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, 2012
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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
AUGUST 31, 2012 (UNAUDITED)
SHARES DESCRIPTION VALUE
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COMMON STOCKS - BUSINESS DEVELOPMENT COMPANIES - 95.0%
CAPITAL MARKETS - 92.4%
100,000 American Capital Ltd. (a) (b)....................................... $ 1,099,000
467,706 Apollo Investment Corp. (b)......................................... 3,751,002
857,033 Ares Capital Corp. (b).............................................. 14,800,960
214,420 BlackRock Kelso Capital Corp. (b)................................... 2,120,614
6,495 Fidus Investment Corp. ............................................. 106,193
94,094 Fifth Street Finance Corp. (b)...................................... 987,046
147,536 Full Circle Capital Corp. (b)....................................... 1,193,566
420,716 Gladstone Capital Corp. (b)......................................... 3,613,950
183,333 Gladstone Investment Corp. (b)...................................... 1,395,164
22,000 Golub Capital BDC, Inc. (c)......................................... 326,260
509,575 Golub Capital BDC, Inc. (b)......................................... 7,903,508
519,556 Hercules Technology Growth Capital, Inc. (b)........................ 5,813,832
222,697 Horizon Technology Finance Corp. (b)................................ 3,730,175
252,256 KCAP Financial, Inc. (b)............................................ 2,179,492
37,774 Main Street Capital Corp. (b)....................................... 1,005,166
448,100 MCG Capital Corp. (b)............................................... 2,083,665
519,264 Medley Capital Corp. (b)............................................ 6,797,166
497,292 MVC Capital, Inc. (b)............................................... 6,320,581
209,322 New Mountain Finance Corp. ......................................... 3,102,152
333,937 NGP Capital Resources Co. (b)....................................... 2,494,509
156,897 PennantPark Floating Rate Capital Ltd. (b).......................... 1,987,885
834,500 PennantPark Investment Corp. (b).................................... 9,062,670
12,176 Prospect Capital Corp. ............................................. 139,172
12,837 Saratoga Investment Corp. (a)....................................... 214,378
236,228 Solar Capital Ltd. (b).............................................. 5,463,954
21,800 Solar Senior Capital Ltd. (b)....................................... 386,296
235,835 TCP Capital Corp. .................................................. 3,634,217
456,812 THL Credit, Inc. (b)................................................ 6,367,959
104,140 TICC Capital Corp. (b).............................................. 1,083,056
239,601 Triangle Capital Corp. (b).......................................... 5,882,205
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105,045,793
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DIVERSIFIED FINANCIAL SERVICES - 2.6%
260,853 Medallion Financial Corp. (b)....................................... 2,971,116
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TOTAL COMMON STOCKS - BUSINESS DEVELOPMENT COMPANIES ............... 108,016,909
(Cost $116,980,806) --------------
COMMON STOCKS - 19.4%
INSURANCE - 2.3%
3 Berkshire Hathaway, Inc., Class A (a) (b)........................... 379,680
43,700 Fidelity National Financial, Inc., Class A ......................... 823,308
3,250 Markel Corp. (a).................................................... 1,413,425
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2,616,413
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OIL, GAS & CONSUMABLE FUELS - 0.0%
100 ARC Resources Ltd. (CAD) ........................................... 2,365
81 Progress Energy Resources Corp. (CAD) .............................. 1,805
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4,170
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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)
AUGUST 31, 2012 (UNAUDITED)
SHARES/UNITS DESCRIPTION VALUE
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COMMON STOCKS - (CONTINUED)
REAL ESTATE INVESTMENT TRUSTS (REITS) - 17.1%
344,500 Annaly Capital Management, Inc. (b)................................. $ 5,963,295
10,000 Ares Commercial Real Estate Corp. .................................. 168,400
382,573 CYS Investments, Inc. (b)........................................... 5,501,400
192,307 CYS Investments, Inc. (c)........................................... 2,765,374
30,000 Gladstone Commercial Corp. ......................................... 536,700
156,282 Hatteras Financial Corp. (b)........................................ 4,530,615
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19,465,784
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TOTAL COMMON STOCKS ................................................ 22,086,367
(Cost $19,876,546) --------------
PUBLICLY TRADED PARTNERSHIPS - 2.8%
DIVERSIFIED FINANCIAL SERVICES - 2.8%
216,200 Compass Diversified Holdings (b).................................... 3,180,302
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TOTAL PUBLICLY TRADED PARTNERSHIPS ................................. 3,180,302
(Cost $1,337,407) --------------
EXCHANGE-TRADED FUNDS - 1.5%
CAPITAL MARKETS - 1.5%
42,600 SPDR Barclays Capital High Yield Bond ETF (b)....................... 1,709,964
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TOTAL EXCHANGE-TRADED FUNDS ........................................ 1,709,964
(Cost $1,490,914) --------------
TOTAL INVESTMENTS - 118.7% ......................................... 134,993,542
(Cost $139,685,673) (d)
OUTSTANDING LOAN - (19.3%) ......................................... (22,000,000)
NET OTHER ASSETS AND LIABILITIES - 0.6% ............................ 689,250
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NET ASSETS - 100.0% ................................................ $ 113,682,792
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(a) Non-income producing security.
