Edgar Filing: FIRST TRUST SPECIALTY FINANCE & FINANCIAL OPPORTUNITIES FUND

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
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First Trust Specialty Finance and Financial Opportunities
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Fund (Exact name of registrant as specified in charter)

120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Address of principal executive offices) (Zip code)

W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Name and address of agent for service)

registrant's telephone number, including area code: 630-765-8000
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Date of fiscal year end: November 30
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Date of reporting period: May 31, 2011
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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

SEMI-ANNUAL REPORT
FOR THE SIX MONTHS ENDED
MAY 31, 2011

CONFLUENCE
FIRST TRUST INVESTMENT MANAGEMENT

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TABLE OF CONTENTS
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FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND (FGB)
SEMI-ANNUAL REPORT
MAY 31, 2011

Shareholder Letter .......................................................... 1
At A Glance ................................................................. 2
Portfolio Commentary ........................................................ 3
Portfolio of Investments .................................................... 6
Statement of Assets and Liabilities ......................................... 9
Statement of Operations ..................................................... 10
Statements of Changes in Net Assets ......................................... 11
Statement of Cash Flows ..................................................... 12
Financial Highlights ........................................................ 13
Notes to Financial Statements ............................................... 14
Additional Information ...................................................... 20

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 Notes to
Financial Statements 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.

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SHAREHOLDER LETTER
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FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND (FGB)
SEMI-ANNUAL REPORT
MAY 31, 2011

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").

First Trust Advisors L.P. ("First Trust") has always believed that staying
invested in quality products and having a long-term horizon can help investors
reach their financial goals. Successful investors understand that the success
they have achieved is typically because of their long-term investment
perspective through all kinds of markets. While the past two years have been
challenging, the markets have been recovering from their lows of 2008-2009,
bringing relief to economists and investors alike.

The report you hold contains detailed information about your investment; a
portfolio commentary from the Fund's management team that provides a recap of
the period; a performance analysis and a market and Fund outlook. Additionally,
you will find the Fund's financial statements for the six months this report
covers. I encourage you to read this document and discuss it with your financial
advisor.

First Trust has been through many types of markets. That's why we remain
committed to being a long-term investor and investment manager and to bringing
you quality investment solutions regardless of the inevitable volatility the
market experiences. We offer a variety of products that may fit many financial
plans to help those investors seeking long-term investment success. You may want
to talk to your advisor about the investments First Trust offers that might also
fit your financial goals.

At First Trust we continue to be committed to making available up-to-date
information about your investments so you and your financial advisor have
current information on your portfolio. We value our relationship with you, and
we thank you for the opportunity to assist you in achieving your financial
goals. I look forward to the remainder of 2011 and to the next edition of your
Fund's report.

Sincerely,

/s/ James A. Bowen

James A. Bowen
President of First Trust Specialty Finance and Financial Opportunities Fund

Page 1

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND (FGB)
"AT A GLANCE"
AS OF MAY 31, 2011 (UNAUDITED)

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FUND STATISTICS
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Symbol on New York Stock Exchange FGB
Common Share Price $7.64
Common Share Net Asset Value ("NAV") $7.90
Premium (Discount) to NAV (3.29)%
Net Assets Applicable to Common Shares $112,751,618
Current Monthly Distribution per Common Share(1) $0.1550
Current Annualized Distribution per Common Share $0.6200
Current Distribution Rate on Closing Common Share Price(2) 8.12%
Current Distribution Rate on NAV(2) 7.85%
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COMMON SHARE PRICE & NAV (WEEKLY CLOSING PRICE)
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Common Share Price NAV
5/31/2010 7.24 6.61
6/4/2010 7.15 6.59
6/11/2010 7.01 6.84
6/18/2010 6.92 6.92
6/25/2010 6.61 6.86
7/2/2010 6.23 6.52
7/9/2010 6.59 6.90
7/16/2010 6.46 6.74
7/23/2010 6.61 7.04
7/30/2010 6.81 7.14
8/6/2010 7.01 7.17
8/13/2010 6.81 6.88
8/20/2010 6.64 6.79
8/27/2010 6.63 6.87
9/3/2010 7.11 7.12
9/10/2010 7.12 7.19
9/17/2010 6.91 7.23
9/24/2010 7.09 7.32
10/1/2010 7.15 7.49
10/8/2010 7.26 7.62
10/15/2010 7.18 7.69
10/22/2010 7.29 7.74
10/29/2010 7.54 7.77
11/5/2010 7.88 8.09
11/12/2010 7.50 7.80
11/19/2010 7.44 7.66
11/26/2010 7.57 7.75
12/3/2010 7.90 7.91
12/10/2010 8.01 8.09
12/17/2010 7.63 8.00
12/23/2010 7.85 8.13
12/31/2010 7.63 8.06
1/7/2011 7.82 8.18
1/14/2011 7.93 8.28
1/21/2011 7.82 7.99
1/28/2011 7.71 8.04
2/4/2011 7.81 8.25
2/11/2011 8.11 8.31
2/18/2011 8.26 8.25
2/25/2011 8.01 8.26
3/4/2011 8.13 8.28
3/11/2011 7.84 7.98
3/18/2011 7.94 7.80
3/25/2011 7.97 7.96
4/1/2011 8.18 8.10
4/8/2011 8.18 8.08
4/15/2011 7.97 7.97
4/21/2011 8.04 8.00
4/29/2011 7.90 8.23
5/6/2011 7.80 8.01
5/13/2011 7.75 8.00
5/20/2011 7.68 7.79
5/27/2011 7.66 7.77
5/31/2011 7.64 7.90

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PERFORMANCE
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Average Annual
Total Return
6 Months Ended 1 Year Ended Inception (5/25/2007)
5/31/2011 5/31/2011 to 5/31/2011

FUND PERFORMANCE(3)
NAV 6.78% 26.38% -9.16%
Market Value 5.88% 19.40% -10.94%

INDEX PERFORMANCE
Blended Benchmark(4) 18.05% 38.58% N/A(5)
MSCI U.S. Investable Market Financials Index 10.76% 9.42% -8.51%
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% OF TOTAL
TOP 10 HOLDINGS INVESTMENTS
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Ares Capital Corp. 11.5%
PennantPark Investment Corp. 7.8
Solar Capital, Ltd. 6.8
MVC Capital, Inc. 6.2
Annaly Capital Management, Inc. 4.7
Golub Capital BDC, Inc. 4.6
BlackRock Kelso Capital Corp. 4.6
Apollo Investment Corp. 4.5
Hercules Technology Growth Capital, Inc. 3.9
Cypress Sharpridge Investments, Inc. 3.4
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Total 58.0%
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% OF TOTAL
INDUSTRY INVESTMENTS
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Capital Markets 79.2%
Real Estate Investment Trusts (REITs) 14.4
Insurance 3.3
Diversified Financial Services 2.5
Health Care Equipment & Supplies 0.4
Thrifts & Mortgage Finance 0.2
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Total 100.0%
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% OF TOTAL
ASSET CLASSIFICATION INVESTMENTS
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Common Stocks:
Business Development Companies 77.4%
Residential Mortgage REITs 13.3
Domestic 6.4
Specialty Finance/Hybrid REITs 1.2
Canadian Common Stock* 0.0
Exchange-Traded Funds 1.7
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Total 100.0%
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*Amount is less than 0.1%

(1) Most recent distribution paid or declared through 5/31/2011. 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 5/31/2011. 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 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.

