UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-21539
----------------------------
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND II
--------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
1001 Warrenville Road, Suite 300
LISLE, IL 60532
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
W. Scott Jardine
First Trust Portfolios L.P.
1001 Warrenville Road, Suite 300
LISLE, IL 60532
--------------------------------------------------------------------------------
(Name and address of agent for service)
registrant's telephone number, including area code: 630-241-4141
-------------
Date of fiscal year end: MAY 31
-------
Date of reporting period: NOVEMBER 30, 2006
------------------
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 100 F Street, NE,
Washington, DC 20549. The OMB has reviewed this collection of information under
the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The Report to Shareholders is attached herewith.
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND II (FCT)
SEMI-ANNUAL REPORT
NOVEMBER 30, 2006
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND II (FCT)
SEMI-ANNUAL REPORT
NOVEMBER 30, 2006
Shareholder Letter ......................................................... 1
Portfolio Commentary ....................................................... 2
Portfolio Components ....................................................... 5
Portfolio of Investments ................................................... 6
Statement of Assets and Liabilities ........................................ 19
Statement of Operations .................................................... 20
Statements of Changes in Net Assets ........................................ 21
Statement of Cash Flows .................................................... 22
Financial Highlights ....................................................... 23
Notes to Financial Statements .............................................. 24
Additional Information ..................................................... 29
Dividend Reinvestment Plan
Proxy Voting Policies and Procedures
Portfolio Holdings
Submission of Matters to a Vote of Shareholders
By-Law Amendments
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This Semi-Annual Report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933. Forward-looking statements
include statements regarding the goals, beliefs, plans or current expectations
of First Trust Advisors L.P. (the "Advisor") and/or Four Corners Capital
Management, LLC ("Four Corners" or the "Sub-Advisor") and their respective
representatives, taking into account the information currently available to
them. Forward-looking statements include all statements that do not relate
solely to current or historical fact. For example, forward-looking statements
include the use of words such as "anticipate," "estimate," "intend," "expect,"
"believe," "plan," "may," "should," "would" or other words that convey
uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the First Trust/Four Corners Senior Floating Rate Income Fund II (the "Fund") to
be materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. When evaluating the
information included in this Semi-Annual Report, you are cautioned not to place
undue reliance on these forward-looking statements, which reflect the judgment
of the Advisor and/or Four Corners and their respective representatives only as
of the date hereof. We undertake no obligation to publicly revise or update
these forward-looking statements to reflect events and circumstances that arise
after the date hereof.
HOW TO READ THIS REPORT
This report contains information that can help you evaluate your investment. It
includes details about the Fund and presents data and analysis that provide
insight into the Fund's performance and investment approach.
By reading the letter from the Fund's President, James A. Bowen, together with
the portfolio commentary by Michael P. McAdams and Robert I. Bernstein of the
Fund's Sub-Advisor, you may obtain an understanding of how the market
environment affected the Fund's performance. The statistical information that
follows may help you understand the Fund's performance compared to that of
relevant market benchmarks.
It is important to keep in mind that the opinions expressed by Mr. Bowen,
personnel of the Advisor and Sub-Advisor are just that: informed opinions. They
should not be considered to be promises or advice. The opinions, like the
statistics, cover the period through the date on the cover of this report. Of
course, the risks of investing in the Fund are spelled out in the prospectus.
--------------------------------------------------------------------------------
SHAREHOLDER LETTER
--------------------------------------------------------------------------------
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND II (FCT)
SEMI-ANNUAL REPORT
NOVEMBER 30, 2006
Dear Shareholders:
We are pleased to present this semi-annual report to shareholders of the First
Trust/Four Corners Senior Floating Rate Income Fund II (NYSE Symbol: FCT), which
includes a discussion of how your Fund performed over the semi-annual reporting
period ended November 30, 2006. Over the six-month period covered by this
report, the market continued to favor senior, secured, floating-rate loans
("Senior Loans"). The Fund benefited from a strong U.S. economy, Gross Domestic
Product ("GDP") expansion, and strong corporate earnings growth. An attractive
credit environment driven by strong investor demand for the Senior Loan asset
class also contributed positively to the Fund's performance.
First Trust Advisors L.P. acts as the Fund's investment advisor and currently
manages or supervises approximately $28 billion in assets. Four Corners Capital
Management, LLC ("Four Corners"), the Fund's Sub-Advisor, structures and manages
a variety of alternative fixed-income products with a specialization in Senior
Loans. Four Corners serves as investment manager or sub-advisor to approximately
$3.6 billion in assets across a variety of retail and institutional products
distributed around the globe. The portfolio managers' outlook for the markets
and a review of the Fund's strategy and performance can be found in the
portfolio commentary on the following pages.
We appreciate the opportunity to assist you in achieving your financial goals
and thank you for your continued confidence.
Sincerely,
/S/ JAMES A. BOWEN
James A. Bowen
President of the First Trust/Four Corners Senior Floating Rate Income Fund II
January 17, 2007
Page 1
MICHAEL P. MCADAMS
PRESIDENT AND CHIEF EXECUTIVE OFFICER, FOUR CORNERS CAPITAL MANAGEMENT, LLC
CO-PORTFOLIO MANAGER, FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND
II (FCT)
Mr. McAdams is responsible for overseeing the investment and distribution
activities of Four Corners Capital Management, LLC ("Four Corners") and is
Co-Portfolio Manager of FCT. He has over 26 years of experience in investment
management and banking, all of which has been spent in leveraged finance. Prior
to founding Four Corners, Mr. McAdams was with ING Capital Advisors, LLC
("ICA"), from 1995 to 2001. Mr. McAdams was a founder of ICA and held the titles
of President, Chief Executive Officer and Chief Investment Officer. Under his
leadership, ICA completed over one dozen structured transactions and had over $7
billion in assets under management. Prior to ICA, Mr. McAdams established the
first retail senior floating rate loan fund, the Pilgrim Prime Rate Trust
(NYSE:PPR), which he managed from its inception in 1988 through 1995. Mr.
McAdams was previously employed by National Bank of Canada, where he was a
member of one of the first teams to manage a non-originated U.S. corporate loan
portfolio. Mr. McAdams began his banking career at Manufacturers Hanover Trust
Company. Mr. McAdams received an MBA in Finance/Accounting from the University
of California Los Angeles and dual BAs in Finance/Accounting and Eastern
European Studies from California State University at Fullerton. Mr. McAdams is
one of the initial members of the Loan Syndication and Trading Association and
was its Chairman in 2001, its Vice Chairman in 2002 and has been a Board Member
since 1998. Mr. McAdams received the 2006 Credit Investment News Outstanding
Contribution award in the U.S. Loan Market.
ROBERT I. BERNSTEIN
CHIEF INVESTMENT OFFICER, FOUR CORNERS CAPITAL MANAGEMENT, LLC
CO-PORTFOLIO MANAGER, FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND
II (FCT)
Mr. Bernstein is responsible for managing the investment process of Four Corners
and is Co-Portfolio Manager of FCT. He has nearly 15 years of experience in
leveraged finance including senior secured loans, high-yield bonds and private
equity investments. Mr. Bernstein was most recently a partner of The Yucaipa
Companies, a Los Angeles-based private equity firm, where he completed merger
and acquisition transactions and leveraged financings valued in excess of $4
billion. Previously, Mr. Bernstein was a Vice President in Bankers Trust's
leveraged finance group, where he arranged senior loan and high yield bond
financings for financial sponsors and corporate issuers. He also worked in GE
Capital's restructuring group, where he focused primarily on asset-based loans
to distressed borrowers. Mr. Bernstein received an MBA in Finance from the
University of Chicago and a BBA in Finance magna cum laude from Hofstra
University. He also served as an infantry officer in the U.S. Marine Corps.
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY
--------------------------------------------------------------------------------
OVERVIEW
The First Trust/Four Corners Senior Floating Rate Income Fund II ("FCT" or the
"Fund") generated a total return of 6.21%, including market price change and
dividends, for the six-month period ending November 30, 2006 (the "Fiscal
Period"). The Fund's Net Asset Value ("NAV") total return over the same period
was 3.16%. During the Fiscal Period, the Fund increased its dividend three times
and declared dividends totaling $0.7343 per common share compared to $0.5922 for
the same period in the prior year, representing an increase of 24.0%. The Fund's
common share price increased 1.9% during the Fiscal Period from $17.61 to
$17.95, and its discount to NAV narrowed from 7.3% to 4.6%. Based on its most
recent dividend, FCT paid a yield of 8.48% calculated on the Fund's common share
price and 8.09% based on the Fund's $18.81 NAV as of November 30, 2006.
ECONOMIC AND MARKET ENVIRONMENT
The Fiscal Period continued to be a positive environment for Senior Loan
investing. The Fund continued to benefit from an attractive credit environment
primarily due to a strong U.S. economy, which kept market-wide default rates at
very low levels. Additionally, continued strong investor demand for the Senior
Loan asset class due to its appealing risk-adjusted returns relative to other
investment opportunities has kept secondary prices firm across the Senior Loan
market. This combination of low default rates and firm secondary prices has
resulted in stable NAV returns.
GDP continued to expand during the period, including the recent upward revision
to third-quarter GDP to 2.2%. Corporate earnings growth remained strong during
the period and, while interest rates have increased, real rates remain low on a
historical basis. The Fund primarily invests in the loans of non-investment
grade companies, and strong earnings, combined with low real interest rates,
make these companies better able to service their debt.
The Federal Reserve Board (the "Fed") has not changed the Federal Funds rate
target (set at 5.25%) since its June 29, 2006 meeting. While the Fed policy
makers continue to maintain a tightening bias, they are predicting that economic
growth will run slightly below the trend for the next year. Signs of a slowdown
in GDP growth domestically and internationally have emerged which have, among
other indicators, led some economists to predict a hiatus in Fed tightening
during Fiscal 2007.
Page 2
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY - (CONTINUED)
--------------------------------------------------------------------------------
While we acknowledge these signals and the significant rise in interest rates
since 2003, we believe that the fundamental strength of the economy, combined
with the Fed's overriding focus on containing inflation, may result in further
interest rate increases.
From the Fund's perspective, these are very favorable conditions. A tightening
bias increases the possibility that the Fund can continue to increase its
dividend since the loans that the fund invests in are floating rate and their
income is based on short-term interest rates. However, excessive tightening
could result in a spike in real interest rates, hurting companies' ability to
service their debt. While we do not expect corporate earnings to sustain their
year-over-year double digit growth levels, earnings are generally expected to
remain relatively strong through 2007, which, combined with low real interest
rates, should continue to enable the companies in which we invest to service
their debt.
Unlike traditional fixed income investments (i.e. high yield bonds), Senior
Loans have minimal, if any, interest rate risk. Rather, in rising rate
environments like we have seen in recent years, Senior Loan income typically
rises (with a several month lag) along with Fed rate increases. One caveat
however, is that in recent years, narrowing credit spread has partly offset the
benefits from rising rates. Notwithstanding the modest decline in credit
spreads, the Fund still increased its dividend 12 times since the Fed tightening
began and has demonstrated low NAV volatility. More recently, we have seen
credit spreads trend somewhat higher. Loan market liquidity has also improved
during the period.
Inflows into the Senior Loan asset class during Calendar 2006 were exceptional
and occurred in tandem with strong growth in new Senior Loan issuance. New
Senior Loan issuance rose over 37% year-over-year through November to $457
billion. In November alone, there was $66 billion of new Senior Loan issuance.
The forward calendar remains very robust with a visible pipeline of $54 billion
already scheduled for 2007. Similarly, secondary trading volume grew nearly 34%
year-over year.
As previously mentioned, the demand for the asset class of Senior Loans remained
strong, as investors perceived reduced levels of risk resulting from an
improving economic environment and low levels of defaults and credit losses, as
well as the returns benefit of a floating-rate asset class. For the six months
ended November 30, Senior Loans generated a total return of 3.19% (S&P/LSTA
Leveraged Loan Index). Senior Loans have generated positive returns every
calendar year that the data has been tracked since 1992.
INVESTMENT STRATEGY AND PORTFOLIO COMPOSITION
The primary objective of the Fund is to seek a high level
of current income. As a secondary objective, the Fund attempts to preserve
capital. The investment strategy employed in managing the Fund was designed to
achieve the Fund's objectives through risk minimization throughout entire
economic and credit cycles. In contrast, many managers of Senior Loan-based
closed-end funds invest up to 20% or more of their portfolios in high yield
bonds in order to boost yields in the short run. FCT utilizes a "pure play"
strategy that generally prohibits the Fund from investing in high yield bonds,
and focuses primarily on Senior Loans. In some market environments, the Fund's
pure play strategy may result in lower current dividends/yields than some other
Senior Loan-based closed-end funds. However, we believe that our strategy can
result in lower NAV volatility while maintaining competitive dividends/yield and
higher and more stable long-term total NAV returns.
