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 811-21905
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
WHEATON, IL 60187
(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
WHEATON, IL 60187
(Name and address of agent for service)
registrant's telephone number, including area code: (630) 765-8000
Date of fiscal year end: DECEMBER 31
Date of reporting period: JUNE 30, 2009
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. The OMB has reviewed this collection of information under
the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The Report to Shareholders is attached herewith.
(GRAPHIC)
(FIRST TRUST LOGO)
SEMI-ANNUAL REPORT
FOR THE SIX MONTHS ENDED JUNE 30, 2009
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
(ABERDEEN ASSET MANAGEMENT LOGO)
TABLE OF CONTENTS
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND (FEO)
SEMI-ANNUAL REPORT
JUNE 30, 2009
Shareholder Letter ....................................................... 1
At A Glance .............................................................. 2
Portfolio Commentary ..................................................... 3
Portfolio of Investments ................................................. 8
Schedule of Forward Foreign Currency Contracts ........................... 15
Statement of Assets and Liabilities ...................................... 16
Statement of Operations .................................................. 17
Statements of Changes in Net Assets ...................................... 18
Statement of Cash Flows .................................................. 19
Financial Highlights ..................................................... 20
Notes to Financial Statements ............................................ 21
Additional Information ................................................... 28
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of
1934, as amended. Forward-looking statements include statements regarding the
goals, beliefs, plans or current expectations of First Trust Advisors L.P.
("First Trust" or the "Advisor") and/or Aberdeen Asset Management Inc.
("Aberdeen" or the "Sub-Advisor") and their respective representatives, taking
into account the information currently available to them. Forward-looking
statements include all statements that do not relate solely to current or
historical fact. For example, forward-looking statements include the use of
words such as "anticipate," "estimate," "intend," "expect," "believe," "plan,"
"may," "should," "would" or other words that convey uncertainty of future
events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
First Trust/Aberdeen Emerging Opportunity Fund (the "Fund") to be materially
different from any future results, performance or achievements expressed or
implied by the forward-looking statements. When evaluating the information
included in this report, you are cautioned not to place undue reliance on these
forward-looking statements, which reflect the judgment of the Advisor and/or
Sub-Advisor and their respective representatives only as of the date hereof. We
undertake no obligation to publicly revise or update these forward-looking
statements to reflect events and circumstances that arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that the Fund will achieve its investment objective. The
Fund is subject to market risk, which is the possibility that the market values
of securities owned by the Fund will decline and that the value of the Fund
shares may therefore be less than what you paid for them. Accordingly, you can
lose money investing in the Fund. See "Risk Considerations" in the Notes to
Financial Statements for a discussion of other risks of investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
http://www.ftportfolios.com or speak with your financial advisor. Investment
returns, net asset value and common share price will fluctuate and Fund shares,
when sold, may be worth more or less than their original cost.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment. It
includes details about the Fund and presents data and analysis that provide
insight into the Fund's performance and investment approach.
By reading the portfolio commentary by the portfolio management team of the
Fund, you may obtain an understanding of how the market environment affected
the Fund's performance. The statistical information that follows may help you
understand the Fund's performance compared to that of relevant market
benchmarks.
It is important to keep in mind that the opinions expressed by personnel of
Aberdeen are just that: informed opinions. They should not be considered to be
promises or advice. The opinions, like the statistics, cover the period through
the date on the cover of this report. The risks of investing in the Fund are
spelled out in the prospectus, the statement of additional information, this
report and other regulatory filings.
SHAREHOLDER LETTER
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND (FEO)
SEMI-ANNUAL REPORT
JUNE 30, 2009
Dear Shareholders:
2008 brought all sorts of challenges to investors. Throughout the year, the
financial sector was plagued with failures in banking, insurance and brokerage
firms. By year's end, after a meltdown in the credit markets, historically high
levels of volatility in the stock market, and the resulting turmoil to the
overall economy, the Dow Jones Industrial Average's total return was -31.92% (as
of 12/31/08). In fact, 2008 was the Dow's third worst calendar year since its
inception in 1896. For the year, the negative total return performance of the
Dow was surpassed only by 1931 and 1907, two years in which the U.S. was also
enduring a major banking crisis. Of the thirty stocks in the Dow, only two were
up in 2008. However, many economists believe the recession that began in
December, 2007 ended in March, 2009. In fact, the Dow's total return from March
9 (the statistical end of the bear market) to June 30, 2009, was 30.30%. Of
course, no one can predict that this trend will continue.
Yet, regardless of the market, First Trust Advisors L.P. ("First Trust") has
always believed that in order to be successful in reaching your financial goals,
you should be invested for the long term. A long-term investor understands that
the market, from a historical perspective, has always experienced ups and downs.
But history has shown that the patient investor is typically rewarded over the
long term. While no one has the ability to predict when the markets will
recover, we believe that staying invested in quality products and having a
long-term perspective can help investors reach their financial goals.
The report you hold contains detailed information about your investment in First
Trust/Aberdeen Emerging Opportunity Fund (the "Fund"). It contains a portfolio
commentary from the Fund's portfolio management team that provides a market
recap for the period, a performance analysis and a market and Fund outlook.
Additionally, the report provides the Fund's financial statements for the period
covered by the report. I encourage you to read this document and discuss it with
your financial advisor.
First Trust has been through many types of markets and remains committed to
bringing you quality investment solutions regardless of the inevitable ups and
downs experienced in the market. We offer a variety of products that may fit
many financial plans to help those investors seeking long-term investment
success. As well, we are committed to making available up-to-date information
about your investments so you and your financial advisor have current
information on your portfolio.
We continue to value our relationship with you, and we thank you for the
opportunity to assist you in achieving your financial goals.
Sincerely,
/s/ James A. Bowen
James A. Bowen
President of First Trust/Aberdeen Emerging Opportunity Fund
Page 1
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
"AT A GLANCE"
AS OF JUNE 30, 2009 (UNAUDITED)
FUND STATISTICS
Symbol on New York Stock Exchange FEO
Common Share Price $ 14.45
Common Share Net Asset Value ("NAV") $ 16.51
Premium (Discount) to NAV (12.48)%
Net Assets Applicable to Common Shares $94,439,680
Current Quarterly Distribution per Common Share (1) $ 0.350
Current Annualized Distribution per Common Share $ 1.400
Current Distribution Rate on Closing Common Share Price (2) 9.69%
Current Distribution Rate on NAV (2) 8.48%
COMMON SHARE PRICE & NAV (WEEKLY CLOSING PRICE)
(PERFORMANCE GRAPH)
Common Share
Price NAV
------------ -----
6/30/08 17.45 20.49
7/3/08 17 20
7/11/08 16.95 19.97
7/18/08 17.07 20.19
7/25/08 16.98 20.31
8/1/08 17.3 20.51
8/8/08 17.46 20.38
8/15/08 17.52 20.17
8/22/08 17.51 20.1
8/29/08 17.95 20.05
9/5/08 17.19 19.5
9/12/08 16.38 19.17
9/19/08 14.03 18.25
9/26/08 14.15 17.88
10/3/08 13.14 16.54
10/10/08 9.78 13.97
10/17/08 10.75 13.72
10/24/08 9.43 11.91
10/31/08 10.78 12.69
11/7/08 10.82 13.15
11/14/08 9.69 12.36
11/21/08 8.31 11.72
11/28/08 9.81 12.4
12/5/08 9.6 12.23
12/12/08 10.04 12.73
12/19/08 9.97 12.79
12/26/08 9.98 12.61
1/2/09 11.18 13.06
1/9/09 11.36 13.24
1/16/09 11.09 13
1/23/09 10.98 12.85
1/30/09 11.17 13.07
2/6/09 11.69 13.37
2/13/09 11.05 13.1
2/20/09 10.02 12.55
2/27/09 9.97 12.45
3/6/09 9.51 12.29
3/13/09 10.48 12.76
3/20/09 10.23 12.75
3/27/09 10.71 13.12
4/3/09 11.15 13.59
4/9/09 11.4 13.96
4/17/09 11.59 14.31
4/24/09 11.5 14.42
5/1/09 11.9 14.72
5/8/09 12.69 15.67
5/15/09 12.26 15.47
5/22/09 13.12 16.05
5/29/09 13.77 16.4
6/5/09 14.06 16.8
6/12/09 14.26 16.97
6/19/09 14.12 16.21
6/26/09 14.32 16.38
6/30/09 14.45 16.51
PERFORMANCE
Average Annual
Total Return
6 Months 1 Year Inception
Ended Ended (8/28/2006)
6/30/2009 6/30/2009 to 6/30/2009
--------- --------- --------------
Fund Performance
NAV (3) 36.07% -8.94% 4.78%
Market Value (4) 49.53% -6.42% -1.64%
Index Performance
Blended Benchmark (5) 20.61% -9.08% 6.66%
Barclays Capital Global Emerging Markets Index 18.27% -1.52% 3.58%
FTSE All World Emerging Market Index 37.86% -26.99% 3.00%
% OF TOTAL
INDUSTRY CLASSIFICATION INVESTMENTS
----------------------- -----------
Government Bonds and Notes 40.5%
Commercial Banks 10.8
Oil, Gas & Consumable Fuels 6.1
Diversified Financial Services 4.2
Wireless Telecommunication Services 3.0
Semiconductors & Semiconductor Equipment 2.6
Beverages 2.5
Food Retailing & Staples 2.5
Construction Materials 2.3
Real Estate Management & Development 2.3
Automobiles 2.0
Diversified Telecommunication Services 2.0
Tobacco 1.9
Special Purpose Banks 1.9
Specialty Retail 1.8
Pharmaceuticals 1.4
Multiline Retail 1.4
Insurance 1.3
Metals & Mining 1.3
Household Products 1.2
Electric Utilities 1.1
Transportation Infrastructure 1.1
Other 4.8
-----
Total 100.0%
=====
% OF TOTAL
TOP 10 HOLDINGS INVESTMENTS
--------------- -----------
Republic of Argentina, 7.00%, 03/28/11 2.8%
Brazil NTN - B Note, 6.00%, 08/15/10 2.5
Republic of Indonesia, 10.38%, 05/04/14 2.2
RSHB Capital S.A., 7.75%, 05/29/18 1.6
Republic of Philippines, 9.50%, 02/02/30 1.5
Republic of Venezuela, 5.75%, 02/26/16 1.5
Samsung Electronics Company Ltd., Preference Shares 1.5
Republic of El Salvador, 7.65%, 06/15/35 1.5
Bolivarian Republic of Venezuela, 2.10%, 04/20/11 1.4
Taiwan Mobile Company, Ltd. 1.4
----
Total 17.9%
====
% OF TOTAL
TOP 10 COUNTRIES (6) INVESTMENTS
-------------------- -----------
Brazil 12.3%
Mexico 7.5
Russia 7.3
Indonesia 7.0
China 5.1
Venezuela 4.8
Philippines 4.5
Argentina 4.0
Turkey 3.8
South Africa 3.7
----
Total 60.0%
====
% OF TOTAL
CREDIT QUALITY (7) BONDS & NOTES
------------------ -------------
AAA 1.6%
A 1.5
A- 2.7
BBB+ 4.6
BBB 11.4
BBB- 4.9
BB+ 12.3
BB 7.0
BB- 27.0
B+ 11.5
B 5.5
B- 7.9
CCC+ 1.2
NR 0.9
-----
Total 100.0%
=====
(1) Most recent distribution paid or declared through 6/30/2009. Subject to
change in the future.
(2) Distribution rates are calculated by annualizing the most recent
distribution paid or declared through the report date and then dividing by
Common Share price or NAV, as applicable, as of 6/30/2009.
(3) Total return based on NAV is the combination of reinvested dividend
distributions and reinvested capital gain distributions, if any, at prices
obtained by the Dividend Reinvestment Plan and changes in NAV per share and
does not reflect sales load. Past performance is not indicative of future
results.
(4) Total return based on market value is the combination of reinvested
dividend distributions and reinvested capital gains distributions, if any,
at prices obtained by the Dividend Reinvestment Plan and changes in Common
Share price. Past performance is not indicative of future results.
(5) Blended benchmark consists of the following:
JPMorgan Emerging Markets Bond Index - Global Diversified (32.5%); JPMorgan
Government Bond Index - Emerging Markets (32.5%); MSCI Global Emerging
Markets Index (35.0%).
(6) Fixed-income portfolio securities are included in a country based upon
their underlying credit exposure as determined by Aberdeen Asset
Management Inc., the investment sub-advisor.
(7) The credit quality information represented reflects the ratings assigned by
one or more nationally recognized statistical rating organizations
(NRSROs). For situations in which a security is rated by one or more NRSROs
and ratings are not equivalent, the ratings are averaged.
Page 2
PORTFOLIO COMMENTARY
SUB-ADVISOR
Aberdeen Asset Management Inc. ("Aberdeen" or the "Sub-Advisor"), a Securities
and Exchange Commission registered investment advisor, is a wholly-owned
subsidiary of Aberdeen Asset Management PLC ("Aberdeen Group"). Aberdeen Group
is a publicly-traded international investment management group listed on the
London Stock Exchange, managing assets for both institutional and retail
clients from offices around the world.
PORTFOLIO MANAGEMENT TEAM
Investment decisions for the First Trust/Aberdeen Emerging Opportunity Fund
("the Fund") are made by Aberdeen using a team approach and not by any one
individual. By making team decisions, Aberdeen seeks to ensure that the
investment process results in consistent returns across all portfolios with
similar objectives. Aberdeen does not employ separate research analysts.
Instead, Aberdeen's investment managers combine the roles of analysis with
portfolio management. Each member of the team has sector and portfolio
responsibilities such as day-to-day monitoring of liquidity. The overall result
of this matrix approach is a high degree of cross-coverage, leading to a deeper
understanding of the securities in which Aberdeen invests. Included below is
additional information about the members of the team with significant
responsibility for the day-to-day management of the Fund's portfolio.
EQUITY MANAGEMENT TEAM
DEVAN KALOO
HEAD OF EMERGING MARKET EQUITY FOR THE ABERDEEN GROUP
Mr. Kaloo is responsible for the London-based Global Emerging Market ("GEM")
Equity Team, which manages Latin America, Europe, Middle East and Africa
equities, and also has oversight of global emerging market input from the Asia
research team based in Singapore, with which he works closely. Mr. Kaloo began
his career at Martin Currie in Edinburgh, Scotland, shortly after graduation,
working initially on the North American desk before transferring to the global
asset allocation team. Mr. Kaloo moved off the global asset allocation team in
1997, and for the next three years, he worked on Asian portfolios before joining
Murray Johnstone in Singapore in July 2000. Following the latter's acquisition,
he transferred to the Aberdeen Group where he was responsible for the Asian ex
Japan region as well as regional portfolios within emerging market mandates and
technology stocks.