(4) Blended benchmark consists of the following (Source: Bloomberg):
Red Rocks Global Listed Private Equity Index (70%)
FTSE NAREIT Mortgage REIT Index (20%)
S&P SmallCap Financials Index (10%)

(5) Previously, 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%)
Russell 2000 Financial Services Index (10%)
Certain of these indices were discontinued during 2009, therefore the
blended benchmark was changed. See footnote (4) above for the new blended
benchmark constituents. As certain of the indices in the new blended
benchmark began subsequent to the inception date (5/25/2007) of the Fund,
the average annual total return from inception to 5/31/2011 for the
blended benchmark cannot be calculated.

Page 2

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PORTFOLIO COMMENTARY
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FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND (FGB)
SEMI-ANNUAL REPORT
MAY 31, 2011

SUB-ADVISOR

Confluence Investment Management LLC, a registered investment advisor
("Confluence" or "Sub-Advisor"), located in Saint Louis, Missouri, has served as
the Sub-Advisor to First Trust Specialty Finance and Financial Opportunities
Fund (NYSE: FGB) since July 29, 2008. 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.

PORTFOLIO MANAGEMENT TEAM

MARK A. KELLER, CFA - CHIEF EXECUTIVE OFFICER AND CHIEF INVESTMENT OFFICER

Mr. Keller has 30 years of investment experience with a focus on value-oriented
equity analysis and management. From 1994 to May 2008, he was the Chief
Investment Officer of Gallatin Asset Management, Inc., and its predecessor
organization, A.G. Edwards Asset Management, the investment management arm of
A.G. Edwards, Inc. From 1999 to 2008, Mr. Keller was Chairman of A.G. Edwards'
Investment Strategy Committee, which set investment policy and established asset
allocation models for the entire organization. Mr. Keller was a founding member
of the A.G. Edwards Investment Strategy Committee, on which he served for over
20 years, the last ten years of which as Chairman of the Committee. Mr. Keller
began his career with A.G. Edwards in 1978, serving as an equity analyst for the
firm's Securities Research Department from 1979 to 1994. During his last five
years in Securities Research, Mr. Keller was Equity Strategist and manager of
the firm's Focus List. Mark was a Senior Vice President of A.G. Edwards & Sons,
Inc. and of Gallatin Asset Management, Inc., and was a member of the Board of
Directors of both companies. Mr. Keller received a Bachelor of Arts from Wheaton
College (Illinois) and is a CFA charterholder.

DAVID B. MIYAZAKI, CFA - SENIOR VICE PRESIDENT AND PORTFOLIO MANAGER

Prior to joining Confluence in May 2008, Mr. Miyazaki served as a Portfolio
Manager and Analyst with Gallatin Asset Management, Inc., the investment
management arm of A.G. Edwards, Inc. Mr. Miyazaki was responsible for equity
investments in value-oriented separately managed accounts. He also co-managed
the A.G. Edwards' ETF-based asset allocation program. In addition to portfolio
management, Mr. Miyazaki served as a member of the A.G. Edwards' Investment
Strategy Committee. As a strategist, he was responsible for the firm's
quantitative asset allocation models, including its Cyclical Asset Allocation
program. Prior to joining A.G. Edwards in 1999, Mr. Miyazaki was a Portfolio
Manager at Koch Industries in Wichita, Kansas. His previous experience includes
working as an Investment Analyst at Prudential Capital Group in Dallas, Texas,
and as a Bond Trader at Barre & Company, also in Dallas. Mr. Miyazaki received a
Bachelor of Business Administration from Texas Christian University and is a CFA
charterholder.

DANIEL T. WINTER, CFA - SENIOR VICE PRESIDENT AND PORTFOLIO MANAGER

Prior to joining Confluence in May 2008, Mr. Winter served as a Portfolio
Manager and Analyst with Gallatin Asset Management, Inc., the investment arm of
A.G. Edwards, Inc. While at Gallatin, Mr. Winter chaired the portfolio
management team responsible for the firm's six value-oriented equity strategies.
His responsibilities also included directing the strategy implementation and
trading execution for the equity portfolios. Mr. Winter also served as a
portfolio manager for the Cyclical Growth ETF Portfolio and the Cyclical Growth
and Income ETF Portfolio which were offered through variable annuities. He was
also a member of the firm's Allocation Advisor Committee which oversaw the A.G.
Edwards exchange-traded fund focused strategies. Prior to joining the firm's
Asset Management division in 1996, Mr. Winter served as a portfolio manager for
A.G. Edwards Trust Company. Mr. Winter earned a Bachelor of Arts in business
management from Eckerd College and a Master of Business Administration from
Saint Louis University. Mr. Winter is a CFA charterholder.

Page 3

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PORTFOLIO COMMENTARY - (Continued)
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FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND (FGB)
SEMI-ANNUAL REPORT
MAY 31, 2011

COMMENTARY

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND (FGB)

The primary investment objective of the First Trust Specialty Finance and
Financial Opportunities Fund ("FGB" or 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, often times working with those not large enough to efficiently access
the public markets. Each BDC has a unique profile, determined by its respective
management teams. Some specialize in particular industries, while others apply a
more generalized approach and maintain a diversified portfolio. Both approaches
can work effectively and deliver to shareholders a unique and differentiated
investment opportunity derived from the private markets. As of May 31, 2011, the
Fund had three quarters of its assets invested in 27 BDCs.

The Fund began its fiscal 2011 by participating in the strength of the broad
equity markets that characterized the end of 2010 and the beginning of calendar
2011. Even the financial sector, which lagged most other groups throughout 2010,
rallied as stock investor optimism related to the economic recovery pushed
equities higher. For the three months ended February 28, 2011, the Standard &
Poor's 500 Index ("S&P 500") total return was 13.0% and the Fund's market value
total return was 9.3%.

