0001445546-14-003933.txt : 20140731 0001445546-14-003933.hdr.sgml : 20140731 20140731150858 ACCESSION NUMBER: 0001445546-14-003933 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20140531 FILED AS OF DATE: 20140731 DATE AS OF CHANGE: 20140731 EFFECTIVENESS DATE: 20140731 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST TRUST SPECIALTY FINANCE & FINANCIAL OPPORTUNITIES FUND CENTRAL INDEX KEY: 0001392994 IRS NUMBER: 061810845 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-22039 FILM NUMBER: 141005952 BUSINESS ADDRESS: STREET 1: 120 EAST LIBERTY DRIVE, SUITE 400 CITY: WHEATON STATE: IL ZIP: 60187 BUSINESS PHONE: 630-765-8000 MAIL ADDRESS: STREET 1: 120 EAST LIBERTY DRIVE, SUITE 400 CITY: WHEATON STATE: IL ZIP: 60187 FORMER COMPANY: FORMER CONFORMED NAME: FIRST TRUST/GALLATIN SPECIALTY FINANCE & FINANCIAL OPPORTUNITIES FUND DATE OF NAME CHANGE: 20070320 FORMER COMPANY: FORMER CONFORMED NAME: FIRST TRUST/GALLATIN SPECIALTY FINANCE FUND DATE OF NAME CHANGE: 20070313 N-CSRS 1 fgb_ncsr.txt SEMI-ANNUAL REPORT TO SHAREHOLDERS UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES 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: May 31, 2014 -------------- Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR 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 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. REPORTS TO STOCKHOLDERS. The Report to Shareholders is attached herewith. FIRST TRUST Specialty Finance and Financial Opportunities Fund (FGB) SEMI-ANNUAL REPORT FOR THE SIX MONTHS ENDED MAY 31, 2014 FIRST TRUST CONFLUENCE INVESTMENT MANAGEMENT -------------------------------------------------------------------------------- TABLE OF CONTENTS -------------------------------------------------------------------------------- FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND (FGB) SEMI-ANNUAL REPORT MAY 31, 2014 Shareholder Letter............................................................ 1 At a Glance................................................................... 2 Portfolio Commentary.......................................................... 3 Portfolio of Investments...................................................... 5 Statement of Assets and Liabilities........................................... 8 Statement of Operations....................................................... 9 Statements of Changes in Net Assets...........................................10 Statement of Cash Flows.......................................................11 Financial Highlights..........................................................12 Notes to Financial Statements.................................................13 Additional Information........................................................18 CAUTION REGARDING FORWARD-LOOKING STATEMENTS This report contains certain forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding the goals, beliefs, plans or current expectations of First Trust Advisors L.P. ("First Trust" or the "Advisor") and/or Confluence Investment Management LLC ("Confluence" or the "Sub-Advisor") and their respective representatives, taking into account the information currently available to them. Forward-looking statements include all statements that do not relate solely to current or historical fact. For example, forward-looking statements include the use of words such as "anticipate," "estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or other words that convey uncertainty of future events or outcomes. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of First Trust Specialty Finance and Financial Opportunities Fund (the "Fund") to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. When evaluating the information included in this report, you are cautioned not to place undue reliance on these forward-looking statements, which reflect the judgment of the Advisor and/or Sub-Advisor and their respective representatives only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events and circumstances that arise after the date hereof. PERFORMANCE AND RISK DISCLOSURE There is no assurance that the Fund will achieve its investment objectives. The Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in the Fund. See "Risk Considerations" in the Additional Information section for a discussion of certain other risks of investing in the Fund. Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit http://www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and common share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost. HOW TO READ THIS REPORT This report contains information that may help you evaluate your investment. It includes details about the Fund and presents data and analysis that provide insight into the Fund's performance and investment approach. By reading the portfolio commentary by the portfolio management team of the Fund, you may obtain an understanding of how the market environment affected the Fund's performance. The statistical information that follows may help you understand the Fund's performance compared to that of relevant market benchmarks. It is important to keep in mind that the opinions expressed by personnel of Confluence are just that: informed opinions. They should not be considered to be promises or advice. The opinions, like the statistics, cover the period through the date on the cover of this report. The risks of investing in the Fund are spelled out in the prospectus, the statement of additional information, this report and other Fund regulatory filings. -------------------------------------------------------------------------------- SHAREHOLDER LETTER -------------------------------------------------------------------------------- FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND (FGB) SEMI-ANNUAL LETTER FROM THE CHAIRMAN AND CEO MAY 31, 2014 Dear Shareholders: I am pleased to present you with the semi-annual report for your investment in First Trust Specialty Finance and Financial Opportunities Fund (the "Fund"). As a shareholder, twice a year you receive a detailed report about your investment, including portfolio commentary from the Fund's management team, a performance analysis and a market and Fund outlook. Additionally, First Trust Advisors L.P. ("First Trust") compiles the Fund's financial statements for you to review. These reports are intended to keep you up-to-date on your investment, and I encourage you to read this document and discuss it with your financial advisor. As you are probably aware, the six months covered by this report saw both challenging economic and political issues in the U.S. However, the period was still positive for the markets. In fact, the S&P 500(R) Index, as measured on a total return basis, rose 7.62% during the six months ended May 31, 2014. Of course, past performance can never be an indicator of future performance, but First Trust believes that staying invested in quality products through up and down markets and having a long-term horizon can help investors as they work toward their financial goals. First Trust continues to offer a variety of products that we believe could fit the financial plans for many investors seeking long-term investment success. Your advisor can tell you about the other investments First Trust offers that might fit your financial goals. We encourage you to discuss those goals with your advisor regularly so that he or she can help keep you on track and help you choose investments that match your goals. First Trust will continue to make available up-to-date information about your investments so you and your financial advisor are current on any First Trust investments you own. We value our relationship with you, and thank you for the opportunity to assist you in achieving your financial goals. Sincerely, /s/ James A. Bowen James A. Bowen Chairman of the Board of Trustees Chief Executive Officer of First Trust Advisors L.P. Page 1 FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND (FGB) "AT A GLANCE" AS OF MAY 31, 2014 (UNAUDITED) ---------------------------------------------------------------------- FUND STATISTICS ---------------------------------------------------------------------- Symbol on New York Stock Exchange FGB Common Share Price $7.67 Common Share Net Asset Value ("NAV") $7.99 Premium (Discount) to NAV (4.01)% Net Assets Applicable to Common Shares $114,167,885 Current Quarterly Distribution per Common Share (1) $0.1700 Current Annualized Distribution per Common Share $0.6800 Current Distribution Rate on Closing Common Share Price (2) 8.87% Current Distribution Rate on NAV (2) 8.51% ---------------------------------------------------------------------- ------------------------------------------------- COMMON SHARE PRICE & NAV (WEEKLY CLOSING PRICE) ------------------------------------------------- Common Share Price NAV 5/13 8.38 8.26 8.38 8.24 8.32 8.23 8.31 8.05 6/13 8.33 8.21 8.25 8.15 8.36 8.41 8.51 8.52 7/13 8.89 8.42 8.39 8.39 8.29 8.20 8.15 8.00 8.05 7.97 8/13 8.42 7.87 8.22 7.96 8.31 8.13 8.18 8.18 9/13 8.20 8.25 8.02 8.16 8.00 8.27 8.18 8.40 10/13 8.35 8.56 8.19 8.32 8.29 8.36 8.07 8.53 8.03 8.48 11/13 8.19 8.61 8.04 8.41 7.74 8.28 7.88 8.40 12/13 7.91 8.42 7.80 8.43 7.88 8.47 7.93 8.54 7.98 8.50 1/14 7.97 8.40 7.90 8.39 8.07 8.63 8.11 8.55 2/14 8.06 8.48 7.83 8.26 7.76 8.26 7.79 8.27 3/14 7.70 8.19 7.69 8.18 7.58 8.02 7.71 8.11 4/14 7.63 8.12 7.61 8.02 7.54 7.83 7.61 7.92 7.71 7.94 5/14 7.67 7.99
