UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY
Investment Company Act file number 811-22039
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First Trust Specialty Finance and Financial Opportunities
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Fund (Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Name and address of agent for service)
Registrant's telephone number, including area code: 630-765-8000
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Date of fiscal year end: November 30
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Date of reporting period: February 28, 2014
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Form N-Q is to be used by management investment companies, other than small
business investment companies registered on Form N-5 (ss.ss. 239.24 and 274.5 of
this chapter), to file reports with the Commission, not later than 60 days after
the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under
the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may use
the information provided on Form N-Q in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-Q, and
the Commission will make this information public. A registrant is not required
to respond to the collection of information contained in Form N-Q 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 the
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. SCHEDULE OF INVESTMENTS. The Schedule(s) of Investments is attached
herewith.
FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
FEBRUARY 28,2014 (UNAUDITED)
SHARES DESCRIPTION VALUE
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COMMON STOCKS - BUSINESS DEVELOPMENT COMPANIES - 99.9%
CAPITAL MARKETS - 99.9%
169,032 American Capital Ltd. (b)........................................... $ 2,630,138
10,000 American Capital Senior Floating Ltd. .............................. 146,200
440,608 Apollo Investment Corp. (a)......................................... 3,771,604
774,552 Ares Capital Corp. (a).............................................. 13,965,173
214,420 BlackRock Kelso Capital Corp. (a)................................... 2,043,423
20,000 CM Finance, Inc .................................................... 310,400
6,964 Fidus Investment Corp. ............................................. 146,174
90,594 Fifth Street Finance Corp. (a)...................................... 889,633
50,000 Full Circle Capital Corp. .......................................... 407,500
314,304 Gladstone Capital Corp. (a)......................................... 3,139,897
183,333 Gladstone Investment Corp. (a)...................................... 1,495,997
517,240 Golub Capital BDC, Inc. (a)......................................... 9,703,422
8,699 Harvest Capital Credit Corp. ....................................... 132,660
463,198 Hercules Technology Growth Capital, Inc. (a)........................ 7,290,737
222,697 Horizon Technology Finance Corp. (a)................................ 3,244,695
340,472 KCAP Financial, Inc. (a)............................................ 2,795,275
38,798 Main Street Capital Corp. (a)....................................... 1,361,810
444,100 MCG Capital Corp. (a)............................................... 1,958,481
250,353 Medallion Financial Corp. (a)....................................... 3,640,133
545,561 Medley Capital Corp. (a)............................................ 7,659,676
5,000 Monroe Capital Corp. ............................................... 66,250
244,496 MVC Capital, Inc. (a)............................................... 3,550,082
384,861 New Mountain Finance Corp. (a)...................................... 5,780,612
333,937 NGP Capital Resources Co. (a)....................................... 2,524,564
134,390 OFS Capital Corp. (a)............................................... 1,724,224
160,965 PennantPark Floating Rate Capital Ltd. (a).......................... 2,287,313
680,573 PennantPark Investment Corp. (a).................................... 7,785,755
14,936 Saratoga Investment Corp. .......................................... 236,736
290,709 Solar Capital Ltd. (a).............................................. 6,459,554
55,050 Solar Senior Capital Ltd. (a)....................................... 1,007,965
125,026 Stellus Capital Investment Corp. (a)................................ 1,832,881
392,728 TCP Capital Corp. (a)............................................... 6,943,431
509,618 THL Credit, Inc. (a)................................................ 8,067,253
104,903 TICC Capital Corp. (a).............................................. 1,090,991
176,601 Triangle Capital Corp. (a).......................................... 4,964,254
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TOTAL COMMON STOCKS - BUSINESS DEVELOPMENT COMPANIES............. 121,054,893
(Cost $114,760,507) ----------------
COMMON STOCKS - 16.3%
CAPITAL MARKETS - 4.2%
97,467 Safeguard Scientifics, Inc. (b)..................................... 1,911,328
127,000 Stonecastle Financial Corp. ........................................ 3,173,730
