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, 2012 --------------- 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. FIRST TRUST SEMI-ANNUAL REPORT FOR THE SIX MONTHS ENDED JUNE 30, 2012 First Trust/ Aberdeen Emerging Opportunity Fund ABERDEEN ASSET MANAGEMENT -------------------------------------------------------------------------------- TABLE OF CONTENTS -------------------------------------------------------------------------------- FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND (FEO) SEMI-ANNUAL REPORT JUNE 30, 2012 Shareholder Letter........................................................... 1 At A Glance.................................................................. 2 Portfolio Commentary......................................................... 3 Portfolio of Investments..................................................... 7 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 by investing in the Fund. See "Risk Considerations" in the Notes to Financial Statements for a discussion of certain 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 Fund regulatory filings. -------------------------------------------------------------------------------- SHAREHOLDER LETTER -------------------------------------------------------------------------------- FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND (FEO) SEMI-ANNUAL LETTER FROM THE CHAIRMAN AND CEO JUNE 30, 2012 Dear Shareholders: I am pleased to present you with the semi-annual report for your investment in First Trust/Aberdeen Emerging Opportunity Fund (the "Fund"). The report you hold contains detailed information about your investment; a portfolio commentary from the Fund's management team that provides a recap of the period; a performance analysis and a market and Fund outlook. Additionally, you will find the Fund's financial statements for the period this report covers. I encourage you to read this document and discuss it with your financial advisor. A successful investor is also typically a knowledgeable one, as we have found to be the case at First Trust. First Trust remains committed to being a long-term investor and investment manager and to bringing you quality financial solutions regardless of market ups and downs. We have always believed, as I have written previously, that there are two ways to attain success in reaching your financial goals: staying invested in quality products and having a long-term investment horizon. We are committed to this approach in the products we manage or supervise and offer to investors. As you know, First Trust offers a variety of products that we believe could fit many financial plans to help investors seeking long-term investment success. We encourage you to talk to your advisor about the other investments First Trust offers that might also fit your financial goals and to discuss those goals with your advisor regularly so that he or she can help keep you on track. First Trust will continue to make available up-to-date information about your investments so you and your financial advisor are current on any First Trust investments you own. We value our relationship with you, and thank you for the opportunity to assist you in achieving your financial goals. I look forward to the remainder of 2012 and to the next edition of your Fund's report. Sincerely, /s/ James A. Bowen James A. Bowen Chairman of the Board of Trustees of First Trust/Aberdeen Emerging Opportunity Fund and Chief Executive Officer of First Trust Advisors L.P. Page 1 FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND "AT A GLANCE" AS OF JUNE 30, 2012 (UNAUDITED) ----------------------------------------------------------------- FUND STATISTICS ----------------------------------------------------------------- Symbol on New York Stock Exchange FEO Common Share Price $19.24 Common Share Net Asset Value ("NAV") $21.52 Premium (Discount) to NAV (10.59)% Net Assets Applicable to Common Shares $114,677,044 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) 7.28% Current Distribution Rate on NAV (2) 6.51% ----------------------------------------------------------------- ------------------------------------------------ COMMON SHARE PRICE & NAV (WEEKLY CLOSING PRICE) ------------------------------------------------ Common Share Price NAV 6/11 20.89 22.87 21.08 23.15 20.82 22.83 20.92 23.11 7/11 20.72 23.14 19.83 22.36 19.52 21.79 19.29 21.81 8/11 19.52 21.94 19.88 22.27 19.43 21.93 19.36 21.63 17.58 19.77 9/11 17.26 19.73 17.40 19.99 18.61 20.89 18.14 20.72 10/11 19.48 21.80 19.19 21.41 19.16 21.39 18.33 20.81 11/11 17.70 19.96 18.59 20.97 18.57 20.93 17.93 20.41 17.85 20.34 12/11 17.82 20.30 18.28 20.43 18.51 20.71 19.17 21.40 1/12 19.74 21.82 20.18 22.29 20.40 22.11 20.60 22.50 2/12 20.68 22.55 20.98 22.80 20.88 22.63 21.06 22.77 20.43 22.27 3/12 20.78 22.32 21.35 22.20 20.90 22.08 20.50 22.21 4/12 20.79 22.42 21.20 22.26 20.49 21.79 19.03 20.94 5/12 18.95 20.78 18.39 20.47 19.20 20.99 19.24 21.26 18.99 21.01 6/12 19.24 21.52 ---------------------------------------------------------------------------------------------------------------- PERFORMANCE ---------------------------------------------------------------------------------------------------------------- Average Annual Total Return ____________________________________________ 6 Months Ended 1 Year Ended 5 Years Ended Inception (08/28/2006) 6/30/2012 6/30/2012 6/30/2012 to 6/30/2012 FUND PERFORMANCE (3) NAV 9.68% 1.25% 9.09% 11.01% Market Value 11.70% -0.89% 9.38% 8.04% INDEX PERFORMANCE Blended Benchmark(4) 7.10% -2.55% 6.39% 9.09% Barclays Capital Global Emerging Markets Index 6.82% 6.75% 8.34% 8.24% FTSE All World Emerging Market Index 3.54% -15.61% 0.37% 6.54% ---------------------------------------------------------------------------------------------------------------- ---------------------------------- % OF TOTAL TOP 10 COUNTRIES(5) INVESTMENTS ---------------------------------- Brazil 14.0% Mexico 11.6 South Africa 6.5 Russia 6.4 Turkey 6.1 India 4.9 China 4.1 Hungary 3.9 Indonesia 3.7 Hong Kong 3.2 ---------------------------------- Total 64.4% ===== -------------------------------------------------------------------- % OF TOTAL TOP 10 HOLDINGS INVESTMENTS -------------------------------------------------------------------- Mexican Bonos Desarr Fixed Rate Bond, 8.00%, 6/11/20 2.4% Samsung Electronics Co., Ltd., Preference Shares 2.4 Hungary Government Bond, 6.75%, 11/24/17 2.4 Republic of South Africa, 10.50%, 12/21/26 2.2 Brazil Notas do Tesouro Nacional, Series F, 10.00%, 1/1/21 2.1 China Mobile Ltd. 2.0 Russian Foreign Bond, 7.85%, 3/10/18 1.8 Brazil Notas do Tesouro Nacional, Series F, 10.00%, 1/1/17 1.7 Grupo Financiero Banorte, S.A.B. de C.V., O Shares 1.6 Vale S.A., Preference Shares, ADR 1.6 -------------------------------------------------------------------- Total 20.2% ===== ---------------------------------- TOP 10 % OF TOTAL COUNTRIES (5) INVESTMENTS ---------------------------------- AA 1.7% A 10.2 A- 8.9 BBB+ 11.5 BBB 10.6 BBB- 18.5 BB+ 4.6 BB 4.7 BB- 6.7 B+ 12.2 B 4.4 B- 1.1 NR 4.9 ---------------------------------- Total 100.0% ====== ----------------------------------------------------- % OF TOTAL INDUSTRY CLASSIFICATION INVESTMENTS ----------------------------------------------------- Government Bonds and Notes 42.5% Commercial Banks 11.3 Oil, Gas & Consumable Fuels 7.6 Real Estate Management & Development 4.3 Semiconductors & Semiconductor Equipment 3.9 Wireless Telecommunication Services 2.9 Metals & Mining 2.7 Household Durables 2.3 Beverages 2.2 Automobiles 2.0 Food & Staples Retailing 1.7 Diversified Financial Services 1.6 Electric Utilities 1.6 Pharmaceuticals 1.4 Construction Materials 1.2 Specialty Retail 1.1 Thrifts & Mortgage Finance 1.1 Insurance 0.9 IT Services 0.9 Energy Equipment & Services 0.9 Household Products 0.9 Tobacco 0.8 Multiline Retail 0.7 Diversified Telecommunication Services 0.7 Special Purpose Banks 0.6 Transportation Infrastructure 0.5 Chemicals 0.5 Food Products 0.4 Consumer Finance 0.3 Construction & Engineering 0.3 Machinery 0.2 ----------------------------------------------------- Total 100.0% ====== (1) Most recent distribution paid or declared through 6/30/2012. 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 6/30/2012. Subject to change in the future. (3) Total return is based on the combination of reinvested dividend, capital gain and return of capital distributions, if any, at prices obtained by the Dividend Reinvestment Plan and changes in NAV per share for net asset value returns and changes in Common Share price for market value returns. Total returns do not reflect sales load and are not annualized for periods less than one year. Past performance is not indicative of future results. (4) Blended benchmark consists of the following: JPMorgan Emerging Markets Bond Index - Global Diversified (32.5%); JPMorgan Government Bond Index - Emerging Markets (32.5%); MSCI Emerging Markets Index (35.0%). (5) Fixed-income portfolio securities are included in a country based upon their underlying credit exposure as determined by Aberdeen Asset Management Inc., the sub-advisor. (6) 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 more than one NRSRO and the ratings are not equivalent, the highest ratings are used. Page 2 -------------------------------------------------------------------------------- PORTFOLIO COMMENTARY -------------------------------------------------------------------------------- FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND (FEO) SEMI-ANNUAL REPORT JUNE 30, 2012 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 MANNING INVESTMENT MANAGER, GEM EQUITY TEAM Ms. Manning is an investment manager on the emerging markets ex-Asia team. Ms. Manning joined Aberdeen in 2001 as an analyst. ANDY BROWN INVESTMENT MANAGER, GEM EQUITY TEAM Mr. Brown is an 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. PETER TAYLOR SENIOR INVESTMENT MANAGER/HEAD OF CORPORATE GOVERNANCE Mr. Taylor is an investment manager and head of corporate governance on the Asian equities desk. Mr. Taylor joined Aberdeen in 2007 from the International Finance Corporation, where he worked on corporate governance and capital markets development for seven years from their Washington DC and Hong Kong offices. 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. 