----------------------------------------------------------------------------------------------------------------------- PERFORMANCE ----------------------------------------------------------------------------------------------------------------------- Average Annual Total Return -------------------------------- Inception 6 Months Ended 1 Year Ended 5 Years Ended (5/25/2007) 5/31/2014 5/31/2014 5/31/2014 to 5/31/2014 FUND PERFORMANCE(3) NAV -3.13% 5.27% 22.74% -1.66% Market Value -2.24% -0.39% 23.65% -2.87% INDEX PERFORMANCE Blended Benchmark(4) 0.29% 7.60% 22.85% 11.47% MSCI U.S. Investable Market Financials Index 6.49% 11.43% 12.74% -5.74% -----------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------- % OF TOTAL TOP 10 HOLDINGS INVESTMENTS ---------------------------------------------------------- Ares Capital Corp. 9.1% Golub Capital BDC, Inc. 6.3 PennantPark Investment Corp. 5.2 Hercules Technology Growth Capital, Inc. 5.1 TCP Capital Corp. 4.9 THL Credit, Inc. 4.9 Medley Capital Corp. 4.9 New Mountain Finance Corp. 4.7 CYS Investments, Inc. 4.6 Solar Capital Ltd. 4.4 ---------------------------------------------------------- Total 54.1% ====== ---------------------------------------------------------- % OF TOTAL INDUSTRY INVESTMENTS ---------------------------------------------------------- Capital Markets 86.4% Real Estate Investment Trusts (REITs) 10.8 Diversified Financial Services 2.8 ---------------------------------------------------------- Total 100.0% ====== ---------------------------------------------------------- % OF TOTAL ASSET CLASSIFICATION INVESTMENTS ---------------------------------------------------------- Common Stocks - Business Development Companies 83.5% Common Stocks 14.1 Master Limited Partnerships 2.4 ---------------------------------------------------------- Total 100.0% ====== (1) Most recent distribution paid or declared through 5/31/2014. Subject to change in the future. (2) Distribution rates are calculated by annualizing the most recent distribution paid or declared through the report date and then dividing by Common Share price or NAV, as applicable, as of 5/31/2014. Subject to change in the future. (3) Total return is based on the combination of reinvested dividend, capital gain and return of capital distributions, if any, at prices obtained by the Dividend Reinvestment Plan and changes in NAV per share for NAV returns and changes in Common Share price for market value returns. Total returns do not reflect sales load and are not annualized for periods less than one year. Past performance is not indicative of future results. (4) Blended benchmark consists of the following (Source: Bloomberg): Wells Fargo BDC Index (70%), FTSE NAREIT Mortgage REIT Index (20%) and S&P SmallCap Financials Index (10%). From 2009-2012, the blended benchmark consisted of the following: Red Rocks Global Listed Private Equity Index (70%), FTSE NAREIT Mortgage REIT Index (20%) and S&P SmallCap Financials Index (10%). Certain of these indices were discontinued during 2012; therefore, the blended benchmark was changed. From 2007-2009, the blended benchmark consisted of the following: Red Rocks Listed Private Equity Index (40%), FTSE NAREIT Mortgage REIT Index (20%), FTSE NAREIT Hybrid REIT Index (20%), Merrill Lynch Preferred Stock Hybrid Securities Index (10%) and Rusell 2000 Financial Services Index (10%). Certain of these indices were discontinued during 2009; therefore, the blended benchmark was changed. Page 2 -------------------------------------------------------------------------------- PORTFOLIO COMMENTARY -------------------------------------------------------------------------------- FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND (FGB) SEMI-ANNUAL REPORT MAY 31, 2014 SUB-ADVISOR Confluence Investment Management LLC, a registered investment advisor ("Confluence" or the "Sub-Advisor"), located in St. Louis, Missouri, serves as the sub-advisor to First Trust Specialty Finance and Financial Opportunities Fund ("FGB" or the "Fund"). The investment professionals at Confluence have over 80 years of aggregate portfolio management experience. Confluence professionals have invested in a wide range of specialty finance and other financial company securities during various market cycles, working to provide attractive risk-adjusted returns to clients. CONFLUENCE PORTFOLIO MANAGEMENT TEAM MARK KELLER, CFA CHIEF EXECUTIVE OFFICER AND CHIEF INVESTMENT OFFICER DAVID MIYAZAKI, CFA SENIOR VICE PRESIDENT AND PORTFOLIO MANAGER DANIEL WINTER, CFA SENIOR VICE PRESIDENT AND PORTFOLIO MANAGER COMMENTARY FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND (FGB) The primary investment objective of the Fund is to seek a high level of current income. As a secondary objective, the Fund seeks an attractive total return. The Fund pursues its investment objectives by investing at least 80% of its managed assets in a portfolio of securities of specialty finance and other financial companies that the Fund's sub-advisor believes offer attractive opportunities for income and capital appreciation. There can be no assurance that the Fund's investment objectives will be achieved. The Fund may not be appropriate for all investors. MARKET RECAP FGB is a financial sector fund with a particular focus on a niche called business development companies ("BDCs"). BDCs lend to and invest in private companies, oftentimes working with those not large enough to efficiently access the public markets. Each BDC has a unique profile, determined by its respective management team. Some specialize in particular industries, while others apply a more generalized approach and maintain a diversified portfolio. Both approaches can work effectively and offer shareholders a unique and differentiated return opportunity derived from the private markets. As of May 31, 2014, the Fund had over 80% of its assets invested in 35 BDCs. Over the past several quarters, financial markets have adjusted to the changing nuances of monetary policy directed by the Federal Reserve. In its attempt to stimulate economic growth, the Fed has for many years managed U.S. interest rates to extraordinarily low levels. And although growth remains relatively low, it recently reached a point where the Fed determined it was appropriate to withdraw part of its stimulus. The bond market's first response to this withdrawal was somewhat negative, and longer-term interest rates initially rose. But as the markets settled into the news, interest rates stabilized and began to decline as 2014 got underway. We believe investors viewed the change in Fed policy to be relatively mild, especially against the backdrop of ongoing low growth in the economy. Lower interest rates in the early part of 2014 allowed for dividend-oriented equities, which had underperformed when rates moved higher, to perform very well. Unfortunately, BDCs were limited in their participation of the rally in dividend-paying stocks due to a somewhat unusual event. Negative sentiment toward BDCs was primarily caused by announcements from Standard & Poor's ("S&P") and Russell Investments, creators of widely-followed stock market indices. These two companies decided to exclude BDCs from their indices. This news led to substantial selling by institutional BDC investors, particularly managers of passive funds and ETFs. Adding to the volatility was short-selling by investors who sought to take advantage of downward pressure caused by the large volume of passive manager selling. Page 3 -------------------------------------------------------------------------------- PORTFOLIO COMMENTARY (CONTINUED) -------------------------------------------------------------------------------- Although the index changes were disruptive, they did create an opportunity for long-term investors willing to weather what we believe was a short-term technical imbalance. As the large supply of stock for sale came to the market, existing demand was insufficient and prices declined. This put downward pressure on the Fund's net asset value, but it also allowed us to opportunistically add positions. We expect valuations should normalize back to their previous levels as the supply/demand imbalance settles into a more stable equilibrium. The Fund also maintained an allocation to mortgage-backed security real estate investment trusts ("MBS REITs"). Unlike the BDCs, these MBS REITs were a top-performing group in the first half of the Fund's fiscal year (12/01/13-05/31/14). The book values and valuations in this industry were severely affected by the announced changes in Fed policy last year. But as long-term interest rates declined in 2014, MBS REITs delivered very strong returns. We were able to make some purchases during the downturn, which added to the Fund's income profile. However, we recognize this industry is volatile, and