0001387131-23-010830.txt : 20230906 0001387131-23-010830.hdr.sgml : 20230906 20230906115752 ACCESSION NUMBER: 0001387131-23-010830 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 20230630 FILED AS OF DATE: 20230906 DATE AS OF CHANGE: 20230906 EFFECTIVENESS DATE: 20230906 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPECIAL OPPORTUNITIES FUND, INC. CENTRAL INDEX KEY: 0000897802 IRS NUMBER: 133702911 STATE OF INCORPORATION: MD FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-07528 FILM NUMBER: 231238402 BUSINESS ADDRESS: STREET 1: C/O US BANCORP FUND SERVICES, LLC STREET 2: 615 EAST MICHIGAN AVENUE CITY: MILWAUKEE STATE: WI ZIP: 53202 BUSINESS PHONE: 414-765-4319 MAIL ADDRESS: STREET 1: C/O US BANCORP FUND SERVICES, LLC STREET 2: 615 EAST MICHIGAN AVENUE CITY: MILWAUKEE STATE: WI ZIP: 53202 FORMER COMPANY: FORMER CONFORMED NAME: INSURED MUNICIPAL INCOME FUND INC DATE OF NAME CHANGE: 19960213 FORMER COMPANY: FORMER CONFORMED NAME: PAINEWEBBER PREMIER INSURED MUNICIPAL INCOME FUND INC DATE OF NAME CHANGE: 19930714 N-CSRS 1 sof-ncsrs.htm
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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, LLP
Park 80 West
250 Pehle Avenue, Suite 708
Saddle Brook, NJ 07663
(Name and address of agent for service)

Copy to:
Thomas R. Westle, Esq
Blank Rome LLP
1271 Avenue of the Americas
New York, NY 10020

1-877-607-0414
Registrant's telephone number, including area code





Date of fiscal year end: 12/31/2023



Date of reporting period:  6/30/2023


Item 1. Reports to Stockholders.

(a)




Special Opportunities Fund, Inc.
(SPE)
Semi-Annual Report
For the six months ended
June 30, 2023














Special Opportunities Fund, Inc.


Managed Distribution Plan (unaudited)

On March 4, 2019, the Special Opportunities Fund (the “Fund”) received authorization from the SEC that permits the Fund to distribute long-term capital gains to stockholders more than once per year. Accordingly, on April 1, 2019, the Fund announced its Board of Directors formally approved the implementation of a Managed Distribution Plan (“MDP”) to make monthly cash distributions to stockholders.
 
In the six months ended June 30, 2023, the Fund made monthly distributions to common stockholders at an annual rate of 8%, based on the NAV of the Fund’s common shares as of the close of business on the last business day of the previous year. You should not draw any conclusions about the Fund’s investment performance from the amount of these distributions or from the terms of the MDP. The MDP will be subject to regular periodic review by the Fund’s Board of Directors.
 
With each distribution, the Fund will issue a notice to stockholders which will provide detailed information regarding the amount and composition of the distribution and other information required by the Fund’s exemptive order. The Fund’s Board of Directors may amend or terminate the MDP at any time without prior notice to stockholders; however, at this time, there are no reasonably foreseeable circumstances that might cause the termination of the MDP. For tax reporting purposes the actual composition of the total amount of distributions for each year will continue to be provided on a Form 1099-DIV issued after the end of the year.
 
The conversion price for each share of the Fund’s convertible preferred stock will decrease by the amount of each distribution to common stockholders. The current conversion price, as well as other information about the Fund, will be available on the Fund’s website at www.specialopportunitiesfundinc.com.




1

Special Opportunities Fund, Inc.


August 29, 2023
 
Dear Fellow Shareholder:
 
In the first half of 2023, markets turned around with the S&P 500 Index gaining 16.89%. After accounting for distributions, the Fund’s net asset value per common share (NAV) gained 8.06% in the first half of 2023. As with other diversified closed-end funds (CEFs), the trading discount of our common shares widened, closing at almost 17% below NAV on June 30th. Consequently, in late April, we commenced repurchasing our common stock. To keep the Fund’s leverage ratio in check, we have also been repurchasing our convertible preferred stock, which has been trading at a discount to its book value of $25. From late April through July 31, 2023, we have repurchased 160,200 common shares and 35,983 preferred shares. The details about our repurchases are posted monthly on the Fund’s website.
 
The Fund’s managed distribution plan calls for distributions to be made each month to common shareholders at an annual rate of at least 8% of the NAV of the Fund’s common shares as of the last trading day of the prior year. Since the NAV on December 31, 2022 was $13.01, the minimum monthly distribution for 2023 is $0.0867 per share.
 
On January 21, 2022, the Fund completed a rights offering for shares of a newly issued Convertible Preferred Stock, Series C at $25 per share which pays a quarterly distribution at a rate of 2.75% per annum and may be converted into common stock initially at a price of $20.50 per share (or a ratio of 1.2195 shares of common stock for each share of Series C Stock) and adjusted for any distributions subsequently made to or on behalf of common stockholders. Please refer to the prospectus, which is available on the SEC’s website, for the full details regarding the Series C stock. The current conversion ratio and diluted NAV of the Fund’s common shares (assuming all Series C shares are converted to common shares) are posted weekly on the Fund’s website.
 
Investment Commentary
 
The first half of 2023 saw a general widening of discounts for CEFs and business development companies (BDCs). Consequently, we increased the Fund’s exposure to these investments from about 62% of investable assets to about 67.5%. Generally, we only buy shares of these vehicles at a discount to their NAV and if we see the potential for discount narrowing. As a result of fewer IPOs for special purpose acquisition company (SPACs) and a substantial number of SPAC maturities, i.e., liquidations or mergers, the percentage of the Fund’s total investable assets in SPACs fell from 22.5% to 16.5%. We treat a pre-merger SPAC as an alternative to a money market fund with some optionality. As a rule, we almost never hold any SPAC’s common stock after a business combination. The balance of the Fund’s portfolio consists of a smattering of shares of undervalued operating companies, notes, and about 8% in cash equivalents.
 


2

Special Opportunities Fund, Inc.


As we previously reported, on February 17, 2022, a judge in the District Court for the Southern District of New York (SDNY) found that a bylaw placing so-called “control share” limitations on voting by shareholders of CEFs “violates Section 18(i) of the Investment Company Act of 1940.” That decision was appealed and we are waiting for the appellate court to issue an opinion, which we think is likely to affirm the lower court’s ruling. Also, as we noted in our last letter, a Massachusetts state court subsequently came to the same conclusion. We said previously that “it would not be surprising if there are more lawsuits by investors to compel CEFs to comply with Section 18(i)’s requirement that ‘every share of stock…shall be a voting stock and have equal voting rights with every other outstanding voting stock.’” On June 29th, a lawsuit was filed in the SDNY against 16 Maryland-based CEFs to invalidate their prohibitions on stockholder voting. It is very disappointing that the SEC, which has the power to enforce the securities laws, has acted more like a spectator than a regulator in protecting the voting rights of CEF stockholders.
 
The saga of Vertical Capital Income Fund (VCIF) is near an end, albeit on a bittersweet note. VCIF was a unique CEF whose portfolio consisted of whole home mortgages. On January 12, 2023, VCIF announced a transaction that would result in monetizing the portfolio, Carlyle becoming the new investment advisor, a cash payment by Carlyle to shareholders, and a $25 million tender offer by Carlyle at NAV. The bitter part came on July 11th when VCIF announced the sale of its portfolio at a price that was 17% lower than its “fair value” just 11 days earlier. A few days later, Carlye took the reins of VCIF, re-branded as Carlyle Credit Income Fund (“CCIF”). The cash payment from Carlyle followed and preliminary results of the tender offer, which is slated to end on August 28th, suggest that we will receive cash for about 60% of our shares. Other shareholders have told us they may pursue litigation related to the aforementioned valuation discrepancy (which was never explained).
 
As we previously indicated we were considering, we campaigned for the liquidation of Nuveen Short Duration Credit Opportunities Fund (JSD) and against a proposed merger of JSD and three other Nuveen CEFs. Unfortunately, stockholders approved the merger proposal. You win some and you lose some. On the bright side, simultaneously with the completion of the merger, the surviving fund, Nuveen Floating Rate Income Fund (JFR) announced a 14% increase in its monthly dividend. Perhaps our campaign led Nuveen to give disappointed stockholders like us a consolation prize.
 
It is pretty much over except for the shouting at First Trust Dynamic Europe Equity Income Fund (FDEU). The prospectus for FDEU required a shareholder meeting in 2023 to vote on whether to convert to an open-end fund. Consequently, in late 2022, we reached out to the Board of Trustees to ask if it would recommend a vote for the conversion of FDEU to an open-end fund. The Board refused to make
 



3

Special Opportunities Fund, Inc.


any commitment at all. Consequently, we solicited proxies to elect Trustees and would have won a fair election. However, the Board refused to count our proxies because it claimed that our nominees were ineligible. This is one way that autocrats in certain countries like Iran remain in power. Perhaps wishing to avoid embarrassment, a few days before the meeting, FDEU announced that the Board had approved reorganizing it into an exchange-traded fund (“ETF”) by the end of this year, which is expected to trade close to NAV. The discount narrowed on the news and is currently about 4%. Despite that welcome result, we decided to sue the Board because we want to send a message that this is not Iran and disenfranchising shareholders is an unacceptable breach of fiduciary duty.
 
Last August, after receiving complaints from stockholders about its long-term performance and trading discount, Center Coast Brookfield MLP & Energy Infrastructure Fund (CEN) announced that it “has been and continues to evaluate various strategic options…to advance and maximize shareholder value” and that “[t]he Board expects to be in a position to present an option for shareholder action or otherwise by the end of the first quarter 2023.” True to its word, on March 30th, CEN announced a proposed merger into a Brookfield open-end fund. On August 16th, shareholders approved the merger, which is scheduled to occur in early October after which shares will be redeemable at NAV. The discount declined on the news and is currently about 2%.
 
