1933
Act File No. 333-258181
1940
Act File No. 811-22299
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
N-2
(Check
appropriate box or boxes)
[X]
|
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
|
[X]
|
Pre-Effective Amendment No. 5
|
[ ]
|
Post-Effective Amendment No.
|
And
[X]
|
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
|
[X]
|
Amendment No. 5
|
RENN
Fund, Inc.
470
Park Avenue South
New
York, NY 10016
(241)
891-8294
Registrant’s
Telephone Number
UMB
Fund Services (“UMB”) – c/o RENN Fund, Inc., 235 W. Galena Street, Milwaukee, WI 53212-3949
Copies of Communications to:
Monica
L. Parry
Morgan, Lewis & Bockius LLP
1111 Pennsylvania Avenue, NW
Washington, DC 20004-2541
Approximate
Date of Proposed Public Offering: As soon as practicable after the effective date of this Registration Statement.
[ ] Check
box if the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans.
[ ] Check
box if any securities being registered on this Form will be offered on a delayed or continuous basis in reliance on
Rule 415 under the Securities Act of 1933 (“Securities Act”), other than securities offered in connection with
a dividend reinvestment plan.
[ ] Check
box if this Form is a registration statement pursuant to General Instruction A.2 or a post-effective amendment thereto.
[ ] Check
box if this Form is a registration statement pursuant to General Instruction B or a post-effective amendment thereto that will
become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act.
[ ] Check
box if this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction B to register
additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act.
It
is proposed that this filing will become effective (check appropriate box):
[X] when
declared effective pursuant to Section 8(c) or as follows:
If
appropriate, check the following box:
[ ] This
[post-effective] amendment designates a new effective date for a previously filed [post-effective amendment] [registration statement].
[ ] This
Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, and the Securities
Act registration statement number of the earlier effective registration statement for the same offering is: ______.
[ ] This
Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, and the Securities Act registration
statement number of the earlier effective registration statement for the same offering is: ______.
[ ] This
Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, and the Securities Act registration
statement number of the earlier effective registration statement for the same offering is: ______.
Check
each box that appropriately characterizes the Registrant:
[X] Registered
Closed-End Fund (closed-end company that is registered under the Investment Company Act of 1940 (“Investment Company Act”)).
[ ] Business
Development Company (closed-end company that intends or has elected to be regulated as a business development company under the
Investment Company Act).
[ ] Interval
Fund (Registered Closed-End Fund or a Business Development Company that makes periodic repurchase offers under Rule 23c-3 under
the Investment Company Act).
[ ] A.2
Qualified (qualified to register securities pursuant to General Instruction A.2 of this Form).
[ ] Well-Known
Seasoned Issuer (as defined by Rule 405 under the Securities Act).
[ ] Emerging
Growth Company (as defined by Rule 12b-2 under the Securities Exchange Act of 1934 (“Exchange Act”).
[ ] If
an Emerging Growth Company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of Securities Act.
[ ] New
Registrant (registered or regulated under the Investment Company Act for less than 12 calendar months preceding this filing).
CALCULATION
OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Title
of Securities Being Registered
|
Amount
Being Registered
|
Proposed
Maximum Offering Price Per Unit
|
Proposed
Maximum Aggregate Offering Price(1)
|
Amount
of Registration Fee
|
Common
Stock, $1.00 par value per share
|
1,063,830
|
$2.82
|
$
3,000,001
|
$278.10(3)
|
Rights
to purchase common stock(2)
|
3,191,490
|
—
|
—
|
—
|
(1)
|
Estimated solely for the purpose of calculating
the registration fee as required by Rule 457(o) under the Securities Act of 1933 based upon the closing price reported on
the New York Stock Exchange consolidated reporting system of $ 2.63 on September 30, 2021.
|
(2)
|
Evidencing the rights to subscribe for shares
of common stock of the Registrant being registered herewith. Pursuant to Rule 457(g) of the Securities Act of 1933, no separate
registration fee is required for the rights because the rights are being registered in the same registration statement as
the common stock of the Registrant underlying the rights.
|
(3)
|
Registration fee was previously paid.
|
Pursuant
to Rule 473 under the Securities Act of 1933, as amended, the Registrant hereby amends the Registration Statement to delay its
effective date until the Registrant shall file a further amendment that specifically states that the Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine.
RENN
Fund, Inc.
3
Rights for 1 Share of Common Stock
RENN
Fund, Inc. (the “Fund”) is issuing non-transferable rights (“Rights”) to its holders of record of shares
of common stock (“Common Stock”) (such holders hereinafter referred to as “Stockholders”) which Rights
will allow Stockholders to subscribe for new shares (the “Offering”). For every three (3) Rights a Stockholder receives,
such Stockholder will be entitled to buy one (1) new share. Each Stockholder will receive one Right for each outstanding share
such Stockholder owns on December 10, 2021 (the “Record Date”). Fractional shares will not be issued upon the exercise
of the Rights. Accordingly, the number of Rights to be issued to a Stockholder on the Record Date will be rounded up to the nearest
whole number of Rights evenly divisible by 3. Stockholders on the Record Date may purchase shares not acquired by other Stockholders
in this Rights offering, subject to certain limitations discussed in this Prospectus. Additionally, Horizon Kinetics Asset Management
LLC (“Horizon”) will purchase any shares not otherwise acquired by other Stockholders in this Rights offering. See
“The Offering” below.
The
Rights are non-transferable, and may not be purchased or sold. Rights will expire without residual value at the Expiration Date
(defined below). Sales of common stock at prices below net asset value per share dilute the interests of existing stockholders,
have the effect of reducing the Fund’s net asset value per share and may reduce the Fund’s market price per share.
The Rights will not be listed for trading on the NYSE American LLC (“NYSE American”), and there will not be any market
for trading Rights. The shares to be issued pursuant to the Offering will be listed for trading on the NYSE American, subject
to the NYSE American being officially notified of the issuance of those shares. On October 18, 2021, the last reported net asset
value (“NAV”) per share was $ 2.94 and the last reported sales price per share on the NYSE American was $ 2.54, which
represents a -13.58% discount to the Fund’s NAV per share. The subscription price per share (the “Subscription Price”)
will be the lesser of:
(i)
105% of the average closing NAV per share over the three days of trading leading up to and including the expiration of the Offering;
or
(ii)
90% of the average closing market price per share over the three days of trading leading up to and including the expiration of
the Offering. The considerable number of shares that may be issued as a result of the Offering may cause the discount below NAV
at which the Fund’s shares are currently trading to increase, especially if Stockholders exercising the Rights attempt to
buy sizeable numbers of shares immediately after such issuance.
The
offering may substantially dilute the aggregate net asset value of the shares owned by Stockholders who do not fully exercise
their rights. Stockholders should expect upon completion of the offering to own a smaller proportional interest in the Fund than
before the offering if they do not fully execute their rights.
STOCKHOLDERS
WHO CHOOSE TO EXERCISE THEIR RIGHTS WILL NOT KNOW THE SUBSCRIPTION PRICE PER SHARE AT THE TIME THEY EXERCISE SUCH RIGHTS BECAUSE
THE OFFERING WILL EXPIRE (I.E., CLOSE) PRIOR TO THE AVAILABILITY OF THE FUND’S NAV AND OTHER RELEVANT MARKET INFORMATION
ON THE EXPIRATION DATE. ONCE A STOCKHOLDER SUBSCRIBES FOR SHARES AND THE FUND RECEIVES PAYMENT, SUCH STOCKHOLDER WILL NOT BE ABLE
TO CHANGE HIS, HER OR ITS DECISION. THE OFFERING WILL EXPIRE AT 5:00 P.M., EST, ON JANUARY 21, 2022 (THE “EXPIRATION DATE”),
UNLESS EXTENDED, AS DISCUSSED IN THIS PROSPECTUS.
The
Fund is a non-diversified, closed-end management investment company. The Fund’s investment objective is to seek to achieve
above-market rates of return through capital appreciation and income. The Fund seeks to achieve its investment objective through
a long-term, value-oriented investment process. There can be no assurance that the Fund’s objective will be achieved.
For
more information, please call AST Fund Solutions LLC (the “Information Agent”) at (800) 628-8509.
Investing
in the Fund involves risks, including the specific risks relating to investments in cryptocurrencies. See “Risk Factors”
on page 31 of this prospectus.
|
Estimated Subscription
Price(1)
|
Estimated Sales Load
|
Estimated Subscription
Proceeds to Fund(2)
|
Per share
|
$ 2.82
|
None
|
$ 3,000,001
|
Total
|
$ 2.82
|
None
|
$ 3,000,001
|
(1)
|
Because the Subscription
Price will not be determined until after printing and distribution of this prospectus, the “Estimated Subscription Price”
above is an estimate of the subscription price based on the average of the Fund’s per-share NAV and market price over
the three days of trading leading up to and including the close of trading on November 17, 18, and 19, 2021. See “The
Offering - Subscription Price” and “The Offering - Payment for Shares.”
|
(2)
|
Fees and expenses
incurred by the Fund in connection with the Offering will be paid for by Horizon, the investment manager to the Fund. Therefore,
the full amount of subscription proceeds will be contributed to the Fund’s assets. Funds received prior to the final
due date of this Offering will be deposited in a segregated account pending allocation and distribution of shares. Interest,
if any, on subscription monies will be paid to the Fund regardless of whether shares are issued by the Fund; interest will
not be used as credit toward the purchase of shares.
|
This
prospectus contains important information that you should know before investing in the Fund. Please read it before making an investment
decision and keep it for future reference. The Fund files annual, quarterly and current reports, proxy statements and other information
with the Securities and Exchange Commission (the “SEC”). You may make inquiries or obtain this information free of
charge by writing to Renn Fund, Inc., c/o Horizon Kinetics Asset Management LLC, 470 Park Avenue South, New York, NY 10016, or
by calling (646) 291-2300. Our Internet address is http://www.rencapital.com. Information contained on our website is not
incorporated by reference into this prospectus and you should not consider information contained on our website to be a part of
this prospectus. You may also obtain information about us from our website and the SEC’s website (http://www.sec.gov).
Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined
if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The
date of this prospectus is December 2, 2021.
The
Fund’s Shares are listed on the NYSE American under the ticker symbol RCG.
Investment
Adviser. Horizon Kinetics Asset Management LLC (the “Adviser”) acts as the Fund’s investment adviser. See
“Management of the Fund.” As of September 30, 2021, the Adviser, along with its affiliated investment advisers, managed
nine open-end funds as well as separate accounts and private funds with combined assets with the Fund of approximately $6.53 billion.
The Adviser’s address is 470 Park Avenue South, Third Floor South, New York, NY 10016.
The
Fund organized and wholly owns The Renn Fund, Inc. (Cayman) (the “Subsidiary”), a Cayman Islands limited liability
company. The Subsidiary is advised by Horizon and acts as an investment vehicle in order to effect certain investments consistent
with the Fund’s investment objectives and policies specified in the Fund’s prospectus and statement of additional
information.
This
prospectus sets forth concisely the information about the Fund that you should know before deciding whether to invest in the Fund. A
Statement of Additional Information, dated December 2, 2021, (the “Statement of Additional Information”), and other materials,
containing additional information about the Fund, have been filed with the SEC. The Statement of Additional Information is incorporated
by reference in its entirety into this prospectus, which means it is considered to be part of this prospectus. You may obtain a free
copy of the Statement of Additional Information and other information filed with the SEC, by calling toll free (800) 628-8509 or by writing
to American Stock Transfer & Trust Company, LLC, 6201 15th Avenue, Brooklyn, NY 11219, or by visiting the Fund’s
website at http://www.rencapital.com. The Fund files annual and semi-annual stockholder reports, proxy statements and other information
with the SEC. You can obtain this information or the Fund’s Statement of Additional Information or any information regarding the
Fund filed with the SEC from the SEC’s website at www.sec.gov.
The
Fund’s Shares do not represent a deposit or obligation of, and are not guaranteed or endorsed by, any bank or other insured
depository institution, and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any governmental agency.
You
should rely only on the information contained or incorporated by reference in this prospectus. The Fund has not authorized anyone
to provide you with different information. The Fund is not making an offer to sell these securities in any jurisdiction where
the offer or sale is not permitted. The information contained in this prospectus is accurate only as of the date of this prospectus.
The Fund will amend this prospectus if, during the period this prospectus is required to be delivered, there are any material
changes to the facts stated in this prospectus subsequent to the date of this prospectus.
TABLE
OF CONTENTS
|
Page
|
SUMMARY
|
6
|
SUMMARY OF FUND EXPENSES
|
15
|
THE FUND
|
16
|
THE OFFERING
|
17
|
FINANCIAL HIGHLIGHTS
|
25
|
USE OF PROCEEDS
|
27
|
INVESTMENT OBJECTIVE AND POLICIES
|
27
|
RISK FACTORS
|
36
|
LISTING OF SHARES
|
43
|
MANAGEMENT OF THE FUND
|
43
|
DETERMINATION OF NET ASSET VALUE
|
47
|
SALES OF COMMON STOCK BELOW NET ASSET VALUE
|
47
|
DISTRIBUTION REINVESTMENT PLAN
|
49
|
CERTAIN ADDITIONAL MATERIAL UNITED STATES
FEDERAL INCOME TAX CONSIDERATIONS
|
50
|
DESCRIPTION OF CAPITAL STRUCTURE
|
55
|
LEGAL MATTERS
|
57
|
REPORTS TO STOCKHOLDERS
|
57
|
INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
|
57
|
ADDITIONAL INFORMATION
|
57
|
SUMMARY
This
summary does not contain all of the information that you should consider before investing in the Fund. You should review the more
detailed information contained or incorporated by reference in this prospectus and in the Statement of Additional Information,
particularly the information set forth under the heading “Risk Factors.”
The
Fund. The Fund, a Texas corporation organized on January 20, 1994, is a non-diversified, closed-end management investment
company. The investment objective of the Fund is to seek to achieve above-market rates of return through capital appreciation
and income. The Fund pursues this objective by investing in a wide variety of financial instruments, including, but not limited
to, common stocks, fixed income securities, convertible and non-convertible debt securities or loans, distressed debt, warrants
and preferred stock, exchange traded funds (“ETFs”) and exchange traded notes (“ETNs”) , open and
closed-end funds, derivatives including options and swaps, the Grayscale Bitcoin Trust and other instruments and securities
that may or may not be listed on a regulated securities exchange.
|
The
Offering. The Fund is issuing non-transferable rights (“Rights”) to its
Stockholders as of the close of business on December 10, 2021 (the “Record Date”)
which Rights will allow Stockholders to subscribe for an aggregate of 1,063,830 shares
(the “Offering”). For every 3 Rights a Stockholder receives, such Stockholder
will be entitled to buy 1 new share at a subscription price equal to the lesser of (i)
105% of average closing NAV per share over the three days of trading leading up to and
including the expiration of the Expiration Date; or (ii) 90% of the average closing market
price per share over the three days of trading leading up to and including the Expiration
Date. Each Stockholder will receive 1 Right for each outstanding share he or she owns
on the Record Date (the “Basic Subscription”). Fractional shares will not
be issued upon the exercise of the Rights. Accordingly, the number of Rights to be issued
to a Stockholder as of the Record Date will be rounded up to the nearest whole number
of Rights evenly divisible by 3. Stockholders as of the Record Date may purchase shares
not acquired by other Stockholders in this Rights offering, subject to certain limitations
discussed in this prospectus. Additionally, Horizon will purchase any shares not otherwise
acquired by other Stockholders in this Rights offering.
Shares
will be issued within the 30-day period immediately following the record date of the Fund’s monthly distribution
and Stockholders exercising rights will not be entitled to receive such distribution with respect to the shares issued
pursuant to such exercise.
The
Fund previously conducted a rights offering that expired on February 8, 2019 (the “2019 Offering”) and included similar
terms and conditions as this Offering. Pursuant to the 2019 Offering, the Fund issued 1,487,989 Shares in fulfillment of Basic
Subscription requests at a subscription price of $1.47 per Share, for a total offering of $2.187 million.
|
How
to Exercise Rights. Rights may be exercised by filling in and signing the reverse side of the Subscription Certificate
and mailing it in the envelope provided, or otherwise delivering the completed and signed Subscription Certificate to American
Stock Transfer & Trust Company, LLC (the “Subscription Agent”), together with payment for the shares as described
below under “Payment for Shares.” Rights may also be exercised through a Rights holder’s broker, who may
charge the Rights holder a servicing fee in connection with such exercise. See “The Offering – Method of Exercising
Rights.”
|
Purpose
of the Offering. At its meeting held on June 11, 2021, the Board of Directors determined
that the Offering was in the best interests of the Fund and its Stockholders to increase
the assets of the Fund. The primary reasons include:
●
The Basic Subscription will provide existing Stockholders an opportunity to purchase additional shares at a price that
is potentially below market value without incurring any commission or transaction charges.
●
Raising more cash will better position the Fund to take advantage of investment opportunities that exist or may arise.
●
Increasing Fund assets may lower the Fund’s expenses as a proportion of net assets because the Fund’s fixed
costs would be spread over a larger asset base. There can be no assurance that by increasing the size of the Fund, the
Fund’s expense ratio will be lowered. However, increasing the Fund’s assets could result in a benefit to the
Fund’s Adviser because the Management fee that is paid to the Adviser increases as the Fund’s net assets increase,
but only when net assets increase to $25 million, as the Adviser is not paid any management fee on assets below that level.
●
Because the Offering will increase the Fund’s outstanding shares, it may increase the number of Stockholders over
the long term, which could increase the level of market interest in and visibility of the Fund and improve the trading liquidity
of the shares on the NYSE American.
|
●
The Offering is not expected to be anti-dilutive with respect to the net asset value per share to all Stockholders, including
those electing not to participate. This expectation is based on the fact that all the costs of the Offering will be borne
exclusively by Horizon whether or not Stockholders exercise their Rights. The Offering is expected to be dilutive with
respect to Stockholder’s voting percentages because Stockholders electing not to participate in the Offering will
own a smaller percentage of the total number of shares outstanding after the completion of the Offering.
|
Investment
Objective and Policies. The Fund’s investment objective is to seek to achieve
above-market rates of return through capital appreciation and income. The Fund seeks
to achieve its investment objective through a long-term, value-oriented investment process.
There
is no assurance that the Fund will achieve its investment objective. The Fund’s investment objective and some of
its investment policies are considered fundamental policies and may not be changed without Stockholder approval. This
prospectus, under the heading “Fundamental Policies,” contains a list of the fundamental investment policies
of the Fund.
During
periods of adverse market or economic conditions, which can persist for extended periods of time, the Fund may temporarily invest
all or a substantial portion of its net assets in cash or cash equivalents.
|
Investment
Strategies. The Fund may invest in a wide variety of financial instruments including,
but not limited to common stocks, fixed income securities including convertible and non-convertible
debt securities or loans, distressed debt, warrants and preferred stock, exchange traded
funds (“ETFs”) and exchange traded notes (“ETNs”), open and closed-end
funds, derivatives including options and swaps, the Grayscale Bitcoin Trust, and
other instruments and securities which may or may not be listed on a regulated securities
exchange. In particular, the Fund may purchase securities on over-the-counter trading
markets, including but not limited to those offered by OTC Markets Groups Inc. The Grayscale
Bitcoin Trust is a private fund that is not registered as investment company under the
Investment Company Act of 1940, as amended (the “1940 Act”). The Grayscale
Bitcoin Trust seeks for its shares to track the price of Bitcoin.
The
Fund may engage in selling stocks, exchange trades funds (“ETFs”), and exchange traded notes (“ETN’s”)
short. When the Fund sells a stock short, it incurs and obligation to replace the stock borrowed at whatever its price may be
at the time it purchases the stock for delivery to the securities lender. The Fund sells stocks, ETFs, and ETNs short for direct
investment in order to generate capital appreciation and/or for hedging purposes. Certain of the ETFs and ETNs sold short by the
Fund may be leveraged ETFs and ETNs.
|
The
Fund may transact in securities of U.S. and foreign companies that trade on U.S. and
non-U.S. exchanges, including by transactions that offer exposure to instruments having
the characteristics of common stocks such as American Depositary Receipts (“ADRs”),
Global Depositary Receipts (“GDRs”) and International Depositary Receipts
(“IDRs”). The Fund may acquire various equity-related instruments such as
ETFs, ETNs or shares of other closed-end funds. The Fund may also write and sell options
on securities for hedging purposes and/or for direct investment.
The
Fund will comply with all SEC rules and other regulations that may be implicated by the Fund’s investment activities,
including, for example, any asset segregation or coverage requirements that may apply as a result of trading in options,
swaps or other derivatives.
The
Fund may invest in preferred stock, as well as convertible and non-convertible debt securities, including debt securities that
are rated below investment grade, also known as junk bonds, or unrated. In addition, the Fund may acquire interests in privately-held
companies, and securities or assets for which there may be a limited or no active trading market.
|
In
general, the Fund will invest in companies that the Adviser believes are undervalued and have the potential for a high
rate of return. Key fundamental factors in this approach may include:
-Identification
of dormant assets
-Underappreciated
intangible assets
-
High returns on capital
-
High earnings power relative to analysts’ expectations or current market capitalization
-
Spin-offs, recapitalizations, and restructurings
-
Discounts to stated or estimated book value
-
Substantial inside stock ownership (i.e., owner-operated companies)
-
Expected demand for the company’s services or products
-
Transitory (not permanent) business problems causing a low valuation
-
Expected growth in revenues, earnings, or assets
|
The
companies that are targeted for investment based upon the criteria listed above may include
emerging growth companies, but unlike under the Fund’s current investment strategy,
emerging growth companies will not be a focus of the investment strategy that Horizon
intends to employ for the Fund.
The
Fund will execute its investment strategy by regarding investments as representing fractional ownership in the underlying companies’
assets. This will allow the Fund to attempt to achieve its investment objective by acting as a classic value investor seeking
high returns on equity, an intrinsic characteristic of the investment, not a reappraisal of a company’s stock value by the
market, an external factor.
|
Sell
decisions are generally triggered by either adequate value being achieved, as determined by the Adviser, or by an adverse
change in a company’s operating performance or a deterioration of the company’s business model. A sale may also
occur if the investment adviser discovers a new investment opportunity that it believes is more compelling and represents
a greater risk-reward profile than other investment(s) owned in the Fund.
|
Investment
Adviser and Fee. Horizon Kinetics Asset Management LLC (“Horizon” or
the “Adviser”), the investment adviser of the Fund, is registered with the
SEC as an investment adviser under the Investment Advisers Act of 1940, as amended. As
of September 30, 2021, the Adviser, together with its affiliated investment managers,
managed nine open-end funds as well as separate accounts and private funds with combined
assets under management, with the Fund, of approximately $ 6.53 billion.
The
Adviser is entitled to receive a monthly fee at the annual rate of 1.0% of the Fund’s net assets; provided, however, that
no fee shall be paid on net assets less than $25 million. See “Management of the Fund.”
|
Administrator.
UMB Fund Services, 235 W. Galena Street, Milwaukee, WI 53212-3949 serves as administrator to the Fund. Under the administration
agreement with the Fund, UMB is responsible for generally managing the administrative affairs of the Fund, including supervising
the preparation of reports to Stockholders, reports to and filings with the SEC and materials for meetings of the Board.
|
Fund
Accounting Agent. UMB Fund Services, 235 W. Galena Street, Milwaukee, WI 53212-3949, serves as accounting agent to the
Fund. Under the Accounting Agreement with the Fund, UMB Fund Services is responsible for calculating the net asset value per
share and maintaining the financial books and records of the Fund. UMB Fund Services is entitled to receive an accounting
and administration fee which includes the greater of an annual minimum fee of $5,000 per month or an asset based fee of 0.100%
of the first $150 million of average daily net assets, 0.080% in excess of $150 million and up to $250 million of average
net assets and 0.050% of such assets in excess of $250 million.
|
Custodian
and Transfer Agent. UMB Bank, N.A. serves as the Fund’s custodian and American Stock Transfer & Trust Company
serves as the Fund’s transfer agent. See “Management of the Fund.”
|
Closed-End
Fund Structure. Closed-end funds differ from open-end management investment companies
(commonly referred to as mutual funds) in that closed-end funds do not redeem their shares
at the option of the stockholder and generally list their shares for trading on a securities
exchange. By comparison, mutual funds issue securities that are redeemable daily at net
asset value at the option of the stockholder and typically engage in a continuous offering
of their shares. Mutual funds are subject to continuous asset in-flows and out-flows
that can complicate portfolio management, whereas closed-end funds generally can stay
more fully invested in securities consistent with the closed-end fund’s investment
objectives and policies. In addition, in comparison to open-end funds, closed-end funds
have greater flexibility in the employment of financial leverage and in the ability to
make certain types of investments, including investments in illiquid securities.
The
Fund’s shares have frequently traded at a discount to its net asset value since its inception. Shares of closed-end funds
frequently trade at a discount from their net asset value. In recognition of the possibility that the shares might trade at a
discount to net asset value and that any such discount may not be in the interest of Stockholders, the Fund’s Board of Directors,
in consultation with the Adviser, may, from time to time, review possible actions to reduce any such discount, including considering
open market repurchases or tender offers for the Fund’s shares. There can be no assurance that the Board of Directors will
decide to undertake any of these actions or that, if undertaken, such actions would result in the shares trading at a price equal
to or close to net asset value per share.
|
Summary
of Principal Risks. Investing in common stocks and other equity or equity-related
securities has inherent risks that could cause you to lose money. Some of the principal
risks of investing in the Fund are listed below and could adversely affect the net asset
value (“NAV”), total return and value of the Fund and your investment. These
are not the only risks associated with an investment in the Fund. Rather, the risks discussed
below are certain of the significant risks associated with the investment strategy employed
by the Fund, and as proposed to be modified by Horizon.
Stock
Selection Risks. The portfolio securities selected by the Adviser may decline in value or not increase in value
when the stock market in general is rising and may fail to meet the Fund’s investment objectives.
Long-Term
Investment Risks. Although any debt investments the Fund may make will typically yield a current return from the time
they are made, future equity investments that are made in accordance with the Fund’s long-term, value-oriented investment
strategy will generally produce gains, if any, only after three to five years. In a substantial portion of cases, the Fund’s
investments will likely not generate distributable income in the early years of investment. There can be no assurance that either
a current return or capital gains will actually be achieved.
|
Liquidity
Risks. The Adviser may not be able to sell portfolio securities at an optimal time or price. For example, if the
Fund is required or the adviser deems it advisable to liquidate all or a portion of a portfolio security quickly, it may
realize significantly less than the value at which the investment was previously recorded.
Small
and Medium-Size Company Risks. The Fund may invest in the equity securities of small and medium-size companies. Small
and medium-size companies often have narrower product lines and potential markets and more limited managerial and financial resources
than do larger, more established companies. As a result, their performance can be more volatile and they face a greater risk of
business failure, which could increase the volatility of the Fund’s assets.
|
Risks
Related to the Over-the-Counter Markets. Issuers whose securities are traded
in the over-the-counter markets (“OTC”) have no duty to provide any information
to investors. Even issuers who register OTC securities with the Securities and Exchange
Commission are not required to maintain such registration. Many OTC securities are thinly
traded, and this lack of liquidity tends to increase price volatility, and in many cases,
the liquidation of a position in an OTC security may not be possible within a reasonable
period of time.
Private
Issuer Risks. In addition to the risks associated with small public companies, limited or no public information
may exist about private companies, and shareholders will rely on the ability of the Adviser to obtain adequate information
to evaluate the potential returns from investing in these companies. If the Adviser is unable to uncover all material
information about these companies, the Fund may not make a fully informed investment decision and may lose money on the
investment.
Minority
Investment Risks. Because the Fund generally does not hold controlling equity interests in the Fund’s portfolio
companies, it may not be able to exercise control over portfolio companies or to prevent decisions by management of portfolio
companies with which the Fund disagrees and that could decrease the value of investments.
Exchange-Traded
Funds (ETFs) and Closed-End Funds (CEFs) Risks. The Fund may invest in other investment companies, including ETFs and
closed-end funds (“CEFs”). ETFs and CEFs are registered investment companies whose shares are listed and traded on
U.S. stock exchanges or otherwise traded in the OTC market. In general, passively-managed ETFs seek to track a specified securities
index or a basket of securities that an “index provider,” such as Standard & Poor’s, selects as representative
of a market, market segment or industry sector. A passively-managed ETF is designed so that its performance will correspond closely
with that of the index it tracks. A leveraged ETF will engage in transactions and purchase instruments that give rise to forms
of leverage, including, among others, the use of reverse repurchase agreements and other borrowings, the investment of collateral
from loans of portfolio securities, the use of when-issued, delayed-delivery or forward commitment transactions or short sales.
To the extent a fund invests in ETFs or CEFs that achieve leveraged exposure to their underlying indexes through the use of derivative
instruments, the Fund will indirectly be subject to leveraging risk. CEFs are subject to additional risks such as the fact that
the market price of their shares may trade above or below the net asset value or that an active market may not develop. As a shareholder
in an ETF or CEF, the Fund will bear its pro rata portion of the ETF’s and CEF’s expenses, including advisory fees,
in addition to its own fees and expenses.
|
Exchange
Traded Notes (ETNs) Risks. ETNs are a type of debt security that generally trades on U.S. stock exchanges or in the
OTC market. Like ETFs, ETNS seek to provide a return linked to a market index or other benchmark, which may include, for example,
equity indices, commodities or foreign currencies, and they share some of the same risks as ETNs, potentially including leverage
risks. Unlike ETFs, ETNs are unsecured debt obligations of the issuer—typically a bank or another financial institution—and
are therefore subject to a risk of default by the issuer. And unlike traditional bonds, ETNs are generally issued on an ongoing
basis and typically do not pay any interest to investors; instead, the issuer promises to pay the holder of the ETN an amount
determined by the performance of the underlying index or benchmark on the ETN’s maturity date (typically 10, 30 or in
some cases 40 years from issuance), minus specified fees. ETNs may trade at a premium or discount to their indicative values,
and investing in ETNs therefore involves greater market risks than investing in some other forms of debt, including a risk
of significant price volatility and the risk of delisting or suspension of trading from the applicable trading market. Issuers
of ETNs may seek to control price fluctuations by issuing or redeeming the ETNs, and an investor cannot control the magnitude
or timing of such issuances or redemptions. In addition, issuers may have the right to call ETNs at a specified redemption
price that may be less than their current trading price.
|
Foreign
Securities Risks. The Fund may invest in foreign securities directly or through
ADRs, GDRs and IDRs. Foreign securities can carry higher returns but involve more risks
than those associated with U.S. investments. Additional risks associated with investment
in foreign securities include currency fluctuations, political and economic instability,
differences in financial reporting standards and less stringent regulation of securities
markets.