its dividend payments are variable. Therefore, we continue to utilize a limited exposure. The balance of the Fund's investments are in companies intended to help pursue both income and growth objectives. At times, some of the positions in this allocation may be in stocks with small or non-existent dividends. However, we believe these companies are well positioned to compound their earnings and thereby help the Fund compound its own net asset value. Over time, this allocation may rise and fall, depending upon the opportunities we identify and overall market conditions. The Fund's market value total return1 of -2.24% was slightly higher than the Fund's net asset value ("NAV") total return1 of -3.13%, as the discount to NAV narrowed, moving from -4.88% to -4.01% during the six months ended May 31, 2014. Both the Fund's market value total return and NAV total return were below the 0.29% total return of the Fund's blended benchmark. For this timeframe, much of the lower relative performance was caused by the Fund's lower proportional exposure to MBS REITs, which were particularly strong contributors to the blended benchmark return. The Fund uses leverage because we believe that, over time, leverage provides opportunities for additional income and total return for common shareholders. However, the use of leverage can also expose common shareholders to additional volatility. For example, as the prices of securities held by the Fund decline, the negative impact of valuation changes on Common Share NAV and common shareholder total return is magnified by the use of leverage. Conversely, leverage may enhance Common Share returns during periods when the prices of securities held by the Fund generally are rising. The benchmark does not utilize leverage. OUTLOOK When it comes to investing in BDCs, there is seemingly never a shortage of drama unfolding somewhere in the industry. The recent news related to exclusion from S&P and Russell Investments indices seems to confirm this concept, at least for this year. But we believe this kind of event, along with the related volatility, valuation gyrations and changes in shareholder profiles, is emblematic of an industry still maturing. BDCs are structurally different than other equities and have their own set of regulatory nuances. As the industry grows, it is natural for it to have to cross a variety of new bridges. For BDC investors with the patience and discipline to weather short-term disruptions, we believe there are significant opportunities. As a group, BDC valuations indicate a high level of skepticism and/or unawareness relative to more established industry groups. For example, BDC dividend yields are meaningfully higher than other dividend-oriented equities, including REITs, MLPs and utility stocks. We believe this profile presents an opportunity to participate in higher yields in the near term, while being positioned for capital appreciation if valuations rise in the future. We believe another positive evolution taking place in the BDC industry is related to managerial fees charged by BDCs. Many legacy BDCs that have existed as public companies for five, ten or more years charge management fees that seem to us to be far too high. In addition, they are structured in such a way that management teams do not share downside risk equitably with shareholders. The good news is many BDCs that have come public since the 2008 financial crisis have significantly better structures. These include companies like Golub Capital, THL Credit and TCP Capital. They have raised the bar and most new BDCs have followed suit. In the first half of 2014, the new BDC IPOs of Alcentra Capital, CM Finance, American Capital Senior Floating, Triplepoint Venture Growth and TPG Specialty Lending all reflect a trend of reduced managerial fees relative to many legacy BDCs. So while BDCs remain an industry that is a "work in progress," we are pleased to see growth not just in the size and number of public BDCs, but also in the quality. The unique focus that FGB has in BDCs provides shareholders an opportunity to pursue income and capital appreciation objectives in a manner that is differentiated from many other asset classes. ------------------- 1 Total return is based on the combination of reinvested dividend, capital gain and return of capital distributions, if any, at prices obtained by the Dividend Reinvestment Plan and changes in NAV per share for net asset value returns and changes in Common Share price for market value returns. Total returns do not reflect sales load and are not annualized for periods less than one year. Past performance is not indicative of future results. Page 4 FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND (FGB) PORTFOLIO OF INVESTMENTS MAY 31, 2014 (UNAUDITED)
SHARES DESCRIPTION VALUE ------------ ------------------------------------------------------- ------------- COMMON STOCKS - BUSINESS DEVELOPMENT COMPANIES - 101.5% CAPITAL MARKETS - 101.0% 181,700 American Capital Ltd. (a).............................. $ 2,681,892 10,000 American Capital Senior Floating Ltd................... 139,200 420,408 Apollo Investment Corp. (b)............................ 3,523,019 729,052 Ares Capital Corp. (b)................................. 12,568,857 224,420 BlackRock Kelso Capital Corp. (b)...................... 1,945,721 31,000 CM Finance, Inc........................................ 433,380 90,594 Fifth Street Finance Corp. (b)......................... 841,618 309,784 Gladstone Capital Corp. (b)............................ 3,079,253 183,333 Gladstone Investment Corp. (b)......................... 1,417,164 512,017 Golub Capital BDC, Inc. (b)............................ 8,714,529 8,699 Harvest Capital Credit Corp............................ 126,135 463,198 Hercules Technology Growth Capital, Inc. (b)........... 7,059,138 222,697 Horizon Technology Finance Corp. (b)................... 3,021,998 340,472 KCAP Financial, Inc. (b)............................... 2,713,562 38,798 Main Street Capital Corp. (b).......................... 1,203,902 444,100 MCG Capital Corp. (b).................................. 1,514,381 250,353 Medallion Financial Corp. (b).......................... 3,382,269 545,561 Medley Capital Corp. (b)............................... 6,759,501 5,000 Monroe Capital Corp.................................... 69,600 244,496 MVC Capital, Inc. (b).................................. 3,122,214 461,664 New Mountain Finance Corp. (b)......................... 6,564,862 333,937 NGP Capital Resources Co. (b).......................... 2,143,876 136,996 OFS Capital Corp. (b).................................. 1,739,849 160,965 PennantPark Floating Rate Capital Ltd. (b)............. 2,253,510 657,112 PennantPark Investment Corp. (b)....................... 7,261,088 14,936 Saratoga Investment Corp............................... 226,280 290,709 Solar Capital Ltd. (b)................................. 6,058,376 53,031 Solar Senior Capital Ltd. (b).......................... 888,800 127,062 Stellus Capital Investment Corp. (b)................... 1,789,033 397,728 TCP Capital Corp. (b).................................. 6,825,012 509,618 THL Credit, Inc. (b)................................... 6,777,919 104,903 TICC Capital Corp. (b)................................. 1,016,510 176,601 Triangle Capital Corp. (b)............................. 4,635,776 178,752 TriplePoint Venture Growth BDC Corp.................... 2,792,106 ------------- 115,290,330 ------------- DIVERSIFIED FINANCIAL SERVICES - 0.5% 26,813 TPG Specialty Lending, Inc............................. 568,168 ------------- TOTAL COMMON STOCKS - BUSINESS DEVELOPMENT COMPANIES... 115,858,498 (Cost $117,701,520) ------------- COMMON STOCKS - 17.2% CAPITAL MARKETS - 4.1% 81,367 Safeguard Scientifics, Inc. (a)........................ 1,552,482 122,000 Stonecastle Financial Corp............................. 3,115,880 ------------- 4,668,362 -------------
See Notes to Financial Statements Page 5 FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND (FGB) PORTFOLIO OF INVESTMENTS (CONTINUED) MAY 31, 2014 (UNAUDITED)
SHARES/ UNITS DESCRIPTION VALUE ------------ ------------------------------------------------------- ------------- COMMON STOCKS (CONTINUED) REAL ESTATE INVESTMENT TRUSTS - 13.1% 367,500 Annaly Capital Management, Inc. (b).................... $ 4,332,825 20,000 Ares Commercial Real Estate Corp....................... 250,600 696,880 CYS Investments, Inc. (b).............................. 6,439,171 194,282 Hatteras Financial Corp. (b)........................... 3,941,982 ------------- 14,964,578 ------------- TOTAL COMMON STOCKS.................................... 19,632,940 ------------- (Cost $23,300,134) MASTER LIMITED PARTNERSHIPS - 2.9% DIVERSIFIED FINANCIAL SERVICES - 2.9% 187,109 Compass Diversified Holdings (b)....................... 3,283,763 ------------- TOTAL MASTER LIMITED PARTNERSHIPS...................... 3,283,763 ------------- (Cost $631,643) TOTAL INVESTMENTS - 121.6%............................. 138,775,201 (Cost $141,633,297) (c) OUTSTANDING LOAN - (21.9%)............................. (25,000,000) NET OTHER ASSETS AND LIABILITIES - 0.3%................ 392,684 ------------- NET ASSETS - 100.0%.................................... $ 114,167,885 =============
