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
-----------
First Trust Senior Floating Rate Income Fund II
--------------------------------------------------------------
(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
--------------------------------------------------------------
(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
--------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 630-765-8000
--------------
Date of fiscal year end: May 31
--------
Date of reporting period: May 31, 2012
--------------
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 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, 2012
FIRST TRUST
SENIOR FLOATING RATE
INCOME FUND II
FIRST TRUST
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
ANNUAL REPORT
MAY 31, 2012
Shareholder Letter .......................................................... 1
At A Glance.................................................................. 2
Portfolio Commentary......................................................... 3
Portfolio of Investments .................................................... 5
Statement of Assets and Liabilities ......................................... 16
Statement of Operations ..................................................... 17
Statements of Changes in Net Assets ......................................... 18
Statement of Cash Flows...................................................... 19
Financial Highlights......................................................... 20
Notes to Financial Statements................................................ 21
Report of Independent Registered Public Accounting Firm ..................... 27
Additional Information ...................................................... 28
Board of Trustees and Officers............................................... 30
Privacy Policy............................................................... 32
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and its representatives, taking into account the
information currently available to them. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For example,
forward-looking statements include the use of words such as "anticipate,"
"estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or
other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
First Trust Senior Floating Rate Income Fund II (the "Fund") to be materially
different from any future results, performance or achievements expressed or
implied by the forward-looking statements. When evaluating the information
included in this report, you are cautioned not to place undue reliance on these
forward-looking statements, which reflect the judgment of the Advisor and its
representatives only as of the date hereof. We undertake no obligation to
publicly revise or update these forward-looking statements to reflect events and
circumstances that arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that the Fund will achieve its investment objectives. The
Fund is subject to market risk, which is the possibility that the market values
of securities owned by the Fund will decline and that the value of the Fund
shares may therefore be less than what you paid for them. Accordingly, you can
lose money by investing in the Fund. See "Risk Considerations" in the Notes to
Financial Statements for a discussion of certain other risks of investing in the
Fund.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
http://www.ftportfolios.com or speak with your financial advisor. Investment
returns, net asset value and common share price will fluctuate and Fund shares,
when sold, may be worth more or less than their original cost.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment. It
includes details about the Fund and presents data and analysis that provide
insight into the Fund's performance and investment approach.
By reading the portfolio commentary by the portfolio management team of the
Fund, you may obtain an understanding of how the market environment affected the
Fund's performance. The statistical information that follows may help you
understand the Fund's performance compared to that of relevant market
benchmarks.
It is important to keep in mind that the opinions expressed by personnel of the
Advisor are just that: informed opinions. They should not be considered to be
promises or advice. The opinions, like the statistics, cover the period through
the date on the cover of this report. The risks of investing in the Fund are
spelled out in the prospectus, the statement of additional information, this
report and other Fund regulatory filings.
--------------------------------------------------------------------------------
SHAREHOLDER LETTER
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT) ANNUAL
LETTER FROM THE CHAIRMAN AND CEO
MAY 31, 2012
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.
First Trust remains committed to being a long-term investor and investment
manager and to bringing you quality financial solutions regardless of market ups
and downs. We have always believed, as I have written previously, that there are
two ways to attain success in reaching your financial goals: staying invested in
quality products and having a long-term investment horizon. We are committed to
this approach in the products we manage or supervise and offer to investors.
As you know, First Trust offers a variety of products that we believe could fit
many financial plans to help investors seeking long-term investment success. We
encourage you to talk to your financial advisor about the other investments
First Trust offers that might also fit your financial goals and to discuss those
goals with your financial advisor regularly so that he or she can help keep you
on track.
First Trust will continue to make available up-to-date information about your
investments so you and your financial advisor are current on any First Trust
investments you own. We value our relationship with you, and thank you for the
opportunity to assist you in achieving your financial goals. I look forward to
the remainder of 2012 and to the next edition of your Fund's report.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees of First Trust Senior Floating Rate Income
Fund II and Chief Executive Officer of First Trust Advisors L.P.
Page 1
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
"AT A GLANCE"
AS OF MAY 31, 2012 (UNAUDITED)
-------------------------------------------------------------------
FUND STATISTICS
-------------------------------------------------------------------
Symbol on New York Stock Exchange FCT
Common Share Price $14.34
Common Share Net Asset Value ("NAV") $14.49
Premium (Discount) to NAV -1.04%
Net Assets Applicable to Common Shares $367,171,763
Current Monthly Distribution per Common Share (1) $0.0800
Current Annualized Distribution per Common Share $0.9600
Current Distribution Rate on Closing Common Share Price (2) 6.69%
Current Distribution Rate on NAV (2) 6.63%
-------------------------------------------------------------------
COMMON SHARE PRICE & NAV (WEEKLY CLOSING PRICE)
-------------------------------------------------------------------
Common Share Price NAV
5/11 14.82 14.76
14.73 14.67
14.30 14.65
14.38 14.63
6/11 14.15 14.63
14.44 14.59
14.47 14.63
14.39 14.63
14.31 14.65
7/11 13.88 14.64
13.09 14.37
12.68 13.49
12.35 13.51
8/11 12.38 13.30
13.06 13.58
12.83 13.61
13.12 13.70
12.84 13.70
9/11 13.42 13.70
12.97 13.52
13.32 13.80
13.31 13.99
10/11 13.85 14.24
13.52 14.17
13.48 14.19
13.31 14.17
11/11 12.96 14.08
13.16 14.04
13.09 14.07
13.10 14.07
13.34 14.13
12/11 13.19 14.09
13.95 14.22
14.15 14.31
14.27 14.38
1/12 14.36 14.48
14.30 14.49
14.37 14.53
14.39 14.55
2/12 14.52 14.58
14.74 14.54
14.74 14.55
14.78 14.60
14.78 14.62
3/12 14.97 14.68
14.63 14.64
14.43 14.64
14.48 14.69
4/12 14.66 14.75
14.58 14.72
14.62 14.74
14.08 14.55
14.45 14.51
5/12 14.34 14.49
--------------------------------------------------------------------------------
PERFORMANCE
--------------------------------------------------------------------------------
Average Annual Total Return
-------------------------------------
1 Year Ended 5 Years Ended Inception (5/25/2004)
5/31/2012 5/31/2012 5/31/2012
FUND PERFORMANCE (3)
NAV 4.45% 1.09% 3.15%
Market Value 2.95% 0.98% 2.42%
INDEX PERFORMANCE
S&P/LSTA Leveraged Loan Index 2.35% 4.29% 4.94%
-----------------------------------------------------
% OF TOTAL
CREDIT QUALITY (S&P RATINGS) (4) INVESTMENTS
-----------------------------------------------------
BBB- 2.7%
BB+ 6.0
BB 10.5
BB- 31.5
B+ 29.2
B 12.7
B- 1.0
CCC+ 1.5
CCC 0.5
NR 0.9
NR (Privately rated securities) 3.5
------
Total 100.0%
======
-----------------------------------------------------
% OF TOTAL
TOP 10 ISSUERS INVESTMENTS
-----------------------------------------------------
Reynolds Consumer Products Holdings, Inc. 2.0
Harrah's Entertainment, Inc. 1.7
Nuveen Investments, Inc. 1.6
Asurion Corp. 1.4
First Data Corp. 1.3
Carestream Health, Inc. 1.2
Royalty Pharma Finance Trust 1.2
Affinion Group, Inc. 1.1
Intelsat Jackson Holdings S.A. 1.1
Vanguard Health Systems, Inc. 1.1
------
Total 13.7%
======
-----------------------------------------------------
% OF TOTAL
ASSET CLASSIFICATION INVESTMENTS
-----------------------------------------------------
Health Care Providers & Services 11.3%
Media 9.1
Chemicals 6.5
Diversified Financial Services 6.0
Software 5.8
Hotels, Restaurants & Leisure 5.4
Diversified Telecommunication Services 4.4
Capital Markets 3.7
Independent Power Producers & Energy Traders 3.4
Health Care Equipment & Supplies 3.1
Professional Services 2.9
Aerospace & Defense 2.6
Auto Components 2.4
Commercial Services & Supplies 2.4
Containers & Packaging 2.3
Pharmaceuticals 2.1
Oil, Gas & Consumable Fuels 2.0
Diversified Consumer Services 1.7
Wireless Telecommunication Services 1.7
IT Services 1.7
Machinery 1.5
Life Sciences Tools & Services 1.3
Real Estate Investment Trusts (REITs) 1.3
Food Products 1.3
Specialty Retail 1.3
Road & Rail 1.2
Leisure Equipment & Products 1.1
Biotechnology 1.1
Real Estate Management & Development 1.0
Semiconductors & Semiconductor Equipment 0.9
Insurance 0.8
Construction & Engineering 0.7
Automobiles 0.7
Food & Staples Retailing 0.7
Building Products 0.6
Communications Equipment 0.6
Internet Software & Services 0.5
Electric Utilities 0.5
Computers & Peripherals 0.5
Metals & Mining 0.4
Household Durables 0.4
Consumer Finance 0.3
Industrial Conglomerates 0.3
Health Care Technology 0.3
Energy Equipment & Services 0.2
------
Total 100.0%
======
(1) Most recent distribution paid or declared through 5/31/2012. Subject to
change in the future.
(2) Distribution rates are calculated by annualizing the most recent
distribution paid or declared through the report date and then dividing by
Common Share Price or NAV, as applicable, as of 5/31/2012. Subject to
change in the future.
(3) Total return is based on the combination of reinvested dividend, capital
gain and return of capital distributions, if any, at prices obtained by
the Dividend Reinvestment Plan and changes in NAV per share for net asset
value returns and changes in Common Share price for market value returns.
From inception to October 12, 2010, Four Corners Capital Management, LLC
served as the Fund's sub-advisor. Effective October 12, 2010, the
Leveraged Finance Investment Team of First Trust Advisors L.P. assumed the
day-to-day responsibility for management of the Fund's portfolio. Total
returns do not reflect sales load and are not annualized for periods less
than one year. Past performance is not indicative of future results.
(4) Ratings below BBB- by Standard & Poor's Ratings Group are considered to be
below investment grade.
Page 2
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
MAY 31, 2012
INVESTMENT MANAGER
First Trust Advisors L.P. ("First Trust") was established in 1991 and is located
in Wheaton, Illinois. First Trust is a registered investment advisor which
offers customized portfolio management. As of May 31, 2012, First Trust managed
or supervised $53.19 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 currently manage or supervise approximately $771
million in assets, which includes approximately $681 million of senior loans, as
of May 31, 2012. The team's experience includes managing senior secured
floating-rate corporate loans ("senior loans") in both the U.S. and Europe,
managing high-yield debt and corporate restructuring expertise. The team has
managed institutional separate accounts, commingled funds, structured products
and retail funds.
PORTFOLIO MANAGEMENT TEAM
WILLIAM HOUSEY, CFA
SENIOR VICE PRESIDENT, SENIOR PORTFOLIO MANAGER
Mr. Housey is the Senior Portfolio Manager for the Leveraged Finance Investment
Team at First Trust. Mr. Housey has over 15 years of investment experience.
Prior to joining First Trust in 2010, Mr. Housey served as Executive Director
and co-portfolio manager at Van Kampen Funds, Inc., a wholly-owned subsidiary of
Morgan Stanley ("Morgan Stanley/Van Kampen"). Mr. Housey has extensive
experience in portfolio management of both leveraged and unleveraged credit
products, including senior loans, high-yield bonds, credit derivatives and
corporate restructurings. Mr. Housey received a BS in Finance from Eastern
Illinois University and an MBA in Finance as well as Management and Strategy
from Northwestern University's Kellogg School of Business. Mr. Housey holds the
Chartered Financial Analyst designation.
SCOTT D. FRIES, CFA
VICE PRESIDENT, PORTFOLIO MANAGER
Mr. Fries is Co-Portfolio Manager for the Leveraged Finance Investment Team at
First Trust. Mr. Fries began his career at Morgan Stanley/Van Kampen in 1994 and
has over 16 years of investment industry experience, most recently as Executive
Director and co-portfolio manager of institutional separately managed accounts.
Mr. Fries received a BA in International Business from Illinois Wesleyan
University and an MBA in Finance from DePaul University. Mr. Fries holds the
Chartered Financial Analyst designation.
COMMENTARY
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
The primary investment objective of the First Trust Senior Floating Rate Income
Fund II ("FCT" or the "Fund") is to seek a high level of current income. As a
secondary objective, the Fund attempts to preserve capital. The 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
Despite a challenging macro environment, senior loans managed to post positive
returns for the full-year period ended May 31, 2012. The period began and ended
on a similar note- a focus on European sovereign debt issues and concerns
regarding the strength of the U.S. economy, which resulted in increased market
volatility. The senior loan market began the period with negative returns in two
out of the first three months and ended the period with a negative return in May
2012. While the uncertainty in the market held back senior loan returns early
and late in the period, the market provided fairly steady positive returns in
between. Overall, the S&P/LSTA Leveraged Loan Index returned 2.35% for the
full-year period. Higher credit quality issues in the index performed much
better than lower credit quality issues during the period. BB rated loans
returned 3.79% and B rated loans returned 3.15%, both of which were
significantly better than the lower quality CCC rated loan return of -8.77% 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 0.91%
and ended the year at 1.05%, well inside the historic average of 3.46%.1
Technical conditions in the senior loan market were generally balanced to
slightly positive over the period with positive inflows into the asset class
from retail senior loan funds and structured products (CLOs) in 9 of the 12
months.2 While credit quality remained strong and inflows were generally
positive into the asset class, average loan prices declined from $95.4 at the
beginning of the period to $93.5 at the end of May 2012.3 The income component
was able to more than fully offset this decline in average loan prices, which
allowed the asset class to post a positive return for the period.
