sof_nq.htm
As filed with the Securities and Exchange Commission on May 25, 2012



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


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


Investment Company Act file number 811-07528


Special Opportunities Fund, Inc.
(Exact name of registrant as specified in charter)

 
615 East Michigan Street
 
Milwaukee, WI 53202
(Address of principal executive offices) (Zip code)


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

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

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


Date of fiscal year end: 12/31/2012


Date of reporting period:  3/31/2012

 
 
 
 
Item 1. Schedule of Investments.
 
Special Opportunities Fund, Inc.
            
Portfolio of Investments
            
March 31, 2012 (Unaudited)
            
             
INVESTMENT COMPANIES - 64.48%
  
Shares
    
Value
  
Closed-End Funds - 55.99%
            
Adams Express Company
     276,839     $ 3,039,692  
Alpine Global Premier Properties Fund
     977,737       6,355,291  
American Strategic Income Portfolio III
     452,833       3,169,831  
Bancroft Fund, Ltd.
     41,401       689,741  
Boulder Growth & Income Fund, Inc.
     330,287       2,070,899  
Boulder Total Return Fund, Inc. (a)
     184,149       3,150,789  
The China Fund, Inc.
     11,191       260,750  
Diamond Hill Financial Trends Fund, Inc.
     119,042       1,286,844  
Dividend & Income Fund, Inc.
     42,245       152,927  
DWS RREEF Real Estate Fund, Inc. (a)(c)(f)(g)
     126,913       11,803  
DWS RREEF Real Estate Fund II, Inc. (a)(c)(f)(g)
     201,612       28,830  
Eaton Vance Risk Managed Diversified Equity Income Fund
     618,676       6,551,778  
Federated Enhanced Treasury Income Fund
     4,532       66,892  
First Opportunity Fund, Inc. (a)
     279,106       1,967,697  
The GDL Fund
     33,327       408,922  
Global Income & Currency Fund, Inc.
     23,593       323,932  
The Greater China Fund, Inc.
     122,337       1,406,876  
JF China Region Fund, Inc.
     1,885       23,996  
Liberty All-Star Equity Fund, Inc.
     1,878,592       9,261,458  
Liberty All-Star Growth Fund, Inc.
     349,392       1,519,855  
Macquarie Global Infrastructure Total Return Fund, Inc.
     93,785       1,730,333  
Morgan Stanley Asia Pacific Fund, Inc.
     30,101       447,301  
Neuberger Berman Real Estate Securities Income Fund, Inc.
     1,084       4,640  
The New Germany Fund, Inc.
     6,246       94,190  
The New Ireland Fund, Inc.
     188,171       1,527,949  
Royce Focus Trust, Inc.
     17,500       121,800  
Royce Micro-Cap Trust, Inc.
     440,426       4,144,409  
Royce Value Trust, Inc.
     348,093       4,831,531  
Swiss Helvetia Fund, Inc.
     84,717       949,678  
The Taiwan Fund, Inc.
     3,830       64,421  
The Thai Capital Fund, Inc.
     33,850       391,983  
The Thai Fund, Inc.
     81,773       1,297,738  
Tri-Continental Corporation
     387,319       6,166,118  
Zweig Total Return Fund, Inc. (a)
     709,538       2,270,522  
              65,791,416  
Auction Rate Preferred Securities - 6.25% (b)(c)
                
Advent Claymore Convertible Securities & Income Fund - Series TH28, 1.492%
     11       255,750  
BlackRock California Municipal 2018 Term Trust - Series M7, 0.244%
     100       2,250,000  
BlackRock Municipal 2018 Term Trust - Series W7, 0.274%
     100       2,250,000  
Invesco Quality Municipal Investment Trust - Series A, 0.099%
     44       1,980,000  
MFS High Yield Municipal Trust - Series F, 0.274%
     1       18,750  
MFS Municipal Income Trust - Series T, 0.274%
     3       57,000  
MFS Municipal Income Trust - Series TH, 0.274%
     22       418,000  
Western Asset Premier Bond Fund - Series M, 0.180%
     6       120,000  
              7,349,500  
 
 
 
 
 
Business Development Company - 2.24%
                
Capital Southwest Corporation
     1,468       138,799  
Equus Total Return, Inc. (a)
     106,919       242,706  
MVC Capital, Inc.
     171,137       2,247,029  
              2,628,534  
Total Investment Companies (Cost $68,633,401)
             75,769,450  
                 
COMMON STOCKS - 4.20%
                
Life Insurance - 0.82%
                
Imperial Holdings, Inc. (a)
     359,302       959,336  
Oil and Gas Field Exploration Services - 0.03%
                
Zion Oil & Gas, Inc. (a)
     14,090       37,198  
Pharmaceuticals Preparations - 1.48%
                
Myrexis, Inc. (a)
     575,537       1,743,877  
Real Estate Investment Trusts - 1.87%
                
American Realty Capital Properties, Inc.
     55,938       634,337  
American Realty Capital Trust, Inc.
     5,541       56,906  
Gyrodyne Company of America, Inc. (a)
     15,132       1,512,595  
              2,203,838  
Total Common Stocks (Cost $4,446,992)
             4,944,249  
                 