Non-Diversification
Risks. As a non-diversified investment company, the Fund can invest a large percentage of its assets in a small
number of issuers. As a result of such concentration, a change in the value of any one investment may affect the overall
value of the Fund’s shares more than shares of a diversified closed-end fund that holds more investments. However,
the Fund intends to satisfy the diversification requirements for qualifying as a regulated investment company (a “RIC”)
under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).
Interest
Rate Risk. When interest rates increase, any fixed-income securities held by the Fund may decline in value. Long-term
fixed-income securities will normally have more price volatility because of this risk than short-term fixed-income securities.
It is likely there will be less governmental action in the near future to maintain low interest rates. The negative impact on
fixed-income securities from the resulting rate increases for that and other reasons could be swift and significant.
|
Leveraging
Risks. Investments in derivative instruments may give rise to a form of leverage.
The Adviser may engage in speculative transactions which involve substantial risk and
leverage. The use of leverage by the Adviser may increase the volatility of the Fund.
These leveraged instruments may result in losses to the Fund or may adversely affect
the Fund’s NAY or total return, because instruments that contain leverage are more
sensitive to changes in interest rates. The Fund may also have to sell assets at inopportune
times to satisfy its obligations in connection with such transactions.
Option
Transaction Risks. Purchasing and writing put and call options are highly specialized activities and entail greater than
ordinary investment risks. The successful use of options depends in part on the ability of the Adviser to manage future price
fluctuations and the degree of correlation between the options and securities markets. By writing put options on equity securities,
the Fund would give up the opportunity to benefit from potential increases in the value of the common stocks above the strike
prices of the written put options, but continue to bear the risk of declines in the value of its common stock portfolio. The Fund
would receive a premium from writing a covered call option that it retains whether or not the option is exercised. The premium
received from the written options may not be sufficient to offset any losses sustained from the volatility of the underlying equity
securities over time.
|
Below
Investment Grade Debt Securities Risks. Generally, below investment grade debt securities, i.e., junk bonds,
are subject to greater credit risk, price volatility and risk of loss than investment grade securities.
Distressed
Debt Risks. An investment in distressed debt involves considerable risks, including a higher risk of nonpayment
by the debtor. The Fund may incur significant expenses seeking recovery upon default or attempting to negotiate new terms.
Furthermore, if one of the Fund’s portfolio companies were to file for bankruptcy protection, a bankruptcy court
might re-characterize the debt held by the Fund and subordinate all or a portion of the Fund’s claim to claims of
other creditors, even, in some cases, if the investment is structured as senior secured debt. The bankruptcy process has
a number of significant inherent risks, including substantially delays and the risk of loss of all or a substantial portion
of the Fund’s investment in the bankrupt entity.
|
Management
Risks. There is no guarantee that the Fund will meet its investment objective.
The Adviser does not guarantee the performance of the Fund, nor can it assure you that
the market value of your investment will not decline.
Special
Situations Risks. The Fund may use aggressive investment techniques, including seeking to benefit from “special
situations,” such as mergers, reorganizations or other unusual events expected to affect a particular issuer. There
is a risk that the “special situation” might not occur or involve longer time frames than originally expected,
which could have a negative impact on the price of the issuer’s securities and fail to produce gains or produce
a loss for the Fund.
Derivatives
Risks. The Fund’s investments may include futures, options and swaps and other derivative instruments, which
may result in loss. Derivative instruments may be illiquid, difficult to price and leveraged so that small changes may
produce disproportionate losses to the Fund. The use of derivative instruments may expose us to counter-party credit risk.
To the extent the Fund segregates assets to cover derivative positions, the Fund may impair its ability to meet current
obligations, to honor requests for redemption and to manage the Fund properly in a manner consistent with its stated investment
objective.
Convertible
Security Risk. The Fund may invest in convertible securities, which may decline in response to such factors as rising
interest rates and fluctuations in the market price of the common stock underlying the convertible securities.
|
Bitcoin
Risk: The value of the Fund’s investment in the Grayscale Bitcoin Trust
is subject to fluctuations in the value of bitcoins. The value of bitcoins is determined
by the supply of and demand for bitcoins in the global market for the trading of bitcoins,
which consists of transactions on electronic bitcoin exchanges (“Bitcoin Exchanges”).
Pricing on Bitcoin Exchanges can be volatile and can adversely affect the value of the
Grayscale Bitcoin Trust. Bitcoin is subject to the risk of fraud, theft, manipulation,
security or operational failures, or other problems that impact Bitcoin Exchanges. Over
the past several years, a number of Bitcoin Exchanges have been closed due to fraud,
failure, or security breaches. Investors in Bitcoin may have little or no recourse should
such theft, fraud or manipulation occur and could suffer significant losses.
Currently,
there is relatively small use of bitcoins in the retail and commercial marketplace in comparison to the relatively large
use of bitcoins by speculators, thus contributing to price volatility that could adversely affect the Fund’s investment
in the Grayscale Bitcoin Trust. A significant portion of Bitcoin is held by a small number of holders sometimes referred
to as “whales.” These holders have the ability to manipulate the price of Bitcoin. Unlike the exchanges for
more traditional assets, such as equity securities and futures contracts, Bitcoin and Bitcoin Exchanges are largely unregulated.
As a result of the lack of regulation, individuals or groups may engage in fraud or market manipulation and investors
may be more exposed to the risk of theft, fraud and market manipulation than when investing in more traditional asset
classes. Additionally, if one or a coordinated group of miners were to gain control of 51% of the Bitcoin Network, they
would have the ability to manipulate transactions, halt payments and fraudulently obtain Bitcoin. Bitcoin transactions
are irrevocable, and stolen or incorrectly transferred bitcoins may be irretrievable. As a result, any incorrectly executed
bitcoin transactions could adversely affect the value of the Fund’s direct or indirect investment in the Grayscale
Bitcoin Trust. Legal or regulatory changes may negatively impact the operation of the Bitcoin network or restrict the
use of Bitcoin. The realization of any of these risks could result in a decline in the acceptance of Bitcoin and consequently
a reduction in the value of Bitcoin and the Fund.
|
From
time to time, Bitcoin developers suggest changes to the Bitcoin software. If a sufficient
number of users and miners elect not to adopt the changes, a new digital asset, operating
on the earlier version of the Bitcoin software, may be created. This is often referred
to as a “fork.” The creation of a “fork” or a substantial giveaway
of Bitcoin (sometimes referred to as an “air drop”) may result in a significant
and unexpected declines in the value of Bitcoin and the Fund.
Shares
of the Grayscale Bitcoin Trust may trade at a premium or discount to the net asset value of the Grayscale Bitcoin Trust.
The Fund makes investments in the Grayscale Bitcoin Trust through the Subsidiary. Such investment may not exceed 15% of
the Fund’s total assets, measured at the time of investment. The Fund will invest in the Subsidiary within the limitations
of the federal tax laws, rules and regulations that apply to RICs under Subchapter M of the Code. Unlike the
Fund, the Subsidiary does not, and will not, seek to qualify as an RIC.
Short-Selling
Risk: The Fund can sell securities short to the maximum extent permitted under the 1940 Act. A short sale
by the Fund involves borrowing a security from a lender which is then sold in the open market. At a future date, the security
is repurchased by the Fund and returned to the lender. While the security is borrowed, the proceeds from the sale are
deposited with the lender and the Fund may be required to pay interest and/or the equivalent of any dividend payments
paid by the security to the lender. If the value of the security declines between the time the Fund borrows the security
and the time it repurchases and returns the security to the lender, the Fund makes a profit on the difference (less any
expenses the Fund is required to pay the lender). There is no assurance that a security will decline in value during the
period of the short sale and make a profit for the Fund. If the value of the security sold short increases between the
time that the Fund borrows the security and the time it repurchases and returns the security to the lender, the Fund will
realize a loss on the difference (plus any expenses the Fund is required to pay to the lender). This loss is theoretically
unlimited as there is no limit as to how high the security sold short can appreciate in value, thus increasing the cost
of buying that security to cover a short position. The Fund may incur expenses in selling securities short and such expenses
are investment expenses of the Fund.
|
Investments
in Leveraged/Inverse ETFs and ETNs Risk: The Fund may invest long or short in leveraged/inverse ETFs and ETNs. Leveraged/inverse
ETFs and ETNs are designed for investors who seek leveraged long or leveraged inverse exposure, as applicable, to the daily
performance of an index. These instruments do not guarantee any return of principal and do not pay any interest during their
term. In general, investors will be entitled to receive a cash payment, upon early redemption or upon acceleration, as applicable,
that will be linked to the performance of an underlying index, plus a daily accrual and less a daily investor fee. Investors
should be willing to forgo interest payments and, if the index on which the ETF or ETN is based declines or increases, as
applicable, be willing to lose up to 100% of their investment. In many instances a leveraged or inverse ETF or ETN will seek
to provide an investor with a corresponding multiple of the index it tracks (e.g., a three times leveraged long ETF that tracks
the S&P 500 Index seeks to provide investors with three times the positive rate of return of the S&P 500 Index on
a daily basis). Such ETFs and ETNs are very sensitive to changes in the level of their corresponding index, and returns may
be negatively impacted in complex ways by the volatility of the corresponding index on a daily or intraday basis. Accordingly,
the value of the Fund’s investments in such ETFs and/or ETNs may be more volatile and all other risks, including the
risk of loss of an investment, tend to be compounded or magnified.
|
Distribution
Reinvestment Plan. Unless a Stockholder elects otherwise, the Stockholder’s distributions will be reinvested
in additional shares under the Fund’s distribution reinvestment plan. Stockholders who elect not to participate in the
Fund’s distribution reinvestment plan will receive all distributions in cash paid to the Stockholder of record (or,
if the shares are held in street or other nominee name, then to such nominee). See “Distribution Reinvestment Plan.”
|
Stock
Purchases and Tenders. The Board of Directors may consider repurchasing the Fund’s shares in the open market
or in private transactions, or tendering for shares, in an attempt to reduce or eliminate a market value discount from net
asset value, if one should occur. There can be no assurance that the Board of Directors will determine to effect any such
repurchase or tender or that it would be effective in reducing or eliminating any market value discount.
|
RISKS
RELATED TO OUR BUSINESS AND STRUCTURE
Economic
recessions or downturns could impair our company and harm our operating results.
The
recent global outbreak of COVID-19 (more commonly known as the Coronavirus) has disrupted economic markets and the prolonged economic
impact is uncertain. Some economists and major investment banks have expressed concern that the continued spread of the virus
globally could lead to a world-wide economic downturn. Many manufacturers of goods in China and other countries in Asia have seen
a downturn in production due to the suspension of business and temporary closure of factories in an attempt to curb the spread
of the illness. As the impact of the Coronavirus spreads to other parts of the world, similar impacts may occur with respect to
affected countries. In the past, instability in the global capital markets resulted in disruptions in liquidity in the debt capital
markets, significant write-offs in the financial services sector, the re-pricing of credit risk in the broadly syndicated credit
market and the failure of major domestic and international financial institutions. In particular, in past periods of instability,
the financial services sector was negatively impacted by significant write-offs as the value of the assets held by financial firms
declined, impairing their capital positions and abilities to lend and invest. In addition, continued uncertainty surrounding the
negotiation of trade deals between Britain and the European Union following the United Kingdom’s exit from the European
Union and uncertainty between the United States and other countries with respect to trade policies, treaties, and tariffs, among
other factors, have caused disruption in the global markets. There can be no assurance that market conditions will not worsen
in the future.
In
an economic downturn, our non-performing assets may increase, and the value of our portfolio may decrease during these periods.
Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a
decision by lenders not to extend credit to us on terms we deem acceptable. These events could prevent us from increasing investments
and harm our operating results.
SUMMARY
OF FUND EXPENSES
The
following table shows Fund expenses that you as an investor in the Fund’s shares will bear directly or indirectly.
Stockholder
Transaction Expenses
Sales
load
|
None
|
Offering
expenses (1)
|
None
|
Distribution
Reinvestment Plan fees
|
None
|
Annual
Expenses (as a percentage of net assets attributable to the common shares)
|
|
Management
fees
|
None
(2)
|
Other
expenses (3)
|
1.53%
|
Acquired
Fund fees and expenses
|
0.03%
|
Total
Annual Expenses
|
1.56%
|
Example
(4)
The
following example illustrates the hypothetical expenses (including estimated expenses, which Horizon has agreed to absorb) that
you would pay on a $1,000 investment in the Shares, assuming (i) annual expenses of 1.56% of net assets attributable to the Shares
and (ii) a 5% annual return:
|
1
Year
|
3
Years
|
5
Years
|
10
Years
|
You
would pay the following expenses on a $1,000 investment, assuming a 5% annual return
|
$15.60
|
$46.80
|
$78.00
|
$156.00
|
(1)
|
Fees and expenses
incurred by the Fund in connection with the Offering will be paid for by Horizon, the investment manager to the Fund. Therefore,
the full amount of subscription proceeds will be contributed to the Fund.
|
(2)
|
The Adviser has
contractually agreed to receive no advisory fee on net assets less than $25 million and thereafter will charge a management
fee of 1.00% on net assets above $25 million.
|
(3)
|
“Other Expenses”
are based upon gross estimated amounts for the current fiscal year and include, among other expenses, administration and fund
accounting fees.
|
(4)
|
The example assumes
that the estimated “Other Expenses” set forth in the Annual Expenses table remain the same each year and that
all dividends and distributions are reinvested at net asset value. Actual expenses may be greater or less than those assumed.
The example further assumes that the Fund uses no leverage, as currently intended and the Fund does not intend to utilize
any leverage within one year from the effective date of this Registration Statement. Moreover, the Fund’s actual rate
of return will vary and may be greater or less than the hypothetical 5% annual return.
|
The
purpose of the above table is to help a Stockholder understand the fees and expenses that such Stockholder would bear directly
or indirectly. The example should not be considered a representation of actual future expenses. Actual expenses may be higher
or lower than those shown.
THE
FUND
The
Fund, a Texas corporation organized on January 20, 1994, is a non-diversified, closed-end management investment company. The Fund’s
principal office is RENN Fund, Inc., located at 470 Park Avenue South, New York, NY 10016 and its telephone number is (646) 291-2300.
THE
OFFERING
Terms
of the Offering. The Fund is issuing to Record Date Stockholders (i.e., Stockholders who hold shares on the Record Date)
non-transferable Rights to subscribe for shares. Each Record Date Stockholder is being issued 1 non-transferable Right for every
3 shares owned on the Record Date. The Rights entitle a Record Date Stockholder to acquire 1 share at the Subscription Price for
every 1 Rights held. Fractional shares will not be issued upon the exercise of the Rights. Accordingly, the number of Rights to
be issued to a Record Date Stockholder on the Record Date will be rounded up to the nearest whole number of Rights evenly divisible
by 3. Rights may be exercised at any time during the Subscription Period which commences on or about December 17, 2021 and ends
at 5:00 p.m., New York City time, on January 21, 2022, unless extended by the Fund. See “Expiration of the Offering.”
The right to acquire 1 additional share for every 3 Rights held during the Subscription Period at the Subscription Price is hereinafter
referred to as the “Basic Subscription.”
In
addition to the Basic Subscription, Record Date Stockholders who exercise all of their Rights are entitled to subscribe for shares
which were not otherwise subscribed for by others in the Basic Subscription (the “Additional Subscription Privilege”).
Horizon Kinetics Asset Management LLC (“Horizon”) will purchase any shares not otherwise acquired by other Stockholders
in this Rights offering. See “Additional Subscription Privilege” below. For purposes of determining the maximum number
of shares a Stockholder may acquire pursuant to the Offering, broker-dealers whose shares are held of record by any Nominee will
be deemed to be the holders of the Rights that are issued to such Nominee on their behalf. The term “Nominee” shall
mean, collectively, CEDE & Company (“Cede”), as nominee for the Depository Trust Company (“DTC”),
or any other depository or nominee. shares acquired pursuant to the Additional Subscription Privilege are subject to allotment
and will be distributed on a pro rata basis if allotment does not exist to fulfill all requests, which is more fully discussed
below under “Additional Subscription Privilege.”
SHARES
WILL BE ISSUED WITHIN THE 30-DAY PERIOD IMMEDIATELY FOLLOWING THE RECORD DATE OF THE FUND’S MONTHLY DISTRIBUTION AND STOCKHOLDERS
EXERCISING RIGHTS WILL NOT BE ENTITLED TO RECEIVE SUCH DISTRIBUTION WITH RESPECT TO THE SHARES ISSUED PURSUANT TO SUCH EXERCISE.
Rights
will be Evidenced by Subscription Certificates.
The
number of Rights issued to each Record Date Stockholder will be stated on the Subscription Certificates delivered to the Record
Date Stockholder. The method by which Rights may be exercised and shares paid for is set forth below in “Method of Exercising
Rights” and “Payment for Shares.” A RIGHTS HOLDER WILL HAVE NO RIGHT TO RESCIND A PURCHASE AFTER THE SUBSCRIPTION
AGENT HAS RECEIVED PAYMENT. See “Payment for Shares” below.
The
Rights are non-transferable and may not be purchased or sold. Rights will expire without residual value at the Expiration Date.
The Rights will not be listed for trading on the NYSE American, and there will not be any market for trading Rights. The shares
to be issued pursuant to the Offering will be listed for trading on the NYSE American, subject to the NYSE American being officially
notified of the issuance of those shares.
Purpose
of the Offering.
At
a meeting held on June 11, 2021, the Board determined that the Offering was in the best interests of the Fund and its existing
Stockholders to increase the assets of the Fund and approved the Offering. The primary reasons include:
●
The Basic Subscription will provide existing Stockholders an opportunity to purchase additional shares at a price that is potentially
below market value without incurring any commission or transaction charges.
●
Raising more cash will better position the Fund to take advantage of investment opportunities that exist or may arise.
●
Increasing Fund assets may lower the Fund’s expenses as a proportion of net assets because the Fund’s fixed costs
would be spread over a larger asset base. There can be no assurance that by increasing the size of the Fund, the Fund’s
expense ratio will be lowered. However, increasing the Fund’s assets results in a benefit to the Fund’s Adviser because
the Management fee that is paid to the Adviser increases as the Fund’s net assets increase.
●
Because the Offering will increase the Fund’s outstanding shares, it may increase the number of Stockholders over the long
term, which could increase the level of market interest in and visibility of the Fund and improve the trading liquidity of the
shares on the NYSE American.
●
The Board expects the Offering to be anti-dilutive with respect to net asset value per share, but not to voting, to all Stockholders.
Those Stockholders electing not to participate may not be diluted, notwithstanding the fact that all the costs of the Offering
will be borne by Horizon whether or not they exercise their Rights, because the Offering price may be set at a discount to NAV
such that non-participating Stockholders will receive an increase in their net asset value, so long as the number of shares issued
to participating Stockholders is not materially less than a full exercise of the Basic Subscription amount. The Offering is expected
to be dilutive with respect to Stockholder’s voting percentages because Stockholders electing not to participate in the
Offering will own a smaller percentage of the total number of shares outstanding after the completion of the Offering.
Board
Considerations in Approving the Offering.
At
a meeting held on June 11, 2021, the Board considered the approval of the Offering. In considering whether or not to approve the
Offering, the Board relied on materials and information prepared and presented by the Fund’s management at such meeting
and discussions at that time. Based on such materials and their deliberations at this meeting, the Board determined that it would
be in the best interests of the Fund and its Stockholders to conduct the Offering in order to increase the assets of the Fund
available for current and future investment opportunities. In making its determination, the Board considered the various factors
set forth in “The Offering - Purpose of the Offering”. The Board also considered a number of other factors, including
the ability of the Adviser to invest the proceeds of the Offering and the potential effect of the Offering on the Fund’s
stock price. The Board concluded that the impact on the Fund’s price was uncertain and, regardless of the potential impact,
the Offering was in the best interests of the Stockholders. As a result of these considerations, the Board determined that it
was appropriate and in the best interest of the Fund and its Stockholders to proceed with the Offering.
Notice
of NAV Decline.
If
the shares begin to trade at a discount, the Board may make a determination whether to discontinue the Offering, provided that
the Fund, as required by the SEC’s registration form, will suspend the Offering until it amends this prospectus if, subsequent
to the date of this prospectus, the Fund’s NAV declines more than 20% from its NAV as of that date. Accordingly, the Expiration
Date would be extended and the Fund would notify Record Date Stockholders of the decline and permit Stockholders to cancel their
exercise of Rights.
The
Subscription Price.
The
Subscription Price for the shares to be issued under the Offering will be equal to the lesser of (i) 105% of the average closing
NAV per share over the three days of trading leading up to and including the Expiration Date; or (ii) 90% of the average closing
market price per share over the three days of trading leading up to and including the Expiration Date. For example, if the Offering
were held using the “Estimated Subscription Price” (i.e., an estimate of the Subscription Price based on the average
of the Fund’s per share NAV ($2.95, $2.93, $2.94) and market price ($2.62, $2.63, $2.54) at the close of business on October
14, 15, and 18, 2021, the Subscription Price would be $2.34 per share (90% of $2.60).
Additional
Subscription Privilege.
If
all of the Rights initially issued are not exercised, any shares for which subscriptions have not been received will be offered,
by means of the Additional Subscription Privilege, to Record Date Stockholders who have exercised all of the Rights initially
issued to them and who wish to acquire more than the number of shares for which the Rights held by them are exercisable. Record
Date Stockholders who exercise all of their Rights will have the opportunity to indicate on the Subscription Certificate how many
unsubscribed shares they are willing to acquire pursuant to the Additional Subscription Privilege.
If
shares remain after the Basic Subscription and no additional subscription requests have been made, the Adviser will purchase the
remaining unsubscribed shares.
The
percentage of additional Shares each Stockholder may acquire pursuant to the Additional Subscription Privilege will be rounded
up to result in delivery of whole shares (fractional shares will not be issued).
The
Additional Subscription Privilege may result in additional dilution of a Stockholder’s ownership percentage and voting rights.
Expiration
of the Offering.
The
Offering will expire at 5:00 p.m., EST, on the Expiration Date January 21, 2022, unless extended by the Fund (the “Extended
Expiration Date”). Rights will expire on the Expiration Date or Extended Expiration Date, as the case may be, and thereafter
may not be exercised.
Method
of Exercising Rights.
Rights
may be exercised by filling in and signing the reverse side of the Subscription Certificate and mailing it in the envelope provided,
or otherwise delivering the completed and signed Subscription Certificate to the Subscription Agent, together with payment for
the shares as described below under “Payment for Shares.” Rights may also be exercised through a Rights holder’s
broker, who may charge the Rights holder a servicing fee in connection with such exercise.
In
the event that the Estimated Subscription Price is more than the Subscription Price on the Expiration Date, any resulting excess
amount paid by a Stockholder towards the purchase of shares in the Offering the Fund will apply towards the purchase of additional
shares under the Basic Subscription or, if such Stockholder has exercised all of the Rights initially issued to such Stockholder
under the Basic Subscription, towards the purchase of an additional number of shares pursuant to the Additional Subscription Privilege.
Any Stockholder who desires that the Fund not treat such excess as a request by the Stockholder to acquire additional shares in
the Offering and that such excess be refunded to the Stockholder must so indicate in the space provided on the Subscription Certificate.
Completed
Subscription Certificates must be received by the Subscription Agent prior to 5:00 p.m., EST, on the Expiration Date (or Extended
Expiration Date as the case may be). The Subscription Certificate and payment should be delivered to the Subscription Agent at
the following address:
If by first class mail:
|
If by mail or overnight
courier:
|
|
|
American Stock Transfer & Trust Company,
LLC
|
American Stock Transfer & Trust Company,
LLC
|
6201 15th Avenue
|
6201 15th Avenue
|
Brooklyn, New York 11219
|
Brooklyn, New York 11219
|
Attn: Corporate Actions
|
Attn: Corporate Actions
|
Subscription
Agent.
The
Subscription Agent is American Stock Transfer & Trust Company, LLC, with an address at 6201 15th Avenue, Brooklyn, New York
11219. The Subscription Agent will be paid exclusively by the Adviser and not the Fund. INQUIRIES BY ALL HOLDERS OF RIGHTS SHOULD
BE DIRECTED TO THE INFORMATION AGENT, AST Fund Solutions LLC, AT (800) 628-8509; HOLDERS MAY ALSO CONSULT THEIR BROKERS OR NOMINEES.
Payment
for Shares.
Payment
for shares shall be calculated by multiplying the Estimated Subscription Price by the sum of (i) the number of shares intended
to be purchased in the Basic Subscription (e.g., the number of Rights exercised divided by 3), plus (ii) the number of additional
shares intended to be over-subscribed under the Additional Subscription Privilege. For example, based on the Estimated Subscription
Price of $ 2.82 per share, if a Stockholder receives 12 Rights and wishes to subscribe for 4 shares in the Basic Subscription,
and also wishes to over-subscribe for 10 additional shares under the Additional Subscription Privilege, such Stockholder would
remit payment in the amount of $39.48 ($11.28 plus $28.20).
Payment
for shares can be made in US dollars or by a contribution of securities. Those Stockholders interested in contributing securities
in lieu of cash must be approved in advance and should contact Horizon no less than ten (10) days prior to the expiration of the
Offering at legal@horizonkinetics.com.
Record
Date Stockholders who wish to acquire shares in the Basic Subscription or pursuant to the Additional Subscription Privilege must,
together with the properly completed and executed Subscription Certificate, send payment for the shares acquired in the Basic
Subscription and any additional shares subscribed for pursuant to the Additional Subscription Privilege, to the Subscription Agent
based on the Estimated Subscription Price of $ 2.82 per share. To be accepted, such payment, together with the Subscription Certificate,
must be received by the Subscription Agent prior to 5:00 p.m., EST, on the Expiration Date, or Extended Expiration Date, as the
case may be.
If
the Estimated Subscription Price is greater than the actual per share purchase price, the excess payment will be applied toward
the purchase of unsubscribed shares to the extent that there remain sufficient unsubscribed shares available after the Basic Subscription
and Additional Subscription Privilege allocations are completed. To the extent that sufficient unsubscribed shares are not available
to apply all of the excess payment toward the purchase of unsubscribed shares, available shares will be allocated in the manner
consistent with that described in the section entitled “Additional Subscription Privilege” above.
PAYMENT
MUST ACCOMPANY ANY SUBSCRIPTION CERTIFICATE FOR SUCH SUBSCRIPTION CERTIFICATE TO BE ACCEPTED.
Within
five (5) business days following the Expiration Date or Extended Expiration Date, as the case may be, a confirmation will be sent
by the Subscription Agent to each Stockholder (or, if the shares on the Record Date are held by Cede or any other depository or
nominee, to Cede or such other depository or nominee). The date of the confirmation is referred to as the “Confirmation
Date.” The confirmation will show (i) the number of shares acquired pursuant to the Basic Subscription; (ii) the number
of shares, if any, acquired pursuant to the Additional Subscription Privilege; (iii) the per share and total purchase price for
the shares; and (iv) any additional amount payable by such Stockholder to the Fund (i.e., if the Estimated Subscription Price
was less than the Subscription Price on the Expiration Date) or any excess to be refunded by the Fund to such Stockholder (i.e.,
if the Estimated Subscription Price was more than the Subscription Price on the Expiration Date and the Stockholder indicated
on the Subscription Certificate that such excess not be treated by the Fund as a request by the Stockholder to acquire additional
shares in the Offering). Any additional payment required from a Stockholder must be received by the Subscription Agent prior to
5:00 p.m., EST, on the date specified as the deadline for final payment for shares, and any excess payment to be refunded by the
Fund to such Stockholder will be mailed by the Subscription Agent within 3 business days after the Confirmation Date. All payments
by a Stockholder must be made in United States Dollars by money order or by checks drawn on banks located in the continental United
States payable to RENN Fund, Inc.
Issuance
and delivery of certificates for the shares subscribed for are subject to collection of funds and actual payment by the subscribing
Stockholder.
The
Subscription Agent will deposit all checks received by it prior to the final due date into a segregated account pending distribution
of the shares from the Offering. Any interest earned on such account will accrue to the benefit of the Fund and investors will
not earn interest on payments submitted nor will interest be credited toward the purchase of shares.
YOU
WILL HAVE NO RIGHT TO RESCIND YOUR SUBSCRIPTION AFTER THE SUBSCRIPTION AGENT HAS RECEIVED THE SUBSCRIPTION CERTIFICATE.
If
a Record Date Stockholder who acquires shares pursuant to the Basic Subscription or the Additional Subscription Privilege does
not make payment of any amounts due, the Fund reserves the right to take any or all of the following actions: (i) find other Stockholders
of the Fund that have subscribed for shares, to purchase such subscribed-for and unpaid-for shares; (ii) apply any payment actually
received by it toward the purchase of the greatest whole number of shares which could be acquired by such holder upon exercise
of the Basic Subscription or the Additional Subscription Privilege; (iii) sell all or a portion of the shares actually purchased
by the holder in the open market at current NAV, and apply the proceeds to the amounts owed; or (iv) exercise any and all other
rights or remedies to which it may be entitled, including, without limitation, the right to set off against payments actually
received by it with respect to such subscribed shares and to enforce the relevant guaranty of payment.
