UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM N-CSR

 

CERTIFIED SHAREHOLDER REPORT

OF REGISTERED MANAGEMENT

INVESTMENT COMPANIES

 

Investment Company Act File Number 811-22299

 

RENN Fund, Inc.

(Exact name of Registrant as specified in charter)

470 Park Avenue South,

New York, NY 10016

(Address of principal executive offices)

(646) 291-2300

(Registrant’s telephone number, including area code)

 

Jay Kesslen

Horizon Kinetics Asset Management LLC - 8th Floor South

470 Park Avenue South

New York, NY 10016

(Name and address of agent for service of process)

(646) 291-2300

(Agent’s telephone number, including area code)

 

Date of fiscal year end: December 31

 

June 30, 2022

(Date of reporting period)

 

 

 

 

 

 

 

 

Item 1. Annual Report to Shareholders

 

 

 

 

 

RENN Fund, Inc.

 

 

 

 

 

Semi-Annual Report

 

June 30, 2022

 

 

RENN Fund, Inc.

 

TABLE OF CONTENTS
June 30, 2022

 

 

   

Shareholder Letter

1

Consolidated Financial Statements:

 

Consolidated Schedule of Investments

2

Consolidated Statement of Assets and Liabilities

5

Consolidated Statement of Operations

6

Consolidated Statements of Changes in Net Assets

7

Consolidated Statement of Cash Flows

8

Consolidated Financial Highlights

9

Consolidated Notes to Financial Statements

10

Other Information

20

Service Providers

21

 

 

 

 

RENN Fund, Inc.

 

Shareholder Letter

June 30, 2022 (Unaudited)

 

 

Dear Shareholders,

 

We are pleased to present the Renn Fund Inc. (“Fund”) Semi-Annual Report for the six-month period ending June 30, 2022. The portfolio is concentrated in companies which we believe represent attractive investment opportunities that are not overly dependent upon the performance of the broader equity market. It has served investors well to have a high exposure to the broader market for much of the past decade, as low interest rates and government bond yields below the inflation rate supported equity valuations. However, the first half of 2022 has witnessed high reported inflation (as measured by the CPI1) and rising interest rates, and the broader equity markets have fallen significantly. As a result, we believe that strong equity returns will need to come from idiosyncratic sources.

 

The top three holdings in the Fund, Apyx Medical Corp., Texas Pacific Land Corp., and Fitlife Brands Inc., had mixed returns in the first half of the year, with Texas Pacific rising, while Apyx and Fitlife shares fell. Apyx had an eventful first half of the year, amidst a very challenging capital markets environment for the biotechnology sector. The company started the year by reporting preliminary 4th quarter revenue growth of approximately 50% year-over-year. Complications arose when the FDA issued a “Safety Communication” related to use of their advanced energy products for non-indicated procedures. This was related to physicians using the products for various dermal resurfacing procedures, despite not having FDA clearance. This resulted in a steep decline in the shares’ prices, which was partially remedied by successive 510(k) approvals from the FDA for certain end uses for dermal surfacing. Shortly after quarter-end, the company received approval for lax skin in the submental region (below the chin). This opens a very large addressable market with full FDA approval. The company has yet to update its financial guidance following this approval, but we expect the company to operate very close to break-even by the end of the year.

 

Texas Pacific’s shares rose mostly in response to a 40% and 51% year-to-date rise in oil and gas prices, which drove nearly 100% earnings growth in the first quarter compared to a year ago. Higher energy prices are likely to translate into higher production levels and land use through the back half of the year. We believe that global energy markets are structurally undersupplied, while the market is vastly overestimating the demand “destruction” from a potential recession. The company has a one- of- a- kind asset base, in the most prolific energy field in the western world. We believe that recent geopolitical tensions only enhance the value of these assets.

 

FitLife continues to execute on its turnaround strategy, while navigating a challenging environment for retail supplement sales. The health/nutrition market is consolidating following the bankruptcy of GNC Holdings, the nation’s largest supplement retailer. GNC emerged from bankruptcy in later 2020, and many of its franchisees continue to operate. However, the company has sought to diversify its sales channels, specifically targeting online and other direct to consumer channels. The company grew its revenues by approximately 16% in the first quarter and holds over $10 million in cash.

 

The balance of the portfolio is allocated to similarly unique companies that we believe can drive shareholder returns regardless of the macroeconomic environment. This is based on high- quality, long- lived assets and undemanding valuations. We are holding a sizeable cash balance given the macroeconomic uncertainty, but remain eager to allocate capital as capital market conditions permit.

 

 

 

1CPI: The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

 

1

 

 

RENN Fund, Inc.

 

Consolidated Schedule of Investments

As of June 30, 2022 (Unaudited)

 

 

Shares or
Principal
Amount
   Company  Cost   Value 
    MONEY MARKET FUNDS – 34.27%
 83,987   Fidelity Government Cash Reserves Portfolio - Institutional Class, 0.01%  $83,987   $83,987 
 5,005,810   Fidelity Investment Money Market Funds Government Portfolio - Institutional Class, 0.01%  5,005,810    5,005,810 
                
     Total Money Market Funds   5,089,797    5,089,797 
                
     CONVERTIBLE BONDS – 0.00%          
     Oil and Gas – 0.00%          
 1,000,000  

PetroHunter Energy Corporation 8.50% Maturity 12/31/2014(1)(2)(5)

   541,331     
                
     Total Convertible Bonds   541,331     
                
     COMMON EQUITIES – 64.42%          
     Accomodations – 0.63%          
 3,608  

Civeo Corp.(2)

   127,364    93,339 
                
     Aerospace & Defense – 0.02%          
 20  

Boeing Co.(2)

   4,267    2,735 
                
     Asset Management – 1.23%          
 973   Associated Capital Group, Inc. - Class A   40,594    34,863 
 7,098   Gamco Investors, Inc.   189,620    148,348 
         230,214    183,211 
                
     Diversified Financial Services – 0.05%          
 1,800  

Galaxy Digital Holdings Ltd.(2)(4)

   31,086    6,754 
                
     Marine Shipping – 0.07%          
 300  

Clarkson PLC(4)

   16,197    10,992 
                
     Metal Mining – 3.94%          
 580   Franco-Nevada Corp.   83,192    76,316 
 18,478   Mesabi Trust   496,054    453,081 
 1,560   Wheaton Precious Metals Corp.   65,121    56,207 
         644,367    585,604 
                
     COMMON EQUITIES – 64.42% (Continued)          
     Medicinal Chemicals and Botanical Products – 5.46%          
 77,228  

FitLife Brands, Inc.(2)

  $9,131,688   $810,894 
                
     Oil and Gas – 22.26%          
 15,759   Permian Basin Royalty Trust   218,303    260,811 
 808,445  

PetroHunter Energy Corporation(1)(2)(5)

   101,056     
 16,300  

PrairieSky Royalty Ltd.(4)

   193,455    205,270 
 1,908   Texas Pacific Land Corp.   1,079,739    2,839,142 
         1,592,553    3,305,223 
                
