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/Four Corners 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: November 30, 2009
-------------------
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 100 F Street, NE,
Washington, DC 20549. The OMB has reviewed this collection of information under
the clearance requirements of 44 U.S.C. ss. 3507.
Item 1. Reports to Stockholders.
The Report to Shareholders is attached herewith.
[GRAPHIC OMITTED]
SEMI-ANNUAL
REPORT
For the Six Months Ended
November 30, 2009
FIRST TRUST/
FOUR CORNERS
SENIOR FLOATING
RATE INCOME FUND II
[LOGO OMITTED] FOUR CORNERS [LOGO OMITTED] FIRST TRUST
CAPITAL MANAGEMENT
Front Cover
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
First Trust/Four Corners Senior Floating Rate Income Fund II (FCT)
Semi-Annual Report
November 30, 2009
Shareholder Letter 1
At A Glance 2
Portfolio Commentary 3
Portfolio of Investments 6
Statement of Assets and Liabilities 18
Statement of Operations 19
Statements of Changes in Net Assets 20
Statement of Cash Flows 21
Financial Highlights 22
Notes to Financial Statements 23
Additional Information 29
Caution Regarding Forward-Looking Statements
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and/or Four Corners Capital Management, LLC ("Four
Corners" or the "Sub-Advisor") and their respective 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/Four Corners 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/or Sub-Advisor and their respective 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 Four
Corners 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/Four Corners Senior Floating Rate Income Fund II (FCT)
Semi-Annual Report
November 30, 2009
Dear Shareholders:
The year 2009 was more positive for the U.S. and global markets, which eased the
minds of economists and investors alike. Many economists believe that the
recession that began in December 2007 ended in March 2009. In fact, the Dow
Jones Industrial Average's total return from March 9 (the statistical end of the
bear market) to November 30, 2009, was 61.59%. Of course, no one can guarantee
that this trend will continue, but the economy has continued to rise and most
investors have found it easier to open their financial statements since March.
First Trust Advisors L.P. ("First Trust") has always believed that in order to
be successful in reaching your financial goals, you should be invested for the
long term. A long-term investor understands that the market, from a historical
perspective, has always experienced ups and downs. But history has shown that
the patient investor is typically rewarded over the long term. We have always
believed that staying invested in quality products and having a long-term
perspective can help investors reach their financial goals.
The report you hold contains detailed information about your investment in First
Trust/Four Corners Senior Floating Rate Income Fund II (the "Fund"). It contains
a portfolio commentary from the Fund's portfolio management team that provides a
market recap for the period, a performance analysis and a market and Fund
outlook. Additionally, the report provides the Fund's financial statements for
the period covered by the report. I encourage you to read this document and
discuss it with your financial advisor.
Since its inception, First Trust has been through many types of markets. We
remain committed to bringing you quality investment solutions regardless of the
inevitable volatility the market experiences. We offer a variety of products
that can fit many financial plans to help those investors seeking long-term
investment success. As well, we are committed to making available up-to-date
information about your investments so you and your financial advisor have
current information on your portfolio.
We continue to value our relationship with you, and we thank you for the
opportunity to assist you in achieving your financial goals.
Sincerely,
/s/ James A. Bowen
James A. Bowen
President of First Trust/Four Corners Senior Floating Rate Income Fund II
Page 1
First Trust/Four Corners Senior Floating Rate Income Fund II
"AT A GLANCE"
As of November 30, 2009 (Unaudited)
-------------------------------------------------------------------------
Fund Statistics
-------------------------------------------------------------------------
Symbol on New York Stock Exchange FCT
Common Share Price $10.86
Common Share Net Asset Value ("NAV") $13.37
Premium (Discount) to NAV (18.77)%
Net Assets Applicable to Common Shares $338,088,644
Current Monthly Distribution per Common Share (1) $0.0325
Current Annualized Distribution per Common Share $0.3900
Current Distribution Rate on Closing Common Share Price (2) 3.59%
Current Distribution Rate on NAV (2) 2.92%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Common Share Price & NAV (weekly closing price)
-------------------------------------------------------------------------
[CHART OMITTED]
[DATA POINTS REPRESENTED IN CHART]
Common Share Price NAV
11/30/2008 $ 6.96 $ 8.88
12/26/2008 6.95 8.17
1/30/2009 8.37 9.34
2/27/2009 7.59 9.56
3/27/2009 7.96 9.63
4/24/2009 9.20 10.77
5/29/2009 10.04 11.78
6/26/2009 9.68 12.36
7/31/2009 10.59 13.01
8/28/2009 10.87 13.21
9/25/2009 11.18 13.46
10/30/2009 10.90 13.52
11/30/2009 10.86 13.37
-----------------------------------------------------------------------------------------------------------
Performance
-----------------------------------------------------------------------------------------------------------
Average Annual Average Annual
Total Return Total Return
6 Months Ended 1 Year Ended 5 Years Ended Inception (5/25/2004)
11/30/2009 11/30/2009 11/30/2009 to 11/30/2009
FUND PERFORMANCE
NAV (3) 15.83% 60.34% 0.35% 0.71%
Market Value (4) 10.39% 66.17% -3.03% -3.82%
INDEX PERFORMANCE
S&P/LSTA Leveraged Loan Index 16.32% 42.95% 3.71% 3.84%
-----------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
% of Long-Term
Industry Classifications Investments
-------------------------------------------------------------
Health Care Providers & Services 11.4%
Media 10.2
Electric Utilities 6.9
Chemicals 6.2
Hotels, Restaurants & Leisure 6.0
Containers & Packaging 4.8
Aerospace & Defense 4.4
Pharmaceuticals 4.1
Software 3.7
Diversified Consumer Services 3.3
IT Services 3.2
Oil, Gas & Consumable Fuels 3.0
Food & Staples Retailing 2.7
Diversified Telecommunication Services 2.6
Paper & Forest Products 2.6
Specialty Retail 2.5
Commercial Services & Supplies 2.3
Road & Rail 1.8
Independent Power Producers & Energy Traders 1.7
Capital Markets 1.6
Semiconductors & Semiconductor Equipment 1.6
Insurance 1.5
Diversified Financial Services 1.3
Real Estate Investment Trusts (REITs) 1.3
Food Products 1.3
Metals & Mining 1.2
Computers & Peripherals 1.1
Multi-Utilities 1.0
Health Care Equipment & Supplies 1.0
Electronic Equipment, Instruments & Components 0.9
Energy Equipment & Services 0.8
Automobiles 0.5
Internet & Catalog Retail 0.5
Leisure Equipment & Products 0.3
Household Durables 0.2
Auto Components 0.1
Gas Utilities 0.1
Airlines 0.1
Building Products 0.1
Industrial Conglomerates 0.1
-------------------------------------------------------------
Total 100.0%
================
-------------------------------------------------------------
% of Long-Term
Credit Quality (S&P Ratings) (5) Investments
-------------------------------------------------------------
BBB 2.9%
BBB- 6.6
BB+ 10.3
BB 13.7
BB- 25.9
B+ 16.3
B 6.5
B- 5.3
CCC+ 0.6
CCC 0.6
CC 0.1
D 3.0
NR 2.4
NR (Privately rated securities) 5.8
-------------------------------------------------------------
Total 100.0%
================
-------------------------------------------------------------
% of Long-Term
Top 10 Holdings Investments
-------------------------------------------------------------
Warner Chilcott Corporation 1.8%
Brenntag Holding GmbH & Co. KG 1.8
NRG Energy, Inc. 1.7
Georgia-Pacific Corporation 1.6
SUPERVALU, Inc. 1.5
Fresenius Medical Care AG 1.5
Freescale Semiconductors, Inc. 1.5
Covanta Energy Corporation 1.4
Intelsat Corp. 1.4
Royalty Pharma Finance Trust 1.3
-------------------------------------------------------------
Total 15.5%
================
(1) Most recent distribution paid or declared through 11/30/2009. Subject to
change in the future.
(2) Distribution rates are calculated by annualizing the most recent
distribution paid or declared through the report date and then dividing by
Common Share Price or NAV, as applicable, as of 11/30/2009. Subject to
change in the future.
(3) Total return based on NAV is the combination of reinvested dividend
distributions and reinvested capital gain distributions, if any, at prices
obtained by the Dividend Reinvestment Plan and changes in NAV per share and
does not reflect sales load. Past performance is not indicative of future
results.
(4) Total return based on market value is the combination of reinvested
dividend distributions and reinvested capital gains distributions, if any,
at prices obtained by the Dividend Reinvestment Plan and changes in Common
Share Price. Past performance is not indicative of future results.
(5) Ratings below BBB- by Standard & Poor's Ratings Group are considered to be
below investment grade.
Page 2
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY (Unaudited)
--------------------------------------------------------------------------------
Sub-Advisor
Four Corners Capital Management, LLC ("Four Corners"), a Macquarie Funds Group
company, was founded in 2001 by a team of investment professionals and an
affiliate of Australia-based Macquarie Group Limited ("Macquarie") and became a
wholly-owned, indirect subsidiary of Macquarie in 2008. Macquarie Group is a
global provider of banking, financial, advisory, investment and funds management
services. Macquarie Funds Group, with over $69.5 billion in assets under
management (as of November 30, 2009) is the global asset management business of
Macquarie Group. Macquarie Funds Group offers a diverse range of products
including managed funds, funds-based structured products, hedge funds and fund
of funds. Four Corners managed approximately $2.3 billion of assets (as of
November 30, 2009), with an emphasis on senior secured floating-rate corporate
loans ("Senior Loans"). The experienced professionals at Four Corners specialize
in structuring and managing Senior Loan-based products for a global client base.
With multiple investment products, Four Corners' clients include institutional
investors, corporations, investment funds, and high net worth and retail
investors. Four Corners is an investment advisor registered under the Investment
Advisers Act of 1940, as amended.
Portfolio Management Team
ROBERT I. BERNSTEIN, CFA
Co-Portfolio Manager
Chief Investment Officer, Four Corners Capital Management, LLC
Mr. Bernstein is responsible for managing Four Corners' investment activities.
He has over 18 years of experience in leveraged finance including senior secured
loans, high-yield bonds and private equity investments. Prior to joining Four
Corners, Mr. Bernstein was a partner of The Yucaipa Companies, a Los
Angeles-based private equity firm, where he completed M&A transactions and
leveraged financings valued in excess of $4 billion. Previously, Mr. Bernstein
was a Vice President in Bankers Trust's leveraged finance group, where he
arranged Senior Loan and high-yield bond financings for financial sponsors and
corporate issuers. Mr. Bernstein also worked in GE Capital's restructuring
group, where he focused primarily on asset-based loans to distressed borrowers.
Mr. Bernstein received an MBA in Finance from the University of Chicago and a
BBA in Finance magna cum laude from Hofstra University. He has earned the
Chartered Financial Analyst designation. Mr. Bernstein also served as an
infantry officer in the U.S. Marine Corps.
DREW R. SWEENEY
Co-Portfolio Manager
Senior Vice President, Four Corners Capital Management, LLC
Mr. Sweeney's responsibilities include the co-portfolio management of Four
Corners' retail funds as well as coverage of the media and entertainment, cable
and satellite industries. Mr. Sweeney has 15 years of investment experience
including 11 years in senior secured loans and high-yield bonds. Mr. Sweeney
joined Four Corners in 2005 from American Express Asset Management Group, Inc.
where he was primarily responsible for managing investments of senior secured
loans and high-yield bonds in the gaming, lodging, leisure, homebuilding, and
building product sectors. Prior to joining American Express, Mr. Sweeney worked
at Four Corners and ING Capital Advisors LLC managing investments of senior
secured loans in the media sector. Previously, Mr. Sweeney was an Associate at
First Union Securities in the Financial Sponsors and Diversified Industries
Groups. Mr. Sweeney received an MBA from the Kenan-Flagler Business School at
the University of North Carolina at Chapel Hill and a BS from Rutgers
University.
Commentary
First Trust/Four Corners Senior Floating Rate Income Fund II
The primary investment objective of the First Trust/Four Corners Senior Floating
Rate Income Fund II ("FCT" or the "Fund") is to seek a high level of current
income. As a secondary objective, the Fund attempts to preserve capital. The
Fund pursues its objectives by investing in a portfolio of Senior Loans. There
can be no assurance that the Fund's investment objectives will be achieved. The
Fund may not be appropriate for all investors.
Market Recap
The six months ended November 30, 2009 were an extraordinary period for the
Senior Loan market. The S&P/LSTA Leveraged Loan Index (the "Index") had a return
of 16.32% during the period, and is up 47.29% calendar year to November 30,
2009. After the worst year in Senior Loan market history in 2008, the Senior
Loan market has followed in 2009 with the best performance in its history.