JOANNE IRVINE
HEAD OF GEM EQUITY TEAM EX ASIA
Ms. Irvine is on the GEM Equity Team, where she specializes in the emerging
markets of Europe, Africa and the Middle East. After qualifying as a chartered
accountant in 1992, she worked in corporate finance, specializing in raising
development capital finance for private businesses. In January 1996, Ms. Irvine
joined the Aberdeen Group in a group development role. Since May 1997, Ms.
Irvine has been part of Aberdeen's emerging markets fund management group in
London.
MARK GORDON-JAMES
INVESTMENT MANAGER, GEM EQUITY TEAM
After graduating with a degree in Geography and Economics from the London School
of Economics in 2000, Mr. Gordon-James worked with the emerging markets team of
Merrill Lynch Investment Managers. Mr. Gordon-James joined the Aberdeen Group in
April 2004.
FIONA MORRISON
INVESTMENT MANAGER, GEM EQUITY TEAM
Ms. Morrison is an investment manager on the emerging markets ex Asia team. Ms.
Morrison joined Aberdeen in 2001 as an analyst.
ANDY BROWN
INVESTMENT MANAGER, GEM EQUITY TEAM
Mr. Brown is an assistant investment manager on the emerging markets ex Asia
team. Prior to joining Aberdeen in March 2005, Mr. Brown worked in the oil field
consumables industry in the United Arab Emirates.
Page 3
PORTFOLIO COMMENTARY - (CONTINUED)
FIXED-INCOME MANAGEMENT TEAM
BRETT DIMENT
HEAD OF EMERGING MARKET DEBT
Mr. Diment joined Deutsche Asset Management Group Limited ("Deutsche") in 1991
as a member of the fixed-income group and became head of the Emerging Market
Debt team at Deutsche in 1999. Mr. Diment joined Aberdeen following the Deutsche
acquisition in 2005 and is now responsible for the day-to-day management of the
Emerging Market Debt team and portfolios.
KEVIN DALY
PORTFOLIO MANAGER, EMERGING MARKET DEBT
Mr. Daly joined the Emerging Market Debt team at Aberdeen in April 2007 as a
portfolio manager, having spent the previous 10 years at Standard & Poor's in
London and Singapore as a credit market analyst covering global emerging market
debt, and was head of marketing for Global Sovereign Ratings. Mr. Daly was a
regular participant on the Global Sovereign Committee, served as a member of the
Sovereign Ratings Review Board, and was one of the initial members of the
Emerging Market Council, formed in 2006 to advise senior management on business
and market developments in emerging markets.
EDWIN GUTIERREZ
PORTFOLIO MANAGER, EMERGING MARKET DEBT
Mr. Gutierrez has served as an economist specializing in Latin America at LGT
Asset Management, and more recently as a portfolio manager specializing in
emerging market fixed-income at Invesco Asset Management. He joined Deutsche in
2000 and Aberdeen in 2005.
NIMA TAYEBI
PORTFOLIO MANAGER, EMERGING MARKET DEBT
Mr. Tayebi has 10 years of experience as executive director responsible for
emerging markets trading at Millennium Global Investments, vice president at
Salomon Brothers focusing on emerging currency and debt trading, and head of
fixed-income research at Renaissance Capital. He joined Deutsche as an emerging
currency portfolio manager in 2001 and Aberdeen in 2005, where his current
duties are portfolio manager for Emerging Market Debt and member of the
currency team.
MAX WOLMAN
PORTFOLIO MANAGER, EMERGING MARKET DEBT
Mr. Wolman joined Aberdeen in January 2001 and is portfolio manager on the
Global Emerging Market Debt mandates. Mr. Wolman originally specialized in
currency and domestic debt analysis; however, he is now responsible for wider
emerging debt analysis, including external and corporate issuers. He is a member
of the Emerging Market Debt investment committee at Aberdeen and is also
responsible for the daily implementation of the investment process.
ESTHER CHAN
PORTFOLIO MANAGER, EMERGING MARKET DEBT
Ms. Chan joined Aberdeen in Singapore in 2005 where she started as a corporate
credit analyst and trader working across investment-grade and high-yield assets
in the region. She has 6 years of experience in the asset class, and now serves
as a portfolio manager in Aberdeen London with specialization in analysis,
management and trading of external Asian debt, and Emerging Market corporates.
Prior to joining Aberdeen, Ms. Chan worked as a corporate finance analyst at
John Moore, assisting in various deals focused on the debt restructuring in
Indonesian firms facing creditor holdout situations, post Asian crisis.
COMMENTARY
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
The investment objective of the Fund is to provide a high level of total return.
The Fund pursues its investment objective by investing at least 80% of its
managed assets in a diversified portfolio of equity and fixed-income securities
of issuers in emerging market countries. There can be no assurance that the
Fund's investment objective will be achieved, and the Fund may not be
appropriate for all investors.
Page 4
PORTFOLIO COMMENTARY - (CONTINUED)
MARKET RECAP - EQUITY
Emerging markets saw their biggest quarterly gain on record in the second
quarter of 2009 on hopes that the worst of the global financial crisis might be
over. Investor sentiment improved and risk appetite returned, bolstered by
government rescue packages and easing monetary policy. Mexico emerged as the
epicentre of the swine flu outbreak, but the International Monetary Fund's
("IMF") approval of a flexible credit line for the country helped boost its
market. G20 leaders (a group of finance ministers and central bank governors
from 20 economies: 19 of the world's largest national economies, plus the
European Union) also promised additional aid to developing economies, which
could total up to $1 trillion when combined with the IMF's new credit line. In
Asia, investors were cheered by the Congress Party's emphatic victory in
India's general elections and expectations that economic reform will now pick up
pace. Towards the end of the second quarter, there was some profit taking on
the back of a retreat in oil prices and weak economic data, including a
larger-than-expected decline in U.S. consumer confidence.
On the economic front, Brazil, South Africa, Israel and Thailand slipped into
recession in the first quarter of 2009, while Mexico, Taiwan, Russia and
Hungary continued to contract. Amid weaker demand, India's inflation fell for
the first time in over 30 years in June. Separately, many central banks lowered
interest rates. Fiscal measures were also announced: Brazil and Turkey will cut
taxes; Turkey will also ease restrictions on foreign currency loans; Mexico
will offer credit lines and loan guarantees to struggling auto-parts exporters;
and India pledged to boost infrastructure spending. There were some signs the
slowdown was bottoming: China's manufacturing activity began to expand in
March, 2009 after a five-month contraction and India's industrial output rose
unexpectedly in April. But such positive news was few and far between.
In politics, governments in Eastern Europe saw declining voter support at the
European Parliament elections because of worsening economic problems. However,
markets largely shrugged off geopolitical concerns as North Korea conducted
nuclear and missile tests. In other political news, South Africa's Jacob Zuma
was sworn in as the country's new president after his African National Congress
party was returned to power at the national elections; Sri Lankan soldiers
killed the leader of the Tamil Tigers, potentially ending a 26-year civil war;
and Najib Razak was sworn in as Malaysia's sixth prime minister.
MARKET RECAP - FIXED-INCOME
After a slow start to 2009, emerging market debt rebounded strongly at the end
of the first quarter. The long-awaited announcement by U.S. Treasury Secretary
Geithner on the Public/Private Investment Programme (PPIP) provided an immediate
boost for risk assets. The U.S. Federal Reserve then surprised the market by
announcing its intention to commence quantitative easing (an extreme form of
monetary policy used to stimulate an economy where interest rates are either at,
or close to, zero). The most significant development for emerging markets came
in April at the G20 meeting in London, as global leaders committed to triple IMF
resources by as much as $750 billion. In addition, the IMF also unveiled a new
lending facility, the Flexible Credit Line (FCL), for countries with strong
economic fundamentals and policy frameworks. The combined measures significantly
reduced the "tail risk" (the risk of an asset or portfolio of assets moving
more than 3 standard deviations from its current price) in emerging markets,
prompting investors to increase their exposure to the asset class.
FUND RECAP
The Fund had net asset value ("NAV") total return(1) of 36.07% and a market
value total return(2) of 49.53% for the six months ended June 30, 2009, compared
to the Fund's blended benchmark(3) total return of 20.61% over the same period.
In addition to this blended benchmark, the Fund currently uses other indexes for
comparative purposes. The total returns for the six months ended June 30, 2009,
for these indexes were as follows: the Barclays Capital Global Emerging Markets
Index was 18.27%; and the FTSE All World Emerging Market Index was 37.86%.
PERFORMANCE ANALYSIS - EQUITY
Emerging markets rallied during the six-month period ended June 30, 2009 on
optimism that the worst of the global financial crisis might be over. Markets
were initially weighed down by fears of a deepening global recession, amid
massive job cuts in developed economies and falling exports in developing
nations. But government rescue packages, coupled with easing fiscal and monetary
policy, later lifted sentiment, allowing markets to overturn early-year losses
as risk appetite returned. Overall, the benchmark MSCI Global Emerging Markets
Index rose 36.3%, with the Fund underperforming the benchmark slightly by 19
basis points.
----------
(1) Total return based on NAV is the combination of reinvested dividend
distributions and reinvested capital gains distributions, if any, at
prices obtained by the Dividend Reinvestment Plan, and changes in NAV per
share and does not reflect sales load.
(2) Total return based on market value is the combination of reinvested
dividend distributions and reinvested capital gains distributions, if any,
at prices obtained by the Dividend Reinvestment Plan, and changes in Common
Share price.
(3) The Fund's blended benchmark consists of the following: 32.5% JPMorgan
Emerging Markets Bond Index-Global Diversified; 32.5% JPMorgan Government
Bond Index-Emerging Markets; and 35% MSCI (Morgan Stanley Capital
International) Global Emerging Markets Index.
Page 5
PORTFOLIO COMMENTARY - (CONTINUED)
Although the market rallied over the period covered by this report, there were
two distinct phases to this upswing. Initially, as investor sentiment improved,
the main beneficiaries were cyclical, high beta stocks such as energy and
materials. The Fund, with holdings concentrated in domestic-demand,
consumer-oriented stocks, therefore underperformed significantly in the initial
market upswing. Subsequently, this rally broadened out, and the Fund's stocks
"caught up" with the market, with the Fund's performance ending the period
roughly on par with the market.
Two of the main detractors to the Fund's performance were overweights in Mexico
and Malaysia. The Mexican market was weak on reports of increased drug-related
violence in the northern region of the country, followed by the outbreak of
swine flu. Conversely, the Malaysian market had been a resilient performer
during the crisis of fourth quarter 2008, and therefore failed to partake in the
rally of second quarter 2009 to the same extent as other markets. Meanwhile,
the Fund's underweight to the markets of Russia, with its skew toward more
cyclical sectors, cost the Fund as commodity prices recovered. The underweight
to Taiwan was also a negative contributor as it recovered on improved relations
with the mainland, which overcame worries over its predominantly export-oriented
economy.
These negative contributions were compensated for by other more favorable
positions. The Fund benefited from being underweight to South Korea, which
suffered given its export-oriented nature and lack of obvious domestic demand
drivers. The Fund's Hong Kong holdings, which are exposed to Chinese domestic
demand, recovered as investors responded positively to the Chinese government's
loose monetary policy. In Indonesia the Fund's sole holding, Astra
International, performed extremely well (+146%) as the palm oil price recovered
and sentiment rose on the back of a relatively benign run up to the election,
while rate cuts suggested domestic demand could recover more quickly.
Although the Fund remains as fully invested as possible, the small cash position
proved a drag on performance (-86 basis points ); the cost of not being invested
in a rising market.
PERFORMANCE ANALYSIS - FIXED-INCOME
For the six-months ended June 30, 2009, the emerging fixed-income component of
the Fund returned 30.50%, compared to the return of 12.31% for the fixed-income
component(4) of the blended benchmark. During the reporting period, the JP
Morgan Emerging Markets Bond Index-Global Diversified spread tightened 311 basis
points to close the half year at 437 basis points over U.S. treasuries. Russian
sovereign and corporates, Argentina, Venezuela and Ukraine USD sovereign bonds
were the main outperformers, after their notable underperformance in 2008. Less
liquid sovereign credits such as the Dominican Republic, El Salvador, Gabon,
Georgia and Ghana also added to performance, rebounding from their oversold
levels of 2008. Local currency added to performance, with Uruguay, Hungary and
short-dated Russian and Brazilian corporates the notable contributors.
Underweight positions in Thailand and Malaysia were positive contributors to
performance.
Argentine bonds rebounded from a rough 2008, as the market took a favorable view
on the financing outlook following several liability management exercises that
extended the maturity profile of government debt. Argentine bonds extended their
gains after the mid-term elections in late June, as the Kirchner government
lost its majority support in both houses of Congress. The result will likely
have far reaching implications ahead of the 2011 Presidential election, as it
confirmed the weak leadership position of the Kirchner government and signalled
strong support for the more moderate wing of the Peronist party. In the coming
months we would expect the Kirchner government to turn its focus to issues that
had been on the back burner, such as resolving past due Paris Club debt and
reopening the 2005 debt exchange, which would be positive for valuations on
untendered debt. We believe this will provide technical support for the entire
Argentinean debt complex.
Ukraine has been among the strongest performers in emerging market debt in 2009,
bouncing back from a sharp decline in 2008. Ukraine has benefited from renewed
support from the IMF after the $16.5 billion (USD) aid program was put on hold
in early 2009. Ukraine's adherence to the prescribed policy measures was
rewarded when the IMF increased the size of its disbursements, and allowed
Ukraine to use the financing for budget purposes. Furthermore, the IMF agreed
to increase the limit on the budget deficit to 4% of GDP. Easing political risk
also contributed to gains on Ukrainian Eurobonds, after the Constitutional Court
rejected parliament's decision to move up the Presidential elections from
January 2010 to October 2009.
Corporate bonds finally caught a bid in the second quarter, as risk appetite
turned. The performance of corporates was underpinned by easing corporate
access to credit, especially in trade finance, and an improving ability to
refinance and rollover working capital. Quasi-sovereign to sovereign spreads
also tightened significantly during this half year.
----------
(4) The benchmark for the fixed-income portion of the Fund consists of the
following: 50% JPMorgan Emerging Markets Bond Index-Global Diversified
(JPM EMBI Global) and 50% JPMorgan Government Bond Index-Emerging Markets
(JPM GBI-EM).
Page 6
PORTFOLIO COMMENTARY - (CONTINUED)
MARKET AND FUND OUTLOOK - EQUITY
Emerging markets have risen sharply from their March lows. The rally so far has
been driven by strong liquidity flows, loose monetary policy,
better-than-expected first quarter 2009 results and optimism that a global
economic recovery is just around the corner, which emboldened investors to
increase risk appetite and funnel excess cash into financial assets. However, it
looks increasingly like markets have run ahead of both economic fundamentals and
earnings. Economic conditions remain weak and there has yet to be a pickup in
consumer demand. A pullback or period of consolidation would be considered
healthy and overdue for markets. Nevertheless, we remain upbeat over the
long-term prospects for emerging markets, underpinned by solid fundamentals.
