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. Lincoln Capital Fixed Income
Management Company, LLC (a wholly owned subsidiary of Lehman Brothers Holdings Inc.) is the subadviser 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 will
pursue 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
management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of income and 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 T