UNITED STATES
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
Special Opportunities Fund, Inc.
(Exact name of registrant as specified in charter)
615 East Michigan Street
Milwaukee, WI 53202
(Address of principal executive offices) (Zip code)
Andrew Dakos
Bulldog Investors, LLC
Park 80 West
250 Pehle Avenue, Suite 708
Saddle Brook, NJ 10570
(Name and address of agent for service)
Copy to:
Thomas R. Westle, Esp.
Blank Rome LLP
The Chrysler Building
405 Lexington Avenue
New York, NY 10174
1-877-607-0414
Registrant's telephone number, including area code
Date of fiscal year end: 12/31/2014
Date of reporting period: 6/30/2014
Item 1. Reports to Stockholders.
Special Opportunities Fund, Inc.
(SPE)
Semi-Annual Report
For the six months ended
June 30, 2014
Special Opportunities Fund, Inc.
August 29, 2014
Dear Fellow Shareholders:
Despite the stock market’s phenomenal run since March 2008, investors have shown little fear of heights, at least through the date of this letter. On June 30, 2014, the Fund’s market price closed at $16.70 per share, down 4.33% from its closing price of $17.45 per share on December 31, 2013. (Conversion of almost all the convertible shares during the period resulted in dilution of $1.44 per share.) For the same period, the S&P 500 Index gained 7.14%.
The Fund’s recent underperformance is due in large part to the widening of the discount to net asset value after the retirement of our convertible preferred stock was announced in January. By early 2014, the price of the preferred stock had increased in value so much that it had become a proxy for the common shares and some preferred shareholders had converted their shares to common shares. Rather than having to deal with unplanned conversion requests on a one-by-one basis, the board determined to retire all the convertible preferred stock. Although we feel the Fund had properly accounted for the dilutive effect of the convertible preferred shares in reports to shareholders, the stock price of the common shares fell about 6% on the day of the announcement.
As a reminder, the goal of Special Opportunities Fund is to outperform the market over the long-term with less short-term risk than a broad-based index fund. We have been incurring, and probably always will attempt to incur, less risk than the S&P 500 Index. Currently, we have a fair amount of investments that have little or no correlation to the stock market such as SPACs and special situation stocks like Gyrodyne and Imperial Holdings.
For shareholders that have become accustomed to extensive discussions about our current investments, this letter may be a disappointment. We always want to afford shareholders as much insight as possible into our investment philosophy and our thinking. On the other hand, we have become increasingly concerned about disclosing details about our current investments that could have a harmful effect on the Fund. A respected value investor once put it this way: “Truly good investment ideas are simply rare commodities, particularly so when price discipline is so infused into our decision making process.” Bulldog Investors, LLC, the Fund’s investment advisor, gets paid to try to make good investments for the Fund’s benefit and, when necessary, to take measures to enhance their value. As a prominent legal scholar told me privately, “[The problem] is that disclosure is [available] to friend and foe alike….The foes, e.g. competitors, can use that information to construct their own portfolios.”
In particular, as an activist fund, we have become acutely aware of the free rider problem. With that in mind, we have determined that, from now on, we will only elaborate on our current investments if we believe there is a low probability that it will negatively impact the Fund’s performance. The investments discussed below fall into that category.
Special Opportunities Fund, Inc.
To compensate for the lack of specifics herein, we invite all shareholders to attend the annual meeting in person at a date and location in the New York City area to be announced. I promise to be as open as possible until the Fund’s counsel kicks me under the table.
Gyrodyne Corporation of America (GYRO)
Just before the end of 2013, Gyrodyne paid a special dividend of $66.56 per share consisting of $45.86 in cash and the balance in units of an untraded LLC. In addition, Gyrodyne distributed nontransferable “dividend notes” with a face value of $10.89 per share. A plan of merger was to be put to a shareholder vote at a special meeting which, if approved, would have resulted in the LLC units and dividend notes being converted into publicly traded equity interests (at pre-established ratios) in a newly formed company with a goal of maximizing the value of that company. However, the unusual distributions apparently led to a shift in the shareholder base from value investors to day traders. The result was that a quorum was not reached and the special meeting has been postponed. We continue to believe there is value in Gyrodyne’s stock and in the other Gyrodyne securities. Given our experience as activists and our long history as investors in Gyrodyne, we may seek to play a role in unlocking Gyrodyne’s intrinsic value.
Imperial Holdings (IFT)
To recap, following an FBI raid on Imperial’s office in September 2011, we commenced buying stock at about $1.60 per share. We later gained representation on the board with an immediate goal of reducing the cash burn that was being driven by inordinate legal expenses. We have made substantial progress since then. On June 30, 2014, Imperial’s shares closed at $6.82 per share vs. a stated book value of $9.83 (not including dilution from the exercise of Imperial’s convertible notes). A portfolio of life insurance policies with an aggregate face value of approximately $3 billion, which is valued by assuming an average discount rate of about 19% per annum, represents substantially all of Imperial’s book value.
Imperial’s board and management team are focused on maximizing shareholder value by reducing expenses, especially legal expenses, defending Imperial’s life insurance policies from challenges to their validity by carriers, and capitalizing on opportunities to enhance shareholder value as a result of its improved financial position. There are still risks but, absent any calamities, we think the stock price could rise significantly over the next five years. Those that want to do their own research might wish to check out an archived presentation that was given at Imperial’s June 5, 2014 annual shareholder meeting at http://ir.imperial.com/events.cfm.
Western Asset Inflation Management Fund (IMF)
We began to purchase shares of IMF, a closed-end fund that invests in inflation protected government securities, at a double-digit discount in the third quarter of 2013. A key factor in our decision was that a standstill agreement entered into
Special Opportunities Fund, Inc.
several years ago by a very large shareholder had recently expired. On November 22, 2013, we filed a Schedule 13D indicating that our group owned over 8% of the outstanding shares of IMF and stating that we “intend to communicate with management about measures to address the disparity between the Fund’s stock price and its net asset value.” Purely by coincidence, the other large shareholder filed its own Schedule 13D on the very next business day disclosing that it would nominate candidates for election to the board of directors. We saw that filing as leaving management with no choice but to provide a liquidity event. IMF’s discount narrowed after the filing but we continued to buy aggressively because we thought it would inevitably go to zero. Sure enough, on January 21, 2014, IMF announced a proposal to dissolve the Fund and it liquidated on June 2, 2014.
SPACs
Our portfolio continues to have a significant weighting in SPACs or blank check companies. A SPAC raises funds from investors in an IPO that are placed in a trust account while the sponsor pursues the acquisition of an unspecified company. Each SPAC is unique, but most are issued as units consisting of a share of common stock plus a “free” warrant. The common stock provides us with a modest return and we hope to make money on the warrants if a successful transaction is completed (because, with the elimination of a possible liquidation, the warrant price often increases, sometimes substantially). Otherwise, we just make a modest profit or break even, give or take a few cents per share.
Foreign Closed-End Funds
As we have mentioned, we are planning a spin-off of a new closed-end fund with a primary focus on investments in foreign closed-end funds and similar vehicles. The plan has been delayed due to certain concerns expressed by the SEC’s Division of Investment Management. However, we expect those concerns to be resolved very soon and hope to be able to consummate the spin-off by the end of the year. We continue to see value in offshore closed-end funds that trade at a relatively wide discount or have discount control measures such as periodic self-tender offers or a commitment to permit shareholders to vote on the fund’s continuation at some time in the future.
Why We Invest in Closed-End Funds
The Fund is almost always heavily invested in closed-ends funds. A diversified portfolio of well-selected discounted closed-end funds should generate outperformance over the long term and limit short term risk. In this and future letters, we will explain why we like closed-end funds.
Every thinking investor buys an asset that he thinks is cheap and sells those assets that he thinks are fairly valued or overvalued, or at least less undervalued than some other asset in which the proceeds can be re-deployed. In that sense, every thinking investor is a “value investor.” The problem is determining the fair value
Special Opportunities Fund, Inc.
of an asset. For example, investors that bought Amazon early this year at more than $400 per share must have thought it was cheap. Otherwise, why buy it? It is now below $350 per share. Is it cheap now? The truth is that no one knows the answer with any degree of certainty because the factors that affect Amazon’s prospects at any point in time are perceived, weighted, and processed differently by different people.
Another example of the inherent difficulty of valuing a company’s stock is the well-publicized (and entertaining) feud between two high profile very vocal activists, Bill Ackman and Carl Icahn, over Herbalife. Ackman claims Herbalife is an illegal pyramid scheme and is short the stock. He has been attempting to induce federal regulators to investigate Herbalife with the goal of shutting it down. Icahn, meanwhile, has taken a large stake in Herbalife, says it is undervalued, and that Ackman is “completely wrong” and his crusade is “almost bordering on the insane.” Thus, despite the fact that they are looking at the same facts, two very intelligent and very successful investment managers are poles apart on Herbalife’s valuation. We have no dog in this race1 but that should give pause to anyone who thinks valuing an operating company is cut and dried.
Contrast that with a closed-end fund trading at a double-digit discount to its net asset value, e.g., Swiss Helvetia Fund. We think both Ackman and Icahn would agree that SWZ is cheap.2 While there are other factors to consider before investing in a closed-end fund, the most important factor is almost always the discount. Thus, errors in valuation are much less likely, and hence short term risk is significantly lower, with a discounted closed-end fund than with an operating company.
To be continued….
Sincerely yours,
Phillip Goldstein
Chairman
__________
| 1 | However, even if Ackman is right, we are dubious about his chances of getting regulators to act. Harry Markopolos tried for years, without success, to get the SEC to shut down Bernie Madoff’s Ponzi scheme. And, as documented in his book, “Fooling Some of the People All of the Time,” David Einhorn not only failed to get the SEC, the Justice Department or the SBA to act against Allied Capital’s accounting fraud, but he himself became the target of an investigation. |
| 2 | There are likely other reasons that Ackman and Icahn might not invest in a closed-end fund, including legal constraints, the inability to put huge amounts of money to work in a reasonable time, and the fact that they are looking for assets with greater, albeit more uncertain, undervaluations (and hence higher returns) than closed-end funds. |
Special Opportunities Fund, Inc.
