UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-07528
(Exact name of registrant as specified in charter)
615 East Michigan Street
Milwaukee, WI 53202
(Address of principal executive offices) (Zip code)
(Address of principal executive offices) (Zip code)
Andrew Dakos
Bulldog Investors, LLP
Park 80 West
250 Pehle Avenue, Suite 708
Saddle Brook, NJ 07663
(Name and address of agent for service)
(Name and address of agent for service)
Copy to:
Thomas R. Westle, Esq
Blank Rome LLP
1271 Avenue of the Americas
New York, NY 10020
1-877-607-0414
Registrant's telephone number, including area code
Date of fiscal year end: 12/31/2023
Date of reporting period: 12/31/2023
Item 1. Reports to Stockholders.
(a)
Special Opportunities Fund, Inc.
(SPE)
Annual Report
For the year ended
December 31, 2023
Special Opportunities Fund, Inc.
Managed Distribution Plan (unaudited)
On March 4, 2019, the Special Opportunities Fund (the “Fund”) received authorization from the SEC that permits the Fund to distribute long-term capital gains to stockholders more than once per year. Accordingly, on April 1, 2019, the Fund
announced its Board of Directors formally approved the implementation of a Managed Distribution Plan (“MDP”) to make monthly cash distributions to stockholders.
In the year ended December 31, 2023, the Fund made monthly distributions to common stockholders at an annual rate of 8%, based on the NAV of the Fund’s common shares as of the close of business on the last business day of the previous year. You
should not draw any conclusions about the Fund’s investment performance from the amount of these distributions or from the terms of the MDP. The MDP will be subject to regular periodic review by the Fund’s Board of Directors.
With each distribution, the Fund will issue a notice to stockholders which will provide detailed information regarding the amount and composition of the distribution and other information required by the Fund’s exemptive order. The Fund’s Board of
Directors may amend or terminate the MDP at any time without prior notice to stockholders; however, at this time, there are no reasonably foreseeable circumstances that might cause the termination of the MDP. For tax reporting purposes the actual
composition of the total amount of distributions for each year will continue to be provided on a Form 1099-DIV issued after the end of the year.
The conversion price for each share of the Fund’s convertible preferred stock will decrease by the amount of each distribution to common stockholders. The current conversion price, as well as other information about the Fund, is available on the
Fund’s website at www.specialopportunitiesfundinc.com.
1
Special Opportunities Fund, Inc.
February 29, 2024
Dear Fellow Shareholder:
The stock market continued to advance in the second half of 2023, with the S&P 500 Index gaining 8.04%. After accounting for distributions, the Fund’s net asset value per common share (NAV) rose by 10.05% in the
second half of 2023. For the entire year, the Fund’s NAV return was 18.83% vs. 26.29% for the S&P 500 Index. As of December 31, 2023, the trading discount of the Fund’s common shares was 17.06%. Since then, the discount has narrowed by about
1%. From late April 2023 through the end of 2023, the Fund has repurchased 452,787 of its common shares at discounts of at least 15% and 80,397 preferred shares at a discount to their book value of $25. The details about our repurchases are posted
monthly on the Fund’s website.
The Fund has a managed distribution plan that calls for monthly distributions to common shareholders at an annual rate of at least 8% of the NAV as of the last trading day of the prior year. On December 29, 2023, the NAV
was $14.30. Therefore, the minimum monthly distribution for 2024 is $0.0954 per share.
As a reminder, on January 21, 2022, the Fund completed a rights offering for shares of Convertible Preferred Stock, Series C, at $25 per share which pay quarterly distributions at a rate of 2.75% per annum. The preferred
shares may be converted into common stock initially at a price of $20.50 per share (or a ratio of 1.2195 shares of common stock for each share of Series C Stock) and is adjusted for any distributions to common stockholders. Please refer to the
prospectus, which is available on the SEC’s website, for full details regarding the Series C stock. The current conversion ratio and diluted NAV of the Fund’s common shares (assuming all Series C shares are converted to common shares) are posted
weekly on the Fund’s website.
Investment Update and Commentary
In the second half of 2023, we saw greater value in discounted closed-end funds (CEFs) and business development companies (BDCs). Consequently, we increased the Fund’s exposure to these investments from 67.5% of
investable assets to 71.1%. In addition, with fewer IPOs for special purpose acquisition companies (SPACs) and a substantial number of SPAC maturities, i.e., liquidations or mergers, the percentage of the Fund’s total investable assets in SPACs
fell from 16.5% to 14.7%. We see an investment in a pre-merger SPAC as an alternative to a money market fund with a degree of optionality. As a rule, we almost never hold a SPAC’s common stock after a business combination. As of the end of 2023,
the balance of the Fund’s portfolio consisted of a smattering of shares of undervalued operating companies, notes, and about 5% in cash equivalents.
In our last letter, we predicted that a decision by a judge in the District Court for the Southern District of New York (SDNY) concluding that a bylaw placing so-called
2
Special Opportunities Fund, Inc.
“control share” limitations on voting by shareholders of CEFs “violates Section 18(i) of the Investment Company Act of 1940” would be upheld on appeal. That turned out to be an accurate prediction. A
Massachusetts state court had previously reached the same conclusion. On June 29, 2023, yet another lawsuit was filed in the SDNY against a number of Maryland-based CEFs to invalidate similar control share prohibitions on stockholder voting. The
judge in that case quickly ruled for the plaintiff and although that decision is being appealed, we foresee little chance of it being successful. In early January 2024, one CEF issued a poison pill that effectively limits the number of shares any
shareholder can acquire. Shortly thereafter, the largest shareholder sued to have the poison pill invalidated. It is disappointing, to say the least, that the SEC, which is authorized to enforce the securities laws, has taken a “hands off” approach
regarding attempts by managements of investment companies to undermine the voting rights of shareholders. As a result, shareholders have had to engage in costly, inefficient, and time-consuming private litigation to protect their voting rights.
We were able to sell all our shares of First Trust Dynamic Europe Equity Income Fund (FDEU) at prices very close to NAV. In late 2022, we asked FDEU’s Board of Trustees to recommend converting FDEU to an
open-end fund, which it was required to propose to stockholders in 2023. The Board refused so we solicited proxies to elect our nominees as Trustees. The Board refused to count our votes, claiming that our nominees were ineligible. Apparently
embarrassed about the prospect of losing the election, a few days before the stockholder meeting, FDEU announced that it would become an exchange-traded fund (“ETF”) by the end of 2023. Despite that welcome result, which effectively eliminated the
discount, we sued the Board and the manager because we believe disenfranchising shareholders should not go unchallenged. After we sued, the Board rescinded FDEU’s illegal control share bylaw. As a result, we have filed a motion for an award of
legal fees for obtaining a “common benefit” for FDEU’s stockholders. Unsurprisingly, management is opposing our motion.
In our last letter, we noted that, after having given notice of our intent to nominate trustees of MFS High Yield Municipal Trust (CMU) and MFS Investment Grade Municipal Trust (CXH), we reached a
settlement agreement with management. At the time, the discount for each of these CEFs was about 14%. The settlement provided for a modest self-tender offer by each fund and a commitment to provide a full liquidity event in two years unless the
discount shrinks to no more than 7.5%. The discount for each fund is still in double-digits, which we think is unjustifiably high. Consequently, the Fund is maxed out in both CMU and CHX and it is hard to envision them not outperforming almost
every open-end municipal bond fund over the next two years.
The Fund has a meaningful stake in shares of Destra Multi-Alternative Fund (DMA). More than half of DMA’s total assets are unquoted private investment
3
Special Opportunities Fund, Inc.
vehicles. Last spring, after eliminating its monthly dividend, DMA’s shares fell to a discount of more than 50%. We then reached out to management to discuss options to enhance stockholder value. On October 6, 2023, DMA
announced that “unless certain targets are met, [it] will dissolve at the close of business on March 31, 2027.” In addition, a representative of a large shareholder was invited to join DMA’s Board of Trustees. That gives us more confidence that (1)
the valuations of DMA’s private holdings are not reasonable, and (2) management will not be tempted to renege on its commitment to dissolve. As Ronald Reagan used to say, “Trust but verify.” DMA’s stock has risen since the announcement, and the
discount has narrowed significantly, to about 30%. Hopefully, it will continue to narrow. Otherwise, we may push for an earlier windup.
In essence, CMU, CXH, and DMA are now quasi term trusts, i.e., funds with a limited life and that have committed to either wind up or provide a liquidity event at some point if certain conditions are met. There are
currently about fifty closed-end term trusts with terms that expire as early as several months from today to more than ten years. The obvious attraction of these funds is that any discount will eventually be eliminated. We have been increasing our
exposure to some of these funds depending on a number of factors, including the current discount and the time to maturity. For example, Nuveen Preferred & Income Term Fund (JPI) is slated to wind up in just six months and it is trading at a 3
to 4% discount to NAV. Interestingly, JPI has announced that it will ask stockholders to approve eliminating its fixed life and, if approved, will conduct a self-tender offer for 100% of its shares at NAV. Either way, shareholders should be able to
monetize their shares at NAV in about six months. Overall, JPI currently looks like an attractive investment because of the built in “alpha” by elimination of the discount.
This year, we expect to be quite active in enhancing the value of the Fund’s investments. We have already submitted proposals to Principal Real Estate Income Fund (PGZ), Tortoise Energy Independence Fund (NDP), Tortoise
Power and Energy Infrastructure Fund (TPZ), and Virtus Total Return Fund (ZTR). We also anticipate engaging with the management of other companies whose shares we believe are undervalued and that have not taken steps to address the disparity.
A settlement was approved by the court in our class action lawsuit against FAST Acquisition Corp. (FST), a SPAC that was slated to liquidate. We alleged that FST’s remaining assets should have been equitably distributed
to all stockholders. The Fund owned about 555,000 shares of FST, which were cancelled and consequently are not being valued. The settlement provides for a payment of slightly more than fifty cents per share plus $5,000 to be paid to the Fund for
serving as the lead plaintiff. We hope to receive payment in the near future.
Our largest investment in an operating company is shares of Texas Pacific Land (TPL), a profitable asset-rich company that owns land in West Texas, primarily in
4
Special Opportunities Fund, Inc.
the Permian Basin. Traditionally, TPL has generated revenue through rental and royalty payments by oil and gas producers. We believe that its potential is not being fully realized and that senior management wants to use
TPL’s shares and cash to invest in other businesses with lower margins to justify their extremely high compensation. A settlement agreement with TPL’s largest shareholder required it to vote its shares in accordance with the Board’s recommendation
as long as its representative is on the board. We have reason to believe that the composition of the Board is likely to change in the next year or two. If so, that could be the catalyst for an increased stock price.
As always, please note that instruction forms for voting proxies for certain CEFs held by the Fund are available at http://www.specialopportunitiesfundinc.com/proxy_voting.html. To be notified directly of such instances,
please email us at [email protected].
Sincerely yours,
Phillip Goldstein
Chairman
5
Special Opportunities Fund, Inc.
Growth of $10,000 Investment
Performance at a glance (unaudited)
|
Average annual total returns for common stock for the periods ended 12/31/2023
|
|||
|
Net asset value returns
|
1 year
|
5 years
|
10 years
|
|
Special Opportunities Fund, Inc.
|
18.74%
|
9.55%
|
5.63%
|
|
Market price returns
|
|||
|
Special Opportunities Fund, Inc.
|
14.13%
|
9.97%
|
5.42%
|
|
Index returns
|
|||
|
S&P 500® Index
|
26.29%
|
15.69%
|
12.03%
|
|
Share price as of 12/31/2023
|
|||
|
Net asset value
|
|
||
|
Market price
|
|
Past performance does not predict future performance. The return and value of an investment will fluctuate so that an investor’s share, when sold, may be worth more or less than their original cost. The Fund’s common
stock net asset value (“NAV”) return assumes, for illustration only, that dividends and other distributions, if any, were reinvested at the NAV on the ex-dividend date. The Fund’s common stock market price returns assume that all dividends and other
distributions, if any, were reinvested at the lower of the NAV or the closing market price on the ex-dividend date. NAV and market price returns for the period of less than one year have not been annualized. Returns do not reflect the deduction of
taxes that a shareholder could pay on Fund dividends and other distributions, if any, or the sale of Fund shares.
The S&P 500® Index is a capital weighted, unmanaged index that represents the aggregate market value of the common equity of 500 stocks primarily traded on the
New York Stock Exchange. You cannot invest directly in an index.
6
Special Opportunities Fund, Inc.
Portfolio composition as of 12/31/2023(1) (Unaudited)
|
Value
|
Percent
|
|||||||
|
Investment Companies
|
$
|
152,393,478
|
71.44
|
%
|
||||
|
Special Purpose Acquisition Vehicles
|
31,564,441
|
14.80
|
||||||
|
Money Market Funds
|
10,255,081
|
4.81
|
||||||
|
Other Common Stocks
|
9,243,834
|
4.33
|
||||||
|
Unsecured Notes
|
4,792,252
|
2.25
|
||||||
|
Corporate Obligations
|
1,598,381
|
0.75
|
||||||
|
Trusts
|
1,527,009
|
0.72
|
||||||
|
Real Estate Investment Trusts
|
1,414,054
|
0.66
|
||||||
|
Preferred Stocks
|
345,678
|
0.16
|
||||||
|
Warrants
|
118,787
|
0.06
|
||||||
|
Rights
|
49,166
|
0.02
|
||||||
|
Total Investments
|
$
|
213,302,161
|
100.00
|
%
|
||||
|
(1)
|
As a percentage of total investments.
|
The following table represents the Fund’s investments categorized by country as of December 31, 2023:
|
% of Total
|
|||||
|
Country
|
Investments
|
||||
|
United States
|
96.22
|
%
|
|||
|
China
|
1.16
|
%
|
|||
|
Hong Kong
|
1.01
|
%
|
|||
|
Guernsey
|
0.86
|
%
|
|||
|
Ireland
|
0.75
|
%
|
|||
|
Cayman Islands
|
0.00
|
%
|
|||
|
100.00
|
%
|
||||
7
Special Opportunities Fund, Inc.
Portfolio of investments—December 31, 2023
|
Shares
|
Value
|
|||||||
|
INVESTMENT COMPANIES—96.76%
|
||||||||
|
Closed-End Funds—82.41%
|
||||||||
|
abrdn Global Dynamic Dividend Fund
|
49,874
|
$
|
465,823
|
|||||
|
Apollo Tactical Income Fund, Inc.
|
37,375
|
521,755
|
||||||
|
Bancroft Fund Ltd.
|
22,345
|
357,073
|
||||||
|
BlackRock California Municipal Income Trust
|
229,380
|
2,759,441
|
||||||
|
BlackRock ESG Capital Allocation Term Trust
|
73,787
|
1,190,184
|
||||||
|
Blackstone Strategic Credit 2027 Term Fund
|
86,455
|
978,671
|
||||||
|
BNY Mellon Alcentra Global Credit Income 2024 Target Term Fund, Inc.
|
46,559
|
379,456
|
||||||
|
BNY Mellon Municipal Income, Inc.
|
621,787
|
4,041,615
|
||||||
|
BNY Mellon Strategic Municipal Bond Fund, Inc.
|
468,928
|
2,677,579
|
||||||
|
Carlyle Credit Income Fund
|
153,336
|
1,219,021
|
||||||
|
Central and Eastern Europe Fund, Inc.
|
188,883
|
1,841,609
|
||||||
|
Central Securities Corp.
|
219,394
|
8,286,511
|
||||||
|
ClearBridge Energy Midstream Opportunity Fund, Inc. (a)
|
2,349
|
82,027
|
||||||
|
ClearBridge MLP & Midstream Fund, Inc.
|
8,213
|
329,259
|
||||||
|
ClearBridge MLP & Midstream Total Return Fund, Inc. (a)
|
186
|
6,739
|
||||||
|
Destra Multi-Alternative Fund
|
216,567
|
1,349,212
|
||||||
|
Dividend and Income Fund
|
350,673
|
4,267,690
|
||||||
|
DWS Municipal Income Trust
|
1,117,608
|
9,935,535
|
||||||
|
DWS Strategic Municipal Income Trust
|
256,315
|
2,217,125
|
||||||
|
Eaton Vance New York Municipal Bond Fund
|
423,341
|
4,085,241
|
||||||
|
Ellsworth Growth and Income Fund Ltd.
|
76,934
|
621,627
|
||||||
|
Federated Hermes Premier Municipal Income Fund
|
4,839
|
53,181
|
||||||
|
First Trust High Yield Opportunities 2027 Term Fund
|
71,825
|
1,000,522
|
||||||
|
First Trust MLP and Energy Income Fund
|
15,392
|
131,909
|
||||||
|
Gabelli Dividend & Income Trust
|
123,595
|
2,674,596
|
||||||
|
General American Investors Co., Inc.
|
324,541
|
13,939,036
|
||||||
|
Herzfeld Caribbean Basin Fund, Inc.
|
1,941
|
5,396
|
||||||
|
High Income Securities Fund
|
242,733
|
1,558,346
|
||||||
|
Highland Opportunities and Income Fund
|
310,059
|
2,384,354
|
||||||
|
Invesco High Income 2024 Target Term Fund
|
201,622
|
1,389,176
|
||||||
|
Mexico Equity & Income Fund, Inc.
|
100,100
|
1,121,120
|
||||||
|
MFS High Yield Municipal Trust
|
741,292
|
2,453,677
|
||||||
|
MFS Investment Grade Municipal Trust
|
213,211
|
1,614,007
|
||||||
|
Miller/Howard High Dividend Fund
|
8,331
|
88,392
|
||||||
|
Morgan Stanley Emerging Markets Debt Fund, Inc.
|
175,052
|
1,216,611
|
||||||
The accompanying notes are an integral part of these financial statements.
8
Special Opportunities Fund, Inc.
