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
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
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: November 30, 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, 100 F Street, NE,
Washington, DC 20549. The OMB has reviewed this collection of information under
the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The Report to Shareholders is attached herewith.
SEMI-ANNUAL
REPORT
FOR THE SIX MONTHS ENDED
NOVEMBER 30, 2014
FIRST TRUST
SENIOR FLOATING RATE
INCOME FUND II
(FCT)
FIRST TRUST
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TABLE OF CONTENTS
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FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
SEMI-ANNUAL REPORT
NOVEMBER 30, 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
Additional Information...................................................... 29
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)
SEMI-ANNUAL LETTER FROM THE CHAIRMAN AND CEO
NOVEMBER 30, 2014
Dear Shareholders:
I am pleased to present you with the semi-annual report for your investment in
First Trust Senior Floating Rate Income Fund (the "Fund"). This report provides
detailed information about the Fund, including a performance review and the
financial statements for the six months ended November 30, 2014. I encourage you
to read this document and discuss it with your financial advisor.
Although markets have seemed choppy over the past six months, the U.S. has shown
sustained growth over this reporting period. In fact, the S&P 500(R) Index, as
measured on a total return basis, rose 8.58% in the time covered by this report.
First Trust Advisors L.P. ("First Trust") believes that staying invested in
quality products through different types of markets can benefit investors over
the long term.
First Trust is pleased to offer a variety of products that we believe could fit
the financial plans for many investors seeking long-term investment success. We
invite you to look at our investment products with your financial advisor to
determine if any of them might fit your financial goals. We believe that
regularly discussing your financial objectives and investment options with your
financial advisor can help keep you on track.
First Trust will continue to make available up-to-date information about your
investments so you and your financial advisor are current on any First Trust
investments you own. We value our relationship with you, and thank you for the
opportunity to assist you in achieving your financial goals.
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 NOVEMBER 30, 2014 (UNAUDITED)
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FUND STATISTICS
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Symbol on New York Stock Exchange FCT
Common Share Price $13.11
Common Share Net Asset Value ("NAV") $14.69
Premium (Discount) to NAV (10.76)%
Net Assets Applicable to Common Shares $392,184,846
Current Monthly Distribution per Common Share (1)$0.0680
Current Annualized Distribution per Common Share $0.8160
Current Distribution Rate on Closing Common Share Price (2) 6.22%
Current Distribution Rate on NAV (2) 5.55%
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COMMON SHARE PRICE & NAV (WEEKLY CLOSING PRICE)
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Common Share Price NAV
11/13 $14.63 $14.99
14.17 14.92
13.99 14.95
14.11 14.98
12/13 14.33 15.00
14.33 14.96
14.40 15.01
14.61 15.04
14.57 15.06
1/14 14.35 15.05
14.35 14.98
14.27 15.00
14.43 15.01
2/14 14.30 15.00
14.23 14.95
14.23 14.96
14.30 14.97
3/14 14.45 14.97
14.24 14.90
14.04 14.87
14.01 14.87
4/14 13.93 14.85
13.80 14.85
13.84 14.88
13.94 14.92
13.95 14.93
5/14 14.00 14.95
13.81 14.91
14.00 14.94
14.11 14.96
6/14 14.25 14.98
13.99 14.92
13.98 14.93
13.91 14.93
7/14 13.97 14.94
13.80 14.80
13.60 14.77
13.78 14.77
13.85 14.83
8/14 13.89 14.86
13.77 14.77
13.68 14.73
13.66 14.75
9/14 13.57 14.68
13.51 14.60
13.33 14.58
13.07 14.49
13.25 14.58
10/14 13.24 14.66
13.01 14.62
13.12 14.64
13.05 14.66
11/14 13.11 14.69
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PERFORMANCE
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Average Annual Total Return
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6 Months Ended 1 Year Ended 5 Years Ended 10 Years Ended Inception (5/25/2004)
11/30/2014 11/30/2014 11/30/2014 11/30/2014 11/30/2014
FUND PERFORMANCE (3)
NAV 1.28% 4.19% 8.04% 4.13% 4.13%
Market Value -3.48% -4.73% 10.10% 3.32% 2.56%
INDEX PERFORMANCE
S&P/LSTA Leveraged Loan Index 0.86% 3.35% 6.45% 5.07% 5.08%
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% OF TOTAL
CREDIT QUALITY (S&P RATINGS) (4) INVESTMENTS
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BBB- 1.1%
BB+ 5.0
BB 9.0
BB- 12.7
B+ 26.5
B 29.5
B- 7.7
CCC+ 3.8
CCC 1.7
CCC- 0.5
NR 0.8
Privately rated securities (5) 1.7
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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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BMC Software Finance, Inc. 2.2%
Caesars Growth Partners LLC 2.1
Amaya Gaming Group 2.0
Dell, Inc. 1.9
BJ's Wholesale Club, Inc. 1.8
Asurion LLC 1.8
inVentiv Health, Inc. 1.7
Albertsons LLC 1.5
Ortho-Clinical Diagnostics, Inc. 1.4
Portillo's Holdings LLC 1.4
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Total 17.8%
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% OF TOTAL
ASSET CLASSIFICATION INVESTMENTS
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Hotels, Restaurants & Leisure 11.5%
Media 9.2
Health Care Providers & Services 7.7
Software 5.2
Health Care Equipment & Supplies 4.4
Diversified Telecommunication Services 4.4
Diversified Financial Services 4.2
Life Sciences Tools & Services 4.0
Food Products 3.7
Food & Staples Retailing 3.3
Chemicals 3.0
Insurance 3.0
Pharmaceuticals 2.8
Auto Components 2.7
Diversified Consumer Services 2.2
Professional Services 2.1
Containers & Packaging 1.9
Technology Hardware, Storage & Peripherals 1.9
Machinery 1.7
Semiconductors & Semiconductor Equipment 1.7
Aerospace & Defense 1.7
IT Services 1.7
Consumer Finance 1.5
Commercial Services & Supplies 1.4
Independent Power and Renewable
Electricity Producers 1.4
Capital Markets 1.4
Specialty Retail 1.3
Oil, Gas & Consumable Fuels 1.2
Road & Rail 1.1
Health Care Technology 1.1
Real Estate Management & Development 1.1
Electric Utilities 0.8
Building Products 0.8
Real Estate Investment Trusts (REITs) 0.6
Industrial Conglomerates 0.6
Electronic Equipment & Instruments 0.4
Construction & Engineering 0.4
Diversified Business Services 0.3
Personal Products 0.3
Beverages 0.2
Communications Equipment 0.1
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Total 100.0%
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(1) Most recent distribution paid or declared through November 30, 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 November 30, 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)
SEMI-ANNUAL REPORT
NOVEMBER 30, 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 November 30, 2014, First Trust managed or
supervised $105.14 billion in assets. The First Trust Leveraged Finance Team
began managing the First Trust Senior Floating Rate Income Fund II on October
12, 2010. The First Trust Leveraged Finance Team is comprised of 12 experienced
investment professionals specializing in below investment grade securities. The
team is comprised of portfolio management, research, trading and operations. As
of November 30, 2014, the First Trust Leveraged Finance Team managed or
supervised approximately $1.33 billion in senior secured bank loans and
high-yield bonds. These assets are managed across various strategies, including
a closed-end fund, an open-end fund, four exchange-traded funds and a series of
unit investment trusts on behalf of retail and institutional clients.
PORTFOLIO MANAGEMENT TEAM
WILLIAM HOUSEY, CFA
SENIOR VICE PRESIDENT, SENIOR PORTFOLIO MANAGER
SCOTT D. FRIES, CFA
SENIOR VICE PRESIDENT, PORTFOLIO MANAGER
FCT PORTFOLIO COMMENTARY FOR THE SIX-MONTH PERIOD ENDED NOVEMBER 30, 2014
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
The primary investment objective of First Trust Senior Floating Rate Income Fund
II ("FCT" or 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
The last six months were generally strong for the senior loan and high yield
market despite the volatility towards the end of the period in late September
and early October. For the first time in quite a while, a healthy dose of
volatility was introduced into various markets. The volatility was driven
largely by geopolitical headlines, including Russia/Ukraine, Gaza, the Banco
Espirito Santo bailout and the Argentine default. More importantly for
fixed-income investors, with the Federal Reserve's (the "Fed") unprecedented
stimulus program now complete, investor attention has begun to shift toward 2015
and the timing of the first interest rate increase. Interest rates have indeed
been volatile as evidenced by the fact that after setting a 12-month high on
December 31, 2013 at 3.03%, 10-year Treasury yields were below 2.00% intra-day
in a volatile October market and closed November at 2.17%.
SENIOR LOAN MARKET
The S&P/LSTA Leveraged Loan Index returned 0.86% for the six-month period ended
November 30, 2014. From a credit-quality perspective, higher-rated credit issues
provided the strongest performance for the period. Lower-quality CCC rated
issues returned 0.80% in the period, underperforming the returns of higher
quality B rated issues at 1.10% and BB rated issues at 1.15%. The average price
of loans in the market began the period at $98.80, and after peaking at $99.00
at the end of June, loan prices ended the period down slightly at $97.50.
(Source: S&P/LCD)
CREDIT QUALITY/DEFAULT RATES
Despite the widely anticipated default of TXU, the largest senior loan debt
issuer and a large high-yield bond issuer, default rates remain tight to
long-term averages. We believe this is because corporate fundamentals remain
healthy, as evidenced by the fact that senior loan issuers that file their
financial results publicly grew cash flows by approximately 9% year-over-year in
the second quarter of 2014 (latest data available), which represents 20 straight
quarters of cash flow growth.
PERFORMANCE ANALYSIS
The Fund outperformed the S&P/LSTA Leveraged Loan Index on a net asset value
("NAV") basis for the six-month period ended November 30, 2014. The Fund
generated a return of 1.28% at NAV and a market price return of -3.48%. The
Fund's market price return was impacted by the Fund's discount to NAV widening
over the six-month period. This discount widening was not specific to the Fund,
but something seen broadly across the closed-end fund market. At the start of
the period, the Fund's market price was at a 6.35% discount to NAV, and moved to
a 10.76% discount to NAV by the end of the period.
