|
Saba Capital
Income & Opportunities Fund
|
Notes
to Financial Statements
|
August
31, 2021
For
the six months ended August 31, 2021, the Fund had an average quarterly contract amount on forward foreign currency contracts
to buy and sell of $813,333 and $7,897,667, respectively. As of August 31, 2021 there were no open forward currency contract positions.
F.
Federal Income Taxes. It is the policy of the Fund to comply with the requirements of subchapter M of the Internal Revenue
Code that are applicable to regulated investment companies and to distribute substantially all of its net investment income and
any net realized capital gains to its shareholders. Therefore, a federal income tax or excise tax provision is not required. Management
has considered the sustainability of the Fund’s tax positions taken on federal income tax returns for all open tax years
in making this determination. No capital gain distributions shall be made until the capital loss carryforwards have been fully
utilized.
The
Fund may utilize equalization accounting for tax purposes, whereby a portion of redemption payments are treated as distributions
of income or gain.
G.
Distributions to Common Shareholders. The Fund will make monthly distributions to shareholders at an initial annual minimum
fixed rate of 8.00%, based on the average monthly net asset value of the Fund’s common shares. The Fund will calculate the
average net asset value from the previous month based on the number of Business Days in that month on which the net asset value
is calculated. The distribution will be calculated as 8.00% of the previous month’s average net asset value, divided by
twelve. The Fund will generally distribute amounts necessary to satisfy the Fund’s plan and the requirements prescribed
by excise tax rules and Subchapter M of the Internal Revenue Code. The plan is intended to provide shareholders with a constant,
but not guaranteed, fixed minimum rate of distribution each month and is intended to narrow the discount between the market price
and the net asset value of the Fund’s common shares, but there is no assurance that the plan will be successful in doing
so.
Under
the managed distribution plan, to the extent that sufficient investment income is not available on a monthly basis, the Fund will
distribute capital gains and/or return of capital in order to maintain its managed distribution rate. No conclusions should be
drawn about the Fund’s investment performance from the amount of the Fund’s distributions or from the terms of the
Fund’s managed distribution plan. The Board may amend the terms of the plan or terminate the plan at any time. The amendment
or termination of the plan could have an adverse effect on the market price of the Fund’s common shares. The plan will be
subject to the periodic review by the Board, including a yearly review of the annual minimum fixed rate to determine if an adjustment
should be made.
H
Dividend Reinvestments. Pursuant to the Fund’s Shareholder Reinvestment Program (the “Program”), ALPS
Fund Services, Inc. (“ALPS”), the Program administrator, purchases, from time to time, shares of beneficial interest
of the Fund on the open market to satisfy dividend reinvestments. Such shares are purchased on the open market only when the closing
sale or bid price plus commission is less than the NAV per share of the Fund’s Common Shares on the valuation date. If the
market price plus commissions is equal to or exceeds NAV, new shares are issued by the Fund at the greater of (i) NAV or (ii)
the market price of the shares during the pricing period, minus a discount of 5%.
I. Share Offerings. The Fund issues shares under various shelf registration statements, whereby the net proceeds received by the Fund from share sales may not be less than the greater of (i) the NAV per share or (ii) 94% of the average daily market price over the relevant pricing period.
J. Indemnifications. In the normal course of business, the Fund may enter into contracts that provide certain indemnifications. The Fund’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated; however, based on experience, management considers the risk of loss from such claims remote.
NOTE
3 — INVESTMENTS
For
the six months ended August 31, 2021, the cost of purchases and the proceeds from principal repayment and sales of investments,
excluding short-term notes, totaled $269,170,132 and $431,614,345, respectively. The fair value of these assets is established
as set forth in Note 2.
At
August 31, 2021, the Fund held senior loans valued at $243,847,593 representing 58.31% of its total net assets. The senior loans
acquired by the Fund typically take the form of a direct lending relationship with the borrower, and are typically acquired through
an assignment of another lender’s interest in a loan. The lead lender in a typical corporate loan syndicate administers
the loan and monitors the collateral securing the loan. In the event that the lead lender becomes insolvent, enters Federal Deposit
Insurance Corporation (“FDIC”) receivership or, if not FDIC insured, enters into bankruptcy, the Fund may incur certain
costs and delays in realizing payment, or may suffer a loss of principal and/or interest.