Portfolio of investments—December 31, 2023
|
Shares
|
Value
|
|||||||
|
INVESTMENT COMPANIES—(continued)
|
||||||||
|
Closed-End Funds—(continued)
|
||||||||
|
Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.
|
162,390
|
$
|
756,737
|
|||||
|
Neuberger Berman Municipal Fund, Inc.
|
30,225
|
312,829
|
||||||
|
Neuberger Berman Next Generation Connectivity Fund, Inc.
|
535,671
|
5,854,884
|
||||||
|
New America High Income Fund, Inc.
|
91,191
|
641,985
|
||||||
|
Nuveen Floating Rate Income Fund
|
242,798
|
1,995,800
|
||||||
|
Nuveen Multi-Asset Income Fund
|
12,779
|
157,182
|
||||||
|
NXG NextGen Infrastructure Income Fund
|
65,522
|
2,328,652
|
||||||
|
Pershing Square Holdings Ltd. Fund
|
30,000
|
1,370,502
|
||||||
|
Pershing Square Holdings Ltd. Fund
|
10,000
|
467,000
|
||||||
|
Principal Real Estate Income Fund
|
201,915
|
1,908,097
|
||||||
|
Royce Value Trust, Inc.
|
83,173
|
1,210,999
|
||||||
|
Saba Capital Income & Opportunities Fund
|
249,557
|
1,924,084
|
||||||
|
SRH Total Return Fund, Inc.
|
1,116,522
|
15,486,160
|
||||||
|
Taiwan Fund, Inc.
|
223,819
|
7,741,899
|
||||||
|
Templeton Global Income Fund
|
48,267
|
182,932
|
||||||
|
The Swiss Helvetia Fund, Inc.
|
236,992
|
1,943,334
|
||||||
|
Tortoise Energy Independence Fund, Inc.
|
49,741
|
1,425,577
|
||||||
|
Tortoise Power and Energy Infrastructure Fund, Inc.
|
147,267
|
2,063,859
|
||||||
|
Virtus Convertible & Income 2024 Target Term Fund
|
17,054
|
148,711
|
||||||
|
Virtus Total Return Fund, Inc.
|
805,935
|
4,440,702
|
||||||
|
Western Asset Global Corporate Defined Opportunity Fund, Inc.
|
287
|
3,665
|
||||||
|
Western Asset Intermediate Muni Fund, Inc.
|
24,397
|
187,857
|
||||||
|
129,796,963
|
||||||||
|
Business Development Companies—14.35%
|
||||||||
|
Barings BDC, Inc.
|
403,900
|
3,465,462
|
||||||
|
CION Investment Corp.
|
899,218
|
10,170,156
|
||||||
|
FS KKR Capital Corp.
|
213,874
|
4,271,064
|
||||||
|
Logan Ridge Finance Corp.
|
81,161
|
1,835,050
|
||||||
|
PennantPark Investment Corp.
|
67,321
|
465,188
|
||||||
|
Portman Ridge Finance Corp.
|
98,369
|
1,789,332
|
||||||
|
SuRo Capital Corp. (a)
|
152,351
|
600,263
|
||||||
|
22,596,515
|
||||||||
|
Total Investment Companies (Cost $136,915,078)
|
152,393,478
|
|||||||
The accompanying notes are an integral part of these financial statements.
9
Special Opportunities Fund, Inc.
Portfolio of investments—December 31, 2023
|
Shares/Units
|
Value
|
|||||||
|
SPECIAL PURPOSE ACQUISITION VEHICLES—20.04%
|
||||||||
|
99 Acquisition Group, Inc. (a)
|
154,727
|
$
|
1,576,668
|
|||||
|
Agriculture & Natural Solutions Acquisition Corp. Units (a)
|
25,000
|
253,750
|
||||||
|
Alpha Partners Technology Merger Corp. (a)
|
37,224
|
398,297
|
||||||
|
AP Acquisition Corp. (a)
|
193,647
|
2,155,291
|
||||||
|
Ares Acquisition Corp. II (a)
|
161,985
|
1,691,123
|
||||||
|
Arrowroot Acquisition Corp. (a)
|
50,000
|
523,500
|
||||||
|
Churchill Capital Corp. VII (a)
|
124,920
|
1,311,660
|
||||||
|
Colombier Acquisition Corp. II Units (a)
|
61,998
|
624,940
|
||||||
|
EVe Mobility Acquisition Corp. (a)
|
34,200
|
369,702
|
||||||
|
Four Leaf Acquisition Corp. (a)
|
67,644
|
710,938
|
||||||
|
Global Lights Acquisition Corp. (a)
|
246,417
|
2,483,883
|
||||||
|
Gores Holdings IX, Inc. (a)
|
104,060
|
1,092,630
|
||||||
|
Haymaker Acquisition Corp. 4 (a)
|
179,631
|
1,844,810
|
||||||
|
Inflection Point Acquisition Corp. II (a)
|
244,733
|
2,528,092
|
||||||
|
Investcorp Europe Acquisition Corp. I (a)
|
154,932
|
1,707,351
|
||||||
|
Quetta Acquisition Corp. (a)
|
167,742
|
1,695,872
|
||||||
|
Screaming Eagle Acquisition Corp. (a)
|
491,801
|
5,213,091
|
||||||
|
Spring Valley Acquisition Corp. II (a)
|
130,332
|
1,408,889
|
||||||
|
TG Venture Acquisition Corp. (a)
|
309,207
|
3,351,804
|
||||||
|
Trailblazer Merger Corp. I (a)
|
59,479
|
622,150
|
||||||
|
Total Special Purpose Acquisition Vehicles (Cost $30,976,559)
|
31,564,441
|
|||||||
|
Shares
|
||||||||
|
PREFERRED STOCKS—0.22%
|
||||||||
|
Diversified REITs—0.21%
|
||||||||
|
NexPoint Diversified Real Estate Trust
|
22,324
|
337,092
|
||||||
|
Office REITs—0.01%
|
||||||||
|
Brookfield DTLA Fund Office Trust Investor, Inc.
|
171,723
|
8,586
|
||||||
|
Total Preferred Stocks (Cost $4,932,717)
|
345,678
|
|||||||
|
OTHER COMMON STOCKS—5.87%
|
||||||||
|
Biotechnology—0.39%
|
||||||||
|
Cyteir Therapeutics, Inc. (a)
|
200,000
|
608,000
|
||||||
|
Financial Services—0.16%
|
||||||||
|
Cannae Holdings, Inc. (a)
|
12,980
|
253,240
|
||||||
The accompanying notes are an integral part of these financial statements.
10
Special Opportunities Fund, Inc.
Portfolio of investments—December 31, 2023
|
Shares
|
Value
|
|||||||
|
Food Products—0.26%
|
||||||||
|
Limoneira Co.
|
20,000
|
$
|
412,600
|
|||||
|
Oil, Gas & Consumable Fuels—4.39%
|
||||||||
|
Texas Pacific Land Corp.
|
4,400
|
6,918,780
|
||||||
|
Real Estate Management & Development—0.67%
|
||||||||
|
Howard Hughes Holdings, Inc. (a)
|
12,000
|
1,026,600
|
||||||
|
Trinity Place Holdings, Inc. (a)
|
221,748
|
24,614
|
||||||
|
1,051,214
|
||||||||
|
Total Other Common Stocks (Cost $7,675,035)
|
9,243,834
|
|||||||
|
TRUSTS—0.97%
|
||||||||
|
Copper Property CTL Pass Through Trust
|
151,189
|
1,527,009
|
||||||
|
Lamington Road Grantor Trust (a)(c)
|
320,690
|
0
|
||||||
|
Total Trusts (Cost $1,758,153)
|
1,527,009
|
|||||||
|
REAL ESTATE INVESTMENT TRUSTS—0.90%
|
||||||||
|
NexPoint Diversified Real Estate Trust
|
177,868
|
1,414,054
|
||||||
|
Total Real Estate Investment Trusts (Cost $2,327,359)
|
1,414,054
|
|||||||
|
Principal
|
||||||||
|
Amount
|
||||||||
|
CORPORATE OBLIGATIONS—1.01%
|
||||||||
|
Lamington Road DAC (b)(c)
|
||||||||
|
8.000%, 04/07/2121
|
$
|
17,203,693
|
688,148
|
|||||
|
9.750%, 04/07/2121
|
1,753,821
|
910,233
|
||||||
|
Total Corporate Obligations (Cost $6,256,237)
|
1,598,381
|
|||||||
|
UNSECURED NOTES—3.04%
|
||||||||
|
Legacy IMBDS, Inc. (c)
|
||||||||
|
8.500%, 09/30/2026
|
23,458
|
0
|
||||||
|
Sachem Capital Corp.
|
||||||||
|
7.125%, 06/30/2024
|
60,000
|
1,500,000
|
||||||
|
7.750%, 09/30/2025
|
120,000
|
2,864,652
|
||||||
|
6.000%, 03/30/2027
|
20,000
|
427,600
|
||||||
|
4,792,252
|
||||||||
|
Total Unsecured Notes (Cost $5,546,450)
|
4,792,252
|
|||||||
The accompanying notes are an integral part of these financial statements.
11
Special Opportunities Fund, Inc.
Portfolio of investments—December 31, 2023
|
Shares
|
Value
|
|||||||
|
WARRANTS—0.07%
|
||||||||
|
Alset Capital Acquisition Corp.
|
||||||||
|
Expiration: February 2027
|
||||||||
|
Exercise Price: $11.50 (a)
|
23,750
|
$
|
237
|
|||||
|
Andretti Acquisition Corp.
|
||||||||
|
Expiration: March 2028
|
||||||||
|
Exercise Price: $11.50 (a)
|
72,334
|
18,084
|
||||||
|
Blockchain Coinvestors Acquisition Corp. I
|
||||||||
|
Expiration: November 2028
|
||||||||
|
Exercise Price: $11.50 (a)
|
32,500
|
1,625
|
||||||
|
Cactus Acquisition Corp. 1 Ltd.
|
||||||||
|
Expiration: October 2026
|
||||||||
|
Exercise Price: $11.50 (a)
|
40,700
|
1,221
|
||||||
|
Cartesian Growth Corp. II
|
||||||||
|
Expiration: July 2028
|
||||||||
|
Exercise Price: $11.50 (a)
|
21,986
|
2,858
|
||||||
|
Churchill Capital Corp. VII
|
||||||||
|
Expiration: February 2028
|
||||||||
|
Exercise Price: $11.50 (a)
|
24,984
|
3,997
|
||||||
|
Corner Growth Acquisition Corp.
|
||||||||
|
Expiration: December 2027
|
||||||||
|
Exercise Price: $11.50 (a)
|
33,333
|
2,067
|
||||||
|
Corner Growth Acquisition Corp. 2
|
||||||||
|
Expiration: June 2026
|
||||||||
|
Exercise Price: $11.50 (a)
|
14,366
|
431
|
||||||
|
Digital Health Acquisition Corp.
|
||||||||
|
Expiration: November 2028
|
||||||||
|
Exercise Price: $11.50 (a)
|
116,000
|
3,074
|
||||||
|
Global Gas Corp.
|
||||||||
|
Expiration: October 2027
|
||||||||
|
Exercise Price: $11.50 (a)
|
19,300
|
618
|
||||||
|
HNR Acquisition Corp.
|
||||||||
|
Expiration: July 2028
|
||||||||
|
Exercise Price: $11.50 (a)
|
63,000
|
3,622
|
||||||
|
iCoreConnect, Inc.
|
||||||||
|
Expiration: May 2028
|
||||||||
|
Exercise Price: $11.50 (a)
|
150,000
|
30
|
||||||
|
Insight Acquisition Corp.
|
||||||||
|
Expiration: August 2026
|
||||||||
|
Exercise Price: $11.50 (a)
|
12,450
|
251
|
||||||
The accompanying notes are an integral part of these financial statements.
12
Special Opportunities Fund, Inc.
Portfolio of investments—December 31, 2023
|
Shares
|
Value
|
|||||||
|
WARRANTS—(continued)
|
||||||||
|
Investcorp Europe Acquisition Corp. I
|
||||||||
|
Expiration: November 2028
|
||||||||
|
Exercise Price: $11.50 (a)
|
150,000
|
$
|
34,380
|
|||||
|
Keyarch Acquisition Corp.
|
||||||||
|
Expiration: July 2028
|
||||||||
|
Exercise Price: $11.50 (a)
|
75,000
|
1,313
|
||||||
|
Lamington Road
|
||||||||
|
Expiration: July 2025
|
||||||||
|
Exercise Price: $0.20 (a)(c)(e)
|
640,000
|
0
|
||||||
|
Landcadia Holdings IV, Inc.
|
||||||||
|
Expiration: March 2028
|
||||||||
|
Exercise Price: $11.50 (a)
|
25,000
|
1,622
|
||||||
|
NKGen Biotech, Inc.
|
||||||||
|
Expiration: October 2028
|
||||||||
|
Exercise Price: $11.50 (a)
|
17,677
|
1,428
|
||||||
|
Northern Star Investment Corp. III
|
||||||||
|
Expiration: February 2028
|
||||||||
|
Exercise Price: $11.50 (a)
|
17,833
|
75
|
||||||
|
Northern Star Investment Corp. IV
|
||||||||
|
Expiration: December 2027
|
||||||||
|
Exercise Price: $11.50 (a)
|
8,833
|
11
|
||||||
|
Plutonian Acquisition Corp.
|
||||||||
|
Expiration: October 2027
|
||||||||
|
Exercise Price: $11.50 (a)
|
101,969
|
3,049
|
||||||
|
Quantum FinTech Acquisition Corp.
|
||||||||
|
Expiration: December 2027
|
||||||||
|
Exercise Price: $11.50 (a)
|
76,000
|
3,906
|
||||||
|
Screaming Eagle Acquisition Corp.
|
||||||||
|
Expiration: December 2027
|
||||||||
|
Exercise Price: $11.50 (a)
|
75,200
|
33,848
|
||||||
|
TG Venture Acquisition Corp.
|
||||||||
|
Expiration: August 2028
|
||||||||
|
Exercise Price: $11.50 (a)
|
100,000
|
1,040
|
||||||
|
ZyVersa Therapeutics, Inc.
|
||||||||
|
Expiration: December 2027
|
||||||||
|
Exercise Price: $11.50 (a)(c)(e)
|
65,250
|
0
|
||||||
|
Total Warrants (Cost $418,693)
|
118,787
|
|||||||
The accompanying notes are an integral part of these financial statements.
13
Special Opportunities Fund, Inc.
Portfolio of investments—December 31, 2023
|
Shares
|
Value
|
|||||||
|
RIGHTS—0.03%
|
||||||||
|
Alset Capital Acquisition Corp. (a)
|
47,500
|
$
|
9,975
|
|||||
|
Hudson Acquisition I Corp. (Expiration: April 18, 2024) (a)
|
25,100
|
3,966
|
||||||
|
Keyarch Acquisition Corp. (a)
|
150,000
|
9,405
|
||||||
|
Nocturne Acquisition Corp. (a)
|
75,000
|
12,360
|
||||||
|
Plutonian Acquisition Corp. (Expiration: August 15, 2024) (a)
|
101,969
|
13,460
|
||||||
|
Total Rights (Cost $74,774)
|
49,166
|
|||||||
|
MONEY MARKET FUNDS—6.51%
|
||||||||
|
Fidelity Institutional Government Portfolio—Class I, 5.240% (d)
|
5,127,540
|
5,127,540
|
||||||
|
Invesco Treasury Portfolio—Institutional Class, 5.262% (d)
|
5,127,541
|
5,127,541
|
||||||
|
Total Money Market Funds (Cost $10,255,081)
|
10,255,081
|
|||||||
|
Total Investments (Cost $207,136,136)—135.45%
|
213,302,161
|
|||||||
|
Other Assets in Excess of Liabilities—0.33%
|
562,133
|
|||||||
|
Preferred Stock—(35.78)%
|
(56,363,925
|
)
|
||||||
|
TOTAL NET ASSETS—100.00%
|
$
|
157,500,369
|
||||||
Percentages are stated as a percent of net assets.
|
(a)
|
Non-income producing security.
|
|
(b)
|
The coupon rate shown represents the rate at December 31, 2023.
|
|
(c)
|
Fair valued securities. The total market value of these securities was $1,598,381, representing 1.01% of net assets. Value determined using significant unobservable inputs.
|
|
(d)
|
The rate shown represents the seven-day yield at December 31, 2023.
|
|
(e)
|
Illiquid securities. The total market value of these securities was $0, representing 0.00% of net assets.
|
The Schedule of Investments incorporates the Global Industry Classification Standard (GICS®). GICS was developed by and/or is the exclusive property of MSCI, Inc. and
Standard & Poors Financial Services LLC (“S&P”). GICS is a service mark of MSCI and S&P and has been licensed for use by U.S. Bancorp Fund Services, LLC.
The accompanying notes are an integral part of these financial statements.
14
Special Opportunities Fund, Inc.
Statement of assets and liabilities—December 31, 2023
|
Assets:
|
||||
|
Investments, at value (Cost $207,136,136)
|
$
|
213,302,161
|
||
|
Cash
|
8,094
|
|||
|
Receivables:
|
||||
|
Investments sold
|
738,047
|
|||
|
Dividends and interest
|
1,587,906
|
|||
|
Other assets
|
25,852
|
|||
|
Total assets
|
215,662,060
|
|||
|
Liabilities:
|
||||
|
Payables:
|
||||
|
Investments purchased
|
1,488,810
|
|||
|
Advisory
|
180,257
|
|||
|
Administration
|
33,757
|
|||
|
Chief Compliance Officer
|
6,093
|
|||
|
Director
|
10,459
|
|||
|
Fund accounting
|
711
|
|||
|
Custody
|
5,995
|
|||
|
Transfer Agent
|
2,481
|
|||
|
Legal
|
9,421
|
|||
|
Audit
|
45,000
|
|||
|
Reports and notices to shareholders
|
14,774
|
|||
|
Accrued expenses and other liabilities
|
8
|
|||
|
Total liabilities
|
1,797,766
|
|||
|
Preferred Stock:
|
||||
|
– $0.001 par value, liquidation value per share;
|
||||
|
shares outstanding
|
||||
|
Total preferred stock
|
56,363,925
|
|||
|
Net assets applicable to common shareholders
|
$
|
157,500,369
|
||
|
Net assets applicable to common shareholders:
|
||||
|
– $0.001 par value per common share; shares authorized;
|
||||
|
shares issued and outstanding, shares held in treasury
|
$
|
397,849,371
|
||
|
Cost of shares held in treasury
|
(245,208,216
|
)
|
||
|
Total distributable earnings (deficit)
|
4,859,214
|
|||
|
Net assets applicable to common shareholders
|
$
|
157,500,369
|
||
|
Net asset value per common share ($157,500,369 applicable to
|
||||
|
common shares outstanding)
|
$
|
14.30
|
||
The accompanying notes are an integral part of these financial statements.
15
Special Opportunities Fund, Inc.
Statement of operations
|
For the year ended
|
||||
|
December 31, 2023
|
||||
|
Investment income:
|
||||
|
Dividends
|
$
|
7,486,235
|
||
|
Interest
|
2,163,190
|
|||
|
Total investment income
|
9,649,425
|
|||
|
Expenses:
|
||||
|
Investment advisory
|
2,097,272
|
|||
|
Directors’
|
245,943
|
|||
|
Administration
|
224,336
|
|||
|
Compliance
|
69,580
|
|||
|
Reports and notices to shareholders
|
59,916
|
|||
|
Audit
|
44,995
|
|||
|
Transfer agency
|
43,840
|
|||
|
Custody
|
40,222
|
|||
|
Legal
|
36,828
|
|||
|
Stock exchange listing
|
32,273
|
|||
|
Insurance
|
30,908
|
|||
|
Accounting
|
4,833
|
|||
|
Other
|
38,773
|
|||
|
Net expenses
|
2,969,719
|
|||
|
Net investment income
|
6,679,706
|
|||
|
Net realized and unrealized gains (losses) from investment activities:
|
||||
|
Net realized gain from:
|
||||
|
Investments
|
1,077,661
|
|||
|
Foreign currency translations
|
5,001
|
|||
|
Distributions received from investment companies
|
1,144,856
|
|||
|
Net realized gain
|
2,227,518
|
|||
|
Change in net unrealized appreciation (depreciation) on:
|
||||
|
Investments
|
17,743,241
|
|||
|
Foreign currency translations
|
8,730
|
|||
|
Net realized and unrealized gains from investment activities
|
19,979,489
|
|||
|
Discount on redemption and repurchase of preferred shares
|
179,207
|
|||
|
Increase in net assets resulting from operations
|
26,838,402
|
|||
|
Distributions to preferred stockholders
|
(1,587,197
|
)
|
||
|
Net increase in net assets applicable to common shareholders resulting from operations
|
$
|
25,251,205
|
||
The accompanying notes are an integral part of these financial statements.