(b) All or a portion of this security is available to serve 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 (the "1933 Act"), and may be resold in
transactions exempt from registration, normally to qualified institutional
buyers (see Note D - Restricted Securities in the 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, 2012, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $15,814,987 and the aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over value was $20,507,118.
CAD Canadian Dollar - Security is denominated in Canadian Dollars and is
translated into U.S. Dollars based upon the current exchange rate.
Page 2 See Notes to Quarterly Portfolio of Investments
FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
AUGUST 31, 2012 (UNAUDITED)
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of August 31,
2012 is as follows (see Note A - Portfolio Valuation in the Quarterly Portfolio
of Investments):
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
8/31/2012 PRICES INPUTS INPUTS
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Common Stocks - Business Development
Companies:
Capital Markets......................... $ 105,045,793 $ 104,719,533 $ 326,260 $
Diversified Financial Services.......... 2,971,116 2,971,116 --
Common Stocks*................................ 22,086,367 22,086,367 -- --
Publicly Traded Partnerships*................. 3,180,302 3,180,302 -- --
Exchange-Traded Funds*........................ 1,709,964 1,709,964 -- --
--------------- ------------- --------------- --------------
TOTAL INVESTMENTS............................. $ 134,993,542 $ 134,667,282 $ 326,260 $ --
=============== ============= =============== ==============
* See Portfolio of Investments for industry breakout.
There were no transfers between levels at August 31, 2012.
See Notes to Quarterly Portfolio of Investments Page 3
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS
FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
AUGUST 31, 2012 (UNAUDITED)
VALUATION AND INVESTMENT PRACTICES
A. PORTFOLIO VALUATION:
The net asset value ( NAV ) of the Common Shares of First Trust Specialty
Finance and Financial Opportunities Fund (the Fund ) is determined daily as of
the close of regular trading on the New York Stock Exchange ( 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 Investment Company Act of 1940, as amended (the 1940 Act ). The following
securities, for which accurate and reliable market quotations are readily
available, will be valued as follows:
Common stocks and other securities listed on any national or foreign
exchange (excluding the NASDAQ National Market ( 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. If
there are no transactions on the valuation day, the securities are valued
at the mean between the most recent bid and asked prices.
Securities listed on the NASDAQ or the AIM are valued at the official
closing price. If there is no official closing price on the valuation day,
the securities are valued at the mean between the most recent bid and
asked prices.
Securities traded in the 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.
All market quotations used in valuing the Fund s securities will be obtained
from a third party pricing service. If no quotation is received from a pricing
service, attempts will be made to obtain one or more broker quotes for the
security. In the event the pricing service does not provide a valuation, broker
quotations are not readily available, or the valuations received are deemed
unreliable, the Fund s Board of Trustees has designated First Trust Advisors
L.P. ( First Trust ) to use a fair value method to value the Fund s securities.
Additionally, if events occur after the close of the principal markets for
certain securities (e.g., domestic debt and foreign securities) that could
materially affect the Fund s NAV, First Trust will use a fair value method to
value the Fund s securities. The use of fair value pricing is governed by
valuation procedures adopted by the Fund s Board of Trustees, and in accordance
with the provisions of the 1940 Act. As a general principle, the fair value of a
security is the amount which the Fund might reasonably expect to receive for the
security upon its current sale. However, in light of the judgment involved in
fair valuations, there can be no assurance that a fair value assigned to a
particular security will be the amount which the Fund might be able to receive
upon its current sale. Fair valuation of a security will be based on the
consideration of all available information, 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
AUGUST 31, 2012 (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, 2012, 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.
The Fund may hold real estate investment trusts ("REITs"). Distributions from
such investments may include a return of capital component from the REIT to the
extent of the cost basis of such REIT investments.
The Fund may hold master limited partnerships ("MLPs"). Distributions received
from such investments generally are comprised of return of capital from the MLP
to the extent of the cost basis of such MLP investments.
C. FOREIGN CURRENCY:
The books and records of the Fund are maintained in U.S. dollars. Investments
denominated in foreign currency are translated into U.S. dollars at the exchange
rates prevailing at the end of the period. Purchases and sales of investment
securities are translated on the respective dates of such transactions.
D. RESTRICTED SECURITIES:
The Fund invests in restricted securities, which are securities that cannot be
offered for public sale without first being registered under the Securities Act
of 1933, as amended (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, 2012, 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 A) 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
--------------------------------------- ----------- ------------ ------- ------------ ------------ ------
CYS Investments, Inc. 5/19/08 192,307 $ 14.38 $ 2,999,989 $ 2,765,374 2.43%
Golub Capital BDC, Inc. 8/15/12 22,000 14.83 336,160 326,260 0.29
------------ ------------ ------------ ------
214,307 $ 3,336,149 $ 3,091,634 2.72%
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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 23, 2012
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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 23, 2012
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By (Signature and Title)* /s/ James M. Dykas
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James M. Dykas
Chief Financial Officer and Chief Accounting Officer
(principal financial officer)
Date October 23, 2012
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*Print the name and title of each signing officer under his or her signature.