At
August 31, 2021 the Fund held corporate variable rate notes valued at $2,715,847 representing 0.65% of its total net assets. Changes
in short-term market interest rates will directly affect the yield on variable rate notes. If short-term market interest rates
fall, the yield on variable rate notes will also fall. To the extent that the interest rate spreads on loans in the Fund's portfolio
experience a general decline, the yield on the Common Shares will fall and the value of the Fund’s assets may decrease,
which will cause the Fund’s NAV to decrease. Conversely, when short-term market interest rates rise, because of the lag
between changes in such short-term rates and the resetting of the floating rates on assets in the Fund’s
portfolio, the impact of rising rates will be delayed to the extent of such lag. In the case of inverse securities, the interest
rate paid by such securities generally will decrease when the market rate of interest to which the inverse security is indexed
increases. With respect to investments in fixed rate instruments, a rise in market interest rates generally causes values of such
instruments to fall. The values of fixed rate instruments with longer maturities or duration are more sensitive to changes in
market interest rates.
30
|
Saba Capital
Income & Opportunities Fund
|
Notes
to Financial Statements
|
August
31, 2021
Certain
common and preferred stock, and stock purchase warrants held in the portfolio were acquired in conjunction with loans held by
the Fund. Certain stocks and warrants are restricted and may not be publicly sold without registration under the 1933 Act, or
without an exemption under the 1933 Act. In some cases, these restrictions expire after a designated period of time after issuance
of the shares or warrants.
At
August 31, 2021, the Fund held SPACs valued at $142,317,880 representing 34.03% of its total net assets. A SPAC is a publicly
traded company formed for the purpose of raising capital through an initial public offering to fund the acquisition, through a
merger, capital stock exchange, asset acquisition or other similar business combination, of one or more operating businesses that
are typically not publicly-listed. Following the acquisition of a target company, a SPAC's management team may exercise control
over the management of the combined company in an effort to increase its value. Often now, though, management of the target company
will continue to manage the now publicly-traded business subsequent to completion of its business combination with the SPAC. Capital
raised through the initial public offering of securities of a SPAC is typically placed into a trust account until acquired business
combination is completed or a predetermined period of time (typically 24 months) elapses. Shareholders in a SPAC would receive
a return on their investment in the event that a target company is acquired and the combined publicly-traded company's shares
trade above the SPAC's initial public offering ("IPO") price, or alternatively, the market price at which an investor
acquired a SPAC's shares subsequent to its IPO. In the event that a SPAC is unable to locate and acquire a target business by
the timeframe established at the time of its IPO, the SPAC would be forced to liquidate its assets, which may result in losses
due to the expenses and liabilities of the SPAC, to the extent third-parties are permitted to bring claims against IPO proceeds
held in the SPAC's trust account.
At
August 31, 2021, the Fund held Closed End Mutual Funds valued at $24,436,281 representing 5.84% of its total net assets. A closed-end
fund (CEF) or closed-ended fund is a collective investment issuing a fixed number of shares which are not redeemable from the
fund. Shares can be purchased and sold in the market and are subject to market fluctuations.
The
Fund may invest in warrants. The Fund may purchase warrants issued by domestic and foreign companies to purchase newly created
equity securities consisting of common and preferred stock. Warrants are securities that give the holder the right, but not the
obligation, to purchase equity issues of the company issuing the warrants, or a related company, at a fixed price either on a
certain date or during a set period. The equity security underlying a warrant is authorized at the time the warrant is issued
or is issued together with the warrant. Investing in warrants can provide a greater potential for profit or loss than an equivalent
investment in the underlying security and, thus, can be a speculative investment. At the time of issue, the cost of a warrant
is substantially less than the cost of the underlying security itself, and price movements in the underlying security are generally
magnified in the price movements of the warrant. The leveraging effect enables the investor to gain exposure to the underlying
security with a relatively low capital investment.
This
leveraging increases an investor’s risk, as a complete loss of the amount invested in the warrant may result in the event
of a decline in the value of the underlying security. In addition, the price of a warrant tends to be more volatile than, and
may not correlate exactly to, the price of the underlying security. If the market price of the underlying security is below the
exercise price of the warrant on its expiration date, the warrant will generally expire without value. The value of a warrant
may decline because of a decline in the value of the underlying security, the passage of time, changes in interest rates or in
the dividend or other policies of the company whose equity underlies the warrant, a change in the perception as to the future
price of the underlying security, or any combination thereof. Warrants generally pay no dividends and confer no voting or other
rights other than to purchase the underlying security. As of August 31, 2021, the Fund held warrants totaling $279,339.
