PROPOSAL 1
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1.
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(A) TO ELECT FOUR DIRECTORS TO THE SPE BOARD, TO BE ELECTED BY THE HOLDERS OF SPE’S COMMON STOCK AND PREFERRED STOCK, VOTING TOGETHER AS A SINGLE CLASS, TO SERVE UNTIL SPE’S NEXT ANNUAL MEETING OF STOCKHOLDERS IN 2014 AND UNTIL THEIR SUCCESSORS HAVE BEEN DULY ELECTED AND QUALIFIED; AND
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(B) TO ELECT TWO DIRECTORS TO THE SPE BOARD, TO BE ELECTED BY THE HOLDERS OF SPE’S PREFERRED STOCK, VOTING AS A SEPARATE CLASS, TO SERVE UNTIL SPE’S NEXT ANNUAL MEETING OF STOCKHOLDERS IN 2014 AND UNTIL THEIR SUCCESSORS HAVE BEEN DULY ELECTED AND QUALIFIED (COLLECTIVELY, “PROPOSAL 1”);
Proposal 1(a). Proposal 1(a) relates to the election of four Directors to SPE’s Board of Directors, which Directors are to be elected by the holders of SPE’s common stock (the “Common Stockholders”) and preferred stock (the “Preferred Stockholders”), voting together as a single class. The Board of Directors has nominated James Chadwick, Andrew Dakos, Gerald Hellerman and Charles Walden to be elected by the Common Stockholders. Each of Messrs. Chadwick, Dakos, Hellerman and Walden currently serves on the Board of Directors.
In the event that one or all of the nominees become unavailable for election for any presently unforeseen reason, the persons named in the form of proxy will vote for any successor nominee who shall be designated by the present Board of Directors. Each of Messrs. Chadwick, Dakos, Hellerman and Walden shall be elected by a plurality of the shares of common stock and preferred stock voting at the Annual Meeting.
At the Annual Meeting, the Common Stockholders and the Preferred Stockholders will be asked to vote for the election of Messrs. Chadwick, Dakos, Hellerman and Walden. If elected, Messrs. Chadwick, Dakos, Hellerman and Walden will each serve until SPE’s next Annual Meeting of Stockholders in 2014 or thereafter until each of their respective successors are duly elected and qualified. If elected, Messrs. Chadwick, Dakos, Hellerman and Walden have each consented to serve as Director until his successor is duly elected and qualified.
The persons named in the accompanying forms of proxy intend to vote at the Annual Meeting (unless directed not to vote) “FOR” the election of Messrs. Chadwick, Dakos, Hellerman and Walden. The nominees named above have indicated that they will serve if elected, and the Board of Directors has no reason to believe that the nominees will become unavailable for election as Directors; however, if Messrs. Chadwick, Dakos, Hellerman and Walden should be unable to serve, the proxy will be voted for any other persons determined by the persons named in the accompanying forms of proxy in accordance with their judgment.
Required Vote. Messrs. Chadwick, Dakos, Hellerman and Walden must each be elected by a plurality (i.e., a simple majority of the votes cast at the Annual Meeting) of the votes cast by the Common Stockholders and Preferred Stockholders, voting together as a single class, present in person or represented by proxy at the Annual Meeting, provided a quorum is present. Abstentions and broker non-votes will be counted as shares present for quorum purposes, but otherwise will have no effect on the plurality vote required for each Director.
Proposal 1(b). Proposal 1(b) relates to the election of two Directors to SPE’s Board of Directors, which Directors are to be elected by the Preferred Stockholders, voting as a separate class. The Board of Directors has nominated Phillip Goldstein and Ben Harris to be elected by the Preferred Stockholders. Each of Messrs. Goldstein and Harris currently serves on the Board of Directors.
In the event that one or both of the nominees become unavailable for election for any presently unforeseen reason, the persons named in the form of proxy will vote for any successor nominee who shall be designated by the present Board of Directors. Each of Messrs. Goldstein and Harris shall be elected by a plurality of the shares of preferred stock voting at the Annual Meeting.
At the Annual Meeting, the Preferred Stockholders will be asked to vote for the election of Messrs. Goldstein and Harris. If elected, Messrs. Goldstein and Harris will each serve until SPE’s next Annual Meeting of Stockholders in 2014 or thereafter until each of their respective successors are duly elected and qualified. If elected,
Messrs. Goldstein and Harris have each consented to serve as Director until his successor is duly elected and qualified.
The persons named in the accompanying forms of proxy intend to vote at the Annual Meeting (unless directed not to vote) “FOR” the election of Messrs. Goldstein and Harris. The nominees named above have indicated that they will serve if elected, and the Board of Directors has no reason to believe that the nominees will become unavailable for election as Directors; however, if Messrs. Goldstein and Harris should be unable to serve, the proxy will be voted for any other persons determined by the persons named in the accompanying forms of proxy in accordance with their judgment.
Required Vote. Messrs. Goldstein and Harris must each be elected by a plurality (i.e., a simple majority of the votes cast at the Annual Meeting) of the votes cast by the holders of shares of SPE’s common stock, present in person or represented by proxy at the Annual Meeting, provided a quorum is present. Abstentions and broker non-votes will be counted as shares present for quorum purposes, but otherwise will have no effect on the plurality vote required for each Director.
PROPOSAL 2
TO APPROVE THE CONTRIBUTION OF A PORTION OF SPE’S ASSETS (WHICH IS ANTICIPATED TO CONSIST LARGELY OF SECURITIES OF U.S. CLOSED-END INVESTMENT COMPANIES THAT INVEST IN PRIVATE AND PUBLIC COMPANIES LOCATED OUTSIDE THE U.S., NON-U.S. INVESTMENT COMPANIES AND OTHER PRIVATE AND PUBLIC COMPANIES LOCATED WITHIN AND OUTSIDE THE U.S. AND CASH) HAVING A VALUE OF APPROXIMATELY $14 MILLION (APPROXIMATELY 10% OF SPE’S NET ASSETS AS OF DECEMBER 31, 2013), TO A NEWLY-ORGANIZED, DIVERSIFIED, CLOSED-END MANAGEMENT INVESTMENT COMPANY, SPE GLOBAL, AND TO DISTRIBUTE TO COMMON STOCKHOLDERS OF SPE, SHARES OF SPE GLOBAL COMMON STOCK.
THE TRANSACTION
Background
Special Opportunities Fund, Inc., a Maryland corporation, was incorporated on February 13, 1993 and commenced investment operations on June 7, 1993, and is registered under the 1940 Act as a closed-end diversified management investment company. In 2009, a new Board of Directors was elected, the Fund’s investment adviser was replaced and SPE’s principal investment objective was changed from providing tax free income to providing total return. SPE’s investment goal is total return through capital appreciation and current income. Our common stock is listed and trades on the NYSE under the trading symbol “SPE.” On April 21, 2010, SPE’s symbol changed from “PIF” to “SPE.” As of December 31, 2013, SPE’s net assets approximated $[●], and its total assets, including amounts attributed to borrowings, approximated $[●].
The SPE Board has determined that an investment in U.S. closed-end investment funds that invest in foreign securities and other foreign securities could provide attractive opportunities for capital growth as well as the benefits of geographic diversification. The SPE Board has determined that the Transaction will provide SPE common stockholders with a new closed-end fund that will invest a greater percentage of its assets, directly and indirectly, in foreign securities than SPE in order to take advantage of these potential opportunities.
The SPE Board believes the proposed Transaction is in the best interests of SPE and its stockholders.
Description of the Transaction
In order to provide SPE common stockholders additional opportunities for capital growth from their investments, the SPE Board has approved, subject to stockholder approval, the contribution of a portion of SPE’s net assets having a value of approximately $14 million (approximately 10% of SPE’s net assets as of December 31,
2013) to SPE Global, a newly-formed closed-end diversified management investment company incorporated in Maryland and wholly owned by SPE. It is anticipated that the contributed assets will consist largely of securities of U.S. closed-end investment companies that invest in private and public companies located outside the U.S., non-U.S. investment companies and other private and public companies located within and outside the U.S. and cash. All the SPE Global Common Stock will then be distributed by SPE to its common stockholders at an approximate rate of one (1) share of SPE Global Common Stock for every four (4) shares held of SPE Common Stock. If the Transaction proceeds as anticipated, it is expected to primarily involve a non-taxable return of capital to SPE common stockholders. See “– Material Federal Income Tax Consequences” and “Taxation” for a more detailed explanation of the possible federal income tax consequences of the Transaction.
We expect that the Commission will issue an exemptive order in connection with the Transaction.
The investment goal of SPE is total return through capital appreciation and current income. SPE is not limited in the amount of its assets that it may invest in securities of companies headquartered outside the United States. SPE invests primarily in securities Bulldog Investors believes have opportunities for appreciation.
The investment goal of SPE Global is total return through capital appreciation and current income. Under normal market circumstances and in the ordinary course, SPE Global intends to invest at least 80% of its assets in securities of U.S. closed-end investment companies that invest in private and public companies located outside the U.S., non-U.S. investment companies and other private and public companies located within and outside the U.S. From time to time, a substantial portion of SPE Global’s assets may be invested in companies located in a single country. To the extent deemed appropriate by its investment adviser, SPE Global may also invest in U.S. and non-U.S. non-convertible debt.
SPE Global will invest its assets primarily in securities that Bulldog Investors believes have opportunities for appreciation. Securities in which SPE Global may invest include common and preferred stocks, convertible securities, warrants and other securities having the characteristics of common stocks, such as ADRs and IDRs, closed-end investment companies and ETFs. SPE Global may, however, invest a portion of its assets in debt securities or other investment opportunities when SPE Global’s investment 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, SPE Global’s investment adviser may determine to invest in debt securities. Debt securities in which SPE Global may invest include bank, corporate or government bonds, notes, and debentures that SPE Global’s investment adviser determines are suitable investments for SPE Global. Such determination may be made regardless of the maturity, duration or rating of any such debt security.
The opportunity to invest fund assets, directly and indirectly, in foreign securities that the Transaction will provide will be greater than available in SPE as currently structured. As a result, SPE Global over time may be expected to experience different investment results from SPE. Bulldog Investors expects that the assets contributed to SPE Global will be invested in accordance with SPE Global’s investment objective and policies within three months after the completion of the Transaction.
SPE Global is being registered under the 1940 Act as a diversified, closed-end investment company, and Bulldog Investors, the investment adviser to SPE, will also serve as investment adviser to SPE Global. SPE pays Bulldog Investors an advisory fee consisting of a monthly fee at an annual rate of 1.00% of the value of the Fund’s average weekly total assets, including any assets attributable to leverage, for the investment management and research services provided. The advisory fee structure for SPE Global will be different from SPE. SPE Global will pay Bulldog Investors an advisory fee consisting of a monthly fee at an annual rate of 1.25% of the value of SPE Global’s average weekly total assets, including any assets attributable to leverage, for the investment management and research services provided. Contributing to a potentially higher advisory fee for SPE Global is SPE Global’s focus on non-U.S. securities, which is expected to be more labor intensive and time consuming than providing investment advisory services to a fund that invests primarily in U.S. securities. See “Investment Advisory Services Provided by Bulldog Investors” below and “Investment Advisory and Other Services” in the SAI. It is expected that the SPE Global Common Stock will be listed on the NYSE following a rights offering to be conducted shortly after the Transaction is consummated. To the extent that SPE Global does not satisfy the minimum listing requirements of the NYSE, the SPE Global Board will consider other listing alternatives. The Distribution Record Date and the Distribution Date will be determined by the SPE Board following stockholder approval of the Transaction. The
investment goal and policies and other matters relating to SPE Global’s structure are described below. See “Investment Goals and Policies of SPE and SPE Global.”
The SPE Board believes that the Transaction will result in the following benefits to SPE common stockholders:
1. The common stockholders will receive shares of an investment company with a different risk-return profile from SPE, thereby providing common stockholders with the following alternatives: (a) retaining their shares in both SPE and SPE Global; (b) selling their SPE Global shares and retaining their SPE shares; or (c) selling their SPE shares and retaining their SPE Global shares. As a consequence, SPE’s common stockholders may more closely align their investment portfolio with their desired exposure to different segments of the equity market. If a stockholder sells his or her shares of either SPE Common Stock or SPE Global Common Stock, the stockholder can be expected to incur brokerage commissions and such sale may constitute a taxable event for the stockholder.
2. SPE Global Common Stock will be issued at a much lower transaction cost to investors than is typically the case for a newly-organized closed-end equity fund since there will be no underwriting discounts or commissions. The Transaction will not result in an increase in the aggregate net assets of SPE and SPE Global. SPE will pay the out-of-pocket costs of the Transaction. See “—Transaction Expenses” below.
3. As a globally diversified fund, SPE Global will afford common stockholders the opportunity to seek the capital growth opportunities presented by closed-end investment funds that invest in foreign companies and other foreign securities exposure. Under normal market circumstances and in the ordinary course, SPE Global intends to invest at least 80% of its assets in securities of U.S. closed-end investment companies that invest in private and public companies located outside the U.S., non-U.S. investment companies and other private and public companies located within and outside the U.S. Of course, as a consequence of its global diversification policy, SPE Global’s investments may be subject to a variety of significant risks, such as that many foreign governments do not regulate stock exchanges to the same extent as does the United States government, foreign currency fluctuations could impact the value of assets, and clearance procedures may result in delayed payment when assets are sold.
The SPE Board determined not to change the non-fundamental investment restrictions of SPE in a manner that would transform SPE into a global fund because, in their view, many SPE investors likely wish to retain their investment in a closed-end fund that invests primarily in U.S. closed-end investment funds and U.S. securities.
The SPE Board believes that the benefits of the Transaction outlined above outweigh the costs of the Transaction. For a description of the costs and expenses relating to the Transaction, see “—Transaction Expenses” below.
The consummation of the Transaction is contingent upon stockholder approval of both the Transaction and the amended SPE investment restriction discussed in “Proposal 3” below.
Material Federal Income Tax Consequences.
The following discussion should be read in conjunction with the discussion in “Taxation” below and is subject to and qualified in its entirety by that discussion.
SPE will contribute cash and securities to SPE Global in exchange for SPE Global Common Stock. Such contribution should not be a taxable event to either SPE or SPE Global, but the subsequent distribution of SPE Global Common Stock to holders of SPE Common Stock may be a taxable event to SPE and its stockholders as noted below.
SPE does not expect that any significant amount of net unrealized appreciation will exist in the securities transferred to SPE Global. Accordingly, the Transaction is not expected to result in the recognition of significant taxable gain by SPE and, except as noted below, is not expected to increase significantly the total amount of taxable distributions received by SPE common stockholders for this year. In addition, the SPE Board has considered the tax
consequences of the Transaction to its stockholders and has determined that the benefits of the Transaction outweigh any adverse tax consequences.
An amount equal to the fair market value of the SPE Global Common Stock distributed to a SPE common stockholder plus the amount of any cash in lieu of fractional shares of SPE Global Common Stock distributed to a SPE common stockholder (but no greater sum) will be treated as a dividend up to the amount of SPE Global’s current and accumulated earnings and profits that is allocated to the distribution and will be taxable to the SPE common stockholder as a distribution of ordinary income, long-term capital gain or a combination of both. To the extent that the fair market value of the SPE Global Common Stock and cash exceeds the amount of earnings and profits allocated to such distribution, the excess (if any) will first be treated as a non-taxable return of capital, reducing the SPE common stockholder’s tax basis in its SPE Common Stock and to the extent that the fair market value of the SPE Global Common Stock and cash then remaining exceeds the SPE common stockholder’s basis in its SPE Common Stock, such excess (if any) will be taxable as gain realized from a deemed sale of SPE Common Stock. Each stockholder will take a fair market value tax basis in SPE Global Common Stock received and will have a holding period for the SPE Global Common Stock that begins on the day following the Distribution Date. In addition to the other information necessary to file tax returns, SPE will provide stockholders with information on the amount of the distribution to be treated as ordinary income, long-term capital gain or a combination of both.
Exchange Listing
It is expected that the SPE Global Common Stock will be listed on the NYSE under the symbol “[●]” following a rights offering to be conducted shortly after the Transaction is consummated. To the extent that SPE Global does not satisfy the minimum listing requirements of the NYSE, the SPE Global Board will consider other listing alternatives.
