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, 2012
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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, 2012
FIRST TRUST
SENIOR FLOATING RATE
INCOME FUND II
FIRST TRUST
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TABLE OF CONTENTS
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FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
SEMI-ANNUAL REPORT
NOVEMBER 30, 2012
Shareholder Letter ............................................................1
At A Glance ...................................................................2
Portfolio Commentary ..........................................................3
Portfolio of Investments ......................................................6
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 Notes to
Financial Statements for a discussion of certain other risks of investing in the
Fund.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
http://www.ftportfolios.com or speak with your financial advisor. Investment
returns, net asset value and common share price will fluctuate and Fund shares,
when sold, may be worth more or less than their original cost.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment. It
includes details about the Fund and presents data and analysis that provide
insight into the Fund's performance and investment approach.
By reading the portfolio commentary by the portfolio management team of the
Fund, you may obtain an understanding of how the market environment affected the
Fund's performance. The statistical information that follows may help you
understand the Fund's performance compared to that of relevant market
benchmarks.
It is important to keep in mind that the opinions expressed by personnel of 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, 2012
Dear Shareholders:
I am pleased to present you with the semi-annual report for your investment in
First Trust Senior Floating Rate Income Fund II (the "Fund").
The report you hold contains detailed information about your investment; a
portfolio commentary from the Fund's management team that provides a recap of
the period; a performance analysis and a market and Fund outlook. Additionally,
you will find the Fund's financial statements for the period this report covers.
I encourage you to read this document and discuss it with your financial
advisor. A successful investor is also typically a knowledgeable one, as we have
found to be the case at First Trust.
First Trust remains committed to being a long-term investor and investment
manager and to bringing you quality financial solutions regardless of market ups
and downs. We have always believed, as I have written previously, that there are
two ways to attain success in reaching your financial goals: staying invested in
quality products and having a long-term investment horizon. We are committed to
this approach in the products we manage or supervise and offer to investors.
As you know, First Trust offers a variety of products that we believe could fit
many financial plans to help investors seeking long-term investment success. We
encourage you to talk to your advisor about the other investments First Trust
offers that might also fit your financial goals and to discuss those goals with
your advisor regularly so that he or she can help keep you on track.
First Trust will continue to make available up-to-date information about your
investments so you and your financial advisor are current on any First Trust
investments you own. We value our relationship with you, and thank you for the
opportunity to assist you in achieving your financial goals. I look forward to
the New Year and to the next edition of your Fund's report.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees of First Trust Senior Floating Rate Income
Fund II and Chief Executive Officer of First Trust Advisors L.P.
Page 1
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
"AT A GLANCE"
AS OF NOVEMBER 30, 2012 (UNAUDITED)
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FUND STATISTICS
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Symbol on New York Stock Exchange FCT
Common Share Price $15.24
Common Share Net Asset Value ("NAV") $14.92
Premium (Discount) to NAV 2.14%
Net Assets Applicable to Common Shares $378,704,931
Current Monthly Distribution per Common Share (1) $0.0875
Current Annualized Distribution per Common Share $1.0500
Current Distribution Rate on Closing Common Share Price (2) 6.89%
Current Distribution Rate on NAV (2) 7.04%
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COMMON SHARE PRICE & NAV (WEEKLY CLOSING PRICE)
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Common Share Price NAV
11/11 $13.17 $14.08
13.16 14.04
13.09 14.07
13.10 14.07
13.34 14.13
12/11 13.19 14.09
13.95 14.22
14.15 14.31
14.27 14.38
1/12 14.36 14.48
14.30 14.49
14.37 14.53
14.39 14.55
2/12 14.52 14.58
14.74 14.54
14.74 14.55
14.78 14.60
3/12 14.78 14.62
14.97 14.68
14.63 14.64
14.43 14.64
14.48 14.69
4/12 14.66 14.75
14.58 14.72
14.62 14.74
14.08 14.55
5/12 14.45 14.51
14.18 14.36
13.95 14.38
14.11 14.41
6/12 14.44 14.49
14.70 14.55
14.36 14.52
14.61 14.60
14.85 14.63
7/12 15.01 14.63
15.09 14.60
15.01 14.66
15.07 14.70
8/12 15.11 14.74
15.19 14.77
15.10 14.75
15.42 14.87
15.66 14.90
9/12 15.78 14.90
15.49 14.86
15.24 14.89
15.24 14.93
10/12 15.66 14.91
15.87 14.85
15.16 14.88
15.00 14.85
15.40 14.89
11/12 15.24 14.92
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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 Inception (5/25/2004)
11/30/2012 11/30/2012 11/30/2012 to 11/30/2012
FUND PERFORMANCE (3)
NAV 6.57% 13.15% 3.33% 3.73%
Market Value 9.99% 23.55% 6.29% 3.43%
INDEX PERFORMANCE
S&P/LSTA Leveraged Loan Index 4.80% 9.36% 5.58% 5.22%
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% OF TOTAL
ASSET CLASSIFICATION INVESTMENTS
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Media 8.3
Health Care Providers & Services 6.8
Chemicals 5.2
Diversified Financial Services 4.9
Software 4.5
Hotels, Restaurants & Leisure 4.4
Health Care Equipment & Supplies 4.4
Independent Power Producers & Energy Traders 4.3
Pharmaceuticals 4.1
Commercial Services & Supplies 3.5
Food Products 3.5
Auto Components 3.4
Specialty Retail 3.2
Diversified Telecommunication Services 3.0
Professional Services 2.9
Capital Markets 2.8
Health Care Technology 2.3
Oil, Gas & Consumable Fuels 2.1
Insurance 1.8
Life Sciences Tools & Services 1.8
Aerospace & Defense 1.8
Diversified Consumer Services 1.8
Wireless Telecommunication Services 1.7
Real Estate Management & Development 1.4
Containers & Packaging 1.4
Road & Rail 1.2
IT Services 1.2
Construction & Engineering 1.1
Machinery 1.1
Biotechnology 1.0
Consumer Finance 1.0
Metals & Mining 1.0
Building Products 0.9
Electric Utilities 0.9
Leisure Equipment & Products 0.7
Automobiles 0.7
Semiconductors & Semiconductor Equipment 0.7
Industrial Conglomerates 0.7
Food & Staples Retailing 0.7
Real Estate Investment Trusts (REITs) 0.6
Communications Equipment 0.6
Internet & Catalog Retail 0.4
Textiles, Apparel & Luxury Goods 0.2
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Total 100.0%
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% OF TOTAL
CREDIT QUALITY (S&P RATINGS) (4) INVESTMENTS
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BBB- 4.6%
BB+ 6.2
BB 10.5
BB- 25.0
B+ 31.4
B 14.9
B- 0.7
CCC+ 1.8
CCC 0.5
SD 0.0*
NR 1.2
NR (Privately rated securities) 3.2
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Total 100.0%
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* Amount is less than 0.1%
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% OF TOTAL
TOP 10 ISSUERS INVESTMENTS
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Harrah's Entertainment, Inc. 1.5%
Asurion Corp. 1.4
Calpine Corp. 1.3
Nuveen Investments, Inc. 1.2
First Data Corp. 1.2
Reynolds Consumer Products Holdings, Inc. 1.1
Intelsat Jackson Holdings S.A. 1.1
Vanguard Health Systems, Inc. 1.1
Grifols, S.A. 1.0
EnergySolutions, LLC 1.0
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Total 11.9%
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(1) Most recent distribution paid or declared through 11/30/2012. Subject to
change in the future.
(2) Distribution rates are calculated by annualizing the most recent
distribution paid or declared through the report date and then dividing by
Common Share Price or NAV, as applicable, as of 11/30/2012. Subject to
change in the future.
(3) Total return is based on the combination of reinvested dividend, capital
gain and return of capital distributions, if any, at prices obtained by
the Dividend Reinvestment Plan and changes in NAV per share for net asset
value returns and changes in Common Share price for market value returns.
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 Investment 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 less
than one year. Past performance is not indicative of future results.
(4) Ratings below BBB- by Standard & Poor's Ratings Group are considered to be
below investment grade.
Page 2
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PORTFOLIO COMMENTARY
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FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
NOVEMBER 30, 2012
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, 2012, First Trust managed or
supervised $62.36 billion in assets. The First Trust Leveraged Finance
Investment Team began managing the First Trust Senior Floating Rate Income Fund
II on October 12, 2010. The experienced professionals comprising the First Trust
Leveraged Finance Investment Team hail from one of the largest managers in the
senior loan business and manage or supervise approximately $878.9 million in
assets, as of November 30, 2012. The team's experience includes managing senior
secured floating-rate corporate loans ("senior loans") in both the U.S. and
Europe, managing high-yield debt and corporate restructuring expertise. The team
has managed institutional separate accounts, comingled funds, structured
products and retail funds.
PORTFOLIO MANAGEMENT TEAM
WILLIAM HOUSEY, CFA
SENIOR VICE PRESIDENT, SENIOR PORTFOLIO MANAGER
Mr. Housey is the Senior Portfolio Manager for the Leveraged Finance Investment
Team at First Trust. Mr. Housey has over 16 years of investment experience.
Prior to joining First Trust, Mr. Housey served as Executive Director and
co-portfolio manager at Van Kampen Funds, Inc., a wholly-owned subsidiary of
Morgan Stanley ("Morgan Stanley/Van Kampen"). Mr.Housey has extensive
experience in portfolio management of both leveraged and unleveraged credit
products, including senior loans, high-yield bonds, credit derivatives and
corporate restructurings. Mr. Housey received a BS in Finance from Eastern
Illinois University and an MBA in Finance as well as Management and Strategy
from Northwestern University's Kellogg School of Business. Mr. Housey holds the
Chartered Financial Analyst designation.
SCOTT D. FRIES, CFA
VICE PRESIDENT, PORTFOLIO MANAGER
Mr. Fries is Co-Portfolio Manager for the Leveraged Finance Investment Team at
First Trust. Mr. Fries began his career at Morgan Stanley/Van Kampen in 1994 and
has over 18 years of investment industry experience, most recently as Executive
Director and co-portfolio manager of institutional separately managed accounts.
Mr. Fries received a BA in International Business from Illinois Wesleyan
University and an MBA in Finance from DePaul University. Mr. Fries holds the
Chartered Financial Analyst designation.
COMMENTARY
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
The primary investment objective of the 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 Advisor pursues
the Fund's 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
Despite numerous macro headline risks, including the European debt crisis, the
fiscal cliff, and the U.S. presidential election, the senior loan market
provided steadily positive returns for the six-month period ended November 30,
2012. The S&P/LSTA Leveraged Loan Index (the "Index") provided a return of 4.80%
for the six-month period, posting a positive return in each of the six monthly
periods. The consistent positive performance for the reporting period was put to
the test in the final month as the equity markets sold off sharply following the
presidential election. While loan prices generally softened in mid-November, the
income generated by the Index's senior loan assets more than covered any price
volatility, which allowed its total return to remain positive in this period of
volatility.
From a credit quality standpoint, lower credit-quality issues provided the best
performance over the reporting period. Lower-rated CCC rated issues returned
10.91% for the period, significantly outperforming the higher credit quality B
rated issues (+4.67%) and BB rated issues (+3.78%).
A combination of relatively stable financial performance on the part of senior
loan issuers and robust demand for the asset class supported the strong returns
for the period. The default level in the market remained low, supported by
generally good corporate performance and attractive capital market conditions,
allowing issuers to refinance existing debt. The default rate within the senior
loan market ended November at 1.28%, and remains significantly below the
long-term average default rate of 3.38% (period March 1999 - November 2012). On
the demand side, we have witnessed significant demand from
Page 3
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PORTFOLIO COMMENTARY - (CONTINUED)
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FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
NOVEMBER 30, 2012
institutional investors along with positive inflows into retail senior loan
mutual funds, which have provided support for loan prices. We believe many
investors have been attracted by the relatively high income, senior secured
position in the capital structure, and floating rate nature (which may limit
risk in rising interest rate environments) of the asset class. These positive
factors helped drive the average loan price in the market up over 2 points from
94.8 at the start of the period to 97.2 at the end of November.