(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 May 31, 2014, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $15,216,707 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $18,074,803. Page 6 See Notes to Financial Statements FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND (FGB) PORTFOLIO OF INVESTMENTS (CONTINUED) MAY 31, 2014 (UNAUDITED) VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of May 31, 2014 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
LEVEL 2 LEVEL 3 TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT VALUE AT QUOTED OBSERVABLE UNOBSERVABLE INVESTMENTS 5/31/2014 PRICES INPUTS INPUTS ------------------------------------------------------ ------------ ------------ ------------ ------------ Common Stocks - Business Development Companies*......................................... $115,858,498 $115,858,498 $ -- $ -- Common Stocks*........................................ 19,632,940 19,632,940 -- -- Master Limited Partnerships*.......................... 3,283,763 3,283,763 -- -- ------------ ------------ ------------ ------------ Total Investments..................................... $138,775,201 $138,775,201 $ -- $ -- ============ ============ ============ ============
* 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 May 31, 2014. See Notes to Financial Statements Page 7 FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND (FGB) STATEMENT OF ASSETS AND LIABILITIES MAY 31, 2014 (UNAUDITED)
ASSETS: Investments, at value (Cost $141,633,297)........................................................................ $138,775,201 Cash........................................................................................... 222,468 Foreign currency (Cost $26) ................................................................... 24 Receivables: Dividends.................................................................................. 342,868 Interest................................................................................... 20 Prepaid expenses .............................................................................. 17,915 ------------ Total Assets............................................................................... 139,358,496 ------------ LIABILITIES: Outstanding loan .............................................................................. 25,000,000 Payables: Investment advisory fees................................................................... 117,346 Audit and tax fees......................................................................... 28,367 Printing fees.............................................................................. 13,252 Administrative fees........................................................................ 10,714 Transfer agent fees........................................................................ 7,100 Legal fees................................................................................. 4,439 Trustees' fees and expenses................................................................ 3,702 Custodian fees............................................................................. 2,595 Interest and fees on loan.................................................................. 1,771 Financial reporting fees................................................................... 771 Other liabilities ............................................................................. 554 ------------ Total Liabilities ......................................................................... 25,190,611 ------------ NET ASSETS .................................................................................... $114,167,885 ============ NET ASSETS CONSIST OF: Paid-in capital ............................................................................... $266,207,410 Par value ..................................................................................... 142,908 Accumulated net investment income (loss) ...................................................... (2,869,543) Accumulated net realized gain (loss) on investments ........................................... (146,454,792) Net unrealized appreciation (depreciation) on investments and foreign currency translation .... (2,858,098) ------------ NET ASSETS .................................................................................... $114,167,885 ============ NET ASSET VALUE, per Common Share (par value $0.01 per Common Share) .......................... $ 7.99 ============ Number of Common Shares outstanding (unlimited number of Common Shares has been authorized).... 14,290,840 ============
Page 8 See Notes to Financial Statements FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND (FGB) STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED MAY 31, 2014 (UNAUDITED)
INVESTMENT INCOME: Dividends...................................................................................... $ 6,160,231 Interest....................................................................................... 93 ------------ Total investment income..................................................................... 6,160,324 ------------ EXPENSES: Investment advisory fees....................................................................... 714,699 Interest and fees on loan...................................................................... 108,284 Administrative fees............................................................................ 64,550 Printing fees.................................................................................. 31,655 Audit and tax fees............................................................................. 23,745 Transfer agent fees............................................................................ 17,882 Trustees' fees and expenses.................................................................... 9,329 Custodian fees................................................................................. 8,608 Legal fees..................................................................................... 5,268 Financial reporting fees....................................................................... 4,625 Other.......................................................................................... 16,716 ------------ Total expenses.............................................................................. 1,005,361 ------------ NET INVESTMENT INCOME (LOSS)................................................................... 5,154,963 ------------ NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on investments........................................................ (94,601) ------------ Net change in unrealized appreciation (depreciation) on: Investments................................................................................. (9,114,710) Foreign currency translation................................................................ (1) ------------ Net change in unrealized appreciation (depreciation)........................................... (9,114,711) ------------ NET REALIZED AND UNREALIZED GAIN (LOSS)........................................................ (9,209,312) ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................ $ (4,054,349) ============
See Notes to Financial Statements Page 9 FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND (FGB) STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR 5/31/2014 ENDED (UNAUDITED) 11/30/2013 ------------ ------------ OPERATIONS: OPERATIONS: Net investment income (loss)....................................................... $ 5,154,963 $ 8,917,137 Net realized gain (loss)........................................................... (94,601) 473,424 Net change in unrealized appreciation (depreciation)............................... (9,114,711) 11,028,361 ------------ ------------ Net increase (decrease) in net assets resulting from operations.................... (4,054,349) 20,418,922 ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income.............................................................. (4,858,886) (9,571,582) ------------ ------------ Total distributions to shareholders................................................ (4,858,886) (9,571,582) ------------ ------------ CAPITAL TRANSACTIONS: Proceeds from Common Shares reinvested............................................. -- 100,813 ------------ ------------ Net increase (decrease) in net assets resulting from capital transactions.......... -- 100,813 ------------ ------------ Total increase (decrease) in net assets............................................ (8,913,235) 10,948,153 NET ASSETS: Beginning of period................................................................ 123,081,120 112,132,967 ------------ ------------ End of period...................................................................... $114,167,885 $123,081,120 ============ ============ Accumulated net investment income (loss) at end of period.......................... $ (2,869,543) $ (3,165,620) ============ ============ CAPITAL TRANSACTIONS WERE AS FOLLOWS: Common Shares at beginning of period............................................... 14,290,840 14,278,252 Common Shares issued as reinvestment under the Dividend Reinvestment Plan.......... -- 12,588 ------------ ------------ Common Shares at end of period..................................................... 14,290,840 14,290,840 ============ ============
