UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-21539
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First Trust Senior Floating Rate Income Fund II
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(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Name and address of agent for service)
Registrant's telephone number, including area code: 630-765-8000
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Date of fiscal year end: May 31
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Date of reporting period: May 31, 2013
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The Report to Shareholders is attached herewith.
ANNUAL
REPORT
FOR THE YEAR ENDED
MAY 31, 2013
FIRST TRUST
SENIOR FLOATING RATE
INCOME FUND II
FIRST TRUST
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TABLE OF CONTENTS
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FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
ANNUAL REPORT
MAY 31, 2013
Shareholder Letter .......................................................... 1
At A Glance.................................................................. 2
Portfolio Commentary......................................................... 3
Portfolio of Investments .................................................... 5
Statement of Assets and Liabilities ......................................... 17
Statement of Operations ..................................................... 18
Statements of Changes in Net Assets ......................................... 19
Statement of Cash Flows...................................................... 20
Financial Highlights......................................................... 21
Notes to Financial Statements................................................ 22
Report of Independent Registered Public Accounting Firm ..................... 27
Additional Information ...................................................... 28
Board of Trustees and Officers............................................... 31
Privacy Policy............................................................... 33
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and its representatives, taking into account the
information currently available to them. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For example,
forward-looking statements include the use of words such as "anticipate,"
"estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or
other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
First Trust Senior Floating Rate Income Fund II (the "Fund") to be materially
different from any future results, performance or achievements expressed or
implied by the forward-looking statements. When evaluating the information
included in this report, you are cautioned not to place undue reliance on these
forward-looking statements, which reflect the judgment of the Advisor and its
representatives only as of the date hereof. We undertake no obligation to
publicly revise or update these forward-looking statements to reflect events and
circumstances that arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that the Fund will achieve its investment objectives. The
Fund is subject to market risk, which is the possibility that the market values
of securities owned by the Fund will decline and that the value of the Fund
shares may therefore be less than what you paid for them. Accordingly, you can
lose money by investing in the Fund. See "Risk Considerations" in the Additional
Information section of this report for a discussion of certain other risks of
investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
http://www.ftportfolios.com or speak with your financial advisor. Investment
returns, net asset value and common share price will fluctuate and Fund shares,
when sold, may be worth more or less than their original cost.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment. It
includes details about the Fund and presents data and analysis that provide
insight into the Fund's performance and investment approach.
By reading the portfolio commentary by the portfolio management team of the
Fund, you may obtain an understanding of how the market environment affected the
Fund's performance. The statistical information that follows may help you
understand the Fund's performance compared to that of relevant market
benchmarks.
It is important to keep in mind that the opinions expressed by personnel of the
Advisor are just that: informed opinions. They should not be considered to be
promises or advice. The opinions, like the statistics, cover the period through
the date on the cover of this report. The risks of investing in the Fund are
spelled out in the prospectus, the statement of additional information, this
report and other Fund regulatory filings.
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SHAREHOLDER LETTER
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FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
MAY 31, 2013
Dear Shareholders:
I am pleased to present you with the annual report for your investment in First
Trust Senior Floating Rate Income Fund II (the "Fund").
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 Advisors L.P. ("First Trust").
The twelve months covered by this report have been more positive for the U.S.
markets. In fact, the S&P 500 Index, as measured on a total return basis, rose
27.25% during the period, and many economists and investors have felt positive
about the current market environment. Of course, past performance can never be
an indicator of future performance. As I have written many times, First Trust
believes that staying invested in quality products through up and down markets
and having a long-term horizon can help investors reach their financial goals.
As you know, First Trust offers a variety of products that we believe could fit
many financial plans to help investors seeking long-term investment success. We
encourage you to talk to your advisor about the other investments First Trust
offers that might also fit your financial goals and to discuss those goals with
your advisor regularly so that he or she can help keep you on track.
First Trust will continue to make available up-to-date information about your
investments so you and your financial advisor are current on any First Trust
investments you own. We value our relationship with you, and thank you for the
opportunity to assist you in achieving your financial goals. I look forward to
the remainder of 2013 and to the next edition of your Fund's report.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees 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 MAY 31, 2013 (UNAUDITED)
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FUND STATISTICS
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Symbol on New York Stock Exchange FCT
Common Share Price $15.37
Common Share Net Asset Value ("NAV") $15.14
Premium (Discount) to NAV 1.52%
Net Assets Applicable to Common Shares $400,824,849
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) 6.83%
Current Distribution Rate on NAV (2) 6.94%
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COMMON SHARE PRICE & NAV (WEEKLY CLOSING PRICE)
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Common Share Price NAV
5/12 $14.45 $14.51
14.18 14.36
13.95 14.38
14.11 14.41
14.44 14.49
6/12 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
15.11 14.74
8/12 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
14.97 14.89
15.37 14.93
15.46 14.96
12/12 15.16 14.89
15.71 14.96
15.74 15.04
15.77 15.10
1/13 15.99 15.14
15.76 15.04
15.70 15.02
16.06 15.05
2/13 16.12 15.06
16.12 15.01
16.76 15.07
16.29 15.13
16.41 15.17
3/13 16.20 15.20
15.87 15.13
16.21 15.18
16.35 15.19
4/13 16.18 15.22
16.05 15.17
16.47 15.20
16.29 15.21
16.12 15.20
5/13 15.37 15.14
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PERFORMANCE
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Average Annual Total Return
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1 Year Ended 5 Years Ended Inception (5/25/2004)
5/31/2013 5/31/2013 5/31/2013
FUND PERFORMANCE (3)
NAV 11.92% 4.49% 4.08%
Market Value 14.80% 7.07% 3.73%
INDEX PERFORMANCE
S&P/LSTA Leveraged Loan Index 8.70% 6.57% 5.31%
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% OF TOTAL
CREDIT QUALITY (S&P RATINGS) (4) INVESTMENTS
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BBB- 4.5%
BB+ 5.9
BB 8.7
BB- 22.8
B+ 29.5
B 17.7
B- 3.4
CCC+ 2.5
CCC 0.7
D 0.0*
NR 1.8
NR (Privately rated securities) 2.5
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Total 100.0%
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* Amount is less than 0.1%
NR - Not rated
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% OF TOTAL
TOP 10 ISSUERS INVESTMENTS
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Asurion Corp. 1.3%
Nuveen Investments, Inc. 1.3
First Data Corp. 1.1
Focus Brands, Inc. 1.1
Clear Channel Communications, Inc. 1.1
Reynolds Consumer Products Holdings, Inc. 1.0
Intelsat Jackson Holdings S.A. 1.0
Univision Corp. 1.0
Grifols, SA 1.0
Caesars Entertainment Operating Company, Inc. 1.0
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Total 10.9%
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% OF TOTAL
ASSET CLASSIFICATION INVESTMENTS
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Media 7.6%
Health Care Providers & Services 7.1
Diversified Financial Services 6.4
Chemicals 5.0
Software 4.6
Health Care Equipment & Supplies 4.5
Hotels, Restaurants & Leisure 4.1
Auto Components 4.0
Food Products 3.7
Pharmaceuticals 3.5
Professional Services 3.2
Commercial Services & Supplies 3.0
Diversified Telecommunication Services 2.9
Aerospace & Defense 2.7
Specialty Retail 2.7
Insurance 2.7
Independent Power Producers & Energy Traders 2.6
Capital Markets 2.5
Containers & Packaging 2.2
Health Care Technology 2.1
Diversified Consumer Services 1.7
Consumer Finance 1.6
Semiconductors & Semiconductor Equipment 1.6
Wireless Telecommunication Services 1.6
Real Estate Management & Development 1.5
IT Services 1.4
Communications Equipment 1.4
Life Sciences Tools & Services 1.3
Electric Utilities 1.1
Road & Rail 1.0
Machinery 1.0
Biotechnology 1.0
Construction & Engineering 0.9
Metals & Mining 0.8
Automobiles 0.7
Food & Staples Retailing 0.6
Real Estate Investment Trusts (REITs) 0.6
Industrial Conglomerates 0.6
Oil, Gas & Consumable Fuels 0.5
Leisure Equipment & Products 0.5
Building Products 0.5
Distributors 0.4
Diversified Business Services 0.2
Airlines 0.2
Household Durables 0.2
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Total 100.0%
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(1) Most recent distribution paid or declared through 5/31/2013. 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 5/31/2013. Subject to
change in the future.
(3) Total return is based on the combination of reinvested dividend, capital
gain and return of capital distributions, if any, at prices obtained by
the Dividend Reinvestment Plan and changes in NAV per share for NAV
returns and changes in Common Share price for market value returns. From
inception to October 12, 2010, Four Corners Capital Management, LLC served
as the Fund's sub-advisor. Effective October 12, 2010, the Leveraged
Finance 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)
MAY 31, 2013
INVESTMENT MANAGER
First Trust Advisors L.P. ("First Trust") was established in 1991 and is located
in Wheaton, Illinois. First Trust is a registered investment advisor which
offers customized portfolio management using its structured, quantitative
approach to security selection. As of May 31, 2013, First Trust managed or
supervised $70.99 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 $938 million in
assets as of May 31, 2013. 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, commingled funds, structured
products and retail funds.
PORTFOLIO MANAGEMENT TEAM
WILLIAM HOUSEY, CFA
SENIOR VICE PRESIDENT, SENIOR PORTFOLIO MANAGER
SCOTT D. FRIES, CFA
SENIOR VICE PRESIDENT, PORTFOLIO MANAGER
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II The primary investment objective
of First Trust Senior Floating Rate Income Fund II ("FCT" or the "Fund") is to
seek a high level of current income. As a secondary objective, the Fund attempts
to preserve capital. The Fund pursues its objectives by investing in a portfolio
of Senior Loans. There can be no assurance that the Fund's investment objectives
will be achieved. The Fund may not be appropriate for all investors.
MARKET RECAP
During the period covered by this report, capital markets were strong and
generally supported by positive economic reports in the U.S. and relatively
benign news regarding the European sovereign debt situation, including the
hiccup regarding the Cyprus bailout. The period began with a focus on European
sovereign debt issues and concerns regarding the strength of the U.S. economy,
which resulted in increased market volatility, and ultimately ended with a
renewed focus on the Federal Reserve's bond buying program, unemployment, and
interest rates. The senior loan market had positive returns in every month over
the last 12 months as the positive economic backdrop supported a strong credit
environment. Overall, the S&P/LSTA Leveraged Loan Index (the "Index") returned
8.70% for the full year period. Lower credit-quality issues in the Index
performed better than higher credit-quality issues in the period. BB rated loans
returned 4.61% and B rated loans returned 6.19%, both of which were
significantly behind the lower quality CCC rated loan return of 25.81% for the
period.
Fundamental credit quality remained strong over the period with default rates
trending below the historic average. The default rate began the period at 1.05%
and ended at 1.40%, well inside the historic average of 3.31% (March 1999 - May
2013).
Two trends in the market that have helped keep default volumes in check are
solid corporate fundamentals and robust capital markets activity. Regarding
corporate fundamentals, senior loan issuers that file their financial results
publicly grew cash flows by approximately 7% year-over-year in the first quarter
of 2013 (latest data available), which represents 15 straight quarters of cash
flow growth. This extended period of cash flow growth has given companies the
opportunity to strengthen their balance sheets. The second positive trend is the
active capital markets, which have provided companies with the ability to
refinance near-term debt maturities with longer dated paper at lower interest
rates. This process of extending maturities tends to help alleviate a potential
catalyst for future defaults and the lower rate eases a company's interest
burden.
Technical conditions in the senior loan market were strong over the period, with
positive inflows into the asset class from retail senior loan funds and
institutional structured products in all 12 months. Total inflows across retail
and institutional investors over the last year were $110 billion, with available
new-issue supply of only $34.3 billion. With credit quality remaining strong and
positive inflows into the asset class, average loan prices increased from $93.5
at the beginning of the period to $98.2 at the end of May 2013. As such, price
appreciation was the primary driver of total return for the Index over the last
year.
PERFORMANCE ANALYSIS
The Fund outperformed the Index for the one-year period ended May 31, 2013. The
Fund generated a net asset value ("NAV") return of 11.92% and a market price
return of 14.80%. The Fund's market price return benefitted by the Fund's market
price beginning at a slight discount to NAV and moving to a slight premium to
NAV by the end of the period. At the start of the period, the Fund's market
price was at a -1.04% discount to NAV, and it moved to a modest 1.52% premium to
NAV by the end of the period.
Page 3
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PORTFOLIO COMMENTARY (CONTINUED)
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FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
MAY 31, 2013
From an income perspective, the Fund announced three increases to the monthly
distribution rate for a total increase of $0.0075 per share over the year ended
May 31, 2013. The monthly announced distribution rate began the period at $0.08
per share and ended at $0.0875 per share. This increase represented an
improvement of approximately 9.4% in the level of monthly distributions to
shareholders over this period. At the $0.0875 per share monthly distribution
rate, the annualized distribution rate at the end of May 2013 was 6.94% at NAV
and 6.83% at market price.
