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, 2013
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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, 2013 (UNAUDITED)
SHARES DESCRIPTION VALUE
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COMMON STOCKS - BUSINESS DEVELOPMENT COMPANIES - 106.1%
CAPITAL MARKETS - 106.1%
139,032 American Capital Ltd. (a) (b)......................................... $ 1,735,119
465,108 Apollo Investment Corp. (b)........................................... 3,669,702
791,552 Ares Capital Corp. (b)................................................ 13,915,484
214,420 BlackRock Kelso Capital Corp. (b)..................................... 2,101,316
83,451 Fidus Investment Corp................................................. 1,563,872
79,094 Fifth Street Finance Corp. (b)........................................ 819,414
147,536 Full Circle Capital Corp. (b)......................................... 1,205,369
420,716 Gladstone Capital Corp. (b)........................................... 3,441,457
183,333 Gladstone Investment Corp. (b)........................................ 1,253,998
567,793 Golub Capital BDC, Inc. (b)........................................... 9,811,463
948 Golub Capital BDC, Inc. (c)........................................... 16,379
8,699 Harvest Capital Credit Corp........................................... 129,615
514,718 Hercules Technology Growth Capital, Inc. (b).......................... 7,458,264
222,697 Horizon Technology Finance Corp. (b).................................. 2,973,005
300,517 KCAP Financial, Inc. (b).............................................. 2,509,317
53,798 Main Street Capital Corp. (b)......................................... 1,566,598
444,100 MCG Capital Corp. (b)................................................. 2,171,649
260,853 Medallion Financial Corp. (b)......................................... 3,688,461
543,162 Medley Capital Corp. (b).............................................. 7,142,580
5,000 Monroe Capital Corp................................................... 68,800
256,394 MVC Capital, Inc. (b)................................................. 3,212,617
289,212 New Mountain Finance Corp. (b)........................................ 4,245,632
333,937 NGP Capital Resources Co. (b)......................................... 2,107,142
124,621 OFS Capital Corp. (b)................................................. 1,514,145
177,965 PennantPark Floating Rate Capital Ltd. (b)............................ 2,358,036
774,500 PennantPark Investment Corp. (b)...................................... 8,589,205
12,176 Prospect Capital Corp................................................. 134,788
14,085 Saratoga Investment Corp.............................................. 257,896
290,709 Solar Capital Ltd. (b)................................................ 6,381,063
55,050 Solar Senior Capital Ltd. (b)......................................... 978,789
120,026 Stellus Capital Investment Corp. (b).................................. 1,807,592
343,105 TCP Capital Corp. (b)................................................. 5,345,576
509,618 THL Credit, Inc. (b).................................................. 8,001,003
124,337 TICC Capital Corp. (b)................................................ 1,198,609
199,601 Triangle Capital Corp. (b)............................................ 5,822,361
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TOTAL COMMON STOCKS - BUSINESS DEVELOPMENT COMPANIES.................. 119,196,316
(Cost $121,613,448) --------------
COMMON STOCKS - 11.2%
CAPITAL MARKETS - 0.0%
268 Safeguard Scientifics, Inc. (a)....................................... 3,897
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REAL ESTATE INVESTMENT TRUSTS - 11.2%
354,500 Annaly Capital Management, Inc. (b)................................... 4,137,015
20,000 Ares Commercial Real Estate Corp...................................... 255,400
192,307 CYS Investments, Inc. (c)............................................. 1,476,918
460,573 CYS Investments, Inc. (b)............................................. 3,537,201
See Notes to Quarterly Portfolio of Investments Page 1
FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND (FGB)
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2013 (UNAUDITED)
SHARES DESCRIPTION VALUE
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COMMON STOCKS (CONTINUED)
REAL ESTATE INVESTMENT TRUSTS (CONTINUED)
176,282 Hatteras Financial Corp. (b).......................................... $ 3,225,960
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12,632,494
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TOTAL COMMON STOCKS................................................... 12,636,391
(Cost $17,995,308) --------------
MASTER LIMITED PARTNERSHIPS - 3.3%
DIVERSIFIED FINANCIAL SERVICES - 3.3%
216,200 Compass Diversified Holdings (b)...................................... 3,735,936
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TOTAL MASTER LIMITED PARTNERSHIPS..................................... 3,735,936
(Cost $1,026,079) --------------
EXCHANGE-TRADED FUNDS - 0.9%
DIVERSIFIED FINANCIAL SERVICES- 0.9%
25,000 SPDR Barclays High Yield Bond ETF..................................... 991,750