Page 3
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PORTFOLIO COMMENTARY (CONTINUED)
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FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
SEMI-ANNUAL REPORT
NOVEMBER 30, 2014
From an income perspective, the monthly announced distribution rate began the
period at $0.07125 per share and ended at $0.068 per share. The consequence of
robust demand for senior loans has been declining yields. This trend has
resulted in a lower income profile for the Fund and is the primary reason for
the distribution decrease. At the $0.068 per share monthly distribution rate,
the annualized distribution rate at the end of November 2014 was 5.55% at NAV
and 6.22% at market price.
Leverage as of November 30, 2014 was approximately 30.4%. During the six-month
period ended November 30, 2014, leverage had a negative impact on the Fund's
capital appreciation, but a positive impact on income. The Fund's relatively
conservative credit quality also positively impacted performance as CCC rated
issues lagged the market return for the six-month period. At the end of the
period, the Fund held 6.75% of assets in issues rated CCC or below compared to
7.25% for the S&P/LSTA Leveraged Loan Index.
MARKET AND FUND OUTLOOK
Credit markets appear well positioned for the intermediate term, in our opinion.
We believe the combination of attractive valuations, a modest default
environment, better economic growth and sound corporate fundamentals provides a
firm backdrop for returns in the periods ahead. We continue to believe that
steadily improving economic data will provide the Fed the motivation it requires
to begin the process of raising interest rates in the second half of 2015. In
the interim, recent volatility in the market has largely been technically
induced (supply/demand imbalance). This is in stark contrast to volatility that
is fundamentally induced, when company financial performance is showing signs of
weakness. We believe that technically induced volatility, which we have
experienced in the third calendar quarter, tends to lead to opportunities for
patient investors. A healthy dose of volatility typically means that risks are
priced more attractively, and price levels may be lower than the fundamentals
would warrant.
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 for the Fund. Despite the
many distractions and market conditions that ebb and flow every quarter, we
remain firmly focused on finding value in the high-yield bond and senior loan
markets.
Page 4
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
PORTFOLIO OF INVESTMENTS (A)
NOVEMBER 30, 2014 (UNAUDITED)
PRINCIPAL STATED
VALUE DESCRIPTION RATE (b) MATURITY (c) VALUE
------------ ---------------------------------------------------------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS - 138.8%
AEROSPACE & DEFENSE - 2.4%
$ 2,000,000 BE Aerospace, Inc., Term Loan B................................. 4.00% 11/30/21 $ 2,002,080
1,889,148 DynCorp International, Inc., Term Loan.......................... 6.25% 07/07/16 1,883,631
3,245,459 Transdigm, Inc., Term Loan C.................................... 3.75% 02/28/20 3,213,427
798,000 Transdigm, Inc., Tranche D Term Loan............................ 3.75% 06/04/21 790,148
1,496,364 Wencor (Jazz Acquisition, Inc.), Term Loan (First Lien)......... 4.50% 06/19/21 1,489,824
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9,379,110
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AGRICULTURAL PRODUCTS - 1.0%
3,881,171 Jimmy Sanders, Inc. (Pinnacle Operating Corp.),
Term B Loan Refinancing (First Lien)......................... 4.75% 11/15/18 3,861,765
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ALTERNATIVE CARRIERS - 2.3%
5,681,629 Intelsat Jackson Holdings S.A., Term Loan B-2................... 3.75% 06/30/19 5,646,119
2,250,000 Level 3 Financing, Inc., Term Loan B-5.......................... 4.50% 01/31/22 2,256,323
1,000,000 Level 3 Financing, Inc., Tranche B 2020 Term Loan............... 4.00% 01/15/20 998,500
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8,900,942
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APPAREL RETAIL - 0.7%
997,500 J.C. Penney Corp., Inc., Term Loan.............................. 5.00% 06/20/19 964,772
1,237,523 Neiman Marcus Group, Inc., Other Term Loan...................... 4.25% 10/25/20 1,229,084
498,750 Nine West Holdings, Inc., Initial Loan.......................... 4.75% 10/08/19 478,800
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2,672,656
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APPLICATION SOFTWARE - 2.6%
3,751,016 Epicor Software Corp., Term B-2 Loan............................ 4.00% 05/16/18 3,738,112
3,395,905 Infor (US), Inc., Tranche B-5 Term Loan......................... 3.75% 06/03/20 3,344,966
1,661,951 Mitchell International, Inc., Initial Term Loan................. 4.50% 10/13/20 1,658,311
1,578,884 Triple Point Technologies, Inc., Term Loan B.................... 5.25% 07/10/20 1,436,785
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10,178,174
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ASSET MANAGEMENT & CUSTODY BANKS - 2.3%
1,431,475 American Beacon Advisors, Inc., Initial Term Loan............... 4.75% 11/22/19 1,427,896
1,336,500 Guggenheim Partners Investment Management
Holdings LLC, Initial Term Loan.............................. 4.25% 07/22/20 1,332,156
1,228,442 Mondrian Investment Partners Ltd., Term Loan B.................. 4.00% 03/05/20 1,229,978
5,000,000 Victory Capital Holdings, Term Loan B........................... 7.00% 10/29/21 4,950,000
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8,940,030
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AUTO PARTS & EQUIPMENT - 3.1%
732,782 Affinia Group, Inc., Tranche B-2 Term Loan...................... 4.75% 04/27/20 733,698
897,750 Cooper Standard Holdings (CS Intermediate Holdco 2 LLC),
Term Loan.................................................... 4.00% 04/04/21 890,344
2,545,714 Gates Global LLC, Initial Dollar Term Loan...................... 4.25% 07/05/21 2,519,315
2,693,250 Henniges Automotive Holdings, Term Loan B....................... 5.50% 06/03/21 2,706,716
2,000,000 Metaldyne Performance Group (MPG Holdco I, Inc.),
Term Loan B.................................................. 4.25% 10/20/21 2,004,640
1,719,375 Remy International, Inc., Term B Loan 2013...................... 4.25% 03/05/20 1,712,927
1,547,965 Tower Automotive Holdings USA LLC, Initial Term Loan (2014)..... 4.00% 04/23/20 1,538,941
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12,106,581
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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)
NOVEMBER 30, 2014 (UNAUDITED)
PRINCIPAL STATED
VALUE DESCRIPTION RATE (b) MATURITY (c) VALUE
------------ ---------------------------------------------------------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
BROADCASTING - 8.2%
$ 4,986,742 Clear Channel Communications, Inc., Tranche D Term Loan......... 6.91% 01/30/19 $ 4,685,443
1,750,000 Clear Channel Communications, Inc., Tranche E Term Loan......... 7.66% 07/30/19 1,676,255
2,871,861 Cumulus Media Holdings, Inc., Term Loan......................... 4.25% 12/23/20 2,823,413
1,319,718 Hubbard Radio LLC, Tranche 1 Term Loan.......................... 4.50% 04/29/19 1,307,616
1,813,455 LIN Television Corp., Replacement Tranche B Term Loan........... 4.00% 12/21/18 1,802,883
2,200,000 Media General, Inc., Term Loan B2............................... 4.25% 07/03/20 2,194,500
1,000,000 Mediacom LLC, Tranche G Term Loan............................... 3.75% 06/30/21 995,000
1,064,042 Mission Broadcasting, Inc. (Nexstar Broadcasting Group, Inc.),
Term B-2 Loan................................................ 3.75% 10/01/20 1,058,062
4,271,436 NEP/NCP Holdco, Inc., Amendment No. 3
Incremental Term Loan (First Lien)........................... 4.25% 01/22/20 4,211,379
257,143 NEP/NCP Holdco, Inc., Term Loan (Second Lien)................... 9.50% 07/22/20 256,179
1,206,641 Nexstar Broadcasting Group, Inc. (Mission Broadcasting, Inc.),
Term Loan B-2................................................ 3.75% 09/30/20 1,199,860
6,224,267 Tribune Co., Initial Term Loan.................................. 4.00% 12/27/20 6,193,146
985,000 Univision Communications, Inc., 2013 Incremental
Term Loan.................................................... 4.00% 03/01/20 974,224
2,818,516 Univision Communications, Inc., Replacement First-Lien
Term Loan.................................................... 4.00% 03/01/20 2,789,457
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32,167,417