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 fixed-income 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. MARKET RECAP - EQUITY Emerging markets equities posted positive returns during the six months ended June 30, 2012. Stock markets rose at first, lifted by the U.S. Federal Reserve's commitment to keep interest rates low until late 2014 and liquidity injections from leading central banks, which eased Eurozone contagion fears. Subsequently, however, risk appetite waned as soft economic data stoked global growth fears, while Europe's debt woes deepened on the back of Spain's banking crisis. Equities rebounded at the end of the reporting period, helped by the outcome of the Greek election and Europe's latest efforts to address the region's debt crisis. China's interest rate cut and the hopes that other leading central banks might introduce similar stimulus to counter flagging economic growth further boosted sentiment. MARKET RECAP - FIXED INCOME Emerging market debt posted strong gains during the six months under review, despite a blip in May when some emerging market currencies' losses reached double-digits. Improved global risk appetite at the beginning of the year was inspired by the European Central Bank's ("ECB") liquidity injection via the initial Long-Term Refinancing Operation ("LTRO") and the U.S. Federal Reserve's dovish interest rate outlook. There was some positive news from Europe, where politicians agreed to plan for the establishment of a pan Eurozone Bank Supervisory body, allowing distressed banks to access the European Financial Stability Fund/European Stability Mechanism directly with lighter conditionality and without the need to go via the Sovereign Bank. Page 4 -------------------------------------------------------------------------------- PORTFOLIO COMMENTARY - (CONTINUED) -------------------------------------------------------------------------------- On the other hand, Standard & Poor's, the credit rating agency, downgraded Spain by two notches to BBB+, forcing the economy to request a bailout of (euro)100 billion. The French presidential election was won by Francois Hollande. In Greek elections, the New Democracy party gained the most votes and managed to form a working coalition with minority partner group Panhellenic Socialist Movement ("PASOK") and Dimokratiki Aristera ("DIMAR"). In the U.S., the Fed announced an extension of Operation Twist, buying $267 billion worth of securities. The Peoples Bank of China cut the Required Reserve Ratios by 50 basis points to 20% for large banks and reduced benchmark lending and deposit rates by 25 basis points to 6.31% and 3.25%, respectively, in response to the softer data. Over the six-month period, the JPMorgan Emerging Markets Bond Index-Global Diversified ("JPM EMBI") gained 7.1%, while the benchmark spread narrowed by 44bps to 360bps over U.S. treasuries. Top performers came in the form of the high yielders, as Ivory Coast, Senegal, Belarus and Venezuela surged ahead, while Argentina and Belarus were the only credits whose returns were negative. The JPMorgan Government Bond Index-Emerging Markets ("JPM GBI-EM") returned 9.75% during the period. Europe was the strongest region, spurred on by good performance in Hungary and Turkey, while Asia lagged as Indonesia and Thailand underperformed. FUND RECAP The Fund had a net asset value ("NAV") total return1 of 9.68% and a market value total return1 of 11.70% for the six months ended June 30, 2012, compared to the Fund's blended benchmark total return of 7.10% over the same period. In addition to the blended benchmark, the Fund currently uses other indexes for comparative purposes. The total returns for the six months ended June 30, 2012, for these indices were as follows: the Barclays Capital Global Emerging Markets Index was 6.82% and the FTSE All World Emerging Market Index was 3.54%. PERFORMANCE ANALYSIS - EQUITY The equity portion of the Fund outperformed the MSCI (Morgan Stanley Capital International) Global Emerging Markets Index portion of the benchmark by 7.41% in U.S. dollar terms over the six-month period ended June 30, 2012. The Fund's outperformance was largely driven by good stock selection. At the stock level, the Fund's holdings in Brazil, Mexico and South Africa contributed to relative performance. Brazilian fuels and chemicals company Ultrapar's share price rallied on the back of another set of solid results where all its divisions did well. However, the gains in Brazil were pared somewhat by Petrobras and Bradesco. Oil company Petrobras' shares fell as the recent price hikes were lower than expected, while bank Bradesco was affected by anxieties over growing government intervention. The bank's share price also came under pressure after it lowered its full-year loan growth guidance given the sluggish domestic economy, while its credit rating was cut a notch by Moody's. In Mexico, good first-quarter earnings and a positive domestic outlook supported lender Banorte as well as beverage company and convenience store operator Femsa. In South Africa, better-than-expected domestic retail sales underpinned retailer Truworths, while brewer SABMiller benefited from positive earnings that were driven by encouraging pricing and volume growth in Latin America and Africa. Likewise, Turkish discount retail chain BIM gained from solid results as impressive cost control led to better-than-expected margins. Asset allocation was also positive, aided by the overweight to both Turkey and Mexico, as well as the non-benchmark exposure to Hong Kong. Healthy domestic economic growth buoyed Turkish and Mexican equities; Turkey was further boosted towards the end of the review period when Moody's upgraded the country's credit rating to a notch below investment-grade because of improved finances. On the other hand, the Fund's overweight to Brazil and non-benchmark exposure to Argentina detracted from relative performance. Both stock markets lagged the region as their currencies depreciated markedly against the U.S. dollar. Regulatory and policy risks also weighed on Brazilian stocks, while in Argentina, sentiment was further dampened by the re-nationalization of YPF, the nation's biggest oil company. An important factor impacting the return of the Fund relative to its benchmarks was the Fund's use of financial leverage through the use of bank borrowings. The Fund uses leverage because its managers believe that, over time, leverage provides opportunities for additional income and total return for common shareholders. However, the use of leverage can also expose common shareholders to additional volatility. For example, as the prices of securities held by the Fund decline, the negative impact of the evaluation changes on Common Share NAV and Common shareholder total return is magnified by the use of leverage. Conversely, leverage may enhance Common Share returns during periods when the prices of securities held by the Fund generally are rising. Unlike the Fund, the Barclays Capital Global Emerging Markets Index and the FTSE All World Emerging Market Index are not leveraged. Leverage had a positive impact on the performance of the Fund over this reporting period. ------------------- 1 Total return is based on the combination of reinvested dividend, capital gain and return of capital distributions, if any, at prices obtained by the Dividend Reinvestment Plan, and changes in net asset value per share for net asset value returns and changes in Common Share price for market value returns. Total returns do not reflect sales load. Past performance is not indicative of future results. Page 5 -------------------------------------------------------------------------------- PORTFOLIO COMMENTARY - (CONTINUED) -------------------------------------------------------------------------------- PERFORMANCE ANALYSIS - FIXED INCOME The Fund outperformed its blended benchmark of both hard currency and local bonds, although underperformed in local currency space. Within the hard currency space, the Fund's overweight position in Ivory Coast was the key positive contributor to performance as the credit paid its first coupon since the end of the political crisis and official creditors granted debt relief that will reduce public debt/GDP to a more sustainable level of approximately 50%. Overweight positions in Latin America, specifically Venezuela and Mexico, also added value to the Fund. An overweight position in Argentina, where fears of forced conversion of dollar-denominated instruments into pesos unnerved the market; and underweights in Peru, Poland and Hungary, were the key detractors from the Fund. Within the local currency holdings, overweight positions in Mexico and South Africa benefited the Fund as did an underweight in Malaysia. Underweight positions in Colombia and Peru were the main detractors from performance as was an overweight in Indonesia. MARKET OUTLOOK - EQUITY Emerging markets equities remain vulnerable to further deterioration in Europe's debt crisis and its impact on world growth. Eurozone leaders appear to be tackling the region's debt problems with the fresh emergency measures, but the underlying structural issues remain unresolved. Meanwhile, global economic activity is losing momentum after an optimistic start to the year, with various leading indicators pointing to weaker growth conditions ahead. At the corporate level, most of the Fund's holdings remain resilient despite slower earnings prospects. Notably, valuations in the asset class have come off in the wake of previous sell-offs and this should provide opportunities to pick up favoured stocks at reasonable prices. MARKET OUTLOOK - FIXED INCOME At the end of June, better than expected news from the European Union summit provided the market with a sense of palpable relief heading into the second half of 2012. Looking ahead, the focus is likely to shift back to growth indicators, namely China and the U.S., where signs of a slowdown are gathering some pace. In this environment, risk assets could see some profit-taking following a strong recovery in June, but inflows into Emerging Market Debt are likely to increase in the still low yield environment, which should provide further support for the asset class. Page 6 FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND PORTFOLIO OF INVESTMENTS (a) JUNE 30, 2012 (UNAUDITED) SHARES DESCRIPTION VALUE --------------- ---------------------------------------------------------------------------------------- ------------ COMMON STOCKS - 46.4% BRAZIL - 8.1% 100,924 Banco Bradesco S.A., ADR................................................................ $ 1,500,740 28,000 Lojas Renner S.A........................................................................ 782,773 33,000 Multiplan Empreendimentos Imobiliarios S.A.............................................. 805,078 76,000 Petroleo Brasileiro S.A., ADR........................................................... 1,378,640 66,500 Souza Cruz S.A.......................................................................... 966,129 84,000 Ultrapar Participacoes S.A.............................................................. 1,910,441 99,100 Vale S.A., Preference Shares, ADR....................................................... 1,933,441 ------------ 9,277,242 ------------ CHILE - 0.8% 12,600 Banco Santander Chile S.A., ADR......................................................... 976,374 ------------ CHINA - 3.3% 216,500 China Mobile Ltd........................................................................ 2,376,626 1,070,000 PetroChina Co., Ltd., Class H........................................................... 1,384,860 ------------ 3,761,486 ------------ HONG KONG - 3.4% 245,600 AIA Group Ltd........................................................................... 848,317 202,000 Hang Lung Group Ltd..................................................................... 1,249,000 640,000 Swire Pacific Ltd., B Shares............................................................ 