UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File Number: 811-21614
Eaton Vance Enhanced Equity Income Fund
(Exact Name of Registrant as Specified in Charter)
Two International Place, Boston, Massachusetts 02110
(Address of Principal Executive Offices)
Maureen A. Gemma
Two International Place, Boston, Massachusetts 02110
(Name and Address of Agent for Services)
(617) 482-8260
(Registrant’s Telephone Number)
September 30
Date of Fiscal Year End
March 31, 2015
Date of Reporting Period
Item 1. Reports to Stockholders
Eaton Vance
Enhanced Equity
Income Fund (EOI)
Semiannual Report
March 31, 2015
Commodity Futures Trading Commission Registration. Effective December 31, 2012, the Commodity Futures Trading Commission (“CFTC”) adopted certain regulatory changes that subject registered investment companies and advisers to regulation by the CFTC if a fund invests more than a prescribed level of its assets in certain CFTC-regulated instruments (including futures, certain options and swap agreements) or markets itself as providing investment exposure to such instruments. The Fund has claimed an exclusion from the definition of the term “commodity pool operator” under the Commodity Exchange Act. Accordingly, neither the Fund nor the adviser with respect to the operation of the Fund is subject to CFTC regulation. Because of its management of other strategies, the Fund’s adviser is registered with the CFTC as a commodity pool operator and a commodity trading advisor.
Managed Distribution Plan. Pursuant to an exemptive order issued by the Securities and Exchange Commission (Order), the Fund is authorized to distribute long-term capital gains to shareholders more frequently than once per year. Pursuant to the Order, the Fund’s Board of Trustees approved a Managed Distribution Plan (MDP) pursuant to which the Fund makes monthly cash distributions to common shareholders, stated in terms of a fixed amount per common share.
The Fund currently distributes monthly cash distributions equal to $0.0864 per share in accordance with the MDP. You should not draw any conclusions about the Fund’s investment performance from the amount of these distributions or from the terms of the MDP. The MDP will be subject to regular periodic review by the Fund’s Board of Trustees and the Board may amend or terminate the MDP at any time without prior notice to Fund shareholders. However, at this time there are no reasonably foreseeable circumstances that might cause the termination of the MDP.
The Fund may distribute more than its net investment income and net realized capital gains and, therefore, a distribution may include a return of capital. A return of capital distribution does not necessarily reflect the Fund’s investment performance and should not be confused with “yield” or “income.” With each distribution, the Fund will issue a notice to shareholders and a press release containing information about the amount and sources of the distribution and other related information. The amounts and sources of distributions contained in the notice and press release are only estimates and are not provided for tax purposes. The amounts and sources of the Fund’s distributions for tax purposes will be reported to shareholders on Form 1099-DIV for each calendar year.
Fund shares are not insured by the FDIC and are not deposits or other obligations of, or guaranteed by, any depository institution. Shares are subject to investment risks, including possible loss of principal invested.
Semiannual Report March 31, 2015
Eaton Vance
Enhanced Equity Income Fund
Table of Contents
| Performance |
2 | |||
| Fund Profile |
2 | |||
| Fund Snapshot |
3 | |||
| Endnotes and Additional Disclosures |
4 | |||
| Financial Statements |
5 | |||
| Officers and Trustees |
18 | |||
| Important Notices |
19 | |||
Eaton Vance
Enhanced Equity Income Fund
March 31, 2015
Performance1
Portfolio Managers Walter A. Row III, CFA, CMT and Michael A. Allison, CFA
| % Average Annual Total Returns | Inception Date | Six Months | One Year | Five Years | Ten Years | |||||||||||||||
| Fund at NAV |
10/29/2004 | 4.88 | % | 10.75 | % | 10.60 | % | 7.05 | % | |||||||||||
| Fund at Market Price |
— | 3.89 | 13.27 | 8.98 | 5.97 | |||||||||||||||
| S&P 500 Index |
— | 5.93 | % | 12.73 | % | 14.46 | % | 8.01 | % | |||||||||||
| CBOE S&P 500 BuyWrite Index |
— | 0.86 | 4.86 | 7.22 | 4.90 | |||||||||||||||
| % Premium/Discount to NAV2 | ||||||||||||||||||||
| –6.92 | % | |||||||||||||||||||
| Distributions3 | ||||||||||||||||||||
| Total Distributions per share for the period |
$ | 0.518 | ||||||||||||||||||
| Distribution Rate at NAV |
7.03 | % | ||||||||||||||||||
| Distribution Rate at Market Price |
7.55 | % | ||||||||||||||||||
Fund Profile
See Endnotes and Additional Disclosures in this report.
Past performance is no guarantee of future results. Returns are historical and are calculated by determining the percentage change in net asset value (NAV) or market price (as applicable) with all distributions reinvested and includes management fees and other expenses. Fund performance at market price will differ from its results at NAV due to factors such as changing perceptions about the Fund, market conditions, fluctuations in supply and demand for Fund shares, or changes in Fund distributions. Investment return and principal value will fluctuate so that shares, when sold, may be worth more or less than their original cost. Performance less than one year is cumulative. Performance is for the stated time period only; due to market volatility, current Fund performance may be lower or higher than the quoted return. For performance as of the most recent month-end, please refer to eatonvance.com.