Overall, the fundamental and technical conditions within the senior loan market
were quite positive over the period, which led to robust returns.
FUND PERFORMANCE
For the six-month period ended November 30, 2012, the Fund generated a net asset
value ("NAV") return(1) of 6.57% and a market price return of 9.99%. The Fund's
market price moved from a discount to NAV at the start of the period, to a
premium to NAV at the end of November. At the start of the period, the Fund
traded at a -0.83% discount to NAV and at the end of November the Fund was
trading at a 2.15% premium to NAV.
From an income perspective, the Fund increased its monthly distribution four
times over the reporting period. The monthly distribution rate began the period
at $0.08 per share and ended the period at $0.0875 per share, a 9.4% increase in
the distribution rate. At the end of November, the $0.0875 distribution rate
translated into a 6.89% yield at market price and a 7.04% yield at NAV.
The Fund's NAV return outperformed the Index by 177 basis points (6.57% for the
Fund, 4.80% for the Index). (While the S&P/LSTA Leveraged Loan Index consists of
leveraged loans, the index itself is not leveraged.) The Fund was significantly
underweight lower credit quality issues (2.40% rated CCC or lower in the Fund
vs. 8.86% for the Index), which detracted from relative returns for the period
as those lower-quality issues provided the strongest returns on average.
However, the Fund benefited from the use of leverage as well as good issue
selection across several industries. While the lower credit-quality issues in
the market showed strong returns for the period, the investment team continues
to believe that a more favorable risk/reward profile can currently be achieved
in higher credit rated issues.
An important factor impacting the return of the Fund relative to its benchmark
was the Fund's use of financial leverage through the use of bank borrowings. The
Fund uses leverage because its managers believe that, over time, leverage
provides opportunities for additional income and total return for common
shareholders. However, the use of leverage also can expose common shareholders
to additional volatility. For example, as the prices of securities held by the
Fund decline, the negative impact of the valuation changes on common share net
asset value and common shareholder total return is magnified by the use of
leverage. Conversely, leverage may enhance common share returns during periods
when the prices of securities held by the Fund generally are rising.
MARKET AND FUND OUTLOOK
In our view, the senior loan market continues to offer some compelling
opportunities. Senior loan issuers have shown the ability to continue to perform
well given an economic backdrop characterized by modest GDP growth and low
inflation. We expect this environment to persist for some time, which bodes well
for the asset class. Issuers generally will be able to service debt levels in a
slow growth environment, which should keep default rates at a modest level.
These positive fundamentals should also help support the technical conditions in
the market. Demand for the asset class is likely to remain strong in our view,
as the combination of relatively high income, senior secured position in the
capital structure, and floating interest rate nature of the asset class may
still remain appealing to investors.
We expect our rigorous credit process and focus on identifying the most
compelling risk-adjusted return opportunities in the market will continue to
position the portfolio well for the periods ahead. The portfolio strategy of
balancing the goal of high current income with portfolio risk remains unchanged.
We do not anticipate changing the average credit quality of the portfolio in a
meaningful way going forward. In the upcoming periods, we expect the new issue
market to remain healthy, thereby potentially providing additional
opportunities, which may enhance the portfolio characteristics. The combination
of attractive new issuance and our focus on relative value opportunities across
the market should continue to position the Fund's portfolio well for the periods
ahead.
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1 Total return is based on the combination of reinvested dividend, capital
gain and return of capital distributions, if any, at prices obtained by
the Dividend Reinvestment Plan and changes in NAV per share for net asset
value returns and changes in Common Share price for market value returns.
Total returns do not reflect sales load and are not annualized for periods
less than one year. Past performance is not indicative of future results.
Page 4
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PORTFOLIO COMMENTARY - (CONTINUED)
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FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
NOVEMBER 30, 2012
DISCLOSURE
The Fund's portfolio holdings are subject to change without notice. Any mention
of specific securities is not a recommendation or solicitation for any person to
buy, sell or hold any particular security. There is no assurance that the Fund
currently holds these securities.
The S&P/LSTA Leveraged Loan Index is a daily total return index that uses
LSTA/LPC Mark-to-Market Pricing to calculate market value change. On a real-time
basis, the Index tracks the current outstanding balance and spread over LIBOR
for fully funded term loans. The facilities included in the Index represent a
broad cross section of leveraged loans syndicated in the United States,
including dollar-denominated loans to overseas issuers. (Information gathered
from Standard & Poor's LCD.)
This report may contain information obtained from third parties, including
ratings from credit ratings agencies such as Standard & Poor's. Reproduction and
distribution of third party content in any form is prohibited except with the
prior written permission of the related third party. Third party content
providers do not guarantee the accuracy, completeness, timeliness or
availability of any information, including ratings, and are not responsible for
any errors or omissions (negligent or otherwise), regardless of the cause, or
for the results obtained from the use of such content. THIRD PARTY CONTENT
PROVIDERS GIVE NO EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO,
ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE.
THIRD PARTY CONTENT PROVIDERS SHALL NOT BE LIABLE FOR ANY DIRECT, INDIRECT,
INCIDENTAL, EXEMPLARY, COMPENSATORY, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES,
COSTS, EXPENSES, LEGAL FEES, OR LOSSES (INCLUDING LOST INCOME OR PROFITS AND
OPPORTUNITY COSTS) IN CONNECTION WITH ANY USE OF THEIR CONTENT, INCLUDING
RATINGS. Credit ratings are statements of opinions and are not statements of
fact or recommendations to purchase, hold or sell securities. They do not
address the suitability of securities or the suitability of securities for
investment purposes, and should not be relied on as investment advice.
Page 5
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS (a)
NOVEMBER 30, 2012 (UNAUDITED)
PRINCIPAL RATINGS (b) STATED
VALUE DESCRIPTION MOODY'S S&P RATE (c) MATURITY (d) VALUE
------------ ----------------------------------------------- -------------- ------------- ------------ ------------
SENIOR FLOATING-RATE LOAN INTERESTS - 147.6%
AEROSPACE & DEFENSE - 2.7%
$ 1,200,000 Booz Allen Hamilton, Inc., Term Loan B ........ Ba3 BB 4.50% 07/18/19 $ 1,209,252
3,604,060 DynCorp International, Inc., Term Loan ........ Ba2 BB- 6.25% 07/07/16 3,616,674
2,000,000 Engility Holdings, Inc., Term Loan B .......... Ba2 BB+ 5.75% 07/13/17 1,972,500
2,947,500 Transdigm, Inc., Term Loan B .................. Ba2 BB- 4.00% 02/14/17 2,956,726
374,411 Transdigm, Inc., Term Loan B2 ................. Ba2 BB- 4.00% 02/14/17 375,973
------------
10,131,125
------------
AGRICULTURAL PRODUCTS - 1.1%
477,742 Dole Food Company, Inc., Term Loan B2 ......... Ba2 BB- 5.00%-6.00% 07/08/18 478,712
854,908 Dole Food Company, Inc., Term Loan C2 ......... Ba2 BB- 5.00%-6.00% 07/08/18 856,644
2,950,000 Jimmy Sanders, Term Loan B .................... B2 B 6.75% 11/15/18 2,870,733
------------
4,206,089
------------
ALTERNATIVE CARRIERS - 2.3%
5,925,000 Intelsat Jackson Holdings S.A., Term Loan B ... B1 BB- 4.50% 04/02/18 5,939,812
2,850,000 Telesat Canada, Term Loan B ................... Ba3 BB- 4.25% 03/28/19 2,864,963
------------
8,804,775
------------
ALUMINUM - 0.5%
1,995,000 Constellium Holdco B.V., Term Loan ............ B2 B 9.25% 05/25/18 1,995,000
------------
APPAREL RETAIL - 1.8%
1,658,125 Ascena Retail Group, Inc., Term Loan B ........ Ba2 BB+ 4.75% 06/08/18 1,666,416
3,000,000 Neiman Marcus Group, Term Loan ................ B2 B+ 4.75% 05/16/18 2,999,370
2,100,000 Payless ShoeSource, Term Loan B ............... B1 B 7.25% 09/19/19 2,121,000
------------
6,786,786
------------
APPLICATION SOFTWARE - 3.4%
2,386,786 CCC Information Systems, Inc., Term Loan B .... B1 BB- 5.75% 11/11/15 2,392,753
2,354,512 DataTel, Inc., Term Loan B .................... B1 B+ 6.25% 07/19/18 2,381,589
3,950,000 Eagle Parent, Inc., Term Loan B ............... Ba3 B+ 5.00% 05/16/18 3,958,650
3,918,750 Lawson Software, Inc., Term Loan B2 ........... Ba3 B+ 5.25% 04/05/18 3,954,998
------------
12,687,990
------------
ASSET MANAGEMENT & CUSTODY BANKS - 3.8%
2,785,714 Hamilton Lane Advisors, Term Loan B ........... NR (e) NR (e) 6.50% 02/28/18 2,771,786
2,000,000 Harbourvest Partners L.P., Term Loan B ........ NR (e) NR (e) 4.75% 11/20/17 2,002,500
2,200,570 Mondrian Investment Partners Ltd.,
Term Loan B ................................ Ba2 BB 5.50% 07/12/18 2,211,573
781,583 Munder Capital Management, Incremental
Term Loan .................................. NR (e) NR (e) 6.00% 03/23/15 758,135
4,704,791 Nuveen Investments, Inc., Extended
Term Loan .................................. B2 B 5.81%-5.86% 05/13/17 4,706,249
2,000,000 Nuveen Investments, Inc., Incremental
Term Loan .................................. B2 B 7.25% 05/13/17 2,010,000
