specialopp_nq.htm
 
As filed with the Securities and Exchange Commission on November 29, 2012
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


 
FORM N-Q
 
 
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED MANAGEMENT INVESTMENT COMPANY
 



Investment Company Act file number 811-07528


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
Brooklyn Capital Management, LLC
Park 80 West
250 Pehle Avenue, Suite 708
Saddle Brook, NJ 07663
(Name and address of agent for service)

Copy to:
Thomas R. Westle, Esp.
Blank Rome LLP
The Chrysler Building
405 Lexington Avenue
New York, NY 10174

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


Date of fiscal year end: 12/31/2012


Date of reporting period:  9/30/2012

 
 
 
 
 
Item 1. Schedule of Investments.
 
Special Opportunities Fund, Inc.
            
Portfolio of Investments
            
September 30, 2012 (Unaudited)
            
             
INVESTMENT COMPANIES - 74.90%
  
Shares
    
Fair Value
  
Closed-End Funds - 67.37%
            
Aberdeen Israel Fund, Inc.
   45,438     $ 585,696  
Adams Express Company
   250,216       2,837,449  
American Strategic Income Portfolio III
   530,930       3,976,666  
Bancroft Fund, Ltd.
   41,401       695,123  
Boulder Growth & Income Fund, Inc.
   392,706       2,572,224  
Boulder Total Return Fund, Inc. (a)
   184,149       3,314,682  
Central Europe & Russia Fund, Inc.
   44,042       1,470,562  
Clough Global Opportunities Fund
   32,669       382,227  
Diamond Hill Financial Trends Fund, Inc.
   119,042       1,340,413  
Dividend & Income Fund, Inc.
   12,003       43,691  
DWS RREEF Real Estate Fund, Inc. (a)(c)(f)(g)
   126,913       11,803  
DWS RREEF Real Estate Fund II, Inc. (a)(c)(f)(g)
   201,612       28,830  
Eaton Vance Risk Managed Diversified Equity Income Fund
   1,369,923       14,425,288  
Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund
   1,086       21,481  
Federated Enhanced Treasury Income Fund
   2,259       32,259  
First Opportunity Fund, Inc. (a)
   279,106       2,135,161  
Firsthand Technology Value Fund, Inc. (a)
   191,294       3,336,167  
The GDL Fund
   33,327       393,592  
Global Income & Currency Fund, Inc.
   1,349       18,387  
The Greater China Fund, Inc.
   367,492       4,189,409  
The India Fund, Inc.
   24,446       568,125  
Liberty All-Star Equity Fund, Inc.
   1,926,730       9,306,106  
Macquarie Global Infrastructure Total Return Fund, Inc.
   143,911       2,755,896  
Morgan Stanley Asia Pacific Fund, Inc.
   27,546       384,818  
Morgan Stanley Institutional Fund, Inc. - Frontier Emerging Markets Portfolio (a)(c)
   111,980       1,510,610  
The New Ireland Fund, Inc.
   102,704       872,984  
Royce Focus Trust, Inc.
   17,500       117,600  
Royce Micro-Cap Trust, Inc.
   440,426       4,162,026  
Royce Value Trust, Inc.
   348,093       4,549,576  
Swiss Helvetia Fund, Inc.
   84,717       912,402  
Taiwan Fund, Inc.
   7,307       120,566  
The Thai Capital Fund, Inc. (a)
   106,942       1,248,013  
The Thai Fund, Inc.
   144,193       2,533,471  
The Tri-Continental Corporation
   387,319       6,282,314  
The Zweig Total Return Fund, Inc.
   313,643       3,970,720  
            81,106,337  
Auction Rate Preferred Securities - 5.09% (c)(i)
              
Advent Claymore Convertible Securities & Income Fund
   11       255,750  
BlackRock California Municipal 2018 Term Trust - Series M7, 0.152%
   100       2,250,000  
BlackRock Municipal 2018 Term Trust - Series W7, 0.168%
   100       2,375,000  
Putnam Managed Municipal Income Trust
   6       225,000  
Putnam Municipal Opportunities Trust
   6       112,500  
Western Asset Premier Bond Fund - Series M, 0.060%
   46       914,250  
            6,132,500  
Business Development Company - 2.44%
              