Our strategy focuses on thorough fundamental credit analysis, broad issuer and
industry diversification, and a pro-active sell discipline in order to minimize
risk. The Fund's portfolio is generally more heavily weighted towards industry
groups that we expect to exhibit lower earnings volatility, and which we expect
to provide high recoveries to senior lenders in circumstances where earnings
volatility does occur.
The Fund is well diversified with over 200 positions across 31 industries. At
November 30, 2006 the five largest individual borrower exposures in total
represented 9.1% of the Fund's portfolio. The Fund also has the flexibility to
invest up to 10% of the portfolio in Special Situation debt investments, which
are typically investments in companies that are either in default at the time of
purchase or are experiencing financial difficulties. We view our ability to
achieve modest gains from this subset of Senior Loans as opportunistic rather
than obligatory, and given the growth and improvement in the economy in recent
years, we have seen limited value opportunities in this segment of the
portfolio. On November 30, 2006, the portfolio included one Special Situation
investment representing 2.3% of the Fund's portfolio.
As mentioned in prior reports, the Fund is leveraged using both adjustable-rate
Auction Market Preferred Shares and an asset-backed commercial paper conduit.
The terms and conditions of the leverage provide the Fund with the ability to
borrow on a floating-rate basis. Since the income generated by the Fund's Senior
Loan investment portfolio is also floating-rate, the Fund is less exposed to
interest rate mismatch risk than a closed-end fund with a fixed-rate investment
portfolio, and investors will generally benefit from portfolio leverage
regardless of short-term interest rates. At November 30, 2006, the portfolio
leverage accounted for 36.3% of the Fund's total managed assets.
Page 3
--------------------------------------------------------------------------------
PORTFOLIO COMMENTARY - (CONTINUED)
--------------------------------------------------------------------------------
PERFORMANCE REVIEW
FCT generated a total return of 6.21%, including market price change and
dividends, for the Fiscal Period. The Fund's NAV total return was 3.16% over the
same period. This return slightly lagged the benchmark (Standard & Poor's/LSTA
Leveraged Loan Index) return of 3.19%. The Fund's performance includes the
beneficial impact of leverage, and the negative impact of fees, expenses and
uninvested cash balances, which are not part of the benchmark return. The
dividend distribution totaled approximately $0.7343 per common share during the
Fiscal Period. FCT paid an annualized yield of 8.48% calculated on the Fund's
common share price and 8.09% based on the Fund's $18.81 NAV as of November 30,
2006. Additionally, the Fund's NAV was relatively stable during the period,
ranging from a high of $19.00 to a low of $18.69, a range of approximately
1.66%.
In addition to the Fund's stable NAV performance/total return and high yield
during the Fiscal Period, the Fund's market price performance improved. During
the period, the market price of the Fund closed as high as $17.95 (November 30,
2006) and as low as $17.53 (June 13, 2006). The Fund ended the period at a 4.6%
discount to its NAV compared to a discount of 7.3% at the beginning of the
period. We also note that 13 of the 16 Senior Loan closed-end funds traded at
discounts to NAV on November 30, with the average of the narrower pure play
group (six of the 16 Senior Loan closed-end funds referred to above) being 3.7%.
FCT's annualized market and NAV yield on November 30, 2006 (8.5% and 8.1%,
respectively) compare favorably to the pure play peer group average of 8.3% and
8.0%, respectively.
On June 1st, AG Edwards issued its research report with a Buy rating, the firm's
highest rating. Other closed end fund research analysts have also published
proprietary research on the Fund, available within their specific firms.
We remain committed to long-term performance and superior client support, and we
appreciate the opportunity to assist investors in meeting their investment
goals.
Page 4
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO COMPONENTS+
NOVEMBER 30, 2006 (UNAUDITED)
S&P RATING BREAKDOWN
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Cash/Cash Equivalents 0.26
B 13.11
B- 4.44
B+ 19.12
BB 11.84
BB- 20.97
BB+ 6.47
BBB- 0.53
CCC 0.29
CCC+ 2.89
NR 20.08
ECONOMIC SECTOR BREAKDOWN
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Consumer Discretionary 33.85
Industrials 14.68
Materials 10.4
Health Care 8.96
Finance 7.32
Utilities 6.5
Information Technology 5.85
Energy 5.56
Consumer Staples 5.1
Telecommunications Services 1.52
Cash/Cash Equivalents 0.26
+ Percentages are based on total investments. Please note that the percentages
shown on the Portfolio of Investments are based on net assets.
NR Not rated.
* The percentage of Senior Loan Interests not rated includes 10.68% of Senior
Loan Interests that were privately rated upon issuance. The rating agencies
do not provide ongoing surveillance on the private ratings.
See Notes to Financial Statements. Page 5
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 2006 (UNAUDITED)
PRINCIPAL RATINGS+ STATED MARKET
VALUE DESCRIPTION O MOODY'S S&P COUPON MATURITY* VALUE
--------- -------------------------------- ------------- ----------- ------------- -------------
SENIOR FLOATING RATE TERM LOAN INTERESTS** - 153.0%
AEROSPACE & DEFENSE - 5.9%
AEROSPACE & DEFENSE - 5.9%
$ 3,621,748 GenCorp Inc. ..................... Ba2 BB- 8.57%-8.62% 12/06/10 $ 3,621,748
3,272,278 Hexcel Corp. ..................... B2 B+ 6.75%-6.94% 3/01/12 3,272,278
2,843,819 Hunter Defense Holdings, Inc. .... NR(a) NR(a) 8.63% 3/10/11 2,826,045
1,850,150 K&F Industries, Inc. ............. B2 B+ 7.32% 11/18/12 1,855,355
844,643 Mid-Western Aircraft
Systems, Inc. .................. Ba3 BB 7.11% 12/31/11 844,907
2,732,484 MRO Acquisition Corp. ............ Ba3 B+ 7.82% 8/27/10 2,749,562
5,538,462 Robertson Aviation, LLC .......... NR(a) NR(a) 8.25%-9.12% 4/19/13 5,566,153
3,934,615 Standard Aero Holdings, Inc. ..... Ba3 B+ 7.57%-7.63% 8/24/12 3,941,993
3,100,000 Vought Aircraft Industries, Inc. . Ba2 B- 7.82% 12/22/10 3,110,332
-------------
TOTAL AEROSPACE & DEFENSE 27,788,373
-------------
AUTO COMPONENTS - 0.9%
AUTO PARTS & EQUIPMENT - 0.9%
1,000,000 Axletech International
Holdings, Inc. (c) ............. Caa1 B- 11.87% 4/21/13 1,004,583
3,401,440 TRW Automotive, Inc. ............. Ba2 BB+ 7.19% 6/30/12 3,390,810
-------------
TOTAL AUTO COMPONENTS 4,395,393
-------------
AUTOMOBILES - 0.6%
AUTOMOBILE MANUFACTURERS - 0.6%
3,000,000 General Motors Company ........... Ba3 B+ 6.57% 11/29/13 3,003,213
-------------
TOTAL AUTOMOBILES 3,003,213
-------------
BEVERAGES - 0.2%
SOFT DRINKS - 0.2%
795,833 Culligan Corp. ................... Ba2 B+ 7.07% 9/30/11 796,330
-------------
TOTAL BEVERAGES 796,330
-------------
BUILDING PRODUCTS - 1.6%
BUILDING PRODUCTS - 1.6%
1,729,179 Custom Building Products ......... NR(a) NR(a) 7.62% 10/20/11 1,726,296
2,271,275 Headwaters, Inc. ................. Ba3 BB- 7.38% 4/30/11 2,259,919
2,789,286 NCI Building Systems, Inc. ....... Ba1 BB 6.82%-6.87% 6/18/10 2,785,799
1,000,000 South Edge, LLC .................. NR(a) NR(a) 7.38% 10/31/09 976,250
-------------
TOTAL BUILDING PRODUCTS 7,748,264
-------------
CAPITAL MARKETS - 2.0%
ASSET MANAGEMENT & CUSTODY BANKS - 0.8%
3,962,538 LPL Holdings, Inc. ............... B2 B 7.88%-8.37% 6/28/13 3,989,780
-------------
INVESTMENT BANKING & BROKERAGE - 1.2%
1,776,818 Ameritrade Holding Corp. ......... Ba1 BB 6.82% 12/31/12 1,773,302
3,855,184 NASDAQ Stock Market (The), Inc. .. Ba3 BB+ 7.07%-7.12% 4/18/12 3,850,848
-------------
5,624,150
-------------
TOTAL CAPITAL MARKETS 9,613,930
-------------
Page 6 See Notes to Financial Statements.
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS - (CONTINUED)
NOVEMBER 30, 2006 (UNAUDITED)
PRINCIPAL RATINGS+ STATED MARKET
VALUE DESCRIPTION O MOODY'S S&P COUPON MATURITY* VALUE
--------- -------------------------------- ------------- ----------- ------------- -------------
SENIOR FLOATING RATE TERM LOAN INTERESTS** - CONTINUED
CHEMICALS - 6.1%
COMMODITY CHEMICALS - 0.9%
$ 506,075 Basell USA, Inc. ................. Ba3 B+ 7.60% 8/01/13 $ 511,136
506,075 Basell USA, Inc. ................. Ba3 B+ 8.35% 8/01/14 511,294
3,000,000 Mosaic (The) Company ............. Ba1 BB+ TBA 11/09/13 2,996,400
-------------
4,018,830
-------------
DIVERSIFIED CHEMICALS - 5.2%
5,000,000 BCP Crystal US
Holdings Corp. ................. Ba3 BB- 7.38% 1/26/09 5,012,500
3,000,000 Brenntag Holding GmbH &
Company KG (c) ................. B3 B- 12.08% 12/31/13 3,060,939
7,000,000 Brenntag Holding GmbH &
Company KG ..................... B2 B 8.08% 1/18/14 7,043,750
7,259,587 Huntsman International, LLC ...... Ba3 BB- 7.07% 8/16/12 7,247,485
2,493,750 Lyondell Chemical Company ........ Ba2 BB 7.12% 8/16/13 2,501,543
-------------
24,866,217
-------------
TOTAL CHEMICALS 28,885,047
-------------
COMMERCIAL SERVICES & SUPPLIES - 7.1%
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES - 4.9%
997,500 Acosta, Inc. ..................... NR(a) NR(a) 8.07% 7/28/13 1,005,812
995,000 Advantage Sales &
Marketing, Inc. ................ NR(a) NR(a) 7.37%-7.46% 3/29/13 990,025
2,654,623 Affinion Group, Inc. ............. Ba3 B+ 8.07%-8.12% 10/17/12 2,667,068
1,948,864 Clarke American Corp. ............ B1 B+ 8.63%-8.87% 12/15/11 1,973,225
4,451,250 IAP Worldwide Services, Inc. ..... B2 B 9.69% 12/30/12 4,402,567
4,000,000 IAP Worldwide Services, Inc. (c) . Caa2 CCC+ 15.19% 6/30/13 3,846,668
973,110 N.E.W. Holdings I, LLC ........... NR(a) NR(a) 8.07%-8.12% 8/08/13 975,543
2,000,000 N.E.W. Holdings I, LLC (c) ....... NR(a) NR(a) 12.32%-12.37% 2/08/14 2,020,000
1,500,000 RSC Equipment Rental ............. Ba2 BB- 7.07%-7.12% 11/30/12 1,500,000
2,500,000 RSC Equipment Rental (c) ......... Caa1 B- 8.82%-8.87% 11/30/13 2,514,845
1,604,167 United Rentals, Inc .............. B2 BB- 7.22%-7.32% 2/14/11 1,609,514
-------------
23,505,267
-------------
ENVIRONMENTAL & FACILITIES SERVICES - 1.5%
6,940,137 EnergySolutions, LLC ............. NR(a) NR(a) 7.57%-7.77% 6/07/13 6,970,500
-------------
OFFICE SERVICES & SUPPLIES - 0.7%
2,039,216 Pike Electric, Inc. .............. NR(a) NR(a) 6.88% 7/01/12 2,034,118
1,450,980 Pike Electric, Inc. .............. NR(a) NR(a) 6.88% 4/18/10 1,447,353
-------------
3,481,471
-------------
TOTAL COMMERCIAL SERVICES & SUPPLIES 33,957,238
-------------
COMPUTERS & PERIPHERALS - 1.9%
COMPUTER HARDWARE - 1.9%
5,921,429 Activant Solutions Holdings, Inc. B1 B 7.38% 5/02/13 5,869,616
3,110,505 Advanced Micro Devices, Inc. ..... Ba3 B+ 7.62% 12/31/13 3,121,305
-------------
TOTAL COMPUTERS & PERIPHERALS 8,990,921
-------------
See Notes to Financial Statements. Page 7
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS - (CONTINUED)
NOVEMBER 30, 2006 (UNAUDITED)
PRINCIPAL RATINGS+ STATED MARKET
VALUE DESCRIPTION O MOODY'S S&P COUPON MATURITY* VALUE
--------- -------------------------------- ------------- ----------- ------------- -------------
SENIOR FLOATING RATE TERM LOAN INTERESTS** - CONTINUED
CONSTRUCTION & ENGINEERING - 0.4%
CONSTRUCTION & ENGINEERING - 0.4%
$ 2,000,000 Standard Pacific Corp. ........... Ba2 BB 6.87% 5/05/13 $ 1,952,500
-------------
TOTAL CONSTRUCTION & ENGINEERING 1,952,500
-------------
CONTAINERS & PACKAGING - 4.7%
METAL & GLASS CONTAINERS - 1.8%
962,500 Captive Plastics, Inc. ........... NR(a) B- 8.12% 8/16/11 963,703
7,500,000 Owens-Illinois Group, Inc. ....... Ba2 BB- 6.82% 6/14/13 7,498,126
-------------
8,461,829
-------------
PAPER PACKAGING - 2.9%
1,156,497 Boise Cascade, LLC ............... Ba3 BB 7.09%-7.13% 10/28/11 1,160,401
6,000,000 Graham Packaging Holdings Company B3 CCC+ 9.69% 4/07/12 6,056,250
4,748,833 Graham Packaging Holdings Company B1 B 7.63%-7.88% 10/07/11 4,764,945
1,980,000 Pregis Corp. ..................... Ba2 B+ 7.62% 10/12/12 1,989,900
-------------
13,971,496
-------------
TOTAL CONTAINERS & PACKAGING 22,433,325
-------------
DIVERSIFIED CONSUMER SERVICES - 0.7%
EDUCATION SERVICES - 0.4%
1,995,000 Education Management LLC ......... B2 B 7.88% 6/01/13 2,005,973
-------------
SPECIALIZED CONSUMER SERVICES - 0.3%
1,499,111 Coinstar, Inc. ................... Ba3 BB- 7.35%-7.37% 7/01/11 1,504,733
-------------
TOTAL DIVERSIFIED CONSUMER SERVICES 3,510,706
-------------
DIVERSIFIED FINANCIAL SERVICES - 0.5%
SPECIALIZED FINANCE - 0.5%
1,000,000 J.G.Wentworth, LLC ............... B2 B 8.87% 4/12/11 1,008,750
1,500,000 Peach Holdings, Inc. ............. NR NR 9.11% 11/21/13 1,503,750
-------------
TOTAL DIVERSIFIED FINANCIAL SERVICES 2,512,500
-------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.2%
INTEGRATED TELECOMMUNICATION SERVICES - 0.2%
970,000 Telecordia Technologies, Inc. .... B1 B+ 8.11%-8.12% 9/15/12 943,931
-------------
TOTAL DIVERSIFIED TELECOMMUNICATION SERVICES 943,931
-------------
ELECTRIC UTILITIES - 8.7%
ELECTRIC UTILITIES - 8.7%
1,000,000 Astoria Generating Company
Acquisitions, LLC (c) .......... B3 B 9.14% 8/23/13 1,010,625
9,831 Calpine Corp. (f) ................ NR(a) NR(a) 2.25% 12/20/07 9,751
327,623 Calpine Corp.,
(Debtor in Possession) (f) ..... NR(a) NR(a) 7.62% 12/20/07 329,015
829,787 Calpine Corp.,
(Debtor in Possession) (c) (f) . NR(a) NR(a) 9.37% 12/20/07 841,543
352,621 Cogentrix Delaware Holdings, Inc. Ba2 BB+ 6.87% 4/14/12 352,547
7,138,072 Covanta Energy Corp. ............. B1 B+ 7.57%-7.62% 6/24/12 7,176,739
1,948,690 LSP Gen Finance Co., LLC ......... Ba3 BB- 7.12% 5/04/13 1,949,502
Page 8 See Notes to Financial Statements.