The biggest driver of 2007's and 2008's sell-off was technical, as many funds,
including FCT, were forced to sell assets and reduce leverage as global asset
prices declined in the wake of the sub-prime crisis. As a reminder, this
sell-off was occurring at the same time that default rates were at historically
low levels.
2009 has been a near mirror image of this, as positive technical conditions have
driven strong performance at the same time as default rates were hitting record
highs and recovery rates were hitting record lows. Demand for loans was
broad-based in 2009, with investors seeking to take advantage of the low
prices/wide spreads at which loans were trading. The Index began 2009 at an
average price of 62%, which provided a lot of cushion for investors to absorb
credit losses and still earn strong returns. As a result, the market saw inflows
Page 3
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY - (Continued) (Unaudited)
--------------------------------------------------------------------------------
of nearly $3 billion into U.S. open-end senior loan funds after 2008's outflows
of over $4 billion.(1) When combined with other sources of demand, this created
a strong backdrop to drive prices higher.
Likewise, supply was weak during most of 2009. Since spreads were so wide, most
companies were unable to issue new loans on terms that were affordable to them,
which resulted in very little new issuance. Additionally, there was a lot of new
issue activity in the high-yield bond and equity markets, and some of the
proceeds from those markets were used to prepay bank loans, reducing the
outstanding pool of bank loans by over 6% as of September 25, 2009.(2) In
summary, a combination of limited, if any, forced selling, increased demand, and
reduced supply have created the strong technical conditions that have driven the
year's dramatic rally.
Fundamental conditions, on the other hand, have been very weak. While many
borrowers reported earnings for the third quarter of 2009 that were higher than
previous quarters, they are still generally well below the earnings levels which
existed prior to the credit crisis. Additionally, many borrowers were leveraged
with record amounts of debt on pre-crisis peak cycle earnings, which makes their
quarter-over-quarter sequential improvement insufficient to enable them to
service their debt.(3) Consequently, default rates and amendment activity have
been at record levels. The lagging 12-month (LTM) default rate by principal
amount climbed to a record-high 10.81% at the end of November 2009, from 3.75%
at year-end 2008.(4) Additionally, there have been a significant amount of
companies that have amended financial covenants as they have missed their
earnings targets.(5) Typically, these amendments result in companies having to
pay fees and higher interest rates, and we have seen the positive economic
impact of this in the Fund.
In the first quarter of 2009, there was a global flight to quality across many
asset classes as equities hit cyclical lows. In the loan market, we saw this
flight to quality as higher-rated loans outperformed lower-rated loans. In the
last two quarters, however, as investors have embraced risk and sought yield, we
have seen a reversal of this and a flight to risk. This has resulted in
lower-rated loans meaningfully outperforming higher-rated loans. While the
Index has returned 47.29%(6) through November 2009, double B-rated loans, which
are higher than average quality in the loan market, have returned 33.16%,(7)
while at the other end of the spectrum, CCC-rated loans have returned 82.85%.(8)
This bifurcation of returns by risk category has been a big driver of senior
loan funds' relative performance based on their asset composition.
Performance Analysis
FCT generated a market value total return(9) of 10.39%, (including market price
change and dividends), for the six months ended November 30, 2009. The Fund's
net asset value ("NAV") total return(10) was 15.83% over the same period. The
NAV return trailed the Index return by -0.49% for the six months ended November
30, 2009. The Fund's performance includes the negative impact of fees, expenses,
and un-invested cash balances which are not part of the benchmark return. FCT's
NAV return lagged the "pure-play" peer group average by -3.92% and the broad
peer group average by -10.60%.(11) The Fund's closing price on November 30, 2009
was $10.86, which represented a -18.77% discount to its NAV, compared to the
Fund's discount to NAV of -14.84% six months earlier on May 31, 2009. During the
six-month period ended November 30, 2009, the Fund's NAV fluctuated from a low
of $11.79 to high of $13.57, a difference of $1.78 per Common Share, whereas the
market price of the Fund closed as low as $9.62 and as high as $11.32 over the
period, a difference of $1.70 per Common Share.
The Fund's income declined during the period primarily as a result of lower
London Inter-Bank Offer Rates ("LIBOR") and a smaller asset base. The dividend
distribution totaled $0.22 per Common Share during the six months ended November
30, 2009, which represented a 33.95% decrease from the prior six months ended
May 31, 2009. Based on the Fund's current dividend, FCT's distribution rate is
3.59% (calculated on the Fund's share price) and 2.92% (based on the Fund's NAV)
as of November 30, 2009. The last twelve month's dividends produced a Fund yield
based on price of 4.98%, which was lower than the pure-play peer group average
price yield of 5.98% and lower than the broad peer group average price yield of
7.25%.
FCT maintains pure-play exposure to the 1st lien, floating-rate senior loan
asset class. FCT includes 100% floating-rate assets with less than 1% 2nd lien
loans and less than 1% high-yield bonds. This asset composition differs from
many of the funds in its peer group, which may have more fixed-rate assets,
including high-yield bonds, and more 2nd lien loans. We believe that this
difference in asset composition has a meaningful impact on relative performance,
particularly in periods where riskier assets are outperforming and short-term
rates are very low.
We have deliberately reduced the Fund's leverage. While senior loan funds had
historically been structured with target leverage, including preferred stock, of
close to 40%, that was also in an environment where loan prices were more stable
than they have been in recent years. While we understand that lower leverage can
result in underperformance and lower yields during rising markets, we believe
that, given the higher correlation to global markets and higher volatility in
the loan market, it is prudent to maintain lower levels of leverage than existed
prior to the recent credit crisis. During the period, the Fund purchased
pursuant to a tender offer or redeemed all of its outstanding Series A and
Series B Auction Market Preferred Shares. The Fund's leverage is now entirely in
the form of debt, which also limits the amount of leverage that the Fund can
have.
Page 4
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY - (Continued) (Unaudited)
--------------------------------------------------------------------------------
We are very pleased with the market rally and the Fund's performance during the
last six months. Our investment strategy remains unchanged, namely: to invest in
the higher credit quality portion of the non-investment grade loan market. We
continue to believe that this strategy over the long term may result in higher
risk-adjusted returns for investors as we expect to see less NAV erosion and
less volatility than higher risk, yield-focused strategies.
Market & Fund Outlook
2009 saw record default rates, and we expect the default rate to decline but
remain at elevated levels. We have seen a recent decline in the pace of defaults
and downgrades, but there are still many outstanding loans that were
overleveraged on peak cycle earnings, and some of them are expected to default.
That said, we do believe that current conditions are a classic example of the
cliche "the best of loans are made in the worst of times." While we have seen
what we consider to be a permanent degradation in some structural protections
that were historically afforded to loan investors, the loans that have been
launched in recent months are some of the most appealing we have seen in years.
Consequently, we intend to actively participate in the new issue Senior Loan
market in an attempt to both maintain high credit quality and help to improve
yield.
Notwithstanding the market's dramatic year-to-date returns, it is important to
note that the run-up has occurred from historically low levels, and the market
still offers good value at current levels compared to historical levels.
Additionally, the loan asset class continues to benefit from very low duration.
While this has obviously resulted in lower yields as rates have declined, we
believe it appeals to investors who are looking for credit spread with little
duration risk. Consequently, while we remain very cautious about fundamental
economic conditions and absolute leverage levels, we continue to believe that
there will be ongoing demand for well structured Senior Loans, which should add
to relative stability for the asset class compared to 2008's volatility.
_______________________
1 Standard & Poor's Leveraged Commentary & Data. Leveraged Lending Quarterly
Commentary 4Q08.
2 Standard & Poor's Leveraged Commentary & Data. Leveraged Lending Quarterly
Review 3Q09.
3 Standard & Poor's Leveraged Commentary & Data. Leveraged Lending Quarterly
Review 3Q09.
4 Standard & Poor's Leveraged Commentary & Data News. Despite record high,
defaults slow, outlook brightens, December 1, 2009.
5 Standard & Poor's Leveraged Commentary & Data. Amendments.xls.
6 Standard & Poor's Leveraged Commentary & Data. S&P/LSTA Leveraged Loan
Index Returns. All Loans Index Levels.
7 Standard & Poor's Leveraged Commentary & Data. S&P/LSTA Leveraged Loan
Index Returns. BB Index Levels.
8 Standard & Poor's Leveraged Commentary & Data. S&P/LSTA Leveraged Loan
Index Returns. CCC Index Levels.
9 Total return based on market value is the combination of reinvested
dividend distributions and reinvested capital gains distributions, if any,
at prices obtained by the Dividend Reinvestment Plan and changes in Common
Share Price.
10 Total return based on NAV is the combination of reinvested dividend
distributions and reinvested capital gains distributions, if any, at prices
obtained by the Dividend Reinvestment Plan and changes in NAV per share and
does not reflect sales load.
11 The "pure-play" peer group consists of a smaller subset (FCM, FCT, PPR, TLI
and VVR) of the broad peer group, which invests almost exclusively in
Senior Loans. We believe that these "pure-play" funds are generally more
comparable to the Fund than the broad peer group, as the non-senior loan
holdings of the "pure-play" funds are routinely less than 5% of such funds.
Of the broad peer group, 11 of the 16 total funds invest a material portion
of their assets in high-yield bonds, emerging markets debt or other types
of corporate debt securities.
