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
-----------
First Trust Specialty Finance and Financial Opportunities
-----------------------------------------------------------
Fund (Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
---------------------------------------------------------
(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
-------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 630-765-8000
--------------
Date of fiscal year end: November 30
-------------
Date of reporting period: August 31, 2011
-----------------
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 (a)
AUGUST 31, 2011 (UNAUDITED)
SHARES DESCRIPTION VALUE
--------------- -------------------------------------------------------------------- --------------
COMMON STOCKS - BUSINESS DEVELOPMENT COMPANIES - 91.0%
CAPITAL MARKETS - 87.8%
517,706 Apollo Investment Corp. (b)......................................... $ 4,705,948
903,033 Ares Capital Corp. (b).............................................. 13,735,132
602,520 BlackRock Kelso Capital Corp. (b)................................... 5,284,100
238,794 Fifth Street Finance Corp. (b)...................................... 2,366,449
114,436 Full Circle Capital Corp. .......................................... 795,330
420,716 Gladstone Capital Corp. (b)......................................... 3,403,592
183,333 Gladstone Investment Corp. ......................................... 1,252,164
416,502 Golub Capital BDC, Inc. (b)......................................... 6,226,705
469,556 Hercules Technology Growth Capital, Inc. (b)........................ 4,460,782
144,157 Horizon Technology Finance Corp. (b)................................ 2,283,447
252,256 Kohlberg Capital Corp. ............................................. 1,642,187
19,774 Main Street Capital Corp. (b)....................................... 370,367
303,600 MCG Capital Corp. (b)............................................... 1,439,064
194,439 Medley Capital Corp (b)............................................. 2,059,109
603,700 MVC Capital, Inc. (b)............................................... 7,099,512
50,173 New Mountain Finance Corp .......................................... 636,695
332,437 NGP Capital Resources Co. (b)....................................... 2,363,627
156,897 PennantPark Floating Rate Capital Ltd. ............................. 1,865,505
824,000 PennantPark Investment Corp. (b).................................... 8,437,760
12,176 Prospect Capital Corp. ............................................. 106,905
11,739 Saratoga Investment Corp. .......................................... 195,924
360,036 Solar Capital, Ltd. (b)............................................. 8,324,032
15,000 Solar Senior Capital Ltd. .......................................... 250,350
337,602 THL Credit, Inc. (b)................................................ 3,966,824
74,140 TICC Capital Corp. (b).............................................. 708,037
218,601 Triangle Capital Corp. (b).......................................... 3,661,567
--------------
87,641,114
--------------
DIVERSIFIED FINANCIAL SERVICES - 3.2%
325,789 Medallion Financial Corp. (b)....................................... 3,202,506
--------------
TOTAL COMMON STOCKS - BUSINESS DEVELOPMENT COMPANIES ............... 90,843,620
(Cost $112,695,023) --------------
COMMON STOCKS - 26.1%
DIVERSIFIED FINANCIAL SERVICES - 3.0%
216,200 Compass Diversified Holdings (b).................................... 2,966,264
--------------
HEALTH CARE EQUIPMENT & SUPPLIES - 0.3%
59,075 Medical Action Industries, Inc. (b) (c)............................. 366,856
--------------
INSURANCE - 3.1%
3 Berkshire Hathaway, Inc., Class A (b) (c)........................... 329,307
73,700 Fidelity National Financial, Inc., Class A (b)...................... 1,252,163
3,250 Markel Corp. (b) (c)................................................ 1,280,435
8,000 W.R. Berkley Corp. ................................................. 247,120
--------------
3,109,025
--------------
OIL, GAS & CONSUMABLE FUELS - 0.0%
100 ARC Resources Ltd. (CAD) ........................................... 2,481
See Notes to Quarterly Portfolio of Investments Page 1
FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS (a) - (Continued)
AUGUST 31, 2011 (UNAUDITED)
SHARES DESCRIPTION VALUE
--------------- -------------------------------------------------------------------- --------------
COMMON STOCKS - (Continued)
OIL, GAS & CONSUMABLE FUELS - (Continued)
81 Progress Energy Resources Corp. (CAD) .............................. $ 1,049
--------------
3,530
--------------
REAL ESTATE INVESTMENT TRUSTS (REITS) - 19.7%
344,500 Annaly Capital Management, Inc. (b)................................. 6,245,785
360,573 Cypress Sharpridge Investments, Inc. (b)............................ 4,813,650
192,307 Cypress Sharpridge Investments, Inc. (d)............................ 2,567,298
30,000 Gladstone Commercial Corp. ......................................... 496,200
156,282 Hatteras Financial Corp. (b)........................................ 4,314,946
