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: 811-04605

First Opportunity Fund, Inc.

(Exact name of registrant as specified in charter)

2344 Spruce Street, Suite A, Boulder, CO 80302

(Address of principal executive offices) (Zip code)

Fund Administrative Services

2344 Spruce Street, Suite A

Boulder, CO 80302

(Name and address of agent for service)

Registrant’s telephone number, including area code: (303) 444-5483

Date of fiscal year end: March 31

Date of reporting period: December 31, 2010

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Item 1 – Schedule of Investments.

 The Schedule of Investments is included herewith.

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Portfolio of Investments as of December 31, 2010 (Unaudited)

FIRST OPPORTUNITY FUND, INC.

 

Shares		Description		Value (Note 1)
LONG TERM INVESTMENTS (96.4%)
DOMESTIC COMMON STOCKS (33.4%)
Banks & Thrifts (14.6%)
32,825		1st United Bancorp, Inc.*			$  226,821
54,790		Alliance Bankshares Corp.*			213,133
27,800		American River Bankshares*			166,522
8,439		Ameris Bancorp*			88,947
406,400		AmeriServ Financial, Inc.*			642,112
30,289		Bank of Commerce Holdings			128,728
62,500		Bank of Virginia*			158,750
42,700		BCB Bancorp, Inc.			418,460
28,000		Bridge Capital Holdings*			243,600
35,498		Carolina Trust Bank*			122,468
340,815		CCF Holding Co.*(a)			102,245
14,044		Central Valley Community Bancorp*			78,646
29,600		Central Valley Community Bancorp*(b)(c)			165,760
38,860		Centrue Financial Corp.*			38,083
14,300		Citizens & Northern Corp.			212,498
60,000		Community Bank*(b)(c)(d)			3,810,000
56,800		The Connecticut Bank & Trust Co.*			318,080
65,566		Eastern Virginia Bankshares, Inc.			251,774
4,085		Evans Bancorp, Inc.			58,007
97,200		FC Holdings, Inc.*(b)(c)(d)			18,468
4,300		First Advantage Bancorp			50,568
39,700		First American International*(b)(c)(d)			519,276
61,678		First California Financial Group, Inc.*			172,698
17,400		First Capital Bancorp, Inc.*			62,292
518,508		First Republic Bank*(b)(c)(d)			13,589,058
144,200		First Security Group, Inc.*			131,222
66,726		First Southern Bancorp, Inc. - Class B*			620,552
28,200		First State Bank*(b)(c)(d)			7,614
2,880		First Trust Bank*			10,080
193,261		Florida Capital Group*(b)(c)(d)			96,631
7,820		FNB Bancorp			78,200
155,800		Great Florida Bank - Class A*			38,950
15,300		Great Florida Bank - Class B*			153
66,000		Greater Hudson Bank N.A.*			310,200
228,000		Hampshire First Bank*(b)(c)			1,938,000
8,500		Heritage Financial Corp.*			118,320
199,918		Heritage Oaks Bancorp*(b)(c)			659,729
36,900		ICB Financial*			138,375
14,200		Katahdin Bankshares Corp.			201,640
126,100		Metro Bancorp, Inc.*			1,388,361
905,600		National Bancshares, Inc.*(b)(c)(d)			452,800
17,300		New England Bancshares, Inc.			137,535
4,000		North Dallas Bank & Trust Co.(d)			188,720
30,400		Oak Ridge Financial Services, Inc.*			134,368
1,900		Old Point Financial Corp.			23,047
44,800		OmniAmerican Bancorp, Inc.*			607,040
24,000		Pacific Continental Corp.			241,440
162,590		Pilot Bancshares, Inc.*			269,899
190,540		Republic First Bancorp, Inc.*			463,012
370,344		Seacoast Banking*(b)(c)			540,702
4,500		Shore Bancshares, Inc.			47,430
69,269		Southern First Bancshares, Inc.*			516,747

