28.0%). A few other holdings we would like to mention are Hess Corp.
(+94.1%), Chubb, Ltd. (+16.0%), and Caterpillar, Inc. (+18.6%) helping relative performance with Zoetis, Inc., Class A (-39.5%), Crown Castle International Corp. (-32.5%) and Adobe, Inc. (-40.7%) hurting relative
performance.
Managed Distribution
Policy
The Fund’s managed
distribution policy (the “Plan”) permits the Fund to make periodic distributions of long-term capital gains as frequently as quarterly each tax year. The plan has no impact on the Fund’s investment
strategy and may reduce the Fund’s NAV. However, the Advisor believes the policy helps maintain the Fund’s competitiveness and may benefit the Fund’s market price and premium/discount to the
Fund’s NAV. Under the Plan, the Fund currently intends to continue to pay a recurring quarterly distribution in the amount of $0.315 per Common Share that reflects the distributable cash flow of the Fund. The
Fund maintained its regular quarterly Common Share distribution of $0.315 per share for the 12-month period ended December 31, 2022. Based on the $0.315 per share quarterly Common Share distribution, the annualized
distribution rate as of December 31, 2022 was 7.55% at NAV and 7.99% at market price. For the 12-month period ended December 31, 2022, 0.53% of the distributions were characterized as ordinary income and 99.47%
were categorized as realized gain. The final determination of the source and tax status of all 2022 distributions will be made after the end of 2022 and will be provided on Form 1099-DIV. The foregoing is not to be
construed as tax advice. Please consult your tax advisor for further information regarding tax matters.
Market Outlook
As it seems at most
times, there are a variety of items for the markets to worry about. There are new COVID-19 variants popping up constantly (albeit with smaller health and economic impacts); the war in Ukraine has continued and seems
to have no end in sight; there is a looming political battle in Washington D.C. over raising the debt ceiling; the economies of China and Europe are having sizeable difficulties which may spill over into our domestic
economy; and how fast and to what level will inflation fall - just to name a few. However, we believe that the market will be most focused on what happens to the domestic economy over the next 12 to 18 months and how
the Fed reacts. Investors with a bearish leaning seem to believe that the Fed’s aggressive hiking of the Federal Funds rate and the concurrent increase in market interest rates has put in motion an economic
slide towards a recession. Investors with more bullish beliefs seem to think that the still strong jobs market and relatively strong consumer balance sheets will be enough to stave off a recession and help the economy
find the ‘soft landing’ that the market desires.
With the Index having
sold off significantly from its high, there is an argument for believing that all but the most dire economic consequences have already been factored into the market’s valuation. However, that argument can be
countered with a view that forward-looking corporate earnings expectations have stayed stubbornly resilient despite fears of recession and, therefore, a significant decline in earnings is around the corner which would
mean the market’s current valuation is overstated.
At the time of this
writing, we are comfortable with the positioning of the portfolio and the options program. However, we recognize the uncertainties around the economy and any further actions by the Fed. As these uncertainties become
clearer we will adjust the Fund’s holdings and options program accordingly. However, no matter the outcome, we will continue to manage the Fund with the objective of providing a high level of current income
and gains and, to a lesser extent, capital appreciation over the market cycle.
Notes to Financial Statements (Continued)
First Trust Enhanced
Equity Income Fund (FFA)
December 31, 2022
SEC also adopted new Rule 31a-4 under
the 1940 Act, which sets forth recordkeeping requirements associated with fair value determinations. The compliance date for Rule 2a-5 and Rule 31a-4 was September 8, 2022.
Effective September 8,
2022 and pursuant to the requirements of Rule 2a-5, the Fund’s Board of Trustees designated the Advisor as its valuation designee to perform fair value determinations and approved new Advisor Valuation
Procedures for the Fund.
B. Option
Contracts
The Fund is subject to
equity price risk in the normal course of pursuing its investment objective and may write (sell) options to hedge against changes in the value of equities. Also, the Fund seeks to generate additional income, in the
form of premiums received, from writing (selling) the options. The Fund may write (sell) covered call options (“options”) on all or a portion of the equity securities held in the Fund’s portfolio and
on securities indices as determined to be appropriate by Chartwell Investment Partners, LLC (“Chartwell” or the “Sub-Advisor”), consistent with the Fund’s investment objective. The number
of options the Fund can write (sell) is limited by the amount of equity securities the Fund holds in its portfolio. Options on securities indices are designed to reflect price fluctuations in a group of securities or
segment of the securities market rather than price fluctuations in a single security and are similar to options on single securities, except that the exercise of securities index options requires cash settlement
payments and does not involve the actual purchase or sale of securities. The Fund will not write (sell) “naked” or uncovered options. If certain equity securities held in the Fund’s portfolio are not
covered by a related call option on the individual equity security, securities index options may be written on all or a portion of such uncovered securities. When the Fund writes (sells) an option, an amount equal to
the premium received by the Fund is included in “Options written, at value” on the Fund’s Statement of Assets and Liabilities. 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 canceled 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 and is included in “Net realized gain (loss) on
investments” on the Statement of Operations. 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. Gain or loss on options is presented separately as “Net realized gain (loss) on written options contracts” on the Statement of
Operations.
The options that the Fund
writes (sells) give the option holder the right, but not the obligation, to purchase a security from the Fund at the strike price on or prior to the option’s expiration date. The ability to successfully
implement the writing (selling) of covered call options depends on the ability of the Sub-Advisor to predict pertinent market movements, which cannot be assured. Thus, the use of options may require the Fund to sell
portfolio securities at inopportune times or for prices other than current market value, which may limit the amount of appreciation the Fund can realize on an investment, or may cause the Fund to hold a security that
it might otherwise sell. As the writer (seller) of a covered option, the Fund foregoes, during the option’s life, the opportunity to profit from increases in the market value of the security covering the option
above the sum of the premium and the strike price of the option, but has retained the risk of loss should the price of the underlying security decline. The writer (seller) of an option has no control over the time
when it may be required to fulfill its obligation as a writer (seller) of the option. Once an option writer (seller) has received an exercise notice, it cannot effect a closing purchase transaction in order to
terminate its obligation under the option and must deliver the underlying security to the option holder at the exercise price.
