Edgar Filing: FIRST TRUST SPECIALTY FINANCE & FINANCIAL OPPORTUNITIES FUND

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-Q

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED MANAGEMENT
INVESTMENT COMPANY

Investment Company Act file number 811-22039

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND

(FORMERLY FIRST TRUST/GALLATIN SPECIALTY FINANCE AND FINANCIAL
OPPORTUNITIES FUND)
(Exact name of registrant as specified in charter)

120 East Liberty Drive
WHEATON, IL 60187
(Address of principal executive offices) (Zip code)

W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive
WHEATON, IL 60187
(Name and address of agent for service)

Registrant's telephone number, including area code: 630-765-8000

Date of fiscal year end: NOVEMBER 30

Date of reporting period: AUGUST 31, 2008

Form N-Q is to be used by management investment companies, other than small
business investment companies registered on Form N-5 (ss.ss. 239.24 and 274.5 of
this chapter), to file reports with the Commission, not later than 60 days after
the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under
the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may use
the information provided on Form N-Q in its regulatory, disclosure review,
inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-Q, and
the Commission will make this information public. A registrant is not required
to respond to the collection of information contained in Form N-Q unless the
Form displays a currently valid Office of Management and Budget ("OMB") control
number. Please direct comments concerning the accuracy of the information
collection burden estimate and any suggestions for reducing the burden to the
Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC
20549. The OMB has reviewed this collection of information under the clearance
requirements of 44 U.S.C. ss. 3507.

ITEM 1. SCHEDULE OF INVESTMENTS.
The Schedule(s) of Investments is attached herewith.

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
(FORMERLY KNOWN AS FIRST TRUST/GALLATIN SPECIALTY FINANCE AND
FINANCIAL OPPORTUNITIES FUND)
PORTFOLIO OF INVESTMENTS (a)
AUGUST 31, 2008 (UNAUDITED)

SHARES DESCRIPTION VALUE
--------- ----------------------------------------------------- ------------

COMMON STOCKS - 115.2%
CAPITAL MARKETS - 78.1%
515,660 Allied Capital Corp. ................................ $ 7,605,985
250,000 American Capital Strategies, Ltd. ................... 5,435,000
646,706 Apollo Investment Corp. ............................. 11,446,696
1,113,333 Ares Capital Corp. .................................. 13,460,196
650,000 BlackRock Kelso Capital Corp. ....................... 7,273,500
460,000 Gladstone Capital Corp. ............................. 7,203,600
183,333 Gladstone Investment Corp. .......................... 1,332,831
50,000 GSC Investment Corp. ................................ 540,500
506,205 Hercules Technology Growth Capital, Inc. ............ 5,269,594
50,000 Highland Distressed Opportunities, Inc. ............. 250,000
15,000 Invesco, Ltd., Sponsored ADR ........................ 384,450
571,667 Kohlberg Capital Corp. .............................. 6,282,620
472,000 MCG Capital Corp. ................................... 1,642,560
690,000 MVC Capital, Inc. ................................... 10,301,700
406,737 NGP Capital Resources Co. ........................... 6,617,611
550,000 Patriot Capital Funding, Inc. ....................... 4,080,999
600,000 PennantPark Investment Corp. ........................ 4,794,000
655,152 Prospect Energy Corp. ............................... 9,172,128
463,785 TICC Capital Corp. .................................. 2,791,986
------------
105,885,956
------------
COMMERCIAL BANKS - 1.6%
70,000 Wells Fargo & Co. ................................... 2,118,900
------------
DIVERSIFIED FINANCIAL SERVICES - 5.1%
85,211 Financial Federal Corp. ............................. 2,127,719
459,504 Medallion Financial Corp. ........................... 4,769,652
100 WisdomTree Investments, Inc. (b) .................... 210
------------
6,897,581
------------
REAL ESTATE INVESTMENT TRUSTS (REITS) - 30.4%
350,000 Annaly Capital Management, Inc. ..................... 5,236,000
330,000 Arbor Realty Trust, Inc. ............................ 2,907,300
175,000 Capital Trust, Inc. - Class A ....................... 2,110,500
470,000 CapitalSource, Inc. ................................. 5,912,600
192,307 Cypress Sharpridge Investments, Inc. (c) (d) ........ 2,999,989
540,000 Gramercy Capital Corp. .............................. 3,612,600
100,000 Hatteras Financial Corp. ............................ 2,475,000
420,000 iStar Financial, Inc. ............................... 2,347,800
1,040,000 NorthStar Realty Finance Corp. ...................... 7,436,000
200,000 RAIT Financial Trust ................................ 1,186,000
270,000 Redwood Trust, Inc. ................................. 5,062,500
------------
41,286,289
------------
TOTAL COMMON STOCKS
(Cost $271,288,588) ............................. 156,188,726
============