However, as we moved into the spring, a variety of concerns began to erode
confidence in the stock market. Economic data indicated that growth would likely
remain tepid, with ongoing limitations from issues ranging from weakness in
residential housing to a stubbornly high unemployment rate. Rising gasoline
prices and political unrest in several Arab nations weighed heavily on consumer
sentiment. Meanwhile, Europe's debt crisis began to fester, particularly with
regard to Greece, even as domestic debates around U.S. debt took center stage.
The Japanese earthquake also added to overall uncertainty.

None of these events by themselves was enough to rattle the markets, which
generally held up reasonably well as news was reported. However, the collective
burden began to weigh on investors, and concerns supplanted optimism. Although
the broad equity market managed to grind a bit higher, financial stocks fared
worse, burdened by the additional headwinds of an uncertain and punitive
regulatory environment. For the six months ended May 31, 2011, the S&P 500's
total return was 15.0%, while the Fund's market value total return was 5.88%.

Many BDCs experienced declining valuations in the first half of the Fund's
fiscal year. This trend was fairly widespread, even though the fundamentals for
many companies were quite solid. In the first few months of 2011, several BDCs
were able to successfully raise capital through the issuance of convertibles and
other forms of longer-term debt. Although this type of borrowing is more
expensive relative to revolving credit, it is also more stable and better
matched to BDC investment portfolios. We believe this evolution in the industry
is noteworthy, as it improves the durability of capital structures and better
positions companies to weather periods when liquidity becomes scarce.

At the same time, BDC loan portfolios held up well, but also experienced a
partial transformation. New loan origination activity in the first part of 2011
was meaningful, but refinancing volume was very high. Many borrowers in BDC loan
portfolios migrated into positions where they could pay down existing debt and
refinance with lower interest rates. For BDCs, this meant many of their higher
yielding investments were paid back and proceeds had to be invested into
lower-yielding loans.

The combination of higher interest expenses and lower yields on new investments
created headwinds for many BDCs to grow their net investment income. This
challenge, combined with the aforementioned concerns in the financial sector and
broader equity markets, pressured many BDC valuations down throughout most of
the first six months of the Fund's fiscal year. Despite these declining
valuations, most of the companies were able to post positive returns, an
accomplishment that highlights the important role dividends play in delivering
shareholder returns.

Outside of BDCs, the Fund also maintained an allocation in Agency MBS REITs.
These companies invest in U.S. Agency mortgage-backed securities, utilizing
short-term debt from the repurchase markets to fund their positions. Although
fundamentals and performance have been good in recent quarters, ongoing
uncertainty related to the structure of the U.S. mortgage market, the role of
the Federal Reserve in purchasing mortgages, the size and growth of the U.S.
deficit and the perception that interest rates may spike higher have all kept a
lid on valuations. We continue to view this group favorably, recognizing the
variable nature of its earnings and dividends. We believe a measured exposure,
established at the right prices, can play a constructive role in pursuing the
Fund's income and growth objectives.

Page 4

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PORTFOLIO COMMENTARY - (Continued)
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FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND (FGB)
SEMI-ANNUAL REPORT
MAY 31, 2011

PERFORMANCE ANALYSIS

The Fund's market value total return of 5.88%(1) was close to the Fund's NAV
total return of 6.78%(1) as the discount to NAV remained fairly stable, moving
from -2.47% to -3.29% during the six months ended May 31, 2011. Although the
Fund delivered good absolute returns, it underperformed the blended benchmark(2)
total return 18.05%(1). Since FGB is unique in its focus on BDCs, it often
performs in a much different manner than other benchmarks, including its own
blended benchmark. Also, knowing the Fund has outperformed its blended benchmark
by such a wide margin for the past couple years, it is not unexpected that a
period of relative underperformance might emerge.

Private equity was the strongest component of the blended benchmark, coming in
at 20.7% during the six-month period. Although the private equity component
shares some similarities with some of the Fund's BDC holdings, it has many
different positions, focused in other industries, most of which are foreign. In
contrast, FGB's holdings are focused upon BDCs, which are primarily involved in
domestic industries. The top holdings in the Fund emphasize well-run BDCs with
carefully constructed portfolios, including Ares Capital, PennantPark, MVC
Capital and Solar Capital. Managers of these BDCs have track records of making
good investments, while controlling risk.

Higher quality companies don't always deliver the highest returns at all times,
and this phenomenon was the case during the six-month period. Among BDCs,
Prospect Capital and Kohlberg Capital delivered some of the highest returns.
Both of these companies have managed their businesses in recent years in ways
that we believe haven't necessarily benefitted shareholders. Along these lines,
a BDC with one of the highest returns in the period was American Capital
Strategies, a company the Fund has not owned for quite some time. Here too,
management has a somewhat checkered performance history and has yet to restore a
dividend. At certain times, and at the right valuations, we may include these
kinds of names in the portfolio. However, we prefer to overweight the portfolio
toward the higher quality BDCs.

The Fund's MBS REITs included Annaly Capital, Cypress Sharpridge and Hatteras
Financial. We believe these companies continue to operate their businesses well,
benefitting from an environment allowing high returns on equity. The industry
raised substantial amounts of equity capital during the six-month period, which
likely limited the amount of possible price appreciation for many stocks.
Nevertheless, we expect these companies should continue to deliver substantial
dividends and believe the return profile going forward has room to improve.

MARKET AND FUND OUTLOOK

The BDC industry continues to march forward and during the six months ended May
31, 2011, four new BDCs had initial public offerings. Medley Capital, Solar
Senior Capital, PennantPark Floating Rate, and New Mountain Finance all began
trading as public entities, bringing the total number of public BDCs to over two
dozen. We are pleased to see the industry continue its growth, particularly when
new management teams are able to bring differentiated, shareholder-friendly
businesses into the market. We have been able to add many of these newer
companies into the FGB portfolio, often times at valuations we believe are
attractive.

As we look forward, the landscape appears filled with both challenges and
opportunities. We do not expect the U.S. economy to decline into recession,
although robust growth doesn't appear to be in the cards, either. High
unemployment and weak housing prices are likely to continue weighing on the
consumer, whom we expect to remain cautious with guarded spending patterns. We
expect interest rates to remain low and credit to remain available for
individuals and companies with good credit profiles. Regulations related to
financial and healthcare reforms are likely to limit confidence among consumers,
businesses and investors, and the upcoming election cycle will probably only
increase uncertainty.

