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

September 30

March 31, 2011

 

 

Item 1. Reports to Stockholders

Eaton Vance Enhanced Equity Income Fund Semiannual Report March 31, 2011

Managed Distribution Plan. On March 10, 2009, the Fund received authorization from the Securities and Exchange Commission to distribute long-term capital gains to shareholders more frequently than once per year. In this connection, the Board of Trustees formally approved the implementation of a Managed Distribution Plan (MDP) to make monthly cash distributions to common shareholders, stated in terms of a fixed amount per common share.

The Fund intends to pay monthly cash distributions equal to $0.0919 per share. You should not drawany 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.

With each distribution, the Fund will issue a notice to shareholders and an accompanying press release which will provide detailed information required by the Fund’s exemptive order. The Fund’s Board of Trustees 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.

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, 2011

Eaton Vance
Enhanced Equity Income Fund

Table of Contents

Performance			2
Fund Profile			3
Endnotes and Additional Disclosures			4
Financial Statements			5
Officers and Trustees			17
Important Notices			18

Eaton Vance
Enhanced Equity Income Fund
March 31, 2011

Performance¹

Portfolio Managers Walter A. Row, CFA; Michael A. Allison, CFA

New York Stock Exchange (NYSE) Symbol		EOI
Inception Date (10/29/04)
% Average Annual Total Returns at net asset value (NAV)
Six Months			11.01
One Year			7.52
Five Years			2.53
Since Inception			4.61
% Average Annual Total Returns at market price, NYSE
Six Months			-0.42
One Year			-2.86
Five Years			1.16
Since Inception			3.00
% Premium/(Discount) to NAV (3/31/11)			-9.46
Distributions
Total Distributions per share (9/30/10 — 3/31/11)		$	0.600
Distribution Rate at NAV2			8.09	%
Distribution Rate at market price2			8.94	%

Comparative Performance (9/30/10 — 3/31/11)3		% Return
S&P 500 Index			17.31	*
CBOE S&P 500 BuyWrite Index			7.28	*
Lipper Options Arbitrage/Options Strategies Funds Average at NAV			10.58	*

See Endnotes and Additional Disclosures on page 4.

Past performance is no guarantee of future results. Returns are historical and are calculated by determining the percentage change in net asset value or market price (as applicable) with all distributions reinvested. 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 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 www.eatonvance.com.

Eaton Vance
Enhanced Equity Income Fund
March 31, 2011

Fund Profile

Sector Weightings⁴ (% of total investments)

Top 10 Holdings⁴ (% of total investments)

Apple, Inc.			3.9
Exxon Mobil Corp.			3.6
JPMorgan Chase & Co.			2.6
General Electric Co.			2.5
Oracle Corp.			2.4
Google, Inc., Class A			2.4
Hess Corp.			2.3
Danaher Corp.			2.3
Wells Fargo & Co.			2.1
Fluor Corp.			2.1
Total % of total investments			26.2

See Endnotes and Additional Disclosures on page 4.

Eaton Vance
Enhanced Equity Income Fund
March 31, 2011

Endnotes and Additional Disclosures

1.		Six-month returns are cumulative. All other returns are presented on an average annual basis.
2.		Distribution Rate is the last regular distribution per share in the period (annualized) divided by the Fund NAV or market price at the end of the period. The Fund’s distributions may be comprised of ordinary income, net realized capital gains and return of capital.
3.		It is not possible to invest directly in an Index or a Lipper Classification. Total returns shown for an Index do not reflect commissions or expenses that would have been incurred if an investor individually purchased or sold the securities represented in an Index. The Standard & Poor’s (S&P) 500 Index is an unmanaged index of large-cap stocks commonly used as a measure of U.S. stock market performance. The CBOE S&P 500 BuyWrite Index measures the performance of a hypothetical buy-write strategy on the S&P 500 Index. The Lipper total return is the average total return, at NAV, of the funds that are in the Fund’s Lipper Classification.
4.		Sector Weightings and Top 10 Holdings are shown as a percentage of the Fund’s total investments as of 3/31/11. Weightings do not reflect the Fund’s written option positions as of 3/31/11.

 

Eaton Vance

Enhanced Equity Income Fund

 

March 31, 2011

 

 

Portfolio of Investments (Unaudited)

 

See Notes to Financial Statements.

5

 

Eaton Vance

Enhanced Equity Income Fund

 

March 31, 2011

 

 

Portfolio of Investments (Unaudited) — continued

 

See Notes to Financial Statements.

6

 

Eaton Vance

Enhanced Equity Income Fund

 

March 31, 2011

 

 

Portfolio of Investments (Unaudited) — continued

 

 

See Notes to Financial Statements.