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS - (CONTINUED)
NOVEMBER 30, 2006 (UNAUDITED)
PRINCIPAL RATINGS+ STATED MARKET
VALUE DESCRIPTION O MOODY'S S&P COUPON MATURITY* VALUE
--------- -------------------------------- ------------- ----------- ------------- -------------
SENIOR FLOATING RATE TERM LOAN INTERESTS** - CONTINUED
ELECTRIC UTILITIES - (CONTINUED)
ELECTRIC UTILITIES - (CONTINUED)
$ 704,929 LSP Kendall Energy, LLC .......... B1 B 7.37% 10/07/13 $ 702,579
6,408,921 Midwest Generation, LLC .......... Baa3 BB 6.25%-7.01% 4/27/11 6,408,921
992,500 Mirant North America, LLC ........ Ba3 BB- 7.07% 1/03/13 989,841
13,500,000 NRG Energy, Inc. ................. Ba1 BB- 7.32%-7.37% 2/01/13 13,542,188
4,361,225 Plum Point Energy
Associates, LLC ................ B1 B 8.62%-8.74% 3/14/14 4,399,386
2,126,125 Riverside Energy Center, LLC ..... B1 B 9.63% 6/24/11 2,176,621
1,638,826 Rocky Mountain Energy
Center, LLC .................... B1 B 9.63% 6/24/11 1,677,748
-------------
TOTAL ELECTRIC UTILITIES 41,567,006
-------------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 1.0%
TECHNOLOGY DISTRIBUTORS - 1.0%
4,588,500 Sensata Technologies Finance
Company, LLC ................... NR(a) NR(a) 7.10%-7.13% 4/27/13 4,552,173
-------------
TOTAL ELECTRONIC EQUIPMENT & INSTRUMENTS 4,552,173
-------------
ENERGY EQUIPMENT & SERVICES - 1.5%
OIL & GAS EQUIPMENT & SERVICES - 1.5%
6,943,549 Targa Resources, Inc. ............ B1 B+ 7.62%-7.63% 10/31/12 6,959,824
-------------
TOTAL ENERGY EQUIPMENT & SERVICES 6,959,824
-------------
FOOD & STAPLES RETAILING - 3.9%
DRUG RETAIL - 0.8%
3,565,039 Jean Coutu Group (PJC) Inc. ...... B1 BB- 7.94% 7/30/11 3,569,017
-------------
FOOD DISTRIBUTORS - 1.0%
1,950,000 Golden State Foods Corp. ......... B1 NR(a) 7.13% 2/25/11 1,946,344
2,914,286 Nash Finch Company ............... B2 B+ 7.88% 11/12/10 2,914,286
-------------
4,860,630
-------------
FOOD RETAIL - 2.1%
9,952,494 SUPERVALU, Inc. .................. Ba3 BB- 7.19% 6/02/12 9,965,930
-------------
TOTAL FOOD & STAPLES RETAILING 18,395,577
-------------
FOOD PRODUCTS - 4.4%
AGRICULTURAL PRODUCTS - 2.1%
9,961,438 Dole Food Company, Inc. .......... Ba2 B+ 7.37%-9.25% 4/12/13 9,848,258
-------------
PACKAGED FOODS & MEATS - 2.3%
8,827,368 OSI Group, LLC ................... NR(a) NR(a) 7.37% 9/02/11 8,810,817
1,990,000 THL Foods Products Company ....... Ba3 B+ 7.39%-7.55% 11/21/10 1,992,488
-------------
10,803,305
-------------
TOTAL FOOD PRODUCTS 20,651,563
-------------
HEALTH CARE EQUIPMENT & SUPPLIES - 0.6%
HEALTH CARE EQUIPMENT - 0.2%
1,000,000 Encore Medical Finance, LLC ...... Ba3 B 7.87% 11/03/13 1,000,625
-------------
HEALTH CARE SUPPLIES - 0.4%
1,847,857 Angiotech Pharmaceuticals, Inc. .. Ba1 BB- 8.75% 3/23/13 1,827,069
-------------
TOTAL HEALTH CARE EQUIPMENT & SUPPLIES 2,827,694
-------------
See Notes to Financial Statements. Page 9
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS - (CONTINUED)
NOVEMBER 30, 2006 (UNAUDITED)
PRINCIPAL RATINGS+ STATED MARKET
VALUE DESCRIPTION O MOODY'S S&P COUPON MATURITY* VALUE
--------- -------------------------------- ------------- ----------- ------------- -------------
SENIOR FLOATING RATE TERM LOAN INTERESTS** - CONTINUED
HEALTH CARE PROVIDERS & SERVICES - 12.8%
HEALTH CARE FACILITIES - 2.3%
$ 3,000,000 HCA, Inc. ........................ Ba3 BB 8.09% 11/17/13 $ 3,018,921
904,182 Lifepoint Hospitals, Inc. ........ Ba3 BB 6.95% 4/15/12 898,418
5,930,124 Select Medical Corp. ............. Ba1 BB- 7.07%-9.00% 2/24/12 5,804,109
997,500 USP Domestic Holdings, Inc. ...... Ba2 BB- 7.07%-7.18% 6/07/13 999,994
-------------
10,721,442
-------------
HEALTH CARE SERVICES - 9.4%
8,852,668 CHS/Community Health
Systems, Inc. .................. Ba3 BB- 7.07%-7.12% 8/19/11 8,849,508
4,129,167 Davita, Inc. ..................... Ba2 BB- 7.32%-7.69% 10/05/12 4,141,884
943,571 DJ Orthopedics, LLC .............. Ba3 BB- 6.88% 4/07/13 941,212
3,000,000 Emdeon Business Services, LLC .... B1 B+ 7.82% 11/16/13 3,003,750
6,965,000 Fresenius Medical Care AG ........ Ba2 BB+ 6.74%-6.77% 3/31/13 6,918,084
928,571 Healthcare Partners, LLC ......... Ba3 BB 7.32% 10/24/13 929,732
2,000,000 Healthways, Inc. ................. Ba2 BB TBA 12/01/13 2,007,500
937,647 Multiplan Merger Corp. ........... B1 B+ 7.82% 4/12/13 934,912
1,770,115 Per-Se Technologies, Inc. ........ Ba3 B+ 7.57% 1/06/13 1,769,563
1,492,500 Quintiles Transnational Corp. .... B1 BB- 7.37% 3/31/13 1,490,075
2,977,500 Team Finance, LLC ................ B1 B+ 7.82%-7.87% 11/23/12 2,984,015
6,427,819 US Oncology Holdings, Inc. ....... Ba2 B+ 7.62%-7.88% 8/20/11 6,439,871
4,106,254 VWR International, Inc. .......... Ba3 B+ 7.63% 4/07/11 4,113,953
-------------
44,524,059
-------------
MANAGED HEALTH CARE - 1.3%
4,393,850 IASIS Healthcare Corp. ........... Ba2 B+ 7.62% 6/22/11 4,408,130
1,965,224 Vanguard Health Systems, Inc. .... Ba3 B 7.87% 9/23/11 1,964,611
-------------
6,372,741
-------------
TOTAL HEALTH CARE PROVIDERS & SERVICES 60,688,510
-------------
HOTELS, RESTAURANTS & LEISURE - 10.5%
CASINOS & GAMING - 5.2%
5,865,000 Boyd Gaming Corp. ................ Ba1 BB 6.87% 6/30/11 5,858,584
2,964,987 CCM Merger, Inc. ................. Ba3 B 7.37%-7.39% 10/21/12 2,957,574
1,000,000 Greenwood Racing, Inc. ........... B2 B+ TBA 11/28/11 1,002,500
1,000,000 PA Meadows, LLC .................. B2 B 8.37% 11/14/11 1,001,250
1,980,000 Penn National Gaming, Inc. ....... Ba2 BB 7.12%-7.15% 10/03/12 1,987,673
5,000,000 Pinnacle Entertainment, Inc. ..... B1 BB- 0.75% 8/27/10 4,989,585
1,000,000 Pinnacle Entertainment, Inc. ..... B1 BB- 7.32% 12/14/11 1,002,750
6,000,000 VML US Finance, LLC .............. B1 BB- 8.12% 5/25/13 6,027,750
-------------
24,827,666
-------------
HOTELS, RESORTS & CRUISE LINES - 2.3%
3,428,571 Kerzner International Ltd. ....... NR NR 8.39% 9/01/13 3,375,000
2,571,429 Kerzner International Ltd. ....... NR(a) NR(a) 0.50%-8.39% 9/01/13 2,531,250
4,751,713 OpBiz, LLC ....................... B2 CCC+ 8.37% 8/31/10 4,755,671
-------------
10,661,921
-------------
Page 10 See Notes to Financial Statements.