Transaction Expenses
The costs of organizing SPE Global and effecting the distribution of SPE Global Common Stock to SPE’s common stockholders, including the fees and expenses of counsel and accountants and printing, listing and registration fees, together with the costs of soliciting SPE stockholders’ approval of the Transaction and the costs incurred in connection with seeking an exemptive order from the Commission relating to the Transaction, are estimated to be approximately $[500,000] and will be borne by SPE. In addition, SPE Global will incur operating expenses on an ongoing basis, including investment advisory, legal, auditing, transfer agency and custodian expenses that, when aggregated with the fees payable by SPE for similar services after the distribution, will likely exceed the fees currently payable by SPE for those services. SPE’s total annual expenses as a percentage of its net assets may increase after the completion of the Transaction because SPE will have a smaller asset base over which it may spread expenses going forward.
Manner of Effecting the Distribution
If the Transaction is approved by the stockholders of SPE and all other conditions thereto are satisfied, the SPE Board is expected to authorize and cause SPE to declare the Distribution of all the outstanding SPE Global Common Stock, payable on the Distribution Date to the holders of record of SPE Common Stock as of the close of business on the Distribution Record Date. The Distribution Record Date and the Distribution Date will be determined by the SPE Board promptly following stockholder approval of the Transaction.
SPE will effect the Distribution on the Distribution Date by providing for the delivery of SPE Global Common Stock to the Distribution Agent for distribution to holders of record of SPE Common Stock as of the close of business on the Distribution Record Date. The Distribution will be made at an approximate rate of one (1) share of SPE Global Common Stock for every four (4) shares of SPE Common Stock outstanding on the Distribution Record Date. All such SPE Global Common Stock will be fully paid and nonassessable. The holders of SPE Global Common Stock will have no preemptive rights to subscribe for additional SPE Global Common Stock or other securities of SPE Global. See “Description of Capital Stock — SPE Global.” Commencing on or about the Distribution Date, SPE Global Common Stock will be credited in book-entry form to accounts registered directly with the transfer agent, with a confirmation statement mailed to stockholders. Stockholders will not receive share certificates.
No fractional shares of SPE Global Common Stock will be issued as part of the Distribution. The Distribution Agent will aggregate the fractional shares to which holders of SPE Common Stock would otherwise be entitled and attempt to sell them in the open market at then prevailing prices on behalf of such holders, and such holders will receive instead a cash payment in the amount of their pro rata share of the total sales proceeds. Thus, a person who holds a number of shares of SPE Common Stock that is not an even multiple of four (4) will receive the appropriate number of SPE Global Common Stock and a check for his or her pro rata share of the proceeds from sales of fractional share interests. A holder of fewer than four (4) shares of SPE Common Stock will receive no SPE Global Common Stock in the Distribution but will be entitled only to his or her pro rata share of the proceeds from sales of fractional share interests. Sales of fractional SPE Global Common Stock are expected to be made as soon as practicable after the Distribution Date and checks representing proceeds of fractional share sales of SPE Global Common Stock will be mailed shortly thereafter. SPE will bear the cost of commissions incurred in connection with such sales.
No holder of SPE Common Stock will be required to pay to SPE any cash or other consideration for SPE Global Common Stock received in the Distribution or to surrender or exchange shares of SPE Common Stock in order to receive SPE Global Common Stock. The Distribution will not affect the number of, nor the rights attaching to, outstanding shares of SPE Common Stock nor will it have any impact on the SPE Preferred Stock or the SPE Preferred Stockholders except as set forth below.
Unless SPE’s preferred stockholders elect to convert their shares of Preferred Stock into shares of SPE Common Stock prior to the Distribution Record Date, the preferred stockholders will not receive any shares of SPE Global in connection with the Transaction. As a result of the Transaction, the net asset value of SPE will decrease by approximately 10%, which will increase the conversion ratio for SPE’s preferred stock. More specifically, the conversion ratio as of December 31, 2013 is [●] and, following the contribution of approximately $14 million of SPE’s assets to SPE Global (approximately 10% of SPE’s current net assets), the conversion ratio shall be approximately [●].
After such time as the SPE Global Common Stock is listed on the NYSE or another national securities exchange, shares of SPE Global Common Stock distributed in connection with the Distribution will be freely transferable, except for shares received by persons who may be deemed to be “affiliates” of SPE Global under the 1933 Act. Persons who may be deemed to be “affiliates” of SPE Global after the Distribution generally include individuals or entities that control, are controlled by or are under common control with SPE Global, and may include certain officers and directors of SPE Global as well as principal stockholders of SPE Global. Persons who are affiliates of SPE Global will be permitted to sell their SPE Global Common Stock only pursuant to an effective registration statement under the 1933 Act or an exemption from the registration requirements of the 1933 Act, such as the exemptions afforded by Section 4(2) of the 1933 Act and Rule 144 thereunder.
Costs Associated with Sales of SPE Global Common Stock
If a SPE common stockholder sells SPE Global Common Stock that he or she receives in the Distribution, the stockholder may incur brokerage commissions and the sale will constitute a taxable event, which may generate gain or loss, for the stockholder. Although it is anticipated that SPE Global Common Stock will be listed on the NYSE, SPE Global is newly organized and has no operating history or history of public trading. There can be no assurance that SPE Global will meet the minimum listing requirement of the NYSE or any other national securities exchange and, even in the event that listing requirements are met, there can be no assurance as to the depth and liquidity of the market that may develop for SPE Global Common Stock.
Allocation of Investment Opportunities
After the Distribution, SPE and SPE Global and other clients of the Bulldog Investors or its affiliates may purchase or sell the same securities. Bulldog Investors follows a policy of allocating purchases and sales of the same security among SPE and other managed accounts and private investment funds in a manner deemed fair and equitable to all accounts. See “Portfolio Transactions” in the section entitled “Additional Information” in the SAI.
PROPOSAL 3
TO APPROVE AMENDING AN INVESTMENT RESTRICTION OF SPE, WHICH CURRENTLY PROHIBITS UNDERWRITING THE SECURITIES OF OTHER ISSUERS. THE AMENDED RESTRICTION WILL ALLOW SPE TO ACT AS AN UNDERWRITER, AS DEFINED UNDER THE SECURITIES ACT OF 1933, IN THE LIMITED CIRCUMSTANCES OF SELLING PORTFOLIO SECURITIES AND IN CONNECTION WITH MERGERS, ACQUISITIONS, SPIN-OFF TRANSACTIONS (SUCH AS THE TRANSACTION) AND OTHER REORGANIZATION TRANSACTIONS INVOLVING SPE. THIS PROPOSAL WILL FACILITATE THE TRANSACTION BY CLEARLY PROVIDING THAT THE TRANSACTION DOES NOT VIOLATE THE INVESTMENT RESTRICTIONS OF SPE.
Description of the Amendment
The SPE Board has approved, subject to stockholder approval, an amendment to an investment restriction of the SPE, which currently states that SPE may not “engage in the business of underwriting securities of other issuers.” The amended investment restriction will state that SPE may not “[u]nderwrite the securities of other issuers, except insofar as the Fund may be deemed an underwriter under the Securities Act of 1933, as amended, in selling portfolio securities and in connection with mergers, acquisitions, spin-off transactions and other reorganization transactions involving the Fund.”
The amended restriction will expressly permit spin-off transactions, such as the Transaction, and will permit the distribution of SPE Global Common Stock without violating the prohibition on SPE underwriting securities of other issuers.
The consummation of the Transaction is contingent upon stockholder approval of both the Transaction and the amended investment restriction.
PROPOSAL 4
TO INSTRUCT BULLDOG INVESTORS, THE INVESTMENT ADVISER OF SPE AND SPE GLOBAL, TO VOTE PROXIES RECEIVED BY SPE AND SPE GLOBAL FROM ANY CLOSED-END INVESTMENT COMPANY IN THE FUNDS’ RESPECTIVE PORTFOLIOS ON ANY PROPOSAL (INCLUDING THE ELECTION OF DIRECTORS) IN A MANNER WHICH BULLDOG INVESTORS REASONABLY DETERMINES IS LIKELY TO FAVORABLY IMPACT THE DISCOUNT OF SUCH INVESTMENT COMPANY’S MARKET PRICE AS COMPARED TO ITS NET ASSET VALUE.
Proposal 4 relates to the voting of proxies that SPE receives and that SPE Global will receive (following the Transaction) from closed-end investment companies in which each invests. Each Fund’s investments in the securities of other investment companies are made in compliance with Section 12(d)(1)(F) of the 1940 Act, by (i) limiting its investments so that not more than 3% of the total outstanding stock of any such investment company is owned by the Fund or any of the Fund’s affiliated persons and (ii) exercising its voting rights by proxy with respect to any such security purchased in the manner prescribed by subparagraph (E) by (a) authorizing Bulldog Investors, pursuant to standing instructions approved annually by the Fund’s stockholders, to vote such proxies on any proposal in a manner in which Bulldog Investors reasonably determines is likely to favorably impact the discount of such investment company’s market price as compared to its net asset value and (b) where Bulldog Investors determines that no such proposal will impact the discount of such investment company’s market price as compared to its net asset value, instructing the underlying closed-end investment company or its agent that the proxies it holds are to be voted in the same proportion as the vote of all other holders of such security (referred to as “mirror voting”). Section 12(d)(1)(E) of the 1940 Act permits a fund to use mirror voting or to seek instructions from its stockholders with regard to the voting of all proxies with respect to investment company securities and vote all such proxies in accordance with such instructions.
Prior to March 2012, SPE used mirror voting with regard to the voting of all proxies with respect to investment company securities. At a meeting held on September 22, 2011, however, the SPE Board concluded that under circumstances where SPE’s proxy is sought regarding any proposal that is likely to favorably impact such investment company’s market price discount to its net asset value, it would be in SPE’s and its stockholders’ best interests to authorize Bulldog Investors to determine how to vote on such proposal. Consequently, at the annual meeting of the stockholders held in December 2011, the SPE Board put forth, and the stockholders approved, a proposal to seek standing instructions from the stockholders authorizing Bulldog Investors to vote proxies received by SPE from any closed-end investment company in SPE’s portfolio on any proposal in a manner in which Bulldog Investors reasonably determines is likely to favorably impact the discount of such investment company’s market price as compared to its net asset value. On December 13, 2011, SPE submitted an application for a declaratory order from the Commission that SPE’s implementation of the proxy voting procedure approved by the stockholders at the annual meeting would not cause SPE to be in violation of Section 12(d)(1) of the 1940 Act. SPE stated in the application that it intended to implement the new proxy voting procedure on March 1, 2012 unless the Commission advised it otherwise. Having received no response from the Commission at that time, the Fund implemented the new proxy voting procedure on March 1, 2012. Stockholders may obtain a copy of SPE’s Form N-PX filed with the Commission on August 31, 2012, which contains SPE’s proxy voting record for the twelve-month period ended June 30, 2013, by visiting SPE’s website at www.specialopportunitiesfundinc.com, by writing to SPE c/o U.S. Bancorp Fund Services, LLC, 615 East Michigan Street, Milwaukee, Wisconsin 53202, or by telephone at 1-877-607-0414. This report is also available on the SEC’s website at www.sec.gov.
The SPE Board and the SPE Global Board each believes that, although not required, it would be best practice for each such Board to continue to seek stockholder approval of the aforementioned proxy voting procedure on an annual basis. Therefore, Proposal 4 seeks authorization from the stockholders that would serve as a standing instruction from the stockholders to vote proxies on any proposal that Bulldog Investors reasonably determines is likely to favorably impact the discount of a closed-end investment company’s market price as compared to its net asset value. Examples of such proposals include, but are not limited to, the election of directors, proposals to authorize such investment company to conduct a self-tender offer or to convert from a closed-end management investment company to an open-end management investment company. From time to time, certain of these proposals may also be proposed by either Fund or by an affiliate of Bulldog Investors. Where Bulldog Investors determines to vote on a proposal in accordance with the stockholders’ standing instructions, it will vote on all proposals relating to such proxy. However, where Bulldog Investors determines that no proposal will impact the
discount of a closed-end investment company’s market price as compared to its net asset value, Bulldog Investors will continue to use mirror voting.
In seeking stockholder approval of Proposal 4, the Funds believe that it is important to disclose to Stockholders that in September 2010, members of the staff of the Division of Investment Management of the Commission (the “Staff”) informed SPE that they had concerns that SPE might not be in compliance with the exemptive conditions of Section 12(d)(1)(F) of the 1940 Act because SPE and certain private partnerships might be deemed to be under common control. The Staff members based their concerns on certain public disclosures regarding the ownership and control of Bulldog Investors by certain individuals who also own and control other entities that serve as the general partners and investment advisers to certain private investment partnerships that are excluded from the definition of an investment company by Section 3(c)(1) of the 1940 Act. The Staff cited the Commission’s conclusion in In the Matter of Steadman Security Corp. (Exchange Act Release No. 13695; Investment Company Act Release No. 9830; Investment Advisers Act Release No. 593) (June 29, 1977), that “the investment adviser almost always controls the fund” in support of its position.
The SPE Board, including all of the Independent Directors, and Bulldog Investors reviewed the matter with their respective counsel and determined that they disagreed with the Staff’s position. In December 2010, Bulldog Investors and SPE filed a joint request for a declaratory order from the Commission that Bulldog Investors does not control SPE, which, if granted, would resolve the Section 12(d)(l)(F) compliance issue raised by the Staff. In March 2011, the SPE Board and Bulldog Investors made a determination that the joint request for a declaratory order should be deemed to have been temporarily granted under the provisions of Section 2(a)(9) of the 1940 Act because more than 60 days had elapsed since the date the request was filed with the Commission. The Staff has advised the SPE Board and Bulldog Investors that it disagrees with such determination. In June 2011, SPE and Bulldog Investors submitted a letter to the Staff requesting that the Staff re-evaluate its position regarding whether Bulldog Investors should be deemed to control SPE based on the recent decision by the U.S. Supreme Court in Janus Capital Group v. First Derivative Traders. In Janus, the Court ruled that despite the “unique close relationship” between the fund and the adviser, the adviser did not control the fund. Although the position is not free from doubt, SPE and Bulldog Investors and their respective counsel continue to believe that SPE is in compliance with the exemptive conditions of Section 12(d)(l)(F) of the 1940 Act.
The Staff has previously advised SPE that, in its opinion, the implementation of Proposal 4, if approved by stockholders, would violate Section 12(d)(1) because the mechanism being proposed by SPE and Bulldog Investors would not satisfy the requirement of section 12(d)(1)(e): “to seek instructions from its security holders with regard to the voting of all proxies . . . and to vote such proxies only in accordance with such instructions.” The Staff’s position is that in order to comply with the “seek instructions” requirement, SPE must seek instructions from stockholders for each proxy it receives from a closed-end investment company. The SPE Board continues to believe that the Staff’s interpretation is not correct because it would render the option to “seek instructions” virtually useless which the SPE Board believes could not have been Congress’ intent. If Proposal 4 is approved by stockholders, the SPE Board intends to continue to pursue its options, including seeking declaratory relief from the Commission (to which an application was submitted on December 13, 2011) or a federal court.
On October 16, 2012, in response to its application, SPE received a letter from the Staff bringing SPE’s attention to Release No. 6440 (April 6, 1971) in which the Commission took the position that an acquiring fund relying on Section 12(d)(1)(f) of the 1940 Act, and that does not wish to use mirror voting, is required to “make an arrangement with” the acquired fund to solicit proxies from each of the acquiring fund’s security holders. The SPE Board continues to disagree with this position for the reasons stated above.
Board Considerations. At its Board meeting held on September 22, 2011, the SPE Board considered a proposal to seek standing instructions from stockholders authorizing Bulldog Investors to vote proxies received by SPE from any closed-end investment company in SPE’s portfolio on any proposal in a manner in which Bulldog Investors reasonably determines is likely to favorably impact the discount of such investment company’s market price as compared to its net asset value. Representatives of Bulldog Investors presented information regarding this proposal to the SPE Board, including examples of proposals Bulldog Investors would consider to have a reasonable likelihood of favorably impacting an investment company’s discount to net asset value. The SPE Board considered Bulldog Investors’ assertion that the authority sought in the proposal was consistent with SPE’s investment objective and strategy to invest in securities that Bulldog Investors believes have opportunities for appreciation, including
closed-end investment companies that trade at a market price discount from their net asset value. Bulldog Investors further asserted that SPE’s then-existing policy of mirror voting SPE’s shares of closed-end investment companies had caused SPE, from time to time, to vote a percentage of its shares contrary to SPE’s and the stockholders’ best interests. The SPE Board also noted that given the proximity of the date of receipt of proxy materials by SPE to the date of a closed-end investment company’s meeting and the expense of soliciting SPE stockholders on any specific proposal, the proposal was the only practical way to comply with the requirement in Subparagraph (E) to “seek instructions” from the stockholders with regard to the voting of proxies. The SPE Board concurred with Bulldog Investors that consistent with SPE’s investment strategy, it was in SPE’s and its stockholders’ best interests to instruct Bulldog Investors to vote proxies on proposals that it deems likely to impact a closed-end fund’s discount rather than utilize mirror voting.
