-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P3e32nm1wUmxMHX26du9QZDCLkKqVQ/bvL308IDfuoV6F2D3yuW2ShBGyOiazkv7 uVbmkenEdtvXX8bK3itcVw== 0001047469-06-011545.txt : 20060905 0001047469-06-011545.hdr.sgml : 20060904 20060905155536 ACCESSION NUMBER: 0001047469-06-011545 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20060630 FILED AS OF DATE: 20060905 DATE AS OF CHANGE: 20060905 EFFECTIVENESS DATE: 20060905 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LEHMAN BROTHERS FIRST TRUST INCOME OPPORTUNITY FUND CENTRAL INDEX KEY: 0001228361 IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-21342 FILM NUMBER: 061074046 BUSINESS ADDRESS: STREET 1: 399 PARK AVE CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 61793775523 MAIL ADDRESS: STREET 1: 399 PARK AVE CITY: NEW YORK STATE: NY ZIP: 10022 N-CSRS 1 a2171953zn-csrs.txt N-CSRS 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 811-21342 Lehman Brothers First Trust Income Opportunity Fund (Exact name of registrant as specified in charter) c/o Lehman Brothers Asset Management Inc., 399 Park Avenue, New York, NY 10022 (Address of principal executive offices) (Zip code) Peter E. Sundman, Chief Executive Officer c/o Lehman Brothers Asset Management Inc. Lehman Brothers First Trust Income Opportunity Fund, 399 Park Avenue, New York, NY 10022 (Name and address of agent for service)
Arthur C. Delibert, Esq. Kirkpatrick & Lockhart Nicholson Graham LLP 1601 K Street, N.W. Washington, DC 20006-1600 (Name and address of agent for service) Registrant's telephone number, including area code: (212)526-7000 Date of fiscal year end: 12/31/2006 Date of reporting period: 06/30/2006 Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. Section 3507. ITEM 1. REPORTS TO STOCKHOLDERS. The semi-annual report for the period January 1, 2006 through June 30, 2006 is filed herewith. SEMI ANNUAL REPORT 2006 LEHMAN BROTHERS FIRST TRUST INCOME OPPORTUNITY FUND [GRAPHIC] LEHMAN BROTHERS CONTENTS Chairman's Letter 2 Portfolio Manager's Report 3 Fund Overview 4 Schedule of Investments 5 Notes to Schedule of Investments 15 Statement of Assets and Liabilities 16 Statement of Operations 17 Statements of Changes in Net Assets 18 Financial Highlights 19 Notes to Financial Statements 20 Shareholder Voting Results 24 Dividend Reinvestment Plan 26 Trustees and Officers Table 27 Approval of Advisory and Sub-Advisory Agreements by the Board of Trustees 35 CHAIRMAN'S LETTER Dear Shareholder: We are pleased to present to you the 2006 semi-annual report of Lehman Brothers First Trust Income Opportunity Fund, covering the six months ended June 30, 2006. The report includes portfolio commentary, a listing of the Fund's investments, and its financial statements for the reporting period. High yield bonds posted positive returns for the reporting period, despite higher interest rates and renewed concern over potentially higher inflation. Declining equity markets, domestically and in selected emerging markets, resulted in a modest increase in credit spreads at the end of June, compared to narrower spread levels in the first three months of the year. Given that default rates and interest rates remain low, lower-rated credits performed mildly better than higher-rated, more interest-rate-sensitive issues. Overall, we continue to anticipate that 2006 will prove to be a relatively good year for high yield portfolios and we maintain our expectation for a positive full-year 2006 total return. The Fund's investment objective is to seek high total return through income plus capital appreciation. The Fund pursues this investment objective by investing primarily in high yield debt securities.* Its performance is dependent on several factors, including the rate of interest received on securities held by the Fund, the cost of distributions payable on Money Market Cumulative Preferred Shares issued by the Fund, and the results of interest rate hedges used by the Fund in seeking to manage short-term interest rate costs. Portfolio Manager Ann H. Benjamin and her team of seasoned investment professionals at Lehman Brothers Asset Management LLC manage the portfolio. The team takes a proactive approach to high yield asset management, integrating detailed security and industry analysis within the context of a global economic outlook. Ann's portfolio co-managers and research analysts are industry specialists who carry out independent primary research on companies and industries. In addition to seeking value from specific issue selections, they also implement strategies seeking to take advantage of valuation opportunities across industry sectors and credit quality tiers. We thank you for the trust you have placed in us by investing in the Lehman Brothers First Trust Income Opportunity Fund. We will continue to do our best to earn it. Sincerely, /s/ Peter Sundman - -------------------------------- Peter Sundman CHAIRMAN OF THE BOARD LEHMAN BROTHERS FIRST TRUST INCOME OPPORTUNITY FUND - ---------- * Portfolios that invest in bonds and other fixed income securities can provide regular income and have historically been less volatile than most stock funds. However, they are subject to risks including credit risk, default on principal or interest payments and interest rate fluctuations. High yield bonds, also known as "junk bonds," are subject to additional risks such as the increased risk of default. LEHMAN BROTHERS FIRST TRUST INCOME OPPORTUNITY FUND SEMI-ANNUAL REPORT 2006 PORTFOLIO MANAGER'S REPORT For the semi-annual reporting period ended June 30, 2006, Lehman Brothers First Trust Income Opportunity Fund (NYSE: LBC) returned 2.77% on a Net Asset Value (NAV) basis. High yield bonds produced positive results for the period, outperforming the 10-year Treasury, investment-grade corporate bonds, emerging market bonds and the S&P 500 Index, despite an increase in the Federal Funds rate to 5.25% since January and ongoing inflation concerns. Credit spreads in the high yield segment widened modestly in the second half of the period from their levels in the first three months of the year, primarily in reaction to declines in domestic equity and emerging markets. From a quality standpoint, lower-rated credit issues performed mildly better than higher-rated, more interest-rate-sensitive issues. Our positioning in higher-quality, less cyclical issues hurt returns in the first three months of the year, but benefited returns at the end of the reporting period. In terms of sector contributions to portfolio returns, the Automotive sector added value during the period while the Building Materials sector modestly detracted from performance. Select investments in lower-rated bonds within the Media, Health Care, Consumer Cyclical and Electric Utilities sectors minimized the effect of rising interest rates on the Fund's overall return. We continue to anticipate that 2006 will prove to be a relatively good year for high yield issues. We believe that default rates will continue to remain low and that spreads will continue to stabilize. Some sectors, such as housing, may see wider spreads in response to a slowdown in industry-specific growth. In terms of quality and sector positioning, we expect that, over the next 12 months, defensive industries should outperform cyclical industries. As always, we will continue to position the portfolio in issuers that, in our opinion, present the best relative value by sector and quality tier. Sincerely, /s/ Ann H. Benjamin - -------------------------------- Ann H. Benjamin PORTFOLIO MANAGER - ---------- Past performance is not indicative of future results. Portfolios that invest in bonds and other fixed income securities can provide regular income and have historically been less volatile than most stock funds. However, they are subject to risks including credit risk, default on principal or interest payments and interest rate fluctuations. High yield bonds, also known as "junk bonds," are subject to additional risks such as the increased risk of default. 3 LEHMAN BROTHERS FIRST TRUST INCOME OPPORTUNITY FUND FUND OVERVIEW (AS OF 06/30/06)(1) PERFORMANCE HIGHLIGHTS(2) 3 MONTHS ENDED 6 MONTHS ENDED CUMULATIVE TOTAL INCEPTION ----------------- -------------- RETURN SINCE DATE 3/31/06 6/30/06 6/30/06 INCEPTION(3) - -------------------------------------------------------------------------------- NAV 07/28/03 2.52% 0.24% 2.77% 34.44% Market Price 07/28/03 -4.97% -4.08% -8.84% 22.57% FUND FACTS Ticker NYSE: LBC Market Price (06/30/2006) $ 13.58 Net Asset Value (NAV) $ 14.23 Premium / (Discount) (4.57%) Shares outstanding: 12,248,410 CUSIP number: 525178 10 9 Inception Date: 7/28/03 PORTFOLIO CHARACTERISTICS Portfolio Turnover 56.48% Expense Ratio 1.57% Wtd. Avg. Maturity 7.49 Years Average Coupon 8.07% Average Credit Quality B Portfolio Composition - % High Yield 94.1% CAPITAL STRUCTURE AND LEVERAGE ($ mm) Total Net Assets $ 264.3 Net Assets Attributable to Common Shares $ 174.2 Net Assets Attributable to Preferred Shares $ 90.0 Net Assets Attributable to Other Borrowings -- Leverage (% of total net assets) 34.1% CREDIT QUALITY BREAKDOWN (% OF TOTAL INVESTMENTS AND CASH) [CHART] Cash (AAA) 2.5% BBB 3.4% BB 45.9% B 40.3% CCC 7.9%
MARKET PRICE AND NAV PERFORMANCE [CHART]
Premium/ Price ($) NAV ($) Discount (%) --------- ------- ------------ 7/29/2003 $15.00 $15.00 0.00% 7/30/2003 $15.01 $15.00 0.10% 7/31/2003 $15.01 $14.30 5.00% 8/1/2003 $15.00 $14.26 5.20% 8/4/2003 $15.00 $14.27 5.10% 8/5/2003 $15.01 $14.21 5.60% 8/6/2003 $15.01 $14.12 6.30% 8/7/2003 $15.00 $14.12 6.20% 8/8/2003 $15.00 $14.16 5.90% 8/11/2003 $15.01 $14.14 6.20% 8/12/2003 $15.00 $14.11 6.30% 8/13/2003 $15.05 $14.04 7.20% 8/14/2003 $15.02 $13.97 7.50% 8/15/2003 $15.10 $13.98 8.00% 8/18/2003 $15.00 $14.03 6.90% 8/19/2003 $14.25 $14.17 0.60% 8/20/2003 $14.48 $14.28 1.40% 8/21/2003 $14.81 $14.36 3.10% 8/22/2003 $14.56 $14.39 1.20% 8/25/2003 $14.46 $14.43 0.20% 8/26/2003 $14.55 $14.45 0.70% 8/27/2003 $14.70 $14.48 1.50% 8/28/2003 $14.40 $14.53 -0.90% 8/29/2003 $14.45 $14.60 -1.00% 9/2/2003 $14.44 $14.69 -1.70% 9/3/2003 $14.62 $14.71 -0.60% 9/4/2003 $14.85 $14.73 0.80% 9/5/2003 $14.75 $14.75 0.00% 9/8/2003 $14.76 $14.76 0.00% 9/9/2003 $14.81 $14.80 0.10% 9/10/2003 $14.76 $14.82 -0.40% 9/11/2003 $14.90 $14.83 0.50% 9/12/2003 $14.93 $14.83 0.70% 9/15/2003 $14.40 $14.83 -2.90% 9/16/2003 $14.72 $14.83 -0.70% 9/17/2003 $14.82 $14.89 -0.50% 9/18/2003 $14.74 $14.79 -0.30% 9/19/2003 $14.90 $14.82 0.50% 9/22/2003 $14.86 $14.79 0.50% 9/23/2003 $14.82 $14.78 0.30% 9/24/2003 $14.85 $14.78 0.50% 9/25/2003 $14.86 $14.78 0.50% 9/26/2003 $14.92 $14.78 0.90% 9/29/2003 $14.84 $14.81 0.20% 9/30/2003 $14.86 $14.83 0.20% 10/1/2003 $14.87 $14.84 0.20% 10/2/2003 $14.86 $14.84 0.10% 10/3/2003 $14.93 $14.87 0.40% 10/6/2003 $15.01 $14.89 0.80% 10/7/2003 $15.00 $14.92 0.50% 10/8/2003 $15.09 $14.97 0.80% 10/9/2003 $15.12 $14.97 1.00% 10/10/2003 $15.14 $15.00 0.90% 10/13/2003 $15.14 $15.01 