Contributing to the Fund's outperformance relative to the Index over the period
was the Fund's use of leverage and issuer selection. Leverage at the end of May
was approximately 30.27%. The Fund's relatively conservative credit quality
positioning detracted slightly from performance as CCC and lower-rated issues
led the market return. At the end of the period, the Fund held only 2.5% of
assets in issues rated CCC or below compared to 12% for the Index.
OUTLOOK
We believe the combination of a low corporate default environment, modestly
positive economic growth and strong investor demand provides a firm backdrop for
returns in the periods ahead. Moreover, given the heightened sensitivity
exhibited by traditional fixed-income on the basis of potential lower Federal
Reserve stimulus (Quantitative Easing tapering), which is likely to lead to
higher interest rates, we remain optimistic regarding the outlook for the senior
loan asset class. In our opinion, the combination of relatively attractive
ultra-short duration floating-rate income within a market plagued by anemic real
yields and long duration, when coupled with a senior secured position in the
capital structure in a low corporate default rate environment, are tenets that
should continue to support performance.
We expect our rigorous credit process and focus on identifying attractive
risk-adjusted return opportunities in the market will continue to position the
portfolio well for the periods ahead. Our 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 over the near term. As such, the portfolio should remain of higher average
credit quality than the Index. In the upcoming periods, we expect the new issue
market to provide some compelling opportunities which may enhance the portfolio
characteristics. In our opinion, the combination of attractive new issuance and
our focus on relative value opportunities across the market should continue to
position the portfolio well for the periods ahead.
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 4
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS (a)
MAY 31, 2013
PRINCIPAL STATED
VALUE DESCRIPTION RATE (b) MATURITY (c) VALUE
------------ ---------------------------------------------------------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS - 146.3%
ADVERTISING - 0.4%
$ 1,500,000 RentPath, Inc., Term Loan B .................................... 6.25% 05/29/20 $ 1,475,625
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AEROSPACE & DEFENSE - 4.0%
1,850,000 AM General, LLC, Term Loan B ................................... 10.25% 03/22/18 1,853,090
3,000,000 Beechcraft Holdings, Term Loan B ............................... 5.75% 12/05/20 3,015,000
1,194,000 Booz Allen Hamilton, Inc., Term Loan B ......................... 4.50% 07/31/19 1,201,964
3,301,429 DynCorp International, Inc., Term Loan ......................... 6.25% 07/07/16 3,320,676
1,925,000 Engility Holdings, Inc., Term Loan B ........................... 5.75% 07/17/17 1,920,187
1,361,588 Sequa Corp., Term Loan B ....................................... 5.25% 05/29/17 1,374,523
3,305,186 Transdigm, Inc., Term Loan C ................................... 3.75% 02/28/20 3,339,064
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16,024,504
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AGRICULTURAL PRODUCTS - 1.0%
1,200,000 Dole Food Company, Inc., Term Loan B ........................... 3.75% 04/01/20 1,201,932
2,935,250 Jimmy Sanders, Refinancing Term Loan ........................... 4.75% 11/15/18 2,950,836
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4,152,768
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AIRLINES - 0.2%
1,000,000 US Airways Group, Inc., Term Loan B1 ........................... 4.25% 05/23/19 999,000
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ALTERNATIVE CARRIERS - 2.7%
1,324,242 DigitalGlobe, Inc., Term Loan B ................................ 3.75% 01/31/20 1,331,525
5,895,375 Intelsat Jackson Holdings S.A., Term Loan B .................... 4.25% 04/02/18 5,930,394
3,409,059 Telesat Canada, Term Loan B .................................... 3.50% 03/28/19 3,426,718
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10,688,637
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ALUMINUM - 0.3%
1,000,000 Constellium Holdco B.V., Term Loan B ........................... 6.25% 03/25/20 1,016,250
-------------
APPAREL RETAIL - 1.0%
2,737,888 Payless ShoeSource, Term Loan B ................................ 7.25% 09/19/19 2,766,417
1,330,000 Phillips-Van Heusen Corp., Term Loan B ......................... 3.25% 12/31/19 1,335,652
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4,102,069
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APPLICATION SOFTWARE - 3.3% ....................................
2,320,371 DataTel, Inc., Term Loan B ..................................... 4.50% 07/19/18 2,335,453
3,930,150 Eagle Parent, Inc., Term Loan B ................................ 4.50% 05/16/18 3,972,714
1,800,000 Flexera Software, LLC, Term Loan ............................... 5.00% 03/13/19 1,813,500
100,000 Lawson Software, Inc., Term Loan B3 ............................ 3.75% 05/24/20 100,031
3,899,156 Lawson Software, Inc., Term Loan B2 ............................ 5.25%-6.25% 04/05/18 3,936,198
1,097,250 Verint Systems, Inc., Term Loan ................................ 4.00% 09/06/19 1,109,594
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13,267,490
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ASSET MANAGEMENT & CUSTODY BANKS - 4.2%
2,567,732 Hamilton Lane Advisors, LLC, Term Loan ......................... 5.25% 02/28/18 2,574,151
1,815,314 Harbourvest Partners L.P., Term Loan B ......................... 4.75% 11/21/17 1,826,660
2,070,027 Mondrian Investment Partners Ltd., Term Loan ................... 4.00% 03/05/20 2,081,247
585,899 Munder Capital Management, Incremental Term Loan ............... 6.00% 03/23/15 587,364
6,704,791 Nuveen Investments, Inc., Term Loan B .......................... 4.19% 05/13/17 6,722,961
833,333 Nuveen Investments, Inc., Term Loan, Second Lien ............... 6.50% 02/28/19 835,417
2,251,500 TCW Group, Inc., Term Loan B ................................... 4.00% 12/20/19 2,276,829
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16,904,629
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See Notes to Financial Statements Page 5
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS (a) (Continued)
MAY 31, 2013
PRINCIPAL STATED
VALUE DESCRIPTION RATE (b) MATURITY (c) VALUE
------------ ---------------------------------------------------------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS (Continued)
AUTO PARTS & EQUIPMENT - 5.0%
$ 900,000 Affinia Group, Inc., Term Loan B2 .............................. 4.75% 04/25/20 $ 902,250
2,977,538 Allison Transmission, Inc., Term Loan B3 ....................... 4.25% 08/23/19 3,001,090
562,387 August U.S. Holding Company, Inc., Lux Term Loan ............... 5.00% 04/30/18 565,199
432,613 August U.S. Holding Company, Inc., U.S. Term Loan .............. 5.00% 4/30/18 434,776
2,300,000 BBB Industries, LLC, Term Loan B ............................... 5.50% 03/27/19 2,300,000
2,532,854 HHI Holdings, LLC, Term Loan B ................................. 5.00% 09/18/19 2,572,442
2,377,935 Metaldyne, LLC, Term Loan B .................................... 5.00% 12/18/18 2,425,494
1,745,625 Remy International, Inc., Term Loan B .......................... 4.25% 03/05/20 1,763,081
2,992,500 Sequa Automotive Group, Term Loan B ............................ 6.25% 11/15/18 3,007,463
1,335,498 Tomkins, PLC, Term Loan B2 ..................................... 3.75% 09/29/16 1,343,017
1,571,429 Tower International, Inc., Term Loan B ......................... 5.75% 04/23/20 1,589,076
-------------
19,903,888
-------------
AUTOMOBILE MANUFACTURERS - 1.0%
3,952,236 Chrysler Group, LLC, Term Loan B ............................... 6.00% 05/24/17 3,996,699
-------------
AUTOMOTIVE RETAIL - 1.1%
1,862,901 KAR Auction Services, Inc., Term Loan B ........................ 3.75% 05/19/17 1,887,733
2,736,250 Pilot Travel Centers, LLC, Term Loan B2 ........................ 4.25% 08/07/19 2,708,888
-------------
4,596,621
-------------
BIOTECHNOLOGY - 1.4%
5,709,128 Grifols, SA, Term Loan B ....................................... 4.25% 06/01/17 5,750,747
-------------
BROADCASTING - 7.4%
4,986,742 Clear Channel Communications, Inc., Term Loan .................. 6.75% 01/30/19 4,653,678
1,690,667 Clear Channel Communications, Inc., Term Loan B ................ 3.84% 01/29/16 1,569,159
1,973,479 Cumulus Media Holdings, Inc., Term Loan, First Lien ............ 4.50% 09/16/18 1,989,918
1,000,000 Cumulus Media Holdings, Inc., Term Loan, Second Lien ........... 7.50% 03/18/19 1,035,000
600,000 Entravision Communications Corp., Term Loan B .................. 3.50% 05/31/20 600,000
3,113,598 FoxCo Acquisition, LLC, Term Loan B ............................ 5.50% 07/14/17 3,153,826
1,255,442 Hubbard Radio, LLC, Term Loan .................................. 4.50% 04/28/19 1,261,719
2,116,082 LIN Television Corp., Term Loan B .............................. 4.00% 12/21/18 2,130,196
482,857 Mission Broadcasting, Term Loan B .............................. 4.25% 12/03/19 490,100
1,142,143 Mission Broadcasting, Term Loan B .............................. 4.25% 12/03/19 1,159,275
3,519,335 NEP Holdco, Inc., Term Loan B .................................. 4.75% 01/22/20 3,556,745
257,143 NEP Holdco, Inc., Term Loan, Second Lien ....................... 9.50% 07/22/20 265,287
1,965,000 Raycom TV Broadcasting, LLC, Term Loan B ....................... 4.25% 05/31/17 1,965,000
4,881,438 Univision Corp., Extended First Lien Term Loan ................. 4.50% 03/01/20 4,868,356
1,000,000 Univision Corp., Incremental Term Loan ......................... 4.00% 03/01/20 992,080
-------------
29,690,339
-------------
BUILDING PRODUCTS - 0.7%
1,600,000 American Builders & Contractors Supply Co., Term Loan B ........ 3.50% 04/16/20 1,604,480
1,326,675 Unifrax, LLC, Term Loan B ...................................... 4.25% 11/28/18 1,334,144
-------------
2,938,624
-------------
CASINOS & GAMING - 3.9%
6,296,777 Caesars Entertainment Operating Company, Inc., Term Loan B6 .... 5.44% 01/28/18 5,621,322
1,320,000 Pinnacle Entertainment, Inc., Term Loan B ...................... 4.00% 03/19/19 1,322,204
3,753,086 ROC Finance, LLC, Term Loan B .................................. 5.00% 03/25/19 3,779,358
4,464,286 Scientific Games International, Inc., Initial Term Loan ........ 4.25% 05/22/20 4,432,679
Page 6 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS (a) (Continued)
MAY 31, 2013
PRINCIPAL STATED
VALUE DESCRIPTION RATE (b) MATURITY (c) VALUE
------------ ---------------------------------------------------------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS (Continued)
CASINOS & GAMING (Continued)
$ 651,852 Twin River Management Group, Inc., Term Loan B ................. 5.25% 11/10/18 $ 659,185
-------------
15,814,748
-------------
COAL & CONSUMABLE FUELS - 0.7%
2,743,683 Arch Coal, Inc., Term Loan ..................................... 5.75% 05/16/18 2,766,209
-------------
COMMERCIAL PRINTING - 0.8%
2,000,000 Cenveo Corp., Term Loan B ...................................... 6.25% 02/13/17 2,017,500
1,330,000 SGS International, Inc., Term Loan ............................. 5.00% 10/17/19 1,341,638
-------------
3,359,138
-------------
COMMODITY CHEMICALS - 0.9%
3,399,542 Tronox, Inc., Term Loan B ...................................... 4.50% 03/19/20 3,430,002
-------------
COMMUNICATIONS EQUIPMENT - 2.0%
665,000 Alcatel-Lucent, Inc., Term Loan B .............................. 6.25% 08/01/16 671,743
1,361,588 Alcatel-Lucent, Inc., Term Loan C .............................. 7.25% 01/30/19 1,374,917
3,010,000 ARRIS Group, Inc., Term Loan B ................................. 3.50% 04/17/20 3,008,134
3,060,938 Commscope, Inc., Term Loan B ................................... 3.75% 01/14/18 3,088,670
-------------
8,143,464
-------------
CONSTRUCTION & ENGINEERING - 1.3%
2,987,625 Terex Corp., Term Loan B ....................................... 4.50% 04/28/17 3,028,705
2,089,500 WireCo Worldgroup, Inc., Term Loan B ........................... 6.00% 02/15/17 2,099,948
-------------
5,128,653
-------------
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS - 0.3%
1,153,253 Navistar International Corp., Term Loan B ...................... 5.75% 08/31/17 1,174,588
-------------
CONSUMER FINANCE - 2.4%
5,342,625 Altisource Solutions S.a.r.l., Term Loan B ..................... 5.75% 11/27/19 5,389,373
933,333 Ocwen Financial Corp., Term Loan B ............................. 5.00% 01/28/18 944,225
3,362,340 Walter Investment Management Corp., Term Loan B ................ 5.75% 11/28/17 3,394,282
-------------
9,727,880
-------------
DATA PROCESSING & OUTSOURCED SERVICES - 0.9%
3,758,338 Harland Clarke Holdings Corp., Term Loan B2 .................... 5.45% 06/30/17 3,704,330
-------------
DISTRIBUTORS - 0.5%
2,029,252 Wesco Distribution, Term Loan B ................................ 4.50% 12/12/19 2,041,062
-------------
DIVERSIFIED CHEMICALS - 1.4%
3,193,382 Ineos Group Ltd., Term Loan .................................... 4.00% 05/04/18 3,191,211
2,387,796 Univar, Inc., Term Loan B ...................................... 5.00% 06/30/17 2,369,649
-------------
5,560,860
-------------
DIVERSIFIED REAL ESTATE ACTIVITIES - 1.1%
3,784,890 iStar Financial, Inc., Term Loan ............................... 4.50% 10/15/17 3,821,793
97,778 iStar Financial, Inc., Term Loan A1 ............................ 5.25% 03/19/16 98,186
