As filed with the Securities and Exchange Commission on November 26, 2008
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-21342
LEHMAN BROTHERS FIRST TRUST INCOME OPPORTUNITY FUND
---------------------------------------------------
(Exact Name of the Registrant as Specified in Charter)
605 Third Avenue, 2nd Floor
New York, New York 10158-0180
(Address of Principal Executive Offices - Zip Code)
Registrant's telephone number, including area code: (212) 476-8800
Peter E. Sundman, Chief Executive Officer
Lehman Brothers First Trust Income Opportunity Fund
605 Third Avenue, 2nd Floor
New York, New York 10158-0180
Arthur Delibert, Esq.
K&L Gates LLP
1601 K Street, N.W.
Washington, D.C. 20006-1600
(Names and addresses of agents for service)
Date of fiscal year end: December 31, 2008
Date of reporting period: September 30, 2008
Form N-Q is to be used by management investment companies, other than small
business investment companies registered on Form N-5 (ss. 239.24 and 274.5 of
this chapter), to file reports with the Commission not later than 60 days after
the close of their first and third fiscal quarters, pursuant to rule 30b1-5
under the Investment Company Act of 1940 ("1940 Act") (17 CFR 270.30b1-5). The
Commission may use the information provided on Form N-Q in its regulatory,
disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-Q, and
the Commission will make this information public. A registrant is not required
to respond to the collection of information contained in Form N-Q 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. ss. 3507.
ITEM 1. SCHEDULE OF INVESTMENTS.
SEPTEMBER 30, 2008
SCHEDULE OF INVESTMENTS Lehman Brothers First Trust Income Opportunity Fund
---------------------------------------------------------------------------
(UNAUDITED)
PRINCIPAL AMOUNT($) MARKET
VALUE($)(+)
BANK LOAN OBLIGATIONS (10.8%)
AUTOMOTIVE (0.7%)
1,350,000 General Motors Corp., Term Loan B, 5.16%, due 11/29/13 867,780(O)
ELECTRIC - INTEGRATED (1.9%)
2,845,000 Texas Competitive Electric Holdings Co. LLC, Term Loan B3, 5.99% - 7.26%,
due 10/10/14 2,399,188(O)
HEALTH SERVICES (5.0%)
7,360,000 HCA, Inc., Term Loan A, 5.26%, due 11/18/12 6,490,048(O)
MEDIA - CABLE (2.4%)
3,955,000 Charter Communications Operating LLC, Term Loan, 4.80%, due 3/6/14 3,143,038(O)
PACKAGING (0.8%)
1,345,000 Berry Plastics Holding Corp., Term Loan C, 9.04%, due 4/3/15 1,084,743(O)
TOTAL BANK LOAN OBLIGATIONS (COST $15,393,663) 13,984,797
CORPORATE DEBT SECURITIES (148.8%)
AEROSPACE/DEFENSE (3.7%)
3,705,000 L-3 Communications Corp., Guaranteed Senior Unsecured Subordinated Notes, 3,649,425
7.63%, due 6/15/12
165,000 L-3 Communications Corp., Guaranteed Senior Unsecured Subordinated Notes, 153,450
6.13%, due 7/15/13
1,010,000 L-3 Communications Corp., Guaranteed Notes, Ser. B, 6.38%, due 10/15/15 929,200
----------
4,732,075
AUTO LOANS (6.0%)
265,000 Ford Motor Credit Co., Senior Unsecured Notes, 9.75%, due 9/15/10 190,027
2,855,000 Ford Motor Credit Co., Senior Unsecured Notes, 7.38%, due 2/1/11 1,897,093
2,885,000 Ford Motor Credit Co., Senior Unsecured Notes, 7.25%, due 10/25/11 1,834,551
4,715,000 Ford Motor Credit Co., Senior Unsecured Notes, 7.80%, due 6/1/12 2,927,661