Equus Total Return, Inc. (a)
   106,919       234,153  
MVC Capital, Inc.
   211,575       2,708,160  
            2,942,313  
Total Investment Companies (Cost $81,948,703)
           90,181,150  
               
PREFERRED STOCKS - 0.88%
              
Oil and Gas Extraction - 0.66%
              
Magnum Hunter Resources Corporation
   17,875       792,220  
Real Estate Investment Trusts - 0.22%
              
AG Mortgage Investment Trust, Inc. (a)
   10,755       268,445  
Total Preferred Stocks (Cost $1,055,375)
           1,060,665  
               
COMMON STOCKS - 26.03%
              
Depository Credit Intermediation - 0.02%
              
1st Constitution Bancorp (a)
   2,109       18,876  
Information Technology - 0.05%
              
JP Morgan Asian IT
   21,141       65,631  
Life Insurance - 1.65%
              
Imperial Holdings, Inc. (a)
   581,622       1,983,331  
Oil and Gas Field Exploration Services - 0.01%
              
Zion Oil & Gas, Inc. (a)
   4,816       11,125  
Pharmaceuticals Preparations - 1.68%
              
Myrexis, Inc. (a)
   830,157       2,017,282  
Real Estate Investment Trusts - 2.61%
              
American Realty Capital Properties, Inc.
   6,472       80,900  
Gyrodyne Company of America, Inc. (a)
   14,191       1,541,568  
Healthcare Trust of America, Inc.
   155,057       1,516,457  
            3,138,925  
Special Purpose Acquisition Vehicle - 19.52%
              
Andina Acquisition Corporation (a)(b)
   95,026       929,354  
Australia Acquisition Corporation (a)
   290,000       2,894,199  
Azteca Acquisition Corporation (a)
   189,924       1,861,255  
BGS Acquisition Corporation (a)(b)
   120,615       1,194,089  
Blue Wolf Mongolia Holdings Corporation (a)
   50,273       490,162  
Cazador Acquisition Corporation, Ltd. (a)
   102,821       1,032,323  
China Growth Equity Investment, Ltd. (a)
   52,798       518,476  
China VantagePoint Acquisition Company (a)(h)
   27,130       160,881  
Empeiria Acquisition Corporation (a)(b)
   205,929       2,075,765  
Global Cornerstone Holdings, Ltd. (a)(b)
   215,935       2,120,482  
Global Eagle Acquisition Corporation (a)
   154,028       1,514,095  
Hyde Park Acquisition Corp II (a)
   59,000       592,950  
Infinity Cross Border Acquisition Corporation (a)
   126,200       1,026,006  
Lone Oak Acquisition Corporation (a)
   81,430       640,854  
Nautilus Marine Acquisition Corporation (a)
   127,846       1,273,346  
Prime Acquisition Corporation (a)
   65,008       638,379  
RLJ Acquisition, Inc. (a)
   172,320       1,661,165  
ROI Acquisition Corporation (a)(b)
   48,370       466,771  
SCG Financial Acquisition Corporation (a)
   163,384       1,606,293  
Selway Capital Acquisition Corporation (a)
   80,000       792,800  
Universal Business Payment Solutions Acquisition Corporation (a)
   100,000       602,000  
            24,091,645  
Total Common Stocks (Cost $30,547,040)
           31,326,815  
   
Principal
          
   
Amount
          
STRUCTURED LIFE SETTLEMENT NOTES - 0.25%
              
Cedar Lane Series A-2 Notes (a)(c)(f)
   300,892       300,892  
Total Structured Premium Life Settlement Notes (Cost $300,892)
           300,892  
               
PROMISSORY NOTES - 0.19%
              
Symbios Holdings, Inc.
              
15.00%, 07/16/2012 (c)(f)
   450,000       225,000  
Total Promissory Notes (Cost $450,000)
           225,000  
               
CORPORATE BONDS - 0.02%
              
Washington Mutual Inc.
              