1 Standard & Poor's Leveraged Commentary & Data.
2 Standard & Poor's Capital IQ, Loan Stats, June 2012, Vol. 15, No. 6.
3 S&P/LSTA Leveraged Loan Index Monthly Review, May 2012.
Page 3
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (FCT)
MAY 31, 2012
PERFORMANCE ANALYSIS
The Fund outperformed the S&P/LSTA Leveraged Loan Index for the one-year period
ended May 31, 2012. The Fund generated an NAV return of 4.45% and a market price
return of 2.95%. The Fund's market price return was hindered by the Fund's
market price beginning at a slight premium to NAV and moving to a slight
discount to NAV by the end of the period. At the start of the period, the Fund's
market price was at a 0.41% premium to NAV, which moved to a modest -1.04%
discount to NAV by the end of the period.
From an income perspective, the Fund announced four increases to the monthly
distribution for a total increase of $0.01 per share over the year ended May 31,
2012. The monthly announced distribution began the period at $0.07 per share and
ended at $0.08 per share. This increase represented an improvement of
approximately 14% in the level of monthly distributions to shareholders over
this period. At the $0.08 per share monthly distribution level, the distribution
rate at the end of May was 6.63% at NAV and 6.69% at market price.
Contributing to the Fund's outperformance relative to the S&P/LSTA Leveraged
Loan Index over the period was the Fund's higher average credit quality and the
use of leverage. (While the S&P/LSTA Leverged Loan Index consists of leveraged
loans, the index itself is not leveraged.) The Fund's relatively conservative
credit quality positioning benefited performance as CCC+ and lower-rated issuers
lagged the market return. At the end of the period, the Fund held only 2% of
assets in issues rated CCC+ or below compared to 8.8% for the S&P/LSTA Leveraged
Loan Index. Leverage at the end of May was approximately 30.1%.
OUTLOOK
While we have witnessed an increase in volatility across many asset classes
recently, and expect this may continue for a period of time while European
sovereign debt concerns dominate the headlines, we remain optimistic regarding
the outlook for the senior loan asset class. The combination of relatively
attractive current income within a market plagued by negative real yields, along
with a senior secured position in the capital structure in a low corporate
default rate environment, should continue to support performance. Moreover, we
believe fundamental credit health remains strong, which should allow the asset
class to continue to experience a below average default rate in the near term.
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. The Fund's 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. 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, 2012
RATINGS
PRINCIPAL (UNAUDITED) (b) STATED
VALUE DESCRIPTION MOODY'S S&P RATE (c) MATURITY (d) VALUE
------------ ----------------------------------------------- --------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS - 147.2%
AEROSPACE & DEFENSE - 3.9%
$ 1,582,109 DAE Aviation Holdings, Inc., Term Loan B1 ..... B2 B 5.47% 07/31/14 $ 1,554,422
1,508,306 DAE Aviation Holdings, Inc., Term Loan B2 ..... B2 B 5.35%-5.47% 07/31/14 1,481,910
4,209,323 DynCorp International, Inc., Term Loan ........ Ba2 BB- 6.25% 07/07/16 4,194,843
1,162,347 Robertson Fuel Systems, LLC, Term Loan ........ NR (e) NR (e) 2.99% 04/19/13 1,150,723
2,962,968 TASC, Inc., Term Loan B ....................... B1 BB- 4.50% 12/18/15 2,896,301
2,962,500 Transdigm, Inc., Term Loan B .................. Ba2 BB- 4.00% 02/14/17 2,937,201
-------------
14,215,400
-------------
AGRICULTURAL PRODUCTS - 1.1%
1,397,947 Dole Food Company, Inc., Term Loan B2 ......... Ba2 BB- 5.00%-6.00% 07/08/18 1,392,117
2,501,593 Dole Food Company, Inc., Term Loan C2 ......... Ba2 BB- 5.00%-6.00% 07/08/18 2,491,162
-------------
3,883,279
-------------
ALTERNATIVE CARRIERS - 3.4%
5,940,000 Intelsat Jackson Holdings S.A., Term Loan B ... B1 BB- 5.25% 04/02/18 5,886,777
4,000,000 Level 3 Financing, Inc., Term Loan B2 ......... Ba3 B+ 5.75% 09/01/18 3,962,160
2,857,143 Telesat Canada, Term Loan B ................... Ba3 BB- 4.25% 03/28/19 2,818,886
-------------
12,667,823
-------------
ALUMINUM - 0.5%
2,000,000 Constellium Holdco B.V., Term Loan ............ B2 B 9.25% 05/25/18 1,950,000
-------------
APPAREL RETAIL - 0.8%
3,000,000 Neiman Marcus Group, Term Loan ................ B2 BB- 4.75% 05/16/18 2,942,340
-------------
APPLICATION SOFTWARE - 4.2%
2,386,786 CCC Information Systems, Inc., Term
Loan B ..................................... B1 BB- 5.50% 11/11/15 2,370,078
2,400,000 DataTel, Inc., Term Loan B .................... B1 B+ 6.25% 07/19/18 2,404,296
3,970,000 Eagle Parent, Inc., Term Loan B ............... Ba3 B+ 5.00% 05/16/18 3,874,045
3,928,571 Lawson Software, Inc., Term Loan B ............ Ba3 B+ 6.25% 04/05/18 3,920,872
1,717,857 Property Data, Inc., Term Loan ................ Ba3 B+ 7.00% 01/04/17 1,594,738
1,475,000 Verint Systems, Inc., Term Loan B, First Lien . B1 B+ 4.50% 10/27/17 1,458,406
-------------
15,622,435
-------------
ASSET MANAGEMENT & CUSTODY BANKS - 5.0%
1,270,237 Grosvenor Capital Management Holdings, LLP,
Term Loan .................................. NR (e) NR (e) 4.25% 12/05/16 1,244,832
2,857,143 Hamilton Lane Advisors, Term Loan B ........... NR (e) NR (e) 6.50% 02/28/18 2,842,857
1,998,408 Harbourvest Partners L.P., Term Loan B ........ NR (e) NR (e) 6.25% 12/19/16 1,998,408
2,778,685 Mondrian Investment Partners Ltd.,
Term Loan B ................................ Ba2 BB 5.50% 07/12/18 2,764,792
1,046,523 Munder Capital Management, Incremental
Term Loan .................................. NR (e) NR (e) 6.00% 03/23/15 1,015,127
6,704,791 Nuveen Investments, Inc., Extended
Term Loan .................................. B2 B 5.97% 05/13/17 6,610,924
2,000,000 Nuveen Investments, Inc., Incremental
Term Loan .................................. B2 B 7.25% 05/13/17 1,995,000
-------------
18,471,9400
-------------
AUTO PARTS & EQUIPMENT - 2.6%
4,957,494 HHI Holdings, LLC, Term Loan B ................ B2 B+ 7.00%-7.75% 03/21/17 4,938,903
1,962,008 Metaldyne, LLC, Term Loan B ................... B1 B+ 5.25% 05/18/17 1,953,434
See Notes to Financial Statements Page 5
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
MAY 31, 2012
RATINGS
PRINCIPAL (UNAUDITED) (b) STATED
VALUE DESCRIPTION MOODY'S S&P RATE (c) MATURITY (d) VALUE
------------ ----------------------------------------------- --------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS - (CONTINUED)
AUTO PARTS & EQUIPMENT - (CONTINUED)
$ 565,213 Schrader International, Inc., Term Loan ....... B1 B 6.25% 04/27/18 $ 566,626
434,787 Schrader International, Inc., US Term Loan .... B1 B 6.25% 04/27/18 435,874
1,817,785 Tomkins, PLC, Term Loan B ..................... Ba2 BB 4.25% 09/29/16 1,807,932
-------------
9,702,769
-------------
AUTOMOBILE MANUFACTURERS - 1.1%
3,992,462 Chrysler Group, LLC, Term Loan B .............. Ba2 BB 6.00% 05/24/17 3,977,491
-------------
AUTOMOTIVE RETAIL - 1.0%
1,925,694 KAR Holdings, Inc., Term Loan B ............... Ba3 BB- 5.00% 05/19/17 1,920,880
1,942,737 Pilot Travel Centers, LLC, Term Loan B ........ Ba2 BBB- 4.25% 03/30/18 1,939,338
-------------
3,860,218
-------------
BIOTECHNOLOGY - 1.5%
5,784,226 Grifols, SA, Term Loan B ...................... Ba3 BB 4.50% 06/01/17 5,703,478
-------------
BROADCASTING - 7.6%
6,677,409 Clear Channel Communications, Inc.,
Term Loan B ................................ Caa1 CCC+ 3.89% 01/29/16 5,193,555
1,993,962 Cumulus Media Holdings, Inc., Term Loan,
First Lien ................................. Ba2 BB- 5.75% 09/16/18 1,978,389
1,000,000 Cumulus Media Holdings, Inc., Term Loan,
Second Lien ................................ B2 CCC+ 7.50% 03/18/19 1,001,500
2,945,641 FoxCo Acquisition, LLC, Term Loan B ........... B1 BB 4.75% 07/14/15 2,941,959
1,393,044 Hubbard Radio, LLC, Term Loan ................. Ba3 B+ 5.25% 04/28/17 1,380,827
2,137,500 LIN Television Corp., Term Loan B ............. Ba3 BB- 5.00% 12/21/18 2,138,398
1,985,000 Raycom TV Broadcasting, LLC, Term
Loan B ..................................... NR NR 4.50% 05/31/17 1,965,150
3,813,904 Sinclair Broadcasting Group, Inc., Term
Loan B ..................................... Ba1 BB+ 4.00% 10/28/16 3,779,846
1,927,404 TWCC Holding Corp., Term Loan B ............... Ba3 BB- 4.25% 02/11/17 1,913,430
6,105,966 Univision Corp., Extended Term Loan ........... B2 B+ 4.49% 03/31/17 5,595,385
-------------
27,888,439
-------------
BUILDING PRODUCTS - 1.0%
3,492,500 Unifrax, LLC, Term Loan B ..................... B2 B+ 7.00% 11/28/18 3,515,795
-------------
CABLE & SATELLITE - 2.6%
1,975,000 Bresnan Broadband Holdings, LLC, Term
Loan B ..................................... Ba3 BB+ 4.50% 12/14/17 1,937,139
1,166,667 Cequel Communications Holdings I, LLC,
Term Loan B ................................ Ba2 BB- 4.00% 02/14/19 1,136,333
1,760,000 Charter Communications Operating, LLC,
Term Loan D ................................ Ba1 BB+ 4.00% 05/15/19 1,734,339
2,916,667 Kabel Deutschland, Term Loan F ................ Ba2 BB- 4.25% 02/01/19 2,867,463
1,909,091 UPC Financing Partnership, Term Loan A ........ Ba3 BB- 4.75% 12/31/17 1,879,500
-------------
9,554,774
-------------
CASINOS & GAMING - 4.7%
3,000,000 CCM Merger, Inc., Term Loan B ................. B2 B+ 6.00% 03/01/17 2,976,000
2,000,000 Harrah's Entertainment, Inc., Term Loan B1 .... B2 B 3.24% 01/28/15 1,825,000
5,000,000 Harrah's Entertainment, Inc., Term Loan B2 .... B2 B 3.24% 01/28/15 4,562,500
Page 6 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
MAY 31, 2012
RATINGS
PRINCIPAL (UNAUDITED) (b) STATED
VALUE DESCRIPTION MOODY'S S&P RATE (c) MATURITY (d) VALUE
------------ ----------------------------------------------- --------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS - (CONTINUED)
CASINOS & GAMING - (CONTINUED)
$ 3,000,000 Harrah's Entertainment, Inc., Term Loan B6 .... B2 B 5.49% 01/28/18 $ 2,640,480
1,975,000 Isle of Capri Casinos, Term Loan B ............ Ba3 BB- 4.75% 03/25/17 1,971,544
1,333,333 Pinnacle Entertainment, Inc., Series A
Incremental Term Loan ...................... Ba1 BB+ 4.00% 03/19/19 1,321,666
2,000,000 ROC Finance, LLC, Term Loan ................... Ba3 BB- 8.50% 08/19/17 2,012,500
-------------
17,309,690
-------------
COAL & CONSUMABLE FUELS - 1.3%
2,142,857 Arch Coal, Inc., Term Loan .................... Ba2 BB 5.75% 05/16/18 2,078,571
2,856,778 Walter Energy, Inc., Term Loan B .............. B1 BB- 4.00% 04/02/18 2,743,393
-------------
4,821,964
-------------
COMMERCIAL PRINTING - 0.7%
2,456,053 Cenveo Corp., Term Loan ....................... Ba3 BB- 6.25% 12/21/16 2,437,632
-------------
COMMODITY CHEMICALS - 0.8%
659,341 Tronox, Inc., Delayed Draw Term Loan (f)....... Ba2 BB+ 1.00%(g) 02/08/18 647,802
2,417,582 Tronox, Inc., Term Loan ....................... Ba2 BB+ 4.25% 02/08/18 2,375,275
-------------
3,023,077
-------------
COMMUNICATIONS EQUIPMENT - 0.8%
3,092,172 Commscope, Inc., Term Loan B .................. Ba3 BB 4.25% 01/14/18 3,070,898
-------------
CONSTRUCTION & ENGINEERING - 1.1%