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TOTAL EXCHANGE-TRADED FUNDS........................................... 991,750
(Cost $882,177) --------------
TOTAL INVESTMENTS - 121.5%............................................ 136,560,393
(Cost $141,517,012) (d)
OUTSTANDING LOAN - (22.2%)............................................ (25,000,000)
NET OTHER ASSETS AND LIABILITIES - 0.7%............................... 833,787
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NET ASSETS - 100.0%................................................... $ 112,394,180
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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) This security, sold within the terms of a private placement memorandum, is
exempt from registration upon resale under Rule 144A under the Securities
Act of 1933, as amended, and may be resold in transactions exempt from
registration, normally to qualified institutional buyers (see Note 2C -
Restricted Securities in the Notes to Quarterly Portfolio of Investments).
(d) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of August 31, 2013, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $18,143,408 and the aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over value was $23,100,027.
Page 2 See Notes to Quarterly Portfolio of Investments
FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND (FGB)
PORTFOLIO OF INVESTMENTS (CONTINUED)
AUGUST 31, 2013 (UNAUDITED)
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of August 31,
2013 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
8/31/2013 PRICES INPUTS INPUTS
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Common Stocks - Business Development Companies* $ 119,196,316 $ 119,196,316 $ -- $ --
Common Stocks*................................ 12,636,391 12,636,391 -- --
Master Limited Partnerships*.................. 3,735,936 3,735,936 -- --
Exchange-Traded Funds*........................ 991,750 991,750 -- --
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TOTAL INVESTMENTS............................. $ 136,560,393 $ 136,560,393 $ -- $ --
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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. As of August
31, 2013, the Fund transferred common stocks valued at $16,379 from Level 2 to
Level 1 of the fair value hierarchy. The common stock that transferred from
Level 2 to Level 1 did so because it was previously priced at a discount to the
last sale price, but the discount has been eliminated and it is now being priced
at the last sale price, which is received daily from an independent third party
pricing service.
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, 2013 (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 ("SEC") 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 in accordance with valuation procedures
adopted by the Fund's Board of Trustees, and in accordance with provisions of
the 1940 Act. The Fund's securities will be 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 their
closing bid prices.
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 (the "1933 Act")) 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 a 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 a 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;
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.
Page 4
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS (CONTINUED)
FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND (FGB)
AUGUST 31, 2013 (UNAUDITED)
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, 2013, 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.
C. RESTRICTED SECURITIES:
The Fund invests in restricted securities, which are securities that cannot be
offered for public sale without first being registered under the 1933 Act. Prior
to registration, restricted securities may only be resold in transactions exempt
from registration under Rule 144A under the 1933 Act, normally to qualified
institutional buyers. As of August 31, 2013, the Fund held restricted securities
as shown in the following table. The Fund does not have the right to demand that
such securities be registered. These securities are valued according to the
valuation procedures as stated in the Portfolio Valuation footnote (Note 2A) and
are not expressed as a discount to the carrying value of a comparable
unrestricted security.
% OF
ACQUISITION CARRYING NET
SECURITY DATE SHARES PRICE COST VALUE ASSETS
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CYS Investments, Inc. 5/19/2008 192,307 $ 7.68 $2,575,125 $1,476,918 1.31%
Golub Capital BDC, Inc. 8/15/2012 948 $17.28 14,228 16,379 0.01
-------- -------- ------ ---------- ---------- -----
193,255 $2,589,353 $1,493,297 1.32%
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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 15, 2013
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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 15, 2013
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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 15, 2013
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*Print the name and title of each signing officer under his or her signature.