Holders
who hold shares for the account of others, such as brokers, trustees, or depositaries for securities, should notify the respective
beneficial owners of the shares as soon as possible to ascertain the beneficial owners’ intentions and to obtain instructions
with respect to the Rights. If the beneficial owner so instructs, the record holder of the Rights should complete Subscription
Certificates and submit them to the Subscription Agent with the proper payment. In addition, beneficial owners of shares or Rights
held through such a holder should contact the holder and request the holder to effect transactions in accordance with the beneficial
owner’s instructions.
The
instructions accompanying the Subscription Certificates should be read carefully and followed in detail.
DO
NOT SEND SUBSCRIPTION CERTIFICATES TO THE FUND OR THE ADVISER.
The
method of delivery of Subscription Certificates and payment of the Subscription Price to the Subscription Agent will be at the
election and risk of the Rights holders, but if sent by mail it is recommended that the certificates and payments be sent by registered
mail, properly insured, with return receipt requested, and that a sufficient number of days be allowed to ensure delivery to the
Subscription Agent and clearance of payment prior to 5:00 p.m., EST, on the Expiration Date. Because uncertified personal checks
may take at least five business days to clear, each Record Date Stockholder participating in the Offering is strongly urged to
pay, or arrange for payment, by means of a certified or cashier’s check or money order.
All
questions concerning the timeliness, validity, form and eligibility of any exercise of Rights will be determined by the Fund,
whose determinations will be final and binding. The Fund in its sole discretion may waive any defect or irregularity, or permit
a defect or irregularity to be corrected within such time as it may determine, or reject the purported exercise of any Right.
If the Fund elects in its sole discretion to waive any defect or irregularity, it may do so on a case-by-case basis which means
that not all defects or irregularities may be waived, if at all, or waived in the same manner as with other defects or irregularities.
Subscriptions will not be deemed to have been received or accepted until all irregularities have been waived or cured within such
time as the Fund determines in its sole discretion. Neither the Fund nor the Subscription Agent will be under any duty to give
notification of any defect or irregularity in connection with the submission of Subscription Certificates or incur any liability
for failure to give such notification.
Delivery
of the Shares.
The
shares purchased pursuant to the Basic Subscription will be delivered to subscribers in book-entry form as soon as practicable
after the corresponding Rights have been validly exercised and full payment for the shares has been received and cleared. The
shares purchased pursuant to the Additional Subscription Privilege will be delivered to subscribers in book-entry form as soon
as practicable after the Expiration Date and after all allocations have been conducted.
Federal
Income Tax Consequences Associated with the Offering.
The
following is a general summary of the significant federal income tax consequences of the receipt of Rights by a Record Date Stockholder
and a subsequent lapse or exercise of such Rights. The discussion is based upon applicable provisions of the Code, the Treasury
Regulations promulgated thereunder, and other authorities currently in effect but does not address any state, local, or foreign
tax consequences of the Offering. Each Stockholder should consult its own tax advisor regarding specific questions as to federal,
state, local, or foreign taxes. Each Stockholder should also review the discussion of certain tax considerations affecting it
and the Fund set forth under “Certain Additional Material United States Federal Income Tax Considerations” below and
the “Taxes” section of the Statement of Additional Information.
For
purposes of the following discussion, the term “Old Share” shall mean a currently outstanding share with respect to
which a Right is issued and the term “New Share” shall mean a newly issued share that Record Date Stockholders receive
upon the exercise of their Rights.
For
all Record Date Stockholders:
Neither
the receipt nor the exercise of Rights by a Record Date Stockholder will result in taxable income to such stockholder for federal
income tax purposes regardless of whether or not the Record Date Stockholder makes the below-described election which is available
under Section 307(b)(2) of the Code (a “Section 307(b)(2) Election”).
No
taxable loss will be realized for federal income tax purposes if a Record Date Stockholder retains a Right but allows it to lapse
without exercise. Moreover, the federal income tax basis of the related Old Share will not be reduced if such lapse occurs.
The
Record Date Stockholder’s basis in the Rights will be zero unless either (i) the fair market value of the Rights distributed
to all of the Record Date Stockholders is more than 15% of the total fair market value of all of the Fund’s outstanding
shares on the date of distribution, or (ii) the Record Date Stockholder makes a Section 307(b)(2) Election for the taxable year
in which such Rights were received. If either of clauses (i) or (ii) is applicable the Record Date Stockholder’s federal
income tax basis in any Right received pursuant to the Offering will be equal to a portion of the Record Date Stockholder’s
existing federal income tax basis in the related Old Share. If made, a Section 307(b)(2) Election is effective with respect to
all Rights received by a Record Date Stockholder. A Section 307(b)(2) Election is made by attaching a statement to the Record
Date Stockholder’s federal income tax return for the taxable year of the Record Date (which is the same as the year when
the Rights were received). Record Date Stockholders should carefully review the differing federal income tax consequences described
below before deciding whether or not to make a Section 307(b)(2) Election.
For
Record Date Stockholders When the Fair Market Value of Rights Distributed Exceeds 15% of the Total Fair Market Value of the Fund’s
Shares or When Making a 307(b)(2) Election:
If
the fair market value of rights distributed exceeds 15% of the total fair market value of the shares or if a Record Date Stockholder
makes a Section 307(b)(2) Election, and the Record Date Stockholder exercises a Right, the Record Date Stockholder’s existing
federal income tax basis in the related Old Share must be allocated between such Right and the Old Share in proportion to their
respective fair market values as of the date of distribution of such Rights (effectively reducing the Record Date Stockholder’s
basis in the Old Share). Upon such exercise of the Record Date Stockholder’s Rights, the New Shares received by the Record
Date Stockholder pursuant to such exercise will have a federal income tax basis equal to the sum of the basis of such Rights as
described in the previous sentence and the Subscription Price paid for the New Shares (as increased by any servicing fee charged
to the Record Date Stockholder by a broker, bank or trust company and other similar costs). If the Record Date Stockholder subsequently
sells such New Shares (and holds such shares as capital assets at the time of their sale), the Record Date Stockholder will recognize
a capital gain or loss equal to the difference between the amount received from the sale of the New Shares and the Record Date
Stockholder’s federal income tax basis in the New Shares as described above. Such capital gain or loss will be long-term
capital gain or loss if the New Shares are sold more than one year after the date that the New Shares are acquired by the Record
Date Stockholder.
For
Record Date Stockholders Not Making a Section 307(b)(2) Election When the Fair Market Value of the Rights Distributed is Less
than 15% of the Total Fair Market Value of the Fund’s Outstanding Shares:
If
the fair market value of the Rights distributed is less than 15% of the total fair market value of the outstanding shares and
a Record Date Stockholder does not make a Section 307(b)(2) Election, then if a non-electing Record Date Stockholder exercises
their Rights, the federal income tax basis of the related Old Shares will remain unchanged and the New Shares will have a federal
income tax basis equal to the Subscription Price paid for the New Shares (as increased by any servicing fee charged to the Record
Date Stockholder by a broker, bank or trust company and other similar costs). If the Record Date Stockholder subsequently sells
such New Shares (and holds such shares as capital assets at the time of their sale), the Record Date Stockholder will recognize
a capital gain or loss equal to the difference between the amount received from the sale of the New Shares and the stockholder’s
federal income tax basis in the New Shares as described above. Such capital gain or loss will be long-term capital gain or loss
if the New Shares are sold more than one year after the Record Date Stockholder acquires the New Shares through the Offering.
The
foregoing in only a summary of the applicable federal income tax laws presently in effect and does not include any state, local,
or foreign income tax, or any non-income tax, consequences of the Offer. You should consult your own tax advisor concerning the
tax consequences of the Offer.
Employee
Plan Considerations.
Record
Date Stockholders that are employee benefit plans subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”),
including corporate savings and 401(k) plans, Keogh Plans of self-employed individuals and Individual Retirement Accounts (“IRA”)
(each a “Benefit Plan” and collectively, “Benefit Plans”), should be aware that additional contributions
of cash to the Benefit Plan in order to exercise Rights (as opposed to using cash currently held by the Benefit Plan) may be treated
as Benefit Plan contributions and, when taken together with contributions previously made, may subject a Benefit Plan to excise
taxes for excess or nondeductible contributions. In the case of Benefit Plans qualified under Section 401(a) of the Code, additional
cash contributions could cause the maximum contribution limitations of Section 415 of the Code or other qualification rules to
be violated. Benefit Plan sponsors, participants, or owners/beneficiaries contemplating making additional cash contributions to
exercise Rights should consult with their counsel prior to making such contributions.
Benefit
Plans and other tax exempt entities, including governmental plans, should also be aware that if they borrow in order to finance
their exercise of Rights, they may become subject to the tax on unrelated business taxable income (“UBTI”) under Section
511 of the Code. If any portion of an IRA is used as security for a loan to the IRA depositor, the portion so used is also treated
as distributed to the IRA depositor.
ERISA
contains prudence and diversification requirements and ERISA and the Code contain prohibited transaction rules that may impact
the exercise of Rights. Among the prohibited transaction exemptions issued by the Department of Labor that may exempt a Benefit
Plan’s exercise of Rights are Prohibited Transaction Exemption 84-24 (governing purchases of shares in investment companies
from investment companies and their principal underwriters where certain relationships are present) and Prohibited Transaction
Exemption 75-1 (covering sales of securities subject to certain conditions).
Due
to the complexity of these rules and the penalties for noncompliance, Benefit Plans should consult with their counsel regarding
the consequences of their exercise of Rights under ERISA and the Code.
Benefit
to the Adviser.
The
Adviser will not directly benefit from the Offering because it does not earn fees on net assets less than $25 million. Even if
all Rights are exercised at the Estimated Subscription Price of $2.82, the annual compensation to be received by the Adviser will
not change as the Adviser is not compensated on net assets less than $25 million.
The
Fund may, in the future and at its discretion, choose to make additional rights offerings from time to time for a number of shares
and on terms which may or may not be similar to the Offering. Any such future rights offerings will be made in accordance with
the 1940 Act and the Securities Act. Under the laws of Texas, the state in which the Fund is incorporated, under certain circumstances,
the Board is authorized to approve rights offerings without obtaining Stockholder approval. The staff of the SEC has interpreted
the 1940 Act as not requiring stockholder approval of a rights offering at a price below the then current NAV so long as certain
conditions are met, including a good faith determination by the fund’s board of directors that such offering would result
in a net benefit to the fund’s existing stockholders.
FINANCIAL
HIGHLIGHTS
Set
forth below is, for each year indicated, per share operating performance data for one share of the Fund’s common stock,
total investment return, ratios to average net assets and other supplemental data. This information has been derived from the
financial statements and market price data for the Fund’s shares. On July 6, 2017, Horizon assumed investment advisory responsibilities
for the Fund. Prior to that date, the Fund was managed by another investment adviser and pursued a different investment strategy.
Therefore, information for periods prior to December 31, 2017 may have differed had these changes been in effect during those
periods.
The
financial highlights for the fiscal years ended December 31, 2017 - 2020 have been audited by Tait, Weller & Baker LLP, an
independent registered public accounting firm. The Financial Highlights for the years prior to December 31, 2017 were audited
by BKD, LLP. The financial statements and notes thereto for the fiscal year ended December 31, 2020, together with the report
thereon of the Fund’s independent registered public accounting firm, are incorporated by reference in the Statement of Additional
Information and are available without charge by visiting the Fund’s website at http://www.rencapital.com, by calling
(646) 291-2300 or by writing to the Fund at Renn Fund, Inc., c/o Horizon Kinetics Asset Management LLC, 470 Park Avenue South,
New York, NY 10016.
Consolidated
Financial Highlights (7)
|
|
For
the Six Months Ended June 30, 2021 (Unaudited)
|
|
|
For
the Year Ended December 31, 2020
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Net asset value, beginning
of period
|
|
$
|
1.99
|
|
|
$
|
2.08
|
|
|
$
|
1.90
|
|
|
$
|
1.47
|
|
|
$
|
1.64
|
|
|
$
|
1.37
|
|
Income from Investment Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment loss(1)
|
|
|
-0.01
|
|
|
|
-0.03
|
|
|
|
-0.02
|
|
|
|
-0.04
|
|
|
|
-0.08
|
|
|
|
-0.17
|
|
Net
realized and unrealized gain (loss) on investments
|
|
|
0.71
|
|
|
|
-0.06
|
|
|
|
0.40
|
|
|
|
0.47
|
|
|
|
-0.09
|
|
|
|
0.44
|
|
Total from investment Operations
|
|
|
0.70
|
|
|
|
-0.09
|
|
|
|
0.38
|
|
|
|
0.43
|
|
|
|
-0.17
|
|
|
|
0.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Share Transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect
of rights offering
|
|
|
---
|
|
|
|
---
|
|
|
|
-0.20
|
(2)
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of period
|
|
$
|
2.69
|
|
|
|
1.99
|
|
|
|
2.08
|
|
|
|
1.90
|
|
|
|
1.47
|
|
|
|
1.64
|
|
Per-share market value, end of period
|
|
$
|
2.42
|
|
|
|
1.71
|
|
|
|
1.64
|
|
|
|
1.49
|
|
|
|
1.50
|
|
|
|
1.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net asset value return(3)
|
|
|
35.18
|
%(5)
|
|
|
-4.33
|
%
|
|
|
9.47
|
%
|
|
|
29.25
|
%
|
|
|
-10.37
|
%
|
|
|
19.71
|
%
|
Total market value return(3)
|
|
|
41.55
|
%(5)
|
|
|
4.25
|
%
|
|
|
10.07
|
%
|
|
|
-0.93
|
%
|
|
|
22.95
|
%
|
|
|
35.56
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios and Supplemental Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (in thousands)
|
|
$
|
15,990
|
|
|
$
|
11,858
|
|
|
$
|
12,356
|
|
|
$
|
8,476
|
|
|
$
|
6,546
|
|
|
$
|
7,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of expenses
to average net assets
|
|
|
1.53
|
%(6)
|
|
|
2.35
|
|
|
|
2.03
|
%
|
|
|
2.89
|
%
|
|
|
5.99
|
(4)
|
|
|
12.16
|
(4)
|
Ratio of net investment loss to average net
assets
|
|
|
-1.09
|
%(6)
|
|
|
-1.64
|
%
|
|
|
-0.98
|
%
|
|
|
-2.06
|
%
|
|
|
-5.60
|
%(4)
|
|
|
-12.01
|
%(4)
|
Portfolio turnover rate
|
|
|
0
|
%(5)
|
|
|
1
|
%
|
|
|
1
|
%
|
|
|
12
|
%
|
|
|
7
|
%
|
|
|
72
|
%
|
(1)
|
Based on average shares outstanding for the
period.
|
(2)
|
Represents the impact of the Fund’s rights
offering of 1,487,989 common shares in February 2019 at a subscription price based on a formula. See Note 10 to the Fund’s
Semi Annual Report dated June 30, 2021, for more information.
|
(3)
|
Total net asset value return measures the change
in net asset value per share over the period indicated. Total market value return is computed based upon the Fund’s
unrounded New York Stock Exchange market price per share and excludes the effects of brokerage commissions. Dividends and
distributions are assumed, for purposes of these calculations, to be reinvested at prices obtained under the Fund’s
dividend reinvestment plan.
|
(4)
|
Average net assets have been calculated based
on monthly valuations.
|
(7)
|
Consolidated for the six months ended June 30,
2021 and the years ended December 31, 2020, 2019 and 2018 only.
|
|
|
For
the Years 2011 to 2015
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Net asset value, beginning
of period
|
|
$
|
2.21
|
|
|
$
|
2.36
|
|
|
$
|
2.53
|
|
|
$
|
2.13
|
|
|
$
|
2.79
|
|
Income from Investment Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment loss
|
|
|
-0.10
|
|
|
|
-0.12
|
|
|
|
-0.14
|
|
|
|
-0.13
|
|
|
|
-0.18
|
|
Net
realized and unrealized gain (loss) on investments
|
|
|
-0.74
|
|
|
|
-0.03
|
|
|
|
-0.03
|
|
|
|
0.53
|
|
|
|
-0.48
|
|
Total from investment Operations
|
|
|
-0.84
|
|
|
|
-0.15
|
|
|
|
-0.17
|
|
|
|
0.40
|
|
|
|
-0.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Share Transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of rights offering
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of period
|
|
$
|
1.37
|
|
|
$
|
2.21
|
|
|
$
|
2.36
|
|
|
$
|
2.53
|
|
|
$
|
2.13
|
|
Per-share market value, end of period
|
|
$
|
0.90
|
|
|
$
|
1.30
|
|
|
$
|
1.45
|
|
|
$
|
1.42
|
|
|
$
|
1.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net asset value return
|
|
|
-38.01
|
%
|
|
|
-6.36
|
%
|
|
|
-6.72
|
%
|
|
|
18.78
|
%
|
|
|
-23.66
|
%
|
Total market value return(a)
|
|
|
-30.77
|
%
|
|
|
-10.34
|
%
|
|
|
2.11
|
%
|
|
|
-21.98
|
%
|
|
|
-7.14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios and Supplemental Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (in thousands)
|
|
$
|
6,120
|
|
|
$
|
9,857
|
|
|
$
|
10,539
|
|
|
$
|
11,273
|
|
|
$
|
9,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of expenses to average net assets(b)
|
|
|
5.57
|
%
|
|
|
4.86
|
%
|
|
|
5.47
|
%
|
|
|
6.51
|
%
|
|
|
5.25
|
%
|
Ratio of net investment loss to average net
assets(b)
|
|
|
-5.55
|
%
|
|
|
-4.86
|
%
|
|
|
-5.11
|
%
|
|
|
-5.34
|
%
|
|
|
-7.30
|
%
|
Portfolio turnover rate
|
|
|
9
|
%
|
|
|
0
|
%
|
|
|
43
|
%
|
|
|
32
|
%
|
|
|
14
|
%
|
(a)
|
Total investment return is calculated by comparing
the common stock price on the first day of the period to the price on the last day of the period. The calculation also assumes
reinvestment of distributions at actual prices pursuant to the Fund’s dividend reinvestment plan and reflects taxes
paid by the Fund for deemed distributions. Total investment return calculated for a period of less than one year is not annualized.
|
(b)
|
Average net assets have been computed based
on monthly valuations.
|
USE
OF PROCEEDS
If
fully-subscribed, the net proceeds of the Offering will be approximately $ 3,000,001 or approximately $ 2.82 per share. The
net proceeds of the Offering will be invested in accordance with the Fund’s investment objective and policies (as stated
below) as soon as practicable after completion of the Offering. Pending investment of the net proceeds in accordance with the
Fund’s investment objective and policies, the Fund will invest in money market securities or money market mutual funds.
Investors
should expect, therefore, that before the Fund has fully invested the proceeds of the Offering in accordance with its investment
objective and policies, the Fund’s net asset value would earn interest income at a modest rate.
INVESTMENT
OBJECTIVE AND POLICIES
Investment
Objective
The
Fund’s investment objective is to seek to achieve above-market rates of return through capital appreciation and income.
The Fund will seek to achieve its investment objective through a long-term, value-oriented investment process.
Investment
Strategies
The
Fund may invest in a wide variety of financial instruments including, but not limited to common stocks, fixed income securities
including convertible and non-convertible debt securities or loans, distressed debt, warrants and preferred stock, exchange traded
funds (“ETFs”) and exchange traded notes (“ETNs”), open and closed-end funds, derivatives including options
and swaps, and The Grayscale Bitcoin Trust, and other instruments and securities which may or may not be listed on a regulated
securities exchange. In particular, the Fund may purchase securities on over-the-counter trading markets, including but not limited
to those offered by OTC Markets Groups Inc. The Grayscale Bitcoin Trust, is a private fund that is not a registered as investment
company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Grayscale Bitcoin Trust seeks for
its shares to track the price of Bitcoin,
The
Fund may transact in securities of U.S. and foreign companies that trade on U.S. and non-U.S. exchanges, including by transactions
that offer exposure to instruments having the characteristics of common stocks such as American Depositary Receipts (“ADRs”),
Global Depositary Receipts (“GDRs”) and International Depositary Receipts (“IDRs”). The Fund may acquire
various equity-related instruments such as ETFs, ETNs or shares of other closed-end funds. The Fund may also write and sell options
on securities for hedging purposes and/or for direct investment.
The
Fund may engage in selling stocks, exchange traded funds (“ETFs”), and exchange traded notes (“ETNs”)
short. Short selling involves the sale of borrowed securities. When the Fund sells a stock short, it incurs an obligation to replace
the stock borrowed at whatever its price may be at the time it purchases the stock for delivery to the securities lender. The
Fund will sell stocks, ETFs, and ETNs short for direct investment in order to generate capital appreciation and/or for hedging
purposes. Certain of the ETFs and ETNs sold short by the Fund may be leveraged ETFs and ETNs.
The
Fund will comply with all SEC rules and other regulations that may be implicated by the Fund’s investment activities, including,
for example, any asset segregation or coverage requirements that may apply as a result of trading in options, swaps or other derivatives.
The
Fund may invest in preferred stock, as well as convertible and non-convertible debt securities, including debt securities that
are rated below investment grade, also known as junk bonds, or unrated. In addition, the Fund may acquire interests in privately-held
companies, and securities or assets for which there may be a limited or no active trading market.
In
general, the Fund will invest in companies that the Adviser believes are undervalued and have the potential for a high rate of
return. Key fundamental factors in this approach may include:
|
-
|
Identification of
dormant assets
|
|
-
|
Underappreciated
intangible assets
|
|
-
|
High returns on
capital
|
|
-
|
High earnings power
relative to analysts’ expectations or current market capitalization
|
|
-
|
Spin-offs, recapitalizations,
and restructurings
|
|
-
|
Discounts to stated
or estimated book value
|
|
-
|
Substantial inside
stock ownership (i.e., owner-operated companies)
|
|
-
|
Expected demand
for the company’s services or products
|
|
-
|
Transitory (not
permanent) business problems causing a low valuation
|
|
-
|
Expected growth
in revenues, earnings, or assets
|
The
companies that are targeted for investment based upon the criteria listed above may include emerging growth companies, but unlike
under the Fund’s current investment strategy, emerging growth companies will not be a focus of the investment strategy that
Horizon intends to employ for the Fund.
The
Fund will execute its investment strategy by regarding investments as representing fractional ownership in the underlying companies’
assets. This will allow the Fund to attempt to achieve its investment objective by acting as a classic value investor seeking
high returns on equity, an intrinsic characteristic of the investment, not a reappraisal of a company’s stock value by the
market, an external factor.
Sell
decisions are generally triggered by either adequate value being achieved, as determined by the Adviser, or by an adverse change
in a company’s operating performance or a deterioration of the company’s business model. A sale may also occur if
the Adviser discovers a new investment opportunity that it believes is more compelling and represents a greater risk-reward profile
than other investment(s) owned in the Fund.
Portfolio
Investments
Common
Stocks
The
Fund will invest in common stocks. Common stocks represent an ownership interest in an issuer. While offering greater potential
for long-term growth, common stocks are more volatile and more risky than some other forms of investment. Common stock prices
fluctuate for many reasons, including adverse events, such as an unfavorable earnings report, changes in investors’ perceptions
of the financial condition of an issuer or 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.
The
Subsidiary invests primarily in the Grayscale Bitcoin Trust. The Fund will invest in the Subsidiary within the limitations of
the federal tax laws, rules and regulations that apply to RICs under Subchapter M of the Code. Unlike the Fund, the Subsidiary
does not, and will not, seek to qualify as an RIC.
Foreign
Securities
The
Fund 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) and other closed-end investment
companies that represent indirect interests in securities of foreign issuers. The Fund is not limited in the amount of assets
it may invest in such foreign securities. These investments involve risks not associated with investments in the United States,
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 the Adviser’s 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 tax), 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 United States. As an alternative
to holding foreign traded securities, the 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, there is the possibility
of expropriation or confiscatory taxation, political or social instability, or diplomatic developments which could affect investments
in those 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.
The
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,
IDRs 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 the Fund’s distributions attributable to foreign securities
will be designated as qualified dividend income. See Certain Additional Material United States Federal Income Tax “Considerations”
below and the “Taxes” section of the Statement of Additional Information.
Cryptocurrency,
Digital Assets, or Virtual Currency Investments
The
Fund may seek investment exposure to cryptocurrency (notably, Bitcoin), often referred to as “virtual currency” or
“digital currency,” through the Grayscale Bitcoin Trust. In addition to the general risks of investing in other investment
vehicles, described further below, the value of the Fund’s indirect investments in cryptocurrency is subject to fluctuations
in the value of the cryptocurrency, which can be highly volatile. The Fund’s exposure to cryptocurrency can result in substantial
losses to the Fund. Cryptocurrency trading operates as a decentralized, peer-to-peer financial exchange and value storage that
is used like money, without the oversight of a central authority or banks. These exchanges can cease operating temporarily or
even permanently. The value of cryptocurrency, like the value of other digital assets, is not backed by any government, corporation,
or other identified body. The value of cryptocurrencies is determined by the supply and demand for cryptocurrency in the global
market for the trading of cryptocurrency, which consists of transactions on electronic exchanges. The Fund’s ability to
value its investments may be impacted by technological issues, and/or errors by pricing services or other third-party service
providers. Shares of a closed-end investment vehicle that indirectly invests in cryptocurrency may also trade at a significant
premium or discount to net asset value. Factors affecting the further development of cryptocurrency, include, but are not limited
to: continued worldwide growth or possible cessation or reversal in the adoption and use of cryptocurrency and other digital assets;
government and quasi-government regulation or restrictions on or regulation of access to and operation of digital asset networks;
changes in consumer demographics and public preferences; maintenance and development of open-source software protocol; availability
and popularity of other forms or methods of buying and selling goods and services; the use of the networks supporting digital
assets for developing smart contracts and distributed applications; general economic conditions and the regulatory environment
relating to digital assets; negative consumer or public perception; and general risks tied to the use of information technologies,
including cyber risks.
The
Fund’s exposure to cryptocurrency may change over time and, accordingly, such exposure may not always be represented in
the Fund’s portfolio. Many significant aspects of the tax treatment of investments in cryptocurrency are uncertain, and
an indirect investment in cryptocurrency may produce non-qualifying income. Cryptocurrency is a new technological innovation with
a limited history; it is a highly speculative asset and future regulatory actions or policies may limit, perhaps to a materially
adverse extent, the value of the Fund’s indirect investment in cryptocurrency.
Short-Selling
The
Fund may engage in selling stocks, exchange traded funds (“ETFs”), and exchange traded notes (“ETNs”)
short. Short selling involves the sale of borrowed securities. When the Fund sells a stock short, it incurs an obligation to replace
the stock borrowed at whatever its price may be at the time it purchases the stock for delivery to the securities lender. The
Fund will sell stocks, ETFs, and ETNs short for direct investment in order to generate capital appreciation and/or for hedging
purposes. Certain of the ETFs and ETNs sold short by the Fund may be leveraged ETFs and ETNs.
Preferred
Stocks
The
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.
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 the Fund invests will be declared
or otherwise made payable. The Fund may invest in non-cumulative preferred stock, although the 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, the Fund’s holdings of
higher dividend paying preferred stocks may be reduced and the Fund may be unable to acquire securities paying comparable rates
with the redemption proceeds.
Other
Closed-End Investment Companies
The
Fund may invest without limitation in other closed-end investment companies, provided that the Fund limits its investment in securities
issued by other investment companies so that the Fund will not own more than 3% of the outstanding voting stock of any one investment
company. There can be no assurance that the investment objective of any investment company in which the Fund invests will be achieved.
Closed-end
investment companies are subject to the risks of investing in the underlying securities. The Fund, as a holder of the securities
of the 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 the Fund’s own operations.
Exchange
Traded Funds
The
Fund may invest in certain ETFs, which are investment companies that aim to track or replicate a desired index, such as a sector,
market or global segment. ETFs are passively 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. The 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 the
Fund’s own operations.
Corporate
Bonds, Government Debt Securities and Other Debt Securities
The
Fund may invest in corporate bonds, debentures and other debt securities, and in investment companies holding such instruments.
Debt securities in which the 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.
The
Fund will 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. The 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 the
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.
The
Fund will not invest directly in debt securities rated below investment grade (i.e., securities rated lower than “Baa”
by Moody’s or lower than “BBB” by S&P), or their equivalent as determined by the Adviser. These securities
are commonly referred to as “junk bonds.” The foregoing credit quality policy applies only at the time a security
is purchased, and the Fund is not required to dispose of securities already owned by the Fund in the event of a change in assessment
of credit quality or the removal of a rating.
Convertible
Securities
The
Fund may invest in convertible securities and in investment companies holding such instruments. 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.
The
Fund will exchange or convert convertible securities into shares of underlying common stock when, in the opinion of the Adviser,
the investment characteristics of the underlying common shares will assist the Fund in achieving its investment objective. The
Fund may also elect to hold or trade convertible securities. In selecting convertible securities, the 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 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.
Warrants
The
Fund may invest in equity and index warrants of domestic and international issuers. Equity warrants are securities that give the
holder the right, but not the obligation, to subscribe for equity issues of the issuing company or a related company at a fixed
price either on a certain date or during a set period. Changes in the value of a warrant do not necessarily correspond to changes
in the value of its underlying security. The price of a warrant may be more volatile than the price of its underlying security,
and a warrant may offer greater potential for capital appreciation as well as capital loss.
Warrants
do not entitle a holder to dividends or voting rights with respect to the underlying security and do not represent any rights
in the assets of the issuing company. A warrant ceases to have value if it is not exercised prior to its expiration date. These
factors can make warrants more speculative than other types of investments. The sale of a warrant results in a long or short-term
capital gain or loss depending on the period for which the warrant is held.
Repurchase
Agreements
The
Fund has agreed to purchase securities from financial institutions subject to the seller’s agreement to repurchase them
at an agreed-upon time and price (“repurchase agreements”). The financial institutions with whom the Fund enters into
repurchase agreements are banks and broker/dealers, which the Adviser considers creditworthy. The seller under a repurchase agreement
will be required to maintain the value of the securities as collateral, subject to the agreement at not less than the repurchase
price plus accrued interest. The Adviser monitors the mark-to-market of the value of the collateral, and, if necessary, requires
the seller to maintain additional securities, so that the value of the collateral is not less than the repurchase price. Default
by or bankruptcy of the seller would, however, expose the Fund to possible loss because of adverse market action or delays in
connection with the disposition of the underlying securities.