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5,085,058
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See Notes to Quarterly Portfolio of Investments Page 1
FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
FEBRUARY 28,2014 (UNAUDITED)
SHARES/UNITS DESCRIPTION VALUE
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COMMON STOCKS (CONTINUED)
REAL ESTATE INVESTMENT TRUSTS - 12.1%
367,500 Annaly Capital Management, Inc. (a)................................. $ 4,108,650
20,000 Ares Commercial Real Estate Corp. .................................. 271,800
696,880 CYS Investments, Inc. (a)........................................... 6,132,544
20,000 Gladstone Commercial Corp. ......................................... 348,000
194,282 Hatteras Financial Corp. (a)........................................ 3,831,241
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14,692,235
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TOTAL COMMON STOCKS ................................................ 19,777,293
(Cost $24,017,467) ----------------
MASTER LIMITED PARTNERSHIPS - 3.1%
DIVERSIFIED FINANCIAL SERVICES - 3.1%
199,092 Compass Diversified Holdings (a).................................... 3,730,984
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TOTAL MASTER LIMITED PARTNERSHIPS .................................. 3,730,984
(Cost $808,454) ----------------
EXCHANGE-TRADED FUNDS - 0.5%
DIVERSIFIED FINANCIAL SERVICES - 0.5%
15,000 SPDR Barclays High Yield Bond ETF .................................. 622,950
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TOTAL EXCHANGE-TRADED FUNDS ........................................ 622,950
(Cost $532,814) ----------------
TOTAL INVESTMENTS - 119.8% ......................................... 145,186,120
(Cost $140,119,242) (c)
OUTSTANDING LOAN - (20.6%) ......................................... (25,000,000)
NET OTHER ASSETS AND LIABILITIES - 0.8% ............................ 939,899
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NET ASSETS - 100.0% ................................................ $ 121,126,019
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(a) All or a portion of this security serves as collateral on the outstanding
loan.
(b) Non-income producing security.
(c) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of February 28, 2014,
the aggregate gross unrealized appreciation for all securities in which
there was an excess of value over tax cost was $21,739,034 and the
aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over value was $16,672,156.
Page 2 See Notes to Quarterly Portfolio of Investments
FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
FEBRUARY 28,2014 (UNAUDITED)
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VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of February 28,
2014 is as follows (see Note 2A - Portfolio Valuation in the Notes to Quarterly
Portfolio of Investments):
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
INVESTMENTS 2/28/2014 PRICES INPUTS INPUTS
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Common Stocks - Business Development
Companies*...................................... $ 121,054,893 $ 121,054,893 $ -- $ --
Common Stocks*.................................... 19,777,293 19,777,293 -- --
Master Limited Partnerships*...................... 3,730,984 3,730,984 -- --
Exchange-Traded Funds*............................ 622,950 622,950 -- --
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Total Investments................................. $ 145,186,120 $ 145,186,120 $ -- $ --
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* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between levels at February 28, 2014.
See Notes to Quarterly Portfolio of Investments Page 3
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS
FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND(FGB)
FEBRUARY 28, 2014 (UNAUDITED)
1. ORGANIZATION
First Trust Specialty Finance and Financial Opportunities Fund (the "Fund") is a
non-diversified, closed-end management investment company organized as a
Massachusetts business trust on March 20, 2007, and is registered with the
Securities and Exchange Commission under the Investment Company Act of 1940, as
amended (the "1940 Act"). The Fund trades under the ticker symbol FGB on the New
York Stock Exchange ("NYSE").
2. VALUATION AND INVESTMENT PRACTICES
A. PORTFOLIO VALUATION:
The net asset value ("NAV") of the Common Shares of the Fund is determined daily
as of the close of regular trading on the NYSE, normally 4:00 p.m. Eastern time,
on each day the NYSE is open for trading. If the NYSE closes early on a
valuation day, the NAV is determined as of that time. Domestic debt securities
and foreign securities are priced using data reflecting the earlier closing of
the principal markets for those securities. The NAV per Common Share is
calculated by dividing the value of all assets of the Fund (including accrued
interest and dividends), less all liabilities (including accrued expenses,
dividends declared but unpaid, and any borrowings of the Fund) by the total
number of Common Shares outstanding.