| 2 |
Eaton Vance
Enhanced Equity Income Fund
March 31, 2015
Fund Snapshot
| 3 |
Eaton Vance
Enhanced Equity Income Fund
March 31, 2015
Endnotes and Additional Disclosures
| 4 |
Eaton Vance
Enhanced Equity Income Fund
March 31, 2015
Portfolio of Investments (Unaudited)
| 5 | See Notes to Financial Statements. |
Eaton Vance
Enhanced Equity Income Fund
March 31, 2015
Portfolio of Investments (Unaudited) — continued
| 6 | See Notes to Financial Statements. |
Eaton Vance
Enhanced Equity Income Fund
March 31, 2015
Portfolio of Investments (Unaudited) — continued
| 7 | See Notes to Financial Statements. |
Eaton Vance
Enhanced Equity Income Fund
March 31, 2015
Statement of Assets and Liabilities (Unaudited)
| Assets | March 31, 2015 | |||
| Unaffiliated investments, at value (identified cost, $499,957,071) |
$ | 575,893,519 | ||
| Affiliated investment, at value (identified cost, $1,100,563) |
1,100,563 | |||
| Dividends receivable |
739,817 | |||
| Interest receivable from affiliated investment |
536 | |||
| Receivable for investments sold |
12,611,770 | |||
| Receivable for premiums on written options |
464,821 | |||
| Tax reclaims receivable |
27,709 | |||
| Total assets |
$ | 590,838,735 | ||
| Liabilities | ||||
| Written options outstanding, at value (premiums received, $2,901,670) |
$ | 1,890,700 | ||
| Payable for investments purchased |
10,054,062 | |||
| Due to custodian |
464,856 | |||
| Payable to affiliates: |
||||
| Investment adviser fee |
495,944 | |||
| Accrued expenses |
91,252 | |||
| Total liabilities |
$ | 12,996,814 | ||
| Net Assets |
$ | 577,841,921 | ||
| Sources of Net Assets | ||||
| Common shares, $0.01 par value, unlimited number of shares authorized, 39,173,049 shares issued and outstanding |
$ | 391,730 | ||
| Additional paid-in capital |
513,453,268 | |||
| Accumulated net realized gain |
5,485,162 | |||
| Accumulated distributions in excess of net investment income |
(18,437,306 | ) | ||
| Net unrealized appreciation |
76,949,067 | |||
| Net Assets |
$ | 577,841,921 | ||
| Net Asset Value | ||||
| ($577,841,921 ÷ 39,173,049 common shares issued and outstanding) |
$ | 14.75 | ||
| 8 | See Notes to Financial Statements. |
Eaton Vance
Enhanced Equity Income Fund
March 31, 2015
Statement of Operations (Unaudited)
| Investment Income | Six Months Ended March 31, 2015 |
|||
| Dividends |
$ | 5,053,698 | ||
| Interest income allocated from affiliated investment |
3,390 | |||
| Expenses allocated from affiliated investment |
(352 | ) | ||
| Total investment income |
$ | 5,056,736 | ||
| Expenses | ||||
| Investment adviser fee |
$ | 2,874,982 | ||
| Trustees’ fees and expenses |
14,183 | |||
| Custodian fee |
110,036 | |||
| Transfer and dividend disbursing agent fees |
9,047 | |||
| Legal and accounting services |
37,329 | |||
| Printing and postage |
115,351 | |||
| Miscellaneous |
25,812 | |||
| Total expenses |
$ | 3,186,740 | ||
| Deduct — |
||||
| Reduction of custodian fee |
$ | 7 | ||
| Total expense reductions |
$ | 7 | ||
| Net expenses |
$ | 3,186,733 | ||
| Net investment income |
$ | 1,870,003 | ||
| Realized and Unrealized Gain (Loss) | ||||
| Net realized gain (loss) — |
||||
| Investment transactions |
$ | 10,791,531 | ||
| Investment transactions allocated from affiliated investment |
37 | |||
| Written options |
(5,239,087 | ) | ||
| Foreign currency transactions |
91,156 | |||
| Net realized gain |
$ | 5,643,637 | ||
| Change in unrealized appreciation (depreciation) — |
||||
| Investments |
$ | 18,306,405 | ||
| Written options |
463,779 | |||
| Foreign currency |
3,953 | |||
| Net change in unrealized appreciation (depreciation) |
$ | 18,774,137 | ||
| Net realized and unrealized gain |
$ | 24,417,774 | ||
| Net increase in net assets from operations |
$ | 26,287,777 | ||
| 9 | See Notes to Financial Statements. |
Eaton Vance
Enhanced Equity Income Fund
March 31, 2015
Statements of Changes in Net Assets
| Increase (Decrease) in Net Assets | Six Months Ended (Unaudited) |
Year Ended September 30, 2014 |
||||||
| From operations — |
||||||||
| Net investment income |
$ | 1,870,003 | $ | 3,202,437 | ||||
| Net realized gain from investment transactions, written options, and foreign currency and forward foreign currency exchange contract transactions |
5,643,637 | 27,735,883 | ||||||
| Net change in unrealized appreciation (depreciation) from investments, written options, foreign currency and forward foreign currency exchange contracts |
18,774,137 | 57,201,362 | ||||||
| Net increase in net assets from operations |
$ | 26,287,777 | $ | 88,139,682 | ||||
| Distributions to shareholders — |
||||||||
| From net investment income |
$ | (20,307,309 | )* | $ | (20,105,968 | ) | ||
| From net realized gain |
— | (10,819,859 | ) | |||||
| Tax return of capital |
— | (9,692,246 | ) | |||||
| Total distributions |
$ | (20,307,309 | ) | $ | (40,618,073 | ) | ||
| Capital share transactions — |
||||||||
| Cost of shares repurchased (see Note 5) |
$ | — | $ | (252,686 | ) | |||
| Net decrease in net assets from capital share transactions |
$ | — | $ | (252,686 | ) | |||