Over-the-counter options
have the risk of the potential inability of counterparties to meet the terms of their contracts. The Fund’s maximum equity price risk for purchased options is limited to the premium initially paid. In addition,
certain risks may arise upon entering into option contracts including the risk that an illiquid secondary market will limit the Fund’s ability to close out an option contract prior to the expiration date and
that a change in the value of the option contract may not correlate exactly with changes in the value of the securities hedged.
C. Securities
Transactions and Investment Income
Securities transactions
are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income, if any, is
recorded on the accrual basis, including the amortization of premiums and accretion of discounts.
Notes to Financial Statements (Continued)
First Trust Enhanced
Equity Income Fund (FFA)
December 31, 2022
Distributions received
from the Fund’s investments in REITs may be comprised of return of capital, capital gains, and income. The actual character of the amounts received during the year are not known until after the REITs’
fiscal year end. The Fund records the character of distributions received from the REITs during the year based on estimates available. The characterization of distributions received by the Fund may be subsequently
revised based on information received from the REITs after their tax reporting periods conclude.
D. Dividends and
Distributions to Shareholders
Dividends from net
investment income of the Fund are declared and paid quarterly or as the Board of Trustees may determine from time to time. Distributions of any net realized capital gains earned by the Fund are distributed at least
annually. Distributions will automatically be reinvested into additional Common Shares pursuant to the Fund’s Dividend Reinvestment Plan unless cash distributions are elected by the shareholder.
Distributions from net
investment income and realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically
adjusted for permanent differences in order to reflect their tax character. These permanent differences are primarily due to the varying treatment of income and gain/loss on portfolio securities held by the Fund and
have no impact on net assets or NAV per share. Temporary differences, which arise from recognizing certain items of income, expense and gain/loss in different periods for financial statement and tax purposes, will
reverse at some point in the future. Permanent differences incurred during the year ended December 31, 2022, primarily as a result of the difference between book and tax treatments of income and gains on various
investment securities held by the Fund, have been reclassified at year end to reflect a decrease in accumulated net investment income (loss) by $1,396 and an increase in accumulated net realized gain (loss) on
investments by $1,396. Accumulated distributable earnings (loss) consists of accumulated net investment income (loss), accumulated net realized gain (loss) on investments, and unrealized appreciation (depreciation) on
investments. Net assets were not affected by this reclassification.
The tax character of
distributions paid by the Fund during the fiscal years ended December 31, 2022 and 2021, was as follows:
| Distributions paid from:
| 2022
| 2021
|
Ordinary income
| $132,172
| $5,559,791
|
Capital gains
| 25,051,162
| 19,618,585
|
Return of capital
| —
| —
|
As of December 31, 2022,
the components of distributable earnings and net assets on a tax basis were as follows:
Undistributed ordinary income
| $3,418,584
|
Undistributed capital gains
| —
|
Total undistributed earnings
| 3,418,584
|
Accumulated capital and other losses
| —
|
Net unrealized appreciation (depreciation)
| 65,912,695
|
Total accumulated earnings (losses)
| 69,331,279
|
Other
| —
|
Paid-in capital
| 264,187,105
|
Total net assets
| $333,518,384
|
E. Income Taxes
The Fund intends to
continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, which includes distributing substantially all of its net
investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal and state income taxes. However, due to the timing and amount of distributions, the Fund may be subject to
an excise tax of 4% of the amount by which approximately 98% of the Fund’s taxable income exceeds the distributions from such taxable income for the calendar year.
The Fund intends to
utilize provisions of the federal income tax laws, which allow it to carry a realized capital loss forward indefinitely following the year of the loss and offset such loss against any future realized capital gains.
The Fund is subject to certain limitations under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. At
December 31, 2022, for federal income tax purposes, the Fund had no non-expiring capital loss carryforwards that may be carried forward indefinitely.
Notes to Financial Statements (Continued)
First Trust Enhanced
Equity Income Fund (FFA)
December 31, 2022
The Fund is subject to
accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. Taxable years ended 2019, 2020, 2021,
and 2022 remain open to federal and state audit. As of December 31, 2022, management has evaluated the application of these standards to the Fund and has determined that no provision for income tax is required in the
Fund’s financial statements for uncertain tax positions.
As of December 31, 2022,
the aggregate cost, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation/(depreciation) on investments (including short positions and derivatives, if any) for federal income
tax purposes were as follows:
| Tax Cost
|
| Gross
Unrealized
Appreciation
|
| Gross
Unrealized
(Depreciation)
|
| Net Unrealized
Appreciation
(Depreciation)
|
| $263,939,925
|
| $98,048,678
|
| $(32,136,012)
|
| $65,912,666
|
F. Expenses
The Fund will pay all
expenses directly related to its operations.
4. Investment
Advisory Fee, Affiliated Transactions and Other Fee Arrangements
First Trust, the
investment advisor to the Fund, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. 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. For these services, First Trust is entitled to a monthly fee calculated at an annual rate of 1.00% of the Fund’s Managed
Assets. First Trust also provides fund reporting services to the Fund for a flat annual fee in the amount of $9,250.
At a shareholder meeting
of the Fund held on June 13, 2022, the shareholders approved the new sub-advisory agreement with Chartwell previously approved by the Board of Trustees on December 6, 2021. The new sub-advisory agreement is
substantially similar to the previous sub-advisory agreement. Shareholder approval of the new sub-advisory agreement was necessary because control of Chartwell changed on June 1, 2022 as a result of the transaction
whereby Chartwell’s parent company, TriState Capital Holdings was acquired by Raymond James Financial, Inc., as discussed earlier in this report.
Chartwell manages the
Fund’s portfolio subject to First Trust’s supervision. Chartwell receives a monthly portfolio management fee calculated at an annual rate of 0.50% of the Fund’s Managed Assets that is paid monthly by
First Trust out of its investment advisory fee.
During the fiscal year
ended December 31, 2021, the Fund received a reimbursement from the Sub-Advisor of $52,217 in connection with a trade error.
Computershare, Inc.
(“Computershare”) serves as the Fund’s transfer agent in accordance with certain fee arrangements. As transfer agent, Computershare is responsible for maintaining shareholder records for the Fund.