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BUILDING PRODUCTS - 1.1%
427,500 Hillman Group, Inc., Initial Term Loan.......................... 4.50% 06/30/21 427,769
1,319,174 Quikrete Holdings, Inc., Initial Loan (First Lien).............. 4.00% 09/28/20 1,307,632
333,333 Quikrete Holdings, Inc., Initial Loan (Second Lien)............. 7.00% 03/26/21 334,583
2,229,954 Unifrax Holding Co., New Term Dollar Loan....................... 4.25% 11/28/18 2,203,752
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4,273,736
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CABLE & SATELLITE - 1.5%
6,000,000 Charter Communications Operating LLC, Term G Loan............... 4.25% 09/10/21 6,038,880
-------------
CASINOS & GAMING - 8.0%
2,750,000 Amaya Gaming Group, 2nd Lien TL................................. 8.00% 07/31/22 2,798,125
8,250,000 Amaya Gaming Group, Initial Term B Loan (First Lien)............ 5.00% 08/01/21 8,237,130
5,969,925 Caesars Entertainment Resort Properties LLC, Term B Loan........ 7.00% 10/11/20 5,682,115
8,119,282 Caesars Growth Partners LLC, Term B Loan (First Lien)........... 6.25% 05/08/21 7,564,492
2,883,477 CityCenter Holdings LLC, Term B Loan............................ 4.25% 10/16/20 2,878,431
1,762,356 ROC Finance LLC, Funded Term B Loan............................. 5.00% 06/20/19 1,682,503
2,540,318 Station Casinos, Inc., B Term Loan.............................. 4.25% 03/02/20 2,519,461
-------------
31,362,257
-------------
COAL & CONSUMABLE FUELS - 0.6%
2,702,285 Arch Coal, Inc., Term Loan...................................... 6.25% 05/16/18 2,378,011
-------------
COMMERCIAL PRINTING - 0.3%
1,266,667 Southern Graphic, Inc., Term Loan............................... 4.25% 10/17/19 1,256,381
-------------
COMMUNICATIONS EQUIPMENT - 0.1%
385,495 Mitel Networks Corp., Term Loan................................. 5.25% 01/31/20 385,495
-------------
COMPUTER HARDWARE - 2.7%
10,493,320 Dell, Inc., Term B Loan......................................... 4.50% 04/29/20 10,496,783
-------------
Page 6 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
NOVEMBER 30, 2014 (UNAUDITED)
PRINCIPAL STATED
VALUE DESCRIPTION RATE (b) MATURITY (c) VALUE
------------ ---------------------------------------------------------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
CONSTRUCTION & ENGINEERING - 0.5%
$ 2,038,516 WireCo WorldGroup, Inc., Term Loan.............................. 6.00% 02/15/17 $ 2,041,064
-------------
CONSTRUCTION MACHINERY & HEAVY TRUCKS - 0.3%
1,153,253 Navistar, Inc., Tranche B Term Loan............................. 5.75% 08/17/17 1,161,903
-------------
CONSUMER FINANCE - 2.1%
5,262,786 Altisource Solutions S.A.R.L., Term B Loan...................... 4.50% 12/09/20 4,618,095
919,333 Ocwen Loan Servicing LLC, Initial Term Loan..................... 5.00% 02/15/18 880,611
3,204,539 Walter Investment Management Corp., Tranche
B Term Loan.................................................. 4.75% 12/18/20 2,953,175
-------------
8,451,881
-------------
DATA PROCESSING & OUTSOURCED SERVICES - 2.0%
3,166,715 Harland Clarke Holdings Corp., Tranche B-2 Term Loan............ 5.48% 06/30/17 3,162,756
3,740,625 Interactive Data Corp., Term Loan............................... 4.50% 05/02/21 3,756,523
995,000 Sungard Availability Services Capital, Term Loan B.............. 6.00% 03/29/19 884,306
-------------
7,803,585
-------------
DISTILLERS & VINTNERS - 0.2%
997,500 Winebow Holdings, Inc., Loan (First Lien)....................... 4.75% 07/01/21 992,512
-------------
DIVERSIFIED CHEMICALS - 1.6%
1,197,003 Gemini HDPE LLC, Advance........................................ 4.75% 08/06/21 1,197,003
2,825,300 Ineos US Finance LLC, Term Loan B............................... 3.75% 05/04/18 2,792,752
2,351,220 Univar, Inc., Term B Loan....................................... 5.00% 06/30/17 2,337,512
-------------
6,327,267
-------------
DIVERSIFIED SUPPORT SERVICES - 0.5%
2,041,714 SMG Holdings, Inc., Term Loan B................................. 4.50% 02/27/20 2,031,506
-------------
ELECTRIC UTILITIES - 1.2%
4,241,410 TXU (Texas Competitive Electric Holdings Co. LLC),
Term Loan (d) (e)............................................ 4.65% 10/10/14 3,049,828
2,250,000 TXU (Texas Competitive Electric Holdings Co. LLC),
2017 Term Loan (Extending) (d) (e)........................... 4.65% 10/10/17 1,629,450
-------------
4,679,278
-------------
ELECTRONIC EQUIPMENT & INSTRUMENT - 0.5%
2,150,000 Zebra Technologies Corp., Term Loan B........................... 4.75% 10/27/21 2,166,125
-------------
ENVIRONMENTAL & FACILITIES SERVICES - 0.7%
1,200,000 ServiceMaster Co., Initial Term Loan............................ 4.25% 07/01/21 1,191,900
1,588,000 WTG Holdings III Corp. (EWT Holdings III Corp.),
Term Loan (First Lien)....................................... 4.75% 01/15/21 1,578,075
-------------
2,769,975
-------------
HEALTH CARE EQUIPMENT - 5.2%
4,372,489 Alere, Inc., B Term Loan........................................ 4.25% 06/30/17 4,361,558
1,486,380 Biomet, Inc., Dollar Term B-2 Loan.............................. 3.66% 07/25/17 1,483,289
2,955,355 Carestream Health, Inc. (Onex Carestream Finance L.P.),
Term Loan (First Lien 2013).................................. 5.00% 06/07/19 2,956,596
See Notes to Financial Statements Page 7
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
NOVEMBER 30, 2014 (UNAUDITED)
PRINCIPAL STATED
VALUE DESCRIPTION RATE (b) MATURITY (c) VALUE
------------ ---------------------------------------------------------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
HEALTH CARE EQUIPMENT (CONTINUED)
$ 4,469,873 DJO Finance LLC (ReAble Therapeutics Finance LLC),
New Tranche B Term Loan...................................... 4.25% 09/15/17 $ 4,460,575
1,411,980 Ikaria, Inc., Initial Term Loan (First Lien).................... 5.00% 02/12/21 1,415,807
5,690,553 Kinetic Concepts, Inc., Dollar Term E-1 Loan.................... 4.00% 05/04/18 5,660,905
-------------
20,338,730
-------------
HEALTH CARE FACILITIES - 2.8%
3,735,000 CHS/Community Health Systems, Inc., 2021 Term D Loan............ 4.25% 01/27/21 3,740,827
882,237 Select Medical Corp., Series E Tranche B Term Loan.............. 3.75%-5.25% 06/01/18 872,312
500,000 Surgery Centers Holdings, Inc.,
Initial Term Loan (First Lien)............................... 5.25% 11/03/20 499,375
994,770 Surgical Care Affiliates LLC,
Class B Term Loan - Extending................................ 4.23% 12/29/17 987,309
1,940,438 Surgical Care Affiliates LLC, Class C Incremental............... 4.00% 06/30/18 1,930,735
2,881,421 United Surgical Partners International, Inc.,
New Tranche B Term Loan...................................... 4.75% 04/03/19 2,880,210
-------------
10,910,768
-------------
HEALTH CARE SERVICES - 7.0%
2,921,429 CareCore National LLC, Term Loan................................ 5.50% 03/05/21 2,926,921
3,474,625 Curo Health Services Holdings, Inc.,
Initial Term Loan (First Lien)............................... 5.75% 06/08/20 3,425,390
4,188,047 Envision Healthcare Corp. (Emergency Medical Services Corp.),
Initial Term Loan............................................ 4.00% 05/25/18 4,169,369
2,487,469 Gentiva Health Services, Inc., Initial Term B Loan.............. 6.50% 10/18/19 2,490,578
2,029,063 Gentiva Health Services, Inc., Initial Term C Loan.............. 5.75% 10/18/18 2,024,619
3,250,000 Healogics, Inc., Initial Term Loan (First Lien)................. 5.25% 07/01/21 3,221,562
1,915,917 Heartland Dental Care LLC, Incremental Term Loan................ 5.50% 12/21/18 1,913,522
1,500,000 National Veterinary Associates (NVA Holdings, Inc.),
Term Loan (First Lien)....................................... 4.75% 08/14/21 1,499,070
5,769,873 U.S. Renal Care, Inc., Tranche B-2
Term Loan (First lien)....................................... 4.25% 07/03/19 5,769,873
-------------
27,440,904
-------------
HEALTH CARE SUPPLIES - 0.9%
1,978,704 BSN Medical Luxembourg Holding S.A.R.L.,
New Term Loan B1............................................. 4.00% 06/08/19 1,967,583
1,407,592 Sage Products Holdings III LLC, Replacement
Term Loan (First Lien)....................................... 4.25% 12/13/19 1,405,833
-------------
3,373,416
-------------
HEALTH CARE TECHNOLOGY - 1.6%
1,197,000 Connolly Holdings, Inc., Initial Term Loan (First Lien)......... 5.00% 05/14/21 1,199,622
500,000 Healthport Technologies LLC (CT Technologies Intermediate
Holdings, Inc.), Term Loan B (November 2014)................. 6.00% 11/28/21 497,500
599,167 MedAssets, Inc., Term B Loan.................................... 4.00% 12/13/19 595,170
3,937,656 Truven Health Analytics, Inc.
