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 Fund
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(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: November 30, 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

ANNUAL REPORT
FOR THE YEAR ENDED
NOVEMBER 30, 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)

ANNUAL REPORT
NOVEMBER 30, 2011

Shareholder Letter......................................................... 1
At A Glance................................................................ 2
Portfolio Commentary....................................................... 3
Portfolio of Investments................................................... 7
Statement of Assets and Liabilities........................................ 10
Statement of Operations.................................................... 11
Statements of Changes in Net Assets........................................ 12
Statement of Cash Flows.................................................... 13
Financial Highlights....................................................... 14
Notes to Financial Statements.............................................. 15
Report of Independent Registered Public Accounting Firm.................... 21
Additional Information..................................................... 22
Board of Trustees and Officers............................................. 24
Privacy Policy............................................................. 26

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)
ANNUAL LETTER FROM THE PRESIDENT

NOVEMBER 30, 2011

Dear Shareholders:

I am pleased to present you with the annual report for your investment in First
Trust Specialty Finance and Financial Opportunities Fund (the "Fund").

First Trust Advisors L.P. ("First Trust"), now in our 21st year, has always
believed that staying invested in quality products and having a long-term
horizon can help investors reach their financial goals. Like many successful
investors, we understand that success in the markets doesn't just happen--it
requires a long-term investment perspective through all kinds of markets.
Although the markets have been somewhat choppy over the past six months, the
equity market is well above the lows it sank to during the recent recession.

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 period this report covers.
I encourage you to read this document and discuss it with your financial
advisor. A successful investor is also typically a knowledgeable one, as we have
found to be the case at First Trust.

First Trust remains committed to being a long-term investor and investment
manager and to bringing you quality investment solutions regardless of market
ups and downs. 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 other investments First Trust offers that might
also fit your financial goals.

First Trust will continue to make available up-to-date information about your
investments so you and your financial advisor are current on any First Trust
investments you own. We value our relationship with you, and thank you for the
opportunity to assist you in achieving your financial goals. I look forward to
2012 and to the next edition of your Fund's report.

Sincerely,

/s/ James A. Bowen

James A. Bowen
Chairman of the Board of Trustees of First Trust Specialty Finance and
Financial Opportunities Fund and Chief Executive Officer of First Trust

Page 1

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
"AT A GLANCE"
AS OF NOVEMBER 30, 2011 (UNAUDITED)

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FUND STATISTICS
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Symbol on New York Stock Exchange FGB
Common Share Price $6.20
Common Share Net Asset Value ("NAV") $6.98
Premium (Discount) to NAV (11.17)%
Net Assets Applicable to Common Shares $99,697,344
Current Quarterly Distribution per Common Share (1) $0.1600
Current Annualized Distribution per Common Share $0.6400
Current Distribution Rate on Closing Common Share Price (2) 10.32%
Current Distribution Rate on NAV (2) 9.17%
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COMMON SHARE PRICE & NAV (WEEKLY CLOSING PRICE)
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Common Share Price NAV
11/10 7.50 7.69
7.90 7.91
8.01 8.09
7.63 8.00
7.85 8.13
12/10 7.63 8.06
7.82 8.18
7.93 8.28
7.82 7.99
1/11 7.71 8.04
7.81 8.25
8.11 8.31
8.26 8.25
2/11 8.01 8.26
8.13 8.28
7.84 7.98
7.94 7.80
3/11 7.97 7.96
8.18 8.10
8.18 8.08
7.97 7.97
8.04 8.00
4/11 7.90 8.23
7.80 8.01
7.75 8.00
7.68 7.79
5/11 7.66 7.77
7.59 7.73
7.42 7.59
7.25 7.55
6/11 7.27 7.61
7.62 7.76
7.62 7.89
7.30 7.67
7.37 7.77
7/11 6.80 7.32
6.36 6.90
6.35 6.83
6.35 6.59
8/11 6.54 6.70
6.29 6.57
6.23 6.61
6.48 6.85
5.98 6.35
9/11 5.94 6.32
5.77 6.25
6.13 6.76
6.35 6.80
10/11 6.61 7.24
6.28 7.08
6.41 7.05
6.15 6.86
6.00 6.40
11/11 6.20 6.98
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PERFORMANCE
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Average Annual Total Return
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Inception
1 Year Ended (5/25/07)
11/30/2011 to 11/30/2011
FUND PERFORMANCE (3)

NAV -1.01% -9.71%
Market Value -9.84% -12.94%

INDEX PERFORMANCE
Blended Benchmark (4) -5.66% N/A(5)
MSCI U.S. Investable Market Financials Index -9.47% -18.54%
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% OF TOTAL
TOP 10 HOLDINGS INVESTMENTS
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Ares Capital Corp. 12.0%
PennantPark Investment Corp. 7.5
MVC Capital, Inc. 6.6
Solar Capital, Ltd. 6.1
Golub Capital BDC, Inc. 5.7
Annaly Capital Management, Inc. 4.7
BlackRock Kelso Capital Corp. 4.5
CYS Investments, Inc. 4.1
Hercules Technology Growth Capital, Inc. 3.8
THL Credit, Inc. 3.6
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Total 58.6%
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% OF TOTAL
INDUSTRY INVESTMENTS
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Capital Markets 79.6%
Real Estate Investment Trusts (REITs) 15.4
Insurance 2.4
Diversified Financial Services 2.4
Health Care Equipment & Supplies 0.2
Oil, Gas & Consumable Fuels 0.0 *
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Total 100.0%
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% OF TOTAL
ASSET CLASSIFICATION (4) INVESTMENTS
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Common Stocks:
Business Development Companies 77.9%
Residential Mortgage REITs 14.6
Domestic 5.0
Triple Net Lease REITs 0.4
Specialty Finance/Hybrid REITs 0.4
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 11/30/2011. 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 11/30/2011. 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%) and 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%) and 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 11/30/2011 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)
ANNUAL REPORT
NOVEMBER 30, 2011

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
[PHOTO OMITTED]

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.

[PHOTO OMITTED]

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.

[PHOTO OMITTED]

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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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, or "BDCs". BDCs lend to and invest in private
companies, often those not large enough to efficiently access the public
markets. Each BDC has a unique profile, determined by their respective
management teams. Some specialize in particular industries, while others apply a
more generalized approach with 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 November 30, 2011, the Fund
had approximately three quarters of its assets invested in 28 BDCs.

For the financial sector, the year (defined in this report as the twelve months
ended November 30, 2011), represented yet another difficult period in the
aftermath of the 2008-2009 market crisis. The financial sector continues to
grapple with problems and issues caused by excessive leverage, poor credit
underwriting, inadequate risk management and unwise capital allocation policies
that all played a part in causing the financial crisis. The recovery has been
further hampered by a punitive regulatory environment on the domestic front, and
concerns overseas from the ongoing European debt crisis.

For the BDC industry, difficulties in the broader financial sector created
challenging headwinds. During the year, BDC valuations were often under
pressure, as the industry was painted with the same negative brushstrokes often
attached to the wider group of financials. Despite these challenges, the BDC
industry was able to evolve and grow, differentiating itself from most others in
the sector. Earlier in the year, several BDCs were able to issue longer-term and
convertible debt, a development that diversified capital structures and
contributed to the improving durability of BDC balance sheets. In addition,
several new BDCs entered the public arena with initial public offerings,
including Medley Capital, Solar Senior Capital, PennantPark Floating Rate
Capital, New Mountain Finance and Fidus Investment. These are very positive
trends, in our opinion, as they demonstrate the BDC industry's ability to grow
and improve, despite difficulties plaguing the wider financial sector.

Still, not all developments in the BDC industry were necessarily positive.
Several "legacy" BDCs (those that have existed for several years) continued to
labor through challenges resulting from poor credit underwriting and sub-optimal
balance sheet management. Prospect Capital, Apollo Investment, BlackRock Kelso
and Fifth Street Finance all faced situations where their incomes were not able
to keep pace with their dividend distributions. Other companies, including
American Capital (not held in the Fund in 2011), MCG Capital, Gladstone Capital
and MVC Capital, struggled to raise investment capital and were unable to
participate in new opportunities the way many newer BDCs did. Fortunately, many
other legacy BDCs did perform well, including Ares Capital, PennantPark
Investment, Triangle Capital, Main Street Capital, Hercules Technology Growth
and Medallion Financial. These companies were able to raise capital, build their
franchises and increase their income and dividends.