     Other Financial Investment Activities – 0.15%          
 100  

CF Acquisition Corp.VI – Class A. (2)

   1,206    997 
 1  

Morgan Group Holding Co.(2)

   16    1 
 7,000  

Urbana Corp.(4)

   22,499    21,698 
         23,721    22,696 
                
     Real Estate – 0.38%          
 3,600  

Tejano Ranch Co.(2)

   68,859    55,872 
                
     Securities and Commodity Exchanges – 1.63%          
 685   Cboe Global Markets, Inc.   80,892    77,535 
 204   CME Group, Inc.   46,086    41,759 
 240   Intercontinental Exchange, Inc.   30,806    22,570 
 14,000  

Miami International Holdings, Inc.(1)(2)(3)

   105,000    100,800 
         262,784    242,664 
                
     Securities, Commodity Contracts, and Other Financial Investments and Related Activities – 0.44%      
 5,460  

Grayscale Bitcoin Trust(2)

   258,912    65,848 
                
     Live Sports (Spectator Sports) – 1.89%          
 5,091  

Big League Advance, LLC.(1)(2)(3)

   280,000    280,005 
                
     Surgical & Medical Instruments & Apparatus – 24.27%          
 615,000  

Apyx Medical Corp.(2)

   1,470,958    3,603,900 
                

 

See accompanying Notes to Consolidated Financial Statements.

 

2

 

 

RENN Fund, Inc.

 

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
As of June 30, 2022 (Unaudited)

 

 

Shares or
Principal
Amount
   Company  Cost   Value 
     COMMON EQUITIES – 64.42% (Continued)          
     Technology Services – 2.00%          
 550  

Core Scientific, Inc.(2)

  $7,513   $819 
 1,048  

CACI International, Inc. – Class A. (2)

   296,485    295,305 
         303,998    296,124 
                
     Total Common Equities   14,446,968    9,565,861 
                
     EXCHANGE TRADED FUNDS – 0.05%          
 124  

ProShares Short VIX Short-Term Futures ETF(2)

   7,201    5,978 
     Total Exchange Traded Funds   7,201    5,978 
                
     OPEN ENDED MUTUAL FUNDS – 0.10%          
 824  

Kinetics Spin-Off and Corporate Restructuring Fund(6)

   13,167    15,541 
                
     Total Open Ended Mutual Funds   13,167    15,541 
                
     PREFERRED STOCKS – 1.25%          
 30,966  

Diamond Standard, Inc.(1)(2)(3)

   185,798    185,798 
                
     Total Preferred Stocks   185,798    185,798 
                
     WARRANTS – 0.02%          
     Diamond Standard, Inc., Exercise Price: $9.00,          
 837  

Expiration Date: January 15, 2026(1)(2)(3)

       25 
     Miami International Holdings, Inc., Exercise Price: $7.50,          
 2,132  

Expiration Date: March 31, 2026(1)(2)(3)

       3,390 
                
     Total Warrants       3,415 
                
 

TOTAL INVESTMENTS – 100.11%

  $20,284,261   $14,866,390 
 

LIABILITIES LESS OTHER ASSETS – -0.11%

        (15,859)
 

NET ASSETS – 100.00%

       $14,850,531 

 

 

Shares or
Principal
Amount

 

Company

 

Proceeds

   

Value

 
       

SECURITIES SOLD SHORT – 0.00%

       

EXCHANGE TRADED FUNDS – 0.00%

    (12 )

Direxion Daily Gold Miners Index Bear 2X Shares ETF

  $ (202 )   $ (252 )
    (12 )

Direxion Daily Junior Gold Miners Index Bear 2X Shares ETF(2)

    (123 )     (167 )
    (7 )

ProShares Ultra VIX Short-Term Futures ETF(2)

    (1,102 )     (102 )
                         
       

Total Exchange Traded Funds

    (1,427 )     (521 )
                         
       

TOTAL SECURITIES SOLD SHORT – 0.00%

  $ (1,427 )   $ (521 )

 

(1)

See Semi-Annual Report Note 5 - Fair Value Measurements.

 

(2)

Non-Income Producing.

 

(3)

Big League Advance, LLC., Diamond Standard, Inc. and Miami International Holdings, Inc. are each currently a private company. These securities are illiquid and valued at fair value.

 

(4)

Foreign security denominated in U.S. Dollars.

 

(5)

The PetroHunter Energy Corporation (“PetroHunter”) securities are in bankruptcy. The securities are valued at fair value.

 

(6)

Affiliated security, given that the security is managed by the same Investment Advisor as the Fund.

 

See accompanying Notes to Consolidated Financial Statements.

 

3

 

 

RENN Fund, Inc.

 

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
As of June 30, 2022 (Unaudited)

 

 

Security Type/Sector

Percent of
Total Net Assets

Money Market Funds

34.27%

Convertible Bonds

0.00%

Common Equities

 

Accommodations

0.63%

Aerospace & Defense

0.02%

Asset Management

1.23%

Diversified Financial Services

0.05%

Marine Shipping

0.07%

Metal Mining

3.94%

Medicinal Chemicals and Botanical Products

5.46%

Oil and Gas

22.26%

Other Financial Investment Activities

0.15%

Real Estate

0.38%

Securities and Commodity Exchanges

1.63%

Securities, Commodity Contracts and Other Financial Investments and Related Activities

0.44%

Live Sports (Spectator Sports)

1.89%

Surgical & Medical Instruments & Apparatus

24.27%

Technology Services

2.00%

Total Common Equities

64.42%

Exchange Traded Funds

0.05%

Open Ended Mutual Funds

0.10%

Preferred Stocks

1.25%

Warrants

0.02%

Total Investments

100.11%

Liabilities Less Other Assets

(0.11%)

Total Net Assets

100.00%

 

See accompanying Notes to Consolidated Financial Statements.

 

4

 

 

RENN Fund, Inc.

 

Consolidated Statement of Assets and Liabilities

June 30, 2022 (Unaudited)

 

 

ASSETS

       

Investments in securities, at value:

       

Unaffiliated investments (cost $20,271,094)

  $ 14,850,849  

Affiliated investments (cost $13,167)

    15,541  

Foreign Currency, at value (cost $314)

    315  

Cash

    69,572  

Cash held at broker

    5,291  

Dividends and interest receivable

    5,428  

Prepaid expenses and other assets

    10,063  

Total assets

    14,957,059  
         

LIABILITIES

       

Securities sold short, at value (proceeds $1,427)

    521  

Payables:

       

Auditing fees

    49,319  

Fund administration and accounting fees

    22,122  

Printing and postage

    12,402  

Legal expense

    7,639  

Custody fees

    5,192  

Investment securities purchased

    4,089  

Due to custodian

    532  

Transfer agent fees and expenses

    3,237  

Accrued other expenses

    1,475  

Total liabilities

    106,528  
         

NET ASSETS

  $ 14,850,531  
         

Paid-in-capital

    33,294,482  

Total accumulated deficit

    (18,443,951 )

NET ASSETS

  $ 14,850,531  
         

Shares outstanding no par value (unlimited shares authorized)

    7,015,786  
         

Net asset value, offering and redemption price per share

  $ 2.12  
         

Market Price Per Common Share

  $ 2.29  
         

Market Price (Discount) to Net Asset Value Per Common Share

    8.02 %

 

 

See accompanying Notes to Consolidated Financial Statements.

