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: June 30, 2012

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Item 1 – Schedule of Investments.

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Consolidated Portfolio of Investments as of June 30, 2012 (Unaudited)

FIRST OPPORTUNITY FUND, INC.

 

Shares		Description		Value (Note 1)
LONG TERM INVESTMENTS (96.3%)
DOMESTIC COMMON STOCKS (42.3%)
Banks (1.2%)
51,965		BBCN Bancorp, Inc.*			$565,899
119,112		NBT Bancorp, Inc.			2,571,628
					3,137,527
Banks & Thrifts (12.0%)
41,290		Alliance Bankshares Corp.*			177,547
27,800		American River Bankshares*			202,384
8,439		Ameris Bancorp*			106,331
406,400		AmeriServ Financial, Inc.*			1,146,048
29,289		Bank of Commerce Holdings			119,499
45,500		Bank of Virginia*			39,130
35,498		Carolina Trust Bank*			106,494
340,815		CCF Holding Co.*(a)			85,204
43,644		Central Valley Community Bancorp*			307,254
18,860		Centrue Financial Corp.*			10,373
12,300		Citizens & Northern Corp.			234,315
60,000		Community Bank*(b)(c)(d)			6,288,600
65,566		Eastern Virginia Bankshares, Inc.*			245,217
4,085		Evans Bancorp, Inc.			67,362
97,200		FC Holdings, Inc.*(b)(c)(d)			–
4,300		First Advantage Bancorp			58,093
39,700		First American International*(b)(c)(d)			761,446
116,276		First Capital Bancorp, Inc.*			272,086
14,321		First Security Group, Inc.*			42,820
66,726		First Southern Bancorp, Inc. - Class B*			513,790
193,261		Florida Capital Group*(b)(c)(d)			1,933
8,211		FNB Bancorp			132,608
155,800		Great Florida Bank - Class A*			43,624
15,300		Great Florida Bank - Class B*			4,437
61,000		Greater Hudson Bank N.A.*			259,250
8,500		Heritage Financial Corp.			124,525
199,918		Heritage Oaks Bancorp*			1,113,543
36,900		ICB Financial*			138,744
2,323		Katahdin Bankshares Corp.			30,199
126,100		Metro Bancorp, Inc.*			1,516,983
905,600		National Bancshares, Inc.*(b)(c)(d)			208,288
4,000		North Dallas Bank & Trust Co.			120,000
30,400		Oak Ridge Financial Services, Inc.*			138,016
1,900		Old Point Financial Corp.			20,520
44,300		OmniAmerican Bancorp, Inc.*			949,349
12,000		Pacific Continental Corp.			106,440
162,090		Pilot Bancshares, Inc.*			293,383
190,540		Republic First Bancorp, Inc.*			398,228
4,500		Shore Bancshares, Inc.			26,730
83,814		Southern First Bancshares, Inc.*			680,570
79,900		Southern National Bancorp of Virginia, Inc.			605,642
302,900		Square 1 Financial, Inc.*(b)(c)(d)			1,771,965
41,122		Valley Commerce Bancorp			452,342
324,189		Wells Fargo & Co.			10,840,880
226,000		Western Liberty Bancorp*			655,400
12,404		Xenith Bankshares, Inc.*			51,476
					31,469,068