MARKET AND FUND OUTLOOK - FIXED-INCOME
Looking ahead, the global growth outlook is likely to remain the key driver for
emerging market assets in the second half of 2009. Further upside growth
surprises may add fuel to the "green shoots" (signs of economic recovery) story,
and provide support for emerging market assets. Conversely, negative growth
surprises may prompt the market to take profits on one of the best-performing
asset classes in 2009. While there is potentially scope for some moderate spread
widening after the strong rally in the first half of 2009, we see little
prospect for a return to the distress of last year, and consider the likelihood
of medium-term spread tightening to remain in place.
Page 7
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
PORTFOLIO OF INVESTMENTS (a)
JUNE 30, 2009 (UNAUDITED)
PRINCIPAL
VALUE
(LOCAL STATED VALUE
CURRENCY) DESCRIPTION COUPON MATURITY (US DOLLARS)
------------- ------------------------------------------------------------- ------ -------- ------------
BONDS AND NOTES (b) - 64.0%
ARGENTINA - 3.3%
3,950,000 Republic of Argentina (USD) ................................. 7.00% 03/28/11 $ 2,757,795
520,000 Republic of Argentina (USD) ................................. 7.00% 04/17/17 297,391
175,444 Republic of Argentina (USD) ................................. 8.28% 12/31/33 92,547
------------
3,147,733
------------
BRAZIL - 5.5%
510,000 Banco Nacional de Desenvolvimento Economico e Social (USD) .. 6.50% 06/10/19 511,402
2,640,000 Brazil NTN - B Note (BRL) ................................... 6.00% 08/15/10 2,520,997
628,000 Dasa Finance Corp. (USD) .................................... 8.75% 05/29/18 620,966
240,000 Isa Capital do Brasil S.A. (USD) ............................ 7.88% 01/30/12 247,800
570,000 Odebrecht Finance Ltd. (USD) ................................ 9.63% 04/09/14 631,275
570,000 Telemar Norte Leste S.A. (USD) .............................. 9.50% 04/23/19 630,706
------------
5,163,146
------------
CHINA - 0.6%
580,000 Parkson Retail Group Ltd. (USD) ............................. 7.88% 11/14/11 586,818
------------
COLOMBIA - 2.3%
300,000 EEB International Ltd. (USD) ................................ 8.75% 10/31/14 311,250
2,480,000,000 Republic of Colombia (COP) .................................. 12.00% 10/22/15 1,328,813
460,000 Republic of Columbia (USD) .................................. 7.38% 03/18/19 493,350
------------
2,133,413
------------
DOMINICAN REPUBLIC - 2.2%
820,000 Cerveceria Nacional Dominica (USD) (c) ...................... 16.00% 03/27/12 697,000
452,492 Dominican Republic (USD) .................................... 9.04% 01/23/18 395,931
1,310,000 Dominican Republic (USD) .................................... 8.63% 04/20/27 962,850
------------
2,055,781
------------
EL SALVADOR - 1.5%
1,730,000 Republic of El Salvador (USD) ............................... 7.65% 06/15/35 1,461,850
------------
GABON - 1.4%
1,480,000 Gabonese Republic (USD) ..................................... 8.20% 12/12/17 1,324,600
------------
GEORGIA - 1.1%
1,260,000 Republic of Georgia (USD) ................................... 7.50% 04/15/13 1,078,812
------------
GHANA - 0.9%
90,000 Republic of Ghana (USD) ..................................... 8.50% 10/04/17 72,450
920,000 Republic of Ghana (USD) ..................................... 8.50% 10/04/27 740,600
------------
813,050
------------
HUNGARY - 2.1%
143,000,000 Hungary Government Bond (HUF) ............................... 6.00% 10/24/12 663,057
162,000,000 Hungary Government Bond (HUF) ............................... 5.50% 02/12/16 666,204
154,530,000 Hungary Government Bond (HUF) ............................... 7.50% 11/12/20 676,737
------------
2,005,998
------------
See Notes to Financial Statements
Page 8
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
JUNE 30, 2009 (UNAUDITED)
PRINCIPAL
VALUE
(LOCAL STATED VALUE
CURRENCY) DESCRIPTION COUPON MATURITY (US DOLLARS)
------------- ------------------------------------------------------------- ------ -------- ------------
BONDS AND NOTES (b) - (CONTINUED)
INDONESIA - 6.2%
1,130,000 Indonesian Government Bond (IDR) ............................ 6.75% 03/10/14 $ 1,129,254
5,730,000,000 Indonesian Government Bond (IDR) ............................ 10.75% 05/15/16 576,505
1,850,000,000 Indonesian Recapitalization Bond (IDR) ...................... 13.40% 02/15/11 195,009
4,350,000,000 Indonesian Recapitalization Bond (IDR) ...................... 13.45% 08/15/11 463,555
700,000 Majapahit Holding B.V. (USD) ................................ 7.75% 10/17/16 620,225
150,000 Majapahit Holding B.V. (USD) ................................ 7.25% 06/28/17 127,983
620,000 MGTI Finance Company, Ltd. (USD) ............................ 8.38% 09/15/10 600,782
1,890,000 Republic of Indonesia (USD) ................................. 10.38% 05/04/14 2,157,146
------------
5,870,459
------------
IRAQ - 0.4%
550,000 Republic of Iraq (USD) ...................................... 5.80% 01/15/28 361,625
------------
KAZAKHSTAN - 2.4%
1,000,000 Halyk Savings Bank of Kazakhstan (USD) ...................... 8.13% 10/07/09 980,100
740,000 Kazakhstan Temir Zholy National Co. JSC (USD) ............... 6.50% 05/11/11 688,200
620,000 KazMunaiGaz Finance Sub B.V. (USD) .......................... 8.38% 07/02/13 580,308
------------
2,248,608
------------
MEXICO - 3.6%
770,000 Desarrolladora Homex S.A. (USD) ............................. 7.50% 09/28/15 666,050
8,200,000 Mexican Bonos Desarr Fixed Rate Bond (MXN) .................. 7.25% 12/15/16 599,514
12,340,000 Mexican Bonos Desarr Fixed Rate Bond (MXN) .................. 10.00% 11/20/36 1,036,998
600,000 Mexican Republic (USD) ...................................... 8.30% 08/15/31 706,890
460,000 Pemex Project Funding Master Trust (USD) .................... 5.75% 03/01/18 425,500
------------
3,434,952
------------
NIGERIA - 1.7%
790,000 GTB Finance B.V. (USD) ...................................... 8.50% 01/29/12 649,487
174,000,000 KfW International Finance (NGN) ............................. 8.50% 01/18/11 993,844
------------
1,643,331
------------
PAKISTAN - 0.8%
550,000 Islamic Republic of Pakistan (USD) .......................... 6.88% 06/01/17 360,250
710,000 Islamic Republic of Pakistan (USD) .......................... 7.88% 03/31/36 369,610
------------
729,860
------------
PANAMA - 1.0%
800,000 Republic of Panama (USD) .................................... 8.88% 09/30/27 977,000
------------
PHILIPPINES - 3.7%
100,000 Republic of Philippines (USD) ............................... 8.00% 01/15/16 110,790
330,000 Republic of Philippines (USD) ............................... 9.38% 01/18/17 388,390
520,000 Republic of Philippines (USD) ............................... 8.38% 06/17/19 600,600
620,000 Republic of Philippines (USD) ............................... 10.63% 03/16/25 815,667
1,260,000 Republic of Philippines (USD) ............................... 9.50% 02/02/30 1,550,304
------------
3,465,751
------------
See Notes to Financial Statements
Page 9
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
JUNE 30, 2009 (UNAUDITED)
PRINCIPAL
VALUE
(LOCAL STATED VALUE
CURRENCY) DESCRIPTION COUPON MATURITY (US DOLLARS)
------------- ------------------------------------------------------------- ------ -------- ------------
BONDS AND NOTES (b) - (CONTINUED)
RUSSIA - 7.1%
17,000,000 GPB Eurobond Finance PLC (RUB) .............................. 7.25% 02/22/10 $ 521,178
720,000 Mobile Telesystems Finance (USD) ............................ 8.38% 10/14/10 734,400
27,928,108 Red Arrow International Leasing PLC (RUB) ................... 8.38% 06/30/12 815,380
1,050,000 RSHB Capital S.A. (USD) ..................................... 7.18% 05/16/13 1,015,875
1,725,000 RSHB Capital S.A. (USD) ..................................... 7.75% 05/29/18 1,595,625
560,000 UBS Luxembourg S.A. (USD) ................................... 8.00% 02/11/10 566,266
780,000 UBS Luxembourg S.A. (USD) (c) ............................... 6.23% 02/11/15 760,500
750,000 VTB Capital S.A. (USD) ...................................... 6.88% 05/29/18 690,000
------------
6,699,224
------------
SERBIA - 0.8%
840,000 Republic of Serbia (USD) (d) ................................ 3.75% 11/01/24 745,500
------------
SOUTH AFRICA - 1.8%
1,010,000 Republic of South Africa (USD) .............................. 7.38% 04/25/12 1,084,690
540,000 Republic of South Africa (USD) .............................. 6.50% 06/02/14 567,375
------------
1,652,065
------------
SOUTH KOREA - 1.0%
910,000 Industrial Bank of Korea (USD) .............................. 7.13% 04/23/14 927,699
------------
TURKEY - 1.8%
980,000 Republic of Turkey (USD) .................................... 9.50% 01/15/14 1,110,771
320,000 Turkey Government Bond (TRY) ................................ 16.00% 03/07/12 223,884
460,000 Turkey Government Bond, Inflation Adjusted Bond (TRY) (e) ... 10.00% 02/15/12 371,168
------------
1,705,823
------------
UKRAINE - 2.8%
1,070,000 EX-IM Bank of Ukraine (USD) ................................. 7.65% 09/07/11 861,350
500,000 UBS AG Jersey Branch, Credit Linked Note (USD) .............. 9.13% 06/21/10 171,600
830,000 Ukraine Government Bond (USD) ............................... 6.88% 03/04/11 726,250
990,000 Ukraine Government Bond (USD) ............................... 6.39% 06/26/12 787,050
130,000 Ukraine Government Bond (USD) ............................... 6.58% 11/21/16 92,300
------------
2,638,550
------------
URUGUAY - 2.9%
570,000 Republic of Uraguay, (USD). ................................. 7.88% 01/15/33 566,152
1,010,000 Republic Orient Uruguay (USD) ............................... 7.63% 03/21/36 987,780
21,000,000 Republic Orient Uruguay, Inflation Adjusted Bond (UYU) (e) .. 5.00% 09/14/18 1,006,521
4,740,000 Republic Orient Uruguay, Inflation Adjusted Bond (UYU) (e) .. 4.25% 04/05/27 195,200
------------
2,755,653
------------
See Notes to Financial Statements
Page 10
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
JUNE 30, 2009 (UNAUDITED)
PRINCIPAL
VALUE
(LOCAL STATED VALUE
CURRENCY) DESCRIPTION COUPON MATURITY (US DOLLARS)
------------- ------------------------------------------------------------- ------ -------- ------------
BONDS AND NOTES (b) - (CONTINUED)
VENEZUELA - 5.1%
1,700,000 Bolivarian Republic of Venezuela (USD) (c) .................. 2.10% 04/20/11 $ 1,396,975
2,360,000 Petroleos de Venezuela S.A. (USD) ........................... 5.25% 04/12/17 1,121,000
1,045,000 Republic of Venezuela (USD) ................................. 8.50% 10/08/14 747,175
2,680,000 Republic of Venezuela (USD) ................................. 5.75% 02/26/16 1,547,700
------------
4,812,850
------------
TOTAL BONDS AND NOTES ........................................................... 60,440,151
(Cost $62,277,652) ------------
SHARES DESCRIPTION VALUE
------------- --------------------------------------------------------------------------------- ------------
COMMON STOCKS - 42.1%
ARGENTINA - 0.9%
31,000 Tenaris S.A., ADR ............................................................... $ 838,240
------------
BRAZIL - 7.6%
78,450 Banco Bradesco S.A., ADR ........................................................ 1,158,706
72,000 Lojas Renner S.A. ............................................................... 797,346
39,000 Petroleo Brasileiro S.A., ADR ................................................... 1,301,040
32,000 Souza Cruz S.A. ................................................................. 916,642
28,000 Telecomunicacoes de Sao Paulo S.A. .............................................. 585,721
34,000 Ultrapar Participacoes S.A., Preference Shares .................................. 1,071,447
86,000 Vale S.A., Preference Shares, ADR ............................................... 1,320,100
------------
7,151,002
------------
CHILE - 1.1%
23,000 Banco Santander Chile S.A., ADR ................................................. 1,073,870
------------
CHINA - 4.8%
90,000 China Mobile Ltd. ............................................................... 901,152
350,000 Dah Sing Banking Group Ltd. ..................................................... 345,932
200,000 Hang Lung Group Ltd. ............................................................ 941,926
920,000 PetroChina Company Ltd., H Shares ............................................... 1,020,893
700,000 Swire Pacific Ltd., B Shares .................................................... 1,340,374
------------
4,550,277
------------
CZECH REPUBLIC - 0.4%
3,000 Komercni Banka AS ............................................................... 415,090
------------
HUNGARY - 1.0%
5,300 Richter Gedeon, GDR ............................................................. 949,462
------------
INDIA - 3.9%
12,000 Bharti Airtel Ltd. .............................................................. 200,935
20,000 GlaxoSmithKline Pharmaceuticals Ltd. ............................................ 500,866
13,000 Grasim Industries Ltd. .......................................................... 627,246
29,000 Hero Honda Motors Ltd. .......................................................... 846,058
45,729 Hindustan Unilever Ltd. ......................................................... 255,349
11,500 Housing Development Finance Corp. Ltd. .......................................... 562,877
See Notes to Financial Statements
Page 11
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
JUNE 30, 2009 (UNAUDITED)
SHARES DESCRIPTION VALUE
------------- --------------------------------------------------------------------------------- ------------
COMMON STOCKS - (CONTINUED)
INDIA - (CONTINUED)
20,000 ICICI Bank Ltd. ................................................................. $ 301,513
10,000 Infosys Technologies Ltd. ....................................................... 370,838
------------
3,665,682
------------
INDONESIA - 1.2%
510,000 PT Astra International Tbk ...................................................... 1,189,126
------------
MALAYSIA - 1.9%
80,300 British American Tobacco Malaysia Berhad ........................................ 1,022,312
289,000 Public Bank Berhad .............................................................. 739,972
------------
1,762,284
------------
MEXICO - 4.4%
36,900 Fomento Economico Mexicano, S.A.B. de C.V., ADR ................................. 1,189,656
40,000 Grupo Aeroportuario del Centro Norte, S.A.B. de C.V., ADR ....................... 412,000
361,000 Grupo Continental, S.A.B. ....................................................... 629,161
381,939 Grupo Financiero Banorte, S.A.B. de C.V., O Shares .............................. 925,245
256,000 Kimberly-Clark de Mexico, S.A.B. de C.V., A Shares .............................. 976,895
------------
4,132,957
------------
PHILIPPINES - 1.1%
1,164,000 Bank of the Philippine Islands .................................................. 1,015,855
------------
QATAR - 0.5%
28,000 Qatar Insurance Company ......................................................... 450,769
------------
RUSSIA - 0.7%
14,500 LUKOIL, ADR ..................................................................... 648,150
------------
SOUTH AFRICA - 2.1%
130,000 Massmart Holdings Ltd. .......................................................... 1,348,679
142,729 Truworths International Ltd. .................................................... 684,840
------------
2,033,519
------------
SOUTH KOREA - 2.3%
47,008 Pusan Bank ...................................................................... 322,870
4,900 Samsung Electronics Company Ltd., Preference Shares ............................. 1,500,059
850 Shinsegae Company, Ltd. ......................................................... 336,944
------------
2,159,873
------------
TAIWAN - 2.6%
800,450 Taiwan Mobile Company, Ltd. ..................................................... 1,366,205
640,750 Taiwan Semiconductor Manufacturing Company, Ltd. ................................ 1,068,242
------------
2,434,447
------------
THAILAND - 2.4%
250,000 PTT Exploration and Production Public Company, Ltd. ............................. 979,601
275,000 Siam Cement Public (The) Company, Ltd. .......................................... 1,299,530
------------
2,279,131
------------
See Notes to Financial Statements
Page 12
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
JUNE 30, 2009 (UNAUDITED)
SHARES DESCRIPTION VALUE
------------- --------------------------------------------------------------------------------- ------------
COMMON STOCKS - (CONTINUED)
TURKEY - 2.2%
344,000 Aksigorta AS .................................................................... $ 901,973
22,610 Bim Birlesik Magazalar AS ....................................................... 792,407
156,000 Cimsa Cimento Sanayi ve Ticaret AS .............................................. 409,034
------------
2,103,414
------------
UNITED KINGDOM - 1.0%
50,696 Standard Chartered PLC .......................................................... 950,816
------------
TOTAL COMMON STOCKS ............................................................. 39,803,964
(Cost $39,652,334) ------------
TOTAL INVESTMENTS - 106.1% ...................................................... 100,244,115
(Cost $101,929,986) (f)
OUTSTANDING LOAN - (9.0)% ....................................................... (8,500,000)
NET OTHER ASSETS AND LIABILITIES - 2.9% ......................................... 2,695,565
------------
NET ASSETS - 100.0% ............................................................. $ 94,439,680
============
----------
(a) All percentages shown in the Portfolio of Investments are based on net
assets.