Page 10 See Notes to Financial Statements FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND (FGB) STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED MAY 31, 2014 (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES: Net increase (decrease) in net assets resulting from operations ................... $ (4,054,349) Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by operating activities: Purchases of investments........................................................ (11,498,397) Sales, maturities and paydowns of investments................................... 10,540,529 Return of capital received from investment in MLPs.............................. 139,032 Net realized gain/loss on investments........................................... 94,601 Net change in unrealized appreciation/depreciation on investments............... 9,114,710 CHANGES IN ASSETS AND LIABILITIES: Increase in interest receivable................................................. (20) Increase in dividends receivable................................................ (38,022) Increase in prepaid expenses.................................................... (13,023) Decrease in interest and fees on loan payable................................... (629) Decrease in investment advisory fees payable.................................... (2,161) Decrease in audit and tax fees payable.......................................... (18,833) Decrease in legal fees payable.................................................. (478) Decrease in printing fees payable............................................... (5,642) Decrease in administrative fees payable......................................... (589) Decrease in custodian fees payable.............................................. (8,866) Increase in transfer agent fees payable......................................... 4,202 Increase in Trustees' fees and expenses payable................................. 115 Increase in other liabilities payable........................................... 238 ------------ CASH PROVIDED BY OPERATING ACTIVITIES.............................................. $ 4,252,418 ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Distributions to Common Shareholders from net investment income.................. (7,288,329) ------------ CASH USED IN FINANCING ACTIVITIES.................................................. (7,288,329) ------------ Decrease in cash and foreign currency.............................................. (3,035,911) Cash and foreign currency at beginning of period................................... 3,258,403 ------------ CASH AND FOREIGN CURRENCY AT END OF PERIOD......................................... $ 222,492 ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for interest and fees.................................. $ 108,913 ============
See Notes to Financial Statements Page 11 FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND (FGB) FINANCIAL HIGHLIGHTS FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX MONTHS ENDED YEAR YEAR YEAR YEAR YEAR 5/31/2014 ENDED ENDED ENDED ENDED ENDED (UNAUDITED) 11/30/2013 11/30/2012 11/30/2011 11/30/2010 11/30/2009 ----------- ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of period........ $ 8.61 $ 7.85 $ 6.98 $ 7.69 $ 5.98 $ 4.51 --------- --------- --------- --------- --------- --------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)................ 0.36 0.62 0.59 0.66 0.56 0.65 Net realized and unrealized gain (loss)..... (0.64) 0.81 0.93 (0.74) 1.76 1.43 --------- --------- --------- --------- --------- --------- Total from investment operations............ (0.28) 1.43 1.52 (0.08) 2.32 2.08 --------- --------- --------- --------- --------- --------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income....................... (0.34) (0.67) (0.65) (0.63) (0.59) (0.55) Return of capital........................... -- -- (0.00) (c) (0.00) (c) (0.02) (0.06) --------- --------- --------- --------- --------- --------- Total distributions to Common Shareholders.. (0.34) (0.67) (0.65) (0.63) (0.61) (0.61) --------- --------- --------- --------- --------- --------- Net asset value, end of period.............. $ 7.99 $ 8.61 $ 7.85 $ 6.98 $ 7.69 $ 5.98 ========= ========= ========= ========= ========= ========= Market value, end of period................. $ 7.67 $ 8.19 $ 8.07 $ 6.20 $ 7.50 $ 5.43 ========= ========= ========= ========= ========= ========= TOTAL RETURN BASED ON NET ASSET VALUE (a)... (3.13)% 18.91% 22.48% (1.01)% 40.04% 56.00% ========= ========= ========= ========= ========= ========= TOTAL RETURN BASED ON MARKET VALUE (a)...... (2.24)% 10.03% 41.76% (9.84)% 50.41% 94.18% ========= ========= ========= ========= ========= ========= ------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's)........ $ 114,168 $ 123,081 $ 112,133 $ 99,697 $ 109,861 $ 85,069 Ratio of total expenses to average net assets................................... 1.70% (d) 1.73% 1.83% 1.85% 1.83% 2.29% Ratio of total expenses to average net assets excluding interest expense........ 1.52% (d) 1.50% 1.55% 1.58% 1.58% 1.94% Ratio of net investment income (loss) to average net assets....................... 8.74% (d) 7.51% 7.81% 8.32% 7.93% 13.36% Portfolio turnover rate..................... 7% 13% 18% 11% 24% 20% INDEBTEDNESS: Total loan outstanding (in 000's)........... $ 25,000 $ 25,000 $ 23,000 $ 20,000 $ 18,000 $ 14,350 Asset coverage per $1,000 of indebtedness (b)......................... $ 5,567 $ 5,923 $ 5,875 $ 5,985 $ 7,103 $ 6,928
------------------- (a) Total return is based on the combination of reinvested dividend, capital gain and return of capital distributions, if any, at prices obtained by the Dividend Reinvestment Plan, and changes in net asset value per share for net asset value returns and changes in Common Share price for market value returns. Total returns do not reflect sales load and are not annualized for periods less than one year. Past performance is not indicative of future results. (b) Calculated by taking the Fund's total assets less the Fund's total liabilities (not including the loan outstanding) and dividing by the loan outstanding in 000's. (c) Amount represents less than $0.01 per share. (d) Annualized. Page 12 See Notes to Financial Statements -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND (FGB) MAY 31, 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"). The Fund's primary investment objective is to seek a high level of current income. The Fund seeks attractive total return as a secondary objective. Under normal market conditions, the Fund invests at least 80% of its Managed Assets in a portfolio of securities of specialty finance and other financial companies that Confluence Investment Management LLC ("Confluence" or the "Sub-Advisor") believes offer attractive opportunities for income and capital appreciation. Under normal market conditions, the Fund concentrates its investments in securities of companies within industries in the financial sector. "Managed Assets" means the total asset value of the Fund minus the sum of the Fund's liabilities other than the principal amount of borrowings. There can be no assurance that the Fund will achieve its investment objectives. The Fund may not be appropriate for all investors. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. 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 the 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 ("MLPs") 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 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 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; Page 13 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND (FGB) MAY 31, 2014 (UNAUDITED) 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. 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 May 31, 2014, is included with the Fund's Portfolio of Investments. B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income, if any, is recorded daily on the accrual basis, including the amortization of premiums and accretion of discounts. The Fund may hold business development companies ("BDCs") and exchange-traded funds ("ETFs"). The tax character of distributions received from these securities may vary when reported by the issuer after their tax reporting periods conclude. The Fund may also hold real estate investment trusts ("REITs"). Distributions from such investments may be comprised of return of capital, capital gains and income. The actual character of amounts received during the year is not known until after the REIT's fiscal year end. The Fund records the character of distributions received from the REITs during the year based on estimates available. The REIT's characterization of distributions received by the Fund may be subsequently revised based on information received from the REITs after their tax reporting periods conclude. The Fund may also hold MLPs. For the six months ended May 31, 2014, distributions of $139,032 received from MLPs have been reclassified as return of capital. The cost basis of applicable MLPs has been reduced accordingly. C. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment income of the Fund are declared and paid quarterly or as the Board of Trustees may determine from time to time. Distributions of any net realized capital gains earned by the Fund are distributed at least annually. Distributions will automatically be reinvested into additional Common Shares pursuant to the Fund's Dividend Reinvestment Plan unless cash distributions are elected by the shareholder. Page 14 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND (FGB) MAY 31, 2014 (UNAUDITED) Distributions from income and realized capital gains are determined in accordance with income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These permanent differences are primarily due to the varying treatment of income and gain/loss on portfolio securities held by the Fund and have no impact on net assets or NAV per share. Temporary differences, which arise from recognizing certain items of income, expense and gain/loss in different periods for financial statement and tax purposes, will reverse at some point in the future. The tax character of distributions paid during the fiscal year ended November 30, 2013 was as follows: Distributions paid from: Ordinary income................................... $ 9,571,582 Return of capital................................. -- As of November 30, 2013, the distributable earnings and net assets on a tax basis were as follows: Undistributed ordinary income..................... $ 115,148 Undistributed capital gains....................... -- ------------ Total undistributed earnings...................... 115,148 Accumulated capital and other losses.............. (144,466,043) Net unrealized appreciation (depreciation)........ 3,511,140 ------------ Total accumulated earnings (losses)............... (140,839,755) Other .......................................... (2,429,443) Paid-in capital................................... 266,350,318 ------------ Net assets........................................ $123,081,120 ============ D. INCOME TAXES: The Fund intends to continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, which includes distributing substantially all of its net investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal or state income taxes. However, due to the timing and amount of distributions, the Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of the Fund's taxable income exceeds the distributions from such taxable income for the calendar year. Under the Regulated Investment Company Modernization Act of 2010 (the "Act"), net capital losses arising in taxable years after December 22, 2010, may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward up to eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses. During the taxable year ended November 30, 2013, the Fund utilized post-enactment capital loss carryforwards in the amount of $621,207. At November 30, 2013, the Fund had capital loss carryforwards for federal income tax purposes of $144,147,189, expiring as follows: EXPIRATION DATE AMOUNT November 30, 2015 $ 5,166,354 November 30, 2016 62,747,095 November 30, 2017 55,647,845 November 30, 2018 14,556,882 November 30, 2019 5,452,015 Non-expiring 576,998 Certain losses realized during the current fiscal year may be deferred and treated as occurring on the first day of the following fiscal year for federal income tax purposes. For the fiscal year ended November 30, 2013, the Fund incurred and elected to defer capital losses of $318,854. The Fund is subject to certain limitations under the U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. The Fund is subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. Taxable years ended 2010, 2011, 2012 and 2013 remain open to federal and state audit. As of May 31, 2014, management has evaluated the application of these standards to the Fund and has determined that no provision for income tax is required in the Fund's financial statements for uncertain tax positions. E. EXPENSES: The Fund will pay all expenses directly related to its operations. Page 15 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND (FGB) MAY 31, 2014 (UNAUDITED) 3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS First Trust Advisors L.P. ("First Trust" or the "Advisor"), the investment advisor to the Fund, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for the ongoing monitoring of the Fund's investment portfolio, managing the Fund's business affairs and providing certain administrative services necessary for the management of the Fund. For these investment management services, First Trust is entitled to a monthly fee calculated at an annual rate of 1.00% of the Fund's Managed Assets. First Trust also provides fund reporting services to the Fund for a flat annual fee in the amount of $9,250. Confluence serves as the Fund's sub-advisor and manages the Fund's portfolio subject to First Trust's supervision. The Sub-Advisor receives a monthly portfolio management fee calculated at an annual rate of 0.50% of Managed Assets that is paid by First Trust from its investment advisory fee. BNY Mellon Investment Servicing (US) Inc. ("BNYM IS") serves as the Fund's administrator, fund accountant and transfer agent in accordance with certain fee arrangements. As administrator and fund accountant, BNYM IS is responsible for providing certain administrative and accounting services to the Fund, including maintaining the Fund's books of account, records of the Fund's securities transactions, and certain other books and records. As transfer agent, BNYM IS is responsible for maintaining shareholder records for the Fund. The Bank of New York Mellon ("BNYM") serves as the Fund's custodian in accordance with certain fee arrangements. As custodian, BNYM is responsible for custody of the Fund's assets. Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates ("Independent Trustees") is paid a fixed annual retainer that is allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, or is an index fund. Additionally, the Lead Independent Trustee and the Chairmen of the Audit Committee, Nominating and Governance Committee and Valuation Committee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Lead Independent Trustee and Committee Chairmen rotate every three years. The officers and "Interested" Trustee receive no compensation from the Fund for acting in such capacities. 4. PURCHASES AND SALES OF SECURITIES Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the six months ended May 31, 2014, were $11,498,397 and $10,540,529 respectively. 5. CREDIT AGREEMENT The Fund entered into a committed facility agreement (the "BNP Facility") with BNP Paribas Prime Brokerage, Inc. ("BNP"), which currently has a maximum commitment amount of $25,000,000. Absent certain events of default or failure to maintain certain collateral requirements, BNP may not terminate the BNP Facility except upon 180 calendar days prior notice. The interest rate under the BNP Facility is equal to the 1-month LIBOR plus 70 basis points. In addition, under the BNP Facility, the Fund pays a commitment fee of 0.85% on the undrawn amount. The average amount outstanding for the six months ended May 31, 2014 was $25,000,000, with a weighted average interest rate of 0.86%. As of May 31, 2014, the Fund had outstanding borrowings of $25,000,000 under the BNP Facility. The high and low annual interest rates for the six months ended May 31, 2014 were 0.87% and 0.85%, respectively, and the interest rate at May 31, 2014 was 0.85%. 6. INDEMNIFICATION The Fund has a variety of indemnification obligations under contracts with its service providers. The Fund's maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote. 7. FINANCIAL SECTOR CONCENTRATION RISK Under normal market conditions, the Fund will invest at least 80% of its managed assets in securities of companies within industries in the financial sector. A fund concentrated in a single industry or sector is likely to present more risks than a fund that is broadly diversified over several industries or groups of industries. Compared to the broad market, an individual sector may be more strongly affected by changes in the economic climate, broad market shifts, moves in a particular dominant stock, or regulatory changes. Specialty finance and other financial companies in general are subject to extensive government regulation, which may change frequently. The profitability of specialty finance and other financial companies is largely dependent upon the availability and cost of capital funds, and may fluctuate significantly in response to changes in interest rates, as well as changes in general economic conditions. From time to time, severe competition may also affect the profitability of specialty finance and other financial companies. Financial companies can be highly dependent upon access to capital markets and any impediments to such access, such as general Page 16 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND (FGB) MAY 31, 2014 (UNAUDITED) economic conditions or a negative perception in the capital markets of a company's financial condition or prospects, could adversely affect its business. Leasing companies can be negatively impacted by changes in tax laws which affect the types of transactions in which such companies engage. 