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Share Name | Share Symbol | Market | Type |
---|---|---|---|
First Trust Senior Floating Rate Income Fund II | NYSE:FCT | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
-0.02 | -0.20% | 10.14 | 10.20 | 10.10 | 10.18 | 253,920 | 21:02:20 |
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-21539
(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios
L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
(Name
and address of agent for service)
Registrant’s telephone number, including area code: 630-765-8000
Date of fiscal year end: May 31
Date of reporting period: May 31, 2023
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. § 3507.
Item 1. Reports to Stockholders.
(a) | The Report to Shareholders is attached herewith. |
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4 |
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18 |
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19 |
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20 |
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Performance | ||||
Average Annual Total Returns | ||||
1
Year Ended 5/31/23 |
5
Years Ended 5/31/23 |
10
Years Ended 5/31/23 |
Inception
(5/25/04) to 5/31/23 | |
Fund Performance(3) | ||||
NAV(4) | 6.01% | 3.42% | 4.16% | 4.12% |
Market Value | -4.14% | 2.22% | 2.59% | 3.13% |
Index Performance | ||||
Morningstar® LSTA® US Leveraged Loan Index(5) |
5.91% | 3.69% | 3.77% | 4.51% |
(1) | Most recent distribution paid through May 31, 2023. Subject to change in the future. |
(2) | Distribution rates are calculated by annualizing the most recent distribution paid through the report date and then dividing by Common Share Price or NAV, as applicable, as of May 31, 2023. Subject to change in the future. |
(3) | Total return is based on the combination of reinvested dividend, capital gain and return of capital distributions, if any, at prices obtained by the Dividend Reinvestment Plan and changes in NAV per share for NAV returns and changes in Common Share Price for market value returns. From inception to October 12, 2010, Four Corners Capital Management, LLC served as the Fund’s sub-advisor. Effective October 12, 2010, the Leveraged Finance Team of First Trust Advisors L.P. assumed the day-to-day responsibility for management of the Fund’s portfolio. Total returns do not reflect sales load and are not annualized for periods of less than one year. Past performance is not indicative of future results. |
(4) | On January 3, 2023, the fair value methodology used to value the senior loan investments held by the Fund was changed. Prior to that date, the senior loans were valued using the bid side price provided by a pricing service. After such date, the senior loans were valued using the midpoint between the bid and ask price provided by a pricing service. The change in the Fund’s fair value methodology on January 3, 2023, resulted in a one-time increase in the Fund’s NAV of approximately $0.046 per share on that date, which represented a positive impact on the Fund’s performance of 0.42%. Without the change to the pricing methodology, the performance of the Fund on a NAV basis would have been 5.53%, 3.32%, 4.11%, and 4.10%, in the one-year, five-year, ten-year and since inception periods ended May 31, 2023, respectively. |
(5) | Formerly, S&P/LSTA Leveraged Loan Index. |
(6) | The ratings are by S&P Global Ratings except where otherwise indicated. A credit rating is an assessment provided by a nationally recognized statistical rating organization (NRSRO) of the creditworthiness of an issuer with respect to debt obligations except for those debt obligations that are only privately rated. Ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). Investment grade is defined as those issuers that have a long-term credit rating of BBB- or higher. The credit ratings shown relate to the creditworthiness of the issuers of the underlying securities in the Fund, and not to the Fund or its shares. Credit ratings are subject to change. |
(7) | Percentages are based on long-term positions. Money market funds are excluded. |
(1) | Source: Bloomberg. Performance of senior loans and high-yield bonds are based on the Morningstar® LSTA® US Leveraged Loan Index and ICE BofA U.S. High Yield Constrained Index, respectively. |
(2) | Source: J.P. Morgan High Yield Default Monitor. |
Average Annual Total Returns | ||||
1
Year Ended 5/31/23 |
5
Years Ended 5/31/23 |
10
Years Ended 5/31/23 |
Inception
(5/25/04) to 5/31/23 | |
Fund Performance3 | ||||
NAV(4) | 6.01% | 3.42% | 4.16% | 4.12% |
Market Value | -4.14% | 2.22% | 2.59% | 3.13% |
Index Performance | ||||
Morningstar® LSTA® US
Leveraged Loan Index(5) |
5.91% | 3.69% | 3.77% | 4.51% |
(3) | Total return is based on the combination of reinvested divided, capital gain, and return of capital distribution, if any, at prices obtained by the Dividend Reinvestment Plan and changes in NAV per Common Share for NAV returns and changes in Common Share price for market value returns. Total returns do not reflect sales load and are not annualized for period of less than one year. |
(4) | On January 3, 2023, the fair value methodology used to value the senior loan investments held by the Fund was changed. Prior to that date, the senior loans were valued using the bid side price provided by a pricing service. After such date, the senior loans were valued using the midpoint between the bid and ask price provided by a pricing service. The change in the Fund’s fair value methodology on January 3, 2023, resulted in a one-time increase in the Fund’s NAV of approximately $0.046 per share on that date, which represented a positive impact on the Fund’s performance of 0.42%. Without the change to the pricing methodology, the performance of the Fund on a NAV basis would have been 5.53%, 3.32%, 4.11%, and 4.10%, in the one-year, five-year, ten-year and since inception periods ended May 31, 2023, respectively. |
(5) | Formerly, S&P/LSTA Leveraged Loan Index. |
Principal Value |
Description | Rate (a) | Stated Maturity (b) |
Value | ||||
SENIOR FLOATING-RATE LOAN INTERESTS (c) – 112.8% | ||||||||
Application Software – 16.7% | ||||||||
$625,998 |
Applied Systems, Inc., 2026 Term Loan, 3 Mo. SOFR + 4.50%, 0.50% Floor |
9.40% | 09/19/26 | $626,351 | ||||
1,519,713 |
ConnectWise, LLC, Term Loan B, 1 Mo. LIBOR + 3.50%, 0.50% Floor |
8.65% | 09/30/28 | 1,457,504 | ||||
3,097,136 |
Epicor Software Corp., First Lien Term Loan C, 1 Mo. SOFR + 3.25%, 0.75% Floor |
8.52% | 07/30/27 | 3,017,927 | ||||
4,363,534 |
Gainwell Acquisition Corp. (fka Milano), Term Loan B, 3 Mo. SOFR + 4.00%, 0.75% Floor |
9.00% | 10/01/27 | 4,138,529 | ||||
2,685,763 |
Greeneden U.S. Holdings II, LLC (Genesys Telecommunications Laboratories, Inc.,), Initial Dollar Term Loan, 1
Mo. LIBOR + 4.00%, 0.75% Floor |
9.15% | 12/01/27 | 2,623,870 | ||||
611,678 |
Hyland Software, Inc., 2nd Lien Term Loan, 1 Mo. LIBOR + 6.25%, 0.75% Floor |
11.40% | 07/10/25 | 585,137 | ||||
1,995,203 |
Hyland Software, Inc., Term Loan B, 1 Mo. LIBOR + 3.50%, 0.75% Floor |
8.65% | 07/01/24 | 1,961,534 | ||||
4,118,244 |
Informatica Corporation, Initial Term Loan B, 1 Mo. LIBOR + 2.75%, 0.00% Floor |
7.94% | 10/29/28 | 4,097,220 | ||||
1,298,758 |
Internet Brands, Inc. (Web MD/MH Sub I. LLC), 2020 June New Term Loan, 1 Mo. LIBOR + 3.75%, 1.00% Floor |
8.90% | 09/15/24 | 1,296,862 | ||||
1,265,863 |
Internet Brands, Inc. (Web MD/MH Sub I. LLC), 2nd Lien Term Loan, 1 Mo. SOFR + 6.25%, 0.00% Floor |
11.40% | 02/23/29 | 1,113,960 | ||||
2,444,608 |
Internet Brands, Inc. (Web MD/MH Sub I. LLC), Initial Term Loan, 1 Mo. LIBOR + 3.75%, 0.00% Floor |
8.90% | 09/13/24 | 2,444,412 | ||||
69,335 |
ION Trading Technologies Limited, Term Loan B, 3 Mo. LIBOR + 4.75%, 0.00% Floor |
9.91% | 04/01/28 | 66,612 | ||||
4,780,676 |
LogMeIn, Inc. (GoTo Group, Inc.), Term Loan B, 1 Mo. LIBOR + 4.75%, 0.00% Floor |
9.90% | 08/31/27 | 2,939,016 | ||||
2,166,657 |
McAfee Corp. (Condor Merger Sub, Inc.), Tranche B-1 Term Loan, 1 Mo. SOFR + 3.75%, 0.50% Floor |
8.84% | 02/28/29 | 2,035,758 | ||||
359,350 |
N-Able, Inc., Term Loan B, 3 Mo. LIBOR + 3.00%, 0.50% Floor |
8.48% | 07/19/28 | 357,104 | ||||
2,087,723 |
Open Text Corporation (GXS), New Term Loan B, 1 Mo. SOFR + 3.50%, 0.50% Floor |
8.75% | 01/31/30 | 2,085,980 | ||||
5,148,867 |
Open Text Corporation (GXS), Term Loan B, 1 Mo. LIBOR + 1.75%, 0.00% Floor |
6.90% | 05/30/25 | 5,146,859 | ||||
912,941 |
RealPage, Inc., Second Lien Term Loan, 1 Mo. LIBOR + 6.50%, 0.75% Floor |
11.65% | 04/22/29 | 861,209 | ||||
5,702,541 |
RealPage, Inc., Term Loan B, 1 Mo. LIBOR + 3.00%, 0.50% Floor |
8.15% | 04/24/28 | 5,492,260 | ||||
3,073,448 |
SolarWinds Holdings, Inc., Extended Term Loan B, 1 Mo. SOFR + 3.75%, 0.00% Floor |
8.90% | 02/17/27 | 3,068,561 | ||||
486,325 |
Solera Holdings, Inc. (Polaris Newco), Term Loan B, 3 Mo. LIBOR + 4.00%, 0.50% Floor |
9.16% | 06/04/28 | 437,330 | ||||
381,380 |
Ultimate Kronos Group (UKG, Inc.), 2021 Term Loan, 3 Mo. SOFR + 3.25%, 0.50% Floor |
8.27% | 05/03/26 | 366,930 | ||||
1,288,330 |
Ultimate Software Group, Inc., Initial Term Loan B, 3 Mo. SOFR + 3.75%, 0.00% Floor |
8.90% | 05/03/26 | 1,245,660 | ||||
47,466,585 | ||||||||
Asset Management & Custody Banks – 2.3% | ||||||||
3,770,225 |
Edelman Financial Engines Center, LLC, Term Loan B, 1 Mo. LIBOR + 3.75%, 0.75% Floor |
8.90% | 04/07/28 | 3,624,996 | ||||
3,248,900 |
Edelman Financial Engines Center, LLC, Term Loan Second Lien, 1 Mo. LIBOR + 6.75%, 0.00% Floor |
11.90% | 07/20/26 | 3,082,394 | ||||
6,707,390 |
Principal Value |
Description | Rate (a) | Stated Maturity (b) |
Value | ||||
SENIOR FLOATING-RATE LOAN INTERESTS (c) (Continued) | ||||||||
Automotive Parts & Equipment – 0.2% | ||||||||
$516,737 |
Truck Hero, Inc., Term Loan B, 1 Mo. LIBOR + 3.75%, 0.75% Floor |
9.02% | 01/31/28 | $472,817 | ||||
Broadcasting – 4.3% | ||||||||
313,313 |
E.W. Scripps Company, Tranche B-3 Term Loan, 1 Mo. SOFR + 2.75%, 0.75% Floor |
8.02% | 01/07/28 | 297,257 | ||||
1,719,808 |
Gray Television, Inc., Term Loan E, 1 Mo. SOFR + 2.50%, 0.00% Floor |
7.61% | 01/02/26 | 1,655,049 | ||||
3,101,009 |
iHeartCommunications, Inc., Second Amendment Incremental Term Loan B, 1 Mo. SOFR + 3.25%, 0.50% Floor |
8.40% | 05/01/26 | 2,445,363 | ||||
1,199,070 |
iHeartCommunications, Inc., Term Loan B, 1 Mo. LIBOR + 3.00%, 0.00% Floor |
8.15% | 05/01/26 | 942,547 | ||||
6,811,673 |
Nexstar Broadcasting, Inc., Incremental Term Loan B-4, 1 Mo. LIBOR + 2.50%, 0.00% Floor |
7.65% | 09/19/26 | 6,750,266 | ||||
21,120 |
Univision Communications, Inc., 2017 Replacement Repriced First Lien Term Loan C-5, 1 Mo. LIBOR + 2.75%, 1.00%
Floor |
7.90% | 03/15/24 | 21,153 | ||||
11,558 |
Univision Communications, Inc., 2021 Replacement New First Lien Term Loan, 1 Mo. LIBOR + 3.25%, 0.75% Floor |
8.40% | 03/15/26 | 11,187 | ||||
12,122,822 | ||||||||
Building Products – 0.1% | ||||||||
263,495 |
Hunter Douglas, Inc. (Solis), Term Loan B, 3 Mo. SOFR + 3.50%, 0.50% Floor |
8.67% | 02/28/29 | 243,173 | ||||
Cable & Satellite – 3.4% | ||||||||
6,624,508 |
Cablevision (aka CSC Holdings, LLC), March 2017 Term Loan B-1, 1 Mo. LIBOR + 2.25%, 0.00% Floor |
7.36% | 07/17/25 | 6,099,516 | ||||
9,323 |
Charter Communications Operating LLC, Term Loan B1, 1 Mo. SOFR + 1.75%, 0.00% Floor |
6.90% | 04/30/25 | 9,315 | ||||
3,556,191 |
Charter Communications Operating, LLC, Term Loan B1, 3 Mo. SOFR + 1.75%, 0.00% Floor |
6.80% | 04/30/25 | 3,553,168 | ||||
9,661,999 | ||||||||
Casinos & Gaming – 1.6% | ||||||||
4,411,659 |
Golden Nugget, Inc. (Fertitta Entertainment LLC), Initial Term Loan B, 1 Mo. SOFR + 4.00%, 0.50% Floor |
9.15% | 01/27/29 | 4,255,883 | ||||
216,322 |
Scientific Games Holdings LP (Scientific Games Lottery), Initial Dollar Term Loan, 3 Mo. SOFR + 3.50%, 0.50%
Floor |
8.42% | 04/04/29 | 209,107 | ||||
4,464,990 | ||||||||
Coal & Consumable Fuels – 0.0% | ||||||||
28,750 |
Arch Coal, Inc., Term Loan B, 1 Mo. LIBOR + 2.75%, 1.00% Floor |
7.90% | 03/07/24 | 28,625 | ||||
Commercial Printing – 1.2% | ||||||||
3,501,554 |
Multi-Color Corp. (LABL, Inc.), Initial Dollar Term Loan, 1 Mo. SOFR + 5.00%, 0.50% Floor |
10.25% | 10/29/28 | 3,416,746 | ||||
Communications Equipment – 0.3% | ||||||||
850,661 |
Commscope, Inc., Term Loan B, 1 Mo. LIBOR + 3.25%, 0.00% Floor |
8.40% | 04/06/26 | 800,897 | ||||
Education Services – 0.5% | ||||||||
1,464,521 |
Ascensus Holdings, Inc. (Mercury), First Lien Term Loan, 1 Mo. LIBOR + 3.50%, 0.50% Floor |
8.69% | 08/02/28 | 1,408,379 |
Principal Value |
Description | Rate (a) | Stated Maturity (b) |
Value | ||||
SENIOR FLOATING-RATE LOAN INTERESTS (c) (Continued) | ||||||||
Electric Utilities – 3.2% | ||||||||
$9,133,723 |
PG&E Corp., Term Loan B, 1 Mo. LIBOR + 3.00%, 0.50% Floor |
8.19% | 06/23/25 | $9,078,510 | ||||
Electronic Equipment & Instruments – 0.7% | ||||||||
1,361,150 |
Chamberlain Group, Inc. (Chariot), Term Loan B, 1 Mo. SOFR + 3.25%, 0.50% Floor |
8.50% | 11/03/28 | 1,293,093 | ||||
865,558 |
Verifone Systems, Inc., Term Loan B, 3 Mo. LIBOR + 4.00%, 0.00% Floor |
9.48% | 08/20/25 | 757,904 | ||||
2,050,997 | ||||||||
Environmental & Facilities Services – 2.0% | ||||||||
5,696,776 |
GFL Environmental, Inc., Extended Term Loan B, 3 Mo. SOFR + 3.00%, 0.50% Floor |
8.15% | 05/31/27 | 5,695,010 | ||||
Food Distributors – 0.3% | ||||||||
906,505 |
US Foods, Inc., Incremental B-2019 Term Loan, 1 Mo. LIBOR + 2.00%, 0.00% Floor |
7.15% | 08/31/26 | 904,021 | ||||
Health Care Equipment – 0.0% | ||||||||
85,965 |
Embecta Corp., Initial Term Loan, 6 Mo. SOFR + 3.00%, 0.50% Floor |
7.79% | 03/31/29 | 84,442 | ||||
Health Care Facilities – 1.2% | ||||||||
492,772 |
Ardent Health Services, Inc. (AHP Health Partners, Inc.), Term Loan B, 1 Mo. LIBOR + 3.50%, 0.50% Floor |
8.65% | 08/24/28 | 490,924 | ||||
2,966,136 |
Select Medical Corporation, Term Loan B, 1 Mo. SOFR + 2.50%, 0.00% Floor |
7.75% | 03/06/25 | 2,957,326 | ||||
3,448,250 | ||||||||
Health Care Services – 4.4% | ||||||||
2,614,519 |
ADMI Corp. (Aspen Dental), 2020 Incremental Term Loan B2, 1 Mo. LIBOR + 3.38%, 0.50% Floor |
8.53% | 12/23/27 | 2,408,861 | ||||
1,066,705 |
ADMI Corp. (Aspen Dental), 2021 Incremental Term Loan B3, 1 Mo. LIBOR + 3.75%, 0.50% Floor |