Performance at a glance (unaudited)
Average annual total returns for common stock for the periods ended 6/30/14 |
| Net asset value returns | 1 year | Since 1/25/10 | 5 years* | 10 years* |
| Special Opportunities Fund, Inc. | 8.90% | 10.81% | 11.50% | 7.13% |
| Market price returns | | | | |
| Special Opportunities Fund, Inc. | 11.13% | 10.86% | 11.61% | 8.28% |
| Index returns | | | | |
| S&P 500 Index | 24.61% | 16.46% | 18.83% | 7.78% |
| Share price as of 6/30/14 | | | | |
| Net asset value | | | | $18.18 |
| Market price | | | | $16.70 |
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 payable dates for dividends and other distributions payable through December 31, 2009 and reinvested at the NAV on the ex-dividend date for dividends and other distributions payable after December 31, 2009. The Fund’s common stock market price returns assume that all dividends and other distributions, if any, were reinvested at prices obtained under the Fund’s Dividend Reinvestment Plan (which was terminated on January 1, 2010) for dividends and other distributions payable through December 31, 2009 and reinvested at the lower of the NAV or the closing market price on the ex-dividend date for dividends and other distributions payable after December 31, 2009. 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 Fund’s investment objective and investment adviser have changed. See Note 1 of the Notes to financial statements for more information about the change in investment objective and see Note 2 of the Notes to financial statements for more information about the change in investment adviser. On January 25, 2010, the Fund began investing using its new investment objective, therefore, performance prior to that date is not relevant. |
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.
Special Opportunities Fund, Inc.
Portfolio composition as of 6/30/2014(1) (unaudited)
| | | Value | | | Percent | |
| Investment Companies | | $ | 129,877,842 | | | | 70.29 | % |
| Common Stocks | | | 29,649,053 | | | | 16.04 | |
| Money Market Funds | | | 10,998,842 | | | | 5.95 | |
| Preferred Stocks | | | 6,060,743 | | | | 3.28 | |
| Convertible Bonds | | | 3,506,319 | | | | 1.90 | |
| Promissory Notes | | | 2,234,000 | | | | 1.21 | |
| Liquidation Claims | | | 1,620,937 | | | | 0.88 | |
| Warrants | | | 879,700 | | | | 0.48 | |
| Corporate Bonds | | | 600,936 | | | | 0.33 | |
| Rights | | | 97,693 | | | | 0.05 | |
| Convertible Preferred Stocks | | | 49,016 | | | | 0.03 | |
| Total Investments | | $ | 185,575,081 | | | | 100.44 | % |
| Liabilities in Excess of Other Assets | | | (806,364 | ) | | | (0.44 | ) |
| Total Net Assets | | $ | 184,768,717 | | | | 100.00 | % |
| (1) | As a percentage of net assets. |
Special Opportunities Fund, Inc.
Portfolio of investments—June 30, 2014 (unaudited)
| | | Shares | | | Fair Value | |
| INVESTMENT COMPANIES—70.29% | | | | | | |
| Closed-End Funds—59.84% | | | | | | |
| Aberdeen Israel Fund, Inc. | | | 34,367 | | | $ | 614,482 | |
| Adams Express Co. (k) | | | 351,652 | | | | 4,835,215 | |
| Advance Developing Markets Fund Ltd. (a)(h) | | | 191,414 | | | | 1,388,957 | |
| Advent/Claymore Enhanced Growth & Income Fund | | | 17,383 | | | | 179,045 | |
| AllianceBernstein Income Fund, Inc. | | | 574,291 | | | | 4,318,668 | |
| American Select Portfolio, Inc. | | | 126,285 | | | | 1,351,249 | |
| American Strategic Income Portfolio II | | | 229,651 | | | | 2,016,336 | |
| American Strategic Income Portfolio III | | | 562,207 | | | | 4,115,355 | |
| ARC Capital Holdings Ltd. (h) | | | 561,405 | | | | 302,597 | |
| Bancroft Fund, Ltd. | | | 79,335 | | | | 1,600,980 | |
| Blackrock Latin American Investment Trust PLC (h) | | | 80,000 | | | | 621,577 | |
| Boulder Growth & Income Fund, Inc. | | | 428,406 | | | | 3,650,019 | |
| Boulder Total Return Fund, Inc. | | | 184,149 | | | | 4,725,245 | |
| Central Europe, Russia, & Turkey Fund, Inc. | | | 11,314 | | | | 331,387 | |
| Central Securities Corp. | | | 136,479 | | | | 3,200,433 | |
| Clough Global Allocation Fund | | | 56,017 | | | | 868,258 | |
| Clough Global Equity Fund | | | 120,425 | | | | 1,864,179 | |
| DWS Global High Income Fund, Inc. | | | 35,876 | | | | 301,717 | |
| DWS High Income Opportunities Fund, Inc. | | | 228,156 | | | | 3,369,864 | |
| DWS RREEF Real Estate Fund II, Inc. (a)(c)(f)(g) | | | 201,612 | | | | 72,580 | |
| DWS RREEF Real Estate Fund, Inc. (a)(c)(f)(g) | | | 126,913 | | | | 27,921 | |
| Eaton Vance Risk-Managed Diversified Equity Income Fund | | | 89,611 | | | | 1,034,111 | |
| Ellsworth Fund Ltd. | | | 55,094 | | | | 486,480 | |
| First Opportunity Fund, Inc. | | | 279,106 | | | | 2,685,000 | |
| General American Investors Co., Inc. | | | 231,435 | | | | 8,521,414 | |
| H&Q Healthcare Investors | | | 26,716 | | | | 704,234 | |
| H&Q Life Sciences Investors | | | 26,716 | | | | 554,624 | |
| Helios Strategic Income Fund, Inc. | | | 145,612 | | | | 1,003,267 | |
| Herzfeld Caribbean Basin Fund, Inc. | | | 14,754 | | | | 120,245 | |
| INVESCO Asia Trust Plc (h) | | | 157,367 | | | | 459,185 | |
| JP Morgan Asian Investment Trust PLC (h) | | | 28,426 | | | | 99,607 | |
| Juridica Investments Ltd. (h) | | | 495,258 | | | | 1,169,661 | |
| Kubera Cross-Border Fund Ltd. (h) | | | 380,604 | | | | 118,368 | |
| Liberty All-Star Equity Fund | | | 1,751,775 | | | | 10,528,168 | |
| LMP Real Estate Income Fund, Inc. | | | 46,539 | | | | 535,664 | |
The accompanying notes are an integral part of these financial statements.
Special Opportunities Fund, Inc.
Portfolio of investments—June 30, 2014 (unaudited)
| | | Shares | | | Fair Value | |
| INVESTMENT COMPANIES—(continued) | | | | | | |
| Closed-End Funds—(continued) | | | | | | |
| Madison Strategic Sector Premium Fund | | | 60,080 | | | $ | 769,024 | |
| Marwyn Value Investors Ltd. (h) | | | 160,023 | | | | 512,806 | |
| MFS Intermarket Income Trust I | | | 88,479 | | | | 754,726 | |
| Millennium India Acquisition Co., Inc. (a) | | | 34,036 | | | | 25,534 | |
| Nuveen Dividend Advantage Municipal Fund 3 | | | 110,969 | | | | 1,518,056 | |
| Nuveen Dividend Advantage Municipal Income Fund | | | 87,046 | | | | 1,232,571 | |
| Nuveen Global Government Enhanced Income Fund | | | 262,695 | | | | 3,349,361 | |
| Nuveen Multi-Currency Short-Term Government Income Fund | | | 856,151 | | | | 9,614,576 | |
| Pacific Alliance Asia Opportunities Fund Ltd. (a)(h) | | | 313,541 | | | | 449,147 | |
| Royce Micro-Cap Trust, Inc. | | | 159,317 | | | | 2,010,421 | |
| Royce Value Trust, Inc. | | | 158,160 | | | | 2,530,560 | |
| Swiss Helvetia Fund, Inc. | | | 518,558 | | | | 7,555,390 | |
| Terra Catalyst Fund (a)(h) | | | 23,071 | | | | 25,566 | |
| Tri-Continental Corp. | | | 387,319 | | | | 8,125,953 | |
| Virtus Total Return Fund | | | 294,789 | | | | 1,414,987 | |
| The Zweig Total Return Fund, Inc. | | | 201,429 | | | | 2,898,563 | |
| | | | | | | | 110,563,333 | |
Closed-End Funds—Preferred Shares—0.80% | | | | | | | | |
| Oxford Lane Capital Corp., Series 2017 | | | 57,274 | | | | 1,483,397 | |
| | | | | | | | | |
| Auction Rate Preferred Securities—1.33% (c)(f) | | | | | | | | |
| BlackRock Municipal 2018 Term Trust—Series W7, 0.088% (b) | | | 43 | | | | 1,021,250 | |
| Putnam Managed Municipal Income Trust—Series C | | | 6 | | | | 225,000 | |
| Putnam Municipal Opportunities Trust—Series C | | | 6 | | | | 112,500 | |
| Western Asset Premier Bond Fund—Series M, 0.160% (b) | | | 46 | | | | 1,092,500 | |
| | | | | | | | 2,451,250 | |
| Business Development Company—6.29% | | | | | | | | |
| Equus Total Return, Inc. (a) | | | 106,919 | | | | 265,159 | |
| Firsthand Technology Value Fund, Inc. | | | 272,130 | | | | 5,782,762 | |
| Keating Capital, Inc. (a) | | | 60,882 | | | | 359,812 | |
| MVC Capital, Inc. | | | 403,584 | | | | 5,226,413 | |
| | | | | | | | 11,634,146 | |
| Business Development Company—Preferred Shares—2.03% | | | | | | | | |
| MVC Capital, Inc. | | | 147,760 | | | | 3,745,716 | |
| Total Investment Companies (Cost $110,613,725) | | | | | | | 129,877,842 | |
The accompanying notes are an integral part of these financial statements.
Special Opportunities Fund, Inc.