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Shares		Description		Value (Note 1)
Coal (0.2%)
10,000		Alliance Resource Partners, LP		$561,200
Diversified Financial Services (5.3%)
16,241		Affinity Financial Corp.*(b)(c)(d)		–
276,300		Highland Financial Partners, LP*(b)(d)(e)		–
60,000		Independence Financial Group, Inc.*(b)(c)(d)		438,000
303,800		JPMorgan Chase & Co.		10,854,774
70,215		Mackinac Financial Corp.*		420,588
455,100		Ocwen Structured Investments, LLC*(b)(c)(d)		354,978
25,000		South Street Securities Holdings, Inc.*(b)(d)(e)		746,000
47,960		Tiptree Financial*(b)(d)(e)		1,189,887
				14,004,227
Electric (1.3%)
80,000		PPL Corp.		2,224,800
16,800		Public Service Enterprise Group, Inc.		546,000
12,400		SCANA Corp.		593,216
				3,364,016
Environmental Control (0.3%)
30,000		Republic Services, Inc.		793,800
Healthcare Products (2.4%)
91,800		Johnson & Johnson		6,202,008
Insurance (2.1%)
19,678		Forethought Financial Group, Inc. - Class A*(b)(c)(d)		5,487,014
Mining (1.6%)
119,500		Freeport-McMoRan Copper & Gold, Inc.		4,071,365
Mortgages & REITS (0.7%)
55,000		Coronado First Bank*		511,500
155,504		Newcastle Investment Holdings Corp., REIT*(d)		83,475
87,900		Verde Realty*(b)(c)(d)		1,312,347
				1,907,322
Oil & Gas (0.4%)
30,000		Linn Energy LLC		1,143,000
Pharmaceuticals (0.3%)
20,447		Merck & Co., Inc.		853,662
Pipelines (1.0%)
33,250		Enterprise Products Partners LP		1,703,730
40,000		Penn Virginia Resource Partners, LP		980,000
				2,683,730
Registered Investment Companies (RICs) (0.4%)
40,000		Cohen & Steers Infrastructure Fund, Inc.		688,000
18,727		RMR Real Estate Income Fund		311,617
				999,617
Retail (0.3%)
10,000		Wal-Mart Stores, Inc.		697,200
Savings & Loans (7.7%)
34,100		Appalachian Bancshares, Inc.*(d)		3
10,000		Auburn Bancorp, Inc.*		51,500
15,548		Beacon Federal Bancorp, Inc.		308,317
92,380		Broadway Financial Corp.*(a)		101,618

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Shares		Description		Value (Note 1)
Savings & Loans (continued)
3,006		Carver Bancorp, Inc.*			$8,958
11,940		Central Federal Corp.*			18,626
40,846		CFS Bancorp, Inc.			182,582
12,730		Citizens Community Bank*			68,233
33,500		Eagle Bancorp			335,000
20,200		ECB Bancorp, Inc.			189,072
30,000		Fidelity Federal Bancorp*(d)			276,600
43,400		Georgetown Bancorp, Inc.*			291,648
84,989		Hampden Bancorp, Inc.			1,099,758
22,030		HF Financial Corp.			267,444
47,216		Home Bancorp, Inc.*			808,810
88,948		Home Federal Bancorp, Inc.			933,954
57,300		Jefferson Bancshares, Inc.*			134,655
42,000		Liberty Bancorp, Inc.			434,700
15,000		Malvern Federal Bancorp, Inc.			127,500
310,300		MidCountry Financial Corp.*(b)(c)(d)			2,653,065
11,314		Newport Bancorp, Inc.*			155,002
106,998		Ocean Shore Holding Co.			1,353,525
29,100		Old Line Bancshares, Inc.			298,857
79,100		Osage Bancshares, Inc.			597,205
168,810		Pacific Premier Bancorp, Inc.*			1,418,004
165,930		Perpetual Federal Savings Bank(a)			2,157,090
17,500		Privee, LLC*(b)(c)(d)			–
50,200		Provident Financial Holdings, Inc.			578,806
40,650		Redwood Financial, Inc.*(a)			569,100
89,993		River Valley Bancorp(a)			1,394,892
6,300		Royal Financial, Inc.*			16,380
273,079		SI Financial Group, Inc.			3,140,408
13,200		Sound Financial, Inc.*			102,168
100,000		Sterling Eagle Mortgage Investment Company, LLC*(d)			–
110,500		Third Century Bancorp*(a)			281,775
					20,355,255
Technology Hardware & Equipment (4.2%)
584,625		Cisco Systems, Inc.			10,038,011
23,000		Harris Corp.			962,550
					11,000,561
Tobacco Products (0.9%)
42,000		Altria Group, Inc.			1,451,100
11,000		Philip Morris International, Inc.			959,860
					2,410,960
TOTAL DOMESTIC COMMON STOCKS (Cost $141,647,019)					111,141,532
FOREIGN COMMON STOCKS (6.2%)
Banks & Thrifts (0.1%)
5,490		Gronlandsbanken AB			336,414
Food (0.4%)
18,000		Nestle SA			1,072,433
Insurance (0.6%)
11,200		Majestic Capital, Ltd.*			11
6,700		Muenchener Rueckversicherungs AG			942,426
70,457		Phoenix Group Holdings			529,551
					1,471,988