The newer BDCs, those that began trading publicly after the financial crisis,
fared well in the year. These companies invested capital, ramped up their
businesses, and established dividends, all under the umbrella of management
structures substantially more shareholder friendly than most legacy BDCs.
Included on this list are Golub Capital, THL Credit, Solar Capital, Horizon
Technology Finance, Medley Capital and New Mountain Finance. The Fund is
invested in many of these newer BDCs and their successful growth has played an
important role in the Fund's income and dividend growth over the past couple
years.

The Fund is also invested in mortgage-backed securities ("MBS") real estate
investment trusts ("REITs"). These companies invest in Agency MBS and finance
their investments with short-term repurchase loans. Due to their REIT structure,
they distribute essentially all their income in the form of dividends.
Throughout the year, the Fund was able to capture substantial (although
variable) dividend distributions from CYS Investments, Annaly Capital and
Hatteras Financial. These companies executed their businesses well, but their
valuations were held down in part by the volatility of the credit markets and
negative sentiment toward financial stocks. Additional concerns arose when the
SEC requested public comment regarding its oversight of these companies.
Although we have no special insight regarding the outcome of this regulatory
issue, we believe MBS REITs play an important role in facilitating the flow of
private capital into the mortgage market, which seems to be one of the few
bipartisan policy priorities in Washington.

Page 4

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PORTFOLIO COMMENTARY - (Continued)
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TWELVE MONTHS
PERFORMANCE ANALYSIS ENDED 11/30/11
FGB Market Value Total Return -9.84%
FGB NAV Total Return -1.01%
Blended Benchmark* -5.66%

* Components of the blended benchmark: Red Rocks Global Listed Private Equity
Index (70%); FTSE NAREIT Mortgage REIT Index (20%); S&P SmallCap Financials
Index (10%).

Source: Bloomberg, BNY Mellon

The Fund's market value total return(1) (-9.84%) was lower than the Fund's net
asset value ("NAV") total return(1) (-1.01%) as the discount to NAV changed from
-2.47% to -11.17% during the year. The Fund's NAV outperformance relative to the
benchmark was in part derived from the performance of certain larger positions
in the Fund, including both BDCs and MBS REITs.

Ares Capital and PennantPark were the Fund's largest positions at year end, just
as they were at the end of last year. We continue to believe these companies
have talented management teams with proven track records. We mentioned last year
that both BDCs were well positioned to pursue various opportunities in the
private debt and equity markets. Over the course of this year, they were able to
deliver results in the form of growing income and dividends, earned on platforms
of stable balance sheets.

The balance of the BDC allocation is a mix of both the newer and legacy BDCs.
Since the financial crisis, we have gradually shifted the BDC exposure to
include more of the newer BDCs, while trimming back positions in many legacy
companies. On the whole, we believe this shift has represented a significant
upgrade to the BDC holdings. That said, we think there are often good
opportunities to pursue in the legacy group, even those facing ongoing
challenges. Many risks or limitations may be addressed by buying and owning
securities at discounted valuations. But, for the most part, we believe the
Fund's portfolio is tilted toward higher-quality companies and we generally try
to limit the exposure to those with numerous problems.

The Fund's positions in MBS REITs contributed to strong relative performance,
particularly from CYS Investments. Although valuations remained low throughout
much of the year, these companies were able to manage their businesses
profitably and played a constructive role in building the Fund's income.

The Fund also has investments intended to help grow NAV, including companies
that have small or zero dividend yields. Through the course of the year, we
opportunistically sold and trimmed back some of these positions, with much of
the proceeds invested into BDCs. We will continue to look for opportunities to
invest a portion of the Fund in these kinds of investments, which, over time,
can contribute to accretion of the Fund's NAV.

Cumulative Analysis:

FGB began trading as a public fund on the NYSE on May 25th, 2007. Unfortunately,
the timing of the inception date was very close to the point in time when the
financial sector began to face challenges not experienced in decades. As a
non-diversified, leveraged fund focused specifically on financial companies, it
has been a challenging time, to say the least. However, we note that the Fund
has delivered substantial value relative to the financial sector. For
comparison, we evaluate FGB, its NAV and blended benchmark relative to a broad
financial sector index (the MSCI U.S. Investable Market Financials Index).

CUMULATIVE
ANNUALIZED
TOTAL RETURN

FGB Market Value -12.94%
FGB NAV -9.71%
Benchmark* -12.49%
Financial Index -18.54%

Source: Bloomberg, FGB Annual Reports, BNY Mellon
Timeframe: 5/25/07 through 11/30/11
Investors cannot invest directly in an index or benchmark.

* This is a combination of the two Blended Benchmarks. See footnote 5 on page 2.

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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 NAV per share for net asset
value returns and changes in Common Share price for market value returns.
Total returns do not reflect sales load and are not annualized for periods
less than one year. Past performance is not indicative of future results.

Page 5

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PORTFOLIO COMMENTARY - (Continued)
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The Fund has performed in line with its benchmark and substantially better than
the Financial Index. Furthermore, the NAV relative performance has been even
stronger, which is important because the NAV is the base from which dividends
are earned. Generating income is the Fund's primary objective, and its ability
to maintain a meaningful dividend through the crisis and recovery has been a key
point of differentiation relative to other financial companies. Through this
timeframe, dividends have contributed almost ten percent to the Fund's total
return.

We don't believe volatility is always a good measure of risk. However, it is
widely utilized and can help reflect historical variance. Although the Fund's
volatility has at times been higher and lower than the Financial Index, its NAV
volatility is similar when measuring the entire timeframe, despite the use of
leverage.

60 DAY
VOLATILITY
FGB 46.6
FGB NAV 40.9
Financial Index 41.4

Source: Bloomberg
Timeframe: Inception to 11/30/11
Investors cannot invest directly in an index.

Although it has been a very difficult environment for financial sector
investments, the Fund has been able to deliver higher returns and dividends
relative to the broad financial sector. We believe much of the outperformance
has been derived from the Fund's focus on the BDC industry.

MARKET AND FUND OUTLOOK

Our outlook for FGB is cautiously optimistic. Our caution is derived from the
combination of risks from an economy that is likely to grow at a tepid rate,
along with ongoing stresses in the financial industry. Of the two issues, the
latter is of much greater concern. Clearly, a low-growth U.S. economy increases
the number and severity of risks for financial companies. However, the BDC
industry has generally done a good job of restoring and strengthening balance
sheets since the last recession. Most have positioned themselves to manage their
businesses successfully without necessarily having a high-growth economy.

Unfortunately, the second issue reflects no shortage of challenges for the
broader financial sector. Domestically, the Fed continues to distort the credit
markets through a combination of ultra-low short-term rates and various programs
that manipulate longer-term interest rates. The sheer size of its intervention
allows the Fed to drive rates according to a grand design; however, it also
obscures natural market prices, which in turn opens the door to massive
misallocations of capital. Adding to uncertainty is a regulatory environment
that is likely to impede the flow of capital, pressure margins downward and
inhibit growth. The efforts to better police the financial industry will
probably be more than offset by the hazards created by the distortions of
monetary policy.

The debt problems in Europe complicate the situation even further. We don't
expect the European sovereign debt issues to reach resolution any time soon. But
we do believe the Fed has the resources to protect the U.S. financial system and
don't expect a repeat of the 2008 liquidity crisis. Yet the nature of (and
magnitude of) the European situation will probably continue to elevate
volatility among U.S. financial stocks.

Despite our somewhat dour outlook for the financial sector, we reiterate
optimism for the Fund. Although BDCs were damaged during the financial crisis,
the industry fared much better than other financial companies during the
recovery. And having not received any special assistance from the government,
BDCs are not "on the hook" or "in the crosshairs" of regulators, prosecutors or
legislators. Instead, they are well-positioned to handle volatile markets and we
expect many to find good opportunities during times of uncertainty. Finally, the
newer BDCs and successful legacy BDCs have upgraded the industry. We see this
trend continuing as these companies increase their prominence and are joined by
other high-quality managers looking to enter the industry.

The positive growth trend in this niche of the financial sector has already
returned, despite the difficult environment we've had since inception. Looking
forward, we believe the trend can continue, presenting investors the opportunity
to benefit from the private debt and equity economics delivered through these
public market entities. FGB remains unique in its focus on the BDCs. We look
forward to delivering the growth and cashflow from BDCs through the careful and
prudent management of a focused exposure.