In July, we notified MFS High Yield Municipal Trust (CMU) and MFS Investment Grade Municipal Trust (CXH) of our intent to nominate trustees for those CEFs and present a proposal to provide shareholders with an opportunity to realize a price close to NAV for their shares. At the time, the discount for each of these funds was about 14%. The discounts have narrowed a few percentage points since then. After amicable and productive discussions with management of the funds, we just reached an agreement that includes a modest self-tender offer by each fund as soon as practicable and a commitment to provide a full liquidity event in two years unless the discount shrinks to no more than 7.5%.
 
Another position held by the Fund is shares of Destra Multi-Alternative Fund (DMA). DMA’s shares trade at or close to the widest discount of any CEF. Some factors that could be contributing to its unpopularity include high management fees, poor long-term performance, and the fact that more than half of its portfolio holdings consist of unquoted private investment vehicles. On May 31st, DMA announced that it would eliminate its monthly dividends, which drove the discount down to more than 50%. We have reached out to management to discuss options to enhance stockholder value. Although the discount has recently narrowed somewhat, the bottom line is that a CEF with such a large discount will continue to be a target for activist investors like us. In any event, the ball is in DMA management’s court and we are cautiously optimistic that it will announce measures to enhance stockholder value.
 



4

Special Opportunities Fund, Inc.


We previously wrote about a lawsuit we filed last year against FAST Acquisition Corp. (FST), a SPAC that was slated to liquidate, to prevent management from keeping its remaining assets rather than making an equitable distribution to all stockholders. All shares of FST have been redeemed for the cash in the trust account and cancelled, but as a former stockholder, the Fund retains an off-balance sheet legal claim against FST that is effectively valued at zero. In our last letter, we said we thought a settlement in the near future was possible. We still think a settlement is likely this year but, as is often the case in litigation, delays seem to be the norm.
 
One of our largest operating company investments is shares of Texas Pacific Land (TPL), a company that owns approximately 880,000 acres of land in West Texas, primarily in the Permian Basin, and has traditionally generated revenue through rental and royalty payments by oil and gas producers. Despite generally strong stock performance over the past few years, a number of shareholders, including us, believe that its potential is not being fully realized and that senior management has deployed capital generated by its traditional high margin business to other businesses with lower margins to justify the executives’ extremely high compensation. We think most of TPL’s profits should be used to repurchase its shares or distributed to stockholders. The company has sued its largest shareholder for allegedly breaching a promise to vote its shares in accordance with the Board’s recommendation on a proposal that is arguably a prelude to an acquisition. Perhaps as a result of turmoil at the Board level, TPL’s stock price was weak through mid-June. However, two favorable developments recently propelled a rapid turnaround in the stock price. Two of the “old guard” directors agreed to resign and TPL announced better than expected earnings for the second quarter. With things beginning to move in the right direction, we see TPL as a potential long-term investment for the Fund.
 
As always, please note that instruction forms for voting proxies for certain CEFs held by the Fund are available at http://www.specialopportunitiesfundinc.com/proxy_voting.html. To be notified directly of such instances, please email us at proxyinstructions@bulldoginvestors.com.
 
Sincerely yours,


Phillip Goldstein
Chairman
 





5

Special Opportunities Fund, Inc.


Growth of $10,000 Investment


 
Performance at a glance (unaudited)
 
Average annual total returns for common stock for the periods ended 6/30/2023
Net asset value returns
1 year
5 years
10 years
Special Opportunities Fund, Inc.
  8.29%
  5.44%
  5.79%
       
Market price returns
     
Special Opportunities Fund, Inc.
  0.33%
  5.18%
  5.95%
       
Index returns
     
S&P 500® Index
19.59%
12.31%
12.86%
       
Share price as of 6/30/2023
     
Net asset value
   
              $13.52
Market price
   
              $11.22

Past performance does not predict future performance. The return and value of an investment will fluctuate so that an investor’s share, when sold, may be worth more or less than their original cost. The Fund’s common stock net asset value (“NAV”) return assumes, for illustration only, that dividends and other distributions, if any, were reinvested at the NAV on the ex-dividend date. The Fund’s common stock market price returns assume that all dividends and other distributions, if any, were reinvested at the lower of the NAV or the closing market price on the ex-dividend date. NAV and market price returns for the period of less than one year have not been annualized. Returns do not reflect the deduction of taxes that a shareholder could pay on Fund dividends and other distributions, if any, or the sale of Fund shares.
 
The S&P 500® Index is a capital weighted, unmanaged index that represents the aggregate market value of the common equity of 500 stocks primarily traded on the New York Stock Exchange. You cannot invest directly in an index.



6

Special Opportunities Fund, Inc.


Portfolio composition as of 6/30/2023(1) (Unaudited)
 
   
Value
   
Percent  
 
Investment Companies
 
$
144,869,512
     
67.49
%
 
Special Purpose Acquisition Vehicles
   
35,393,953
     
16.49
   
Money Market Funds
   
17,454,510
     
8.13
   
Other Common Stocks
   
6,859,384
     
3.20
   
Unsecured Notes
   
4,741,989
     
2.21
   
Real Estate Investment Trusts
   
2,663,766
     
1.24
   
Corporate Obligations
   
1,548,194
     
0.72
   
Trusts
   
434,289
     
0.20
   
Preferred Stocks
   
413,852
     
0.19
   
Warrants
   
201,456
     
0.10
   
Rights
   
63,489
     
0.03
   
Total Investments
 
$
214,644,394
     
100.00
%
 

(1)
As a percentage of total investments.

 
The following table represents the Fund’s investments categorized by country as of June 30, 2023:

   
% of Total
 
Country
 
Investments
 
United States
   
98.12
%
 
Ireland
   
0.72
%
 
Cayman Islands
   
0.56
%
 
Sweden
   
0.32
%
 
Guernsey
   
0.17
%
 
China
   
0.11
%
 
     
100.00
%
 







7

Special Opportunities Fund, Inc.


Portfolio of investments—June 30, 2023 (unaudited)

   
Shares
   
Value
 
INVESTMENT COMPANIES—94.14%
           
             
Closed-End Funds—80.12%
           
Aberdeen Asia-Pacific Income Fund, Inc.
   
208,994
   
$
564,284
 
abrdn Global Dynamic Dividend
   
49,874
     
475,798
 
Adams Diversified Equity Fund, Inc.
   
322,377
     
5,419,157
 
Apollo Tactical Income Fund, Inc.
   
96,992
     
1,230,828
 
Bancroft Fund Ltd.
   
15,143
     
258,794
 
BlackRock California Municipal Income Trust
   
333,738
     
3,958,133
 
BlackRock ESG Capital Allocation Term Trust
   
369,295
     
5,783,160
 
BlackRock Innovation and Growth Term Trust
   
51,944
     
407,760
 
Blackstone Strategic Credit 2027 Term Fund
   
86,455
     
944,953
 
BNY Mellon Municipal Income, Inc.
   
201,785
     
1,269,228
 
BNY Mellon Strategic Municipal Bond Fund, Inc.
   
100,689
     
573,927
 
Center Coast Brookfield MLP & Energy Infrastructure Fund
   
146,938
     
2,859,413
 
Central Securities Corp.
   
214,394
     
7,827,525
 
Credit Suisse High Yield Bond Fund
   
819,736
     
1,549,301
 
Destra Multi-Alternative Fund
   
167,969
     
841,525
 
Dividend and Income Fund
   
350,673
     
3,962,605
 
DWS Municipal Income Trust
   
100,877
     
868,551
 
DWS Strategic Municipal Income Trust
   
62,164
     
527,462
 
Eaton Vance New York Municipal Bond Fund
   
340,445
     
3,200,183
 
Ellsworth Growth and Income Fund Ltd.
   
97,076
     
834,854
 
First Trust Dynamic Europe Equity Income Fund
   
516,930
     
6,774,368
 
First Trust High Yield Opportunities 2027 Term Fund
   
30,474
     
418,103
 
First Trust MLP and Energy Income Fund
   
12,365
     
95,334
 
General American Investors Co., Inc.
   
324,541
     
13,539,850
 
High Income Securities Fund
   
242,733
     
1,572,910
 
Highland Opportunities and Income Fund
   
351,923
     
3,177,865
 
Mexico Equity & Income Fund, Inc. (a)
   
100,100
     
1,005,144
 
MFS High Yield Municipal Trust
   
613,447
     
1,975,299
 
MFS Investment Grade Municipal Trust
   
108,320
     
796,694
 
Morgan Stanley Emerging Markets Debt Fund, Inc.
   
313,879
     
2,021,381
 
Morgan Stanley Emerging Markets Domestic Debt Fund, Inc.
   
71,687
     
336,212
 
Neuberger Berman New York Municipal Fund, Inc.
   
34,908
     
332,673
 
Neuberger Berman Next Generation Connectivity Fund, Inc.
   
470,759
     
5,135,981
 
New America High Income Fund, Inc.
   
45,969
     
305,694
 
Nuveen Multi-Asset Income Fund
   
12,779
     
149,003
 

The accompanying notes are an integral part of these financial statements.



8

Special Opportunities Fund, Inc.


Portfolio of investments—June 30, 2023 (unaudited)

   
Shares
   
Value
 
INVESTMENT COMPANIES—(continued)
           
             
Closed-End Funds—(continued)
           
Nuveen Short Duration Credit Opportunities Fund
   
301,284
   
$
3,479,830
 
NXG NextGen Infrastructure Income Fund
   
78,051
     
3,001,061
 
Pershing Square Holdings Ltd. Fund (f)
   
10,000
     
360,700
 
Principal Real Estate Income Fund
   
110,481
     
1,045,150
 
Saba Capital Income & Opportunities Fund
   
436,011
     
3,357,285
 
SRH Total Return Fund, Inc.
   
987,350
     
13,112,008
 
Taiwan Fund, Inc. (a)
   
223,819
     
7,013,368
 
Templeton Global Income Fund
   
31,740
     
131,404
 
The Swiss Helvetia Fund, Inc.
   
236,992
     
1,948,074
 
Tortoise Energy Independence Fund, Inc.
   
52,500
     
1,509,375
 
Tortoise Power and Energy Infrastructure Fund, Inc.
   
123,986
     
1,637,855
 
Vertical Capital Income Fund
   
310,486
     
3,087,783
 
Virtus Total Return Fund, Inc.
   