0.000%, 01/15/2013 (c)(d)
   3,000,000       15,000  
5.250%, 09/15/2017 (c)(d)
   1,300,000       3,510  
Total Corporate Bonds (Cost $0)
           18,510  
               
CONVERTIBLE NOTES - 0.08%
              
Health Care Facilities - 0.08%
              
Healthcare Corporation Of America (a)
   1       100,000  
Total Convertible Notes (Cost $100,000)
           100,000  
               
   
Shares
          
WARRANTS - 0.61%
              
Andina Acquisition Corporation
              
Expiration: May 2015
   95,026       19,955  
Exercise Price: $0.50 (a)
              
Australia Acquisition Corporation
              
Expiration: October 2015
   350,408       91,106  
Exercise Price: $11.50 (a)
              
Azteca Acquisition Corporation
              
Expiration: April 2018
   189,924       34,186  
Exercise Price: $12.50 (a)
              
Blue Wolf Mongolia Holdings Corporation
              
Expiration: July 2016
   50,273       15,585  
Exercise Price: $12.00 (a)
              
Cazador Acquisition Corporation, Ltd.
              
Expiration: October 2015
   228,491       95,967  
Exercise Price: $7.50 (a)
              
China Growth Equity Investment, Ltd.
              
Expiration: February 2013
   52,798       11,088  
Exercise Price: $12.00 (a)
              
Empeiria Acquisition Corporation
              
Expiration: December 2017
   205,929       32,948  
Exercise Price: $11.50 (a)
              
Global Cornerstone Holdings, Ltd.
              
Expiration: April 2016
   115,935       17,390  
Exercise Price: $11.50 (a)
              
Global Eagle Acquisition Corporation
              
Expiration: May 2016
   100,000       25,000  
Exercise Price: $115.00 (a)
              
Lone Oak Acquisition Corporation
              
Expiration: March 2016
   81,430       25,650  
Exercise Price: $5.00 (a)
              
Nautilus Marine Acquisition Corporation
              
Expiration: July 2016
   127,846       24,291  
Exercise Price: $11.50 (a)
              
Prime Acquisition Corporation
              
Expiration: March 2016
   51,442       15,433  
Exercise Price: $7.50 (a)
              
RLJ Acquisition, Inc.
              
Expiration: February 2016
   436,744       196,534  
Exercise Price: $12.00 (a)
              
ROI Acquisition Corporation
              
Expiration: February 2017
   48,370       14,511  
Exercise Price: $120.00 (a)
              
SCG Financial Acquisition Corporation
              
Expiration: May 2016
   154,865       23,230  
Exercise Price: $11.50 (a)
              
Selway Capital Acquisition Corporation
              
Expiration: November 2016
   80,000       42,400  
Exercise Price: $0.75 (a)
              
Tile Shop Holdings, Inc.
              
Expiration: November 2015
   10,268       32,755  
Exercise Price: $11.50 (a)
              
Universal Business Payment Solutions Acquisition Corporation
              
Expiration: May 2017
   100,000       17,000  
Exercise Price: $6.90 (a)
              
Total Warrants (Cost $750,398)
           735,029  
               
RIGHTS - 0.00%
              
1st Constitution Bancorp (a)
   229       0  
Total Rights (Cost $0)
           0  
               
MONEY MARKET FUNDS - 28.05%
              
Fidelity Institutional Government Portfolio - Class I, 0.010% (e)
   16,886,152       16,886,152  
Fidelity Institutional Tax-Exempt Portfolio - Class I, 0.010% (e)
   16,885,728       16,885,728  
Total Money Market Funds (Cost $33,771,880)
           33,771,880  
               
Total Investments (Cost $148,924,288) - 131.01%
           157,719,941  
Liabilities in Excess of Other Assets - (31.01)%
           (37,328,328 )
TOTAL NET ASSETS - 100.00%
         $ 120,391,613  
               
Percentages are stated as a percent of net assets.
              
 
(a)
  
Non-income producing security.
(b)
  
Each share consists of one share of common stock and one warrant.
(c)
  
Fair valued securities. The total market value of these securities was $8,228,145, representing 6.83% of net assets.
(d)
  
Default or other conditions exist and security is not presently accruing income.
(e)
  
The rate shown represents the 7-day yield at September 30, 2012.
(f)
  
Illiquid security. The total market value of these securities was $566,525 representing 0.47% of net assets.
(g)
  
Security currently undergoing a full liquidation with all proceeds paid out to shareholders.
(h)
  
Each unit consists of one share of common stock, one half of a non-transferrable warrant and one half of a transferrable warrant.
(i)
  
The coupon rates shown represent the rates at September 30, 2012.