0.90% 10/14/2003 $15.20 $15.05 1.00% 10/15/2003 $15.28 $15.10 1.20% 10/16/2003 $15.15 $14.96 1.30% 10/17/2003 $15.10 $14.95 1.00% 10/20/2003 $15.09 $14.98 0.70% 10/21/2003 $15.11 $15.00 0.70% 10/22/2003 $15.20 $14.87 2.20% 10/23/2003 $15.23 $14.79 3.00% 10/24/2003 $15.23 $14.80 2.90% 10/27/2003 $15.23 $14.82 2.80% 10/28/2003 $15.08 $14.84 1.60% 10/29/2003 $15.19 $14.85 2.30% 10/30/2003 $15.10 $14.87 1.50% 10/31/2003 $15.25 $14.88 2.50% 11/3/2003 $15.24 $14.91 2.20% 11/4/2003 $15.27 $14.93 2.30% 11/5/2003 $15.25 $14.93 2.10% 11/6/2003 $15.29 $14.93 2.40% 11/7/2003 $15.27 $14.94 2.20% 11/10/2003 $15.29 $14.95 2.30% 11/11/2003 $15.33 $14.95 2.50% 11/12/2003 $15.39 $14.94 3.00% 11/13/2003 $15.42 $14.97 3.00% 11/14/2003 $15.48 $15.01 3.10% 11/17/2003 $15.35 $15.04 2.10% 11/18/2003 $15.25 $15.07 1.20% 11/19/2003 $15.25 $15.08 1.10% 11/20/2003 $15.16 $14.96 1.30% 11/21/2003 $15.14 $14.99 1.00% 11/24/2003 $15.02 $15.01 0.10% 11/25/2003 $15.15 $15.03 0.80% 11/26/2003 $15.08 $15.04 0.30% 11/28/2003 $15.26 $15.06 1.30% 12/1/2003 $15.30 $15.10 1.30% 12/2/2003 $15.34 $15.15 1.30% 12/3/2003 $15.44 $15.25 1.20% 12/4/2003 $15.35 $15.30 0.30% 12/5/2003 $15.36 $15.34 0.10% 12/8/2003 $15.26 $15.39 -0.80% 12/9/2003 $15.21 $15.41 -1.30% 12/10/2003 $15.24 $15.42 -1.20% 12/11/2003 $15.28 $15.41 -0.80% 12/12/2003 $15.32 $15.43 -0.70% 12/15/2003 $15.42 $15.46 -0.30% 12/16/2003 $15.60 $15.49 0.70% 12/17/2003 $15.39 $15.53 -0.90% 12/18/2003 $15.43 $15.57 -0.90% 12/19/2003 $15.43 $15.60 -1.10% 12/22/2003 $15.52 $15.63 -0.70% 12/23/2003 $15.41 $15.44 -0.20% 12/24/2003 $15.41 $15.45 -0.30% 12/26/2003 $15.49 $15.46 0.20% 12/29/2003 $15.45 $15.48 -0.20% 12/30/2003 $15.55 $15.51 0.30% 12/31/2003 $15.91 $15.51 2.60% 1/2/2004 $15.85 $15.51 2.20% 1/5/2004 $15.86 $15.63 1.50% 1/6/2004 $15.92 $15.74 1.10% 1/7/2004 $15.85 $15.83 0.10% 1/8/2004 $15.65 $15.88 -1.40% 1/9/2004 $15.79 $15.92 -0.80% 1/12/2004 $15.84 $15.93 -0.60% 1/13/2004 $15.85 $15.92 -0.40% 1/14/2004 $16.02 $15.93 0.60% 1/15/2004 $16.25 $15.96 1.80% 1/16/2004 $16.59 $15.98 3.80% 1/20/2004 $16.69 $16.03 4.10% 1/21/2004 $16.43 $15.91 3.30% 1/22/2004 $16.50 $15.95 3.40% 1/23/2004 $16.25 $15.95 1.90% 1/26/2004 $16.14 $15.92 1.40% 1/27/2004 $15.97 $15.86 0.70% 1/28/2004 $15.98 $15.76 1.40% 1/29/2004 $15.90 $15.64 1.70% 1/30/2004 $16.10 $15.60 3.20% 2/2/2004 $16.08 $15.53 3.50% 2/3/2004 $16.07 $15.45 4.00% 2/4/2004 $16.01 $15.40 4.00% 2/5/2004 $15.97 $15.31 4.30% 2/6/2004 $16.00 $15.31 4.50% 2/9/2004 $16.19 $15.40 5.10% 2/10/2004 $16.15 $15.39 4.90% 2/11/2004 $16.39 $15.41 6.40% 2/12/2004 $16.42 $15.48 6.10% 2/13/2004 $16.52 $15.49 6.60% 2/17/2004 $16.30 $15.52 5.00% 2/18/2004 $16.25 $15.31 6.10% 2/19/2004 $16.16 $15.25 6.00% 2/20/2004 $15.99 $15.22 5.10% 2/23/2004 $16.00 $15.17 5.50% 2/24/2004 $15.41 $15.10 2.10% 2/25/2004 $15.70 $15.13 3.80% 2/26/2004 $15.80 $15.11 4.60% 2/27/2004 $16.17 $15.17 6.60% 3/1/2004 $16.25 $15.20 6.90% 3/2/2004 $16.29 $15.20 7.20% 3/3/2004 $16.16 $15.19 6.40% 3/4/2004 $16.16 $15.21 6.20% 3/5/2004 $16.03 $15.27 5.00% 3/8/2004 $16.10 $15.32 5.10% 3/9/2004 $16.30 $15.32 6.40% 3/10/2004 $16.21 $15.28 6.10% 3/11/2004 $16.00 $15.23 5.10% 3/12/2004 $16.22 $15.25 6.40% 3/15/2004 $16.32 $15.22 7.20% 3/16/2004 $16.33 $15.14 7.90% 3/17/2004 $16.17 $15.17 6.60% 3/18/2004 $16.37 $15.14 8.10% 3/19/2004 $16.43 $15.12 8.70% 3/22/2004 $16.05 $14.97 7.20% 3/23/2004 $16.10 $14.92 7.90% 3/24/2004 $15.82 $14.91 6.10% 3/25/2004 $15.95 $14.93 6.80% 3/26/2004 $16.02 $14.98 6.90% 3/29/2004 $16.09 $15.05 6.90% 3/30/2004 $16.09 $15.08 6.70% 3/31/2004 $16.20 $15.09 7.40% 4/1/2004 $16.17 $15.10 7.10% 4/2/2004 $16.16 $15.06 7.30% 4/5/2004 $16.23 $15.08 7.60% 4/6/2004 $16.00 $15.12 5.80% 4/7/2004 $15.82 $15.15 4.40% 4/8/2004 $15.90 $15.16 4.90% 4/9/2004 $15.90 $15.17 4.80% 4/12/2004 $15.75 $15.20 3.60% 4/13/2004 $15.30 $15.15 1.00% 4/14/2004 $14.94 $15.10 -1.10% 4/15/2004 $14.77 $15.13 -2.40% 4/16/2004 $14.82 $15.17 -2.30% 4/19/2004 $15.05 $15.19 -0.90% 4/20/2004 $15.04 $15.20 -1.10% 4/21/2004 $14.92 $15.06 -0.90% 4/22/2004 $14.81 $15.12 -2.10% 4/23/2004 $14.90 $15.14 -1.60% 4/26/2004 $15.00 $15.14 -0.90% 4/27/2004 $14.77 $15.17 -2.60% 4/28/2004 $14.71 $15.14 -2.80% 4/29/2004 $14.66 $15.03 -2.50% 4/30/2004 $14.71 $15.02 -2.10% 5/3/2004 $14.72 $14.99 -1.80% 5/4/2004 $14.50 $14.92 -2.80% 5/5/2004 $14.75 $14.89 -0.90% 5/6/2004 $14.65 $14.77 -0.80% 5/7/2004 $14.39 $14.65 -1.80% 5/10/2004 $13.99 $14.47 -3.30% 5/11/2004 $13.83 $14.45 -4.30% 5/12/2004 $14.08 $14.39 -2.20% 5/13/2004 $13.95 $14.27 -2.20% 5/14/2004 $13.98 $14.25 -1.90% 5/17/2004 $13.77 $14.29 -3.60% 5/18/2004 $13.76 $14.36 -4.20% 5/19/2004 $13.79 $14.33 -3.80% 5/20/2004 $13.84 $14.29 -3.10% 5/21/2004 $13.87 $14.35 -3.30% 5/24/2004 $13.89 $14.41 -3.60% 5/25/2004 $14.20 $14.46 -1.80% 5/26/2004 $14.55 $14.50 0.30% 5/27/2004 $14.80 $14.51 2.00% 5/28/2004 $14.94 $14.54 2.80% 6/1/2004 $14.65 $14.52 0.90% 6/2/2004 $14.79 $14.54 1.70% 6/3/2004 $14.82 $14.50 2.20% 6/4/2004 $14.95 $14.54 2.80% 6/7/2004 $14.97 $14.58 2.70% 6/8/2004 $14.97 $14.62 2.40% 6/9/2004 $14.99 $14.64 2.40% 6/10/2004 $14.98 $14.62 2.50% 6/11/2004 $14.98 $14.63 2.40% 6/14/2004 $14.71 $14.63 0.50% 6/15/2004 $14.86 $14.62 1.60% 6/16/2004 $14.74 $14.66 0.50% 6/17/2004 $14.94 $14.69 1.70% 6/18/2004 $14.95 $14.71 1.60% 6/21/2004 $14.73 $14.62 0.80% 6/22/2004 $14.90 $14.64 1.80% 6/23/2004 $14.78 $14.64 1.00% 6/24/2004 $14.69 $14.67 0.10% 6/25/2004 $14.75 $14.69 0.40% 6/28/2004 $14.63 $14.70 -0.50% 6/29/2004 $14.86 $14.69 1.20% 6/30/2004 $14.85 $14.67 1.20% 7/1/2004 $15.00 $14.69 2.10% 7/2/2004 $14.94 $14.72 1.50% 7/6/2004 $14.98 $14.79 1.30% 7/7/2004 $14.90 $14.81 0.60% 7/8/2004 $15.02 $14.82 1.30% 7/9/2004 $15.00 $14.85 1.00% 7/12/2004 $15.02 $14.89 0.90% 7/13/2004 $15.05 $14.91 0.90% 7/14/2004 $15.19 $14.93 1.70% 7/15/2004 $15.22 $14.95 1.80% 7/16/2004 $15.20 $14.98 1.50% 7/19/2004 $15.15 $15.03 0.80% 7/20/2004 $15.26 $15.07 1.30% 7/21/2004 $15.20 $14.89 2.10% 7/22/2004 $15.15 $14.86 2.00% 7/23/2004 $15.18 $14.85 2.20% 7/26/2004 $15.15 $14.82 2.20% 7/27/2004 $15.06 $14.74 2.20% 7/28/2004 $15.19 $14.76 2.90% 7/29/2004 $15.19 $14.76 2.90% 7/30/2004 $15.15 $14.82 2.20% 8/2/2004 $15.16 $14.82 2.30% 8/3/2004 $15.20 $14.81 2.60% 8/4/2004 $15.38 $14.81 3.80% 8/5/2004 $15.43 $14.83 4.00% 8/6/2004 $15.37 $14.86 3.40% 8/9/2004 $15.40 $14.86 3.60% 8/10/2004 $15.34 $14.79 3.70% 8/11/2004 $15.45 $14.78 4.50% 8/12/2004 $15.53 $14.79 5.00% 8/13/2004 $15.44 $14.81 4.30% 8/16/2004 $15.55 $14.82 4.90% 8/17/2004 $15.55 $14.83 4.90% 8/18/2004 $15.49 $14.85 4.30% 8/19/2004 $15.48 $14.88 4.00% 8/20/2004 $15.55 $14.88 4.50% 8/23/2004 $15.32 $14.79 3.60% 8/24/2004 $15.38 $14.81 3.80% 8/25/2004 $15.31 $14.83 3.20% 8/26/2004 $15.39 $14.85 3.60% 8/27/2004 $15.49 $14.85 4.30% 8/30/2004 $15.59 $14.87 4.80% 8/31/2004 $15.58 $14.87 4.80% 9/1/2004 $15.54 $14.89 4.40% 9/2/2004 $15.52 $14.89 4.20% 9/3/2004 $15.53 $14.91 4.20% 9/7/2004 $15.65 $14.94 4.80% 9/8/2004 $15.47 $14.97 3.30% 9/9/2004 $15.61 $15.02 3.90% 9/10/2004 $15.73 $15.06 4.40% 9/13/2004 $15.78 $15.12 4.40% 9/14/2004 $15.76 $15.12 4.20% 9/15/2004 $15.84 $15.09 5.00% 9/16/2004 $15.88 $15.10 5.20% 9/17/2004 $15.85 $15.11 4.90% 9/20/2004 $15.87 $15.13 4.90% 9/21/2004 $15.57 $15.01 3.70% 9/22/2004 $15.60 $15.03 3.80% 9/23/2004 $15.59 $15.07 3.50% 9/24/2004 $15.67 $15.03 4.30% 9/27/2004 $15.79 $15.04 5.00% 9/28/2004 $15.82 $15.03 5.30% 9/29/2004 $15.80 $15.03 5.10% 9/30/2004 $15.93 $15.02 6.10% 10/1/2004 $15.75 $15.03 4.80% 10/4/2004 $15.82 $15.05 5.10% 10/5/2004 $15.80 $15.08 4.80% 10/6/2004 $15.94 $15.12 5.40% 10/7/2004 $15.89 $15.13 5.00% 10/8/2004 $15.93 $15.15 5.10% 10/11/2004 $16.04 $15.16 5.80% 10/12/2004 $15.91 $15.20 4.70% 10/13/2004 $16.06 $15.18 5.80% 10/14/2004 $16.11 $15.20 6.00% 10/15/2004 $16.29 $15.20 7.20% 10/18/2004 $16.35 $15.20 7.60% 10/19/2004 $16.30 $15.19 7.30% 10/20/2004 $16.26 $15.04 8.10% 10/21/2004 $16.16 $15.07 7.20% 10/22/2004 $16.13 $15.08 7.00% 10/25/2004 $16.25 $15.12 7.50% 10/26/2004 $16.08 $15.16 6.10% 10/27/2004 $15.87 $15.20 4.40% 10/28/2004 $15.91 $15.24 4.40% 10/29/2004 $15.86 $15.32 3.50% 11/1/2004 $15.92 $15.34 3.80% 11/2/2004 $16.16 $15.37 5.10% 11/3/2004 $16.16 $15.44 4.70% 11/4/2004 $16.31 $15.51 5.20% 11/5/2004 $16.30 $15.53 5.00% 11/8/2004 $15.94 $15.53 2.60% 11/9/2004 $15.83 $15.52 2.00% 11/10/2004 $15.98 $15.47 3.30% 11/11/2004 $16.10 $15.46 4.10% 11/12/2004 $16.10 $15.49 3.90% 11/15/2004 $16.25 $15.52 4.70% 11/16/2004 $16.25 $15.53 4.60% 11/17/2004 $16.31 $15.54 5.00% 11/18/2004 $16.26 $15.58 4.40% 11/19/2004 $16.35 $15.57 5.00% 11/22/2004 $16.28 $15.44 5.40% 11/23/2004 $16.30 $15.46 5.40% 11/24/2004 $16.34 $15.47 5.60% 11/26/2004 $16.34 $15.48 5.60% 11/29/2004 $16.20 $15.46 4.80% 11/30/2004 $16.10 $15.41 4.50% 12/1/2004 $16.23 $15.41 5.30% 12/2/2004 $16.00 $15.40 3.90% 12/3/2004 $16.40 $15.43 6.30% 12/6/2004 $16.27 $15.46 5.20% 12/7/2004 $16.29 $15.48 5.20% 12/8/2004 $16.31 $15.51 5.20% 12/9/2004 $16.18 $15.54 4.10% 12/10/2004 $16.10 $15.55 3.50% 12/13/2004 $16.24 $15.58 4.20% 12/14/2004 $16.43 $15.60 5.30% 12/15/2004 $16.45 $15.64 5.20% 12/16/2004 $16.41 $15.64 4.90% 12/17/2004 $16.48 $15.63 5.40% 12/20/2004 $16.24 $15.51 4.70% 12/21/2004 $16.20 $15.53 4.30% 12/22/2004 $16.08 $15.54 3.50% 12/23/2004 $16.26 $15.55 4.60% 12/24/2004 $16.26 $15.55 4.60% 12/27/2004 $16.09 $15.57 3.30% 12/28/2004 $16.15 $15.56 3.80% 12/29/2004 $16.28 $15.57 4.60% 12/30/2004 $16.39 $15.59 5.10% 12/31/2004 $16.48 $15.59 5.70% 1/3/2005 $16.27 $15.63 4.10% 1/4/2005 $16.30 $15.65 4.20% 1/5/2005 $16.23 $15.61 4.00% 1/6/2005 $16.14 $15.60 3.50% 1/7/2005 $15.98 $15.61 2.40% 1/10/2005 $16.30 $15.60 4.50% 1/11/2005 $16.33 $15.55 5.00% 1/12/2005 $16.36 $15.55 5.20% 1/13/2005 $16.37 $15.54 5.30% 1/14/2005 $16.30 $15.53 5.00% 1/18/2005 $16.33 $15.51 5.30% 1/19/2005 $16.17 $15.54 4.10% 1/20/2005 $16.01 $15.37 4.20% 1/21/2005 $16.00 $15.36 4.20% 1/24/2005 $15.99 $15.38 4.00% 1/25/2005 $16.06 $15.40 4.30% 1/26/2005 $15.91 $15.42 3.20% 1/27/2005 $15.96 $15.45 3.30% 1/28/2005 $15.91 $15.46 2.90% 1/31/2005 $15.91 $15.49 2.70% 2/1/2005 $15.93 $15.51 2.70% 2/2/2005 $15.91 $15.56 2.20% 2/3/2005 $15.85 $15.60 1.60% 2/4/2005 $15.84 $15.65 1.20% 2/7/2005 $15.89 $15.70 1.20% 2/8/2005 $15.98 $15.75 1.50% 2/9/2005 $16.00 $15.70 1.90% 2/10/2005 $15.99 $15.68 2.00% 2/11/2005 $15.99 $15.68 2.00% 2/14/2005 $16.05 $15.70 2.20% 2/15/2005 $16.00 $15.72 1.80% 2/16/2005 $15.78 $15.63 1.00% 2/17/2005 $15.81 $15.64 1.10% 2/18/2005 $15.73 $15.64 0.60% 2/22/2005 $15.39 $15.64 -1.60% 2/23/2005 $15.21 $15.66 -2.90% 2/24/2005 $15.41 $15.69 -1.80% 2/25/2005 $15.53 $15.72 -1.20% 2/28/2005 $15.50 $15.75 -1.60% 3/1/2005 $15.53 $15.73 -1.30% 3/2/2005 $15.48 $15.71 -1.50% 3/3/2005 $15.46 $15.72 -1.70% 3/4/2005 $15.44 $15.73 -1.80% 3/7/2005 $15.44 $15.78 -2.20% 3/8/2005 $15.48 $15.78 -1.90% 3/9/2005 $15.25 $15.73 -3.10% 3/10/2005 $15.22 $15.73 -3.20% 3/11/2005 $15.23 $15.69 -2.90% 3/14/2005 $15.30 $15.66 -2.30% 3/15/2005 $15.07 $15.65 -3.70% 3/16/2005 $15.00 $15.53 -3.40% 3/17/2005 $15.09 $15.46 -2.40% 3/18/2005 $15.05 $15.45 -2.60% 3/21/2005 $14.93 $15.21 -1.80% 3/22/2005 $14.99 $15.12 -0.90% 3/23/2005 $14.67 $15.01 -2.30% 3/24/2005 $14.20 $15.02 -5.50% 3/25/2005 $14.20 $15.03 -5.50% 3/28/2005 $14.16 $15.00 -5.60% 3/29/2005 $14.22 $14.94 -4.80% 3/30/2005 $14.42 $14.85 -2.90% 3/31/2005 $14.85 $14.83 0.10% 4/1/2005 $14.78 $14.85 -0.50% 4/4/2005 $14.76 $14.81 -0.30% 4/5/2005 $14.92 $14.84 0.50% 4/6/2005 $14.90 $14.94 -0.30% 4/7/2005 $14.90 $15.01 -0.70% 4/8/2005 $15.00 $15.03 -0.20% 4/11/2005 $14.95 $14.98 -0.20% 4/12/2005 $14.89 $14.94 -0.30% 4/13/2005 $14.89 $14.94 -0.30% 4/14/2005 $14.85 $14.80 0.30% 4/15/2005 $14.58 $14.68 -0.70% 4/18/2005 $14.68 $14.61 0.50% 4/19/2005 $14.74 $14.67 0.50% 4/20/2005 $14.75 $14.60 1.00% 4/21/2005 $14.60 $14.65 -0.30% 4/22/2005 $14.68 $14.66 0.10% 4/25/2005 $14.71 $14.66 0.30% 4/26/2005 $14.61 $14.59 0.10% 4/27/2005 $14.65 $14.48 1.20% 4/28/2005 $14.58 $14.43 1.00% 4/29/2005 $14.72 $14.38 2.40% 5/2/2005 $14.82 $14.44 2.60% 5/3/2005 $14.80 $14.45 2.40% 5/4/2005 $14.75 $14.50 1.70% 5/5/2005 $14.93 $14.51 2.90% 5/6/2005 $14.94 $14.45 3.40% 5/9/2005 $14.76 $14.47 2.00% 5/10/2005 $14.91 $14.45 3.20% 5/11/2005 $14.90 $14.37 3.70% 5/12/2005 $14.90 $14.35 3.80% 5/13/2005 $14.87 $14.27 4.20% 5/16/2005 $14.89 $14.12 5.50% 5/17/2005 $14.72 $14.04 4.80% 5/18/2005 $14.83 $14.10 5.20% 5/19/2005 $14.89 $14.09 5.70% 5/20/2005 $14.86 $14.16 4.90% 5/23/2005 $14.75 $14.25 3.50% 5/24/2005 $14.70 $14.28 2.90% 5/25/2005 $14.75 $14.39 2.50% 5/26/2005 $14.68 $14.50 1.20% 5/27/2005 $14.78 $14.56 1.50% 5/31/2005 $15.01 $14.65 2.50% 6/1/2005 $15.08 $14.75 2.20% 6/2/2005 $15.04 $14.89 1.00% 6/3/2005 $15.01 $14.94 0.50% 6/6/2005 $15.03 $14.88 1.00% 6/7/2005 $15.13 $14.89 1.60% 6/8/2005 $15.07 $14.86 1.40% 6/9/2005 $15.06 $14.84 1.50% 6/10/2005 $15.13 $14.87 1.70% 6/13/2005 $15.18 $14.89 1.90% 6/14/2005 $15.29 $14.92 2.50% 6/15/2005 $15.25 $14.96 1.90% 6/16/2005 $15.30 $14.95 2.30% 6/17/2005 $15.34 $14.95 2.60% 6/20/2005 $15.20 $14.81 2.60% 6/21/2005 $15.24 $14.83 2.80% 6/22/2005 $15.23 $14.84 2.60% 6/23/2005 $15.25 $14.85 2.70% 6/24/2005 $15.17 $14.84 2.30% 6/27/2005 $15.22 $14.80 2.80% 6/28/2005 $15.19 $14.87 2.20% 6/29/2005 $15.25 $14.91 2.30% 6/30/2005 $15.27 $14.95 2.10% 7/1/2005 $15.31 $14.96 2.30% 7/5/2005 $15.40 $14.94 3.10% 7/6/2005 $15.60 $14.95 4.30% 7/7/2005 $15.65 $14.95 4.70% 7/8/2005 $15.70 $14.98 4.80% 7/11/2005 $15.75 $15.06 4.60% 7/12/2005 $15.90 $15.11 5.20% 7/13/2005 $15.77 $15.13 4.20% 7/14/2005 $15.94 $15.16 5.10% 7/15/2005 $15.95 $15.16 5.20% 7/18/2005 $15.98 $15.16 5.40% 7/19/2005 $15.99 $15.16 5.50% 7/20/2005 $15.79 $15.02 5.10% 7/21/2005 $15.76 $15.03 4.90% 7/22/2005 $15.92 $15.04 5.90% 7/25/2005 $15.93 $15.07 5.70% 7/26/2005 $15.86 $15.09 5.10% 7/27/2005 $15.96 $15.11 5.60% 7/28/2005 $15.89 $15.14 5.00% 7/29/2005 $15.93 $15.15 5.10% 8/1/2005 $15.91 $15.13 5.20% 8/2/2005 $15.92 $15.13 5.20% 8/3/2005 $15.77 $15.12 4.30% 8/4/2005 $15.76 $15.11 4.30% 8/5/2005 $15.49 $15.06 2.90% 8/8/2005 $15.27 $15.01 1.70% 8/9/2005 $15.25 $15.03 1.50% 8/10/2005 $15.53 $15.05 3.20% 8/11/2005 $15.54 $15.07 3.10% 8/12/2005 $15.55 $15.10 3.00% 8/15/2005 $15.67 $15.10 3.80% 8/16/2005 $15.68 $15.12 3.70% 8/17/2005 $15.80 $15.12 4.50% 8/18/2005 $15.86 $15.15 4.70% 8/19/2005 $15.98 $15.17 5.30% 8/22/2005 $15.89 $15.02 5.80% 8/23/2005 $15.95 $15.05 6.00% 8/24/2005 $15.91 $15.06 5.60% 8/25/2005 $15.83 $15.09 4.90% 8/26/2005 $15.85 $15.10 5.00% 8/29/2005 $15.87 $15.09 5.20% 8/30/2005 $15.86 $15.07 5.20% 8/31/2005 $15.82 $15.05 5.10% 9/1/2005 $15.71 $15.04 4.50% 9/2/2005 $15.70 $15.02 4.50% 9/6/2005 $15.71 $15.04 4.50% 9/7/2005 $15.78 $15.04 4.90% 9/8/2005 $15.81 $15.05 5.00% 9/9/2005 $15.90 $15.06 5.60% 9/12/2005 $15.97 $15.07 6.00% 9/13/2005 $15.99 $15.08 6.00% 9/14/2005 $15.96 $15.07 5.90% 9/15/2005 $15.79 $15.05 4.90% 9/16/2005 $15.82 $15.01 5.40% 9/19/2005 $15.80 $14.96 5.60% 9/20/2005 $15.87 $14.91 6.40% 9/21/2005 $15.79 $14.75 7.10% 9/22/2005 $15.73 $14.71 6.90% 9/23/2005 $15.73 $14.72 6.90% 9/26/2005 $15.72 $14.76 6.50% 9/27/2005 $15.74 $14.74 6.80% 9/28/2005 $15.54 $14.73 5.50% 9/29/2005 $15.57 $14.73 5.70% 9/30/2005 $15.64 $14.73 6.20% 10/3/2005 $15.87 $14.74 7.70% 10/4/2005 $15.85 $14.75 7.50% 10/5/2005 $15.65 $14.73 6.20% 10/6/2005 $15.55 $14.70 5.80% 10/7/2005 $15.84 $14.68 7.90% 10/10/2005 $15.78 $14.70 7.30% 10/11/2005 $15.53 $14.62 6.20% 10/12/2005 $15.50 $14.53 6.70% 10/13/2005 $15.12 $14.44 4.70% 10/14/2005 $15.30 $14.50 5.50% 10/17/2005 $15.42 $14.62 5.50% 10/18/2005 $15.50 $14.69 5.50% 10/19/2005 $15.46 $14.68 5.30% 10/20/2005 $15.13 $14.55 4.00% 10/21/2005 $15.05 $14.61 3.00% 10/24/2005 $15.20 $14.61 4.00% 10/25/2005 $15.37 $14.61 5.20% 10/26/2005 $15.46 $14.52 6.50% 10/27/2005 $15.24 $14.48 5.20% 10/28/2005 $15.10 $14.45 4.50% 10/31/2005 $15.14 $14.48 4.60% 11/1/2005 $15.10 $14.50 4.10% 11/2/2005 $15.15 $14.50 4.50% 11/3/2005 $15.11 $14.52 4.10% 11/4/2005 $15.16 $14.51 4.50% 11/7/2005 $15.12 $14.55 3.90% 11/8/2005 $15.17 $14.54 4.30% 11/9/2005 $15.30 $14.51 5.40% 11/10/2005 $15.29 $14.49 5.50% 11/11/2005 $15.40 $14.50 6.20% 11/14/2005 $15.52 $14.45 7.40% 11/15/2005 $15.54 $14.45 7.50% 11/16/2005 $15.57 $14.42 8.00% 11/17/2005 $15.46 $14.40 7.40% 11/18/2005 $15.36 $14.32 7.30% 11/21/2005 $15.29 $14.35 6.60% 11/22/2005 $15.33 $14.37 6.70% 11/23/2005 $15.31 $14.37 6.50% 11/25/2005 $15.36 $14.38 6.80% 11/28/2005 $15.40 $14.42 6.80% 11/29/2005 $15.40 $14.45 6.60% 11/30/2005 $15.24 $14.45 5.50% 12/1/2005 $15.40 $14.47 6.40% 12/2/2005 $15.46 $14.50 6.60% 12/5/2005 $15.36 $14.48 6.10% 12/6/2005 $15.30 $14.49 5.60% 12/7/2005 $15.50 $14.49 7.00% 12/8/2005 $15.47 $14.49 6.80% 12/9/2005 $15.60 $14.53 7.40% 12/12/2005 $15.64 $14.55 7.50% 12/13/2005 $15.54 $14.57 6.70% 12/14/2005 $15.50 $14.59 6.20% 12/15/2005 $15.56 $14.57 6.80% 12/16/2005 $15.67 $14.59 7.40% 12/19/2005 $15.64 $14.61 7.00% 12/20/2005 $15.64 $14.44 8.30% 12/21/2005 $15.64 $14.44 8.30% 12/22/2005 $15.60 $14.46 7.90% 12/23/2005 $15.69 $14.46 8.50% 12/27/2005 $15.60 $14.49 7.70% 12/28/2005 $15.51 $14.50 7.00% 12/29/2005 $15.50 $14.50 6.90% 12/30/2005 $15.61 $14.51 7.60% 1/3/2006 $15.71 $14.54 8.00% 1/4/2006 $15.68 $14.58 7.50% 1/5/2006 $15.70 $14.63 7.30% 1/6/2006 $15.64 $14.68 6.50% 1/9/2006 $15.78 $14.72 7.20% 1/10/2006 $15.84 $14.70 7.80% 1/11/2006 $15.81 $14.69 7.60% 1/12/2006 $15.62 $14.67 6.50% 1/13/2006 $15.12 $14.68 3.00% 1/17/2006 $14.75 $14.64 0.80% 1/18/2006 $14.78 $14.65 0.90% 1/19/2006 $14.87 $14.56 2.10% 1/20/2006 $14.80 $14.54 1.80% 1/23/2006 $14.73 $14.56 1.20% 1/24/2006 $14.50 $14.59 -0.60% 1/25/2006 $14.26 $14.60 -2.30% 1/26/2006 $13.81 $14.59 -5.30% 1/27/2006 $14.08 $14.60 -3.60% 1/30/2006 $13.92 $14.64 -4.90% 1/31/2006 $14.04 $14.64 -4.10% 2/1/2006 $14.08 $14.65 -3.90% 2/2/2006 $14.27 $14.65 -2.60% 2/3/2006 $14.17 $14.64 -3.20% 2/6/2006 $14.20 $14.66 -3.10% 2/7/2006 $14.28 $14.61 -2.30% 2/8/2006 $14.42 $14.62 -1.40% 2/9/2006 $14.37 $14.62 -1.70% 2/10/2006 $14.34 $14.62 -1.90% 2/13/2006 $14.35 $14.62 -1.80% 2/14/2006 $14.55 $14.59 -0.30% 2/15/2006 $14.40 $14.61 -1.40% 2/16/2006 $14.59 $14.52 0.50% 2/17/2006 $14.65 $14.57 0.50% 2/21/2006 $14.69 $14.59 0.70% 2/22/2006 $14.94 $14.62 2.20% 2/23/2006 $15.20 $14.62 4.00% 2/24/2006 $15.05 $14.63 2.90% 2/27/2006 $14.97 $14.64 2.30% 2/28/2006 $15.09 $14.64 3.10% 3/1/2006 $15.04 $14.62 2.90% 3/2/2006 $15.13 $14.59 3.70% 3/3/2006 $14.95 $14.58 2.50% 3/6/2006 $14.94 $14.57 2.50% 3/7/2006 $14.90 $14.53 2.50% 3/8/2006 $15.00 $14.52 3.30% 3/9/2006 $14.96 $14.50 3.20% 3/10/2006 $14.95 $14.50 3.10% 3/13/2006 $14.90 $14.51 2.70% 3/14/2006 $14.93 $14.54 2.70% 3/15/2006 $14.92 $14.56 2.50% 3/16/2006 $15.03 $14.60 2.90% 3/17/2006 $15.00 $14.61 2.70% 3/20/2006 $15.02 $14.63 2.70% 3/21/2006 $14.89 $14.53 2.50% 3/22/2006 $14.98 $14.54 3.00% 3/23/2006 $14.86 $14.54 2.20% 3/24/2006 $14.88 $14.55 2.30% 3/27/2006 $14.82 $14.56 1.80% 3/28/2006 $14.61 $14.57 0.30% 3/29/2006 $14.65 $14.53 0.80% 3/30/2006 $14.45 $14.52 -0.50% 3/31/2006 $14.50 $14.54 -0.30% 4/3/2006 $14.47 $14.56 -0.60% 4/4/2006 $14.41 $14.56 -1.00% 4/5/2006 $14.36 $14.56 -1.40% 4/6/2006 $14.32 $14.54 -1.50% 4/7/2006 $14.09 $14.54 -3.10% 4/10/2006 $13.97 $14.53 -3.90% 4/11/2006 $13.94 $14.55 -4.20% 4/12/2006 $14.01 $14.56 -3.80% 4/13/2006 $13.91 $14.53 -4.30% 4/14/2006 $13.91 $14.53 -4.30% 4/17/2006 $13.91 $14.55 -4.40% 4/18/2006 $13.98 $14.56 -4.00% 4/19/2006 $13.94 $14.46 -3.60% 4/20/2006 $13.97 $14.48 -3.50% 4/21/2006 $14.11 $14.51 -2.80% 4/24/2006 $14.06 $14.54 -3.30% 4/25/2006 $14.00 $14.53 -3.60% 4/26/2006 $13.92 $14.51 -4.10% 4/27/2006 $13.83 $14.52 -4.80% 4/28/2006 $13.75 $14.54 -5.40% 5/1/2006 $13.66 $14.56 -6.20% 5/2/2006 $13.78 $14.57 -5.40% 5/3/2006 $13.75 $14.58 -5.70% 5/4/2006 $13.81 $14.58 -5.30% 5/5/2006 $13.83 $14.59 -5.20% 5/8/2006 $13.84 $14.64 -5.50% 5/9/2006 $13.80 $14.66 -5.90% 5/10/2006 $13.85 $14.67 -5.60% 5/11/2006 $13.79 $14.70 -6.20% 5/12/2006 $13.84 $14.66 -5.60% 5/15/2006 $13.86 $14.64 -5.30% 5/16/2006 $14.03 $14.63 -4.10% 5/17/2006 $13.81 $14.55 -5.10% 5/18/2006 $13.79 $14.57 -5.40% 5/19/2006 $13.79 $14.49 -4.80% 5/22/2006 $13.83 $14.45 -4.30% 5/23/2006 $13.82 $14.45 -4.40% 5/24/2006 $13.74 $14.42 -4.70% 5/25/2006 $13.83 $14.44 -4.20% 5/26/2006 $13.76 $14.46 -4.80% 5/30/2006 $13.72 $14.45 -5.10% 5/31/2006 $13.77 $14.45 -4.70% 6/1/2006 $13.76 $14.45 -4.80% 6/2/2006 $13.88 $14.49 -4.20% 6/5/2006 $13.89 $14.48 -4.10% 6/6/2006 $13.80 $14.44 -4.40% 6/7/2006 $13.81 $14.46 -4.50% 6/8/2006 $13.77 $14.43 -4.60% 6/9/2006 $13.86 $14.45 -4.10% 6/12/2006 $13.77 $14.46 -4.80% 6/13/2006 $13.76 $14.42 -4.60% 6/14/2006 $13.73 $14.33 -4.20% 6/15/2006 $13.66 $14.32 -4.60% 6/16/2006 $13.58 $14.31 -5.10% 6/19/2006 $13.54 $14.30 -5.30% 6/20/2006 $13.55 $14.28 -5.10% 6/21/2006 $13.40 $14.10 -5.00% 6/22/2006 $13.50 $14.08 -4.10% 6/23/2006 $13.58 $14.08 -3.60% 6/26/2006 $13.57 $14.06 -3.50% 6/27/2006 $13.46 $14.08 -4.40% 6/28/2006 $13.45 $14.07 -4.40% 6/29/2006 $13.53 $14.14 -4.30% 6/30/2006 $13.58 $14.23 -4.60%
TOP INDUSTRIES (% OF TOTAL INVESTMENTS) [CHART] Media Broadcasting & Publishing 15.7% Automotive 12.6% Entertainment & Leisure 9.8% Oil & Gas 8.1% Telephone Systems 7.2% Commercial Services 6.1% Electric Utilities 5.9% Health Care Providers 5.3% Retailers 4.4% Communications 3.6% Other 21.3%
MATURITY BREAKDOWN (% OF TOTAL INVESTMENTS AND CASH) [CHART] LESS THAN 1 Year 2.9% 1-3 Years 5.1% 3-5 Years 16.4% 5-7 Years 26.5% 7-10 Years 36.6% 10+ Years 12.5%
- ---------- 1. Unless noted, data at or for six months ended June 30, 2006. High yield securities, also known as "junk bonds," are subject to additional risks such as the increased risk of default. Portfolio holdings are subject to change. 2. Performance for NAV and Market Price assume reinvestment of all dividends and capital gains. Shares of the Fund fluctuate in value. Fund performance changes over time and currently may be different from that shown as of 6/30/06. Past performance is no guarantee of future results. More current Fund performance information can be obtained by visiting the Fund's website at www.lbftincomeopportunity.com. 3. Not annualized. LEHMAN BROTHERS FIRST TRUST INCOME OPPORTUNITY FUND SCHEDULE OF INVESTMENTS JUNE 30, 2006 (UNAUDITED)