Other
Securities
Although
it has no current intention do so, the Adviser may determine to invest the Fund’s assets in some or all of the following
securities from time to time.
Emerging
Market Securities
The
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 the 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 the 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 the 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 the Fund to suffer a loss of any or all of its investments.
Illiquid
Securities
Illiquid
securities are securities that are not readily marketable. Illiquid securities include securities that have legal or contractual
restrictions on resale, and repurchase agreements maturing in more than seven days. Illiquid securities involve the risk that
the securities will not be able to be sold at the time desired or at prices approximating the value at which the Fund is carrying
the securities. Where registration is required to sell a security, the Fund may be obligated to pay all or part of the registration
expenses, and a considerable period may elapse between the decision to sell and the time the Fund may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse market conditions were to develop, the Fund might
obtain a less favorable price than prevailed when it decided to sell. The Fund may invest up to 20% of the value of its net assets
in illiquid securities. Restricted securities for which no market exists and other illiquid investments are valued at fair value
as determined in accordance with procedures approved and periodically reviewed by the Board of Directors.
Rule
144A Securities
The
Fund may invest in restricted securities that are eligible for resale pursuant to Rule 144A under the Securities Act of 1933,
as amended, (the “1933 Act”). Generally, Rule 144A establishes a safe harbor from the registration requirements of
the 1933 Act for resale by large institutional investors of securities that are not publicly traded. The Adviser determines the
liquidity of the Rule 144A securities according to guidelines adopted by the Board of Directors. The Board of Directors monitors
the application of those guidelines and procedures. Securities eligible for resale pursuant to Rule 144A, which are determined
to be liquid, are not subject to the Fund’s 20% limit on investments in illiquid securities.
Fundamental
Policies
The
fundamental policies listed below cannot be changed without the approval of the holders of a majority of the Fund’s outstanding
voting securities, which for these purposes means the lesser of: (a) 67% of the shares of the Fund present or represented by proxy
at a meeting if the holders of more than 50% of the outstanding shares are present or represented at the meeting; or (b) more
than 50% of outstanding shares of the Fund. A recital of the Fund’s policies in respect of the following types of activities
is set forth below:
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1.
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The
Fund intends to borrow money under only limited circumstances, as permitted by the 1940 Act, the rules thereunder and any
interpretations or exemptions from the 1940 Act. As an operating policy, however, which may be changed without a vote of shareholders,
the Fund may borrow up to 33% of the Fund’s net asset value as of the time of borrowing for purposes of taking advantage
of investments deemed to be in the best interest of the Fund or may borrow such amounts as deemed necessary and prudent as
a temporary measure for extraordinary or emergency purposes, including the payment of dividends and the settlement of securities
transactions which otherwise might require untimely dispositions of Fund securities.
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2.
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The
Fund intends to limit its issuance of senior securities, as defined in the 1940 Act, to the borrowings permitted by investment
restriction (1) above. The 1940 Act currently defines a “senior security” as any bond, debenture, note or similar
obligation or instrument constituting a security and evidencing indebtedness and any stock of a class having priority over
any other class as to distribution of assets or payment of dividends. Debt and equity securities issued by a closed-end investment
company meeting the asset coverage provisions set forth in Section 18 of the 1940 Act are excluded from the general 1940 Act
prohibition on the issuance of senior securities.
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3.
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The
Fund reserves the freedom of action to engage in the purchase of securities on margin in accordance with the 1940 Act. (The
purchase of investment assets with the proceeds of a permitted borrowing or securities offering will not be deemed to be the
purchase of securities on margin.) At present the Fund has no margin balances. See Item 1 above for intents and limits with
regard to borrowing.
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4.
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The
Fund will not underwrite securities issued by other persons, except insofar as it may technically be deemed to be an underwriter
under the Securities Act of 1933, as amended, in selling or disposing of a portfolio investment, or participating in a secondary
offering of a portfolio investment.
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5.
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The
Fund may only make loans to the extent permitted under the 1940 Act, which currently limits such loans to no more than 33-1/3%
of the value of the Fund’s total assets. However, the Fund reserves the freedom of action to engage in the making of
loans to other persons by: (a) the acquisition of obligations in which the Fund is authorized to invest in accordance with
its investment objectives and policies; (b) entering into repurchase agreements; or (c) lending its portfolio securities.
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6.
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The
Fund will not generally purchase or sell real estate, although it may purchase and sell securities which are secured by interests
in real estate, securities of issuers which invest or deal in real estate, securities of real estate investment trusts, and
other securities that represent a similar indirect interest in real estate. The Fund reserves the freedom of action to hold
and to sell real estate acquired as a result of the ownership of securities. There is no policy limiting the amount or percentage
of real estate holdings which may be acquired indirectly through its portfolio collateral interests.
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7.
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The
Fund will not generally purchase or sell physical commodities or contracts for the purchase or sale of physical commodities.
Physical commodities do not include futures contracts with respect to securities, securities indices, currencies, interest
or other financial instruments. The Fund may invest in currency instruments and contracts and financial instruments and contracts
that might be deemed to be commodities and commodities contracts.
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8.
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The
Fund will be classified as non-diversified, as such classification is defined by Section 5 of the 1940 Act. As a non-diversified
company, the Fund is not required to invest in a particular number of issuers and the net asset value of the Fund may be subject
to greater fluctuation.
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9.
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The
Fund will not concentrate its investments in any particular industry or group of industries. For the purposes of its classification,
the Fund deems an investment of 25% or more of its assets in any particular industry or group of industries as a concentration
in that industry or group of industries.
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RISK
FACTORS
An
investment in the Fund’s Shares is subject to risks. The value of the Fund’s investments will increase or decrease
based on changes in the prices of the investments it holds. You could lose money by investing in the Fund. By itself, the Fund
does not constitute a balanced investment program. You should consider carefully the following principal risks before investing
in the Fund. There may be additional risks that the Fund does not currently foresee or consider material. You may wish to consult
with your legal or tax advisors, before deciding whether to invest in the Fund. This section describes the principal risk factors
associated with investment in the Fund specifically, as well as those factors generally associated with investment in an investment
company with investment objectives, investment policies, capital structure or trading markets similar to the Fund’s.
Principal
Risks
Stock
Selection Risks. The portfolio securities selected by the Adviser may decline in value or not increase in value when the
stock market in general is rising and may fail to meet the Fund’s investment objectives.
Long-Term
Investment Risks. Although any debt investments the Fund may make will typically yield a current return from the time
they are made, future equity investments that are made in accordance with the Fund’s long-term, value-oriented investment
strategy will generally produce gains, if any, only after three to five years. In a substantial portion of cases, the Fund’s
investments will likely not generate distributable income in the early years of investment. There can be no assurance that either
a current return or capital gains will actually be achieved.
Dilution
Risks. Stockholders who do not fully exercise their subscription rights should expect that they will, at the completion
of the rights offering pursuant to this prospectus, own a smaller proportional interest in the Fund than would otherwise be the
case if they fully exercised their rights. We cannot state precisely the amount of any such dilution in share ownership because
we do not know at this time what proportion of the shares will be purchased as a result of the rights offering.
In
addition, if the subscription price is less than the net asset value per share of our common stock, then Stockholders would experience
an immediate dilution of the aggregate net asset value of their shares as a result of the offering. The amount of any decrease
in net asset value is not predictable because it is not known at this time what the subscription price and net asset value per
share will be on the expiration date of a rights offering or what proportion of the shares will be purchased as a result of such
rights offering. Such dilution could be substantial.
Liquidity
Risks. The Adviser may not be able to sell portfolio securities at an optimal time or price. For example, if the Fund
is required or the adviser deems it advisable to liquidate all or a portion of a portfolio security quickly, it may realize significantly
less than the value at which the investment was previously recorded.
Small
and Medium-Size Company Risks. The Fund may invest in the equity securities of small and medium-size companies. Small
and medium-size companies often have narrower product lines and potential markets and more limited managerial and financial resources
than do larger, more established companies. As a result, their performance can be more volatile and they face a greater risk of
business failure, which could increase the volatility of the Fund’s assets.
Risks
Related to the Over-the-Counter Markets. Issuers whose securities are traded in the over-the-counter markets (“OTC”)
have no duty to provide any information to investors. Even issuers who register OTC securities with the Securities and Exchange
Commission are not required to maintain such registration. Many OTC securities are thinly traded, and this lack of liquidity tends
to increase price volatility, and in many cases, the liquidation of a position in an OTC security may not be possible within a
reasonable period of time.
Private
Issuer Risks. In addition to the risks associated with small public companies, limited or no public information may exist
about private companies, and the Fund will rely on the ability of the Adviser to obtain adequate information to evaluate the potential
returns from investing in these companies. If the Adviser is unable to uncover all material information about these companies,
the Fund may not make a fully informed investment decision and may lose money on the investment.
Minority
Investment Risks. Because the Fund generally does not hold controlling equity interests in the Fund’s portfolio
companies, it may not be able to exercise control over portfolio companies or to prevent decisions by management of portfolio
companies with which the Fund disagrees and that could decrease the value of investments.
Exchange-Traded
Funds (ETFs) and Closed-End Funds (CEFs) Risks. The Fund may invest in other investment companies, including ETFs and
closed-end funds (“CEFs”). ETFs and CEFs are registered investment companies whose shares are listed and traded on
U.S. stock exchanges or otherwise traded in the OTC market. In general, passively-managed ETFs seek to track a specified securities
index or a basket of securities that an “index provider,” such as Standard & Poor’s, selects as representative
of a market, market segment or industry sector. A passively-managed ETF is designed so that its performance will correspond closely
with that of the index it tracks. A leveraged ETF will engage in transactions and purchase instruments that give rise to forms
of leverage, including, among others, the use of reverse repurchase agreements and other borrowings, the investment of collateral
from loans of portfolio securities, the use of when-issued, delayed-delivery or forward commitment transactions or short sales.
To the extent a fund invests in ETFs or CEFs that achieve leveraged exposure to their underlying indexes through the use of derivative
instruments, the Fund will indirectly be subject to leveraging risk. CEFs are subject to additional risks such as the fact that
the market price of their shares may trade above or below the net asset value or that an active market may not develop. As a shareholder
in an ETF or CEF, the Fund will bear its pro rata portion of the ETF’s and CEF’s expenses, including advisory fees,
in addition to its own fees and expenses.
Exchange
Traded Notes (ETNs) Risks. ETNs are a type of debt security that generally trades on U.S. stock exchanges or in the OTC
market. Like ETFs, ETNS seek to provide a return linked to a market index or other benchmark, which may include, for example,
equity indices, commodities or foreign currencies, and they share some of the same risks as ETNs, potentially including leverage
risks. Unlike ETFs, ETNs are unsecured debt obligations of the issuer—typically a bank or another financial institution—and
are therefore subject to a risk of default by the issuer. And unlike traditional bonds, ETNs are generally issued on an ongoing
basis and typically do not pay any interest to investors; instead, the issuer promises to pay the holder of the ETN an amount
determined by the performance of the underlying index or benchmark on the ETN’s maturity date (typically 10, 30 or in some
cases 40 years from issuance), minus specified fees. ETNs may trade at a premium or discount to their indicative values, and investing
in ETNs therefore involves greater market risks than investing in some other forms of debt, including a risk of significant price
volatility and the risk of delisting or suspension of trading from the applicable trading market. Issuers of ETNs may seek to
control price fluctuations by issuing or redeeming the ETNs, and an investor cannot control the magnitude or timing of such issuances
or redemptions. In addition, issuers may have the right to call ETNs at a specified redemption price that may be less than their
current trading price.
Foreign
Securities Risks. The Fund may invest in foreign securities directly or through ADRs, GDRs and IDRs. Foreign securities
can carry higher returns but involve more risks than those associated with U.S. investments. Additional risks associated with
investment in foreign securities include currency fluctuations, political and economic instability, differences in financial reporting
standards and less stringent regulation of securities markets.
Non-Diversification
Risks. As a non-diversified investment company, the Fund can invest a large percentage of its assets in a small number
of issuers. As a result of such concentration, a change in the value of any one investment may affect the overall value of the
Fund’s shares more than shares of a diversified closed-end fund that holds more investments. However, the Fund intends to
satisfy the diversification requirements for qualifying as a RIC under Subchapter M of the Code.
Interest
Rate Risk. When interest rates increase, any fixed-income securities held by the Fund may decline in value. Long-term
fixed-income securities will normally have more price volatility because of this risk than short-term fixed-income securities.
It is likely there will be less governmental action in the near future to maintain low interest rates. The negative impact on
fixed-income securities from the resulting rate increases for that and other reasons could be swift and significant.
Leveraging
Risks. Investments in derivative instruments may give rise to a form of leverage. The Adviser may engage in speculative
transactions which involve substantial risk and leverage. The use of leverage by the Adviser may increase the volatility of the
Fund. These leveraged instruments may result in losses to the Fund or may adversely affect the Fund’s NAY or total return,
because instruments that contain leverage are more sensitive to changes in interest rates. The Fund may also have to sell assets
at inopportune times to satisfy its obligations in connection with such transactions.
Option
Transaction Risks. Purchasing and writing put and call options are highly specialized activities and entail greater than
ordinary investment risks. The successful use of options depends in part on the ability of the Adviser to manage future price
fluctuations and the degree of correlation between the options and securities markets. By writing put options on equity securities,
the Fund would give up the opportunity to benefit from potential increases in the value of the common stocks above the strike
prices of the written put options, but continue to bear the risk of declines in the value of its common stock portfolio. The Fund
would receive a premium from writing a covered call option that it retains whether or not the option is exercised. The premium
received from the written options may not be sufficient to offset any losses sustained from the volatility of the underlying equity
securities over time.
Below
Investment Grade Debt Securities Risks. Generally, below investment grade debt securities, i.e., junk bonds, are
subject to greater credit risk, price volatility and risk of loss than investment grade securities.
Distressed
Debt Risks. An investment in distressed debt involves considerable risks, including a higher risk of nonpayment by the
debtor. The Fund may incur significant expenses seeking recovery upon default or attempting to negotiate new terms. Furthermore,
if one of the Fund’s portfolio companies were to file for bankruptcy protection, a bankruptcy court might re-characterize
the debt held by the Fund and subordinate all or a portion of the Fund’s claim to claims of other creditors, even, in some
cases, if the investment is structured as senior secured debt. The bankruptcy process has a number of significant inherent risks,
including substantially delays and the risk of loss of all or a substantial portion of the Fund’s investment in the bankrupt
entity.
Management
Risks. There is no guarantee that the Fund will meet its investment objective. The Adviser does not guarantee the performance
of the Fund, nor can it assure you that the market value of your investment will not decline.
Special
Situations Risks. The Fund may use aggressive investment techniques, including seeking to benefit from “special
situations,” such as mergers, reorganizations or other unusual events expected to affect a particular issuer. There is a
risk that the “special situation” might not occur or involve longer time frames than originally expected, which could
have a negative impact on the price of the issuer’s securities and fail to produce gains or produce a loss for the Fund.
Derivatives
Risks. The Fund’s investments may include futures, options and swaps and other derivative instruments, which may
result in loss. Derivative instruments may be illiquid, difficult to price and leveraged so that small changes may produce disproportionate
losses to the Fund. The use of derivative instruments may expose us to counter-party credit risk. To the extent the Fund segregates
assets to cover derivative positions, the Fund may impair its ability to meet current obligations, to honor requests for redemption
and to manage the Fund properly in a manner consistent with its stated investment objective.
Convertible
Security Risk. The Fund may invest in convertible securities, which may decline in response to such factors as rising
interest rates and fluctuations in the market price of the common stock underlying the convertible securities.
Short-Selling
Risk. The Fund can sell securities short to the maximum extent permitted under the Investment Company Act of 1940 (the
“1940 Act”). A short sale by the Fund involves borrowing a security from a lender which is then sold in the open market.
At a future date, the security is repurchased by the Fund and returned to the lender. While the security is borrowed, the proceeds
from the sale are deposited with the lender and the Fund may be required to pay interest and/or the equivalent of any dividend
payments paid by the security to the lender. If the value of the security declines between the time the Fund borrows the security
and the time it repurchases and returns the security to the lender, the Fund makes a profit on the difference (less any expenses
the Fund is required to pay the lender). There is no assurance that a security will decline in value during the period of the
short sale and make a profit for the Fund. If the value of the security sold short increases between the time that the Fund borrows
the security and the time it repurchases and returns the security to the lender, the Fund will realize a loss on the difference
(plus any expenses the Fund is required to pay to the lender). This loss is theoretically unlimited as there is no limit as to
how high the security sold short can appreciate in value, thus increasing the cost of buying that security to cover a short position.
The Fund may incur expenses in selling securities short and such expenses are investment expenses of the Fund.
Investments
in Leveraged/Inverse ETFs and ETNs. The Fund may invest long or short in leveraged/inverse ETFs and ETNs. Leveraged/inverse
ETFs and ETNs are designed for investors who seek leveraged long or leveraged inverse exposure, as applicable, to the daily performance
of an index. These instruments do not guarantee any return of principal and do not pay any interest during their term. In general,
investors will be entitled to receive a cash payment, upon early redemption or upon acceleration, as applicable, that will be
linked to the performance of an underlying index, plus a daily accrual and less a daily investor fee. Investors should be willing
to forgo interest payments and, if the index on which the ETF or ETN is based declines or increases, as applicable, be willing
to lose up to 100% of their investment. In many instances a leveraged or inverse ETF or ETN will seek to provide an investor with
a corresponding multiple of the index it tracks (e.g., a three times leveraged long ETF that tracks the S&P 500 Index seeks
to provide investors with three times the positive rate of return of the S&P 500 Index on a daily basis). Such ETFs and ETNs
are very sensitive to changes in the level of their corresponding index, and returns may be negatively impacted in complex ways
by the volatility of the corresponding index on a daily or intraday basis. Accordingly, the value of the Fund’s investments
in inverse, leveraged ETFs and inverse ETFs may be more volatile and all other risks, including the risk of loss of an investment,
tend to be compounded or magnified.
Bitcoin
Risk. The Fund invests indirectly in bitcoins from time to time exclusively through the Grayscale Bitcoin Trust that offers
exposure to bitcoin. The Grayscale Bitcoin Trust offers shares on a periodic basis through private placements pursuant to the
exemption from registration provided by Rule 506(c) under Regulation D of the Securities Act of 1933, as amended. Bitcoins are a
digital commodity that is not issued by a government, bank or central organization. Bitcoins exist on an online, peer-to-peer
computer network (the “Bitcoin Network”) that hosts a public transaction ledger where bitcoin transfers are recorded
(the “Blockchain”). Bitcoins have no physical existence beyond the record of transactions on the Blockchain. The
Grayscale Bitcoin Trust invests principally in bitcoins.
The
Fund invests indirectly in bitcoin exclusively through investments in the Grayscale Bitcoin Trust. Grayscale Bitcoin Trust’s
investment objective is for the net asset value per share to reflect the performance of the market price of bitcoin, less Grayscale
Bitcoin Trust’s expenses. The Fund will invest in Grayscale Bitcoin Trust only to the extent the Adviser believes such an
investment complements the Fund’s other investments and will help the Fund to achieve its investment objective. As a result,
at times the Fund may have little or no exposure to Grayscale Bitcoin Trust.
The
value of bitcoins is determined by the supply of and demand for bitcoins in the global market for the trading of bitcoins, which
consists of transactions on electronic bitcoin exchanges (“Bitcoin Exchanges”). Pricing on Bitcoin Exchanges can be
volatile and can adversely affect the value of the Grayscale Bitcoin Trust. Bitcoin is subject to the risk of fraud, theft, manipulation,
security or operational failures, or other problems that impact Bitcoin Exchanges. Over the past several years, a number of Bitcoin
Exchanges have been closed due to fraud, failure, or security breaches. Investors in Bitcoin may have little or no recourse should
such theft, fraud or manipulation occur and could suffer significant losses.
Currently,
there is relatively small use of bitcoins in the retail and commercial marketplace in comparison to the relatively large use of
bitcoins by speculators, thus contributing to price volatility that could adversely affect the Fund’s investment in the
Grayscale Bitcoin Trust. A significant portion of Bitcoin is held by a small number of holders sometimes referred to as “whales.”
These holders have the ability to manipulate the price of Bitcoin. Unlike the exchanges for more traditional assets, such as equity
securities and futures contracts, Bitcoin and Bitcoin Exchanges are largely unregulated. As a result of the lack of regulation,
individuals or groups may engage in fraud or market manipulation and investors may be more exposed to the risk of theft, fraud
and market manipulation than when investing in more traditional asset classes. Additionally, if one or a coordinated group of
miners were to gain control of 51% of the Bitcoin Network, they would have the ability to manipulate transactions, halt payments
and fraudulently obtain Bitcoin. Bitcoin transactions are irrevocable, and stolen or incorrectly transferred bitcoins may be irretrievable.
As a result, any incorrectly executed bitcoin transactions could adversely affect the value of the Fund’s direct or indirect
investment in the Grayscale Bitcoin Trust. Legal or regulatory changes may negatively impact the operation of the Bitcoin network
or restrict the use of Bitcoin. The realization of any of these risks could result in a decline in the acceptance of Bitcoin and
consequently a reduction in the value of Bitcoin and the Fund.
From
time to time, Bitcoin developers suggest changes to the Bitcoin software. If a sufficient number of users and miners elect not
to adopt the changes, a new digital asset, operating on the earlier version of the Bitcoin software, may be created. This is often
referred to as a “fork.” The creation of a “fork” or a substantial giveaway of Bitcoin (sometimes referred
to as an “air drop”) may result in a significant and unexpected declines in the value of Bitcoin and the Fund.
Shares
of the Grayscale Bitcoin Trust may trade at a premium or discount to the net asset value of the Grayscale Bitcoin Trust. The Fund
makes investments in the Grayscale Bitcoin Trust through the Subsidiary. The Fund will invest in the Subsidiary within the limitations
of the federal tax laws, rules and regulations that apply to regulated investment companies (“RICs”) under Subchapter
M of Subtitle A, Chapter 1, of the Internal Revenue Code. Unlike the Fund, the Subsidiary does not, and will not, seek to qualify
as an RIC.
Regulatory
Risk. Bitcoin is generally not subject to the same degree of regulation as are registered U.S. securities. The reporting,
accounting and auditing standards for Bitcoin may differ from the standards for registered U.S. securities. Furthermore, countries,
including the U.S., may in the future curtail or outlaw the acquisition, use or redemption of bitcoins.
Volatility
Risk. The Fund may have investments, including but not limited to Bitcoin, that appreciate or depreciate significantly
in value over short periods of time. This may cause the Fund’s net asset value per share to experience significant increases
or declines in value over short periods of time.
Valuation
Risk. Valuation may be more difficult in times of market turmoil since many investors and market makers may be reluctant to
purchase complex instruments or quote prices for them. The Fund’s ability to value its investments may be impacted by
technological issues and/or errors by pricing services or other third-party service providers. Shares of Grayscale Bitcoin Trust are
intended to reflect the price of bitcoin assets, less fees and expenses, and the shares currently trade at a substantial premium to
the net asset value of such assets. As such, the price of Grayscale Bitcoin Trust may go down even if the price of the underlying
asset, bitcoin, remains unchanged. Additionally, shares that trade at a premium mean that an investor who purchases $1 of a
portfolio will actually own less than $1 in assets.
Subsidiary
Risk. The Fund makes investments through a wholly-owned Subsidiary organized under the laws of the Cayman Islands. By
investing in the Subsidiary, the Fund is indirectly exposed to the risks associated with the Subsidiary’s investments. The
investments held by a Subsidiary are generally similar to those that are permitted to be held by the Fund and are subject to the
same risks that apply to similar investments if held directly by the Fund. The Subsidiary is not registered under the 1940 Act,
and, unless otherwise noted, is not subject to all the investor protections of the 1940 Act. However, the Fund wholly-owns and
controls the Subsidiary, making it unlikely that it will take action contrary to the interests of the Fund and its shareholders.
The Board has oversight responsibility for the investment activities of the Fund, including its investment in the Subsidiary,
and its role as sole shareholder of the Subsidiary. The Fund and the Subsidiary will be subject to the same investment restrictions
and limitations on a consolidated basis, and to the extent applicable to the investment activities of the Subsidiary, and will
follow the same compliance policies and procedures as its Fund. Changes in the laws of the United States and/or the Cayman Islands
could result in the inability of the- Fund and/or the Subsidiary to operate as described herein and could adversely affect the
Fund. For example, the Cayman Islands does not currently impose any income, corporate or capital gains tax or withholding tax
on the Cayman Subsidiary. If Cayman Islands law changes such that the Cayman Subsidiary must pay Cayman Island taxes, Fund shareholders
would likely suffer decreased investment returns.
Tax
Risk. To qualify as a RIC, the Fund must, among other things, derive at least 90% of its gross income for each taxable
year from sources treated as “qualifying income” under Subchapter M. Although qualifying income does not include income
derived directly from commodities – the Internal Revenue Service (the “IRS”) has ruled that virtual currency
is “property,” which thus could be considered a commodity, and the Fund, therefore will restrict its gross income
from direct investments therein (including shares of the Grayscale Bitcoin Trust) to a maximum of 10% of its gross income for
each taxable year (when combined with its other investments that produce non-qualifying income).
As
discussed above in “Subsidiary Risk”, the Fund intends to achieve virtual currency exposure primarily through investment
in the Subsidiary. The Subsidiary is classified as a corporation and is treated as a “controlled foreign corporation”
for U.S. federal income tax purposes. The Fund does not expect that income from its investment in the Subsidiary will be eligible
to be treated as qualified dividend income or that distributions from the Subsidiary will be eligible for the corporate dividends
received deduction.
In
order for the Fund to qualify as a RIC under the Code, the Fund must, amongst other requirements, derive at least 90% of its gross
income each taxable year from qualifying income, which is described in more detail in the “Taxes” section of the Statement
of Additional Information. The Fund’s investment in the Subsidiary is expected to provide the Fund with exposure to virtual
currencies within the limitations of the federal tax requirements under Subchapter M of the Code. The Subpart F income of the
Fund attributable to its investment in the Subsidiary is “qualifying income” to the Fund to the extent that such income
is either (i) timely and currently repatriated or (ii) derived with respect to the Fund’s business of investing in stock,
securities or currencies. The Fund will likely secure an opinion of counsel based on customary representations that to the extent
of actual distributions made to the Fund by the Subsidiary, its “Subpart F” income attributable to its investment
in the Subsidiary derived with respect to the Fund’s business of investing in stock, securities or currencies should be
treated as “qualifying income,” which is consistent with the IRS regulations. Accordingly, to the extent the Subsidiary
makes distributions out of its earnings and profits, the Fund expects such distributions to be treated as qualifying income. The
Adviser will monitor the Fund’s investments in the Subsidiary to ensure that no more than 25% of the Fund’s assets
are invested in the Subsidiary to ensure compliance with the Fund’s asset diversification test as described in more detail
in the “Taxes” section of the Statement of Additional Information.
Accordingly,
the extent to which the Fund invests in virtual currency investments directly or through the Subsidiary may be limited by the
qualifying income and asset diversification tests, which the Fund must continue to satisfy to maintain its status as a RIC. As
such, the Fund might cease to qualify as a RIC or could be required to reduce its exposure to such investments, which may result
in difficulty in implementing the Fund’s investment strategy. If the Fund did not qualify as a RIC for any taxable year
and certain relief provisions were not available, the Fund’s taxable income would be subject to tax at the Fund level and
to a further tax at the Stockholder level when such income is distributed. Failure to comply with the requirements for qualification
as a RIC would have significant negative tax consequences to Fund Stockholders. See the “Taxes” section of the Statement
of Additional Information for further detail.
LISTING
OF SHARES
The
Fund’s shares trade on the NYSE American under the ticker symbol RCG and are required to meet the NYSE American’s
continued listing requirements.
MANAGEMENT
OF THE FUND
Directors
and Officers
The
Board of Directors is responsible for the overall management of the Fund, including supervision of the duties performed by the
Adviser. There are five Directors of the Fund, three of which are an “interested person” (as defined in the 1940 Act)
of the Fund. The Directors are responsible for the Fund’s overall management, including adopting the investment and other
policies of the Fund, electing and replacing officers and selecting and supervising the Fund’s Adviser. The name and business
address of the Directors and officers of the Fund and their principal occupations and other affiliations during the past five
years, as well as a description of committees of the Board of Directors, are set forth under “Management” in the Statement
of Additional Information.
Investment
Adviser
Horizon
Kinetics Asset Management LLC, 470 Park Avenue South, New York, NY 10016 is organized as a limited liability company under the
laws of Delaware and serves as the Fund’s investment adviser. The Adviser is registered with the SEC as an investment adviser
under the Investment Advisers Act of 1940, as amended. The Adviser began conducting business in January 1994 and manages nine
open-end funds with combined assets under management with the Fund of approximately $6.5 billion, as of September 30, 2021.
Under
the general supervision of the Fund’s Board of Directors, the Adviser carries out the investment and reinvestment of the
net assets of the Fund, continuously furnishes an investment program with respect to the Fund, determines which securities should
be purchased, sold or exchanged, and implements such determinations. The Adviser furnishes to the Fund investment advice and office
facilities, equipment and personnel for servicing the investments of the Fund. The Adviser compensates all Directors and officers
of the Fund who are members of the Adviser’s organization and who render investment services to the Fund, and will also
compensate all other Adviser personnel who provide research and investment services to the Fund. In return for these services,
facilities and payments, the Fund has agreed to pay the Adviser as compensation under the Investment Management Agreement a monthly
fee computed at the annual rate of 1.0% of the average weekly net assets of the Fund; provided, however, that the Adviser is not
paid any compensation on net assets less than $25 million. The total estimated annual expenses of the Fund are set forth in the
section titled “Summary of Fund Expenses.”