Portfolio of investments—June 30, 2014 (unaudited)
| | | Shares | | | Fair Value | |
| PREFERRED STOCKS—3.28% | | | | | | |
| Marine—0.03% | | | | | | |
| Box Ships, Inc. (h) | | | 2,474 | | | $ | 58,485 | |
| | | | | | | | | |
| Oil, Gas & Consumable Fuels—0.13% | | | | | | | | |
| Miller Energy Resources, Inc. | | | 9,316 | | | | 238,676 | |
| | | | | | | | | |
| Real Estate Investment Trusts—3.12% | | | | | | | | |
| Preferred Apartment Communities, Inc.—Series A (c)(f) | | | 6,083 | | | | 5,763,582 | |
| Total Preferred Stocks (Cost $5,949,406) | | | | | | | 6,060,743 | |
| | | | | | | | | |
| CONVERTIBLE PREFERRED STOCKS—0.03% | | | | | | | | |
| Real Estate Investment Trusts—0.03% | | | | | | | | |
| Wheeler Real Estate Investment Trust, Inc. | | | 1,963 | | | | 49,016 | |
| Total Convertible Preferred Stocks (Cost $49,055) | | | | | | | 49,016 | |
| | | | | | | | | |
| COMMON STOCKS—16.04% | | | | | | | | |
| Construction Materials—0.01% | | | | | | | | |
| Tecnoglass, Inc. (a)(h) | | | 2,437 | | | | 29,439 | |
| | | | | | | | | |
| Consumer Finance—2.15% | | | | | | | | |
| Imperial Holdings, Inc. (a) | | | 581,622 | | | | 3,966,662 | |
| | | | | | | | | |
| Energy Equipment & Services—0.02% | | | | | | | | |
| Profire Energy, Inc. (a) | | | 7,106 | | | | 32,048 | |
| | | | | | | | | |
| Health Care Providers & Services—0.00% | | | | | | | | |
| Healthcare Corp. of America (Acquired 10/24/2012, Cost $0) (a)(c)(j) | | | 10,000 | | | | 800 | |
| | | | | | | | | |
| Insurance—2.17% | | | | | | | | |
| Stewart Information Services Corp. | | | 129,084 | | | | 4,002,895 | |
| | | | | | | | | |
| IT Services—0.04% | | | | | | | | |
| JetPay Corp. (a) | | | 39,596 | | | | 82,756 | |
| | | | | | | | | |
| Real Estate —0.18% | | | | | | | | |
| Gyrodyne Company of America, Inc. | | | 11,589 | | | | 59,452 | |
| Gyrodyne Dividend Notes (c) | | | 10,914 | | | | 96,807 | |
| Gyrodyne Special Distribution LLC (c) | | | 10,914 | | | | 184,338 | |
| | | | 340,597 | | | | | |
| Real Estate Investment Trusts—2.13% | | | | | | | | |
| American Realty Capital Properties, Inc. | | | 23,165 | | | | 290,258 | |
| Five Oaks Investment Corp. | | | 15,791 | | | | 178,280 | |
| Gladstone Land Corp. | | | 2,582 | | | | 33,540 | |
The accompanying notes are an integral part of these financial statements.
Special Opportunities Fund, Inc.
Portfolio of investments—June 30, 2014 (unaudited)
| | | Shares | | | Fair Value | |
| COMMON STOCKS—(continued) | | | | | | |
| Real Estate Investment Trusts—(continued) | | | | | | |
| Preferred Apartment Communities, Inc. | | | 35,545 | | | $ | 315,284 | |
| Wheeler Real Estate Investment Trust, Inc. | | | 7,235 | | | | 34,439 | |
| Winthrop Realty Trust | | | 201,212 | | | | 3,088,604 | |
| | | | | | | | 3,940,405 | |
| Software—0.13% | | | | | | | | |
| Single Touch Systems, Inc. (a) | | | 623,270 | | | | 236,843 | |
| | | | | | | | | |
| Special Purpose Acquisition Vehicle—9.21% (a) | | | | | | | | |
| Aquasition Corp. (h)(i) | | | 428,661 | | | | 4,376,629 | |
| Capitol Acquisition Corp. II | | | 155,122 | | | | 1,524,849 | |
| Chart Acquisition Corp. | | | 124,265 | | | | 1,241,407 | |
| CIS Acquisition Ltd. (h) | | | 144,147 | | | | 1,477,507 | |
| Collabrium Japan Acquisition Corp. (c)(h) | | | 208,234 | | | | 2,184,374 | |
| Garnero Group Acquisition Co. (h) | | | 153,199 | | | | 1,533,491 | |
| Global Defense & National Security Systems, Inc. | | | 142,712 | | | | 1,459,944 | |
| Hennessy Capital Acquisition Corp. | | | 65,223 | | | | 657,448 | |
| Levy Acquisition Corp. | | | 37,874 | | | | 379,119 | |
| MergeWorthRx Corp. | | | 23,185 | | | | 188,262 | |
| Quartet Merger Corp. | | | 132,553 | | | | 1,330,832 | |
| ROI Acquisition Corp. II | | | 57,484 | | | | 574,840 | |
| Silver Eagle Acquisition Corp. | | | 9,016 | | | | 87,906 | |
| | | | | | | | 17,016,608 | |
| Total Common Stocks (Cost $27,067,558) | | | | | | | 29,649,053 | |
| | | | | | | | | |
LIQUIDATION CLAIMS—0.88% | | | | | | | | |
| The Home Insurance Company in Liquidation (a)(f) | | | 1 | | | | 1,620,937 | |
| Total Liquidation Claims (Cost $1,638,000) | | | | | | | 1,620,937 | |
| | | | | | | | | |
| | | | Principal | | | | | |
| | | | Amount | | | | | |
| CONVERTIBLE BONDS—1.90% (b) | | | | | | | | |
| Imperial Holdings, Inc. | | | | | | | | |
| 8.500%, 02/15/2019 | | $ | 2,941,000 | | | | 3,506,319 | |
| Total Convertible Bonds (Cost $2,941,000) | | | | | | | 3,506,319 | |
| | | | | | | | | |
| CORPORATE BONDS—0.33% (b) | | | | | | | | |
| JC Penney Corp., Inc. | | | | | | | | |
| 6.375%, 10/15/2036 | | | 650,000 | | | | 529,750 | |
| | | | | | | | | |
The accompanying notes are an integral part of these financial statements.
Special Opportunities Fund, Inc.
Portfolio of investments—June 30, 2014 (unaudited)
| | | Principal | | | | |
| | | Amount | | | Fair Value | |
| CORPORATE BONDS—(continued) | | | | | | |
| Washington Mutual, Inc. | | | | | | |
| 0.000%, 9/17/2012 (d)(f) | | $ | 3,000,000 | | | $ | 56,250 | |
| WMI Holdings Corp. | | | | | | | | |
| 13.000%, 03/19/2030—1st Lien | | | 11,280 | | | | 11,280 | |
| 13.000%, 03/19/2030—2nd Lien | | | 3,656 | | | | 3,656 | |
| Total Corporate Bonds (Cost $462,685) | | | | | | | 600,936 | |
| | | | | | | | | |
| PROMISSORY NOTES—1.21% (b)(c)(f) | | | | | | | | |
| Symbios Holdings, Inc. | | | | | | | | |
| 15.000%, 6/16/2014 | | | 450,000 | | | | 0 | |
| UBPS Secured Convertible Promissory Note | | | | | | | | |
| 12.000%, 12/28/2014 | | | 234,000 | | | | 234,000 | |
| Wheeler Real Estate Investment Trust, Inc. Convertible | | | | | | | | |
| 9.000%, 12/15/2018 (Acquired 12/16/2013, Cost $1,200,000) (j) | | | 1,200,000 | | | | 1,200,000 | |
| Wheeler Real Estate Investment Trust, Inc. Non-Convertible | | | | | | | | |
| 9.000%, 12/15/2015 (Acquired 12/16/2013, Cost $800,000) (j) | | | 800,000 | | | | 800,000 | |
| Total Promissory Notes (Cost $2,684,000) | | | | | | | 2,234,000 | |
| | | | | | | | | |
| | | Shares | | | | | |
| RIGHTS—0.05% | | | | | | | | |
| The Gabelli Healthcare & WellnessRx Trust (a) | | | 29,912 | | | | 11,534 | |
| Quartet Merger Corp. (a) | | | 132,553 | | | | 86,159 | |
| Total Rights (Cost $97,401) | | | | | | | 97,693 | |
| | | | | | | | | |
| WARRANTS—0.48% (a) | | | | | | | | |
| Aquasition Corp. | | | | | | | | |
| Expiration: January 2018 | | | | | | | | |
| Exercise Price: $11.50 (h) | | | 400,000 | | | | 58,000 | |
| Arabella Exploration, Inc. | | | | | | | | |
| Expiration: December 2016 | | | | | | | | |
| Exercise Price: $5.00 (h) | | | 25,448 | | | | 62,602 | |
| Capitol Acquisition Corp. II | | | | | | | | |
| Expiration: May 2016 | | | | | | | | |
| Exercise Price: $11.50 | | | 77,561 | | | | 38,005 | |
| Chart Acquisition Corp. | | | | | | | | |
| Expiration: December 2017 | | | | | | | | |
| Exercise Price: $11.50 | | | 124,265 | | | | 56,540 | |
The accompanying notes are an integral part of these financial statements.
Special Opportunities Fund, Inc.
Portfolio of investments—June 30, 2014 (unaudited)
| | | Shares | | | Fair Value | |
| WARRANTS—(continued) | | | | | | |
| CIS Acquisition Ltd. | | | | | | |
| Expiration: December 2017 | | | | | | |
| Exercise Price: $10.00 (h) | | | 140,040 | | | $ | 19,606 | |
| Collabrium Japan Acquisition Corp. | | | | | | | | |
| Expiration: December 2017 | | | | | | | | |
| Exercise Price: $11.50 (h) | | | 208,234 | | | | 16,659 | |
| EvryWare Global, Inc. | | | | | | | | |
| Expiration: May 2018 | | | | | | | | |
| Exercise Price: $6.00 | | | 48,370 | | | | 2,902 | |
| Healthcare Corp. of America | | | | | | | | |
| Expiration: November 2016 | | | | | | | | |
| Exercise Price: $7.50 | | | 33,753 | | | | 337 | |
| Expiration: July 2018 | | | | | | | | |
| Exercise Price: $11.50 (Acquired 10/24/2012, Cost $0) (c)(j) | | | 5,000 | | | | 37 | |
| Hemisphere Media Group, Inc. | | | | | | | | |
| Expiration: April 2018 | | | | | | | | |
| Exercise Price: $6.00 | | | 166,726 | | | | 196,737 | |
| Integrated Drilling Equipment Holdings Corp. | | | | | | | | |
| Expiration: December 2017 | | | | | | | | |
| Exercise Price: $11.50 | | | 205,929 | | | | 8,237 | |
| Net Element, Inc. | | | | | | | | |
| Expiration: October 2017 | | | | | | | | |
| Exercise Price: $7.50 (c)(f) | | | 191,697 | | | | 9,585 | |
| Perferred Apartment Communities | | | | | | | | |
| Expiration: March 2017 | | | | | | | | |
| Exercise Price: $9.00 (c)(f) | | | 6,083 | | | | 61 | |
| Pingtan Marine Enterprise Ltd. | | | | | | | | |
| Expiration: February 2018 | | | | | | | | |
| Exercise Price: $12.00 (h) | | | 52,798 | | | | 5,280 | |
| Prime Acquisition Corp. | | | | | | | | |
| Expiration: March 2018 | | | | | | | | |
| Exercise Price: $5.00 (h) | | | 50,142 | | | | 8,023 | |
| Quinpario Acquisition Corp. | | | | | | | | |
| Expiration: September 2018 | | | | | | | | |
| Exercise Price: $12.00 | | | 131,616 | | | | 178,998 | |
| RLJ Entertainment, Inc. | | | | | | | | |
| Expiration: October 2017 | | | | | | | | |
| Exercise Price: $12.00 | | | 436,744 | | | | 21,837 | |
| Silver Eagle Acquisition Corp. | | | | | | | | |
| Expiration: July 2018 | | | | | | | | |
| Exercise Price: $11.50 | | | 9,016 | | | | 4,598 | |
The accompanying notes are an integral part of these financial statements.