Page 6

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS (a)
NOVEMBER 30, 2011

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

COMMON STOCKS - BUSINESS DEVELOPMENT COMPANIES - 91.8%

CAPITAL MARKETS - 88.9%
517,706 Apollo Investment Corp. (b).................................................. $ 3,732,660
903,033 Ares Capital Corp. (b)....................................................... 14,051,193
602,520 BlackRock Kelso Capital Corp. (b)............................................ 5,241,924
4,395 Fidus Investment Corp ....................................................... 54,938
238,794 Fifth Street Finance Corp. (b)............................................... 2,335,405
114,836 Full Circle Capital Corp. ................................................... 787,775
420,716 Gladstone Capital Corp. (b).................................................. 3,155,370
183,333 Gladstone Investment Corp. .................................................. 1,380,497
416,502 Golub Capital BDC, Inc. (b).................................................. 6,664,032
469,556 Hercules Technology Growth Capital, Inc. (b)................................. 4,432,609
160,404 Horizon Technology Finance Corp. (b)......................................... 2,489,470
252,256 Kohlberg Capital Corp. ...................................................... 1,591,735
19,774 Main Street Capital Corp. (b)................................................ 385,791
303,600 MCG Capital Corp. (b)........................................................ 1,341,912
266,739 Medley Capital Corp (b)...................................................... 2,555,360
603,700 MVC Capital, Inc. (b)........................................................ 7,745,471
60,673 New Mountain Finance Corp ................................................... 800,884
332,437 NGP Capital Resources Co. (b)................................................ 2,466,683
156,897 PennantPark Floating Rate Capital Ltd. ...................................... 1,659,970
834,000 PennantPark Investment Corp. (b)............................................. 8,840,400
12,176 Prospect Capital Corp. ...................................................... 112,993
11,739 Saratoga Investment Corp. (c)................................................ 142,629
309,436 Solar Capital, Ltd. (b)...................................................... 7,123,217
21,800 Solar Senior Capital Ltd. ................................................... 343,350
350,512 THL Credit, Inc. (b)......................................................... 4,206,144
104,140 TICC Capital Corp. (b)....................................................... 924,763
223,601 Triangle Capital Corp. (b)................................................... 4,049,414
--------------
88,616,589
--------------

DIVERSIFIED FINANCIAL SERVICES - 2.9%
250,353 Medallion Financial Corp. (b)................................................ 2,944,152
--------------

TOTAL COMMON STOCKS - BUSINESS DEVELOPMENT COMPANIES ........................ 91,560,741
(Cost $112,890,013) --------------

COMMON STOCKS - 21.2%

HEALTH CARE EQUIPMENT & SUPPLIES - 0.3%
59,075 Medical Action Industries, Inc. (b) (c)...................................... 280,606
--------------

INSURANCE - 2.8%
3 Berkshire Hathaway, Inc., Class A (b) (c).................................... 355,500
73,700 Fidelity National Financial, Inc., Class A (b)............................... 1,169,619
3,250 Markel Corp. (b) (c)......................................................... 1,304,550
--------------
2,829,669
--------------

OIL, GAS & CONSUMABLE FUELS - 0.0%
100 ARC Resources Ltd. (CAD) .................................................... 2,508
81 Progress Energy Resources Corp. (CAD) ....................................... 1,146
--------------
3,654
--------------

See Notes to Financial Statements Page 7

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS (a) - (Continued)
NOVEMBER 30, 2011

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

COMMON STOCKS - (CONTINUED)

REAL ESTATE INVESTMENT TRUSTS (REITS) - 18.1%
344,500 Annaly Capital Management, Inc. (b).......................................... $ 5,536,115
192,307 Cypress Sharpridge Investments, Inc. (d)..................................... 2,524,991
367,573 Cypress Sharpridge Investments, Inc. (b)..................................... 4,826,233
30,000 Gladstone Commercial Corp. .................................................. 513,000
156,282 Hatteras Financial Corp. (b)................................................. 4,188,358
102,908 NorthStar Realty Finance Corp. .............................................. 451,766
--------------
18,040,463
--------------

TOTAL COMMON STOCKS ......................................................... 21,154,392
(Cost $20,326,048) --------------

MASTER LIMITED PARTNERSHIPS - 2.8%

DIVERSIFIED FINANCIAL SERVICES - 2.8%
216,200 Compass Diversified Holdings (b)............................................. 2,771,684
--------------

TOTAL MASTER LIMITED PARTNERSHIPS ........................................... 2,771,684
(Cost $1,493,071) --------------

EXCHANGE-TRADED FUNDS - 2.0%

CAPITAL MARKETS - 2.0%
52,600 SPDR Barclays Capital High Yield Bond ETF (b)................................ 1,992,488
--------------

TOTAL EXCHANGE-TRADED FUNDS ................................................. 1,992,488
(Cost $1,811,228) --------------

TOTAL INVESTMENTS - 117.8% .................................................. 117,479,305
(Cost $136,520,360) (e)

OUTSTANDING LOAN - (20.1%) .................................................. (20,000,000)

NET OTHER ASSETS AND LIABILITIES - 2.2% ..................................... 2,218,039
--------------

NET ASSETS - 100.0% ......................................................... $ 99,697,344
==============

----------------------
(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 federal income tax purposes is $138,932,839. As
of November 30, 2011, the aggregate gross unrealized appreciation
for all securities in which there was an excess of value over tax
cost was $9,050,263 and the aggregate gross unrealized depreciation
for all securities in which there was an excess of tax cost over
value was $30,503,797.

CAD Canadian Dollar

Page 8 See Notes to Financial Statements

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS (a) - (Continued)
NOVEMBER 30, 2011

VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of November 30,
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
11/30/2011 PRICES INPUTS INPUTS
------------ ------------ ------------ ------------

Common Stocks - Business Development
Companies*..................................... $ 91,560,741 $ 91,560,741 $ -- $ --
Common Stocks* .................................. 21,154,392 21,154,392 -- --
Master Limited Partnerships*................... 2,771,684 2,771,684 -- --
Exchange-Traded Funds*......................... 1,992,488 1,992,488 -- --
------------ ------------ ------------ ------------
TOTAL INVESTMENTS.............................. $117,479,305 $117,479,305 $ -- $ --
============ ============ ============ ============

* See Portfolio of Investments for industry breakout.

See Notes to Financial Statements Page 9

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 2011

ASSETS:

Investments, at value
(Cost $136,520,360) $ 117,479,305
Cash 4,643,323
Prepaid expenses 6,037
Receivables:
Investment securities sold................................................................. 173,773
Dividends.................................................................................. 60,916
Interest................................................................................... 166
-------------
Total Assets............................................................................. 122,363,520
-------------

LIABILITIES:
Outstanding loan
20,000,000
Payables:
Distributions to Common Shareholders....................................................... 2,284,520
Investment securities purchased............................................................ 183,462
Investment advisory fees................................................................... 97,097
Audit and tax fees......................................................................... 49,200
Printing fees.............................................................................. 22,432
Administrative fees........................................................................ 8,391
Trustees' fees and expenses................................................................ 6,453
Custodian fees............................................................................. 4,469
Transfer agent fees........................................................................ 3,158
Legal fees................................................................................. 2,720
Interest and fees on loan.................................................................. 1,706
Financial reporting fees................................................................... 770
Other liabilities 1,798
-------------
Total Liabilities........................................................................ 22,666,176
-------------
NET ASSETS $ 99,697,344
=============
NET ASSETS CONSIST OF:
Paid-in capital $ 267,388,999
Par value 142,783
Accumulated net investment income (loss) (2,144,013)
Accumulated net realized gain (loss) on investments (146,649,370)
Net unrealized appreciation (depreciation) on investments (19,041,055)
-------------
NET ASSETS $ 99,697,344
=============
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share) $ 6.98
=============
Number of Common Shares outstanding (unlimited number of Common Shares has been authorized)... 14,278,252
=============

Page 10 See Notes to Financial Statements

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 2011

INVESTMENT INCOME:

Dividends (net of foreign withholding tax of $23).............................................. $ 10,978,679
Interest....................................................................................... 1,152
-------------
Total investment income..................................................................... 10,979,831
-------------