 
 
 
 
 
Valuation of Investments—The Fund calculates its net asset value based on the current market value for its portfolio securities. The Fund normally obtains market values for its securities from independent pricing sources and broker-dealers. Independent pricing sources may use last reported sale prices or if not available the most recent bid price, current market quotations or valuations from computerized “matrix” systems that derive values based on comparable securities. A matrix system incorporates parameters such as security quality, maturity and coupon, and/or research and evaluations by its staff, including review of broker-dealer market price quotations, if available, in determining the valuation of the portfolio securities. If a market value is not available from an independent pricing source or a broker-dealer for a particular security, that security is valued at fair value as determined in good faith by or under the direction of the Fund’s Board of Directors (the “Board”). Various factors may be reviewed in order to make a good faith determination of a security’s fair value. The auction rate preferred securities and the structured life settlement notes are valued at cost, unless other observable market events occur. The purchase price, or cost, of these securities is arrived at through an arms length transaction between a willing buyer and seller in the secondary market and is indicative of the value on the secondary market. Current transactions in similar securities in the marketplace are evaluated. Factors for other securities may include, but are not limited to, the type and cost of the security; contractual or legal restrictions on resale of the security; relevant financial or business developments of the issuer; actively traded similar or related securities; conversion or exchange rights on the security; related corporate actions; and changes in overall market conditions. If events occur that materially affect the value of securities between the close of trading in those securities and the close of regular trading on the New York Stock Exchange, the securities may be fair valued. The amortized cost method of valuation, which approximates market value, generally is used to value short-term debt instruments with sixty days or less remaining to maturity, unless the Board or its delegate determines that this does not represent fair value.

The Fund has adopted fair valuation accounting standards that establish an authoritative definition of fair value and set out a hierarchy for measuring fair value. These standards require additional disclosures about the various input and valuation techniques used in measuring fair value. Fair value inputs are summarized in the three broad levels listed below:
 
 Level 1—
Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access.
 
 Level 2—
Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.
 
 Level 3— Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available; representing the Fund’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available.
 
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.

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 Fund adopted Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2011-04 (“ASU 2011-04”), Fair Value Measurement: Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRS, which, among other things, clarifies existing disclosure requirements provided by ASC 820 regarding the level of disaggregation and the inputs and valuation techniques used to measure fair value.

The significant unobservable inputs used in fair value measurement of the Fund’s investment companies, corporate bonds, promissory notes, and structured finance notes are (1) cost and (2) indicative bids or price ranges from dealers, brokers, or market makers. Significant changes in any of these inputs in isolation may result in a change in higher fair value measurement.

In accordance with procedures established by the Fund’s Board of Directors, the Adviser shall initially value non-publicly-traded securities (for which a current market value is not readily available) at their acquisition cost less related expenses, where identifiable, unless and until the Adviser determines that such value does not represent fair value.

The Adviser sends a memorandum to the Chairman of the Valuation Committee with respect to any non-publicly-traded securities that are valued using a method other than cost detailing the reason, factors considered, and impact on the Fund’s NAV. If the Chairman determines that such fair valuation(s) require the involvement of the Valuation Committee, a special meeting of the Valuation Committee is called as soon as practicable to discuss such fair valuation(s). The Valuation Committee of the Board consists of at least two non-interested Directors, as defined by the Investment Company Act of 1940.

At each regular quarterly Board meeting, the Adviser delivers a written report (the “Quarterly Report”) to the Board regarding any recommendations of fair valuation during the past quarter, including fair valuations which have not changed. The Board reviews the Quarterly Report and discusses the valuation of the fair valued securities.

The Valuation Committee reviews all Quarterly Reports and any other interim reports, and reviews and approves the valuation of all fair valued securities. This review includes a review and discussion of an updated fair valuation summary with appropriate levels of representatives of the Adviser’s management.
 