The
Board of Directors annually considers the continuance of the Investment Management Agreement. A discussion regarding the basis
for the Board of Directors’ approval on June 11, 2021 of the continuance of the Investment Management Agreement between
the Fund and the Adviser will be available in the Fund’s semi-annual report to Stockholders for the six-month period ended
June 30, 2021.
During
the last three fiscal years, the Fund paid the Adviser the following amounts as compensation:
Fiscal
Year Ended December 31,
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2020
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2019
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2018
|
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Management
Fees Earned
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$
|
0
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|
|
$
|
0
|
|
|
$
|
0
|
|
Management
Fee Paid
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Portfolio
Managers
Murray
Stahl has been the Fund’s portfolio manager (the “Portfolio Manager”) since July 2017. In carrying out responsibilities
for the management of the Fund’s portfolio of securities, the Portfolio Manager has primary responsibility. The Adviser
may create a portfolio management team by assigning additional portfolio managers. In cases where the team might not be in agreement
with regard to an investment decision, Murray Stahl has ultimate authority to decide the matter. In addition to Mr. Stahl, Steven
M. Bregman and Peter B. Doyle are Co-Portfolio Managers of the Fund.
Below
is a table describing the Portfolio Manager’s year of birth, positions with the Fund, lengths of term of office, and the
principal occupations held during at least the last five years.
Name
and Age
|
Position(s)
Held with the Fund, Principal Occupation(s) During the Past 5 Years, and Other Directorships
|
Current
Term of Office and Time Served
|
Murray
Stahl
Age:
67
|
Chairman
of the Board, President, Chief Executive Officer of the Fund
Class
Three Director of the Fund
Chairman,
Chief Executive Officer and Chief Investment Strategist of Horizon Kinetics LLC
(Principal
occupation)
Other
Directorships:
Chairman,
the FRMO Corp. (OTC Pink: FRMO)
Director,
Kinetics Mutual Funds, Inc.
Director,
Texas Pacific land Corporation (energy)
Director,
Bermuda Stock Exchange (stock exchange)
|
Since
July 2017
Until
2022 Annual Meeting/Since 2017
Annual/Since
1994
Since
2001
Since
2000
Since
2021
Since
2014
|
Name
and Age
|
Position(s)
Held with the Fund, Principal Occupation(s) During the Past 5 Years, and Other Directorships
|
Current
Term of Office and Time Served
|
|
Chairman,
Minneapolis Grain Exchange (commodity exchange)
Director,
MSRH, LLC (investment advisory)
Director,
IL&FS Securities Services Ltd (securities market services)
Director,
Winland Electronics, Inc.
|
Since
2013
Since
2013
2008
to 2020
2015
to 2020
|
Steven
M. Bregman
Age
63
|
Co-Portfolio
Managers
Co-Portfolio
Manager of the Fund
President
and Co-Founder, Horizon Kinetics LLC (Principal occupation)
|
Since 2021
Annual/Since
1994
|
Peter
B Doyle
Age
59
|
President
and CFO, FRMO Corp.
Director,
Winland Electronics
Co-Portfolio
Manager of the Fund
Managing
Director and Co-Founder, Horizon Kinetics LLC, President of Kinetics Mutual Funds, Inc., (Principal Occupation)
Vice
President, FRMO Corp.
Senior
Investment Officer, Bankers Trust Company
|
Since
2001
Since
2020
Since
2021
Annual/Since
1994
Since
2001
1985-1994
|
The
Statement of Additional Information provides additional information about the Portfolio Manager’s compensation, other accounts
managed by the Portfolio Manager, and the Portfolio Manager’s ownership of securities in the Fund.
Administrator
UMB
Fund Services, 235 W. Galena Street, Milwaukee, WI 53212-3949 serves as administrator to the Fund. Under the administration agreement
with the Fund, UMB is responsible for generally managing the administrative affairs of the Fund, including supervising the preparation
of reports to Stockholders, reports to and filings with the SEC and materials for meetings of the Board. UMB Fund Services receives
a combined accounting and administrative fee as discussed further below.
Fund
Accounting Agent
UMB
Fund Services, 235 W. Galena Street, Milwaukee, WI 53212-3949, serves as accounting agent to the Fund. Under the Accounting Agreement
with the Fund, UMB Fund Services is responsible for calculating the net asset value per share and maintaining the financial books
and records of the Fund. UMB Fund Services is entitled to receive an accounting and administration fee which includes the greater
of an annual minimum fee of $5,000 per month or an asset based fee of 0.100% of the first $150 million of average daily net assets,
0.080% in excess of $150 million and up to $250 million of average net assets and 0.050% of such assets in excess of $250 million.
Custodian
and Transfer Agent
UMB
Bank, N.A., 928 Grand Blvd. Kansas City, MO 64106, is the custodian of the Fund and maintains custody of the securities and cash
of the Fund.
American
Stock Transfer & Trust Company, with an address of 6201 15th Avenue, Brooklyn, New York 11219, serves as the transfer agent
and dividend paying agent of the Fund.
Fund
Expenses
The
Adviser is obligated to pay expenses associated with providing the services contemplated by the Investment Management Agreement,
including compensation of and office space for its officers and employees connected with investment and economic research, trading
and investment management and administration of the Fund. The Fund is not obligated to pay the fees of any Director of the Fund
who is affiliated with the Adviser.
UMB
is obligated to pay expenses associated with providing the services contemplated by the Administration Agreement, including compensation
of and office space for its officers and employees and administration of the Fund.
The
Fund pays all other expenses incurred in the operation of the Fund including, among other things, (i) expenses for legal and independent
accountants’ services, (ii) costs of printing proxies, share certificates and reports to stockholders, (iii) charges of
the custodian and transfer agent in connection with the Fund’s Distribution Reinvestment Plan, (iv) fees and expenses of
independent Directors, (v) printing costs, (vi) membership fees in trade association, (vii) fidelity bond coverage for the Fund’s
officers and Directors, (viii) errors and omissions insurance for the Fund’s officers and Directors, (ix) brokerage costs
and listing fees and expenses charged by NYSE American, (x) taxes and (xi) other extraordinary or non-recurring expenses
and other expenses properly payable by the Fund. The expenses incident to the Offering and issuance of shares to be issued by
the Fund will be recorded as a reduction of capital of the Fund attributable to the shares.
The
Fund’s annual operating expenses for the fiscal year ended December 31, 2020 were approximately $240,216. No assurance can
be given, in light of the Fund’s investment objectives and policies, however, that future annual operating expenses will
not be substantially more or less than this estimate. Offering expenses relating to the Fund’s shares, will be paid exclusively
by the Adviser. Therefore, no expenses will be deducted from the proceeds of the Offering.
The
Investment Management Agreement authorizes the Adviser to select brokers or dealers (including affiliates) to arrange for the
purchase and sale of Fund securities, including principal transactions. Any commission, fee or other remuneration paid to an affiliated
broker or dealer is paid in compliance with the Fund’s procedures adopted in accordance with Rule 17e-1 under the 1940 Act.
DETERMINATION
OF NET ASSET VALUE
The
net asset value of shares of the Fund is determined weekly and on the last business day of each month, as of the close of regular
trading on the NYSE American (normally, 4:00 p.m., Eastern Time). In computing net asset value, portfolio securities of the Fund
are valued at their current market values determined on the basis of market quotations. If market quotations are not readily available,
securities are valued at fair value as determined by the Board of Directors. The Fund’s investments in closed-end funds
or ETFs whose shares are listed on a national securities exchange are valued using the market price at the close of the NYSE American
or such other exchange on which they are listed. Private funds and non-traded closed-end funds are fair valued based on the Fund’s
fair valuation policies and procedures. Fair valuation involves subjective judgments, and it is possible that the fair value determined
for a security may differ materially from the value that could be realized upon the sale of the security. Non-dollar-denominated
securities are valued as of the close of the NYSE American at the closing price of such securities in their principal trading
market, but may be valued at fair value if subsequent events occurring before the computation of net asset value materially have
affected the value of the securities.
Trading
may take place in foreign issuers held by the Fund at times when the Fund is not open for business. As a result, the Fund’s
net asset value may change at times when it is not possible to purchase or sell shares of the Fund. The Fund may use a third party
pricing service to assist it in determining the market value of securities in the Fund’s portfolio. The Fund’s net
asset value per share is calculated by dividing the value of the Fund’s total assets (the value of the securities the Fund
holds plus cash or other assets, including interest accrued but not yet received), less accrued expenses of the Fund, less the
Fund’s other liabilities by the total number of shares outstanding.
Readily
marketable portfolio securities listed on the NYSE American are valued, except as indicated below, at the last sale price reflected
on the consolidated tape at the close of the NYSE American on the business day as of which such value is being determined. If
there has been no sale on such day, the securities are valued at the mean of the closing bid and asked prices on such day. If
no bid or asked prices are quoted on such day or if market prices may be unreliable because of events occurring after the close
of trading, then the security is valued by such method as the Board of Directors shall determine in good faith to reflect its
fair market value. Readily marketable securities not listed on the NYSE American but listed on other domestic or foreign securities
exchanges are valued in a like manner. Portfolio securities traded on more than one securities exchange are valued at the last
sale price on the business day as of which such value is being determined as reflected on the consolidated tape at the close of
the exchange representing the principal market for such securities. Securities trading on the Nasdaq Stock Market, Inc. (“NASDAQ”)
are valued at the NASDAQ Official Closing Price. Readily marketable securities traded in the over-the counter market, including
listed securities whose primary market is believed by the Adviser to be over-the-counter, are valued at the mean of the current
bid and asked prices as reported by the NASDAQ or, in the case of securities not reported by the NASDAQ or a comparable source,
as the Board of Directors deem appropriate to reflect their fair market value. Where securities are traded on more than one exchange
and also over-the-counter, the securities will generally be valued using the quotations the Board of Directors believes reflect
most closely the value of such securities.
SALES
OF COMMON STOCK BELOW NET ASSET VALUE
Sales
by us of our common stock at a discount from NAV per share pose potential risks for our existing Stockholders whether or not they
participate in the offering, as well as for new investors who participate in the offering. NAV per share used in the tables below
is based on the Fund’s most recently determined NAV per share as of October 19, 2021. The NAV per share used for purposes
of providing information in the table below is thus an estimate and does not necessarily reflect actual NAV per share at the time
sales are made. Actual NAV per share may be higher or lower based on potential changes in valuations of the Fund’s portfolio
securities, accruals of income, expenses and distributions declared and thus may be higher or lower at the assumed sales prices
than shown below.
The
table below provides a hypothetical example of the impact that an offering at a price less than NAV per share may have on the
NAV per share of Stockholders who do and do not participate in such an offering. However, the table below does not show and is
not intended to show any potential changes in market price that may occur from an offering at a price less than NAV per share
and it is not possible to predict any potential market price change that may occur from such an offering.
Impact
On Existing Stockholders Who Do Not Participate in the Offering
Existing
Stockholders who do not participate in an offering below NAV per share or who do not buy additional shares of common stock in
the secondary market at the same or lower price we obtain in the offering (after expenses and commissions) face the greatest potential
risks. These Stockholders will experience an immediate decrease (often called dilution) in the NAV of the shares of common stock
they hold and their NAV per share. These Stockholders will also experience a disproportionately greater decrease in their participation
in our earnings and assets and their voting power than the increase we will experience in our assets, potential earning power
and voting interests due to the offering. These Stockholders may also experience a decline in the market price of their shares
of common stock, which often reflects to some degree announced or potential increases and decreases in NAV per share. This decrease
could be more pronounced as the size of the offering and level of discounts increases.
The
following chart illustrates the level of NAV dilution that would be experienced by a nonparticipating Stockholder in a hypothetical
offering from NAV per share. It is not possible to predict the level of market price decline that may occur.
The
example assumes that we have 5,951,956 common shares outstanding. The current NAV and NAV per share as of October 19, 2021, are
thus $ 17,948,751 and $ 2.94. The table illustrates the dilutive effect on nonparticipating Stockholder A who does not participate
in the offering to exercise rights.
|
Prior
to Sale
|
|
|
|
Below
NAV
|
Following
Sale
|
%
Change
|
Offering
Price
|
|
|
|
Price
per Share to Public
|
$2.60
|
|
|
Net
Proceeds per Share to Issuer
|
$2.340
|
|
|
Decrease
to NAV
|
|
|
|
Total
Shares Outstanding
|
5,951,956
|
7,935,941
|
33.33%
|
NAV
|
17,498,751
|
22,141,276
|
26.53%
|
NAV
per Share
|
$2.940
|
$2.790
|
-5.10%
|
Dilution
to Stockholder A (not exercising)
|
|
|
|
Shares
Held by Stockholder A
|
100,000
|
100,000
|
0.00%
|
Percentage
Held by Stockholder A
|
1.68%
|
1.26%
|
-25.00%
|
Total
NAV Held by Stockholder A
|
$294,000.000
|
$279,000.000
|
-5.10%
|
DISTRIBUTION
REINVESTMENT PLAN
The
Fund operates a Dividend Reinvestment Plan (the “Plan”), administered by American Stock Transfer & Trust Company,
LLC (the “Agent”), pursuant to which the Fund’s income dividends or capital gains or other distributions (each,
a “Distribution” and collectively, “Distributions”), net of any applicable U.S. withholding tax, are reinvested
in shares of the Fund.
Stockholders
automatically participate in the Fund’s Plan, unless and until an election is made to withdraw from the Plan on behalf of
such participating stockholder. Stockholders who do not wish to have Distributions automatically reinvested should so notify the
Agent at 6201 15th Avenue, Brooklyn, NY 11219. Under the Plan, the Fund’s Distributions to stockholders are reinvested
in full and fractional shares as described below.
When
the Fund declares a Distribution the Agent, on the stockholder’s behalf, will (i) receive additional authorized shares from
the Fund either newly issued or repurchased from stockholders by the Fund and held as treasury stock (“Newly Issued Shares”)
or (ii) purchase outstanding shares on the open market, on the NYSE American or elsewhere, with cash allocated to it by the Fund
(“Open Market Purchases”).
The
method for determining the number of Newly Issued Shares received when Distributions are reinvested will be determined by dividing
the amount of the Distribution either by the Fund’s last reported net asset value per share or by a price equal to the average
closing price of the Fund over the five trading days preceding the payment date of the Distribution, whichever is lower. However,
if the last reported net asset value of the Fund’s shares is higher than the average closing price of the Fund over the
five trading days preceding the payment date of the Distribution ice (i.e., the Fund is selling at a discount), shares may be
acquired by the Agent in Open Market Purchases and allocated to the reinvesting stockholders based on the average cost of such
Open Market Purchases. Upon notice from the Fund, the Agent will receive the Distribution in cash and will purchase shares of
common stock in the open market, on the NYSE American or elsewhere, for the participants’ accounts, except that the Agent
will endeavor to terminate purchases in the open market and cause the Fund to issue the remaining shares if, following the commencement
of the purchases, the market value of the shares, including brokerage commissions, exceeds the net asset value at the time of
valuation. These remaining shares will be issued by the Fund at a price equal to the net asset value at the time of valuation.
In
a case where the Agent has terminated open market purchases and caused the issuance of remaining shares by the Fund, the number
of shares received by the participant in respect of the Distribution will be based on the weighted average of prices paid for
shares purchased in the open market, including brokerage commissions, and the price at which the Fund issues the remaining shares.
To the extent that the Agent is unable to terminate purchases in the open market before the Agent has completed its purchases,
or remaining shares cannot be issued by the Fund because the Fund declared a Distribution payable only in cash, and the market
price exceeds the net asset value of the shares, the average share purchase price paid by the Agent may exceed the net asset value
of the shares, resulting in the acquisition of fewer shares than if the Distribution had been paid in shares issued by the Fund.
Whenever
the Fund declares a Distribution and the last reported net asset value of the Fund’s shares is higher than its market price,
the Agent will apply the amount of such Distribution payable to Plan participants of the Fund in Fund shares (less such Plan participant’s
pro rata share of brokerage commissions incurred with respect to Open Market Purchases in connection with the reinvestment of
such Distribution) to the purchase on the open market of Fund shares for such Plan participant’s account. Such purchases
will be made on or after the payable date for such Distribution, and in no event more than 30 days after such date except where
temporary curtailment or suspension of purchase is necessary to comply with applicable provisions of federal securities laws.
The Agent may aggregate a Plan participant’s purchases with the purchases of other Plan participants, and the average price
(including brokerage commissions) of all shares purchased by the Agent shall be the price per share allocable to each Plan participant.
Registered
stockholders who do not wish to have their Distributions automatically reinvested should so notify the Fund in writing. If a stockholder
has not elected to receive cash Distributions and the Agent does not receive notice of an election to receive cash Distributions
prior to the record date of any Distribution, the stockholder will automatically receive such Distributions in additional shares.
Participants
in the Plan may withdraw from the Plan by providing written notice to the Agent at least 30 days prior to the applicable Distribution
payment date. The Agent will maintain all stockholder accounts in the Plan and furnish written confirmations of all transactions
in the accounts, including information needed by stockholders for personal and tax records The Agent will hold shares in the account
of the Plan participant in non-certificated form in the name of the participant, and each stockholder’s proxy will include
those shares purchased pursuant to the Plan. The Agent will distribute all proxy solicitation materials to participating stockholders.
In
the case of stockholders, such as banks, brokers or nominees, that hold shares for others who are beneficial owners participating
in the Plan, the Agent will administer the Plan on the basis of the number of shares certified from time to time by the record
stockholder as representing the total amount of shares registered in the stockholder’s name and held for the account of
beneficial owners participating in the Plan.
Neither
the Agent nor the Fund shall have any responsibility or liability beyond the exercise of ordinary care for any action taken or
omitted pursuant to the Plan, nor shall they have any duties, responsibilities or liabilities except such as expressly set forth
herein. Neither shall they be liable hereunder for any act done in good faith or for any good faith omissions to act, including,
without limitation, failure to terminate a participants account prior to receipt of written notice of his or her death or with
respect to prices at which shares are purchased or sold for the participants account and the terms on which such purchases and
sales are made, subject to applicable provisions of the federal securities laws.
The
automatic reinvestment of Distributions will not relieve participants of any federal, state or local income tax that may be payable
(or required to be withheld) on such Distributions. The Fund reserves the right to amend or terminate the Plan. There is no direct
service charge to participants with regard to purchases in the Plan.
All
correspondence concerning the Plan should be directed to the Agent at (800) 488-8095.
CERTAIN
ADDITIONAL MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The
following is a summary discussion of certain U.S. federal income tax consequences that may be relevant to a Stockholder that acquires,
holds and/or disposes of the Fund’s shares, and reflects provisions of the Code, existing Treasury regulations, rulings
published by the Internal Revenue Service (the “IRS”), and other applicable authority, as of the date of this prospectus.
These authorities are subject to change by legislative or administrative action, possibly with retroactive effect. The following
discussion is only a summary of some of the important tax considerations generally applicable to investments in the Fund and the
discussion set forth herein does not constitute tax advice. No attempt is made to present a detailed explanation of the tax treatment
of the Fund or its Stockholders, and the discussion here does not address investors subject to special rules, such as investors
who hold shares through an individual retirement For more detailed information regarding tax considerations, see the Statement
of Additional Information.
Taxation
as a Regulated Investment Company
The
Fund has elected and intends to qualify each year for taxation as a RIC under Subchapter M of the Code. In order for the Fund
to qualify as a RIC, it must meet income and asset diversification tests each year. If the Fund so qualifies and satisfies certain
distribution requirements, the Fund (but not its Stockholders) will not be subject to federal income tax to the extent it distributes
its investment company taxable income and net capital gains (the excess of net long-term capital gains over net short-term capital
losses) in a timely manner to its Stockholders in the form of dividends or capital gain distributions. The Code imposes a 4% nondeductible
excise tax on RICs, such as the Fund, to the extent they do not meet certain distribution requirements by the end of each calendar
year. The Fund anticipates meeting these distribution requirements but cannot make any assurances that it will entirely eliminate
such tax.
The
Fund intends to make annual distributions of investment company taxable income after payment of the Fund’s operating expenses.
Unless a Stockholder is ineligible to participate or elects otherwise, all distributions will be automatically reinvested in additional
shares pursuant to the Fund’s distribution reinvestment plan (the “Plan”). For U.S. federal income tax purposes,
all dividends are generally taxable whether a Stockholder takes them in cash or they are reinvested pursuant to the Plan in additional
shares. Distributions of the Fund’s investment company taxable income (including short-term capital gains) will generally
be treated as ordinary income to the extent of the Fund’s current and accumulated earnings and profits. Distributions of
the Fund’s net capital gains (“capital gain dividends”), if any, are taxable to Stockholders as long-term capital
gains, regardless of the length of time shares have been held by Stockholders. Distributions, if any, in excess of the Fund’s
earnings and profits will first reduce the adjusted tax basis of a holder’s shares and, after that basis has been reduced
to zero, will constitute capital gains to the Stockholder (assuming the shares are held as a capital asset). See below for a summary
of the maximum tax rates applicable to capital gains (including capital gain dividends
Fund
dividend payments that are attributable to qualifying dividends received by the Fund from certain domestic corporations may be
designated by the Fund as being eligible for the dividends received deduction available for corporate Stockholders. There can
be no assurance as to what portion of Fund dividend payments may be classified as qualifying dividends for purposes of the dividends
received deduction.
Under
current law, certain income distributions paid by the Fund to individual taxpayers may be taxed at rates equal to those applicable
to net long-term capital gains (generally, 20%). This tax treatment applies only if certain holding period and other requirements
are satisfied by the Stockholder with respect to its shares, and the dividends are attributable to qualified dividends received
by the Fund itself. For this purpose, “qualified dividends” means dividends received by the Fund from certain United
States corporations and certain qualifying foreign corporations, provided that the Fund satisfies certain holding period and other
requirements in respect of the stock of such corporations. In the case of securities lending transactions, payments in lieu of
dividends are not qualified dividends. The Fund’s dividends, other than capital gain dividends and qualified dividends,
will be fully taxable at ordinary income tax rates unless future legislative action is taken. While certain income distributions
to Stockholders may qualify as qualified dividends, the Fund seeks to provide dividends regardless of whether they so qualify.
As additional special rules apply to determine whether a distribution will be a qualified dividend, investors should consult their
tax advisors. Investors should also see the “Taxes” section of the Fund’s Statement of Additional Information
for more information relating to qualified dividends.
With
respect to the annual distributions of investment company taxable income described above, it may be the case that any such distributions
would result in a return of capital to the Stockholder. The determination of the character for U.S. federal income tax purposes
of any distribution from the Fund (i.e., ordinary income dividends, capital gains dividends, qualified dividends income, return
of capital distributions) will be made as of the end of the Fund’s taxable year. Generally, no later than 60 days after
the close of its taxable year, the Fund will provide Stockholders with a written notice designating the amount of any capital
gain distributions or other distributions.
The
Fund may elect to retain its net capital gain or a portion thereof for investment and be taxed at the 21% corporate rate on the
amount retained. In such case, it may designate the retained amount as undistributed capital gains in a notice to its Stockholders
who will be treated as if each received a distribution of such Stockholder’s pro rata share of such gain, with the result
that each Stockholder will (i) be required to report such Stockholder’s pro rata share of such gain on such Stockholder’s
tax return as long-term capital gain, (ii) receive a refundable tax credit for such Stockholder’s pro rata share of tax
paid by the Fund on the gain and (iii) increase the tax basis for such Stockholder’s shares by an amount equal to the deemed
distribution less the tax credit.
Dividends
and interest received, and gains realized, by the Fund on foreign securities may be subject to income, withholding or other taxes
imposed by foreign countries and U.S. possessions (collectively “foreign taxes”) that would reduce the return on its
securities. Tax conventions between certain countries and the United States, however, may reduce or eliminate foreign taxes, and
many foreign countries do not impose taxes on capital gains in respect of investments by foreign investors. If more than 50% of
the value of the Fund’s net assets at the close of its taxable year consists of securities of foreign corporations, it will
be eligible to, and may, file an election with the IRS that will enable Stockholders, in effect, to receive the benefit of the
foreign tax credit with respect to any foreign taxes paid by the Fund. Pursuant to the election, the Fund would treat those taxes
as dividends paid to Stockholders and each Stockholder (1) would be required to include in gross income, and treat as paid by
such Stockholder, a proportionate share of those taxes, (2) would be required to treat such share of those taxes and of any dividend
paid by the Fund that represents income from foreign or U.S. possessions sources as such stockholder’s own income from those
sources, and, if certain conditions are met, (3) could either deduct the foreign taxes deemed paid in computing taxable income
or, alternatively, use the foregoing information in calculating the foreign tax credit against federal income tax. The Fund will
report to Stockholders shortly after each taxable year their respective shares of foreign taxes paid and the income from sources
within, and taxes paid to, foreign countries and U.S. possessions if it makes this election.
The
Fund will inform its Stockholders of the source and tax status of all distributions promptly after the close of each calendar
year.
The
Fund may invest in other RICs. In general, the Code permits a RIC which satisfies certain requirements to deduct dividends paid
to its stockholders in computing the RIC’s taxable income. A qualifying RIC is also generally permitted to pass through
the character of certain types of its income when it makes distributions. For example, a RIC may distribute ordinary dividends
to its stockholders, capital gain dividends, or other types of dividends which effectively pass through the character of the RIC’s
income to its stockholders, including the Fund.
The
Fund intends to gain its exposure to the virtual currency markets through its investment in the Subsidiary, which invests directly
in virtual currencies. The Fund’s investment in the Subsidiary is expected to provide the Fund with exposure to the virtual
currency markets within the limitations of the federal tax requirements of Subchapter M of the Code for qualification as a RIC.
The “Subpart F” income (defined in Section 951 of the Code to include passive income) of the Fund attributable to
its investment in the Subsidiary is “qualifying income” to the Fund to the extent that such income is derived with
respect to the Fund’s business of investing in stock, securities or currencies. The Fund expects its “Subpart F”
income attributable to its investment in the Subsidiary to be derived with respect to the Fund’s business of investing in
stock, securities or currencies and accordingly expects its “Subpart F” income attributable to its investment in the
Subsidiary to be treated as “qualifying income.” The Adviser will carefully monitor the Fund’s investments in
the Subsidiary to ensure that no more than 25% of the Fund’s assets are invested in the Subsidiary.
In
addition, the Fund’s investments in virtual currency, if made directly, may not produce qualifying income to the Fund. To
the extent the Fund invests in virtual currencies directly, the Fund will seek to restrict its income from such investments that
do not generate qualifying income to a maximum of 10% of its gross income (when combined with its other investments that produce
non-qualifying income).
If
the Fund fails to qualify as a RIC and to avail itself of certain relief provisions, it would be subject to tax at the regular
corporate rate without any deduction for distributions to shareholders, and its distributions would generally be taxable as dividends.
Please see the “Taxes” section of the Statement of Additional Information for a more detailed discussion, including
the availability of certain relief provisions for certain failures by the Fund to qualify as a RIC.
Taxation
of Sales, Exchanges or Other Dispositions
Selling
Stockholders will generally recognize gain or loss in an amount equal to the difference between the Stockholder’s adjusted
tax basis in the shares sold and the amount received. If the shares are held as a capital asset, the gain or loss will be a capital
gain or loss. Under current law, the maximum tax rate applicable to capital gains recognized by individuals and other non-corporate
taxpayers is (i) the same as the maximum ordinary income tax rate for gains recognized on the sale of capital assets held for
one year or less or (ii) generally, 20% for gains recognized on the sale of capital assets held for more than one year (as well
as certain capital gain dividends). Any loss on a disposition of shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gain dividends received with respect to those shares. The use of capital losses is subject
to limitations. For purposes of determining whether shares have been held for six months or less, the holding period is suspended
for any periods during which the Stockholder’s risk of loss is diminished as a result of holding one or more other positions
in substantially similar or related property, or through certain options or short sales. Any loss realized on a sale or exchange
of shares will be disallowed to the extent those shares are replaced by other substantially identical shares within a period of
61 days beginning 30 days before and ending 30 days after the date of disposition of the shares (whether through the reinvestment
of distributions, which could occur, for example, if the Stockholder is a participant in the Plan or otherwise). In that event,
the basis of the replacement shares will be adjusted to reflect the disallowed loss.
An
investor should be aware that, if shares are purchased shortly before the record date for any taxable dividend (including a capital
gain dividend), the purchase price likely will reflect the value of the dividend and the investor then would receive a taxable
distribution likely to reduce the trading value of such shares, in effect resulting in a taxable return of some of the purchase
price. Taxable distributions to individuals and certain other non-corporate Stockholders, including those who have not provided
their correct taxpayer identification number and other required certifications, may be subject to “backup” federal
income tax withholding currently equal to24%.
An
investor should also be aware that the benefits of the reduced tax rate applicable to long-term capital gains and qualified dividend
income may be impacted by the application of the alternative minimum tax to individual stockholders.
If
the Fund utilizes leverage through borrowing, it may be restricted by loan covenants with respect to the declaration of, and payment
of, dividends in certain circumstances. Limits on the Fund’s payments of dividends may prevent the Fund from meeting the
distribution requirements, described above, and may, therefore, jeopardize the Fund’s qualification for taxation as a RIC
and possibly subject the Fund to the 4% excise tax. The Fund will endeavor to avoid restrictions on its ability to make dividend
payments.
Information
Reporting
Section
6045B of the Code generally imposes certain reporting requirements on the Fund with respect to any organizational action that
affects the tax basis of the shares for U.S. federal income tax purposes. The Fund has historically made returns of capital distributions
(“ROC Distributions”) to certain Stockholders and, to the extent such payments continue, the Fund will generally be
required to file IRS Form 8937, Report of Organizational Actions Affecting Basis of Securities (“Form 8937”), with
the IRS and deliver an information statement to certain Stockholders, subject to certain exceptions. Generally, the Fund must
file Form 8937 with the IRS on or before the 45th day following the corporate action or, if earlier, January 15 of the year following
the calendar year of the corporate action. In addition, the Fund must furnish the same information to certain Stockholders on
or before January 15 of the year following the calendar year of the corporate action. However, the Fund generally would not be
required to file Form 8937 or furnish this information to Stockholders provided it posts the requisite information on its primary
public website by the due date for filing Form 8937 with the IRS and such information is available on its website (or any successor
organization’s website) for 10 years.