On the upside, we believe BDC fundamentals continue to improve and that defaults
and non-accruals remain at manageable levels. The industry has recently made
good progress in diversifying its sources of debt capital, something that should
help companies better prepare for times when liquidity in the markets becomes
scarce. Loan portfolio yields are declining, but talented managers are still
finding new investments that should accrue benefits to shareholders. Finally,
many of the newer BDCs have traded down to valuations we believe are good entry
points. In many cases, there is an opportunity to participate in both a
valuation recovery and the development and growth of a new BDC dividend. The
dual nature of the opportunity aids in the effort to grow the Fund's NAV and
improve its dividend.

FGB remains unique among other closed-end funds because of its focus on the BDC
industry. Although BDCs and other financials lagged the broader equity markets
during the first half of the Fund's fiscal year, we are optimistic looking
forward, and believe BDCs offer a differentiated way to pursue income and growth
objectives.

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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 net asset value for NAV
total returns and changes in Common Share price for market value returns.
Total returns do not reflect sales load. Past performance is not
indicative of future results.

2 Blended benchmark consists of the following (Source: Bloomberg):
Red Rocks Global Listed Private Equity Index (70%)
FTSE NAREIT Mortgage REIT Index (20%)
S&P SmallCap Financials Index (10%)

Page 5

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS (a)
MAY 31, 2011 (UNAUDITED)

SHARES DESCRIPTION VALUE
------------ ------------------------------------------------------- -------------
COMMON STOCKS - BUSINESS DEVELOPMENT COMPANIES - 90.0%

CAPITAL MARKETS - 86.6%

517,706 Apollo Investment Corp. (b)............................ $ 5,907,025
896,233 Ares Capital Corp. (b)................................. 15,074,639
602,520 BlackRock Kelso Capital Corp. (b)...................... 5,970,973
238,794 Fifth Street Finance Corp. (b)......................... 2,944,330
89,036 Full Circle Capital Corp............................... 718,521
420,716 Gladstone Capital Corp. (b)............................ 4,232,403
183,333 Gladstone Investment Corp.............................. 1,369,497
385,302 Golub Capital BDC, Inc. (b) (c)........................ 6,037,682
469,556 Hercules Technology Growth Capital, Inc. (b)........... 5,141,638
141,200 Horizon Technology Finance Corp. (b)................... 2,238,020
252,256 Kohlberg Capital Corp.................................. 1,995,345
19,774 Main Street Capital Corp. (b).......................... 369,181
233,600 MCG Capital Corp. (b).................................. 1,607,168
164,139 Medley Capital Corp.................................... 1,926,992
603,700 MVC Capital, Inc. (b).................................. 8,137,876
36,700 New Mountain Finance Corp.............................. 481,504
332,437 NGP Capital Resources Co. (b).......................... 2,636,225
137,897 PennantPark Floating Rate Capital Ltd.................. 1,838,167
824,000 PennantPark Investment Corp. (b)....................... 10,242,320
12,176 Prospect Capital Corp.................................. 142,581
11,739 Saratoga Investment Corp............................... 243,350
360,036 Solar Capital, Ltd. (b) (c)............................ 8,910,891
5,000 Solar Senior Capital Ltd............................... 91,052
333,502 THL Credit, Inc. (b) (c)............................... 4,492,272
74,140 TICC Capital Corp. (b)................................. 759,935
218,601 Triangle Capital Corp. (b)............................. 4,194,953
-------------
97,704,540
-------------
DIVERSIFIED FINANCIAL SERVICES - 3.4%
396,566 Medallion Financial Corp. (b).......................... 3,799,102
-------------
TOTAL COMMON STOCKS - BUSINESS DEVELOPMENT COMPANIES... 101,503,642
-------------
(Cost $110,462,435)

COMMON STOCKS - 24.2%

DIVERSIFIED FINANCIAL SERVICES - 2.9%
211,200 Compass Diversified Holdings (b)....................... 3,296,832
-------------
HEALTH CARE EQUIPMENT & SUPPLIES - 0.5%
59,075 Medical Action Industries, Inc. (b) (c)................ 575,391
-------------
INSURANCE - 3.9%
3 Berkshire Hathaway, Inc., Class A (b) (c).............. 356,325
83,700 Fidelity National Financial, Inc., Class A (b)......... 1,337,526
3,250 Markel Corp. (b) (c)................................... 1,344,428
38,475 W.R. Berkley Corp. (b)................................. 1,273,907
-------------
4,312,186
-------------
OIL, GAS & CONSUMABLE FUELS - 0.0%
100 ARC Resources Ltd. (CAD)............................... 2,765
81 Progress Energy Resources Corp. (CAD).................. 1,158
-------------
3,923
-------------

Page 6 See Notes to Financial Statements

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS (a) - (Continued)
MAY 31, 2011 (UNAUDITED)

SHARES DESCRIPTION VALUE
------------ ------------------------------------------------------- -------------
COMMON STOCKS - (Continued)
REAL ESTATE INVESTMENT TRUSTS (REITS) - 16.8%

339,500 Annaly Capital Management, Inc. (b).................... $ 6,155,135
350,573 Cypress Sharpridge Investments, Inc. (b)............... 4,501,357
192,307 Cypress Sharpridge Investments, Inc. (d)............... 2,469,222
46,282 Hatteras Financial Corp. (b)........................... 1,351,897
100,000 Hatteras Financial Corp. (b) (d)....................... 2,921,000
341,447 NorthStar Realty Finance Corp.......................... 1,495,538
-------------
18,894,149
-------------
THRIFTS & MORTGAGE FINANCE - 0.2%
19,500 Northwest Bancshares, Inc.............................. 244,725
-------------
TOTAL COMMON STOCKS.................................... 27,327,206
(Cost $25,963,873) -------------

EXCHANGE-TRADED FUNDS - 2.0%

CAPITAL MARKETS - 2.0%
55,000 SPDR Barclays Capital High Yield Bond ETF (b).......... 2,248,400
-------------
TOTAL EXCHANGE-TRADED FUNDS............................ 2,248,400
(Cost $1,864,608) -------------

TOTAL INVESTMENTS - 116.2%............................. 131,079,248
(Cost $138,290,916) (e)

OUTSTANDING LOAN - (17.7%)............................. (20,000,000)
NET OTHER ASSETS AND LIABILITIES - 1.5%................ 1,672,370
-------------
NET ASSETS - 100.0%.................................... $ 112,751,618
=============

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

(b) All or a portion of this security is available to serve as collateral on
the outstanding loan.