Page 5
First Trust/Four Corners Senior Floating Rate Income Fund II
Portfolio of Investments (a) (b)
November 30, 2009 (Unaudited)
Principal Ratings (c) Stated
Value Description Moody's S&P Rate Maturity (d) Value
------------ ------------------------------------------------ ---------------- ------------- ------------ ----------------
SENIOR FLOATING-RATE LOAN INTERESTS (e) - 133.6%
AEROSPACE & DEFENSE - 5.8%
$ 493,750 BE Aerospace, Inc., Term Loan, Tranche B...... Ba1 BBB- 5.75% 07/28/14 $ 494,244
1,582,109 DAE Aviation Holdings, Inc., Term
Loan B1.................................. B3 B 4.04% 07/31/14 1,435,763
1,547,790 DAE Aviation Holdings, Inc., Term
Loan B2.................................. B3 B 4.00%-4.03% 07/31/14 1,404,619
1,464,118 GenCorp, Inc., Synthetic Letter of Credit..... Ba3 B 2.49% 04/30/13 1,332,348
799,494 GenCorp, Inc., Term Loan...................... Ba3 B 2.51% 04/30/13 727,540
819,775 ILC Industries, Inc., Term Loan, First Lien... NR (f) NR (f) 2.23% 02/24/12 774,687
1,920,188 L-1 Identity Solutions Operating Co.,
Term Loan B-2............................ Ba3 BB+ 7.25% 08/05/13 1,915,387
3,065,934 Robertson Aviation, LLC, Term Loan............ NR (f) NR (f) 2.98%-5.00% 04/19/13 2,575,385
979,950 Safenet, Inc., Term Loan, First Lien.......... B1 B+ 2.74% 04/12/14 905,229
4,290,002 Spirit Aerosystems, Inc., Term Loan B......... Ba2 BBB- 2.03% 09/30/13 4,096,952
2,066,667 Vought Aircraft Industries, Inc., Synthetic
Letter of Credit, Tranche B.............. Ba2 BB- 7.50% 12/22/10 2,064,083
1,088,877 Vought Aircraft Industries, Inc., Term
Loan B................................... Ba2 BB- 7.50% 12/22/11 1,088,197
1,000,000 Wesco Aircraft Hardware Corp., Term Loan,
First Lien............................... Ba3 BB- 2.49% 09/29/13 939,375
---------------
19,753,809
---------------
AGRICULTURAL PRODUCTS - 1.3%
504,242 Dole Food Co., Inc., Prefunded Letter
of Credit................................ Ba2 BB- 8.00% 04/12/13 506,583
879,182 Dole Food Co., Inc., Term Loan B.............. Ba2 BB- 8.00% 04/12/13 883,264
2,905,714 Dole Food Co., Inc., Term Loan C.............. Ba2 BB- 8.00% 04/12/13 2,919,205
---------------
4,309,052
---------------
AIRLINES - 0.1%
490,000 Delta Air Lines, Inc., Synthetic Revolving
Credit Facility.......................... Ba2 BB- 2.28% 04/30/12 430,383
---------------
ALUMINUM - 1.7%
4,391,248 Novelis Corp., Term Loan...................... Ba3 BB- 2.24%-2.29% 07/06/14 3,899,977
1,995,964 Novelis, Inc., Canadian Term Loan............. Ba3 BB- 2.24% 07/06/14 1,772,665
---------------
5,672,642
---------------
APPAREL RETAIL - 0.3%
1,015,714 Hanesbrands, Inc., Term Loan B,
First Lien............................... Ba1 BB+ 5.03% 09/05/13 1,013,900
---------------
APPLICATION SOFTWARE - 0.7%
2,796,517 Verint Systems, Inc., Term Loan,
First Lien............................... NR B+ 3.49% 05/25/14 2,526,186
---------------
ASSET MANAGEMENT & CUSTODY BANKS - 2.2%
1,361,218 Grosvenor Capital Management Holdings,
LLP, Term Loan........................... NR (f) NR (f) 2.25% 12/05/13 1,225,096
3,853,815 LPL Holdings, Inc., Term Loan D............... Ba3 B+ 1.98%-2.03% 06/28/13 3,569,597
2,704,791 Nuveen Investments, Inc., Term Loan........... B3 B 3.28% 11/13/14 2,257,656
325,384 Oxford US Acquisition, LLC, Term Loan,
Tranche B2............................... NR (f) NR (f) 2.28% 05/12/14 291,219
---------------
7,343,568
---------------
Page 6 See Notes to Financial Statements
First Trust/Four Corners Senior Floating Rate Income Fund II
Portfolio of Investments (a) (b) (Continued)
November 30, 2009 (Unaudited)
Principal Ratings (c) Stated
Value Description Moody's S&P Rate Maturity (d) Value
------------ ------------------------------------------------ ---------------- ------------- ------------ ----------------
SENIOR FLOATING-RATE LOAN INTERESTS (e) - (Continued)
AUTO PARTS & EQUIPMENT - 0.2%
$ 664,164 TRW Automotive, Inc., Term Loan B............. Ba3 BB- 6.25% 02/09/14 $ 661,985
---------------
AUTOMOBILE MANUFACTURERS - 0.7%
2,849,361 Ford Motor Co., Term Loan, First Lien......... Ba3 B- 3.24%-3.29% 12/15/13 2,496,242
---------------
AUTOMOTIVE RETAIL - 0.8%
2,835,657 KAR Holdings, Inc., Term Loan B............... Ba3 B 2.49% 10/18/13 2,604,077
---------------
BROADCASTING - 4.0%
810,604 Cumulus Media, Inc., Term Loan,
First Lien............................... Caa1 B 4.24% 06/07/14 659,123
2,303,332 Gray Television, Inc., Term Loan B............ Caa1 CCC 3.75%-3.79% 12/31/14 1,987,584
4,342,500 LBI Media, Inc., Term Loan B.................. B1 B- 1.73% 03/31/12 3,604,275
3,500,000 Raycom Media, Inc., Term Loan,
Tranche B................................ NR NR 1.75% 06/25/14 2,835,000
2,450,000 Sirius Satellite Radio, Inc., Term Loan,
First Lien............................... B3 B+ 2.56% 12/20/12 2,256,041
984,810 Young Broadcasting, Inc., Incremental
Term Loan (j) (k)........................ WR D 4.75% 11/03/12 680,574
1,984,576 Young Broadcasting, Inc., Term Loan (j) (k)... WR D 4.75% 11/03/12 1,371,483
---------------
13,394,080
---------------
BUILDING PRODUCTS - 0.1%
1,000,000 South Edge, LLC, Term Loan C (l).............. NR NR 5.50% 10/31/09 340,000
---------------
CABLE AND SATELLITE - 4.3%
5,302,295 Charter Communications Operating, LLC,
Term Loan................................ Ba2 D 2.24%-2.26% 03/06/14 4,900,206
5,691,596 CSC Holdings, Inc., Incremental
Term Loan................................ Baa3 BBB- 2.05%-2.19% 03/29/13 5,348,518
1,946,576 UPC Broadband Holding B.V.,
Term Loan N.............................. Ba3 B+ 1.99% 12/31/14 1,793,283
2,703,424 UPC Broadband Holding B.V.,
Term Loan T.............................. Ba3 B+ 3.74% 12/31/16 2,569,605
---------------
14,611,612
---------------
CASINOS & GAMING - 5.6%
571,794 Cannery Casino Resorts, LLC, Delayed
Draw Term Loan........................... B3 B+ 2.49% 05/18/13 485,668
691,591 Cannery Casino Resorts, LLC, Term Loan,
First Lien............................... B3 B+ 2.49% 05/18/13 587,420
3,028,529 CCM Merger, Inc., Term Loan B................. B3 BB- 8.50% 07/13/12 2,877,102
553,000 Las Vegas Sands, LLC, Delayed Draw
Term Loan 1.............................. B3 B- 2.04% 05/23/14 459,144
3,287,186 Penn National Gaming, Inc., Term Loan B....... Ba2 BB+ 1.98%-2.03% 10/03/12 3,133,099
808,259 Seminole Tribe of Florida, Delayed Draw
Term Loan B1............................. Baa3 BBB 1.78% 03/05/14 755,049
2,912,227 Seminole Tribe of Florida, Delayed Draw
Term Loan B2............................. Baa3 BBB 1.78% 03/05/14 2,720,506
2,309,717 Seminole Tribe of Florida, Delayed Draw
Term Loan B3............................. Baa3 BBB 1.78% 03/05/14 2,157,661
5,970,000 VML US Finance, LLC, Term Loan................ B3 B- 5.79% 05/25/13 5,644,139
---------------
18,819,788
---------------
See Notes to Financial Statements Page 7
First Trust/Four Corners Senior Floating Rate Income Fund II
Portfolio of Investments (a) (b) (Continued)
November 30, 2009 (Unaudited)
Principal Ratings (c) Stated
Value Description Moody's S&P Rate Maturity (d) Value
------------ ------------------------------------------------ ---------------- ------------- ------------ ----------------
SENIOR FLOATING-RATE LOAN INTERESTS (e) - (Continued)
COMMODITY CHEMICALS - 1.6%
$ 1,436,328 Ineos Group Limited, Term Loan B2............. Caa1 B- 9.50% 12/14/13 $ 1,229,856
1,436,328 Ineos Group Limited, Term Loan C2............. Caa1 B- 10.00% 12/14/14 1,229,856
3,450,000 Univar, Inc., Term Loan B-OPCO................ B2 B+ 3.23% 10/11/14 3,033,126
---------------
5,492,838
---------------
COMPUTER HARDWARE - 1.4%
5,257,570 Activant Solutions, Inc., Term Loan........... B1 B 2.31% 05/02/13 4,807,390
---------------
DATA PROCESSING & OUTSOURCED SERVICES - 1.7%
6,842,500 Harland Clarke Holdings Corp.,
Term Loan B.............................. B1 B+ 2.73%-2.78% 06/30/14 5,615,127
---------------
DIVERSIFIED CHEMICALS - 4.9%
1,055,448 Brenntag Holding GmbH & Co. KG,
Acquisition Term Loan.................... B1 BB- 1.99%-2.74% 01/17/14 992,121
3,000,000 Brenntag Holding GmbH & Co. KG,
Term Loan, Second Lien................... Caa1 CCC+ 4.24% 06/18/15 2,906,250
4,322,712 Brenntag Holding GmbH & Co. KG,
Term Loan B2............................. B1 BB- 1.99% 01/17/14 4,063,349
4,179,454 Huntsman International, LLC, Term Loan........ Ba2 B+ 1.98% 04/19/14 3,773,119
250,000 Huntsman International, LLC,
Term Loan C.............................. Ba2 B+ 2.48% 06/30/16 226,688
12,091 LyondellBasell Industries AF S.C.A.,
Dutch Revolving Credit Facility (j)...... WR NR 3.74% 12/20/13 8,706
27,728 LyondellBasell Industries AF S.C.A.,
Dutch Term Loan A (j).................... WR NR 3.74% 12/20/13 19,964
34,713 LyondellBasell Industries AF S.C.A.,
German Term Loan B1 (j).................. WR NR 3.99% 12/20/14 24,993
34,713 LyondellBasell Industries AF S.C.A.,
German Term Loan B2 (j).................. WR NR 3.99% 12/20/14 24,993
34,713 LyondellBasell Industries AF S.C.A.,
German Term Loan B3 (j).................. WR NR 3.99% 12/20/14 24,993
268,821 LyondellBasell Industries AF S.C.A.,
Initial New Money Loan (DIP) (g) (j)..... NR BB- 1.50%(i)-13.00% 04/06/10 277,894
150,630 LyondellBasell Industries AF S.C.A.,
Term Loan B1 (j)......................... WR NR 7.00% 12/20/14 109,207
150,630 LyondellBasell Industries AF S.C.A.,
Term Loan B2 (j)......................... WR NR 7.00% 12/20/14 109,207
150,630 LyondellBasell Industries AF S.C.A.,
Term Loan B3 (j)......................... WR NR 7.00% 12/20/14 108,830
45,343 LyondellBasell Industries AF S.C.A., U.S.
Primary Revolving Credit Facility (j).... WR NR 3.74% 12/20/13 32,647
86,391 LyondellBasell Industries AF S.C.A., U.S.
Term Loan A (j).......................... WR NR 3.74% 12/20/13 62,201
3,954,356 Rockwood Specialties Group, Inc., Term Loan H Ba2 BB- 6.00% 05/15/14 3,960,287
---------------
16,725,449
---------------
DIVERSIFIED SUPPORT SERVICES - 0.2%
750,000 JohnsonDiversey, Inc., Term Loan.............. Ba2 BB- 5.50% 11/24/15 747,188
---------------
EDUCATION SERVICES - 0.8%
1,896,818 Education Management, LLC,
Term Loan C.............................. B1 BB- 2.06% 06/01/13 1,739,145
Page 8 See Notes to Financial Statements
First Trust/Four Corners Senior Floating Rate Income Fund II
Portfolio of Investments (a) (b) (Continued)
November 30, 2009 (Unaudited)
Principal Ratings (c) Stated
Value Description Moody's S&P Rate Maturity (d) Value
------------ ------------------------------------------------ ---------------- ------------- ------------ ----------------
SENIOR FLOATING-RATE LOAN INTERESTS (e) - (Continued)
EDUCATION SERVICES - (Continued)
$ 1,034,200 PRO-QUEST-CSA, LLC, Term Loan,
First Lien............................... Ba3 BB- 2.74%-2.79% 02/09/14 $ 974,734
---------------
2,713,879
---------------
ELECTRIC UTILITIES - 9.2%
4,350,206 Astoria Generating Co. Acquisitions, LLC,
Term Loan B.............................. B1 BB- 2.04%-2.05% 02/23/12 4,132,695
6,363,494 Calpine Corporation, First Priority
Term Loan................................ B2 B+ 3.17% 03/29/14 5,800,325
2,305,929 Covanta Energy Corporation, Synthetic
Letter of Credit......................... Ba1 BB 1.79% 02/09/14 2,139,902
4,566,820 Covanta Energy Corporation, Term Loan B....... Ba1 BB 1.75% 02/09/14 4,238,009
4,322,314 Mirant North America, LLC, Term Loan.......... Ba2 BB 1.98% 01/03/13 4,019,752
