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, LLC

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, 2012

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Item 1 – Schedule of Investments.

The Schedule of Investments is included herewith.

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Consolidated Portfolio of Investments as of December 31, 2012 (Unaudited)

FIRST OPPORTUNITY FUND, INC.

 

Shares		Description		Value (Note 1)
LONG TERM INVESTMENTS (92.0%)
DOMESTIC COMMON STOCKS (47.6%)
Banks & Thrifts (10.6%)
29,289		Bank of Commerce Holdings			$134,729
35,498		Carolina Trust Bank*			78,096
43,644		Central Valley Community Bancorp			338,677
12,300		Citizens & Northern Corp.			232,470
60,000		Community Bank*(a)(b)(c)			5,612,400
65,566		Eastern Virginia Bankshares, Inc.*			347,500
97,200		FC Holdings, Inc.*(a)(b)(c)			–
4,300		First Advantage Bancorp			54,309
39,700		First American International*(a)(b)(c)			835,685
116,276		First Capital Bancorp, Inc.*			331,387
66,726		First Southern Bancorp, Inc. - Class B(c)			251,557
193,261		Florida Capital Group*(a)(b)(c)			3,865
126,100		Metro Bancorp, Inc.*			1,667,042
905,600		National Bancshares, Inc.*(a)(b)(c)			253,568
4,000		North Dallas Bank & Trust Co.			180,000
30,400		Oak Ridge Financial Services, Inc.*			123,728
1,900		Old Point Financial Corp.			20,995
44,300		OmniAmerican Bancorp, Inc.*			1,024,659
153,990		Pilot Bancshares, Inc.*			132,431
190,540		Republic First Bancorp, Inc.*			394,418
83,814		Southern First Bancshares, Inc.*			775,279
79,900		Southern National Bancorp of Virginia, Inc.			639,200
302,900		Square 1 Financial, Inc.*(a)(b)(c)			2,082,438
62,746		Square 1 Financial, Inc. - Class A*(a)(b)(c)			431,379
41,122		Valley Commerce Bancorp			424,379
407,189		Wells Fargo & Co.			13,917,720
12,404		Xenith Bankshares, Inc.*			56,438
					30,344,349
Construction Machinery (0.5%)
17,200		Caterpillar, Inc.			1,540,776
Diversified Financial Services (6.0%)
16,241		Affinity Financial Corp.*(a)(b)(c)			–
276,300		Highland Financial Partners, LP*(a)(c)(d)			–
60,000		Independence Financial Group, Inc.*(a)(b)(c)			428,400
303,800		JPMorgan Chase & Co.			13,358,086
125,890		Mackinac Financial Corp.			892,560
455,100		Ocwen Structured Investments, LLC*(a)(b)(c)			359,529
25,000		South Street Securities Holdings, Inc.*(a)(c)(d)			835,000
47,960		Tiptree Financial*(a)(c)(d)			1,159,194
					17,032,769
Environmental Control (0.3%)
30,000		Republic Services, Inc.			879,900
Healthcare Products & Services (2.3%)
91,800		Johnson & Johnson			6,435,180
Insurance (2.3%)
19,678		Forethought Financial Group, Inc. - Class A*(a)(b)(c)			6,487,640