 

5

 

 

RENN Fund, Inc.

 

Consolidated Statement of Operations

For the Six Months Ended June 30, 2022 (Unaudited)

 

 

INVESTMENT INCOME

       

Income

       

Dividends (net of withholding tax of $9,930)

  $ 100,055  

Interest

    5,927  

Total investment income

    105,982  
         

Expenses

       

Fund accounting and administration fees

    42,186  

Shareholder reporting fees

    17,253  

Professional fees

    16,319  

Transfer agent fees and expenses

    13,104  

Custody fees

    10,889  

Stock exchange listing fees

    8,654  

Miscellaneous expenses

    5,800  

Insurance fees

    778  

Interest on securities sold short

    20  

Total expenses

    115,003  

Net investment loss

    (9,021 )
         

Net Realized and Unrealized Loss:

       

Net realized gain on:

       

Unaffiliated Investments

    2,658  

Foreign currency transactions

    8  

Net realized gain

    2,666  

Net change in unrealized appreciation/depreciation on:

       

Unaffiliated Investments

    (4,231,077 )

Affiliated Investments

    2,374  

Securities sold short

    (77 )

Foreign currency translations

    (11 )

Foreign currency

    1  

Net change in unrealized appreciation/depreciation

    (4,228,790 )

Net realized and unrealized loss

    (4,226,124 )
         

Net Decrease in Net Assets from Operations

  $ (4,235,145 )

 

 

See accompanying Notes to Consolidated Financial Statements.

 

6

 

 

RENN Fund, Inc.

 

Consolidated Statements of Changes in Net Assets

 

 

   

For the
Six Months Ended
June 30, 2022
(Unaudited)

   

For the
Year Ended
December 31, 2021

 

INCREASE (DECREASE) IN NET ASSETS FROM

               

Operations

               

Net investment loss

  $ (9,021 )   $ (160,959 )

Net realized gain on investments, securities sold short, short term capital gain on exchange traded fund and foreign currency transactions

    2,666       434,649  

Net change in unrealized appreciation/depreciation on investments, securities sold short, foreign currency translations, and foreign currency

    (4,228,790 )     4,982,001  

Net increase (decrease) resulting from operations

    (4,235,145 )     5,255,691  
                 

Distributions to Shareholders

               

From net investment income

          (134,526 )

Net decrease resulting from distributions

          (134,526 )
                 

Capital Transactions

               

Proceeds from shares issued(1)

    2,106,383        

Net increase resulting from capital transactions

    2,106,383        
                 

Total increase (decrease) in net assets

    (2,128,762 )     5,121,165  
                 

Net Assets

               

Beginning of period

    16,979,293       11,858,128  

End of period

  $ 14,850,531     $ 16,979,293  
                 

Capital Share Activity

               

Shares issued

    1,063,830        

Net increase in capital shares

    1,063,830        

 

(1)

Includes $171,162 which represents the market value of securities transferred in kind.

 

See accompanying Notes to Consolidated Financial Statements.

 

7

 

 

RENN Fund, Inc.

 

Consolidated Statement of Cash Flows

For the Six Months Ended June 30, 2022 (Unaudited)

 

 

Increase/(Decrease) in Cash:

       

Cash flows provided by (used for) operating activities:

       

Net decrease in net assets resulting from operations

  $ (4,235,145 )

Adjustments to reconcile net decrease in net assets from operations to net cash provided by operating activities:

       

Change in money market funds, net

    (1,560,112 )

Purchase of investment securities

    (869,428 )

Proceeds from sale of investment securities

    64,365  

Change in foreign currency

    (315 )

Return of capital received

    186,067  

Increase in dividends and interest receivable

    (4,138 )

Increase in prepaid expenses and other assets

    (9,708 )

Increase in investment securities purchased payable

    2,165  

Increase in due to custodian

    532  

Increase in accrued expenses

    3,338  

Net change in unrealized appreciation/depreciation on securities

    4,228,779  

Net realized gain on investments and securities sold short

    (2,128 )
         

Net cash used for operating activities

    (2,195,728 )
         

Cash flows provided by financing activities:

       

Proceeds from sale of shares(1)

    2,106,383  

Net cash used for financing activities

    2,106,383  
         

Net decrease in cash

    (89,345 )
         

Cash and cash equivalents

       

Beginning cash balance

    158,794  

Beginning cash held at broker

    5,414  

Total beginning cash and cash equivalents

    164,208  
         

Ending cash balance

    69,572  

Ending cash held at broker

    5,291  

Total ending cash and cash equivalents

  $ 74,863  

 

(1)

Includes non-cash activity of $171,162 which represents the market value of securities transferred in kind.

 

See accompanying Notes to Consolidated Financial Statements.

 

8

 

 

RENN Fund, Inc.

 

Consolidated Financial Highlights(7)

 

 

For a capital share outstanding throughout each period

   

For the
Six Months
Ended
June 30, 2022

   

For the Year Ended December 31,

 
   

(Unaudited)

   

2021

   

2020

   

2019

   

2018

   

2017

 

Net asset value, beginning of period

  $ 2.85     $ 1.99     $ 2.08     $ 1.90     $ 1.47     $ 1.64  

Income from Investment Operations:

                                               

Net investment loss(1)

    (0.00 )     (0.03 )     (0.03 )     (0.02 )     (0.04 )     (0.08 )

Net realized and unrealized gain (loss) on investments

    (0.64 )     0.91       (0.06 )     0.40       0.47       (0.09 )

Total from investment operations

    (0.64 )     0.88       (0.09 )     0.38       0.43       (0.17 )
                                                 

Less Distributions:

                                               

From net investment income

          (0.02 )                        

Total distributions

          (0.02 )                        
                                                 

Capital Share Transactions

                                               

Dilutive effect of rights offering

    (0.09 )(8)                 (0.20 )(2)            
                                                 

Net asset value, end of period

  $ 2.12     $ 2.85     $ 1.99     $ 2.08     $ 1.90     $ 1.47  

Per-share market value, end of period

  $ 2.29     $ 2.65     $ 1.71     $ 1.64     $ 1.49     $ 1.50  
                                                 

Total net asset value return(3)

    (25.61 %)(5)     44.40 %     (4.33 %)     9.47 %     29.25 %     (10.37 %)

Total market value return(3)

    (13.65 %)(5)     56.40 %     4.25 %     10.07 %     (0.93 %)     22.95 %
                                                 

Ratios and Supplemental Data

                                               

Net assets, end of period (in thousands)

  $ 14,851     $ 16,979     $ 11,858     $ 12,356     $ 8,476     $ 6,546  
                                                 

Ratio of expenses to average net assets

    1.50 %(6)     1.45 %     2.35 %     2.03 %     2.89 %     5.99 %(4)

Ratio of net investment loss to average net assets

    (0.12 %)(6)     (1.01 %)     (1.64 %)     (0.98 %)     (2.06 %)     (5.60 %)(4)
                                                 

Portfolio turnover rate

    1 %(5)     14 %     1 %     1 %     12 %     7 %

 

(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 11 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.