 
 
 
 
 
 
The following is a summary of the fair valuations according to the inputs used as of September 30, 2012 (Unaudited) in valuing the Fund's investments:
        
                         
   
Quoted Prices in Active
    
Significant Other
              
   
Markets for Identical
    
Observable Inputs
    
Unobservable Inputs
        
   
Investments (Level 1)
    
(Level 2)
    
(Level 3)
    
Total
  
Investment Companies
   $ 82,497,407     $ -     $ 7,683,743     $ 90,181,150  
Preferred Stocks
     1,060,665       -       -       1,060,665  
Common Stocks
     11,615,697       19,711,118       -       31,326,815  
Structured Life Settlement Notes
     -       -       300,892       300,892  
Promissory Notes
     -       -       225,000       225,000  
Corporate Bonds
     -       -       18,510       18,510  
Convertible Notes
     -       100,000       -       100,000  
Warrants
     431,201       303,828       -       735,029  
Rights
     -       -       -       -  
Money Market Funds
     33,771,880       -       -       33,771,880  
Total
   $ 129,376,850     $ 20,114,946     $ 8,228,145     $ 157,719,941  
 
 
The following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value:
       
Balance as of December 31, 2011
 $
15,065,966
  
     Accrued discounts / premiums
  
                                        -
  
     Realized gain (loss)
  
                            1,489,937
  
Change in unrealized appreciation (depreciation)
  
                          (1,122,628)
  
     Purchases
  
                            3,169,311
  
     Sales
  
                        (10,374,441)
  
     Transfers in and / or out of Level 3
  
                                        -
  
Balance as of September 30, 2012
 $
8,228,145
  
       
During the period ended September 30, 2012, there were no significant transfers into and out of Levels 1 and 2. Transfers between levels are recognized at the end of the reporting period.
 
 
 Type of Security
  
 Fair Value at 9/30/2012
  
 Valuation Techniques
  
 Unobservable Input
  
 Range
Investment Companies
  
                                 7,683,743
  
Fair Value Pricing
  
Third party inputs
  
NA
                 
Structured Life Settlement Notes
  
                                    300,892
  
Fair Value Pricing
  
Third party inputs
  
NA
                 
Promissory Notes
  
                                    225,000
  
Fair Value Pricing
  
Third party inputs
  
NA
                 
Corporate Bonds
  
                                      18,510
  
Fair Value Pricing
  
Third party inputs
  
NA
 

 
 
 
 
 
The cost basis of investments for federal income tax purposes at September 30, 2012 was as follows*:
 
Cost of investments
   $ 148,966,571  
Gross unrealized appreciation   
     10,263,583  
Gross unrealized depreciation   
     (1,510,213 )
Net unrealized appreciation  
   $ 8,753,370  
 
*Because tax adjustments are calculated annually, the above table reflects the tax adjustments outstanding at the Fund’s previous fiscal year end.  For the previous fiscal year’s federal income tax information, please refer to the Notes to Financial Statements section in the Fund’s most recent semi-annual or annual report.

 
 
 
 
 
 
Item 2. Controls and Procedures.
 
(a)  
The Registrant’s President and Chief Financial Officer have concluded that the Registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “1940 Act”)) (17 CFR 270.30a-3(c)) are effective as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rule 13a-15(b) or Rule 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(d)).

(b)  
There were no changes in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) (17 CFR 270.30a-3(d)) that occurred during the Registrant's last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting.

Item 3. Exhibits.
 
Separate certifications for each principal executive officer and principal financial officer of the Registrant as required by Rule 30a-2(a) under the 1940 Act (17 CFR 270.30a-2(a)).  Filed herewith.
 

 
 
 
 
 
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


(Registrant) Special Opportunities Fund, Inc.                                          
                                                                                                                  

By (Signature and Title) /s/ Andrew Dakos                                                                                                                                                                 
 Andrew Dakos, President

Date 11/26/2012                                                                                                                                                                                                           

 


Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By (Signature and Title)  /s/ Andrew Dakos                                                                                                                                                     
  Andrew Dakos, President

Date 11/26/2012                                                                                                                                                                                                           

 
By (Signature and Title) /s/ Gerald Hellerman                                                                                                                                                
 Gerald Hellerman, Chief Financial Officer

Date 11/23/2012