| Net increase in net assets |
$ | 5,980,468 | $ | 47,268,923 | ||||
| Net Assets | ||||||||
| At beginning of period |
$ | 571,861,453 | $ | 524,592,530 | ||||
| At end of period |
$ | 577,841,921 | $ | 571,861,453 | ||||
| Accumulated undistributed (distributions in excess of) net investment income included in net assets |
| |||||||
| At end of period |
$ | (18,437,306 | ) | $ | — | |||
| * | A portion of the distributions may be deemed a tax return of capital at year-end. See Note 2. |
| 10 | See Notes to Financial Statements. |
Eaton Vance
Enhanced Equity Income Fund
March 31, 2015
Financial Highlights
| Six Months Ended March 31, 2015 (Unaudited) |
Year Ended September 30, | |||||||||||||||||||||||
| 2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||||
| Net asset value — Beginning of period |
$ | 14.600 | $ | 13.380 | $ | 12.650 | $ | 11.150 | $ | 12.870 | $ | 13.450 | ||||||||||||
| Income (Loss) From Operations | ||||||||||||||||||||||||
| Net investment income(1) |
$ | 0.048 | $ | 0.082 | $ | 0.119 | $ | 0.098 | $ | 0.068 | $ | 0.092 | ||||||||||||
| Net realized and unrealized gain (loss) |
0.620 | 2.174 | 1.623 | 2.460 | (0.636 | ) | 0.787 | |||||||||||||||||
| Total income (loss) from operations |
$ | 0.668 | $ | 2.256 | $ | 1.742 | $ | 2.558 | $ | (0.568 | ) | $ | 0.879 | |||||||||||
| Less Distributions | ||||||||||||||||||||||||
| From net investment income |
$ | (0.518 | )* | $ | (0.514 | ) | $ | (0.274 | ) | $ | (0.097 | ) | $ | (0.068 | ) | $ | (0.092 | ) | ||||||
| From net realized gain |
— | (0.276 | ) | (0.763 | ) | — | — | — | ||||||||||||||||
| Tax return of capital |
— | (0.247 | ) | — | (0.967 | ) | (1.084 | ) | (1.367 | ) | ||||||||||||||
| Total distributions |
$ | (0.518 | ) | $ | (1.037 | ) | $ | (1.037 | ) | $ | (1.064 | ) | $ | (1.152 | ) | $ | (1.459 | ) | ||||||
| Anti-dilutive effect of share repurchase program |
$ | — | $ | 0.001 | $ | 0.025 | $ | 0.006 | $ | — | $ | — | ||||||||||||
| Net asset value — End of period |
$ | 14.750 | $ | 14.600 | $ | 13.380 | $ | 12.650 | $ | 11.150 | $ | 12.870 | ||||||||||||
| Market value — End of period |
$ | 13.730 | $ | 13.720 | $ | 12.060 | $ | 11.080 | $ | 9.780 | $ | 12.990 | ||||||||||||
| Total Investment Return on Net Asset Value(2) |
4.88 | %(3) | 17.98 | % | 15.66 | % | 25.24 | % | (4.63 | )% | 6.87 | % | ||||||||||||
| Total Investment Return on Market Value(2) |
3.89 | %(3) | 23.00 | % | 19.02 | % | 25.06 | % | (17.12 | )% | 6.02 | % | ||||||||||||
| Ratios/Supplemental Data | ||||||||||||||||||||||||
| Net assets, end of period (000’s omitted) |
$ | 577,842 | $ | 571,861 | $ | 524,593 | $ | 503,828 | $ | 445,814 | $ | 513,953 | ||||||||||||
| Ratios (as a percentage of average daily net assets): |
||||||||||||||||||||||||
| Expenses(4) |
1.11 | %(5) | 1.11 | % | 1.14 | % | 1.15 | % | 1.15 | % | 1.12 | % | ||||||||||||
| Net investment income |
0.65 | %(5) | 0.57 | % | 0.92 | % | 0.80 | % | 0.52 | % | 0.69 | % | ||||||||||||
| Portfolio Turnover |
41 | %(3) | 68 | % | 143 | % | 35 | % | 78 | % | 27 | % | ||||||||||||
| (1) | Computed using average shares outstanding. |
| (2) | Returns are historical and are calculated by determining the percentage change in net asset value or market value with all distributions reinvested. Distributions are assumed to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. |
| (3) | Not annualized. |
| (4) | Excludes the effect of custody fee credits, if any, of less than 0.005%. |
| (5) | Annualized. |
| * | A portion of the distributions may be deemed a tax return of capital at year-end. See Note 2. |
| 11 | See Notes to Financial Statements. |
Eaton Vance
Enhanced Equity Income Fund
March 31, 2015
Notes to Financial Statements (Unaudited)
1 Significant Accounting Policies
Eaton Vance Enhanced Equity Income Fund (the Fund) is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended (the 1940 Act), as a diversified, closed-end management investment company. The Fund’s primary investment objective is to provide current income, with a secondary objective of capital appreciation.
The following is a summary of significant accounting policies of the Fund. The policies are in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). The Fund is an investment company and follows accounting and reporting guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946.
A Investment Valuation — The following methodologies are used to determine the market value or fair value of investments.
Equity Securities. Equity securities listed on a U.S. securities exchange generally are valued at the last sale or closing price on the day of valuation or, if no sales took place on such date, at the mean between the closing bid and asked prices therefore on the exchange where such securities are principally traded. Equity securities listed on the NASDAQ Global or Global Select Market generally are valued at the NASDAQ official closing price. Unlisted or listed securities for which closing sales prices or closing quotations are not available are valued at the mean between the latest available bid and asked prices.