1,477,077 89,600 Swire Properties Ltd.................................................................... 269,829 ------------ 3,844,223 ------------ HUNGARY - 0.8% 5,500 Richter Gedeon Nyrt..................................................................... 907,700 ------------ INDIA - 5.1% 29,543 Bharti Airtel Ltd....................................................................... 162,642 20,000 GlaxoSmithKline Pharmaceuticals Ltd..................................................... 725,984 13,000 Grasim Industries Ltd................................................................... 616,707 23,000 Hero Honda Motors Ltd................................................................... 892,363 62,000 Hindustan Unilever Ltd.................................................................. 506,293 110,500 Housing Development Finance Corp., Ltd.................................................. 1,303,032 20,000 ICICI Bank Ltd.......................................................................... 324,864 23,668 Infosys Technologies Ltd................................................................ 1,072,993 7,428 UltraTech Cement Ltd.................................................................... 202,334 ------------ 5,807,212 ------------ INDONESIA - 1.3% 1,955,000 PT Astra International Tbk.............................................................. 1,441,223 ------------ ITALY - 0.9% 30,600 Tenaris S.A., ADR....................................................................... 1,070,082 ------------ KAZAKHSTAN - 0.0% 376 BTA Bank JSC (g)........................................................................ 2 ------------ MALAYSIA - 1.4% 220,000 CIMB Group Holdings Berhad.............................................................. 527,208 249,000 Public Bank Berhad...................................................................... 1,082,235 ------------ 1,609,443 ------------ See Notes to Financial Statements Page 7 FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND PORTFOLIO OF INVESTMENTS (a) - (CONTINUED) JUNE 30, 2012 (UNAUDITED) SHARES DESCRIPTION VALUE --------------- ---------------------------------------------------------------------------------------- ------------ COMMON STOCKS - (CONTINUED) MEXICO - 4.3% 19,900 Fomento Economico Mexicano, S.A.B. de C.V., ADR......................................... $ 1,776,075 40,000 Grupo Aeroportuario del Centro Norte, S.A.B. de C.V., ADR............................... 656,000 380,000 Grupo Financiero Banorte, S.A.B. de C.V., O Shares...................................... 1,963,852 276,000 Kimberly-Clark de Mexico, S.A.B. de C.V., A Shares...................................... 540,633 ------------ 4,936,560 ------------ PHILIPPINES - 1.4% 1,550,000 Ayala Land, Inc......................................................................... 799,397 484,672 Bank of the Philippine Islands.......................................................... 861,769 ------------ 1,661,166 ------------ POLAND - 0.7% 18,000 Bank Pekao S.A.......................................................................... 821,056 ------------ RUSSIA - 1.2% 25,500 LUKOIL, ADR............................................................................. 1,430,040 ------------ SOUTH AFRICA - 2.7% 43,610 Massmart Holdings Ltd................................................................... 902,961 20,978 SABMiller PLC........................................................................... 849,079 119,729 Truworths International Ltd............................................................. 1,313,735 ------------ 3,065,775 ------------ SOUTH KOREA - 2.8% 1,256 E-Mart Co., Ltd......................................................................... 275,685 4,300 Samsung Electronics Co., Ltd., Preference Shares........................................ 2,838,653 443 Shinsegae Co., Ltd...................................................................... 81,640 ------------ 3,195,978 ------------ TAIWAN - 2.1% 210,005 Taiwan Mobile Co., Ltd.................................................................. 694,480 643,954 Taiwan Semiconductor Manufacturing Co., Ltd............................................. 1,762,804 ------------ 2,457,284 ------------ THAILAND - 2.7% 190,000 PTT Exploration and Production Public Co., Ltd.......................................... 1,012,707 89,200 Siam Cement Public (The) Co., Ltd....................................................... 1,023,381 230,600 Siam Commercial Bank Public Co., Ltd.................................................... 1,079,146 ------------ 3,115,234 ------------ TURKEY - 2.4% 87,635 Akbank TAS.............................................................................. 321,289 253,000 Aksigorta AS............................................................................ 270,614 20,222 Bim Birlesik Magazalar A.S.............................................................. 834,791 181,150 Haci Omer Sabanci Holding AS............................................................ 762,768 141,000 Turkiye Garanti Bankasi AS.............................................................. 555,047 ------------ 2,744,509 ------------ UNITED KINGDOM - 1.0% 51,408 Standard Chartered PLC.................................................................. 1,116,732 ------------ TOTAL COMMON STOCKS..................................................................... 53,239,321 (Cost $38,021,381) ------------ Page 8 See Notes to Financial Statements FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND PORTFOLIO OF INVESTMENTS (a) - (CONTINUED) JUNE 30, 2012 (UNAUDITED) PRINCIPAL VALUE (LOCAL STATED VALUE CURRENCY) DESCRIPTION COUPON MATURITY (US DOLLARS) --------------- ------------------------------------------------------------ ----------- ------------ ------------ FOREIGN SOVEREIGN BONDS AND NOTES - 44.1% ARGENTINA - 1.1% 470,000 Republic of Argentina (USD)................................. 7.00% 09/12/13 $ 416,601 815,000 Republic of Argentina (USD)................................. 7.00% 04/17/17 554,735 295,000 Republic of Argentina (USD)................................. 8.75% 06/02/17 255,175 ------------ 1,226,511 ------------ BRAZIL - 4.7% 738,000 Brazil Notas do Tesouro Nacional Series F (BRL)............. 10.00% 01/01/15 379,477 4,070,000 Brazil Notas do Tesouro Nacional Series F (BRL)............. 10.00% 01/01/17 2,080,772 4,910,000 Brazil Notas do Tesouro Nacional Series F (BRL)............. 10.00% 01/01/21 2,456,584 400,000 Republic of Brazil (USD).................................... 5.63% 01/07/41 492,600 ------------ 5,409,433 ------------ CROATIA - 1.5% 700,000 Croatia Government International Bond (USD)................. 6.25% 04/27/17 698,832 1,000,000 Croatia Government International Bond (USD)................. 6.63% 07/14/20 998,940 ------------ 1,697,772 ------------ DOMINICAN REPUBLIC - 0.9% 450,000 Dominican Republic (USD).................................... 7.50% 05/06/21 482,625 528,000 Dominican Republic (USD).................................... 8.63% 04/20/27 572,880 ------------ 1,055,505 ------------ EGYPT - 0.6% 250,000 Arab Republic of Egypt (USD)................................ 6.88% 04/30/40 217,500 500,000 Arab Republic of Egypt (USD)................................ 6.88% 04/30/40 435,000 ------------ 652,500 ------------ EL SALVADOR - 0.2% 270,000 Republic of El Salvador (USD)............................... 7.63% 02/01/41 285,255 ------------ GEORGIA - 0.5% 350,000 Georgian Oil and Gas Corp. (USD)............................ 6.88% 05/16/17 344,050 200,000 JSC Georgian Railway (USD).................................. 7.75% 07/11/22 199,996 ------------ 544,046 ------------ HUNGARY - 3.2% 40,000,000 Hungary Government Bond (HUF)............................... 6.75% 08/22/14 175,200 663,000,000 Hungary Government Bond (HUF)............................... 6.75% 11/24/17 2,828,417 550,000 Republic of Hungary (EUR)................................... 4.50% 01/29/14 687,918 ------------ 3,691,535 ------------ INDONESIA - 1.4% 4,000,000,000 Indonesian Government Bond (IDR)............................ 10.00% 07/15/17 509,654 8,000,000,000 Indonesian Government Bond (IDR)............................ 10.50% 08/15/30 1,165,534 ------------ 1,675,188 ------------ IVORY COAST - 1.3% 1,930,000 Ivory Coast Government Bond (USD)........................... 3.75% 12/31/32 1,447,500 ------------ See Notes to Financial Statements Page 9 FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND PORTFOLIO OF INVESTMENTS (a) - (CONTINUED) JUNE 30, 2012 (UNAUDITED) PRINCIPAL VALUE (LOCAL STATED VALUE CURRENCY) DESCRIPTION COUPON MATURITY (US DOLLARS) --------------- ------------------------------------------------------------ ----------- ------------ ------------ FOREIGN SOVEREIGN BONDS AND NOTES - (CONTINUED) LITHUANIA - 1.5% 1,140,000 Republic of Lithuania (USD)................................. 7.38% 02/11/20 $ 1,350,626 300,000 Republic of Lithuania (USD)................................. 6.63% 02/01/22 344,625 ------------ 1,695,251 ------------ MALAYSIA - 1.8% 2,500,000 Malaysia Government Bond (MYR).............................. 3.21% 05/31/13 788,985 3,900,000 Malaysia Government Bond (MYR).............................. 4.01% 09/15/17 1,273,059 ------------ 2,062,044 ------------ MEXICO - 4.9% 16,500,000 Mexican Bonos Desarr Fixed Rate Bond (MXN).................. 9.50% 12/18/14 1,375,746 32,200,000 Mexican Bonos Desarr Fixed Rate Bond (MXN).................. 8.00% 06/11/20 2,862,692 12,800,000 Mexican Bonos Desarr Fixed Rate Bond (MXN).................. 7.50% 06/03/27 1,091,760 1,840,000 Mexican Bonos Desarr Fixed Rate Bond (MXN).................. 10.00% 11/20/36 192,002 100,000 United Mexican States (USD)................................. 6.05% 01/11/40 129,500 ------------ 5,651,700 ------------ PAKISTAN - 0.6% 900,000 Islamic Republic of Pakistan (USD).......................... 6.88% 06/01/17 711,000 ------------ PERU - 1.1% 2,900,000 Peruvian Government Bond (PEN).............................. 7.84% 08/12/20 1,292,733 ------------ QATAR - 1.0% 990,000 State of Qatar (USD)........................................ 5.25% 01/20/20 1,146,420 ------------ RUSSIA - 3.3% 50,000,000 Russian Foreign Bond (RUB).................................. 7.85% 03/10/18 1,631,093 65,000,000 Russian Foreign Bond (RUB).................................. 7.85% 03/10/18 2,120,422 ------------ 3,751,515 ------------ SENEGAL - 0.4% 450,000 Republic of Senegal (USD)................................... 8.75% 05/13/21 497,250 ------------ SERBIA - 1.1% 650,000 Republic of Serbia (USD).................................... 7.25% 09/28/21 671,125 61,000,000 Serbia Treasury Bill (RSD).................................. (b) 12/13/12 632,711 ------------ 1,303,836 ------------ SOUTH AFRICA - 4.1% 520,000 Eskom Holdings Ltd. (USD)................................... 5.75% 01/26/21 571,350 11,350,000 Republic of South Africa (ZAR).............................. 8.25% 09/15/17 1,489,927 17,470,000 Republic of South Africa (ZAR).............................. 10.50% 12/21/26 2,597,682 ------------ 4,658,959 ------------ TURKEY - 3.3% 1,000,000 Republic of Turkey (USD).................................... 6.25% 09/26/22 1,135,000 1,470,000 Turkey Government Bond (TRY)................................ 16.00% 08/28/13 877,855 1,300,000 Turkey Government Bond (TRY)................................ 9.00% 01/27/16 731,407 1,700,000 Turkey Government Bond (TRY)................................ 10.50% 01/15/20 1,035,416 ------------ 3,779,678 ------------ Page 10 See Notes to Financial Statements FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND PORTFOLIO OF INVESTMENTS (a) - (CONTINUED) JUNE 30, 2012 (UNAUDITED) PRINCIPAL VALUE (LOCAL STATED VALUE CURRENCY) DESCRIPTION COUPON MATURITY (US DOLLARS) --------------- ------------------------------------------------------------ ----------- ------------ ------------ FOREIGN SOVEREIGN BONDS AND NOTES - (CONTINUED) UKRAINE - 0.1% 130,000 Ukraine Government Bond (USD)............................... 6.58% 11/21/16 $ 117,000 ------------ UNITED ARAB EMIRATES - 1.3% 1,300,000 Dubai Government International Bond (USD)................... 7.75% 10/05/20 1,469,000 ------------ URUGUAY - 1.2% 14,020,000 Republica Orient Uruguay, Inflation Adjusted Bond (UYU) (c). 5.00% 09/14/18 1,088,042 3,720,000 Republica Orient Uruguay, Inflation Adjusted Bond (UYU) (c). 