600,000 Starwood Property Trust, Term Loan ............................. 3.50% 04/17/20 600,000
-------------
4,519,979
-------------
DIVERSIFIED SUPPORT SERVICES - 0.5%
1,910,176 SMG, Term Loan ................................................. 5.50% 06/07/18 1,917,340
-------------
See Notes to Financial Statements Page 7
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS (a) (Continued)
MAY 31, 2013
PRINCIPAL STATED
VALUE DESCRIPTION RATE (b) MATURITY (c) VALUE
------------ ---------------------------------------------------------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS (Continued)
EDUCATION SERVICES - 0.2%
$ 620,667 Bright Horizons Family Solutions, LLC, Term Loan B 4.00%-5.25% 01/30/20 $ 624,856
-------------
ELECTRIC UTILITIES - 1.6%
1,958,305 Equipower Resources Holdings, LLC, Term Loan B ................ 4.25% 12/16/18 1,970,545
1,333,333 Equipower Resources Holdings, LLC, Term Loan C ................ 4.25% 12/31/19 1,340,000
4,241,410 Texas Competitive Electric Holdings Company, LLC, Term Loan ... 3.70%-3.78% 10/10/14 3,279,161
-------------
6,589,706
-------------
ENVIRONMENTAL & FACILITIES SERVICES - 2.8%
2,565,000 Advanced Disposal Services, Inc., Term Loan B ................. 4.25% 10/09/19 2,581,031
5,468,651 EnergySolutions, LLC, Term Loan ............................... 6.75% 08/15/16 5,502,830
1,947,786 Waste Industries USA, Inc., Term Loan B ....................... 4.00% 03/17/17 1,974,569
1,155,000 WCA Waste Corp., Term Loan .................................... 4.00% 03/23/18 1,159,331
-------------
11,217,761
-------------
HEALTH CARE EQUIPMENT - 4.4%
1,970,000 Alere, Inc., Term Loan ........................................ 4.25% 06/30/17 1,990,941
1,975,000 Alere, Inc., Term Loan B1 ..................................... 4.25% 06/30/17 1,995,994
495,000 Alere, Inc., Term Loan B2 ..................................... 4.25% 06/30/17 500,262
1,761,150 Biomet, Inc., Term Loan B ..................................... 3.94%-4.03% 07/25/17 1,770,836
2,735,073 Carestream Health, Inc., Term Loan ............................ 5.00% 02/25/17 2,733,377
4,334,158 DJO Finance, LLC, Term Loan B ................................. 4.75% 09/15/17 4,388,335
708,929 Hologic, Inc., Term Loan B .................................... 4.50% 08/01/19 713,062
3,461,517 Kinetic Concepts, Inc., Term Loan C1 .......................... 5.50% 05/04/18 3,502,605
-------------
17,595,412
-------------
HEALTH CARE FACILITIES - 3.9%
3,093,753 Health Management Associates, Inc., Term Loan B ............... 3.50% 11/18/18 3,112,594
927,637 Select Medical Corp., Term Loan B ............................. 4.00% 06/01/18 931,115
1,965,000 Surgical Care Affiliates, Inc., Term Loan ..................... 4.25% 06/30/18 1,971,150
2,925,300 United Surgical Partners International, Inc., Term Loan ....... 4.75% 04/30/19 2,960,404
4,837,047 Vanguard Health Systems, Inc., Term Loan B .................... 3.75% 01/29/16 4,881,790
203,720 Vantage Oncology Holdings, LLC, Delayed Draw Term Loan ........ 8.00% 01/31/17 203,720
1,676,862 Vantage Oncology Holdings, LLC, Term Loan ..................... 8.00% 01/31/17 1,676,862
-------------
15,737,635
-------------
HEALTH CARE SERVICES - 5.3%
1,396,500 Air Medical Group Holdings, Inc., Term Loan B ................. 6.50% 05/31/18 1,427,921
1,440,000 Apria Healthcare Group, Inc., Term Loan B ..................... 6.75% 04/05/20 1,449,605
937,625 CHG Healthcare Services, Term Loan B .......................... 5.00% 11/19/19 947,001
2,842,875 Davita, Inc., Term Loan B2 .................................... 4.00% 08/21/19 2,873,436
4,253,014 Emergency Medical Services Corp., Term Loan B ................. 4.00% 05/25/18 4,275,045
850,000 Healogics, Inc., Term Loan B .................................. 5.25% 02/05/19 858,143
1,945,125 Heartland Dental Care, Term Loan B ............................ 6.25% 12/21/18 1,969,439
2,949,962 Rural Metro Corp., Term Loan .................................. 5.75% 06/30/18 2,878,986
3,486,263 Sheridan Healthcare, Inc., Incremented Term Loan .............. 4.50% 06/29/18 3,508,923
992,500 U.S. Renal Care, Inc., Initial Term Loan ...................... 6.25% 07/03/19 1,003,666
-------------
21,192,165
-------------
HEALTH CARE SUPPLIES - 2.3%
3,544,643 Bausch & Lomb, Inc., Term Loan B .............................. 4.00% 05/18/19 3,550,421
2,000,000 BSN Medical Acquisition Holding GmBH, Term Loan B ............. 5.00% 07/16/19 2,017,500
Page 8 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS (a) (Continued)
MAY 31, 2013
PRINCIPAL STATED
VALUE DESCRIPTION RATE (b) MATURITY (c) VALUE
------------ ---------------------------------------------------------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS (Continued)
HEALTH CARE SUPPLIES (Continued)
$ 1,743,275 ConvaTec, Inc., Term Loan B .................................... 5.00% 12/22/16 $ 1,762,887
1,847,368 Sage Products, Inc., Term Loan B ............................... 4.25% 12/13/19 1,858,139
-------------
9,188,947
-------------
HEALTH CARE TECHNOLOGY - 3.0%
3,712,500 Emdeon Business Services, LLC, Term Loan B ..................... 3.75% 11/02/18 3,734,924
947,500 MedAssets, Inc., Term Loan B ................................... 4.00% 12/13/19 952,237
2,456,250 Trizetto Group, Inc., Term Loan B .............................. 4.75% 05/02/18 2,462,391
2,000,000 Trizetto Group, Inc., Term Loan, Second Lien ................... 8.50% 03/28/19 2,010,000
2,984,962 Wolverine Healthcare Analytics, Inc., Term Loan B .............. 4.50% 05/31/19 2,989,947
-------------
12,149,499
-------------
HOMEFURNISHING RETAIL - 1.5%
2,394,000 Serta Simmons Holdings, LLC, Term Loan B ....................... 5.00% 10/01/19 2,406,712
3,415,287 Tempur-Pedic International, Inc., Term Loan B .................. 3.50% 03/18/20 3,415,902
-------------
5,822,614
-------------
HOUSEHOLD APPLIANCES - 0.2%
895,443 Alliance Laundry Systems, LLC, Term Loan B ..................... 4.50% 12/07/19 901,604
-------------
HUMAN RESOURCE & EMPLOYMENT SERVICES - 0.4%
1,393,000 Genpact International, Inc., Term Loan B ....................... 4.25% 08/30/19 1,405,189
-------------
HYPERMARKETS & SUPER CENTERS - 0.9%
3,553,594 BJ's Wholesale Club, Inc., Term Loan, First Lien ............... 4.25% 09/26/19 3,563,579
-------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS - 3.9%
3,070,840 AES Corp., Term Loan B ......................................... 3.75% 06/01/18 3,099,245
2,100,000 Calpine Construction Finance Co., L.P., Term Loan B ............ 3.00% 05/15/20 2,084,775
1,965,000 Calpine Corp., Term Loan B2 .................................... 4.00% 04/01/18 1,980,622
1,393,000 Calpine Corp., Term Loan B3 .................................... 4.00% 10/09/19 1,404,840
984,615 Dynegy Power, LLC, Term Loan B2 ................................ 4.00% 04/23/20 986,870
2,547,957 Freif North American Power I, LLC, Term Loan B ................. 4.75% 03/29/19 2,554,327
416,250 Freif North American Power I, LLC, Term Loan C ................. 4.75% 03/29/19 417,291
2,947,500 NRG Energy, Inc., Term Loan B .................................. 2.75% 07/01/18 2,928,076
-------------
15,456,046
-------------
INDUSTRIAL CONGLOMERATES - 0.8%
1,320,989 Hamilton Sundstrand Corp., Term Loan B ......................... 4.00% 12/13/19 1,321,266
2,050,920 Tomkins Air Distribution, Term Loan B .......................... 5.00% 11/09/18 2,067,164
-------------
3,388,430
-------------
INDUSTRIAL MACHINERY - 1.2%
1,945,125 Dematic Holdings, Term Loan .................................... 5.25% 12/28/19 1,959,713
2,673,612 Husky International, Ltd., Term Loan B ......................... 4.25% 06/30/18 2,688,317
-------------
4,648,030
-------------
INSURANCE BROKERS - 3.4%
2,977,538 Amwins Group, LLC, New Term Loan ............................... 5.00% 09/06/19 3,005,705
2,912,040 Confie Seguros Holding Co., Term Loan B ........................ 6.50% 11/09/18 2,935,104
2,100,000 Cooper Gay Swett & Crawford, Term Loan B ....................... 5.00% 04/16/20 2,123,625
720,000 Cooper Gay Swett & Crawford, Term Loan, Secon Lien ............. 8.25% 09/19/20 732,600
4,937,625 USI Corp., Term Loan B ......................................... 5.25% 12/27/19 4,969,719
-------------
13,766,753
-------------
See Notes to Financial Statements Page 9
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS (a) (Continued)
MAY 31, 2013
PRINCIPAL STATED
VALUE DESCRIPTION RATE (b) MATURITY (c) VALUE
------------ ---------------------------------------------------------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS (Continued)
INTEGRATED TELECOMMUNICATION SERVICES - 1.9%
$ 3,585,495 Avaya, Inc., Term Loan B3 ...................................... 4.77% 10/26/17 $ 3,216,045
1,980,747 Hawaiian Telcom Communications, Inc., Term Loan ................ 5.00% 06/06/19 1,986,947
2,443,875 Windstream Corp., Term Loan B4 ................................. 3.50% 01/23/20 2,451,524
-------------
7,654,516
-------------
IT CONSULTING & OTHER SERVICES - 1.2%
1,529,543 Presidio, Inc., Term Loan B .................................... 5.75% 03/31/17 1,514,248
1,762,500 Sirius Computer Solutions, Inc., Term Loan B ................... 7.00% 12/07/18 1,802,156
1,380,446 West Corp., Term Loan B8 ....................................... 3.75% 06/30/18 1,390,510
-------------
4,706,914
-------------
LEISURE FACILITIES - 0.3%
1,329,762 Six Flags, Inc., Term Loan B ................................... 4.00%-5.25% 12/20/18 1,346,384
-------------
LEISURE PRODUCTS - 0.7%
2,927,116 Live Nation Entertainment, Inc., Term Loan B ................... 4.50% 11/07/16 2,951,499
-------------
LIFE & HEALTH INSURANCE - 0.4%
1,638,456 CNO Financial Group, Inc., Term Loan B2 ........................ 3.75% 09/28/18 1,646,648
-------------
LIFE SCIENCES TOOLS & SERVICES - 1.8%
1,587,278 inVentiv Health, Inc., Term Loan ............................... 7.50% 08/04/16 1,567,437
533,246 inVentiv Health, Inc., Term Loan B3 ............................ 7.75% 05/15/18 527,247
2,327,500 Pharmaceutical Products Development, Inc., 2013 Term Loan ...... 4.25% 12/05/18 2,342,699
464,041 Quintiles Transnational Corp., Term Loan B1 .................... 4.50% 06/08/18 466,361
2,162,750 Quintiles Transnational Corp., Term Loan B2 .................... 4.50% 06/08/18 2,183,923
-------------
7,087,667
-------------
MANAGED HEALTH CARE - 0.7%
2,890,126 MultiPlan, Inc., Term Loan B ................................... 4.00% 08/26/17 2,915,415
-------------
METAL & GLASS CONTAINERS - 1.8%
1,800,000 Berlin Packaging, LLC, Term Loan B ............................. 4.75% 04/02/19 1,818,756
2,400,000 Berry Plastics Corp., Term Loan D .............................. 3.50% 02/08/20 2,400,000
2,900,000 Pact Group, Term Loan B ........................................ 3.75% 05/29/20 2,910,875
-------------
7,129,631
-------------
MOVIES & ENTERTAINMENT - 2.5%
2,970,075 Alpha Topco, Ltd., Term Loan B2 ................................ 6.00% 04/30/19 3,001,884
1,800,000 AMC Entertainment, Inc., Term Loan B ........................... 3.50% 04/30/20 1,803,654
800,000 Kasima, LLC, Term Loan B ....................................... 3.25% 05/31/21 801,504
4,500,000 Village Roadshow Films Ltd., Term Loan B ....................... 4.75% 11/21/17 4,601,250
-------------
10,208,292
-------------
OIL & GAS REFINING & MARKETING - 0.1%
448,377 Citgo Petroleum Corp., Term Loan B ............................. 8.00% 06/24/15 450,619
-------------
OTHER DIVERSIFIED FINANCIAL SERVICES - 5.8%
900,000 Evertec, Term Loan B ........................................... 3.50% 04/17/20 897,525
2,992,500 First American Payment Systems, L.P., Term Loan ................ 5.75% 10/12/18 3,016,829
2,000,000 First Data Corp., Term Loan .................................... 4.20% 09/24/18 1,989,720
4,683,538 First Data Corp., 2017 New Dollar Term Loan .................... 4.20% 03/24/17 4,668,925
547,619 Global Cash Access, Inc., Term Loan B .......................... 4.00% 03/01/16 550,357
2,780,000 iPayment, Inc., Term Loan B .................................... 5.75% 05/08/17 2,738,300
Page 10 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS (a) (Continued)
MAY 31, 2013
PRINCIPAL STATED
VALUE DESCRIPTION RATE (b) MATURITY (c) VALUE
------------ ---------------------------------------------------------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS (Continued)
OTHER DIVERSIFIED FINANCIAL SERVICES (Continued)
$ 3,377,651 Moneygram International, Term Loan B ........................... 4.25% 03/27/20 $ 3,386,095
3,534,703 RPI Finance Trust, Term Loan B ................................. 4.00% 11/09/18 3,547,959
2,443,875 Transfirst Holdings, Inc., Term Loan B ......................... 4.75% 12/27/17 2,452,282
-------------
23,247,992
-------------
PACKAGED FOODS & MEATS - 4.5%
3,994,657 Blue Buffalo Company, Ltd., Term Loan B ........................ 4.75% 08/08/19 4,024,617
3,370,000 Ferrara Candy Co., Term Loan B ................................. 7.50%-8.50% 06/06/18 3,381,222
2,100,000 H.J. Heinz Co., Term Loan B2 ................................... 3.50% 06/07/20 2,117,766
1,600,000 Hostess Brands, Term Loan B .................................... 6.75% 04/09/20 1,641,008
1,972,500 JBS USA, LLC, Term Loan B ...................................... 3.75% 05/25/18 1,979,897
2,142,857 Pinnacle Foods Finance, LLC, Term Loan G ....................... 3.25% 04/29/20 2,142,857
2,660,625 Smart Balance, Inc., Term Loan ................................. 7.00% 07/02/18 2,688,908
-------------
17,976,275
-------------
PAPER PACKAGING - 1.5%
5,893,462 Reynolds Consumer Products Holdings, Inc., Incremented U.S.