The
Fund may sell a security it does not own in anticipation of a decline in the fair value of that security. When the Fund sells
a security short, it must borrow the security sold short and deliver it to the broker-dealer through which it made the short sale.
A gain, limited to the price at which the Fund sold the security short, or a loss, unlimited in size, will be recognized upon
the termination of the short sale.
The
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. The 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 value of the security sold short. The cash amount is reported on the Statement of Assets and Liabilities
as Deposit with broker for securities sold short which is held with one counterparty. The Fund is obligated to pay interest to
the broker for any debit balance of the margin account relating to short sales. The interest incurred by the Fund, if any, is
reported on the Statement of Operations as Interest expense – margin account. Interest amounts payable, if any, are reported
on the Statement of Assets and Liabilities as Interest payable – margin account.
|
Semi-Annual Report | August
31, 2021
|
31
|
|
Saba Capital
Income & Opportunities Fund
|
Notes
to Financial Statements
|
August
31, 2021
The
Fund may also sell a security short if it owns at least an equal amount of the security sold short or another security convertible
or exchangeable for an equal amount of the security sold short without payment of further compensation (a short sale against-the-box).
In a short sale against-the-box, the short seller is exposed to the risk of being forced to deliver stock that it holds to close
the position if the borrowed stock is called in by the lender, which would cause gain or loss to be recognized on the delivered
stock. The Fund expects normally to close its short sales against-the-box by delivering newly acquired stock. Since the Fund intends
to hold securities sold short for the short term, these securities are excluded from the purchases and sales of investment securities
in Note 4 and the Fund’s Portfolio Turnover in the Financial Highlights.
NOTE
4 — INVESTMENT MANAGEMENT FEES
The
Fund has entered into an investment management agreement (“Management Agreement”) with the Investment Adviser. The
Investment Adviser has overall responsibility for the management of the Fund. The Investment Adviser oversees all investment advisory
and portfolio management services for the Fund and assists in managing and supervising all aspects of the general day-to-day business
activities and operations of the Fund, including custodial, transfer agency, dividend disbursing, accounting, auditing, compliance
and related services. This Management Agreement compensates the Investment Adviser with a fee, computed daily and payable monthly,
at an annual rate of 1.05% of the Fund’s managed assets. For purposes of the Management Agreement, managed assets (“Managed
Assets”) are defined as the Fund’s average daily gross asset value, minus the sum of the Fund’s accrued and
unpaid dividends on any outstanding Preferred Shares and accrued liabilities (other than liabilities for the principal amount
of any borrowings incurred, commercial paper or notes issued by the Fund and the liquidation preference of any outstanding Preferred
Shares).
NOTE
5 — EXPENSE LIMITATION AGREEMENT
The
Investment Adviser has agreed to limit expenses, excluding interest, taxes, investor relations services, other investment-related
costs, leverage expenses, extraordinary expenses, other expenses not incurred in the ordinary course of such Fund’s business,
and expenses of any counsel or other persons or services retained by such Fund’s trustees who are not interested persons,
to 1.05% of Managed Assets plus 0.15% of average daily net assets.
The
Investment Adviser may at a later date recoup from the Fund for fees waived and/or other expenses reimbursed by the Investment
Adviser during the previous 36 months, but only if, after such recoupment, the Fund’s expense ratio does not exceed the
percentage described above. Waived and reimbursed fees net of any recoupment by the Investment Adviser of such waived and reimbursed
fees are reflected on the accompanying Statement of Operations. Amounts payable by the Investment Adviser are reflected on the
accompanying Statement of Assets and Liabilities.
Fees
and expenses waived by the previous advisor (Voya Investments, LLC) prior to June 4, 2021 are no longer recoupable. As of August
31, 2021, the amount of waived and/or reimbursed fees that are subject to recoupment by the Investment Adviser and the related
expiration dates are as follows:
|
|
|
|
August 31, 2021
|
|
|
|
|
|
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
Total
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
258,145
|
|
|
$
|
258,145
|
|
The
expense limitation agreement is contractual through July 1, 2022 and shall renew automatically for one-year terms. Termination
or modification of this obligation requires approval by the Board.