16
Special Opportunities Fund, Inc.
Statement of cash flows
|
For the Year Ended
|
||||
|
December 31, 2023
|
||||
|
Cash flows from operating activities:
|
||||
|
Net increase in net assets
|
$
|
26,838,402
|
||
|
Adjustments to reconcile net increase in net assets applicable to common
|
||||
|
shareholders resulting from operations to net cash provided by operating activities:
|
||||
|
Purchases of investments
|
(127,141,189
|
)
|
||
|
Proceeds from sales of investments
|
138,497,698
|
|||
|
Net purchases and sales of short-term investments
|
(3,171,952
|
)
|
||
|
Return of capital and capital gain distributions received from underlying investments
|
3,937,263
|
|||
|
Accretion of discount
|
149
|
|||
|
Increase in dividends and interest receivable
|
(815,874
|
)
|
||
|
Decrease in receivable for investments sold
|
379,838
|
|||
|
Increase in other assets
|
(1,045
|
)
|
||
|
Decrease in payable for investments purchased
|
(880,148
|
)
|
||
|
Increase in payable to Adviser
|
192
|
|||
|
Decrease in accrued expenses and other liabilities
|
(22,501
|
)
|
||
|
Net distributions received from investment companies
|
1,144,856
|
|||
|
Net realized gain from investments
|
(2,222,518
|
)
|
||
|
Litigation and other proceeds
|
40,372
|
|||
|
Discount on redemption and repurchase of preferrd shares
|
(179,207 |
) |
||
|
Net change in unrealized appreciation of investments
|
(17,743,241
|
)
|
||
|
Net cash provided by operating activities
|
18,661,095
|
|||
|
Cash flows from financing activities:
|
||||
|
Distributions paid to common shareholders
|
(11,783,156
|
)
|
||
|
Distributions paid to preferred shareholders
|
(1,587,197
|
)
|
||
|
Repurchase of common stock
|
(5,077,215
|
)
|
||
|
Repurchase of preferred stock
|
(1,830,718
|
)
|
||
|
Net cash used in financing activities
|
(20,278,286
|
)
|
||
|
Net change in cash
|
$
|
(1,617,191
|
)
|
|
|
Cash:
|
||||
|
Beginning of year
|
1,625,285
|
|||
|
End of year
|
$
|
8,094
|
||
The accompanying notes are an integral part of these financial statements.
17
Special Opportunities Fund, Inc.
Statements of changes in net assets applicable to common shareholders
|
For the
|
For the
|
|||||||
|
year ended
|
year ended
|
|||||||
|
December 31, 2023
|
December 31, 2022
|
|||||||
|
From operations:
|
||||||||
|
Net investment income
|
$
|
6,679,706
|
$
|
3,478,374
|
||||
|
Net realized gain (loss) from:
|
||||||||
|
Investments
|
1,077,661
|
(954,692
|
)
|
|||||
|
Foreign currency translations
|
5,001
|
—
|
||||||
|
Distributions received from investment companies
|
1,144,856
|
1,828,305
|
||||||
|
Net change in unrealized appreciation (depreciation) on:
|
||||||||
|
Investments
|
17,743,241
|
(29,012,831
|
)
|
|||||
|
Foreign currency translations
|
8,730
|
—
|
||||||
|
Discount on redemption and repurchases of preferred shares
|
179,207
|
—
|
||||||
|
Net increase (decrease) in net assets resulting from operations
|
26,838,402
|
(24,660,844
|
)
|
|||||
|
Distributions paid to preferred shareholders:
|
||||||||
|
Net dividends and distributions
|
(1,587,197
|
)
|
(1,467,040
|
)
|
||||
|
Total dividends and distributions paid to preferred shareholders
|
(1,587,197
|
)
|
(1,467,040
|
)
|
||||
|
Net increase (decrease) in net assets applicable to common
|
||||||||
|
shareholders resulting from operations
|
25,251,205
|
(26,127,884
|
)
|
|||||
|
Distributions paid to common shareholders:
|
||||||||
|
Net dividends and distributions
|
(6,271,117
|
)
|
(15,317,585
|
)
|
||||
|
Return of capital
|
(5,512,039
|
)
|
(226,028
|
)
|
||||
|
Total dividends and distributions paid to common shareholders
|
(11,783,156
|
)
|
(15,543,613
|
)
|
||||
|
Capital Stock Transactions (Note 4)
|
||||||||
|
Repurchase of common stock through tender offer
|
—
|
(19,612,500
|
)
|
|||||
|
Repurchase of common stock
|
(5,077,215
|
)
|
—
|
|||||
|
Total capital stock transactions
|
(5,077,215
|
)
|
(19,612,500
|
)
|
||||
|
Net increase (decrease) in net assets
|
||||||||
|
applicable to common shareholders
|
8,390,834
|
(61,283,997
|
)
|
|||||
|
Net assets applicable to common shareholders:
|
||||||||
|
Beginning of year
|
149,109,535
|
210,393,532
|
||||||
|
End of year
|
$
|
157,500,369
|
$
|
149,109,535
|
||||
The accompanying notes are an integral part of these financial statements.
18
Special Opportunities Fund, Inc.
(This Page Intentionally Left Blank.)
19
Special Opportunities Fund, Inc.
Financial highlights
Selected data for a share of common stock outstanding throughout each year is presented below:
Net asset value, beginning of year
Net investment income (loss)(1)
Net realized and unrealized gains (losses) from investment activities
Total from investment operations
Common share equivalent of dividends paid to preferred shareholders from:
Net investment income
Net realized gains from investment activities
Net increase (decrease) in net assets attributable to common stockholders resulting form operations
Dividends and distributions paid to common shareholders from:
Net investment income
Net realized gains from investment activities
Return of capital
Total dividends and distributions paid to common shareholders
Anti-Dilutive effect of Common Share Repurchase
Dilutive effect of conversions of preferred shares to common shares
Anti-Dilutive effect of tender offer
Net asset value, end of year
Market value, end of year
Total net asset value return(2)
Total market price return(3)
Ratio to average net assets attributable to common shares:
Ratio of expenses to average assets(4)
Ratio of net investment income to average net assets(1)
Supplemental data:
Net assets applicable to common shareholders, end of year/period (000’s)
Liquidation value of preferred stock (000’s)
Portfolio turnover
Preferred Stock:
Total Shares Outstanding
Asset coverage per share of preferred shares, end of year
The accompanying notes are an integral part of these financial statements.
20
Special Opportunities Fund, Inc.
Financial highlights (continued)
|
For the year ended December 31,
|
||||||||||||||||||
|
2023
|
2022
|
2021
|
2020
|
2019
|
||||||||||||||
|
$
|
13.01
|
$
|
16.55
|
$
|
16.13
|
$
|
16.06
|
$
|
13.78
|
|||||||||
|
0.58
|
0.28
|
0.18
|
0.59
|
0.31
|
||||||||||||||
|
1.80
|
(2.43
|
)
|
4.06
|
0.84
|
3.13
|
|||||||||||||
|
2.38
|
(2.15
|
)
|
4.24
|
1.43
|
3.44
|
|||||||||||||
|
(0.14
|
)
|
(0.03
|
)
|
(0.05
|
)
|
(0.21
|
)
|
(0.05
|
)
|
|||||||||
|
—
|
(0.09
|
)
|
(0.03
|
)
|
(0.02
|
)
|
(0.18
|
)
|
||||||||||
|
2.24
|
(2.27
|
)
|
4.16
|
1.20
|
3.21
|
|||||||||||||
|
(0.55
|
)
|
(0.34
|
)
|
(0.23
|
)
|
(0.65
|
)
|
(0.20
|
)
|
|||||||||
|
—
|
(0.96
|
)
|
(1.57
|
)
|
(0.48
|
)
|
(0.73
|
)
|
||||||||||
|
(0.49
|
)
|
(0.02
|
)
|
—
|
—
|
—
|
||||||||||||
|
(1.04
|
)
|
(1.32
|
)
|
(1.80
|
)
|
(1.13
|
)
|
(0.93
|
)
|
|||||||||
|
0.09
|
—
|
—
|
—
|
—
|
||||||||||||||
|
—
|
—
|
(1.94
|
)
|
—
|
—
|
|||||||||||||
|
—
|
0.05
|
—
|
—
|
—
|
||||||||||||||
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||
|
18.74
|
%
|
-13.81
|
%
|
14.09
|
%
|
9.24
|
%
|
23.72
|
%
|
|||||||||
|
14.13
|
%
|
-18.33
|
%
|
23.62
|
%
|
5.00
|
%
|
32.93
|
%
|
|||||||||
|
1.95
|
%
|
1.89
|
%
|
1.57
|
%
|
2.13
|
%
|
1.99
|
%
|
|||||||||
|
4.40
|
%
|
2.03
|
%
|
0.72
|
%
|
1.96
|
%
|
2.01
|
%
|
|||||||||
|
$
|
157,500
|
$
|
149,110
|
$
|
210,394
|
$
|
137,129
|
$
|
136,504
|
|||||||||
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||
|
64
|
%
|
54
|
%
|
80
|
%
|
85
|
%
|
75
|
%
|
|||||||||
|
|
|
|
|
|
||||||||||||||
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||
The accompanying notes are an integral part of these financial statements.
21
Special Opportunities Fund, Inc.
Financial highlights (continued)
|
(1)
|
Recognition of investment income by the Fund is affected by the timing and declaration of dividends by the underlying investment companies in which the Fund invests.
|
|
(2)
|
Total net asset value return is calculated assuming a $10,000 purchase of common stock at the current net asset value on the first day of each period reported and a sale at the current net asset value on the last day of each period
reported, and assuming reinvestment of dividends and other distributions at the net asset value on the ex-dividend date. Total investment return based on net asset value is hypothetical as investors can not purchase or sell Fund shares at net
asset value but only at market prices. Returns do not reflect the deduction of taxes that a shareholder could pay on Fund dividends and other distributions, if any, or the sale of Fund shares.
|
|
(3)
|
Total market price return is calculated assuming a $10,000 purchase of common stock at the current market price on the first day of each period reported and a sale at the current market price on the last day of each period reported, and
assuming reinvestment of dividends and other distributions to common shareholders at the lower of the NAV or the closing market price on the ex-dividend date. Total investment return does not reflect brokerage commissions and has not been
annualized for the period of less than one year. Returns do not reflect the deduction of taxes that a shareholder could pay on Fund dividends and other distributions, if any, or the sale of Fund shares.
|
|
(4)
|
Does not include expenses of the investment companies in which the Fund invests.
|
The accompanying notes are an integral part of these financial statements.
22
Special Opportunities Fund, Inc.
Notes to financial statements
Note 1
Organization and significant accounting policies
Special Opportunities Fund, Inc. (formerly, Insured Municipal Income Fund Inc.) (the “Fund”) was incorporated in Maryland on February 18, 1993, and is registered with the United States Securities and Exchange Commission (“SEC”) under the
Investment Company Act of 1940, as amended (“1940 Act”), as a closed-end diversified management investment company. Effective December 21, 2009, the Fund changed its name to the Special Opportunities Fund, Inc. and changed its investment objective
to total return. There can be no assurance that the Fund’s investment objective will be achieved. The Fund’s previous investment objective was to achieve a high level of current income that was exempt from federal income tax, consistent with the
preservation of capital.
The Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standard Codification Topic 946 “Financial Services—Investment
Companies”.
In the normal course of business, the Fund may enter into contracts that contain a variety of representations or that provide indemnification for certain liabilities. The Fund’s maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Fund that have not yet occurred. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
The preparation of financial statements in accordance with Accounting Principles Generally Accepted in the United States of America requires the Fund’s management to make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those estimates. The following is a summary of significant accounting policies:
Valuation of investments—The Fund calculates its net asset value based on the current market value for its portfolio securities. The Fund obtains market values for its securities from independent pricing
sources and broker-dealers. Independent pricing sources may use last reported sale prices or if not available the most recent bid price, current market quotations or valuations from computerized “matrix” systems that derive values based on
comparable securities. A matrix system incorporates parameters such as security quality, maturity and coupon, and/or research and evaluations by its staff, including review of broker-dealer market price quotations, if available, in determining the
valuation of the portfolio securities. If a market value is not available from an independent pricing source or a broker-dealer for a particular security, that security is valued at fair value as determined in good faith by or under the direction of
the Fund’s Board of Directors (the “Board”). Various factors may be
23
Special Opportunities Fund, Inc.
Notes to financial statements
reviewed in order to make a good faith determination of a security’s fair value. The purchase price, or cost, of these securities is arrived at through an arms length transaction between a willing buyer and seller in the secondary market and is
indicative of the value on the secondary market. Current transactions in similar securities in the marketplace are evaluated. Factors for other securities may include, but are not limited to, the type and cost of the security; contractual or legal
restrictions on resale of the security; relevant financial or business developments of the issuer; actively traded similar or related securities; conversion or exchange rights on the security; related corporate actions; and changes in overall market
conditions. If events occur that materially affect the value of securities between the close of trading in those securities and the close of regular trading on the New York Stock Exchange, the securities may be fair valued. U.S. and foreign debt
securities including short-term debt instruments having a maturity of 60 days or less shall be valued in accordance with the price supplied by a Pricing Service using the evaluated bid price. Money market mutual funds, demand notes and repurchase
agreements are valued at cost. If cost does not represent current market value the securities will be priced at fair value as determined in good faith by or under the direction of the Fund’s Board.
The Fund has adopted fair valuation accounting standards that establish an authoritative definition of fair value and set out a hierarchy for measuring fair value. These standards require additional disclosures about the various input and
valuation techniques used in measuring fair value. Fair value inputs are summarized in the three broad levels listed below:
|
Level 1—
|
Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access.
|
|
Level 2—
|
Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market,
prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.
|
|
Level 3—
|
Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Fund’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, and
would be based on the best information available.
|
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the
liquidity of markets, and other characteristics particular to the security. To the
24
Special Opportunities Fund, Inc.
Notes to financial statements
extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest
for instruments categorized in Level 3.
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is
determined based on the lowest level input that is significant to the fair value measurement in its entirety.
The significant unobservable inputs used in the fair value measurement of the Fund’s Level 3 investments are listed in the table on page 30. Significant changes in any of these inputs in isolation may result in a change in fair value measurement.
In accordance with procedures established by the Fund’s Board of Directors, the Adviser shall initially value non-publicly-traded securities (for which a current market value is not readily available) at their acquisition cost less related
expenses, where identifiable, unless and until the Adviser determines that such value does not represent fair value.
The Adviser sends a memorandum to the Chairman of the Valuation Committee with respect to any non-publicly-traded positions that are valued using a method other than acquisition cost detailing the reason, factors considered, and impact on the
Fund’s NAV. If the Chairman determines that such fair valuation(s) require the involvement of the Valuation Committee, a special meeting of the Valuation Committee is called as soon as practicable to discuss such fair valuation(s). The Valuation
Committee of the Board consists of at least two non-interested Directors, as defined by the 1940 Act.
In addition to special meetings, the Valuation Committee meets prior to each regular quarterly Board meeting. At each quarterly meeting, the Adviser delivers a written report (the “Quarterly Report”) regarding any recommendations of fair
valuation during the past quarter, including fair valuations which have not changed. The Valuation Committee reviews the Quarterly Report, discusses the valuation of the fair valued securities with appropriate levels of representatives from the
Adviser’s management, and, unless more information is required, approves the valuation of fair valued securities.
The Valuation Committee also reviews other interim reports as necessary and, pursuant to Rule 2a-5 under the 1940 Act, periodically assesses any material risks associated with the determination of fair value of Fund investments.
25
Special Opportunities Fund, Inc.
Notes to financial statements
The following is a summary of the fair valuations according to the inputs used as of December 31, 2023 in valuing the Fund’s investments:
|
Quoted Prices in
|
||||||||||||||||
|
Active Markets
|
||||||||||||||||
|
for Identical
|
Significant Other
|
Unobservable
|
||||||||||||||
|
Investments
|
Observable Inputs
|
Inputs
|
||||||||||||||
|
(Level 1)
|
(Level 2)
|
(Level 3)*
|
Total
|
|||||||||||||
|
Investment Companies
|
||||||||||||||||
|
Closed-End Funds
|
$
|
129,796,963
|
$
|
—
|
$
|
—
|
$
|
129,796,963
|
||||||||
|
Business Development
|
||||||||||||||||
|
Companies
|
22,596,515
|
—
|
—
|
22,596,515
|
||||||||||||
|
Special Purpose
|
||||||||||||||||
|
Acquisition Vehicles
|
25,287,187
|
6,277,254
|
—
|
31,564,441
|
||||||||||||
|
Preferred Stocks
|
||||||||||||||||
|
Real Estate Investment Trusts
|
345,678
|
—
|
—
|
345,678
|
||||||||||||
|
Other Common Stocks
|
||||||||||||||||
|
Biotechnology
|
608,000
|
—
|
—
|
608,000
|
||||||||||||
|
Financial Services
|
253,240
|
—
|
—
|
253,240
|
||||||||||||
|
Food Products
|
412,600
|
—
|
—
|
412,600
|
||||||||||||
|
Oil, Gas & Consumable Fuels
|
6,918,780
|
—
|
—
|
6,918,780
|
||||||||||||
|
Real Estate Management
|
||||||||||||||||
|
& Development
|
1,051,214
|
—
|
—
|
1,051,214
|
||||||||||||
|
Trusts
|
1,527,009
|
—
|
0
|
1,527,009
|
||||||||||||
|
Real Estate Investment Trusts
|
1,414,054
|
—
|
—
|
1,414,054
|
||||||||||||
|
Corporate Obligations
|
—
|
—
|
1,598,381
|
1,598,381
|
||||||||||||
|
Unsecured Notes
|
4,792,252
|
—
|
0
|
4,792,252
|
||||||||||||
|
Warrants
|
83,051
|
35,736
|
0
|
118,787
|
||||||||||||
|
Rights
|
35,706
|
13,460
|
—
|
49,166
|
||||||||||||
|
Money Market Funds
|
10,255,081
|
—
|
—
|
10,255,081
|
||||||||||||
|
Total
|
$
|
205,377,330
|
$
|
6,326,450
|
$
|
1,598,381
|
$
|
213,302,161
|
||||||||
|
*
|
The Fund measures Level 3 activity as of the beginning and end of each financial reporting period.
|
The fair value of derivative instruments as reported within the Schedule of Investments as of December 31, 2023:
|
Derivatives not accounted
|
Statement of Assets &
|
|
|
for as hedging instruments
|
Liabilities Location
|
Value
|
|
Equity Contracts – Warrants
|
Investments, at value
|
$118,787
|
26
Special Opportunities Fund, Inc.
Notes to financial statements
The effect of derivative instruments on the Statement of Operations for the year ended December 31, 2023:
|
Amount of Realized Loss on Derivatives Recognized in Income
|
||
|
Derivatives not accounted
|
Statement of
|
|
|
for as hedging instruments
|
Operations Location
|
Value
|
|
Equity Contracts – Warrants
|
Net Realized Loss
|
$(1,166,220)
|
|
on Investments
|
||
|
Change in Unrealized Appreciation on Derivatives Recognized in Income
|
||
|
Derivatives not accounted
|
Statement of
|
|
|
for as hedging instruments
|
Operations Location
|
Total
|
|
Equity Contracts – Warrants
|
Net change in unrealized
|
$957,340
|
|
appreciation of investments
|
||
The average monthly share amount of warrants during the period was 3,040,117. The average monthly market value of warrants during the period was $199,424.