 

(5)

Not Annualized.

 

(6)

Annualized.

 

(7)

Consolidated for the six months ended June 30,2022 and the years ended December 31, 2021, 2020, 2019 and 2018 only.

 

(8)

Represents the impact of the Fund’s rights offering of 1,063,830 common shares in January 2022 at a subscription price based on a formula. See Note 11 for more information.

 

See accompanying Notes to Consolidated Financial Statements.

 

9

 

 

RENN Fund, Inc.

 

Consolidated Notes to Financial Statements

As of June 30, 2022 (Unaudited)

 

 

Note 1 – Organization

 

RENN Fund, Inc. (the “Fund”), is a registered, non-diversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”).

 

The Fund, a Texas corporation, was organized and commenced operations in 1994 and is registered under and pursuant to the provisions of Section 8(a) of the 1940 Act.

 

The investment objective of the Fund is to provide shareholders with above-market rates of return through capital appreciation and income by a long-term, value oriented investment process that invests 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 and exchange traded notes, and other instruments. In addition, the Fund may sell short stocks, exchange traded funds and exchange traded notes.

 

Horizon Kinetics Asset Management LLC (“Horizon” or the “Investment Advisor”), a registered investment adviser and wholly owned subsidiary of Horizon Kinetics LLC (“Horizon Kinetics”), serves as the Fund’s investment manager and is responsible for the Fund’s investment portfolio, subject to the supervision of the Board of Directors. Horizon has served as the Fund’s investment advisor since July 1, 2017.

 

Note 2 – Accounting Policies

 

The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from these estimates.

 

The Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standard Codification Topic 946 “Financial Services-Investment Companies”.

 

(a) Consolidation of Subsidiary

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, Statement of Cash Flows 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. As of June 30, 2022 total assets of the Fund were $14,957,059, of which $694,116, or approximately 4.64%, represented the Fund’s ownership of the Subsidiary.

 

The Fund can invest up to 25% of its total assets in its Subsidiary. The Subsidiary acts as an investment vehicle in order to invest in commodity-linked, bitcoin, and other cryptocurrency linked instruments consistent with the Fund’s investment objectives and policies. By investing in its Subsidiary, the Fund is indirectly exposed to the risks associated with the Subsidiary’s investments. The investments held by the 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 is not subject to all the investor protections of the 1940 Act. However the Fund wholly owns and controls its Subsidiary, making it unlikely that the Subsidiary will take action contrary to the interests of the Fund. The Subsidiary will be subject to the same investment restrictions and limitations, and follow the same compliance policies and procedures, as the Fund.

 

The Subsidiary is an exempted Cayman investment company and as such is not subject to Cayman Islands taxes at the present time. For U.S. income tax purposes, the Subsidiary is a Controlled Foreign Corporation (“CFC”) not subject to U.S. income taxes. As a wholly-owned CFC, however, the Subsidiary’s net income and net capital gains will be included each year in the Fund’s investment company taxable income.

 

(b) Valuation of Investments

All investments are stated at their estimated fair value, as described in Note 5.

 

10

 

 

RENN Fund, Inc.

 

CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (Continued)
As of June 30, 2022 (Unaudited)

 

 

(c) Investment Transactions, Investment Income and Expenses

Investment transactions are accounted for on the trade date. Realized gains and losses on investments are determined on the identified cost basis. Dividend income is recorded net of applicable withholding taxes on the ex-dividend date and interest income is recorded on an accrual basis. Withholding taxes on foreign dividends, if applicable, are paid (a portion of which may be reclaimable) or provided for in accordance with the applicable country’s tax rules and rates and are disclosed in the consolidated Statement of Operations. Withholding tax reclaims are filed in certain countries to recover a portion of the amounts previously withheld. The Fund records a reclaim receivable based on a number of factors, including a jurisdiction’s legal obligation to pay reclaims as well as payment history and market convention. Discounts or premiums on debt securities are accreted or amortized to interest income over the lives of the respective securities using the effective interest method.

 

(d) Federal Income Taxes

The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its net investment income and any net realized gains to its shareholders. Therefore, no provision is made for federal income or excise taxes. Due to the timing of dividend distributions and the differences in accounting for income and realized gains and losses for financial statement and federal income tax purposes, the fiscal year in which amounts are distributed may differ from the year in which the income and realized gains and losses are recorded by the Fund.

 

The Fund follows the provisions of Accounting Standards Codification ASC 740, Accounting for Uncertainty in Income Taxes (the “Income Tax Statement”), which requires an evaluation of tax positions taken (or expected to be taken) in the course of preparing a Fund’s tax returns to determine whether these positions meet a “more-likely-than-not” standard that, based on the technical merits, have a more than fifty percent likelihood of being sustained by a taxing authority upon examination. A tax position that meets the “more-likely-than-not” recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Consolidated Statement of Operations.

 

The Income Tax Statement requires management of the Fund to analyze tax positions taken in the prior three open tax years, if any, any tax positions expected to be taken in the Fund’s current tax year, as defined by the IRS statute of limitations for all major jurisdictions, including federal tax authorities and certain state tax authorities. As of and during the open tax years ended December 31, 2018 through 2021, and as of and during the six months ended June 30, 2022, the Fund did not have a liability for any unrecognized tax benefits. The Fund has no examinations in progress and is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.

 

(e) Distributions to Shareholders

The Fund will make distributions of net investment income and capital gains, if any, at least annually. Distributions to shareholders are recorded on the ex-dividend date. The amount and timing of distributions are determined in accordance with federal income tax regulations, which may differ from GAAP.

 

The character of distributions made during the year from net investment income or net realized gains may differ from the characterization for federal income tax purposes due to differences in the recognition of income, expense and gain (loss) items for financial statement and tax purposes.

 

(f) Short Sales

Short sales are transactions under which the Fund sells a security it does not own in anticipation of a decline in the value of that security. To complete such a transaction, the Fund must borrow the security to make delivery to the buyer. The Fund then is obligated to replace the security borrowed by purchasing the security at market price at the time of replacement. The price at such time may be more or less than the price at which the security was sold by the Fund. When a security is sold short a decrease in the value of the security will be recognized as a gain and an increase in the value of the security will be recognized as a loss, which is potentially limitless. Until the security is replaced, the Fund is required to pay the lender amounts equal to dividend or interest that accrue during the period of the loan which is recorded as an expense. To borrow the security, the Fund also may be required to pay a premium or an interest fee, which are recorded as interest expense. Cash or securities may be segregated for the broker to meet the necessary margin requirements. The Fund is subject to the risk that it may not always be able to close out a short position at a particular time or at an acceptable price.