NOTE
6 — TRANSACTIONS WITH AFFILIATES AND OTHER PARTIES
At
August 31, 2021, entities advised by Saba Capital Management owned approximately 12.94% of the Fund.
The
previous advisor (Voya Investments, LLC) engaged in purchase and sale transactions with funds that have a common investment adviser
(or affiliated investment adviser) and/or have a common sub-adviser. These interfund transactions are made pursuant to Rule 17a-7
under the 1940 Act. For the six months ended August 31, 2021, the Fund engaged in such purchase and sale transactions totaling
$400,000 and $400,000, respectively.
32
|
Saba
Capital Income & Opportunities Fund
|
Notes
to Financial Statements
|
August
31, 2021
NOTE
7 — COMMITMENTS
Effective
July 20, 2021, the Fund has entered into a revolving credit agreement, collateralized by assets of the Fund, to borrow up to $200,000,000
million maturing July 19, 2022. Borrowing rates under this agreement are based on a fixed spread over LIBOR, and a commitment
fee is charged on the unused portion. The amount of borrowings outstanding at August 31, 2021, was $40,000,000 million. The weighted
average interest rate on outstanding borrowings at August 31, 2021 was 0.84%, excluding fees related to the unused portion of
the facilities, and other fees. The amount of borrowings represented 8.38% of total assets at August 31, 2021. Prepaid arrangement
fees are amortized over the term of the agreement. Average borrowings for the period ended August 31, 2021 were $13,313,953 and
the average annualized interest rate was 0.84% excluding other fees related to the unused portion of the facility, and other fees.
NOTE
8 — TENDER OFFER
On
June 21, 2021, the Fund announced that it would purchase for cash up to 30% of the Fund's shares, at a price equal to 99% of the
Trust's NAV per share as determined as of the close of the regular trading session of the NYSE on July 19, 2021 (the "Tender
Offer"). On July 19, 2021, 36,453,372 shares were accepted for repurchase by the Fund in accordance with the terms of the
Tender Offer. The shares were repurchased at a price of $4.851, or 99% of the Fund's NAV. The Tender Offer was oversubscribed
and all tenders of shares were subject to pro ration (at a ratio of approximately 0.48433) in accordance with the terms of the
Tender Offer.
NOTE
9 — CAPITAL SHARES
As
of August 31, 2021 there were 85,058,986 shares issued and outstanding. Transactions in capital shares and dollars were as follows:
|
Year or
|
Shares
repurchased
|
Shares
repurchased in
tender offer
|
Net
increase
(decrease) in
shares
outstanding
|
Shares
repurchased
|
Shares
repurchased in
tender offer
|
Net
increase
(decrease)
|
|
period ended
|
#
|
#
|
#
|
($)
|
($)
|
($)
|
|
8/31/2021
|
(329,217)
|
(36,453,372)
|
(36,782,589)
|
(1,536,542)
|
(176,835,308)
|
(178,371,850)
|
|
2/28/2021
|
(4,369,649)
|
(21,576,552)
|
(25,946,201)
|
(18,727,020)
|
(104,862,043)
|
(123,589,063)
|
Share
Repurchase Program
Prior
to June 4th, 2021 the previous advisor (Voya Investments, LLC) had a repurchase plan, pursuant to an open-market share repurchase
program, the Fund could purchase up to 10% of its stock in open-market transactions. The amount and timing of any repurchases
under the prior repurchase program were at the discretion of the Fund’s management, subject to market conditions and investment
considerations. The Fund may in the future elect to implement a new share repurchase program, the terms and conditions of which
would be subject to approval by its Board of Trustees. To the extent it implements such a plan, there can be no assurance that
the Fund would purchase shares at any particular discount level or in any particular amounts. In addition, any repurchases made
under a new share repurchase program would be made on a national securities exchange at the prevailing market price, subject to
exchange requirements and volume, timing and other limitations under federal securities laws. There can be no assurance when or
if such a new repurchase program may be implemented.
The
share repurchase program sought to enhance shareholder value by purchasing shares trading at a discount from their NAV per share.
The open-market share repurchase program did not obligate the Fund to repurchase any dollar amount or number of shares of its
stock.
For
the six months ended August 31, 2021, the Fund repurchased 329,217 shares, representing approximately 3.9% of the Fund’s
outstanding shares for a net purchase price of $1,536,542.
