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First Trust Senior Floating Rate Income Fund II (FCT)
Investment Objective/Strategy - First Trust Senior Floating Rate Income Fund II (the "Fund") is a diversified, closed-end management investment company. The primary investment objective of the Fund is to seek a high level of current income. As a secondary objective, the Fund attempts to preserve capital. The Fund pursues its objectives by investing primarily in a portfolio of senior secured floating-rate corporate loans ("Senior Loans"). Under normal market conditions, at least 80% of the Fund's Managed Assets are generally invested in lower grade debt instruments. "Managed Assets" means the total asset value of the Fund minus the sum of its liabilities, other than the principal amount of borrowings. 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.
There can be no assurance that the Fund's investment objectives will be achieved. The Fund may not be appropriate for all investors.
Fund Overview
TickerFCT
Fund TypeLoan Participation
Investment AdvisorFirst Trust Advisors L.P.
Investor Servicing AgentBNY Mellon Investment Servicing (US) Inc.
CUSIP33733U108
Fiscal Year-End05/31
ExchangeNYSE
Inception5/25/2004
Inception Price$20.00
Inception NAV$19.10
Current Fund Data (as of 6/22/2021)
Closing NAV1$12.64
Closing Market Price2$12.49
Discount to Net Asset Value (NAV)1.19%
Total Managed Assets$459,080,899
Common Shares Outstanding25,953,421
Dividend FrequencyMonthly
Dividend Per Share Amt3$0.0896
Distribution Rate48.61%
Daily Volume307,139
Average 30-Day Daily Volume162,181
Closing Market Price 52-Week High/Low$12.75 / $10.47
Closing NAV 52-Week High/Low$12.94 / $12.23
Expense Ratios (as of 11/30/2020)
Annual ExpensesPercent of
Net Assets
Percent of
Managed
Assets
Management Fees1.06%0.75%
Other Expenses
0.35%
0.26%
Total Operating Expenses1.41%1.01%
 
Leverage Costs0.40%0.29%
 
Total Annual Expenses1.81%1.30%
 
Leverage costs include interest, fees and any upfront/offering costs associated with borrowings by the Fund.
Portfolio Characteristics (as of 6/22/2021)7
Weighted Average Maturity4.52 Years
Weighted Average Price$99.11
Weighted Average Yield-To-Maturity55.56%
Weighted Average Yield-to-Worst5.58%
Percent of Assets with LIBOR Floors55.60%
Please note: Weighted average maturity excludes defaulted assets.
S&P Ratings (as of 5/31/2021)7
  S&P Rating Percent
BBB- 1.06%
BB 2.44%
BB- 5.09%
B+ 22.39%
B 40.65%
B- 20.56%
CCC+ 2.08%
CCC 2.85%
D 2.36%
NR 0.52%
The ratings are by Standard & Poor's except where otherwise indicated. A credit rating is an assessment provided by a nationally recognized statistical rating organization (NRSRO) of the creditworthiness of an issuer with respect to debt obligations except for those debt obligations that are only privately rated. Ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). Investment grade is defined as those issuers that have a long-term credit rating of BBB- or higher. "NR" indicates no rating. The credit ratings shown relate to the creditworthiness of the issuers of the underlying securities in the Fund, and not to the Fund or its shares. Credit ratings are subject to change.
Market Price and NAV History (Since Inception)
Past performance is not indicative of future results.
% Premium/Discount (Since Inception)
Leverage Information (as of 6/22/2021)6
Total Net Assets with Leverage$459,080,899
Amount Attributable to Common Shares$328,080,899
Amount Attributable to Preferred Shares$0
Amount Attributable to Other Borrowings$131,000,000
Leverage (% of Total Adjusted Net Assets)28.54%
Top 10 Issuers (as of 5/31/2021)7
Holding Percent
HUB International Limited 3.15%
Alliant Holdings I, LLC 3.09%
Internet Brands, Inc. (Web MD/MH Sub I. LLC) 2.87%
Multiplan Inc (MPH) 2.62%
iHeartCommunications, Inc. 2.51%
CHG Healthcare Services, Inc 2.39%
Mallinckrodt International Finance S.A. 2.34%
Graham Packaging Company, L.P. 2.30%
Asurion, LLC 2.18%
Bausch Health Companies Inc. (Valeant) 2.12%
Industry Breakdown (as of 5/31/2021)7
Industry Percent
Software 20.21%
Health Care Providers & Services 15.83%
Pharmaceuticals 9.81%
Hotels, Restaurants & Leisure 9.24%
Insurance 9.01%
Health Care Technology 5.98%
Diversified Telecommunication Services 4.08%
Media 3.87%
Containers & Packaging 2.71%
Machinery 2.62%
Commercial Services & Supplies 2.22%
Diversified Consumer Services 2.18%
Professional Services 1.87%
Entertainment 1.84%
Electric Utilities 1.65%
Specialty Retail 1.30%
Airlines 0.84%
Diversified Financial Services 0.84%
Aerospace & Defense 0.65%
Electrical Equipment 0.60%
Trading Companies & Distributors 0.57%
Communications Equipment 0.51%
Auto Components 0.39%
Household Durables 0.31%
Oil, Gas & Consumable Fuels 0.26%
Food Products 0.25%
Construction & Engineering 0.22%
Building Products 0.14%
Performance (as of 5/31/2021)
  3 Month YTD 1 Year 3 Year 5 Year 10 Year Since
Fund
Inception8
Fund Performance *
Net Asset Value (NAV) 0.86% 3.55% 13.51% 5.01% 5.44% 5.57% 4.49%
Market Price 5.64% 13.08% 26.18% 7.51% 6.84% 5.45% 4.16%