Special Opportunities Fund, Inc.
Portfolio of investments—June 30, 2014 (unaudited)
| | | Shares | | | Fair Value | |
| WARRANTS—(continued) | | | | | | |
| Tecnoglass, Inc. | | | | | | |
| Expiration: December 2016 | | | | | | |
| Exercise Price: $8.00 (h) | | | 47,914 | | | $ | 191,656 | |
| Wheeler Real Estate Investment Trust, Inc. | | | | | | | | |
| Expiration: December 2018 | | | | | | | | |
| Exercise Price: $4.75 (c)(f) | | | 84,211 | | | | 0 | |
| Total Warrants (Cost $763,263) | | | | | | | 879,700 | |
| | | | | | | | | |
| MONEY MARKET FUNDS—5.95% | | | | | | | | |
| Fidelity Institutional Government Portfolio—Class I, 0.010% (e) | | | 5,503,315 | | | | 5,503,315 | |
| Fidelity Institutional Tax-Exempt Portfolio—Class I, 0.010% (e) | | | 5,495,527 | | | | 5,495,527 | |
| Total Money Market Funds (Cost $10,998,842) | | | | | | | 10,998,842 | |
| Total Investments (Cost $163,264,935)—100.44% | | | | | | | 185,575,081 | |
| Liabilities in Excess of Other Assets—(0.44)% | | | | | | | (806,364 | ) |
| TOTAL NET ASSETS—100.00% | | | | | | $ | 184,768,717 | |
Percentages are stated as a percent of net assets.
| (a) | Non-income producing security. |
| (b) | The coupon rates shown represent the rates at June 30, 2014. |
| (c) | Fair valued securities. The total market value of these securities was $13,025,335, representing 7.05% of net assets. |
| (d) | Default or other conditions exist and security is not presently accruing income. |
| (e) | The rate shown represents the 7-day yield at June 30, 2014. |
| (f) | Illiquid security. The total market value of these securities was $12,236,166, representing 6.62% of net assets. |
| (g) | Security currently undergoing a full liquidation with all proceeds paid out to shareholders. |
| (h) | Foreign-issued security. |
| (k) | All or a portion of this security is pledged as collateral for securities sold short. |
Schedule of Securities Sold Short—June 30, 2014 (unaudited)
| | | Shares | | | Value | |
| First American Financial Corp. | | | (63,973 | ) | | $ | (1,777,810 | ) |
| Total Securities Sold Short (Proceeds $1,688,821) | | | | | | $ | (1,777,810 | ) |
The accompanying notes are an integral part of these financial statements.
Special Opportunities Fund, Inc.
Statement of assets and liabilities—June 30, 2014 (unaudited)
| Assets: | | | |
| Investments, at value | | | |
| Non-Affiliated Companies (cost $159,056,559) | | $ | 181,198,452 | |
| Affiliated Companies (cost $4,208,376) | | | 4,376,629 | |
| Total investment, at value (cost $163,264,935) | | | 185,575,081 | |
| Cash | | | 275,512 | |
| Dividends and interest receivable | | | 538,696 | |
| Receivable for investments sold | | | 2,241,765 | |
| Deposits at brokers | | | 1,663,257 | |
| Other assets | | | 28,036 | |
| Total assets | | | 190,322,347 | |
| | | | | |
| Liabilities: | | | | |
| Securities sold short, at value (proceeds $1,688,821) | | | 1,777,810 | |
| Payable for investments purchased | | | 3,443,159 | |
| Payable to Adviser | | | 150,303 | |
| Payable to Custodian | | | 14,084 | |
| Accrued expenses and other liabilities | | | 168,274 | |
| Total liabilities | | | 5,553,630 | |
| Net assets applicable to common shareholders | | $ | 184,768,717 | |
| | | | | |
| Net assets applicable to common shareholders: | | | | |
| Common stock—$0.001 par value per common share; 199,995,800 shares authorized; | | | | |
| 10,165,454 shares issued and outstanding, 13,568,364 shares held in treasury | | $ | 340,000,630 | |
| Cost of shares held in treasury | | | (186,125,319 | ) |
| Accumulated undistributed net investment income | | | 259,682 | |
| Accumulated net realized gain from investment activities | | | 8,412,567 | |
| Net unrealized appreciation (depreciation) on: | | | | |
| Investments | | | 22,310,146 | |
| Securities sold short | | | (88,989 | ) |
| Net assets applicable to common shareholders | | $ | 184,768,717 | |
| Net asset value per common share ($184,768,717 applicable to | | | | |
| 10,165,454 common shares outstanding) | | $ | 18.18 | |
The accompanying notes are an integral part of these financial statements.
Special Opportunities Fund, Inc.
Statement of operations
| | | For the six months | |
| | | ended June 30, 2014 | |
| | | (unaudited) | |
| Investment income: | | | |
Dividends(1) | | $ | 1,052,609 | |
| Interest | | | 205,289 | |
| Total investment income | | | 1,257,898 | |
| Expenses: | | | | |
| Investment advisory fees | | | 880,757 | |
| Professional fees and expenses | | | 131,551 | |
| Directors’ fees and expenses | | | 66,679 | |
| Administration fees and expenses | | | 62,399 | |
| Reports and notices to shareholders | | | 31,597 | |
| Insurance fees | | | 27,508 | |
| Accounting fees and expenses | | | 25,391 | |
| Custody fees and expenses | | | 24,931 | |
| Compliance fees and expenses | | | 23,522 | |
| Dividend expenses | | | 20,468 | |
| Stock exchange listing fees | | | 14,748 | |
| Transfer agency fees and expenses | | | 12,563 | |
| Other expenses | | | 2,048 | |
| Total expenses | | | 1,324,162 | |
Less: Fee waiver by investment advisor(2) | | | (143,573 | ) |
| Net expenses | | | 1,180,589 | |
| Net investment income | | | 77,309 | |
| Net realized and unrealized gains from investment activities: | | | | |
| Net realized gain (loss) from: | | | | |
| Investments | | | 7,113,483 | |
| Distributions received from investment companies | | | 1,112,513 | |
| Foreign currency translation | | | (8,578 | ) |
| Net realized gain on investments | | | 8,217,418 | |
| Change in net unrealized appreciation (depreciation) on: | | | | |
| Investments | | | 1,544,264 | |
| Short transactions | | | (88,989 | ) |
| Foreign currency translation | | | (870 | ) |
| Net realized and unrealized gains from investment activities | | | 9,671,823 | |
| Net increase in net assets applicable to common shareholders resulting from operations | | $ | 9,749,132 | |
| (1) | Net of $8,856 in foreign withholding tax. |
| (2) | Represents the Investment Adviser’s reimbursement to the Fund for expenses incurred with the settlement of the proxy contest between the Investment Adviser and the Firsthand Technology Value Fund. |
The accompanying notes are an integral part of these financial statements.
Special Opportunities Fund, Inc.
Statement of cash flows
| | | For the six months | |
| | | ended June 30, 2014 | |
| | | (unaudited) | |
| Cash flows from operating activities: | | | |
| Net increase in net assets applicable to common shareholders | | $ | 9,749,132 | |
| 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 | | | (49,881,867 | ) |
| Proceeds from sales of investments | | | 54,689,160 | |
| Net purchases and sales of short—term investments | | | 2,066,660 | |
| Amortization and accretion of premium and discount | | | (1,070 | ) |
| Decrease in dividends and interest receivable | | | 946,564 | |
| Increase in receivable for investments sold | | | (1,603,430 | ) |
| Decrease in other assets | | | 13,410 | |
| Increase in payable for investments purchased | | | 2,870,544 | |
| Decrease in payable to Adviser | | | (2,381 | ) |
| Decrease in Convertible Preferred Stock | | | (37,424,300 | ) |
| Increase in accrued expenses and other liabilities | | | 51,569 | |
| Increase in deposits at brokers | | | (1,663,257 | ) |
| Proceeds from securities sold short | | | 1,688,821 | |
| Net realized gains from investments | | | (7,113,483 | ) |
| Net foreign currency translation | | | 6,289 | |
| Net change in unrealized appreciation of investments | | | (1,544,264 | ) |
| Net change in unrealized depreciation short transactions | | | 88,989 | |
| Net cash provided by operating activities | | | (27,062,914 | ) |
| Cash flows from financing activities: | | | | |
| Distributions paid to common shareholders | | | (9,866,715 | ) |
| Decrease in dividends accrued not yet paid | | | (3,077 | ) |
| Conversion of preferred stock to common stock | | | 37,205,024 | |
| Net cash used in financing activities | | | 27,335,232 | |
| Net change in cash | | $ | 272,318 | |
| Cash: | | | | |
| Beginning of period | | | 3,194 | |
| End of period | | $ | 275,512 | |
| Non-cash financing activities not included herein consist of | | | | |
| reinves tment of dividend distributions | | $ | 5,740,113 | |
The accompanying notes are an integral part of these financial statements.
Special Opportunities Fund, Inc.