 

11

 

 

RENN Fund, Inc.

 

CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (Continued)
As of June 30, 2022 (Unaudited)

 

 

(g) Short-Term Investments

The Fund invested a significant amount (33.71% of its net assets as of June 30, 2022) in the Fidelity Investment Money Market Government Portfolio Fund (“FIGXX”). FIGXX normally invests at least 99.5% of assets in U.S. government securities and repurchase agreements for those securities. FIGXX invests in compliance with industry-standard regulatory requirements for money market funds for the quality, maturity, and diversification of investments. An investment in FIGXX is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although FIGXX seeks to preserve the value of investment at $1.00 per share, it is possible to lose money by investing in FIGXX.

 

FIGXX files complete Semi-Annual and Annual Reports with the U.S. Securities and Exchange Commission for semi-annual and annual periods of each fiscal year on Form N-CSR. The Forms N-CSR are available on the website of the U.S. Securities and Exchange Commission at www.sec.gov, and may also be viewed and copied at the Commission’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The net expense ratio per the March 31, 2022 annual report of Fidelity Investment Money Market Government Portfolio Fund was 0.08%.

 

Note 3 – Principal Investment 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. The below does not discuss numerous other risks associated with an investment in the Fund, including risks associated with investments in non-diversified, closed-end registered investment funds generally, other business, operating and tax risks associated with an investment in the Fund, and economic and other risks affecting investment markets generally, all of which are beyond the scope of this discussion.

 

Liquidity Risks: The Investment Advisor may not be able to sell portfolio securities at an optimal time or price. For example, if the Fund is required or the advisor 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.

 

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 our Investment Advisor to obtain adequate information to evaluate the potential returns from investing in these companies. If the Investment Advisor 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.

 

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. 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 Investment Advisor may engage in speculative transactions which involve substantial risk and leverage. The use of leverage by the Investment Advisor may increase the volatility of the Fund. These leveraged instruments may result in losses to the Fund or may adversely affect the Fund’s NAV 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.

 

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 our 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 substantial delays and the risk of loss of all or a substantial portion of the Fund’s investment in the bankrupt entity.

 

Bitcoin Risk: The value of the Fund’s investment in the Grayscale Bitcoin Trust is subject directly 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 and other venues can be volatile and can adversely affect the value of the Grayscale Bitcoin Trust. 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

 

12

 

 

RENN Fund, Inc.

 

CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (Continued)
As of June 30, 2022 (Unaudited)

 

 

that could adversely affect the Fund’s direct investment in the Grayscale Bitcoin Trust. 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. Shares of the Grayscale Bitcoin Trust may trade at a premium or discount to the net asset value of the Grayscale Bitcoin Trust.

 

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 interest or other 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.

 

Note 4 – Investment Advisory Agreement

 

The Fund entered in to an Investment Advisor Agreement (the “Agreement”) with Horizon. Under the Agreement, Horizon is not paid an advisory fee on net assets less than $25 million and thereafter will charge a management fee of 1.0% on net assets above $25 million. Horizon performs certain services, including certain management, investment advisory and administrative services necessary for the operation of the Fund.

 

Note 5 – Fair Value Measurements

 

Investments are carried at fair value, as determined in good faith by Horizon, subject to the approval of the Fund’s Board of Directors. The fair values reported are subject to various risk including changes in the equity markets, general economic conditions, and the financial performance of the companies. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the fair value of investment securities, it is possible that the amounts reported in the accompanying financial statements could change materially in the near term.

 

The Fund generally invests in common securities, preferred securities, convertible and nonconvertible debt securities, and warrants. These securities may be unregistered and thinly-to-moderately traded. Generally, the Fund negotiates registration rights at the time of purchase and the portfolio companies are required to register the shares within a designated period, and the cost of registration is borne by the portfolio company.

 

On a daily basis, as is necessary, Horizon prepares a valuation to determine fair value of the investments of the Fund. The Board of Directors approves the valuation on a quarterly basis. Interim board involvement may occur if material issues arise before quarter end. The valuation principles are described below.

 

13

 

 

RENN Fund, Inc.

 

CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (Continued)
As of June 30, 2022 (Unaudited)

 

 

Unrestricted common stock of companies listed on an exchange, such as the NYSE or NASDAQ, or in the over-the-counter market is valued at the closing price on the date of valuation. Thinly traded unrestricted common stock of companies listed on an exchange, such as the NYSE or NASDAQ, or in the over-the-counter market is valued at the closing price on the date of valuation, less a marketability discount as determined appropriate by the Fund Managers and approved by the Board of Directors.

 

Restricted common stock of companies listed on an exchange, such as the NYSE or NASDAQ, or in the over-the-counter market is valued based on the quoted price for an otherwise identical unrestricted security of the same issuer that trades in a public market, adjusted to reflect the effect of any significant restrictions.

 

The unlisted preferred stock of companies with common stock listed on an exchange, such as the NYSE or NASDAQ, or in the over-the-counter market is valued at the closing price of the common stock into which the preferred stock is convertible on the date of valuation.

 

Debt securities are valued at fair value. The Fund considers, among other things, whether a debt issuer is in default or bankruptcy. It also considers the underlying collateral. Fair value is generally determined to be the greater of the face value of the debt or the market value of the underlying common stock into which the instrument may be converted.

 

The unlisted in-the-money options or warrants of companies with the underlying common stock listed on an exchange, such as the NYSE or NASDAQ, or in the over-the-counter market are valued at fair value (the positive difference between the closing price of the underlying common stock and the strike price of the warrant or option). An out-of-the money warrant or option has no value; thus the Fund assigns no value to it.

 

Investments in privately held entities are valued at fair value. If there is no independent and objective pricing authority (i.e., a public market) for such investments, fair value is based on the latest sale of equity securities to independent third parties. If a private entity does not have an independent value established over an extended period of time, then the Investment Advisor will determine fair value on the basis of appraisal procedures established in good faith and approved by the Board of Directors.

 

The Fund follows the provisions of Accounting Standards Codification ASC 820, Fair Value Measurements, under which the Fund has established a fair value hierarchy that prioritizes the sources (“inputs”) used to measure fair value into three broad levels: inputs based on quoted market prices in active markets (Level 1 inputs); observable inputs based on corroboration with available market data (Level 2 inputs); and unobservable inputs based on uncorroborated market data or a reporting entity’s own assumptions (Level 3 inputs).

 

The following table shows a summary of investments measured at fair value on a recurring basis classified under the appropriate level of fair value hierarchy as of June 30, 2022:

 

 

 

Level 1

   

Level 2

   

Level 3

   

Total

 

Assets

                               

Convertible Bonds

  $     $     $     $  

Common Equities

    9,185,056             380,805       9,565,861  

Exchange Traded Funds

    5,978                   5,978  

Money Market Funds

    5,089,797                   5,089,797  

Open Ended Mutual Funds

    15,541                   15,541  

Preferred Stocks

                185,798       185,798  

Warrants

                3,415       3,415  

Total Investments

  $ 14,296,372     $     $ 570,018     $ 14,866,390  
 

 

14

 

 

RENN Fund, Inc.