SPECIAL PURPOSE ACQUISITION VEHICLE - 26.13%
                
Andina Acquisition Corporation (a)(h)
     95,026       950,260  
Australia Acquisition Corporation (a)
     250,000       2,477,500  
Azteca Acquisition Corporation (a)
     189,924       1,838,464  
BGS Acquisition Corp. (a)(h)
     113,602       1,120,116  
Blue Wolf Mongolia Holdings Corporation (a)
     50,273       485,637  
Cazador Acquisition Corporation, Ltd. (a)
     200,000       1,968,000  
China Growth Equity Investment, Ltd. (a)
     52,798       507,389  
China VantagePoint Acquisition Company (a)(i)
     27,130       160,610  
Empeiria Acquisition Corp. (a)
     182,343       1,796,078  
FlatWorld Acquisition Corp. (a)
     105,702       1,058,077  
Global Cornerstone Holdings, Ltd. (a)(c)(h)
     115,935       1,153,553  
Global Eagle Acquisition Corporation (a)
     54,028       525,152  
Hicks Acquisition Company II, Inc. (a)
     304,142       2,986,674  
JWC Acquisition Corporation (a)
     377,578       3,734,247  
L&L Acquisition Corporation (a)(c)
     100,000       995,000  
Lone Oak Acquisition Corporation (a)
     81,430       632,711  
Nautilus Marine Acquisition Corporation (a)
     127,846       1,251,612  
Prime Acquisition Corporation (a)(c)
     65,008       633,178  
RLJ Acquisition, Inc. (a)
     312,788       3,034,044  
ROI Acquisition Corp. (a)(h)
     48,370       483,700  
SCG Financial Acquisition Corporation (a)(c)
     163,384       1,584,825  
Selway Capital Acquisition Corporation (a)
     80,000       745,600  
Universal Business Payment Solutions Acquisition Corporation (a)
     100,000       581,000  
Total Special Purpose Acquisition Vehicle (Cost $30,153,398)
             30,703,427  
                 
 
 
 
 
 
 
   
Principal
        
   
Amount
        
CORPORATE BONDS - 0.07%
            
Washington Mutual Inc.
            
0.000%, 09/17/2012 (c)(d)
   $ 3,000,000       30,000  
5.250%, 09/15/2017 (c)(d)
     1,300,000       48,750  
Total Corporate Bonds (Cost $0)
             78,750  
                 
PROMISSORY NOTES - 0.38%
                
Symbios Holdings, Inc. - 15.00%, 07/16/2012 (c)(f)
     450,000       450,000  
Total Promissory Notes (Cost $450,000)
             450,000  
                 
STRUCTURED PREMIUM FINANCE NOTES - 0.63%
                
Cedar Lane Series A-2 Notes (c)(f)
     742,233       742,233  
Total Structured Premium Finance Notes (Cost $742,233)
             742,233  
                 
   
Shares
          
WARRANTS - 0.77%
                
Australia Acquisition Corporation
                
Expiration: October 2015
     250,000       77,500  
Exercise Price: $11.50 (a)
                
Azteca Acquisition Corporation
                
Expiration: April 2018
     189,924       75,970  
Exercise Price: $12.50 (a)
                
Blue Wolf Mongolia Holdings Corporation
                
Expiration: July 2016
     50,273       32,175  
Exercise Price: $12.00 (a)
                
Cazador Acquisition Corporation, Ltd.
                
Expiration: October 2015
     228,491       63,977  
Exercise Price: $7.50 (a)
                
China Growth Equity Investment, Ltd.
                
Expiration: February 2013
     52,798       23,759  
Exercise Price: $12.00 (a)
                
Empeiria Acquisition Corp. (a)
                
Expiration: December 2017
     182,343       49,233  
Exercise Price: $11.50 (a)
                
FlatWorld Acquisition Corp. (a)
                
Expiration: September 2012
     135,950       35,347  
Exercise Price: $11.00 (a)
                
Hicks Acquisition Company II, Inc.
                
Expiration: July 2017
     200,000       123,999  
Exercise Price: $12.00 (a)
                
JWC Acquisition Corporation
                
Expiration: November 2015
     150,000       93,000  
Exercise Price: $11.50 (a)(c)
                
L&L Acquisition Corporation
                
Expiration: November 2015
     100,000       35,000  
Exercise Price: $11.50 (a)(c)
                
Lone Oak Acquisition Corporation
                
Expiration: March 2016
     81,430       30,129  
Exercise Price: $5.00 (a)
                
Nautilus Marine Acquisition Corporation
                
Expiration: July 2016
     127,846       31,962  
Exercise Price: $11.50 (a)
                
Prime Acquisition Corporation
                
Expiration: March 2016
     51,442       18,005  
Exercise Price: $7.50 (a)
                
RLJ Acquisition, Inc.
                