NOTE
10 — FEDERAL INCOME TAXES
The
amount of distributions from net investment income and net realized capital gains are determined in accordance with federal income
tax regulations, which may differ from GAAP for investment companies. These book/tax differences may be either temporary or permanent.
Permanent differences are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences
are not reclassified. Key differences include the treatment of foreign currency transactions, capital loss carryforwards, and
wash sale deferrals. Distributions in excess of net investment income and/or net realized capital gains for tax purposes are reported
as return of capital.
|
Semi-Annual Report | August
31, 2021
|
33
|
|
Saba Capital
Income & Opportunities Fund
|
Notes
to Financial Statements
|
August
31, 2021
Dividends
paid by the Fund from net investment income and distributions of net realized short-term capital gains are, for federal income
tax purposes, taxable as ordinary income to shareholders.
The
tax character of the distributions paid during the tax years ended February 29, 2020 and February 28, 2021, were as follows:
|
|
|
February 28, 2021
|
|
|
February 29, 2020
|
|
|
Distributions Paid From:
|
|
|
|
|
|
|
|
|
|
Ordinary Income
|
|
$
|
25,024,961
|
|
|
$
|
45,282,155
|
|
|
Net Long-Term Capital Gain
|
|
|
–
|
|
|
|
–
|
|
|
Return of Capital
|
|
|
1,234,296
|
|
|
|
–
|
|
|
Total Distributions Paid
|
|
$
|
26,259,257
|
|
|
$
|
45,282,155
|
|
As
of the year ended February 28, 2021, the components of distributable earnings (loss) on a tax basis were as follows:
|
|
|
Saba Capital Income &
Opportunities Fund
|
|
|
Undistributed ordinary income
|
|
$
|
(95,566
|
)
|
|
Accumulated capital and other losses
|
|
|
(166,051,142
|
)
|
|
Unrealized Appreciation (Depreciation)
|
|
|
(2,359,722
|
)
|
|
Distributable Earnings (Loss)
|
|
|
–
|
|
|
Total
|
|
$
|
(168,506,430
|
)
|
At
August 31, 2021, gross unrealized appreciation and depreciation of investments owned by the Fund, based on cost on investments
for federal income tax purposes were as follows:
|
|
|
Saba Capital Income &
Opportunities Fund
|
|
|
Cost of investments for income tax purposes
|
|
$
|
421,580,397
|
|
|
Gross appreciation (excess of value over tax cost)
|
|
$
|
6,464,836
|
|
|
Gross depreciation (excess of tax cost over value)
|
|
|
(6,911,814
|
)
|
|
Net unrealized depreciation
|
|
$
|
(446,978
|
)
|
The
differences between cost amounts for financial statement and federal income tax purposes is due primarily to timing differences
in recognizing certain gains and losses in security transactions.
As
of the period ended February 28, 2021, the Fund had non-expiring accumulated capital loss carryforwards as follows:
To
the extent that a fund may realize future net capital gains, those gains will be offset by any of its unused capital loss carryforward.
Future capital loss carryover utilization in any given year may be subject to Internal Revenue Code limitations.
|
Fund
|
|
Short Term
|
|
|
Long Term
|
|
|
Total
|
|
|
Saba Capital Income & Opportunities Fund
|
|
$
|
25,893,665
|
|
|
$
|
140,145,477
|
|
|
|
166,051,142
|
|
During
the year ended February 28, 2021, the Fund did not utilize any capital loss carryforward.
The
Fund’s major tax jurisdictions are U.S. federal and New York State.
As
of August 31, 2021, no provision for income tax is required in the Fund’s financial statements as a result of tax positions
taken on federal and state income tax returns for open tax years. The Fund’s federal and state income and federal excise
tax returns for tax years for which the applicable
statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state department of revenue.
Generally, the preceding four tax years remain subject to examination by these jurisdictions.
34
|
Saba Capital
Income & Opportunities Fund
|
Notes
to Financial Statements
|
August
31, 2021
NOTE
11 — LIBOR
The
U.K. Financial Conduct Authority has announced that it intends to stop persuading or compelling banks to submit LIBOR rates after
2021, and it remains unclear whether LIBOR will continue to exist after that date and, if so, in what form. Actions by regulators
have resulted in the establishment of alternative reference rates to LIBOR in many major currencies. The U.S. Federal Reserve
Board, based on the recommendations of the New York Federal Reserve’s Alternative Reference Rate Committee (comprised of
major derivative market participants and their regulators), has begun publishing a Secured Overnight Funding Rate (“SOFR”)
that is intended to replace U.S. dollar LIBOR. Proposals for alternative reference rates for other currencies have also been announced
or have already begun publication.