(d) This security, sold within the terms of a private placement memorandum, is
exempt from registration upon resale under Rule 144A under the Securities
Act of 1933, as amended (the "1933 Act"), and may be resold in
transactions exempt from registration, normally to qualified institutional
buyers (see Note 2C - Restricted Securities in the Notes to Financial
Statements).

(e) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of May 31, 2011, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $13,947,128 and the aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over value was $21,158,796.

CAD Canadian Dollar

See Notes to Financial Statements Page 7

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS (a) - (Continued)
MAY 31, 2011 (UNAUDITED)

VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of May 31, 2011
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
5/31/2011 PRICES INPUTS INPUTS
------------ ------------ ------------ ------------

Common Stocks - Business Development Companies*.... $101,503,642 $101,503,642 $ -- $ --
Common Stocks*..................................... 27,327,206 27,327,206 -- --
Exchange-Traded Funds*............................. 2,248,400 2,248,400 -- --
------------ ------------ ------------ ------------
TOTAL INVESTMENTS.................................. $131,079,248 $131,079,248 $ -- $ --
============ ============ ============ ============

* See Portfolio of Investments for industry breakout.

Page 8 See Notes to Financial Statements

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 2011 (UNAUDITED)

ASSETS:

Investments, at value
(Cost $138,290,916)......................................................................... $131,079,248
Cash........................................................................................... 1,095,732
Prepaid expenses............................................................................... 18,837
Receivables:
Investment securities sold.................................................................. 924,925
Dividends................................................................................... 175,068
Interest.................................................................................... 282
------------
Total Assets............................................................................. 133,294,092
------------
LIABILITIES:
Outstanding loan............................................................................... 20,000,000
Payables:
Investment securities purchased............................................................. 342,259
Investment advisory fees.................................................................... 113,474
Audit and tax fees.......................................................................... 28,901
Printing fees............................................................................... 20,563
Administrative fees......................................................................... 10,718
Trustees' fees and expenses................................................................. 6,770
Custodian fees.............................................................................. 4,412
Interest and fees on loan................................................................... 4,074
Legal fees.................................................................................. 4,033
Transfer agent fees......................................................................... 3,945
Other liabilities.............................................................................. 3,325
------------
Total Liabilities........................................................................... 20,542,474
------------
NET ASSETS..................................................................................... $112,751,618
============
NET ASSETS consist of:
Paid-in capital................................................................................ $267,258,367
Par value...................................................................................... 142,783
Accumulated net investment income (loss)....................................................... (1,817,178)
Accumulated net realized gain (loss) on investments............................................ (145,620,686)
Net unrealized appreciation (depreciation) on investments...................................... (7,211,668)
------------
NET ASSETS..................................................................................... $112,751,618
============
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share)........................... $ 7.90
============
Number of Common Shares outstanding (unlimited number of Common Shares has been authorized).... 14,278,252
============

See Notes to Financial Statements Page 9

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MAY 31, 2011 (UNAUDITED)

INVESTMENT INCOME:

Dividends (net of foreign withholding tax of $12).............................................. $ 5,662,610
Interest....................................................................................... 848
------------
Total investment income..................................................................... 5,663,458
------------
EXPENSES:
Investment advisory fees....................................................................... 668,954
Interest and fees on loan...................................................................... 145,252
Administrative fees............................................................................ 63,176
Printing fees.................................................................................. 34,397
Audit and tax fees............................................................................. 24,397
Trustees' fees and expenses.................................................................... 19,843
Transfer agent fees............................................................................ 16,674
Custodian fees................................................................................. 8,753
Legal fees..................................................................................... 4,574
Other.......................................................................................... 42,052
------------
Total expenses.............................................................................. 1,028,072
------------
NET INVESTMENT INCOME (LOSS)................................................................... 4,635,386
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments..................................................... (3,137,169)
Net change in unrealized appreciation (depreciation) on investments......................... 5,818,873
------------
NET REALIZED AND UNREALIZED GAIN (LOSS)........................................................ 2,681,704
------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................ $ 7,317,090
============

Page 10 See Notes to Financial Statements

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
STATEMENTS OF CHANGES IN NET ASSETS

SIX MONTHS
ENDED YEAR
5/31/2011 ENDED
(UNAUDITED) 11/30/2010
------------ ------------
OPERATIONS:

Net investment income (loss)....................................................... $ 4,635,386 $ 7,950,049
Net realized gain (loss)........................................................... (3,137,169) (14,346,258)
Net change in unrealized appreciation (depreciation)............................... 5,818,873 39,494,487
------------ ------------
Net increase (decrease) in net assets resulting from operations.................... 7,317,090 33,098,278
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.............................................................. (4,426,258) (8,279,365)
Net realized gain.................................................................. -- --
Return of capital.................................................................. -- (345,136)
------------ ------------
Total distributions to shareholders................................................ (4,426,258) (8,624,501)
------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from Common Shares reinvested............................................. -- 317,642
Net increase (decrease) in net assets resulting from capital transactions.......... -- 317,642
------------ ------------
Total increase (decrease) in net assets............................................ 2,890,832 24,791,419
------------ ------------
NET ASSETS:
Beginning of period................................................................ 109,860,786 85,069,367
------------ ------------
End of period...................................................................... $112,751,618 $109,860,786
============ ============
Accumulated net investment income (loss) at end of period.......................... $ (1,817,178) $ (2,026,306)
============ ============
CAPITAL TRANSACTIONS WERE AS FOLLOWS:
Common Shares at beginning of period............................................... 14,278,252 14,231,333
Common Shares issued as reinvestment under the Dividend Reinvestment Plan.......... -- 46,919
------------ ------------
Common Shares at end of period..................................................... 14,278,252 14,278,252
============ ============

See Notes to Financial Statements Page 11

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED MAY 31, 2011 (UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net increase (decrease) in net assets resulting from operations.................... $ 7,317,090
Adjustments to reconcile net increase (decrease) in net assets resulting from
operations to net cash provided by operating activities:
Purchases of investments..................................................... (9,268,784)
Sales, maturities and paydowns of investments................................ 7,124,167
Net realized gain/loss on investments........................................ 3,137,169
Net change in unrealized appreciation/depreciation on investments............ (5,818,873)
CHANGES IN ASSETS AND LIABILITIES:
Decrease in interest receivable.............................................. 73
Decrease in dividends receivable............................................. 49,037
Decrease in prepaid expenses................................................. 9,183
Increase in interest and fees on loan payable................................ 2,783
Increase in investment advisory fees payable................................. 7,152
Decrease in audit and tax fees payable....................................... (20,284)
Decrease in legal fees payable............................................... (36)
Decrease in printing fees payable............................................ (9,278)
Increase in administrative fees payable...................................... 680
Increase in custodian fees payable........................................... 1,499
Increase in transfer agent fees payable...................................... 1,289
Increase in Trustees' fees and expenses payable.............................. 137
Increase in other liabilities payable........................................ 2,486
------------
CASH PROVIDED BY OPERATING ACTIVITIES.............................................. $ 2,535,490
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to Common Shareholders from net investment income.............. (6,639,387)
Issuances of loan............................................................ 2,000,000
------------
CASH USED IN FINANCING ACTIVITIES.................................................. (4,639,387)
------------
Decrease in cash................................................................... (2,103,897)
Cash at beginning of period........................................................ 3,199,629
------------
Cash at end of period.............................................................. $ 1,095,732
============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest and fees.................................. $ 127,181
============