318,446 NorthStar Realty Finance Corp. ..................................... 1,216,464
--------------
19,654,343
--------------
TOTAL COMMON STOCKS ................................................ 26,100,018
(Cost $24,716,863) --------------
EXCHANGE-TRADED FUNDS - 2.0%
CAPITAL MARKETS - 2.0%
52,600 SPDR Barclays Capital High Yield Bond ETF (b)....................... 2,040,354
--------------
TOTAL EXCHANGE-TRADED FUNDS ........................................ 2,040,354
(Cost $1,811,228) --------------
TOTAL INVESTMENTS - 119.1% ......................................... 118,983,992
(Cost $139,223,114) (e)
OUTSTANDING LOAN - (20.0%) ......................................... (20,000,000)
NET OTHER ASSETS AND LIABILITIES - 0.9% ............................ 884,810
--------------
NET ASSETS - 100.0% ................................................ $ 99,868,802
==============
--------
(a) All percentages shown in the Portfolio of Investments are based on
net assets.
(b) All or a portion of this security is available to serve as
collateral on the outstanding loan.
(c) Non-income producing security.
(d) 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 C - Restricted Securities
in the Notes to Quarterly Portfolio of Investments).
(e) Aggregate cost for financial reporting purposes, which approximates
the aggregate cost for federal income tax purposes. As of August 31,
2011, the aggregate gross unrealized appreciation for all securities
in which there was an excess of value over tax cost was $9,723,279
and the aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value was $29,962,401.
CAD Canadian Dollar
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of August 31,
2011 is as follows (see Note A - Portfolio Valuation in the Notes to Quarterly
Portfolio of Investments):
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
8/31/2011 PRICES INPUTS INPUTS
--------------- ------------- --------------- --------------
Common Stocks - Business Development
Companies*.................................. $ 90,843,620 $ 90,843,620 $ -- $ --
Common Stocks*................................ 26,100,018 26,100,018 -- --
Exchange-Traded Funds*........................ 2,040,354 2,040,354 -- --
--------------- ------------- --------------- --------------
TOTAL INVESTMENTS............................. $ 118,983,992 $ 118,983,992 $ -- $ --
=============== ============= =============== ==============
*See Portfolio of Investments for industry breakout.
Page 2 See Notes to Quarterly Portfolio of Investments
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS
FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
AUGUST 31, 2011 (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.
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.
Short-term investments that mature in less than 60 days when purchased are
valued at amortized cost.
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:
Page 3
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS
FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
AUGUST 31, 2011 (UNAUDITED)
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical securities. An active market is a market in which
transactions for the security 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 securities in active markets.
o Quoted prices for identical or similar securities in markets
that are non-active. A non-active market is a market where
there are few transactions for the security, 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
security (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
security.
The inputs or methodology used for valuing securities are not necessarily an
indication of the risk associated with investing in those securities. A summary
of the inputs used to value the Fund's investments as of August 31, 2011, 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 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, 2011, 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
--------------------------------------- ----------- ------------ ----- ------------ ------------ ------
Cypress Sharpridge Investments, Inc. 5/19/08 192,307 $13.35 $2,999,989 $2,567,298 2.57%
Page 4
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
------------------------------------------------------------------
By (Signature and Title)* /s/ James A. Bowen
------------------------------------------------------
James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
Date October 24, 2011
-------------------
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/ James A. Bowen
------------------------------------------------------
James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
Date October 24, 2011
-------------------
By (Signature and Title)* /s/ Mark R. Bradley
------------------------------------------------------
Mark R. Bradley, Treasurer, Chief Financial Officer
and Chief Accounting Officer
(principal financial officer)
Date October 24, 2011
-------------------
* Print the name and title of each signing officer under his or her signature.