8.90% | 12/23/27 | 984,835 | ||||
2,623,514 |
CHG Healthcare Services, Inc., Term Loan B, 1 Mo. LIBOR + 3.25%, 0.50% Floor |
8.40% | 09/30/28 | 2,573,339 | ||||
2,643,817 |
DaVita, Inc., Term Loan B, 1 Mo. SOFR + 1.75%, 0.00% Floor |
7.02% | 08/12/26 | 2,582,547 | ||||
2,608,862 |
ExamWorks Group, Inc. (Electron Bidco), Term Loan B, 1 Mo. SOFR + 3.00%, 0.50% Floor |
8.27% | 10/29/28 | 2,556,490 | ||||
1,980,166 |
Global Medical Response, Inc. (fka Air Medical), 2021 Refinancing Term Loan, 3 Mo. LIBOR + 4.25%, 1.00% Floor
|
9.24% | 10/02/25 | 1,392,304 | ||||
12,498,376 | ||||||||
Health Care Supplies – 1.8% | ||||||||
5,274,319 |
Medline Borrower, LP (Mozart), Initial Dollar Term Loan, 1 Mo. LIBOR + 3.25%, 0.50% Floor |
8.40% | 10/21/28 | 5,120,098 | ||||
Health Care Technology – 13.5% | ||||||||
4,850,243 |
athenahealth, Inc. (Minerva Merger Sub, Inc.), Term Loan B, 1 Mo. SOFR + 3.50%, 0.50% Floor |
8.60% | 02/15/29 | 4,583,480 | ||||
1,318,863 |
Ciox Health (Healthport/CT Technologies Intermediate Holdings, Inc.), New Term Loan B, 1 Mo. LIBOR + 4.25%, 0.75%
Floor |
9.40% | 12/16/25 | 1,238,669 | ||||
1,799,062 |
Ensemble RCM, LLC (Ensemble Health), Term Loan B, 3 Mo. SOFR + 3.75%, 0.00% Floor |
8.90% | 08/01/26 | 1,799,062 | ||||
4,249,947 |
Mediware (Wellsky/Project Ruby Ultimate Parent Corp.), Term Loan B, 1 Mo. SOFR + 3.25%, 0.75% Floor |
8.40% | 03/10/28 | 4,079,566 | ||||
5,011,350 |
Navicure, Inc. (Waystar Technologies, Inc.), Term Loan B, 1 Mo. LIBOR + 4.00%, 0.00% Floor |
9.15% | 10/23/26 | 4,983,187 |
Principal Value |
Description | Rate (a) | Stated Maturity (b) |
Value | ||||
SENIOR FLOATING-RATE LOAN INTERESTS (c) (Continued) | ||||||||
Health Care Technology (Continued) | ||||||||
$12,281,395 |
Verscend Technologies, Inc. (Cotiviti), New Term Loan B-1, 1 Mo. LIBOR + 4.00%, 0.00% Floor |
9.15% | 08/27/25 | $12,272,430 | ||||
9,608,764 |
Zelis Payments Buyer, Inc., New Term Loan B-1, 1 Mo. LIBOR + 3.50%, 0.00% Floor |
8.65% | 09/30/26 | 9,542,175 | ||||
38,498,569 | ||||||||
Hotels, Resorts & Cruise Lines – 2.4% | ||||||||
458,338 |
Alterra Mountain Company, Term Loan B-2, 1 Mo. LIBOR + 3.50%, 0.50% Floor |
8.65% | 08/17/28 | 457,192 | ||||
5,911,648 |
Four Seasons Holdings, Inc., New Term Loan B, 1 Mo. SOFR + 3.25%, 0.50% Floor |
8.50% | 11/30/29 | 5,925,185 | ||||
396,956 |
Wyndham Hotels & Resorts, Inc., Extended Term Loan B, 1 Mo. SOFR + 2.25%, 0.00% Floor |
7.35% | 05/30/30 | 396,502 | ||||
6,778,879 | ||||||||
Industrial Machinery & Supplies & Components – 1.3% | ||||||||
1,042,204 |
Copeland (Emerald Debt Merger Sub LLC/EMRLD), Initial Term Loan, 3 Mo. SOFR + 3.00%, 0.00% Floor |
8.26% | 05/31/30 | 1,031,130 | ||||
254,038 |
Filtration Group Corporation, 2021 Incremental Term Loan B, 1 Mo. LIBOR + 3.50%, 0.50% Floor |
8.77% | 10/21/28 | 249,698 | ||||
1,775,063 |
Filtration Group Corporation, 2023 Extended Term Loan, 1 Mo. SOFR + 4.25%, 0.50% Floor |
9.46% | 05/19/28 | 1,761,750 | ||||
615,584 |
TK Elevator Newco GMBH (Vertical U.S. Newco, Inc.), New Term Loan B1, 6 Mo. LIBOR + 3.50%, 0.50% Floor |
8.60% | 07/31/27 | 594,925 | ||||
3,637,503 | ||||||||
Insurance Brokers – 18.7% | ||||||||
2,534,435 |
Alliant Holdings I, LLC, Term Loan B-4, 1 Mo. LIBOR + 3.50%, 0.50% Floor |
8.63% | 11/06/27 | 2,474,242 | ||||
5,844,810 |
Alliant Holdings I, LLC, Term Loan B-5, 1 Mo. SOFR + 3.50%, 0.50% Floor |
8.56% | 11/06/27 | 5,707,135 | ||||
3,730,732 |
Amwins Group, Inc., Feb. 2023 Incremental Term Loan, 1 Mo. SOFR + 2.75%, 0.75% Floor |
8.00% | 02/19/28 | 3,704,617 | ||||
1,994,901 |
Amwins Group, Inc., Term Loan B, 1 Mo. LIBOR + 2.25%, 0.75% Floor |
7.40% | 02/28/28 | 1,958,644 | ||||
473,048 |
AssuredPartners, Inc., 2021 Term Loan B, 1 Mo. SOFR + 3.50%, 0.00% Floor |
8.77% | 02/13/27 | 461,075 | ||||
107,631 |
AssuredPartners, Inc., 2022 Incremental Term Loan B4, 1 Mo. SOFR + 4.25%, 0.50% Floor |
9.40% | 02/13/27 | 106,757 | ||||
1,809,360 |
AssuredPartners, Inc., Incremental Term Loan 2022, 1 Mo. SOFR + 3.50%, 0.50% Floor |
8.65% | 02/13/27 | 1,763,375 | ||||
6,412,332 |
AssuredPartners, Inc., Term Loan B, 1 Mo. SOFR + 3.50%, 0.00% Floor |
8.77% | 02/12/27 | 6,249,362 | ||||
3,772,342 |
BroadStreet Partners, Inc., Initial Term Loan B, 1 Mo. LIBOR + 3.00%, 0.00% Floor |
8.15% | 01/27/27 | 3,676,864 | ||||
363,037 |
BroadStreet Partners, Inc., Term Loan B-3, 1 Mo. SOFR + 4.00%, 0.00% Floor |
8.99% | 01/26/29 | 358,136 | ||||
13,642,284 |
HUB International Limited, Initial Term Loan B, 1 Mo. LIBOR + 3.00%, 0.00% Floor |
8.14% | 04/25/25 | 13,557,633 | ||||
35,901 |
HUB International Limited, Initial Term Loan B, 2 Mo. LIBOR + 3.00%, 0.00% Floor |
8.16% | 04/25/25 | 35,678 | ||||
955,699 |
HUB International Limited, New Term Loan B-3, 1 Mo. LIBOR + 3.25%, 0.75% Floor |
8.40% | 04/25/25 | 950,734 | ||||
2,450 |
HUB International Limited, New Term Loan B-3, 2 Mo. LIBOR + 3.25%, 0.75% Floor |
8.41% | 04/25/25 | 2,438 |
Principal Value |
Description | Rate (a) | Stated Maturity (b) |
Value | ||||
SENIOR FLOATING-RATE LOAN INTERESTS (c) (Continued) | ||||||||
Insurance Brokers (Continued) | ||||||||
$498,380 |
IMA Financial Group, Inc., Incremental Term Loan B-2, 1 Mo. SOFR + 4.25%, 0.50% Floor |
9.45% | 11/01/28 | $490,904 | ||||
3,067,540 |
Ryan Specialty Group, LLC, Term Loan B1, 1 Mo. SOFR + 3.00%, 0.75% Floor |
8.25% | 09/01/27 | 3,065,148 | ||||
6,943,059 |
USI, Inc. (fka Compass Investors Inc.), 2021 New Term Loans, 3 Mo. LIBOR + 3.25%, 0.00% Floor |
8.41% | 12/02/26 | 6,927,646 | ||||
1,721,111 |
USI, Inc. (fka Compass Investors, Inc.), 2022 New Term Loan, 3 Mo. SOFR + 3.75%, 0.50% Floor |
8.65% | 11/30/29 | 1,696,904 | ||||
53,187,292 | ||||||||
Integrated Telecommunication Services – 2.3% | ||||||||
3,361,467 |
Numericable (Altice France SA or SFR), Term Loan B-11, 3 Mo. LIBOR + 2.75%, 0.00% Floor |
8.02% | 07/31/25 | 3,112,517 | ||||
747,257 |
Zayo Group Holdings, Inc., Incremental Term Loan B-2, 1 Mo. SOFR + 4.25%, 0.50% Floor |
9.40% | 03/09/27 | 591,786 | ||||
3,740,009 |
Zayo Group Holdings, Inc., Initial Dollar Term Loan, 1 Mo. LIBOR + 3.00%, 0.00% Floor |
8.15% | 03/09/27 | 2,889,886 | ||||
6,594,189 | ||||||||
Managed Health Care – 0.7% | ||||||||
2,281,542 |
Multiplan, Inc. (MPH), Term Loan B, 3 Mo. LIBOR + 4.25%, 0.50% Floor |
9.73% | 08/31/28 | 1,927,903 | ||||
Metal, Glass & Plastic Containers – 0.2% | ||||||||
490,440 |
Berry Global, Inc., Term Loan Z, 1 Mo. LIBOR + 1.75%, 0.00% Floor |
6.85% | 07/01/26 | 487,443 | ||||
Office Services & Supplies – 1.3% | ||||||||
3,600,464 |
Dun & Bradstreet Corp., Refinancing Term Loan, 1 Mo. LIBOR + 3.25%, 0.00% Floor |
8.41% | 02/08/26 | 3,584,082 | ||||
Other Specialty Retail – 1.1% | ||||||||
2,210,315 |
Petco Health and Wellness Company, Inc., Initial Term Loan B, 3 Mo. SOFR + 3.25%, 0.75% Floor |
8.41% | 03/03/28 | 2,169,336 | ||||
1,069,187 |
Petsmart, Inc., Initial Term Loan B, 1 Mo. SOFR + 3.75%, 0.75% Floor |
9.00% | 02/12/28 | 1,056,357 | ||||
3,225,693 | ||||||||
Packaged Foods & Meats – 2.1% | ||||||||
5,902,411 |
Hostess Brands, LLC (HB Holdings), Term Loan B, 3 Mo. LIBOR + 2.25%, 0.75% Floor |
7.52% | 08/03/25 | 5,900,286 | ||||
Paper & Plastic Packaging Products & Materials – 3.2% | ||||||||
4,590,074 |
Graham Packaging Company, L.P., Term Loan B, 1 Mo. SOFR + 3.00%, 0.75% Floor |
8.27% | 08/04/27 | 4,481,060 | ||||
1,620,561 |
Pactiv LLC/Evergreen Packaging LLC (fka Reynolds Group Holdings), Term Loan B-2, 1 Mo. SOFR + 3.25%, 0.00% Floor
|
8.52% | 02/05/26 | 1,611,534 | ||||
2,972,943 |
Pactiv LLC/Evergreen Packaging LLC (fka Reynolds Group Holdings), Tranche B-3 U.S. Term Loan, 1 Mo. SOFR + 3.25%,
0.50% Floor |
8.52% | 09/20/28 | 2,913,811 | ||||
9,006,405 | ||||||||
Pharmaceuticals – 1.0% | ||||||||
967,032 |
Jazz Pharmaceuticals, Inc., Term Loan B, 1 Mo. LIBOR + 3.50%, 0.50% Floor |
8.65% | 05/05/28 | 966,166 | ||||
248,731 |
Nestle Skin Health (Sunshine Lux VII SARL/Galderma), 2021 Term Loan B-3, 3 Mo. LIBOR + 3.75%, 0.75% Floor |
8.91% | 10/02/26 | 243,142 |
Principal Value |
Description | Rate (a) | Stated Maturity (b) |
Value | ||||
SENIOR FLOATING-RATE LOAN INTERESTS (c) (Continued) | ||||||||
Pharmaceuticals (Continued) | ||||||||
$1,792,394 |
Parexel International Corp. (Phoenix Newco), First Lien Term Loan, 1 Mo. LIBOR + 3.25%, 0.50% Floor |
8.40% | 11/15/28 | $1,736,283 | ||||
2,945,591 | ||||||||
Property & Casualty Insurance – 0.6% | ||||||||
1,835,924 |
Sedgwick Claims Management Services, Inc., 2023 Term Loan B, 1 Mo. SOFR + 3.75%, 0.00% Floor |
8.90% | 02/24/28 | 1,788,447 | ||||
Research & Consulting Services – 3.1% | ||||||||
5,922,821 |
Clarivate Analytics PLC (Camelot), Amendment No. 2 Incremental Term Loan, 1 Mo. SOFR + 3.00%, 1.00% Floor |
8.27% | 10/31/26 | 5,863,593 | ||||
1,000,000 |
Clarivate Analytics PLC (Camelot), Initial Term Loan B, 1 Mo. SOFR + 3.00%, 0.00% Floor |
8.27% | 10/31/26 | 990,000 | ||||
289,680 |
Corelogic, Inc., Term Loan B, 1 Mo. LIBOR + 3.50%, 0.50% Floor |
8.69% | 06/02/28 | 260,007 | ||||
384,876 |
J.D. Power (Project Boost Purchaser LLC), 2021 Incremental Term Loan B, 1 Mo. LIBOR + 3.50%, 0.50% Floor |
8.65% | 05/26/26 | 379,504 | ||||
997,416 |
J.D. Power (Project Boost Purchaser LLC), Term Loan B, 1 Mo. LIBOR + 3.50%, 0.00% Floor |
8.65% | 05/30/26 | 983,831 | ||||
354,382 |
Veritext Corporation (VT TopCo, Inc.), Non-Fungible 1st Lien Term Loan, 1 Mo. SOFR + 3.75%, 0.75% Floor |
9.02% | 08/10/25 | 350,483 | ||||
8,827,418 | ||||||||
Restaurants – 4.4% | ||||||||
7,298,552 |
1011778 B.C. Unlimited Liability Company (Restaurant Brands) (aka Burger King/Tim Horton’s), Term Loan
B-4, 1 Mo. LIBOR + 1.75%, 0.00% Floor |
6.90% | 11/14/26 | 7,157,143 | ||||
5,582,269 |
IRB Holding Corp. (Arby’s/Inspire Brands), 2022 Replacement Term B Loan, 1 Mo. SOFR + 3.00%, 0.75% Floor
|
8.25% | 12/15/27 | 5,426,691 | ||||
12,583,834 | ||||||||
Security & Alarm Services – 1.6% | ||||||||
4,549,406 |
Garda World Security Corporation, Term Loan B-2, 1 Mo. SOFR + 4.25%, 0.00% Floor |
9.44% | 10/30/26 | 4,486,283 | ||||
Specialized Consumer Services – 0.6% | ||||||||
921,686 |
Asurion, LLC, New B-8 Term Loan, 1 Mo. LIBOR + 3.25%, 0.00% Floor |
8.40% | 12/23/26 | 854,352 | ||||
1,093,343 |
Asurion, LLC, Second Lien Term Loan B-3, 1 Mo. LIBOR + 5.25%, 0.00% Floor |
10.40% | 01/31/28 | 903,381 | ||||
1,757,733 | ||||||||
Specialized Finance – 0.7% | ||||||||
846,021 |
Radiate Holdco, LLC (Astound), Amendment No. 6 Term Loan, 1 Mo. LIBOR + 3.25%, 0.75% Floor |
8.40% | 09/25/26 | 705,129 | ||||
1,476,645 |
WCG Purchaser Corp. (WIRB- Copernicus Group), Term Loan B, 1 Mo. SOFR + 4.00%, 1.00% Floor |
9.27% | 01/08/27 | 1,405,581 | ||||
2,110,710 | ||||||||
Systems Software – 6.5% | ||||||||
4,012,602 |
BMC Software Finance, Inc. (Boxer Parent), 2021 Replacement Dollar Term Loan, 1 Mo. LIBOR + 3.75%, 0.00% Floor
|
8.90% | 10/02/25 | 3,962,444 | ||||
960,825 |
Idera, Inc., Initial Term Loan, 1 Mo. SOFR + 3.75%, 0.75% Floor |
8.88% | 02/15/28 | 925,097 | ||||
881,407 |
Proofpoint, Inc., Term Loan B, 1 Mo. LIBOR + 3.25%, 0.50% Floor |
8.40% | 08/31/28 | 853,004 |
Principal Value |
Description | Rate (a) | Stated Maturity (b) |
Value | ||||
SENIOR FLOATING-RATE LOAN INTERESTS (c) (Continued) | ||||||||
Systems Software (Continued) | ||||||||
$2,367,232 |
SS&C Technologies Holdings, Inc., Term Loan B-3, 1 Mo. LIBOR + 1.75%, 0.00% Floor |
6.90% | 04/16/25 | $2,356,781 | ||||
2,094,530 |
SS&C Technologies Holdings, Inc., Term Loan B-4, 1 Mo. LIBOR + 1.75%, 0.00% Floor |
6.90% | 04/16/25 | 2,085,283 | ||||
5,060,638 |
SS&C Technologies Holdings, Inc., Term Loan B-5, 1 Mo. LIBOR + 1.75%, 0.00% Floor |
6.90% | 04/16/25 | 5,039,636 | ||||
3,270,724 |
SUSE (Marcel Lux IV SARL), Facility B1 USD, Daily SOFR + 3.25%, 0.00% Floor |
8.16%-8.44% | 03/15/26 | 3,250,282 | ||||
18,472,527 | ||||||||
Trading Companies & Distributors – 0.8% | ||||||||
112,742 |
SRS Distribution, Inc., 2020 Refinancing Term Loan, 1 Mo. SOFR + 3.50%, 0.50% Floor |
8.75% | 06/04/28 | 107,166 | ||||
2,314,295 |
SRS Distribution, Inc., 2021 Refinancing Term Loan, 1 Mo. LIBOR + 3.50%, 0.50% Floor |
8.65% | 06/04/28 | 2,203,648 | ||||
2,310,814 | ||||||||
Wireless Telecommunication Services – 2.5% | ||||||||
7,234,856 |
SBA Senior Finance II LLC, Term Loan B, 1 Mo. LIBOR + 1.75%, 0.00% Floor |
6.91% | 04/11/25 | 7,229,574 | ||||
Total Senior Floating-Rate Loan Interests |
321,015,302 | |||||||
(Cost $329,343,669) | ||||||||
Principal Value |
Description | Stated Coupon |
Stated Maturity |
Value | ||||
CORPORATE BONDS AND NOTES (c) – 8.6% | ||||||||
Application Software – 0.1% | ||||||||
560,000 |
GoTo Group, Inc. (d) |
5.50% | 09/01/27 | 319,607 | ||||
Broadcasting – 2.6% | ||||||||
1,000,000 |
Gray Television, Inc. (d) |
5.88% | 07/15/26 | 860,749 | ||||
2,000,000 |
Gray Television, Inc. (d) |
7.00% | 05/15/27 | 1,649,649 | ||||
3,043,000 |
Nexstar Media, Inc. (d) |
5.63% | 07/15/27 | 2,795,680 | ||||
2,395,000 |
Sirius XM Radio, Inc. (d) |
3.13% | 09/01/26 | 2,115,801 | ||||
7,421,879 | ||||||||
Cable & Satellite – 2.8% | ||||||||
7,000,000 |
CCO Holdings, LLC / CCO Holdings Capital Corp. (d) |
5.13% | 05/01/27 | 6,493,637 | ||||
2,000,000 |
CSC Holdings, LLC (d) |
7.50% | 04/01/28 | 1,086,192 | ||||
374,000 |
CSC Holdings, LLC (d) |
11.25% | 05/15/28 | 354,803 | ||||
7,934,632 | ||||||||
Casinos & Gaming – 0.4% | ||||||||
572,000 |
Fertitta Entertainment, LLC / Fertitta Entertainment Finance Co., Inc. (d) |
4.63% | 01/15/29 | 499,934 | ||||
572,000 |
VICI Properties, L.P. / VICI Note Co., Inc. (d) |
4.25% | 12/01/26 | 537,271 | ||||
1,037,205 | ||||||||
Health Care Facilities – 1.7% | ||||||||
2,500,000 |
Tenet Healthcare Corp. |
6.25% | 02/01/27 | 2,464,894 | ||||
2,500,000 |
Tenet Healthcare Corp. |
5.13% | 11/01/27 | 2,391,166 | ||||
4,856,060 | ||||||||
Health Care Services – 0.2% | ||||||||
376,000 |
DaVita, Inc. (d) |
4.63% | 06/01/30 | 322,518 |
Principal Value |
Description | Stated Coupon |
Stated Maturity |
Value | ||||
CORPORATE BONDS AND NOTES (c) (Continued) | ||||||||
Health Care Services (Continued) | ||||||||
$226,000 |
DaVita, Inc. (d) |
3.75% | 02/15/31 | $179,624 | ||||
324,000 |
Global Medical Response, Inc. (d) |
6.50% | 10/01/25 | 219,213 | ||||
721,355 | ||||||||
Insurance Brokers – 0.3% | ||||||||
359,000 |
AmWINS Group, Inc. (d) |