Statements of changes in net assets applicable to common shareholders
| | | For the | | | | |
| | | six months ended | | | For the | |
| | | June 30, 2014 | | | year ended | |
| | | (unaudited) | | | December 31, 2013 | |
| From operations: | | | | | | |
| Net investment income | | $ | 77,309 | | | $ | 7,624,212 | |
| Net realized gain (loss) before income taxes from: | | | | | | | | |
| Investments | | | 7,113,483 | | | | 5,660,766 | |
| Short transactions | | | — | | | | 598,975 | |
| Distributions received from investment companies | | | 1,112,513 | | | | 2,268,945 | |
| Foreign currency translation | | | (8,578 | ) | | | (73,025 | ) |
| Net realized gain before income taxes | | | 8,217,418 | | | | 8,455,661 | |
| Net change in unrealized appreciation (depreciation) on: | | | | | | | | |
| Investments and foreign currency | | | 1,543,394 | | | | 11,400,145 | |
| Short transactions | | | (88,989 | ) | | | — | |
| Net increase in net assets resulting from operations | | | 9,749,132 | | | | 27,480,018 | |
| | | | | | | | | |
| Distributions paid to preferred shareholders: | | | | | | | | |
| Net investment income | | | — | | | | (1,123,393 | ) |
| Total dividends and distributions paid to preferred shareholders | | | — | | | | (1,123,393 | ) |
| Net increase in net assets applicable to common shareholders | | | | | | | | |
| resulting from operations | | | 9,749,132 | | | | 26,356,625 | |
| | | | | | | | | |
| Distributions paid to common shareholders: | | | | | | | | |
| Net investment income | | | — | | | | (7,768,104 | ) |
| Net realized gains from investment activities | | | — | | | | (7,838,724 | ) |
| Total dividends and distributions paid to common shareholders | | | — | | | | (15,606,828 | ) |
| | | | | | | | | |
| Capital Stock Transactions (Note 4) | | | | | | | | |
| Offering cost adjustment from issuance of preferred stock | | | — | | | | 73,965 | |
| Conversion of preferred stock to common stock | | | 37,205,024 | | | | 30,000 | |
| Reinvestment of distributions to common stockholders | | | 5,740,113 | | | | 3,962,090 | |
| Total capital stock transactions | | | 42,945,137 | | | | 4,066,055 | |
| Net increase in net assets applicable to common shareholders | | | 52,694,269 | | | | 14,815,852 | |
| | | | | | | | | |
| Net assets applicable to common shareholders: | | | | | | | | |
| Beginning of period | | | 132,074,448 | | | | 117,258,596 | |
| End of period | | $ | 184,768,717 | | | $ | 132,074,448 | |
| Accumulated undistributed net investment income | | $ | 259,682 | | | $ | 129,360 | |
The accompanying notes are an integral part of these financial statements.
Special Opportunities Fund, Inc.
Financial highlights
Selected data for a share of common stock outstanding throughout each period is presented below:
| | | For the six months | |
| | | ended June 30, 2014 | |
| | | (unaudited) | |
| Net asset value, beginning of period | | $ | 18.70 | |
Net investment income(2) | | | 0.01 | |
| Net realized and unrealized gains (losses) from investment activities | | | 0.99 | |
| Total from investment operations | | | 1.00 | |
| Common share equivalent of dividends and distributions | | | | |
| paid to auction preferred shareholders from: | | | | |
| Net investment income | | | — | |
| Total dividends and distributions paid to auction preferred shareholders | | | — | |
| Net increase (decrease) from operations | | | 1.00 | |
| Dilutive effect of conversions of preferred shares to common shares | | | (1.44 | ) |
| Dilutive effect of reinvestment of distributions by common shareholders | | | (0.08 | ) |
| Common share equivalent of dividends paid to preferred shareholders from: | | | | |
| Net investment income | | | — | |
| Dividends and distributions paid to common shareholders from: | | | | |
| Net investment income | | | — | |
| Net realized gains from investment activities | | | — | |
| Total dividends and distributions paid to common shareholders | | | — | |
| Net asset value, end of period | | $ | 18.18 | |
| Market value, end of period | | $ | 16.70 | |
Total net asset value return(3)(11) | | | (2.44 | )% |
Total market price return(4)(11) | | | (4.33 | )% |
| Ratio to average net assets attributable to common shares: | | | | |
| Total expenses, net of fee waivers by investment advisor and administrator including | | | | |
| interest, dividends on short positions, and tax expense and fees on floating rate notes | | | 1.42 | %(5)(7) |
| Total expenses, before fee waivers by investment advisor and administrator including | | | | |
| interest, dividends on short positions, and tax expense and fees on floating rate notes | | | 1.60 | %(5)(7) |
| Total expenses, net of fee waivers by investment advisor and administrator excluding | | | | |
| interest expense, dividends on short positions, and fees on floating rate notes | | | 1.40 | %(5)(8) |
| Net investment income before dividends paid to auction preferred shareholders | | | 0.10 | %(2)(5) |
| Dividends paid to auction preferred shareholders from net investment income | | | — | |
| Net investment income available to common shareholders | | | 0.10 | %(2)(5) |
| Supplemental data: | | | | |
| Net assets applicable to common shareholders, end of period (000’s) | | $ | 184,769 | |
| Liquidation value of preferred stock (000’s) | | $ | — | |
Portfolio turnover(11) | | | 30 | % |
| Preferred Stock: | | | | |
| Total shares outstanding | | | — | |
| Asset coverage per share of preferred shares, end of period | | $ | — | |
Financial highlights (continued)
| | | | | | | | | | | | | For the nine | | | For the | |
| | | | | | | | | | | | | months ended | | | year ended | |
| For the years ended December 31, | | | December 31, | | | March 31, | |
| 2013 | | | 2012 | | | 2011 | | | 2010 | | | 2009 | | | 2009 | |
| $ | 17.22 | | | $ | 16.01 | | | $ | 16.42 | | | $ | 14.26 | | | $ | 13.05 | | | $ | 13.71 | |
| | 0.92 | | | | 0.34 | | | | 0.22 | (1) | | | 0.04 | (1) | | | 0.52 | (1) | | | 0.88 | (1) |
| | 3.00 | | | | 1.92 | | | | (0.10 | ) | | | 2.15 | | | | 1.24 | | | | (0.70 | ) |
| | 3.92 | | | | 2.26 | | | | 0.12 | | | | 2.19 | | | | 1.76 | | | | 0.18 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | — | | | | — | | | | — | | | | — | | | | (0.02 | ) | | | (0.25 | ) |
| | — | | | | — | | | | — | | | | — | | | | (0.02 | ) | | | (0.25 | ) |
| | 3.92 | | | | 2.26 | | | | 0.12 | | | | 2.19 | | | | 1.74 | | | | (0.07 | ) |
| | (0.00 | )(12) | | | — | | | | — | | | | — | | | | — | | | | — | |
| | (0.07 | ) | | | (0.03 | ) | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | (0.16 | ) | | | (0.07 | ) | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | (1.10 | ) | | | (0.23 | ) | | | (0.26 | ) | | | (0.03 | ) | | | (0.53 | ) | | | (0.59 | ) |
| | (1.11 | ) | | | (0.72 | ) | | | (0.27 | ) | | | — | | | | — | | | | — | |
| | (2.21 | ) | | | (0.95 | ) | | | (0.53 | ) | | | (0.03 | ) | | | (0.53 | ) | | | (0.59 | ) |
| $ | 18.70 | | | $ | 17.22 | | | $ | 16.01 | | | $ | 16.42 | | | $ | 14.26 | | | $ | 13.05 | |
| $ | 17.45 | | | $ | 15.01 | | | $ | 14.50 | | | $ | 14.75 | | | $ | 14.09 | | | $ | 11.37 | |
| | 21.98 | % | | | 13.72 | % | | | 0.85 | % | | | 15.36 | % | | | 13.51 | % | | | (0.39 | )% |
| | 31.27 | % | | | 10.05 | % | | | 1.89 | % | | | 4.90 | % | | | 29.00 | % | | | (3.32 | )% |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2.66 | %(7) | | | 2.54 | %(7)(9) | | | 1.51 | %(7) | | | 1.50 | %(7) | | | 1.03 | %(5)(6) | | | 1.73 | %(6) |
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2.66 | %(7) | | | 2.54 | %(7)(9) | | | 1.51 | %(7) | | | 1.67 | %(7) | | | 1.92 | %(5)(6) | | | 2.62 | %(6) |
| | | | | | | | | | | | | | | | | | | | | | | |
| | 1.83 | %(8) | | | 1.82 | %(8) | | | 1.51 | %(8) | | | 1.50 | %(8) | | | 0.99 | %(5) | | | 1.59 | % |
| | 5.66 | %(2) | | | 2.41 | %(2) | | | 1.32 | %(2) | | | 0.26 | %(2) | | | 5.00 | %(5) | | | 6.71 | % |
| | — | | | | — | | | | — | | | | — | | | | 0.20 | %(5) | | | 1.87 | % |
| | 5.66 | %(2) | | | 2.41 | %(2) | | | 1.32 | %(2) | | | 0.26 | %(2) | | | 4.80 | %(5) | | | 4.84 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| $ | 132,074 | | | $ | 117,259 | | | $ | 106,864 | | | $ | 109,631 | | | $ | 294,133 | | | $ | 269,266 | |
| $ | 37,424 | | | $ | 37,454 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | 58 | % | | | 62 | % | | | 55 | % | | | 73 | % | | | 7 | % | | | 27 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| | 748,486 | | | | 749,086 | | | | — | | | | — | | | | — | | | | — | |
| $ | 226 | | | $ | 207 | | | $ | — | | | $ | — | | | $ | — | | | $ | 136,860 | (10) |
Special Opportunities Fund, Inc.
Financial highlights (continued)
| (1) | Calculated using the average shares method. |
| (2) | 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. |
| (3) | 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 payable date for dividends and other distributions payable through December 31, 2009 and reinvested at the NAV on the ex-dividend date for dividends and other distributions payable after December 31, 2009. 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. |
| (4) | 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 prices obtained under the Fund’s Dividend Reinvestment Plan (which was terminated on January 1, 2010) for dividends and other distributions payable through December 31, 2009 and reinvested at the lower of the NAV or the closing market price on the ex-dividend date for dividends and other distributions payable after December 31, 2009. 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. |
| (6) | Interest expense represents interest and fees on short term floating rate notes issued in conjunction with inverse floating rate securities. Interest income from such transactions was included in income from investment operations. |
| (7) | Does not include expenses of the investment companies in which the Fund invests. |
| (8) | Does not include expenses of the investment companies in which the Fund invests, interest expenses, or dividends on short positions. |
| (9) | The ratio of expenses to average net assets includes tax expense. The before waiver and expense reimbursement and after waiver and expense reimbursement ratios excluding tax expense were 2.18% and 2.18%, respectively. |
| (10) | In 2009, the preferred shares were auction rate preferred shares. |
| (11) | Not Annualized for periods less than one year. |
| (12) | Less than 0.5 cents per share. |
The accompanying notes are an integral part of these financial statements.
Special Opportunities Fund, Inc.
Notes to financial statements (unaudited)
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 Securities and Exchange Commission under the Investment Company Act of 1940, as amended, 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.
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 reviewed in order to make a good faith determination of a security’s fair value. The auction rate preferred securities are valued at cost, unless other observable market events occur. The purchase price, or cost, of these securities is arrived at through an arms length transaction between a willing buyer and seller in the
Special Opportunities Fund, Inc.
