Edgar Filing: FIRST TRUST/GALLATIN 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
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First Trust/Gallatin Specialty Finance and Financial Opportunities Fund
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(Exact name of registrant as specified in charter)

1001 Warrenville Road, Suite 300
Lisle, IL 60532
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(Address of principal executive offices) (Zip code)

W. Scott Jardine, Esq.
First Trust Portfolios L.P.
1001 Warrenville Road, Suite 300
Lisle, IL 60532
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(Name and address of agent for service)

Registrant's telephone number, including area code: 630-241-4141
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Date of fiscal year end: November 30
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Date of reporting period: August 31, 2007
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Form N-Q is to be used by management investment companies, other than small
business investment companies registered on Form N-5 (Sections 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. Section 3507.

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

FIRST TRUST/GALLATIN SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS
AUGUST 31, 2007 (UNAUDITED)

MARKET
SHARES DESCRIPTION (a) VALUE
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COMMON STOCKS - 102.8%

CAPITAL MARKETS - 60.1%
535,660 Allied Capital Corp. ................................................................... $ 15,973,381
382,326 American Capital Strategies, Ltd. ...................................................... 15,786,240
846,706 Apollo Investment Corp. ................................................................ 18,492,059
613,893 Ares Capital Corp. ..................................................................... 10,080,123
546,150 BlackRock Kelso Capital Corp. .......................................................... 7,919,175
400,000 Gladstone Capital Corp. ................................................................ 8,184,000
100,000 Gladstone Investment Corp. ............................................................. 1,235,000
2,500 GSC Investment Corp. ................................................................... 31,000
506,205 Hercules Technology Growth Capital, Inc. ............................................... 5,932,723
24,618 Highland Distressed Opportunities, Inc. ................................................ 307,233
460,030 Kohlberg Capital Corp. ................................................................. 7,033,859
472,000 MCG Capital Corp. ...................................................................... 6,853,440
680,000 MVC Capital, Inc. ...................................................................... 11,288,000
432,000 Patriot Capital Funding, Inc. .......................................................... 5,862,240
540,947 PennantPark Investment Corp. ........................................................... 7,021,492
306,152 Prospect Energy Corp. .................................................................. 5,124,984
463,785 Technology Investment Capital Corp. .................................................... 6,094,135
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133,219,084
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DIVERSIFIED FINANCIAL SERVICES - 3.4%
85,211 Financial Federal Corp. ................................................................ 2,599,787
446,000 Medallion Financial Corp. .............................................................. 4,901,540
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7,501,327
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OIL, GAS & CONSUMABLE FUELS - 2.7%
371,737 NGP Capital Resources Co. .............................................................. 5,966,379
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REAL ESTATE INVESTMENT TRUSTS (REITS) - 36.6%
350,000 Annaly Capital Management, Inc. ........................................................ 4,931,500
300,000 Arbor Realty Trust, Inc. ............................................................... 6,006,000
124,799 Capital Trust, Inc. - Class A .......................................................... 4,325,533
778,154 CapitalSource, Inc. .................................................................... 13,874,486
640,000 Gramercy Capital Corp. ................................................................. 16,096,000
400,000 iStar Financial, Inc. .................................................................. 14,640,000
947,065 NorthStar Realty Finance Corp. ......................................................... 10,048,360
200,000 RAIT Financial Trust ................................................................... 1,770,000
250,000 Redwood Trust, Inc. .................................................................... 9,332,500
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81,024,379
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TOTAL COMMON STOCKS .................................................................... 227,711,169
(Cost $264,956,285) ---------------

CANADIAN INCOME TRUSTS - 9.5%

100 ARC Energy Trust ....................................................................... 1,931
364,100 Enerplus Resources Fund ................................................................ 15,332,251
200,000 Penn West Energy Trust ................................................................. 5,732,000
100 Progress Energy Trust .................................................................. 1,051
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TOTAL CANADIAN INCOME TRUSTS ........................................................... 21,067,233
(Cost $23,467,869) ---------------

See Notes to Quarterly Portfolio of Investments. Page 1

FIRST TRUST/GALLATIN SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
AUGUST 31, 2007 (UNAUDITED)

MARKET
DESCRIPTION (a) VALUE
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TOTAL INVESTMENTS - 112.3% ............................................................. $ 248,778,402
(Cost $288,424,154) (b)

LOAN OUTSTANDING - (13.5)% ............................................................. (30,000,000)
NET OTHER ASSETS AND LIABILITIES - 1.2% ................................................ 2,724,056
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NET ASSETS - 100.0% .................................................................... $ 221,502,458
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(a) All percentages shown in the Portfolio of Investments are based on net
assets.

(b) Aggregate cost for federal income tax and financial reporting purposes.

Page 2 See Notes to Quarterly Portfolio of Investments.

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NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS
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FIRST TRUST/GALLATIN SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
AUGUST 31, 2007 (UNAUDITED)

1. VALUATION AND INVESTMENT PRACTICES

A. PORTFOLIO VALUATION:

The net asset value ("NAV") of the Common Shares of First Trust/Gallatin
Specialty Finance and Financial Opportunities Fund (the "Fund") is determined
daily as of the close of regular session 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 subtracting the Fund's liabilities
(including accrued expenses, dividends payable and any borrowings of the Fund)
from the Fund's Total Assets (the value of the securities and other investments
the Fund holds plus cash or other assets, including interest accrued but not yet
received) and dividing the result 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 investments. Additionally, if events
occur after the close of the principal market 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 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 are valued at amortized cost.

B. SECURITIES TRANSACTIONS:

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

2. UNREALIZED APPRECIATION (DEPRECIATION)

As of August 31, 2007, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $345,380 and
the aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over value was $39,991,132.

Page 3

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/Gallatin Specialty Finance and Financial Opportunities
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Fund
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By (Signature and Title)* /s/ James A. Bowen
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James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)

Date October 23, 2007
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Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

Date October 23, 2007
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By (Signature and Title)* /s/ Mark R. Bradley
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Mark R. Bradley, Treasurer, Controller, Chief
Financial Officer and Chief Accounting Officer
(principal financial officer)

Date October 26, 2007
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* Print the name and title of each signing officer under his or her signature.