4.88% | 06/30/29 | 320,875 | ||||
500,000 |
AssuredPartners, Inc. (d) |
7.00% | 08/15/25 | 493,719 | ||||
814,594 | ||||||||
Integrated Telecommunication Services – 0.2% | ||||||||
769,000 |
Zayo Group Holdings, Inc. (d) |
4.00% | 03/01/27 | 538,046 | ||||
Systems Software – 0.3% | ||||||||
1,007,000 |
SS&C Technologies, Inc. (d) |
5.50% | 09/30/27 | 962,125 | ||||
Total Corporate Bonds and Notes |
24,605,503 | |||||||
(Cost $26,795,935) | ||||||||
FOREIGN CORPORATE BONDS AND NOTES (c) – 0.6% | ||||||||
Application Software – 0.0% | ||||||||
22,000 |
Open Text Corp. (d) |
3.88% | 02/15/28 | 19,287 | ||||
Environmental & Facilities Services – 0.6% | ||||||||
1,554,000 |
GFL Environmental, Inc. (d) |
3.75% | 08/01/25 | 1,473,452 | ||||
305,000 |
GFL Environmental, Inc. (d) |
4.00% | 08/01/28 | 272,626 | ||||
1,746,078 | ||||||||
Total Foreign Corporate Bonds and Notes |
1,765,365 | |||||||
(Cost $1,783,097) |
Shares | Description | Value | ||
COMMON STOCKS (c) – 0.1% | ||||
Pharmaceuticals – 0.1% | ||||
150,392 |
Akorn, Inc. (e) (f) (g) |
140,993 | ||
(Cost $1,724,086) | ||||
WARRANTS (c) – 0.0% | ||||
Movies & Entertainment – 0.0% | ||||
315,514 |
Cineworld Group PLC, expiring 11/23/25 (e) (g) (h) |
10,793 | ||
(Cost $0) | ||||
RIGHTS (c) – 0.0% | ||||
Life Sciences Tools & Services – 0.0% | ||||
1 |
New Millennium Holdco, Inc., Corporate Claim Trust, no expiration date (g) (h) (i) (j) |
0 | ||
1 |
New Millennium Holdco, Inc., Lender Claim Trust, no expiration date (g) (h) (i) (j) |
0 | ||
Total Rights |
0 | |||
(Cost $0) | ||||
Total Investments – 122.1% |
347,537,956 | |||
(Cost $359,646,787) | ||||
Outstanding Loans – (16.9)% |
(48,000,000) | |||
Net Other Assets and Liabilities – (5.2)% |
(14,880,616) | |||
Net Assets – 100.0% |
$284,657,340 |
(a) | Senior Floating-Rate Loan Interests (“Senior Loans”) in which the Fund invests pay interest at rates which are periodically predetermined by reference to a base lending rate plus a premium. These base lending rates are generally (i) the lending rate offered by one or more major European banks, such as the LIBOR, (ii) the SOFR obtained from the U.S. Department of the Treasury’s Office of Financial Research, (iii) the prime rate offered by one or more United States banks or (iv) the certificate of deposit rate. Certain Senior Loans are subject to a LIBOR or SOFR floor that establishes a minimum LIBOR or SOFR rate. When a range of rates is disclosed, the Fund holds more than one contract within the same tranche with identical LIBOR or SOFR period, spread and floor, but different LIBOR or SOFR reset dates. |
(b) | 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. |
(c) | All of these securities are available to serve as collateral for the outstanding loans. |
(d) | This security, sold within the terms of a private placement memorandum, is exempt from registration upon resale under Rule 144A of the Securities Act of 1933, as amended (the “1933 Act”), and may be resold in transactions exempt from registration, normally to qualified institutional buyers. Pursuant to procedures adopted by the Fund’s Board of Trustees, this security has been determined to be liquid by First Trust Advisors L.P. (the “Advisor”). Although market instability can result in periods of increased overall market illiquidity, liquidity for each security is determined based on security specific factors and assumptions, which require subjective judgment. At May 31, 2023, securities noted as such amounted to $21,514,808 or 7.6% of net assets. |
(e) | This issuer has filed for protection in bankruptcy court. |
(f) | Security received in a transaction exempt from registration under the 1933 Act. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers (see Note 2D - Restricted Securities in the Notes to Financial Statements). |
(g) | Non-income producing security. |
(h) | Pursuant to procedures adopted by the Fund’s Board of Trustees, this security has been determined to be illiquid by the Advisor. |
(i) | This security is fair valued by the Advisor’s Pricing Committee in accordance with procedures approved by the Fund’s Board of Trustees, and in accordance with the provisions of the Investment Company Act of 1940 and rules thereunder, as amended. At May 31, 2023, securities noted as such are valued at $0 or 0.0% of net assets. |
(j) | This security’s value was determined using significant unobservable inputs (see Note 2A – Portfolio Valuation in the Notes to Financial Statements). |
LIBOR | London Interbank Offered Rate |
SOFR | Secured Overnight Financing Rate |
Total Value at 5/31/2023 |
Level
1 Quoted Prices |
Level
2 Significant Observable Inputs |
Level
3 Significant Unobservable Inputs | |
Senior Floating-Rate Loan Interests* |
$ 321,015,302 | $ — | $ 321,015,302 | $ — |
Corporate Bonds and Notes* |
24,605,503 | — | 24,605,503 | — |
Foreign Corporate Bonds and Notes* |
1,765,365 | — | 1,765,365 | — |
Common Stocks* |
140,993 | — | 140,993 | — |
Warrants* |
10,793 | — | 10,793 | — |
Rights* |
—** | — | — | —** |
Total Investments |
$ 347,537,956 | $— | $ 347,537,956 | $—** |
* | See Portfolio of Investments for industry breakout. |
** | Investments are valued at $0. |
ASSETS: | |
Investments, at value (Cost $359,646,787) |
$ 347,537,956 |
Cash |
5,483,489 |
Receivables: | |
Investment securities sold |
1,193,683 |
Interest |
1,100,562 |
Prepaid expenses |
21,235 |
Total Assets |
355,336,925 |
LIABILITIES: | |
Outstanding loans |
48,000,000 |
Payables: | |
Investment securities purchased |
22,176,708 |
Investment advisory fees |
212,961 |
Interest and fees on loans |
111,750 |
Audit and tax fees |
69,879 |
Administrative fees |
24,965 |
Shareholder reporting fees |
24,612 |
Legal fees |
12,549 |
Trustees’ fees and expenses |
7,678 |
Custodian fees |
2,215 |
Transfer agent fees |
1,612 |
Financial reporting fees |
771 |
Unrealized depreciation on unfunded loan commitments |
29,721 |
Other liabilities |
4,164 |
Total Liabilities |
70,679,585 |
NET ASSETS |
$284,657,340 |
NET ASSETS consist of: | |
Paid-in capital |
$ 352,816,114 |
Par value |
259,834 |
Accumulated distributable earnings (loss) |
(68,418,608) |
NET ASSETS |
$284,657,340 |
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share) |
$10.96 |
Number of |
INVESTMENT INCOME: | ||
Interest |
$ 26,036,268 | |
Total investment income |
26,036,268 | |
EXPENSES: | ||
Interest and fees on loans |
2,746,131 | |
Investment advisory fees |
2,645,011 | |
Administrative fees |
238,334 | |
Shareholder reporting fees |
92,137 | |
Audit and tax fees |
74,803 | |
Legal fees |
71,367 | |
Listing expense |
25,292 | |
Trustees’ fees and expenses |
18,445 | |
Custodian fees |
16,751 | |
Transfer agent fees |
15,874 | |
Financial reporting fees |
9,250 | |
Other |
40,853 | |
Total expenses |
5,994,248 | |
NET INVESTMENT INCOME (LOSS) |
20,042,020 | |
NET REALIZED AND UNREALIZED GAIN (LOSS): | ||
Net realized gain (loss) on investments |
(18,246,359) | |
Net change in unrealized appreciation (depreciation) on: | ||
Investments |
12,137,364 | |
Unfunded loan commitments |
42,804 | |
Net change in unrealized appreciation (depreciation) |
12,180,168 | |
NET REALIZED AND UNREALIZED GAIN (LOSS) |
(6,066,191) | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS |
$ 13,975,829 |
Year Ended 5/31/2023 |
Year Ended 5/31/2022 | ||
OPERATIONS: | |||
Net investment income (loss) |
$ 20,042,020 | $ 14,768,290 | |
Net realized gain (loss) |
(18,246,359) | (1,184,588) | |
Net change in unrealized appreciation (depreciation) |
12,180,168 | (24,665,993) | |
Net increase (decrease) in net assets resulting from operations |
13,975,829 | (11,082,291) | |
DISTRIBUTIONS TO SHAREHOLDERS FROM: | |||
Investment operations |
(20,337,430) | (14,904,773) | |
Return of capital |
(2,696,843) | (10,282,054) | |
Total distributions to shareholders |
(23,034,273) | (25,186,827) | |
CAPITAL TRANSACTIONS: | |||
Proceeds from Common Shares reinvested |
— | 366,260 | |
Net increase (decrease) in net assets resulting from capital transactions |
— | 366,260 | |
Total increase (decrease) in net assets |
(9,058,444) | (35,902,858) | |
NET ASSETS: | |||
Beginning of period |
293,715,784 | 329,618,642 | |
End of period |
$ 284,657,340 | $ 293,715,784 | |
CAPITAL TRANSACTIONS were as follows: | |||
Common Shares at beginning of period |
25,983,388 | 25,953,421 | |
Common Shares issued as reinvestment under the Dividend Reinvestment Plan |
— | 29,967 | |
Common Shares at end of period |
25,983,388 | 25,983,388 |
Cash flows from operating activities: | ||
Net increase (decrease) in net assets resulting from operations |
$13,975,829 | |
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by operating activities: | ||
Purchases of investments |
(286,356,199) | |
Sales, maturities and paydown of investments |
362,772,423 | |
Return of capital distributions received from investments |
259,985 | |
Net amortization/accretion of premiums/discounts on investments |
(1,269,945) | |
Net realized gain/loss on investments |
18,246,359 | |
Net change in unrealized appreciation/depreciation on investments and unfunded loan commitments |
(12,180,168) | |
Changes in assets and liabilities: | ||
Decrease in interest receivable |
221,103 | |
Decrease in prepaid expenses |
2 | |
Decrease in interest and fees payable on loans |
(14,852) | |
Decrease in investment advisory fees payable |
(51,364) | |
Decrease in audit and tax fees payable |
(3,173) | |
Increase in legal fees payable |
9,799 | |
Increase in shareholder reporting fees payable |
4,230 | |
Decrease in administrative fees payable |
(4,883) | |
Decrease in custodian fees payable |
(5,591) | |
Decrease in transfer agent fees payable |
(9,165) | |
Increase in trustees’ fees and expenses payable |
4,575 | |
Increase in other liabilities payable |
428 | |
Cash provided by operating activities |
$95,599,393 | |
Cash flows from financing activities: | ||
Distributions to Common Shareholders from investment operations |
(20,337,430) | |
Distributions to Common Shareholders from return of capital |
(2,696,843) | |
Repayment of borrowings |
(164,000,000) | |
Proceeds from borrowings |
96,000,000 | |
Cash used in financing activities |
(91,034,273) | |
Increase in cash |
4,565,120 | |
Cash at beginning of period |
918,369 | |
Cash at end of period |
$5,483,489 | |
Supplemental disclosure of cash flow information: | ||
Cash paid during the period for interest and fees |
$2,760,983 |
Year Ended May 31, | |||||||||
2023 | 2022 | 2021 | 2020 | 2019 | |||||
Net asset value, beginning of period |
$ 11.30 | $ 12.70 | $ 12.46 | $ 13.70 | $ 14.05 | ||||
Income from investment operations: | |||||||||
Net investment income (loss) |
0.78 | 0.56 | 0.55 | 0.67 | 0.74 | ||||
Net realized and unrealized gain (loss) |
(0.23) | (0.99) | 0.90 | (0.97) | (0.36) | ||||
Total from investment operations |
0.55 | (0.43) | 1.45 | (0.30) | 0.38 | ||||
Distributions paid to shareholders from: | |||||||||
Net investment income |
(0.79) | (0.57) | (0.56) | (0.69) | (0.73) | ||||
Return of capital |
(0.10) | (0.40) | (0.69) | (0.25) | — | ||||
Total distributions paid to Common Shareholders |
(0.89) | (0.97) | (1.25) | (0.94) | (0.73) | ||||
Common Share repurchases |
— | — | 0.04 | — | — | ||||
Net asset value, end of period |
$ | $11.30 | $12.70 | $12.46 | $13.70 | ||||
Market value, end of period |
$ | $10.90 | $12.60 | $11.12 | $11.98 | ||||
Total return based on net asset value (a) |
6.01% | (3.64)% | 13.51% | (1.38)% | 3.44% | ||||
Total return based on market value (a) |
(4.14)% | (6.31)% | 26.18% | 0.65% | (2.17)% | ||||
Ratios to average net assets/supplemental data: | |||||||||
Net assets, end of period (in 000’s) |
$ 284,657 | $ 293,716 | $ 329,619 | $ 332,267 | $ 365,804 | ||||
Ratio of total expenses to average net assets |
2.08% | 1.67% | 1.70% | 2.35% | 2.53% | ||||
Ratio of total expenses to average net assets excluding interest expense |
1.13% | 1.24% | 1.30% | 1.26% | 1.24% | ||||
Ratio of net investment income (loss) to average net assets |
6.97% | 4.64% | 4.37% | 4.98% | 5.34% | ||||
Portfolio turnover rate |
67% | 45% | 78% | 64% | 58% | ||||
Indebtedness: | |||||||||
Total loans outstanding (in 000’s) |
$ 48,000 | $ 116,000 | $ 136,000 | $ 119,000 | $ 163,000 | ||||
Asset coverage per $1,000 of indebtedness (b) |
$ 6,930 | $ 3,532 | $ 3,424 | $ 3,792 | $ 3,244 |
(a) | Total return is based on the combination of reinvested dividend, capital gain and return of capital distributions, if any, at prices obtained by the Dividend Reinvestment Plan, and changes in net asset value per share for net asset value returns and changes in Common Share Price for market value returns. Total returns do not reflect sales load and are not annualized for periods of less than one year. Past performance is not indicative of future results. |
(b) | Calculated by subtracting the Fund’s total liabilities (not including the loans outstanding) from the Fund’s total assets, and dividing by the outstanding loans balance in 000’s. |
1) | the most recent price provided by a pricing service; |
(1) | The terms “security” and “securities” used throughout the Notes to Financial Statements include Senior Loans. |
2) | available market prices for the fixed-income security; |
3) | the fundamental business data relating to the borrower; |
4) | an evaluation of the forces which influence the market in which these securities are purchased and sold; |
5) | the type, size and cost of the security; |
6) | the financial statements of the borrower, or the financial condition of the country of issue; |
7) | the credit quality and cash flow of the borrower, or country of issue, based on the Pricing Committee’s, sub-advisor’s or portfolio manager’s analysis, as applicable, or external analysis; |
8) | the information as to any transactions in or offers for the security; |
9) | the price and extent of public trading in similar securities (or equity securities) of the borrower, or comparable companies; |
10) | the coupon payments; |
11) | the quality, value and salability of collateral, if any, securing the security; |
12) | the business prospects of the borrower, including any ability to obtain money or resources from a parent or affiliate and an assessment of the borrower’s management; |