The SPE Board further considered Bulldog Investors’ expertise in identifying opportunities for appreciation, including among closed-end investment companies, and that such expertise was an important factor considered when approving SPE’s investment advisory contract with Bulldog Investors in 2010. The SPE Board also noted the approval by the stockholders of such investment advisory contract. The SPE Board noted Bulldog Investors’ disclosure that it was possible that from time to time a proposal for which SPE’s proxy is requested may be made by SPE or by an affiliate of Bulldog Investors. The SPE Board concluded that this did not preclude Bulldog Investors’ ability to determine that such proposal was in SPE’s and the stockholders’ best interests and consistent with SPE’s investment objective and strategy.
The SPE Board consulted with independent counsel regarding the requirements of Section 12(d)(1) and was reasonably satisfied that by seeking and obtaining standing instructions from the stockholders, through such proposal, to vote proxies received by SPE from any closed-end investment company in SPE’s portfolio on any proposal in a manner in which Bulldog Investors reasonably determines is likely to favorably impact the discount of such investment company’s market price as compared to its net asset value, the requirements of Section 12(d)(1)(E)(ii) could be satisfied.
Based on all of these considerations, at the September 22, 2011 meeting, the SPE Board concluded that it was in SPE’s and the stockholders’ best interests to authorize Bulldog Investors to vote proxies received by SPE on all proposals (including the election of directors) that Bulldog Investors reasonably determines in its sole discretion is likely to favorably impact the discount of such investment company’s market price as compared to its net asset value. At the next Board meeting, it is expected that the SPE Global Board (which consists of the same Directors as the SPE Board) will make the same determination as to this proxy voting as the SPE Board.
In seeking stockholder approval of this Proposal 4, the SPE Board continues to believe that the aforementioned considerations which factored into the SPE Board’s decision to seek stockholder approval of the same proposal at the last annual meeting of stockholders are just as applicable to SPE now. Furthermore, the SPE Board continues to believe that it is in SPE’s and the stockholders’ best interests to authorize Bulldog Investors to vote proxies received by SPE on all proposals (including the election of directors) that Bulldog Investors reasonably determines in its sole discretion is likely to favorably impact the discount of such investment company’s market price as compared to its net asset value. Therefore, the SPE Board has determined to seek stockholder approval of this Proposal 4.
INVESTMENT GOALS AND POLICIES OF SPE AND SPE GLOBAL
SPE
The investment goal of SPE is total return through capital appreciation and current income by investing primarily in closed-end investment companies and other private and publicly-issued U.S. and foreign securities that our investment adviser believes have opportunities for appreciation. SPE’s investment objective is not fundamental and may be changed by the SPE Board with 60 days notice to stockholders. SPE employs 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 other situations. In addition, SPE employs strategies designed to invest in the debt, equity, or trade claims of companies in financial distress. Such securities typically trade at substantial discounts to par value, and may be attractive to investors when managers perceive a turnaround will
materialize. Furthermore, SPE invests 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 deal. Securities which Bulldog Investors 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, Bulldog Investors seeks out other opportunities in the market that have attractive risk reward characteristics for SPE.
SPE intends its investment portfolio, under normal market conditions, to consist principally of investments in closed-end investment companies and the securities of large, mid and small-capitalization companies. Equity securities in which SPE may invest include common and preferred stocks, convertible securities, warrants and other securities having the characteristics of common stocks, such as ADRs and IDRs, closed-end investment companies and ETFs. SPE may, however, invest a portion of its assets in debt securities or other investment opportunities when SPE’s investment 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, SPE’s investment adviser may determine to invest in debt securities. Debt securities in which SPE may invest include bank, corporate or government bonds, notes, and debentures that SPE’s investment adviser determines are suitable investments for SPE. Such determination may be made regardless of the maturity, duration or rating of any such debt security.
SPE may, from time to time, engage in short sales of securities for investment or for hedging purposes. Short sales are transactions in which SPE sells a security it does not own. To complete the transaction, SPE must borrow the security to make delivery to the buyer. SPE is then obligated to replace the security borrowed by purchasing the security at the market price at the time of replacement. SPE may sell short individual stocks, baskets of individual stocks and ETFs that SPE expects to underperform other stocks which SPE holds. For hedging purposes, SPE may purchase or sell short future contracts on global equity indexes.
SPE may invest, without limitation, in the securities of closed-end investment companies and ETFs, provided that, in accordance with Section 12(d)(1)(F) of the 1940 Act, SPE will limit such investment so that it does not represent more than 3% of the voting stock of the acquired investment company of which such shares are purchased.
To comply with provisions of the 1940 Act, on any matter upon which stockholders of a closed-end investment company in which SPE has invested are solicited to vote, SPE’s investment adviser will vote such shares in the same general proportion as shares held by other stockholders of such closed-end investment company (i.e., “mirror vote”) or seek instructions from SPE’s stockholders with regard to the voting on such matter. Until March 1, 2012, SPE complied with this requirement by mirror voting its proxies for the shares it holds of closed-end investment companies. However, the SPE Board determined that under certain circumstances, such mirror voting may compel SPE to vote contrary to its best interest in light of its investment objective and strategy. Therefore, the SPE Board approved a proposal by which SPE’s stockholders would instruct Bulldog Investors to vote proxies received by SPE from any closed-end investment company in SPE’s portfolio on any proposal (including the election of directors) in a manner which Bulldog Investors reasonably determines is likely to favorably impact the discount of such investment company’s market price as compared to its NAV. At a meeting held on December 7, 2011, the stockholders voted in favor of such proposal. The staff of the Commission advised SPE that, in its opinion, the implementation of voting as described above would violate Section 12(d)(1) because the mechanism proposed would not satisfy the requirement of Section 12(d))(1)(E) to “seek instructions from its security holders with regard to the voting of all proxies…and to vote such proxies only in accordance with such instructions.” The staff’s position is that in order to comply with the “seek instructions” requirement, SPE must seek instructions from its stockholder for each proxy it receives from a closed-end investment company. SPE’s Board believes that the Staff’s interpretation is not correct because it would render the option to “seek instructions” virtually useless which the SPE Board believes could not have been Congress’s intent. See “Proposal 4” above.
The ETFs and closed-end investment companies in which SPE invests may invest in common stocks and may invest in fixed income securities. As a stockholder in any investment company, SPE will bear its ratable share of the investment company’s expenses and would remain subject to payment of SPE’s advisory and administrative fees with respect to the assets so invested.
SPE’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 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 SPE’s investment adviser with respect to SPE’s portfolio.
Generally, securities will be purchased or sold by SPE 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.
SPE may, from time to time, take temporary defensive positions that are inconsistent with SPE’s principal investment strategies in attempting to respond to adverse market, economic, political or other conditions. During such times, SPE 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, SPE may not achieve its investment objective.
SPE’s investment adviser may invest SPE’s cash balances in any investments it deems appropriate, subject to the restrictions set forth 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 SPE in accordance with its investment program. Many of the considerations entering into SPE’s investment adviser’s recommendations and the portfolio manager’s decisions are subjective.
SPE Global
The investment goal of SPE Global is total return through capital appreciation and current income. Under normal market circumstances and in the ordinary course, SPE Global intends to invest at least 80% of its assets in securities of U.S. closed-end investment companies that invest in private and public companies located outside the U.S., non-U.S. investment companies and other private and public companies located within and outside the U.S. From time to time, a substantial portion of the Fund’s assets may be invested in companies located in a single country. To the extent deemed appropriate by its investment adviser, SPE Global may also invest in U.S. and non-U.S. non-convertible debt.
SPE Global will invest its assets primarily in securities that Bulldog Investors believes have opportunities for appreciation. Securities in which SPE Global may invest include common and preferred stocks, convertible securities, warrants and other securities having the characteristics of common stocks, such as ADRs and IDRs, closed-end investment companies and ETFs. SPE Global may, however, invest a portion of its assets in debt securities or other investment opportunities when SPE Global’s investment 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, SPE Global’s investment adviser may determine to invest in debt securities. Debt securities in which SPE Global may invest include bank, corporate or government bonds, notes, and debentures that SPE Global’s investment adviser determines are suitable investments for SPE Global. Such determination may be made regardless of the maturity, duration or rating of any such debt security.
The ETFs and closed-end investment companies in which SPE Global invests may invest in common stocks and may invest in fixed income securities. As a stockholder in any investment company, SPE Global will bear its ratable share of the investment company’s expenses and would remain subject to payment of SPE Global’s advisory and administrative fees with respect to the assets so invested.
SPE Global’s management will utilize a balanced approach, including “value” and “growth” investing by seeking out securities 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 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 SPE Global’s investment adviser with respect to SPE Global’s portfolio.
Generally, securities will be purchased or sold by SPE Global on national securities exchanges, foreign 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.
SPE Global may, from time to time, take temporary defensive positions that are inconsistent with SPE Global’s principal investment strategies in attempting to respond to adverse market, economic, political or other conditions. During such times, SPE Global 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, SPE Global may not achieve its investment objective.
Investing in Non-U.S. Securities. In addition to investing in U.S. securities, SPE Global intends to invest its assets ,directly and indirectly, in non-U.S. securities, whether through other U.S. closed-end investment companies, common and preferred stocks of non-U.S. companies or otherwise. Bulldog Investors believes that investing in foreign securities offers both enhanced investment opportunities and additional risks beyond those present in U.S. securities. Investing in foreign securities may provide increased diversification by adding securities from various foreign countries (i) that offer different investment opportunities, (ii) that generally are affected by different economic trends and (iii) whose stock markets may not be correlated with U.S. markets. At the same time, these opportunities and trends involve risks that may not be encountered in U.S. investments.
The following considerations comprise both risks and opportunities not typically associated with investing in U.S. securities: fluctuations in exchange rates of foreign currencies; possible imposition of exchange control regulations or currency restrictions that would prevent cash from being brought back to the United States; less public information with respect to issuers of securities; less government supervision of stock exchanges, securities brokers and issuers of securities; lack of uniform accounting, auditing and financial reporting standards; lack of uniform settlement periods and trading practices; less liquidity and frequently greater price volatility in foreign markets than in the United States; possible imposition of foreign taxes; the possibility of expropriation or confiscatory taxation, seizure or nationalization of foreign bank deposits or other assets, the adoption of foreign government restrictions and other adverse political, social or diplomatic developments that could affect investment; sometimes less advantageous legal, operational and financial protections applicable to foreign sub-custodial arrangements; and the historically lower level of responsiveness of foreign management to shareholder concerns (such as dividends and return on investment).
Developing Countries. The risks described above for foreign securities, including the risks of nationalization and expropriation of assets, are typically increased to the extent that SPE Global invests in companies headquartered in developing, or emerging market, countries. Investments in securities of companies headquartered in such countries may be considered speculative and subject to certain special risks. The political and economic structures in many of these countries may be in their infancy and developing rapidly, and such countries may lack the social, political and economic characteristics of more developed countries. Certain of these countries have in the past failed to recognize private property rights and have at times nationalized and expropriated the assets of private companies. Some countries have inhibited the conversion of their currency to another. The currencies of certain developing countries have experienced devaluation relative to the U.S. dollar, and future devaluations may adversely affect the value of SPE Global’s assets denominated in such currencies. Some developing countries have experienced substantial rates of inflation for many years. Continued inflation may adversely affect the economies and securities markets of such countries. In addition, unanticipated political or social developments may affect the value of SPE Global’s investments in these countries and the availability to SPE Global of additional investments in
these countries. The small size, limited trading volume and relative inexperience of the securities markets in these countries may make SPE Global’s investments in such countries illiquid and more volatile than investments in more developed countries, and SPE Global may be required to establish special custodial or other arrangements before making investments in these countries. There may be little financial or accounting information available with respect to companies located in these countries, and it may be difficult as a result to assess the value or prospects of an investment in such companies.
Risk Factors
Except as noted below, SPE and SPE Global are generally subject to the same principal risk factors. The principal risk factors of the Funds are discussed below.
Market Risk: As with any investment company that invests in common stocks, each Fund is subject to market risk – the possibility that common stock prices will decline over short or extended periods of time. As a result, the value of an investment in the Fund’s stock will fluctuate, sometimes sharply and unpredictably and you could lose money over short or long periods of time.
Closed-End Investment Company Securities: Each Fund invests in the securities of closed-end investment companies. Investing in closed-end investment companies involves substantially the same risks as investing directly in the underlying instruments, but the total return on such investments at the investment company level may be reduced by the operating expenses and fees of such closed-end investment companies, including advisory fees. There can be no assurance that the investment objective of any investment company in which each Fund invests will be achieved. Closed-end investment companies are subject to the risks of investing in the underlying securities. Each Fund, as a holder of the securities of another closed-end investment company, will bear its pro rata portion of the closed-end investment company’s expenses, including advisory fees. These expenses are in addition to the direct expenses of each Fund’s own operations. To the extent each Fund invests a portion of its assets in investment company securities, those assets will be subject to the risks of the purchased investment company’s portfolio securities, and a stockholder in each Fund will bear not only his proportionate share of the expenses of each Fund, but also, indirectly, the expenses of the purchased investment company. The market price of a closed-end investment company fluctuates and may be either higher or lower than the NAV of such closed-end investment company.
In accordance with Section 12(d)(1)(F) of the 1940 Act, with respect to the securities of other U.S. closed-end investment companies, each Fund will be limited by provisions of the 1940 Act that limit the amount each Fund, together with its affiliated persons, can invest in other investment companies to 3% of any other investment company’s total outstanding stock. As a result, each Fund may hold a smaller position in a U.S. closed-end investment company than if it were not subject to this restriction. See “Proposal 4” above.
Common Stocks. Each Fund invests in common stocks. Common stocks represent an ownership interest in a company. Each Fund may also invest in securities that can be exercised for or converted into common stocks (such as convertible preferred stock). Common stocks and similar equity securities are more volatile and riskier than some other forms of investment. Therefore, the value of your investment in each Fund may sometimes decrease instead of increase. Common stock prices fluctuate for many reasons, including adverse events such as unfavorable earnings reports, changes in investors’ perceptions of the financial condition of an issuer, the general condition of the relevant stock market or when political or economic events affecting the issuers occur. In addition, common stock prices may be sensitive to rising interest rates, as the costs of capital rise and borrowing costs increase for issuers. Because convertible securities can be converted into equity securities, their values will normally increase or decrease as the values of the underlying equity securities increase or decrease. The common stocks in which each Fund invests are structurally subordinated to preferred securities, bonds and other debt instruments in a company’s capital structure in terms of priority to corporate income and assets and, therefore, will be subject to greater risk than the preferred securities or debt instruments of such issuers.
Exchange Traded Funds. Each Fund may invest in exchange-traded funds, which are investment companies that, in general, aim to track or replicate a desired index, such as a sector, market or global segment. ETFs are passively or, to a lesser extent, actively managed and their shares are traded on a national exchange. ETFs do not sell individual shares directly to investors and only issue their shares in large blocks known
as “creation units.” The investor purchasing a creation unit may sell the individual shares on a secondary market. Therefore, the liquidity of ETFs depends on the adequacy of the secondary market. There can be no assurance that an ETF’s investment objective will be achieved, as ETFs based on an index may not replicate and maintain exactly the composition and relative weightings of securities in the index. ETFs are subject to the risks of investing in the underlying securities. Each Fund, as a holder of the securities of the ETF, will bear its pro rata portion of the ETF’s expenses, including advisory fees. These expenses are in addition to the direct expenses of each Fund’s own operations.