Term Loan ................................................... 4.75% 09/28/18 5,940,727
-------------
PHARMACEUTICALS - 5.2%
750,000 Catalent Pharma Solutions, Inc., Term Loan ..................... 6.50% 12/31/17 758,438
3,573,660 Catalent Pharma Solutions, Inc., Term Loan 2 ................... 4.25% 09/15/17 3,590,421
3,619,362 IMS Healthcare, Term Loan B .................................... 3.75% 09/01/17 3,637,459
2,887,500 Jazz Pharmaceuticals, Inc., Term Loan B ........................ 5.25% 03/11/18 2,887,500
3,411,450 Par Pharmaceutical, Inc., Term Loan B .......................... 4.25% 09/30/19 3,414,827
1,217,550 Valeant Pharmaceuticals International, Inc., Term Loan B ....... 3.50% 02/13/19 1,223,637
598,500 Valeant Pharmaceuticals International, Inc., Term Loan B ....... 3.50% 12/11/19 601,774
507,414 Warner Chilcott, PLC, Term Loan B1 ............................. 4.25% 03/15/18 510,078
1,165,646 Warner Chilcott, PLC, Term Loan B1 ............................. 4.25% 03/15/18 1,171,765
413,046 Warner Chilcott, PLC, Term Loan B2 ............................. 4.25% 03/15/18 415,214
918,542 Warner Chilcott, PLC, Term Loan B3 ............................. 4.25% 03/15/18 923,365
1,425,000 Warner Chilcott, PLC, Term Loan B4 ............................. 3.19% 08/20/17 1,433,906
285,000 Warner Chilcott, PLC, Term Loan B5 ............................. 3.19% 08/20/17 286,781
-------------
20,855,165
-------------
PROPERTY & CASUALTY INSURANCE - 0.8%
194,886 Cunningham Lindsey Group Ltd., Term Loan, Second Lien .......... 9.25% 06/10/20 199,271
2,956,500 Cunningham Lindsey Group Ltd., Term Loan, First Lien ........... 5.00% 12/10/19 2,982,370
-------------
3,181,641
-------------
PUBLISHING - 0.9%
800,000 McGraw Hill Global Education, LLC, Term Loan B ................. 9.00% 03/22/19 797,000
2,422,500 Tribune Co., Term Loan B ....................................... 4.00% 12/17/19 2,447,573
757,652 Yell Group, PLC, Term Loan B1 (d) .............................. 4.46% 07/31/14 175,442
-------------
3,420,015
-------------
REAL ESTATE OPERATING COMPANIES - 1.0%
3,773,321 ClubCorp Club Operations, Inc., Term Loan ...................... 5.00% 11/30/16 3,825,205
-------------
REAL ESTATE SERVICES - 0.1%
500,000 Realogy Corp., Term Loan B ..................................... 4.50% 02/12/20 504,480
-------------
See Notes to Financial Statements Page 11
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS (a) (Continued)
MAY 31, 2013
PRINCIPAL STATED
VALUE DESCRIPTION RATE (b) MATURITY (c) VALUE
------------ ---------------------------------------------------------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS (Continued)
RESEARCH & CONSULTING SERVICES - 4.4%
$ 4,009,523 Acosta, Inc., Term Loan ........................................ 5.00% 03/02/18 $ 4,033,740
4,280,427 Advantage Sales & Marketing, Inc., Term Loan, First Lien ....... 4.25% 12/17/17 4,301,829
947,895 Advantage Sales & Marketing, Inc., Term Loan, Second Lien ...... 8.25% 06/17/18 958,161
1,386,204 Affinion Group, Inc., Term Loan B .............................. 6.50% 10/09/16 1,352,699
1,717,857 Property Data, Inc., Term Loan ................................. 7.00% 01/04/17 1,731,823
2,900,000 SurveyMonkey.com, LLC, Term Loan B ............................. 5.50% 02/07/19 2,921,750
2,135,461 SymphonyIRI Group, Inc., Term Loan B ........................... 4.50% 12/01/17 2,154,146
-------------
17,454,148
-------------
RESTAURANTS - 1.7%
4,924,841 Focus Brands, Inc., Term Loan B ................................ 4.25%-5.50% 02/21/18 4,954,390
1,450,000 Focus Brands, Inc., Term Loan, Second Lien ..................... 10.25% 08/21/18 1,479,000
400,000 Seminole Hard Rock Entertainment, Inc., Term Loan B ............ 3.50% 05/14/20 400,832
-------------
6,834,222
-------------
RETAIL REITS - 0.9%
2,697,926 Capital Automotive L.P., Refinancing Term Loan ................. 4.00% 04/10/19 2,714,788
800,000 Capital Automotive L.P., Term Loan, Second Lien ................ 6.00% 04/30/20 828,000
-------------
3,542,788
-------------
SECURITY & ALARM SERVICES - 0.3%
1,194,000 Garda World Security, Term Loan B .............................. 4.50% 11/13/19 1,205,940
-------------
SEMICONDUCTORS - 2.4%
5,400,000 Freescale Semiconductor, Inc., Term Loan B ..................... 5.00% 01/30/20 5,424,084
4,266,667 MMI International, Ltd., Term Loan B ........................... 7.25% 11/20/18 4,224,000
-------------
9,648,084
-------------
SPECIALIZED CONSUMER SERVICES - 2.4%
1,171,875 Asurion Corp., Term Loan B1 .................................... 4.75% 07/23/17 1,177,008
6,456,901 Asurion Corp., Term Loan B1 .................................... 4.50% 05/24/19 6,483,438
1,974,547 Expert Global Solutions, Inc., Term Loan B ..................... 8.50% 04/03/18 1,998,735
-------------
9,659,181
-------------
SPECIALIZED FINANCE - 2.7%
2,000,000 AlixPartners, LLP, Term Loan B1 ................................ 3.53% 06/30/17 2,009,500
1,985,025 AlixPartners, LLP, Term Loan B2 ................................ 4.50% 06/30/19 1,999,913
1,400,000 Duff & Phelps, Initial Term Loan ............................... 4.50% 04/23/20 1,408,750
2,863,133 Fly Leasing, Ltd., Term Loan B ................................. 4.50% 08/06/18 2,888,185
2,500,000 Flying Fortress, Inc., Term Loan 3 ............................. 3.50% 06/30/17 2,518,750
-------------
10,825,098
-------------
SPECIALTY CHEMICALS - 5.3%
2,376,000 Ascend Performance Materials, LLC, Term Loan B ................. 6.75% 04/10/18 2,387,880
4,105,669 AZ Chemicals, Inc., Term Loan B ................................ 5.25% 12/22/17 4,144,673
1,800,000 Cyanco Intermediate Corp., Term Loan B ......................... 5.50% 05/01/20 1,814,994
1,295,000 DuPont Performance Coatings, Term Loan B ....................... 4.75% 02/01/20 1,304,233
2,977,503 Emerald Performance Materials, LLC, Term Loan B ................ 6.75% 05/18/18 2,984,947
867,825 Houghton International, Inc., Term Loan B ...................... 4.00% 12/20/19 867,825
724,231 Monarch, Term Loan B ........................................... 4.50% 10/03/19 729,214
375,769 Monarch, Term Loan B2 .......................................... 4.50% 10/03/19 378,354
2,526,832 Nusil Technology, LLC, Term Loan ............................... 5.25% 04/07/17 2,531,886
Page 12 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS (a) (Continued)
MAY 31, 2013
PRINCIPAL STATED
VALUE DESCRIPTION RATE (b) MATURITY (c) VALUE
------------ ---------------------------------------------------------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS (Continued)
SPECIALTY CHEMICALS (Continued)
$ 1,462,500 Omnova Solutions, Inc., Term Loan B ............................ 4.25% 05/31/18 $ 1,477,125
1,155,022 Taminco Global Chemical Corp., Term Loan B2 .................... 4.25% 02/15/19 1,163,327
907,200 Waddington Group, USD Term Loan - Canadian Borrower ............ 4.50% 06/07/20 909,468
492,800 Waddington Group, USD Term Loan - U.S. Borrower ................ 4.50% 06/07/20 494,032
-------------
21,187,958
-------------
SPECIALTY STORES - 0.4%
1,425,000 Rite Aid Corp., Term Loan B .................................... 4.00% 02/21/20 1,432,424
-------------
STEEL - 0.9%
3,482,500 Fortescue (FMG), Term Loan ..................................... 5.25% 10/18/17 3,498,833
-------------
SYSTEMS SOFTWARE - 3.5%
400,000 Blue Coat Systems, Inc., Term Loan B ........................... 4.50% 05/31/19 403,000
1,330,000 Deltek, Inc., Term Loan B ...................................... 5.00% 10/10/18 1,343,300
1,268,042 Riverbed Technology, Inc., Term Loan B ......................... 4.00% 12/18/19 1,280,723
2,355,065 SS&C Technologies Holdings, Inc., Term Loan B1 ................. 3.50% 06/08/19 2,366,840
243,647 SS&C Technologies Holdings, Inc., Term Loan B2 ................. 3.50% 06/08/19 245,779
2,066,250 Sungard Data Systems, Inc., Term Loan D ........................ 4.50% 12/14/19 2,092,078
4,401,254 Vertafore, Inc., Term Loan B ................................... 4.25% 10/03/19 4,441,965
1,795,500 Wall Street Systems, Inc., Term Loan B ......................... 5.75% 10/25/19 1,811,211
-------------
13,984,896
-------------
TIRES & RUBBER - 0.5%
2,142,857 Goodyear Tire & Rubber Co., Term Loan, Second Lien ............. 4.75% 04/30/19 2,154,171
-------------
TRUCKING - 1.5%
2,280,000 Hertz Corp., Term Loan B ....................................... 3.75% 03/11/18 2,291,810
2,700,000 SIRVA, Inc., Term Loan B ....................................... 7.50% 03/27/19 2,679,750
958,370 Swift Transportation Co., Inc., Term Loan B2 ................... 4.00% 12/21/17 969,631
-------------
5,941,191
-------------
WIRELESS TELECOMMUNICATION SERVICES - 2.0%
2,200,000 Cricket Communications, Inc., Term Loan C ...................... 4.75% 03/08/20 2,213,750
700,000 Lightower Fiber Networks, Term Loan B .......................... 4.50% 04/01/20 705,691
1,995,000 Syniverse Holdings, Inc., Delayed Draw Term Loan ............... 4.00% 04/23/19 2,001,863
2,977,500 Syniverse Holdings, Inc., Term Loan B .......................... 5.00% 04/23/19 2,997,360
-------------
7,918,664
-------------
TOTAL SENIOR FLOATING-RATE LOAN INTERESTS 586,381,052
(Cost $583,347,844) -------------
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
------------ ---------------------------------------------------------------- ----------- ------------ -------------
CORPORATE BONDS AND NOTES - 1.0%
AUTO PARTS & EQUIPMENT - 0.1%
250,000 American Axle & Manufacturing, Inc.............................. 6.25% 03/15/21 261,563
-------------
HEALTH CARE FACILITIES - 0.6%
2,250,000 Vantage Oncology Holdings, LLC (e) ............................. 9.50% 06/15/17 2,272,500
-------------
See Notes to Financial Statements Page 13
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS (a) (Continued)
MAY 31, 2013
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
------------ ---------------------------------------------------------------- ----------- ------------ -------------
CORPORATE BONDS AND NOTES (Continued)
HOMEBUILDING - 0.0%
$ 727,273 TOUSA, Inc. (Payment-In-Kind Election Note) (f) (g) (h) (i) .... 14.75% 07/01/15 $ 0
-------------
LIFE SCIENCES TOOLS & SERVICES - 0.1%
400,000 Inventiv Health, Inc. (e) ...................................... 9.00% 01/15/18 427,000
-------------
SPECIALTY CHEMICALS - 0.2%
850,000 Hexion US Finance Corp. (e) .................................... 6.63% 04/15/20 888,250
-------------
TOTAL CORPORATE BONDS AND NOTES ................................ 3,849,313
(Cost $4,192,739) -------------
SHARES DESCRIPTION VALUE
------------ --------------------------------------------------------------------------------------------- -------------
WARRANTS - 0.0%
BROADCASTING - 0.0%
1,449 Cumulus Media, Inc. (f) (h) (j) ............................................................. 3,681
-------------
TOTAL WARRANTS .............................................................................. 3,681
(Cost $0) -------------
COMMON STOCKS - 0.0%
DIVERSIFIED CHEMICALS - 0.0%
20 LyondellBasell Industries N.V., Class A (h) ................................................. 1,333
-------------
TOTAL COMMON STOCKS ......................................................................... 1,333
(Cost $0) -------------
PREFERRED STOCKS - 0.0%
HOMEBUILDING - 0.0%
4,273 TOUSA, Inc. (8.00% coupon, 07/01/15 maturity date, Series A Convertible Payment-In-Kind
Preferred Stock) (f) (g) (h) (j) .......................................................... 0
-------------
TOTAL PREFERRED STOCKS ...................................................................... 0
(Cost $2,563,636) -------------
TOTAL INVESTMENTS - 147.3% .................................................................. 590,235,379
(Cost $590,104,219) (k)
OUTSTANDING LOAN - (43.4%) .................................................................. (174,000,000)
NET OTHER ASSETS AND LIABILITIES - (3.9%) ................................................... (15,410,530)
-------------
NET ASSETS - 100.0% ......................................................................... $ 400,824,849
=============
-----------------------------
(a) All or a portion of the securities are available to serve as collateral on
the outstanding loan.
(b) Senior Floating-Rate Loan Interests ("Senior Loans") in which the Fund
invests pay interest at rates which are periodically predetermined by
reference to a base lending rate plus a premium. These base lending rates
are generally (i) the lending rate offered by one or more major European
banks, such as the London Inter-Bank Offered Rate ("LIBOR"), (ii) the
prime rate offered by one or more United States banks or (iii) the
certificate of deposit rate. Certain Senior Loans are subject to a LIBOR
floor that establishes a minimum LIBOR rate. The interest rate shown
reflects the rate in effect at May 31, 2013. When a range of rates is
disclosed the fund holds more than one contract within the same tranche at
varying rates.
(c) Senior Loans generally are subject to mandatory and/or optional
prepayment. As a result, the actual remaining maturity of Senior Loans may
be substantially less than the stated maturities shown.
(d) This issuer is in default and interest is not being accrued by the Fund
nor paid by the issuer.
Page 14 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS (CONTINUED)
MAY 31, 2013
(e) This security, sold within the terms of a private placement memorandum, is
exempt from registration upon resale under Rule 144A under the Securities
Act of 1933, as amended, and may be resold in transactions exempt from
registration, normally to qualified institutional buyers. Pursuant to
procedures adopted by the Fund's Board of Trustees, this security has been
determined to be liquid by First Trust Advisors L.P., the Fund's advisor.
Although market instability can result in periods of increased overall
market illiquidity, liquidity for each security is determined based on