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS - (CONTINUED)
NOVEMBER 30, 2006 (UNAUDITED)
PRINCIPAL RATINGS+ STATED MARKET
VALUE DESCRIPTION O MOODY'S S&P COUPON MATURITY* VALUE
--------- -------------------------------- ------------- ----------- ------------- -------------
SENIOR FLOATING RATE TERM LOAN INTERESTS** - CONTINUED
HOTELS, RESTAURANTS & LEISURE - (CONTINUED)
LEISURE FACILITIES - 2.6%
$ 6,788,831 American Skiing Co. .............. NR(a) NR(a) 9.86%-9.88% 11/24/10 $ 6,805,803
4,488,750 Cedar Fair, L.P .................. Ba3 BB- 7.87% 8/30/12 4,524,287
1,000,000 London Arena and Waterfront
Finance, LLC ................... NR(a) NR(a) 8.89% 3/08/12q 1,006,250
-------------
12,336,340
-------------
RESTAURANTS - 0.4%
2,000,000 QCE LLC (c) ...................... NR(a) NR(a) 11.12% 11/05/13 2,028,000
-------------
TOTAL HOTELS, RESTAURANTS & LEISURE 49,853,927
-------------
HOUSEHOLD DURABLES - 0.8%
HOMEBUILDING - 0.8%
1,000,000 Kyle Acquisition Group, LLC ...... NR(a) NR(a) 8.88% 7/20/09 994,375
250,000 Kyle Acquisition Group, LLC ...... NR(a) NR(a) 8.88% 7/20/11 248,594
1,000,000 EH/Transeastern, LLC and
TE/TOUSA Senior, LLC (i) ....... NR(a) NR 10.25% 8/01/08 818,333
5,000,000 TE/TOUSA Mezzanine, LLC
(Mezzanine Debt) (c) (i) ....... NR(a) NR 12.75% 8/01/09 1,875,000
-------------
TOTAL HOUSEHOLD DURABLES 3,936,302
-------------
INDUSTRIAL CONGLOMERATES - 0.7%
INDUSTRIAL CONGLOMERATES - 0.7%
2,646,429 Goodman Global Holdings, Inc. .... B1 B+ 7.19% 12/23/11 2,643,121
755,944 Mueller Group, Inc. .............. B1 BB- 7.37%-7.62% 10/03/12 758,700
-------------
TOTAL INDUSTRIAL CONGLOMERATES 3,401,821
-------------
INSURANCE - 0.8%
LIFE & HEALTH INSURANCE - 0.8%
4,000,000 Conseco, Inc. .................... Ba3 BB- 7.32% 10/10/13 4,002,500
-------------
TOTAL INSURANCE 4,002,500
-------------
INTERNET SOFTWARE & SERVICES - 1.9%
INTERNET SOFTWARE & SERVICES - 1.9%
8,894,925 SunGard Data Systems, Inc. ....... Ba3 B+ 7.88% 2/11/13 8,954,690
-------------
TOTAL INTERNET SOFTWARE & SERVICES 8,954,690
-------------
IT SERVICES - 6.0%
DATA PROCESSING & OUTSOURCED SERVICES - 0.2%
985,000 Fidelity National Information
Solutions, Inc. & Fidelity
National Tax Service, Inc. ..... Ba1 BB+ 6.57% 3/09/11 982,811
-------------
IT CONSULTING & OTHER SERVICES - 5.8%
3,096,882 Alion Science and
Technology Corp. ............... Ba3 B+ 8.12% 8/02/09 3,089,139
8,865,000 DynCorp International, LLC ....... Ba2 BB- 7.69%-7.81% 6/28/12 8,901,940
995,000 iPayment, Inc. ................... NR(a) NR(a) 7.32%-7.37% 5/10/13 992,513
1,000,000 National Processing Company
Group, Inc. .................... B2 B 8.31% 9/29/13 1,002,500
3,000,000 Sanmina - SCI Corp. (d) .......... Ba2 BB- 7.88% 1/31/08 3,006,000
See Notes to Financial Statements. Page 11
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS - (CONTINUED)
NOVEMBER 30, 2006 (UNAUDITED)
PRINCIPAL RATINGS+ STATED MARKET
VALUE DESCRIPTION O MOODY'S S&P COUPON MATURITY* VALUE
--------- -------------------------------- ------------- ----------- ------------- -------------
SENIOR FLOATING RATE TERM LOAN INTERESTS** - CONTINUED
IT SERVICES - (CONTINUED)
IT CONSULTING & OTHER SERVICES - (CONTINUED)
$ 6,000,000 West Corporation ................. Ba3 B+ 8.07% 10/24/13 $ 5,988,216
3,125,000 Wyle Laboratories, Inc. (c) ...... NR(a) B- 11.87% 7/28/11 3,164,063
1,422,900 Wyle Laboratories, Inc. .......... NR(a) B+ 8.11%-8.12% 1/28/11 1,427,347
-------------
27,571,718
-------------
TOTAL IT SERVICES 28,554,529
-------------
MACHINERY - 0.2%
INDUSTRIAL MACHINERY - 0.2%
470,000 Invensys International
Holdings Ltd. .................. Ba3 B- 7.37% 12/15/10 472,350
530,000 Invensys International
Holdings Ltd. .................. Ba3 B- 7.40% 1/15/11 532,650
-------------
TOTAL MACHINERY 1,005,000
-------------
MEDIA - 31.4%
ADVERTISING - 1.0%
5,001,861 Adams Outdoor Advertising, L.P. .. B1 B+ 7.12%-7.13% 10/18/12 5,004,987
-------------
BROADCASTING & CABLE TV - 17.5%
3,910,000 Bragg Communications, Inc. ....... NR(a) NR 7.12% 8/31/11 3,910,000
17,380,000 Century Cable Holdings, LLC (g) .. NR NR 10.25% 6/30/09 16,954,937
3,000,000 Cequel Communications, LLC ....... B1 B+ 7.62% 11/05/13 2,989,923
3,000,000 Cequel Communications, LLC ....... NR NR 10.36% 10/30/07 2,998,125
12,983,858 Charter Communications
Operating, LLC ................. B1 B 8.01% 4/28/13 13,065,825
10,945,000 CSC Holdings, Inc. ............... Ba2 BB 7.11%-7.13% 3/29/13 10,924,938
997,500 Cumulus Media, Inc. .............. Ba3 B 7.32%-7.63% 6/07/13 999,744
1,326,616 DIRECTV Holdings LLC ............. Baa3 BB 6.82% 4/13/13 1,326,465
3,482,500 LBI Media, Inc. .................. Ba2 B 6.82%-6.88% 3/31/12 3,430,263
2,886,237 NEP Supershooters, L.P. .......... Ba3 NR(a) 8.87% 2/03/11 2,911,492
7,000,000 PanAmSat Corp. ................... Ba2 BB 7.87% 12/03/13 7,060,277
1,000,000 Paxson Communications Corp. ...... B1 CCC+ 8.62% 1/15/12 1,016,250
6,449,375 Raycom Media, Inc. ............... NR NR 6.88% 8/28/13 6,401,005
4,500,000 UPC Distribution Holding B.V. .... B1 B 7.64% 3/31/13 4,497,471
4,500,000 UPC Distribution Holding B.V. .... B1 B 7.64% 12/31/13 4,497,471
-------------
82,984,186
-------------
MOVIES & ENTERTAINMENT - 4.8%
4,863,250 AMC Entertainment, Inc. .......... Ba1 B+ 7.45% 1/26/13 4,886,555
1,525,010 Deluxe Entertainment Services
Group, Inc. .................... B1 B 8.37% 1/28/11 1,532,466
6,965,000 Metro-Goldwyn-Mayer
Holdings II, Inc. .............. NR(a) NR(a) 8.62% 4/08/12 6,875,451
9,738,155 WMG Acquisition Corp. ............ Ba2 BB- 7.37%-7.41% 3/01/11 9,763,718
-------------
23,058,190
-------------
Page 12 See Notes to Financial Statements.
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS - (CONTINUED)
NOVEMBER 30, 2006 (UNAUDITED)
PRINCIPAL RATINGS+ STATED MARKET
VALUE DESCRIPTION O MOODY'S S&P COUPON MATURITY* VALUE
--------- -------------------------------- ------------- ----------- ------------- -------------
SENIOR FLOATING RATE TERM LOAN INTERESTS** - CONTINUED
MEDIA - (CONTINUED)
PUBLISHING - 8.1%
$ 962,742 Caribe Information
Investments, Inc. .............. B1 B 7.63%-7.64% 3/31/13 $ 962,140
4,313,725 CBD Media, LLC ................... Ba2 B 7.70 12/31/09 4,333,495
816,672 Dex Media West, Inc. ............. Ba1 BB 6.86%-6.89% 3/09/10 813,609
10,000,000 Idearc, Inc. ..................... Ba2 BB+ 7.32% 11/17/14 10,044,380
1,995,000 Media News Group, Inc. ........... Ba2 BB- 7.07% 8/02/13 1,994,585
1,965,075 Media News Group, Inc. ........... Ba2 BB- 6.57% 12/30/10 1,938,875
3,630,000 Newspaper Holdings, Inc. ......... NR NR 6.94% 8/24/12 3,600,506
956,004 Nexstar Broadcasting, Inc. ....... Ba3 B 7.12% 10/01/12 953,016
906,066 Nexstar Broadcasting, Inc. ....... Ba3 B+ 7.12% 10/01/12 903,234
1,496,224 PBI Media, Inc. .................. B1 B 7.62%-7.63% 9/30/12 1,495,600
990,000 PRIMEDIA, Inc. ................... B2 B 7.57% 9/30/13 986,288
6,549,602 RH Donnelley, Inc. ............... Ba1 BB 6.85%-6.89% 6/30/11 6,522,258
1,800,582 WCP Exposition Services
Operating Company, LLC ......... NR NR 8.87%-9.12% 8/29/11 1,809,585
1,000,000 Wenner Media LLC ................. NR(a) NR(a) 7.11% 10/02/13 1,002,500
1,000,000 Yell Group PLC ................... Ba3 BB- 7.32% 10/27/13 1,003,808
-------------
38,363,879
-------------
TOTAL MEDIA 149,411,242
-------------
METALS & MINING - 1.5%
ALUMINUM - 0.9%
4,356,923 Novelis Corp. .................... Ba2 BB- 7.62% 1/07/12 4,362,370
-------------
DIVERSIFIED METALS & MINING - 0.6%
2,977,500 Alpha Natural Resources, LLC ..... B1 BB- 7.12% 10/26/12 2,973,778
-------------
TOTAL METALS & MINING 7,336,148
-------------
MULTI - UTILITIES - 1.5%
MULTI-UTILITIES - 1.5%
985,000 KGEN, LLC ........................ B2 B 7.99% 8/05/11 983,769
5,780,255 KGEN, LLC (c) (h) ................ B3 B- 14.37% 8/05/11 5,895,860
-------------
TOTAL MULTI - UTILITIES 6,879,629
-------------
OIL, GAS & CONSUMABLE FUELS - 7.2%
COAL & CONSUMABLE FUELS - 0.2%
1,000,000 Banta Corp. ...................... Ba2 BB TBA 11/19/13 1,001,250
-------------
OIL & GAS EXPLORATION & PRODUCTION - 3.5%
8,425,150 ATP Oil & Gas Corp. .............. NR NR 8.82%-9.11% 4/14/10 8,509,402
4,365,298 Plains Resources, Inc. ........... Ba2 BB 6.87% 8/12/11 4,365,298
2,000,000 Resolute Aneth, LLC (c) .......... NR NR 10.36% 4/13/12 2,000,000
1,881,690 SemCrude, L.P. ................... Ba2 B+ 7.57%-7.64% 3/16/11 1,891,098
-------------
16,765,798
-------------
OIL & GAS REFINING, MARKETING & TRANSPORTATION - 3.5%
997,500 Alon USA, Inc. ................... B1 BB- 7.62%-7.68% 6/22/13 1,001,241
442,778 Calumet Lubricants Company. L.P. . B1 BB- 8.74%-8.89% 12/09/12 442,778
2,000,000 Coffeyville Resources, LLC (c) ... B3 B 12.13% 7/08/13 2,055,000
6,890,593 Eagle Rock Gas Gathering
& Processing, Ltd. ............. NR NR 7.57% 12/03/12 6,890,593
See Notes to Financial Statements. Page 13
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS - (CONTINUED)
NOVEMBER 30, 2006 (UNAUDITED)
PRINCIPAL RATINGS+ STATED MARKET
VALUE DESCRIPTION O MOODY'S S&P COUPON MATURITY* VALUE
--------- -------------------------------- ------------- ----------- ------------- -------------
SENIOR FLOATING RATE TERM LOAN INTERESTS** - CONTINUED
OIL, GAS & CONSUMABLE FUELS - (CONTINUED)
OIL & GAS REFINING, MARKETING & TRANSPORTATION - (CONTINUED)
$ 3,000,000 El Paso Corp. .................... Ba3 B+ 7.22% 7/31/11 $ 3,012,657
990,000 EPCO Holdings, Inc. .............. Ba2 B+ 7.32%-7.37% 8/18/10 993,359
2,000,000 Regency Gas Service LLC .......... B1 B+ 7.82% 8/15/13 2,000,000
-------------
16,395,628
-------------
TOTAL OIL, GAS & CONSUMABLE FUELS 34,162,676
-------------
PAPER & FOREST PRODUCTS - 4.0%
FOREST PRODUCTS - 4.0%
4,750,000 Georgia-Pacific Corp. (c) ........ Ba3 B+ 8.39% 12/23/13 4,760,203
14,158,087 Georgia-Pacific Corp. ............ Ba2 BB- 7.37%-7.39% 12/20/12 14,183,161
-------------
TOTAL PAPER & FOREST PRODUCTS 18,943,364
-------------
PERSONAL PRODUCTS - 0.2%
PERSONAL PRODUCTS - 0.2%
1,000,000 American Safety Razor
Company (c) .................... B3 CCC+ 11.72% 1/30/14 1,010,000
-------------
TOTAL PERSONAL PRODUCTS 1,010,000
-------------
REAL ESTATE INVESTMENT TRUSTS (REIT) - 3.6%
RESIDENTIAL REITS - 0.0%
44,737 Lion Gables Realty, L.P. ......... Ba2 BB+ 7.07% 3/30/07 44,746
-------------
RETAIL REITS - 3.6%
6,046,709 Capital Automotive, L.P. ......... Ba1 BB+ 7.07% 12/16/10 6,055,210
9,000,000 General Growth Properties, Inc. .. Ba2 BB+ 6.57% 2/24/10 8,933,904
2,000,000 Macerich Partnership (The), L.P. . NR NR(a) 6.88% 4/26/10 1,995,834
-------------
16,984,948
-------------
TOTAL REAL ESTATE INVESTMENT TRUSTS (REIT) 17,029,694
-------------
REAL ESTATE MANAGEMENT & DEVELOPMENT - 4.2%
REAL ESTATE MANAGEMENT & DEVELOPMENT - 4.2%
2,125,000 LNR Property Corp. ............... B2 NR(a) 8.12% 6/12/09 2,125,000
4,500,000 LNR Property Corp. ............... B2 NR(a) 8.12% 7/12/11 4,509,374
729,599 Newkirk Master (The) L.P. ........ Ba2 BB+ 7.07% 8/11/08 728,915
995,000 November 2005 Land
Investors, LLC ................. B1 BB 8.12% 5/09/11 975,100
1,000,000 November 2005 Land
Investors, LLC (c) ............. Caa1 B 12.37% 5/30/12 940,000
3,925,138 Palmdale Hills Property, LLC ..... B1 B+ 8.35%-8.38% 5/19/10 3,728,882
3,950,000 Pivotal Promontory, LLC .......... NR(a) NR(a) 8.07% 8/31/10 3,843,350
1,696,454 Rhodes Companies (The), LLC ..... B1 BB- 8.62% 11/21/10 1,637,078
1,500,000 Shea Capital I, LLC .............. NR(a) NR(a) 7.35% 10/27/11 1,462,500
-------------
TOTAL REAL ESTATE MANAGEMENT & DEVELOPMENT 19,950,199
-------------
ROAD & RAIL - 3.0%
TRUCKING - 3.0%
4,580,115 Hertz (The) Corp. ................ Ba1 BB 7.32%-7.37% 12/21/12 4,608,361
9,500,000 Oshkosh Truck Corp. .............. Ba3 BB TBA 11/17/13 9,523,750
-------------
TOTAL ROAD & RAIL 14,132,111
-------------
Page 14 See Notes to Financial Statements.