13) | the prospects for the borrower’s industry, and multiples (of earnings and/or cash flows) being paid for similar businesses in that industry; |
14) | the borrower’s competitive position within the industry; |
15) | the borrower’s ability to access additional liquidity through public and/or private markets; and |
1) | benchmark yields; |
2) | reported trades; |
3) | broker/dealer quotes; |
4) | issuer spreads; |
5) | benchmark securities; |
6) | bids and offers; and |
7) | reference data including market research publications. |
1) | the last sale price on the exchange on which they are principally traded or, for Nasdaq and AIM securities, the official closing price; |
2) | the type of security; |
3) | the size of the holding; |
4) | the initial cost of the security; |
5) | transactions in comparable securities; |
6) | price quotes from dealers and/or third-party pricing services; |
7) | relationships among various securities; |
8) | information obtained by contacting the issuer, analysts, or the appropriate stock exchange; |
9) | an analysis of the issuer’s financial statements; |
10) | the existence of merger proposals or tender offers that might affect the value of the security; and |
11) | other relevant factors. |
• | Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
• | Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following: |
o | Quoted prices for similar investments in active markets. |
o | Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly. |
o | Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates). |
o | Inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
• | Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment. |
Borrower | Principal Value |
Commitment Amount |
Value | Unrealized Appreciation (Depreciation) | ||||
athenahealth, Inc. (Minerva Merger Sub, Inc.), Term Loan | $ 595,841 | $ 592,789 | $ 563,070 | $ (29,719) | ||||
Veritext Corporation (VT TopCo, Inc.), Term Loan | 154 | 154 | 152 | (2) | ||||
$592,943 | $563,222 | $(29,721) |
Security | Acquisition Date |
Shares | Current Price | Carrying Cost |
Value | %
of Net Assets |
Akorn, Inc. | 10/15/2020 | 150,392 | $0.94 | $1,724,086 | $140,993 | 0.05% |
Distributions paid from: | 2023 | 2022 |
Ordinary income |
$20,337,430 | $14,904,773 |
Capital gains |
— | — |
Return of capital |
2,696,843 | 10,282,054 |
Undistributed ordinary income |
$— |
Undistributed capital gains |
— |
Total undistributed earnings |
— |
Accumulated capital and other losses |
(56,234,585) |
Net unrealized appreciation (depreciation) |
(12,184,023) |
Total accumulated earnings (losses) |
(68,418,608) |
Other |
— |
Paid-in capital |
353,075,948 |
Total net assets |
$284,657,340 |
Tax Cost | Gross Unrealized Appreciation |
Gross Unrealized (Depreciation) |
Net
Unrealized Appreciation (Depreciation) | |||
$359,692,258 | $1,086,568 | $(13,240,870) | $(12,154,302) |
(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. |
• | Invest up to 10% of its Managed Assets through purchasing revolving credit facilities, investment grade debtor-in-possession financing, unsecured loans, other floating rate debt securities, such as notes, bonds, and asset-backed securities (such as collateralized loan obligations (“CLOs”)), investment grade loans and fixed income debt obligations of any maturity, money market instruments, such as commercial paper, and publicly-traded high yield debt securities. |
• | Invest up to 10% of its Managed Assets in securities of: |
o | Firms that, at the time of acquisition, have defaulted on their debt obligations and/or filed for protection under Chapter 11 of the U.S. Bankruptcy Code or have entered into a voluntary reorganization in conjunction with their creditors and stakeholders in order to avoid a bankruptcy filing; or |
o | Firms prior to an event of default whose acute operating and/or financial problems have resulted in the markets valuing their respective securities and debt at sufficiently discounted prices so as to be yielding, should they not default, a significant premium over comparable duration U.S. Treasury bonds. |
• | Invest up to 15% of its Managed Assets in U.S. dollar-denominated foreign investments, exclusively in developed countries and territories of those countries, but in no case will the Fund invest in securities of issuers located in emerging markets. |
Assumed Portfolio Total Return (Net of Expenses) |
-10% | -5% | 0% | 5% | 10% |
Common Share Total Return |
- |
- |
- |
Name, Year of Birth and Position with the Fund | Term of Office and Year First Elected or Appointed(1) | Principal
Occupations During Past 5 Years |
Number of Portfolios in the First Trust Fund Complex Overseen by Trustee | Other Trusteeships or Directorships Held by Trustee During Past 5 Years |
INDEPENDENT TRUSTEES | ||||
Richard
E. Erickson, Trustee (1951) |
• Three Year Term• Since Fund Inception | Physician, Edward-Elmhurst Medical Group; Physician and Officer, Wheaton Orthopedics (1990 to 2021) | 231 | None |
Thomas
R. Kadlec, Trustee (1957) |
• Three Year Term• Since Fund Inception | Retired; President, ADM Investor Services, Inc. (Futures Commission Merchant) (2010 to July 2022) | 231 | Director, National Futures Association and ADMIS Singapore Ltd.; Formerly, Director of ADM Investor Services, Inc., ADM Investor Services International, ADMIS Hong Kong Ltd., and Futures Industry Association |
Denise
M. Keefe, Trustee (1964) |
• Three Year Term• Since 2021 | Executive Vice President, Advocate Aurora Health and President, Advocate Aurora Continuing Health Division (Integrated Healthcare System) | 231 | Director and Board Chair of Advocate Home Health Services, Advocate Home Care Products and Advocate Hospice; Director and Board Chair of Aurora At Home (since 2018); Director of Advocate Physician Partners Accountable Care Organization; Director of RML Long Term Acute Care Hospitals; Director of Senior Helpers (since 2021); and Director of MobileHelp (since 2022) |
Robert
F. Keith, Trustee (1956) |
• Three Year Term• Since June 2006 | President, Hibs Enterprises (Financial and Management Consulting) | 231 | Formerly, Director of Trust Company of Illinois |
Niel
B. Nielson, Trustee (1954) |
• Three Year Term• Since Fund Inception | Senior Advisor (2018 to Present), Managing Director and Chief Operating Officer (2015 to 2018), Pelita Harapan Educational Foundation (Educational Products and Services) | 231 | None |
(1) | Currently, Richard E. Erickson and Thomas R. Kadlec, as Class I Trustees, are serving as trustees until the Fund’s 2023 annual meeting of shareholders. Niel B. Nielson and Denise M. Keefe, as Class II Trustees, are serving as trustees until the Fund’s 2024 annual meeting of shareholders. James A. Bowen and Robert F. Keith, as Class III Trustees, are serving as trustees until the Fund’s 2025 annual meeting of shareholders. |
Name, Year of Birth and Position with the Fund | Term of Office and Year First Elected or Appointed(1) | Principal
Occupations During Past 5 Years |
Number of Portfolios in the First Trust Fund Complex Overseen by Trustee | Other Trusteeships or Directorships Held by Trustee During Past 5 Years |
INTERESTED TRUSTEE | ||||
James
A. Bowen(2), Trustee and Chairman of the Board (1955) |
• Three Year Term• Since Fund Inception | Chief Executive Officer, First Trust Advisors L.P. and First Trust Portfolios L.P.; Chairman of the Board of Directors, BondWave LLC (Software Development Company) and Stonebridge Advisors LLC (Investment Advisor) | 231 | None |
Name and Year of Birth | Position and Offices with Fund | Term of Office and Length of Service | Principal
Occupations During Past 5 Years |
OFFICERS(3) | |||
James
M. Dykas (1966) |
President and Chief Executive Officer | • Indefinite
Term • Since 2016 |
Managing Director and Chief Financial Officer, First Trust Advisors L.P. and First Trust Portfolios L.P.; Chief Financial Officer, BondWave LLC (Software Development Company) and Stonebridge Advisors LLC (Investment Advisor) |
Donald
P. Swade (1972) |
Treasurer, Chief Financial Officer and Chief Accounting Officer | • Indefinite
Term • Since 2016 |
Senior Vice President, First Trust Advisors L.P. and First Trust Portfolios L.P. |
W.
Scott Jardine (1960) |
Secretary and Chief Legal Officer | • Indefinite
Term • Since Fund Inception |
General Counsel, First Trust Advisors L.P. and First Trust Portfolios L.P.; Secretary and General Counsel, BondWave LLC; Secretary, Stonebridge Advisors LLC |
Daniel
J. Lindquist (1970) |
Vice President | • Indefinite
Term • Since September 2005 |
Managing Director, First Trust Advisors L.P. and First Trust Portfolios L.P. |
Kristi
A. Maher (1966) |
Chief Compliance Officer and Assistant Secretary | • Indefinite
Term • Chief Compliance Officer Since January 2011• Assistant Secretary Since Fund Inception |
Deputy General Counsel, First Trust Advisors L.P. and First Trust Portfolios L.P. |
(1) | Currently, Richard E. Erickson and Thomas R. Kadlec, as Class I Trustees, are serving as trustees until the Fund’s 2023 annual meeting of shareholders. Niel B. Nielson and Denise M. Keefe, as Class II Trustees, are serving as trustees until the Fund’s 2024 annual meeting of shareholders. James A. Bowen and Robert F. Keith, as Class III Trustees, are serving as trustees until the Fund’s 2025 annual meeting of shareholders. |
(2) | Mr. Bowen is deemed an “interested person” of the Fund due to his position as CEO of First Trust Advisors L.P., investment advisor of the Fund. |
(3) | The term “officer” means the president, vice president, secretary, treasurer, controller or any other officer who performs a policy making function. |
• | Information we receive from you and your broker-dealer, investment professional or financial representative through interviews, applications, agreements or other forms; |
• | Information about your transactions with us, our affiliates or others; |
• | Information we receive from your inquiries by mail, e-mail or telephone; and |
• | Information we collect on our website through the use of “cookies.” For example, we may identify the pages on our website that your browser requests or visits. |
• | In order to provide you with products and services and to effect transactions that you request or authorize, we may disclose your personal information as described above to unaffiliated financial service providers and other companies that perform administrative or other services on our behalf, such as transfer agents, custodians and trustees, or that assist us in the distribution of investor materials such as trustees, banks, financial representatives, proxy services, solicitors and printers. |
• | We may release information we have about you if you direct us to do so, if we are compelled by law to do so, or in other legally limited circumstances (for example to protect your account from fraud). |
(b) | Not applicable. |
Item 2. Code of Ethics.
(a) | The registrant, as of the end of the period covered by this report, has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. |
(c) | There have been no amendments, during the period covered by this report, to a provision of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and that relates to any element of the code of ethics description. |
(d) | The registrant has not granted any waivers, including an implicit waiver, from a provision of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, that relates to one or more of the items set forth in paragraph (b) of this item’s instructions. |
(e) | Not applicable. |
(f) | A copy of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller is filed as an exhibit pursuant to Item 13(a)(1). |
Item 3. Audit Committee Financial Expert.
As of the end of the period covered by the report, the registrant’s board of trustees has determined that Thomas R. Kadlec and Robert F. Keith are qualified to serve as audit committee financial experts serving on its audit committee and that each of them is “independent,” as defined by Item 3 of Form N-CSR.
Item 4. Principal Accountant Fees and Services.
(a) AUDIT FEES (REGISTRANT) -- The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant’s annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements were $59,000 for 2022 and $59,000 for 2023.
(b) AUDIT-RELATED FEES (REGISTRANT) -- The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under paragraph (a) of this Item were $0 for 2022 and $0 for 2023.
AUDIT-RELATED FEES (INVESTMENT ADVISOR) -- The aggregate fees billed in each of the last two fiscal years of the registrant for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under paragraph (a) of this Item were $0 for 2022 and $0 for 2023.
(c) TAX FEES (REGISTRANT) -- The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning to the registrant were $21,515 for 2022 and $14,070 for 2023. These fees were for tax consultation and/or tax return preparation and professional services rendered for PFIC (Passive Foreign Investment Company) Identification Services.
TAX FEES (INVESTMENT ADVISOR) -- The aggregate fees billed in each of the last two fiscal years of the registrant for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning to the registrant’s advisor were $0 for 2022 and $0 for 2023.
(d) ALL OTHER FEES (REGISTRANT) -- The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant to the registrant, other than the services reported in paragraphs (a) through (c) of this Item were $0 for 2022 and $0 for 2023.
ALL OTHER FEES (INVESTMENT ADVISOR) -- The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant to the registrant’s investment advisor, other than services reported in paragraphs (a) through (c) of this Item were $0 for 2022 and $0 for 2023.
(e)(1) | Disclose the audit committee’s pre-approval policies and procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. |
Pursuant to its charter and its Audit and Non-Audit Services Pre-Approval Policy, the Audit Committee (the “Committee”) is responsible for the pre-approval of all audit services and permitted non-audit services (including the fees and terms thereof) to be performed for the registrant by its independent auditors. The Chairman of the Committee is authorized to give such pre-approvals on behalf of the Committee up to $25,000 and report any such pre-approval to the full Committee.