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			79,900			Southern National Bancorp of Virginia, Inc.*			607,240
			302,900			Square 1 Financial, Inc.*(b)(c)(d)			1,608,399
			73,100			State Bancorp, Inc.			676,175
			9,960			Tower Bancorp, Inc.			219,518
			39,164			Valley Commerce Bancorp*			195,820
			57,400			Wells Fargo & Co.			1,778,826
			238,000			Western Liberty Bancorp*			1,294,720
			12,404			Xenith Bankshares, Inc.*			65,493
									37,663,952
Diversified Financial Services (2.1%)
			16,241			Affinity Financial Corp.*(b)(c)(d)			–
			79,000			AllianceBernstein Holding, LP			1,843,070
			100,033			Center Financial Corp.*(b)(c)			758,250
			25,000			CMET Finance Holding*(b)(d)(e)			538,500
			276,300			Highland Financial Partners LP*(b)(d)(e)			–
			60,000			Independence Financial Group, Inc.*(b)(c)(d)			300,600
			70,215			Mackinac Financial Corp.*			311,053
			431,640			Muni Funding Co. of America, LLC*(b)(d)(e)			1,113,631
			455,100			Ocwen Structured Investments, LLC*(b)(c)(d)			464,202
			349,967			Terra Nova Financial Group*			96,241
									5,425,547
Electric (1.2%)
			80,000			PPL Corp.			2,105,600
			16,800			Public Service Enterprise Group, Inc.			534,408
			12,400			SCANA Corp.			503,440
									3,143,448
Insurance (2.3%)
			19,678			Forethought Financial Group, Inc. - Class A*(b)(c)(d)			4,788,838
			93,403			Penn Millers Holding Corp.*			1,227,315
									6,016,153
Mortgages & REITS (0.8%)
			55,000			Embarcadero Bank*(b)(c)(d)			507,650
			155,504			Newcastle Investment Holdings Corp., REIT*(d)			143,686
			87,900			Verde Realty*(b)(c)(d)			1,482,873
									2,134,209
Pharmaceuticals (0.3%)
			20,447			Merck & Co., Inc			736,910
Registered Investment Companies (RICs) (0.7%)
			40,000			Cohen & Steers Infrastructure Fund, Inc.			656,800
			32,235			Cohen & Steers Quality Income Realty Fund, Inc.			278,833
			45,475			RMR Asia Pacific Real Estate Fund			835,376
									1,771,009
Retail (0.5%)
			20,000			Walgreen Co.			779,200
			10,000			Wal-Mart Stores, Inc.			539,300
									1,318,500
Savings & Loans (9.6%)
			34,100			Appalachian Bancshares, Inc.*			852
			10,000			Auburn Bancorp, Inc.*(d)			63,000
			113,600			Beacon Federal Bancorp, Inc.			1,330,256
			14,400			BofI Holding, Inc.*			223,344
			96,980			Broadway Financial Corp.(a)			226,933
			45,100			Carver Bancorp, Inc.			86,141
			61,300			Central Federal Corp.*			31,263
			54,346			CFS Bancorp, Inc.			284,230
			14,015			Charter Financial Corp.			124,733
			14,300			Citizens Community Bank*			57,915
			84,466			Citizens South Banking Corp.*(b)(c)			363,204
			1,314			Colonial Financial Services, Inc.*			16,031
			33,500			Eagle Bancorp			360,125