Debt Obligations. Short-term obligations purchased with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates market value.
Derivatives. Exchange-traded options are valued at the mean between the bid and asked prices at valuation time as reported by the Options Price Reporting Authority for U.S. listed options or by the relevant exchange or board of trade for non-U.S. listed options. Over-the-counter options are valued by a third party pricing service using techniques that consider factors including the value of the underlying instrument, the volatility of the underlying instrument and the period of time until option expiration. Forward foreign currency exchange contracts are generally valued at the mean of the average bid and average asked prices that are reported by currency dealers to a third party pricing service at the valuation time. Such third party pricing service valuations are supplied for specific settlement periods and the Fund’s forward foreign currency exchange contracts are valued at an interpolated rate between the closest preceding and subsequent settlement period reported by the third party pricing service.
Foreign Securities and Currencies. Foreign securities and currencies are valued in U.S. dollars, based on foreign currency exchange rate quotations supplied by a third party pricing service. The pricing service uses a proprietary model to determine the exchange rate. Inputs to the model include reported trades and implied bid/ask spreads. The daily valuation of exchange-traded foreign securities generally is determined as of the close of trading on the principal exchange on which such securities trade. Events occurring after the close of trading on foreign exchanges may result in adjustments to the valuation of foreign securities to more accurately reflect their fair value as of the close of regular trading on the New York Stock Exchange. When valuing foreign equity securities that meet certain criteria, the Fund’s Trustees have approved the use of a fair value service that values such securities to reflect market trading that occurs after the close of the applicable foreign markets of comparable securities or other instruments that have a strong correlation to the fair-valued securities.
Affiliated Fund. The Fund may invest in Eaton Vance Cash Reserves Fund, LLC (Cash Reserves Fund), an affiliated investment company managed by Eaton Vance Management (EVM). The value of the Fund’s investment in Cash Reserves Fund reflects the Fund’s proportionate interest in its net assets. Cash Reserves Fund generally values its investment securities utilizing the amortized cost valuation technique in accordance with Rule 2a-7 under the 1940 Act. This technique involves initially valuing a portfolio security at its cost and thereafter assuming a constant amortization to maturity of any discount or premium. If amortized cost is determined not to approximate fair value, Cash Reserves Fund may value its investment securities based on available market quotations provided by a third party pricing service.
Fair Valuation. Investments for which valuations or market quotations are not readily available or are deemed unreliable are valued at fair value using methods determined in good faith by or at the direction of the Trustees of the Fund in a manner that fairly reflects the security’s value, or the amount that the Fund might reasonably expect to receive for the security upon its current sale in the ordinary course. Each such determination is based on a consideration of relevant factors, which are likely to vary from one pricing context to another. These factors may include, but are not limited to, the type of security, the existence of any contractual restrictions on the security’s disposition, the price and extent of public trading in similar securities of the issuer or of comparable companies or entities, quotations or relevant information obtained from broker/dealers or other market participants, information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities), an analysis of the company’s or entity’s financial condition, and an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold.
B Investment Transactions — Investment transactions for financial statement purposes are accounted for on a trade date basis. Realized gains and losses on investments sold are determined on the basis of identified cost.
C Income — Dividend income is recorded on the ex-dividend date for dividends received in cash and/or securities. However, if the ex-dividend date has passed, certain dividends from foreign securities are recorded as the Fund is informed of the ex-dividend date. Withholding taxes on foreign dividends and capital gains have been provided for in accordance with the Fund’s understanding of the applicable countries’ tax rules and rates. Interest income is recorded on the basis of interest accrued, adjusted for amortization of premium or accretion of discount.
| 12 |
Eaton Vance
Enhanced Equity Income Fund
March 31, 2015
Notes to Financial Statements (Unaudited) — continued
D Federal Taxes — The Fund’s policy is to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its net investment income, and all or substantially all of its net realized capital gains. Accordingly, no provision for federal income or excise tax is necessary.
As of March 31, 2015, the Fund had no uncertain tax positions that would require financial statement recognition, de-recognition, or disclosure. The Fund files a U.S. federal income tax return annually after its fiscal year-end, which is subject to examination by the Internal Revenue Service for a period of three years from the date of filing.
E Expense Reduction — State Street Bank and Trust Company (SSBT) serves as custodian of the Fund. Pursuant to the custodian agreement, SSBT receives a fee reduced by credits, which are determined based on the average daily cash balance the Fund maintains with SSBT. All credit balances, if any, used to reduce the Fund’s custodian fees are reported as a reduction of expenses in the Statement of Operations.
F Foreign Currency Translation — Investment valuations, other assets, and liabilities initially expressed in foreign currencies are translated each business day into U.S. dollars based upon current exchange rates. Purchases and sales of foreign investment securities and income and expenses denominated in foreign currencies are translated into U.S. dollars based upon currency exchange rates in effect on the respective dates of such transactions. Recognized gains or losses on investment transactions attributable to changes in foreign currency exchange rates are recorded for financial statement purposes as net realized gains and losses on investments. That portion of unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
G Use of Estimates — The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Actual results could differ from those estimates.
H Indemnifications — Under the Fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the Fund. Under Massachusetts law, if certain conditions prevail, shareholders of a Massachusetts business trust (such as the Fund) could be deemed to have personal liability for the obligations of the Fund. However, the Fund’s Declaration of Trust contains an express disclaimer of liability on the part of Fund shareholders and the By-laws provide that the Fund shall assume the defense on behalf of any Fund shareholders. Moreover, the By-laws also provide for indemnification out of Fund property of any shareholder held personally liable solely by reason of being or having been a shareholder for all loss or expense arising from such liability. Additionally, in the normal course of business, the Fund enters into agreements with service providers that may contain indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred.