------------
14,460,243
------------
AUTO PARTS & EQUIPMENT - 4.1%
2,992,500 Allison Transmission, Inc., Term Loan B3 ...... Ba3 BB- 4.25% 08/15/19 3,005,338
2,700,000 HHI Holdings, LLC, Term Loan B ................ B2 B+ 6.00% 09/18/19 2,700,000
1,952,099 Metaldyne, LLC, Term Loan B ................... B1 B+ 5.25% 05/18/17 1,952,099
565,213 Schrader International, Inc., Term Loan ....... B1 B 6.25% 04/27/18 570,865
434,787 Schrader International, Inc., US Term Loan .... B1 B 6.25% 04/27/18 439,135
Page 6 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
NOVEMBER 30, 2012 (UNAUDITED)
PRINCIPAL RATINGS (b) STATED
VALUE DESCRIPTION MOODY'S S&P RATE (c) MATURITY (d) VALUE
------------ ----------------------------------------------- -------------- ------------- ------------ ------------
SENIOR FLOATING-RATE LOAN INTERESTS - (CONTINUED)
AUTO PARTS & EQUIPMENT - (CONTINUED)
$ 3,000,000 Sequa Automotive Group, Term Loan B ........... B1 B+ 6.25% 11/15/18 $ 2,966,250
1,768,257 Tomkins, PLC, Term Loan B ..................... Ba2 BB 4.25% 09/29/16 1,775,259
2,000,000 Transtar Holding Co., Term Loan B ............. B1 B+ 5.50% 10/02/18 2,010,000
------------
15,418,946
------------
AUTOMOBILE MANUFACTURERS - 1.1%
3,972,349 Chrysler Group, LLC, Term Loan B .............. Ba2 BB 6.00% 05/24/17 4,057,278
------------
AUTOMOTIVE RETAIL - 1.2%
1,914,069 KAR Holdings, Inc., Term Loan B ............... Ba3 BB- 5.00% 05/19/17 1,926,032
2,750,000 Pilot Travel Centers, LLC, Term Loan B2 ....... Ba2 BB 4.25% 08/01/19 2,763,750
------------
4,689,782
------------
BIOTECHNOLOGY - 1.5%
5,746,677 Grifols, SA, Term Loan B ...................... Ba2 BB+ 4.50% 06/01/17 5,805,925
------------
BROADCASTING - 6.9%
6,677,409 Clear Channel Communications, Inc.,
Term Loan B ................................ Caa1 CCC+ 3.86% 01/29/16 5,417,048
1,983,396 Cumulus Media Holdings, Inc., Term Loan,
First Lien ................................. Ba2 BB- 5.75% 09/16/18 1,990,834
1,000,000 Cumulus Media Holdings, Inc.,
Term Loan, Second Lien ..................... B2 CCC+ 7.50% 03/18/19 1,022,500
2,100,000 FoxCo Acquisition, LLC, Term Loan B ........... B2 B+ 5.50% 07/14/17 2,123,625
1,276,377 Hubbard Radio, LLC, Term Loan ................. Ba3 B+ 5.25% 04/28/17 1,277,973
2,126,786 LIN Television Corp., Term Loan B ............. Ba3 BB- 5.00% 12/21/18 2,138,760
278,571 Nexstar Broadcasting, Delayed Draw
Term Loan .................................. Ba2 BB 4.50% 11/19/19 279,443
1,346,429 Nexstar Broadcasting, Term Loan ............... Ba2 BB 4.50% 11/19/19 1,350,643
1,975,000 Raycom TV Broadcasting, LLC,
Term Loan B ................................ NR NR 4.25% 05/31/17 1,965,125
3,791,310 Sinclair Broadcasting Group, Inc.,
Term Loan B ................................. Ba1 BB+ 4.00% 10/28/16 3,797,907
4,881,438 Univision Corp., Extended Term Loan ........... B2 B+ 4.46% 03/31/17 4,764,723
------------
26,128,581
------------
BUILDING PRODUCTS - 1.3%
3,474,994 Unifrax, LLC, Term Loan B ..................... B2 B+ 6.50% 11/28/18 3,503,941
1,428,571 Wilsonart International, Term Loan B .......... B2 B+ 5.50% 10/31/19 1,435,714
------------
4,939,655
------------
CABLE & SATELLITE - 1.8%
1,965,000 Bresnan Broadband Holdings, LLC,
Term Loan B ................................ Ba3 BB+ 4.50% 12/14/17 1,969,559
2,916,667 Kabel Deutschland, Term Loan F ................ Ba2 BB 4.25% 02/01/19 2,933,437
1,909,091 UPC Financing Partnership, Term Loan A ........ Ba3 BB- 4.75% 12/31/17 1,906,361
------------
6,809,357
------------
CASINOS & GAMING - 4.2%
4,000,000 Harrah's Entertainment, Inc., Term Loan B2 .... B2 B 3.21% 01/28/15 3,875,000
2,992,500 Harrah's Entertainment, Inc., Term Loan B3 .... B2 B 3.21%-3.22% 01/28/15 2,898,985
2,000,000 Harrah's Entertainment, Inc., Term Loan B6 .... B2 B 5.46% 01/28/18 1,791,420
1,326,667 Pinnacle Entertainment, Inc., Term Loan B ..... Ba1 BB+ 4.00% 03/19/19 1,329,983
See Notes to Financial Statements Page 7
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
NOVEMBER 30, 2012 (UNAUDITED)
PRINCIPAL RATINGS (b) STATED
VALUE DESCRIPTION MOODY'S S&P RATE (c) MATURITY (d) VALUE
------------ ----------------------------------------------- -------------- ------------- ------------ ------------
SENIOR FLOATING-RATE LOAN INTERESTS - (CONTINUED)
CASINOS & GAMING - (CONTINUED)
$ 533,333 ROC Finance, LLC, Delayed Draw
Term Loan (g) .............................. B1 BB- 2.25%(f) 08/19/17 $ 546,667
3,466,667 ROC Finance, LLC, Term Loan ................... B1 BB- 8.50% 08/19/17 3,553,333
2,000,000 Station Casinos, LLC, Term Loan B ............. B2 B+ 5.50% 09/18/19 2,005,000
------------
16,000,388
------------
COAL & CONSUMABLE FUELS - 0.7%
2,757,500 Arch Coal, Inc., Term Loan .................... Ba3 BB 5.75% 05/16/18 2,781,628
------------
COMMERCIAL PRINTING - 1.0%
2,443,617 Cenveo Corp., Term Loan ....................... Ba3 BB- 6.63% 12/21/16 2,457,374
1,333,333 SGS International, Inc., Term Loan B .......... B1 B 6.00% 10/11/19 1,331,667
------------
3,789,041
------------
COMMODITY CHEMICALS - 0.8%
657,692 Tronox, Inc., Delayed Draw Term Loan .......... Ba2 BBB- 4.25% 02/08/18 661,165
2,411,538 Tronox, Inc., Term Loan ....................... Ba2 BBB- 4.25% 02/08/18 2,424,271
------------
3,085,436
------------
COMMUNICATIONS EQUIPMENT - 0.8%
3,076,555 Commscope, Inc., Term Loan B .................. Ba3 BB 4.25% 01/14/18 3,090,030
------------
CONSTRUCTION & ENGINEERING - 1.6%
3,964,962 Terex Corp., Term Loan ........................ Ba2 BB 4.50% 04/28/17 3,998,427
2,100,000 WireCo Worldgroup, Inc., Term Loan B .......... Ba2 BB- 6.00% 02/15/17 2,123,625
------------
6,122,052
------------
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS - 0.4%
1,500,000 Navistar International Corp., Term Loan B ..... Ba2 B+ 7.00% 08/16/17 1,502,835
------------
CONSUMER FINANCE - 1.9%
2,950,000 Altisource Solutions S.a.r.l., Term Loan B .... B1 BB- 5.75% 11/20/19 2,950,000
1,251,105 Ocwen Financial Corp., Term Loan .............. B1 B 7.00% 09/01/16 1,252,143
1,500,000 Residential Capital, LLC, Term Loan A1 ........ NR BB 5.00% 11/14/13 1,500,630
1,392,857 Walter Investment Management Corp.,
Term Loan B ................................. B1 B+ 5.75% 11/16/17 1,393,735
------------
7,096,508
------------
DATA PROCESSING & OUTSOURCED SERVICES - 1.0%
3,944,154 Harland Clarke Holdings Corp., Term Loan B2 ... B1 B+ 5.46% 06/30/17 3,633,551
------------
DIVERSIFIED CHEMICALS - 1.7%
3,908,929 Ineos Group Ltd., Term Loan ................... B1 B+ 6.50% 05/04/18 3,953,490
2,400,000 Univar, Inc., Term Loan B ..................... B2 B+ 5.00% 06/30/17 2,384,496
------------
6,337,986
------------
DIVERSIFIED REAL ESTATE ACTIVITIES - 0.7%
1,770,435 iStar Financial, Inc., Term Loan .............. B1 BB- 5.75% 10/11/17 1,770,877-
900,022 iStar Financial, Inc., Term Loan A1 ........... Ba3 BB- 5.25% 03/19/16 907,339
------------
2,678,216
------------
DIVERSIFIED SUPPORT SERVICES - 0.5%
1,995,000 SMG, Term Loan ................................ NR (e) NR (e) 5.50% 06/07/18 1,999,987
------------
Page 8 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
NOVEMBER 30, 2012 (UNAUDITED)
PRINCIPAL RATINGS (b) STATED
VALUE DESCRIPTION MOODY'S S&P RATE (c) MATURITY (d) VALUE
------------ ----------------------------------------------- -------------- ------------- ------------ ------------
SENIOR FLOATING-RATE LOAN INTERESTS - (CONTINUED)
ELECTRIC UTILITIES - 1.3%
$ 1,995,000 Equipower Resources Holdings, LLC,
Term Loan B ................................ Ba3 BB 5.50% 12/20/18 $ 2,001,244
3,241,410 Texas Competitive Electric Holdings
Company, LLC, Term Loan ..................... B2 CCC 3.71%-3.81% 10/10/14 2,217,676
1,000,000 Texas Competitive Electric Holdings
Company, LLC, Term Loan .................... B2 CCC 3.71%-3.81% 10/10/14 684,170
------------
4,903,090
------------
ENVIRONMENTAL & FACILITIES SERVICES - 3.3%
2,571,429 Advanced Disposal Services, Inc., Term Loan B . B1 B+ 5.25% 09/25/19 2,598,429
5,646,429 EnergySolutions, LLC, Term Loan ............... B2 BB- 6.25% 08/15/16 5,418,200
1,500,000 Progressive Waste Solutions, Term Loan B ...... Ba1 BBB- 3.50% 10/31/19 1,511,250
1,957,668 Waste Industries USA, Inc., Term Loan B ....... B1 B+ 4.75% 03/17/17 1,962,562
1,160,833 WCA Waste Corp., Term Loan B .................. B1 B+ 5.50% 03/23/18 1,166,637
------------
12,657,078
------------
FOOTWEAR - 0.3%
975,000 Wolverine World Wide, Inc., Term Loan B ....... Ba2 BB 4.00% 06/22/19 980,489
------------
HEALTH CARE EQUIPMENT - 4.4%
1,980,000 Alere, Inc., Term Loan B ...................... Ba3 B+ 4.75% 06/30/17 1,985,267
1,985,000 Alere, Inc., Term Loan B1 ..................... Ba3 B+ 4.75% 06/30/17 1,990,280
497,500 Alere, Inc., Term Loan B2 ..................... Ba3 B+ 4.75% 06/30/17 498,823
2,897,189 Carestream Health, Inc., Term Loan B .......... B1 BB- 5.00% 02/25/17 2,876,677
1,779,811 DJO Finance, LLC, Term Loan B2 ................ Ba3 B+ 5.21% 11/01/16 1,781,395
3,169,556 DJO Finance, LLC, Term Loan B3 ................ Ba3 B+ 6.25% 09/15/17 3,180,871
712,500 Hologic, Inc., Term Loan B .................... Ba2 BBB- 4.50% 07/19/19 719,326
3,478,977 Kinetic Concepts, Inc., Term Loan C1 .......... Ba2 BB- 5.50% 05/04/18 3,502,600
------------
16,535,239
------------
HEALTH CARE FACILITIES - 5.0%
3,157,955 Health Management Associates, Inc.,
Term Loan B ................................. Ba3 BB- 4.50% 11/16/18 3,185,587
333,333 Kindred Healthcare, Inc., Incremental
Term Loan ................................... Ba3 B+ 5.25% 06/01/18 326,667
2,146,988 Kindred Healthcare, Inc., Term Loan B ......... Ba3 B+ 5.25% 06/01/18 2,105,830
1,745,625 Select Medical Corp., Term Loan B ............. Ba3 BB- 5.50%-6.00% 06/01/18 1,749,116
1,975,000 Surgical Care Affiliates, Inc., Term Loan B ... Ba3 B 5.50% 06/29/18 1,966,764
1,990,000 United Surgical Partners International, Inc.,
Term Loan ................................... B1 B 6.00% 04/30/19 1,994,975
5,851,676 Vanguard Health Systems, Inc., Term Loan B .... Ba2 BB- 5.00% 01/29/16 5,889,712