 

CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (Continued)
As of June 30, 2022 (Unaudited)

 

 

 

 

Level 1

   

Level 2

   

Level 3

   

Total

 

Liabilities

                               

Securities Sold Short

                               

Exchange Traded Funds

  $ 521     $     $     $ 521  

Total Liabilities

  $ 521     $     $     $ 521  
 

 

Following is a reconciliation of assets in which significant unobservable inputs (Level 3) were used in determining value:

 

 

 

Value

 

Beginning balance December 31, 2021

  $ 154,762  

Transfers into Level 3 during the period

     

Change in unrealized appreciation/(depreciation)

    (186,609 )

Total realized gain/(loss)

     

Purchases

    415,798  

Sales

     

Return of capital distributions

    186,067  

Transfers out of Level 3 during the period

     

Ending balance June 30, 2022

  $ 570,018  
 

 

Investments in portfolio companies are being classified as Level 3. At June 30, 2022, Petrohunter Energy Corporation was valued at $0 due to bankruptcy proceedings and thus qualifies as a Level 3 security. As part of the bankruptcy proceedings, the Fund received a payment of $186,067 during the six months ended June 30, 2022, which was treated as a return of capital. Also at June 30, 2022, Big League Advance, LLC., Diamond Standard, Inc., and Miami International Holdings, Inc. were private companies and shares and/or warrants are illiquid, thus qualifying as Level 3 securities. The following table summarizes the valuation techniques and significant unobservable inputs used in determining fair value measurements for these investments classified as Level 3 as of June 30, 2022:

 

Quantitative Information about Level 3 Fair Value Measurements

Portfolio Investment
Company

Valuation
Technique

Unobservable
Input*

 

Input Range

   

Valuation
Weighted
Average of
Input

   

Value at
6/30/22

   

Impact to
Valuation
from an
Increase in
Input**

 

Petrohunter Energy Corporation

                                 

Convertible Bond

Asset Approach

Bankruptcy Recovery

  $ 0.00     $ 0.00     $ 0       Increase  

Common Stock

Asset Approach

Bankruptcy Recovery

  $ 0.00     $ 0.00     $ 0       Increase  

Big league Advance, LLC.

                                   

Common Stock

Asset Approach

Precedent Transaction

  $ 55.00     $ 55.00     $ 280,005       Increase  

Diamond Standard, Inc.

                                   

Preferred Stock

Asset Approach

Precedent Transaction

  $ 6.00     $ 6.00     $ 185,798       Increase  

Warrant

Asset Approach

Precedent Transaction

  $ 0.00     $ 0.00     $ 25       Increase  

 

15

 

 

RENN Fund, Inc.

 

CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (Continued)
As of June 30, 2022 (Unaudited)

 

 

Quantitative Information about Level 3 Fair Value Measurements

Portfolio Investment
Company

Valuation
Technique

Unobservable
Input*

 

Input Range

   

Valuation
Weighted
Average of
Input

   

Value at
6/30/22

   

Impact to
Valuation
from an
Increase in
Input**

 

Miami International Holdings, Inc.

                                 

Common Stock

Asset Approach

Precedent Transaction

  $ 7.20     $ 7.20     $ 100,800       Increase  

Warrant

Black Scholes Method

Volatility

    25 %     25 %   $ 3,390       Increase  

 

*

The Investment Advisor considers relevant indications of value that are reasonably and timely available to it in determining the fair value to be assigned to a particular security, such as the type and cost of the security; contractual or legal restrictions on resale of the security; relevant financial or business developments of the issuer; actively traded related securities; conversion or exchange rights on the security; related corporate actions; significant events occurring after the close of trading in the security; and changes in overall market conditions. The Fund’s use of fair value pricing may cause the net asset value of Fund shares to differ from the net asset value that would be calculated using market quotations. Fair value pricing involves subjective judgments and it is possible that the fair value determined for a security may be materially different than the value that could be realized upon the sale of that security.

 

**

This column represents the directional change in the fair value of the Level 3 investments that would result from an increase to the corresponding unobservable input. A decrease to the unobservable input would have the opposite effect.

 

The Fund has adopted a policy of recording any transfers of investment securities between the different levels in the fair value hierarchy as of the end of the year unless circumstances dictate otherwise.

 

Note 6 – Investments in Affiliated Issuers

 

An affiliated issuer is an entity in which the Fund has ownership of at least 5% of the voting securities, or any investment which is advised or sponsored by the advisor. In this instance, affiliation is based on the fact that the Kinetics Spin-off and Corporate Restructuring Fund is advised by Horizon, the same Investment Advisor to the Fund. Issuers that are affiliates of the Fund at period-end are noted in the Fund’s Schedule of Investments. Additional security purchases and the reduction of certain securities shares outstanding of existing portfolio holdings that were not considered affiliated in prior years may result in the Fund owning in excess of 5% of the outstanding shares at period-end. The table below reflects transactions during the period with entities that are affiliates as of June 30, 2022 and may include acquisitions of new investments, prior year holdings that became affiliated during the period and prior period affiliated holdings that are no longer affiliated as of period-end.

 

Name of Issuer and
Title of Issue

 

Value
Beginning
of Period

   

Purchases

   

Sales Proceeds

   

Net Realized
Gain (Loss)

   

Change in
Unrealized
Appreciation
(Depreciation)

   

Value
End of
Period

 

Kinetics Spin-off and Corporate

                                               

Restructuring Fund

  $     $ 13,167     $     $     $ 2,374     $ 15,541  

Total

  $     $ 13,167     $     $     $ 2,374     $ 15,541  
 

 

16

 

 

RENN Fund, Inc.

 

CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (Continued)
As of June 30, 2022 (Unaudited)

 

 

Name of Issuer and Title of Issue

 

Shares
Beginning
of Period

   

Purchases

   

Sales Proceeds

   

Stock Split

   

Shares
End of
Period

 

Kinetics Spin-off and Corporate

                                       

Restructuring Fund

          824                   824  

Total

          824                   824  
 

 

Note 7 – Federal Income Tax Information

 

At June 30, 2022, gross unrealized appreciation and depreciation on investments and securities sold short, based on cost for federal income tax purposes, were as follows:

 

Cost of investments

  $ 20,282,834  

Gross unrealized appreciation

  $ 4,214,193  

Gross unrealized depreciation

    (9,631,158 )

Net unrealized depreciation

  $ (5,416,965 )

 

The difference between cost amounts for financial statement and federal income tax purposes is due primarily to investments in grantor and passive foreign investment companies (PFICs).