The Bank of New York Mellon (“BNYM”) serves as the Fund’s administrator, fund accountant, and custodian in accordance with certain fee arrangements. As administrator and fund accountant, BNYM is
responsible for providing certain administrative and accounting services to the Fund, including maintaining the Fund’s books of account, records of the Fund’s securities transactions, and certain other
books and records. As custodian, BNYM is responsible for custody of the Fund’s assets. BNYM is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company.
Each Trustee who is not
an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund
Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, a target outcome fund or an index fund.
Additionally, the Lead
Independent Trustee and the Chairs of the Audit Committee, Nominating and Governance Committee and Valuation Committee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among
each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Lead Independent Trustee and Committee
Chairs rotate every three years. The officers and “Interested” Trustee receive no compensation from the Fund for acting in such capacities.
Notes to Financial Statements (Continued)
First Trust Enhanced
Equity Income Fund (FFA)
December 31, 2022
5. Purchases and
Sales of Securities
The cost of purchases and
proceeds from sales of securities, excluding short-term investments, for the fiscal year ended December 31, 2022, were $74,793,586 and $93,176,788, respectively.
6. Derivative
Transactions
The following table
presents the types of derivatives held by the Fund at December 31, 2022, the primary underlying risk exposure and the location of these instruments as presented on the Statement of Assets and Liabilities.
|
|
|
|
| Asset Derivatives
|
| Liability Derivatives
|
Derivative
Instrument
|
| Risk
Exposure
|
| Statement of Assets and
Liabilities Location
|
| Value
|
| Statement of Assets and
Liabilities Location
|
| Value
|
| Written Options
|
| Equity Risk
|
| —
|
| $ —
|
| Options written, at value
|
| $ 624,300
|
The following table
presents the amount of net realized gain (loss) and change in net unrealized appreciation (depreciation) recognized for the fiscal year ended December 31, 2022, on derivative instruments, as well as the primary
underlying risk exposure associated with each instrument.
| Statement of Operations Location
|
|
| Equity Risk Exposure
|
|
| Net realized gain (loss) on written options contracts
| $5,916,828
|
| Net change in unrealized appreciation (depreciation) on written options contracts
| (240,388)
|
During the fiscal year
ended December 31, 2022, the premiums for written options opened were $15,980,377, and the premiums for written options closed, exercised and expired were $16,311,585.
The Fund does not have
the right to offset financial assets and liabilities related to option contracts on the Statement of Assets and Liabilities.
7. Indemnification
The Fund has a variety of
indemnification obligations under contracts with its service providers. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these
contracts and expects the risk of loss to be remote.
8. Subsequent
Events
Management has evaluated
the impact of all subsequent events to the Fund through the date the financial statements were issued and has determined that there was one subsequent event requiring recognition or disclosure in the financial
statements that has not already been disclosed.
Effective December 31,
2022 Peter Schofield resigned as a Portfolio Manager of the Fund and was replaced by Jeffrey Bilsky effective January 1, 2023.
Additional Information
First Trust Enhanced
Equity Income Fund (FFA)
December 31, 2022
(Unaudited)
Dividend Reinvestment
Plan
If your Common Shares are
registered directly with the Fund or if you hold your Common Shares with a brokerage firm that participates in the Fund’s Dividend Reinvestment Plan (the “Plan”), unless you elect, by written notice
to the Fund, to receive cash distributions, all dividends, including any capital gain distributions, on your Common Shares will be automatically reinvested by Computershare Trust Company N.A. (the “Plan
Agent”), in additional Common Shares under the Plan. If you elect to receive cash distributions, you will receive all distributions in cash paid by check mailed directly to you by the Plan Agent, as the dividend
paying agent.
If you decide to
participate in the Plan, the number of Common Shares you will receive will be determined as follows:
| (1)
| If Common Shares are trading at or above net asset value (“NAV”) at the time of valuation, the Fund will issue new shares at a price equal to the greater of (i) NAV per Common Share on that
date or (ii) 95% of the market price on that date.
|
| (2)
| If Common Shares are trading below NAV at the time of valuation, the Plan Agent will receive the dividend or distribution in cash and will purchase Common Shares in the open market,
on the NYSE or elsewhere, for the participants’ accounts. It is possible that the market price for the Common Shares may increase before the Plan Agent has completed its purchases. Therefore, the average
purchase price per share paid by the Plan Agent may exceed the market price at the time of valuation, resulting in the purchase of fewer shares than if the dividend or distribution had been paid in Common Shares
issued by the Fund. The Plan Agent will use all dividends and distributions received in cash to purchase Common Shares in the open market within 30 days of the valuation date except where temporary curtailment or
suspension of purchases is necessary to comply with federal securities laws. Interest will not be paid on any uninvested cash payments.
|
You may elect to opt-out
of or withdraw from the Plan at any time by giving written notice to the Plan Agent, or by telephone at (866) 340-1104, in accordance with such reasonable requirements as the Plan Agent and the Fund may agree upon. If
you withdraw or the Plan is terminated, you will receive a certificate for each whole share in your account under the Plan, and you will receive a cash payment for any fraction of a share in your account. If you wish,
the Plan Agent will sell your shares and send you the proceeds, minus brokerage commissions.
The Plan Agent maintains
all Common Shareholders’ accounts in the Plan and gives written confirmation of all transactions in the accounts, including information you may need for tax records. Common Shares in your account will be held by
the Plan Agent in non-certificated form. The Plan Agent will forward to each participant any proxy solicitation material and will vote any shares so held only in accordance with proxies returned to the Fund. Any proxy
you receive will include all Common Shares you have received under the Plan.
There is no brokerage
charge for reinvestment of your dividends or distributions in Common Shares. However, all participants will pay a pro rata share of brokerage commissions incurred by the Plan Agent when it makes open market
purchases.
Automatically reinvesting
dividends and distributions does not mean that you do not have to pay income taxes due upon receiving dividends and distributions. Capital gains and income are realized although cash is not received by you. Consult
your financial advisor for more information.
If you hold your Common
Shares with a brokerage firm that does not participate in the Plan, you will not be able to participate in the Plan and any dividend reinvestment may be effected on different terms than those described above.