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS - (CONTINUED)
NOVEMBER 30, 2006 (UNAUDITED)
PRINCIPAL RATINGS+ STATED MARKET
VALUE DESCRIPTION O MOODY'S S&P COUPON MATURITY* VALUE
--------- -------------------------------- ------------- ----------- ------------- -------------
SENIOR FLOATING RATE TERM LOAN INTERESTS** - CONTINUED
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 1.2%
SEMICONDUCTORS - 1.2%
$ 5,500,000 Freescale Semiconductors, Inc. ... Baa3 BB TBA 12/01/13 $ 5,518,909
-------------
TOTAL SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT 5,518,909
-------------
SOFTWARE - 0.5%
SYSTEM SOFTWARE - 0.5%
2,250,000 Intergraph Corp. ................. B1 B TBA 5/29/14 2,264,063
-------------
TOTAL SOFTWARE 2,264,063
-------------
SPECIALTY RETAIL - 4.8%
APPAREL RETAIL - 1.9%
1,000,000 Hanesbrands, Inc. (c) ............ B1 B- 9.19% 2/05/14 1,021,607
2,000,000 Hanesbrands, Inc. ................ Ba2 BB- 7.63%-7.69% 9/05/13 2,013,200
5,848,101 Neiman Marcus Group (The), Inc. .. Ba3 B+ 7.64% 4/06/13 5,884,652
-------------
8,919,459
-------------
SPECIALTY STORES - 2.9%
1,218,875 Dollarama Group L.P. ............. Ba2 B+ 7.38% 11/18/11 1,221,160
3,775,492 Harbor Freight Tools USA, Inc. ... NR(a) NR(a) 7.11%-7.12% 7/15/10 3,764,166
6,000,000 Michaels Stores, Inc. ............ B2 B- 8.38% 10/31/13 6,012,750
2,977,500 TravelCenters of America, Inc. ... B1 BB 7.10%-7.12% 12/01/11 2,973,778
-------------
13,971,854
-------------
TOTAL SPECIALTY RETAIL 22,891,313
-------------
TOBACCO - 0.8%
TOBACCO - 0.8%
933,917 Commonwealth Brands, Inc. ........ NR(a) NR(a) 7.69% 12/22/12 938,820
2,992,500 Reynolds American, Inc. .......... Baa2 BB+ 7.10%-7.19% 5/31/12 3,011,203
-------------
TOTAL TOBACCO 3,950,023
-------------
TRANSPORTATION INFRASTRUCTURE - 1.0%
MARINE PORTS & SERVICES - 1.0%
4,857,953 Horizon Lines Holding, LLC ....... B2 B 7.62% 7/07/11 4,867,062
-------------
TOTAL TRANSPORTATION INFRASTRUCTURE 4,867,062
-------------
WIRELESS TELECOMMUNICATION SERVICES - 1.3%
WIRELESS TELECOMMUNICATION SERVICES - 1.3%
2,000,000 Clearwire Corp. .................. NR NR 12.11% 8/18/09 2,015,000
4,000,000 Windstream Corp. ................. Ba1 BBB- 7.12% 7/17/13 4,020,716
-------------
TOTAL WIRELESS TELECOMMUNICATION SERVICES 6,035,716
-------------
TOTAL SENIOR FLOATING RATE TERM LOAN INTERESTS** .................................. 727,194,668
-------------
(Cost $731,217,771)
SENIOR FLOATING RATE NOTES - 5.5%
CONTAINERS & PACKAGING - 0.1%
METAL & GLASS CONTAINERS - 0.1%
250,000 Berry Plastics Holdings Corp. (e) B2 CCC+ 9.27% 9/15/14 252,188
-------------
TOTAL CONTAINERS & PACKAGING 252,188
-------------
See Notes to Financial Statements. Page 15
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS - (CONTINUED)
NOVEMBER 30, 2006 (UNAUDITED)
PRINCIPAL RATINGS+ STATED MARKET
VALUE DESCRIPTION O MOODY'S S&P COUPON MATURITY* VALUE
--------- -------------------------------- ------------- ----------- ------------- -------------
SENIOR FLOATING RATE NOTES - CONTINUED
ELECTRICAL COMPONENTS & EQUIPMENT - 0.1%
ELECTRICAL COMPONENTS & EQUIPMENT - 0.1%
$ 650,000 NXP B.V. (e) ..................... Ba2 BB+ 8.12% 10/15/13 $ 659,750
-------------
TOTAL ELECTRICAL COMPONENTS & EQUIPMENT 659,750
-------------
ENERGY EQUIPMENT & SERVICES - 0.2%
OIL & GAS DRILLING - 0.2%
1,000,000 Parker Drilling Company .......... B2 B- 10.15% 9/01/10 1,021,250
-------------
TOTAL ENERGY EQUIPMENT & SERVICES 1,021,250
-------------
FOOD & STAPLES RETAILING - 0.5%
FOOD DISTRIBUTORS - 0.5%
2,100,000 Nutro Products, Inc. (e) ......... B3 CCC 9.40% 10/15/13 2,163,000
-------------
TOTAL FOOD & STAPLES RETAILING 2,163,000
-------------
HEALTH CARE PROVIDERS & SERVICES - 0.2%
HEALTH CARE FACILITIES - 0.2%
1,000,000 US Oncology Holdings, Inc. (d) ... B3 B- 10.68% 3/15/15 1,027,500
-------------
TOTAL HEALTH CARE PROVIDERS & SERVICES 1,027,500
-------------
HOTELS, RESTAURANTS & LEISURE - 0.9%
LEISURE FACILITIES - 0.9%
2,000,000 HRP Myrtle Beach (e) ............. B2 B 10.12% 4/01/12 1,995,000
2,000,000 Universal City Florida
Holding Company ................ B3 B- 10.12% 5/01/10 2,055,000
-------------
TOTAL HOTELS, RESTAURANTS & LEISURE 4,050,000
-------------
HOUSEHOLD DURABLES - 0.4%
HOMEBUILDING - 0.4%
1,800,000 Builders FirstSource, Inc. (c) ... B3 B- 9.62% 2/15/12 1,764,000
-------------
TOTAL HOUSEHOLD DURABLES 1,764,000
-------------
MEDIA - 1.0%
BROADCASTING & CABLE TV - 1.0%
5,000,000 Paxson Communications Corp. (e) .. B1 CCC+ 8.62% 1/15/12 4,975,000
-------------
TOTAL MEDIA 4,975,000
-------------
PAPER & FOREST PRODUCTS - 0.2%
PAPER PRODUCTS - 0.2%
1,000,000 Verso Paper Holdings LLC (e) ..... B2 BB 9.12% 8/01/14 1,020,000
-------------
TOTAL PAPER & FOREST PRODUCTS 1,020,000
-------------
PHARMACEUTICALS - 0.5%
PHARMACEUTICALS - 0.5%
2,500,000 Elan Finance and Elan Finance
Corp. (d) ...................... B3 B 9.37% 11/15/11 2,487,500
-------------
TOTAL PHARMACEUTICALS 2,487,500
-------------
Page 16 See Notes to Financial Statements.
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS - (CONTINUED)
NOVEMBER 30, 2006 (UNAUDITED)
PRINCIPAL RATINGS+ STATED MARKET
VALUE DESCRIPTION O MOODY'S S&P COUPON MATURITY* VALUE
--------- -------------------------------- ------------- ----------- ------------- -------------
SENIOR FLOATING RATE NOTES - CONTINUED
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 0.4%
SEMICONDUCTORS - 0.4%
$ 2,000,000 Freescale Semiconductors,
Inc. (d) (e) ................... Baa3 BB TBA 12/15/14 $ 1,992,500
-------------
TOTAL SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT 1,992,500
-------------
WIRELESS TELECOMMUNICATION SERVICES - 1.0%
WIRELESS TELECOMMUNICATION SERVICES - 1.0%
4,500,000 Intelsat, Ltd. (d) ............... B2 B+ 9.61% 1/15/12 4,556,250
-------------
TOTAL WIRELESS TELECOMMUNICATION SERVICES 4,556,250
-------------
TOTAL SENIOR FLOATING RATE NOTES .................................................. 25,968,938
-------------
(Cost $25,803,618)
MARKET
SHARES DESCRIPTION O VALUE
--------- -------------------------------- -------------
CLOSED-END FUNDS - 0.5%
CAPITAL MARKETS - 0.5%
ASSET MANAGEMENT AND CUSTODY BANKS - 0.5%
337,800 ING Prime Rate Trust ............. 2,428,782
-------------
TOTAL CAPITAL MARKETS 2,428,782
-------------
TOTAL CLOSED-END FUNDS ............................................................ 2,428,782
-------------
(Cost $2,363,009)
See Notes to Financial Statements. Page 17
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND II
PORTFOLIO OF INVESTMENTS - (CONTINUED)
NOVEMBER 30, 2006 (UNAUDITED)
PRINCIPAL MARKET
VALUE DESCRIPTION O VALUE
--------- -------------------------------- -------------
REPURCHASE AGREEMENT - 0.4%
(Cost $2,000,000)
$ 2,000,000 Repurchase agreement with Wachovia Capital Markets, LLC, 5.24% dated
11/30/06, to be repurchased at $2,000,291 on 12/01/06, collateralized by
$2,093,000, Federal Home Loan Mortgage Corp., 5.63% due 5/16/07
(Value $2,040,000) ................................................................ $ 2,000,000
-------------
TOTAL INVESTMENTS - 159.6% .......................................................... 757,592,112
(Cost $761,384,398) (b)
NET OTHER ASSETS AND LIABILITIES - (3.2)% ........................................... $ (15,290,813)
LOAN OUTSTANDING - (35.1)% .......................................................... (167,000,000)
AUCTION MARKET PREFERRED SHARES, AT LIQUIDATION VALUE - (21.0)% ..................... (100,000,000)
-------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS - 100.0% ............................... $ 475,301,299
=============
-----------------------------------------------
o All percentages shown in the Portfolio of Investments are based
on net assets applicable to Common Shares.