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			20,200			ECB Bancorp, Inc.			272,094
			30,491			ESSA Bancorp, Inc.			403,091
			32,500			Fidelity Federal Bancorp*(d)			417,625
			19,238			First Community Bank Corp. of America*			23,470
			18,128			Fox Chase Bancorp, Inc.*			214,817
			43,400			Georgetown Bancorp, Inc.*			225,680
			222,900			Hampden Bancorp, Inc.			2,525,457
			22,030			HF Financial Corp.			237,924
			47,216			Home Bancorp, Inc.*			652,525
			88,948			Home Federal Bancorp, Inc.			1,091,392
			58,100			Jefferson Bancshares, Inc.*			188,244
			35,500			Legacy Bancorp, Inc.			466,470
			42,000			Liberty Bancorp, Inc.			252,000
			22,600			Malvern Federal Bancorp, Inc.			158,200
			58,299			Meridian Interstate Bancorp, Inc.*			687,345
			310,300			MidCountry Financial Corp.*(b)(c)(d)			1,377,732
			600			Naugatuck Valley Financial Corp.			4,050
			113,200			Newport Bancorp, Inc.*			1,379,908
			106,998			Ocean Shore Holding Co.			1,225,127
			29,100			Old Line Bancshares, Inc.			234,546
			82,800			Osage Bancshares, Inc.			575,460
			191,410			Pacific Premier Bancorp, Inc.*			1,203,969
			165,930			Perpetual Federal Savings Bank(a)			2,181,980
			17,500			Privee, LLC*(b)(c) (d)			–
			52,700			Provident Financial Holdings, Inc.			381,548
			40,650			Redwood Financial, Inc.*(a)			376,013
			89,993			River Valley Bancorp(a)			1,439,888
			12,400			Rockville Financial, Inc.			151,528
			6,300			Royal Financial, Inc.*			10,521
			308,740			SI Financial Group, Inc.			2,726,174
			13,200			Sound Financial, Inc.			63,360
			100,000			Sterling Eagle* (d)			–
			110,500			Third Century Bancorp*(a)			303,875
									24,620,040
Tobacco Products (0.7%)
			42,000			Altria Group, Inc.			1,034,040
			11,000			Philip Morris International, Inc.			643,830
									1,677,870
Trucking & Leasing (0.6%)
			121,082			Willis Lease Finance Corp.*			1,577,698
TOTAL DOMESTIC COMMON STOCKS (Cost $124,638,114)									86,085,336
FOREIGN COMMON STOCKS (9.8%)
Bermuda (0.0%)(f)
			11,200			Majestic Capital, Ltd.*			48,048
			36,500			RAM Holdings, Ltd.*			33,580
									81,628
Cayman Islands (0.2%)
			70,457			Phoenix Group Holdings			671,176
Denmark (0.4%)
			5,490			Gronlandsbanken*			467,502
			7,378			Spar Nord Bank A/S*			80,684
			19,324			Sydbank A/S*			524,147
									1,072,333
France (0.6%)
			24,000			Sanofi-Aventis S.A.			1,554,822
Germany (0.4%)

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			6,700			Muenchener Rueckversicherungs AG			1,015,211
Hong Kong (0.6%)
			98,000			Cheung Kong Holdings, Ltd.			1,511,708
India (7.1%)
			45,582			Axis Bank, Ltd.			1,376,278
			33,428			Bajaj Auto, Ltd.			1,152,019
			43,173			Educomp Solutions, Ltd.			513,413
			14,934			Financial Technologies India, Ltd.			298,496
			221,163			Karnataka Bank, Ltd.			814,369
			161,804			Kotak Mahindra Bank, Ltd.			1,641,561
			932,280			Magma Fincorp, Ltd.			1,513,665
			693,370			Manappuram General Finance & Leasing, Ltd.			2,325,964
			20,659			Maruti Suzuki India, Ltd.			656,800
			17,776			NSE India, Ltd.*(b)(c)(d)			1,478,511
			53,608			Reliance Infrastructure, Ltd.			1,010,897
			200,259			Shriram Transport Finance Co., Ltd.			3,497,983
			66,094			Tata Motors, Ltd.			1,933,894
									18,213,850
Pakistan (0.3%)
			299,213			Engro Corp., Ltd.			676,668
Switzerland (0.2%)
			8,000			Transocean, Ltd.*			556,080
TOTAL FOREIGN COMMON STOCKS (Cost $24,457,320)									25,353,476
LIMITED PARTNERSHIPS (51.9%)
			1			Bay Pond*(b)(c)(d)			45,194,228
			1			Iguazu Partners, LP*(b)(c)(d)			4,533,257
			1			J. Caird Partners, LP*(b)(c)(d)			20,229,766
			1			North River Partners*(b)(c)(d)			16,624,265
			1			Wolf Creek*(b)(c)(d)			47,167,198
									133,748,714
TOTAL LIMITED PARTNERSHIPS (Cost $118,500,000)									133,748,714
DOMESTIC PREFERRED STOCKS (0.7%)
			1,600			Maiden Holdings, Ltd., Series C, 14.00%*(b)(d)(e)			1,728,283
TOTAL DOMESTIC PREFERRED STOCKS (Cost $1,600,000)									1,728,283
DOMESTIC RIGHTS & WARRANTS (0.2%)
			195,000			Dime Bancorp, Inc., Litigation Tracking Warrant, strike price $0.00, Expires 12/26/50*			107,250
			262,296			Flagstar Bancorp, Warrant, strike price $1.00, Expires 1/30/19*(d)			302,786
			6,560			Forethought Financial Group, Inc., Warrant, strike price $220.00, Expires 7/13/11*(b)(c)(d)			153,242