(b) Fixed-income portfolio securities are included in a country based upon
their underlying credit exposure as determined by Aberdeen Asset Management
Inc., the investment sub-advisor.
(c) Variable rate security. The interest rate shown reflects the rate in effect
at June 30, 2009.
(d) Step-up security. A security where the coupon increases or steps up at a
predetermined date. Interest rate shown reflects the rate in effect at June
30, 2009.
(e) Security whose principal value is adjusted in accordance with changes to
the country's Consumer Price Index. Interest is calculated on the basis of
the current adjusted principal value.
(f) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of June 30, 2009, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $8,487,828 and the aggregate gross
unrealized depreciation for all securities in which there was an excess of
tax cost over value was $10,173,699.
ADR American Depositary Receipt
GDR Global Depositary Receipt
Currency
BRL Brazilian Real
COP Colombian Peso
EUR Euro Dollar
HUF Hungarian Forint
IDR Indonesian Rupiah
MXN Mexican Peso
NGN Nigerian Naira
RUB Russian Ruble
TRY Turkish Lira
USD United States Dollar
UYU Uruguayan Peso
See Notes to Financial Statements
Page 13
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
JUNE 30, 2009 (UNAUDITED)
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of June 30, 2009
is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
ASSETS TABLE
LEVEL 2 LEVEL 3
TOTAL MARKET LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
6/30/2009 PRICE INPUTS INPUTS
------------ ----------- ----------- ------------
Bonds and Notes ..................... $ 60,440,151 $ -- $60,440,151 $--
Common Stocks ....................... 39,803,964 39,803,964 -- --
------------ ----------- ----------- ---
Total Investments* .................. 100,244,115 39,803,964 60,440,151 --
------------ ----------- ----------- ---
Other Financial Instruments:
Forward Foreign Currency Contracts .. 77,053 77,053 -- --
------------ ----------- ----------- ---
Total ............................... $100,321,168 $39,881,017 $60,440,151 $--
============ =========== =========== ===
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL MARKET LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
6/30/2009 PRICE INPUTS INPUTS
------------ ----------- ----------- ------------
Forward Foreign Currency Contracts .. $(438,447) $(438,447) $-- $--
========= ========= === ===
* See the Portfolio of Investments for country breakout.
See Notes to Financial Statements
Page 14
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS
JUNE 30, 2009 (UNAUDITED)
FORWARD FOREIGN CURRENCY CONTRACTS TO BUY
CONTRACTS TO RECEIVE
--------------------------------------------- NET NET
LOCAL UNREALIZED UNREALIZED
CURRENCY IN APPRECIATION DEPRECIATION
SETTLEMENT LOCAL VALUE IN EXCHANGE OF CONTRACTS OF CONTRACTS
DATE CURRENCY (a) U.S. $ FOR U.S. $ U.S. $ U.S. $
---------- ----------------- ---------- ---------- ------------ ------------
08/27/09 BRL 1,479,000 $ 745,946 $ 743,777 $ 2,169 $--
07/17/09 EUR 876,000 1,228,913 1,173,647 55,266 --
08/27/09 IDR 6,244,355,000 603,728 590,204 13,524 --
07/17/09 MXN 11,728,000 888,276 884,984 3,292 --
07/17/09 TRY 1,173,000 757,906 755,104 2,802 --
------- ---
$77,053 $--
------- ---
FORWARD FOREIGN CURRENCY CONTRACTS TO SELL
CONTRACTS TO DELIVER
--------------------------------------------- NET NET
LOCAL UNREALIZED UNREALIZED
CURRENCY IN APPRECIATION DEPRECIATION
SETTLEMENT LOCAL VALUE IN EXCHANGE OF CONTRACTS OF CONTRACTS
DATE CURRENCY (a) U.S. $ FOR U.S. $ U.S. $ U.S. $
---------- ----------------- ---------- ---------- ------------ ------------
08/27/09 BRL 4,217,000 $2,126,879 $1,995,268 $ -- $(131,611)
08/27/09 COP 2,645,434,000 1,222,278 1,173,141 -- (49,137)
07/17/09 EUR 876,000 1,228,913 1,134,122 -- (94,791)
07/17/09 HUF 135,030,000 693,242 667,858 -- (25,384)
08/27/09 IDR 6,244,355,000 603,728 581,141 -- (22,587)
07/17/09 MXN 11,728,000 888,276 862,797 -- (25,479)
07/17/09 TRY 1,608,000 1,038,971 949,513 -- (89,458)
------- ---------
$ -- $(438,447)
------- ---------
Unrealized Appreciation (Depreciation) ................... $77,053 $(438,447)
======= =========
Net Unrealized Appreciation (Depreciation) ............... $(361,394)
=========
(a) Please see page 13 for currency descriptions.
See Notes to Financial Statements
Page 15
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2009 (UNAUDITED)
ASSETS:
Investments, at value
(Cost $101,929,986) .............................................................................. $100,244,115
Cash ................................................................................................ 385,208
Foreign currency (Cost $2,661) ...................................................................... 2,833
Unrealized appreciation on forward foreign currency contracts ....................................... 77,053
Prepaid expenses .................................................................................... 59,595
Receivables:
Investment securities sold ....................................................................... 1,505,595
Interest ......................................................................................... 1,452,406
Dividends ........................................................................................ 127,243
------------
Total Assets .................................................................................. 103,854,048
------------
LIABILITIES:
Outstanding loan .................................................................................... 8,500,000
Unrealized depreciation on forward foreign currency contracts ....................................... 438,447
Payables:
Investment securities purchased .................................................................. 126,754
Common Shares repurchased ........................................................................ 116,344
Investment advisory fees ......................................................................... 85,344
Custodian fees ................................................................................... 42,626
Audit and tax fees ............................................................................... 28,698
Foreign capital gains tax ........................................................................ 22,763
Printing fees .................................................................................... 15,977
Legal fees ....................................................................................... 11,932
Administrative fees .............................................................................. 8,333
Transfer agent fees .............................................................................. 3,257
Interest and fees on loan ........................................................................ 1,902
Trustees' fees and expenses ...................................................................... 17
Accrued expenses and other liabilities .............................................................. 11,974
------------
Total Liabilities ............................................................................. 9,414,368
------------
NET ASSETS .......................................................................................... $ 94,439,680
============
NET ASSETS CONSIST OF:
Paid-in capital ..................................................................................... $108,068,242
Par value ........................................................................................... 57,207
Accumulated net investment income (loss) ............................................................ (1,875,674)
Accumulated net realized gain (loss) on investments sold, forward foreign currency contracts and
foreign currency transactions .................................................................... (9,789,596)
Net unrealized appreciation (depreciation) on investments, forward foreign currency contracts and
foreign currency translation ..................................................................... (2,020,499)
------------
NET ASSETS .......................................................................................... $ 94,439,680
============
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share) ................................ $ 16.51
============
Number of Common Shares outstanding (unlimited number of Common Shares has been authorized) ......... 5,720,725
============
See Notes to Financial Statements
Page 16
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2009 (UNAUDITED)
INVESTMENT INCOME:
Interest (net of foreign withholding tax of $4,459) ............................ $ 3,152,627
Dividends (net of foreign withholding tax of $75,849) .......................... 683,349
-----------
Total investment income ..................................................... 3,835,976
-----------
EXPENSES:
Investment advisory fees ....................................................... 456,797
Interest and fees on loan ...................................................... 150,336
Custodian fees ................................................................. 80,564
Administrative fees ............................................................ 49,999
Legal fees ..................................................................... 48,449
Printing fees .................................................................. 40,058
Audit and tax fees ............................................................. 24,834
Trustees' fees and expenses .................................................... 19,475
Transfer agent fees ............................................................ 16,172
Other .......................................................................... 44,863
-----------
Total expenses .............................................................. 931,547
-----------
NET INVESTMENT INCOME (LOSS) ................................................... 2,904,429
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments ................................................................. (5,482,767)
Forward foreign currency contracts .......................................... (458,534)
Foreign currency transactions ............................................... (646,135)
-----------
Net realized gain (loss) ....................................................... (6,587,436)
-----------
Net change in unrealized appreciation (depreciation) on:
Investments (a) ............................................................. 28,750,422
Forward foreign currency contracts .......................................... (174,762)
Foreign currency translation ................................................ 58,002
-----------
Net change in unrealized appreciation (depreciation) ........................... 28,633,662
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ........................................ 22,046,226
-----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ................ $24,950,655
===========
----------
(a) Change in unrealized appreciation (depreciation) on investments is net of
decrease in deferred foreign capital gains tax of $22,763.
See Notes to Financial Statements
Page 17
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR
6/30/2009 ENDED
(UNAUDITED) 12/31/2008
-------------- -------------
OPERATIONS:
Net investment income (loss) .................................... $ 2,904,429 $ 6,367,854
Net realized gain (loss)......................................... (6,587,436) (3,040,576)
Net change in unrealized appreciation (depreciation)............. 28,633,662 (46,393,364)
------------ ------------
Net increase (decrease) in net assets resulting from operations.. 24,950,655 (43,066,086)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income. .......................................... (4,274,956) (6,396,916)
Net realized gain ............................................... -- (573,086)
Return of capital ............................................... -- (2,227,912)
------------ ------------
Total distributions to shareholders ............................. (4,274,956) (9,197,914)
------------ ------------
CAPITAL TRANSACTIONS:
Repurchase of Common Shares ..................................... (1,600,863) (483,289)
------------ ------------
Total increase (decrease) in net assets. ........................ 19,074,836 (52,747,289)
NET ASSETS:
Beginning of period ............................................. 75,364,844 128,112,133
------------ ------------
End of period ................................................... $ 94,439,680 $ 75,364,844
============ ============
Accumulated net investment income (loss) at end of period ....... $ (1,875,674) $ (505,147)
============ ============
CAPITAL TRANSACTIONS WERE AS FOLLOWS:
Common Shares at beginning of period ............................ 5,855,188 5,905,236
Common Shares repurchased* ...................................... (134,463) (50,048)
------------ ------------
Common Shares at end of period. ................................. 5,720,725 5,855,188
============ ============
* On November 17, 2008, the Fund commenced a share repurchase program for
purposes of enhancing shareholder value and reducing the discount at which
the Fund's shares trade from their net asset value. The program originally
expired on May 17, 2009 but on June 2, 2009, the Fund announced that the
Board of Trustees of the Fund authorized the continuation of the Fund's
share repurchase program. For the six months ended June 30, 2009 and the
year ended December 31, 2008, the Fund repurchased 134,463 and 50,048,
respectively, of its shares at a weighted average discount of 17.05% and
22.65%, respectively, from net asset value per share. The Fund expects to
continue to repurchase its outstanding shares as it believes such activity
will further the accomplishment of the foregoing objectives, subject to
the earlier of (i) the repurchase of up to 691,412 of the Fund's
outstanding common shares, or (ii) December 2, 2009.