Discontinuance
of LIBOR and adoption/implementation of alternative rates pose a number of risks, including among others whether any substitute
rate will experience the market participation and liquidity necessary to provide a workable substitute for LIBOR; the effect on
parties’ existing contractual arrangements, hedging transactions, and investment strategies generally from a conversion
from LIBOR to alternative rates; the effect on the Fund’s existing investments (including, for example, fixed-income investments;
senior loans; CLOs and CDOs; and derivatives transactions), including the possibility that some of those investments may terminate
or their terms may be adjusted to the disadvantage of the Fund; and the risk of general market disruption during the period of
the conversion. It is difficult to predict at this time the likely impact of the transition away from LIBOR on the Fund. On November
30, 2020, the administrator of LIBOR announced a delay in the phase out of a majority of the U.S. dollar LIBOR publications until
June 30, 2023, with the remainder of LIBOR publications to still end at the end of 2021.
NOTE
12 — MARKET DISRUPTION
The
Fund is subject to the risk that geopolitical events will disrupt securities markets and adversely affect global economies and
markets. Due to the increasing interdependence among global economies and markets, conditions in one country, market, or region
might adversely impact markets, issuers and/or foreign exchange rates in other countries, including the United States. War, terrorism,
global health crises and pandemics, and other geopolitical events have led, and in the future may lead, to increased market volatility
and may have adverse short- or long-term effects on U.S. and world economies and markets generally. For example, the COVID-19
pandemic has resulted, and may continue to result, in significant market volatility, exchange trading suspensions and closures,
declines in global financial markets, higher default rates, and a substantial economic downturn in economies throughout the world.
Natural and environmental disasters and systemic market dislocations are also highly disruptive to economies and markets. Those
events as well as other changes in non-U.S. and domestic economic, social, and political conditions also could adversely affect
individual issuers or related groups of issuers, securities markets, interest rates, credit ratings, inflation, investor sentiment,
and other factors affecting the value of the investments of the portfolio and of the Fund. Any of these occurrences could disrupt
the operations of the Fund and of the Fund’s service providers.
NOTE
13 — OTHER ACCOUNTING PRONOUNCEMENTS
In
March 2020, the Financial Accounting Standards Board issued Accounting Standards Update No. 2020-04 (“ASU 2020-04”),
Reference Rate Reform (Topic 848) — Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments
in ASU 2020-04 provide optional temporary financial reporting relief from the effect of certain types of contract modifications
due to the planned discontinuation of LIBOR and other interbank-offered based reference rates as of the end of 2021. ASU 2020-04
is effective for certain reference rate-related contract modifications that occur during the period March 12, 2020 through December
31, 2022.
|
Semi-Annual Report | August
31, 2021
|
35
|
|
Saba Capital
Income & Opportunities Fund
|
Notes
to Financial Statements
|
August
31, 2021
NOTE
14 — SUBSEQUENT EVENTS
Subsequent
to August 31, 2021, the fund paid the following dividends:
|
Per
Share Amount
|
Declaration
Date
|
Record
Date
|
Payable
Date
|
|
$0.033
|
8/31/21
|
9/10/21
|
9/23/21
|
|
$0.033
|
9/30/21
|
10/12/21
|
10/25/21
|
Shareholder
Meeting
On
September 24, 2021, the Funds held their annual meeting of Shareholders for the purpose of voting on a proposal to elect Trustees
of the Funds. 93,269,842 of the 121,512,358 shares outstanding voted (76.7%).