3,984,987 Terex Corp., Term Loan ........................ Ba2 BB 5.50% 04/28/17 3,982,517
-------------
CONSUMER FINANCE - 0.5%
1,695,023 Ocwen Financial Corp., Term Loan .............. B1 B 7.00% 09/01/16 1,690,786
-------------
DATA PROCESSING & OUTSOURCED SERVICES - 1.4%
5,634,505 Harland Clarke Holdings Corp., Term Loan B .... B1 B+ 2.74%-2.97% 06/30/14 5,122,723
-------------
DIVERSIFIED CHEMICALS - 2.3%
3,928,571 Ineos Group Ltd., Term Loan ................... B1 B+ 6.50% 05/04/18 3,847,878
4,925,000 Univar, Inc., Term Loan B ..................... B2 B+ 5.00% 06/30/17 4,785,869
-------------
8,633,747
-------------
DIVERSIFIED REITS - 0.9%
1,754,344 iStar Financial, Inc, Term Loan A1 ............ B1 BB- 5.00% 03/19/16 1,732,414
1,552,174 iStar Financial, Inc., Term Loan A1 ........... B1 BB- 5.25% 06/28/13 1,545,252
-------------
3,277,666
-------------
DIVERSIFIED SUPPORT SERVICES - 0.5%
1,915,142 Brickman Group Holdings, Inc., Term
Loan B1 .................................... B1 B+ 5.50% 10/14/16 1,910,354
-------------
ELECTRIC UTILITIES - 0.7%
4,241,410 Texas Competitive Electric Holdings Company,
LLC, Term Loan ............................. B2 CCC 3.74% 10/10/14 2,584,630
-------------
ENVIRONMENTAL & FACILITIES SERVICES - 2.4%
5,646,429 EnergySolutions, LLC, Term Loan ............... Ba3 BB+ 6.25% 08/15/16 5,615,373
1,967,668 Waste Industries USA, Inc., Term Loan B ....... B1 B+ 4.75% 03/17/17 1,939,786
1,166,667 WCA Waste Corp., Term Loan B ................. B1 B+ 5.50% 03/23/18 1,160,833
-------------
8,715,992
-------------
See Notes to Financial Statements Page 7
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS (A) - (CONTINUED)
MAY 31, 2012
RATINGS
PRINCIPAL (UNAUDITED) (b) STATED
VALUE DESCRIPTION MOODY'S S&P RATE (c) MATURITY (d) VALUE
------------ ----------------------------------------------- --------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS - (CONTINUED)
HEALTH CARE EQUIPMENT - 4.8%
$ 1,990,000 Alere, Inc., Term Loan B ...................... Ba3 BB- 4.75% 06/30/17 $ 1,959,434
1,995,000 Alere, Inc., Term Loan B1 ..................... Ba3 BB- 4.75% 06/30/17 1,964,357
500,000 Alere, Inc., Term Loan B2 ..................... Ba3 BB- 4.75% 06/30/17 492,320
6,928,294 Carestream Health, Inc., Term Loan B .......... B1 BB- 5.00% 02/25/17 6,670,423
1,789,154 DJO Finance, LLC, Term Loan B2 ................ Ba2 BB- 5.24% 11/01/16 1,770,940
3,185,483 DJO Finance, LLC, Term Loan B3 ................ Ba2 BB- 6.25% 09/15/17 3,147,002
1,586,932 Kinetic Concepts, Inc., Term Loan B ........... Ba2 BB- 7.00% 05/04/18 1,595,866
-------------
17,600,342
-------------
HEALTH CARE FACILITIES - 8.4%
2,475,032 CHS/Community Health Systems, Inc.,
Extended Term Loan ......................... Ba3 BB 3.97% 01/25/17 2,418,502
2,976,962 Golden Living Drumm Investors, LLC,
Term Loan .................................. B1 B+ 5.00% 05/04/18 2,763,008
3,291,558 HCA, Inc., Term Loan B-2 ...................... Ba3 BB 3.72% 03/31/17 3,194,655
3,173,864 Health Management Associates, Inc.,
Term Loan B ................................ Ba3 BB- 4.50% 11/16/18 3,124,764
5,167,972 Kindred Healthcare, Inc., Term Loan B ......... Ba3 B+ 5.25% 06/01/18 4,917,326
2,977,500 Select Medical Corp., Term Loan B ............. Ba2 BB 5.50%-6.00% 06/01/18 2,868,315
1,985,000 Surgical Care Affiliates, Inc., Term Loan B ... Ba3 B 5.50% 06/29/18 1,938,690
2,000,000 United Surgical Partners International, Inc.,
Term Loan .................................. B1 B 6.00% 04/30/19 1,980,000
5,881,045 Vanguard Health Systems, Inc., Term Loan B .... Ba2 BB- 5.00% 01/29/16 5,853,757
203,720 Vantage Oncology Holdings, LLC, Delayed
Draw Term Loan ............................. B2 B 6.25% 01/31/17 199,645
1,676,862 Vantage Oncology Holdings, LLC,
Term Loan .................................. B2 B 6.25% 01/31/17 1,643,325
-------------
30,901,987
-------------
HEALTH CARE SERVICES - 4.5%
4,602,778 Emergency Medical Services Corp.,
Term Loan B ................................ B1 B+ 5.25%-6.00% 05/25/18 4,541,147
3,413,571 Gentiva Health Services, Inc., Term Loan B .... B1 B 6.50% 08/17/16 3,208,757
1,895,000 Healthways, Inc., Term Loan B ................. Ba3 BB 1.74% 12/01/13 1,880,787
2,979,987 Rural Metro Corp., Term Loan, First Lien ...... Ba3 B+ 5.75% 06/30/18 2,935,288
1,970,000 Sheridan Healthcare, Inc., Incremental
Term Loan .................................. B1 B+ 3.99% 06/13/14 1,936,766
2,000,000 Wolverine Healthcare Analytics, Inc.,
Term Loan B ................................ Ba3 B+ 6.75% 06/01/19 1,967,500
-------------
16,470,245
-------------
HEALTH CARE SUPPLIES - 1.5%
3,571,429 Bausch & Lomb, Inc., Term Loan B .............. B1 B+ 5.25% 05/17/19 3,507,000
1,936,006 ConvaTec, Inc., Term Loan B ................... Ba3 B+ 5.75% 12/22/16 1,921,002
-------------
5,428,002
-------------
HEALTH CARE TECHNOLOGY - 2.3%
3,750,000 Emdeon Business Services, LLC, Term
Loan B ..................................... Ba3 BB- 5.00% 11/02/18 3,743,738
2,271,900 MedAssets, Inc., Term Loan B .................. Ba3 BB- 5.25% 11/19/16 2,261,676
Page 8 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
MAY 31, 2012
RATINGS
PRINCIPAL (UNAUDITED) (b) STATED
VALUE DESCRIPTION MOODY'S S&P RATE (c) MATURITY (d) VALUE
------------ ----------------------------------------------- --------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS - (CONTINUED)
HEALTH CARE TECHNOLOGY - (CONTINUED)
$ 2,481,250 Trizetto Group, Inc., Term Loan B ............. B1 BB- 4.75% 05/02/18 $ 2,427,481
-------------
8,432,895
-------------
HOME ENTERTAINMENT SOFTWARE - 0.5%
1,980,000 NDS Group, Inc., Term Loan B ................. Ba2 BB 3.75% 03/12/18 1,963,922
-------------
HOMEBUILDING - 0.5%
1,941,812 Mattamy Funding Partnership, Term Loan ........ NR (e) NR (e) 2.75% 04/11/13 1,912,685
-------------
HYPERMARKETS & SUPER CENTERS - 1.1%
3,980,000 BJ's Wholesale Club, Inc., Term Loan,
First Lien ................................. B1 B+ 5.25% 09/28/18 3,970,886
-------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS - 5.0%
3,967,318 AES Corp., Term Loan B ........................ Ba1 BB+ 4.25% 06/01/18 3,919,234
3,960,000 Calpine Corp., Term Loan B1 ................... B1 BB- 4.50% 04/01/18 3,892,997
1,985,000 Calpine Corp., Term Loan B2 ................... B1 BB- 4.50% 04/01/18 1,951,414
2,659,069 Freif North American Power I, LLC,
Term Loan B ................................ Ba3 BB- 6.00% 03/29/19 2,645,774
417,854 Freif North American Power I, LLC,
Term Loan C ................................ Ba3 BB- 6.00% 03/29/19 415,764
2,977,500 NRG Energy, Inc., Term Loan B ................ Baa3 BB+ 4.00% 07/01/18 2,944,301
2,538,462 Star West Generation, LLC, Term Loan B ........ Ba3 BB- 6.00% 05/17/18 2,462,308
-------------
18,231,792
-------------
INDUSTRIAL CONGLOMERATES - 0.5%
1,683,281 Colfax Corp., Term Loan B ..................... Ba2 BB+ 4.50% 01/11/19 1,679,056
-------------
INDUSTRIAL MACHINERY - 2.2%
1,820,400 Douglas Dynamics, LLC, Term Loan .............. B1 BB 5.75% 04/18/18 1,790,054
2,866,630 Husky International, Ltd., Term Loan B ........ Ba3 B 6.50% 06/29/18 2,845,131
3,560,867 Intelligrated, Inc., Term Loan B .............. B1 B+ 7.50% 02/17/17 3,507,453
-------------
8,142,638
-------------
INSURANCE BROKERS - 0.8%
3,000,000 Amwins Group, LLC, Term Loan, First Lien ...... Ba2 B+ 5.75% 05/23/19 2,977,500
-------------
INTEGRATED TELECOMMUNICATION SERVICES - 3.1%
1,310,481 Avaya, Inc., Term Loan B1 ..................... B1 B 3.22% 10/24/14 1,233,896
3,624,526 Avaya, Inc., Term Loan B3 ..................... B1 B 4.97% 10/26/17 3,194,114
3,000,000 Global Tel Link Corp., Term Loan B2 ........... B2 B 7.00% 12/14/17 2,985,000
2,000,000 Hawaiian Telcom Communications, Inc.,
Term Loan, First Lien ...................... B1 B- 7.00% 02/28/17 1,972,500
1,985,000 Securus Technologies, Inc., Term Loan B ....... B2 B 5.25% 05/31/17 1,968,465
-------------
11,353,975
-------------
INTERNET SOFTWARE & SERVICES - 0.7%
2,700,000 AVG Technologies, Term Loan B ................. B1 B+ 7.50%-8.25% 03/15/16 2,625,750
-------------
INVESTMENT BANKING & BROKERAGE - 0.4%
1,333,333 LPL Holdings, Inc., Term Loan B ............... Ba2 BB- 4.00% 03/29/19 1,306,667
-------------
IT CONSULTING & OTHER SERVICES - 1.1%
3,161,622 Presidio, Inc., Term Loan B ................... Ba3 B+ 7.25% 03/31/17 3,145,815
981,445 West Corp., Term Loan B5 ...................... Ba3 BB- 4.49% 07/15/16 972,857
-------------
4,118,672
-------------
See Notes to Financial Statements Page 9
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
MAY 31, 2012
RATINGS
PRINCIPAL (UNAUDITED) (b) STATED
VALUE DESCRIPTION MOODY'S S&P RATE (c) MATURITY (d) VALUE
------------ ----------------------------------------------- --------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS - (CONTINUED)
LEISURE FACILITIES - 0.9%
$ 3,200,000 Six Flags, Inc., Term Loan B .................. B1 BB+ 4.25% 12/20/18 $ 3,165,728
-------------
LEISURE PRODUCTS - 1.6%
785,714 FGI Operating Company, LLC, Term
Loan B ..................................... Ba3 B+ 5.50% 04/11/19 782,768
2,959,798 Live Nation Entertainment, Inc., Term
Loan B ..................................... Ba2 BB- 4.50% 11/07/16 2,946,863
2,340,857 SRAM, LLC, Term Loan B ........................ Ba3 B+ 4.75%-5.75% 06/07/18 2,317,449
-------------
6,047,080
-------------
LIFE & HEALTH INSURANCE - 0.3%
1,310,754 CNO Financial Group, Inc., Term Loan .......... B1 B+ 6.25% 09/30/16 1,304,200
-------------
LIFE SCIENCES TOOLS & SERVICES - 2.6%
2,954,350 inVentiv Health, Inc., Term Loan .............. B1 BB- 6.50% 08/04/16 2,766,010
992,500 inVentiv Health, Inc., Term Loan 3 ............ B1 BB- 6.75% 05/15/18 941,634
2,327,500 Pharmaceutical Products Development, Inc.,
Term Loan B ................................ Ba3 BB- 6.25% 12/05/18 2,327,919
3,473,750 Quintiles Transnational Corp., Term Loan B,
First Lien ................................. B1 BB- 5.00% 06/08/18 3,420,567
-------------
9,456,130
-------------
MANAGED HEALTH CARE - 0.9%
3,323,645 MultiPlan, Inc., Term Loan .................... Ba3 B 4.75% 08/26/17 3,244,709
-------------
MOVIES & ENTERTAINMENT - 2.7%
3,000,000 Alpha Topco, Ltd., Term Loan B ................ Ba3 B+ 5.75% 04/27/17 2,991,870
1,000,000 Alpha Topco, Ltd., Term Loan B ................ Ba3 BB 4.50% 06/30/18 989,580
1,625,412 AMC Entertainment, Inc., Term Loan B2 ......... Ba2 BB- 3.49% 12/15/16 1,612,815
2,394,000 AMC Entertainment, Inc., Term Loan B3 ......... Ba2 BB- 4.25% 02/07/18 2,379,541
1,985,000 Mood Media Corp., Term Loan, First Lien ....... Ba3 B 7.00% 05/06/18 1,956,476
-------------
9,930,282
-------------
OIL & GAS EQUIPMENT & SERVICES - 0.3%
1,218,213 Aquilex Holdings, LLC, Term Loan .............. NR NR 8.75% 04/01/16 1,202,547
-------------
OIL & GAS EXPLORATION & PRODUCTION - 0.8%
3,000,000 Chesapeake Energy Corp., Term Loan B .......... Ba3 BB- 8.50% 12/02/17 2,944,500
-------------
OIL & GAS REFINING & MARKETING - 0.4%
104,722 Alon USA, Inc., Term Loan (Edgington
Facility) .................................. B1 B+ 2.49% 08/05/13 100,795
837,778 Alon USA, Inc., Term Loan (Paramount
Facility) .................................. B1 B+ 2.49% 08/05/13 806,361
525,399 Citgo Petroleum Corp., Term Loan B ............ Ba2 BB+ 8.00% 06/24/15 527,763