The Committee is also responsible for the pre-approval of the independent auditor’s engagements for non-audit services with the registrant’s advisor (not including a sub-advisor whose role is primarily portfolio management and is sub-contracted or overseen by another investment advisor) and any entity controlling, controlled by or under common control with the investment advisor that provides ongoing services to the registrant, if the engagement relates directly to the operations and financial reporting of the registrant, subject to the de minimis exceptions for non-audit services described in Rule 2-01 of Regulation S-X. If the independent auditor has provided non-audit services to the registrant’s advisor (other than any sub-advisor whose role is primarily portfolio management and is sub-contracted with or overseen by another investment advisor) and any entity controlling, controlled by or under common control with the investment advisor that provides ongoing services to the registrant that were not pre-approved pursuant to its policies, the Committee will consider whether the provision of such non-audit services is compatible with the auditor’s independence.
(e)(2) | The percentage of services described in each of paragraphs (b) through (d) for the registrant and the registrant’s investment advisor and distributor of this Item that were approved by the audit committee pursuant to the pre-approval exceptions included in paragraph (c)(7)(i)(C) or paragraph (C)(7)(ii) of Rule 2-01 of Regulation S-X are as follows: |
Registrant: | Advisor and Distributor: | |||
(b) 0% | (b) 0% | |||
(c) 0% | (c) 0% | |||
(d) 0% | (d) 0% |
(f) | The percentage of hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees was less than fifty percent. |
(g) | The aggregate non-audit fees billed by the registrant’s accountant for services rendered to the registrant, and rendered to the registrant’s investment advisor (not including any sub-advisor whose role is primarily portfolio management and is subcontracted with or overseen by another investment advisor), and any entity controlling, controlled by, or under common control with the advisor that provides ongoing services to the registrant for the fiscal year ended May 31, 2022 were $21,515 for the registrant and $16,500 for the registrant’s investment advisor and for the fiscal year ended May 31, 2023 were $14,070 for the registrant and $31,000 for the registrant’s investment advisor. |
(h) | The registrant’s audit committee of its board of trustees determined that the provision of non-audit services that were rendered to the registrant’s investment advisor (not including any sub-advisor whose role is primarily portfolio management and is subcontracted with or overseen by another investment advisor), and any entity controlling, controlled by, or under common control with the investment advisor that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence. |
(i) | Not applicable. |
(j) | Not applicable. |
Item 5. Audit Committee of Listed Registrants.
(a) | The registrant has a separately designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934 consisting of all the independent directors of the registrant. The audit committee of the registrant is comprised of: Richard E. Erickson, Thomas R. Kadlec, Denise M. Keefe, Robert F. Keith and Niel B. Nielson. |
(b) | 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.
The Proxy Voting Policies are attached herewith.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
(a)(1) Identification of Portfolio Manager(s) or Management Team Members and Description of Role of Portfolio Manager(s) or Management Team Members
Information provided as of August 4, 2023
The First Trust Advisors Leveraged Finance Investment team manages a portfolio comprised primarily of U.S. dollar denominated, senior secured floating-rate loans. The Portfolio Managers are responsible for directing the investment activities within the Fund. William Housey is the Senior Portfolio Manager and has primary responsibility for investment decisions. Jeffrey Scott assists Mr. Housey and there are also Senior Credit Analysts assigned to certain industries. The Portfolio Managers are supported in their portfolio management activities by the First Trust Advisors Leveraged Finance investment team, including a team of credit analysts, designated traders, and operations personnel. Senior Credit Analysts are assigned industries and Associate Credit Analysts support the Senior Credit Analysts. All credit analysts, operations personnel and portfolio managers report to Mr. Housey.
William Housey, CFA
Managing Director of Fixed Income, Senior Portfolio Manager
Mr. Housey joined First Trust Advisors L.P. in June 2010 as the Senior Portfolio Manager for the Leveraged Finance Investment Team and has 27 years of investment experience. Mr. Housey is a Managing Director of Fixed Income and is also a member of the First Trust Strategic Model Investment Committee and the Fixed Income Sub-Committee. Prior to joining First Trust, Mr. Housey was at Morgan Stanley Investment Management and its wholly owned subsidiary, Van Kampen Funds, Inc. for 11 years where he last served as Executive Director and Co-Portfolio Manager. Mr. Housey has extensive experience in the portfolio management of both leveraged and unleveraged credit products, including senior loans, high-yield bonds, credit derivatives and corporate restructurings. Mr. Housey received a B.S. in Finance from Eastern Illinois University and an M.B.A. in Finance as well as Management and Strategy from Northwestern University’s Kellogg School of Business. He also holds the FINRA Series 7, Series 52 and Series 63 licenses. Mr. Housey also holds the Chartered Financial Analyst designation. He is a member of the CFA Institute and the CFA Society of Chicago. Mr. Housey also serves on the Village of Glen Ellyn, IL Police Pension Board.
Jeffrey Scott, CFA
Senior Vice President and Portfolio Manager
Mr. Scott is a Portfolio Manager and a Sector Specialist Credit Analyst for the Leveraged Finance Investment Team at First Trust Advisors L.P. He has 33 years of experience in the investment management industry and has extensive experience in credit analysis, product development, and product management. Prior to joining First Trust, Jeff served as an Assistant Portfolio Manager and as a Senior Credit Analyst for Morgan Stanley/Van Kampen from October 2008 to June 2010. As Assistant Portfolio Manager, Jeff served on a team that managed over $4.0 billion of Senior Loan assets in three separate funds: Van Kampen Senior Loan Fund; Van Kampen Senior Income Trust; and Van Kampen Dynamic Credit Opportunities Fund. His responsibilities included assisting with portfolio construction, buy and sell decision making, and monitoring fund liquidity and leverage. Mr. Scott earned a B.S. in Finance and Economics from Elmhurst College and an M.B.A. with specialization in Analytical Finance and Econometrics and Statistics from the University of Chicago. He also holds the Chartered Financial Analyst designation and is a member of the CFA Institute and the CFA Society of Chicago.
(a)(2) Other Accounts Managed by Portfolio Manager(s) or Management Team Member and Potential Conflicts of Interest
Information provided as of May 31, 2023
Name of Portfolio Manager or Team Member | Type of Accounts |
Total # of Accounts |
Total Assets | #
of Accounts Managed for which Advisory Fee is Based on Performance |
Total Assets for which Advisory Fee is Based on Performance |
1. William Housey, CFA | Registered Investment Companies: | 6 | $5.206B | 0 | $0 |
Other Pooled Investment Vehicles: | 0 | $0 | 0 | $0 | |
Other Accounts: | 0 | $0 | 0 | $0 | |
2. Jeffrey Scott, CFA | Registered Investment Companies: | 6 | $5.206B | 0 | $0 |
Other Pooled Investment Vehicles: | 0 | $0 | 0 | $0 | |
|
Other Accounts: | 0 | $0 | 0 |
$0
|
* Information excludes the registrant.
Potential Conflicts of Interests
Potential conflicts of interest may arise when a portfolio manager of the Registrant has day-to-day management responsibilities with respect to one or more other funds or other accounts. The First Trust Advisors Leveraged Finance Investment Team adheres to its trade allocation policy utilizing a pro-rata methodology to address this conflict.
First Trust and its affiliate, First Trust Portfolios L.P. (“FTP”), have in place a joint Code of Ethics and Insider Trading Policies and Procedures that are designed to (a) prevent First Trust personnel from trading securities based upon material inside information in the possession of such personnel and (b) ensure that First Trust personnel avoid actual or potential conflicts of interest or abuse of their positions of trust and responsibility that could occur through such activities as front running securities trades for the Registrant. Personnel are required to have duplicate confirmations and account statements delivered to First Trust and FTP compliance personnel who then compare such trades to trading activity to detect any potential conflict situations. In addition to the personal trading restrictions specified in the Code of Ethics and Insider Trading Policies and Procedures, employees in the First Trust Advisors Leveraged Finance Investment Team are prohibited from buying or selling equity securities (including derivative instruments such as options, warrants and futures) and corporate bonds for their personal account and in any accounts over which they exercise control. Employees in the First Trust Advisors Leveraged Finance Investment Team are also prohibited from engaging in any personal transaction while in possession of material non-public information regarding the security or the issuer of the security. First Trust and FTP also maintain a restricted list of all issuers for which the First Trust Advisors Leveraged Finance Investment Team has material non-public information in its possession and all transactions executed for a product advised or supervised by First Trust or FTP are compared daily against the restricted list.
(a)(3) | Compensation Structure of Portfolio Manager(s) or Management Team Members |
Information provided as of May 31, 2023
The compensation structure for internal portfolio managers is based upon a fixed salary as well as a discretionary bonus determined by the management of FTA. Salaries are determined by management and are based upon an individual’s position and overall value to the firm. Bonuses are also determined by management and are generally based upon an individual’s or team’s overall contribution to the success of the firm, assets under management and the profitability of the firm. Certain internal portfolio managers have an indirect ownership stake in the firm and will therefore receive their allocable share of ownership related distributions.
(a)(4) | Disclosure of Securities Ownership as of May 31, 2023 |
Name of Portfolio Manager |
Dollar
($) Range of Fund Shares Beneficially Owned |
William Housey |
$50,001 - $100,000 |
Jeffrey Scott |
$10,001-$50,000 |
(b) | Not applicable. |
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant’s board of directors, 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 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. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
Not applicable.
Item 13. Exhibits.
(a)(1) | Code of Ethics, or any amendment thereto, that is the subject of disclosure required by Item 2 is attached hereto. |
(a)(2) | Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. |
(a)(3) | Not applicable. |
(a)(4) | Not applicable. |
(b) | Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) | First Trust Senior Floating Rate Income Fund II |
By (Signature and Title)* | /s/ James M. Dykas | |
James M. Dykas, President and Chief Executive Officer (principal executive officer) |
Date: | August 4, 2023 |
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 M. Dykas | |
James M. Dykas, President and Chief Executive Officer (principal executive officer) |
Date: | August 4, 2023 |
By (Signature and Title)* | /s/ Donald P. Swade | |
Donald P. Swade, Treasurer, Chief Financial Officer and Chief Accounting Officer (principal financial officer) |
Date: | August 4, 2023 |
* Print the name and title of each signing officer under his or her signature.
Certification Pursuant to Rule 30a-2(a) under
the 1940 Act and Section 302
of the Sarbanes-Oxley Act
I, James M. Dykas, certify that:
1. | I have reviewed this report on Form N-CSR of First Trust Senior Floating Rate Income Fund II; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during 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; and |
5. | The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: | August 4, 2023 | /s/ James M. Dykas | |||
James M. Dykas, President and Chief Executive Officer (principal executive officer) |
Certification Pursuant to Rule 30a-2(a) under
the 1940 Act and Section 302
of the Sarbanes-Oxley Act
I, Donald P. Swade, certify that:
1. | I have reviewed this report on Form N-CSR of First Trust Senior Floating Rate Income Fund II; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during 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; and |
5. | The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: | August 4, 2023 | /s/ Donald P. Swade | |||
Donald P. Swade, Treasurer, Chief Financial Officer and Chief Accounting Officer (principal financial officer) |
Certification Pursuant to Rule 30a-2(b) under the
1940 Act and Section 906
of the Sarbanes-Oxley Act
I, James M. Dykas, President and Chief Executive Officer of First Trust Senior Floating Rate Income Fund II (the “Registrant”), certify that:
1. | The Form N-CSR of the Registrant (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. |
Date: | August 4, 2023 | /s/ James M. Dykas | |||
James M. Dykas, President and Chief Executive Officer (principal executive officer) |
I, Donald P. Swade, Treasurer, Chief Financial Officer and Chief Accounting Officer of First Trust Senior Floating Rate Income Fund II (the “Registrant”), certify that:
1. | The Form N-CSR of the Registrant (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. |
Date: | August 4, 2023 | /s/ Donald P. Swade | |||
Donald P. Swade, Treasurer, Chief Financial Officer and Chief Accounting Officer (principal financial officer) |
FIRST TRUST
ADVISORS L.P.
PROXY VOTING GUIDELINES
First Trust Advisors L.P. (“FTA” or the “Adviser”) serves as investment adviser to open- and closed-end investment companies, and other collective investments (“Funds”), as well as separately managed accounts (collectively, “Clients”). As part of these services, the Adviser has, in most cases, agreed to or been delegated proxy voting responsibility on such Clients’ behalf (“Proxy Clients”). FTA is required to adopt and implement policies and procedures reasonably designed to ensure proxy voting on behalf of Proxy Clients is conducted in a manner that is in their best interests and addresses how conflicts of interest between FTA’s interests and Proxy Clients’ interests are managed. FTA has adopted the following policies and procedures to comply with this requirement (the “Policy”).
(1) | It is the Adviser’s policy to seek and to ensure that proxies are voted consistently and in the best economic interests of the Proxy Client. The FTA Investment Committee is responsible for the implementation of the Policy. |
(2) | The Adviser engaged Institutional Shareholder Services (“ISS”) to provide proxy research, recommendations, and voting services. ISS provides a password protected website which is accessible to authorized FTA personnel to download upcoming proxy meeting data, including research reports, of companies held in Proxy Client portfolios. The website can be used to view proposed proxy votes and to enter votes for upcoming meetings for Proxy Client portfolio securities. |
(3) | FTA will generally follow the ISS Proxy Voting Guidelines (the “Guidelines”) to vote proxies for Proxy Clients’ accounts, so long as such Guidelines are considered to be in the best interests of the Proxy Client, and there are no noted or perceived conflicts of interest. FTA’s use of the Guidelines is not intended to constrain FTA’s consideration of any proxy proposal, and there are times when FTA deviates from the Guidelines. This includes when required by Rule 12d1-4 agreements between Fund Proxy Clients and certain acquired funds, if applicable. Generally, FTA will not rely on ISS Proxy Voting Guidelines to withhold votes or vote against directors solely based on (i) quota criteria or (ii) the exclusion of certain climate-related disclosures, which may or may not relate to the company’s core business or may not materially impact shareholder value. In such cases, FTA will consider such proxy voting decisions in light of merit-based considerations which it believes may impact shareholder value. In addition, FTA will vote against shareholder proposals that are not related to a company’s core business and/or do not appear to be an appropriate use of a company’s resources to maximize shareholder value. FTA retains final authority and fiduciary responsibility for proxy voting. |
In certain circumstances, where FTA has determined that it is consistent with Proxy Clients’ best interests, FTA will not vote a proxy on behalf of one or more Proxy Clients. Such circumstances include: |
(a) | Limited Value. Proxies will not be required to be voted on securities in a Proxy Client’s account if the value of the Proxy Client’s economic interest in the securities is indeterminable or insignificant (less than $1,000). Proxies will also not be required to be voted for any securities that are no longer held in Proxy Client’s account(s). |
(b) | Securities Lending Program. When Fund portfolio securities are out on loan, they are transferred into the borrower’s name and are voted by the borrower, in its discretion. In most cases, FTA will not recall securities on loan in order to vote a proxy. However, where FTA determines that a proxy vote, or other shareholder action, is materially important to the Fund Proxy Client’s account, FTA will make a good faith effort to recall the security for purposes of voting, understanding that in certain cases, the attempt to recall the security may not be effective in time to meet voting deadlines. In certain instances, in FTA’s discretion, disclosure regarding FTA’s process for determining whether or not to recall Fund portfolio securities on loan for proxy voting purposes may be provided as part of the Funds’ annual Form N-PX filing. |
(c) | Unjustifiable Costs. In certain circumstances, based on cost-benefit analysis, FTA may choose not to vote when the cost of voting on behalf of a Proxy Client would exceed any anticipated benefits of the proxy proposal to such Proxy Client (e.g. foreign securities). |
(d) | International Markets Share Blocking. Share blocking is the “freezing” of shares for trading purposes at the custodian/sub-custodian bank level in order to vote proxies. While shares are frozen, they may not be traded. Therefore, the potential exists for a pending trade to fail if trade settlement falls on a date during the blocking period. In international markets where share blocking applies, FTA typically will not, but reserves the right to, vote proxies due to the liquidity constraints associated with share blocking. |
1
(4) | On a regular basis, FTA Research reviews ISS recommendations on matters determined to have a potential impact of shareholder value to decide whether to vote as the Guidelines recommend and advises the FTA Investment Committee of its determination. |
(5) | FTA may determine voting in accordance with the Guidelines is not in the best interests of a Proxy Client. Whenever a conflict of interest arises between ISS and a target company subject to a proxy vote, the Adviser will consider the recommendation of the company and what the Adviser believes to be in the best interests of the Proxy Client and will vote the proxy without using the Guidelines. If FTA has knowledge of a material conflict of interest between itself and a Proxy Client, the Adviser shall vote the applicable proxy in accordance with the Guidelines to avoid such conflict of interest. If there is a decision to vote against the Guidelines, the FTA Investment Committee will document the reason and instruct ISS to change the vote to reflect this decision. |
If there is a conflict of interest between a Fund Proxy Client and FTA or other Fund service providers, FTA will vote the proxy based on the Guidelines to avoid such conflict of interest. |
(6) | If a Proxy Client requests the Adviser to follow specific voting guidelines or additional guidelines, the Adviser shall review the request and follow such guidelines, unless the Adviser determines that it is unable to do so. In such case, the Adviser shall inform the Proxy Client that it is not able to honor the Proxy Client’s request. |
(7) | FTA periodically reviews proxy votes to ensure compliance with this Policy. |
(8) | This Policy, the Guidelines and votes cast for Proxy Clients are available upon request and such Proxy Client requests must be forwarded to FTA Compliance for review and response. This Policy is also provided with each advisory contract and described and provided with the Form ADV, Part 2A. |
Shareholders of Fund Proxy Clients can review the Policy and a Fund’s voted proxies (if any) during the most recent 12-month period ended June 30 on the First Trust website at www.ftportfolios.com or by accessing EDGAR on the SEC website at www.sec.gov. |
(9) | FTA provides reasonable ongoing oversight of ISS. FTA, or ISS on behalf of FTA, maintains the following records relating to proxy voting: |
(a) | a copy of this Policy; |
(b) | a copy of each proxy form for which it is responsible to vote; |
(c) | a copy of each proxy solicitation, including proxy statements and related materials with regard to each proxy issue it votes; |
(d) | documents relating to the identification and resolution of conflicts of interest, if any; |
(e) | any documents created by FTA or ISS that were material to a proxy voting decision or that memorialized the basis for that decision; and |
(f) | a copy of each written request from any Proxy Client for information on how FTA voted proxies on the Proxy Client’s behalf, and a copy of any written response by FTA to any written or oral request for information by a Proxy Client on how FTA voted proxies for that Proxy Client’s account. |
These records are either maintained at FTA’s office or are electronically available to FTA through access to the ISS Proxy Exchange portal.