1,890,000 General Motors Acceptance Corp., Senior Unsecured Notes, 6.88%, due 9/15/11 843,294
----------
7,692,626
AUTOMOTIVE (1.1%)
630,000 Ford Motor Co., Senior Unsecured Notes, 7.45%, due 7/16/31 270,900
1,930,000 General Motors Corp., Senior Unsecured Notes, 7.20%, due 1/15/11 1,133,875
----------
1,404,775
BEVERAGE (1.0%)
1,270,000 Constellation Brands, Inc., Guaranteed Notes, 8.38%, due 12/15/14 1,257,300
CHEMICALS (2.5%)
885,000 Airgas, Inc., Guaranteed Notes, 7.13%, due 10/1/18 862,875(n)
1,365,000 MacDermid, Inc., Senior Subordinated Notes, 9.50%, due 4/15/17 1,146,600(n)
1,505,000 Momentive Performance Materials, Inc., Guaranteed Notes, 10.13%, due 12/1/14 1,158,850
----------
3,168,325
ELECTRIC - GENERATION (13.1%)
2,278,000 AES Corp., Senior Secured Notes, 8.75%, due 5/15/13 2,289,390(n)
730,000 AES Corp., Senior Notes, 8.00%, due 6/1/20 638,750(n)
1,765,000 Dynegy Holdings, Inc., Senior Unsecured Notes, 7.75%, due 6/1/19 1,412,000
5,990,000 Dynegy-Roseton Danskammer, Pass-Through Cert., Ser. B, 7.67%, due 11/8/16 5,435,925
735,000 Edison Mission Energy, Senior Unsecured Notes, 7.50%, due 6/15/13 705,600
4,410,000 Edison Mission Energy, Senior Unsecured Notes, 7.63%, due 5/15/27 3,572,100
See Notes to Schedule of Investments
SEPTEMBER 30, 2008
SCHEDULE OF INVESTMENTS Lehman Brothers First Trust Income Opportunity Fund cont'd
----------------------------------------------------------------------------------
(UNAUDITED)
PRINCIPAL AMOUNT($) MARKET
VALUE($)(+)
1,180,000 Mirant Americas Generation, Inc., Senior Unsecured Notes, 8.30%, due 5/1/11 1,135,750
1,925,000 NRG Energy, Inc., Guaranteed Notes, 7.25%, due 2/1/14 1,785,437
----------
16,974,952
ELECTRIC - INTEGRATED (13.3%)
2,890,000 CMS Energy Corp., Senior Unsecured Notes, 6.88%, due 12/15/15 2,644,046
7,570,000 Energy Future Holdings Corp., Guaranteed Notes, 11.25%, due 11/1/17 6,396,650(n)
1,770,000 Exelon Corp., Senior Unsecured Notes, 4.90%, due 6/15/15 1,558,556
2,205,000 IPALCO Enterprises, Inc., Senior Secured Notes, 7.25%, due 4/1/16 2,105,775(n)
1,735,000 PPL Energy Supply LLC, Senior Unsecured Notes, 6.30%, due 7/15/13 1,687,756
3,230,000 Texas Competitive Electric Holdings Co. LLC, Guaranteed Notes, 10.50%, due 11/1/16 2,737,425(n)
----------
17,130,208
ELECTRONICS (3.1%)
2,090,000 Flextronics Int'l, Ltd., Senior Subordinated Notes, 6.25%, due 11/15/14 1,766,050
2,535,000 Freescale Semiconductor, Inc., Guaranteed Notes, 9.13%, due 12/15/14 1,597,050
980,000 NXP BV/NXP Funding LLC, Senior Secured Floating Rate Notes, 5.54%, due 10/15/08 646,800(u)
----------
4,009,900
ENERGY-EXPLORATION & PRODUCTION (8.9%)
2,590,000 Chesapeake Energy Corp., Guaranteed Notes, 7.50%, due 9/15/13 2,505,825
2,535,000 Chesapeake Energy Corp., Guaranteed Notes, 7.50%, due 6/15/14 2,427,262
1,770,000 Chesapeake Energy Corp., Guaranteed Notes, 6.88%, due 1/15/16 1,615,125
840,000 Cimarex Energy Co., Guaranteed Notes, 7.13%, due 5/1/17 772,800
640,000 Newfield Exploration Co., Senior Subordinated Notes, 6.63%, due 4/15/16 569,600
2,660,000 Pioneer Natural Resources Co., Senior Unsecured Notes, 6.65%, due 3/15/17 2,371,087
1,275,000 Southwestern Energy Co., Senior Notes, 7.50%, due 2/1/18 1,236,750(n)