Fixed Income Securities, including Non-Investment Grade Securities. Each Fund may invest in fixed income securities, also referred to as debt securities. Fixed income securities are subject to credit risk and market risk. Credit risk is the risk of the issuer’s inability to meet its principal and interest payment obligations. Market risk is the risk of price volatility due to such factors as interest rate sensitivity, market perception of the creditworthiness of the issuer and general market liquidity. There is no limitation on the maturities or duration of fixed income securities in which each Fund invests. Securities having longer maturities generally involve greater risk of fluctuations in value resulting from changes in interest rates. Each Fund’s credit quality policy with respect to investments in fixed income securities does not require each Fund to dispose of any debt securities owned in the event that such security’s rating declines to below investment grade, commonly referred to as “junk bonds.” Although lower quality debt typically pays a higher yield, such investments involve substantial risk of loss. Junk bonds are considered predominantly speculative with respect to the issuer’s ability to pay interest and principal and are susceptible to default or decline in market value due to adverse economic and business developments. The market values for junk bonds tend to be very volatile and those securities are less liquid than investment grade debt securities. Moreover, junk bonds pose a greater risk that exercise of any of their redemption or call provisions in a declining market may result in their replacement by lower-yielding bonds. In addition, bonds in the lowest two investment grade categories, despite being of higher credit rating than junk bonds, have speculative characteristics with respect to the issuer’s ability to pay interest and principal and their susceptibility to default or decline in market value.
Corporate Bonds, Government Debt Securities and Other Debt Securities: Each Fund may invest in corporate bonds, debentures and other debt securities. Debt securities in which each Fund may invest may pay fixed or variable rates of interest. Bonds and other debt securities generally are issued by corporations and other issuers to borrow money from investors. The issuer pays the investor a fixed or variable rate of interest and normally must repay the amount borrowed on or before maturity. Certain debt securities are “perpetual” in that they have no maturity date.
Each Fund may invest in government debt securities, including those of emerging market issuers or of other non-U.S. issuers. These securities may be U.S. dollar-denominated or non-U.S. dollar-denominated and include: (a) debt obligations issued or guaranteed by foreign national, provincial, state, municipal or other governments with taxing authority or by their agencies or instrumentalities; and (b) debt obligations of supranational entities. Government debt securities include: debt securities issued or guaranteed by governments, government agencies or instrumentalities and political subdivisions; debt securities issued by government owned, controlled or sponsored entities; interests in entities organized and operated for the purpose of restructuring the investment characteristics issued by the above noted issuers; or debt securities issued by supranational entities such as the World Bank or the European Union. Each Fund may also invest in securities denominated in currencies of emerging market countries. Emerging market debt securities generally are rated in the lower rating categories of recognized credit rating agencies or are unrated and considered to be of comparable quality to lower rated debt securities. A non-U.S. issuer of debt or the non-U.S. governmental authorities that control the repayment of the debt may be unable or unwilling to repay principal or interest when due, and each Fund may have limited resources in the event of a default. Some of these risks do not apply to issuers in large, more developed countries. These risks are more pronounced in investments in issuers in emerging markets or if the Fund invests significantly in one country.
Short Sale Risk: When a cash dividend is declared on a security for which each Fund holds a short position, each Fund incurs the obligation to pay an amount equal to that dividend to the lender of the shorted security. By closing out the short position prior to the ex-dividend date, such dividend expenses are avoided. Each Fund’s actual dividend expenses paid on securities sold short may be significantly higher than 0% of its managed assets due to, among other factors, the actual extent of each Fund’s short positions (which may range from 0% to
30% of managed assets), the actual dividends paid with respect to the securities each Fund sells short, and the actual timing of each Fund’s short sale transactions, each of which may vary over time and from time to time.
Each Fund’s obligation to replace the borrowed security will be secured by collateral deposited with the broker-dealer, usually cash, U.S. government securities or other liquid securities. Each Fund will also be required to designate on its books and records similar collateral with its custodian to the extent, if any, necessary so that the aggregate collateral value is at all times at least equal to the current market value of the security sold short. Depending on arrangements made with the broker-dealer from which it borrowed the security regarding payment over of any payments received by each Fund on such security, each Fund may not receive any payments (including interest) on its collateral deposited with such broker-dealer.
If the price of the security sold short increases between the time of the short sale and the time the Fund replaces the borrowed security, the Fund will incur a loss; conversely, if the price declines, the Fund will realize a gain. Any gain will be decreased, and any loss increased, by the transaction costs described above. Although the Fund’s gain is limited to the price at which it sold the security short, its potential loss is unlimited.
Purchasing securities to close out the short position can itself cause the price of the securities to rise further, thereby exacerbating the loss. Short selling exposes each Fund to unlimited risk with respect to that security due to the lack of an upper limit on the price to which an instrument can rise. Although each Fund reserves the right to use short sales, Bulldog Investors is under no obligation to use short sales at all.
The requirements of the 1940 Act and Internal Revenue Code of 1986, as amended (the “Code”) provide that each Fund not make a short sale if, after giving effect to such sale, the market value of all securities sold short by each Fund exceeds 30% of the value of its managed assets.
Small and Medium Cap Company Risk: Compared to investment companies that focus only on large capitalization companies, each Fund’s share price may be more volatile because it also invests in small and medium capitalization companies. Compared to large companies, small and medium capitalization companies are more likely to have (i) more limited product lines or markets and less mature businesses, (ii) fewer capital resources, (iii) more limited management depth and (iv) shorter operating histories. Further, compared to large cap stocks, the securities of small and medium capitalization companies are more likely to experience sharper swings in market values, be harder to sell at times and at prices that each Fund’s investment adviser believes appropriate, and offer greater potential for gains and losses.
Foreign Securities: Each Fund, though primarily SPE Global, may invest in foreign securities, including direct investments in securities of foreign issuers that are traded on a U.S. securities exchange or over the counter and investments in depository receipts (such as ADRs), ETFs and closed-end investment companies that represent indirect interests in securities of foreign issuers. Each Fund is not limited in the amount of assets it may invest in such foreign securities. These investments involve certain risks not generally associated with investments in the securities of U.S. issuers, including the risk of fluctuations in foreign currency exchange rates, unreliable and untimely information about the issuers and political and economic instability. These risks could result in each Fund’s investment adviser misjudging the value of certain securities or in a significant loss in the value of those securities.
The value of foreign securities is affected by changes in currency rates, foreign tax laws (including withholding and confiscatory taxes), government policies (in this country or abroad), relations between nations and trading, settlement, custodial and other operational risks. In addition, the costs of investing abroad are generally higher than in the United States, and foreign securities markets may be less liquid, more volatile and less subject to governmental supervision than markets in the U.S. As an alternative to holding foreign traded securities, each Fund may invest in dollar-denominated securities of foreign companies that trade on U.S. exchanges or in the U.S. over-the-counter market (including depositary receipts as described below, which evidence ownership in underlying foreign securities, and ETFs as described below).
Because foreign companies are not subject to uniform accounting, auditing and financial reporting standards, practices and requirements comparable to those applicable to U.S. companies, there may be less publicly available information about a foreign company than about a domestic company. Volume and liquidity in most
foreign debt markets is less than in the United States and securities of some foreign companies are less liquid and more volatile than securities of comparable U.S. companies. There is generally less government supervision and regulation of securities exchanges, broker dealers and listed companies than in the United States. Mail service between the United States and foreign countries may be slower or less reliable than within the United States, thus increasing the risk of delayed settlements of portfolio transactions or loss of certificates for portfolio securities. Payment for securities before delivery may be required. In addition, with respect to certain foreign countries, including those with emerging markets, there is the possibility of expropriation or confiscatory taxation, political or social instability, or diplomatic developments which could affect investments in those countries. For example, prior governmental approval for foreign investments may be required in some emerging market countries, and the extent of foreign investment may be subject to limitation in other emerging countries. Moreover, individual foreign economies may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position. Foreign securities markets, while growing in volume and sophistication, are generally not as developed as those in the United States, and securities of some foreign issuers (particularly those located in developing countries) may be less liquid and more volatile than securities of comparable U.S. companies.
Each Fund may purchase ADRs, IDRs and global depository receipts (“GDRs”) which are certificates evidencing ownership of shares of foreign issuers and are alternatives to purchasing directly the underlying foreign securities in their national markets and currencies. However, such depository receipts continue to be subject to many of the risks associated with investing directly in foreign securities. These risks include foreign exchange risk as well as the political and economic risks associated with the underlying issuer’s country. ADRs, EDRs and GDRs may be sponsored or unsponsored. Unsponsored receipts are established without the participation of the issuer. Unsponsored receipts may involve higher expenses, they may not pass-through voting or other stockholder rights, and they may be less liquid. Less information is normally available on unsponsored receipts.
Dividends paid on foreign securities may not qualify for the reduced federal income tax rates applicable to qualified dividends under the Code. As a result, there can be no assurance as to what portion of each Fund’s distributions attributable to foreign securities will be designated as qualified dividend income.
Emerging Market Securities: Each Fund may invest up to 5% of its net assets in emerging market securities, although through its investments in ETFs, other investment companies or depository receipts that invest in emerging market securities, up to 20% of each Fund’s assets may be invested indirectly in issuers located in emerging markets. The risks of foreign investments described above apply to an even greater extent to investments in emerging markets. The securities markets of emerging countries are generally smaller, less developed, less liquid, and more volatile than the securities markets of the United States and developed foreign markets. Disclosure and regulatory standards in many respects are less stringent than in the United States and developed foreign markets. There also may be a lower level of monitoring and regulation of securities markets in emerging market countries and the activities of investors in such markets and enforcement of existing regulations has been extremely limited. Many emerging countries have experienced substantial, and in some periods extremely high, rates of inflation for many years. Inflation and rapid fluctuations in inflation rates have had and may continue to have very negative effects on the economies and securities markets of certain emerging countries. Economies in emerging markets generally are heavily dependent upon international trade and, accordingly, have been and may continue to be affected adversely by trade barriers, exchange controls, managed adjustments in relative currency values, and other protectionist measures imposed or negotiated by the countries with which they trade. The economies of these countries also have been and may continue to be adversely affected by economic conditions in the countries in which they trade. The economies of countries with emerging markets may also be predominantly based on only a few industries or dependent on revenues from particular commodities. In addition, custodial services and other costs relating to investment in foreign markets may be more expensive in emerging markets than in many developed foreign markets, which could reduce each Fund’s income from such securities. In many cases, governments of emerging countries continue to exercise significant control over their economies, and government actions relative to the economy, as well as economic developments generally, may affect each Fund’s investments in those countries. In addition, there is a heightened possibility of expropriation or confiscatory taxation, imposition of withholding taxes on interest payments, or other similar developments that could affect investments in those countries. There can be no assurance that adverse political changes will not cause each Fund to suffer a loss of any or all of its investments. Dividends paid by issuers in emerging market countries will generally not qualify for the reduced federal income tax rates applicable to qualified dividends under the Code.
Preferred Stocks: Each Fund may invest in preferred stocks. Preferred stock, like common stock, represents an equity ownership in an issuer. Generally, preferred stock has a priority of claim over common stock in dividend payments and upon liquidation of the issuer. Unlike common stock, preferred stock does not usually have voting rights. Preferred stock in some instances is convertible into common stock. Although they are equity securities, preferred stocks have characteristics of both debt and common stock. Like debt, their promised income is contractually fixed. Like common stock, they do not have rights to precipitate bankruptcy proceedings or collection activities in the event of missed payments. Other equity characteristics are their subordinated position in an issuer’s capital structure and that their quality and value are heavily dependent on the profitability of the issuer rather than on any legal claims to specific assets or cash flows.
Investment in preferred stocks carries risks, including credit risk, deferral risk, redemption risk, limited voting rights, risk of subordination and lack of liquidity. Fully taxable or hybrid preferred securities typically contain provisions that allow an issuer, at its discretion, to defer distributions for up to 20 consecutive quarters. Distributions on preferred stock must be declared by the board of directors and may be subject to deferral, and thus they may not be automatically payable. Income payments on preferred stocks may be cumulative, causing dividends and distributions to accrue even if not declared by the company’s board or otherwise made payable, or they may be non-cumulative, so that skipped dividends and distributions do not continue to accrue. There is no assurance that dividends on preferred stocks in which each Fund invests will be declared or otherwise made payable. Each Fund may invest in non-cumulative preferred stock, although each Fund’s investment adviser would consider, among other factors, their non-cumulative nature in making any decision to purchase or sell such securities.
Shares of preferred stock have a liquidation value that generally equals the original purchase price at the date of issuance. The market values of preferred stock may be affected by favorable and unfavorable changes impacting the issuers’ industries or sectors, including companies in the utilities and financial services sectors, which are prominent issuers of preferred stock. They may also be affected by actual and anticipated changes or ambiguities in the tax status of the security and by actual and anticipated changes or ambiguities in tax laws, such as changes in corporate and individual income tax rates, and in the dividends received deduction for corporate taxpayers or the lower rates applicable to certain dividends.
Because the claim on an issuer’s earnings represented by preferred stock may become onerous when interest rates fall below the rate payable on the stock or for other reasons, the issuer may redeem preferred stock, generally after an initial period of call protection in which the stock is not redeemable. Thus, in declining interest rate environments in particular, each Fund’s holdings of higher dividend paying preferred stocks may be reduced and each Fund may be unable to acquire securities paying comparable rates with the redemption proceeds. In the event of a redemption, the Fund may not be able to reinvest the proceeds at comparable rates of return.
Convertible Securities. Each Fund may invest in convertible securities. Convertible securities include fixed income securities that may be exchanged or converted into a predetermined number of shares of the issuer’s underlying common stock at the option of the holder during a specified period. Convertible securities may take the form of convertible preferred stock, convertible bonds or debentures, units consisting of “usable” bonds and warrants or a combination of the features of several of these securities. The investment characteristics of each convertible security vary widely, which allows convertible securities to be employed for a variety of investment strategies. Each Fund will exchange or convert convertible securities into shares of underlying common stock when, in the opinion of the Fund’s investment adviser, the investment characteristics of the underlying common shares will assist the Fund in achieving its investment objective. Each Fund may also elect to hold or trade convertible securities. In selecting convertible securities, the Fund’s investment adviser evaluates the investment characteristics of the convertible security as a fixed income instrument, and the investment potential of the underlying equity security for capital appreciation. In evaluating these matters with respect to a particular convertible security, the Fund’s investment adviser considers numerous factors, including the economic and political outlook, the value of the security relative to other investment alternatives, trends in the determinants of the issuer’s profits, and the issuer’s management capability and practices.
The value of a convertible security, including, for example, a warrant, is a function of its “investment value” (determined by its yield in comparison with the yields of other securities of comparable maturity and quality
that do not have a conversion privilege) and its “conversion value” (the security’s worth, at market value, if converted into the underlying common stock). The investment value of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors may also have an effect on the convertible security’s investment value. The conversion value of a convertible security is determined by the market price of the underlying common stock. If the conversion value is low relative to the investment value, the price of the convertible security is governed principally by its investment value. Generally, the conversion value decreases as the convertible security approaches maturity. To the extent the market price of the underlying common stock approaches or exceeds the conversion price, the price of the convertible security will be increasingly influenced by its conversion value. A convertible security generally will sell at a premium over its conversion value by the extent to which investors place value on the right to acquire the underlying common stock while holding a fixed income security. A convertible security may be subject to redemption at the option of the issuer at a price established in the convertible security’s governing instrument. If a convertible security held by either Fund is called for redemption, the Fund will be required to permit the issuer to redeem the security, convert it into the underlying common stock or sell it to a third party. Any of these actions could have an adverse effect on each Fund’s ability to achieve its investment objective.
Real Estate Investment Trusts. Each Fund may invest in real estate investment trusts (“REITs”). REITs are financial vehicles that pool investors’ capital to purchase or finance real estate. Investments in REITs will subject each Fund to various risks. REIT share prices may decline because of adverse developments affecting the real estate industry and real property values. In general, real estate values can be affected by a variety of factors, including supply and demand for properties, the economic health of the country or of different regions, and the strength of specific industries that rent properties. REITs often invest in highly leveraged properties. Returns from REITs, which typically are small or medium capitalization stocks, may trail returns from the overall stock market. In addition, changes in interest rates may hurt real estate values or make REIT shares less attractive than other income-producing investments. REITs are also subject to heavy cash flow dependency, defaults by borrowers and self-liquidation.