I Forward Foreign Currency Exchange Contracts — The Fund may enter into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. The forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded as unrealized until such time as the contracts have been closed. Risks may arise upon entering these contracts from the potential inability of counterparties to meet the terms of their contracts and from movements in the value of a foreign currency relative to the U.S. dollar.
J Written Options — Upon the writing of a call or a put option, the premium received by the Fund is included in the Statement of Assets and Liabilities as a liability. The amount of the liability is subsequently marked-to-market to reflect the current market value of the option written, in accordance with the Fund’s policies on investment valuations discussed above. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options which are exercised or are closed are added to or offset against the proceeds or amount paid on the transaction to determine the realized gain or loss. When an index option is exercised, the Fund is required to deliver an amount of cash determined by the excess of the strike price of the option over the value of the index (in the case of a put) or the excess of the value of the index over the strike price of the option (in the case of a call) at contract termination. If a put option on a security is exercised, the premium reduces the cost basis of the securities purchased by the Fund. The Fund, as a writer of an option, may have no control over whether the underlying securities or other assets may be sold (call) or purchased (put) and, as a result, bears the market risk of an unfavorable change in the price of the securities or other assets underlying the written option. The Fund may also bear the risk of not being able to enter into a closing transaction if a liquid secondary market does not exist.
K Interim Financial Statements — The interim financial statements relating to March 31, 2015 and for the six months then ended have not been audited by an independent registered public accounting firm, but in the opinion of the Fund’s management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the financial statements.
2 Distributions to Shareholders and Income Tax Information
Subject to its Managed Distribution Plan, the Fund intends to make monthly distributions from its cash available for distribution, which consists of the Fund’s dividends and interest income after payment of Fund expenses, net option premiums and net realized and unrealized gains on stock investments. The Fund intends to distribute all or substantially all of its net realized capital gains. Distributions are recorded on the ex-dividend date. Distributions to shareholders are determined in accordance with income tax regulations, which may differ from U.S. GAAP. As required by U.S. GAAP, only distributions in excess of tax basis earnings and profits are reported in the financial statements as a return of capital. Permanent differences between book and tax
| 13 |
Eaton Vance
Enhanced Equity Income Fund
March 31, 2015
Notes to Financial Statements (Unaudited) — continued
accounting relating to distributions are reclassified to paid-in capital. For tax purposes, distributions from short-term capital gains are considered to be from ordinary income. Distributions in any year may include a substantial return of capital component. For the six months ended March 31, 2015, the amount of distributions estimated to be a tax return of capital was approximately $10,904,000. The final determination of tax characteristics of the Fund’s distributions will occur at the end of the year, at which time it will be reported to the shareholders.
The cost and unrealized appreciation (depreciation) of investments of the Fund at March 31, 2015, as determined on a federal income tax basis, were as follows:
| Aggregate cost |
$ | 501,216,109 | ||
| Gross unrealized appreciation |
$ | 83,517,813 | ||
| Gross unrealized depreciation |
(7,739,840 | ) | ||
| Net unrealized appreciation |
$ | 75,777,973 | ||
3 Investment Adviser Fee and Other Transactions with Affiliates
The investment adviser fee is earned by EVM as compensation for management and investment advisory services rendered to the Fund. The fee is computed at an annual rate of 1.00% of the Fund’s average daily gross assets and is payable monthly. Gross assets as referred to herein represent net assets plus obligations attributable to investment leverage, if any. For the six months ended March 31, 2015, the Fund’s investment adviser fee amounted to $2,874,982. The Fund invests its cash in Cash Reserves Fund. EVM does not currently receive a fee for advisory services provided to Cash Reserves Fund. EVM also serves as administrator of the Fund, but receives no compensation.
Trustees and officers of the Fund who are members of EVM’s organization receive remuneration for their services to the Fund out of the investment adviser fee. Trustees of the Fund who are not affiliated with EVM may elect to defer receipt of all or a percentage of their annual fees in accordance with the terms of the Trustees Deferred Compensation Plan. For the six months ended March 31, 2015, no significant amounts have been deferred. Certain officers and Trustees of the Fund are officers of EVM.
4 Purchases and Sales of Investments
Purchases and sales of investments, other than short-term obligations, aggregated $234,934,553 and $256,250,633, respectively, for the six months ended March 31, 2015.
5 Common Shares of Beneficial Interest
The Fund may issue common shares pursuant to its dividend reinvestment plan. There were no common shares issued by the Fund for the six months ended March 31, 2015 and the year ended September 30, 2014.
On September 30, 2013, the Board of Trustees of the Fund approved the continuation of the Fund’s share repurchase program that has been in effect since August 6, 2012. Pursuant to the terms of the reauthorization of the program, the Fund may repurchase up to 10% of its common shares outstanding as of September 30, 2013 in open market transactions at a discount to net asset value (NAV). The terms of the reauthorization increased the number of shares available for repurchase. The repurchase program does not obligate the Fund to purchase a specific amount of shares. There were no repurchases of common shares by the Fund for the six months ended March 31, 2015. During the year ended September 30, 2014, the Fund repurchased 20,000 of its common shares under the share repurchase program at a cost, including brokerage commissions, of $252,686 and an average price per share of $12.63. The weighted average discount per share to NAV on these repurchases amounted to 10.71% for the year ended September 30, 2014.