(a) This Senior Loan Interest was privately rated upon issuance. The
rating agency does not provide ongoing surveillance on the
rating.
(b) Aggregate cost for federal income tax and financial reporting
purposes.
(c) This issue is secured by a second lien on the issuer's assets.
(d) This issue is unsecured.
(e) Securities are restricted and cannot be offered for public sale
without first being registered under the Securities Act of 1933,
as amended (Note 2E).
(f) This borrower has filed for protection in a federal bankruptcy
court.
(g) This Senior Loan Interest was purchased subsequent to the
borrower's filing for protection in federal bankruptcy court and
has priority over other debt holders.
(h) Payment-in-Kind
(i) This Senior Loan Interest is non-income producing.
+ Ratings below Baa3 by Moody's Investors Service, Inc. or BBB- by
Standard & Poor's Ratings Group are considered to be below
investment grade.
NR Not rated
TBA To be announced.
* Senior Loans generally are subject to mandatory and/or optional
prepayment. Prepayments of Senior Loans may occur because of the
mandatory prepayment conditions and because there may be
significant economic incentives for a borrower to optionally
prepay. As a result, the actual remaining maturity of Senior
Loans may be substantially less than the stated maturities
shown. Senior Loans generally have maturities that range from
five to eight years; however, the Fund estimates that
refinancing and prepayments result in an average maturity of the
Senior Loans held in its portfolio to be approximately 18-30
months.
** Senior Loans in which the Fund invests generally pay interest at
rates which are periodically predetermined by reference to a
base lending rate plus a premium. These base lending rates are
generally (i) the lending rate offered by one or more major
European banks, such as the London Inter-Bank Offered Rate
("LIBOR"), (ii) the prime rate offered by one or more major
United States banks or (iii) the certificate of deposit rate.
Page 18 See Notes to Financial Statements.
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND II
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 2006 (UNAUDITED)
ASSETS:
Investments, at value
(Cost $761,384,398) ............................................................................................ $757,592,112
Cash .............................................................................................................. 15,597,663
Prepaid expenses .................................................................................................. 40,597
Receivables:
Investment securities sold ..................................................................................... 18,078,486
Interest ....................................................................................................... 8,310,016
Dividends ...................................................................................................... 13,551
-------------
Total Assets ................................................................................................... 799,632,425
-------------
LIABILITIES:
Payables:
Outstanding loan ............................................................................................... 167,000,000
Investment securities purchased ................................................................................ 55,671,818
Interest and fees due on loan .................................................................................. 825,492
Investment advisory fees ....................................................................................... 450,315
Audit and legal fees ........................................................................................... 125,481
Printing fees .................................................................................................. 105,585
Accumulated unpaid dividends on Auction Market Preferred Shares ................................................ 80,086
Administrative fees ............................................................................................ 30,181
Trustees' fees and expenses .................................................................................... 10,000
Custodian fees ................................................................................................. 4,578
Accrued expenses and other liabilities ............................................................................ 27,590
-------------
Total Liabilities .............................................................................................. 224,331,126
-------------
NET ASSETS INCLUDING AUCTION MARKET PREFERRED SHARES .............................................................. $575,301,299
-------------
AUCTION MARKET PREFERRED SHARES:
($0.01 par value, 4,000 shares issued with liquidation preference of $25,000 per share, unlimited number of
Auction Market Preferred Shares have been authorized) ........................................................... 100,000,000
-------------
NET ASSETS (APPLICABLE TO COMMON SHAREHOLDERS) .................................................................... $475,301,299
=============
NET ASSETS CONSIST OF:
Undistributed net investment income ............................................................................... $ 3,437,893
Accumulated net realized loss on investments sold ................................................................. (4,687,691)
Net unrealized depreciation of investments ........................................................................ (3,792,286)
Par value ......................................................................................................... 252,728
Paid-in capital ................................................................................................... 480,090,655
-------------
Net Assets (Applicable to Common Shareholders) ................................................................. $475,301,299
=============
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share) .............................................. $ 18.81
=============
Number of Common Shares outstanding (unlimited number of Common Shares has been authorized) ....................... 25,272,768
=============
See Notes to Financial Statements. Page 19
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND II
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2006 (UNAUDITED)
INVESTMENT INCOME:
Interest .......................................................................................................... $ 29,273,777
Dividends ......................................................................................................... 532,915
Other ............................................................................................................. 368,507
-------------
Total investment income ........................................................................................ 30,175,199
-------------
EXPENSES:
Interest and fees on outstanding loan payable ..................................................................... 5,061,444
Investment advisory fees .......................................................................................... 2,817,299
Administration fees ............................................................................................... 187,859
Auction Market Preferred Shares(R) commission fees ................................................................ 127,315
Printing fees ..................................................................................................... 108,201
Audit and legal fees .............................................................................................. 105,359
Custodian fees .................................................................................................... 42,988
Trustees' fees and expenses ....................................................................................... 26,634
Transfer agent fees ............................................................................................... 18,177
Other ............................................................................................................. 111,884
-------------
Total expenses ................................................................................................. 8,607,160
-------------
NET INVESTMENT INCOME ............................................................................................. 21,568,039
-------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Realized gain on investments during the period .................................................................... 519,049
Net change in unrealized depreciation of investments during the period ............................................ (5,777,499)
-------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS ................................................................... (5,258,450)
-------------
AUCTION MARKET PREFERRED SHARE DIVIDENDS .......................................................................... (2,605,166)
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .............................................................. $ 13,704,423
=============
Page 20 See Notes to Financial Statements.
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND II
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR
11/30/2006 ENDED
(UNAUDITED) 5/31/2006
--------------- ---------------
OPERATIONS:
Net investment income .................................................................. $ 21,568,039 $ 37,354,362
Net realized gain on investments during the period ..................................... 519,049 (2,617,043)
Net change in unrealized depreciation of investments during the period ................. (5,777,499) 3,586,095
Distributions to Preferred Shareholders:
Dividends paid from net investment income ........................................... (2,605,166) (4,043,690)
--------------- ---------------
Net increase in net assets resulting from operations ................................... 13,704,423 34,279,724
DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM:
Dividends paid from net investment income .............................................. (18,557,794) (32,314,434)
Dividends paid from net realized short-term gains ...................................... -- (595,765)
--------------- ---------------
Total distributions to Common Shareholders ............................................. (18,557,794) (32,910,199)
--------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS APPLICABLE TO
COMMON SHAREHOLDERS .................................................................... (4,853,371) 1,369,525
NET ASSETS (APPLICABLE TO COMMON SHAREHOLDERS):
Beginning of period .................................................................... 480,154,670 478,785,145
--------------- ---------------
End of period .......................................................................... $ 475,301,299 $ 480,154,670
=============== ===============
Undistributed net investment income at end of period ................................... $ 3,437,893 $ 3,032,814
=============== ===============
See Notes to Financial Statements. Page 21
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND II
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2006 (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations ........................... $ 13,704,423
Adjustments to reconcile net increase in net assets resulting
from operations to net cash provided by operating activities:
Changes in assets and liabilities:
Decrease in investments, at value* .......................................... 2,765,098
Decrease in dividends receivable ............................................ 4,633
Increase in interest receivable ............................................. (2,057,527)
Increase in prepaid expenses.. .............................................. (16,526)
Increase in receivable for investment securities sold ....................... (6,488,805)
Increase in payable for investment securities purchased ..................... 30,019,879
Decrease in accumulated unpaid dividends on Auction Market Preferred Shares . (78,742)
Decrease in interest and fees due on loan ................................... (49,818)
Decrease in investment advisory fees payable ................................ (32,510)
Increase in audit and legal fees payable .................................... 41,715
Increase in printing fees payable ........................................... 35,684
Decrease in administrative fees payable ..................................... (1,939)
Decrease in custodian fees payable .......................................... (22,966)
Increase in trustees' fees and expenses payable ............................. 12,500
Decrease in accrued expenses and other liabilities .......................... (1,467)
--------------
CASH USED BY OPERATING ACTIVITIES .............................................. $ 37,833,632
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to shareholders from net investment income and capital gains .. (18,557,794)
Issuance of loan ............................................................ 45,000,000
Repayment of loan ........................................................... (55,000,000)
--------------
CASH PROVIDED BY FINANCING ACTIVITIES .......................................... (28,557,794)
---------------
Increase in cash ............................................................... 9,275,838
Cash at beginning of year ...................................................... 6,321,825
---------------
Cash at end of period .......................................................... $ 15,597,663
===============
---------------------------------------------
* Includes net change in unrealized appreciation on investments of $(5,784,248).
Page 22 See Notes to Financial Statements.
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND II
FINANCIAL HIGHLIGHTS
FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX MONTHS
ENDED YEAR YEAR PERIOD
11/30/2006 ENDED ENDED ENDED
(UNAUDITED) 5/31/2006 5/31/2005 5/31/2004*
----------- --------- --------- ---------
Net asset value, beginning of period ............................... $ 19.00 $ 18.94 $ 19.04 $ 19.10(g)
----------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income/(loss) ....................................... 0.85 1.48 0.95 (0.00)#
Net realized and unrealized gain/(loss) on investments ............. (0.21) 0.04 (0.02) (0.02)
Distributions paid to AMP*** Shareholders:
Dividends paid from net investment income ....................... (0.10) (0.16) (0.07) --
----------- --------- --------- ---------
Total from investment operations ................................... 0.54 1.36 0.86 (0.02)
----------- --------- --------- ---------
DISTRIBUTIONS PAID TO COMMON SHAREHOLDERS:
Dividends paid from net investment income ....................... (0.73) (1.28) (0.91) --
Dividends paid from net realized short-term gains ............... -- (0.02) -- --
----------- --------- --------- ---------
Total distributions to Common Shareholders ......................... (0.73) (1.30) (0.91) --
----------- --------- --------- ---------
Dilutive impact from the offering of AMP Shares++ .................. -- -- (0.05) --
----------- --------- --------- ---------
Common Share offering costs charged to paid-in capital ............. -- -- -- (0.04)
----------- --------- --------- ---------
Net asset value, end of period ..................................... $ 18.81 $ 19.00 $ 18.94 $ 19.04
=========== ========= ========= =========
Market value, end of period ........................................ $ 17.95 $ 17.61 $ 17.89 $ 20.01
=========== ========= ========= =========
TOTAL RETURN BASED ON NET ASSET VALUE (A)+ ......................... 3.16% 8.06% 4.38% (0.31)%
=========== ========= ========= =========
TOTAL RETURN BASED ON MARKET VALUE (B)+ ............................ 6.21% 6.03% (6.20)% 0.05%
=========== ========= ========= =========
RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON SHAREHOLDERS:
Ratio of total expenses to average net assets excluding
interest expense ................................................ 1.48% ** 1.45% 1.30% 1.44%**
Ratio of total expenses to average net assets ...................... 3.60% ** 3.08% 2.02% --
Ratio of net investment income/(loss) to average net assets ........ 9.03% ** 7.77% 5.01% (0.76)%**
Ratio of net investment income to average net assets
net of AMP dividends (f) ........................................ 7.94% ** 6.93% 4.59% N/A
SUPPLEMENTAL DATA:
Portfolio turnover rate ............................................ 31% 81% 115% 0%
Net assets, end of period (in 000's) ............................... $ 475,301 $ 480,155 $ 478,785 $ 437,945
--------------------------------------------------
Ratio of total expenses to total average Managed Assets
excluding interest expense ...................................... 0.94% ** 0.93% 0.92% 1.44%**
Ratio of total expenses to total average Managed Assets ............ 2.29% ** 1.97% 1.43% N/A
SENIOR SECURITIES:
Total AMP Shares Outstanding ....................................... 4,000 4,000 4,000 N/A
Liquidation and market value per AMP share (c) ..................... $ 25,020 $ 25,040 $ 25,031 N/A
Asset coverage per share (d) ....................................... $ 185,576 $ 189,289 $ 191,446 N/A
Loan outstanding (in 000's) ........................................ $ 167,000 $ 177,000 $ 187,000 N/A
Asset coverage per $1,000 of loan outstanding (e) .................. $ 4,445 $ 4,278 $ 4,095 N/A
--------------------------------------------------
* The Fund commenced operations on May 18, 2004.
** Annualized.
*** Auction Market Preferred Shares.
# Amount represents less than $0.01 per Common Share.
(a) Total return based on net asset value is the combination of reinvested
dividend distributions and reinvested capital gains distributions, if any,
at prices obtained by the Dividend Reinvestment Plan and changes in net
asset value per share and does not reflect sales load.