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	3,622,400			National Bancshares, Inc., Right, subscription price $0.50, expires 1/31/2011			–
	233,333			Terra Nova Financial Group, Inc., Warrant, strike price $3.00, Expires 3/17/11* (b) (c)(d)			–
							563,278
	TOTAL DOMESTIC RIGHTS & WARRANTS						563,278
	(Cost $–)
Shares/ Par Value				Description		Value (Note 1)
	DOMESTIC CORPORATE BONDS & NOTES (0.4%)
	Banks (0.4%)
	$1,010,000			Susquehanna Capital II, 11.00%, due 3/23/40			1,078,175
	TOTAL DOMESTIC CORPORATE BONDS & NOTES
	(Cost $1,010,000)						1,078,175
	TOTAL LONG TERM INVESTMENTS
	(Cost $270,205,434)						248,557,262
	SHORT TERM INVESTMENTS (3.5%)
	Money Market Funds (3.5%)
	961,376			Dreyfus Treasury Cash Management Money Market Fund, Institutional Class (7 day Yield 0.000%)(g)			961,376
	8,000,000			JPMorgan Prime Money Market Fund (7 day Yield 0.135%)			8,000,000
	TOTAL SHORT TERM INVESTMENTS
	(Cost $8,961,376)						8,961,376
	TOTAL INVESTMENTS (99.9%)
	(Cost $279,166,810)						257,518,638
	TOTAL OTHER ASSETS LESS LIABILITIES (0.1%)						251,223
	TOTAL NET ASSETS (100.0%)					$	257,769,861

 

 

*	Non-income producing security.

(a)	Affiliated Company. See accompanying Notes to Quarterly Portfolio of Investments.

(b)	Indicates a security which is considered restricted. Also see Note 5.

(c)	Private Placement: these securities may only be resold in transactions exempt from registration under the Securities Act of 1933. As of December 31, 2010, private placements had a total value of $168,830,253 or 65.50% of total net assets.

(d)	Indicates a fair valued security. Total market value for fair value securities is $168,900,839 representing 65.52% of total net assets.

(e)	Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933, as amended.

(f)	Less than 0.05% of total net assets.

(g)	Less than 0.0005%.

Common Abbreviations:

A/S - Aktieselskab is a Danish term for joint stock company

LLC - Limited Liability Company

LP - Limited Partnership

Ltd. - Limited

N.A. - National Association

REIT - Real Estate Investment Trust

S.A. - Generally designates corporations in various countries, mostly those employing the civil law. This translates literally in all languages mentioned as anonymous company.

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For Fund compliance purposes, the Fund’s industry/geography classifications refer to any one or more of the industry/geography sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or defined by Fund management. This definition may not apply for purposes of this report, which may combine industry/geography sub-classifications for reporting ease. Industries/geographies are shown as a percent of total net assets. These industry/geography classifications are unaudited.

See accompanying Notes to Quarterly Portfolio of Investments.

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Notes to Quarterly Portfolio of Investments

December 31, 2010 (Unaudited)

Note 1. Valuation and Investment Practices

Securities Valuation: Securities for which market quotations are readily available (including securities listed on national securities exchanges and those traded over-the-counter) are valued at the last quoted sales price on the valuation date on which the security is traded. If such securities were not traded on the valuation date, but market quotations are readily available, they are valued at the most recently quoted bid price provided by an independent pricing service or by principal market makers. Securities traded on NASDAQ are valued at the NASDAQ Official Closing Price (“NOCP”). Where market quotations are not readily available or where the pricing agent or market maker does not provide a valuation or methodology, or provides a valuation or methodology that, in the judgment of the adviser or sub-adviser, does not represent fair value (“Fair Value Securities”), securities are valued at fair value by a Pricing Committee appointed by the Board of Directors, in consultation with the adviser or sub-adviser. The Fund uses various valuation techniques that utilize both observable and unobservable inputs including multi-dimensional relational pricing model, option adjusted spread pricing, book value, last available trade, discounted future cash flow models, cost, and comparable company approach. In such circumstances, the adviser or sub-adviser makes an initial written recommendation to the Pricing Committee regarding valuation methodology for each Fair Value Security. Thereafter, the adviser or sub-adviser conducts periodic reviews of each Fair Value Security to consider whether the respective methodology and its application is appropriate and recommends methodology changes when appropriate. The Pricing Committee reviews and makes a determination regarding each initial methodology recommendation and any subsequent methodology changes. All methodology recommendations and any changes are reviewed by the entire Board of Directors on a quarterly basis.