EXPENSES:
Investment advisory fees....................................................................... 1,275,139
Interest and fees on loan...................................................................... 283,757
Administrative fees............................................................................ 111,138
Printing fees.................................................................................. 59,156
Audit and tax fees............................................................................. 49,897
Legal fees..................................................................................... 48,113
Trustees' fees and expenses.................................................................... 38,922
Transfer agent fees............................................................................ 36,620
Custodian fees................................................................................. 17,909
Financial reporting fees....................................................................... 9,250
Other.......................................................................................... 63,608
-------------
Total expenses.............................................................................. 1,993,509
-------------
NET INVESTMENT INCOME (LOSS)................................................................... 8,986,322
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments..................................................... (4,143,951)
Net change in unrealized appreciation (depreciation) on investments......................... (6,010,514)
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS)........................................................ (10,154,465)
-------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................ $ (1,168,143)
=============

See Notes to Financial Statements Page 11

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

YEAR YEAR
ENDED ENDED
11/30/2011 11/30/2010
------------- -------------

OPERATIONS:

Net investment income (loss)....................................................... $ 8,986,322 $ 7,950,049
Net realized gain (loss)........................................................... (4,143,951) (14,346,258)
Net change in unrealized appreciation (depreciation)............................... (6,010,514) 39,494,487
------------- -------------
Net increase (decrease) in net assets resulting from operations.................... (1,168,143) 33,098,278
------------- -------------

DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.............................................................. (8,963,727) (8,279,365)
Net realized gain.................................................................. -- --
Return of capital.................................................................. (31,572) (345,136)
------------- -------------
Total distributions to shareholders................................................ (8,995,299) (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............................................ (10,163,442) 24,791,419

NET ASSETS:
Beginning of period................................................................ 109,860,786 85,069,367
------------- -------------
End of period...................................................................... $ 99,697,344 $ 109,860,786
============= =============
Accumulated net investment income (loss) at end of period.......................... $ (2,144,013) $ (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
============= =============

Page 12 See Notes to Financial Statements

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED NOVEMBER 30, 2011

CASH FLOWS FROM OPERATING ACTIVITIES:

Net increase (decrease) in net assets resulting from operations...... $ (1,168,143)
Adjustments to reconcile net increase (decrease) in net assets
resulting from operations to net cash provided by operating
activities:
Purchases of investments........................................... (14,977,056)
Sales, maturities and paydowns of investments...................... 14,188,568
Net realized gain/loss on investments.............................. 4,143,951
Net change in unrealized appreciation/depreciation on investments.. 6,010,514

CHANGES IN ASSETS AND LIABILITIES:
Decrease in interest receivable.................................... 189
Decrease in dividends receivable................................... 163,189
Decrease in prepaid expenses....................................... 21,983
Increase in interest and fees on loan payable...................... 415
Decrease in investment advisory fees payable....................... (9,225)
Increase in audit and tax fees payable............................. 15
Decrease in legal fees payable..................................... (1,349)
Decrease in printing fees payable.................................. (7,409)
Decrease in administrative fees payable............................ (1,647)
Increase in custodian fees payable................................. 1,556
Increase in transfer agent fees payable............................ 502
Decrease in Trustees' fees and expenses payable.................... (180)
Increase in financial reporting fees payable....................... 770
Increase in other liabilities payable.............................. 959
---------------
CASH PROVIDED BY OPERATING ACTIVITIES................................. $ 8,367,602
---------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to Common Shareholders from net investment income.. (8,892,336)
Distributions to Common Shareholders from return of capital...... (31,572)
Issuances of loan................................................ 2,000,000
---------------
CASH USED IN FINANCING ACTIVITIES..................................... (6,923,908)
---------------
Increase in cash...................................................... 1,443,694
Cash at beginning of period........................................... 3,199,629
---------------
CASH AT END OF PERIOD................................................. $ 4,643,323
===============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest and fees..................... $ 283,342
===============

See Notes to Financial Statements Page 13

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

YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
11/30/2011 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) ................. 0.66 0.56 0.65 1.02 0.70
Net realized and unrealized gain (loss)....... (0.74) 1.76 1.43 (8.88) (5.32)
------------ ------------ ------------ ------------ ------------
Total from investment operations ............. (0.08) 2.32 2.08 (7.86) (4.62)
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income ........................ (0.63) (0.59) (0.55) (1.27) (0.71)
Net realized gain ............................ -- -- -- -- --
Return of capital ............................ (0.00) (d) (0.02) (0.06) (0.09) --
------------ ------------ ------------ ------------ ------------
Total from distributions ..................... (0.63) (0.61) (0.61) (1.36) (0.71)
------------ ------------ ------------ ------------ ------------
Common shares offering costs charged to
paid-in capital............................ -- -- -- -- (0.04)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period ............... $ 6.98 $ 7.69 $ 5.98 $ 4.51 $ 13.73
============ ============ ============ ============ ============
Market value, end of period .................. $ 6.20 $ 7.50 $ 5.43 $ 3.29 $ 14.23
============ ============ ============ ============ ============
TOTAL RETURN BASED ON NET ASSET VALUE (e)..... (1.01)% 40.04% 56.00% (61.38)% (24.53)%
============ ============ ============ ============ ============
TOTAL RETURN BASED ON MARKET VALUE (e)........ (9.84)% 50.41% 94.18% (72.80)% (25.36)%
============ ============ ============ ============ ============

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

RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ......... $ 99,697 $ 109,861 $ 85,069 $ 64,208 $ 193,070
Ratio of total expenses to average net
assets..................................... 1.85% 1.83% 2.29% 2.72% 1.99% (f)
Ratio of total expenses to average net assets
excluding interest expense ................ 1.58% 1.58% 1.94% 1.73% 1.41% (f)
Ratio of net investment income (loss) to
average net assets ........................ 8.32% 7.93% 13.36% 9.53% 8.64% (f)
Portfolio turnover rate ...................... 11% 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 (g) $ 5,985 $ 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) Amount represents less than $0.01 per share.

(e) Total return is based on the combination of reinvested dividend, capital
gain and return of capital distributions, if any, at prices obtained by
the Dividend Reinvestment Plan, and changes in net asset value per share
for net asset value returns and changes in Common Share price for market
value returns. Total returns do not reflect sales load and are not
annualized for periods less than one year. Past performance is not
indicative of future results.

(f) Annualized.

(g) 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.

Page 14 See Notes to Financial Statements

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

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
NOVEMBER 30, 2011

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 prices.

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

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

1) the type of security;

2) the size of the holding;

3) the initial cost of the security;

4) transactions in comparable securities;

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

6) relationships among various securities;

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

Page 15

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

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
NOVEMBER 30, 2011

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

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

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

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

2) ADR trading of similar securities;

3) closed-end fund trading of similar securities;

4) foreign currency exchange activity;

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

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

7) whether the event is likely to recur; and

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

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

o Level 1 - Level 1 inputs are quoted prices in active markets for
identical 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 November 30, 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 daily 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") and exchange-
traded funds ("ETFs"). The tax character of distributions received from
these securities may vary when reported by the issuer after their tax reporting
periods conclude.

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
November 30, 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 CARRYING % OF NET
SECURITY DATE SHARES PRICE COST VALUE ASSETS

Cypress Sharpridge Investments, Inc. 5/19/08 192,307 $ 13.35 $ 2,999,989 $ 2,524,991 2.53%

Page 16

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
NOVEMBER 30, 2011

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 realized capital gains earned by the Fund are distributed at least
annually. Distributions will automatically be reinvested into additional Common
Shares pursuant to the Fund's Dividend Reinvestment Plan unless cash
distributions are elected by the shareholder.

Distributions from income and realized 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 point in the future. Permanent differences
incurred during the fiscal year ended November 30, 2011, primarily as a result
of the tax character of REIT and BDC distributions, have been reclassified at
year end to reflect a decrease in accumulated net investment income (loss) by
$140,302, a decrease in accumulated net realized gain (loss) on investments by
$21,902 and an increase to paid-in capital of $162,204.

The tax character of distributions paid during the fiscal years ended November
30, 2011 and November 30, 2010 was as follows:

Distributions paid from: 2011 2010

Ordinary income................................. $ 8,963,727 $ 8,279,365
Return of capital............................... 31,572 345,136

As of November 30, 2011, 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............ (144,096,384)
Net unrealized appreciation (depreciation)...... (21,453,534)
-------------
Total accumulated earnings (losses)............. (165,549,918)
Other ........................................ (2,284,520)
Paid-in capital................................. 267,531,782
-------------
Net assets...................................... $ 99,697,344
=============

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. However, due to the
timing and amount of distributions, the Fund may be subject to an excise tax of
4% of the amount by which approximately 98.2% of the Fund's taxable income
exceeds the distributions from such taxable income for the calendar year.