security specific factors and assumptions, which require subjective
judgment. At May 31, 2013, securities noted as such amounted to $3,587,750
or 0.90% of net assets.
(f) 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.
(g) This issuer has filed for protection in federal bankruptcy court.
(h) 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).
(i) This Note 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.
(j) Non-income producing security.
(k) Aggregate cost for federal income tax purposes is $590,632,398. As of May
31, 2013, the aggregate gross unrealized appreciation for all securities
in which there was an excess of value over tax cost was $5,542,340 and the
aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over value was $5,939,359.
See Notes to Financial Statements Page 15
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS (CONTINUED)
MAY 31, 2013
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of May 31, 2013,
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
5/31/2013 PRICES INPUTS INPUTS
------------ ---------- ------------ ------------
Senior Floating-Rate Loan Interests* $586,381,052 $ -- $586,381,052 $ --
Corporate Bonds and Notes* 3,849,313 -- 3,849,313 -- **
Warrants* 3,681 -- 3,681 --
Common Stocks* 1,333 1,333 -- --
Preferred Stocks* -- -- -- -- **
------------ ---------- ------------ ------------
TOTAL INVESTMENTS $590,235,379 $ 1,333 $590,234,046 $ --
============ ========== ============ ============
All transfers in and out of Level 3 during the period are assumed to be
transferred on the last day of the period at their current value. As of May 31,
2013, the Fund transferred Senior Floating-Rate Loan Interests valued at
$3,558,982 from Level 3 to Level 2 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 service relating to the market activity of individual Senior
Floating-Rate Loan Interests.
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 -- **
Preferred Stocks -- **
Net Realized Gain (Loss)
Senior Floating-Rate Loan Interests 113,144
Net Change in Unrealized Appreciation/Depreciation
Senior Floating-Rate Loan Interests 63,357
Purchases
Senior Floating-Rate Loan Interests --
Sales
Senior Floating-Rate Loan Interests (15,966,753)
Transfers In
Senior Floating-Rate Loan Interests --
Transfers Out
Senior Floating-Rate Loan Interests (587,364)
------------
ENDING BALANCE AT MAY 31, 2013
Senior Floating-Rate Loan Interests --
Notes -- **
Warrants --
Preferred Stocks -- **
------------
Total Level 3 holdings $ --
============
* 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.
Page 16 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 2013
ASSETS:
Investments, at value
(Cost $590,104,219)............................................................................ $590,235,379
Cash........................................................................................ 8,917,292
Receivables:
Investment securities sold.................................................................. 29,294,031
Interest.................................................................................... 2,980,705
Fund shares sold............................................................................ 125,050
Prepaid expenses............................................................................... 106,849
------------
Total Assets............................................................................. 631,659,306
------------
LIABILITIES:
Outstanding loan............................................................................... 174,000,000
Payables:
Investment securities purchased............................................................. 56,066,560
Investment advisory fees.................................................................... 366,222
Interest and fees on loan................................................................... 155,206
Audit and tax fees.......................................................................... 81,575
Administrative fees......................................................................... 50,152
Custodian fees.............................................................................. 50,120
Printing fees............................................................................... 30,167
Legal fees.................................................................................. 16,567
Trustees' fees and expenses................................................................. 4,731
Transfer agent fees......................................................................... 3,046
Financial reporting fees.................................................................... 771
Other liabilities.............................................................................. 9,340
------------
Total Liabilities........................................................................ 230,834,457
------------
NET ASSETS..................................................................................... $400,824,849
============
NET ASSETS CONSIST OF:
Paid-in capital................................................................................ $498,587,172
Par value...................................................................................... 264,704
Accumulated net investment income (loss)....................................................... 1,544,225
Accumulated net realized gain (loss) on investments............................................ (99,702,412)
Net unrealized appreciation (depreciation) on investments...................................... 131,160
------------
NET ASSETS..................................................................................... $400,824,849
============
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share)........................... $ 15.14
============
Number of Common Shares outstanding (unlimited number of Common Shares has been authorized).... 26,470,348
============
See Notes to Financial Statements Page 17
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MAY 31, 2013
INVESTMENT INCOME:
Interest....................................................................................... $ 30,874,779
Other.......................................................................................... 2,088,377
------------
Total investment income..................................................................... 32,963,156
------------
EXPENSES:
Investment advisory fees....................................................................... 4,091,295
Interest and fees on loan...................................................................... 1,811,839
Administrative fees............................................................................ 430,235
Legal fees..................................................................................... 202,289
At the market offering costs................................................................... 149,607
Printing fees.................................................................................. 110,634
Audit and tax fees............................................................................. 88,950
Custodian fees................................................................................. 74,028
Transfer agent fees............................................................................ 31,083
Trustees' fees and expenses.................................................................... 29,253
Financial reporting fees....................................................................... 9,250
Other.......................................................................................... 55,746
------------
Total expenses.............................................................................. 7,084,209
------------
NET INVESTMENT INCOME (LOSS)................................................................... 25,878,947
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments..................................................... 5,549,306
Net change in unrealized appreciation (depreciation) on investments......................... 10,880,340
------------
NET REALIZED AND UNREALIZED GAIN (LOSS)........................................................ 16,429,646
------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................... $ 42,308,593
============
Page 18 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
STATEMENTS OF CHANGES IN NET ASSETS
YEAR YEAR
ENDED ENDED
5/31/2013 5/31/2012
-------------- --------------
OPERATIONS:
Net investment income (loss)....................................................... $ 25,878,947 $ 23,074,364
Net realized gain (loss)........................................................... 5,549,306 1,021,296
Net change in unrealized appreciation (depreciation)............................... 10,880,340 (8,968,841)
-------------- --------------
Net increase (decrease) in net assets resulting from operations.................... 42,308,593 15,126,819
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.............................................................. (26,429,210) (21,979,654)
-------------- --------------
Total distributions to shareholders................................................ (26,429,210) (21,979,654)
-------------- --------------
CAPITAL TRANSACTIONS:
Proceeds from Common Shares sold through at the market offerings................... 16,309,080 --
Proceeds from Common Shares reinvested............................................. 1,464,623 122,469
-------------- --------------
Net increase (decrease) in net assets resulting from capital transactions.......... 17,773,703 122,469
-------------- --------------
Total increase (decrease) in net assets............................................ 33,653,086 (6,730,366)
NET ASSETS:
Beginning of period................................................................ 367,171,763 373,902,129
-------------- --------------
End of period...................................................................... $ 400,824,849 $ 367,171,763
============== ==============
Accumulated net investment income (loss) at end of period.......................... $ 1,544,225 $ 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................................. 1,029,480 --
Common Shares issued as reinvestment under the Dividend Reinvestment Plan.......... 97,197 8,394
-------------- --------------
Common Shares at end of period..................................................... 26,470,348 25,343,671
============== ==============
See Notes to Financial Statements Page 19
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED MAY 31, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) in net assets resulting from operations................. $ 42,308,593
Adjustments to reconcile net increase (decrease) in net assets resulting from
operations to net cash used in operating activities:
Purchases of investments.................................................. (722,504,297)
Sales, maturities and paydowns of investments............................. 696,475,702
Net amortization/accretion of premiums/discounts on investments........... (1,978,594)
Net realized gain/loss on investments..................................... (5,549,306)
Net change in unrealized appreciation/depreciation on investments......... (10,880,340)
CHANGES IN ASSETS AND LIABILITIES:
Decrease in interest receivable........................................... 97,505
Decrease in dividends receivable.......................................... 13,008
Increase in prepaid expenses.............................................. (83,770)
Increase in interest and fees on loan payable............................. 25,428
Increase in investment advisory fees payable.............................. 28,921
Increase in audit and tax fees payable.................................... 19,375
Increase in legal fees payable............................................ 4,823
Increase in printing fees payable......................................... 3,108
Increase in administrative fees payable................................... 8,854
Decrease in custodian fees payable........................................ (1,856)
Increase in transfer agent fees payable................................... 74
Decrease in Trustees' fees and expenses payable........................... (3,786)
Increase in other liabilities payable..................................... 1,732
--------------
CASH USED IN OPERATING ACTIVITIES............................................... $ (2,014,826)
--------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of Common Shares sold............................................ 16,184,030
Proceeds of Common Shares reinvested...................................... 1,464,623
Distributions to Common Shareholders...................................... (26,429,210)
Proceeds from borrowing................................................... 36,000,000
Repayment of borrowing.................................................... (20,000,000)
--------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES..................................... 7,219,443
--------------
Increase in cash................................................................ 5,204,617
Cash at beginning of period..................................................... 3,712,675
--------------
CASH AT END OF PERIOD........................................................... $ 8,917,292
==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest and fees............................... $ 1,786,411
==============
Page 20 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
FINANCIAL HIGHLIGHTS
FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
5/31/2013 5/31/2012 5/31/2011 (a) 5/31/2010 5/31/2009
--------- --------- ------------- --------- ---------
Net asset value, beginning of period.................... $ 14.49 $ 14.76 $ 13.96 $ 11.79 $ 16.42