The Fund’s investments in unregistered pooled investment vehicles (hedge funds) are valued at the most recent value periodically determined by the respective hedge fund managers according to such manager’s policies and procedures (adjusted for estimated expenses and fees accrued to the Fund since the last valuation date); provided, however, that the Pricing Committee may consider whether it is appropriate, in light of relevant circumstances, to adjust such valuation in accordance with the Fund’s valuation procedures. If a hedge fund does not report a value to the Fund on a timely basis, the fair value of such hedge fund shall be based on the most recent value reported by the hedge fund, as well as any other relevant information available at the time the Fund values its portfolio. As a practical matter, hedge fund valuations generally can be obtained from hedge fund managers on a weekly basis, as of close of business Thursday, but the frequency and timing of receiving valuations for hedge fund investments is subject to change at any time, without notice to stockholders, at the discretion of the hedge fund manager or the Fund.

The Portfolio of Investments includes investments valued at $168,900,839 (65.5% of total net assets), whose fair values have been estimated by management in the absence of readily determinable fair values. Due to the inherent uncertainty of the valuation of these investments, these values may differ from the values that would have been used had a ready market for these investments existed and the differences could be material.

Short-term securities which mature in more than 60 days are valued at current market quotations. Short-term securities which mature in 60 days or less are valued at amortized cost, which approximates fair value.

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Various inputs are used to determine the value of the Fund’s investments. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

These inputs are summarized in the three broad levels listed below.

 

•

Level 1 – Unadjusted quoted prices in active markets for identical investments

•

Level 2 – Significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)

•

Level 3 – Significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The Fund uses the value of investment securities, as of the end of each reporting period, in determining transfers in/out of Levels 1, 2 or 3. The following is a summary of the inputs used as of December 31, 2010 in valuing the Fund’s investments carried at value:

 

Investments in Securities at Value		Level 1				Level 2				Level 3				Total
Domestic Common Stocks			$48,051,981				$6,803,386				$31,229,969				$86,085,336
Banks & Thrifts			14,514,715				3,054,607				20,076,164				37,645,486
Diversified Financial Services			2,601,320				407,293				2,416,933				5,425,546
Electric			3,143,448												3,143,448
Insurance			1,227,315								4,788,838				6,016,153
Mortgages & REITS											2,134,209				2,134,209
Pharmaceuticals			736,910												736,910
Registered Investment Companies (RICs)			1,771,008												1,771,008
Retail			1,318,500												1,318,500
Savings & Loans			19,483,197				3,341,486				1,813,825				24,638,508
Tobacco Products			1,677,870												1,677,870
Trucking & Leasing			1,577,698												1,577,698
Foreign Common Stocks			23,874,965								1,478,511				25,353,476
Bermuda			81,628												81,628
Cayman Islands			671,176												671,176
Denmark			1,072,333												1,072,333
France			1,554,822												1,554,822
Germany			1,015,211												1,015,211
Hong Kong			1,511,708												1,511,708
India			16,735,339								1,478,511				18,213,850
Pakistan			676,668												676,668
Switzerland			556,080												556,080
Limited Partnerships			-				-				133,748,714				133,748,714
Domestic Preferred Stocks			-				-				1,728,283				1,728,283
Domestic Warrants			107,250				302,786				153,242				563,278
Domestic Corporate Bonds & Notes			-				1,078,175				-				1,078,175
Short Term Investments			8,961,376				-				-				8,961,376
TOTAL			$80,995,572				$8,184,347				$168,338,719				$257,518,638
Other Financial Instruments			Level 1				Level 2				Level 3
Credit Default Swaps			-				$440,652				-				$440,652
TOTAL			-				$440,652				-				$440,652

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The following is a reconciliation of assets in which significant unobservable inputs (Level 3) were used in determining fair value:

 

Investments in Securities		Balance as of March 31, 2010				Realized gain/(loss)				Change in unrealized appreciation/ (depreciation)				Net purchases/ (sales)				Transfers in and/or out of Level 3				Balance as of December 31, 2010
Domestic Common Stocks			$16,978,622				$-				$(507,090)				$1,979,980				$12,778,457				$31,229,969
Foreign Common Stocks			-				-				(38,758)				1,517,269				-				1,478,511
Limited Partnerships			-				-				15,248,714				118,500,000				-				133,748,714
Domestic Preferred Stocks			2,737,160				-				(208,877)				(800,000)				-				1,728,283
Domestic Warrants			-				-				153,242				-				-				153,242
TOTAL			$19,715,782				$-				$14,647,231				$121,197,249				$12,778,457				$168,338,719