*Total return is 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 the NAV and Market Price. The NAV total return takes into account the fund's total annual expenses and does not reflect sales load. Returns are average annualized total returns, except those for periods of less than one year, which are cumulative. Past performance is not indicative of future results.

Footnotes
1 The fund's NAV is calculated by dividing the value of all the fund's assets, less all liabilities, by the total number of common shares outstanding.
2 Fund shares are purchased and sold on an exchange at their market price rather than net asset value (NAV), which may cause the shares to trade at a price greater than NAV (premium) or less than NAV (discount).
3 Most recent distribution paid or declared to today's date. Subject to change in the future. There is no guarantee that the fund will declare dividends.
4 Distribution rates are calculated by annualizing the most recent distribution paid or declared through today's date and then dividing by the most recent market price. The distribution consists of the sum of net investment income, net realized short-term capital gains, net realized long-term capital gains, and return of capital. Distribution rates may vary. Any distribution adjustment will not be reflected until after the declaration date for the next distribution. See the fund's 19a-1 Notices, if any, located under the "News & Literature" section of the website for estimates of distribution sources. Final determination of the source and tax status of all distributions paid in the current year will be made after year-end.
5 The annualized return that would be earned on a debt security if held to maturity, weighted by the value of each debt security in the fund's portfolio. The calculation does not include the effect of fund fees and expenses.
6 Leverage is a technique where a closed-end fund's manager borrows assets at one rate and invests the proceeds from the borrowed assets at another rate, seeking to increase yield and total return. Use of leverage can result in additional risk and cost, and can magnify the effect of any losses.
7 Market value information used in calculating the percentages is based upon trade date plus one recording of transactions, which can differ from regulatory financial reports (Forms N-CSR and N-PORT Part F) that are based on trade date recording of security transactions. Holdings are subject to change.
8 Inception Date is 5/25/2004

Risk Considerations

The Fund is subject to market risk, which is the risk that a particular security owned by the Fund or shares of the Fund in general may fall in value. The outbreak of the respiratory disease designated as COVID-19 in December 2019 has caused significant volatility and declines in global financial markets, which have caused losses for investors. While the development of vaccines has slowed the spread of the virus and allowed for the resumption of "reasonably" normal business activity in the United States, many countries continue to impose lockdown measures in an attempt to slow the spread. Additionally, there is no guarantee that vaccines will be effective against emerging variants of the disease.

Shares of closed-end investment companies such as the Fund frequently trade at a discount from their net asset value. The Fund cannot predict whether its common shares will trade at, below or above net asset value.

Senior loan securities are subject to numerous risks, including credit risk, interest rate risk, and income risk. Credit risk is the risk that an issuer of a security will be unable or unwilling to make dividend, interest and/or principal payments when due and that the value of a security may decline as a result. This risk may be heightened for senior loans because companies that issue loans tend to be highly leveraged and are more susceptible to the risks of interest deferral, default and/or bankruptcy. Interest rate risk is the risk that if interest rates rise, the prices of the fixed-rate instruments held by the Fund may fall. Income risk is the risk that if interest rates fall, the income from the Fund's portfolio will decline as the Fund intends to hold floating-rate debt that will adjust lower with falling interest rates.