6 Financial Instruments
The Fund may trade in financial instruments with off-balance sheet risk in the normal course of its investing activities. These financial instruments may include forward foreign currency exchange contracts and written options and may involve, to a varying degree, elements of risk in excess of the amounts recognized for financial statement purposes. The notional or contractual amounts of these instruments represent the investment the Fund has in particular classes of financial instruments and do not necessarily represent the amounts potentially subject to risk. The measurement of the risks associated with these instruments is meaningful only when all related and offsetting transactions are considered. A summary of written options at March 31, 2015 is included in the Portfolio of Investments. At March 31, 2015, there were no forward foreign currency exchange contracts outstanding.
| 14 |
Eaton Vance
Enhanced Equity Income Fund
March 31, 2015
Notes to Financial Statements (Unaudited) — continued
Written options activity for the six months ended March 31, 2015 was as follows:
| Number of Contracts |
Premiums Received |
|||||||
| Outstanding, beginning of period |
33,675 | $ | 2,526,708 | |||||
| Options written |
194,395 | 13,699,483 | ||||||
| Options terminated in closing purchase transactions |
(95,356 | ) | (6,577,437 | ) | ||||
| Options exercised |
(4 | ) | (41 | ) | ||||
| Options expired |
(93,075 | ) | (6,747,043 | ) | ||||
| Outstanding, end of period |
39,635 | $ | 2,901,670 | |||||
At March 31, 2015, the Fund had sufficient cash and/or securities to cover commitments under these contracts.
In the normal course of pursuing its investment objectives, the Fund is subject to the following risks:
Equity Price Risk: The Fund writes covered call options on individual stocks above the current value of the stock to generate premium income. In writing call options on individual stocks, the Fund in effect, sells potential appreciation in the value of the applicable stock above the exercise price in exchange for the option premium received. The Fund retains the risk of loss, minus the premium received, should the price of the underlying stock decline.
The over-the-counter (OTC) derivatives in which the Fund invests, including forward foreign currency exchange contracts, are subject to the risk that the counterparty to the contract fails to perform its obligations under the contract. The Fund is not subject to counterparty credit risk with respect to its written options as the Fund, not the counterparty, is obligated to perform under such derivatives. To mitigate this risk, the Fund has entered into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with substantially all its derivative counterparties. An ISDA Master Agreement is a bilateral agreement between the Fund and a counterparty that governs certain OTC derivatives and typically contains, among other things, set-off provisions in the event of a default and/or termination event as defined under the relevant ISDA Master Agreement. Under an ISDA Master Agreement, the Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default including the bankruptcy or insolvency of the counterparty. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against the right of offset in bankruptcy or insolvency. Certain ISDA Master Agreements allow counterparties to OTC derivatives to terminate derivative contracts prior to maturity in the event the Fund’s net assets decline by a stated percentage or the Fund fails to meet the terms of its ISDA Master Agreements, which would cause the counterparty to accelerate payment by the Fund of any net liability owed to it.
The collateral requirements for derivatives traded under an ISDA Master Agreement are governed by a Credit Support Annex to the ISDA Master Agreement. Collateral requirements are determined at the close of business each day and are typically based on changes in market values for each transaction under an ISDA Master Agreement and netted into one amount for such agreement. Generally, the amount of collateral due from or to a counterparty is subject to a minimum transfer threshold amount before a transfer is required, which may vary by counterparty. Collateral pledged for the benefit of the Fund and/or counterparty is held in segregated accounts by the Fund’s custodian and cannot be sold, re-pledged, assigned or otherwise used while pledged. The portion of such collateral representing cash, if any, is reflected as restricted cash and, in the case of cash pledged by a counterparty for the benefit of the Fund, a corresponding liability on the Statement of Assets and Liabilities. Securities pledged by the Fund as collateral, if any, are identified as such in the Portfolio of Investments.
The fair value of open derivative instruments (not considered to be hedging instruments for accounting disclosure purposes) and whose primary underlying risk exposure is equity price risk at March 31, 2015 was as follows:
| Fair Value | ||||||||
| Derivative | Asset Derivative | Liability Derivative | ||||||
| Written options |
$ | — | $ | (1,890,700 | )(1) | |||
| (1) | Statement of Assets and Liabilities location: Written options outstanding, at value. |
| 15 |
Eaton Vance
Enhanced Equity Income Fund
March 31, 2015
Notes to Financial Statements (Unaudited) — continued
The effect of derivative instruments (not considered to be hedging instruments for accounting disclosure purposes) on the Statement of Operations and whose primary underlying risk exposure is equity price risk for the six months ended March 31, 2015 was as follows:
| Derivative | Realized Gain (Loss) on Derivatives Recognized in Income(1) |
Change in Unrealized Appreciation (Depreciation) on Derivatives Recognized in Income(2) |
||||||
| Written options |
$ | (5,239,087 | ) | $ | 463,779 | |||
| (1) | Statement of Operations location: Net realized gain (loss) – Written options. |
| (2) | Statement of Operations location: Change in unrealized appreciation (depreciation) – Written options. |
7 Overdraft Advances
Pursuant to the custodian agreement, SSBT may, in its discretion, advance funds to the Fund to make properly authorized payments. When such payments result in an overdraft, the Fund is obligated to repay SSBT at the current rate of interest charged by SSBT for secured loans (currently, the Federal Funds rate plus 2%). This obligation is payable on demand to SSBT. SSBT has a lien on the Fund’s assets to the extent of any overdraft. At March 31, 2015, the Fund had an overdraft balance due to SSBT pursuant to the foregoing arrangement of $464,856. Based on the short-term nature of these payments and the variable interest rate, the carrying value of the overdraft advances approximated its fair value at March 31, 2015. If measured at fair value, overdraft advances would have been considered as Level 2 in the fair value hierarchy (see Note 8) at March 31, 2015. The Fund’s average overdraft advances during the six months ended March 31, 2015 were not significant.