PRINCIPAL S&P MOODY'S FITCH AMOUNT DESCRIPTION RATINGS RATINGS RATINGS VALUE (a) ASSET BACKED SECURITIES -- 0.8% OF TOTAL NET ASSETS AIRLINES -- 0.8% $1,405,000 Delta Airlines, Inc., Pass-Through Certificates, Series 2000-1, Class A2 7.570%, 11/18/2010 BB Ba B $ 1,410,269 TOTAL ASSET BACKED SECURITIES (IDENTIFIED COST $1,300,128) 1,410,269 CORPORATE DEBT -- 146.3% OF TOTAL NET ASSETS AUTOMOTIVE -- 18.6% 1,100,000 Ford Motor Credit Co., Global Note 7.375%, 10/28/2009 B Ba BB 1,016,992 5,000,000 Ford Motor Credit Co., Note 6.500%, 1/25/2007 B Ba BB 4,991,345 6,870,000 Ford Motor Credit Co., Note, 144A 9.750%, 9/15/2010 B Ba BB 6,694,025 2,630,000 Ford Motor Credit Co., Senior Note 4.950%, 1/15/2008 B Ba BB 2,475,774 2,495,000 General Motors Acceptance Corp., Global Note 5.125%, 5/09/2008 BB Ba BB 2,390,222 4,900,000 General Motors Acceptance Corp., Global Note 6.125%, 1/22/2008 BB Ba BB 4,803,347 4,375,000 General Motors Acceptance Corp., Global Note 6.875%, 9/15/2011 BB Ba BB 4,174,450 935,000 General Motors Acceptance Corp., Senior Note 7.000%, 2/01/2012 BB Ba BB 887,502 4,360,000 General Motors Corp., Senior Note 8.250%, 7/15/2023 B Caa B 3,433,500 1,580,000 Goodyear Tire & Rubber Co. Senior Note 9.000%, 7/01/2015 B B CCC 1,508,900 32,376,057 BEVERAGES, FOOD & TOBACCO -- 0.7% 1,120,000 Le-Natures, Inc., Senior Subordinated Note, 144A 9.000%, 6/15/2013 CCC B NR 1,180,200 BUILDING MATERIALS -- 1.6% 1,290,000 Nortek, Inc., Senior Subordinated Note 8.500%, 9/01/2014 CCC Caa NR 1,248,075 2,140,000 NTK Holdings, Inc., Senior Note, Step-Up 0.000%/10.750%, 3/01/2014 (c) CCC Caa NR 1,548,825 2,796,900
See accompanying notes to financial statements. 5 LEHMAN BROTHERS FIRST TRUST INCOME OPPORTUNITY FUND SCHEDULE OF INVESTMENTS (CONTINUED)
PRINCIPAL S&P MOODY'S FITCH AMOUNT DESCRIPTION RATINGS RATINGS RATINGS VALUE (a) CORPORATE DEBT -- CONTINUED CHEMICALS -- 3.8% $1,550,000 AmeriGas Partners, LP, Senior Note 7.250%, 5/20/2015 BB B BB $ 1,464,750 670,000 AmeriGas Partners, LP/AP Eagle Finance Corp., Senior Note 7.125%, 5/20/2016 BB B BB 628,125 1,155,000 Equistar Chemicals, LP/Equistar Funding Corp., Senior Note 10.625%, 5/01/2011 BB B BB 1,240,181 915,000 Methanex Corp., Senior Note 8.750%, 8/15/2012 BBB Ba BBB 982,481 670,000 Nell AF Sarl, Guaranteed Senior Subordinated Note, 144A 8.375%, 8/15/2015 B B NR 644,037 1,745,000 PQ Corp., Senior Subordinated Note 7.500%, 2/15/2013 B B NR 1,640,300 6,599,874 COAL -- 3.7% 2,650,000 Arch Western Finance LLC, Guaranteed Senior Note 6.750%, 7/01/2013 2,800,000 Massey Energy Co., Senior Note BB Ba NR 2,537,375 6.875%, 12/15/2013 1,275,000 Peabody Energy Corp., Senior Note BB B NR 2,604,000 6.875%, 3/15/2013 BB Ba BBB 1,252,687 6,394,062 COMMERCIAL SERVICES -- 9.0% 1,375,000 Allied Waste North America Inc., Senior Note 7.250%, 3/15/2015 BB B B 1,313,125 2,300,000 Cardtronics, Inc., Senior Subordinated Note, 144A 9.250%, 8/15/2013 B Caa NR 2,265,500 1,320,000 Education Management LLC/Education Management Corp., Senior Note, 144A 8.750%, 6/01/2014 CCC B NR 1,306,800 2,945,000 Knowledge Learning Corp., Inc., Senior Subordinated Note, 144A 7.750%, 2/01/2015 B B NR 2,694,675 3,105,000 Language Line, Inc., Note 11.125%, 6/15/2012 CCC Caa NR 3,011,850 3,105,000 Monitronics International, Inc., Senior Subordinated Note 11.750%, 9/01/2010 B B NR 3,062,306 2,125,000 Service Corp. International/US, Senior Note, 144A Step-Up 7.000%/8.000%, 6/15/2017 (c) BB Ba NR 1,986,875 15,641,131
See accompanying notes to financial statements.
PRINCIPAL S&P MOODY'S FITCH AMOUNT DESCRIPTION RATINGS RATINGS RATINGS VALUE (a) CORPORATE DEBT -- CONTINUED COMMUNICATIONS -- 5.3% $1,335,000 Dycom Industries, Inc., Senior Subordinated Note 8.125%, 10/15/2015 B Ba NR $1,338,337 2,200,000 Intelsat Bermuda, Ltd., Guaranteed Senior Note, 144A 9.250%, 6/15/2016 (d) B B BB 2,271,500 3,375,000 Intelsat Subsidiary Holding Co., Ltd., Guaranteed Senior Note 8.625%, 1/15/2015 B B BB 3,383,437 450,000 L-3 Communications Corp., Senior Subordinated Note 5.875%, 1/15/2015 BB Ba BB 419,625 1,830,000 L-3 Communications Corp., Senior Subordinated Note 7.625%, 6/15/2012 BB Ba BB 1,857,450 9,270,349 COMPUTERS -- 1.9% 3,225,000 Sungard Data Systems, Inc., Senior Note, 144A 9.125%, 8/15/2013 B B B 3,345,937 CONTAINERS & PACKAGING -- 2.9% 860,000 Ball Corp., Guaranteed Senior Note 6.875%, 12/15/2012 BB Ba BB 842,800 1,855,000 Crown Americas, Inc., Guaranteed Senior Note, 144A 7.750%, 11/15/2015 B B NR 1,827,175 2,345,000 Owens-Brockway Glass Container, Senior Secured Note 8.750%, 11/15/2012 BB B BB 2,441,731 5,111,706 ELECTRIC UTILITIES -- 8.7% 1,445,000 AES Corp. Senior Secured Note, 144A 8.750%, 5/15/2013 BB Ba BB 1,546,150 2,505,000 CMS Energy Corp., Senior Note 7.750%, 8/01/2010 B B BB 2,542,575 2,485,000 Midwest Generation LLC, Senior Secured Note 8.750%, 5/01/2034 B Ba B 2,634,100 2,595,000 Mirant Americas Generation, Inc., Senior Note 8.300%, 5/01/2011 B B B 2,562,562 1,410,000 Mission Energy Holding Co., Senior Secured Note 13.500%, 7/15/2008 B B B 1,572,150 1,300,000 NRG Energy, Inc., Senior Note 7.375%, 2/01/2016 B B B 1,267,500 1,580,000 TECO Energy, Inc., Note 7.500%, 6/15/2010 BB Ba BB 1,611,600
See accompanying notes to financial statements. 7 LEHMAN BROTHERS FIRST TRUST INCOME OPPORTUNITY FUND SCHEDULE OF INVESTMENTS (CONTINUED)
PRINCIPAL S&P MOODY'S FITCH AMOUNT DESCRIPTION RATINGS RATINGS RATINGS VALUE (a) CORPORATE DEBT -- CONTINUED ELECTRIC UTILITIES -- CONTINUED $1,500,000 TXU Corp., Series Q, Senior Note 6.500%, 11/15/2024 BB Ba BBB $ 1,338,048 15,074,685 ELECTRONICS -- 2.6% 1,350,000 Flextronics International Ltd., Senior Subordinated Note 6.500%, 5/15/2013 BB Ba BB 1,282,500 1,565,000 Sensata Technologies BV, Senior Note, 144A 8.000%, 5/01/2014 B B NR 1,510,225 1,720,000 Xerox Corp., Note 7.625%, 6/15/2013 BB Ba BB 1,732,900 4,525,625 ENTERTAINMENT & LEISURE -- 14.4% 1,210,000 AMC Entertainment, Inc., Senior Subordinated Note 11.000%, 2/01/2016 CCC B NR 1,294,700 2,160,000 AMF Bowling Worldwide, Inc., Senior Subordinated Note 10.000%, 3/01/2010 CCC Caa NR 2,208,600 1,750,000 Blockbuster, Inc., Senior Subordinated Note 9.000%, 9/01/2012 CCC Caa B 1,631,875 990,000 Choctaw Resort Development Enterprise, Senior Note, 144A 7.250%, 11/15/2019 BB B NR 970,200 2,630,000 Chukchansi Economic Development Authority, Note, 144A 8.000%, 11/15/2013 BB B NR 2,646,437 2,000,000 Chumash Casino & Resort Enterprise, Senior Note, 144A 9.000%, 7/15/2010 BB Ba NR 2,087,500 1,115,000 Majestic Star Casino LLC/ Majestic Star Casino Cap, Senior Note 9.500%, 10/15/2010 BB B NR 1,167,962 500,000 Majestic Star Casino LLC/ Majestic Star Casino Capital Corp. II, Senior Secured Note, 144A 9.750%, 1/15/2011 B B NR 501,250 1,090,000 Marquee, Inc., Series B, Senior Note 8.625%, 8/15/2012 B B B 1,119,975 1,370,000 MGM Mirage, Guaranteed Senior Note 8.500%, 9/15/2010 BB Ba BB 1,423,087 1,275,000 Mohegan Tribal Gaming Authority, Senior Subordinated Note 8.000%, 4/01/2012 B Ba NR 1,295,719 1,550,000 Pokagon Gaming Authority, Senior Note, 144A 10.375%, 6/15/2014 B B NR 1,602,312
See accompanying notes to financial statements.
PRINCIPAL S&P MOODY'S FITCH AMOUNT DESCRIPTION RATINGS RATINGS RATINGS VALUE (a) CORPORATE DEBT -- CONTINUED ENTERTAINMENT & LEISURE -- CONTINUED $1,255,000 Royal Caribbean Cruises Ltd., Senior Note 7.500%, 10/15/2027 BBB Ba NR $ 1,203,578 1,475,000 San Pasqual Casino, Senior Note, 144A 8.000%, 9/15/2013 B B NR 1,471,312 480,000 Station Casinos, Inc., Senior Note 6.000%, 4/01/2012 BB Ba NR 449,400 1,730,000 Station Casinos, Inc., Senior Subordinated Note 6.875%, 3/01/2016 B B NR 1,613,225 3,385,000 WMG Holdings Corp., Senior Note, Step-Up 0.000%/9.500%, 12/15/2014 (c) B B B 2,437,200 25,124,332 FINANCIAL SERVICES -- 1.1% 500,000 American Real Estate Partners, LP, Senior Note 8.125%, 6/01/2012 BB Ba NR 498,750 1,470,000 American Real Estate Partners, LP/American Real Estate Finance Corp., Senior Note 7.125%, 2/15/2013 BB Ba NR 1,411,200 1,909,950 FOREST PRODUCTS & PAPER -- 1.8% 1,090,000 Bowater, Inc., Note 9.000%, 8/01/2009 B B BB 1,106,350 535,000 Bowater, Inc., Senior Note, (FRN) 8.329%, 3/15/2010 B B BB 535,000 310,000 Graphic Packaging International Corp., Senior Subordinated Note 9.500%, 8/15/2013 B B NR 306,900 1,200,000 Graphic Packaging International Corp., Senior Note 8.500%, 8/15/2011 B B NR 1,197,000 3,145,250 HEALTH CARE PROVIDERS -- 7.9% 1,370,000 Multiplan, Inc., Senior Subordinated Note, 144A 10.375%, 4/15/2016 B Caa NR 1,387,125 1,465,000 National Mentor Holdings, Senior Subordinated Note, 144A 11.250%, 7/01/2014 CCC Caa NR 1,490,637 2,100,000 Rural/Metro Corp., Senior Subordinated Note 9.875%, 3/15/2015 CCC B NR 2,170,875 1,460,000 Select Medical Corp., Guaranteed Senior Subordinated Note 7.625%, 2/01/2015 B B NR 1,270,200
See accompanying notes to financial statements. 9 LEHMAN BROTHERS FIRST TRUST INCOME OPPORTUNITY FUND SCHEDULE OF INVESTMENTS (CONTINUED)
PRINCIPAL S&P MOODY'S FITCH AMOUNT DESCRIPTION RATINGS RATINGS RATINGS VALUE (a) CORPORATE DEBT -- CONTINUED HEALTH CARE PROVIDERS -- CONTINUED $2,485,000 Spheris, Inc., Senior Subordinated Note 11.000%, 12/15/2012 CCC Caa NR $ 2,311,050 1,260,000 Triad Hospitals, Inc., Senior Subordinated Note 7.000%, 11/15/2013 B B B 1,225,350 1,595,000 US Oncology Holdings, Inc., Senior Note, (FRN) 10.320%, 3/15/2015 B Caa NR 1,626,900 900,000 US Oncology, Inc., Senior Note 9.000%, 8/15/2012 B B NR 936,000 1,330,000 Ventas Realty, LP/Ventas Capital Corp. REIT, Senior Note 6.500%, 6/01/2016 BB Ba NR 1,275,138 13,693,275 HEAVY MACHINERY -- 1.0% 570,000 Mueller Group, Inc., Senior Subordinated Note 10.000%, 5/01/2012 B B NR 612,750 1,250,000 Mueller Holdings, Inc., Senior Note, Step-Up 0.000%/14.750%, 4/15/2014 (c) B Caa NR 1,050,000 1,662,750 HOME CONSTRUCTION, FURNISHINGS & APPLIANCES -- 0.3% 560,000 K Hovnanian Enterprises, Inc., Senior Note 8.000%, 4/01/2012 BB Ba BB 560,000 MEDIA - BROADCASTING & PUBLISHING -- 23.1% 2,005,000 CCH I Holdings LLC, Guaranteed Senior Note 10.000%, 5/15/2014 CCC Ca CCC 1,203,000 633,000 CCH I LLC, Senior Secured Note 11.000%, 10/01/2015 CCC Caa CCC 553,875 1,000,000 Charter Communications Operating LLC/Charter Communications Capital Corp., Senior Note, 144A 8.375%, 4/30/2014 B B B 1,001,250 2,420,000 CMP Susquehanna Corp., Senior Subordinated Note, 144A 9.875%, 5/15/2014 CCC B NR 2,250,600 2,525,000 CSC Holdings, Inc., Series B, Senior Note 8.125%, 8/15/2009 B B BB 2,569,188 2,960,000 Dex Media, Inc., Note 8.000%, 11/15/2013 B B CCC 2,974,800 1,800,000 DirecTV Holdings LLC/DirecTV Financing Co., Senior Note 8.375%, 3/15/2013 BB Ba BB 1,885,500 2,010,000 Echostar DBS Corp., Guaranteed Senior Note, 144A 7.125%, 2/01/2016 BB Ba BB 1,934,625
See accompanying notes to financial statements.