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Shares		Description		Value (Note 1)
Mining (4.1%)
345,800		Freeport-McMoRan Copper & Gold, Inc.			$11,826,360
Mortgages & REITS (0.2%)
55,000		Coronado First Bank*			496,100
155,504		Newcastle Investment Holdings Corp., REIT*(c)			71,097
87,900		Verde Realty, Escrow Shares*(a)(b)(c)			26,018
					593,215
Oil & Gas (3.3%)
78,300		Chevron Corp.			8,467,362
30,000		Linn Energy LLC			1,057,200
					9,524,562
Pharmaceuticals (0.3%)
20,447		Merck & Co., Inc.			837,100
Pipelines (0.6%)
33,250		Enterprise Products Partners LP			1,665,160
Registered Investment Companies (RICs) (0.4%)
40,000		Cohen & Steers Infrastructure Fund, Inc.			750,000
18,727		RMR Real Estate Income Fund			341,206
					1,091,206
Retail (0.2%)
10,000		Wal-Mart Stores, Inc.			682,300
Savings & Loans (7.1%)
10,000		Auburn Bancorp, Inc.*			30,600
40,846		CFS Bancorp, Inc.			254,879
33,500		Eagle Bancorp			346,725
31,254		Georgetown Bancorp, Inc.*			345,044
84,989		Hampden Bancorp, Inc.			1,275,685
22,030		HF Financial Corp.			289,474
47,216		Home Bancorp, Inc.*			861,692
88,948		Home Federal Bancorp, Inc.			1,105,624
42,000		Liberty Bancorp, Inc.			415,800
16,122		Malvern Bancorp, Inc.*			179,277
310,300		MidCountry Financial Corp.*(a)(b)(c)			2,814,421
11,314		Newport Bancorp, Inc.*			186,455
106,998		Ocean Shore Holding Co.			1,583,570
29,100		Old Line Bancshares, Inc.			327,666
168,810		Pacific Premier Bancorp, Inc.*			1,728,614
165,930		Perpetual Federal Savings Bank(e)			2,804,217
17,500		Privee, LLC*(a)(b)(c)			–
40,650		Redwood Financial, Inc.(e)			630,075
89,993		River Valley Bancorp(e)			1,588,376
6,300		Royal Financial, Inc.*			22,365
273,079		SI Financial Group, Inc.			3,140,409
110,500		Third Century Bancorp*(e)			386,750
					20,317,718
Software & Services (3.8%)
57,000		International Business Machines Corp.			10,918,350
Technology, Hardware & Equipment (4.8%)
638,825		Cisco Systems, Inc.			12,552,911
23,000		Harris Corp.			1,126,080
					13,678,991

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Shares		Description		Value (Note 1)
Tobacco Products (0.8%)
42,000		Altria Group, Inc.			$1,319,640
11,000		Philip Morris International, Inc.			920,040
					2,239,680
TOTAL DOMESTIC COMMON STOCKS
(Cost $144,211,924)					136,095,256
FOREIGN COMMON STOCKS (8.8%)
Banks & Thrifts (0.2%)
5,490		Gronlandsbanken AB			550,719
Food (0.4%)
18,000		Nestle SA			1,172,908
Insurance (0.4%)
6,700		Muenchener Rueckversicherungs AG			1,202,745
Iron/Steel (2.1%)
72,000		POSCO, ADR			5,914,800
National Stock Exchange (0.6%)
17,776		NSE India, Ltd.*(a)(b)(c)			1,610,498
Oil & Gas (0.4%)
18,000		Total SA, Sponsored ADR			936,180
8,000		Transocean, Ltd.			357,200
					1,293,380
Pharmaceuticals (3.8%)
24,000		Sanofi			2,261,563
180,300		Sanofi, ADR			8,542,614
					10,804,177
Real Estate (0.9%)
98,000		Cheung Kong Holdings, Ltd.			1,504,609
2,490,000		Midland Holdings, Ltd.			1,188,644
					2,693,253
TOTAL FOREIGN COMMON STOCKS
(Cost $22,735,279)					25,242,480
DOMESTIC LIMITED PARTNERSHIPS (16.5%)
		Bay Pond Partners, LP*(a)(b)(c)			47,216,458
TOTAL DOMESTIC LIMITED PARTNERSHIPS
(Cost $39,387,185)					47,216,458
FOREIGN LIMITED PARTNERSHIPS (18.3%)
		Iguazu Master Investors (Cayman), LP, an Iguazu Investors (Cayman), SPC share class*(a)(b)(c)			4,852,878
		Wolf Creek Investors (Bermuda), LP, a Wellington Management Investors (Bermuda), Ltd. share class*(a)(b)(c)			47,444,504
					52,297,382
TOTAL FOREIGN LIMITED PARTNERSHIPS
(Cost $44,385,497)					52,297,382