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Shares		Description		Value (Note 1)
Iron/Steel (0.3%)
9,000		POSCO, ADR			$723,960
National Stock Exchange (0.5%)
17,776		NSE India, Ltd.*(b)(c)(d)			1,286,717
Oil & Gas (0.6%)
80,000		Pengrowth Energy Corp.			509,600
18,000		Total SA, Sponsored ADR			809,100
8,000		Transocean, Ltd.			357,840
					1,676,540
Pharmaceuticals (3.3%)
24,000		Sanofi			1,814,427
180,300		Sanofi, ADR			6,811,734
					8,626,161
Real Estate (0.4%)
98,000		Cheung Kong Holdings, Ltd.			1,195,006
TOTAL FOREIGN COMMON STOCKS (Cost $19,813,284)					16,389,219
DOMESTIC LIMITED PARTNERSHIPS (22.9%)
1		Bay Pond Partners, LP*(b)(c)(d)			43,696,304
1		J. Caird Partners, LP*(b)(c)(d)			16,508,185
					60,204,489
TOTAL DOMESTIC LIMITED PARTNERSHIPS (Cost $56,167,938)					60,204,489
FOREIGN LIMITED PARTNERSHIPS (23.9%)
1		Iguazu Master Investors (Cayman), LP, an Iguazu Investors (Cayman), SPC share class*(b)(c)(d)			4,532,886
1		North River Investors (Bermuda), LP, a Wellington Management Investors (Bermuda), Ltd. share class*(b)(c)(d)			14,846,133
1		Wolf Creek Investors (Bermuda), LP, a Wellington Management Investors (Bermuda), Ltd. share class*(b)(c)(d)			43,553,243
					62,932,262
TOTAL FOREIGN LIMITED PARTNERSHIPS (Cost $60,990,788)					62,932,262
DOMESTIC PREFERRED STOCKS (0.6%)
1,600		Maiden Holdings, Ltd., Series C, 14.00%*(b)(d)(e)			1,689,347
TOTAL DOMESTIC PREFERRED STOCKS (Cost $1,600,000)					1,689,347
DOMESTIC RIGHTS AND WARRANTS (0.1%)
11,940		Central Federal Corp., Right, strike price $1.50, Expires 7/16/12*			9,386
195,000		Dime Bancorp, Inc., Litigation Tracking Warrant, strike price $0.00, Expires 12/26/50*(d)			–
116,276		First Capital Banc, Warrant, strike price $2.00, Expires 02/08/20222*(d)			106,113
262,296		Flagstar Bancorp, Warrant, strike price $1.00, Expires 1/30/19*(d)			141,082

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				Value
Shares		Description		(Note 1)
DOMESTIC RIGHTS AND WARRANTS (continued)
24,996		Mackinac Financial, Rights, strike price $5.75, Expires 7/16/12*(d)			$8,637
					265,218
TOTAL DOMESTIC RIGHTS AND WARRANTS (Cost $0)					265,218
Shares/				Value
Par Value		Description		(Note 1)
DOMESTIC CORPORATE BONDS & NOTES (0.3%)
$760,000		Susquehanna Capital II, 11.00%, due 3/23/40			811,300
TOTAL DOMESTIC CORPORATE BONDS & NOTES (Cost $760,000)					811,300
TOTAL LONG TERM INVESTMENTS (Cost $280,979,029)					253,433,367
SHORT TERM INVESTMENTS (3.6%)
Money Market Funds (3.6%)
1,548,224		Dreyfus Treasury & Agency Cash Management Money Market Fund, Institutional Class (7 day Yield 0.010%)			1,548,224
7,900,000		JPMorgan Prime Money Market Fund (7 day Yield 0.170%)			7,900,000
TOTAL SHORT TERM INVESTMENTS (Cost $9,448,224)					9,448,224
TOTAL INVESTMENTS (99.9%) (Cost $290,427,253)					262,881,591
TOTAL OTHER ASSETS LESS LIABILITIES (0.1%)					195,628
TOTAL NET ASSETS (100.0%)					$263,077,219

 

*	Non-income producing security.

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

(b)	Indicates a security which is considered restricted. Also see Notes to Quarterly Consolidated Portfolio of Investments.

(c)	Private Placement: these securities may only be resold in transactions exempt from registration under the Securities Act of 1933. As of June 30, 2012, these securities had a total value of $143,701,104 or 54.62% of total net assets.

(d)	Fair valued security under procedures established by the Fund’s Board of Directors. Total value of fair valued securities as of June 30, 2012 was $147,942,248 or 56.23% of total net assets.

(e)	Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. As of June 30, 2012 these securities had a total value of $3,625,234 or 1.38% of total net assets.

Percentages are stated as a percent of the Total Net Assets.