The Fund reserves the
right to amend or terminate the Plan if in the judgment of the Board of Trustees the change is warranted. There is no direct service charge to participants in the Plan; however, the Fund reserves the right to amend
the Plan to include a service charge payable by the participants. Additional information about the Plan may be obtained by writing Computershare, Inc., P.O. Box 505000, Louisville, KY 40233-5000.
Proxy Voting Policies
and Procedures
A description of the
policies and procedures that the Fund uses to determine how to vote proxies and information on how the Fund voted proxies relating to portfolio investments during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on the Fund’s website at www.ftportfolios.com; and (3) on the Securities and Exchange Commission’s (“SEC”) website at www.sec.gov.
Portfolio Holdings
The Fund files portfolio
holdings information for each month in a fiscal quarter within 60 days after the end of the relevant fiscal quarter on Form N-PORT. Portfolio holdings information for the third month of each fiscal quarter will be
publicly available on the
Investment Objective, Policies and Risks (Continued)
First Trust Enhanced
Equity Income Fund (FFA)
December 31, 2022
(Unaudited)
security is backed only by the assets
and revenues of the non-governmental issuer, then such non-governmental issuer would be deemed to be the sole issuer. Where a security is also backed by the enforceable obligation of a superior or unrelated
governmental or other entity (other than a bond insurer), it shall also be included in the computation of securities owned that are issued by such governmental or other entity. Where a security is guaranteed by a
governmental entity or some other facility, such as a bank guarantee or letter of credit, such a guarantee or letter of credit would be considered a separate security and would be treated as an issue of such
government, other entity or bank. When a municipal bond is insured by bond insurance, it shall not be considered a security that is issued or guaranteed by the insurer; instead, the issuer of such municipal bond will
be determined in accordance with the principles set forth above.
Under the 1940 Act, when
used with respect to particular shares of the Fund, a “majority of the outstanding” Common Shares means (i) 67% or more of the shares present at a meeting, if the holders of more than 50% of the
Fund’s outstanding voting shares are present or represented by proxy, or (ii) more than 50% of the Fund’s outstanding voting shares, whichever is less.
Principal Risks
The following discussion
summarizes certain (but not all) of the principal risks associated with investing in the Fund. The Fund is subject to the informational requirements of the Securities Exchange Act of 1934 and the 1940 Act and,
in accordance therewith, files reports, proxy statements and other information that is available for review. The order of the below risk factors does not indicate the significance of any particular risk factor.
Cyber Security Risk. The Fund is susceptible to potential operational risks through breaches in cyber security. A breach in cyber security refers to both intentional and unintentional events that may cause the
Fund to lose proprietary information, suffer data corruption or lose operational capacity. Such events could cause the Fund to incur regulatory penalties, reputational damage, additional compliance costs associated
with corrective measures and/or financial loss. Cyber security breaches may involve unauthorized access to the Fund’s digital information systems through “hacking” or malicious software coding, but
may also result from outside attacks such as denial-of-service attacks through efforts to make network services unavailable to intended users. In addition, cyber security breaches of the Fund’s third-party
service providers, such as its administrator, transfer agent, custodian, or sub-advisor, as applicable, or issuers in which the Fund invests, can also subject the Fund to many of the same risks associated with direct
cyber security breaches. The Fund has established risk management systems designed to reduce the risks associated with cyber security. However, there is no guarantee that such efforts will succeed, especially because
the Fund does not directly control the cyber security systems of issuers or third party service providers. Substantial costs may be incurred by the Fund in order to resolve or prevent cyber incidents in the
future.
Depositary Receipts
Risk. Depositary receipts represent equity interests in a foreign company that trade on a local stock exchange. Depositary receipts may be less liquid than the underlying shares in their
primary trading market. Any distributions paid to the holders of depositary receipts are usually subject to a fee charged by the depositary. Holders of depositary receipts may have limited voting rights, and
investment restrictions in certain countries may adversely impact the value of depositary receipts because such restrictions may limit the ability to convert the equity shares into depositary receipts and vice versa.
Such restrictions may cause the equity shares of the underlying issuer to trade at a discount or premium to the market price of the depositary receipts.
Equity Securities
Risk. The value of the Fund’s shares will fluctuate with changes in the value of the equity securities in which the Fund invests. Equity securities prices fluctuate for several
reasons, including changes in investors’ perceptions of the financial condition of an issuer or the general condition of the relevant stock market or when political or economic events affecting the issuers or
their industries occur. An adverse event affecting an issuer, such as an unfavorable earnings report, may depress the value of a particular equity security held by the Fund. Also, the prices of equity securities
are sensitive to general movements in the stock market and a drop in the stock market may depress the prices of equity securities to which the Fund has exposure. Common stock prices may be particularly sensitive
to rising interest rates, as the cost of capital rises and borrowing costs increase. Equity securities may decline significantly in price over short or extended periods of time, and such declines may occur in the
equity market as a whole, or they may occur in only a particular country, company, industry or sector of the market.
Income Risk. Net investment income paid by the Fund to its common shareholders is derived from the premiums it receives from writing (selling) call options and from the dividends and interest it
receives from the equity securities and other investments held in the Fund’s portfolio and short-term gains thereon. Premiums from writing (selling) call options and dividends and interest payments made by
the securities in the Fund’s portfolio can vary widely over time. Dividends on equity securities are not fixed but are declared at the discretion of an issuer’s board of directors. There is no
guarantee that the issuers of the equity securities in which the Fund invests will declare dividends in the future or that if declared they will remain at current levels. The Fund cannot assure as to what
percentage of the distributions paid on the common shares, if any, will consist of qualified dividend income or long-term capital gains, both of which are taxed at lower rates for individuals than are ordinary income
and short-term capital gains.
Investment Objective, Policies and Risks (Continued)
First Trust Enhanced
Equity Income Fund (FFA)
December 31, 2022
(Unaudited)
Industry and Sector
Risk. The Fund may not invest 25% or more of its total assets in securities of issuers in any single industry. If the Fund is focused in an industry, it may present more risks than if it
were broadly diversified over numerous industries of the economy. Individual industries may be subject to unique risks which may include, among others, governmental regulation, inflation, technological
innovations that may render existing products and equipment obsolete, competition from new entrants, high research and development costs, and rising interest rates.