403,236
     
2,451,675
 
Western Asset Intermediate Muni Fund, Inc.
   
22,082
     
168,265
 
             
123,297,785
 
Business Development Companies—14.02%
               
Barings BDC, Inc.
   
403,900
     
3,166,576
 
CION Investment Corp.
   
822,020
     
8,532,568
 
Crescent Capital BDC, Inc.
   
93,701
     
1,418,633
 
FS KKR Capital Corp.
   
213,874
     
4,102,103
 
Logan Ridge Finance Corp.
   
81,161
     
1,680,844
 
PennantPark Investment Corp.
   
67,321
     
396,521
 
Portman Ridge Finance Corp.
   
113,781
     
2,274,482
 
             
21,571,727
 
Total Investment Companies (Cost $136,061,591)
           
144,869,512
 
                 
TRUSTS—0.28%
               
Copper Property CTL Pass Through Trust
   
39,620
     
416,010
 
Lamington Road Grantor Trust (a)(c)(f)
   
320,690
     
18,279
 
Total Trusts (Cost $616,025)
           
434,289
 

The accompanying notes are an integral part of these financial statements.



9

Special Opportunities Fund, Inc.


Portfolio of investments—June 30, 2023 (unaudited)

   
Shares
   
Value
 
PREFERRED STOCKS—0.27%
           
             
Real Estate Investment Trusts—0.27%
           
Brookfield DTLA Fund Office Trust Investor, Inc.
   
171,723
   
$
56,668
 
NexPoint Diversified Real Estate Trust
   
22,324
     
357,184
 
Total Preferred Stocks (Cost $4,932,716)
           
413,852
 
                 
OTHER COMMON STOCKS—4.46%
               
                 
Oil, Gas & Consumable Fuels—3.77%
               
Texas Pacific Land Corp.
   
4,400
     
5,792,600
 
                 
Real Estate Management & Development—0.69%
               
Howard Hughes Corp. (a)
   
12,000
     
947,040
 
Trinity Place Holdings, Inc. (a)
   
221,748
     
119,744
 
             
1,066,784
 
Total Other Common Stocks (Cost $6,552,341)
           
6,859,384
 
                 
REAL ESTATE INVESTMENT TRUSTS—1.73%
               
Creative Media & Community Trust Corp.
   
26,801
     
133,737
 
NexPoint Diversified Real Estate Trust
   
202,079
     
2,530,029
 
Total Real Estate Investment Trusts (Cost $3,145,515)
           
2,663,766
 
                 
   
Shares/Units
         
SPECIAL PURPOSE ACQUISITION VEHICLES—23.00% (a)
               
AfterNext HealthTech Acquisition Corp. (f)
   
165,177
     
1,711,234
 
AltC Acquisition Corp.
   
100,000
     
1,043,000
 
byNordic Acquisition Corp.
   
64,987
     
688,212
 
Cartesian Growth Corp. II (f)
   
251,947
     
2,685,755
 
Churchill Capital Corp. V
   
105,728
     
1,075,254
 
Churchill Capital Corp. VI
   
81,000
     
834,300
 
Churchill Capital Corp. VII
   
124,920
     
1,289,174
 
Colombier Acquisition Corp.
   
99,999
     
1,026,990
 
Compass Digital Acquisition Corp. (f)
   
90,055
     
932,520
 
Concord Acquisition Corp. II
   
93,029
     
954,478
 
Consilium Acquisition Corp I Ltd. (f)
   
96,900
     
1,016,481
 
Conyers Park III Acquisition Corp.
   
6,000
     
61,260
 
Elliott Opportunity II Corp. (f)
   
127,791
     
1,323,915
 
Embrace Change Acquisition Corp. (f)
   
23,045
     
243,816
 

The accompanying notes are an integral part of these financial statements.



10

Special Opportunities Fund, Inc.


Portfolio of investments—June 30, 2023 (unaudited)

   
Shares/Units
   
Value
 
SPECIAL PURPOSE ACQUISITION VEHICLES—(continued)
           
FG Merger Corp.
   
200,000
   
$
2,116,000
 
Gores Holdings IX, Inc.
   
88,568
     
907,822
 
Healthwell Acquisition Corp. I
   
76,850
     
790,018
 
Hudson Acquisition I Corp.
   
25,100
     
260,036
 
Infinite Acquisition Corp. (f)
   
53,083
     
561,087
 
Investcorp India Acquisition Corp. (f)
   
110,124
     
1,176,124
 
Kensington Capital Acquisition Corp. V (f)
   
230,649
     
2,435,654
 
Keyarch Acquisition Corp. (f)
   
150,000
     
1,569,000
 
Live Oak Crestview Climate Acquisition Corp. Units
   
1
     
10
 
Live Oak Crestview Climate Acquisition Corp.
   
1,620
     
16,605
 
M3-Brigade Acquisition III Corp.
   
159,558
     
1,667,381
 
Plutonian Acquisition Corp.
   
101,969
     
1,058,948
 
Portage Fintech Acquisition Corp. (f)
   
94,877
     
985,298
 
Screaming Eagle Acquisition Corp. (f)
   
200,000
     
2,064,000
 
Social Capital Suvretta Holdings Corp. II (f)
   
50,000
     
517,500
 
Social Capital Suvretta Holdings Corp. IV (f)
   
110,000
     
1,138,500
 
TG Venture Acquisition Corp.
   
309,207
     
3,243,581
 
Total Special Purpose Acquisition Vehicles (Cost $34,222,704)
           
35,393,953
 
                 
   
Principal
         
   
Amount
         
CORPORATE OBLIGATIONS—1.01%
               
Lamington Road DAC (b)(c)(f)
               
  8.000%, 04/07/2121
 
$
16,542,013
     
661,680
 
  9.750%, 04/07/2121
   
1,708,119
     
886,514
 
Total Corporate Obligations (Cost $5,563,098)
           
1,548,194
 
                 
UNSECURED NOTES—3.08%
               
iMedia Brands, Inc.
               
  8.500%, 09/30/2026
   
23,458
     
22,989
 
Sachem Capital Corp.
               
  7.125%, 06/30/2024
   
60,000
     
1,482,000
 
  7.750%, 09/30/2025
   
120,000
     
2,826,000
 
  6.000%, 03/30/2027
   
20,000
     
411,000
 
Total Unsecured Notes (Cost $5,546,450)
           
4,741,989
 

The accompanying notes are an integral part of these financial statements.



11

Special Opportunities Fund, Inc.


Portfolio of investments—June 30, 2023 (unaudited)

   
Shares
   
Value
 
WARRANTS—0.13% (a)
           
African Gold Acquisition Corp.
           
  Expiration: March 2028
           
  Exercise Price: $11.50 (c)(f)
   
150,000
   
$
1,500
 
AGBA Group Holding Ltd.
               
  Expiration: May 2024
               
  Exercise Price: $11.50 (f)
   
51,750
     
3,105
 
Alset Capital Acquisition Corp.
               
  Expiration: February 2027
               
  Exercise Price: $11.50
   
23,750
     
950
 
Andretti Acquisition Corp.
               
  Expiration: March 2028
               
  Exercise Price: $11.50 (f)
   
72,334
     
5,432
 
Blockchain Coinvestors Acquisition Corp. I
               
  Expiration: November 2028
               
  Exercise Price: $11.50 (f)
   
32,500
     
1,814
 
C5 Acquisition Corp.
               
  Expiration: May 2028
               
  Exercise Price: $11.50
   
50,000
     
2,470
 
Cactus Acquisition Corp. 1 Ltd.
               
  Expiration: October 2026
               
  Exercise Price: $11.50 (f)
   
40,700
     
1,421
 
Cartesian Growth Corp. II
               
  Expiration: July 2028
               
  Exercise Price: $11.50 (f)
   
21,986
     
2,858
 
CF Acquisition Corp. VIII
               
  Expiration: December 2027
               
  Exercise Price: $11.50
   
8,500
     
422
 
Churchill Capital Corp. V
               
  Expiration: October 2027
               
  Exercise Price: $11.50
   
26,432
     
4,760
 
Churchill Capital Corp. VI
               
  Expiration: December 2027
               
  Exercise Price: $11.50
   
16,200
     
2,916
 
Churchill Capital Corp. VII
               
  Expiration: February 2028
               
  Exercise Price: $11.50
   
24,984
     
3,498
 
Colombier Acquisition Corp.
               
  Expiration: December 2028
               
  Exercise Price: $11.50
   
33,333
     
25,583
 

The accompanying notes are an integral part of these financial statements.



12

Special Opportunities Fund, Inc.


Portfolio of investments—June 30, 2023 (unaudited)

   
Shares
   
Value
 
WARRANTS—(continued)
           
Conyers Park III Acquisition Corp.
           
  Expiration: August 2028
           
  Exercise Price: $11.50
   
99,245
   
$
4,962
 
Corner Growth Acquisition Corp.
               
  Expiration: December 2027
               
  Exercise Price: $11.50 (f)
   
33,333
     
4,220
 
Corner Growth Acquisition Corp. 2
               
  Expiration: June 2026
               
  Exercise Price: $11.50 (f)
   
14,366
     
1,092
 
Digital Health Acquisition Corp.
               
  Expiration: October 2023
               
  Exercise Price: $11.50
   
116,000
     
7,331
 
Dune Acquisition Corp.
               
  Expiration: October 2027
               
  Exercise Price: $11.50
   
19,300
     
816
 
EdtechX Holdings Acquisition Corp. II
               
  Expiration: June 2027
               
  Exercise Price: $11.50
   
55,500
     
1,615
 
Elliott Opportunity II Corp.
               
  Expiration: March 2026
               
  Exercise Price: $11.50 (f)
   
150,000
     
45
 
FAST Acquisition Corp. II
               
  Expiration: March 2026
               
  Exercise Price: $11.50
   
22,676
     
15,848
 
FG Merger Corp.
               
  Expiration: June 2027
               
  Exercise Price: $11.50
   
150,000
     
8,020
 
Forum Merger IV Corp.
               
  Expiration: December 2027
               
  Exercise Price: $11.50
   
24,225
     
12
 
Fusion Acquisition Corp. II
               
  Expiration: December 2027
               
  Exercise Price: $11.50 (c)
   
46,666
     
233
 
Graf Acquisition Corp. IV
               
  Expiration: May 2028
               
  Exercise Price: $11.50
   
20,000
     
3,800
 
HNR Acquisition Corp.
               