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)............................ 1.01 0.91 0.73 0.47 0.87
Net realized and unrealized gain (loss)................. 0.64 (0.31) 0.77 2.15 (4.63)
Distributions paid to AMP (b) Shareholders from:
Net investment income................................... -- -- -- (0.02) (0.09)
--------- --------- --------- --------- ---------
Total from investment operations........................ 1.65 0.60 1.50 2.60 (3.85)
--------- --------- --------- --------- ---------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income................................... (1.03) (0.87) (0.70) (0.43) (0.78)
--------- --------- --------- --------- ---------
Total distributions to Common Shareholders.............. (1.03) (0.87) (0.70) (0.43) (0.78)
--------- --------- --------- --------- ---------
Premium from shares sold in at the market offering...... 0.03 -- -- -- --
--------- --------- --------- --------- ---------
Net asset value, end of period.......................... $ 15.14 $ 14.49 $ 14.76 $ 13.96 $ 11.79
========= ========= ========= ========= =========
Market value, end of period............................. $ 15.37 $ 14.34 $ 14.82 $ 12.65 $ 10.04
========= ========= ========= ========= =========
TOTAL RETURN BASED ON NET ASSET VALUE (c)............... 11.92% (4.45)% 11.19% 22.99% (22.07)%
========= ========= ========= ========= =========
TOTAL RETURN BASED ON MARKET VALUE (c).................. 14.80% (2.95)% 23.20% 30.76% (26.11)%
========= ========= ========= ========= =========
-----------------------
RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON SHAREHOLDERS:
Ratio of total expenses to average net assets........... 1.85% 1.88% 1.98% 2.42% 3.40%
Ratio of total expenses to average net assets excluding
interest expense................................... 1.38% 1.33% 1.31% 1.39% 1.62%
Ratio of net investment income (loss) to average net
assets............................................. 6.77% 6.38% 5.09% 3.49% 7.34%
Ratio of net investment income (loss) to average net
assets net of AMP Shares dividends (d)............. N/A N/A N/A 3.37% 6.60%
SUPPLEMENTAL DATA:
Portfolio turnover rate................................. 125% 63% 95% 52% 15%
Net assets, end of period (in 000's).................... $ 400,825 $ 367,172 $ 373,902 $ 353,106 $ 298,097
Ratio of total expenses to total average Managed
Assets (e) ........................................ 1.30% 1.31% 1.39% 1.77% 2.02%
Ratio of total expenses to total average Managed Assets
excluding interest expense (e)..................... 0.97% 0.93% 0.92% 1.01% 0.96%
PREFERRED SHARES AND LOAN OUTSTANDING:
Total AMP Shares outstanding (f)........................ N/A N/A N/A N/A 3,200
Liquidation and market value per AMP share (g).......... N/A N/A N/A N/A 25,018
Asset coverage per share................................ N/A N/A N/A N/A 118,155
(h)
Total loan outstanding (in 000's)....................... $ 174,000 $ 158,000 $ 160,000 $ 153,500 $ 57,050
Asset coverage per $1,000 of indebtedness (i)........... $ 3,304 $ 3,324 $ 3,337 $ 3,300 $ 7,627
-----------------------
(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) Ratio reflects the effect of distributions to AMP Shareholders.
(e) 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.
(f) As of November 18, 2009, the Fund no longer has any Series A or Series B
AMP Shares outstanding.
(g) Includes accumulated and unpaid distributions to AMP Shareholders.
(h) 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.
(i) 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
See Notes to Financial Statements Page 21
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NOTES TO FINANCIAL STATEMENTS
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FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
MAY 31, 2013
1. ORGANIZATION
First Trust Senior Floating Rate Income Fund II (the "Fund") is a diversified,
closed-end management investment company organized as a Massachusetts business
trust on March 25, 2004 , and is registered with the Securities and Exchange
Commission ("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
floating-rate loan interests ("Senior Loans"). 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 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;
Page 22
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
MAY 31, 2013
3) the type, size and cost of a security;
4) the financial statements of the borrower/issuer;
5) the credit quality and cash flow of the borrower/issuer, based on
the Advisor's or external analysis;
6) the information as to any transactions in or offers for the
security;
7) the price and extent of public trading in similar securities (or
equity securities) of the borrower/issuer, or comparable companies;
8) the coupon payments;
9) the quality, value and salability of collateral, if any, securing
the security;
10) the business prospects of the borrower/issuer, including any ability
to obtain money or resources from a parent or affiliate and an
assessment of the borrower's/issuer's management;
11) the prospects for the borrower's/issuer's industry, and multiples
(of earnings and/or cash flows) being paid for similar businesses in
that industry;
12) borrower's/issuer's competitive position within the industry;
13) borrower's/issuer's ability to access additional liquidity through
public and/or private markets; and
14) other relevant factors.
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
The inputs or methodology used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of May 31, 2013, is
included with the Fund's Portfolio of Investments.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME:
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Interest income is recorded on the accrual basis. Market premiums and discounts
are amortized over the expected life of each respective borrowing.
Securities purchased or sold on a when-issued, delayed-delivery or forward
purchase commitment basis may have extended settlement periods. The value of the
security so purchased is subject to market fluctuations during this period. Due
to the nature of the Senior Loan market, the actual settlement date may not be
certain at the time of the purchase or sale for some of the Senior Loans.
Interest income on such Senior Loans is not accrued until settlement date. The
Fund maintains liquid assets with a current value at least equal to the amount
of its when-issued, delayed delivery or forward purchase commitments. The Fund
had no when-issued, delayed-delivery, or forward purchase commitments as of May
31, 2013.
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 did not have unfunded delayed draw loan
commitments as of May 31, 2013.
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
May 31, 2013, 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
Page 23
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
MAY 31, 2013
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 $ 2.54 $ -- $ 3,681 0.00% *
LyondellBasell Industries N.V.,
Class A Common Stocks 12/17/12 20 66.65 -- 1,333 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 $ 5,014 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. Permanent differences incurred during the
year ended May 31, 2013, resulting in book and tax accounting differences, have
been reclassified at year end to reflect an increase in accumulated net
investment income (loss) of $101, an increase in accumulated net realized gain
(loss) on investments of $149,506 and a decrease to paid-in capital of $149,607.
Net assets were not affected by these reclassifications.
The tax character of distributions paid during the fiscal years ended May 31,
2013 and 2012 is as follows:
Distributions paid from: 2013 2012
------------- -------------
Ordinary income $ 26,429,210 $ 21,979,654
As of May 31, 2013, the components of distributable earnings and net assets on a
tax basis were as follows:
Undistributed ordinary income.................. $ 1,704,157
Undistributed capital gains.................... --
-------------
Total undistributed earnings................... 1,704,157
Accumulated capital and other losses........... (99,308,450)
Net unrealized appreciation (depreciation)..... (397,019)
-------------
Total accumulated earnings (losses)............ (98,001,312)
Other.......................................... (25,715)
Paid-in capital................................ 498,851,876
-------------
Net assets..................................... $ 400,824,849
=============
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 24
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
MAY 31, 2013
Under the Regulated Investment Company Modernization Act of 2010 (the "Act"),
net capital losses arising in taxable years after December 31, 2010, may be
carried forward indefinitely, and their character is retained as short-term
and/or long-term losses. Previously, net capital losses were carried forward for
up to eight years and treated as short-term losses. As a transition rule, the
Act requires that post-enactment net capital losses be used before pre-enactment
net capital losses. At May 31, 2013, the Fund had pre-enactment net capital
losses for federal income tax purposes of $99,308,450 expiring as follows:
EXPIRATION DATE AMOUNT
May 31, 2016 $ 778,618
May 31, 2017 $ 25,585,953
May 31, 2018 $ 68,278,827
May 31, 2019 $ 4,665,052
During the taxable year ended May 31, 2013, the Fund utilized pre-enactment
capital loss carryforwards in the amount of $5,977,075.
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 ended 2010, 2011,
2012 and 2013 remain open to federal and state audit. As of May 31, 2013,
management has evaluated the application of these standards to the Fund and has
determined that no provision for income tax is required in the Fund's financial
statements for uncertain tax positions.
G. EXPENSES:
The Fund will pay all expenses directly related to its operations.
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Fund, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the ongoing monitoring of the Fund's investment
portfolio, managing the Fund's business affairs and providing certain
administrative services necessary for the management of the Fund. For these
investment management services, First Trust is entitled to a monthly fee
calculated at an annual rate of 0.75% of the Fund's Managed Assets (the average
daily total asset value of the Fund minus the sum of the Fund's liabilities
other than the principal amount of borrowings). First Trust also provides fund
reporting services to the Fund for a flat annual fee in the amount of $9,250.
BNY Mellon Investment Servicing (US) Inc. ("BNYM IS") serves as the Fund's
administrator, fund accountant and transfer agent in accordance with certain fee
arrangements. As administrator and fund accountant, BNYM IS is responsible for
providing certain administrative and accounting services to the Fund, including
maintaining the Fund's books of account, records of the Fund's securities
transactions, and certain other books and records. As transfer agent, BNYM IS is
responsible for maintaining shareholder records for the Fund. The Bank of New
York Mellon ("BNYM") serves as the Fund's custodian in accordance with certain
fee arrangements. As custodian, BNYM is responsible for custody of the Fund's
assets.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer 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 Chairman 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 SECURITIES
Cost of purchases and proceeds from sales of investments, excluding short-term
investments, for the year ended May 31, 2013, were $734,341,254 and
$704,557,872, respectively.
Page 25
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
MAY 31, 2013
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. Liberty Street Funding LLC repaid all amounts
outstanding under the Revolving Credit and Security Agreement dated as of August
2, 2004, with CRC Funding LLC, as conduit lender, Citibank, N.A., as Secondary
Lender and Citibank North America, Inc., as Agent (the "Terminated Facility"),
with the proceeds of the initial borrowing under the Credit Facility. 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 year ended May 31, 2013, the average amount outstanding
under the Terminated Facility and the Credit Facility was $163,619,178. The
loans under the Credit Facility 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
Terminated Facility and the Credit Facility funded by the Conduit Lender during
the year ended May 31, 2013, were 0.46% and 0.22%, respectively, with a weighted
average interest rate of 0.25%. The annual interest rate in effect for such
loans at May 31, 2013, was 0.22%. 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. 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 May 31,
2013, related to offerings under such sales agreement are as follows:
NET PROCEEDS
COMMON RECEIVED IN
SHARES NET PROCEEDS NET ASSET VALUE EXCESS OF NET
SOLD RECEIVED OF SHARES SOLD ASSET VALUE
------------ ------------ --------------- ------------
1,029,480 $ 16,309,080 $ 15,524,292 $ 784,788
Additionally, offering costs of $235,169 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.
7. INDEMNIFICATION
The Fund has a variety of indemnification obligations under contracts with its
service providers. The Fund's maximum exposure under these arrangements is
unknown. However, the Fund has not had prior claims or losses pursuant to these
contracts and expects the risk of loss to be remote.
8. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events to the Fund through
the date the financial statements were issued, and has determined that there
were the following subsequent events:
On June 20, 2013, the Fund declared a dividend of $0.0875 per share to Common
Shareholders of record on July 3, 2013, payable July 15, 2013.
On July 22, 2013, the Fund declared a dividend of $0.0875 per share to Common
Shareholders of record on August 5, 2013, payable August 15, 2013.