Adopted: September 15, 2003
Amended: December 10, 2007
Amended: September 21, 2009
Amended: September 12, 2016
Amended: March 9, 2020
Amended: June 7, 2021
Amended: January 19, 2022
Amended: May 13, 2022
Amended: September 22, 2022
Amended: June 5, 2023
2
N-2 |
12 Months Ended | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
May 31, 2023
$ / shares
shares
| |||||||||||||
Cover [Abstract] | |||||||||||||
Entity Central Index Key | 0001282850 | ||||||||||||
Amendment Flag | false | ||||||||||||
Entity Inv Company Type | N-2 | ||||||||||||
Document Type | N-CSR | ||||||||||||
Entity Registrant Name | First Trust Senior Floating Rate Income Fund II | ||||||||||||
General Description of Registrant [Abstract] | |||||||||||||
Investment Objectives and Practices [Text Block] | Investment
Objectives
The
Fund’s primary objective is to seek a high level of current income. As a secondary objective, the Fund attempts to preserve
capital.
Principal
Investment Policies
The
Fund pursues its investment objectives through investment in a portfolio of Senior Loans. There can be no assurance that the Fund will
achieve its investment objectives. Investment 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.
Under
normal market conditions, the Fund invests at least 80% of its Managed Assets in a diversified portfolio of Senior Loans. The portion
of the Fund’s assets invested in Senior Loans will vary from time to time consistent with the Fund’s investment objectives,
changes in market prices for Senior Loans, changes in interest rates and other economic and market factors. Senior Loans generally hold
one of the most senior positions in the capital structure of a business entity (the “Borrower”), are typically secured with
specific collateral and have a claim on the assets and/or stock of the Borrower that is senior to that held by subordinated debtholders and
stockholders of the Borrower. The proceeds of Senior Loans primarily are used to finance leveraged buyouts, recapitalizations, mergers,
acquisitions, stock repurchases, and, to a lesser extent, to finance internal growth and for other corporate purposes. Senior Loans have
rates of interest which are typically redetermined either monthly, quarterly or semiannually by reference to a base lending rate, plus
a premium. The Senior Loans in which the Fund invests are primarily below investment grade instruments, commonly referred to as “high
yield” securities or “junk bonds.”
Under
normal market conditions, the Fund may also:
These
foregoing investments are comprised of Senior Loans and, on limited occasions, equity and debt securities acquired in connection therewith.
It
is anticipated that at least 80% of the Fund’s Managed Assets are invested in lower grade debt instruments, although from time to
time all of the Fund’s Managed Assets may be invested in such lower grade debt instruments. The Fund’s investments in debt
instruments may have fixed or variable principal payments and all types of interest rate and reset terms, including, but not limited to,
fixed rate, adjustable rate, zero coupon, contingent, deferred, payment-in-kind and auction rate features.
The
Fund does not intend to purchase publicly-traded equity securities but may receive such securities as a result of a restructuring of the
debt of the issuer or the reorganization of a Senior Loan or as part of a package of securities acquired together with the Senior Loans
of an issuer.
The
Fund may enter into certain derivative transactions to seek to manage the risks of the Fund’s portfolio securities and certain of
these derivative transactions may provide investment leverage to the Fund’s portfolio. The Fund does not enter into derivative transactions
as a principal part of its investment strategy. “Managed
Assets” means the gross asset value of the Fund (including assets attributable to the Fund’s preferred shares of beneficial
interest (“Preferred Shares”), if any, and the principal amount of borrowings) minus the sum of the Fund’s accrued and
unpaid dividends on any outstanding Preferred Shares and accrued liabilities (other than the principal amount of any borrowings incurred
or of commercial paper or notes issued by the Fund). For purposes of determining Managed Assets, the liquidation preference of Preferred
Shares is not treated as a liability. Percentage limitations described herein are as of the time of investment by the Fund and may be
exceeded on a going-forward basis as a result of market value fluctuations of the Fund’s portfolio and other events.
The
Fund’s investment objectives are considered fundamental and may not be changed without shareholder approval. The remainder of the
Fund’s investment policies, including its investment strategy, are considered non-fundamental and may be changed by the Board of
Trustees without shareholder approval. The Fund will provide investors with at least 60 days’ prior notice of any change in the
Fund’s investment strategy. There can be no assurance that the Fund’s investment objectives will be achieved.
Fundamental
Investment Policies
The
Fund, as a fundamental policy, may not:
1.
With respect to 75% of its total assets, purchase any securities, if as a result more than 5% of the Fund’s total assets would then
be invested in securities of any single issuer or if, as a result, the Fund would hold more than 10% of the outstanding voting securities
of any single issuer; provided, that Government securities (as defined in the Investment Company Act of 1940 (the “1940 Act”)),
securities issued by other investment companies and cash items (including receivables) shall not be counted for purposes of this limitation.
2.
Purchase any security if, as a result of the purchase, 25% or more of the Fund’s total assets (taken at current value) would be
invested in the securities of Borrowers and other issuers having their principal business activities in the same industry; provided, that
this limitation shall not apply with respect to obligations issued or guaranteed by the U.S. Government or by its agencies or instrumentalities.
3.
Borrow money, except as permitted by the 1940 Act, the rules thereunder and interpretations thereof or pursuant to a Commission exemptive
order.
4.
Issue senior securities, as defined in the 1940 Act, other than: (i) preferred shares which immediately after issuance will have asset
coverage of at least 200%; (ii) indebtedness which immediately after issuance will have asset coverage of at least 300%; (iii) the borrowings
permitted by investment restriction 3 above, or (iv) pursuant to a Commission exemptive order.
5.
Make loans of money or property to any person, except for obtaining interests in Senior Loans in accordance with its investment objectives,
through loans of portfolio securities or the acquisition of securities subject to repurchase agreements, or pursuant to a Commission rule
or exemptive order.
6.
Act as an underwriter of securities, except to the extent the Fund may be deemed to be an underwriter in certain cases when disposing
of its portfolio investments or acting as an agent or one of a group of co-agents in originating Senior Loans.
7.
Purchase or sell real estate, commodities or commodities contracts except pursuant to the exercise by the Fund of its rights under loan
agreements, bankruptcy or reorganization, or pursuant to a Commission rule or exemptive order, and except to the extent the interests
in Senior Loans the Fund may invest in are considered to be interests in real estate, commodities or commodities contracts and except
to the extent that hedging instruments the Fund may invest in are considered to be commodities or commodities contracts.
For
purposes of fundamental investment restriction numbers 1 and 2 above, the Fund treats the Lender selling a participation and any persons
interpositioned between the Lender and the Fund as an issuer. The Fund may incur borrowings and/or issue series of notes or other senior
securities in an amount up to 33-1/3% (or such other percentage to the extent permitted by the 1940 Act) of its total assets (including
the amount borrowed) less all liabilities other than borrowings.
|
||||||||||||
Risk Factors [Table Text Block] | Principal
Risks
The
Fund is a closed-end management investment company designed primarily as a long-term investment and not as a trading vehicle. The Fund
is not intended to be a complete investment program and, due to the uncertainty inherent in all investments, there can be no assurance
that the Fund will achieve its investment objectives. The following discussion summarizes the principal risks associated with investing
in the Fund, which includes the risk that you could lose some or all of your investment in the Fund. The Fund is subject to the informational
requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940 and, in accordance therewith, files reports,
proxy statements and other information that is available for review. The order of the below risk factors does not indicate the significance
of any particular risk factor. Credit
Agency Risk. Credit ratings are determined by credit rating agencies and are only the opinions of such
entities. Ratings assigned by a rating agency are not absolute standards of credit quality and do not evaluate market risk or the liquidity
of securities. Any shortcomings or inefficiencies in credit rating agencies’ processes for determining credit ratings may adversely
affect the credit ratings of securities held by the Fund or such credit rating agency’s ability to evaluate creditworthiness and,
as a result, may adversely affect those securities’ perceived or actual credit risk.
Credit
and Below-Investment Grade Securities Risk. Credit risk is the risk that the issuer or other obligated
party of a debt security in the Fund’s portfolio will fail to pay, or it is perceived that it will fail to pay, dividends and/or
interest or repay principal, when due. Below-investment grade instruments, including instruments that are not rated but judged to be of
comparable quality, are commonly referred to as high-yield securities or “junk” bonds and are considered speculative with
respect to the issuer’s capacity to pay dividends or interest and repay principal and are more susceptible to default or decline
in market value than investment grade securities due to adverse economic and business developments. High-yield securities are often unsecured
and subordinated to other creditors of the issuer. The market values for high-yield securities tend to be very volatile, and these securities
are generally less liquid than investment grade securities. For these reasons, an investment in the Fund is subject to the following specific
risks: (i) increased price sensitivity to changing interest rates and to a deteriorating economic environment; (ii) greater risk of loss
due to default or declining credit quality; (iii) adverse company specific events more likely to render the issuer unable to make dividend,
interest and/or principal payments; (iv) negative perception of the high-yield market which may depress the price and liquidity of high-yield
securities; (v) volatility; and (vi) liquidity.
Cyber
Security Risk. The Fund is susceptible to potential operational risks through breaches in cyber security.
A breach in cyber security refers to both intentional and unintentional events that may cause the Fund to lose proprietary information,
suffer data corruption or lose operational capacity. Such events could cause the Fund to incur regulatory penalties, reputational damage,
additional compliance costs associated with corrective measures and/or financial loss. Cyber security breaches may involve unauthorized
access to the Fund’s digital information systems through “hacking” or malicious software coding, but may also result
from outside attacks such as denial-of-service attacks through efforts to make network services unavailable to intended users. In addition,
cyber security breaches of the Fund’s third-party service providers, such as its administrator, transfer agent or custodian, or
issuers in which the Fund invests, can also subject the Fund to many of the same risks associated with direct cyber security breaches.
The Fund has established risk management systems designed to reduce the risks associated with cyber security. However, there is no guarantee
that such efforts will succeed, especially because the Fund does not directly control the cyber security systems of issuers or third party
service providers. Substantial costs may be incurred by the Fund in order to resolve or prevent cyber incidents in the future.
Health
Care Companies Risk. Through the Fund’s investments in senior loans, the Fund may be significantly
exposed to companies in the health care sector. Health care companies are involved in medical services or health care, including
biotechnology research and production, drugs and pharmaceuticals and health care facilities and services. These companies are subject
to extensive competition, generic drug sales or the loss of patent protection, product liability litigation and increased government regulation.
Research and development costs of bringing new drugs to market are substantial, and there is no guarantee that the product will ever come
to market. Health care facility operators may be affected by the demand for services, efforts by government or insurers to limit rates,
restriction of government financial assistance and competition from other providers.
Illiquid
Securities Risk. The Fund invests a substantial portion of its assets in lower-quality debt issued by
companies that are highly leveraged. Lower-quality debt tends to be less liquid than higher-quality debt. Moreover, smaller debt issues
tend to be less liquid than larger debt issues. Although the resale or secondary market for senior loans is growing, it is currently limited.
There is no organized exchange or board of trade on which senior loans are traded. Instead, the secondary market for senior loans is an
unregulated inter-dealer or inter-bank resale market. In addition, senior loans in which the Fund invests may require the consent of the
borrower and/or agent prior to the settlement of the sale or assignment. These consent requirements can delay or impede the Fund’s
ability to settle the sale of senior loans. Depending on market conditions, the Fund may have difficulty disposing its senior loans, which
may adversely impact its ability to obtain cash to repay debt, to pay dividends, to pay expenses or to take advantage of new investment
opportunities.
Information
Technology Companies Risk. Information technology companies produce and provide hardware, software and
information technology systems and services. Information technology companies are generally subject to the following risks: rapidly changing
technologies and existing product obsolescence; short product life cycles; fierce competition; aggressive pricing and reduced profit margins;
the loss of patent, copyright and trademark protections; cyclical market patterns; evolving industry standards; and frequent new product
introductions and new market entrants. Information technology companies may be smaller and less experienced companies, with limited product
lines, markets or financial resources and fewer experienced management or marketing personnel. Information technology company stocks,
particularly those involved with the internet, have experienced extreme price and volume fluctuations that are often unrelated to their
operating performance. In addition, information technology companies are particularly vulnerable to federal, state and local government
regulation, and competition and consolidation, both domestically and internationally, including
competition from foreign competitors with lower production costs. Information technology companies also face competition for services
of qualified personnel and heavily rely on patents and intellectual property rights and the ability to enforce such rights to maintain
a competitive advantage.
Interest
Rate Risk. The yield on the Fund’s common shares will tend to rise or fall as market interest
rates rise and fall, as senior loans pay interest at rates which float in response to changes in market rates. Changes in prevailing interest
rates can be expected to cause some fluctuation in the Fund’s net asset value. Similarly, a sudden and significant increase in market
interest rates may cause a decline in the Fund’s net asset value.
Many
financial instruments use or may use a floating rate based upon the London Interbank Offered Rate (“LIBOR”). The United Kingdom’s
Financial Conduct Authority (the “FCA”), which regulates LIBOR, intends to cease making LIBOR available as a reference rate
over a phase-out period that began in early 2022. However, subsequent announcements by the FCA, the LIBOR administrators, and other regulators
indicate that it is possible that the most widely used LIBOR rates may continue until mid-2023. While some instruments tied to LIBOR may
include a replacement rate, not all instruments have such fallback provisions and the effectiveness of such replacement rates remains
uncertain. The unavailability or replacement of LIBOR may affect the value, liquidity or return on certain Fund investments and may result
in costs incurred in connection with closing out positions and entering into new trades. Any potential effects of the transition away
from LIBOR on the Fund or on certain instruments in which the Fund invests can be difficult to ascertain, and they may vary depending
on a variety of factors. In the United States, it is anticipated that in many instances the Secured Overnight Financing Rate (“SOFR”)
will replace LIBOR as the reference rate for many of the floating rate instruments held by the Fund. There is no assurance that the composition
or characteristics of SOFR, or any alternative reference rate, will be similar to or produce the same value or economic equivalence as
LIBOR or that instruments using an alternative rate will have the same volume or liquidity. As a result, the transition process might
lead to increased volatility and reduced liquidity in markets that currently rely on LIBOR to determine interest rates; a reduction in
the value of some LIBOR-based investments; increased difficulty in borrowing or refinancing and diminished effectiveness of any applicable
hedging strategies against instruments whose terms currently include LIBOR; and/ or costs incurred in connection with temporary borrowings
and closing out positions and entering into new agreements. Any such effects (as well as other unforeseen effects) of the transition away
from LIBOR and the adoption of alternative reference rates could result in losses to the Fund.
Leverage
Risk. The use of leverage by the Fund can magnify the effect of any losses. If the income and gains
from the securities and investments purchased with leverage proceeds do not cover the cost of leverage, the return to the common shares
will be less than if leverage had not been used. Leverage involves risks and special considerations for common shareholders including:
(i) the likelihood of greater volatility of net asset value and market price of the common shares than a comparable portfolio without
leverage; (ii) the risk that fluctuations in interest rates on borrowings will reduce the return to the common shareholders or will result
in fluctuations in the dividends paid on the common shares; (iii) in a declining market, the use of leverage is likely to cause a greater
decline in the net asset value of the common shares than if the Fund were not leveraged, which may result in a greater decline in the
market price of the common shares; and (iv) when the Fund uses certain types of leverage, the investment advisory fee payable to the Advisor
will be higher than if the Fund did not use leverage.