203,720 Vantage Oncology Holdings, LLC,
Delayed Draw Term Loan ..................... B2 B 7.75% 01/31/17 194,043
1,676,862 Vantage Oncology Holdings, LLC, Term Loan ..... B2 B 7.75% 01/31/17 1,597,211
------------
19,009,905
------------
HEALTH CARE SERVICES - 4.2%
950,000 Air Medical Group Holdings, Inc.,
Term Loan B ................................. B2 B 6.50% 05/31/18 952,375
950,000 CHG Healthcare Services, Term Loan B .......... B1 B 5.00% 11/13/19 947,625-
2,850,000 Davita, Inc., Term Loan B2 .................... Ba2 BB- 4.00% 08/01/19 2,855,586
See Notes to Financial Statements Page 9
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
NOVEMBER 30, 2012 (UNAUDITED)
PRINCIPAL RATINGS (b) STATED
VALUE DESCRIPTION MOODY'S S&P RATE (c) MATURITY (d) VALUE
------------ ----------------------------------------------- -------------- ------------- ------------ ------------
SENIOR FLOATING-RATE LOAN INTERESTS - (CONTINUED)
HEALTH CARE SERVICES - (CONTINUED)
$ 4,060,014 Emergency Medical Services Corp.,
Term Loan B ................................. B1 B+ 5.25% 05/25/18 $ 4,095,539
2,964,975 Rural Metro Corp., Term Loan, First Lien ...... B1 B+ 5.75% 06/30/18 2,915,549
2,992,500 Sheridan Healthcare, Inc., Term Loan B ........ B1 B+ 6.00% 06/29/18 3,012,131
997,500 U.S. Renal Care, Inc., Term Loan .............. B1 B+ 6.25% 07/02/19 1,007,475
------------
15,786,280
------------
HEALTH CARE SUPPLIES - 2.2%
3,562,500 Bausch & Lomb, Inc., Term Loan B .............. B1 B+ 5.25% 05/17/19 3,607,031
2,000,000 BSN Medical Acquisition Holding GmBH,
Term Loan B ................................. Ba3 B+ 5.00% 07/16/19 2,004,000
2,536,006 ConvaTec, Inc., Term Loan B ................... Ba3 B+ 5.00% 12/22/16 2,549,954
------------
8,160,985
------------
HEALTH CARE TECHNOLOGY - 3.5%
3,731,250 Emdeon Business Services, LLC,
Term Loan B ................................. Ba3 BB- 5.00% 11/02/18 3,775,577
1,905,069 MedAssets, Inc., Term Loan B .................. Ba3 BB- 5.00% 11/19/16 1,906,650
2,468,750 Trizetto Group, Inc., Term Loan B ............. B1 BB- 4.75% 05/02/18 2,434,188
2,000,000 Trizetto Group, Inc., Term Loan,
Second Lien ................................. Caa1 CCC+ 8.50% 03/26/19 1,981,880
3,000,000 Wolverine Healthcare Analytics, Inc.,
Term Loan B ................................. Ba3 B+ 5.75% 06/01/19 2,999,250
------------
13,097,545
------------
HOMEFURNISHING RETAIL - 1.7%
2,400,000 Serta Simmons Holdings, LLC, Term Loan B ...... B1 B+ 5.00% 09/19/19 2,397,000
4,000,000 Tempur-Pedic International, Inc., Term Loan B . Ba3 BB 5.00% 11/20/19 4,013,000
------------
6,410,000
------------
HUMAN RESOURCE & EMPLOYMENT SERVICES - 0.4%
1,400,000 Genpact International, Inc., Term Loan B ...... Ba2 BB+ 4.25% 08/17/19 1,410,500
------------
HYPERMARKETS & SUPER CENTERS - 1.0%
3,571,429 BJ's Wholesale Club, Inc., Term Loan,
First Lien ................................. B3 B 5.75% 09/20/19 3,611,107
------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS - 6.3%
3,088,554 AES Corp., Term Loan B ........................ Ba1 BB+ 4.25% 06/01/18 3,114,807
3,940,000 Calpine Corp., Term Loan B1 ................... B1 BB- 4.50% 04/01/18 3,964,231
1,975,000 Calpine Corp., Term Loan B2 ................... B1 BB- 4.50% 04/01/18 1,987,146
1,400,000 Calpine Corp., Term Loan B3 ................... B1 BB- 4.50% 09/28/19 1,408,456
2,645,518 Freif North American Power I, LLC,
Term Loan B ................................. Ba3 BB- 6.00% 03/29/19 2,665,360
417,854 Freif North American Power I, LLC,
Term Loan C ................................. Ba3 BB- 6.00% 03/29/19 420,988
4,950,000 GWF Energy Holdings, LLC, Term Loan B ......... Ba2 BB 6.00% 11/27/18 4,851,000
2,962,500 NRG Energy, Inc., Term Loan B ................. Baa3 BB+ 4.00% 07/01/18 2,989,044
2,538,462 Star West Generation, LLC, Term Loan B ........ Ba3 B+ 6.00% 05/17/18 2,534,222
------------
23,935,254
------------
Page 10 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
NOVEMBER 30, 2012 (UNAUDITED)
PRINCIPAL RATINGS (b) STATED
VALUE DESCRIPTION MOODY'S S&P RATE (c) MATURITY (d) VALUE
------------ ----------------------------------------------- -------------- ------------- ------------ ------------
SENIOR FLOATING-RATE LOAN INTERESTS - (CONTINUED)
INDUSTRIAL CONGLOMERATES - 1.0%
$ 1,674,844 Colfax Corp., Term Loan B ..................... Ba2 BB+ 4.50% 01/11/19 $ 1,695,176
2,056,061 Tomkins Air Distribution, Term Loan B ......... B1 B 5.00% 11/05/18 2,063,771
------------
3,758,947
INDUSTRIAL MACHINERY - 1.2%
1,811,200 Douglas Dynamics, LLC, Term Loan .............. B1 BB 5.75% 04/18/18 1,790,824
2,786,206 Husky International, Ltd., Term Loan B ........ Ba3 B 5.75% 06/29/18 2,821,033
------------
4,611,857
------------
INSURANCE BROKERS - 1.6%
2,992,500 Amwins Group, LLC, Term Loan, First Lien ...... Ba2 B+ 5.75% 05/23/19 3,020,480
2,950,000 Confie Seguros Holding Co., Term Loan B ....... B2 B- 6.50% 11/08/18 2,924,187
------------
5,944,667
------------
INTEGRATED TELECOMMUNICATION SERVICES - 2.1%
1,303,573 Avaya, Inc., Term Loan B1 ..................... B1 B 3.18% 10/24/14 1,227,914
3,605,421 Avaya, Inc., Term Loan B3 ..................... B1 B 4.81% 10/26/17 3,152,940
2,000,000 Hawaiian Telcom Communications, Inc.,
Term Loan, First Lien ...................... B1 B 7.00% 02/28/17 2,033,760
1,450,000 Ntelos, Inc., Term Loan B ..................... B1 BB- 5.75% 10/07/19 1,430,063
------------
7,844,677
------------
INTERNET RETAIL - 0.6%
2,360,000 Web.Com, Inc., Term Loan B .................... Ba3 B 5.50% 10/27/17 2,345,982
------------
IT CONSULTING & OTHER SERVICES - 0.8%
1,537,230 Presidio, Inc., Term Loan B ................... Ba3 B+ 5.75% 03/31/17 1,537,230
1,396,500 West Corp., Term Loan B6 ...................... Ba3 B+ 5.75% 06/01/18 1,417,447
------------
2,954,677
------------
LEISURE FACILITIES - 0.5%
1,969,231 Six Flags, Inc., Term Loan B .................. B1 BB+ 4.25% 12/20/18 1,976,261
------------
LEISURE PRODUCTS - 1.1%
1,133,401 FGI Operating Company, LLC, Term Loan B ....... Ba3 B+ 5.50% 04/11/19 1,141,901
2,942,165 Live Nation Entertainment, Inc., Term Loan B .. Ba2 BB- 4.50% 11/07/16 2,954,111
------------
4,096,012
------------
LIFE & HEALTH INSURANCE - 0.5%
1,714,286 CNO Financial Group, Inc., Term Loan B2 ....... Ba3 B+ 5.00% 09/20/18 1,722,857
------------
LIFE SCIENCES TOOLS & SERVICES - 2.7%
2,939,429 inVentiv Health, Inc., Term Loan .............. B2 B+ 6.50% 08/04/16 2,770,412
987,500 inVentiv Health, Inc., Term Loan 3 ............ B2 B+ 6.75% 05/15/18 962,812
2,315,833 Pharmaceutical Products Development, Inc.,
Term Loan B ................................ Ba3 B+ 6.25% 12/05/18 2,349,135
3,456,250 Quintiles Transnational Corp.,
Term Loan B, First Lien B1 BB- 5.00% 06/08/18 3,464,027
666,667 Quintiles Transnational Corp., Term Loan B1 ... B1 BB- 4.50% 06/08/18 667,220
------------
10,213,606
------------
MANAGED HEALTH CARE - 0.8%
3,049,083 MultiPlan, Inc., Term Loan .................... Ba3 B 4.75% 08/26/17 3,062,438
------------
See Notes to Financial Statements Page 11
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
NOVEMBER 30, 2012 (UNAUDITED)
PRINCIPAL RATINGS (b) STATED
VALUE DESCRIPTION MOODY'S S&P RATE (c) MATURITY (d) VALUE
------------ ----------------------------------------------- -------------- ------------- ------------ ------------
SENIOR FLOATING-RATE LOAN INTERESTS - (CONTINUED)
MOVIES & ENTERTAINMENT - 2.9%
$ 2,985,000 Alpha Topco, Ltd., Term Loan B2 ............... B1 B+ 6.00% 04/29/19 $ 3,018,581
2,382,000 AMC Entertainment, Inc., Term Loan B3 ......... Ba2 BB- 4.75% 02/07/18 2,404,295
1,186,268 Mood Media Corp., Term Loan, First Lien ....... Ba3 BB- 7.00% 05/06/18 1,184,287
4,500,000 Village Roadshow Films Ltd., Term Loan B ...... A2 NR 4.75% 11/06/17 4,522,500
------------
11,129,663
------------
OIL & GAS EXPLORATION & PRODUCTION - 2.3%
387,097 Brand Energy, Canadian Term Loan .............. B2 B 5.75% 10/16/16 383,872
1,612,903 Brand Energy, Term Loan B2 .................... B2 B 5.75% 10/16/16 1,599,468
4,900,000 Chesapeake Energy Corp., Term Loan B .......... Ba3 BB- 5.75% 12/02/17 4,814,250
1,785,714 Plains Exploration, Term Loan B ............... Ba1 BB 4.00% 10/15/19 1,792,411
------------
8,590,001
------------
OIL & GAS REFINING & MARKETING - 0.1%
486,888 Citgo Petroleum Corp., Term Loan B ............ Ba2 BB+ 8.00% 06/24/15 488,714
------------
OTHER DIVERSIFIED FINANCIAL SERVICES - 5.1%
3,000,000 First American Payment Systems, L.P.,
Term Loan B ................................. B1 B 5.75% 10/11/18 2,994,750
4,683,538 First Data Corp., Extended Term Loan .......... B1 B+ 5.21% 03/24/17 4,593,380
2,000,000 First Data Corp., Term Loan ................... B1 B+ 5.21% 09/24/18 1,956,500
583,333 Global Cash Access, Inc., Term Loan ........... B1 BB 7.00% 03/01/16 586,250
2,820,000 iPayment, Inc., Term Loan B ................... Ba2 B+ 5.75% 05/08/17 2,803,559
871,795 Moneygram International, Term Loan B .......... Ba2 BB- 4.25% 11/18/17 871,525
1,980,000 Moneygram International, Term Loan B1 ......... Ba2 BB- 4.25% 11/18/17 1,979,386
3,576,837 RPI Finance Trust, Term Loan B ................ Baa2 BBB- 4.00% 11/09/18 3,596,975
------------
19,382,325
------------
PACKAGED FOODS & MEATS - 4.1%
3,500,000 Blue Buffalo Company, Ltd., Term Loan B ....... B1 B+ 6.50% 08/07/19 3,497,830
2,992,500 Ferrara Candy Company, Term Loan B ............ B2 B 7.50%-8.50% 06/08/18 3,017,428
1,995,000 Hearthside Food Solutions, LLC, Term Loan A ... NR (e) NR (e) 6.50%-7.50% 06/05/18 1,985,025
1,982,462 JBS USA, LLC, Term Loan B ..................... Ba3 BB 4.25% 10/17/18 1,975,028
2,137,500 Pinnacle Foods Finance, LLC, Term Loan F ...... Ba3 B+ 4.75% 10/17/18 2,152,206
2,743,125 Smart Balance, Inc., Term Loan B .............. B1 B+ 7.00% 06/28/18 2,767,127
------------
15,394,644
------------
PAPER PACKAGING - 2.0%
1,601,406 RanPak Corp., Term Loan B ..................... NR (e) NR (e) 4.75% 04/20/17 1,581,388
5,923,077 Reynolds Consumer Products