See Notes to Quarterly Portfolio of Investments

Page 1

SHARES DESCRIPTION VALUE
--------- ----------------------------------------------------- ------------

CANADIAN INCOME TRUSTS - 9.6%
OIL, GAS & CONSUMABLE FUELS - 9.6%
100 ARC Energy Trust .................................... $ 2,845
256,800 Enerplus Resources Fund ............................. 11,116,872
63,000 Penn West Energy Trust .............................. 1,849,680
100 Progress Energy Trust ............................... 1,497
------------
TOTAL CANADIAN INCOME TRUSTS
(Cost $ 14,186,618) .............................. 12,970,894
============
WARRANTS - 0.0%
REAL ESTATE INVESTMENT TRUST (REIT) - 0.0%
576,923 Cypress Sharpridge Investments, Inc.,
expires 04/30/11 (b) (c) (d) ..................... 0
------------
TOTAL WARRANTS
(Cost $ 0) ....................................... 0
------------
TOTAL INVESTMENTS - 124.8%
(Cost $ 285,475,206) (e) ......................... 169,159,620
LOAN OUTSTANDING - (31.1)% .......................... (42,100,000)
NET OTHER ASSETS AND LIABILITIES - 6.3% ............. 8,505,653
------------
NET ASSETS - 100.0% ................................. $135,565,273
============

----------
(a) All percentages shown in the Portfolio of Investments are based on net
assets.

(b) Non-income producing security.

(c) This security, sold within the terms of a private placement memorandum, is
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and may be resold in transactions exempt from registration,
normally to qualified institutional buyers. (See Note 1C-Restricted
Securities in the Notes to Quarterly Portfolio of Investments).

(d) This security is fair valued in accordance with valuation procedures
adopted by the Fund's Board of Trustees.

(e) Aggregate cost for federal income tax and financial reporting purposes. As
of August 31, 2008, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $900,472
and the aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $117,216,058.

ADR American Depositary Receipt

SECURITY VALUATION INPUTS

A summary of the inputs used to value the Fund's net assets as of August 31,
2008 is as follows (see Note 1A-Portfolio Valuation in the Notes to Quarterly
Portfolio of Investments):

VALUATION INPUTS INVESTMENTS IN SECURITIES
---------------- -------------------------

Level 1 - Quoted Prices ........................ $166,159,631
Level 2 - Other Significant Observable Inputs .. --
Level 3 - Significant Unobservable Inputs ...... 2,999,989
------------
TOTAL $169,159,620
============

The following table presents the Fund's assets measured at fair value on a
recurring basis using significant unobservable inputs (Level 3) at November 30,
2007 and at August 31, 2008.

ASSETS AT FAIR VALUE USING SIGNIFICANT
UNOBSERVABLE INPUTS (LEVEL 3) INVESTMENTS IN SECURITIES
-------------------------------------- -------------------------

Balance as of November 30, 2007 ...... $ --
Net purchases (sales) ................ 2,999,989
----------
Balance as of August 31, 2008 ........ $2,999,989
==========

See Notes to Quarterly Portfolio of Investments

Page 2

NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
(FORMERLY KNOWN AS FIRST TRUST/GALLATIN SPECIALTY FINANCE AND
FINANCIAL OPPORTUNITIES FUND) AUGUST 31, 2008 (UNAUDITED)

1. VALUATION AND INVESTMENT PRACTICES

A. PORTFOLIO VALUATION:

The net asset value ("NAV") of the Common Shares of First Trust Specialty
Finance and Financial Opportunities Fund (the "Fund") is determined daily as of
the close of regular trading on the New York Stock Exchange ("NYSE"), normally
4:00 p.m. Eastern time, on each day the NYSE is open for trading. Domestic debt
securities and foreign securities are priced using data reflecting the earlier
closing of the principal markets for those securities. The NAV per Common Share
is calculated by dividing the value of all assets of the Fund (including accrued
interest and dividends), less all liabilities (including accrued expenses,
dividends declared but unpaid and any borrowings of the Fund) by the total
number of Common Shares outstanding.

The Fund's investments are valued daily at market value or, in the absence of
market value with respect to any portfolio securities, at fair value according
to procedures adopted by the Fund's Board of Trustees. A majority of the Fund's
assets are valued using market information supplied by third parties. In the
event that market quotations are not readily available, the pricing service does
not provide a valuation for a particular asset, or the valuations are deemed
unreliable, First Trust Advisors L.P. ("First Trust") may use a fair value
method to value the Fund's securities and other investments. Additionally, if
events occur after the close of the principal markets for particular securities
(e.g. domestic debt and foreign securities), but before the Fund values its
assets, that could materially affect NAV, First Trust may use a fair value
method to value the Fund's securities and other investments. The use of fair
value pricing by the Fund is governed by valuation procedures adopted by the
Fund's Board of Trustees and in accordance with the provisions of the Investment
Company Act of 1940, as amended.