Level 3 Reconciliation Disclosure
The following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value:
|
Trust
|
Corporate
|
Unsecured
|
||||||||||||||
|
Category
|
Certificates
|
Obligations
|
Notes
|
Warrants
|
||||||||||||
|
Balance as of 12/31/2022
|
$
|
18,279
|
$
|
1,525,819
|
$
|
—
|
$
|
4,639
|
||||||||
|
Acquisitions
|
—
|
882,319
|
—
|
—
|
||||||||||||
|
Dispositions
|
—
|
—
|
—
|
|
—
|
|||||||||||
|
Transfers into (out of) Level 3
|
—
|
—
|
0
|
(252
|
)
|
|||||||||||
|
Accretion/Amortization
|
—
|
(149
|
)
|
—
|
—
|
|||||||||||
|
Corporate Actions
|
—
|
—
|
—
|
—
|
||||||||||||
|
Realized Gain (Loss)
|
—
|
—
|
—
|
|
—
|
|||||||||||
|
Change in unrealized appreciation (depreciation)
|
(18,279
|
)
|
(809,608
|
)
|
—
|
(4,387
|
)
|
|||||||||
|
Balance as of 12/31/2023
|
$
|
0
|
$
|
1,598,381
|
$
|
0
|
$
|
0
|
||||||||
|
Change in unrealized appreciation (depreciation)
|
||||||||||||||||
|
during the period for Level 3 investments
|
||||||||||||||||
|
held at December 31, 2023
|
$
|
(18,279
|
)
|
$
|
(809,608
|
)
|
$
|
—
|
$
|
(4,568
|
)
|
|||||
27
Special Opportunities Fund, Inc.
Notes to financial statements
The following table presents additional information about valuation methodologies and inputs used for investments that are measured at fair value and categorized within Level 3 as of December 31, 2023:
|
Fair Value
|
Valuation
|
Unobservable
|
Impact to valuation
|
|||||
|
Category
|
12/31/2023
|
Methodologies
|
Inputs
|
Range
|
from an increase to input
|
|||
|
Trust
|
$
|
0
|
Market Approach
|
Last traded price,
|
$0.00-
|
Increase
|
||
|
Certificates
|
Company-Specific
|
0.057
|
|
|||||
| Information |
|
|||||||
|
Corporate
|
1,598,381
|
Market Approach
|
Last traded price,
|
4.00-
|
Increase
|
|||
|
Obligations
|
|
Company-Specific
|
51.90
|
|
||||
|
|
Information
|
|
||||||
|
Unsecured
|
0
|
Market Approach
|
Company-Specific
|
0.00-
|
Increase
|
|||
|
Notes
|
|
Information
|
11.40
|
|
||||
|
Warrants
|
0
|
Market Approach
|
Company-Specific
|
0.00-
|
Increase
|
|||
|
Information
|
0.10
|
|
||||||
Note 2
Related party transactions
Bulldog Investors, LLP serves as the Fund’s Investment Adviser (the “Investment Adviser”) under the terms of the Investment Advisory Agreement effective October 10, 2009. Effective May 7, 2013 Brooklyn Capital Management, LLC changed its name to
Bulldog Investors, LLP. In accordance with the investment advisory agreement, the Fund is obligated to pay the Investment Adviser a monthly investment advisory fee at an annual rate of 1.00% of the Fund’s average weekly total assets.
Effective January 1, 2023, the Fund pays each of its directors who is not a director, officer or employee of the Investment Adviser, the Administrator or any affiliate thereof an annual fee of $55,000, quarterly plus $5,000 for each special
in-person meeting (or $500 if attended by telephone) of the board of directors and $500 for special committee meetings held in between regularly scheduled Board meetings. As additional annual compensation, the Audit Committee Chairman, Corporate
Governance Committee Chairman and Valuation Committee Chairman receive $5,000. Effective January 1, 2023, the Fund’s Chief Compliance Officer (“CCO”) receives annual compensation in the amount of $62,000. In addition, the Fund reimburses the
directors and CCO for travel and out-of-pocket expenses incurred in connection with Board of Directors’ meetings and CCO due diligence requirements.
U.S. Bank Global Fund Services (“Fund Services”), an indirect wholly-owned subsidiary of U.S. Bancorp, serves as the Fund’s Administrator (the “Administrator”) and, in that capacity, performs various administrative services for the Fund. Fund
Services also serves as the Fund’s Fund Accountant (the “Fund Accountant”). U.S.
28
Special Opportunities Fund, Inc.
Notes to financial statements
Bank, N.A. serves as the Fund’s custodian (the “Custodian”). The Custodian is an affiliate of the Administrator. The Administrator prepares various federal and state regulatory filings, reports and returns for the Fund; prepares reports and materials
to be supplied to the directors, monitors the activities of the Custodian and Fund Accountant; coordinates the preparation and payment of the Fund’s expenses and reviews the Fund’s expense accruals. Equiniti Trust Company, LLC serves as the Fund’s
Transfer Agent.
Note 3
Convertible Preferred Stock
During the year ended December 31, 2021 the Fund converted 2,163,053 shares or $54,076,325 of the Fund’s Convertible Preferred Stock, Series B into 4,211,996 shares of the Fund’s common stock. The remaining 60,923 of Convertible Preferred Shares
were redeemed at $25 per share for a total of $1,523,075.
On January 21, 2022 the Fund completed its Convertible Preferred Rights offering at $25 per share. As a result of this offering the Fund raised $58,373,850 and issued 2,334,954 shares of 2.75% Convertible Preferred Stock, Series C. The holders of
Convertible Preferred Stock, Series C may convert their shares to common stock on a quarterly basis at a conversion rate equivalent to the current conversion price of $18.250 per share of common stock (which is a current ratio of 1.3699 shares of
common stock for each share of Convertible Preferred Stock, Series C held). The conversion price (and resulting conversion ratio) will be adjusted for any distributions made to or on behalf of common stockholders. Following any such conversion,
shares of common stock shall be issued as soon as reasonably practicable following the next quarterly dividend payment date. Until the mandatory redemption date of the Convertible Preferred Stock, Series C, January 21, 2027, at any time following the
second anniversary of the expiration date of the Convertible Preferred Stock, Series C rights offering, the Board may, in its sole discretion, redeem all or any part of the then outstanding shares of Convertible Preferred Stock, Series C at $25.00
per share. Under such circumstances, the Fund shall provide no less than 30 days’ notice to the holders of Convertible Preferred Stock, Series C that, unless such shares have been converted by a certain date, the shares will be redeemed. If, at any
time from and after the date of issuance of the Convertible Preferred Stock, Series C, the market price of the common stock is equal to or greater than $21.50 per share (as adjusted for dividends or other distributions made to or on behalf of holders
of the common stock), the Board may, in its sole discretion, require the holders of the Convertible Preferred Stock, Series C to convert all or any part of their shares into shares of common stock at a conversion rate equivalent to the current
conversion price of $18.250 per share of common stock (which is a current ratio of 1.3699 shares of common stock for each share of Convertible Preferred Stock, Series C held), subject to adjustment upon the occurrence of certain events.
29
Special Opportunities Fund, Inc.
Notes to financial statements
During the year ended December 31, 2023, the Fund purchased 80,397 shares of preferred stock in the open market at a cost of $1,830,718. The weighted average discount of these purchases comparing the average purchase price to liquidation value at
the close of the New York Stock Exchange was 8.95%.
The conversion price (and resulting conversion ratio) will be adjusted for any dividends or other distributions made to or on behalf of common stockholders. Notice of such mandatory conversion shall be provided by the Fund in accordance with its
Articles of Incorporation. In connection with all conversions shareholders of Convertible Preferred Stock would receive payment for all declared and unpaid dividends on the shares of Convertible Preferred Stock held to the date of conversion, but
after conversion would no longer be entitled to the dividends, liquidation preference or other rights attributable to holders of the Convertible Preferred Stock. The Convertible Preferred Stock is classified outside of the permanent equity (net
assets applicable to Common Stockholders) in the accompanying financial statements in accordance with accounting for redeemable equity instruments, which requires preferred securities that are redeemable for cash or other assets to be classified
outside of permanent equity to the extent that the redemption is at a fixed or determinable price and at the option of the holder or upon occurrence of an event that is not solely within the control of the issuer. The Fund is required to meet certain
asset coverage tests with respect to the Convertible Preferred Stock as required by the 1940 Act. In addition, pursuant to the Rating Agency Guidelines established by Moody’s, the Fund is required to maintain a certain discounted asset coverage. If
the Fund fails to meet these requirements and does not correct such failure, the Fund may be required to redeem, in part or in full, the Convertible Preferred Stock at a redemption price of $25.00 per share, plus an amount equal to the accumulated
and unpaid dividends, whether or not declared on such shares, in order to meet these requirements. Additionally, failure to meet the foregoing asset coverage requirements could restrict the Fund’s ability to pay dividends to Common Stockholders and
could lead to sales of portfolio securities at inopportune times. The Fund has met these requirements since issuing the Convertible Preferred Stock.
Note 4
Purchases and sales of securities
For the year ended December 31, 2023, aggregate purchases and sales of portfolio securities, excluding short-term securities, were $127,141,189 and $138,497,698, respectively. The Fund did not purchase or sell U.S. government securities during
the year ended December 31, 2023.
30
Special Opportunities Fund, Inc.
Notes to financial statements
Note 5
Capital share transactions
During the year ended December 31, 2023, the Fund purchased 452,787 shares of common stock in the open market at a cost of $5,077,215. The weighted average discount of these purchases comparing the average purchase price to net asset value at the
close of the New York Stock Exchange was 17.02%.
During the years ended December 31, 2022, 2021, 2020, 2019 and 2018 there were no shares of common stock repurchased by the Fund.
The Fund completed an offering to purchase up to 1,250,000 of the Fund’s shares outstanding at 97% of the net asset value (“NAV”) per common share on April 1, 2022. At the expiration of the offer on April 1, 2022, a total of 7,549,920 shares or
approximately 59.39% of the Fund’s outstanding common shares were validly tendered. As the total number of common shares tendered exceeded 1,250,000 common shares, approximately 16.56% of the shares tendered by each tendering shareholder were
accepted for payment at a price of $15.69 per share (97% of the NAV per common share of $16.18).
During the year ended December 31, 2021 the Fund converted 2,163,053 shares of 3.50% Convertible Preferred Stock into 4,211,996 shares of Common Stock.
Note 6
Federal tax status
The Fund has elected to be taxed as a “regulated investment company” and intends to distribute substantially all taxable income to its shareholders and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated
investment companies. Therefore, no provision for federal income taxes or excise taxes has been made.
In order to avoid imposition of the excise tax applicable to regulated investment companies, the Fund intends to declare each year as dividends in each calendar year at least 98.0% of its net investment income (earned during the calendar year)
and 98.2% of its net realized capital gains (earned during the twelve months ended October 31) plus undistributed amounts, if any, from prior years.
31
Special Opportunities Fund, Inc.
Notes to financial statements
The tax character of distributions paid to shareholders during the fiscal years ended December 31, 2023 and December 31, 2022 were as follows:
|
For the
|
For the
|
|||||||
|
year ended
|
year ended
|
|||||||
|
Distributions paid to common shareholders from:
|
December 31, 2023
|
December 31, 2022
|
||||||
|
Ordinary income
|
$
|
6,271,117
|
$
|
4,047,986
|
||||
|
Long-term capital gains
|
—
|
11,269,599
|
||||||
|
Return of capital
|
5,512,039
|
226,028
|
||||||
|
Total distributions paid
|
$
|
11,783,156
|
$
|
15,543,613
|
||||
|
For the
|
For the
|
|||||||
|
year ended
|
year ended
|
|||||||
|
Distributions paid to preferred shareholders from:
|
December 31, 2023
|
December 31, 2022
|
||||||
|
Ordinary income
|
$
|
1,587,197
|
$
|
387,696
|
||||
|
Long-term capital gains
|
—
|
1,079,344
|
||||||
|
Total distributions paid
|
$
|
1,587,197
|
$
|
1,467,040
|
||||
The Fund designated as long-term capital gain dividends, pursuant to Internal Revenue Code Section 852(b)(3), the amount necessary to reduce the earnings and profits for the Fund related to net capital gains to zero for the year ended December 31,
2023.
The following information is presented on an income tax basis as of December 31, 2023:
|
Tax cost of investments
|
$
|
207,940,261
|
||
|
Unrealized appreciation
|
25,436,273
|
|||
|
Unrealized depreciation
|
(20,065,643
|
)
|
||
|
Net unrealized depreciation
|
5,370,630
|
|||
|
Undistributed ordinary income
|
—
|
|||
|
Undistributed long-term gains
|
—
|
|||
|
Total distributable earnings
|
—
|
|||
|
Other accumulated/gains losses and other temporary differences
|
(511,416
|
)
|
||
|
Total accumulated losses
|
$
|
4,859,214
|
GAAP requires that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. For the fiscal year ended
December 31, 2023, there were no reclassifications made between total distributable earnings and paid-in capital.
Net capital losses incurred after October 31, and within the taxable year are deemed to arise on the first business day of the Fund’s next taxable year. At December 31, 2023, the Fund did not defer any post-October losses.
At December 31, 2023, the Fund had $511,416 in long-term capital loss carryovers which have an unlimited carryover period.
32
Special Opportunities Fund, Inc.
Notes to financial statements
The Fund recognizes the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained assuming examination by tax authorities. Management has analyzed the Fund’s tax positions, and has concluded that no
liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on returns filed for open tax years (2020-2022), or expected to be taken in the Fund’s 2023 tax returns. The Fund identifies its major tax
jurisdictions as U.S. Federal and the State of Maryland; however the Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next twelve months.
Note 7
Recent Market Events
U.S. and international markets have experienced and may continue to experience significant periods of volatility in recent years and months due to a number of economic, political and global macro factors including rising inflation, uncertainty
regarding central banks’ interest rate increases, the possibility of a national or global recession, trade tensions, political events, the war between Russia and Ukraine and the impact of the coronavirus (COVID-19) global pandemic. The global
recovery from COVID-19 may last for an extended period of time. As a result of continuing political tensions and armed conflicts, including the war between Ukraine and Russia and general unrest in the Middle East, the U.S. and the European Union
imposed sanctions on certain Russian individuals and companies, including certain financial institutions, and have limited certain exports and imports to and from Russia. The war has contributed to recent market volatility and may continue to do so.
These developments, as well as other events, could result in further market volatility and negatively affect financial asset prices, the liquidity of certain securities and the normal operations of securities exchanges and other markets, despite
government efforts to address market disruptions. Continuing market volatility as a result of recent market conditions or other events may have adverse effects on your account.
Note 8
Additional information
Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940 that the Fund may purchase, from time to time, shares of its common stock and its convertible preferred stock in the open market.
Fund directors and officers and advisory persons to the Fund, including insiders and employees of the Fund and of the Fund’s investment adviser, may purchase or sell Fund securities from time to time, subject to the restrictions set forth in the
Fund’s Code of Ethics, as amended, a copy of which is available on the Fund’s website. Please see the corporate governance section of the Fund’s website at www.specialopportunitiesfundinc.com.
33
Special Opportunities Fund, Inc.
Notes to financial statements
The Fund may seek proxy voting instructions from shareholders regarding certain underlying closed-end funds held by the Fund. Please see the proxy voting instructions section on the Fund’s website at www.specialopportunitiesfundinc.com
for further information.
Note 9
Subsequent events
In preparing these financial statements, management has evaluated events and transactions for potential recognition or disclosure resulting from subsequent events through the date the financial statements were available to be issued. Management
has determined that there were no subsequent events that would need to be disclosed in the Fund’s financial statements.
34
Special Opportunities Fund, Inc.
Report of independent registered public accounting firm
To the Board of Directors and Shareholders of Special Opportunities Fund, Inc.
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of Special Opportunities Fund, Inc., including the portfolio of investments, as of December 31, 2023, the related statements of operations and cash flows for the year then ended,
the statements of changes in net assets for each of the two years in the period then ended, and financial highlights for each of the five years in the period then ended, and the related notes (collectively referred to as the “financial statements”).
In our opinion, the financial statements present fairly, in all material respects, the financial position of Special Opportunities Fund, Inc. as of December 31, 2023, the results of its operations and cash flows for the year then ended, the changes
in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB. We have served as the Fund’s auditor since 2009.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due
to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial
reporting, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. Our procedures included confirmation of securities owned as of December 31, 2023 by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We
believe that our audits provide a reasonable basis for our opinion.
TAIT, WELLER & BAKER LLP
Philadelphia, Pennsylvania
February 29, 2024
35
Special Opportunities Fund, Inc.
Investment objectives and policies, principal risk factors
Fund Investment Objective and Policies
The Fund investment objective is total return. The investment objective is not fundamental and may be changed by the Board with 60 days’ notice to stockholders. To achieve the objective, the Fund invests primarily in securities the Adviser
believes have opportunities for appreciation. The Fund may employ strategies designed to capture price movements generated by anticipated corporate events such as investing in companies involved in special situations, including, but not limited to,
mergers, acquisitions, asset sales, spin-offs, balance sheet restructuring, bankruptcy, liquidations and tender offers. In addition, the Fund may employ strategies designed to invest in the debt, equity, or trade claims of companies in financial
distress when the Advisor perceives a mispricing. Furthermore, the Fund may invest both long and short in related securities or other instruments in an effort to take advantage of perceived discrepancies in the market prices for such securities,
including long and short positions in securities involved in an announced merger or acquisition. Securities which the Adviser identifies include closed-end investment companies with opportunities for appreciation, including funds that trade at a
market price discount from their NAV. In addition to the foregoing, the Adviser seeks out other opportunities in the market that have attractive risk reward characteristics for the Fund.
The Fund intends its investment portfolio, under normal market conditions, to consist principally of investments in other closed-end investment companies and the securities of large, mid and small-capitalization companies, including potentially
direct and indirect investments in the securities of foreign companies. Equity securities in which the Fund may invest include common and preferred stocks, convertible securities, warrants and other securities having the characteristics of common
stocks, such as ADRs and IDRs, other closed-end investment companies and exchange-traded funds. The Fund may, however, invest a portion of its assets in debt securities or other investment opportunities when the Adviser believes that it is
appropriate to do so to earn current income. For example, when interest rates are high in comparison to anticipated returns on equity investments, the Fund’s investment adviser may determine to invest in debt or preferred securities including bank,
corporate or government bonds, notes, and debentures that the Adviser determines are suitable investments for the Fund. Such determination may be made regardless of the maturity, duration or rating of any such debt security.
The Fund may, from time to time, engage in short sales of securities for investment or for hedging purposes. Short sales are transactions in which the Fund sells a security it does not own. To complete the transaction, the Fund must borrow the
security to make delivery to the buyer. The Fund is then obligated to replace the security borrowed by purchasing the security at the market price at the time of replacement. The Fund may sell short individual stocks, baskets of
36
Special Opportunities Fund, Inc.
Investment objectives and policies, principal risk factors
individual stocks and ETFs that the Fund expects to underperform other stocks which the Fund holds. For hedging purposes, the Fund may purchase or sell short future contracts on global equity indexes.