As
the Fund will generally not be able to determine whether a distribution during the year will be out of its earnings and profits
(and, therefore, whether such distribution should be treated as a dividend or a ROC Distribution for these purposes) until the
close of the tax year, the Fund does not intend to file Form 8937 until after the end of the current calendar year. Based on the
limited interpretive guidance currently available, the Fund believes that its treatment of ROC Distributions and its current intended
action regarding Form 8937 continue to be consistent with the requirements of Form 8937, Section 6045B and the Treasury Regulations
thereunder. The Fund intends to utilize its best efforts to determine the tax characterization of the Fund’s distributions
as soon as practicable following the close of the year and timely comply with the abovementioned Section 6045B requirements, to
the extent applicable. The Fund and its management do not believe that the Fund will be subject to substantial penalties if it
utilizes its best efforts to determine the tax characteristics of its distributions as soon as practicable following the close
of the year to comply with Form 8937 and Section 6045B. The Fund may be subject to substantial penalties to the extent that it
fails to timely comply with its Section 6045B reporting obligations. Each Stockholder is urged to consult its own tax advisor
regarding the application of Section 6045B to its individual circumstances.
Net
Investment Income Tax
A
U.S. Stockholder that is an individual or estate, or a trust that does not fall into a special class of trusts that is exempt
from such tax, will be subject to a 3.8% tax on the lesser of (1) the U.S. Stockholder’s “net investment income”
for the relevant taxable year and (2) the excess of the U.S. Stockholder’s modified adjusted gross income for the taxable
year over a certain threshold (which, in the case of individuals, will be between $125,000 and $250,000 depending on the individual’s
circumstances). A U.S. Stockholder’s “net investment income” may generally include portfolio income (such as
interest and dividends), and income and net gains from an activity that is subject to certain passive activity limitations, unless
such income or net gains are derived in the ordinary course of the conduct of a trade or business (other than a trade or business
that consists of certain passive or trading activities). If you are a U.S. holder that is an individual, estate or trust, you
should consult your tax advisors regarding the applicability of the net investment income tax to your ownership and disposition
of shares of the Funds.
Payments
to Foreign Financial Institutions
The
Foreign Account Tax Compliance Act (“FATCA”), Sections 1474 through 1474 of the Code, and Treasury regulations promulgated
thereunder, generally provide that a 30% withholding tax may be imposed on payments of U.S. source income, including U.S. source
interest and dividends, to certain non-U.S. entities unless such entities enter into an agreement with the IRS to disclose the
name, address and taxpayer identification number of certain U.S. persons that own, directly or indirectly, interests in such entities,
as well as certain other information relating to such interests. Non-U.S. Stockholder’s are encouraged to consult with their
own tax advisors regarding the possible implications and obligations of FATCA.
Other
Taxation
Stockholders
may be subject to state, local and foreign taxes on the Fund’s distributions. Stockholders are advised to consult their
own tax advisors with respect to the particular tax consequences to them of an investment in the Fund.
The
foregoing briefly summarizes some of the important federal income tax consequences to Stockholders of investing in the shares,
reflects the federal tax law as of the date of this prospectus, and does not address special tax rules applicable to certain types
of investors, such as corporate, tax exempt and foreign investors. Investors should consult their tax advisers regarding other
federal, state or local tax considerations that may be applicable in their particular circumstances, as well as any proposed tax
law changes.
Because
each Stockholder’s tax situation is different, Stockholders should consult their tax advisor about the tax implications
of an investment in the Fund.
More
information about taxes is in the Statement of Additional Information.
DESCRIPTION
OF CAPITAL STRUCTURE
The
Fund is a corporation established under the laws of the State of Texas upon the filing of its Certificate of Incorporation (“Charter”)
on January 20, 1994. The Fund intends to hold annual meetings of its Stockholders in compliance with the requirements of the NYSE
American. As of November 1, 2021, the Fund had approximately 5,951,956 shares issued and outstanding.
Common
Stock
The
Charter, which has been filed with the SEC, permits the Fund to issue 20 million shares of stock, with a par value of $1.00. Fractional
shares are permitted. Each share represents an equal proportionate interest in the net assets of the Fund with each other share.
Holders of shares will be entitled to the payment of dividends when declared by the Board of Directors. Each whole share shall
be entitled to one vote as to matters on which it is entitled to vote pursuant to the terms of the Charter on file with the SEC.
Upon liquidation of the Fund, after paying or adequately providing for the payment of all liabilities of the Fund, and upon receipt
of such releases, indemnities and refunding agreements as they deem necessary for the protection of the Directors, the Board may
distribute the remaining net assets of the Fund among its Stockholders. Shares are not liable to further calls or to assessment
by the Fund. No holder of capital stock of the Fund has any pre-emptive or preferential or other right of subscription to any
shares of any class of stock of the Fund.
The
Fund has no present intention of offering additional shares, except as described herein in connection with the exercise of the
Rights. Other offerings of its shares, if made, will require approval of the Board of Directors. Any additional offering will
not be sold at a price per share below the then current net asset value (exclusive of underwriting discounts and commissions)
except in connection with an offering to existing Stockholders or with the consent of a majority of the Fund’s outstanding
shares.
The
Fund will not issue share certificates. The Fund’s Transfer Agent will maintain an account for each Stockholder upon which
the registration and transfer of shares are recorded, and transfers will be reflected by bookkeeping entry, without physical delivery.
The Transfer Agent will require that a Stockholder provide requests in writing, accompanied by a valid signature guarantee form,
when changing certain information in an account such as wiring instructions or telephone privileges.
Trading
and Net Asset Value Information
In
the past, the shares have traded at both a premium and at a discount in relation to NAV. In recent years, shares of closed-end
investment companies such as the Fund frequently trade at a discount from NAV. See “Risk Factors.” The shares are
listed and traded on the NYSE American. The average weekly trading volume of the shares on the NYSE American during the calendar
year ended December 31, 2020 was 26,216 shares.
The
following table shows for the quarters indicated: (i) the high and low sale price of the shares on the NYSE American; (ii) the
high and low NAV per share; and (iii) the high and low premium or discount to NAV at which the shares were trading (as a percentage
of NAV):
Fiscal
Quarter Ended
|
High
Close
|
Low
Close
|
NAV
|
High
NAV
|
Low
NAV
|
Premium/(Discount)
to High NAV
|
Premium/(Discount)
to Low NAV
|
9/30/2021
|
2.69
|
2.05
|
2.94
|
$3.01
|
$2.49
|
-9.97
|
-10.54
|
6/30/2021
|
2.75
|
2.12
|
2.69
|
2.74
|
2.53
|
-6.69
|
-10.41
|
3/31/2021
|
2.80
|
1.65
|
2.58
|
2.75
|
1.97
|
2.25
|
-1.09
|
1/31/2021
|
2.12
|
1.29
|
2.23
|
2.41
|
1.74
|
-10.76
|
-15.25
|
12/31/2020
|
1.73
|
1.29
|
1.99
|
2.07
|
1.64
|
-14.07
|
-16.08
|
9/30/2020
|
1.59
|
1.24
|
1.6
|
1.68
|
1.56
|
-17.81
|
-18.74
|
6/30/2020
|
1.75
|
1
|
1.69
|
1.72
|
1.39
|
-23.08
|
-24.85
|
3/31/2020
|
1.74
|
0.9
|
1.41
|
2.08
|
1.34
|
-19.15
|
-23.4
|
12/31/2019
|
1.71
|
1.45
|
2.08
|
2.08
|
1.79
|
-19.23
|
-23.08
|
9/30/2019
|
1.71
|
1.47
|
1.85
|
1.97
|
1.81
|
-11.45
|
-13.51
|
6/28/2019
|
1.72
|
1.41
|
1.89
|
1.91
|
1.59
|
-16.65
|
-21.16
|
3/29/2019
|
1.92
|
1.42
|
1.83
|
2.27
|
1.83
|
-6.56
|
-7.1
|
12/31/2018
|
1.95
|
1.36
|
1.9
|
2.08
|
1.67
|
-21.05
|
-21.58
|
9/28/2018
|
1.99
|
1.54
|
2.11
|
2.15
|
1.72
|
-9.48
|
-16.11
|
6/29/2018
|
1.81
|
1.33
|
1.69
|
1.7
|
1.49
|
-9.47
|
-9.70
|
3/29/2018
|
2.1
|
1.13
|
1.5
|
1.55
|
1.43
|
-8.67
|
-12.67
|
12/29/2017
|
2.2
|
1.26
|
1.47
|
1.63
|
1.43
|
2.72
|
0.68
|
9/29/2017
|
1.61
|
1.22
|
1.54
|
1.54
|
1.39
|
-6.49
|
-9.74
|
6/30/2017
|
1.39
|
1.11
|
1.52
|
1.52
|
1.41
|
-14.60
|
-17.11
|
3/31/2017
|
1.52
|
1.05
|
1.51
|
1.76
|
1.39
|
-10.60
|
-19.21
|
12/30/2016
|
1.51
|
1.02
|
1.4
|
1.73
|
1.4
|
-10.71
|
-17.86
|
9/30/2016
|
1.3
|
1.01
|
1.54
|
1.58
|
1.16
|
-15.58
|
-18.18
|
6/30/2016
|
1.35
|
0.85
|
1.19
|
1.15
|
1.25
|
-7.14
|
-7.56
|
3/31/2016
|
1.09
|
0.61
|
1.23
|
1.56
|
1.22
|
-16.26
|
-17.07
|
12/31/2015
|
1.11
|
0.74
|
1.53
|
1.67
|
1.48
|
-37.77
|
-45.1
|
9/30/2015
|
1.24
|
1.03
|
1.71
|
1.97
|
1.71
|
-38.01
|
-38.60
|
6/30/2015
|
1.31
|
1.1
|
2.04
|
2.05
|
1.98
|
-39.22
|
-42.16
|
Repurchase
of Shares
The
Fund may, pursuant to Section 23 of the Investment Company Act, purchase shares on the open market from time to time, at such
times, and in such amounts as may be deemed advantageous to the Fund. Nothing herein shall be considered a commitment to purchase
such shares. The Fund had no repurchases during the year ended December 31, 2020. No limit has been placed on the number of shares
to be repurchased by the Fund other than those imposed by federal securities laws. All purchases will be made in accordance with
federal securities laws, with shares repurchased held in treasury for future use by the Fund. In determining to repurchase shares,
the Board of Directors, in consultation with the Adviser, will consider such factors as the market price of the shares, the net
asset value of the shares, the liquidity of the assets of the Fund, effect on the Fund’s expenses, whether such transactions
would impair the Fund’s status as a regulated investment company or result in a failure to comply with applicable asset
coverage requirements, general economic conditions and such other events or conditions, which may have a material effect on the
Fund’s ability to consummate such transactions.
Additional
Provisions of the Charter and By-laws
A
Director may be removed from office only for cause, at any time by a written instrument signed or adopted by a vote of the holders
of at least a majority of the shares of the Fund that are entitled to vote in the election of such Director or by not less than
a majority of Directors then in office. The By-laws prohibit the Fund from issuing senior securities. The By-laws also include
certain notice requirements regarding Stockholder nominees for Directors and proposals that may have the effect of delaying a
change of control.
LEGAL
MATTERS
Certain
legal matters in connection with the shares will be passed upon for the Fund by Morgan, Lewis & Bockius LLP, located at 1111
Pennsylvania Ave NW, Washington, DC 20004-2541.
REPORTS
TO STOCKHOLDERS
The
Fund sends its Stockholders unaudited semi-annual and audited annual reports, including a list of investments held.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Tait,
Weller & Baker LLP is the independent registered public accounting firm for the Fund and will audit the Fund’s financial
statements. Tait, Weller & Baker LLP is located at 50 South 16th Street, Suite 2900, Philadelphia, Pennsylvania
19102.
ADDITIONAL
INFORMATION
The
prospectus and the Statement of Additional Information do not contain all of the information set forth in the Registration Statement
that the Fund has filed with the SEC. The complete Registration Statement may be obtained from the SEC at www.sec.gov.
See page 3 of this prospectus for information about how to obtain a paper copy of the prospectus or Statement of Additional Information
without charge.
Part
B
Statement
of Additional Information
December
2, 2021
RENN
Fund, Inc.
Ticker
Symbol: RCG
470
Park Avenue South
New York, NY 10016
(646) 291-2300
This
Statement of Additional Information (the “SAI”) is not a prospectus. The SAI should be read in conjunction with the Prospectus,
dated December 2, 2021 (the “Prospectus”), as it may be supplemented from time to time. Capitalized terms used but not defined
in this SAI have the meanings given to them in the Prospectus. A copy of the Prospectus may be obtained without charge by written request
to Compliance Officer, RENN Fund, Inc., c/o Horizon Kinetics Asset Management LLC, 470 Park Avenue South, New York, NY 10016 or from
the SEC’s website at www.sec.gov.
TABLE
OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
|
Page
|
GENERAL INFORMATION AND HISTORY
|
59
|
INVESTMENT OBJECTIVES AND POLICIES
|
59
|
MANAGEMENT
|
61
|
COMMITTEES AND MEETINGS
|
62
|
INDEPENDENT DIRECTORS’ RELATIONSHIPS
WITH THE FUND, THE ADVISER, AND AFFILIATES
|
63
|
DIRECTOR AND OFFICER COMPENSATION
|
64
|
CODE OF ETHICS
|
65
|
PROXY VOTING POLICIES AND PROCEDURES
|
65
|
CONTROL PERSONS AND PRINCIPAL HOLDERS OF
SECURITIES
|
66
|
INVESTMENT ADVISORY AND OTHER SERVICES
|
67
|
PORTFOLIO MANAGERS
|
68
|
BROKERAGE ALLOCATION AND OTHER PRACTICES
|
69
|
TAXES
|
70
|
FINANCIAL STATEMENTS
|
79
|
General
Information and History
On
March 14, 1994, the Fund filed an election to be regulated as a business development company (a “BDC”). The Fund elected
BDC status intending to make investments into developing businesses, investing primarily in privately placed convertible securities
and equity securities of emerging growth companies. In December 2008 the Board evaluated and discussed the feasibility of the
Fund’s continuing as a BDC. At a shareholder meeting held on May 15, 2009, the Fund received shareholder approval to withdraw
its election to be treated as a BDC and continue its operations as a registered closed-end management investment company. On May
29, 2014, the Fund received shareholder approval to change its name from the RENN Global Entrepreneurs Fund, Inc., to RENN Fund,
Inc.
At
a shareholder meeting held on June 5, 2017, the Fund received shareholder approval for Horizon Kinetics LLC (“Horizon Kinetics”)
under which Horizon, a registered investment adviser and subsidiary of Horizon Kinetics, would become the new investment manager
for the Fund.
On
December 5, 2017, The Renn Fund, Inc. (Cayman) (the “Subsidiary”) was organized as a limited liability company, and
is a wholly owned subsidiary of the Fund. The consolidated Schedule of Investments, Statement of Assets and Liabilities, Statement
of Operations, Statements of Changes in Net Assets and Financial Highlights of the Fund include the accounts of the Subsidiary.
All inter-company accounts and transactions have been eliminated in the consolidation for the Fund. The Subsidiary is advised
by Horizon and acts as an investment vehicle in order to effect certain investments consistent with the Fund’s investment
objectives and policies specified in the Fund’s prospectus and statement of additional information.
Investment
Objectives and Policies
Descriptions
of the Fund’s current policies are described in the Prospectus.
For the years ended December 31, 2019 and 2020, the Fund’s portfolio turnover rates were each 1%. The turnover rates for
this Fund vary appreciably from year to year because of the nature of its holding securities in emerging companies which may start
off quite slow and then make a significant jump in value when registered or its management strategy comes to successful fruition.
In other years, such as 2008, it may be deemed prudent to hold the long-term investments until the market rises again, so the
turnover rate in those years will be quite low.
Management
Set
forth in the table below are the existing Trustees, including those Trustees who are not considered to be “interested persons,”
as defined in the 1940 Act (the “Independent Trustees”), and officers of the Fund, including information relating
to their respective positions held with the Fund, a brief statement of their principal occupations, and, in the case of the Trustees,
their other directorships during the past five years, (excluding other funds managed by the Investment Adviser), if any.
Name,
Age and Address
|
Position(s)
Held
|
Term of Office(1)
and Length of Service
|
Position(s) Held with the Fund, Principal
Occupation(s) Current Portfolios in Fund
During Past 5 Years, and Other Directorships
|
Interested
Directors
|
Murray
Stahl
470
Park Avenue South,
New
York, New York 10016
Age:
67
|
Class
Three Director of the Fund, President, Chief Executive Officer, Chairman of the Board
|
Since
July 2017
|
Chairman,
Chief Executive Officer and Chief Investment Strategist of Horizon Kinetics LLC (including
Horizon Asset Management LLC since 1994; Kinetics Asset Management LLC and Kinetics Advisers,
LLC since 2000) (Principal occupation).
Other
Directorships:
Director,
MSRH, LLC (2013-Present); Chairman, the FRMO Corp. (OTC Pink: FRMO) (2001 – Present); Director, Kinetics Mutual Funds, Inc.
(2000 – Present); Director, Bermuda Stock Exchange (2014 – Present); Chairman, Minneapolis Grain Exchange (2013-Present);
Director, Winland Electronics, Inc. (2015-2020); Director, IL&FS Securities Services Ltd (2008-2020); Director, Texas Pacific
Land Corporation (2021-Present).
|
Russell
Cleveland1
11520
North Central Expressway, Suite 162,
Dallas,
Texas 75243.
Age:
82
|
Class
Three Director of the Fund
|
Since
1994
|
Director
of AnchorFree, Inc. (2012 – 2018); Director of iSatori, Inc., formerly a Portfolio company (Nutraceutical Preparations)
(2003 – 2015); Director of Cover-All Technologies, Inc., a non- portfolio public company (Insurance Software Licensing
and Maintenance) (2003 – 2015); Director of Access Plans, Inc. (Direct Mail and Advertising) (2008-2009); Director of
BPO Management Services, Inc. (Business Process Outsourcing) (2006-2011); Director of CaminoSoft (Systems Software) (2004-2011)
Director, RENN Universal Growth Investment Trust, PLC (1994-2015).
|
Eric
Sites
470
Park Avenue South,
New
York, New York 10016
Age:
42
|
Class
One Director of the Fund
|
Since
July 2017
|
Portfolio
Manager, Horizon Kinetics LLC (including Horizon Asset Management LLC, Kinetics Asset Management LLC and Kinetics Advisers,
LLC) (Principal occupation) (2004-Present); Director, Bermuda Stock Exchange (2016-Present); Director, IL&FS Securities
LTD (2020-Present).
|
Independent
Directors
|
Alice
C. Brennan
470
Park Avenue South, New York, New York 10016
Age:
68
|
Class
One Director of the Fund
|
Since
July 2017
|
Independent
Consultant (legal and compliance risk oversight)(2014-Present); Associate General Counsel, Chief Compliance Officer &
Chief Trademark and Copyright Counsel, Verizon Wireless (2000-2014).
|
Name,
Age and Address
|
Position(s)
Held
|
Term of Office(1)
and Length of Service
|
Position(s) Held with the Fund, Principal
Occupation(s) Current Portfolios in Fund
During Past 5 Years, and Other Directorships
|
Herbert
M. Chain
470
Park Avenue South, New York, New York 10016
Age:
68
|
Class
Two Director of the Fund
|
Since
July 2017
|
Senior
Director, Marks Paneth (2020-present); Assistant Professor and Executive Director, Center for Executive Education, St. John’s
University (2017-2020); Founder and Managing Member, HMC Business Consulting LLC (financial reporting and controls) (2015-Present);
Adjunct Professor, St. John’s University (2011-2017; 2020-present); Adjunct Instructor, New York University (2015-2016);
Audit Partner, Deloitte & Touche LLP (1988-2015).
|
Other
Officers
|
Jay
Kesslen
470
Park Avenue South,
New
York, New York 10016
Age:
48
|
Vice-President,
Chief Compliance Officer
|
Since
July 2017
|
General
Counsel, Horizon Kinetics LLC (including Horizon Asset Management LLC, Kinetics Asset
Management LLC and Kinetics Advisers, LLC, each a SEC registered investment adviser)
(Principal occupation) (2011-Present); Chief Compliance Officer, Horizon Kinetics LLC
(2015-2016).
General
Counsel, the FRMO Corp. (OTC Pink: FRMO) (2014-Present).
|
Alun
Williams
470
Park Avenue South,
New
York, New York 10016
Age:
50
|
Treasurer
|
Since
July 2017
|
Chief
Operating Officer, Horizon Kinetics LLC (since 2021), Director of Trading and Operations (2009-2021).
|
Russell
Grimaldi
470
Park Avenue South,
New
York, New York 10016
Age:
41
|
Secretary
|
Since
July 2017
|
Chief
Compliance Officer, Horizon Kinetics LLC (including Horizon Asset Management LLC, Kinetics Asset Management LLC and Kinetics
Advisers, LLC, each a SEC registered investment adviser) (Principal occupation) (2017-Present); Associate General Counsel,
Horizon Kinetics LLC (2011-Present).
|
(1)
|
Mr. Cleveland is currently considered an “interested
person” of the Fund as defined by Section 2(a)(19) of the 1940 Act by virtue of being a Director and limited partner
in the Cleveland Family Limited Partnership, which owns more than 5% of the Fund’s securities.
|
Committees
and Meetings
The
Board has established an Audit Committee and a Nominating and Corporate Governance Committee. In 2020, the Audit Committee held
two meetings, and the Nominating and Corporate Governance Committee held one meeting.
The
Audit Committee
During
2020, the Audit Committee consisted of Herbert M. Chain and Alice C. Brennan. The Board of Directors has determined that Mr. Chain
satisfies the standard for “audit committee financial expert” within the meaning of the rules of the SEC. The SEC
rules provide that audit committee financial experts do not have any additional duties, obligations or liabilities and are not
considered experts under the U.S. Securities Act of 1933. The Audit Committee is comprised entirely of independent directors,
and is appointed by the Board of Directors to assist the Board in fulfilling its oversight responsibilities. The Audit Committee’s
primary duties and responsibilities are to:
|
●
|
Select
and approve the compensation of the Fund’s independent auditors, including those to be retained for the purpose of preparing
or issuing an audit report or performing other audit review or attest services for the Fund;
|
|
●
|
Monitor the independence
and performance of the Fund’s independent auditors, who report directly to the Audit Committee;
|
|
●
|
Oversee generally
the accounting and financial reporting processes of the Fund and the audits of its financial statements, generally;
|
|
●
|
Review the reports
and recommendations of the Fund’s independent auditors;
|
|
●
|
Provide an avenue
of communication among the independent auditors, management and the Board of Directors; and
|
|
●
|
Address any matters
between the Fund and its independent auditors regarding financial reporting.
|
The
Fund’s independent auditors must report directly to the Audit Committee.
For
the fiscal year ended December 31, 2020, the Audit Committee met two times.
The
Nominating and Corporate Governance Committee
The
Nominating and Corporate Governance Committee was created in January 2004 and is responsible for nominating individuals to serve
as Directors and to address such governance matters as the Board may request from time to time. The Nominating and Corporate Governance
Committee is comprised of two directors, each of whom meet the independence and experience requirements of the American Stock
Exchange Company Guide Section 803A, Rule 10A-3 under the Securities Exchange Act of 1934 and NASD Rule 4200(a)(15). Its members
are Alice C. Brennan and Herbert M. Chain.
The
Committee considers and recommends nominees for election as directors of the Fund. Shareholders wishing to recommend qualified
candidates for consideration by the Fund may do so by writing to the Secretary of the Fund at RENN Fund, Inc., c/o Horizon Kinetics
Asset Management LLC, 470 Park Avenue South, New York, NY, 10016, providing the candidate’s name, biographical data and
qualifications. In its assessment of each potential candidate, the Committee reviews the nominee’s judgment, experience,
independence, financial literacy, knowledge of emerging growth companies, understanding of the Fund and its investment objectives
and such other factors as the Committee may determine. The Committee also takes into account the ability of a director to devote
the time and effort necessary to fulfill his or her responsibilities. At the direction of the Board, the Committee also considers
various corporate governance policies and procedures.
For
the fiscal year ended December 31, 2020, the Nominating and Corporate Governance Committee met one time.
Independent
Directors’ Relationships with the Fund, the Adviser, and Affiliates
As
of December 31, 2020:
None
of the independent directors has served as an officer, employee, director or general partner during the two most recent calendar
years with the Fund, any investment company having the same investment adviser, or any person controlling, controlled by or under
common control with the Fund.
The
following table sets forth information about the dollar range of equity securities owned by Mr. Cleveland and each Director in
the Fund and, on an aggregate basis, in any registered investment company overseen or to be overseen by such person within the
same Family of Investment Companies as the Fund.
Name
of Director
|
Dollar
Range of Shares in Fund
|
Aggregate
Dollar Range of Equity Securities in Funds Overseen by Director or Nominee in Family of Investment Companies(1)
|
Interested
Directors:
|
Russell
Cleveland
|
Over
$100,000
|
Over
$100,000
|
Murray
Stahl
|
Over
$100,000
|
Over
$100,000
|
Eric
Sites
|
$0-$10,000
|
$0-$10,000
|
Independent
Directors:
|
Alice
C. Brennan
|
$0-$10,000
|
$0-$10,000
|
Herbert
M. Chain
|
$0-$10,000
|
$0-$10,000
|
(1)
|
The term “Family
of Investment Companies” means all 1940-Act-registered investment funds that share the same investment adviser and hold
themselves out to investors as related companies for purposes of investment and investment services. The Fund is grouped into
a Family of Investment Companies with no other 1940-Act-registered investment funds.
|
No
independent director owns any shares of the Investment Adviser or of any person controlling, controlled by, or under common control
with the Investment Adviser.
No
independent director or immediate family member has had an interest exceeding $120,000 in the Investment Adviser or any person
controlling, controlled by or under common control with the Investment Adviser during the two previous calendar years.
No
independent Director had any interest in any transaction or series of transactions for an amount exceeding $120,000 in the previous
two calendar years with the Registrant, any officer of the Registrant, any registered insurance company having the same adviser,
the Adviser or its officers or underwriter, or any person controlling or under common control with the Adviser or underwriter.
No
independent director or immediate family member has had any relationship involving payments for property or services for an amount
in excess of $120,000 during the two previous calendar years with the Fund, the Adviser, or any fund having the same Adviser as
the Fund, or any officer or person controlling, controlled by, or under common control with such.
No
officer of the Adviser or of any entity controlling, controlled by or under common control with the Adviser served as a director
of an entity where an independent director of the Fund, or his immediate family, was an officer during the previous two calendar
years.
Director
and Officer Compensation
The
Fund has no employees, and, therefore, does not compensate any employees. Officers of the Fund receive no compensation from the
Fund, and the Fund has never issued options or warrants to officers or directors of the Fund. The Fund does not have any stock
option or similar retirement or pension fund for employees, officers or directors of the Fund.
The
Fund does not pay its directors who are considered “interested persons” of the Fund any fees for their directorship
services or reimburse expenses to such individuals except for those incurred specifically in the performance of their duties as
directors of the Fund. The aggregate compensation of the directors for the most recently completed fiscal year that the Fund paid
to each director, and the aggregate compensation paid to each director for the most recently completed fiscal year by other funds
to which RENN Fund, Inc. provided other investment advisory services is set forth below:
Name
of Person; Position
|
Aggregate
Deferred Compensation from Fund
|
Retirement
Benefits Accrued as Part of Fund Expenses
|
Estimated
Annual Benefits Upon Retirement
|
Total
2020 Compensation from Fund and Fund Complex(3)
|
Russell
Cleveland(1); Director
|
$0
|
$0
|
$0
|
$0
|
Murray
Stahl(2); Director, President, Chief Executive Officer, Chairman of the Board
|
$0
|
$0
|
$0
|
$0
|
Alice
C. Brennan; Director
|
$0
|
$0
|
$0
|
$0
|
Herbert
M. Chain; Director
|
$0
|
$0
|
$0
|
$0
|
Eric
Sites(2); Director
|
$0
|
$0
|
$0
|
$0
|
Jay
Kesslen; Vice-President, Chief Compliance Officer
|
$0
|
$0
|
$0
|
$0
|
Alun
Williams; Treasurer
|
$0
|
$0
|
$0
|
$0
|
Russell
Grimaldi; Secretary
|
$0
|
$0
|
$0
|
$0
|
(1)
|
Mr. Cleveland is
an “interested person” as defined by Section 2(a)(19) of the 1940 Act by virtue of being a limited partner in
the Cleveland Family Limited Partnership, which owns more than 5% of the Fund’s securities.
|
(2)
|
Horizon is the investment
adviser to the Fund and Mr. Stahl and Mr. Sites are “interested persons” of the Fund as defined in Section 2(a)(19)
of the 1940 Act by virtue of being officers and directors of Horizon, officers of Horizon Kinetics, and in Mr. Stahl’s
case, a director and beneficial owner of outstanding securities of Horizon Kinetics.
|
(3)
|
The term “Fund
Complex” means all 1940-Act-registered investment funds, or separate portfolios of such a fund, which share a common
investment adviser (or have investment advisers that are affiliated persons) or which hold themselves out to investors as
related companies for purposes of investment and investment services. The Fund is not currently grouped into a Fund Complex
with any other such funds.
|
Code
of Ethics
The
Fund and Horizon have adopted a Code of Ethics pursuant to Rule 17j-1 under the 1940 Act applicable to all of their respective
officers and employees. The Code of Ethics restricts the securities investment activities of the Fund’s personnel, but does
permit investment in securities, including securities that may be purchased or held by the Fund under certain limited circumstances.