Page 12 See Notes to Financial Statements

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
FINANCIAL HIGHLIGHTS
FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD

SIX MONTHS
ENDED YEAR YEAR YEAR PERIOD
5/31/2011 ENDED ENDED ENDED ENDED
(UNAUDITED) 11/30/2010 11/30/2009 11/30/2008 (b) 11/30/2007 (a)
-------------- -------------- -------------- -------------- --------------

Net asset value, beginning of period ........... $ 7.69 $ 5.98 $ 4.51 $ 13.73 $ 19.10 (c)
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).................... 0.32 0.56 0.65 1.02 0.70
Net realized and unrealized gain (loss) ........ 0.20 1.76 1.43 (8.88) (5.32)
-------- -------- -------- -------- --------
Total from investment operations ............... 0.52 2.32 2.08 (7.86) (4.62)
-------- -------- -------- -------- --------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income .......................... (0.31) (0.59) (0.55) (1.27) (0.71)
Net realized gain .............................. -- -- -- -- --

Return of capital .............................. -- (0.02) (0.06) (0.09) --
-------- -------- -------- -------- --------
Total from distributions ....................... (0.31) (0.61) (0.61) (1.36) (0.71)
-------- -------- -------- -------- --------
Net asset value, end of period ................. $ 7.90 $ 7.69 $ 5.98 $ 4.51 $ 13.73
======== ======== ======== ======== ========
Market value, end of period .................... $ 7.64 $ 7.50 $ 5.43 $ 3.29 $ 14.23
======== ======== ======== ======== ========
TOTAL RETURN BASED ON NET ASSET VALUE (d)....... 6.78% 40.04% 56.00% (61.38)% (24.53)%
======== ======== ======== ======== ========
TOTAL RETURN BASED ON MARKET VALUE (d).......... 5.88% 50.41% 94.18% (72.80)% (25.36)%
======== ======== ======== ======== ========

-----------------------

RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ........... $112,752 $109,861 $ 85,069 $ 64,208 $193,070
Ratio of total expenses to average net assets .. 1.79% (e) 1.83% 2.29% 2.72% 1.99% (e)
Ratio of total expenses to average net assets
excluding interest expense .................. 1.54% (e) 1.58% 1.94% 1.73% 1.41% (e)
Ratio of net investment income (loss) to
average net assets .......................... 8.07% (e) 7.93% 13.36% 9.53% 8.64% (e)
Portfolio turnover rate ........................ 6% 24% 20% 15% 3%
INDEBTEDNESS:
Total loan outstanding (in 000's) .............. $ 20,000 $ 18,000 $ 14,350 $ 11,450 $ 36,000
Asset coverage per $1,000 of indebtedness (f)... $ 6,638 $ 7,103 $ 6,928 $ 6,608 $ 6,363

-----------------------

(a) Initial seed date of April 23, 2007. The Fund commenced operations on May
25, 2007.

(b) On July 29, 2008, Confluence Investment Management LLC became the
sub-advisor to the Fund.

(d) Total return is based on the combination of reinvested dividend, capital
gain and return of capidistributions, 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.

(e) Annualized.

(f) 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.

See Notes to Financial Statements Page 13

--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
MAY 31, 2011 (UNAUDITED)

1. FUND DESCRIPTION

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

The Fund's investments are valued daily in accordance with valuation procedures
adopted by the Fund's Board of Trustees, and in accordance with provisions of
the 1940 Act. The following securities, for which accurate and reliable market
quotations are readily available, will be valued as follows:

Common stocks and other securities listed on any national or foreign
exchange (excluding the NASDAQ National Market ("NASDAQ") and the London
Stock Exchange Alternative Investment Market ("AIM")) are valued at the
last sale price on the exchange on which they are principally traded. If
there are no transactions on the valuation day, the securities are valued
at the mean between the most recent bid and asked prices.

Securities listed on the NASDAQ or the AIM are valued at the official
closing price. If there is no official closing price on the valuation day,
the securities are valued at the mean between the most recent bid and
asked prices.

Securities traded in the over-the-counter market are valued at their
closing bid prices.

All market quotations used in valuing the Fund's securities will be obtained
from a third party pricing service. If no quotation is received from a pricing
service, attempts will be made to obtain one or more broker quotes for the
security. In the event the pricing service does not provide a valuation, broker
quotations are not readily available, or the valuations received are deemed
unreliable, the Fund's Board of Trustees has designated First Trust Advisors
L.P. ("First Trust") to use a fair value method to value the Fund's securities.
Additionally, if events occur after the close of the principal markets for
certain securities (e.g., domestic debt and foreign securities) that could
materially affect the Fund's NAV, First Trust will use a fair value method to
value the Fund's securities. The use of fair value pricing is governed by
valuation procedures adopted by the Fund's Board of Trustees, and in accordance
with the provisions of the 1940 Act. As a general principle, the fair value of a
security is the amount which the Fund might reasonably expect to receive for the
security upon its current sale. However, in light of the judgment involved in
fair valuations, there can be no assurance that a fair value assigned to a
particular security will be the amount which the Fund might be able to receive
upon its current sale. Fair valuation of a security will be based on the
consideration of all available information, including, but not limited to the
following:

1) the type of security;

2) the size of the holding;

3) the initial cost of the security;

4) transactions in comparable securities;

5) price quotes from dealers and/or pricing services;

Page 14

--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (Continued)
--------------------------------------------------------------------------------

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
MAY 31, 2011 (UNAUDITED)

6) relationships among various securities;

7) information obtained by contacting the issuer, analysts, or the
appropriate stock exchange;

8) an analysis of the issuer's financial statements; and

9) the existence of merger proposals or tender offers that might affect the
value of the security.