7,950,729 NRG Energy, Inc., Synthetic Letter
of Credit................................ Baa3 BB+ 2.03% 02/01/13 7,275,744
649,218 NRG Energy, Inc., Term Loan B................. Baa3 BB+ 1.98%-2.03% 02/01/13 594,102
1,881,609 Riverside Energy Center, LLC, Term Loan....... Ba3 BB- 4.53% 06/24/11 1,843,976
169,917 Rocky Mountain Energy Center, LLC,
Synthetic Letter of Credit............... Ba3 BB- 4.53% 06/24/11 166,519
843,703 Rocky Mountain Energy Center, LLC,
Term Loan................................ Ba3 BB- 4.53% 06/24/11 826,829
---------------
31,037,853
---------------
ENVIRONMENTAL & FACILITIES SERVICES - 1.4%
220,126 EnergySolutions, LLC, Synthetic Letter
of Credit................................ Ba2 NR (f) 3.99% 06/07/13 212,421
1,481,947 EnergySolutions, LLC, Term Loan
(Duratek)................................ Ba2 NR (f) 4.05% 06/07/13 1,444,899
3,088,837 EnergySolutions, LLC, Term Loan
(EnergySolutions)........................ Ba2 NR (f) 4.05% 06/07/13 3,011,616
---------------
4,668,936
---------------
FOOD DISTRIBUTORS - 1.6%
847,826 B&G Foods, Inc., Term Loan C.................. Ba2 BB- 2.35% 02/23/13 825,924
841,667 Birds Eye Foods, Inc., Term Loan,
First Lien............................... NR (f) NR (f) 2.04% 03/22/13 819,222
3,924,684 Dean Foods Co., Term Loan B................... B1 BB 1.62%-1.67% 04/02/14 3,620,521
---------------
5,265,667
---------------
FOOD RETAIL - 2.0%
7,295,061 SUPERVALU, Inc., Term Loan B.................. Ba3 BB+ 1.50%-1.53% 06/02/12 6,892,009
---------------
FOREST PRODUCTS - 2.2%
3,159,531 Georgia-Pacific Corporation,
Term Loan B1............................. Ba2 BBB 2.24%-2.30% 12/20/12 2,998,774
1,615,537 Georgia-Pacific Corporation,
Term Loan B2............................. Ba2 BBB 2.24%-2.28% 12/20/12 1,533,338
2,843,673 Georgia-Pacific Corporation,
Term Loan C.............................. Ba2 BBB 3.49%-3.55% 12/23/14 2,779,690
---------------
7,311,802
---------------
See Notes to Financial Statements Page 9
First Trust/Four Corners Senior Floating Rate Income Fund II
Portfolio of Investments (a) (b) (Continued)
November 30, 2009 (Unaudited)
Principal Ratings (c) Stated
Value Description Moody's S&P Rate Maturity (d) Value
------------ ------------------------------------------------ ---------------- ------------- ------------ ----------------
SENIOR FLOATING-RATE LOAN INTERESTS (e) - (Continued)
GAS UTILITIES - 0.2%
$ 613,005 Atlas Pipeline Partners, L.P., Term Loan...... B1 B 6.75% 07/27/14 $ 595,381
---------------
HEALTH CARE EQUIPMENT - 1.3%
4,737,913 Biomet, Inc., Dollar Term Loan................ B1 BB- 3.25%-3.29% 03/25/15 4,477,328
---------------
HEALTH CARE FACILITIES - 6.0%
755,461 HCA, Inc., Term Loan A........................ Ba3 BB 1.78% 11/19/12 701,446
4,500,000 HCA, Inc., Term Loan B........................ Ba3 BB 2.53% 11/18/13 4,177,125
3,488,730 Health Management Associates, Inc.,
Term Loan B.............................. B1 BB- 2.03% 02/28/14 3,160,789
5,651,633 Lifepoint Hospitals, Inc., Term Loan B........ Ba1 BB 1.89% 04/15/12 5,392,602
3,615,416 Select Medical Corporation,
Term Loan B-1............................ Ba2 B+ 4.02% 08/22/14 3,512,980
271,667 Sun Healthcare Group, Inc., Synthetic
Letter of Credit......................... Ba2 B+ 2.28% 04/19/14 255,197
2,407,286 Sun Healthcare Group, Inc., Term Loan,
First Lien............................... Ba2 B+ 2.28%-2.83% 04/19/14 2,261,344
154,478 United Surgical Partners International, Inc.,
Delayed Draw Term Loan................... Ba3 B 2.24% 04/19/14 139,030
817,742 United Surgical Partners International, Inc.,
Term Loan B.............................. Ba3 B 2.24%-2.29% 04/19/14 735,968
---------------
20,336,481
---------------
HEALTH CARE SERVICES - 6.2%
203,384 AMN Healthcare, Inc., Term Loan B............. Ba1 BB 2.03% 11/02/11 188,130
291,383 CHS/Community Health Systems, Inc.,
Delayed Draw Term Loan................... Ba3 BB 2.51% 07/25/14 266,251
5,706,603 CHS/Community Health Systems, Inc.,
Term Loan................................ Ba3 BB 2.48%-2.51% 07/25/14 5,214,409
5,611,970 DaVita, Inc., Term Loan B-1................... Ba1 BB+ 1.74%-1.79% 10/05/12 5,295,516
7,040,572 Fresenius Medical Care AG, Term Loan B........ Baa3 BBB- 1.66%-1.67% 03/31/13 6,706,145
1,945,000 Healthways, Inc., Term Loan B................. Ba2 BB 1.78% 12/01/13 1,818,575
1,443,875 Quintiles Transnational Corp., Term Loan B,
First Lien............................... B1 BB 2.28% 03/31/13 1,353,632
---------------
20,842,658
---------------
HOMEBUILDING - 0.2%
972,292 Mattamy Funding Partnership,
Term Loan................................ NR (f) NR (f) 2.56% 04/11/13 777,834
---------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS - 2.3%
5,424,265 Dynegy Holdings, Inc., Synthetic Letter
of Credit................................ Ba2 BB- 3.99% 04/02/13 5,121,412
3,415,152 Texas Competitive Electric Holdings Co.,
LLC, Initial Term Loan B-3............... B1 B+ 3.74%-3.78% 10/10/14 2,522,468
---------------
7,643,880
---------------
INDUSTRIAL CONGLOMERATES - 0.1%
267,608 Mueller Water Products, Inc.,
Term Loan B.............................. B1 BB- 5.28% 05/24/14 261,420
---------------
INSURANCE BROKERS - 0.2%
784,179 HealthCare Partners, LLC, Term Loan........... Ba2 BBB- 2.03% 10/31/13 745,950
---------------
Page 10 See Notes to Financial Statements
First Trust/Four Corners Senior Floating Rate Income Fund II
Portfolio of Investments (a) (b) (Continued)
November 30, 2009 (Unaudited)
Principal Ratings (c) Stated
Value Description Moody's S&P Rate Maturity (d) Value
------------ ------------------------------------------------ ---------------- ------------- ------------ ----------------
SENIOR FLOATING-RATE LOAN INTERESTS (e) - (Continued)
INTEGRATED TELECOMMUNICATION SERVICES - 3.5%
$ 2,265,669 Intelsat Corp., Term Loan B-2-A............... B1 BB- 2.74% 01/03/14 $ 2,099,285
2,264,977 Intelsat Corp., Term Loan B-2-B............... B1 BB- 2.74% 01/03/14 2,098,644
2,264,977 Intelsat Corp., Term Loan B-2-C............... B1 BB- 2.74% 01/03/14 2,098,644
1,500,000 NTELOS, Inc., Term Loan....................... Ba3 BB- 5.75% 08/07/15 1,496,250
352,559 Telesat Canada, U.S. Delayed Draw
Term Loan II............................. B1 BB- 3.24% 10/31/14 328,266
4,104,821 Telesat Canada, U.S. Term Loan I.............. B1 BB- 3.24% 10/31/14 3,821,974
---------------
11,943,063
---------------
INTERNET RETAIL - 0.6%
2,429,519 Sabre Holdings Corp., Term Loan............... B1 B 2.48%-2.49% 09/30/14 2,063,740
---------------
IT CONSULTING & OTHER SERVICES - 2.6%
2,037,240 Alion Science and Technology Corp.,
Term Loan................................ B2 B+ 9.50% 02/06/13 1,843,702
492,710 Apptis (DE), Inc., Term Loan.................. B1 B+ 3.49%-3.54% 12/20/12 438,512
1,229,328 CACI International, Inc., Term Loan B......... Ba1 NR 1.74%-1.80% 05/03/11 1,192,448
5,835,375 West Corporation, Term Loan B-2............... B1 BB- 2.61% 10/24/13 5,209,239
---------------
8,683,901
---------------
LEISURE FACILITIES - 2.5%
3,151,935 Cedar Fair, L.P., U.S. Term Loan.............. Ba3 BB- 2.23% 08/30/12 2,949,685
726,898 London Area and Waterfront Finance, LLC,
Term Loan A.............................. NR (f) NR (f) 2.74% 03/08/12 654,208
975,000 Town Sports International, LLC,
Term Loan B.............................. Ba2 BB- 2.06% 02/27/14 892,125
4,000,000 Universal City Development Partners, Ltd.,
Term Loan................................ Ba2 BB- 6.50% 11/06/14 3,978,752
---------------
8,474,770
---------------
LEISURE PRODUCTS - 0.5%
1,682,147 LodgeNet Entertainment Corp., Term Loan....... B3 B- 2.29% 04/04/14 1,518,138
---------------
LIFE & HEALTH INSURANCE - 1.9%
787,078 Conseco, Inc., Term Loan...................... Caa1 CCC 6.50% 10/10/13 716,241
3,759,466 Multiplan Merger Corporation, Term Loan....... B1 B+ 2.75% 04/12/13 3,513,221
390,412 Multiplan Merger Corporation,
Term Loan C.............................. B1 B+ 2.75% 04/12/13 364,840
1,715,550 Viant Holdings, Inc., Term Loan............... Ba3 B+ 2.54% 06/25/14 1,668,372
---------------
6,262,674
---------------
MANAGED HEALTH CARE - 3.0%
1,179,119 IASIS Healthcare Corporation, Delayed
Draw Term Loan........................... Ba2 B+ 2.23% 03/15/14 1,087,317
318,412 IASIS Healthcare Corporation, Synthetic
Letter of Credit......................... Ba2 B+ 2.24% 03/15/14 293,621
3,407,207 IASIS Healthcare Corporation, Term Loan....... Ba2 B+ 2.23% 03/15/14 3,141,932
5,884,665 Vanguard Health Systems, Inc.,
Term Loan B.............................. Ba3 B+ 2.48% 09/23/11 5,697,021
---------------
10,219,891
---------------
See Notes to Financial Statements Page 11
First Trust/Four Corners Senior Floating Rate Income Fund II
Portfolio of Investments (a) (b) (Continued)
November 30, 2009 (Unaudited)
Principal Ratings (c) Stated
Value Description Moody's S&P Rate Maturity (d) Value
------------ ------------------------------------------------ ---------------- ------------- ------------ ----------------
SENIOR FLOATING-RATE LOAN INTERESTS (e) - (Continued)
METAL & GLASS CONTAINERS - 1.5%
$ 5,181,250 Owens-Illinois Group, Inc., Term Loan B....... Baa3 BBB- 1.74% 06/14/13 $ 4,990,653
---------------
MOVIES & ENTERTAINMENT - 3.9%
4,716,250 AMC Entertainment, Inc., Term Loan............ Ba2 BB- 1.74% 01/26/13 4,377,689
55,118 Deluxe Entertainment Services Group, Inc.,
Credit Linked Term Loan A................ Ba3 B- 6.25% 05/11/13 50,778
937,772 Deluxe Entertainment Services Group, Inc.,
Term Loan, Tranche B..................... Ba3 B- 6.25% 05/11/13 863,923
96,578 Deluxe Entertainment Services Group, Inc.,
Term Loan, Tranche C..................... Ba3 B- 6.25% 05/11/13 88,973
2,385,406 Discovery Communications Holding, LLC,
Term Loan B.............................. Baa3 NR (f) 2.28% 05/14/14 2,290,486
2,238,750 Discovery Communications Holding, LLC,
Term Loan C.............................. Baa3 NR (f) 5.25% 05/14/14 2,247,705
2,000,000 National CineMedia, LLC, Term Loan B.......... Ba3 B+ 2.05% 02/13/15 1,842,500
1,517,190 Regal Cinemas Corporation, Term Loan B........ Ba2 BB- 4.03% 10/27/13 1,489,586
---------------
13,251,640
---------------
MULTI-UTILITIES - 1.3%
2,510,637 KGEN, LLC, Synthetic Letter of Credit......... B1 BB 2.06% 02/08/14 2,284,680
2,448,491 KGEN, LLC, Term Loan B........................ B1 BB 2.00% 02/08/14 2,228,127
---------------
4,512,807
---------------
OFFICE REITS - 0.2%
1,000,000 Tishman Speyer Real Estate D.C. Area
Portfolio, L.P., Term Loan (l)........... WR D 4.00% 12/27/12 622,500
---------------
OFFICE SERVICES & SUPPLIES - 1.4%
2,734,719 Emdeon Business Services, LLC, Term Loan,
First Lien............................... B1 BB 2.29% 11/16/13 2,567,217
1,193,791 Pike Electric, Inc., Term Loan B.............. NR (f) NR (f) 1.75% 07/01/12 1,098,287
1,349,428 Pike Electric, Inc., Term Loan C.............. NR (f) NR (f) 1.75% 12/10/12 1,241,474
---------------
4,906,978
---------------
OIL & GAS EQUIPMENT & SERVICES - 1.1%
2,500,000 Dresser, Inc., Term Loan, First Lien.......... B2 B+ 2.52% 05/04/14 2,292,857
1,081,160 Hercules Offshore, Inc., Term Loan............ B2 B 6.00% 07/11/13 1,031,608
225,806 Targa Resources, Inc., Synthetic
Letter of Credit......................... Ba3 B+ 2.28% 10/31/12 218,629