----------
11,498,449
ENVIRONMENTAL (1.0%)
1,375,000 Allied Waste North America, Inc., Senior Secured Notes, 7.25%, due 3/15/15 1,316,563
FOOD & DRUG RETAILERS (1.9%)
1,060,000 Rite Aid Corp., Guaranteed Notes, 8.63%, due 3/1/15 556,500
700,000 Rite Aid Corp., Senior Secured Notes, 10.38%, due 7/15/16 609,000
2,385,000 Rite Aid Corp., Guaranteed Notes, 9.50%, due 6/15/17 1,252,125
----------
2,417,625
GAMING (7.4%)
765,000 Chukchansi Economic Development Authority, Senior Unsecured Notes, 8.00%,
due 11/15/1 612,000(n)
2,450,000 FireKeepers Development Authority, Senior Secured Notes, 13.88%, due 5/1/15 2,156,000(n)
575,000 Fontainebleau Las Vegas Holdings LLC, Second Mortgage, 10.25%, due 6/15/15 161,000(n)
905,000 Harrah's Operating Co., Inc., Guaranteed Notes, 10.75%, due 2/1/16 461,550(n)
435,000 Isle of Capri Casinos, Inc., Guaranteed Notes, 7.00%, due 3/1/14 291,450
250,000 MGM Mirage, Inc., Guaranteed Notes, 7.50%, due 6/1/16 182,500
1,781,000 Pokagon Gaming Authority, Senior Notes, 10.38%, due 6/15/14 1,803,262(n)
1,755,000 San Pasqual Casino, Notes, 8.00%, due 9/15/13 1,570,725(n)
3,140,000 Shingle Springs Tribal Gaming Authority, Senior Notes, 9.38%, due 6/15/15 2,260,800(n)
----------
9,499,287
GAS DISTRIBUTION (14.7%)
1,380,000 AmeriGas Partners L.P., Senior Unsecured Notes, 7.13%, due 5/20/16 1,235,100
235,000 El Paso Corp., Senior Unsecured Notes, 6.75%, due 5/15/09 232,975
1,530,000 El Paso Natural Gas Co., Senior Unsecured Notes, 8.38%, due 6/15/32 1,465,667
1,462,000 Ferrellgas L.P., Senior Unsecured Notes, 6.75%, due 5/1/14 1,191,530
1,635,000 Ferrellgas Partners L.P., Senior Unsecured Notes, 8.75%, due 6/15/12 1,397,925
1,170,000 Ferrellgas Partners L.P., Senior Notes, 6.75%, due 5/1/14 953,550(n)
See Notes to Schedule of Investments
SEPTEMBER 30, 2008
SCHEDULE OF INVESTMENTS Lehman Brothers First Trust Income Opportunity Fund cont'd
----------------------------------------------------------------------------------
(UNAUDITED)
PRINCIPAL AMOUNT($) MARKET
VALUE($)(+)
2,255,000 Kinder Morgan, Inc., Senior Unsecured Notes, 6.50%, due 9/1/12 2,125,337
500,000 Kinder Morgan, Inc., Senior Unsecured Notes, 5.15%, due 3/1/15 423,750
1,530,000 MarkWest Energy Partners LP, Senior Notes, Ser. B, 8.75%, due 4/15/18 1,453,500
2,285,000 Regency Energy Partners L.P., Guaranteed Notes, 8.38%, due 12/15/13 2,056,500
595,000 Sabine Pass L.P., Senior Secured Notes, 7.25%, due 11/30/13 470,050
4,380,000 Sabine Pass L.P., Senior Secured Notes, 7.50%, due 11/30/16 3,416,400
2,025,000 Transcontinental Gas Pipe Line, Senior Unsecured Notes, 7.25%, due 12/1/26 1,946,282
570,000 Williams Cos., Inc., Senior Unsecured Notes, 7.13%, due 9/1/11 561,450
----------
18,930,016
HEALTH SERVICES (13.2%)
255,000 DJO Finance LLC, Guaranteed Notes, 10.88%, due 11/15/14 244,162
2,435,000 LVB Acquisition Merger, Inc., Guaranteed Notes, 10.38%, due 10/15/17 2,410,650
2,030,000 LVB Acquisition Merger, Inc., Guaranteed Notes, 11.63%, due 10/15/17 2,040,150
2,747,996 NMH Holdings, Inc., Senior Unsecured Floating Rate Notes, 9.94%, due 12/15/08 2,267,097(n)(u)
4,045,000 Select Medical Corp., Guaranteed Notes, 7.63%, due 2/1/15 3,276,450