Management
Risk and Reliance on Key Personnel. The implementation of the Fund’s investment strategy depends
upon the continued contributions of certain key employees of the Advisor, some of whom have unique talents and experience and would be
difficult to replace. The loss or interruption of the services of a key member of the portfolio management team could have a negative
impact on the Fund.
Market
Discount from Net Asset Value. Shares of closed-end investment companies such as the Fund frequently
trade at a discount from their net asset value. The Fund cannot predict whether its common shares will trade at, below or above net asset
value.
Market
Risk. Securities held by a fund, as well as shares of a fund itself, are subject to market fluctuations
caused by factors such as general economic conditions, political events, regulatory or market developments, changes in interest rates
and perceived trends in securities prices. Shares of a fund could decline in value or underperform other investments as a result of the
risk of loss associated with these market fluctuations. In addition, local, regional or global events such as war, acts of terrorism,
spread of infectious diseases or other public health issues, recessions, or other events could have a significant negative impact on a
fund and its investments. For example, the coronavirus (COVID-19) global pandemic and the aggressive responses taken by many governments,
including closing borders, restricting international and domestic travel, and the imposition of prolonged quarantines or similar restrictions,
had negative impacts, and in many cases severe impacts, on markets worldwide. While the development of vaccines has slowed the spread
of the virus and allowed for the resumption of reasonably normal business activity in the United States, many countries continue to impose
lockdown measures in an attempt to slow the spread. Also, in February 2022, Russia invaded Ukraine which has caused and could continue
to cause significant market disruptions and volatility across markets globally, including the United States. The hostilities and sanctions
resulting from those hostilities could have a significant impact on certain Fund investments as well as Fund performance. As the global
pandemic and conflict in Ukraine have illustrated, such events may affect certain geographic regions, countries, sectors and
industries
more significantly than others. Recent and potential future bank failures could result in disruption to the broader banking industry or
markets generally and reduce confidence in financial institutions and the economy as a whole, which may also heighten market volatility
and reduce liquidity. These events also may adversely affect the prices and liquidity of the Fund’s portfolio securities or
other instruments and could result in disruptions in the trading markets. Any of such circumstances could have a materially negative impact
on the value of the Fund’s shares and result in increased market volatility. During any such events, the Fund’s shares may
trade at increased premiums or discounts to their net asset value and the bid/ask spread on the Fund’s shares may widen.
Non-U.S.
Securities Risk. The Fund may invest a portion of its assets in securities of non-U.S. issuers. Investing
in securities of non-U.S. issuers may involve certain risks not typically associated with investing in securities of U.S. issuers. These
risks include: (i) there may be less publicly available information about non-U.S. issuers or markets due to less rigorous disclosure
or accounting standards or regulatory practices; (ii) non-U.S. markets may be smaller, less liquid and more volatile than the U.S. market;
(iii) potential adverse effects of fluctuations in currency exchange rates or controls on the value of the Fund’s investments; (iv)
the economies of non-U.S. countries may grow at slower rates than expected or may experience a downturn or recession; (v) the impact of
economic, political, social or diplomatic events; (vi) certain non-U.S. countries may impose restrictions on the ability of non-U.S. issuers
to make payments of principal and interest to investors located in the United States due to blockage of non-U.S. currency exchanges or
otherwise; and (vii) withholding and other non-U.S. taxes may decrease the Fund’s return. Foreign companies are generally not subject
to the same accounting, auditing and financial reporting standards as are U.S. companies. In addition, there may be difficulty in obtaining
or enforcing a court judgment abroad. These risks may be more pronounced to the extent that the Fund invests a significant amount of its
assets in companies located in one region.
Operational
Risk. The Fund is subject to risks arising from various operational factors, including, but not limited
to, human error, processing and communication errors, errors of the Fund’s service providers, counterparties or other third-parties,
failed or inadequate processes and technology or systems failures. The Fund relies on third parties for a range of services, including
custody. Any delay or failure relating to engaging or maintaining such service providers may affect the Fund’s ability to
meet its investment objectives. Although the Fund and the Advisor seek to reduce these operational risks through controls and procedures,
there is no way to completely protect against such risks.
Potential
Conflicts of Interest Risk. First Trust and the portfolio managers have interests which may conflict
with the interests of the Fund. In particular, First Trust currently manages and may in the future manage and/or advise other investment
funds or accounts with the same or substantially similar investment objectives and strategies as the Fund. In addition, while the Fund
is using leverage, the amount of the fees paid to First Trust for investment advisory and management services are higher than if the Fund
did not use leverage because the fees paid are calculated based on managed assets. Therefore, First Trust has a financial incentive to
leverage the Fund.
Prepayment
Risk. Loans are subject to prepayment risk. Prepayment risk is the risk that the borrower on a loan
will repay principal (in part or in whole) prior to the scheduled maturity date. The degree to which borrowers prepay loans, whether as
a contractual requirement or at their election, may be affected by general business conditions, interest rates, the financial condition
of the borrower and competitive conditions among loan investors, among others. As such, prepayments cannot be predicted with accuracy.
Upon a prepayment, either in part or in full, the actual outstanding debt on which the Fund derives interest income will be reduced. The
Fund may not be able to reinvest the proceeds received on terms as favorable as the prepaid loan.
Reinvestment
Risk. Reinvestment risk is the risk that income from the Fund’s portfolio will decline if the
Fund invests the proceeds from matured, traded or called instruments at market interest rates that are below the Fund’s portfolio’s
current earnings rate. A decline in income could affect the common shares’ market price, level of distributions or the overall return
of the Fund.
Risks
Associated with Investments in Distressed Issuers. The Fund may invest in instruments of distressed
issuers, including firms that have defaulted on their debt obligations and/or filed for bankruptcy protection. Investing in such
investments involves a far greater level of risk than investing in issuers whose debt obligations are being met and whose debt trades
at or close to its “par” value. These investments are highly speculative with respect to the issuer’s ability to continue
to make interest payments and/or to pay its principal obligations in full; can be very difficult to properly value, making them susceptible
to a high degree of price volatility and rendering them less liquid than performing debt obligations; and, for issuers involved in a bankruptcy
proceeding, can be subject to a high degree of uncertainty with regard to both the timing and the amount of the ultimate settlement.
Second
Lien Loan Risk. A second lien loan may have a claim on the same collateral pool as the first lien or
it may be secured by a separate set of assets. Second lien loans are typically secured by a second priority security interest or lien
on specified collateral securing the borrower’s obligation under the interest. Because second lien loans are second to first lien
loans, they present a greater degree of investment risk. Specifically, these loans are subject to the additional risk that the cash flow
of the borrower and property securing the loan may be insufficient to meet scheduled payments after giving effect to those loans with
a higher priority. In addition, loans
that have a lower than first lien priority on collateral of the borrower generally have greater price volatility than those loans with
a higher priority and may be less liquid.
Senior
Loan Risk. The Fund invests in senior loans and therefore is subject to the risks associated therewith.
Investments in senior loans are subject to the same risks as investments in other types of debt securities, including credit risk,
interest rate risk, liquidity risk and valuation risk (which may be heightened because of the limited public information available regarding
senior loans and because loan borrowers may be leveraged and tend to be more adversely affected by changes in market or economic conditions).
Further, no active trading market may exist for certain senior loans, which may impair the ability of the Fund to realize full value
in the event of the need to sell a senior loan and which may make it difficult to value senior loans. Senior loans may not be considered
“securities” and the Fund may not be entitled to rely on the anti-fraud protections of the federal securities laws.
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 value of the senior loan, which will likely reduce dividends and lead to a decline in the
net asset value of the Fund’s common shares. If the Fund acquires a senior loan from another lender, for example, by acquiring a
participation, the Fund may also be subject to credit risks with respect to that lender. Although senior loans may be secured by specific
collateral, the value of the collateral may not equal the Fund’s investment when the senior loan is acquired or may decline below
the principal amount of the senior loan subsequent to the Fund’s investment. Also, to the extent that collateral consists of stock
of the borrower or its subsidiaries or affiliates, the Fund bears the risk that the stock may decline in value, be relatively illiquid,
and/or may lose all or substantially all of its value, causing the senior loan to be under collateralized. Therefore, the liquidation
of the collateral underlying a senior loan may not satisfy the issuer’s obligation to the Fund in the event of non-payment of scheduled
interest or principal, and the collateral may not be readily liquidated. The senior loan market has seen a significant increase in loans
with weaker lender protections including, but not limited to, limited financial maintenance covenants or, in some cases, no financial
maintenance covenants (i.e., “covenant-lite loans”) that would typically be included in a traditional loan agreement and general
weakening of other restrictive covenants applicable to the borrower such as limitations on incurrence of additional debt, restrictions
on payments of junior debt or restrictions on dividends and distributions. Weaker lender protections such as the absence of financial
maintenance covenants in a loan agreement and the inclusion of “borrower-favorable” terms may impact recovery values and/or
trading levels of senior loans in the future. The absence of financial maintenance covenants in a loan agreement generally means that
the lender may not be able to declare a default if financial performance deteriorates. This may hinder the Fund’s ability to reprice
credit risk associated with a particular borrower and reduce the Fund’s ability to restructure a problematic loan and mitigate potential
loss. As a result, the Fund’s exposure to losses on investments in senior loans may be increased, especially during a downturn in
the credit cycle or changes in market or economic conditions.
Valuation
Risk. The valuation of senior loans may carry more risk than that of common stock. Because the
secondary market for senior loans is limited, it may be difficult to value the loans held by the Fund. Market quotations may not
be readily available for some senior loans and valuation may require more research than for liquid securities. In addition, elements of
judgment may play a greater role in the valuation of senior loans than for securities with a secondary market, because there is less reliable
objective data available. These difficulties may lead to inaccurate asset pricing.
|
||||||||||||
Effects of Leverage [Text Block] | Effects
of Leverage
The
aggregate principal amount of borrowings under the credit agreement (the “Credit Agreement”) with The Bank of Nova Scotia
represented approximately 14.43% of Managed Assets as of May 31, 2023. Asset coverage with respect to the borrowings was 693.04% as of
May 31, 2023 and the Fund had $90,000,000 of unutilized funds available for borrowing under the Credit Agreement as of that date. As of
May 31, 2023, the maximum commitment amount of the Credit Agreement was $138,000,000. As of May 31, 2023, the approximate average annual
interest and fee rate was 6.61%.
Assuming
that the Fund’s leverage costs remain as described above (at an assumed average annual cost of 6.61%), the annual return that the
Fund’s portfolio must experience (net of expenses) in order to cover its leverage costs would be 0.95%.
The
following table is furnished in response to requirements of the SEC. It is designed to illustrate the effect of leverage on Common Share
total return, assuming investment portfolio total returns (comprised of income and changes in the value of securities held in the Fund’s
portfolio) of (10%), (5%), 0%, 5% and 10%. These assumed investment portfolio returns are hypothetical figures and are not necessarily
indicative of the investment portfolio returns experienced or expected to be experienced by the Fund. The
table further assumes leverage representing 14.43% of the Fund’s Managed Assets, net of expenses, and an annual leverage interest
and fee rate of 6.61%.
Common
share total return is composed of two elements: the common share dividends paid by the Fund (the amount of which is largely determined
by the net investment income of the Fund after paying dividends or interest on its leverage instruments) and gains or losses on the value
of the securities the Fund owns. As required by SEC rules, the table above assumes that the Fund is more likely to suffer capital losses
than to enjoy capital appreciation. For example, to assume a total return of 0% the Fund must assume that the interest it receives on
its debt security investments is entirely offset by losses in the value of those investments.
|
||||||||||||
Annual Interest Rate [Percent] | 6.61% | ||||||||||||
Annual Coverage Return Rate [Percent] | 0.95% | ||||||||||||
Effects of Leverage [Table Text Block] |
|
||||||||||||
Return at Minus Ten [Percent] | (12.80%) | ||||||||||||
Return at Minus Five [Percent] | (6.96%) | ||||||||||||
Return at Zero [Percent] | (1.11%) | ||||||||||||
Return at Plus Five [Percent] | 4.73% | ||||||||||||
Return at Plus Ten [Percent] | 10.57% | ||||||||||||
Effects of Leverage, Purpose [Text Block] | The
following table is furnished in response to requirements of the SEC. It is designed to illustrate the effect of leverage on Common Share
total return, assuming investment portfolio total returns (comprised of income and changes in the value of securities held in the Fund’s
portfolio) of (10%), (5%), 0%, 5% and 10%. These assumed investment portfolio returns are hypothetical figures and are not necessarily
indicative of the investment portfolio returns experienced or expected to be experienced by the Fund. The
table further assumes leverage representing 14.43% of the Fund’s Managed Assets, net of expenses, and an annual leverage interest
and fee rate of 6.61%.
|
||||||||||||
Share Price | $ 9.56 | ||||||||||||
NAV Per Share | $ 10.96 | ||||||||||||
Capital Stock, Long-Term Debt, and Other Securities [Abstract] | |||||||||||||
Outstanding Security, Title [Text Block] | Common Shares outstanding (unlimited number of Common Shares has been authorized) | ||||||||||||
Outstanding Security, Held [Shares] | shares | 25,983,388 | ||||||||||||
Credit Agency Risk [Member] | |||||||||||||
General Description of Registrant [Abstract] | |||||||||||||
Risk [Text Block] | Credit
Agency Risk. Credit ratings are determined by credit rating agencies and are only the opinions of such
entities. Ratings assigned by a rating agency are not absolute standards of credit quality and do not evaluate market risk or the liquidity
of securities. Any shortcomings or inefficiencies in credit rating agencies’ processes for determining credit ratings may adversely
affect the credit ratings of securities held by the Fund or such credit rating agency’s ability to evaluate creditworthiness and,
as a result, may adversely affect those securities’ perceived or actual credit risk.
|
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Credit And Below Investment Grade Securities Risk [Member] | |||||||||||||
General Description of Registrant [Abstract] | |||||||||||||
Risk [Text Block] | Credit
and Below-Investment Grade Securities Risk. Credit risk is the risk that the issuer or other obligated
party of a debt security in the Fund’s portfolio will fail to pay, or it is perceived that it will fail to pay, dividends and/or
interest or repay principal, when due. Below-investment grade instruments, including instruments that are not rated but judged to be of
comparable quality, are commonly referred to as high-yield securities or “junk” bonds and are considered speculative with
respect to the issuer’s capacity to pay dividends or interest and repay principal and are more susceptible to default or decline
in market value than investment grade securities due to adverse economic and business developments. High-yield securities are often unsecured
and subordinated to other creditors of the issuer. The market values for high-yield securities tend to be very volatile, and these securities
are generally less liquid than investment grade securities. For these reasons, an investment in the Fund is subject to the following specific
risks: (i) increased price sensitivity to changing interest rates and to a deteriorating economic environment; (ii) greater risk of loss
due to default or declining credit quality; (iii) adverse company specific events more likely to render the issuer unable to make dividend,
interest and/or principal payments; (iv) negative perception of the high-yield market which may depress the price and liquidity of high-yield
securities; (v) volatility; and (vi) liquidity.
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Cyber Security Risk [Member] | |||||||||||||
General Description of Registrant [Abstract] | |||||||||||||
Risk [Text Block] | Cyber
Security Risk. The Fund is susceptible to potential operational risks through breaches in cyber security.
A breach in cyber security refers to both intentional and unintentional events that may cause the Fund to lose proprietary information,
suffer data corruption or lose operational capacity. Such events could cause the Fund to incur regulatory penalties, reputational damage,
additional compliance costs associated with corrective measures and/or financial loss. Cyber security breaches may involve unauthorized
access to the Fund’s digital information systems through “hacking” or malicious software coding, but may also result
from outside attacks such as denial-of-service attacks through efforts to make network services unavailable to intended users. In addition,
cyber security breaches of the Fund’s third-party service providers, such as its administrator, transfer agent or custodian, or
issuers in which the Fund invests, can also subject the Fund to many of the same risks associated with direct cyber security breaches.
The Fund has established risk management systems designed to reduce the risks associated with cyber security. However, there is no guarantee
that such efforts will succeed, especially because the Fund does not directly control the cyber security systems of issuers or third party
service providers. Substantial costs may be incurred by the Fund in order to resolve or prevent cyber incidents in the future.
|
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Health Care Companies Risk [Member] | |||||||||||||
General Description of Registrant [Abstract] | |||||||||||||
Risk [Text Block] | Health
Care Companies Risk. Through the Fund’s investments in senior loans, the Fund may be significantly
exposed to companies in the health care sector. Health care companies are involved in medical services or health care, including
biotechnology research and production, drugs and pharmaceuticals and health care facilities and services. These companies are subject
to extensive competition, generic drug sales or the loss of patent protection, product liability litigation and increased government regulation.