Expiration: February 2016
     353,462       134,315  
Exercise Price: $12.00 (a)
                
SCG Financial Acquisition Corporation
                
Expiration: May 2016
     154,865       32,522  
Exercise Price: $11.50 (a)
                
Selway Capital Acquisition Corporation
                
Expiration: November 2016
     80,000       20,000  
Exercise Price: $0.75 (a)(c)
                
Universal Business Payment Solutions Acquisition Corporation
                
Expiration: May 2017
     100,000       25,000  
Exercise Price: $6.90 (a)
                
Zion Oil & Gas, Inc.
                
Expiration: August 2012
     20,170       4,833  
Exercise Price: $3.50 (a)
                
Total Warrants (Cost $964,558)
             906,726  
                 
MONEY MARKET FUNDS - 3.75%
                
Fidelity Institutional Government Portfolio - Class I, 0.01% (e)
     2,285,765       2,285,765  
Fidelity Institutional Tax-Exempt Portfolio - Class I, 0.01% (e)
     2,118,167       2,118,167  
Total Money Market Funds (Cost $4,403,932)
             4,403,932  
Total Investments (Cost $109,794,514) - 100.41%
             117,998,767  
Liabilities in Excess of Other Assets - (0.41)%
             (486,468 )
TOTAL NET ASSETS - 100.00%
           $ 117,512,299  
 
           
Percentages are stated as a percent of net assets.
      
 
(a)
  
Non-income producing security.
      
(b)
  
The coupon rates shown represent the rates at March 31, 2012.
      
(c)
  
Fair valued securities. The total market value of these securities was $13,175,672, representing 11.21% of net assets.
(d)
  
Default or other conditions exist and security is not presently accruing income.
      
(e)
  
The rate shown represents the 7-day yield at March 31, 2012.
      
(f)
  
Illiquid security.  The total market value of these securities was $1,232,866, representing 1.05% of net assets.
(g)
  
Security currently undergoing a full liquidation with all proceeds paid out to shareholders.
      
(h)
  
Each unit consists of one share of common stock and one warrant.
      
(i)
  
Each unit consists of one share of common stock, one half of a non-transferrable warrant and one half of a transferrable warrant.

 
 
 
 
 

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

The Fund has adopted fair valuation accounting standards that establish an authoritative definition of fair value and set out a hierarchy for measuring fair value. These standards require additional disclosures about the various input and valuation techniques used in measuring fair value. Fair value inputs are summarized into the three broad levels listed below:

 
Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access.
 
Level 2—Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.  These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.
 
Level 3—Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Fund’s own assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available.

The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.

The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

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

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

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

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

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

The Valuation Committee reviews all Quarterly Reports and any other interim reports, and reviews and approves the valuation of all fair valued securities.  This review includes a review and discussion of an updated fair valuation summary with appropriate levels of representatives of the Adviser’s management.
 
 
 
 
 
 
The following is a summary of the fair valuations according to the inputs used as of March 31, 2012 in valuing the Fund's investments:
        
                         
   
Quoted Prices in Active
    
Significant Other
              
   
Markets for Identical
    
Observable Inputs
    
Unobservable Inputs
        
   
Investments (Level 1)
    
(Level 2)
    
(Level 3)
    
Total
  
Investment Companies
   $ 68,379,317     $ 40,633     $ 7,349,500     $ 75,769,450  
Common Stocks
     4,944,249       -       -       4,944,249  
Special Purpose Acquisition Vehicles
     11,559,150       19,144,277       -       30,703,427  
Corporate Bonds
     -       -       78,750       78,750  
Promissory Notes
     -       -       450,000       450,000  
Structured Premium Finance Notes
     -       -       742,233       742,233  
Warrants
     208,928       697,798       -       906,726  
Money Market Funds
     4,403,932       -       -       4,403,932  
Total
   $ 89,495,576     $ 19,882,708     $ 8,620,483     $ 117,998,767  
                                 
The following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value:
          
                                 
Balance as of December 31, 2011
                   $ 15,025,333          
     Accrued discounts / premiums
                     -          
     Realized gain (loss)
                     1,132,937          
Change in unrealized appreciation (depreciation)
               (1,022,188 )        
     Purchases
                     1,193,750          
     Sales
                     (7,709,349 )        
     Transfers in and / or out of Level 3
                     -          
Balance as of March 31, 2012
                   $ 8,620,483          
                                 
During the period ended March 31, 2012, there were no significant transfers into and out of Levels 1 and 2. Transfers between levels are recognized at the end of the reporting period.
  
 
 
 
 
 
 
The cost basis of investments for federal income tax purposes at March 31, 2012 was as follows*:
 
Cost of investments  $109,836,797  
Gross unrealized appreciation    9,181,928  
Gross unrealized depreciation    (1,019,958)  
Net unrealized appreciation   $8,161,970  
 
*Because tax adjustments are calculated annually, the above table reflects the tax adjustments outstanding at the Fund’s previous fiscal year end.  For the previous fiscal year’s federal income tax information, please refer to the Notes to Financial Statements section in the Fund’s most recent semi-annual or annual report.

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

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

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

 
 
 
 
SIGNATURES

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


(Registrant)       Special Opportunities Fund, Inc.                                                    

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

Date         May 24, 2012                                                                                                



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

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

Date         May 24, 2012                                                                                                

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

Date         May 25, 2012