  Expiration: July 2028
               
  Exercise Price: $11.50
   
63,000
     
5,985
 

The accompanying notes are an integral part of these financial statements.



13

Special Opportunities Fund, Inc.


Portfolio of investments—June 30, 2023 (unaudited)

   
Shares
   
Value
 
WARRANTS—(continued)
           
Insight Acquisition Corp.
           
  Expiration: August 2026
           
  Exercise Price: $11.50
   
12,450
   
$
375
 
Investcorp Europe Acquisition Corp. I
               
  Expiration: November 2028
               
  Exercise Price: $11.50 (f)
   
150,000
     
29,205
 
Juniper II Corp.
               
  Expiration: December 2028
               
  Exercise Price: $11.50
   
104,500
     
3,250
 
Keyarch Acquisition Corp.
               
  Expiration: July 2028
               
  Exercise Price: $11.50 (f)
   
75,000
     
2,156
 
Lamington Road
               
  Expiration: July 2025
               
  Exercise Price: $0.20 (c)(e)(f)
   
640,000
     
0
 
Landcadia Holdings IV, Inc.
               
  Expiration: March 2028
               
  Exercise Price: $11.50
   
25,000
     
4,100
 
Leo Holdings Corp. II
               
  Expiration: January 2028
               
  Exercise Price: $11.50 (f)
   
12,308
     
246
 
LIV Capital Acquisition Corp. II
               
  Expiration: February 2027
               
  Exercise Price: $11.50 (f)
   
70,875
     
1,595
 
Live Oak Crestview Climate Acquisition Corp.
               
  Expiration: March 2026
               
  Exercise Price: $11.50
   
540
     
19
 
M3-Brigade Acquisition III Corp.
               
  Expiration: July 2028
               
  Exercise Price: $11.50
   
36,666
     
15,033
 
Murphy Canyon Acquisition Corp.
               
  Expiration: February 2027
               
  Exercise Price: $11.50
   
94,500
     
3,780
 
Nogin, Inc.
               
  Expiration: August 2027
               
  Exercise Price: $11.50
   
55,350
     
703
 
Northern Star Investment Corp. III
               
  Expiration: February 2028
               
  Exercise Price: $11.50
   
17,833
     
214
 

The accompanying notes are an integral part of these financial statements.



14

Special Opportunities Fund, Inc.


Portfolio of investments—June 30, 2023 (unaudited)

   
Shares
   
Value
 
WARRANTS—(continued)
           
Northern Star Investment Corp. IV
           
  Expiration: December 2027
           
  Exercise Price: $11.50
   
8,833
   
$
442
 
Oxbridge Acquisition Corp.
               
  Expiration: August 2026
               
  Exercise Price: $11.50 (f)
   
50,000
     
2,255
 
Plutonian Acquisition Corp.
               
  Expiration: October 2027
               
  Exercise Price: $11.50
   
101,969
     
12,134
 
Quantum FinTech Acquisition Corp.
               
  Expiration: December 2027
               
  Exercise Price: $11.50
   
76,000
     
3,420
 
Screaming Eagle Acquisition Corp.
               
  Expiration: December 2027
               
  Exercise Price: $11.50 (f)
   
50,000
     
7,000
 
Shapeways Holdings, Inc.
               
  Expiration: October 2026
               
  Exercise Price: $92.00
   
100,000
     
1,010
 
Signa Sports United NV
               
  Expiration: December 2026
               
  Exercise Price: $11.50 (f)
   
29,000
     
1,711
 
TG Venture Acquisition Corp.
               
  Expiration: August 2023
               
  Exercise Price: $11.50
   
100,000
     
2,100
 
ZyVersa Therapeutics, Inc.
               
  Expiration: December 2027
               
  Exercise Price: $11.50 (c)
   
65,250
     
0
 
Total Warrants (Cost $982,125)
           
201,456
 
                 
RIGHTS—0.04% (a)
               
Alset Capital Acquisition Corp.
   
47,500
     
15,000
 
Hudson Acquisition I Corp. (Expiration: July 14, 2023)
   
25,100
     
5,271
 
Keyarch Acquisition Corp. (f)
   
150,000
     
16,500
 
Nocturne Acquisition Corp. (f)
   
75,000
     
9,383
 
Plutonian Acquisition Corp. (Expiration: August 9, 2023)
   
101,969
     
17,335
 
Total Rights (Cost $74,774)
           
63,489
 

The accompanying notes are an integral part of these financial statements.



15

Special Opportunities Fund, Inc.


Portfolio of investments—June 30, 2023 (unaudited)

   
Shares
   
Value
 
MONEY MARKET FUNDS—11.34%
           
Fidelity Institutional Government Portfolio—Class I, 4.980% (d)
   
8,727,255
   
$
8,727,255
 
Invesco Treasury Portfolio—Institutional Class, 5.032% (d)
   
8,727,255
     
8,727,255
 
Total Money Market Funds (Cost $17,454,510)
           
17,454,510
 
Total Investments (Cost $215,151,849)—139.48%
           
214,644,394
 
Liabilities in Excess of Other Assets—(1.76)%
           
(2,714,479
)
Preferred Stock—(37.72)%
           
(58,047,350
)
TOTAL NET ASSETS—100.00%
         
$
153,882,565
 

Percentages are stated as a percent of net assets.
(a)
Non-income producing security.
(b)
The coupon rate shown represents the rate at June 30, 2023.
(c)
Fair valued securities. The total market value of these securities was $1,568,206, representing 1.02% of net assets. Value determined using significant unobservable inputs.
(d)
The rate shown represents the seven-day yield at June 30, 2023.
(e)
Illiquid securities. The total market value of these securities was $0, representing 0.00% of net assets.
(f)
Foreign-issued security.

The Schedule of Investments incorporates the Global Industry Classification Standard  (GICS®).  GICS was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poors Financial Services LLC (“S&P”).  GICS is a service mark of MSCI and S&P and has been licensed for use by U.S. Bancorp Fund Services, LLC.

The accompanying notes are an integral part of these financial statements.



16

Special Opportunities Fund, Inc.


Statement of assets and liabilities—June 30, 2023 (unaudited)

Assets:
     
Investments, at value (Cost $215,151,849)
 
$
214,644,394
 
Receivables:
       
Investments sold
   
5,806
 
Dividends and interest
   
1,073,330
 
Other assets
   
43,919
 
Total assets
   
215,767,449
 
         
Liabilities:
       
Payables:
       
Investments purchased
   
3,448,359
 
Payable for shares redeemed
   
56,200
 
Advisory fees
   
172,891
 
Administration fees
   
50,819
 
Chief Compliance Officer fees
   
6,129
 
Director fees
   
12,443
 
Fund accounting fees
   
881
 
Custody fees
   
6,791
 
Transfer Agent fees
   
10,401
 
Legal fees
   
38,019
 
Audit fees
   
22,482
 
Reports and notices to shareholders
   
12,119
 
Total liabilities
   
3,837,534
 
         
Preferred Stock:
       
2.75% Convertible Preferred Stock - $0.001 par value, $25 liquidation value per share;
       
  2,321,894 shares outstanding
       
Total preferred stock
   
58,047,350
 
         
Net assets applicable to common shareholders
 
$
153,882,565
 
         
Net assets applicable to common shareholders:
       
Common stock - $0.001 par value per common share; 199,995,800 shares authorized;
       
  11,385,412 shares issued and outstanding, 14,416,415 shares held in treasury
 
$
403,135,383
 
Cost of shares held in treasury
   
(240,985,920
)
Total distributable earnings (deficit)
   
(8,266,898
)
Net assets applicable to common shareholders
 
$
153,882,565
 
Net asset value per common share ($153,882,565 applicable to
       
  11,385,412 common shares outstanding)
 
$
13.52
 

The accompanying notes are an integral part of these financial statements.



17

Special Opportunities Fund, Inc.


Statement of operations

   
For the six months
 
   
ended June 30, 2023
   
(unaudited)
 
Investment income:
     
Dividends
 
$
5,115,873
 
Interest
   
993,095
 
Total investment income
   
6,108,968
 
         
Expenses:
       
Investment advisory fees
   
1,043,288
 
Administration fees and expenses
   
127,017
 
Directors’ fees and expenses
   
122,335
 
Legal fees and expenses
   
34,684
 
Compliance fees and expenses
   
34,344
 
Reports and notices to shareholders
   
28,048
 
Transfer agency fees and expenses
   
22,782
 
Audit fees
   
22,477
 
Custody fees and expenses
   
20,902
 
Stock exchange listing fees
   
19,455
 
Insurance fees
   
15,506
 
Accounting fees and expenses
   
2,743
 
Other expenses
   
8,487
 
Net expenses
   
1,502,068
 
Net investment income
   
4,606,900
 
         
Net realized and unrealized gains (losses) from investment activities:
       
Net realized gain (loss) from:
       
Investments
   
(3,358,839
)
Distributions received from investment companies
   
38,607
 
Net realized loss
   
(3,320,232
)
Change in net unrealized appreciation (depreciation) on:
       
Investments
   
11,069,761
 
Net realized and unrealized gains from investment activities
   
7,749,529
 
Increase in net assets resulting from operations
   
12,356,429
 
Distributions to preferred stockholders
   
(800,951
)
Discount on redemption and repurchase of preferred shares
   
30,180
 
Net increase in net assets applicable to common shareholders from operations
 
$
11,585,658
 

The accompanying notes are an integral part of these financial statements.



18

Special Opportunities Fund, Inc.