PRINCIPAL S&P MOODY'S FITCH AMOUNT DESCRIPTION RATINGS RATINGS RATINGS VALUE (a) CORPORATE DEBT -- CONTINUED MEDIA - BROADCASTING & PUBLISHING -- CONTINUED $1,400,000 Echostar DBS Corp., Senior Note 6.625%, 10/01/2014 BB Ba BB $ 1,316,000 720,000 Entercom Radio LLC/Entercom Capital, Inc., Senior Subordinated Note 7.625%, 3/01/2014 B Ba NR 718,200 3,975,000 Houghton Mifflin Co., Senior Note 8.250%, 2/01/2011 CCC B B 4,024,688 1,675,000 Liberty Media Corp., Senior Note 8.500%, 7/15/2029 BB Ba BB 1,629,058 580,000 LIN Television Corp., Senior Subordinated Note 6.500%, 5/15/2013 B B NR 529,250 675,000 LIN Television Corp., Series B, Senior Subordinated Note 6.500%, 5/15/2013 B B NR 615,938 320,000 Mediacom Broadband LLC, Senior Note 8.500%, 10/15/2015 B B B 307,200 2,070,000 Mediacom LLC/Mediacom Capital Corp., Senior Note 9.500%, 1/15/2013 B B CCC 2,059,650 5,615,000 Paxson Communications Corp., Senior Note, 144A, (FRN) 11.318%, 1/15/2013 CCC B NR 5,629,038 2,375,000 Primedia, Inc., Senior Note 8.875%, 5/15/2011 B B NR 2,280,000 300,000 Primedia, Inc., Senior Note, (FRN) 10.545%, 5/15/2010 B B NR 306,375 3,130,000 RH Donnelley Corp., Senior Note, 144A 8.875%, 1/15/2016 B Caa CCC 3,157,388 785,000 Rogers Cable, Inc., Senior Secured Note 7.875%, 5/01/2012 BB Ba BB 802,663 1,355,000 Rogers Cable, Inc., Senior Secured Note 8.750%, 5/01/2032 BB Ba BB 1,460,013 1,025,000 Young Broadcasting, Inc., Senior Subordinated Note 8.750%, 1/15/2014 CCC Caa NR 855,875 190,000 Young Broadcasting, Inc., Senior Subordinated Note 10.000%, 3/01/2011 CCC Caa NR 169,100 40,233,274 MEDICAL SUPPLIES -- 1.9% 4,995,000 CDRV Investors, Inc., Senior Note, Step-Up 0.000%/9.625%, 1/01/2015 (c) B Caa NR 3,371,625
See accompanying notes to financial statements. 11 LEHMAN BROTHERS FIRST TRUST INCOME OPPORTUNITY FUND SCHEDULE OF INVESTMENTS (CONTINUED)
PRINCIPAL S&P MOODY'S FITCH AMOUNT DESCRIPTION RATINGS RATINGS RATINGS VALUE (a) CORPORATE DEBT -- CONTINUED OIL & GAS -- 12.0% $2,065,000 Chesapeake Energy Corp., Senior Note 6.375%, 6/15/2015 BB Ba BB $ 1,915,288 210,000 Chesapeake Energy Corp., Senior Note 7.000%, 8/15/2014 BB Ba BB 203,175 3,290,000 Chesapeake Energy Corp., Senior Note 7.625%, 7/15/2013 BB Ba BB 3,310,563 2,650,000 El Paso Corp., Note, 144A 7.750%, 6/15/2010 B B NR 2,689,750 920,000 El Paso Corp., Senior Note, 144A 9.625%, 5/15/2012 B B NR 1,005,100 2,190,000 El Paso Natural Gas Co., Note 8.375%, 6/15/2032 B Ba NR 2,329,337 2,015,000 Ferrellgas Partners, LP/Ferrellgas Partners Finance Corp., Senior Note 8.750%, 6/15/2012 B B NR 2,045,225 840,000 Forest Oil Corp., Senior Note 7.750%, 5/01/2014 B Ba NR 842,100 1,090,000 Forest Oil Corp., Senior Note 8.000%, 12/15/2011 B Ba NR 1,114,525 1,770,000 Kerr-McGee Corp., Note 6.950%, 7/01/2024 BB Ba BB 1,779,193 500,000 Newfield Exploration Co., Senior Note 7.625%, 3/01/2011 BB Ba BB 506,250 435,000 Southern Natural Gas Co., Note 8.000%, 3/01/2032 B Ba NR 449,488 740,000 Targa Resources, Inc., Senior Note, 144A 8.500%, 11/01/2013 B B NR 714,100 2,025,000 Transcontinental Gas Pipe Line Corp., Note 7.250%, 12/01/2026 BB Ba BBB 1,971,844 20,875,938 PHARMACEUTICALS -- 2.4% 1,655,000 Athena Neurosciences Finance LLC, Senior Note 7.250%, 2/21/2008 B B NR 1,642,588 1,230,000 Biovail Corp., Senior Subordinated Note 7.875%, 4/01/2010 BB B NR 1,245,375 1,280,000 Elan Finance PLC/Elan Finance Corp., Guaranteed Senior Note, (FRN) 9.170%, 11/15/2011 B B NR 1,292,800 4,180,763
See accompanying notes to financial statements.
PRINCIPAL S&P MOODY'S FITCH AMOUNT DESCRIPTION RATINGS RATINGS RATINGS VALUE (a) CORPORATE DEBT -- CONTINUED RESTAURANTS -- 0.8% $1,370,000 NPC International, Inc., Senior Subordinated Note, 144A 9.500%, 5/01/2014 B Caa NR $ 1,325,475 RETAILERS -- 6.5% 2,255,000 Amscan Holdings, Inc., Senior Subordinated Note 8.750%, 5/01/2014 CCC Caa NR 1,973,125 1,050,000 Autonation, Inc., Guaranteed Senior Note, 144A 7.000%, 4/15/2014 BB Ba BB 1,034,250 260,000 Autonation, Inc., Guaranteed Senior Note, 144A, (FRN) 7.045%, 4/15/2013 BB Ba BB 258,700 1,130,000 Dollarama Group, LP, Senior Subordinated Note, 144A 8.875%, 8/15/2012 B B NR 1,135,650 660,000 GSC Holdings Corp., Guaranteed Senior Note 8.000%, 10/01/2012 B Ba NR 660,000 2,045,000 JC Penney Corp., Note 8.125%, 4/01/2027 BBB Baa BBB 2,113,223 180,000 Jean Coutu Group, Inc., Senior Note 7.625%, 8/01/2012 B B B 174,600 2,265,000 Jean Coutu Group, Inc., Senior Subordinated Note 8.500%, 8/01/2014 B Caa CCC 2,083,800 2,205,000 Movie Gallery, Inc., Senior Note 11.000%, 5/01/2012 CCC Caa NR 1,642,725 295,000 Stripes Acquisition LLC/Susser Finance Corp., Senior Note, 144A 10.625%, 12/15/2013 B B NR 311,225 11,387,298 TELEPHONE SYSTEMS -- 10.6% 640,000 American Cellular Corp., Series B, Senior Note 10.000%, 8/01/2011 B B B 673,600 895,560 Calpoint Receivables Structured Trust 2001, Note, 144A 7.440%, 12/10/2006 NR B CCC 897,799 2,635,000 Centennial Cellular Operating Co./Centennial Communications Corp., Guaranteed Senior Note 10.125%, 6/15/2013 CCC B B 2,773,338 35,000 Dobson Cellular Systems, Senior Note 8.375%, 11/01/2011 B B BB 35,963 2,740,000 Dobson Communications Corp., Senior Note 8.875%, 10/01/2013 CCC Caa CCC 2,692,050 2,540,000 Nordic Telephone Co. Holdings, Senior Note, 144A 8.875%, 5/01/2016 B B B 2,609,850
See accompanying notes to financial statements. 13 LEHMAN BROTHERS FIRST TRUST INCOME OPPORTUNITY FUND SCHEDULE OF INVESTMENTS (CONTINUED)
PRINCIPAL S&P MOODY'S FITCH AMOUNT DESCRIPTION RATINGS RATINGS RATINGS VALUE (a) CORPORATE DEBT -- CONTINUED TELEPHONE SYSTEMS -- CONTINUED $3,280,000 Qwest Corp., Note 8.875%, 3/15/2012 BB Ba BB $ 3,460,400 665,000 Rogers Wireless Communications, Inc., Senior Secured Note 7.500%, 3/15/2015 BB Ba BB 671,650 2,715,000 Windstream Corp., Senior Note, 144A 8.125%, 8/01/2013 (d) BB Ba BB 2,769,300 1,910,000 Windstream Corp., Senior Note, 144A 8.625%, 8/01/2016 (d) BB Ba BB 1,952,975 18,536,925 TRANSPORTATION -- 3.7% 2,640,000 Grupo Transportacion Ferroviaria Mexicana SA de CV, Senior Note 9.375%, 5/01/2012 B B B 2,811,600 175,000 Stena AB, Note 9.625%, 12/01/2012 BB Ba NR 185,938 2,055,000 Stena AB, Senior Note 7.000%, 12/01/2016 BB Ba NR 1,890,600 1,675,000 Stena AB, Senior Note 7.500%, 11/01/2013 BB Ba NR 1,624,750 6,512,888 TOTAL CORPORATE DEBT (IDENTIFIED COST $255,093,354) 254,836,269 TOTAL INVESTMENTS -- 147.1% (IDENTIFIED COST $256,393,482) (b) 256,246,538 Other Assets, Less Liabilities -- 4.6% 8,016,246 Money Market Cumulative Preferred Shares plus cumulative unpaid dividends (51.7%) (90,026,401) TOTAL NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS -- 100% $174,236,383
See accompanying notes to financial statements. LEHMAN BROTHERS FIRST TRUST INCOME OPPORTUNITY FUND NOTES TO SCHEDULE OF INVESTMENTS a See Note 2a of Notes to Financial Statements. b Federal Tax Information: At June 30, 2006, the net unrealized appreciation on investments based on cost of $256,971,449 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost $ 4,100,305 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value (4,825,216) Net unrealized depreciation $ (724,911) c Denotes a step-up bond: a zero coupon bond that converts to a fixed rate of interest at a designated future date. d All or a portion of this security was purchased on a when-issued basis. At June 30, 2006, these securities amounted to $6,993,775. FRN Floating rate securities are securities whose yields vary with a designated market index or market rate. These securities are shown at their current rates as of June 30, 2006. 144 A Restricted security subject to restrictions on resale under federal securities laws. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers under Rule 144A, and have been deemed by the adviser to be liquid. At the period end, the value of 144A securities amounted to $70,106,947 or 40.2% of net assets applicable to common shareholders. Quality Profile The quality ratings of securities in the Fund as of June 30, 2006 were as follows: PERCENT OF TOTAL INVESTMENTS S&P RATING/MOODY'S RATING/FITCH RATING AND CASH** BBB/Baa/BBB 3.4% BB/Ba/BB 45.9 B/B/B 40.3 CCC/Caa/CCC 7.9 Cash 2.5 100.0% ** Percentages compiled using the highest rating for each security. See accompanying notes to financial statements. 15 LEHMAN BROTHERS FIRST TRUST INCOME OPPORTUNITY FUND STATEMENT OF ASSETS & LIABILITIES JUNE 30, 2006 (UNAUDITED) ASSETS Investments at cost $256,393,482 Net unrealized (depreciation) (146,944) INVESTMENTS AT VALUE 256,246,538 Cash 6,534,744 Receivable for securities sold 4,314,397 Interest receivable 5,017,670 Interest rate swap contracts, at market value 1,167,699 Prepaid expenses 9,195 TOTAL ASSETS 273,290,243 LIABILITIES Payable for securities purchased 7,436,639 Distributions payable to common shareholders 8,991 Management fees payable 130,824 Payable for collateral on interest rate swap contracts 1,226,000 Other accrued expenses 225,005 TOTAL LIABILITIES 9,027,459 MONEY MARKET CUMULATIVE PREFERRED SHARES (3,600 SHARES ISSUED AND OUTSTANDING) AT LIQUIDATION VALUE PLUS CUMULATIVE UNPAID DISTRIBUTIONS 90,026,401 NET ASSETS APPLICABLE TO COMMON SHARES $174,236,383 NET ASSETS CONSIST OF: Common Shares, no par value; unlimited number of shares authorized, 12,248,410 shares issued and outstanding $173,836,893 Distributions in excess of net investment income (173,073) Accumulated net realized loss on investments (448,192) Net unrealized appreciation of investments and interest rate swap contracts 1,020,755 NET ASSETS APPLICABLE TO COMMON SHARES $174,236,383 COMPUTATION OF NET ASSET VALUE PER COMMON SHARE: NET ASSETS $174,236,383 COMMON SHARES ISSUED AND OUTSTANDING 12,248,410 NET ASSET VALUE PER SHARE $ 14.23 MARKET VALUE (CLOSING PRICE PER SHARE ON THE NEW YORK STOCK EXCHANGE) $ 13.58
See accompanying notes to financial statements. LEHMAN BROTHERS FIRST TRUST INCOME OPPORTUNITY FUND STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2006 (UNAUDITED) INVESTMENT INCOME Interest $11,387,912 Expenses Management fee 797,304 Investor service fee 66,442 Trustees' fees and expenses 35,173 Custodian fee 157,156 Audit and tax services 25,638 Legal fee 95,179 Shareholder reports 33,012 Preferred shares auction 114,942 Insurance expense 41,033 Miscellaneous 19,395 TOTAL EXPENSES 1,385,274 NET INVESTMENT INCOME 10,002,638 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized gain on: Investments -- net 43,244 Interest rate swap contracts -- net 578,982 Change in unrealized appreciation (depreciation) of: Investments -- net (3,649,168) Interest rate swap contracts -- net (234,943) Net realized and unrealized loss on investments and interest rate swap contracts (3,261,885) NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 6,740,753 - ------------------------------------------------------------------------------ LESS DISTRIBUTIONS TO PREFERRED SHAREHOLDERS FROM NET INVESTMENT INCOME (2,091,952) - ------------------------------------------------------------------------------ NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHARES RESULTING FROM OPERATIONS $ 4,648,801 - ------------------------------------------------------------------------------ See accompanying notes to financial statements. 17 LEHMAN BROTHERS FIRST TRUST INCOME OPPORTUNITY FUND STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 2006 YEAR ENDED (UNAUDITED) DECEMBER 31, 2005 FROM OPERATIONS: Net investment income $ 10,002,638 $ 20,919,672 Net realized gain (loss) on investments and interest rate swap contracts 622,226 (115,972) Net change in unrealized (depreciation) of investments and interest rate swap contracts (3,884,111) (11,421,758) Distributions to preferred shareholders from net investment income (2,091,952) (2,993,978) NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHARES RESULTING FROM OPERATIONS 4,648,801 6,387,964 LESS DISTRIBUTIONS TO COMMON SHAREHOLDERS: Net investment income (8,083,759) (19,265,627) Net realized gain on investments -- (235,064) Return of capital -- (49,045) (8,083,759) (19,549,736) INCREASE (DECREASE) IN NET ASSETS DERIVED FROM COMMON SHARE TRANSACTIONS: 12,766 120,786 TOTAL NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHARES (3,422,192) (13,040,986) NET ASSETS APPLICABLE TO COMMON SHARES Beginning of period 177,658,575 190,699,561 End of period $174,236,383 $177,658,575 DISTRIBUTIONS IN EXCESS OF NET INVESTMENT INCOME $ (173,073) $ --
See accompanying notes to financial statements. LEHMAN BROTHERS FIRST TRUST INCOME OPPORTUNITY FUND FINANCIAL HIGHLIGHTS
SIX MONTHS FOR THE PERIOD ENDED JULY 28, 2003 JUNE 30, THROUGH 2006 YEAR ENDED DECEMBER 31, DECEMBER 31, (UNAUDITED) 2005 2004 2003* NET ASSET VALUE, BEGINNING OF PERIOD (COMMON SHARES) $ 14.51 $ 15.58 $ 15.51 $ 14.33(a) Net Investment Income (b) 0.82 1.71 1.72 0.64 Net Realized and Unrealized Gain (Loss) on Investments (0.27) (0.94) 0.11 1.31 Distributions to Preferred Shareholders from Net Investment Income (0.17) (0.24) (0.11) (0.02) TOTAL FROM INVESTMENT OPERATIONS APPLICABLE TO COMMON SHAREHOLDERS 0.38 0.53 1.72 1.93 Less Distributions to Common Shareholders From Net Investment Income (0.66) (1.58) (1.55) (0.60) From Net Realized Gains -- (0.02) (0.10) (0.02) From Return of Capital -- (0.00)(g) -- -- TOTAL DISTRIBUTIONS TO COMMON SHAREHOLDERS (0.66) (1.60) (1.65) (0.62) Common Shares Offering Costs Charged to Paid-in Capital -- -- -- (0.03) Preferred Shares Underwriting Commissions and Offering Costs Charged to Paid in Capital -- -- -- (0.10) NET ASSET VALUE, END OF PERIOD (COMMON SHARES) $ 14.23 $ 14.51 $ 15.58 $ 15.51 - ----------------------------------------------------------------------------------------------------------------------------- MARKET VALUE - END OF PERIOD (COMMON SHARES) $ 13.58 $ 15.61 $ 16.48 $ 15.91 - ----------------------------------------------------------------------------------------------------------------------------- Total Return on Net Asset Value (Common Shares) (%) 2.77 3.63 11.99 12.73(c) Total Return on Market Value (Common Shares) (%) (8.84) 5.40 15.48 10.47(d) Ratio of Expenses (excluding interest expense) to Average Net Assets Applicable to Common Shares (%) (f) 1.57(e) 1.53 1.48 1.42(e) Ratio of Interest Expense to Average Net Assets Applicable to Common Shares (%) (f) -- -- -- 0.19(e) Ratio of Net Investment Income to Average Net Assets Applicable to Common Shares (%) (f) 11.34(e) 11.44 11.36 10.00(e) Portfolio Turnover Rate (%) 56.48 96.18 106.76 32.08 Net Assets Applicable to Common Shares, End of Period (000) $174,236 $177,659 $190,700 $189,644 MONEY MARKET CUMULATIVE PREFERRED SHARES Preferred Shares Outstanding, End of Period (000) 90,000 90,000 90,000 90,000 Asset Coverage Per Share $ 73,399 $ 74,350 $ 77,975 $ 77,675 Involuntary Liquidation Preference Per Share $ 25,000 $ 25,000 $ 25,000 $ 25,000 Approximate Market Value Per Share $ 25,000 $ 25,000 $ 25,000 $ 25,000