The
results of the proposal for each were as follows:
|
Trustees/Directors
|
Vote
|
Shares
Voted
|
%
Voted
|
%
of Total Outstanding
|
|
Aditya Bindal
|
For
|
74,623,231
|
80%
|
61%
|
|
|
Withheld
|
18,646,611
|
20%
|
15%
|
|
Karen Caldwell
|
For
|
88,574,651
|
95%
|
73%
|
|
|
Withheld
|
4,695,191
|
5%
|
4%
|
|
Ketu Desai
|
For
|
88,808,460
|
95%
|
73%
|
|
|
Withheld
|
4,461,382
|
5%
|
4%
|
|
Kieran Goodwin
|
For
|
87,098,602
|
93%
|
72%
|
|
|
Withheld
|
6,171,240
|
7%
|
5%
|
|
Thomas Bumbolow
|
For
|
88,798,144
|
95%
|
73%
|
|
|
Withheld
|
4,471,698
|
5%
|
4%
|
|
Andrew Kellerman
|
For
|
74,676,754
|
80%
|
61%
|
|
|
Withheld
|
18,593,088
|
20%
|
15%
|
The
Fund has evaluated events occurring after the Statement of Assets and Liabilities date through the date that the financial statements
were issued (“Subsequent Events”) to determine whether any subsequent events necessitated adjustment to or disclosure
in the financial statements. Other than the above, no such subsequent events were identified.
36
Saba Capital
Income &
Opportunities Fund
|
Board
Considerations Regarding Approval
of Investment Advisory Agreement
|
August
31, 2021
At
an executive session of the Board of Trustees (the “Board”) of Saba Capital Income & Opportunities Fund (the “Fund”),
the Board formed a Special Planning Committee (the “SPC”) to, among other things, review and make recommendations
regarding the Fund including, conducting a search for a new investment manager. After an extensive process, the SPC recommended
to the Board, including all of the Non-interested Trustees, that they consider approving the new investment management agreement
(the “New Management Agreement”). At a special meeting of the Board held on March 22, 2021, the Board, including all
of the Non-interested Trustees, determined to select Saba Capital Management, LP (“Saba”) as the new investment adviser
to the Fund, and at a subsequent special meeting of the Board held on April 1, 2021, considered and approved the New Management
Agreement. At the special meeting of shareholders held in May, the Fund's shareholders approved Saba as the Fund's new investment
adviser. In determining to approve the New Management Agreement, the Board discussed and considered materials which had been distributed
to them in advance of the meeting and prepared by Saba, including responses to a questionnaire provided by the Fund’s independent
counsel with respect to certain matters that counsel believed relevant to the approval of the New Management Agreement under Section
15 of the Investment Company Act of 1940. In addition, the Board met with representatives from Saba and had the opportunity to
ask them questions.
In
its deliberations, the Board did not identify any single factor as being determinative. Rather, the Board’s approval was
based on each Trustee’s business judgment after consideration of the information as a whole. Individual Trustees may have
weighed certain factors differently and assigned varying degrees of materiality to information considered by the Board.
The
principal factors and conclusions that formed the basis for the Trustees’ determinations to approve the renewal of the New
Management Agreement are discussed below.
Nature,
Extent and Quality of Services. The Board considered the nature, extent and quality of services proposed to be provided
to the Fund under the New Management Agreement. The Board discussed the prior experience of Saba with respect to managing certain
private investment funds and separately managed accounts and, with respect to an ETF, serving as the sub-adviser, each such investment
product with investment strategies similar to the strategy proposed by Saba for the Fund. The Board discussed the written information
provided by Saba and the information presented orally at the Meeting by Saba, including information with respect to its anticipated
profitability, compliance program, insurance arrangements, personnel and portfolio management, risk management policies, brokerage
allocation and soft dollar practices. The Board concluded that, overall, they were satisfied with the nature, extent and quality
of services expected to be provided to the Fund by Saba under the proposed New Management Agreement.
Performance.
In considering whether to approve the New Management Agreement, the Board reviewed the investment performance over the
past year, three-year, five-year and since-inception periods of two of Saba’s accounts having a similar investment strategy
as the strategy proposed for the Fund, and an example provided by Saba using a combination of the two portfolios, which Saba believed
more accurately reflects the proposed investment strategy for the Fund. The Board expressed their belief that given Saba’s
historical reported returns for other investment products that they advise and, based on the estimated higher Sharpe ratio for
the combined portfolio, they anticipated that Saba should be able to provide the Fund and its shareholders with superior risk-adjusted
returns. The Sharpe ratio represents the additional amount of return that an investor receives per unit of increase in risk (defined
as the difference between the return of the portfolio and the risk-free rate of return, divided by the standard deviation of the
portfolio). The Board also noted the experience of the principals of Saba in managing securities portfolios, as well as their
longstanding experience in seeking out opportunities in the market that have attractive risk reward characteristics.