-------------
1,434,919
-------------
OIL & GAS STORAGE & TRANSPORTATION - 0.5%
1,800,000 Energy Transfer Equity, L.P., Term Loan B ..... Ba2 BB 3.75% 03/26/17 1,747,494
-------------
OTHER DIVERSIFIED FINANCIAL SERVICES - 6.7%
4,593,055 First American Payment Systems, L.P.,
Term Loan B ................................ B1 B+ 6.75% 11/01/16 4,593,055
4,683,538 First Data Corp., Term Loan ................... B1 B+ 5.24% 03/24/17 4,420,089
3,000,000 First Data Corp., Term Loan B2 ................ B1 B+ 2.99% 09/24/14 2,836,620
Page 10 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
MAY 31, 2012
RATINGS
PRINCIPAL (UNAUDITED) (b) STATED
VALUE DESCRIPTION MOODY'S S&P RATE (c) MATURITY (d) VALUE
------------ ----------------------------------------------- --------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS - (CONTINUED)
OTHER DIVERSIFIED FINANCIAL SERVICES - (CONTINUED)
$ 642,857 Global Cash Access, Inc., Term Loan ........... B1 BB 7.00% 03/01/16 $ 642,857
2,820,000 iPayment, Inc., Term Loan B ................... Ba2 B+ 5.75% 05/08/17 2,812,950
871,795 Moneygram International, Term Loan B .......... Ba2 BB- 4.25% 11/18/17 854,908
1,990,000 Moneygram International, Term Loan B1 ......... Ba2 BB- 4.25% 11/18/17 1,951,454
2,972,718 RPI Finance Trust, Term Loan .................. Baa2 BBB- 4.00% 05/09/18 2,954,139
3,600,000 RPI Finance Trust, Term Loan B ................ Baa2 BBB- 4.00% 11/09/18 3,568,500
-------------
24,634,572
-------------
PACKAGED FOODS & MEATS - 0.8%
984,835 Farley's and Sathers Candy Co., Inc.,
Term Loan B ................................ B1 B+ 6.50%-7.25% 03/30/18 965,139
1,992,500 JBS USA, LLC, Term Loan B ..................... Ba3 BB 4.25% 05/25/18 1,962,612
-------------
2,927,751
-------------
PAPER PACKAGING - 3.4%
1,734,986 RanPak Corp., Term Loan B ..................... NR (e) NR (e) 4.75% 04/20/17 1,717,636
8,813,895 Reynolds Consumer Products Holdings, Inc.,
Term Loan .................................. Ba3 BB- 6.50% 02/09/18 8,817,597
1,968,590 Reynolds Consumer Products Holdings, Inc.,
Term Loan C ................................ Ba3 BB- 6.50% 08/09/18 1,973,827
-------------
12,509,060
-------------
PHARMACEUTICALS - 2.5%
3,206,667 Catalent Pharma Solutions, Inc.,
Term Loan .................................. Ba3 BB- 5.25% 09/15/17 3,166,583
2,474,186 IMS Health, Term Loan B ....................... Ba3 BB 4.50% 08/26/17 2,452,018
1,584,000 Warner Chilcott, PLC, Term Loan B1 ............ Ba3 BBB- 4.25% 03/15/18 1,571,867
792,000 Warner Chilcott, PLC, Term Loan B2 ............ Ba3 BBB- 4.25% 03/15/18 785,933
1,089,000 Warner Chilcott, PLC, Term Loan B3 ............ Ba3 BBB- 4.25% 03/15/18 1,080,658
-------------
9,057,059
-------------
PUBLISHING - 0.6%
1,929,571 Getty Images, Inc., Term Loan B ............... Ba3 BB- 5.25% 11/07/16 1,926,676
784,964 Yell Group, PLC, Term Loan B1 ................. Caa3 CCC+ 3.99% 07/31/14 222,875
-------------
2,149,551
-------------
REAL ESTATE OPERATING COMPANIES - 1.1%
3,957,462 ClubCorp Club Operations, Inc., Term Loan ..... Ba2 BB 6.00% 11/30/16 3,970,641
-------------
REAL ESTATE SERVICES - 0.3%
1,393,829 Realogy Corp., Term Loan, First Lien .......... B1 B- 4.49% 10/10/16 1,270,475
-------------
RESEARCH & CONSULTING SERVICES - 4.3%
1,957,032 Acosta, Inc., Term Loan B ..................... NR (e) B+ 4.75% 03/01/18 1,930,612
5,925,000 Advantage Sales & Marketing, Inc., Term
Loan, First Lien ........................... NR (e) B+ 5.25% 12/18/17 5,846,020
6,443,798 Affinion Group, Inc., Term Loan B ............. Ba3 B+ 5.00% 07/16/15 5,956,518
1,985,000 Symphony IRI Group, Inc., Term Loan B-2 ....... B1 B+ 5.00% 12/01/17 1,965,150
-------------
15,698,300
-------------
RESTAURANTS - 2.4%
1,869,625 Burger King Corp., Term Loan B ................ Ba3 BB- 4.50% 10/19/16 1,850,536
3,200,820 Focus Brands, Inc., Term Loan, First Lien ..... B1 B 6.25%-7.25% 02/21/18 3,196,819
See Notes to Financial Statements Page 11
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
MAY 31, 2012
RATINGS
PRINCIPAL (UNAUDITED) (b) STATED
VALUE DESCRIPTION MOODY'S S&P RATE (c) MATURITY (d) VALUE
------------ ----------------------------------------------- --------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS - (CONTINUED)
RESTAURANTS - (CONTINUED)
$ 1,500,000 Focus Brands, Inc., Term Loan, Second Lien .... Caa1 CCC+ 10.25% 08/21/18 $ 1,507,500
998,612 Wendy's International, Inc., Delayed Draw
Term Loan (f) .............................. B1 BB- 0.50% (g) 05/15/19 985,420
1,251,388 Wendy's International, Inc., Term Loan B ...... B1 BB- 4.75% 05/15/19 1,234,857
-------------
8,775,132
-------------
RETAIL REITS - 1.0%
3,645,022 Capital Automotive L.P., Term Loan B .......... Ba3 B+ 5.25% 03/11/17 3,576,678
-------------
SEMICONDUCTORS - 1.3%
4,951,546 Freescale Semiconductor, Inc., Extended
Term Loan .................................. B1 B 4.49% 12/01/16 4,639,995
-------------
SPECIALIZED CONSUMER SERVICES - 2.6%
5,581,364 Asurion Corp., Term Loan B .................... NR (e) BB- 5.50% 05/24/18 5,487,653
2,000,000 Asurion Corp., Term Loan, Second Lien ......... NR (e) B- 9.00% 05/24/19 2,008,760
2,000,000 Expert Global Solutions, Inc., Term Loan B .... Ba3 B 8.00% 04/03/18 1,984,160
-------------
9,480,573
-------------
SPECIALIZED FINANCE - 2.2%
2,000,000 AlixPartners, LLP, Term Loan B1 ............... Ba3 B+ 5.50% 06/01/17 1,985,000
3,000,000 AlixPartners, LLP, Term Loan B2 ............... Ba3 B+ 6.50% 06/01/19 2,962,500
3,000,000 Flying Fortress, Inc., Term Loan B ............ Ba3 BBB- 5.00% 06/30/17 2,992,500
-------------
7,940,000
-------------
SPECIALTY CHEMICALS - 6.0%
2,400,000 Ascend Performance Materials, LLC,
Term Loan B ................................ NR (e) NR (e) 6.75% 04/10/18 2,332,008
4,407,273 AZ Chemicals, Inc., Term Loan B ............... Ba3 BB- 7.25% 12/22/17 4,416,440
3,000,000 Emerald Performance Materials, LLC,
Term Loan B ................................ B1 B 7.75% 05/18/18 2,970,000
1,971,424 Houghton International, Inc., Term Loan B ..... B1 B 6.75% 01/29/16 1,973,888
1,745,763 Nusil Technology, LLC, Term Loan,
First Lien ................................. NR (e) NR (e) 5.25% 04/07/17 1,744,314
1,990,000 OM Group, Inc., Term Loan B ................... Ba2 BB- 5.75% 08/02/17 1,977,563
1,477,500 Omnova Solutions, Inc., Term Loan B ........... Ba2 B+ 5.75% 05/31/17 1,471,043
2,221,705 Polyone Corp., Term Loan B .................... Ba1 BB- 5.00% 12/20/17 2,215,462
1,975,000 Styron Corp., Term Loan B ..................... B1 B+ 6.00% 08/02/17 1,761,700
1,166,667 Taminco Global Chemical Corp., Term Loan ...... B1 BB- 5.25% 02/15/19 1,161,708
-------------
22,024,126
-------------
SURFACE TRANSPORT - 0.3%
1,000,000 Wabash National Corp., Term Loan B ............ B1 B+ 6.00% 05/08/19 990,000
-------------
SYSTEMS SOFTWARE - 3.2%
3,000,000 Blue Coat Systems, Inc., Term Loan,
First Lien ................................. B1 BB- 7.50% 02/15/18 2,981,250
1,010,391 Open Solutions, Inc., Term Loan, First Lien ... B1 B+ 2.59% 01/23/14 949,767
2,718,750 SS&C Technologies Holdings, Inc.,
Term Loan B1 ............................... Ba3 BB- 5.00% 05/24/19 2,708,555
281,250 SS&C Technologies Holdings, Inc.,
Term Loan B2 ............................... Ba3 BB- 5.00% 05/24/19 280,195
Page 12 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
MAY 31, 2012
RATINGS
PRINCIPAL (UNAUDITED) (b) STATED
VALUE DESCRIPTION MOODY'S S&P RATE (c) MATURITY (d) VALUE
------------ ----------------------------------------------- --------------- ----------- ------------ -------------
SENIOR FLOATING-RATE LOAN INTERESTS - (CONTINUED)
SYSTEMS SOFTWARE - (CONTINUED)
$ 356,996 SunGard Data Systems, Inc., Term Loan C ....... Ba3 BB 3.99% 02/28/17 $ 352,980
4,446,252 Vertafore, Inc., Term Loan, First Lien ........ B1 B+ 5.25% 07/29/16 4,401,789
-------------
11,674,536
-------------
TECHNOLOGY DISTRIBUTORS - 0.7%
2,640,240 CDW, LLC, Extended Term Loan .................. B1 B 4.00% 07/15/17 2,524,729
-------------
TIRES & RUBBER - 0.9%
3,571,429 Goodyear Tire & Rubber Co., Term Loan,
Second Lien ................................ Ba1 BB 4.75% 04/30/19 3,455,357
-------------
TRUCKING - 1.5%
1,275,714 Avis Budget Group, Term Loan B ................ Ba1 BB 6.25% 09/22/18 1,272,525
2,956,315 SIRVA, Inc., Term Loan B ...................... NR (e) NR (e) 10.75% 03/31/16 2,911,970
1,519,566 Swift Transportation Co., Inc., Term Loan B2 .. B1 BB 5.00% 12/21/17 1,511,968
-------------
5,696,463
-------------
WIRELESS TELECOMMUNICATION SERVICES - 2.6%
3,323,333 Crown Castle Operating Co., Term Loan B ....... Ba3 B+ 4.00% 01/31/19 3,273,483
3,165,909 Neustar, Inc., Term Loan B .................... Ba2 BB+ 5.00% 11/08/18 3,173,824
3,000,000 Syniverse Holdings, Inc., Term Loan B ......... B1 BB- 5.00% 04/23/19 2,956,890
-------------
9,404,197
-------------
TOTAL SENIOR FLOATING-RATE LOAN INTERESTS................................................... 540,531,655
(Cost $549,340,853) -------------
PRINCIPAL STATED
VALUE DESCRIPTION RATE MATURITY VALUE
------------ ---------------------------------------------------------------- ----------- ------------ -------------
NOTES - 0.0%
HOMEBUILDING - 0.0%
727,273 TOUSA, Inc. (Payment-In-Kind Election Note) (h) (i) (j) (k)..... 14.75% 07/01/15 0
-------------
TOTAL NOTES................................................................................. 0
(Cost $436,364) -------------
SHARES DESCRIPTION VALUE
------------ --------------------------------------------------------------------------------------------- -------------
COMMON STOCKS - 0.4%
DIVERSIFIED CHEMICALS - 0.4%
38,260 LyondellBasell Industries AF S.C.A., Class B 1,509,740
-------------
TOTAL COMMON STOCKS......................................................................... 1,509,740
(Cost $452,084) -------------
WARRANTS - 0..0%
BROADCASTING - 0.0%
1,449 Cumulus Media, Inc. (h) (j) (l) ............................................................ 2,362
-------------
TOTAL WARRANTS.............................................................................. 2,362
(Cost $0) -------------
See Notes to Financial Statements Page 13
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
MAY 31, 2012
SHARES DESCRIPTION VALUE
------------ --------------------------------------------------------------------------------------------- -------------
PREFERRED STOCKS - 0.0%
HOMEBUILDING - 0.0%
4,273 TOUSA, Inc. (8.0%, Series A Convertible Payment-In-Kind Preferred Stock) (h) (i) (j) (l) ... $ 0
-------------
TOTAL PREFERRED STOCKS...................................................................... 0
(Cost $2,563,636) -------------
TOTAL INVESTMENTS - 147.6%.................................................................. 542,043,757
(Cost $552,792,937) (m)
OUTSTANDING LOAN - (43.0%).................................................................. (158,000,000)
NET OTHER ASSETS AND LIABILITIES - (4.6%)................................................... (16,871,994)
-------------
NET ASSETS - 100.0%......................................................................... $ 367,171,763
-------------
(a) All or a portion of the securities are available to serve as collateral on
the outstanding loan.