The Code of Ethics may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C., and information on
the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-551-8090. In addition, the Code of Ethics
is available on the EDGAR Database on the SEC’s Internet site at www.sec.gov. A copy of this Code of Ethics may be obtained,
after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the SEC’s
Public Reference Section, Washington, D.C. 20549-0102. We have also made the Code of Ethics available on our website at www.rencapital.com
and will post any amendments on our website as soon as practicable after adoption by the Board.
Proxy
Voting Policies and Procedures
The
Fund has delegated its proxy voting responsibility to Horizon. Horizon has adopted policies and procedures for the voting of proxies
on behalf of client accounts, including the Fund, for which it has voting discretion. Pursuant to these policies and procedures,
Horizon’s guiding principles in voting proxies is to ensure that the manner in which proxies are voted is in the best interest
of its clients and the value of the investment. To this end, an independent third party proxy service, Institutional Shareholder
Services Inc. (“ISS”), has been retained by the Fund for their fundamental research on the proxy question and subsequent
recommendations. Proxies are voted by ISS in accordance with their proxy voting guidelines with the intent of serving the best
interests of the Fund’s clients.
ISS
will inform the Fund’s proxy administrator of any proxies that do not fall within the adopted guidelines. The Fund’s
proxy administrator will send the proxies in question to the portfolio manager for review, documentation of vote rationale, and
signature. In the event the designated portfolio manager is unavailable, the proxy will be forwarded to the Chief Investment Strategist
for execution. ISS also updates and revises the Guidelines on a periodic basis, and the revisions are reviewed by the Fund to
determine whether they are consistent with the Fund’s guiding principles. ISS also assists the Fund in the proxy voting
process by providing operational, recordkeeping and reporting services.
Horizon
is responsible for reviewing its relationship with ISS (on a yearly basis) and for evaluating the quality and effectiveness of
the various services provided by ISS. Horizon may hire other service providers to replace or supplement ISS with respect to any
of the services the Fund currently receives from ISS.
Horizon
has implemented procedures that are intended to prevent conflicts of interest from influencing proxy voting decisions. These procedures
include the Fund’s use of ISS as an independent third party and a review and approval process for individual decisions that
do not follow ISS recommendations.
Any
deviation from an ISS recommendation regarding a proxy received in connection with underlying portfolio securities held by the
fund will be reported to the Board of Directors of the Fund at the next formal meeting of the Fund’s Board of Directors.
Periodically,
on request, Horizon will require ISS to provide a report and/or representation that all proxies voted by ISS on behalf of the
Fund during the applicable period were voted in accordance with the ISS Proxy Voting Guidelines.
The
CCO of Horizon and the Proxy Administrator shall review the ISS Proxy Voting Guidelines on a yearly basis to determine
whether these guidelines continue to be consistent with the Horizons’ views on the various types of proposals covered by
the ISS Proxy Voting Guidelines. The CCO will also review any material changes made by ISS to the ISS Proxy Voting Guidelines.
When
reviewing the ISS Proxy Voting Guidelines, the Fund will consider, among other things, whether the Guidelines are designed to
vote proxies in a manner consistent with the goal of voting in the best interest of its Clients. Horizon also shall review the
Advisers’ Proxy Policies and Procedures and the ISS Proxy Voting Guidelines to make certain that both comply with any new
rules promulgated by, or interpretations issued by, the SEC or other relevant regulatory policies.
Proxy
Voting Records
The
Fund’s record of proxy voting regarding portfolio securities is presented each year for the 12-month period ended June 30.
It is filed with the SEC on Form N-PX and is available by calling collect (646) 291-2300 and on the SEC’s website at www.sec.gov.
Control
Persons and Principal Holders of Securities
To
the best of management’s knowledge, there are no “control persons” of the Fund (defined as having beneficial
ownership, directly or through one or more controlled companies, of more than 25% of the voting securities of the Fund, or having
been acknowledged or asserted as such by the controlling or controlled party, or adjudicated as such).
The
following table sets forth certain information known to the Fund with respect to beneficial ownership of the Fund’s common
stock as of September 30, 2021, for: (i) all persons who are beneficial owners of more than 5% of the outstanding shares of the
Fund’s common stock; (ii) each Director and nominee for Director of the Fund; and (iii) all executive officers and Directors
of the Fund as a group. “Beneficial ownership” is determined in accordance with Rule 16a-1(a)(2) under the Securities
Exchange Act of 1934 (the “Exchange Act”). The Fund has no officers other than the individuals named in the table
below.
Name
of Beneficial Owners(1)
|
Number
of Shares Beneficially Owned Directly or Indirectly
|
Percent
of Class
|
Russell
Cleveland, Director(2)
|
356,918(3)
|
6.04%
|
Murray
Stahl, Director, President, Chief Executive Officer, Chairman of the Board and CFO
|
187,900
(4)
|
3.16%
|
Eric
Sites, Director
|
2,000
|
0.03%
|
Alice
C. Brennan, Director
|
1,000
|
0.02%
|
Herbert
M. Chain, Director
|
500
|
0.01%
|
Peter
B. Doyle
|
10,000
|
0.17%
|
Steven
M. Bregman
|
3,700
|
0.06%
|
Jay
Kesslen, Vice-President, Chief Compliance Officer
|
13,500
|
0.23%
|
Alun
Williams, Treasurer
|
100
|
0.002%
|
Russ
Grimaldi, Secretary
|
400
|
0.01%
|
All
Directors and Executive Officers as a group (10 persons)(1)
|
578,718
|
9.72%
|
(1)
|
The address of all
persons named in the table other than Mr. Cleveland is c/o Horizon Asset Management LLC, 470 Park Avenue South, New York,
New York 10016. Mr. Cleveland’s address is c/o RENN Capital Group, Inc., 11520 North Central Expressway, Suite 162,
Dallas, Texas 75243.
|
(2)
|
Mr. Cleveland is
an “interested person” of the Fund as defined by Section 2(a)(19) of the 1940 Act by virtue of being a limited
partner in the Cleveland Family Limited Partnership, which owns more than 5% of the Fund’s securities.
|
(3)
|
All shares are owned
by the Cleveland Family Limited Partnership, of which Mr. Cleveland is the managing partner and also a limited partner.
|
(4)
|
Certain of these
shares are held directly by Mr. Stahl and others in an account for which Mr. Stahl serves as managing member and in which
he, along with others, owns an interest. Mr. Stahl disclaims beneficial ownership over approximately 80% of the shares reported
as he does not have a pecuniary interest in such shares.
|
None
of the above individuals beneficially owns equity securities in registered investment companies within the same Family of Investment
Companies as the Fund. A “Family of Investment Companies” is two or more registered investment companies that share
the same investment adviser and hold themselves out to investors as related companies for purposes of investment and investment
services. The Fund is not currently grouped with any such companies. None of the above individuals directly or indirectly owns
beneficially or of record any class of securities of any entity controlling, controlled by, or under common control with the Adviser,
other than as disclosed above regarding the Fund.
Investment
Advisory and Other Services
Investment
Adviser
As
described in the Prospectus, Horizon, a wholly owned subsidiary of Horizon Kinetics LLC, provides investment advisory services
to the Fund pursuant to an Investment Advisory Agreement between the Fund and Horizon. Horizon is located at 470 Park Avenue South,
New York, NY 10016 and is organized as a limited liability company under the laws of Delaware. The Adviser began conducting business
in January 1994 and manages assets of approximately $6.53 billion, as of September 30, 2021.
Horizon is a registered investment adviser under the Advisers Act and is subject to the reporting and other requirements of that
Act. Neither Horizon nor its affiliates are prohibited from engaging in activities outside the Fund’s business. Horizon
and its officers and employees devote such time to the Fund’s business as is necessary for the conduct of its operations.
The Advisory Agreement is reviewed and approved annually by the Fund’s Board of Directors, including its independent directors
and a summary of the factors considered in approving the Advisory Agreement is included in the Fund’s Report to Shareholders
mailed after the holding of the Annual Shareholders Meeting each year.
Pursuant
to the Advisory Agreement, Horizon is paid no management fee on net assets less than $25 million; Horizon’s fee is 1.0%
on net assets above $25 million. For the fiscal years ended December 31, 2018, 2019, and 2020, the Fund did not pay Horizon any
management fee.
Horizon
is primarily responsible for the selection, evaluation, structure, valuation and administration of the Fund’s investment
portfolios. The Advisory Agreement provides that Horizon will provide investment management to the Fund in accordance with its
investment objectives and policies and will, further, provide certain administrative services. Such management and administrative
services include, but are not limited to: providing advice with respect to the business and affairs of the Fund; keeping the books
and records of the Fund; and arranging and liaising with third party service providers, including custodians, accountants, underwriters,
insurance companies and depositories.
The
Fund has no employees, but instead has contracted Horizon pursuant to the Advisory Agreement to provide all management and operating
activities. As of September 30, 2021, Horizon had 8 employees engaged in performing the research and management functions of the
Fund.
Custodian
UMB
Bank, N.A., 928 Grand Blvd. Kansas City, MO 64106, is the custodian of the Fund and maintains custody of the securities and cash
of the Fund.
Independent
Public Accountant
Tait,
Weller & Baker LLP is the independent registered public accounting firm for the Fund and will audit the Fund’s financial
statements. Tait, Weller & Baker LLP is located at 50 South 16th Street, Suite 2900, Philadelphia, Pennsylvania
19102.
Portfolio
Managers
Portfolio
Managers’ Other Accounts Managed
Murray
Stahl acts as portfolio manager for the RENN Fund, Inc. (RCG) along with Co-Portfolio Managers, Steven Bregman and Peter Doyle.
As of September 30, 2021, Renn Fund, Inc., had net assets of approximately $17.6 million.
Mr.
Stahl is the co-founder and Chief Investment Strategist for Horizon Kinetics Asset Management LLC, the Investment Adviser to the
Fund and a wholly owned subsidiary of Horizon Kinetics LLC. Steven M. Bregman is a Co-Portfolio Manager of the Fund. Steven is
the President of Horizon Kinetics LLC and is a co-founder of the Firm. Peter B. Doyle is a Co-Portfolio Manager of the Fund. Peter
is a Managing Director and co-founder of Horizon Kinetics LLC. Each portfolio manager is compensated by an annual salary and distributions
as an owner of Horizon Kinetics LLC. The Fund does not have an incentive fee arrangement. In addition to the Fund and as of March
31, 2021, Messrs. Stahl, Bregman, and Doyle, through Horizon and its affiliated investment managers, are responsible for the oversight
and management of certain other accounts, as follows:
|
Registered
Investment
Companies
|
Other
Pooled
Investment
Vehicles*
|
Other
Accounts*
|
Name
|
Number
of Accounts
|
Total
Assets (in millions)
|
Number
of Accounts
|
Total
Assets (in millions)
|
Number
of Accounts
|
Total
Assets (in millions)
|
Murray
Stahl
|
9
|
$2.0B
|
16
|
$1.1B
|
675
|
$55.7M
|
Steven
M. Bregman
|
1
|
$27.4M
|
3
|
$474.3M
|
692
|
$1.2M
|
Peter
B. Doyle
|
3
|
$1.4B
|
7
|
$862.7M
|
134
|
$142.2M
|
*
|
Accounts subject
to performance based advisory fees.
|
Portfolio
Managers’ Compensation Structure
The
Portfolio Manager for the Fund is compensated solely from the payroll of the Fund’s Investment Adviser. The management fee
under the Investment Advisory Agreement with the Fund is intended to cover the Adviser’s payroll expenses attributable to
its Portfolio Manager’s time spent on Fund investments. A base salary, with a contribution to a SIMPLE-IRA plan is accorded
to the Portfolio Manager, and there are no other structured compensation arrangements. Out of fees received from the Fund and
the Investment Adviser’s other investment clients, the Investment
Adviser
may make ad hoc bonus payments to various members of its staff, the amount and frequency of which is solely at the discretion
of the President of the Investment Adviser. Performance thresholds, if any, for each client of the Investment Adviser, are set
for the Investment Adviser as a whole, not for the Portfolio Manager.
Portfolio
Managers’ Ownership in the Registrant
Murray
Stahl has direct ownership in securities of the Fund, the value of whose ownership is between $0 and $50,000.00 determined as
of September 30, 2021. Mr. Stahl has indirect ownership in securities of the Fund, the value of such ownership is over $100,000.00
determined as of September 30, 2021.
Mr.
Bregman’s value of his direct ownership in the Fund was between $0 and $10,000 as of September 30, 2021.
Mr.
Doyle’s value of his direct ownership in the Fund was between $10,000 and $50,000 as of September 30, 2021.
Brokerage
Allocation and Other Practices
The
Fund participates in private placements from time to time and will make open market purchases. For private placements, issuers
generally pay commissions to investment bankers/brokers from the proceeds of the private placements. Thus, the Fund generally
does not pay commissions on private placements. For open market purchases, the Fund may utilize various brokers. The Fund will
seek best price and execution, but in allocating trades to the various brokers, the Fund will consider the research it receives
from the various brokers it uses. In some cases, the Fund may pay up for research. The types of research which would be a factor
in deciding which broker to use are macro-economic research, company-specific research, industry-specific research, or country-specific
research. No services other than brokerage or research are factors in the selection of brokers. The Portfolio Managers are authorized
to pay to a broker a commission that is larger than another because of the value of the brokerage or research services. The research
services furnished by brokers may also be used by the Investment Adviser in servicing its other clients, but such clients will
bear their pro rata share of any costs for such services.
During
the fiscal years ended December 31, 2018, 2019 and 2020, the Fund paid $260.46, $220.00 and $331.60, respectively, in aggregate
brokerage commissions.
Brokerage
with Fund Affiliates. For the fiscal years ended December 31, 2018, 2019, and 2020, no commissions were paid to any broker
that is an affiliated person of the Registrant, or an affiliated person of an affiliated person of the Registrant or the underwriter.
Securities
of “Regular Broker-Dealers.” The Fund is required to identify any securities of its “regular brokers and
dealers” (as such term is defined in the 1940 Act) which it may hold at the close of its most recent fiscal year or period.
“Regular brokers or dealers” of the Trust are the ten brokers or dealers that, during the most recent fiscal year
or period: (i) received the greatest dollar amounts of brokerage commissions from the Trust’s portfolio transactions; (ii)
engaged as principal in the largest dollar amounts of portfolio transactions of the Trust; or (iii) sold the largest dollar amounts
of the Trust’s shares.
For
the fiscal year ended December 31, 2020, the Fund did not hold any securities of its “regular brokers and dealers”.
Directed
Brokerage. For the fiscal year ended December 31, 2020, the Fund did not pay commissions on brokerage transactions directed
to brokers pursuant to an agreement or understanding whereby the broker provides research or other brokerage services to the Adviser.
Taxes
The
following is only a summary of certain additional U.S. federal income tax considerations generally affecting the Fund and its
shareholders that is intended to supplement the discussion contained in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the discussion here and in the Prospectus is not intended
as a substitute for careful tax planning. Shareholders are urged to consult their tax advisors with specific reference to their
own tax situations, including their state, local, and foreign tax liabilities.
The
following general discussion of certain federal income tax consequences is based on the Internal Revenue Code of 1986, as amended
(the “Code”) and the regulations issued thereunder as in effect on the date of this SAI. New legislation, as well
as administrative changes or court decisions, may significantly change the conclusions expressed herein, and may have a retroactive
effect with respect to the transactions contemplated herein.
Qualification
as a Regulated Investment Company. The Fund has elected and intends to qualify to be treated as a RIC. By following such a
policy, the Fund expects to eliminate or reduce to a nominal amount the federal taxes to which it may be subject. If the Fund
qualifies as a RIC, it will generally not be subject to federal income taxes on the net investment income and net realized capital
gains that it timely distributes to its shareholders. The Board reserves the right not to maintain the qualification of the Fund
as a RIC if it determines such course of action to be beneficial to shareholders.
In
order to qualify as a RIC under the Code, the Fund must distribute annually to its shareholders at least 90% of its net investment
income (which, includes dividends, taxable interest, and the excess of net short-term capital gains over net long-term capital
losses, less operating expenses) and at least 90% of its net tax exempt interest income, for each tax year, if any (the “Distribution
Requirement”) and also must meet certain additional requirements. Among these requirements are the following: (i) at least
90% of the Fund’s gross income each taxable year must be derived from dividends, 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 gains from options, futures or forward contracts) derived with respect to its business of investing in such
stock, securities, or currencies, and net income derived from an interest in a qualified publicly traded partnership (the “Qualifying
Income Test”); and (ii) at the close of each quarter of the Fund’s taxable year: (A) at least 50% of the value of
the Fund’s total assets must be represented by cash and cash items, U.S. government securities, securities of other RICs
and other securities, with such other securities limited, in respect to any one issuer, to an amount not greater than 5% of the
value of the Fund’s total assets and that does not represent more than 10% of the outstanding voting securities of such
issuer, including the equity securities of a qualified publicly traded partnership, and (B) not more than 25% of the value of
the Fund’s total assets is invested, including through corporations in which the Fund owns a 20% or more voting stock interest,
in the securities (other than U.S. government securities or securities of other RICs) of any one issuer or the securities (other
than the securities of another RIC) of two or more issuers that the Fund controls and which are engaged in the same or similar
trades or businesses or related trades or businesses, or the securities of one or more qualified publicly traded partnerships
(the “Asset Test”).
Although
the Fund intends to distribute substantially all of its net investment income and may distribute its capital gains for any taxable
year, the Fund will be subject to federal income taxation to the extent any such income or gains are not distributed.
If
the Fund fails to satisfy the Qualifying Income or Asset Tests in any taxable year, the Fund may be eligible for relief provisions
if the failures are due to reasonable cause and not willful neglect and if a penalty tax is paid with respect to each failure
to satisfy the applicable requirements. Additionally, relief is provided for certain de minimis failures of the diversification
requirements where the Fund corrects the failure within a specified period. If the Fund fails to maintain qualification as a RIC
for a tax year, and the relief provisions are not available, the Fund will be subject to federal income tax at regular corporate
rates (currently 21%) without any deduction for distributions to shareholders. In such case, its shareholders would be taxed as
if they received ordinary dividends, although corporate shareholders could be eligible for the dividends received deduction (subject
to certain limitations) and individuals may be able to benefit from the lower tax rates available to qualified dividend income.
In addition, the Fund could be required to recognize unrealized gains, pay substantial taxes and interest, and make substantial
distributions before requalifying as a RIC.
The
Fund may elect to treat part or all of any “qualified late year loss” as if it had been incurred in the succeeding
taxable year in determining the Fund’s taxable income, net capital gain, net short-term capital gain, and earnings and profits.
The effect of this election is to treat any such “qualified late year loss” as if it had been incurred in the succeeding
taxable year in characterizing Fund distributions for any calendar year. A “qualified late year loss” generally includes
net capital loss, net long-term capital loss, or net short-term capital loss incurred after October 31 of the current taxable
year (commonly referred to as “post-October losses”) and certain other late-year losses.
The
treatment of capital loss carryovers for the Fund is similar to the rules that apply to capital loss carryovers of individuals,
which provide that such losses are carried over indefinitely. If the Fund has a “net capital loss” (that is, capital
losses in excess of capital gains), the excess of the Fund’s net short-term capital losses over its net long-term capital
gains is treated as a short-term capital loss arising on the first day of the Fund’s next taxable year, and the excess (if
any) of the Fund’s net long-term capital losses over its net short-term capital gains is treated as a long-term capital
loss arising on the first day of the Fund’s next taxable year. In addition, the carryover of capital losses may be limited
under the general loss limitation rules if the Fund experiences an ownership change as defined in the Code.
Federal
Excise Tax. Notwithstanding the Distribution Requirement described above, which generally requires the Fund to distribute
at least 90% of its annual investment company taxable income and the excess of its exempt interest income (but does not require
any minimum distribution of net capital gain), the Fund will be subject to a nondeductible 4% federal excise tax to the extent
it fails to distribute, by the end of the calendar year at least 98% of its ordinary income and 98.2% of its capital gain net
income (the excess of short- and long-term capital gains over short- and long-term capital losses) for the one-year period ending
on October 31 of such year (including any retained amount from the prior calendar year on which the Fund paid no federal income
tax). The Fund intends to make sufficient distributions to avoid liability for federal excise tax, but can make no assurances
that such tax will be completely eliminated. The Fund may in certain circumstances be required to liquidate Fund investments in
order to make sufficient distributions to avoid federal excise tax liability at a time when the Adviser might not otherwise have
chosen to do so, and liquidation of investments in such circumstances may affect the ability of the Fund to satisfy the requirement
for qualification as a RIC.
Distributions
to Shareholders. The Fund receives income generally in the form of dividends and interest on investments. This income, plus
net short-term capital gains, if any, less expenses incurred in the operation of the Fund, constitutes the Fund’s net investment
income from which dividends may be paid to you. Any distributions by the Fund from such income will be taxable to you as ordinary
income or at the lower capital gains rates that apply to individuals receiving qualified dividend income, whether you take them
in cash or in additional shares.
Distributions
by the Fund are currently eligible for the reduced maximum tax rate to individuals of 20% (lower rates apply to individuals in
lower tax brackets) to the extent that the Fund receives qualified dividend income on the securities it holds and the Fund reports
the distributions as qualified dividend income. Qualified dividend income is, in general, dividend income from taxable domestic
corporations and certain foreign corporations (e.g., foreign corporations incorporated in a possession of the United States or
in certain countries with a comprehensive tax treaty with the United States, or the stock of which is readily tradable on an established
securities market in the United States). A dividend will not be treated as qualified dividend income to the extent that: (i) the
shareholder has not held the shares on which the dividend was paid for more than 60 days during the 121-day period that begins
on the date that is 60 days before the date on which the shares become “ex-dividend” (which is the day on which declared
distributions (dividends or capital gains) are deducted from the Fund’s assets before it calculates the net asset value)
with respect to such dividend, (ii) the Fund has not satisfied similar holding period requirements with respect to the securities
it holds that paid the dividends distributed to the shareholder), (iii) the shareholder is under an obligation (whether pursuant
to a short sale or otherwise) to make related payments with respect to substantially similar or related property, or (iv) the
shareholder elects to treat such dividend as investment income under section 163(d)(4)(B) of the Code. Therefore, if you lend
your shares in the Fund, such as pursuant to a securities lending arrangement, you may lose the ability to treat dividends (paid
while the shares are held by the borrower) as qualified dividend income. Distributions that the Fund receives from an exchange
traded fund (“ETF”) or an underlying fund taxable as a RIC will be treated as qualified dividend income only to the
extent so reported by such ETF or underlying fund.
Distributions
by the Fund of its net short-term capital gains will be taxable as ordinary income. Capital gain distributions consisting of the
Fund’s net capital gains will be taxable as long-term capital gains for individual shareholders currently set at a maximum
rate of 20% regardless of how long you have held your shares in the Fund.
In
the case of corporate shareholders, Fund distributions (other than capital gain distributions) generally qualify for the dividends
received deduction to the extent such distributions are so reported and do not exceed the gross amount of qualifying dividends
received by the Fund for the year. Generally, and subject to certain limitations (including certain holding period limitations),
a dividend will be treated as a qualifying dividend if it has been received from a domestic corporation.
To
the extent that the Fund makes a distribution of income received by the Fund in lieu of dividends (a “substitute payment”)
with respect to securities on loan pursuant to a securities lending transaction, such income will not constitute qualified dividend
income to individual shareholders and will not be eligible for the dividends received deduction for corporate shareholders.
If
the Fund’s distributions exceed its taxable income and capital gains realized during a taxable year, all or a portion of
the distributions made in the same taxable year may be recharacterized as a return of capital to shareholders. A return of capital
distribution will generally not be taxable, but will reduce each shareholder’s cost basis in the Fund and result in a higher
reported capital gain or lower reported capital loss when those shares on which the distribution was received are sold.
A
dividend or distribution received shortly after the purchase of shares reduces the net asset value of the shares by the amount
of the dividend or distribution and, although in effect a return of capital, will be taxable to the shareholder. If the net asset
value of shares were reduced below the shareholder’s cost by dividends or distributions representing gains realized on sales
of securities, such dividends or distributions would be a return of investment though taxable to the shareholder in the same manner
as other dividends or distributions.
The
Fund (or its administrative agent) will inform you of the amount of your ordinary income dividends, qualified dividend income
and capital gain distributions, if any, and will advise you of their tax status for federal income tax purposes shortly after
the close of each calendar year. If you have not held Fund shares for a full year, the Fund may designate and distribute to you,
as ordinary income, qualified dividend income or capital gain, a percentage of income that is not equal to the actual amount of
such income earned during the period of your investment in the Fund.
Dividends
declared to shareholders of record in October, November or December and actually paid in January of the following year will be
treated as having been received by shareholders on December 31 of the calendar year in which declared. Under this rule, therefore,
a shareholder may be taxed in one year on dividends or distributions actually received in January of the following year.
Sales,
Exchanges or Redemptions. Any gain or loss recognized on a sale, exchange or redemption of shares of the Fund by a shareholder
who is not a dealer in securities will generally, for individual shareholders, be treated as a long-term capital gain or loss
if the shares have been held for more than twelve months and otherwise will be treated as a short-term capital gain or loss. However,
if shares on which a shareholder has received a net capital gain distribution are subsequently sold, exchanged or redeemed and
such shares have been held for six months or less, any loss recognized will be treated as a long-term capital loss to the extent
of the net capital gain distribution. In addition, the loss realized on a sale or other disposition of shares will be disallowed
to the extent a shareholder repurchases (or enters into a contract to or option to repurchase) shares within a period of 61 days
(beginning 30 days before and ending 30 days after the disposition of the shares). This loss disallowance rule will apply to shares
received through the reinvestment of dividends during the 61-day period. For tax purposes, an exchange of your Fund shares for
shares of a different fund is the same as a sale.
U.S.
individuals with income exceeding $200,000 ($250,000 if married and filing jointly) are subject to a 3.8% tax on their “net
investment income,” including interest, dividends, and capital gains (including any capital gains realized on the sale or
exchange of shares of the Fund).
The
Fund (or its administrative agent) must report to the IRS and furnish to Fund shareholders the cost basis information for purchases
of Fund shares. In addition to the requirement to report the gross proceeds from the sale of Fund shares, the Fund is also required
to report the cost basis information for such shares and indicate whether these shares had a short-term or long-term holding period.
For each sale of Fund shares, the Fund will permit shareholders to elect from among several IRS-accepted cost basis methods, including
the average cost basis method. In the absence of an election, the Fund will use the default cost basis method which has been communicated
to you. The cost basis method elected by the Fund shareholder (or the cost basis method applied by default) for each sale of Fund
shares may not be changed after the settlement date of each such sale of Fund shares. Fund shareholders should consult their tax
advisors to determine the best IRS-accepted cost basis method for their tax situation and to obtain more information about how
cost basis reporting applies to them. Shareholders also should carefully review the cost basis information provided to them and
make any additional basis, holding period or other adjustments that are required when reporting these amounts on their federal
income tax returns.
Tax
Treatment of Complex Securities. The Fund may invest in complex securities and these investments may be subject to numerous
special and complex tax rules. These rules could affect the Fund’s ability to qualify as a RIC, affect whether gains and
losses recognized by the Fund are treated as ordinary income or capital gain, accelerate the recognition of income to the Fund
and/or defer the Fund’s ability to recognize losses, and, in limited cases, subject the Fund to U.S. federal income tax
on income from certain of its foreign securities. In turn, these rules may affect the amount, timing or character of the income
distributed to you by the Fund. To the extent the Fund invests in an underlying fund that is taxable as a RIC, the following discussion
regarding the tax treatment of complex securities will also apply to the underlying funds that also invest in such complex securities
and investments.
Certain
derivative investments by the Fund, such as exchange-traded products and over-the-counter derivatives, may not produce qualifying
income for purposes of the “Qualifying Income Test” described above, which must be met in order for the Fund to maintain
its status as a RIC under the Code. In addition, the determination of the value and the identity of the issuer of such derivative
investments are often unclear for purposes of the “Asset Test” described above. In particular, an investment in the
Grayscale Bitcoin Trust is not expected to be treated as a “security” and could limit the Fund’s ability to
satisfy it qualification under the Qualifying Income Test and Asset Test. The Fund intends to carefully monitor such investments
to ensure that any non-qualifying income does not exceed permissible limits and to ensure that it is adequately diversified under
the Asset Test. The Fund, however, may not be able to accurately predict the non-qualifying income from these investments and
there are no assurances that the IRS will agree with the Fund’s determination of the “Asset Test” with respect
to such derivatives. Failure of the Asset Test might also result from a determination by the IRS that financial instruments in
which the Fund invests are not securities.
The
Fund is required for federal income tax purposes to mark-to-market and recognize as income for each taxable year its net unrealized
gains and losses on certain futures and options contracts subject to section 1256 of the Code (“Section 1256 Contracts”)
as of the end of the year as well as those actually realized during the year. Gain or loss from Section 1256 Contracts on broad-based
indexes required to be marked to market will be 60% long-term and 40% short-term capital gain or loss. Application of this rule
may alter the timing and character of distributions to shareholders. The Fund may be required to defer the recognition of losses
on Section 1256 Contracts to the extent of any unrecognized gains on offsetting positions held by the Fund. These provisions may
also require the Fund to mark-to-market certain types of positions in its portfolio (i.e., treat them as if they were closed out),
which may cause the Fund to recognize income without receiving cash with which to make distributions in amounts necessary to satisfy
the Distribution Requirement and for avoiding the excise tax discussed above. Accordingly, in order to avoid certain income and
excise taxes, the Fund may be required to liquidate its investments at a time when the Adviser might not otherwise have chosen
to do so.
With
respect to investments in certain zero coupon securities which are sold at original issue discount and thus do not make periodic
cash interest payments, the Fund will be required to include as part of its current income the imputed interest on such obligations
even though the Fund has not received any interest payments on such obligations during that period. Because the Fund intends to
distribute all of its net investment income to its shareholders, the Fund may have to sell Fund securities to distribute such
imputed income which may occur at a time when the Adviser would not have chosen to sell such securities and which may result in
taxable gain or loss.