The Fund may invest, without limitation, in the securities of closed-end funds, provided that, in accordance with Section 12(d)(1)(F) of the 1940 Act, the Fund will limit any such investment to no more than 3% of the voting stock of such fund and
will vote such shares as provided in such Section as set forth below.
To comply with provisions of the 1940 Act, on any matter upon which stockholders of a closed-end investment company in which the Fund has invested may vote, the Adviser will direct such shares to be voted in the same proportion as shares held by
all other stockholders of such closed-end investment company (i.e., “mirror vote”) or seek instructions from the Fund’s stockholders with regard to the voting on such matter. If the Adviser deems it appropriate to seek instructions from Fund
stockholders, the Adviser will vote such proxies proportionally based upon the total number of shares owned by those shareholders that provide instructions. Fund stockholders are informed of such proxy votes on the Fund’s website and by email, if so
requested, and they may provide proxy voting instructions by email. In a letter dated August 11, 2020 discussing the results of its 2018 compliance examination, the staff of the New York regional office of the SEC’s Office of Compliance Inspections
and Examinations opined that, in connection with its prior proxy voting policy, pursuant to which the Fund voted its shares of closed-end funds as determined by a majority of proxy voting instructions received, the Fund “does not in certain cases
meet the requirements of the exception set forth in Section 12(d)(1)(E)(iii) of the 1940 Act because in connection with seeking instructions from Fund shareholders with regard to voting certain proxies on behalf of the Fund, the Fund votes such
proxies as determined by a majority of the shares owned by those Fund shareholders who provide proxy voting instructions.” In response thereto, the Fund has amended its proxy voting policy to provide that the Fund will vote such proxies
proportionally based upon the total number of shares owned by those shareholders that provide instructions.
The ETFs and other closed-end investment companies in which the Fund invests may invest in common stocks and may invest in fixed income securities. As a stockholder in any investment company, the Fund will bear its ratable share of the investment
company’s expenses and would remain subject to payment of the Fund’s advisory and administrative fees with respect to the assets so invested.
The Fund’s management utilizes a balanced approach, including “value” and “growth” investing by seeking out companies at reasonable prices, without regard to sector or industry, which demonstrate favorable long-term growth characteristics.
Valuation and growth characteristics may be considered for purposes of selecting potential investment securities. In general, valuation analysis is used to determine the inherent value of the company by analyzing
37
Special Opportunities Fund, Inc.
Investment objectives and policies, principal risk factors
financial information such as a company’s price to book, price to sales, return on equity, and return on assets ratios; and growth analysis is used to determine a company’s potential for long-term dividends and earnings growth due to
market-oriented factors such as growing market share, the launch of new products or services, the strength of its management and market demand. Fluctuations in these characteristics may trigger trading decisions to be made by the Fund’s investment
adviser with respect to the Fund’s portfolio.
Generally, securities will be purchased or sold by the Fund on national securities exchanges and in the over-the-counter market. From time to time, securities may be purchased or sold in private transactions, including securities that are not
publicly traded or that are otherwise illiquid.
The Fund may, from time to time, take temporary defensive positions that are inconsistent with the Fund’s principal investment strategies in attempting to respond to adverse market, economic, political or other conditions. During such times, the
Fund may temporarily invest up to 100% of its assets in cash or cash equivalents, including money market instruments, prime commercial paper, repurchase agreements, Treasury bills and other short-term obligations of the U.S. Government, its agencies
or instrumentalities. In these and in other cases, the Fund may not achieve its investment objective.
The Fund’s investment adviser may invest the Fund’s cash balances in any investments it deems appropriate, subject to the restrictions set forth in below under “Fundamental Investment Restrictions” and as permitted under the 1940 Act, including
investments in repurchase agreements, money market funds, additional repurchase agreements, U.S. Treasury and U.S. agency securities, municipal bonds and bank accounts. Any income earned from such investments will ordinarily be reinvested by the
Fund in accordance with its investment program. Many of the considerations entering into the Fund’s investment adviser’s recommendations and the portfolio manager’s decisions are subjective.
Fundamental Investment Restrictions
The following fundamental investment limitations cannot be changed without the affirmative vote of the lesser of (a) more than 50% of the outstanding shares of the Fund or (b) 67% or more of such shares present at a stockholders’ meeting if more
than 50% of the outstanding shares are represented at the meeting in person or by proxy. If a percentage restriction is adhered to at the time of an investment or transaction, a later increase or decrease in percentage resulting from a change in
values of portfolio securities or the amount of total assets will not be considered a violation of any of the following limitations or of any of the Fund’s investment policies. The Fund may not:
(1) issue senior securities (including borrowing money from banks and other entities and thorough reverse repurchase agreements), except (a) the Fund may
38
Special Opportunities Fund, Inc.
Investment objectives and policies, principal risk factors
borrow in an amount not in excess of 33 1/3% of total assets (including the amount of senior securities issued, but reduced by any liabilities and indebtedness not constituting senior securities), (b) the Fund may issue preferred stock having a
liquidation preference in an amount which, combined with the amount of any liabilities or indebtedness constituting senior securities, is not in excess of 50% of its total assets (computed as provided in clause (a) above) and (c) the Fund may borrow
up to an additional 5% of its total assets (not including the amount borrowed) for temporary or emergency purposes.
The following interpretation applies to, but is not a part of, fundamental limitation:
(1) each state (including the District of Columbia and Puerto Rico), territory and possession of the United States, each political subdivision, agency, instrumentality and authority thereof, and each multi-state agency of which a state is a
member is a separate “issuer.” When the assets and revenues of an agency authority, instrumentality or other political subdivision are separate from the government creating the subdivision and the security is backed only by the assets and revenues
of the subdivision, such subdivision would be deemed to be the sole issuer. Similarly, in the case of an Industrial Development Bond or Private Activity Bond, if that bond is backed only by the assets and revenues of the non-governmental user, then
that non-governmental user would be deemed to be the sole issuer. However, if the creating government or another entity guarantees a security, then to the extent that the value of all securities issued or guaranteed by that government or entity and
owned by the Fund exceeds 10% of the Fund’s total assets, the guarantee would be considered a separate security and would be treated as issued by that government or entity. This restriction does not limit the percentage of the Fund’s assets that may
be invested in Municipal Obligations insured by any given insurer.
(2) purchase any security if, as a result of that purchase, 25% or more of the Fund’s total assets would be invested in securities of issuers having their principal business activities in the same industry, except that this limitation does not
apply to securities issued or guaranteed by the U.S. government, its agencies or instrumentalities or to municipal securities.
(3) make loans, except through loans of portfolio securities or through repurchase agreements, provided that for purposes of this restriction, the acquisition of bonds, debentures, other debt securities or instruments, or participations or other
interests therein and investment in government obligations, commercial paper, certificates of deposit, bankers’ acceptances or similar instruments will not be considered the making of a loan.
(4) engage in the business of underwriting securities of other issuers, except to the extent that the Fund might be considered an underwriter under the federal securities laws in connection with its disposition of portfolio securities.
39
Special Opportunities Fund, Inc.
Investment objectives and policies, principal risk factors
(5) purchase or sell real estate, except that investments in securities of issuers that invest in real estate and investments in mortgage-backed securities, mortgage participations or other instruments supported by interests in real estate are
not subject to this limitation, and except that the Fund may exercise rights under agreements relating to such securities, including the right to enforce security interests and to hold real estate acquired by reason of such enforcement until that
real estate can be liquidated in an orderly manner.
(6) purchase or sell physical commodities unless acquired as a result of owning securities or other instruments, but the Fund may purchase, sell or enter into financial options and futures, forward and spot currency contracts, swap transactions
and other financial contracts or derivative instruments.
The Fund has no intention to file a voluntary application for relief under federal bankruptcy law or any similar application under state law for so long as the Fund is solvent and does not foresee becoming insolvent.
Principal Risks Factors Related to The Fund’s Investments
Other Closed-End Investment Company Securities: The Fund invests in the securities of other closed-end investment companies. Investing in other closed-end investment companies involves
substantially the same risks as investing directly in the underlying instruments, but the total return on such investments at the investment company level may be reduced by the operating expenses and fees of such other closed-end investment
companies, including advisory fees. There can be no assurance that the investment objective of any investment company in which the Fund invests will be achieved. Closed-end investment companies are subject to the risks of investing in the
underlying securities. The Fund, as a holder of the securities of another closed-end investment company, will bear its pro rata portion of the closed-end investment company’s expenses, including advisory fees. These expenses are in addition to the
direct expenses of the Fund’s own operations. To the extent the Fund invests a portion of its assets in investment company securities, those assets will be subject to the risks of the purchased investment company’s portfolio securities, and a
stockholder in the Fund will bear not only his proportionate share of the expenses of the Fund, but also, indirectly, the expenses of the purchased investment company. The market price of a closed-end investment company fluctuates and may be either
higher or lower than the NAV of such closed-end investment company.
In accordance with Section 12(d)(1)(F) of the 1940 Act, the Fund will be limited by provisions of the 1940 Act that limit the amount the Fund, together with its affiliated persons, can invest in other investment companies to 3% of any other
investment company’s total outstanding stock. As a result, the Fund may hold a smaller position in a closed-end investment company than if it were not subject to this restriction.
40
Special Opportunities Fund, Inc.
Investment objectives and policies, principal risk factors
Special Purpose Acquisition Companies. The Fund may invest in units, stock, warrants, and other securities of special purpose acquisition companies or similar special purpose entities
that pool funds to seek potential acquisition opportunities (“SPACs”). Unless and until an acquisition meeting the SPAC’s requirements is completed, a SPAC generally deposits substantially all of the cash raised in its IPO (less a specified amount
to cover operating expenses) in a bank trust account which is generally invested in U.S. Government securities, money market securities and cash. If an acquisition that meets the requirements for the SPAC is not completed within a pre-established
period of time, the invested funds are returned to the entity’s shareholders. In addition, just prior to completion of an acquisition, shareholders of the SPAC can redeem their shares for a pro rata share of the value of the trust account. Because
SPACs have no operating history or ongoing business other than seeking acquisitions, the value of their securities can vary on the perceived likelihood of management to identify and complete a profitable acquisition. In addition, such securities are
subject to secondary market risk and may decline in value if sold prior to deal completion or trust liquidation. However, until a SPAC is liquidated or completes an acquisition, its common stock is unlikely to fall substantially below the per share
value of the trust account. If an acquisition is completed, the former SPAC’s shares and other securities will take on the same risks as an equivalent investment in the acquired company. Some SPACs may pursue acquisitions only within certain
industries or regions, which may increase the volatility of their prices.
Short sales. The Fund is authorized to make short sales. The Fund effects a short sale by borrowing and selling a security it does not own in anticipation of a decline in the value of
the security or to hedge against the decline of a security the Fund owns. Short sales carry risks of loss if the price of the security sold short increases after the short sale. As collateral for its short positions, the Fund is required under the
1940 Act to maintain segregated assets consisting of cash, cash equivalents, or liquid securities. The amount of segregated assets is required to be adjusted daily to the extent additional collateral is required based on the change in fair value of
the securities sold short.
Common Stocks. The Fund invests in common stocks. Common stocks represent an ownership interest in a company. The Fund may also invest in securities that can be exercised for or
converted into common stocks (such as convertible preferred stock). Common stocks and similar equity securities are more volatile and riskier than some other forms of investment. Therefore, the value of your investment in the Fund may sometimes
decrease instead of increase. Common stock prices fluctuate for many reasons, including adverse events such as unfavorable earnings reports, changes in investors’ perceptions of the financial condition of an issuer, the general condition of the
relevant stock market or when political or economic events affecting the issuers occur. In addition, common stock prices may be sensitive to rising interest rates, as the costs of capital rise and borrowing costs increase for issuers. Because
convertible securities can be
41
Special Opportunities Fund, Inc.
Investment objectives and policies, principal risk factors
converted into equity securities, their values will normally increase or decrease as the values of the underlying equity securities increase or decrease. The common stocks in which the Fund invests are structurally subordinated to preferred
securities, bonds and other debt instruments in a company’s capital structure in terms of priority to corporate income and assets and, therefore, will be subject to greater risk than the preferred securities or debt instruments of such issuers.
Exchange Traded Funds. The Fund may invest in exchange-traded funds, which are investment companies that, in general, aim to track or replicate a desired index, such as a sector, market
or global segment. ETFs are passively or, to a lesser extent, actively managed and their shares are traded on a national exchange. ETFs do not sell individual shares directly to investors and only issue their shares in large blocks known as
“creation units.” The investor purchasing a creation unit may sell the individual shares on a secondary market. Therefore, the liquidity of ETFs depends on the adequacy of the secondary market. There can be no assurance that an ETF’s investment
objective will be achieved, as ETFs based on an index may not replicate and maintain exactly the composition and relative weightings of securities in the index. ETFs are subject to the risks of investing in the underlying securities. The Fund, as a
holder of the securities of the ETF, will bear its pro rata portion of the ETF’s expenses, including advisory fees. These expenses are in addition to the direct expenses of the Fund’s own operations.
Fixed Income Securities, including Non-Investment Grade Securities. The Fund may invest in fixed income securities, also referred to as debt securities. Fixed income securities are
subject to credit risk and market risk. Credit risk is the risk of the issuer’s inability to meet its principal and interest payment obligations. Market risk is the risk of price volatility due to such factors as interest rate sensitivity, market
perception of the creditworthiness of the issuer and general market liquidity. There is no limitation on the maturities or duration of fixed income securities in which the Fund invests. Securities having longer maturities generally involve greater
risk of fluctuations in value resulting from changes in interest rates. The Fund’s credit quality policy with respect to investments in fixed income securities does not require the Fund to dispose of any debt securities owned in the event that such
security’s rating declines to below investment grade, commonly referred to as “junk bonds.” Although lower quality debt typically pays a higher yield, such investments involve substantial risk of loss. Junk bonds are considered predominantly
speculative with respect to the issuer’s ability to pay interest and principal and are susceptible to default or decline in market value due to adverse economic and business developments. The market values for junk bonds tend to be very volatile and
those securities are less liquid than investment grade debt securities. Moreover, junk bonds pose a greater risk that exercise of any of their redemption or call provisions in a declining market may result in their replacement by lower-yielding
bonds. In addition, bonds in the lowest two investment grade categories, despite being of higher credit rating than junk bonds, have speculative characteristics with respect to the issuer’s ability to pay interest and principal and their
susceptibility to default or decline in market value.
42
Special Opportunities Fund, Inc.
Investment objectives and policies, principal risk factors
Corporate Bonds, Government Debt Securities and Other Debt Securities: The Fund may invest in corporate bonds, debentures and other debt securities. Debt securities in which the Fund
may invest may pay fixed or variable rates of interest. Bonds and other debt securities generally are issued by corporations and other issuers to borrow money from investors. The issuer pays the investor a fixed or variable rate of interest and
normally must repay the amount borrowed on or before maturity. Certain debt securities are “perpetual” in that they have no maturity date.
The Fund may invest in government debt securities, including those of emerging market issuers or of other non-U.S. issuers. These securities may be U.S. dollar-denominated or non-U.S. dollar-denominated and include: (a) debt obligations issued or
guaranteed by foreign national, provincial, state, municipal or other governments with taxing authority or by their agencies or instrumentalities; and (b) debt obligations of supranational entities. Government debt securities include: debt
securities issued or guaranteed by governments, government agencies or instrumentalities and political subdivisions; debt securities issued by government owned, controlled or sponsored entities; interests in entities organized and operated for the
purpose of restructuring the investment characteristics issued by the above noted issuers; or debt securities issued by supranational entities such as the World Bank or the European Union. The Fund may also invest in securities denominated in
currencies of emerging market countries. Emerging market debt securities generally are rated in the lower rating categories of recognized credit rating agencies or are unrated and considered to be of comparable quality to lower rated debt
securities. A non-U.S. issuer of debt or the non-U.S. governmental authorities that control the repayment of the debt may be unable or unwilling to repay principal or interest when due, and the Fund may have limited resources in the event of a
default. Some of these risks do not apply to issuers in large, more developed countries. These risks are more pronounced in investments in issuers in emerging markets or if the Fund invests significantly in one country.
Short Sale Risk: When a cash dividend is declared on a security in which the Fund holds a short position, the Fund incurs the obligation to pay an amount equal to that dividend to the
lender of the shorted security.
Depending on arrangements made with the broker-dealer from which it borrowed the security regarding payment over of any payments received by the Fund on such security, the Fund may not receive any payments (including interest) on its collateral
deposited with such broker-dealer.
Although the Fund’s gain is limited to the price at which it sold the security short, its potential loss is unlimited.
43
Special Opportunities Fund, Inc.
Investment objectives and policies, principal risk factors
Purchasing securities to close out the short position can itself cause the price of the securities to rise further, thereby exacerbating a possible loss. Short selling exposes the Fund to unlimited risk with respect to that security due to the
lack of an upper limit on the price to which an instrument can rise.
The requirements of the 1940 Act and Internal Revenue Code of 1986, as amended (the “Code”) provide that the Fund not make a short sale if, after giving effect to such sale, the market value of all securities sold short by the Fund exceeds 30% of
the value of its managed assets.
Small and Medium Cap Company Risk: Compared to investment companies that focus only on large capitalization companies, the Fund’s share price may be more volatile because it also invests
in small and medium capitalization companies. Compared to large companies, small and medium capitalization companies are more likely to have (i) more limited product lines or markets and less mature businesses, (ii) fewer capital resources, (iii)
more limited management depth and (iv) shorter operating histories. Further, compared to large cap stocks, the securities of small and medium capitalization companies are more likely to experience sharper swings in market values, be harder to sell
at times and at prices that the Fund’s investment adviser believes appropriate, and offer greater potential for gains and losses.
Foreign Securities: The Fund may invest in foreign securities, including direct investments in securities of foreign issuers that are traded on a U.S. securities exchange or over the
counter and investments in depository receipts (such as American Depositary Receipts (“ADRs”)), ETFs and other closed-end investment companies that represent indirect interests in securities of foreign issuers. The Fund is not limited in the amount
of assets it may invest in such foreign securities. These investments involve certain risks not generally associated with investments in the securities of U.S. issuers, including the risk of fluctuations in foreign currency exchange rates,
unreliable and untimely information about the issuers and political and economic instability. These risks could result in the Fund’s investment adviser misjudging the value of certain securities or in a significant loss in the value of those
securities.
The value of foreign securities is affected by changes in currency rates, foreign tax laws (including withholding and confiscatory taxes), government policies (in this country or abroad), relations between nations and trading, settlement,
custodial and other operational risks. In addition, the costs of investing abroad are generally higher than in the United States, and foreign securities markets may be less liquid, more volatile and less subject to governmental supervision than
markets in the U.S. As an alternative to holding foreign traded securities, the Fund may invest in dollar-denominated securities of foreign companies that trade
44
Special Opportunities Fund, Inc.
Investment objectives and policies, principal risk factors
on U.S. exchanges or in the U.S. over-the-counter market (including depositary receipts as described below, which evidence ownership in underlying foreign securities, and ETFs as described above).