Common Abbreviations:

AB - Aktiebolag is the Swedish equivalent of the term corporation

ADR - American Depositary Receipt

AG - Aktiengesellschaft is a German term that refers to a corporation that is limited by shares, i.e., owned by shareholders

LLC - Limited Liability Company

LP - Limited Partnership

Ltd. - Limited

N.A. - National Association

REIT - Real Estate Investment Trust

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

 

Regional Breakdown as a % of Total Net Assets
United States			69.7	%
Bermuda			22.2	%
France			3.6	%
Cayman Islands			1.9	%
Switzerland			0.5	%
India			0.5	%
Hong Kong			0.5	%
Germany			0.4	%
South Korea			0.3	%
Canada			0.2	%
Denmark			0.1	%
Total assets less other liabilities			0.2	%*

See Accompanying Notes to Quarterly Consolidated Portfolio of Investments.

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Notes to Quarterly Consolidated Portfolio of Investments

June 30, 2012 (Unaudited)

Note 1. Valuation and Investment Practices

Basis for Consolidation: The First Opportunity Fund (the “Fund”) invests a significant portion of its investments in private investment partnerships and similar investment vehicles, typically referred to as hedge funds (“Hedge Funds”). In addition, a portion of the Fund’s assets are invested primarily in equity securities issued by financial services companies. The accompanying Consolidated Portfolio of Investments includes the investment positions of FOFI 1, Ltd. and FOFI 2, Ltd. (the “Subsidiaries”), each a wholly-owned subsidiary of the Fund, organized under the laws of the Cayman Islands. FOFI 1, Ltd. invests in Bay Pond Partners, LP, and FOFI 2, Ltd. invests in J. Caird Partners, LP. The Fund may invest up to 25% of its total assets in the Subsidiaries. The aggregated net assets of the Subsidiaries at June 30, 2012 were $60,169,181 or 22.9% of the Fund’s consolidated total net assets. The Consolidated Portfolio of Investments includes positions of the Fund and of the Subsidiaries. The Subsidiaries price their portfolio investments pursuant to the same pricing and valuation methodologies used by the Fund.

Securities Valuation: Equity securities for which market quotations are readily available (including securities listed on national securities exchanges and those traded over-the-counter) are valued based on the last quoted sales price from the applicable exchange. If such equity 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. Equity securities traded on NASDAQ are valued at the NASDAQ Official Closing Price (“NOCP”). Debt securities are valued at the mean between the closing bid and asked prices, or based on a matrix system which utilizes information (such as credit ratings, yields and maturities) from independent sources.

The Board has delegated to the Pricing Committee the responsibility of determining fair value of any security or financial instrument owned by the Fund for which 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”). The Pricing Committee, which consists of at least one non-interested director and one senior officer of the Fund, , in consultation with the adviser or sub-adviser’s Valuation Committee, as appropriate, uses various valuation techniques that utilize both observable and unobservable inputs including tangible book value, zero, adjusted NAV, NAV, comparable company approach, comparable company approach less a 10% discount, greater of modified Black Scholes less a 10% discount or Intrinsic Value less 10% discount, book value, last trade, and discounted cash flow models,. In such circumstances, the Valuation Committee of the adviser or sub- The Valuation Committees of the investment adviser and investment sub-adviser are responsible for (i) identifying Fair Value Securities, (ii) analyzing the Fair Value Security and developing, applying and documenting a methodology for valuing Fair Value Securities, and (iii) recommending to the Pricing Committee and memorializing valuations for Fair Value Securities, and (iv) periodically reviewing the appropriateness and accuracy of the methods used in valuing Fair Value Securities. 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 Hedge Funds are valued, as a practical expedient, at the most recent estimated net asset value periodically determined by the respective Hedge Fund managers according to such manager’s policies and procedures based on valuation information reasonably available to the Hedge Fund manager at that time (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

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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 investors, at the discretion of the Hedge Fund manager or the Fund.

The Consolidated Portfolio of Investments includes investments valued at $147,942,248 (56.23% 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.