The Fund may invest 25%
or more of its total assets in securities of issuers in a single sector. Currently, the Fund makes significant investments in equity securities of companies in the information technology sector. Information technology
companies produce and provide hardware, software and information technology systems and services. Information technology companies are generally subject to the following risks: rapidly changing technologies and
existing product obsolescence; short product life cycles; fierce competition; aggressive pricing and reduced profit margins; the loss of patent, copyright and trademark protections; cyclical market patterns; evolving
industry standards; and frequent new product introductions and new market entrants. Information technology companies may be smaller and less experienced companies, with limited product lines, markets or
financial resources and fewer experienced management or marketing personnel. Information technology company stocks, particularly those involved with the internet, have experienced extreme price and volume fluctuations
that are often unrelated to their operating performance. In addition, information technology companies are particularly vulnerable to federal, state and local government regulation, and competition and consolidation,
both domestically and internationally, including competition from foreign competitors with lower production costs. Information technology companies also face competition for services of qualified personnel and
heavily rely on patents and intellectual property rights and the ability to enforce such rights to maintain a competitive advantage.
Inflation Risk. Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. As inflation increases, the
present value of the Fund’s assets and distributions may decline. This risk is more prevalent with respect to debt securities. Inflation creates uncertainty over the future real value (after inflation) of an
investment. Inflation rates may change frequently and drastically as a result of various factors, including unexpected shifts in the domestic or global economy, and the Fund’s investments may not keep pace with
inflation, which may result in losses to Fund investors.
Investment Risk. An investment in the Fund’s Common Shares is subject to investment risk, including the possible loss of the entire principal invested. An investment in Common Shares represents
an indirect investment in the securities owned by the Fund. The value of these securities, like other market investments, may move up or down, sometimes rapidly and unpredictably. Common Shares at any
point in time may be worth less than the original investment, even after taking into account the reinvestment of Fund dividends and distributions. When the Advisor or Sub-Advisor determines that it is
temporarily unable to follow the Fund’s investment strategy or that it is impractical to do so (such as when a market disruption event has occurred and trading in the securities is extremely limited or absent),
the Fund may take temporary defensive positions.
Management Risk and
Reliance on Key Personnel. In managing the Fund’s investment portfolio, the Fund’s portfolio managers will apply investment techniques and risk analyses that may not produce the desired result.
Additionally, the implementation of the Fund’s investment strategy depends upon the continued contributions of certain key employees of the Advisor and Sub-Advisor, some of whom have unique talents and
experience and would be difficult to replace. The loss or interruption of the services of a key member of the portfolio management team could have a negative impact on the Fund.
Market Discount from Net
Asset Value. Shares of closed-end investment companies such as the Fund frequently trade at a discount from their net asset value. The Fund cannot predict whether its common shares will trade at,
below or above net asset value.
Market Risk. Securities held by the Fund, as well as shares of the Fund itself, are subject to market fluctuations caused by factors such as general economic conditions, political events, regulatory or
market developments, changes in interest rates and perceived trends in securities prices. Shares of the Fund could decline in value or underperform other investments as a result of the risk of loss associated with
these market fluctuations. In addition, local, regional or global events such as war, acts of terrorism, spread of infectious diseases or other public health issues, recessions, or other events could have a
significant negative impact on the Fund and its investments. For example, the coronavirus (COVID-19) global pandemic and the aggressive responses taken by many governments, including closing borders, restricting
international and domestic travel, and the imposition of prolonged quarantines or similar restrictions, had negative impacts, and in many cases severe impacts, on markets worldwide. While the development of vaccines
has slowed the spread of the virus and allowed for the resumption of reasonably normal business activity in the United States, many countries continue to impose lockdown measures in an attempt to slow the spread.
Additionally, there is no guarantee that vaccines will be effective against emerging variants of the disease. Also, in February 2022, Russia invaded Ukraine which has caused and could continue to cause significant
market disruptions and volatility across markets globally, including the United States. The hostilities and sanctions resulting from those hostilities could have a significant impact on certain Fund investments as
well as Fund performance. As the global pandemic and conflict in Ukraine have illustrated, such events may affect certain geographic regions, countries, sectors and industries more significantly than others. These
events also may adversely affect the prices and liquidity of the Fund’s portfolio securities or other instruments and could result in disruptions in the trading markets. Any of such circumstances could have
a
Investment Objective, Policies and Risks (Continued)
First Trust Enhanced
Equity Income Fund (FFA)
December 31, 2022
(Unaudited)
materially negative impact on the value
of the Fund’s shares and result in increased market volatility. During any such events, the Fund’s shares may trade at increased premiums or discounts to their net asset value and the bid/ask spread on the
Fund’s shares may widen.
Non-U.S. Securities
Risk. Investing in securities of non-U.S. issuers may involve certain risks not typically associated with investing in securities of U.S. issuers. These risks include: (i) there may be
less publicly available information about non-U.S. issuers or markets due to less rigorous disclosure or accounting standards or regulatory practices; (ii) non-U.S. markets may be smaller, less liquid and more
volatile than the U.S. market; (iii) the economies of non-U.S. countries may grow at slower rates than expected or may experience a downturn or recession; (iv) the impact of economic, political, social or diplomatic
events as well as of foreign governmental laws or restrictions and differing legal standards; (v) certain non-U.S. countries may impose restrictions on the ability of non-U.S. issuers to make payments of principal and
interest to investors located in the United States due to blockage of non-U.S. currency exchanges or otherwise; and (vi) withholding and other non-U.S. taxes may decrease the Fund’s return. Foreign companies are
generally not subject to the same accounting, auditing and financial reporting standards as are U.S. companies. In addition, there may be difficulty in obtaining or enforcing a court judgment abroad, including in the
event the issuer of a non-U.S. security defaults or enters bankruptcy, administration or other proceedings. These risks may be more pronounced to the extent that the Fund invests a significant amount of its assets in
companies located in one region.
Operational Risk. The Fund is subject to risks arising from various operational factors, including, but not limited to, human error, processing and communication errors, errors of the Fund’s service
providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. The Fund relies on third parties for a range of services, including custody. Any delay or
failure relating to engaging or maintaining such service providers may affect the Fund’s ability to meet its investment objective. Although the Fund and the Advisor seek to reduce these operational risks through
controls and procedures, there is no way to completely protect against such risks.