Because foreign companies are not subject to uniform accounting, auditing and financial reporting standards, practices and requirements comparable to those applicable to U.S. companies, there may be less publicly available information about a
foreign company than about a domestic company. Volume and liquidity in most foreign debt markets is less than in the United States and securities of some foreign companies are less liquid and more volatile than securities of comparable U.S.
companies. There is generally less government supervision and regulation of securities exchanges, broker dealers and listed companies than in the United States. Mail service between the United States and foreign countries may be slower or less
reliable than within the United States, thus increasing the risk of delayed settlements of portfolio transactions or loss of certificates for portfolio securities. Payment for securities before delivery may be required. In addition, with respect to
certain foreign countries, including those with emerging markets, there is the possibility of expropriation or confiscatory taxation, political or social instability, or diplomatic developments which could affect investments in those countries. For
example, prior governmental approval for foreign investments may be required in some emerging market countries, and the extent of foreign investment may be subject to limitation in other emerging countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position. Foreign securities markets, while
growing in volume and sophistication, are generally not as developed as those in the United States, and securities of some foreign issuers (particularly those located in developing countries) may be less liquid and more volatile than securities of
comparable U.S. companies.
The Fund may purchase ADRs, international depositary receipts (“IDRs”) and global depository receipts (“GDRs”) which are certificates evidencing ownership of shares of foreign issuers and are alternatives to purchasing directly the underlying
foreign securities in their national markets and currencies. However, such depository receipts continue to be subject to many of the risks associated with investing directly in foreign securities. These risks include foreign exchange risk as well
as the political and economic risks associated with the underlying issuer’s country. ADRs, EDRs and GDRs may be sponsored or unsponsored. Unsponsored receipts are established without the participation of the issuer. Unsponsored receipts may involve
higher expenses, they may not pass-through voting or other stockholder rights, and they may be less liquid. Less information is normally available on unsponsored receipts.
45
Special Opportunities Fund, Inc.
Investment objectives and policies, principal risk factors
Dividends paid on foreign securities may not qualify for the reduced federal income tax rates applicable to qualified dividends under the Code. As a result, there can be no assurance as to what portion of the Fund’s distributions attributable to
foreign securities will be designated as qualified dividend income.
Emerging Market Securities: The Fund may invest up to 5% of its net assets in emerging market securities, although through its investments in ETFs, other investment companies or
depository receipts that invest in emerging market securities, up to 20% of the Fund’s assets may be invested indirectly in issuers located in emerging markets. The risks of foreign investments described above apply to an even greater extent to
investments in emerging markets. The securities markets of emerging countries are generally smaller, less developed, less liquid, and more volatile than the securities markets of the United States and developed foreign markets. Disclosure and
regulatory standards in many respects are less stringent than in the United States and developed foreign markets. There also may be a lower level of monitoring and regulation of securities markets in emerging market countries and the activities of
investors in such markets and enforcement of existing regulations has been extremely limited. Many emerging countries have experienced substantial, and in some periods extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have very negative effects on the economies and securities markets of certain emerging countries. Economies in emerging markets generally are heavily dependent upon international trade
and, accordingly, have been and may continue to be affected adversely by trade barriers, exchange controls, managed adjustments in relative currency values, and other protectionist measures imposed or negotiated by the countries with which they
trade. The economies of these countries also have been and may continue to be adversely affected by economic conditions in the countries in which they trade. The economies of countries with emerging markets may also be predominantly based on only a
few industries or dependent on revenues from particular commodities. In addition, custodial services and other costs relating to investment in foreign markets may be more expensive in emerging markets than in many developed foreign markets, which
could reduce the Fund’s income from such securities. In many cases, governments of emerging countries continue to exercise significant control over their economies, and government actions relative to the economy, as well as economic developments
generally, may affect the Fund’s investments in those countries. In addition, there is a heightened possibility of expropriation or confiscatory taxation, imposition of withholding taxes on interest payments, or other similar developments that could
affect investments in those countries. There can be no assurance that adverse political changes will not cause the Fund to suffer a loss of any or all of its investments. Dividends paid by issuers in emerging market countries will generally not
qualify for the reduced federal income tax rates applicable to qualified dividends under the Code.
46
Special Opportunities Fund, Inc.
Investment objectives and policies, principal risk factors
Preferred Stocks: The Fund may invest in preferred stocks. Preferred stock, like common stock, represents an equity ownership in an issuer. Generally, preferred stock has a priority of
claim over common stock in dividend payments and upon liquidation of the issuer. Unlike common stock, preferred stock does not usually have voting rights. Preferred stock in some instances is convertible into common stock. Although they are equity
securities, preferred stocks have characteristics of both debt and common stock. Like debt, their promised income is contractually fixed. Like common stock, they do not have rights to precipitate bankruptcy proceedings or collection activities in
the event of missed payments. Other equity characteristics are their subordinated position in an issuer’s capital structure and that their quality and value are heavily dependent on the profitability of the issuer rather than on any legal claims to
specific assets or cash flows.
Investment in preferred stocks carries risks, including credit risk, deferral risk, redemption risk, limited voting rights, risk of subordination and lack of liquidity. Fully taxable or hybrid preferred securities typically contain provisions
that allow an issuer, at its discretion, to defer distributions for up to 20 consecutive quarters. Distributions on preferred stock must be declared by the board of directors and may be subject to deferral, and thus they may not be automatically
payable. Income payments on preferred stocks may be cumulative, causing dividends and distributions to accrue even if not declared by the company’s board or otherwise made payable, or they may be non-cumulative, so that skipped dividends and
distributions do not continue to accrue. There is no assurance that dividends on preferred stocks in which the Fund invests will be declared or otherwise made payable. The Fund may invest in non-cumulative preferred stock, although the Fund’s
investment adviser would consider, among other factors, their non-cumulative nature in making any decision to purchase or sell such securities.
Shares of preferred stock have a liquidation value that generally equals the original purchase price at the date of issuance. The market values of preferred stock may be affected by favorable and unfavorable changes impacting the issuers’
industries or sectors, including companies in the utilities and financial services sectors, which are prominent issuers of preferred stock. They may also be affected by actual and anticipated changes or ambiguities in the tax status of the security
and by actual and anticipated changes or ambiguities in tax laws, such as changes in corporate and individual income tax rates, and in the dividends received deduction for corporate taxpayers or the lower rates applicable to certain dividends.
Because the claim on an issuer’s earnings represented by preferred stock may become onerous when interest rates fall below the rate payable on the stock or for other reasons, the issuer may redeem preferred stock, generally after an initial period
of call protection in which the stock is not redeemable. Thus, in declining interest rate environments in particular, the Fund’s holdings of higher dividend
47
Special Opportunities Fund, Inc.
Investment objectives and policies, principal risk factors
paying preferred stocks may be reduced and the Fund may be unable to acquire securities paying comparable rates with the redemption proceeds. In the event of a redemption, the Fund may not be able to reinvest the proceeds at comparable rates of
return.
Convertible Securities. The Fund may invest in convertible securities. Convertible securities include fixed income securities that may be exchanged or converted into a predetermined
number of shares of the issuer’s underlying common stock at the option of the holder during a specified period. Convertible securities may take the form of convertible preferred stock, convertible bonds or debentures, units consisting of “usable”
bonds and warrants or a combination of the features of several of these securities. The investment characteristics of each convertible security vary widely, which allows convertible securities to be employed for a variety of investment strategies.
The Fund will exchange or convert convertible securities into shares of underlying common stock when, in the opinion of the Fund’s investment adviser, the investment characteristics of the underlying common shares will assist the Fund in achieving
its investment objective. The Fund may also elect to hold or trade convertible securities. In selecting convertible securities, the Fund’s investment adviser evaluates the investment characteristics of the convertible security as a fixed income
instrument, and the investment potential of the underlying equity security for capital appreciation. In evaluating these matters with respect to a particular convertible security, the Fund’s investment adviser considers numerous factors, including
the economic and political outlook, the value of the security relative to other investment alternatives, trends in the determinants of the issuer’s profits, and the issuer’s management capability and practices.
The value of a convertible security, including, for example, a warrant, is a function of its “investment value” (determined by its yield in comparison with the yields of other securities of comparable maturity and quality that do not have a
conversion privilege) and its “conversion value” (the security’s worth, at market value, if converted into the underlying common stock). The investment value of a convertible security is influenced by changes in interest rates, with investment value
declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors may also have an effect on the convertible security’s investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If the conversion value is low relative to the investment value, the price of the convertible security is governed principally by its investment value. Generally, the
conversion value decreases as the convertible security approaches maturity. To the extent the market price of the underlying common stock approaches or exceeds the conversion price, the price of the convertible security will be increasingly
influenced by its conversion value. A convertible security generally will sell at a premium over its conversion value by the extent to which investors place value on
48
Special Opportunities Fund, Inc.
Investment objectives and policies, principal risk factors
the right to acquire the underlying common stock while holding a fixed income security. A convertible security may be subject to redemption at the option of the issuer at a price established in the convertible security’s governing instrument. If
a convertible security held by the Fund is called for redemption, the Fund will be required to permit the issuer to redeem the security, convert it into the underlying common stock or sell it to a third party. Any of these actions could have an
adverse effect on the Fund’s ability to achieve its investment objective.
Real Estate Investment Trusts. The Fund may invest in real estate investment trusts (“REITs”). REITs are financial vehicles that pool investors’ capital to purchase or finance real
estate. Investments in REITs will subject the Fund to various risks. REIT share prices may decline because of adverse developments affecting the real estate industry and real property values. In general, real estate values can be affected by a
variety of factors, including supply and demand for properties, the economic health of the country or of different regions, and the strength of specific industries that rent properties. REITs often invest in highly leveraged properties. Returns from
REITs, which typically are small or medium capitalization stocks, may trail returns from the overall stock market. In addition, changes in interest rates may hurt real estate values or make REIT shares less attractive than other income-producing
investments. REITs are also subject to heavy cash flow dependency, defaults by borrowers and self-liquidation.
Qualification as a REIT under the Code in any particular year is a complex analysis that depends on a number of factors. There can be no assurance that the entities in which the Fund invests with the expectation that they will be taxed as a REIT
will qualify as a REIT. An entity that fails to qualify as a REIT would be subject to a corporate level tax, would not be entitled to a deduction for dividends paid to its stockholders and would not pass through to its stockholders the character of
income earned by the entity. If the Fund were to invest in an entity that failed to qualify as a REIT, such failure could significantly reduce the Fund’s yield on that investment.
REITs can be classified as equity REITs, mortgage REITs and hybrid REITs. Equity REITs invest primarily in real property and earn rental income from leasing those properties. They may also realize gains or losses from the sale of properties.
Equity REITs will be affected by conditions in the real estate rental market and by changes in the value of the properties they own. Mortgage REITs invest primarily in mortgages and similar real estate interests and receive interest payments from
the owners of the mortgaged properties. Mortgage REITs will be affected by changes in creditworthiness of borrowers and changes in interest rates. Hybrid REITs invest both in real property and in mortgages. Equity and mortgage REITs are dependent
upon management skills, may not be diversified and are subject to the risks of financing projects.
49
Special Opportunities Fund, Inc.
Investment objectives and policies, principal risk factors
Dividends paid by REITs will not generally qualify for the reduced U.S. federal income tax rates applicable to qualified dividends under the Code.
The Fund’s investments in REITs may include an additional risk to stockholders. Some or all of a REIT’s annual distributions to its investors may constitute a non-taxable return of capital. Any such return of capital will generally reduce the
Fund’s basis in the REIT investment, but not below zero. To the extent the distributions from a particular REIT exceed the Fund’s basis in such REIT, the Fund will generally recognize gain. In part because REIT distributions often include a
nontaxable return of capital, trust distributions to stockholders may also include a nontaxable return of capital. Stockholders that receive such a distribution will also reduce their tax basis in their common shares of the Fund, but not below
zero. To the extent the distribution exceeds a stockholder’s basis in the Fund’s common shares such stockholder will generally recognize a capital gain.
The Fund does not have any investment restrictions with respect to investments in REITs other than its concentration policy which limits its investments in REITs to no more than 25% of its assets.
Issuer Risk: The value of an issuer’s securities that are held in the Fund’s portfolio may decline for a number of reasons which directly relate to the issuer, such as management
performance, financial leverage and reduced demand for the issuer’s goods and services.
Foreign Currency Risk: Although the Fund will report its NAV and pay expenses and distributions in U.S. dollars, the Fund may invest in foreign securities denominated or quoted in
currencies other than the U.S. dollar. Therefore, changes in foreign currency exchange rates will affect the U.S. dollar value of the Fund’s investment securities and NAV. For example, even if the securities prices are unchanged on their primary
foreign stock exchange, the Fund’s NAV may change because of a change in the rate of exchange between the U.S. dollar and the trading currency of that primary foreign stock exchange. Certain currencies are more volatile than those of other countries
and Fund investments related to those countries may be more affected. Generally, if a foreign currency depreciates against the dollar (i.e., if the dollar strengthens), the value of the existing investment in the securities denominated in that
currency will decline. When a given currency appreciates against the dollar (i.e., if the dollar weakens), the value of the existing investment in the securities denominated in that currency will rise. Certain foreign countries may impose
restrictions on the ability of foreign securities issuers to make payments of principal and interest to investors located outside of the country, due to a blockage of foreign currency exchanges or otherwise.
Defensive Positions: During periods of adverse market or economic conditions, the Fund may temporarily invest all or a substantial portion of its net assets in cash or cash equivalents.
The Fund would not be pursuing its investment objective in these circumstances and could miss favorable market developments.
50
Special Opportunities Fund, Inc.
Investment objectives and policies, principal risk factors
Risk Characteristics of Options and Futures: Options and futures transactions can be highly volatile investments. Successful hedging strategies require the anticipation of future
movements in securities prices, interest rates and other economic factors. When a fund uses futures contracts and options as hedging devices, the prices of the securities subject to the futures contracts and options may not correlate with the prices
of the securities in a portfolio. This may cause the futures and options to react to market changes differently than the portfolio securities. Even if expectations about the market and economic factors are correct, a hedge could be unsuccessful if
changes in the value of the portfolio securities do not correspond to changes in the value of the futures contracts. The ability to establish and close out futures contracts and options on futures contracts positions depends on the availability of a
secondary market. If these positions cannot be closed out due to disruptions in the market or lack of liquidity, losses may be sustained on the futures contract or option. In addition, the Fund’s use of options and futures may have the effect of
reducing gains made by virtue of increases in value of the Fund’s common stock holdings.
Securities Lending Risk: Securities lending is subject to the risk that loaned securities may not be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. Any loss in the market price of securities loaned by the Fund that occurs during the term of the loan would be borne by the Fund and would adversely affect the Fund’s performance. Also, there
may be delays in recovery, or no recovery, of securities loaned or even a loss of rights in the collateral should the borrower of the securities fail financially while the loan is outstanding. The Fund would not have the right to vote any securities
having voting rights during the existence of the loan.
Discount Risk: Historically, the shares of the Fund, as well as those of other closed-end investment companies, have frequently traded at a discount to their NAV. Any premium or discount
to NAV often fluctuates over time. See “Price Range of Common Stock.”
Other Risks: In addition to the risks detailed above, the Fund also has investments in auction rate preferred securities, business development companies, special purpose acquisition
vehicles, liquidation claims, warrants and rights. All of these other investments can subject the Fund to various risks. Any of these investments could have an adverse effect on the Fund’s ability to achieve its investment objective.
Investment transactions and investment income—Investment transactions are recorded on the trade date. Realized gains and losses from investment transactions are calculated using the identified cost method.
Dividend income is recorded on the ex-dividend date. Interest income is recorded on an accrual basis.
51
Special Opportunities Fund, Inc.
Investment objectives and policies, principal risk factors
Discounts are accreted and premiums are amortized using the effective yield method as adjustments to interest income and the identified cost of investments.
Dividends and distributions—On March 4, 2019, the Fund received authorization from the U.S. Securities and Exchange Commission (the “SEC”) that permits the Fund to distribute long-term capital gains to
stockholders more than once per year. Accordingly, the Board approved the implementation of a Managed Distribution Plan (“MDP”) to make monthly cash distributions to stockholders. Under the MDP, distributions will be made from current income,
supplemented by realized capital gains and, to the extent necessary, paid in capital. In the year ended December 31, 2023, the Fund made monthly distributions to common stockholders at an annual rate of 8%, based on the NAV of the Fund’s common
shares as of the close of business on the last business day of the previous year. Dividends and distributions to common shareholders are recorded on the ex-dividend date. The amount of dividends from net investment income and distributions from net
realized capital gains was determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. These “book/tax” differences are either considered temporary or permanent in nature. To
the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassification.
The Fund has made certain investments in Real Estate Investment Trusts (“REITs”) which pay distributions to their shareholders based upon available funds from operations. Each REIT reports annually the tax character of its distributions. It is
quite common for these distributions to exceed the REIT’s taxable earnings and profits resulting in the excess portion of such distributions being designated as a return of capital or long-term capital gain. The Fund intends to include the gross
distributions from such REITs in its distributions to its shareholders; accordingly, a portion of the distributions paid to the Fund and subsequently distributed to shareholders may be re-characterized. The final determination of the amount of the
Fund’s return of capital distribution for the period will be made after the end of each calendar year.
Holders of Convertible Preferred Stock receive calendar quarterly dividends at the rate of 2.75% of the Subscription Price per year. Dividends on the Convertible Preferred Stock are fully cumulative, and accumulate without interest from the date
of original issuance of the Convertible Preferred Stock.
52
Special Opportunities Fund, Inc.
General information (unaudited)
The Fund
Special Opportunities Fund, Inc. (the “Fund”) is a diversified, closed-end management investment company whose common shares trade on the New York Stock Exchange (“NYSE”). The Fund’s NYSE trading symbol is “SPE.” On April 21, 2010 the Fund’s
symbol changed from “PIF” to “SPE.” Comparative net asset value and market price information about the Fund is available weekly in various publications.
Annual meeting of shareholders held on December 7, 2023
The Fund held an annual meeting of shareholders on December 7, 2023. As of the record date, October 6, 2023, there were 11,182,133 shares of the Fund’s common stock issued and outstanding and 2,287,118 shares of the Fund’s preferred stock issued
and outstanding. The results of the voting for the proposals were as follows:
Proposal 1(a) To elect four Directors to the Fund’s Board of Directors, to be elected by the holders of the Fund’s common stock and preferred stock, voting together as a single class, to serve until the Fund’s Annual Meeting of Stockholders in
2024 and until their successors have been duly elected and qualified.
|
Proposal to elect Andrew Dakos as a director:
|
|||
|
FOR
|
% of Quorum
|
% of O/S
|
WITHHELD
|
|
7,260,165
|
66.86%
|
53.90%
|
3,598,725
|
|
Proposal to elect Ben Harris as a director:
|
|||
|
FOR
|
% of Quorum
|
% of O/S
|
WITHHELD
|
|
7,224,308
|
66.53%
|
53.64%
|
3,634,582
|
|
Proposal to elect Gerald Hellerman as a director:
|
|||
|
FOR
|
% of Quorum
|
% of O/S
|
WITHHELD
|
|
7,180,858
|
66.13%
|
53.31%
|
3,678,132
|
|
Proposal to elect Charles C. Walden as a director:
|
|||
|
FOR
|
% of Quorum
|
% of O/S
|
WITHHELD
|
|
7,199,711
|
66.30%
|
53.45%
|
3,659,179
|
53
Special Opportunities Fund, Inc.