For valuation purposes, the last quoted prices of non-U.S. equity securities may be adjusted under the circumstances described below. If the Fund determines that developments between the close of a foreign market and the close of the NYSE will, in its judgment, materially affect the value of some or all of its portfolio securities, the Fund will adjust the previous closing prices to reflect what it believes to be the fair value of the securities as of the close of the NYSE. In deciding whether it is necessary to adjust closing prices to reflect fair value, the Fund reviews a variety of factors, including developments in foreign markets, the performance of U.S. securities markets, and the performance of instruments trading in U.S. markets that represent foreign securities and baskets of foreign securities. The Fund may also fair value securities in other situations, such as when a particular foreign market is closed but the U.S. market is open. The Fund uses outside pricing services to provide it with closing prices and information to evaluate and/or adjust those prices. The Fund cannot predict how often it will use closing prices and how often it will determine it necessary to adjust those prices to reflect fair value. If the Fund uses adjusted prices, the Fund will periodically compare closing prices, the next day’s opening prices in the same markets and those adjusted prices as a means of evaluating its security valuation process.

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 based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions based on the best information available in the circumstances.

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

 

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

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

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

The following is a summary of the inputs used as of June 30, 2012 in valuing the Fund’s investments carried at value:

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		Valuation Inputs
Investments in Securities at Value		Level 1				Level 2				Level 3				Total
Domestic Common Stocks			$80,694,420				$8,873,514				$21,573,598				$111,141,532
Banks			3,137,527				–				–				3,137,527
Banks & Thrifts			20,670,300				1,766,536				9,032,232				31,469,068
Coal			561,200				–				–				561,200
Diversified Financial Services			10,854,774				420,588				2,728,865				14,004,227
Electric			3,364,016				–				–				3,364,016
Environmental Control			793,800				–				–				793,800
Healthcare Products			6,202,008				–				–				6,202,008
Insurance			–				–				5,487,014				5,487,014
Mining			4,071,365				–				–				4,071,365
Mortgages & REITS			511,500				–				1,395,822				1,907,322
Oil & Gas			1,143,000				–				–				1,143,000
Pharmaceuticals			853,662				–				–				853,662
Pipelines			2,683,730				–				–				2,683,730
Registered Investment Companies (RICs)			999,617				–				–				999,617
Retail			697,200				–				–				697,200
Savings & Loans			10,739,200				6,686,390				2,929,665				20,355,255
Technology Hardware & Equipment			11,000,561				–				–				11,000,561
Tobacco Products			2,410,960				–				–				2,410,960
Foreign Common Stocks			15,102,491				11				1,286,717				16,389,219
Banks & Thrifts			336,414				–				–				336,414
Food			1,072,433				–				–				1,072,433
Insurance			1,471,977				11				–				1,471,988
Iron/Steel			723,960				–				–				723,960
National Stock Exchange			–				–				1,286,717				1,286,717
Oil & Gas			1,676,540				–				–				1,676,540
Pharmaceuticals			8,626,161				–				–				8,626,161
Real Estate			1,195,006				–				–				1,195,006
Domestic Limited Partnerships			–				–				60,204,489				60,204,489
Foreign Limited Partnerships			–				–				62,932,262				62,932,262
Domestic Preferred Stocks			–				–				1,689,347				1,689,347
Domestic Rights and Warrants			–				265,218				–				265,218
Domestic Corporate Bonds & Notes			–				811,300				–				811,300
Short Term Investments			9,448,224				–				–				9,448,224
TOTAL		$	105,245,135			$	9,950,043			$	147,686,413			$	262,881,591

The Fund evaluates transfers into or out of Level 1, Level 2 and Level 3 as of the end of the reporting period. Financial assets were transferred from Level 1 to Level 2 since certain equity prices used a mean price from a data provider at the end of the period and a close price from a data provider at the beginning of the period. Other financial assets were moved from Level 3 to Level 2 as observable inputs are available for purposes of valuing those assets.

Transfers between Levels 1 and 2 at June 30, 2012 were as follows:

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		Level 1 - Quoted and Unadjusted Prices								Level 2 - Other Significant Observable  Inputs
		Transfers In				Transfers (Out)				Transfers In				Transfers (Out)
Common Stocks		$	2,004,221			$	(5,337,046)			$	5,337,046			$	(2,004,221)
Short-Term   Investments			-				-				-				-
Total		$	2,004,221			$	(5,337,046)			$	5,337,046			$	(2,004,221)

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, 2012				Realized gain/ (loss)				Change in unrealized appreciation/ (depreciation)				Net purchases/ (sales)				Transfer in and/or (out) of Level 3				Balance as of June 30, 2012
Domestic Common Stocks			$21,124,331				$  -				$569,267				$        -				$(120,000)				$21,573,598
Foreign Common Stocks			1,385,345				-				(98,628)				-				-				1,286,717
Domestic Limited Partnerships			65,842,570				-				(5,638,081)				-				-				60,204,489
Foreign Limited Partnerships			64,149,927				-				(1,217,665)				-				-				62,932,262
Domestic Preferred Stocks			1,713,829				-				(24,482)				-				-				1,689,347
Domestic Warrants			154,559				-				110,659				-				(265,218)				-
TOTAL			$154,370,561				$  -				$(6,298,930)				$      -				$(385,218)				$147,686,413