Holdings, Inc., Term Loan ................... B1 B+ 4.75% 09/21/18 5,966,849
------------
7,548,237
------------
PHARMACEUTICALS - 6.0%
3,190,633 Catalent Pharma Solutions, Inc., Term Loan .... Ba3 BB- 5.25% 09/15/17 3,223,880
3,661,570 IMS Health, Term Loan B ....................... Ba3 BB- 4.50% 08/26/17 3,688,262
2,962,500 Jazz Pharmaceuticals, Inc., Term Loan B ....... Ba3 BBB- 5.25% 03/11/18 2,994,584
3,428,571 Par Pharmaceutical, Inc., Term Loan B ......... B1 B+ 5.00% 09/18/19 3,417,154
3,661,803 Valeant Pharmaceuticals International, Inc.,
Term Loan ................................... Ba1 BBB- 4.25% 02/13/19 3,674,949
600,000 Valeant Pharmaceuticals International, Inc.,
Term Loan ................................... Ba1 BBB- 4.25% 03/31/20 601,800
509,970 Warner Chilcott, PLC, Term Loan B1 ............ Ba3 BBB- 4.25% 03/15/18 512,520
1,342,878 Warner Chilcott, PLC, Term Loan B1 ............ Ba3 BBB- 4.25% 03/15/18 1,349,593
Page 12 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
NOVEMBER 30, 2012 (UNAUDITED)
PRINCIPAL RATINGS (b) STATED
VALUE DESCRIPTION MOODY'S S&P RATE (c) MATURITY (d) VALUE
------------ ----------------------------------------------- -------------- ------------- ------------ ------------
SENIOR FLOATING-RATE LOAN INTERESTS - (CONTINUED)
PHARMACEUTICALS - (CONTINUED)
$ 671,439 Warner Chilcott, PLC, Term Loan B2 ............ Ba3 BBB- 4.25% 03/15/18 $ 674,796
923,229 Warner Chilcott, PLC, Term Loan B3 ............ Ba3 BBB- 4.25% 03/15/18 927,845
1,500,000 Warner Chilcott, PLC, Term Loan B4 ............ Ba3 BBB- 3.26% 08/15/17 1,496,250
300,000 Warner Chilcott, PLC, Term Loan B5 ............ Ba3 BBB- 3.26% 08/15/17 299,250
------------
22,860,883
------------
PROPERTY & CASUALTY - 0.7%
250,000 Cunnigham Lindsey Group Ltd., Term Loan,
Second Lien ................................ B3 B- 9.25% 04/18/20 252,813
2,400,000 Cunnigham Lindsey Group Ltd.,
Term Loan, First Lien ....................... Ba3 B 5.00% 10/18/19 2,406,000
------------
2,658,813
------------
PUBLISHING - 0.6%
2,142,857 Getty Images, Inc., Term Loan B ............... B1 B 4.75% 09/25/19 2,150,293
757,652 Yell Group, PLC, Term Loan B1 ................. Ca SD 4.46% 07/31/14 149,447
------------
2,299,740
------------
REAL ESTATE OPERATING COMPANIES - 1.1%
3,937,424 ClubCorp Club Operations, Inc., Term Loan ..... Ba2 BB 5.00% 11/30/16 3,986,642
------------
REAL ESTATE SERVICES - 0.4%
1,393,829 Realogy Corp., Term Loan, First Lien .......... B1 B+ 4.46% 10/10/16 1,391,223
------------
RESEARCH & CONSULTING SERVICES - 3.9%
4,009,523 Acosta, Inc., Term Loan ....................... NR(e) B+ 5.00% 03/02/18 4,042,120
3,900,076 Advantage Sales & Marketing, Inc.,
Term Loan, First Lien ....................... NR(e) B+ 5.25% 12/18/17 3,919,576
3,398,470 Affinion Group, Inc., Term Loan B ............. Ba3 B+ 6.50% 07/16/15 3,128,733
1,717,857 Property Data, Inc., Term Loan ................ B1 B 7.00% 01/04/17 1,715,710
1,975,000 Symphony IRI Group, Inc., Term Loan B2 ........ B1 B+ 5.00% 12/01/17 1,975,000
------------
14,781,139
------------
RESTAURANTS - 1.8%
3,022,678 Focus Brands, Inc., Term Loan, First Lien ..... B1 B 6.25%-7.25% 02/21/18 3,052,904
1,500,000 Focus Brands, Inc., Term Loan, Second Lien .... Caa1 CCC+ 10.25% 08/21/18 1,515,000
2,250,000 Wendy's International, Inc., Term Loan B ...... B1 BB- 4.75% 05/15/19 2,269,215
------------
6,837,119
------------
RETAIL REITS - 0.9%
3,489,083 Capital Automotive L.P., Term Loan B .......... Ba3 B+ 5.25% 03/11/17 3,503,632
------------
SECURITY & ALARM SERVICES - 0.3%
1,200,000 Garda World Security, Term Loan B ............. Ba1 BB 4.50% 10/31/19 1,212,000
------------
SEMICONDUCTORS - 1.0%
3,951,546 Freescale Semiconductor, Inc.,
Extended Term Loan .......................... B1 B 4.46% 12/01/16 3,830,036
------------
SPECIALIZED CONSUMER SERVICES - 2.6%
5,581,364 Asurion Corp., Term Loan B .................... NR(e) BB- 5.50% 05/24/18 5,625,847
1,250,000 Asurion Corp., Term Loan B1 ................... NR(e) BB- 4.75% 07/18/17 1,255,863
891,720 Asurion Corp., Term Loan, Second Lien ......... NR(e) B- 9.00% 05/24/19 916,688
1,990,000 Expert Global Solutions, Inc., Term Loan B .... Ba3 B 8.00% 04/03/18 2,003,691
------------
9,802,089
------------
See Notes to Financial Statements Page 13
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
NOVEMBER 30, 2012 (UNAUDITED)
PRINCIPAL RATINGS (b) STATED
VALUE DESCRIPTION MOODY'S S&P RATE (c) MATURITY (d) VALUE
------------ ----------------------------------------------- -------------- ------------- ------------ ------------
SENIOR FLOATING-RATE LOAN INTERESTS - (CONTINUED)
SPECIALIZED FINANCE - 2.1%
$ 2,000,000 AlixPartners, LLP, Term Loan B1 ............... Ba3 B+ 5.50% 06/01/17 $ 2,001,000
1,995,000 AlixPartners, LLP, Term Loan B2 ............... Ba3 B+ 6.50% 06/01/19 2,014,930
987,500 Fly Leasing, Ltd., Term Loan B ................ B1 BBB- 6.75% 08/06/18 991,618
3,000,000 Flying Fortress, Inc., Term Loan B ............ Ba2 BBB- 5.00% 06/30/17 3,031,890
------------
8,039,438
------------
SPECIALTY CHEMICALS - 5.1%
2,388,000 Ascend Performance Materials, LLC,
Term Loan B ................................. NR (e) NR (e) 6.75% 04/10/18 2,340,240
3,778,909 AZ Chemicals, Inc., Term Loan B ............... Ba3 BB- 7.25% 12/22/17 3,835,593
2,992,500 Emerald Performance Materials, LLC,
Term Loan B ................................. B1 B 6.75% 05/18/18 2,992,500
1,761,822 Houghton International, Inc., Term Loan B ..... B1 B 6.75% 01/29/16 1,761,822
1,647,458 Nusil Technology, LLC, Term Loan,
First Lien .................................. NR (e) NR (e) 5.25% 04/07/17 1,649,517
1,980,000 OM Group, Inc., Term Loan B ................... Ba2 BB- 5.75% 08/02/17 1,993,622
1,470,000 Omnova Solutions, Inc., Term Loan B ........... Ba2 B+ 5.50% 05/31/17 1,484,700
2,210,568 Polyone Corp., Term Loan B .................... Ba1 BB- 5.00% 12/20/17 2,219,963
1,160,833 Taminco Global Chemical Corp., Term Loan ...... B1 BB- 5.25% 02/15/19 1,168,507
------------
19,446,464
------------
STEEL - 0.9%
3,500,000 Fortescue (FMG), Term Loan B .................. Ba1 BB+ 5.25% 10/12/17 3,508,750
------------
SYSTEMS SOFTWARE - 3.3%
1,333,333 Deltek, Inc., Term Loan B ..................... B1 B+ 6.00% 10/04/18 1,342,333
2,002,436 Open Solutions, Inc., Term Loan, First Lien ... B3 B+ 2.44% 01/23/14 1,884,793
2,549,718 SS&C Technologies Holdings, Inc.,
Term Loan B1 ................................ Ba3 BB- 5.00% 05/24/19 2,577,331
263,764 SS&C Technologies Holdings, Inc.,
Term Loan B2 ................................ Ba3 BB- 5.00% 05/24/19 266,621
4,423,753 Vertafore, Inc., Term Loan, First Lien ........ B1 B+ 5.25% 07/29/16 4,445,871
1,800,000 Wall Street Systems, Inc., Term Loan B ........ B2 B 5.75% 10/31/19 1,793,250
------------
12,310,199
------------
TIRES & RUBBER - 0.9%
3,571,429 Goodyear Tire & Rubber Co., Term Loan,
Second Lien ................................. Ba1 BB 4.75% 04/30/19 3,589,286
------------
TRUCKING - 1.7%
2,285,714 Hertz Corp., Term Loan B ...................... Ba1 BB 3.75% 03/11/18 2,284,297
2,862,565 SIRVA, Inc., Term Loan B ...................... NR (e) NR (e) 10.75% 03/31/16 2,876,878
1,445,467 Swift Transportation Co., Inc., Term Loan ..... B1 BB 5.00% 12/21/17 1,456,308
------------
6,617,483
------------
WIRELESS TELECOMMUNICATION SERVICES - 2.5%
3,306,675 Crown Castle Operating Co., Term Loan B ....... Ba3 B+ 4.00% 01/31/19 3,323,208
3,150,000 Neustar, Inc., Term Loan B .................... Ba2 BB+ 5.00% 11/08/18 3,169,687
2,992,500 Syniverse Holdings, Inc., Term Loan B ......... B1 BB- 5.00% 04/23/19 3,007,463
------------
9,500,358
------------
TOTAL SENIOR FLOATING-RATE LOAN INTERESTS ................................................ 558,777,521
(Cost $557,319,270) ------------
Page 14 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
NOVEMBER 30, 2012 (UNAUDITED)
PRINCIPAL STATED
VALUE DESCRIPTION RATE (c) MATURITY (d) VALUE
------------ --------------------------------------------------------------- ------------- ------------ ------------
NOTES - 0.0%
HOMEBUILDING - 0.0%
727,273 TOUSA, Inc. (Payment-In-Kind
Election Note) (h) (i) (j) (k) ............................. 14.75% 07/01/15 $ 0
------------
TOTAL NOTES 0
(Cost $436,364) ------------
SHARES DESCRIPTION VALUE
------------ -------------------------------------------------------------------------------------------- ------------
WARRANTS - 0.0%
BROADCASTING - 0.0%
1,449 Cumulus Media, Inc. (h) (j) (l) .......................................................... 1,623
------------
TOTAL WARRANTS ........................................................................... 1,623
(Cost $0) ------------
PREFERRED STOCKS - 0.0%
HOMEBUILDING - 0.0%
4,273 TOUSA, Inc. (8.0%, Series A Convertible Payment-In-Kind Preferred Stock) (h)(i)(j)(l) .... 0
------------
TOTAL PREFERRED STOCKS ................................................................... 0
(Cost $2,563,636) ------------
TOTAL INVESTMENTS - 147.6% ............................................................... 558,779,144
(Cost $560,319,270) (m)
OUTSTANDING LOAN - (42.8%) ............................................................... (162,000,000)
NET OTHER ASSETS AND LIABILITIES - (4.8%) ................................................ (18,074,213)
------------
NET ASSETS - 100.0% ...................................................................... $378,704,931
============
(a) All or a portion of the securities are available to serve as collateral on
the outstanding loan.
(b) Ratings below Baa3 by Moody's Investors Service, Inc. or BBB- by Standard
& Poor's Ratings Group are considered to be below investment grade.
(c) 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 Inter-Bank Offered Rate ("LIBOR"), (ii) the
prime rate offered by one or more United States banks or (iii) the
certificate of deposit rate. Certain Senior Loans are subject to a LIBOR
floor that establishes a minimum LIBOR rate. The interest rate shown
reflects the rate in effect at November 30, 2012.