Fees
and Expenses. In reviewing the anticipated fees and expenses for the Fund, the Board noted that the proposed management
fee would remain the same as the current management fee payable under the Fund’s investment management agreement with the
current manager which included fees paid to the manager’s affiliated sub-adviser for day to day management of the Fund’s
portfolio. The Board also noted that Saba proposed entering into an expense limitation agreement with the Fund such that the expense
limitation currently in place would remain unchanged. The Board considered that the proposed management fee was comparable to
fees paid by other funds in the Fund’s Peer Group, a group consisting of the Fund and ten other bank loan funds, as identified
by Broadridge Financial Solutions, Inc., an independent third party data provider that provided the Board in November, 2020 with
such comparative data, and that it would be among the lowest total fees that Saba receives across its platform for providing similar
investment management services. The Board separately determined that the proposed management fee payable to Saba was not unreasonable
in light of the nature, extent and quality of the services that Saba is expected to provide. Based on the factors above, the Board
concluded that the management fee was not unreasonable.
Profitability.
Saba provided the Board with a summary and analysis of the Saba’s anticipated costs and pre-tax profitability with
respect to the management of the Fund for the first twelve month and first twenty-four month periods. The Board was satisfied
with Saba’s estimates regarding the level of profitability that it was seeking from managing the Fund and that the projections
were sufficient and appropriate to provide the necessary advisory and management services to the Fund. The Board concluded that
the Saba’s projected profitability from its relationship with the Fund, after taking into account a reasonable allocation
of costs, was not excessive.
|
Semi-Annual Report | August
31, 2021
|
37
|
Saba Capital
Income &
Opportunities Fund
|
Board
Considerations Regarding Approval
of Investment Advisory Agreement
|
August
31, 2021
Economies
of Scale. The Board considered whether Saba would realize economies of scale with respect to the management services provided
to the Fund. The Board noted that the Fund, as a closed-end fund, generally does not issue new shares and is less likely to realize
economies of scale from additional share purchases. The Board considered that Saba believed that there could be economies of scale
realized if the Fund did grow in size and there was an opportunity for Saba to push certain third-party service provider fees
down and negotiate for certain lower fees in the service contracts with these third parties. The Board also considered the extent
to which economies of scale realized by Saba could be shared with the Fund through fee waivers and expense reimbursements.
Other
Benefits. The Board considered the character and amount of other direct and incidental benefits to be received by Saba
and its affiliates from their association with the Fund. The Board considered that Saba anticipated no other sources of income
or benefit in connection with managing the Fund and did not expect to market the Fund to its existing private clients or use soft
dollars to any notable extent.
Conclusion.
The Board, having requested and received such information from Saba as it believed reasonably necessary to evaluate the
terms of the New Management Agreement, and having been advised by its Independent Counsel that the Board had appropriately considered
and weighed all relevant factors, determined that approval of the New Management Agreement was in the best interests of the Fund
and its shareholders. In considering the approval of the New Management Agreement, the Board considered a variety of factors,
including those discussed above, and also considered other factors (including conditions and trends prevailing generally in the
economy, the securities markets, and the closed-end fund industry). None of the factors weighed against the approval of the New
Management Agreement. The Board did not identify any one factor as determinative, and different Board members may have given different
weight to different individual factors and related conclusions.
38
|
Saba Capital
Income & Opportunities Fund
|
Additional
Information
|
August
31, 2021
PROXY
VOTING INFORMATION
A
description of the policies and procedures that the Fund uses to determine how to vote proxies related to portfolio securities
is available: (1) without charge, upon request, by calling Shareholder Services toll-free at 1-212-542-4644; (2) on the Fund’s
website at www.sabacef.com and (3) on the SEC’s website at www.sec.gov. Information regarding how the Fund voted proxies
related to portfolio securities during the most recent 12-month period ended August 31 is available without charge on the Fund’s
website at www.sabacef.com and on the SEC’s website at www.sec.gov.
QUARTERLY
PORTFOLIO HOLDINGS
The
Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form
NPORT-P. The Fund’s Forms NPORT-P are available on the SEC’s website at www.sec.gov. The Fund’s complete schedule
of portfolio holdings is available at: www.sabacef.com and without charge upon request from the Fund by calling Shareholder Services
toll-free at 1-212-542-4644.
|
Semi-Annual Report | August
31, 2021
|
39
|
This
material must be accompanied or preceded by a prospectus.