Research and development costs of bringing new drugs to market are substantial, and there is no guarantee that the product will ever come
to market. Health care facility operators may be affected by the demand for services, efforts by government or insurers to limit rates,
restriction of government financial assistance and competition from other providers.
|
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Illiquid Securities Risk [Member] | |||||||||||||
General Description of Registrant [Abstract] | |||||||||||||
Risk [Text Block] | Illiquid
Securities Risk. The Fund invests a substantial portion of its assets in lower-quality debt issued by
companies that are highly leveraged. Lower-quality debt tends to be less liquid than higher-quality debt. Moreover, smaller debt issues
tend to be less liquid than larger debt issues. Although the resale or secondary market for senior loans is growing, it is currently limited.
There is no organized exchange or board of trade on which senior loans are traded. Instead, the secondary market for senior loans is an
unregulated inter-dealer or inter-bank resale market. In addition, senior loans in which the Fund invests may require the consent of the
borrower and/or agent prior to the settlement of the sale or assignment. These consent requirements can delay or impede the Fund’s
ability to settle the sale of senior loans. Depending on market conditions, the Fund may have difficulty disposing its senior loans, which
may adversely impact its ability to obtain cash to repay debt, to pay dividends, to pay expenses or to take advantage of new investment
opportunities.
|
||||||||||||
Information Technology Companies Risk [Member] | |||||||||||||
General Description of Registrant [Abstract] | |||||||||||||
Risk [Text Block] | Information
Technology Companies Risk. Information technology companies produce and provide hardware, software and
information technology systems and services. Information technology companies are generally subject to the following risks: rapidly changing
technologies and existing product obsolescence; short product life cycles; fierce competition; aggressive pricing and reduced profit margins;
the loss of patent, copyright and trademark protections; cyclical market patterns; evolving industry standards; and frequent new product
introductions and new market entrants. Information technology companies may be smaller and less experienced companies, with limited product
lines, markets or financial resources and fewer experienced management or marketing personnel. Information technology company stocks,
particularly those involved with the internet, have experienced extreme price and volume fluctuations that are often unrelated to their
operating performance. In addition, information technology companies are particularly vulnerable to federal, state and local government
regulation, and competition and consolidation, both domestically and internationally, including
competition from foreign competitors with lower production costs. Information technology companies also face competition for services
of qualified personnel and heavily rely on patents and intellectual property rights and the ability to enforce such rights to maintain
a competitive advantage.
|
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Leverage Risk [Member] | |||||||||||||
General Description of Registrant [Abstract] | |||||||||||||
Risk [Text Block] | Leverage
Risk. The use of leverage by the Fund can magnify the effect of any losses. If the income and gains
from the securities and investments purchased with leverage proceeds do not cover the cost of leverage, the return to the common shares
will be less than if leverage had not been used. Leverage involves risks and special considerations for common shareholders including:
(i) the likelihood of greater volatility of net asset value and market price of the common shares than a comparable portfolio without
leverage; (ii) the risk that fluctuations in interest rates on borrowings will reduce the return to the common shareholders or will result
in fluctuations in the dividends paid on the common shares; (iii) in a declining market, the use of leverage is likely to cause a greater
decline in the net asset value of the common shares than if the Fund were not leveraged, which may result in a greater decline in the
market price of the common shares; and (iv) when the Fund uses certain types of leverage, the investment advisory fee payable to the Advisor
will be higher than if the Fund did not use leverage.
|
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Management Risk And Reliance On Key Personnel [Member] | |||||||||||||
General Description of Registrant [Abstract] | |||||||||||||
Risk [Text Block] | Management
Risk and Reliance on Key Personnel. The implementation of the Fund’s investment strategy depends
upon the continued contributions of certain key employees of the Advisor, some of whom have unique talents and experience and would be
difficult to replace. The loss or interruption of the services of a key member of the portfolio management team could have a negative
impact on the Fund.
|
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Market Discount From Net Asset Value [Member] | |||||||||||||
General Description of Registrant [Abstract] | |||||||||||||
Risk [Text Block] | Market
Discount from Net Asset Value. Shares of closed-end investment companies such as the Fund frequently
trade at a discount from their net asset value. The Fund cannot predict whether its common shares will trade at, below or above net asset
value.
|
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Market Risk [Member] | |||||||||||||
General Description of Registrant [Abstract] | |||||||||||||
Risk [Text Block] | Market
Risk. Securities held by a fund, as well as shares of a fund itself, are subject to market fluctuations
caused by factors such as general economic conditions, political events, regulatory or market developments, changes in interest rates
and perceived trends in securities prices. Shares of a fund could decline in value or underperform other investments as a result of the
risk of loss associated with these market fluctuations. In addition, local, regional or global events such as war, acts of terrorism,
spread of infectious diseases or other public health issues, recessions, or other events could have a significant negative impact on a
fund and its investments. For example, the coronavirus (COVID-19) global pandemic and the aggressive responses taken by many governments,
including closing borders, restricting international and domestic travel, and the imposition of prolonged quarantines or similar restrictions,
had negative impacts, and in many cases severe impacts, on markets worldwide. While the development of vaccines has slowed the spread
of the virus and allowed for the resumption of reasonably normal business activity in the United States, many countries continue to impose
lockdown measures in an attempt to slow the spread. Also, in February 2022, Russia invaded Ukraine which has caused and could continue
to cause significant market disruptions and volatility across markets globally, including the United States. The hostilities and sanctions
resulting from those hostilities could have a significant impact on certain Fund investments as well as Fund performance. As the global
pandemic and conflict in Ukraine have illustrated, such events may affect certain geographic regions, countries, sectors and
industries
more significantly than others. Recent and potential future bank failures could result in disruption to the broader banking industry or
markets generally and reduce confidence in financial institutions and the economy as a whole, which may also heighten market volatility
and reduce liquidity. These events also may adversely affect the prices and liquidity of the Fund’s portfolio securities or
other instruments and could result in disruptions in the trading markets. Any of such circumstances could have a materially negative impact
on the value of the Fund’s shares and result in increased market volatility. During any such events, the Fund’s shares may
trade at increased premiums or discounts to their net asset value and the bid/ask spread on the Fund’s shares may widen.
|
||||||||||||
Non U S Securities Risk [Member] | |||||||||||||
General Description of Registrant [Abstract] | |||||||||||||
Risk [Text Block] | Non-U.S.
Securities Risk. The Fund may invest a portion of its assets in securities of non-U.S. issuers. Investing
in securities of non-U.S. issuers may involve certain risks not typically associated with investing in securities of U.S. issuers. These
risks include: (i) there may be less publicly available information about non-U.S. issuers or markets due to less rigorous disclosure
or accounting standards or regulatory practices; (ii) non-U.S. markets may be smaller, less liquid and more volatile than the U.S. market;
(iii) potential adverse effects of fluctuations in currency exchange rates or controls on the value of the Fund’s investments; (iv)
the economies of non-U.S. countries may grow at slower rates than expected or may experience a downturn or recession; (v) the impact of
economic, political, social or diplomatic events; (vi) certain non-U.S. countries may impose restrictions on the ability of non-U.S. issuers
to make payments of principal and interest to investors located in the United States due to blockage of non-U.S. currency exchanges or
otherwise; and (vii) withholding and other non-U.S. taxes may decrease the Fund’s return. Foreign companies are generally not subject
to the same accounting, auditing and financial reporting standards as are U.S. companies. In addition, there may be difficulty in obtaining
or enforcing a court judgment abroad. These risks may be more pronounced to the extent that the Fund invests a significant amount of its
assets in companies located in one region.
|
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Operational Risk [Member] | |||||||||||||
General Description of Registrant [Abstract] | |||||||||||||
Risk [Text Block] | Operational
Risk. The Fund is subject to risks arising from various operational factors, including, but not limited
to, human error, processing and communication errors, errors of the Fund’s service providers, counterparties or other third-parties,
failed or inadequate processes and technology or systems failures. The Fund relies on third parties for a range of services, including
custody. Any delay or failure relating to engaging or maintaining such service providers may affect the Fund’s ability to
meet its investment objectives. Although the Fund and the Advisor seek to reduce these operational risks through controls and procedures,
there is no way to completely protect against such risks.
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Potential Conflicts Of Interest Risk [Member] | |||||||||||||
General Description of Registrant [Abstract] | |||||||||||||
Risk [Text Block] | Potential
Conflicts of Interest Risk. First Trust and the portfolio managers have interests which may conflict
with the interests of the Fund. In particular, First Trust currently manages and may in the future manage and/or advise other investment
funds or accounts with the same or substantially similar investment objectives and strategies as the Fund. In addition, while the Fund
is using leverage, the amount of the fees paid to First Trust for investment advisory and management services are higher than if the Fund
did not use leverage because the fees paid are calculated based on managed assets. Therefore, First Trust has a financial incentive to
leverage the Fund.
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Prepayment Risks [Member] | |||||||||||||
General Description of Registrant [Abstract] | |||||||||||||
Risk [Text Block] | Prepayment
Risk. Loans are subject to prepayment risk. Prepayment risk is the risk that the borrower on a loan
will repay principal (in part or in whole) prior to the scheduled maturity date. The degree to which borrowers prepay loans, whether as
a contractual requirement or at their election, may be affected by general business conditions, interest rates, the financial condition
of the borrower and competitive conditions among loan investors, among others. As such, prepayments cannot be predicted with accuracy.
Upon a prepayment, either in part or in full, the actual outstanding debt on which the Fund derives interest income will be reduced. The
Fund may not be able to reinvest the proceeds received on terms as favorable as the prepaid loan.
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Reinvestment Risk [Member] | |||||||||||||
General Description of Registrant [Abstract] | |||||||||||||
Risk [Text Block] | Reinvestment
Risk. Reinvestment risk is the risk that income from the Fund’s portfolio will decline if the
Fund invests the proceeds from matured, traded or called instruments at market interest rates that are below the Fund’s portfolio’s
current earnings rate. A decline in income could affect the common shares’ market price, level of distributions or the overall return
of the Fund.
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Risk Associated With Investments In Distressed Issuers [Member] | |||||||||||||
General Description of Registrant [Abstract] | |||||||||||||
Risk [Text Block] | Risks
Associated with Investments in Distressed Issuers. The Fund may invest in instruments of distressed
issuers, including firms that have defaulted on their debt obligations and/or filed for bankruptcy protection. Investing in such
investments involves a far greater level of risk than investing in issuers whose debt obligations are being met and whose debt trades
at or close to its “par” value. These investments are highly speculative with respect to the issuer’s ability to continue
to make interest payments and/or to pay its principal obligations in full; can be very difficult to properly value, making them susceptible
to a high degree of price volatility and rendering them less liquid than performing debt obligations; and, for issuers involved in a bankruptcy
proceeding, can be subject to a high degree of uncertainty with regard to both the timing and the amount of the ultimate settlement.
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Second Lien Loan Risk [Member] | |||||||||||||
General Description of Registrant [Abstract] | |||||||||||||
Risk [Text Block] | Second
Lien Loan Risk. A second lien loan may have a claim on the same collateral pool as the first lien or
it may be secured by a separate set of assets. Second lien loans are typically secured by a second priority security interest or lien
on specified collateral securing the borrower’s obligation under the interest. Because second lien loans are second to first lien
loans, they present a greater degree of investment risk. Specifically, these loans are subject to the additional risk that the cash flow
of the borrower and property securing the loan may be insufficient to meet scheduled payments after giving effect to those loans with
a higher priority. In addition, loans
that have a lower than first lien priority on collateral of the borrower generally have greater price volatility than those loans with
a higher priority and may be less liquid.
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Senior Loan Risk [Member] | |||||||||||||
General Description of Registrant [Abstract] | |||||||||||||
Risk [Text Block] | Senior
Loan Risk. The Fund invests in senior loans and therefore is subject to the risks associated therewith.
Investments in senior loans are subject to the same risks as investments in other types of debt securities, including credit risk,
interest rate risk, liquidity risk and valuation risk (which may be heightened because of the limited public information available regarding
senior loans and because loan borrowers may be leveraged and tend to be more adversely affected by changes in market or economic conditions).
Further, no active trading market may exist for certain senior loans, which may impair the ability of the Fund to realize full value
in the event of the need to sell a senior loan and which may make it difficult to value senior loans. Senior loans may not be considered
“securities” and the Fund may not be entitled to rely on the anti-fraud protections of the federal securities laws.
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 value of the senior loan, which will likely reduce dividends and lead to a decline in the
net asset value of the Fund’s common shares. If the Fund acquires a senior loan from another lender, for example, by acquiring a
participation, the Fund may also be subject to credit risks with respect to that lender. Although senior loans may be secured by specific
collateral, the value of the collateral may not equal the Fund’s investment when the senior loan is acquired or may decline below
the principal amount of the senior loan subsequent to the Fund’s investment. Also, to the extent that collateral consists of stock
of the borrower or its subsidiaries or affiliates, the Fund bears the risk that the stock may decline in value, be relatively illiquid,
and/or may lose all or substantially all of its value, causing the senior loan to be under collateralized. Therefore, the liquidation
of the collateral underlying a senior loan may not satisfy the issuer’s obligation to the Fund in the event of non-payment of scheduled
interest or principal, and the collateral may not be readily liquidated. The senior loan market has seen a significant increase in loans
with weaker lender protections including, but not limited to, limited financial maintenance covenants or, in some cases, no financial
maintenance covenants (i.e., “covenant-lite loans”) that would typically be included in a traditional loan agreement and general
weakening of other restrictive covenants applicable to the borrower such as limitations on incurrence of additional debt, restrictions
on payments of junior debt or restrictions on dividends and distributions. Weaker lender protections such as the absence of financial
maintenance covenants in a loan agreement and the inclusion of “borrower-favorable” terms may impact recovery values and/or
trading levels of senior loans in the future. The absence of financial maintenance covenants in a loan agreement generally means that
the lender may not be able to declare a default if financial performance deteriorates. This may hinder the Fund’s ability to reprice
credit risk associated with a particular borrower and reduce the Fund’s ability to restructure a problematic loan and mitigate potential
loss. As a result, the Fund’s exposure to losses on investments in senior loans may be increased, especially during a downturn in
the credit cycle or changes in market or economic conditions.
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Valuation Risk [Member] | |||||||||||||
General Description of Registrant [Abstract] | |||||||||||||
Risk [Text Block] | Valuation
Risk. The valuation of senior loans may carry more risk than that of common stock. Because the
secondary market for senior loans is limited, it may be difficult to value the loans held by the Fund. Market quotations may not
be readily available for some senior loans and valuation may require more research than for liquid securities. In addition, elements of
judgment may play a greater role in the valuation of senior loans than for securities with a secondary market, because there is less reliable
objective data available. These difficulties may lead to inaccurate asset pricing.
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Interest Rate Risk [Member] | |||||||||||||
General Description of Registrant [Abstract] | |||||||||||||
Risk [Text Block] | Interest
Rate Risk. The yield on the Fund’s common shares will tend to rise or fall as market interest
rates rise and fall, as senior loans pay interest at rates which float in response to changes in market rates. Changes in prevailing interest
rates can be expected to cause some fluctuation in the Fund’s net asset value. Similarly, a sudden and significant increase in market
interest rates may cause a decline in the Fund’s net asset value.
Many
financial instruments use or may use a floating rate based upon the London Interbank Offered Rate (“LIBOR”). The United Kingdom’s
Financial Conduct Authority (the “FCA”), which regulates LIBOR, intends to cease making LIBOR available as a reference rate
over a phase-out period that began in early 2022. However, subsequent announcements by the FCA, the LIBOR administrators, and other regulators
indicate that it is possible that the most widely used LIBOR rates may continue until mid-2023. While some instruments tied to LIBOR may
include a replacement rate, not all instruments have such fallback provisions and the effectiveness of such replacement rates remains
uncertain. The unavailability or replacement of LIBOR may affect the value, liquidity or return on certain Fund investments and may result
in costs incurred in connection with closing out positions and entering into new trades. Any potential effects of the transition away
from LIBOR on the Fund or on certain instruments in which the Fund invests can be difficult to ascertain, and they may vary depending
on a variety of factors. In the United States, it is anticipated that in many instances the Secured Overnight Financing Rate (“SOFR”)
will replace LIBOR as the reference rate for many of the floating rate instruments held by the Fund. There is no assurance that the composition
or characteristics of SOFR, or any alternative reference rate, will be similar to or produce the same value or economic equivalence as
LIBOR or that instruments using an alternative rate will have the same volume or liquidity. As a result, the transition process might
lead to increased volatility and reduced liquidity in markets that currently rely on LIBOR to determine interest rates; a reduction in
the value of some LIBOR-based investments; increased difficulty in borrowing or refinancing and diminished effectiveness of any applicable
hedging strategies against instruments whose terms currently include LIBOR; and/ or costs incurred in connection with temporary borrowings
and closing out positions and entering into new agreements. Any such effects (as well as other unforeseen effects) of the transition away
from LIBOR and the adoption of alternative reference rates could result in losses to the Fund.
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1 Month First Trust Senior Float... Chart |
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