(d) 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.
(e) This Senior Loan was privately rated upon issuance. The rating agency does
not provide ongoing surveillance on the rating.
(f) Represents commitment fee rate on unfunded loan commitment.
(g) Delayed Draw Loan (see Note 2C - Unfunded Loan Commitments in the Notes to
Financial Statements).
(h) This security is fair valued in accordance with procedures adopted by the
Fund's Board of Trustees, and in accordance with the provisions of the
Investment Company Act of 1940, as amended.
(i) This borrower has filed for protection in federal bankruptcy court.
(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) This Senior Loan is a Senior Subordinated Payment-in-Kind Election Note
whereby 1.00% of interest per annum is to be paid in cash and 13.75% of
interest per annum shall be paid by the issuer, at its option (i) entirely
in cash, (ii) entirely in Payment-in-Kind interest or (iii) a combination
thereof. Interest is to be paid semi-annually, however, the issuer is in
default and income is not being accrued.
(l) Non-income producing security.
(m) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of November 30, 2012,
the aggregate gross unrealized appreciation for all securities in which
there was an excess of value over tax cost was $5,950,240 and the
aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over value was $7,490,366.
NR Not Rated
See Notes to Financial Statements Page 15
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
NOVEMBER 30, 2012 (UNAUDITED)
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of November 30,
2012 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
11/30/2012 PRICES INPUTS INPUTS
------------ ----------- ------------ ------------
Senior Floating-Rate Loan Interests:
Apparel Retail $ 6,786,786 $ -- $ 5,120,370 $ 1,666,416
Asset Management & Custody Banks 14,460,243 -- 10,930,322 3,529,921
Health Care Facilities 19,009,905 -- 18,683,238 326,667
Health Care Services 15,786,280 -- 14,833,905 952,375
Industrial Machinery 4,611,857 -- 2,821,033 1,790,824
Packaged Foods & Meats 15,394,644 -- 13,409,619 1,985,025
Specialty Chemicals 19,446,464 -- 16,453,964 2,992,500
Trucking 6,617,483 -- 3,740,605 2,876,878
Other Industry Categories* 456,663,859 -- 456,663,859 --
------------ ----------- ------------ ------------
Total Senior Floating-Rate Loan Interests 558,777,521 -- 542,656,915 16,120,606
Notes* -- -- -- --**
Warrants* 1,623 -- 1,623 --
Preferred Stocks* -- -- -- --**
------------ ----------- ------------ ------------
TOTAL INVESTMENTS $558,779,144 $ -- 542,658,538 $ 16,120,606
============ =========== ============ ============
* See the Portfolio of Investments for the industry breakout. Industry
categories are only shown separately if they include holdings in two or more
levels or have holdings in only Level 3.
** Market value is less than $1.
There were no transfers between Level 1 and Level 2.
All transfers in and out of Level 3 during the period are assumed to be
transferred on the last day of the period at their current value. As of November
30, 2012, the Fund transferred Senior Floating-Rate Loan Interests valued at
$4,998,582 from Level 3 to Level 2 and $7,555,110 from Level 2 to Level 3 of the
fair value hierarchy. The Senior Floating-Rate Loan Interests that transferred
between Level 3 and Level 2 did so primarily as a result of additional
information obtained from an independent third party pricing vendor relating to
the market activity of individual Senior Floating-Rate Loan Interests. Level 3
Senior Floating-Rate Loan Interests are valued based on third party pricing
service prices obtained from dealer runs and indicative sheets from brokers.
Page 16 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
NOVEMBER 30, 2012 (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, 2012
Senior Floating-Rate Loan Interests $ 16,377,616
Notes --
Common Stocks --
Warrants --
Preferred Stocks --
Net Realized Gain (Loss) 33,057
Net Change in Unrealized Appreciation/Depreciation 73,054
Purchases
Senior Floating-Rate Loan Interests 4,930,483
Sales
Senior Floating-Rate Loan Interests (7,850,132)
Transfers In
Senior Floating-Rate Loan Interests 7,555,110
Transfers Out
Senior Floating-Rate Loan Interests (4,998,582)
-------------
ENDING BALANCE AT NOVEMBER 30, 2012
Senior Floating-Rate Loan Interests 16,120,606
Notes --**
Warrants --
Preferred Stocks --**
-------------
Total Level 3 holdings $ 16,120,606
=============
Net change in unrealized appreciation/depreciation from Level 3 investments held
as of November 30, 2012 was $117,829 and is included in "Net change in
unrealized appreciation (depreciation) on investments" on the Statement of
Operations.
See Notes to Financial Statements Page 17
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 2012 (UNAUDITED)
ASSETS:
Investments, at value
(Cost $560,319,270)......................................................................... $558,779,144
Cash........................................................................................... 1,900,161
Prepaid expenses............................................................................... 187,956
Receivables:
Investment securities sold.................................................................. 21,702,357
Interest.................................................................................... 3,593,101
Fund shares sold............................................................................ 54,058
------------
Total Assets............................................................................. 586,216,777
------------
LIABILITIES:
Outstanding loan............................................................................... 162,000,000
Payables:
Investment securities purchased............................................................. 44,732,230
Investment advisory fees.................................................................... 332,554
Offering costs.............................................................................. 175,000
Interest and fees on loan................................................................... 145,489
Administrative fees......................................................................... 54,184
Audit and tax fees.......................................................................... 28,735
Printing fees............................................................................... 10,898
Trustees' fees and expenses................................................................. 8,558
Custodian fees.............................................................................. 8,195
Transfer agent fees......................................................................... 4,851
Legal fees.................................................................................. 2,240
Financial reporting fees.................................................................... 771
Other liabilities.............................................................................. 8,141
------------
Total Liabilities........................................................................ 207,511,846
------------
NET ASSETS..................................................................................... $378,704,931
============
NET ASSETS CONSIST OF:
Paid-in capital................................................................................ $481,589,468
Par value...................................................................................... 253,852
Accumulated net investment income (loss)....................................................... 2,135,169
Accumulated net realized gain (loss) on investments............................................ (103,733,432)
Net unrealized appreciation (depreciation) on investments...................................... (1,540,126)
------------
NET ASSETS..................................................................................... $378,704,931
============
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share)........................... $ 14.92
============
Number of Common Shares outstanding (unlimited number of Common Shares has been authorized).... 25,385,232
============
Page 18 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2012 (UNAUDITED)
INVESTMENT INCOME:
Interest....................................................................................... $ 15,664,181
Other.......................................................................................... 653,787
------------
Total investment income..................................................................... 16,317,968
------------
EXPENSES:
Investment advisory fees....................................................................... 2,001,563
Interest and fees on loan...................................................................... 911,630
Administrative fees............................................................................ 194,078
Legal fees..................................................................................... 104,750
Printing fees.................................................................................. 60,244
Custodian fees................................................................................. 32,103
Audit and tax fees............................................................................. 30,910
Trustees' fees and expenses.................................................................... 17,266
Transfer agent fees............................................................................ 14,516
Financial reporting fees....................................................................... 4,625
At the market offering costs................................................................... 2,397
Other.......................................................................................... 33,056
------------
Total expenses.............................................................................. 3,407,138
------------
NET INVESTMENT INCOME (LOSS)................................................................... 12,910,830
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments..................................................... 1,667,792
Net change in unrealized appreciation (depreciation) on investments......................... 9,209,054
------------
NET REALIZED AND UNREALIZED GAIN (LOSS)........................................................ 10,876,846
------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................ $ 23,787,676
============
See Notes to Financial Statements Page 19
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR
11/30/2012 ENDED
(UNAUDITED) 5/31/2012
------------- -------------
OPERATIONS:
Net investment income (loss)....................................................... $ 12,910,830 $ 23,074,364
Net realized gain (loss)........................................................... 1,667,792 1,021,296
Net change in unrealized appreciation (depreciation)............................... 9,209,054 (8,968,841)
------------- -------------
Net increase (decrease) in net assets resulting from operations.................... 23,787,676 15,126,819
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.............................................................. (12,870,048) (21,979,654)
------------- -------------
Total distributions to shareholders................................................ (12,870,048) (21,979,654)
------------- -------------
CAPITAL TRANSACTIONS:
Proceeds from Common Shares sold through at the market offerings................... 54,058 --
Proceeds from Common Shares reinvested............................................. 561,482 122,469
------------- -------------
Net increase (decrease) in net assets resulting from capital transactions.......... 615,540 122,469
------------- -------------
Total increase (decrease) in net assets............................................ 11,533,168 (6,730,366)
------------- -------------
NET ASSETS:
Beginning of period................................................................ 367,171,763 373,902,129
------------- -------------
End of period...................................................................... $ 378,704,931 $ 367,171,763
============= =============
Accumulated net investment income (loss) at end of period.......................... $ 2,135,169 $ 2,094,387
============= =============
CAPITAL TRANSACTIONS WERE AS FOLLOWS:
Common Shares at beginning of period............................................... 25,343,671 25,335,277
Common Shares sold through at the market offerings................................. 3,558 --
Common Shares issued as reinvestment under the Dividend Reinvestment Plan.......... 38,003 8,394
------------- -------------
Common Shares at end of period..................................................... 25,385,232 25,343,671
============= =============
Page 20 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2012 (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) in net assets resulting from operations................. $ 23,787,676
Adjustments to reconcile net increase (decrease) in net assets resulting
from operations to net cash provided by operating activities:
Purchases of investments.................................................. (258,231,367)
Sales, maturities and paydowns of investments............................. 253,480,749
Net amortization/accretion of premiums/discounts on investments........... (1,095,792)
Net realized gain/loss on investments..................................... (1,667,792)
Net change in unrealized appreciation/depreciation on investments......... (9,209,054)
CHANGES IN ASSETS AND LIABILITIES:
Increase in interest receivable........................................... (514,891)
Decrease in dividends receivable.......................................... 13,008
Increase in receivable for fund shares sold............................... (54,058)
Increase in prepaid expenses.............................................. (164,877)
Increase in interest and fees on loan payable............................. 15,711
Decrease in investment advisory fees payable.............................. (4,747)
Decrease in audit and tax fees payable.................................... (33,465)
Decrease in legal fees payable............................................ (9,504)
Decrease in printing fees payable......................................... (16,161)
Increase in administrative fees payable................................... 12,886
Decrease in custodian fees payable........................................ (43,781)
Increase in transfer agent fees payable................................... 1,879
Increase in Trustees' fees and expenses payable........................... 41
Increase in other liabilities payable..................................... 533
--------------
CASH PROVIDED BY OPERATING ACTIVITIES........................................... $ 6,266,994
--------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Common Shares sold.......................................... 54,058
Proceeds from Common Shares reinvested.................................... 561,482
Distributions to Common Shareholders...................................... (12,870,048)
Offering Costs............................................................ 175,000
Proceeds from borrowing................................................... 17,000,000
Repayment of borrowing.................................................... (13,000,000)
--------------
CASH USED IN FINANCING ACTIVITIES............................................... (8,079,508)
--------------
Decrease in cash................................................................ (1,812,514)
Cash at beginning of period..................................................... 3,712,675
--------------
CASH AT END OF PERIOD........................................................... $ 1,900,161
==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest and fees............................... $ 895,919
==============
See Notes to Financial Statements Page 21
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
FINANCIAL HIGHLIGHTS
FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR YEAR
11/30/2012 ENDED ENDED ENDED ENDED ENDED
(UNAUDITED) 5/31/2012 5/31/2011 (a) 5/31/2010 5/31/2009 5/31/2008
----------- ----------- ------------- ----------- ----------- -----------
Net asset value, beginning of period $ 14.49 $ 14.76 $ 13.96 $ 11.79 $ 16.42 $ 18.91
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.51 0.91 0.73 0.47 0.87 1.45
Net realized and unrealized gain (loss) 0.43 (0.31) 0.77 2.15 (4.63) (2.37)
Distributions paid to AMP (b) Shareholders from:
Net investment income -- -- -- (0.02) (0.09) (0.20)
---------- ---------- ---------- ---------- ---------- ----------
Total from investment operations 0.94 (0.60) 1.50 2.60 (3.85) (1.12)
---------- ---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.51) (0.87) (0.70) (0.43) (0.78) (1.37)
---------- ---------- ---------- ---------- ---------- ----------
Total distributions to Common Shareholders (0.51) (0.87) (0.70) (0.43) (0.78) (1.37)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 14.92 $ 14.49 $ 14.76 $ 13.96 $ 11.79 $ 16.42
========== ========== ========== ========== ========== ==========
Market value, end of period $ 15.24 $ 14.34 $ 14.82 $ 12.65 $ 10.04 $ 14.76
========== ========== ========== ========== ========== ==========
TOTAL RETURN BASED ON NET ASSET VALUE (c) 6.57% (4.45)% 11.19% 22.99% (22.07)% (5.19)%
========== ========== ========== ========== ========== ==========
TOTAL RETURN BASED ON MARKET VALUE (c) 9.99% (2.95)% 23.20% 30.76% (26.11)% 14.32%
========== ========== ========== ========== ========== ==========
-----------------------------------------------
RATIOS TO AVERAGE NET ASSETS AVAILABLE TO
COMMON SHARES:
Ratio of total expenses to average net assets 1.82%(d) 1.88% 1.98% 2.42% 3.40% 3.63%
Ratio of total expenses to average net assets
excluding interest expense 1.33%(d) 1.33% 1.31% 1.39% 1.62% 1.54%
Ratio of net investment income (loss) to
average net assets 6.90%(d) 6.38% 5.09% 3.49% 7.34% 8.52%
Ratio of net investment income (loss) to
average net assets net of AMP Shares
dividends (e) N/A N/A N/A 3.37% 6.60% 7.34%
SUPPLEMENTAL DATA:
Portfolio turnover rate 46% 63% 95% 52% 15% 31%
Net assets, end of period (in 000's) $ 378,705 $ 367,172 $ 373,902 $ 353,106 $ 298,097 $ 415,187
Ratio of total expenses to total average
Managed Assets (f) 1.28%(d) 1.31% 1.39% 1.77% 2.02% 2.22%
Ratio of total expenses to total average
Managed Assets excluding interest
expense (f) 0.94%(d) 0.93% 0.92% 1.01% 0.96% 0.94%
PREFERRED SHARES AND LOAN OUTSTANDING:
Total AMP Shares outstanding (g) N/A N/A N/A N/A 3,200 4,000
Liquidation and market value per AMP share (h) N/A N/A N/A N/A 25,018 25,039
Asset coverage per share N/A N/A N/A N/A 118,155(i) 128,797(i)
Total loan outstanding (in 000's) $ 162,000 $ 158,000 $ 160,000 $ 153,500 $ 57,050 $ 175,000
Asset coverage per $1,000 of loan
outstanding (j) $ 3,338 $ 3,324 $ 3,337 $ 3,300 $ 7,627 $ 3,944
-----------------------------------------------
(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 Investment 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) 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.