4,115,000 Service Corp. Int'l, Senior Unsecured Notes, 7.50%, due 4/1/27 3,147,975
115,000 Ventas Realty L.P., Guaranteed Notes, 6.75%, due 6/1/10 114,425
750,000 Ventas Realty L.P., Senior Notes, 6.63%, due 10/15/14 720,000
30,000 Ventas Realty L.P., Guaranteed Notes, 7.13%, due 6/1/15 29,775
2,270,000 Ventas Realty L.P., Guaranteed Notes, 6.50%, due 6/1/16 2,145,150
700,000 Ventas Realty L.P., Guaranteed Notes, 6.75%, due 4/1/17 661,500
----------
17,057,334
HOTELS (0.5%)
705,000 Host Hotels & Resorts L.P., Senior Secured Notes, 7.13%, due 11/1/13 627,450
LEISURE (1.2%)
1,980,000 Royal Caribbean Cruises, Senior Unsecured Notes, 7.50%, due 10/15/27 1,524,600
MEDIA - BROADCAST (3.1%)
3,680,000 CMP Susquehanna Corp., Guaranteed Notes, 9.88%, due 5/15/14 2,060,800
2,000,000 LIN Television Corp., Guaranteed Notes, 6.50%, due 5/15/13 1,560,000
520,000 LIN Television Corp., Guaranteed Notes, Ser. B, 6.50%, due 5/15/13 405,600
----------
4,026,400
MEDIA - CABLE (12.2%)
1,300,000 CCH II Holdings LLC, Guaranteed Notes, 10.25%, due 10/1/13 1,092,000
7,290,000 DirecTV Holdings LLC, Guaranteed Notes, 8.38%, due 3/15/13 7,198,875
2,460,000 EchoStar DBS Corp., Guaranteed Notes, 6.38%, due 10/1/11 2,263,200
1,035,000 Mediacom Broadband LLC, Senior Unsecured Notes, 8.50%, due 10/15/15 853,875
1,820,000 Shaw Communications, Inc., Senior Unsecured Notes, 7.20%, due 12/15/11 1,792,700
490,000 Videotron Ltd., Guaranteed Notes, 6.88%, due 1/15/14 463,050
2,070,000 Videotron Ltd., Guaranteed Notes, 9.13%, due 4/15/18 2,090,700(n)
----------
15,754,400
MEDIA - SERVICES (0.7%)
1,155,000 WMG Acquisition Corp., Senior Subordinated Notes, 7.38%, due 4/15/14 857,588
METALS/MINING EXCLUDING STEEL (4.7%)
875,000 Aleris Int'l, Inc., Guaranteed Notes, 9.00%, due 12/15/14 533,750
1,515,000 Arch Western Finance Corp., Senior Secured Notes, 6.75%, due 7/1/13 1,424,100
425,000 Freeport-McMoRan Copper & Gold, Senior Unsecured Notes, 8.25%, due 4/1/15 417,563
105,000 Freeport-McMoRan Copper & Gold, Senior Unsecured Notes, 8.38%, due 4/1/17 103,425
2,710,000 Massey Energy Co., Guaranteed Notes, 6.88%, due 12/15/13 2,452,550
335,000 Peabody Energy Corp., Guaranteed Notes, Ser. B, 6.88%, due 3/15/13 323,275
890,000 Peabody Energy Corp., Guaranteed Notes, 5.88%, due 4/15/16 805,450
----------
6,060,113
See Notes to Schedule of Investments
SEPTEMBER 30, 2008
SCHEDULE OF INVESTMENTS Lehman Brothers First Trust Income Opportunity Fund cont'd
----------------------------------------------------------------------------------
(UNAUDITED)
PRINCIPAL AMOUNT($) MARKET
VALUE($)(+)
NON-FOOD & DRUG RETAILERS (0.5%)
855,000 Blockbuster, Inc., Guaranteed Notes, 9.00%, due 9/1/12 611,325
PACKAGING (6.0%)
5,030,000 Ball Corp., Guaranteed Unsecured Notes, 6.88%, due 12/15/12 5,023,713
315,000 Berry Plastics Corp., Senior Secured Floating Rate Notes, 7.54%, due 10/15/08 280,350(u)
965,000 Crown Americas LLC, Guaranteed Notes, 7.75%, due 11/15/15 940,875
1,795,000 Graham Packaging Co., Inc., Guaranteed Notes, 9.88%, due 10/15/14 1,561,650
----------
7,806,588
PRINTING & PUBLISHING (0.7%)
1,150,000 Dex Media West LLC, Senior Subordinated Notes, Ser. B, 9.88%, due 8/15/13 713,000