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, 2011, the Fund elected to defer net realized capital losses
of $104,763 incurred between November 1, 2011 and November 30, 2011.

The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry realized capital losses forward for eight years following the
year of the 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
apply when there has been a 50% change in ownership. At November 30, 2011, the
Fund had a capital loss carryforward for federal income tax purposes of
$143,991,621, expiring as follows:

EXPIRATION DATE AMOUNT

November 30, 2015 $ 5,166,354
November 30, 2016 62,747,095
November 30, 2017 55,647,845
November 30, 2018 14,556,882
November 30, 2019 5,873,445

Page 17

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
NOVEMBER 30, 2011

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 2008, 2009,
2010 and 2011 remain open to federal and state audit. As of November 30, 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.

F. EXPENSES:

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

G. ACCOUNTING PRONOUNCEMENTS:

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 the Fund's
financial statement disclosures, if any.

In May 2011, the FASB issued ASU 2011-04 "Amendments to Achieve Common Fair
Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs", modifying
Topic 820, Fair Value Measurements and Disclosures. At the same time, the
International Accounting Standards Board ("IASB") issued International Financial
Reporting Standard ("IFRS") 13, Fair Value Measurement. The objective of the
FASB and IASB is convergence of their guidance on fair value measurements and
disclosures. Specifically, the ASU requires reporting entities to disclose (i)
the amounts of any transfers between Level 1 and Level 2, and the reasons for
the transfers, (ii) for Level 3 fair value measurements, quantitative
information about significant unobservable inputs used, (iii) a description of
the valuation processes used by the reporting entity, and (iv) a narrative
description of the sensitivity of the fair value measurement to changes in
unobservable inputs if a change in those inputs might result in a significantly
higher or lower fair value measurement. The effective date of the ASU is for
interim and annual periods beginning after December 15, 2011, and it is
therefore not effective for the current fiscal year. Management is in the
process of assessing the impact of the updated standards on the Fund's financial
statements, 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 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 have been
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 Confluence were held in escrow. See
Submission of Matters to a Vote of Shareholders, in the Additional Information
section of this report, for the results.

BNY Mellon Investment Servicing (US) Inc. serves as the Fund's Administrator,
Fund Accountant and Transfer Agent in accordance with certain fee arrangements.
Effective September 30, 2011, The Bank of New York Mellon serves as the Fund's
Custodian in accordance with certain fee arrangements. Prior to September 30,
2011, BNY Mellon Investment Servicing Trust Company (formerly known as PFPC
Trust Company), served as the Fund's Custodian in accordance with certain fee
arrangements.

Page 18

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
NOVEMBER 30, 2011

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 year ended November
30, 2011 were $14,803,281 and $14,005,106, respectively.

5. CREDIT AGREEMENT

On February 2, 2010, the Fund entered into a committed facility agreement with
BNP Paribas Prime Brokerage, Inc. (the "BNP Facility"), which currently has a
maximum commitment amount of $25,000,000. The BNP 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 was 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 year ended November 30, 2011 was
$19,528,767, with a weighted average interest rate of 1.22%. As of November 30,
2011, the Fund had outstanding borrowings of $20,000,000 under the BNP Facility.
The high and low annual interest rates for the year ended November 30, 2011 were
1.32% and 1.05%, respectively, and the interest rate at November 30, 2011 was
1.32%.

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 80% 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
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

Page 19

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
NOVEMBER 30, 2011

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 mortgagees sooner than expected, particularly when
interest rates decline. This can reduce the Fund's returns because the Fund may
have to reinvest that money at lower prevailing interest rates.

The Fund's investments in other asset-backed securities are subject to risks
similar to those associated with mortgage-backed securities, as well as
additional risks associated with the nature of the assets and the servicing of
those assets.

LEVERAGE RISK: The use of leverage results in additional risks and can magnify
the effect of any losses. The funds borrowed pursuant to a leverage borrowing
program constitute a substantial lien and burden by reason of their prior claim
against the income of the Fund and against the net assets of the Fund in
liquidation. If the Fund is not in compliance with certain credit facility
provisions, the Fund may not be permitted to declare dividends or other
distributions.

NON-DIVERSIFICATION RISK: Because the Fund is non-diversified, it is only
limited as to the percentage of its assets which may be invested in the
securities of any one issuer by the diversification requirements imposed by the
Internal Revenue Code of 1986, as amended. Because the Fund may invest a
relatively high percentage of its assets in a limited number of issuers, the
Fund may be more susceptible to any single economic, political or regulatory
occurrence and to the financial conditions of the issuers in which it invests.

8. SUBSEQUENT EVENTS

Management has evaluated the impact of all subsequent events to the Fund through
the date the financial statements were issued, and has determined that there
were the following subsequent events:

Effective January 1, 2012, each Independent Trustee will be paid a fixed annual
retainer of $125,000 per year and an annual per fund fee of $4,000 for each
closed-end fund or other actively managed fund and $1,000 for each index fund in
the First Trust Fund Complex. The fixed annual retainer will be allocated pro
rata among each fund in the First Trust Fund Complex based on net assets.

Additionally, the Lead Independent Trustee will be paid $15,000 annually, the
Chairman of the Audit Committee will be paid $10,000 annually, and each of the
Chairmen of the Nominating and Governance Committee and the Valuation Committee
will be paid $5,000 annually to serve in such capacities, with such compensation
allocated pro rata among each fund in the First Trust Fund Complex based on net
assets. Trustees continue to be reimbursed 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 acting in such capacities.

Effective January 23, 2012, Mr. Bowen resigned from his position as the
President and Chief Executive Officer of the Fund. He will continue as a
Trustee, the Chairman of the Board and member of the Executive Committee. The
Board elected Mr. Bradley to serve as the President and Chief Executive Officer
and Mr. Dykas to serve as the Treasurer, Chief Financial Officer and Chief
Accounting Officer of the Fund.

Page 20

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------

TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FIRST TRUST SPECIALTY FINANCE AND
FINANCIAL OPPORTUNITIES FUND:

We have audited the accompanying statement of assets and liabilities of First
Trust Specialty Finance and Financial Opportunities Fund (the "Fund"), including
the portfolio of investments, as of November 30, 2011, and the related
statements of operations and cash flows for the year then ended, the statements
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods presented. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
The Fund is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of November 30, 2011, by correspondence with the Fund's
custodian and brokers; where replies were not received, we performed other
auditing procedures. We believe that our audits provide a reasonable basis for
our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of First
Trust Specialty Finance and Financial Opportunities Fund as of November 30,
2011, the results of its operations and its cash flows for the year then ended,
the changes in its net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods presented, in
conformity with accounting principles generally accepted in the United States of
America.

/s/ DELOITTE & TOUCHE LLP

Chicago, Illinois
January 24, 2012

Page 21

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

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
NOVEMBER 30, 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 22

--------------------------------------------------------------------------------
ADDITIONAL INFORMATION - (CONTINUED)
--------------------------------------------------------------------------------

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
NOVEMBER 30, 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.

TAX INFORMATION

Of the ordinary income (including short-term capital gain) distributions made by
the Fund during the year ended November 30, 2011, 0.74% qualified for the
corporate dividends received deduction available to corporate shareholders.

The Fund hereby designates as qualified dividend income 0.75% of the ordinary
income distributions for the year ended November 30, 2011.

NYSE CERTIFICATION INFORMATION

In accordance with Section 303A-12 of the New York Stock Exchange ("NYSE")
Listed Company Manual, the Fund's President has certified to the NYSE that, as
of May 31, 2011, he was not aware of any violation by the Fund of NYSE corporate
governance listing standards. In addition, the Fund's reports to the SEC on
Forms N-CSR, N-CSRS and N-Q contain certifications by the Fund's principal
executive officer and principal financial officer that relate to the Fund's
public disclosure in such reports and are required by Rule 30a-2 under the 1940
Act.

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, Niel B. Nielson, Richard E.
Erickson and Thomas R. Kadlec are the other current and continuing Trustees.