(b) Ratings below Baa3 by Moody's Investors Service, Inc. or BBB- by Standard
& Poor's Ratings Group are considered to be below investment grade.
(c) Senior 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, 2012.
(d) Senior Loans generally are subject to mandatory and/or optional
prepayment. As a result, the actual remaining maturity of Senior Loans may
be substantially less than the stated maturities shown.
(e) This Senior Loan Interest was privately rated upon issuance. The rating
agency does not provide ongoing surveillance on the rating.
(f) Delayed Draw Loan (see Note 2C - Unfunded Loan Commitments in the Notes to
Financial Statements).
(g) Represents commitment fee rate on unfunded loan commitment.
(h) This security is fair valued in accordance with procedures adopted by the
Fund's Board of Trustees, and in accordance with the provisions of the
Investment Company Act of 1940, as amended.
(i) This borrower has filed for protection in federal bankruptcy court.
(j) This security is restricted and cannot be offered for public sale without
first being registered under the Securities Act of 1933, as amended. Prior
to registration, restricted securities may only be resold in transactions
exempt from registration (See Note 1D - Restricted Securities in the Notes
to Financial Statements).
(k) This Senior Loan is a Senior Subordinated Payment-in-Kind Election Note
whereby 1.00% of interest per annum is to be paid in cash and 13.75% of
interest per annum shall be paid by the issuer, at its option (i) entirely
in cash, (ii) entirely in Payment-in-Kind interest or (iii) a combination
thereof. Interest is to be paid semi-annually; however, the issuer is in
default and income is not being accrued.
(l) Non-income producing security.
(m) Aggregate cost for federal income tax purposes is $552,975,900. As of May
31, 2012, the aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost was $2,231,412 and the
aggregate gross unrealized depreciation for all investments in which there
was an excess of tax cost over value was $13,163,555.
NR Not Rated
Page 14 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
MAY 31, 2012
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of May 31, 2012
is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT
VALUE AT QUOTED LEVEL 2 SIGNIFICANT UNOBSERVABLE
5/31/2012 PRICES OBSERVABLE INPUTS INPUTS
------------ ---------- ------------------- ------------
Senior Floating-Rate Loan Interests:
Aluminum $ 1,950,000 $ -- $ -- $ 1,950,000
Asset Management & Custody Banks 18,471,940 -- 17,456,813 1,015,127
Health Care Services 16,470,245 -- 14,589,458 1,880,787
Independent Power Producers & Energy Traders 18,231,792 -- 15,170,254 3,061,538
Other Diversified Financial Services 24,634,572 -- 20,041,517 4,593,055
Packaged Foods & Meats 2,927,751 -- 1,962,612 965,139
Trucking 5,696,463 -- 2,784,493 2,911,970
Other Industry Categories* 452,148,892 -- 452,148,892 --
------------ ---------- ------------ ------------
Total Senior Floating-Rate Loan Interests 540,531,655 -- 524,154,039 16,377,616
Notes -- -- -- --**
Common Stocks* 1,509,740 1,509,740 -- --
Warrants* 2,362 -- 2,362 --
Preferred Stocks* -- -- -- --**
------------ ---------- ------------ ------------
TOTAL INVESTMENTS $542,043,757 $1,509,740 $524,156,401 $ 16,377,616
============ ========== ============ ============
* 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.
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,
2012, the Fund transferred Senior Floating-Rate Loan Interests valued at
$11,342,281 from Level 3 to Level 2 and $965,139 from Level 2 to Level 3 of the
fair value hierarchy. The Senior Floating-Rate Loan Interests that transferred
between Level 3 and Level 2 did so primarily as a result of additional
information obtained from an independent third party pricing vendor relating to
the market activity of individual Senior Floating-Rate Loan Interests.
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, 2011
Senior Floating-Rate Loan Interests $ 34,433,986
Notes --
Common Stocks --
Warrants --
Preferred Stocks --
Net Realized Gain (Loss) 100,178
Net Change in Unrealized Appreciation/Depreciation (73,993)
Purchases
Senior Floating-Rate Loan Interests 6,904,137
Sales
Senior Floating-Rate Loan Interests (14,609,550)
Transfers In
Senior Floating-Rate Loan Interests 965,139
Transfers Out
Senior Floating-Rate Loan Interests (11,342,281)
------------
ENDING BALANCE AT MAY 31, 2012
Senior Floating-Rate Loan Interests 16,377,616
Notes --
Common Stocks --
Warrants --
Preferred Stocks --
------------
Total Level 3 holdings $ 16,377,616
============
Net change in unrealized appreciation/depreciation from Level 3 investments held
as of May 31, 2012 was $(29,686) and is included in "Net change in unrealized
appreciation (depreciation) on investments" on the Statement of Operations.
See Notes to Financial Statements Page 15
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 2012
ASSETS:
Investments, at value
(Cost $552,792,937)......................................................................... $542,043,757
Cash........................................................................................... 3,712,675
Prepaid expenses............................................................................... 23,079
Receivables:
Investment securities sold.................................................................. 21,211,861
Interest.................................................................................... 3,078,210
Dividends................................................................................... 13,008
------------
Total Assets............................................................................. 570,082,590
------------
LIABILITIES:
Outstanding loan............................................................................... 158,000,000
Payables:
Investment securities purchased............................................................. 44,229,603
Investment advisory fees.................................................................... 337,301
Interest and fees on loan................................................................... 129,778
Audit and tax fees.......................................................................... 62,200
Custodian fees.............................................................................. 51,976
Administrative fees......................................................................... 41,298
Printing fees............................................................................... 27,059
Legal fees.................................................................................. 11,744
Trustees' fees and expenses................................................................. 8,517
Transfer agent fees......................................................................... 2,972
Financial reporting fees.................................................................... 771
Other liabilities.............................................................................. 7,608
------------
Total Liabilities........................................................................ 202,910,827
------------
NET ASSETS..................................................................................... $367,171,763
============
NET ASSETS CONSIST OF:
Paid-in capital................................................................................ $480,974,343
Par value...................................................................................... 253,437
Accumulated net investment income (loss)....................................................... 2,094,387
Accumulated net realized gain (loss) on investments............................................ (105,401,224)
Net unrealized appreciation (depreciation) on investments...................................... (10,749,180)
------------
NET ASSETS..................................................................................... $367,171,763
============
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share)........................... $ 14.49
============
Number of Common Shares outstanding (unlimited number of Common Shares has been authorized).... 25,343,671
============
Page 16 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MAY 31, 2012
INVESTMENT INCOME:
Interest....................................................................................... $ 28,840,288
Dividends (net of foreign withholding tax of $32,138).......................................... 885
Other.......................................................................................... 1,025,135
------------
Total investment income..................................................................... 29,866,308
------------
EXPENSES:
Investment advisory fees....................................................................... 3,888,617
Interest and fees on loan...................................................................... 1,991,914
Administrative fees............................................................................ 389,806
Printing fees.................................................................................. 108,062
Legal fees..................................................................................... 96,670
Custodian fees................................................................................. 71,627
Audit and tax fees............................................................................. 68,001
Trustees' fees and expenses.................................................................... 36,529
Transfer agent fees............................................................................ 32,616
Financial reporting fees....................................................................... 9,250
Other.......................................................................................... 98,852
------------
Total expenses.............................................................................. 6,791,944
------------
NET INVESTMENT INCOME (LOSS)................................................................... 23,074,364
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments..................................................... 1,021,296
Net change in unrealized appreciation (depreciation) on investments......................... (8,968,841)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS)........................................................ (7,947,545)
------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................ $ 15,126,819
============
See Notes to Financial Statements Page 17
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
STATEMENTS OF CHANGES IN NET ASSETS
YEAR YEAR
ENDED ENDED
5/31/2012 5/31/2011
-------------- --------------
OPERATIONS:
Net investment income (loss)....................................................... $ 23,074,364 $ 18,553,225
Net realized gain (loss)........................................................... 1,021,296 596,325
Net change in unrealized appreciation (depreciation)............................... (8,968,841) 18,626,513
-------------- --------------
Net increase (decrease) in net assets resulting from operations.................... 15,126,819 37,776,063
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.............................................................. (21,979,654) (17,618,839)
-------------- --------------
Total distributions to shareholders................................................ (21,979,654) (17,618,839)
-------------- --------------
CAPITAL TRANSACTIONS:
Proceeds from Common Shares reinvested............................................. 122,469 639,102
-------------- --------------
Net increase (decrease) in net assets resulting from capital transactions.......... 122,469 639,102
-------------- --------------
Total increase (decrease) in net assets............................................ (6,730,366) 20,796,326
NET ASSETS:
Beginning of period................................................................ 373,902,129 353,105,803
-------------- --------------
End of period...................................................................... $ 367,171,763 $ 373,902,129
============== ==============
Accumulated net investment income (loss) at end of period.......................... $ 2,094,387 $ 1,018,448
============== ==============
CAPITAL TRANSACTIONS WERE AS FOLLOWS:
Common Shares at beginning of period............................................... 25,335,277 25,291,939
Common Shares issued as reinvestment under the Dividend Reinvestment Plan.......... 8,394 43,338
-------------- --------------
Common Shares at end of period..................................................... 25,343,671 25,335,277
============== ==============
Page 18 See Notes to Financial Statements
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED MAY 31, 2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) in net assets resulting from operations ................ $ 15,126,819
Adjustments to reconcile net increase (decrease) in net assets resulting
from operations to net cash provided by operating activities:
Purchases of investments.................................................. (350,802,561)
Sales, maturities and paydowns of investments............................. 352,582,016
Net amortization/accretion of premiums/discounts on investments........... (1,895,911)
Net realized gain/loss on investments..................................... (1,021,296)
Net change in unrealized appreciation/depreciation on investments......... 8,968,841
CHANGES IN ASSETS AND LIABILITIES:
Increase in interest receivable........................................... (599,425)
Increase in dividends receivable.......................................... (13,008)
Decrease in prepaid expenses.............................................. 565,267
Decrease in interest and fees on loan payable............................. (5,763)
Decrease in investment advisory fees payable.............................. (2,169)
Decrease in audit and tax fees payable.................................... (11,189)
Decrease in legal fees payable............................................ (10,140)
Increase in printing fees payable......................................... 170
Increase in administrative fees payable................................... 9,677
Increase in custodian fees payable........................................ 32,278
Decrease in transfer agent fees payable................................... (762)
Decrease in Trustees' fees and expenses payable........................... (1,249)
Increase in financial reporting fees and expenses payable................. 771
Decrease in other liabilities payable..................................... (2,047)
--------------
CASH PROVIDED BY OPERATING ACTIVITIES........................................... $ 22,920,319
--------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of Common Shares reinvested...................................... 122,469
Distributions to Common Shareholders ..................................... (21,979,654)
Proceeds from borrowing................................................... 27,000,000
Repayment of borrowing.................................................... (29,000,000)
--------------
CASH USED IN FINANCING ACTIVITIES............................................... (23,857,185)
--------------
Decrease in cash................................................................ (936,866)
Cash at beginning of period..................................................... 4,649,541
--------------
CASH AT END OF PERIOD........................................................... $ 3,712,675
==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest and fees............................... $ 1,436,816
==============
See Notes to Financial Statements Page 19
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
5/31/2012 5/31/2011 (a) 5/31/2010 5/31/2009 5/31/2008
--------- ------------- --------- --------- ---------
Net asset value, beginning of period ................... $ 14.76 $ 13.96 $ 11.79 $ 16.42 $ 18.91
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) ........................... 0.91 0.73 0.47 0.87 1.45
Net realized and unrealized gain (loss) ................ (0.31) 0.77 2.15 (4.63) (2.37)
Distributions paid to AMP (b) Shareholders from:
Net investment income ............................. -- -- (0.02) (0.09) (0.20)
--------- --------- --------- --------- ---------
Total from investment operations ....................... 0.60 1.50 2.60 (3.85) (1.12)
--------- --------- --------- --------- ---------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income .................................. (0.87) (0.70) (0.43) (0.78) (1.37)
--------- --------- --------- --------- ---------
Total distributions to Common Shareholders.............. (0.87) (0.70) (0.43) (0.78) (1.37)
--------- --------- --------- --------- ---------
Net asset value, end of period ......................... $ 14.49 $ 14.76 $ 13.96 $ 11.79 $ 16.42
========= ========= ========= ========= =========
Market value, end of period ............................ $ 14.34 $ 14.82 $ 12.65 $ 10.04 $ 14.76
========= ========= ========= ========= =========
Total return based on net asset value (c)............... 4.45% 11.19% 22.99% (22.07)% (5.19)%
========= ========= ========= ========= =========
Total return based on market value (c).................. 2.95% 23.20% 30.76% (26.11)% (14.32)%
========= ========= ========= ========= =========
-----------------------
RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON SHARES:
Ratio of total expenses to average net assets .......... 1.88% 1.98% 2.42% 3.40% 3.63%
Ratio of total expenses to average net assets excluding
interest expense .................................. 1.33% 1.31% 1.39% 1.62% 1.54%
Ratio of net investment income (loss) to average net
assets ............................................ 6.38% 5.09% 3.49% 7.34% 8.52%
Ratio of net investment income (loss) to average net
assets net of AMP Shares dividends (d)............. N/A N/A 3.37% 6.60% 7.34%
SUPPLEMENTAL DATA:
Portfolio turnover rate ................................ 63% 95% 52% 15% 31%
Net assets, end of period (in 000's).................... $ 367,172 $ 373,902 $ 353,106 $ 298,097 $ 415,187
Ratio of total expenses to total average Managed
Assets (e) ........................................ 1.31% 1.39% 1.77% 2.02% 2.22%
Ratio of total expenses to total average Managed Assets
excluding interest expense (e)..................... 0.93% 0.92% 1.01% 0.96% 0.94%
PREFERRED SHARES AND LOAN OUTSTANDING
Total AMP Shares outstanding (f)........................ N/A N/A N/A 3,200 4,000
Liquidation and market value per AMP share (g).......... N/A N/A N/A $ 25,018 $ 25,039
Asset coverage per share................................ N/A N/A N/A $ 118,155 (h) $ 128,797 (h)
Total loan outstanding (in 000's) ...................... $ 158,000 $ 160,000 $ 153,500 $ 57,050 $ 175,000
Asset coverage per $1,000 of loan outstanding (i)..... $ 3,324 $ 3,337 $ 3,300 $ 7,627 $ 3,944
-----------------------
(a) From inception to October 12, 2010, Four Corners Capital Management, LLC
served as the Fund's sub-advisor. Effective October 12, 2010, the
Leveraged Finance Investment Team of First Trust Advisors L.P. assumed the
day-to-day responsibility for management of the Fund's portfolio.