(VCPH Holding Corp.), Term Loan B............................ 4.50% 05/31/19 3,858,903
-------------
6,151,195
-------------
Page 8 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
NOVEMBER 30, 2014 (UNAUDITED)
PRINCIPAL STATED
VALUE DESCRIPTION RATE (b) MATURITY (c) VALUE
------------ ---------------------------------------------------------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
HOMEFURNISHING RETAIL - 0.6%
$ 2,235,435 Serta Simmons Holdings LLC, Term Loan B......................... 4.25% 10/01/19 $ 2,225,934
-------------
HOTELS, RESORTS & CRUISE LINES - 1.3%
2,231,897 Extended Stay America (ESH Hospitality, Inc.), Term Loan........ 5.00% 06/24/19 2,245,846
739,100 La Quinta Intermediate Holdings LLC, Initial Term Loan.......... 4.00% 04/14/21 735,774
1,600,000 Norwegian Cruise Lines (NCL Corp.), Term B Loan................. 4.00% 11/19/21 1,602,000
471,316 Orient Express Hotels (Belmond Interfin Ltd.),
Dollar Term Loan............................................. 4.00% 03/19/21 466,603
-------------
5,050,223
-------------
HYPERMARKETS & SUPER CENTERS - 4.7%
8,130,000 Albertsons LLC, Term B-4 Loan................................... 4.50% 08/25/21 8,150,325
346,000 Albertsons LLC, Term B-4-1 Loan................................. 4.50% 08/25/21 346,865
2,500,000 BJ's Wholesale Club, Inc., 2013 (November)
Replacement Loan (Second Lien)............................... 8.50% 03/26/20 2,501,775
7,537,159 BJ's Wholesale Club, Inc., New 2013 (November)
Replacement Loan (First Lien)................................ 4.50% 09/26/19 7,490,051
-------------
18,489,016
-------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS - 2.0%
1,372,000 Calpine Corp., Term Loan........................................ 4.00% 10/09/19 1,364,454
1,935,000 Calpine Corp., Term Loan (6/11)................................. 4.00% 04/01/18 1,931,981
2,376,231 FREIF North American Power I LLC, Term B-1 Loan................. 4.75% 03/29/19 2,382,171
392,529 FREIF North American Power I LLC, Term C-1 Loan................. 4.75% 03/29/19 393,511
1,615,385 TPF II LP, Term Loan............................................ 5.50% 10/02/21 1,626,499
-------------
7,698,616
-------------
INDUSTRIAL CONGLOMERATES - 0.8%
1,960,200 Gardner Denver, Inc., Initial Dollar Term Loan.................. 4.25% 07/30/20 1,910,529
1,248,449 Hamilton Sundstrand Industrial (Silver II US Holdings LLC),
Refinancing Term Loan........................................ 4.00% 12/13/19 1,217,550
-------------
3,128,079
-------------
INDUSTRIAL MACHINERY - 2.2%
2,095,223 Dematic Holdings (Mirror Bidco Corp.), Term Loan B.............. 4.25% 12/28/19 2,076,009
2,250,000 Filtration Group Corp., Initial Term Loan (Second Lien)......... 8.25% 11/22/21 2,246,625
3,330,810 Filtration Group Corp., Term Loan (First Lien).................. 4.50% 11/20/20 3,327,679
1,000,000 Mueller Water Products, Inc., Term Loan B....................... 4.00% 11/30/21 1,003,750
-------------
8,654,063
-------------
INSURANCE BROKERS - 4.7%
3,316,661 Amwins Group LLC, New Term Loan (First Lien).................... 5.00% 09/06/19 3,319,414
3,032,853 Confie Seguros Holding II Co., Term B Loan (First Lien)......... 5.75% 11/09/18 3,021,480
2,073,750 Cooper Gay Swett & Crawford Ltd., Term Loan
(First Lien)................................................. 5.00% 04/16/20 1,938,956
720,000 Cooper Gay Swett & Crawford Ltd., Term Loan
(Second Lien)................................................ 8.25% 10/16/20 633,600
2,580,035 HUB International Ltd., Initial Term Loan (New)................. 4.25% 10/02/20 2,550,545
2,269,444 National Financial Partners Corp., 2014
Specified Refinancing Term Loan.............................. 4.50% 07/01/20 2,250,540
4,863,746 USI, Inc. (Compass Investors, Inc.), Initial Term Loan.......... 4.25% 12/27/19 4,811,072
-------------
18,525,607
-------------
See Notes to Financial Statements Page 9
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
NOVEMBER 30, 2014 (UNAUDITED)
PRINCIPAL STATED
VALUE DESCRIPTION RATE (b) MATURITY (c) VALUE
------------ ---------------------------------------------------------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
INTEGRATED TELECOMMUNICATION SERVICES - 4.0%
$ 3,523,255 Avaya, Inc., Term B-3 Loan...................................... 4.65% 10/26/17 $ 3,419,777
2,970,000 Cincinnati Bell, Inc., Tranche B Term Loan...................... 4.00% 09/10/20 2,955,150
1,960,200 Hawaiian Telcom Communications, Inc., Term Loan................. 5.00% 06/06/19 1,960,807
3,390,999 Numericable U.S. LLC, Dollar Denominated
Tranche B-1 Loan............................................. 4.50% 05/21/20 3,392,288
2,933,676 Numericable U.S. LLC, Dollar Denominated
Tranche B-2 Loan............................................. 4.50% 05/21/20 2,934,791
991,976 XO Communications LLC, Initial Term Loan........................ 4.25% 03/20/21 984,536
-------------
15,647,349
-------------
INVESTMENT BANKING & BROKERAGE - 0.4%
1,580,000 RCS Capital Corp., Term Loan (First Lien)....................... 6.50% 04/29/19 1,473,350
-------------
IT CONSULTING & OTHER SERVICES - 0.4%
1,466,250 Sirius Computer Solutions, Inc. (SCS Holdings I, Inc.),
Term Loan.................................................... 7.00% 12/07/18 1,477,247
-------------
LEISURE FACILITIES - 0.5%
1,990,000 Planet Fitness Holdings LLC, Term Loan.......................... 4.75% 03/31/21 1,985,025
-------------
LIFE SCIENCES TOOLS & SERVICES - 4.8%
400,000 INC Research LLC, Term Loan B................................... 4.75% 10/29/21 400,168
530,388 inVentiv Health, Inc., Term B-3 Loan............................ 7.75%-8.50% 05/15/18 526,082
7,626,842 inVentiv Health, Inc., Term B-4 Loan............................ 7.75% 05/15/18 7,525,176
1,596,000 Millennium Laboratories LLC, Tranche B Term Loan................ 5.25% 04/16/21 1,600,995
5,652,500 Ortho-Clinical Diagnostics, Inc., Initial Term Loan............. 4.75% 06/30/21 5,595,975
2,292,500 Pharmaceutical Product Development, Inc.,
2013 Term Loan............................................... 4.00% 12/05/18 2,285,806
1,000,000 Sterigenics International (STHI Intermediate Holding Corp.),
Initial Term Loan............................................ 4.50% 08/06/21 997,080
-------------
18,931,282
-------------
MANAGED HEALTH CARE - 0.3%
1,390,909 MultiPlan, Inc. (MPH Acquisition Holdings LLC),
Initial Term Loan............................................ 3.75% 03/31/21 1,368,056
-------------
METAL & GLASS CONTAINERS - 1.0%
398,000 Ardagh Holdings USA, Inc. (Ardagh Packaging Finance S.A.),
New Term Loan................................................ 4.00% 12/17/19 396,341
2,153,846 Berlin Packaging LLC, Initial Term Loan (First Lien)............ 4.50% 10/01/21 2,145,769
997,500 BWAY Holding Co., Initial Term Loan............................. 5.50% 08/14/20 999,495
600,000 Mauser Holdings GmBH, Initial Dollar
Term Loan (First Lien)....................................... 4.50% 07/31/21 596,250
-------------
4,137,855
-------------
MOVIES & ENTERTAINMENT - 2.4%
5,932,949 Formula One (Delta 2 Lux S.A.R.L.), Facility B3 (USD)........... 4.75% 07/30/21 5,885,663
200,000 Lions Gate Entertainment Corp., Loan............................ 5.00% 07/19/20 201,750
300,000 TWCC Holding Corp., Term Loan (Second Lien)..................... 7.00% 06/26/20 291,375
2,992,500 WME IMG Worldwide, Inc., Term Loan (First Lien)................. 5.25% 05/06/21 2,916,760
-------------
9,295,548
-------------
Page 10 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
NOVEMBER 30, 2014 (UNAUDITED)
PRINCIPAL STATED
VALUE DESCRIPTION RATE (b) MATURITY (c) VALUE
------------ ---------------------------------------------------------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
OIL & GAS EXPLORATION & PRODUCTION - 0.7%
$ 1,000,000 American Energy Marcellus Holdings LLC,
Initial Loan (First Lien).................................... 5.25% 08/04/20 $ 945,830
1,888,889 American Energy Marcellus Holdings LLC,
Initial Loan (Second Lien)................................... 8.50% 08/04/21 1,723,611
-------------
2,669,441
-------------
OIL & GAS REFINING & MARKETING - 0.1%
333,333 CITGO Petroleum Corp., Term B Loan.............................. 4.50% 07/29/21 334,167
-------------
OIL & GAS STORAGE & TRANSPORTATION - 0.2%
1,000,000 Fieldwood Energy LLC, Closing Date Loan (Second Lien)........... 8.38% 09/30/20 905,420
-------------
OTHER DIVERSIFIED FINANCIAL SERVICES - 2.7%
4,683,538 First Data Corp., 2021 New Dollar Term Loan..................... 4.16% 03/24/21 4,655,437
2,780,000 iPayment, Inc., Term Loan....................................... 6.75% 05/08/17 2,748,725
3,389,171 Moneygram International, Inc., Term Loan........................ 4.25% 03/27/20 3,094,753
-------------
10,498,915
-------------
PACKAGED FOODS & MEATS - 4.3%
3,934,888 Blue Buffalo Co. Ltd., Term B-3 Loan............................ 3.75% 08/08/19 3,902,936
3,004,697 Boulder Brands, Inc. (GFA Brands, Inc.), Term Loan B............ 4.50% 07/09/20 2,974,650
696,500 Del Monte Foods, Inc., Initial Loan (First Lien)................ 4.25% 02/18/21 645,656
4,074,541 Ferrara Candy Co. (Candy Intermediate Holdings, Inc.),
Initial Term Loan............................................ 7.50% 06/06/18 3,965,873
1,870,313 Hearthside Food Solutions LLC, Term Loan........................ 4.50% 06/02/21 1,870,313
1,729,524 JBS USA LLC, Term Loan B........................................ 3.75% 05/25/18 1,720,876
1,666,625 New HB Acquisition LLC, Term B Loan............................. 6.75% 04/09/20 1,701,007
-------------
16,781,311
-------------
PAPER PACKAGING - 1.7%
744,375 Exopack Holding Corp., Term Loan B.............................. 5.25% 04/30/19 746,005
5,819,867 Reynolds Group Holdings, Inc., Incremental
U.S. Term Loan............................................... 4.00% 12/01/18 5,797,519
-------------
6,543,524
-------------
PERSONAL PRODUCTS - 0.4%
1,479,167 Prestige Brands International, Inc., Term B-2 Loan.............. 4.50% 09/03/21 1,486,562
-------------
PHARMACEUTICALS - 4.0%
2,113,636 Akorn, Inc., Loan............................................... 4.50% 04/16/21 2,115,391
2,327,500 Catalent Pharma Solutions, Inc., Dollar Term Loan............... 4.25% 05/20/21 2,329,432
5,225,176 Par Pharmaceutical Cos., Inc., Term B-2 Loan.................... 4.00% 09/30/19 5,148,105
1,396,500 Patheon, Inc. (JLL/Delta Dutch Newco B.V.),
Initial Dollar Term Loan..................................... 4.25% 03/11/21 1,363,836
1,141,667 Salix Pharmaceuticals Ltd., Term Loan........................... 4.25% 01/02/20 1,126,482
511,676 Valeant Pharmaceuticals International, Inc.,
Series C-2 Tranche B Term Loan............................... 3.50% 12/11/19 507,910
1,040,921 Valeant Pharmaceuticals International, Inc.,