Page 23

--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
NOVEMBER 30, 2011 (UNAUDITED)

NUMBER OF
PORTFOLIOS IN
THE FIRST TRUST OTHER
NAME, ADDRESS, TERM OF OFFICE FUND COMPLEX TRUSTEESHIPS OR
DATE OF BIRTH AND AND LENGTH OF PRINCIPAL OCCUPATIONS OVERSEEN BY DIRECTORSHIPS
POSITION WITH THE FUND SERVICE (2) DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE

------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------

Richard E. Erickson, Trustee o Three-Year Term Physician; President, Wheaton Orthopedics; 82 None
c/o First Trust Advisors L.P. Co-Owner and Co-Director (January 1996
120 East Liberty Drive, o Since Fund to May 2007), Sports Med Center for
Suite 400 Inception Fitness; Limited Partner, Gundersen Real
Wheaton, IL 60187 Estate Limited Partnership; Member,
D.O.B.: 04/51 Sportsmed LLC

Thomas R. Kadlec, Trustee o Three-Year Term President (March 2010 to Present), Senior 82 Director of ADM
c/o First Trust Advisors L.P. Vice President and Chief Financial Officer Investor
120 East Liberty Drive, o Since Fund (May 2007 to March 2010), Vice President Services, Inc.
Suite 400 Inception and Chief Financial Officer (1990 to May and ADM
Wheaton, IL 60187 2007), ADM Investor Services, Inc. (Futures Investor
D.O.B.: 11/57 Commission Merchant) Services
International

Robert F. Keith, Trustee o Three-Year Term President (2003 to Present), Hibs 82 Director of
c/o First Trust Advisors L.P. Enterprises (Financial and Management Trust Company
120 East Liberty Drive, o Since June 2006 Consulting) of Illinois
Suite 400
Wheaton, IL 60187
D.O.B.: 11/56

Niel B. Nielson, Trustee o Three-Year Term President (June 2002 to Present), Covenant 82 Director of
c/o First Trust Advisors L.P. College Covenant
120 East Liberty Drive, o Since Fund Transport Inc.
Suite 400 Inception
Wheaton, IL 60187
D.O.B.: 03/54

------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------

James A. Bowen, Trustee, President, o Three-Year Trustee Chief Executive Officer (December 2010 82 None
Chairman of the Board and CEO(1) Term and to Present), President (until December
120 East Liberty Drive, Indefinite 2010), First Trust Advisors L.P. and First
Suite 400 Officer Term Trust Portfolios L.P.; Chairman of the
Wheaton, IL 60187 Board of Directors, BondWave LLC
D.O.B.: 09/55 o Since Fund (Software Development Company/
Inception Investment Advisor) and Stonebridge
Advisors LLC (Investment Advisor)

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

(1) Mr. Bowen is deemed an "interested person" of the Fund due to his position
as Chief Executive Officer of First Trust Advisors L.P., investment
advisor of the Fund.

(2) Currently, Robert F. Keith, as a Class I Trustee, is serving as a trustee
until the Fund's 2014 annual meeting of shareholders. Richard E. Erickson
and Thomas R. Kadlec, as Class II Trustees, are serving as trustees until
the Fund's 2012 annual meeting of shareholders. James A. Bowen and Niel B.
Nielson, as Class III Trustees, are serving as trustees until the Fund's
2013 annual meeting of shareholders. Officers of the Fund have an
indefinite term. The term "officer" means the president, vice president,
secretary, treasurer, controller or any other officer who performs a
policy making function.

Page 24

--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS - (CONTINUED)
--------------------------------------------------------------------------------

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
NOVEMBER 30, 2011 (UNAUDITED)

NAME, ADDRESS POSITION AND OFFICES TERM OF OFFICE AND PRINCIPAL OCCUPATIONS
AND DATE OF BIRTH WITH FUND LENGTH OF SERVICE DURING PAST 5 YEARS

------------------------------------------------------------------------------------------------------------------------------------
OFFICERS WHO ARE NOT TRUSTEES(3)
------------------------------------------------------------------------------------------------------------------------------------

Mark R. Bradley Treasurer, Chief Financial o Indefinite Term Chief Operating Officer (December 2010 to Present)
120 E. Liberty Drive, Officer and Chief and Chief Financial Officer, First Trust Advisors
Suite 400 Accounting Officer o Since Fund Inception L.P. and First Trust Portfolios L.P.; Chief Financial
Wheaton, IL 60187 Officer, BondWave LLC (Software Development
D.O.B.: 11/57 Company/Investment Advisor) and Stonebridge
Advisors LLC (Investment Advisor)

Erin E. Chapman Assistant Secretary o Indefinite Term Assistant General Counsel (October 2007 to
120 E. Liberty Drive, Present), Associate Counsel (March 2006 to October
Suite 400 o Since June 2009 2007), First Trust Advisors L.P. and First Trust
Wheaton, IL 60187 Portfolios L.P.; Associate Attorney (November 2003
D.O.B.: 08/76 to March 2006), Doyle & Bolotin, Ltd.

James M. Dykas Assistant Treasurer o Indefinite Term Controller (January 2011 to Present), Senior Vice
120 E. Liberty Drive, President (April 2007 to January 2011), Vice
Suite 400 o Since Fund Inception President (January 2005 to April 2007), First Trust
Wheaton, IL 60187 Advisors L.P. and First Trust Portfolios L.P.
D.O.B.: 01/66

Roseanne Gatta Assistant Secretary o Indefinite Term Board Liaison Associate (July 2010 to Present), First
120 E. Liberty Drive, Trust Advisors L.P. and First Trust Portfolios L.P.;
Suite 400 o Since March 2011 Assistant Vice President (February 2001 to July
Wheaton, IL 60187 2010), PNC Global Investment Services
D.O.B.: 07/55

Christopher R. Fallow Assistant Vice President o Indefinite Term Assistant Vice President (August 2006 to Present),
120 E. Liberty Drive, Associate (January 2005 to August 2006), First Trust
Suite 400 o Since Fund Inception Advisors L.P. and First Trust Portfolios L.P.
Wheaton, IL 60187
D.O.B.: 04/79

W. Scott Jardine Secretary o Indefinite Term General Counsel, First Trust Advisors L.P., First
120 E. Liberty Drive, Trust Portfolios L.P. and BondWave LLC
Suite 400 o Since Fund Inception (Software Development Company/Investment
Wheaton, IL 60187 Advisor): Secretary of Stonebridge Advisors LLC
D.O.B.: 05/60 (Investment Advisor)

Daniel J. Lindquist Vice President o Indefinite Term Senior Vice President (September 2005 to Present),
120 E. Liberty Drive, First Trust Advisors L.P. and First Trust Portfolios
Suite 400 o Since Fund Inception L.P.
Wheaton, IL 60187
D.O.B.: 02/70

Coleen D. Lynch Assistant Vice President o Indefinite Term Assistant Vice President (January 2008 to Present),
120 E. Liberty Drive, First Trust Advisors L.P. and First Trust Portfolios
Suite 400 o Since July 2008 L.P.; Vice President (May 1998 to January 2008),
Wheaton, IL 60187 Van Kampen Asset Management and Morgan
D.O.B.: 07/58 Stanley Investment Management

Kristi A. Maher Assistant Secretary and o Indefinite Term Deputy General Counsel (May 2007 to Present),
120 E. Liberty Drive, Chief Compliance Officer o Assistant Secretary Assistant General Counsel (March 2004 to May
Suite 400 Since Fund Inception 2007), First Trust Advisors L.P. and First Trust
Wheaton, IL 60187 o Chief Compliance Portfolios L.P.
D.O.B.: 12/66 Officer Since
January 2011

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

(3) The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.

Page 25

FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
NOVEMBER 30, 2011 (UNAUDITED)

--------------------------------------------------------------------------------
PRIVACY POLICY
--------------------------------------------------------------------------------

The open-end and closed-end funds advised by First Trust Advisors L.P. (each a
"Fund") value our relationship with you and consider your privacy an important
priority in maintaining that relationship. We are committed to protecting the
security and confidentiality of your personal information.

SOURCES OF INFORMATION

We collect nonpublic personal information about you from the following sources:

o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews, applications,
agreements or other forms;

o Information about your transactions with us, our affiliates or others;

o Information we receive from your inquiries by mail, e-mail or
telephone; and

o Information we collect on our website through the use of "cookies".
For example, we may identify the pages on our website that your
browser requests or visits.

INFORMATION COLLECTED

The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.

DISCLOSURE OF INFORMATION

We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:

o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians and
trustees, or that assist us in the distribution of investor materials
such as trustees, banks, financial representatives, proxy services,
solicitors and printers.

o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).

In addition, in order to alert you to our other financial products and services,
we may share your personal information with affiliates of the Fund.