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Shares		Description		Value (Note 1)
DOMESTIC PREFERRED STOCKS (0.6%)
1,600		Maiden Holdings, Ltd., Series C, 14.00%*(a)(c)(d)			$1,749,804
TOTAL DOMESTIC PREFERRED STOCKS
(Cost $1,600,000)					1,749,804
DOMESTIC RIGHTS AND WARRANTS (0.2%)
116,276		First Capital Bancorp, Inc., Warrant, strike price $1.00, Expires 2/8/2022*(c)			103,514
26,230		Flagstar Bancorp, Warrant, strike price $10.00, Expires 1/30/2019*(c)			325,639
					429,153
TOTAL DOMESTIC RIGHTS AND WARRANTS
(Cost $0)					429,153
TOTAL LONG TERM INVESTMENTS
(Cost $252,319,885)					263,030,533
SHORT TERM INVESTMENTS (7.6%)
Money Market Funds (7.6%)
14,725,066		Dreyfus Treasury & Agency Cash Management Money Market Fund, Institutional Class (7 day Yield 0.010%)			14,725,066
6,900,000		JPMorgan Prime Money Market Fund (7 day Yield 0.126%)			6,900,000
TOTAL SHORT TERM INVESTMENTS
(Cost $21,625,066)					21,625,066
TOTAL INVESTMENTS (99.6%)
(Cost $273,944,951)					284,655,599
TOTAL OTHER ASSETS LESS LIABILITIES (0.4%)					1,173,932
TOTAL NET ASSETS (100.0%)					$285,829,531

 

*	Non-income producing security.

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

(b)	Private Placement: these securities may only be resold in transactions exempt from registration under the Securities Act of 1933. As of December 31, 2012, these securities had a total value of $120,459,681 or 42.14% of total net assets.

(c)	Fair valued security under procedures established by the Fund’s Board of Directors. Total value of fair valued securities as of December 31, 2012 was $124,955,486 or 43.72% of total net assets.

(d)

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 December 31, 2012 these securities had a total value of $3,743,998 or 1.31% of total net assets.

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

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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

REIT - Real Estate Investment Trust

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

See accompanying Notes to Quarterly Portfolio of Investments.

 

Regional Breakdown as a % of Total Net Assets
United States			72.5%
Bermuda			16.6%
France			4.1%
South Korea			2.1%
Cayman Islands			1.7%
Hong Kong			0.9%
India			0.6%
Switzerland			0.5%
Germany			0.4%
Denmark			0.2%
Other Assets and Liabilities			0.4%

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Notes to Quarterly Consolidated Portfolio of Investments

December 31, 2012 (Unaudited)

Note 1. Valuation and Investment Practices

Basis for Consolidation: The First Opportunity Fund (the “Fund”) invests a significant portion of its investments (the “Hedge Fund Portfolio”) 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 “Legacy Portfolio”). 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 holds cash. The Fund may invest up to 25% of its total assets in the Subsidiaries. The aggregated net assets of the Subsidiaries at December 31, 2012 were $47,157,972 or 16.5% 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 Fund’s board of directors (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 Advisers’ 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, worthless, target event, and discounted cash flow models. In such circumstances, the Valuation Committee of the Advisers or 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 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 value to the Fund on a timely basis, the fair value of such Hedge Fund shall be based on the most recent value

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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 $124,955,486 (43.72% 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 New York Stock Exchange (“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. 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. 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.

 

•

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)

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The following is a summary of the inputs used as of December 31, 2012 in valuing the Fund’s investments carried at value:

 

		Valuation Inputs
Investments in Securities at Value		Level 1				Level 2				Level 3				Total
Domestic Common Stocks			$108,554,184				$6,140,438				$21,400,634				$136,095,256
Banks & Thrifts			19,361,368				1,763,646				9,219,335				30,344,349
Construction Machinery			1,540,776				–				–				1,540,776
Diversified Financial Services			14,250,646				–				2,782,123				17,032,769
Environmental Control			879,900				–				–				879,900
Healthcare Products & Services			6,435,180				–				–				6,435,180
Insurance			–				–				6,487,640				6,487,640
Mining			11,826,360				–				–				11,826,360
Mortgages & REITS			–				496,100				97,115				593,215
Oil & Gas			9,524,562				–				–				9,524,562
Pharmaceuticals			837,100				–				–				837,100
Pipelines			1,665,160				–				–				1,665,160
Registered Investment Companies (RICs)			1,091,206				–				–				1,091,206
Retail			682,300				–				–				682,300
Savings & Loans			13,622,605				3,880,692				2,814,421				20,317,718
Software & Services			10,918,350				–				–				10,918,350
Technology, Hardware & Equipment			13,678,991				–				–				13,678,991
Tobacco Products			2,239,680				–				–				2,239,680
Foreign Common Stocks			23,631,982				–				1,610,498				25,242,480
Banks & Thrifts			550,719				–				–				550,719
Food			1,172,908				–				–				1,172,908
Insurance			1,202,745				–				–				1,202,745
Iron/Steel			5,914,800				–				–				5,914,800
National Stock Exchange			–				–				1,610,498				1,610,498
Oil & Gas			1,293,380				–				–				1,293,380
Pharmaceuticals			10,804,177				–				–				10,804,177
Real Estate			2,693,253				–				–				2,693,253
Domestic Limited Partnerships			–				–				47,216,458				47,216,458
Foreign Limited Partnerships			–				–				52,297,382				52,297,382
Domestic Preferred Stocks			–				–				1,749,804				1,749,804
Domestic Rights and Warrants			–				429,153				–				429,153
Short Term Investments			21,625,066				–				–				21,625,066
TOTAL			$153,811,232				$6,569,591				$124,274,776				$284,655,599