294,903 Targa Resources, Inc., Term Loan.............. Ba3 B+ 2.23% 10/31/12 285,529
---------------
3,828,623
---------------
OIL & GAS EXPLORATION & PRODUCTION - 1.5%
2,199,432 ATP Oil & Gas Corporation, Term Loan,
Tranche B1............................... NR NR 11.25% 07/15/14 2,138,261
340,881 ATP Oil & Gas Corporation, Term Loan,
Tranche B2............................... NR NR 10.75%-11.75% 01/15/11 331,401
1,994,812 Helix Energy Solutions Group, Inc.,
Term Loan................................ Ba2 BB 2.23%-2.24% 07/01/13 1,907,539
992,087 SemCrude, L.P., Term Loan (j) (k)............. NR NR 5.75% 03/16/11 691,154
---------------
5,068,355
---------------
Page 12 See Notes to Financial Statements
First Trust/Four Corners Senior Floating Rate Income Fund II
Portfolio of Investments (a) (b) (Continued)
November 30, 2009 (Unaudited)
Principal Ratings (c) Stated
Value Description Moody's S&P Rate Maturity (d) Value
------------ ------------------------------------------------ ---------------- ------------- ------------ ----------------
SENIOR FLOATING-RATE LOAN INTERESTS (e) - (Continued)
OIL & GAS REFINING & MARKETING - 0.5%
$ 107,500 Alon USA, Inc., Term Loan
(Edgington Facility)..................... B1 BB 2.48% 06/22/13 $ 89,225
860,000 Alon USA, Inc., Term Loan
(Paramount Facility)..................... B1 BB 2.48%-2.51% 06/22/13 713,800
114,943 Calumet Lubricants Co., L.P., Synthetic
Letter of Credit......................... B1 B 4.13% 01/03/15 101,365
855,627 Calumet Lubricants Co., L.P., Term Loan....... B1 B 4.25%-4.27% 01/03/15 754,556
---------------
1,658,946
---------------
OIL & GAS STORAGE & TRANSPORTATION - 2.0%
3,000,000 Energy Transfer Equity, L.P., Term Loan B..... Ba2 NR 1.99% 11/01/12 2,919,375
3,960,000 Enterprise GP Holdings, L.P., Term Loan B..... Ba2 BB- 2.49%-2.53% 11/08/14 3,762,000
---------------
6,681,375
---------------
OTHER DIVERSIFIED FINANCIAL SERVICES - 1.8%
6,265,146 Royalty Pharma Finance Trust, Term Loan....... Baa2 BBB- 2.53% 04/16/13 5,993,658
---------------
PACKAGED FOODS & MEATS - 0.4%
1,464,905 Weight Watchers International, Inc.,
Term Loan B.............................. Ba1 BB+ 1.75%-1.81% 01/26/14 1,387,998
---------------
PAPER PACKAGING - 4.9%
4,927,762 Graham Packaging Holdings Co., Term
Loan B, First Lien....................... B1 B+ 2.50% 10/07/11 4,755,290
3,792,509 Graphic Packaging International, Inc.,
Term Loan B.............................. Ba3 BB- 2.23%-4.25% 05/16/14 3,535,161
2,500,000 Reynolds Consumer Products Holdings, Inc.,
Term Loan................................ B1 BB- 6.25% 11/05/15 2,493,750
852,751 Smurfit-Stone Container Enterprises, Inc.,
Canadian Revolving Credit Facility (j)... WR D 2.50%-5.00% 11/01/09 831,432
516,062 Smurfit-Stone Container Enterprises, Inc.,
Synthetic Letter of Credit (j)........... WR D 4.50% 11/01/10 501,870
587,292 Smurfit-Stone Container Enterprises, Inc.,
Term Loan B (j).......................... WR D 2.50% 11/01/11 571,141
1,106,950 Smurfit-Stone Container Enterprises, Inc.,
Term Loan C (j).......................... WR D 2.50% 11/01/11 1,073,050
334,679 Smurfit-Stone Container Enterprises, Inc.,
Term Loan C1 (j)......................... WR D 2.50% 11/01/11 324,430
2,571,085 Smurfit-Stone Container Enterprises, Inc.,
U.S. Revolving Credit Facility (j)....... WR D 2.50%-4.50% 11/01/09 2,506,808
---------------
16,592,932
---------------
PAPER PRODUCTS - 1.4%
3,471,122 Appleton Papers, Inc., Term Loan B, First Lien Ba3 B+ 6.63% 06/05/13 3,115,332
1,522,500 Domtar Corporation, Term Loan B............... Baa3 BBB- 1.61% 03/07/14 1,451,133
---------------
4,566,465
---------------
PHARMACEUTICALS - 5.4%
4,892,412 Catalent Pharma Solutions, Inc., Dollar
Term Loan................................ Ba3 BB- 2.48% 04/10/14 4,101,471
3,316,132 Graceway Pharmaceuticals, LLC, Term Loan,
First Lien............................... B2 BB 2.98% 05/03/12 2,205,228
4,000,000 Mylan, Inc., Term Loan B...................... Ba3 BB+ 3.50%-3.56% 10/02/14 3,841,000
See Notes to Financial Statements Page 13
First Trust/Four Corners Senior Floating Rate Income Fund II
Portfolio of Investments (a) (b) (Continued)
November 30, 2009 (Unaudited)
Principal Ratings (c) Stated
Value Description Moody's S&P Rate Maturity (d) Value
------------ ------------------------------------------------ ---------------- ------------- ------------ ----------------
SENIOR FLOATING-RATE LOAN INTERESTS (e) - (Continued)
PHARMACEUTICALS - (Continued)
$ 978,814 Warner Chilcott Corporation, Delayed Draw
Term Loan (h)............................ B1 BB+ 1.75% (i) 04/30/15 $ 975,137
2,796,610 Warner Chilcott Corporation, Term Loan A...... B1 BB+ 5.50% 10/30/14 2,786,106
1,398,305 Warner Chilcott Corporation, Term Loan B1..... B1 BB+ 5.75% 04/30/15 1,393,053
3,076,271 Warner Chilcott Corporation, Term Loan B2..... B1 BB+ 5.75% 04/30/15 3,064,717
---------------
18,366,712
---------------
PUBLISHING - 1.4%
150,625 Cenveo Corporation, Delayed Draw
Term Loan................................ Ba3 BB- 4.79% 06/21/13 144,726
4,028,831 Cenveo Corporation, Term Loan C............... Ba3 BB- 4.79% 06/21/13 3,871,033
845,147 Yell Group, PLC, Term Loan B1................. B2 B 4.03% 07/31/14 669,176
---------------
4,684,935
---------------
RESIDENTIAL REITs - 0.0%
35,000 Apartment Investment Management Co.,
Term Loan................................ Ba1 BB+ 1.74% 03/22/11 33,687
---------------
RETAIL REITs - 1.5%
5,848,773 Capital Automotive, L.P., Term Loan C......... Ba3 B 5.75% 12/14/12 5,127,427
---------------
SEMICONDUCTORS - 2.0%
8,209,179 Freescale Semiconductors, Inc., Term Loan,
First Lien............................... B2 B- 1.99% 12/01/13 6,693,904
---------------
SPECIALIZED CONSUMER SERVICES - 3.6%
967,500 Acosta, Inc., Term Loan....................... NR (f) NR (f) 2.49% 07/28/13 879,216
903,116 Advantage Sales & Marketing, Inc.,
Term Loan................................ NR (f) NR (f) 2.29% 03/29/13 835,382
3,685,639 Affinion Group, Inc., Term Loan B............. Ba2 BB 2.73% 10/17/12 3,481,392
256,221 ARAMARK Corporation, Prefunded
Synthetic Letter of Credit............... Ba3 BB 2.14% 01/26/14 231,026
3,897,364 ARAMARK Corporation, Term Loan................ Ba3 BB 2.11%-2.16% 01/26/14 3,514,125
1,000,000 Asurion Corp., Term Loan, First Lien.......... NR (f) NR (f) 3.24%-3.27% 07/03/14 938,772
944,361 N.E.W. Holdings I, LLC, Term Loan,
First Lien............................... NR (f) NR (f) 2.73%-2.74% 05/22/14 874,124
1,719,064 Nielsen Finance, LLC, Dollar
Term Loan................................ Ba3 B+ 2.24% 08/09/13 1,544,701
---------------
12,298,738
---------------
SPECIALTY CHEMICALS - 1.8%
2,000,000 Celanese Holdings, LLC, Synthetic
Letter of Credit......................... Ba2 BB+ 1.99% 04/02/14 1,856,250
4,394,868 Celanese Holdings, LLC, Term Loan,
First Lien............................... Ba2 BB+ 2.04% 04/02/14 4,072,245
---------------
5,928,495
---------------
SPECIALTY STORES - 2.3%
1,182,125 Dollarama Group, L.P., Replacement
Term Loan B.............................. Ba1 BB- 2.03% 11/18/11 1,155,527
3,770,984 Harbor Freight Tools USA, Inc.,
Term Loan C.............................. NR (f) NR (f) 9.75% 02/12/13 3,770,984
Page 14 See Notes to Financial Statements
First Trust/Four Corners Senior Floating Rate Income Fund II
Portfolio of Investments (a) (b) (Continued)
November 30, 2009 (Unaudited)
Principal Ratings (c) Stated
Value Description Moody's S&P Rate Maturity (d) Value
------------ ------------------------------------------------ ---------------- ------------- ------------ ----------------
SENIOR FLOATING-RATE LOAN INTERESTS (e) - (Continued)
SPECIALTY STORES - (Continued)
$ 3,060,609 The Yankee Candle Co., Inc., Term Loan........ Ba3 BB- 2.24% 02/06/14 $ 2,814,667
---------------
7,741,178
---------------
SYSTEMS SOFTWARE - 4.2%
4,364,288 Dealer Computer Services, Inc.,
Term Loan, First Lien.................... Ba2 BB 2.23% 10/26/12 3,966,046
3,884,107 Intergraph Corporation, Term Loan,
First Lien............................... Ba3 BB- 2.26% 05/29/14 3,621,930
1,036,975 Open Solutions, Inc., Term Loan, First Lien... B1 BB- 2.41% 01/23/14 855,504
4,669,127 SunGard Data Systems, Inc., Term Loan A....... Ba3 BB 1.99% 02/28/14 4,264,958
1,500,000 SunGard Data Systems, Inc., Term Loan B....... Ba3 BB 3.88%-3.90% 02/28/16 1,409,465
---------------
14,117,903
---------------
TECHNOLOGY DISTRIBUTORS - 1.2%
1,078,000 H3C Holdings, Ltd., Term Loan B............... Ba2 BB+ 3.64% 09/28/12 1,016,015
3,460,730 Sensata Technologies Finance Co., LLC,
Term Loan, First Lien.................... B3 B 2.00%-2.03% 04/27/13 3,058,420
---------------
4,074,435
---------------
TRUCKING - 2.4%
2,899,288 OshKosh Corporation, Term Loan B.............. B2 BB- 6.29%-6.33% 12/06/13 2,889,625
789,497 The Hertz Corporation, Prefunded Synthetic
Letter of Credit......................... Ba1 BB- 2.04% 12/21/12 722,671
5,021,656 The Hertz Corporation, Term Loan B............ Ba1 BB- 2.00%-2.04% 12/21/12 4,596,608
---------------
8,208,904
---------------
TOTAL SENIOR FLOATING-RATE LOAN INTERESTS..................................................... 451,441,819
(Cost $483,044,774) ---------------
SENIOR FLOATING-RATE NOTES - 0.1%
LEISURE FACILITIES - 0.0%
1,225,000 HRP Myrtle Beach (j) (k) (m) (o).............. WR NR 8.00% 04/01/12 0
---------------
SEMICONDUCTORS - 0.1%
650,000 NXP B.V...................................... C CC 3.03% 10/15/13 498,063
---------------
TOTAL SENIOR FLOATING-RATE NOTES.............................................................. 498,063
(Cost $1,875,000) ---------------
NOTES - 0.0%
HOMEBUILDING - 0.0%
727,273 TOUSA, Inc. (Payment-In-Kind Election
Note) (j) (m) (n) (o).................... NR NR 14.75% 07/01/15 0
---------------
TOTAL NOTES................................................................................... 0
(Cost $436,364) ---------------
See Notes to Financial Statements Page 15
First Trust/Four Corners Senior Floating Rate Income Fund II
Portfolio of Investments (a) (b) (Continued)
November 30, 2009 (Unaudited)
Shares Description Value
------------ ----------------------------------------------------------------- ---------------
PREFERRED STOCKS - 0.0%
Homebuilding - 0.0%
4,273 TOUSA, Inc. (8.0%, Series A Convertible Payment-In-Kind Preferred Stock) (j) (k) (m) (o)...... $ 0
---------------
TOTAL PREFERRED STOCKS........................................................................ 0
(Cost $2,563,636) ---------------
WARRANTS - 0.0%
BROADCASTING - 0.0%
1,449 Cumulus Media, Inc. (m)....................................................................... 1,565
---------------
TOTAL WARRANTS................................................................................ 1,565
(Cost $0) ---------------
TOTAL INVESTMENTS - 133.7%.................................................................... 451,941,447
(Cost $487,919,774) (p)
OUTSTANDING LOAN - (37.1)%.................................................................... (125,300,000)
NET OTHER ASSETS AND LIABILITIES - 3.4%....................................................... 11,447,197
---------------
NET ASSETS (Applicable to Common Shares) - 100.0%............................................. $ 338,088,644
===============
_______________
(a) All percentages shown in the Portfolio of Investments are based on net
assets applicable to Common Shares.