* Commencement of operations. (a) Net asset value at beginning of period reflects the deduction from the $15.00 offering price of the sales load of $0.675 per share paid by the shareholder. (b) Calculated using average shares outstanding during the period. (c) Total return on net asset value is calculated assuming a purchase at the offering price of $15.00 less the sales load of $0.675 paid by the shareholder on the first day and the ending net asset value per share and is not annualized. (d) Total return on market value is calculated assuming a purchase at the offering price of $15.00 on the first day and a sale at the current market price on the last day of the period and is not annualized. (e) Annualized. (f) Expense and net investment income ratios include accumulated and unpaid distributions. (g) Rounds to less than $0.01. See accompanying notes to financial statements. 19 LEHMAN BROTHERS FIRST TRUST INCOME OPPORTUNITY FUND NOTES TO FINANCIAL STATEMENTS JUNE 30, 2006 (UNAUDITED) NOTE 1 -- ORGANIZATION Lehman Brothers First Trust Income Opportunity Fund (the "Fund") was organized as a statutory trust under the laws of the state of Delaware on April 8, 2003, and is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as a diversified, closed-end management investment company. Lehman Brothers Asset Management Inc. (the "Adviser") is investment adviser to the Fund. Lehman Brothers Asset Management LLC is the sub-adviser to the Fund. The Fund's common shares are listed on the New York Stock Exchange under the symbol LBC. The Fund's investment objective is to seek high total return (income plus capital appreciation). The Fund pursues its investment objective by investing its assets primarily in high yield debt securities. NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires the Adviser 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 expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. A) VALUATION: Debt securities are valued using an independent pricing service approved by the Board of Trustees, which utilizes closing market prices, market quotations and transactions, quotations from dealers and various relationships among securities in determining value. Securities for which closing market prices or market quotations are not available or are not considered by the Adviser to be reflective of a security's market value, are valued at fair value as determined in good faith under consistently applied procedures established by and under the supervision of the Board of Trustees. Criteria considered in making this determination may include, but are not limited to, a review of other securities by the same issuer for which market quotations are available, recent bid and ask prices for the security, the issuer's position in and economic outlook of the industry and, if necessary, a review of similar securities in similar industries. Securities with remaining maturities of 60 days or less are valued at amortized cost. This method involves valuing a portfolio security initially at its cost and thereafter assumes a constant amortization to maturity of any discount or premium. B) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME: Security transactions are recorded on a trade date basis. Dividend income is recorded on the ex-dividend date. Interest income, including amortization of premium and accretion of discount on securities, is recorded on the accrual basis. Realized gains and losses on investments are recorded on the basis of identified cost. C) FEDERAL INCOME TAXES: It is the policy of the Fund to continue to comply with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and distribute all of its net taxable income, including any net realized gains on investments, to its shareholders. Therefore, no federal income tax provision is required. D) REVERSE REPURCHASE AGREEMENTS: The Fund is permitted to enter into reverse repurchase agreements with banks or securities firms deemed creditworthy by the Adviser. A reverse repurchase agreement involves the sale of a security by the Fund, with an agreement to repurchase the same or substantially similar security at an agreed upon price and date. Securities purchased subject to repurchase agreements must have an aggregate market value greater than or equal to the repurchase price plus accrued interest at all times. Reverse repurchase agreements involve the risk that the market value of the securities purchased with the proceeds from the sale of securities received by the Fund may decline below the price of the securities that the Fund is obligated to repurchase. There were no reverse repurchase agreements outstanding at June 30, 2006. E) INTEREST RATE SWAP CONTRACTS: The Fund may enter into interest rate swap transactions. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. The Fund may enter into interest rate swap agreements to manage its exposure to interest rate risk. Interest rate swap contracts involve the exchange by the Fund with another party of their respective commitments to pay or receive interest. Swaps are marked to market daily based upon quotations from market makers and the change in value, if any, is recorded as unrealized gain or loss in the Statement of Operations. Net payments of interest on interest rate swap contracts are included as part of realized gain or loss. Entering into these agreements involves, to varying degrees, elements of credit and market risk in excess of the amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to these agreements may default on its obligation to perform and that there may be unfavorable changes in interest rates. At June 30, 2006, the Fund had the following open swap agreements:
NOTIONAL EXPIRATION NET UNREALIZED AMOUNT DATE DESCRIPTION APPRECIATION - ------------------------------------------------------------------------------------------------- $22,500,000 3/15/07 Agreement with Citibank N.A. dated 3/11/04 to pay the $538,348 notional amount multiplied by 2.27% and to receive the notional amount multiplied by the 1 month U.S. Dollars -- London Interbank Offered Rate -- British Bankers Association (USD -- LIBOR -- BBA). $22,500,000 9/28/07 Agreement with Citibank N.A. dated 9/24/04 to pay the $629,351 notional amount multiplied by 3.22% and to receive the notional amount multiplied by the 1 month U.S. Dollars -- London Interbank Offered Rate -- British Bankers Association (USD -- LIBOR -- BBA).
Periodically, the Fund receives from or deposits, with the counter party, a specific amount of cash equal to the market value of the interest rate swap contracts. At June 30, 2006, the Fund had $1,226,000 payable for collateral on interest rate swap contracts under this arrangement. NOTE 3 -- FEES AND TRANSACTIONS WITH RELATED PARTIES The Fund pays all expenses incurred in connection with the operations of the Fund. These expenses, among others, include custodian and fund accounting and administrative fees, legal and audit fees, fees and expenses of the Trustees who are not "interested persons" within the meaning of the 1940 Act ("Independent Fund Trustee"), registration fees, and printing expenses. The Fund pays the Adviser a monthly fee computed at an annual rate of 0.60% of the Fund's average daily "Managed Assets" (net assets, including assets attributable to any outstanding preferred shares, plus the aggregate principal amount of any borrowings). The Adviser is responsible for developing, implementing and supervising the Fund's investment program and providing certain administrative services to the Fund. The Adviser has retained Lehman Brothers Asset Management LLC ("LBAM LLC") to serve as the sub-adviser of the Fund and to manage the Fund's investment portfolio. The Adviser compensates LBAM LLC for its services as sub-adviser. The Adviser pays LBAM LLC a monthly sub-advisory fee calculated at the following annual percentage rates of the Fund's average daily Managed Assets: 0.55% on the Fund's first $25 million of Managed Assets, 0.45% on the next $25 million of Managed Assets, 0.35% on the next $50 million of Managed Assets, and 0.30% on Managed Assets that are in excess of $100 million. The Adviser and LBAM LLC are wholly owned subsidiaries of Lehman Brothers Holdings Inc., a publicly traded corporation. First Trust Portfolios L.P. ("First Trust") serves as the Fund's distribution and marketing agent, and investor servicing agent. As the Fund's distribution and marketing agent, First Trust provides certain distribution and marketing services for the Fund's common shares including preparing marketing materials and presentations, developing contacts with brokers whose clients may have an interest in acquiring Fund shares and replying to information requests from prospective investors. In consideration for these services, First Trust receives a fee paid by the Adviser. First Trust, as the investor servicing agent, developed and maintains a website for the Fund, assists in the review of shareholder materials, assists in the dissemination of the Fund's net asset value and market price, provides ongoing shareholder and account maintenance services, replies to information requests from shareholders and aids in secondary market support. In consideration for these services, the Fund pays First Trust a monthly fee computed at the annual rate 0.05% of the Fund's average daily Managed Assets. For the six months ended June 30, 2006, the Fund paid First Trust, as the investor servicing agent, a fee equal to $66,442. 21 LEHMAN BROTHERS FIRST TRUST INCOME OPPORTUNITY FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) The Fund pays no compensation to its officers or to its Trustees who are also employees of the Adviser or its affiliates. NOTE 4 -- INVESTMENT IN SECURITIES For the six months ended June 30, 2006, purchases and sales of investments, other than short-term securities, aggregated $150,929,032 and $145,288,227, respectively. NOTE 5 -- MONEY MARKET CUMULATIVE PREFERRED SHARES The Fund is authorized to issue 3,750 Money Market Cumulative Preferred Shares ("MMP"), each without par value. On October 22, 2003, the Fund issued 3,600 MMP with proceeds of $90,000,000 in a public offering. The underwriting commissions and offering costs of $1,236,545 were incurred in connection with the offering and were charged directly to paid-in capital of the common shares. Distributions to preferred shareholders are cumulative at a rate which was established at the offering and is reset every twenty-eight days based on the results of an auction. The Fund pays service fees to certain broker-dealers at the end of each auction at an annual rate of 0.25% for a regular distribution period and at a rate agreed to by the Fund and the broker-dealers for a special distribution period. For the six months ended June 30, 2006, Lehman Government Securities, Inc., an affiliate of the Adviser, earned $111,471 in commissions. The MMP are redeemable at the option of the Fund at a redemption price equal to $25,000 per share, plus accumulated and unpaid distributions, on any distribution payment date. The MMP are also subject to mandatory redemption at a redemption price equal to $25,000 per share, plus accumulated and unpaid distributions, if the Fund defaults on its asset maintenance requirements with respect to the MMP and fails to cure such a default within the time permitted. If the distributions on the MMP shall remain unpaid in an amount equal to two full years' distributions, the holders of the MMP, as a class, have the right to elect a majority of the Board of Trustees. In general, the holders of the MMP and the common shares have one vote for each dollar, and a proportionate fraction of a vote for each fraction of a dollar, of the net asset value per share, and vote together as a single class, except that the holders of the MMP, as a separate class, have the right to elect at least two members of the Board of Trustees and to vote under certain other circumstances specified in the Fund's Amended By-Laws. The MMP have a liquidation preference of $25,000 per share, plus accumulated and unpaid distributions. The Fund is required to maintain certain asset coverage with respect to the MMP as defined in the Fund's Amended By-Laws and the 1940 Act. NOTE 6 -- DISTRIBUTIONS TO SHAREHOLDERS The Fund intends to make monthly distributions of net investment income to common shareholders, after payments of any distributions on outstanding MMP. Distributions to common shareholders are recorded on the ex- date. Distributions to preferred shareholders are recorded daily and are payable at the end of each distribution period. Each distribution payment period for the MMP is generally twenty-eight days. For the six months ended June 30, 2006, the distribution rates for MMP ranged from 4.35% to 5.35%. The distribution rate for MMP on June 30, 2006 was 5.35%. In addition, at least annually, the Fund intends to distribute net capital gains, if any. The timing and characterization of certain income and capital gains distributions are determined in accordance with federal tax regulations which may differ from U.S. generally accepted accounting principles. Permanent differences between book and tax accounting relating to distributions are reclassified to paid-in capital. NOTE 7 -- SHARES OF BENEFICIAL INTEREST The Fund's Declaration of Trust authorizes the Trustees to issue an unlimited number of common shares for the Fund, each without par value. Transactions in common shares were as follows:
SIX MONTHS ENDED YEAR ENDED JUNE 30, 2006 DECEMBER 31, 2005 ---------------- ----------------- SHARES AMOUNT SHARES AMOUNT ------ ------- ------ -------- Shares issued pursuant to the Fund's dividend reinvestment plan 872 $12,766 8,148 $120,786 --- ------- ----- -------- Increase derived from capital share transactions 872 $12,766 8,148 $120,786 === ======= ===== ========
NOTE 8 -- CONCENTRATION OF CREDIT RISK The Fund will normally invest at least 80% of its Managed Assets in investments offering high current income, which generally will be in the lower rating categories of recognized rating agencies. These investments are regarded as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligations and will generally involve more credit risk than securities in the higher rating categories. In addition, the trading market for high yield investments may be relatively less liquid than the market for higher-rated investments. NOTE 9 -- RISK ASSOCIATED WITH THE USE OF LEVERAGE The Fund's use of leverage through the issuance of preferred shares and borrowings, as well as the economic leverage inherent in certain derivatives, including credit default swaps, creates risks for holders of common shares. There is no assurance that the Fund's leveraging strategies will be successful. If the Fund issues preferred shares or borrows money to make additional investments and the income and capital appreciation from those investments exceed the distributions payable on the preferred shares or the costs of borrowing, the Fund's investment return will be greater than if leverage had not been used. However, if the distributions payable on the preferred shares or the costs of borrowing exceed the income and capital appreciation from the additional investments, the Fund would lose money and its investment return will be lower than if leverage had not been used. Leverage creates risk which may adversely affect the return for holders of common shares, including: (a) the likelihood of greater volatility of net asset value and market price of the Fund's common shares; (b) the possibility either that common share income will fall if the preferred share distribution rate rises or the Fund's borrowing costs increase, or that common share income will fluctuate because of changes in the preferred share distribution rates or borrowing costs. NOTE 10 -- INDEMNIFICATIONS In the ordinary course of business, the Fund enters into contracts that contain a variety of indemnifications. 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. NOTE 11 -- UNAUDITED FINANCIAL INFORMATION The financial information included in this interim report is taken from the records of the Fund without audit by independent auditors. Annual reports contain audited financial statements. 23 OTHER INFORMATION SHAREHOLDER VOTING RESULTS (UNAUDITED) The annual meeting of the Trust's shareholders was held on April 19, 2006 at which shareholders considered and approved the following proposals regarding the election of the new Trustees to the Board. The incumbent Trustees did not stand for reelection. The voting results were the following: With respect to the election of Faith Colish as a Trustee of the Fund: 11,404,789.085 shares of Common Shares and MMP Shares, voting together as a single class or 98.461% of shares cast in the affirmative, with 178,265 shares or 1.539% of shares cast withheld; With respect to the election of C. Anne Harvey as a Trustee of the Fund: 11,406,404.085 shares of Common Shares and MMP Shares, voting together as a single class or 98.475% of shares cast in the affirmative, with 176,650 shares or 1.525% of shares cast withheld; With respect to the election of Cornelius T. Ryan as a Trustee of the Fund: 11,414,797.085 shares of Common Shares and MMP Shares, voting together as a single class or 98.547% of shares cast in the affirmative, with 168,257 shares or 1.453% of shares cast withheld; With respect to the election of Peter E. Sundman as a Trustee of the Fund: 11,422,515.085 shares of Common Shares and MMP Shares, voting together as a single class or 98.614% of shares cast in the affirmative, with 160,539 shares or 1.386% of shares cast withheld; With respect to the election of Peter P. Trapp as a Trustee of the Fund: 11,418,395.085 shares of Common Shares and MMP Shares, voting together as a single class or 98.578% of shares cast in the affirmative, with 164,659 shares or 1.422% of shares cast withheld; With respect to the election of John Cannon as a Trustee of the Fund: 11,412,696.085 shares of Common Shares and MMP Shares, voting together as a single class or 98.529% of shares cast in the affirmative, with 170,358 shares or 1.471% of shares cast withheld; With respect to the election of Jack L. Rivkin as a Trustee of the Fund: 11,416,478.085 shares of Common Shares and MMP Shares, voting together as a single class or 98.562% of shares cast in the affirmative, with 166,576 shares or 1.438% of shares cast withheld; With respect to the election of Tom D. Seip as a Trustee of the Fund: 11,414,503.085 shares of Common Shares and MMP Shares, voting together as a single class or 98.545% of shares cast in the affirmative, with 168,551 shares or 1.455% of shares cast withheld; With respect to the election of Robert A. Kavesh as a Trustee of the Fund: 11,412,613.085 shares of Common Shares and MMP Shares, voting together as a single class or 98.529% of shares cast in the affirmative, with 170,441 shares or 1.471% of shares cast withheld; With respect to the election of Edward I. O'Brien as a Trustee of the Fund: 11,415,833.085 shares of Common Shares and MMP Shares, voting together as a single class or 98.556% of shares cast in the affirmative, with 167,221 shares or 1.444% of shares cast withheld; With respect to the election of William E. Rulon as a Trustee of the Fund: 11,408,458.085 shares of Common Shares and MMP Shares, voting together as a single class or 98.493% of shares cast in the affirmative, with 174,596 shares or 1.507% of shares cast withheld; With respect to the election of Candace L. Straight as a Trustee of the Fund: 11,417,523.085 shares of Common Shares and MMP Shares, voting together as a single class or 98.571% of shares cast in the affirmative, with 165,531 shares or 1.429% of shares cast withheld; With respect to the election of Barry Hirsch* as a Trustee of the Fund: 2,980 MMP shares or 100% of shares cast in the affirmative, with 0 shares or 0% of shares cast withheld; and With respect to the election of Howard A. Mileaf as a Trustee of the Fund: 2,980 MMP shares or 100% of shares cast in the affirmative, with 0 shares or 0% of shares cast withheld. * Mr. Hirsch passed away after the annual shareholder meeting. 