The Fund renewed its Credit Facility on July 12, 2013, 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 a
new expiration date of July 11, 2014, and may be renewed annually. The total
commitment under the Credit Facility was increased from $175,000,000 to
$190,000,000. The utilization fee of 0.40% per annum and the commitment fee of
0.40% per annum were each reduced to 0.35% per annum. In addition, the Fund paid
a $95,000 amendment fee which will be amortized over a one year period and
included in "Interest and fees on loans" on the Statement of Operations.
Page 26
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FIRST TRUST SENIOR FLOATING RATE
INCOME FUND II:
We have audited the accompanying statement of assets and liabilities of First
Trust Senior Floating Rate Income Fund II (the "Fund"), including the portfolio
of investments, as of May 31, 2013, and the related statements of operations and
cash flows for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of May 31, 2013, by correspondence with the Fund's
custodian, brokers, and agent banks; where replies were not received, we
performed other auditing procedures. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
First Trust Senior Floating Rate Income Fund II as of May 31, 2013, the results
of its operations and its cash flows for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended, in conformity
with accounting principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
July 25, 2013
Page 27
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
MAY 31, 2013 (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 28
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
MAY 31, 2013 (UNAUDITED)
PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q
are available (1) by calling (800) 988-5891; (2) on the Fund's website located
at http://www.ftportfolios.com; (3) on the SEC's website at http://www.sec.gov;
and (4) for review and copying at the SEC's Public Reference Room ("PRR") in
Washington, DC. Information regarding the operation of the PRR may be obtained
by calling (800) SEC-0330.
NYSE CERTIFICATION INFORMATION
In accordance with Section 303A-12 of the New York Stock Exchange ("NYSE")
Listed Company Manual, the Fund's President has certified to the NYSE that, as
of September 21, 2012, he was not aware of any violation by the Fund of NYSE
corporate governance listing standards. In addition, the Fund's reports to the
SEC on Forms N-CSR, N-CSRS, and N-Q contain certifications by the Fund's
principal executive officer and principal financial officer that relate to the
Fund's public disclosure in such reports and are required by Rule 30a-2 under
the 1940 Act.
SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
The Annual Meeting of Shareholders for the Fund was held on September 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.
TAX INFORMATION
Of the ordinary income (including short-term capital gain) distributions made by
the Fund during the year ended May 31, 2013, none qualify for the corporate
dividends received deduction available to corporate shareholders or as qualified
dividend income.
RISK CONSIDERATIONS
Risks are inherent in all investing. The following summarizes some, but not all,
of the risks that should be considered for the Fund. For additional information
about the risks associated with investing in the Fund, please see the Fund's
prospectus and statement of additional information, as well as other Fund
regulatory filings.
INVESTMENT AND MARKET RISK: An investment in the Fund's Common Shares is subject
to investment risk, including the possible loss of the entire principal
invested. An investment in Common Shares represents an indirect investment in
the securities owned by the Fund. The value of these securities, like other
market investments, may move up or down, sometimes rapidly and unpredictably.
Common Shares at any point in time may be worth less than the original
investment, even after taking into account the reinvestment of Fund dividends
and distributions. Security prices can fluctuate for several reasons including
the general condition of the securities markets, or when political or economic
events affecting the issuers occur. When the Advisor or Sub-Advisor determines
that it is temporarily unable to follow the Fund's investment strategy or that
it is impractical to do so (such as when a market disruption event has occurred
and trading in the securities is extremely limited or absent), the Fund may take
temporary defensive positions.
HIGH-YIELD SECURITIES RISK: The Senior Loans in which the Fund invests are
generally rated below investment grade by one or more rating agencies and are
considered to be "high-yield" securities. High-yield securities should be
considered speculative as their low ratings indicate a quality of less than
investment grade, and therefore carry an increased risk of default as compared
to investment grade issues. Because high-yield securities are generally
subordinated obligations and are perceived by investors to be riskier than
higher rated securities, their prices tend to fluctuate more than higher rated
securities and are affected by short-term credit developments to a greater
degree.
High-yield securities are subject to greater market fluctuations and risk of
loss than securities with higher investment ratings. A reduction in an issuer's
creditworthiness may result in the bankruptcy of an issuer or the default by an
issuer on the interest and principal payments. The market for high-yield
securities is smaller and less liquid than that for investment grade securities.
LEVERAGE RISK: The use of leverage results in additional risks and can magnify
the effect of any losses. If the income and gains from the securities and
investments purchased with such proceeds do not cover the cost of leverage, the
Common Shares' return will be less than if leverage had not been used. The Fund
borrowed pursuant to a leverage borrowing program, which constitutes a
substantial lien and burden by reason of their prior claim against the income of
the Fund and against the net assets of the Fund in liquidation. The rights of
lenders to receive payments of interest on and repayments of principal on any
borrowings made by the Fund under a leverage borrowing program are senior to the
rights of holders of Common Shares, with respect to the payment of dividends or
upon liquidation. If the Fund is not in
Page 29
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
MAY 31, 2013 (UNAUDITED)
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 lose all or substantially all of
its value, causing the Senior Loan to be under collateralized. Therefore, the
liquidation of the collateral underlying a Senior Loan may not satisfy the
issuer's obligation to the Fund in the event of non-payment of scheduled
interest or principal, and the collateral may not be readily liquidated.
CREDIT RISK: Credit risk is the risk that an issuer of a security held by the
Fund will be unable or unwilling to make dividend, interest and/or principal
payments when due and the related risk that the value of a security may decline
because of concerns about the issuer's ability to make such payments. Credit
risk may be heightened for the Fund because it invests a substantial portion of
its net assets in "high yield" or "junk" debt; such securities involve greater
risks, including the possibility of dividend or interest deferral, default or
bankruptcy, and are regarded as predominantly speculative with respect to the
issuer's capacity to pay dividends or interest and repay principal. Credit risk
is heightened for loans in which the Fund invests because companies that issue
such loans tend to be highly leveraged and thus are more susceptible to the
risks of interest deferral, default and/or bankruptcy.
INTEREST RATE RISK: The Fund's portfolio is also subject to interest rate risk.
Interest rate risk is the risk that fixed-income securities will decline in
value because of changes in market interest rates. Investments in debt
securities with long-term maturities may experience significant price declines
if long-term interest rates increase.
PRE-PAYMENT RISK. Loans are subject to pre-payment risk. The degree to which
borrowers prepay loans, whether as a contractual requirement or at their
election, may be affected by general business conditions, the financial
condition of the borrower and competitive conditions among loan investors, among
others. As such, prepayments cannot be predicted with accuracy. Upon a
prepayment, either in part or in full, the actual outstanding debt on which the
Fund derives interest income will be reduced. The Fund may not be able to
reinvest the proceeds received on terms as favorable as the prepaid loan.
LIQUIDITY RISK. The Fund invests a substantial portion of its assets in
lower-quality debt issued by companies that are highly leveraged. Lower-quality
debt tends to be less liquid than higher-quality debt. Moreover, smaller debt
issues tend to be less liquid than larger debt issues. If the economy
experiences a sudden downturn, or if the debt markets for such companies become
distressed, the Fund may have particular difficulty selling its assets in
sufficient amounts, at reasonable prices and in a sufficiently timely manner to
raise the cash necessary to meet any potentially heavy redemption requests by
Fund shareholders.
Page 30
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BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
MAY 31, 2013 (UNAUDITED)
The Fund's statement of additional information includes additional information
about the Trustees and is available, without charge, upon request, by calling
(800) 988-5891.
NUMBER OF
PORTFOLIOS IN THE OTHER
TERM OF OFFICE FIRST TRUST TRUSTEESHIPS OR
AND FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS, DATE OF BIRTH LENGTH OF PRINCIPAL OCCUPATIONS OVERSEEN BY HELD BY
AND POSITION WITH THE FUND SERVICE(1) DURING PAST 5 YEARS TRUSTEE TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
Richard E. Erickson, Trustee o Three Year Term Physician; President, Wheaton Orthopedics; 101 None
c/o First Trust Advisors L.P. Limited Partner, Gundersen Real Estate
120 E. Liberty Drive, o Since Fund Limited Partnership; Member, Sportsmed
Suite 400 Inception LLC
Wheaton, IL 60187
D.O.B.: 04/51
Thomas R. Kadlec, Trustee o Three Year Term President (March 2010 to Present), Senior 101 Director of
c/o First Trust Advisors L.P. Vice President and Chief Financial Officer ADM Investor
120 E. Liberty Drive, o Since Fund (May 2007 to March 2010), Vice President Services, Inc.
Suite 400 Inception and Chief Financial Officer (1990 to May and ADM
Wheaton, IL 60187 2007), ADM Investor Services, Inc. Investor
D.O.B.: 11/57 (Futures Commission Merchant) Services
International
Robert F. Keith, Trustee o Three Year Term President (2003 to Present), Hibs Enterprises 101 Director of
c/o First Trust Advisors L.P. (Financial and Management Consulting) Trust Company
120 E. Liberty Drive, o Since June 2006 of Illinois
Suite 400
Wheaton, IL 60187
D.O.B.: 11/56
Niel B. Nielson, Trustee o Three Year Term President and Chief Executive Officer (June 101 Director of
c/o First Trust Advisors L.P. 2012 to Present), Dew Learning LLC Covenant
120 E. Liberty Drive, o Since Fund (Educational Products and Services), President Transport Inc.
Suite 400 Inception (June 2002 to June 2012), Covenant College
Wheaton, IL 60187
D.O.B.: 03/54
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(2), Trustee and o Three Year Term Chief Executive Officer (December 2010 101 None
Chairman of the Board to Present), President (until December
120 E. Liberty Drive, o Since Fund 2010), First Trust Advisors L.P. and First
Suite 400 Inception Trust Portfolios L.P.; Chairman of the
Wheaton, IL 60187 Board of Directors, BondWave LLC
D.O.B.: 09/55 (Software Development Company/
Investment Advisor) and Stonebridge
Advisors LLC (Investment Advisor)
(1) Currently, Thomas R. Kadlec and Richard E. Erickson, as Class I Trustees,
are serving as trustees until the Fund's 2014 annual meeting of
shareholders. Niel B. Nielson, as Class II Trustee, is serving as trustee
until the Fund's 2015 annual meeting of shareholders. James A. Bowen and
Robert F. Keith, as Class III Trustees, are serving as trustees until the
Fund's 2013 annual meeting of shareholders. Officers of the Fund have an
indefinite term. The term "officer" means the president, vice president,
secretary, treasurer, controller or any other officer who performs a
policy making function.
(2) Mr. Bowen is deemed an "interested person" of the Fund due to his position
of Chief Executive Officer of First Trust Advisors L.P., investment
advisor of the Fund.
Page 31
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BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
MAY 31, 2013 (UNAUDITED)
NAME, ADDRESS POSITION AND OFFICES TERM OF OFFICE AND PRINCIPAL OCCUPATIONS
AND DATE OF BIRTH WITH FUND LENGTH OF SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(3)
------------------------------------------------------------------------------------------------------------------------------------
Mark R. Bradley President and Chief o Indefinite term Chief Operations Officer (December 2010 to
120 E. Liberty Drive, Executive Officer Present) and Chief Financial Officer, First
Suite 400 o President and CEO Trust Advisors L.P. and First Trust
Wheaton, IL 60187 Since January 2012 Portfolios L.P.; Chief Financial Officer,
D.O.B.: 11/57 BondWave LLC (Software Development
o Treasurer, CFO and Company/Investment Advisor) and Stonebridge
CAO from Fund Advisors LLC (Investment Advisor)
Inception to January
2012
James M. Dykas Treasurer, Chief Financial o Indefinite term Controller (January 2011 to Present), Senior
120 E. Liberty Drive, Officer and Chief Vice President (April 2007 to January 2011),
Suite 400 Accounting Officer o Treasurer, CFO and Vice President (January 2005 to April 2007),
Wheaton, IL 60187 CAO since January First Trust Advisors L.P. and First Trust
D.O.B.: 01/66 2012 Portfolios L.P.
o Assistant Treasurer
from December 2005
to January 2012
W. Scott Jardine Secretary and Chief Legal o Indefinite term General Counsel, First Trust Advisors L.P.,
120 E. Liberty Drive, Officer First Trust Portfolios L.P. and BondWave LLC
Suite 400 o Since Fund Inception (Software Development Company/Investment
Wheaton, IL 60187 Advisor); Secretary of Stonebridge Advisors
D.O.B.: 05/60 LLC (Investment Advisor)
Daniel J. Lindquist Vice President o Indefinite term Senior Vice President, First Trust Advisors
120 E. Liberty Drive, L.P. and First Trust Portfolios L.P.
Suite 400 o Since December 2005
Wheaton, IL 60187
D.O.B: 02/70
Kristi A. Maher Chief Compliance Officer o Indefinite term Deputy General Counsel, First Trust Advisors
120 E. Liberty Drive, and Assistant Secretary L.P. and First Trust Portfolios L.P.
Suite 400 o Assistant Secretary
Wheaton, IL 60187 Since Fund Inception
D.O.B.: 12/66
o Chief Compliance Officer
Since January 2011
(3) The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.
Page 32
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PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
MAY 31, 2013 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies".