(b) All or a portion of the investments are available to serve as collateral on
the outstanding loan.
(c) Ratings below Baa3 by Moody's Investors Service, Inc. or BBB- by Standard &
Poor's Ratings Group are considered to be below investment grade.
(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) Senior Loans in which the Fund invests generally pay interest at rates
which are periodically predetermined by reference to a base lending rate
plus a premium. These base lending rates are generally (i) the lending rate
offered by one or more major European banks, such as the London Interbank
Offered Rate ("LIBOR"), (ii) the prime rate offered by one or more United
States banks or (iii) the certificate of deposit rate.
(f) This Senior Loan Interest was privately rated upon issuance. The rating
agency does not provide ongoing surveillance on the rating.
(g) This DIP facility is partially drawn per Debtor-In-Possession Credit
Agreement dated March 3, 2009.
(h) Delayed Draw Loan (see Note 2E in the Notes to Financial Statements).
(i) Represents commitment fee rate on unfunded loan commitment.
(j) This borrower has filed for protection in federal bankruptcy court.
(k) Non-income producing investment.
(l) This issuer is in default and interest is not being accrued by the Fund nor
paid by the issuer.
(m) This investment 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 investments may only be resold in transactions
exempt from registration (see Note 2F - Restricted Investments in the Notes
to Financial Statements).
(n) This investment 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 is to be paid by the issuer, at its option (i) entirely
in cash, (ii) entirely in Payment-in-Kind interest or (iii) in a
combination of (i) and (ii). Interest is to be paid semi-annually; however,
the issuer is in default and income is not being accrued.
(o) This investment is fair valued in accordance with valuation procedures
adopted by the Fund's Board of Trustees.
(p) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of November 30, 2009,
the aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost was $621,499 and the aggregate
gross unrealized depreciation for all investments in which there was an
excess of tax cost over value was $36,599,826.
NR Not rated.
WR Withdrawn rating.
Page 16 See Notes to Financial Statements
First Trust/Four Corners Senior Floating Rate Income Fund II
Portfolio of Investments (a) (b) - (Continued)
November 30, 2009 (Unaudited)
---------------------------------------------
Valuation Inputs
A summary of the inputs used to value the Fund's investments as of November 30,
2009 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 2 Level 3
Total Level 1 Significant Significant
Market Value Quoted Observable Unobservable
Valuation Inputs at 11/30/2009 Prices Inputs Inputs
-------------- ------------ ------------ ------------ ------------
Senior Floating-Rate
Loan Interests* $451,441,819 $ -- $451,441,819 $ --
Senior Floating-Rate
Notes* 498,063 -- 498,063 --
Warrants* 1,565 -- 1,565 --
------------- ------------- ------------- ------------
Total Investments $451,941,447 $ -- $451,941,447 $ --
============= ============= ============= ============
* See the Portfolio of Investments for industry breakout.
See Notes to Financial Statements Page 17
First Trust/Four Corners Senior Floating Rate Income Fund II
Statement of Assets and Liabilities
November 30, 2009 (Unaudited)
ASSETS:
Investments, at value
(Cost $487,919,774)..................................................................................... $ 451,941,447
Cash......................................................................................................... 8,826,640
Cash segregated as collateral for terminated credit default swaps............................................ 263,067
Prepaid expenses............................................................................................. 536,025
Receivables:
Investment securities sold............................................................................... 12,619,775
Interest................................................................................................. 1,767,520
--------------
Total Assets.......................................................................................... 475,954,474
--------------
LIABILITIES:
Outstanding loan............................................................................................ 125,300,000
Payables:
Investment securities purchased.......................................................................... 11,911,829
Investment advisory fees................................................................................ 287,188
Interest and fees on loan............................................................................... 231,755
Printing fees........................................................................................... 36,308
Audit and tax fees....................................................................................... 32,646
Administrative fees...................................................................................... 24,397
Legal fees............................................................................................... 21,274
Trustees' fees and expenses............................................................................. 9,686
Custodian fees.......................................................................................... 8,456
Transfer agent fees..................................................................................... 1,452
Other liabilities........................................................................................... 839
--------------
Total Liabilities..................................................................................... 137,865,830
--------------
NET ASSETS (Applicable to Common Shares)..................................................................... $ 338,088,644
==============
NET ASSETS consist of:
Paid-in capital............................................................................................. 480,451,257
Par value.................................................................................................... 252,919
Accumulated net investment income (loss)..................................................................... (375,244)
Accumulated net realized gain (loss) on investments.......................................................... (106,261,961)
Net unrealized appreciation (depreciation) on investments.................................................... (35,978,327)
--------------
NET ASSETS (Applicable to Common Shares)..................................................................... $ 338,088,644
==============
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share)......................................... $ 13.37
==============
Number of Common Shares outstanding (unlimited number of Common Shares has been authorized).................. 25,291,939
==============
Page 18 See Notes to Financial Statements
First Trust/Four Corners Senior Floating Rate Income Fund II
Statement of Operations
For the Six Months Ended November 30, 2009 (Unaudited)
INVESTMENT INCOME:
Interest.................................................................................................... $ 9,453,044
Other income................................................................................................ 241,555
--------------
Total investment income.................................................................................. 9,694,599
--------------
EXPENSES:
Investment advisory fees..................................................................................... 1,674,343
Interest and fees on loan.................................................................................... 1,653,226
Tender offer fees............................................................................................ 168,964
Legal fees................................................................................................... 159,786
Administrative fees......................................................................................... 155,149
Auction Market Preferred Shares commission fees.............................................................. 64,473
Printing fees................................................................................................ 47,236
Custodian fees............................................................................................... 36,391
Audit and tax fees........................................................................................... 35,542
Trustees' fees and expenses.................................................................................. 19,640
Transfer agent fees.......................................................................................... 11,593
Other........................................................................................................ 24,203
--------------
Total expenses........................................................................................... 4,050,546
--------------
NET INVESTMENT INCOME (LOSS)................................................................................. 5,644,053
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments...................................................................... (24,610,673)
Net change in unrealized appreciation (depreciation) on investments.......................................... 64,810,988
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)...................................................................... 40,200,315
--------------
AUCTION MARKET PREFERRED SHARE DIVIDENDS..................................................................... (415,209)
--------------
NET INCREASE (DECREASE) IN NET ASSETS (APPLICABLE TO COMMON SHARES)
RESULTING FROM OPERATIONS............................................................................... $ 45,429,159
==============
See Notes to Financial Statements Page 19
First Trust/Four Corners Senior Floating Rate Income Fund II
Statements of Changes in Net Assets
Six Months
Ended Year
11/30/2009 Ended
(Unaudited) 5/31/2009
---------------- ----------------
OPERATIONS:
Net investment income (loss)............................................................ $ 5,644,053 $ 22,093,528
Net realized gain (loss) on investments................................................. (24,610,673) (69,951,855)
Net change in unrealized appreciation (depreciation) on investments..................... 64,810,988 (47,290,087)
Distributions to Auction Market Preferred Shareholders from:
Net investment income................................................................ (415,209) (2,226,284)
---------------- ----------------
Net increase (decrease) in net assets applicable to Common Shares resulting
from operations...................................................................... 45,429,159 (97,374,698)
---------------- ----------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM:
Net investment income................................................................ (5,437,767) (19,715,067)
---------------- ----------------
Total distributions to Common Shareholders.............................................. (5,437,767) (19,715,067)
---------------- ----------------
Total increase (decrease) in net assets applicable to Common Shares..................... 39,991,392 (117,089,765)
NET ASSETS (Applicable to Common Shares):
Beginning of period..................................................................... 298,097,252 415,187,017
---------------- ----------------
End of period........................................................................... $ 338,088,644 $ 298,097,252
================ ================
Accumulated net investment income (loss) at end of period............................... $ (375,244) $ (166,321)
================ ================
Page 20 See Notes to Financial Statements
First Trust/Four Corners Senior Floating Rate Income Fund II
Statement of Cash Flows
For the Six Months Ended November 30, 2009 (Unaudited)
Cash flows from operating activities:
Net increase (decrease) in net assets applicable to Common Shares resulting
from operations..................................................................... $ 45,429,159
Adjustments to reconcile net increase (decrease) in net assets applicable to Common
Shares resulting from operations to net cash provided by operating
activities:
Purchases of investments........................................................... (102,113,824)
Sales and maturities of investments................................................ 124,312,747
Net amortization/accretion of premium/discount on investments...................... (1,789,147)
Net realized gain/loss on investments.............................................. 24,610,673
Net change in unrealized appreciation/depreciation on investments.................. (64,810,988)
Changes in assets and liabilities:
Increase in interest receivable.................................................... (156,877)
Decrease in prepaid expenses....................................................... 583,723
Increase in interest and fees due on loan.......................................... 71,801
Decrease in accumulated unpaid dividends on Auction Market
Preferred Shares................................................................ (56,589)
Increase in investment advisory fees payable....................................... 14,305
Decrease in audit and tax fees payable............................................. (30,666)
Decrease in legal fees payable..................................................... (26,468)
Decrease in transfer agent fees payable........................................... (287)
Decrease in printing fees payable.................................................. (24,417)
Increase in administrative fees payable............................................ 8,961
Increase in custodian fees payable................................................. 6,956
Increase in Trustees' fees and expenses payable.................................... 9,686
Decrease in accrued expenses and other liabilities................................. (24,341)
----------------
Cash provided by operating activities................................................... $ 26,014,407
----------------
Cash flows from financing activities:
Distributions to Common Shareholders............................................... (5,437,767)
Purchase pursuant to a tender offer of Auction Market Preferred Shares............. (76,450,000)
Redemption of Auction Market Preferred Shares...................................... (3,550,000)
Proceeds from borrowings........................................................... 113,300,000
Repayments of borrowings........................................................... (45,050,000)
----------------
Cash used in financing activities....................................................... (17,187,767)
----------------
Increase in cash....................................................................... 8,826,640
Cash at beginning of period............................................................. --
----------------
Cash at end of period................................................................... $ 8,826,640
================
Supplemental disclosure of cash flow information:
Cash paid during the period for interest and fees....................................... $ 1,581,425
================
See Notes to Financial Statements Page 21
First Trust/Four Corners Senior Floating Rate Income Fund II
Financial Highlights
For a Common Share outstanding throughout each period
Six Months
Ended Year Year Year Year Year
11/30/2009 Ended Ended Ended Ended Ended
(Unaudited) 5/31/2009 5/31/2008 5/31/2007 5/31/2006 5/31/2005
------------ ------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period.......... $ 11.79 $ 16.42 $ 18.91 $ 19.00 $ 18.94 $ 19.04
---------- ---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (loss).................. 0.22 0.87 1.45 1.66 1.48 0.95
Net realized and unrealized gain (loss)....... 1.60 (4.63) (2.37) (0.04) 0.04 (0.02)
Distributions paid to AMP (a) Shareholders
from:
Net investment income....................... (0.02) (0.09) (0.20) (0.21) (0.16) (0.07)
---------- ---------- ---------- ---------- ---------- ----------
Total from investment operations............... 1.80 (3.85) (1.12) 1.41 1.36 0.86
---------- ---------- ---------- ---------- ---------- ----------
Distributions paid to Common Shareholders from:
Net investment income....................... (0.22) (0.78) (1.37) (1.50) (1.28) (0.91)
Net realized gain .......................... -- -- -- -- (0.02) --
---------- ---------- ---------- ---------- ---------- ----------
Total distributions to Common Shareholders.... (0.22) (0.78) (1.37) (1.50) (1.30) (0.91)
---------- ---------- ---------- ---------- ---------- ----------
Dilutive impact from the offering of AMP
Shares(b) -- -- -- -- -- (0.05)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period................ $ 13.37 $ 11.79 $ 16.42 $ 18.91 $ 19.00 $ 18.94
========== ========== ========== ========== ========== ==========
Market value, end of period................... $ 10.86 $ 10.04 $ 14.76 $ 18.81 $ 17.61 $ 17.89
========== ========== ========== ========== ========== ==========
Total return based on net asset value (c) (d) 15.83% (22.07)% (5.19)% 8.04% 8.06% 4.38%
========== ========== ========== ========== ========== ==========
Total return based on market value (d) (e) ... 10.39% (26.11)% (14.32)% 15.95% 6.03% (6.20)%
========== ========== ========== ========== ========== ==========
----------------------------------
Ratios to average net assets available
to Common Shares:
Ratio of total expenses to average net assets 2.45% (m) 3.40% 3.63% 3.55% 3.08% 2.02%
Ratio of total expenses to average net assets
excluding interest expense.................. 1.44% (m) 1.62% 1.54% 1.45% 1.45% 1.30%
Ratio of net investment income (loss) to
average net assets.......................... 3.42% (m) 7.34% 8.52% 8.80% 7.77% 5.01%
Ratio of net investment income (loss) to
average net assets net of AMP dividends (f) 3.17% (m) 6.60% 7.34% 7.70% 6.93% 4.59%
Supplemental Data:
Portfolio turnover rate....................... 26% 15% 31% 78% 81% 115%
Net assets, end of period (in 000's).......... $ 338,089 $ 298,097 $ 415,187 $ 478,169 $ 480,155 $ 478,785
Ratio of total expenses to total average
Managed Assets (g).......................... 1.81% (m) 2.02% 2.22% 2.26% 1.97% 1.43%
Ratio of total expenses to total average Managed
Assets excluding interest expense (g)....... 1.06% (m) 0.96% 0.94% 0.92% 0.93% 0.92%
Preferred Shares and Loan Outstanding:
Total AMP Shares outstanding (h).............. -- 3,200 4,000 4,000 4,000 4,000
Liquidation and market value per AMP share (i) N/A $25,018 $ 25,039 $ 25,045 $ 25,040 $ 25,031
Asset coverage per share...................... N/A $ 118,155 (j) $ 128,797 (j) $ 179,792 (k) $ 189,289 (k) $ 191,446(k)
Loan outstanding (in 000's)................... $ 125,300 $ 57,050 $ 175,000 $ 141,000 $ 177,000 $ 187,000
Asset coverage per $1,000 of loan
outstanding (1) $ 3,698 $ 7,627 $ 3,944 $ 5,100 $ 4,278 $ 4,095
----------------------------------
(a) Auction Market Preferred ("AMP") Shares.