Statement of cash flows

   
For the six months
 
   
ended June 30, 2023
   
(unaudited)
 
Cash flows from operating activities:
     
Net increase in net assets
 
$
12,386,609
 
Discount on redemption and repurchase of preferred shares
   
(30,180
)
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
   
(53,858,083
)
Proceeds from sales of investments
   
63,819,977
 
Net purchases and sales of short-term investments
   
(10,371,380
)
Return of capital distributions received from underlying investments
   
119,462
 
Accretion of discount
   
151
 
Decrease in dividends and interest receivable
   
(301,298
)
Decrease in receivable for investments sold
   
1,112,079
 
Increase in other assets
   
(19,112
)
Increase in payable for investments purchased
   
1,079,401
 
Decrease in payable to Adviser
   
(7,174
)
Increase in accrued expenses and other liabilities
   
65,084
 
Net distributions received from investment companies
   
38,607
 
Net realized loss from investments
   
3,320,232
 
Net change in unrealized appreciation of investments
   
(11,069,761
)
Net cash used in operating activities
   
6,284,614
 
         
Cash flows from financing activities:
       
Distributions paid to common shareholders
   
(5,957,710
)
Distributions paid to preferred shareholders
   
(800,951
)
Repurchase of common stock
   
(854,918
)
Repurchase of preferred stock
   
(296,320
)
Net cash provided by financing activities
   
(7,909,899
)
Net change in cash
 
$
(1,625,285
)
         
Cash:
       
Beginning of period
   
1,625,285
 
End of period
 
$
 

The accompanying notes are an integral part of these financial statements.



19

Special Opportunities Fund, Inc.


Statements of changes in net assets applicable to common shareholders

   
For the
       
   
six months ended
   
For the
 
   
June 30, 2023
   
year ended
 
   
(unaudited)
   
December 31, 2022
 
From operations:
           
Net investment income
 
$
4,606,900
   
$
3,478,374
 
Net realized gain (loss) from:
               
Investments
   
(3,358,839
)
   
(954,692
)
Distributions received from investment companies
   
38,607
     
1,828,305
 
Net change in unrealized appreciation (depreciation) on:
               
Investments
   
11,069,761
     
(29,012,831
)
Discount on redemption and repurchase of preferred shares
   
30,180
     
 
Net increase (decrease) in net assets resulting from operations
   
12,386,609
     
(24,660,844
)
                 
Distributions paid to preferred shareholders:
               
Net distributions
   
(800,951
)
   
(1,467,040
)
Total distributions paid to preferred shareholders
   
(800,951
)
   
(1,467,040
)
Net increase (decrease) in net assets applicable to common
               
  shareholders resulting from operations
   
11,585,658
     
(26,127,884
)
                 
Distributions paid to common shareholders:
               
Net distributions
   
(5,957,710
)
   
(15,317,585
)
Return of capital
   
     
(226,028
)
Total distributions paid to common shareholders
   
(5,957,710
)
   
(15,543,613
)
                 
Capital Stock Transactions (Note 4)
               
Repurchase of common stock through tender offer
   
     
(19,612,500
)
Repurchase of common stock
   
(854,918
)
   
 
Total capital stock transactions
   
(854,918
)
   
(19,612,500
)
Net increase (decrease) in net assets
               
  applicable to common shareholders
   
4,773,030
     
(61,283,997
)
                 
Net assets applicable to common shareholders:
               
Beginning of period
   
149,109,535
     
210,393,532
 
End of period
 
$
153,882,565
   
$
149,109,535
 

The accompanying notes are an integral part of these financial statements.



20

Special Opportunities Fund, Inc.







(This Page Intentionally Left Blank.)
 










21

Special Opportunities Fund, Inc.


Financial highlights

Selected data for a share of common stock outstanding throughout each year/period is presented below:
 
   
For the six months
 
   
ended June 30, 2023
   
(unaudited)
 
Net asset value, beginning of year/period
 
$
13.01
 
Net investment income (loss)(1)
   
0.40
 
Net realized and unrealized gains (losses) from investment activities
   
0.69
 
Total from investment operations
   
1.09
 
Common share equivalent of dividends paid to preferred shareholders from:
       
Net investment income
   
(0.07
)
Net realized gains from investment activities
   
 
Net increase (decrease) in net assets attributable to common
       
  stockholders resulting form operations
   
1.02
 
Distributions paid to common shareholders from:
       
Net investment income
   
(0.52
)
Net realized gains from investment activities
   
 
Return of capital
   
 
Total distributions paid to common shareholders
   
(0.52
)
Anti-Dilutive effect of Common Share Repurchase
   
0.01
 
Discount on redemptions and repurchases of preferred shares
   
0.00
(6) 
Dilutive effect of conversions of preferred shares to common shares
   
 
Anti-Dilutive effect of tender offer
   
 
Net asset value, end of year/period
 
$
13.52
 
Market value, end of year/period
 
$
11.22
 
Total net asset value return(2)(5)
   
8.06
%
Total market price return(3)
   
3.10
%
Ratio to average net assets attributable to common shares:
       
Ratio of expenses to average assets(4)
   
1.99
%
Ratio of net investment income to average net assets(1)
   
6.11
%
Supplemental data:
       
Net assets applicable to common shareholders, end of year/period (000’s)
 
$
153,852
 
Liquidation value of preferred stock (000’s)
 
$
58,078
 
Portfolio turnover(5)
   
27
%
Preferred Stock:
       
Total Shares Outstanding
   
2,321,894
 
Asset coverage per share of preferred shares, end of year/period
 
$
91
 

The accompanying notes are an integral part of these financial statements.



22

Special Opportunities Fund, Inc.


Financial highlights (continued)





For the year ended December 31,
 
2022
   
2021
   
2020
   
2019
   
2018
 
$
16.55
   
$
16.13
   
$
16.06
   
$
13.78
   
$
16.70
 
 
0.28
     
0.18
     
0.59
     
0.31
     
(0.18
)
 
(2.43
)
   
4.06
     
0.84
     
3.13
     
(1.06
)
 
(2.15
)
   
4.24
     
1.43
     
3.44
     
(1.24
)
                                     
 
(0.03
)
   
(0.05
)
   
(0.21
)
   
(0.05
)
   
(0.08
)
 
(0.09
)
   
(0.03
)
   
(0.02
)
   
(0.18
)
   
(0.15
)
                                     
 
(2.27
)
   
4.16
     
1.20
     
3.21
     
(1.47
)
                                     
 
(0.34
)
   
(0.23
)
   
(0.65
)
   
(0.20
)
   
(0.26
)
 
(0.96
)
   
(1.57
)
   
(0.48
)
   
(0.73
)
   
(1.15
)
 
(0.02
)
   
     
     
     
(0.04
)
 
(1.32
)
   
(1.80
)
   
(1.13
)
   
(0.93
)
   
(1.45
)
 
     
     
     
     
 
 
     
     
     
     
 
 
     
(1.94
)
   
     
     
 
 
0.05
     
     
     
     
 
$
13.01
   
$
16.55
   
$
16.13
   
$
16.06
   
$
13.78
 
$
11.40
   
$
15.45
   
$
14.08
   
$
14.73
   
$
11.84
 
 
-13.81
%
   
14.09
%
   
9.24
%
   
23.72
%
   
-8.79
%
 
-18.33
%
   
23.62
%
   
5.00
%
   
32.93
%
   
-10.55
%
                                     
 
1.89
%
   
1.57
%
   
2.13
%
   
1.99
%
   
1.92
%
 
2.03
%
   
0.72
%
   
1.96
%
   
2.01
%
   
0.27
%
                                     
$
149,110
   
$
210,394
   
$
137,129
   
$
136,504
   
$
117,173
 
$
58,374
   
$
   
$
55,599
   
$
55,599
   
$
55,599
 
 
54
%
   
80
%
   
85
%
   
75
%
   
66
%
                                     
 
2,334,954
     
     
2,223,976
     
2,223,976
     
2,223,976
 
$
89
   
$
   
$
87
   
$
86
   
$
78
 


The accompanying notes are an integral part of these financial statements.



23

Special Opportunities Fund, Inc.


Financial highlights (continued)

(1)
Recognition of investment income by the Fund is affected by the timing and declaration of dividends by the underlying investment companies in which the Fund invests.
(2)
Total net asset value return is calculated assuming a $10,000 purchase of common stock at the current net asset value on the first day of each period reported and a sale at the current net asset value on the last day of each period reported, and assuming reinvestment of dividends and other distributions at the net asset value on the ex-dividend date. Total investment return based on net asset value is hypothetical as investors can not purchase or sell Fund shares at net asset value but only at market prices. Returns do not reflect the deduction of taxes that a shareholder could pay on Fund dividends and other distributions, if any, or the sale of Fund shares.
(3)
Total market price return is calculated assuming a $10,000 purchase of common stock at the current market price on the first day of each period reported and a sale at the current market price on the last day of each period reported, and assuming reinvestment of dividends and other distributions to common shareholders at the lower of the NAV or the closing market price on the ex-dividend date. Total investment return does not reflect brokerage commissions and has not been annualized for the period of less than one year. Returns do not reflect the deduction of taxes that a shareholder could pay on Fund dividends and other distributions, if any, or the sale of Fund shares.
(4)
Does not include expenses of the investment companies in which the Fund invests.
(5)
Not annualized for periods less than one year.
(6)
Less than 0.5 cents per share.




The accompanying notes are an integral part of these financial statements.



24

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 United States Securities and Exchange Commission (“SEC”) under the Investment Company Act of 1940, as amended (“1940 Act”), as a closed-end diversified management investment company.  Effective December 21, 2009, the Fund changed its name to the Special Opportunities Fund, Inc. and changed its investment objective to total return.  There can be no assurance that the Fund’s investment objective will be achieved.  The Fund’s previous investment objective was to achieve a high level of current income that was exempt from federal income tax, consistent with the preservation of capital.
 
The Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standard Codification Topic 946 “Financial Services—Investment Companies”.
 
In the normal course of business, the Fund may enter into contracts that contain a variety of representations or that provide indemnification for certain liabilities.  The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred.  However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
 
The preparation of financial statements in accordance with Accounting Principles Generally Accepted in the United States of America requires the Fund’s management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements.  Actual results could differ from those estimates.  The following is a summary of significant accounting policies:
 
Valuation of investments—The Fund calculates its net asset value based on the current market value for its portfolio securities.  The Fund obtains market values for its securities from independent pricing sources and broker-dealers.  Independent pricing sources may use last reported sale prices or if not available the most recent bid price, current market quotations or valuations from computerized “matrix” systems that derive values based on comparable securities.  A matrix system incorporates parameters such as security quality, maturity and coupon, and/or research and evaluations by its staff, including review of broker-dealer market price quotations, if available, in determining the valuation of the portfolio securities.  If a market value is not available from an independent pricing source or a broker-dealer for a particular security, that security is valued at fair value as determined in good faith by or under the direction of the Fund’s Board of Directors (the “Board”).  Various factors may be




25

Special Opportunities Fund, Inc.