The Fund evaluates transfers into or out of Level 1, 2 and 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 bid price from a data provider at the end of the period and a last quoted sales 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 into and out of Levels 1 and 2 at December 31, 2012 were as follows:

 

		Level 1 - Quoted and  Unadjusted Prices										Level 2 - Other Significant  Observable Inputs
		Transfers In					Transfers (Out)					Transfers In					Transfers (Out)
Common Stocks			$	2,068,995				$	(4,599,675	)			$	4,599,675				$	(2,068,995	)
Short-Term Investments				-					-					-					-
Total			$	2,068,995				$	(4,599,675	)			$	4,599,675				$	(2,068,995	)

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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, 2012		Realized gain/(loss)		Change in unrealized appreciation/ (depreciation)		Net purchases/ (sales)		Transfer in and/or (out) of Level 3		Balance as of December 31, 2012
Domestic Common Stocks		$21,124,331		$(4,477,573)		$5,821,786		$(887,910)		$(180,000)		$21,400,634
Foreign Common Stocks		1,385,345		-		225,153		-		-		1,610,498
Domestic Limited Partnerships		65,842,570		441,871		(1,845,359)		(17,222,624)		-		47,216,458
Foreign Limited Partnerships		64,149,927		(1,314,184)		4,752,746		(15,291,107)		-		52,297,382
Domestic Preferred Stocks		1,713,829		-		35,975		-		-		1,749,804
Domestic Rights & Warrants		154,559		-		274,594		-		(429,153)		-
TOTAL		$154,370,561		$(5,349,886)		$9,264,895		$(33,401,641)		$(609,153)		$124,274,776

The table below provides additional information about the Level 3 Fair Value Measurements as of December 31, 2012:

Quantitative Information about Level 3 Fair Value Measurements

 

Asset Class		Industry Group		Fair Value (USD)				Valuation Technique		Unobservable Inputs		Range
Domestic Common Stocks:		Banks & Thrifts								Discount for lack of marketability											10	%
				$	6,957,075.24			Comparable Company Approach		Loan loss reserve
										Price to Tangible Book Value Multiple			0.46				1.30
										Tangible Book Value
				$	2,513,816.50			Direct Offering Price		Tangible Book Value			6.88				6.88
		Diversified Financial Services		$	359,529.00			Adjusted NAV		Adjusted Net Asset Value
				$	1,159,193.20			Book Value Comparable		Book Value
				$	428,400.00			Company Approach		Discount for lack of marketability											10	%
										Price to Tangible Book Value Multiple			0.89				0.89

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				$	835,000.00			Tangible Book Value		Tangible Book Value Tangible Book Value
				$	-			Worthless		—
				$	-			Zero		Book Value
		Insurance		$	6,487,639.82			Comparable Company Approach		Book Value Discount for lack of marketability Price to Tangible Book Value Multiple			0.85				0.85				10	%
		Mortgages & REITS		$	71,096.43			Book Value		Book Value
				$	26,018.40			Future Cash Distribution less a 20% discount		—
		Savings & Loans		$	2,814,421.00			Comparable Company Approach		Discount for lack of marketability Price to Tangible Book Value Multiple			0.96				0.96				10%
				$	-			Zero		Tangible Book Value Book Value
										Tangible Book Value
Domestic Limited Partnerships:				$	47,216,458.00			Net Asset Value		Capital Balance
Domestic Preferred Stocks:				$	1,749,804.26			Discounted Cash Flow		Discount Rate derived from comparable fixed income securities			1.50				1.50				5%
Foreign Common Stocks:		National Stock Exchange		$	1,610,498.00			Comparable Company Approach		Discount for lack of marketability											10%
										LTM Net Income
										Price to Earnings Multiple			27.11				27.11
Foreign Limited Partnerships:				$	52,297,382.00			Net Asset Value		Capital Balance