Options Risk. The use of options involves investment strategies and risks different from those associated with ordinary portfolio securities transactions. The Fund may write (sell) covered call
options on all or a portion of the equity securities held in the Fund’s portfolio as determined to be appropriate by the Fund’s Sub-Advisor, consistent with the Fund’s investment objective. The
prices of options are volatile and are influenced by, among other things, actual and anticipated changes in the value of the underlying instrument, or in interest or currency exchange rates, including anticipated
volatility, which in turn are affected by fiscal and monetary policies and by national and international political and economic events. In addition, there may at times be an imperfect correlation between the
movement in values of options and their underlying securities and there may at times not be a liquid secondary market for certain options. The ability to successfully implement the Fund’s investment strategy
depends on the Sub-Advisor’s ability 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 values, may limit the amount of appreciation the Fund can realize on an investment, or may cause the Fund to hold an equity security that it might otherwise sell. There can be no assurance
that a liquid market for the options will exist when the Fund seeks to close out an option position. Additionally, to the extent that the Fund purchases options pursuant to a hedging strategy, the Fund will be subject
to additional risks.
Potential Conflicts of
Interest Risk. First Trust, Chartwell and the portfolio managers have interests which may conflict with the interests of the Fund. In particular, First Trust and Chartwell currently manage
and may in the future manage and/or advise other investment funds or accounts with the same or substantially similar investment objectives and strategies as the Fund.
REIT Risk. Real estate investment trusts (“REITs”) typically own and operate income-producing real estate, such as residential or commercial buildings, or real-estate related assets,
including mortgages. As a result, investments in REITs are subject to the risks associated with investing in real estate, which may include, but are not limited to: fluctuations in the value of underlying properties;
defaults by borrowers or tenants; market saturation; changes in general and local operating expenses; and other economic, political or regulatory occurrences affecting companies in the real estate sector. REITs are
also subject to the risk that the real estate market may experience an economic downturn generally, which may have a material effect on the real estate in which the REITs invest and their underlying portfolio
securities. REITs may have also a relatively small market capitalization which may result in their shares experiencing less market liquidity and greater price volatility than larger companies. Increases in interest
rates typically lower the present value of a REIT’s future earnings stream, and may make financing property purchases and improvements more costly. Because the market price of REIT stocks may change based upon
investors’ collective perceptions of future earnings, the value of the Fund will generally decline when investors anticipate or experience rising interest rates.
Small- and/or
Mid-Capitalization Companies Risk. Small and/or mid-capitalization companies may be more vulnerable to adverse general market or economic developments, and their securities may be less liquid and may experience greater price
volatility than larger, more established companies as a result of several factors, including limited trading volumes, fewer products or financial resources, management inexperience and less publicly available
information. Accordingly, such companies are generally subject to greater market risk than larger, more established companies.
Privacy Policy
First Trust Enhanced
Equity Income Fund (FFA)
December 31, 2022
(Unaudited)
Privacy Policy
First Trust values our
relationship with you and considers your privacy an important priority in maintaining that relationship. We are committed to protecting the security and confidentiality of your personal information.
Sources of Information
We collect nonpublic
personal information about you from the following sources:
| •
| Information we receive from you and your broker-dealer, investment professional or financial representative through interviews, applications, agreements or other forms;
|
| •
| Information about your transactions with us, our affiliates or others;
|
| •
| Information we receive from your inquiries by mail, e-mail or telephone; and
|
| •
| Information we collect on our website through the use of “cookies.” For example, we may identify the pages on our website that your browser requests or visits.
|
Information Collected
The type of data we
collect may include your name, address, social security number, age, financial status, assets, income, tax information, retirement and estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal information.
Disclosure of
Information
We do not disclose any
nonpublic personal information about our customers or former customers to anyone, except as permitted by law. In addition to using this information to verify your identity (as required under law), the permitted uses
may also include the disclosure of such information to unaffiliated companies for the following reasons:
| •
| In order to provide you with products and services and to effect transactions that you request or authorize, we may disclose your personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or other services on our behalf, such as transfer agents, custodians and trustees, or that assist us in the distribution of investor materials such as
trustees, banks, financial representatives, proxy services, solicitors and printers.
|
| •
| We may release information we have about you if you direct us to do so, if we are compelled by law to do so, or in other legally limited circumstances (for example to protect your
account from fraud).
|
In addition, in order to
alert you to our other financial products and services, we may share your personal information within First Trust.
Use of Website
Analytics
We currently use third
party analytics tools, Google Analytics and AddThis, to gather information for purposes of improving First Trust’s website and marketing our products and services to you. These tools employ cookies, which are
small pieces of text stored in a file by your web browser and sent to websites that you visit, to collect information, track website usage and viewing trends such as the number of hits, pages visited, videos and PDFs
viewed and the length of user sessions in order to evaluate website performance and enhance navigation of the website. We may also collect other anonymous information, which is generally limited to technical and
web navigation information such as the IP address of your device, internet browser type and operating system for purposes of analyzing the data to make First Trust’s website better and more useful to our users.
The information collected does not include any personal identifiable information such as your name, address, phone number or email address unless you provide that information through the website for us to
contact you in order to answer your questions or respond to your requests. To find out how to opt-out of these services click on: Google Analytics and AddThis.
Confidentiality and
Security
With regard to our
internal security procedures, First Trust restricts access to your nonpublic personal information to those First Trust employees who need to know that information to provide products or services to you. We maintain
physical, electronic and procedural safeguards to protect your nonpublic personal information.
Policy Updates and
Inquiries
As required by federal
law, we will notify you of our privacy policy annually. We reserve the right to modify this policy at any time, however, if we do change it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at 1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust Advisors).
March 2022
(b) Not applicable.
Item 4. Principal Accountant Fees and Services.
(a) Audit Fees (Registrant)
— The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant
for the audit of the registrant’s annual financial statements or services that are normally provided by the accountant in connection
with statutory and regulatory filings or engagements were $38,000 for 2021 and $40,000 for 2022.
(b) Audit-Related Fees (Registrant)
— The aggregate fees billed in each of the last two fiscal years, for assurance and related services by the principal accountant
that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under
paragraph (a) of this Item were $0 for 2021 and $0 for 2022.