General information (unaudited)
Proposal 1(b) To elect two Directors to the Fund’s Board of Directors, to be elected by the holders of the Fund’s preferred stock, voting as a separate class, to serve until the Fund’s Annual Meeting of Stockholders in 2024 and until their
successors have been duly elected and qualified.
|
Proposal to elect Phillip Goldstein as a director:
|
|||
|
FOR
|
% of Quorum
|
% of O/S
|
WITHHELD
|
|
2,113,869
|
98.05%
|
92.43%
|
42,126
|
|
Proposal to elect Marc Lunder as a director:
|
|||
|
FOR
|
% of Quorum
|
% of O/S
|
WITHHELD
|
|
2,113,869
|
98.05%
|
92.43%
|
42,126
|
O/S – outstanding shares
54
Special Opportunities Fund, Inc.
General information (unaudited)
Tax information
The Fund designated 14.55% of its ordinary income distribution for the year ended December 31, 2023, as qualified dividend income under the Jobs and Growth Tax Relief Reconciliation Act of 2003.
For the year ended December 31, 2023, 6.24% of dividends paid from net ordinary income qualified for the dividends received deduction available to corporate shareholders.
The Fund designated 0.00% of taxable ordinary income distributions designated as short-term capital gain distributions under Internal Revenue Section 871 (k)(2)(C).
Quarterly Form N-PORT portfolio schedule
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-PORT. The Fund’s Forms N-PORT are available on the SEC’s Web site at http://www.sec.gov. Additionally, you may
obtain copies of Forms N-PORT from the Fund upon request by calling 1-877-607-0414.
Proxy voting policies, procedures and record
You may obtain a description of the Fund’s (1) proxy voting policies, (2) proxy voting procedures and (3) information regarding how the Fund voted any proxies related to portfolio securities during the most recent 12-month period ended June 30 for
which an SEC filing has been made, without charge, upon request by contacting the Fund directly at 1-877-607-0414, or on the EDGAR Database on the SEC’s Web site (http://www.sec.gov).
55
Special Opportunities Fund, Inc.
Supplemental information (unaudited)
The following table sets forth the directors and officers of the Fund, his name, address, age, position with the Fund, term of office and length of service with the Fund, principal occupation or employment during the past five years and other
directorships held at December 31, 2023.
Additional information about the Directors and Officers of the Fund is included in the Fund’s most recent Form N-2.
|
Term of
|
Number of
|
Other
|
|||
|
Office
|
Portfolios
|
Directorships
|
|||
|
and
|
in Fund
|
held by
|
|||
|
Position(s)
|
Length
|
Principal Occupation
|
Complex
|
Director During
|
|
|
Name, Address
|
Held with
|
of Time
|
During the Past
|
Overseen
|
the Past
|
|
and Age*
|
the Fund
|
Served
|
Five Years
|
by Director**
|
Five Years
|
|
INTERESTED DIRECTORS
|
|||||
|
Andrew Dakos***
|
President
|
1 year;
|
Partner of the Adviser since
|
1
|
Director, Brookfield
|
|
(57)
|
as of
|
Since
|
2009; Partner of Ryan
|
DTLA Fund Office
|
|
|
October
|
2009
|
Heritage, LLP since 2019;
|
Trust Investor, Inc.;
|
||
|
2009.
|
Principal of the former
|
Trustee, Crossroads
|
|||
|
general partner of several
|
Liquidating Trust
|
||||
|
private investment partnerships
|
(until 2020);
|
||||
|
in the Bulldog Investors group
|
Trustee, High
|
||||
|
of private funds.
|
Income Securities
|
||||
|
Fund; Chairman,
|
|||||
|
Swiss Helvetia
|
|||||
|
Fund, Inc.
|
|||||
|
Phillip Goldstein***
|
Chairman
|
1 year;
|
Partner of the Adviser since
|
1
|
Chairman, Mexico
|
|
(79)
|
and
|
Since
|
2009; Partner of Ryan
|
Equity and Income
|
|
|
Secretary
|
2009
|
Heritage, LLP since 2019;
|
Fund, Inc.; Director,
|
||
|
as of
|
Principal of the former
|
MVC Capital, Inc.
|
|||
|
October
|
general partner of several
|
(until 2020);
|
|||
|
2009.
|
private investment partnerships
|
Director, Brookfield
|
|||
|
in the Bulldog Investors group
|
DTLA Fund Office
|
||||
|
of private funds.
|
Trust Investor, Inc.;
|
||||
|
Trustee, Crossroads
|
|||||
|
Liquidating Trust
|
|||||
|
(until 2020);
|
|||||
|
Chairman, High
|
|||||
|
Income Securities
|
|||||
|
Fund; Director,
|
|||||
|
Swiss Helvetia
|
|||||
|
Fund, Inc.
|
|||||
56
Special Opportunities Fund, Inc.
Supplemental information (unaudited)
|
Term of
|
Number of
|
Other
|
|||
|
Office
|
Portfolios
|
Directorships
|
|||
|
and
|
in Fund
|
held by
|
|||
|
Position(s)
|
Length
|
Principal Occupation
|
Complex
|
Director During
|
|
|
Name, Address
|
Held with
|
of Time
|
During the Past
|
Overseen
|
the Past
|
|
and Age*
|
the Fund
|
Served
|
Five Years
|
by Director**
|
Five Years
|
|
INDEPENDENT DIRECTORS
|
|||||
|
Gerald Hellerman
|
—
|
1 year;
|
Managing Director of Hellerman
|
1
|
Director, Mexico
|
|
(86)
|
Since
|
Associates (a financial and
|
Equity and Income
|
||
|
2009
|
corporate consulting firm) since
|
Fund, Inc.; Trustee,
|
|||
|
1993 (which terminated activities
|
Fiera Capital Series
|
||||
|
as of December, 31, 2013).
|
Trust (until 2023);
|
||||
|
Trustee, High
|
|||||
|
Income Securities
|
|||||
|
Fund; Director,
|
|||||
|
Swiss Helvetia
|
|||||
|
Fund, Inc.; Director,
|
|||||
|
MVC Capital, Inc.
|
|||||
|
(until 2020);
|
|||||
|
Trustee, Crossroads
|
|||||
|
Liquidating Trust
|
|||||
|
(until 2020).
|
|||||
|
Marc Lunder
|
—
|
1 year;
|
Managing Member of Lunder
|
1
|
None
|
|
(60)
|
Effective
|
Capital LLC.
|
|||
|
January 1,
|
|||||
|
2015
|
|||||
|
Ben Harris
|
—
|
1 year;
|
Executive Chairman of
|
1
|
Trustee,
|
|
(55)
|
Since
|
Hormel Harris Investments, LLC;
|
High Income
|
||
|
2009
|
Principal of NBC Bancshares, LLC;
|
Securities Fund.
|
|||
|
Chief Executive Officer of Crossroads
|
|||||
|
Capital, Inc.; Administrator of
|
|||||
|
Crossroads Liquidating Trust.
|
|||||
|
Charles C. Walden
|
—
|
1 year;
|
President and Owner of Sound
|
1
|
Independent
|
|
(79)
|
Since
|
Capital Associates, LLC
|
Chairman, Third
|
||
|
2009
|
(consulting firm).
|
Avenue Funds
|
|||
|
(fund complex
|
|||||
|
consisting of three
|
|||||
|
funds and one
|
|||||
|
variable series trust)
|
|||||
|
(until 2019).
|
|||||
57
Special Opportunities Fund, Inc.
Supplemental information (unaudited)
|
Term of
|
Number of
|
Other
|
|||
|
Office
|
Portfolios
|
Directorships
|
|||
|
and
|
in Fund
|
held by
|
|||
|
Position(s)
|
Length
|
Principal Occupation
|
Complex
|
Director During
|
|
|
Name, Address
|
Held with
|
of Time
|
During the Past
|
Overseen
|
the Past
|
|
and Age*
|
the Fund
|
Served
|
Five Years
|
by Director**
|
Five Years
|
|
OFFICERS
|
|||||
|
Andrew Dakos***
|
President
|
1 year;
|
Partner of the Adviser since
|
n/a
|
n/a
|
|
(57)
|
as of
|
Since
|
2009; Partner of Ryan
|
||
|
October
|
2009
|
Heritage, LLP since 2019;
|
|||
|
2009.
|
Principal of the former
|
||||
|
general partner of several
|
|||||
|
private investment partnerships
|
|||||
|
in the Bulldog Investors group
|
|||||
|
of private funds.
|
|||||
|
Rajeev Das***
|
Vice-
|
1 year;
|
Principal of the Adviser and
|
n/a
|
n/a
|
|
(55)
|
President
|
Since
|
Ryan Heritage, LLP.
|
||
|
as of
|
2009
|
||||
|
October
|
|||||
|
2009.
|
|||||
|
Phillip Goldstein***
|
Chairman
|
1 year;
|
Partner of the Adviser
|
n/a
|
n/a
|
|
(79)
|
and
|
Since
|
since 2009; Partner of Ryan
|
||
|
Secretary
|
2009
|
Heritage, LLP since 2019;
|
|||
|
as of
|
Principal of the
|
||||
|
October
|
former general partner of
|
||||
|
2009.
|
several private investment
|
||||
|
partnerships in the Bulldog
|
|||||
|
Investors group of funds.
|
|||||
|
Stephanie Darling***
|
Chief
|
1 year;
|
General Counsel and Chief
|
n/a
|
n/a
|
|
(53)
|
Compliance
|
Since
|
Compliance Officer of
|
||
|
Officer
|
2020
|
Bulldog Investors, LLP;
|
|||
|
as of
|
Chief Compliance Officer –
|
||||
|
April
|
Ryan Heritage, LLP, High
|
||||
|
2020.
|
Income Securities Fund,
|
||||
|
Swiss Helvetia Fund, and
|
|||||
|
Mexico Equity and Income
|
|||||
|
Fund; Principal, the Law
|
|||||
|
Office of Stephanie Darling;
|
|||||
|
Editor-In-Chief, The
|
|||||
|
Investment Lawyer.
|
|||||
58
Special Opportunities Fund, Inc.
Supplemental information (unaudited)
|
Term of
|
Number of
|
Other
|
|||
|
Office
|
Portfolios
|
Directorships
|
|||
|
and
|
in Fund
|
held by
|
|||
|
Position(s)
|
Length
|
Principal Occupation
|
Complex
|
Director During
|
|
|
Name, Address
|
Held with
|
of Time
|
During the Past
|
Overseen
|
the Past
|
|
and Age*
|
the Fund
|
Served
|
Five Years
|
by Director**
|
Five Years
|
|
Thomas Antonucci***
|
Chief
|
1 year;
|
Director of Operations
|
n/a
|
n/a
|
|
(55)
|
Financial
|
Since
|
of the Adviser and Ryan
|
||
|
Officer
|
2014
|
Heritage, LLP.
|
|||
|
and
|
|||||
|
Treasurer
|
|||||
|
as of
|
|||||
|
January
|
|||||
|
2014.
|
|
*
|
The address for all directors and officers is c/o Special Opportunities Fund, Inc., 615 East Michigan Street, Milwaukee, WI 53202.
|
|
|
**
|
The Fund Complex is comprised of only the Fund.
|
|
|
***
|
Messrs. Dakos, Goldstein, Das, Antonucci and Ms. Darling are each considered an “interested person” of the Fund within the meaning of the 1940 Act because of their affiliation with Bulldog Investors, LLP, the Adviser, and their positions
as officers of the Fund.
|
59
Special Opportunities Fund, Inc.
Board approval of investment advisory agreement (unaudited)
At its in-person meeting held on September 14, 2023, the Board of Directors (the “Board”) of Special Opportunities Fund, Inc. (the “Fund”) met to consider the renewal of the Investment Advisory Agreement (the “Advisory Agreement”) between the Fund
and Bulldog Investors, LLP (the “Adviser”). The Independent Directors (as defined below) held a telephonic executive session on September 6, 2023 (the “September 6, 2023 Meeting”) to review materials related to the renewal of the Advisory Agreement.
The Board received and discussed a memorandum from the Fund’s independent legal counsel regarding the duties and responsibilities of the Board and the Independent Directors under the Investment Company Act of 1940, as amended (the “1940 Act”), in
reviewing advisory contracts. Based on their evaluation of the information provided, the Directors, by a unanimous vote (including a separate vote of the Directors who are not “interested persons,” as that term is defined in the 1940 Act, as amended
(the “Independent Directors”)), approved the continuation of the Advisory Agreement for an additional one-year term.
In considering the renewal of the Advisory Agreement and reaching their conclusions, the Independent Directors reviewed and analyzed various factors that they determined were relevant, including (a) the nature, extent, and quality of the services
to be provided by the Adviser; (b) the investment performance of the Fund assets managed by the Adviser; (c) the cost of the services to be provided and the profits to be realized by the Adviser from its relationship with the Fund; (d) the extent to
which economies of scale (if any) would be realized as the Fund grows; and (e) fee comparisons of the advisory services and fees similar to those of the Investment Adviser. The Independent Directors evaluated each of these factors based on their own
direct experience with the Adviser and in consultation with their independent counsel. No one factor was determinative in the Board’s decision to approve the continuance of the Advisory Agreement. Greater detail regarding the Independent Directors’
consideration of the factors that led to their decision to approve the continuance of the Advisory Agreement is set forth below.
The materials which had been prepared by the Adviser in response to a questionnaire (known as a “15(c) questionnaire”) provided to the Adviser by Fund counsel with respect to certain matters that counsel believed relevant to the annual
continuation of the Advisory Agreement under Section 15 of the 1940 Act, distributed to the Directors and reviewed by the Independent Directors together with counsel at the September 6, 2023 Meeting included, among other things, information
regarding: (a) the Adviser’s financial soundness; (b) information on the cost to the Adviser of advising the Fund and the Adviser’s profitability in connection with such advisory services; (c) the experience and responsibilities of key personnel at
the Adviser; (d) the risk management policies and procedures adopted by the Adviser; (e) the investment performance of the Fund as compared to peer and/or
60
Special Opportunities Fund, Inc.
Board approval of investment advisory agreement (unaudited)
comparable funds; (f) the Adviser’s policy with respect to selection of broker-dealers and allocation of portfolio transactions; (g) fees of the Fund as compared to peer and/or comparable funds; (h) the profitability to the Adviser derived from
its relationship to the Fund; (i) the Adviser’s compliance program and chief compliance officer; (j) the Adviser’s policy with respect to proxy voting; (k) affiliates and possible conflicts; and (l) other material factors affecting the Adviser.
The Directors reviewed the Adviser’s financial information and discussed the profitability of the Adviser as it relates to advising the Fund. The Independent Directors considered both the direct and indirect benefits to the Adviser from advising
the Fund. These considerations were based on material requested by the Directors specifically for the meeting, as well as the in-person presentations made by the Adviser over the course of the year. After further discussion, the Independent Directors
concluded that the Adviser’s profit from advising the Fund currently was not excessive and that the Adviser had adequate financial strength to support the services to the Fund.
The Independent Directors then assessed the overall quality of services provided to the Fund. The Independent Directors considered the Adviser’s specific responsibilities in all aspects of day-to-day management of the Fund, as well as the
qualifications, experience and responsibilities of the portfolio managers and other key personnel at the Adviser involved in the day-to-day activities of the Fund. The Independent Directors noted the unique investment strategy of the Fund and the
knowledge and expertise required by the Adviser’s personnel. The Independent Directors also considered the operational strength of the Adviser. The Independent Directors considered the favorable history, reputation, qualification and background of
the Adviser, as well as the qualifications of its personnel and financial condition. The Independent Directors then reviewed the Bulldog Investors, LLP organizational chart as well as the affiliated entity organizational chart. The Independent
Directors concluded that the Adviser had sufficient quality and depth of personnel, resources, investment methods and compliance policies and procedures to perform its duties under the Investment Advisory Agreement and that the nature, overall
quality, and extent of the management services were satisfactory and reliable.
The Independent Directors reviewed the personnel responsible for providing services to the Fund and concluded, based on their experience and interaction with the Adviser, that the Adviser (a) was able to retain quality personnel, (b) exhibited a
high level of diligence and attention to detail in carrying out its responsibilities under the Investment Advisory Agreement, (c) was very responsive to the requests of the Independent Directors and the Fund’s CCO, (d) had
61
Special Opportunities Fund, Inc.
Board approval of investment advisory agreement (unaudited)
consistently kept the Board apprised of developments related to the Fund and the industry in general and (e) continued to demonstrate the ability to grow the Fund over time via investment returns.
The Independent Directors discussed the performance of the Fund for the year-to-date, one-year, three-year, five-year, and ten-year periods ended June 30, 2023. In assessing the quality of the portfolio management services delivered by the
Adviser, the Independent Directors also compared the short-term and long-term performance of the Fund on both an absolute basis and in comparison to a peer fund group with data provided by Morningstar, Inc. (the “Peer Group”) and assembled by Fund
Services independently from the Adviser. The Independent Directors noted that the Fund’s NAV performance was above the peer group average for the one-year, three-year and five-year periods, but below the peer group average for the ten-year period. It
was also noted by the Independent Directors that the Adviser had provided select data on the Fund’s peers that the Adviser believed were most comparable to the investment style of the Fund. The Independent directors also noted that they review the
investment performance of the Fund at each quarterly meeting. After considering all of the information, the Independent Directors concluded that the Adviser has obtained reasonable returns for the Fund while minimizing risk. Although past performance
is not a guarantee or indication of future results, the Independent Directors determined that the Fund and its shareholders were likely to benefit from the Adviser’s continued management.
The Independent Directors then turned to a more focused review of the cost of services and the structure of the Adviser’s fees. The Independent Directors reviewed information prepared by the Adviser, as well as by Fund Services comparing the
Fund’s contractual advisory fee with a peer group of funds and comparing the Fund’s overall expense ratio to the expense ratios of the Peer Group. The Independent Directors noted that the contractual investment advisory fee for the Fund of 1.00% was
below the 1.02% Peer Group average. The Independent Directors further noted that the then current expense ratio of 1.99% for the Fund, which included the advisory fee on the preferred assets, was greater than the Peer Group average expense ratio of
1.50%. It was noted that the Fund is unique in its industry due to its activist investment strategy and true comparisons are difficult. Discussion ensued regarding the selection of the comparable funds by the Adviser and their use of leverage.
Following a thorough discussion, the Independent Directors concluded that the Fund’s expenses and the management fee paid to the Adviser were fair and not unreasonable in light of the experience and commitment of the Adviser, as well as the
comparative performance, expense and management fee information provided.
62
Special Opportunities Fund, Inc.
Board approval of investment advisory agreement (unaudited)
After due consideration of the written and oral presentations, the Independent Directors concluded that the nature and scope of the advisory services provided was reasonable and appropriate in relation to the advisory fee and in relation to peer
comparisons, that the level of services to be provided by the Adviser were expected to be maintained and that the quality of service was expected to remain high.
Based on the factors discussed above, the Board approved the continuance of the Advisory Agreement between the Fund and Adviser on September 14, 2023.
63
Special Opportunities Fund, Inc.
New York Stock Exchange certifications (unaudited)
On December 21, 2023, the Fund submitted an annual certification to the New York Stock Exchange (“NYSE”) in which the Fund’s president certified that he was not aware, as of the date of the certification, of any violation by the Fund of the NYSE’s
Corporate Governance listing standards.
64
Special Opportunities Fund, Inc.