(b) Auction Market Preferred ("AMP") Shares.
(c) Total return is based on the combination of reinvested dividend, capital
gain and return of capital distributions, if any, at prices obtained by
the Dividend Reinvestment Plan and changes in net asset value per share
for net asset value returns and changes in Common Share price for market
value returns. Total returns do not reflect sales load and are not
annualized for periods less than one year. Past performance is not
indicative of future results.
(d) 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 borrowing.
(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.
Page 20 See Notes to Financial Statements
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
MAY 31, 2012
1. FUND DESCRIPTION
First Trust Senior Floating Rate Income Fund II (the "Fund") is a diversified,
closed-end management investment company organized as a Massachusetts business
trust on March 25, 2004, and is registered with the Securities and Exchange
Commission ("SEC") under the Investment Company Act of 1940, as amended (the
"1940 Act"). The Fund trades under the ticker symbol FCT on the New York Stock
Exchange ("NYSE").
The Fund's primary investment objective is to seek a high level of current
income. As a secondary objective, the Fund attempts to preserve capital. The
Fund pursues these objectives by investing in a portfolio of senior secured
floating-rate corporate loans ("Senior Loans")1. There can be no assurance that
the Fund will achieve its investment objectives. Investing in Senior Loans
involves credit risk and, during periods of generally declining credit quality,
it may be particularly difficult for the Fund to achieve its secondary
investment objective. The Fund may not be appropriate for all investors.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America ("U.S. GAAP") requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
A. PORTFOLIO VALUATION:
The net asset value ("NAV") of the Common Shares of the Fund is determined daily
as of the close of regular trading on the NYSE, normally 4:00 p.m. Eastern time,
on each day the NYSE is open for trading. If the NYSE closes early on a
valuation day, the NAV is determined as of that time. Domestic debt securities
and foreign securities are priced using data reflecting the earlier closing of
the principal markets for those securities. The NAV per Common Share is
calculated by dividing the value of all assets of the Fund (including accrued
interest and dividends), less all liabilities (including accrued expenses,
dividends declared but unpaid and any borrowings of the Fund), by the total
number of Common Shares outstanding.
The Fund's investments are valued daily in accordance with valuation procedures
adopted by the Fund's Board of Trustees, and in accordance with provisions of
the 1940 Act. The Senior Loans in which the Fund invests are not listed on any
securities exchange or board of trade. Senior Loans are typically bought and
sold by institutional investors in individually negotiated private transactions
that function in many respects like an over-the-counter secondary market,
although typically no formal market-makers exist. This market, while having
grown substantially since its inception, generally has fewer trades and less
liquidity than the secondary market for other types of securities. Some Senior
Loans have few or no trades, or trade infrequently, and information regarding a
specific Senior Loan may not be widely available or may be incomplete.
Accordingly, determinations of the fair 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 securities listed on any national or foreign exchange
(excluding the NASDAQ National Market ("NASDAQ") and the London Stock Exchange
Alternative Investment Market ("AIM") are valued at the last sale price on the
exchange on which they are principally traded. If there are no transactions on
the valuation day, the securities are valued at the mean between the most recent
bid and asked prices. Securities listed on the NASDAQ or the AIM are valued at
the official closing price. If there is no official closing price on the
valuation day, the securities are valued at the mean between the most recent bid
and asked prices. Securities traded in the over-the-counter market are valued at
their closing bid prices.
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. However, in light of the judgment involved in
fair valuations, there can be no assurance that a fair value assigned to a
particular security will be the amount which the Fund might be able to receive
upon its current sale. Fair valuation of a 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 issuer;
2) an evaluation of the forces which influence the market in which these
securities are purchased and sold;
3) the type, size and cost of the security;
1 The terms "security" and "securities" used throughout the Notes to
Financial Statements include Senior Loans.
Page 21
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
MAY 31, 2012
4) the financial statements of the issuer;
5) the credit quality and cash flow of the 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 issuer/borrower, or comparable companies;
8) the coupon payments;
9) the quality, value and salability of collateral, if any, securing the
security;
10) the business prospects of the issuer, including any ability to obtain
money or resources from a parent or affiliate and an assessment of the
issuer's management;
11) the prospects for the issuer's industry, and multiples (of earnings and/or
cash flows) being paid for similar businesses in that industry;
12) issuer's competitive position within the industry;
13) 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 portfolio investments are not
necessarily an indication of the risks associated with investing in those
investments. A summary of the inputs used to value the Fund's portfolio
investments as of May 31, 2012 is included with the Fund's Portfolio of
Investments.
B. SECURITY TRANSACTIONS AND INVESTMENT INCOME:
Security transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Interest income is recorded on the accrual basis. Market premiums and discounts
are amortized over the expected life of each respective security.
Securities purchased or sold on a when-issued, delayed-delivery or forward
purchase commitment basis may have extended settlement periods. The value of the
security so purchased is subject to market fluctuations during this period. Due
to the nature of the Senior Loan market, the actual settlement date may not be
certain at the time of the purchase or sale for some of the Senior Loans.
Interest income on such Senior Loans is not accrued until settlement date. The
Fund maintains liquid assets with a current value at least equal to the amount
of its when-issued, delayed-delivery or forward purchase commitments. The Fund
didn't have any when-issued, delayed-delivery or forward purchase commitments as
of May 31, 2012.
C. UNFUNDED LOAN COMMITMENTS:
The Fund may enter into certain credit agreements, all or a portion of which may
be unfunded. The Fund is obligated to fund these loan commitments at the
borrower's discretion. The Fund had unfunded delayed draw loan commitments of
$1,633,222 as of May 31, 2012.
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, 2012, the Fund held restricted securities as shown in the following
table. The Fund does not have the right to demand that such securities be
registered. These securities are valued according to the valuation procedures as
stated in the Portfolio Valuation footnote (Note 2A) and are not expressed as a
discount to the carrying value of a comparable unrestricted investment. There
are no unrestricted investments with the same maturity dates and yields for
these issuers.
Page 22
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
MAY 31, 2012
% OF
NET ASSETS
APPLICABLE
ACQUISITION PRINCIPAL VALUE CURRENT TO COMMON
SECURITY DATE VALUE/SHARES PER SHARE CARRYING COST VALUE SHARES
-----------------------------------------------------------------------------------------------------------------
Cumulus Media, Inc. - Warrants 6/29/09 1,449 $ 1.63 $ -- $ 2,362 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 $ 2,362 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 NAV per share. Temporary differences, which
arise from recognizing certain items of income, expense and gain/loss in
different periods for financial statement and tax purposes, will reverse at some
time in the future. Permanent differences incurred during the year ended May 31,
2012, resulting in book and tax accounting differences, have been reclassified
at year end to reflect a decrease in accumulated net investment income (loss) of
$18,771, an increase in accumulated net realized gain (loss) on investments of
$43,008 and a decrease to paid-in capital of $24,237. Net assets were not
affected by these reclassifications.
The tax character of distributions paid during the fiscal years ended May 31,
2012 and 2011 is as follows:
Distributions paid from: 2012 2011
------------- -------------
Ordinary income............. $ 21,979,654 $ 17,618,839
As of May 31, 2012, the components of distributable earnings and net assets on a
tax basis were as follows:
Undistributed ordinary income................... $ 2,161,651
Undistributed capital gains..................... --
-------------
Total undistributed earnings.................... 2,161,651
Accumulated capital and other losses............ (105,285,525)
Net unrealized appreciation (depreciation)...... (10,932,143)
-------------
Total accumulated earnings (losses)............. (114,056,017)
Other........................................... --
Paid-in capital................................. 481,227,780
-------------
Net assets...................................... $ 367,171,763
=============
F. INCOME TAXES:
The Fund intends to continue to qualify as a regulated investment company by
complying with the requirements under Subchapter M of the Internal Revenue Code
of 1986, as amended, which includes distributing substantially all of its net
investment income and net realized gains to shareholders. Accordingly, no
provision has been made for federal or state income taxes. However, due to the
timing and amount of distributions, the Fund may be subject to an excise tax of
4% of the amount by which approximately 98.2% of the Fund's taxable income
exceeds the distributions from such taxable income for the calendar year.
Under the Regulated Investment Company Modernization Act of 2010 (the "Act"),
net capital losses recognized after December 31, 2010, may be carried forward
indefinitely, and their character is retained as short-term and/or long-term
losses. Previously, net capital losses were carried forward for up to eight
years and treated as short-term losses. As a transition rule, the Act requires
that post-enactment net capital losses be used before pre-enactment net capital
losses. At May 31, 2012, the Fund had pre-enactment net capital losses for
federal income tax purposes of $105,285,525 expiring as follows:
Page 23
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
MAY 31, 2012
EXPIRATION DATE AMOUNT
May 31, 2014 $ 3,143,970
May 31, 2016 $ 3,611,723
May 31, 2017 $ 25,585,953
May 31, 2018 $ 68,278,827
May 31, 2019 $ 4,665,052
During the taxable year ended May 31, 2012, the Fund utilized pre-enactment
capital loss carryforwards in the amount of $840,490.
The Fund is subject to certain limitations under the U.S. tax rules on the use
of capital loss carryforwards and net unrealized built-in losses. These
limitations apply when there has been a 50% change in ownership.
The Fund is subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. Taxable years ending 2009, 2010,
2011 and 2012 remain open to federal and state audit. As of May 31, 2012,
management has evaluated the application of these standards to the Fund and has
determined that no provision for income tax is required in the Fund's financial
statements for uncertain tax positions.
G. EXPENSES:
The Fund pays all expenses directly related to its operations.
H. ACCOUNTING PRONOUNCEMENTS:
In May 2011, the Financial Accounting Standards Board ("FASB") issued ASU
2011-04 "Amendments to Achieve Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and IFRSs", modifying Topic 820, "Fair Value
Measurements and Disclosures." At the same time, the International Accounting
Standards Board ("IASB") issued International Financial Reporting Standard
("IFRS") 13, "Fair Value Measurement." The objective of the FASB and IASB is
convergence of their guidance on fair value measurements and disclosures.
Specifically, the ASU requires reporting entities to disclose (i) the amounts of
any transfers between Level 1 and Level 2, and the reasons for the transfers,
(ii) for Level 3 fair value measurements, quantitative information about
significant unobservable inputs used, (iii) a description of the valuation
processes used by the reporting entity, and (iv) a narrative description of the
sensitivity of the fair value measurement to changes in unobservable inputs if a
change in those inputs might result in a significantly higher or lower fair
value measurement. The effective date of the ASU is for interim and annual
periods beginning after December 15, 2011, and it is therefore not effective for
the current fiscal year. Management is in the process of assessing the impact of
the updated standards on the Fund's financial statements, if any.