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives, proxy
services, solicitors and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information within First Trust.
PRIVACY ONLINE
We allow third-party companies, including AddThis (a social media sharing
service), to collect certain anonymous information when you visit our website.
These companies may use non-personally identifiable information during your
visits to this and other websites in order to provide advertisements about goods
and services likely to be of greater interest to you. These companies typically
use a cookie, third party web beacon or pixel tags, to collect this information.
To learn more about this behavioral advertising practice, you can visit
www.networkadvertising.org.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, First Trust restricts access to
your nonpublic personal information to those First Trust employees who need to
know that information to provide products or services to you. We maintain
physical, electronic and procedural safeguards to protect your nonpublic
personal information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
Page 33
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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
1 Wall Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
[BLANK BACK COVER]
ITEM 2. CODE OF ETHICS.
(a) The registrant, as of the end of the period covered by this report,
has adopted a code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by
the registrant or a third party.
(c) There have been no amendments, during the period covered by this
report, to a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial
officer, principal accounting officer or controller, or persons
performing similar functions, regardless of whether these
individuals are employed by the registrant or a third party, and
that relates to any element of the code of ethics description.
(d) The registrant has not granted any waivers, including an implicit
waiver, from a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial
officer, principal accounting officer or controller, or persons
performing similar functions, regardless of whether these
individuals are employed by the registrant or a third party, that
relates to one or more of the items set forth in paragraph (b) of
this item's instructions.
(e) Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
As of the end of the period covered by the report, the registrant's Board of
Trustees has determined that Thomas
R. Kadlec and Robert F. Keith are qualified to serve as audit committee
financial experts serving on its audit committee and that each of them is
"independent," as defined by Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) AUDIT FEES (REGISTRANT) -- The aggregate fees billed for each of the
last two fiscal years for professional services rendered by the principal
accountant for the audit of the registrant's annual financial statements or
services that are normally provided by the accountant in connection with
statutory and regulatory filings or engagements were $67,000 for 2012 and
$90,000 for 2013.
(b) AUDIT-RELATED FEES (REGISTRANT) -- The aggregate fees billed in each
of the last two fiscal years, for assurance and related services by the
principal accountant that are reasonably related to the performance of the audit
of the registrant's financial statements and are not reported under paragraph
(a) of this Item were $0 for 2012 and $0 for 2013.
AUDIT-RELATED FEES (INVESTMENT ADVISER) -- The aggregate fees billed in
each of the last two fiscal years of the registrant for assurance and related
services by the principal accountant that are reasonably related to the
performance of the audit of the Registrant's financial statements and are not
reported under paragraph (a) of this Item were $0 for 2012 and $0 for 2013.
(c) TAX FEES (REGISTRANT) -- The aggregate fees billed in each of the last
two fiscal years for professional services rendered by the principal accountant
for tax compliance, tax advice, and tax planning to the registrant were and
$10,400 for 2012 and $5,200 for 2013. These fees were for tax consultation and
tax preparation.
TAX FEES (INVESTMENT ADVISER) -- The aggregate fees billed in each of the
last two fiscal years of the registrant for professional services rendered by
the principal accountant for tax compliance, tax advice, and tax planning to the
registrant's adviser were $0 for 2012 and $0 for 2012.
(d) ALL OTHER FEES (REGISTRANT) -- The aggregate fees billed in each of
the last two fiscal years for products and services provided by the principal
accountant to the registrant, other than the services reported in paragraphs (a)
through (c) of this Item were $0 for 2012 and $0 for 2013.
ALL OTHER FEES (INVESTMENT ADVISER) -- The aggregate fees billed in each
of the last two fiscal years for products and services provided by the principal
accountant to the Registrant's investment adviser, other than services reported
in paragraphs (a) through (c) of this Item were $0 for 2012 and $0 for 2013.
(e)(1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
Pursuant to its charter and its Audit and Non-Audit Services Pre-Approval
Policy, the Audit Committee (the "Committee") is responsible for the
pre-approval of all audit services and permitted non-audit services (including
the fees and terms thereof) to be performed for the Registrant by its
independent auditors. The Chairman of the Committee is authorized to give such
pre-approvals on behalf of the Committee up to $25,000 and report any such
pre-approval to the full Committee.
The Committee is also responsible for the pre-approval of the independent
auditor's engagements for non-audit services with the Registrant's adviser (not
including a sub-adviser whose role is primarily portfolio management and is
sub-contracted or overseen by another investment adviser) and any entity
controlling, controlled by or under common control with the investment adviser
that provides ongoing services to the Registrant, if the engagement relates
directly to the operations and financial reporting of the Registrant, subject to
the de minimis exceptions for non-audit services described in Rule 2-01 of
Regulation S-X. If the independent auditor has provided non-audit services to
the Registrant's adviser (other than any sub-adviser whose role is primarily
portfolio management and is sub-contracted with or overseen by another
investment adviser) and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
Registrant that were not pre-approved pursuant to its policies, the Committee
will consider whether the provision of such non-audit services is compatible
with the auditor's independence.
(e)(2) The percentage of services described in each of paragraphs (b)
through (d) for the Registrant and the Registrant's investment
adviser of this Item that were approved by the audit committee
pursuant to the pre-approval exceptions included in paragraph
(c)(7)(i)(c) or paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X
are as follows:
(b) 0%
(c) 0%
(d) 0%
(f) The percentage of hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the
most recent fiscal year that were attributed to work performed by
persons other than the principal accountant's full-time, permanent
employees was less than fifty percent.
(g) The aggregate non-audit fees billed by the registrant's accountant
for services rendered to the registrant, and rendered to the
registrant's investment adviser (not including any sub-adviser whose
role is primarily portfolio management and is subcontracted with or
overseen by another investment adviser), and any entity controlling,
controlled by, or under common control with the adviser that
provides ongoing services to the Registrant for 2012 were $10,400
and $10,320 for the Registrant and the Registrant's investment
adviser, respectively, and for 2013 were $5,200 and $3,000 for the
Registrant and the Registrant's investment adviser, respectively.
(h) The Registrant's audit committee of its Board of Trustees determined
that the provision of non-audit services that were rendered to the
Registrant's investment adviser (not including any sub-adviser whose
role is primarily portfolio management and is subcontracted with or
overseen by another investment adviser), and any entity controlling,
controlled by, or under common control with the investment adviser
that provides ongoing services to the Registrant that were not
pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X is compatible with maintaining the principal
accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
(a) The registrant has a separately designated standing audit committee
consisting of all the independent trustees of the registrant. The
members of the audit committee are: Thomas R. Kadlec, Niel B.
Nielson, Richard E. Erickson and Robert F. Keith.
ITEM 6. INVESTMENTS.
(a) Schedule of Investments in securities of unaffiliated issuers as of
the close of the reporting period is included as part of the report
to shareholders filed under Item 1 of this form.
(b) Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Proxy Voting Policies are attached herewith.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a)(1) IDENTIFICATION OF PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM MEMBERS
AND DESCRIPTION OF ROLE OF PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM
MEMBERS
INFORMATION PROVIDED AS OF MAY 31, 2013
William Housey is Senior Portfolio Manager for the First Trust Advisors L.P.
("First Trust") Leveraged Finance Investment Team and has primary responsibility
for investment decisions. Scott Fries assists Mr. Housey and is Senior Credit
Analyst assigned to certain industries. Mr. Housey and Mr. Fries are supported
in their portfolio management activities by a team of credit analysts, a
designated trader, and operations personnel. Senior Credit Analysts are assigned
industries, and Associate Credit Analysts support the Senior Credit Analysts.
All credit analysts, operations personnel, and portfolio managers report to Mr.
Housey.
William Housey, CFA
Senior Vice President, Senior Portfolio Manager
Mr. Housey joined First Trust in June 2010 as Senior Portfolio Manager in the
Leveraged Finance Investment Team and has nearly 16 years of investment
experience. Prior to joining First Trust, Mr. Housey was at Morgan Stanley/Van
Kampen Funds, Inc. for 11 years and served as Executive Director and
Co-Portfolio Manager. Mr. Housey has extensive experience in portfolio
management of both leveraged and unleveraged credit products, including 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 joined First Trust in June 2010 as Portfolio Manager in the Leveraged
Finance Investment Team and has over 16 years of investment industry experience.
Prior to joining First Trust, Mr. Fries spent 15 years and served as
Co-Portfolio Manager of Institutional Separately Managed Accounts for Morgan
Stanley/Van Kampen Funds, Inc. 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.
(a)(2) OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM
MEMBER AND POTENTIAL CONFLICTS OF INTEREST
INFORMATION PROVIDED AS OF MAY 31, 2013
Name of Portfolio Total # of # of Accounts Managed for Total Assets for which
Manager or Team Accounts Total which Advisory Fee is Based Advisory Fee is Based on
Member Type of Accounts Managed* Assets on Performance Performance
-------------------- ------------------ ----------- --------- --------------------------- -------------------------
1. William Housey, Registered 10 $138 0 $0
CFA Investment million
Companies:
Other Pooled 4 $226 0 $0
Investment
Vehicles:
Other Accounts: 0 $0 0 $0
2. Scott Fries, CFA Registered 10 $138 0 $0
Investment million
Companies:
Other Pooled 4 $226 0 $0
Investment
Vehicles:
Other Accounts: 0 $0 0 $0
* Information excludes the registrant.
POTENTIAL CONFLICTS OF INTERESTS
Potential conflicts of interest may arise when a portfolio manager of the
Registrant has day-to-day management responsibilities with respect to one or
more other funds or other accounts. The First Trust Leveraged Finance Investment
Team adheres to its trade allocation policy utilizing a pro-rata methodology to
address this conflict.
First Trust and its affiliate, First Trust Portfolios L.P. ("FTP"), have in
place a joint Code of Ethics and Insider Trading Policies and Procedures that
are designed to (a) prevent First Trust personnel from trading securities based
upon material inside information in the possession of such personnel and (b)
ensure that First Trust personnel avoid actual or potential conflicts of
interest or abuse of their positions of trust and responsibility that could
occur through such activities as front running securities trades for the
Registrant. Personnel are required to have duplicate confirmations and account
statements delivered to First Trust and FTP compliance personnel who then
compare such trades to trading activity to detect any potential conflict
situations. In addition to the personal trading restrictions specified in the
Code of Ethics and Insider Trading Policies and Procedures, employees in the
Leveraged Finance Investment Team currently are prohibited from buying or
selling equity securities (including derivative instruments such as options,
warrants and futures) and corporate bonds for their personal account and in any
accounts over which they exercise control. Employees in the Leveraged Finance
Investment Team are also prohibited from engaging in any personal transaction
while in possession of material non-public information regarding the security or
the issuer of the security.
First Trust and FTP also maintain a restricted list of all issuers for which the
Leveraged Finance Investment Team has material non-public information in its
possession. All transactions executed for a product advised or supervised by
First Trust or FTP are compared daily against the restricted list.
(a)(3) COMPENSATION STRUCTURE OF PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM
MEMBERS
INFORMATION PROVIDED AS OF MAY 31, 2013
The compensation structure for the First Trust Leveraged Finance Investment Team
is based upon a fixed salary as well as a discretionary bonus determined by the
management of First Trust.
Salaries are determined by management and are based upon an individual's job
position, duties, and overall value to the firm. Bonuses are also determined by
management and are based upon an individual's overall contribution to the
success of the firm and the profitability of the firm. Salaries and bonuses for
members of the Leveraged Finance Investment Team are not based upon the
performance of the Fund. However, the Leverage Finance Team receives a basis
point fee on the value of assets of the Fund. Discretionary bonuses for the
Leveraged Finance Team members are based, in part, on the profitability of the
Leveraged Investment Finance department.
(a)(4) DISCLOSURE OF SECURITIES OWNERSHIP AS OF MAY 31, 2012
--------------------------------- ---------------------------------------
Name of Portfolio Manager or Dollar ($) Range of Fund Shares
Team Member Beneficially Owned
--------------------------------- ---------------------------------------
William Housey $10,001 - $50,000 (1,000 shares)
--------------------------------- ---------------------------------------
Scott Fries $0 (0 shares)
--------------------------------- ---------------------------------------
(b) Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's Board of Trustees, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)),
or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial
officers, or persons performing similar functions, have concluded
that the registrant's disclosure controls and procedures (as defined
in Rule 30a-3(c) under the Investment Company Act of 1940, as
amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of
a date within 90 days of the filing date of the report that includes
the disclosure required by this paragraph, based on their evaluation
of these controls and procedures required by Rule 30a-3(b) under the
1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b)
under the Securities Exchange Act of 1934, as amended (17 CFR
240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the registrant's second
fiscal quarter of the period covered by this report that has
materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and
Section 906 of the Sarbanes- Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) First Trust Senior Floating Rate Income Fund II
------------------------------------------------------
By (Signature and Title)* /s/ Mark R. Bradley
----------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)
Date: July 23, 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: July 23, 2013
------------------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: July 23, 2013
------------------------
*Print the name and title of each signing officer under his or her signature.