Series D-2 Tranche B Term Loan............................... 3.50% 02/13/19 1,033,353
1,990,492 Valeant Pharmaceuticals International, Inc.,
Series E-1 Tranche B Term Loan............................... 3.50% 08/05/20 1,976,458
-------------
15,600,967
-------------
See Notes to Financial Statements Page 11
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
NOVEMBER 30, 2014 (UNAUDITED)
PRINCIPAL STATED
VALUE DESCRIPTION RATE (b) MATURITY (c) VALUE
------------ ---------------------------------------------------------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
PROPERTY & CASUALTY INSURANCE - 1.1%
$ 194,886 Cunningham Lindsey U.S., Inc., Initial Loan (Second Lien)....... 9.25% 06/10/20 $ 190,014
2,912,041 Cunningham Lindsey U.S., Inc.,
Initial Term Loan (First Lien)............................... 5.00% 12/10/19 2,837,435
1,200,000 Sedgwick Claims Management Services, Inc.,
Initial Loan (Second Lien)................................... 6.75% 02/28/22 1,172,004
-------------
4,199,453
-------------
PUBLISHING - 1.0%
2,089,500 Cengage Learning Acquisitions, Inc., Term Loan.................. 7.00% 03/15/20 2,089,166
1,990,000 Mergermarket USA, Inc., 2014 Incremental Term Loan.............. 4.50% 02/04/21 1,905,425
-------------
3,994,591
-------------
REAL ESTATE OPERATING COMPANIES - 1.4%
5,563,303 ClubCorp Club Operations, Inc.,
Term Loan B (September 2014)................................. 4.50% 09/24/20 5,549,394
-------------
REAL ESTATE SERVICES - 0.1%
492,528 Realogy Corp., Initial Term B Loan 2014......................... 3.75% 03/05/20 490,474
-------------
RESEARCH & CONSULTING SERVICES - 3.1%
3,120,000 Acosta, Inc., Initial Term Loan................................. 5.00% 09/26/21 3,131,201
112,903 Advantage Sales & Marketing, Inc.,
Delayed Draw Term Loan....................................... 4.25% 07/23/21 111,939
3,387,097 Advantage Sales & Marketing, Inc.,
Initial Term Loan (First Lien)............................... 4.25% 07/23/21 3,358,171
1,815,237 Information Resources, Inc., Term Loan.......................... 4.75% 09/30/20 1,820,537
3,656,625 TransUnion LLC, 2014 Replacement Term Loan...................... 4.00% 04/09/21 3,623,496
-------------
12,045,344
-------------
RESTAURANTS - 5.6%
744,375 Arby's Restaurant Group (ARG IH Corp.), Term Loan............... 4.75% 11/15/20 744,375
6,500,000 Burger King Corp., Term Loan B.................................. 4.50% 09/30/21 6,514,235
4,238,872 Focus Brands, Inc., Refinancing Term Loan (First Lien).......... 4.25% 02/21/18 4,219,458
1,450,000 Focus Brands, Inc., Term Loan (Second Lien)..................... 10.25% 08/21/18 1,451,813
3,250,000 Portillo's Holdings, LLC, Second Lien Term Loan................. 8.00% 08/15/22 3,237,813
4,398,342 Portillo's Holdings, LLC, Term B Loan (First Lien).............. 4.75% 08/02/21 4,379,121
1,285,714 Red Lobster Management LLC,
Initial Term Loan (First Lien)............................... 6.25% 07/28/21 1,287,321
-------------
21,834,136
-------------
RETAIL REITS - 0.9%
1,050,000 Capital Automotive LLC, Term Loan (Second Lien)................. 6.00% 04/30/20 1,060,500
2,526,379 Capital Automotive LLC, Tranche B-1
Term Loan Facility........................................... 4.00% 04/10/19 2,521,655
-------------
3,582,155
-------------
SECURITY & ALARM SERVICES - 0.2%
181,500 Garda World Security Corp., Term B Delayed Draw Loan............ 4.00% 11/06/20 178,892
709,500 Garda World Security Corp., Term Loan B......................... 4.00% 10/18/20 699,304
-------------
878,196
-------------
Page 12 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
NOVEMBER 30, 2014 (UNAUDITED)
PRINCIPAL STATED
VALUE DESCRIPTION RATE (b) MATURITY (c) VALUE
------------ ---------------------------------------------------------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
SEMICONDUCTORS - 2.5%
$ 2,992,500 Avago Technologies Cayman Ltd., Term Loan....................... 3.75% 05/06/21 $ 2,991,004
5,319,304 Freescale Semiconductor, Inc., Tranche B-4 Term Loan............ 4.25% 02/28/20 5,271,271
1,485,000 Freescale Semiconductor, Inc., Tranche B5 Term Loan............. 5.00% 01/15/21 1,486,544
-------------
9,748,819
-------------
SPECIALIZED CONSUMER SERVICES - 2.8%
8,964,552 Asurion LLC, Incremental Tranche B-1 Term Loan.................. 5.00% 05/24/19 8,921,343
1,058,824 Asurion LLC, Term Loan (Second Lien)............................ 8.50% 03/03/21 1,066,108
655,803 Expert Global Solutions, Inc. (NCO Group, Inc.),
Term B Advance (First Lien).................................. 8.50% 04/03/18 652,524
500,000 PSSI (Packers Holdings LLC), Term Loan B........................ 5.00% 11/25/21 501,250
-------------
11,141,225
-------------
SPECIALIZED FINANCE - 1.8%
2,519,585 AlixPartners LLP, 2014 January Replacement
Term B-2 Loan (First Lien)................................... 4.00% 07/10/20 2,495,170
1,877,501 Duff & Phelps Corp., Initial Term Loan.......................... 4.50% 04/23/20 1,871,249
2,839,328 FLY Leasing Ltd. (Fly Funding II S.A.R.L), Loan................. 4.50% 08/09/19 2,832,939
-------------
7,199,358
-------------
SPECIALTY CHEMICALS - 2.5%
678,130 A.I. Chem (Allnex (Luxembourg) & Cy S.C.A.),
Tranche B-1 Term Loan........................................ 4.50% 10/03/19 678,130
351,849 A.I. Chem (Allnex (Luxembourg) & Cy S.C.A.),
Tranche B-2 Term Loan........................................ 4.50% 10/03/19 351,849
1,000,000 Arizona Chemical (AZ Chem US, Inc.), Initial Term Loan.......... 4.50% 06/10/22 998,750
1,222,508 Axalta Coating Systems U.S. Holdings, Inc.,
Refinanced Term B Loan....................................... 3.75% 02/01/20 1,205,002
1,000,000 Emerald Performance Materials LLC,
Initial Term Loan (First Lien)............................... 4.50% 07/30/21 991,250
3,475,587 NuSil Technology LLC, Term Loan................................. 5.25% 04/07/17 3,441,909
994,819 Omnova Solutions, Inc., Term B-1 Loan........................... 4.25% 05/31/18 982,383
1,140,718 Polymer Group, Inc., Initial Loan............................... 5.25% 12/19/19 1,141,436
-------------
9,790,709
-------------
SPECIALTY STORES - 0.6%
1,116,071 Toys "R" US-Delaware, Inc., Canadian FILO TL.................... 8.25% 10/24/19 1,094,308
1,383,929 Toys "R" US-Delaware, Inc., FILO Term Loan...................... 8.25% 10/24/19 1,356,942
-------------
2,451,250
-------------
SYSTEMS SOFTWARE - 4.9%
576,290 Applied Systems, Inc., Initial Term Loan (First Lien)........... 4.25% 01/25/21 573,121
550,000 Applied Systems, Inc., Initial Term Loan (Second Lien).......... 7.50% 01/24/22 549,312
12,587,825 BMC Software Finance, Inc., Initial US Term Loan................ 5.00% 09/10/20 12,385,539
4,260,194 Vertafore, Inc., Term Loan 2013................................. 4.25% 10/03/19 4,243,323
1,481,957 Websense, Inc., Term Loan (First Lien).......................... 4.50% 06/25/20 1,464,663
-------------
19,215,958
-------------
TIRES & RUBBER - 0.5%
2,142,857 Goodyear Tire & Rubber Co., Loan (Second Lien).................. 4.75% 04/30/19 2,148,879
-------------
See Notes to Financial Statements Page 13
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
NOVEMBER 30, 2014 (UNAUDITED)
PRINCIPAL STATED
VALUE DESCRIPTION RATE (b) MATURITY (c) VALUE
------------ ---------------------------------------------------------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS (CONTINUED)
TRUCKING - 1.6%
$ 2,245,714 Hertz Corp., Tranche B-1 Term Loan.............................. 3.75% 03/11/18 $ 2,216,699
2,659,500 SIRVA Worldwide, Inc., Loan..................................... 7.50% 03/27/19 2,639,554
1,313,723 Swift Transportation Co. LLC, Tranche B Loan.................... 3.75% 06/09/21 1,308,797
-------------
6,165,050
-------------
TOTAL SENIOR FLOATING-RATE LOAN INTERESTS.................................................... 544,380,875
(Cost $550,519,998) -------------
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
------------ ---------------------------------------------------------------- ----------- ------------ -------------
CORPORATE BONDS AND NOTES - 4.1%
AUTO PARTS & EQUIPMENT - 0.2%
250,000 American Axle & Manufacturing, Inc.............................. 6.25% 03/15/21 265,625
500,000 MPG Holdco I, Inc. (f).......................................... 7.38% 10/15/22 522,500
-------------
788,125
-------------
CASINOS & GAMING - 1.1%
4,900,000 Caesars Growth Properties Holdings LLC/Caesars
Growth Properties Finance, Inc. (f).......................... 9.38% 05/01/22 4,354,875
-------------
HEALTH CARE EQUIPMENT - 0.3%
1,000,000 Kinetic Concepts, Inc./KCI USA, Inc............................. 12.50% 11/01/19 1,110,000
-------------
HEALTH CARE FACILITIES - 0.9%
350,000 CHS Community Health Systems, Inc............................... 6.88% 02/01/22 372,313
150,000 Tenet Healthcare Corp. (f)...................................... 5.50% 03/01/19 151,500
800,000 Tenet Healthcare Corp........................................... 6.00% 10/01/20 853,000
2,250,000 Vantage Oncology LLC/Vantage Oncology Finance Co. (f)........... 9.50% 06/15/17 2,165,625
-------------
3,542,438
-------------
LIFE SCIENCES TOOLS & SERVICES - 1.0%
2,500,000 Crimson Merger Sub, Inc. (f).................................... 6.63% 05/15/22 2,334,375
435,000 inVentiv Health, Inc. (f) (g)................................... 10.00% 08/15/18 402,375
500,000 inVentiv Health, Inc. (f)....................................... 11.00% 08/15/18 417,500
750,000 inVentiv Health, Inc. (f)....................................... 11.00% 08/15/18 622,500
-------------
3,776,750
-------------
OIL & GAS EQUIPMENT & SERVICES - 0.1%
250,000 Niska Gas Storage Canada ULC/Niska Gas Storage
Canada Finance Corp. (Canada) (f)............................ 6.50% 04/01/19 197,500
-------------
OIL & GAS EXPLORATION & PRODUCTION - 0.1%
500,000 American Energy-Permian Basin LLC / AEPB
Finance Corp. (f) (h)........................................ 6.73% 08/01/19 412,500
-------------
SECURITY & ALARM SERVICES - 0.2%
1,000,000 Garda World Security Corp. (Canada) (f)......................... 7.25% 11/15/21 1,005,000
-------------
SPECIALTY CHEMICALS - 0.2%
850,000 Hexion U.S. Finance Corp........................................ 6.63% 04/15/20 826,625
-------------
TOTAL CORPORATE BONDS AND NOTES.............................................................. 16,013,813
(Cost $16,985,164) -------------
Page 14 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
NOVEMBER 30, 2014 (UNAUDITED)
SHARES DESCRIPTION VALUE
------------ --------------------------------------------------------------------------------------------- -------------
WARRANTS - 0.0%
BROADCASTING - 0.0%
1,449 Cumulus Media, Inc. (i) (j) (k).............................................................. $ 4,087
-------------