(b) The expenses associated with the offering of AMP Shares had a $(0.05)
impact on the Common Share NAV.
(c) Total return based on net asset value is the combination of reinvested
dividend distributions and reinvested capital gains distributions, if any,
at prices obtained by the Dividend Reinvestment Plan and changes in net
asset value per share and does not reflect sales load.
(d) Total return is not annualized for periods less than one year.
(e) Total return based on market value is the combination of reinvested
dividend distributions and reinvested capital gains distributions, if any,
at prices obtained by the Dividend Reinvestment Plan and changes in Common
Share price.
(f) Ratio reflects the effect of distributions to AMP Shareholders.
(g) Managed Assets are calculated by taking the Fund's average daily gross
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.
(h) As of November 18, 2009, the Fund no longer has any Series A or Series B
AMP Shares outstanding. See Note 5 - "Auction Market Preferred Shares" in
Notes to Financial Statements for more information about the Fund's AMP
Share tender offer and redemption transactions.
(i) Includes accumulated and unpaid distributions to AMP Shareholders.
(j) 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. If this methodology had been used
historically, fiscal years 2005, 2006 and 2007 would have been $144,696,
$145,039 and $144,542, respectively.
(k) 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 number of AMP Shares outstanding.
(l) 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.
(m) Annualized.
N/A Not applicable
Page 22 See Notes to Financial Statements
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
First Trust/Four Corners Senior Floating Rate Income Fund II
November 30, 2009 (Unaudited)
1. Fund Description
First Trust/Four Corners 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"). 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 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. 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), less all
liabilities (including accrued expenses, dividends declared but unpaid and any
borrowings of the Fund) and the liquidation value of any outstanding Preferred
Shares, by the total number of Common Shares outstanding.
The Fund's investments are valued daily at market value or, in the absence of
market value with respect to any portfolio investments, at fair value according
to valuation procedures adopted by the Fund's Board of Trustees. A majority of
the Fund's assets are valued using market information supplied by third parties.
In the event that market quotations are not readily available, the pricing
service does not provide a valuation for a particular asset, or the valuations
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
investments. Additionally, if events occur after the close of the principal
market for particular securities (e.g., domestic debt and foreign securities),
but before the Fund values its assets, that could materially affect NAV, First
Trust may use a fair value method to value the Fund's investments. The use of
fair value pricing by the Fund is governed by valuation procedures adopted by
the Fund's Board of Trustees, and in accordance with the 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 in the past several years, generally has fewer trades and less
liquidity than the secondary market for other types of securities. Some Senior
Loans have few or no trades, or trade infrequently, and information regarding a
specific Senior Loan may not be widely available or may be incomplete.
Accordingly, determinations of the market value of Senior Loans may be based on
infrequent and dated information. Because there is less reliable, objective data
available, elements of judgment may play a greater role in valuation of Senior
Loans than for other types of securities. Typically, Senior Loans are valued
using information provided by a third party pricing service. If the pricing
service cannot or does not provide a valuation for a particular Senior Loan or
such valuation is deemed unreliable, First Trust may value such Senior Loan at a
fair value according to valuation procedures adopted by the Fund's Board of
Trustees, and in accordance with the provisions of the 1940 Act.
Portfolio investments listed on any exchange other than the NASDAQ National
Market ("NASDAQ") are valued at the last sale price on the business day as of
which such value is being determined. If there has been no sale on such day, the
investments are valued at the mean of the most recent bid and asked prices on
such day. Investments traded on the NASDAQ are valued at the NASDAQ Official
Closing Price as determined by NASDAQ. Portfolio investments traded on more than
one securities exchange are valued at the last sale price on the business day as
of which such value is being determined at the close of the exchange
representing the principal market for such investments. Portfolio investments
traded in the over-the-counter market, but excluding investments traded on the
NASDAQ, are valued at the closing bid prices. Short-term investments that mature
in less than 60 days when purchased are valued at amortized cost.
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 securities. An active market is a market in which
transactions for the security occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
Page 23
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (Continued)
--------------------------------------------------------------------------------
First Trust/Four Corners Senior Floating Rate Income Fund II
November 30, 2009 (Unaudited)
o Level 2 - Level 2 inputs are observable inputs, either directly
or indirectly, and include the following:
o Quoted prices for similar securities in active markets.
o Quoted prices for identical or similar securities in
markets that are non-active. A non-active market is a
market where there are few transactions for the security,
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
security (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 reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
security.
The inputs or methodology used for valuing 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 investments as of November 30,
2009 is included with the Fund's Portfolio of Investments.
B. Credit Default Swaps:
The Fund may enter into credit default swap contracts for hedging purposes or to
gain exposure to a credit in which the Fund may otherwise invest. A credit
default swap contract is an agreement between two parties to exchange the credit
risk of an issuer. The Fund may be either the buyer or seller in a credit
default swap transaction. The "buyer" in a credit default swap contract is
obligated to pay the "seller" a periodic stream of payments over the term of the
contract provided that no event of default on the underlying reference
obligation has occurred. If an event of default occurs, the seller must pay the
buyer the full notional value, or "par value," of the reference obligation.
Credit default swap transactions are either "physical delivery" settled or
"cash" settled. Physical delivery entails the actual delivery of the reference
asset to the seller in exchange for payment of the full par value of the
reference asset. Cash settled entails a net cash payment from the seller to the
buyer based on the difference of the par value of the reference asset and the
current value of the reference asset that may have, through default, lost some,
most or all of its value. An event of default may be a grace period extension,
obligation acceleration, repudiation/moratorium, or restructuring.
Buying a credit default swap contract involves the risk that the contract may
expire worthless and the credit risk that the seller may fail to satisfy its
payment obligations to the Fund in the event of default. Selling a credit
default swap contract involves greater risks than if the Fund had invested in
the reference obligation directly. The Fund will segregate cash or liquid assets
in an amount equal to the aggregate market value of the credit default swap
contracts of which it is a seller. Additionally, the Fund maintains cash or
liquid assets for the full notional amount of the credit default swap contracts
of which it is a seller. The Fund may only enter into such transactions with
counterparties rated A- or higher.
Credit default swap contracts are marked to market daily based upon quotations
from brokers or market makers and the change in value, if any, is recorded as
unrealized appreciation (depreciation). For a credit default swap contract sold
by the Fund, payment of the agreed-upon amount made by the Fund in the event of
default of the referenced debt obligation is recorded as the cost of the
referenced debt obligation purchased/received. As of November 30, 2009, the Fund
had no outstanding credit default swaps.
C. Repurchase Agreements:
The Fund engages in repurchase agreement transactions. Under the terms of a
typical repurchase agreement, the Fund takes possession of an underlying debt
obligation subject to an obligation of the seller to repurchase, and the Fund to
resell, the obligation at an agreed-upon price and time, thereby determining the
yield during the Fund's holding period.
This arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the collateral is at
all times at least equal to the total amount of the repurchase obligation,
including interest. In the event of counterparty default, the Fund has the right
to use the collateral to offset losses incurred. There is potential loss to the
Fund in the event the Fund is delayed or prevented from exercising its rights to
dispose of the collateral investments, including the risk of a possible decline
in the value of the underlying investments during the period while the Fund
seeks to assert its rights. The Fund reviews the value of the collateral and the
creditworthiness of those banks and dealers with which the Fund enters into
repurchase agreements to evaluate potential risks. As of November 30, 2009, the
Fund had no open repurchase agreements.
D. Investment Transactions and Investment Income:
Investment transactions are recorded as of the trade date. Realized gains and
losses from investment transactions are recorded on the identified cost basis.
Interest income is recorded on the accrual basis. Market premiums and discounts
are amortized over the expected life of each respective borrowing.
Investments purchased or sold on a when-issued or delayed-delivery basis may be
settled a month or more after the trade date; interest income on such
investments 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 or
delayed-delivery purchase commitments. As of November 30, 2009, the Fund had no
when-issued or delayed-delivery purchase commitments.
Page 24
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (Continued)
--------------------------------------------------------------------------------
First Trust/Four Corners Senior Floating Rate Income Fund II
November 30, 2009 (Unaudited)
E. Unfunded Loan Commitments:
The Fund may enter into certain credit agreements, all or a portion of which may
be unfunded. The Fund had unfunded delayed draw loan commitments of
approximately $1,068,393 as of November 30, 2009. The Fund is obligated to fund
these loan commitments at the borrower's discretion. Net unrealized depreciation
from the commitments is $559 at November 30, 2009.
F. Restricted Investments:
The Fund invests in restricted investments, which are investments that cannot be
offered for public sale without first being registered under the Securities Act
of 1933, as amended. Prior to registration, restricted investments may only be
resold in transactions exempt from registration. The Fund held restricted
investments at November 30, 2009 as shown in the following table. The Fund does
not have the right to demand that such investments be registered. These
investments are valued according to the valuation procedures as stated in the
Portfolio Valuation footnote (Note 2A) and are not expressed as a discount to
the carrying value of a comparable unrestricted investment. There are no
unrestricted investments with the same maturity dates and yields for these
issuers.
% of
Net Assets
Applicable
Acquisition Principal Value Current to Common
Security Date Value/Shares Per Share Carrying Cost Value Shares
------------------------------------------------------------------------------------------------------------------------------------
Cumulus Media, Inc. - Warrants 6/29/09 1,449 $ 1.08 $ -- $ 1,565 0.00%
HRP Myrtle Beach - Senior Floating
Rate Notes 3/23/06 $ 1,225,000 -- 1,225,000 -- 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
______________________________________________
$4,225,000 $ 1,565 0.00%
==============================================
(1) Security was acquired through a restructuring that was effective on July 31,
2007.
G. 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 the financing associated with leverage. If the Fund
recognizes a long-term capital gain, it will be required to allocate such gain
between the Common Shares and any Auction Market Preferred Shares ("AMP Shares")
issued by the Fund, if AMP Shares are issued and outstanding at the time, in
proportion to the total dividends paid for the year. Distributions will
automatically be reinvested into additional Common Shares pursuant to the at the
time, Fund's Dividend Reinvestment Plan unless cash distributions are elected by
the shareholder.
Distributions from income and capital gains are determined in accordance with
income tax regulations, which may differ from accounting principles generally
accepted in the United States of America. These differences are primarily due to
differing treatments of income and gains on various investments held by the
Fund, timing differences and differing characterizations of distributions made
by the Fund.
The tax character of distributions paid during the fiscal year ended May 31,
2009 is as follows:
Distributions paid from:
Ordinary Income................................ $ 21,941,351
As of May 31, 2009, the components of distributable earnings on a tax basis are
as follows:
Undistributed Ordinary Income.................. $ 373,047
Net Unrealized Appreciation (Depreciation)..... (101,071,467)
Accumulated Capital and Other Losses .......... (81,651,288)
H. 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.
The Fund intends to utilize provisions of the federal income tax laws, which
allow it to carry realized capital losses forward for eight years following the
year of loss and offset such loss against any future realized capital gains. The
Fund is subject to certain limitations under 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. At May 31, 2009, the Fund
had available realized capital losses of $3,984,460, $3,611,723 and $25,697,677
to offset future net capital gains through the fiscal years ended 2014, 2016 and
2017, respectively.