Qualification as a REIT under the Code in any particular year is a complex analysis that depends on a number of factors. There can be no assurance that the entities in which each Fund invests with the expectation that they will be taxed as a REIT will qualify as a REIT. An entity that fails to qualify as a REIT would be subject to a corporate level tax, would not be entitled to a deduction for dividends paid to its stockholders and would not pass through to its stockholders the character of income earned by the entity. If either Fund were to invest in an entity that failed to qualify as a REIT, such failure could significantly reduce the Fund’s yield on that investment.
REITs can be classified as equity REITs, mortgage REITs and hybrid REITs. Equity REITs invest primarily in real property and earn rental income from leasing those properties. They may also realize gains or losses from the sale of properties. Equity REITs will be affected by conditions in the real estate rental market and by changes in the value of the properties they own. Mortgage REITs invest primarily in mortgages and similar real estate interests and receive interest payments from the owners of the mortgaged properties. Mortgage REITs will be affected by changes in creditworthiness of borrowers and changes in interest rates. Hybrid REITs invest both in real property and in mortgages. Equity and mortgage REITs are dependent upon management skills, may not be diversified and are subject to the risks of financing projects.
Dividends paid by REITs will not generally qualify for the reduced U.S. federal income tax rates applicable to qualified dividends under the Code.
Each Fund’s investments in REITs may include an additional risk to stockholders. Some or all of a REIT’s annual distributions to its investors may constitute a non-taxable return of capital. Any such return of capital will generally reduce each Fund’s basis in the REIT investment, but not below zero. To the extent the distributions from a particular REIT exceed the Fund’s basis in such REIT, the Fund will generally recognize gain. In part because REIT distributions often include a nontaxable return of capital, trust distributions to stockholders may also include a nontaxable return of capital. Stockholders that receive such a distribution will also reduce their tax basis in their common shares of the Fund, but not below zero. To the extent the distribution exceeds a stockholder’s basis in the Fund’s common shares such stockholder will generally recognize a capital gain.
Each Fund does not have any investment restrictions with respect to investments in REITs other than its concentration policy which limits its investments in REITs to no more than 25% of its assets.
Issuer Risk: The value of an issuer’s securities that are held in each Fund’s portfolio may decline for a number of reasons which directly relate to the issuer, such as management performance, financial leverage and reduced demand for the issuer’s goods and services.
Foreign Currency Risk: Although each Fund will report its NAV and pay expenses and distributions in U.S. dollars, each Fund may invest in foreign securities denominated or quoted in currencies other than the U.S. dollar. Therefore, changes in foreign currency exchange rates will affect the U.S. dollar value of each Fund’s investment securities and NAV. For example, even if the securities prices are unchanged on their primary foreign stock exchange, each Fund’s NAV may change because of a change in the rate of exchange between the U.S. dollar and the trading currency of that primary foreign stock exchange. Certain currencies are more volatile than those of other countries and Fund investments related to those countries may be more affected. Generally, if a foreign currency depreciates against the dollar (i.e., if the dollar strengthens), the value of the existing investment in the securities denominated in that currency will decline. When a given currency appreciates against the dollar (i.e., if the dollar weakens), the value of the existing investment in the securities denominated in that currency will rise. Certain foreign countries may impose restrictions on the ability of foreign securities issuers to make payments of principal and interest to investors located outside of the country, due to a blockage of foreign currency exchanges or otherwise.
Defensive Positions: During periods of adverse market or economic conditions, each Fund may temporarily invest all or a substantial portion of its net assets in cash or cash equivalents. Each Fund would not be pursuing its investment objective in these circumstances and could miss favorable market developments.
Risk Characteristics of Options and Futures: Options and futures transactions can be highly volatile investments. Successful hedging strategies require the anticipation of future movements in securities prices, interest rates and other economic factors. When a fund uses futures contracts and options as hedging devices, the prices of the securities subject to the futures contracts and options may not correlate with the prices of the securities in a portfolio. This may cause the futures and options to react to market changes differently than the portfolio securities. Even if expectations about the market and economic factors are correct, a hedge could be unsuccessful if changes in the value of the portfolio securities do not correspond to changes in the value of the futures contracts. The ability to establish and close out futures contracts and options on futures contracts positions depends on the availability of a secondary market. If these positions cannot be closed out due to disruptions in the market or lack of liquidity, losses may be sustained on the futures contract or option. In addition, each Fund’s use of options and futures may have the effect of reducing gains made by virtue of increases in value of each Fund’s common stock holdings.
Securities Lending Risk: Securities lending is subject to the risk that loaned securities may not be available to each Fund on a timely basis and each Fund may, therefore, lose the opportunity to sell the securities at a desirable price. Any loss in the market price of securities loaned by each Fund that occurs during the term of the loan would be borne by each Fund and would adversely affect each Fund’s performance. Also, there may be delays in recovery, or no recovery, of securities loaned or even a loss of rights in the collateral should the borrower of the securities fail financially while the loan is outstanding. The Fund would not have the right to vote any securities having voting rights during the existence of the loan.
Discount Risk: Historically, SPE shares, as well as those of closed-end investment companies, have frequently traded at a discount to their NAV, which discount often fluctuates over time. See “Financial Highlights.”
Developing Countries: Generally developing countries include every country in the world other than the United States, Canada, Japan, Australia, New Zealand, Hong Kong, Singapore, South Korea, Taiwan, Bermuda and Western European countries (which include, Austria, Belgium, Denmark, France, Finland, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom). The considerations noted above in “Foreign Investments” are generally intensified for investments in developing countries. A number of developing countries restrict, to varying degrees, foreign investment in stocks. Repatriation of investment income, capital, and the proceeds of sales by foreign investors may require governmental registration and approval in some developing countries. A number of the currencies of developing countries have
experienced significant declines against the U.S. dollar in recent years, and devaluation may occur subsequent to investment in these countries by each Fund. Inflation and rapid fluctuations in inflation rates have had and may continue to have negative effects on the economies and securities markets of certain developing countries. Many of the developing securities markets are relatively small or less diverse, have low trading volumes, suffer periods of relative illiquidity and are characterized by significant price volatility. Developing countries may have antiquated legal systems with existing laws and regulations that are inconsistently applied. Generally developing countries are not subject to as extensive and frequent accounting and financial reporting requirements as in the United States. Transaction costs, including brokerage commissions and dealer mark-ups in developing countries may be higher than in the United States or other developed countries. There is a risk in developing countries that a future economic or political crisis could lead to price controls, forced mergers of companies, expropriation or confiscatory taxation, seizure, nationalization, or creation of government monopolies, any of which may have a detrimental effect on each Fund’s investments.
Certain Corporate Governance Provisions
The SPE Board currently consists of six Directors elected by the holders of SPE stock. Two of the current Directors were elected by the holders of SPE Preferred Stock. Currently, SPE Global does not intend to issue preferred stock; therefore all 6 directors will be elected by the holders of SPE Global Common Stock. Vacancies on the SPE Global Board for one or more of the classified positions may be filled by the affirmative vote of a majority of the remaining Directors, even if the remaining directors do not constitute a quorum, for the balance of the term of the class. In addition, the bylaws of each of SPE and SPE Global permit stockholders to call a special meeting of stockholders only if certain procedural requirements are met and the request is made by stockholders of record entitled to cast at least a majority of the votes entitled to be cast at such a meeting. These provisions may have the effect of maintaining the continuity of management and thus may make it more difficult for the Fund’s stockholders to change the majority of Directors. The initial Directors of the SPE Global Board will be the same Directors as currently serve on the SPE Board, and such Directors shall serve in such capacity until such time as their successors are duly elected at a stockholder meeting. See “Description of Capital Stock — Certain Corporate Governance Provisions.”
In addition, certain provisions of the SPE Global Charter and bylaws and of the Maryland General Corporation Law could make it more difficult for a potential acquiror to acquire us by means of a tender offer, proxy contest or otherwise. These provisions are expected to discourage certain coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of us to negotiate first with our Board of Directors. We believe that the benefits of these provisions outweigh the potential disadvantages of discouraging any such acquisition proposals because, among other things, the negotiation of such proposals may improve their terms.
The provisions described above may be regarded as “anti-takeover” provisions. These provisions may have the effect of depriving common stockholders of SPE Global of an opportunity to sell their shares at a premium to the prevailing market price. See “Description of Capital Stock — Certain Corporate Governance Provisions.”
INVESTMENT RESTRICTIONS
SPE and SPE Global operate under the investment restrictions described in Appendix A. The investment practices and restrictions of each of SPE and SPE Global are substantially similar, except for the proposed change in Proposal 3. If the stockholders approve Proposal 3 of this Combined Prospectus/Proxy Statement at the Annual Meeting, a fundamental investment restriction of SPE, which currently states that SPE may not “engage in the business of underwriting securities of other issuers,” will be amended to state that SPE may not “underwrite the securities of other issuers, except insofar as the Fund may be deemed an underwriter under the Securities Act of 1933, as amended, in selling portfolio securities and in connection with mergers, acquisitions, spin-off transactions and other reorganization transactions involving the Fund.”
MANAGEMENT
Bulldog Investors is the investment adviser to each of SPE and SPE Global, and is responsible for the management of each Fund’s assets. Its offices are located at Park 80 West, 250 Pehl Avenue, Suite 708, Saddle Brook, New Jersey 07663.
Under each of SPE’s articles of incorporation, as amended and supplemented (the “SPE Charter”) and the SPE Global Charter (each of the SPE Charter and the SPE Global Charter, a “Charter”), and Maryland law, each Fund’s business and affairs are managed under the direction of its Board of Directors. Investment decisions for each Fund are made by Bulldog Investors, subject to any direction it may receive from the Fund’s Board of Directors, which periodically reviews the Funds’ investment performance.
Pursuant to an Investment Management Agreement between Bulldog Investors and each Fund, Bulldog Investors provides overall investment management services for each Fund, and in connection therewith (i) supervises the Fund’s investment program, including advising and consulting with the Board regarding the Fund’s overall investment strategy; (ii) makes, in consultation with the Board, investment strategy decisions for the Fund; (iii) manages the investing and reinvesting of the Fund’s assets; (iv) places purchase and sale orders on behalf of the Fund; (v) advises the Fund with respect to all matters relating to the Fund’s use of leveraging techniques; and (vi) provides or procures the provision of research and statistical data to the Fund in relation to investing and other matters within the scope of the investment objective and limitations of the Fund.
Each Fund pays all administrative and other costs and expenses attributable to its operations and transactions, including, without limitation, transfer agent and custodian fees; legal, administrative and clerical services; rent for its office space and facilities; auditing; preparation, printing and distribution of its prospectuses, proxy statements, shareholder reports and notices; supplies and postage; Federal and state registration fees; Federal, state and local taxes; non-affiliated directors’ fees; and brokerage commissions. Please see the SAI under “Administration Agreement” for more information.
Phillip Goldstein, Andrew Dakos, and Rajeev Das are responsible for the day-to-day management of the portfolios of SPE and SPE Global. Mr. Goldstein has been a Managing Member of Bulldog Investors and Secretary and Chairman of the Board of SPE since 2009, and has been a director of the following closed-end funds: Mexico Equity and Income Fund since 2000, Brantley Capital Corporation since 2001 and ASA Ltd since 2008. Mr. Dakos has been a Managing Member of Bulldog Investors and President and Director of SPE since 2009 and has been a director of the Mexico Equity and Income Fund since 2001 and Brantley Capital Corporation intermittently since 2005 and currently. Mr. Das has been a Head Trader of Bulldog Investors and Vice-President and Treasurer of SPE since 2009, and is also Head Trader of Bulldog Investors. He has been a Director of The Mexico Equity and Income Fund, Inc. since 2001 and served as a Director of Brantley Capital Corporation from September 2005 to March 2006.
The SAI provides more information about the structure of the portfolio managers’ compensation, other accounts that they manage and their ownership of shares in the Funds.
INVESTMENT ADVISORY SERVICES PROVIDED BY BULLDOG INVESTORS
SPE
As compensation for its services under the SPE Investment Management Agreement, Bulldog Investors receives a monthly fee at an annual rate of 1.00% of the value of SPE’s average weekly total assets, including any assets attributable to leverage, for the investment management and research services provided.
A discussion regarding the basis of the SPE Board’s most recent approval of the SPE Investment Management Agreement is available in SPE’s semi-annual report to stockholders dated December 31, 2012.
For more information regarding the investment advisory fee of SPE, see “Investment Advisory and Other Services — Advisory Fee” in the SAI.
SPE Global
Fees
The advisory fee structure for SPE Global will be different from SPE. SPE Global will pay Bulldog Investors an advisory fee consisting of a monthly fee at an annual rate of 1.25% of the value of SPE Global’s average weekly total assets, including any assets attributable to leverage, for the investment management and research services provided. Contributing to a potentially higher advisory fee for SPE Global is SPE Global’s focus on non-U.S. securities, which is expected to be more labor intensive and time consuming than providing investment advisory services to a fund that invests primarily in U.S. securities.
A discussion regarding the basis of the SPE Global Board’s approval of the SPE Global Investment Management Agreement will be available in SPE Global’s first annual report or semi-annual report to stockholders available after the Transaction is effected and the commencement of investment operations of SPE Global.
For more information regarding the investment advisory fee of SPE Global, see “Investment Advisory and Other Services — Advisory Fee” in the SAI.
Net Asset Value
The NAV of each of SPE’s and SPE Global’s shares of common stock is determined weekly, by dividing the value of total assets minus liabilities by the total number of shares outstanding at the date as of which such determination is made.
All securities for which market quotations are readily available are valued at the last sales price prior to the time of determination of NAV, or, if no sales price is available at that time, at the closing price last quoted for the securities (but if bid and asked quotations are available, at the mean between the current bid and asked prices, rather than the quoted closing price). Securities that are traded over-the-counter are valued (if bid and asked quotations are available) at the mean between the current bid and asked prices. Investments in short-term debt securities having a maturity of 60 days or less are valued at amortized cost if their term to maturity from the date of purchase was less than 60 days, or by amortizing their value on the 61st day prior to maturity if their term to maturity from the date of purchase when acquired by us was more than 60 days. Securities for which market values are not readily ascertainable are carried at fair value as determined in good faith by, or under the supervision of, the Board of Directors. It is possible that the estimated value may differ significantly from the amount that might ultimately be realized in the near term, and the difference could be material.
DIVIDENDS AND DISTRIBUTIONS
SPE’s Distribution Policy
SPE makes annual distributions to its stockholders of at least 90% of ordinary income and short-term capital gains. SPE will distribute during each calendar year an amount equal to the sum of (1) at least 98% of its ordinary income for the calendar year, (2) at least 98.2% of its capital gains in excess of capital losses for the one-year period ending on October 31 of the calendar year and (3) any ordinary income and net capital gains for the preceding year that were not distributed during such year, in order to avoid excise taxes imposed on registered investment companies that do not make these distributions. In addition, although SPE currently intends to distribute net realized long-term capital gains at least annually, it may in the future decide to retain such capital gains for investment in accordance with its investment objective. No stockholder should assume that there will be a distribution.
SPE Global’s Distribution Policy
Similar to the distribution policy of SPE, SPE Global intends to make annual distributions to its stockholders of at least 90% of ordinary income and short-term capital gains. SPE Global will distribute during each
calendar year an amount equal to the sum of (1) at least 98% of its ordinary income for the calendar year, (2) at least 98.2% of its capital gains in excess of capital losses for the one-year period ending on October 31 of the calendar year and (3) any ordinary income and net capital gains for the preceding year that were not distributed during such year, in order to avoid excise taxes imposed on registered investment companies that do not make these distributions. In addition, although SPE Global currently intends to distribute net realized long-term capital gains at least annually, it may in the future decide to retain such capital gains for investment in accordance with its investment objective. No stockholder should assume that there will be a distribution.
TAXATION
The following discussion is a brief summary of certain United States federal income tax considerations affecting SPE and SPE Global and their stockholders. The discussion reflects applicable tax laws of the United States as of the date of this Combined Prospectus/Proxy Statement, which tax laws may be changed or subject to new interpretations by the courts or the Internal Revenue Service (the “IRS”) retroactively or prospectively. No attempt is made to present a detailed explanation of all United States federal, state, local and foreign tax concerns affecting SPE and SPE Global and their stockholders, and the discussion set forth herein does not constitute tax advice. The following discussion assumes that shares of SPE Common Stock and SPE Global Common Stock are held as capital assets in the hands of stockholders. Investors are urged to consult their own tax advisers to determine the tax consequences to them of investing in SPE and SPE Global.