 

As of December 31, 2021, the components of accumulated earnings (deficit) on a tax basis were as follows:

 

Undistributed ordinary income

  $  

Undistributed long-term capital gains

     

Tax accumulated earnings

     

Accumulated capital and other losses

    (13,245,362 )

Net unrealized depreciation on investments

    (963,455 )

Net unrealized appreciation on foreign currency translations

    11  

Total accumulated deficit

  $ (14,208,806 )

 

As of December 31, 2021, the Fund had accumulated capital loss carryforwards as follows:

 

Not subject to expiration:

       

Short-term

  $ 161,755  

Long-term

    13,049,544  
    $ 13,211,299  

 

To the extent that a fund may realize future net capital gains, those gains will be offset by any of its unused capital loss carryforward. Future capital loss carryforward utilization in any given year may be subject to Internal Revenue Code limitations.

 

During the tax year ended December 31, 2021, the Fund utilized $132,931 of non-expiring capital loss carryforwards.

 

The Fund has $34,063 in qualified late-year losses, which are deferred until fiscal year 2022 for tax purposes. Net late-year ordinary losses incurred after December 31 and within the taxable year and net late-year specified losses incurred after October 31 and within the taxable year are deemed to arise on the first day of the Fund’s next taxable year.

 

17

 

 

RENN Fund, Inc.

 

CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (Continued)
As of June 30, 2022 (Unaudited)

 

 

The tax character of distributions paid during the tax years ended December 31, 2021 and 2020 were as follows:

 

Distributions paid from:

 

2021

   

2020

 

Ordinary income

  $ 134,526     $  

Net long-term capital gains

           

Total distributions paid

  $ 134,526     $  

 

Note 8 – Investment Transactions

 

For the six months ended June 30, 2022, purchases and sales of investments, excluding short-term investments, were $869,428 and $64,365, respectively. There were no securities sold short or securities covered for the same period.

 

Note 9 – Borrowings

 

The Fund has entered into a margin agreement with Fidelity Brokerage Services, LLC, which allows the Fund to borrow money. The margin agreement is not made for any specific term or duration but is due and payable at the brokerage firm’s discretion. The Fund has a policy allowing it to borrow not more than 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 to borrow such amounts as deemed necessary and prudent as a temporary measure for extraordinary or emergency purposes. Federal regulations under the 1940 Act require that the Fund maintain asset coverage in relation to any borrowed amount.

 

The Fund did not utilize the Fidelity Brokerage Services LLC margin account during the six months ended June 30, 2022. At June 30, 2022 the Fund had no outstanding borrowings under the margin account.

 

Note 10 – Indemnifications

 

In the normal course of business, the Fund enters into contracts that contain a variety of representations which provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. However, the Fund expects the risk of loss to be remote.

 

Note 11 – Capital Share Transactions

 

On January 21, 2022, the Fund issued 1,063,830 common shares in connection with a rights offering. Stockholders of record December 10, 2021 were issued non-transferable rights for every share owned on that date. The subscription price was equal to 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 and (ii) 90% of the average closing market price per share over the three days of trading leading up to and including the expiration date. The final subscription price was $1.98 per share, which resulted in proceeds to the Fund of $2,106,383, which included securities transferred in kind with a market value of $171,162. Horizon paid all expenses relating to the offering.

 

On February 14, 2019, the Fund issued 1,487,989 new common shares in connection with a rights offering. Stockholders of record date December 28, 2018 were issued non-transferable rights for every share owned on that date. The rights entitled the stockholders to purchase one new common share for every three rights held, not including additional subscription privileges.

 

The subscription price was equal to 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 and (ii) 90% of the average closing market price per share over the three days of trading leading up to and including the expiration Date. The final subscription price was $1.47 per share, which resulted in proceeds to the Fund of $2,187,343. Horizon paid all expenses relating to the offering.

 

Note 12 – COVID-19 Risks

 

In early 2020, an outbreak of a novel strain of coronavirus (COVID-19) emerged globally. This coronavirus has resulted in closing international borders, enhanced health screenings, healthcare service preparation and delivery, quarantines, cancellations, disruptions to supply chains and customer activity, as well as general public concern and uncertainty. The impact of this outbreak has negatively

 

18

 

 

RENN Fund, Inc.

 

CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (Continued)
As of June 30, 2022 (Unaudited)

 

 

affected the worldwide economy, as well as the economies of individual countries, the financial health of individual companies and the market in general in significant and unforeseen ways. The future impact of COVID-19 is currently unknown, and it may exacerbate other risks that apply to the Fund, including political, social and economic risks. Any such impact could adversely affect the Fund’s performance, the performance of the securities in which the Fund invests and may lead to losses on your investment in the Fund. The ultimate impact of COVID-19 on the financial performance of the Fund’s investments is not reasonably estimable at this time.

 

Note 13 – New Accounting Pronouncements

 

In October 2020, the SEC adopted new regulations governing the use of derivatives by registered investment companies (“Rule 18f-4”). Rule 18f-4 will impose limits on the amount of derivatives a Fund can enter into, eliminate the asset segregation framework currently used by funds to comply with Section 18 of the 1940 Act, and require funds whose use of derivatives is greater than a limited specified amount to establish and maintain a comprehensive derivatives risk management program and appoint a derivatives risk manager. Funds will be required to comply with Rule 18f-4 by August 19, 2022. It is not currently clear what impact, if any, Rule 18f-4 will have on the availability, liquidity or performance of derivatives. Management is currently evaluating the potential impact of Rule 18f-4 on the Fund.

 

In December 2020, the SEC adopted a new rule providing a framework for fund valuation practices (“Rule 2a-5”). Rule 2a-5 establishes requirements for determining fair value in good faith for purposes of the 1940 Act. Rule 2a-5 will permit fund boards to designate certain parties to perform fair value determinations, subject to board oversight and certain other conditions. Rule 2a-5 also defines when market quotations are “readily available” for purposes of the 1940 Act and the threshold for determining whether a fund must fair value a security. In connection with Rule 2a-5, the SEC also adopted related recordkeeping requirements and is rescinding previously issued guidance, including with respect to the role of a board in determining fair value and the accounting and auditing of fund investments. The Fund will be required to comply with the rules by September 8, 2022. Management is currently assessing the potential impact of the new rules on the Fund’s financial statements.

 

The SEC adopted new Rule 12d1-4, which will allow registered investment companies (including business development companies (“BDCs”), unit investment trusts (“UITs”), closed-end funds, exchange-traded funds (“ETFs”), and exchange-traded managed funds (“ETMFs”) (an “acquiring” fund), to invest in other investment companies (an “acquired fund”), including private funds under a specific exception, beyond the limits of Section 12(d)(1), subject to the conditions of the rule. Rule 12d1-4 became effective January 19, 2021. Funds electing to rely on Rule 12d1-4 will have to comply with the rules by January 19, 2022.