(d) Annualized.
(e) Ratio reflects the effect of distributions to AMP Shareholders.
(f) Managed Assets are calculated by taking the Fund's total asset value
(which includes assets attributable to the Fund's AMP Shares, if AMP
Shares are outstanding, and the principal amount of borrowings), minus the
sum of the Fund's accrued and unpaid dividends on any outstanding AMP
Shares, if AMP Shares are outstanding, and liabilities, other than the
principal amount of borrowings.
(g) As of November 18, 2009, the Fund no longer has any Series A or Series B
AMP Shares outstanding.
(h) Includes accumulated and unpaid distributions to AMP Shareholders.
(i) Calculated by taking the Fund's total assets less the Fund's total
liabilities (not including the AMP Shares liquidation value), and dividing
by the number of AMP Shares outstanding.
(j) 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, 2012 (UNAUDITED)
1. FUND DESCRIPTION
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 ("SEC") 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 secured
floating-rate corporate loans ("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 in accordance with valuation procedures
adopted by the Fund's Board of Trustees, and in accordance with provisions of
the 1940 Act. The Senior Loans in which the Fund invests are not listed on any
securities exchange or board of trade. Senior Loans are typically bought and
sold by institutional investors in individually negotiated private transactions
that function in many respects like an over-the-counter secondary market,
although typically no formal market-makers exist. This market, while having
grown substantially since its inception, generally has fewer trades and less
liquidity than the secondary market for other types of securities. Some Senior
Loans have few or no trades, or trade infrequently, and information regarding a
specific Senior Loan may not be widely available or may be incomplete.
Accordingly, determinations of the market value of Senior Loans may be based on
infrequent and dated information. Because there is less reliable, objective data
available, elements of judgment may play a greater role in valuation of Senior
Loans than for other types of securities. Typically, Senior Loans are valued
using information provided by a third party pricing service. The third party
pricing service primarily uses over-the-counter pricing from dealer runs and
broker quotes from indicative sheets to value the Senior Loans.
Common stocks and other equity securities listed on any national or foreign
exchange (excluding the NASDAQ(R) Stock Market, LLC ("NASDAQ") and the London
Stock Exchange Alternative Investment Market ("AIM")) are valued at the last
sale price on the exchange on which they are principally traded or, for NASDAQ
and AIM securities, the official closing price. Securities traded on more than
one securities exchange are valued at the last sale price or official closing
price, as applicable, at the close of the securities exchange representing the
principal market for such securities.
Debt securities having a remaining maturity of sixty days or less when purchased
are valued at cost adjusted for amortization of premiums and accretion of
discounts.
In the event that market quotations are not readily available, the pricing
service does not provide a valuation, or the valuations received are deemed
unreliable, the Fund's Board of Trustees has designated First Trust Advisors
L.P. ("First Trust") to use a fair value method to value the Fund's securities.
Additionally, if events occur after the close of the principal markets for
certain securities (e.g., domestic debt securities and foreign securities) that
could materially affect the Fund's NAV, First Trust may use a fair value method
to value the Fund's securities. The use of fair value pricing is governed by
valuation procedures adopted by the Fund's Board of Trustees, and in accordance
with the provisions of the 1940 Act. As a general principle, the fair value of a
security is the amount which the Fund might reasonably
1 The terms "security" and "securities" used throughout the Notes to
Financial Statements include Senior Loans.
Page 23
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
NOVEMBER 30, 2012 (UNAUDITED)
expect to receive for the security upon its current sale. In light of the
judgment involved in fair valuations, there can be no assurance that a fair
value assigned to a particular security will be the amount which the Fund might
be able to receive upon its current sale. Fair valuation of a security is based
on the consideration of all available information, 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 the security;
4) the financial statements of the borrower/issuer;
5) the credit quality and cash flow of the borrower/issuer, based on the
Advisor's or external analysis;
6) the information as to any transactions in or offers for the security;
7) the price and extent of public trading in similar securities (or equity
securities) of the borrower/issuer, or comparable companies;
8) the coupon payments;
9) the quality, value and salability of collateral, if any, securing the
security;
10) the business prospects of the borrower/issuer, including any ability to
obtain money or resources from a parent or affiliate and an assessment of
the borrower's/issuer's management;
11) the prospects for the borrower's/issuer's industry, and multiples (of
earnings and/or cash flows) being paid for similar businesses in that
industry;
12) borrower's/issuer's competitive position within the industry;
13) borrower's/issuer's ability to access additional liquidity through public
and/or private markets; and
14) other relevant factors.
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which transactions
for the investment occur with sufficient frequency and volume to provide
pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where there
are few transactions for the investment, the prices are not
current, or price quotations vary substantially either over time or
among market makers, or in which little information is released
publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves observable
at commonly quoted intervals, volatilities, prepayment speeds, loss
severities, credit risks, and default rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable inputs may
reflect the reporting entity's own assumptions about the assumptions that
market participants would use in pricing the investment.
The inputs or methodology used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of November 30, 2012, 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
didn't have any when-issued, delayed-delivery or forward purchase commitments as
of November 30, 2012.
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 unfunded delayed draw loan commitments of
$546,667 as of November 30, 2012.
Page 24
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
NOVEMBER 30, 2012 (UNAUDITED)
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, 2012, 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 dates and yields for
these issuers.
% 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 $ 1.12 $ -- $ 1,623 0.00% *
TOUSA, Inc. - Notes 7/31/07(1) $ 727,273 -- 436,364 -- 0.00
TOUSA, Inc. - Preferred Stocks 7/31/07(1) 4,273 -- 2,563,636 -- 0.00
----------------------------------------
$ 3,000,000 $ 1,623 0.00% *
========================================
* Amount is less than 0.01%.
(1) Security was acquired through a restructuring that was effective on July 31,
2007.
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,
2012 and is as follows:
Distributions paid from:
Ordinary income................................................ $ 21,979,654
As of May 31, 2012, the components of distributable earnings and net assets on a
tax basis were as follows:
Undistributed ordinary income.................................. $ 2,161,651
Undistributed capital gains.................................... --
-------------
Total undistributed earnings................................... 2,161,651
Accumulated capital and other losses........................... (105,285,525)
Net unrealized appreciation (depreciation)..................... (10,932,143)
-------------
Total accumulated earnings (losses)............................ (114,056,017)
Other.......................................................... --
Paid-in capital................................................ 481,227,780
-------------
Net assets..................................................... $ 367,171,763
=============
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.
Page 25
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
NOVEMBER 30, 2012 (UNAUDITED)
Under the Regulated Investment Company Modernization Act of 2010 (the "Act"),
net capital losses recognized after December 31, 2010, may be carried forward
indefinitely, and their character is retained as short-term and/or long-term
losses. Previously, net capital losses were carried forward for 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, 2012, the Fund had pre-enactment net capital losses for
federal income tax purposes of $105,285,525 expiring as follows:
EXPIRATION DATE AMOUNT
May 31, 2014 $ 3,143,970
May 31, 2016 3,611,723
May 31, 2017 25,585,953
May 31, 2018 68,278,827
May 31, 2019 4,663,095
During the taxable year ended May 31, 2012, the Fund utilized pre-enactment
capital loss carryforwards in the amount of $840,490.
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.
The Fund is subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. Taxable years ending 2009, 2010,
2011 and 2012 remain open to federal and state audit. As of May 31, 2012,
management has evaluated the application of these standards to the Fund and has
determined that no provision for income tax is required in the Fund's financial
statements for uncertain tax positions.
G. EXPENSES:
The Fund pays 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 ongoing monitoring of the Fund's investment
portfolio, managing the Fund's business affairs and providing certain
administrative services necessary for the management of the Fund. For these
investment management services, First Trust is entitled to a monthly fee
calculated at an annual rate of 0.75% of the Fund's Managed Assets (the average
daily total asset value of the Fund minus the sum of the Fund's liabilities
other than the principal amount of borrowings). First Trust also provides fund
reporting services to the Fund for a flat annual fee in the amount of $9,250.
BNY Mellon Investment Servicing (US) Inc. serves as the Fund's Administrator,
Fund Accountant and Transfer Agent in accordance with certain fee arrangements.
The Bank of New York Mellon serves as the Fund's Custodian in accordance with
certain fee arrangements.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer of $125,000 per year and an annual per fund fee of $4,000 for each
closed-end fund or other actively managed fund and $1,000 for each index fund in
the First Trust Fund Complex. The fixed annual retainer is allocated pro rata
among each fund in the First Trust Fund Complex based on net assets.
Additionally, the Lead Independent Trustee is paid $15,000 annually, the
Chairman of the Audit Committee is paid $10,000 annually, and each of the
Chairmen of the Nominating and Governance Committee and the Valuation Committee
is paid $5,000 annually to serve in such capacities, with such compensation
allocated pro rata among each fund in the First Trust Fund Complex based on net
assets. Trustees are reimbursed for travel and out-of-pocket expenses in
connection with all meetings. The Lead Independent Trustee and each Committee
Chairman will serve two-year terms until December 31, 2013, before rotating to
serve as chairman of another committee or as Lead Independent Trustee. After
December 31, 2013, the Lead Independent Trustee and Committee Chairmen will
rotate every three years. The officers and "Interested" Trustee receive no
compensation from the funds for acting in such capacities.