PRIVACY ONLINE

We allow third-party companies, including AddThis, to collect certain anonymous
information when you visit our website. These companies may use non-personally
identifiable information during your visits to this and other websites in order
to provide advertisements about goods and services likely to be of greater
interest to you. These companies typically use a cookie, third party web beacon
or pixel tags, to collect this information. To learn more about this behavioral
advertising practice, you can visit www.networkadvertising.org.

CONFIDENTIALITY AND SECURITY

With regard to our internal security procedures, we restrict access to your
nonpublic personal information to those individuals who need to know that
information to provide products or services to you. We maintain physical,
electronic and procedural safeguards to protect your nonpublic personal
information.

POLICY UPDATES AND INQUIRIES

As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).

Page 26

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
The Bank of New York Mellon
1 Wall Street
New York, NY 10286

INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606

LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603

[BLANK BACK COVER]

ITEM 2. CODE OF ETHICS.

(a) The registrant, as of the end of the period covered by this report, has
adopted a code of ethics that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant or
a third party.

(c) There have been no amendments, during the period covered by this report,
to a provision of the code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by the
registrant or a third party, and that relates to any element of the code
of ethics description.

(d) The registrant has not granted any waivers, including an implicit waiver,
from a provision of the code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by the
registrant or a third party, that relates to one or more of the items set
forth in paragraph (b) of this item's instructions.

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.

As of the end of the period covered by the report, the Registrant's board of
trustees has determined that Thomas

R. Kadlec and Robert F. Keith are qualified to serve as audit committee
financial experts serving on its audit committee and that each of them is
"independent," as defined by Item 3 of Form N-CSR.

ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

(a) Audit Fees (Registrant) -- The aggregate fees billed for each of the
last two fiscal years for professional services rendered by the principal
accountant for the audit of the registrant's annual financial statements or
services that are normally provided by the accountant in connection with
statutory and regulatory filings or engagements for those fiscal years were
$44,000 for the fiscal year ended November 30, 2010 and $44,000 for the fiscal
year ended November 30, 2011.

(b) Audit-Related Fees (Registrant) -- The aggregate fees billed in each
of the last two fiscal years for assurance and related services by the principal
accountant that are reasonably related to the performance of the audit of the
registrant's financial statements and are not reported under paragraph (a) of
this Item were $0 for the fiscal year ended November 30, 2010 and $0 for the
fiscal year ended November 30, 2011.

Audit-Related Fees (Investment Adviser) -- The aggregate fees billed in
each of the last two fiscal years for assurance and related services by the
principal accountant that are reasonably related to the performance of the audit
of the registrant's financial statements and are not reported under paragraph
(a) of this Item were $0 for the fiscal year ended November 30, 2010 and $0 for
the fiscal year ended November 30, 2011.

(c) Tax Fees (Registrant) -- The aggregate fees billed in each of the last
two fiscal years for professional services rendered by the principal accountant
for tax compliance, tax advice, and tax planning to the registrant were
$5,215.18 for the fiscal year ended November 30, 2010 and $5,200 for the fiscal
year ended November 30, 2011. These fees were for tax consultation.

Tax Fees (Investment Adviser) -- The aggregate fees billed in each of
the last two fiscal years for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning to the registrant's
adviser were $0 for the fiscal year ended November 30, 2010 and $0 for the
fiscal year ended November 30, 2011.

(d) All Other Fees (Registrant) -- The aggregate fees billed in each of
the last two fiscal years for products and services provided by the principal
accountant to the registrant, other than the services reported in paragraphs (a)
through (c) of this Item were $0 for the fiscal year ended November 30, 2010 and
$0 for the fiscal year ended November 30, 2011.

All Other Fees (Investment Adviser) -- The aggregate fees billed in each
of the last two fiscal years for products and services provided by the principal
accountant to the registrant's investment adviser, other than the services
reported in paragraphs (a) through (c) of this Item were $0 for the fiscal year
ended November 30, 2010 and $0 for the fiscal year ended November 30, 2011.

(e)(1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c) (7) of Rule 2-01 of Regulation S-X.

Pursuant to its charter and its Audit and Non-Audit Services Pre-Approval
Policy, the Audit Committee (the "Committee") is responsible for the
pre-approval of all audit services and permitted non-audit services (including
the fees and terms thereof) to be performed for the registrant by its
independent auditors. The Chairman of the Committee is authorized to give such
pre-approvals on behalf of the Committee up to $25,000 and report any such
pre-approval to the full Committee.

The Committee is also responsible for the pre-approval of the independent
auditor's engagements for non-audit services with the registrant's adviser (not
including a sub-adviser whose role is primarily portfolio management and is
sub-contracted or overseen by another investment adviser) and any entity
controlling, controlled by or under common control with the investment adviser
that provides ongoing services to the registrant, if the engagement relates
directly to the operations and financial reporting of the registrant, subject to
the de minimis exceptions for non-audit services described in Rule 2-01 of
Regulation S-X. If the independent auditor has provided non-audit services to
the registrant's adviser (other than any sub-adviser whose role is primarily
portfolio management and is sub-contracted with or overseen by another
investment adviser) and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
registrant that were not pre-approved pursuant to its policies, the Committee
will consider whether the provision of such non-audit services is compatible
with the auditor's independence.

(e)(2) The percentage of services described in each of paragraphs (b)
through (d) for the registrant and the registrant's investment adviser of this
Item that were approved by the audit committee pursuant to the pre-approval
exceptions included in paragraph (c)(7)(i)(c) or paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X are as follows:

(b) 0%

(d) 0%

(f) The percentage of hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the most recent
fiscal year that were attributed to work performed by persons other than the
principal accountant's full-time, permanent employees was less than fifty
percent.

(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, and rendered to the registrant's investment
adviser (not including any sub-adviser whose role is primarily portfolio
management and is subcontracted with or overseen by another investment adviser),
and any entity controlling, controlled by, or under common control with the
adviser that provides ongoing services to the registrant for the fiscal year
ended November 30, 2010, were $6,000 for the registrant and $5,215.18 for the
registrant's investment adviser, and for the fiscal year ended November 30,
2011, were $5,200 for the registrant and $6,200 for the registrant's investment
adviser.

(h) The registrant's audit committee of its Board of Trustees has
determined that the provision of non-audit services that were rendered to the
registrant's investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by, or under common
control with the investment adviser that provides ongoing services to the
registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal accountant's
independence.

ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.

The Registrant has a separately designated audit committee consisting of all the
independent trustees of the Registrant. The members of the audit committee are:
Thomas R. Kadlec, Niel B. Nielson, Richard E. Erickson and Robert F. Keith.

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.

ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.

The Proxy Voting Policies are attached herewith.

CONFLUENCE INVESTMENT MANAGEMENT LLC
PROXY VOTING POLICIES AND PROCEDURES
1. INTRODUCTION

As a registered investment adviser, Confluence Investment Management LLC
("Confluence" or the "Adviser") has a fiduciary duty to act solely in the best
interests of its clients. If the client is a registered investment company under
the Investment Company Act of 1940 or the client requests Confluence to do so in
writing, the Adviser will vote proxy materials for its clients.

In cases where the client has delegated proxy voting responsibility and
authority to the Adviser, the Adviser has adopted and implemented the following
policies and procedures, which it believes are reasonably designed to ensure
that proxies are voted in the best interests of its clients. In pursuing this
policy, proxies should be voted in a manner that is intended to maximize value
to the client. In situations where Adviser accepts such delegation and agrees to
vote proxies, Adviser will do so in accordance with these Policies and
Procedures. The Adviser may delegate its responsibilities under these Policies
and Procedures to a third party, provided that no such delegation shall relieve
the Adviser of its responsibilities hereunder and the Adviser shall retain final
authority and fiduciary responsibility for such proxy voting.

2. GENERAL

In the event requests for proxies are received with respect to the voting of
equity securities on routine matters, such as election of directors or approval
of auditors, the proxies usually will be voted with management unless the
Adviser determines it has a conflict or the Adviser determines there are other
reasons not to vote with management. On non-routine matters, such as amendments
to governing instruments, proposals relating to compensation and stock option
and equity compensation plans, corporate governance proposals and shareholder
proposals, the Adviser will vote, or abstain from voting if deemed appropriate,
on a case by case basis in a manner it believes to be in the best interest of
the Company's shareholders. In the event requests for proxies are received with
respect to debt securities, the Adviser will vote on a case by case basis in a
manner it believes to be in the best economic interest of the Company's
shareholders.