8. SUBSEQUENT EVENTS Management has evaluated the impact of all subsequent events to the Fund through the date the financial statements were issued, and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements that have not already been disclosed. Page 17 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION -------------------------------------------------------------------------------- FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND (FGB) MAY 31, 2014 (UNAUDITED) DIVIDEND REINVESTMENT PLAN If your Common Shares are registered directly with the Fund or if you hold your Common Shares with a brokerage firm that participates in the Fund's Dividend Reinvestment Plan (the "Plan"), unless you elect, by written notice to the Fund, to receive cash distributions, all dividends, including any capital gain distributions, on your Common Shares will be automatically reinvested by BNY Mellon Investment Servicing (US) Inc. (the "Plan Agent"), in additional Common Shares under the Plan. If you elect to receive cash distributions, you will receive all distributions in cash paid by check mailed directly to you by the Plan Agent, as the dividend paying agent. If you decide to participate in the Plan, the number of Common Shares you will receive will be determined as follows: (1) If Common Shares are trading at or above net asset value ("NAV") at the time of valuation, the Fund will issue new shares at a price equal to the greater of (i) NAV per Common Share on that date or (ii) 95% of the market price on that date. (2) If Common Shares are trading below NAV at the time of valuation, the Plan Agent will receive the dividend or distribution in cash and will purchase Common Shares in the open market, on the NYSE or elsewhere, for the participants' accounts. It is possible that the market price for the Common Shares may increase before the Plan Agent has completed its purchases. Therefore, the average purchase price per share paid by the Plan Agent may exceed the market price at the time of valuation, resulting in the purchase of fewer shares than if the dividend or distribution had been paid in Common Shares issued by the Fund. The Plan Agent will use all dividends and distributions received in cash to purchase Common Shares in the open market within 30 days of the valuation date except where temporary curtailment or suspension of purchases is necessary to comply with federal securities laws. Interest will not be paid on any uninvested cash payments. You may elect to opt-out of or withdraw from the Plan at any time by giving written notice to the Plan Agent, or by telephone at (866) 340-1104, in accordance with such reasonable requirements as the Plan Agent and the Fund may agree upon. If you withdraw or the Plan is terminated, you will receive a certificate for each whole share in your account under the Plan, and you will receive a cash payment for any fraction of a share in your account. If you wish, the Plan Agent will sell your shares and send you the proceeds, minus brokerage commissions. The Plan Agent maintains all Common Shareholders' accounts in the Plan and gives written confirmation of all transactions in the accounts, including information you may need for tax records. Common Shares in your account will be held by the Plan Agent in non-certificated form. The Plan Agent will forward to each participant any proxy solicitation material and will vote any shares so held only in accordance with proxies returned to the Fund. Any proxy you receive will include all Common Shares you have received under the Plan. There is no brokerage charge for reinvestment of your dividends or distributions in Common Shares. However, all participants will pay a pro rata share of brokerage commissions incurred by the Plan Agent when it makes open market purchases. Automatically reinvesting dividends and distributions does not mean that you do not have to pay income taxes due upon receiving dividends and distributions. Capital gains and income are realized although cash is not received by you. Consult your financial advisor for more information. If you hold your Common Shares with a brokerage firm that does not participate in the Plan, you will not be able to participate in the Plan and any dividend reinvestment may be effected on different terms than those described above. The Fund reserves the right to amend or terminate the Plan if in the judgment of the Board of Trustees the change is warranted. There is no direct service charge to participants in the Plan; however, the Fund reserves the right to amend the Plan to include a service charge payable by the participants. Additional information about the Plan may be obtained by writing BNY Mellon Investment Servicing (US) Inc., 301 Bellevue Parkway, Wilmington, Delaware 19809. PROXY VOTING POLICIES AND PROCEDURES A description of the policies and procedures that the Fund uses to determine how to vote proxies and information on how the Fund voted proxies relating to portfolio investments during the most recent 12-month period ended June 30 is available (1) without charge, upon request, by calling (800) 988-5891; (2) on the Fund's website located at http://www.ftportfolios.com; and (3) on the Securities and Exchange Commission's ("SEC") website located at http://www.sec.gov. Page 18 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND (FGB) MAY 31, 2014 (UNAUDITED) PORTFOLIO HOLDINGS The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q are available (1) by calling (800) 988-5891; (2) on the Fund's website located at http://www.ftportfolios.com; (3) on the SEC's website at http://www.sec.gov; and (4) for review and copying at the SEC's Public Reference Room ("PRR") in Washington, DC. Information regarding the operation of the PRR may be obtained by calling (800) SEC-0330. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS The Joint Annual Meeting of Shareholders of the Common Shares of First Trust Energy Infrastructure Fund, Macquarie/First Trust Global Infrastructure/Utilities Dividend & Income Fund, First Trust Energy Income and Growth Fund, First Trust Enhanced Equity Income Fund, First Trust/Aberdeen Global Opportunity Income Fund, First Trust Mortgage Income Fund, First Trust Strategic High Income Fund II, First Trust/Aberdeen Emerging Opportunity Fund, First Trust Specialty Finance and Financial Opportunities Fund, First Trust Dividend and Income Fund, First Trust High Income Long/Short Fund, First Trust MLP and Energy Income Fund and First Trust Intermediate Duration Preferred & Income Fund was held on April 23, 2014 (the "Annual Meeting"). At the Annual Meeting, Trustee Robert F. Keith was elected by the Common Shareholders of the First Trust Specialty Finance and Financial Opportunities Fund as the Class I Trustee for a three-year term expiring at the Fund's annual meeting of shareholders in 2017. The number of votes cast in favor of Mr. Keith was 12,378,528, the number of votes against was 289,771 and the number of broker non-votes was 1,622,541. Richard E. Erickson, Thomas R. Kadlec, Niel B. Nielson, and James A. Bowen are the other current and continuing Trustees. RISK CONSIDERATIONS Risks are inherent in all investing. The following summarizes some, but not all, of the risks that should be considered for the Fund. For additional information about the risks associated with investing in the Fund, please see the Fund's prospectus and statement of additional information, as well as other Fund regulatory filings. BUSINESS DEVELOPMENT COMPANY ("BDC") RISK: Investments in closed-end funds that elect to be treated as BDCs may be subject to a high degree of risk. BDCs typically invest in small and medium-sized private and certain public companies that may not have access to public equity markets or capital raising. As a result, a BDC's portfolio could include a substantial amount of securities purchased in private placements, and its portfolio may carry risks similar to those of a private equity or venture capital fund. Securities that are not publicly registered may be difficult to value and may be difficult to sell at a price representative of their intrinsic value. Investments in BDCs are subject to various risks, including management's ability to meet the BDC's investment objective, and to manage the BDC's portfolio when the underlying securities are redeemed or sold, during periods of market turmoil and as investors' perceptions regarding a BDC or its underlying investments change. Certain