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Fund, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. First Trust is responsible for the ongoing monitoring of
the Fund's investment portfolio, managing the Fund's business affairs and
providing certain administrative services necessary for the management of the
Fund. For these investment management services, First Trust is entitled to a
monthly fee calculated at an annual rate of 0.75% of the Fund's Managed Assets
(the average daily total asset value of the Fund minus the sum of the Fund's
liabilities other than the principal amount of borrowings). First Trust also
provides fund reporting services to the Fund for a flat annual fee in the amount
of $9,250.
BNY Mellon Investment Servicing (US) Inc. serves as the Fund's Administrator,
Fund Accountant and Transfer Agent in accordance with certain fee arrangements.
Effective September 30, 2011, the Bank of New York Mellon serves as the Fund's
Custodian in accordance with certain fee arrangements. Prior to September 30,
2011, BNY Mellon Investment Servicing Trust Company (formerly known as PFPC
Trust Company) served as the Fund's Custodian in accordance with certain fee
arrangements.
Effective January 23, 2012, James A. Bowen resigned from his position as the
President and Chief Executive Officer of the Fund. He continues as a Trustee,
the Chairman of the Board of Trustees and a member of the Executive Committee.
The Board elected Mark R. Bradley to serve as the President and Chief Executive
Officer of the Fund and James M. Dykas to serve as the Treasurer, Chief
Financial Officer and Chief Accounting Officer of the Fund.
Effective January 1, 2012, each Trustee who is not an officer or employee of
First Trust, any sub-advisor or any of their affiliates ("Independent Trustees")
is paid a fixed annual retainer of $125,000 per year and an annual per fund fee
of $4,000 for each closed-end fund or other actively managed fund and $1,000 for
each index fund in the First Trust Fund Complex. The fixed annual retainer is
allocated pro rata among each fund in the First Trust Fund Complex based on net
assets. Prior to January 1, 2012, each Independent Trustee received an annual
retainer of $10,000 per trust for the first 14 trusts of the First Trust Fund
Complex and an annual retainer of $7,500 per trust for each additional trust in
the First Trust Fund Complex. The annual retainer was allocated equally among
each of the trusts.
Additionally, the Lead Independent Trustee is paid $15,000 annually, the
Chairman of the Audit Committee is paid $10,000 annually, and each of the
Chairmen of the Nominating and Governance Committee and the Valuation Committee
is paid $5,000 annually to serve in such capacities, with such compensation
allocated pro rata among each fund in the First Trust Fund Complex based on net
assets. Prior to January 1, 2012, the annual amounts paid were $10,000, $5,000
and $2,500, respectively. Trustees are reimbursed for travel and out-of-pocket
Page 24
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
MAY 31, 2012
expenses in connection with all meetings. The Lead Independent Trustee and each
Committee chairman will serve two-year terms before rotating to serve as
chairman of another committee or as Lead Independent Trustee. The officers and
"Interested" Trustee receive no compensation from the funds for acting in such
capacities.
4. PURCHASES AND SALES OF INVESTMENTS
Cost of purchases and proceeds from sales of investments, excluding short-term
investments, for the year ended May 31, 2012 were $340,571,019 and $364,476,165,
respectively.
5. BORROWINGS
The Fund has entered into a Revolving Credit Facility ("Credit Facility") with
various lenders and Citicorp North America Inc., as agent, to be used as
leverage for the Fund. The Credit Facility had an expiration date of May 9,
2012, which was extended until July 13, 2012. 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 an "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 $170,000,000. For the year ended May 31, 2012, the
average amount outstanding was $156,636,612. The loans under the Credit Facility
funded by CRC Funding, LLC (the "Conduit Lender") bear interest for each
settlement period at a rate per annum based on the commercial paper rate of the
Conduit Lender. The loans under the Credit Facility funded by Citibank, N.A.
(the "Secondary Lender") bear interest for each settlement period at a per annum
rate equal to (i) the Eurodollar rate for the settlement period plus 0.60% or
(ii) the alternate base rate plus 0.60%. For the year ended May 31, 2012, the
Fund had no loans under the Credit Facility funded by the Secondary Lender. The
high and low annual interest rates for the loans under the Credit Facility
funded by the Conduit Lender during the year ended May 31, 2012, were 0.32% and
0.13%, respectively, with a weighted average interest rate of 0.23%. The annual
interest rate in effect for such loans at May 31, 2012 was 0.31%. The Fund also
pays additional borrowing costs, which includes a program fee of 0.30% of the
amount outstanding and a liquidity fee of 0.30% of the total commitment under
the Credit Facility per year.
6. CHANGE IN CERTAIN INVESTMENT STRATEGIES
On December 12, 2011, the Fund's Board of Trustees approved changes to certain
of the Fund's investment strategies. The Fund's investment strategies are
non-fundamental policies of the Fund and require 60 days' prior written notice
to shareholders before they can be changed by the Board without receiving
shareholder approval. As such, effective on or about April 9, 2012, the
following Fund investment strategy became effective:
The Fund has been approved to purchase publicly-traded high-yield bonds for a
portion of its portfolio. These purchases will be limited to no more than 10% of
managed assets and they are in addition to purchases of revolving credit
facilities, investment grade debtor-in-possession financing, unsecured loans,
other floating rate debt securities (such as notes, bonds and asset-backed
securities, which include special purchase trusts investing in bank loans),
investment grade loans, fixed income debt obligations, and money market
instruments (such as commercial paper).
7. RISK CONSIDERATIONS
Risks are inherent in all investing. The following summarizes some 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 investments owned by the Fund. The value of these investments, 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. Investment prices can fluctuate for several reasons including
the general condition of the bond market, or when political or economic events
affecting the issuers occur. When the Advisor 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
investments 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.
Page 25
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
MAY 31, 2012
LEVERAGE RISK: The use of leverage results in additional risks and can magnify
the effect of any losses. If the income and gains from the securities and
investments purchased with such proceeds do not cover the cost of leverage, the
Common Shares' return will be less than if leverage had not been used. The Fund
borrowed pursuant to a leverage borrowing program, which constitutes a
substantial lien and burden by reason of their prior claim against the income of
the Fund and against the net assets of the Fund in liquidation. The rights of
lenders to receive payments of interest on and repayments of principal on any
borrowings made by the Fund under a leverage borrowing program are senior to the
rights of holders of Common Shares, with respect to the payment of dividends or
upon liquidation. If the Fund is not in compliance with certain Credit Facility
provisions, the Fund may not be permitted to declare dividends or other
distributions, including dividends and distributions with respect to Common
Shares or purchase Common Shares. The use of leverage by the Fund increases the
likelihood of greater volatility of NAV and market price of the Common Shares.
Leverage also increases the risk that fluctuations in interest rates on
borrowings and short-term debt that the Fund may pay will reduce the return to
the Common Shareholders or will result in fluctuations in the dividends paid on
the Common Shares.
SENIOR LOAN RISK: In the event a borrower fails to pay scheduled interest or
principal payments on a Senior Loan held by the Fund, the Fund will experience a
reduction in its income and a decline in the market value of the Senior Loan,
which will likely reduce dividends and lead to a decline in the net asset value
of the Fund's Common Shares. If the Fund acquires a Senior Loan from another
lender, for example, by acquiring a participation, the Fund may also be subject
to credit risks with respect to that lender. Although Senior Loans may be
secured by specific collateral, the value of the collateral may not equal the
Fund's investment when the Senior Loan is acquired or may decline below the
principal amount of the Senior Loan subsequent to the Fund's investment. Also,
to the extent that collateral consists of stock of the borrower or its
subsidiaries or affiliates, the Fund bears the risk that the stock may decline
in value, be relatively illiquid, and/or may 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.
8. INDEMNIFICATION
The Fund has a variety of indemnification obligations under contracts with its
service providers. The Fund's maximum exposure under these arrangements is
unknown. However, the Fund has not had prior claims or losses pursuant to these
contracts and expects the risk of loss to be remote.
9. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events on the Fund through
the date the financial statements were issued, and has determined that there
were the following subsequent events:
On June 20, 2012, the Fund declared a dividend of $0.08125 per share to Common
Shareholders of record on July 5, 2012, payable July 16, 2012.
On July 19, 2012, the Fund declared a dividend of $0.08375 per share to Common
Shareholders of record on August 3, 2012, payable August 15, 2012.
The Fund entered into a Revolving Credit and Security Agreement 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. This agreement and the related documentation replace the Credit
Facility with various lenders and Citicorp North America Inc., as agent, which
terminated on July 13, 2012.
The new credit facility has an expiration date of July 12, 2013, and may be
renewed annually. The new 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 new credit
facility is $175,000,000. The loans under the new credit facility funded
generally bear interest for each settlement period at a rate per annum based on
the commercial paper rate of the conduit lender. The 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.
Page 26
--------------------------------------------------------------------------------
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, 2012, 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, 2012 by correspondence with the Fund's
custodian and agent banks; where replies were not received, we performed other
auditing procedures. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the 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, 2012, the results
of its operations and its cash flows for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended, in conformity
with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Chicago, Illinois
July 24, 2012
Page 27
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
MAY 31, 2012 (UNAUDITED)
DIVIDEND REINVESTMENT PLAN
If your Common Shares are registered directly with the Fund or if you hold your
Common Shares with a brokerage firm that participates in the Fund's Dividend
Reinvestment Plan (the "Plan"), unless you elect, by written notice to the Fund,
to receive cash distributions, all dividends, including any capital gain
distributions, on your Common Shares will be automatically reinvested by BNY
Mellon Investment Servicing (US) Inc. (the "Plan Agent"), in additional Common
Shares under the Plan. If you elect to receive cash distributions, you will
receive all distributions in cash paid by check mailed directly to you by the
Plan Agent, as the dividend paying agent.
If you decide to participate in the Plan, the number of Common Shares you will
receive will be determined as follows:
(1) If Common Shares are trading at or above net asset value ("NAV") at
the time of valuation, the Fund will issue new shares at a price
equal to the greater of (i) NAV per Common Share on that date or
(ii) 95% of the market price on that date.
(2) If Common Shares are trading below NAV at the time of valuation, the
Plan Agent will receive the dividend or distribution in cash and
will purchase Common Shares in the open market, on the NYSE or
elsewhere, for the participants' accounts. It is possible that the
market price for the Common Shares may increase before the Plan
Agent has completed its purchases. Therefore, the average purchase
price per share paid by the Plan Agent may exceed the market price
at the time of valuation, resulting in the purchase of fewer shares
than if the dividend or distribution had been paid in Common Shares
issued by the Fund. The Plan Agent will use all dividends and
distributions received in cash to purchase Common Shares in the open
market within 30 days of the valuation date except where temporary
curtailment or suspension of purchases is necessary to comply with
federal securities laws. Interest will not be paid on any uninvested
cash payments.
You may elect to opt-out of or withdraw from the Plan at any time by giving
written notice to the Plan Agent, or by telephone at (866) 340-1104, in
accordance with such reasonable requirements as the Plan Agent and the Fund may
agree upon. If you withdraw or the Plan is terminated, you will receive a
certificate for each whole share in your account under the Plan, and you will
receive a cash payment for any fraction of a share in your account. If you wish,
the Plan Agent will sell your shares and send you the proceeds, minus brokerage
commissions.
The Plan Agent maintains all Common Shareholders' accounts in the Plan and gives
written confirmation of all transactions in the accounts, including information
you may need for tax records. Common Shares in your account will be held by the
Plan Agent in non-certificated form. The Plan Agent will forward to each
participant any proxy solicitation material and will vote any shares so held
only in accordance with proxies returned to the Fund. Any proxy you receive will
include all Common Shares you have received under the Plan.
There is no brokerage charge for reinvestment of your dividends or distributions
in Common Shares. However, all participants will pay a pro rata share of
brokerage commissions incurred by the Plan Agent when it makes open market
purchases.
Automatically reinvesting dividends and distributions does not mean that you do
not have to pay income taxes due upon receiving dividends and distributions.
Capital gains and income are realized although cash is not received by you.
Consult your financial advisor for more information.
If you hold your Common Shares with a brokerage firm that does not participate
in the Plan, you will not be able to participate in the Plan and any dividend
reinvestment may be effected on different terms than those described above.
The Fund reserves the right to amend or terminate the Plan if in the judgment of
the Board of Trustees the change is warranted. There is no direct service charge
to participants in the Plan; however, the Fund reserves the right to amend the
Plan to include a service charge payable by the participants. Additional
information about the Plan may be obtained by writing BNY Mellon Investment
Servicing (US) Inc., 301 Bellevue Parkway, Wilmington, Delaware 19809.
--------------------------------------------------------------------------------
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Fund uses to determine how
to vote proxies and information on how the Fund voted proxies relating to
portfolio investments during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Fund's website located at http://www.ftportfolios.com; and (3) on the
Securities and Exchange Commission's ("SEC") website located at
http://www.sec.gov.
Page 28
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
MAY 31, 2012 (UNAUDITED)
PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q
are available (1) by calling (800) 988-5891; (2) on the Fund's website located
at http://www.ftportfolios.com; (3) on the SEC's website at http://www.sec.gov;
and (4) for review and copying at the SEC's Public Reference Room ("PRR") in
Washington, DC. Information regarding the operation of the PRR may be obtained
by calling (800) SEC-0330.