Notes to financial statements (unaudited)

reviewed in order to make a good faith determination of a security’s fair value.  The purchase price, or cost, of these securities is arrived at through an arms length transaction between a willing buyer and seller in the secondary market and is indicative of the value on the secondary market.  Current transactions in similar securities in the marketplace are evaluated.  Factors for other securities may include, but are not limited to, the type and cost of the security; contractual or legal restrictions on resale of the security; relevant financial or business developments of the issuer; actively traded similar or related securities; conversion or exchange rights on the security; related corporate actions; and changes in overall market conditions.  If events occur that materially affect the value of securities between the close of trading in those securities and the close of regular trading on the New York Stock Exchange, the securities may be fair valued.  U.S. and foreign debt securities including short-term debt instruments having a maturity of 60 days or less shall be valued in accordance with the price supplied by a Pricing Service using the evaluated bid price.  Money market mutual funds, demand notes and repurchase agreements are valued at cost.  If cost does not represent current market value the securities will be priced at fair value as determined in good faith by or under the direction of the Fund’s Board.
 
The Fund has adopted fair valuation accounting standards that establish an authoritative definition of fair value and set out a hierarchy for measuring fair value.  These standards require additional disclosures about the various input and valuation techniques used in measuring fair value.  Fair value inputs are summarized in the three broad levels listed below:
 
Level 1—
Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access.
   
Level 2—
Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.  These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.
   
Level 3—
Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Fund’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available.

The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security.  To the
 



26

Special Opportunities Fund, Inc.


Notes to financial statements (unaudited)

extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.  Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.
 
The inputs used to measure fair value may fall into different levels of the fair value hierarchy.  In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
 
The significant unobservable inputs used in the fair value measurement of the Fund’s Level 3 investments are listed in the table on page 30.  Significant changes in any of these inputs in isolation may result in a change in fair value measurement.
 
In accordance with procedures established by the Fund’s Board of Directors, the Adviser shall initially value non-publicly-traded securities (for which a current market value is not readily available) at their acquisition cost less related expenses, where identifiable, unless and until the Adviser determines that such value does not represent fair value.
 
The Adviser sends a memorandum to the Chairman of the Valuation Committee with respect to any non-publicly-traded positions that are valued using a method other than acquisition cost detailing the reason, factors considered, and impact on the Fund’s NAV.  If the Chairman determines that such fair valuation(s) require the involvement of the Valuation Committee, a special meeting of the Valuation Committee is called as soon as practicable to discuss such fair valuation(s).  The Valuation Committee of the Board consists of at least two non-interested Directors, as defined by the 1940 Act.
 
In addition to special meetings, the Valuation Committee meets prior to each regular quarterly Board meeting.  At each quarterly meeting, the Adviser delivers a written report (the “Quarterly Report”) regarding any recommendations of fair valuation during the past quarter, including fair valuations which have not changed.  The Valuation Committee reviews the Quarterly Report, discusses the valuation of the fair valued securities with appropriate levels of representatives from the Adviser’s management, and, unless more information is required, approves the valuation of fair valued securities.
 
The Valuation Committee also reviews other interim reports as necessary and, pursuant to Rule 2a-5 under the 1940 Act, periodically assesses any material risks associated with the determination of fair value of Fund investments.
 



27

Special Opportunities Fund, Inc.


Notes to financial statements (unaudited)

The following is a summary of the fair valuations according to the inputs used as of June 30, 2023 in valuing the Fund’s investments:

   
Quoted Prices in
                   
   
Active Markets
                   
   
for Identical
   
Significant Other
   
Unobservable
       
   
Investments
   
Observable Inputs
   
Inputs
       
   
(Level 1)
   
(Level 2)
   
(Level 3)*
   
Total
 
Investment Companies
                       
Closed-End Funds
 
$
123,297,785
   
$
   
$
   
$
123,297,785
 
Business Development
                               
  Companies
   
21,571,727
     
     
     
21,571,727
 
Trusts
   
416,010
     
     
18,279
     
434,289
 
Preferred Stocks
                               
Real Estate Investment Trusts
   
357,184
     
56,668
     
     
413,852
 
Other Common Stocks
                               
Oil, Gas & Consumable Fuels
   
5,792,600
     
     
     
5,792,600
 
Real Estate Management
                               
  & Development
   
1,066,784
     
     
     
1,066,784
 
Real Estate Investment Trusts
   
2,663,766
     
     
     
2,663,766
 
Special Purpose
                               
  Acquisition Vehicles
   
24,245,066
     
11,148,887
     
     
35,393,953
 
Corporate Obligations
   
     
     
1,548,194
     
1,548,194
 
Unsecured Notes
   
4,741,989
     
     
     
4,741,989
 
Warrants
   
154,822
     
44,901
     
1,733
     
201,456
 
Rights
   
41,718
     
21,771
     
     
63,489
 
Money Market Funds
   
17,454,510
     
     
     
17,454,510
 
Total
 
$
201,803,961
   
$
11,272,227
   
$
1,568,206
   
$
214,644,394
 

*
The Fund measures Level 3 activity as of the beginning and end of each financial reporting period.

The fair value of derivative instruments as reported within the Schedule of Investments as of June 30, 2023:

Derivatives not accounted
Statement of Assets &
 
for as hedging instruments
Liabilities Location
Value
Equity Contracts – Warrants
Investments, at value
$201,456





28

Special Opportunities Fund, Inc.


Notes to financial statements (unaudited)

The effect of derivative instruments on the Statement of Operations for the six months ended June 30, 2023:
 
 
Amount of Realized Loss on Derivatives Recognized in Income
Derivatives not accounted
 
Statement of
 
for as hedging instruments
 
Operations Location
Value
Equity Contracts – Warrants
 
Net Realized Loss
$(663,725)
   
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
$476,577
   
appreciation of investments
 

The average monthly share amount of warrants during the period was 3,588,423. The average monthly market value of warrants during the period was $258,001.
 
Level 3 Reconciliation Disclosure
The following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value:

   
Trust
   
Corporate
       
Category
 
Certificates
   
Obligations
   
Warrants
 
Balance as of 12/31/2022
 
$
18,279
   
$
1,525,819
   
$
4,639
 
Acquisitions
   
     
189,182
     
 
Dispositions
   
     
     
 
Transfers into (out of) Level 3
   
     
     
(308
)
Accretion/Amortization
   
     
(151
)
   
 
Corporate Actions
   
     
     
 
Realized Gain (Loss)
   
     
     
 
Change in unrealized appreciation (depreciation)
   
     
(166,656
)
   
(2,598
)
Balance as of 6/30/23
 
$
18,279
   
$
1,548,194
   
$
1,733
 
Change in unrealized appreciation (depreciation)
                       
  during the period for Level 3 investments
                       
  held at June 30, 2023
 
$
   
$
(166,656
)
 
$
(2,902
)






29

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, 2023:
 
 
Fair Value
 
Valuation
Unobservable
 
Impact to valuation
Category
6/30/2023
 
Methodologies
Inputs
Range
from an increase to input
Trust
$18,279
 
Last Traded Price
Market
0.057
Significant changes in
  Certificates
     
Assessments
 
market conditions could
           
result in direct and
           
proportional changes in the
           
fair value of the security
Corporate
1,548,194
 
Last Traded Price,
Terms of the
4.00-
Significant changes in
  Obligations
   
Company-Specific
Note/Financial
51.90
company’s financials,
     
Information
Assessments/
 
changes to the terms of the
       
Company
 
notes or changes to the
       
Announcements
 
general business conditions
           
impacting the company’s
           
business may result in
           
changes to the fair value of
           
the securities
Warrants
1,733
 
Last Traded Price
Market
0.00-
Significant changes in
       
Assessments
0.10
market conditions could
           
result in direct and
           
proportional changes in the
           
fair value of the security

Note 2
Related party transactions
Bulldog Investors, LLP serves as the Fund’s Investment Adviser (the “Investment Adviser”) under the terms of the Investment Advisory Agreement effective October 10, 2009.  Effective May 7, 2013 Brooklyn Capital Management, LLC changed its name to Bulldog Investors, LLP.  In accordance with the investment advisory agreement, the Fund is obligated to pay the Investment Adviser a monthly investment advisory fee at an annual rate of 1.00% of the Fund’s average weekly total assets.
 
Effective January 1, 2023, the Fund pays each of its directors who is not a director, officer or employee of the Investment Adviser, the Administrator or any affiliate thereof an annual fee of $55,000, paid pro rata, quarterly plus $5,000 for each special in-person meeting (or $500 if attended by telephone) of the board of directors and $500 for special committee meetings held in between regularly scheduled Board meetings.  As additional annual compensation, the Audit Committee Chairman, Corporate Governance Committee Chairman and Valuation Committee Chairman receive $5,000. Effective January 1, 2023, the Fund’s Chief Compliance Officer (“CCO”) receives annual compensation in the
 




30

Special Opportunities Fund, Inc.


Notes to financial statements (unaudited)

amount of $62,000.  In addition, the Fund reimburses the directors and CCO for travel and out-of-pocket expenses incurred in connection with Board of Directors’ meetings and CCO due diligence requirements.
 
U.S. Bank Global Fund Services (“Fund Services”), an indirect wholly-owned subsidiary of U.S. Bancorp, serves as the Fund’s Administrator (the “Administrator”) and, in that capacity, performs various administrative services for the Fund.  Fund Services also serves as the Fund’s Fund Accountant (the “Fund Accountant”).  U.S. Bank, N.A. serves as the Fund’s custodian (the “Custodian”).  The Custodian is an affiliate of the Administrator.  The Administrator prepares various federal and state regulatory filings, reports and returns for the Fund; prepares reports and materials to be supplied to the directors, monitors the activities of the Custodian and Fund Accountant; coordinates the preparation and payment of the Fund’s expenses and reviews the Fund’s expense accruals.  Equiniti Trust Company, LLC serves as the Fund’s Transfer Agent.
 
