8-K: FCT Board Approves Conversion to Flexible Income ETF

First Trust Senior Floating Rate Income Fund II's Board has approved its reorganization into a new actively managed ETF, First Trust Flexible Income ETF.

Summary

• The Board of Trustees of First Trust Senior Floating Rate Income Fund II (FCT) approved its reorganization into First Trust Flexible Income ETF, a newly created exchange-traded fund (ETF).
• The new ETF will be actively managed by First Trust Advisors L.P. (FTA) and will trade on the NYSE.
• The reorganization is expected to be tax-free, with FCT shareholders receiving shares of the new ETF equal in value to their FCT shares.
• Consummation of the reorganization is anticipated during 2026, contingent upon requisite FCT shareholder approval, applicable regulatory requirements, and customary closing conditions.
• FCT currently aims to provide high current income, primarily investing at least 80% of its Managed Assets in senior secured floating-rate corporate loans, with at least 80% in lower grade debt instruments.
• First Trust Advisors L.P. (FTA) reported collective assets under management or supervision of approximately $304 billion as of October 31, 2025.

Sentiment

Score: 6

Explanation: The announcement of a tax-free reorganization into an ETF is generally a positive structural change for shareholders due to potential benefits of the ETF structure. However, the explicit mention of no assurance regarding approvals and timing introduces a degree of uncertainty, tempering the overall sentiment.

Positives

• The reorganization is expected to be tax-free for FCT shareholders.
• Shareholders will receive shares of the new ETF with a value equal to their aggregate net asset value of FCT shares, maintaining their investment value.
• Conversion to an ETF structure may offer potential benefits such as increased liquidity and broader market access, aligning with current industry trends.

Negatives

• There is no assurance regarding when or whether all necessary approvals, including shareholder and regulatory approvals, will be obtained.
• The consummation of the reorganization is subject to various conditions, introducing uncertainty about its completion and timing.

Risks

• Actual future results or occurrences may differ significantly from forward-looking statements due to numerous factors.
• There is no assurance when or whether requisite approval by the shareholders of FCT, applicable regulatory requirements and approvals, and customary closing conditions for the Reorganization will be obtained or satisfied.
• Investors should not place undue reliance on forward-looking statements, which speak only as of the date they are made.

Future Outlook

The reorganization is expected to be consummated during 2026, contingent upon requisite approval by FCT shareholders and satisfaction of applicable regulatory requirements and customary closing conditions. Further information will be provided in a registration statement and/or proxy materials to be filed with the SEC.

Management Comments

• First Trust Advisors L.P. announced today that the Board of Trustees of First Trust Senior Floating Rate Income Fund II approved the reorganization.
• FTA, FCT, and the new ETF undertake no responsibility to update publicly or revise any forward-looking statements.

Industry Context

The conversion of a closed-end fund (CEF) to an exchange-traded fund (ETF) is a significant trend in the asset management industry. This move by First Trust aligns with the broader shift towards ETFs, which often offer advantages such as increased liquidity, tighter bid-ask spreads, and potentially lower expense ratios, making them attractive to a wider range of investors compared to traditional CEFs.

Corporate Governance

Related Party Transactions

• First Trust Advisors L.P. (FTA) serves as the investment advisor for FCT and will manage the newly created First Trust Flexible Income ETF.
• First Trust Portfolios L.P. (FTP), a FINRA registered broker-dealer, is an affiliate of FTA and is involved in the distribution of investment products.

Stakeholder Impact

• Shareholders: Will receive shares of the new ETF with equivalent value in a tax-free reorganization, potentially benefiting from the ETF structure's advantages such as increased liquidity and transparency.
• First Trust Advisors L.P.: Will continue to manage the reorganized fund as an ETF, maintaining its assets under management and adapting its product offering to market trends.

Next Steps

• A registration statement and/or proxy materials will be filed with the SEC in the coming weeks.
• FCT shareholders will need to vote on and approve the reorganization.
• Applicable regulatory requirements and approvals must be satisfied.
• Customary closing conditions must be met for the reorganization to be consummated.

Key Dates

Keywords

First Trust, FCT, ETF, Closed-End Fund, Reorganization, Floating Rate Income, Senior Loans, Investment Fund, NYSE, Financial Services, Asset Management