The Chief Compliance Officer or his/her designate is responsible for monitoring
Adviser's proxy voting actions and ensuring that (i) proxies are received and
forwarded to the appropriate decision makers; and (ii) proxies are voted in a
timely manner upon receipt of voting instructions. The Adviser is not
responsible for voting proxies it does not receive, but will make reasonable
efforts to obtain missing proxies.

The Chief Compliance Officer or his/her designate shall implement procedures to
identify and monitor potential conflicts of interest that could affect the proxy
voting process, including (i) significant client relationships; (ii) other
potential material business relationships; and (iii) material personal and
family relationships.

All decisions regarding proxy voting shall be determined by the Investment
Committee of the Adviser and shall be executed by the Chief Compliance Officer
or his/her designate. Every effort shall be made to consult with the portfolio
manager and/or analyst covering the security.

The Adviser may determine not to vote a particular proxy, if the costs and
burdens exceed the benefits of voting (e.g., when securities are subject to loan
or to share blocking restrictions).

3. REGISTERED INVESTMENT COMPANIES

In cases in which the client is a registered investment company under the
Investment Company Act of 1940, delegates proxy voting (e.g., where Confluence
acts as a sub-adviser of a closed-end fund) and required by law, Confluence will
vote such proxies in the same proportion as the vote of all other shareholders
of the fund (i.e. "echo vote" or 'mirror vote"), unless otherwise required by
law. When required by law, Confluence will also echo vote proxies of securities
in unaffiliated investment vehicles. For example, section 12(d)(1)(F) of the
Investment Company Act of 1940 requires echo voting of registered investment
companies that sub-advise or manage securities of other registered investment
companies.

4. CONFLICTS OF INTEREST

In the event an employee determines that the Adviser has a conflict of interest
due to, for example, a relationship with a company or an affiliate of a company,
or for any other reason which could influence the advice given, the employee
will advise the Chief Compliance Officer who will advise the Investment
Committee, and the Investment Committee will decide whether the Adviser should
either (1) disclose to the client the conflict to enable the client to evaluate
the advice in light of the conflict or (2) disclose to the client the conflict
and decline to provide the advice.

The Adviser shall use commercially reasonable efforts to determine whether a
potential conflict may exist, and a potential conflict shall be deemed to exist
only if one or more of the managers of the Adviser actually knew or should have
known of the conflict. The Adviser is sensitive to conflicts of interest that
may arise in the proxy decision-making process and has identified the following
potential conflicts of interest:

o A principal of the Adviser or any person involved in the proxy
decision-making process currently serves on the Board of the
portfolio company.

o An immediate family member of a principal of the Adviser or any
person involved in the proxy decision-making process currently
serves as a director or executive officer of the portfolio company.

o The Adviser, any fund managed by the Adviser, or any affiliate holds
a significant ownership interest in the portfolio company.

This list is not intended to be exclusive. All employees are obligated to
disclose any potential conflict to the Adviser's Chief Compliance Officer.

If a material conflict is identified, Adviser management may (i) disclose the
potential conflict to the client and obtain consent; or (ii) establish an
ethical wall or other informational barriers between the person(s) that are
involved in the conflict and the persons making the voting decisions.

5. RECORDKEEPING The Chief Compliance Officer or his/her designate is
responsible for maintaining the following records:

o proxy voting policies and procedures;

o proxy statements (provided, however, that the Adviser may rely on
the Securities and Exchange Commission's EDGAR system if the issuer
filed its proxy statements via EDGAR or may rely on a third party as
long as the third party has provided the Adviser with a copy of the
proxy statement promptly upon request);

o records of votes cast and abstentions; and

o any records prepared by the Adviser that were material to a proxy
voting decision or that memorialized a decision.

ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

(a)(1) IDENTIFICATION OF PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM MEMBERS AND
DESCRIPTION OF ROLE OF PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM MEMBERS

Investment decisions for the registrant are made by the Portfolio Management
Team of Confluence Investment Management LLC ("Confluence"). The members of the
Confluence Portfolio Management Team are responsible for portfolio management,
security selection, leverage management, trading, compliance, position
reconciliation, communication and reporting to the registrant's investment
adviser.

INFORMATION PROVIDED AS OF NOVEMBER 30, 2011

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

Mr. Keller has 31 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

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 ETF 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.

(a)(2) OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM MEMBER
AND POTENTIAL CONFLICTS OF INTEREST

INFORMATION PROVIDED AS OF NOVEMBER 30, 2011

OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM MEMBER

--------------------------------------------------------------------------------------------------------------------------
No. of
Accounts Total Assets in
Total where Accounts where
Name of Portfolio No. of Advisory Fee Advisory Fee is
Manager or Accounts is Based on Based on
Team Member Type of Accounts Managed Total Assets Performance Performance
----------- ---------------- ------- ------------ ----------- -----------
----------------------- ------------------------------------- -------------- ------------- -------------- ----------------

1. Mark Keller Registered Investment Companies: 1 $122.4m 0 $0
------------------------------------- -------------- ------------- -------------- ----------------
Other Pooled Investment Vehicles: 0 $0 0 $0
------------------------------------- -------------- ------------- -------------- ----------------
Other Accounts: 3,201 $795.1m 0 $0
----------------------- ------------------------------------- -------------- ------------- -------------- ----------------
2. David Miyazaki Registered Investment Companies: 1 $122.4m 0 $0
------------------------------------- -------------- ------------- -------------- ----------------
Other Pooled Investment Vehicles: 0 $0 0 $0
------------------------------------- -------------- ------------- -------------- ----------------
Other Accounts: 3,201 $795.1m 0 $0
----------------------- ------------------------------------- -------------- ------------- -------------- ----------------
3. Daniel Winter Registered Investment Companies: 1 $122.4m 0 $0
------------------------------------- -------------- ------------- -------------- ----------------
Other Pooled Investment Vehicles: 0 $0 0 $0
------------------------------------- -------------- ------------- -------------- ----------------
Other Accounts: 3,201 $795.1m 0 $0
--------------------------------------------------------------------------------------------------------------------------

POTENTIAL CONFLICTS OF INTERESTS

The Confluence Portfolio Management Team may purchase or sell in other accounts
the same securities that are purchased or sold for the registrant. If a
situation arises where the same securities are being purchased or sold in other
accounts and the registrant, the Portfolio Management Team's policy is to follow
a trade rotation to avoid simultaneous and competing buy or sell orders.

(a)(3) COMPENSATION STRUCTURE OF PORTFOLIO MANAGER(S) OR MANAGEMENT TEAM
MEMBERS

INFORMATION PROVIDED AS OF NOVEMBER 30, 2011

The members of the Confluence Portfolio Management Team are compensated with an
annual base salary and a discretionary bonus based on Confluence's overall firm
profits rather than individual product line performance or profitability. In
addition Confluence's portfolio managers are equity owners in the Firm, aligning
their long-term interests with the registrant's holders to strive to achieve
superior investment performance over an appropriate time period. This ensures
that the portfolio managers are incentivized to implement a consistent
investment strategy for the registrant without incurring undue risk.

(a)(4) DISCLOSURE OF SECURITIES OWNERSHIP

INFORMATION PROVIDED AS OF NOVEMBER 30, 2011

Name Dollar Range of Registrant Shares Beneficially Owned
---- ----------------------------------------------------
Mark Keller $50,001 - $100,000
David Miyazaki $10,001 - $50,000
Daniel Winter $1-$10,000
Brian Hansen $10,001 - $50,000
Joseph Hanzlik $10,001 - $50,000

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) Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.

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

(a)(3) Not applicable.

(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and
Section 906 of the Sarbanes- Oxley Act of 2002 are attached hereto.

SIGNATURES

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

(registrant) First Trust Specialty Finance and Financial Opportunities Fund
-----------------------------------------------------------------

By (Signature and Title)* /s/ Mark R. Bradley
--------------------------------------------------
Mark R. Bradley, President and Chief Executive
Officer
(principal executive officer)

Date January 24, 2012
--------------------

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

By (Signature and Title)* /s/ Mark R. Bradley
--------------------------------------------------
Mark R. Bradley, President and Chief Executive
Officer
(principal executive officer)

Date January 24, 2012
--------------------

By (Signature and Title)* /s/ James M. Dykas
--------------------------------------------------
James M. Dykas, Treasurer, Chief Financial Officer
and Chief Accounting Officer
(principal financial officer)

Date January 24, 2012
--------------------

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