25 DIVIDEND REINVESTMENT PLAN (UNAUDITED) The Fund has a Dividend Reinvestment Plan (the "Plan") commonly referred to as an "opt-out" plan. Each common shareholder will have all distributions of dividends and capital gains automatically reinvested in additional common shares by Investors Bank & Trust Company, as agent for shareholders pursuant to the Plan (the "Plan Agent"), unless the shareholder elects to receive cash or unless the shares are registered in the name of a broker-dealer or other nominee (that is, in "street name") and the respective nominee does not participate in the Plan. For Plan participants, the Plan Agent will either (i) effect purchases of common shares under the Plan in the open market or (ii) distribute newly issued common shares of the Fund. Shareholders who elect not to participate in the Plan will receive all distributions in cash paid by check mailed directly to the shareholder of record (or if the shares are held in street or other nominee name, then to the nominee) by the Plan Agent, as dividend disbursing agent. Certain broker-dealers and nominees do not permit their clients to participate in dividend reinvestment plans. Shareholders whose common shares are held in the name of a broker or nominee should contact the broker or nominee to determine whether and how they may participate in the Plan. The Plan Agent serves as agent for the shareholders in administering the Plan. After the Fund declares a dividend or makes a capital gain distribution, the Plan Agent will, as agent for the participants, either (i) receive the cash payment and use it to buy common shares in the open market, on the New York Stock Exchange or elsewhere, for the participants' accounts or (ii) distribute newly issued common shares of the Fund on behalf of the participants. The Plan Agent will receive cash from the Fund with which to buy common shares in the open market if, on the determination date, the net asset value per share exceeds the market price per share plus estimated brokerage commissions on that date. The Plan Agent will receive the dividend or distribution in newly issued common shares of the Fund if, on the determination date, the market price per share plus estimated brokerage commissions equals or exceeds the net asset value per share of the Fund on that date. The number of shares to be issued will be computed at a per share rate equal to the greater of (i) the net asset value or (ii) 95% of the closing market price per share on the payment date. Participants in the Plan may withdraw from the Plan upon written notice to the Plan Agent. Such withdrawal will be effective immediately if received not less than ten days prior to a distribution record date; otherwise, it will be effective for all subsequent dividend record dates. When a participant withdraws from the Plan or upon termination of the Plan as provided below, certificates for whole common shares credited to his or her account under the Plan will be issued and a cash payment will be made for any fraction of a common share credited to such account. In the alternative, upon receipt of the participant's instructions, common shares will be sold and the proceeds sent to the participant less brokerage commissions and any applicable taxes. The Plan Agent maintains each shareholder's account in the Plan and furnishes confirmations of all acquisitions made for the participant. Common shares in the account of each Plan participant will be held by the Plan Agent on behalf of the participant. Proxy material relating to shareholders' meetings of the Fund will include those shares purchased as well as shares held pursuant to the Plan. In the case of shareholders, such as banks, brokers or nominees, which hold common shares for others who are the beneficial owners, the Plan Agent will administer the Plan on the basis of the number of common shares certified from time to time by the record shareholders as representing the total amount registered in the record shareholder's name and held for the account of beneficial owners who are participants in the Plan. The Plan Agent's fees for the handling of reinvestment of dividends and other distributions will be paid by the Fund. Each participant will pay a pro rata share of brokerage commissions incurred with respect to the Plan Agent's open market purchases in connection with the reinvestment of distributions. There are no other charges to participants for reinvesting dividends or capital gain distributions; however, the Fund reserves the right to amend the Plan to include a service charge payable by the participants. The automatic reinvestment of dividends and other distributions will not relieve participants of any income tax that may be payable or required to be withheld on such dividends or distributions. The Fund and the Plan Agent reserve the right to amend or terminate the Plan. All correspondence concerning the Plan should be directed to: Investors Bank & Trust Company, 200 Clarendon Street, Mail Stop OPS22, Boston, MA 02116 (Telephone) 800-988-5196. TRUSTEES AND OFFICERS TABLE (UNAUDITED) Set forth below is information about the Trustees. The address for each Trustee is Lehman Brothers Asset Management Inc., 399 Park Avenue, New York, NY 10022. CLASS I INDEPENDENT FUND TRUSTEES:
NUMBER OF PORTFOLIOS IN FUND OTHER COMPLEX DIRECTORSHIPS LENGTH OF OVERSEEN HELD OUTSIDE NAME, AGE AND TIME BY FUND FUND COMPLEX BY POSITION(1) WITH FUND SERVED PRINCIPAL OCCUPATION(S)(2) TRUSTEE(3) FUND TRUSTEE - ---------------------------------------------------------------------------------------------------------------------------------- Faith Colish (70) Since 2006 Counsel, Carter Ledyard & Milburn 50 Advisory Director, ABA Retirement Trustee LLP (law firm) since October 2002; Funds (formerly, American Bar formerly, Attorney-at-Law and Retirement Association (ABRA)) President, Faith Colish, A since 1997 (not-for-profit Professional Corporation, 1980 to membership association). 2002. C. Anne Harvey (69) Since 2006 President, C.A. Harvey Associates 50 Formerly, President, Board of Trustee since October 2001; formerly, Associates to The National Director, AARP, 1978 to December Rehabilitation Hospital's Board of 2001. Directors, 2001 to 2002; formerly, Member, Individual Investors Advisory Committee to the New York Stock Exchange Board of Directors, 1998 to June 2002. Cornelius T. Ryan (74) Since 2006 Founding General Partner, Oxford 50 None. Trustee Partners and Oxford Bioscience Partners (venture capital investing) and President, Oxford Venture Corporation since 1981. Peter P. Trapp (61) Since 2006 Regional Manager for Mid-Southern 50 None. Trustee Region, Ford Motor Credit Company since September 1997; formerly, President, Ford Life Insurance Company, April 1995 to August 1997.
27 TRUSTEES AND OFFICERS TABLE (UNAUDITED) (CONTINUED) FUND TRUSTEE WHO IS AN "INTERESTED PERSON"
NUMBER OF PORTFOLIOS IN FUND OTHER COMPLEX DIRECTORSHIPS LENGTH OF OVERSEEN HELD OUTSIDE NAME, AGE AND TIME BY FUND FUND COMPLEX BY POSITION(1) WITH FUND SERVED PRINCIPAL OCCUPATION(S)(2) TRUSTEE(3) FUND TRUSTEE - ---------------------------------------------------------------------------------------------------------------------------------- Peter E. Sundman* (47) Since 2006 Executive Vice President, 50 Director and Vice President, Chief Executive Officer, Neuberger Berman Inc. (holding Neuberger & Berman Agency, Inc. Trustee and Chairman of the company) since 1999; Head of since 2000; formerly, Director, Board Neuberger Berman Inc.'s Mutual Neuberger Berman Inc. (holding Funds Business (since 1999) and company), October 1999 to March Institutional Business (1999 to 2003; Trustee, Frost Valley YMCA; October 2005); responsible for Trustee, College of Wooster. Managed Accounts Business and intermediary distribution since October 1999; President and Director, NB Management since 1999; Managing Director, Neuberger Berman since 2005; formerly, Executive Vice President, Neuberger Berman, 1999 to December 2005; formerly, Principal, Neuberger Berman, 1997 to 1999; formerly, Senior Vice President, NB Management, 1996 to 1999.
CLASS II* INDEPENDENT FUND TRUSTEES: John Cannon (76) Since 2006 Consultant; formerly, Chairman, 50 Independent Trustee or Director of Trustee CDC Investment Advisers three series of Oppenheimer Funds: (registered investment adviser), Limited Term New York Municipal 1993 to January 1999; formerly, Fund, Rochester Fund Municipals, President and Chief Executive and Oppenheimer Convertible Officer, AMA Investment Advisors, Securities Fund since 1992. an affiliate of the American Medical Association.
* Barry Hirsch was elected as a Class II Trustee at the annual shareholder meeting held on April 19, 2006. Mr. Hirsch passed away in July 2006.
NUMBER OF PORTFOLIOS IN FUND OTHER COMPLEX DIRECTORSHIPS LENGTH OF OVERSEEN HELD OUTSIDE NAME, AGE AND TIME BY FUND FUND COMPLEX BY POSITION(1) WITH FUND SERVED PRINCIPAL OCCUPATION(S)(2) TRUSTEE(3) FUND TRUSTEE - ---------------------------------------------------------------------------------------------------------------------------------- Tom D. Seip (56) Since 2006 General Partner, Seip Investments 50 Director, H&R Block, Inc. Lead Independent LP (a private investment (financial services company) since Trustee partnership); formerly, President May 2001; Director, America One and CEO, Westaff, Inc. (temporary Foundation since 1998; formerly, staffing), May 2001 to January Director, Forward Management, Inc. 2002; formerly, Senior Executive (asset management company), 1999 at the Charles Schwab Corporation, to 2006; formerly Director, E-Bay 1983 to 1999, including Chief Zoological Society, 1999 to 2003; Executive Officer, Charles Schwab formerly, Director, General Magic Investment Management, Inc. and (voice recognition software), 2001 Trustee, Schwab Family of Funds to 2002; formerly, Director, and Schwab Investments, 1997 to E-Finance Corporation (credit 1998, and Executive Vice decisioning services), 1999 to President-Retail Brokerage, 2003; formerly, Director, Charles Schwab Investment Save-Daily.com (micro investing Management,1994 to 1997. services), 1999 to 2003.
FUND TRUSTEE WHO IS AN "INTERESTED PERSON" Jack L. Rivkin* (66) Since 2006 Executive Vice President and Chief 50 Director, Dale Carnegie and President and Investment Officer, Neuberger Associates, Inc. (private company) Trustee Berman Inc. (holding company) since 1998; Director, Solbright, since 2002 and 2003, respectively; Inc. (private company) since 1998. Managing Director and Chief Investment Officer, Neuberger Berman since December 2005 and 2003, respectively; formerly, Executive Vice President, Neuberger Berman, December 2002 to 2005; Director and Chairman, NB Management since December 2002; formerly, Executive Vice President, Citigroup Investments, Inc., September 1995 to February 2002; formerly, Executive Vice President, Citigroup Inc., September 1995 to February 2002.
29 TRUSTEES AND OFFICERS TABLE (UNAUDITED) (CONTINUED) CLASS III INDEPENDENT FUND TRUSTEES:
NUMBER OF PORTFOLIOS IN FUND OTHER COMPLEX DIRECTORSHIPS LENGTH OF OVERSEEN HELD OUTSIDE NAME, AGE AND TIME BY FUND FUND COMPLEX BY POSITION(1) WITH FUND SERVED PRINCIPAL OCCUPATION(S)(2) TRUSTEE(3) FUND TRUSTEE - ------------------------------------------------------------------------------------------------------------------------------------ Robert A. Kavesh (78) Since 2006 Marcus Nadler Professor Emeritus of 50 Director, The Caring Trustee Finance and Economics, New York Community (not-for-profit); University Stern School of Business; formerly, Director, DEL formerly, Executive Secretary-Treasurer, Laboratories, Inc. (cosmetics American Finance Association, 1961 to and pharmaceuticals), 1978 to 1979. 2004; formerly, Director, Apple Bank for Savings, 1979 to 1990; formerly, Director, Western Pacific Industries, Inc., 1972 to 1986 (public company). Howard A. Mileaf (69) Since 2006 Retired; formerly, Vice President and 50 Director, Webfinancial Trustee General Counsel, WHX Corporation Corporation (holding (holding company), 1993 to 2001. company) since December 2002; formerly, Director WHX Corporation (holding company), January 2002 to June 2005; formerly, Director, State Theatre of New Jersey (not-for-profit theater), 2000 to 2005; formerly, Director, Kevlin Corporation (manufacturer of microwave and other products). Edward I. O'Brien (77) Since 2006 Formerly, Member, Investment Policy 50 Director, Legg Mason, Inc. Trustee Committee, Edward Jones, 1993 to 2001; (financial services holding President, Securities Industry Association company) since 1993; formerly, ("SIA") (securities industry's representative Director, Boston Financial in government relations and regulatory Group (real estate and tax matters at the federal and state levels), shelters), 1993 to 1999. 1974 to 1992; Adviser to SIA, November 1992 to November 1993. William E. Rulon (73) Since 2006 Retired; formerly, Senior Vice President, 50 Formerly, Director, Pro-Kids Trustee Foodmaker, Inc. (operator and franchiser Golf and Learning Academy of restaurants) until January 1997. (teach golf and computer usage to "at risk" children), 1998 to 2006; formerly, Director, Prandium, Inc. (restaurants), March 2001 to July 2002.
NUMBER OF PORTFOLIOS IN FUND OTHER COMPLEX DIRECTORSHIPS LENGTH OF OVERSEEN HELD OUTSIDE NAME, AGE AND TIME BY FUND FUND COMPLEX BY POSITION(1) WITH FUND SERVED PRINCIPAL OCCUPATION(S)(2) TRUSTEE(3) FUND TRUSTEE - ------------------------------------------------------------------------------------------------------------------------------------ Candace L. Straight (58) Since 2006 Private investor and consultant specializing 50 Director, National Atlantic Trustee in the insurance industry; formerly, Holdings Corporation (property Advisory Director, Securitas Capital LLC and casualty insurance (a global private equity investment firm company) since 2004; Director, dedicated to making investments in the The Proformance Insurance insurance sector), 1998 to December 2003. Company (personal lines property and casualty insurance company) since March 2004; formerly, Director, Providence Washington Insurance Company (property and casualty insurance company), December 1998 to March 2006; formerly, Director, Summit Global Partners (insurance brokerage firm, 2000 to 2005.
(1) The Board of Trustees shall at times be divided as equally as possible into three classes of Trustees designated Class I, Class II, and Class III. The terms of office of Class I, Class II, and Class III Trustees shall expire at the annual meeting of shareholders held in 2009, 2007, and 2008, respectively, and at each third annual meeting of stockholders thereafter. (2) Except as otherwise indicated, each individual has held the positions shown for at least the last five years. (3) For funds organized in a master-feeder structure, we count the master fund and its associated feeder funds as a single portfolio. * Indicates a Fund Trustee who is an "interested person" within the meaning of the 1940 Act. Mr. Sundman and Mr. Rivkin are interested persons of the Trust by virtue of the fact that they are officers and/or directors of Neuberger Berman Management Inc. ("NB Management") and Neuberger Berman, LLC ("Neuberger Berman"). 31 TRUSTEES AND OFFICERS TABLE (UNAUDITED) (CONTINUED) Set forth below is information about the officers of the Fund. The address for each officer is Lehman Brothers Asset Management Inc., 399 Park Avenue, New York, NY 10022.