(b) Total return based on market value is the combination of reinvested dividend
distributions and reinvested capital gains distributions, if any, at prices
obtained by the Dividend Reinvestment Plan and changes in Common Share
market price per share, all based on Common Share market price per share.
(c) Includes accumulated and unpaid distributions to AMP Shareholders.
(d) Calculated by subtracting the Fund's total liabilities (not including the
AMP Shares and loan outstanding) from the Fund's total assets, and dividing
by the number of AMP Shares outstanding.
(e) Calculated by subtracting the Fund's total liabilities (not including the
AMP Shares and loan outstanding) from the Fund's total assets, and dividing
by the outstanding loan balance.
(f) The net investment income ratio reflects income net of operating expenses
and distributions to AMP Shareholders.
(g) Net of sales load of $0.90 per Common Share on initial offering.
+ Total return is not annualized for periods less than one year.
++ The expenses associated with the offering of the AMP Shares had a $(0.05)
impact on the Common Share NAV.
N/A Not Applicable
See Notes to Financial Statements. Page 23
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND II
NOVEMBER 30, 2006 (UNAUDITED)
1. FUND DESCRIPTION
First Trust/Four Corners Senior Floating Rate Income Fund II (the "Fund") is a
diversified, closed-end management investment company organized as a
Massachusetts business trust on March 25, 2004, and is registered with the
Securities and Exchange Commission ("SEC") under the Investment Company Act of
1940, as amended (the "1940 Act"). The Fund trades under the ticker symbol FCT
on the New York Stock Exchange ("NYSE").
The Fund's primary investment objective is to seek a high level of current
income. As a secondary objective, the Fund will attempt to preserve capital. The
Fund will pursue these objectives through investment in a portfolio of senior
secured floating rate corporate loans ("Senior Loans"). There can be no
assurance that the Fund will achieve its investment objectives. 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. The Fund may not be appropriate for all
investors.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
A. PORTFOLIO VALUATION:
The net asset value ("NAV") of the Common Shares of the Fund is computed based
upon the value of the Fund's portfolio and other assets less any accrued
liabilities. The NAV is determined as of the close of regular trading on the
NYSE, normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading.
Domestic debt securities and foreign securities are priced using data reflecting
the earlier closing of the principal markets for those securities. The Fund
calculates NAV per Common Share by subtracting the Fund's liabilities (including
accrued expenses, dividends payable and any borrowings of the Fund) and the
liquidation value of any outstanding Preferred Shares from the Fund's Total
Assets (the value of securities and other investments the Fund holds plus cash
or other assets, including interest accrued but not yet received), and dividing
the result by the total number of Common Shares outstanding.
The Fund's investments are valued daily at market value or, in the absence of
market value with respect to any portfolio securities, at fair value according
to procedures adopted by the Fund's Board of Trustees. A majority of the Fund's
assets are valued using market information supplied by third parties. In the
event that market quotations are not readily available, the pricing service does
not provide a valuation for a particular asset, or the valuations are deemed
unreliable, or if events occurring after the close of the principal markets for
particular securities (e.g., domestic debt and foreign securities), but before
the Fund values its assets, would materially affect NAV, First Trust Advisors
L.P. ("First Trust") may use a fair value method to value the Fund's securities
and investments. The use of fair value pricing by the Fund is governed by
valuation procedures adopted by the Fund's Board of Trustees, and in accordance
with the provisions of the 1940 Act.
The Senior Loans in which the Fund invests are not listed on any securities
exchange or board of trade. Senior Loans are typically bought and sold by
institutional investors in individually negotiated private transactions that
function in many respects like an over-the-counter secondary market, although
typically no formal market-makers exist. This market, while having grown
substantially in the past several years, generally has fewer trades and less
liquidity than the secondary market for other types of securities. Some Senior
Loans have few or no trades, or trade infrequently, and information regarding a
specific Senior Loan may not be widely available or may be incomplete.
Accordingly, determinations of the market value of Senior Loans may be based on
infrequent and dated information. Because there is less reliable, objective data
available, elements of judgment may play a greater role in valuation of Senior
Loans than for other types of securities. Typically, Senior Loans are valued
using information provided by an independent third party pricing service. If the
pricing service cannot or does not provide a valuation for a particular Senior
Loan or such valuation is deemed unreliable, First Trust may value such Senior
Loan at a fair value according to procedures adopted by the Fund's Board of
Trustees, and in accordance with the provisions of the 1940 Act.
Portfolio securities listed on any exchange other than the NASDAQ National
Market ("NASDAQ") are valued at the last sale price on the business day as of
which such value is being determined. If there has been no sale on such day, the
securities are valued at the mean of the most recent bid and asked prices on
such day. Securities traded on the NASDAQ are valued at the NASDAQ Official
Closing Price as
Page 24
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND II
NOVEMBER 30, 2006 (UNAUDITED)
determined by NASDAQ. Portfolio securities traded on more than one securities
exchange are valued at the last sale price on the business day as of which such
value is being determined at the close of the exchange representing the
principal market for such securities. Portfolio securities traded in the
over-the-counter market, but excluding securities traded on the NASDAQ, are
valued at the closing bid prices. Short-term investments that mature in less
than 60 days are valued at amortized cost.
B. REPURCHASE AGREEMENTS:
The Fund engages in repurchase agreement transactions. Under the terms of a
typical repurchase agreement, the Fund takes possession of an underlying debt
obligation subject to an obligation of the seller to repurchase, and the Fund to
resell, the obligation at an agreed-upon price and time, thereby determining the
yield during the Fund's holding period. This arrangement results in a fixed rate
of return that is not subject to market fluctuations during the Fund's holding
period. The value of the collateral is at all times at least equal to the total
amount of the repurchase obligation, including interest. In the event of
counterparty default, the Fund has the right to use the collateral to offset
losses incurred. There is potential loss to the Fund in the event the Fund is
delayed or prevented from exercising its rights to dispose of the collateral
securities, including the risk of a possible decline in the value of the
underlying securities during the period while the Fund seeks to assert its
rights. The Fund reviews the value of the collateral and the creditworthiness of
those banks and dealers with which the Fund enters into repurchase agreements to
evaluate potential risks.
C. SECURITIES TRANSACTIONS AND INVESTMENT INCOME:
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Interest income is recorded on the accrual basis. Market premiums and discounts
are amortized over the expected life of each respective borrowing.
Securities purchased or sold on a when-issued or delayed-delivery basis may be
settled a month or more after the trade date; interest income on such securities
is not accrued until settlement date. The Fund maintains liquid assets with a
current value at least equal to the amount of its when-issued or
delayed-delivery purchase commitments.
D. UNFUNDED LOAN COMMITMENTS:
The Fund may enter into certain credit agreements, all or a portion of which may
be unfunded. The Fund had unfunded loan commitments of approximately $7,323,628
as of November 30, 2006. The Fund is obligated to fund these loan commitments at
the borrower's discretion. Net unrealized depreciation of $33,635 from these
commitments is included in "Accrued expenses and other liabilities" on the
Statement of Assets and Liabilities.
E. RESTRICTED SECURITIES:
The Fund may invest a portion of its assets in restricted securities. Restricted
securities are securities that cannot be offered for public sale without first
being registered under the Securities Act of 1933, as amended. The Fund
currently holds the restricted securities shown in the following table. The Fund
does not have the right to demand that such securities be registered. These
securities are valued using market quotations according to the valuation
procedures as stated in the Portfolio Valuation section (Note 2A) and are not
expressed as a discount to the carrying value of a comparable unrestricted
security. There are no unrestricted securities with the same maturity dates and
yields for these issuers.
CARRYING
VALUE CARRYING COST
PER SHARE PER SHARE AT 11/30/06
ACQUISITION 11/30/06 ACQUISITION DATE VALUE % OF
SECURITY DATE SHARES (RESTRICTED) (RESTRICTED) (RESTRICTED) NET ASSETS
------------------------------------------------------------------------------------------------------------------------------------
Berry Plastics Corp. 09/15/06 250,000 $100.875 $100.00 $ 252,188 0.05%
Freescale Semiconductors, Inc. 11/17/06 2,000,000 $99.625 $100.875 $ 1,992,500 0.42%
HRP Myrtle Beach 03/23/06 2,000,000 $99.75 $100.00 $ 1,995,000 0.42%
Nutro Products, Inc. 04/18/06 2,100,000 $103.00 $102.25 $ 2,163,000 0.46%
NXP B.V. 10/05/06 650,000 $101.50 $101.50 $ 659,750 0.14%
Paxson Communications Corp. 12/19/05 5,000,000 $99.50 $100.00 $ 4,975,000 1.05%
Verso Paper Holdings, LLC 07/26/06 1,000,000 $102.00 $101.25 $ 1,020,000 0.21%
----------- ----------- -------
13,000,000 $13,057,438 2.75%
=========== =========== =======
Page 25
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND II
NOVEMBER 30, 2006 (UNAUDITED)
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
The Fund will distribute to holders of its Common Shares monthly dividends of
all or a portion of its net income after the payment of interest and dividends
in connection with the financing associated with leverage. If the Fund
recognizes a long-term capital gain, it will be required to allocate such gain
between the Common Shares and Auction Market Preferred Shares ("AMP Shares")
issued by the Fund in proportion to the total dividends paid for the year.
Distributions will automatically be reinvested into additional Common Shares
pursuant to the Fund's Dividend Reinvestment Plan unless cash distributions are
elected by the shareholder.
Distributions from income and capital gains are determined in accordance with
income tax regulations, which may differ from accounting principles generally
accepted in the United States of America. These differences are primarily due to
differing treatments of income and gains on various investment securities held
by the Fund, timing differences and differing characterization of distributions
made by the Fund.
The tax character of distributions paid during the fiscal years ended May 31,
2006 and May 31, 2005 is as follows:
2006 2005
Distributions paid from:
Ordinary Income .......................... $ 36,953,889 $ 24,738,405
As of May 31, 2006, the components of distributable earnings on a tax basis are
as follows:
Undistributed Ordinary Income ............ $ 3,191,642
Net Unrealized Appreciation .............. $ 914,840
G. INCOME TAXES:
The Fund intends to continue to qualify as a regulated investment company by
complying with the requirements under Subchapter M of the Internal Revenue Code
of 1986, as amended, and by distributing substantially all of its net investment
income and net realized gains to shareholders. Accordingly, no provision has
been made for federal or state income taxes.
As of May 31, 2006, the Fund had a capital loss carryforward for federal income
tax purposes of $4,136,367, expiring on May 31, 2014.
H. EXPENSES:
The Fund will pay all expenses directly related to its operations.
I. NEW ACCOUNTING PRONOUNCEMENTS:
In July 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes."
This pronouncement provides guidance on the recognition, measurement,
classification, and disclosures related to uncertain tax positions, along with
any related interest and penalties. FIN 48 is effective for fiscal years
beginning after December 15, 2006. At this time, management is evaluating the
implications of FIN 48 and its impact on the financial statements which has not
yet been determined.
In addition, in September 2006, Statement of Financial Accounting Standards No.
157 Fair Value Measurements ("SFAS 157") was issued by the FASB and is effective
for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is currently evaluating the impact the
adoption of SFAS 157 will have on the Fund's financial statement disclosures.
3. INVESTMENT ADVISORY FEE AND OTHER AFFILIATED TRANSACTIONS
First Trust is a limited partnership with one limited partner, Grace Partners of
DuPage, L.P., and one general partner, The Charger Corporation. First Trust
serves as investment advisor to the Fund pursuant to an Investment Management
Agreement. First Trust is responsible for the ongoing monitoring of the Fund's
investment portfolio, managing the Fund's business affairs and certain
administrative services necessary for the management of the Fund. For these
services, First Trust is entitled to a monthly fee calculated at
Page 26
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND II
NOVEMBER 30, 2006 (UNAUDITED)
an annual rate of 0.75% of the Fund's Managed Assets, the average daily gross
asset value of the Fund (which includes assets attributable to the Fund's AMP
Shares, and the principal amount of borrowings) minus the sum of the Fund's
accrued and unpaid dividends on any outstanding AMP Shares and accrued
liabilities.
Four Corners serves as the Fund's sub-advisor and manages the Fund's portfolio
subject to First Trust's supervision. Four Corners receives an annual portfolio
management fee of 0.38% of Managed Assets that is paid monthly by First Trust
from its investment advisory fee.
PFPC Inc. ("PFPC"), an indirect, majority-owned subsidiary of The PNC Financial
Services Group, Inc., serves as the Fund's Administrator and Transfer Agent in
accordance with certain fee arrangements. PFPC Trust Company, also an indirect,
majority-owned subsidiary of The PNC Financial Services Group, Inc., serves as
the Fund's Custodian in accordance with certain fee arrangements.
Deutsche Bank Trust Company Americas, a wholly-owned subsidiary of Deutsche Bank
AG ("Auction Agent"), serves as the Fund's AMP Share transfer agent, registrar,
dividend disbursing agent and redemption agent.