4.25% 04/05/27 273,666 ------------ 1,361,708 ------------ VENEZUELA - 2.5% 300,000 Republic of Venezuela (USD)................................. 8.50% 10/08/14 298,500 2,150,000 Republic of Venezuela (USD)................................. 5.75% 02/26/16 1,859,750 600,000 Republic of Venezuela (USD)................................. 7.75% 10/13/19 463,500 350,000 Republic of Venezuela (USD)................................. 7.65% 04/21/25 243,250 ------------ 2,865,000 ------------ VIETNAM - 0.5% 500,000 Socialist Republic of Vietnam (USD)......................... 6.88% 01/15/16 533,750 ------------ TOTAL FOREIGN SOVEREIGN BONDS AND NOTES................................................. 50,582,089 (Cost $49,347,991) ------------ FOREIGN CORPORATE BONDS AND NOTES (D) - 13.3% BRAZIL - 1.8% 200,000 Banco do Estado do Rio Grande do Sul (USD).................. 7.38% 02/02/22 206,316 200,000 BRF - Brasil Foods S.A. (USD)............................... 5.88% 06/06/22 206,500 200,000 Centrais Eletricas Brasileiras S.A. (USD)................... 5.75% 10/27/21 219,758 150,000 Odebrecht Finance Ltd. (USD)................................ 7.50% 09/14/15 154,920 200,000 Odebrecht Finance Ltd. (USD)................................ 7.13% 06/26/42 200,000 550,000 OGX Petroleo e Gas Participacoes S.A. (USD)................. 8.50% 06/01/18 492,250 300,000 OSX 3 Leasing B.V. (USD).................................... 9.25% 03/20/15 301,050 230,000 Rearden G Holdings Eins GmbH (USD).......................... 7.88% 03/30/20 242,891 ------------ 2,023,685 ------------ CHINA - 1.0% 350,000 Central China Real Estate Ltd. (USD)........................ 12.25% 10/20/15 366,170 100,000 China Overseas Finance Cayman II Ltd. (USD)................. 5.50% 11/10/20 103,514 500,000 MCC Holding (Hong Kong) Corp. Ltd. (USD).................... 4.88% 07/29/16 495,401 200,000 Yancoal International Resources Development Co. Ltd. (USD).. 5.73% 05/16/22 197,246 ------------ 1,162,331 ------------ DOMINICAN REPUBLIC - 0.3% 350,000 AES Andres Dominicana/Itabo Dominicana (USD)................ 9.50% 11/12/20 364,000 ------------ EL SALVADOR - 0.4% 450,000 Telemovil Finance Co., Ltd. (USD)........................... 8.00% 10/01/17 465,737 ------------ GUATEMALA - 0.4% 400,000 Industrial Subordinated Trust (USD)......................... 8.25% 07/27/21 424,548 ------------ See Notes to Financial Statements Page 11 FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND PORTFOLIO OF INVESTMENTS (a) - (CONTINUED) JUNE 30, 2012 (UNAUDITED) PRINCIPAL VALUE (LOCAL STATED VALUE CURRENCY) DESCRIPTION COUPON MATURITY (US DOLLARS) --------------- ------------------------------------------------------------ ----------- ------------ ------------ FOREIGN CORPORATE BONDS AND NOTES (D) - (CONTINUED) INDONESIA - 1.1% 410,000 Majapahit Holding B.V. (USD)................................ 7.75% 10/17/16 $ 469,963 600,000 Pertamina Persero PT (USD).................................. 4.88% 05/03/22 602,064 150,000 PT Adaro Indonesia (USD).................................... 7.63% 10/22/19 160,500 ------------ 1,232,527 ------------ KAZAKHSTAN - 0.0% 10 BTA Bank JSC (USD) (e)...................................... 10.75% 07/01/18 2 ------------ MEXICO - 2.8% 540,000 Axtel S.A.B. de C.V. (USD).................................. 9.00% 09/22/19 361,800 400,000 Corporacion GEO S.A. de C.V. (USD).......................... 8.88% 03/27/22 413,000 684,000 Desarrolladora Homex S.A. (USD)............................. 9.50% 12/11/19 718,200 200,000 Desarrolladora Homex S.A. (USD)............................. 9.75% 03/25/20 211,000 640,250 GEO Maquinaria S.A. de C.V. (USD)........................... 9.63% 05/02/21 580,227 100,000 Petroleos Mexicanos (USD)................................... 6.50% 06/02/41 117,250 457,000 Servicios Corporativos Javer Sapi de C.V. (USD)............. 9.88% 04/06/21 434,150 125,000 Urbi Desarrollos Urbanos Sab de C.V. (USD).................. 9.50% 01/21/20 131,875 200,000 Urbi Desarrollos Urbanos Sab de C.V. (USD).................. 9.75% 02/03/22 211,500 ------------ 3,179,002 ------------ MULTINATIONAL - 0.6% 700,000 African Export-Import Bank (USD)............................ 5.75% 07/27/16 733,250 ------------ NIGERIA - 0.3% 350,000 GTB Finance B.V. (USD)...................................... 7.50% 05/19/16 364,000 ------------ PHILIPPINES - 0.2% 250,000 Alliance Global Group, Inc. (USD)........................... 6.50% 08/18/17 265,730 ------------ RUSSIA - 2.2% 450,000 Alfa Bank (USD)............................................. 7.88% 09/25/17 455,175 200,000 Alfa Bank OJSC Via Alfa Bond Issuance PLC (USD)............. 7.75% 04/28/21 196,550 350,000 Home Credit & Finance Bank via Eurasia Capital S.A. (USD)... 7.00% 03/18/14 360,500 400,000 Metalloinvest Finance Ltd. (USD)............................ 6.50% 07/21/16 399,000 300,000 Sberbank of Russia via SB Capital S.A. (USD)................ 6.13% 02/07/22 313,776 200,000 Vimpelcom Ltd. (USD)........................................ 6.49% 02/02/16 199,900 400,000 VTB Bank OJSC Via VTB Capital S.A. (USD).................... 6.00% 04/12/17 407,000 150,000 VTB Bank OJSC Via VTB Capital S.A. (USD).................... 6.55% 10/13/20 151,312 ------------ 2,483,213 ------------ TURKEY - 0.6% 200,000 Turkiye Vakiflar Bankasi (USD).............................. 5.75% 04/24/17 203,304 500,000 Yasar Holdings (USD)........................................ 9.63% 10/07/15 501,275 ------------ 704,579 ------------ UKRAINE - 0.4% 200,000 Metinvest B.V. (USD)........................................ 8.75% 02/14/18 183,000 250,000 MHP S.A. (USD).............................................. 10.25% 04/29/15 242,190 ------------ 425,190 ------------ Page 12 See Notes to Financial Statements FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND PORTFOLIO OF INVESTMENTS (a) - (CONTINUED) JUNE 30, 2012 (UNAUDITED) PRINCIPAL VALUE (LOCAL STATED VALUE CURRENCY) DESCRIPTION COUPON MATURITY (US DOLLARS) --------------- ------------------------------------------------------------ ----------- ------------ ------------ FOREIGN CORPORATE BONDS AND NOTES (D) - (CONTINUED) UNITED ARAB EMIRATES - 0.7% 750,000 Dubai Electricity & Water Authority (USD)................... 7.38% 10/21/20 $ 825,000 ------------ VENEZUELA - 0.5% 750,000 Petroleos de Venezuela S.A. (USD)........................... 8.50% 11/02/17 611,250 ------------ TOTAL FOREIGN CORPORATE BONDS AND NOTES................................................. 15,264,044 ------------ (Cost $15,059,107) TOTAL INVESTMENTS - 103.8%.............................................................. 119,085,454 (Cost $102,428,479) (f) OUTSTANDING LOANS - (5.0%).............................................................. (5,800,000) NET OTHER ASSETS AND LIABILITIES - 1.2%................................................. 1,391,590 ------------ NET ASSETS - 100.0%..................................................................... $114,677,044 ============ ----------------------------- (a) All of these securities are available to serve as collateral for the outstanding loans. (b) Zero coupon bond. (c) 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. (d) Portfolio securities are included in a country based upon their underlying credit exposure as determined by Aberdeen Asset Management Inc., the Fund's sub-advisor. (e) The issuer is in default and has filed for protection in bankruptcy court. Income is not being accrued. (f) Aggregate cost for financial reporting purposes, which approximates the aggregate cost for federal income tax purposes. As of June 30, 2012, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $20,274,591 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $3,617,616. (g) Non-income producing security. ADR American Depositary Receipt Currency Abbreviations BRL Brazilian Real EUR Euro HUF Hungarian Forint IDR Indonesian Rupiah MXN Mexican Peso MYR Malaysian Ringgit PEN Peruvian New Sol RSD Serbian Dinar RUB Russian Ruble TRY Turkish Lira USD United States Dollar UYU Uruguayan Peso ZAR South African Rand See Notes to Financial Statements Page 13 FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND PORTFOLIO OF INVESTMENTS (A) - (CONTINUED) JUNE 30, 2012 (UNAUDITED) VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of June 30, 2012 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): ASSETS TABLE LEVEL 2 LEVEL 3 TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT VALUE AT QUOTED OBSERVABLE UNOBSERVABLE 6/30/2012 PRICES INPUTS INPUTS ------------ ------------ ------------ ------------ Common Stocks: Brazil..................................... $ 9,277,242 $ 9,277,242 $ -- $ -- Chile...................................... 976,374 976,374 -- -- China...................................... 3,761,486 -- 3,761,486 -- Hong Kong.................................. 3,844,223 -- 3,844,223 -- Hungary.................................... 907,700 -- 907,700 -- India...................................... 5,807,212 -- 5,807,212 -- Indonesia.................................. 1,441,223 -- 1,441,223 -- Italy...................................... 1,070,082 -- 1,070,082 -- Kazakhstan................................. 2 -- 2 -- Malaysia................................... 1,609,443 -- 1,609,443 -- Mexico..................................... 4,936,560 4,936,560 -- -- Philippines................................ 1,661,166 -- 1,661,166 -- Poland..................................... 821,056 -- 821,056 -- Russia..................................... 1,430,040 1,430,040 -- -- South Africa............................... 3,065,775 -- 3,065,775 -- South Korea................................ 3,195,978 -- 3,195,978 -- Taiwan..................................... 2,457,284 -- 2,457,284 -- Thailand................................... 3,115,234 -- 3,115,234 -- Turkey..................................... 2,744,509 -- 2,744,509 -- United Kingdom............................. 1,116,732 -- 1,116,732 -- ------------ ------------ ------------ ------------ Total Common Stocks..................... 53,239,321 16,620,216 36,619,105 -- Foreign Sovereign Bonds and Notes*.............. 50,582,089 -- 50,582,089 -- Foreign Corporate Bonds and Notes*.............. 15,264,044 -- 15,264,044 -- ------------ ------------ ------------ ------------ Total Investments............................... 119,085,454 16,620,216 102,465,238 -- Forward Foreign Currency Contracts**............ 39,310 -- 39,310 -- ------------ ------------ ------------ ------------ Total........................................... $119,124,764 $ 16,620,216 $102,504,548 $ -- ============ ============ ============ ============ LIABILITIES TABLE LEVEL 2 LEVEL 3 TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT VALUE AT QUOTED OBSERVABLE UNOBSERVABLE 6/30/2012 PRICES INPUTS INPUTS ------------ ------------ ------------ ------------ Forward Foreign Currency Contracts**............ $ (124,032) $ -- $ (124,032) $ -- ============ ============ ============ ============ * See the Portfolio of Investments for country breakout. ** See the Schedule of Forward Foreign Currency Contracts for contract and currency detail. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. As of June 30, 2012, the Fund transferred common stock valued at $47,901,930 from Level 1 to Level 2 of the fair value hierarchy. The common stocks that transferred from Level 1 to Level 2 did so as a result of a lack of trading volume on the primary exchange on June 29, 2012, the last business day of the month, and as a result of foreign equities that were valued based on quoted prices at December 31, 2011 that are now being fair valued using a factor provided by a pricing service due to the change in value between the foreign markets' close and the New York Stock Exchange close on June 29, 2012 exceeding a certain threshold. Page 14 See Notes to Financial Statements FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS JUNE 30, 2012 (UNAUDITED) FORWARD FOREIGN CURRENCY CONTRACTS ---------------------------------------------------------- PURCHASE SALE UNREALIZED SETTLEMENT AMOUNT AMOUNT VALUE AS OF VALUE AS OF APPRECIATION DATE COUNTERPARTY PURCHASED (a) SOLD (a) JUNE 30, 2012 JUNE 30, 2012 (DEPRECIATION) ----------- ------------ -------------------- ------------------- ------------- ------------- -------------- 07/20/12 JPM HUF 193,857,000 USD 850,732 $ 855,938 $ 850,732 $ 5,206 07/20/12 RBS HUF 275,178,000 USD 1,247,294 1,214,995 1,247,294 (32,299) 07/20/12 RBS MXN 2,491,000 USD 187,782 186,340 187,782 (1,442) 09/05/12 RBS RUB 21,117,000 USD 634,907 643,856 634,907 8,949 07/20/12 JPM TRY 1,087,000 USD 601,241 598,122 601,241 (3,119) 09/05/12 RBS USD 1,883,844 BRL 3,834,000 1,883,844 1,884,172 (328) 07/20/12 SSB USD 642,973 EUR 490,000 642,973 620,203 22,770 07/20/12 SSB USD 3,604,958 HUF 826,862,000 3,604,958 3,650,849 (45,891) 09/05/12 RBS USD 680,291 IDR 6,734,876,000 680,291 710,427 (30,136) 07/20/12 SSB USD 188,725 MXN 2,491,000 188,725 186,340 2,385 09/05/12 RBS USD 637,075 RUB 21,117,000 637,075 643,856 (6,781) 07/20/12 SSB USD 594,086 TRY 1,087,000 594,086 598,122 (4,036) ------------ Net Unrealized Appreciation (Depreciation)............................................................... $ (84,722) ============ (a) Please see portfolio of investments for currency descriptions. Counterparty Abbreviations: JPM JPMorgan Chase RBS Royal Bank of Scotland SSB State Street Bank See Notes to Financial Statements Page 15 FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 2012 (UNAUDITED) ASSETS: Investments, at value (Cost $102,428,479)........................................................................ $119,085,454 Cash........................................................................................... 1,111,519 Foreign currency (Cost $415,001)............................................................... 414,427 Unrealized appreciation on forward foreign currency contracts.................................. 39,310 Prepaid expenses............................................................................... 15,097 Receivables: Interest.................................................................................... 1,350,112 Investment securities sold.................................................................. 362,437 Dividends................................................................................... 100,467 ------------ Total Assets................................................................................ 122,478,823 ------------ LIABILITIES: Outstanding loan............................................................................... 5,800,000 Unrealized depreciation on forward foreign currency contracts.................................. 124,032 Payables: Investment securities purchased............................................................. 1,322,757 Deferred Thailand capital gains tax......................................................... 182,949 Custodian fees.............................................................................. 161,309 Investment advisory fees.................................................................... 96,354 Deferred Indonesian capital gains tax....................................................... 42,267 Audit and tax fees.......................................................................... 29,150 Thailand capital gains tax.................................................................. 15,719 Administrative fees......................................................................... 8,320 Printing fees............................................................................... 6,690 Trustees' fees and expenses................................................................. 4,381 Transfer agent fees......................................................................... 2,387 Legal fees.................................................................................. 1,599 Interest and fees on loan................................................................... 1,207 Financial reporting fees.................................................................... 771 Other liabilities.............................................................................. 1,887 ------------ Total Liabilities........................................................................ 7,801,779 ------------ NET ASSETS..................................................................................... $114,677,044 ============ NET ASSETS consist of: Paid-in capital................................................................................ $ 97,511,411 Par value...................................................................................... 53,278 Accumulated net investment income (loss)....................................................... 1,612,668 Accumulated net realized gain (loss) on investments, forward foreign currency contracts and foreign currency transactions................................................. (796,747) Net unrealized appreciation (depreciation) on investments, forward foreign currency contracts and foreign currency translation......................................... 16,296,434 ------------ NET ASSETS..................................................................................... $114,677,044 ============ NET ASSET VALUE, per Common Share (par value $0.01 per Common Share)........................... $ 21.52 ============ Number of Common Shares outstanding (unlimited number of Common Shares has been authorized).... 5,327,785 ============ Page 16 See Notes to Financial Statements FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2012 (UNAUDITED) INVESTMENT INCOME: Interest (net of foreign withholding tax of $8,781)............................................ $ 2,646,062 Dividends (net of foreign withholding tax of $82,091).......................................... 936,056 ------------ Total investment income..................................................................... 3,582,118 ------------ EXPENSES: Investment advisory fees....................................................................... 605,157 Custodian fees................................................................................. 105,990 Administrative fees............................................................................ 52,490 Interest and fees on loan...................................................................... 40,006 Audit and tax fees............................................................................. 27,856 Printing fees.................................................................................. 20,977 Legal fees..................................................................................... 18,553 Transfer agent fees............................................................................ 18,269 Trustees' fees and expenses.................................................................... 15,322 Financial reporting fees....................................................................... 4,625 Other.......................................................................................... 184,098 ------------ Total expenses.............................................................................. 1,093,343 ------------ NET INVESTMENT INCOME (LOSS)................................................................... 2,488,775 ------------ NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments................................................................................. 963,483 Forward foreign currency contracts.......................................................... (586,765) Foreign currency transactions............................................................... 530 ------------ Net realized gain (loss)....................................................................... 377,248 ------------ Net change in unrealized appreciation (depreciation) on: Investments................................................................................. 7,680,283 Forward foreign currency contracts.......................................................... (285,154) Foreign currency translation................................................................ 4,186 Net change in deferred Thailand capital gains tax.............................................. 9,875 Net change in deferred Indonesian capital gains tax............................................ (42,267) ------------ Net change in unrealized appreciation (depreciation)........................................... 7,366,923 ------------ NET REALIZED AND UNREALIZED GAIN (LOSS)........................................................ 7,744,171 ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................... $ 10,232,946 ============ See Notes to Financial Statements Page 17 FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND STATEMENTS OF CHANGES IN NET ASSETS SIX MONTHS ENDED YEAR 6/30/2012 ENDED (UNAUDITED) 12/31/2011 -------------- -------------- OPERATIONS: Net investment income (loss)....................................................... $ 2,488,775 $ 5,240,364 Net realized gain (loss)........................................................... 377,248 4,356,376 Net change in unrealized appreciation (depreciation)............................... 7,366,923 (15,302,660) -------------- -------------- Net increase (decrease) in net assets resulting from operations.................... 10,232,946 (5,705,920) -------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income.............................................................. (1,864,725) (3,929,384) Net realized gain.................................................................. (1,864,725) (3,529,515) Return of capital.................................................................. -- -- -------------- -------------- Total distributions to shareholders................................................ (3,729,450) (7,458,899) -------------- -------------- CAPITAL TRANSACTIONS: Proceeds from Common Shares reinvested............................................. -- -- -------------- -------------- Net increase (decrease) in net assets resulting from capital transactions.......... -- -- -------------- -------------- Total increase (decrease) in net assets............................................ 6,503,496 (13,164,819) NET ASSETS: Beginning of period................................................................ 108,173,548 121,338,367 -------------- -------------- End of period...................................................................... $ 114,677,044 $ 108,173,548 ============== ============== Accumulated net investment income (loss) at end of period.......................... $ 1,612,668 $ 988,618 ============== ============== CAPITAL TRANSACTIONS WERE AS FOLLOWS: Common Shares at beginning of period............................................... 5,327,785 5,327,785 Common Shares issued as reinvestment under the Dividend Reinvestment Plan.......... -- -- -------------- -------------- Common Shares at end of period..................................................... 5,327,785 5,327,785 ============== ============== Page 18 See Notes to Financial Statements FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2012 (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net increase (decrease) in net assets resulting from operations ................... $ 10,232,946 Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by operating activities: Purchases of investments..................................................... (22,483,765) Sales, maturities and paydowns of investments................................ 25,204,548 Net amortization/accretion of premiums/discounts on investments.............. (151,676) Net realized gain/loss on investments........................................ (963,483) Net change in unrealized appreciation/depreciation on forward foreign currency contracts....................................................... 285,154 Net change in unrealized appreciation/depreciation on investments............ (7,680,283) CHANGES IN ASSETS AND LIABILITIES: Decrease in interest receivable.............................................. 91,722 Increase in dividends receivable............................................. (50,179) Increase in prepaid expenses................................................. (11,670) Decrease in due to custodian................................................. (58,385) Decrease in interest and fees on loan payable................................ (843) Decrease in investment advisory fees payable................................. (1,651) Decrease in audit and tax fees payable....................................... (23,680) Decrease in legal fees payable............................................... (1,487) Decrease in printing fees payable............................................ (6,280) Decrease in administrative fees payable...................................... (157) Increase in custodian fees payable........................................... 86,414 Decrease in transfer agent fees payable...................................... (735) Increase in Trustees' fees and expenses payable.............................. 4,381 Decrease in deferred Thailand capital gains tax.............................. (9,875) Increase in Thailand capital gains tax....................................... 15,719 Increase in deferred Indonesian capital gains tax............................ 42,267 Decrease in other liabilities payable........................................ (2,578) -------------- CASH PROVIDED BY OPERATING ACTIVITIES.............................................. $ 4,516,424 -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions to Common Shareholders from net realized gain.................. (1,864,725) Distributions to Common Shareholders from net investment income.............. (1,864,725) -------------- CASH USED IN FINANCING ACTIVITIES.................................................. (3,729,450) -------------- Increase in cash and foreign currency (a).......................................... 786,974 Cash and foreign currency at beginning of period................................... 738,972 -------------- CASH AND FOREIGN CURRENCY AT END OF PERIOD......................................... $ 1,525,946 ============== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for interest and fees.................................. $ 40,849 ============== ----------------------- (a) Includes net change in unrealized appreciation (depreciation) on foreign currency of $6,659. 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 YEAR YEAR YEAR 6/30/2012 ENDED ENDED ENDED ENDED ENDED (UNAUDITED) 12/31/2011 12/31/2010 12/31/2009 12/31/2008 12/31/2007 ------------- ------------- ------------- ------------- ------------- ------------- Net asset value, beginning of period ... $ 20.30 $ 22.77 $ 19.76 $ 12.87 $ 21.69 $ 20.58 --------- --------- --------- --------- --------- --------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)............ 0.47 0.98 0.97 1.01 1.09 (a) 0.92 Net realized and unrealized gain (loss). 1.45 (2.05) 3.41 7.16 (8.37) 2.00 --------- --------- --------- --------- --------- --------- Total from investment operations........ 1.92 (1.07) 4.38 8.17 (7.28) 2.92 --------- --------- --------- --------- --------- --------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income................... (0.35) (0.74) (0.83) (0.81) (1.08) (0.79) Net realized gain....................... (0.35) (0.66) (0.57) -- (0.10) (1.02) Return of capital....................... -- -- -- (0.63) (0.38) -- --------- --------- --------- --------- --------- --------- Total from distributions................ (0.70) (1.40) (1.40) (1.44) (1.56) (1.81) --------- --------- --------- --------- --------- --------- Capital share repurchases............... -- -- 0.03 0.16 0.02 -- --------- --------- --------- --------- --------- --------- Net asset value, end of period.......... $ 21.52 $ 20.30 $ 22.77 $ 19.76 $ 12.87 $ 21.69 ========= ========= ========= ========= ========= ========= Market value, end of period............. $ 19.24 $ 17.82 $ 21.32 $ 18.04 $ 10.25 $ 19.50 ========= ========= ========= ========= ========= ========= TOTAL RETURN BASED ON NET ASSET VALUE (b) 9.68% (4.18)% 23.29% 69.25% (33.94)% 15.74% ========= ========= ========= ========= ========= ========= TOTAL RETURN BASED ON MARKET VALUE (b).. 11.70% (10.17)% 26.45% 94.01% (41.48)% 12.53% ========= ========= ========= ========= ========= ========= ----------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) ... $ 114,677 $ 108,174 $ 121,338 $ 106,717 $ 75,365 $ 128,112 Ratio of total expenses to average net assets............................... 1.90% (c) 1.68% 1.76% 2.11% 2.00% 2.04% Ratio of total expenses to average net assets excluding interest expense ... 1.83% (c) 1.61% 1.62% 1.80% 1.60% 1.58% Ratio of net investment income (loss) to average net assets................... 4.32% (c) 4.47% 4.55% 6.11% 5.73% 4.31% Portfolio turnover rate................. 21% 51% 87% 66% 64% 95% INDEBTEDNESS: Total loan outstanding (in 000's)....... $ 5,800 $ 5,800 $ 5,800 $ 5,800 $ 13,500 $8,000 Asset coverage per $1,000 of indebtedness (d)..................... $ 20,772 $ 19,651 $ 21,920 $ 19,399 $ 6,583 $ 17,014 ----------------------- (a) Based on average shares outstanding. (b) Total return is based on the combination of reinvested dividend, capital gain and return of capital distributions, if any, at prices obtained by the Dividend Reinvestment Plan, and changes in net asset value per share for net asset value returns and changes in Common Share price for market value returns. Total returns do not reflect sales load and are not annualized for periods less than one year. Past performance is not indicative of future results. (c) Annualized. (d) Calculated by subtracting the Fund's total liabilities (not including the loan outstanding) from the Fund's total assets, and dividing by the outstanding loan balance in 000's. Page 20 See Notes to Financial Statements -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND JUNE 30, 2012 (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 total asset value of the Fund minus the sum of the Fund's liabilities other than the principal amount of borrowings, if any. There can be no assurance that the Fund will achieve its investment objective. The Fund may not be appropriate for all investors. 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 ("U.S. GAAP") 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. If the NYSE closes early on a valuation day, the NAV is determined as of that time. 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 interest and dividends), 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 in accordance with valuation procedures adopted by the Fund's Board of Trustees, and in accordance with provisions of the 1940 Act. 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. All market quotations used in valuing the Fund's securities will be obtained from a third party pricing service. The Fund's securities will be valued as follows: Bonds, notes and other debt securities not traded in an organized market are valued on the basis of valuations provided by dealers who make markets in such securities or by an independent pricing service approved by the Fund's Board of Trustees, which may use the following valuation inputs when available: 1) benchmark yields; 2) reported trades; 3) broker/dealer quotes; 4) issuer spreads; 5) benchmark securities; 6) bids and offers; and 7) reference data including market research publications. Common stocks and other securities listed on any national or foreign exchange (excluding the NASDAQ National Market ("NASDAQ") and the London Stock Exchange Alternative Investment Market ("AIM")) are valued at the last sale price on the exchange on which they are principally traded. If there are no transactions on the valuation day, the securities are valued at the mean between the most recent bid and asked prices. Securities listed on the NASDAQ or the AIM are valued at the official closing price. If there is no official closing price on the valuation day, the securities are valued at the mean between the most recent bid and asked prices. Securities traded in the over-the-counter market are valued at their closing bid prices. Forward foreign currency contracts are valued at the current day's interpolated foreign exchange rate, as calculated using the current day's spot rate, and the thirty, sixty, ninety and one-hundred eighty day forward rates provided by an independent pricing service. Debt securities having a remaining maturity of sixty days or less when purchased are valued at cost adjusted for amortization of premiums and accretions of discounts. 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 market for particular securities (e.g., domestic debt and foreign securities), but before the Fund values its assets, that could materially affect NAV, First Page 21 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND JUNE 30, 2012 (UNAUDITED) 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. As a general principle, the fair value of a security is the amount which the Fund might reasonably expect to receive for the security upon its current sale. However, in light of the judgment involved in fair valuations, there can be no assurance that a fair value assigned to a particular security will be the amount which the Fund might be able to receive upon its current sale. Fair valuation of a debt security will be based on the consideration of all available information, including, but not limited to, the following: 1) the fundamental business data relating to the issuer; 2) an evaluation of the forces which influence the market in which these securities are purchased and sold; 3) the type, size and cost of security; 4) the financial statements of the issuer, or the financial condition of the country of issue; 5) the credit quality and cash flow of the issuer, or country of issue, based on the Sub-Advisor's or external analysis; 6) the information as to any transactions in or offers for the security; 7) the price and extent of public trading in similar securities (or equity securities) of the issuer/borrower, or comparable companies; 8) the coupon payments; 9) the quality, value and salability of collateral, if any, securing the security; 10) the business prospects of the issuer, including any ability to obtain money or resources from a parent or affiliate and an assessment of the issuer's management (for corporate debt only); 11) the economic, political and social prospects/developments of the country of issue and the assessment of the country's governmental leaders/officials (for sovereign debt only); 12) the prospects for the issuer's industry, and multiples (of earnings and/or cash flows) being paid for similar businesses in that industry (for corporate debt only); and 13) other relevant factors. Fair valuation of an equity security will be based on the consideration of all available information, including, but not limited to, the following: 1) the type of security; 2) the size of the holding; 3) the initial cost of the security; 4) transactions in comparable securities; 5) price quotes from dealers and/or pricing services; 6) relationships among various securities; 7) information obtained by contacting the issuer, analysts, or the appropriate stock exchange; 8) an analysis of the issuer's financial statements; and 9) the existence of merger proposals or tender offers that might affect the value of the security. If the equity securities in question are foreign securities, the following additional information may be considered: 1) the value of similar foreign securities traded on other foreign markets; 2) ADR trading of similar securities; 3) closed-end fund trading of similar securities; 4) foreign currency exchange activity; 5) the trading prices of financial products that are tied to baskets of foreign securities; 6) factors relating to the event that precipitated the pricing problem; 7) whether the event is likely to recur; and 8) whether the effects of the event are isolated or whether they affect entire markets, countries or regions. The Fund is subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows: o Level 1 - Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis. o Level 2 - Level 2 inputs are observable inputs, either directly or indirectly, and include the following: o Quoted prices for similar investments in active markets. o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly. o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates). Page 22 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND JUNE 30, 2012 (UNAUDITED) o Inputs that are derived principally from or corroborated by observable market data by correlation or other means. o Level 3 - Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity's own assumptions about the assumptions that market participants would use in pricing the investments. The inputs or methodology used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value the Fund's investments as of June 30, 2012, is included with 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 daily on the accrual basis. Amortization of premiums and accretion of discounts are recorded by using the effective interest method. Securities purchased on a when-issued, delayed-delivery or forward commitment basis may have extended settlement periods. The value of the security so purchased is subject to market fluctuations during this period. The Fund maintains liquid assets with a current value at least equal to the amount of its when-issued, delayed-delivery or forward purchase commitments until payment is made. At June 30, 2012, the Fund had no when-issued, delayed-delivery or forward purchase commitments. C. FORWARD FOREIGN CURRENCY CONTRACTS: The Fund is subject to foreign currency risk in the normal course of pursuing its investment objectives. Forward foreign currency contracts are agreements to exchange one currency for another at a future date and at a specified price. The Fund uses 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 in "Unrealized appreciation/(depreciation) on forward foreign currency contracts" on the Statement of Assets and Liabilities. When the forward contract is closed, the Fund records a realized gain or loss equal to the difference between the proceeds from (or the cost of) the closing transaction and the Fund's basis in the contract. This realized gain or loss is included in "Net realized gain (loss) on forward foreign currency contracts" 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 in excess of the net unrealized value shown on the Schedule of Forward Foreign Currency Contracts. During the six months ended June 30, 2012, the open and close notional values of forward foreign currency contracts were $39,345,390 and $34,556,966, respectively. D. 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 fluctuation 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. E. 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. Page 23 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND JUNE 30, 2012 (UNAUDITED) Distributions from income and capital gains are determined in accordance with income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These permanent differences are primarily due to the varying treatment of income and gain/loss on portfolio securities held by the Fund and have no impact on net assets or NAV per share. Temporary differences, which arise from recognizing certain items of income, expense and gain/loss in different periods for financial statement and tax purposes, will reverse at some point in the future. The tax character of distributions paid during the fiscal year ended December 31, 2011, was as follows: Distributions paid from: Ordinary income................................. $ 4,338,566 Long-term capital gains......................... 3,120,333 As of December 31, 2011, the distributable earnings and net assets on a tax basis were as follows: Undistributed ordinary income................... $ 1,738,421 Undistributed capital gains..................... 1,173,136 -------------- Total undistributed earnings.................... 2,911,557 Accumulated capital and other losses............ (663,408) Net unrealized appreciation (depreciation)...... 8,666,265 -------------- Total accumulated earnings (losses)............. 10,914,414 Other........................................... (3 05,555) Paid-in capital................................. 97,564,689 -------------- Net assets...................................... $ 108,173,548 ============== F. 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 (the "Code"), 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. Under the Regulated Investment Company Modernization Act of 2010 (the "Act"), net capital losses recognized after December 31, 2010, may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses. At December 31, 2011, the Fund had no capital loss carryforward for federal income tax purposes. Certain losses realized during the fiscal year may be deferred and treated as occurring on the first day of the following fiscal year for federal income tax purposes. For the fiscal year ended December 31, 2011, the Fund intends to elect to defer net ordinary losses of $215,600 and net realized capital losses of $447,808. The Fund is subject to accounting standards that establish a 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. Taxable years ending 2008, 2009, 2010 and 2011 remain open to federal and state audit. As of June 30, 2012, management has evaluated the application of these standards to the Fund and has determined that no provision for income tax is required in the Fund's financial statements for uncertain tax positions. G. EXPENSES: The Fund will pay all expenses directly related to its operations. 3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS First Trust, the investment advisor to the Fund, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. 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. First Trust also provides fund reporting services to the Fund for a flat annual fee in the amount of $9,250. Aberdeen Asset Management Inc. ("Aberdeen" or 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 the Fund's Managed Assets that is paid by First Trust out of its investment advisory fee. BNY Mellon Investment Servicing (US) Inc. serves as the Fund's Administrator, Fund Accountant and Transfer Agent in accordance with certain fee arrangements. The Bank of New York Mellon serves as the Fund's Custodian in accordance with certain fee arrangements. Page 24 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND JUNE 30, 2012 (UNAUDITED) Effective January 23, 2012, James A. Bowen resigned from his position as the President and Chief Executive Officer of the Fund. He will continue as a Trustee, the Chairman of the Board of Trustees and a member of the Executive Committee. The Board elected Mark R. Bradley to serve as the President and Chief Executive Officer of the Fund and James M. Dykas to serve as the Treasurer, Chief Financial Officer and Chief Accounting Officer of the Fund. Effective January 1, 2012, each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates ("Independent Trustees") is paid a fixed annual retainer of $125,000 per year and an annual per fund fee of $4,000 for each closed-end fund or other actively managed fund and $1,000 for each index fund in the First Trust Fund Complex. The fixed annual retainer is allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Prior to January 1, 2012, each Independent Trustee received an annual retainer of $10,000 per trust for the first 14 trust of the First Trust Fund Complex and an annual retainer of $7,500 per trust for each additional trust in the First Trust Fund Complex. The annual retainer was allocated equally among each of the trusts. Additionally, the Lead Independent Trustee is paid $15,000 annually, the Chairman of the Audit Committee is paid $10,000 annually, and each of the Chairmen of the Nominating and Governance Committee and the Valuation Committee is paid $5,000 annually to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Prior to January 1, 2012, the annual amounts paid were $10,000, $5,000 and $2,500, respectively. Trustees are reimbursed 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 before rotating to serve as chairman of another committee or as Lead Independent Trustee. The officers and "Interested" Trustee receive no compensation from the funds for serving in such capacities. 4. PURCHASES AND SALES OF SECURITIES Cost of purchases and proceeds from sales of investment securities, excluding short-term investments, for the six months ended June 30, 2012, were $23,746,605 and $25,493,691, respectively. 5. BORROWINGS The Fund has entered into a credit agreement with The Bank of Nova Scotia, which provides for a revolving credit facility to be used as leverage for the Fund. The revolving 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 $12,000,000. As of June 30, 2012, the Fund had one loan outstanding under the revolving credit facility totaling $5,800,000. For the six months ended June 30, 2012, the average amount outstanding was $5,800,000. The high and low annual interest rates during the six months ended June 30, 2012 were 1.24% and 1.19%, respectively, and the weighted average interest rate was 1.20%. The interest rate at June 30, 2012 was 1.20%. The Fund pays a commitment fee of 0.15% (or 0.30% if loan balance drops below 40% of total commitment) per year, which is included in "Interest and fees on loan" on the Statement of Operations. 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, but not all, 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. 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 Page 25 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND JUNE 30, 2012 (UNAUDITED) 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, 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 or; (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 reinvestment 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's portfolio 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. ISSUER 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. 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. 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 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 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 purchase Common 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 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 Page 26 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND JUNE 30, 2012 (UNAUDITED) 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. 8. SUBSEQUENT EVENTS Management has evaluated the impact of all subsequent events to the Fund through the date the financial statements were issued, and has determined that there were no subsequent events. Page 27 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION -------------------------------------------------------------------------------- FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND JUNE 30, 2012 (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 BNY Mellon Investment Servicing (US) 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 the 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 net asset value ("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 (866) 340-1104, 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 BNY Mellon Investment Servicing (US) 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 at http://www.sec.gov. Page 28 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION - (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND JUNE 30, 2012 (UNAUDITED) PORTFOLIO HOLDINGS The Fund files its complete schedule of portfolio holdings with the 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 Joint Annual Meeting of Shareholders of the Common Shares of First Trust Energy Income and Growth Fund, First Trust Enhanced Equity Income Fund, First Trust/Aberdeen Global Opportunity Income Fund, First Trust Mortgage Income Fund, First Trust Strategic High Income Fund II, First Trust/Aberdeen Emerging Opportunity Fund, First Trust Specialty Finance and Financial Opportunities Fund, First Trust Active Dividend Income Fund, First Trust Energy Infrastructure Fund, Macquarie/First Trust Global Infrastructure/Utilities Dividend & Income Fund and First Trust High Income Long/Short Fund was held on April 18, 2012 (the "Annual Meeting"). At the Annual Meeting, Richard E. Erickson and Thomas R. Kadlec were elected by the Common Shareholders of the First Trust/Aberdeen Emerging Opportunity Fund as Class II Trustees for a three-year term expiring at the Fund's annual meeting of shareholders in 2015. The number of votes cast in favor of Mr. Erickson was 5,037,020, the number of votes against was 82,820 and the number of abstentions was 207,945. The number of votes cast in favor of Mr. Kadlec was 5,036,548, the number of votes against was 83,292 and the number of abstentions was 207,945. James A. Bowen, Niel B. Nielson and Robert F. Keith are the other current and continuing Trustees. 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, 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 June 10-11, 2012. The Board determined that the continuation of the Agreements is in the best interests of the Fund in light of the extent and quality of the services provided and such other matters as the Board considered to be relevant in the exercise of its reasonable business judgment. 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. Following receipt of this information, counsel to the Independent Trustees posed follow-up questions, and the Independent Trustees and their counsel then met separately to discuss the information provided by the Advisor and the Sub-Advisor, including the supplemental responses. 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. The Board considered that shareholders chose to invest or remain invested in the Fund knowing that the Advisor and the Sub-Advisor manage the Fund. The Board also considered that the Agreements were approved by shareholders of the Fund at a meeting held in December 2010. In reviewing the Agreements, the Board considered the nature, extent and quality 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 and reviewed the services provided by the Advisor to 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 it includes a robust program for monitoring the Sub-Advisor's compliance with the 1940 Act and the Fund's investment objective and policies. With respect to the Sub-Advisory Agreement, the Board reviewed the materials provided by the Sub-Advisor and considered the services that the Sub-Advisor provides to the Fund, including the Sub-Advisor's day-to-day management of the Fund's investments. In light of the information presented and the considerations made, the Board concluded that the nature, extent and quality 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. Page 29 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION - (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND JUNE 30, 2012 (UNAUDITED) The Board considered the advisory and sub-advisory fees paid under the Agreements. The Board considered the advisory fees charged by the Advisor to similar funds and other non-fund clients, noting that the Advisor provides services to another closed-end fund sub-advised by the Sub-Advisor and certain separately managed accounts with investment objectives and policies similar to the Fund's. The Board noted that the Advisor charges the same advisory fee rate to the Fund and the other closed-end fund sub-advised by the Sub-Advisor and a lower advisory fee rate to the separately managed accounts. The Board noted the Advisor's statement that the nature of the services provided to the separately managed accounts is not comparable to those provided to the Fund. The Board considered the sub-advisory fee and how it relates to the Fund's overall advisory fee structure and noted that the sub-advisory fee is paid by the Advisor from its advisory fee. 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 rate is the same as that received from the Advisor for the other closed-end fund for which it serves as sub-advisor, and 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 advisory fees and expense ratios of the Fund as compared to the advisory fees and expense ratios of a peer group selected by Lipper and similar data for a separate peer group selected by the Advisor. The Board noted that the Lipper and Advisor peer groups did not include any overlapping peer funds. The Board discussed with representatives of the Advisor the limitations in creating a relevant peer group for the Fund, including that (i) the Fund is unique in its composition, which makes assembling peers with similar strategies and asset mix difficult; (ii) most peer funds do not use leverage; (iii) most peer funds do not employ an advisor/sub-advisor management structure; and (iv) many of the peer funds are larger than the Fund, which causes the Fund's fixed expenses to be higher on a percentage basis as compared to the larger peer funds. The Board took these limitations into account in considering the peer data. In reviewing the peer data, the Board noted that the Fund's contractual advisory fee was below the median of the Lipper peer group and equal to the median of the Advisor peer group. The Board also considered performance information for the Fund, noting 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 and portfolio risk 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 Lipper peer group, as well as to a larger peer universe and to a blended benchmark. In reviewing the Fund's performance as compared to the performance of the Lipper peer group and Lipper peer universe, the Board took into account the limitations described above with respect to creating a relevant peer group for the Fund. The Board also considered the Fund's dividend yield as of March 30, 2012 and an analysis prepared by the Advisor on the continued benefits provided by the Fund's leverage. In addition, the Board compared the Fund's premium/discount over the past eight quarters to the average and median premium/discount of the Advisor peer group over the same period, noting that the Fund's premium/discount was generally indicative of the asset class and market events. 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, extent and quality 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 considered whether fee levels reflect any economies of scale for the benefit of shareholders. The Board noted the Advisor's statement that economies of scale in providing services to the Fund are not available at current asset levels. The Board determined that due to the Fund's closed-end structure, the potential for realization of economies of scale as Fund assets grow was not a substantial factor to be considered. The Board also considered the costs of the services provided and profits realized by the Advisor from serving as investment advisor to the Fund for the twelve months ended December 31, 2011, 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 estimated profitability appeared to be not excessive in light of the services provided to the Fund. In addition, the Board considered fall-out benefits described by the Advisor that may be realized from its relationship with the Fund, including the Advisor's compensation for fund reporting services pursuant to a separate Fund Reporting Services Agreement. 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 the 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 considered fall-out benefits that may be realized by the Sub-Advisor from its relationship with the Fund, including that the Sub-Advisor may enter into soft-dollar arrangements, and considered a summary of such arrangements. Based on all of the information considered and the conclusions reached, the Board, including the Independent Trustees, unanimously 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 30 This Page Left Blank Intentionally. This Page Left Blank Intentionally. FIRST TRUST 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, 32nd Floor Philadelphia, PA 19103 ADMINISTRATOR, FUND ACCOUNTANT & TRANSFER AGENT BNY Mellon Investment Servicing (US) Inc. 301 Bellevue Parkway Wilmington, DE 19809 CUSTODIAN The Bank of New York Mellon 1 Wall Street New York, NY 10286 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 [BLANK BACK COVER] 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) There have been no changes, as of the date of filing, in any of the Portfolio Managers identified in response to paragraph (a)(1) of this item in the Registrant's most recent annual report on Form N-CSR. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. 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/ Mark R. Bradley ------------------------------------------------ Mark R. Bradley, President and Chief Executive Officer (principal executive officer) Date August 20th, 2012 --------------------- 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/ Mark R. Bradley ------------------------------------------------ Mark R. Bradley, President and Chief Executive Officer (principal executive officer) Date August 20th, 2012 --------------------- By (Signature and Title)* /s/ James M. Dykas ------------------------------------------------ James M. Dykas, Treasurer, Chief Financial Officer and Chief Accounting Officer (principal financial officer) Date August 20th, 2012 --------------------- * Print the name and title of each signing officer under his or her signature.