Taxation of SPE and SPE Global
SPE has elected to be treated as, and intends to qualify as, a regulated investment company under Subchapter M of the Code, and SPE Global intends to elect and qualify to be treated as a regulated investment company under the Code. Accordingly, each of SPE and SPE Global must, among other things, (i) derive in each taxable year at least 90% of its gross income from (a) dividends, interest (including tax-exempt interest), payments with respect to certain securities loans, and gains from the sale or other disposition of stock, securities or foreign currencies, or other income (including, but not limited to, gain from options, futures and forward contracts) derived with respect to its business of investing in such stock, securities or currencies and (b) net income derived from interests in certain “publicly traded partnerships” (as defined for United States federal income tax purposes) that derive less than 90% of their gross income from the items described in (a) above (each a “Qualified Publicly Traded Partnership”); and (ii) diversify its holdings so that, at the end of each quarter of each taxable year (c) at least 50% of the value of each Fund’s total assets is represented by cash and cash items, United States government securities, the securities of other regulated investment companies and other securities, with such other securities limited, in respect of any one issuer, to an amount not greater than 5% of the value of the Fund’s total assets and not more than 10% of the outstanding voting securities of such issuer, and (d) not more than 25% of the value of the Fund’s total assets is invested in the securities of (I) any one issuer (other than United States government securities and the securities of other regulated investment companies), (II) any two or more issuers (other than registered investment companies) in which the Fund owns 20% or more of the voting securities and that are determined to be engaged in the same business or similar or related trades or businesses or (III) any one or more Qualified Publicly Traded Partnerships.
Each of SPE and SPE Global’s investments in partnerships, including in Qualified Publicly Traded Partnerships, may result in each Fund being subject to state, local or foreign income, franchise or withholding tax liabilities.
As regulated investment companies, each of SPE and SPE Global generally will not be subject to United States federal income tax on income and gains that it distributes (with SPE’s distribution of SPE Global Common Stock constituting a distribution for this purpose) each taxable year to stockholders, provided it distributes at least 90% of the sum of the Fund’s (i) investment company taxable income (which includes, among other items, dividends, interest and the excess of any net short-term capital gains over net long-term capital losses and other taxable income other than any net capital gain (as defined below) reduced by deductible expenses) determined without regard to the deduction for dividends and distributions paid and (ii) its net tax-exempt interest (the excess of its gross tax-exempt interest over certain disallowed deductions). Each of SPE and SPE Global intends to distribute at least annually substantially all of such income.
Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% excise tax at the Fund level. To avoid the tax, each of SPE and SPE Global must distribute during each calendar year an amount at least equal to the sum of (i) 98% of its ordinary income (not taking into account any capital gains or losses) for the calendar year, (ii) 98.2% of its capital gains in excess of its capital losses (adjusted for certain ordinary losses) for a one-year period generally ending on October 31 of the calendar year (unless an election is made to use the Fund’s fiscal year), and (iii) certain undistributed amounts from previous years on which the Fund paid no United States federal income tax. While each Fund intends to distribute any income and capital gains in the manner necessary to minimize imposition of the 4% excise tax, there can be no assurance that sufficient amounts of a fund’s taxable income and capital gains will be distributed to avoid entirely the imposition of the tax. In that event, each Fund will be liable for the tax only on the amount by which it does not meet the foregoing distribution requirement.
If for any taxable year either of SPE or SPE Global does not qualify as a regulated investment company, all of its taxable income (including its net capital gain) will be subject to tax at regular corporate rates without any deduction for distributions to stockholders.
SPE currently has a policy of paying quarterly distributions to its common stockholders. Distributions are currently being made at the annual rate of 5% of the rolling average of the prior four calendar quarter-end NAVs of the Fund’s Common Stock, with the fourth quarter distribution being the greater of 1.25% of the rolling average or the distribution required by the Code. If, for any quarterly distribution, SPE’s net investment income and net realized capital gains are less than the amount of the distribution, the difference will constitute a return of capital. SPE’s final distribution for each calendar year will include any remaining net investment income and net realized capital gains deemed, for Federal income tax purposes, undistributed during the year, and may, but need not, include all net long-term capital gains realized during the year. If, for any calendar year, the total distributions exceed the Fund’s earnings and profits, the excess will generally be treated as a tax-free return of capital (up to the amount of the stockholder’s tax basis in his or her shares). The amount treated as a tax-free return of capital will reduce the adjusted basis in the stockholder’s SPE shares, thereby increasing the stockholder’s potential gain or reducing the stockholder’s potential loss on the sale of the shares.
Taxation of Stockholders
Distributions paid to investors by each of SPE and SPE Global from its investment company taxable income are generally taxable to investors as ordinary income to the extent of the distributing Fund’s earnings and profits. Subject to certain requirements, if such distributions include “qualified dividend income,” “net capital gains” or both, or dividends eligible for the dividends received deduction, and if the distributing Fund properly reports such amounts to its stockholders, then (i) in the case of individual stockholders, the “qualified dividend income” and “net capital gains” will be subject to a maximum tax rate of 15% for individuals with no more than $400,000 of income ($450,000 if married filing jointly) and a maximum tax rate of 20% for any portion of the net capital gains and qualified dividend income that exceeds those income thresholds, and (ii) in the case of corporate stockholders, dividends eligible for the dividends received deduction will be eligible for such deduction (both long-term and short-term capital gains are taxable to corporate stockholders at the rates that apply to ordinary income). Taxable distributions of net capital gains will include net capital gains credited to the investors but retained by the Fund.
“Qualified dividend income” is, in general, dividend income from taxable domestic corporations and certain foreign corporations (for example, foreign corporations incorporated in a possession of the United States or in certain countries with a qualified comprehensive tax treaty with the United States, or whose stock with respect to which such dividend is paid is readily tradable on an established securities market in the United States). “Net capital gains,” are equal to the excess of a Fund’s net long-term capital gains over its net short-term capital losses. SPE and SPE Global will furnish investors with written statements reporting the amount of any distributions that should be treated as qualified dividend income, capital gain dividends or otherwise.
Distributions in excess of a Fund’s earnings and profits will first reduce the adjusted tax basis of the shares held by an investor and, after such adjusted tax basis is reduced to zero, will constitute capital gains to the investor.
The sale, exchange, redemption or other disposition of common or preferred shares of each of SPE and SPE Global will generally result in capital gain or loss to an investor, and will be long-term capital gain or loss if the
shares have been held for more than one year at the time of sale. Any loss upon the sale or exchange of fund shares held for six months or less, however, will be treated as long-term capital loss to the extent of any distributions of net capital gains received (or deemed received) by an investor. A loss realized on a sale or exchange of shares of SPE or SPE Global will be disallowed if other substantially identical shares of the same Fund are acquired (whether through the automatic reinvestment of dividends or otherwise) within a 61-day period beginning 30 days before and ending 30 days after the date that the shares are disposed of. In such case, the basis of the shares acquired will be adjusted to reflect the disallowed loss.
Investors that are individuals, estates and certain trusts are subject to an additional 3.8% tax on all or a portion of their “net investment income,” which will generally include the taxable distributions and any gain realized with respect to a Fund’s common or preferred shares, to the extent of their net investment income that, when added to their other modified adjusted gross income, exceeds $200,000 for an unmarried individual, $250,000 for a married taxpayer filing a joint return (or a surviving spouse), or $125,000 for a married individual filing a separate return. Stockholders are encouraged to consult their tax advisors with respect to the 3.8% Medicare tax.
If SPE or SPE Global pays a distribution in January that was declared in the previous October, November or December to stockholders of record on a specified date in one of such months, then such distribution will be treated for tax purposes as being paid by the distributing Fund and received by its stockholders not later than December 31 of the year in which the distribution was declared.
Each of SPE and SPE Global is required in certain circumstances to backup withhold on taxable distributions and certain other payments paid to non-corporate holders of the Fund’s shares who do not furnish SPE and SPE Global with their correct taxpayer identification number (in the case of individuals, their social security number) and certain certifications, or who are otherwise subject to backup withholding. Backup withholding is not an additional tax. Any amounts withheld from payments made to such holders may be refunded or credited against their United States federal income tax liability, if any, provided that the required information is furnished to the IRS.
Distributions may be subject to additional state, local, and foreign taxes, depending on each stockholder’s particular situation.
Non-U.S. stockholders may be subject to U.S. tax rules that differ significantly from those summarized above, including the likelihood that ordinary income dividends distributed to them will be subject to withholding of U.S. tax at a rate of 30% (or a lower treaty rate, if applicable). In addition, a 30% withholding tax may be imposed on distributions paid after December 31, 2013, and sales proceeds received after December 31, 2016, to (i) certain foreign financial institutions and investment funds, and (ii) certain other foreign entities. To avoid withholding, foreign financial institutions and investment funds will generally need to either (a) collect and report to the IRS detailed information identifying their U.S. accounts and U.S. account holders, comply with due diligence procedures for identifying U.S. accounts and withhold tax on certain payments made to noncomplying foreign entities and account holders or (b) if an intergovernmental agreement is entered into and implementing legislation is adopted, comply with the agreement and legislation. Other foreign entities will generally need to either provide detailed information identifying each substantial U.S. owner or certify there are no such owners.
Non-U.S. investors are encouraged to consult their own tax advisers regarding U.S. federal, state, local and foreign tax considerations.
The foregoing is a general and abbreviated summary of the provisions of the Code and the Treasury regulations in effect as they directly govern the taxation of SPE and SPE Global and each of their stockholders. These provisions are subject to change by legislative or administrative action, and any such change may be retroactive. A more complete discussion of the tax rules applicable to SPE and SPE Global and each of their stockholders can be found in “Taxation” in the Statement of Information. Stockholders are urged to consult their tax advisers regarding specific questions about United States federal, foreign, state, local income or other taxes.
CUSTODIAN, TRANSFER AGENT AND REGISTRAR
U.S. Bank, N.A., 1555 North RiverCenter Drive, Suite 302, Milwaukee, WI 53212, acts as custodian of the cash and other assets of each of SPE and SPE Global. American Stock Transfer & Trust Company, LLC, 6201 15th Avenue, Brooklyn, NY 11219, acts as transfer agent, dividend paying agent and registrar for each Fund’s shares. Stockholder inquiries as to either Fund should be directed to [Name of applicable Fund], c/o American Stock Transfer & Trust Company, LLC, 6201 15th Avenue, Brooklyn, NY 11219, telephone (800) 937-5449.
DESCRIPTION OF CAPITAL STOCK
SPE
General
SPE, which was incorporated under the laws of the State of Maryland on February 13, 1993, is authorized to issue 199,995,800 shares of common stock, par value $0.001 per share. As a NYSE-listed company, and under Maryland law due to its classified board, SPE is required to hold annual meetings of its stockholders.
The following table shows the number of shares of (i) capital stock authorized and (ii) capital stock outstanding for each class of authorized securities of SPE as of December 31, 2013.
|
|
|
|
|
Amount Held by
SPE or for its
Own Account
|
|
|
|
Common Stock, $0.001 par value per share
|
|
199,995,800
|
|
13,818,496
|
|
[7,061,913]
|
|
Preferred Stock
|
|
749,086
|
|
0
|
|
748,486
|
SPE’s common stock trades on the NYSE under the symbol “SPE” and its Preferred Stock trades on the NYSE under the symbol “SPE Pr.” No stock has been authorized for issuance under any equity compensation plans. Under Maryland law, SPE’s stockholders generally are not personally liable for our debts or obligations.
As permitted by the Maryland General Corporation Law, SPE’s Charter provides that the Board of Directors, without any action by its stockholders, may amend the charter from time to time to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that the SPE has authority to issue. In addition, the Charter provides that the Board of Directors, by majority vote, may reclassify any unissued shares of our capital stock into one or more additional or other classes or series of stock with such designations, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends and qualifications as determined by the Board of Directors.
Common Stock
All shares of SPE’s common stock have equal rights as to earnings, assets, dividends and voting privileges and, when they are issued, will be duly authorized, validly issued, fully paid and nonassessable. Distributions may be paid to the holders of common stock if, as and when authorized by the Board of Directors and declared out of funds legally available for such distributions. Shares of common stock have no preemptive, conversion or redemption rights and are freely transferable, except where their transfer is restricted by federal and state securities laws or by contract. In the event of SPE’s liquidation, dissolution or winding up, each share would be entitled to share ratably in all of the assets that are legally available for distribution after SPE pays all debts and other liabilities. Each of the shares of common stock is entitled to one vote on all matters submitted to a vote of stockholders, including the election of Directors. Except as provided with respect to any other class or series of stock, the holders of SPE’s common stock will possess exclusive voting power. There is no cumulative voting in the election of Directors, which means that holders of a majority of the outstanding shares of common stock will elect all of the Directors, and holders of less than a majority of such shares will be unable to elect any Director.
The following table lists the high and low closing sales prices for the common stock, and the closing sales price as a percentage of NAV:
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| |
|
|
|
|
Premium/
Discount
|
|
|
Premium/Discount
|
|
|
|
|
| |
|
|
|
|
|
|
|
of High Sales
|
|
|
of Low Sales
|
|
|
Declared
|
|
| |
|
High
|
|
|
Low
|
|
|
Price to NAV
|
|
|
Price to NAV
|
|
|
Dividends
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
13.01 |
|
|
$ |
12.28 |
|
|
|
-11.53 |
% |
|
|
-6.84 |
% |
|
|
0.1425 |
|
|
Second Quarter
|
|
|
12.99 |
|
|
|
12.51 |
|
|
|
-8.16 |
% |
|
|
-9.19 |
% |
|
|
0.1445 |
|
|
Third Quarter
|
|
|
12.71 |
|
|
|
10.65 |
|
|
|
-8.18 |
% |
|
|
-15.49 |
% |
|
|
0.1495 |
|
|
Fourth Quarter
|
|
|
10.25 |
|
|
|
10.10 |
|
|
|
-16.98 |
% |
|
|
-20.59 |
% |
|
|
0.1325 |
|
|
Year ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
11.66 |
|
|
$ |
10.10 |
|
|
|
-12.01 |
% |
|
|
-20.59 |
% |
|
|
0.166 |
|
|
Second Quarter
|
|
|
12.62 |
|
|
|
12.30 |
|
|
|
-8.08 |
% |
|
|
-8.46 |
% |
|
|
0.191 |
|
|
Third Quarter
|
|
|
14.14 |
|
|
|
12.73 |
|
|
|
-4.67 |
% |
|
|
-7.07 |
% |
|
|
0.225 |
|
|
Fourth Quarter
|
|
|
14.12 |
|
|
|
13.69 |
|
|
|
-1.06 |
% |
|
|
-4.67 |
% |
|
|
0.115 |
|
|
Year ending December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
14.07 |
|
|
$ |
13.17 |
|
|
|
-1.33 |
% |
|
|
-8.61 |
% |
|
|
0 |
|
|
Second Quarter
|
|
|
13.48 |
|
|
|
12.80 |
|
|
|
-8.42 |
% |
|
|
-9.28 |
% |
|
|
0 |
|
|
Third Quarter
|
|
|
13.94 |
|
|
|
12.50 |
|
|
|
-9.07 |
% |
|
|
-11.85 |
% |
|
|
0 |
|
|
Fourth Quarter
|
|
|
14.75 |
|
|
|
13.85 |
|
|
|
-10.17 |
% |
|
|
-9.36 |
% |
|
|
0.03 |
|
|
Year ending December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
15.48 |
|
|
$ |
14.88 |
|
|
|
-8.67 |
% |
|
|
-9.93 |
% |
|
|
0 |
|
|
Second Quarter
|
|
|
15.64 |
|
|
|
15.22 |
|
|
|
-10.27 |
% |
|
|
-10.37 |
% |
|
|
0 |
|
|
Third Quarter
|
|
|
15.81 |
|
|
|
14.10 |
|
|
|
-9.66 |
% |
|
|
-10.65 |
% |
|
|
0 |
|
|
Fourth Quarter
|
|
|
15.23 |
|
|
|
13.89 |
|
|
|
-5.93 |
% |
|
|
-10.50 |
% |
|
|
0.53545 |
|
|
Year ended December 31, 2012
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
16.20 |
|
|
$ |
14.75 |
|
|
|
-6.36 |
% |
|
|
-8.71 |
% |
|
|
0 |
|
|
Second Quarter
|
|
|
16.16 |
|
|
|
15.00 |
|
|
|
-6.21 |
% |
|
|
-10.66 |
% |
|
|
0 |
|
|
Third Quarter
|
|
|
15.80 |
|
|
|
14.89 |
|
|
|
-10.94 |
% |
|
|
-12.31 |
% |
|
|
0 |
|
|
Fourth Quarter
|
|
|
16.05 |
|
|
|
14.95 |
|
|
|
-10.29 |
% |
|
|
-12.06 |
% |
|
|
0.950 |
|
|
Year ending December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
16.86 |
|
|
$ |
15.18 |
|
|
|
-8.47 |
% |
|
|
-13.65 |
% |
|
|
0 |
|
|
Second Quarter
|
|
|
17.80 |
|
|
|
16.48 |
|
|
|
-8.39 |
% |
|
|
-10.29 |
% |
|
|
0 |
|
|
Third Quarter
|
|
|
17.80 |
|
|
|
17.06 |
|
|
|
-10.46 |
|
|
|
-10.26 |
% |
|
|
0 |
|
|
Fourth Quarter
|
|
[●]
|
|
|
[●]
|
|
|
-[●] |
% |
|
-[●] |
% |
|
[●]
|
|
Preferred Stock
The SPE Preferred Stock is a class of our capital stock designated by the Board of Directors. On July 23, 2012, SPE completed a rights offering for a new class of convertible preferred stock at a price of $50 per share. The aggregate number of shares issued was 748,486 for which SPE received a total of $37,454,300.