905,000 Idearc, Inc., Guaranteed Notes, 8.00%, due 11/15/16 246,613
----------
959,613
RAILROADS (0.6%)
805,000 TFM SA de C.V., Senior Unsubordinated Notes, 9.38%, due 5/1/12 821,100
REAL ESTATE DEV. & MGT. (1.3%)
1,690,000 American Real Estate Partners L.P., Senior Unsecured Notes, 8.13%, due 6/1/12 1,436,500
385,000 American Real Estate Partners L.P., Guaranteed Notes, 7.13%, due 2/15/13 294,525
----------
1,731,025
RESTAURANTS (0.7%)
1,035,000 NPC Int'l, Inc., Guaranteed Notes, 9.50%, due 5/1/14 848,700
SOFTWARE/SERVICES (2.0%)
775,000 Sungard Data Systems, Inc., Senior Unsecured Notes, 10.63%, due 5/15/15 728,500(n)
2,180,000 Sungard Data Systems, Inc., Guaranteed Notes, 10.25%, due 8/15/15 1,891,150
----------
2,619,650
STEEL PRODUCERS/PRODUCTS (3.0%)
1,640,000 Metals U.S.A. Holdings Corp., Senior Unsecured Floating Rate Notes, 8.79%,
due 10/1/08 1,312,000(u)
1,120,000 Steel Dynamics, Inc., Guaranteed Notes, 7.38%, due 11/1/12 1,024,800
1,735,000 Tube City IMS Corp., Guaranteed Notes, 9.75%, due 2/1/15 1,544,150
----------
3,880,950
SUPPORT - SERVICES (7.1%)
785,000 Cardtronics, Inc., Guaranteed Notes, Ser. B, 9.25%, due 8/15/13 706,500
2,405,000 Cardtronics, Inc., Guaranteed Notes, 9.25%, due 8/15/13 2,164,500
2,600,000 Knowledge Learning Corp., Inc., Guaranteed Notes, 7.75%, due 2/1/15 2,301,000(n)
1,890,000 Lender Processing Services, Inc., Senior Unsecured Notes, 8.13%, due 7/1/16 1,842,750(n)
2,580,000 United Rentals N.A., Inc., Guaranteed Notes, 6.50%, due 2/15/12 2,154,300
----------
9,169,050
TELECOM - INTEGRATED/SERVICES (8.7%)
1,440,000 Dycom Industries, Inc., Guaranteed Notes, 8.13%, due 10/15/15 1,267,200
2,255,000 Intelsat Subsidiary Holdings Co. Ltd., Senior Unsecured Notes, 8.50%,
due 1/15/13 2,085,875(n)
1,825,000 Nextel Communications, Inc., Guaranteed Notes, Ser. E, 6.88%, due 10/31/13 1,241,000
2,622,000 Qwest Corp., Senior Unsecured Notes, 8.88%, due 3/15/12 2,569,560
1,485,000 Sprint Capital Corp., Guaranteed Notes, 6.90%, due 5/1/19 1,150,875
1,950,000 Sprint Capital Corp., Guaranteed Notes, 6.88%, due 11/15/28 1,306,500
990,000 Sprint Nextel Corp., Senior Unsecured Notes, 6.00%, due 12/1/16 762,300
915,000 Windstream Corp., Guaranteed Notes, 8.13%, due 8/1/13 869,250
----------
11,252,560
TELECOM - WIRELESS (2.6%)
2,015,000 Rogers Cable, Inc., Guaranteed Notes, 5.50%, due 3/15/14 1,861,439
See Notes to Schedule of Investments
SEPTEMBER 30, 2008
SCHEDULE OF INVESTMENTS Lehman Brothers First Trust Income Opportunity Fund cont'd
----------------------------------------------------------------------------------
(UNAUDITED)
PRINCIPAL AMOUNT($) MARKET
VALUE($)(+)
1,545,000 Rogers Wireless, Inc., Senior Secured Notes, 6.38%, due 3/1/14 1,477,610
----------
3,339,049
THEATERS & ENTERTAINMENT (1.5%)
1,960,000 AMC Entertainment, Inc., Guaranteed Notes, Ser. B, 8.63%, due 8/15/12 1,940,400
TRANSPORTATION EXCLUDING AIR/RAIL (0.8%)
1,535,000 ERAC USA Finance Co., Guaranteed Notes, 7.00%, due 10/15/37 1,081,120(n)
TOTAL CORPORATE DEBT SECURITIES (COST $217,208,737) 192,001,116
NUMBER OF SHARES
SHORT-TERM INVESTMENTS (14.6%)
18,852,277 Neuberger Berman Prime Money Fund Trust Class (COST $18,852,277) 18,852,277(@)(OO)
TOTAL INVESTMENTS (174.2%) (COST $251,454,677) 224,838,190(##)