If the securities in question are foreign securities, the following additional
information may be considered:

1) the value of similar foreign securities traded on other foreign markets;

2) ADR trading of similar securities;

3) closed-end fund trading of similar securities;

4) foreign currency exchange activity;

5) the trading prices of financial products that are tied to baskets of
foreign securities;

6) factors relating to the event that precipitated the pricing problem;

7) whether the event is likely to recur; and

8) whether the effects of the event are isolated or whether they affect
entire markets, countries or regions.

Short-term investments that mature in less than 60 days when purchased are
valued at amortized cost.

The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:

o Level 1 - Level 1 inputs are quoted prices in active markets for
identical securities. An active market is a market in which
transactions for the security occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.

o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar securities in active markets.
o Quoted prices for identical or similar securities in markets
that are non-active. A non-active market is a market where
there are few transactions for the security, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
security (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.

o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about
the assumptions that market participants would use in pricing the
security.

The inputs or methodology used for valuing securities are not necessarily an
indication of the risk associated with investing in those securities. A summary
of the inputs used to value the Fund's investments as of May 31, 2011, 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 on the accrual basis, including the amortization of premiums and
accretion of discounts.

The Fund may hold real estate investment trusts ("REITs"). Distributions from
such investments may include a return of capital component from the REIT to the
extent of the cost basis of such REIT investments. The actual character of
amounts received during the year is not known until after the fiscal year end.
The Fund records the character of distributions received from the REITs during
the year based on estimates available. The Fund's characterization may be
subsequently revised based on information received from the REITs after their
tax reporting periods conclude.

The Fund may also hold business development companies ("BDCs"), exchange-traded
funds ("ETFs") and Canadian income trusts ("ClTs"). The tax character of
distributions received from these securities may vary when reported by the
issuer after their tax reporting periods conclude.

Page 15

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
MAY 31, 2011 (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 (the "1933 Act"). Prior to registration, restricted
securities may only be resold in transactions exempt from registration under
Rule 144A under the 1933 Act, normally to qualified institutional buyers. As of
May 31, 2011, the Fund held restricted securities as shown in the following
table. The Fund does not have the right to demand that such securities be
registered. These securities are valued according to the valuation procedures as
stated in the Portfolio Valuation footnote (Note 2A) and are not expressed as a
discount to the carrying value of a comparable unrestricted security.

ACQUISITION % OF
SECURITY DATE SHARES PRICE CARRYING COST VALUE NET ASSETS
----------- -------- ------ ------------- ---------- ----------

Cypress Sharpridge Investments, Inc. 5/19/08 192,307 $12.84 $2,999,989 $2,469,222 2.19%
Hatteras Financial Corp. 1/29/08 100,000 29.21 2,400,000 2,921,000 2.59
---------- ---------- -----
$5,399,989 $5,390,222 4.78%
========== ========== =====

D. 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 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.

Distributions from income and capital gains are determined in accordance with
income tax regulations, which may differ from accounting principles generally
accepted in the United States of America. 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 net asset value 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 time in the future.

The tax character of distributions paid during the fiscal year ended November
30, 2010 was as follows:

Distributions paid from:
Ordinary income....................................... $ 8,279,365
Return of capital..................................... 345,136

As of November 30, 2010, the distributable earnings and net assets on a tax
basis were as follows:

Undistributed ordinary income............................ $ --
Undistributed capital gains.............................. --
------------
Total undistributed earnings............................. --
Accumulated capital and other losses..................... (139,506,304)
Net unrealized appreciation (depreciation)............... (15,820,931)
------------
Total accumulated earnings (losses)...................... (155,327,235)
Other.................................................... (2,213,129)
Paid-in capital.......................................... 267,401,150
------------
Net assets............................................... $109,860,786
============

E. 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.

Certain capital losses realized after October 31 may be deferred and treated as
occurring on the first day of the following fiscal year. For the fiscal year
ended November 30, 2010, the Fund elected to defer net realized capital losses
of $1,266,946 incurred between November 1, 2010 and November 30, 2010.

The Fund intends to utilize provisions of the federal income tax laws, which
allow it to carry a realized capital loss forward for eight years following the
year of loss and offset such loss against any future realized capital gains. The
Fund is subject to certain limitations under U.S. tax rules on the use of
capital loss carryforwards and net unrealized built-in losses. These limitations

Page 16

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
MAY 31, 2011 (UNAUDITED)

apply when there has been a 50% change in ownership. At November 30, 2010, the
Fund had a capital loss carryforward for federal income tax purposes of
$138,239,358, 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 $14,678,064

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 ending 2007, 2008,
2009 and 2010 remain open to federal and state audit. As of May 31, 2011,
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.

On December 22, 2010, President Obama signed into law the Regulated Investment
Company Modernization Act of 2010 effective for tax years beginning after
December 22, 2010. Management is currently evaluating the impact the Act will
have on future financial statements, if any.

F. EXPENSES:

The Fund will pay all expenses directly related to its operations.

G. ACCOUNTING PRONOUNCEMENT:

In January 2010, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") No. 2010-06 "Improving Disclosures about
Fair Value Measurements". ASU No. 2010-06 amends FASB Accounting Standards
Codification Topic 820, Fair Value Measurements and Disclosures, to require
additional disclosures regarding fair value measurements. Certain disclosures
required by ASU No. 2010-06 are effective for fiscal years beginning after
December 15, 2010, and for interim periods within those fiscal years. Management
is currently evaluating the impact ASU No. 2010-06 will have on its financial
statement disclosures, if any.

3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS

First Trust, 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. 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 the Fund's
Managed Assets that is paid by First Trust from its investment advisory fee.

On May 7, 2008, First Trust Portfolios L.P., an affiliate of the Advisor, paid
$200,000 for an equity ownership interest in Confluence, which was subsequently
converted into debt. Accordingly, First Trust Portfolios L.P. currently holds a
promissory note from Confluence with a stated principal amount of $200,000, an
annual interest rate of 3.20% and a stated maturity date of June 30, 2015.

James A. Bowen, the President of First Trust, on October 12, 2010, acquired 100%
of the voting stock of The Charger Corporation, the general partner of First
Trust (the "Transaction"). The consummation of the Transaction was deemed to be
an "assignment" (as defined in the 1940 Act) of the Fund's investment management
agreement and investment sub-advisory agreement and resulted in the automatic
termination of the agreements.