Audit-Related
Fees (Investment Advisor) — The aggregate fees billed in each of the last two fiscal years of the registrant for assurance
and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant’s
financial statements and are not reported under paragraph (a) of this Item were $0 for 2021 and $0 for 2022.
(c) Tax Fees (Registrant)
— The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant
for tax compliance, tax advice, and tax planning to the registrant were $5,287 for 2021 and $16,250 for 2022. These fees were for tax
consultation and/or tax return preparation and professional services rendered for PFIC (Passive Foreign Investment Company) Identification
Services.
Tax Fees (Investment
Advisor) — The aggregate fees billed in each of the last two fiscal years of the registrant for professional services rendered
by the principal accountant for tax compliance, tax advice, and tax planning to the registrant’s advisor were $0 for 2021 and $0
for 2022.
(d) All Other Fees (Registrant)
— The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant
to the registrant, other than the services reported in paragraphs (a) through (c) of this Item were $0 for 2021 and $0 for 2022.
All Other Fees
(Investment Advisor) — The aggregate fees billed in each of the last two fiscal years for products and services provided
by the principal accountant to the registrant’s investment advisor, other than services reported in paragraphs (a) through
(c) of this Item were $0 for 2021 and $0 for 2022.
| (e)(1) | | Disclose the audit committee’s pre-approval policies and procedures described in paragraph
(c)(7) of Rule 2-01 of Regulation S-X. |
Pursuant to its charter
and its Audit and Non-Audit Services Pre-Approval Policy, the Audit Committee (the “Committee”) is responsible for
the pre-approval of all audit services and permitted non-audit services (including the fees and terms thereof) to be performed for the
registrant by its independent auditors. The Chairman of the Committee is authorized to give such pre-approvals on behalf of the Committee
up to $25,000 and report any such pre-approval to the full Committee.
The Committee is also
responsible for the pre-approval of the independent auditor’s engagements for non-audit services with the registrant’s advisor
(not including a sub-advisor whose role is primarily portfolio management and is sub-contracted or overseen by another investment advisor)
and any entity controlling, controlled by or under common control with the investment advisor that provides ongoing services to the registrant,
if the engagement relates directly to the operations and financial reporting of the registrant, subject to the de minimis exceptions
for non-audit services described in Rule 2-01 of Regulation S-X. If the independent auditor has provided non-audit services to the registrant’s
advisor (other than any sub-advisor whose role is primarily portfolio management and is sub-contracted with or overseen by another investment
advisor) and any entity controlling, controlled by or under common control with the investment advisor that provides ongoing services
to the registrant that were not pre-approved pursuant to its policies, the Committee will consider whether the provision of such non-audit
services is compatible with the auditor’s independence.
| (e)(2) | | The percentage of services described in each of paragraphs (b) through (d) for the registrant
and the registrant’s investment advisor of this Item that were approved by the audit committee pursuant to the pre-approval exceptions
included in paragraph (c)(7)(i)(c) or paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X are as follows: |
(b) 0%
(c) 0%
(d) 0%
| (f) | | The percentage of hours expended on the principal accountant’s engagement to audit
the registrant’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than
the principal accountant’s full-time, permanent employees was less than fifty percent. |
| (g) | | The aggregate non-audit fees billed by the registrant’s accountant for services rendered
to the registrant, and rendered to the registrant’s investment advisor (not including any sub-advisor whose role is primarily portfolio
management and is subcontracted with or overseen by another investment advisor), and any entity controlling, controlled by, or under
common control with the advisor that provides ongoing services to the registrant for 2021 were $5,287 and $16,500 for the Registrant
and the registrant’s investment advisor, respectively, and for 2022 were $16,250 and $0, for the registrant and the registrant’s
investment advisor, respectively. |
| (h) | | The registrant’s audit committee of its Board of Trustees determined that the provision
of non-audit services that were rendered to the registrant’s investment advisor (not including any sub-advisor whose role is primarily
portfolio management and is subcontracted with or overseen by another investment advisor), and any entity controlling, controlled by,
or under common control with the investment advisor that provides ongoing services to the registrant that were not pre-approved pursuant
to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence. |
Item 7. Disclosure of Proxy Voting
Policies and Procedures for Closed-End Management Investment Companies.
A description of the policies and procedures used to vote proxies on behalf
of the Fund is attached as an exhibit.
Item 8. Portfolio Managers of Closed-End Management Investment
Companies.
(a)(1) Identification of Portfolio Manager(s)
or Management Team Members and Description of Role of Portfolio Manager(s) or Management Team Members
Information provided as of March 10, 2023
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. The Chartwell Portfolio Management Team consists of the following:
Douglas W. Kugler, CFA
Principal, Senior Portfolio Manager
Mr. Kugler is a Senior Portfolio Manager
on Chartwell’s large-cap equity portfolio management team and has over 25 years of investment industry experience. His areas of
focus include the Consumer Discretionary, Energy, Industrials, Materials and Technology sectors of the market. He has been a portfolio
manager for the Fund since 2007. From 1993 to 2003, he held several positions at Morgan Stanley Investment Management (Miller Anderson
& Sherrerd) the last of which was Senior Associate and Analyst for the Large Cap Value team. Mr. Kugler is a member of the CFA (Chartered
Financial Analysts) Institute and the CFA Society of Philadelphia. He holds the Chartered Financial Analyst designation. Mr. Kugler earned
a Bachelor’s degree in Accounting from the University of Delaware.
Peter M. Schofield, CFA
Principal, Senior Portfolio Manager
Mr. Schofield is a Senior Portfolio
Manager on Chartwell’s large-cap equity portfolio management team and has over 38 years of investment industry experience. His areas
of focus include Consumer Staples, Health Care, Industrials and Information Technology. From 2005 to 2010, he was a Co-Chief Investment
Officer at Knott Capital. From 1996 to 2005, he was a Portfolio Manager at Sovereign Asset Management. Prior to Sovereign Asset Management,
he was a portfolio manager at Geewax, Terker & Company. Mr. Schofield holds the Chartered Financial Analyst designation and is a member
of the CFA (Chartered Financial Analysts) Institute and the CFA Society of Philadelphia. Mr. Schofield earned a Bachelor’s degree
in History from the University of Pennsylvania.
Jeffrey Bilsky will replace Peter
Schofield as Portfolio Manager effective January 1, 2023.
