UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY
Investment Company Act file number 811-22039
---------
FIRST TRUST/GALLATIN SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
-----------------------------------------------------------------------
(Exact name of registrant as specified in charter)
1001 Warrenville Road, Suite 300
LISLE, IL 60532
-----------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
1001 Warrenville Road, Suite 300
LISLE, IL 60532
-----------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 630-241-4141
------------
Date of fiscal year end: NOVEMBER 30
-----------
Date of reporting period: FEBRUARY 29, 2008
-----------------
Form N-Q is to be used by management investment companies, other than small
business investment companies registered on Form N-5 (ss.ss. 239.24 and 274.5 of
this chapter), to file reports with the Commission, not later than 60 days after
the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under
the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may use
the information provided on Form N-Q in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-Q, and
the Commission will make this information public. A registrant is not required
to respond to the collection of information contained in Form N-Q unless the
Form displays a currently valid Office of Management and Budget ("OMB") control
number. Please direct comments concerning the accuracy of the information
collection burden estimate and any suggestions for reducing the burden to the
Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC
20549. The OMB has reviewed this collection of information under the clearance
requirements of 44 U.S.C. ss. 3507.
ITEM 1. SCHEDULE OF INVESTMENTS.
The Schedule(s) of Investments is attached herewith.
FIRST TRUST/GALLATIN SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS (a)
FEBRUARY 29, 2008 (UNAUDITED)
SHARES DESCRIPTION VALUE
------------ ----------- -------------
COMMON STOCKS - 111.5%
CAPITAL MARKETS - 66.8%
535,660 Allied Capital Corp. ........................... $ 12,100,559
382,326 American Capital Strategies, Ltd. .............. 13,874,611
846,706 Apollo Investment Corp. ........................ 13,123,943
760,000 Ares Capital Corp. ............................. 9,743,200
650,000 BlackRock Kelso Capital Corp. .................. 8,164,000
460,000 Gladstone Capital Corp. ........................ 7,728,000
100,000 Gladstone Investment Corp. ..................... 1,071,000
50,000 GSC Investment Corp. ........................... 552,000
506,205 Hercules Technology Growth Capital, Inc. ....... 6,018,777
50,000 Highland Distressed Opportunities, Inc. ........ 359,000
15,000 Invesco, Ltd. .................................. 384,150
490,000 Kohlberg Capital Corp. ......................... 5,546,800
472,000 MCG Capital Corp. .............................. 5,664,000
690,000 MVC Capital, Inc. .............................. 10,398,300
371,737 NGP Capital Resources Co. ...................... 6,063,030
550,000 Patriot Capital Funding, Inc. .................. 5,752,998
585,000 PennantPark Investment Corp. ................... 5,434,650
306,152 Prospect Energy Corp. .......................... 4,607,588
463,785 TICC Capital Corp. ............................. 5,194,392
--------------
121,780,998
--------------
DIVERSIFIED FINANCIAL SERVICES - 3.4%
85,211 Financial Federal Corp. ........................ 1,836,297
446,000 Medallion Financial Corp. ...................... 4,419,860
--------------
6,256,157
--------------
REAL ESTATE INVESTMENT TRUSTS (REITS) - 41.3%
350,000 Annaly Capital Management, Inc. ................ 7,241,500
330,000 Arbor Realty Trust, Inc. ....................... 5,306,400
225,000 Capital Trust, Inc. - Class A .................. 6,210,000
870,000 CapitalSource, Inc. ............................ 13,780,800
640,000 Gramercy Capital Corp. ......................... 13,075,200
100,000 Hatteras Financial Corp. (b) ................... 2,400,000
420,000 iStar Financial, Inc. .......................... 8,278,200
1,030,000 NorthStar Realty Finance Corp. ................. 9,156,700
200,000 RAIT Financial Trust ........................... 1,530,000
250,000 Redwood Trust, Inc. ............................ 8,355,000
--------------
75,333,800
--------------
TOTAL COMMON STOCKS ............................ 203,370,955
(Cost $282,076,082) --------------
CANADIAN INCOME TRUSTS - 11.7%
OIL, GAS & CONSUMABLE FUELS
100 ARC Energy Trust ............................... 2,394
364,100 Enerplus Resources Fund ........................ 15,678,146
200,000 Penn West Energy Trust ......................... 5,650,000
100 Progress Energy Trust .......................... 1,321
--------------
TOTAL CANADIAN INCOME TRUSTS ................... 21,331,861
(Cost $23,467,869) --------------
See Notes to Quarterly Portfolio of Investments Page 1
FIRST TRUST/GALLATIN SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS (a) - (CONTINUED)
FEBRUARY 29, 2008 (UNAUDITED)
DESCRIPTION VALUE
----------- -------------
TOTAL INVESTMENTS - 123.2% ..................... $ 224,702,816
(Cost $305,543,951) (c)
LOAN OUTSTANDING - (23.1)% ..................... (42,100,000)
NET OTHER ASSETS AND LIABILITIES - (0.1)% ...... (174,683)
--------------
NET ASSETS - 100.0% ............................ $ 182,428,133
==============
----------
(a) All percentages shown in the Portfolio of Investments are based on net
assets.
(b) This security, sold within terms of a private placement memorandum, is
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At February 29, 2008, the
security noted as such amounted to $2,400,000 or 1.3% of net assets.
(c) Aggregate cost for federal income tax and financial reporting purposes.