Privacy policy notice
The following is a description of the Fund’s policies regarding disclosure of nonpublic personal information that you provide to the Fund or that the Fund collects from other sources. In the event that you hold shares of the Fund through a
broker-dealer or other financial intermediary, the privacy policy of the financial intermediary would govern how your nonpublic personal information would be shared with unaffiliated third parties.
CATEGORIES OF INFORMATION THE FUND COLLECTS. The Fund collects the following nonpublic personal information about you:
|
1.
|
Information from the Consumer: this category includes information the Fund receives from you on or in applications or other forms, correspondence, or conversations (such as your name, address, phone number, social security number, assets,
income and date of birth); and
|
|
|
2.
|
Information about the Consumer’s transactions: this category includes information about your transactions with the Fund, its affiliates, or others (such as your account number and balance, payment history, parties to transactions, cost
basis information, and other financial information).
|
CATEGORIES OF INFORMATION THE FUND DISCLOSES. The Fund does not disclose any nonpublic personal information about their current or former shareholders to unaffiliated third parties, except as required or permitted by law. The Fund is permitted
by law to disclose all of the information it collects, as described above, to its service providers (such as the Custodian, administrator and transfer agent) to process your transactions and otherwise provide services to you.
CONFIDENTIALITY AND SECURITY. The Fund restricts access to your nonpublic personal information to those persons who require such information to provide products or services to you. The Fund maintains physical, electronic and procedural
safeguards that comply with federal standards to guard your nonpublic personal information.
This privacy policy notice is not a part of the shareholder report.
65
Investment Adviser
Bulldog Investors, LLP
Park 80 West
250 Pehle Avenue, Suite 708
Saddle Brook, NJ 07663
Administrator and Fund Accountant
U.S. Bank Global Fund Services
615 East Michigan Street
Milwaukee, WI 53202
Custodian
U.S. Bank, N.A.
Custody Operations
1555 North RiverCenter Drive, Suite 302
Milwaukee, WI 53212
Transfer Agent and Registrar
Equiniti Trust Company, LLC
48 Wall Street, Floor 23
New York, NY 10005
Fund Counsel
Blank Rome LLP
1271 Avenue of the Americas
New York, NY 10020
Independent Registered Public Accounting Firm
Tait, Weller & Baker LLP
Two Liberty Place
50 South 16th Street, Suite 2900
Philadelphia, PA 19102
Board of Directors
Andrew Dakos
Phillip Goldstein
Ben Harris
Gerald Hellerman
Marc Lunder
Charles Walden
Special Opportunities Fund, Inc.
1-877-607-0414
www.specialopportunitiesfundinc.com
(b) Not applicable for this Registrant.
Item 2. Code of Ethics.
The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer and principal financial officer. The Registrant has not made any amendments to its Code of Ethics during the period covered by this
report. The registrant has not granted any waivers from any provisions of the code of ethics during the period covered by this report.
Item 3. Audit Committee Financial Expert.
The registrant’s board of directors has determined that there is at least one audit committee financial expert serving on its audit committee. Marc Lunder is the “audit committee financial expert” and is considered to be “independent” as each
term is defined in Item 3 of Form N‑CSR.
Item 4. Principal Accountant Fees and Services.
(a) Audit Fees:
For the fiscal years ended December 31, 2023 and December 31, 2022, the aggregate Tait, Weller & Baker LLP (“TWB”) audit fees for professional services rendered to the registrant were approximately $39,000 and $39,000, respectively.
Fees included in the audit fees category are those associated with performing an audit of the registrant’s annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings
or engagements.
(b) Audit-Related Fees:
For the fiscal years ended December 31, 2023 and December 31, 2022, the aggregate audit-related fees billed by TWB for services rendered to the registrant that are related to the performance of the audit, but not reported as audit fees, were
approximately $2,000 and $2,000, respectively.
Fees included in the audit-related category are those associated with (1) the review of the semi-annual report.
The Audit Committee pre-approved the fees for TWB for the cursory review of the semi-annual report. There were no other audit-related fees required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X during the fiscal
periods indicated above.
(c) Tax Fees:
For the fiscal years ended December 31, 2023 and December 31, 2022, the aggregate tax fees billed by TWB for professional services rendered to the registrant were $4,000 and $4,000, respectively.
Fees included in the tax fees category comprise all services performed by professional staff in the independent accountant’s tax division except those services related to the audits. This category comprises fees for review of tax compliance,
Federal income tax returns and excise tax calculations.
There were no tax fees required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X during the fiscal periods indicated above.
(d) All Other Fees:
In the fiscal years ended December 31, 2023 and December 31, 2022, there were no fees billed by TWB for products and services, other than the services reported in Item 4(a)-(c) above, rendered to the registrant.
There were no “all other fees” required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X during the fiscal periods indicated above.
(e)(1) Audit Committee Pre-Approval Policies and Procedures:
The audit committee has adopted pre-approval policies and procedures that require the audit committee to pre-approve all audit and non-audit services of the registrant, including services provided to any entity affiliated with the registrant.
(e)(2) Services approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X:
Audit-Related Fees:
There were no amounts that were approved by the audit committee pursuant to the de minimis exception for the fiscal years ended December 31, 2023 and December 31, 2022 on behalf of the registrant.
There were no amounts that were required to be approved by the audit committee pursuant to the de minimis exception for the fiscal years ended December 31, 2023 and December 31, 2022 on behalf of the registrant’s service providers that relate
directly to the operations and financial reporting of the registrant.
Tax Fees:
There were no amounts that were approved by the audit committee pursuant to the de minimis exception for the fiscal years ended December 31, 2023 and December 31, 2022 on behalf of the registrant.
There were no amounts that were required to be approved by the audit committee pursuant to the de minimis exception for the fiscal years ended December 31, 2023 and December 31, 2022 on behalf of the registrant’s service providers that relate
directly to the operations and financial reporting of the registrant.
All Other Fees:
There were no amounts that were approved by the audit committee pursuant to the de minimis exception for the fiscal years ended December 31, 2023 and December 31, 2022 on behalf of the registrant.
There were no amounts that were required to be approved by the audit committee pursuant to the de minimis exception for the fiscal years ended December 31, 2023 and December 31, 2022 on behalf of the registrant’s service providers that relate
directly to the operations and financial reporting of the registrant.
(f) All of the principal accountant’s hours spent on auditing the registrant’s financial statements were attributed to work performed by full‑time permanent employees of the principal accountant.
(g) For the fiscal years ended December 31, 2023 and December 31, 2022, the aggregate fees billed by TWB for non-audit services rendered on behalf of the registrant, its investment adviser and any entity controlling, controlled by, or under
common control with the adviser that provides (or provided during the relevant fiscal period) services to the registrant for each of the last two fiscal periods of the registrant is shown in the table below.
|
December 31, 2023
|
December 31, 2022
|
||
|
Registrant
|
$6,000
|
$6,000
|
|
|
Registrant’s Investment Adviser
|
$0
|
$0
|
(h) The registrant’s audit committee was not required to consider whether the provision of non-audit services that were rendered to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management
and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved
pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence.
(i) Not applicable
(j) Not applicable
Item 5. Audit Committee of Listed Registrants.
The Audit Committee is comprised of Mr. Marc Lunder, Mr. Ben H. Harris, Mr. Charles C. Walden and Mr. Gerald Hellerman.
Item 6. Investments.
|
(a)
|
Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this Form.
|
(b) Not Applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
The registrant's policy regarding proxy voting is to delegate the voting of proxies with respect to securities owned by the Fund to the Adviser. The Adviser's policies and procedures regarding proxy voting are below.
Bulldog Investors, LLP
Proxy Voting Policies and Procedures
Proxy Voting Policies
Bulldog Investors believes that the right to vote on issues submitted to shareholder vote, such as election of directors and important matters affecting a company’s structure and operations, can impact the value of its investments. Bulldog
Investors generally analyzes the proxy statements of issuers of stock owned by Bulldog Investors’ clients, as necessary and, other than in connection with routine meetings of open-end investment companies, votes proxies on behalf of such clients.
Bulldog Investors’ decisions with respect to proxy issues are made in light of the anticipated impact of the issue on the value of the investment. Proxies are voted solely in the interests of Bulldog Investors’ clients. Inherent in Bulldog
Investors’ authority to vote proxies on behalf of its clients is the authority to refrain from voting and/or refrain from attending a shareholder meeting, if Bulldog Investors determines that refraining from such action is in the best interest of
its clients.
Proxy Voting Procedures
In evaluating proxy statements, Bulldog Investors relies upon its own fundamental research, and information presented by company management and others. Bulldog Investors does not delegate its proxy voting responsibility to a third party proxy
voting service.
Proxy Voting Guidelines
Bulldog Investors will generally vote proxies in favor of proposals that, in the opinion of the portfolio managers, seek to enhance shareholder value and shareholder democracy. Bulldog Investors will generally vote
proxies against any director who has voted to take action to materially impair shareholder voting rights (e.g., has voted to “opt in” to any state’s control share statute).
Special Opportunities Fund, Inc. (“SPE”). With respect to proxies of closed-end investment companies held by SPE, in order to comply with Section 12(d) of the Investment
Company Act of 1940, Bulldog Investors will “mirror vote” all such proxies received by SPE, unless Bulldog Investors deems it appropriate to seek instructions from SPE shareholders with regard to such vote. In such circumstances, Bulldog Investors
will vote such proxies proportionally based upon the total number of shares owned by those shareholders that provide instructions. Bulldog Investors will post such instructions on SPE’s website and will send an email indicating that it is seeking
instructions to those SPE shareholders who have requested to receive such information. In each semi-annual report to SPE shareholders, they are solicited to request to receive such information.
All Clients. In certain circumstances, Bulldog Investors may enter into a settlement agreement with an issuer of stock owned by Bulldog Investors’ clients that requires Bulldog
Investors to vote shares of such stock (or the stock of an affiliate of the issuer) held by clients in a manner that deviates from these Policies and Procedures. In entering into any such agreement, Bulldog Investors has determined that the
anticipated impact of entering into such settlement agreement is in the interests of Bulldog Investors’ clients.
Monitoring and Resolving Conflicts of Interest
When reviewing proxy statements and related research materials, Bulldog Investors will consider whether any business or other relationships between a portfolio manager, Bulldog Investors and a portfolio company could influence a vote on such
proxy matter. With respect to personal conflicts of interest, Bulldog Investors’ Code of Ethics requires all partners to avoid activities, perquisites, gifts, or receipt of investment opportunities that could interfere with the ability to act
objectively and effectively in the best interests of Bulldog Investors and its clients, and restricts their ability to engage in certain outside business activities. Portfolio managers with a personal conflict of interest regarding a particular
proxy vote must recuse themselves and not participate in the voting decisions with respect to that proxy.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Information is presented as of January 31, 2024.
(a)(1):
The Portfolio Manager of the Fund is Bulldog Investors, LLP. Phillip Goldstein, Andrew Dakos, and Rajeev Das are the individuals responsible for the day-to-day management of the Fund’s portfolio. The business experience of Messrs. Goldstein,
Dakos, and Das during the past 5 years is as follows:
Phillip Goldstein: Partner in Bulldog Investors, LLP and its predecessors since its inception in October 2009, and Partner of Ryan Heritage, LLP, an SEC-registered investment adviser, since its inception in 2019. Mr. Goldstein also is a member
of Bulldog Holdings, LLC, the owner of several entities that previously served as the general partner of several private investment partnerships in the Bulldog Investors group of funds, and the owner of Kimball & Winthrop, LLC, the managing
general partner of Bulldog Investors General Partnership, since 2012. He is a director/trustee of the following closed-end funds: Mexico Equity and Income Fund since 2000, Swiss Helvetia Fund, Inc. since 2018 and High Income Securities Fund since
2018. He also is a director of Brookfield DTLA Fund Office Trust Investor, a subsidiary of a large commercial real estate company, since 2017. He served as a director of MVC Capital, Inc., a business development company, from 2012-2020; and a
trustee of Crossroads Liquidating Trust (f/k/a Crossroads Capital, Inc., a business development company), from 2016-2020. Mr. Goldstein may buy and sell securities for the Fund’s portfolio without limitation.
Andrew Dakos: Partner in Bulldog Investors, LLP and its predecessors since its inception in October 2009, and Partner in Ryan Heritage, LLP, an SEC-registered investment adviser, since its inception in 2019. Mr. Dakos also is a member of Bulldog
Holdings, LLC, the owner of several entities that previously served as the general partner of several private investment partnerships in the Bulldog Investors group of funds, and the owner of Kimball & Winthrop, LLC, the managing general
partner of Bulldog Investors General Partnership, since 2012. He has served as a director/trustee of Crossroads Liquidating Trust (f/k/a Crossroads Capital, Inc., a business development company), from 2015-2020, High Income Securities Fund, a
closed-end fund, since 2018, Swiss Helvetia Fund, Inc., a closed-end fund, since 2017, and Brookfield DTLA Fund Office Trust Investor, a subsidiary of a large commercial real estate company, since 2017. Mr. Dakos may buy and sell securities for
the Fund’s portfolio without limitation.
Rajeev Das: Head Trader of Bulldog Investors, LLP and its predecessors since its inception in October 2009, and Principal of Ryan Heritage, LLP, an SEC-registered investment adviser, since its inception in 2019. Since 2004, Mr. Das has been a
Principal of the entities that previously served as the general partner of the private investment partnerships in the Bulldog Investors group of investment funds. He has been a director/trustee of the following closed-end funds: The Mexico Equity
and Income Fund, Inc., since 2001; and High Income Securities Fund, since 2018. Mr. Das provides investment research and analysis. Mr. Das buys and sells securities for the Fund’s portfolio under the supervision of Mr. Goldstein and Mr. Dakos.
(a)(2): Information is provided as of December 31, 2023 (per instructions to paragraph (a)(2).
(i) Phillip Goldstein, Andrew Dakos and Rajeev Das
(ii) Number of other accounts managed by Mr. Goldstein, Mr. Dakos and Mr. Das within each of the following categories:
(A) Registered investment companies: 2
(B) Other pooled investment vehicles: 6
(C) Other accounts: 337
(iii) Number of other pooled investment vehicles, and total assets therein, with respect to which the advisory fee is based on the performance of the account: None. Number of “other accounts,” and total assets therein, with respect to which the
advisory fee is based on the performance of the account: 2 other accounts; $3.03 million (estimated).
(iv) Certain conflicts of interest may arise in connection with the Portfolio Manager’s management of the Fund’s portfolio and the portfolios of other accounts managed by the investment advisor. For example, certain inherent conflicts of
interest exist in connection with managing accounts that pay a performance-based fee or allocation alongside an account that does not, and in connection with managing the accounts of certain principals of the Portfolio Manager (“Proprietary
Accounts”) alongside the accounts of unaffiliated clients. These conflicts may include an incentive to favor such accounts over the Fund because the investment advisor can potentially receive greater fees from accounts paying a performance-based
fee than from the Fund. As a result, the investment advisor may have an incentive to direct its best investment ideas to, or allocate or sequence trades in favor of such accounts, and may have an incentive to favor the Proprietary Accounts over
the accounts of unaffiliated clients. In addition, in cases where the investment strategies are the same or very similar, various factors (including, but not limited to, tax considerations, amount of available cash, and risk tolerance) may result
in substantially different portfolios in such accounts. Material conflicts of interest could arise in the allocation of investment opportunities between the Fund and other accounts and pooled investment vehicles managed by Bulldog Investors, LLP
and its affiliates. In order to address these conflicts of interest, Bulldog Investors, LLP has adopted a Trade Allocation Policy which recognizes the importance of trade allocation decisions and attempts to achieve an equitable balancing of
competing client interests. The Policy establishes certain procedures to be followed in connection with placing and allocating trades for client accounts.
(a)(3):
Compensation for Messrs. Goldstein, Dakos and Das is comprised solely of net income generated by the Fund’s investment adviser.
(a)(4): Information is provided as of December 31, 2023 (per instructions to paragraph (a)(4).
As of December 31, 2023, Mr. Goldstein beneficially owns 31,822 shares of common stock of the Registrant; Mr. Dakos beneficially owns 10,162 shares (held Directly) of common stock of the Registrant, and Indirectly owns 6,039 shares of common
stock of the Registrant; and Mr. Das owns 2,583 shares of common stock of the Registrant.
Item 9. Purchases of Equity Securities by Closed‑End Management Investment Company and Affiliated Purchasers.
The following purchases were made by or on behalf of the registrant or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended, of shares of the registrant’s equity securities that are
registered by the Registrant pursuant to Section 12 of the Exchange Act made in the period covered by this report.
|
Period
|
(a)
Total Number of
Shares (or Units)
Purchased
|
(b)
Average Price Paid
per Share (or Unit)
|
(c)
Total Number of
Shares (or Units)
Purchased as Part
of Publicly
Announced Plans
or Programs
|
(d)
Maximum Number
(or Approximate
Dollar Value) of
Shares (or Units)
that May Yet Be
Purchased Under
the Plans or
Programs
|
|
7/1/2023 to
7/31/2023
|
82,648
|
$11.36
|
N/A
|
N/A
|
|
8/1/2023 to
8/31/2023
|
38,090
|
$11.41
|
N/A
|
N/A
|
|
9/1/2023 to
9/30/2023
|
82,541
|
$11.20
|
N/A
|
N/A
|
|
10/1/2023 to
10/31/2023
|
55,055
|
$10.60
|
N/A
|
N/A
|
|
11/1/2023 to
11/30/2023
|
53,370
|
$11.20
|
N/A
|
N/A
|
|
12/1/2023 to
12/31/2023
|
63,531
|
$11.66
|
N/A
|
N/A
|
|
Total
|
375,235(1)
|
$11.25
|
N/A
|
N/A
|
(1) 375,235 Common shares were purchased pursuant to the Fund’s Stock Repurchase Program.
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant’s board of directors.
Item 11. Controls and Procedures.
|
(a)
|
The Registrant’s President and Chief Financial Officer have reviewed the Registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”)) as of a date within 90 days of
the filing of this report, as required by Rule 30a-3(b) under the Act and Rules 13a-15(b) or 15d‑15(b) under the Securities Exchange Act of 1934. Based on their review, such officers have concluded that the disclosure controls and
procedures are effective in ensuring that information required to be disclosed in this report is appropriately recorded, processed, summarized and reported and made known to them by others within the Registrant and by the Registrant’s
service provider.
|
|
(b)
|
There were no changes in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the period covered by this report that has materially affected, or is reasonably
likely to materially affect, the Registrant's internal control over financial reporting.
|
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
The registrant did not engage in securities lending activities during the fiscal year reported on this Form N-CSR.
Item 13. Exhibits.
(3) Any written solicitation to purchase securities under Rule 23c‑1 under the Act sent or given during the period covered by the report by or on behalf of the registrant to 10 or
more persons. None.
(4) Change in the registrant’s independent public accountant. There was no change in the registrant’s independent public accountant for the period covered by this report.
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) Special Opportunities Fund, Inc.
By (Signature and Title)* /s/Andrew Dakos
Andrew Dakos, President
Date 3/4/2024
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
By (Signature and Title)* /s/Andrew Dakos
Andrew Dakos, President
Date 3/4/2024
By (Signature and Title)* /s/Thomas Antonucci
Thomas Antonucci, Chief Financial Officer
Date 3/4/2024
* Print the name and title of each signing officer under his or her signature.