New Accounting Pronouncement: In January 2010, the FASB issued Accounting Standards Update “Improving Disclosures about Fair Value Measurements” (“ASU”). The ASU requires enhanced disclosures about a) transfers into and out of Levels 1 and 2, and b) purchases, sales, issuances, and settlements on a gross basis relating to Level 3 measurements. The first disclosure is effective for the first reporting period beginning after December 15, 2009, and for interim periods within those fiscal years. There were no significant transfers in to and out of Levels 1 and 2 during the current period presented.

The second disclosure will become effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Management is currently evaluating the impact this disclosure may have on the Fund’s financial statements.

Securities Transactions and Net Investment Income: Securities transactions are recorded on the trade date. Realized gains or losses on sales of securities are calculated on the identified cost basis. Dividend income is recorded on the ex-dividend date, or for certain foreign securities, when the information becomes available to the Fund. Interest income including amortization of premium and accretion of discount on debt securities, as required, is recorded on the accrual basis, using the effective interest method.

Dividend income from investments in real estate investment trusts (“REITs”) is recorded at management’s estimate of income included in distributions received. Distributions received in excess of this amount are recorded as a reduction of the cost of investments. The actual amount of income and return of capital are determined by each REIT only after its fiscal year-end, and may differ from the estimated amounts. Such differences, if any, are recorded in the Fund’s following year.

Foreign Currency Translation: The Fund may invest a portion of its assets in foreign securities. In the event that the Fund executes a foreign security transaction, the Fund will generally enter into a forward foreign currency contract to settle the foreign security transaction. Foreign securities may carry more risk than U.S. securities, such as political, market and currency risks.

The books and records of the Fund are maintained in US dollars. Foreign currencies, investments

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and other assets and liabilities denominated in foreign currencies are translated into US dollars at the exchange rate prevailing at the end of the period, and purchases and sales of investment securities, income and expenses transacted in foreign currencies are translated at the exchange rate on the dates of such transactions. Foreign currency gains and losses result from fluctuations in exchange rates between trade date and settlement date on securities transactions, foreign currency transactions and the difference between the amounts of interest and dividends recorded on the books of the Fund and the amounts actually received.

Investment in non-U.S. issuers may involve unique risks compared to investing in securities of U.S. issuers. These risks may include, but are not limited to: (i) less information about non-U.S. issuers or markets may be available due to less rigorous disclosure, accounting standards or regulatory practices; (ii) many non-U.S. markets are smaller, less liquid and more volatile thus, in a changing market, the adviser may not be able to sell the Fund’s portfolio securities at times, in amounts and at prices they consider reasonable; (iii) currency exchange rates or controls may adversely affect the value of the Fund’s investments; (iv) the economies of non-U.S. countries may grow at slower rates than expected or may experience downturns or recessions; and, (v) withholdings and other non-U.S. taxes may decrease the Fund’s return.

Repurchase Agreements: The Fund may enter into repurchase agreement transactions with United States financial institutions. It is the Fund’s policy that its custodian take possession of the underlying collateral securities, the value of which exceed the principal amount of the repurchase transaction, including accrued interest. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market on a daily basis to maintain the adequacy of the collateral. The value of the collateral at the time of the execution must be at least equal to 102% of the total amount of the repurchase obligations, including interest. If the seller defaults, and the value of the collateral declines or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Fund may be delayed or limited. The Fund had no outstanding repurchase agreements as of December 31, 2010.

Note 2. Unrealized Appreciation/(Depreciation)

On December 31, 2010, based on cost of $276,792,064 for federal income tax purposes, aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost was $38,934,855 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value was $58,208,281, resulting in net unrealized depreciation of $19,273,426.

