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Special Opportunities Fund Inc.’s June 2019 Semi Annual Report

Special Opportunities Fund, Inc. is a Milwaukee-based closed-end diversified management investment company incorporated in Maryland in 1993. It was formerly known as Insured Municipal Income Fund Inc. until it changed its name and investment objective in 2009. Bulldog Investors LLC acts as the fund’s investment advisor and is known for utilizing opportunistic investment philosophy and focusing on investing in undervalued businesses, discounted closed-end funds, distressed securities, and risk arbitrage.

The fund’s Chairman is Phillip Goldstein. A former civil engineer, Goldstein also manages Bulldog Investors, a hedge fund that is known for utilizing value-driven investment strategies, running activist investment campaigns, and investing in closed-end mutual funds. Goldstein holds a bachelor’s degree in Engineering from the University of Southern California and a master’s degree in Engineering from the City College of New York.

In SOF’s most recent semi-annual report, Goldstein reported that the fund’s net asset value (NAV) per common share as of June 30, 2019 was $15.50 (was $13.78 as of December 31, 2018). Despite the 14.7% NAV increase, the fund underperformed S&P 500 Index’s 18.54%. Goldstein explained that the reason behind SOF’s underperformance was its less volatile and more diversified portfolio (by asset class).

As of June 30, SOF reportedly had large investments in 5 closed-end funds with diversified portfolios in U.S. equities namely Adams Diversified Equity (ADX), Boulder Growth & Income (BIF), Central Securities (CET), General American Investors (GAM), and Source Capital (SOR). Goldstein also gave updates about the fund’s significant position in the semi-annual report – a copy of which can be downloaded below.

“Dear Fellow Shareholder:

On April 1, 2019, Special Opportunities Fund announced that, for the remainder of 2019, it would pay monthly distributions of 7.6 cents per share to common stockholders, which represents an annual rate of 6% (or 0.5% per month) based upon the net asset value (NAV) as of March 29, 2019. Beginning in January 2020, the Fund intends to make monthly distributions to common stockholders at an annual rate of 6%, based on the NAV as of the close of business on the last business day of the previous year.

As of June 30, 2019, the Fund’s NAV per common share was $15.50 compared to $13.78 as of December 31, 2018. After accounting for the three monthly dividends paid in the second quarter of 2019, the NAV increased by 14.17% vs. 18.54% for the S&P 500 Index. Our underperformance is primarily due to having a portfolio that is more diversified by asset class (and less volatile) than the S&P 500 Index, which consists mainly of large cap equities.

Here are updates on some of our significant positions.

As of June 30, 2019, the Fund had relatively large positions in five closed-end funds with diversified portfolios primarily in U.S. equities and whose shares are trading at double-digit discounts to their NAV. They were Central Securities (CET), General American Investors (GAM), Boulder Growth & Income (BIF), Source Capital (SOR), and Adams Diversified Equity (ADX). We see these investments as a way to get broad-based exposure to U.S. equities at a discount.

We have been increasing our exposure to selected business development companies (BDCs) whose shares trade at discounts from NAV that we think are unwarranted. In some cases, stockholders of these BDCs have advocated share repurchases or other corporate actions that could result in a narrower discount and therefore, a higher stock price. Indeed, recently there have been a number of mergers and other transactions in the BDC space and we expect the trend to continue. As of June 30, 2019, some of the BDCs whose shares the Fund owned were: Barings BDC (BBDC), Garrison Capital (GARS), FS KKR Capital (FSK), Apollo Investment (AINV), WhiteHorse Finance (WHF), and Portman Ridge Finance (PTMN). In addition, MVC Capital (MVC), a long term holding for the Fund, has committed to transforming itself from an equity oriented BDC to one that is income oriented. As that objective becomes closer to fruition, the dividend should grow which will hopefully result in a significant narrowing of the discount to NAV, which is currently about 30%.

As we expected, earlier this year we were able to sell all of our shares of High Income Securities Fund (PCF) in a self-tender offer at 99% of NAV.”

You can download a copy of Special Opportunities Fund, Inc.’s June 2019 Semi-annual Report here:

Special Opportunities Fund, Inc.’s June 2019 Semi-annual Report

You can also see the list of our 2019 Q2 investor letters and download them on this page.

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