 

In March 2020, FASB issued ASU 2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The main objective of the new guidance is to provide relief to companies that will be impacted by the expected change in benchmark interest rates at the end of 2021, when participating banks will no longer be required to submit London Interbank Offered Rate (“LIBOR”) quotes by the UK Financial Conduct Authority. The new guidance allows companies to, provided the only change to existing contracts are a change to an approved benchmark interest rate, account for modifications as a continuance of the existing contract without additional analysis. In addition, derivative contracts that qualified for hedge accounting prior to modification, will be allowed to continue to receive such treatment, even if critical terms change due to a change in the benchmark interest rate. For new and existing contracts, the Fund may elect to apply the amendments as of March 12, 2020 through December 31, 2022. Management is currently assessing the impact of the ASU’s adoption to the Fund’s financial statements and various filings.

 

Note 14 – Events Subsequent to the Fiscal Period End

 

The Fund has adopted financial reporting rules regarding subsequent events which require an entity to recognize in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet. Management has evaluated the Fund’s related events and transactions that occurred through the date of issuance of the Fund’s financial statements. There were no events or transactions that occurred during this period that materially impacted the amounts or disclosures in the Fund’s financial statements.

 

19

 

 

RENN Fund, Inc.

 

Other Information

June 30, 2022 (Unaudited)

 

 

Quarterly Reports

 

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-PORT. A copy of each such Form N-PORT is available on the SEC’s website at www.sec.gov.

 

Proxy Voting Policies and Procedures

 

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, upon request by calling collect (646) 495-7330. You may also obtain the description on the Fund’s website at www.horizonkinetics.com.

 

Portfolio 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) 495-7330 and on the SEC’s website at www.sec.gov.

 

Dividend Reinvestment Plan

 

Pursuant to the Fund’s Dividend Reinvestment and Cash Purchase Plan (the “Plan”), a stockholder whose shares are registered in his or her own name will be deemed to have elected to have all dividends and distributions automatically reinvested in Fund shares unless he or she elects otherwise on a current basis. Stockholders whose shares are held in nominee names will likewise be treated as having elected to have their dividends and distributions reinvested. You may elect to receive cash distributions, net of withholding tax, by requesting an election form from the Fund’s Plan Agent, American Stock Transfer & Trust Co. You may terminate participation by notifying the Plan Agent in writing. If notice is received by the Plan Agent not less than 10 days prior to any dividend or distribution it will be effective immediately. Information regarding income tax consequences should be directed to your tax consultant – the Plan will furnish information by January 31 following the year of distribution as to the category of income that the distributions represent. Your questions regarding the Plan should be directed to the Fund’s Plan Agent, American Stock Transfer & Trust Company, LLC., whose telephone number is (718) 921-8200 extension 6412 and whose address is 6201 15th Ave, Brooklyn, NY 11219-5498.

 

20

 

 

RENN Fund, Inc.

 

Service Providers

June 30, 2022 (Unaudited)

 

 

Corporate Offices

 

RENN Fund, Inc.
c/o Horizon Kinetics Asset Management LLC — 8th Floor South
470 Park Avenue South
New York, NY 10016
Phone: (646) 291-2300
Fax: (646) 403-3597
Website: www.rencapital.com

 

Registrar and Transfer Agent

 

American Stock Transfer &
Trust Company, LLC
6201 15th Ave.
Brooklyn, NY 11219
Phone: (877) 749-4980 extension 6412

 

Fund Administrator

 

UMB Fund Services
235 W. Galena Street
Milwaukee, WI 53212-3949
Phone: (414) 299-2200

 

Independent Registered Public Accounting Firm

 

Tait, Weller & Baker LLP
50 South 16th Street, Suite 2900
Philadelphia, PA 19102
Phone: (215) 979-8800

 

21

 

 

 

Item 1. Annual Report to Shareholders (Continued)

 

(b) Not applicable.

 

Item 2. Code of Ethics.

 

Not applicable to semi-annual reports.

 

Item 3. Audit Committee Financial Expert.

 

Not applicable to semi-annual reports.

 

Item 4. Principal Accountant Fees and Services.

 

Not applicable to semi-annual reports.

 

Item 5. Audit Committee of Listed Registrants.

 

Not applicable to semi-annual reports.

 

Item 6. Investments.

 

See the Semi - Annual Report to Shareholders under Item 1 of this Form.

 

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

 

Not applicable to semi-annual reports

 

Item 8. Portfolio Managers of Closed-End Management Investment Companies.

 

Not applicable to semi-annual reports

 

Item 9. Purchases of Equity Securities by the Fund and Its Affiliated Purchasers.

 

An “Affiliated Purchaser” is defined as a person acting directly or indirectly, in concert with the Fund in the purchase of the Fund’s securities, or any person controlling, controlled by, or under common control with the Fund and thereby controlling the purchase of the Fund’s shares, but does not include an officer or director of the Fund who may properly authorize repurchase of the Fund’s shares pursuant to Rule 10b-18 of the Exchange Act of 1934. Purchases of the Fund’s shares during the six months ended June 30, 2022 by Affiliated Purchasers described in this paragraph are outlined in the table below.

 

REGISTRANT PURCHASES OF EQUITY SECURITIES

 

Period   (a) Total Number
of Shares* (or Units)
Purchased
   (b) Average Price Paid
per Share (of unit)
   (c) Total Number of Shares
(or Units) Purchased as Part
of Publicly Announced
Plans or Programs
   (d) Maximum Number
(or Approximate Dollar
Value) of shares (or Units)
that May Yet Be Purchased
Under the Plans or Programs
 
January 2022    14,289   $2.43    -    - 
February 2022    96,507    2.03    -    - 
March 2022    15,525    2.33    -    - 
April 2022    13,504    2.29    -    - 
May 2022    20,231    2.16    -    - 
June 2022    14,223    2.30    -    - 

 

*Certain Affiliated Purchasers may own shares indirectly through other entities and disclaim beneficial ownership over all or a portion of their shares reported herein.

 

Item 10. Submission of Matters to a Vote of Security Holders.

 

There have been no material changes to the procedures by which shareholders may recommend nominees to the Fund’s Board of Directors since the Fund last provided disclosure in response to this item. The submission of shareholder proposals which require a vote of all shareholders will be handled in accordance with Rule 14a-8 of the Exchange Act. No such proposals were received.

 

 

 

 

Item 11. Controls and Procedures.

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

 

(b)There were no changes in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting.

 

Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.

 

None.

 

Item 13. Exhibits.

 

(a)(1) Code of Ethics

 

Not applicable to semi-annual reports

 

(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.

 

(a)(3) Any written solicitation to purchase securities under Rule 23c-1 under the Act sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons. Not applicable.

 

(a)(4) Change in the registrant’s independent public accountant. Not applicable.

 

(b) Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.

 

 

 

 

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

 

RENN Fund, Inc.  
     
By: /s/ Murray Stahl  
  Murray Stahl  
  Chief Executive Officer  
     
Date: September 08, 2022  

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the undersigned on behalf of the Fund and in the capacities and on the date indicated.

 

RENN Fund, Inc.  
     
By: /s/ Murray Stahl  
  Murray Stahl  
 

Chief Executive Officer and

Chief Financial Officer

 
     
Date: September 08, 2022  

 

 

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