POSITION AND LENGTH NAME AND AGE OF TIME SERVED(1) PRINCIPAL OCCUPATION(S)(2) - ------------------------------------------------------------------------------------------------------ Andrew B. Allard (45) Anti-Money Senior Vice President, Neuberger Berman since 2006; Laundering Deputy General Counsel, Neuberger Berman since 2004; Compliance formerly, Vice President, Neuberger Berman, 2000 to Officer 2006; formerly, Associate General Counsel, Neuberger since 2006 Berman, 1999 to 2004; formerly, Associate General Counsel, NB Management, 1994 to 1999; Anti-Money Laundering Compliance Officer, fifteen registered investment companies for which NB Management acts as investment manager and administrator (seven since 2002, three since 2003, four since 2004 and one since 2005) and one registered investment company for which Lehman Brothers Asset Management Inc. acts as investment adviser (since 2006). Michael J. Bradler (36) Assistant Vice President, Neuberger Berman since 2006; Employee, Treasurer NB Management since 1997; Assistant Treasurer, fifteen since 2006 registered investment companies for which NB Management acts as investment manager and administrator (fifteen since 2005) and one registered investment company for which Lehman Brothers Asset Management Inc. acts as investment adviser (since 2006). Claudia A. Brandon (49) Secretary Vice President-Mutual Fund Board Relations, NB since 2006 Management since 2000 and Assistant Secretary since 2004; Vice President, Neuberger Berman since 2002 and Employee since 1999; formerly, Vice President, NB Management, 1986 to 1999; Secretary, fifteen registered investment companies for which NB Management acts as investment manager and administrator (three since 2000, four since 2002, three since 2003, four since 2004 and one since 2005) and one registered investment company for which Lehman Brothers Asset Management Inc. acts as investment adviser (since 2006). Robert Conti (50) Vice Senior Vice President, Neuberger Berman since 2003; President formerly, Vice President, Neuberger Berman, 1999 to since 2006 2003; Senior Vice President, NB Management since 2000; formerly, Controller, NB Management, 1994 to 1996; formerly, Treasurer, NB Management, 1996 to 1999; Vice President, fifteen registered investment companies for which NB Management acts as investment manager and administrator (three since 2000, four since 2002, three since 2003, four since 2004 and one since 2005) and one registered investment company for which Lehman Brothers Asset Management Inc. acts as investment adviser (since 2006). Brian J. Gaffney (53) Vice Managing Director, Neuberger Berman since 1999; Senior President Vice President, NB Management since 2000; formerly, Vice since 2006 President, NB Management, 1997 to 1999; Vice President, fifteen registered investment companies for which NB Management acts as investment manager and administrator (three since 2000, four since 2002, three since 2003, four since 2004 and one since 2005) and one registered investment company for which Lehman Brothers Asset Management Inc. acts as investment adviser (since 2006). Maxine L. Gerson (55) Chief Legal Senior Vice President, Neuberger Berman since 2002; Officer Deputy General Counsel and Assistant Secretary, since 2006 Neuberger Berman since 2001; formerly, Vice President, (only for Neuberger Berman, 2001 to 2002; formerly, Associate purposes of General Counsel, Neuberger Berman, 2001; formerly, sections 307 Counsel, Neuberger Berman, 2000; Secretary and General and 406 of Counsel, NB Management since 2004; Chief Legal Officer, the fifteen registered investment companies for which NB Sarbanes-Oxley Management acts as investment manager and administrator Act of 2002) (fifteen since 2005) and one registered investment company for which Lehman Brothers Asset Management, Inc. acts as investment adviser (since 2006).
POSITION AND LENGTH NAME AND AGE OF TIME SERVED(1) PRINCIPAL OCCUPATION(S)(2) - ------------------------------------------------------------------------------------------------------ Sheila R. James (41) Assistant Employee, Neuberger Berman since 1999; formerly, Secretary Employee, NB Management, 1991 to 1999; Assistant since 2006 Secretary, fifteen registered investment companies for which NB Management acts as investment manager and administrator (seven since 2002, three since 2003, four since 2004 and one since 2005) and one registered investment company for which Lehman Brothers Asset Management Inc. acts as investment adviser (since 2006). Kevin Lyons (51) Assistant Employee, Neuberger Berman since 1999; formerly, Secretary Employee, NB Management, 1993 to 1999; Assistant since 2006 Secretary, fifteen registered investment companies for which NB Management acts as investment manager and administrator (ten since 2003, four since 2004 and one since 2005) and one registered investment company for which Lehman Brothers Asset Management Inc. acts as investment adviser (since 2006). John M. McGovern (36) Treasurer Vice President, Neuberger Berman since 2004; Employee, since 2006 NB Management since 1993; Treasurer and Principal Financial and Accounting Officer, fifteen registered investment companies for which NB Management acts as investment manager and administrator (fifteen since 2005) and one registered investment company for which Lehman Brothers Asset Management Inc. acts as investment adviser (since 2006); formerly, Assistant Treasurer, fifteen registered investment companies for which NB Management acts as investment manager and administrator, 2002 to 2005. Frank Rosato (35) Assistant Vice President, Neuberger Berman since 2006; Employee, Treasurer NB Management since 1995; Assistant Treasurer, fifteen since 2006 registered investment companies for which NB Management acts as investment manager and administrator (fifteen since 2005) and one registered investment company for which Lehman Brothers Asset Management Inc. acts as investment adviser (since 2006). Frederic B. Soule (60) Vice Senior Vice President, Neuberger Berman since 2003; President formerly, Vice President, Neuberger Berman, 1999 to since 2006 2003; formerly, Vice President, NB Management, 1995 to 1999; Vice President, fifteen registered investment companies for which NB Management acts as investment manager and administrator (three since 2000, four since 2002, three since 2003, four since 2004 and one since 2005) and one registered investment company for which Lehman Brothers Asset Management Inc. acts as investment adviser (since 2006). Chamaine Williams (35) Chief Vice President, Lehman Brothers Inc. since 2003; Chief Compliance Compliance Officer, fifteen registered investment Officer companies for which NB Management acts as investment since 2005 manager and administrator (fifteen since 2005) and one registered investment company for which Lehman Brothers Asset Management Inc. acts as investment adviser (since 2005); Chief Compliance Officer, Lehman Brothers Asset Management Inc. since 2003; Chief Compliance Officer, Lehman Brothers Alternative Investment Management LLC since 2003; formerly, Vice President, UBS Global Asset Management (US) Inc. (formerly, Mitchell Hutchins Asset Management, a wholly-owned subsidiary of PaineWebber Inc.), 1997-2003.
(1) Pursuant to the By-Laws of the Trust, each officer elected by the Fund Trustees shall hold office until his or her successor shall have been elected and qualified or until his or her earlier death, inability to serve, or resignation. Officers serve at the pleasure of the Fund Trustees and may be removed at any time with or without cause. (2) Except as otherwise indicated, each individual has held the positions shown for at least the last five years. 33 TRUSTEES AND OFFICERS TABLE (UNAUDITED) (CONTINUED) The Fund's Statement of Additional Information includes additional information about the Trustees of the Fund as of 2003, and is available without charge, upon request, by calling 1-800-988-5196, or visiting the Fund's website at www.lbftincomeopportunity.com. A description of the Fund's proxy voting policies and procedures is available (1) without charge, upon request, by calling 1-800-988-5196, (2) on the Fund's website at www.lbftincomeopportunity.com and (3) on the Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2006 is available (1) on the Fund's website www.lbftincomeopportunity.com and (2) on the Commission's website at www.sec.gov. In accordance with Section 303A.12 (a) of the New York Stock Exchange Listed Company Manual, the Fund's Annual CEO Certification certifying as to compliance with NYSE's Corporate Governance Listing Standards was submitted to the Exchange on May 26, 2006. The Fund files a complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q are available on the Securities and Exchange Commission's website at www.sec.gov and may be reviewed and copied at the Securities and Exchange Commission's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The information on Form N-Q is available upon request, without charge, by calling 1-800-877-9700 (toll free). APPROVAL OF INVESTMENT ADVISORY AGREEMENTS At a Meeting held on February 16, 2006, called pursuant to section 15(c) of the Investment Company Act of 1940, as amended (the "1940 Act"), the Board of Trustees of the Fund considered the approval of the renewal of the Fund's Advisory Agreement with Lehman Brothers Asset Management Inc. (the "Adviser") and the Sub-Advisory Agreement with Lehman Brothers Asset Management LLC (the "Sub-Adviser"). At the Meeting, the Board received substantial information regarding the proposed continuation of the Advisory and Sub-Advisory Agreements, following which the Board determined that it would be in the best interests of the Fund to continue the Advisory and Sub-Advisory Agreements. In reaching this overall determination, the Board reviewed, among other things: (i) the nature, extent and quality of advisory service, including the performance of the Fund; (ii) the appropriateness of the fee structure and rate of compensation paid to the Adviser relative to the cost of services provided and profits realized by the Adviser from the relationship with the Fund; (iii) the potential for economies of scale and whether the fee structure reflects potential for such economies of scale; (iv) fee/service comparisons, including other funds and other clients of the Adviser; and (v) the existence of any ancillary benefits realized by the Adviser. In connection with its review of the nature and quality of the services provided by the Adviser and Sub-Adviser, the Board considered the performance achieved for the Fund by the Adviser and Sub-Adviser relative to its designated benchmark. In connection with the Fund's performance, the Board reviewed statistical information regarding the performance of the Fund during the fiscal year ended December 31, 2005, and the following periods: the month ended January 31, 2006, the quarter ended December 31, 2005, August 1, 2003 through December 31, 2005 and from inception through December 31, 2005. The Board also considered a comparison prepared by Lipper Analytical of the Fund's performance relative to comparable funds registered under the 1940 Act and managed by other investment advisors ("Peer Group"), together with a detailed description of the methodology used by Lipper to prepare this information. Based on this information, the Board concluded that the services provided by the Adviser and Sub-Adviser under the Advisory and Sub-Advisory Agreements are satisfactory and the Fund's performance continues to support the Board's original selection of the Adviser and Sub-Adviser. The Board was also informed as to the performance of the Fund and institutional clients of the Sub-Adviser (collectively, "comparable accounts") as presented by the Adviser and Sub-Adviser. The Board did not specifically rely upon such comparisons, particularly in light of the different regulatory and investment environments to which registered vehicles are subject, but rather focused on an overall evaluation of the investment methodologies and strategies employed by the Adviser and Sub-Adviser and Fund performance relative to its designated benchmark. The Board also considered information to the effect that expense levels of the Fund compared favorably to the expense levels of other funds in the Peer Group. Based on this information, the Board concluded that the advisory fee for the Fund for the most recent fiscal year was below the median for its Peer Group and that the Fund's actual total expenses were also lower than the median for the Fund's Peer Group, based on the statistical information regarding the expense ratio components, contractual advisory and sub-advisory fees, and actual and total expenses of the Fund in comparison with the same information for other funds that Lipper determined are in the Fund's Peer Group. In addition, the Board considered the Adviser's and Sub-Adviser's investment philosophy and experience, investment processes and strategies and the background and experience of the persons responsible for the day-to-day management of the Fund, including brokerage allocation policies. The Board considered the non-advisory services provided by the Adviser, including the Adviser's provision of officers for the Fund, coordination of service providers and compliance-related activities. The Board also considered the costs incurred by the Adviser in connection with the provision of services to the Fund (including, for this purpose, the fee paid by the Adviser to the Sub-Adviser), as well as the costs incurred by the Sub-Adviser. The Board concluded that, based on the profit levels reported by the Adviser and Sub-Adviser, and the information included in the 15(c) Materials, the fee schedules included in the Advisory and Sub-Advisory Agreements are fair and reasonable and have not resulted in a profit that is excessive or beyond the range that would have been negotiated at arm's length in light of the specific facts and circumstances of the Fund. The Board reviewed information about the profitability of the Fund to the Adviser and Sub-Adviser, based on the fees payable 35 APPROVAL OF INVESTMENT ADVISORY AGREEMENTS (CONTINUED) under the Advisory and Sub-Advisory Agreements; information regarding direct revenue received by the Adviser and Sub-Adviser and/or their affiliates in connection with the services provided to the Fund by the Adviser and Sub-Adviser and/or their affiliates; and the Adviser's and Sub-Adviser's profit margins as reflected in the profitability analysis. The Board also received and considered information regarding the Fund's investment advisory fee rate under the Advisory Agreement in comparison to the investment management fee rates for other funds/accounts with substantially similar investment objectives and strategies for which the Adviser, the Sub-Adviser or their affiliates provide investment management services. The Board analyzed the level of the investment advisory/management fees in relation to the nature and extent of services provided to the Fund in comparison with the nature and extent of services provided to the Adviser's and Sub-Adviser's other clients and accounts, including, among other factors, the level of complexity in managing the Fund and other accounts under differing regulatory requirements and various client guidelines or requirements, the nature and extent of the shareholder support services provided to the Fund and its shareholders in comparison with the nature and extent of the services provided to other accounts and their clients, and in relation to the Fund's and other accounts' fee structures and asset levels. In connection with its review of the Fund's advisory fee structure, the Board considered the extent to which the Adviser or Sub-Adviser derive any ancillary or "fall-out" benefits as a result of their relationship with the Fund or whether there is any potential for the realization of economies of scale that may be appropriately reflected in fee schedules. With regard to these factors, the Board concluded that, because the Fund is a closed-end vehicle, the potential for growth in assets is limited. Similarly, the Board concluded that the "fall-out" benefits to the Adviser and Sub-Adviser, if any, are generally limited in light of the small size of the Fund relative to the other assets managed by the Adviser and Sub-Adviser. On the basis of these considerations and in recognition of the fiduciary duty deemed owed by the Adviser and Sub-Adviser to the Fund with respect to the receipt of compensation for services or of payments of a material nature paid to the Adviser or Sub-Adviser, the Board, including a majority of the Trustees of the Fund who are not "interested persons" within the meaning of the 1940 Act, concluded that the Advisory and Sub-Advisory Agreements continued to be in the best interests of the Fund and approved the Advisory and Sub-Advisory Agreements for continuance for the period ending February 28, 2007, unless terminated or amended prior to that date according to its terms. Subsequent to this Board Meeting, the current Trustees were elected at the annual meeting of shareholders; they are described in the section of this report entitled "Trustees and Officers Table." LEHMAN BROTHERS (C)2006 Lehman Brothers Inc. All Rights Reserved. LB10183 ITEM 2. CODE OF ETHICS. Not applicable to this filing. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable to this filing. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable to this filing. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable to this filing. ITEM 6. SCHEDULE OF INVESTMENTS The complete schedule of investments is disclosed in the semi-annual report, which is included as item 1. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable to this filing. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES Not applicable to this filing. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. No reportable purchases for the period covered by this report. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There were no changes to the procedures by which shareholders may recommend nominees to the Board of Trustees of the Fund. ITEM 11. CONTROLS AND PROCEDURES. (a) Based on an evaluation of the disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "Act")) as of a date within 90 days of the filing date of this document, the Chief Executive Officer and Treasurer and Principal Financial and Accounting Officer of the Registrant have concluded that such disclosure controls and procedures are effectively designed to ensure that information required to be disclosed by the Registrant is accumulated and communicated to the Registrant's management to allow timely decisions regarding required disclosure. (b) There were no significant changes in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred 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) Not applicable to this filing (a)(2) The certifications required by rule 30a-2(a) of the Act and Section 302 of the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley Act") are filed herewith. (a)(3) Not applicable to the Registrant. (b) The certifications required by rule 30a-2(b) of the Act and Section 906 of the Sarbanes-Oxley Act are filed herewith. The certifications provided pursuant to Section 906 of the Sarbanes-Oxley Act are not deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 ("Exchange Act"), or otherwise subject to the liability of that section. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the Registrant specifically incorporates them by reference. 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. Lehman Brothers First Trust Income Opportunity Fund By: /s/ Peter E. Sundman ----------------------------------------- Peter E. Sundman, Chief Executive Officer Date: 08/30/06 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/ Peter E. Sundman ------------------------------------------ Peter E. Sundman, Chief Executive Officer Date: 08/30/06 By: /s/ John M. McGovern ------------------------------------------ John M. McGovern, Treasurer and Principal Financial and Accounting Officer Date: 08/30/06 EX-99.CERT 2 a2171953zex-99_cert.txt EX-99.CERT N-CSR EXHIBIT FOR ITEM 12(a)(2): EX-99.CERT I, Peter E. Sundman, certify that: 1. I have reviewed this report on Form N-CSR of Lehman Brothers First Trust Income Opportunity Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred 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; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: 08/30/06 /s/ Peter E. Sundman ---------------------------------------- Peter E. Sundman, Chief Executive Officer N-CSR EXHIBIT FOR ITEM 12(a)(2): EX-99.CERT I, John M. McGovern, certify that: 1. I have reviewed this report on Form N-CSR of Lehman Brothers First Trust Income Opportunity Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred 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; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: 08/30/06 /s/ John M. McGovern ----------------------------------------- John M. McGovern, Treasurer and Principal Financial and Accounting Officer EX-99.906CERT 3 a2171953zex-99_906cert.txt EX-99.906CERT N-CSR EXHIBIT FOR ITEM 12(C): EX-99.906.CERT CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Certified Shareholder Report of Lehman Brothers First Trust Income Opportunity Fund (the "Registrant") on Form N-CSR for the period ended June 30, 2006, certify, pursuant to 18 U.S.C. Section 1350 enacted under Section 906 of the Sarbanes-Oxley Act of 2002, that to our knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: 08/30/06 /s/ Peter E. Sundman ---------------------------------------- Peter E. Sundman, Chief Executive Officer Date: 08/30/06 /s/ John M. McGovern ---------------------------------------- John M. McGovern, Treasurer and Principal Financial and Accounting Officer A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission (the "Commission") or its staff upon request. This certification is being furnished to the Commission solely pursuant to Rule 30a-2(b) under the Investment Company Act of 1940, as amended, and 18 U.S.C. Section 1350 and is not being filed as part of the Form N-CSR with the Commission. -----END PRIVACY-ENHANCED MESSAGE-----