Note 3. Transactions With Affiliated Companies

Transactions during the period with companies in which the Fund owned at least 5% of the voting securities were as follows:

 

Name of Affiliate		Beginning Share Balance as of 4/1/10				Purchases				Sales				Ending Share Balance as of 12/31/10				Dividend Income				Realized Gains (Losses)				Market Value
Broadway Financial Corporation			129,280				-				(32,300	)			96,980			$	1,293				(11,386	)		$	226,933
CCF Holding Company			340,815				-				-				340,815				-				-				102,245
Perpetual Federal Savings Bank			165,930				-				-				165,930				74,669				-				2,181,980

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Redwood Financial, Inc.
			40,650				-				-				40,650				-				-				376,013
River Valley Bancorp			89,993				-				-				89,993				56,696				-				1,439,888
Third Century Bancorp
			110,500				-				-				110,500				-				-				303,875
TOTAL																		$	132,658			$	(11,386	)		$	4,630,934

Note 4. Credit Default Swaps

The Fund may enter into credit default swap contracts for hedging purposes, to gain market exposure or to add leverage to its portfolio. When used for hedging purposes, the Fund would be the buyer of a credit default swap contract. In that case, the Fund would be entitled to receive the par (or other agreed-upon) value of a referenced debt obligation, index or other investment from the counterparty to the contract in the event of a default by a third party, such as a U.S. or foreign issuer, on the referenced debt obligation. In return, the Fund would pay to the counterparty a periodic stream of payments over the term of the contract provided that no event of default has occurred. If no default occurs, the Fund would have spent the stream of payments and received no benefit from the contract. When the Fund is the seller of a credit default swap contract, it receives the stream of payments but is obligated to pay upon default of the referenced debt obligation. As the seller, the Fund would effectively add leverage to its portfolio because, in addition to its total assets, the Fund would be subject to investment exposure on the notional amount of the swap.

In addition to the risks applicable to derivatives generally, credit default swaps involve special risks because they are difficult to value, are highly susceptible to liquidity and credit risk, and generally pay a return to the party that has paid the premium only in the event of an actual default by the issuer of the underlying obligation, as opposed to a credit downgrade or other indication of financial difficulty. Credit default swaps are marked to market periodically using quotations from pricing services. A realized gain or loss is recorded upon payment or receipt of a periodic payment or termination of the swap agreement.

Credit default swap contracts entered into by the Fund as of December 31, 2010, were as follows:

 

Swap Counterparty		Referenced Obligation		Notional Amount								Rates paid by Fund				Termination Date				Upfront Payment Received/(Paid)				Unrealized Gain/(Loss)
Credit Suisse First Boston Intl		Bank of India London			500,000				USD				1.00	%			6/20/15				10,214				270
Morgan Stanley		Barclays Bank			2,250,000				EUR				1.42	%			9/20/13				-				(43,061)
Credit Suisse First Boston Intl		Capital One Bank			500,000				USD				1.00	%			12/20/14				(5,213)				(1,578)
Goldman Sachs		Commerzbank			2,250,000				EUR				0.88	%			9/20/13				-				22,835
Morgan Stanley		Credit Agricole			2,250,000				EUR				1.09	%			9/20/13				-				17,591
Morgan Stanley		DBR			12,500,000				USD				0.12	%			9/20/18				-				487,649
Goldman Sachs		EURO DB			1,700,000				EUR				0.88	%			9/20/13				-				(11,146)
Goldman Sachs		Export-Import Bank of India			500,000				USD				1.00	%			6/20/15				8,742				998
Morgan Stanley		Federative Republic Brazil			750,000				USD				1.00	%			3/20/15				16,667				(16,598)
Morgan Stanley		IDBI Bank Limited			500,000				USD				1.00	%			6/20/15				7,235				2,377

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Morgan Stanley			Republic of Korea State Bank of India				1,500,000				USD				1.22	%			9/20/13				-				(20,507)
Morgan Stanley			London				500,000				USD				1.00	%			6/20/15				7,235				1,822
TOTAL																						$	44,880			$	440,652

Note 5. Restricted Securities

As of December 31, 2010, investments in securities included issues that are considered restricted. Restricted securities are often purchased in private placement transactions, are not registered under the Securities Act of 1933, may have contractual restrictions on resale, and may be valued under methods approved by the Board of Directors as reflecting fair value.