Notes to financial statements (unaudited)
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. The amortized cost method of valuation, which approximates market value, generally is used to value short-term debt instruments with sixty days or less remaining to maturity, unless the Board or its delegate determines that this does not represent fair value.
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 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.
Special Opportunities Fund, Inc.
Notes to financial statements (unaudited)
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 fair value measurement of the Fund’s investment companies, corporate bonds, and promissory notes, are (1) cost and (2) indicative bids or price ranges from dealers, brokers, or market makers. 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 securities that are valued using a method other than 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 Investment Company Act of 1940.
At each regular quarterly Board meeting, the Adviser delivers a written report (the “Quarterly Report”) to the Board regarding any recommendations of fair valuation during the past quarter, including fair valuations which have not changed. The Board reviews the Quarterly Report and discusses the valuation of the fair valued securities.
The Valuation Committee reviews all Quarterly Reports and any other interim reports, and reviews and approves the valuation of all fair valued securities. This review included a review and discussion of an updated fair valuation summary with appropriate levels of representatives of the Adviser’s management.
The following is a summary of the fair valuations according to the inputs used as of June 30, 2014 in valuing the Fund’s investments:
Special Opportunities Fund, Inc.
Notes to financial statements (unaudited)
| | | Quoted Prices in | | | | | | | | | | |
| | | Active Markets | | | | | | | | | | |
| | | for Identical | | | Significant Other | | | Unobservable | | | | |
| | | Investments | | | Observable Inputs | | | Inputs | | | | |
| | | (Level 1)* | | | (Level 2)* | | | (Level 3)** | | | Total | |
| Investment Companies | | $ | 126,879,560 | | | $ | 446,531 | | | $ | 2,551,751 | | | $ | 129,877,842 | |
| Preferred Stocks | | | | | | | | | | | | | | | | |
| Marine | | | 58,485 | | | | — | | | | — | | | | 58,485 | |
| Oil, Gas & Consumable Fuels | | | 238,676 | | | | — | | | | — | | | | 238,676 | |
| Real Estate Investment Trusts | | | — | | | | — | | | | 5,763,582 | | | | 5,763,582 | |
| Convertible Preferred Stocks | | | — | | | | 49,016 | | | | — | | | | 49,016 | |
| Common Stocks | | | | | | | | | | | | | | | | |
| Construction Materials | | | 29,439 | | | | — | | | | — | | | | 29,439 | |
| Consumer Finance | | | 3,966,662 | | | | — | | | | — | | | | 3,966,662 | |
| Energy Equipment & Services | | | 32,048 | | | | — | | | | — | | | | 32,048 | |
| Health Care Providers & Services | | | — | | | | — | | | | 800 | | | | 800 | |
| Insurance | | | 4,002,895 | | | | — | | | | — | | | | 4,002,895 | |
| IT Services | | | 82,756 | | | | — | | | | — | | | | 82,756 | |
| Real Estate | | | 59,452 | | | | — | | | | 281,145 | | | | 340,597 | |
| Real Estate Investments Trusts | | | 3,940,405 | | | | — | | | | — | | | | 3,940,405 | |
| Software | | | 236,843 | | | | — | | | | — | | | | 236,843 | |
| Special Purpose Acquisition Vehicle | | | 5,565,674 | | | | 9,266,560 | | | | 2,184,374 | | | | 17,016,608 | |
| Liquidation Claims | | | — | | | | 1,620,937 | | | | — | | | | 1,620,937 | |
| Convertible Bonds | | | 3,506,319 | | | | — | | | | — | | | | 3,506,319 | |
| Corporate Bonds | | | — | | | | 600,936 | | | | — | | | | 600,936 | |
| Promissory Notes | | | — | | | | — | | | | 2,234,000 | | | | 2,234,000 | |
| Rights | | | 97,693 | | | | — | | | | — | | | | 97,693 | |
| Warrants | | | 745,558 | | | | 124,459 | | | | 9,683 | | | | 879,700 | |
| Money Market Funds | | | 10,998,842 | | | | — | | | | — | | | | 10,998,842 | |
| Total | | $ | 160,441,307 | | | $ | 12,108,439 | | | $ | 13,025,335 | | | $ | 185,575,081 | |
| Liabilities: | | | | | | | | | | | | | | | | |
| Securities Sold Short | | $ | (1,777,810 | ) | | $ | — | | | $ | — | | | $ | (1,777,810 | ) |
| * | Transfers between Levels are recognized at the end of the reporting period. |
| ** | The Fund measures Level 3 activity as of the beginning and end of each financial reporting period. |
Special Opportunities Fund, Inc.
Notes to financial statements (unaudited)
The fair value of derivative instruments as reported within the Statement of Assets and Liabilities as of June 30, 2014:
| Derivatives not accounted | Statement of Assets & | |
| for as hedging instruments | Liabilities Location | Value |
| Equity Contracts—Warrants | Investments, at value | $879,700 |
The effect of derivative instruments on the Statement of Operations for the six months ended June 30, 2014:
| | Amount of Realized Gain |
| | on Derivatives Recognized in Income |
| Derivatives not accounted | Statement of | |
| for as hedging instruments | Operations Location | Value |
| Equity Contracts—Warrants | Net Realized Gain | $226,099 |
| | 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 | $(13,913) |
| | depreciation of investments | |
Transfers between Level 1 and Level 2 securities as of June 30, 2014 resulted from securities priced previously with an official close price (Level 1 securities) or on days where there is not an official close price the bid price is used (Level 2 securities). Transfers as of June 30, 2014 are summarized in the table below:
| Transfers into Level 1 | | | |
| Investment Companies | | $ | 449,147 | |
| Common Stocks | | | | |
| Special Purpose Acquisition Vehicles | | | 1,241,407 | |
| Warrants | | | 38,005 | |
| Transfers out of Level 1 | | | | |
| Investment Companies | | | 302,597 | |
| Common Stocks | | | | |
| Special Purpose Acquisition Vehicles | | | 2,132,794 | |
| Warrants | | | 17,901 | |
| Net transfers in and/or out of Level 1 | | $ | (724,733 | ) |
Special Opportunities Fund, Inc.
Notes to financial statements (unaudited)
| Transfers into Level 2 | | | |
| Investment Companies | | $ | 302,597 | |
| Common Stocks | | | | |
| Special Purpose Acquisition Vehicles | | | 2,132,794 | |
| Warrants | | | 17,901 | |
| Transfers out of Level 2 | | | | |
| Investment Companies | | | 449,147 | |
| Common Stocks | | | | |
| Special Purpose Acquisition Vehicles | | | 1,241,407 | |
| Warrants | | | 38,005 | |
| Net transfers in and/or out of Level 2 | | $ | 724,733 | |
Level 3 Reconciliation Disclosure
The following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value:
| | | | | | | | | | | | | | | Change | | | Transfers | | | | |
| | | Balance | | | | | | | | | Realized | | | in unrealized | | | into / | | | Balance | |
| | | as of | | | Acqui- | | | Dispo- | | | Gain | | | appreciation | | | (out of) | | | as of | |
| Category | | 12/31/2013 | | | sitions | | | sitions | | | (Loss) | | | (depreciaton) | | | Level 3 | | | 6/30/14 | |
| | | | | | | | | | | | | | | | | | | | | | |
| Closed | | | | | | | | | | | | | | | | | | | | | |
| End Funds | | $ | 100,501 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 100,501 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Auction Rate | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Securities | | | 5,186,250 | | | | — | | | | (3,275,000 | ) | | | 512,937 | | | | 27,063 | | | | — | | | | 2,451,250 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stocks | | | 5,721,001 | | | | — | | | | — | | | | — | | | | 42,581 | | | | — | | | | 5,763,582 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Stocks | | | 261,236 | | | | — | | | | — | | | | — | | | | 20,709 | | | | — | | | | 281,945 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Special | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Purpose | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Acquisition | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Vehicles | | | — | | | | — | | | | — | | | | — | | | | 54,140 | | | | 2,130,234 | | | | 2,184,374 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Corporate | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Bonds | | | 75,000 | | | | — | | | | — | | | | — | | | | (18,750 | ) | | | (56,250 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Promissory | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Notes | | | 2,234,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2,234,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Warrants | | | 173 | | | | — | | | | — | | | | — | | | | (13,494 | ) | | | 23,004 | | | | 9,683 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | $ | 13,578,161 | | | $ | — | | | $ | (3,275,000 | ) | | $ | 512,937 | | | $ | 112,249 | | | $ | 2,096,988 | | | $ | 13,025,335 | |
Special Opportunities Fund, Inc.
Notes to financial statements (unaudited)
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 June 30, 2014:
| | | | | | | Impact to |
| | | | | | | Valuation |
| | | Fair Value | | | | from an |
| | | June 30, | | Valuation | Unobservable | increase in |
| | | 2014 | | Methodologies | Input(1) | Input(2) |
| | | | | | | |
| Closed End Funds | | $ | 100,501 | | Market Assessment | Discount to Last | Decrease |
| | | | | | and Company- | Reported Net Asset Value | |
| | | | | | Specific Information | | |
| | | | | | | | |
| Auction Rate Preferred | | $ | 2,451,250 | | Market | Comparability Adjustments/ | Increase |
| Securities | | | | | Comparables | Broker Indications/ | |
| | | | | | | Company Announcements | |
| | | | | | | | |
| Preferred Stocks | | $ | 5,763,582 | | Cost | Market Assessments/ | Increase |
| | | | | | | Financial Assessments | |
| | | | | | | | |
| Common Stocks | | $ | 281,945 | | Market Transactions | Discount to Market Price | Decrease |
| | | | | | Approach | for Share Restrictions | |
| | | | | | | | |
| Special Purpose | | $ | 2,184,374 | | Market Transactions | Adjustments for Dividends | Increase |
| Acquisition Vehicles | | | | | Approach | and Announcements by | |
| | | | | | | Company | |
| | | | | | | | |
| Promissory Notes | | $ | 2,234,000 | | Cost | Terms of the Note/ Financial | Increase |
| | | | | | | Assessments/ Company | |
| | | | | | | Announcements | |
| | | | | | | | |
| Warrants | | $ | 9,683 | | Market Transactions | Discount to Market Price | Decrease |
| | | | | | Approach | for Share Restrictions | |
| (1) | In determining certain of these inputs, management evaluates a variety of factors including economic conditions, foreign exchange rates, industry and market developments, market valuations of comparable companies and company specific developments including exit strategies and realization opportunities. Management has determined that market participants would take these inputs into account when valuing the investments. |
| (2) | This column represents the directional change in the fair value of the Level 3 investments that would result from an increase to the corresponding unobservable input. A decrease to the unobservable input would have the opposite effect. |
Short sales—The Fund is authorized to make short sales. Short sales are transactions where a fund sells securities it does not own in anticipation of a decline in the value of the securities.