See Notes to Financial Statements
Page 18
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2009 (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) in net assets resulting from operations ............. $ 24,950,655
Adjustments to reconcile net increase (decrease) in net assets resulting from
operations to net cash provided by operating activities:
Purchases of investments ................................................. (23,532,058)
Sales and maturities of investments ...................................... 34,120,222
Net amortization/accretion of premium/discount on investments ............ (382,455)
Net realized gain/loss on investments .................................... 5,482,767
Net change in unrealized appreciation/depreciation on investments ........ (28,750,422)
CHANGES IN ASSETS AND LIABILITIES:
Decrease in net unrealized appreciation/ depreciation on forward
foreign currency contracts ............................................... 174,762
Increase in dividends receivable ......................................... (78,395)
Decrease in interest receivable .......................................... 32,297
Decrease in prepaid expenses ............................................. 31,108
Increase in receivable for investment securities sold .................... (1,341,450)
Increase in payable for investment securities purchased .................. 126,754
Decrease in interest and fees on loans payable ........................... (10,818)
Increase in investment advisory fees payable ............................. 10,260
Decrease in audit and tax fees payable ................................... (23,302)
Increase in legal fees payable ........................................... 9,616
Increase in printing fees payable ........................................ 115
Increase in transfer agent fees payable .................................. 673
Increase in custodian fees payable ....................................... 8,828
Decrease in Trustees' fees and expenses payable .......................... (58)
Increase in accrued expenses and other liabilities ....................... 10,374
------------
CASH PROVIDED BY OPERATING ACTIVITIES ....................................... $ 10,839,473
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of Common Shares ............................................... (1,513,924)
Distributions to Common Shareholders ...................................... (4,274,956)
Repayments of loan ........................................................ (5,000,000)
------------
CASH USED IN FINANCING ACTIVITIES ........................................... (10,788,880)
------------
Increase in cash and foreign currency (a) ................................... 50,593
Cash and foreign currency at beginning of period ............................ 337,448
------------
CASH AND FOREIGN CURRENCY AT END OF PERIOD .................................. $ 388,041
============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest and fees ........................... $ 161,154
============
----------
(a) Includes net change in unrealized appreciation/depreciation on foreign
currency of $847.
See Notes to Financial Statements
Page 19
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
FINANCIAL HIGHLIGHTS
FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX MONTHS
ENDED YEAR YEAR PERIOD
6/30/2009 ENDED ENDED ENDED
(UNAUDITED) 12/31/2008 12/31/2007 12/31/2006 (a)
----------- ---------- ---------- --------------
Net asset value, beginning of period ..................... $ 12.87 $ 21.69 $ 20.58 $ 19.10 (b)
------- ------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) ............................. 0.50 (c) 1.09 (c) 0.92 0.29
Net realized and unrealized gain (loss) .................. 3.82 (8.37) 2.00 1.58
------- ------- -------- --------
Total from investment operations ......................... 4.32 (7.28) 2.92 1.87
------- ------- -------- --------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income .................................... (0.74) (1.08) (0.79) (0.31)
Net realized gain ........................................ -- (0.10) (1.02) --
Return of capital ........................................ -- (0.38) -- (0.04)
------- ------- -------- --------
Total distributions ...................................... (0.74) (1.56) (1.81) (0.35)
------- ------- -------- --------
Common Shares offering costs charged to paid-in capital .. -- -- -- (0.04)
------- ------- -------- --------
Capital share repurchases ................................ 0.06 0.02 -- --
------- ------- -------- --------
Net asset value, end of period ........................... $ 16.51 $ 12.87 $ 21.69 $ 20.58
======= ======= ======== ========
Market value, end of period .............................. $ 14.45 $ 10.25 $ 19.50 $ 19.03
======= ======= ======== ========
TOTAL RETURN BASED ON NET ASSET VALUE (d) (e) ............ 36.07% (33.94)% 15.74% 9.74%
======= ======= ======== ========
TOTAL RETURN BASED ON MARKET VALUE (e) (f) ............... 49.53% (41.48)% 12.53% (3.10)%
======= ======= ======== ========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ..................... $94,440 $75,365 $128,112 $121,519
Ratio of total expenses to average net assets ............ 2.29% (g) 2.00% 2.04% 2.16% (g)
Ratio of total expenses to average net assets excluding
interest expense ...................................... 1.92% (g) 1.60% 1.58% 2.05% (g)
Ratio of net investment income to average net assets ..... 7.15% (g) 5.73% 4.31% 4.27% (g)
Portfolio turnover rate .................................. 26% 64% 95% 40%
INDEBTEDNESS:
Loan outstanding (in 000's) .............................. $ 8,500 $13,500 $ 8,000 $ 7,000
Asset coverage per $1,000 of indebtedness (h) ............ $12,111 $ 6,583 $ 17,014 $ 18,360
----------
(a) Initial seed date of July 14, 2006. The Fund commenced operations on August
28, 2006.
(b) Net of sales load of $0.90 per Common Share on initial offering.
(c) Based on average shares outstanding.
(d) Total return based on net asset value is the combination of reinvested
dividend distributions and reinvested capital gains distributions, if any,
at prices obtained by the Dividend Reinvestment Plan, and changes in net
asset value per share and does not reflect sales load.
(e) Total return is not annualized for periods less than one year.
(f) Total return based on market value is the combination of reinvested
dividend distributions and reinvested capital gains distributions, if any,
at prices obtained by the Dividend Reinvestment Plan, and changes in Common
Share price.
(g) Annualized.
(h) Calculated by subtracting the Fund's total assets less the Fund's total
liabilities (not including the loan outstanding), and dividing by the
outstanding loan balance in 000's.
See Notes to Financial Statements
Page 20
NOTES TO FINANCIAL STATEMENTS
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
JUNE 30, 2009 (UNAUDITED)
1. FUND DESCRIPTION
First Trust/Aberdeen Emerging Opportunity Fund (the "Fund") is a diversified,
closed-end management investment company organized as a Massachusetts business
trust on May 16, 2006 and is registered with the Securities and Exchange
Commission ("SEC") under the Investment Company Act of 1940, as amended (the
"1940 Act"). The Fund trades under the ticker symbol FEO on the New York Stock
Exchange ("NYSE").
The Fund's investment objective is to seek a high level of total return. The
Fund pursues its objective by investing at least 80% of its Managed Assets in a
diversified portfolio of equity and fixed-income securities of issuers in
emerging market countries. "Managed Assets" means the average daily gross asset
value of the Fund (including assets attributable to the Fund's Preferred Shares,
if any, and the principal amount of any borrowings) minus the sum of the Fund's
accrued and unpaid dividends on any outstanding Preferred Shares and accrued
liabilities (other than the principal amount of any borrowings incurred or
commercial paper or notes issued by the Fund). There can be no assurance that
the Fund's investment objective will be achieved.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
A. PORTFOLIO VALUATION:
The net asset value ("NAV") of the Fund's Common Shares is determined daily as
of the close of regular trading on the NYSE, normally 4:00 p.m. Eastern time, on
each day the NYSE is open for trading. Domestic debt securities and foreign
securities are priced using data reflecting the earlier closing of the principal
markets for those securities. The NAV per Common Share is calculated by dividing
the value of all assets of the Fund (including accrued dividends and interest),
less all liabilities (including accrued expenses, dividends declared but unpaid
and any borrowings of the Fund), by the total number of Common Shares
outstanding.
The Fund's investments are valued daily at market value or, in the absence of
market value with respect to any portfolio securities, at fair value according
to procedures adopted by the Fund's Board of Trustees. A majority of the Fund's
assets are valued using market information supplied by third parties. In
addition, structured products, including currency linked notes and credit linked
notes, as well as interest rate swaps and credit default swaps, are valued using
a pricing service or quotes provided by the selling dealer or financial
institution. In the event that market quotations are not readily available, the
pricing service does not provide a valuation for a particular asset, or the
valuations are deemed unreliable, the Fund's Board of Trustees has designated
First Trust Advisors L.P. ("First Trust") to use a fair value method to value
the Fund's securities and other investments. Additionally, if events occur after
the close of the principal markets for particular securities (e.g., domestic
debt and foreign securities), but before the Fund values its assets, that could
materially affect NAV, First Trust may use a fair value method to value the
Fund's securities and other investments. The use of fair value pricing by the
Fund is governed by valuation procedures adopted by the Fund's Board of
Trustees, and in accordance with the provisions of the 1940 Act. Fixed income
securities with a remaining maturity of 60 days or more will be valued by the
Fund using a pricing service. Short-term investments that mature in less than 60
days are valued at amortized cost.
Portfolio securities listed on any exchange other than the NASDAQ National
Market ("NASDAQ") and the London Stock Exchange Alternative Investment Market
("AIM") are valued at the last sale price on the business day as of which such
value is being determined. Securities listed on the NASDAQ or the AIM are valued
at the official closing price on the business day as of which such value is
being determined. If there has been no sale on such day, or no official closing
price in the case of securities traded on the NASDAQ or the AIM, the securities
are valued at the mean of the most recent bid and ask prices on such day.
Portfolio securities traded on more than one securities exchange are valued at
the last sale price or official closing price, as applicable, on the business
day as of which such value is being determined at the close of the exchange
representing the principal market for such securities. Portfolio securities
traded in the over-the-counter market, but excluding securities trading on the
NASDAQ and the AIM, are valued at the closing bid prices.
Foreign securities traded outside the United States are generally valued as of
the time their trading is complete, which is usually different from the close of
the NYSE. Occasionally, events affecting the value of such securities may occur
between such times and the close of the NYSE that will not always be reflected
in the computation of the value of such securities. If events materially
affecting the value of such securities occur during such period, these
securities will be valued at their fair value according to procedures adopted by
the Fund's Board of Trustees. All securities and other assets of the Fund
initially expressed in foreign currencies will be converted to U.S. dollars
using exchange rates in effect at the time of valuation.
Page 21
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
JUNE 30, 2009 (UNAUDITED)
In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 157, "Fair Value Measurements"
("FAS 157"), effective for fiscal years beginning after November 15, 2007. This
standard clarifies the definition of fair value for financial reporting,
establishes a framework for measuring fair value and requires additional
disclosures about the use of fair value measurements. The three levels of the
fair value hierarchy under FAS 157 are described below:
- Level 1 - quoted prices in active markets for identical securities
- Level 2 - other significant observable inputs (including quoted prices
for similar securities, interest rates, prepayment speeds,
credit risk, etc.)
- Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
In April 2009, FASB issued FASB Staff Position No. 157-4, "Determining Fair
Value when the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly" ("FSP
157-4"). FSP 157-4 is effective for fiscal years and interim periods ending
after June 15, 2009. FSP 157-4 provides additional guidance for estimating fair
value in accordance with FAS 157, when the volume and level of activity for the
asset or liability have significantly decreased. FSP 157-4 also includes
guidance on identifying circumstances that indicate a transaction is not
orderly. FSP 157-4 requires entities to describe the inputs used in valuation
techniques used to measure fair value and changes in inputs over the period. FSP
157-4 expands the three-level hierarchy disclosure and the Level 3 roll-forward
disclosure for each major security type.
The inputs or methodology used for valuing securities are not necessarily an
indication of the risk associated with investing in those securities. A summary
of the inputs used to value the Fund's investments as of June 30, 2009 is
included in the Fund's Portfolio of Investments.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME:
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income is recorded
on the accrual basis, including amortization of premiums and accretion of
discounts.
Securities purchased or sold on a when-issued or delayed-delivery basis may be
settled a month or more after the trade date; interest income on such securities
is not accrued until settlement date. The Fund maintains liquid assets with a
current value at least equal to the amount of its when-issued or
delayed-delivery purchase commitments. At June 30, 2009, the Fund had no
when-issued or delayed-delivery purchase commitments.
C. CREDIT LINKED NOTES:
The Fund invests in credit linked notes. Credit linked notes are securities that
are collateralized by one or more designated securities that are referred to as
"reference securities". Through the purchase of a credit linked note, the buyer
assumes the risk of the default or, in some cases, other declines in credit
quality of the reference securities. The buyer also takes on exposure to the
issuer of the credit linked note in the full amount of the purchase price of the
note. The issuer of a credit linked note normally will have hedged its risk on
the reference securities without acquiring any additional credit exposure. The
Fund has the right to receive periodic interest payments from the issuer of the
credit linked note at an agreed-upon interest rate, and, if there has been no
default or, if applicable, other declines in credit quality, a return of
principal at the maturity date.
Credit linked notes are subject to credit risk of the reference securities
underlying the credit linked notes. If one of the underlying reference
securities defaults, or suffers certain other declines in credit quality, the
Fund may, instead of receiving repayment of principal in whole or in part,
receive the security that has defaulted.
Credit linked notes typically are privately negotiated transactions between two
or more parties. The Fund bears the risk that the issuer of the credit linked
note will default or become bankrupt. The Fund bears the risk of loss of the
principal amount it invested, and the periodic interest payments expected to be
received for the duration of its investment in the credit linked note.
The market for credit linked notes may suddenly become illiquid. The other
parties to the transaction may be the only investors with sufficient
understanding of the derivative to be interested in bidding for it. Changes in
liquidity may result in significant, rapid and unpredictable changes in the
prices for credit linked notes. In certain cases, a market price for a credit
linked note may not be available.
Page 22
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
JUNE 30, 2009 (UNAUDITED)
D. FORWARD FOREIGN CURRENCY CONTRACTS:
The Fund has adopted Statement of Financial Accounting Standards No. 161,
"Disclosures about Derivative Instruments and Hedging Activities" ("FAS 161"),
an amendment of FASB Statement 133, which was issued in March of 2008 and is
effective for fiscal years and interim periods beginning after November 15,
2008. The Fund has forward foreign currency contracts outstanding at June 30,
2009, which are considered derivative instruments under FAS 161.
Forward foreign currency contracts are agreements to exchange one currency for
another at a future date and at a specified price. The Fund may use forward
foreign currency contracts to facilitate transactions in foreign securities and
to manage the Fund's foreign currency exposure. These contracts are valued
daily, and the Fund's net equity therein, representing unrealized gain or loss
on the contracts as measured by the difference between the forward foreign
exchange rates at the dates of entry into the contracts and the forward rates at
the reporting date, is included on the Statement of Assets and Liabilities.
Realized and unrealized gains and losses are included on the Statement of
Operations. Risks arise from the possible inability of counterparties to meet
the terms of their contracts and from movement in currency and securities values
and interest rates. Due to the risks, the Fund could incur losses up to the
entire contract amount, which may exceed the net unrealized value shown on the
Schedule of Forward Foreign Currency Contracts.
E. FOREIGN CURRENCY:
The books and records of the Fund are maintained in U.S. dollars. Foreign
currencies, investments and other assets and liabilities are translated into
U.S. dollars at the exchange rates prevailing at the end of the period.
Purchases and sales of investment securities and items of income and expense are
translated on the respective dates of such transactions. Unrealized gains and
losses on assets and liabilities, other than investments in securities, which
result from changes in foreign currency exchange rates have been included in
"Net change in unrealized appreciation (depreciation) on foreign currency
translation" on the Statement of Operations. Unrealized gains and losses on
investments in securities which result from changes in foreign exchange rates
are included with fluctuations arising from changes in market price and are
shown in "Net change in unrealized appreciation (depreciation) on investments"
on the Statement of Operations. Net realized foreign currency gains and losses
include the effect of changes in exchange rates between trade date and
settlement date on investment security transactions, foreign currency
transactions and interest and dividends received. The portion of foreign
currency gains and losses related to fluctuations in exchange rates between the
initial purchase trade date and subsequent sale trade date is included in "Net
realized gain (loss) on foreign currency transactions" on the Statement of
Operations.