Jeffrey D. Bilsky,
Portfolio Manager
Jeffrey D. Bilsky, is a Portfolio Manager on
Chartwell's equity investment team managing the Dividend Value Strategy and has over 17 years of investment industry experience. His areas
of focus include the Energy, Utilities, Information Technology and Staples sectors of the market. He is also a member of the Brokerage
Committee. Prior to joining Chartwell, Jeff was employed at Cruiser Capital, where he served as a Research Analyst. Previously, he was
a Vice President in Institutional Sales and Trading at Hudson Securities. Earlier in his career, Mr. Bilskey worked at Bank of America
as an Analyst in Institutional Sales and Trading.
The investment team for the First Trust Enhanced
Equity Income Fund consists of two portfolio managers with an average of 29 years of investment experience. All team members (portfolio
managers and analysts) conduct fundamental research and meet with company management. Purchase and sale decisions are discussed among
the team members, however, final decision-making responsibility rests with Mr. Kugler. In addition, while each team member may be consulted
on any options transactions involving the portfolio, Mr. Kugler has full responsibility for decisions involving the options program.
| (a)(2) | | Other Accounts Managed by Portfolio Manager(s) or Management Team Member and Potential Conflicts
of Interest |
Information provided as of December 31, 2022
Other Accounts Managed by Portfolio Manager(s) or Management
Team Member
| Name of Portfolio Manager or Team Member |
Type of Accounts* |
Total # of Accounts Managed |
Total Assets |
# of Accounts Managed for which Advisory Fee is Based on Performance |
Total Assets for which Advisory Fee is Based on Performance |
| 1. Douglas W. Kugler |
Registered Investment Companies: |
0 |
$0 |
0 |
$0 |
| |
Other Pooled Investment Vehicles: |
1 |
$1.6M |
0 |
$0 |
| |
Other Accounts: |
19 |
$476M |
0 |
$0 |
| |
|
|
|
|
|
| 2. Peter M. Schofield |
Registered Investment Companies: |
1 |
$59.9M |
0 |
$0 |
| |
Other Pooled Investment Vehicles: |
0 |
$0 |
0 |
$0 |
| |
Other Accounts: |
95 |
$548.1M |
0 |
$0 |
| 3. Jeffrey D. Bilsky |
Registered Investment Companies: |
1 |
$19.6M |
0 |
$0 |
| |
Other Pooled Investment Vehicles: |
1 |
$1.6 |
0 |
$0 |
| |
Other Accounts: |
19 |
$476M |
0 |
$0 |
Potential Conflicts of Interests
The portfolio managers manage other accounts
for Chartwell including institutional portfolios of similar investment styles. None of these portfolio managers manage any hedge funds
nor any accounts with performance-based fees. When registered funds and investment accounts are managed side-by-side, firm personnel must
strictly follow the policies and procedures outlined in our Trade Allocation Policy to ensure that accounts are treated in a fair and
equitable manner, and that no client or account is favored over another. When registered funds and investment accounts are trading under
the same investment product, and thus trading the same securities, shares are allocated on a pro-rata basis based on market value, and
all portfolios obtain the same average price.
On a monthly basis, Jon Caffey, a member of
our Compliance Group, oversees the performance calculation process handled in Operations, and completes a spreadsheet of monthly portfolio
returns by client. Caffey provides this spreadsheet to the CEO, COO, CCO and various investment personnel for their review. Any performance
dispersion noted by anyone on the distribution list is investigated by Caffey by reviewing the underlying transactional detail, holdings
& security weightings by portfolio. This monthly process ensures that all portfolios that are managed under the same investment product
are treated fairly and traded in accordance with firm policy.
| (a)(3) | | Compensation Structure of Portfolio Manager(s) or Management Team Members |
Information provided as of December 31, 2022
The compensation
paid to a Chartwell portfolio manager and analyst consists of base salary, annual bonus, ownership distribution, and an annual profit-sharing
contribution to the firm’s retirement plan.
A portfolio
manager’s and analyst’s base salary is determined by Chartwell’s Compensation Committee and is reviewed at least annually.
A portfolio manager’s and analyst’s experience, historical performance, and role in firm or product team management are the
primary considerations in determining the base salary. Industry benchmarking is utilized by the Compensation Committee on an annual basis.
Annual bonuses
are determined by the Compensation Committee based on a number of factors. The primary factor is a performance-based compensation schedule
that is applied to all accounts managed by a portfolio manager within a particular investment product and is not specific to any one account.
The bonus is calibrated based on the gross composite performance of such accounts versus the appropriate benchmark and peer group rankings.
Portfolio construction, sector and security weighting, and performance are reviewed by the Compliance Committee and Compensation Committee
to prevent a manager from taking undue risks. Additional factors used to determine the annual bonus include the portfolio manager’s
contribution as an analyst, product team management, and contribution to the strategic planning and development of the investment group
as well as the firm. For employee retention purposes, if an individual employee’s bonus exceeds $50,000 for a given year, an amount
equal to 25% of the bonus is deferred and paid 3 years after the initial pay date. Chartwell's investment teams participate in a revenue
sharing plan and all employees participate in a 401(k) plan, which includes a matching contribution from Chartwell.
The performance of the fund does factor into
each portfolio manager’s compensation. Chartwell considers the one (1) and three (3) year performance of the fund compared to a
combination of either the S&P 500 or BXM benchmarks and the fund’s performance compared to its’ peer group in consideration
of each portfolio manager’s compensation
As described above, for employee retention
purposes, if an individual employee’s bonus exceeds $50,000 for a given year, an amount equal to 25% of the bonus is deferred and
paid 3 years after the initial paydate.
| (a)(4) | | Disclosure of Securities Ownership |
Information provided as of December 31, 2022:
|
Name of Portfolio Manager or
Team Member |
|
Dollar Range of Fund Shares
Beneficially Owned |
| |
|
|
| Douglas W. Kugler |
|
$100,001-500,000 |
| Peter M. Schofield |
|
None |
| Jeffrey D. Bilsky |
|
None |
Item 9. Purchases of Equity Securities
by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures
by which the shareholders may recommend nominees to the registrant’s board of directors, where those changes were implemented after
the registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as required
by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)), or this Item.