Page 2 See Notes to Quarterly Portfolio of Investments
--------------------------------------------------------------------------------
NOTES TO QUARTERLY PORTFOLIO OF INVESTMENTS
--------------------------------------------------------------------------------
FIRST TRUST/GALLATIN SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
FEBRUARY 29, 2008 (UNAUDITED)
1. VALUATION AND INVESTMENT PRACTICES
A. PORTFOLIO VALUATION:
The net asset value ("NAV") of the Common Shares of the First Trust/Gallatin
Specialty Finance and Financial Opportunities Fund (the "Fund") is determined
daily as of the close of regular trading on the New York Stock Exchange
("NYSE"), normally 4:00 p.m. Eastern time, on each day the NYSE is open for
trading. Domestic debt securities and foreign securities are priced using data
reflecting the earlier closing of the principal markets for those securities.
The NAV per Common Share is calculated by subtracting the Fund's liabilities
(including accrued expenses, dividends payable and all borrowings of the Fund)
from the Fund's Total Assets (the value of the securities and other investments
the Fund holds plus cash or other assets, including interest accrued but not yet
received) and dividing the result by the total number of Common Shares
outstanding.
The Fund's investments are valued daily at market value or, in the absence of
market value with respect to any portfolio securities, at fair value according
to procedures adopted by the Fund's Board of Trustees. A majority of the Fund's
assets are valued using market information supplied by third parties. In the
event that market quotations are not readily available, the pricing service does
not provide a valuation for a particular asset, or the valuations are deemed
unreliable, First Trust Advisors L.P. ("First Trust") may use a fair value
method to value the Fund's securities and investments. Additionally, if events
occur after the close of the principal markets for particular securities (e.g.
domestic debt and foreign securities), but before the Fund values its assets,
that could materially affect NAV, First Trust may use a fair value method to
value the Fund's securities and investments. The use of fair value pricing by
the Fund is governed by valuation procedures adopted by the Fund's Board of
Trustees and in accordance with the provisions of the Investment Company Act of
1940, as amended.
Portfolio securities listed on any exchange other than the NASDAQ National
Market ("NASDAQ") are valued at the last sale price on the business day as of
which such value is being determined. If there has been no sale on such day, the
securities are valued at the mean of the most recent bid and asked prices on
such day. Securities traded on the NASDAQ are valued at the NASDAQ Official
Closing Price as determined by NASDAQ. Portfolio securities traded on more than
one securities exchange are valued at the last sale price on the business day as
of which such value is being determined at the close of the exchange
representing the principal market for such securities. Portfolio securities
traded in the over-the-counter market, but excluding securities traded on the
NASDAQ, are valued at the closing bid prices. Short-term investments that mature
in less than 60 days are valued at amortized cost.
In September 2006, the Financial Accounting Standards Board issued FAS 157
effective for fiscal years beginning after November 15, 2007. This standard
clarifies the definition of fair value for financial reporting, establishes a
framework for measuring fair value and requires additional disclosures about the
use of fair value measurements. FAS 157 became effective for the Fund as of
December 1, 2007, the beginning of its current fiscal year. The three levels of
the fair value hierarchy under FAS 157 are described below:
o Level 1 - quoted prices in active markets for identical securities
o Level 2 - other significant observable inputs (including quoted
prices for similar securities, interest rates,
prepayment speeds, credit risk, etc.)
o Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not necessarily an
indication of the risk associated with investing in those securities. A summary
of the inputs used to value the Fund's net assets as of February 29, 2008 is as
follows:
VALUATION INPUTS INVESTMENTS IN SECURITIES OTHER FINANCIAL INSTRUMENTS(a)
-------------------------------------------------- ------------------------- ------------------------------
Level 1 - Quoted Prices .......................... $224,702,816 $--
Level 2 - Other Significant Observable Inputs .... -- --
Level 3 - Significant Unobservable Inputs ........ -- --
------------------------- ------------------------------
TOTAL ............................................ $224,702,816 $--
------------------------- ------------------------------
(a) Other financial instruments are derivative instruments not reflected in the
Portfolio of Investments, such as futures, forwards and swap contracts,
which are valued at the unrealized appreciation (depreciation) on the
instrument. As of February 29, 2008, the Fund does not have any derivative
instruments.
B. SECURITIES TRANSACTIONS:
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
2. UNREALIZED APPRECIATION (DEPRECIATION)
As of February 29, 2008, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $2,342,842
and the aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $83,183,977.
Page 3
ITEM 2. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the "1940
Act") (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days
of the filing date of the report that includes the disclosure required
by this paragraph, based on their evaluation of these controls and
procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR
270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities
Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or
240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17
CFR 270.30a-3(d)) that occurred during the registrant's last fiscal
quarter that have materially affected, or are reasonably likely to
materially affect, the registrant's internal control over financial
reporting.
ITEM 3. EXHIBITS.
Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of
the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) FIRST TRUST/GALLATIN SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES
FUND
By (Signature and Title)* /S/ JAMES A. BOWEN
-------------------------------------------------------
James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
Date APRIL 21, 2008
----------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /S/ JAMES A. BOWEN
-------------------------------------------------------
James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
Date APRIL 21, 2008
----------------------------------------------------------------------------
By (Signature and Title)* /S/ MARK R. BRADLEY
-------------------------------------------------------
Mark R. Bradley, Treasurer, Controller, Chief
Financial Officer and Chief Accounting Officer
(principal financial officer)
Date APRIL 21, 2008
----------------------------------------------------------------------------
* Print the name and title of each signing officer under his or her signature.