The Fund's investments are valued daily at market value, or in absence of market
value with respect to any portfolio securities, at fair value in accordance with
valuation procedures adopted by the Fund's Board of Trustees, and in accordance
with provisions of the 1940 Act. Market quotations and prices used to value the
Fund's investments are primarily obtained from third party pricing services. The
Fund's investments are valued as follows:
Common stocks, master limited partnerships and other securities listed on
any national or foreign exchange (excluding the NASDAQ(R) Stock Market LLC
("NASDAQ") and the London Stock Exchange Alternative Investment Market
("AIM")) are valued at the last sale price on the exchange on which they
are principally traded or, for NASDAQ and AIM securities, the official
closing price. Securities traded on one or more than one securities
exchange are valued at the last sale price or official closing price, as
applicable, at the close of the securities exchange representing the
principal market for such securities.
Securities traded in an over-the-counter market are valued at the mean of
the most recent bid and asked prices, if available, and otherwise at their
closing bid price.
Short-term investments that mature in less than 60 days when purchased are
valued at amortized cost.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Fund's Board of Trustees or its
delegate at fair value. These securities generally include, but are not limited
to, restricted securities (securities which may not be publicly sold without
registration under the Securities Act of 1933, as amended) for which a pricing
service is unable to provide a market price; securities whose trading has been
formally suspended; a security whose market price is not available from a
pre-established pricing source; a security with respect to which an event has
occurred that is likely to materially affect the value of the security after the
market has closed but before the calculation of the Fund's NAV or make it
difficult or impossible to obtain a reliable market quotation; and a security
whose price, as provided by the pricing service, does not reflect the security's
"fair value." As a general principle, the current "fair value" of a security
would appear to be the amount which the owner might reasonably expect to receive
for the security upon its current sale. The use of fair value prices by the Fund
generally results in prices used by the Fund that may differ from current market
quotations or official closing prices on the applicable exchange. A variety of
factors may be considered in determining the fair value of such securities,
including, but not limited to, the following:
1) the type of security;
2) the size of the holding;
3) the initial cost of the security;
4) transactions in comparable securities;
5) price quotes from dealers and/or pricing
services;
6) relationships among various securities;
7) information obtained by contacting the issuer, analysts, or the
appropriate stock exchange;
8) an analysis of the issuer's financial statements; and
9) the existence of merger proposals or tender offers that might affect
the value of the security.
If the securities in question are foreign securities, the following additional
information may be considered:
1) the value of similar foreign securities traded on other foreign
markets;
2) ADR trading of similar securities;
3) closed-end fund trading of similar securities;
4) foreign currency exchange activity;
Page 4
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS - (CONTINUED)
FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND(FGB)
FEBRUARY 28, 2014 (UNAUDITED)
5) the trading prices of financial products that are tied to baskets of
foreign securities;
6) factors relating to the event that precipitated the
pricing problem;
7) whether the event is likely to recur; and
8) whether the effects of the event are isolated or whether they affect
entire markets, countries or regions.
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where there
are few transactions for the investment, the prices are not
current, or price quotations vary substantially either over time
or among market makers, or in which little information is
released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable inputs
may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
The inputs or methodology used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of February 28, 2014, is
included with the Fund's Portfolio of Investments.
B. SECURITIES TRANSACTIONS:
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
ITEM 2. 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 last fiscal quarter
that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
ITEM 3. EXHIBITS.
Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 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 Specialty Finance and Financial Opportunities Fund
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By (Signature and Title)* /s/ Mark R. Bradley
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Mark R. Bradley
President and Chief Executive Officer
(principal executive officer)
Date: April 17, 2014
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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/ Mark R. Bradley
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Mark R. Bradley
President and Chief Executive Officer
(principal executive officer)
Date: April 17, 2014
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By (Signature and Title)* /s/ James M. Dykas
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James M. Dykas
Treasurer, Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: April 17, 2014
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*Print the name and title of each signing officer under his or her signature.