The table below provides additional information about the Level 3 Fair Value Measurements as of June 30, 2012:

Quantitative Information about Level 3 Fair Value Measurements

 

Security Description

Fair Value (USD)

Valuation Technique

Unobservable Inputs

Range

Domestic Common Stocks:

Banks & Thrifts:

$7,260,267

Comparable Company Approach

Price to Tangible Book Value Multiple

0.13x-1.5x

Tangible Book Value

Discount for lack of marketability

10%

Tangible Book Value

Discount for lack of marketability

10%

Tangible Book Value

Discount for lack of marketability

10%

1,771,965

Tangible Book Value

Tangible Book Value

Diversified Financial Services:

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$0

Zero

Book Value

1,189,887

Book Value

Book Value

438,000

Comparable Company Approach

Price to Tangible Book Value Multiple

0.88x to 1.09x

Tangible Book Value

Discount for lack of marketability

10%

354,978

Adjusted NAV

Capital Balance

746,000

Tangible Book Value

Tangible Book Value

Insurance:

$5,487,014

Comparable Company Approach

Price to Book Value Multiple

0.47x to 1.94x

Book Value

Discount for lack of marketability

10%

Mortgages & REITS:

$83,475

Book Value

Book Value

1,312,347

Net Asset Value

Net Operating Income

Cap Rate Data

6.5% to 9.5%

Balance Sheet information

Savings & Loans:

$276,600

Comparable Company Approach less 10% discount

Price to Tangible Book Value Multiple

0.59x-0.71x

Tangible Book Value

Discount for lack of marketability

10%

2,653,065

Comparable Company Approach

Price to Tangible Book Value Multiple

0.60x to 1.48x

Tangible Book Value

Discount for lack of marketability

10%

0

Zero

Book Value

Tangible Book Value

Total:

$21,573,598

Foreign Common Stocks:

National Stock Exchange:

$1,286,717

Comparable Company Approach

Price to Earnings Multiple

21.78x to 23.76x

Earnings

Discount for lack of marketability

10%

Total:

$1,286,717

Domestic Limited Partnerships:

$60,204,489

Net Asset Value

Capital Balance

Total:

$60,204,489

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Foreign Limited Partnerships:

$62,932,262

Net Asset Value

Capital Balance

Total:

$62,932,262

Domestic Preferred Stocks:

$1,689,347

Discounted Cash

Yield

10.14%

Flow

Discount for lack of marketability

150bps

Total:

$1,689,347

Domestic Rights and Warrants:

$0

Zero

Bankruptcy

Level 3 securities consist of the Fund’s investments in Domestic and Foreign Limited Partnerships, Domestic Preferred Stocks, Domestic Rights and Warrants, and Domestic and Foreign Common Stocks in the following industries: Banks & Thrifts, Diversified Financial Services, Insurance, Mortgages & REITS, and Savings & Loans.

The significant unobservable inputs used in fair value measurement of the Fund’s investments in Banks & Thrifts are price to tangible book value multiple, tangible book value, and discount for lack of marketability. A change to the inputs of the formula may result in a change to the valuation.

The significant unobservable inputs used in fair value measurement of the Fund’s investments in Diversified Financial Services are book value, price to tangible book value multiple, tangible book value, discount for lack of marketability and capital balance. A change to the inputs of the formula may result in a change to the valuation.

The significant unobservable inputs used in fair value measurement of the Fund’s investments in Insurance are price to book value multiple, book value, and discount for lack of marketability. A change to the inputs of the formula may result in a change to the valuation.

The significant unobservable inputs used in fair value measurement of the Fund’s investments in Mortgages & REITS are book value, net operating income, cap rate data, and balance sheet information. A change to the inputs of the formula may result in a change to the valuation.

The significant unobservable inputs used in fair value measurement of the Fund’s investments in Savings & Loans are price to tangible book value multiple, tangible book value, discount for lack of marketability, and book value. A change to the inputs of the formula may result in a change to the valuation.

The significant unobservable inputs used in fair value measurement of the Fund’s investments in National Stock Exchanges are price to earnings multiple, earnings, and discount for lack of marketability. A change to the inputs of the formula may result in a change to the valuation.