Note 3
Convertible Preferred Stock
During the year ended December 31, 2021 the Fund converted 2,163,053 shares or $54,076,325 of the Fund’s Convertible Preferred Stock, Series B into 4,211,996 shares of the Fund’s common stock.  The remaining 60,923 of Convertible Preferred Shares were redeemed at $25 per share for a total of $1,523,075.
 
On January 21, 2022 the Fund completed its Convertible Preferred Rights offering at $25 per share. As a result of this offering the Fund raised $58,373,850 and issued 2,334,954 shares of 2.75% Convertible Preferred Stock, Series C. The holders of Convertible Preferred Stock, Series C may convert their shares to common stock on a quarterly basis at a conversion rate equivalent to the current conversion price of $18.770 per share of common stock (which is a current ratio of 1.3319 shares of common stock for each share of Convertible Preferred Stock, Series C held). The conversion price (and resulting conversion ratio) will be adjusted for any distributions made to or on behalf of common stockholders. Following any such conversion, shares of common stock shall be issued as soon as reasonably practicable following the next quarterly dividend payment date. Until the mandatory redemption date of the Convertible Preferred Stock, Series C, January 21, 2027, at any time following the second anniversary of the expiration date of the Convertible Preferred Stock, Series C rights offering, the Board may, in its sole discretion, redeem all or any part of the then outstanding shares of Convertible Preferred Stock, Series C at $25.00 per share. Under such circumstances, the Fund shall provide no less than 30 days’ notice to the holders of Convertible Preferred Stock, Series C that, unless such shares have been converted by a certain date, the shares will be redeemed. If, at any time from and after the date of issuance of the Convertible Preferred Stock, Series C, the market
 




31

Special Opportunities Fund, Inc.


Notes to financial statements (unaudited)

price of the common stock is equal to or greater than $22.02 per share (as adjusted for dividends or other distributions made to or on behalf of holders of the common stock), the Board may, in its sole discretion, require the holders of the Convertible Preferred Stock, Series C to convert all or any part of their shares into shares of common stock at a conversion rate equivalent to the current conversion price of $18.770 per share of common stock (which is a current ratio of 1.3319 shares of common stock for each share of Convertible Preferred Stock, Series C held), subject to adjustment upon the occurrence of certain events.
 
During the six months ended June 30, 2023, the Fund purchased 13,060 shares of preferred stock in the open market at a cost of $296,320. The weighted average discount of these purchases comparing the average purchase price to net asset value at the close of the New York Stock Exchange was 9.30%.
 
The conversion price (and resulting conversion ratio) will be adjusted for any dividends or other distributions made to or on behalf of common stockholders. Notice of such mandatory conversion shall be provided by the Fund in accordance with its Articles of Incorporation. In connection with all conversions shareholders of Convertible Preferred Stock would receive payment for all declared and unpaid dividends on the shares of Convertible Preferred Stock held to the date of conversion, but after conversion would no longer be entitled to the dividends, liquidation preference or other rights attributable to holders of the Convertible Preferred Stock. The Convertible Preferred Stock is classified outside of the permanent equity (net assets applicable to Common Stockholders) in the accompanying financial statements in accordance with accounting for redeemable equity instruments, which requires preferred securities that are redeemable for cash or other assets to be classified outside of permanent equity to the extent that the redemption is at a fixed or determinable price and at the option of the holder or upon occurrence of an event that is not solely within the control of the issuer. The Fund is required to meet certain asset coverage tests with respect to the Convertible Preferred Stock as required by the 1940 Act. In addition, pursuant to the Rating Agency Guidelines established by Moody’s, the Fund is required to maintain a certain discounted asset coverage. If the Fund fails to meet these requirements and does not correct such failure, the Fund may be required to redeem, in part or in full, the Convertible Preferred Stock at a redemption price of $25.00 per share, plus an amount equal to the accumulated and unpaid dividends, whether or not declared on such shares, in order to meet these requirements. Additionally, failure to meet the foregoing asset coverage requirements could restrict the Fund’s ability to pay dividends to Common Stockholders and could lead to sales of portfolio securities at inopportune times. The Fund has met these requirements since issuing the Convertible Preferred Stock.
 




32

Special Opportunities Fund, Inc.


Notes to financial statements (unaudited)

Note 4
Purchases and sales of securities
For the six months ended June 30, 2023, aggregate purchases and sales of portfolio securities, excluding short-term securities, were $53,858,083 and $63,819,997, respectively.  The Fund did not purchase or sell U.S. government securities during the six months ended June 30, 2023.
 
Note 5
Capital share transactions
During the six months ended June 30, 2023, the Fund purchased 77,552 shares of common stock in the open market at a cost of $854,918. The weighted average discount of these purchases comparing the average purchase price to net asset value at the close of the New York Stock Exchange was 16.58%.
 
During the years ended December 31, 2022, 2021, 2020, 2019 and 2018 there were no shares of common stock repurchased by the Fund.
 
The Fund completed an offering to purchase up to 1,250,000 of the Fund’s shares outstanding at 97% of the net asset value (“NAV”) per common share on April 1, 2022. At the expiration of the offer on April 1, 2022, a total of 7,549,920 shares or approximately 59.39% of the Fund’s outstanding common shares were validly tendered. As the total number of common shares tendered exceeded 1,250,000 common shares, approximately 16.56% of the shares tendered by each tendering shareholder were accepted for payment at a price of $15.69 per share (97% of the NAV per common share of $16.18).
 
During the year ended December 31, 2021 the Fund converted 2,163,053 shares of 3.50% Convertible Preferred Stock into 4,211,996 shares of Common Stock.
 
Note 6
Federal tax status
The Fund has elected to be taxed as a “regulated investment company” and intends to distribute substantially all taxable income to its shareholders and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies.  Therefore, no provision for federal income taxes or excise taxes has been made.
 
In order to avoid imposition of the excise tax applicable to regulated investment companies, the Fund intends to declare each year as dividends in each calendar year at least 98.0% of its net investment income (earned during the calendar year) and 98.2% of its net realized capital gains (earned during the twelve months ended October 31) plus undistributed amounts, if any, from prior years.
 




33

Special Opportunities Fund, Inc.


Notes to financial statements (unaudited)

The tax character of distributions paid to shareholders during the fiscal years ended December 31, 2022 and December 31, 2021 were as follows:

   
For the
   
For the
 
   
year ended
   
year ended
 
Distributions paid to common shareholders from:
 
December 31, 2022
   
December 31, 2021
 
Ordinary income
 
$
4,047,986
   
$
12,420,427
 
Long-term capital gains
   
11,269,599
     
8,307,667
 
Return of capital
   
226,028
     
 
Total distributions paid
 
$
15,543,613
   
$
20,728,094
 
                 
   
For the
   
For the
 
   
year ended
   
year ended
 
Distributions paid to preferred shareholders from:
 
December 31, 2022
   
December 31, 2021
 
Ordinary income
 
$
387,696
   
$
577,139
 
Long-term capital gains
   
1,079,344
     
285,623
 
Total distributions paid
 
$
1,467,040
   
$
862,762
 

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, 2022.
 
The following information is presented on an income tax basis as of December 31, 2022:
 
Tax cost of investments
 
$
218,820,294
 
Unrealized appreciation
   
15,406,461
 
Unrealized depreciation
   
(27,583,156
)
Net unrealized depreciation
   
(12,176,695
)
Undistributed ordinary income
   
 
Undistributed long-term gains
   
 
Total distributable earnings
   
 
Other accumulated/gains losses and other temporary differences
   
(1,718,151
)
Total accumulated losses
 
$
(13,894,846
)

GAAP requires that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. For the fiscal year ended December 31, 2022, there were no reclassifications made between total distributable earnings and paid-in capital.
 





34

Special Opportunities Fund, Inc.


Notes to financial statements (unaudited)

Net capital losses incurred after October 31, and within the taxable year are deemed to arise on the first business day of the Fund’s next taxable year.  At December 31, 2022, the Fund deferred, on a tax basis, post October losses of $360,824 in ordinary income and $1,357,327 in capital gains.
 
At December 31, 2022, the Fund did not have capital loss carryforwards.
 
The Fund recognizes the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained assuming examination by tax authorities.  Management has analyzed the Fund’s tax positions, and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on returns filed for open tax years (2019-2021), or expected to be taken in the Fund’s 2022 tax returns. The Fund identifies its major tax jurisdictions as U.S. Federal and the State of Maryland; however the Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next twelve months.
 
Note 7
Recent Market Events
U.S. and international markets have experienced and may continue to experience significant periods of volatility in recent years and months due to a number of economic, political and global macro factors including rising inflation, uncertainty regarding central banks’ interest rate increases, the possibility of a national or global recession, trade tensions, political events, the war between Russia and Ukraine and the impact of the coronavirus (COVID-19) global pandemic. The global recovery from COVID-19 may last for an extended period of time. As a result of continuing political tensions and armed conflicts, including the war between Ukraine and Russia, the U.S. and the European Union imposed sanctions on certain Russian individuals and companies, including certain financial institutions, and have limited certain exports and imports to and from Russia. The war has contributed to recent market volatility and may continue to do so. These developments, as well as other events, could result in further market volatility and negatively affect financial asset prices, the liquidity of certain securities and the normal operations of securities exchanges and other markets, despite government efforts to address market disruptions. Continuing market volatility as a result of recent market conditions or other events may have adverse effects on your account.
 
Note 8
Additional information
Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940 that the Fund may purchase, from time to time, shares of its common stock in the open market.
 




35

Special Opportunities Fund, Inc.


Notes to financial statements (unaudited)

Fund directors and officers and advisory persons to the Fund, including insiders and employees of the Fund and of the Fund’s investment adviser, may purchase or sell Fund securities from time to time, subject to the restrictions set forth in the Fund’s Code of Ethics, as amended, a copy of which is available on the Fund’s website. Please see the corporate governance section of the Fund’s website at www.specialopportunitiesfundinc.com.
 
The Fund may seek proxy voting instructions from shareholders regarding certain underlying closed-end funds held by the Fund.  Please see the proxy voting instructions section on the Fund’s website at www.specialopportunitiesfundinc.com for further information.
 