4. PURCHASES AND SALES OF INVESTMENTS
Cost of purchases and proceeds from sales of investments, excluding short-term
investments, for the six months ended November 30, 2012, were $258,733,993 and
$253,971,243, respectively.
Page 26
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
NOVEMBER 30, 2012 (UNAUDITED)
5. BORROWINGS
The Fund entered into a Revolving Credit and Security Agreement (the "Credit
Facility") on July 13, 2012, 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 has an expiration date of July
12, 2013, and may be renewed annually. The Credit Facility provides for a
secured line of credit for the Fund, where Fund assets are pledged against
advances made to the Fund. Under the requirements of the 1940 Act, the Fund,
immediately after any such borrowings, must have "asset coverage" of at least
300% (33-1/3% of the Fund's total assets after borrowings). The total commitment
under the Credit Facility is $175,000,000. For the six months ended November 30,
2012, the average amount outstanding was $159,163,934. The loans under the
Credit Facility funded generally bear interest for each settlement period at a
rate per annum based on the commercial paper rate of the conduit lender. The
high and low annual interest rates for the loans under the Credit Facility
funded by the Conduit Lender during the six months ended November 30, 2012, were
0.46% and 0.24%, respectively, with a weighted average interest rate of 0.28%.
The annual interest rate in effect for such loans at November 30, 2012 was
0.24%. The Fund also pays additional borrowing costs, which include a
utilization fee at a per annum rate of 0.40% 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) 0.40% of
the daily average of the total commitment in effect (or if terminated, the
aggregate outstanding principal amount of the advances funded or maintained)
during the preceding calendar month and (ii) 1.02.
6. 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 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 or "junk" debt. 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, and/or may
Page 27
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NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
NOVEMBER 30, 2012 (UNAUDITED)
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. Interest rate risk, primarily applicable to fixed-rate
securities, is the risk that the value of the debt securities in the Fund will
decline because of rising market interest rates.
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.
7. 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. 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 for the period ended November
30, 2012 related to offerings under such sales agreement are as follows:
NET PROCEEDS
COMMON RECEIVED IN
SHARES NET PROCEEDS NET ASSET VALUE EXCESS OF
SOLD RECEIVED OF SHARES SOLD NET ASSET VALUE
--------- ------------- --------------- ---------------
3,558 $ 54,058 $ 53,067 $ 991
Additionally, estimated offering costs of $175,000 related to this offering were
recorded as a prepaid asset and are being amortized to expense by the Fund on a
straight line basis over the lesser of one year or until the Fund sells
3,000,000 Common Shares related to this offering.
8. 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.
9. 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 was
the following subsequent events:
On December 20, 2012, the Fund declared a dividend of $0.0875 per share to
Common Shareholders of record on December 31, 2012, payable January 15, 2013.
On January 22, 2013, the Fund declared a dividend of $0.0875 per share to Common
Shareholders of record on February 5, 2013, payable February 15, 2013.
Page 28
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
NOVEMBER 30, 2012 (UNAUDITED)
DIVIDEND REINVESTMENT PLAN
If your Common Shares are registered directly with the Fund or if you hold your
Common Shares with a brokerage firm that participates in the Fund's Dividend
Reinvestment Plan (the "Plan"), unless you elect, by written notice to the Fund,
to receive cash distributions, all dividends, including any capital gain
distributions, on your Common Shares will be automatically reinvested by BNY
Mellon Investment Servicing (US) Inc. (the "Plan Agent"), in additional Common
Shares under the Plan. If you elect to receive cash distributions, you will
receive all distributions in cash paid by check mailed directly to you by the
Plan Agent, as the dividend paying agent.
If you decide to participate in the Plan, the number of Common Shares you will
receive will be determined as follows:
(1) If Common Shares are trading at or above net asset value ("NAV") at
the time of valuation, the Fund will issue new shares at a price
equal to the greater of (i) NAV per Common Share on that date or (ii)
95% of the market price on that date.
(2) If Common Shares are trading below NAV at the time of valuation, the
Plan Agent will receive the dividend or distribution in cash and will
purchase Common Shares in the open market, on the NYSE or elsewhere,
for the participants' accounts. It is possible that the market price
for the Common Shares may increase before the Plan Agent has
completed its purchases. Therefore, the average purchase price per
share paid by the Plan Agent may exceed the market price at the time
of valuation, resulting in the purchase of fewer shares than if the
dividend or distribution had been paid in Common Shares issued by the
Fund. The Plan Agent will use all dividends and distributions
received in cash to purchase Common Shares in the open market within
30 days of the valuation date except where temporary curtailment or
suspension of purchases is necessary to comply with federal
securities laws. Interest will not be paid on any uninvested cash
payments.
You may elect to opt-out of or withdraw from the Plan at any time by giving
written notice to the Plan Agent, or by telephone at (866) 340-1104, in
accordance with such reasonable requirements as the Plan Agent and the Fund may
agree upon. If you withdraw or the Plan is terminated, you will receive a
certificate for each whole share in your account under the Plan, and you will
receive a cash payment for any fraction of a share in your account. If you wish,
the Plan Agent will sell your shares and send you the proceeds, minus brokerage
commissions.
The Plan Agent maintains all Common Shareholders' accounts in the Plan and gives
written confirmation of all transactions in the accounts, including information
you may need for tax records. Common Shares in your account will be held by the
Plan Agent in non-certificated form. The Plan Agent will forward to each
participant any proxy solicitation material and will vote any shares so held
only in accordance with proxies returned to the Fund. Any proxy you receive will
include all Common Shares you have received under the Plan.
There is no brokerage charge for reinvestment of your dividends or distributions
in Common Shares. However, all participants will pay a pro rata share of
brokerage commissions incurred by the Plan Agent when it makes open market
purchases.
Automatically reinvesting dividends and distributions does not mean that you do
not have to pay income taxes due upon receiving dividends and distributions.
Capital gains and income are realized although cash is not received by you.
Consult your financial advisor for more information.
If you hold your Common Shares with a brokerage firm that does not participate
in the Plan, you will not be able to participate in the Plan and any dividend
reinvestment may be effected on different terms than those described above.
The Fund reserves the right to amend or terminate the Plan if in the judgment of
the Board of Trustees the change is warranted. There is no direct service charge
to participants in the Plan; however, the Fund reserves the right to amend the
Plan to include a service charge payable by the participants. Additional
information about the Plan may be obtained by writing BNY Mellon Investment
Servicing (US) Inc., 301 Bellevue Parkway, Wilmington, Delaware 19809.
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Fund uses to determine how
to vote proxies and information on how the Fund voted proxies relating to
portfolio 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)
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FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
NOVEMBER 30, 2012 (UNAUDITED)
PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q
are available (1) by calling (800) 988-5891; (2) on the Fund's website located
at http://www.ftportfolios.com; (3) on the SEC's website at http://www.sec.gov;
and (4) for review and copying at the SEC's Public Reference Room ("PRR") in
Washington, DC. Information regarding the operation of the PRR may be obtained
by calling (800) SEC-0330.
SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
The Annual Meeting of Shareholders for the Fund was held on September 17, 2012
(the "meeting"). At the meeting, Trustee Niel B. Nielson was elected as Class II
Trustee for a three-year term expiring at the Fund's annual meeting of
shareholders in 2015. The number of votes cast in favor of Mr. Nielson was
22,723,322, the number of votes cast against Mr. Nielson was 414,212, and the
number of abstentions was 0. Richard E. Erickson, Thomas R. Kadlec, James A.
Bowen and Robert F. Keith are current and continuing Trustees. Messrs. Erickson
and Kadlec are currently the Class I Trustees of the Fund for a term expiring at
the Fund's annual meeting of shareholders in 2014. 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 2013.
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, 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 10-11, 2012. The
Board 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 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, and the Independent Trustees and their counsel then 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. The Board also
considered that the Agreement was approved by shareholders of the Fund at a
meeting held in December 2010.
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 Team took over day-to-day management of the
Fund's investments from the former sub-advisor in October 2010. The Board
considered the Advisor's statement that it applies the same oversight model
internally with its Leveraged Finance Team as it uses for overseeing external
sub-advisors. The Board also received a presentation from members of the
Leveraged Finance Team discussing how they manage the 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 certain separately managed accounts with
investment objectives and policies similar to the Fund's. The Board noted that
the Advisor charges a lower advisory fee rate to the separately managed
accounts, as well as the Advisor's statement that the nature of the services
provided to the separately managed
Page 30
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ADDITIONAL INFORMATION - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
NOVEMBER 30, 2012 (UNAUDITED)
accounts is not comparable to those provided to the Fund. In addition, the Board
received data prepared by Lipper Inc. ("Lipper"), an independent source, showing
the advisory fees and expense ratios of the Fund as compared to the advisory
fees and expense ratios of a peer group selected by Lipper and similar data for
a separate peer group selected by the Advisor. The Board also received advisory
fee and expense ratio data for a peer group of funds compiled by Morningstar
Associates, LLC ("Morningstar"), an independent source. The Board noted that the
Lipper, Advisor and Morningstar peer groups included only three overlapping peer
funds. The Board discussed with representatives of the Advisor the limitations
in creating a relevant peer group for the Fund, including that (i) the Fund is
unique in its composition, which makes assembling peers with similar strategies
and asset mix difficult; (ii) peer funds may use different types of leverage
which have different costs associated with them; and (iii) many of the peer
funds are larger than the Fund, which causes the Fund's fixed expenses to be
higher on a percentage basis as compared to the larger peer funds. The Board
took these limitations into account in considering the peer data. In reviewing
the peer data, the Board noted that the Fund's contractual advisory fee was
equal to the median of both the Lipper and Advisor peer groups and below the
median of the Morningstar peer group.
The Board also considered performance information for the Fund, noting that the
performance information included the Fund's quarterly performance report, which
is part of the process that the Board has established for monitoring the Fund's
performance and portfolio risk on an ongoing basis. The Board determined that
this process continues to be effective for reviewing the Fund's performance. In
addition to the Board's ongoing review of performance, the Board also received
data prepared by Lipper comparing the Fund's performance to the Lipper peer
group, as well as to a larger peer universe and to two benchmarks. In reviewing
the Fund's performance as compared to the performance of the Lipper peer group
and Lipper peer universe, the Board took into account the limitations described
above with respect to creating a relevant peer group for the Fund. The Board
also noted that the Advisor's Leveraged Finance Team did not begin managing the
day-to-day investment of the Fund's assets until October 2010. The Board
considered the Fund's dividend yield as of March 30, 2012 and an analysis
prepared by the Advisor on the continued benefits provided by the Fund's
leverage. In addition, the Board compared the Fund's premium/discount over the
past eight quarters to the average and median premium/discount of the Advisor
peer group over the same period, noting that the Fund's premium/discount was
generally indicative of the asset class and market events.
On the basis of all the information provided on the fees, expenses and
performance of the Fund, the Board concluded that the advisory 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 noted the Advisor's statement that
economies of scale in providing services to the Fund are not available at
current asset levels. The Board determined that due to the Fund's closed-end
structure, the potential for realization of economies of scale as Fund assets
grow was not a 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, 2011,
as set forth in the materials provided to the Board. The Board noted the
inherent limitations in the profitability analysis, and concluded that the
Advisor's estimated profitability appeared to be not excessive in light of the
services provided to the Fund. In addition, the Board considered fall-out
benefits described by the Advisor that may be realized from its relationship
with the Fund, including the Advisor's compensation for fund reporting services
pursuant to a separate Fund Reporting Services Agreement.
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 31
This Page Left Blank Intentionally.
FIRST TRUST
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 E. Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR,
FUND ACCOUNTANT &
TRANSFER AGENT
BNY Mellon Investment Servicing (US) Inc.
301 Bellevue Parkway
Wilmington, DE 19809
CUSTODIAN
The Bank of New York Mellon
101 Barclay Street, 20th Floor
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
[BLANK BACK COVER]
ITEM 2. CODE OF ETHICS.
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 28, 2013
--------------------
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 28, 2013
--------------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date January 28, 2013
--------------------
* Print the name and title of each signing officer under his or her signature.