BDCs in which the Fund invests employ the use of leverage in their portfolios through borrowings or in the issuance of preferred stock. While leverage often serves to increase the yield of a BDC, this leverage also subjects the BDC to increased risks, including the likelihood of increased volatility and the possibility that the BDC's common share income will fall if the dividend rate on any preferred shares or the interest rate on any borrowings rises. In addition, the market price for BDCs, together with other dividend paying stocks, may be negatively affected by a rise in interest rates. BDC shares are not redeemable at the option of the BDC shareholder and, as with shares of other closed-end funds, they may trade in the secondary market at a discount to their NAV. INVESTMENT AND MARKET RISK: An investment in the Fund's Common Shares is subject to investment risk, including the possible loss of the entire principal invested. An investment in Common Shares represents an indirect investment in the securities owned by the Fund. The value of these securities, like other market investments, may move up or down, sometimes rapidly and unpredictably. Common Shares at any point in time may be worth less than the original investment, even after taking into account the reinvestment of Fund dividends and distributions. Security prices can fluctuate for several reasons including the general condition of the securities markets, or when political or economic events affecting the issuers occur. When the Advisor or Sub-Advisor determines that it is temporarily unable to follow the Fund's investment strategy or that it is impractical to do so (such as when a market disruption event has occurred and trading in the securities is extremely limited or absent), the Fund may take temporary defensive positions. REIT, MORTAGE-RELATED AND ASSET-BACKED SECURITIES RISKS: Investing in REITs involves certain unique risks in addition to investing in the real estate industry in general. REITs are subject to interest rate risk (especially mortgage REITs) and the risk of default by lessees or borrowers. An equity REIT may be affected by changes in the value of the underlying properties owned by the REIT. A mortgage REIT may be affected by the ability of the issuers of its portfolio of mortgages to repay their obligations. REITs whose underlying assets are concentrated in properties used by a particular industry are also subject to risks associated with such industry. REITs may have limited financial resources, their securities may trade less frequently and in a limited volume, and their securities may be subject to more abrupt or erratic price movements than larger company securities. Page 19 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND (FGB) MAY 31, 2014 (UNAUDITED) In addition to REITs, the Fund may invest in a variety of other mortgage-related securities, including commercial mortgage securities and other mortgage-backed instruments. Rising interest rates tend to extend the duration of mortgage-related securities, making them more sensitive to changes in interest rates, and may reduce the market value of the securities. In addition, mortgage-related securities are subject to prepayment risk, the risk that borrowers may pay off their mortgagees sooner than expected, particularly when interest rates decline. This can reduce the Fund's returns because the Fund may have to reinvest that money at lower prevailing interest rates. The Fund's investments in other asset-backed securities are subject to risks similar to those associated with mortgage-backed securities, as well as additional risks associated with the nature of the assets and the servicing of those assets. LEVERAGE RISK: The use of leverage results in additional risks and can magnify the effect of any losses. The funds borrowed pursuant to a leverage borrowing program constitute a substantial lien and burden by reason of their prior claim against the income of the Fund and against the net assets of the Fund in liquidation. If the Fund is not in compliance with certain credit facility provisions, the Fund may not be permitted to declare dividends or other distributions. NON-DIVERSIFICATION RISK: Because the Fund is non-diversified, it is only limited as to the percentage of its assets which may be invested in the securities of any one issuer by the diversification requirements imposed by the Internal Revenue Code of 1986, as amended. Because the Fund may invest a relatively high percentage of its assets in a limited number of issuers, the Fund may be more susceptible to any single economic, political or regulatory occurrence and to the financial conditions of the issuers in which it invests. Page 20 FIRST TRUST INVESTMENT ADVISOR First Trust Advisors L.P. 120 E. Liberty Drive, Suite 400 Wheaton, IL 60187 INVESTMENT SUB-ADVISOR Confluence Investment Management LLC 20 Allen Avenue, Suite 300 Saint Louis, MO 63119 ADMINISTRATOR, FUND ACCOUNTANT & TRANSFER AGENT BNY Mellon Investment Servicing (US) Inc. 301 Bellevue Parkway Wilmington, DE 19809 CUSTODIAN The Bank of New York Mellon 101 Barclay Street, 20th Floor New York, NY 10286 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Deloitte & Touche LLP 111 S. Wacker Drive Chicago, IL 60606 LEGAL COUNSEL Chapman and Cutler LLP 111 W. Monroe Street Chicago, IL 60603 [BLANK BACK COVER] ITEM 2. CODE OF ETHICS. Not applicable. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. INVESTMENTS. (a) Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 of this form. (b) Not applicable. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. (a) Not applicable. (b) There has been no change, as of the date of this filing, in any of the portfolio managers identified in response to paragraph (a)(1) of this Item in the registrant's most recently filed annual report on Form N-CSR. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant's board of trustees, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)), or this Item. ITEM 11. 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 second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 12. EXHIBITS. (a)(1) Not applicable. (a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. (a)(3) Not applicable. (b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 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/ Mark R. Bradley ---------------------------------------- Mark R. Bradley, President and Chief Executive Officer (principal executive officer) Date: July 21, 2014 ----------------- 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 ---------------------------------------- Mark R. Bradley, President and Chief Executive Officer (principal executive officer) Date: July 21, 2014 ----------------- By (Signature and Title)* /s/ James M. Dykas ---------------------------------------- James M. Dykas, Treasurer, Chief Financial Officer and Chief Accounting Officer (principal financial officer) Date: July 21, 2014 ----------------- * Print the name and title of each signing officer under his or her signature. EX-99.CERT 2 certs_302.txt SECTION 302 CERTIFICATION CERTIFICATION PURSUANT TO RULE 30A-2(A) UNDER THE 1940 ACT AND SECTION 302 OF THE SARBANES-OXLEY ACT I, Mark R. Bradley, certify that: 1. I have reviewed this report on Form N-CSR of First Trust Specialty Finance and Financial Opportunities Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: July 21, 2014 /s/ Mark R. Bradley ----------------- ---------------------------------------- Mark R. Bradley, President and Chief Executive Officer (principal executive officer) CERTIFICATION PURSUANT TO RULE 30A-2(A) UNDER THE 1940 ACT AND SECTION 302 OF THE SARBANES-OXLEY ACT I, James M. Dykas, certify that: 1. I have reviewed this report on Form N-CSR of First Trust Specialty Finance and Financial Opportunities Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: July 21, 2014 /s/ James M. Dykas ----------------- ---------------------------------------- James M. Dykas, Treasurer, Chief Financial Officer and Chief Accounting Officer (principal financial officer) EX-99.906 CERT 3 cert_906.txt SECTION 906 CERTIFICATION CERTIFICATION PURSUANT TO RULE 30A-2(B) UNDER THE 1940 ACT AND SECTION 906 OF THE SARBANES-OXLEY ACT I, Mark R. Bradley, President and Chief Executive Officer of First Trust Specialty Finance and Financial Opportunities Fund (the "Registrant"), certify that: 1. The Form N-CSR of the Registrant (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: July 21, 2014 /s/ Mark R. Bradley ------------------- ---------------------------------------- Mark R. Bradley, President and Chief Executive Officer (principal executive officer) I, James M. Dykas, Treasurer, Chief Financial Officer and Chief Accounting Officer of First Trust Specialty Finance and Financial Opportunities Fund (the "Registrant"), certify that: 1. The Form N-CSR of the Registrant (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: July 21, 2014 /s/ James M. Dykas ------------------- ---------------------------------------- James M. Dykas, Treasurer, Chief Financial Officer and Chief Accounting Officer (principal financial officer)