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 October 21, 2011, 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 19, 2011
(the "meeting"). At the meeting, Trustees Richard E. Erickson and Thomas R.
Kadlec were elected as Class I Trustees for three-year terms expiring at the
Fund's annual meeting of shareholders in 2014. The number of votes cast in favor
of Mr. Erickson was 23,934,124, and the number of abstentions was 405,964. The
number of votes cast in favor of Mr. Kadlec was 23,938,823, and the number of
abstentions was 401,265. Niel B. Nielson, James A. Bowen and Robert F. Keith are
current and continuing Trustees. Mr. Nielson is currently the Class II Trustee
of the Fund for a term expiring at the Fund's annual meeting of shareholders in
2012. Messrs. Bowen and Keith are currently the Class III Trustees of the Fund
for terms 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, 2012, none qualify for the corporate
dividends received deduction available to corporate shareholders or as qualified
dividend income.
Page 29
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
MAY 31, 2012 (UNAUDITED)
NUMBER OF
PORTFOLIOS IN THE OTHER
TERM OF OFFICE FIRST TRUST TRUSTEESHIPS OR
AND FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS, DATE OF BIRTH LENGTH OF PRINCIPAL OCCUPATIONS OVERSEEN BY HELD BY
AND POSITION WITH THE FUND SERVICE(1) DURING PAST 5 YEARS TRUSTEE TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
Richard E. Erickson, Trustee o Three Year Term Physician; President, Wheaton Orthopedics; 92 None
C/o First Trust Advisors L.P. Co-owner And Co-director (January 1996
120 E. Liberty Drive, o Since Fund to May 2007), Sports Med Center For Fitness;
Suite 400 Inception Limited Partner, Gundersen Real Estate
Wheaton, IL 60187 Limited Partnership; Member,
D.O.B.: 04/51 Sportsmed LLC
Thomas R. Kadlec, Trustee o Three Year Term President (March 2010 to Present), Senior 92 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 92 Director of
c/o First Trust Advisors L.P. Enterprises (Financial and Management Trust Company
120 E. Liberty Drive, o Since June 2006 Consulting) of Illinois
Suite 400
Wheaton, IL 60187
D.O.B.: 11/56
Niel B. Nielson, Trustee o Three Year Term President and Chief Executive Officer 92 Director of
c/o First Trust Advisors L.P. (Since 2012), Dew Learning LLC Covenant
120 E. Liberty Drive, o Since Fund (Educational Products and Services), Transport Inc.
Suite 400 Inception President (June 2002 to 2012), Covenant
Wheaton, IL 60187 College
D.O.B.: 03/54
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen, Trustee and o Three Year Chief Executive Officer (December 2010 92 None
Chairman of the Board(2) Trustee Term to Present), President (until December
120 E. Liberty Drive, 2010), First Trust Advisors L.P. and First
Suite 400 o Since Fund Trust Portfolios L.P.; Chairman of the
Wheaton, IL 60187 Inception 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 2012 annual meeting of shareholders. James A. Bowen and
Robert R. 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 30
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
MAY 31, 2012 (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 WHO ARE NOT TRUSTEES(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 Company/
o Treasurer, CFO and Investment Advisor) and Stonebridge Advisors
CAO Fund Inception - LLC (Investment Advisor)
January 2012
Erin E. Klassman Assistant Secretary o Indefinite term Assistant General Counsel (October 2007 to
120 E. Liberty Drive, Present), Associate Counsel (March 2006 to
Suite 400 o Since June 2009 October 2007), First Trust Advisors L.P. and
Wheaton, IL 60187 First Trust Portfolios L.P.; Associate
D.O.B.: 08/76 Attorney (November 2003 to March 2006),
Doyle & Bolotin, Ltd.
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
December 2005 -
January 2012
Rosanne Gatta Assistant Secretary o Indefinite term Board Liaison Associate (July 2010 to
120 E. Liberty Drive, Present), First
Trust Advisors L.P. and First
Suite 400 o Since March 2011 Trust Portfolios L.P.; Assistant Vice
Wheaton, IL 60187 President (February 2001 to July 2010), PNC
D.O.B.: 07/55 Global Investment Services
Christopher R. Fallow Assistant Vice President o Indefinite term Vice President (August 2006 to Present),
120 E. Liberty Drive, First Trust Advisors L.P. and First Trust
Suite 400 o Since December 2006 Portfolios L.P.
Wheaton, IL 60187
D.O.B.: 04/79
W. Scott Jardine Secretary o Indefinite term General Counsel, First Trust Advisors L.P.,
120 E. Liberty Drive, 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 (September 2005 to
120 E. Liberty Drive, Present), First Trust Advisors L.P. and
Suite 400 o Since December 2005 First Trust Portfolios L.P.
Wheaton, IL 60187
D.O.B: 02/70
Coleen D. Lynch Assistant Vice President o Indefinite term Assistant Vice President (January 2008 to
120 E. Liberty Drive, Present), First Trust Advisors L.P. and
Suite 400 o Since July 2008 First Trust Portfolios L.P.; Vice President
Wheaton, IL 60187 (May 1998 to January 2008), Van Kampen
DOB: 07/58 Asset Management and Morgan Stanley
Investment Management
Kristi A. Maher Assistant Secretary and o Indefinite term Deputy General Counsel (May 2007 to
120 E. Liberty Drive, Chief Compliance Officer Present), First Trust Advisors L.P. and
Suite 400 o Assistant Secretary First Trust Portfolios L.P.
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 31
--------------------------------------------------------------------------------
PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
MAY 31, 2012 (UNAUDITED)
PRIVACY POLICY
The open-end and closed-end funds advised by First Trust Advisors L.P. (each a
"Fund") value our relationship with you and consider your privacy an important
priority in maintaining our 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 with affiliates of the Fund.
PRIVACY ONLINE
We allow third-party companies, including AddThis, 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, we restrict access to your
nonpublic personal information to those individuals 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).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 32
FIRST TRUST
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 E. Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR,
FUND ACCOUNTANT &
TRANSFER AGENT
BNY Mellon Investment Servicing (US) Inc.
301 Bellevue Parkway
Wilmington, DE 19809
CUSTODIAN
The Bank of New York Mellon
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 $55,000 for 2011 and
$67,000 for 2012.
(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 2011 and $0 for 2012.
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 2011 and $0 for 2012.
(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 $0 for
2011 and $10,400 for 2012. 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 2011 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 2011 and $0 for 2012.
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 2011 and $0 for
2012.
(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 2011 were $15.18 and
$0 for the Registrant and the Registrant's investment adviser,
respectively, and for 2012 were $10,400 and $10,320 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.
FIRST TRUST ADVISORS L.P.
PROXY VOTING GUIDELINES
First Trust Advisors L.P. (the "Adviser") serves as investment adviser
providing discretionary investment advisory services for separate managed
accounts, ERISA accounts and open- and closed-end investment companies (the
"Clients"). As part of these services, the Adviser may have responsibility for
proxy voting and related duties. In fulfilling these duties, the Adviser has
adopted the following policies and procedures:
1. It is the Adviser's policy to seek and to ensure that proxies are
voted on securities in a Client's account consistently and solely in the best
economic interests of the Client.
2. The Adviser shall be responsible for the oversight of Client proxy
voting processes and shall assign a senior member of its staff to be responsible
for this oversight.
3. The Adviser has engaged the services of Institutional Shareholder
Services, Inc. ("ISS") to make recommendations to the Adviser on the voting of
proxies related to securities held by Clients. ISS provides voting
recommendations based on established guidelines and practices. The Adviser has
adopted these ISS Proxy Voting Guidelines.
4. The Adviser shall review the ISS recommendations and generally will
vote proxies in accordance with such recommendations. Notwithstanding the
foregoing, the Adviser may not vote in accordance with the ISS recommendations
if the Adviser believes that the specific ISS recommendation is not in the best
interests of the Client. In addition, whenever a conflict of interest arises
between ISS and a company subject to a proxy vote, the Adviser will vote the
proxy without using the analyses of ISS and will consider the recommendation of
the company and what the Adviser believes to be in the best interests of the
Client. In addition, if the Adviser has actual knowledge of any other type of
material conflict of interest between itself and the respective Client with
respect to the voting of a proxy, the Adviser shall vote the applicable proxy in
accordance with the ISS recommendations to avoid such conflict of interest. With
respect to open- and closed-end funds and variable annuity sub-accounts, if
there is a conflict of interest between fund shareholders and FTA, the fund's
principal underwriter, or sub-adviser, if applicable, FTA will vote the proxy
based on the recommendations of ISS to avoid such conflict of interest.
5. If the Adviser manages the assets or pension fund of a company and
any of the Adviser's Clients hold any securities in that company, the Adviser
will vote proxies relating to such company's securities in accordance with the
ISS recommendations to avoid any conflict of interest.
6. If a Client requests the Adviser to follow specific voting
guidelines or additional guidelines, the Adviser shall review the request and
follow such guidelines, unless the Adviser determines that it is unable to
follow such guidelines. In such case, the Adviser shall inform the Client that
it is not able to follow the Client's request.
7. FTA will monitor changes to the ISS guidelines to determine that
such guidelines continue to result in a voting policy that is in the best
interests of Clients.
8. In certain circumstances, where FTA has determined that it is
consistent with the Client's best interest, FTA will not take steps to ensure
that proxies are voted on securities in the Client's accounts. The following are
circumstances where this may occur:
(a) Limited Value. Proxies will not be required to be voted on
securities in a Client's account if the value of the Client's economic interest
in the securities is indeterminable or insignificant (less than $1,000). Proxies
will also not be required to be voted for any securities that are no longer held
by the Client's account.
(b) Securities Lending Program. When securities are out on loan, they
are transferred into the borrower's name and are voted by the borrower, in its
discretion. In most cases, FTA will not take steps to see that loaned securities
are voted. However, where FTA determines that a proxy vote, or other shareholder
action, is materially important to the Client's account, FTA will make a good
faith effort to recall the security for purposes of voting, understanding that
in certain cases, the attempt to recall the security may not be effective in
time for voting deadlines to be met.
(c) Unjustifiable Costs. In certain circumstances, after doing a
cost-benefit analysis, FTA may choose not to vote where the cost of voting a
Client's proxy would exceed any anticipated benefits to the Client of the proxy
proposal (e.g. foreign securities).
9. For certain open- or closed-end funds relying on Section 12(d)(1)(F)
of the 1940 Act, FTA will vote on proxies of securities of investment companies
held by such funds in the same proportion as all other holders of such
securities (i.e. mirror or echo voting) to the extent possible.
Amended: September 21, 2009
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 AUGUST 1, 2012
William Housey is the Senior Portfolio Manager for the Leveraged Finance
Investment Team of First Trust Advisors L.P. ("First Trust") and has primary
responsibility for investment decisions. Scott Fries assists Mr. Housey and is
also a Senior Credit Analyst assigned to certain industries. The portfolio
managers are supported in their portfolio management activities by 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 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
("CFA") 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, 2012
Name of Portfolio Total # of Accounts Managed for Total Assets for which
Manager or # of Accounts Total which Advisory Fee is Advisory Fee is Based
Team Member Type of Accounts Managed* Assets Based on Performance on Performance
--------------- ---------------- -------- ------ ---------------------- --------------
1. William Housey, Registered 2 $160 0 $0
CFA Investment million
Companies:
Other Pooled 0 $0 0 $0
Investment
Vehicles:
Other Accounts: 0 $0 0 $0
2. Scott Fries, CFA Registered 2 $160 0 $0
Investment million
Companies:
Other Pooled 0 $0 0 $0
Investment
Vehicles:
Other Accounts: 0 $0 0 $0
* Information excludes the registrant.
POTENTIAL CONFLICTS OF INTERESTS
Potential conflicts of interest may arise when a portfolio manager of the
Registrant has day-to-day management responsibilities with respect to one or
more other funds or other accounts. The First Trust Leveraged Finance 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 confidential watch
list of all issuers for which the Leveraged Finance Investment Team has material
non-public information in its possession.
(a)(3) COMPENSATION STRUCTURE OF PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM MEMBERS
INFORMATION PROVIDED AS OF MAY 31, 2012
The compensation structure for the Leveraged Finance Investment Team of First
Trust is based upon a fixed salary as well as a discretionary bonus determined
by the management of First Trust.
Salaries are determined by management and are based upon an individual's
position and overall value to the firm. Bonuses are also determined by
management and are based upon an individual's overall contribution to the
success of the firm and the profitability of the firm. Salaries and bonuses for
members of the Leveraged Finance Investment Team are not based upon criteria
such as performance of the Registrant or the value of assets of the Fund,
although discretionary bonuses for Leveraged Finance Team members are based on
the profitability of the leveraged finance department.
(a)(4) DISCLOSURE OF SECURITIES OWNERSHIP AS OF MAY 31, 2012
--------------------------- --------------------------------
Name of Portfolio Manager Dollar ($) Range of Fund
or Shares Beneficially
Team Member 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 19, 2012
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Mark R. Bradley
------------------------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)
Date: July 19, 2012
By (Signature and Title)* /s/ James M. Dykas
------------------------------------------------------
James M. Dykas, Treasurer, Chief Financial
Officer and Chief Accounting Officer
(principal financial officer)
Date: July 19, 2012
* Print the name and title of each signing officer under his or her signature.