The Board of Trustees of the Fund approved an interim investment management
agreement with First Trust and an interim investment sub-advisory agreement,
which were entered into effective upon the closing of the Transaction and would
be in effect for a maximum period of 150 days. A new investment management
agreement with First Trust and a new investment sub-advisory agreement were
approved by the Board of Trustees of the Fund and were submitted to shareholders
of the Fund as of the record date (September 30, 2010) for approval to take
effect upon such shareholder approval. A special shareholder meeting of the Fund
to vote on a proposal to approve the new investment management agreement and the
new investment sub-advisory agreement was held on January 3, 2011, at which time
the new investment management agreement and new investment sub-advisory
agreement were approved by the Fund's shareholders. Until January 3, 2011,
advisory fees payable to First Trust and EIP were held in escrow. See Submission
of Matters to a Vote of Shareholders, in the Additional Information section of
this report, for the results.

Page 17

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
MAY 31, 2011 (UNAUDITED)

BNY Mellon Investment Servicing (US) Inc. serves as the Fund's Administrator,
Fund Accountant and Transfer Agent in accordance with certain fee arrangements.
PFPC Trust Company, which will be renamed BNY Mellon Investment Servicing Trust
Company effective July 1, 2011, serves as the Fund's Custodian in accordance
with certain fee arrangements.

Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustee") is paid an annual retainer of
$10,000 per trust for the first 14 trusts of the First Trust Fund Complex and an
annual retainer of $7,500 per trust for each subsequent trust in the First Trust
Fund Complex. The annual retainer is allocated equally among each of the trusts.
No additional meeting fees are paid in connection with Board or Committee
meetings.

Additionally, the Lead Independent Trustee is paid $10,000 annually, the
Chairman of the Audit Committee is paid $5,000 annually, and each of the
Chairmen of the Nominating and Governance Committee and the Valuation Committee
is paid $2,500 annually to serve in such capacities, with such compensation paid
by the trusts in the First Trust Fund Complex and divided among those trusts.
Trustees are also reimbursed by the trusts in the First Trust Fund Complex for
travel and out-of-pocket expenses in connection with all meetings. The Lead
Independent Trustee and each Committee chairman will serve two-year terms before
rotating to serve as chairman of another committee or as Lead Independent
Trustee. The officers and "Interested" Trustee receive no compensation from the
Fund for serving in such capacities.

4. PURCHASES AND SALES OF SECURITIES

Cost of purchases and proceeds from sales of securities, other than U.S.
government obligations and short-term obligations, for the six months ended May
31, 2011 were $9,611,043 and $8,049,092, respectively.

5. CREDIT AGREEMENT

On February 2, 2010, the Fund entered into a committed facility agreement with
BNP (the "BNP Facility"), which currently has a maximum commitment amount of
$25,000,000. The committed facility required an upfront payment from the Fund
equal to $90,000. Absent certain events of default or failure to maintain
certain collateral requirements, BNP may not terminate the BNP Facility
agreement except upon 180 calendar days prior notice. The borrowing rate under
the BNP Facility is equal to the 3-month LIBOR plus 100 basis points. Effective
June 13, 2011, the borrowing rate under the BNP Facility was decreased to
3-month LIBOR plus 80 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, 2011 was
$19,054,945, with a weighted average interest rate of 1.29%. As of May 31, 2011,
the Fund had outstanding borrowings of $20,000,000 under the BNP Facility. The
high and low annual interest rates for the six months ended May 31, 2011 were
1.31% and 1.25%, respectively, and the interest rate at May 31, 2011 was 1.25%.

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. 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.

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.

FINANCIAL SECTOR CONCENTRATION RISK: Under normal market conditions, the Fund
will invest at least 25% of its total 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

Page 18

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
MAY 31, 2011 (UNAUDITED)

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 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.

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. 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.

REIT, MORTGAGE-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.

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 mortgages 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. The rights of lenders to receive payments of interest on and
repayments of principal on any borrowings made by the Fund under a leverage
borrowing program are senior to the rights of holders of Common Shares with
respect to the payment of dividends or upon 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 or purchase Common Shares.

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.

8. SUBSEQUENT EVENT

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 19

--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
MAY 31, 2011 (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 20

--------------------------------------------------------------------------------
ADDITIONAL INFORMATION - (Continued)
--------------------------------------------------------------------------------

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
MAY 31, 2011 (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

A special meeting of shareholders of the Fund was held on January 3, 2011. At
the meeting, shareholders approved a new investment management agreement between
the Fund and First Trust and a new investment sub-advisory agreement between the
Fund, First Trust and Confluence. 7,178,163 (50.27%) of the outstanding voting
securities were voted at the meeting. The number of votes cast in favor of the
new investment management agreement was 6,102,190, the number of votes against
was 227,555, and the number of abstentions was 848,418. The number of votes cast
in favor of the new investment sub-advisory agreement was 6,101,227, the number
of votes against was 226,941, and the number of abstentions was 849,995. The
terms of the new investment management agreement and new investment sub-advisory
agreement are substantially similar to the terms of the previous agreements.

The Joint Annual Meeting of Shareholders of the Common Shares of Energy Income
and Growth Fund, First Trust Enhanced Equity Income Fund, First Trust/Aberdeen
Global Opportunity Income Fund, First Trust/FIDAC Mortgage Income Fund, First
Trust Strategic High Income Fund, First Trust Strategic High Income Fund II,
First Trust/Aberdeen Emerging Opportunity Fund, First Trust Strategic High
Income Fund III, First Trust Specialty Finance and Financial Opportunities Fund,
First Trust Active Dividend Income Fund and First Trust High Income Long/Short
Fund was held on April 18, 2011. At the Meeting, Robert F. Keith was elected by
the Common Shareholders of the First Trust Specialty Finance and Financial
Opportunities Fund as a Class I Trustee for a three-year term expiring at the
Fund's annual meeting of shareholders in 2014. The number of votes cast in favor
of Mr. Keith was 12,260,513, the number of votes against was 260,672 and the
number of abstentions was 1,757,067. James A. Bowen, Neil B. Nielson, Richard E.
Erickson and Thomas R. Kadlec are the other current and continuing Trustees.

Page 21

This Page Left Blank Intentionally.

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
349 Marshall Avenue, Suite 302
Saint Louis, MO 63119

ADMINISTRATOR,
FUND ACCOUNTANT &
TRANSFER AGENT
BNY Mellon Investment Servicing (US) Inc.
301 Bellevue Parkway
Wilmington, DE 19809

CUSTODIAN
BNY Mellon Investment Servicing Trust Company
Formerly, PFPC Trust Company
8800 Tinicum Boulevard
Philadelphia, PA 19153

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/ James A. Bowen
----------------------------------------------------
James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)

Date July 18, 2011
---------------------

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

Date July 18, 2011
---------------------

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

Date July 18, 2011
---------------------

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