Loans are subject to pre-payment risk. The degree to which borrowers prepay loans may be affected by general business conditions, the financial condition of the borrower and competitive conditions among loan investors, among others. The Fund may not be able to reinvest the proceeds received on terms as favorable as the prepaid loan. The senior loan market has seen an increase in loans with weaker lender protections which may impact recovery values and/or trading levels in the future.

The Fund will typically invest in senior loans rated below investment grade, commonly referred to as "junk" or "high yield" securities and are considered speculative because of the credit risk of their issuers, who are more likely than investment grade issuers to default on their payments of interest and principal owed to the Fund. Such defaults could reduce the Fund's NAV and income distributions. An economic downturn would generally lead to a higher non-payment rate, and a senior loan may lose significant market value before a default occurs. Any specific collateral used to secure a senior loan may decline in value or become illiquid, which would adversely affect the senior loan's value.

A second lien loan may have a claim on the same collateral pool as the first lien or be secured by a separate set of assets. These loans are subject to the risk that borrower cash flow and property securing the loan may be insufficient to meet scheduled payments after paying off loans with a higher priority. These loans also have greater price volatility than higher priority loans and may be less liquid.

Any shortcomings or inefficiencies in credit rating agencies' processes for determining credit ratings may adversely affect the credit ratings of securities held by the Fund.

The Fund invests a substantial portion of its assets in lower-quality debt issued by companies that are highly leveraged. Lower-quality debt tends to be less liquid than higher-quality debt.

Use of leverage by the Fund can result in additional risk and cost and can magnify the effect of any losses. If the income and gains from the securities and investments purchased with leverage proceeds do not cover the cost of leverage, the return to the common shares will be less than if leverage had not been used.

While the Fund is using leverage, the amount of the fees paid to First Trust for investment advisory and management services are higher than if the Fund did not use leverage because the fees paid are calculated based on managed assets. Therefore, First Trust has a financial incentive to leverage the Fund.

The Fund may invest in securities that may be in default or distressed. Distressed securities present a substantial risk of future default which may cause the Fund to incur losses, including additional expenses, to the extent it is required to seek recovery upon a default in the payment of principal or interest on those securities.

To the extent a fund invests in floating or variable rate obligations that use the London Interbank Offered Rate (“LIBOR”) as a reference interest rate, it is subject to LIBOR Risk. The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, will cease making LIBOR available as a reference rate over a phase-out period that will begin immediately after December 31, 2021. The unavailability or replacement of LIBOR may affect the value, liquidity or return on certain fund investments and may result in costs incurred in connection with closing out positions and entering into new trades. Any potential effects of the transition away from LIBOR on the fund or on certain instruments in which the fund invests can be difficult to ascertain, and they may vary depending on a variety of factors, and they could result in losses to the fund.

The Fund may be significantly exposed to companies in the health care sector. These companies are subject to extensive competition, generic drug sales or the loss of patent protection, product liability litigation and increased government regulation.

Companies in the hotels, restaurants and leisure industry are subject to certain risks, including a highly competitive marketplace, the ongoing need to contribute significant capital expenditures and keep pace with changes in technology and consumer preferences; difficulty in obtaining financing; and rapid obsolescence. These companies may be more sensitive to adverse economic (general and local), business or regulatory developments than other companies.

Information technology companies are subject to certain risks, including rapidly changing technologies, short product life cycles, fierce competition, aggressive pricing and reduced profit margins, loss of patent, copyright and trademark protections, cyclical market patterns, evolving industry standards and frequent new product introductions. Certain technology companies may be smaller and less experienced companies, with limited product lines, markets or financial resources. The stocks of these companies, especially Internet related companies, have experienced extreme price and volume fluctuations that are often unrelated to their operating performance.

The implementation of the Fund's investment strategy depends upon the continued contributions of the portfolio management team and the loss or interruption of services of a key member of that team could have a negative impact on the Fund.

As the use of Internet technology has become more prevalent in the course of business, the Fund has become more susceptible to potential operational risks through breaches in cyber security.

The risks of investing in the Fund are spelled out in the shareholder report and other regulatory filings.

Not FDIC Insured • Not Bank Guaranteed • May Lose Value
 
The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
First Trust Portfolios L.P.  Member SIPC and FINRA. (Form CRS)   •  First Trust Advisors L.P. (Form CRS)
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