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

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, loan loss reserve, 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 adjusted net asset 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 Insurance are price to tangible 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 input used in fair value measurement of the Fund’s investments in Mortgages & REITS is 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 Savings & Loans are price to tangible book value multiple, book value, 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 National Stock Exchanges are price to earnings multiple, net income, 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 is discount rate derived from comparable fixed income companies. 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

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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 December 31, 2012, based on cost of $274,590,845 for federal income tax purposes, aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost was $42,841,843 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value was $32,777,089, resulting in net unrealized depreciation of $10,064,754.

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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 12/31/2012				Dividend Income				Realized Gains (Losses)				12/31/12 Market Value
Broadway Financial Corp.			96,980			-			96,980				-			$	-			$	(299,936	)		$	-
CCF Holding Co.			340,815			-			340,815				-				-				(899,925	)			-
Hampshire First Bank			179,500			-			179,500				-				-				(1,648,885	)			-
Perpetual Federal Savings Bank			165,930			-			-				165,930				111,173				-				2,804,217
Redwood Financial, Inc.			40,650			-			-				40,650				10,163				-				630,075
River Valley Bancorp			89,993			-			-				89,993				56,696				-				1,588,376
Third Century Bancorp			110,500			-			-				110,500				-				-				386,750
TOTAL																$	178,032			$	(2,848,746	)		$	5,409,418

Note 4. Restricted Securities

As of December 31, 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 as reflecting fair value.

Restricted securities as of December 31, 2012 are as follows:

 

Description		Acquisition Date				Cost				Value				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				47,216,458				16.5	%
Community Bank			2/12/08				912,100				5,612,400				2.0	%

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FC Holdings, Inc.			1/5/06				972,000				-				0.0	%
First American International			11/29/05				1,052,050				835,685				0.3	%
Florida Capital Group			8/23/06				2,203,175				3,865				0.0	%(a)
Forethought Financial Group., Inc. - Class A			11/13/09-9/30/10				4,066,780				6,487,640				2.3	%
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				4,852,878				1.7	%
Independence Financial Group, Inc.			9/13/04				480,000				428,400				0.1	%
Maiden Holdings, Ltd., Series C			1/15/09				1,600,000				1,749,804				0.6	%
MidCountry Financial Corp.			10/22/04				4,654,500				2,814,421				1.0	%
National Bancshares, Inc.			6/6/06				2,128,160				253,568				0.1	%
NSE India, Ltd.			4/30/10				1,517,269				1,610,498				0.6	%
Ocwen Structured Investments, LLC			3/20/07-8/27/07				1,399,433				359,529				0.1	%
Privee, LLC			11/17/04				2,362,500				-				0.0	%
South Street Securities Holdings, Inc.			12/8/03				2,500,000				835,000				0.3	%
Square 1 Financial, Inc.			5/3/05				3,029,000				2,082,438				0.7	%
Square 1 Financial, Inc. – Class A			11/7/12				431,379				431,379				0.1	%
Tiptree Financial			6/4/07-7/10/09				2,058,848				1,159,194				0.4	%
Verde Realty, Escrow Shares			12/21/12				32,523				26,018				0.0	%(a)
Wolf Creek Investors (Bermuda) LP, a Wellington Management Investors (Bermuda), Ltd. share class			10/3/11				40,043,650				47,444,504				16.6	%
						$	120,731,349			$	124,203,679				43.5	%

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

Note 5. Investments in Limited Partnerships

As of December 31, 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.

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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 December 31, 2012.

 

Description

% of Net Assets as of 12/31/12

Value as of 12/31/12

Net Unrealized Gain/(Loss) as of 12/31/12

Mgmt fees

Incentive fees

Redemption Period/ Frequency

Bay Pond Partners, LP

16.5%

$47,216,458

$7,829,273

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%

4,852,878

511,031

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%

47,444,504

7,400,854

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

34.8%

$99,513,840

$15,741,158

The Fund did not have any outstanding unfunded commitments as of December 31, 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:		February 28, 2013

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:		February 28, 2013

 

By:		Nicole L. Murphey
		Nicole L. Murphey, Chief Financial Officer,   Chief Accounting Officer, Vice President,   Treasurer, Asst. Secretary
		(Principal Financial Officer)
Date:		February 28, 2013