Note 9
Subsequent events
In preparing these financial statements, management has evaluated events and transactions for potential recognition or disclosure resulting from subsequent events through the date the financial statements were available to be issued. Management has determined that there were no subsequent events that would need to be disclosed in the Fund’s financial statements.
 










36

Special Opportunities Fund, Inc.


Investment objectives and policies, principal risk factors

Fund Investment Objective and Policies
 
The Fund investment objective is total return.  The investment objective is not fundamental and may be changed by the Board with 60 days’ notice to stockholders.  To achieve the objective, the Fund invests primarily in securities the Adviser believes have opportunities for appreciation.  The Fund may employ strategies designed to capture price movements generated by anticipated corporate events such as investing in companies involved in special situations, including, but not limited to, mergers, acquisitions, asset sales, spin-offs, balance sheet restructuring, bankruptcy, liquidations and tender offers.  In addition, the Fund may employ strategies designed to invest in the debt, equity, or trade claims of companies in financial distress when the Advisor perceives a mispricing.  Furthermore, the Fund may invest both long and short in related securities or other instruments in an effort to take advantage of perceived discrepancies in the market prices for such securities, including long and short positions in securities involved in an announced merger or acquisition.  Securities which the Adviser identifies include closed-end investment companies with opportunities for appreciation, including funds that trade at a market price discount from their NAV.  In addition to the foregoing, the Adviser seeks out other opportunities in the market that have attractive risk reward characteristics for the Fund.
 
The Fund intends its investment portfolio, under normal market conditions, to consist principally of investments in other closed-end investment companies and the securities of large, mid and small-capitalization companies, including potentially direct and indirect investments in the securities of foreign companies.  Equity securities in which the Fund may invest include common and preferred stocks, convertible securities, warrants and other securities having the characteristics of common stocks, such as ADRs and IDRs, other closed-end investment companies and exchange-traded funds. The Fund may, however, invest a portion of its assets in debt securities or other investment opportunities when the Adviser believes that it is appropriate to do so to earn current income.  For example, when interest rates are high in comparison to anticipated returns on equity investments, the Fund’s investment adviser may determine to invest in debt or preferred securities including bank, corporate or government bonds, notes, and debentures that the Adviser determines are suitable investments for the Fund.  Such determination may be made regardless of the maturity, duration or rating of any such debt security.
 
The Fund may, from time to time, engage in short sales of securities for investment or for hedging purposes.  Short sales are transactions in which the Fund sells a security it does not own.  To complete the transaction, the Fund must borrow the security to make delivery to the buyer.  The Fund is then obligated to replace the security borrowed by purchasing the security at the market price at the time of replacement.  The Fund may sell short individual stocks, baskets of
 




37

Special Opportunities Fund, Inc.


Investment objectives and policies, principal risk factors

individual stocks and ETFs that the Fund expects to underperform other stocks which the Fund holds.  For hedging purposes, the Fund may purchase or sell short future contracts on global equity indexes.
 
The Fund may invest, without limitation, in the securities of closed-end funds, provided that, in accordance with Section 12(d)(1)(F) of the 1940 Act, the Fund will limit any such investment to no more than 3% of the voting stock of such fund and will vote such shares as provided in such Section as set forth below.
 
To comply with provisions of the 1940 Act, on any matter upon which stockholders of a closed-end investment company in which the Fund has invested may vote, the Adviser will direct  such shares to be voted in the same proportion as shares held by all other stockholders of such closed-end investment company (i.e., “mirror vote”) or seek instructions from the Fund’s stockholders with regard to the voting on such matter.  If the Adviser deems it appropriate to seek instructions from Fund stockholders, the Adviser will vote such proxies proportionally based upon the total number of shares owned by those shareholders that provide instructions. Fund stockholders are informed of such proxy votes on the Fund’s website and by email, if so requested, and they may provide proxy voting instructions by email.  In a letter dated August 11, 2020 discussing the results of its 2018 compliance examination, the staff of the New York regional office of the SEC’s Office of Compliance Inspections and Examinations opined that, in connection with its prior proxy voting policy, pursuant to which the Fund voted its shares of closed-end funds as determined by a majority of proxy voting instructions received, the Fund “does not in certain cases meet the requirements of the exception set forth in Section 12(d)(1)(E)(iii) of the 1940 Act because in connection with seeking instructions from Fund shareholders with regard to voting certain proxies on behalf of the Fund, the Fund votes such proxies as determined by a majority of the shares owned by those Fund shareholders who provide proxy voting instructions.”  In response thereto, the Fund has amended its proxy voting policy to provide that the Fund will vote such proxies proportionally based upon the total number of shares owned by those shareholders that provide instructions.
 
The ETFs and other closed-end investment companies in which the Fund invests may invest in common stocks and may invest in fixed income securities.  As a stockholder in any investment company, the Fund will bear its ratable share of the investment company’s expenses and would remain subject to payment of the Fund’s advisory and administrative fees with respect to the assets so invested.
 
The Fund’s management utilizes a balanced approach, including “value” and “growth” investing by seeking out companies at reasonable prices, without regard to sector or industry, which demonstrate favorable long-term growth characteristics.  Valuation and growth characteristics may be considered for purposes of selecting potential investment securities.  In general, valuation analysis is used to determine the inherent value of the company by analyzing
 




38

Special Opportunities Fund, Inc.


Investment objectives and policies, principal risk factors

financial information such as a company’s price to book, price to sales, return on equity, and return on assets ratios; and growth analysis is used to determine a company’s potential for long-term dividends and earnings growth due to market-oriented factors such as growing market share, the launch of new products or services, the strength of its management and market demand.  Fluctuations in these characteristics may trigger trading decisions to be made by the Fund’s investment adviser with respect to the Fund’s portfolio.
 
Generally, securities will be purchased or sold by the Fund on national securities exchanges and in the over-the-counter market.  From time to time, securities may be purchased or sold in private transactions, including securities that are not publicly traded or that are otherwise illiquid.
 
The Fund may, from time to time, take temporary defensive positions that are inconsistent with the Fund’s principal investment strategies in attempting to respond to adverse market, economic, political or other conditions.  During such times, the Fund may temporarily invest up to 100% of its assets in cash or cash equivalents, including money market instruments, prime commercial paper, repurchase agreements, Treasury bills and other short-term obligations of the U.S. Government, its agencies or instrumentalities.  In these and in other cases, the Fund may not achieve its investment objective.
 
The Fund’s investment adviser may invest the Fund’s cash balances in any investments it deems appropriate, subject to the restrictions set forth in below under “Fundamental Investment Restrictions” and as permitted under the 1940 Act, including investments in repurchase agreements, money market funds, additional repurchase agreements, U.S. Treasury and U.S. agency securities, municipal bonds and bank accounts.  Any income earned from such investments will ordinarily be reinvested by the Fund in accordance with its investment program.  Many of the considerations entering into the Fund’s investment adviser’s recommendations and the portfolio manager’s decisions are subjective.
 
Fundamental Investment Restrictions
 
The following fundamental investment limitations cannot be changed without the affirmative vote of the lesser of (a) more than 50% of the outstanding shares of the Fund or (b) 67% or more of such shares present at a stockholders’ meeting if more than 50% of the outstanding shares are represented at the meeting in person or by proxy.  If a percentage restriction is adhered to at the time of an investment or transaction, a later increase or decrease in percentage resulting from a change in values of portfolio securities or the amount of total assets will not be considered a violation of any of the following limitations or of any of the Fund’s investment policies.  The Fund may not:
 
(1)  issue senior securities (including borrowing money from banks and other entities and thorough reverse repurchase agreements), except (a) the Fund may
 




39

Special Opportunities Fund, Inc.


Investment objectives and policies, principal risk factors

borrow in an amount not in excess of 33 1/3% of total assets (including the amount of senior securities issued, but reduced by any liabilities and indebtedness not constituting senior securities), (b) the Fund may issue preferred stock having a liquidation preference in an amount which, combined with the amount of any liabilities or indebtedness constituting senior securities, is not in excess of 50% of its total assets (computed as provided in clause (a) above) and (c) the Fund may borrow up to an additional 5% of its total assets (not including the amount borrowed) for temporary or emergency purposes;
 
The following interpretation applies to, but is not a part of, fundamental limitation:
 
(1)  each state (including the District of Columbia and Puerto Rico), territory and possession of the United States, each political subdivision, agency, instrumentality and authority thereof, and each multi-state agency of which a state is a member is a separate “issuer.”  When the assets and revenues of an agency authority, instrumentality or other political subdivision are separate from the government creating the subdivision and the security is backed only by the assets and revenues of the subdivision, such subdivision would be deemed to be the sole issuer.  Similarly, in the case of an Industrial Development Bond or Private Activity Bond, if that bond is backed only by the assets and revenues of the non-governmental user, then that non-governmental user would be deemed to be the sole issuer.  However, if the creating government or another entity guarantees a security, then to the extent that the value of all securities issued or guaranteed by that government or entity and owned by the Fund exceeds 10% of the Fund’s total assets, the guarantee would be considered a separate security and would be treated as issued by that government or entity.  This restriction does not limit the percentage of the Fund’s assets that may be invested in Municipal Obligations insured by any given insurer.
 
(2)  purchase any security if, as a result of that purchase, 25% or more of the Fund’s total assets would be invested in securities of issuers having their principal business activities in the same industry, except that this limitation does not apply to securities issued or guaranteed by the U.S. government, its agencies or instrumentalities or to municipal securities.
 
(3)  make loans, except through loans of portfolio securities or through repurchase agreements, provided that for purposes of this restriction, the acquisition of bonds, debentures, other debt securities or instruments, or participations or other interests therein and investment in government obligations, commercial paper, certificates of deposit, bankers’ acceptances or similar instruments will not be considered the making of a loan.
 
(4)  engage in the business of underwriting securities of other issuers, except to the extent that the Fund might be considered an underwriter under the federal securities laws in connection with its disposition of portfolio securities.
 




40

Special Opportunities Fund, Inc.


Investment objectives and policies, principal risk factors

(5)  purchase or sell real estate, except that investments in securities of issuers that invest in real estate and investments in mortgage-backed securities,