7

 

Eaton Vance

Enhanced Equity Income Fund

 

March 31, 2011

 

 

Portfolio of Investments (Unaudited) — continued

 

The percentage shown for each investment category in the Portfolio of Investments is based on net assets.

 

 

 

See Notes to Financial Statements.

8

 

Eaton Vance

Enhanced Equity Income Fund

 

March 31, 2011

 

 

Statement of Assets and Liabilities (Unaudited)

 

See Notes to Financial Statements.

9

 

Eaton Vance

Enhanced Equity Income Fund

 

March 31, 2011

 

 

Statement of Operations (Unaudited)

 

See Notes to Financial Statements.

10

 

Eaton Vance

Enhanced Equity Income Fund

 

March 31, 2011

 

 

Statements of Changes in Net Assets

 

 

See Notes to Financial Statements.

11

 

Eaton Vance

Enhanced Equity Income Fund

 

March 31, 2011

 

 

Financial Highlights

 

 

See Notes to Financial Statements.

12

 

Eaton Vance

Enhanced Equity Income Fund

 

March 31, 2011

 

 

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.

 

A Investment Valuation — Equity securities (including common shares of closed-end investment companies) 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 or, in the case of preferred equity securities that are not listed or traded in the over-the-counter market, by a third party pricing service that will use various techniques that consider factors including, but not limited to, prices or yields of securities with similar characteristics, benchmark yields, broker/dealer quotes, quotes of underlying common stock, issuer spreads, as well as industry and economic events. 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. Short-term debt securities purchased with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates market value. 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 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.

 

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 most 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 all 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.

 

The Fund may invest in Eaton Vance Cash Reserves Fund, LLC (Cash Reserves Fund), an affiliated investment company managed by Eaton Vance Management (EVM). 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.

 

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.

 

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.

 

At September 30, 2010, the Fund, for federal income tax purposes, had a capital loss carryforward of $131,572,760 which will reduce its taxable income arising from future net realized gains on investment transactions, if any, to the extent permitted by the Internal Revenue Code, and thus will reduce the amount of distributions to shareholders, which would otherwise be necessary to relieve the Fund of any liability for federal income or excise tax. Such capital loss carryforward will expire on September 30, 2017 ($9,096,930) and September 30, 2018 ($122,475,830).

 

13

 

Eaton Vance

Enhanced Equity Income Fund

 

March 31, 2011

 

 

Notes to Financial Statements (Unaudited) — continued

 

Additionally, at September 30, 2010, the Fund had a net capital loss of $11,809,034 attributable to security transactions incurred after October 31, 2009. This net capital loss is treated as arising on the first day of the Fund’s taxable year ending September 30, 2011.

 

As of March 31, 2011, the Fund had no uncertain tax positions that would require financial statement recognition, de-recognition, or disclosure. Each of the Fund’s federal tax returns filed in the 3-year period ended September 30, 2010 remains subject to examination by the Internal Revenue Service.

 

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 accounting principles generally accepted in the United States of America 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 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. 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.

 

J Interim Financial Statements — The interim financial statements relating to March 31, 2011 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

 

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 (reduced by available capital loss carryforwards from prior years, if any). Distributions are recorded on the ex-dividend date. The Fund distinguishes between distributions on a tax basis and a financial reporting basis. Accounting principles generally accepted in the United States of America require that only distributions in excess of tax basis earnings and profits be reported in the financial statements as a return of capital. Permanent differences between book and tax 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, 2011, the amount of distributions estimated to be a tax return of capital was approximately $22,746,000. 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.

 

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

 

14

 

Eaton Vance

Enhanced Equity Income Fund

 

March 31, 2011

 

 

Notes to Financial Statements (Unaudited) — continued

assets plus obligations attributable to investment leverage, if any. The Fund invests its cash in Cash Reserves Fund. EVM does not currently receive a fee for advisory services provided to Cash Reserves Fund. For the six months ended March 31, 2011, the Fund’s investment adviser fee totaled $2,666,416. EVM also serves as administrator of the Fund, but receives no compensation.

 

Except for Trustees of the Fund who are not members of EVM’s organization, officers and Trustees 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, 2011, 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 $238,418,128 and $289,932,311, respectively, for the six months ended March 31, 2011.

 

5 Common Shares of Beneficial Interest

 

Common shares issued pursuant to the Fund’s dividend reinvestment plan for the six months ended March 31, 2011 and the year ended September 30, 2010 were 30,532 and 164,524, respectively.

 

6 Federal Income Tax Basis of Investments

 

The cost and unrealized appreciation (depreciation) of investments of the Fund at March 31, 2011, as determined on a federal income tax basis, were as follows:

 

 

7 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 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 call options at March 31, 2011 is included in the Portfolio of Investments.

 

Written call options activity for the six months ended March 31, 2011 was as follows: