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 811-21539
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First Trust Senior Floating Rate Income Fund II
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(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(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
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(Name and address of agent for service)
Registrant's telephone number, including area code: 630-765-8000
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Date of fiscal year end: May 31
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Date of reporting period: May 31, 2014
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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, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The Report to Shareholders is attached herewith.
ANNUAL
REPORT
FOR THE YEAR ENDED
MAY 31, 2014
FIRST TRUST
SENIOR FLOATING RATE
INCOME FUND II
FIRST TRUST
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TABLE OF CONTENTS
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FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
ANNUAL REPORT
MAY 31, 2014
Shareholder Letter.......................................................... 1
At a Glance................................................................. 2
Portfolio Commentary........................................................ 3
Portfolio of Investments.................................................... 5
Statement of Assets and Liabilities......................................... 18
Statement of Operations..................................................... 19
Statements of Changes in Net Assets......................................... 20
Statement of Cash Flows..................................................... 21
Financial Highlights........................................................ 22
Notes to Financial Statements............................................... 23
Report of Independent Registered Public Accounting Firm..................... 29
Additional Information...................................................... 30
Board of Trustees and Officers.............................................. 33
Privacy Policy.............................................................. 35
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 its 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 Senior Floating Rate Income Fund II (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 its
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 objectives. 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 Additional
Information section of this report 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 the
Advisor 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.
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SHAREHOLDER LETTER
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FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
MAY 31, 2014
Dear Shareholders:
I am pleased to present you with the annual report for your investment in First
Trust Senior Floating Rate Income Fund II (the "Fund").
As a shareholder, twice a year you receive a detailed report about your
investment, including portfolio commentary from the Fund's management team, a
performance analysis and a market and Fund outlook. Additionally, First Trust
Advisors L.P. ("First Trust") compiles the Fund's financial statements for you
to review. These reports are intended to keep you up-to-date on your investment,
and I encourage you to read this document and discuss it with your financial
advisor.
As you are probably aware, the twelve months covered by this report saw both
challenging economic and political issues in the U.S. However, the period was
still positive for the markets. In fact, the S&P 500(R) Index, as measured on a
total return basis, rose 20.45% during the twelve months ended May 31, 2014. Of
course, past performance can never be an indicator of future performance, but
First Trust believes that staying invested in quality products through up and
down markets and having a long-term horizon can help investors as they work
toward their financial goals.
First Trust continues to offer a variety of products that we believe could fit
the financial plans for many investors seeking long-term investment success.
Your financial advisor can tell you about the other investments First Trust
offers that might fit your financial goals. We encourage you to discuss those
goals with your financial advisor regularly so that he or she can help keep you
on track and help you choose investments that match your goals.
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.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 1
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
"AT A GLANCE"
AS OF MAY 31, 2014 (UNAUDITED)
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FUND STATISTICS
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Symbol on New York Stock Exchange FCT
Common Share Price $14.00
Common Share Net Asset Value ("NAV") $14.95
Premium (Discount) to NAV (6.35)%
Net Assets Applicable to Common Shares $399,020,793
Current Monthly Distribution per Common Share (1) $0.0713
Current Annualized Distribution per Common Share $0.8550
Current Distribution Rate on Closing Common Share Price (2) 6.11%
Current Distribution Rate on NAV (2) 5.72%
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COMMON SHARE PRICE & NAV (WEEKLY CLOSING PRICE)
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Common Share Price NAV
5/13 $15.14 $15.37
15.00 15.54
15.00 15.40
14.99 15.02
6/13 14.92 15.15
14.86 15.08
14.96 15.47
15.05 15.48
7/13 15.06 15.78
14.99 15.75
15.00 16.05
15.00 15.63
14.95 15.35
8/13 14.95 15.07
14.90 14.31
14.93 14.85
14.97 14.67
9/13 14.92 14.46
14.86 14.21
14.87 14.52
14.91 14.61
10/13 14.96 14.71
14.93 14.43
14.95 14.10
14.97 14.71
14.98 14.69
11/13 14.99 14.63
14.92 14.17
14.95 13.99
14.98 14.11
12/13 15.00 14.33
14.96 14.33
15.01 14.40
15.04 14.61
15.06 14.57
1/14 15.05 14.35
14.98 14.35
15.00 14.27
15.01 14.43
2/14 15.00 14.30
14.95 14.23
14.96 14.23
14.97 14.30
3/14 14.97 14.45
14.90 14.24
14.87 14.04
14.87 14.01
4/14 14.85 13.93
14.85 13.80
14.88 13.84
14.92 13.94
14.93 13.95
5/14 14.95 14.00
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PERFORMANCE
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Average Annual Total Return
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1 Year Ended 5 Years Ended 10 Years Ended Inception (5/25/2004)
5/31/2014 5/31/2014 5/31/2014 5/31/2014
FUND PERFORMANCE (3)
NAV 5.35% 10.99% 4.25% 4.21%
Market Value -2.82% 13.10% 3.05% 3.05%
INDEX PERFORMANCE
S&P/LSTA Leveraged Loan Index 4.36% 9.54% 5.25% 5.25%
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% OF TOTAL
CREDIT QUALITY (S&P RATINGS) (4) INVESTMENTS
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BBB- 2.0%
BB+ 4.5
BB 8.8
BB- 13.1
B+ 32.2
B 26.4
B- 5.3
CCC+ 3.4
CCC 0.8
CCC- 0.4
NR 1.6
Privately rated securities (5) 1.5
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Total 100.0%
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NR - Not rated
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% OF TOTAL
TOP 10 ISSUERS INVESTMENTS
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Caesar's Growth Partners LLC 2.1%
Dell, Inc. 1.9
BMC Software Finance, Inc. 1.9
Asurion LLC 1.8
BJ's Wholesale Club, Inc. 1.8
Ortho-Clinical Diagnostics, Inc.
(Crimson Merger Sub, Inc.) 1.4
Kinetic Concepts, Inc./KCI USA, Inc. 1.2
Freescale Semiconductor, Inc. 1.2
Tribune Co. 1.2
Nuveen Investments, Inc. 1.2
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Total 15.7%
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% OF TOTAL
ASSET CLASSIFICATION INVESTMENTS
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Media 8.8%
Hotels, Restaurants & Leisure 7.9
Health Care Providers & Services 7.0
Diversified Financial Services 5.5
Software 5.3
Chemicals 4.7
Health Care Equipment & Supplies 4.7
Diversified Telecommunication Services 4.0
Food Products 3.9
Life Sciences Tools & Services 3.8
Auto Components 3.2
Insurance 3.0
Pharmaceuticals 2.8
Professional Services 2.8
Containers & Packaging 2.6
Diversified Consumer Services 2.4
Technology Hardware, Storage & Peripherals 1.9
Food & Staples Retailing 1.9
Semiconductors & Semiconductor Equipment 1.7
Health Care Technology 1.7
Capital Markets 1.7
IT Services 1.7
Consumer Finance 1.7
Commercial Services & Supplies 1.5
Aerospace & Defense 1.5
Specialty Retail 1.5
Real Estate Investment Trusts (REITs) 1.2
Independent Power and Renewable
Electricity Producers 1.1
Machinery 1.0
Road & Rail 1.0
Real Estate Management & Development 0.9
Industrial Conglomerates 0.9
Wireless Telecommunication Services 0.9
Oil, Gas & Consumable Fuels 0.7
Electric Utilities 0.6
Building Products 0.5
Communications Equipment 0.4
Construction & Engineering 0.4
Metals & Mining 0.4
Diversified Business Services 0.3
Biotechnology 0.2
Household Durables 0.1
Distributors 0.1
Movies & Entertainment 0.1
Energy Equipment & Services 0.0*
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Total 100.0%
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* Amount is less than 0.1%.
(1) Most recent distribution paid or declared through May 31, 2014. 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 May 31, 2014. 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 NAV
returns and changes in Common Share price for market value returns. From
inception to October 12, 2010, Four Corners Capital Management, LLC served
as the Fund's Sub-Advisor. Effective October 12, 2010, the Leveraged
Finance Team of First Trust Advisors L.P. assumed the day-to-day
responsibility for management of the Fund's portfolio. Total returns do
not reflect sales load and are not annualized for periods of less than one
year. Past performance is not indicative of future results.
(4) The ratings are by Standard & Poor's except where otherwise indicated. A
credit rating is an assessment provided by a nationally recognized
statistical rating organization (NRSRO) of the creditworthiness of an
issuer with respect to debt obligations except for those debt obligations
that are only privately rated. Ratings are measured on a scale that
generally ranges from AAA (highest) to D (lowest). Investment grade is
defined as those issuers that have a long-term credit rating of BBB- or
higher. "NR" indicates no rating. The credit ratings shown relate to the
creditworthiness of the issuers of the underlying securities in the Fund,
and not to the Fund or its shares. Credit ratings are subject to change.
(5) Represents Senior Loans privately rated upon issuance. The rating agency
does not provide ongoing surveillance on the rating.
Page 2
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PORTFOLIO COMMENTARY
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FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
MAY 31, 2014
INVESTMENT MANAGER
First Trust Advisors L.P. ("First Trust") was established in 1991 and is located
in Wheaton, Illinois. First Trust is a registered investment advisor which
offers customized portfolio management using its structured, quantitative
approach to security selection. As of May 31, 2014, First Trust managed or
supervised $94.2 billion in assets. The First Trust Leveraged Finance Team began
managing the First Trust Senior Floating Rate Income Fund II ("FCT" or the
"Fund") on October 12, 2010. The Portfolio Management Team comprising the First
Trust Leveraged Finance Team hail from one of the largest managers in the senior
loan business and managed or supervised approximately $1.3 billion in asset as
of May 31, 2014. The team's experience includes managing senior secured
floating-rate corporate loans ("Senior Loans") in both the U.S. and Europe,
managing high-yield debt and corporate restructuring expertise. The team has
managed institutional separate accounts, comingled funds, structured products
and retail funds.
PORTFOLIO MANAGEMENT TEAM
WILLIAM HOUSEY, CFA
SENIOR VICE PRESIDENT, SENIOR PORTFOLIO MANAGER
SCOTT D. FRIES, CFA
SENIOR VICE PRESIDENT, PORTFOLIO MANAGER
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
The primary investment objective of the Fund is to seek a high level of current
income. As a secondary objective, the Fund attempts to preserve capital. The
Fund pursues its objectives by investing in a portfolio of Senior Loans. There
can be no assurance that the Fund's investment objectives will be achieved. The
Fund may not be appropriate for all investors.
MARKET RECAP
During the past 12 months, financial markets were largely influenced by both
positive and negative economic data in the U.S., the government shutdown in
October and geopolitical tensions between Ukraine and Russia. Moreover,
investors placed increased scrutiny on the rhetoric from the Federal Reserve,
attempting to gauge the potential pace and timing of interest rate increases
given the fact that the Federal Reserve is now tapering its quantitative easing
bond buying stimulus, and guidance around the timing of short-term rate
increases has been inconsistent.
10-year U.S. Treasury yields began the period at 2.13%, increased above 3% at
the end of December, and ended the period at 2.48%, essentially up 35 basis
points from one year ago and down 52 basis points from the end of 2013. Despite
the measured pace of the quantitative easing taper from the Federal Reserve,
interest rates have not yet established a firm course. Amid the fluctuating rate
environment, Senior Loans returned 4.36% during the 12 months ended May 31,
2014, based on information gathered from S&P's "Leveraged Commentary & Data."
All subsequent citations in this commentary are derived from S&P's Leveraged
Commentary & Data.
We remain convinced that the economy will find its footing and economic data
will begin to improve. After all, monetary policy remains incredibly
stimulative, with the Federal Reserve buying bonds and maintaining low
short-term interest rates. Additionally, corporate profits remain healthy. As a
result, we believe interest rate risk is a more significant threat than credit
risk to fixed-income investors today. Moreover, the low corporate default risk
today should allow Senior Loans to perform well relative to other traditional
fixed-income asset classes in 2014, especially if interest rates begin to rise
in the back half of 2014.
SENIOR LOAN MARKET
The S&P/LSTA Leveraged Loan Index ("Index") returned a modest 4.36% for the
12-month period ended May 31, 2014. Performance throughout the period was
consistently positive, with ten of twelve months posting positive performance.
From a credit quality perspective, lower credit-rated issues within the Index
provided the strongest performance for the period. Lower-quality CCC- rated
issues returned 7.74% in the period, significantly outperforming the returns of
higher-quality B- rated issues at 4.63% and BB- rated issues at 3.08%. The
average price of Senior Loans began the period at $98.2 and rose over the
12-month period to a high of $98.8. After 95 consecutive weeks of inflows into
the Senior Loan market via mutual funds and exchange-traded funds, the market
experienced its first retail fund outflow in April. Despite the modest retail
outflows recently, we continue to see strong inflows from institutional
investors. We believe this relief in retail demand is both modest in amount and
healthy after such an incredible run.
Page 3
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PORTFOLIO COMMENTARY (CONTINUED)
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FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
MAY 31, 2014
CREDIT QUALITY/DEFAULT RATES
One important factor helping support the positive returns for the period was the
continuation of a strong credit environment. The trailing 12-month default rate
at the end of May 2014 was 4.60% for Senior Loans. However, the default rate
increased primarily due to the default of a single issuer. TXU (Texas
Competitive Electric Holdings Co. LLC; also known as Energy Future Holdings),
the largest Senior Loan issuer and a large high-yield bond issuer, defaulted
during the period, which was widely anticipated by investors. In our opinion,
this default is not a sign of weakening credit conditions in the overall credit
markets, nor is it a sign of heightened defaults. TXU is a single issuer that
struggled with an overleveraged balance sheet for several years. Excluding TXU
from the default rate provides a much clearer picture of the underlying
corporate fundamentals in the Senior Loan market. The default rate, excluding
TXU, was 1.13%. The long-term average default rate for Senior Loans is 3.25%
(for the period March 1999 - May 2014). As of May 31, 2014, TXU was a holding of
the Fund, representing 0.85% of the Fund's net assets.
PERFORMANCE ANALYSIS
The Fund's NAV outperformed the Index for the one-year period ended May 31,
2014. The Fund generated an NAV return(1) of 5.35% versus the 4.36% return for
the S&P/LSTA Leveraged Loan Index. Contributing to the Fund's NAV outperformance
relative to the Index over the period was the Fund's use of leverage and issuer
selection. Leverage at the end of May was approximately 30.37% of managed
assets. The Fund's relatively conservative credit quality positioning detracted
slightly from performance as CCC+ and lower-rated issues led the market return.
At the end of the period, the Fund held only 4.6% of assets in issues rated CCC+
or below, compared to 7.8% for the Index.
The Fund's market price return(1) for the period was -2.82%. The Fund's market
price return faced a headwind as the Fund's market price began at a slight
premium to NAV and moved to a discount to NAV by the end of the period. At the
start of the period, the Fund's market price was at a 1.52% premium to NAV, and
moved to a -6.35% discount to NAV by the end of the period.
The monthly distribution began the period at $0.0875 per share and ended at
$0.07125 per share. The consequence of strong demand for the Senior Loan asset
class has been the ability for issuers to refinance at lower rates and a
subsequent reduction in the yield on the Fund's holdings. At a $0.07125 per
share monthly distribution, the annualized distribution rate as of May 31, 2014
was 5.72% at NAV and 6.11% at market price.
OUTLOOK
Our outlook for the credit markets remains positive. The combination of a modest
default environment, better economic growth, sound corporate fundamentals and
strong investor demand for income provides a firm backdrop for future returns,
in our opinion.
We continue to believe that the primary hurdle facing the Senior Loan market
will be the strong demand for the asset class, as investors seek shelter from
the potential threat of increasing interest rates. The net effect of the strong
demand over the past year has been a refinancing wave, which has reduced coupons
within the market, and most notably, resulted in weaker Senior Loan structures
(e.g., loose terms on newly originated Senior Loans). In every market cycle, the
power shifts between arrangers of financial instruments and buyers of financial
instruments at different points. Today, the power is in the hands of the
arrangers; for example covenant lite transactions (loan agreements that do not
contain the usual protective covenants for the benefit of the lending party) and
shorter call protection have all become commonplace. While some would have
investors run for the hills under such conditions, we tend to have a more
practical perspective. The simple reality is that weaker structures do not cause
corporations to default, nor, in our opinion, do they cause losses to occur.
However, we believe weaker Senior Loan structures have the potential to
introduce more volatility into the asset class in the future. For example,
covenant lite Senior Loan transactions that defaulted experienced recovery rates
in 2008 and 2009 largely consistent with covenanted Senior Loans. However,
covenant lite Senior Loans traded with more volatility relative to Senior Loans
that had financial maintenance covenants (in covenant lite transactions, there
were no covenant traps to allow for a re-pricing of risk). In summary, while
structures have weakened, corporate fundamentals remain sound, and strong asset
selection with a deep understanding of the businesses and documentation are
vital to generating attractive long term returns within the Senior Loan asset
class. We also believe that asset value and cash flow are the predominant
drivers of returns within the asset class. Despite the risk factors, we believe
Senior Loans remain attractive, and could return 4.5%-5% in calendar-year 2014,
although there can be no assurance these returns will be achieved.
As we evaluate new investment opportunities, decisions will continue to be
rooted in our rigorous bottom-up credit analysis and focus on the opportunities
that we believe offer the best risk and reward balance. Despite the many
distractions that ebb and flow every quarter, we remained firmly focused on
finding value in the Senior Loan market.
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 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.
Page 4
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
PORTFOLIO OF INVESTMENTS (a)
MAY 31, 2014
PRINCIPAL STATED
VALUE DESCRIPTION RATE (b) MATURITY (c) VALUE
------------ ---------------------------------------------------------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS - 137.8%
AEROSPACE & DEFENSE - 2.2%
$ 984,805 Booz Allen Hamilton, Inc., Refinance Tranche B.................. 3.75% 07/31/19 $ 988,006
2,645,727 DynCorp International, Inc., Term Loan.......................... 6.25% 07/07/16 2,649,854
4,264,514 Transdigm, Inc., Term Loan C.................................... 3.75% 02/28/20 4,236,325
800,000 Transdigm, Inc., Term Loan D.................................... 3.75% 06/04/21 794,712
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8,668,897
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AGRICULTURAL PRODUCTS - 1.0%
3,900,872 Jimmy Sanders, Inc. (Pinnacle Operating Corp.),
Term B Loan Refinancing (First Lien)......................... 4.75% 11/15/18 3,900,872
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ALTERNATIVE CARRIERS - 2.0%
1,311,000 Digitalglobe, Inc., Term Loan................................... 3.75% 01/31/20 1,312,638
5,681,629 Intelsat Jackson Holdings S.A., Term Loan B-2................... 3.75% 06/30/19 5,685,891
1,000,000 Level 3 Financing, Inc., Tranche B 2020 Term Loan............... 4.00% 01/15/20 1,001,500
-------------
8,000,029
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APPAREL RETAIL - 0.4%
1,243,758 Neiman Marcus Group, Inc., The, Other Term Loan................. 4.25% 10/25/20 1,240,027
500,000 Nine West Holdings, Inc., Initial Loan.......................... 4.75% 10/08/19 501,565
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1,741,592
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APPLICATION SOFTWARE - 3.0%
3,838,980 Epicor Software Corp., Term B-2 Loan............................ 4.00% 05/16/18 3,843,778
3,480,208 Infor (US), Inc., Tranche B-5 Term Loan......................... 3.75% 06/03/20 3,451,497
1,670,324 Mitchell International, Inc., Initial Term Loan................. 4.50% 10/13/20 1,675,201
1,704,022 Triple Point Group Holdings, Inc., Term Loan.................... 5.25% 07/10/20 1,591,130
1,485,278 Verint Systems, Inc., Tranche B Incremental Term Loan........... 3.50% 09/06/19 1,480,079
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12,041,685
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ASSET MANAGEMENT & CUSTODY BANKS - 2.0%
1,228,442 Mondrian Investment Partners Ltd., Term Loan B.................. 4.00% 03/05/20 1,230,752
63,747 Munder Capital Management, Incremental Term Loan................ 6.00% 03/23/15 63,548
6,704,791 Nuveen Investments, Inc., Tranche B First-Lien Term Loan........ 4.15% 05/13/17 6,714,245
-------------
8,008,545
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AUTO PARTS & EQUIPMENT - 3.9%
792,479 Affinia Group, Inc., Tranche B-2 Term Loan...................... 4.75% 04/25/20 794,460
2,882,813 ARC Automotive Group, Inc. (Casco Automotive Group, Inc.),
Term Loan.................................................... 6.00% 11/15/18 2,904,434
2,938,419 ASP HHI Acquisition Co., Inc., Additional Term Loan............. 5.00% 10/05/18 2,940,857
900,000 Cooper Standard Holdings (CS Intermediate Holdco 2 LLC),
Term Loan.................................................... 4.00% 04/04/21 898,128
900,000 Jason, Inc., Initial Term Loan.................................. 5.50% 03/16/21 897,750
2,319,484 Metaldyne LLC, USD Term Loan 2014............................... 4.25% 12/18/18 2,320,459
1,728,125 Remy International, Inc., Term B Loan 2013...................... 4.25% 03/05/20 1,727,399
500,000 Schaeffler A.G., Term Loan E.................................... 3.75% 05/12/20 502,215
985,010 Schrader LLC (August U.S. Holding Co., Inc.),
US Term B-1 (First Lien)...................................... 5.00% 04/27/18 986,241
1,555,763 Tower Automotive Holdings USA LLC, Initial Term Loan (2014)..... 4.00% 04/23/20 1,547,984
-------------
15,519,927
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See Notes to Financial Statements Page 5
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
MAY 31, 2014
PRINCIPAL STATED
VALUE DESCRIPTION RATE (b) MATURITY (c) VALUE
------------ ---------------------------------------------------------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
AUTOMOTIVE RETAIL - 0.8%
$ 597,000 Britax US Holdings, Inc., 1st Lien TLB.......................... 4.50% 10/15/20 $ 558,195
2,701,875 Pilot Travel Centers LLC, First Amendment Tranche B
Term Loan.................................................... 4.25% 08/07/19 2,708,576
-------------
3,266,771
-------------
BIOTECHNOLOGY - 0.3%
1,066,667 Grifols Worldwide Operations Ltd., U.S. Tranche B Term Loan..... 3.15% 02/27/21 1,061,419
-------------
BROADCASTING - 8.6%
1,690,667 Clear Channel Communications, Inc., Tranche B Term Loan......... 3.80% 01/29/16 1,673,372
4,986,742 Clear Channel Communications, Inc., Tranche D Term Loan......... 6.90% 01/30/19 4,925,455
2,967,677 Cumulus Media Holdings, Inc., Term Loan......................... 4.25% 12/23/20 2,973,256
1,419,723 Hubbard Radio LLC, Tranche 1 Term Loan.......................... 4.50% 04/29/19 1,419,723
2,094,694 LIN Television Corp., Replacement Tranche B Term Loan........... 4.00% 12/21/18 2,091,195
1,855,367 Media General, Inc., Term B Loan................................ 4.25% 07/31/20 1,862,325
1,068,281 Mission Broadcasting, Inc. (Nexstar Broadcasting Group, Inc.),
Term B-2 Loan................................................ 3.75% 10/01/20 1,062,278
4,292,873 NEP/NCP Holdco, Inc., Amendment No. 3 Incremental
Term Loan (First Lien)....................................... 4.25% 01/22/20 4,285,361
257,143 NEP/NCP Holdco, Inc., Term Loan (Second Lien)................... 9.50% 07/22/20 264,214
1,211,448 Nexstar Broadcasting Group, Inc. (Mission Broadcasting, Inc.),
Term Loan B-2................................................ 3.75% 09/30/20 1,204,639
1,945,000 Raycom TV Broadcasting LLC, Tranche B Term Loan................. 4.25% 05/31/17 1,940,138
6,733,125 Tribune Co., Term Loan.......................................... 4.00% 12/27/20 6,728,950
990,000 Univision Communications, Inc., 2013 Incremental Term Loan...... 4.00% 03/01/20 986,990
2,832,715 Univision Communications, Inc., Term Loan C-4
(Replacement First-Lien Term Loan)........................... 4.00% 03/01/20 2,824,755
-------------
34,242,651
-------------
BUILDING PRODUCTS - 0.8%
1,378,977 Quikrete Holdings, Inc., Initial Loan (First Lien).............. 4.00% 09/28/20 1,377,004
333,333 Quikrete Holdings, Inc., Initial Loan (Second Lien)............. 7.00% 03/26/21 340,833
1,308,800 Unifrax Holding Co., New Term Dollar Loan....................... 4.25% 11/28/18 1,309,128
-------------
3,026,965
-------------
CASINOS & GAMING - 7.0%
2,248,636 Bally Technologies, Inc., Term B Loan........................... 4.25% 11/25/20 2,253,696
7,137,125 Caesar's Growth Partners LLC, Term B Loan (First Lien).......... 6.25% 05/08/21 7,093,446
2,500,000 Caesars Entertainment Operating Co., Inc., Term B-4 Loan........ 9.50% 10/31/16 2,507,500
6,000,000 Caesars Entertainment Resort Properties LLC, Term B Loan........ 7.00% 10/11/20 5,971,080
2,066,250 CityCenter Holdings LLC, Term Loan B (First Lien)............... 5.00% 10/16/20 2,079,598
1,709,597 Pinnacle Entertainment, Inc., Tranche B-2 Term Loan............. 3.75% 08/13/20 1,708,879
3,734,321 ROC Finance LLC, Funded Term B Loan............................. 5.00% 06/20/19 3,668,970
2,553,634 Station Casinos, Inc., B Term Loan.............................. 4.25% 03/02/20 2,556,800
-------------
27,839,969
-------------
COAL & CONSUMABLE FUELS - 0.7%
2,716,076 Arch Coal, Inc., Term Loan...................................... 6.25% 05/16/18 2,671,260
-------------
Page 6 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
MAY 31, 2014
PRINCIPAL STATED
VALUE DESCRIPTION RATE (b) MATURITY (c) VALUE
------------ ---------------------------------------------------------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
COMMERCIAL PRINTING - 0.8%
$ 1,823,333 Cenveo Corp., Term B Loan....................................... 6.25% 02/13/17 $ 1,833,216
1,283,333 Southern Graphic, Inc., Term Loan............................... 4.25% 10/17/19 1,283,333
-------------
3,116,549
-------------
COMMODITY CHEMICALS - 0.8%
3,368,380 Tronox Pigments (Netherlands) B. V., Term Loan B................ 4.00% 03/19/20 3,369,794
-------------
COMMUNICATIONS EQUIPMENT - 0.6%
2,096,044 Alcatel-Lucent USA, Inc., New Term Loan C....................... 4.50% 01/30/19 2,098,999
417,185 Mitel Networks Corp., Term Loan................................. 5.25%-6.50% 01/31/20 421,357
-------------
2,520,356
-------------
COMPUTER HARDWARE - 2.8%
10,546,317 Dell, Inc., Term B Loan......................................... 4.50% 04/29/20 10,521,006
506,362 Dell, Inc., Term C Loan......................................... 3.75% 10/29/18 504,250
-------------
11,025,256
-------------
CONSTRUCTION & ENGINEERING - 0.5%
2,048,916 WireCo WorldGroup, Inc., Term Loan.............................. 6.00% 02/15/17 2,059,161
-------------
CONSTRUCTION MACHINERY & HEAVY TRUCKS - 0.3%
1,153,253 Navistar, Inc., Tranche B Term Loan............................. 5.75% 08/17/17 1,172,351
-------------
CONSUMER FINANCE - 2.4%
5,289,266 Altisource Solutions S.A.R.L., Term B Loan...................... 4.50% 12/09/20 5,287,044
924,000 Ocwen Loan Servicing LLC, Initial Term Loan..................... 5.00% 02/15/18 928,620
3,220,683 Walter Investment Management Corp., Tranche B Term Loan......... 4.75% 12/18/20 3,175,593
-------------
9,391,257
-------------
DATA PROCESSING & OUTSOURCED SERVICES - 2.0%
3,363,922 Harland Clarke Holdings Corp., Tranche B-2 Term Loan............ 5.48% 06/30/17 3,373,745
3,750,000 Interactive Data Corp., Term Loan............................... 4.75% 05/02/21 3,775,800
1,000,000 Sungard Availability Services Capital, Term Loan B.............. 6.00% 03/29/19 993,750
-------------
8,143,295
-------------
DISTRIBUTORS - 0.1%
300,000 Interline Brands, Inc., 1st Lien Term Loan...................... 4.00% 03/21/21 298,125
-------------
DIVERSIFIED CHEMICALS - 2.2%
3,250,000 Huntsman International LLC, Additional Term Loan................ 3.75% 10/31/20 3,256,760
3,165,373 Ineos US Finance LLC, Term Loan B .............................. 3.75% 05/04/18 3,143,944
2,363,412 Univar, Inc., Term B Loan ...................................... 5.00% 06/30/17 2,366,035
-------------
8,766,739
-------------
DIVERSIFIED METALS & MINING - 0.5%
2,000,000 Minerals Technologies, Inc., Initial Term Loan.................. 4.00% 05/07/21 2,005,000
-------------
DIVERSIFIED REAL ESTATE ACTIVITIES - 0.3%
1,044,724 Starwood Property Trust, Inc., Term Loan........................ 3.50% 04/19/20 1,037,933
-------------
DIVERSIFIED REITS - 0.8%
3,168,578 iStar Financial, Inc., Loan..................................... 4.50% 10/15/17 3,173,331
-------------
DIVERSIFIED SUPPORT SERVICES - 0.5%
2,052,000 SMG Holdings, Inc., Term Loan................................... 4.50% 02/27/20 2,053,293
-------------
See Notes to Financial Statements Page 7
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
MAY 31, 2014
PRINCIPAL STATED
VALUE DESCRIPTION RATE (b) MATURITY (c) VALUE
------------ ---------------------------------------------------------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
EDUCATION SERVICES - 0.1%
$ 400,000 Learning Care Group (US) No. 2, Inc., Term Loan................. 5.50% 05/05/21 $ 405,000
-------------
ELECTRIC UTILITIES - 0.8%
4,241,410 TXU (Texas Competitive Electric Holdings Co. LLC),
2014 Term Loan (Non-Extending) (d) (e)....................... 3.74% 10/10/14 3,380,997
-------------
ENVIRONMENTAL & FACILITIES SERVICES - 0.4%
1,596,000 EWT Holdings III Corp., Term Loan (First Lien).................. 4.75% 01/15/21 1,596,000
-------------
FOOD RETAIL - 0.2%
748,125 Arby's (ARG IH Corp.), Term Loan................................ 5.00% 11/15/20 750,220
-------------
HEALTH CARE EQUIPMENT - 5.3%
1,950,000 Alere, Inc., B Term Loan........................................ 4.25% 06/30/17 1,951,618
1,955,000 Alere, Inc., Incremental B-1 Term Loan.......................... 4.25% 06/30/17 1,956,623
490,000 Alere, Inc., Incremental B-2 Term Loan.......................... 4.25% 06/30/17 490,407
2,120,700 Biomet, Inc., Dollar Term B-2 Loan.............................. 3.65%-3.73% 07/25/17 2,122,905
3,034,164 Carestream Health, Inc. (Onex Carestream Finance, L.P.),
Term Loan (First Lien 2013).................................. 5.00% 06/07/19 3,037,198
4,492,334 DJO Finance LLC (ReAble Therapeutics Finance LLC),
New Tranche B Term Loan...................................... 4.25% 09/15/17 4,500,196
1,500,000 Ikaria, Inc., Initial Term Loan (First Lien).................... 5.00% 02/12/21 1,504,695
5,719,221 Kinetic Concepts, Inc., Dollar Term E-1 Loan.................... 4.00% 05/04/18 5,722,309
-------------
21,285,951
-------------
HEALTH CARE FACILITIES - 2.3%
1,995,000 CHS/Community Health Systems, Inc., 2021 Term D Loan............ 4.25% 01/27/21 2,005,593
520,833 Kindred Healthcare, Inc., New Term Loan......................... 4.00% 04/09/21 517,578
882,237 Select Medical Corp., Series E Tranche B Term Loan.............. 3.75%-5.00% 06/01/18 878,100
999,925 Surgical Care Affiliates LLC, Class B Term Loan - Extending..... 4.23% 12/29/17 997,425
1,950,263 Surgical Care Affiliates LLC, Class C Incremental............... 4.00% 06/30/18 1,940,511
2,896,047 United Surgical Partners International, Inc.,
New Tranche B Term Loan...................................... 4.75% 04/03/19 2,921,387
-------------
9,260,594
-------------
HEALTH CARE SERVICES - 6.4%
1,428,571 CareCore National LLC, Term Loan................................ 5.50% 03/05/21 1,435,114
1,981,374 CHG Healthcare Services, Inc, Term Loan (First Lien)............ 4.25% 11/19/19 1,981,374
2,814,375 DaVita, Inc., Tranche B-2 Term Loan............................. 4.00% 11/01/19 2,820,004
4,209,703 Envision Healthcare Corp. (Emergency Medical Services Corp.,
Initial Term Loan)........................................... 4.00% 05/25/18 4,204,441
2,109,688 Gentiva Health Services, Inc., Initial Term C Loan.............. 5.75% 10/18/18 2,109,687
2,082,102 Healogics, Inc., Term B Loan (First Lien)....................... 5.25% 02/05/19 2,083,830
1,925,646 Heartland Dental Care LLC, Incremental Term Loan................ 5.50% 12/21/18 1,931,673
3,451,327 Sheridan Holdings, Inc., Initial Term Loan (First Lien) 2013.... 4.50% 06/29/18 3,452,190
5,465,044 U.S. Renal Care, Inc., Tranche B-2 Term Loan (First lien)....... 4.25% 07/03/19 5,471,875
-------------
25,490,188
-------------
HEALTH CARE SUPPLIES - 1.0%
410,250 1-800 Contacts (Leonardo Acquisition Corp.), Term Loan
(First Lien)................................................. 4.25% 01/29/21 409,225
1,978,704 BSN Medical Luxembourg Holding S.A.R.L., New Term
Loan B1...................................................... 4.00% 08/28/19 1,977,061
Page 8 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
MAY 31, 2014
PRINCIPAL STATED
VALUE DESCRIPTION RATE (b) MATURITY (c) VALUE
------------ ---------------------------------------------------------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
HEALTH CARE SUPPLIES (CONTINUED)
$ 1,622,605 Sage Products Holdings III LLC, Replacement Term Loan (First
Lien)........................................................ 4.25% 12/13/19 $ 1,620,577
-------------
4,006,863
-------------
HEALTH CARE TECHNOLOGY - 2.5%
1,200,000 Connolly Holdings, Inc., Initial Term Loan (First Lien)......... 5.00% 05/14/21 1,209,756
748,125 Healthport Technologies LLC (CT Technologies Intermediate
Holdings, Inc.), Initial Term Loan............................ 5.25% 10/04/19 749,995
604,167 MedAssets, Inc., Term B Loan.................................... 4.00% 12/13/19 602,844
2,350,229 TriZetto Group, Inc. (TZ Merger Sub, Inc.), Term Loan........... 4.75% 05/02/18 2,353,166
2,000,000 TriZetto Group, Inc. (TZ Merger Sub, Inc.), Term Loan
(Second Lien)................................................ 8.50% 03/28/19 2,010,000
2,955,113 Truven Health Analytics, Inc. (VCPH Holding Corp.),
Term Loan B.................................................. 4.50% 05/31/19 2,923,109
-------------
9,848,870
-------------
HOMEFURNISHING RETAIL - 0.6%
2,327,038 Serta Simmons Holdings LLC, Term Loan B......................... 4.25% 10/01/19 2,328,970
-------------
HOTELS, RESORTS & CRUISE LINES - 1.0%
2,801,724 Hilton Worldwide Finance LLC, Initial Term Loan................. 3.50% 10/25/20 2,790,041
800,000 La Quinta Intermediate Holdings LLC, Initial Term Loan.......... 4.00% 04/14/21 800,200
473,684 Orient Express Hotels (Belmond Interfin Ltd.), Dollar Term
Loan......................................................... 4.00% 03/19/21 474,575
-------------
4,064,816
-------------
HOUSEHOLD APPLIANCES - 0.2%
598,974 Alliance Laundry Systems LLC, Initial Term Loan (First Lien).... 4.25% 12/10/18 598,226
-------------
HYPERMARKETS & SUPER CENTERS - 2.5%
2,500,000 BJ's Wholesale Club, Inc., 2013 (November) Replacement Loan
(Second Lien)................................................ 8.50% 03/26/20 2,571,875
7,575,129 BJ's Wholesale Club, Inc., New 2013 (November) Replacement
Loan (First Lien)............................................ 4.50% 09/26/19 7,571,948
-------------
10,143,823
-------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS - 1.5%
1,379,000 Calpine Corp., Term Loan........................................ 4.00% 10/09/19 1,381,110
1,945,000 Calpine Corp., Term Loan (6/11)................................. 4.00% 04/01/18 1,948,034
2,393,920 FREIF North American Power I LLC, Term B-1 Loan................. 4.75% 03/29/19 2,417,860
392,529 FREIF North American Power I LLC, Term C-1 Loan................. 4.75% 03/29/19 396,454
-------------
6,143,458
-------------
INDUSTRIAL CONGLOMERATES - 1.3%
1,970,100 Gardner Denver, Inc., Initial Dollar Term Loan.................. 4.25% 07/30/20 1,967,854
1,280,074 Hamilton Sundstrand Industrial (Silver II US Holdings LLC),
Refinancing Term Loan........................................ 4.00% 12/13/19 1,277,194
1,986,724 Tomkins Air Distribution (Air Distribution Technologies, Inc.),
Replacement Term Loan (First Lien)........................... 4.25% 11/09/18 1,987,976
-------------
5,233,024
-------------
See Notes to Financial Statements Page 9
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
MAY 31, 2014
PRINCIPAL STATED
VALUE DESCRIPTION RATE (b) MATURITY (c) VALUE
------------ ---------------------------------------------------------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
INDUSTRIAL MACHINERY - 1.2%
$ 2,105,778 Dematic Holdings (Mirror Bidco Corp.), New Incremental Term
Loan......................................................... 4.25% 12/28/19 $ 2,100,514
2,673,612 Husky Injection Molding Systems Ltd., New Term Loan............. 4.25% 06/30/18 2,677,328
-------------
4,777,842
-------------
INSURANCE BROKERS - 4.2%
3,333,514 Amwins Group LLC, New Term Loan................................. 5.00% 09/06/19 3,334,914
3,048,399 Confie Seguros Holding II Co., Term B Loan (First Lien)......... 5.75% 11/09/18 3,050,685
2,084,250 Cooper Gay Swett & Crawford Ltd., Term Loan (First Lien)........ 5.00% 04/16/20 2,011,301
720,000 Cooper Gay Swett & Crawford Ltd., Term Loan (Second Lien)....... 8.25% 10/16/20 694,800
2,593,000 HUB International Ltd., Initial Term Loan (New)................. 4.25% 10/02/20 2,589,759
4,888,311 USI, Inc. (Compass Investors, Inc.), Initial Term Loan.......... 4.25% 12/27/19 4,883,716
-------------
16,565,175
-------------
INTEGRATED TELECOMMUNICATION SERVICES - 3.9%
3,544,001 Avaya, Inc., Term B-3 Loan...................................... 4.73% 10/26/17 3,425,880
2,985,000 Cincinnati Bell, Inc., Tranche B Term Loan...................... 4.00% 09/10/20 2,978,284
1,970,103 Hawaiian Telcom Communications, Inc., Term Loan................. 5.00% 06/06/19 1,976,506
3,390,999 Numericable U.S. LLC, Dollar Denominated Tranche B-1 Loan....... 4.50% 05/21/20 3,396,526
2,933,676 Numericable U.S. LLC, Dollar Denominated Tranche B-2 Loan....... 4.50% 05/21/20 2,938,458
996,960 XO Communications LLC, Initial Term Loan........................ 4.25% 03/20/21 999,812
-------------
15,715,466
-------------
INVESTMENT BANKING & BROKERAGE - 0.4%
1,600,000 RCS Capital Corp., Term Loan (First Lien)....................... 6.50% 04/29/19 1,632,672
-------------
IT CONSULTING & OTHER SERVICES - 0.4%
1,466,250 Sirius Computer Solutions, Inc. (SCS Holdings I, Inc.), Term
Loan......................................................... 7.00% 12/07/18 1,484,578
-------------
LEISURE FACILITIES - 0.5%
2,000,000 Planet Fitness Holdings LLC, Term Loan.......................... 4.75% 03/31/21 2,006,260
-------------
LIFE SCIENCES TOOLS & SERVICES - 4.7%
4,230,135 InVentiv Health, Inc., Consolidated Term Loan................... 7.50% 08/04/16 4,240,711
533,246 InVentiv Health, Inc., Term B-3 Loan............................ 7.75% 05/15/18 531,582
1,600,000 Millennium Laboratories LLC, Tranche B Term Loan................ 5.25% 04/16/21 1,609,008
5,666,667 Ortho-Clinical Diagnostics, Inc. (Crimson Merger Sub, Inc.),
Initial Term Loan............................................ 4.75% 06/30/21 5,688,653
2,304,167 Pharmaceutical Product Development, Inc., 2013 Term Loan........ 4.00% 12/05/18 2,304,881
4,407,177 Quintiles Transnational Corp., Term B-3 Loan.................... 3.75% 06/08/18 4,400,566
-------------
18,775,401
-------------
MANAGED HEALTH CARE - 0.4%
1,472,727 MultiPlan, Inc. (MPH Acquisition Holdings LLC), Initial Term
Loan......................................................... 4.00% 03/31/21 1,462,300
-------------
METAL & GLASS CONTAINERS - 2.0%
548,625 Ardagh Holdings USA, Inc. (Ardagh Packaging Finance S.A.),
Dollar Term Loan............................................. 4.25% 12/17/19 549,141
400,000 Ardagh Holdings USA, Inc. (Ardagh Packaging Finance S.A.),
New Term Loan................................................ 4.00% 12/17/19 399,332
1,791,000 Berlin Packaging LLC, Term Loan B............................... 4.75% 04/02/19 1,804,432
Page 10 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
MAY 31, 2014
PRINCIPAL STATED
VALUE DESCRIPTION RATE (b) MATURITY (c) VALUE
------------ ---------------------------------------------------------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
METAL & GLASS CONTAINERS (CONTINUED)
$ 2,250,000 Filtration Group Corp., Initial Term Loan (Second Lien)......... 8.25% 11/22/21 $ 2,289,375
2,845,071 Filtration Group Corp., Term Loan (First Lien).................. 4.50% 11/20/20 2,861,658
-------------
7,903,938
-------------
MOVIES & ENTERTAINMENT - 2.6%
2,940,374 Formula One (Alpha Topco Ltd.), New Facility B (USD)............ 4.50% 04/30/19 2,944,873
200,000 Lions Gate Entertainment Corp., Loan............................ 5.00% 07/19/20 202,750
300,000 TWCC Holding Corp., Term Loan (Second Lien)..................... 7.00% 06/26/20 296,874
4,027,500 Village Roadshow Films (BVI) Ltd., Ultimates Facility
Tranche A-2................................................... 4.75% 11/21/17 4,067,775
3,000,000 WME IMG Worldwide, Inc., Term Loan (First Lien)................. 5.25% 05/06/21 3,012,750
-------------
10,525,022
-------------
OIL & GAS REFINING & MARKETING - 0.1%
371,355 CITGO Petroleum Corp., Term B Loan.............................. 8.00% 06/24/15 373,368
-------------
OIL & GAS STORAGE & TRANSPORTATION - 0.2%
704,922 Fieldwood Energy LLC, Closing Date Loan......................... 3.88% 09/28/18 704,485
-------------
OTHER DIVERSIFIED FINANCIAL SERVICES - 5.7%
1,496,250 American Beacon Advisors, Inc., Initial Term Loan............... 4.75% 11/22/19 1,499,991
2,568,000 First American Payment Systems L.P., Term Loan (First Lien)..... 5.75% 10/12/18 2,569,078
4,683,538 First Data Corp., 2021 New Dollar Term Loan..................... 4.15% 03/24/21 4,684,990
461,905 Global Cash Access, Inc., Term Loan B........................... 4.00% 03/01/16 460,173
1,343,250 Guggenheim Partners Investment Management Holdings LLC,
Initial Term Loan............................................ 4.25% 07/22/20 1,345,936
2,780,000 iPayment, Inc., Term Loan....................................... 6.75% 05/08/17 2,740,607
3,406,375 Moneygram International, Inc., Term Loan........................ 4.25% 03/27/20 3,350,204
2,074,689 National Financial Partners Corp., Term B Loan.................. 5.25% 07/01/20 2,084,191
1,745,625 Santander Asset Management (SAM Finance Lux S.A.R.L),
Dollar Term Loan............................................. 4.25% 12/17/20 1,752,171
2,359,394 Transfirst Holdings, Inc., Term B-2 Loan........................ 4.00% 12/27/17 2,357,931
-------------
22,845,272
-------------
PACKAGED FOODS & MEATS - 4.5%
3,954,761 Blue Buffalo Co. Ltd., Term B-3 Loan............................ 4.00% 08/08/19 3,954,761
3,012,284 Boulder Brands, Inc. (GFA Brands, Inc.), Term Loan.............. 5.00% 07/09/20 3,019,815
698,250 Del Monte Foods, Inc., Initial Loan (First Lien)................ 4.25% 02/18/21 696,651
3,343,470 Ferrara Candy Co. (Candy Intermediate Holdings, Inc.),
Term Loan B.................................................. 7.50% 06/06/18 3,207,658
1,875,000 Hearthside Food Solutions LLC, Term Loan........................ 4.50% 06/02/21 1,881,244
1,741,250 JBS USA LLC, Incremental Term Loan.............................. 3.75% 09/18/20 1,735,817
1,729,524 JBS USA LLC, Term Loan B........................................ 3.75% 05/25/18 1,723,038
1,675,000 New HB Acquisition LLC, Term B Loan............................. 6.75% 04/09/20 1,738,868
-------------
17,957,852
-------------
PAPER PACKAGING - 1.7%
748,125 Exopack Holding Corp., Term Loan B.............................. 5.25% 04/30/19 758,412
5,849,187 Reynolds Group Holdings, Inc., Incremental U.S. Term Loan....... 4.00% 12/01/18 5,850,883
-------------
6,609,295
-------------
See Notes to Financial Statements Page 11
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
MAY 31, 2014
PRINCIPAL STATED
VALUE DESCRIPTION RATE (b) MATURITY (c) VALUE
------------ ---------------------------------------------------------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
PHARMACEUTICALS - 4.0%
$ 1,363,636 Akorn, Inc., Loan............................................... 4.50% 04/16/21 $ 1,365,341
2,333,333 Catalent Pharma Solutions, Inc., Dollar Term Loan............... 4.50% 05/20/21 2,342,083
1,050,000 Mallinckrodt International Finance S.A., Initial Term B Loan.... 3.50% 03/19/21 1,043,437
5,233,218 Par Pharmaceutical Cos., Inc., Term B-2 Loan.................... 4.00% 09/30/19 5,210,977
1,400,000 Patheon, Inc. (JLL/Delta Dutch Newco B.V.), Initial Dollar
Term Loan.................................................... 4.25% 03/11/21 1,383,998
658,333 Salix Pharmaceuticals Ltd., Term Loan........................... 4.25% 01/02/20 661,507
591,000 Valeant Pharmaceuticals International, Inc., Series C-2 Tranche
Term Loan B.................................................. 3.75% 12/11/19 588,908
1,202,292 Valeant Pharmaceuticals International, Inc., Series D-2 Tranche
Term Loan B.................................................. 3.75% 02/13/19 1,199,286
2,298,926 Valeant Pharmaceuticals International, Inc., Series E-1 Tranche
Term Loan B.................................................. 3.75% 08/05/20 2,293,753
-------------
16,089,290
-------------
PROPERTY & CASUALTY INSURANCE - 1.1%
194,886 Cunningham Lindsey U.S., Inc., Initial Loan (Second Lien)....... 9.25% 06/10/20 194,156
2,926,861 Cunningham Lindsey U.S., Inc., Initial Term Loan (First Lien)... 5.00% 12/10/19 2,908,568
1,200,000 Sedgwick Claims Management Services, Inc., Initial Loan
(Second Lien)................................................ 6.75% 02/28/22 1,194,432
-------------
4,297,156
-------------
PUBLISHING - 1.0%
1,300,000 Cengage Learning Acquisitions, Inc., Term Loan.................. 7.00% 03/31/20 1,316,250
20,363 HIBU PLC (Yell/YB/YH/Eagle Topco), Spanish Facility (EUR)
(Fixed)...................................................... 1.50% 03/03/19 0
173,656 HIBU PLC (Yell/YB/YH/Eagle Topco), Facility A2 (USD)............ 5.25% 03/01/19 143,143
319,527 HIBU PLC (Yell/YB/YH/Eagle Topco), Facility B2 (USD)
(PIK) (f).................................................... 1.00% 03/01/24 0
677,734 McGraw-Hill Global Education Holdings LLC, Term B Loan
Refinancing.................................................. 5.75% 03/22/19 686,375
2,000,000 Mergermarket USA, Inc., Initial Term Loan (First Lien).......... 4.50% 02/04/21 1,970,000
-------------
4,115,768
-------------
REAL ESTATE OPERATING COMPANIES - 0.9%
3,763,303 ClubCorp Club Operations, Inc., New Term Loan................... 4.00% 07/24/20 3,738,201
-------------
REAL ESTATE SERVICES - 0.1%
495,009 Realogy Corp., Initial Term B Loan 2014......................... 3.75% 03/05/20 495,009
-------------
RESEARCH & CONSULTING SERVICES - 4.0%
4,278,709 Acosta, Inc., Term B Loan (2013)................................ 4.25% 03/02/18 4,292,101
947,895 Advantage Sales & Marketing, Inc., 2013 Other Term Loan
(Second Lien)................................................ 8.25% 06/17/18 950,502
4,736,292 Advantage Sales & Marketing, Inc., 2013 Term Loan (First
Lien)........................................................ 4.25% 12/18/17 4,745,196
598,500 CPA Global (Redtop Acquisitions Ltd.), Initial Dollar Term Loan
(First Lien)................................................. 4.50% 12/03/20 600,744
1,824,404 Information Resources, Inc., Term Loan.......................... 4.75% 09/30/20 1,824,404
3,675,000 TransUnion LLC, 2014 Replacement Term Loan...................... 4.00% 04/09/21 3,661,991
-------------
16,074,938
-------------
Page 12 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
MAY 31, 2014
PRINCIPAL STATED
VALUE DESCRIPTION RATE (b) MATURITY (c) VALUE
------------ ---------------------------------------------------------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
RESTAURANTS - 1.5%
$ 4,448,199 Focus Brands, Inc., Refinancing Term Loan (First Lien).......... 4.25% 02/21/18 $ 4,446,776
1,450,000 Focus Brands, Inc., Term Loan (Second Lien)..................... 10.25% 08/21/18 1,468,125
-------------
5,914,901
-------------
RETAIL REITS - 0.8%
800,000 Capital Automotive LLC, Term Loan (Second Lien)................. 6.00% 04/30/20 814,000
2,566,976 Capital Automotive LLC, Tranche B-1 Term Loan Facility.......... 4.00% 04/10/19 2,572,110
-------------
3,386,110
-------------
SECURITY & ALARM SERVICES - 0.2%
182,417 Garda World Security Corp., Term B Delayed Draw Loan............ 4.00% 11/06/20 181,656
713,083 Garda World Security Corp., Term Loan B......................... 4.00% 11/08/20 710,110
-------------
891,766
-------------
SEMICONDUCTORS - 2.5%
3,000,000 Avago Technologies Cayman Ltd., Term Loan....................... 3.75% 05/06/21 3,007,500
5,346,101 Freescale Semiconductor, Inc., Tranche B-4 Term Loan............ 4.25% 02/28/20 5,350,271
1,492,500 Freescale Semiconductor, Inc., Tranche B5 Term Loan............. 5.00% 01/15/21 1,498,396
-------------
9,856,167
-------------
SPECIALIZED CONSUMER SERVICES - 3.0%
9,033,046 Asurion LLC, Incremental Tranche B-1 Term Loan.................. 5.00% 05/24/19 9,062,403
1,058,824 Asurion LLC, Term Loan (Second Lien)............................ 8.50% 03/03/21 1,086,618
1,920,378 Expert Global Solutions, Inc. (NCO Group, Inc.), Term B Advance
(First Lien)................................................. 8.50% 04/03/18 1,846,770
-------------
11,995,791
-------------
SPECIALIZED FINANCE - 1.8%
2,519,585 AlixPartners LLP, 2014 January Replacement Term B-2 Loan
(First Lien).................................................. 4.00% 07/10/20 2,509,507
1,887,000 Duff & Phelps Corp., Initial Term Loan.......................... 4.50% 04/23/20 1,889,359
2,914,047 FLY Leasing Ltd. (Fly Funding II S.A.R.L), Loan................. 4.50% 08/09/19 2,934,095
-------------
7,332,961
-------------
SPECIALTY CHEMICALS - 3.4%
681,644 A.I. Chem (Allnex (Luxembourg) & Cy S.C.A.), Tranche B-1
Term Loan.................................................... 4.50% 10/03/19 682,209
353,672 A.I. Chem (Allnex (Luxembourg) & Cy S.C.A.), Tranche B-2
Term Loan.................................................... 4.50% 10/03/19 353,966
3,478,199 Arizona Chemicals (AZ Chem US, Inc.), Term Loan................. 5.25% 12/22/17 3,475,312
1,285,288 Axalta Coating Systems U.S. Holdings, Inc., Refinanced Term B
Loan......................................................... 4.00% 02/01/20 1,283,977
2,940,975 Emerald Performance Materials LLC, Term Loan (First Lien)....... 6.75% 05/18/18 2,955,680
794,000 MacDermid, Inc., Tranche B Term Loan............................ 4.00% 06/07/20 793,206
2,492,218 NuSil Technology LLC, Term Loan................................. 5.25% 04/07/17 2,448,604
1,447,500 Omnova Solutions, Inc., Term B-1 Loan........................... 4.25% 05/31/18 1,447,500
-------------
13,440,454
-------------
SPECIALTY STORES - 0.2%
750,000 Toys "R" US-Delaware, Inc., Initial Loan........................ 6.00% 09/01/16 627,293
-------------
See Notes to Financial Statements Page 13
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
MAY 31, 2014
PRINCIPAL STATED
VALUE DESCRIPTION RATE (b) MATURITY (c) VALUE
------------ ---------------------------------------------------------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
SYSTEMS SOFTWARE - 4.5%
$ 579,194 Applied Systems, Inc., Initial Term Loan (First Lien)........... 4.25% 01/25/21 $ 580,283
550,000 Applied Systems, Inc., Initial Term Loan (Second Lien).......... 7.50% 01/24/22 559,075
644,557 Blue Coat Systems, Inc., New Term Loan.......................... 4.00% 05/31/19 643,429
10,512,979 BMC Software Finance, Inc., Initial US Term Loan................ 5.00% 09/10/20 10,534,846
4,260,194 Vertafore, Inc., Term Loan 2013................................. 4.25% 10/03/19 4,263,389
1,488,750 Websense, Inc., Term Loan (First Lien).......................... 4.50% 06/25/20 1,491,549
-------------
18,072,571
-------------
TIRES & RUBBER - 0.5%
2,142,857 Goodyear Tire & Rubber Co., The, Loan (Second Lien)............. 4.75% 04/30/19 2,150,357
-------------
TRUCKING - 1.5%
2,257,143 Hertz Corp., The, Tranche B-1 Term Loan......................... 3.75% 03/11/18 2,254,321
2,673,000 SIRVA Worldwide, Inc., Loan..................................... 7.50% 03/27/19 2,719,778
867,208 Swift Transportation Co. LLC, Tranche B-2 Term Loan (2013)...... 4.00% 12/21/17 867,208
-------------
5,841,307
-------------
WIRELESS TELECOMMUNICATION SERVICES - 0.9%
694,750 Lightower Fiber Networks (LTS Buyer LLC or Sidera Networks,
Inc.), Term B Loan (First Lien).............................. 4.00% 04/13/20 691,624
2,879,481 Syniverse Holdings, Inc., Term Loan B (Sept 2013)............... 4.00% 04/23/19 2,873,491
-------------
3,565,115
-------------
TOTAL SENIOR FLOATING-RATE LOAN INTERESTS 549,884,103
(Cost $549,999,066) -------------
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
------------ ---------------------------------------------------------------- ----------- ------------ -------------
CORPORATE BONDS AND NOTES - 4.1%
AUTO PARTS & EQUIPMENT - 0.1%
250,000 American Axle & Manufacturing, Inc.............................. 6.25% 03/15/21 267,813
-------------
CABLE & SATELLITE - 0.3%
1,000,000 CCO Holdings I LLC/CCO Holdings Capital Corp.................... 6.50% 04/30/21 1,071,250
-------------
CASINOS & GAMING - 1.2%
4,900,000 Caesar's Growth Partners LLC (g)................................ 9.38% 05/01/22 4,952,062
-------------
HEALTH CARE EQUIPMENT - 0.3%
1,000,000 Kinetic Concepts, Inc./KCI USA, Inc............................. 12.50% 11/01/19 1,157,500
-------------
HEALTH CARE FACILITIES - 0.9%
350,000 CHS/Community Health Systems, Inc. (g).......................... 6.88% 02/01/22 370,125
800,000 Tenet Healthcare Corp........................................... 6.00% 10/01/20 862,000
2,250,000 Vantage Oncology LLC/Vantage Oncology Finance Co. (g)........... 9.50% 06/15/17 2,295,000
-------------
3,527,125
-------------
Page 14 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
MAY 31, 2014
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
------------ ---------------------------------------------------------------- ----------- ------------ -------------
CORPORATE BONDS AND NOTES (CONTINUED)
LIFE SCIENCES TOOLS & SERVICES - 0.7%
$ 400,000 inVentiv Health, Inc. (g)....................................... 9.00% 01/15/18 $ 430,000
2,250,000 Ortho-Clinical Diagnostics, Inc.
(Crimson Merger Sub, Inc.) (g)............................... 6.63% 05/15/22 2,235,937
-------------
2,665,937
-------------
OIL & GAS EQUIPMENT & SERVICES - 0.1%
250,000 Niska Gas Storage Canada ULC/Niska Gas
Storage Canada Finance Corp. (g)............................. 6.50% 04/01/19 242,813
-------------
SECURITY & ALARM SERVICES - 0.2%
1,000,000 Garda World Security Corp. (g).................................. 7.25% 11/15/21 1,056,250
-------------
SPECIALTY CHEMICALS - 0.2%
850,000 Hexion U.S. Finance Corp........................................ 6.63% 04/15/20 898,875
-------------
SPECIALTY STORES - 0.1%
500,000 Toys R US - Delaware, Inc. (g).................................. 7.38% 09/01/16 441,250
-------------
TOTAL CORPORATE BONDS AND NOTES................................. 16,280,875
(Cost $15,949,562) -------------
SHARES DESCRIPTION VALUE
------------ --------------------------------------------------------------------------------------------- -------------
WARRANTS - 0.0%
BROADCASTING - 0.0%
1,449 Cumulus Media, Inc. (h) (i) (j).............................................................. 7,464
-------------
TOTAL WARRANTS............................................................................... 7,464
(Cost $0) -------------
COMMON STOCKS - 0.0%
DIVERSIFIED CHEMICALS - 0.0%
20 LyondellBasell Industries N.V., Class A...................................................... 1,991
-------------
PUBLISHING - 0.0%
123,367 HIBU PLC (Yell/YB/YH/Eagle Topco) (h) (j).................................................... 0
-------------
TOTAL COMMON STOCKS.......................................................................... 1,991
(Cost $0) -------------
TOTAL INVESTMENTS - 141.9%................................................................... 566,174,433
(Cost $565,948,628) (k)
OUTSTANDING LOAN - (43.6%)................................................................... (174,000,000)
NET OTHER ASSETS AND LIABILITIES - 1.7%...................................................... 6,846,360
-------------
NET ASSETS - 100.0%.......................................................................... $ 399,020,793
-------------
(a) All or a portion of the securities are available to serve as collateral on
the outstanding loan.
(b) Senior Floating-Rate Loan Interests ("Senior Loans") in which the Fund
invests pay interest rates which are periodically predetermined by
reference to a base lending rate plus a premium. These base lending rates
are generally (i) the lending rate offered by one or more major European
banks, such as the London Inter-Bank Offered Rate ("LIBOR"), (ii) the
prime rate offered by one or more United States banks or (iii) the
certificate of deposit rate. Certain Senior Loans are subject to a LIBOR
floor that establishes a minimum LIBOR rate. The interest rate shown
reflects the rate in effect at May 31, 2014. When a range of rates is
disclosed, the Fund holds more than one contract within the same tranche
at varying rates.
See Notes to Financial Statements Page 15
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
MAY 31, 2014
(c) Senior Loans generally are subject to mandatory and/or optional
prepayment. As a result, the actual remaining maturity of Senior Loans may
be substantially less than the stated maturities shown.
(d) This issuer has filed for protection in federal bankruptcy court.
(e) This issuer is in default but interest is still being accrued by the Fund
and paid by the issuer.
(f) This Senior Loan is a subordinated payment-in-kind ("PIK") loan that pays
1.00% PIK interest. Interest is to be paid annually in the form of
additional principal. The first interest payment is scheduled for March 3,
2015.
(g) This security, sold within the terms of a private placement memorandum, is
exempt from registration upon resale under Rule 144A under the Securities
Act of 1933, as amended, and may be resold in transactions exempt from
registration, normally to qualified institutional buyers. Pursuant to
procedures adopted by the Fund's Board of Trustees, this security has been
determined to be liquid by First Trust Advisors L.P., the Fund's advisor.
Although market instability can result in periods of increased overall
market illiquidity, liquidity for each security is determined based on
security specific factors and assumptions, which require subjective
judgment. At May 31, 2014, securities noted as such are valued at
$12,023,437 or 3.01% of net assets.
(h) This security is fair valued in accordance with procedures adopted by the
Fund's Board of Trustees, and in accordance with the provisions of the
Investment Company Act of 1940, as amended.
(i) This security is restricted and cannot be offered for public sale without
first being registered under the Securities Act of 1933, as amended. Prior
to registration, restricted securities may only be resold in transactions
exempt from registration (See Note 2D - Restricted Securities in the Notes
to Financial Statements).
(j) Non-income producing security.
(k) Aggregate cost for federal income tax purposes is $566,480,563. As of May
31, 2014, the aggregate gross unrealized appreciation for all securities
in which there was an excess of value over tax cost was $1,847,561 and the
aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over value was $2,153,691.
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of May 31, 2014
is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
INVESTMENTS 5/31/2014 PRICES INPUTS INPUTS
------------------------------------------------- ------------- ------------ ------------ ------------
Senior Floating-Rate Loan Interests:
Movies & Entertainment........................ $ 10,525,022 $ -- $ 6,457,247 $ 4,067,775
Other Industry Categories*.................... 539,359,081 -- 539,359,081 --
------------- ------------ ------------ ------------
Total Senior Floating-Rate Loan Interests..... 549,884,103 -- 545,816,328 4,067,775
Corporate Bonds and Notes*....................... 16,280,875 -- 16,280,875 --
Warrants*........................................ 7,464 -- 7,464 --
Common Stocks*................................... 1,991 1,991 -- -- +
------------- ------------ ------------ ------------
TOTAL INVESTMENTS................................ $ 566,174,433 $ 1,991 $562,104,667 $ 4,067,775
============= ============ ============ ============
There were no transfers between Level 1 and Level 2.
All transfers in and out of Level 3 during the period are assumed to be
transferred on the last day of the period at their current value. As of May 31,
2014, the Fund transferred Senior Floating-Rate Loan Interests valued at
$4,067,775 from Level 2 to Level 3 of the fair value hierarchy. The Senior
Floating-Rate Loan Interests that transferred from Level 2 to Level 3 did so
primarily as a result of a change in information obtained from an independent
third party pricing service relating to the market activity of individual Senior
Floating-Rate Loan Interests. Level 3 Senior Floating-Rate Loan Interests are
valued using third party pricing service prices. These values are based on
unobservable and non-quantitative inputs, such as dealer runs and indicative
sheets from brokers. The Fund's Board of Trustees has adopted valuation
procedures that are utilized by the Pricing Committee to oversee the day-to-day
valuation of the Fund's investments. The Pricing Committee, through the Fund's
fund accounting agent, monitors daily pricing via tolerance checks and stale and
unchanged price reviews. The Pricing Committee also reviews monthly back testing
of pricing service prices by comparing sales prices of Fund investments to prior
day pricing service prices. Additionally, the Pricing Committee reviews periodic
information from the Fund's third party pricing service that compares secondary
market trade prices to their daily valuations.
Page 16 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
MAY 31, 2014
The following table presents the Fund's investments measured at fair value on a
recurring basis using significant unobservable inputs (Level 3) for the period
presented:
BEGINNING BALANCE AT MAY 31, 2013
Senior Floating-Rate Loan Interests................... $ --
Corporate Bonds and Notes............................. --**
Warrants.............................................. --
Common Stocks......................................... --
Preferred Stocks...................................... --**
Net Realized Gain (Loss)
Senior Floating-Rate Loan Interests................... --
Corporate Bonds and Notes............................. (436,364)
Preferred Stocks...................................... (2,563,636)
Net Change in Unrealized Appreciation/Depreciation
Senior Floating-Rate Loan Interests................... --
Corporate Bonds and Notes............................. 436,364
Preferred Stocks...................................... 2,563,636
Purchases
Senior Floating-Rate Loan Interests................... --
Sales
Senior Floating-Rate Loan Interests................... --
Corporate Bonds and Notes............................. --**
Preferred Stocks...................................... --**
Transfers In
Senior Floating-Rate Loan Interests................... 4,067,775
Transfers Out
Senior Floating-Rate Loan Interests................... --
-----------
ENDING BALANCE AT MAY 31, 2014
Senior Floating-Rate Loan Interests................... 4,067,775
Corporate Bonds and Notes............................. --
Warrants.............................................. --
Common Stocks......................................... -- +
Preferred Stocks...................................... --
-----------
Total Level 3 holdings...................................... $ 4,067,775
===========
Net change in unrealized appreciation/depreciation from Level 3 investments held
as of May 31, 2014 was $(78,426) and is included in "Net change in unrealized
appreciation (depreciation) on investments" on the Statement of Operations.
* See the Portfolio of Investments for the industry breakout. Industry
categories are only shown separately if they include holdings in two or
more levels or have holdings in only Level 3.
** Market value is less than $1.
+ Investment is valued at $0.
See Notes to Financial Statements Page 17
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 2014
ASSETS:
Investments, at value
(Cost $565,948,628)......................................................................... $566,174,433
Cash........................................................................................... 3,740,031
Receivables:
Investment securities sold.................................................................. 42,865,377
Interest.................................................................................... 3,141,341
Prepaid expenses............................................................................... 72,212
------------
Total Assets................................................................................ 615,993,394
------------
LIABILITIES:
Outstanding loan............................................................................... 174,000,000
Payables:
Investment securities purchased............................................................. 42,168,513
Investment advisory fees.................................................................... 362,440
Interest and fees on loan................................................................... 139,356
Offering costs.............................................................................. 92,925
Audit and tax fees.......................................................................... 74,200
Administrative fees......................................................................... 70,082
Printing fees............................................................................... 29,002
Custodian fees.............................................................................. 13,917
Legal fees.................................................................................. 9,998
Transfer agent fees......................................................................... 5,044
Trustees' fees and expenses................................................................. 3,849
Financial reporting fees.................................................................... 771
Other liabilities.............................................................................. 2,504
------------
Total Liabilities........................................................................... 216,972,601
------------
NET ASSETS..................................................................................... $399,020,793
============
NET ASSETS CONSIST OF:
Paid-in capital................................................................................ $501,111,177
Par value...................................................................................... 266,970
Accumulated net investment income (loss)....................................................... (333,526)
Accumulated net realized gain (loss) on investments............................................ (102,249,633)
Net unrealized appreciation (depreciation) on investments...................................... 225,805
------------
NET ASSETS..................................................................................... $399,020,793
============
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share)........................... $ 14.95
============
Number of Common Shares outstanding (unlimited number of Common Shares has been authorized).... 26,696,982
============
Page 18 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MAY 31, 2014
INVESTMENT INCOME:
Interest....................................................................................... $ 28,408,168
Dividends...................................................................................... 78
Other.......................................................................................... 1,123,818
------------
Total investment income..................................................................... 29,532,064
------------
EXPENSES:
Investment advisory fees....................................................................... 4,298,640
Interest and fees on loan...................................................................... 1,760,509
Administrative fees............................................................................ 463,236
At the market offering costs................................................................... 220,548
Printing fees.................................................................................. 107,182
Custodian fees................................................................................. 87,258
Audit and tax fees............................................................................. 71,009
Legal fees..................................................................................... 49,063
Transfer agent fees............................................................................ 32,428
Trustees' fees and expenses.................................................................... 24,777
Financial reporting fees....................................................................... 9,250
Other.......................................................................................... 62,146
------------
Total expenses.............................................................................. 7,186,046
------------
NET INVESTMENT INCOME (LOSS)................................................................... 22,346,018
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments..................................................... (2,548,773)
Net change in unrealized appreciation (depreciation) on investments......................... 94,645
------------
NET REALIZED AND UNREALIZED GAIN (LOSS)........................................................ (2,454,128)
------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................ $ 19,891,890
============
See Notes to Financial Statements Page 19
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
STATEMENTS OF CHANGES IN NET ASSETS
YEAR YEAR
ENDED ENDED
5/31/2014 5/31/2013
-------------- --------------
OPERATIONS:
Net investment income (loss)....................................................... $ 22,346,018 $ 25,878,947
Net realized gain (loss)........................................................... (2,548,773) 5,549,306
Net change in unrealized appreciation (depreciation)............................... 94,645 10,880,340
-------------- --------------
Net increase (decrease) in net assets resulting from operations.................... 19,891,890 42,308,593
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.............................................................. (25,186,591) (26,429,210)
-------------- --------------
Total distributions to shareholders................................................ (25,186,591) (26,429,210)
-------------- --------------
CAPITAL TRANSACTIONS:
Proceeds from Common Shares sold through at the market offerings................... 3,035,923 16,309,080
Proceeds from Common Shares reinvested............................................. 454,722 1,464,623
-------------- --------------
Net increase (decrease) in net assets resulting from capital transactions.......... 3,490,645 17,773,703
-------------- --------------
Total increase (decrease) in net assets............................................ (1,804,056) 33,653,086
NET ASSETS:
Beginning of period................................................................ 400,824,849 367,171,763
-------------- --------------
End of period...................................................................... $ 399,020,793 $ 400,824,849
============== ==============
Accumulated net investment income (loss) at end of period.......................... $ (333,526) $ 1,544,225
============== ==============
CAPITAL TRANSACTIONS WERE AS FOLLOWS:
Common Shares at beginning of period............................................... 26,470,348 25,343,671
Common Shares sold through at the market offerings................................. 196,487 1,029,480
Common Shares issued as reinvestment under the Dividend Reinvestment Plan.......... 30,147 97,197
-------------- --------------
Common Shares at end of period..................................................... 26,696,982 26,470,348
============== ==============
Page 20 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED MAY 31, 2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) in net assets resulting from operations $ 19,891,890
Adjustments to reconcile net increase (decrease) in net assets resulting from
operations to net cash provided by operating activities:
Purchases of investments.................................................. (544,854,606)
Sales, maturities and paydowns of investments............................. 539,868,665
Net amortization/accretion of premiums/discounts on investments........... (876,634)
Net realized gain/loss on investments..................................... 2,548,773
Net change in unrealized appreciation/depreciation on investments......... (94,645)
CHANGES IN ASSETS AND LIABILITIES:
Increase in interest receivable........................................... (160,636)
Decrease in prepaid expenses.............................................. 34,637
Decrease in interest and fees on loan payable............................. (15,850)
Decrease in investment advisory fees payable.............................. (3,782)
Decrease in audit and tax fees payable.................................... (7,375)
Decrease in legal fees payable............................................ (6,569)
Decrease in printing fees payable......................................... (1,165)
Increase in administrative fees payable................................... 19,930
Decrease in custodian fees payable........................................ (36,203)
Increase in transfer agent fees payable................................... 1,998
Decrease in Trustees' fees and expenses payable........................... (882)
Decrease in other liabilities............................................. (6,836)
--------------
CASH PROVIDED BY OPERATING ACTIVITIES........................................... $ 16,300,710
--------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of Common Shares sold, net of offering costs..................... 3,253,898
Distributions to Common Shareholders...................................... (24,731,869)
Proceeds from borrowing................................................... 33,000,000
Repayment of borrowing.................................................... (33,000,000)
--------------
CASH USED IN FINANCING ACTIVITIES............................................... (21,477,971)
--------------
Decrease in cash................................................................ (5,177,261)
Cash at beginning of period..................................................... 8,917,292
--------------
CASH AT END OF PERIOD........................................................... $ 3,740,031
==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest and fees............................... $ 1,776,359
==============
Non-cash Financing Activities:
Proceeds from re-investment of distributions.............................. $ 454,722
==============
See Notes to Financial Statements Page 21
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
FINANCIAL HIGHLIGHTS
FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
5/31/2014 5/31/2013 5/31/2012 5/31/2011 (a) 5/31/2010
--------- --------- --------- ------------- ---------
Net asset value, beginning of period.................. $ 15.14 $ 14.49 $ 14.76 $ 13.96 $ 11.79
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).......................... 0.84 1.01 0.91 0.73 0.47
Net realized and unrealized gain (loss)............... (0.08) 0.64 (0.31) 0.77 2.15
Distributions paid to AMP (b) Shareholders from:
Net investment income................................. -- -- -- -- (0.02)
--------- --------- --------- --------- ---------
Total from investment operations...................... 0.76 1.65 0.60 1.50 2.60
--------- --------- --------- --------- ---------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income................................. (0.95) (1.03) (0.87) (0.70) (0.43)
--------- --------- --------- --------- ---------
Total distributions to Common Shareholders............ (0.95) (1.03) (0.87) (0.70) (0.43)
--------- --------- --------- --------- ---------
Premium from shares sold in at the market offering.... 0.00 (c) 0.03 -- -- --
--------- --------- --------- --------- ---------
Net asset value, end of period........................ $ 14.95 $ 15.14 $ 14.49 $ 14.76 $ 13.96
========= ========= ========= ========= =========
Market value, end of period........................... $ 14.00 $ 15.37 $ 14.34 $ 14.82 $ 12.65
========= ========= ========= ========= =========
TOTAL RETURN BASED ON NET ASSET VALUE (d)............. 5.35% 11.92% (4.45)% 11.19% 22.99%
========= ========= ========= ========= =========
TOTAL RETURN BASED ON MARKET VALUE (d)................ (2.82)% 14.80% (2.95)% 23.20% 30.76%
========= ========= ========= ========= =========
-----------------------
RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON SHAREHOLDERS:
Ratio of total expenses to average net assets.......... 1.80% 1.85% 1.88% 1.98% 2.42%
Ratio of total expenses to average net assets excluding
interest expense.................................. 1.36% 1.38% 1.33% 1.31% 1.39%
Ratio of net investment income (loss) to average net
assets............................................ 5.60% 6.77% 6.38% 5.09% 3.49%
Ratio of net investment income (loss) to average net
assets net of AMP Shares dividends (e)............ N/A N/A N/A N/A 3.37%
Portfolio turnover rate................................ 90% 125% 63% 95% 52%
Net assets, end of period (in 000's)................... $ 399,021 $ 400,825 $ 367,172 $ 373,902 $ 353,106
Ratio of total expenses to total average Managed
Assets (f)........................................ 1.25% 1.30% 1.31% 1.39% 1.77%
Ratio of total expenses to total average Managed
Assets excluding interest expense (f)............. 0.96% 0.97% 0.93% 0.92% 1.01%
INDEBTEDNESS:
Total loan outstanding (in 000's)...................... $ 174,000 $ 174,000 $ 158,000 $ 160,000 $ 153,500
Asset coverage per $1,000 of indebtedness (g).......... $ 3,293 $ 3,304 $ 3,324 $ 3,337 $ 3,300
-----------------------
(a) From inception to October 12, 2010, Four Corners Capital Management, LLC
served as the Fund's Sub-Advisor. Effective October 12, 2010, the
Leveraged Finance Team of First Trust Advisors L.P. assumed the day-to-day
responsibility for management of the Fund's portfolio.
(b) Auction Market Preferred ("AMP") Shares.
(c) Amount is less than $0.01.
(d) 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.
(e) Ratio reflects the effect of distributions to AMP Shareholders.
(f) Managed Assets are calculated by taking the Fund's total asset value
(which includes assets attributable to the Fund's AMP Shares, if AMP
Shares are outstanding, and the principal amount of borrowings), minus the
sum of the Fund's accrued and unpaid dividends on any outstanding AMP
Shares, if AMP Shares are outstanding, and liabilities, other than the
principal amount of borrowings.
(g) Calculated by taking the Fund's total assets less the Fund's total
liabilities (not including the AMP Shares liquidation value and the loan
outstanding) and dividing by the outstanding loan balance in 000's.
N/A Not applicable.
Page 22 See Notes to Financial Statements
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
MAY 31, 2014
1. ORGANIZATION
First Trust Senior Floating Rate Income Fund II (the "Fund") is a diversified,
closed-end management investment company organized as a Massachusetts business
trust on March 25, 2004, and is registered with the Securities and Exchange
Commission under the Investment Company Act of 1940, as amended (the "1940
Act"). The Fund trades under the ticker symbol FCT on the New York Stock
Exchange ("NYSE").
The Fund's primary investment objective is to seek a high level of current
income. As a secondary objective, the Fund attempts to preserve capital. The
Fund pursues these objectives by investing in a portfolio of senior
floating-rate loan interests ("Senior Loans").(1) There can be no assurance that
the Fund will achieve its investment objectives. Investing in Senior Loans
involves credit risk and, during periods of generally declining credit quality,
it may be particularly difficult for the Fund to achieve its secondary
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 Common Shares of the Fund 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 at market value or, in the absence of
market value with respect to any portfolio securities, at fair value, in
accordance with valuation procedures adopted by the Fund's Board of Trustees,
and in accordance with provisions of the 1940 Act. Market quotations and prices
used to value the Fund's investments are primarily obtained from third party
pricing services. The Fund's investments are valued as follows:
The Senior Loans in which the Fund invests are not listed on any securities
exchange or board of trade. Senior Loans are typically bought and sold by
institutional investors in individually negotiated private transactions
that function in many respects like an over-the-counter secondary market,
although typically no formal market-makers exist. This market, while having
grown substantially since its inception, generally has fewer trades and
less liquidity than the secondary market for other types of securities.
Some Senior Loans have few or no trades, or trade infrequently, and
information regarding a specific Senior Loan may not be widely available or
may be incomplete. Accordingly, determinations of the market value of
Senior Loans may be based on infrequent and dated information. Because
there is less reliable, objective data available, elements of judgment may
play a greater role in valuation of Senior Loans than for other types of
securities. Typically, Senior Loans are valued using information provided
by a third party pricing service. The third party pricing service primarily
uses over-the-counter pricing from dealer runs and broker quotes from
indicative sheets to value the Senior Loans.
Common stocks and other equity securities listed on any national or foreign
exchange (excluding The NASDAQ(R) Stock Market, LLC ("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
or, for NASDAQ and AIM securities, the official closing price. Securities
traded on more than one securities exchange are valued at the last sale
price or official closing price, as applicable, at the close of the
securities exchange representing the principal market for such securities.
Bonds, notes and other debt securities 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.
(1) The terms "security" and "securities" used throughout the Notes to
Financial Statements include Senior Loans.
Page 23
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
MAY 31, 2014
Debt securities having a remaining maturity of sixty days or less when
purchased are valued at cost adjusted for amortization of premiums and
accretion of discounts.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Fund's Board of Trustees or its
delegate at fair value. These securities generally include, but are not limited
to, restricted securities (securities which may not be publicly sold without
registration under the Securities Act of 1933, as amended (the "1933 Act")) for
which a pricing service is unable to provide a market price; securities whose
trading has been formally suspended; a security whose market price is not
available from a pre-established pricing source; a security with respect to
which an event has occurred that is likely to materially affect the value of the
security after the market has closed but before the calculation of the Fund's
NAV or make it difficult or impossible to obtain a reliable market quotation;
and a security whose price, as provided by the pricing service, does not reflect
the security's "fair value." As a general principle, the current "fair value" of
a security would appear to be the amount which the owner might reasonably expect
to receive for the security upon its current sale. The use of fair value prices
by the Fund generally results in prices used by the Fund that may differ from
current market quotations or official closing prices on the applicable exchange.
A variety of factors may be considered in determining the fair value of such
securities, including, but not limited to, the following:
1) the fundamental business data relating to the borrower/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 a security;
4) the financial statements of the borrower/issuer;
5) the credit quality and cash flow of the borrower/issuer, based on
the 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 borrower/issuer, 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 borrower/issuer, including any ability
to obtain money or resources from a parent or affiliate and an
assessment of the borrower's/issuer's management;
11) the prospects for the borrower's/issuer's industry, and multiples
(of earnings and/or cash flows) being paid for similar businesses in
that industry;
12) borrower's/issuer's competitive position within the industry;
13) borrower's/issuer's ability to access additional liquidity through
public and/or private markets; and
14) other relevant factors.
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).
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
investment.
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 May 31, 2014, is
included with the Fund's Portfolio of Investments.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME:
Security transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Interest income is recorded on the accrual basis. Market premiums and discounts
are amortized over the expected life of each respective borrowing.
Page 24
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
MAY 31, 2014
Securities purchased or sold on a when-issued, delayed-delivery or forward
purchase commitment basis may have extended settlement periods. The value of the
security so purchased is subject to market fluctuations during this period. Due
to the nature of the Senior Loan market, the actual settlement date may not be
certain at the time of the purchase or sale for some of the Senior Loans.
Interest income on such Senior Loans is not accrued until settlement date. The
Fund maintains liquid assets with a current value at least equal to the amount
of its when-issued, delayed delivery or forward purchase commitments. The Fund
had no when-issued, delayed-delivery, or forward purchase commitments as of May
31, 2014.
C. UNFUNDED LOAN COMMITMENTS:
The Fund may enter into certain credit agreements, all or a portion of which may
be unfunded. The Fund is obligated to fund these loan commitments at the
borrower's discretion. The Fund had no unfunded delayed draw loan commitments as
of May 31, 2014.
D. RESTRICTED SECURITIES:
The Fund invests in restricted securities, which are securities that may not be
offered for public sale without first being registered under the 1933 Act. Prior
to registration, restricted securities may only be resold in transactions exempt
from registration under Rule 144A under the 1933 Act, normally to qualified
institutional buyers. As of May 31, 2014, the Fund held restricted securities as
shown in the following table. The Fund does not have the right to demand that
such securities be registered. These securities are valued according to the
valuation procedures as stated in the Portfolio Valuation footnote (Note 2A) and
are not expressed as a discount to the carrying value of a comparable
unrestricted investment. There are no unrestricted investments with the same
maturity date and yield for this issuer.
% OF
NET ASSETS
APPLICABLE
ACQUISITION PRINCIPAL VALUE CURRENT TO COMMON
SECURITY DATE VALUE/SHARES PER SHARE CARRYING COST VALUE SHARES
-----------------------------------------------------------------------------------------------------------------
Cumulus Media, Inc. - Warrants 6/29/09 1,449 $ 5.15 $ -- $ 7,464 0.00% *
* Amount is less than 0.01%.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
The Fund will distribute to holders of its Common Shares monthly dividends of
all or a portion of its net income after the payment of interest and dividends
in connection with leverage, if any. Distributions of any net long-term capital
gains earned by the Fund are distributed at least annually. Distributions will
automatically be reinvested into additional Common Shares pursuant to the Fund's
Dividend Reinvestment Plan unless cash distributions are elected by the
shareholder.
Distributions from net investment income and realized 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 significantly modified portfolio securities held by the Fund
and have no impact on net assets or net asset value 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 time in the future. Permanent differences incurred during the
year ended May 31, 2014, resulting in book and tax accounting differences, have
been reclassified at year end to reflect an increase in accumulated net
investment income (loss) of $962,822, an increase in accumulated net realized
gain (loss) on investments of $1,552 and a decrease to paid-in capital of
$964,374. Net assets were not affected by these reclassifications.
The tax character of distributions paid during the fiscal years ended May 31,
2014 and 2013 is as follows:
Distributions paid from: 2014 2013
------------- -------------
Ordinary income $ 25,186,591 $ 26,429,210
As of May 31, 2014, the components of distributable earnings and net assets on a
tax basis were as follows:
Undistributed ordinary income.................. $ --
Undistributed capital gains.................... --
-------------
Total undistributed earnings................... --
Accumulated capital and other losses........... (102,051,224)
Net unrealized appreciation (depreciation)..... (306,130)
-------------
Total accumulated earnings (losses)............ (102,357,354)
Other.......................................... --
Paid-in capital................................ 501,378,147
-------------
Net assets..................................... $ 399,020,793
=============
Page 25
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
MAY 31, 2014
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, 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. However, due to the
timing and amount of distributions, the Fund may be subject to an excise tax of
4% of the amount by which approximately 98% of the Fund's taxable income exceeds
the distributions from such taxable income for the calendar year.
Under the Regulated Investment Company Modernization Act of 2010 (the "Act"),
net capital losses arising in taxable years 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
up to 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 May 31, 2014, the Fund had pre-enactment net capital
losses for federal income tax purposes of $98,951,987 expiring as follows:
EXPIRATION DATE AMOUNT
May 31, 2016 $ 422,155
May 31, 2017 25,585,953
May 31, 2018 68,278,827
May 31, 2019 4,665,052
During the taxable year ended May 31, 2014, the Fund utilized pre-enactment
capital loss carryforwards in the amount of $689,527.
The Fund is subject to certain limitations under the U.S. tax rules on the use
of capital loss carryforwards and net unrealized built-in losses. These
limitations apply when there has been a 50% change in ownership.
Certain losses realized during the current fiscal year may be deferred and
treated as occurring the first day of the following fiscal year for federal
income tax purposes. For the fiscal year ended May 31, 2014, the Fund incurred
and elected to to defer net ordinary and capital losses as follows:
Qualified Late Year Losses:
Ordinary Losses $ --
Capital Losses 3,099,237
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 ended 2011, 2012,
2013 and 2014 remain open to federal and state audit. As of May 31, 2014,
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 Advisors L.P. ("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. The Charger Corporation
is an Illinois corporation controlled by James A. Bowen, Chief Executive Officer
of First Trust. First Trust is responsible for the selection and 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 investment management services, First Trust is
entitled to a monthly fee calculated at an annual rate of 0.75% of the Fund's
Managed Assets (the average daily total asset value of the Fund minus the sum of
the Fund's liabilities other than the principal amount of borrowings). First
Trust also provides fund reporting services to the Fund for a flat annual fee in
the amount of $9,250.
BNY Mellon Investment Servicing (US) Inc. ("BNYM IS") serves as the Fund's
administrator, fund accountant and transfer agent in accordance with certain fee
arrangements. As administrator and fund accountant, BNYM IS is responsible for
providing certain administrative and accounting services to the Fund, including
maintaining the Fund's books of account, records of the Fund's securities
transactions, and certain other books and records. As transfer agent, BNYM IS is
responsible for maintaining shareholder records for the Fund. The Bank of New
York Mellon ("BNYM") serves as the Fund's custodian in accordance with certain
fee arrangements. As custodian, BNYM is responsible for custody of the Fund's
assets.
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 that is allocated pro rata among each fund in the First Trust Fund
Complex based on net assets. Each Independent Trustee is also paid an annual per
fund fee that varies based on whether the fund is a closed-end or other actively
managed fund, or is an index fund.
Page 26
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
MAY 31, 2014
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee are paid
annual fees to serve in such capacities, with such compensation allocated pro
rata among each fund in the First Trust Fund Complex based on net assets.
Trustees are reimbursed for travel and out-of-pocket expenses in connection with
all meetings. The Lead Independent Trustee and Committee Chairmen rotate every
three years. The officers and "Interested" Trustee receive no compensation from
the Fund for acting in such capacities.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of investments, excluding short-term
investments, for the year ended May 31, 2014, were $530,956,559 and
$553,440,011, respectively.
5. BORROWINGS
Effective July 13, 2012, the Fund entered into a Revolving Credit and Security
Agreement (the "Credit Facility") with Liberty Street Funding LLC as conduit
lender and The Bank of Nova Scotia as secondary lender and agent for the secured
parties under the agreement. The Credit Facility provides for a secured line of
credit for the Fund, where Fund assets are pledged against advances made to the
Fund. Under the terms of the Credit Facility, the loans under the Credit
Facility bear interest for each settlement period at a rate per annum based on
the commercial paper rate of the conduit lender. Effective July 12, 2013, the
Credit Facility was amended, whereby; the expiration date of the Credit Facility
was extended until July 11, 2014 and an upfront amendment fee of $95,000 was
paid by the Fund. Such fees are amortized over a one year period and are
included with the other borrowing costs in "Interest and fees on loan" on the
Statement of Operations. The Credit Facility may be renewed annually. Under the
requirements of the 1940 Act, the Fund, immediately after any such borrowings,
must have "asset coverage" of at least 300% (33-1/3% of the Fund's total assets
after borrowings). The total commitment under the Credit Facility is
$190,000,000 (prior to July 12, 2013, the total commitment was $175,000,000). In
addition, the Fund pays a utilization fee at a per annum rate of 0.35% (prior to
July 12, 2013, the per annum rate was 0.40%) of the average daily of the
aggregate outstanding principal amount of the advances during the prior calendar
month, and a commitment fee at a per annum rate of the product of (i) 0.35%
(prior to July 12, 2013, the per annum rate was 0.40%) of the daily average of
the total commitment in effect (or if terminated, the aggregate outstanding
principal amount of the advances funded or maintained) during the preceding
calendar month and (ii) 1.02.
For the year ended May 31, 2014, the average amount outstanding under the Credit
Facility was $174,383,562. The high and low annual interest rates for the loan
under the Credit Facility funded by the conduit lender during the year ended May
31, 2014, were 0.21% and 0.20%, respectively, with a weighted average interest
rate of 0.20%. The annual interest rate in effect for such loans at May 31,
2014, was 0.20%.
6. COMMON SHARE OFFERINGS
On November 21, 2012, the Fund and the Advisor entered into a sales agreement
with JonesTrading Institutional Services, LLC ("JonesTrading") whereby the Fund
may offer and sell up to 3,000,000 Common Shares from time to time through
JonesTrading as agent for the offer and sale of the Common Shares. Effective
August 22, 2013, the sales agreement with JonesTrading was amended and as a
result, the Fund may offer and sell up to 4,225,967 Common Shares. Sales of
Common Shares pursuant to the sales agreement may be made in negotiated
transactions or transactions that are deemed to be "at the market" as defined in
Rule 415 under the 1933 Act, including sales made directly on the NYSE or sales
made through a market maker other than on an exchange, at an offering price
equal to or in excess of the net asset value per share of the Fund's Common
Shares at the time such Common Shares are initially sold. The Fund intends to
use the net proceeds from the sale of the Common Shares in accordance with its
investment objectives and policies. Transactions related to offerings under such
sales agreement are as follows:
NET PROCEEDS
COMMON RECEIVED IN
SHARES NET PROCEEDS NET ASSET VALUE EXCESS OF NET
SOLD RECEIVED OF SHARES SOLD ASSET VALUE
----------- ------------ --------------- --------------
Year Ended 5/31/14 196,487 $ 3,035,923 $ 2,952,237 $ 83,686
Year Ended 5/31/13 1,029,480 16,309,080 15,524,292 784,788
Estimated offering costs of $235,169 related to the November 21, 2012 offering
were recorded as a prepaid asset and were amortized to expense by the Fund on a
straight line basis over a one year period and included in "Prepaid expenses" on
the Statement of Assets and Liabilities. Additionally, on August 23, 2013,
estimated offering costs of $175,000 related to the offering were recorded as a
prepaid asset and are being amortized to expense by the Fund on a straight line
basis over the lesser of one year or until the Fund sells 4,225,967 Common
Shares related to this offering.
7. 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.
Page 27
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
MAY 31, 2014
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 the following subsequent events:
On June 19, 2014, the Fund declared a dividend of $0.068 per share to Common
Shareholders of record on July 3, 2014, payable July 15, 2014.
On July 21, 2014, the Fund declared a dividend of $0.068 per share to Common
Shareholders of record on August 5, 2014, payable August 15, 2014.
Effective July 11, 2014, the Credit Facility was amended, whereby the expiration
date of the Credit Facility was extended until July 10, 2015. The total
commitment under the Credit Facility was reduced to $185,000,000. The Fund did
not pay any upfront costs. The Fund pays borrowing costs, which includes a
utilization fee at a per annum rate of 0.3625% of the daily average of the
aggregate outstanding principal amount of the advances during the prior calendar
month, and a commitment fee at the per annum rate of 0.3625% of the product of
(i) the daily average of the Total Commitment in effect (or, if the Total
Commitment has terminated, the aggregate outstanding principal amount of the
advances funded or maintained by the Conduit Lender) during the calendar month
immediately preceding the Settlement Date on which the Commitment Fee is payable
and (ii) 1.02.
Page 28
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FIRST TRUST SENIOR FLOATING RATE
INCOME FUND II:
We have audited the accompanying statement of assets and liabilities of First
Trust Senior Floating Rate Income Fund II (the "Fund"), including the portfolio
of investments, as of May 31, 2014, and the related statements of operations and
cash flows for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of May 31, 2014, by correspondence with the Fund's
custodian and agent banks; where replies were not received, we performed other
auditing procedures. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, such financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of First
Trust Senior Floating Rate Income Fund II as of May 31, 2014, the results of its
operations and its cash flows for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended, in conformity
with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Chicago, Illinois
July 24, 2014
Page 29
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
MAY 31, 2014 (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 investments 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 ("SEC") website located at
http://www.sec.gov.
Page 30
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
MAY 31, 2014 (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.
NYSE CERTIFICATION INFORMATION
In accordance with Section 303A-12 of the New York Stock Exchange ("NYSE")
Listed Company Manual, the Fund's President has certified to the NYSE that, as
of September 17, 2013, he was not aware of any violation by the Fund of NYSE
corporate governance listing standards. In addition, the Fund's reports to the
SEC on Forms N-CSR, N-CSRS, and N-Q contain certifications by the Fund's
principal executive officer and principal financial officer that relate to the
Fund's public disclosure in such reports and are required by Rule 30a-2 under
the 1940 Act.
SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
The Annual Meeting of Shareholders for the Fund was held on September 16, 2013
(the "meeting"). At the meeting, Trustees James A. Bowen and Robert F. Keith
were elected as Class III Trustees for a three-year term expiring at the Fund's
annual meeting of shareholders in 2016. The number of votes cast in favor of Mr.
Bowen was 24,020,971, the number of votes against Mr. Bowen was 341,728, and the
number of broker non-votes was 2,177,919. The number of votes cast in favor of
Mr. Keith was 24,008,119, the number of votes against Mr. Keith was 354,580, and
the number of broker non-votes was 2,177,919. Richard E. Erickson, Thomas R.
Kadlec, and Niel B. Nielson are current and continuing Trustees. Messrs.
Erickson and Kadlec are currently the Class I Trustees of the Fund for a term
expiring at the Fund's annual meeting of shareholders in 2014. Mr. Nielson is
currently the Class II Trustee of the Fund for a term expiring at the Fund's
annual meeting of shareholders in 2015.
TAX INFORMATION
Of the ordinary income (including short-term capital gain) distributions made by
the Fund during the year ended May 31, 2014, none qualify for the corporate
dividends received deduction available to corporate shareholders or as qualified
dividend income.
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. 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 securities markets, 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.
HIGH-YIELD SECURITIES RISK: The Senior Loans in which the Fund invests are
generally rated below investment grade by one or more rating agencies and are
considered to be "high-yield" securities. High-yield securities should be
considered speculative as their low ratings indicate a quality of less than
investment grade, and therefore carry an increased risk of default as compared
to investment grade issues. Because high-yield securities are generally
subordinated obligations and are perceived by investors to be riskier than
higher rated securities, their prices tend to fluctuate more than higher rated
securities and are affected by short-term credit developments to a greater
degree. High-yield securities are subject to greater market fluctuations and
risk of loss than securities with higher investment ratings. A reduction in an
issuer's creditworthiness may result in the bankruptcy of an issuer or the
default by an issuer on the interest and principal payments. The market for
high-yield securities is smaller and less liquid than that for investment grade
securities.
LEVERAGE RISK: The use of leverage results in additional risks and can magnify
the effect of any losses. If the income and gains from the securities and
investments purchased with such proceeds do not cover the cost of leverage, the
Common Shares' return will be less than if leverage had not been used. The Fund
borrowed pursuant to a leverage borrowing program, which constitutes 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 the 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
Page 31
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
MAY 31, 2014 (UNAUDITED)
dividends and distributions with respect to Common Shares or purchase Common
Shares. The use of leverage by the Fund increases the likelihood of greater
volatility of NAV and market price of the Common Shares. Leverage also increases
the risk that fluctuations in interest rates on borrowings and short-term debt
that the Fund may pay will reduce the return to the Common Shareholders or will
result in fluctuations in the dividends paid on the Common Shares.
SENIOR LOAN RISK: In the event a borrower fails to pay scheduled interest or
principal payments on a Senior Loan held by the Fund, the Fund will experience a
reduction in its income and a decline in the market value of the Senior Loan,
which will likely reduce dividends and lead to a decline in the net asset value
of the Fund's Common Shares. If the Fund acquires a Senior Loan from another
lender, for example, by acquiring a participation, the Fund may also be subject
to credit risks with respect to that lender. Although Senior Loans may be
secured by specific collateral, the value of the collateral may not equal the
Fund's investment when the Senior Loan is acquired or may decline below the
principal amount of the Senior Loan subsequent to the Fund's investment. Also,
to the extent that collateral consists of stock of the borrower or its
subsidiaries or affiliates, the Fund bears the risk that the stock may decline
in value, be relatively illiquid, and/or may lose all or substantially all of
its value, causing the Senior Loan to be under collateralized. Therefore, the
liquidation of the collateral underlying a Senior Loan may not satisfy the
issuer's obligation to the Fund in the event of non-payment of scheduled
interest or principal, and the collateral may not be readily liquidated.
CREDIT RISK: Credit risk is the risk that an issuer of a security held by the
Fund will be unable or unwilling to make dividend, interest and/or principal
payments when due and the related risk that the value of a security may decline
because of concerns about the issuer's ability to make such payments. Credit
risk may be heightened for the Fund because it invests a substantial portion of
its net assets in "high yield" or "junk" debt; such securities involve greater
risks, including the possibility of dividend or interest deferral, default or
bankruptcy, and are regarded as predominantly speculative with respect to the
issuer's capacity to pay dividends or interest and repay principal. Credit risk
is heightened for loans in which the Fund invests because companies that issue
such loans tend to be highly leveraged and thus are more susceptible to the
risks of interest deferral, default and/or bankruptcy.
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.
PRE-PAYMENT RISK: Loans are subject to pre-payment risk. The degree to which
borrowers prepay loans, whether as a contractual requirement or at their
election, may be affected by general business conditions, the financial
condition of the borrower and competitive conditions among loan investors, among
others. As such, prepayments cannot be predicted with accuracy. Upon a
prepayment, either in part or in full, the actual outstanding debt on which the
Fund derives interest income will be reduced. The Fund may not be able to
reinvest the proceeds received on terms as favorable as the prepaid loan.
LIQUIDITY RISK: The Fund invests a substantial portion of its assets in
lower-quality debt issued by companies that are highly leveraged. Lower-quality
debt tends to be less liquid than higher-quality debt. Moreover, smaller debt
issues tend to be less liquid than larger debt issues. If the economy
experiences a sudden downturn, or if the debt markets for such companies become
distressed, the Fund may have particular difficulty selling its assets in
sufficient amounts, at reasonable prices and in a sufficiently timely manner to
raise the cash necessary to meet any potentially heavy redemption requests by
Fund shareholders.
Page 32
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BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
MAY 31, 2014 (UNAUDITED)
NUMBER OF
PORTFOLIOS IN THE OTHER
TERM OF OFFICE FIRST TRUST TRUSTEESHIPS OR
AND FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS, DATE OF BIRTH LENGTH OF PRINCIPAL OCCUPATIONS OVERSEEN BY HELD BY
AND POSITION WITH THE FUND SERVICE(1) DURING PAST 5 YEARS TRUSTEE TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
Richard E. Erickson, Trustee o Three Year Term Physician; President, Wheaton Orthopedics; 106 None
c/o First Trust Advisors L.P. Limited Partner, Gundersen Real Estate
120 E. Liberty Drive, o Since Fund Limited Partnership; Member, Sportsmed
Suite 400 Inception LLC
Wheaton, IL 60187
D.O.B.: 04/51
Thomas R. Kadlec, Trustee o Three Year Term President (March 2010 to Present),Senior 106 Director of
c/o First Trust Advisors L.P. Vice President and Chief Financial Officer ADM Investor
120 E. Liberty Drive, o Since Fund (May 2007 to March 2010), ADM Investor Services, Inc.
Suite 400 Inception Services, Inc. (Futures Commission and ADM Investor
Wheaton, IL 60187 Services
D.O.B.: 11/57 International
Robert F. Keith, Trustee o Three Year Term President (2003 to Present), Hibs 106 Director of
c/o First Trust Advisors L.P. Enterprises (Financial and Management Trust Company
120 E. Liberty Drive, o Since June 2006 Consulting) of Illinois
Suite 400
Wheaton, IL 60187
D.O.B.: 11/56
Niel B. Nielson, Trustee o Three Year Term President and Chief Executive Officer 106 Director of
c/o First Trust Advisors L.P. (June 2012 to Present), Dew Learning LLC Covenant
120 E. Liberty Drive, o Since Fund (Educational Products and Services); Transport Inc.
Suite 400 Inception President (June 2002 to June 2012),
Wheaton, IL 60187 Covenant College
D.O.B.: 03/54
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(2), Trustee and o Three Year Term Chief Executive Officer (December 2010 106 None
Chairman of the Board to Present), President (until December
120 E. Liberty Drive, o Since Fund 2010), First Trust Advisors L.P. and First
Suite 400 Inception Trust Portfolios L.P.; Chairman of the
Wheaton, IL 60187 Board of Directors, BondWave LLC
D.O.B.: 09/55 (Software Development Company/
Investment Advisor) and Stonebridge
Advisors LLC (Investment Advisor)
(1) Currently, Thomas R. Kadlec and Richard E. Erickson, as Class I Trustees,
are serving as trustees until the Fund's 2014 annual meeting of
shareholders. Niel B. Nielson, as Class II Trustee, is serving as trustee
until the Fund's 2015 annual meeting of shareholders. James A. Bowen and
Robert F. Keith, as Class III Trustees, are serving as trustees until the
Fund's 2016 annual meeting of shareholders.
(2) Mr. Bowen is deemed an "interested person" of the Fund due to his position
of Chief Executive Officer of First Trust Advisors L.P., investment
advisor of the Fund.
Page 33
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BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
MAY 31, 2014 (UNAUDITED)
NAME, ADDRESS POSITION AND OFFICES TERM OF OFFICE AND PRINCIPAL OCCUPATIONS
AND DATE OF BIRTH WITH FUND LENGTH OF SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(3)
------------------------------------------------------------------------------------------------------------------------------------
Mark R. Bradley President and Chief o Indefinite term Chief Operations Officer (December 2010 to
120 E. Liberty Drive, Executive Officer Present) and Chief Financial Officer, First
Suite 400 o Since January 2012 Trust Advisors L.P. and First Trust Portfolios
Wheaton, IL 60187 L.P.; Chief Financial Officer, BondWave LLC
D.O.B.: 11/57 (Software Development Company/Investment
Advisor) and Stonebridge Advisors LLC
(Investment Advisor)
James M. Dykas Treasurer, Chief Financial o Indefinite term Controller (January 2011 to Present) and
120 E. Liberty Drive, Officer and Chief Senior Vice President (April 2007 to Present),
Suite 400 Accounting Officer o Since January 2012 First Trust Advisors L.P. and First Trust
Wheaton, IL 60187 Portfolios L.P.
D.O.B.: 01/66
W. Scott Jardine Secretary and Chief o Indefinite term General Counsel, First Trust Advisors L.P. and
120 E. Liberty Drive, Legal Officer First Trust Portfolios L.P.; Secretary and
Suite 400 o Since Fund Inception General Counsel, BondWave LLC (Software
Wheaton, IL 60187 Development Company/ Investment Advisor);
D.O.B.: 05/60 Secretary of Stonebridge Advisors LLC
(Investment Advisor)
Daniel J. Lindquist Vice President o Indefinite term Managing Director (July 2012 to Present) and
120 E. Liberty Drive, Senior Vice President (September 2005 to
Suite 400 o Since December 2005 July 2012), First Trust Advisors L.P. and
Wheaton, IL 60187 First Trust Portfolios L.P.
D.O.B.: 02/70
Kristi A. Maher Chief Compliance Officer o Indefinite term Deputy General Counsel, First Trust Advisors
120 E. Liberty Drive, and Assistant Secretary L.P. and First Trust Portfolios L.P.
Suite 400 o Chief Compliance Officer
Wheaton, IL 60187 Since January 2011
D.O.B.: 12/66
o Assistant Secretary
since Fund Inception
(3) Officers of the Fund have an indefinite term. The term "officer" means the
president, vice president, secretary, treasurer, controller or any other
officer who performs a policy making function.
Page 34
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PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
MAY 31, 2014 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies".
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives, proxy
services, solicitors and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information within First Trust.
PRIVACY ONLINE
We allow third-party companies, including AddThis (a social media sharing
service), to collect certain anonymous information when you visit our website.
These companies may use non-personally identifiable information during your
visits to this and other websites in order to provide advertisements about goods
and services likely to be of greater interest to you. These companies typically
use a cookie, third party web beacon or pixel tags, to collect this information.
To learn more about this behavioral advertising practice, you can visit
www.networkadvertising.org.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, First Trust restricts access to
your nonpublic personal information to those First Trust employees who need to
know that information to provide products or services to you. We maintain
physical, electronic and procedural safeguards to protect your nonpublic
personal information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
Page 35
This Page Left Blank Intentionally.
FIRST TRUST
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 E. Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR,
FUND ACCOUNTANT &
TRANSFER AGENT
BNY Mellon Investment Servicing (US) Inc.
301 Bellevue Parkway
Wilmington, DE 19809
CUSTODIAN
The Bank of New York Mellon
101 Barclay Street, 20th Floor
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.
(a) The registrant, as of the end of the period covered by this report,
has adopted a code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by
the registrant or a third party.
(c) There have been no amendments, during the period covered by this
report, to a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial
officer, principal accounting officer or controller, or persons
performing similar functions, regardless of whether these
individuals are employed by the registrant or a third party, and
that relates to any element of the code of ethics description.
(d) The registrant has not granted any waivers, including an implicit
waiver, from a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial
officer, principal accounting officer or controller, or persons
performing similar functions, regardless of whether these
individuals are employed by the registrant or a third party, that
relates to one or more of the items set forth in paragraph (b) of
this item's instructions.
(e) Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
As of the end of the period covered by the report, the registrant's Board of
Trustees has determined that Thomas R. Kadlec and Robert F. Keith are qualified
to serve as audit committee financial experts serving on its audit committee and
that each of them is "independent," as defined by Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) AUDIT FEES (REGISTRANT) -- The aggregate fees billed for each of the
last two fiscal years for professional services rendered by the principal
accountant for the audit of the registrant's annual financial statements or
services that are normally provided by the accountant in connection with
statutory and regulatory filings or engagements were $90,000 for 2013 and
$89,000 for 2014.
(b) AUDIT-RELATED FEES (REGISTRANT) -- The aggregate fees billed in each
of the last two fiscal years, for assurance and related services by the
principal accountant that are reasonably related to the performance of the audit
of the registrant's financial statements and are not reported under paragraph
(a) of this Item were $0 for 2013 and $0 for 2014.
AUDIT-RELATED FEES (INVESTMENT ADVISER) -- The aggregate fees billed in
each of the last two fiscal years of the registrant for assurance and related
services by the principal accountant that are reasonably related to the
performance of the audit of the Registrant's financial statements and are not
reported under paragraph (a) of this Item were $0 for 2013 and $0 for 2014.
(c) TAX FEES (REGISTRANT) -- The aggregate fees billed in each of the last
two fiscal years for professional services rendered by the principal accountant
for tax compliance, tax advice, and tax planning to the registrant were $5,200
for 2013 and $5,200 for 2014. These fees were for tax consultation and tax
preparation.
TAX FEES (INVESTMENT ADVISER) -- The aggregate fees billed in each of
the last two fiscal years of the registrant for professional services rendered
by the principal accountant for tax compliance, tax advice, and tax planning to
the registrant's adviser were $0 for 2013 and $0 for 2014.
(d) ALL OTHER FEES (REGISTRANT) -- The aggregate fees billed in each of
the last two fiscal years for products and services provided by the principal
accountant to the registrant, other than the services reported in paragraphs (a)
through (c) of this Item were $0 for 2013 and $0 for 2014.
ALL OTHER FEES (INVESTMENT ADVISER) -- The aggregate fees billed in
each of the last two fiscal years for products and services provided by the
principal accountant to the Registrant's investment adviser, other than services
reported in paragraphs (a) through (c) of this Item were $0 for 2013 and $0 for
2014.
(e)(1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
Pursuant to its charter and its Audit and Non-Audit Services Pre-Approval
Policy, the Audit Committee (the "Committee") is responsible for the
pre-approval of all audit services and permitted non-audit services (including
the fees and terms thereof) to be performed for the Registrant by its
independent auditors. The Chairman of the Committee is authorized to give such
pre-approvals on behalf of the Committee up to $25,000 and report any such
pre-approval to the full Committee.
The Committee is also responsible for the pre-approval of the independent
auditor's engagements for non-audit services with the Registrant's adviser (not
including a sub-adviser whose role is primarily portfolio management and is
sub-contracted or overseen by another investment adviser) and any entity
controlling, controlled by or under common control with the investment adviser
that provides ongoing services to the Registrant, if the engagement relates
directly to the operations and financial reporting of the Registrant, subject to
the de minimis exceptions for non-audit services described in Rule 2-01 of
Regulation S-X. If the independent auditor has provided non-audit services to
the Registrant's adviser (other than any sub-adviser whose role is primarily
portfolio management and is sub-contracted with or overseen by another
investment adviser) and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
Registrant that were not pre-approved pursuant to its policies, the Committee
will consider whether the provision of such non-audit services is compatible
with the auditor's independence.
(e)(2) The percentage of services described in each of paragraphs (b)
through (d) for the Registrant and the Registrant's investment
adviser of this Item that were approved by the audit committee
pursuant to the pre-approval exceptions included in paragraph
(c)(7)(i)(c) or paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X
are as follows:
(b) 0%
(c) 0%
(d) 0%
(f) The percentage of hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the
most recent fiscal year that were attributed to work performed by
persons other than the principal accountant's full-time, permanent
employees was less than fifty percent.
(g) The aggregate non-audit fees billed by the registrant's accountant
for services rendered to the registrant, and rendered to the
registrant's investment adviser (not including any sub-adviser whose
role is primarily portfolio management and is subcontracted with or
overseen by another investment adviser), and any entity controlling,
controlled by, or under common control with the adviser that
provides ongoing services to the Registrant for 2013 were $5,200 and
$3,000 for the Registrant and the Registrant's investment adviser,
respectively, and for 2014 were $5,200 and $36,800 for the
Registrant and the Registrant's investment adviser, respectively.
(h) The Registrant's audit committee of its Board of Trustees determined
that the provision of non-audit services that were rendered to the
Registrant's investment adviser (not including any sub-adviser whose
role is primarily portfolio management and is subcontracted with or
overseen by another investment adviser), and any entity controlling,
controlled by, or under common control with the investment adviser
that provides ongoing services to the Registrant that were not
pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X is compatible with maintaining the principal
accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
(a) The registrant has a separately designated standing audit committee
consisting of all the independent trustees of the registrant. The members
of the audit committee are: Thomas R. Kadlec, Niel B. Nielson, Richard E.
Erickson and Robert F. Keith.
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.
The Proxy Voting Policies are attached herewith.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(A)(1) IDENTIFICATION OF PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM MEMBERS
AND DESCRIPTION OF ROLE OF PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM
MEMBERS
INFORMATION PROVIDED AS OF JULY 30, 2014
The First Trust Advisors Leveraged Finance Investment team manages a portfolio
comprised primarily of U.S. dollar denominated, senior secured floating-rate
loans and high-yield bonds. The Portfolio Managers are responsible for directing
the investment activities within the Fund. William Housey is the Senior
Portfolio Manager and has primary responsibility for investment decisions. Scott
Fries assists Mr. Housey and is also a Senior Credit Analyst assigned to certain
industries. The Portfolio Managers are supported in their portfolio management
activities by the First Trust Advisors Leveraged Finance investment staff,
including a team of credit analysts, a designated trader and operations
personnel. Senior Credit Analysts are assigned industries and Associate Credit
Analysts support the Senior Credit Analysts. All credit analysts, operations
personnel and portfolio managers report to Mr. Housey.
William Housey, CFA
Senior Vice President, Senior Portfolio Manager
Mr. Housey joined First Trust in June 2010 as the Senior Portfolio Manager for
the Leveraged Finance Investment Team and has 17 years of investment experience.
Mr. Housey is a Senior Vice President of First Trust. Prior to joining First
Trust, Mr. Housey was at Morgan Stanley/Van Kampen Funds, Inc. for 11 years and
served as Executive Director and Co-Portfolio Manager. Mr. Housey has extensive
experience in portfolio management of both leveraged and unleveraged credit
products, including bank loans, high yield bonds, credit derivatives and
corporate restructurings. Mr. Housey received a BS in Finance from Eastern
Illinois University and an MBA in Finance and Management and Strategy from
Northwestern University's Kellogg School of Business. He holds the FINRA Series
7, Series 52 and Series 63 licenses and the Chartered Financial Analyst
designation. He is a member of the CFA Institute and the CFA Society of Chicago.
Scott D. Fries, CFA
Vice President, Portfolio Manager
Mr. Fries Scott D. Fries, CFA, joined First Trust in June 2010 as a Portfolio
Manager in the Leveraged Finance Investment Team and has 19 years of investment
industry experience. Mr. Fries is a Senior Vice President of First Trust. Prior
to joining First Trust, Mr. Fries spent 15 years at Morgan Stanley/Van Kampen
Funds, Inc, where he most recently served as Executive Director and Co-Portfolio
Manager of Institutional Separately Managed Accounts. Mr. Fries received a BA in
International Business from Illinois Wesleyan University and an MBA in Finance
from DePaul University. Mr. Fries holds the Chartered Financial Analyst
designation. He is a member of the CFA Institute and the CFA Society of Chicago.
(a)(2) Other Accounts Managed by Portfolio Manager(s) or Management Team
Member and Potential Conflicts of Interest
INFORMATION PROVIDED AS OF MAY 31, 2014
Name of Portfolio Total # of # of Accounts Managed for Total Assets for which
Manager or Team Accounts Total which Advisory Fee is Based Advisory Fee is Based on
Member Type of Accounts Managed* Assets on Performance Performance
-------------------- ------------------ ----------- --------- --------------------------- -------------------------
1. William Housey, Registered 18 $728.07 0 $0
CFA Investment million
Companies:
Other Pooled 0 $0 0 $0
Investment
Vehicles:
Other Accounts: 0 $0 0 $0
2. Scott Fries, CFA Registered 18 $728.07 0 $0
Investment million
Companies:
Other Pooled 0 $0 0 $0
Investment
Vehicles:
Other Accounts: 0 $0 0 $0
* Information excludes the registrant.
POTENTIAL CONFLICTS OF INTERESTS
Potential conflicts of interest may arise when a portfolio manager of the
Registrant has day-to-day management responsibilities with respect to one or
more other funds or other accounts. The First Trust Leveraged Finance Team
adheres to its trade allocation policy utilizing a pro-rata methodology to
address this conflict.
First Trust and its affiliate, First Trust Portfolios L.P. ("FTP"), have in
place a joint Code of Ethics and Insider Trading Policies and Procedures that
are designed to (a) prevent First Trust personnel from trading securities based
upon material inside information in the possession of such personnel and (b)
ensure that First Trust personnel avoid actual or potential conflicts of
interest or abuse of their positions of trust and responsibility that could
occur through such activities as front running securities trades for the
Registrant. Personnel are required to have duplicate confirmations and account
statements delivered to First Trust and FTP compliance personnel who then
compare such trades to trading activity to detect any potential conflict
situations.
In addition to the personal trading restrictions specified in the Code of Ethics
and Insider Trading Policies and Procedures, employees in the Leveraged Finance
Team currently are prohibited from buying or selling equity securities
(including derivative instruments such as options, warrants and futures) and
corporate bonds for their personal account and in any accounts over which they
exercise control. Employees in the Leveraged Finance Team are also prohibited
from engaging in any personal transaction while in possession of material
non-public information regarding the security or the issuer of the security.
First Trust and FTP also maintain a confidential watch list of all issuers for
which the Leveraged Finance Team has material non-public information in its
possession an all transactions executed for a product advised or supervised by
First Trust or FTP are compared daily against the restricted list.
(A)(3) COMPENSATION STRUCTURE OF PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM
MEMBERS
INFORMATION PROVIDED AS OF MAY 31, 2014
The compensation structure for the Leveraged Finance Investment Team of First
Trust is based upon a fixed salary as well as a discretionary bonus determined
by the management of First Trust.
Salaries are determined by management and are based upon an individual's
position and overall value to the firm. Bonuses are also determined by
management and are based upon an individual's overall contribution to the
success of the firm and the profitability of the firm. Salaries and bonuses for
members of the Leveraged Finance Team are not based upon criteria such as
performance of the Registrant or the value of assets of the Fund, although
discretionary bonuses for Leveraged Finance Team members are based on the
profitability of the leveraged finance department.
(A)(4) DISCLOSURE OF SECURITIES OWNERSHIP AS OF MAY 31, 2014
--------------------------------- ---------------------------------------
Name of Portfolio Manager or Dollar ($) Range of Fund Shares
Team Member Beneficially Owned
--------------------------------- ---------------------------------------
William Housey $10,001 - $50,000 (1,000 shares)
--------------------------------- ---------------------------------------
Scott Fries $0 (0 shares)
--------------------------------- ---------------------------------------
(B) Not applicable.
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 Trustees, 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) Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.
(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 Senior Floating Rate Income Fund II
--------------------------------------------------------
By (Signature and Title)* /s/ Mark R. Bradley
----------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)
Date: July 21, 2014
-----------------
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: July 21, 2014
-----------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: July 21, 2014
-----------------
*Print the name and title of each signing officer under his or her signature.