TOTAL WARRANTS............................................................................... 4,087
(Cost $0) -------------
COMMON STOCKS - 0.0%
DIVERSIFIED CHEMICALS - 0.0%
20 LyondellBasell Industries N.V., Class A...................................................... 1,577
-------------
TOTAL COMMON STOCKS.......................................................................... 1,577
(Cost $0) -------------
TOTAL INVESTMENTS - 142.9%................................................................... 560,400,352
(Cost $567,505,162) (l) -------------
OUTSTANDING LOAN - (43.6%)................................................................... (171,000,000)
NET OTHER ASSETS AND LIABILITIES - 0.7%...................................................... 2,784,494
-------------
NET ASSETS - 100.0%.......................................................................... $ 392,184,846
=============
(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 at 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 Interbank 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 November 30, 2014. When a range of rates is disclosed
the Fund holds more than one contract within the same tranche at varying
rates.
(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 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 November 30, 2014, securities noted as such are valued at
$12,586,250 or 3.21% of net assets.
(g) These notes are Payment-in-Kind ("PIK") Toggle Notes ("Notes") whereby the
issuer may, at its option, elect to pay interest on the Notes (1) entirely
in cash or (2) entirely in PIK interest. Interest paid in cash will accrue
at the rate of 10% per annum ("Cash Interest Rate") and PIK interest will
accrue on the Notes at a rate per annum equal to the Cash Interest Rate
plus 2%. During the period, this security paid interest in cash.
(h) Floating rate security. The interest rate shown reflects the rate in
effect at November 30, 2014.
(i) This security is fair valued by the Advisor's Pricing Committee 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.
(j) 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).
(k) Non-income producing security.
(l) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of November 30, 2014,
the aggregate gross unrealized appreciation for all securities in which
there was an excess of value over tax cost was $1,121,286 and the
aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over value was $8,226,096.
See Notes to Financial Statements Page 15
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
NOVEMBER 30, 2014 (UNAUDITED)
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of November 30,
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 11/30/2014 PRICES INPUTS INPUTS
------------------------------------------------- ------------- ------------ ------------ ------------
Senior Floating-Rate Loan Interests* $ 544,380,875 $ -- $544,380,875 $ --
Corporate Bonds and Notes* 16,013,813 -- 16,013,813 --
Warrants* 4,087 -- 4,087 --
Common Stocks* 1,577 1,577 -- --
------------- ------------ ------------ ------------
TOTAL INVESTMENTS $ 560,400,352 $ 1,577 $560,398,775 $ --
============= ============ ============ ============
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. There were no
transfers in or out of Level 3 as of November 30, 2014.
* 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.
Page 16 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2014 (UNAUDITED)
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, 2014
Senior Floating-Rate Loan Interests................... $ 4,067,775
Corporate Bonds and Notes............................. --
Warrants.............................................. --
Common Stocks......................................... -- +
Net Realized Gain (Loss)
Senior Floating-Rate Loan Interests................... (19,281)
Common Stocks......................................... -- **
Net Change in Unrealized Appreciation/Depreciation
Senior Floating-Rate Loan Interests................... (56,136)
Common Stocks......................................... -- **
Purchases
Senior Floating-Rate Loan Interests................... --
Common Stocks......................................... --
Sales
Senior Floating-Rate Loan Interests................... (3,992,358)
Common Stocks......................................... -- **
Transfers In
Senior Floating-Rate Loan Interests................... --
Common Stocks......................................... --
Transfers Out
Senior Floating-Rate Loan Interests................... --
Common Stocks......................................... --
------------
ENDING BALANCE AT NOVEMBER 30, 2014
Senior Floating-Rate Loan Interests................... --
Corporate Bonds and Notes............................. --
Warrants.............................................. --
Common Stocks......................................... --
------------
Total Level 3 holdings..................................... $ --
============
** 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
NOVEMBER 30, 2014 (UNAUDITED)
ASSETS:
Investments, at value
(Cost $567,505,162)......................................................................... $ 560,400,352
Cash........................................................................................... 3,958,755
Receivables:
Investment securities sold.................................................................. 19,033,124
Interest.................................................................................... 4,051,273
Dividends................................................................................... 14
Prepaid expenses............................................................................... 9,439
-------------
Total Assets................................................................................ 587,452,957
-------------
LIABILITIES:
Outstanding loan............................................................................... 171,000,000
Payables:
Investment securities purchased............................................................. 23,602,543
Investment advisory fees.................................................................... 345,913
Interest and fees on loan................................................................... 118,422
Administrative fees......................................................................... 110,988
Audit and tax fees.......................................................................... 38,232
Custodian fees.............................................................................. 27,673
Transfer agent fees......................................................................... 5,874
Legal fees.................................................................................. 4,988
Trustees' fees and expenses................................................................. 4,383
Printing fees............................................................................... 789
Financial reporting fees.................................................................... 771
Other liabilities.............................................................................. 7,535
-------------
Total Liabilities........................................................................... 195,268,111
-------------
NET ASSETS..................................................................................... $ 392,184,846
=============
NET ASSETS CONSIST OF:
Paid-in capital................................................................................ $ 501,111,177
Par value...................................................................................... 266,970
Accumulated net investment income (loss)....................................................... 151,445
Accumulated net realized gain (loss) on investments............................................ (102,239,936)
Net unrealized appreciation (depreciation) on investments...................................... (7,104,810)
-------------
NET ASSETS..................................................................................... $ 392,184,846
=============
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share)........................... $ 14.69
=============
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 SIX MONTHS ENDED NOVEMBER 30, 2014 (UNAUDITED)
INVESTMENT INCOME:
Interest....................................................................................... $ 14,521,074
Dividends...................................................................................... 31
Other.......................................................................................... 277,845
-------------
Total investment income..................................................................... 14,798,950
-------------
EXPENSES:
Investment advisory fees....................................................................... 2,123,684
Interest and fees on loan...................................................................... 814,027
Administrative fees............................................................................ 223,759
Printing fees.................................................................................. 54,591
Custodian fees................................................................................. 40,269
Audit and tax fees............................................................................. 37,202
Transfer agent fees............................................................................ 16,134
Legal fees..................................................................................... 15,549
Trustees' fees and expenses.................................................................... 11,686
Financial reporting fees....................................................................... 4,625
At the market offering costs (a)............................................................... (53,131)
Other.......................................................................................... 46,450
-------------
Total expenses.............................................................................. 3,334,845
-------------
NET INVESTMENT INCOME (LOSS)................................................................... 11,464,105
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments..................................................... 9,697
Net change in unrealized appreciation (depreciation) on investments......................... (7,330,615)
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS)........................................................ (7,320,918)
-------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................ $ 4,143,187
=============
(a) See Note 6 in the Notes to Financial Statements.