Any
market discount recognized on a bond is taxable as ordinary income. A market discount bond is a bond acquired in the secondary
market at a price below redemption value or adjusted issue price if issued with original issue discount. Absent an election by
the Fund to include the market discount in income as it accrues, gain on the Fund’s disposition of such an obligation will
be treated as ordinary income rather than capital gain to the extent of the accrued market discount.
If
the Fund owns shares in certain foreign investment entities, referred to as “passive foreign investment companies”
or “PFICs,” the Fund will generally be subject to one of the following special tax regimes: (i) the Fund may be liable
for U.S. federal income tax, and an additional interest charge, on a portion of any “excess distribution” from such
foreign entity or any gain from the disposition of such shares, even if the entire distribution or gain is paid out by the Fund
as a dividend to its shareholders; (ii) if the Fund were able and elected to treat a PFIC as a “qualified electing fund”
or “QEF,” the Fund would be required each year to include in income, and distribute to shareholders in accordance
with the Distribution Requirements set forth above, the Fund’s pro rata share of the ordinary earnings and net capital gains
of the PFIC, whether or not such earnings or gains are distributed to the Fund; or (iii) the Fund may be entitled to mark-to-market
annually shares of the PFIC, and in such event would be required to distribute to shareholders any such mark-to-market gains in
accordance with the distribution requirements set forth above. Amounts included in income each year by the Fund arising from a
QEF election, will be “qualifying income” under the Qualifying Income Test (as described above) even if not distributed
to the Fund, if the Fund derives such income from its business of investing in stock, securities or currencies. The Fund intends
to make the appropriate tax elections, if possible, and take any additional steps that are necessary to mitigate the effect of
these rules.
Taxation
of the Subsidiary. The Fund intends to achieve virtual currency exposure primarily through investment in a wholly-owned foreign
subsidiary (the “Subsidiary”). The Subsidiary is classified as a corporation and is treated as a “controlled
foreign corporation” (“CFC”) for U.S. federal income tax purposes. The Fund does not expect that income from
its investment in the Subsidiary will be eligible to be treated as qualified dividend income or that distributions from the Subsidiary
will be eligible for the corporate dividends received deduction.
It
is expected that the Subsidiary will neither be subject to taxation on its net income in the same manner as a corporation formed
in the United States nor subject to branch profits tax on the income and gain derived from its activities in the United States.
In general, a foreign corporation that is not engaged in and is not treated as engaged in a U.S. trade or business is nonetheless
subject to tax at a flat rate of 30% (or lower tax treaty rate), generally payable through withholding, on the gross amount of
certain U.S.-source income that is not effectively connected with a U.S. trade or business. There is presently no tax treaty in
force between the United States and the Cayman Islands that would reduce this rate of withholding tax. Income subject to such
a flat tax is of a fixed or determinable annual or periodic nature and includes dividends and interest income. Certain types of
income are specifically exempted from the 30% tax and thus withholding is not required on payments of such income to a foreign
corporation. The 30% tax generally does not apply to capital gains (whether long-term or short-term) or to interest paid to a
foreign corporation on its deposits with U.S. banks. The 30% tax also does not apply to interest which qualifies as “portfolio
interest.” Very generally, the term portfolio interest includes U.S.-source interest (including original issue discount)
on an obligation in registered form, and with respect to which the person, who would otherwise be required to deduct and withhold
the 30% tax, received the required statement that the beneficial owner of the obligation is not a U.S. person within the meaning
of the Code. As discussed in more detail below, FATCA (as defined below) generally imposes a reporting and 30% withholding tax
regime with respect to certain U.S.-source income (“withholdable payments”) paid to “foreign financial institutions”
and certain other non-U.S. entities when those entities fail to satisfy the applicable account documentation, information reporting,
withholding, registration, certification and/or other requirements applicable to their status under FATCA. The Subsidiary will
be subject to the 30% withholding tax in respect of any withholdable payment it receives if it fails to satisfy these requirements,
as may be applicable to the Subsidiary. The Subsidiary expects to satisfy these requirements, as may be applicable to it, to avoid
this additional 30% withholding.
A
U.S. person, including the Fund, who owns (directly or indirectly) 10% or more of the total combined voting power of all classes
of stock of 10% or more of the total value of shares of all classes of stock of a foreign corporation is a “U.S. Shareholder”
for purposes of the CFC provisions of the Code. A CFC is a foreign corporation that, on any day of its taxable year, is owned
(directly, indirectly, or constructively) more than 50% (measured by voting power or value) by U.S. Shareholders. Because of its
investment in the Subsidiary, the Fund is a U.S. Shareholder in a CFC. As a U.S. Shareholder, the Fund is required to include
in gross income for U.S. federal income tax purposes for each taxable year of the Fund its pro rata share of its CFC’s “Subpart
F income” and any “global intangible low-taxed income” or (“GILTI”) for the CFC’s taxable
year ending within the Fund’s taxable year whether or not such income is actually distributed by the CFC. Subpart F income
generally includes interest, original issue discount, dividends, net gains from the disposition of stocks or securities, net gains
from transactions (including futures, forward, and similar transactions) in commodities, receipts with respect to securities loans,
and net payments received with respect to equity swaps and similar derivatives. GILTI generally includes the active operating
profits of the CFC, reduced by a deemed return on the tax basis of the CFC’s depreciable tangible assets. Subpart F income
and GILTI are treated as ordinary income, regardless of the character of the CFC’s underlying income. Net losses incurred
by a CFC during a tax year do not flow through to the Fund and thus will not be available to offset income or capital gain generated
from the Fund’s other investments. In addition, net losses incurred by a CFC during a tax year generally cannot be carried
forward by the CFC to offset gains realized by it in subsequent taxable years. To the extent the Fund invests in the Subsidiary
and recognizes Subpart F income or GILTI in excess of actual cash distributions from the Subsidiary, if any, it may be required
to sell assets (including when it is not advantageous to do so) to generate the cash necessary to distribute as dividends to its
shareholders all of its income and gains and therefore to eliminate any tax liability at the Fund level. Subpart F income also
includes the excess of gains over losses from transactions (including futures, forward and other similar transactions) in commodities.
The
Fund’s recognition of any Subpart F income or GILTI from an investment in the Subsidiary will increase the Fund’s
tax basis in the Subsidiary. Distributions by the Subsidiary to the Fund, including in redemption of the Subsidiary’s shares,
will be tax free, to the extent of the Subsidiary’s previously undistributed Subpart F income or GILTI, and will correspondingly
reduce the Fund’s tax basis in the Subsidiary, and any distributions in excess of the Fund’s tax basis in the Subsidiary
will be treated as realized gain. Any losses with respect to the Fund’s shares of the Subsidiary will not be currently recognized.
The Fund’s investment in the Subsidiary will potentially have the effect of accelerating the Fund’s recognition of
income and causing its income to be treated as ordinary income, regardless of the character of such subsidiary’s income.
If a net loss is realized by the Subsidiary, such loss is generally not available to offset the income earned by the Fund. In
addition, the net losses incurred during a taxable year by the Subsidiary cannot be carried forward by such Subsidiary to offset
gains realized by it in subsequent taxable years. The Fund will not receive any credit in respect of any non-U.S. tax borne by
the Subsidiary.
The
Fund’s investment in the Subsidiary is expected to provide the Fund with exposure to virtual currencies within the limitations
of the federal tax requirements under Subchapter M of the Code. The Subpart F income of the Fund attributable to its investment
in the Subsidiary is “qualifying income” to the Fund to the extent that such income is either (i) timely and currently
repatriated or (ii) derived with respect to the Fund’s business of investing in stock, securities or currencies. The Fund
will likely secure an opinion of counsel based on customary representations that to the extent of actual distributions made to
the Fund by the Subsidiary, its “Subpart F” income attributable to its investment in the Subsidiary derived with respect
to the Fund’s business of investing in stock, securities or currencies should be treated as “qualifying income,”
which is consistent with the IRS regulations. Accordingly, to the extent the Subsidiary makes distributions out of its earnings
and profits, the Fund expects such distributions to be treated as qualifying income. The Adviser will monitor the Fund’s
investments in the Subsidiary to ensure that no more than 25% of the Fund’s assets are invested in the Subsidiary to ensure
compliance with the Fund’s Asset Test.
Accordingly,
the extent to which the Fund indirectly invests in virtual currency investments directly or through the Subsidiary may be limited
by the Qualifying Income Test and Asset Test, which the Fund must continue to satisfy to maintain its status as a RIC. As such,
the Fund might cease to qualify as a RIC or could be required to reduce its exposure to such investments, which may result in
difficulty in implementing the Fund’s investment strategy. If the Fund did not qualify as a RIC for any taxable year and
certain relief provisions were not available, the Fund’s taxable income would be subject to tax at the Fund level and to
a further tax at the shareholder level when such income is distributed. Failure to comply with the requirements for qualification
as a RIC would have significant negative tax consequences to Fund shareholders (as described above).
In
general, each “U.S. Shareholder” is required to file IRS Form 5471 with its U.S. federal income tax (or information)
returns providing information about its ownership of the CFC. In addition, a “U.S. Shareholder” may in certain circumstances
be required to report a disposition of shares in the CFC by attaching IRS Form 5471 to its U.S. federal income tax (or information)
return that it would normally file for the taxable year in which the disposition occurs. In general, these filing requirements
will apply to investors in the Fund if the investor is a U.S. person who owns directly, indirectly or constructively (within the
meaning of Sections 958(a) and (b) of the Code) 10% or more of the total combined voting power of all classes of voting stock
or 10% or more of the total value of shares of all classes of stock of a foreign corporation that is a CFC for an uninterrupted
period of thirty (30) days or more during any tax year of the foreign corporation, and who owned that stock on the last day of
that year. It is expected that the Subsidiary will be treated as a CFC, and that the Fund will be treated as a “U.S. Shareholder”
in the Subsidiary.
Certain
Foreign Currency Tax Issues. The Fund’s transactions in foreign currencies and forward foreign currency contracts will
generally be subject to special provisions of the Code that, among other things, may affect the character of gains and losses
realized by the Fund (i.e., may affect whether gains or losses are ordinary or capital), accelerate recognition of income to the
Fund and defer losses. These rules could therefore affect the character, amount and timing of distributions to shareholders. These
provisions also may require the Fund to mark-to-market certain types of positions in its portfolio (i.e., treat them as if they
were closed out) which may cause the Fund to recognize income without receiving cash with which to make distributions in amounts
necessary to satisfy the Distribution Requirements and for avoiding the excise tax described above. The Fund intends to monitor
its transactions, intends to make the appropriate tax elections, and intends to make the appropriate entries in its books and
records when it acquires any foreign currency or forward foreign currency contract in order to mitigate the effect of these rules
so as to prevent disqualification of the Fund as a RIC and minimize the imposition of income and excise taxes.
Foreign
Taxes. Dividends and interest received by the Fund may be subject to income, withholding or other taxes imposed by foreign
countries and U.S. possessions that would reduce the yield on the Fund’s stocks or securities. Tax conventions between certain
countries and the United States may reduce or eliminate these taxes. Foreign countries generally do not impose taxes on capital
gains with respect to investments by foreign investors.
If
more than 50% of the value of the Fund’s total assets at the close of its taxable year consists of stocks or securities
of foreign corporations, the Fund will be eligible to and intends to file an election with the IRS that may enable shareholders,
in effect, to receive either the benefit of a foreign tax credit, or a deduction from such taxes, with respect to any foreign
and U.S. possessions income taxes paid by the Fund, subject to certain limitations. Pursuant to the election, the Fund will treat
those taxes as dividends paid to its shareholders. Each such shareholder will be required to include a proportionate share of
those taxes in gross income as income received from a foreign source and must treat the amount so included as if the shareholder
had paid the foreign tax directly. The shareholder may then either deduct the taxes deemed paid by him or her in computing his
or her taxable income or, alternatively, use the foregoing information in calculating any foreign tax credit they may be entitled
to use against the shareholders’ federal income tax. If the Fund makes the election, the Fund (or its administrative agent)
will report annually to its shareholders the respective amounts per share of the Fund’s income from sources within, and
taxes paid to, foreign countries and U.S. possessions.
Tax-Exempt
Shareholders. Certain tax-exempt shareholders, including qualified pension plans, individual retirement accounts, salary deferral
arrangements, 401(k)s, and other tax-exempt entities, generally are exempt from federal income taxation except with respect to
their unrelated business taxable income (“UBTI”). Tax-exempt entities are not permitted to offset losses from one
trade or business against the income or gain of another trade or business. Certain net losses incurred prior to January 1, 2018
are permitted to offset gain and income created by an unrelated trade or business, if otherwise available. Under current law,
the Fund generally serves to block UBTI from being realized by its tax-exempt shareholders. However, notwithstanding the foregoing,
the tax-exempt shareholder could realize UBTI by virtue of an investment in the Fund where, for example: (i) the Fund invests
in residual interests of Real Estate Mortgage Investment Conduits (“REMICs”), (ii) the Fund invests in a real estate
investment trust (“REIT”) that is a taxable mortgage pool (“TMP”) or a REIT that has a subsidiary that
is a TMP or that invests in the residual interest of a REMIC, or (iii) shares in the Fund constitute debt-financed property in
the hands of the tax-exempt shareholder within the meaning of section 514(b) of the Code. Charitable remainder trusts are subject
to special rules and should consult their tax advisor. The IRS has issued guidance with respect to these issues and prospective
shareholders, especially charitable remainder trusts, are strongly encouraged to consult their tax advisors regarding these issues.
The
Fund’s shares held in a tax-qualified retirement account will generally not be subject to federal taxation on income and
capital gains distributions from the Fund until a shareholder begins receiving payments from their retirement account. Because
each shareholder’s tax situation is different, shareholders should consult their tax advisor about the tax implications
of an investment in the Fund.
Backup
Withholding. The Fund will be required in certain cases to withhold at a 24% withholding rate and remit to the U.S. Treasury
the amount withheld on amounts payable to any shareholder who: (i) has provided the Fund either an incorrect tax identification
number or no number at all; (ii) is subject to backup withholding by the IRS for failure to properly report payments of interest
or dividends; (iii) has failed to certify to the Fund that such shareholder is not subject to backup withholding; or (iv) has
failed to certify to the Fund that the shareholder is a U.S. person (including a resident alien).
Non-U.S.
Investors. Any non-U.S. investors in the Fund may be subject to U.S. withholding and estate tax and are encouraged to consult
their tax advisors prior to investing in the Fund. Foreign shareholders (i.e., nonresident alien individuals and foreign corporations,
partnerships, trusts and estates) are generally subject to U.S. withholding tax at the rate of 30% (or a lower tax treaty rate)
on distributions derived from taxable ordinary income. The Fund may, under certain circumstances, report all or a portion of a
dividend as an “interest-related dividend” or a “short-term capital gain dividend,” which would generally
be exempt from this 30% U.S. withholding tax, provided certain other requirements are met. Short-term capital gain dividends received
by a nonresident alien individual who is present in the U.S. for a period or periods aggregating 183 days or more during the taxable
year are not exempt from this 30% withholding tax. Gains realized by foreign shareholders from the sale or other disposition of
shares of the Fund generally are not subject to U.S. taxation, unless the recipient is an individual who is physically present
in the U.S. for 183 days or more per year. Foreign shareholders who fail to provide an applicable IRS form may be subject to backup
withholding on certain payments from the Fund. Backup withholding will not be applied to payments that are subject to the 30%
(or lower applicable treaty rate) withholding tax described above. Different tax consequences may result if the foreign shareholder
is engaged in a trade or business within the United States. In addition, the tax consequences to a foreign shareholder entitled
to claim the benefits of a tax treaty may be different than those described above.
Under
legislation generally known as “FATCA” (the Foreign Account Tax Compliance Act), the Fund is required to withhold
30% of certain ordinary dividends it pays to shareholders that fail to meet prescribed information reporting or certification
requirements. In general, no such withholding will be required with respect to a U.S. person or non-U.S. person that timely provides
the certifications required by the Fund or its agent on a valid IRS Form W-9 or applicable series of IRS Form W-8, respectively.
Shareholders potentially subject to withholding include foreign financial institutions (“FFIs”), such as non-U.S.
investment funds, and non-financial foreign entities (“NFFEs”). To avoid withholding under FATCA, an FFI generally
must enter into an information sharing agreement with the IRS in which it agrees to report certain identifying information (including
name, address, and taxpayer identification number) with respect to its U.S. account holders (which, in the case of an entity shareholder,
may include its direct and indirect U.S. owners), and an NFFE generally must identify and provide other required information to
the Fund or other withholding agent regarding its U.S. owners, if any. Such non-U.S. shareholders also may fall into certain exempt,
excepted or deemed compliant categories as established by regulations and other guidance. A non-U.S. shareholder resident or doing
business in a country that has entered into an intergovernmental agreement with the U.S. to implement FATCA will be exempt from
FATCA withholding provided that the shareholder and the applicable foreign government comply with the terms of the agreement.
A
non-U.S. entity that invests in the Fund will need to provide the Fund with documentation properly certifying the entity’s
status under FATCA in order to avoid FATCA withholding. Non-U.S. investors in the Fund should consult their tax advisors in this
regard.
Tax
Shelter Reporting Regulations. Under U.S. Treasury regulations, generally, if a shareholder recognizes a loss of $2 million
or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder must file with the IRS
a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting
requirement, but under current guidance, shareholders of a RIC such as the Fund are not excepted. Future guidance may extend the
current exception from this reporting requirement to shareholders of most or all RICs. The fact that a loss is reportable under
these regulations does not affect the legal determination of whether the taxpayer’s treatment of the loss is proper. Shareholders
should consult their tax advisors to determine the applicability of these regulations in light of their individual circumstances.
State
Taxes. Depending upon state and local law, distributions by the Fund to its shareholders and the ownership of such shares
may be subject to state and local taxes. Rules of state and local taxation of dividend and capital gains distributions from RICs
often differ from the rules for federal income taxation described above.
Shareholders
are urged to consult their tax advisors regarding state and local taxes applicable to an investment in the Fund.
Financial
Statements
The
Fund’s audited financial statements for the fiscal year ended December 31, 2020, including notes thereto and the report of Tait,
Weller & Baker LLP, the Fund’s independent registered public accounting firm, are contained in the 2020 Annual
Report and incorporated by reference into this SAI. The Fund's unaudited financial statements for the fiscal period ended June 30,
2021 are contained in the Semi-Annual
Report and incorporated by reference into this SAI.
PART
C
OTHER
INFORMATION
Item 25.
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Financial
Statements and Exhibits
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1.
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Financial Statements.
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Contained in Part A:
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Financial Highlights of the RENN Fund, Inc.
(the “Registrant” or the “Fund”) for the fiscal years ended December 31, 2020, 2019, 2018, 2017, 2016,
2015, 2014, 2013, 2012, and 2011.
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Contained in Part B:
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Registrant’s
Financial Statements are incorporated in Part B by reference to the Registrant’s June 30, 2021 Semi-Annual Report
(unaudited) on Form N-CSRS as filed with the U.S. Securities and Exchange Commission (the “SEC”) via EDGAR Accession
No. 0001398344-21-018624 on September 8, 2021 and to the Registrant's December 31, 2020 Annual Report (audited) on Form N-CSR as filed with the SEC via EDGAR Accession No. 0001398344-21-006354
on March 11, 2021
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a.1
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Certificate of Formation dated February 24, 1994 (the “Certificate of Formation”) is incorporated herein by reference to Exhibit a.1 to the Registrant’s Registration Statement on Form N-2 (File Nos. 333-258181 and 811-22299), as filed with the SEC via EDGAR Accession No. 0001398344-21-021677 on November 16, 2021.
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a.2
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Certificate
of Amendment dated June 24, 2014 to the Certificate of Formation is incorporated herein by reference to Exhibit a.3 to the
Registrant’s Registration Statement on Form N-2 (Files Nos. 333-227230 and 811-22299), as filed with the SEC via EDGAR
Accession No. 0001398344-18-013362 on September 7, 2018.
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a.3
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Restated
Articles of Incorporation dated February 23, 1994 (the “Articles of Incorporation”) are incorporated herein by
reference to Exhibit a.1 to the Registrant’s Initial Registration Statement on Form N-2 (File No. 811-22299), as filed
with the SEC via EDGAR Accession No. 0000919567-09-000038 on August 20, 2009.
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a.4
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Articles
of Amendment dated May 15, 2009 to the Articles of Incorporation are incorporated herein by reference to Exhibit a.2 to the
Registrant’s Initial Registration Statement on Form N-2 (File No. 811-22299), as filed with the SEC via EDGAR Accession
No. 0000919567-09-000038 on August 20, 2009.
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b.
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By-Laws
and amendments thereto, are incorporated herein by reference to Exhibit b. to the Registrant’s Initial Registration
Statement on Form N-2 (File No. 811-22299), as filed with the SEC via EDGAR Accession No. 0000919567-09-000038 on August 20,
2009.
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c.
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Not applicable.
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d.
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Not applicable.
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e.
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Dividend
Reinvestment Plan dated February 15, 1994 is incorporated herein by reference to Exhibit e. to the Registrant’s Initial
Registration Statement on Form N-2 (File No. 811-22299), as filed with the SEC via EDGAR Accession No. 0000919567-09-000038
on August 20, 2009.
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g.1
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Investment
Advisory Agreement dated July 6, 2017 between the Registrant and Horizon Asset Management LLC (now, Horizon Kinetics Asset
Management LLC) (the “Adviser”) is incorporated herein by reference to Exhibit g to the Registrant’s Registration
Statement on Form N-2 (File Nos. 333-227230 and 811-22299), as filed with the SEC via EDGAR Accession No. 0001398344-18-013362
on September 7, 2018.
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g.2
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Investment
Advisory Agreement dated March 1, 2018 between RENN Fund, Inc. (Cayman) and Horizon Asset Management LLC is incorporated herein
by reference to Exhibit g.2 to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form N-2
(File Nos. 333-227230 and 811-22299), as filed with the SEC via EDGAR Accession No. 0001398344-18-018250 on December 20, 2018.
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h.
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Not applicable.
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i.
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Not applicable.
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j.1
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Custody
Agreement dated July 6, 2017 between UMB Bank, N.A. and the Registrant (the “Custody Agreement”) is incorporated
herein by reference to Exhibit j.1 to the Registrant’s Registration Statement on Form N-2 (File Nos. 333-227230 and
811-22299), as filed with the SEC via EDGAR Accession No. 0001398344-18-013362 on September 7, 2018.
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j.2
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Amended
and Restated Appendix B dated March 15, 2018 to the Custody Agreement is incorporated herein by reference to Exhibit j.2 to
the Registrant’s Registration Statement on Form N-2 (File Nos. 333-227230 and 811-22299), as filed with the SEC via
EDGAR Accession No. 0001398344-18-013362 on September 7, 2018.
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k.1
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Administration
and Fund Accounting Agreement dated July 6, 2017 between the Registrant and UMB Fund Services, Inc. is incorporated herein
by reference to Exhibit k.1 to the Registrant’s Registration Statement on Form N-2 (File Nos. 333-227230 and 811-22299),
as filed with the SEC via EDGAR Accession No. 0001398344-18-013362 on September 7, 2018.
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k.2
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Transfer
Agency Agreement dated June 1, 2009 between the Registrant and American Stock Transfer & Trust Company is incorporated
herein by reference to Exhibit k.2 to the Registrant’s Registration Statement on Form N-2 (File Nos. 333-227230 and
811-22299), as filed with the SEC via EDGAR Accession No. 0001398344-18-013362 on September 7, 2018.
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l.1
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Opinion of counsel, Morgan, Lewis & Bockius LLP, is incorporated herein by reference to Exhibit l.1 to the Registrant’s Registration Statement on Form N-2 (File Nos. 333-258181 and 811-22299), as filed with the SEC via EDGAR Accession No. 0001398344-21-021677 on November 16, 2021.
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l.2
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Consent of counsel, Morgan, Lewis & Bockius LLP, is incorporated herein by reference to Exhibit l.2 to the Registrant’s Registration Statement on Form N-2 (File Nos. 333-258181 and 811-22299), as filed with the SEC via EDGAR Accession No. 0001398344-21-021677 on November 16, 2021.
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m.
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Not applicable.
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n.
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Consent of independent registered public accounting firm, Tait, Weller & Baker LLP, is incorporated herein by reference to Exhibit n. to the Registrant’s Registration Statement on Form N-2 (File Nos. 333-258181 and 811-22299), as filed with the SEC via EDGAR Accession No. 0001398344-21-022782 on November 26, 2021.
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o.
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Not applicable.
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p.
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Not applicable.
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Item 26.
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Marketing Arrangements
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Not
applicable.
Item 27.
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Other
Expenses of Issuance and Distribution
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Not
applicable.
Item 28.
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Persons
Controlled by or Under Common Control
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The
Fund does not consider that it is controlled, directly or indirectly, by any person. The information in the Statement of Additional
Information regarding this subject is incorporated herein by reference.
Item 29.
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Number
of Holders of Securities
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As
of November 1, 2021:
Title
of Class
|
Number
of Record Holders:
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Common
Stock Shares Outstanding
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5,951,955.761
|
1,732
|
The
Fund maintains a liability policy to protect the Fund from acts of the directors and officers of the Fund as they perform their
duties as directors and officers, and from acts of the employees of Horizon Kinetics Asset Management LLC as they perform their
administrative duties on behalf of the Fund. The Investment Advisory Agreement provides indemnification to the Adviser and any
of its affiliates, to the extent permitted by law, in the event of a suit threatened or filed against the Adviser and affiliates
for acts or omissions arising out of their duties on behalf of the Fund. Willful misfeasance, bad faith, gross negligence, or
reckless disregard in the performance of their duties are not covered.
Insofar
as indemnification for liability arising under the Securities Act of 1933 (the “1933 Act”) may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed
in the 1933 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection
with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against
public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue.
Item 31.
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Business and Other Connections
of Investment Adviser
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Horizon
Kinetics Asset Management LLC manages nine open-end funds as well as 1,501 separate accounts and 22 private funds.
Any
other business, profession, vocation or employment of a substantial nature in which each director or principal officer of the
Adviser is or has been, at any time during the last two fiscal years, engaged for his or her own account or in the capacity of
director, officer, employee, partner or trustee are as follows:
Name
and Position with Horizons
|
Other
Business Profession, Vocation or Employment During Past Two Years
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Murray
Stahl
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Chairman,
Chief Executive Officer and Chief Investment Strategist of Horizon Kinetics LLC
Chairman,
the FRMO Corp
Director,
Winland Electronics, Inc.
Director,
IL&FS Securities Services LTD
Director,
Bermuda Stock Exchange
Chairman,
Minneapolis Grain Exchange
Director,
MSRH, LLC
|
Eric
Sites
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Portfolio
Manager, Horizon Kinetics LLC
Director,
Bermuda Stock Exchange
Director,
IL&FS Securities Services LTD
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Item 32.
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Location of Accounts and
Records
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Persons
maintaining physical possession of accounts, books and other documents required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and the Rules promulgated thereunder are as follows:
Horizon
Kinetics Asset Management LLC (Adviser)
470
Park Avenue South, 3rd Floor South
New
York, NY 10016.
UMB
Fund Services (Administrator, Fund Accounting Agent and Custodian)
235
W. Galena Street
Milwaukee,
Wisconsin 53212-3949
American
Stock Transfer & Trust Company (Transfer Agent)
6201
15th Avenue
Brooklyn,
New York 11219
Item 33.
|
Management Services
|
The
Fund has no contracts other than with its investment adviser and various service providers.
1. The
Registrant undertakes to suspend the offering of common stock until the prospectus is amended if (1) subsequent to the effective
date of its registration statement, the net asset value declines more than ten percent from its net asset value as of the effective
date of this registration statement or (2) the net asset value increases to an amount greater than its net proceeds as stated
in the prospectus.
2. Not
applicable.
3. Not
applicable.
4. Not
applicable.
5. The
Registrant Undertakes that:
(a)
For the purpose of determining any liability under the 1933 Act, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant under
Rule 497(h) under the 1933 Act [17 CFR 230.497(h)] shall be deemed to be part of this registration statement as of the time it
was declared effective; and
(b)
For the purpose of determining any liability under the 1933 Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of the securities
at that time shall be deemed to be the initial bona fide offering thereof.
6. The
Registrant undertakes to send by first class mail or other means designed to ensure equally prominent delivery within two business
days of receipt of a written or oral request the Registrant’s statement of additional information.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, and
the State of New York, on the 2nd day of December, 2021.
|
RENN Fund, Inc.
|
|
|
|
By:
|
/s/
Jay Kesslen
|
|
|
Name: Jay Kesslen
|
|
Title: Vice President and Chief
Compliance Officer
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Jay Kesslen
|
|
Vice President and Chief
|
|
December 2, 2021
|
Jay Kesslen
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|
Compliance Officer
|
|
|
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|
|
|
|
/s/
Russell Grimaldi
|
|
Secretary
|
|
December 2, 2021
|
Russell Grimaldi
|
|
|
|
|
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|
|
|
|
/s/
Alun Williams
|
|
Treasurer
|
|
December 2, 2021
|
Alun Williams
|
|
|
|
|
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|
|
/s/
Murray Stahl
|
|
Director
|
|
December 2, 2021
|
Murray Stahl
|
|
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|
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/s/
Eric Sites
|
|
Director
|
|
December 2, 2021
|
Eric Sites
|
|
|
|
|
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|
|
|
|
/s/
Russell Cleveland
|
|
Director
|
|
December 2, 2021
|
Russell Cleveland
|
|
|
|
|
|
|
|
|
|
/s/
Alice C. Brennan
|
|
Director
|
|
December 2, 2021
|
Alice C. Brennan
|
|
|
|
|
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|
|
|
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/s/
Herbert M. Chain
|
|
Director
|
|
December 2, 2021
|
Herbert M. Chain
|
|
|
|
|
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