Portfolio securities listed on any exchange other than the NASDAQ National
Market ("NASDAQ") are valued at the last sale price on the business day as of
which such value is being determined. If there has been no sale on such day, the
securities are valued at the mean of the most recent bid and asked prices on
such day. Securities traded on the NASDAQ are valued at the NASDAQ Official
Closing Price as determined by NASDAQ. Portfolio securities traded on more than
one securities exchange are valued at the last sale price on the business day as
of which such value is being determined at the close of the exchange
representing the principal market for such securities. Portfolio securities
traded in the over-the-counter market, but excluding securities traded on the
NASDAQ, are valued at the closing bid prices. Short-term investments that mature
in less than 60 days when purchased are valued at amortized cost.

In September 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 157, Fair Value Measurements ("FAS 157"),
effective for fiscal years beginning after November 15, 2007. This standard
clarifies the definition of fair value for financial reporting, establishes a
framework for measuring fair value and requires additional disclosures about the
use of fair value measurements. FAS 157 became effective for the Fund as of
December 1, 2007, the beginning of its current fiscal year. The three levels of
the fair value hierarchy under FAS 157 are described below:

- Level 1 - quoted prices in active markets for identical securities

- Level 2 - other significant observable inputs (including quoted prices
for similar securities, interest rates, prepayment speeds, credit
risk, etc.)

- Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not necessarily an
indication of the risk associated with investing in those securities. A summary
of the inputs used to value the Fund's net assets as of August 31, 2008 is
included in the Fund's Portfolio of Investments.

B. SECURITIES TRANSACTIONS:

Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.

Page 3

NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS - (CONTINUED)

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
(FORMERLY KNOWN AS FIRST TRUST/GALLATIN SPECIALTY FINANCE AND
FINANCIAL OPPORTUNITIES FUND) AUGUST 31, 2008 (UNAUDITED)

C. RESTRICTED SECURITIES:

The Fund invests in restricted securities, which are securities that cannot be
offered for public sale without first being registered under the Securities Act
of 1933, as amended. Prior to registration, restricted securities may only be
resold in transactions exempt from registration. As of August 31, 2008, the Fund
held restricted securities as shown in the following table. The Fund does not
have the right to demand that such securities be registered. These securities
are valued according to the valuation procedures as stated in the Portfolio
Valuation footnote (Note 1A) and are not expressed as a discount to the carrying
value of comparable unrestricted securities.

ACQUISITION VALUE PER CURRENT % OF
SECURITY DATE SHARES SHARE CARRYING COST VALUE NET ASSETS
-------- ----------- ------- --------- ------------- ---------- ----------

Cypress Sharpridge Investments, Inc. 5/19/08 192,307 $15.60 $2,999,989 $2,999,989 2.21%
Cypress Sharpridge Investments, Inc.
Warrants 5/30/08 576,923 0 0 0 0
------- ---------- ---------- ----
769,230 $2,999,989 $2,999,989 2.21%
======= ========== ========== ====

Page 4

ITEM 2. CONTROLS AND PROCEDURES.

(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within
90 days of the filing date of the report that includes the disclosure
required by this paragraph, based on their evaluation of these controls
and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR
270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities
Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or
240.15d-15(b)).

(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17
CFR 270.30a-3(d)) that occurred during the registrant's last fiscal
quarter that have materially affected, or are reasonably likely to
materially affect, the registrant's internal control over financial
reporting.

ITEM 3. EXHIBITS.

Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of
the Sarbanes-Oxley Act of 2002 are attached hereto.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

(Registrant) FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
(FORMERLY FIRST TRUST/GALLATIN SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES
FUND)

By (Signature and Title)* /S/ JAMES A. BOWEN
-------------------------------------------------------
James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)

Date OCTOBER 20, 2008
----------------------------------------------------------------------------

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.

Date OCTOBER 20, 2008
----------------------------------------------------------------------------

By (Signature and Title)* /S/ MARK R. BRADLEY
-------------------------------------------------------
Mark R. Bradley, Treasurer, Controller, Chief Financial
Officer and Chief Accounting Officer
(principal financial officer)

Date OCTOBER 20, 2008
----------------------------------------------------------------------------

* Print the name and title of each signing officer under his or her signature.