See Notes to Financial Statements Page 19
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR
11/30/2014 ENDED
(UNAUDITED) 5/31/2014
-------------- --------------
OPERATIONS:
Net investment income (loss)........................................................ $ 11,464,105 $ 22,346,018
Net realized gain (loss)............................................................ 9,697 (2,548,773)
Net change in unrealized appreciation (depreciation)................................ (7,330,615) 94,645
-------------- --------------
Net increase (decrease) in net assets resulting from operations..................... 4,143,187 19,891,890
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................................... (10,979,134) (25,186,591)
-------------- --------------
Total distributions to shareholders................................................. (10,979,134) (25,186,591)
-------------- --------------
CAPITAL TRANSACTIONS:
Proceeds from Common Shares sold through at the market offerings.................... -- 3,035,923
Proceeds from Common Shares reinvested.............................................. -- 454,722
-------------- --------------
Net increase (decrease) in net assets resulting from capital transactions........... -- 3,490,645
-------------- --------------
Total increase (decrease) in net assets............................................. (6,835,947) (1,804,056)
NET ASSETS:
Beginning of period................................................................. 399,020,793 400,824,849
-------------- --------------
End of period....................................................................... $ 392,184,846 $ 399,020,793
============== ==============
Accumulated net investment income (loss) at end of period........................... $ 151,445 $ (333,526)
============== ==============
CAPITAL TRANSACTIONS WERE AS FOLLOWS:
Common Shares at beginning of period................................................ 26,696,982 26,470,348
Common Shares sold through at the market offerings.................................. -- 196,487
Common Shares issued as reinvestment under the Dividend Reinvestment Plan........... -- 30,147
-------------- --------------
Common Shares at end of period...................................................... 26,696,982 26,696,982
============== ==============
Page 20 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2014 (UNAUDITED)
Net increase (decrease) in net assets resulting from operations................. $ 4,143,187
Adjustments to reconcile net increase (decrease) in net assets resulting from
operations to net cash provided by operating activities:
Purchases of investments.................................................. (214,737,459)
Sales, maturities and paydowns of investments............................. 218,786,585
Net amortization/accretion of premiums/discounts on investments........... (329,680)
Net realized gain/loss on investments..................................... (9,697)
Net change in unrealized appreciation/depreciation on investments......... 7,330,615
CHANGES IN ASSETS AND LIABILITIES:
Increase in interest receivable........................................... (909,932)
Increase in dividends receivable.......................................... (14)
Decrease in prepaid expenses.............................................. 62,773
Decrease in interest and fees on loan payable............................. (20,934)
Decrease in investment advisory fees payable.............................. (16,527)
Decrease in offering costs payable........................................ (92,925)
Decrease in audit and tax fees payable.................................... (35,968)
Decrease in legal fees payable............................................ (5,010)
Decrease in printing fees payable......................................... (28,213)
Increase in administrative fees payable................................... 40,906
Increase in custodian fees payable........................................ 13,756
Increase in transfer agent fees payable................................... 830
Increase in Trustees' fees and expenses payable........................... 534
Increase in other liabilities payable..................................... 5,031
--------------
CASH PROVIDED BY OPERATING ACTIVITIES........................................... $ 14,197,858
--------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to Common Shareholders...................................... (10,979,134)
Proceeds from borrowing................................................... 39,000,000
Repayment of borrowing.................................................... (42,000,000)
--------------
CASH USED IN FINANCING ACTIVITIES............................................... (13,979,134)
--------------
Increase in cash................................................................ 218,724
Cash at beginning of period..................................................... 3,740,031
--------------
CASH AT END OF PERIOD........................................................... $ 3,958,755
==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest and fees............................... $ 834,961
==============
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
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR YEAR
11/30/2014 ENDED ENDED ENDED ENDED ENDED
(UNAUDITED) 5/31/2014 5/31/2013 5/31/2012 5/31/2011 (a) 5/31/2010
----------- ----------- ----------- ----------- ------------- -----------
Net asset value, beginning of period................. $ 14.95 $ 15.14 $ 14.49 $ 14.76 $ 13.96 $ 11.79
--------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss.......................... 0.43 0.84 1.01 0.91 0.73 0.47
Net realized and unrealized gain (loss).............. (0.28) (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..................... 0.15 0.76 1.65 0.60 1.50 2.60
--------- --------- --------- --------- --------- ---------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income................................ (0.41) (0.95) (1.03) (0.87) (0.70) (0.43)
--------- --------- --------- --------- --------- ---------
Total distributions to Common Shareholders........... (0.41) (0.95) (1.03) (0.87) (0.70) (0.43)
--------- --------- --------- --------- --------- ---------
Premium from shares sold in at Common Share
offering.......................................... -- 0.00 (c) 0.03 -- -- --
--------- --------- --------- --------- --------- ---------
Net asset value, end of period....................... $ 14.69 14.95 $ 15.14 $ 14.49 $ 14.76 $ 13.96
========= ========= ========= ========= ========= =========
Market value, end of period.......................... $ 13.11 14.00 $ 15.37 $ 14.34 $ 14.82 $ 12.65
========= ========= ========= ========= ========= =========
TOTAL RETURN BASED ON NET ASSET VALUE (d)............ 1.28% 5.35% 11.92% (4.45)% 11.19% 22.99%
========= ========= ========= ========= ========= =========
TOTAL RETURN BASED ON MARKET VALUE (d)............... (3.48)% (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........ 1.71% (e) 1.80% 1.85% 1.88% 1.98% 2.42%
Ratio of total expenses to average net assets
excluding interest expense........................ 1.30% (e) 1.36% 1.38% 1.33% 1.31% 1.39%
Ratio of net investment income (loss) to average
net assets........................................ 5.78% (e) 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 (f)........ N/A N/A N/A N/A N/A 3.37%
Portfolio turnover rate.............................. 34% 90% 125% 63% 95% 52%
Net assets, end of period (in 000's)................. $ 392,185 $ 399,021 $ 400,825 $ 367,172 $ 373,902 $ 353,106
Ratio of total expenses to total average Managed
Assets (g)........................................ 1.19% (e) 1.25% 1.30% 1.31% 1.39% 1.77%
Ratio of total expenses to total average Managed
Assets excluding interest expense (g)............. 0.91% (e) 0.96% 0.97% 0.93% 0.92% 1.01%
INDEBTEDNESS:
Total loan outstanding (in 000's).................... $ 171,000 $ 174,000 $ 174,000 $ 158,000 $ 160,000 $ 153,500
Asset coverage per $1,000 of indebtedness (h)........ $ 3,293 $ 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) Annualized.
(f) Ratio reflects the effect of distributions to AMP Shareholders.
(g) 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.
(h) 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)
NOVEMBER 30, 2014 (UNAUDITED)
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 absence of market
value with respect to any portfolio securities, at fair value. Market value
prices represent last sale or official closing prices from a national or foreign
exchange (i.e., a regulated market) and are primarily obtained from third party
pricing services. Fair value prices represent any prices not considered market
value prices and are either obtained from a third party pricing service or are
determined by the Pricing Committee of the Fund's investment advisor, First
Trust Advisors L.P. ("First Trust" or the "Advisor") in accordance with
valuation procedures adopted by the Fund's Board of Trustees, and in accordance
with provisions of the 1940 Act. Investments valued by the Advisor's Pricing
Committee, if any, are footnoted as such in the footnotes to the Portfolio of
Investments. The Fund's investments are valued as follows:
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
fair 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 fair
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.
Corporate bonds, corporate notes and other debt securities are fair 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;
(1) The terms "security" and "securities" used throughout the Notes to
Financial Statements include Senior Loans.
Page 23
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
NOVEMBER 30, 2014 (UNAUDITED)
4) issuer spreads;
5) benchmark securities;
6) bids and offers; and
7) reference data including market research publications.
Fixed income and other debt securities having a remaining maturity of 60
days or less when purchased are fair valued at cost adjusted for
amortization of premiums and accretion of discounts (amortized cost),
provided the Advisor's Pricing Committee has determined that the use of
amortized cost is an appropriate reflection of fair value given market and
issuer specific conditions existing at the time of the determination.
Factors that may be considered in determining the appropriateness of the
use of amortized cost include, but are not limited to, the following:
1) the credit conditions in the relevant market and changes thereto;
2) the liquidity conditions in the relevant market and changes thereto;
3) the interest rate conditions in the relevant market and changes
thereto (such as significant changes in interest rates);
4) issuer-specific conditions (such as significant credit
deterioration); and
5) any other market-based data the Advisor's Pricing Committee
considers relevant. In this regard, the Advisor's Pricing Committee
may use last-obtained market-based data to assist it when valuing
portfolio securities using amortized cost.
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, the Advisor's Pricing Committee, 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) for which a pricing service is unable to provide a market
price; securities whose trading has been formally suspended; a security whose
market or fair value 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. When fair value prices are used, generally they will differ from
market quotations or official closing prices on the applicable exchanges. 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).
Page 24
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
NOVEMBER 30, 2014 (UNAUDITED)
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
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 November 30, 2014, is
included with the Fund's Portfolio of Investments.
B. SECURITY 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.
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
November 30, 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 November 30, 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 Securities Act
of 1933, as amended (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
November 30, 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 $ 2.82 $ -- $ 4,087 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.
The tax character of distributions paid during the fiscal year ended May 31,
2014 is as follows:
Distributions paid from:
Ordinary income................................... $ 25,186,591
Page 25
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
NOVEMBER 30, 2014 (UNAUDITED)
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
=============
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 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, 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.
Page 26
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
NOVEMBER 30, 2014 (UNAUDITED)
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.
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 six months ended November 30, 2014, were $196,171,488 and
$194,954,332, respectively.
5. BORROWINGS
The Fund has 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 11, 2014, the Credit Facility was amended,
whereby the expiration date of the Credit Facility was extended until July 10,
2015 and the total commitment was reduced from $190,000,000 to $185,000,000. 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 Fund
pays a utilization fee at a per annum rate of 0.3625% (prior to July 11, 2014,
the per annum rate was 0.35%) of the daily average 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) 0.3625% (prior to July
11, 2014, the per annum rate was 0.35%) 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 six months ended November 30, 2014, the average amount outstanding under
the Credit Facility was $170,426,230. The high and low annual interest rates for
the loan under the Credit Facility funded by the conduit lender during the six
months ended November 30, 2014, were 0.205% and 0.199%, respectively, with a
weighted average interest rate of 0.202%. The annual interest rate in effect for
the loan at November 30, 2014, was 0.205%.