The significant unobservable input used in fair value measurement of the Fund’s investments in Domestic and Foreign Limited Partnerships is capital balance. A change to the inputs of the formula may result in a change to the valuation.

The significant unobservable inputs used in fair value measurement of the Fund’s investments in Domestic Preferred Stocks are yield and discount for lack of marketability. A change to the inputs of the formula may result in a change to the valuation.

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The significant unobservable input used in fair value measurement of the Fund’s investments in Domestic Rights and Warrants is bankruptcy. A change to the inputs of the formula may result in a change to the valuation.

Securities Transactions and Investment Income: Securities transactions are recorded as of the trade date. Realized gains and losses from securities sold are recorded on the identified cost basis. Dividend income is recorded as of 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 interest method.

Foreign Currency Translations: 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. See Foreign Issuer Risk below.

The books and records of the Fund are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities denominated in foreign currencies are translated into U.S. 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 amounts of foreign interest and dividends recorded on the books of the Fund and the amounts actually received.

Foreign Issuer Risk: 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.

Concentration Risk: The Fund has highly concentrated positions in certain Hedge Funds and may take concentrated positions in other securities. Concentrating investments in a fewer number of securities (including investments in Hedge Funds) may involve a degree of risk that is greater than a fund which has less concentrated investments spread out over a greater number of securities. For example, the value of the Fund’s net assets will fluctuate significantly based on the fluctuation in the value of the Hedge Funds in which it invests. In addition, investments in Hedge Funds can be highly volatile and may subject investors to heightened risk and higher operating expenses than another closed-end fund with a different investment focus.

Hedge Fund Risk: The Fund invests a significant portion of its assets in Hedge Funds. The Fund’s investments in Hedge Funds are private entities that are not registered under the 1940 Act and have limited regulatory oversight and disclosure obligations. In addition, the Hedge Funds invest in and actively trade securities and other financial instruments using different strategies and investment techniques, which involve significant risks. These strategies and techniques may include, among others, leverage, employing various types of derivatives, short selling, securities lending, and commodities’ trading. These Hedge Funds may invest a high percentage of their assets in specific sectors of the market in order to achieve a potentially greater investment return. As a result, the Hedge Funds may be more susceptible to economic, political, and regulatory developments in a particular sector of the market, positive or negative, and may experience increased volatility. These and other

---

risks associated with Hedge Funds may cause the Fund’s net asset value to be more volatile and more susceptible to the risk of loss than that of other funds with a different investment strategy.

Note 2. Unrealized Appreciation/(Depreciation)

On June 30, 2012, based on cost of $287,927,737 for federal income tax purposes, aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost was $30,327,318 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value was $55,373,464, resulting in net unrealized depreciation of $25,046,146.

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 4/1/12				Purchases				Sales				Ending Share Balance as of 6/30/12				Dividend Income				Realized Gains (Losses)				6/30/12 Market Value
Broadway Financial Corp..			96,980				-				4,600				92,380			$	-			$	(12,294	)		$	101,618
CCF Holding Co.			340,815				-				-				340,815				-				-				85,204
Perpetual Federal Savings Bank			165,930				-				-				165,930				26,549				-				2,157,090
Redwood Financial, Inc.			40,650				-				-				40,650				-				-				569,100
River Valley Bancorp			89,993				-				-				89,993				18,899				-				1,394,892
Third Century Bancorp			110,500				-				-				110,500				-				-				281,775
TOTAL																		$	45,448			$	(12,294	)		$	4,589,679

Note 4. Restricted Securities

As of June 30, 2012, 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 June 30, 2012 are as follows:

 

Description		Acquisition Date				Cost				Market Value				Market Value   as Percentage   of Net Assets
Affinity Financial Corp.			3/24/05			$	1,000,000			$	-				0.0	%
Bay Pond Partners, LP			10/3/11				39,387,185				43,696,304				16.6	%
Community Bank			2/12/08				912,100				6,288,600				2.4	%
FC Holdings, Inc.			1/5/06				972,000				-				0.0	%