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Level dividend distributions are declared and paid quarterly to Common
Shareholders after the payment of interest and/or dividends in connection with
leverage. The level dividend rate may be modified by the Board of Trustees from
time to time. If, for any quarterly distribution, net investment company taxable
income, if any (which term includes net short-term capital gain), is less than
the amount of the distribution, the difference will generally be a tax-free
return of capital distributed from the Fund's assets. Distributions of any net
long-term capital gains earned by the Fund are distributed at least annually.
Distributions will automatically be reinvested into additional Common Shares
pursuant to the Fund's Dividend Reinvestment Plan unless cash distributions are
elected by the shareholder.
Distributions from income and capital gains are determined in accordance with
income tax regulations, which may differ from accounting principles generally
accepted in the United States of America. These differences are primarily due to
differing treatments of income and gains on various investment securities held
by the Fund, timing differences and differing characterization of distributions
made by the Fund.
The tax character of distributions paid during the year ended December 31, 2008
was as follows:
Distributions paid from:
Ordinary Income .................................................. $6,476,214
Long-Term Capital Gains .......................................... 493,788
Return of Capital ................................................ 2,227,912
As of December 31, 2008 the components of distributable earnings on a
tax basis were as follows:
Undistributed Ordinary Income .................................. $ --
Net Unrealized Appreciation (Depreciation) ..................... (30,949,378)
Accumulated Capital and Other Losses ........................... (3,412,090)
Page 23
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
JUNE 30, 2009 (UNAUDITED)
G. INCOME TAXES:
The Fund intends to continue to qualify as a regulated investment company by
complying with the requirements under Subchapter M of the Internal Revenue Code
of 1986, as amended, which includes distributing substantially all of its net
investment income and net realized gains to shareholders. Accordingly, no
provision has been made for federal or state income taxes.
The Fund intends to utilize provisions of the federal income tax laws, which
allows it to carry a realized capital loss forward for eight years following the
year of the loss and offset such loss against any future realized capital gains.
At December 31, 2008, the Fund had available realized capital losses of $495,817
to offset future net capital gains through the fiscal year ending 2016.
Certain capital losses realized after October 31 may be deferred and treated as
occurring on the first day of the following fiscal year. For the fiscal year
ended December 31, 2008, the Fund intends to elect to defer net realized capital
losses of $2,615,927 and foreign currency losses of $300,346 incurred from
November 1, 2008 through December 31, 2008.
In June 2006, FASB issued Interpretation No. 48, "Accounting for Uncertainty in
Income Taxes" ("FIN 48"). FIN 48 establishes the minimum threshold for
recognizing, and a system for measuring, the benefits of a tax position taken or
expected to be taken in a tax return, and is effective for the Fund's current
fiscal year. As of June 30, 2009, management has evaluated the application of
FIN 48 to the Fund and has determined that no provision for income tax is
required in the Fund's financial statements.
H. EXPENSES:
The Fund pays all expenses directly related to its operations.
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust is a limited partnership with one limited partner, Grace Partners of
DuPage L.P., and one general partner, The Charger Corporation. First Trust
serves as investment advisor to the Fund pursuant to an Investment Management
Agreement. First Trust is responsible for the ongoing monitoring of the Fund's
investment portfolio, managing the Fund's business affairs and providing certain
administrative services necessary for the management of the Fund. For these
services, First Trust is entitled to a monthly fee calculated at an annual rate
of 1.00% of the Fund's Managed Assets.
Aberdeen Asset Management Inc. (the "Sub-Advisor") serves as the Fund's
sub-advisor and manages the Fund's portfolio subject to First Trust's
supervision. The Sub-Advisor receives a monthly portfolio management fee
calculated at an annual rate of 0.50% of Managed Assets that is paid by First
Trust out of its investment advisory fee.
PNC Global Investment Servicing (U.S.) Inc., an indirect, majority-owned
subsidiary of The PNC Financial Services Group, Inc., serves as the Fund's
Administrator, Fund Accountant and Transfer Agent in accordance with certain fee
arrangements. PFPC Trust Company, also an indirect, majority-owned subsidiary of
The PNC Financial Services Group, Inc., serves as the Fund's Custodian in
accordance with certain fee arrangements.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid an annual retainer
of $10,000 per trust for the first 14 trusts of the First Trust Fund Complex and
an annual retainer of $7,500 per trust for each subsequent trust in the First
Trust Fund Complex. The annual retainer is allocated equally among each of the
trusts. No additional meeting fees are paid in connection with board or
committee meetings.
Additionally, the Lead Independent Trustee is paid $10,000 annually, the
Chairman of the Audit Committee is paid $5,000 annually, and each of the
Chairmen of the Nominating and Governance Committee and the Valuation Committee
are paid $2,500 annually to serve in such capacities, with such compensation
paid by the trusts in the First Trust Fund Complex and divided among those
trusts. Trustees are also reimbursed by the trusts in the First Trust Fund
Complex for travel and out-of-pocket expenses in connection with all meetings.
The Lead Independent Trustee and each Committee chairman will serve two-year
terms ending December 31, 2009, before rotating to serve as a chairman of
another Committee or as Lead Independent Trustee. The officers and "Interested"
Trustee receive no compensation from the Fund for serving in such capacities.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, other than U.S.
government obligations and short-term obligations, for the six months ended June
30, 2009, were $23,532,058 and $34,120,222, respectively.
Page 24
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
JUNE 30, 2009 (UNAUDITED)
5. REVOLVING LOAN AGREEMENT
The Fund has entered into a revolving loan agreement with certain lenders, which
provides for a credit facility to be used as leverage for the Fund. The credit
facility provides for a secured line of credit for the Fund where Fund assets
are pledged against advances made to the Fund. Under the requirements of the
1940 Act, the Fund, immediately after any such borrowings, must have an "asset
coverage" of at least 300% (33-1/3% of the Fund's total assets after
borrowings). The total commitment under the facility is up to $28,000,000. For
the six months ended June 30, 2009, the average amount outstanding was
$10,074,586. The high and low annual interest rates during the six months ended
June 30, 2009, were 2.26% and 1.53%, respectively, and the weighted average
interest rate was 1.77%. The interest rate at June 30, 2009 was 1.61%. The Fund
also pays a commitment fee of 0.25% per year and an administration fee of
$100,000, which are included in "Interest and fees on loan" on the Statement of
Operations. The revolving loan agreement has been extended until November 16,
2009.
6. INDEMNIFICATION
The Fund has a variety of indemnification obligations under contracts with its
service providers. 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.
7. RISK CONSIDERATIONS
Risks are inherent in all investing. The following summarizes some of the risks
that should be considered for the Fund. For additional information about the
risks associated with investing in the Fund, please see the Fund's prospectus
and statement of additional information, as well as other Fund regulatory
filings.
INVESTMENT AND MARKET RISK: An investment in the Fund's Common Shares is subject
to investment risk, including the possible loss of the entire principal
invested. An investment in Common Shares represents an indirect investment in
the securities owned by the Fund, which include a global bond and equity
portfolio of investment grade and below-investment grade government and
corporate debt securities. The value of these securities, like other market
investments, may move up or down, sometimes rapidly and unpredictably. Common
Shares, at any point in time, may be worth less than the original investment,
even after taking into account the reinvestment of Fund dividends and
distributions. Security prices can fluctuate for several reasons including the
general condition of the bond market, or when political or economic events
affecting the issuers occur. When the Advisor or Sub-Advisor determines that it
is temporarily unable to follow the Fund's investment strategy or that it is
impractical to do so (such as when a market disruption event has occurred and
trading in the securities is extremely limited or absent), the Fund may take
temporary defensive positions.
The Fund's performance was adversely impacted by the weakness in the credit
markets and broad stock market that occurred beginning in late 2008, and may
continue to be adversely affected if the weakness in the credit and stock
markets continue. In response to the financial crises affecting the banking
system and financial markets, the U.S. and foreign governments have intervened
to an unprecedented degree in the financial and credit markets. Among other
things, U.S. government regulators have encouraged, and in some cases structured
and provided financial assistance for, banks, securities firms, insurers and
other financial companies. Additional intervention programs have been adopted
and proposed which may have a further impact on the financial and credit
markets. Many of the recently enacted or proposed government measures are
far-reaching and without historical precedent. Furthermore, the U.S. government
has stated its willingness to implement additional measures as it may see fit to
address changes in market conditions. There can be no assurance that any or all
of these measures will succeed in stabilizing and providing liquidity to the
U.S. financial markets, including the extreme levels of volatility currently
being experienced. Such continued volatility could materially and adversely
affect the financial condition of the Fund.
NON-INVESTMENT GRADE SECURITIES RISK: The Fund may invest up to 80% of its
Managed Assets in non-investment grade securities. Non-investment grade
securities are rated below "Baa3" by Moody's Investors Service, Inc., below
"BBB-" by Standard & Poor's, or comparably rated by another nationally
recognized statistical rating organization or, if unrated, determined by the
Sub-Advisor to be of comparable credit quality. Non-investment grade debt
instruments are commonly referred to as "high-yield" or "junk" bonds and are
considered speculative with respect to the issuer's capacity to pay interest and
repay principal and are susceptible to default or decline in market value due to
adverse economic and business developments. The market values for high-yield
securities tend to be very volatile, and these securities are less liquid than
investment grade debt securities.
EMERGING MARKETS RISK: Under normal market conditions, the Fund will invest at
least 80% of its Managed Assets in equity or fixed-income securities of issuers
located in countries considered to be emerging markets. Investments in such
securities are considered speculative. In addition to the general risks of
investing in non-U.S. securities, heightened risks of investing in emerging
markets securities include: smaller market capitalization of securities markets,
which may suffer periods of relative illiquidity; significant price volatility;
restrictions on foreign investment; and possible restrictions on repatriation of
investment income and capital. Furthermore,
Page 25
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
JUNE 30, 2009 (UNAUDITED)
foreign investors may be required to register the proceeds of sales, and future
economic or political crises could lead to price controls, forced mergers,
expropriation or confiscatory taxation, seizure, nationalization or creation of
government monopolies. The currencies of emerging market countries may
experience significant declines against the U.S. dollar, and devaluation may
occur subsequent to investments in these currencies by the Fund. Inflation and
rapid fluctuations in inflation rates have had, and may continue to have,
negative effects on the economies and securities markets of certain emerging
market countries.
FIXED-INCOME SECURITIES RISK: Debt securities, including high yield securities,
are subject to certain risks, including: (i) issuer risk, which is the risk that
the value of fixed-income securities may decline for a number of reasons which
directly relate to the issuer, such as management performance, financial
leverage and reduced demand for the issuer's goods and services; (ii)
reinvestment risk, which is the risk that income from the Fund's portfolio will
decline if the Fund invests the proceeds from matured, traded or called bonds at
market interest rates that are below the Fund portfolio's current earnings rate;
(iii) prepayment risk, which is the risk that during periods of declining
interest rates, the issuer of a security may exercise its option to prepay
principal earlier than scheduled, forcing the Fund to reinvest in lower yielding
securities; and (iv) credit risk, which is the risk that a security in the
Fund's portfolio will decline in price or the issuer fails to make interest
payments when due because the issuer of the security experiences a decline in
its financial status.
INTEREST RATE RISK: The Fund is also subject to interest rate risk. Interest
rate risk is the risk that fixed-income securities will decline in value because
of changes in market interest rates. Investments in debt securities with
long-term maturities may experience significant price declines if long-term
interest rates increase.
NON-U.S. RISK: Investments in the securities and instruments of non-U.S. issuers
involve certain considerations and risks not ordinarily associated with
investments in securities and instruments of U.S. issuers. Non-U.S. companies
are not generally subject to uniform accounting, auditing and financial
standards and requirements comparable to those applicable to U.S. companies.
Non-U.S. securities exchanges, brokers and listed companies may be subject to
less government supervision and regulation than exists in the United States.
Dividend and interest income may be subject to withholding and other non-U.S.
taxes, which may adversely affect the net return on such investments.
Additionally, there may be difficulty in obtaining or enforcing a court judgment
abroad.
CURRENCY RISK: The value of securities denominated or quoted in foreign
currencies may be adversely affected by fluctuations in the relative currency
exchange rates and by exchange control regulations. The Fund's investment
performance may be negatively affected by a devaluation of a currency in which
the Fund's investments are denominated or quoted. Further, the Fund's investment
performance may be significantly affected, either positively or negatively, by
currency exchange rates because the U.S. dollar value of securities denominated
or quoted in another currency will increase or decrease in response to changes
in the value of such currency in relation to the U.S. dollar. While certain of
the Fund's non-U.S. dollar-denominated securities may be hedged into U.S.
dollars, hedging may not alleviate all currency risks.
CREDIT LINKED NOTES RISK: The Fund may invest up to 35% of its Managed Assets in
credit linked notes. Credit linked notes are subject to credit risk of the
reference securities underlying the credit linked notes. If one of the
underlying reference securities defaults or suffers certain other declines in
credit quality, the Fund may, instead of receiving repayment of principal in
whole or in part, receive the security that has defaulted. The Fund also bears
the risk that the issuer of the credit linked note will default or become
bankrupt. The Fund bears the risk of loss of the principal amount it invested
and the periodic interest payments expected to be received for the duration of
its investment in the credit linked note.
LEVERAGE RISK: The use of leverage results in additional risks and can magnify
the effect of any losses. The funds borrowed pursuant to a leverage borrowing
program, or obtained through the issuance of Preferred Shares, constitute a
substantial lien and burden by reason of their prior claim against the income of
the Fund and against the net assets of the Fund in liquidation. The rights of
lenders to receive payments of interest on and repayments of principal on any
borrowings made by the Fund under a leverage borrowing program are senior to the
rights of holders of Common Shares and the holders of Preferred Shares, with
respect to payment of dividends or upon liquidation. If the Fund is not in
compliance with certain credit facility provisions, the Fund may not be
permitted to declare dividends or other distributions, including dividends and
distributions with respect to Common Shares or Preferred Shares or purchase
Common Shares or Preferred Shares.
GOVERNMENT SECURITIES RISK: The ability of a government issuer, especially in an
emerging market country, to make timely and complete payments on its debt
obligations will be strongly influenced by the government issuer's balance of
payments, including export performance, its access to international credits and
investments, fluctuations of interest rates and the extent of its foreign
reserves. A country whose exports are concentrated in a few commodities or whose
economy depends on certain strategic imports could be vulnerable to fluctuations
in international prices of these commodities or imports. To the extent that a
country receives payment for its exports in currencies other than U.S. dollars,
its ability to make debt payments denominated in U.S. dollars could be adversely
affected. If a government issuer cannot generate sufficient earnings from
foreign trade to service its external debt, it may need to depend on continuing
loans and aid from foreign governments, commercial banks, and multinational
organizations. There are no bankruptcy proceedings similar to those in the
United States
Page 26
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
JUNE 30, 2009 (UNAUDITED)
by which defaulted government debt may be collected. Additional factors that may
influence a government issuer's ability or willingness to service debt include,
but are not limited to, a country's cash flow situation, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
its debt service burden to the economy as a whole, and the issuer's policy
towards the International Monetary Fund, the International Bank for
Reconstruction and Development and other international agencies to which a
government debtor may be subject.