Short sales carry risks of loss if the price of the security sold short increases after the sale. In this situation, when a fund replaces the borrowed security by buying the security in the securities market, the fund may pay more for the security than it has received from the purchaser in the short sale. The fund may, however, profit from a change in the value of the security sold short, if the price decreased.
Special Opportunities Fund, Inc.
Notes to financial statements (unaudited)
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 are required to be adjusted daily to the extent additional collateral is required based on the change in fair value of the securities sold short.
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. 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—Dividends to Common Stockholders from net investment income and distributions of net realized capital gains, if any, will be declared and paid at least annually. 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.
Note 2
Related party transactions
Bulldog Investors, LLC 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, LLC. In accordance with the investment advisory agreement, the Fund is obligated to pay Bulldog Investors, LLC a monthly investment advisory fee at an annual rate of 1.00% of the Fund’s average weekly total net assets.
Effective December 6, 2012, 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 $30,000, paid pro rata, quarterly. As additional annual compensation, the Audit Committee Chairman and Valuation Committee Chairman will receive $3,000, and the Corporate Governance Committee Chairman will receive $2,000. For serving the Fund as Chief Compliance Officer, in addition to the aforementioned Directors’ fees, Mr. Hellerman receives annual compensation in the amount of $40,000. In addition, the Fund reimburses the
Special Opportunities Fund, Inc.
Notes to financial statements (unaudited)
directors and Chief Compliance Officer (“CCO”) for travel and out-of-pocket expenses incurred in connection with Board of Directors’ meetings and CCO due diligence requirements.
U.S. Bancorp Fund Services, LLC (“USBFS”), an indirect wholly-owned subsidiary of U.S. Bancorp, serves as the Fund’s Administrator and, in that capacity, performs various administrative services for the Fund. USBFS also serves as the Fund’s Fund Accountant (the “Fund Accountant”). U.S. 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 Fund’s Custodian and Fund Accountant; coordinates the preparation and payment of the Fund’s expenses and reviews the Fund’s expense accruals. American Stock Transfer & Trust Company, LLC serves as the Fund’s Transfer Agent.
Note 3
Purchases and sales of securities
For the six months ended June 30, 2014, aggregate purchases and sales of portfolio securities, excluding short-term securities, were $52,219,817 and $54,689,160, respectively. The Fund did not have any purchases or sales of U.S. government securities during the six months ended June 30, 2014.
Note 4
Capital share transactions
During the six months ended June 30, 2014, the Fund issued 338,450 shares for the reinvestment of distributions. During the same period the Fund issued 2,765,091 of shares of common stock from the conversion of 744,120 shares of the Fund’s convertible preferred stock. During the year ended December 31, 2013, the Fund issued 250,132 shares for the reinvestment of distributions and issued 1,914 of shares common stock from the conversion of 600 shares of the Fund’s convertible preferred stock.
Note 5
Federal tax status
The Fund intends to distribute its income and to comply with the other requirements of the Internal Revenue Code applicable to regulated investment companies. Accordingly, no provision for federal income taxes is required. In addition, by distributing during each calendar year substantially all of its net investment income, net realized capital gains and certain other amounts, if any, the Fund would not be subject to a federal excise tax.
Special Opportunities Fund, Inc.
Notes to financial statements (unaudited)
The tax character of distributions paid to common shareholders during the fiscal year ended December 31, 2013 and the year ended December 31, 2012 were as follows:
| | | For the | | | For the | |
| | | year ended | | | year ended | |
| Distributions paid from: | | December 31, 2013 | | | December 31, 2012 | |
| Ordinary income | | $ | 11,332,076 | | | $ | 3,423,869 | |
| Long-term capital gains | | | 5,398,145 | | | | 4,541,131 | |
| Total distributions paid | | $ | 16,730,221 | | | $ | 7,965,000 | |
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, 2013.
The following information is presented on an income tax basis as of December 31, 2013:
| Tax cost of investments | | $ | 161,797,635 | |
| Unrealized appreciation | | | 25,016,731 | |
| Unrealized depreciation | | | (3,017,860 | ) |
| Net unrealized appreciation | | | 21,998,871 | |
| Undistributed ordinary income | | | — | |
| Undistributed long-term gains | | | 311,078 | |
| Total distributable earnings | | | 311,078 | |
| Other accumulated losses and other temporary differences | | | (1,239,640 | ) |
| Total accumulated gains | | $ | 21,070,309 | |
To reflect reclassifications arising from permanent “book/tax” differences for the year ended December 31, 2013, the Fund’s accumulated undistributed net investment income was increased by $561,399, the accumulated net realized gain from investment activities was decreased by $800,916, and the paid-in capital was increased by $239,517.
At December 31, 2013, the Fund deferred, on a tax basis, post October losses of $132,846.
For the year ended December 31, 2013, the Fund did not have any liabilities for any unrecognized tax positions. The Fund recognizes interest and penalties, if any, related to unrecognized tax positions as income tax expense in the Statement of operations. During the year ended December 31, 2013, the Fund did not incur any interest or penalties.
Special Opportunities Fund, Inc.
Notes to financial statements (unaudited)
Each of the tax years in the three year period ended December 31, 2011, December 31, 2012 and December 31, 2013 remains subject to examination by the Internal Revenue Service and state taxing authorities.
Note 6
Transactions with affiliates
The following issuer is affiliated with the Fund; that is, the Fund held 5% or more of the outstanding Voting shares during the period December 31, 2013 through June 30, 2014. As defined in Section (2)(a)(3) of the Investment Company Act of 1940, such issuers are:
| | Share | | | Share | | | | |
| | Balance | | | Balance | | | Value | |
| | at | | | at | | | at | |
| | Dec. 31, | | | June 30, | Realized | Dividend | June 30, | Acquisition |
| Issuer Name | 2013 | Additions | Reductions | 2014 | Gain | Income | 2014 | Cost |
| Aquasition Corp.* | 400,000 | 28,661 | — | 428,661 | — | — | 4,376,629 | 4,208,376 |
| * | Acquasition Corp. is a Special Purpose Acquisition Company (SPAC). A SPAC is publicly-traded buyout company that raises money in order to pursue the acquisition of an existing company. |
Note 7
Subsequent events
In preparing these financial statements, the Fund 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. This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments, other than the event listed below:
The Fund intends to make an additional payment of $9.98 per share to those former shareholders of the Fund’s Convertible Preferred Stock whose shares were redeemed on March 3, 2014 for a cash payment of $50 per share. All but 4,366 shares of preferred stock were converted into common stock by the close of business on February 28, 2014, the conversion deadline, and the Fund then converted the remaining shares. In view of the ambiguity that resulted from varying descriptions of the conversion and redemption procedures in the articles supplementary to the charter of the Fund versus the Fund’s prospectus, annual report, and subsequent press releases, the Fund has determined to provide the shareholders whose stock was redeemed the value in cash that is equivalent to what they would have received had the Fund converted their shares into common stock at the close of business on February 28, 2014, i.e., $59.98. Therefore, the Fund intends to pay an additional $9.98 per share in cash to the redeeming shareholders in addition to the $50 they received upon redemption to reflect the
Special Opportunities Fund, Inc.
Notes to financial statements (unaudited)
3.716 preferred-to-common conversion ratio and a common stock market closing price of $16.14 on February 28, 2014. The Fund’s adviser, Bulldog Investors, LLC has agreed to provide the necessary funds to the Fund to make the payment.
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 in the open market.
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 March 25, 2014
The Fund held an annual meeting of shareholders on March 25, 2014 to vote on the following matters:
| (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 next Annual Meeting of Stockholders in 2014 and until their successors have been duly elected and qualified; |
(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 next Annual Meeting of Stockholders in 2014 and until their successors have been duly elected and qualified;
| (2) | To instruct Bulldog Investors, LLC, the investment adviser to the Fund (the “Adviser”), to continue to vote proxies received by the Fund from any closed-end investment company in the Fund’s portfolio on any proposal (including the election of directors) in a manner which the Adviser reasonably determines is likely to favorably impact the discount of such investment company’s market price as compared to its net asset value. |
Proxy results—Common Stock
The presence, in person or by proxy, of shareholders entitled to cast a majority of the votes entitled to be cast at the Meeting (i.e., the presence of a majority of the shares outstanding on the record date of February 5, 2014) was necessary to constitute a quorum for the transaction of business. At the Meeting, the holders of approximately 92.57% of the common stock outstanding as of the record date were represented in person or by proxy (7,833,679 votes), thus constituting a quorum for the matters to be voted upon by all shareholders at the Meeting.
Special Opportunities Fund, Inc.
General information (unaudited)
The actual voting results for the agenda items were as follows:
| Proposal to elect James Chadwick as a director: | |
| | | | |
| FOR | % of Quorum | % of O/S | WITHHELD |
| 7,152,260 | 91.30% | 84.52% | 681,419 |
| |
| Proposal to elect Andrew Dakos as a director: |
| | | | |
| FOR | % of Quorum | % of O/S | WITHHELD |
| 6,987,988 | 89.20% | 82.58% | 687,679 |
| |
| Proposal to elect Gerald Hellerman as a director: |
| | | | |
| FOR | % of Quorum | % of O/S | WITHHELD |
| 7,137,655 | 91.11% | 84.34% | 696,024 |
| |
| Proposal to elect Charles C. Walden as a director: |
| | | | |
| FOR | % of Quorum | % of O/S | WITHHELD |
| 7,238,328 | 92.40% | 85.53% | 595,351 |
| | | | |
Proxy results—Preferred Stock* | | | |
| |
| Proposal to elect Phillip Goldstein as a director: |
| | | | |
| FOR | % of Quorum | % of O/S | WITHHELD |
| 580,871 | 97.28% | 6.86% | 16,224 |
| |
| Proposal to elect Ben Harris as a director: |
| | | | |
| FOR | % of Quorum | % of O/S | WITHHELD |
| 593,253 | 99.36% | 7.01% | 3,842 |
| * | On January 27, 2014, the Fund announced that the Board of Directors has determined to redeem all of the outstanding shares of the Fund’s preferred stock at 5 pm EST on March 3, 2014 at $50 per share. If, prior to the date of the Meeting, no shares of preferred stock remain outstanding, then the directors nominated for election by Preferred Stockholders, if elected, will remain on the Board of Directors until the Fund’s next Annual Meeting of Stockholders in 2014 and until their successors have been duly elected and qualified. |
Proposal to instruct the Adviser to vote proxies received by the Fund from any closed-end investment company in the Fund’s portfolio on any proposal (including the election of directors) in a manner which the Adviser reasonably determines is likely to favorably impact the discount of such investment company’s market price as compared to its net asset value.
| FOR | % of Quorum | % of O/S | WITHHELD |
| 4,031,208 | 97.82% | 47.64% | 44,024 |
O/S – outstanding shares
Special Opportunities Fund, Inc.