The following is a brief description of the terms of the 3.00% convertible preferred stock, Series A, par value $0.001 per share (the “SPE Preferred Stock”). This description does not purport to be complete and is qualified by reference to SPE’s Charter, including the provisions of the Articles Supplementary establishing the SPE
Preferred Stock. For complete terms of the SPE Preferred Stock, please refer to the actual terms of the SPE Preferred Stock, which are set forth in the Articles Supplementary.
(a) Liquidation Preference: In the event of any voluntary or involuntary liquidation, dissolution or winding up of SPE, the holders of SPE Preferred Stock will be entitled to receive preferential liquidating distribution at face value (i.e., $50.00 per share), before any distribution of assets is made to the holders of our common stock. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of shares of SPE Preferred Stock will not be entitled to any further participation in any distribution of assets by SPE.
(b) Dividends: The holders of SPE Preferred Stock will be entitled to receive dividends at the rate of 3.00% per year. Dividends on the SPE Preferred Stock will be fully cumulative, will accumulate without interest from the date of original issuance of the SPE Preferred Stock and will be payable quarterly in arrears on the last calendar day of March, June, September and December, commencing on the last calendar day of the first March, June, September or December following the date of Expiration Date.
(c) Voting Rights: So long as SPE is subject to the 1940 Act, the holders of any SPE Preferred Stock, voting separately as a single class, shall have the right to elect two Directors at all times. The remaining Directors shall be elected by the holders of common stock and preferred stock voting as a single class. So long as SPE is subject to the 1940 Act, in addition to any approval by stockholders that might otherwise be required, the approval of the holders of a majority of any outstanding SPE Preferred Stock voting separately as a class, would be required to (1) adopt any plan of reorganization that would adversely affect the SPE Preferred Stock, and (2) take any action requiring a vote of security holders under Section 13(a) of the 1940 Act, including, among other things, changes in SPE’s subclassification as a closed-end investment company or changes in its fundamental investment restrictions. As a result of these voting rights, SPE’s ability to take any such actions may be impeded to the extent that there is any SPE Preferred Stock outstanding. The Board of Directors presently intends that, except as otherwise indicated in this Proxy Statement and except as otherwise required by applicable law or SPE’s Articles of Incorporation, Articles Supplementary or bylaws, holders of SPE Preferred Stock will have equal voting rights with holders of our common stock (one vote per share, unless otherwise required by the 1940 Act) and shall vote together with such holders of common stock as a single class.
(d) Conversion Right: Until the mandatory redemption date set forth in (e) below, holders of SPE Preferred Stock may convert their shares to common stock at the ratio of three shares of Common Stock for each share of SPE Preferred Stock held. The conversion ratio will be adjusted for any distributions made to common stockholders. The Board of Directors believed that the value of the conversion right of the SPE Preferred Stock was not a predominant factor in the market value of the SPE Preferred Stock as of the date of its issuance. The conversion right was a secondary attribute which was included to enhance the terms upon which SPE was able to issue the SPE Preferred Stock. If the NAV of the Common Stock reaches $20 per share, the Board may, in its sole discretion, redeem all then outstanding shares of SPE Preferred Stock at $50 per share. Under such circumstances, SPE would provide no less than 30 days notice to the holders of SPE Preferred Stock that, unless such shares have been converted by a certain date, the shares would be redeemed. In connection with such conversion (or redemption) such holder would receive payment for all declared and unpaid dividends on their shares of SPE Preferred Stock to the date of conversion, but after conversion the holder would no longer be entitled to the dividends, liquidation preference or other rights attributable to holders of the SPE Preferred Stock.
Unless SPE’s preferred stockholders elect to convert their shares of SPE Preferred Stock into shares of SPE Common Stock prior to the record date, the preferred stockholders will not receive any shares of SPE Global in connection with the Transaction. As a result of the Transaction, the net asset value of SPE will decrease by approximately 10%, which will increase the conversion ratio for SPE’s preferred stock. More specifically, the conversion ratio as of December 31, 2013 is [●] and, following the contribution of approximately $14 million of SPE’s assets to SPE Global (approximately 10% of SPE’s current net assets), the conversion ratio shall be approximately [●].
(e) Mandatory Redemption: SPE will redeem all outstanding shares of SPE Preferred Stock as of July 10, 2017 (five years from the Expiration Date) at a price of $50 per share of SPE Preferred Stock held on such date.
Immediately following the issuance of the SPE Preferred Stock, and so long as SPE is subject to the 1940 Act, (i) SPE shall have an asset coverage of at least 200 percent, (ii) SPE will be prohibited from declaring any dividend (except a dividend payable in our common stock) or any other distribution upon the common stock, unless the SPE Preferred Stock has at the time of any such declaration an asset coverage of at least 200 percent after deducting the amount of such dividend or distribution, as the case may be, (iii) holders of SPE Preferred Stock will be entitled, voting as a class, to the voting rights outlined in (c) above, and (iv) holders of SPE Preferred Stock will have the liquidation preference outlined in (a) above.
Effects of Leverage
The holders of SPE’s Preferred Stock are entitled to the dividend rate of 3.00% of the subscription price. Any return earned in excess of the stated dividend rate would directly benefit holders of the Common Stock; however, any shortfall from the stated rate would negatively affect SPE’s common stockholders. The following table is designed to assist you in understanding the effects of the existing leverage on the Common Stock of SPE. The table assumes that 680,987 shares of the SPE Preferred Stock are issued and outstanding. The assumed returns appearing in the table are hypothetical and actual returns may be greater or less than those appearing in the table.
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Assumed on portfolio (net of expenses)
|
|
|
(10.00
|
)%
|
|
|
(5.00
|
)%
|
|
|
0.00
|
%
|
|
|
5.00
|
%
|
|
|
10.00
|
%
|
|
Corresponding return to Common Shareholder
|
|
|
(14.73
|
)%
|
|
|
(7.73
|
)%
|
|
|
(1.23
|
)%
|
|
|
5.27
|
% |
|
|
11.77
|
%
|
The following factors associated with leveraging could increase the investment risk and volatility of the price of the Common Stock:
| |
|
|
| |
●
|
leveraging exaggerates any increase or decrease in the net asset value of the Common Stock;
|
| |
|
|
| |
●
|
the dividend requirements on the SPE Preferred Stock may exceed the income from the portfolio securities purchased with the proceeds from the issuance of preferred shares;
|
| |
●
|
a decline in net asset value results if the investment performance of the additional securities purchased fails to cover their cost to SPE (including any dividend requirements of preferred shares);
|
| |
|
|
| |
●
|
a decline in net asset value could affect the ability of SPE to make Common Stock dividend payments;
|
| |
|
|
| |
●
|
a failure to pay dividends or make distributions on its Common Stock could result in SPE’s ceasing to qualify as a regulated investment company under the Code; and
|
| |
|
|
| |
●
|
if the asset coverage for SPE’s preferred shares declines to less than two hundred percent (as a result of market fluctuations or otherwise), SPE may be required to sell a portion of its investments when it may be disadvantageous to do so.
|
Pursuant to Section 18 of the 1940 Act, it is unlawful for SPE, as a registered closed-end investment company, to issue any class of senior security, or to sell any senior security that it issues, unless it can satisfy certain “asset coverage” ratios. The asset coverage ratio with respect to a senior security representing indebtedness means the ratio of the value of SPE’s total assets (less all liabilities and indebtedness not represented by senior securities) to the aggregate amount of SPE’s senior securities representing indebtedness. The asset coverage ratio with respect to a senior security representing stock means the ratio of the value of SPE’s total assets (less all liabilities and indebtedness not represented by senior securities) to the aggregate amount of SPE’s senior securities representing indebtedness plus the aggregate liquidation preference of SPE’s outstanding preferred shares.
If, as is the case with SPE, a registered investment company’s senior securities are equity securities, such securities must have an asset coverage ratio of at least 200% immediately following their issuance. If a registered investment company’s senior securities represent indebtedness, such indebtedness must have an asset coverage ratio of at least 300% immediately after their issuance. Subject to certain exceptions, during any period following issuance that SPE fails to satisfy these asset coverage ratios, it will, among other things, be prohibited from
declaring any dividend or declaring any other distribution in respect of its common stock except a dividend payable in Common Shares issued by SPE. A registered investment company may, to the extent permitted by the 1940 Act, segregate assets or “cover” transactions in order to avoid the creation of a class of senior security.
Any rating received by SPE on its preferred stock, or on any other senior security that it may issue, is an assessment by the applicable rating agency of the capacity of SPE to satisfy its obligations on its senior securities. However, the rating does not eliminate or mitigate the risks associated with investing in SPE’s Preferred Stock. In addition, should a rating on the SPE Preferred Stock be lowered or withdrawn by the relevant rating agency, there may be an adverse effect on the market value of the SPE Preferred Stock and SPE may also be required to redeem all or part of its outstanding SPE Preferred Stock. If SPE were required to redeem its preferred stock (in whole or part) as a result of the change in or withdrawal of the rating, the Common Stock of SPE would lose the benefits associated with a leveraged capital structure
As evidenced by the above table, for the period indicated, SPE Common Stock has traded in the market below NAV. There can be no assurance that the SPE Common Stock will trade in the future at, above or below NAV.
SPE Global
General
SPE Global, which was incorporated under the laws of the State of Maryland on November 5, 2013 is authorized to issue 200,000,000 shares of common stock, par value $0.001 per share. If and when listed on the NYSE, SPE Global will be required to hold annual meetings of its stockholders.
The following table shows the number of shares of (i) capital stock authorized and (ii) capital stock outstanding for each class of authorized securities of SPE Global as of December 31, 2013.
|
Title of Class
|
Amount
Authorized
|
Amount Held by
SPE Global or for
its Own Account
|
Amount
Outstanding
|
| |
|
|
|
|
Common Stock, $0.001 par value per share
|
200,000,000
|
0
|
[1,765,478]
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No stock has been authorized for issuance under any equity compensation plans. Under Maryland law, SPE Global’s stockholders generally are not personally liable for our debts or obligations.
As permitted by the Maryland General Corporation Law, SPE Global’s Charter provides that the Board of Directors, without any action by its stockholders, may amend the charter from time to time to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that SPE Global has authority to issue. In addition, the Charter provides that the Board of Directors, by majority vote, may reclassify any unissued shares of our capital stock into one or more additional or other classes or series of stock with such designations, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends and qualifications as determined by the Board of Directors.
Common Stock
All shares of SPE Global’s common stock have equal rights as to earnings, assets, dividends and voting privileges and, when they are issued, will be duly authorized, validly issued, fully paid and nonassessable. Distributions may be paid to the holders of common stock if, as and when authorized by the Board of Directors and declared out of funds legally available for such distributions. Shares of common stock have no preemptive, conversion or redemption rights and are freely transferable, except where their transfer is restricted by federal and state securities laws or by contract. In the event of SPE Global’s liquidation, dissolution or winding up, each share would be entitled to share ratably in all of the assets that are legally available for distribution after SPE Global pays all debts and other liabilities. Each of the shares of common stock is entitled to one vote on all matters submitted to a vote of stockholders, including the election of Directors. Except as provided with respect to any other class or series of stock, the holders of SPE Global’s common stock will possess exclusive voting power. There is no
cumulative voting in the election of Directors, which means that holders of a majority of the outstanding shares of common stock will elect all of the Directors, and holders of less than a majority of such shares will be unable to elect any Director.
Preferred Stock
Currently, SPE Global does not intend to issue preferred stock.
Repurchases of Securities
Each of SPE and SPE Global is a closed-end diversified management investment company and, as such, its stockholders do not, and will not, have the right to redeem their shares of the Fund. Although neither SPE nor SPE Global will offer to repurchase its shares of common stock and/or preferred stock on a periodic basis, it may repurchase its shares of common stock and/or preferred stock on such occasions when it is deemed advisable by the board of directors of SPE or SPE Global. Generally, a closed-end management company may repurchase its shares under the 1940 Act: (1) on a securities exchange or such other open market as may be designated by the SEC (provided that it has, in any such case, informed holders of the class of stock involved within the preceding six months of its intention to repurchase such stock), (2) by a tender offer open to all holders of the class of shares involved or (3) as otherwise permitted by the SEC. If a closed-end investment company intends to repurchase its shares other than on a securities exchange, in the open market or by making a tender offer, a rule adopted by the SEC under the 1940 Act provides that the closed-end fund must meet certain conditions regarding the distribution of its net income, the identity of the seller, the price paid, any brokerage commissions, prior notice to holders of the class of shares involved of an intention to purchase such shares and that the purchase is not being made in a manner or on a basis which discriminates unfairly against the other holders of such class.
While the Funds are not required to repurchase our shares, SPE has done so in the past and may continue to do so if the Board of Directors believes that such repurchase is in the Fund’s best interests and of its stockholders.
Rights Offerings
SPE has and may in the future, and SPE Global may in the future, and at their discretion, choose to make rights offerings from time to time for a number of shares and on terms that may or may not be similar to any of SPE’s previous offers. Any such future rights offering will be made in accordance with the 1940 Act. Under the laws of Maryland, the state in which each of SPE and SPE Global were incorporated, the Board of each Fund is authorized to approve rights offerings without obtaining stockholder approval. The staff of the Commission has interpreted the 1940 Act as not requiring stockholder approval of a transferable rights offering at a price below the then current net asset value so long as certain conditions are met, including (i) a good faith determination by a fund’s Board that such offering would result in a net benefit to existing stockholders; (ii) the offering fully protects stockholders’ preemptive rights and does not discriminate among stockholders (except for the possible effect of not offering fractional rights); (iii) management uses its best efforts to ensure an adequate trading market in the rights for use by stockholders who do not exercise such rights; and (iv) the ratio of a transferable rights offering does not exceed one new share for each three rights held.
Shortly after the Transaction is consummated, SPE Global intends to issue to holders of SPE Global Common Stock rights to purchase additional shares of SPE Global Common Stock at a price to be determined at a later date. This rights offering is intended to increase the assets of SPE Global and offer SPE Global shareholders more flexibility in their investments. Thereafter, to the extent that after such rights offering SPE Global satisfies the minimum listing requirements, application will be made to list SPE Global Common Stock on the NYSE. If SPE Global does not satisfy the NYSE listing standards, the SPE Global Board will consider other listing alternatives.
Certain Corporate Governance Provisions of the Maryland General Corporation Law and the Charter and Bylaws of SPE and SPE Global
SPE Board of Directors currently consists of six Directors elected by the holders of SPE. Two of the current Directors were elected by the holders of SPE Preferred Stock. Currently, SPE Global does not intend to issue preferred stock; therefore all 6 directors will be elected by the holders of SPE Global Common Stock. Vacancies on the SPE Global Board for one or more of the classified positions may be filled by the affirmative vote of a majority
of the remaining Directors, even if the remaining directors do not constitute a quorum, for the balance of the term of the class. In addition, the bylaws of each of SPE and SPE Global permit stockholders to call a special meeting of stockholders only if certain procedural requirements are met and the request is made by stockholders of record entitled to cast at least a majority of the votes entitled to be cast at such a meeting. These provisions may have the effect of maintaining the continuity of management and thus may make it more difficult for the Fund’s stockholders to change the majority of Directors. The initial Directors of the SPE Global Board will be the same Directors as currently serve on the SPE Board, and such Directors shall serve in such capacity until such time as their successors are duly elected at a stockholder meeting.