NON-U.S. GOVERNMENT SECURITIES RISK: Economies and social and political climates
in individual countries may differ unfavorably from the United States. Non-U.S.
economies may have less favorable rates of growth of gross domestic product,
rates of inflation, currency valuation, capital reinvestment, resource
self-sufficiency and balance of payments positions. Many countries have
experienced extremely high rates of inflation for many years. Unanticipated
economic, political and social developments may also affect the values of the
Fund's investments and limit the availability of additional investments in such
countries. Furthermore, such developments may significantly disrupt the
financial markets or interfere with the Fund's ability to enforce its rights
against non-U.S. government issuers.
A substantial portion of the Fund's Managed Assets are expected to be invested
in debt instruments of issuers located in countries considered to be emerging
markets, and investments in such securities are considered speculative.
Heightened risks of investing in emerging markets government debt include:
smaller market capitalization of securities markets, which may suffer periods of
relative illiquidity; significant price volatility; restrictions on foreign
investment; and possible repatriation of investment income and capital.
Furthermore, foreign investors may be required to register the proceeds of sales
and future economic or political crises could lead to price controls, forced
mergers, expropriation or confiscatory taxation, seizure, nationalization or
creation of government monopolies. The currencies of emerging market countries
may experience significant declines against the U.S. dollar, and devaluation may
occur subsequent to investments in these currencies by the Fund. Inflation and
rapid fluctuations in inflation rates have had, and may continue to have,
negative effects on the economies and securities markets of certain emerging
market countries.
8. SUBSEQUENT EVENT
Management has evaluated the impact of all subsequent events on the Fund through
August 21, 2009, the date the financial statements were issued, and has
determined that there were no subsequent events requiring recognition or
disclosure in the financial statements.
Page 27
ADDITIONAL INFORMATION
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
JUNE 30, 2009 (UNAUDITED)
DIVIDEND REINVESTMENT PLAN
If your Common Shares are registered directly with the Fund or if you hold your
Common Shares with a brokerage firm that participates in the Fund's Dividend
Reinvestment Plan (the "Plan"), unless you elect, by written notice to the Fund,
to receive cash distributions, all dividends, including any capital gain
distributions, on your Common Shares will be automatically reinvested by PNC
Global Investment Servicing (U.S.) Inc. (the "Plan Agent"), in additional Common
Shares under the Plan. If you elect to receive cash distributions, you will
receive all distributions in cash paid by check mailed directly to you by the
Plan Agent, as dividend paying agent.
If you decide to participate in the Plan, the number of Common Shares you will
receive will be determined as follows:
(1) If Common Shares are trading at or above NAV at the time of valuation,
the Fund will issue new shares at a price equal to the greater of (i)
NAV per Common Share on that date or (ii) 95% of the market price on
that date.
(2) If Common Shares are trading below NAV at the time of valuation, the
Plan Agent will receive the dividend or distribution in cash and will
purchase Common Shares in the open market, on the NYSE or elsewhere,
for the participants' accounts. It is possible that the market price
for the Common Shares may increase before the Plan Agent has completed
its purchases. Therefore, the average purchase price per share paid by
the Plan Agent may exceed the market price at the time of valuation,
resulting in the purchase of fewer shares than if the dividend or
distribution had been paid in Common Shares issued by the Fund. The
Plan Agent will use all dividends and distributions received in cash
to purchase Common Shares in the open market within 30 days of the
valuation date except where temporary curtailment or suspension of
purchases is necessary to comply with federal securities laws.
Interest will not be paid on any uninvested cash payments.
You may elect to opt-out of or withdraw from the Plan at any time by giving
written notice to the Plan Agent, or by telephone at (800) 331-1710, in
accordance with such reasonable requirements as the Plan Agent and the Fund may
agree upon. If you withdraw or the Plan is terminated, you will receive a
certificate for each whole share in your account under the Plan, and you will
receive a cash payment for any fraction of a share in your account. If you wish,
the Plan Agent will sell your shares and send you the proceeds, minus brokerage
commissions.
The Plan Agent maintains all Common Shareholders' accounts in the Plan and gives
written confirmation of all transactions in the accounts, including information
you may need for tax records. Common Shares in your account will be held by the
Plan Agent in non-certificated form. The Plan Agent will forward to each
participant any proxy solicitation material and will vote any shares so held
only in accordance with proxies returned to the Fund. Any proxy you receive will
include all Common Shares you have received under the Plan.
There is no brokerage charge for reinvestment of your dividends or distributions
in Common Shares. However, all participants will pay a pro rata share of
brokerage commissions incurred by the Plan Agent when it makes open market
purchases.
Automatically reinvesting dividends and distributions does not mean that you do
not have to pay income taxes due upon receiving dividends and distributions.
Capital gains and income are realized, although cash is not received by you.
Consult your financial advisor for more information.
If you hold your Common Shares with a brokerage firm that does not participate
in the Plan, you will not be able to participate in the Plan and any dividend
reinvestment may be effected on different terms than those described above.
The Fund reserves the right to amend or terminate the Plan if in the judgment of
the Board of Trustees the change is warranted. There is no direct service charge
to participants in the Plan; however, the Fund reserves the right to amend the
Plan to include a service charge payable by the participants. Additional
information about the Plan may be obtained by writing PNC Global Investment
Servicing (U.S.) Inc., 301 Bellevue Parkway, Wilmington, Delaware 19809.
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Fund uses to determine how
to vote proxies and information on how the Fund voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Fund's website located at http://www.ftportfolios.com; and (3) on the
Securities and Exchange Commission's website located at http://www.sec.gov.
Page 28
ADDITIONAL INFORMATION - (CONTINUED)
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
JUNE 30, 2009 (UNAUDITED)
PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available (1) by calling (800)
988-5891; (2) on the Fund's website located at http://www.ftportfolios.com; (3)
on the SEC's website at http://www.sec.gov; and (4) for review and copying at
the SEC's Public Reference Room ("PRR") in Washington, DC. Information regarding
the operation of the PRR may be obtained by calling (800) SEC-0330.
SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
The Annual Meeting of Shareholders of the Common Shares of First Trust/Aberdeen
Emerging Opportunity Fund was held on May 11, 2009. At the Annual Meeting,
Independent Trustees Richard E. Erickson and Thomas R. Kadlec were elected by
the holders of Common Shares of the Fund as Class II Trustees for three-year
terms expiring at the Fund's annual meeting of shareholders in 2012. The number
of votes cast in favor of Dr. Erickson was 4,717,830, the number of votes
against was 727,391 and the number of abstentions was 386,409. The number of
votes cast in favor of Mr. Kadlec was 4,715,084, the number of votes against was
730,137 and the number of abstentions was 386,409. James A. Bowen, Robert F.
Keith and Niel B. Nielson are the current and continuing Trustees.
At the Annual Meeting, shareholders also voted not to approve a shareholder
proposal submitted by Opportunity Income Plus L.P. (the "Proposal") requesting
the Board of Trustees of the Fund to authorize a self-tender offer for all
outstanding shares of the Fund at net asset value. The Proposal additionally
requested that if more than 50% of the Fund's outstanding shares were tendered,
the tender offer should be cancelled and the Fund should be liquidated or merged
into an open-end mutual fund. The number of votes cast in favor of the Proposal
was 859,640, the number of votes against the Proposal was 2,460,792, the number
of abstentions was 84,397 and the number of broker non-votes was 2,040,392.
ADVISORY AND SUB-ADVISORY AGREEMENTS
BOARD CONSIDERATIONS REGARDING CONTINUATION OF INVESTMENT MANAGEMENT
AND SUB-ADVISORY AGREEMENTS
The Board of Trustees of First Trust/Aberdeen Emerging Opportunity Fund (the
"Fund"), including the Independent Trustees, unanimously approved the
continuation of the Investment Management Agreement (the "Advisory Agreement")
between the Fund and First Trust Advisors L.P. (the "Advisor") and the
Investment Sub-Advisory Agreement (the "Sub-Advisory Agreement" and together
with the Advisory Agreement, the "Agreements") among the Fund, the Advisor and
Aberdeen Asset Management Inc. (the "Sub-Advisor"), at a meeting held on March
1-2, 2009. The Board determined that the terms of the Agreements are fair and
reasonable and that the Agreements continue to be in the best interests of the
Fund.
To reach this determination, the Board considered its duties under the
Investment Company Act of 1940, as amended (the "1940 Act"), as well as under
the general principles of state law in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
on such agreements. To assist the Board in its evaluation of the Agreements, the
Independent Trustees received a separate report from each of the Advisor and the
Sub-Advisor in advance of the Board meeting responding to a request for
information from counsel to the Independent Trustees. The reports, among other
things, outlined the services provided by the Advisor and the Sub-Advisor
(including the relevant personnel responsible for these services and their
experience); the advisory and sub-advisory fees for the Fund as compared to fees
charged to other clients of the Advisor and the Sub-Advisor and as compared to
fees charged by investment advisors and sub-advisors to comparable funds;
expenses of the Fund as compared to expense ratios of comparable funds; the
nature of expenses incurred in providing services to the Fund and the potential
for economies of scale, if any; financial data on the Advisor and the
Sub-Advisor; any fall out benefits to the Advisor and the Sub-Advisor; and
information on the Advisor's and the Sub-Advisor's compliance programs. The
Independent Trustees also met separately with their independent legal counsel to
discuss the information provided by the Advisor and the Sub-Advisor. The Board
applied its business judgment to determine whether the arrangements between the
Fund and the Advisor and among the Fund, the Advisor and the Sub-Advisor are
reasonable business arrangements from the Fund's perspective as well as from the
perspective of shareholders.
In reviewing the Agreements, the Board considered the nature, quality and extent
of services provided by the Advisor and the Sub-Advisor under the Agreements.
The Board considered the Advisor's statements regarding the incremental benefits
associated with the Fund's advisor/sub-advisor management structure. With
respect to the Advisory Agreement, the Board considered that the Advisor is
responsible for the overall management and administration of the Fund, including
the oversight of the Sub-Advisor. The Board noted the compliance program that
had been developed by the Advisor and considered that the compliance program
includes policies and procedures for monitoring the Sub-Advisor's compliance
with the 1940 Act and the Fund's investment objective and policies. The Board
also noted the enhancements made by the Advisor to the compliance program in
2008. With respect to the Sub-Advisory Agreement, the Board received a
Page 29
ADDITIONAL INFORMATION - (CONTINUED)
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
JUNE 30, 2009 (UNAUDITED)
presentation from representatives of the Sub Advisor discussing the services
that the Sub-Advisor provides to the Fund and how the Sub-Advisor manages the
Fund's investments. In light of the information presented and the considerations
made, the Board concluded that the nature, quality and extent of services
provided to the Fund by the Advisor and the Sub-Advisor under the Agreements
have been and are expected to remain satisfactory and that the Sub-Advisor,
under the oversight of the Advisor, has managed the Fund consistent with its
investment objective and policies.
The Board considered the advisory and sub-advisory fees paid under the
Agreements. The Board considered the advisory fees paid to the Advisor by
similar funds, and noted that the Advisor does not provide advisory services to
clients with investment objectives and policies similar to the Fund's other than
to another closed end fund to which an identical advisory fee rate was charged.
The Board also considered information provided by the Sub-Advisor as to the fees
it charges to other clients, noting that the Sub-Advisor does not manage any
other closed-end funds directly comparable to the Fund, but that the
sub-advisory fee is generally lower than the fees the Sub-Advisor charges to the
other North American closed-end fixed income and equity funds that it manages.
In addition, the Board received data prepared by Lipper Inc. ("Lipper"), an
independent source, showing the management fees and expense ratios of the Fund
as compared to the management fees and expense ratios of a combined peer group
selected by Lipper and the Advisor. The Board discussed with representatives of
the Advisor the limitations in creating a relevant peer group for the Fund,
including that (i) the peer funds may use different types of leverage which have
different costs associated with them; (ii) most peer funds do not employ an
advisor/sub-advisor management structure; (iii) the peer funds may not have the
same fiscal year as the Fund, which may cause the expense data used by Lipper to
be measured over different time periods; (iv) many of the peer funds are larger
than the Fund; and (v) many of the peer funds have an inception date prior to
the Fund's inception date and their fee and expense structures may not reflect
newer pricing practices in the market. The Board reviewed the Lipper materials,
but based on its discussions with the Advisor, the Board determined that the
Lipper data was of limited value for purposes of its consideration of the
renewal of the Agreements.
The Board also considered performance information for the Fund, noting that,
similar to almost all other funds, the Fund's performance was impacted by the
severe market downturn in 2008. The Board noted that the performance information
included the Fund's quarterly performance report, which is part of the process
that the Board has established for monitoring the Fund's performance on an
ongoing basis. The Board determined that this process continues to be effective
for reviewing the Fund's performance. In addition to the Board's ongoing review
of performance, the Board also received data prepared by Lipper comparing the
Fund's performance to the combined peer group selected by Lipper and the
Advisor, as well as to a larger group and to a blended benchmark. The Board
reviewed the Lipper materials, but for similar reasons to those described above,
the Board determined that the performance data provided by Lipper was of limited
value. The Board considered an analysis prepared by the Advisor on the continued
benefits provided by the Fund's leverage. In addition, the Board considered the
market price and net asset value performance of the Fund since inception, and
compared the Fund's premium/discount to the average and median premium/discount
of the combined peer group, noting that the Fund's premium/discount was
generally indicative of the asset class and market events. Based on the
information provided and the Board's ongoing review of the Fund's performance,
and taking into account the historic market events of 2008, the Board concluded
that the Fund's performance was reasonable.
On the basis of all the information provided on the fees, expenses and
performance of the Fund, the Board concluded that the advisory and sub-advisory
fees were reasonable and appropriate in light of the nature, quality and extent
of services provided by the Advisor and Sub-Advisor under the Agreements.
The Board noted that the Advisor has continued to invest in personnel and
infrastructure and had noted that the advisory fee is not structured to pass the
benefits of any economies of scale on to the shareholders as the Fund's assets
grow. The Board concluded that the management fee reflects an appropriate level
of sharing of any economies of scale. The Board also considered the costs of the
services provided and profits realized by the Advisor from serving as investment
manager to closed-end funds for the twelve months ended December 31, 2008, as
set forth in the materials provided to the Board. The Board noted the inherent
limitations in the profitability analysis, and concluded that the Advisor's
profitability appeared to be not excessive in light of the services provided to
the Fund. In addition, the Board considered and discussed any ancillary benefits
derived by the Advisor from its relationship with the Fund and noted that the
typical fall-out benefits to the Advisor such as soft dollars are not present.