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
----------- ------------ --------------- --------------
Six Months Ended 11/30/14 -- $ -- $ -- $ --
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
Page 27
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
NOVEMBER 30, 2014 (UNAUDITED)
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. Additionally, on August 23, 2013,
estimated offering costs of $175,000 related to the 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. During the period ended November 30, 2014, it was
determined that actual offering costs were less than the estimated offering
costs by $92,925. Therefore, offering costs were reduced by that amount in the
period ended November 30, 2014, as reflected in the At the market offering cost
line item on the Statement of Operations.
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.
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 December 22, 2014, the Fund declared a distribution of $0.072 per share to
Common Shareholders of record on January 6, 2015, payable January 15, 2015.
On January 20, 2015, the Fund declared a distribution of $0.072 per share to
Common Shareholders of record on February 4, 2015, payable February 17, 2015.
Page 28
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
NOVEMBER 30, 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 29
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
NOVEMBER 30, 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.
SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
The Annual Meeting of Shareholders for the Fund was held on September 15, 2014
(the "meeting"). At the meeting, Trustees Thomas R. Kadlec and Richard E.
Erickson were elected as Class I Trustees for a three-year term expiring at the
Fund's annual meeting of shareholders in 2017. The number of votes cast in favor
of Mr. Kadlec was 22,986,353, the number of votes against Mr. Kadlec was
466,661, and the number of broker non-votes was 3,243,968. The number of votes
cast in favor of Mr. Erickson was 22,984,117, the number of votes against Mr.
Erickson was 468,897, and the number of broker non-votes was 3,243,968. Niel B.
Nielson, James A. Bowen and Robert F. Keith are current and continuing Trustees.
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. Messrs. Bowen and Keith are
currently the Class III Trustees of the Fund for a term expiring at the Fund's
annual meeting of shareholders in 2016.
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 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,
Page 30
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
NOVEMBER 30, 2014 (UNAUDITED)
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.
INVESTMENT MANAGEMENT AGREEMENT
BOARD CONSIDERATIONS REGARDING APPROVAL OF CONTINUATION OF INVESTMENT MANAGEMENT
AGREEMENT
The Board of Trustees of First Trust Senior Floating Rate Income Fund II (the
"Fund"), including the Independent Trustees, unanimously approved the
continuation of the Investment Management Agreement (the "Agreement") between
the Fund and First Trust Advisors L.P. (the "Advisor") at a meeting held on June
8-9, 2014. The Board of Trustees determined that the continuation of the
Agreement is in the best interests of the Fund in light of the extent and
quality of the services provided and such other matters as the Board considered
to be relevant in the exercise of its reasonable business judgment.
To reach this determination, the Board considered its duties under the
Investment Company Act of 1940, as amended (the "1940 Act"), as well as under
the general principles of state law in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
on such agreements. To assist the Board in its evaluation of the Agreement, the
Independent Trustees received a report from the Advisor in advance of the Board
meeting responding to a request for information from counsel to the Independent
Trustees. The report, among other things, outlined the services provided by the
Advisor (including the relevant personnel responsible for these services and
their experience); the advisory fees for the Fund as compared to fees charged to
other clients of the Advisor and as compared to fees charged by investment
advisors to comparable funds; expenses of the Fund as compared to expense ratios
of comparable funds; the nature of expenses incurred in providing services to
the Fund and the potential for economies of scale, if any; financial data on the
Advisor; any fall out benefits to the Advisor; and information on the Advisor's
compliance program. Following receipt of this information, counsel to the
Independent Trustees posed follow-up questions to the Advisor, and the
Independent Trustees and their counsel met separately to discuss the information
provided by the Advisor, including the supplemental responses. The Board applied
its business judgment to determine whether the arrangement between the Fund and
the Advisor is a reasonable business arrangement from the Fund's perspective as
well as from the perspective of shareholders. The Board considered that
shareholders chose to invest or remain invested in the Fund knowing that the
Advisor manages the Fund.
In reviewing the Agreement, the Board considered the nature, extent and quality
of services provided by the Advisor under the Agreement. The Board considered
that the Advisor is responsible for the overall management and administration of
the Fund and reviewed the services provided by the Advisor to the Fund, noting
that the Advisor's Leveraged Finance Investment Team is responsible for the
day-to-day management of the Fund's investments. The Board considered the
Advisor's statement that it applies the same oversight model internally with its
Leveraged Finance Investment Team as it uses for overseeing external
sub-advisors. The Board considered the background and experience of the members
of the Leveraged Finance Investment Team. At the meeting, the Board received a
presentation from members of the Leveraged Finance Investment Team, who
discussed the services that the Team provides to the Fund and how the Team
manages the
Page 31
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
NOVEMBER 30, 2014 (UNAUDITED)
Fund's investments. The Board noted the compliance program that had been
developed by the Advisor and considered that it includes a robust program for
monitoring compliance with the 1940 Act and the Fund's investment objectives and
policies. In light of the information presented and the considerations made, the
Board concluded that the nature, extent and quality of services provided to the
Fund by the Advisor under the Agreement have been and are expected to remain
satisfactory and that the Advisor has managed the Fund consistent with its
investment objectives and policies.
The Board considered the advisory fees paid under the Agreement. The Board
considered the advisory fees charged by the Advisor to similar funds and other
non-fund clients, noting that the Advisor does not provide advisory services to
other closed-end funds with investment objectives and policies similar to the
Fund's, but it does provide services to an actively managed exchange-traded fund
("ETF") with investment objectives and policies similar to the Fund's. The Board
noted that the Advisor charges a unitary fee to the actively managed ETF from
which it pays most of the ETF's expenses. In addition, the Board reviewed data
prepared by Lipper Inc. ("Lipper"), an independent source, showing the advisory
fees and expense ratios of the Fund as compared to the advisory fees and expense
ratios of an expense peer group selected by Lipper and similar data from the
Advisor for a separate peer group selected by the Advisor. The Board noted that
all of the Lipper expense peer group funds were included in the Advisor peer
group. The Board discussed with representatives of the Advisor the limitations
in creating a relevant peer group for the Fund, including that (i) the Fund is
unique in its composition, which makes assembling peers with similar strategies
and asset mix difficult, noting that some peer funds have significant holdings
outside of senior loans; (ii) peer funds may use different amounts and types of
leverage which have different costs associated with them or may use no leverage;
and (iii) some of the peer funds are larger than the Fund, which causes the
Fund's fixed expenses to be higher on a percentage basis as compared to the
larger peer funds. The Board took these limitations into account in considering
the peer data. The Board also noted that certain one-time expenses related to an
at-the-market offering of additional common shares paid by the Fund in 2013
affected the Fund's expense ratio relative to its peers. In reviewing the peer
data, the Board noted that the Fund's contractual advisory fee was equal to the
median of the Lipper peer group.
The Board also considered performance information for the Fund, noting that the
performance information included the Fund's quarterly performance report, which
is part of the process that the Board has established for monitoring the Fund's
performance and portfolio risk on an ongoing basis. The Board determined that
this process continues to be effective for reviewing the Fund's performance. In
addition to the Board's ongoing review of performance, the Board also received
data prepared by Lipper comparing the Fund's performance to a performance peer
universe selected by Lipper and to two benchmarks. In reviewing the Fund's
performance as compared to the performance of the Lipper peer universe, the
Board took into account the limitations described above with respect to creating
a relevant peer group for the Fund. The Board also noted that the Advisor's
Leveraged Finance Investment Team did not begin managing the day-to-day
investment of the Fund's assets until October 2010. The Board also considered
the Fund's dividend yield as of March 31, 2014 and information provided by the
Advisor on the Fund's leverage, including that leverage was accretive to the
Fund's total return in 2013. In addition, the Board compared the Fund's
premium/discount over the past eight quarters to the average and median
premium/discount of the Advisor peer group over the same period and considered
the factors that may impact a fund's premium/discount.
On the basis of all the information provided on the fees, expenses and
performance of the Fund, the Board concluded that the advisory fees were
reasonable and appropriate in light of the nature, extent and quality of
services provided by the Advisor under the Agreement.
The Board noted that the Advisor has continued to invest in personnel and
infrastructure and considered whether fee levels reflect any economies of scale
for the benefit of shareholders. The Board determined that due to the Fund's
closed-end structure, the potential for realization of economies of scale as
Fund assets grow was not a material factor to be considered. The Board also
considered the costs of the services provided and profits realized by the
Advisor from serving as investment advisor to the Fund for the twelve months
ended December 31, 2013, as well as product-line profitability data for the same
period, as set forth in the materials provided to the Board. The Board noted the
inherent limitations in the profitability analysis, and concluded that the
Advisor's estimated profitability appeared to be not excessive in light of the
services provided to the Fund. In addition, the Board considered fall-out
benefits described by the Advisor that may be realized from its relationship
with the Fund, including the Advisor's compensation for fund reporting services
pursuant to a separate Fund Reporting Services Agreement.
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, unanimously determined that the terms
of the Agreement continue to be fair and reasonable and that the continuation of
the Agreement is in the best interests of the Fund. No single factor was
determinative in the Board's analysis.
Page 32
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.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. INVESTMENTS.
(a) Schedule of Investments in securities of unaffiliated issuers as of the
close of the reporting period is included as part of the report to
shareholders filed under Item 1 of this form.
(b) Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a) Not applicable.
(b) There have been no changes, as of the date of filing, in any of the
Portfolio Managers identified in response to paragraph (a)(1) of this item
in the Registrant's most recent annual report on Form N-CSR.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of 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) Not applicable.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section
302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section
906 of the Sarbanes- Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) First Trust 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: January 21, 2015
--------------------
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: January 21, 2015
--------------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: January 21, 2015
--------------------
* Print the name and title of each signing officer under his or her signature.