Page 25
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (Continued)
--------------------------------------------------------------------------------
First Trust/Four Corners Senior Floating Rate Income Fund II
November 30, 2009 (Unaudited)
Certain losses realized after October 31 may be deferred and treated as
occurring on the first day of the following fiscal year. For the fiscal year
ended May 31, 2009, the Fund intends to elect to defer net realized losses
incurred from November 1, 2008 through May 31, 2009 of $48,357,428.
The Fund is subject to tax 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
2006, 2007, 2008 and 2009 remain open to federal and state audit. As of November
30, 2009, 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 provisions.
I. Expenses:
The Fund pays all expenses directly related to its operations.
3. Investment Advisory Fee, Affiliated Transactions and Other Fee Arrangements
First Trust is a limited partnership with one limited partner, Grace Partners of
DuPage. L.P., and one general partner, The Charger Corporation. First Trust
serves as investment advisor to the Fund pursuant to an Investment Management
Agreement. First Trust is responsible for the ongoing monitoring of the Fund's
investment portfolio, managing the Fund's business affairs and certain
administrative services necessary for the management of the Fund. For these
services, First Trust is entitled to a monthly fee calculated at an annual rate
of 0.75% of the Fund's Managed Assets, which are the average daily gross asset
value of the Fund (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.
Four Corners Capital Management, LLC ("Four Corners" or the "Sub-Advisor")
serves as the Fund's investment sub-advisor and manages the Fund's portfolio
subject to First Trust's supervision. Four Corners receives an annual portfolio
management fee of 0.38% of Managed Assets that is paid monthly by First Trust
from its investment advisory fee.
In accordance with certain fee arrangements, PNC Global Investment Servicing
(U.S.) Inc., an indirect, majority-owned subsidiary of The PNC Financial
Services Group, Inc., serves as the Fund's Administrator, Fund Accountant and
Transfer Agent. PFPC Trust Company, also an indirect, majority-owned subsidiary
of The PNC Financial Services Group, Inc., serves as the Fund's Custodian in
accordance with certain fee arrangements.
Deutsche Bank Trust Company Americas, a wholly-owned subsidiary of Deutsche Bank
AG, served as the Fund's AMP Share transfer agent, registrar, dividend
disbursing agent and redemption agent prior to the Fund's AMP Share tender offer
and redemption transactions (see Note 5 below).
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid 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 subsequent trust in the First
Trust Fund Complex. The annual retainer is allocated equally among each of the
trusts. No additional meeting fees are paid in connection with board or
committee meetings.
Additionally, the Lead Independent Trustee is paid $10,000 annually, the
Chairman of the Audit Committee is paid $5,000 annually and each of the Chairmen
of the Nominating and Governance Committee and Valuation Committee is paid
$2,500 annually to serve in such capacities, with such compensation paid by the
trusts in the First Trust Fund Complex and divided among those trusts. Trustees
are also reimbursed by the trusts in the First Trust Fund Complex for travel and
out-of-pocket expenses in connection with all meetings. The Lead Independent
Trustee and each Committee chairman will serve two-year terms which ended on
December 31, 2009, before rotating to serve as a chairman of another committee
or as Lead Independent Trustee. The officers and "Interested" Trustee receive no
compensation from the trusts for serving in such capacities.
4. Purchases and Sales of Investments
Cost of purchases and proceeds from sales of investments, excluding short-term
investments, for the six months ended November 30, 2009 were $111,865,800 and
$114,277,960, respectively.
5. Auction Market Preferred Shares
The Fund's Declaration of Trust authorizes the issuance of an unlimited number
of preferred shares of beneficial interest, par value $0.01 per share, in one or
more classes or series, with rights as determined by the Board of Trustees
without the approval of Common Shareholders. As described below, as of November
30, 2009, the Fund did not have any Series A AMP Shares or Series B AMP Shares
outstanding.
On August 28, 2009, the Fund commenced a tender offer for up to 100% of its
outstanding Series A and Series B AMP Shares at a purchase price equal to 97% of
the liquidation preference of $25,000 per AMP Share, plus any unpaid dividends
accrued through the expiration date of the offer. On September 14, 2009, the
Fund increased the purchase price to 100% of the liquidation preference per AMP
Share ($25,000 per AMP Share), plus any unpaid dividends accrued through the
expiration date of the offer. As of the expiration of the tender offer at 5:00
p.m., Eastern time, on September 28, 2009, 1,509 of the 1,600 outstanding Series
A AMP Shares and 1,549 of the 1,600 outstanding Series B AMP Shares were validly
Page 26
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (Continued)
--------------------------------------------------------------------------------
First Trust/Four Corners Senior Floating Rate Income Fund II
November 30, 2009 (Unaudited)
tendered in the offer. The Fund paid the purchase price for such validly
tendered AMP Shares by depositing the purchase price with the depositary for the
offer, Deutsche Bank Trust Company Americas.
On October 12, 2009, First Trust announced the Fund's intention to redeem its
remaining outstanding AMP Shares in the principal amount of $2,275,000 Series A
AMP Shares and $1,275,000 Series B AMP Shares. The Fund completed such
redemption of the Series A and Series B AMP Shares on November 18, 2009.
Following completion of such redemption, the Fund no longer has any Series A AMP
Shares or Series B AMP Shares outstanding.
For the six months ended November 30, 2009, tender offer and redemption
transactions in AMP Shares were as follows:
Series A AMP Shares Series B AMP Shares
----------------------------------- -----------------------------------
Shares Liquidation Value Shares Liquidation Value
----------------------------------- -----------------------------------
Outstanding at 5/31/09......................... 1,600 $ 40,000,000 1,600 $ 40,000,000
Amount Tendered................................ (1,509) (37,725,000) (1,549) (38,725,000)
Amount Redeemed................................ (91) (2,275,000) (51) (1,275,000)
----------------------------------- -----------------------------------
Outstanding at 11/30/09........................ -- $ -- -- $ --
=================================== ===================================
6. Revolving Credit Facility
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 has an expiration date of May 13,
2010 and may be renewed annually. The Credit Facility provides for a secured
line of credit for the Fund, where Fund assets are pledged against advances made
to the Fund. Under the requirements of the 1940 Act, the Fund, immediately after
any such borrowings, must have 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 $150,000,000. For the six months ended November 30, 2009, the
average amount outstanding was $62,178,415. The loans under the Credit Facility
funded by 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 the Secondary Lenders bear interest for each
settlement period at a per annum rate equal to (i) the Eurodollar rate for the
settlement period plus 7.50% or (ii) the alternate base rate plus 5.00%. For the
six months ended November 30, 2009, 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
six months ended November 30, 2009, were 0.83% and 0.27%, respectively, with a
weighted average interest rate of 0.39%. The annual interest rate in effect for
such loans at November 30, 2009 was 0.27%. The Fund also pays additional
borrowing costs, which include a program fee of 1.25% and a liquidity fee of
0.50% per year. On May 15, 2009 in connection with the annual extension of the
expiration date of the Credit Facility, the Fund paid upfront closing fees of
$1,125,000, which are being amortized over a one-year period. Such expenses are
included in "Interest and fees on loan" on the Statement of Operations.
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 or Sub-Advisor determines that it
is temporarily unable to follow the Fund's investment strategy or that it is
impractical to do so (such as when a market disruption event has occurred and
trading in the investments is extremely limited or absent), the Fund may take
temporary defensive positions.
Lower Grade Debt Instruments: The Senior Loans in which the Fund invests are
generally lower grade. These lower grade debt instruments may become the subject
of bankruptcy proceedings or otherwise subsequently default as to the repayment
of principal and/or payment of interest or be downgraded to ratings in the lower
rating categories. Lower grade debt instruments tend to be less liquid than
higher grade debt instruments.
Leverage Risk: The use of leverage results in additional risks and can magnify
the effect of any losses. The Fund borrowed pursuant to a leverage borrowing
program and through the issuance of Preferred Shares, 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 and the holders of Preferred 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
Page 27
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (Continued)
--------------------------------------------------------------------------------
First Trust/Four Corners Senior Floating Rate Income Fund II
November 30, 2009 (Unaudited)
permitted to declare dividends or other distributions, including dividends and
distributions with respect to Common Shares or Preferred Shares or purchase
Common Shares or Preferred 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. 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.
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
January 25, 2010, the date the financial statements were issued, and has
determined that there were the following subsequent events:
On December 21, 2009, the Fund declared a dividend of $0.0325 per share to
Common Shareholders of record January 6, 2010, payable January 15, 2010.
On January 20, 2009, the Fund declared a dividend of $0.035 per share to Common
Shareholders of record February 3, 2010, payable February 16, 2010.
Page 28
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
First Trust/Four Corners Senior Floating Rate Income Fund II
November 30, 2009 (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 PNC
Global Investment Servicing (U.S.) 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 (800) 331-1710, 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 PNC Global Investment
Servicing (U.S.) 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 votes proxies relating to
portfolio investments during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Fund's website located at http://www.ftportfolios.com; and (3) on the
Securities and Exchange Commission's ("SEC") website located at
http://www.sec.gov.
Page 29
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION - (Continued)
--------------------------------------------------------------------------------
First Trust/Four Corners Senior Floating Rate Income Fund II
November 30, 2009 (Unaudited)
Portfolio Holdings
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q
are available (1) by calling (800) 988-5891; (2) on the Fund's website located
at http://www.ftportfolios.com; (3) on the SEC's website at http://www.sec.gov;
and (4) for review and copying at the SEC's Public Reference Room ("PRR") in
Washington, DC. Information regarding the operation of the PRR may be obtained
by calling (800) SEC-0330.
Submission of Matters to a Vote of Shareholders
The Joint Annual Meeting of Shareholders of the First Trust/Four Corners Senior
Floating Rate Income Fund and First Trust/Four Corners Senior Floating Rate
Income Fund II was held on September 21, 2009. At the Annual Meeting, holders of
Common and Preferred Shares of First Trust/Four Corners Senior Floating Rate
Income Fund II voting together elected Trustee Niel B. Nielson for a three-year
term. Holders of Preferred Shares elected Trustee Thomas R. Kadlec and Trustee
Robert F. Keith each for one-year terms. The number of votes cast in favor of
Niel B. Nielson was 22,621,398, the number of votes against was 1,170,067 and
the number of abstentions was 1,503,674. The number of votes cast in favor of
Thomas R. Kadlec was 1,986, the number of votes against was 28 and the number of
abstentions was 1,186. The number of votes cast in favor of Robert F. Keith was
1,986, the number of votes against was 28 and the number of abstentions was
1,186. James A. Bowen and Richard E. Erickson are the current and continuing
Trustees.
Page 30
This page left blank intentionally.
This page left blank intentionally.
[LOGO OMITTED] FIRST TRUST
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
INVESTMENT SUB-ADVISOR
Four Corners Capital Management, LLC
555 South Flower Street, Suite 3300
Los Angeles, CA 90071
ADMINISTRATOR,
FUND ACCOUNTANT &
TRANSFER AGENT
PNC Global Investment Servicing (U.S.) Inc.
301 Bellevue Parkway
Wilmington, DE 19809
CUSTODIAN
PFPC Trust Company
8800 Tinicum Boulevard
Philadelphia, PA 19153
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
[BLANK BACK COVER]
Item 2. Code of Ethics.
Not applicable.
Item 3. Audit Committee Financial Expert.
Not applicable.
Item 4. Principal Accountant Fees and Services.
Not applicable.
Item 5. Audit Committee of Listed registrants.
Not applicable.
Item 6. Investments.
(a) Schedule of Investments in securities of unaffiliated issuers as of the
close of the reporting period is included as part of the report to
shareholders filed under Item 1 of this form.
(b) Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
(a) Not applicable.
(b) There have been no changes, as of the date of filing, in any of the
Portfolio Managers identified in response to paragraph (a)(1) of this
item in the Registrant's most recent annual report on Form N-CSR.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of trustees, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)),
or this Item.
Item 11. Controls and Procedures.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within
90 days of the filing date of the report that includes the disclosure
required by this paragraph, based on their evaluation of these controls
and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR
270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities
Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or
240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17
CFR 270.30a-3(d)) that occurred during the registrant's second fiscal
quarter of the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 12. Exhibits.
(a)(1) Not applicable.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and
Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) First Trust/Four Corners Senior Floating Rate Income Fund II
-------------------------------------------------------------
By (Signature and Title)* /s/ James A. Bowen
---------------------------------------------
James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
Date January 25, 2010
--------------------
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/ James A. Bowen
---------------------------------------------
James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
Date January 25, 2010
--------------------
By (Signature and Title)* /s/ Mark R. Bradley
---------------------------------------------
Mark R. Bradley, Treasurer, Controller, Chief
Financial Officer and Chief Accounting Officer
(principal financial officer)
Date January 25, 2010
--------------------
* Print the name and title of each signing officer under his or her signature.