General information (unaudited)
Tax information
The Fund designated 50.67% of its ordinary income distribution for the year ended December 31, 2013, as qualified dividend income under the Jobs and Growth Tax Relief Reconciliation Act of 2003.
For the year ended December 31, 2013, 43.22% of dividends paid from net ordinary income qualified for the dividends received deduction available to corporate shareholders.
The percentage of taxable ordinary income distributions that are designated as short-term capital gain distributions under Internal Revenue Section 871(k)(2)(C) for each Fund were as follows:
| Special Opportunities Fund, Inc. | 27.62% |
Quarterly Form N-Q portfolio schedule
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the SEC’s Web site at http://www.sec.gov. The Fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the SEC’s Public Reference Room may be obtained by calling 1-800-SEC-0330. Additionally, you may obtain copies of Forms N-Q 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).
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 June 30, 2014.
| | | Term of | | Number of | |
| | | Office | | Portfolios | |
| | | and | | in Fund | Other |
| | Position(s) | Length | Principal Occupation | Complex | Directorships |
| Name, Address | Held with | of Time | During the Past | Overseen | held by |
| and Age* | the Fund | Served | Five Years | by Director** | Director |
| |
| INTERESTED DIRECTORS |
| |
| Andrew Dakos*** | President | 1 year; | Principal of the Adviser since | 1 | Director, Mexico |
| (48) | as of | Since | 2009; Chief Compliance Officer | | Equity and Income |
| | October | 2009 | of the Adviser from 2009-2012; | | Fund, Inc.; |
| | 2009. | | Principal of the general partner | | Director, Imperial |
| | | | of several private investment | | Holdings, Inc. |
| | | | partnerships in the Bulldog | | |
| | | | Investors group of private funds. | | |
| | | | | | |
| Phillip Goldstein*** | Chairman | 1 year; | Principal of the Adviser since | 1 | Chairman, Mexico |
| (69) | and | Since | 2009; Principal of the general | | Equity and Income |
| | Secretary | 2009 | partner of several private | | Fund, Inc.; |
| | as of | | investment partnerships in the | | Director, ASA Ltd.; |
| | October | | Bulldog Investors group of | | Director, MVC |
| | 2009. | | private funds. | | Capital, Inc.; |
| | | | | | Chairman, Imperial |
| | | | | | Holdings, Inc. |
| | | | | | |
| Gerald Hellerman | Chief | 1 year; | None | 1 | Director, Mexico |
| (76) | Financial | Since | | | Equity and Income |
| | Officer | 2009 | | | Fund, Inc.; Director, |
| | as of | | | | MVC Capital, Inc.; |
| | January | | | | Director, Ironsides |
| | 2010. | | | | Partners |
| | | | | | Opportunity |
| | | | | | Offshore Fund Ltd; |
| | | | | | Director, Imperial |
| | | | | | Holdings, Inc. |
Special Opportunities Fund, Inc.
Supplemental information (unaudited)
| | | Term of | | Number of | |
| | | Office | | Portfolios | |
| | | and | | in Fund | Other |
| | Position(s) | Length | Principal Occupation | Complex | Directorships |
| Name, Address | Held with | of Time | During the Past | Overseen | held by |
| and Age* | the Fund | Served | Five Years | by Director** | Director |
| |
| INDEPENDENT DIRECTORS |
| |
| James Chadwick | — | 1 year; | Managing Director of Main | 1 | None |
| (41) | | Since | Street Investment Partners, | | |
| | | 2009 | LLC (private equity firm); | | |
| | | | Managing Director of Opus | | |
| | | | Partners, LLC (private equity | | |
| | | | firm); Managing Director of | | |
| | | | Harlingwood Equity Partners LP; | | |
| | | | Managing Partner of Chadwick | | |
| | | | Capital Management. | | |
| | | | | | |
| Ben Harris | — | 1 year; | Principal and Director of NHI II, | 1 | None |
| (45) | | Since | LLC and NBC Bancshares, LLC. | | |
| | | 2009 | | | |
| | | | | | |
| Charles C. Walden | — | 1 year; | President and Owner of Sound | 1 | Lead Trustee, Third |
| (70) | | Since | Capital Associates, LLC | | Avenue Funds |
| | | 2009 | (consulting firm). | | (fund complex |
| | | | | | consisting of five |
| | | | | | funds and one |
| | | | | | variable series |
| | | | | | trust). |
| | | | | | |
| OFFICERS |
| Andrew Dakos*** | President | 1 year; | Principal of the Adviser since | n/a | n/a |
| (48) | as of | Since | 2009; Chief Compliance | | |
| | October | 2009 | Officer of the Adviser from | | |
| | 2009. | | 2009-2012; Principal of the | | |
| | | | general partner of several | | |
| | | | private investment partnerships | | |
| | | | in the Bulldog Investors group | | |
| | | | of private funds. | | |
| | | | | | |
| Rajeev Das | Vice- | 1 year; | Principal, Bulldog Investors, a | n/a | n/a |
| (45) | President | Since | group of Investment Funds. | | |
| | and | 2009 | | | |
| | Treasurer | | | | |
| | as of | | | | |
| | October | | | | |
| | 2009. | | | | |
| | | | | | |
Special Opportunities Fund, Inc.
Supplemental information (unaudited)
| | | Term of | | Number of | |
| | | Office | | Portfolios | |
| | | and | | in Fund | Other |
| | Position(s) | Length | Principal Occupation | Complex | Directorships |
| Name, Address | Held with | of Time | During the Past | Overseen | held by |
| and Age* | the Fund | Served | Five Years | by Director** | Director |
| | | | | | |
| Phillip Goldstein*** | Chairman | 1 year; | Principal of the Adviser since | n/a | n/a |
| (69) | and | Since | 2009; Principal of the general | | |
| | Secretary | 2009 | partner of several private | | |
| | as of | | investment partnerships | | |
| | October | | in the Bulldog Investors | | |
| | 2009. | | group of funds. | | |
| | | | | | |
| Gerald Hellerman | Chief | 1 year; | None | n/a | n/a |
| (76) | Compliance | Since | | | |
| | Officer | 2009 | | | |
| | as of | | | | |
| | January | | | | |
| | 2010. | | | | |
| | | | | | |
| Thomas Antonucci**** | Chief | 1 year; | Director of Operations | n/a | n/a |
| (45) | Financial | Since | at Bulldog Investors | | |
| | Officer | 2014 | since 2006. | | |
| | 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 and Goldstein are each considered an “interested person” of the Fund within the meaning of the 1940 Act because of their affiliation with Bulldog Investors, LLC, the Adviser and their positions as officers of the Fund. |
| **** | Mr. Antonucci is considered an “interested person” of the Fund within the meaning of the 1940 Act because of his affiliation with Bulldog Investors, LLC, the Adviser and his positions as officer of the Fund. |
Special Opportunities Fund, Inc.
New York Stock Exchange certifications (unaudited)
On January 8, 2014, 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. In addition, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and related SEC rules, the Fund’s president and treasurer have made quarterly certifications, included in the filing with the SEC on Forms N-CSR and N-Q, relating to, among other things, the Fund’s disclosure controls and procedures and internal control over financial reporting.
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.
(This Page Intentionally Left Blank.)
Investment Adviser
Bulldog Investors, LLC
Park 80 West
250 Pehle Avenue, Suite 708
Saddle Brook, NJ 07663
Administrator and Fund Accountant
U.S. Bancorp Fund Services, LLC
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
American Stock Transfer & Trust Company, LLC
59 Maiden Lane
New York, NY 10038
Fund Counsel
Blank Rome LLP
The Chrysler Building
405 Lexington Avenue
New York, NY 10174
Board of Directors
James Chadwick
Andrew Dakos
Phillip Goldstein
Ben Harris
Gerald Hellerman
Charles Walden
Special Opportunities Fund, Inc.
1-877-607-0414
www.specialopportunitiesfundinc.com
Item 2. Code of Ethics.
Not applicable for semi-annual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semi-annual reports.
Item 4. Principal Accountant Fees and Services.
Not applicable for semi-annual reports.
Item 5. Audit Committee of Listed Registrants.
The Audit Committee is comprised of Mr. James Chadwick, Mr. Ben H. Harris and Mr. Charles C. Walden.
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.
Not applicable for semi-annual reports.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable for semi-annual reports.
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 |
1/1/2014 to 1/31/2014 | N/A | N/A | N/A | N/A |
2/1/2014 to 2/28/2014 | N/A | N/A | N/A | N/A |
3/1/2014 to 3/31/2014 | N/A | N/A | N/A | N/A |
4/1/2014 to 4/30/2014 | N/A | N/A | N/A | N/A |
5/1/2014 to 5/31/2014 | N/A | N/A | N/A | N/A |
6/1/2014 to 6/30/2014 | N/A | N/A | N/A | N/A |
| Total | | | | |
*Footnote the date each plan or program was announced, the dollar amount (or share or unit amount) approved, the expiration date (if any) of each plan or program, each plan or program that expired during the covered period, each plan or program registrant plans to terminate or let expire.
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.
The Nominating and Corporate Governance Committee will consider nominees recommended by shareholders if a vacancy occurs. In order to recommend a nominee, a shareholder should send a letter to the chairperson of the Nominating and Corporate Governance Committee, care of the Administrator, 615 East Michigan Street, Milwaukee, WI 53202, and indicate on the envelope “Nominating and Corporate Governance Committee.” The shareholder’s letter should state the nominee’s name and should include the nominee’s résumé or curriculum vitae, and must be accompanied by a written consent of the individual to stand for election if nominated by the Board and to serve if elected by shareholders.
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 second fiscal quarter of 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. Exhibits.
| (a) | (1) Any code of ethics or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy Item 2 requirements through filing an exhibit. Not Applicable. |
(2) A separate certification for each principal executive and principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
(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.
| (b) | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith. |
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 September 2, 2014
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
By (Signature and Title)* /s/ Thomas Antonucci
Thomas Antonucci, Chief Financial Officer
* Print the name and title of each signing officer under his or her signature.