8 Fair Value Measurements
Under generally accepted accounting principles for fair value measurements, a three-tier hierarchy to prioritize the assumptions, referred to as inputs, is used in valuation techniques to measure fair value. The three-tier hierarchy of inputs is summarized in the three broad levels listed below.
| Ÿ | Level 1 – quoted prices in active markets for identical investments |
| Ÿ | Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| Ÿ | Level 3 – significant unobservable inputs (including a fund’s own assumptions in determining the fair value of investments) |
In cases where the inputs used to measure fair value fall in different levels of the fair value hierarchy, the level disclosed is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
| 16 |
Eaton Vance
Enhanced Equity Income Fund
March 31, 2015
Notes to Financial Statements (Unaudited) — continued
At March 31, 2015, the hierarchy of inputs used in valuing the Fund’s investments and open derivative instruments, which are carried at value, were as follows:
| Asset Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Common Stocks |
||||||||||||||||
| Consumer Discretionary |
$ | 73,065,623 | $ | — | $ | — | $ | 73,065,623 | ||||||||
| Consumer Staples |
52,978,276 | 5,323,149 | — | 58,301,425 | ||||||||||||
| Energy |
39,950,617 | — | — | 39,950,617 | ||||||||||||
| Financials |
78,110,269 | 6,245,557 | — | 84,355,826 | ||||||||||||
| Health Care |
87,756,517 | — | — | 87,756,517 | ||||||||||||
| Industrials |
59,240,666 | — | — | 59,240,666 | ||||||||||||
| Information Technology |
131,453,001 | 4,338,954 | — | 135,791,955 | ||||||||||||
| Materials |
8,264,375 | — | — | 8,264,375 | ||||||||||||
| Telecommunication Services |
6,184,871 | 5,659,610 | — | 11,844,481 | ||||||||||||
| Utilities |
17,322,034 | — | — | 17,322,034 | ||||||||||||
| Total Common Stocks |
$ | 554,326,249 | $ | 21,567,270 | * | $ | — | $ | 575,893,519 | |||||||
| Short-Term Investments |
$ | — | $ | 1,100,563 | $ | — | $ | 1,100,563 | ||||||||
| Total Investments |
$ | 554,326,249 | $ | 22,667,833 | $ | — | $ | 576,994,082 | ||||||||
| Liability Description |
||||||||||||||||
| Covered Call Options Written |
$ | (1,890,700 | ) | $ | — | $ | — | $ | (1,890,700 | ) | ||||||
| Total |
$ | (1,890,700 | ) | $ | — | $ | — | $ | (1,890,700 | ) | ||||||
| * | Includes foreign equity securities whose values were adjusted to reflect market trading of comparable securities or other correlated instruments that occurred after the close of trading in their applicable foreign markets. |
The Fund held no investments or other financial instruments as of September 30, 2014 whose fair value was determined using Level 3 inputs. At March 31, 2015, there were no investments transferred between Level 1 and Level 2 during the six months then ended.
| 17 |
Eaton Vance
Enhanced Equity Income Fund
March 31, 2015
Officers and Trustees
Officers of Eaton Vance Enhanced Equity Income Fund
Trustees of Eaton Vance Enhanced Equity Income Fund
| * | Interested Trustee |
Number of Employees
The Fund is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as a closed-end management investment company and has no employees.
Number of Shareholders
As of March 31, 2015, Fund records indicate that there are 20 registered shareholders and approximately 26,206 shareholders owning the Fund shares in street name, such as through brokers, banks, and financial intermediaries.
If you are a street name shareholder and wish to receive Fund reports directly, which contain important information about the Fund, please write or call:
Eaton Vance Distributors, Inc.
Two International Place
Boston, MA 02110
1-800-262-1122
New York Stock Exchange symbol
The New York Stock Exchange symbol is EOI.
| 18 |
Eaton Vance Funds
IMPORTANT NOTICES
Privacy. The Eaton Vance organization is committed to ensuring your financial privacy. Each of the financial institutions identified below has in effect the following policy (“Privacy Policy”) with respect to nonpublic personal information about its customers:
| Ÿ | Only such information received from you, through application forms or otherwise, and information about your Eaton Vance fund transactions will be collected. This may include information such as name, address, social security number, tax status, account balances and transactions. |
| Ÿ | None of such information about you (or former customers) will be disclosed to anyone, except as permitted by law (which includes disclosure to employees necessary to service your account). In the normal course of servicing a customer’s account, Eaton Vance may share information with unaffiliated third parties that perform various required services such as transfer agents, custodians and broker-dealers. |
| Ÿ | Policies and procedures (including physical, electronic and procedural safeguards) are in place that are designed to protect the confidentiality of such information. |
| Ÿ | We reserve the right to change our Privacy Policy at any time upon proper notification to you. Customers may want to review our Privacy Policy periodically for changes by accessing the link on our homepage: www.eatonvance.com. |
Our pledge of privacy applies to the following entities within the Eaton Vance organization: the Eaton Vance Family of Funds, Eaton Vance Management, Eaton Vance Investment Counsel, Eaton Vance Distributors, Inc., Eaton Vance Trust Company, Eaton Vance Management’s Real Estate Investment Group and Boston Management and Research. In addition, our Privacy Policy applies only to those Eaton Vance customers who are individuals and who have a direct relationship with us. If a customer’s account (i.e., fund shares) is held in the name of a third-party financial advisor/broker-dealer, it is likely that only such advisor’s privacy policies apply to the customer. This notice supersedes all previously issued privacy disclosures. For more information about Eaton Vance’s Privacy Policy, please call 1-800-262-1122.
