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 Fund
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(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: August 31, 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 (FGB)
PORTFOLIO OF INVESTMENTS
AUGUST 31, 2014 (UNAUDITED)
SHARES DESCRIPTION VALUE
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COMMON STOCKS - BUSINESS DEVELOPMENT COMPANIES - 100.6%
CAPITAL MARKETS - 100.3%
191,700 American Capital Ltd. (a)........................................... $ 2,969,433
10,000 American Capital Senior Floating Ltd. .............................. 139,900
420,408 Apollo Investment Corp. (b)......................................... 3,686,978
740,971 Ares Capital Corp. (b).............................................. 12,707,653
224,420 BlackRock Kelso Capital Corp. (b)................................... 2,098,327
46,088 CM Finance, Inc .................................................... 639,701
67,000 Fifth Street Finance Corp. (b)...................................... 658,610
44,000 FS Investment Corp ................................................. 462,000
300,000 Gladstone Capital Corp. (b)......................................... 2,907,000
183,333 Gladstone Investment Corp. (b)...................................... 1,407,997
512,017 Golub Capital BDC, Inc. (b)......................................... 9,057,581
8,699 Harvest Capital Credit Corp. ....................................... 121,264
463,198 Hercules Technology Growth Capital, Inc. (b)........................ 7,082,297
215,523 Horizon Technology Finance Corp. (b)................................ 3,060,427
340,472 KCAP Financial, Inc. (b)............................................ 2,812,299
38,798 Main Street Capital Corp. (b)....................................... 1,263,263
267,286 MCG Capital Corp. (b)............................................... 1,058,453
250,353 Medallion Financial Corp. (b)....................................... 3,029,271
545,561 Medley Capital Corp. (b)............................................ 6,994,092
5,000 Monroe Capital Corp. ............................................... 69,300
200,496 MVC Capital, Inc. (b)............................................... 2,518,230
473,664 New Mountain Finance Corp. (b)...................................... 7,289,689
300,000 NGP Capital Resources Co. (b)....................................... 1,833,000
142,084 OFS Capital Corp. (b)............................................... 1,818,675
149,965 PennantPark Floating Rate Capital Ltd. (b).......................... 2,114,507
657,112 PennantPark Investment Corp. (b).................................... 7,819,633
14,936 Saratoga Investment Corp. .......................................... 241,067
295,709 Solar Capital Ltd. (b).............................................. 5,914,180
53,031 Solar Senior Capital Ltd. (b)....................................... 843,193
127,062 Stellus Capital Investment Corp. (b)................................ 1,832,234
407,728 TCP Capital Corp. (b)............................................... 7,188,245
521,618 THL Credit, Inc. (b)................................................ 7,427,840
104,903 TICC Capital Corp. (b).............................................. 1,025,951
176,601 Triangle Capital Corp. (b).......................................... 4,852,996
178,752 TriplePoint Venture Growth BDC Corp. ............................... 2,774,231
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117,719,517
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DIVERSIFIED FINANCIAL SERVICES - 0.3%
19,823 TPG Specialty Lending, Inc. ........................................ 350,074
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TOTAL COMMON STOCKS - BUSINESS DEVELOPMENT COMPANIES ............... 118,069,591
(Cost $114,712,233) ---------------
COMMON STOCKS - 16.7%
CAPITAL MARKETS - 3.9%
73,767 Safeguard Scientifics, Inc. (a)..................................... 1,445,833
122,000 Stonecastle Financial Corp. ........................................ 3,086,600
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4,532,433
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See Notes to Quarterly Portfolio of Investments Page 1
FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND (FGB)
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2014 (UNAUDITED)
SHARES/UNITS DESCRIPTION VALUE
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COMMON STOCKS (CONTINUED)
REAL ESTATE INVESTMENT TRUSTS - 12.8%
367,500 Annaly Capital Management, Inc. (b)................................. $ 4,373,250
20,000 Ares Commercial Real Estate Corp. .................................. 251,800
696,880 CYS Investments, Inc. (b)........................................... 6,571,578
194,282 Hatteras Financial Corp. (b)........................................ 3,866,212
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15,062,840
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TOTAL COMMON STOCKS ................................................ 19,595,273
(Cost $23,186,167) ---------------
MASTER LIMITED PARTNERSHIPS - 2.9%
DIVERSIFIED FINANCIAL SERVICES - 2.9%
187,109 Compass Diversified Holdings (b).................................... 3,437,192
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TOTAL MASTER LIMITED PARTNERSHIPS .................................. 3,437,192
(Cost $564,284) ---------------
TOTAL INVESTMENTS - 120.2% ......................................... 141,102,056
(Cost $138,462,684) (c)
OUTSTANDING LOAN - (21.3%) ......................................... (25,000,000)
NET OTHER ASSETS AND LIABILITIES - 1.1% ............................ 1,336,073
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NET ASSETS - 100.0% ................................................ $ 117,438,129
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(a) Non-income producing security.
(b) All or a portion of this security serves as collateral on the
outstanding loan.
(c) Aggregate cost for financial reporting purposes, which
approximates the aggregate cost for federal income tax
purposes. As of August 31, 2014, the aggregate gross unrealized
appreciation for all securities in which there was an excess of
value over tax cost was $17,098,998 and the aggregate gross
unrealized depreciation for all securities in which there was
an excess of tax cost over value was $14,459,626.
Page 2 See Notes to Quarterly Portfolio of Investments
FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND (FGB)
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31,2014 (UNAUDITED)
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VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of August 31,
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 8/31/2014 PRICES INPUTS INPUTS
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Common Stocks - Business Development
Companies*.................................... $ 118,069,591 $ 118,069,591 $ -- $ --
Common Stocks*.................................. 19,595,273 19,595,273 -- --
Master Limited Partnerships*.................... 3,437,192 3,437,192 -- --
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Total Investments............................... $ 141,102,056 $ 141,102,056 $ -- $ --
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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 August 31, 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)
AUGUST 31, 2014 (UNAUDITED)
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").
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. 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. Market value
prices represent last sale or official closing prices from a national or foreign
exchange (i.e. a regulated market) and are primarily obtained from third party
pricing services. Fair value prices represent any prices not considered market
value prices and are either obtained from a third party pricing service, or are
determined by First Trust Advisors L.P.'s (the "Advisor") Pricing Committee in
accordance with valuation procedures adopted by the Fund's Board of Trustees,
and in accordance with provisions of the 1940 Act. Investments valued by the
Advisor's Pricing Committee are footnoted as such in the footnotes to the
Portfolio of Investments. The Fund's investments are valued as follows:
Common stocks, master limited partnerships and other equity 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 fair valued at the
mean of their most recent bid and asked price, if available, and otherwise
at their closing bid price.
Short-term investments that mature in less than 60 days when purchased are
fair 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 or fair value 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. When fair value prices are used,
generally they will differ from market quotations or official closing prices on
the applicable exchanges. 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;
5) the trading prices of financial products that are tied to
baskets of foreign securities;
Page 4
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS - (CONTINUED)
FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND(FGB)
AUGUST 31, 2014 (UNAUDITED)
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 August 31, 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.
Page 5
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: October 24, 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: October 24, 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: October 24, 2014
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*Print the name and title of each signing officer under his or her signature.