Liabilities, less cash, receivables and other assets [(4.5%)] (5,783,721)(@@)
Liquidation Value of Auction Preferred Shares [(69.7%)] (90,000,000)(^)
TOTAL NET ASSETS (100.0%) $129,054,469
See Notes to Schedule of Investments
SEPTEMBER 30, 2008 (UNAUDITED)
NOTES TO SCHEDULE OF INVESTMENTS
--------------------------------
(+) Investments in debt securities by Lehman Brothers First Trust
Income Opportunity Fund (the "Fund") are valued daily by obtaining
valuations from independent pricing services based on readily available
bid quotations, or if quotations are not available, by methods which
include considerations such as: yields or prices of securities of
comparable quality, coupon, maturity and type; indications as to values
from dealers; and general market conditions. If a valuation is not
available from an independent pricing service, the Fund seeks to obtain
quotations from principal market makers. If such quotations are not
readily available, securities are valued using methods the Board of
Trustees of the Fund (the "Board") has approved on the belief that they
reflect fair value. Numerous factors may be considered when determining
the fair value of a security, including available analyst, media or
other reports, trading in futures or ADRs and whether the issuer of the
security being fair valued has other securities outstanding. Fair value
prices are necessarily estimates, and there is no assurance that such a
price will be at or close to the price at which the security is next
quoted or next trades.
The Fund adopted Financial Accounting Standards Board ("FASB") Statement
of Financial Accounting Standards No. 157, Fair Value Measurements ("FAS
157"), effective January 1, 2008. In accordance with FAS 157, "fair
value" is defined as the price that a Fund would receive upon selling an
investment in an orderly transaction to an independent buyer in the
principal or most advantageous market for the investment. Various inputs
are used in determining the value of the Fund's investments. FAS 157
established a three-tier hierarchy of inputs to establish a
classification of fair value measurements for disclosure purposes. The
three-tier hierarchy of inputs is summarized in the three broad Levels
listed below.
o Level 1 - quoted prices in active markets for identical investments
o Level 2 - other significant observable inputs (including quoted prices
for similar investments, interest rates, prepayment speeds, credit risk,
etc.)
o Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
The inputs or methodology used for valuing an investment are not
necessarily an indication of the risk associated with investing in those
securities.
The following is a summary of the inputs used to value the Fund's
investments as of September 30, 2008:
VALUATION INPUTS INVESTMENTS IN SECURITIES OTHER FINANCIAL
INSTRUMENTS*
Level 1 - Quoted Prices $ 18,852,277 $ -
Level 2 - Other Significant
Observable Inputs 205,985,913 546,043
Level 3 - Significant
Unobservable Inputs - -
-------------------------------------------
TOTAL $224,838,190 $546,043
===========================================
*Other financial instruments include swap contracts.