The class and other voting rights of any preferred stock that may be issued could make it more difficult for a Fund to take certain actions that may, in the future, be proposed by the Board of Directors and/or the holders of common stock, such as (i) a merger, exchange of securities, liquidation or alteration of the rights of a class of the Fund’s securities if such actions would be adverse to the preferred stock, (ii) converting the Fund to an open-end investment company or acting inconsistently with its fundamental investment restrictions or other fundamental policies or (iii) seeking to operate other than as an investment company.
The Maryland General Corporation Law and the charter and bylaws of SPE and SPE Global contain provisions that could make it more difficult for a potential acquiror to acquire either SPE or SPE Global by means of a tender offer, proxy contest or otherwise. These provisions are expected to discourage certain coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of either SPE or SPE Global to negotiate first with the Board of Directors. We believe that the benefits of these provisions outweigh the potential disadvantages of discouraging any such acquisition proposals because, among other things, the negotiation of such proposals may improve their terms.
The Maryland General Corporation Law provides that stockholder action can be taken only at an annual or special meeting of stockholders or by unanimous written consent in lieu of a meeting. These provisions, combined with the requirements of the bylaws regarding the calling of a stockholder-requested special meeting of stockholders discussed below, may have the effect of delaying consideration of a stockholder proposal until the next annual meeting. The bylaws of SPE and SPE Global only allow stockholders to call a special meeting of Stockholders if such request is made to the Secretary of the Fund in writing signed by stockholders having at least 50% of the issued and outstanding shares of voting stock.
The provisions of the Charters and bylaws (the “Governing Documents”) of SPE and SPE Global described above may be regarded as “anti-takeover” provisions. The provisions could have the effect of depriving the owners of shares in either Fund of opportunities to sell their shares at a premium over prevailing market prices, by discouraging a third party from seeking to obtain control of either SPE or SPE Global in a tender offer or similar transaction. The overall effect of these provisions is to render more difficult the accomplishment of a merger or the assumption of control by a principal stockholder.
Reference is made to the Governing Documents of SPE and SPE Global, on file with the Commission, for the full text of these provisions. See “Further Information.”
Vote to Liquidate
After the first two years of operation and annually thereafter, the stockholders of SPE Global shall be afforded the opportunity to vote on whether to continue SPE Global; provided, however, that such vote will only be required if, during any three (3) month period during the year in which such vote shall take place, the SPE Global Common Stock trades at an average discount to NAV of 5% or more based upon the weekly closing price and NAV. In the event that stockholders vote to discontinue, SPE Global will be wound up and liquidated in accordance with its Charter.
Indemnification of Directors and Officers
The By-laws of each of SPE and SPE Global provide that the Fund will indemnify its Directors and officers and may indemnify its employees or agents against liabilities and expenses incurred in connection with litigation in which they may be involved because of their positions with the Fund, to the fullest extent permitted by law.
However, nothing in the By-laws of either SPE or SPE Global protects or indemnifies a Director, officer, employee or agent of such fund against any liability to which such person would otherwise be subject in the event of such person’s willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her position.
FURTHER INFORMATION
Each of SPE and SPE Global are subject to the informational requirements of the 1934 Act and the 1940 Act and in accordance therewith file, or will file, reports and other information with the Commission. Reports, proxy statements and other information filed by SPE and SPE Global with the Commission pursuant to the informational requirements of the 1934 Act and the 1940 Act can be inspected and copied at the public reference facilities maintained by the Commission, 100 F Street, N.E., Washington, D.C. 20549. The Commission maintains a web site at http://www.sec.gov containing reports, proxy and information statements and other information regarding registrants, including SPE and SPE Global that file electronically with the Commission.
SPE Common Stock and SPE Preferred Stock are listed on the NYSE. Reports, proxy statements and other information concerning SPE and filed with the Commission by SPE will be available for inspection at the NYSE, 20 Broad Street, New York, New York 10005.
SPE’s most recent annual report, including audited financial statements for the year ended December 31, 2013 and the semi-annual report as of June 30, 2013, are available upon request (the most recent annual report has been delivered herewith), without charge, by writing to SPE c/o U.S. Bancorp 615 East Michigan Street, Milwaukee, WI 53202, by calling 1-877-607-0414 or via the internet at www.specialopportunitiesfundinc.com.
It is anticipated that SPE Global Common Stock will be listed on the NYSE. Reports, proxy statements and other information concerning SPE Global and filed with the Commission by SPE Global will be available for inspection (in the case of listing on the NYSE) at the NYSE, 20 Broad Street, New York, New York 10005.
Statements contained in this Combined Prospectus/Proxy Statement as to the contents of any contract or other document referred to are not necessarily complete, and, in each instance, reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, of which this Combined Prospectus/Proxy Statement forms a part, each such statement being qualified in all respects by such reference.
REQUIRED VOTE FOR PROPOSALS
Messrs. Chadwick, Dakos, Hellerman and Walden must each be elected as Directors (Proposal 1(a)) by a plurality (i.e., a simple majority of the votes cast at the Annual Meeting) of the votes cast by the Common Stockholders and Preferred Stockholders, voting together as a single class, present in person or represented by proxy at the Annual Meeting, provided a quorum is present. Abstentions and broker non-votes will be counted as shares present for quorum purposes, but otherwise will have no effect on the plurality vote required for each Director.
Messrs. Goldstein and Harris must each be elected as Directors (Proposal 1(b)) by a plurality (i.e., a simple majority of the votes cast at the Annual Meeting) of the votes cast by the holders of shares of SPE’s common stock, present in person or represented by proxy at the Annual Meeting, provided a quorum is present. Abstentions and broker non-votes will be counted as shares present for quorum purposes, but otherwise will have no effect on the plurality vote required for each Director.
THE SPE BOARD, INCLUDING THE NON-INTERESTED DIRECTORS, UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” PROPOSAL 1(A) FOR ELECTION OF EACH OF THE NOMINEES FOR DIRECTOR AND “FOR” PROPOSAL 1(B) FOR ELECTION OF EACH OF THE NOMINEES FOR DIRECTOR. ANY SIGNED BUT UNMARKED PROXIES WILL BE SO VOTED “FOR” THE ELECTION OF EACH OF THE NOMINEES.
Approval of the Transaction (Proposal 2) by the stockholders is to be determined by the vote of a majority of the outstanding shares of SPE Common Stock and SPE Preferred Stock, voting together as a single class, as defined under the 1940 Act. Under the 1940 Act, this means that to be approved, the Transaction must receive the
affirmative vote of the lesser of (1) a majority of the outstanding shares of SPE, or (2) 66 2/3% or more of the shares of SPE represented at the Meeting if more than 50% of the outstanding shares of SPE are present or represented by proxy at the Meeting (“Majority Vote”).
While SPE has no present intention of making any additional distributions in the form of registered investment companies other than the distribution of SPE Global shares pursuant to the Transaction as described above, the Board of SPE in the future could authorize such additional distributions. The Board may elect to delay or not to proceed with the Transaction notwithstanding its approval by stockholders if for any reason the Board determines that such action would be in the best interests of stockholders.
THE SPE BOARD, INCLUDING THE NON-INTERESTED DIRECTORS, UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF SPE COMMON STOCK AND PREFERRED STOCK, VOTING TOGETHER AS A SINGLE CLASS, VOTE “FOR” APPROVAL OF THE TRANSACTION (PROPOSAL 2).
Approval of the amendment of SPE’s investment restriction (Proposal 3) is to be determined by a Majority Vote of outstanding shares of SPE Common Stock and SPE Preferred Stock, voting together as a single class.
THE SPE BOARD, INCLUDING THE NON-INTERESTED DIRECTORS, UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF SPE COMMON STOCK AND PREFERRED STOCK, VOTING TOGETHER AS A SINGLE CLASS, VOTE “FOR” APPROVAL OF THE AMENDMENT TO THE INVESTMENT RESTRICTION OF SPE (PROPOSAL 3).
The consummation of the Transaction is contingent upon stockholder approval of both the Transaction and the amended investment restriction.
THE SPE BOARD, INCLUDING THE NON-INTERESTED DIRECTORS, UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF SPE COMMON STOCK AND PREFERRED STOCK, VOTING TOGETHER AS A SINGLE CLASS, VOTE “FOR” APPROVAL OF STANDING INSTRUCTIONS TO BULLDOG INVESTORS TO VOTE PROXIES RECEIVED BY SPE FROM ANY CLOSED-END INVESTMENT COMPANY IN SPE’S PORTFOLIO ON ANY PROPOSAL (INCLUDING THE ELECTION OF DIRECTORS) IN A MANNER WHICH BULLDOG INVESTORS REASONABLY DETERMINES IS LIKELY TO FAVORABLY IMPACT THE DISCOUNT OF SUCH INVESTMENT COMPANY’S MARKET PRICE AS COMPARED TO ITS NET ASSET VALUE (PROPOSAL 4).
Approval of Proposal 4 is to be determined by a Majority Vote of outstanding shares of SPE Common Stock and SPE Preferred Stock, voting together as a single class.
SOLICITATION OF PROXIES
Solicitation of proxies is being made primarily by the mailing of this Combined Prospectus/Proxy Statement, proxy card and accompanying Notice of Annual Meeting of Stockholders on or about January __, 2014. Stockholders of SPE whose shares are held by nominees such as brokers can vote their proxies by contacting their respective nominee. We expect that the solicitation will be primarily by mail, but also may include telephone, telecopy, electronic, oral or other means of communication. We may also, with approval of the SPE Board, use a proxy solicitation firm to authorize a proxy to vote your shares.
GENERAL VOTING INFORMATION
If the enclosed proxy is properly executed and returned in time to be voted at the Annual Meeting, the SPE Shares (as defined below) represented thereby will be voted “FOR” each of Proposal 1, Proposal 2, Proposal 3 and Proposal 4, and “FOR” any other matters deemed appropriate unless instructions to the contrary are marked. Any stockholder who has given a proxy has the right to revoke it at any time prior to its exercise either by attending the Annual Meeting and voting his or her shares in person or by submitting a letter of revocation or a later-dated proxy
to SPE at the above address prior to the date of the Annual Meeting. Merely attending the Annual Meeting without voting, however, will not revoke a previously given proxy.
A quorum of stockholders is constituted by the presence in person or by proxy of the holders of shares of stock entitled to cast a majority of the votes entitled to be cast at the Annual Meeting. In the event a quorum is not present at the Annual Meeting, or in the event that a quorum is present at the Annual Meeting but sufficient votes to approve any of the proposed items are not received, the persons named as proxies may propose one or more adjournments of the Annual Meeting to permit further solicitation of proxies. A stockholder vote may be taken on one or more of the proposals in this Combined Prospectus/Proxy Statement prior to such adjournment if sufficient votes have been received for approval and it is otherwise appropriate (or, if a quorum is present, a majority of the votes cast). If submitted to stockholders, any such adjournment will require the affirmative vote of a majority of those shares present (or, if a quorum is present, a majority of the votes cast) at the Annual Meeting in person or by proxy. If a quorum is present, the persons named as proxies will vote those proxies which they are entitled to vote “FOR” any proposal in favor of such adjournment and will vote those proxies required to be voted “AGAINST” any proposal against any such adjournment. Absent the establishment of a subsequent record date and the giving of notice to the holders of record thereon, the adjourned Annual Meeting must take place not more than 120 days after the Record Date. At such adjourned Annual Meeting, any business may be transacted which might have been transacted at the original Annual Meeting.
The close of business on January __, 2014 has been fixed as the Record Date for the determination of stockholders entitled to notice of and to vote at the Annual Meeting and all adjournments thereof.
SPE has two classes of capital stock outstanding: SPE Common Stock and SPE Preferred Stock. The holders of SPE Common Stock and SPE Preferred Stock vote together as a single class and are entitled to one vote for each full share held and an appropriate fraction of a vote for each fractional share held.
The following table sets forth certain ownership information with respect to the SPE Common Stock and SPE Preferred Stock for those persons who directly or indirectly own, control or hold with the power to vote, 5% or more of our outstanding common stock and all officers and Directors, as a group, as of the Record Date.
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Title of
Class
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Name and Address of
Beneficial Owner
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Amount and Nature of
Beneficial Ownership
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Percent of
Class*
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Common Stock
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Karpus Management, Inc.
183 Sully’s Trail
Pittsford, New York 14534
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[1,176,260]**
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[16.67]%
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Common Stock
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Relative Value Partners, LLC
1033 Skokie Blvd., Suite 470
Northbrook, IL 60062
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[1,416,128]***
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[20.06]%
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Preferred Stock
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Karpus Management, Inc.
183 Sully’s Trail
Pittsford, New York 14534
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[236,433]****
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[31.56]%
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*
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Percent of class is based on the number of shares of common stock or preferred stock of the Fund outstanding as of December 31, 2013.
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**
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As reported to the SEC on Schedule 13G/A on February 14, 2013.
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***
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As reported to the SEC on Schedule 13G on August 13, 2013.
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****
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As reported to the SEC on Schedule 13D/A on October 10, 2013.
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Summary of Voting Rights on Proxy Proposals
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1a
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To elect four Directors to SPE’s Board of Directors.
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Holders of SPE Common
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Stock and SPE Preferred Stock, voting together as a single class |
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1b
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To elect two Directors to SPE’s Board of Directors.
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Holders of SPE Preferred Stock, voting together as a single class
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2
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To consider and vote upon a proposal to contribute a portion of SPE’s assets (which is anticipated to consist largely or exclusively of shares of non-U.S. closed-end investment companies, common stock and preferred stock in foreign corporate entities and cash) having a value of approximately $14 million (approximately 10% of SPE’s net assets as of December 31, 2013), to a newly-organized, diversified, closed-end management investment company, Special Opportunities Global Fund, Inc. (“SPE Global”), and to distribute to common stockholders of SPE shares of common stock of SPE Global.
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Holders of SPE Common Stock and SPE Preferred Stock, voting together as a single class
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3
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To consider and vote upon a proposal to amend an investment restriction of SPE, which currently states that SPE may not “engage in the business of underwriting securities of other issuers,” to state that SPE may not “underwrite the securities of other issuers, except insofar as the Fund may be deemed an underwriter under the Securities Act of 1933, as amended, in selling portfolio securities and in connection with mergers, acquisitions, spin-off transactions and other reorganization transactions involving the Fund”.
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Holders of SPE Common Stock and SPE Preferred Stock, voting together as a single class
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4
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To consider and vote upon a proposal to instruct Bulldog Investors, the investment adviser of SPE and SPE Global, to vote proxies received by SPE and SPE Global from any closed-end investment company in the Funds’ respective portfolios on any proposal (including the election of directors) in a manner which Bulldog Investors reasonably determines is likely to favorably impact the discount of such investment company’s market price as compared to its net asset value.
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Holders of SPE Common Stock and SPE Preferred Stock, voting together as a single class
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BROKER NON-VOTES AND ABSTENTIONS
Under Maryland law, the only matters that may be acted on at a special meeting of stockholders are those stated in the notice of the special meeting. Accordingly, other than procedural matters relating to the Proposals, no other business may properly come before the Annual Meeting. If any procedural matter is submitted to stockholders, the persons named as proxies will vote on such procedural matter in accordance with their discretion.
Abstentions or broker non-votes will not be counted as votes cast, but will be considered to be present at the Meeting for purposes of determining the existence of a quorum. Consequently, abstentions and broker non-votes will have the same effect as a vote “against” Proposal 1, Proposal 2, Proposal 3 and Proposal 4.
Stockholders of SPE will be informed of the voting results of the Annual Meeting in SPE’s annual report or semi-annual report to stockholders relating to the six-month period in which the Annual Meeting is held.
OTHER MATTERS TO COME BEFORE THE MEETING
The Board of SPE does not intend to present any other business at the Meeting, nor are they aware that any stockholder intends to do so. If, however, any other matters are properly brought before the Meeting, the persons named in the accompanying form of proxy will vote thereon in accordance with their judgment.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. STOCKHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING ARE THEREFORE URGED TO COMPLETE, SIGN, DATE AND RETURN THE PROXY CARD AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID ENVELOPE.