Restricted securities as of December 31, 2010 are as follows:

 

Description		Acquisition Date		Cost		Market Value				Market Value as % of Net Assets
Affinity Financial Corp.		3/24/2005		$    1,000,000		$	-				0.0	%
Bay Pond		6/1/2010		39,500,000			45,194,228				17.4	%
Center Financial Corp.		12/29/2009		375,125			758,250				0.3	%
Central Valley Community Bancorp		12/22/2009		155,400			165,760				0.1	%
Citizens South Banking Corp.		3/11/2010		361,998			363,204				0.1	%
CMET Finance Holding		12/8/2003		2,500,000			538,500				0.2	%
Embarcadero Bank		7/7/2006		550,000			507,650				0.2	%
FC Holdings, Inc.		1/5/2006		972,000			18,468				0.0	%
Fidelity Federal Bancorp		10/17/95- 11/27/01		2,242,322			387,075				0.2	%
First American International		11/29/2005		1,052,050			519,276				0.2	%
First Republic Bank		10/21/2009- 6/7/2010		7,889,995			13,589,058				5.3	%
First State Bank		11/21/2007		190,350			7,614				0.0	%
Florida Capital Group		8/23/2006		2,203,175			96,631				0.0	%
Forethought Financial Group, Inc.- Class A		11/13/2009		4,066,780			4,788,838				1.9	%
Forethought Financial Group, Inc., Warrant, strike price $220.00, Expires 7/13/11		11/13/2009- 12/31/2009		-			153,242				0.1	%
Hampshire First Bank		10/31/2006		2,280,000			1,938,000				0.8	%
Heritage Oaks Bancorp		6/28/2006- 3/10/2010		840,735			659,729				0.3	%
Highland Financial Partners LP		10/18/2006		4,558,950			-				0.0	%
Iguazu Partners, LP		11/4/2010		4,500,000			4,533,257				1.8	%
Independence Financial Group, Inc.		9/13/2004		480,000			300,600				0.1	%
J. Caird Partners, LP		7/1/2010		18,000,000			20,229,766				7.8	%
Maiden Holdings, Ltd., Series C		1/15/2009		1,600,000			1,728,283				0.7	%
MidCountry Financial Corp.		10/22/2004		4,654,500			1,377,732				0.5	%
Muni Funding Co. of America, LLC		6/4/07-7/10/09		2,058,848			1,113,631				0.4	%
National Bancshares, Inc.		6/6/2006		2,128,160			452,800				0.2	%
North River Partners		8/2/2010		17,000,000			16,624,265				6.4	%
NSE India, Ltd.		4/30/2010		1,517,269			1,478,511				0.6	%
Ocwen Structured Investments, LLC		3/20/07 -8/27/07		1,494,245			464,202				0.2	%

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Privee, LLC			11/17/2004				2,362,500				-				0.0	%
Seacoast Banking Corp.			4/9/10-6/16/10				536,999				540,702				0.2	%
Square 1 Financial, Inc.			5/3/2005				3,029,000				1,608,399				0.6	%
Terra Nova Financial Group, Inc. Warrant, strike price $3.00, expires 3/17/11			3/16/2006				233,333				-				0.0	%
Verde Realty			2/16/2007				2,900,700				1,482,873				0.6	%
Wolf Creek			6/1/2010				39,500,000				47,167,198				18.3	%
TOTAL						$	171,404,211			$	172,210,667				66.8	%

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Item 2 - Controls and Procedures.

 

(a)

The Registrant’s Principal Executive Officer and Principal Financial Officer concluded that the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (17 CFR 270.30a-3(c))) were effective as of a date within 90 days of the filing date of this report (the “Evaluation Date”), based on their evaluation of the effectiveness of the Registrant’s disclosure controls and procedures as of the Evaluation Date.

 

(b)

There were no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940 (17 CFR 270.30a-3(d))) that occurred during the Registrant’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

Item 3 - Exhibits.

 

(a)	Certification of Principal Executive Officer and Principal Financial Officer of the Registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) is attached hereto as Exhibit 99CERT.

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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 Opportunity Fund, Inc.

 

By:		/s/ Stephen C. Miller
		Stephen C. Miller, President
		(Principal Executive Officer)
Date:		March 1, 2011

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

 

By:		/s/ Stephen C. Miller
		Stephen C. Miller, President
		(Principal Executive Officer)
Date:		March 1, 2011

 

By:		/s/ Nicole L. Murphey
		Nicole L. Murphey, Chief Financial Officer, Chief Accounting Officer, Vice President, Treasurer, Asst. Secretary
		(Principal Financial Officer)
Date:		March 1, 2011