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First American International			11/29/05				1,052,050				761,446				0.3%
Florida Capital Group			8/23/06				2,203,175				1,933				0.0%
Forethought Financial Group, Inc. - Class A			11/13/09				4,066,780				5,487,014				2.1%
Highland Financial Partners, LP			10/18/06				4,558,950				-				0.0%
Iguazu Master Investors (Cayman), LP, an Iguazu Investors (Cayman), SPC share class			10/3/11				4,341,847				4,532,886				1.7%
Independence Financial Group, Inc.			9/13/04				480,000				438,000				0.2%
J. Caird Partners, LP			10/3/11				16,780,753				16,508,185				6.3%
Maiden Holdings, Ltd., Series C			1/15/09				1,600,000				1,689,347				0.6%
MidCountry Financial Corp.			10/22/04				4,654,500				2,653,065				1.0%
National Bancshares, Inc.			6/6/06				2,128,160				208,288				0.1%
North River Investors (Bermuda) LP, a Wellington Management Investors (Bermuda), Ltd. share class			10/3/11				16,605,291				14,846,133				5.6%
NSE India, Ltd.			4/30/10				1,517,269				1,286,717				0.5%
Ocwen Structured Investments, LLC			3/20/07 - 8/27/07				1,399,433				354,978				0.1%
Privee, LLC			11/17/04				2,362,500				-				0.0%
South Street Securities Holdings, Inc.			12/8/03				2,500,000				746,000				0.3%
Square 1 Financial, Inc.			5/3/05				3,029,000				1,771,965				0.7%
Tiptree Financial			6/4/07-7/10/09				2,058,848				1,189,887				0.5%
Verde Realty			2/16/07				2,900,700				1,312,347				0.5%
Wolf Creek Investors (Bermuda) LP, a Wellington Management Investors (Bermuda), Ltd. share class			10/3/11				40,043,650				43,553,243				16.6%
							$ 156,554,191				$147,326,338				56.1%

Note 5. Investments in Limited Partnerships

As of June 30, 2012, the Fund held investments in limited partnerships. The Fund’s investments in the limited partnerships are reported on the Consolidated Portfolio of Investments under the sections titled Domestic Limited Partnerships and Foreign Limited Partnerships.

Since the investments in limited partnerships are not publicly traded, the Fund’s ability to make withdrawals from its investments in the limited partnerships is subject to certain restrictions which vary for each respective limited partnership. These restrictions include notice requirements for withdrawals and additional restrictions or charges for withdrawals within a certain time period following initial investment. In addition, there could be circumstances in which such restrictions can include the suspension or delay in withdrawals from the respective limited partnership, or limited withdrawals allowable only during specified times during the year. In certain circumstances a limited partner may not make withdrawals that occur less than one year following the date of admission to the partnership. The following table summarizes the Fund’s investments in limited partnerships as of June 30, 2012.

 

Description

% of Net Assets as of 6/30/12

Value as of 6/30/12

Net Unrealized Gain/ (Loss) as of 6/30/12

Mgmt fees

Incentive fees

Redemption Period/ Frequency

Bay Pond Partners, LP

16.6%

$43,696,304

$4,309,119

Annual rate of 1% of net assets

20% of net profits at the end of the fiscal year

June 30 or Dec 31 upon 45 days’ notice

---

Iguazu Master Investors (Cayman), LP, an Iguazu Investors (Cayman), SPC share class		1.7%		4,532,886		191,039		Annual rate of 1% of net assets		20% of net profits at the end of the fiscal year		At the end of each calendar quarter upon 45 days’ notice
J. Caird Partners, LP		6.3%		16,508,185		(272,568)		Annual rate of 1% of net assets		20% of net profits at the end of the fiscal year		At the end of each calendar quarter upon 45 days’ notice
North River Investors (Bermuda) LP, a Wellington Management Investors (Bermuda), Ltd. share class		5.6%		14,846,133		(1,759,158)		Annual rate of 1% of net assets		20% of net profits at the end of the fiscal year		At the end of each calendar quarter upon 45 days’ notice
Wolf Creek Investors (Bermuda) LP, a Wellington Management (Bermuda), Ltd. share class		16.6%		43,553,243		3,509,593		Annual rate of 1% of net assets		20% of net profits at the end of the fiscal year		At the end of each calendar quarter upon 45 days’ notice
Total		46.8%		$123,136,751		$5,978,025

The Fund did not have any outstanding unfunded commitments as of June 30, 2012.

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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:		August 29, 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:		/s/ Stephen C. Miller
		Stephen C. Miller, President (Principal Executive Officer)
Date:		August 29, 2012
By:		/s/ Nicole L. Murphey
		Nicole L. Murphey, Chief Financial Officer, Chief Accounting Officer, Vice President, Treasurer, Asst. Secretary (Principal Financial Officer)
Date:		August 29, 2012