Following is a reconciliation between the beginning and ending balances
of investments in which significant unobservable inputs (Level 3) were
used in determining value:
INVESTMENTS IN SECURITIES
BALANCE AS OF 12/31/07 $2,971,504
Accrued discounts/premiums -
Realized gain/loss and change in unrealized
appreciation/depreciation (663,699)
Net purchases/sales (2,307,805)
Net transfers in and/or out of Level 3 -
_______________
_______________
BALANCE AS OF 9/30/08 $-
===============
Net change in unrealized appreciation/depreciation
from investments still held as of 09/30/08 $-
(##) At September 30, 2008, the cost of investments for U.S. federal income
tax purposes was $252,285,640. Gross unrealized appreciation of
investments was $114,766 and gross unrealized depreciation of
investments was $27,562,216, resulting in net unrealized depreciation of
$27,447,450, based on cost for U.S. federal income tax purposes.
(@) Neuberger Berman Prime Money Fund ("Prime Money") is also managed by
Neuberger Berman Management LLC. and may be considered an affiliate
since it has the same officers, Board members, and investment manager as
the Fund and because, at times, the Fund may own 5% or more of the
outstanding voting securities of Prime Money.
(n) 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 under the Securities Act of 1933,
as amended, and have been deemed by the investment manager to be liquid.
At September 30, 2008, these securities amounted to $39,790,144 or 30.8%
of net assets applicable to common shareholders.
(u) 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 September 30, 2008.
(O) All or a portion of this security was purchased on a delayed delivery
basis. At September 30, 2008, these securities amounted to $13,984,797.
(OO) All or a portion of this security is segregated in connection with
obligations for interest rate swap contracts and delayed delivery
purchase commitments.
(@@) At September 30, 2008, the Fund had outstanding interest rate swap
contracts as follows:
RATE TYPE
VARIABLE-RATE
PAYMENTS ACCRUED NET
SWAP NOTIONAL TERMINATION FIXED-RATE RECEIVED INTEREST UNREALIZED TOTAL
COUNTER AMOUNT DATE PAYMENTS MADE BY THE RECEIVABLE APPRECIATION FAIR
PARTY BY THE FUND FUND[(1)] (PAYABLE) (DEPRECIATION) VALUE
Citibank, N.A. $45,000,000 January 28, 2011 2.920% 3.708% $1,972 $546,043 $548,015
(1) 30 day LIBOR (London Interbank Offered Rate) at September 25, 2008.
In March 2008, FASB issued Statement of Financial Accounting Standards No.
161, "Disclosures about Derivative Instruments and Hedging Activities"
("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods
beginning after November 15, 2008. SFAS 161 requires enhanced disclosures
about funds' derivative and hedging activities. Management is currently
evaluating the impact the adoption of SFAS 161 will have on the Fund's
financial statement disclosures.
(^) On November 12, 2008, the Fund redeemed all outstanding Money
Market Cumulative Preferred Shares. On that date, the Fund privately placed
notes with an aggregate principal amount of $45,900,000 and perpetual
preferred shares with an aggregatge liquidation preference of $12,300,000.
For information on the Fund's significant accounting policies, please refer to
the Fund's most recent financial statements.
ITEM 2. CONTROLS AND PROCEDURES.
(a) Based on an evaluation of the disclosure controls and procedures (as
defined in rule 30a-3(c) under the 1940 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 on Form N-CSR and Form N-Q 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 controls
over financial reporting (as defined in rule 30a-3(d) under the 1940
Act) that occurred during the Registrant's last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the
Registrant's internal control over financial reporting.
ITEM 3. EXHIBITS.
The certifications required by Rule 30a-2(a) of the 1940 Act are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Lehman Brothers First Trust Income Opportunity Fund
By: /s/ Peter E. Sundman
--------------------------
Peter E. Sundman
Chief Executive Officer
Date: November 17, 2008
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: November 17, 2008
By: /s/ John M. McGovern
--------------------------
John M. McGovern
Treasurer and Principal Financial and
Accounting Officer
Date: November 17, 2008