Delivery of Shareholder Documents. The Securities and Exchange Commission (SEC) permits funds to deliver only one copy of shareholder documents, including prospectuses, proxy statements and shareholder reports, to fund investors with multiple accounts at the same residential or post office box address. This practice is often called “householding” and it helps eliminate duplicate mailings to shareholders. Eaton Vance, or your financial advisor, may household the mailing of your documents indefinitely unless you instruct Eaton Vance, or your financial advisor, otherwise. If you would prefer that your Eaton Vance documents not be householded, please contact Eaton Vance at 1-800-262-1122, or contact your financial advisor. Your instructions that householding not apply to delivery of your Eaton Vance documents will be effective within 30 days of receipt by Eaton Vance or your financial advisor.
Portfolio Holdings. Each Eaton Vance Fund and its underlying Portfolio(s) (if applicable) will file a schedule of portfolio holdings on Form N-Q with the SEC for the first and third quarters of each fiscal year. The Form N-Q will be available on the Eaton Vance website at www.eatonvance.com, by calling Eaton Vance at 1-800-262-1122 or in the EDGAR database on the SEC’s website at www.sec.gov. Form N-Q may also be reviewed and copied at the SEC’s public reference room in Washington, D.C. (call 1-800-732-0330 for information on the operation of the public reference room).
Proxy Voting. From time to time, funds are required to vote proxies related to the securities held by the funds. The Eaton Vance Funds or their underlying Portfolios (if applicable) vote proxies according to a set of policies and procedures approved by the Funds’ and Portfolios’ Boards. You may obtain a description of these policies and procedures and information on how the Funds or Portfolios voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge, upon request, by calling 1-800-262-1122 and by accessing the SEC’s website at www.sec.gov.
Share Repurchase Program. The Fund’s Board of Trustees has approved a share repurchase program authorizing the Fund to repurchase up to 10% of its outstanding common shares as of the approved date in open-market transactions at a discount to net asset value. The repurchase program does not obligate the Fund to purchase a specific amount of shares. The Fund’s repurchase activity, including the number of shares purchased, average price and average discount to net asset value, is disclosed in the Fund’s annual and semi-annual reports to shareholders.
Additional Notice to Shareholders. If applicable, a Fund may also redeem or purchase its outstanding preferred shares in order to maintain compliance with regulatory requirements, borrowing or rating agency requirements or for other purposes as it deems appropriate or necessary.
Closed-End Fund Information. Eaton Vance closed-end funds make fund performance data and certain information about portfolio characteristics available on the Eaton Vance website shortly after the end of each month. Other information about the funds is available on the website. The funds’ net asset value per share is readily accessible on the Eaton Vance website. Portfolio holdings for the most recent month-end are also posted to the website approximately 30 days following the end of the month. This information is available at www.eatonvance.com on the fund information pages under “Individual Investors — Closed-End Funds”.
| 19 |
This Page Intentionally Left Blank
| 7740 3.31.15 |
Item 2. Code of Ethics
Not required in this filing.
Item 3. Audit Committee Financial Expert
Not required in this filing.
Item 4. Principal Accountant Fees and Services
Not required in this filing.
Item 5. Audit Committee of Listed Registrants
Not required in this filing.
Item 6. Schedule of Investments
Please see schedule of investments contained in the Report to Stockholders included under Item 1 of this Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies
Not required in this filing.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Not required in this filing.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers
No such purchases this period.
Item 10. Submission of Matters to a Vote of Security Holders
No material changes.
Item 11. Controls and Procedures
(a) It is the conclusion of the registrant’s principal executive officer and principal financial officer that the effectiveness of the registrant’s current disclosure controls and procedures (such disclosure controls and procedures having been evaluated within 90 days of the date of this filing) provide reasonable assurance that the information required to be disclosed by the registrant has been recorded, processed, summarized and reported within the time period specified in the Commission’s rules and forms and that the information required to be disclosed by the registrant has been accumulated and communicated to the registrant’s principal executive officer and principal financial officer in order to allow timely decisions regarding required disclosure.
(b) There have been no changes in the registrant’s internal controls over financial reporting during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. Exhibits
| (a)(1) | Registrant’s Code of Ethics – Not applicable (please see Item 2). | |
| (a)(2)(i) | Treasurer’s Section 302 certification. | |
| (a)(2)(ii) | President’s Section 302 certification. | |
| (b) | Combined Section 906 certification. | |
| (c) | Registrant’s notices to shareholders pursuant to Registrant’s exemptive order granting an exemption from Section 19(b) of the 1940 Act and Rule 19b-1 thereunder regarding distributions paid pursuant to the Registrant’s Managed Distribution Plan. | |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Eaton Vance Enhanced Equity Income Fund | ||
| By: | /s/ Walter A. Row, III | |
| Walter A. Row, III | ||
| President | ||
| Date: | May 14, 2015 | |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By: | /s/ James F. Kirchner | |
| James F. Kirchner | ||
| Treasurer | ||
| Date: | May 14, 2015 | |
| By: | /s/ Walter A. Row, III | |
| Walter A. Row, III | ||
| President | ||
| Date: | May 14, 2015 | |