The Fund pays each Trustee who is not an officer or employee of First Trust or
any of their affiliates an annual retainer of $10,000, which includes
compensation for all board and committee meetings. Trustees are also reimbursed
for travel and out-of-pocket expenses in connection with all meetings.
4. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of investment securities, excluding
short-term investments, for the six months ended November 30, 2006, were
$237,428,184 and $231,656,374, respectively.
As of November 30, 2006, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $2,066,566
and the aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $5,858,852.
5. COMMON SHARES
As of November 30, 2006, 25,272,768 of $0.01 par value Common Shares were
issued. An unlimited number of Common Shares have been authorized under the
Fund's Dividend Reinvestment Plan.
6. AUCTION MARKET PREFERRED SHARES
The Fund's Declaration of Trust authorizes the issuance of an unlimited number
of preferred shares of beneficial interest, par value $0.01 per share, in one or
more classes or series, with rights as determined by the Board of Trustees
without the approval of Common Shareholders. As of November 30, 2006, the Fund
has 2,000 Series A and 2,000 Series B Auction Market Preferred Shares ("AMP
Shares") outstanding at a liquidation value of $25,000 per share.
The Fund is required to meet certain asset coverage tests with respect to the
AMP Shares. If the Fund fails to maintain Eligible Assets having an aggregated
Discounted Value at least equal to the AMP Shares Basic Maintenance Amount as of
any Valuation Date and the failure is not cured on or before the related Asset
Coverage Cure Date, the Fund will be required in certain circumstances to redeem
certain AMP Shares.
An auction of the Series A AMP Shares is generally held every 7 days and an
auction of the Series B AMP Shares is generally held every 28 days. Existing
shareholders may submit an order to hold, bid or sell such shares at par value
on each auction date.
The annual dividend rate in effect as of November 30, 2006 was 5.28%. The
dividend rate, as set by the auction process, is generally expected to vary with
short-term interest rates. The high and low annual dividend rates during the six
months ended November 30, 2006, were 5.31% and 4.98%, and the average dividend
rate was 5.21%. These rates may vary in a manner not related directly to the
income received on the Fund's assets, which could have either a beneficial or
detrimental impact on net investment income and gains available to Common
Shareholders.
Page 27
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND II
NOVEMBER 30, 2006 (UNAUDITED)
Under Emerging Issues Task Force (EITF) promulgating Topic D-98, Classification
and Measurement of Redeemable Securities, which was issued on July 19, 2001,
preferred securities that are redeemable for cash or other assets are to be
classified outside of permanent equity to the extent that the redemption is at a
fixed or determinable price and at the option of the holder or upon the
occurrence of an event that is not solely within the control of the issuer.
Subject to guidance of the EITF, the Fund's AMP Shares are classified outside of
permanent equity (net assets attributable to Common Shares) in the accompanying
financial statements.
7. REVOLVING CREDIT FACILITY
The Fund has entered into a 364-Day Revolving Credit Facility ("Credit
Facility") with various lenders and Citicorp North America Inc., as agent, to be
used as leverage for the Fund. The Credit Facility has an expiration date of
July 30, 2007. The Credit Facility provides for a secured line of credit for the
Fund, where Fund assets are pledged against advances made to the Fund. Under the
requirements of the 1940 Act, the Fund, immediately after any such borrowings,
must have an "asset coverage" of at least 300% (33-1/3% of the Fund's total
assets after borrowings). The total commitment under the Credit Facility is
$195,000,000. For the six months ended November 30, 2006, the average amount
outstanding was $172,956,284. The high and low annual interest rates during the
six months ended November 30, 2006, were 5.29% and 4.99%, respectively, with a
weighted average interest rate of 5.26%. The annual interest rate in effect at
November 30, 2006 was 5.29%. The Fund also pays additional borrowing costs,
which include an administration fee of 0.02%, a program fee of 0.20% and a
liquidity fee of 0.14% per year. Such expenses are included in "Interest and
fees on outstanding loan payable" on the Statement of Operations.
8. SUBSEQUENT EVENTS
On November 20, 2006, the Fund declared a dividend of $0.1268 per share, which
represents a dividend from net investment income to Common Shareholders of
record December 5, 2006, payable December 12, 2006.
On December 18, 2006, the Fund declared a dividend of $0.1268 per share, which
represents a dividend from net investment income to Common Shareholders of
record December 29, 2006, payable January 16, 2007.
The Board of Trustees of the Fund adopted a compensation policy pursuant to
which, effective January 1, 2007, the Independent Trustees shall be paid an
annual retainer of $10,000 by each investment company of the First Trust Fund
Complex up to a total of 14 investment companies (the "Trustees Compensation I")
and an annual retainer of $7,500 by each subsequent investment company added to
the First Trust Fund Complex (the "Trustees Compensation II" and together with
Trustees Compensation I, the "Aggregate Trustee Compensation"). The Aggregate
Trustee Compensation shall be divided equally among each of the investment
companies in the First Trust Fund Complex. No additional meeting fees are paid
in connection with regular board or committee meetings. The Trustees shall also
be paid $1,000 for each meeting held in connection with the organization of a
new investment company for the First Trust Fund Complex. These additional fees
are paid by First Trust. Trustees are also reimbursed for travel and
out-of-pocket expenses in connection with all meetings.
Additionally, Mr. Kadlec is paid annual compensation of $10,000 to serve as the
Lead Independent Trustee and Niel B. Nielson is paid annual compensation of
$5,000 to serve as the chairman of the Audit Committee of each of the investment
companies in the First Trust Fund Complex. Such additional compensation to
Messrs. Kadlec and Nielson are paid by the investment companies in the First
Trust Fund Complex and the fees are divided equally among those investment
companies.
Page 28
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND II
NOVEMBER 30, 2006 (UNAUDITED)
DIVIDEND REINVESTMENT PLAN
If your Common Shares are registered directly with the Fund or if you hold your
Common Shares with a brokerage firm that participates in the Fund's Dividend
Reinvestment Plan (the "Plan"), unless you elect, by written notice to the Fund,
to receive cash distributions, all dividends, including any capital gain
distributions, on your Common Shares will be automatically reinvested by PFPC
Inc. (the "Plan Agent"), in additional Common Shares under the Plan. If you
elect to receive cash distributions, you will receive all distributions in cash
paid by check mailed directly to you by PFPC Inc., as the dividend paying agent.
If you decide to participate in the Plan, the number of Common Shares you will
receive will be determined as follows:
(1) If Common Shares are trading at or above net asset value ("NAV") at
the time of valuation, the Fund will issue new shares at a price
equal to the greater of (i) NAV per Common Share on that date or
(ii) 95% of the market price on that date.
(2) If Common Shares are trading below NAV at the time of valuation,
the Plan Agent will receive the dividend or distribution in cash
and will purchase Common Shares in the open market, on the NYSE or
elsewhere, for the participants' accounts. It is possible that the
market price for the Common Shares may increase before the Plan
Agent has completed its purchases. Therefore, the average purchase
price per share paid by the Plan Agent may exceed the market price
at the time of valuation, resulting in the purchase of fewer shares
than if the dividend or distribution had been paid in Common Shares
issued by the Fund. The Plan Agent will use all dividends and
distributions received in cash to purchase Common Shares in the
open market within 30 days of the valuation date except where
temporary curtailment or suspension of purchases is necessary to
comply with federal securities laws. Interest will not be paid on
any uninvested cash payments.
You may elect to opt-out of or withdraw from the Plan at any time by giving
written notice to the Plan Agent, or by telephone at (800) 331-1710, in
accordance with such reasonable requirements as the Plan Agent and Fund may
agree upon. If you withdraw or the Plan is terminated, you will receive a
certificate for each whole share in your account under the Plan, and you will
receive a cash payment for any fraction of a share in your account. If you wish,
the Plan Agent will sell your shares and send you the proceeds, minus brokerage
commissions.
The Plan Agent maintains all Common Shareholders' accounts in the Plan and gives
written confirmation of all transactions in the accounts, including information
you may need for tax records. Common Shares in your account will be held by the
Plan Agent in non-certificated form. The Plan Agent will forward to each
participant any proxy solicitation material and will vote any shares so held
only in accordance with proxies returned to the Fund. Any proxy you receive will
include all Common Shares you have received under the Plan.
There is no brokerage charge for reinvestment of your dividends or distributions
in Common Shares. However, all participants will pay a pro rata share of
brokerage commissions incurred by the Plan Agent when it makes open market
purchases.
Automatically reinvesting dividends and distributions does not mean that you do
not have to pay income taxes due upon receiving dividends and distributions.
Capital gains and income are realized although cash is not received by you.
Consult your financial advisor for more information.
If you hold your Common Shares with a brokerage firm that does not participate
in the Plan, you will not be able to participate in the Plan and any dividend
reinvestment may be effected on different terms than those described above.
The Fund reserves the right to amend or terminate the Plan if in the judgment of
the Board of Trustees the change is warranted. There is no direct service charge
to participants in the Plan; however, the Fund reserves the right to amend the
Plan to include a service charge payable by the participants. Additional
information about the Plan may be obtained by writing PFPC Inc., 301 Bellevue
Parkway, Wilmington, Delaware 19809.
--------------------------------------------------------------------------------
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Fund uses to determine how
to vote proxies and information on how the Fund votes proxies relating to
portfolio securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Fund's website located at http://www.ftportfolios.com; and (3) on the
Securities and Exchange Commission's website located at http://www.sec.gov.
Page 29
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION - (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND II
NOVEMBER 30, 2006 (UNAUDITED)
PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Form N-Q are available (1) by calling (800)
988-5891; (2) on the Fund's website located at http://www.ftportfolios.com; (3)
on the SEC's website at http://www.sec.gov; and (4) for review and copying at
the SEC's Public Reference Room ("PRR") in Washington, DC. Information regarding
the operation of the PRR may be obtained by calling 1-800SEC-0330.
SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
The Joint Annual Meeting of Shareholders of First Trust/Four Corners Senior
Floating Rate Income Fund, Macquarie/First Trust Global Infrastructure/Utilities
Dividend & Income Fund and First Trust/Four Corners Senior Floating Rate Income
Fund II was held on September 11, 2006. At the Annual Meeting, three of the
Funds' Board of Trustees, consisting of James A. Bowen, Niel B. Nielson and
Richard E. Erickson were elected by holders of Common and Preferred Shares
voting together as a single class, to serve an additional one-year term. The
number of votes cast for James A. Bowen was 21,256,268, the number of votes
withheld was 295,771 and the number of abstentions was 3,724,728. The number of
votes cast for Niel B. Nielson was 21,249,964, the number of votes withheld was
302,075 and the number of abstentions was 3,724,728. The number of votes cast
for Richard E. Erickson was 21,260,101, the number of votes withheld was 291,938
and the number of abstentions was 3,724,728.
Also at the Annual Meeting of Shareholders of the Fund, two of the Fund's
Trustees, Thomas R. Kadlec and Robert F. Keith, were elected by the holders of
MMP Shares to serve and additional one-year term. The number of votes cast for
each Trustee was 1,349; there were no votes withheld; and there were 2,651
abstentions.
BY-LAW AMENDMENTS
On December 12, 2005, June 12, 2006, and on December 11, 2006, the Board of
Trustees approved certain changes to the By-Laws of the Fund which may have the
effect of delaying or preventing a change in control of the Fund, including the
implementation of a staggered Board of Trustees. The changes were not required
to be, and were not, approved by the Fund's Shareholders. To receive a copy of
the revised By-Laws, investors may call the Fund at (800) 988-5891.
Page 30
This Page Left Blank Intentionally.
This Page Left Blank Intentionally.
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
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.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a) Not applicable.
(b) There has been no change, as of the date of this filing, in any of the
portfolio managers identified in response to paragraph (a)(1) of this Item in
the Registrant's most recently filed annual report on Form N-CSR.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of 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 registrant's second fiscal quarter
of the period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal control
over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Not applicable.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and
Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND II
By (Signature and Title)* /S/ JAMES A. BOWEN
-------------------------------------------------------
James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
Date JANUARY 18, 2007
----------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /S/ JAMES A. BOWEN
-------------------------------------------------------
James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
Date JANUARY 18, 2007
----------------------------------------------------------------------------
By (Signature and Title)* /S/ MARK R. BRADLEY
-------------------------------------------------------
Mark R. Bradley, Treasurer, Controller, Chief
Financial Officer and Chief Accounting Officer
(principal financial officer)
Date JANUARY 18, 2007
----------------------------------------------------------------------------
* 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 A. Bowen, certify that:
1. I have reviewed this report on Form N-CSR of First Trust/Four Corners
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 second
fiscal quarter of the period covered by this report that has
materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting; 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: JANUARY 18, 2007 /S/ JAMES A. BOWEN
---------------------- -------------------------------------------
James A. Bowen, Chairman of the Board,
President and Chief Executive Officer
(principal executive officer)