The Board concluded that any other fall-out benefits received by the Advisor or
its affiliates would appear to be limited.
The Board considered the Sub-Advisor's representation that because it manages
the Fund in a similar fashion to other accounts it is able to achieve economies
of scale through relationships with brokers, administrative systems and other
efficiencies and that while it expects operating costs in general to continue to
rise, it continues to expect to experience the benefits of economies of scale.
The Board considered that the sub-advisory fee rate was negotiated at arm's
length between the Advisor and the Sub-Advisor, an unaffiliated third party. The
Board also considered data provided by the Sub-Advisor as to the profitability
of the Sub-Advisory Agreement to the Sub-Advisor. The Board noted the inherent
limitations in this profitability analysis and concluded that the profitability
analysis for the Advisor was more relevant, although the profitability of the
Sub-Advisory Agreement appeared to be not excessive in light of the services
provided to the Fund. The Board noted that the Sub-Advisor does not maintain any
soft-dollar arrangements and that the Sub-Advisor indicated that it does not
receive any material fall-out benefits from its relationship to the Fund.
Page 30
ADDITIONAL INFORMATION - (CONTINUED)
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
JUNE 30, 2009 (UNAUDITED)
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, determined that the terms of the
Agreements continue to be fair and reasonable and that the continuation of the
Agreements is in the best interests of the Fund. No single factor was
determinative in the Board's analysis.
Page 31
This Page Left Blank Intentionally.
(FIRST TRUST LOGO)
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 E. Liberty Drive, Suite 400
Wheaton, IL 60187
INVESTMENT SUB-ADVISOR
Aberdeen Asset Management Inc.
1735 Market Street
Philadelphia, PA 19103
ADMINISTRATOR, FUND ACCOUNTANT & TRANSFER AGENT
PNC Global Investment Servicing (U.S.) Inc.
301 Bellevue Parkway
Wilmington, DE 19809
CUSTODIAN
PFPC Trust Company
8800 Tinicum Boulevard
Philadelphia, PA 19153
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. INVESTMENTS.
(a) Schedule of Investments in securities of unaffiliated issuers as of the
close of the reporting period is included as part of the report to
shareholders filed under Item 1 of this form.
(b) Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a) Not applicable.
(b)(1) Identification of Portfolio Managers or Management Team Members and
Description of Role of Portfolio Managers or Management Team Members
Aberdeen Asset Management Inc. (the "Sub-Adviser" or "Aberdeen"), serves as the
investment sub-adviser for the Registrant. Esther Chan was added to the
Portfolio Management Team of the Registrant. Otherwise, the Portfolio Management
Team remains the same. Ms. Chan joined the Sub-Adviser in Singapore in 2005
where she started as a corporate credit analyst and trader working across
investment grade and high-yield assets in the region. She has 6 years of
experience in the asset class, and now serves as a portfolio manager in Aberdeen
London with specialization in analysis, management and trading of external Asian
debt and Emerging Market corporate securities. Prior to joining the Sub-Adviser,
Ms. Chan worked as a corporate finance analyst at John Moore, assisting in
various deals focused on the debt restructuring in Indonesian firms facing
creditor holdout situations, post-Asian crisis.
(b)(2) Other Accounts Managed by Portfolio Managers or Management Team Member
and Potential Conflicts of Interest
Information provided as of June 30, 2009
Total Assets
# of Accounts for which
Managed for Advisory
Total # of which Advisory Fee is Based
Name of Portfolio Manager Accounts Total Fee is Based on on
or Team Member Type of Accounts* Managed Assets Preformance Performance
------------------------- ----------------- ------- ------ ----------- -----------
1. Esther Chan Registered Investment Companies: 1 $349.2 0 $0
Other Pooled Investment Vehicles: 12 $1,515.4 0 $0
Other Accounts: 8 $1,938.9 1 $52.9
POTENTIAL CONFLICTS OF INTERESTS
The Sub-Adviser believes that there are no material conflicts of interest in
connection with any Portfolio Manager's management of the Registrant's
investments and investments of other accounts. The Sub-Adviser has adopted the
CFA Institute Code of Ethics and Standards of Professional Conduct and adherence
by all employees is mandatory. All employees are expected to avoid any
employment, associations or business activities, including personal investments,
that interfere with their duties to Aberdeen, divide their loyalty or create or
appear to create a conflict of interest. Employees must promptly report any
situation or transaction involving an actual or potential conflict of interest
to the Compliance Officer.
With regards to allocation, the Sub-Adviser has adopted Best Execution, Soft
Dollar, Order Aggregation, and Trade Allocation Policies & Procedures designed
among other things to ensure fair treatment of all accounts.
The Sub-Adviser aggregates orders so as to realize the benefits of larger block
orders. When executing aggregated orders, it seeks to allocate opportunities to
all clients in a consistent manner. Most portfolios are managed to a model based
on common attributes to a benchmark with low dispersion between accounts and
benchmarks. This is accomplished through the calculation of a 'median account'
with this median account becoming the model portfolio. Certain situations such
as new portfolio fundings, unique guideline restrictions and the fungability of
certain security types may cause us to adjust our weightings. However over time,
we expect to minimize the dispersion of account holdings around the model
portfolio.
New Issue Allocation
The Sub-adviser seeks to allocate new issue opportunities to all clients in a
consistent manner.
New issue opportunities are allocated according to the following factors:
1. All portfolios are ranked based on their account composition versus their
benchmark. The portfolio management team will set a minimum acceptable position
size (in terms of percent of market value) for the security.
2. Next, we define the target percentage for our LAB portfolios, depending on
the characteristics of the security or the percentage of the account based on
that securities' contribution to duration and the current composition of each
account.
3. For portfolios with a benchmark other than LAB, we may adjust the target
allocation to reflect the characteristics of the non-LAB benchmark.
4. We then determine our desired total par value and give our indication of
interest.
5. If our order is completely filled, we will allocate according to the steps
outlined above. If we are allotted a significant percentage of our order
(typically 70% or more), we will allocate pro-rata based on the initial
allocation developed from the steps outlined above. If we are not allotted a
significant percentage of our order, we will remove the non-LAB benchmark
adjustments and allocate pro-rata based on market value of participating
accounts. If this continues to result in accounts receiving less than the
minimum target position size, the least deserving accounts (defined as those
accounts that are closest to the model account) will be eliminated from the
allocation.
Batch Transaction and Allocation Policy - Equity
Where practicable, all client portfolio orders for the same security should be
combined or "batched" and executed as block transactions in order to facilitate
best execution as well as for the purpose of negotiating more favorable
brokerage commissions. Where a block trade is executed for a number of client
accounts, the average execution price on all of the purchases and sales that are
aggregated to this purpose should be used for all accounts.
If an entire block is not fully executed on the same day, an allocation method
should be administered that is fair and reasonable to all clients. If it is not
practicable to allocate the executed portion of the block on a pro rata basis,
allocation may be done on a random account basis (alphabetically, numerically,
or otherwise), but any procedure administered should not operate to consistently
favor or disfavor the same client accounts. If any method is to be used other
than a pro rata method, the manner in which the shares are to be allocated
should be documented, disclosed and signed off by the Chief Compliance Officer.
(b)(3) Compensation Structure of Portfolio Managers or Management Team Members
Each Aberdeen Group member recognizes the importance of compensation in
attracting and retaining talent and has structured remuneration to include an
attractive base salary, a discretionary bonus that is directly linked to one's
contribution to the overall success of the Aberdeen Group member and a long term
incentive plan for key staff members comprised of a mixture of cash, options,
and shares. Overall compensation packages are designed to be competitive
relative to investment management industry standards.
The compensation policy has been designed to deliver additional rewards through
appropriate incentive schemes, both annual and long term. These are directly
linked to performance at both a corporate and an individual level. The policy
seeks to reward performance in a manner which aligns the interests of clients,
shareholders and executives.
Each Aberdeen Group member recognizes that any remuneration policy must be
sufficiently flexible to take account of any changes in the business
environment. In accordance with this need for flexibility, the Aberdeen Group
takes into account the overall competitiveness of the total remuneration package
of all senior executives including some portfolio managers. When justified by
performance, the `at risk' performance elements will form the most significant
element of total remuneration for executive directors and senior employees.
Base Salary.
The base salary is determined by prevailing market conditions and the
compensation for similar positions across the industry. The Aberdeen Group uses
industry compensation surveys as a tool in determining each portfolio manager's
base salary.
Annual Bonus.
The Aberdeen Group's policy is to recognize corporate and individual
achievements each year through an appropriate bonus scheme. The aggregate
incentive compensation pool each year is determined by the Board of the parent
company, Aberdeen PLC, and is dependent on each member of the Aberdeen Group's
overall performance and profitability. The pool is comprised of a base level
plus an agreed proportion of each member of the Aberdeen Group's profitability.
Staff performance is reviewed formally once a year, with mid-term reviews. The
review process looks at all of the ways in which an individual has contributed
to the Aberdeen Group, and specifically, in the case of portfolio managers, to
the relevant investment team. Discretionary bonuses are based on a combination
of both the team and the individual's performance. Overall participation in team
meetings, generation of original research ideas and contribution to presenting
the team externally are also evaluated. Discretionary bonuses are not formally
laid down and generally range from 10% to 50% of annual salary for portfolio
managers.
In the calculation of a portfolio manager's bonus, the Aberdeen Group takes into
consideration investment matters (which include the performance of funds,
adherence to the company investment process, and quality of company meetings) as
well as more subjective issues such as team participation and effectiveness at
client presentations. The split between the two will vary but generally around
80% of bonus will be determined by investment related matters, the remaining 20%
will be more subjective in nature. Each Fund's performance is judged against the
benchmark as established in the relevant Fund's most recent shareholder report.
Portfolio manager performance on investment matters is judged over all of the
accounts the portfolio manager contributes to and is documented in the appraisal
process. A combination of the team's and individual's performance is considered.
Although performance is not a substantial portion of a portfolio manager's
compensation, the Aberdeen Group also recognizes that fund performance can often
be driven by factors outside one's control, such as (irrational) markets, and as
such pays attention to the effort by portfolio managers to ensure integrity of
our core process by sticking to disciplines and processes set, regardless of
momentum and `hot' themes. Short-terming is thus discouraged and
trading-oriented managers will thus find it difficult to thrive in the Aberdeen
Group's environment. Additionally, if any of the aforementioned undue risks were
to be taken by a portfolio manager, not only would the portfolio manager be in
breach of the Aberdeen Group Code of Ethics, but any such trend would be
identified via Aberdeen's dynamic compliance monitoring system.
Long Term Incentives.
As part of an effective remuneration package, a long term incentive plan is used
to structure the package so as to retain, motivate, and reward key staff members
with a view to improving performance and thereby increasing the value of the
Aberdeen Group for the benefit of shareholders. Long-term incentive plans can be
either cash or share based and typically vest over a three year period.
The Aberdeen Group offers a meritocracy and a very flat management structure.
The culture of the company is entrepreneurial, and enthusiastic, hard-working
and talented employees are given plenty of opportunity to prove themselves and
obtain a high level of job satisfaction.
The Aberdeen Group does not "tie in" portfolio managers with long-term and
restrictive contractual obligations, however. The Aberdeen Group aims to retain
key individuals primarily through the provision of competitive compensation and
other benefits. It is the policy of the Aberdeen Group to mitigate the effects
of any individual leaving the company by ensuring that portfolios are managed on
a team basis.
(b)(4) Disclosure of Securities Ownership
Information provided as of June 30, 2009
Dollar Range of Fund
Name Shares Beneficially Owned
Esther Chan $0
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
REGISTRANT PURCHASES OF EQUITY SECURITIES
(D) MAXIMUM NUMBER (OR
(C) TOTAL NUMBER OF SHARES APPROXIMATE DOLLARE VALUE) OF SHARES
(A) TOTAL NUMBER (B) AVERAGE (OR UNITS) PURCHASED AS PART (OR UNITS) THAT MAY YET BE
OF SHARES (OR PRICE PAID PER OF PUBLICLY ANNOUNCED PLANS PURCHASED UNDER THE PLANS OR
PERIOD UNITS)PURCHASED SHARE (OR UNIT) OR PROGRAMS PROGRAMS
----- --------------- -------------- ----------- --------
Month #1
(01/01/2009 -
01/31/2009) 18,749 $11.2762 68,797 639,831
Month #2
(02/01/2009 - 9,556 $10.1038 78,353 630,275
02/28/2009)
Month #3
(03/01/2009 - 32,432 $10.1675 110,785 597,843
03/31/2009)
Month #4
(04/01/2009 - 20,211 $11.3302 130,996 577,632
04/30/2009)
Month #5
(05/01/2009 - 12,470 $12.3901 143,466 565,162
05/31/2009)
Month #6
(06/01/2009 - 41,045 14.1021 184,511 650,367
06/30/2009)
Total 134,463 $11.9109 184,511 650,367
On November 17, 2008, the Registrant commenced a share repurchase program for
purposes of enhancing shareholder value and reducing the discount at which the
Registrant's shares trade from their net asset value. The program originally
expired on May 17, 2009 but on June 2, 2009, the Registrant announced that the
Board of Trustees of the Registrant authorized the continuation of the
Registrant's share repurchase program. For the six months ended June 30, 2009
and the year ended December 31, 2008, the Registrant repurchased 134,463 and
50,048, respectively, of its shares at a weighted average discount of 17.05% and
22.65%, respectively, from net asset value per share. The Registrant expects to
continue to repurchase its outstanding shares as it believes such activity will
further the accomplishment of the foregoing objectives, subject to the earlier
of (i) the repurchase of up to 691,412 of the Registrant's outstanding common
shares, or (ii) December 2, 2009.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of directors, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)),
or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within
90 days of the filing date of the report that includes the disclosure
required by this paragraph, based on their evaluation of these
controls and procedures required by Rule 30a-3(b) under the 1940 Act
(17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the
Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or
240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the registrant's 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.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and
Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
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.
(registrant) FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
By (Signature and Title)* /S/ JAMES A. BOWEN
-------------------------------------------------------
James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
Date AUGUST 24, 2009
----------------------------------------------------------------------------
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 (Signature and Title)* /S/ JAMES A. BOWEN
-------------------------------------------------------
James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
Date AUGUST 24, 2009
----------------------------------------------------------------------------
By (Signature and Title)* /S/ MARK R. BRADLEY
-------------------------------------------------------
Mark R. Bradley, Treasurer, Controller,
Chief Financial Officer and Chief Accounting Officer
(principal financial officer)
Date AUGUST 24, 2009
----------------------------------------------------------------------------
* Print the name and title of each signing officer under his or her signature.